[Federal Register Volume 65, Number 28 (Thursday, February 10, 2000)]
[Rules and Regulations]
[Pages 6698-6870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19]



[[Page 6697]]

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Part II





Environmental Protection Agency





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40 CFR Parts 80, 85, and 86



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

  Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / 
Rules and Regulations  

[[Page 6698]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 80, 85, and 86

[AMS-FRL-6516-2]
RIN 2060-AI23


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Today's action finalizes a major program designed to 
significantly reduce the emissions from new passenger cars and light 
trucks, including pickup trucks, vans, minivans, and sport-utility 
vehicles. These reductions will provide for cleaner air and greater 
public health protection, primarily by reducing ozone and PM pollution. 
The program is a comprehensive regulatory initiative that treats 
vehicles and fuels as a system, combining requirements for much cleaner 
vehicles with requirements for much lower levels of sulfur in gasoline. 
A list of major highlights of the program appears at the beginning of 
the SUPPLEMENTARY INFORMATION section of this Federal Register.
    The program we are finalizing today will phase in a single set of 
tailpipe emission standards that will, for the first time, apply to all 
passenger cars, light trucks, and larger passenger vehicles operated on 
any fuel. This set of ``Tier 2 standards'' is feasible and the use of a 
single set of standards is appropriate because of the increased use of 
light trucks for personal transportation. The miles traveled in light 
trucks is increasing and the emissions from these vehicles are thus an 
increasing problem. This approach builds on the recent technology 
improvements resulting from the successful National Low-Emission 
Vehicles (NLEV) program.
    To enable the very clean Tier 2 vehicle emission control technology 
to be introduced and to maintain its effectiveness, we are also 
requiring reduced gasoline sulfur levels nationwide. The reduction in 
sulfur levels will also contribute directly to cleaner air in addition 
to its beneficial effects on vehicle emission control systems. Refiners 
will generally install additional refining equipment to remove sulfur 
in their refining processes. Importers of gasoline will be required to 
import and market only gasoline meeting the sulfur standards. Today's 
action also introduces an averaging, banking, and trading program to 
provide flexibility for refiners and ease implementation of the 
gasoline sulfur control program.
    The overall program focuses on reducing the passenger car and light 
truck emissions most responsible for causing ozone and particulate 
matter problems. Without today's action, we project that emissions of 
nitrogen oxides from these vehicles will represent as much as 40 
percent of this ozone-forming pollutant in some cities, and almost 20 
percent nationwide, by the year 2030.
    Today's program will bring about major reductions in annual 
emissions of these pollutants and also reduce the emissions of sulfur 
compounds resulting from the sulfur in gasoline. For example, we 
project a reduction in oxides of nitrogen emissions of at least 856,000 
tons per year by 2007 and 1,236,000 by 2010, the time frame when many 
states will have to demonstrate compliance with air quality standards. 
Emission reductions will continue increasing for many years, reaching 
at least 2,220,000 tons per year in 2020 and continuing to rise further 
in future years. In addition, the program will reduce the contribution 
of vehicles to other serious public health and environmental problems, 
including VOC, PM, and regional visibility problems, toxic air 
pollutants, acid rain, and nitrogen loading of estuaries.
    Furthermore, we project that these reductions, and their resulting 
environmental benefits, will come at an average cost increase of less 
than $100 per passenger car, an average cost increase of less than $200 
for light trucks, and an average cost increase of about $350 for 
medium-duty passenger vehicles, and an average increase of less than 2 
cents per gallon of gasoline (or about $120 over the life of an average 
vehicle).

DATES: This rule is effective April 10, 2000.
    The incorporation by reference of certain publications contained in 
this rule are approved by the Director of the Federal Register as of 
April 10, 2000.

ADDRESSES: Comments: All comments and materials relevant to today's 
action have been placed in Public Docket No. A-97-10 at the following 
address: U.S. Environmental Protection Agency (EPA), Air Docket (6102), 
Room M-1500, 401 M Street, S.W., Washington, D.C. 20460. EPA's Air 
Docket makes materials related to this rulemaking available for review 
at the above address (on the ground floor in Waterside Mall) from 8:00 
a.m. to 5:30 p.m., Monday through Friday, except on government 
holidays. You can reach the Air Docket by telephone at (202) 260-7548 
and by facsimile at (202) 260-4400. We may charge a reasonable fee for 
copying docket materials, as provided in 40 CFR Part 2.

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

SUPPLEMENTARY INFORMATION:

Highlights of the Tier2/Gasoline Sulfur Program

    For cars, and light trucks, and larger passenger vehicles, the 
program will--

     Starting in 2004, through a phase-in, apply for the first 
time the same set of emission standards covering passenger cars, light 
trucks, and large SUVs and passenger vehicles. These emission levels 
(``Tier 2 standards'') are feasible for these vehicles. The Tier 2 
standards are also appropriate because of the increased use of light 
trucks for personal transportation--the miles traveled in light trucks 
is increasing and the emissions from these vehicles are thus an 
increasing problem.
     Introduce a new category of vehicles, ``medium-duty 
passenger vehicles,'' thus bringing larger passenger vans and SUVs into 
the Tier 2 program.
     During the phase-in, apply interim fleet emission average 
standards that match or are more stringent than current federal and 
California ``LEV I'' (Low-Emission Vehicle, Phase I) standards.
     Apply the same standards to vehicles operated on any fuel.
     Allow auto manufacturers to comply with the very stringent 
new standards in a flexible way while ensuring that the needed 
environmental benefits occur.
     Build on the recent technology improvements resulting from 
the successful National Low-Emission Vehicles (NLEV) program and 
improve the performance of these vehicles through lower sulfur 
gasoline.
     Set more stringent particulate matter standards.
     Set more stringent evaporative emission standards.
    For commercial gasoline, the program will--

     Significantly reduce average gasoline sulfur levels 
nationwide as early as 2000, fully phased in in 2006. Refiners will 
generally add refining equipment to remove sulfur in their refining 
processes. Importers of gasoline will be required to import and market 
only gasoline meeting the sulfur limits.

[[Page 6699]]

     Provide for flexible implementation by refiners through an 
averaging, banking, and trading program.
     Encourage early introduction of cleaner fuel into the 
marketplace through an early sulfur credit and allotment program.
     Apply temporary gasoline sulfur standards to certain small 
refiners and gasoline marketed in a limited geographic area in the 
western U.S.
     Enable the new Tier 2 vehicles to meet the emission 
standards by greatly reducing the degradation of vehicle emission 
control performance from sulfur in gasoline. Lower sulfur gasoline also 
appears to be necessary for the introduction of advanced technologies 
that promise higher fuel economy but are very susceptible to sulfur 
poisoning (for example, gasoline direct injection engines).
     Reduce emissions from NLEV vehicles and other vehicles 
already on the road.

Regulated Entities

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

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

Access to Rulemaking Documents Through the Internet

    Today's action is available electronically on the day of 
publication from the Office of the Federal Register Internet Web site 
listed below. Electronic copies of this preamble and regulatory 
language as well as the Response to Comments document, the Regulatory 
Impact Analysis and other documents associated with today's final rule 
are available from the EPA Office of Mobile Sources Web site listed 
below shortly after the rule is signed by the Administrator. This 
service is free of charge, except any cost that you already incur for 
connecting to the Internet.

Federal Register Web Site: http://www.epa.gov/docs/fedrgstr/epa-air/ 
(Either select a desired date or use the Search feature.)
Office of Mobile Sources (OMS) Web Site: http://www.epa.gov/oms/ (Look 
in ``What's New'' or under the ``Automobiles'' topic.)

    Please note that due to differences between the software used to 
develop the document and the software into which the document may be 
downloaded, changes in format, page length, etc., may occur.

Outline of This Preamble

I. Introduction
    A. What Are the Basic Components of the Program?
    1. Vehicle Emission Standards
    2. Gasoline Sulfur Standards
    B. What Is Our Statutory Authority for Today's Action?
    1. Light-Duty Vehicles and Trucks
    2. Gasoline Sulfur Controls
    C. The Tier 2 Study and the Sulfur Staff Paper
    D. Relationship of Diesel Fuel Sulfur Control to the Tier 2/
Gasoline Sulfur Program
II. Tier 2 Determination
    A. There Is a Substantial Need for Further Emission Reductions 
in Order To Attain and Maintain National Ambient Air Quality 
Standards
    B. More Stringent Standards for Light-Duty Vehicles and Trucks 
Are Technologically Feasible
    C. More Stringent Standards for Light-Duty Vehicles and Trucks 
Are Needed and Cost Effective Compared to Available Alternatives
III. Air Quality Need For and Impact of Today's Action
    A. Americans Face Serious Air Quality Problems That Require 
Further Emission Reductions
    B. Ozone
    1. Background on Ozone Air Quality
    2. Additional Emission Reductions Are Needed To Attain and 
Maintain the Ozone NAAQS.
    a. Summary
    b. Ozone Modeling Presented in Our Proposal and Supplemental 
Notice
    c. Updated and Additional Ozone Modeling
    d. Results and Conclusions
    e. Issues and Comments Addressed
    f. 8-Hour Ozone
    3. Cars and Light-Duty Trucks Are a Big Part of the 
NOX and VOC Emissions, and Today's Action Will Reduce 
This Contribution Substantially
    4. Ozone Reductions Expected From This Rule
    C. Particulate Matter
    1. Background on PM
    2. Need for Additional Reductions to Attain and Maintain the 
PM10 NAAQS
    3. PM25 Discussion
    4. Emission Reductions and Ambient PM Reductions
    D. Other Criteria Pollutants: Carbon Monoxide, Nitrogen Dioxide, 
Sulfur Dioxide
    E. Visibility

[[Page 6700]]

    F. Air Toxics
    G. Acid Deposition
    H. Eutrophication/Nitrification
    I. Cleaner Cars and Light Trucks Are Critically Important to 
Improving Air Quality
IV. What Are the New Requirements for Vehicles and Gasoline?
    A. Why Are We Proposing Vehicle and Fuel Standards Together?
    1. Feasibility of Stringent Standards for Light-Duty Vehicles 
and Light-Duty Trucks a. Gasoline Fueled Vehicles i. LDVs and LDT1s-
LDT4s ii. Medium-Duty Passenger Vehicles (MDPVs) b. Diesel Vehicles
    2. Gasoline Sulfur Control Is Needed To Support the Proposed 
Vehicle Standards a. How Does Gasoline Sulfur Affect Vehicle 
Emission Performance? b. How Large Is Gasoline Sulfur's Effect on 
Emissions? c. Sulfur's Negative Impact on Tier 2 Catalysts d. Sulfur 
Has Negative Impacts on OBD Systems
    B. Our Program for Vehicles
    1. Overview of the Vehicle Program a. Introduction b. Corporate 
Average NOx Standard c. Tier 2 Exhaust Emission Standard ``Bins' d. 
Schedules for Implementation i. Implementation Schedule for Tier 2 
LDVs and LLDTs ii. Implementation Schedule for Tier 2 HLDTs e. 
Interim Standards i. Interim Exhaust Emission Standards for LDV/
LLDTs ii Interim Exhaust Emission Standards for HLDTs iii. Interim 
Programs Will Provide Reductions Over Previous Standards f. 
Generating, Banking, and Trading NOx Credits
    2. Why Are We Finalizing the Same Set of Standards for Tier 2 
LDVs and LDTs?
    3. Why Are We Finalizing the Same Standards for Both Gasoline 
and Diesel Vehicles?
    4. Key Elements of the Vehicle Program a. Basic Exhaust Emission 
Standards and ``Bin'' Structure i. Why Are We Including Extra Bins? 
b. The Program Will Phase In the Tier 2 Vehicle Standards Over 
Several Years i. Primary Phase-in Schedule
    ii. Alternative Phase-in Schedule
    c. Manufacturers Will Meet a ``Corporate Average'' 
NOX Standard
    d. Manufacturers Can Generate, Bank, and Trade NOX 
Credits
    i. General Provisions
    ii. Averaging, Banking and Trading of NOX Credits 
Fulfills Several Goals
    iii. How Manufacturers Can Generate and Use NOX 
Credits
    iv. Manufacturers Can Earn and Bank Credits for Early 
NOX Reductions
    v. Tier 2 NOX Credits Will Have Unlimited Life
    vi. NOX Credit Deficits Can Be Carried Forward
    vii. Encouraging the Introduction of Ultra Clean Vehicles
    e. Interim Standards
    i. Interim Exhaust Emission Standards for LDV/LLDTs
    ii. Interim Exhaust Emission Standards for HLDTs
    f. Light-Duty Evaporative Emission Standards
    g. Passenger Vehicles Above 8,500 Pounds GVWR
    C. Our Program for Controlling Gasoline Sulfur
    1. Gasoline Sulfur Standards for Refiners and Importers
    a. Standards and Deadlines That Refiners/Importers Must Meet
    i. What Are the Per-Gallon Caps on Gasoline Sulfur Levels in 
2004 and Beyond?
    ii. What Standards Must Refiners/Importers Meet on a Corporate 
Average Basis?
    iii. What Standards Must Be Met by Individual Refineries/
Importers?
    b. Standards and Deadlines for Refiners/Importers Which Provide 
Gasoline to the Geographic Phase-in Area (GPA)
    i. Justification for Our Geographic Phase-in Approach
    ii. What Is the Geographic Phase-in Area and How Was It 
Established?
    iii. Standards/Deadlines for Gasoline Sold in the Geographic 
Phase-in Area
    iv. What Are the Per-Gallon Caps on Gasoline Sulfur Levels in 
the Phase-in Area?
    v. How Do Refiners/Importers Account for GPA Fuel in Their 
Corporate Average Calculations?
    vi. How Do Refiners/Importers Apply for the Geographic Phase-in 
Area Standards?
    vii. How Will EPA Establish the GPA in Adjacent States?
    c. How Does the Sulfur Averaging, Banking, and Trading Program 
Work?
    i. Generating Allotments Prior to 2004
    ii. Generating Allotments in 2004 and 2005
    iii. Using Allotments in 2004 and 2005
    iv. How Long Do Allotments Last?
    v. Establishing Individual Refinery Sulfur Baselines for Credit 
Generation Purposes
    vi. Generating Sulfur Credits Prior to 2004
    vii. Generating Sulfur Credits in 2004 and Beyond
    viii. Using Sulfur Credits
    ix. How Long Do Credits Last?
    x. Conversion of Allotments Into Credits
    d. How are State Sulfur Programs Affected by EPA's Program?
    2. Hardship Provision for Qualifying Refiners
    a. Hardship Provision for Qualifying Small Refiners
    i. How Are Small Refiners Defined?
    ii. Standards That Small Refiners Must Meet
    iii. How Do Small Refiners Apply for Small Refiner Status?
    iv. How Do Small Refineries Apply for a Sulfur Baseline?
    v. Volume Limitation on Use of a Small Refinery Standard
    vi. Extensions Beyond 2007 for Small Refiners
    vii. Can Small Refiners Participate in the ABT Program?
    b. Temporary Waivers From Low Sulfur Requirements in Extreme 
Unforeseen Circumstances
    c. Temporary Waivers Based on Extreme Hardship Circumstances
    3. Streamlining of Refinery Air Pollution Permitting Process
    a. Brief Summary of Proposal
    b. Significant Comments Received
    c. Today's Action
    i. Major New Source Review
    ii. Environmental Justice
    D. What Are the Economic Impacts, Cost Effectiveness and 
Monetized Benefits of the Tier 2 Program?
    1. What Are the Estimated Costs of the Vehicle Standards?
    2. Estimated Costs of the Gasoline Sulfur Standards
    3. What Are the Aggregate Costs of the Tier 2/Gasoline Sulfur 
Final Rule?
    4. How Does the Cost-Effectiveness of This Program Compare to 
Other Programs?
    a. Cost Effectiveness of this Program
    b. How Does the Cost Effectiveness of This Program Compare With 
Other Means of Obtaining Mobile Source NOX+NMHC 
Reductions?
    c. How Does the Cost Effectiveness of This Program Compare With 
Other Known Non-Mobile Source Technologies for Reducing 
NOX+NMHC?
    5. Does the Value of the Benefits Outweigh the Cost of the 
Standards?
    a. What Is the Purpose of This Benefit-Cost Comparison?
    b. What Was Our Overall Approach to the Benefit-Cost Analysis?
    c. What Are the Significant Limitations of the Benefit-Cost 
Analysis?
    d. How Was the Benefit-Cost Analysis Changed From Proposal?
    e. How Did We Perform the Benefit-Cost Analysis?
    f. What Were the Results of the Benefit-Cost Analysis?
V. Other Vehicle-Related Provisions
    A. Final Tier 2 CO, HCHO and PM Standards
    1. Carbon Monoxide (CO) Standards
    2. Formaldehyde (HCHO) Standards
    3. Use of NMHC Data To Show Compliance With NMOG Standards; 
Alternate Compliance With Formaldehyde Standards.
    4. Particulate Matter (PM) Standards
    B. Useful Life
    1. Mandatory 120,000 Mile Useful Life
    2. 150,000 Mile Useful Life Certification Option
    C. Supplemental Federal Test Procedure (SFTP) Standards
    1. Background
    2. SFTP Under the NLEV Program
    3. SFTP Standards for the Interim and Tier 2 LDVs and LDTs: As 
Proposed
    4. Final SFTP Standards for Interim and Tier 2 LDVs and LDTs
    5. Adding a PM Standard to the SFTP Standards
    6. Future Efforts Relevant to SFTP Standards
    D. LDT Test Weight
    E. Test Fuels
    F. Changes to Evaporative Certification Procedures to Address 
Impacts of Alcohol Fuels
    G. Other Test Procedure Issues
    H. Small Volume Manufacturers
    1. Special Provisions for Independent Commercial Importers 
(ICIs)
    2. Hardship Provision for Small Volume Manufacturers
    I. Compliance Monitoring and Enforcement

[[Page 6701]]

    1. Application of EPA's Compliance Assurance Program, CAP2000
    2. Compliance Monitoring
    3. Relaxed In-Use Standards for Vehicles Produced During the 
Phase-in Period
    4. Enforcement of the Tier 2 and Interim Corporate Average 
NOX Standards.
    J. Addressing Environmentally Beneficial Technologies Not 
Recognized by Test Procedures
    K. Adverse Effects of System Leaks
    L. The Future Development of Advanced Technology and the Role of 
Fuels
    M. Miscellaneous Provisions
    VI. Gasoline Sulfur Program Compliance and Enforcement 
Provisions
    A. Overview
    B. Requirements for Foreign Refiners and Importers
    1. Requirements for Foreign Refiners With Individual Refinery 
Sulfur Standards or Credit Generation Baselines
    2. Requirements for Truck Importers
    C. What Standards and Requirements Apply Downstream?
    D. Testing and Sampling Methods and Requirements
    1. Test Method for Sulfur in Gasoline
    2. Test Method for Sulfur in Butane
    3. Quality Assurance Testing
    4. Requirement to Test Every Batch of Gasoline Produced or 
Imported
    5. Exceptions to the Every-Batch Testing Requirement
    6. Sampling Methods
    7. Gasoline Sample Retention Requirements
    E. Federal Enforcement Provisions for California Gasoline and 
for Use of California Test Methods to Determine Compliance
    F. Recordkeeping and Reporting Requirements
    1. Product Transfer Documents
    2. Recordkeeping Requirements
    3. Reporting Requirements
    G. Exemptions for Research, Development, and Testing
    H. Liability and Penalty Provisions for Noncompliance
    I. How Will Compliance With the Sulfur Standards Be Determined?
VII. Public Participation
VIII. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility
    1. Potentially Affected Small Businesses
    2. Small Business Advocacy Review Panel and the Evaluation of 
Regulatory Alternatives
    C. Paperwork Reduction Act
    D. Intergovernmental Relations
    1. Unfunded Mandates Reform Act
    2. Executive Order 13084: Consultation and Coordination With 
Indian Tribal Governments
    3. Executive Order 13132 (Federalism)
    E. National Technology Transfer and Advancement Act
    F. Executive Order 13045: Children's Health Protection
    G. Congressional Review Act
IX. Statutory Provisions and Legal Authority

I. Introduction

    Since the passage of the 1990 Clean Air Act Amendments, the U.S. 
has made significant progress in reducing emissions from passenger cars 
and light trucks. The National Low-Emission Vehicle (NLEV) and 
Reformulated Gasoline (RFG) programs are important examples of control 
programs that are in place and will continue to help reduce car and 
light-duty truck emissions into the near future.
    Nonetheless, due to increasing vehicle population and vehicle miles 
traveled, passenger cars and light trucks will continue to be 
significant contributors to air pollution inventories well into the 
future. In fact, the emission contribution of light trucks and sport 
utility vehicles now matches that of passenger cars. (This is occurring 
because of the combination of growth in miles traveled by light trucks 
and the fact that their emission standards are currently less stringent 
than those of passenger cars). The program we describe below builds on 
the NLEV and RFG Phase II programs to develop a strong new national 
program to protect public health and the environment well into the next 
century. The program, while reducing VOC and other emissions, focuses 
especially on NOX, because that is where the largest air 
quality gains can be achieved.
    We have followed several overarching principles in developing this 
final rule:
     Design a strong national program that will assist states 
in every region of the country to meet their air quality objectives and 
that will ensure that cars and trucks continue to contribute a fair 
share to our nation's overall air quality solutions;
     View vehicles and fuels as an integrated system, 
recognizing that only by addressing both can the best overall emission 
performance be achieved;
     Establish a single set of emission standards that apply 
regardless of the fuel used and whether the vehicle is a car, a light 
truck, or a larger passenger vehicle;
     Provide compliance flexibilities that allow vehicle 
manufacturers and oil refiners to adjust to future market trends and 
honor consumer preferences;
     Not preclude the development of advanced low emission or 
fuel efficient technologies such as lean-burn engines; and
     Ensure sufficient leadtime for phase-in of the Tier 2 and 
gasoline sulfur program.
    With these principles as background, we turn now to an overview of 
the vehicle and fuel aspects of the program. Sections I and II of this 
preamble will give you a brief overview of our program and our 
rationale for implementing it. Subsequent sections will expand on the 
air quality need, technological feasibility, economic impacts, and 
provide a detailed description of the specifics of the program. A 
public participation section reviews the process we followed in 
soliciting and responding to public comment. The final sections deal 
with several administrative requirements. You may also want to review 
our Final Regulatory Impact Analysis (RIA) and our Response to Comments 
document, both of which are found in the docket and on the Internet. 
They provide additional analyses and discussions of many topics raised 
in this preamble.

A. What Are the Basic Components of the Program?

    The nation's air quality, while certainly better than in the past, 
will nevertheless continue to expose tens of millions of Americans to 
unhealthy levels of air pollution well into the future in the absence 
of significant new controls on emissions from motor vehicles. EPA is 
therefore finalizing a major, comprehensive program designed to reduce 
emission standards for passenger cars, light trucks, and large 
passenger vehicles (including sport-utility vehicles, minivans, vans, 
and pickup trucks) and to reduce the sulfur content of gasoline. Under 
the program, automakers will produce vehicles designed to have very low 
emissions when operated on low-sulfur gasoline, and oil refiners will 
provide that much cleaner gasoline nationwide. In this preamble, we 
refer to the comprehensive program as the ``Tier 2/Gasoline Sulfur 
program.''
1. Vehicle Emission Standards
    Today's action sets new federal emission standards (``Tier 2 
standards'') for passenger cars, light trucks, and larger passenger 
vehicles. The program is designed to focus on reducing the emissions 
most responsible for the ozone and particulate matter (PM) impact from 
these vehicles--nitrogen oxides (NOX) and non-methane 
organic gases (NMOG), consisting primarily of hydrocarbons (HC) and 
contributing to ambient volatile organic compounds (VOC). The program 
will also, for the first time, apply the same set of federal standards 
to all passenger cars, light trucks, and medium-duty passenger 
vehicles. Light trucks include ``light light-duty trucks'' (or LLDTs), 
rated at less than 6000 pounds gross vehicle weight and ``heavy light-
duty trucks'' (or HLDTs), rated at more than 6000

[[Page 6702]]

pounds gross vehicle weight).\1\ ``Medium-duty passenger vehicles'' (or 
MDPVs) form a new class of vehicles introduced by this rule that 
includes SUVs and passenger vans rated at between 8,500 and 10,000 
GVWR. The program thus ensures that essentially all vehicles designed 
for passenger use in the future will be very clean vehicles.
---------------------------------------------------------------------------

    \1\ A vehicle's ``Gross Vehicle Weight Rating,'' or GVWR, is the 
curb weight of the vehicle plus its maximum recommended load of 
passengers and cargo.
---------------------------------------------------------------------------

    The Tier 2 standards finalized today will reduce new vehicle 
NOX levels to an average of 0.07 grams per mile (g/mi). For 
new passenger cars and light LDTs, these standards will phase in 
beginning in 2004, with the standards to be fully phased in by 2007.\2\ 
For heavy LDTs and MDPVs, the Tier 2 standards will be phased in 
beginning in 2008, with full compliance in 2009.
---------------------------------------------------------------------------

    \2\ By comparison, the NOX standards for the National 
Low Emission Vehicle (NLEV) program, which will be in place 
nationally in 2001, range from 0.30 g/mi for passenger cars to 0.50 
g/mi for medium-sized light trucks (larger light trucks are not 
covered). For further comparison, the standards met by today's Tier 
1 vehicles range from 0.60 g/mi to 1.53 g/mi.
---------------------------------------------------------------------------

    During the phase-in period from 2004-2007, all passenger cars and 
light LDTs not certified to the primary Tier 2 standards will have to 
meet an interim average standard of 0.30 g/mi NOX, 
equivalent to the current NLEV standards for LDVs and more stringent 
than NLEV for LDT2s (e.g., minivans).\3\ During the period 2004-2008, 
heavy LDTs and MDPVs not certified to the final Tier 2 standards will 
phase in to an interim program with an average standard of 0.20 g/mi 
NOX, with those not covered by the phase-in meeting a per-
vehicle standard (i.e., an emissions ``cap'') of 0.6 g/mi 
NOX (for HLDTs) and 0.9 g/mi NOX (for MDPVs). The 
average standards for NOX will allow manufacturers to comply 
with the very stringent new standards in a flexible way, assuring that 
the average emissions of a company's production meet the target 
emission levels while allowing the manufacturer to choose from several 
more- and less-stringent emission categories for certification.
---------------------------------------------------------------------------

    \3\ There are also NMOG standards associated with both the 
interim and Tier 2 standards. The NMOG standards vary depending on 
which of various individual sets of emission standards manufacturers 
choose to use in complying with the average NOX standard. 
This ``bin'' approach is described more fully in section IV.B. of 
this preamble.
---------------------------------------------------------------------------

    We are also setting stringent particulate matter standards that 
will be especially important if there is substantial future growth in 
the sales of diesel vehicles. Before 2004, we are establishing more 
stringent interim PM standards for most light trucks than exist now 
under NLEV. With higher sales of diesel cars and light trucks, they 
could easily contribute between one-half and two percent of the PM10 
concentration allowed by the NAAQS, with some possibility that the 
contribution could be as high as 5 to 40 percent in some roadside 
situations with heavy traffic. These increases would make attainment 
even more difficult for 8 counties which we already predict to need 
further emission reductions even without an increase in diesel sales, 
and would put at risk another 18 counties which are now within 10 
percent of a NAAQS violation. Thus, by including a more stringent PM 
standard in the program finalized today, we help address environmental 
concerns about the potential growth in the numbers of light-duty 
diesels on the road--even if that growth is substantial. The new 
requirements also include more stringent hydrocarbon controls (exhaust 
NMOG and evaporative emissions standards). We will also monitor the 
progress of the development of advanced technologies and the role of 
fuels.
2. Gasoline Sulfur Standards
    The other major part of today's action will significantly reduce 
average gasoline sulfur levels nationwide. We expect these reductions 
could begin to phase in as early as 2000, with full compliance for most 
refiners occurring by 2006. Refiners will generally install advanced 
refining equipment to remove sulfur during the production of gasoline. 
Importers of gasoline will be required to import and market only 
gasoline meeting the sulfur limits. Temporary, less stringent standards 
will apply to a few small refiners through 2007. In addition, 
temporary, less stringent standards will apply to a limited geographic 
area in the western U.S. for the 2004-2006 period.
    This significant new control of gasoline sulfur content will have 
two important effects. The lower sulfur levels will enable the much-
improved emission control technology necessary to meet the stringent 
vehicle standards of today's rule to operate effectively over the 
useful life of the new vehicles. In addition, as soon as the lower 
sulfur gasoline is available, all gasoline vehicles already on the road 
will have reduced emissions--from less degradation of their catalytic 
converters and from fewer sulfur compounds in the exhaust.
    Today's action will encourage refiners to reduce sulfur in gasoline 
as early as 2000. The program requires that most refiners and importers 
meet a corporate average gasoline sulfur standard of 120 ppm and a cap 
of 300 ppm beginning in 2004. By 2006, the cap will be reduced to 80 
ppm and most refineries must produce gasoline averaging no more than 30 
ppm sulfur. The program builds upon the existing regulations covering 
gasoline composition as it relates to emissions performance. It 
includes provisions for trading of sulfur credits, increasing the 
flexibility available to refiners for complying with the new 
requirements. We intend for the credit program to ease compliance 
uncertainties by providing refiners the flexibility to phase in early 
controls in 2000-2003 and use credits gained in these years to delay 
some control until as late as 2006. As finalized today, the program 
will achieve the needed environmental benefits while providing 
substantial flexibility to refiners.

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

1. Light-Duty Vehicles and Trucks
    We are setting motor vehicle emission standards under the authority 
of section 202 of the Clean Air Act. Sections 202(a) and (b) of the Act 
provide EPA with general authority to prescribe vehicle standards, 
subject to any specific limitations otherwise included in the Act. 
Sections 202(g) and (h) specify the current standards for LDVs and 
LDTs, which became effective beginning in model year 1994 (``Tier 1 
standards'').
    Section 202(i) of the Act provides specific procedures that EPA 
must follow to determine whether standards more stringent than Tier 1 
standards for LDVs and certain LDTs \4\ are appropriate beginning 
between the 2004 and 2006 model years.\5\ Specifically, we are required 
to first issue a study regarding ``whether or not further reductions in 
emissions from light-duty vehicles and light-duty trucks should be 
required * * *'' (the ``Tier 2 Study''). This study ``shall examine the 
need for further reductions in emissions in order to attain or maintain 
the national ambient air quality standards.'' It is also to consider: 
(1) The availability of technology to meet more stringent standards, 
taking cost, lead time, safety, and energy impacts into consideration; 
and (2) the need for, and cost effectiveness of, such standards, 
including consideration of alternative methods of attaining or 
maintaining the national ambient air quality standards. A certain set 
of ``default'' emission

[[Page 6703]]

standards for these vehicle classes is among those options for new 
standards that EPA is to consider.
---------------------------------------------------------------------------

    \4\ LDTs with a loaded vehicle weight less than or equal to 3750 
pounds, called LDT1s and LDT2s.
    \5\ Section 202(b)(1)(C) forbids EPA from promulgating mandatory 
standards more stringent than Tier 1 standards until the 2004 model 
year.
---------------------------------------------------------------------------

    After the study is completed and the results are reported to 
Congress, EPA is required to determine by rulemaking whether: (1) There 
is a need for further emission reductions; (2) the technology for more 
stringent emission standards from the affected classes is available; 
and (3) such standards are needed and cost-effective, taking into 
account alternatives. If EPA answers ``yes'' to these questions, then 
the Agency is to promulgate new, more stringent motor vehicle standards 
(``Tier 2 standards'').
    EPA submitted its report to Congress on July 31, 1998. Today's 
final rule makes affirmative responses to the three questions above 
(see Section II below) and sets new standards that are more stringent 
than the default standards in the Act.
    EPA is also setting standards for larger light-duty trucks and 
MDPVs under the general authority of Section 202(a)(1) and 202(b) and 
under Section 202(a)(3) of the Act, which requires that standards 
applicable to emissions of hydrocarbons, NOX, CO and PM from 
heavy-duty vehicles \6\ reflect the greatest degree of emission 
reduction available for the model year to which such standards apply, 
giving appropriate consideration to cost, energy, and safety. We are 
also setting standards for formaldehyde under our authority in sections 
202(a) and (l).
---------------------------------------------------------------------------

    \6\ LDTs that have gross vehicle weight ratings above 6000 
pounds are considered ``heavy-duty vehicles'' under the Act. See 
section 202(b)(3). For regulatory purposes, we refer to these LDTs 
as ``heavy light-duty trucks'' made up of LDT3s and LDT4s.
---------------------------------------------------------------------------

2. Gasoline Sulfur Controls
    We are adopting gasoline sulfur controls pursuant to our authority 
under Section 211(c)(1) of the Clean Air Act.\7\ Under Section 
211(c)(1), EPA may adopt a fuel control if at least one of the 
following two criteria is met: (1) The emission products of the fuel 
cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare; or (2) the emission 
products of the fuel will significantly impair emissions control 
systems in general use or which will be in general use were the fuel 
control to be adopted.
---------------------------------------------------------------------------

    \7\ We currently have regulatory requirements for conventional 
and reformulated gasoline adopted under Sections 211(c) and 211(k) 
of the Act, in addition to the ``substantially similar'' 
requirements for fuel additives of Section 211(f). These 
requirements have the effect of limiting sulfur levels in gasoline 
to some extent. See the Final RIA for more details.
---------------------------------------------------------------------------

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

C. The Tier 2 Study and the Sulfur Staff Paper

    On July 31, 1998, EPA submitted its report to Congress containing 
the results of the Tier 2 study.\8\ The study indicated that in the 
2004 and later time frame, there will be a need for emission reductions 
to aid in meeting and maintaining the National Ambient Air Quality 
Standards (NAAQS) for both ozone and PM. Air quality modeling showed 
that in the 2007-2010 time frame, when Tier 2 standards will become 
fully effective, a number of areas will still be in nonattainment for 
ozone and PM even after the implementation of existing emission 
controls. The study also noted the continued existence of carbon 
monoxide (CO) nonattainment areas. It also found ample evidence that 
technologies will be available to meet more stringent Tier 2 standards. 
In addition, the study provided evidence that such standards could be 
implemented at a similar cost per ton of reduced pollutants as other 
programs aimed at similar air quality problems. Finally, the study 
identified several additional issues in need of further examination, 
including the relative stringency of car and light truck emission 
standards, the appropriateness of identical versus separate standards 
for gasoline and diesel vehicles, and the effects of sulfur in gasoline 
on catalyst efficiency. Section IV of this preamble describes the steps 
we have taken to follow up on the Tier 2 Study.
---------------------------------------------------------------------------

    \8\ On April 28, 1998, EPA published a notice of availability 
announcing the release of a draft of the Tier 2 study and requesting 
comments on the draft. The final report to Congress included a 
summary and analysis of the comments EPA received.
---------------------------------------------------------------------------

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

D. Relationship of Diesel Fuel Sulfur Control to the Tier 2/Gasoline 
Sulfur Program

    In the NPRM, we raised the question of what if any changes to 
diesel fuel may be needed to enable diesel vehicles to meet the Tier 2 
standards or any future heavy-duty diesel engine standards. 
Specifically, we raised the question of whether diesel sulfur levels 
need to be controlled. Since diesel fuel controls of any kind would 
have an impact on the refinery as a whole, and since in some cases 
(including potential diesel sulfur limits) could have implications for 
gasoline sulfur control, we requested comment on this issue in our 
proposal. We also indicated that we planned to release an Advance 
Notice of Proposed Rulemaking to solicit more information on this 
subject.
    We published the ANPRM on May 13, 1999 (64 FR 26142). We are in the 
process of considering all of the comments received in response to the 
ANPRM and plan to issue a Notice of Proposed Rulemaking (NPRM) in early 
spring of 2000. We received many comments on the subject of diesel fuel 
control along with the comments submitted on the proposed Tier 2/
Gasoline Sulfur regulations. We have prepared brief responses to some 
of these comments in the Response to Comments document, and will deal 
fully with these comments as part of the forthcoming NPRM on diesel 
fuel. We are taking no action on diesel fuel as part of today's action.

II. Tier 2 Determination

    Based on the statutory requirements described above and the 
evidence provided in the Tier 2 Study and since its release, as 
described elsewhere in this preamble, EPA has determined that new, more 
stringent emission standards are indeed needed, technologically 
feasible, and cost effective.

[[Page 6704]]

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

    EPA finds that there is a clear air quality need for new emission 
standards, based on the continuing air quality problems predicted to 
exist in future years. As the discussion in Section III.B. illustrates, 
26 metropolitan areas are each certain or highly likely to need 
additional reductions. These areas are distributed across most regions 
of the U.S., and have a combined population of over 86 million. Section 
III.B. also shows that an additional 12 areas each has a moderate to 
significant probability of needing additional reductions, representing 
another 25 million people. This provides ample evidence that further 
emission reductions are needed to meet the 1-hour ozone NAAQS.
    In addition to these ozone concerns, our analysis of 
PM10 monitoring data and PM10 projections 
indicates that 15 PM10 nonattainment counties violated the 
PM10 NAAQS in recent years, and that 8 of them with a 1996 
population of almost 8 million have a high risk of failing to attain 
and maintain without more emission reductions. Eighteen other counties, 
with a population of 23 million have a significant risk of failing or 
are within 10 percent of violating the PM10 NAAQS. It is 
also important to recognize that nonattainment areas remain for other 
criteria pollutants (e.g., CO) and that non-criteria pollution (e.g., 
air toxics and regional haze) also contributes to environmental and 
health concerns.

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

    We find that emission standards significantly more stringent than 
current Tier 1 and National Low Emission Vehicle (NLEV) levels are 
technologically feasible. This is true both for the LDVs and LDTs 
specifically covered in section 202(i) and for the medium-duty 
passenger vehicles also included in today's final rule. Manufacturers 
are currently producing NLEV vehicles that meet more stringent 
standards than similar Tier 1 models. Our analysis shows that mainly 
through improvements in engine control software and catalytic converter 
technology, manufacturers can build and are building durable vehicles 
and trucks, including heavy light-duty trucks, which have very low 
emission levels.\9\ Section IV.A. below discusses our feasibility 
conclusions in more detail.
---------------------------------------------------------------------------

    \9\ The Final RIA contains a more detailed analysis, and Section 
IV.A. below has further discussion of the technological feasibility 
of our standards including detailed discussions of the various 
technology options that we believe manufacturers may use to meet 
these standards.
---------------------------------------------------------------------------

    Many current production vehicles are already certified at or near 
the Tier 2 standards. For year 2000 certification (although not yet 
complete), over 50 vehicle models have emissions at or below Tier 2 
levels. In addition, we performed a demonstration program at our EPA 
laboratory that showed that even large vehicles, which would be 
expected to face the toughest challenges reaching Tier 2 emission 
levels, can do so with conventional technology. Others, including the 
Manufacturers of Emission Controls Association (MECA) and the State of 
California, have also performed demonstration programs, with similar 
results. Manufacturers have also certified LDVs and LDTs to NMOG and CO 
levels as much as 80 percent below Tier 1 standards. Furthermore, for 
passenger vehicles greater than 8500 lbs GVWR, we believe that by using 
technologies and control strategies similar to what will be used on 
lighter vehicles, manufacturers will be able to meet the Tier 2 
emission standards.
    Thus, we believe that, by the 2004-2009 time frame, manufacturers 
will be fully able to comply with the new Tier 2 emission standard 
levels. In addition, to facilitate manufacturers' efforts to meet these 
new standards, the Tier 2 regulations include a phase-in over several 
years and a corporate fleet average NOX standard, which will 
allow manufacturers to optimize the deployment of technology across 
their product lines with no loss of environmental benefit. Our analysis 
of the available technology improvements and the very low emission 
levels already being realized on these vehicles leads us to find that 
the standards adopted today are fully feasible for LDVs and LDTs.

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

    In this action, we also find that more stringent motor vehicle 
standards are both necessary and cost effective. As discussed above, 
substantial further reductions in emissions are needed to help reduce 
the levels of unhealthy air pollution to which millions of people are 
being exposed; in particular, we expect that a number of areas will not 
attain or maintain compliance with the National Ambient Air Quality 
Standards for ozone and PM10 without such reductions. (We 
describe this further in Section III below and in the RIA.)
    Furthermore, mobile sources are important contributors to the air 
quality problem. As we will explain more fully later in this preamble, 
in the year 2030, the cars and light trucks that are the subject of 
today's final rule are projected to contribute as much as 40 percent of 
the total NOX inventory in some cities, and almost 20 
percent of nationwide NOX emissions. This situation would 
have been considerably worse without the NLEV program created by 
vehicle manufacturers, EPA, the Northeastern states, and others.
    These emission reductions are clearly necessary to meet and 
maintain the 1-hour ozone NAAQS. We project that while the emission 
reductions of this program will lead to substantial progress in meeting 
and maintaining the NAAQS, many areas will still not come into 
attainment even with this magnitude of reductions.
    We find that the Tier 2/Gasoline Sulfur program is a reasonable, 
cost-effective method of providing substantial progress towards 
attainment and maintenance of the NAAQS, costing about $2000 per ton of 
NOX plus hydrocarbon emissions reduced. This program will 
reduce annual NOX emissions by about 2.2 million tons per 
year in 2020 and 2.8 million tons per year in 2030 after the program is 
fully implemented. By way of comparison, when EPA established its 8-
hour NAAQS for ozone, we identified several types of emission control 
programs that were reasonably cost effective. If all of the controls 
identified in that analysis costing less than $10,000/ton were 
implemented nationwide, they would produce NOX emission 
reductions of about 2.9 million tons per year. (That is, to achieve 
about the same emission reductions as the Tier 2/Gasoline Sulfur 
program, other alternative measures would have a significantly higher 
cost per ton). These emission reductions are clearly necessary to meet 
and maintain the one-hour ozone NAAQS. We project that while the 
emission reductions of this program will lead to substantial progress 
in meeting and maintaining the NAAQS, many areas will still not come 
into attainment even with this magnitude of reductions.
    In addition, the magnitude of emission reductions that can be 
achieved by a comprehensive national Tier 2/Gasoline Sulfur program 
will be difficult to achieve from any other source category. Given the 
large contribution that light-duty mobile source emissions make to the 
national emissions inventory and the range of control programs ozone-
affected areas

[[Page 6705]]

already have in place or would be expected to implement, we believe it 
will be very difficult, if not impossible, to meet (and maintain) the 
ozone NAAQS in a cost-effective manner without large emission 
reductions from LDVs and LDTs. We expect emissions from MDPVs to also 
play an increasing role.
    Furthermore, we project that the Tier 2/Gasoline Sulfur program 
will significantly reduce direct and secondary particulate matter 
coming from LDVs, LDTs, and MDPVs--by about 36,000 tons per year of 
direct PM alone by 2030; large secondary PM reductions from 
significantly lower NOX and SOX emissions will 
add to the overall positive impact on airborne particles. These 
reductions will be very cost-effective compared to other measures to 
reduce PM pollution. Because direct PM emissions from gasoline vehicles 
are related the presence of sulfur in gasoline, no new emission control 
devices, beyond what manufacturers are expected to install to meet the 
NOX and NMOG standards, will be necessary to provide the 
reductions expected for these pollutants under the program. The 
standards will provide valuable insurance against increases in PM 
emissions from LDVs, LDTs, and MDPVs.
    Finally, the Tier 2/Gasoline Sulfur program will significantly 
reduce CO emissions from LDVs, LDTs, and MDPVs. (See Chapter III of the 
RIA for an analysis of these reductions.) The technical changes needed 
to meet the NMOG standards will also result in CO reductions sufficient 
to meet the CO standards. Thus, these CO reductions will be very cost-
effective since they will not require any new emission control devices 
beyond what manufacturers are expected to install to meet the 
NOX and NMOG standards.
    We conclude, then, that today's final rule is a major source of 
ozone precursor, PM, and CO emission reductions when compared to other 
available options. The discussions of cost and cost effectiveness later 
in this preamble and in the RIA explain the derivation of cost 
effectiveness estimates and compares them to the cost effectiveness of 
other alternatives. That discussion indicates that this program will 
have a cost effectiveness comparable to both the Tier 1 and NLEV 
standards and will also be cost effective when compared to non-mobile 
source programs.

III. Air Quality Need For and Impact Of Today's Action

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

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

    Air quality in the United States continues to improve. Nationally, 
the 1997 air quality levels were the best on record for all six 
criteria pollutants. \10\ In fact, the 1990s have shown a steady trend 
of improvement, due to reductions in emissions from most sources of air 
pollution, from factories to motor vehicles. Despite great progress in 
air quality improvement, in 1997 there were still approximately 107 
million people nationwide who lived in counties with monitored air 
quality levels above the primary national air quality standards. \11\ 
There are also people living in counties outside of the air monitoring 
network where violations of the NAAQS could have also occurred during 
the year. Moreover, unless there are reductions in overall emissions 
beyond those that are scheduled to be achieved by already committed 
controls, many of these Americans will continue to be exposed to 
unhealthy air.
---------------------------------------------------------------------------

    \10\ National Air Quality and Emissions Trend Report, 1997, Air 
Quality Trends Analysis Group, Office of Air Quality Planning and 
Standards, U.S. Environmental Protection Agency, Research Triangle 
Park, N.C., December 1998 (available on the World Wide Web at http:/
/www/epa.gov/oar/aqtrnd97/).
    \11\ U.S. Environmental Protection Agency, Latest Findings on 
National Air Quality: 1997 Status and Trends. December 1998.
---------------------------------------------------------------------------

    Ambient ozone is formed in the lower atmosphere through a complex 
interaction of VOC and NOX emissions. Cars and light trucks 
emit a substantial fraction of these emissions. Ambient PM is emitted 
directly from cars and light trucks; it also forms in the atmosphere 
from NOX, sulfur oxides (SOX), and VOC, all of 
which are emitted by motor vehicles. When ozone exceeds the air quality 
standards, otherwise healthy people often have reduced lung function 
and chest pain, and hospital admissions for people with respiratory 
ailments like asthma increase; for longer exposures, permanent lung 
damage can occur. Similarly, fine particles can penetrate deep into the 
lungs. Results of studies suggest a likely causal role of ambient PM in 
contributing to reported effects, such as: premature mortality, 
increased hospital admissions, increased respiratory symptoms, and 
changes in lung tissue. When either ozone or PM air quality problems 
are present, those hardest hit tend to be children, the elderly, and 
people who already have health problems.
    The health effects of high ozone and PM levels are not the only 
reason for concern about continuing air pollution. Ozone and PM also 
harm plants and damage materials. PM reduces visibility and contributes 
to significant visibility impairment in our national parks and 
monuments and in many urban areas. In addition, air pollution from 
motor vehicles contributes to cancer and other health risks, 
acidification of lakes and streams, eutrophication of coastal and 
inland waters, and elevated drinking water nitrate levels. These 
problems impose a substantial burden on public health, our economy, and 
our ecosystems.
    In recognition of this burden, Congress has passed and subsequently 
amended the Clean Air Act. The Clean Air Act requires each state to 
have an approved State Implementation Plan (SIP) that shows how an area 
plans to meet its air quality obligations, including achieving and then 
maintaining attainment of all of the National Ambient Air Quality 
Standards (NAAQS), such as those for ozone and PM. The Clean Air Act 
also requires EPA to periodically re-evaluate the NAAQS in light of new 
scientific information. Our most recent re-evaluation of the ozone and 
PM NAAQS led us to revise both standards (62 FR 38856, July 18, 1997 
and 62 FR 38652, July 18, 1997). These revised standards reflected 
additional information that had become available since the previous 
revision of the ozone and PM standards, respectively.
    On May 14, 1999, a panel of the United States Court of Appeals for 
the District of Columbia Circuit reviewed EPA's revisions to the ozone 
and PM NAAQS and found, by a 2-1 vote, that sections 108 and 109 of the 
Clean Air Act, as interpreted by EPA, represent unconstitutional 
delegations of Congressional power. American Trucking Ass'n., Inc. et 
al., v. Environmental Protection Agency, 175 F.3d 1027 (D.C. Cir. 
1999). Among other things the Court remanded the record

[[Page 6706]]

for the 8-hour ozone NAAQS and the PM2.5 NAAQS to EPA. On 
October 29, 1999, EPA's petition for rehearing by the three judge panel 
was denied, with the exception that the panel modified its prior ruling 
regarding EPA's authority to implement a revised ozone NAAQS under Part 
D subpart 2 of Title I. EPA's petition for rehearing en banc by the 
full Circuit was also denied, although five of the nine judges 
considering the petition agreed to rehear the case.
    As a result of the Court's decision, requirements on the States to 
implement the new 8-hour ozone standard have been suspended although 
the standard itself is still in force and the science behind it has 
generally not been contradicted. The court also did not question EPA's 
findings regarding the health effects of PM10 and 
PM2.5. However, due to the uncertainty regarding the status 
of the new NAAQS, we will rely on the preexisting NAAQS in determining 
air quality need under section 202(i) of the Act.
    Carbon monoxide (CO) can cause serious health effects for those who 
suffer from cardiovascular disease, such as angina pectoris. There has 
been considerable progress in attaining the longstanding NAAQS for 
carbon monoxide, largely through more stringent standards for CO from 
motor vehicles. This progress has been made despite large increases in 
travel by vehicle. In 1997, there were about 9 million people living in 
three counties with CO concentrations above the level of the CO NAAQS. 
In the recent past, this figure has fluctuated up and down. At the 
present time there are 15 counties classified as serious CO 
nonattainment areas, all with a recent history of NAAQS violations. At 
this time, prospects for these areas attaining by the serious CO area 
attainment deadline of December 31, 2000 are uncertain. While 
violations of the NAAQS have not occurred recently in most of the other 
33 counties still classified as nonattainment, even these must 
demonstrate that they will remain safely below the NAAQS for ten years 
despite expected growth in vehicle travel and other sources of CO 
emissions before they can be reclassified to attainment. Because of the 
large role of motor vehicles in causing high ambient CO concentrations, 
where there is reason to be concerned about CO attainment and 
maintenance, local areas look to national emission standards for most 
of the solution.
    As discussed below, EPA has also finalized regulations that regions 
and states implement plans for protecting and improving visibility in 
the 156 mandatory Federal Class I areas as defined in Section 162(a) of 
the Clean Air Act. These areas are primarily national parks and 
wilderness areas.
    To accomplish the goal of full attainment in all areas according to 
the schedules for the various NAAQS, and to achieve the goals of the 
visibility program, the federal government must assist the states by 
reducing emissions from sources that are not as practical to control at 
the state level as at the federal level. Vehicles and fuels move freely 
among the states, and they are produced by national or global scale 
industries. Most individual states are not in a position to regulate 
these industries effectively and efficiently. The Clean Air Act 
therefore gives EPA primary authority to regulate emissions from the 
various types of highway vehicles and their fuels. Our actions to 
reduce emissions from these and other national sources are a crucial 
and essential complement to actions by states to reduce emissions from 
more localized sources.
    If we were not to adopt new standards to reduce emissions from cars 
and light trucks, emissions from these vehicles would remain a large 
portion of the emissions burden that causes elevated ozone and 
continued nonattainment with the ozone NAAQS, which in turn would 
affect tens of millions of Americans. Because the contribution of cars 
and light trucks to both local emissions and transported pollution 
would be so great, and the expected emission reduction shortfall in 
many areas is so large, further reductions from cars and light trucks 
will be an important element of many attainment strategies, especially 
for ozone in the 2007 to 2010 time frame. The contribution of these 
vehicles to PM exposure and PM nonattainment would also remain 
significant, and would increase considerably if diesel engines are used 
in more cars or light trucks. Furthermore, without new standards, 
steady annual increases in fleet size and miles of travel would 
outstrip the benefits of current emission controls, and would cause 
ozone-forming emissions from cars and trucks to grow each year starting 
about 2013.
    The standards being promulgated by today's actions will reduce 
emissions of ozone precursors and PM precursors from cars and light 
trucks greatly. However, even with this decrease, many areas will 
likely still find it necessary to obtain additional reductions from 
other sources in order to fully attain the ozone and PM NAAQS. Their 
task will be easier and the economic impact on their industries and 
citizens will be lighter as a result of the standards promulgated by 
today's actions. Following implementation of the Regional Ozone 
Transport Rule, states will have already adopted emission reduction 
requirements for nearly all large sources of VOC and NOX for 
which cost-effective control technologies are known. Those that remain 
in nonattainment therefore will have to consider their remaining 
alternatives. Many of the state and local programs states may consider 
as alternatives are very costly, and the emissions impact from each 
additional emissions source subjected to new emissions controls would 
be considerably smaller than the emissions impact of the standards 
being promulgated today. Therefore, the emission reductions from these 
standards for gasoline, cars, and light trucks will ease the need for 
states to find first-time reductions from the mostly smaller sources 
that have not yet been controlled, including area sources that are 
closely connected with individual and small business activities. The 
emission reductions from the standards being promulgated today will 
also reduce the need for states to seek even deeper reductions from 
large and small sources already subject to emission controls.
    We project that today's actions will also have important benefits 
for carbon monoxide, regional visibility, acid rain, and coastal water 
quality.
    For these and other reasons discussed in this document, we have 
determined that significant emission reductions will still be needed by 
the middle of the next decade and beyond to achieve and maintain 
further improvements in air quality in many, geographically dispersed 
areas. We also believe that a significant portion of these emission 
reductions will be obtained by reducing emissions from cars and light 
trucks as a result of today's actions. We believe that such reductions 
are necessary (since cars and light trucks are such large contributors 
to current and projected ozone problems) and reasonable (since these 
reductions can be achieved at a reasonable cost compared to other 
alternative reductions).
    The remainder of this section describes the health and 
environmental problems that today's actions will help mitigate and the 
expected health and environmental benefits of these actions. Ozone is 
discussed first, followed by PM, other criteria pollutants, visibility, 
air toxics, and other environmental impacts. The emission inventories 
and air quality analyses are explained more fully in the Regulatory 
Impact Analysis for today's actions.

[[Page 6707]]

B. Ozone

1. Background on Ozone Air Quality
    Ground-level ozone is the main harmful ingredient in smog.\12\ 
Ozone is produced by complex chemical reactions when its precursors, 
VOC and NOX, react in the presence of sunlight.
---------------------------------------------------------------------------

    \12\ Total column ozone, a large percentage of which occurs in 
the stratosphere and a smaller percentage of which occurs in the 
troposphere, helps to provide a protective layer against ultraviolet 
radiation.
---------------------------------------------------------------------------

    Short-term (1-3 hours) and prolonged (6-8 hours) exposures to 
ambient ozone at levels common in many cities have been linked to a 
number of health effects of concerns. For example, increased hospital 
admissions and emergency room visits for respiratory causes have been 
associated with ambient ozone exposures at such levels. Repeated 
exposures to ozone can make people more susceptible to respiratory 
infection, result in lung inflammation, and aggravate pre-existing 
respiratory diseases such as asthma. Other health effects attributed to 
ozone exposures include significant decreases in lung function and 
increased respiratory symptoms such as chest pain and cough. These 
effects generally occur while individuals are engaged in moderate or 
heavy exertion.
    Children active outdoors during the summer when ozone levels are at 
their highest are most at risk of experiencing such effects. Other at-
risk groups include adults who are active outdoors (e.g., outdoor 
workers), and individuals with pre-existing respiratory disease such as 
asthma and chronic obstructive lung disease. In addition, longer-term 
exposures to moderate levels of ozone present the possibility of 
irreversible changes in the lungs which could lead to premature aging 
of the lungs and/or chronic respiratory illnesses.
    Ozone also affects vegetation and ecosystems, leading to reductions 
in agricultural and commercial forest yields, reduced growth and 
survivability of tree seedlings, and increased plant susceptibility to 
disease, pests, and other environmental stresses (e.g., harsh weather). 
In long-lived species, these effects may become evident only after 
several years or even decades, thus having the potential for long-term 
effects on forest ecosystems. Ground-level ozone damage to the foliage 
of trees and other plants also can decrease the aesthetic value of 
ornamental species as well as the natural beauty of our national parks 
and recreation areas.
    Many areas which were classified as nonattainment when 
classifications were made under the 1990 Clean Air Act Amendments have 
not experienced violations more recently. However, 50 metropolitan 
areas had ozone design values above the NAAQS in either or both of the 
1995-1997 and the 1996-1998 monitoring periods. In many urban areas, 
the downward trend in ozone that prevailed earlier has become less 
strong or stopped in the last few years, even when adjustments are made 
for meteorological conditions. We believe that one factor that has 
worked against ozone improvement in the last few years has been the 
growing use of light trucks with higher emissions than the cars used 
formerly. The predictions of future ozone concentrations used in 
developing today's action take account of this growing use of light 
trucks.
2. Additional Emission Reductions Are Needed To Attain and Maintain the 
Ozone NAAQS
a. Summary
    We have determined that additional emission reductions are needed 
to attain and maintain the 1-hour ozone NAAQS. This overall conclusion 
is based on our prediction that 26 metropolitan areas are each certain 
or highly likely to need additional reductions, and that an additional 
12 areas each have a moderate to significant probability of needing 
them.
    To determine whether additional reductions are needed in order to 
attain and maintain the ozone NAAQS, we used ozone modeling to predict 
what areas would not attain the NAAQS in the future. We accounted for 
the emission reductions that have already been achieved, those that 
will be achieved in the future by actions already underway, and 
increases in emissions expected from increased use of sources of 
pollution.
    In our May 13, 1999 proposal, we presented information from 
photochemical modeling we performed to predict what areas would meet 
the ozone NAAQS in 2007. The year 2007 falls after the expected date of 
most emission reductions which states are required to achieve or have 
otherwise committed to achieve, and near the attainment deadline for 
many ozone nonattainment areas. We presented additional information 
from the same photochemical modeling work in two supplemental notices, 
on June 30, 1999 (to better explain the basis for our proposal in light 
of the Court's ruling on the 8-hour ozone NAAQS), and October 25, 1999 
(to explain the implications for our Tier 2/Gasoline Sulfur proposal 
from our more recent proposal, which we expect to make final shortly, 
to re-instate the 1-hour ozone NAAQS in many areas). In Response to 
Comments on these Federal Register notices, we made revisions to our 
own ozone modeling. We also obtained ozone modeling results from a 
number of state air planning agencies and from members of the 
automobile manufacturing industry. We have considered all of this 
information as part of our determination that the regulations 
promulgated in this rule are needed and appropriate.
    Based on the available ozone modeling and other information, we 
project that there are 26 metropolitan areas which will be unable to 
attain and maintain the NAAQS, in the absence of additional reductions. 
These areas had a combined population of over 86 million in 1996, and 
are distributed across most regions of the U.S. We have concluded that 
each is certain or very likely to require additional reductions to 
attain the NAAQS. Taken together and considering their number, size, 
and geographic distribution, these areas establish the case that 
additional reductions are needed in order to attain and maintain the 1-
hour standard.
    In addition, our analysis suggests there will be other areas that 
will have problems attaining and maintaining compliance with the one-
hour ozone standard in the future. There are 12 additional metropolitan 
areas with a total 1996 population of over 25 million people in this 
category. EPA's ozone modeling for 2007 predicts exceedances for each 
of these areas. However, for six of them local recent monitoring 
information is not indicating nonattainment. Given how close to 
nonattainment these areas are, EPA believes it is likely that at least 
a significant subset of this group of areas will face compliance 
problems by 2007 or beyond if additional actions to lower air emissions 
are not taken. This belief is based on historical experience with areas 
that will undergo economic and population growth over time and that are 
in larger regions that are also experiencing growth. The other six 
areas in this group are nonattainment now, and local modeling shows 
them reaching attainment by 2005 or 2007. Modeling uncertainties and 
growth beyond the attainment date make it likely that at least some of 
these areas will also face compliance problems if additional actions to 
lower air emissions are not taken. This situation further supports our 
determination that additional reductions in mobile source emissions are 
needed for attainment and maintenance.
    We would like to emphasize that the advantages of the Tier 2/
Gasoline Sulfur program will be enjoyed by the whole country. There are 
important advantages for approximately 30 more metropolitan

[[Page 6708]]

areas, with close to 30 million people residing in them, whose ozone 
levels are now within 10 percent of violating the 1-hour NAAQS.\13\ 
Most of these areas have been in nonattainment in the past. We believe 
the emission reductions from the Tier 2/Gasoline Sulfur program are an 
important component of an overall EPA-state approach to enable these 
areas to continue to maintain clean air given expected growth. EPA 
believes that the long term ability of the states to continue to meet 
the NAAQS is extremely important. In the future, EPA will be 
considering additional approaches for assisting in maintenance of the 
NAAQS. Also, we believe that the Tier 2/Gasoline Sulfur program has 
important benefits for other nonattainment areas which our modeling and 
local modeling show to be on a path to come into attainment in the next 
eight years. For these areas, the extra emission reductions from the 
program will take some of the uncertainty out of their plan to attain 
the standard and give them a head start on developing their plan to 
stay in attainment.
---------------------------------------------------------------------------

    \13\ As measured by ozone design value.
---------------------------------------------------------------------------

    In every area of the country, the new standards will give 
transportation planning bodies and industrial development leaders more 
options within the area's overall emissions constraints. This will 
allow local and state officials to better accommodate local needs and 
growth opportunities. With these new standards for vehicles and 
gasoline, unusually adverse weather or strong local economic growth 
will be less likely to cause ozone levels high enough to trigger the 
planning requirements of the Clean Air Act. In addition, by reducing 
emissions and ozone levels across the nation as a whole, there will be 
less transport of ozone between areas, reducing the amount of ozone 
entering downwind areas. This will give the downwind areas a better 
opportunity to maintain and attain the NAAQS through local efforts.
    All of our determinations presented here about the need for the 
Tier 2/Gasoline Sulfur program take into account the prior NOX 
reductions we expect from the Regional Ozone Transport Rule. This rule 
is now in litigation. If the outcome of that litigation reduces the 
NOX reductions that will be achieved, the need for the Tier 
2/Gasoline Sulfur program will be even greater.
b. Ozone Modeling Presented in Our Proposal and Supplemental Notices
    The ozone modeling we presented in our proposal and the two 
supplemental notices was originally conducted as part of our 
development of the Regional Ozone Transport Rule. The ``revised 
budget'' emission control scenario we modeled for the Regional Ozone 
Transport Rule contained the right set of existing and committed 
emission controls for it to serve as the starting point for making our 
determination on the need for additional emission reductions. We added 
a new ``control case'' to represent the effects of our proposed vehicle 
and gasoline standards.
    This ozone modeling provided predictions of ozone concentrations in 
2007 across the eastern U.S., under certain meteorological conditions. 
Predictions of attainment or nonattainment are based on these predicted 
ozone concentrations. Two approaches to making attainment predictions 
have been used or advocated in the past: a rollback approach and an 
exceedance approach. In the NPRM of May 13, 1999, we presented 
predictions of attainment and nonattainment using a rollback approach. 
For the 1-hour standard, we reported that 8 metropolitan areas and two 
rural counties were predicted to be in nonattainment in 2007 under the 
rollback method. In the first supplemental notice of June 30, 1999 we 
presented a prediction that 17 areas would be nonattainment based on 
the exceedance method, and invited comment on all aspects of the 
modeling and its interpretation. Our second and last notice on October 
27, 1999, presented predictions of violations using the exceedance 
method for additional areas which we had previously excluded because 
the 1-hour standard did not apply to them. This was in anticipation of 
the reinstatement of the 1-hour standard to these areas, which we 
proposed on October 25, 1999 and expect to complete very soon. 64 FR 
57524. We also announced that we were conducting another round of 
modeling, described below. See the Response to Comments document for 
more discussion of the rollback and exceedance approaches.
c. Updated and Additional Ozone Modeling
    We have updated and expanded our ozone modeling. We updated the 
ozone modeling so that it is now based on estimates of vehicle 
emissions that reflect the most recent data and our best understanding 
of several aspects of emissions estimation.\14\ We also changed most of 
the episodes for which we modeled ozone concentrations, with all of our 
final episode days coming from a single calendar year. By selecting 
days from within a single year, we responded to a comment that the 
original episode periods might together contain an atypically high 
number of days favorable to ozone formation for some parts of the 
country. The new episodes are also better at representing conditions 
that lead to high ozone in areas along the Gulf Coast, whose ozone-
forming conditions were not well represented in the episodes used for 
the original modeling.
---------------------------------------------------------------------------

    \14\ While the use of these emissions estimates was new to our 
baseline ozone modeling in the latest ozone modeling, they were not 
new to this rulemaking, having already been used in calculations of 
cost-effectiveness in the draft RIA. We therefore were able to 
consider public comments on these estimates prior to using them in 
the latest ozone modeling
---------------------------------------------------------------------------

    While we considered these improvements necessary and appropriate in 
light of comments and other information available to us, the actual 
results of the two rounds of modeling with regard to the need for 
additional reductions have turned out to be similar. The latest round 
of modeling provided us ozone predictions for 2007 and 2030 in the 
eastern U.S., and for 2030 in the western U.S. There are some 
differences in specific results, where and when the two models can be 
directly compared. However, the same conclusion would be reached from 
either, namely that there is a broad set of areas with predicted ozone 
concentrations in 2007 above 0.124 ppm, in the baseline scenario 
without additional emission reductions.
    We have compared and supplemented our own ozone modeling with other 
modeling studies, either submitted to us as comments to this 
rulemaking, as state implementation plan (SIP) revisions, or brought to 
our attention through our consultations with states on SIP revisions 
that are in development. The ozone modeling in the SIP revisions has 
the advantage of using emission inventories that are more specific to 
the area being modeled, and of using meteorological conditions selected 
specifically for each area. Also, the SIP revisions included other 
evidence and analysis, such as analysis of air quality and emissions 
trends, observation based models that make use of data on 
concentrations of ozone precursors, alternative rollback analyses, and 
information on the responsiveness of the air quality model. For some 
areas, we decided that the predictions of attainment or nonattainment 
from our

[[Page 6709]]

modeling were less reliable than conclusions that could be drawn from 
this additional evidence and analysis. For example, in some areas our 
episodes did not capture the meteorological conditions that have caused 
high ozone, while local modeling did so.
d. Results and Conclusions
    As discussed in detail below, it is clear that the NOX 
and VOC reductions to be achieved through the Tier 2/Gasoline Sulfur 
program are needed to attain and maintain compliance with the 1 hour 
ozone NAAQS. Although the general pattern observed in our modeling 
indicates improvements in the near term, growth in overall emissions 
will lead to worsening of air quality over the long term.
    Based on our ozone modeling, we have analyzed ozone predictions for 
52 metropolitan areas for 1996, 2007, and 2030. In addition, we 
reviewed ozone attainment modeling and other evidence covering 15 of 
these areas, from SIP submittals or from modeling underway to support 
SIP revisions. This local modeling addressed only the current or 
requested attainment date in each area. We then made attainment and 
nonattainment predictions from this information.
    The general pattern we observed with the baseline scenario, i.e., 
without new emission reductions, is a broad reduction between 1996 and 
2007 in the geographic extent of ozone concentrations above the NAAQS, 
and in the frequency and severity of exceedances. This is consistent 
with the national emissions inventory trend between these two years. At 
the same time, we also found that peak ozone concentrations and the 
frequency of exceedances in 2030 were generally somewhat higher than in 
2007 for most areas analyzed. This too is consistent with our analysis 
of emission inventory trends, which shows that the total NOX 
inventory from all sources will decline from 2007 to about 2015 and 
then begin to increase due to growth in the activity of emission 
sources. In 2030, our analysis predicts that NOX emissions 
from all sources will be about one percent higher than in 2007. While 
we did not model ozone concentrations for years between 2007 and 2030, 
we expect that they would track the national emissions trend by showing 
a period of improvement after 2007 and then deterioration, although 
individual areas will vary due to local source mix and growth 
rates.\15\
---------------------------------------------------------------------------

    \15\ EPA's modeling presumed that cars and light trucks will 
continue to meet the emission levels of the National Low Emissions 
Vehicle (NLEV) program after model year 2003, even though the 
program will end in model year 2003 or shortly thereafter. Had our 
modeling not included such levels in its inventory assumptions, 
trends for ozone concentrations would have shown earlier increases 
in ozone concentrations.
---------------------------------------------------------------------------

    Within this general pattern of ozone attainment changes between 
1996 and 2030, we have determined that 26 metropolitan areas are 
certain or highly likely to need additional reductions to attain and 
maintain the 1-hour ozone NAAQS. These 26 areas are those that have 
current violations of the 1-hour ozone NAAQS and are predicted by the 
best ozone modeling we have available to still be in violation without 
a new federal vehicle program in 2007.\16\ Based on the general trends 
described above, without further emissions reductions many of these 
areas may also have violations continuously throughout the period from 
2007 to 2030, while others may briefly attain and then return to 
nonattainment on or before 2030. These 26 metropolitan areas are listed 
in Table III.B-1, along with their 1996 population which totals over 86 
million. The sizes of these areas and their geographical distribution 
strongly support an overall need for additional reductions in order to 
attain and maintain under section 202(i). Because ozone concentration 
patterns causing violations of the 1-hour NAAQS are well established to 
endanger public health or welfare, this determination also supports our 
actions today under the general authority of sections 202(a)(1), 
202(a)(3), and 202(b).
---------------------------------------------------------------------------

    \16\ The date of the predicted violation was 2007 for most 
areas, 2010 in the case of Los Angeles, CA, and 2030 in the case of 
Portland-Salem, OR.
---------------------------------------------------------------------------

    As indicated above, in reaching this conclusion about these 26 
areas, we examined local ozone modeling in SIP submittals. These local 
analyses are considered to be more extensive than our own modeling for 
estimating whether there would be NAAQS nonattainment without further 
emission reductions, when interpreted by a weight of evidence method 
which meets our guidance for such modeling. One of the areas which 
submitted a SIP revision was a special case. We have recently proposed 
to approve the 1-hour ozone attainment demonstration for the 
nonattainment area of Washington, D.C. (but not Baltimore). We have 
nevertheless included this area on the list of 26 that are certain or 
highly likely to require further reductions to attain and maintain, 
because its SIP attainment demonstration assumed emission reductions 
from vehicles meeting the National Low Emissions Vehicle (NLEV) 
standards.
    However, by its own terms, the NLEV standards would not extend 
beyond the 2003 model year if we did not promulgate Tier 2 vehicle 
standards at least as stringent as the NLEV standards. See 40 CFR 
86.1701-99(c). Thus, the emission reductions relied upon from 2004 and 
later model year NLEV vehicles are themselves ``further reductions'' 
for the purposes of CAA section 202(i).\17\ The local modeling 
indicating attainment with these reductions is therefore strong 
evidence that further reductions are needed past 2003, beyond those 
provided by the Tier 1 program. Based on this, and on the fact that our 
own ozone modeling showed the Washington, DC area to violate the NAAQS 
in 2007 even with full NLEV emission reductions, we have concluded that 
it should be included with areas that do require further reductions to 
attain and maintain the 1-hour ozone NAAQS.
---------------------------------------------------------------------------

    \17\ With regard to eventual final action on the 1-hour 
attainment demonstration for Washington, DC, the issue of the 
continuation of the NLEV standards is mooted by the promulgation of 
the Tier 2/Gasoline Sulfur program. A portion of the emission 
reductions from this program will replace the post-2003 model year 
NLEV reductions assumed in the SIP.
---------------------------------------------------------------------------

    The 1-hour ozone NAAQS presently does not apply in 12 of the 26 
areas listed in Table III.B-1, but we have proposed to re-instate it 
and expect to complete that action shortly. These areas are indicated 
in the table. Our decision to include these areas on this list is based 
on the contingency that we will re-instate the 1-hour standard in these 
areas. However, even if we considered only the 14 areas where the 1-
hour standard applies as of the signature date of this notice, we have 
concluded that our determination would be the same.

   Table III.B-1.--Twenty-Six Metropolitan Areas Which Are Certain or
   Highly Likely To Require Additional Emission Reductions in Order To
               Attain and Maintain the 1-Hour Ozone NAAQS
------------------------------------------------------------------------
                                                                 1996
                     Metropolitan area                        Population
                                                              (millions)
------------------------------------------------------------------------
Atlanta, GA MSA............................................          3.5
Barnstable-Yarmouth, MA MSA \a\............................          0.2
Baton Rouge, LA MSA........................................          0.6
Beaumont-Port Arthur, TX MSA...............................          0.4
Birmingham, AL MSA.........................................          0.9
Boston-Worcester-Lawrence, MA-NH-ME-CT CMSA \a\............          5.6
Charlotte-Gastonia-Rock Hill, NC-SC MSA \a\................          1.3

[[Page 6710]]

 
Cincinnati-Hamilton, OH-KY-IN CMSA.........................          1.9
Dallas-Fort Worth, TX CMSA.................................          4.6
Houma, LA MSA \a\..........................................          0.2
Houston-Galveston-Brazoria, TX CMSA........................          4.3
Huntington-Ashland, WV-KY-OH MSA \a\.......................          0.3
Indianapolis, IN MSA \a\...................................          1.5
Los Angeles-Riverside-San Bernardino CA CMSA...............         15.5
Louisville, KY-IN MSA......................................          1.0
Macon, GA MSA \a\..........................................          0.3
Memphis, TN-AR-MS MSA \a\..................................          1.1
Nashville, TN MSA \a\......................................          1.1
New York-Northern New Jersey-Long Island, NY-NJ-CT-PA CMSA.         19.9
Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD CMSA....          6.0
Pittsburgh, PA MSA.........................................          2.4
Portland-Salem, OR-WA CMSA \a\.............................          2.1
Providence-Fall River-Warwick, RI-MA MSA \a\...............          1.1
Richmond-Petersburg, VA MSA \a\............................          0.9
St. Louis, MO-IL MSA.......................................          2.5
Washington-Baltimore, DC-MD-VA-WV CMSA.....................          7.2
      Total Population.....................................         86.3
                                                            ------------
------------------------------------------------------------------------
Notes:
\a\ The 1-hour ozone NAAQS does not currently apply, but we have
  proposed and expect to re-instate it shortly.

    There are 12 additional metropolitan areas, with another 25.3 
million people in 1996, for which the available ozone modeling suggests 
significant risk of failing to attain and maintain the 1-hour ozone 
NAAQS without additional emission reductions. Table III.B-2 lists the 
areas we put in this second category. Our own ozone modeling predicted 
these 12 areas to need further reductions to avoid violations in 2007. 
For six of these areas, recent air quality monitoring data indicate 
violation, but we have reviewed local ozone modeling and other evidence 
indicating attainment in 2007.\18\ Based on this evidence, we have kept 
these areas separate from the previous set of 26 areas which we 
consider certain or highly likely to need additional reductions. 
However, we still consider there to be a significant risk of failure to 
attain and maintain in these six areas because this local modeling has 
inherent uncertainties, as all ozone modeling does. Moreover, the local 
modeling did not examine the period after initial attainment.
---------------------------------------------------------------------------

    \18\ The SIP revisions for Chicago and Milwaukee demonstrated 
that these two areas as well as Benton Harbor and Grand Rapids areas 
in Michigan (which are maintenance areas but have experienced ozone 
NAAQS violations recently) would not experience NAAQS violations in 
2007, with a strategy that relied only on Tier 1 vehicle emission 
standards. We have also recently proposed to approve the 1-hour 
attainment demonstration for Greater Connecticut, covering the 
Hartford and New London areas, which assumed full NLEV emission 
reductions. However, Connecticut is committed in its SIP to adopt 
California vehicle standards if NLEV does end with the 2003 model 
year if a more stringent federal program is not promulgated. The 
California standards are more stringent than NLEV. The case of one 
additional area whose attainment demonstration we recently proposed 
to approve, Western Massachusetts (Springfield), should be explained 
here to avoid possible confusion. Our own ozone modeling predicted 
that Springfield would attain the NAAQS in 2007. Massachusetts has 
adopted the California vehicle emission standards, so there is no 
issue of the continuation of the NLEV standards.
---------------------------------------------------------------------------

    For the other six of the 12 areas, the air quality monitoring data 
shows current attainment but with less than a 10 percent margin below 
the NAAQS. This suggests these areas may remain without violations for 
some time, but we believe there is still a moderate risk of future 
violation of the NAAQS because meteorological conditions may be more 
severe in the future.
    It is highly likely that at least some of these 12 areas will 
violate the NAAQS without additional reductions, and it is a distinct 
possibility that many of them will do so. We consider the situation in 
these areas to support our determination that, overall, additional 
reductions are needed for attainment and maintenance. However, we 
reiterate that our predictions for the 26 areas listed in Table III.B-
1, and even our predictions for only the 14 of those 26 for which the 
1-hour standard now applies, are a sufficient basis for our 
determination of an overall need for additional reductions and for our 
actions today.

 Table III.B-2.--Twelve Metropolitan Areas With Moderate to Significant
  Risk of Failing To Attain and Maintain the 1-Hour Ozone NAAQS Without
                     Additional Emission Reductions
------------------------------------------------------------------------
                                                                 1996
                     Metropolitan area                        Population
                                                              (millions)
------------------------------------------------------------------------
Benton Harbor, MI MSA \a\..................................          0.2
Biloxi-Gulfport-Pascagoula, MS MSA \a\.....................          0.3
Chicago-Gary-Kenosha, IL-IN-WI CMSA........................          8.6
Cleveland-Akron, OH CMSA \a\...............................          2.9
Detroit-Ann Arbor-Flint, MI CMSA \a\.......................          5.3
Grand Rapids-Muskegon-Holland, MI MSA \a\..................          1.0
Hartford, CT MSA...........................................          1.1
Milwaukee-Racine, WI CMSA..................................          1.6
New London-Norwich, CT-RI MSA \a\..........................          1.3
New Orleans, LA MSA \a\....................................          0.3
Pensacola, FL MSA \a\......................................          0.4
Tampa, FL MSA \a\..........................................          2.2
                                                            ------------
      Total Population.....................................        25.3
------------------------------------------------------------------------
Notes:
\a\ The 1-hour ozone NAAQS does not currently apply, but we have
  proposed and expect to re-instate it shortly.

e. Issues and Comments Addressed
    We received detailed comments from the automobile industry related 
to ozone modeling and the need for additional emission reductions in 
order to attain and maintain. These were of three types.
    Accuracy of modeling ozone concentrations.--The automobile industry 
commenters pointed out that in the modeling presented with our 
proposal, the ozone model and exceedance predicted violations of the 
NAAQS in 1995 in areas where monitoring data indicated no violations. 
They cited these cases as examples of model inaccuracy. We have made 
improvements to our emissions estimates, our episodes, and other 
aspects of the modeling system. These changes have improved the 
accuracy of the predicted ozone concentrations. Also, as stated above, 
our list of 26 areas that support our finding that additional 
reductions are needed does not include any areas where recent 
monitoring data shows no violations. The final RIA addresses issues of 
model accuracy in more depth.
    As explained in the final RIA, our very latest estimates of car and 
light truck emissions without the benefits of our new standards are 
actually somewhat higher than the estimates used in the final round of 
ozone modeling, because the most recent data indicate even more serious 
adverse emissions effects from sulfur in

[[Page 6711]]

gasoline. Thus, we think our predictions of ozone nonattainment using 
emission estimates prepared before this most recent data on sulfur was 
considered, may be conservative. This topic is discussed in more detail 
in section III.B.3.
    Prediction of attainment/nonattainment.--For most areas, we 
predicted 2007 or 2030 attainment or nonattainment based on the 
exceedance method. The exceedance method predicts an area to be in 
attainment only if there are no predicted exceedances of the NAAQS 
during any episode day. However, for the areas for which we have 
received 1-hour attainment demonstrations in SIP revisions, our 
predictions were based on a larger and more robust set of data. When a 
state's modeling shows an exceedance that would otherwise indicate 
nonattainment, we allow the state to submit a variety of other evidence 
and analysis, such as locality specific meteorological conditions, 
analysis of air quality and emissions trends, observational based 
models that make use of data on concentrations of ozone precursors, a 
rollback analysis, and information on the responsiveness of the air 
quality model. We then make a weight-of-evidence determination of 
attainment or nonattainment based on consideration of all this local 
evidence. We did this in forming the set of 26 areas we consider 
certain or highly likely to need additional reductions to attain or 
maintain, in some cases concluding that attainment was demonstrated and 
in others that it was not.
    The auto industry commenters recommended the use of rollback as the 
single method for making attainment and nonattainment predictions from 
predicted ozone concentrations. They stated that the rollback method 
would be more consistent than the exceedance method with the NAAQS's 
allowance of three exceedances in a three year period. They also 
believed that the rollback method would compensate for what they 
considered to be model over predictions of ozone concentrations. We 
believe that the rollback method is not appropriate for use as the 
sole, or even a primary, test of 1-hour ozone attainment or 
nonattainment. A rollback analysis may overlook violations that occur 
away from ozone monitors, and it may inappropriately project the effect 
of a recent period of favorable weather into the prediction of future 
attainment. In determining the attainment and maintenance prospects of 
numerous areas, as here, it is not possible to assemble and consider 
the full set of local evidence that should accompany any consideration 
of a rollback analysis. In such a situation, we believe that the 
exceedance method is the appropriate choice. A fuller explanation of 
our reasons for considering the exceedance method more appropriate than 
rollback is given in our Response to Comments document.
    We have not completely excluded the rollback approach from the 
determinations in this rulemaking. We have considered it for those 
areas for which we had enough information to allow us to consider it in 
its proper context, i.e., for those areas covered by recent 1-hour SIP 
submissions. Of these areas, we concluded that some will not attain 
without additional reductions and some will.
    While we disagree with the use of the rollback method, we have 
conducted a hypothetical analysis of 2007 attainment in all areas based 
only on our own ozone modeling, applying the rollback method 
recommended by the commenters. We calculated in this analysis that 15 
metropolitan areas and three other counties with nearly 56 million in 
population in 1996 would violate the NAAQS in 2007. Moreover, these 15 
metro areas are geographically spread out \19\. We believe that this 
result using the rollback method does not fully capture the likely 
nonattainment that would exist in 2007 in the absence of additional 
emission reductions. However, even if we were to consider the use of 
rollback valid, we consider this set of areas to also be an adequate 
basis for making the same determinations we have made based on the more 
appropriate exceedance-based analysis. The details of our hypothetical 
analysis using the rollback method are given in the final RIA and the 
technical support document for our ozone modeling analyses.
---------------------------------------------------------------------------

    \19\ We did not include the Los Angeles-Riverside-San Bernardino 
area in this analysis, since it was not covered by our 2007 
modeling, but we do believe it is rightly part of the basis for a 
determination on the need for additional reductions.
---------------------------------------------------------------------------

    Ozone modeling and predictions.--Members of the automobile 
manufacturing industry submitted two modeling studies: (1) a repetition 
of our first round of modeling of the 37-state eastern U.S. domain but 
with their recommendations regarding estimates of motor vehicle 
emissions in 2007 and with the rollback method used to predict 2007 
nonattainment, and (2) finer grid modeling for three smaller domains, 
also with their recommended estimates of emissions and with 
nonattainment predicted using a rollback method. Both modeling efforts 
showed less widespread nonattainment than we have determined and 
described here. Taken together, these studies predicted 2007 violations 
by the rollback method in or downwind of New York City, Chicago, 
Milwaukee, western Michigan, Baton-Rouge, and Houston.
    The main difference between the automobile industry's ozone 
modeling and ours is in the emission estimates. We have reviewed the 
emissions estimates used in the industry studies. We concluded that the 
industry's emissions estimates employ inappropriate analytical steps in 
the calculation. Among the problems are that the adjustments for the 
benefits of inspection and maintenance programs were not consistent 
with the base estimate of in-use emissions, and the sales trend towards 
light trucks and SUVs was not properly captured. Also, as stated, we 
disagree with the use of the rollback approach as the sole test of 
attainment. As a consequence, we conclude that the industry's ozone 
modeling is not an appropriate basis for making predictions of future 
attainment or nonattainment. The final RIA explains in detail how we 
have addressed these and other emissions modeling issues in a manner 
which is more technically consistent and correct,\20\ and how we have 
considered the results from rollback analyses but only as part of broad 
weight-of-evidence determinations for areas for which this was possible 
at this time. Our point-by-point review is given in our Response to 
Comments document.
---------------------------------------------------------------------------

    \20\ As explained in the final RIA, our very lastest estimates 
of car and light truck emissions without the benefits of our new 
standards are actually somewhat higher than the estimates used in 
the final round of ozone modeling, because more recent data indicate 
even more serious adverse emissions effects from sulfur in gasoline. 
Thus, we think our predictions of ozone nonattainment may be 
conservative.
---------------------------------------------------------------------------

    The material on ozone modeling submitted by the commenters, having 
been prepared by the rollback method, was difficult to re-interpret 
according to our preferred exceedance method. However, it appears that 
if this modeling were interpreted by the exceedance method, it would 
indicate 2007 nonattainment in Baltimore and Washington, D.C. in 
addition to New York City, Chicago, Milwaukee, western Michigan, Baton-
Rouge, and Houston. Overall, we conclude that the material submitted by 
the automobile industry does not contradict the facts we have used to 
make our determinations or the actions we are taking today.
f. 8-Hour Ozone
    The predictions of ozone concentrations from the ozone modeling

[[Page 6712]]

can be used to make predictions of attainment or nonattainment with the 
8-hour ozone NAAQS. In our draft RIA, we estimated that 28 metropolitan 
areas and 4 rural counties with a combined population of 80 million 
people would violate the 8-hour ozone NAAQS in 2007 without additional 
emission reductions. Commenters noted differences between exact 
rollback procedure we had used in this projection and the steps 
specified in recent draft guidance we have issued on 8-hour ozone 
modeling. We agree with the commenters that the steps specified in our 
guidance are the correct ones to use. However, since we are not basing 
our promulgation of the Tier 2/Gasoline Sulfur Program on the 8-hour 
ozone NAAQS, we have not made any new predictions of 8-hour ozone 
nonattainment areas in 2007. Based on our findings in previous analyses 
of this sort, however, we believe that in the absence of the Tier 2/
Gasoline Sulfur program there would be 8-hour nonattainment areas that 
are not also areas which we have concluded are certain or highly likely 
to violate the 1-hour NAAQS. If we considered it appropriate to proceed 
with implementation of the 8-hour standard, these areas would support 
our determination on the need for emission reductions, and the 
appropriateness and necessity of the vehicle and gasoline standards we 
are establishing.
3. Cars and Light-duty Trucks Are a Big Part of the NOX and 
VOC Emissions, and Today's Action Will Reduce This Contribution 
Substantially
    Emissions of VOCs and NOX come from a variety of 
sources, both natural and man-made. Natural sources, including 
emissions that have been traced to vegetation, account for a 
substantial portion of total VOC emissions in rural areas. The 
remainder of this section focuses on the contribution of motor vehicles 
to emissions from human sources. Man-made VOCs are released as 
byproducts of incomplete combustion as well as evaporation of solvents 
and fuels. For gasoline-fueled cars and light trucks, approximately 
half of the VOC emissions come from the vehicle exhaust and half come 
from the evaporation of gasoline from the fuel system. NOX 
emissions are dominated by man-made sources, most notably high-
temperature combustion processes such as those occurring in automobiles 
and power plants. Emissions from cars and light trucks are currently, 
and will remain, a major part of nationwide VOC and NOX 
emissions. In 1996, cars and light trucks comprised 25 percent of the 
VOC emissions and 21 percent of the NOX emissions from human 
sources in the U.S.\21\ The contribution in metropolitan areas was 
generally larger.
---------------------------------------------------------------------------

    \21\ Emission Trend Report, 1997.
---------------------------------------------------------------------------

    We have made significant improvements in the analysis used to 
estimate the emission inventory impacts of this action, including 
improving the emission factor modeling, using more detailed local 
modeling input, and using a more conservative (lower) estimate of VMT 
growth. These changes are detailed in the Regulatory Impact Analysis 
for this rule. The following discussion is based on this improved 
analysis.
    In addition to the improvements which are incorporated in this 
analysis, we also made further improvements in the emission factor 
modeling after analyzing comments which we did not have time to 
incorporate into the detailed inventory analysis described here. The 
most notable change is related to data which indicates that 
NOX and NMOG emissions are even more sensitive to gasoline 
sulfur than previously thought. This change and others are described in 
detail in the Response to Comments. Our early analysis of these changes 
indicates that incorporating them into this analysis would provide 
further support for this action because these changes result in both 
increases in the baseline emissions without Tier 2 and in the 
reductions that would result from Tier 2. For example, in the detailed 
inventory analysis we report below, we project nationwide Tier 2/
Gasoline Sulfur control NOX reductions from cars and light 
trucks of 856,471 tons per year in 2007. Using the version of the 
emission factor model that incorporates these additional changes 
increases the estimated Tier 2 reductions to approximately 1.0 million 
tons per year in 2007 (estimated baseline emissions without Tier 2 
increase from 3.1 million tons per year in 2007 to approximately 3.7 
million tons per year using the version of the emission factor model 
that incorporates these additional changes). Therefore, the estimates 
of the inventory reductions given here (and used as the basis for the 
ozone air quality analysis) are clearly conservative.
    Motor vehicle emission controls have led to significant 
improvements in emissions released to the air (the ``emission 
inventory'') and will continue to do so in the near term \22\. In the 
current analysis, we continue to find that total emissions from the car 
and light truck fleet would continue to decline for a period, even if 
we were not establishing the Tier 2/Gasoline Sulfur program. This 
decline would result from the introduction of cleaner reformulated 
gasoline in 2000, the introduction of National Low Emission Vehicles 
(NLEVs) and vehicles complying with the Enhanced Evaporative Test 
Procedure and Supplemental Federal Test Procedures, and the continuing 
removal of older, higher-emitting vehicles from the in-use vehicle 
fleet. On a per mile basis, VOC and NOX emissions from cars 
and light trucks combined would have continued to decline well beyond 
2015, reflecting the continuing effect of fleet turnover under existing 
emission control programs. However, projected increases in vehicle 
miles traveled (VMT) will cause total emissions from these vehicles to 
increase. With this increase in travel and without additional controls, 
we project that combined NOX and VOC emissions for cars and 
light trucks without the Tier 2/Gasoline Sulfur program would increase 
starting in 2013 and 2016, respectively, so that by 2030 they would 
return to levels above or nearly the same as they will be in 2000. In 
cities experiencing rapid growth, such as Charlotte, North Carolina, 
the near-term trend towards lower emissions tends to reverse 
sooner.\23\ With additional improvements in the modeling done in 
Response to Comments, we now estimate that without the Tier 2/Gasoline 
Sulfur program, there will be a constant increase in these emission 
over time.
---------------------------------------------------------------------------

    \22\ The auto manufacturer and northeastern state commitments to 
the NLEV program are scheduled to end in 2004 without further EPA 
action on Tier 2 standards, although continued voluntary compliance 
by automobile manufacturers and the affected states is a 
possibility. Our analysis of emission trends and the emission 
benefits expected from today's action assumes for the base scenario 
a continuation of the NLEV program past 2004. If the NLEV program 
does not continue beyond 2004, the reductions resulting from Tier 2 
would be larger than what is shown here. It also includes all other 
control measures assumed to be implemented in local areas, such as 
reformulated gasoline in all required and opt-in areas and enhanced 
I/M where required.
    \23\ Also, if the NLEV program ends in model year 2004 or 
shortly thereafter, as scheduled, this trend would reverse more 
quickly in all areas.
---------------------------------------------------------------------------

    Figure III-1 illustrates this expected trend in car and light truck 
NOX emissions in the absence of today's action. The figure 
also allows the contribution of cars to be distinguished from that of 
light trucks. The figure clearly shows the impact of steady growth in 
light truck sales and travel on overall light-duty NOX 
emissions; the decrease in overall light-duty emission levels is due 
solely to reductions in LDV emissions. In 2000, we project that

[[Page 6713]]

trucks will produce about 50 percent of combined car and light truck 
NOX emissions. We project that truck emissions would 
actually increase after 2000, and over the next 30 years, trucks would 
grow to dominate light-duty NOX emissions. By 2010, we 
project trucks would make up two-thirds of light-duty NOX 
emissions; by 2020, nearly three-quarters of all light-duty 
---------------------------------------------------------------------------
NOX emissions would be produced by trucks.

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR10FE00.000


BILLING CODE 6560-50-C
    Today's action will significantly decrease NOX and VOC 
emissions from cars and light trucks, and will delay the date by which 
NOX and VOC emissions will begin to increase due to 
continued VMT growth. With Tier 2/Gasoline Sulfur control, light-duty 
vehicle NOX and VOC emissions are projected to continue 
their downward trend past 2020. Table III.B-3 shows the annual tons of 
NOX that we project will be reduced by today's action.\24\ 
These projections include the benefits of low sulfur fuel and the 
introduction of Tier 2 car and light truck standards.
---------------------------------------------------------------------------

    \24\ Today's action for both vehicles and fuels will apply in 49 
states and the U.S. territories, excluding only California. There 
will also be emissions reductions in California from vehicles that 
relocate or visit from other states. However, much of the emissions 
inventory analysis for this action was made for a 47-state region 
which excludes California, Alasks, and Hawaii. The latter two states 
were not included in the scope of ozone, PM and economic benefits 
modeling.

  Table III.B-3.--NOX Emissions From Cars and Light Trucks as Percent of Total Emissions, and Reductions Due to
                               Tier 2/Gasoline Sulfur Control (tons per year) \a\
----------------------------------------------------------------------------------------------------------------
                                                                                    Light-duty
                                                                    Light-duty      percent of      Light-duty
                              Year                                tons-- without   total without   tons reduced
                                                                      tier 2          tier 2      by tier 2 b, c
----------------------------------------------------------------------------------------------------------------
2007............................................................       3,095,698              16         856,471
2010............................................................       2,962,093              16       1,235,882
2015............................................................       2,968,707              17       1,816,767
2020............................................................       3,160,155              17       2,220,210

[[Page 6714]]

 
2030............................................................       3,704,747              19      2,795,551
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Estimates exclude California, Alaska, and Hawaii, although reductions will occur in all three.
\b\ Does not include emission reductions from heavy-duty gasoline vehicles.
\c\ These numbers represent a conservative estimate of the benefits of the Tier 2/Sulfur program. Based on the
  updated emission factor model developed in response to comments, the program will result in significantly
  larger benefits. For example, our new model projects NOX reductions of 1,100,000 tons in 2007.

    The lower sulfur levels in today's action will produce large 
emission reductions on pre-Tier 2 vehicles as soon as low-sulfur 
gasoline is introduced, in addition to enabling Tier 2 vehicles to 
achieve lower emission levels. Among the pre-Tier 2 vehicles, the 
largest per vehicle emission reductions from lower sulfur in gasoline 
will be achieved from vehicles which automobile manufacturers will have 
sold under the voluntary National Low Emission Vehicle program. These 
vehicles are capable of substantially lower emissions when operated on 
low sulfur fuel. Older technology vehicles experience a smaller but 
significant effect.
    In 2007, when all gasoline will meet the new sulfur limit and when 
large numbers of 2004 and newer vehicles meeting these standards will 
be in use, the combined NOX emission reduction from vehicles 
and fuels will be over 850,000 tons per year. After 2007, emissions 
will be reduced further as the fleet turns over to Tier 2 vehicles 
operating on low sulfur fuel. By 2020, NOX emissions will be 
reduced by 70% from the levels that would occur without today's action. 
This reduction equals the NOX emissions from over 164 
million pre-Tier 2 cars and light trucks. This reduction represents a 
12 percent reduction in NOX emissions from all manmade 
sources.
    VOC emissions will also be reduced by today's action, with 
reductions increasing as the fleet turns over. We estimate that the 
reductions as a percent of emissions from cars and light trucks will be 
7 percent in 2007 and grow to 17 percent in 2020.
    As discussed earlier, in California, smaller but still substantial 
reductions in both NOX and VOC will be achieved because 
vehicles visiting and relocating to California will be designed to meet 
these standards. Also, vehicles from California visiting other states 
will not be exposed to high sulfur fuel. California Air Resources Board 
staff have estimated that Tier 2/Sulfur will reduce NOX 
emissions in the South Coast Air Quality Management District by 
approximately 4 tons per day in 2007.\25\ CARB staff plan to 
incorporate these reductions in their revised attainment plan for this 
district, which includes most of the Los Angeles-Long Beach region.
---------------------------------------------------------------------------

    \25\ California Air Resources Board, Executive Order G-99-037, 
May 20, 1999, Attachment A, 6-7, 10. These NOX reductions 
represent a small fraction of the emission reductions needed in the 
South Coast to attain the NAAQS.
---------------------------------------------------------------------------

    These estimates of emission reductions reflect a mixture of urban, 
suburban, and rural areas. However, cars and light trucks generally 
make up a larger fraction of the emission inventory for urban and 
suburban areas, where human population and personal vehicle travel is 
more concentrated than emissions from other sources such as heavy-duty 
highway vehicles, power plants, and industrial boilers. We have 
estimated emission inventories for three cities using the same methods 
as were used to project the nationwide inventories, and we present the 
results for 2007 below in Table III.B-4.
    These results confirm that light-duty vehicles make up a greater 
share of the NOX emission inventories in urban areas than 
they do in the nationwide inventory. While these vehicles' share of 
national NOX emissions in 2007 is about 16 percent, it is 
estimated to be about 34 percent in the Atlanta area. There is also a 
range in VOC contributions, with Atlanta again being the area with the 
largest car and light truck contribution at 17 percent. In metropolitan 
areas with high car and light truck contributions, today's action will 
represent a larger step towards attainment since it will have a larger 
effect on total emissions.

 Table III.B-4--Proportion of the Total Urban Area NOX and VOC Inventory
              in 2007 Attributable to Light-Duty Vehiclesa
------------------------------------------------------------------------
                                                    NOX          VOC
                    Region                       (percent)    (percent)
------------------------------------------------------------------------
Nationwide....................................           16           13
New York urban area...........................           18            6
Atlanta urban area............................           34           17
Charlotte urban area..........................           24          15
------------------------------------------------------------------------
Notes:
a The estimates reflect continuation of NLEV beyond 2004.

    Another useful perspective from which to view the magnitude of the 
emission reductions from today's proposal is in terms of the additional 
emission reductions from all human sources that areas will need to 
attain the 1-hour ozone standard. For this analysis, we reviewed our 
proposals for action on the 1-hour attainment demonstrations submitted 
by the states. With these proposals, EPA identified estimates of 
additional emission reductions (measures in addition to those submitted 
by the state in their plans) necessary for attainment for some

[[Page 6715]]

of the areas. These estimates of additional emission reductions are 
documented in the individual Federal Register Notices. Using these 
estimates and the estimates of Tier 2 reductions developed for today's 
action, we have determined what portion of these additional emission 
reductions would be accounted for by today's action. These estimates 
are reported in Table III.B-5, which shows the contribution of Tier 2/
Sulfur NOX reductions to the additional emission reduction 
necessary for attainment for three metropolitan areas. For example, for 
the New York nonattainment area, 89% of the additional NOX 
emission reductions needed for attainment are provided for with today's 
action. This leaves 11% of the additional NOX emission 
reductions to be addressed by the State through other local sources.
    EPA and the States already have significant efforts underway to 
lower ozone precursor emissions through national regulations and State 
Implementation Plans. Table III.B-5 shows the contribution of Tier 2 to 
the substantial State-led efforts to provide attainment with the ozone 
NAAQS. Since the Tier 2 program has evolved in the past year after much 
of the States' efforts were completed, many of the States were unable 
to estimate the benefits of Tier 2 in their areas. EPA's proposal 
actions on these SIPs for the ozone NAAQS addresses the need for Tier 2 
in many areas. More specifically, Tier 2 is being used to help States 
identify additional measures, in addition to those in their plans, 
necessary for attainment.
    These estimates are subject to change as the states review and 
comment on our proposed action on the SIPs. These figures show that 
today's proposal would make a very substantial contribution to these 
cities' attainment programs, but that there will still be a need for 
additional reductions from other sources. The emission reductions from 
today's proposal would clearly not exceed the reductions needed from an 
air quality perspective for these areas.

  Table III.B-5.--Contribution of Tier 2/Sulfur NOX Reductions to Ozone
           Attainment Efforts of Selected Nonattainment Areas
------------------------------------------------------------------------
                                                  Percent of additional
                                                NOX reductions necessary
                                                     for attainment
     Nonattainment area (attainment date)      -------------------------
                                                                Needed
                                                From tier 2   after tier
                                                                  2
------------------------------------------------------------------------
Baltimore (2005)..............................          100            0
New York (2007)...............................           89           11
Philadelphia (2005)...........................           87           13
------------------------------------------------------------------------

4. Ozone Reductions Expected From This Rule
    The large reductions in emissions of ozone precursors from today's 
standards will be very beneficial to federal and state efforts to lower 
ozone levels and bring about attainment with the current one-hour ozone 
standard. The air quality modeling for the final rule shows that 
improvements in ozone levels are expected to occur throughout the 
country because of the Tier 2/Gasoline Sulfur program.\26\ EPA found 
that the program significantly lowers model-predicted exceedances of 
the ozone standard. In 2007 the number of exceedances in CMSA/MSAs is 
forecasted to decline by nearly one-tenth and in 2030, when full 
turnover of the vehicle fleet has occurred, the program lowers such 
exceedances by almost one-third. In these same areas, the total amount 
of ozone above the NAAQS is forecasted to decline by about 15 percent 
in 2007 and by more than one-third in 2030. In the vast majority of 
areas, the air quality modeling predicts that the program will lower 
peak summer ozone concentrations for both 2007 and 2030. The reduction 
in daily maximum ozone is nearly 2 ppb on average in 2007 and over 5 
ppb on average in 2030. These reductions contribute to EPA's assessment 
that the program will provide the large set of public health and 
environmental benefits summarized in Section IV.D of the Preamble. The 
forecasted impacts of the program on ozone in 2007 and 2030 are further 
described in the Tier 2 Air Quality Modeling Technical Support 
Document.
---------------------------------------------------------------------------

    \26\ EPA assessment of air quality changes for 2007 and 2030 
focused on 37 states in the East because these states cover most of 
the areas with 1-hour nonattainment problems.
---------------------------------------------------------------------------

    During the public comment period on the proposed rule, EPA received 
several comments that expressed concern about potential increases in 
ozone that might occur as a result of this rule. As indicated above, 
the air quality modeling results indicate an overall reduction in ozone 
levels in 2007 and 2030 during the various episodes modeled. In 
addition to ozone reductions, a few areas had predicted ozone increases 
in portions of the area during parts of the episodes modeled. In most 
of these cases, we observed a net reduction in ozone levels in these 
areas due to the program. In the very small number of exceptions to 
this, the Agency did find benefit from reduction of peak ozone levels. 
Based upon a careful examination of this issue, including EPA's 
modeling results as well as consideration of the modeling and analyses 
submitted by commenters, it is clear that the significant ozone 
reductions from this rule outweigh the limited ozone increases that may 
occur. Additional details on this issue are provided in the Response to 
Comments document and in the Tier 2 Air Quality Modeling Technical 
Support Document.
    Taken together, EPA believes these results indicate that it will be 
much easier for States to develop State Implementation Plans which will 
attain and maintain compliance with the one-hour ozone standard. EPA 
will work with States conducting more detailed local modeling of their 
specific ozone situation, to ensure that their SIPs will provide 
attainment. Notably, there are also other upcoming federal measures to 
lower ozone precursors that will aid these efforts. If the State 
modeling of local programs shows a need, the Agency will work with 
states to plan further actions to produce attainment with the NAAQS in 
order to protect the public's health and the environment. Further 
details on EPA's modeling results can be found in the Agency's Response 
to Comments and technical support documents.

C. Particulate Matter

    The need to control the contribution of cars and light trucks to 
ambient concentrations of particulate matter (PM) is the basis for our 
adoption of the new PM emission standards for vehicles. PM is also a 
supplemental consideration in our promulgation of

[[Page 6716]]

the vehicle emission standards for NOX and VOC, and for the 
limits on sulfur in gasoline, because SOx, NOX, and VOC are 
PM precursors.
    For cars and for light trucks under 3750 pounds loaded vehicle 
weight, we are establishing new emission standards under the provisions 
of CAA section 202(i), which ties our action to the need for additional 
emission reductions in order to attain and maintain the NAAQS. The 
NAAQS relevant to the PM emission standards is the PM10 
NAAQS. The PM10 NAAQS also provides additional but not 
essential support to our promulgation of the NOX and VOC 
standards, since these standards are fully supportable on the basis of 
the 1-hour ozone NAAQS.
    For the vehicles not subject to CAA 202(i), and for the gasoline 
sulfur limits, our actions are tied to determinations regarding public 
health and welfare risks more broadly, under CAA sections 202(a), 
202(b), and 211(c). The role of NOX, VOC, and PM emissions 
in contributing to atmospheric concentrations of PM10 is an 
important element of the risk that these emissions pose to public 
health and welfare.
    PM also poses risks to public health not fully reflected in the 
PM10 NAAQS. Though EPA has not relied on the adverse health 
impacts of fine PM to promulgate this rule, it is well established that 
such impacts exist. A summary of these effects is given in the next 
section. In addition, based on the available science, EPA's Office of 
Research and Development has recently submitted to a committee of our 
Science Advisory Board a draft assessment document which contains a 
proposed conclusion that diesel exhaust is a likely human cancer hazard 
and is a potential cause of other nonmalignant respiratory effects. The 
scientific advisory committee has met to discuss this document, and we 
are awaiting written review comments from the committee. We expect to 
submit a further revision of the document to the advisory committee 
before we make the document final.
1. Background on PM
    Particulate matter (PM) represents a broad class of chemically and 
physically diverse substances that exist as discrete particles (liquid 
droplets or solids) over a wide range of sizes. The NAAQS that 
regulates PM addresses only PM with a diameter less than or equal to 10 
microns, or PM10. The coarse fraction of PM10 
consists of those particles which have a diameter in the range between 
2.5 and 10 microns, and the fine fraction consists of those particles 
which have a diameter less than or equal to 2.5 microns, or 
PM2.5. These particles and droplets are produced as a direct 
result of human activity and natural processes, and they are also 
formed as secondary particles from the atmospheric transformation of 
emissions of SOX, NOX, ammonia, and VOCs.
    Natural sources of particles in the coarse fraction of 
PM10 include windblown dust, salt from dried sea spray, 
fires, biogenic emanation (e.g., pollen from plants, fungal spores), 
and volcanoes. Fugitive dust and crustal material (geogenic materials) 
comprise approximately 80% of the coarse fraction of the 
PM10 inventory as estimated by methods in use today.\27\ 
Manmade sources of these coarser particles arise predominantly from 
combustion of fossil fuel by large and small industrial sources 
(including power generating plants, manufacturing plants, quarries, and 
kilns), wind erosion from crop land, roads, and construction, dust from 
industrial and agricultural grinding and handling operations, metals 
processing, and burning of firewood and solid waste. Coarse-fraction 
PM10 remains suspended in the atmosphere a relatively short 
period of time.
---------------------------------------------------------------------------

    \27\ U.S. EPA (1998) National Air Pollutant Emission Trends 
Update, 1970-1997. EPA-454/E-98-007. There is evidence from ambient 
studies that emissions of these materials may be overestimated and/
or that once emitted they have less of an influence on monitored PM 
concentrations (of both PM10 and PM2.5) than 
this inventory share would suggest.
---------------------------------------------------------------------------

    Most of the emission sources listed for coarse particles also have 
a substantial fine particle fraction. Their share of the 
PM2.5 inventory is somewhat smaller, however, because of the 
role of other sources that give rise primarily to PM2.5. The 
other sources of PM2.5 include carbon-based particles 
emitted directly from gasoline and diesel internal combustion engines, 
sulfate-based particles formed from SOX and ammonia, 
nitrate-based particles formed from NOX and ammonia, and 
carbonaceous particles formed through transformation of VOC emissions. 
PM2.5 particles from fugitive dust and crustal sources 
comprise substantially less than their share of coarse PM emissions, 
approximately one-half of the directly emitted PM2.5 
inventory as estimated by methods in use today. The presence and 
magnitude of crustal PM2.5 in the ambient air is much lower 
even than suggested by this smaller inventory share, due to the 
additional presence of secondary PM from non-crustal sources and the 
removal of a large portion of crustal emissions close to their source. 
This near-source removal results from crustal PM's lack of inherent 
thermal buoyancy, low release height, and interaction with surrounding 
vegetation (which acts to filter out some of these particles).
    Secondary PM is dominated by sulfate particles in the eastern U.S. 
and parts of the western U.S., with nitrate particles and carbonaceous 
particles dominant in some western areas. Mobile sources can reasonably 
be estimated to contribute to ambient secondary nitrate and sulfate PM 
in proportion to their contribution to total NOX and 
SOX emissions.
    The sources, ambient concentration, and chemical and physical 
properties of PM10 vary greatly with time, region, 
meteorology, and source category. A first step in developing a plan to 
attain the PM10 NAAQS is to disaggregate ambient 
PM10 into the basic categories of sulfate, nitrate, 
carbonaceous, and crustal PM, and then determine the major contributors 
to each category based on knowledge of local and upwind emission 
sources. Following this approach, SIP strategies to reduce ambient PM 
concentrations have generally focused on controlling fugitive dust from 
natural soil and soil disturbed by human activity, paving dirt roads 
and controlling soil on paved roads, reducing emissions from 
residential wood combustion, and controlling major stationary sources 
of PM10 where applicable. The control programs to reduce 
stationary, area, and mobile source emissions of sulfur dioxide, oxides 
of nitrogen, and volatile organic compounds in order to achieve 
attainment with the sulfur dioxide and ozone NAAQS also have 
contributed to reductions in the fine fraction of PM10 
concentrations. In addition, the EPA standards for PM emissions from 
highway and nonroad engines are contributing to reducing 
PM10 concentrations. As a result of all these efforts, in 
the last ten years, there has been a downward trend in PM10 
concentrations, with a leveling off in the later years.
    Particulate matter, like ozone, has been linked to a range of 
serious respiratory health problems. Scientific studies suggest a 
likely causal role of ambient particulate matter in contributing to a 
series of health effects. The key health effects categories associated 
with particulate matter include premature mortality, aggravation of 
respiratory and cardiovascular disease (as indicated by increased 
hospital admissions and emergency room visits, school absences, work 
loss days, and restricted activity days), changes in lung function and 
increased respiratory symptoms, changes to lung tissues and structure, 
and altered respiratory defense

[[Page 6717]]

mechanisms. PM also causes damage to materials and soiling. It is a 
major cause of substantial visibility impairment in many parts of the 
U.S.
    Motor vehicle particle emissions and the particles formed by the 
transformation of motor vehicle gaseous emissions tend to be in the 
fine particle range. Fine particles are a special health concern 
because they easily reach the deepest recesses of the lungs. Scientific 
studies have linked fine particles (alone or in combination with other 
air pollutants), with a series of significant health problems, 
including premature death; respiratory related hospital admissions and 
emergency room visits; aggravated asthma; acute respiratory symptoms, 
including aggravated coughing and difficult or painful breathing; 
chronic bronchitis; and decreased lung function that can be experienced 
as shortness of breath.
    These effects are discussed further in EPA's ``Staff Paper'' and 
``Air Quality Criteria Document'' for particulate matter.\28\
---------------------------------------------------------------------------

    \28\ U.S. EPA, 1996, Air Quality Criteria for Particulate 
Matter, EPA/600/P-95/001aF. Review of the National Ambient Air 
Quality Standards for Particulate Matter: Policy Assessment of 
Scientific and Technical Information, OAQPS Staff Paper, EPA-452 R-
96-013, July 1996.
---------------------------------------------------------------------------

    EPA first established primary (health-based) and secondary 
(welfare-based) National Ambient Air Quality Standards for 
PM10 in 1987. The annual and 24-hour primary PM10 
standards were set at 50 g/m\33\, and 150 g/m\3\, 
respectively.\29\ In July 1997, the primary standards were revised to 
add two new PM2.5 standards. At the same time, we changed 
the statistical form of the primary PM10 standard and set 
all the secondary standards to be the same as the primary.
---------------------------------------------------------------------------

    \29\ The annual average PM10 NAAQS is based on a three-year 
average, and the 24-hour NAAQS is based on expected exceedances over 
a three-year period.
---------------------------------------------------------------------------

    On May 14, 1999, a panel of the U.S. Court of Appeals for the 
District of Columbia Circuit reviewed EPA's revisions to the ozone and 
PM NAAQS and found, by a 2-1 vote, that sections 108 and 109 of the 
Clean Air Act, as interpreted by EPA, represent unconstitutional 
delegations of Congressional power. American Trucking Ass'ns, Inc., et 
al., v. Environmental Protection Agency, 175 F.3d 1027 (D.C. Cir. 
1999). Among other things the Court remanded the record for the 8-hour 
ozone NAAQS and the PM2.5 NAAQS to EPA. On October 29, 1999, 
EPA's petition for rehearing by the three judge panel was denied, with 
an exception regarding the revised ozone NAAQS. EPA's petition for 
rehearing en banc by the full Circuit was also denied, although five of 
the nine judges considering the petition agreed to rehear the case.
    The pre-existing PM10 NAAQS remains in effect (except 
for one area--Boise, ID--where prior to the court's decision we had 
determined it no longer to apply). We believe that given the uncertain 
status of the new PM2.5 NAAQS, it is most appropriate to 
rely primarily on the pre-existing PM10 NAAQS in 
establishing the Tier 2/Gasoline Sulfur program's vehicle emission 
standards and limits on sulfur in gasoline. However, because we 
believe, and the Court did not dispute, that there are very substantial 
public health risks from PM2.5 and substantial health and 
economic benefits from reducing PM2.5 concentrations, we 
have conducted analyses of the PM2.5 changes likely to occur 
from the Tier 2/Gasoline Sulfur program. These analyses are summarized 
in the section of this preamble dealing with the economic benefits of 
the new standards, section IV.D.5, and corresponding sections of the 
final RIA.
    There is additional concern regarding the health effects of PM from 
diesel vehicles, apart from the health effects which were considered in 
setting the NAAQS for PM10 and PM2.5. Diesel PM 
contains small quantities of chemical species that are known 
carcinogens, and diesel PM as a whole has been implicated in 
occupational epidemiology studies. EPA's Office of Research and 
Development has considered these studies, and has recently submitted to 
a committee of our Science Advisory Board a draft conclusion that 
diesel exhaust is a ``highly likely'' human cancer hazard.\30\ Because 
we are awaiting a formal response from our advisory committee before 
revising and finalizing our assessment document, we are not relying on 
the conclusions in this document as formal support for our action 
today. More information about this aspect of PM air quality is given in 
section III.F of this preamble.
---------------------------------------------------------------------------

    \30\ Health Assessment Document for Diesel Emissions, SAB Review 
Draft EPA/600/8-90/057D. November 1999. The document is available 
electronically at http://www.epa.gov/ncea/diesel.htm.
---------------------------------------------------------------------------

2. Need for Additional Reductions to Attain and Maintain the 
PM10 NAAQS
    The most recent PM10 monitoring data indicates that 15 
designated PM10 nonattainment counties, with a population of 
almost 9 million in 1996, violated the PM10 NAAQS in the 
period 1996-1998. The areas that are violating do so because of 
exceedances of the 24-hour PM10 NAAQS. No areas had 
monitored violations of the annual standard in this period. Table 
III.C-1 lists the 15 counties. The table also indicates the 
classification for each area and the status of our review of the State 
Implementation Plan.

            Table III.C-1.--Fifteen PM10 Nonattainment Areas Violating the PM10 NAAQS in 1996-1998 a
----------------------------------------------------------------------------------------------------------------
                                                                                                       1996
                     Area                           Classification           SIP approved?          Population
                                                                                                    (millions)
----------------------------------------------------------------------------------------------------------------
Clark Co., NV.................................  Serious..............  No.......................            0.93
El Paso, TX...................................  Moderate.............  Yes......................            0.67
Gila, AZ......................................  Moderate.............  No.......................            0.05
Imperial Co., CA..............................  Moderate.............  No.......................            0.14
Inyo Co., CA..................................  Moderate.............  No.......................            0.02
Kern Co., CA..................................  Serious..............  No.......................            0.62
Mono Co., CA..................................  Moderate.............  No.......................            0.01
Kings Co., CA.................................  Serious..............  No.......................            0.11
Maricopa Co., AZ..............................  Serious..............  No.......................            2.61
Power Co., ID.................................  Moderate.............  No.......................            0.01
Riverside Co., CA.............................  Serious..............  No.......................            1.41
San Bernardino Co., CA........................  Serious..............  No.......................            1.59
Santa Cruz Co., AZ............................  Moderate.............  No.......................            0.04
Tulare Co., CA................................  Serious..............  No.......................            0.35

[[Page 6718]]

 
Walla Walla Co., WA...........................  Moderate.............  Yes......................            0.05
      Total Population........................    ...................    .......................            8.61
                                               ------------------------
----------------------------------------------------------------------------------------------------------------
\a\ Although we do not believe that we are limited to considering only designated nonattainment areas in
  implementing CAA section 202(i), we have focused on the designated areas in the case of PM10. An official
  designation of PM10 nonattainment indicates the existence of a confirmed PM10 problem that is more than a
  result of a one-time monitoring upset or a results of PM10 exceedances attributable to natural events. In
  addition to these designated nonattainment areas, there are 15 unclassified counties in 12 geographically
  spread out states, with a 1996 population of over 4 million, for which the state has reported PM10 monitoring
  data for this period indicating a PM10 NAAQS violation. We have not yet excluded the possibility that a one-
  time monitoring upset or a natural event(s) is responsible for the monitored violations in 1996-1998 in the 15
  unclassified counties. We adopted a policy in 1996 that allows areas whose PM10 exceedances are attributable
  to natural events to remain unclassified if the state is taking all reasonable measures to safeguard public
  health regardless of the source of PM10 emissions. Areas that remain unclassified areas are not required to
  submit attainment plans, but we work with each of these areas to understand the nature of the PM10 problem and
  to determine what best can be done to reduce it. The Tier 2/Gasoline Sulfur program will reduce PM10
  concentrations in these 15 unclassified counties, because all have car and light truck travel that contributes
  to PM10 and precursor emissions loadings. This reduction will assist these areas in reducing their PM10
  nonattainment problem, if a problem is confirmed upon closer examination of each local situation. Boise, ID,
  had also been classified as a PM10 nonattainment area at one time and was monitored to have a PM10 NAAQS
  violation in 1996-1998. However, the pre-existing PM10 NAAQS does not presently apply in Boise, ID, because in
  the period between our revision of the old PM10 NAAQS and the Court's decision to vacate the revised PM10
  NAAQS, we determined that Boise was in attainment with the old PM10 NAAQS and that it therefore no longer
  applied in that area.

    Because the types and sources of PM10 are complex and 
vary from area to area, the best projections of future PM10 
concentrations are the local emission inventory and air quality 
modeling analyses that states have developed or are still in the 
process of developing for their PM10 attainment plans. We do 
employ a modeling approach, known as the source-receptor matrix 
approach, for relating emission reductions to PM10 
reductions on a national scale. This approach is one of our established 
air quality models for purposes of quantifying the health and welfare 
related economic benefits of PM reductions from major regulatory 
actions. One application of this modeling approach was for the 
Regulatory Impact Analysis for the establishment of the new PM NAAQS 
\31\. This model is also the basis for the estimates of PM10 
(and PM2.5) concentrations reductions we have used to 
estimate the economic benefits of the Tier 2/Gasoline Sulfur program in 
2030. Its use for this purpose is described in the final RIA. In both 
applications, we modeled an emissions scenario corresponding to 
controls currently in place or committed to by states. As such, this 
scenario is an appropriate baseline for determining if further 
reductions in emissions are needed in order to attain and maintain the 
PM10 NAAQS.
---------------------------------------------------------------------------

    \31\ Regulatory Impact Analyses for the Particulate Matter and 
Ozone National Ambient Air Quality Standards and Proposed Regional 
Haze Rule, Innovative Strategies and Economics Group, Office of Air 
Quality Planning and Standards, U.S. Environmental Protection 
Agency, Research Triangle Park, N.C., July 16, 1997.
---------------------------------------------------------------------------

    In the RIA for the establishment of the PM NAAQS, we projected that 
in 2010 there will be 45 counties not in attainment with the original 
PM10 NAAQS . We cited these modeling results in our proposal 
for the Tier 2/Gasoline Sulfur program and in our first supplemental 
notice. After reviewing public comments on our presentation of these 
modeling results, we have concluded that while the source-receptor 
matrix approach is a suitable model for estimating PM concentration 
reductions for economic benefits estimation, it is not a tool we can 
use with high confidence for predicting that individual areas that are 
now in attainment will become nonattainment in the future. However, we 
believe the source-receptor matrix approach is appropriate for, and is 
a suitable tool for, determining that a current designated 
nonattainment area has a high risk of remaining in PM10 
nonattainment at a future date. Therefore, we have cross-matched the 
results for 2030 from our final RIA for Tier 2 and the list of current 
PM10 nonattainment areas with monitored violations in 1996 
to 1998 shown in Table III.C-1.\32\ Based on this, we conclude that the 
8 areas shown in Table III.C-2 have a high risk of failing to attain 
and maintain without further emission reductions. These areas have a 
population of nearly 8 million. Included in the group are the counties 
that are part of the Los Angeles, Phoenix, and Las Vegas metropolitan 
areas, where traffic from cars and light trucks is substantial. 
California areas will benefit from the Tier 2/Gasoline Sulfur program 
because of travel within California by vehicles originally sold outside 
the state, and by reduced poisoning of catalysts from fuel purchased 
outside of California.
---------------------------------------------------------------------------

    \32\ We used the more recent modeling for 2030 rather than the 
earlier modeling for 2010, because the modeling the 2030 
incorporates more recent estimates of emissions inventories. Our 
emission estimates in our final RIA indicate that PM10 
emissions under the basline scenario increase steadily between 1996 
and 2030, for 47 states combined and for four specific cities, 
suggesting that areas in nonattainment in both 1996-1998 and 2030 
will be in nonatainment in the intermediate years as well assuming 
no further emission reductions. A factor tending to make Table 
III.C-2 shorter is that we have not relied on the source-receptor 
matrix model's prediction of 24-hour nonattainment, as those 
predictions on an individual areas basis are less reliable than the 
predictions of annual average nonattainment.

  Table III.C-2.--Eight Areas With a High Risk of Failing To Attain and
     Maintain the PM10 NAAQS Without Further Reductions in Emissions
------------------------------------------------------------------------
                                                                 1996
                            Area                              population
                                                              (millions)
------------------------------------------------------------------------
Clark Co., NV..............................................         0.93
Imperial Co., CA...........................................         0.14
Kern Co., CA...............................................         0.62
Kings Co., CA..............................................         0.11
Maricopa Co., AZ...........................................         2.61
Riverside Co., CA..........................................         1.41
San Bernardino Co., CA.....................................         1.59
Tulare Co., CA.............................................         0.35
                                                            ------------
      Total population.....................................         7.76
------------------------------------------------------------------------

    Table III.C-2 is limited to designated PM10 
nonattainment areas which both had monitored violations of the 
PM10 NAAQs in 1996-1998 and are predicted to be in 
nonattainment in 2030 in our PM10 air quality modeling. This 
gives us high confidence that these areas require further emission 
reductions to attain and maintain, but does not fully

[[Page 6719]]

consider the possibility that there are other areas which are now 
meeting the PM10 NAAQS which have at least a significant 
probability of requiring further reductions to continue to maintain it. 
Our air quality modeling predicted 2030 violations of the annual 
average PM10 NAAQS in five additional counties that in 
either 1997 or 1998 had single-year annual average monitored 
PM10 levels of at least 90 percent of the NAAQS, but did not 
exceed the formal definition of the NAAQS over the three-year period 
ending in 1998 \33\. These areas are shown in Table III.C-3. They have 
a combined population of almost 17 million, and a broad geographic 
spread. Unlike the situation for ozone, for which precursor emissions 
are generally declining over the next 10 years or so before beginning 
to increase, we estimate that emissions of PM10 will rise 
steadily unless new controls are implemented. The small margin of 
attainment which these areas currently enjoy will likely erode; the PM 
air quality modeling suggests that it will be reversed. We therefore 
consider these areas to each individually have a significant risk of 
failing to maintain the NAAQS without further emission reductions. 
There is a substantial risk that at least some of them would fail to 
maintain without further emission reductions. The emission reductions 
from the Tier 2/Gasoline Sulfur program will help to keep them in 
attainment.
---------------------------------------------------------------------------

    \33\ In fact, in two of these areas, New York Co., NY and Harris 
Co., TX, the average PM10 level in 1998 was above the 50 
g/m3 value of the NAAQS. These two areas are not 
included in the Table III.C-2 list of areas with a high risk of 
failing to attain and maintain because lower PM10 levels 
in 1996 and 1997 caused their three-year average PM10 
level to be lower than the NAAQS. Official nonattainment 
determinations for the annual PM10 NAAQS are made based 
on the average of 12 quarterly PM10 averages.

 Table III.C-3.--Five Areas With a Significant Risk of Failing to Attain
   and Maintain the PM10 NAAQS Without Further Reductions in Emissions
------------------------------------------------------------------------
                                                                 1996
                            Area                              population
                                                              (millions)
------------------------------------------------------------------------
New York Co., NY...........................................         1.33
Cuyahoga Co., OH...........................................         1.39
Harris, Co., TX............................................         3.10
San Diego Co., CA..........................................         2.67
Los Angeles Co., CA........................................         8.11
                                                            ------------
      Total population.....................................         16.6
------------------------------------------------------------------------

    Taken together and considering their number, size, and geographic 
distribution, these 13 areas are sufficient to establish the case that 
additional reductions are needed in order to attain and maintain the 
PM10 NAAQS. This determination provides additional support 
for the NOx and VOC standards and for the limits on gasoline sulfur, 
which are also fully supported on ozone attainment and health effects 
considerations. The sulfate particulate, sulfur dioxide, 
NOX, and VOC emission reductions from the Tier 2/Gasoline 
Sulfur program will help the 8 areas in Table III.C-2 and the 5 areas 
in Table III.C.-3 to attain and maintain the PM10 NAAQS. The 
new PM standards for gasoline and diesel vehicles are also supported by 
this PM10 determination.
    We are also establishing the new PM emissions standard today to 
avoid the possibility that PM10 concentrations in these and 
other areas do get even worse due to an increase in sales of diesel 
vehicles, which could create a need for further reductions which would 
be larger and would affect more areas of the country. At the present 
time, virtually all cars and light trucks being sold are gasoline 
fueled. The ambient PM10 air quality data for 1996 to 1998 
reflects that current situation, and this data was an important factor 
in what areas are listed in Tables III.C-2 and III.C-3. Also, the 
predictions of future PM10 air quality, used to develop the 
Tables III.C-2 and III.C-3 lists of areas with high or significant risk 
of being unable to attain and maintain, are based on an assumption that 
this will continue to be true. However, we are concerned over the 
possibility that diesels will become more prevalent in the car and 
light-duty truck fleet, since automotive companies have announced their 
desire to increase their sales of diesel cars and light trucks. Because 
current diesel vehicles emit higher levels of PM10 than 
gasoline vehicles, a larger number of diesel vehicles could 
dramatically increase levels of exhaust PM10, especially if 
more stringent PM emissions standards are not in place. The new PM 
emissions standards will ensure that an increase in the sales of diesel 
cars and light trucks will not increase PM emissions from cars and 
light trucks so substantially as to endanger PM10 attainment 
and maintenance on a more widespread basis. Given this potential, it is 
appropriate to establish the new PM emissions standards now on the 
basis of the increase in sales of diesel vehicles being a reasonable 
possibility without such standards. Establishing the new PM emissions 
standards now avoids the public health impact and industry disruption 
that could result if we waited until an increase in sales of diesels 
with high PM emissions had already occurred.
    In order to assess the potential impact of increased diesel sales 
penetration on PM emissions, we analyzed the increase in 
PM10 emissions from cars and trucks under a scenario in 
which the use of diesel engines in cars and light trucks increases. We 
used projections developed by A.D. Little, Inc. as part of a study 
conducted for the American Petroleum Institute. The ``Most Likely'' 
case projected by A.D. Little forecasts that diesel engines'' share of 
the light truck market will grow to 24 percent by the 2015 model year. 
Diesel engines' share of the car market would grow somewhat more 
slowly, reaching 9 percent by 2015. The A.D. Little forecasts did not 
address the period after 2015; we have assumed that diesel sales 
stabilize at the level reached in 2015, with the fraction of in-use 
vehicles with diesel engines continuing to increase through turnover. 
We believe these projections are more realistic than the scenario of 
even higher sales of diesels described in the notice for the proposed 
Tier 2/Gasoline Sulfur program, though the A.D. Little forecasts still 
show much higher percentages of diesel vehicles in the light-duty fleet 
than have ever existed historically in the U.S.
    The A.D. Little scenario of increased diesels, and even more so the 
scenario described in our proposal, would result in dramatic increases 
in direct PM10 emissions from cars and light trucks, if 
there were no change in these vehicles' PM standards. The increase in 
diesel exhaust PM10 emissions would more than overcome the 
reduction in direct PM10 attributable to the sulfur 
reduction in gasoline. With no change in the existing PM standards for 
cars and light trucks, our analysis of this scenario shows that direct 
PM10 emissions in 2020 would be approximately 98,000 tons 
per year, which is nearly two times the 50,000 tons projected if diesel 
sales do not increase. The portion of ambient PM10 
concentrations attributable to cars and light trucks would climb 
steadily. The final RIA presents alternative estimates of the amount by 
which future PM10 concentrations could increase due to such 
an emissions increase, based on extrapolations from several studies' 
estimates of the contribution that heavy-duty diesel vehicles have made 
to recent or PM10 concentrations. The increase is estimated 
to range from 0.6 to 20 g/m3.
    The added PM10 emissions from cars and trucks due to an 
increase in diesel sales without action to reduce PM10 from 
new diesel vehicles would exacerbate the PM10 nonattainment 
problems of the areas listed in Tables

[[Page 6720]]

III.C-2 and III.C-3, for which our air quality modeling predicted 
future nonattainment even without an increase in diesel sales. 
Moreover, it might cause PM10 nonattainment in additional 
areas. In addition to the counties already listed in Tables III.C-2 and 
III.C-3, there are other areas for which 1997 and 1998 data indicate 
that maintenance of the PM10 NAAQS is at risk if diesel 
sales of cars and light truck increase. Table III.C-4 lists additional 
counties for which either 1997 or 1998 monitoring data, or both, 
indicated a second-high PM10 concentration for the single 
year within 10 percent of the PM10 24-hour NAAQS or an 
annual average PM10 concentration within 10 percent of the 
annual average PM10 NAAQS. Only counties which are part of 
metropolitan statistical areas are listed in Table III.C-4, in order to 
focus on those in which traffic densities are high. Considering both 
the annual and 24-hour NAAQS, there were 13 areas within 10 percent of 
the standard. Increases in PM10 emissions from more diesel 
vehicles would put these areas in greater risk of violating the 
PM10 NAAQS, especially if growth in other sources is high or 
meteorological conditions are more adverse than in the 1996 to 1998 
period.

  Table III.C-4.--Thirteen Metropolitan Statistical Area Counties With
 1997 and/or 1998 Ambient PM  10 Concentrations Within 10 Percent of the
                   Annual or 24-Hour the PM 10 NAAQS a
------------------------------------------------------------------------
                                                               1996
                                                            population
                                                            (millions)
------------------------------------------------------------------------
            Areas within 10 percent of the annual PM10 NAAQS:
------------------------------------------------------------------------
Lexington Co., SC.......................................            0.20
Union Co., TN...........................................            0.02
Washoe Co., NV..........................................            0.30
Madison Co., IL.........................................            0.26
Dona Ana Co., NM........................................            0.16
El Paso Co., TX.........................................            0.68
Ellis Co., TX...........................................            0.97
Fresno Co., CA..........................................            0.74
Philadelphia Co., PA....................................            1.47
 
------------------------------------------------------------------------
           Areas within 10 percent of the 24-hour PM10 NAAQS:
------------------------------------------------------------------------
Lexington Co., SC.......................................            0.20
El Paso Co., TX.........................................            0.68
Union Co., TN...........................................            0.02
Mobile Co., AL..........................................            0.40
Dona Ana Co., NM........................................            0.16
Lake Co., IN............................................            0.48
Philadelphia Co., PA....................................            1.47
Pennington Co., SD......................................            0.09
Ventura Co., CA.........................................            0.71
      Total Population of all 13 areas..................            6.48
                                                         ---------------
------------------------------------------------------------------------
Notes:
\a\ These areas are listed based on their second high 24-hour
  concentration and annual average concentration in 1997, 1998, or both.
  Official nonattainment determinations are made based on three years of
  data, and on estimates of expected exceedances of the 24-hour
  standard.

    Fortunately, the standards included in today's actions will result 
in a steady decrease in total direct PM10 from cars and 
light trucks even if this increase in the use of diesel engines in 
these vehicles were to occur. If the A.D. Little ``Most Likely'' 
scenario for increased diesel engines in light trucks were to occur, 
today's actions would reduce diesel PM10 from cars and light 
trucks by over 75 percent in 2020. Stated differently, by 2030 today's 
actions would reduce 98,000 tons of the potential increase in 
PM10 emissions from passenger cars and light trucks. The 
result would be less direct PM10 than is emitted today, 
because the increase in diesel PM10 would be more than 
offset by the reduction in PM10 emissions from gasoline 
vehicles resulting from lower gasoline sulfur levels.
    We are establishing tighter PM standards for cars and light trucks 
to help avoid the adverse impact of greater diesel PM emissions on 
PM10 attainment and public health and welfare if diesel 
sales increased in the future without the protection of the tighter 
standards. Because diesel vehicles will essentially be performing the 
same functions as the gasoline vehicles they will replace, it is 
appropriate for the new PM standards to also apply equally to gasoline 
and diesel vehicles. We expect that gasoline vehicles will need little 
or no redesign to meet the new PM standards when free of defects and 
properly operating. However, the new vehicle and gasoline sulfur 
standards may achieve some reduction in real world PM emissions from 
gasoline vehicles by encouraging more durable designs and by ensuring 
that these vehicles are operated on lower-sulfur fuel. The new 
standards for PM will also prevent any changes in gasoline engine 
design which would increase PM emissions. These changes would otherwise 
be possible because the current PM standard is so much higher than the 
current performance on the gasoline vehicles.
3. PM2.5 Discussion
    We are not basing our promulgation of the Tier 2 vehicle standards 
on a finding on the need for additional emission reductions in order to 
attain and maintain the NAAQS for PM2.5. We are providing 
this information to explain that this program will result in 
substantial benefit in reduction of PM2.5 concentrations, to 
an even broader set of geographic areas than will benefit in terms of 
PM10 attainment.
    The annual and 24-hour PM2.5 NAAQS set in 1997 are 
numerically much lower than the corresponding PM10 
standards: 15 versus 50 g/m3 for the annual average 
standards and 65 versus 150 g/m3 for the 24-hour 
average standards. While geographically broad PM2.5 
monitoring is just now reaching the end of the first of three years of 
operation needed to determine compliance, our best analysis from the 
more limited PM2.5 conducted in some areas indicates that 
many areas that are in compliance with the PM10 standards 
will be found to be in violation of the annual average PM2.5 
standard. Violations of the 24-hour PM2.5 standard appear to 
be infrequent.
    Therefore, if we considered it appropriate to proceed with 
implementing the PM2.5 NAAQS, we are confident that there 
would be a larger set of areas for which we would determine that 
further reductions in emissions are needed in order to attain and 
maintain the NAAQS.
    Moreover, gasoline and diesel cars and light trucks have a more 
important contributing role for ambient PM2.5 
concentrations, and other emission sources that play a major role in 
ambient PM10 concentrations will be relatively less 
important. Cars and light trucks contribute essentially the same 
absolute amount to ambient concentrations of PM10 and of 
PM2.5. However, most other sources contribute much more to 
PM10 than to PM2.5, so the relative contribution 
from cars and light trucks is larger. In addition, the absolute 
contribution from cars and light trucks is larger in relationship to 
the numerically lower PM2.5 standard, making them more 
important to attainment and maintenance. This is also true for the 
potential contribution that more diesel cars and light trucks would 
make to ambient PM2.5 concentrations.
4. Emission Reductions and Ambient PM Reductions
    The NOX and VOC emission reductions from the Tier 2/
Gasoline Sulfur program are presented in the ozone section above. The 
SOX and PM reductions are presented in our final RIA, and 
are essentially unchanged from those presented in our proposal, except 
for the revision of the diesel sales scenario discussed above.
    Because virtually all of the PM reduction from the Tier 2/Gasoline

[[Page 6721]]

Sulfur program is in the fine fraction of PM10, our 
estimates of the PM2.5 and PM10 reductions are 
essentially the same. Estimates of the ambient PM reductions in 2030 in 
different parts of the nation, after full phase in of the vehicle 
standards, are presented in the final RIA. The reductions in ambient PM 
are largest in the parts of the country with more vehicle travel, i.e, 
larger in the east than in the west and larger in urban areas than in 
rural areas. In the eastern half of the nation, the reductions in 
annual average PM concentrations range from 0.2 to over 1.2 micrograms 
per cubic meter.

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

    The standards being promulgated today will help reduce levels of 
three other pollutants for which NAAQSs have been established: carbon 
monoxide (CO), nitrogen dioxide (NO2), and sulfur dioxide 
(SO2). As of 1998, every area in the United States has been 
designated to be in attainment with the NO2 NAAQS. As of 
1997, one area (Buchanan County, Missouri) did not meet the primary 
SO2 short-term standard, due to emissions from the local 
power plant. There are currently 20 designated CO nonattainment areas, 
with a combined population of 33 million. There are also 24 designated 
maintenance areas with a combined population of 22 million. However, 
the broad trends indicate that ambient levels of CO are declining. In 
1997, 6 of 537 monitoring sites reported ambient CO levels in excess of 
the CO NAAQS.
    The reductions in SO2 precursor emissions from today's 
actions are essentially equal to the SOX reductions 
described in Section III.B. and III.C., respectively. The impact of 
today's actions on NO2 emissions depends on the specific 
emission control technologies used to meet the Tier 2 vehicle emission 
standards. However, essentially all of the NOX emitted by 
cars and light trucks converts to NO2 in the atmosphere; 
therefore, it is reasonable to assume that today's actions will 
substantially reduce ambient NO2 levels by the same 
proportion. Today's rule also will require light trucks to meet more 
stringent CO standards. These more stringent standards will help extend 
the trend towards lower CO emissions from motor vehicles and thereby 
help the remaining CO nonattainment areas reach attainment while 
helping other areas remain in attainment with the CO NAAQS. Our 
analysis of CO reductions from today's program is found in Chapter III 
of the RIA. The analysis of economic benefits and costs found in 
Section IV.D.-5. does not account for the economic benefits of the CO 
reductions expected to result from today's proposal.

E. Visibility

    Visibility impairment occurs as a result of the scattering and 
absorption of light by particles and gases in the atmosphere. It is 
most simply described as the haze that obscures the clarity, color, 
texture, and form of what we see. The principal cause of visibility 
reduction is fine particles between 0.1 and 1 m in size. Of 
the pollutant gases, only NO2 absorbs significant amounts of 
light; it is partly responsible for the brownish cast of polluted 
skies. While the contribution of NO2 to visibility 
impairment varies from area to area, it is generally responsible for 
less than ten percent of visibility reduction.
    The CAA requires EPA to protect visibility, or visual air quality, 
through a number of programs. These programs include the national 
visibility program under Sections 169a and 169b of the Act, the 
Prevention of Significant Deterioration program for the review of 
potential impacts from new and modified sources, and the secondary 
NAAQS for PM10 and PM2.5. The national visibility 
program established in 1980 requires the protection of visibility in 
156 mandatory federal Class I areas across the country (primarily 
national parks and wilderness areas). More than 65 million visitors 
travel each year to these parks and wilderness areas. The CAA 
established as a national visibility goal, ``the prevention of any 
future, and the remedying of any existing, impairment of visibility in 
mandatory federal Class I areas in which impairment results from 
manmade air pollution.'' The Act also calls for state programs to make 
``reasonable progress'' toward the national goal. In addition, a recent 
national opinion poll on the state of the national parks found that 
more than 80 percent of Americans believe air pollution affecting these 
parks should be cleaned up for the benefit of future generations.\34\
---------------------------------------------------------------------------

    \34\ ``National Parks and the American Public: A National Public 
Opinion Survey on the National Park System,'' Summary Report, 
National Parks and Conservation Association, June 1998.
---------------------------------------------------------------------------

    There has been improvement in visibility in the western part of the 
country over the last ten years. However, visibility impairment remains 
a serious problem in Class I areas. Visibility in the East does not 
seem to have improved. As one part of addressing this national problem, 
EPA has required states to adopt and implement effective plans for 
protecting and improving visibility in Class I federal areas (64 FR 
35714, July 1, 1999).
    Today's actions will result in visibility improvements due to the 
reduction in local and upwind PM and PM precursor emissions. Since 
mobile source emissions contribute to the formation of visibility-
reducing PM, control programs that reduce the mobile source emissions 
of direct and secondary PM would have the effect of improving 
visibility. The Grand Canyon Visibility Transport Commission's final 
recommendations report \35\ found that reducing total mobile source 
emissions is an essential part of any program to protect visibility in 
the Western U.S. The Commission found that motor vehicle exhaust is 
responsible for about 14 percent of human-caused visibility reduction 
(excluding road dust). A substantial portion of motor vehicle exhaust 
comes from cars and light trucks. In light of that impact, the 
Commission's recommendations in 1996 supported federal Tier 2/Gasoline 
Sulfur standards, as EPA is proposing today. More recently, a number of 
Western Governors noted the importance of controlling mobile sources as 
part of efforts to improve visibility in their comments on the Regional 
Haze Rule and on the need to protect the 16 Class I areas on the 
Colorado Plateau. In their joint letter dated June 29, 1998, they 
stated that, ``* * * the federal government must do its part in 
regulating emissions from mobile sources that contribute to regional 
haze in these areas. * * *'' and called on EPA to make a ``binding 
commitment * * * to fully consider the Commission's recommendations 
related to the * * * federal national mobile source emission control 
strategies.'' These recommendations included Tier 2 vehicle standards 
and reductions in gasoline sulfur levels.
---------------------------------------------------------------------------

    \35\ ``Recommendations for Improving Western Vistas,'' Report of 
the Grand Canyon Visibility Transport Commission to the United 
States Environmental Protection Agency, June 10, 1996.
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    The recent Northern Front Range Air Quality Study provides another 
indication of how important car and light truck emissions can be to 
fine PM and visibility. This study reported findings that indicate that 
cars and light trucks are responsible for 39 percent of fine PM at a 
site within the metropolitan Denver area, and for 40 percent at a 
downwind rural site. This contribution includes both direct PM and 
indirect PM formed from sulfur dioxide and NOX from these 
vehicles.

[[Page 6722]]

    The analysis of economic benefits and costs found in Section 
IV.D.5. accounts for the economic benefits of the visibility 
improvements expected to result from today's actions.

F. Air Toxics

    Section 202(a) provides that EPA may promulgate standards 
regulating any air pollutants that in the Administrator's judgment, 
cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare. Section 202(l) 
provides specific provisions for regulation of hazardous air pollutants 
from motor vehicles and fuels, and states that at a minimum such 
regulations should apply to emissions of benzene and formaldehyde.
    Emissions from cars and light trucks include a number of air 
pollutants that are known or suspected human or animal carcinogens or 
that are known or suspected to have other, non-cancer health impacts. 
These pollutants include benzene, formaldehyde, acetaldehyde, 1,3-
butadiene, and diesel particulate matter. For several of these 
pollutants, motor vehicle emissions are believed to account for a 
significant proportion of total nation-wide emissions. All of these 
compounds are present in exhaust emissions; benzene is also found in 
evaporative emissions from gasoline-fueled vehicles.
    The health effects of diesel particulate matter are of particular 
relevance to today's actions, because of the possibility for increased 
diesel-powered truck sales and the more stringent PM standard that will 
apply to these trucks as a result of today's actions. While we have not 
finalized our decision about the carcinogenicity of diesel exhaust, we 
are in the process of addressing this question. The Agency's recently 
released draft assessment \36\ concludes that diesel exhaust is a 
highly likely human lung cancer hazard, but that the data are currently 
unsuitable to make a confident quantitative statement of risk. The 
draft report concludes, however, that this risk is applicable to 
ambient exposures and that the risk may be in the range of regulatory 
interest (greater than one in a million over a lifetime). Several other 
agencies and governing bodies have designated diesel exhaust or diesel 
PM as a ``potential'' or ``probable'' human carcinogen.\37\ The 
California Air Resources Board (ARB), for example, found that diesel 
particulate matter constituted a toxic air contaminant and estimated a 
potency range of 1.3  x  10-4 to 2.4  x  10-3 per 
g/m\3\.\38\ The ARB's findings suggest that 130 to 2400 
persons in one million exposed to 1 g/m\3\ of diesel exhaust 
particulate continuously for their lifetime (70 years) would develop 
cancer as a result of their exposure.
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    \36\ EPA's diesel health assessment (Health Assessment Document 
for Diesel Emissions, SAB Review Draft, U.S. Environmental 
Protection Agency, Washington, DC. EPA/600/8-90/057D, November 1999) 
can be found at the following EPA website: http://www.epa.gov/ncea/diesel.htm.
    \37\ National Institute for Occupational Safety and Health 
(1988) Carcinogenic effects of exposure to diesel exhaust. NIOSH 
Current Intelligence Bulletin 50. DHHS (NIOSH) Publication No. 88-
116. Centers for Disease Control, Atlanta, GA.
    International Agency for Research on Cancer (1989) Diesel and 
gasoline engine exhausts and some nitroarenes, Vol. 46. Monographs 
on the evaluation of carcinogenic risks to humans. World Health 
Organization, International Agency for Research on Cancer, Lyon, 
France.
    World Health Organization (1996) Diesel fuel and exhaust 
emissions: International program on chemical safety. World Health 
Organization, Geneva, Switzerland.
    California Environmental Protection Agency, Office of 
Environmental Health Hazard Assessment: Proposed Identification of 
Diesel Exhaust as a Toxic Air Contaminant, Part B Health Risk 
Assessment for Diesel Exhaust. April 22, 1998.
    \38\ California Environmental Protection Agency, Office of 
Environmental Health Hazard Assessment: Proposed Identification of 
Diesel Exhaust as a Toxic Air Contaminant, Part B Health Risk 
Assessment for Diesel Exhaust. April 22, 1998.
---------------------------------------------------------------------------

    Because our assessment for diesel exhaust is not complete, we are 
not presenting absolute estimates of how potential cancer risks from 
diesel particulate matter could be affected by today's rule. However, 
we can offer a qualitative or relative discussion of these risks. 
Diesel engines used in nonroad equipment and heavy-duty highway 
vehicles currently constitute a far larger source of diesel PM than 
cars and light-duty trucks, since diesel engines are used in a very 
small portion of the cars and light-duty trucks in service today. 
However, engine and vehicle manufacturers have projected that diesel 
engines are likely to be used in an increasing share of cars and light 
trucks, and some manufacturers have announced capital investments to 
build such engines.
    If these projections are valid, then the proportion of cars and 
light trucks powered by diesel engines, and the associated potential 
health risks from diesel PM, could increase substantially. We modeled 
the most likely level of increase in light duty diesel engine sales 
developed for the American Petroleum Institute.\39\ We found that the 
greater diesel engine usage in cars and light trucks resulted in an 80 
percent increase in emissions from all diesel-powered highway vehicles 
by 2020--emissions that have been implicated in potential cancer 
risks--assuming no change in the current light-duty diesel PM 
standards.
---------------------------------------------------------------------------

    \39\ ``U.S. Light-Duty Dieselization Scenarios--Preliminary 
Study'', report to the American Petroleum Institute, July 2, 1999. 
Prepared by Arthur D. Little, Inc.
---------------------------------------------------------------------------

    Today's rule would limit the increase in the potential cancer risks 
from cars and light trucks associated with any potential increase in 
light-duty diesel engines. Using the same sales projections discussed 
above, we have estimated that today's rule would limit the increase in 
total highway diesel PM emissions in 2020 due to growth in light duty 
diesels to under 10 percent, in contrast to the 80 percent increase 
projected to occur without the Tier 2 PM standards. An analogous 
analysis that accounted for exposure patterns, but that assumed even 
more widespread use of diesels in the car and light truck fleet, found 
that today's rule would limit the increase in total highway diesel PM 
exposure to about 8 percent. This analysis is discussed more fully in 
Chapter III.F.2 of the Regulatory Impact Analysis. In addition, the VOC 
emission reductions resulting from today's rule would reduce the 
potential cancer risk posed by air pollutants other than diesel PM 
emitted by cars and light trucks, since many of these pollutants are 
themselves VOCs. Furthermore, the rule would align the formaldehyde 
standards for all Tier 2 LDVs and LDTs with the formaldehyde standards 
for LDVs and LDT1s from the NLEV program, thereby helping to harmonize 
the Federal and California formaldehyde standards.
    The analysis of economic benefits and costs found in Section 
IV.D.5. does not account for the economic benefits of the reduction in 
cancer risk from air toxics that could result from today's rule. 
Although we have completed a peer reviewed assessment of the impact of 
today's rule on exposure to toxic emissions, we have not engaged in a 
peer-reviewed assessment of the baseline air toxics risks (including a 
final quantitative risk assessment of the diesel particulate risks) or 
of the reductions that would be achieved by today's rule.
    We plan to complete our analysis of air toxics risks as part of our 
responsibilities under section 202(l)(2) of the Clean Air Act, which 
requires EPA to establish regulations for the control of hazardous air 
pollutants from motor vehicles. The regulations may address vehicle 
emissions or fuel properties that influence emissions, or both. We plan 
to issue a proposal to address this requirement in April 2000, and a 
final rule in December 2000.

[[Page 6723]]

G. Acid Deposition \40\
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    \40\ Much of the information in this section was excerpted from 
the EPA document, Human Health Benefits from Sulfate Reduction, 
written under Title IV of the 1990 Clean Air Act. Amendments, U.S. 
EPA, Office of Air and Radiation, Acid Rain Division, Washington, 
DC, November 1995.
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    Acid deposition, or acid rain as it is commonly known, occurs when 
SO2 and NOX react in the atmosphere with water, 
oxygen, and oxidants to form various acidic compounds that later fall 
to earth in the form of precipitation or dry deposition of acidic 
particles. It contributes to damage of trees at high elevations and in 
extreme cases may cause lakes and streams to become so acidic that they 
cannot support aquatic life. In addition, acid deposition accelerates 
the decay of building materials and paints, including irreplaceable 
buildings, statues, and sculptures that are part of our nation's 
cultural heritage. To reduce damage to automotive paint caused by acid 
rain and acidic dry deposition, some manufacturers use acid-resistant 
paints, at an average cost of $5 per vehicle--a total of $61 million 
per year if applied to all new cars and trucks sold in the U.S. The 
general economic and environmental effects of acid rain are discussed 
at length in the RIA.
    Acid deposition primarily affects bodies of water that rest atop 
soil with a limited ability to neutralize acidic compounds. The 
National Surface Water Survey (NSWS) investigated the effects of acidic 
deposition in over 1,000 lakes larger than 10 acres and in thousands of 
miles of streams. It found that acid deposition was the primary cause 
of acidity in 75 percent of the acidic lakes and about 50 percent of 
the acidic streams, and that the areas most sensitive to acid rain were 
the Adirondacks, the mid-Appalachian highlands, the upper Midwest and 
the high elevation West. The NSWS found that approximately 580 streams 
in the Mid-Atlantic Coastal Plain are acidic primarily due to acidic 
deposition. Hundreds of the lakes in the Adirondacks surveyed in the 
NSWS have acidity levels incompatible with the survival of sensitive 
fish species. Many of the over 1,350 acidic streams in the Mid-Atlantic 
Highlands (mid-Appalachia) region have already experienced trout losses 
due to increased stream acidity. Emissions from U.S. sources contribute 
to acidic deposition in eastern Canada, where the Canadian government 
has estimated that 14,000 lakes are acidic. Acid deposition also has 
been implicated in contributing to degradation of high-elevation spruce 
forests that populate the ridges of the Appalachian Mountains from 
Maine to Georgia. This area includes national parks such as the 
Shenandoah and Great Smoky Mountain National Parks.
    The SOX and NOX reductions from today's 
actions will help reduce acid rain and acid deposition, thereby helping 
to reduce acidity levels in lakes and streams throughout the U.S. These 
reductions will help accelerate the recovery of acidified lakes and 
streams and the revival of ecosystems adversely affected by acid 
deposition. Reduced acid deposition levels will also help reduce stress 
on forests, thereby accelerating reforestation efforts and improving 
timber production. Deterioration of our historic buildings and 
monuments, and of buildings, vehicles, and other structures exposed to 
acid rain and dry acid deposition, also will be reduced, and the costs 
borne to prevent acid-related damage may also decline.
    While the reduction in sulfur and nitrogen acid deposition will be 
roughly proportional to the reduction in SOX and 
NOX emissions, respectively, the precise impact of today's 
vehicle and fuel standards will differ across different areas. Each 
area is affected by emissions from different source regions, and the 
mobile source contribution to the total SOX and 
NOX emission inventory will differ across different source 
regions. Nonetheless, the projected impact of today's actions on 
SOX and NOX emission inventories provides a rough 
indicator of the likely effect of the Tier 2/Gasoline Sulfur standards 
on acid deposition. Our analysis indicates that today's actions will 
reduce SOX emissions by 1.8 percent and NOX 
emissions by 14.5 percent in 2030.
    The analysis of economic benefits and costs found in Section 
IV.D.5. did not account for the economic benefits of the reduction in 
acid deposition expected to result from today's actions.

H. Eutrophication/Nitrification

    Nitrogen deposition into bodies of water can cause problems beyond 
those associated with acid rain. The Ecological Society of America has 
included discussion of the contribution of air emissions to increasing 
nitrogen levels in surface waters in a recent major review of causes 
and consequences of human alteration of the global nitrogen cycle in 
its Issues in Ecology series \41\. Long-term monitoring in the United 
States, Europe, and other developed regions of the world shows a 
substantial rise of nitrogen levels in surface waters, which are highly 
correlated with human-generated inputs of nitrogen to their watersheds. 
These nitrogen inputs are dominated by fertilizers and atmospheric 
deposition.
---------------------------------------------------------------------------

    \41\ Vitousek, Peter M., John Aber, Robert W. Howarth, Gene E. 
Likens, et al. 1997. Human Alteration of the Global Nitrogen Cycle: 
Causes and Consequences. Issues in Ecology. Published by Ecological 
Society of America, Number 1, Spring 1997.
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    Human activity can increase the flow of nutrients into those waters 
and result in excess algae and plant growth. This increased growth can 
cause numerous adverse ecological effects and economic impacts, 
including nuisance algal blooms, dieback of underwater plants due to 
reduced light penetration, and toxic plankton blooms. Algal and 
plankton blooms can also reduce the level of dissolved oxygen, which 
can also adversely affect fish and shellfish populations. This problem 
is of particular concern in coastal areas with poor or stratified 
circulation patterns, such as the Chesapeake Bay, Long Island Sound, or 
the Gulf of Mexico. In such areas, the ``overproduced'' algae tends to 
sink to the bottom and decay, using all or most of the available oxygen 
and thereby reducing or eliminating populations of bottom-feeder fish 
and shellfish, distorting the normal population balance between 
different aquatic organisms, and in extreme cases causing dramatic fish 
kills.
    Collectively, these effects are referred to as eutrophication, 
which the National Research Council recently identified as the most 
serious pollution problem facing the estuarine waters of the United 
States (NRC, 1993). Nitrogen is the primary cause of eutrophication in 
most coastal waters and estuaries \42\. On the New England coast, for 
example, the number of red and brown tides and shellfish problems from 
nuisance and toxic plankton blooms have increased over the past two 
decades, a development thought to be linked to increased nitrogen 
loadings in coastal waters. Airborne NOX contributes from 12 
to 44 percent of the total nitrogen loadings to United States coastal 
water bodies. For example, approximately one-quarter of the nitrogen in 
the Chesapeake Bay comes from atmospheric deposition.
---------------------------------------------------------------------------

    \42\ Much of this information was taken from the following EPA 
documenta: Deposition of Air Pollutants to the Great Waters-Second 
Report to Congress, Office of Air Quality Planning and Standards, 
June 1997, EPA-453/R-97-011.
---------------------------------------------------------------------------

    Excessive fertilization with nitrogen-containing compounds can also 
affect terrestrial ecosystems \43\. Research suggests that nitrogen 
fertilization can alter growth patterns and change the

[[Page 6724]]

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

    \43\ Terrestrial nitrogen deposition can act as a fertilizer. In 
some agricultural areas, this effect can be beneficial.
---------------------------------------------------------------------------

    Deposition of nitrogen from cars and light trucks contributes to 
these problems. As discussed in Section III.B. above, today's actions 
will reduce total NOX emissions by 4.5 percent in 2007 and 
by 14.5 percent in 2030. The NOX reductions should reduce 
the eutrophication problems associated with atmospheric deposition of 
nitrogen into watersheds and onto bodies of water, particularly in 
aquatic systems where atmospheric deposition of nitrogen represents a 
significant portion of total nitrogen loadings. Since air deposition 
accounts for 12-44 percent of total nitrogen loadings in coastal 
waters, the reduction in NOX from today's actions is 
projected to reduce nitrogen loadings by 0.5-2.0 percent in 2007 and 
1.7-6.4 percent in 2030. To put these reductions in perspective, the 
reductions expected in the Chesapeake Bay area would amount to about 9 
percent of the total reduction in nitrogen loading needed to maintain 
the reduction in nutrient loads agreed to by the signatory states in 
the Chesapeake Bay Agreement (40 percent of ``controllable nutrient 
loads'' by the year 2000).
    The analysis of economic benefits and costs found in Section 
IV.D.5. does not account for the economic benefits of reduced 
eutrophication or reduced terrestrial nitrogen deposition expected to 
result from today's actions.

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

    Despite continued progress in reducing ozone and PM levels, tens of 
millions of Americans are still exposed to levels of these pollutants 
that exceed the National Ambient Air Quality Standards. Our projections 
show that without further action to reduce these pollutants, tens of 
millions of Americans will continue to breathe unhealthy air for 
decades to come. Our projections also show that emissions from cars and 
light trucks will continue to contribute a substantial share of the 
ozone and PM precursors in current and projected nonattainment areas, 
and in upwind areas whose emissions contribute to downwind 
nonattainment, unless additional measures are taken to reduce their 
emissions. Cars and light trucks also contribute substantially to 
ambient concentrations of CO. These vehicles will also continue to 
contribute to the ambient PM that affects visibility in Class I federal 
areas and some urban areas. Emissions from cars and light trucks also 
play a significant role in a wide range of health and environmental 
problems, including known and potential cancer risks from inhalation of 
air pollutants (a problem that could become more significant if sales 
of diesel-powered cars and light trucks were to increase), health risks 
from elevated drinking water nitrate levels, acidification of lakes and 
streams, and eutrophication of inland and coastal waters.
    Today's actions will reduce NOX, VOC, CO, PM, and 
SOX emissions from these vehicles substantially. These 
reductions will help reduce ozone levels nationwide and reduce the 
extent and severity of violations of the 1-hour ozone standard. These 
reductions will also help reduce PM levels, both by reducing direct PM 
emissions and by reducing emissions that give rise to secondary PM. The 
CO reductions will help extend the downward trend in carbon monoxide 
levels, thereby helping the remaining CO nonattainment areas attain the 
CO standard and helping other areas stay in attainment with the CO 
standard despite continued increases in vehicle miles traveled. The 
NOX and SOX reductions will help reduce 
acidification problems, and the NOX reductions will help 
reduce eutrophication problems and drinking water nitrate levels. The 
PM standards included in today's actions will help improve visibility 
and would help mitigate adverse health effects in the event of 
increases in light-duty diesel engine sales.

IV. What Are the New Requirements for Vehicles and Gasoline?

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

1. Feasibility of Stringent Standards for Light-Duty Vehicles and 
Light-Duty Trucks.
a. Gasoline Fueled Vehicles
    We believe that the standards being promulgated today for gasoline-
fueled vehicles are well within the reach of existing control 
technology. Our determination of feasibility is based on the use of 
catalyst-based strategies that are already in use and are well proven 
on the existing fleet of vehicles. In fact, as you will see below, many 
current engine families are already certified to levels at or below the 
new final Tier 2 requirements. All of the certification and research 
testing discussed below was performed on low-sulfur test fuel 
(nominally 30 ppm).

i. LDVs and LDT1s-LDT4s

    Certainly, larger vehicles and trucks, which are heavier and have 
larger frontal areas, will face the biggest challenges in meeting the 
final Tier 2 standards. However, conventional technology will be 
sufficient for even these vehicles, especially in light of the extra 
leadtime we have provided before LDT3s and LDT4s have to meet Tier 2 
levels. We are also changing the test conditions for these trucks from 
``adjusted loaded vehicle weight'' to ``loaded vehicle weight.'' 
Adjusted loaded vehicle weight, suitable for commercial truck 
operation, loads the truck to half of its full payload. Loaded vehicle 
weight, on the other hand, represents curb weight plus 300 pounds. This 
change more accurately reflects how these vehicles are used and makes 
heavy LDT testing consistent with passenger car and light LDT testing. 
This change is consistent with treating these vehicles as they were 
designed, i.e., for light-load use.
    Emission control technology has evolved rapidly in recent years. 
Emission standards applicable to 1990 model year vehicles required 
roughly 90 percent reductions in exhaust HC and CO emissions and a 75 
percent reduction in NOX emissions compared to uncontrolled 
emissions. Today, some vehicles currently in production are well below 
these levels, showing even greater overall emissions reductions of all 
three of these pollutants. These vehicles' emissions are well below 
those necessary to meet the current federal Tier 1 and even California 
Low-Emission Vehicle (LEV-I) standards. The reductions have been 
brought about by ongoing improvements in engine air-fuel management 
hardware and software plus improvements in catalyst designs, all of 
which are described fully in the RIA.
    The types of changes being seen on current vehicles have not yet 
reached their technological limits, and continuing improvement will 
allow both LDVs and LDTs to meet the final standards. The RIA describes 
a range of specific techniques that we believe could be used. These 
range from improved computer software and engine air-fuel controls to 
increases in precious metal loading and other exhaust system/catalyst 
system improvements. All of these technologies are currently used on 
one or more production vehicle models. There is no need to invent new 
approaches or technologies. The focus of the effort is primarily 
development,

[[Page 6725]]

application, and optimization of these existing technologies.
    We can gain significant insight into the difficulty of meeting the 
final new standards by looking at current full-life certification data. 
There are at least 48 engine family-control systems combinations, out 
of approximately 400, certified in 1999 at levels below the Tier 2 
NOX standard of 0.07 g/mi. Of these, 35 also have 
hydrocarbon levels of 0.09 g/mi or below. Looking at a somewhat higher 
threshold to identify vehicles certified near the final standard, there 
are an additional 113 car and light truck families certified at levels 
between 0.07 g/mi and 0.10 g/mi NOX. Although not yet 
complete at this time, we also examined the 2000 model year 
certification data and found that there are at least 60 engine family-
control systems combinations certified at levels below the Tier 2 
NOX standard of 0.07 g/mi and of those, 52 also have 
hydrocarbon levels of 0.09 g/mi or below.
    All of the above vehicles are already able, or close to being able, 
to certify to our final standards. The further reductions needed are 
those to provide a compliance margin, or cushion, between the certified 
level and the emission standard. The degree of compliance margin 
required is a function of a variety of factors designed to provide the 
manufacturer a high confidence that production vehicles will meet the 
standards in-use over their useful life. Historically, these 
determinations are manufacturer specific, with cushions generally 
growing smaller as standards decline (reflecting more precision and 
repeatability in vehicle performance as more sophisticated controls are 
developed). The certification data reflects compliance cushions from as 
little as 20 percent below the standard to as high as 80 percent below 
the standard.
    The manufacturers commented that the most difficult vehicles to 
bring into compliance with the Tier 2 standards would be the larger 
light-duty trucks, specifically those trucks currently certified under 
the LDT3 and LDT4 weight categories. Because of this, we undertook a 
technology demonstration program aimed at lowering the emissions of 
several large 1999 light-duty trucks. Two LDT3 Chevrolet Silverado 
pick-up trucks were tested, one internally and one under contract. Two 
LDT4 Ford Expedition sport-utility vehicles were also tested, also with 
one tested internally and one under contract. Both types of vehicles 
were tested with optional high horsepower engines (270 hp for the 
Silverado and 230 hp for the Expedition) and were equipped with four-
wheel drive. The vehicles had curb weights of 4,500 pounds (GVWR of 
6,100 lbs) for the Silverados and 5,800 pounds (GVWR of 7,200 lbs) for 
the Expeditions.
    Figures IV.A.-1 and IV.A.-2 show the results to date of the 
emissions tests performed during this demonstration program at our 
National Vehicle and Fuel Emissions Laboratory (NVFEL) and also for 
emissions tests conducted in parallel by and under contract at 
Southwest Research Institute (SwRI) using similar Ford Expeditions and 
GM Chevrolet Silverados. During the evaluation, the trucks were 
equipped with a variety of catalysts that typically featured higher 
volume, higher precious metal loading, and higher cell-densities than 
the original hardware used by the vehicles to meet California LEV-I 
standards. Details of the catalysts tested are included in the RIA. 
Different exhaust manifolds featuring an insulating air-gap and low 
thermal mass were also evaluated. Finally, calibration changes were 
made to the powertrain control modules \44\ to better match engine 
operating characteristics to the new catalyst systems, and to lower 
engine-out NOx emissions. The Silverado and Expedition had very similar 
results. Similar results were also achieved by us and SwRI, but by 
fairly different methods. The SwRI work on both trucks relied primarily 
on engine calibration changes and secondary air injection. The advanced 
catalyst systems used by SwRI contained advanced washcoat formulations 
with only minor changes to catalyst volume and precious metal content 
compared to the manufacturer's original configuration. The work we 
conducted on the Expedition also relied primarily on engine calibration 
changes with no secondary air injection. The catalyst system also 
contained advanced washcoat formulations with modest changes to 
catalyst volume and precious metal content. The work we conducted on 
the Silverado relied primarily on an advanced catalyst system with 
volume and precious metal content changes, with only minor changes to 
engine calibration.
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    \44\ Powertrain control modules are computers used to control 
engine, transmission, and other vehicle functions on newer 
automobiles and trucks. The changes involved software changes in the 
case of the EPA-NVFEL work, or the use of alternate means of engine 
control in the case of the SwRI work.
---------------------------------------------------------------------------

    As can be seen in the charts, the emissions of the vehicles tested 
clearly show the feasibility of the Tier 2 standards on the most 
difficult to certify vehicle categories. All vehicles reached emission 
levels well below the Tier 2 full-life NOx and NMOG standards. At the 
same time, there were no significant impacts on either fuel economy or 
performance of the vehicles.
    Compared to the intermediate (50,000 mile) standards, the Ford 
Expedition tested at NVFEL consistently emitted NOx at less than one-
third of the intermediate useful life standard.\45\ NMHC/NMOG emissions 
were slightly below the intermediate standard level with no use of 
secondary-air-injection for cold-start hydrocarbon control. The 
Silverado tested at NVFEL met the intermediate standards with primarily 
hardware (catalyst) changes and only very minor calibration changes. 
The trucks tested at SwRI differed from those tested at NVFEL in their 
combination of emissions control hardware and calibration strategies, 
but achieved approximately the same emissions levels.
---------------------------------------------------------------------------

    \45\ Although this testing was done on vehicles with catalysts 
aged to 50,000, we belive the overall experiments also strongly 
suggest that the Tier 2 full-life standards would be achieved by 
high-mileage vehicles.
---------------------------------------------------------------------------

    The above results point out that not only are the Tier 2 standards 
feasible for larger trucks, but there are multiple means that can be 
taken in order to achieve the necessary emissions levels. All of those 
paths involve fairly simple enhancements to current technology systems. 
Furthermore, the testing was conducted with a very limited budget over 
a limited amount of time. With the interim program for heavy trucks 
under Tier 2, the manufacturers will have 9 years from the publishing 
of the Tier 2 rule to bring the largest trucks into compliance with the 
Tier 2 standards. Manufacturers will also have considerably more 
resources with respect to calibration changes and hardware design to 
bring trucks of this type within compliance than were available within 
this limited, but successful, demonstration.

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BILLING CODE 6560-50-C
    The Manufacturers of Emission Controls Association (MECA) sponsored 
a program that took two LDVs (a Crown Victoria and a Buick LeSabre) and 
one LDT2 (a Toyota T100) certified to the federal Tier 1 standards and 
replaced the original catalytic converter systems with more advanced 
catalytic converters, thermally aged to approximately 50,000 miles. 
With these systems and some related emission control modifications, the 
LeSabre and T100 emissions were well below our intermediate (50,000 
mile) useful life standards, and the Crown Victoria was well below the 
NMOG standard and very close to the NOX standard.
    Finally, the California Air Resources Board (ARB) tested five 
different production LEV light-duty vehicle models. Three of the five 
models met the Tier 2 standards for NMOG and NOX prior to 
any modifications. After installing low mileage advanced catalytic 
converters and making some minor adjustments to fuel bias, air 
injection, and spark timing, all of the vehicles had emission levels 
well below the Tier 2 intermediate useful life NMOG and NOX 
standards. ARB also tested several Ford Expeditions (LDT4) equipped 
with advanced catalytic converters. By adjusting several parameters, 
they were able to reduce NOX emissions to 0.06 g/mi and NMOG 
to 0.07 g/mi with a catalyst aged to 50,000 miles of use.
    A more expanded analysis of the feasibility of the Tier 2 standards 
for gasoline fueled vehicles can be found in the RIA, considering the 
types of changes that will allow manufacturers to extend effective new 
controls to the entire fleet of affected vehicles. That analysis 
includes discussion of gasoline direct-injection engines, as well as 
the feasibility of the CO, formaldehyde and evaporative emission 
standards. The conclusion of all of our analyses is that the standards 
are feasible for gasoline-fueled vehicles. As gasoline-fueled vehicles 
represent the overwhelming majority of the LDV and LDT population 
(i.e., over 99%), EPA concludes that the Tier 2 standards are feasible 
overall for LDVs and LDTs under 8500 lbs GVWR.

ii. Medium-Duty Passenger Vehicles (MDPVs)

    The technologies and emission control strategies that will be used 
for LDT3 and LDT4 vehicles with a GVWR less than 8,500 pounds should 
apply directly to MDPV vehicles that have a GVWR greater than 8,500 
pounds. In our LDT technology demonstration program discussed above, we 
found that a combination of calibration changes and improvements to the 
catalyst system resulted in emission levels for NOX well 
below and NMHC/NMOG approximately at the Tier 2 intermediate useful 
life standards. The catalyst improvements consisted of increases in 
volume and precious metal loading, and higher cell-densities than those 
found in the original hardware. We are confident that the use of 
secondary-air-injection will greatly help cold-start hydrocarbon 
control, making the NMOG standards achievable.
    The most significant difference between LDT4s less than 8,500 
pounds GVWR and MDPVs greater than 8,500 pounds GVWR is that MDPVs have 
a vehicle weight up to 800 pounds more than LDT4s. MDPVs will also be 
typically equipped with larger displacement engines. The potential 
impact of these differences is higher engine-out emissions than LDT4s 
due to the larger engine displacement and

[[Page 6728]]

greater load that the engine will be operated under due to the extra 
weight. However, neither of these preclude manufacturers from applying 
the same basic emission control technologies and strategies as used by 
LDVs and LDTs. The only difference will likely be the need for larger 
catalysts with higher precious metal loading than found in LDT4s. We 
are confident that MDPVs will be capable of meeting the final Tier 2 
standards.
    We are currently testing a Ford Excursion as part of our LDT 
technology demonstration program. Preliminary baseline results with a 
`green'' (i.e., nearly new) catalyst indicate that emission levels are 
higher than baseline emissions for the Ford Expedition. These results, 
although with a green catalyst, are well below our interim Tier 2 upper 
bin standards. In fact, the majority of these vehicles certified on the 
chassis dynamometer in California have certification levels well below 
our interim upper bin standards. While this testing is ongoing, we feel 
that the preliminary results are encouraging since they suggest that 
the difference in emissions between the Excursion and Expedition 
suggest that the strategies used on the Expedition can be successful 
with the Excursion. Therefore, we believe that by using technologies 
and control strategies similar to what will be used by LDVs and LDTs, 
combined with larger catalysts, MDPVs will be able to meet our Tier 2 
emission standards.
b. Diesel Vehicles
    As discussed above, the Tier 2 standards are intended to be ``fuel 
neutral.'' In today's document, we establish that the Tier 2 standards 
are technologically feasible and cost-effective for LDVs and LDTs 
overall, based on the discussion in Section IV.A.1.a. above. Under the 
principle of fuel neutrality, all cars and light trucks, including 
those using diesel engines, will be required to meet the Tier 2 
standards. Contrary to some of the comments received on our proposal, 
given that the overwhelming majority of vehicles in these classes are 
gasoline-fueled, we do not believe it is appropriate to provide less 
stringent standards for diesel-fueled vehicles. Manufacturers of LDVs 
and LDTs today provide consumers with a wide choice of vehicles that 
are overwhelmingly gasoline-fueled. Less stringent standards for 
diesels would create provisions that could undermine the emission 
reductions expected from this program, especially given the expectation 
that some manufacturers may intend to greatly increase their diesel 
sales.
    As with gasoline engines, manufacturers of diesels have made 
abundant progress over the past 10 years in reducing engine-out 
emissions from diesel engines. In heavy trucks and buses, PM emission 
standards, which were projected to require the use of exhaust 
aftertreatment devices, were actually met with only engine 
modifications. Indeed, emissions and performance of lighter diesel 
engine are rapidly approaching the characteristics of gasoline engines, 
while retaining the durability and fuel economy advantages that diesels 
enjoy. Against this background of continuing progress, we believe that 
the technological improvements that would be needed could be made in 
the time that would be available before diesels would have to meet the 
new Tier 2 standards.
    Manufacturers may take advantage of the flexibilities in today's 
rulemaking to delay the need for diesel LDVs and LDTs to meet the final 
Tier 2 levels until late in the phase-in period (as late as 2007 for 
LDVs/LLDTs and 2009 for HLDTs), giving manufacturers a relatively large 
amount of leadtime. In a recent public statement, Cummins Engine 
Company has indicated that the interim Tier 2 standards in effect for 
vehicles and trucks in the early years of the Tier 2 program are 
feasible for diesel equipped models through further development of 
currently available engine and exhaust aftertreatment technology.\46\
---------------------------------------------------------------------------

    \46\ ``Cummins Sees Diesel Feasible for Early Years of Tier 2''. 
Hart Diesel Fuel News, Sept. 20, 1999, p.2.
---------------------------------------------------------------------------

    While reductions in ``engine-out'' emissions, including 
incorporation of EGR strategies, may continue to be made, increasing 
emphasis is being placed on various aftertreatment devices for diesels. 
We believe that the use of aftertreatment devices will allow diesels to 
comply with the Tier 2 standards for NOX and PM.
    For NOX emissions, potential aftertreatment technologies 
include lean NOX catalysts, NOX adsorbers and 
selective catalytic reduction (SCR). Lean NOX catalysts are 
still under development, but generally appear capable of reducing 
NOX emissions by about 15-30%. This efficiency is not likely 
to be sufficient to enable compliance with the final Tier 2 standards, 
but it could be used to meet the interim standards that would begin in 
2004, with current diesel fuel.
    NOX adsorbers appear capable of reaching efficiency 
levels as high as 90%. Efficiency in this range is likely to be 
sufficient to enable compliance with the proposed Tier 2 standards. 
NOX adsorbers temporarily store the NOX and thus 
the engine must be run periodically for a brief time with excess fuel, 
so that the stored NOX can be released and converted to 
nitrogen and oxygen using a conventional three-way catalyst, like that 
used on current gasoline vehicles.
    There is currently a substantial amount of development work being 
directed at NOX adsorber technology. While there are 
technical hurdles to be overcome, progress is continuing and it is our 
judgement that the technology should be available by the time it would 
be needed for the final Tier 2 standards.
    One serious concern with current NOX adsorbers is that 
they are quickly poisoned by sulfur in the fuel. Some manufacturers 
have strongly emphasized their belief that, in order to meet the final 
Tier 2 levels, low sulfur diesel fuel would also be required to 
mitigate or prevent this poisoning problem. In its comments on the 
NPRM, Navistar indicated that the Tier 2 standards may be achievable 
given low sulfur fuel and other programmatic changes such as those 
included in this Final Rule. Navistar has also been quoted publically 
as describing the Tier 2 standards as ``challenging but achievable'' 
given appropriate low sulfur fuel.\47\ We intend to issue a Notice of 
Proposed Rulemaking early in the year 2000 intended to reduce sulfur in 
highway diesel fuel as a step to enable the technology most likely to 
be used to meet the Tier 2 standards.
---------------------------------------------------------------------------

    \47\ Harts Diesel Fuel News, August 9, 1999, p4.
---------------------------------------------------------------------------

    SCR has been demonstrated commercially on stationary diesel engines 
and can reduce NOX emissions by 80-90%. This efficiency 
would be sufficient to enable compliance with the proposed Tier 2 
standards. However, SCR requires that the chemical urea be injected 
into the exhaust before the catalyst to assist in the destruction of 
NOX. The urea must be injected at very precise rates, which 
is difficult to achieve with an on-highway engine, because of widely 
varying engine operating conditions. Otherwise, emissions of ammonia, 
which have a very objectionable odor, can occur. Substantial amounts of 
urea are required, meaning that vehicle owners would have to replenish 
their vehicles' supply of urea frequently, possibly as often as every 
fill-up of fuel. As the engine and vehicle would operate satisfactorily 
without the urea (only NOX emissions would be affected), 
some mechanism would be needed to ensure that vehicle owners maintained 
their supply of urea. Otherwise, little NOX emission 
reduction would be expected in-use.

[[Page 6729]]

    Regarding PM, applicable aftertreatment devices tend to fall into 
two categories: Oxidation catalysts and traps. Diesel oxidation 
catalysts can reduce total PM emissions by roughly 15-30%. They would 
need to be used in conjunction with further reductions in PM engine-out 
emissions in order to meet the proposed Tier 2 standards. Diesel 
particulate traps, on the other hand, can eliminate up to 90% of diesel 
PM emissions. However, some of the means of accomplishing the 
regeneration of particulate traps involve catalytic processes that also 
convert sulfur dioxide in the exhaust to sulfate. These techniques, if 
used, would also require a low sulfur fuel.
    In summary, we believe that the structure of our final program, 
including the available bins and phase-in periods, will allow the 
orderly development of clean diesel engine technologies. We believe 
that the interim standards are feasible for diesel LDV/LDTs, within the 
bin structure of this rule and without further reductions in diesel 
fuel sulfur levels. And, as indicated earlier, at least one major 
diesel engine manufacturer (Cummins) has publicly agreed with this 
assessment. We further believe that in the long-term, the final 
standards will be within reach for diesel-fueled vehicles in 
combination with appropriate changes to diesel fuel to facilitate 
aftertreatment technologies. Manufacturers have argued that low sulfur 
diesel fuel will be required to permit diesels to meet the final Tier 2 
standards, and we agree. At least one major manufacturer (Navistar) has 
indicated its belief that the final Tier 2 standards may be achievable 
for diesel engines with low sulfur diesel fuel.
2. Gasoline Sulfur Control Is Needed to Support the Proposed Vehicle 
Standards
    As we discussed in the previous section, we believe that the 
stringent standards in this final rule are needed to meet air quality 
goals and are feasible for LDVs and LDTs. At the same time, we believe 
that for these standards to be feasible for gasoline LDVs and LDTs, low 
sulfur gasoline must be made available. The following paragraphs 
explain why we think gasoline sulfur control must accompany Tier 2 
vehicle standards.
    Catalyst manufacturers generally use low sulfur gasoline in the 
development of their catalyst designs. Vehicle manufacturers then equip 
their vehicles with these catalysts and EPA certifies them to the 
exhaust emission standards, usually based on testing the manufacturer 
does using low sulfur gasoline. However, fundamental chemical and 
physical characteristics of exhaust catalytic converter technology 
generally result in a significant degradation of emission performance 
when these vehicles use gasoline with sulfur levels common in most of 
the country today. This sensitivity of catalytic converters to gasoline 
sulfur varies somewhat depending on a number of factors, some better 
understood than others. Clearly, however, as we discuss in the 
following paragraphs, gasoline sulfur's impact is large, especially in 
vehicles designed to meet very low emission standards.
    This is the reason EPA has decided to adopt a comprehensive 
approach to addressing emissions from cars and light trucks, including 
provisions to get low sulfur gasoline into the field in the same time 
frame needed for Tier 2 vehicles.
a. How Does Gasoline Sulfur Affect Vehicle Emission Performance?
    We know that gasoline sulfur has a negative impact on vehicle 
emission controls. Vehicles depend on the catalytic converter to reduce 
emissions of HC, CO, and NOX. Sulfur and sulfur compounds 
attach or ``adsorb'' to the precious metal catalysts that are required 
to convert these emissions. Sulfur also blocks sites on the catalyst 
designed to store oxygen that are necessary to optimize NOX 
emissions conversions. While the amount of sulfur contamination can 
vary depending on the metals used in the catalyst and other aspects of 
the design and operation of the vehicle, some level of sulfur 
contamination will occur in any catalyst.
    Sulfur sensitivity is impacted not only by the catalyst formulation 
(the types and amounts of precious metals used in the catalyst) but 
also by factors including the following:
     The materials used to provide oxygen storage capacity in 
the catalyst, as well as the general design of the catalyst,
     The location of the catalyst relative to the engine, which 
impacts the temperatures inside the catalyst,
     The mix of air and fuel entering the engine over the 
course of operation, which is varied by the engine's computer in 
response to the driving situation and affects the mix of gases entering 
the catalyst from the engine, and
     The speeds the car is driven at and the load the vehicle 
is carrying, which also impact the temperatures experienced by the 
catalyst.
    Since these factors vary for every vehicle, the sulfur impact 
varies for every vehicle to some degree. There is no single factor that 
guarantees that a vehicle will be very sensitive or very insensitive to 
sulfur. We now believe that there are not (and will not be in the 
foreseeable future) emission control devices available for gasoline-
powered vehicles that can meet the proposed Tier 2 emission standards 
that would not be significantly impaired by gasoline with sulfur levels 
common today.
b. How Large Is Gasoline Sulfur's Effect on Emissions?
    High sulfur levels have been shown to significantly impair the 
emission control systems of cleaner, later technology vehicles. The 
California LEV standards and Federal NLEV standards, as well as 
California's new LEV-II standards and our Tier 2 standards, require 
catalysts to be extremely efficient to adequately reduce emissions over 
the full useful life of the vehicle. In the NPRM we estimated that, 
based on data from test programs conducted by EPA and the automotive 
and oil industries, LEV and ULEV vehicles could experience, on average, 
a 40 percent increase in NMHC and 134 percent increase in 
NOX emissions when operated on 330 ppm sulfur fuel (our 
estimate in the NPRM of the current national average sulfur level) 
compared to 30 ppm sulfur fuel. New data generated since the NPRM on 
similar LEVs and ULEVs show that when these vehicles were driven on 
high sulfur (330 ppm) fuel for a few thousand miles (as opposed to less 
than 100 miles for the previous data), the NMHC and NOX 
emission increase due to high sulfur fuel increased by 149 percent and 
47 percent, respectively. In other words, instead of the previous 
estimated 40 percent and 134 percent increases in NMHC and 
NOX emissions, respectively, more realistic estimates would 
be 100 percent and 197 percent, respectively.\48\ Also, new data 
generated since the NPRM for late model LEV and ULEV vehicles that meet 
the federal and California supplemental federal test procedure (SFTP) 
standards and also have very low FTP emission levels, indicate that, on 
average, a 51 percent increase in NMHC and a 242 percent increase in 
NOX emissions when operated for a short period of time on 
330 ppm compared to 30 ppm could be realized.
---------------------------------------------------------------------------

    \48\ The air quality impacts discussed above under Section III 
above do not reflect these new estimates.
---------------------------------------------------------------------------

    This level of emissions increase is significant enough on its own 
to cause a vehicle to exceed the full useful life emission standards 
when operated on sulfur levels that are substantially higher than the 
levels required by today's rule, even with the margin of

[[Page 6730]]

safety that auto manufacturers generally include. Average sulfur levels 
in the U.S. are currently high enough to significantly impair the 
emissions control systems in new technology vehicles, and to 
potentially cause these vehicles to fail emission standards required 
for vehicles up through 100,000 miles (or more) of operation.
    For older vehicles designed to meet Tier 0 and Tier 1 emission 
standards, the effect of sulfur contamination is somewhat less. Still, 
testing shows that gasoline sulfur increases emissions of NMHC and 
NOX by almost 17% when one of these vehicles is operated on 
gasoline for less than 100 miles containing 330 ppm sulfur compared to 
operation on gasoline with 30 ppm sulfur. Thus, Tier 0 and Tier 1 
vehicles can also have higher emissions when they are exposed to sulfur 
levels substantially higher than the proposed sulfur standard. This 
increase is generally not enough to cause a vehicle to exceed the full 
useful life emission standards in practice, but it can result in in-use 
emissions increases since the vehicle could emit at levels higher than 
it would if it operated consistently on 30 ppm sulfur gasoline.
    As discussed in the RIA, NLEV and Tier 2 vehicles are significantly 
more sensitive to sulfur poisoning than Tier 1 and Tier 0 vehicles. 
Because of this, even in the absence of Tier 2 standards, gasoline 
sulfur control to 30 ppm would achieve about 700,000 tons of 
NOX reductions per year from LDVs and LDTs by 2020. This 
represents about a third of the national NOX emission 
reductions otherwise available from these vehicles. Without these 
potential emission reductions, many states would face the potentially 
unmeetable challenge of finding enough other cost-effective sources of 
NOX emission reductions to address their ozone nonattainment 
and maintenance problems.
    Sulfur reductions will result in reductions of other pollutants as 
well. For example, the increase in CO emissions at 330 ppm compared to 
30 ppm were very similar to the results above for NMHC. Thus, sulfur 
reductions would greatly reduce CO emissions. Another example is sulfur 
reductions will help reduce emissions of particulate matter, providing 
some benefit to PM nonattainment areas (which may or may not coincide 
with ozone nonattainment areas) as well as with visibility problems. 
Sulfur reductions will also have benefits for areas across the country 
with acid deposition problems. Furthermore, sulfur reduction, by 
enabling tighter Tier 2 standards and by improving emissions 
performance of the vehicles already on the road, will lead to fewer 
NMOG emissions, since, as explained in the RIA, NMOG emissions are also 
impacted by gasoline sulfur (although to a lesser extent than 
NOX emissions). Some of the NMOG emissions reduced are air 
toxics. As described in Section III above, air toxics, also known as 
hazardous air pollutants, or HAPs, contribute to a variety of human 
health problems.
c. Sulfur's Negative Impact on Tier 2 Catalysts
    As we discussed in the last section, sulfur contaminates the 
catalyst. In addition, essentially all vehicles that have been tested 
show that this effect is not reversible for one or more pollutants. The 
ability to reverse sulfur's negative effect on catalyst performance is 
dependent on a number of factors. The same factors that impact sulfur 
sensitivity also impact the irreversibility of the sulfur effect. For 
example, the location of the catalyst relative to the engine, the 
materials used to provide oxygen storage capacity in the catalyst, and 
the general design of the catalyst and the mix of air and fuel (A/F) 
entering the engine over the course of operation affect 
irreversibility, to name a few.
    Perhaps the most significant factors for reversibility are the 
mixture of air and fuel entering the engine and catalyst temperature. 
The results of numerous studies and test programs show that rich 
exhaust (absence of oxygen) mixtures in addition to high catalyst 
temperatures (in excess of 700 deg.C) can remove sulfur from the 
catalyst. Rich exhaust mixtures can occur intentionally and 
unintentionally, depending on the level of sophistication of the fuel 
control system. An intentional rich exhaust mixture is known as fuel 
``enrichment.'' There are different types of enrichment. For example, 
there is ``commanded'' enrichment, which is used to provide extra power 
when the engine is under a load (e.g., accelerations), as well as a 
means to cool the catalyst. Also, there is enrichment which results 
from the normal fluctuations in A/F that occur during typical ``closed-
loop'' FTP operating conditions. The amount of enrichment necessary for 
sulfur removal is a function of several factors: the ``magnitude'' of 
the enrichment event, the duration of the enrichment event, and the 
frequency of which the enrichment event occurs.
    While the amount of fuel enrichment is critical in the removal of 
sulfur from the catalyst, high catalyst temperature is equally as 
important. In order to meet strict Tier 2 standards, manufacturers are 
going to have to balance tight A/F control with improved catalyst 
performance, with an eye towards better catalyst thermal management. 
Many manufacturers are going to have to depend more on the precious 
metal palladium for oxidation of NMOG and CO emissions, as well as the 
reduction of NOX, because palladium is more tolerant to high 
temperatures. Since the vast majority of emissions still occur 
immediately following a cold start when the catalyst is still cool, 
further reductions to cold start emissions can be achieved by locating 
the catalysts very close to the engine. The closer proximity to the 
engine helps to activate the catalyst sooner by taking advantage of the 
additional heat supplied to the catalyst by the exhaust manifolds. 
Palladium is very sensitive to sulfur and, consequentially, catalyst 
systems that rely heavily on this metal tend to be more sensitive to 
sulfur and less reversible. The precious metal platinum, although 
usually a little more effective at oxidizing NMOG and CO and slightly 
less sensitive to sulfur than palladium, is too sensitive to high 
temperature to survive the close proximity to the engine and is not 
anticipated to be used for close-coupled applications.
    As discussed above, manufacturers will need to make modifications 
to their emission system calibrations by optimizing fuel control, spark 
timing, EGR and other parameters in conjunction with improvements to 
catalyst systems, in order to meet Tier 2 emission standards. This 
combination of emission control strategies can result in significant 
trade-offs between NMOG and NOX control. There can be 
considerable uncertainty associated with balancing these trade-offs at 
very low emissions levels if the vehicle is periodically operated on 
high sulfur fuels.
    Our federal supplemental federal test procedure (SFTP) standards, 
as well as California's SFTP standards, both of which take effect in 
the 2001 model year, can further exacerbate this problem. The SFTP 
standards are intended to better address and control emissions under 
driving conditions not captured when compliance with our FTP-based 
exhaust emissions standards is demonstrated, such as operation with the 
air conditioning turned on or driving at very high rates of 
acceleration and vehicle speeds (hereafter referred to simply as 
aggressive driving). This is an important factor in assessing sulfur 
irreversibility, because Tier 2 vehicles will have to meet more 
stringent exhaust emission standards and will have to meet these 
standards over the wider variety of operating conditions

[[Page 6731]]

included in the SFTP provisions. Hence, they will have to be designed 
to meet the emission standards under all such operating conditions; 
these design changes may influence how irreversible the sulfur effect 
will be, as explained below.
    Since wide variations in the A/F ratio help to remove sulfur from 
the catalytic surface, there is concern that vehicles which meet the 
SFTP standards, when driven aggressively, will experience insufficient 
enrichment to purge sulfur from the catalyst. Currently, when driven 
aggressively, the A/F ratio for most vehicles (those not certified to 
SFTP standards) is quite variable. Meeting the SFTP standards will 
ensure that manufacturers carefully control the A/F ratio over 
essentially all in-use driving conditions. This absence of widely 
varying A/F could therefore inhibit the removal of sulfur from the 
catalyst once operation on high sulfur fuel ceased.
    In order to quantify how irreversible the sulfur effect would be 
when catalysts exposed to high sulfur fuel are then exposed to lower 
sulfur fuel, several test programs were developed by EPA and industry. 
The vehicles in these test programs consisted of LDVs and LDTs that met 
either EPA Tier 1 or California LEV and ULEV emission standards. All of 
the vehicles were first tested at a low sulfur level (e.g., 30 or 40 
ppm) to establish a baseline. The vehicles were then re-tested with 
high sulfur fuel (e.g., 350 to 540 ppm). After emission results had 
stabilized, the vehicles were again re-tested with low sulfur fuel. 
Prior to each of the second series of low sulfur tests, the vehicles 
were operated over a short driving cycle to help purge (i.e., remove) 
sulfur from the catalyst. Two different cycles were used to purge 
sulfur, representing different types of driving: moderate urban 
conditions and aggressive conditions. The FTP cycle, which represents 
moderate urban driving, and the REP05 \49\ cycle, which represents very 
aggressive driving (e.g., hard accelerations, high speed cruises), were 
the two cycles used.
---------------------------------------------------------------------------

    \49\ The FTP (Federal Test Procedure) is the basic driving cycle 
used for federal emissions testing; the LA4 cycle is a component of 
the FTP. The REP05 cycle developed by EPA is representative of all 
driving that occurs outside the LA4 or FTP cycle. All but one of the 
aggressive accelerations found in the US06 cycle were taken from the 
REP05. While each segment of the US06 cycle was taken from actual 
in-use driving, the timing and combination of these segments is not 
representative of in-use driving in the way REP05 is representative.
---------------------------------------------------------------------------

    The vehicles tested exhibited a wide range of irreversibility, for 
reasons that are not fully understood. The data published in the NPRM, 
showed that the effect of operation on high sulfur fuel was 
irreversible on one or more pollutants after operation on low sulfur 
fuel. NOX emissions were 15 percent irreversible. None of 
the vehicles were designed or modified to meet either the California or 
federal SFTP emissions standards. The only data used in an attempt to 
quantify the effect of aggressive operation on sulfur reversibility was 
from a catalyst manufacturer that performed some vehicle testing with 
catalysts which were bench aged with low and high sulfur fuel that 
appeared to closely approximate the impact aggressive operation would 
have on sulfur irreversibility. It was this data on which we based our 
projection of sulfur irreversibility for Tier 2 vehicles at 50 percent 
for NMHC and NOX emissions. Subsequent comments on the 
validity of these estimates after the publishing of the NPRM prompted 
several additional test programs on sulfur irreversibility.
    The sulfur irreversibility test programs that followed the NPRM 
focused on vehicles that had emission levels that met or were close to 
Tier 2 emission standards and also met the US06 or aggressive driving 
portion of the SFTP emission standards. Although numerous vehicles were 
tested, only four met both of the above criteria. (We had tried to 
supplement the data base, but we were only able to add a limited number 
of vehicles.) We also decided to quantify irreversibility for NMHC and 
NOX emissions together instead of independently, because per 
our discussion above, sensitivity and irreversibility of either 
pollutant appears to be very dependent on the particular strategy 
chosen to reduce these emissions (particularly engine calibration and 
catalyst loading of precious metals and oxygen storage).
    The new data exhibited a range of variability among vehicles and 
pollutants, similar to the data presented in the NPRM. The most 
important distinction between the new FRM data and the old NPRM data 
was that the new data showed that, on average, NMHC+NOX 
emissions in three out of four vehicles were not fully reversible after 
aggressive driving. Based on this data, we project that 
NMHC+NOX emissions will be 20 to 65 percent irreversible for 
Tier 2 vehicles under typical in-use driving, including aggressive 
driving.
    As discussed above, the combination of calibration changes and 
emission system hardware modifications needed to meet our stringent 
Tier 2 emissions standards, can result in significant trade-offs 
between NMHC/NMOG and NOX control. There can be considerable 
uncertainty associated with balancing these trade-offs at very low 
emissions levels if the vehicle is periodically operated on high sulfur 
fuels, making the ability to remove sulfur from the catalyst highly 
uncertain. For example, a given catalyst today may be fully reversible 
for one pollutant and only partially reversible for another. However, 
because of the trade-off in NMOG and NOX performance, the 
modifications necessary to get that vehicle to meet both emission 
standards may result in the opposite effect for reversibility; i.e., 
full reversibility for NMOG and partial reversibility for 
NOX. There is no technical certainty that both the NMOG and 
NOX emission standards can be met without compromising 
reversibility performance. Therefore, we continue to believe that 
sulfur's negative impact on Tier 2 catalysts is a substantial concern.
    The preceding discussion focused on the irreversibility of the 
sulfur impact on emissions from current gasoline engine technologies. 
There are new technologies under development, which could be sold in 
the U.S. in the middle of the next decade (the same time that Tier 2 
vehicles are being introduced), which also appear to be very sensitive 
to sulfur and largely unable to reverse this sulfur impact. One of 
these technologies is the direct injection gasoline (GDI) engine. These 
engines utilize much more air than is needed to burn the fuel, unlike 
conventional gasoline engines that operate under conditions where only 
just enough air to completely burn the fuel is introduced into the 
engine. This GDI technology allows these engines to be up to 25% more 
fuel efficient than current gasoline engines and to emit up to 20% less 
carbon dioxide. GDI engines are currently being introduced in both 
Japan and Europe (which have or will soon require low sulfur 
gasolines). Because of the significant operating differences with GDI 
engines, these vehicles will likely require emission control technology 
substantially different from that used on conventional gasoline 
engines. For example, a GDI engine may require a NOX 
adsorber to meet the proposed Tier 2 NOX standard. High fuel 
sulfur levels quickly and permanently degrade the performance of these 
NOX adsorbers. Thus, to enable the sale of advanced, high 
efficiency GDI engines in the U.S. under the Tier 2 standards, it 
appears that low sulfur gasoline would have to be available nationwide 
by the time this technology becomes available.
    The fuel cell is another promising propulsion system that is being 
developed for possible introduction to

[[Page 6732]]

consumers early in the next century. Fuel cells are being designed to 
operate on a variety of fuels, including gasoline and diesel fuel. The 
basic fuel cell technology is highly sensitive to sulfur. Almost any 
level of sulfur in the fuel will disable the fuel cell. One possible 
solution is to install a technology that essentially filters out the 
sulfur before it enters the fuel cell. However, such sulfur ``guards'' 
are costly and could not practically be used like a disposable filter 
(requiring the vehicle owner to change the sulfur guard frequently, 
much like changing an oil filter) in situations where constant exposure 
to high sulfur levels occurs. (Even exposure to relatively low sulfur 
levels will likely require periodic replacement of the sulfur guard to 
ensure adequate protection for the fuel cell.) Therefore, the amount of 
sulfur in the fuel must be limited to that which can be removed by one 
or at most two sulfur guards over the life of the vehicle. Thus, in 
order for fuel cells operating on gasoline to be feasible in the U.S., 
low sulfur fuels would have to be available nationwide by the time this 
technology becomes available.
d. Sulfur Has Negative Impacts on OBD Systems
    As discussed in more detail in the RIA, EPA believes that sulfur in 
gasoline can adversely impact the onboard diagnostic (OBD) systems of 
current vehicles as well as vehicles meeting the Tier 2 standards. This 
is an important factor supporting the need for a national sulfur 
control program. EPA's onboard diagnostics (OBD) regulations require 
that all vehicles be equipped with a system that monitors, among other 
things, the performance of the catalyst and warns the owner if the 
catalyst is not functioning properly. The OBD catalyst monitor is 
designed to identify those catalysts with pollutant conversion 
efficiencies that have been reduced to the extent that tailpipe 
emissions would exceed a specified multiple of the applicable 
hydrocarbon emissions standard. For California LEV and federal NLEV 
vehicles, that multiple is 1.75 times the applicable hydrocarbon 
emissions standard; for federal Tier 1 vehicles, that multiple is 1.5 
times the applicable hydrocarbon standard added to the 4,000 mile 
emission level.
    We want to ensure that OBD systems operate correctly, and thus the 
possibility that gasoline sulfur may interfere with these systems was 
another consideration when evaluating the need for a national sulfur 
program. Our evaluation of sulfur's effect on OBD systems was 
summarized in a staff paper in 1997.\50\ We concluded that sulfur can 
affect the decisions made by the OBD systems. Sulfur appears to affect 
the oxygen sensor downstream of the catalyst, which is used in the OBD 
systems, and it is not clear that the conditions that seem to reverse 
sulfur's effect on the catalyst will also reverse any sulfur impact on 
the downstream oxygen sensors. Indirectly, sulfur impacts OBD systems 
because it can impair a catalyst that would otherwise be operating 
satisfactorily, thereby triggering the OBD warning lights. While this 
would indicate a properly operating OBD system, auto manufacturers have 
expressed the concern that consumers using high sulfur fuel may 
experience OBD warnings much more frequently than they would if 
operating on low sulfur gasoline, and that this could lead to a loss of 
consumer confidence in or support for OBD systems. Consumers may then 
ignore the OBD warning system and drive a potentially high emitting 
vehicle (which may have nothing to do with exposure to sulfur), 
contributing even more to air quality problems. Another possible 
scenario is that the OBD system may be impaired by sulfur in such a way 
that it does not register an improperly functioning catalyst, even if 
the catalyst is impaired for reasons unrelated to exposure to sulfur. 
This would defeat the purpose of OBD systems.
---------------------------------------------------------------------------

    \50\ U.S. EPA, ``OBD & Sulfur Status Report: Sulfur's Effect on 
the OBD Catalyst Monitor on Low Emission Vehicles,'' March 1997, 
updated September 1997.
---------------------------------------------------------------------------

    The reduction of sulfur levels for gasoline should resolve any 
concerns over the ability of the OBD system to make proper decisions. 
The use of low sulfur fuel should ensure that the OBD warning light 
goes on when it is supposed to and is not influenced by sulfur 
contamination of the catalyst and/or OBD system.

B. Our Program for Vehicles

    The program we are establishing today for cars, light trucks, and 
large passenger vehicles will achieve the same large NOX 
reductions that we projected for the proposed program. The program is 
very similar to our proposed program in all major respects. We have 
been able to retain the general structure, stringency, and emissions 
benefits of the proposal in this final rule. Where we have made 
adjustments to the proposed program, we have done so in ways that 
improve the implementation of the program without changing the overall 
environmental benefits that the program will achieve. And by creating a 
new category of vehicles subject to the Tier 2 standards, medium-duty 
passenger vehicles, the final rule will ensure that all passenger 
vehicles expected to be on the road in the foreseeable future will be 
very clean.
    We have seriously considered the input of all stakeholders in 
developing our final rule and believe the program finalized below 
balances the concerns of all stakeholders while achieving the needed 
air quality benefits. In general, the adjustments we have made are 
aimed at improving the implementation efficiency of the program by 
better aligning the federal Tier 2 program with the NLEV program and 
with California's program especially during the interim program. \51\ 
Extensive comments from manufacturers led us to conclude that better 
harmony between the two programs would reduce the engineering, testing 
and certification workload related to our interim program. Where we 
could make changes to increase the overlap of the two programs while 
maintaining the NOX reductions of the proposal, we have done 
so. These changes are discussed in detail in this section IV.B. and in 
sections V.A. and V.B.
---------------------------------------------------------------------------

    \51\ In this section and also in section V, we make various 
references to the Tier 2 program, the interim program (or standards) 
and the final Tier 2 standards. The Tier 2 program includes the 
interim program (or standards) and the final Tier 2 standards. Some 
discussion is applicable to the entire Tier 2 program, some to the 
interim program (or standards) only and some is only applicable to 
the final Tier 2 standards. As the program is complex, we advise you 
to read carefully to discern the applicability of the text to the 
proper model years and categories of vehicles.
---------------------------------------------------------------------------

    Our final rule also includes provisions to regulate complete heavy-
duty passenger vehicles (primarily SUVs and passenger vans) of less 
than 10,000 pounds GVWR within the Tier 2 program. Standards for these 
vehicles were not included in the Tier 2 NPRM, but were proposed in a 
subsequent NPRM on October 29, 1999 (64 FR 58472). The final provisions 
for these vehicles are addressed in section IV.B.4.g. These heavier 
vehicles have been recategorized as medium duty passenger vehicles 
(MDPVs). They are included in the Tier 2 program starting with model 
year 2004 and will be treated similarly to HLDTs, unless otherwise 
noted.
    The next sections of the preamble describe our final program in 
detail and include changes and adjustments from the NPRM that we 
believe address many concerns raised by the Alliance and others. While 
these changes ease the burden on manufacturers, they have little or no 
impact on the air quality benefits of the Tier 2 program.

[[Page 6733]]

    In a number of places in the following text, we mention that 
changes are being made ``in response to comments''. For a full summary 
of the comments and for our responses to those comments, we refer you 
to the Response to Comments document contained in the docket for this 
rulemaking or available from the Office of Mobile Sources web site (see 
web address at the beginning of this document).
1. Overview of the Vehicle Program
    The vehicle-related part of today's final rule covers a wide range 
of standards, concepts, and provisions that affect how vehicle 
manufacturers will develop, certify, produce, and market Tier 2 
vehicles. This Overview subsection provides readers with a broad 
summary of the major vehicle-related aspects of the rule. Readers for 
whom this Overview is sufficient may want to move on to the discussion 
of the key gasoline sulfur control provisions (Section IV.C.). Readers 
wishing a more detailed understanding of the vehicle provisions can 
continue beyond the Overview to deeper discussions of key issues and 
provisions (Sections IV.B.-2, 3, and 4) as well as discussions of 
additional provisions (Section V.A.). Readers should refer to the 
regulatory language found at the end of this preamble for a complete 
compilation of the requirements.
    To understand how the program will work, it is useful to review 
EPA's classification system for light-duty vehicles and trucks. The 
light-duty category of motor vehicles includes all vehicles and trucks 
at or below 8500 pounds gross vehicle weight rating, or GVWR (i.e., 
vehicle weight plus rated cargo capacity). Table IV.B.-1 shows the 
various light-duty categories and also shows our new medium-duty 
passenger vehicle (MDPV) category, discussed in section IV.B.4.g.. In 
the discussion below, we make frequent reference to two separate groups 
of light vehicles: (1) LDV/LLDTs, which include all LDVs and all LDT1s 
and LDT2s; and (2) HLDTs, which include LDT3s and LDT4s. We also make 
mention of MDPVs although the details of our program for those vehicles 
are deferred to IV.B.4.g. at the end of section IV.B.

 Table IV.B.--1 Light-Duty Vehicles and Trucks and Medium-Duty Passenger
                   Vehicles; Category Characteristics
------------------------------------------------------------------------
                                                   Characteristics
------------------------------------------------------------------------
LDV.......................................  A passenger car or passenger
                                             car derivative seating 12
                                             passengers or less.
Light LDT (LLDT)..........................  Any LDT rated at up through
                                             6,000 lbs GVWR. Includes
                                             LDT1 and LDT2.
Heavy LDT (HLDT)..........................  Any LDT rated at greater
                                             than 6,000 lbs GVWR.
                                             Includes LDT3 and LDT4s.
MDPV......................................  A heavy-duty passenger
                                             vehicle rated at less than
                                             10,000 lbs GVWR. (The
                                             inclusion of MDPVs is
                                             discussed primarily in
                                             Section IV.B.4.g.)
------------------------------------------------------------------------

a. Introduction
    Today's final rule incorporates concepts from the federal NLEV 
program which began phase-in in the 1999 model year for LDV/LLDTs.\52\ 
The program in today's rule takes the corporate averaging concept and 
other provisions from NLEV but changes the focus from NMOG to 
NOX and applies them to all LDVs and LDTs. The final rule is 
compatible with the California LEV II (CalLEV II) program scheduled to 
take effect in 2004. The emission standard ``bins'' used for this 
average calculation are different in several respects from those of the 
CalLEV II program, yet still allow harmonization of federal and 
California vehicle technology.
---------------------------------------------------------------------------

    \52\ The NLEV program is a voluntary program, adopted by all 
major LDV and LDT manufacturers. It applies only to LDVs, LDT1s and 
LDT2s. It does not apply to HLDTs.
---------------------------------------------------------------------------

    The Tier 2 corporate average NOX level to be met through 
these requirements ultimately applies to all of a manufacturer's LDVs 
and LDTs (subject to two different phase-in schedules) regardless of 
the fuel used. Meanwhile, until the final Tier 2 standards are 
completely phased in, separate interim standards apply to LDV/LLDTs and 
HLDTs.
    As proposed in the NPRM and finalized in today's document, the Tier 
2 program will take effect in 2004, with full phase in occurring by 
2007 for LDV/LLDTs and 2009 for HLDTs. During the phase-in years of 
2004-2008, vehicles not certified to Tier 2 requirements will meet 
interim requirements also using a bins system, but with less stringent 
corporate average NOX standards.
    In the discussions below, we set forth different Tier 2 phase-in 
schedules for the two different groups of vehicles (LDV/LLDTs and 
HLDTs) as well as two different interim fleet average NOX 
standards for 2004 and later model year vehicles awaiting phase-in to 
the Tier 2 standards.
    In the NPRM, we set forth separate tables of full life standard 
bins for the interim programs and the final Tier 2 program, but we 
proposed that manufacturers could use all bins for interim or Tier 2 
vehicles during the phase-in years.\53\ We also proposed similar sets 
of tables for intermediate life standards. In this final rule, for 
simplicity and to accommodate additional bins, including some suggested 
by the Alliance, we have combined all of the full life bins into one 
table and all of the intermediate life bins into one table. The bins 
system and the choice of the individual bins is discussed in detail 
below.
---------------------------------------------------------------------------

    \53\ Throughout this text, the term ``full life'' is used in 
reference to vehicle standards to mean ``full useful life'' which is 
currently 10 years/100,000 miles for LDVs and LLDTs, but 11 years/
120,000 miles for HLDTs. Similarly, ``intermediate life'' refers to 
intermediate useful life standards which apply for the period of 5 
years/50,000 miles. In this rulemaking we are retaining the current 
full useful life period for interim LDVs and LLDTs, but raising it 
for Tier 2 vehicles to 10 years/120,000 miles.
---------------------------------------------------------------------------

References to California LEV II Program

    Throughout this preamble, we make reference to California's LEV II 
program and its requirements. The LEV II program was approved by the 
California ARB at a hearing of November 5, 1998. Numerous draft 
documents were prepared by ARB staff in advance of that hearing and 
made available to the public. Those documents were referenced in our 
NPRM and included in the docket. Some of those documents were modified 
as a result of changes to the proposed program made at the hearing and 
due to comments received after the hearing. ARB prepared final 
documents without significant change. The final program was approved by 
California's Office of Administrative Law on October 28, 1999 and filed 
with the Secretary of State to become effective on November 27, 1999.
    We have placed copies of the latest available documents, some of 
which we used in the preparation of this final rule, in the docket. You 
may also obtain these documents and other information about 
California's LEV II program from ARB's web site: (www.arb.ca.gov/regact/levii/levii.htm).
    In the regulatory text that follows this preamble, we incorporate 
by reference a number of documents related to LEVII and California test 
procedures under

[[Page 6734]]

LEVII. These documents are available in the docket for today's 
rulemaking.
b. Corporate Average NOX Standard
    The program we are finalizing today will ultimately require each 
manufacturer's average full life NOX emissions over all of 
its Tier 2 vehicles to meet a NOX standard of 0.07 g/mi each 
model year. Manufacturers will have the flexibility to certify Tier 2 
vehicles to different sets of exhaust standards that we refer to as 
``bins,'' but will have to choose the bins so that their corporate 
sales weighted average full life NOX level for their Tier 2 
vehicles is no more than the 0.07 g/mi. (We discuss the bins in the 
next subsection.)
    A corporate average standard enables the program's air quality 
goals to be met while allowing manufacturers the flexibility to certify 
some models above and some models below the standard. Manufacturers can 
apply technology to different vehicles in a more cost-effective manner 
than under a single set of standards that all vehicles have to meet.
    Each manufacturer will determine its year-end corporate average 
NOX level by computing a sales-weighted average of the full 
life NOX standards from the various bins to which it 
certified any Tier 2 vehicles. The manufacturer will be in compliance 
with the standard if its corporate average NOX emissions for 
its Tier 2 vehicles meets or falls below 0.07 g/mi. In years when a 
manufacturer's corporate average is below 0.07 g/mi, it can generate 
credits. It can trade (sell) those credits to other manufacturers or 
use them in years when its average exceeds the standard (i.e. when the 
manufacturer runs a deficit). The averaging program is described in 
detail in later text.
c. Tier 2 Exhaust Emission Standard ``Bins''
    We are finalizing a Tier 2 bin structure having eight emission 
standards bins (bins 1-8), each one a set of standards to which 
manufacturers can certify their vehicles. Table IV.B.-2a shows the full 
useful life standards that will apply for each bin in our final Tier 2 
program, i.e. after full phase-in occurs for all LDVs and LDTs. Two 
additional bins, bins 9 and 10, will be available only during the 
interim program and will be deleted before final phase-in of the Tier 2 
program. Table IV.B.-2b shows all the bins from Table IV.B.-2a and also 
shows extra bins and higher available standards for certain pollutants 
that are available prior to full Tier 2 phase-in. An eleventh bin, only 
for MDPVs is discussed in section IV.B.4.g.
    Many bins have the same values as bins in the California LEV II 
program as a means to increase the economic efficiency of the 
transition to as well as model availability. Further, we added bins 
that are not a part of the California program to modestly increase the 
flexibility of the program for manufacturers without compromising air 
quality goals. As discussed in Section IV.B.4. below, we believe these 
extra bins will help provide incentives for manufacturers to produce 
vehicles with emissions below 0.07 g/mi NOX. The two highest 
of the ten bins shown in Table IV.B.2b. are designed to provide 
flexibility only during the phase-in years and will terminate after the 
standards are fully phased in, leaving eight bins in place for the 
duration of the Tier 2 program.
    The NPRM full life standards contained seven Tier 2 bins as well as 
two separate tables of bins for interim vehicles. We proposed that 
manufacturers would be able to use all the bins during the phase in 
years regardless of whether they were certifying Tier 2 vehicles or 
interim vehicles.
    The program we are finalizing today:
     Combines the bins from the NPRM;
     Omits two bins that were included in the NPRM for harmony 
with California but which are unlikely to be used; \54\;
---------------------------------------------------------------------------

    \54\ These bins are unlikely to be used in the Federal program 
because they contain the same NOX standard as the Federal 
bins, but contain more stringent NMOG standards than the Federal 
bins. These bins, which provide extra opportunity for a manufacturer 
to gain NMOG credits in California are not needed or useful in the 
Federal program where there is no NMOG corporate average standard. 
The two deleted bins are bin 4 from the proposed Tier 2 bins and bin 
3 from the proposed interim bins for LDV/LLDTs. Dropping these bins 
does not affect harmonization with California standards because the 
federal program includes bins having the same NOX 
standard with higher NMOG standards.
---------------------------------------------------------------------------

     Adds 2 bins to increase compliance flexibility without 
reducing environmental benefits;
     Adds a temporary bin only for MDPVs that expires after 
2008. This bin is in addition to the 10 bins shown in tables of bins in 
this preamble;
     Establishes a PM value for the highest bin available 
during the interim program (bin 10) that is more stringent than the 
corresponding standard in the NLEV program;
     Provides temporary higher NMOG standards that expire after 
2006 for certain interim LDT2s and LDT4s produced by qualifying 
manufacturers.
    Tables IV.B.-2a and 2b show the bins for full life standards. Table 
IV.B.-2b is repeated later in the text where intermediate life 
standards are also shown. These tables omit the temporary bin for 
MDPVs. This bin is usable only by MDPVs and is addressed separately in 
section IV.B.4.g.

              Table IV.B.-2a.--Final Tier 2 Light-Duty Full Useful Life Exhaust Emission Standards
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
                    Bin No.                           NOX         NMOG          CO          HCHO          PM
----------------------------------------------------------------------------------------------------------------
8..............................................         0.20        0.125          4.2        0.018         0.02
7..............................................         0.15        0.090          4.2        0.018         0.02
6..............................................         0.10        0.090          4.2        0.018         0.01
5..............................................         0.07        0.090          4.2        0.018         0.01
4..............................................         0.04        0.070          2.1        0.011         0.01
3..............................................         0.03        0.055          2.1        0.011         0.01
2..............................................         0.02        0.010          2.1        0.004         0.01
1..............................................         0.00        0.000          0.0        0.000         0.00
----------------------------------------------------------------------------------------------------------------


[[Page 6735]]


          Table IV.B.-2b.--Tier 2 Light-Duty Full Useful Life Exhaust Emission Standards--Including Bins Applicable During Interim Program Only
                                                                     [Grams per mile]
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Bin No.                   NOX               NMOG                     CO                    HCHO               PM            Comments
--------------------------------------------------------------------------------------------------------------------------------------------------------
10................................          0.6  0.156/0.230...........  4.2/6.4..............  0.018/0.027..........         0.08  a b c d
9.................................          0.3  0.090/0.180...........  4.2..................  0.018................         0.06  a b c
8.................................         0.20  0.125/0.156...........  4.2..................  0.018................         0.02  b f
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ Bin deleted at end of 2006 model year (2008 for HLDTs).
\b\ The higher of the two temporary NMOG, CO and HCHO values apply only to HLDTs.
c An additional higher temporary bin restricted to MDPVs is discussed in section IV.B.4.g.
\d\ Optional temporary NMOG standard of 0.280 g/mi applies for qualifying LDT4s and MDPVs only, see text.
\e\ Optional temporary NMOG standard of 0.130 g/mi applies for qualifying LDT2s only, see text.
\f\Higher temporary NMOG value of 0.156g/mi deleted at end of 2008 model year.

    The corporate average concept using bins will provide a program 
that gets essentially the same emission reductions we would expect from 
a straight 0.07 g/mi standard for all vehicles because all 
NOX emissions from Tier 2 vehicles in bins above 0.07 g/mi 
will need to be offset by NOX emissions from Tier 2 vehicles 
in bins below 0.07 g/mile. This focus on NOX allows NMOG 
\55\ emissions to ``float'' in that the fleet NMOG emission rate 
depends on the mix of bins used to meet the NOX standard. 
However, as you can see by examining the bins, any combination of 
vehicles meeting the 0.07 g/mi average NOX standard will 
have average NMOG levels below 0.09 g/mi. The actual value will vary by 
manufacturer depending on the sales mix of the vehicles used to meet 
the 0.07 g/mi average NOX standard. In addition, there will 
be overall improvements in NMOG since Tier 2 incorporates HLDTs, which 
are not covered by the NLEV program. Tier 2 also imposes tighter 
standards on LDT2s than the NLEV program by making them average with 
the LDVs and LDT1s. NLEV has separate, higher standards for LDT2s. We 
did not adopt any bins for LDVs and LDTs with standards higher than we 
proposed.
---------------------------------------------------------------------------

    \55\ In the NPRM, we proposed that hydrocarbon standards would 
be measured in terms of ``non-methane organic gases'' (NMOG) 
regardless of fuel. For reasons explained elsewhere in this preamble 
we will permit non-methane hydrocarbons (NMHC) as an option in the 
final rule for all fuels except alcohol fuels and compressed natural 
gas . NMHC and NMOG are very similar for gasoline and diesel fuel 
emissions.
---------------------------------------------------------------------------

d. Schedules for Implementation
    We recognize that the Tier 2 standards pose greater technological 
challenges for larger light duty trucks ( HLDTs) than for LDVs and 
smaller trucks (LDT1s and LDT2s). We believe that additional leadtime 
is appropriate for HLDTs. HLDTs have historically been subject to less 
stringent vehicle-based standards than lighter trucks and LDVs. Also, 
HLDTs were not subject to the voluntary emission reductions implemented 
for LDVs, LDT1s and LDT2s in the NLEV program. Consequently we are 
finalizing as proposed, separate phase-in programs for HLDTs and LDV/
LLDTs . Our phase-in approach will provide HLDTs with extra time before 
they need to begin phase-in to the final Tier 2 standards and will also 
provide two additional years for them to fully comply. Table IV.B-3 
provides a graphical representation of how the phase-in of the Tier 2 
program will work for all vehicles. This table shows several aspects of 
the program:
     Phase-in of the Tier 2 standards;
     Phase-in/phase-out requirements of the interim programs;
     Phase-in requirements of new evaporative standards;
     Years that can be included in alternative phase-in 
schedules;
     Years in which manufacturers can bank NOX 
credits through ``early banking'' and
     ``Boundaries'' on averaging sets in the Tier 2 and interim 
programs.
     Averaging provisions for MDPVs (see section IV.B.4.g. for 
discussion)
    We discuss each of these topics in detail below and make numerous 
references to Table IV.B-3.

BILLING CODE 6560-50-P

[[Page 6736]]

[GRAPHIC] [TIFF OMITTED] TR10FE00.003

BILLING CODE 6560-50-C
    As described in detail in the Response to Comments document, the 
Alliance proposal would have delayed final implementation of Tier 2 
standards until 2011. We are not adopting the Alliance's time schedule, 
because we believe the shorter schedule we proposed is feasible and 
that there is no reason to delay the final benefits of the Tier 2 
standards. In fact, numerous commenters representing state, 
environmental and health groups argued that our original proposal gave 
manufacturers too much time to bring the HLDTs into line with LDVs and 
LLDTs. We believe the two extra years proposed in the NPRM remain 
appropriate. HLDTs will face greater challenges than LDVs/LLDTs because 
their emission control systems will need to be durable under 
potentially heavier loads and tougher operating conditions than LDV/
LLDTs. Their sales are small relative to the rest of the light duty 
fleet (they will comprise about 14% of the light duty fleet in 2004), 
and they will benefit from industry experience with the lighter 
vehicles. In addition, HLDTs will not remain at high Tier 1 levels 
until they phase-in to Tier 2. Rather, they will have to meet interim 
standards that impose a NOX cap of 0.60 g/mi and phase-in a 
corporate average NOX standard of 0.20 g/mi. These standards 
represent a significant reduction from

[[Page 6737]]

applicable Tier 1 standards.\56\ Interim standards are discussed in 
detail later in this preamble.
---------------------------------------------------------------------------

    \56\ Under Tier 1 standards, LDT3s are subject to a 0.98 g/mi 
NOX standard while LDT4s are subject to an even higher 
NOX standard of 1.53 g/mi.
---------------------------------------------------------------------------

i. Implementation Schedule for Tier 2 LDVs and LLDTs

    We are finalizing the implementation schedule for the Tier 2 
standards as proposed in the NPRM. Thus, the standards will take effect 
beginning with the 2004 model year for light duty vehicles and trucks 
at or below 6000 pounds GVWR (LDV/LLDTs). Manufacturers will phase 
their vehicles into the Tier 2 standards beginning with 25 percent of 
LDV/LLDT sales that year, 50 percent in 2005, 75 percent in 2006, and 
100 percent in 2007. Manufacturers will be free to choose which 
vehicles are phased-in each year. However, in each year during (and 
after) the phase-in, the manufacturer's average NOX for its 
Tier 2 vehicles must meet the 0.07 g/mi corporate average standard. 
This phase-in schedule, which is consistent with that of the California 
LEV II program, provides between four and seven years of leadtime for 
the manufacturers to bring all of their LDV/LLDT production into 
compliance. These vehicles constitute about 86 percent of the light 
duty fleet.
    To increase manufacturer flexibility and provide incentives for 
early introduction of Tier 2 vehicles, we are also finalizing 
provisions from the NPRM that permit manufacturers to use alternative 
phase-in schedules that will still require 100 percent phase-in by 
2007, but recognize the benefits of early introduction of Tier 2 
vehicles, and allow manufacturers to adjust their phase-in to better 
fit their own production plans. (See section IV.B.4.b.ii. below.)

ii. Implementation Schedule for Tier 2 HLDTs

    The Tier 2 phase-in schedule for HLDTs is also being finalized as 
proposed. The phase-in for final Tier 2 standards for HLDTs will start 
later and end later than that for LDVs and LLDTs. Fifty percent of each 
manufacturer's HLDTs must meet Tier 2 standards in 2008, and 100 
percent must meet Tier 2 standards in 2009. As with the LDV/LLDTs, the 
Tier 2 HLDTs must meet a corporate average NOX standard of 
0.07 g/mi. This delayed phase-in schedule:
     Provides significant interim emission reductions starting 
in 2004 (discussed separately below);
     Recognizes the relatively high emission standards that 
currently apply to HLDTs;
     Provides manufacturers with adequate lead time before they 
must bring HLDTs into compliance with final Tier 2 standards;
     Provides manufacturers the opportunity to apply and 
evaluate Tier 2 technology on LDV/LLDTs before having to apply it to 
HLDTs; and
     Provides manufacturers the opportunity to apply and 
evaluate Tier 2 technology on HLDTs on a relatively small scale to meet 
California LEV II requirements before having to apply it to HLDTs 
nationwide.
    As with the LDV/LLDTs above, to encourage early introduction of 
Tier 2 HLDTs and to provide manufacturers with greater flexibility, we 
are finalizing provisions to permit manufacturers to generate early 
Tier 2 NOX credits and to use alternative phase-in schedules 
that still result in 100% phase-in by 2009. (See sections IV.B.4.d.iv. 
and IV.B.4.b.ii, respectively, below.)
e. Interim Standards
    The interim standards discussed below are a major source of 
emission reductions in the early years of the vehicle control program. 
The NOX emission standards for LDT2s and LDT4s, which 
comprise about 40 percent of the fleet, are more stringent than the 
corresponding standards in the NLEV and CAL LEV I programs. These 
standards also are important because they set the stage for a smooth 
transition to the final Tier 2 standards.
    The two groups of vehicles (LDV/LLDTs and HLDTs) will be 
approaching the Tier 2 standards from quite different emission 
``backgrounds''. LDV/LLDTs will be at NLEV levels, which require 
NOX emissions of either 0.3 or 0.5g/mi on average, \57\ 
while HLDTs will be at Tier 1 levels facing NOX standards of 
either 0.98 or 1.53 g/mi, depending on truck size. These Tier 1 
NOX levels for HLDTs are very high (by a factor of 14-22) 
relative to our 0.07 g/mi Tier 2 NOX average. To address the 
disparity in emission ``backgrounds'', while gaining air quality 
benefits from vehicles during the phase-in period, we proposed and are 
finalizing separate interim average NOX standards for the 
two vehicle groups during the phase-in period. The provisions described 
below will apply in 2004 for all LDVs and LDTs not certified to Tier 2 
standards. The relationship of the interim programs to the final Tier 2 
standards is shown in Table IV.B-3.
---------------------------------------------------------------------------

    \57\ The NLEV program imposes NMOG average standards that 
translate into full useful life NOX levels of about 0.3 
g/mi for LDV/LDT1s and 0.5 g/mi for LDT2s.
---------------------------------------------------------------------------

    Interim vehicles will certify to the same bins as Tier 2 vehicles. 
As described earlier in this preamble, we have merged the tables of 
bins from the NPRM for simplicity and added a few bins. Bins 9 and 10 
were drawn from the tables of interim bins in the NPRM, and are 
intended only for use during the phase-in years. Therefore, these two 
bins will be discontinued after 2006 (2008 for HLDTs).

i. Interim Exhaust Emission Standards for LDV/LLDTs

    Beginning with the 2004 model year, all new LDVs, LDT1s and LDT2s 
not incorporated under the Tier 2 phase-in will be subject to an 
interim corporate average NOX standard of 0.30 g/mi. This is 
effectively the LEV NOX emission standard for LDVs and LDT1s 
under the NLEV program.\58\ This interim program will hold LDVs and 
LLDTs to NLEV levels if they are not yet subject to Tier 2 standards 
during the phase-in. By implementing these interim standards for LDVs 
and LLDTs we will ensure that the accomplishments of the NLEV program 
continue. Additionally, this program will bring about substantial and 
important NOX emission reductions from LDT2s in the early 
years of the program. LDT2s will be held to a 0.3 g/mi NOX 
average in contrast to a 0.5 g/mi average in the NLEV program.
---------------------------------------------------------------------------

    \58\ The NLEV program does not impose average NOX 
standards, but the NMOG average standards that it does impose will 
lead to full useful life NOX levels of about 0.3 g/mi for 
LDV/LDT1s.
---------------------------------------------------------------------------

    Because the Tier 2 standards are phased-in beginning in the 2004 
model year, the interim standards for LDVs and LLDTs apply to fewer 
vehicles each year, i.e., they are ``phase-out'' standards. Table IV.B-
2 shows the maximum percentage of LDVs and LLDTs subject to the interim 
standards each year-- 75% in 2004, 50% in 2005, 25% in 2006 and 0% in 
2007.
    As mentioned above, the interim program for LDV/LLDTs is designed 
to hold these vehicles to the NLEV NOX level for LDVs and 
LDT1s, and a few of our bins are derived from the NLEV program. Our 
proposal to bring LDT2s into line with the LDVs and LDT1s during the 
interim program by requiring all LDVs, LDT1s and LDT2s to meet the same 
average NOX standard (0.30) g/mi was of concern to industry 
commenters. In the final rule, we are retaining this requirement, but 
we are providing an optional NMOG standard of 0.130 for LDT2s certified 
to bin 9 when the manufacturers of those LDT2s elect to bring all of 
their 2004 model year

[[Page 6738]]

HLDTs under our interim program and phase 25% of those HLDTs into the 
0.20 g/mi average NOX standard. (See ii. below). These 
provisions are discussed in detail below and also in the Response to 
Comments document.

ii. Interim Exhaust Emission Standards for HLDTs

    Our interim standards for HLDTs will begin in the 2004 model year 
similar to our proposal in the NPRM. The Interim Program for HLDTs will 
require compliance with a corporate average NOX standard of 
0.20 g/mi that will be phased in between 2004 and 2007. The interim 
HLDT standards, like those for LDV/LLDTs will make use of the bins in 
Tables IV.B. -4 and -5. We believe that our interim standards, which 
start in 2004, will produce significant emission reductions from HLDTs 
produced during the interim period. For example, HLDTs will have to 
reduce emissions in the interim program relative to the NLEV program. 
These standards, by themselves, represent a major reduction in emission 
standards and we believe it is likely that some manufacturers will 
apply their Tier 2 technology to HLDTs in order to comply with the 
interim standards.
    As shown in Table IV.B.-3, the phase-in schedule for HLDTs to the 
0.20 g/mi corporate average NOX standard will be 25 percent 
in the 2004 model year (except as noted below), 50 percent in 2005, 75 
percent in 2006, and 100 percent in 2007. As for the Tier 2 standards, 
alternative phase-in schedules (see Section IV.B.4.b.ii.) will be 
available. The interim program will remain in effect through 2008 to 
cover those HLDTs not yet phased into the Tier 2 standards (a maximum 
of 50%). Interim HLDTs not subject to the interim corporate average 
NOX standard during the applicable phase-in years (2004-2006 
or 2005-2006) will be subject to the least stringent bins so their 
NOX emissions will be effectively capped at 0.60 g/mi. These 
vehicles will be excluded from the calculation to determine compliance 
with the interim 0.20 g/mi average NOX standard.
    This approach will allow more time for manufacturers to bring the 
more difficult HLDTs to Tier 2 levels while achieving real reductions 
from those HLDTs that may present less of a challenge.
    Due to statutory leadtime considerations, we were not able to 
finalize the HLDT standards to be in effect by the time the 2004 model 
year begins. For this reason, we are providing incentives for HLDTs to 
comply with the Tier 2 standards for all 2004 model year HLDTs. This 
change and the leadtime issue are discussed further under section 
IV.B.4.e. below and also in the Response to Comments document.

iii. Interim Programs Will Provide Reductions Over Previous Standards

    As is the case with the primary Tier 2 standard structure, the 
interim programs will focus on NOX but will also provide 
reductions in NMOG beyond the NLEV program. This is because the interim 
programs will reduce emissions from LDT2s and HLDTs compared to their 
previous standards. Without the interim standards, HLDTs could be 
certified to the Tier 1 NMHC levels (0.46 g/mi or 0.56 g/mi). With the 
interim standards, however, exhaust NMOG \59\ should average 
approximately 0.09 g/mi for all non-Tier 2 LDV/LLDTs and 0.24 g/mi or 
less for HLDTs. CO under Tier 1 could be as high as 7.3 g/mi for LDT4s. 
Under the interim program, CO standards for most bins will be well 
below 7.3 g/mi.
---------------------------------------------------------------------------

    \59\ In the Tier 1 program, exhaust hydrocarbon standards are in 
terms of NMHC, not NMOG. However, as we have explained elsewhere in 
this preamble, NMHC and NMOG results are very similar for gasoline 
and diesel-fueled vehicles.
---------------------------------------------------------------------------

f. Generating, Banking, and Trading NOX Credits
    As proposed in the NPRM and finalized in this notice, manufacturers 
will be permitted to average the NOX emissions of their Tier 
2 vehicles and comply with a corporate average NOX standard. 
In addition, when a manufacturer's average NOX emissions 
fall below the corporate average NOX standard, it can 
generate NOX credits for later use (banking) or to sell to 
another manufacturer (trading). NOX credits will be 
available under the Tier 2 standards, the interim standards for LDVs 
and LLDTs, and the interim standards for HLDTs. These NOX 
credit provisions will facilitate compliance with the fleet average 
NOX standards and be very similar to those currently in 
place for NMOG emissions under California and federal NLEV regulations.
    A manufacturer with an average NOX level for its Tier 2 
vehicles in a given model year below the 0.07 gram per mile corporate 
average standard can generate Tier 2 NOX credits that it can 
use in a future model year when its average NOX might exceed 
the 0.07 standard. Manufacturers must calculate their corporate average 
NOX emissions at year end and then compute credits generated 
based on how far below 0.07 g/mi the corporate average falls.
    Manufacturers will be free to retain any credits they generate for 
future use or to trade (sell) those credits to other manufacturers. 
Credits retained or purchased can be used by manufacturers with 
corporate average Tier 2 NOX levels above 0.07 g/mi. Under 
provisions described in Section IV.B.4.d.iv., manufacturers can 
implement NOX emission reductions as early as the 2001 model 
year and earn early Tier 2 NOX credits to help LDVs and 
LLDTs meet Tier 2 standards. Similarly, manufacturers can earn early 
credits for HLDTs as early as the 2001 model year. In model years up 
through 2005, manufacturers can earn extra credits when they certify 
vehicles to bins 1 or 2.
    Banking and trading of NOX credits under the interim 
non-Tier 2 standards will be similar to that under the Tier 2 
standards, except that a manufacturer must determine its credits based 
upon the 0.30 or 0.20 gram per mile corporate average NOX 
standard applicable to vehicles in the interim programs. As we proposed 
in the NPRM, interim credits from LDVs/LLDTs and interim credits from 
HLDTs will not be permitted to be used interchangeably due to the 
differences in the interim corporate average NOX standards. 
As proposed in the NPRM, there will be no provisions for early banking 
under the interim standards and manufacturers will not be allowed to 
use interim credits to address the Tier 2 NOX average 
standard. This is because we remain concerned that credits can be 
generated relatively easily under less stringent standards (the Tier 1 
or interim standards) and then used in such a way to delay 
implementation of the Tier 2 standards.
    Banking and trading of NOX credits and related issues 
are discussed in greater detail in Section IV.B.4.d. below.
2. Why Are We Finalizing the Same Set of Standards for Tier 2 LDVs and 
LDTs?
    Before we provide a more detailed description of the vehicle 
program, we want to review two overarching principles of today's rule. 
The first is our goal to bring all LDVs and LDTs under the same set of 
emission standards. Historically, LDTs--and especially the heavier 
trucks in the LDT3 and LDT4 categories--have been subject to less 
stringent emission standards than LDVs (passenger cars). In recent 
years the proportion of light truck sales has grown to approximately 50 
percent. Many of these LDTs are minivans, passenger vans, sport utility 
vehicles and pick-up trucks that are used primarily or solely for 
personal transportation; i.e., they are used like passenger cars.
    As vehicle preferences have increasingly shifted from passenger 
cars to light trucks there has been an

[[Page 6739]]

accompanying increase in emissions over what otherwise would have 
occurred because of the increase in miles traveled by LDTs and the less 
stringent standards for LDTs as compared to LDVs. As Section III. above 
makes clear, reductions in these excess emissions (and in other mobile 
and stationary source emissions) are seriously needed. Since both LDVs 
and LDTs are within technological reach of the standards in the Tier 2 
bin structure, and since none of the comments have been persuasive that 
manufacturers can not meet the standards, we are finalizing our 
proposal to equalize the regulatory useful life mileage for LDVs and 
LDTs and apply the same Tier 2 exhaust emission standard bins to all of 
them. This program will ensure that substantial reductions occur in all 
portions of the light-duty fleet and that the movement from LDVs to 
LDTs will not counteract these reductions.
    Once the phase in periods end for all vehicles in 2009, 
manufacturers will include all LDVs and LDTs together in calculating 
their corporate average NOX levels.\60\ As mentioned above 
and described in more detail in Section IV.B.-4. below, manufacturers 
can choose the emission bin for any test group of vehicles provided 
that, on a sales weighted average basis, the manufacturer meets the 
average NOX standard of 0.07 g/mi for its Tier 2 vehicles 
that year.
---------------------------------------------------------------------------

    \60\ Because of the different phase-in percentages and phase-in 
schedules for the two groups, during the duration of the phase-in 
(through 2008), manufacturers will average Tier 2 LDV/LLDTs 
separately from HLDTs.
---------------------------------------------------------------------------

    Some manufacturers have suggested that a program with different 
requirements is needed for heavy LDTs. Recognizing that compliance will 
be most challenging for HLDTs, the delay in the start of the phase-in 
and the additional phase-in years for those vehicles will allow 
manufacturers to delay the initial impact of the Tier 2 standards until 
the 2008 model year. This represents four additional model years of 
leadtime beyond the time when passenger cars and LDT1s and LDT2s will 
achieve Tier 2 standards in substantial numbers. We believe this phase-
in and other provisions of this rule respond to these concerns. Note 
that in the NPRM, we requested comments on the need for different 
hydrocarbon standards for these vehicles recognizing that a tradeoff 
often exists between HC and NOX emissions. We also proposed 
that several bins have higher hydrocarbon standards for HLDTs during 
the interim program. We are finalizing these bins as proposed. Also, as 
an option, we are permitting the use of NMOG values similar to those in 
the NLEV program for bins 9 and 10 only for certain LDT2s and LDT4s 
during the interim program (see section IV.B.1.e.ii. above for 
details).
    We are not adopting the Alliance's proposed phase-in schedule which 
would have provided a phase-in lasting until 2011. At the end of the 
Alliance's proposed phase-in, all vehicles would comply with an average 
NOX standard of 0.07 g/mi. A fixed 0.09 NMHC standard would 
apply to LDVs and LLDTs while a fixed 0.156 NMHC standard would apply 
to HLDTs.\61\ Our final program provides HLDTs until 2008 before any 
have to meet 0.07 g/mi on average and permits them to be averaged with 
LDV/LLDTs beginning in 2009, when all must meet 0.07 g/mi 
NOX on average. We believe that eight years is a significant 
amount of leadtime to apply Tier 2 technology. We heard clearly from 
the public hearings and written comments that the public sees no 
justification for and does not want even more time provided for HLDTs. 
Furthermore, we see no technological need for more time than we 
proposed. Indeed, many believe that HLDTs should meet the Tier 2 
standards in step with the LDV/LLDTs.
---------------------------------------------------------------------------

    \61\ The Alliance proposed NMHC standards in lieu of the NMOG 
standards we proposed and are finalizing today. We are including a 
provision in the final rule to accept NMHC results, subject to an 
adjustment factor, to demonstrate compliance with NMOG standards, 
although we are not adopting the fixed standards proposed by the 
Alliance.
---------------------------------------------------------------------------

    We are not promulgating the fixed NMHC standards suggested by the 
Alliance, but are sticking with the concept of bins containing lower 
NMOG standards connected to lower NOX (and other) standards. 
We believe that providing final exhaust emission standards for HLDTs 
that deviate from those for LDV/LLDTs would violate one of the 
overarching principles of the Tier 2 program, i.e. that all LDVs and 
LDTs should be subject to the same exhaust emission standards. Further, 
the idea of NMOG values that differ from California's runs counter to 
other arguments raised by the Alliance that EPA should align bins with 
California's to promote 50 state certification of test groups.
3. Why Are We Finalizing the Same Standards for Both Gasoline and 
Diesel Vehicles?
    The second overarching principle of our vehicle program is the use 
of the same Tier 2 standards for all LDVs and LDTs, regardless of the 
fuel they are designed to use. The same exhaust emission standards and 
useful life periods we are finalizing today will apply whether the 
vehicle is built to operate on gasoline or diesel fuel or on an 
alternative fuel such as methanol or natural gas. Diesel powered LDVs 
and LDTs tend to be used in the same applications as their gasoline 
counterparts, and thus we believe they should meet the same standards. 
Less stringent standards for diesels could create incentives for 
manufacturers to build more diesel vehicles, thus endangering the 
emission reductions expected by this program.
    Manufacturers have expressed concerns that diesel-fueled vehicles 
would have difficulty meeting NOX and particulate matter 
levels like those contained in today's rule. Clearly, these standards 
will be challenging. As discussed in Section IV.A.-1. above, we expect 
that the Tier 2 NOX and NMOG standards will be challenging 
for gasoline vehicles, but that major technological innovations will 
not be required. For diesels, however, the final Tier 2 NOX 
and PM standards will likely require applications of aftertreatment, 
most likely accompanied by changes in diesel fuel as such devices are 
sensitive to diesel fuel quality, particularly sulfur content. We do 
not believe such devices will be necessary to meet the top bin for our 
interim standards.\62\ Given the small percentage of diesel vehicles 
and the phase-in of the standards, that bin should be sufficient for 
any manufacturer to market diesels and still comply with the interim 
program. We anticipate that manufacturers that choose to build diesel 
vehicles for the final Tier 2 standards will adopt aftertreatment 
technologies such as NOX adsorber catalysts and continuously 
regenerating particulate traps to meet Tier 2 requirements. We issued 
an Advanced Notice of Proposed Rulemaking to seek input on potential 
diesel fuel quality changes on May 13, 1999 (64 FR 26142). We 
anticipate issuing a Notice of Proposed Rulemaking to reduce the sulfur 
limit on diesel fuel in the spring of 2000 followed by a final rule in 
late 2000. Our goal in that rulemaking is to have low sulfur diesel 
fuel available which will allow diesel vehicles to meet the Tier 2 
standards, within the bin structure, by the time the Tier 2 standards 
are required for the entire fleet.
---------------------------------------------------------------------------

    \62\ The interim PM standard in this new bin, which represents a 
reduction from the NLEV PM standards, should be feasible without 
aftertreatment. The technologies needed to meet the PM standard we 
proposed for this bin would likely have required low sulfur diesel 
fuel, which may not be widely available during the interim program. 
This change is also discussed in section V.A.

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

[[Page 6740]]

    Today, diesels comprise less than one-half of one percent of all 
LDV/LDT sales. While this is a small fraction, the potential exists for 
diesels to gain a considerable market share in the future. All one need 
do is review the dramatic increase in recent years of diesel engine use 
in the lightest category of heavy duty vehicles (8500-10,000 pounds 
GVWR) to see the potential for significant diesel engine use in LDTs, 
and perhaps LDVs, in the future. Just ten years ago, diesels made up 
less than 10 percent of this class of vehicles. In 1998, this fraction 
approached 50 percent.
    The potential impact of large-scale diesel use in the light-duty 
fleet underscores the need for the same standards to apply to diesels 
as other vehicles. Given the health concerns associated with diesel PM 
emissions (see Section III. above), we believe that it is prudent to 
address PM emissions from diesel LDVs and LDTs while their numbers are 
relatively small. In this way the program can minimize the PM impact 
that would accompany significant growth in this market segment while 
allowing manufacturers to incorporate low-emission technology into new 
light-duty diesel engine designs.
4. Key Elements of the Vehicle Program
    The previous subsections IV.B.-1.2. and 3. provide an overview of 
the Tier 2 vehicle program and the two key principles it is built on. 
This subsection elaborates on the major vehicle-related elements of 
today's rule. Later in this preamble, Section V.A. discusses the rest 
of the vehicle provisions.
a. Basic Exhaust Emission Standards and ``Bin'' Structure
    Our final Tier 2 program contains a basic requirement that each 
manufacturer meet, on average, a full useful life NOX 
standard of 0.07 g/mi for all its Tier 2 LDVs and LDTs. Manufacturers 
will have the flexibility to choose the set of standards that a 
particular test group \63\ of vehicles must meet. For a given test 
group of LDVs or LDTs, manufacturers will select a set of full useful 
life \64\ standards from the same row (``emission bin'' or simply 
``bin'') in Table IV.B.-4. below. Each bin contains a set of individual 
NMOG, CO, HCHO, NOX, and PM standards. For technology 
harmonization purposes, our proposed emission bins include or otherwise 
cover all of those adopted in California's LEV II program.\65,\\66\
---------------------------------------------------------------------------

    \63\ A ``test group'' is the basic classification unit for 
certification of light-duty vehicles and trucks under EPA 
certification procedures for the CAP2000 program. ``Test group'' is 
a broader classification unit than ``engine family'' used prior to 
the implementation of the CAP2000 program. We discuss the CAP2000 
program in more detail in section V.A.9. of this preamble.
    \64\ The regulatory ``useful life'' value for Tier 2 vehicles is 
specifically addressed in Section V.A.2. of this preamble. Full 
useful life will be 10 years or 120,000 miles for all vehicles 
except LDT3s and LDT4s, for which it is 11 years or 120,000 miles. 
Intermediate useful life, where standards are applicable, is 5 years 
or 50,000 miles.
    \65\ EPA's current standards for Clean Fuel Vehicles are less 
stringent than the Tier 2 standards. See 40 CFR 88.104-94. The Tier 
2 standards will supercede the current CFV standards, and the Agency 
intends to undertake a rulemaking to revise the CFV standards 
accordingly.
    \66\ In some cases our bins do not match California's exactly, 
because they have higher NMOG standards. These bins ``cover'' the 
California bin in that a vehicle certified to the California 
standards will comply with the standards in these bins.
---------------------------------------------------------------------------

    In the NPRM, we proposed that interim vehicles and Tier 2 vehicles 
(except for those Tier 2 vehicles in the lowest bins) would also have 
to meet intermediate useful life standards, i.e., standards that apply 
for 5 years or 50,000 miles. We are finalizing these intermediate 
useful life standards as proposed. Where we have added new full life 
bins, we have included corresponding intermediate life bins as 
appropriate. Our intermediate life standards are generally aligned with 
California's, they only impact the higher bins, and we do not believe 
they add substantial burden to the program. Further, they provide a 
check on the allowed emission deterioration during the life of the 
vehicle. For the final rule, we have made two changes involving 
intermediate life standards. First, we are providing that diesel 
vehicles, which will likely certify to bin 10 during the interim 
program, may opt not to meet the intermediate life standards associated 
with this bin. Low sulfur diesel fuel may be needed for diesels to meet 
our interim intermediate life standards and it is not likely to be 
widely available during the time frame of the interim program. 
Secondly, for all vehicles, we are finalizing a provision that will 
make intermediate life standards optional for any test group that is 
certified to a full useful life of 150,000 miles. This provision is 
described in more detail with other useful life issues in section V.B.

                                      Table IV.B-4.--Tier 2 Light-Duty Full Useful Life Exhaust Emission Standards
                                                                    [Grams per mile]
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Bin No.                    NOX               NMOG                    CO                    HCHO               PM            Comments
--------------------------------------------------------------------------------------------------------------------------------------------------------
10................................          0.6   0.156/0.230..........  4.2/6.4..............  0.018/0.027..........         0.08  (a,b,c,d)
9.................................          0.3   0.090/0.180..........  4.2..................  0.018................         0.06  (a,b,e)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    The above temporary bins expire in 2006 (for LDVs and LLDTs) and 2008 (for HLDTs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
8.................................          0.20  0.125/0.156..........  4.2..................  0.018................         0.02  (b,f)
7.................................          0.15  0.090................  4.2..................  0.018................         0.02
6.................................          0.10  0.090................  4.2..................  0.018................         0.01
5.................................          0.07  0.090................  4.2..................  0.018................         0.01
4.................................          0.04  0.070................  2.1..................  0.011................         0.01
3.................................          0.03  0.055................  2.1..................  0.011................         0.01
2.................................          0.02  0.010................  2.1..................  0.004................         0.01
1.................................          0.00  0.000................  0.0..................  0.000................         0.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ Bin deleted at end of 2006 model year (2008 for HLDTs).
\b\ The higher temporary NMOG, CO and HCHO values apply only to HLDTs and expire after 2008.
\c\ An additional temporary higher bin restricted to MDPVs is discussed in section IV.B.4.g.
\d\ Optional temporary NMOG standard of 0.280 g/mi applies for qualifying LDT4s and MDPVs only.
\e\ Optional temporary NMOG standard of 0.130 g/mi applies for qualifying LDT2s only, see text.
\f\ Higher temporary NMOG standard is deleted at end of 2008 model year.


[[Page 6741]]


                              Table IV.B.-5.--Light-Duty Intermediate Useful Life (50,000 Mile) Exhaust Emission Standards
                                                                    [Grams per mile]
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Bin No.                    NOX               NMOG                    CO                    HCHO               PM            Comments
--------------------------------------------------------------------------------------------------------------------------------------------------------
10................................          0.4   0.125/0.160..........  3.4/4.4..............  0.015/0.018..........               (\a,b,c,d,f,h\)
9.................................          0.2   0.075/0.140..........  3.4..................  0.015................               (\a,b,e,h\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    The above temporary bins expire in 2006 (for LDVs and LLDTs) and 2008 (for HLDTs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
8.................................          0.14  0.100/0.125..........  3.4..................  0.015................               (\b,g,h\)
7.................................          0.11  0.075................  3.4..................  0.015................               (\h\)
6.................................          0.08  0.075................  3.4..................  0.015................               (\h\)
5.................................          0.05  0.075................  3.4..................  0.015................               (\h\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ Bin deleted at end of 2006 model year (2008 for HLDTs).
\b\ The higher temporary NMOG, CO and HCHO values apply only to HLDTs and expire in 2008.
\c\ An additional higher temporary bin restricted to MDPVs is discussed in section IV.B.4.g.
\d\ Optional temporary NMOG standard of 0.195 g/mi applies for qualifying LDT4s and MDPVs only.
\e\ Optional temporary NMOG standard of 0.100 g/mi applies for qualifying LDT2s only, see text.
\f\ Intermediate life standards are optional for diesels certified to bin 10.
\g\ Higher temporary NMOG value deleted at end of 2008 model year.
\h.\ Intermediate life standards are optional for any test group certified to a 150,000 mile useful life (if credits are not claimed).

    Under a ``bins'' approach, a manufacturer may select a set of 
emission standards (a bin) to comply with, and a test group must meet 
all standards within that bin. Ultimately, the manufacturer must also 
ensure that the emissions of a targeted pollutant--NOX in 
this case--from all of its vehicles taken together meet a ``corporate 
average'' emission standard. This corporate average emission standard 
ensures that a manufacturer's production yields the required overall 
emission reductions. (See Section IV.B.-4.c. below for more discussion 
of the corporate average NOX standard.)
    In addition to the Tier 2 standards described above, we are also 
finalizing an interim average NOX standard derived from the 
LDV/LDT1 NLEV program to cover all non-Tier 2 LDVs and LLDTs during the 
Tier 2 phase-in. We are finalizing a separate interim average 
NOX standard for HLDTs. As in the Tier 2 program, 
manufacturers will select bins from Table IV.B.-4 to use to comply with 
the interim standards. Bins with NOX values at or above 0.07 
g/mi also have associated intermediate life standards which are shown 
in Table IV.B.-5. (We describe the interim standards in detail in 
Section IV.B.4.e. below.)

i. Why Are We Including Extra Bins?

    Compared to the CalLEV II program, our Tier 2 proposal included 
additional bins. The California program contains no bins that will 
allow NOX levels above the 0.07 g/mi level. Therefore, under 
the California program, no engine family can be certified above 0.07 g/
mi, even with the application of offsetting credits. We proposed to add 
two bins (with NOX values of 0.15 and 0.20) above the 0.07 
bin and another below (with a NOX value of 0.04) to provide 
manufacturers with additional flexibility. Based upon comments received 
from the Alliance and others that additional bins provide important 
added flexibility, we are finalizing a total of three bins above the 
LEV level (the additional bin has a NOX value of 0.10 g/mi) 
and are adding one more below the LEV level (this additional bin has a 
NOX value of 0.03 g/mi). Due to the NOX averaging 
requirement of this rule, these bins will not result in any increase in 
NOX emissions. Further, these bins will address concerns 
raised by some that a wider variety of bins, and bins with higher 
NOX values, are needed to avoid a situation where the Tier 2 
program discourages the development of advanced technology high fuel 
economy vehicles, which may, at least in their earliest years, have 
NOX emissions higher than more conventional vehicles.
    In our NPRM we proposed that during the Tier 2 phase-in years 
(through 2006 for LDV/LLDTs and 2008 for HLDTs), bins from the 
applicable interim program would be available to enhance the 
flexibility of the program by providing manufacturers with additional 
bins having NOX standards above 0.07 g/mi. In the NPRM, we 
showed the interim bins in separate tables for LDV/LLDTs and HLDTs. 
There was considerable overlap across the two tables and with the Tier 
2 bins. In this final rule, we have consolidated the interim bins and 
the Tier 2 bins into one table for simplicity and ease of reference. 
The interim programs for non-Tier 2 vehicles are described in detail in 
section IV.B.4.e.
    While some commenters were concerned about the existence of bins 
above NOX = 0.07 g/mi, we believe that the additional higher 
bins actually provide incentive for manufacturers to produce vehicles 
below 0.07 g/mi of NOX. We believe this incentive exists 
because manufacturers will have some vehicles (especially larger LDTs) 
that they might find more cost effective to certify to levels above the 
0.07 g/mi average standard. However, to do this they will have to 
offset those vehicles in our NOX averaging system with 
vehicles certified below 0.07 g/mi. The bins at NOX = 0.04 
g/mi and NOX = 0.03 g/mi will provide greater opportunity to 
do this. Thus, the extra bins serve two purposes; they provide 
additional flexibility to manufacturers to address technological 
differences and costs, and they provide those manufacturers with 
incentives to produce cleaner vehicles and thus advance emission 
control technology.
    We are finalizing a bins approach with the bins shown in Tables 
IV.B.4 and 5 to provide adequate and appropriate emission reductions 
and manufacturer flexibility. This structure will help to accelerate 
technological innovation. We requested comment on whether we should 
include up to two additional bins between NOX = 0.07 and 
NOX = 0.15. Based upon manufacturer comment, we have added 
an additional bin (bin 6 ) with NOX = 0.10. This bin will 
provide greater flexibility for manufacturers who may find it more 
cost-effective to produce some vehicles slightly above 0.07 but have 
difficulties meeting a 0.07 g/mi average NOX standard if 
they must certify them to a NOX level of 0.15 g/mi.
    We requested comment on whether our Tier 2 bin in the NPRM with 
NOX = 0.20 (our final bin 8) should be eliminated when the 
Tier 2 phase-in is completed (after 2007 for LDV/LLDTs

[[Page 6742]]

and after 2009 for HLDTs). Numerous commenters argued that our highest 
bins were too lenient. Comments from manufacturers were opposed to 
eliminating bin 8 and we see little downside to having bins higher than 
the 0.07 NOX standard, given that, for all of the vehicles 
that will use this bin, manufacturers will have to offset the excess 
emissions by selling vehicles certified below 0.07 g/mi NOX 
under the averaging requirement. Thus, we are retaining bin 8.
b. The Program Will Phase in the Tier 2 Vehicle Standards Over Several 
Years

i. Primary Phase-In Schedule

    We are finalizing as proposed our plan to phase in the Tier 2 
standards for LDV/LLDTs over a four year period beginning in 2004 and 
we are also finalizing as proposed a delayed two year phase-in 
beginning in 2008 for HLDTs. These phase-in schedules are shown in 
Table IV.B.-2 and are also shown separately in Tables IV.B.-6 and 7. We 
believe the flexibility of this dual phase-in approach is appropriate 
because the Tier 2 program will encompass all light-duty vehicles and 
trucks and will result in widespread applications of upgraded and 
improved technology across the fleet. The program will require 
research, development, proveout, and certification of all light-duty 
models, and manufacturers may need longer lead time for some vehicles, 
especially HLDTs. Also, manufacturers may wish to time compliance with 
the Tier 2 standards to coincide with other changes such as the roll 
out of new engines or new models. In order to begin the introduction of 
very clean vehicles as soon as possible while avoiding imposing 
unnecessary inefficiencies on vehicle manufacturers, we believe this 
practical but aggressive phase-in schedule effectively balances air 
quality, technology, and cost considerations.
    In each year, manufacturers will have to ensure that the specified 
fraction of their U.S. sales: \67\
---------------------------------------------------------------------------

    \67\ For Tier 2 vehicles (and for interim vehicles), the term 
``U.S. sales'' means, for a given model year, those sales in states 
other than California and any states that have adopted the 
California program.
---------------------------------------------------------------------------

     Meets Tier 2 standards for exhaust emissions, including 
Supplemental Federal Test Procedure (SFTP) standards (discussed in 
Section V.A.-3. below);
     Meets Tier 2 standards for evaporative emissions 
(discussed in Section IV.B.-4.f. below); and
     Meets the corporate average Tier 2 NOX 
standard.
    Manufacturers will have to meet the Tier 2 exhaust requirements 
(i.e., all the standards of a particular bin plus the SFTP standards) 
using the same vehicles. Vehicles not covered by the Tier 2 standards 
during the phase-in years (2004-2008) will have to meet interim 
standards described in Section IV.B.4.e. below and the existing 
evaporative emission as well as the applicable SFTP standards.
    Manufacturers can elect to meet the percentage phase-in 
requirements for evaporative and exhaust emissions using two different 
sets of vehicles. We believe that because of interactions between 
evaporative and exhaust control strategies, manufacturers will 
generally address the Tier 2 evaporative phase-in with the same 
vehicles that they use to meet the exhaust phase-in. However, the 
primary focus of today's proposal is on exhaust emissions, and the 
flexibility for manufacturers to use different sets of vehicles in 
complying with the phase-in schedule for evaporative standards and for 
the exhaust standards will have no environmental down side that we are 
aware of. It is possible that some exhaust emission improvements might 
even occur sooner than they otherwise would if a manufacturer is able 
to move ahead with the roll-out of a model with cleaner exhaust 
emissions without having to wait for the development of suitable 
evaporative controls to be completed for that model.

 Table IV.B.-6.--Primary Phase-In Schedule for Sales of Tier 2 LDVs and
                                  LLDTs
------------------------------------------------------------------------
                                                             Required
                                                           percentage of
                                                            light-duty
                       Model year                          vehicles and
                                                           light light-
                                                            duty trucks
                                                             (percent)
------------------------------------------------------------------------
2004....................................................              25
2005....................................................              50
2006....................................................              75
2007....................................................             100
------------------------------------------------------------------------


   Table IV.B.-7.--Primary Phase-In Schedule for Sales of Tier 2 HLDTs
------------------------------------------------------------------------
                                                             Required
                                                           percentage of
                       Model year                          heavy light-
                                                            duty trucks
                                                             (percent)
------------------------------------------------------------------------
2008....................................................              50
2009....................................................             100
------------------------------------------------------------------------

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

ii. Alternative Phase-In Schedule

    We are finalizing, as proposed, that manufacturers may introduce 
vehicles earlier than required to earn the flexibility to make 
offsetting adjustments, on a one-for one basis, to the phase-in 
percentages in later years. However, they will still need to reach 100% 
of sales in the 2007 model year (2009 for HLDTs). Manufacturers will 
have the option to use this alternative to meet phase-in requirements 
for LDV/LLDTs and/or HLDTs. They can use separate alternative phase-in 
schedules for exhaust and evaporative emissions, or an alternative 
phase-in schedule for one set of standards and the primary (25/50/75/
100% or 50%/100%) schedule for the other.
    Under these alternative schedules, manufacturers will have to 
introduce vehicles that meet or surpass the 0.07 g/mi Tier 2 
NOX average standard before they are required to do so, or 
else introduce vehicles that meet or surpass the 0.07 standard in 
greater quantities than required. Alternative phase-in schedules 
essentially credit the manufacturer for its early or accelerated 
efforts and allow the manufacturer greater flexibility in subsequent 
years during the phase-in. Thus, the alternative phase-in schedule 
provisions provide incentive and flexibility to manufacturers to 
introduce Tier 2 vehicles before 2004 (or 2008 for HLDTs).
    As outlined in the NPRM, an alternative phase-in schedule will be 
acceptable if it passes a specific mathematical test. We have designed 
the test to provide manufacturers benefit from certifying to the Tier 2 
standards early while ensuring that significant numbers of Tier 2 
vehicles are introduced during each year of the alternative phase-in 
schedule. To test an alternative schedule, a manufacturer

[[Page 6743]]

must sum its yearly percentages of Tier 2 vehicles beginning with model 
year 2001 and compare the result to the sum that results from the 
primary phase-in schedule. If an alternative schedule scores as high or 
higher than the base option, then the alternative schedule is 
acceptable. The mathematical technique to evaluate alternative phase-in 
schemes is somewhat similar to that used in our NLEV rule and in 
California rules.
    For LDV/LLDTs, the final sum of percentages must equal or exceed 
250--the sum that results from a 25/50/75/100 percent phase-in. For 
example, a 10/25/50/65/100 percent phase-in that begins in 2003 will 
have a sum of 250 percent and is acceptable. In this example, assuming 
constant levels of production, each Tier 2 vehicle sold early (i.e. in 
2003) will permit the manufacturer to sell one less Tier 2 vehicle in 
the last phase-in year (2006). A 10/20/40/70/100 percent phase-in that 
begins the same year has a sum of 240 percent and is not acceptable. 
For HLDTs, the sum must equal or exceed 150 percent.
    To ensure that significant numbers of Tier 2 vehicles are 
introduced in the 2004 time frame, manufacturers will not be permitted 
to use alternative phase-in schedules that delay the implementation of 
the Tier 2 LDV/LLDT requirements, even if the sum of the phase-in 
percentages meets or exceeds 250. Such a situation could occur if a 
manufacturer delayed implementation of its Tier 2 production until 2005 
and began a 75/85/100 percent phase-in that year. To protect against 
this possibility, we are finalizing the proposed requirement that for 
any alternative phase-in schedule, a manufacturer's phase-in 
percentages from the 2004 and earlier model years sum to at least 25%. 
In the final rule we are including an additional measure of flexibility 
to the requirements for alternative phase-in schedules. We will permit 
manufacturers to achieve a 2004 phase-in of less than 25%, but no less 
than 20%, provided that in 2005 they make up the shortfall in a two-
for-one manner. So, as an example, a manufacturer that phased in 5% in 
2003 and 15% in 2004 would achieve a total of 20% through the 2004 
model year and would need to comply with Tier 2 requirements for at 
least 60% of its LDV/LLDTs in 2005. We believe that this flexibility is 
appropriate because the required response for 2005 model year vehicles 
more than makes up for the environmental loss from the 2004 model year 
vehicles.
    We requested comment on whether alternative phase-in schedules 
should be structured to permit manufacturers to extend phase in past 
the final year of the primary phase-in schedule (2007 or 2009). While 
the Alliance proposal and comments clearly support phase-ins that run 
past 2007 and 2009, other commenters were opposed to any extensions of 
the phase-in period. In fact most commenters who addressed the length 
of the phase-in indicated, as previously discussed, that the phase-in 
for HLDTs should be moved ahead to 2007 to coincide with LDV/LLDTs. We 
are not finalizing any provisions that will permit alternative phase-in 
schedules to provide additional time for manufacturers to meet any 
final 100% compliance year.
    In the NPRM, we pointed out that phase-in schedules, in general, 
add little flexibility for manufacturers with limited product offerings 
because a manufacturer with only one or two test groups can not take 
full advantage of a 25/50/75/100 percent or similar phase-in. For 
manufacturers meeting EPA's definition of ``small volume 
manufacturer,'' we proposed to exempt those manufacturers from the 
phase-in schedules and require them to simply comply with the final 
100% compliance requirement. We are finalizing this provision for small 
volume manufacturers. This provision is only intended to apply to small 
volume manufacturers and not to small test groups of larger 
manufacturers.
    For larger manufacturers having a limited product line, we 
recognize that our phase-in schedule may lack flexibility, however, we 
are not including any provisions to address this issue as we are for 
small volume manufacturers because we do not believe these 
manufacturers need the relief and we do not want to sacrifice any air 
quality benefits of the program.
c. Manufacturers Will Meet a ``Corporate Average'' NOX 
Standard
    While the manufacturer will be free to certify a test group to any 
applicable bin of standards in Table IV.B.-2, it will have to ensure 
that the sales-weighted average of NOX standards from all of 
its test groups of Tier 2 vehicles meet a full useful life standard of 
0.07 g/mi.\68\ Using a calculation similar to that for the NMOG 
corporate average standard in the California and NLEV programs, 
manufacturers must determine their compliance with the corporate 
average NOX standard at the end of the model year by 
computing a sales weighted average of the full useful life 
NOX standards from each bin. Manufacturers must use the 
following formula:
---------------------------------------------------------------------------

    \68\ For interim vehicles, this average NOX standard 
will be 0.20 for HLDTs and 0.30 for LDV/LLDTs. Compliance with these 
interim average standards will be calculated in the same manner as 
compliance with the 0.07 standard.
[GRAPHIC] [TIFF OMITTED] TR10FE00.004

Manufacturers must exclude vehicles sold in California or states 
adopting California LEV II standards from the calculation. As indicated 
above, manufacturers must compute separate NOX averages for 
LDV/LLDTs and HLDTs through model year 2008.
    The corporate average NOX standards of the primary Tier 
2 program and the interim programs for LDV/LLDTs and HLDTs will ensure 
that expected fleet-wide emission reductions are achieved. At the same 
time, the corporate average standards allow us to permit the sale of 
some vehicles above the levels of the average standards to address the 
greater technological challenges some vehicles face and to reduce the 
overall costs of the program. We discuss how manufacturers can 
generate, use, buy and sell NOX credits under the interim 
and Tier 2 programs in the next subsection.
    Given the corporate average NOX standards, we do not 
believe a corporate average NMOG standard as used by California is 
essential because meeting the corporate average NOX standard 
will automatically bring the NMOG fleet average to approximately 0.09 
g/mi or below.
d. Manufacturers Can Generate, Bank, and Trade NOX Credits

i. General Provisions

    As mentioned in the Overview above, we are finalizing our proposal 
that manufacturers with year-end corporate average NOX 
emissions for their Tier 2 vehicles below 0.07 g/mi can generate Tier 2 
NOX credits. Credits can be saved (banked) for use in a 
future model year

[[Page 6744]]

or for trading (sale) to another manufacturer. Manufacturers can use 
credits if their corporate average NOX emissions are above 
0.07 g/mi.
    As proposed, the Tier 2 standards will apply regardless of the fuel 
the vehicle is designed for, and there will be no restrictions on 
averaging, banking or trading of credits across vehicles of different 
fuel types. Consequently, a gasoline fueled LDV might help a 
manufacturer generate NOx credits in one year that could be banked for 
the next year when they could be used to average against NOX 
emissions of a diesel fueled LDT within the appropriate averaging 
structure.
    Because of the split phase-in and the different interim programs we 
are finalizing for the two different groups of vehicles (LDV/LLDTs and 
HLDTs), we are also finalizing the proposed requirement that 
manufacturers compute their corporate Tier 2 NOX averages 
separately for LDV/LLDTs and HLDTs through 2008. As we proposed, credit 
exchanges between LDVs/LLDTs and HLDTs will not be allowed nor will 
credit exchanges across the interim programs or between the interim 
programs and the final Tier 2 program be allowed. These restrictions 
will end with the 2009 model year at which time both phase-ins and all 
interim standards will have ended and the program will permit free 
averaging across all Tier 2 vehicles. As noted in the NPRM, we are 
concerned that allowing cross-trading between interim and Tier 2 
vehicles will reduce the expected benefits of the program and delay 
fleet turnover to Tier 2 emission levels. For this reason we did not 
propose and are not finalizing to permit such exchanges.

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

    We explained in the NPRM why we believe the provisions for 
averaging, banking, and trading of NOX credits (ABT) will be 
valuable. In short:
     An ABT program is an important factor that EPA takes into 
consideration in setting emission standards that are appropriate under 
section 202 of the Clean Air Act. ABT allows us to consider a more 
stringent emission standard than might otherwise be appropriate under 
the CAA, since ABT reduces the cost and improves the technological 
feasibility of achieving the standard;
     ABT enhances the technological feasibility and cost 
effectiveness of the proposed standard and allows the standard to be 
attainable earlier than might otherwise be possible;
     ABT provides manufacturers with additional product 
planning flexibility and the opportunity for a more cost effective 
introduction of product lines;
     ABT creates incentive for early introduction of new 
technology, allowing certain engine families to act as trail blazers 
for new technology;
    We view the ABT provisions in today's rule as environmentally 
neutral because the use of credits by some vehicles is offset by 
credits generated by other vehicles. However, when coupled with the new 
standards, ABT will have environmental benefits because it allows the 
new standards to be implemented earlier than would otherwise be 
appropriate.

 iii. How Manufacturers Can Generate and Use NOX Credits

    Manufacturers will determine their year-end corporate average 
NOX emission level by computing a sales-weighted average of 
the NOX standard from each bin to which the manufacturer 
certifies any LDVs or LDTs. Tier 2 NOX credits will be 
generated when a manufacturer's average is below the 0.07 gram per mile 
corporate average NOX standard, according to this formula:

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

    The manufacturer can use these NOX credits in future 
years if its corporate NOX average is above 0.07, or it can 
trade (sell) the credits to other manufacturers. Tier 2 credits can be 
generated via this mechanism beginning in the first phase-in year, 
i.e., 2004 for LDV/LLDTs and 2008 for HLDTs. The use of NOX 
credits will not be permitted to address Selective Enforcement Auditing 
or in-use testing failures.
    The enforcement of the NOX averaging standard will occur 
through the vehicle's certificate of conformity. A manufacturer's 
certificate of conformity will be conditioned upon compliance with the 
averaging provisions. The certificate will be void ab initio if a 
manufacturer fails to meet the corporate average NOX 
standard and does not obtain appropriate credits to cover its shortfall 
in that model year or in the next three model years (see deficit 
carryforward provision below). Manufacturers will need to track their 
certification levels and sales unless they produce only vehicles 
certified to bins containing NOX levels of 0.07 g/mi or 
below and do not plan to bank NOX credits.

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

    In the NPRM, we proposed that to the extent a manufacturer's 
corporate average NOX level of its ``early Tier 2'' vehicles 
was below 0.07 g/mi, the manufacturer could bank NOX credits 
for later use. We recognize (and the comments assert) that this 
provision may be lightly used, because it requires a large reduction 
from prior standards to produce any credits. However, our goal is to 
bring vehicles to Tier 2 levels as quickly as possible and we are 
concerned that any other approach could provide credits for reductions 
manufacturers would make relatively easily from previous, higher 
standards. Such credits would then be used to delay the impact of the 
0.07 g/mi NOX standard. Further, we believe that our 
provision for alternative phase-in schedules provides what is 
essentially a supplemental, or perhaps even primary, early banking 
program, in that it permits manufacturers to trade-off earlier phase-in 
percentages for later phase-in percentages. To provide manufacturers 
with greater flexibility and with incentives to certify, produce and 
sell Tier 2 vehicles as early as possible, we are finalizing the 
alternative phase-in provisions. (See IV.B.4.b.ii above.) Under such 
schedules, a manufacturer can certify vehicles to an average 
NOX level of 0.07 g/mi or below in years prior to the first 
required phase-in year and then phase its remaining vehicles in over a 
more gradual phase-in schedule that will still lead to 100% compliance 
by 2007 (2009 for HLDTs).
    Thus, we are finalizing our provision for early NOX 
credits essentially as proposed. To the extent that a manufacturer's 
corporate average NOX level of its ``early Tier 2'' vehicles 
is below 0.07 g/mi, the manufacturer can bank NOX credits 
for later use. Manufacturers will compute these early credits by 
calculating a sales-weighted corporate average NOX emission 
level of their Tier 2 vehicles, as in the basic Tier 2 program 
described above. In section IV.B.4.d.vii. below, we describe provisions 
we are adding to the final rule that will enable manufacturers to 
generate extra credits from vehicles certified to very low levels. In 
addition to encouraging production of very clean vehicles, these 
provisions, which apply beginning in 2001, will enhance the abilities 
of manufacturers to generate early credits.
    Early Tier 2 credits will have all the same properties as credits 
generated by vehicles subject to the primary phase-in schedule. We 
proposed that these credits could not be used in the NLEV, Tier 1 or 
interim program for non-Tier 2 vehicles in any way. We are finalizing 
this restriction as proposed. We are also finalizing as proposed that 
the NMOG emissions of these vehicles (LDVs and LLDTs only) can be used 
in the

[[Page 6745]]

calculation of the manufacturer's corporate average NMOG emissions 
under NLEV through 2003.
    To provide manufacturers with maximum flexibility in the period 
prior to 2004, when LDV/LLDT useful lives will still be at 100,000 
miles, we proposed and are finalizing that manufacturers may choose 
between the Tier 2 120,000 mile useful life or the current 100,000 mile 
useful life requirement for early Tier 2 LDV/LLDTs. (HLDTs already have 
a 120,000 mile useful life.) Early LDV/LLDT NOX credits for 
100,000 mile useful life vehicles will have to be prorated by 100,000/
120,000 (5/6) so that they can be properly applied to 120,000 mile Tier 
2 vehicles in 2004 or later.
    We proposed to restrict early banking of HLDT Tier 2 NOX 
credits to the four year period from 2004-2007. This restriction was 
due to a concern about excessive credits generation if a longer credit 
generation period was available. Based on our review of the comments 
and from reconsideration of the restrictive nature of our approach for 
early credits, we are much less concerned that allowing generation of 
early HLDT Tier 2 credits in years prior to 2004 will result in 
excessive credits. Prior to 2004, manufacturers will only be required 
to meet the Tier 1 standards which are much higher than the final Tier 
2 standards. Manufacturers will have to make large cuts in emissions to 
bank the small amount of credits offered by our early banking 
provision. Further, we recognize that vehicles that meet the Tier 2 
standards early provide an environmental benefit, and the earlier that 
benefit occurs, the earlier that areas can use such benefits to reach 
or come close to attainment. Lastly, we believe it is appropriate to 
match the period of early credit generation with the years in which we 
will permit alternative phase-in schedules. Consequently, we are 
finalizing our provisions for early banking such that manufacturers may 
bank early Tier 2 NOX credits in model years 2001-2007.
    We recognize that vehicles generating early Tier 2 NOX 
credits may be doing so without the emissions benefit of low sulfur 
fuel, and thus these vehicles may not achieve the full in-use emission 
reduction for which they received credit. When these credits are used 
to permit the sale of higher-emitting vehicles, there may be a net 
increase in emissions. For the most part, this is a problem anyway, 
since NLEV vehicles are also sensitive to gasoline sulfur. We believe 
that the benefits of early introduction of Tier 2 technology described 
above are significant enough that they are worth the risk of some 
emission losses that might occur if and when the early credits are 
used. Also, we believe that some fuel sulfur reductions will occur 
prior to 2004 as refiners upgrade their refineries or bring new 
refining capacity on stream in anticipation of the 2004 requirements 
and take advantage of the phase-in proposed in the gasoline sulfur ABT 
program (described in Section IV.C. below).

v. Tier 2 NOX Credits Will Have Unlimited Life

    We discussed in the preamble to the NPRM why we did not propose to 
apply the California schedule of discounting unused credits adopted for 
NMOG credits in the NLEV program. This schedule serves to limit credit 
life throughout the program by reducing unused credits to 50, 25 and 0 
percent of their original number at the end of the second, third and 
fourth year, respectively, following the year in which they were 
generated. We agree that such a scheme may be appropriate in the 
California program with its declining NMOG average standard, but in the 
federal program, once the phase-in period ends in model year 2009, all 
LDVs and LDTs will comply on average with a fixed Tier 2 NOX 
standard.
    Credits allow manufacturers flexibility to meet standards cost 
effectively and to address unexpected shifts in sales mix. When matched 
with a NOX average standard, credits provide flexibility 
constrained by the requirement that all vehicles, on average, must 
comply with a fixed standard. Defined bins of standards prevent any one 
vehicle from having extremely high emissions, while the need to offset 
higher vehicles with lower vehicles to meet an average NOX 
standard prevents large numbers of vehicles from utilizing the higher 
bins.
    We requested comment in the NPRM on the need for discounting of 
credits or limits on credit life and what those discount rates or 
limits, if any, should be. The 0.07 NOX emission standard in 
the Tier 2 program is quite stringent and does not present easy 
opportunities to generate credits. The degree to which manufacturers 
invest the resources to achieve extra NOX reductions 
provides environmental benefit for years to come and it is appropriate 
that the manufacturer get credits. We do not want to take measures to 
reduce the incentive for manufacturers to bank credits nor do we want 
to take measures to encourage unnecessary credit use. Consequently we 
are finalizing our proposal that Tier 2 NOX credits, 
including early credits, have unlimited lives.

vi. NOX Credit Deficits Can Be Carried Forward

    When a manufacturer has a NOX deficit at the end of a 
model year--that is, its corporate average NOX level is 
above the required corporate average NOX standard--we 
proposed that the manufacturer could carry that deficit forward into 
the next model year. Such a carry-forward could only occur after the 
manufacturer used any banked credits. If the deficit still existed and 
the manufacturer chose not to or was unable to purchase credits, the 
deficit could be carried over. At the end of that next model year, 
according to our proposal, the deficit would need to be covered with an 
appropriate number of NOX credits that the manufacturer 
generated or purchased. Any remaining deficit would be subject to an 
enforcement action. To prevent deficits from being carried forward 
indefinitely, the manufacturer would not be permitted to run a deficit 
for two years in a row.\69\
---------------------------------------------------------------------------

    \69\ Because of the limited duration of the interim programs, we 
proposed that a manufacturer could carry a credit deficit in the 
interim program forward until the 2006 model year (2008 for HLDTs). 
The interim program, in its entirety, lasts only five years and 
therefore we saw little risk of prolonged deficits.
---------------------------------------------------------------------------

    Manufacturers made the persuasive case that by the time they can 
tabulate their average NOX emissions for a particular model 
year, the next model year is likely well underway and it is too late to 
make calibration, marketing or sales mix changes to adjust that year's 
credit generation. Therefore, based upon comments, we are finalizing a 
modified approach to credit deficits such that a manufacturer having a 
credit deficit in the interim or Tier 2 program can carry that deficit 
forward for a total of three years, but the manufacturer must apply all 
its available credits to that deficit on a one-for-one basis in each of 
the first two succeeding model years. If the deficit is not covered by 
the third model year, the manufacturer must apply credits at a rate of 
1.2:1. No deficit may be carried into the fourth year. In order to 
accommodate this modification to our proposal, we must also modify our 
proposed provision that would have prevented manufacturers from running 
a deficit in two consecutive model years so that deficits can not be 
shifted from one year to the next and thus carried forward 
indefinitely. Because we are permitting, in this final rule, deficits 
to be carried forward for as long as three years we are finalizing that 
manufacturers can not run a deficit in any year in which it is paying 
off a deficit from a previous year. The effect of this provision is the 
same as that in

[[Page 6746]]

the NPRM-- to keep manufacturers from shifting deficits forward 
indefinitely.
    We note that under our modified final approach, manufacturers will 
have the flexibility to carry deficits from the interim program forward 
into the final Tier 2 program. This feature is likely to be used only 
in an extreme situation since the Tier 2 credits needed to offset the 
interim credit deficit will be more difficult to generate. 
Consequently, we do not believe this provision is inconsistent with our 
approach of segregating interim and Tier 2 credits. In fact, 
manufacturers electing to cover an interim credit deficit with Tier 2 
credits will likely have to accelerate the introduction of Tier 2 
vehicles to get the necessary credits to cover the deficit.
    We are finalizing that small volume manufacturers may not use the 
credit deficit carryforward provision until they have been in 
compliance with the relevant average NOX standard for one 
model year. In section V of this preamble we explain that we are not 
requiring small volume manufacturers to comply with intermediate phase-
in requirements under our interim or Tier 2 phase-ins. Rather, they 
will just have to comply for all of their vehicles in the last phase-in 
year. Because they do not have to comply with intermediate phase-in 
requirements, small volume manufacturers effectively get more time to 
comply (as much as three years). We do not want to create a situation 
where they could get even more time to comply by using the credit 
deficit carryforward provision.

vii. Encouraging the Introduction of Ultra-Clean Vehicles

    We requested comment in the NPRM as to whether we should provide 
additional NOX credits for vehicles that certify to very low 
levels. We stated in the NPRM that we believe it is appropriate to 
provide inducements to manufacturers to certify vehicles to very low 
levels and that these inducements may help pave the way for greater 
and/or more cost effective emission reductions from future vehicles. We 
believe it is important in a rule of this nature to provide extra 
incentive to encourage manufacturers to produce and market very clean 
vehicles. We believe this is especially important in the earliest years 
of the program when manufacturers must make resource commitments to 
technologies and vehicle designs that will have multi-year life spans. 
We believe this program provides a strong incentive for manufacturers 
to maximize their development and introduction of the best available 
vehicle/engine emission control technology, and this in turn provides a 
stepping stone to the broader introduction of this technology soon 
thereafter. Early production of cleaner vehicles enhances the early 
benefits of our program and vehicles certified to these lowest bins 
produce not just lower NOX but also lower NMOG, CO and HCHO 
emissions. If a manufacturer can be induced to certify to a lower bin 
by the promise of reasonable extra credits, the benefits of that 
decision to the program may last for many years.
    We are finalizing provisions to permit manufacturers, at the 
beginning of the program, to weight LDV/Ts certified to the lowest two 
bins more heavily when calculating their fleet average NOX 
emissions. Under this provision, which applies through the 2005 model 
year, manufacturers may apply a multiplier to the number of LDV/Ts sold 
that are certified to bins 1 and 2 (ZEVs and SULEVs in California 
terms). This adjusted number will be used in the calculation of fleet 
average NOX emissions for a given model year and will allow 
manufacturers having vehicles certified to these bins to generate 
additional credits (or use fewer credits) that year.
    The multipliers that manufacturers may use are found in Table 
IV.B.-8 below:

Table IV.B.-8.--Multipliers for Additional Credits for Bin 1 and 2 LDV/T
------------------------------------------------------------------------
                Bin                      Model year         Multiplier
------------------------------------------------------------------------
2.................................  2001, 2002, 2003,                1.5
                                     2004, 2005.
1.................................  2001, 2002, 2003,                2.0
                                     2004, 2005.
------------------------------------------------------------------------

e. Interim Standards

 i. Interim Exhaust Emission Standards for LDV/LLDTs

    The NLEV program referenced throughout this discussion is a 
voluntary program in which all major manufacturers have opted to 
produce LDVs and LLDTs to tighter standards than those required by 
EPA's Tier 1 regulations. Under the NLEV program, manufacturers must 
meet an NMOG average outside of California that is equivalent to 
California's current intermediate-life LEV requirement--0.075 g/mi for 
LDVs and LDT1s (0.10 g/mi for LDT2s). NLEV requirements apply only to 
LDVs and LLDTs, not to HLDTs.
    The NLEV program is effective beginning in the northeastern states 
in 1999 and in the remaining states in 2001, except that the program 
does not apply to vehicles sold in California or in states that adopted 
California's LEV program. The program runs at least through model year 
2003 and can run through model year 2005.
    Under the Tier 2 phase-in we are finalizing today, not all LDV/
LLDTs covered under NLEV will be subject to Tier 2 standards in the 
2004 to 2006 period. Without a program for full Tier 2 compliance in 
2004 (i.e., because of the phase-in), these vehicles could revert to 
Tier 1 standards. The NLEV program, moreover, is a voluntary program 
that contains several provisions that restrict EPA's flexibility and 
that could lead to a manufacturer or a covered Northeastern state 
leaving the program in or prior to 2004. To resolve these concerns we 
are finalizing the proposed interim program for all non-Tier 2 LDV/
LLDTs for the 2004-2006 model years. Our interim program will replace 
the NLEV program, which will terminate at the end of 2003. The 
transition from NLEV to the interim program should be smooth because 
the interim program will employ several bins derived from the NLEV 
standards for LDVs, LDT1s and LDT2s. The interim program will ensure 
that all LDVs, LDT1s and LDT2s that are not certified to Tier 2 levels 
during the 2004-2006 phase-in period remain at levels at least as 
stringent, on average, as NLEV levels. The interim program will also 
bring the emission standards for LDT2s more into line with those for 
the LDVs and LDT1s by requiring that they be averaged under the same 
NOX standard rather than under separate standards as is the 
case in the NLEV program.
    In the NPRM, we included separate sets of bins for the interim 
program and Tier 2 program. However, we indicated that manufacturers 
could use either set for interim vehicles. In today's final rule we 
have combined all bins into one table for simplicity. We have also 
added two new bins having NOX values of 0.03 g/mi and 0.10 
g/mi.

[[Page 6747]]

    In the NPRM, we proposed that, for LDV/LLDTs, all bins with 
NOX values over 0.20 g/mi would expire at the end of the 
2006 model year when there are no longer any interim LDV/LLDTs. Table 
IV-B.-4 shows that the two highest bins, bins 9 and 10, which were 
derived from NLEV and included to smooth the transition from NLEV to 
the interim program will be unuseable for LDV/LLDTs after 2006--the 
last year of the LDV/LLDT phase-in. Otherwise all bins will remain 
viable for the duration of the Tier 2 program unless altered by another 
rulemaking.
    We proposed to align the useful life periods for interim standards 
with those of the Tier 2 standards (full useful life of 120,000 miles), 
as discussed in Section V.B. below. The end result of this proposal 
would have been that all LDV/LLDTs--whether in the Tier 2 program or 
interim program--would go from 100,000 mile useful lives to 120,000 
mile useful lives in 2004. However, manufacturers were extremely 
concerned about the certification workload burden for 2004. They 
commented that they would be unable to carry any of their LDV/LLDTs 
over from 2003 and that they would have to recertify all of their 
vehicles in 2004 and then likely recertify them again as they were 
phased into the Tier 2 standards. Therefore, based upon comments, we 
are finalizing that useful lives of the interim LDV/LLDTs may remain at 
100,000 miles. Our reasons for this change are discussed in greater 
detail in Section V.B.
    We are finalizing as proposed a corporate average full useful life 
NOX standard of 0.30 g/mi for this interim program. This 
standard is derived from the NLEV program and represents the full 
useful life NOX standard in NLEV that is associated with LEV 
LDVs and LDT1s. LDVs and LDT1s will already be at this level, on 
average, under the NLEV program. LDT2s are subject to standards that 
effectively impose a NOX average standard of 0.5 g/mi under 
NLEV, but we believe they should readily be able to meet the 0.30 g/mi 
average especially since they can be averaged with the LDVs and LDT1s. 
To aid LDV/LLDTs in meeting the 0.30 g/mi corporate average 
NOX standard in the interim program, we are providing an 
optional NMOG value for LDT2s certifying to bin 9 (where the 
NOX standard=0.3 g/mi). This option is only for LDT2s, and 
only for those produced by manufacturers that elect to comply with the 
interim requirements for all of their HLDTs for the 2004 model year 
(see next section). The optional NMOG values for qualifying LDT2s are 
0.130 g/mi at full useful life and 0.100 at intermediate useful life.
    The 0.30 g/mi corporate average NOX standard will apply 
only to non-Tier 2 (interim) LDV/LLDTs and only for the 2004-2006 model 
years. Manufacturers will compute, bank, average, trade, account for, 
and report interim NOX credits via the same processes and 
equations described in this preamble for Tier 2 vehicles, substituting 
the 0.30 g/mi corporate average standard for the 0.07 g/mi corporate 
average standard in the basic program. Also, EPA will condition the 
certificates of conformity on compliance with the corporate average 
standard, as described for Tier 2 vehicles. These NOX 
credits will be good only for the 2004-2006 model years and will only 
apply to the interim non-Tier 2 LDV/LLDTs. Credits will not be subject 
to any discounts, and credit deficits can be carried forward as 
described under Section IV.B.4.d.vi. above.
    NMOG credits from the NLEV program can not be used in this interim 
program in any way. NOX credits generated under this interim 
program will not be applicable to the Tier 2 NOX average 
standard of 0.07 g/mi because of our concern that a windfall credit 
situation could occur. This could happen because credits are relatively 
easy to generate under a 0.30 g/mi standard compared to generating 
credits under a 0.07 g/mi standard. As we indicated in the preamble to 
the NPRM we believe the application of credits earned under the interim 
standard to the Tier 2 standards could significantly delay the fleet 
turnover to Tier 2 vehicles. We do not believe there is a need or that 
it would be appropriate to allow such a delay. The requirements of the 
interim program will be monitored and enforced in the same fashion as 
for Tier 2 vehicles.
    For the reasons cited above, we believe it is appropriate to extend 
interim, NLEV-like standards beyond 2003 as a mandatory program and to 
bring all LDVs and LLDTs within its scope. Manufacturers have already 
demonstrated their ability to make LDVs and LLDTs that comply at levels 
well below these standards. As the interim standards for LDV/LLDTs are 
essentially `phase-out'' standards, we did not propose and are not 
finalizing early banking provisions for the interim LDV/LLDTs.

ii. Interim Exhaust Emission Standards for HLDTs

    We believe these interim standards are necessary and reasonable for 
HLDTs. While these trucks make up a fairly small portion of the light-
duty fleet (about 14%), their current standards under Tier 1 are far 
less stringent than the NLEV standards that apply to current model year 
LDVs and LLDTs. Given the delayed phase-in we are finalizing for HLDTs, 
we believe it is appropriate to require some interim reductions from 
these vehicles. Further, manufacturers have already demonstrated their 
ability to meet these interim standards with HLDTs. These standards are 
a reasonable first step toward the Tier 2 program and will provide 
meaningful reductions in the near term relative to current 
certification levels under the Tier 1 emission standards.
    We also proposed interim standards to begin in 2004 for HLDTs. 
These vehicles are not included in the NLEV program and will be subject 
only to the Tier 1 standards prior to today's rule taking effect. Tier 
1 standards permit NOX emissions of 0.98 g/mi for LDT3s and 
1.53 g/mi for LDT4s. We are finalizing these standards generally as 
proposed; to address statutory lead time requirements, we are offering 
two options for the phase-in of HLDTs to the interim standards. 
Manufacturers can choose between either of these two options:
    (Option 1) Like we proposed in the NPRM, manufacturers must bring 
their entire production of 2004 model year HLDTs under the interim 
requirements and phase 25% of them into the 0.20 g/mi fleet average 
NOX requirement, followed by 50% in 2005, 75% in 2006, and 
then 100% in 2007; or
    (Option 2) We are including this option to address statutory lead 
time requirements for HLDTs. In the case of 2004 model year test groups 
whose model years commence before the fourth anniversary of the 
signature date of today's rule, the manufacturer may exclude those test 
groups from the interim HLDT provisions of the rule. In the case of 
2004 model year test groups whose model years commence on or after the 
fourth anniversary of this rule's signature, the manufacturer must 
bring all such HLDTs under the requirements of our interim program, and 
all such vehicles or 25% of the manufacturer's sales of 2004 model year 
HLDTs, whichever is less, must comply with the corporate average 
NOX standard of 0.20 g/mi. The manufacturer must then bring 
all of its HLDTs into the interim requirements beginning with the 2005 
model year including a 50%, 75%, 100% phase-in to the 0.20 g/mi fleet 
average NOX standard beginning that year. The beginning of a 
test group's model year is determined under section 202(b)(3) of the 
Act and 40 CFR Part 85 Subpart X.

[[Page 6748]]

    Our final rule is consistent with the requirements of the Act 
because manufacturers won't have to phase-in HLDTs until the model year 
that commences four years from the signature of this rule if they don't 
want to. However, to provide incentive for manufacturers to comply with 
the interim requirements for all of their HLDTs beginning with the 2004 
model year, i.e. to elect Option 1, we are finalizing a provision to 
permit those manufacturers to use higher NMOG values in two situations. 
Manufacturers electing to meet the interim requirements for all of 
their 2004 model year HLDTs including the 25% phase-in number must so 
declare in their 2004 model year HLDT certification applications. They 
may then:
     Use a full useful life NMOG value, through the 2008 model 
year, of 0.280 g/mi for LDT4s certified to bin 10 (0.195 g/mi at 
intermediate life); and
     Use a full useful life NMOG value, through the 2006 model 
year, of 0.130 g/mi for LDT2s certified to bin 9 (0.100 g/mi at 
intermediate life). \70\
---------------------------------------------------------------------------

    \70\ Manufacturers must cite this declaration in their LDT2 
certification applications for the 2004-2006 model years and in 
their LDT4 applications for the 2004-2008 model years. If 
manufacturers employ alternate phase-in schedules that begin prior 
to 2004, they must also make the declaration in each applicable year 
before 2004.
---------------------------------------------------------------------------

    In the case of the LDT4s, the optional NMOG standard will enable 
manufacturers to more easily meet our interim HLDT NOX 
standards, the highest of which (0.6 g/mi) is one-third tighter than 
what will be required in California under Cal LEV I through 2006. For 
the LDT2s, the optional NMOG standard will help manufacturers certify 
more LDT2s to bin 9 (0.3 g/mi) than they likely would otherwise (they 
would probably certify some LDT2s to bin 10 where NOX=0.6 g/
mi). Therefore, both of these optional standards are consistent with 
our goal to achieve important early NOX benefits from our 
program.
    Except for the application of the new option described above, the 
interim standards for HLDTs will apply as proposed, and will phase-in 
through the 2007 model year, as shown in Table IV.B.-2. We are 
finalizing the proposed corporate average full-life NOX 
standard of 0.20 g/mi for interim HLDTs. Manufacturers will comply with 
the corporate average HLDT NOX standard by certifying their 
interim HLDTs to any of the full useful life bins shown in Table IV-B.-
4. Where applicable, manufacturers will also comply with the 
intermediate useful life standards shown in Table IV.B.-5. Interim 
HLDTs not needed to meet the phase-in percentages during model years 
2004-2006 will have to be certified to the standards of one of the bins 
in Table IV.B.-4 (and -5), and NOX will thus be capped at 
0.60 g/mi. These trucks will not be included in the calculation to 
demonstrate compliance with the 0.20 g/mi average.
    At the end of each model year, manufacturers will determine their 
compliance with the 0.20 NOX standard by calculating a sales 
weighted average of all the bins to which they certified any interim 
HLDTs, excluding those not needed to meet the applicable phase-in 
requirements during 2004-2006. The excluded trucks must comply with the 
standards from one of the bins in Table IV-B-4 (and -5) which 
effectively caps their emissions at 0.60 g/mi.
    For HLDT test groups that are not subject to the phase-in in model 
year 2004 under Option 2 above, the same requirements as described 
above apply except that there are no new standards for these vehicles 
in the 2004 model year. Also, the optional higher NMOG values for LDT2s 
and LDT4s do not apply for any manufacturer that uses Option 2.
    Given that the interim HLDT standards are ``phase-in'' standards 
through 2007 (as opposed to the interim LDV/LLDT standards, which are 
``phase-out'' standards), we are including provisions that 
manufacturers may employ alternative phase-in schedules as proposed for 
the Tier 2 standards and described in detail in section IV.B.4.b.ii. of 
this preamble. These schedules provide manufacturers with greater 
flexibility and we believe they also provide incentive for 
manufacturers to introduce advanced emission control technology at an 
earlier date. Alternative phase-in schedules will have to provide 100% 
phase-in by the same year as the primary phase-in schedule (2007). 
Manufacturers will be eligible for alternate phase-in schedules to the 
extent that they produce HLDTs that meet or surpass the NOX 
average standard for interim HLDTs of 0.20 g/mi in 2001-2003 or to the 
extent that they produce more HLDTs than required that meet the 0.20 
average standard in 2004 or later.
    Where manufacturers elect not to meet the phase-in requirements for 
all of their 2004 model year HLDTs, as discussed above under Option 2, 
they may still employ alternate phase-in schedules, but the sum of 225 
percent is required rather than the 250 percent required for alternate 
phase-ins described in section IV.B.4.b.ii. In this case, the sum of 
phase-in percentages up through the 2005 model year must total to at 
least 50%. Also, manufacturers must raise the 225% value to the extent 
that any of their 2004 HLDTs' model years commence on or after the 
fourth anniversary of the signature date of this rule and are brought 
into compliance with the 0.20 g/mi average NOX standard.
    Lastly, note that for bin 10, which is only usable during the 
interim program, we have established a PM standard of 0.08 g/mi, which 
is more stringent than the Tier 1 standard previously in effect for 
these vehicles. We do not expect low sulfur diesel fuel to be widely 
available during the time frame of the interim program but we expect 
that bin 10 levels can be reached by diesel technology on current 
diesel fuel. As a part of this overall approach, we are making the 
intermediate life standards optional for diesels for this bin.
f. Light-Duty Evaporative Emission Standards
    We are finalizing as proposed a set of more stringent evaporative 
emission standards for all Tier 2 light-duty vehicles and light-duty 
trucks. The standards we are finalizing are shown in Table IV.B.-9 and 
represent, for most vehicles, more than a 50% reduction in diurnal plus 
hot soak standards from those that will be in effect in the years 
immediately preceding Tier 2 implementation. The higher standards for 
HLDTs provide allowance for greater non-fuel emissions related to 
larger vehicle size.

[[Page 6749]]



          Table IV.B.-9.--Final Evaporative Emission Standards
                            [Grams per test]
------------------------------------------------------------------------
                                                          Supplemental 2
              Vehicle class                3 day diurnal    day diurnal
                                             +hot soak       +hot soak
------------------------------------------------------------------------
LDVs and LLDTs..........................            0.95             1.2
HLDTs...................................            1.2              1.5
------------------------------------------------------------------------

    Evaporative emissions from LDVs and LDTs represent nearly half of 
the light duty VOC inventory projected for the 2007-2010 time frame, 
according to MOBILE5 projections. Manufacturers are currently 
certifying to levels that are, on average, about half of the current 
standards, and in many cases, much less than half the standards. Thus, 
meeting these standards appears readily feasible. Even though 
manufacturers are already certifying at levels much below the current 
standard, we believe that reducing the standards will result in 
emission reductions as all manufacturers seek to certify with adequate 
margins to allow for in-use deterioration. Further, we believe that 
tighter standards will prevent ``backsliding'' toward the current 
standards as manufacturers pursue cost reductions.
    As mentioned in section IV.B.-4.b above, we will phase in the Tier 
2 evaporative standards by the same mechanism as the Tier 2 exhaust 
standards; e.g., 25/50/75/100 percent beginning in 2004 for LDV/LLDTs 
and 50/100 percent beginning in 2008 for HLDTs (as shown in Table 
IV.B.-2). As for the exhaust standards, alternative phase-in plans will 
also be available.
    The evaporative emission standards we proposed and are finalizing 
today are the same as those that manufacturers' associations proposed 
during the development of California's LEV II proposal. California 
ultimately opted for more stringent standards; we believe that our 
standards are appropriate for federal vehicles certified on higher-
volatility federal test fuel.
g. Passenger Vehicles Above 8,500 Pounds GVWR
    Historically, we have categorized all vehicles above 8,500 pounds 
GVWR as heavy-duty vehicles regardless of their application and they 
have been subject to standards and test procedures designed for 
vehicles used in heavier work applications. \71\ In the Tier 2 NPRM, we 
requested comment on whether some portion of vehicles above 8,500 
pounds GVWR should be included in the Tier 2 program, based on vehicle 
use or design characteristics. The Tier 2 proposals, however, applied 
to light-duty vehicles and light-duty trucks and did not cover any 
vehicles above 8,500 pounds GVWR.
---------------------------------------------------------------------------

    \71\ The heavy-duty definition also includes vehicles that weigh 
over 6000 lbs curb weight regardless of their GVWR. We are not aware 
that any vehicles currently produced have curb weights above 6,000 
lbs, but GVWRs of 8,500 lbs or less. Nevertheless, this discussion 
and our requirements includes such vehicles.
---------------------------------------------------------------------------

    On October 29, 1999, after carefully considering all of the 
comments on this issue, we proposed to include all personal use 
passenger vehicles (both gasoline and diesel fueled) between 8,500 and 
10,000 pounds GVWR in the Tier 2 program. This group of vehicles would 
include large SUVs and passenger vans and may include other types of 
``crossover'' multipurpose vehicles in the future, depending on new 
vehicle designs. We proposed this Tier 2 program change in our NPRM 
concerning emissions standards for 2004 and later heavy-duty vehicles 
and engines, (64 FR 58472).
    Specifically, we proposed to revise the definition of light-duty 
truck to include any complete vehicle between 8,500 and 10,000 pounds 
GVWR that is designed primarily for the transportation of persons and 
has a capacity of not more than 12 persons. We expected that this 
definition would exclude vehicles that have been designed for a 
legitimate work function as their primary use, such as the largest 
pick-up trucks, the largest passenger vans, and cargo vans; these 
vehicles would continue to be categorized as heavy-duty and would be 
subject to applicable heavy-duty standards. We requested comment on 
whether the proposed definition would adequately exclude these 
vehicles, or whether additional criteria may be needed and how that 
criteria might be used.
    Today, we are finalizing Tier 2 standards for passenger vehicles 
above 8,500 pounds GVWR. These vehicles are included in the Tier 2 
program beginning in 2004 and are required to meet the final Tier 2 
standards in 2009 and later. As we intended in the proposal, these 
vehicles will generally be subject to the same requirements as HLDTs. 
We have made modifications to the program, primarily in response to 
comments we received in two areas: (1) Changing the definition of 
light-duty truck and (2) the interim program requirements.

New Vehicle Category: Medium-Duty Passenger Vehicles (MDPVs)

    The mechanism we proposed to bring the passenger vehicles over 
8,500 pounds into the Tier 2 program, was to modify the definition of 
light-duty truck to include those vehicles. The objective of this 
proposal was to have these vehicles treated as HLDTs within Tier 2. We 
are finalizing requirements which remain consistent with our objective 
of including these vehicles in Tier 2 beginning in 2004. However, the 
approach we are finalizing is somewhat different than that proposed.
    Rather than finalizing the revised definitions for light-duty truck 
as we proposed, we are creating a new category of heavy-duty vehicles 
termed ``medium-duty passenger vehicles'' (MDPVs). These vehicles will 
generally be grouped with and treated as HLDTs in the Tier 2 program. 
The MDPV category is defined along the lines of the proposed definition 
change for the LDT category, with some modification, as described 
below. Our decision to create a new sub-category of heavy-duty vehicles 
rather than modify the existing LDT definition does not, in and of 
itself, change the way in which Tier 2 standards are applied to the 
vehicles.
    We decided upon the above approach because section 216 of the CAA 
establishes the definition for LDT as having the meaning contained in 
the CFR as of 1990. We received several comments that EPA may not 
change the definition and must instead devise a way to categorize the 
vehicles for purposes of Tier 2 which does not change the definition of 
light-duty truck. Rather than adopt a change to the LDT definition that 
would be questionable from a legal perspective, we are adopting an 
approach that we believe is clearly legally acceptable. Under this 
approach (as with the proposed approach), the standards for these 
vehicles are promulgated under

[[Page 6750]]

section 202(a)(3), which applies to heavy-duty vehicles/engines.
    We are defining medium-duty passenger vehicles as any complete 
heavy duty vehicle less than10,000 pounds GVWR designed primarily for 
the transportation of persons including conversion vans (i.e., vans 
which are intended to be converted to vans primarily intended for the 
transportation of persons. The conversion from cargo to passenger use 
usually includes the installation of rear seating, windows, carpet, and 
other amenities). We are not including any vehicle that (1) has a 
capacity of more than 12 persons total or, (2) that is designed to 
accommodate more than 9 persons in seating rearward of the driver's 
seat or, (3) has a cargo box (e.g., a pick-up box or bed) of six feet 
or more in interior length. We would consider vehicles designed 
primarily for passenger use to be those that have seating available 
behind the driver's seat. We have added the rear passenger seating 
capacity criterion to exclude large passenger vehicles which are 
primarily used in heavy-load passenger applications. We do not believe 
vehicles designed primarily for personal use passenger transportation 
would be equipped with rear seating for more than 9 passengers. \72\
---------------------------------------------------------------------------

    \72\ Vehicles that are ``designed'' to accommodate more than 
nine passengers in the rearward seating area in their standard 
configuration but that have some of the standard rear seating 
removed to accommodate two or more wheel chair tie downs would 
usually not be considered MDPVs.
---------------------------------------------------------------------------

    We have added the pick-up bed length criterion to the definition to 
clearly distinguish standard pick-ups from other vehicles meeting the 
GVWR and seating capacity criteria. We received several comments that 
although the proposal clearly states our intention not to include 
heavy-duty pick-up trucks in the Tier 2 program, the proposed 
regulatory definition was unclear. Currently, heavy-duty pick-ups have 
beds in excess of six feet. Any future offerings of vehicles that are 
equipped with significantly shorter beds would be included in the MDPV 
category, if the vehicle also met the weight and seating capacity 
criteria. EPA is making a distinction based on bed length because a 
vehicle introduced with a shorter bed would have reduced cargo capacity 
and would likely have increased seating capacity relative to current 
pick-ups, making it more likely to be used primarily as a passenger 
vehicle.

Interim Standards

    As noted above, the MDPVs and HLDTs must meet the final Tier 2 
standards by 2009 at the latest. Prior to 2009, HLDTs and MDPVs are 
required to meet interim standards. The interim standards, as described 
earlier in section IV.B.4, are based on a corporate average full life 
NOX standard of 0.20 g/mile which is phased in 25/50/75/100 
percent in 2004-2007. MDPVs must be grouped with HLDTs for the interim 
standards phase-in.
    We received several comments from manufacturers that requiring 
these larger vehicles to meet a new, unique standard prior to phase-in 
to the interim program would worsen the workload burden created by the 
Tier 2 program. Manufacturers do not currently have facilities 
available for chassis-testing diesel vehicles and there is not enough 
time to fold diesel vehicles into a chassis-based program by 2004.\73\
---------------------------------------------------------------------------

    \73\ Currently, diesel heavy-duty engines are certified to 
heavy-duty engine standards rather than vehicle standards.
---------------------------------------------------------------------------

    To address this situation, we are providing the following temporary 
additional flexibilities for MDPVs. We are finalizing an additional 
upper bin for MDPVs for the interim program (effective in model years 
2004 through 2008). This bin would only be available for MDPVs. The 
bin, shown in Table IV.B-10, is equivalent to the California LEV I 
standards that are applicable to these vehicles prior to 2004. Vehicles 
certified to this bin must be tested at adjusted loaded vehicle weight 
(ALVW), consistent with California program testing requirements.\74\ 
Including this upper bin provides manufacturers with the ability to 
carry over their California vehicles to the federal program prior to 
their phase-in to the interim and final Tier 2 standards. Once phased 
in to the interim standards manufacturers may continue to use the upper 
bin but the vehicles must be included in the 0.20 g/mi NOX 
average. The upper bin is not available to manufacturers for the final 
Tier 2 program.
---------------------------------------------------------------------------

    \74\ ALVW is the average of curb weight and GVWR. The test 
weight is sometimes refered to as ``half payload''.

                  Table IV.B.-10.--Temporary Interim Exhaust Emission Standards Bin for MDPVs a
----------------------------------------------------------------------------------------------------------------
                                                 NOX          NMOG           CO           HCHO           PM
----------------------------------------------------------------------------------------------------------------
Full Useful Life (120,000 mile)...........          0.9         0.280           7.3         0.032         0.12
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Bin expires after model year 2008.

    We proposed that HLDTs not needed to meet the phase-in percentages 
for the interim program during model years 2004--2006 would be required 
to meet one of the interim bins. Such vehicles, however, would not be 
included in the calculation to demonstrate compliance with the 0.20 g/
mile average. Thus, we proposed that the emissions of all interim HLDTs 
would be capped at a NOX value of 0.6 g/mile. We are 
retaining the bin structure and requirements which effectively cap 
NOX emissions at 0.6 g/mile for all HLDTs below 8,500 pounds 
GVWR, as described in section IV.B. Similarly, for MDPVs, the 0.9 g bin 
described above is the highest bin available and acts as the cap for 
vehicles not yet phased-in to the interim standards.
    In addition, for diesel MDPVs prior to 2008, we are allowing 
manufacturers the option of meeting the heavy-duty engine standards in 
place for the coinciding model year. Diesels meeting the engine-based 
standards would be excluded from the interim program averaging pool. In 
2008, the manufacturers must chassis certify diesel vehicles and 
include them either in the interim program or in the final Tier 2 
program. In 2009 and later, all MDPVs, including diesels, must be 
brought into the final Tier 2 program. As with the higher bin of 
chassis-based standards, the purpose of this diesel provision is to 
provide the option of carry-over of vehicles until they are brought 
into the Tier 2 program. We believe these modifications to the program 
will substantially ease the workload concerns of manufacturers in the 
interim years by allowing them to carry-over vehicle models and engine 
families. The provisions also remain consistent with EPA's goal of 
including the vehicles in the overall Tier 2 program structure.

[[Page 6751]]

    For diesel engines that are engine certified and used in MDPVs, as 
allowed through model year 2007, we are requiring those engines to 
comprise a separate averaging set under the averaging, banking and 
trading requirements applicable to heavy-duty diesel engines. We are 
permitting engine-based certification for these diesel vehicles to 
provide time and flexibility for manufacturers who may have limited 
experience with chassis certifying vehicles containing such engines. 
However, we do not want to create a situation where engines above 
applicable engine standards could be used in these vehicles, when other 
MDPVs are being brought under stringent standards. Therefore we believe 
it is appropriate to constrain the application of credits to these 
engines. We note that we are not permitting credits from other programs 
(like NLEV) to be applied in any way to Tier 2 or interim vehicles.
    For LDT4s, we have finalized an optional higher NMOG level of 0.280 
g/mile for bin 10 (0.6 g/mile NOX), as described in section 
IV.B.4.a of the preamble. MDPVs placed in bin 10 may also certify to 
the higher NMOG level of 0.280 g/mile. This provision provides 
manufacturers with the incentive of selecting the lower NOX 
bin for MDPVs, since the NMOG level is not an obstacle to compliance.
    As described in section IV. B.4.e.ii., manufacturers have two 
options for the start of the program requirements. In Option 1, the 
program begins with the 2004 model year for 25 percent all vehicles. In 
Option 2, manufacturers can exempt 2004 model year vehicle test groups 
whose model years begin on or after the fourth anniversary of this 
rule's signature. These options are also available for MDPVs for the 
same reasons we are providing them for HLDTs. However, the additional 
0.9 g bin contained in Table IV.B.-10, the optional higher NMOG 
standard of 0.280 g/mile for bin 10, and the option of certifying to 
the engine-based standards for diesels are available only with Option 
1.

Other Emission Control Requirements

    We are requiring all non-diesel MDPVs to be OBDII compliant 
beginning in 2004. California requires OBDII for their LEV I program 
and therefore, the new OBDII requirements are consistent with the 
approach of allowing vehicles to be carried over from California. \75\ 
Diesel vehicles which are carried over from the California program are 
required to be equipped with the OBD system as the system is certified 
in California. Diesel vehicles not carried over from California are not 
required as part of this rulemaking to be equipped with OBDII. However, 
we have proposed OBDII requirements for heavy-duty diesel engines in 
our heavy-duty engines NPRM (64 FR 58472). If OBDII requirements are 
finalized for heavy-duty engines and vehicles as part of that 
rulemaking the OBDII requirements would likewise apply to diesels in 
the MDPV category.
---------------------------------------------------------------------------

    \75\ As with HLDTs, the California OBDII compliance option is 
available for MDPVs.
---------------------------------------------------------------------------

    As proposed, we are applying Tier 2 evaporative emissions standards 
and existing HLDT ORVR requirements to MDPVs. MDPVs must be grouped 
with HLDTs for purposes of phasing in to the Tier 2 evaporative 
emission standards contained in this rule. We have added somewhat 
higher standards for the MDPVs to account for their larger fuel tanks 
and vehicle sizes.\76\ However, the stringency of the standards remains 
similar to that for HLDTs. These standards are described in section 
IV.B.4.f of the preamble. ORVR requirements currently exist for HLDTs 
and are to be phased-in through model years 2004-2006.\77\ We proposed 
to apply the same standards and phase-in requirements to vehicles over 
8,500 pounds GVWR. We are finalizing these ORVR requirements for MDPVs, 
which must be grouped with HLDTs for purposes of phased-in to the ORVR 
requirements.
---------------------------------------------------------------------------

    \76\ For Tier 2 MDPVs, evaporative standards will be 1.4 g/test 
for the 3 day diurnal+hot soak test and 1.75 g/test for the 
supplemental 2 day diurnal+hot soak test.
    \77\ ORVR requirements are phased in for HLDTs, at 40/80/100 
percent in 2004-2006 (see 40 CFR 86.1810-01 (k)).
---------------------------------------------------------------------------

    For those manufacturers electing option 2, OBD is required when the 
vehicle family is covered under these new requirements (i.e., 2004 or 
2005 depending on when certification occurs). For ORVR, the situation 
is similar. The phase-in is 40 percent of any 2004 certifications which 
occur four years after this rule is promulgated, 80 percent in 2005, 
and 100 percent in 2006. As before, the vehicles covered by these 
phase-ins must be combined with those in the LDT3/4 phase-in for 
purposes of calculating compliance.
    We are finalizing Cold CO and Certification Short Test requirements 
for Tier 2 MDPVs. However, we are not finalizing SFTP standards for 
MDPVs in today's rulemaking. Currently, SFTP standards do not apply to 
any vehicles above 8,500 pounds GVWR, including those in the California 
LEV I and LEV II programs. We are concerned, therefore, that finalizing 
SFTP requirements in today's rulemaking would prevent manufacturers 
from carrying over vehicle models during the phase-in years of the 
program. We are currently contemplating a new SFTP rulemaking which 
would consider ``Tier 2'' SFTP standards for all vehicles, including 
MDPVs. California is also interested in developing more stringent SFTP 
standards within the context of their LEV II program and we are 
coordinating with California on these new SFTP standards.

Sustained Severe Use; In-Use Testing of MDPVs

    While we are confident that MDPVs can comply in-use with the 
standards we are finalizing, manufacturers are concerned about in-use 
liability for MDPVs that are in sustained severe-use. In our in-use 
emission testing program, we generally screen vehicles for proper 
maintenance and use and delete vehicles that we believe may have been 
misused or malmaintained. Also, in the regulations for manufacturer in-
use testing, we permit manufacturers to delete vehicles from samples if 
they have been used for ``severe duty (trailer towing for passenger 
cars, snow plowing, racing)'', and we provide that vehicles may be 
deleted for other reasons upon EPA approval.
    We recognize that MDPVs will be marketed and used for carrying many 
passengers, carrying heavy loads and trailer towing. While it is not 
our intention to exempt vehicles from in-use liability that have been 
used for their intended purposes, we understand that some MDPVs may be 
subject to sustained severe service applications, such as frequent 
overloading or frequent towing beyond manufacturer's advertised 
capacity and could not be considered to be representative of properly 
maintained and used vehicles. Furthermore, we would not necessarily 
consider to be representative MDPVs which are routinely or regularly 
used in heavy-load hauling application or towing even within the 
manufacturers limits. Thus, for example, an SUV MDPV used on a daily 
basis to haul a work crew and tow equipment to a distant work site may 
not be representative while the same SUV used to haul the family and 
tow a boat to the lake on weekend excursions would be representative. 
MDPVs in sustained severe operations should not be included in 
manufacturer or EPA in-use test programs, while those that see less 
frequent severe operation should be included.

[[Page 6752]]

C. Our Program for Controlling Gasoline Sulfur

    As with our program for vehicles, the program we are establishing 
today for reducing sulfur levels in commercial gasoline will achieve 
the same large NOX reductions that we projected for the 
proposed program. Here, too, the final program is very similar to our 
proposed program. Adjustments we have made to the proposed program will 
smooth the refining industry's transition to the low-sulfur 
requirements and encourage earlier introduction of cleaner fuel.
    With today's action, we are requiring substantial reductions in 
gasoline sulfur levels nationwide. As we explained in Section IV.A, 
because sulfur significantly inhibits the ability of automotive 
catalysts to control emissions, we had to consider sulfur's impact in 
setting the Tier 2 standards. We knew at the time of proposal that 
newer catalysts were more sensitive to sulfur than older technologies, 
and projected that Tier 2 catalysts would be as or even more sensitive 
than those used in today's NLEV vehicles. Furthermore, we believed that 
the sulfur build-up on Tier 2 catalysts may be irreversible. Since the 
proposal, additional data we've collected have confirmed and 
strengthened our concerns. It now appears that the catalysts expected 
to be used in Tier 2 vehicles will be even more sensitive to sulfur 
than we originally estimated, and that this sulfur impact will be 
approximately 45 percent irreversible under typical driving conditions. 
Thus, the gasoline sulfur standards we finalize today will enable the 
stringent tailpipe emission standards we're implementing for Tier 2 
vehicles and will help to ensure that these low emission levels will be 
realized throughout the life of the vehicle. Furthermore, since 
vehicles already on the road, including NLEV vehicles, are in many 
cases quite sensitive to sulfur, gasoline sulfur control will also help 
to reduce emissions of pollutants that endanger public health and 
welfare from these vehicles.
    In developing this gasoline sulfur control program, we gave 
substantial consideration to the ability of the refining industry to 
meet these requirements. We proposed a set of standards applying to 
refiners and to individual refineries combined with a sulfur averaging, 
banking, and trading (ABT) program intended to provide flexibility in 
meeting the standards. We concluded that our proposal was reasonable 
and cost-effective based on our projections regarding the number of 
refineries that would (1) need to reduce sulfur levels each year as the 
standards tightened, (2) need sulfur ABT credits to meet the 30 ppm 
refinery average standard in 2004 and/or 2005 to defer installation of 
desulfurization equipment, and (3) install desulfurization equipment 
prior to 2004, generating the needed sulfur credits. This analysis 
formed our picture of the industry's investment stream--a year-by-year 
estimate of how many refineries would be constructing new equipment and 
what technologies these refineries would choose. We assumed that any 
investments would be in the new, lower cost technologies, and that 
these technologies would be available and adequately demonstrated to 
allow refiners to select them as early as the year 2000 to begin 
operation (and thus, credit generation) as early as 2002. Based on 
these assumptions, our analysis showed that sufficient credits would be 
generated before 2004 to enable a number of refineries to delay 
construction and use credits to meet the 30 ppm standard in 2004, and 
in some cases, even in 2005. Overall, we believed our analysis 
represented a reasonable and balanced rate of investment by the 
industry over a several year time period.
    In response to our proposal, we received many comments which raised 
concerns about the feasibility of our program. Some comments suggested 
that our proposed declining cap (300 ppm cap for 2004 and a reduced cap 
of 180 ppm for 2005) could be an additional and burdensome expense for 
most refiners to meet. Specifically, these commenters believed that the 
declining cap would be more constraining than compliance with the 
corporate average or even the refinery average standards (as long as 
the ABT program produced sufficient credits). Because refiners probably 
would not make multiple investments in such a short time, the 180 ppm 
cap could force some refiners to install the equipment needed to get to 
the 80 ppm cap earlier than otherwise needed. The commenters argued 
that this would force all of the industry's investments into the first 
years of the program rather than allowing for a smoother transition 
over several years as we had originally envisioned. Many comments also 
suggested that since there have not been long-term commercial 
demonstrations of the newer gasoline desulfurization technologies, 
refiners would not consider these technologies to be viable and, if 
faced with our proposed 30 ppm standard in 2004, may select the more 
traditional, higher cost sulfur reduction processes. Some of these 
commenters suggested that we should delay the 30 ppm standard, and 
recommended a range of suggested deadlines (2005-2007).
    We also received many comments which suggested that the ABT program 
restricted the generation of credits, and provided no certainty that 
credits would be generated prior to 2004. Commenters stated that two 
features in particular--the delay in establishing each refinery's 
sulfur baseline due to 1997-98 data review and the strict 150 ppm 
``trigger'' for generating credits--caused them to question whether 
adequate sulfur credits would be available. If credits could not be 
guaranteed early enough to forestall investment decisions, refiners 
would be forced to begin construction earlier than we had projected. 
Under such a scenario, the costs of the program would be substantially 
greater, and many commenters suggested that, regardless of cost, it 
would be impossible for the entire industry to meet the deadline (due 
to limitations on engineering design and construction resources as well 
as the time required to obtain permits).
    Finally, we received many comments which argued that not all 
refineries would be able to concurrently comply with the proposed 
standards in the time period provided, given the competition for 
engineering resources and the time needed for construction of 
desulfurization equipment. These comments focused specifically on small 
refineries (owned by both small and large corporations) and refineries 
that were relatively isolated geographically (such as many refineries 
in the Rocky Mountain region) which had little access to other sources 
of gasoline should they have difficulty in complying with our 
requirements. The commenters generally argued that these refiners 
needed more time than the rest of the industry to meet our proposed 
standards. Some of the commenters also argued that the standards 
applicable to many of these refiners should be less stringent because 
of their belief that the environmental needs of the states where these 
refineries were located and/or marketed gasoline were small relative to 
the needs of other states. Suggestions for temporary and permanent 
regional programs which provided less stringent control in the Western 
half of the country were included with many of these comments.
    Based on what we've learned from the comments received and 
additional information we've gathered, we have revised our analysis of 
when refiners will invest in desulfurization equipment and how the 
sulfur ABT program can

[[Page 6753]]

best help to distribute these investments over several years while 
maintaining the original goals of the program. The following is a brief 
summary of our new analysis; a more complete explanation of our 
assumptions can be found in the RIA.
    About 15 percent of current domestic gasoline production already 
meets the gasoline sulfur standard, or can do so with very little 
additional capital investment, and at most a small increase in 
operating cost. The remainder of the industry--the majority of U.S. 
refineries--will have to install at least one desulfurization 
processing unit to lower gasoline sulfur to the required levels. 
Furthermore, many of these refineries will need to make changes to 
their operations in advance of 2004 simply to comply with the 300 ppm 
cap standard, even if they can obtain sufficient ABT credits to delay 
compliance with the 30 ppm refinery average standard. Refiners facing 
this situation will need to make their decisions within a year or at 
most two from today's action. From the comments we received and 
discussions we've had with refiners and technology vendors, we 
acknowledge that some of the newer, more promising processes may not be 
in operation for sufficient time to gain valuable operating experience 
(one to two years of operation) until 2002 or later. Hence, we now 
believe that some refiners may choose from one of the traditional, 
commercially-demonstrated desulfurization processes, even though these 
technologies may be more costly, to meet our standards.
    However, we continue to believe that the majority of refiners will 
delay construction (taking advantage of the sulfur ABT program and 
perhaps making modest operational changes in the interim) and will have 
a wide range of technological options to choose from, at reduced 
capital investment and operating costs compared to the more traditional 
approaches. Examples of these technologies are CDHydro and CDHDS 
(licensed by the company CDTECH), Octgain 125 and Octgain 220 (licensed 
by Mobil Oil), S Zorb (licensed by Phillips), IRVAD (licensed by Black 
& Veatch), and others. These technologies generally use conventional 
refining processes combined in new ways, with improved catalysts and 
other design changes that minimize the undesirable impacts (such as a 
substantial loss in octane) and maximize the effectiveness of the 
desulfurization approach. Since these processes provide less costly 
ways to reduce gasoline sulfur, we have based our economic assessment 
(summarized in Section IV.D. below) on the presumption that the 
majority of refiners will elect to use one of these processes to meet 
the 30 ppm standard, even if it requires delaying compliance (through 
the purchase of ABT program credits) until 2006.
    However, after considering the data available to us about current 
refinery sulfur levels and the ability of refiners to reduce sulfur 
levels to meet the standards, we have made several modest changes to 
the program. These changes will not affect the environmental 
performance of the proposed program. We agree that the declining cap 
had the unintended consequence of forcing investments earlier than 
desired for an orderly transition to the 80 ppm cap. Thus, we have 
changed the program from the proposal, establishing a 300 ppm per-
gallon cap in 2004 and 2005. We do not expect this change to have an 
impact on the environment (or on the Tier 2 vehicles that will be 
introduced in this interim period) since average sulfur levels will be 
required to decrease due to the declining corporate average, which 
begins in 2004. We kept the corporate average standards proposed for 
2004 and 2005, but are permitting inter-company trading around these 
standards. We believe this change will provide further flexibility to 
the industry in allowing some refineries to delay construction and 
encourage others to move forward sooner. Having now concluded that many 
refiners would benefit from an additional year to evaluate and consider 
the technological options before having to install equipment to meet 
the 30 ppm standard, we have delayed this standard for one year. In 
acknowledgment that some areas of the country have less urgent 
environmental needs for the emissions reductions that this program will 
bring, and that many of the refiners that supply gasoline to these 
areas are ones which will have the most difficulty in meeting the 
standards, we have finalized a geographic phase-in of the standards to 
complement the temporal phase-in applicable to the rest of the 
industry. Thus, in certain states in the West, refiners have the option 
of meeting interim standards while delaying compliance with the 30 ppm 
average until 2007. Finally, we have made changes to the sulfur 
baseline requirements and the credit trigger to help ensure that the 
sulfur ABT program functions as we originally envisioned it would.
    These changes will encourage reductions in gasoline sulfur levels 
beginning as early as 2000, while providing enough flexibility to 
require the majority of refineries to meet a 30 ppm average sulfur 
standard by 2006. Overall, the industry will be able to spread the 
needed investments over several years rather than having to comply as a 
whole by 2004, and will be able to maximize the use of the most 
efficient and lowest cost technologies. While we have provided 
additional flexibility for the industry, we have done so without 
compromising the environmental benefits of the program in 2004 and 
beyond when compared to our proposal.
    The following sections summarize the requirements for gasoline 
refiners and importers, including our geographic phase-in requirements; 
special provisions for small refiners, and our plans to facilitate the 
construction permitting process to enable refiners to install gasoline 
desulfurization technology in a timely manner. Section VI provides 
additional information about the compliance and enforcement provisions 
that will accompany these requirements. More detailed information in 
support of the conclusions presented here is found in the RIA and in 
our RTC document.
1. Gasoline Sulfur Standards for Refiners and Importers
    This section explains who must comply with the gasoline sulfur 
control requirements, the standards and deadlines for compliance, and 
how refiners can use the ABT program to meet the standards. The last 
section discusses how individual state gasoline sulfur programs are 
affected by today's action. Standards specific to eligible small 
refiners are presented in Section IV.C.2.
a. Standards and Deadlines that Refiners/Importers Must Meet
    Anyone who produces gasoline for sale in the U.S. must comply with 
these regulations. This includes anyone meeting our definition of a 
refiner (including blenders, in most instances) and importers. Certain 
refiners may qualify for temporarily less stringent standards and 
deadlines because these companies either (1) market gasoline in the 
temporary geographic phase-in area (explained in section b below), or 
(2) they qualify under our definition of small refiner (explained in 
section IV.C.2 below). Foreign refiners may also have separate 
requirements, if they qualify as small refiners.
    These requirements will apply to all gasoline sold in the U.S., 
including Alaska, Hawaii, Puerto Rico, American Samoa, the Virgin 
Islands, Guam, and

[[Page 6754]]

the Northern Mariana Islands. \78\ This national approach is 
appropriate, based on our conclusions that vehicle emissions must be 
reduced nationwide to adequately protect public health and the 
environment and Tier 2 vehicles require protection from the harmful 
impacts of gasoline sulfur regardless of where they are operated.
---------------------------------------------------------------------------

    \78\ Gasoline sold in California is exempt from meeting these 
Federal standards, due to our belief that California gasoline 
already meets or exceeds these requirements. See Section VI for more 
discussion on this issue.
---------------------------------------------------------------------------

    Table IV.C.-1. summarizes the standards for gasoline refiners and 
importers. There are three standards which refiners and importers must 
meet. In 2004 and beyond, every gallon of gasoline produced is limited 
by a per-gallon maximum or ``cap.'' The cap standard becomes effective 
January 1, 2004 (and January 1 of subsequent years as the cap standard 
changes). Also, in 2004 and 2005, each refiner must meet an annual-
average standard for its entire corporate gasoline pool. Finally, each 
individual refinery is subject to a refinery average standard, 
beginning in 2005. Refineries that do not take advantage of the sulfur 
ABT program will have actual sulfur levels averaging 30 ppm beginning 
in 2005. Additional details about the requirements for meeting these 
standards is found in the following sections.

 Table IV.C.-1.--Gasoline Sulfur Standards for Refiners, Importers, and
                          Individual Refineries
               [Excluding Small Refiners and GPA Gasoline]
------------------------------------------------------------------------
        Compliance as of--            2004 a        2005        2006+
------------------------------------------------------------------------
Refinery Average, ppm \b\........  ...........           30           30
Corporate Pool Average, ppm c....          120           90  ...........
Per-Gallon Cap,\d\ ppm...........          300          300          80
------------------------------------------------------------------------
NOTES:
\a\ We project that the pool averages will actually be below 120 ppm in
  2004. For a discussion of how the program gets early sulfur reductions
  before 2004, see section IV.C.1.c.
\b\ The refinery average standard can be met through the use of sulfur
  credits or allotments from the sulfur ABT program, as long as the
  applicable corporate pool average and per-gallon caps are not
  exceeded, as explained in Section IV.C.1.c.viii.
c. The corporate pool average standard can be met through the use of
  corporate allotments obtained from other refiners, if necessary, as
  explained in Section IV.C.1.c.iii.
\d\ In 2004, exceedances up to 50 ppm beyond the 300 ppm cap are
  allowed. However, in 2005, the cap for all batches will be reduced by
  the magnitude of the exceedance.

i. What Are the Per-Gallon Caps on Gasoline Sulfur Levels in 2004 and 
Beyond?

    To reduce the potential for permanent damage to the emission 
controls of Tier 2 vehicles and later NLEV vehicles, we are 
implementing caps on the sulfur content of every batch of gasoline 
produced or imported into the country beginning in 2004. As shown in 
Table IV.C.-1, a cap of 300 ppm is first implemented in 2004. This cap 
remains in 2005. In 2006 and beyond, the cap is lowered to 80 ppm. 
These caps apply at the refinery gate. Sulfur caps are also applied to 
gasoline downstream of the refinery; see Section VI for additional 
discussion of downstream cap standards. These downstream caps will 
facilitate compliance and enforcement without changing the way the 
distribution system currently functions.
    Several commenters suggested the rule should also include a 
provision to address the occasions when refiners must temporarily take 
processing units out of operation so that planned, recurring 
maintenance can be performed, commonly termed ``turnarounds,'' or if 
processing units are unexpectedly taken out of operation due to 
accident or malfunction, commonly termed ``upsets.'' These commenters 
expressed particular concern that the gasoline produced at a refinery 
may not meet the sulfur cap standards when a refinery's desulfurization 
unit is not operating. These commenters contended that the regulations 
should allow refiners to produce gasoline that exceeds the cap standard 
for a limited time where the excess sulfur is due to a turnaround or 
upset. However, they also suggested that the refiner should be required 
to meet the refinery average standard with the high sulfur gasoline 
included in its average calculation in order to create an incentive for 
refiners to limit the volume and sulfur content of high sulfur 
gasoline.
    Today's rule does not grant relief to refiners because of 
turnarounds or upsets. While the concern raised by the commenters is 
reasonable, the solution they suggested would nevertheless result in 
distribution of gasoline exceeding the cap standards. The cap standards 
are necessary because gasoline with higher sulfur levels will 
significantly harm or destroy the emission controls used in Tier 2 
vehicles.
    We believe there are strategies refiners can use to mitigate or 
eliminate the difficulties associated with turnarounds and upsets. For 
example, some refiners schedule turnarounds for a number of refinery 
processing units at the same time when the refinery largely stops 
producing gasoline, thereby avoiding the need to produce any high 
sulfur gasoline. In other situations it may be possible for a refiner 
to store high sulfur products until the desulfurization unit is 
operating or to transfer high sulfur products to a neighboring refinery 
for desulfurization.
    We commit to continue evaluating the turnaround issue especially as 
new technologies are introduced. Based on our evaluation, if a problem 
is evident and if an appropriate solution can be devised, we will act 
at that time.
    In 2004, if any batch of gasoline \79\ exceeds the 300 ppm cap (up 
to 350 ppm), then the cap for all batches produced by the refinery in 
2005 will be reduced by the magnitude of the exceedance. For example, 
if any given batch of gasoline has a cap of 325 ppm (a 25 ppm 
exceedance) in 2004, then the cap becomes 275 ppm for all batches of 
gasoline produced by that refinery in 2005. However, at no time in 2004 
can a batch be higher than 350 ppm sulfur. We have made this adjustment 
to accommodate those refiners who would have to invest in control 
technologies to meet the 300 ppm cap in 2004 (perhaps at a higher cost 
than they would incur if they could delay the investment a year) but 
could otherwise meet a slightly higher cap through operational changes 
which would not require new equipment.
---------------------------------------------------------------------------

    \79\ Including gasoline produced for use in the geographic 
phase-in area and small refiner gasoline.

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

[[Page 6755]]

ii. What Standards Must Refiners/Importers Meet on a Corporate Average 
Basis?

    Refiners and importers must meet annual-average, volume-weighted 
sulfur standards for their entire corporate gasoline pool in 2004 and 
2005. In 2004, this standard is 120 ppm; in 2005, it is reduced to 90 
ppm. In 2006 and beyond, there will no longer be a corporate pool 
average standard, since each refinery and importer will be held to its 
own single refinery average standard, as discussed in the next section.
    These standards represent the maximum allowable sulfur levels, on 
an annual average basis, for each refiner/importer, volume-weighted 
across all refineries owned and operated by that refiner (or all 
gasoline imported by the importer in the calendar year), rather than at 
each individual refinery or by each batch of gasoline. Thus, a 
refiner's gasoline may exceed the average standard of 120 ppm at one 
refinery, if sufficient gasoline below that standard is produced at its 
other refinery(ies), such that its corporate, volume-weighted average 
sulfur level does not exceed 120 ppm. Alternatively, allotments may be 
used to meet this requirement. This requirement does not apply to small 
entities or to corporations that do not have to meet the pool average 
standard in the GPA program. For compliance with this corporate 
averaging requirement, as well as with the other requirements of this 
subpart, we consider a parent corporation owning wholly-owned 
subsidiaries that also own refineries to be the refiner of these 
facilities. Thus, the parent corporation must comply with refiner 
corporate average requirements. In its compliance calculations, the 
refiner must include the gasoline produced at the refineries it owns, 
plus the gasoline produced at the refineries owned by its wholly-owned 
subsidiaries.
    For purposes of compliance, we proposed that a joint venture, in 
which two or more refiners collectively own and operate one or more 
refineries, be treated as a separate refining corporation under the 
gasoline sulfur requirements. Hence, a refinery owned by a joint 
venture would have been included in the corporate pool calculations of 
the joint venture, and could not have been included in calculations 
with other refineries solely owned by one of the parties to the joint 
venture. Based on comments we received on this issue which argued that 
a company with majority ownership in the joint venture should be 
allowed to count the jointly held refinery in its corporate average, we 
have revised our treatment of refineries owned by joint ventures. Each 
joint venture must separately meet the corporate pool average standard, 
whether the joint venture owns one or multiple refineries. If a joint 
venture fails to meet the corporate pool average standard, then each 
partner in the joint venture is jointly and severally liable for the 
violation. However, if one partner to a joint venture refinery includes 
the joint venture refinery in its corporate pool, and that corporate 
pool meets the corporate pool average standard, then the joint venture 
will be considered by EPA to be in compliance (if the joint venture 
owns only the one refinery). If the joint venture owns multiple 
refineries and only one or some of the refineries is included in the 
corporate pool calculations of one partner, compliance by the joint 
venture with the corporate pool average standard will be judged based 
on the average sulfur levels of the remaining refinery(ies) owned by 
the joint venture.
    In meeting the corporate average stds in 2004 and 2005, refiners 
and importers may use allotments as discussed in IV.C.1.c below.

iii. What Standards Must be Met by Individual Refineries/Importers?

    Beginning in 2005, every refinery must meet an average standard of 
30 ppm sulfur at the refinery gate on an annual, volume-weighted basis. 
Similarly, every importer must meet the 30 ppm average standard 
beginning in 2005. (These requirements do not apply to small entities 
or to GPA gasoline). In meeting this standard, individual refineries 
and importers may use credits generated or purchased under the 
provisions of the sulfur ABT program discussed below in Section 
IV.C.1.c, and/or, in 2005 (only), sulfur allotments (as described in 
the previous section) obtained from a refiner who has excess allotments 
to sell, if they are unable to comply based on their actual gasoline 
sulfur levels. Hence, the actual average sulfur levels for gasoline 
produced at some refineries can be higher than 30 ppm in 2005, but only 
if refiners use (1) credits generated from cleaner gasoline produced 
early and/or (2) allotments generated by a refiner which produces 
gasoline averaging, on a corporate basis, lower than 90 ppm in 2005. 
However, the corporate pool average standards and per-gallon caps will 
limit the degree to which gasoline can exceed 30 ppm on average.
    We allow refiners to use either sulfur allotments or ABT credits to 
meet the 30 ppm standard in 2005 for several reasons. First, this is an 
environmentally neutral approach because the national pool in 2005 will 
still average no greater than 90 ppm, since every refiner must meet the 
corporate average standard before applying allotments to the compliance 
of any refineries with the 30 ppm standard. Second, it provides 
refiners who have excess allotments in 2005 an additional market for 
those allotments, thus giving refiners an incentive to exceed the 90 
ppm corporate average standard in 2005. In either case, the reductions 
will have occurred and thus the allotments and credits have very 
similar purposes and thus should be interchangeable.
    In 2006 and beyond, the 30 ppm refinery average standard continues 
to be a requirement for every refinery or importer. The sulfur credits 
generated in the ABT program may be used by refineries or importers to 
comply with this requirement. However, because of the 80 ppm cap in 
these years, we expect that the majority of refiners/importers will 
average 30 ppm, although some individual refineries/importers could 
average slightly more or less (if the refineries/importers bank, sell, 
or purchase credits to meet this standard, as explained in the ABT 
discussion below). Furthermore, the majority of credits will expire at 
the end of 2006.
b. Standards and Deadlines for Refiners/Importers Which Provide 
Gasoline to the Geographic Phase-In Area (GPA)
    As indicated above, certain refiners may qualify for temporarily 
less stringent standards and deadlines for some or all of their 
gasoline because these companies either (1) produce gasoline to be sold 
in the temporary geographic phase-in area (GPA) or (2) qualify under 
our definition of small refiner. In this section, we explain the 
geographic phase-in area of our program and the interim standards and 
deadlines for compliance in that area. The provisions that apply to 
qualifying small refiners are described in section IV.C.2., below.

i. Justification for Our Geographic Phase-In Approach

    In addition to phasing in our national gasoline sulfur program 
temporally from 2004-2006, we are phasing in our program 
geographically. In response to our proposal, we received many comments 
from the refining industry regarding timely implementation of our 
proposed gasoline sulfur program. Commenters argued that not all 
refineries would be able to concurrently comply with the proposed 
standards in the time period provided, given the competition for 
engineering resources and the time needed for construction of

[[Page 6756]]

desulfurization equipment. In consideration of these comments, we have 
made some modifications to enhance the timing of our program without 
compromising the environmental benefits we expected from our proposal.
    As part of our assessment we also examined other phase-in 
approaches which might enhance the orderly introduction of refining 
technology without jeopardizing the environmental benefits of our 
program. As a result of this assessment, we have concluded that many 
states in the Great Plains and Rocky Mountain areas of the United 
States have a somewhat less urgent environmental need for ozone 
precursor reductions in the near term. Moreover, their gasoline supply 
is dominated by that produced by small capacity, geographically-
isolated refineries located therein. As a general rule, refineries in 
this area will have the most difficult time of all refineries 
nationwide in competing for the vendor, supply, engineering, and 
construction resources needed to modify their refineries to comply with 
the standards. Based on 1998 Department of Energy data, over 80 percent 
of the gasoline sold in this area is produced by the relatively small 
refineries located within the region.\80\ Similarly, Alaska faces a 
less urgent environmental need for reductions in ozone precursors and 
has refineries which are challenged and geographically isolated.
---------------------------------------------------------------------------

    \80\ Much of this gasoline is produced by small volume 
refineries that are not owned by small businesses, and are therefore 
not afforded the flexibility of the small refiner provisions 
described in Section IV.C.2.
---------------------------------------------------------------------------

    A more orderly and cost-efficient phase-in of the 30 ppm standard 
could be achieved if all gasoline sold in this area was subject to 
somewhat less stringent standards than those in the rest of the country 
for a short time. This approach will allow the refineries producing 
gasoline for use in this area more compliance flexibility, more time to 
install and prove out the equipment needed for compliance, and thus a 
greater opportunity to reduce their overall costs. As described below, 
this approach results in only a minimal loss in emission reduction 
benefits. By stretching out demand for design, engineering, 
construction and other related services during the 2000-06 period, 
these provisions should also help to reduce the overall costs of the 
gasoline sulfur program.
    The remainder of this section is divided into two parts. The first 
describes the rationale for development of this approach and how we 
identified the appropriate area, and the second provides a description 
of the requirements for refiners and importers that produce fuel for 
sale in the area.

ii. What Is the Geographic Phase-in Area (GPA) and How Was it 
Established?

    As we considered the geographic phase-in approach, we aimed to 
minimize the environmental losses which could occur from exposing Tier 
2, NLEV, (and other) vehicles to higher gasoline sulfur levels when the 
gasoline sulfur standards are being phased in nationwide. We used two 
criteria to develop and evaluate this approach: (1) relative 
environmental need and (2) the ability of U.S. refiners and the 
distribution system to provide compliant gasoline.
    The states we have identified for the GPA are shown in Figure IV.C-
1.\81\
---------------------------------------------------------------------------

    \81\ Alaska, Colorado, Idaho, Montana, New Mexico, North Dakota, 
Utah, and Wyoming

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR10FE00.005


BILLING CODE 6560-50-C
    The first and primary criterion we considered in defining this area 
was environmental need. In defining the GPA, we identified those states 
that have somewhat less urgent environmental need in the near term for 
reductions in ozone precursors and whose emissions are less important 
in terms of ozone transport concerns. This area includes some states 
that are located in the Great Plains and the Rocky Mountains, as well 
as Alaska. Most states within the Rocky Mountains and Great Plains do 
not have a compliance problem with the 1-hour ozone standard in the 
near term, although they do have concerns in terms of maintaining 
compliance with the particulate matter standard. However, there are two 
states (Arizona and Nevada) in the Rocky Mountain vicinity that do have 
ozone air quality concerns. These states have instituted local fuel 
quality programs (in Phoenix, AZ and Las Vegas, NV) to reduce ozone 
precursor emissions. In addition, as shown in Table III.C-2, Arizona 
and Nevada are projected to have concerns with PM10 compliance in the 
future. Given these factors, we excluded them

[[Page 6757]]

from the phase-in area and its temporarily less stringent standards 
except as described below in Section IV.C.1.b.vii for counties and 
tribal lands in adjacent states.
    We also defined the phase-in area based on the relative difficulty 
of producing or obtaining complying gasoline. The refining industry in 
the GPA is dominated by relatively low capacity, geographically-
isolated refineries many of which are owned by independent companies. 
Such refineries face special challenges in complying with the 
requirements of the national program by 2004 because their crude 
capacity, corporate size, and location make it difficult for them to 
compete for the design, engineering, and construction resources needed 
to comply by 2004.
    Furthermore, an assessment of 1998 gasoline production and use data 
and information on the products pipeline system shows that states in 
the GPA and portions of several adjoining states are solely or 
predominantly dependent on gasoline produced by these refineries and 
have limited or no access to gasoline from other parts of the country. 
Based on this analysis, we concluded that several states and portions 
of other states meeting our first criterion (less urgent environmental 
need for ozone precursor emission reductions) also face the likelihood 
of a supply shortage of low sulfur gasoline. Providing low sulfur 
gasoline to these states and adjoining areas is expected to be more 
difficult and costly in the near term. Section IV.C.1.b.vii below, 
discusses how the adjoining areas (counties/tribal lands) will be 
identified.
    Thus, we believe it is appropriate to phase in the 30 ppm average, 
80 ppm cap standards in these areas by allowing an additional year 
compared to the rest of the country, rather than delaying 
implementation of the standards nationwide to accommodate these states. 
Under this approach, the areas with the most urgent need for the ozone 
reduction benefits associated with low sulfur gasoline will realize 
them as soon as is feasible, and other areas will experience them 
shortly thereafter.
    On the other hand, much of the area in the adjoining states has 
significant pipeline, rail, barge, and truck access to gasoline which 
will be capable of meeting the standards in Table IV.C-1 beginning in 
2004. Even if these states have less environmental need in the near 
term, there are health benefits (particulate and air toxic emission 
reductions) as well as performance benefits for vehicle emission 
control systems (including avoidable irreversible sulfur effects) which 
need not be foregone. Therefore, we concluded that since it will not be 
more difficult to send gasoline to these adjoining areas through the 
distribution system, the significant environmental benefits of 
requiring low sulfur gasoline as early as is feasible justifies 
excluding these states from the GPA.
    Some might argue that there are other states which should be 
considered under this program. However, based on our criteria of 
environmental need (including ozone transport and irreversibility 
concerns) challenged refineries, and limited access to complying 
gasoline we could identify no other states or territories which to 
include.

iii. Standards/Deadlines for Gasoline Sold in the Geographic Phase-in 
Area

    While the states in the GPA may have less of an environmental need 
for ozone precursor reductions in the near term, there are significant 
environmental reasons to make the program as stringent as possible, 
still enabling a smooth transition to low sulfur gasoline nationwide. 
Toward that end, we are establishing the following requirements for 
gasoline sold in the GPA, which we view as the appropriate balance 
between these two factors.
    The GPA provision covers all gasoline produced or imported for use 
in the GPA, whether refined there or brought in by pipeline, truck, 
rail, etc.\82\ Foreign refiners are involved in this program through 
the importers, who are, in fact, the regulated entities. Refineries and 
importers must meet a 150 ppm average and a 300 ppm cap for all 
gasoline produced or imported for the GPA under this program beginning 
January 1, 2004. However, if a refinery's/importer's 1997-98 average 
sulfur level is less than 150 ppm, then that refinery's/importers 
gasoline has a standard of its baseline plus 30 ppm but in no case 
greater than 150 ppm. For example, a refinery with a baseline of 100 
ppm would have a sulfur standard of 130 ppm for its GPA gasoline, a 
refinery with a baseline sulfur level of 140 ppm would have a standard 
of 150 ppm for its GPA gasoline, and a refinery with a baseline of 200 
ppm would have a standard of 150 ppm for its GPA gasoline. Furthermore, 
if under the ABT provisions discussed below and in section IV.C.1.c, a 
refinery/importer generates credits (in 2000-2003) and/or allotments 
(in 2003) by dropping its refinery/imported gasoline average below 150 
ppm then the baseline for that refinery is set at the new level and the 
standard becomes baseline plus 30 ppm but not greater than 150 ppm. 
This is to ensure that refineries and importers who already are lower 
than the 150 ppm standard on average maintain current sulfur levels. 
The 30 ppm factor is intended to allow some flexibility for refineries 
and importers whose 1997 and 1998 levels are an aberration from normal 
operations or who face changes in crude slates in future years.
---------------------------------------------------------------------------

    \82\ As discussed below, refiners can supply gasoline not 
designated as GPA gasoline to the GPA, provided it meets the 
standards in Table IV.C.-2. Also, the GPA standards do not apply to 
gasoline produced by small refiners that is used in the GPA.
---------------------------------------------------------------------------

    Corporate pool average standards apply in the national gasoline 
sulfur program for calendar years 2004 and 2005. Most refiners/
importers producing gasoline for use in the GPA market the majority of 
their gasoline outside of the GPA where they compete with many other 
refineries. Since the phase-in of the national program expects 
compliance with the 120/90 ppm corporate pool average standards in 2004 
and 2005, we are requiring that refiners/importers who market the 
majority (greater than 50 percent of production volume) of their 
gasoline outside of the GPA to account for the sulfur levels of their 
GPA gasoline in their calculation for compliance with the corporate 
pool average standards.
    To provide additional flexibility during this phase-in, refiners 
may use sulfur ABT credits and allotments (as explained in IV.C.1.c) to 
meet these standards. Refineries producing GPA gasoline can generate 
credits beginning in 2000 under the provisions of the national program 
(described in section IV.C.1.c). Also, refineries/importers marketing 
gasoline in the GPA may through extraordinary measures be able to 
generate credits in 2004-2006. To qualify they must achieve levels 
below 150 ppm or their more stringent baseline levels as discussed 
above whichever is less. Under these circumstances, these refineries/
importers can earn credits for the GPA gasoline they produce during 
2004-06. Credits generated under the GPA program are fully fungible 
with national credits and are subject to the same regulatory 
requirements.
    The national program includes provisions which permit refiners/
importers to generate allotments for use in 2004 and 2005. Refiners and 
importers marketing gasoline in the GPA may only generate sulfur 
allotments in 2004 or 2005 if their corporate average sulfur level 
meets the corporate pool average standards for each year (as indicated 
in Table IV.C.1), including gasoline produced for the GPA, if 
applicable. Refiners not compelled to meet the corporate pool

[[Page 6758]]

average standards under the GPA may not generate allotments.
    The temporary provisions for the GPA apply for three years, 2004 
through 2006. Since the low sulfur standards for the rest of the 
country require compliance with a 30 ppm refinery average standard and 
an 80 ppm gallon cap in 2006, the geographic phase-in provides an 
additional year to reach those standards. This extra year and the 
somewhat less stringent standards during the phase-in will provide the 
refining industry the opportunity for more orderly transition to the 
30/80 ppm standards by 2007.
    Requirements for gasoline sold in the GPA are summarized in Table 
IV.C.-2, below. Gasoline produced by refiners subject to the small 
refiner standards described in Section IV.C.2. of this notice is not 
subject to the provision of the geographic phase-in, since the small 
refiner provisions apply to eligible refiners regardless of geographic 
location. Gasoline produced by such refiners can be sold nationwide, 
including in the GPA.

                   Table IV.C.-2.--Gasoline Sulfur Standards for the Geographic Phase-In Area
                                            [Excludes Small Refiners]
----------------------------------------------------------------------------------------------------------------
             Compliance as of--                  2004         2005                        2006
----------------------------------------------------------------------------------------------------------------
Refinery GPA Gasoline Average \a\, ppm.....          150          150  150.
Corporate Pool Average \b\, ppm............          120           90  Not Applicable.
Per-Gallon Cap  \c\, ppm...................          300          300  300.
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ The refinery average standard for GPA gasoline is the more stringent of: 150 ppm; the refinery 1997-1998
  baseline plus 30 ppm; or the sulfur level from which early credits were generated plus 30 ppm. Refiners can
  use credits or allotments to meet the average.
\b\ Applies only to refiners/importers which sell >50% of their gasoline outside the GPA.
\c\ As discussed above, in 2004 both GPA and Non-GPA gasoline may have a sulfur content as high as 350 in which
  case the refinery or importer becomes subject to a correspondingly more stringent cap standard in 2005.

iv. What Are the Per-Gallon Caps on Gasoline Sulfur Levels in the 
Phase-in Area?

    The sulfur level caps for gasoline sold in the phase-in area and 
the rest of the nation are the same in 2004 and 2005, but in 2006 the 
cap remains at 300 ppm in this area while it declines to 80 ppm for the 
rest of the country. To assure that compliance at the refinery gate is 
correct regardless of where the gasoline is ultimately sold, as 
gasoline intended for the GPA moves in the distribution system to or 
through the geographic area it must be identified as phase-in area 
gasoline in product transfer documents and must remain segregated from 
gasoline intended for use outside this area. In addition, use of phase-
in area gasoline is prohibited outside the GPA, but the converse is 
allowed, i.e., gasoline designated for use outside the GPA can be used 
in this area. For all three years, refiners and importers must meet the 
requirements described in Tables IV-C.1 and IV-C.2, as applicable, and 
therefore must maintain refinery or import records as applicable as to 
where a gasoline batch is sold. \83\
---------------------------------------------------------------------------

    \83\ These segregation and designation requirements do not apply 
to gasoline produced by refiners subject to the small refiner 
standards described in Section IV.C.2. This is because small refiner 
gasoline can be sold anywhere in the country, and is not subject to 
different standards depending on where it is sold.
---------------------------------------------------------------------------

    We recognize that this higher standard/cap for one year could 
create the incentive for those not marketing gasoline in the GPA today 
to seek a market to sell higher sulfur gasoline and for others to seek 
to increase market share. While this is indeed allowable under our 
program and is perhaps to be anticipated in a free market system, in 
all likelihood the incentives are small. Such refiners/importers would 
still have to meet the 150 ppm average and would perhaps face increased 
shipping and marketing costs. Nonetheless, we plan to monitor market 
developments to assess whether such a provision creates significant 
market shifts or the potential for increases in average sulfur levels 
in the GPA gasoline.

v. How Do Refiners/Importers Account for GPA Fuel in Their Corporate 
Average Calculations?

    Those refiners or importers that sell all of their gasoline to the 
GPA (i.e., they produce no fuel for use outside the GPA), regardless of 
whether they are located within or outside of the area, have refinery/
importer standards that are equal to the least of 1) 150 ppm, 2) the 
refinery's or importer's 1997-98 average sulfur level plus 30 ppm or 3) 
the refinery's or importer's lowest actual annual sulfur level plus 30 
ppm in any year 2000-2003 if credits are generated. Because the 
refiners produce all of their fuel for use in the GPA, they are exempt 
from the corporate average standards in Table IV.C-1.
    Furthermore, any refiner/importer which certifies 50 percent or 
more of its gasoline production volume for sale as GPA gasoline in 2004 
and 2005 is not required to meet the corporate pool average for that 
year for its entire gasoline pool. Not only would it be difficult to 
comply on average (if it were assumed that the GPA gasoline was 150 ppm 
and non-GPA gasoline was 30 ppm), but also it would undermine the 
achievement of the basic goal of a more orderly and efficient phase-in 
of low sulfur gasoline since the flexibility afforded by the GPA could 
be diminished.
    Otherwise, those who produce less than 50 percent of their gasoline 
for the GPA (which is the majority of those refiners which market in 
both locations), must meet the corporate pool average standards in 2004 
and 2005 for their entire gasoline pool. Thus, such refiners must 
compensate for the higher sulfur levels of their GPA gasoline by 
producing non-GPA gasoline that averages sufficiently less than 120 ppm 
in 2004 and 90 ppm in 2005 to ensure that their corporate average meets 
the corporate pool average standard for each year. Importers who 
provide less than 50 percent of their gasoline to the GPA must also 
include their GPA gasoline in their overall corporate pool average 
calculation. Alternatively, the refiner can use sulfur allotments to 
meet the corporate pool average standard for its total gasoline 
production, including gasoline sold inside and outside the phase-in 
area. Since most refiners which sell gasoline both in and outside the 
GPA sell the vast majority outside the GPA the additional flexibility 
provided for gasoline sold in the phase-in area should not 
significantly affect compliance with the corporate pool average 
standard for a refiner's nationwide production.

vi. How Do Refiners/Importers Apply for the Geographic Phase-in Area 
Standards?

    As part of program administration, we are requiring that any 
refiner/importer

[[Page 6759]]

expecting to sell gasoline in this area during the phase-in period 
(2004-2006) make application to EPA in writing by December 31, 2000. 
This application would provide the minimum information needed by EPA to 
characterize a refiner's/importer's participation, establish the 
applicable standards if the 1997-98 average is less than 150 ppm, and 
establish our enforcement program for refiners/importers in this area 
for gasoline entering or leaving the area. Participation on the part of 
any refinery or importer is voluntary. At any time, a refiner/importer 
who previously opted into the GPA program may produce gasoline meeting 
the standards in Table IV.C-1 in the GPA, or may cease producing 
gasoline for the GPA (and produce gasoline meeting the standards in 
Table IV.C-1 solely outside of the GPA). Such a decision would affect 
the averages/caps which apply to the gasoline sold in the GPA. Gasoline 
sold in the GPA that is not designated as GPA gasoline is considered 
Non-GPA gasoline for purposes of compliance with the corporate pool 
average requirement and refinery average requirements.

vii. How Will EPA Establish the GPA in Adjacent States?

    EPA is establishing a geographic phase-in area that encompasses 
eight states (MT, ND, ID WY, CO, UT, NM, AK). In addition, counties and 
tribal lands in states immediately adjacent to these which received a 
majority of their gasoline in calendar year 1999 from a refinery(ies) 
located within the GPA will be covered by the phase-in area provisions. 
The criteria to identify these additional counties and tribal areas are 
designed to identify areas whose gasoline distribution system is 
closely tied to the eight states such that they share the same 
characteristics of gasoline supply. Therefore, dispensing outlets 
(retail and private) in such areas will continue to have access to that 
gasoline in most cases. Distribution and production of gasoline in 
these additional areas will be subject to the same standards and 
requirements as gasoline in the eight states identified above.
    At this time, EPA is not able to identify all the counties and 
tribal lands that would be included in the phase in area. In light of 
the air quality benefits of introducing low sulfur gasoline as quickly 
as possible, we want to ensure that the phase-in area is accurately 
identified and that including any areas outside these eight states will 
not have a significant adverse air quality impact on any counties or 
tribal lands that are included in the phase-in area. EPA will be 
working with interested stakeholders will to conduct an assessment to 
determine which counties/tribal lands within the immediately adjacent 
states meet the criteria as described in the regulatory text. EPA 
expects to complete action on this assessment by December 31, 2000. c. 
How Does the Sulfur Averaging, Banking, and Trading Program Work?
    The sulfur ABT program provides flexibility to refiners by giving 
them more time to bring all of their refineries into compliance with 
the corporate averages in 2004 and 2005 as well as the 30 ppm 
individual refinery standard in 2005 and beyond. ABT will provide the 
opportunity for reduced costs by allowing the industry the flexibility 
to average sulfur levels among different refineries, between companies, 
and across time. With ABT, some refineries will be able to delay 
installation of desulfurization equipment, because other refineries 
will generate sulfur allotments and credits through early sulfur 
reductions. In this way, installation of desulfurization technology 
will be spread out over a longer period of time than would be the case 
without ABT. Since, with the banking provisions, reductions in annual 
average sulfur levels which occur as early as 2000 have a value during 
program implementation, the ABT program provides an incentive for 
technological innovation and the early implementation of refining 
technology.
    The ABT program also provides the opportunity for meaningful 
emissions reductions in 2004 because it allows the Tier 2 standards to 
be implemented earlier than might otherwise have been possible (if the 
Tier 2 standards were delayed to provide the refining industry more 
time to comply), and because it provides direct environmental benefits 
even in the years before Tier 2 vehicles are introduced. One benefit is 
related to the effect of gasoline sulfur on exhaust emissions, as 
discussed in the Regulatory Impact Analysis. This benefit will result 
both from older vehicles on the road (Tier 0 and Tier 1 emission 
control technologies, which have some degree of sulfur sensitivity and 
will benefit from sulfur reductions which occur prior to implementation 
of the refiner and refinery standards summarized in Table IV.C-1) and 
from NLEV vehicles (which are more sensitive to sulfur than earlier 
technologies) which will continue to be sold while Tier 2 vehicles are 
phased-in. Another environmental benefit is the reduction in 
atmospheric sulfur loads as a direct result of reduced gasoline sulfur 
levels, leading to reduced emissions of sulfur-containing compounds 
from motor vehicles.
    The following sections explain the requirements for participation 
in the sulfur ABT program for allotments and credits.

Sulfur Allotment Program

i. Generating Allotments Prior to 2004

    To provide additional incentive for early sulfur reductions and to 
enhance the overall feasibility and cost effectiveness of the gasoline 
sulfur control program, we are implementing a sulfur allotment program. 
While few commenters supported the sulfur allotment concept in the 
NPRM, a number suggested that greater flexibility for compliance in the 
early years would be helpful. The program described below is in 
addition to the early sulfur credit program described elsewhere.
    For 2003, refineries can generate sulfur allotments (in ppm-
gallons) by producing gasoline containing less than 60 ppm sulfur on an 
annual-average basis. This 60 ppm ``trigger'' was chosen to reward 
refineries who demonstrate compliance using technology designed to meet 
the 30 ppm standard before 2005. Once this 60 ppm trigger is reached, 
allotments will be calculated based on the amount of reduction from 120 
ppm. \84\ However, these allotments may be discounted depending on the 
actual sulfur level. If a refinery fully demonstrates compliance by 
producing gasoline with an annual average sulfur level of 0 to 30 ppm, 
the allotments retain their full value--they are not discounted at all. 
For actual sulfur levels of 31-60 ppm, which are indicative of a 
partial demonstration of compliance with the ultimate low sulfur 
standard, the allotments are discounted 20 percent. For example, 
consider a refinery that has an average sulfur level of 50 ppm at the 
end of 2003. That refinery would have generated 56 sulfur allotments 
[(120 ppm - 50 ppm)  x  0.8  x  Volume (in gallons)] to be used or sold 
in 2004. If that same refinery instead produced fuel with an average 
sulfur level of 20 ppm at the end of 2003, then it would have generated 
100 sulfur allotments [(120 ppm - 20 ppm)  x  volume (in gallons)] to 
be used or sold in 2004.
---------------------------------------------------------------------------

    \84\ If a refinery has a baseline sulfur level higher than 120 
ppm (as described below in IV.C.1.c.v.), then credits are generated 
from the baseline to 120 ppm and allotments from 120 ppm to the new 
sulfur level (and discounted 20 percent if applicable).
---------------------------------------------------------------------------

ii. Generating Allotments in 2004 and 2005

    For 2004 and 2005, refiners or importers (but not individual 
refineries)

[[Page 6760]]

can generate allotments by producing gasoline that has a sulfur level 
below the annual corporate average standard (120 ppm and 90 ppm). The 
number of allotments generated is equal to the difference between 120 
ppm (or 90 ppm) and the corporate average sulfur level. Allotments 
generated by refiners or importers in 2004 and 2005 are not discounted, 
unlike some of those that are generated by refineries in 2003. Refiners 
that sell fuel to the GPA may also generate allotments by producing 
fuel that is cleaner than the corporate average standards, regardless 
of the volume of fuel that is produced for use in the GPA. On the other 
hand, as explained in Section IV.C.2., gasoline produced by small 
refiners who are complying with the standards in Table IV.C.-3 cannot 
be used to generate sulfur allotments since these producers are not 
required to meet a corporate average standard.

iii. Using Allotments in 2004 and 2005

    Refiners and importers can use sulfur allotments that they generate 
or purchase from other refiners/importers to demonstrate compliance 
with the 120 ppm corporate standard in 2004 and the 90 ppm corporate 
standard in 2005. Each refiner's sulfur allotment for 2004 and 2005 
will be calculated based on the total volume of gasoline imported and 
produced at their refineries (or only imported gasoline in the case of 
companies that only import gasoline) and the corporate pool average 
standard for that year. In anticipation of exceeding or falling short 
of the standard for any one year, companies may trade sulfur 
allotments, either in the compliance year or earlier (as early as the 
year 2000). For example, a refiner that expects to produce a total of 
2.5 billion gallons of gasoline in 2004 has a sulfur allotment of 300 
billion ppm-gallons (120 ppm  x  2.5 billion gallons). If its corporate 
pool average is actually 200 ppm in 2004, it will exceed its 2004 
allotment by 200 billion ppm-gallons (since 200 ppm  x  2.5 billion 
gallons = 500 ppm-gallons), and must obtain sulfur allotments from 
another refiner to offset this increase. Similarly, if this refiner 
expects to average 80 ppm in 2004, it has an excess of 100 billion ppm-
gallons to trade to other refiners. However, if a refiner trades away 
part of its allotment, the refiner must still comply with the corporate 
standard, just as another refiner has to do if it does not trade 
allotments.
    In 2005, refiners must comply both with the corporate average 
standard and the refinery average standard for each of their 
refineries. Once a refiner has established compliance with the 90 ppm 
corporate average standard (with or without the use of allotments), 
each of its refineries can then establish compliance with the 30 ppm 
refinery standard through actual production of 30 ppm gasoline or 
through the use of excess allotments and/or sulfur credits. Once 
compliance with the 90 ppm corporate pool average standard is 
established, the refiner would use 90 ppm as each of its refineries 
actual sulfur level, then apply an appropriate number of credits or 
allotments to meet the 30 ppm refinery average standard for each 
refinery. (See discussion below for an explanation of how a refiner can 
use both sulfur ABT credits and allotments to comply with the refinery 
average standard in 2005.)

iv. How Long Do Allotments Last?

    We expect most refiners will trade sulfur allotments well before 
the end of each compliance year so they will have the needed certainty 
of compliance with the corporate average standard. Our program allows 
such trades to occur at any time during the year, although the refiner 
is liable for any shortfall in compliance resulting from having traded 
away too many allotments. A refiner may also carry over excess 2004 
allotments (those generated in 2003 or 2004) for compliance with the 90 
ppm corporate standard for 2005. However, those allotments must be 
discounted by 50 percent. This 50 percent discount factor is needed to 
equalize the emission impact of sulfur control between 2004 and 2005. 
In 2005, there is an extra model year of NLEV/Tier 2 vehicles relative 
to 2004. In addition, the NLEV/Tier 2 fleet is one year older in 2005 
than 2004. This increased age translates into higher vehicle emissions 
due to general deterioration. Since sulfur acts on a percentage basis, 
the absolute emission increase due to sulfur impacts on vehicle 
emission control systems in 2005 is higher than in 2004.
    As discussed below in section IV.C.1.c.x, a refiner or importer may 
convert allotments into credits in 2004 and 2005 for compliance with 
the refinery average standards in 2005 and beyond. All transactions 
between refiners involving sulfur allotments must conclude by the last 
day of February in the calendar year following the compliance year in 
which the allotments are to be used.\85\
---------------------------------------------------------------------------

    \85\ Allotments used for GPA gasoline compliance may be retained 
until February 2007. Allotments used for small refiner gasoline 
compliance may be retained until February 2008.
---------------------------------------------------------------------------

Sulfur Credit Program

v. Establishing Individual Refinery Sulfur Baselines for Credit 
Generation Purposes

    The purpose of establishing a sulfur baseline for each refinery is 
to provide a starting point for determining sulfur credits for 
reductions in gasoline sulfur levels. We proposed that refiners would 
have to establish a sulfur baseline for each individual refinery, by 
submitting to us data establishing their annual average gasoline sulfur 
level based on the average of their 1997 and 1998 operations. We would 
review the data and, barring any discrepancies, approve a sulfur 
baseline for each refinery. We received comments supporting this option 
as well as comments stating that the time involved for this application 
and approval process would delay the refiner's ability to plan for and 
begin construction of gasoline desulfurization technology. Refiners 
would want the certainty of an approved sulfur baseline before making 
investment decisions, and thus would wait to obtain EPA's approval 
before proceeding. We also received comments about what year(s) would 
be most appropriate to use to establish a sulfur baseline. Some of 
these comments argued for the use of existing, approved 1990 baselines, 
or some adjusted version of 1990 baselines, rather than new data, to 
expedite the process of establishing sulfur baselines.
    We also proposed a different sulfur baseline for reformulated 
gasoline (RFG) produced in the summer for those refineries which 
produce reformulated gasoline. While the conventional gasoline sulfur 
baseline (and the baseline for winter RFG) was proposed to be tied to 
current sulfur levels, the baseline for summer reformulated gasoline 
was proposed to be 150 ppm, the approximate level we expect summer 
reformulated gasoline to contain in 2000 and beyond because of the 
Phase II reformulated gasoline requirements, which take effect in 2000. 
We argued that winter RFG did not have any de facto sulfur 
restrictions, and thus winter RFG should be counted with conventional 
gasoline for the purpose of credit generation relative to the 
refinery's conventional gasoline sulfur baseline.
    Since the proposal, we have learned that overall gasoline sulfur 
levels (conventional plus reformulated) are significantly lower than 
they were in 1990. As explained in the Regulatory Impact Analysis, 
national average sulfur levels when both conventional and reformulated 
gasolines are considered dropped to 306 ppm in 1997 and 268 ppm in 
1998, compared to the 1990

[[Page 6761]]

national gasoline sulfur average of 339 ppm, decreases of 10 and 21 
percent, respectively. The substantial drop between 1997 and 1998 seems 
to be related to the mandatory use of the Complex Model, which began in 
1998 and had implications for both reformulated and conventional 
gasoline compliance. Thus, we have become convinced that the most 
appropriate sulfur baseline would be based on data which establish 
current sulfur levels, not on data which are nearly ten years old. We 
considered reducing all 1990 baselines by 21 percent to reflect the 
national average decrease since 1990, but determined that this approach 
would be inappropriate because some refiners have reduced levels 
substantially more than 10-21 percent since 1990, and would thus be 
eligible to generate a very large number of credits for reductions that 
have already been made.
    Furthermore, as we proposed, and some commenters argued, we have 
concluded that averaging data from two years is the most appropriate 
approach, because averaging over two years will help to account for any 
unusual variations in operations that may have occurred at individual 
refineries in either of these years. We concluded that averaging data 
from 1998 and 1999 is not feasible, because the 1999 data will not be 
fully available to EPA until after the reporting deadline of May 2000. 
Hence, we believe it is preferable to use 1997 and 1998 data, rather 
than delaying the time baselines are established. We do not expect 
significant changes in 1999 sulfur levels relative to 1998 levels, so 
we believe the use of the 1997-1998 data provides a reasonable 
representation of current sulfur levels.
    We have also learned that summer reformulated gasoline is already 
averaging close to our expected sulfur level for the year 2000. Winter 
RFG does not show this same decrease, presumably because refiners are 
shifting high sulfur blendstocks out of RFG in the summer but back into 
RFG in the winter to maintain compliance with the conventional gasoline 
antidumping requirements. Thus, it appears that if we held summer RFG 
to a lower baseline, as proposed, we would have to raise the winter RFG 
baseline commensurately to reflect actual refinery operations. The net 
environmental impact would be no different than if we had a single 
sulfur baseline applying to all RFG, or to all gasoline produced at the 
refinery, since the annual pool sulfur levels are constant even while 
there may be seasonal variations. Therefore, we are not finalizing a 
separate sulfur baseline for summer RFG, but rather combined 
conventional and reformulated gasoline sulfur levels.
    Having considered the comments we received and the new data 
available to us, we have concluded that refiner sulfur baselines should 
be established from 1997 and 1998 operating data. Hence, we are 
requiring refiners which wish to generate sulfur credits prior to 2004 
to establish a 1997-98 sulfur baseline for each refinery at which they 
intend to generate credits. We believe the process we have defined will 
minimize the burden to the industry and the time it will take for us to 
review and approve the sulfur baselines. Specifically, refiners which 
plan to generate sulfur credits must submit to us information which 
establishes the batch report numbers, sulfur levels, and volumes of 
each batch of gasoline produced in 1997 and 1998, as well as the annual 
average sulfur level calculated from these data. Within 60 days, we 
will review the application and notify the refiner of approval or of 
any discrepancies we find in the data submitted. If we do not respond 
within 60 days, the baseline should be considered to be approved.
    While we expect most refiners will apply for a sulfur baseline in 
the near future (to maximize the time that they can generate credits 
before 2004), there is no cut-off date for applying for a sulfur 
baseline. However, if the refiner wishes to generate credits for a 
given calendar year, we must receive his baseline application no later 
than September 30 of that year to provide us adequate time to review 
the baseline prior to the end of the year (at which time any credits 
generated in that year would be assessed and reported by the refiner). 
We believe that this approach for establishing sulfur baselines meets 
our goal of providing a workable ABT program that refiners can take 
advantage beginning in the year 2000, without sacrificing the 
environmental benefits of the sulfur standards.
    Foreign refiners which have already established an individual 
refinery baseline with us, and thus have submitted reports on all 
batches of gasoline sent to the U.S. in 1997 and 1998, may follow this 
same procedure if they wish to generate sulfur credits prior to 2004. 
Foreign refiners which have not reported 1997-98 gasoline qualities to 
us must follow an alternate approach. Specifically, they must follow 
the general requirements of our protocol for establishing individual 
refinery baselines (see Secs. 80.91-94 and also Sec. 80.410) by 
providing sufficient data to establish the volume of gasoline imported 
to the U.S. from each refinery in 1997-98 and the annual average sulfur 
level of that gasoline. If the test method used to identify the sulfur 
level differs from the one specified in today's action, the refiner 
must provide sufficient information about the test method to allow us 
to evaluate the appropriateness of the alternative. Because this 
information will be new to us, we may require more time to review and 
approve their 1997-98 sulfur baseline. But, consistent with our 
previous handling of foreign refiner submissions, once we have 
determined that the submission is complete and the protocol has been 
followed, they may use the baseline while waiting for our formal 
approval. However, the refiner will be held to the baseline that is 
ultimately approved. A foreign refiner who is unable to generate 
adequate data to establish a 1997-98 sulfur baseline will not be 
permitted to generate sulfur credits in 2000-2003.
    Small refiners that plan to request small refiner standards (as 
provided in Section IV.C.2 below) which also want to generate early 
sulfur ABT credits will use the same data required to define their 
small refiner baseline to determine their baseline for the ABT program. 
In other words, if a refiner becomes a small refiner under our 
definition and procedures, credits generated by that refinery would be 
calculated relative to the refinery's actual 1997-98 sulfur average. 
The trigger for generating sulfur credits under the ABT program 
(discussed in the next section) would still apply for small refiners 
generating credits prior to 2004 relative to their 1997-98 sulfur 
average. In addition, the applicable interim sulfur standard for small 
refiners who generate credits through sulfur reductions prior to 2004 
will be calculated based on the reduced sulfur level, rather than the 
1997-98 baseline level, as explained below in Section IV.C.2.
    Importers and gasoline blenders will not be assigned a sulfur 
baseline because they are not eligible to generate early credits (prior 
to 2004) under the ABT program. This includes gasoline refiners who are 
also importers; such parties cannot generate sulfur credits prior to 
2004 on the basis of their imported gasoline but may only generate 
credits based on the gasoline produced by their refinery(ies). It also 
includes oxygenate blenders, who, as discussed in Section VI below, are 
not subject to the sulfur standards but are responsible for compliance 
with the downstream provisions.\86\ For importers

[[Page 6762]]

and most gasoline blenders, this represents a change from our proposal, 
but one we believe is appropriate and necessary to ensure that the 
environmental benefits of the ABT program are maintained. The ABT 
program allows the refining industry to trade off early sulfur 
reductions (2000-2003) for slight delays in complying with the 30 ppm 
refinery average standard in 2005-2006.\87\ We have designed the ABT 
program to ensure that sufficient credits can be generated by refiners 
(domestic or foreign) to enable a smooth transition to the 30 ppm 
standard. Importers and blenders do not have the same need for the ABT 
program that refiners have because they will not have to make the same 
level of investment in desulfurization technology and thus do not need 
credits generated before 2004 to help their transition to the 30 ppm 
average standard after 2004. Furthermore, credits could be generated by 
importers without the overall pool of imported gasoline becoming 
incrementally cleaner. For example, say that Importer A had a 1997/98 
sulfur baseline of 600 ppm and Importer B had a sulfur baseline of 100 
ppm. In 2002, Importer B could transfer/sell its 100 ppm gasoline to 
Importer A prior to unloading the fuel at the port of entry. Once the 
import transaction was completed, Importer A will have generated 500 
ppm (multiplied by the fuel volume) credits without any fuel becoming 
incrementally cleaner. We are concerned that if importers and blenders 
were allowed to generate early credits, they would generate far more 
credits than needed to make the ABT program work, without necessarily 
achieving early environmental benefits--credits which either importers 
or refiners would be able to use to delay compliance with the 30 ppm 
standard in 2005 and beyond. This would delay the environmental 
benefits of our program by prolonging the industry's transition to the 
30 ppm standard.
---------------------------------------------------------------------------

    \86\ Refiners may, however, include oxygen added downstream of 
the refinery when determining compliance with the sulfur standards 
and the provisions of the ABT program. This is consistent with 
existing provisions for reformulated and conventional gasolines.
    \87\ As explained in Section IV.C.1.c.ix, credits generated 
before 2004 expire in 2006, except for small refiners and credits 
used for GPA gasoline compliance.
---------------------------------------------------------------------------

    In the proposal, we also discussed the need for a baseline gasoline 
volume as well as a baseline sulfur level. This stemmed from the design 
of our current conventional gasoline anti-dumping program, which 
requires a baseline volume so that we can confirm that conventional 
gasoline is no dirtier now than it was in 1990. However, for the 
gasoline sulfur ABT program, we have determined that there is no need 
to restrict refineries' sulfur baselines (against which they can 
generate sulfur credits) to a specific volume of gasoline. The purpose 
of the ABT program is to encourage early sulfur reductions by some 
refineries, and we see no need to limit the amount of credits such a 
refinery can generate on the basis of a historic volume of gasoline 
production. In fact, additional volumes of cleaner gasoline should 
achieve additional early environmental benefits.

vi. Generating Sulfur Credits Prior to 2004

    In our proposal, we discussed a credit generation trigger of 150 
ppm for early credit generation (2000-2003), arguing that we wanted to 
encourage investment in desulfurization technologies that refineries 
ultimately need to get to a 30 ppm average. Many comments we received 
argued that the 150 ppm trigger was too restrictive, requiring capital 
investments that most refiners could not make earlier than 2004 (due to 
construction limitations, among other reasons). Thus, few credits would 
be generated, and without sufficient certainty that credits would be 
generated, refiners would not be able to count on the flexibility that 
the ABT program was intended to provide when planning their compliance 
strategies for 2004 and beyond.
    Having considered these comments and reanalyzed the ability of the 
industry to comply with the standards in 2004 (as we discussed above at 
the introduction to section IV.C.1), we have concluded that the 
proposed 150 ppm trigger would inappropriately limit the credits 
available. While we want to encourage refiners to make reductions 
early, we do not want to preclude refiners from making less capital 
intensive sulfur reductions in the short term while they prepare to 
reach the 30 ppm average in the long term. At the same time, we believe 
that a refinery should be required to demonstrate that the sulfur 
reduction was real and not just a consequence of national variations 
from year to year. Hence, we are establishing a trigger which we 
believe represents a sulfur reduction that requires action above and 
beyond simple annual or even seasonal fluctuations in crude oil sulfur 
level or product slate variations that could have a very small impact 
on annual sulfur average.
    During the period 2000-2003, credits can be generated annually by 
any refinery that produces gasoline averaging at least 10 percent lower 
than that refinery's baseline sulfur level. In other words, to generate 
credits, the refinery's annual average sulfur level for all of its 
gasoline on average must be 0.9  x  (baseline sulfur level). Once this 
``trigger'' is reached, credits will be calculated based on the amount 
of reduction from the refinery's sulfur baseline. For example, if in 
2002 a refinery reduced its annual average sulfur level from a baseline 
of 450 ppm to 150 ppm (well below the trigger of 0.9 x 450=405 ppm), 
its sulfur credits will be determined based on the difference in annual 
sulfur level (450-150=300 ppm) multiplied by the volume of gasoline 
produced in 2002. Similarly, foreign refineries with an individual 
sulfur baseline can generate credits in these years as long as the 
annual average sulfur level of the gasoline imported to the U.S. from 
that refinery is lower than 90 percent of the baseline sulfur level.
    Although by adopting a more modest trigger for credit generation we 
are enabling more credits to be generated, the environment will still 
benefit from our program. Although the use of a more modest trigger 
keyed to each refinery's sulfur baseline may allow more credits to be 
generated, we believe this will only occur because the credit program 
is providing incentives to refineries to reduce sulfur levels earlier 
than they would have otherwise, particularly with a strict 150 ppm 
trigger. Thus, more lower sulfur gasoline will be in the marketplace 
prior to 2004 than would otherwise have occurred, given our 
understanding of the state of desulfurization technologies and the 
likely pattern of investments by the industry. With our corporate 
average and cap standards, sulfur levels will continue to decrease 
after 2004, even if individual refineries take an added year or two to 
meet the 30 ppm standard.
    We had also proposed that credit generation prior to 2004 would be 
different for reformulated gasoline than for conventional gasoline, 
because reformulated gasoline's assigned sulfur baseline was proposed 
to be 150 ppm. Thus, we proposed that credits could only be generated 
from reformulated gasoline if the sulfur level averaged below 150 ppm, 
and that the credits would be calculated based on the difference 
between 150 ppm and the new, lower average. Since we have not finalized 
a separate baseline for reformulated gasolines, we are not adopting a 
different process for generating credits from reformulated gasoline. 
All gasoline produced at the refinery in 2000 (and beyond) is 
considered in calculating the annual average sulfur level, compliance 
with the 90 percent trigger, and the sulfur credits earned, if any.

[[Page 6763]]

    Several states have adopted or are considering adopting gasoline 
sulfur control programs (see discussion at section IV.C.1.d below on 
state sulfur programs). While we had proposed to exclude this gasoline 
from sulfur credit generation, we have reconsidered our position. 
Gasoline produced in response to state \88\ requirements can be 
included in the refinery's calculation of sulfur credits generated in a 
given year. However, this gasoline will be included in the total volume 
of gasoline produced by that refinery, requiring the annual average 
sulfur level for total gasoline produced at that refinery to exceed the 
trigger specified above to generate any credits at all.
---------------------------------------------------------------------------

    \88\ Excluding California.
---------------------------------------------------------------------------

vii. Generating Sulfur Credits in 2004 and Beyond

    In 2004 and beyond, refineries, blenders, and importers can 
generate credits, but only if the actual annual sulfur level of all 
gasoline produced or imported averages below 30 ppm, and only for the 
difference between the standard and the actual annual sulfur average. 
(For example, a refinery producing gasoline in 2005 that averages 25 
ppm can generate 30-25=5 ppm sulfur credits on the total volume of 
gasoline produced at that refinery.) However, since in 2004 and beyond 
importers are the regulated party responsible for ensuring that 
imported gasoline meets the sulfur standards, foreign gasoline would in 
effect generate sulfur credits through the importer beginning in 2004. 
Foreign refineries which want to send gasoline containing less than 30 
ppm sulfur to the U.S. would still benefit from doing so by making 
appropriate arrangements with importers, which are subject to all of 
our standards.

viii. Using Sulfur Credits

    Refineries, blenders, and importers can use sulfur credits to 
demonstrate compliance with the 30 ppm annual average refinery standard 
in 2005 and beyond, if they are unable to meet the standard with actual 
gasoline production. During 2005 and 2006 only, refineries may use 
credits banked by that refinery in 2000-2003 as a result of early 
sulfur reductions, or credits purchased from other refineries which 
have banked early sulfur credits. Blenders and importers can purchase 
credits from refiners (including any foreign refiners which generated 
early credits), or use credits they generated in 2004 and beyond. All 
transactions will have to be concluded by the last day of February 
after the close of the annual compliance period (2005, 2006, etc.).
    As discussed above, 2005 is the only year when averaging and 
trading against the corporate average and averaging, banking, and 
trading against the refinery average are both allowed. In that year, 
sulfur credits may only be used against the 30 ppm standard for each 
refinery once the refiner has demonstrated compliance with the 
corporate pool average standard. The refiner must meet his corporate 
average based on actual sulfur levels or through a trade for sulfur 
allotments if it falls short of the 90 ppm corporate average standard. 
At that point, each of his refineries is evaluated for compliance with 
the 30 ppm refinery average standard. Those refineries that are not 
producing gasoline averaging 30 ppm sulfur must obtain sulfur credits 
generated in 2005 or earlier and/or sulfur allotments to bring the 
refinery's sulfur average from the actual level (a maximum of 90 ppm 
for each refinery, since by meeting the corporate average, even if in 
part through the use of allotments, each refinery in the company will 
be considered to average no more than 90 ppm) down to 30 ppm.
    Refineries or importers which sell some or all of their gasoline in 
the GPA (and which have elected to participate in the phase-in) may 
also use sulfur credits to meet their refinery averages in 2004-2006. 
However, because this gasoline must be designated for sale in the GPA, 
they must account separately for compliance with the 150 ppm refinery 
average for gasoline sold in the phase-in area and with the 30 ppm 
refinery average for gasoline sold outside of that area. Thus, in 2004, 
such refiners/importers may use sulfur credits to establish compliance 
with the 150 ppm standard for gasoline sold in the phase-in area, if 
required. In 2005 and 2006, they may use credits to meet the 150 ppm 
standard for gasoline sold in the area and/or use credits to meet the 
30 ppm standard for gasoline sold outside of the area.
    As explained in section IV.C.1.b., some of the refiners 
participating in the GPA are exempt from the corporate average 
standards, but may use either sulfur credits or sulfur allotments in 
2004-2006 to establish compliance with the 150 ppm refinery average 
standard. Those that are not exempt from the corporate average 
standards may use sulfur allotments only to meet the corporate average 
standards. For such refiners, compliance with the corporate average 
standard will be measured first (using allotments if needed), then 
compliance with the refinery average standard (using credits and/or 
allotments as needed) in the same manner as described above for 
refiners who sell all of their gasoline outside of the GPA.
    Foreign refineries are not required to comply with the 30 ppm 
refinery standard in 2005 and beyond; instead, compliance for foreign 
gasoline is required by the importer. Sulfur credits generated by 
foreign refineries prior to 2004 will still have value, since these 
refineries can sell sulfur credits to U.S. refineries, blenders, or 
importers who need credits to meet the standard in 2005 or beyond. In 
fact, foreign refiner's credits could simply be transferred to the 
importer which is importing that refinery's gasoline into the U.S. For 
example, a foreign refiner could send gasoline exceeding 30 ppm on 
average to an importer and transfer the appropriate amount of sulfur 
credits it generated prior to 2004 to allow the importer to meet the 30 
ppm standard. Similarly, after 2004 a foreign refiner may send gasoline 
containing less than 30 ppm to the U.S. through an importer, and the 
importer would benefit from generating credits (and presumably would 
include the value of these credits in the financial transaction with 
the foreign refinery).
    As explained in Section IV.C.3.b. above, in 2005 no batch of 
domestically produced or imported gasoline can exceed 300 ppm, and a 
refiner's/importer's annual corporate pool average sulfur level cannot 
exceed 90 ppm, except for gasoline sold in the GPA or by small refiners 
complying with the standards in Table IV.C.-3. In 2006 and beyond, 
sulfur is capped at 80 ppm and there is no longer a corporate pool 
average standard. These standards (as well as the 300 ppm cap and 
corporate pool averages) cannot be met through the use of credits 
generated under the ABT program. As described above, credits may only 
be applied to demonstrate compliance with the 30 ppm refinery standard, 
not to the corporate pool average or the cap. Given the limitations 
that the 80 ppm cap places on sulfur levels in 2006 and beyond, we do 
not expect many sulfur credits to be used in future years of this 
program (since, even with the use of credits, no gasoline may exceed 80 
ppm in these years).
    We allow an individual refinery that does not meet the 30 ppm 
standard in a particular year to carry forward the credit debt one 
year. Under this provision, the refinery will have to make up the 
credit deficit and come into compliance with the 30 ppm standard the 
next calendar year, or face penalties. This provision will in no way 
absolve the refiner from having to meet the

[[Page 6764]]

applicable per-gallon cap standard or, when applicable, the corporate 
average standard. This provision will provide some relief for refiners 
faced with an unexpected shutdown or that otherwise were unable to 
obtain sufficient credits to meet the 30 ppm standard. This provision 
is only available through 2010. After that time, we expect many 
refineries to be able to consistently operate below 30 ppm, generating 
a pool of credits which other refineries could purchase in the event of 
an unforeseen upset. However, in no circumstances after 2005 can the 
refinery produce gasoline exceeding the 80 ppm per-gallon cap standard 
(with the exception of small refiners, as discussed in Section IV.C.2 
below). The carry-forward provision does not apply to compliance with 
the 150 ppm refinery average standard applicable in the GPA.
    We have some concern that the potential exists for credits to be 
generated by one party and subsequently purchased or used in good faith 
by another, and later found to have been calculated or created 
improperly or otherwise determined to be invalid. For this reason, we 
proposed that both the seller and purchaser would have to adjust their 
sulfur calculations to reflect the proper credits and either party (or 
both) could be deemed in violation of the standards and other 
requirements if the adjusted calculations demonstrate noncompliance 
with an applicable standard. One commenter, representing a number of 
refiners, objected to this approach.
    Nevertheless, our strong preference is to hold the credit or 
allotment seller liable for the violation, as opposed to the credit or 
allotment purchaser. As a general matter we would expect to enforce a 
shortfall in compliance calculations (caused by the good faith purchase 
of invalid credits) against a good faith purchaser only in cases where 
we are unable to recover valid credits from the seller to cover the 
compliance shortfall. Moreover, in settlement of such cases we would 
strongly encourage the seller to purchase credits to cover the good 
faith purchaser's credit shortfall. Under the deficit provisions of 
section 80.205(e), for compliance periods through 2010, a credit 
shortfall may be corrected if the conditions of that section are met. 
EPA will consider covering a credit deficit through the purchase of 
valid credits a very important factor in mitigation of any case against 
a good faith purchaser, whether the purchase of valid credits is made 
by the seller or by the purchaser.
    Some commenters stated that sulfur credits should be transferred 
directly from the refiner or importer that generated them to the party 
that will use them, as we had proposed. We believe that this helps to 
ensure that parties purchasing credits will be better able to assess 
the likelihood that the credits will be valid, and aids compliance 
monitoring. Therefore, the final rule adopts this provision, with the 
exception that where a credit generator transfers credits to a refiner 
or importer who cannot use all the credits, that transferee may 
transfer the credits to another refiner or importer. That second 
transferee cannot again transfer the credits; they must either be used 
or terminated by the second transferee. Nevertheless, there is nothing 
in the final rule that would prevent a person who is not a refiner or 
importer from facilitating the transfer of credits from parties that 
have generated them to parties who need them for compliance, e.g., a 
broker who would act like a real estate broker. Therefore, under 
today's rule, any person may act as a credit or allotment broker, 
whether or not such person is a refiner or importer, so long as the 
title to the credits or allotments are transferred directly from the 
generator to the user. Furthermore, any party (e.g., refiner, importer, 
or blender) who can generate and hold credits may also resell them.

ix. How Long Do Credits Last?

    The ABT program is designed to encourage sulfur reductions earlier 
than the standards require, by providing a market for credit 
generation. The emissions benefits of these early reductions are most 
valuable in the early years of the ABT program when national average 
levels remain substantially higher than the final 30 ppm average 
standard. At the same time, these emissions reductions are offset in 
time by higher emissions incurred by later vehicles which use gasoline 
with a higher sulfur level. Because the overall intention of the 
gasoline sulfur program is to enable and protect Tier 2 vehicles and 
provide time for refiners to select and construct desulfurization 
equipment, sulfur credits should have a limited life to limit the 
degree to which later Tier 2 vehicles are exposed to higher sulfur 
levels.
    The ABT program is also designed to ease implementation of the new 
standards, particularly the refinery average standard, and the credits 
will be of their greatest value to refineries during the first few 
years of the program. ABT is not intended to permit a refinery to 
operate substantially above the standard for a protracted time period. 
While limiting credit life may reduce the incentive to generate credits 
for some refineries, the credit program will be of relatively small 
value to any refinery/importer that held credits for a protracted 
period of time and did not need to use them. This is particularly true 
in 2006 and beyond, when the 80 ppm cap limits the need for and value 
of any credits the refinery may possess.
    Hence, we are finalizing limitations on the life of credits which 
differ somewhat from our proposal. Credits generated prior to 2004 must 
be used for compliance purposes and calculations with respect to 
gasoline produced on or before December 31, 2006. These credits can be 
used to meet the 30 ppm standard in 2005 or 2006. This expiration date 
applies to credits used by the refinery which generated the credits, as 
well as credits transferred to another refinery. While the proposal 
presented a life through 2007 for credits generated early, we have 
shortened this life span one year to reflect the fact that early 
credits are intended to enable and ease compliance with the 30 ppm 
standard in the first years of the program, allowing refiners to spread 
out investments without compromising the environmental benefits of the 
program. At the beginning of 2006, all gasoline (except that produced 
by small refiners and that marketed in the GPA) will be capped at 80 
ppm, and by the end of 2006, every refinery should be capable of 
producing gasoline that meets the 30 ppm standard. Hence, the value of 
the early credits diminishes greatly. It should be noted that early 
credits can be used for GPA certified gasoline through 2006 and for 
small refiner gasoline through 2007.
    Credits generated in 2004 and beyond will have to be used within 
five years of the year in which they were generated. If these credits 
are traded to another party during that five year period, they will 
have to be used by the new owner within that same five years, 
regardless of when the transfer occurs. This is a change from our 
proposal, which provided for a potential maximum ten-year life for 
credits that were generated and then traded in the fifth year to 
another party. However, we believe this approach is more consistent 
with our environmental goals of keeping sulfur levels averaging 30 ppm 
in 2006 and beyond. With the 80 ppm cap, refiners will be able to use 
only very few credits if they are unable to meet the 30 ppm average in 
2006 or beyond. Therefore, limiting credit life to five years will 
likely have minimal impact on the actual use of credits. A longer 
credit life will make tracking and enforcement difficult, and could 
have negative environmental consequences. Hence, we have limited credit 
life to

[[Page 6765]]

five years. Consistent with our other recordkeeping and reporting 
requirements, the five-year expiration date will be assessed as of the 
last day of February after the five year deadline. Hence, for example, 
credits generated in 2005 will expire as of the last day of February, 
2011. Again, no third-party transfers are allowed.

x. Conversion of Allotments Into Credits

    A refiner or importer may convert allotments into credits for 
compliance with the refinery average standards in 2005 and beyond. 
Allotments that are generated by reducing gasoline sulfur levels to 30 
ppm or higher (defined as Type ``A'' allotments) are equivalent to 
credits generated in 2000-2003. These allotments may be (1) used as 
allotments by a refiner for compliance with the corporate average 
standard in 2004 and 2005 or (2) converted into credits to be used by 
the refiner's refineries for compliance with the refinery average 
standard in 2005 and 2006.
    Allotments that are generated by reducing gasoline sulfur levels to 
lower than 30 ppm (defined as Type ``B'' allotments) are equivalent to 
credits generated in 2004 and beyond (by producing gasoline with less 
than 30 ppm sulfur). Similar to Type ``A'' allotments, these allotments 
may be (1) used as allotments by a refiner for compliance with the 
corporate average standard in 2004 and 2005 or (2) converted into 
credits to be used by the refiner's refineries for compliance with the 
refinery average standard in 2005 and beyond.
    Allotments or credits that are used by refiners for compliance with 
the GPA gasoline standards must be used by the last day of February 
2007. Allotments or credits used by small refiners for compliance with 
the small refiner standards must be used by the last day of February 
2008. Any allotments, whether Type ``A'' or ``B'', that are carried 
over for compliance with the corporate and refinery average standards 
for 2005 must be discounted by 50 percent as discussed in above. Any 
allotments that are converted to credits (e.g., in 2004) and then 
carried over to 2005 are not discounted. However, once the conversion 
and carry-over has taken place (such that the allotments have become 
credits), the conversion cannot be reversed without applying the 
discount factor. That is to say, once a 2003 or 2004 allotment is 
converted to a credit and carried over to 2005, the credit can only be 
re-converted into an allotment that is discounted 50 percent.
d. How Are State Sulfur Programs Affected by EPA's Program?
    Section 211(c)(4)(A) of the CAA prohibits states \89\ from 
prescribing or attempting to enforce controls or prohibitions 
respecting any fuel characteristic or component if EPA has prescribed a 
control or prohibition applicable to such fuel characteristic or 
component under section 211(c)(1). This preemption applies to all 
states except California, as explained in section 211(c)(4)(B). For 
states other than California, the Act provides two mechanisms for 
avoiding preemption. First, section 211(c)(4)(A)(ii) creates an 
exception to preemption for state prohibitions or controls that are 
identical \90\ to the prohibition or control adopted by EPA. Second, 
states may seek EPA approval of SIP revisions containing fuel control 
measures, as described in section 211(c)(4)(C). EPA may approve such 
SIP revisions, and thereby ``waive'' preemption, only if it finds the 
state control or prohibition ``is necessary to achieve the national 
primary or secondary ambient air quality standard which the plan 
implements.''
---------------------------------------------------------------------------

    \89\ The term ``state'' or ``states'' includes political 
subdivisions thereof.
    \90\ In evaluating whether a state fuel prohibition or control 
is ``identical'' to a prohibition or control adopted by EPA, EPA 
might consider but is not limited to the following factors in 
comparing the measures: (1) The level of an emission reduction or 
pollution control standard; (2) the use of ``per gallon'' or 
``averaged'' amounts in setting that level; (3) the effect on that 
level (if averaged) of the use of different averaging pools; (4) the 
lead time allowed to the affected industry for compliance; and (5) 
the test method(s) and sampling requirements used in determining 
compliance.
---------------------------------------------------------------------------

    We are adopting the sulfur standards pursuant to our authority 
under section 211(c)(1). Thus, we believe that today's action results 
in the clear preemption of future state actions to prescribe or enforce 
fuel sulfur controls. \91\ States with fuel sulfur control programs not 
already approved into their SIPs will therefore need to obtain a waiver 
from us under the provisions described in section 211(c)(4)(C) for all 
state fuel sulfur control measures, unless the state standard is 
identical to our sulfur standard.
---------------------------------------------------------------------------

    \91\ In addition, EPA notes that there are existing federal 
NOX performance standards which apply to RFG and 
conventional gasoline and that state controls respecting 
NOX performance are also preempted under 211(c)(4)(A).
---------------------------------------------------------------------------

    Section 211(c)(4)(A) preempts state fuel controls if EPA has 
``prescribed'' federal controls. We read this language to preempt non-
identical state standards on the date of promulgation of the standards, 
as opposed to the date the standards become enforceable. Thus, today's 
action preempts state actions as of December 21, 1999, even though the 
standards will not require sulfur reductions until 2004. This 
interpretation is consistent with EPA actions applying other federal 
fuel measures. See 54 Fed. Reg. 19173 (May 4, 1989) (noting preemption 
of Massachusetts state RVP measure before start of first control period 
for federal RVP). We also believe this interpretation is consistent 
with the intent behind section 211(c)(4)(A). Though the standards are 
not immediately enforceable, they will have an immediate impact on 
refiners' investment decisions. We believe, by adopting 211(c)(4)(A), 
Congress intended to limit state fuel controls that differ from the 
federal programs, for example, in the judgments as to level of the 
standard or its stringency. The lead time to implement a standard 
should be treated the same way.
    Aside from the explicit preemption in Section 211(c)(4)(A), a court 
could also consider whether a state sulfur control is implicitly 
preempted under the Supremacy Clause of the U.S. Constitution. Courts 
have determined that a state law is preempted by federal law where the 
state requirement actually conflicts with federal law by preventing 
compliance with both federal and state requirements, or by standing as 
an obstacle to accomplishment of Congressional objectives. A court 
could thus consider whether a given state sulfur control is preempted, 
notwithstanding waiver of preemption under 211(c)(4)(C), if it places 
such significant cost and investment burdens on refiners that refiners 
cannot meet both state and federal requirements in time, or if the 
state control would otherwise meet the criteria for conflict 
preemption.
2. Hardship Provision for Qualifying Refiners
    This section describes various provisions for certain qualifying 
refiners who may face hardship circumstances.
a. Hardship Provision for Qualifying Small Refiners
    In developing our gasoline sulfur program, we evaluated the need 
and the ability of refiners to meet the 30/80 standards as 
expeditiously as possible. This analysis is described in detail in the 
RIA. As a part of this analysis, we found that while the majority of 
refiners would be able to meet the needed air quality goals in the 
2004-2006 time frame, there would be some refiners who would face 
particularly difficult circumstances which would cause them to have 
more difficulty, in comparison

[[Page 6766]]

to the industry as a whole, in meeting the standards.
    In order to ensure that the vast majority of the program could be 
implemented reasonably quickly in order to achieve the air quality 
benefits sooner, rather than basing the time frame on the lowest common 
denominator we have provided an extended phase-in for a small group of 
refiners that represents less than four percent of the overall gasoline 
volume, and a much smaller percentage in the areas of greatest 
environmental need. As described in more detail below, and in Chapter 
VIII of the RIA, we concluded that refineries owned by small businesses 
face unique hardship circumstances, compared to larger companies.
    The primary reason for this consideration is that small businesses 
lack the resources available to large companies which enable the large 
companies (including those large companies that own small volume 
refineries) to raise capital for investing in desulfurization 
equipment. The small businesses are also likely to have insufficient 
time to secure loans, compete for engineering resources, and complete 
construction of the needed desulfurization equipment in time to meet 
the standards adopted today which begin in 2004.
    The emissions benefits of low sulfur gasoline are needed as soon as 
possible, for two primary reasons: (1) To reduce ozone and other 
harmful air pollutants, and (2) to enable vehicle emissions control 
technology for Tier 2 vehicles. Since our analysis showed that small 
businesses in particular face hardship circumstances, we are adopting 
temporary, interim standards that will provide refineries owned by 
small businesses additional time to meet the ultimate 30 ppm refinery 
average and 80 ppm per gallon cap standards. This approach allows us to 
achieve the needed emission reductions in the 2004-2007 time frame 
because hardship circumstances are expected to be faced by only a small 
portion of the refining industry.
    We believe that these temporary, interim standards are an effective 
way to phase in the low sulfur standards as expeditiously as is 
feasible thereby achieving significant air quality benefits in an 
expeditious manner. This section describes the special provisions we 
are offering small businesses to mitigate the impacts of our program on 
them and generally explains the process we undertook to analyze those 
impacts. Please refer to the RTC document for a detailed discussion of 
comments received on these provisions, and to the RIA for a more 
detailed discussion of our analysis of small refiner circumstances.
    As explained in the regulatory flexibility analysis in Section 
VIII.B. of this document and in Chapter 8 of the RIA, we considered the 
impacts of our proposed regulations on small businesses. We have 
historically, as a matter of practice, considered the potential impacts 
of our regulations on small businesses, as discussed in more detail in 
Section IV.C.2.a.ii., below. The analysis of small business impacts 
conducted for this rulemaking was performed in conjunction with a Small 
Business Advocacy Review (SBAR) Panel we convened, pursuant to the 
Regulatory Flexibility Act as amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA). We believe that the 
temporary, interim standards we are adopting for small refiners 
contributed to our development of a framework to achieve significant 
environmental benefits from lower sulfur gasoline in the most 
expeditious manner that is reasonably practicable. In the SBREFA 
amendments, Congress stated that ``uniform Federal regulatory * * * 
requirements have in numerous instances imposed unnecessary and 
disproportionately burdensome demands including legal, accounting, and 
consulting costs upon small businesses * * * with limited 
resources[,]'' and directed agencies to consider the impacts of certain 
actions on small entities. The final report of the Panel is available 
in the docket. Through the SBREFA process, the Panel provided 
information and recommendations regarding:
     The significant economic impact of the proposed rule on 
small entities;
     Any significant alternatives to the proposed rule which 
would ensure that the objectives of the proposal were accomplished 
while minimizing the economic impact of the proposed rule on small 
entities;
     The projected reporting, recordkeeping, and other 
compliance requirements of the proposed rule; and,
     Other relevant federal rules that may duplicate, overlap, 
or conflict with the proposed rule.
    In addition to our participation in the SBREFA process, we 
conducted our own outreach, fact-finding, and analysis of the potential 
impacts of our regulations on small businesses. Many of the small 
refiners with whom we and the Panel met indicated their belief that 
their businesses may close due to the substantial costs, capital and 
other, of meeting the 30/80 standard without additional time. Based on 
these discussions and our data analysis, the Panel and we agree that 
small refiners would likely experience a significant and 
disproportionate economic hardship in reaching the objectives of our 
gasoline sulfur reduction program. However, the Panel also noted that 
the undue burden imposed upon the small refiners by our sulfur 
requirements could be alleviated with additional time for compliance. 
We agree with the Panel on both of these points.
    For today's action, we have structured a temporary, interim 
compliance flexibility for qualifying small refiners, both domestic and 
foreign, based on the factors described below. Specifically, we 
structured this provision to address small refiner hardship while 
achieving air quality benefits expeditiously and ensuring that the 
reductions needed in gasoline sulfur coincide with the introduction of 
Tier 2 vehicles.
    First, the compliance deadlines in the program, combined with 
flexibility for small refiners, will achieve the air quality benefits 
of the program quickly, while ensuring that small refiners will have 
adequate time to raise capital for infrastructure changes. Many, if not 
most, small refiners have limited, if any, additional sources of income 
beyond their refinery for financing the equipment necessary to produce 
low sulfur gasoline. Because these small refiners typically do not have 
the financial backing that larger and generally more integrated 
companies have, they need additional time to secure capital financing 
from their lenders.
    Second, we believe that allowing time for sulfur-reduction 
technologies to be proven-out by larger refiners before small refiners 
have to put them in place would reduce the risks incurred by small 
refiners who utilize these technologies to meet the standards. The 
added time would likely allow for costs of these desulfurization units 
to decrease, thereby limiting the economic consequences for small 
refiners. Small refiners are disadvantaged by the economies of scale 
that exist for the larger refining companies--capital costs and per-
barrel fixed operating costs are generally higher for them.
    Finally, providing small refiners more time to comply would ensure 
that adequate engineering and construction resources would be 
available. Since most large and small refiners will need to install 
additional processing equipment to meet the sulfur requirements, there 
will be a tremendous amount of competition for technology services, 
engineering manpower, and construction management and labor. Our 
analysis

[[Page 6767]]

shows that there are limitations to the elasticity of these resources. 
In addition, vendors will be more likely to contract their services 
with the major companies first, as their projects will offer larger 
profits for the vendors.
    Providing this flexibility to allow small refiners to deal with 
hardship circumstances enables us to go forward with the phase-in of 
the 30 ppm sulfur standard beginning in 2004. Without this flexibility, 
it is possible that the benefits of the 30 ppm standard would not be 
achieved as quickly. By providing temporary relief to those refiners 
that need additional time, we are able to adopt a program that reduces 
gasoline sulfur levels expeditiously and in a way that is feasible for 
the industry as a whole.
    In addition, we believe the volume of gasoline that will be 
eligible for the interim standards is small. We estimate that small 
refiners produce approximately four percent of all gasoline used in the 
U.S., excluding California. In most cases, gasoline produced by 
refiners is mixed with substantial amounts of other gasoline prior to 
retail distribution (due to the nature of the gasoline distribution 
system). This mixing generally results in only marginal increases in 
overall sulfur levels. Thus, the sulfur level of gasoline actually used 
by Tier 2 vehicles should generally be much lower than that produced by 
individual small refineries under this provision.

i. How Are Small Refiners Defined?

How We Defined ``Small'' Refiner in the Proposal

    In identifying the small refiners most susceptible to the economic 
challenge of meeting the low-sulfur requirements, we closely examined 
the Small Business Administration's (SBA) definition of small refiner 
for the purposes of regulation. In that assessment we concluded that 
the SBA definition provided a reasonable metric for identifying small 
refiners that would be significantly impacted by the sulfur program 
requirements. By adopting the SBA definition we could expeditiously 
provide certainty of small refiner status to refiners who applied for 
the temporary compliance flexibility. Specifically, we proposed a 
definition where any petroleum refining company having no more than 
1,500 employees throughout the corporation as of January 1, 1999 could 
apply for the temporary compliance flexibilities. This proposed 
employee limit included any subsidiaries, regardless of the number of 
individual gasoline-producing refineries owned by the company or the 
number of employees at any given refinery.
    While we proposed a definition based on corporate employment, in 
light of the SBA definition and the SBAR Panel's recommendations, we 
also sought comment on alternative definitions of a small refiner. Such 
alternatives included definitions based on volume of crude oil 
processed (at a given refinery and/or corporate-wide) or volume of 
gasoline produced, with the understanding that any relief offered to 
refiners must not substantially reduce the program's environmental 
benefits.

Our Revised Small Refiner Definition

    Based on comments received on the proposal, we are making two 
changes to our definition of a small refiner: we are (1) revising the 
employee number criterion; and, (2) adopting a cap on the corporate 
crude oil capacity for a refining company to qualify as a small 
business under today's regulations.
    In regard to the employee number criterion, we are modifying how 
the employee number is determined, based on comments received from SBA. 
As mentioned above, our proposed definition applied to any petroleum 
refining company having no more than 1,500 employees throughout the 
corporation as of January 1, 1999. We selected that date to prevent 
companies from ``gaming'' the system. However, as SBA pointed out in 
its comments, the Small Business Act regulations specify that, where 
the number of employees is used as a size standard, as we proposed for 
small refiners, size determination is based on the average number of 
employees for all pay periods during the preceding 12 months.
    Since we intended to use SBA's size standard in our proposal, we 
are incorporating that definition correctly in today's action. It is 
also worth mentioning that SBA shares our concerns about preventing 
companies from gaming the system and that it solved this problem 
specifically by using the average employment over 12 months. In effect, 
this approach helps to prevent companies from applying for and 
receiving small refiner status in bad faith. An example of an 
inappropriate application for small refiner status would be a refiner 
that temporarily reduced its workforce from 1600 employees to 1495 
employees immediately before January 1, 1999 and then immediately 
rehired those employees after that cutoff date. Furthermore, the 
averaging concept was designed to properly address firms with seasonal 
fluctuations, according to SBA.
    Second, we're amending the small refiner definition to include a 
corporate crude oil capacity cap. We believe such a corporate volume 
limitation is necessary to ensure that only truly small businesses 
benefit from the relaxed interim standards. Refineries that process 
large amounts of crude are likely to be better able to install 
desulfurization equipment to meet the national standards in 2004. In 
addition to ensuring that the interim standards target the appropriate 
group of refiners that need additional time, the volume limit also 
serves to ensure that the volume of gasoline subject to such standards 
is not significant. In addition, we received many comments that we 
should adopt a threshold based on crude capacity as specified in the 
Clean Air Act and used in past EPA fuel programs.
    In the lead phase-down program for gasoline, we used a definition 
of ``small refinery'' that Congress adopted in 1977 specifically for 
the lead phase-down program. The definition was based on crude oil or 
feedstock capacity at a particular refinery (less than or equal to 
50,000 barrels per calendar day (bpcd)), combined with total crude oil 
or feed stock capacity of the refiner that owned the refinery (less 
than or equal to 137,500 bpcd). In 1990, the lead phase-down program 
was complete and Congress removed this provision from the Act.
    Shortly before the Act was amended in 1990, we set standards for 
sulfur content in diesel fuel, including a two-year delay for small 
refineries. We used the same definition of small refinery as we used in 
the lead phase-down program. This two-year delay, like many of the 
small business flexibilities in our gasoline sulfur proposal, was aimed 
at problems that small refineries faced in raising capital and in 
arranging for refinery construction.
    In the 1990 amendments to the Clean Air Act, Congress rejected this 
small refinery provision, and instead allocated allowances to small 
diesel refineries under the Title IV Acid Rain program. (See CAA 
Section 410(h).) This approach was also aimed at helping small 
refineries solve the problem of raising the capital needed to make 
investments to reduce diesel sulfur. Congress provided allowances to 
small refineries that met criteria similar to that used in the lead 
phase-down provision--based on the crude oil throughput at a particular 
refinery, combined with the total crude oil throughput of the refiner 
that owned the refinery.
    As mentioned above, the CAA definition was based on crude oil or 
feedstock capacity at a particular refinery, combined with total crude 
oil

[[Page 6768]]

or feed stock capacity of the refiner that owned the refinery (less 
than or equal to 137,500 bpcd). However, given the mergers, 
acquisitions, and other changes that have transpired throughout the 
refining industry in the past few years, we believe the appropriate 
boundary today is a corresponding corporate crude capacity less than or 
equal to 155,000 bpcd.
    Therefore, in consideration of the above, a refiner must meet both 
of the following criteria to qualify for the special small refiner 
provisions described in the next section:
     No more than 1500 employees corporate-wide, based on the 
average number of employees for all pay periods from January 1, 1998 to 
January 1, 1999; and
     A corporate crude capacity less than or equal to 155,000 
bpcd for 1998.

ii. Standards That Small Refiners Must Meet

    Upon careful review of the comments received on the proposal as 
well as the recommendations of the SBAR Panel, we have determined that 
regulatory relief in the form of delayed compliance dates is 
appropriate to allow small refiners, both foreign and domestic, to 
comply with our regulations without disproportionate burdens. From 2004 
to 2007, when U.S. refiners must meet the 30/80 standard or the 
standards listed in Table IV.C-1 if they are participating in our ABT 
program, refiners meeting the corporate employee and capacity limits 
prescribed above are allowed to comply with somewhat less stringent 
requirements. These interim annual-average standards for qualifying 
small refiners are shown in Table IV.C-3 below.

Table IV.C-3.--Temporary Gasoline Sulfur Requirements for Small Refiners
                              in 2004-2007
------------------------------------------------------------------------
                                   Temporary Sulfur Standards (ppm)
  Refinery baseline sulfur   -------------------------------------------
         level (ppm)                 Average                 Cap
------------------------------------------------------------------------
0 to 30.....................  30 ppm..............  300 ppm.
31 to 200...................  Baseline Level......  300 ppm.
201 to 400..................  200 ppm.............  300 ppm.
401 to 600..................  50% of baseline.....  Factor of 1.5 times
                                                     the average
                                                     standard.
601 and above...............  300.................  450.
------------------------------------------------------------------------

    The cap standards for the first two ``bins'' of refineries (that is 
those with baseline sulfur levels from zero to 30 and 31 to 200) have 
been relaxed somewhat from the proposal based on comments that the 
proposed standards for these two bins were more stringent than the 
options under discussion for all other refiners. We believe that these 
small refiners should be able to meet the average standards without 
much, if any, change to their operations but the more lenient cap will 
give them some flexibility for turnarounds or unexpected equipment 
``upsets''.
    Compliance with the standards in Table IV.C-3 is based on a 
refiner's demonstration that it meets our specific small refiner 
criteria. Refiners who qualify as a small refiner under our definition 
must establish a sulfur baseline for each of their participating 
refineries. The following sections explain these requirements in more 
detail to supplement the information presented above. We also explain 
how small refiners can apply for an extension of up to two additional 
years of the applicable small refiner standards, based on a variety of 
factors such as technology availability or financial hardship.

iii. How Do Small Refiners Apply for Small Refiner Status?

    Refiners seeking small refiner status under our gasoline sulfur 
program must apply to us in writing no later than December 31, 2000, 
requesting this status. This application for small refiner status must 
contain the information described below.
    Companies \92\ seeking small refiner status must provide us with 
the following information:
---------------------------------------------------------------------------

    \92\ Company means the business structure of the refinery 
whether privately or publicly owned.
---------------------------------------------------------------------------

Employment Information

     A listing of the name and address of each location where 
any employee of the company worked during the 12 months preceding 
January 1, 1999.
     The average number of employees at each location based 
upon the number of employees for each of the company's pay periods for 
the 12 months preceding January 1, 1999.
     The type of business activities carried out at each 
location.

Crude Capacity Information

     The total corporate crude oil capacity of the refiner as 
reported to the Energy Information Administration (EIA) of the U.S. 
Department of Energy (DOE).
    For refineries owned by joint ventures, the total employment of 
both (all) companies must be considered in determining whether the 
1,500 employee limit is met. In addition, a refiner who reactivates a 
refinery that was shut down or non-operational between January 1, 1998 
and January 1, 1999, may apply for small refiner status no later than 
June 1, 2002. In this case, we will consider the information provided 
to determine the correct period for judging compliance with the 1500 
threshold. Where appropriate we will look at the most recent 12 months 
of employment information.
    Refiners seeking small refiner status must also provide us with the 
total crude capacity of their corporation (the sum of all individual 
refinery capacities for multiple-refinery companies, including any and 
all subsidiaries) as reported to EIA for 1998 (published by EIA in 
1999). The information submitted to EIA is presumed to be correct. 
However, in cases where a company disputes this information, we will 
allow 60 days after the company submits its application for small 
refiner status for that company to petition the Agency with the 
appropriate data to correct the record. For reactivated refineries 
owned by a small refiner, we will consider the information provided to 
determine the correct period for judging compliance with the corporate 
capacity threshold. Where appropriate, we will look at the most recent 
year of crude capacity information.
    If a refiner with approved small refiner status later exceeds the 
1,500 employee threshold without merger or acquisition or the corporate 
capacity of 155,000 bpcd, its refineries could keep their individual 
refinery standards. This is to avoid stifling normal company growth and 
is subject to our finding that the company did not apply for and 
receive the small refiner status in bad faith.

[[Page 6769]]

iv. How Do Small Refineries Apply for a Sulfur Baseline?

    A qualifying small refiner, domestic or foreign, may apply for an 
individual sulfur baseline by December 31, 2000 for any refinery owned 
by the company by providing the following information:
     A calculation of the refinery's sulfur baseline using its 
average gasoline sulfur level based on 1997 and 1998 production data, 
\93\ and
---------------------------------------------------------------------------

    \93\ Includes batch number, volume, and sulfur content for each 
batch of gasoline produced in 1997 and 1998.
---------------------------------------------------------------------------

     The average volume of gasoline (including conventional and 
reformulated) produced in these two years.
    As we proposed, baseline sulfur levels and gasoline volumes are 
averaged over two years (1997 and 1998) to account for any production-
related anomalies that may have occurred in 1997 or 1998. For the 
overall program, however, we are only using 1997 and 1998 data for the 
reasons described in Section IV.C.1, above. For any refiner who 
reactivates a refinery that was shut down or non-operational between 
January 1, 1998 and January 1, 1999, we will use the most recent 
information available for baseline establishment purposes.
    The regulations specify the information to be submitted to support 
the baseline application. The baseline calculations should include any 
oxygen added to the gasoline at the refinery. This application would be 
submitted at the same time the refiner applies for small business 
status; confirmation of small business status would not be required to 
apply for an individual sulfur baseline. Pending refinery baseline 
approval, we will assign standards to each of the company's refineries 
in accordance with Table IV.C.-3.
    Oxygenate blenders, regardless of their size, are not eligible for 
the small refiner individual baselines and standards because they would 
not experience circumstances similar to those of small refining 
companies. That is, oxygenate blenders do not have the burden of 
capital costs to install desulfurization equipment, which is the 
primary reason for allowing small refiners to have a relaxed compliance 
schedule.

v. Volume Limitation on Use of a Small Refinery Standard

    Except as noted below, the volume of gasoline subject to a small 
refinery's individual standards is limited to the average volume of 
gasoline the refinery produced from crude oil during the baseline years 
(1997 and 1998), excluding the volume of gasoline produced using 
blendstocks produced at another refinery and exports.\94\ Under this 
approach, the baseline volume for a small refinery would reflect only 
the volume of gasoline produced from crude oil during the 1997 and 1998 
baseline years.
---------------------------------------------------------------------------

    \94\ In addition to gasoline produced from crude oil, a small 
refinery's baseline volume would include gasoline produced from 
purchased blendstocks where the blendstocks are substantially 
transformed using a refinery processing unit.
---------------------------------------------------------------------------

    However, to ensure that the overall sulfur in gasoline from small 
refiners does not greatly increase under the terms of the small refiner 
extension and result in overall gasoline pool sulfur levels higher than 
anticipated, the volume would be limited beginning in 2004 to the 
volume of gasoline that is the lesser of: (1) 105 percent of the 
baseline volume, or (2) the volume of gasoline produced during the year 
from crude oil. Any volume of gasoline produced during an averaging 
period in excess of this limitation is subject to the corporate average 
standards that apply to all other refiners (i.e., the corporate average 
standards listed in Table IV.C.-1).
    In 2006 and 2007, the refinery averages of Table IV.C.-1 will 
apply. In this case, the small refinery's annual average standard will 
be adjusted based on the excess volume in a manner similar to the 
compliance baseline equation for conventional gasoline under Section 
80.101(f) of Part 40 of the Code of Federal Regulations. However, the 
small refinery's per-gallon cap standard will not be adjusted.
    This limitation assures that small refineries receive relief only 
for gasoline produced from crude oil, that is the portion of the 
refinery operation requiring capital investment to meet lower sulfur 
standards.

vi. Extensions Beyond 2007 for Small Refiners

    Beginning January 1, 2008, all small companies' refineries must 
meet the national sulfur standard of 30 ppm on average and the 80 ppm 
cap, except small refineries under IV.C.2.i. that apply for and receive 
an extension of their small refiner status and unique standards. An 
extension will provide a given small refinery up to an additional two 
years to comply with the national standards. An extension must be 
requested in writing and must specify the factors that demonstrate a 
significant economic hardship to qualify the refinery for such an 
extension. Factors considered for an extension could include, but are 
not limited to, the refinery's financial position; its efforts to 
procure necessary equipment and to obtain design and engineering 
services and construction contractors; the availability of 
desulfurization equipment, and any other relevant factors.
    In order for us to consider an extension, a refiner must submit a 
detailed request for an extension by January 1, 2007, demonstrating 
that it has made best efforts to obtain necessary financing, and must 
provide detailed information regarding any lack of success in obtaining 
financing. This information shall include, but may not be limited to 
copies of loan applications for the necessary financing for the 
construction of appropriate sulfur reduction technology as well as the 
application of financing for other equipment procurements or 
improvements in this time frame. If financing has been disapproved or 
is otherwise unsuccessful, the refiner shall provide documents 
supporting the basis for that disapproval and evidence of efforts to 
pursue other means of financing. If we determine that the refiner has 
made the best efforts possible to achieve compliance with the national 
standards by January 1, 2008, but has been unsuccessful for reasons 
beyond its control, we will consider granting the hardship extension 
initially for the 2008 averaging period. If further relief is 
appropriate for good reasons, we will consider a further extension 
through the 2009 averaging period but in no case will this relief be 
provided unless the refiner can demonstrate conclusively that it has 
financing in place and that it will be able to complete construction 
and meet the national gasoline sulfur standards no later than December 
31, 2009.

Compliance Plans for Demonstrating a Commitment To Produce Low Sulfur 
Gasoline

    This final rule includes a compliance plan provision for those 
refiners who may seek a hardship extension of their approved interim 
standards. This provision requires that those refiners with approved 
interim standards who seek a hardship extension must submit a series of 
reports to EPA discussing and describing their progress toward 
producing gasoline that meets the 30/80 ppm standards by January 1, 
2008. We expect that small refiners will need to begin preparations to 
meet the national standards in 2008 by 2004. However, we understand 
that the potential exists for some small refiners to face additional 
hardship circumstances that will warrant more time to meet the 
standards. For this reason, we have adopted provisions (see above) 
allowing

[[Page 6770]]

refiners subject to the interim standards to petition us and make a 
showing that additional time is needed to meet the national standards. 
To properly evaluate these hardship applications, we are requiring 
demonstrations of good faith efforts towards assessing the economic 
feasibility, along with the business and technical practicality of 
ultimately producing low sulfur gasoline. Such progress reports must be 
submitted for a refiner to receive consideration in any future 
determinations regarding hardship extensions. However, these reports 
are not required from refiners who will not be seeking a hardship 
extension.
    By June 1, 2004, such refiners would need to submit preliminary 
information in the form of a report outlining its time line for 
compliance and a project plan discussing areas such as permits, 
engineering plans (e.g., design and construction), and capital 
commitments for making the necessary modifications to produce low 
sulfur gasoline. Documents showing activities and progress in these 
areas should be provided if available.
    By no later than June 1, 2005, these small refiners would need to 
submit a report to us stating in detail progress to date based on their 
time line and project plan. This should include copies of approved 
permits for construction of the equipment, contracts for design and 
construction, and any available evidence of having secured the 
necessary financing to complete the required construction. If any 
difficulties in meeting this requirement are anticipated, the refiner 
must submit a detailed report of all efforts to date and the factors 
that may cause delay, including costs, specification of engineering or 
other design work still needed and reasons for delay, specification of 
equipment needed and any reasons for delay, potential equipment 
suppliers and history of negotiations, and any other relevant 
information. If unavailability of equipment is a factor, the report 
must include a discussion of other options considered, and the reasons 
these other options are not feasible.
    In addition, the small refiner would need to provide evidence by 
June 1, 2006, that on-site construction has begun at its refinery(s) 
and that absent unforeseen circumstances or problems, they will be 
producing complying gasoline (30/80 ppm) by January 1, 2008. While the 
submission of these progress reports is evidence of a refiner's good 
faith efforts to comply by 2008, it does not bind the refiner to make 
gasoline in 2008. There are several reasons why a refiner may choose to 
exit the gasoline-production business in 2008 that go beyond the low 
sulfur gasoline requirement.
    As a result of a refiner's efforts in moving toward compliance with 
the 2008 standards, for market, economic, business, or technical 
reasons, the company could choose not to make gasoline in 2008. 
Although we do not believe this will be the likely outcome for small 
refiners, we cannot preclude it. Any refiner that makes such a 
determination in its progress reports will have until 2008 to 
transition out of gasoline production, but will not be considered for a 
extension of hardship relief.

vii. Can Small Refiners Participate in the ABT Program?

    As described in IV.C.1.c.i above, any refinery (including those 
owned by small refiners) can generate sulfur allotments (in ppm-
gallons) in 2003 by producing gasoline containing less than 60 ppm 
sulfur on an annual-average basis. Once this 60 ppm trigger is reached, 
allotments will be calculated based on the amount of reduction from 120 
ppm \95\. However, these allotments may be discounted depending on the 
actual sulfur level. If a refinery fully demonstrates compliance by 
producing gasoline with an annual average sulfur level of 0 to 30 ppm, 
the allotments retain their full value--they are not discounted at all. 
For actual sulfur levels of 31-60 ppm, which are indicative of a 
partial demonstration, the allotments are discounted 20 percent.
---------------------------------------------------------------------------

    \95\ If a refinery has a baseline sulfur level higher than 120 
ppm (as described below in IV.C.1.c.v.), then credits are generated 
from the baseline to 120 ppm and allotments from 120 ppm to the new 
sulfur level (and discounted 20 percent if applicable).
---------------------------------------------------------------------------

    During the period 2000-2003, refineries owned by small refiners can 
also generate credits by producing gasoline averaging at least 10 
percent lower than that refinery's baseline sulfur level. In other 
words, to generate credits, the refinery's annual average sulfur level 
for all of its gasoline on average must be 0.9  x  (baseline sulfur 
level). Once this ``trigger'' is reached, credits will be calculated 
based on the amount of reduction from the refinery's sulfur baseline. 
For example, if in 2002 a refinery reduced its annual average sulfur 
level from a baseline of 450 ppm to 150 ppm (well below the trigger of 
0.9  x  450 = 405 ppm), its sulfur credits would be determined based on 
the difference in annual sulfur level (450--150 = 300 ppm) multiplied 
by the volume of gasoline produced in 2002. Similarly, small foreign 
refiner-owned refineries with an individual sulfur baseline can 
generate credits in these years as long as the annual average sulfur 
level of the gasoline exported to the U.S. from that refinery is lower 
than 90 percent of the baseline sulfur level.
    During the period 2004-2007, refineries owned by small refiners 
will be permitted to generate credits but only if their actual annual 
sulfur level of all gasoline produced or imported averages below their 
refinery standard, and only for the difference between the standard and 
the actual annual sulfur average.
    A refinery (owned by a small refiner) wishing to participate in the 
ABT program can sell credits beginning as soon as January 1, 2000 but 
may wait until December 31, 2000 to apply for small refiner status. 
However, the standards assigned to that refinery (as presented in Table 
IV.C-3 above) will be based on the sulfur level from which credits were 
generated, not the baseline sulfur level, since the refiner would have 
already demonstrated the ability to meet the lower sulfur level. For 
compliance purposes and to give refineries certainty regarding the 
gasoline sulfur standards to which they will be held during 2004-2007, 
the standards for a small refiner refinery participating in ABT will be 
set based on the refinery's lowest sulfur average for any year between 
1999 and 2003.
    Using the example above, a refinery (owned by a refiner with small 
refiner status) with a 1997-98 baseline sulfur level of 450 ppm would 
have an interim average standard of 450/2 = 225 ppm and a cap of 225 
x  1.5 = 338 ppm. If that refinery generated 300 sulfur credits in 2002 
by producing gasoline with 150 ppm sulfur, then that refinery's average 
sulfur standard for 2004-2007 would be ratcheted down to 150 ppm with a 
cap of 300 ppm. However, that refinery would still be able to use the 
300 credits that it had generated and banked in 2002 for compliance 
with its 150 ppm standard.
    Based on the comments received on our proposal, we are allowing 
small refineries to use credits and/or allotments that they generated 
and/or to purchase credits and/or allotments from another refinery to 
meet their average standard during 2004-2007. We solicited comment on 
whether small refiners subject to the interim standards should be 
permitted to use credits towards meeting those standards, and several 
small refiners who already produce very clean gasoline commented that 
the special small refiner standards do not benefit them in any way. 
These refiners argued that if they could generate sufficient sulfur 
credits in 2000-2003, or could obtain such credits

[[Page 6771]]

through purchases from other refiners, they would not participate in 
the small refiner program but would instead participate in the sulfur 
ABT program. But since they are not positioned to generate credits (due 
to their already low sulfur levels), and have little certainty of being 
able to purchase credits, they need the relief provided by the small 
refiner provisions. We concur with these concerns and thus permit small 
refiners to use ABT credits and allotments. Small refiners may only use 
ABT credits and/or allotments to comply with their refinery average 
standard, not the per-gallon caps applied to their gasoline.
    At any time, a small refiner can choose to ``opt out'' of the small 
refiner program and, beginning the next calendar year, comply with the 
standards in Table IV.C-2. The refiner would have to notify us of this 
change in its compliance program. Once a small refiner leaves the small 
refiner program, however, it would not be eligible to re-enter the 
small refiner program.
b. Temporary Waivers From Low Sulfur Requirements in Extreme Unforeseen 
Circumstances
    In the final rule, EPA is adopting a provision permitting refiners 
to seek a temporary waiver from the sulfur standards in certain 
circumstances. Such waivers will be granted at EPA's discretion. Under 
this provision a refiner may seek permission to distribute gasoline 
that does not meet the applicable low sulfur standards for a brief time 
period, based on the refiner's inability to produce complying gasoline 
because of extreme and unusual circumstances outside the refiner's 
control that could not have been avoided through the exercise of due 
diligence. This provision is similar to a provision in EPA's RFG 
regulations, and is intended to provide refiners short-term relief in 
unanticipated circumstances such as an accidental refinery fire or a 
natural disaster. The short-term waiver provision is intended to 
address unanticipated circumstances that cannot be reasonably foreseen 
at this time or in the near future
    The conditions for obtaining such a waiver that are similar to 
those in the RFG regulations. These conditions are necessary and 
appropriate to ensure that any waivers that are granted are limited in 
scope, and that refiners do not gain economic benefits from a waiver. 
Therefore, refiners seeking a waiver must show that the waiver is in 
the public interest, that the refiner was not able to avoid the 
nonconformity, that it will make up the air quality detriment 
associated with the waiver, as well as any economic benefit from the 
waiver, and that it will meet the applicable sulfur standards as 
expeditiously as possible.
c. Temporary Waivers Based on Extreme Hardship Circumstances
    In addition to the provision for short-term relief in unanticipated 
circumstances, we are adopting a provision for relief based on extreme 
hardship circumstances. In developing our sulfur program, we considered 
whether any refiners would face particular difficulty in complying with 
the standards in the lead time provided. As described in Section 
IV.C.2.a., we concluded that refineries owned by small businesses would 
experience more difficulty in complying with the standards on time 
because, as a group, they have less ability to raise capital necessary 
for refinery investments, face proportionately higher costs because of 
economies of scale, and are less able to successfully compete for 
limited engineering and construction resources. However, it is possible 
that other refiners who do not meet our criteria for the interim 
standards also face particular difficulty in complying with the sulfur 
standards on time. Therefore, we are including in the final rule a 
provision allowing us, at our discretion, to grant temporary waivers 
from the sulfur standards based on a showing of extreme hardship 
circumstances. We do not anticipate, nor do we expect there is a need 
for, granting temporary waivers that apply to more than approximately 
one percent of the national gasoline pool in any given year. This 
provision would allow refiners (domestic and foreign) to request a 
waiver from the sulfur standards based on a showing of unusual 
circumstances that result in extreme hardship and significantly affect 
the ability to comply by the applicable date. As with the small refiner 
interim standards, this provision furthers our overall environmental 
goals of achieving low sulfur gasoline nationwide as soon as possible. 
By providing short-term relief to those refiners that need additional 
time because they face hardship circumstances, we can adopt a program 
that reduces gasoline sulfur beginning in 2004 for the majority of the 
industry that can comply by then.
    As described above, EPA understands that this program will require 
significant economic investments by the refining industry. We have 
adopted a program with sufficient flexibilities (including an ABT 
program, allotment trading, a geographic phase-in, and interim 
standards for qualifying small refiners) to make these investments 
reasonable and feasible over the time frame in which the standards are 
phased in. Because the refining industry encompasses a wide variety of 
individual circumstances, and our program phases in based on the lead 
time we believe is reasonable for the industry as a whole, there may be 
unusual circumstances that impose extreme hardship and significantly 
affect an individual refinery's ability to comply in the lead time 
provided. However, we do not intend for this waiver provision to 
encourage refiners to delay planning and investments they would 
otherwise make in anticipation of receiving relief from the applicable 
requirements. In addition, we want to limit the environmental impact of 
any hardship waivers from compliance with the standards. Thus, we 
anticipate that hardship waivers will only be granted in rare 
circumstances.
    Because of the significant environmental benefits of lowering 
sulfur in gasoline, we will administer this provision in a manner 
consistent with continuing to ensure the environmental objectives of 
the regulation. In our analysis of the interim small refiner standards, 
we concluded that only a minimal portion of the national gasoline pool 
would potentially be impacted by the less stringent interim standards, 
due to the relatively small production volume of these facilities. To 
limit the potential environmental impact of this hardship provision, we 
reserve the discretion to deny applications where we find that granting 
a waiver would result in an unacceptable environmental impact. While 
this determination will be made on a case-by-case basis, we do not 
expect there is a need for, nor do we anticipate, granting waivers that 
apply to more than approximately one percent of the total national pool 
of gasoline in any given year, or to more than a minimal percentage of 
the gasoline supply of an area known to have significant air quality 
problems.
    There are several factors we will consider in evaluating a petition 
for additional time to comply. This could include refinery 
configuration, severe economic limitations, and other factors that 
prevent compliance in the lead time provided. Applications for a waiver 
must include information that will allow us to evaluate all appropriate 
factors. EPA will consider whether the refinery configuration or 
operation is unique or atypical, how much of a refinery's gasoline is 
produced using an FCC unit, its hydrotreating capacity relative to its 
total crude capacity, total reformer unit throughput capacity relative 
to total production, gasoline

[[Page 6772]]

production in proportion to other refinery products, and other relevant 
factors. A refiner may also face severe economic limitations that 
result in a demonstrated inability to raise capital to make necessary 
investments to comply in time, which can be shown by an unfavorable 
bond rating, inadequate resources of the refiner and its parent and/or 
subsidiaries, or other relevant factors. In addition, we will look at 
the total crude capacity of the refinery and its parent corporation. 
Finally, we will consider where the gasoline will be sold in evaluating 
the environmental impacts of granting a waiver.
    This provision is intended to address unusual circumstances that we 
expect will be foreseeable now or in the immediate future, such as 
unique and atypical gasoline refinery operations or a demonstrated 
inability to raise capital. These kinds of circumstances should be 
apparent at this time or in the near future, so refiners seeking 
additional time under this provision must apply for relief by September 
1, 2000. A refiner seeking a waiver must show that unusual 
circumstances exist that impose extreme hardship and significantly 
affect its ability to meet the standards on time, and that it has made 
best efforts to comply with the standards, including efforts to obtain 
credits and/or allotments towards compliance. Applicants for a hardship 
waiver must also submit a plan demonstrating how the standards will be 
achieved as expeditiously as possible. In submitting the plan, it must 
include a timetable for obtaining the necessary capital, contracting 
for engineering and construction resources, and obtaining permits. EPA 
will review and act on applications, and, if a waiver is granted, will 
specify a time period, not to extend beyond January 1, 2008 (the date 
by which all gasoline is expected to meet the 30 ppm refinery average 
and 80 ppm per gallon cap standards), for the waiver.
    If a waiver is granted, EPA will impose as a condition of the 
waiver other reasonable requirements, including antibacksliding 
requirements to ensure no deterioration in the sulfur level of gasoline 
and interim sulfur standards that the refiner must meet. This is 
appropriate since some refiners who may qualify for a waiver can 
achieve some sulfur reductions, and even reductions to levels above 30 
ppm will result in some environmental benefits. While this provision 
allows EPA to waive the per gallon standards as well as the average 
standards, EPA would not allow gasoline sulfur to exceed the highest 
per gallon cap applicable to a refiner under the interim small refiner 
standards described in Section IV.C.2. Once all applications have been 
received, EPA will consider the appropriate process to follow in 
reviewing and acting on applications, including whether to conduct a 
notice and comment decision-making process.
3. Streamlining of Refinery Air Pollution Permitting Process
a. Brief Summary of Proposal
    Industry commenters expressed concern over the ability to obtain 
permits to construct and operate the facility modifications needed to 
meet the Tier 2 rule requirements by the end of 2004. As part of the 
preamble to the proposed rule, we outlined possible approaches to 
provide greater certainty and to expedite potentially applicable permit 
processes. In general, we solicited comments on whether and how policy 
options might be designed so as to exempt Tier 2 projects from major 
New Source Review (NSR) and/or to expedite the processing of permits 
where such requirements would apply. In particular, we solicited 
comment on whether the major NSR process could be expedited if: (1) EPA 
provided guidance on Lowest Achievable Emission Rate (LAER) 
requirements or Best Available Control Technology (BACT) 
determinations; (2) emissions reductions could be made available or 
designated for offsetting Tier 2 activities; (3) EPA developed model 
permits, or (4) EPA assisted the States in resolving source-specific 
permitting issues as they would arise. The Agency also solicited 
comments on how the title V operating permit requirements, where 
applicable, might need to be integrated with the relevant NSR process.
    In proposing various mechanisms to expedite the permitting of Tier 
2 projects, we recognized that a combination of measures might be 
needed, since the situations could vary widely among individual 
refineries due to differences in such factors as available equipment 
capacity, amount of sulfur in the crude oil, and applicable State 
regulations. Source-specific analyses are also necessary to establish 
what sulfur reduction techniques can be applied, to determine the 
applicable permitting requirements, and to evaluate what controls will 
be necessary as a result of these requirements. We indicated our intent 
to offer assistance where needed.
b. Significant Comments Received
    The most significant comments received on the proposal concerning 
the timing impacts due to air permit requirements are presented below. 
These commenters focused exclusively on the requirements to obtain a 
preconstruction permit under the NSR program. Generally, commenters 
only concerns regarding the title V operating permit program were that 
the States' ongoing efforts to issue these permits might create a 
backlog which could delay the issuance of NSR permits for Tier 2 
projects. A more detailed discussion of comments received on the 
proposal and EPA's response are contained in the Response To Comments 
document and is filed in the Docket for this action.
    We received written and oral comments from refineries about the 
permit requirements associated with Tier 2 projects. Refiners 
emphasized the need for certainty. They pointed out the need to secure 
preconstruction permits within 18 months (e.g., 6 months to prepare and 
file NSR applications and another 12 months to issue the permit) and 
the need for permitting authorities to commit appropriate resources to 
meet this time frame. State and local air pollution control agencies 
did not support providing exemptions from emissions control and 
permitting requirements. Rather, agency commenters stated that they 
could accomplish the permitting requirements in the necessary time 
frames, provided that complete permit applications were received in a 
timely manner and refiners conferred with their regulatory agencies 
soon after the Tier 2 requirements are promulgated. They also indicated 
that the major NSR process could be expedited and have more certainty 
(i.e., permits could be processed in 6 to 9 months) if EPA would 
provide guidance on emissions controls, emissions monitoring, and 
offsets. In general, environmental and community groups pointed out 
that the remedies under traditional permitting practices should be 
exhausted before additional flexibility is granted for Tier 2 projects.
c. Today's Action
    Based on the comments and other information received in response to 
the proposal, EPA believes that it is not necessary or appropriate to 
explore further the development of possible options which would exempt 
Tier 2 projects from the normally applicable preconstruction review 
process. This position is supported by: (1) The comments of States that 
industry can, in general, apply and receive NSR permits in time to 
comply with Tier 2; and (2) the recognition of industry's potential 
ability to use emissions reductions to net Tier 2 projects out of major 
NSR which would otherwise be applicable. Nonetheless, we believe that 
actions

[[Page 6773]]

should be taken to facilitate early compliance, to add certainty to the 
anticipated permitting actions and schedules, and to minimize the 
possibility of delay. Accordingly, EPA is taking two types of actions 
to promote these objectives.
    First, as previously discussed, we have structured the final 
gasoline sulfur program to allow additional lead time for many refiners 
(i.e., certain refineries would be able to make desulfurization changes 
later than the proposed 2004 compliance date to meet Tier 2 
requirements). This approach will help address the concerns over the 
availability of necessary new equipment and permitting backlogs caused 
by many refineries acting to obtain permits and order equipment within 
relatively the same time period.
    Second, we intend to take several actions (described in more detail 
below) to expedite and impart greater certainty in obtaining necessary 
major NSR permits. As a result of comments received on the proposal, 
and the lead time provided in the final gasoline sulfur program, we 
believe that the vast majority of permits can be issued within the 
necessary time frames, provided that refineries submit their 
preconstruction applications in a timely manner and regulatory 
authorities prioritize the issuance of these permits. We also intend to 
assist States and refiners on a case-by-case basis in their efforts to 
address any unique permitting problems that might arise and, thus, 
remedy potential problems that could cause unanticipated delays. In the 
unlikely event permitting delays occur, EPA will work with refiners and 
the state/local permitting agencies on a case-by-case basis, where a 
refinery has unique circumstances that necessitate unique treatment.
    While today's strategy will help expedite the permitting process, 
refineries that trigger major NSR as a result of producing low sulfur 
gasoline will still have to install the stringent level of emissions 
control technology required by the Act. However, we intend to issue 
guidance to assist states in making decisions about the levels of 
control technology, as described more below. In addition, the Agency 
wishes to clarify that, in our efforts to provide greater certainty and 
to facilitate more expeditious permitting, we are in no way 
shortcutting existing opportunities for public participation. We 
recognize the importance of public participation in making permitting 
decisions and intend that the measures adopted to address permitting 
concerns will not diminish the opportunities for public participation.

i. Major New Source Review

    The major NSR program, as it applies to existing major stationary 
sources of air pollution, requires that a preconstruction permit be 
issued before a source makes a physical change or change in its method 
of operation of any project that would result in a significant net 
emissions increase. As described in the proposal, the steps taken by 
certain refineries to implement gasoline sulfur reductions to meet 
today's rule could result in emissions increases in one or more 
pollutants which may trigger the requirements for this type of 
preconstruction permit. A number of the refineries are located in areas 
designated as nonattainment for at least one pollutant. The 
nonattainment NSR requirements pursuant to part D of the Act would 
apply to any such refinery undergoing a major modification. For those 
refineries located in attainment or unclassifiable areas, permit 
requirements for the prevention of significant deterioration (PSD) of 
air quality must be met for major modifications.
    The EPA recognizes the importance of timely major NSR (as 
applicable) permit actions for refineries to proceed with necessary 
changes to meet the new low sulfur gasoline standard. We encourage 
refineries to begin discussions with permitting authorities and to 
submit permit applications--as early as possible. In addition, based on 
comments received, we believe that there are a few key areas in which 
assistance would be useful toward helping States issue timely permits 
to the applicable refineries:
     Federal guidance on emissions control technology 
requirements.
    Refineries subject to major NSR review will be required to undergo 
a source-specific evaluation to apply either BACT or LAER, depending 
upon the applicable program requirements. For example, the evaluation 
for BACT is case-by-case and takes into account the alternative 
technologies available to control pollution from a particular emissions 
unit or process, and considers the energy, environmental, economic and 
other costs associated with each technology. We intend to issue 
guidance setting out a level of emissions that, in our view, would be 
expected to satisfy the requirements for BACT for certain emissions 
units associated with refinery desulfurization projects. While States 
would not be required to use the results to establish BACT for a 
particular refinery subject to review and EPA's guidance on a control 
technology may not be appropriate where there exists unusual site-
specific circumstances, such guidance would add the certainty of EPA's 
expectations.
    Since negotiation of an appropriate BACT level often is one of the 
most time consuming aspects of permitting, we believe this EPA guidance 
will significantly expedite the process. The federal guidance on BACT, 
by including an evaluation of the most stringent control levels 
currently being achieved or required, will also provide federal 
guidance on LAER. The EPA plans to make a draft of this guidance 
available for public review and comment in January 2000. Final guidance 
would then be prepared, after relevant comments are considered, in time 
for States, refiners, and the public to consider in preparing and 
reviewing permit applications and proposed permits.
     Availability of offsets.
    Refineries located in nonattainment areas must offset any proposed 
significant emissions increases with an equal or greater amount of 
emissions reductions from other sources, usually coming from within the 
same nonattainment area. We believe that vehicle emissions reductions 
resulting from the use of low sulfur gasoline can be used as offsets 
for the refineries, as long as the statutory and regulatory criteria 
for creditable offsets are satisfied and States decide to provide for 
this opportunity in their SIP attainment demonstration. We believe 
generally that this option should be available to States since only a 
small fraction of the total vehicle emissions reductions in any county 
would be needed to offset refinery emissions increases resulting from 
implementation of gasoline desulfurization projects. Generally, the 
reductions must also occur in the same nonattainment area as the 
location of the refinery for which the offsets are required. The EPA 
plans to issue the appropriate guidance early in the year 2000 to help 
a State to determine whether and to what extent it may wish to use 
vehicle emissions reductions as offsets for Tier 2 projects.
     EPA refinery permitting teams.
    We intend to assemble special EPA teams, comprised of Headquarters 
and Regional Office experts, that will track the overall progress in 
permit issuance and will be available to assist State and local 
permitting authorities, refineries, and the public upon request to 
resolve site-specific permitting issues. These teams will be comprised 
of persons who are knowledgeable about permitting programs and refinery 
operations and can provide expert assistance to troubleshoot permitting 
issues that may arise. As appropriate, the teams will work with 
stakeholders on a case-by-

[[Page 6774]]

case basis to evaluate site-specific approaches to regulatory 
compliance within existing policy and regulations.

ii. Environmental Justice

    The Tier 2/gasoline sulfur rule will help achieve significant 
nationwide reductions in the emissions of nitrogen oxides (NOx), 
volatile organic compounds (VOC), particulate matter (PM), and sulfur 
dioxide (SO2). These reductions will improve air quality 
across the country and will provide increased protection to the public 
against a wide range of health effects, including chronic bronchitis, 
respiratory illnesses, and aggravation of asthma symptoms. Furthermore, 
the Tier 2/gasoline sulfur rule will achieve environmental benefits in 
the local areas where refineries are located, due to reductions in tail 
pipe emissions from vehicles driven in those areas. Although we expect 
residual emissions increases at some refineries even after installing 
the stringent level of emissions controls required under the Act, for 
the vast majority of areas, we believe that these potential refinery 
emissions increases will be very small compared to the Tier 2 benefits 
in those same local areas.
    We believe it is important to understand and address concerns 
relating to potential localized emissions increases from refineries 
that make significant process changes to meet the requirements of the 
Tier 2 rule. We believe that, among other things, the keys to 
addressing any potential concerns are as follows:
     Providing meaningful community involvement early and 
throughout the process;
     Determining what information and actions would eliminate 
concerns; and
     Determining what EPA, States, and industry can do to make 
the permitting process smoother by ensuring ongoing community 
involvement in the decision making process and by building trust among 
stakeholders.
    To this end, the Agency has already taken some actions to try to 
mitigate potential environmental justice concerns. First, EPA's Office 
of Air and Radiation and the Alternative Dispute Resolution Team within 
EPA's Office of the Administrator implemented a national convening 
process which was designed to bring together a broad spectrum of 
stakeholders to explore with them their perceptions and views of issues 
associated with Tier 2 permitting and to assess the potential for a 
collaborative process to address specific implementation issues at some 
time in the future. The convening was carried out by an outside neutral 
party who conducted interviews with representatives from selected EPA 
offices, States, industry, environmental groups, and environmental 
justice organizations. Second, EPA held informational briefings and 
provided background materials to the National Environmental Justice 
Advisory Council's (NEJAC) \96\ Air and Water Subcommittee and 
Enforcement Subcommittee to provide an opportunity for them to provide 
feedback and recommendations to the Agency. Finally, in October 1999, 
we met with both national environmental groups and environmental 
justice advocacy representatives, to discuss their views on the 
permitting aspects of the proposed rule.
---------------------------------------------------------------------------

    \96\ The NEJAC was chartered in 1993 expressly to give the EPA 
Administrator independent advice, consultation, and recommendations 
on environmental justice matters. NEJAC members come from state, 
tribal, and local governments; tribal and indigenous citizen's 
organizations; business and industry; academia; and environmental 
advocacy and grassroots community groups.
---------------------------------------------------------------------------

    The EPA is committed to continue working with all stakeholders to 
resolve specific Environmental Justice issues if and when they arise. 
To fulfill this commitment, we plan to undertake additional actions in 
the future, including providing education and outreach about the rule 
and its impacts in local communities, developing permitting guidance 
through a public process and addressing Title VI petitions if they 
arise.

D. What Are the Economic Impacts, Cost Effectiveness and Monetized 
Benefits of the Tier 2 Program?

    Consideration of the economic impacts of new standards for vehicles 
and fuels has been an important part of our decision making process for 
this final rule. The following sections describe first the costs 
associated with meeting the new vehicle standards and the new fuel 
standards. This will be followed with a discussion of the cost 
effectiveness of the rule. Lastly, we will discuss the results of a 
benefit-cost assessment that we have prepared.
    Full details of our cost analyses, including information not 
presented here, can be found in the RIA associated with this rule. 
Also, our response to comments on the cost, cost effectiveness, and 
monetized benefits analyses are contained in the Response to Comments 
document for this rule.
1. What Are the Estimated Costs of the Vehicle Standards?
    To perform a cost analysis for the standards, we first determined a 
package of likely technologies that manufacturers could use to meet the 
standards and then determined the costs of those technologies. In 
making our estimates we have relied on our own technology assessment 
which included publicly available information, such as that developed 
by California, as well as confidential information supplied by 
individual manufacturers, and the results of our own in-house testing.
    In general, we expect that the Tier 2 standards will be met through 
refinements of current emissions control components and systems rather 
than through the widespread use of new technology. Furthermore, smaller 
lighter-weight vehicles and trucks will generally require less 
extensive improvements than larger vehicles and trucks. More 
specifically, we anticipate a combination of technology upgrades such 
as the following:
     Improvements to the catalyst system design, structure, and 
formulation plus in some cases an increase in average catalyst size and 
loading;
     Air and fuel system modifications including changes such 
as improved microprocessors, improved oxygen sensors, leak free exhaust 
systems, air assisted fuel injection, and calibration changes including 
improved precision fuel control and individual cylinder fuel control;
     Engine modifications, possibly including an additional 
spark plug per cylinder, an additional swirl control valve, or other 
hardware changes needed to achieve cold combustion stability;
     Increased use of fully electronic exhaust gas 
recirculation (EGR); and
     Increased use of secondary air injection for 6 cylinder 
and larger engines.
    The costs for MDPVs have been included here with the LDT4 cost 
estimates. We expect that the technologies needed to meet the Tier 2 
standards for the MDPVs will be very similar to those for LDT4s. 
However, the MDPVs cost estimates are somewhat higher than for LDT4s. 
Vehicles over 8,500 pounds GVWR are currently certified to heavy-duty 
engine emissions standards using the heavy-duty test procedures. This, 
at least in part, has led to differences in baseline technologies 
compared to current LDT4s. Vehicles above 8,500 pounds, for example, 
are currently equipped with technologies such as close coupled 
catalysts and secondary air injection to a lesser extent. Therefore, we 
expect higher incremental costs for the MDPVs compared to LDT4s. There 
is further information on the costs for MDPVs in the RIA.

[[Page 6775]]

    Using a typical mix of changes for each group, we projected costs 
separately for LDVs, the different LDT classes, and for different 
engine sizes (4, 6, 8, 10-cylinder) within each class. For each group 
we developed estimates of both variable costs (for hardware and 
assembly time) and fixed costs (for R&D, retooling, and certification).
    Cost estimates based on the current projected costs for our 
estimated technology packages represent an expected incremental cost of 
vehicles in the near-term. For the longer term, we have identified 
factors that would cause cost impacts to decrease over time. First, 
since fixed costs are assumed to be recovered over a five-year period, 
these costs disappear from the analysis after the fifth model year of 
production. Second, the analysis incorporates the expectation that 
manufacturers and suppliers will apply ongoing research and 
manufacturing innovation to making emission controls more effective and 
less costly over time. Research in the costs of manufacturing has 
consistently shown that as manufacturers gain experience in production 
and use, they are able to apply innovations to simplify machining and 
assembly operations, use lower cost materials, and reduce the number or 
complexity of component parts.\97\ These reductions in production costs 
are typically associated with every doubling of production volume. Our 
analysis incorporates the effects of this ``learning curve'' by 
projecting that the variable costs of producing the Tier 2 vehicles 
decreases by 20 percent starting with the third year of production. We 
applied the learning curve reduction only once since, with existing 
technologies, there would be less opportunity for lowering production 
costs than would be the case with the adoption of new technology.
---------------------------------------------------------------------------

    \97\ ``Learning Curves in Manufacturing,'' Linda Argote and 
Dennis Epple, Science, February 23, 1990, Vol. 247, pp. 920-924.
---------------------------------------------------------------------------

    We have prepared our cost estimates for meeting the Tier 2 
standards using a baseline of NLEV technologies for LDVs, LDT1s, and 
LDT2s, and Tier 1, or current technologies for LDT3s, LDT4s and MDPVs. 
These are the standards that vehicles would be meeting in 2003.\98\ We 
have not specifically analyzed smaller incremental changes to 
technologies that might occur due to the interim standards between the 
baseline and Tier 2. In most cases, we believe these changes will not 
be significant based on current certification levels and manufacturers 
will maximize carry-over. For others, manufacturers can use averaging 
and other program flexibilities to avoid redesigning vehicles twice 
within a relatively short period of time. We believe this is likely to 
be an attractive approach for manufacturers due to the savings in R&D 
and other resources.
---------------------------------------------------------------------------

    \98\ Even though the NLEV program ends in the Tier 2 timeframe, 
we have not included the NLEV program costs or benefits in our 
analysis, since EPA analyzed and adopted NLEV previously.
---------------------------------------------------------------------------

    For the total annual cost estimates, we projected that 
manufacturers will start the phase-in of Tier 2 vehicles with LDVs in 
2004 and progress to heavier vehicles until all LDT2s meet Tier 2 
standards in 2007. For LDT3s and LDT4s, we projected some sales of Tier 
2 LDT3s prior to 2008 for purposes of averaging in the interim program 
and that the phase-in of Tier 2 vehicles would end with LDT4s and MDPVs 
in 2009.
    Finally, we have incorporated what we believe to be a 
conservatively high level of R&D spending at $5,000,000 per vehicle 
line (with annual sales of 100,000 units per line). We have included 
this large R&D effort because calibration and system optimization is 
likely to be a critical part of the effort to meet Tier 2 standards. 
However, we believe that the R&D costs may be generous because the 
projection ignores the carryover of knowledge from the first vehicle 
lines designed to meet the standard to others phased-in later.
    The evaporative emissions standards we are finalizing today for 
LDVs, LDTs and MDPVs are feasible with relatively small cost impacts. 
We estimate the cost of system improvements to be about $4 per vehicle, 
for all vehicle classes. This incremental cost reflects the cost of 
moving to low permeability materials, improved designs or low-loss 
connectors. R&D for the evaporative emissions standard is included in 
the R&D estimates given above for the tailpipe standards. We have 
included no projections of learning curve reductions for the 
evaporative standard.
    Table IV.D.-1 provides our estimates of the per vehicle increase in 
purchase price for LDVs, LDTs, and MDPVs. The near-term cost estimates 
in Table IV.D.-1 are for the first years that vehicles meeting the 
standards are sold, prior to cost reductions due to lower productions 
costs and the retirement of fixed costs. The long-term projections take 
these cost reductions into account. We have sales weighted the cost 
differences for the various engine sizes (4-, 6-, 8-, 10-cylinder) 
within each category.

               Table IV.D.-1.--Estimated Purchase Price Increases Due to Tier 2 Tailpipe Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                      LDT4/MDPVs
                                                     LDV          LDT1         LDT2         LDT3         \a\
----------------------------------------------------------------------------------------------------------------
Tailpipe standards:
    Near-term (year 1).........................          $78          $70         $125         $245         $258
    Long-term (year 6 and beyond)..............           49           45           97          199          208
Evaporative Standard...........................            4            4            4            4           4
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Weighted average.

    We did not receive comments disagreeing with the technology 
projections or technology cost estimates contained in the proposal. We 
have, however, revised our cost estimates somewhat based on new 
information available since the proposal. We moderately lowered our 
cost estimates due to adjustments we have made in our technology 
projections. Based on the results of our vehicle testing program 
described above in section IV.A.1., we now believe that a few of the 
hardware changes we had anticipated are not likely to be needed to meet 
the standards. Albeit there is always fluctuation, the spot prices of 
precious metals have increased somewhat since the proposal and we have 
adjusted our analysis to reflect those changes.
    Overall, the cost estimates are within 5 percent of those in the 
proposal for LDVs and LLDTs. The changes noted above moderately lowered 
the costs for HLDTs compared to the proposal. The cost increase due to 
the inclusion of MDPVs offsets most of the lowered costs

[[Page 6776]]

for the LDT4 category. The resulting cost estimate for the LDT4/MDPVs 
tailpipe standards is also within 5 percent of the cost estimates for 
LDT4s contained in the proposal. The detailed technology and cost 
analyses are available in the RIA.
    We are also finalizing OBD II requirements and onboard vapor 
recovery (ORVR) requirements for MDPVs. We have estimated that OBD II 
will cost about $80, which includes the costs of additional sensors and 
system improvements. We have estimated ORVR system costs to be about 
$10. The $10 cost for ORVR does not include any fuel cost savings over 
the life of the vehicles due the recover of fuel vapor during 
refueling. ORVR provides a fuel cost savings because the vapors are 
captured, and burned in the engine, rather than escaping to the 
atmosphere. We estimate the savings over the life of the vehicle to be 
about $6. These costs are not reflected in Table IV.D.-1.
2. Estimated Costs of the Gasoline Sulfur Standards
    As we explained at the beginning of Section IV.C, we expect that 
most refiners will have to install capital equipment to meet the 
gasoline sulfur standard. Presuming that refiners will want to minimize 
the cost involved, the majority of refiners are expected to desulfurize 
the gasoline blendstock produced by the fluidized catalytic cracker 
(FCC) unit, although a few may choose to desulfurize the feed to the 
FCC unit. Recent advances have led to significant improvements in the 
hydrotreating technologies used for FCC gasoline desulfurization. Since 
these improved technologies represent the lowest cost options and are 
expected to be used by most refiners needing to install desulfurization 
equipment, we have based our cost estimates primarily on their use. 
However, in acknowledgment that some refiners, particularly those which 
make investment decisions in the near term, are likely to select more 
traditional approaches using proven technologies, we have included the 
costs for currently proven desulfurization technologies in our 
analysis, as well. This is different from the analysis we did in 
support of our proposal, where we assumed that all refiners would take 
advantage of the most improved technologies we were aware of at that 
time.
    For our analysis of the costs of controlling gasoline sulfur, we 
estimated the costs in five different regions of the country (Petroleum 
Administration Districts for Defense, or PADDs) for reductions from the 
current PADD average gasoline sulfur level down to a 30 ppm average. We 
then combined the regional costs to develop an average national 
individual refinery cost, and used this figure to calculate national 
aggregate capital and operating costs. In our proposal we estimated a 
single cost for desulfurizing gasoline, using as an assumption for the 
purpose of analysis that all refiners would upgrade their refineries by 
2004 and that all would choose one of two improved technologies we knew 
of at the time. We then reduced this cost over time to reflect expected 
cost reductions due to further technology advancements and reduced 
operating costs due to improved understanding of the technologies and 
refinery debottlenecking. Based on improved information about the 
availability of technologies, we have now analyzed the costs of 
controlling sulfur on a year-by-year basis beginning with 2004, to be 
consistent with our analysis of the rate at which the industry would 
invest in desulfurization technologies over the first years of the 
program and the changing technology selections (and costs) that would 
accompany this phase-in (discussed in Section IV.C.1 above). A detailed 
description of our calculations can be found in the Regulatory Impact 
Analysis; the reader can refer to the draft RIA released with the 
proposed rule for more information on our prior analysis.
    We estimate that, on average, refineries which install equipment to 
meet the 30 ppm average standard will invest about $44 million for 
capital equipment and spend about $16 million per year for each 
refinery to cover the operating costs associated with these 
desulfurization units. Since this average represents many refineries 
diverse in size and gasoline sulfur level as well as a mix of 
desulfurization technologies, some refineries will pay more and others 
less than the average costs. When the average per-refinery cost is 
aggregated for all the gasoline expected to be produced in this country 
in 2008 (the first year that all refiners will be required to meet the 
30 ppm standard, unless any small refiners are granted a extension of 
hardship relief), the total investment for desulfurization processing 
units (spread between 2003 and 2007) is estimated to be about $4.3 
billion, and operating costs for these units is expected to be about 
$1.3 billion per year.
    Using our estimated capital and operating costs for domestic 
refineries, we calculated the average per-gallon cost of reducing 
gasoline sulfur down to 30 ppm for each year as the program is 
implemented. Using a capital cost amortization factor (based on a seven 
percent rate of return on investment) and including no taxes, we 
estimated the average national cost for desulfurizing gasoline to be 
about 1.7-1.9 cents per gallon as the program is phased in. This cost 
is the cost to society of reducing gasoline sulfur down to 30 ppm that 
we used for estimating cost effectiveness. Table IV.D.-2 below 
summarizes our estimates of per-gallon gasoline cost increases for 
select years.

 Table IV.D.-2.--Estimated Per-Gallon Cost for Desulfurizing Gasoline in
                              Future Years
------------------------------------------------------------------------
                                                             Cost (cents/
                            Year                               gallon)
------------------------------------------------------------------------
2004.......................................................          1.9
2005.......................................................          1.9
2006.......................................................          1.7
2007.......................................................          1.7
2008-2018..................................................          1.7
2019+......................................................          1.3
------------------------------------------------------------------------

    Although the costs shown here are slightly higher than we projected 
in the proposal, overall, we believe our revised costs are consistent 
with those in the proposal and that our improved methodology and 
information are the source of the differences. As stated earlier in 
this section, we believe this analysis more accurately reflects the 
actual investment decisions of individual refiners over the years in 
which the industry is phasing down sulfur levels. Furthermore, we have 
also made a number of other adjustments to our analysis of capital and 
operating costs for each individual technology based on new information 
received from the technology vendors and information we obtained during 
the comment period. For example, we now include eight different 
technologies in our analysis, including some more traditional 
approaches, whereas in the proposal we only considered two new 
technologies. Hence, the range of costs is broader. In addition, as 
explained in the RIA, we now believe we underestimated the capital 
costs of desulfurization slightly in the proposal based on our 
calculation of the costs of providing hydrogen to the processes. We 
believe our analysis now reflects the most up-to-date information about 
the costs of installing and operating the various desulfurization 
technologies included in our analysis. These adjustments are explained 
in detail in the Regulatory Impact Analysis.
    We still believe that over time, particularly in 2006-8 when the 
last refineries will be making investments, the costs of gasoline 
desulfurization equipment will be significantly lower

[[Page 6777]]

than it is today. Some of the technologies expected to be selected in 
this time frame (specifically, the new adsorption technologies which we 
didn't know about when we proposed these requirements) are projected to 
cost about half of what the older technologies cost. Furthermore, with 
time refiners will have to replace existing desulfurization equipment 
(as equipment ages), and by then they will have a number of low cost 
alternatives to choose from. Thus, as Table IV.D.-2 shows, the long 
term estimated costs for gasoline desulfurization are lower than those 
we projected in our proposal.\99\
---------------------------------------------------------------------------

    \99\ For a sensitivity analysis of our cost estimates using 
alternative assumptions, please see Chapter V of the RIA.
---------------------------------------------------------------------------

3. What Are the Aggregate Costs of the Tier 2/Gasoline Sulfur Final 
Rule?
    Using current data for the size and characteristics of the vehicle 
fleet and making projections for the future, the per-vehicle and per-
gallon fuel costs described above can be used to estimate the total 
cost to the nation for the emission standards in any year. Figure 
IV.D.-1 portrays the results of these projections.\100\
---------------------------------------------------------------------------

    \100\ Figure IV.D.-1 is based on the amortized costs from Tables 
IV.D.-1 and IV.D.-2. Actual capital investments, particularly 
important for fuels, would occur prior to and during the initial 
years of the program, as described above in section IV.D.2.

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR10FE00.006


BILLING CODE 6560-50-C
    As can be seen from the figure, the annual cost starts out at about 
$1.9 billion per year and increases over the phase-in period to about 
$4.1 billion in 2008. Total annualized costs are projected to remain at 
about $4 billion through 2018. After 2018, annualized fuel costs are 
projected to decrease somewhat due to the use of new technologies which 
would enable refiners to produce low sulfur fuel at a lower cost. The 
gradual rise in costs long term is due to the effects of projected 
growth in vehicle sales and fuel consumption. The RIA provides further 
detail regarding these cost projections.
4. How Does the Cost-effectiveness of This Program Compare to Other 
Programs?
    This section summarizes the cost-effectiveness analysis conducted 
by EPA and its results. The purpose of this analysis is to show that 
the reductions from the vehicle and fuel controls being finalized today 
are cost-effective in comparison to alternative means of attaining or 
maintaining the NAAQS. This analysis involves a comparison of our 
program not only to past measures, but also to other potential future 
measures that might be employed to attain and maintain the NAAQS. Both 
EPA and states have already adopted numerous control measures, and 
remaining measures tend to be more expensive than those previously 
employed. As we employ the most cost-effective available measures 
first, more expensive ones tend to become necessary over time.
    The emission reductions used to calculate the cost-effectiveness 
levels reported here are based on those reductions used for our air 
quality analysis modeling and benefits analysis. This was done to 
maintain consistency in the analyses. As noted in Section III.B. above, 
we have updated our inventory model since the air quality modeling 
inventories were calculated. In Chapter III of our RIA, Table III.A.-3 
compares the updated Tier 2 model with the air quality analysis 
modeling and shows that the emission reductions expected from Tier 2/
gasoline sulfur will be substantially greater than the amounts 
originally calculated. If the

[[Page 6778]]

updated numbers were incorporated into our cost-effectiveness we would 
expect the results to be improved over those shown in this section.
    We received a number of comments on our cost-effectiveness analysis 
in response to our NPRM. Our responses to these comments can be found 
in the Response To Comments document.
a. Cost-Effectiveness of This Program
    We have calculated the cost-effectiveness of the exhaust emission/
gasoline sulfur standards and the evaporative emission standards, based 
on two different approaches. The first considers the net present value 
of all costs incurred and emission reductions generated over the life 
of an average Tier 2 vehicle. This per-vehicle approach focuses on the 
cost-effectiveness of the program from the point of view of the Tier 2 
vehicles which will be used to meet the new requirements, and is the 
method used in our proposal. However, the per-vehicle approach does not 
capture all of the costs or emission reductions from the Tier 2/
gasoline sulfur program since it does not account for the use of low 
sulfur gasoline in pre-Tier 2 vehicles. Therefore, we have also 
calculated an aggregate cost-effectiveness using the net present value 
of costs and emission reductions for all in-use vehicles over a 30-year 
time frame.
    As described earlier in the discussion of the cost of this program, 
the cost of complying with the new standards will decline over time as 
manufacturing costs are reduced and amortized capital investments are 
recovered. To show the effect of declining cost in the per-vehicle 
cost-effectiveness analysis, we have developed both near term and long 
term cost-effectiveness values. More specifically, these correspond to 
vehicles sold in years one and six of the vehicle and fuel programs. 
Vehicle cost is constant from year six onward. Fuel costs per gallon 
continue to decline slowly in the years past year six; however, the 
overall impact of this decline is small and we have decided to use year 
six results for our long term cost-effectiveness. Chapter VI of the RIA 
contains a full description of this analysis, and you should look in 
that document for more details of the results summarized here.
    The aggregate approach to calculating the cost-effectiveness of our 
program involves the net present value of all nationwide emission 
reductions and costs for a 30-year period beginning with the start of 
the program in 2004. This timeframe captures both the early period of 
the program when very few Tier 2 vehicles will be in the fleet, and the 
later period when essentially all vehicles in the fleet will meet Tier 
2 standards. We have calculated the aggregate cost-effectiveness using 
the net present value of the nationwide emission reductions and costs 
for each calendar year. These emission reductions and costs are 
summarized in Sections III.B, III.C, and IV.D.3, and are given for 
every calendar year in the RIA. For more information on how the 
aggregate cost-effectiveness was calculated please refer to the RIA.
    Our per-vehicle and aggregate cost-effectiveness values are given 
in Tables IV.D.-3 and IV.D.-4. Table IV.D.-3 summarizes the per-
vehicle, net present value lifetime costs, NMHC+NOX emission 
reductions, and resulting cost-effectiveness results for our Tier 2/
gasoline sulfur program using sales weighted averages of the costs 
(both near term and long term) and emission reductions of the various 
vehicle classes affected. Table IV.D.-4 provides the same information 
from the program aggregate perspective. It includes the net present 
value of the 30-year stream of vehicle and fuel costs, 
NMHC+NOX emission reductions, and the resulting aggregate 
cost-effectiveness. For simplicity, we have used the midpoint of our 
estimated range of 20 to 65 percent for the irreversibility effect. The 
full range of irreversibility would only cause the cost-effectiveness 
values to differ from those in Table IV.D-3, for example, by $60/ton to 
$100/ton. Note that, even though we are setting new standards for PM, 
those standards are already being met, so there is no cost associated 
with the new PM standard and therefore no separate cost-effectiveness 
analysis for PM.
    Tables IV.D.-3 and IV.D.-4 also display cost-effectiveness values 
based on two approaches to account for the reductions in SO2 
and tailpipe emitted sulfate particulate matter (PM) associated with 
the reduction in gasoline sulfur. While these reductions are not 
central to the program and are therefore not displayed with their own 
cost-effectiveness, they do represent real emission reductions due to 
our program. The first set of cost-effectiveness numbers in the tables 
simply ignores these reductions and bases the cost-effectiveness on 
only the NMHC+NOX reductions from Tier 2/gasoline sulfur. 
The second set accounts for these ancillary reductions by crediting 
some of the cost of the program to SO2 and PM reduction. The 
amount of cost allocated to SO2 and PM is based on the cost-
effectiveness of SO2 and PM emission reductions that could 
be obtained from alternative, potential future EPA programs.

                         Table IV.D-3.--Per-Vehicle Cost-Effectiveness of the Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                     Discounted
                                                                        Discounted                 lifetime cost-
                                                           Discounted    lifetime     Discounted   effectiveness
                       Cost basis                           lifetime    NMHC + NOX  lifetime cost-  per ton with
                                                           vehicle &    reduction   effectiveness     SO2 and
                                                           fuel costs     (tons)       per ton       direct PM
                                                                                                      credit a
----------------------------------------------------------------------------------------------------------------
Near term cost (production year 1)......................         $243        0.110        $2,211         $1,717
Long term cost (production year 6)......................          205        0.110         1,863         1,368
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ $51 credited to SO2 ($4,800/ton), $4 to direct PM ($10,000/ton).


[[Page 6779]]


      Table IV.D-4.--Aggregate Cost-Effectiveness of the Standards
------------------------------------------------------------------------
                                                           Discounted
   Discounted        Discounted         Discounted      aggregate cost-
    aggregate     aggregate NMHC +   aggregate cost-   effectiveness per
 vehicle & fuel     NOX reduction   effectiveness per   ton with SO2 and
      costs            (tons)              ton          direct PM credit
                     (millions)                               \a\
------------------------------------------------------------------------
$48.1 billion              23.5             $2,047            $1,311
------------------------------------------------------------------------
Notes:
\a\ $13.8 billion credited to SO2 ($4,800/ton), $3.5 billion to direct
  PM ($10,000/ton).

b. How Does the Cost-Effectiveness of This Program Compare With Other 
Means of Obtaining Mobile Source NOX + NMHC Reductions?
    In comparison with other mobile source control programs, we believe 
that our program represents the most cost-effective new mobile source 
control strategy currently available that is capable of generating 
substantial NOX + NMHC reductions. This can be seen by 
comparing the cost-effectiveness of today's program with a number of 
mobile source standards that EPA has adopted in recent years. Table 
IV.D.-5 summarizes the cost-effectiveness of several recent EPA 
actions.

   Table IV.D.-5.--Cost-Effectiveness of Previously Implemented Mobile
                             Source Programs
------------------------------------------------------------------------
                                                              $/ton a
                         Program                             NOX+NMHC
------------------------------------------------------------------------
2004 Highway HD Diesel stds.............................         204-399
Nonroad Diesel engine stds..............................         410-650
Tier 1 vehicle controls.................................     1,980-2,690
NLEV....................................................           1,859
Marine SI engines.......................................     1,128-1,778
On-board diagnostics....................................          2,228
------------------------------------------------------------------------
Notes: a Costs adjusted to 1997 dollars.

    We can see from the table that the cost-effectiveness of the Tier 
2/gasoline sulfur standards falls within the range of these other 
programs. Engine-based standards (the 2004 highway heavy-duty diesel 
standards, the nonroad diesel engine standards and the marine spark-
ignited engine standards) have generally been less costly than Tier 2/
gasoline sulfur. Vehicle standards, most similar to today's program, 
have values comparable to or higher than Tier 2/gasoline sulfur.
    The values in Table IV.D.-5 might imply that further reductions in 
NOX and VOC from heavy-duty engines could be more cost-
effective than the reductions that will be produced from our Tier 2/
gasoline sulfur program. However, we do not believe that to be the 
case. While we are indeed developing a proposal for further control 
from heavy-duty engines, we expect that substantial further emission 
reductions will require advanced after-treatment devices. These devices 
will be more costly than methods used to meet our past standards, and 
will have difficulty functioning properly without changes to diesel 
fuel. We therefore expect that the cost effectiveness of future heavy-
duty standards is not likely to be significantly less than the cost 
effectiveness of today's rule.
    On the light-duty vehicle side, the last two sets of standards were 
Tier 1 and NLEV, which had cost-effectiveness comparable to or higher 
than Tier 2/gasoline sulfur. Compared to engines, these levels reflect 
the advanced (and more expensive) state of vehicle control technology, 
where standards have been in effect for a much longer period than for 
engines. Considering the increased stringency of the Tier 2 standards, 
it is noteworthy that the cost-effectiveness of Tier 2/gasoline sulfur 
is in the same range as these actions. Based on these results, Tier 2/
gasoline sulfur is a logical and consistent next step in vehicle 
control.
    In conclusion, we believe that the Tier 2/Gasoline Sulfur program 
is a cost-effective program for mobile source NOX + NMHC 
control. We are unable to identify another mobile source control 
program that would be more cost-effective than Tier 2/gasoline sulfur 
while also producing equivalent reductions in NOX and NMHC 
emissions in the same timeframe as our program.
c. How Does the Cost-Effectiveness of This Program Compare With Other 
Known Non-Mobile Source Technologies for Reducing NOX + 
NMHC?
    In evaluating the cost-effectiveness of the Tier 2/Gasoline Sulfur 
program, we also considered whether our program is cost-effective in 
comparison with alternative means of attaining or maintaining the NAAQS 
other than mobile source programs. As described below, we have 
concluded that Tier 2/Gasoline Sulfur is cost-effective considering the 
anticipated cost of other technologies that will be needed to help 
attain and maintain the NAAQS.
    In the context of the Agency's rulemaking to revise the ozone and 
PM NAAQS, \101\ the Agency compiled a list of additional known 
technologies that could be considered in devising new emission 
reductions strategies.\102\ Through this broad review, over 50 
technologies were identified that could reduce NOX or VOC. 
The cost-effectiveness of these technologies averaged approximately 
$5,000/ton for VOC and $13,000/ton for NOX. These values 
clearly indicate that not only are future emission control strategies 
likely to be more expensive (less cost-effective) than past strategies, 
but the cost-effectiveness of our Tier 2/Gasoline Sulfur program falls 
at the lower end of the range for potential future strategies.
---------------------------------------------------------------------------

    \101\ This rulemaking was remanded by the D.C. Circuit Court on 
May 14, 1999. However, the analyses completed in support of that 
rulemaking are still relevant, since they were designed to 
investigate the cost-effectiveness of a wide variety of potential 
future emission control strategies.
    \102\ ``Regulatory Impact Analyses for the Particulate Matter 
and Ozone National Ambient Air Quality Standards and Proposed 
Regional Haze Rule,'' Appendix B, ``Summary of control measures in 
the PM, regional haze, and ozone partial attainment analyses,'' 
Innovative Strategies and Economics Group, Office of Air Quality 
Planning and Standards, U.S. Environmental Protection Agency, 
Research Triangle Park, NC, July 17, 1997.
---------------------------------------------------------------------------

    In addition, our Tier 2/Gasoline Sulfur program will deliver 
critical further reductions that are not readily obtainable by any 
other means known to the Agency. If all of the technologies modeled in 
the NAAQS analysis costing less than $10,000/ton were implemented 
nationwide, they would produce NOX emission reductions of 
about 2.9 million tons per year. The Tier 2/Gasoline Sulfur program by 
itself will generate about 2.8 million tons per year once fully 
implemented. Given the continuing need for further emission reductions, 
we believe that Tier 2/Gasoline Sulfur control is clearly a cost-
effective approach for attaining and maintaining the NAAQS.
    We recognize that the cost-effectiveness calculated for Tier 2/
Gasoline Sulfur is not strictly comparable to a figure for measures 
targeted at nonattainment areas, since Tier 2/Gasoline Sulfur is a 
nationwide program. However, there are several additional 
considerations that have led us to conclude that Tier 2/Gasoline Sulfur 
is cost-effective considering

[[Page 6780]]

alternative means of attaining and maintaining the NAAQS.
    First of all is the fact that the cost effectiveness of Tier 2/
Gasoline Sulfur is so much better than the numbers developed for the 
NAAQS analysis. It is only 20 percent as costly per ton as the $10,000 
per ton upper limit employed in that analysis for selecting suitable 
strategies even though, as noted above, Tier 2/Gasoline Sulfur will 
produce almost the same level of emission reduction. Furthermore, as a 
national program, Tier 2/Gasoline Sulfur can be implemented as a single 
unified rule without the need for individual action by each of the 
states.
    In dealing with the question of comparing local and national 
programs, it is also relevant to point out that, because of air 
transport, the need for NOX control is a broad regional 
issue not confined to non-attainment areas only. To reach attainment, 
future controls will need to be applied over widespread areas of the 
country. In the analyses supporting the recent NOX standards 
for highway diesel engines,\103\ we looked at this question in some 
detail and concluded that the regions expected to impact ozone levels 
in ozone nonattainment areas accounted for over 85% of total 
NOX emissions from a national heavy-duty engine control 
program. Similarly, NOX emissions in attainment areas also 
contribute to particulate matter nonattainment problems in downwind 
areas. Thus, the distinction between local and national control 
programs for NOX is less important than it might appear.
---------------------------------------------------------------------------

    \103\ Final Regulatory Impact Analysis: Control of Emissions of 
Air Pollution from Highway Heavy-Duty Engines, September 16, 1997.
---------------------------------------------------------------------------

    Finally, the statute indicates that in considering the cost-
effectiveness of Tier 2/Gasoline Sulfur EPA should consider not only 
attainment, but also maintenance of the standards. Tier 2/Gasoline 
Sulfur--unlike nonattainment area measures--will achieve attainment 
area reductions that, among other effects, will help to maintain air 
quality that meets the NAAQS. These reductions relate not only to the 
ozone and PM NAAQS, but also to SO2 and NO2, and 
to CO.
    In summary, given the array of controls that will have to be 
implemented to make progress toward attaining and maintaining the 
NAAQS, we believe that the weight of the evidence from alternative 
means of providing substantial NOX + NMHC emission 
reductions indicates that the Tier 2/Gasoline Sulfur program is cost-
effective. This is true from the perspective of other mobile source 
control programs or from the perspective of other stationary source 
technologies that might be considered.
5. Does the Value of the Benefits Outweigh the Cost of the Standards?
    While relative cost-effectiveness is the principal economic policy 
criterion established for these standards in the Clean Air Act (see CAA 
Sec. 202(i)), further insight regarding the merits of the standards can 
be provided by benefit-cost analysis. The purpose of this section is to 
summarize the methods we used and results we obtained in conducting an 
analysis of the economic benefits of the Tier 2 program, and to compare 
these economic benefits with the estimated costs of the rule. In 
summary, the results of our analysis using the EPAs preferred approach 
to valuing premature mortality indicate that the economic benefits of 
the Tier 2/gasoline sulfur standards will likely exceed the costs of 
meeting the standards by about $20 billion (1997$).
a. What Is the Purpose of This Benefit-Cost Comparison?
    Benefit-cost analysis (BCA) is a useful tool for evaluating the 
economic merits of proposed changes in environmental programs and 
policies. In its traditional application, BCA estimates the economic 
``efficiency'' of proposed changes in public policy by organizing the 
various expected consequences and representing those changes in terms 
of dollars. Expressing the effects of these policy changes in dollar 
terms provides a common basis for measuring and comparing these various 
effects. Because improvement in economic efficiency is typically 
defined to mean maximization of total wealth spread among all members 
of society, traditional BCA must be supplemented with other analyses in 
order to gain a full appreciation of the potential merits of new 
policies and programs. These other analyses may include such things as 
examinations of legal and institutional constraints and effects; 
engineering analyses of technology feasibility, performance and cost; 
or assessment of the air quality need.
    In addition to the narrow, economic efficiency focus of most BCAs, 
the technique is also limited in its ability to project future economic 
consequences of alternative policies in a definitive way. Critical 
limitations on the availability, validity, or reliability of data; 
limitations in the scope and capabilities of environmental and economic 
effect models; and controversies and uncertainties surrounding key 
underlying scientific and economic literature all contribute to an 
inability to estimate the economic effects of environmental policy 
changes in exact and unambiguous terms. Under these circumstances, we 
consider it most appropriate to view BCA as a tool to inform, but not 
dictate, regulatory decisions such as the ones reflected in today's 
rule.
    Despite the limitations inherent in BCA of environmental programs, 
we consider it useful to estimate the potential benefits of today's 
action both in terms of physical changes in human health and welfare 
and environmental change, and in terms of the estimated economic value 
of those physical changes.
b. What Was Our Overall Approach to the Benefit-Cost Analysis?
    The basic question we sought to answer in the BCA was: ``What are 
the net yearly economic benefits to society of the reduction in mobile 
source emissions likely to be achieved by the final Tier 2 program?'' 
In designing an analysis to answer this question, we selected a future 
year for analysis (2030) that is representative of full-implementation 
of the program (i.e., when the U.S. car and light truck population is 
virtually only Tier 2 vehicles). We also adopted an analytical 
structure and sequence similar to that used in the ``section 812 
studies'' \104\ to estimate the total benefits and costs of the entire 
Clean Air Act. Moreover, we used many of the same models, and 
assumptions actually used in the section 812 studies, and other 
Regulatory Impact Analyses (RIA's) prepared by the Office of Air and 
Radiation. By adopting the major design elements, models, and 
assumptions developed for the section 812 studies and other RIA's, we 
have largely relied on methods which have already received extensive 
review by the independent Science Advisory Board, by the public, and by 
other federal agencies.
---------------------------------------------------------------------------

    \104\ The ``section 812 studies'' refers to (1) US EPA, Report 
to Congress: The Benefits and Costs of the Clean Air Act, 1970 to 
1990, October 1997 (also known as the ``section 812 Retrospective); 
and (2) the first in the ongoing series of prospective studies 
estimating the total costs and benefits of the Clean Air Act (see 
EPA report number: EPA-410-R-99-001, November 1999).
---------------------------------------------------------------------------

c. What Are the Significant Limitations of the Benefit-Cost Analysis?
    Every BCA examining the potential effects of a change in 
environmental protection requirements is limited to some extent by data 
gaps, limitations in model capabilities (such as geographic coverage), 
and uncertainties in the underlying scientific and economic

[[Page 6781]]

studies used to configure the benefit and cost models. Deficiencies in 
the scientific literature often result in the inability to estimate 
changes in health and environmental effects, such as potential 
increases in premature mortality associated with increased exposure to 
carbon monoxide. Deficiencies in the economics literature often result 
in the inability to assign economic values even to those health and 
environmental outcomes which can be quantified, such as changes in 
visibility in residential areas. While these general uncertainties in 
the underlying scientific and economics literatures are discussed in 
detail in the RIA and its supporting documents and references, the key 
uncertainties which have a bearing on the results of the BCA of today's 
action are:
     The exclusion of potentially significant benefit 
categories (e.g., health and ecological benefits of incidentally 
controlled hazardous air pollutants),
     Errors in measurement and projection for variables such as 
population growth,
     Variability in the estimated relationships of health and 
welfare effects to changes in pollutant concentrations.
    In addition to these uncertainties and shortcomings which pervade 
all analyses of criteria air pollutant control programs, a number of 
limitations apply specifically to the BCA of today's action. Though we 
used the best data and models currently available, we were required to 
adopt a number of simplifying assumptions and to use data sets which, 
while reasonably close, did not match precisely the conditions and 
effects expected to result from implementation of the standards. For 
example, to estimate the effects of the program at full implementation 
we projected vehicle miles traveled and populations in the year 2030. 
These assumptions may play a significant role in determining the 
magnitude of the benefits estimate. In addition, although the emissions 
data sets used for this analysis have been updated from those used in 
the proposal, they may not anticipate the emissions reductions realized 
by other future actions and by expected near-future control programs. 
For example, it is possible that the Tier 2/gasoline sulfur standards 
will not be the governing vehicle emissions standards in 2030. In the 
years before 2030, the benefits from the Tier 2 program will be less 
than those estimated here (significantly less in the early years), 
because the Tier 2 fleet will not be fully phased in.
    Finally, the implementation period for phasing-in the rule 
requirements is a critical period that deserves careful evaluation. The 
benefit-cost analysis for 2030 is not significantly affected by 
alternative phase-in decisions, the primary impact of which will occur 
in the 2005-2015 time frame. As a result, the analysis of phase-in 
alternatives must rely on other types of analysis (e.g., cost-
effectiveness analysis).
    The key limitations and uncertainties unique to the BCA of the 
final rule, therefore, include:
     Uncertainties in the estimation of future year emissions 
inventories and air quality,
     Uncertainties associated with the extrapolation of air 
quality monitoring data to some unmonitored areas required to better 
capture the effects of the standards on affected populations, and
     Uncertainties associated with the effect of potential 
future actions to limit emissions.
    Despite these uncertainties, which are discussed in more detail or 
referenced in the RIA, we believe the BCA provide a reasonable 
indication of the expected economic benefits of the Tier 2 program in 
2030 under one set of assumptions. This is because the analysis focuses 
on estimating the economic effects of the changes in air quality 
conditions expected to result from today's action, rather than focusing 
on developing a precise prediction of the absolute levels of air 
quality likely to prevail in 2030. An analysis focusing on the changes 
in air quality can give useful insights into the likely economic 
effects of emission reductions of the magnitude expected to result from 
today's rule.
d. How Has the Benefit-Cost Analysis Changed From Proposal?
    We significantly improved the analysis that was presented at 
proposal. For the final rule, EPA updated the emissions inventory from 
1990 to 1996 using updated models, refined the projections of the 
effects of the rule when it is fully implemented, and updated our air 
quality modeling to reflect new programs issued since 1990. In 
addition, we also updated our assumptions for estimating physical 
effects and monetary benefits based on recommendations from the EPA's 
Science Advisory Board (SAB) during the summer of 1999. Details on 
these recommendations can be found in the advisory statements published 
by the SAB.\105\ All of the changes made since the analysis at proposal 
serve to update and improve the analysis.
---------------------------------------------------------------------------

    \105\ Full documentation of the SAB recommendations can be found 
at their website (www.epa.gov/sab) under the following references: 
EPA-SAB-COUNCIL-ADV-98-003, 1998; EPA-SAB-COUNCIL-ADV-99-05, 1999; 
EPA-SAB-COUNCIL-ADV-99-012, 1999; EPA-SAB-COUNCIL-ADV-00-001, 1999; 
and EPA-SAB-COUNCIL-ADV-00-002, 1999.
---------------------------------------------------------------------------

e. How Did We Perform the Benefit-Cost Analysis?
    The analytical sequence begins with a projection of the mix of 
technologies likely to be deployed to comply with the new standards, 
and the costs incurred and emissions reductions achieved by these 
changes in technology. The Tier 2 program has various cost and emission 
related components, as described earlier in this section. These 
components would begin at various times and in some cases would phase 
in over time. This means that during the early years of the program 
there would not be a consistent match between cost and benefits. This 
is especially true for the vehicle control portions of the program, 
where the full vehicle cost would be incurred at the time of vehicle 
purchase, while the fuel cost along with the emission reductions and 
benefits would occur throughout the lifetime of the vehicle.
    To develop a benefit-cost number that is representative of a fleet 
of Tier 2 vehicles, we need to have a stable set of cost and emission 
reductions to use. This means using a future year where the fleet is 
fully turned over and there is a consistent annual cost and annual 
emission reduction. For the Tier 2 program, this stability would not 
occur until well into the future. For this analysis, we selected the 
year 2030. The resulting analysis represents a snapshot of benefits and 
costs in a future year in which the light-duty fleet consists almost 
entirely of Tier 2 vehicles. As such, it depicts the maximum emission 
reductions (and resultant benefits) and among the lowest costs that 
would be achieved in any one year by the program on a ``per mile'' 
basis. (Note, however, that net benefits would continue to grow over 
time beyond those resulting from this analysis, because of growth in 
population and vehicle miles traveled.) Thus, based on the long-term 
costs for a fully turned over fleet, the resulting benefit-cost ratio 
will be close to its maximum point (for those benefits which we have 
been able to value).
    To present a BCA, we designed the cost estimate to reflect 
conditions in the same year as the benefit valuation. Costs are, 
therefore, developed for the year 2030 fleet. For this purpose we used 
the long term cost once the capital costs have been recovered and the 
manufacturing learning curve

[[Page 6782]]

reductions have been realized, since this will be the case in 2030.
    We also made adjustments in the costs to account for the fact that 
there is a time difference between when some of the costs are expended 
and when the benefits are realized. The vehicle costs are expended when 
the vehicle is sold, while the fuel related costs and the benefits are 
distributed over the life of the vehicle. We resolved this difference 
by using costs distributed over time such that there is a constant cost 
per ton of emissions reduction and such that the net present value of 
these distributed costs corresponds to the net present value of the 
actual costs.
    The resulting adjusted costs are somewhat greater than the expected 
actual annual cost of the program, reflecting the time value 
adjustment. Thus, the costs presented in this section do not represent 
expected actual annual costs for 2030. Rather, they represent an 
approximation of the steady-state cost per ton that would likely 
prevail in that time period. The benefit cost ratio for the earlier 
years of the program would be expected to be lower than that based on 
these costs, since the per-vehicle costs are larger in the early years 
of the program while the benefits are smaller.
    In order to estimate the changes in air quality conditions which 
would result from these emissions reductions, we developed two 
separate, year 2030 emissions inventories to be used as inputs to the 
air quality models. The first, baseline inventory, reflects the best 
available approximation of the county-by-county emissions for 
NOX, VOC, and SO2 expected to prevail in the year 
2030 in the absence of the standards. To generate the second, control 
case inventory, we first estimated the change in vehicle emissions, by 
pollutant and by county, expected to be achieved by the 2030 control 
scenario described above. We then took the baseline emissions inventory 
and subtracted the estimated reduction for each county-pollutant 
combination to generate the second, control case emissions inventory. 
Taken together, the two resulting emissions inventories reflect two 
alternative states of the world and the differences between them 
represent our best estimate of the reductions in emissions which would 
result from our control scenario.
    With these two emissions inventories in hand, the next step was to 
``map'' the county-by-county and pollutant-by-pollutant emission 
estimates to the input grid cells of two air quality models and one 
deposition model. The first model, called the Urban Airshed Model 
(UAM), is designed to estimate the tropospheric ozone concentrations 
resulting from a specific inventory of emissions of ozone precursor 
pollutants, particularly NOX and NMHC. The second model, 
called the Climatological Regional Dispersion Model Source-Receptor 
Matrix model (S-R Matrix), is designed to estimate the changes in 
ambient particulate matter and visibility which would result from a 
specific set of changes in emissions of primary particulate matter and 
secondary particulate matter precursors, such as SO2, 
NOX, and NMHC. Also, nitrogen loadings to watersheds were 
estimated using factors derived from previous modeling from the 
Regional Acid Deposition Model (RADM). By running both the baseline and 
control case emissions inventories through these models, we were able 
to estimate the expected 2030 air quality conditions and the changes in 
air quality conditions which would result from the emissions reductions 
expected to be achieved by the Tier 2 program.
    After developing these two sets of year 2030 air quality profiles, 
we used the same health and environmental effect models used in the 
section 812 studies to calculate the differences in human health and 
environmental outcomes projected to occur with and without the proposed 
standards. Specifically, we used the Criteria Air Pollutant Modeling 
System (CAPMS) to estimate changes in human health outcomes, and the 
Agricultural Simulation Model (AGSIM) to estimate changes in yields of 
a selected few agricultural crops. In addition, the impacts of reduced 
visibility impairment and estimates of the effect of changes in 
nitrogen deposition to a selection of sensitive estuaries were 
estimated using slightly modified versions of the methods used in the 
section 812 studies. Several air quality-related health and 
environmental benefits, however, could not be calculated for the BCA of 
today's proposed standards. Changes in human health and environmental 
effects due to changes in ambient concentrations of carbon monoxide 
(CO), gaseous sulfur dioxide (SO2), gaseous nitrogen dioxide 
(NO2), and hazardous air pollutants could not be included. 
In addition, some health and environmental benefits from changes in 
ozone and PM could not be included in our analysis (i.e., commercial 
forestry benefits).
    To characterize the total economic value of the reductions in 
adverse effects achieved across the lower 48 states,\106\ we used the 
same set of economic valuation coefficients and models used in the 
section 812 studies, as approved by the SAB. The net monetary benefits 
of the Tier 2 program were then calculated by subtracting the estimated 
costs of compliance from the estimated monetary benefits of the 
reductions in adverse health and environmental effects.
---------------------------------------------------------------------------

    \106\ Though California is included based on the expectation 
that reductions in surrounding states will achieve some benefits in 
California, this analysis does not assume additional reductions in 
California emissions beyond those already achieved by prevailing 
standards.
---------------------------------------------------------------------------

    The last step of the analysis is to characterize the uncertainty 
surrounding our estimate of benefits. Again, we follow the 
recommendations of the SAB for the presentation of uncertainty. They 
recommend that a primary estimate should be presented along with a 
description of the uncertainty associated with each endpoint. At 
proposal, our characterization of uncertainty was based on an estimated 
range of benefits which might occur if important but uncertain 
underlying factors were allowed to vary. This approach, however, is 
criticized by the SAB because while the low- or high-end estimates 
provided for individual endpoints was ``plausible,'' the probability of 
all of the assumptions in these estimates occurring simultaneously was 
likely to be small.
    Therefore, for the final Tier 2/gasoline sulfur rule, the benefit 
analysis adopts an approach similar to the section 812 study. Our 
analysis first presents our estimate for a primary set of benefit 
endpoints followed by a presentation of ``alternative calculations'' of 
key health and welfare endpoints to characterize the uncertainty in 
this primary set. However, the adoption of a value for the projected 
reduction in the risk of premature mortality is the subject of 
continuing discussion within the economic and public policy analysis 
community within and outside the Administration. In response to the 
sensitivity on this issue, we provide estimates reflecting two 
alternative approaches for mortality benefits: the EPAs preferred 
approach using the value of a statistical life, and an alternative 
approach using the value of a statistical life years. These are 
discussed further in section f. of this presentation. The presentation 
of the alternative calculations for certain endpoints seeks to 
demonstrate how much the overall benefit estimate might vary based on 
the value EPA has given to a parameter (which has some uncertainty 
associated with it) underlying the estimates for human health and 
environmental effect incidence and the economic valuation

[[Page 6783]]

of those effects. These alternative calculations represent conditions 
that are possible to occur, however, EPA has selected the best 
supported values based on current scientific literature for use in the 
primary estimate. The alternate calculations include:
     Presentation of an estimated confidence interval around 
the Primary estimate of benefits to characterize The standard error in 
the C-R and valuation studies used in developing benefit estimates for 
each endpoint;
     Valuing PM-related premature mortality based on a 
different C-R study;
     Value of avoided premature mortality incidences based on 
statistical life years;
     Consideration of reversals in chronic bronchitis treated 
as lowest severity cases;
     Value of visibility changes in all Class I areas;
     Value of visibility changes in Eastern U.S. residential 
areas;
     Value of visibility changes in Western U.S. residential 
areas;
     Value of reduced household soiling damage; and
     Avoided costs of reducing nitrogen loadings in east coast 
estuaries.
    For instance, the study by Dockery, et al. estimates of the 
relationship between PM exposure and premature mortality is a plausible 
alternative to the Pope, et al. study used for the Primary estimate of 
benefits. The SAB has noted that ``the study had better monitoring with 
less measurement error than did most other studies'' (EPA-SAB-COUNCIL-
ADV-99-012, 1999). The Dockery study had a more limited geographic 
scope (and a smaller study population) than the Pope, et al. study and 
the Pope study appears more likely to mitigate a key source of 
potential confounding. The Dockery study also covered a broader age 
category (25 and older compared to 30 and older in the Pope study) and 
followed the cohort for a longer period (15 years compared to 8 years 
in the Pope study). For these reasons, the Dockery study is considered 
to be a plausible alternative estimate of the avoided premature 
mortality incidences associated with the final Tier 2/gasoline sulfur 
rule. The alternative estimate for mortality can be substituted for the 
valuation component in our primary estimate of mortality benefits to 
observe how the net benefits of the program may be influenced by this 
assumption. Unfortunately, it is not possible to combine all of the 
assumptions used in the alternate calculations to arrive at different 
total benefit estimates because, it is highly unlikely that the 
selected combination of alternative values would all occur 
simultaneously. Therefore, it is better to consider each alternative 
calculation individually to assess the uncertainty in the estimate.
    In addition to the estimate for the primary set of endpoints and 
alternative calculations of benefits, our RIA also presents an appendix 
with supplemental benefit estimates and sensitivity analyses of other 
key parameters in the benefit analysis that have greater uncertainty 
surrounding them due to limitations in the scientific literature. 
Supplemental estimates are presented for premature mortality associated 
with short-term exposures to PM and ozone, asthma attacks, occurrences 
of moderate or worse asthma symptoms, and an estimate of the avoided 
incidences of premature mortality in infants.
    Even with our efforts to fully disclose the uncertainty in our 
estimate, this uncertainty presentation method does not provide a 
definitive or complete picture of the true range of monetized benefits 
estimates. This approach, as implemented in this BCA, does not reflect 
important uncertainties in earlier steps of the analysis, including 
estimation of compliance technologies and strategies, emissions 
reductions and costs associated with those technologies and strategies, 
and air quality and deposition changes achieved by those emissions 
reductions. Nor does this approach provide a full accounting of all 
potential benefits associated with the Tier 2/gasoline sulfur 
standards, due to data or methodological limitations. Therefore, the 
uncertainty range is only representative of those benefits that we were 
able to quantify and monetize.
f. What Were the Results of the Benefit-Cost Analysis?
    The BCA for the Tier 2 program reflects a single year ``snapshot'' 
of the yearly benefits and costs expected to be realized once the 
standards have been fully implemented and non-compliant vehicles have 
all been retired. Near-term costs will be higher than long-run costs as 
vehicle manufacturers and oil companies invest in new capital equipment 
and develop and implement new technologies. In addition, near-term 
benefits will be lower than long-run benefits because it will take a 
number of years for Tier 2-compliant vehicles to fully displace older, 
more polluting vehicles. However, as described earlier, we have 
adjusted the cost estimates upward to compensate for some of this 
discrepancy in the timing of benefits and costs and to ensure that the 
long-term benefits and costs are calculated on a consistent basis. The 
resulting adjusted long-term cost value is given in Table IV.D.-5a. 
Because of the adjustment process, the cost estimates should not be 
interpreted as reflecting the actual costs expected to be incurred in 
the year 2030. Actual program costs can be found in Section IV.D.3.

  Table IV.D.-5a.--Adjusted Cost of the Tier 2/Gasoline Sulfur Rule for
                         Comparison to Benefits
------------------------------------------------------------------------
                                                               Adjusted
                                                                 cost
                         Cost basis                           (billions
                                                             of dollars)
------------------------------------------------------------------------
Long term a................................................         5.3
------------------------------------------------------------------------
Notes:
a Note that this estimate of cost is only for purposes of comparing with
  our 2030 benefits estimate. See Figure IV.D.-1 for our portrayal of
  total annualized cost of the rule.

    With respect to the benefits, several different measures of 
benefits can be useful to compare and contrast to the estimated 
compliance costs. These benefit measures include (a) the tons of 
emissions reductions achieved, (b) the reductions in incidences of 
adverse health and environmental effects, and (c) the estimated 
economic value of those reduced adverse effects. Calculating the cost 
per ton of pollutant reduced is particularly useful for comparing the 
cost-effectiveness of the new standards or programs against existing 
programs or alternative new programs achieving reductions in the same 
pollutant or combination of pollutants. The cost-effectiveness analysis 
presented earlier in this preamble provides such calculations on a per-
vehicle basis. Considering the absolute numbers of avoided adverse 
health and environmental effects can also provide valuable insights 
into the nature of the health and environmental problem being addressed 
by the rule as well as the magnitude of the total public health and 
environmental gains potentially achieved by the rule. Finally, when 
considered along with other important economic dimensions --including 
environmental justice, small business financial effects, and other 
outcomes related to the distribution of benefits and costs among 
particular groups-- the direct comparison of quantified economic 
benefits and economic costs can provide useful insights into the 
potential magnitude of the estimated net economic effect of the rule, 
keeping in mind the limited set of effects we are able to monetize.
    Table IV.D.-6 presents the EPAs preferred approach to estimate the 
benefits of both the estimated reductions in adverse effect incidences 
and the estimated economic value of

[[Page 6784]]

those incidence reductions. Specifically, the table lists the avoided 
incidences of individual health and environmental effects, the 
pollutant associated with each of these endpoints, and the estimated 
economic value of those avoided incidences. For several effects, 
particularly environmental effects, direct calculation of economic 
value in response to air quality conditions is performed, eliminating 
the intermediate step of calculating incidences. As the table 
indicates, we estimate that the Tier 2 program will produce 2300 fewer 
cases of chronic bronchitis, and we also see significant improvements 
in minor restricted activity days (with an estimated 6,255,500 fewer 
cases). Our estimate also incorporates significant reductions in 
impacts on children's health, showing reductions of 7,900 cases of 
acute bronchitis, 87,200 fewer cases of lower respiratory symptoms, and 
86,600 fewer cases of upper respiratory symptoms in asthmatic children.
    Total monetized benefits, however, are driven primarily by the 
estimated 4300 fewer premature fatalities. The adoption of a value for 
the projected reduction in the risk of premature mortality is the 
subject of continuing discussion within the economic and public policy 
analysis community within and outside the Administration. In response 
to the sensitivity on this issue, we provide estimates reflecting two 
alternative approaches. The first approach--supported by some in the 
above community and preferred by EPA--uses a Value of a Statistical 
Life (VSL) approach developed for the Clean Air Act Section 812 
benefit-cost studies. This VSL estimate of $5.9 million (1997$) was 
derived from a set of 26 studies identified by EPA using criteria 
established in Viscusi (1992), as those most appropriate for 
environmental policy analysis applications.
    An alternative, age-adjusted approach is preferred by some others 
in the above community both within and outside the Administration. This 
approach was also developed for the Section 812 studies and addresses 
concerns with applying the VSL estimate--reflecting a valuation derived 
mostly from labor market studies involving healthy working-age manual 
laborers--to PM-related mortality risks that are primarily associated 
with older populations and those with impaired health status. This 
alternative approach leads to an estimate of the value of a statistical 
life year (VSLY), which is derived directly from the VSL estimate. It 
differs only in incorporating an explicit assumption about the number 
of life years saved and an implicit assumption that the valuation of 
each life year is not affected by age.\107\ The mean VSLY is $360,000 
(1997$); combining this number with a mean life expectancy of 14 years 
yields an age-adjusted VSL of $3.6 million (1997$).
---------------------------------------------------------------------------

    \107\ Specifically, the VSLY estimate is calculated by 
amortizing the $5.9 million mean VSL estimate over the 35 years of 
life expectancy associated with subjects in the labor market 
studies. The resulting estimate, using a 5 percent discount rate, is 
$360,000 per life-year saved in 1997 dollars. This annual average 
value of a life-year is then multiplied times the number of years of 
remaining life expectancy for the affected population (in the case 
of PM-related premature mortality, the average number of $ life-
years saved is 14.
---------------------------------------------------------------------------

    Both approaches are imperfect, and raise difficult methodological 
issues which are discussed in depth in the recently published Section 
812 Prospective Study, the draft EPA Economic Guidelines, and the peer-
review commentaries prepared in support of each of these documents. For 
example, both methodologies embed assumptions (explicit or implicit) 
about which there is little or no definitive scientific guidance. In 
particular, both methods adopt the assumption that the risk versus 
dollars trade-offs revealed by available labor market studies are 
applicable to the risk versus dollar trade-offs in an air pollution 
context.
    EPA currently prefers the VSL approach because, essentially, the 
method reflects the direct, application of what EPA considers to be the 
most reliable estimates for valuation of premature mortality available 
in the current economic literature. While there are several differences 
between the labor market studies EPA uses to derive a VSL estimate and 
the particulate matter air pollution context addressed here, those 
differences in the affected populations and the nature of the risks 
imply both upward and downward adjustments. For example, adjusting for 
age differences may imply the need to adjust the $5.9 million VSL 
downward as would adjusting for health differences, but the involuntary 
nature of air pollution-related risks and the lower level of risk-
aversion of the manual laborers in the labor market studies may imply 
the need for upward adjustments. In the absence of a comprehensive and 
balanced set of adjustment factors, EPA believes it is reasonable to 
continue to use the $5.9 million value while acknowledging the 
significant limitations and uncertainties in the available literature. 
Furthermore, EPA prefers not to draw distinctions in the monetary value 
assigned to the lives saved even if they differ in age, health status, 
socioeconomic status, gender or other characteristic of the adult 
population.
    Those who favor the alternative, age-adjusted approach (i.e. the 
VSLY approach) emphasize that the value of a statistical life is not a 
single number relevant for all situations. Indeed, the VSL estimate of 
$5.9 million (1997 dollars) is itself the central tendency of a number 
of estimates of the VSL for some rather narrowly defined populations. 
When there are significant differences between the population affected 
by a particular health risk and the populations used in the labor 
market studies--as is the case here--they prefer to adjust the VSL 
estimate to reflect those differences. While acknowledging that the 
VSLY approach provides an admittedly crude adjustment (for age though 
not for other possible differences between the populations), they point 
out that it has the advantage of yielding an estimate that is not 
presumptively biased. Proponents of adjusting for age differences using 
the VSLY approach fully concur that enormous uncertainty remains on 
both sides of this estimate--upwards as well as downwards--and that the 
populations differ in ways other than age (and therefore life 
expectancy). But rather than waiting for all relevant questions to be 
answered, they prefer a process of refining estimates by incorporating 
new information and evidence as it becomes available.
    In addition to the presentation of mortality valuation, this table 
also indicates with a ``B'' those additional health and environmental 
benefits which could not be expressed in quantitative incidence and/or 
economic value terms. A full listing of the benefit categories that 
could not be quantified or monetized in our estimate are provided in 
Table IV.D.-8. For instance, visibility is expected to improve in all 
areas of the country, with the largest improvements occurring in 
heavily populated residential areas (e.g., 21% of the metropolitan 
areas show an improvement of 0.5 deciviews or more). However, due to 
limitations on sources to value these effects, we include a ``B'' in 
the primary estimate table for this category. Likewise, the Tier 2/
gasoline sulfur rule will also provide progress for some estuaries to 
meet their goals for reducing nitrogen deposition (e.g., nitrogen 
loadings for the Albemarle/Pamlico Sound are reduced by 27% of their 
reductions goal), however, this endpoint is also displayed with a ``B'' 
in the table. A full appreciation of the overall economic consequences 
of the Tier 2/gasoline sulfur standards requires consideration of all 
benefits and costs expected to result from the new standards, not just 
those benefits and

[[Page 6785]]

costs which could be expressed here in dollar terms.
    In summary, the VSL approach--the approach EPA prefers--yields a 
monetized benefit estimate of $25.2 billion in 2030. The alternative, 
age-adjusted VSLY approach (presented in Table IV.D.7) yields monetary 
benefits of approximately $13.8 billion in 2030.

 Table IV.D.-6.--EPA Preferred Estimate of the Annual Quantified and Monetized Benefits Associated With Improved
                       Air Quality Resulting From the Tier 2/Gasoline Sulfur Rule in 2030
----------------------------------------------------------------------------------------------------------------
                                                              Avoided  incidencec         Monetary  benefitsd
             Endpoint                     Pollutant               (cases/year)             (millions 1997$)
----------------------------------------------------------------------------------------------------------------
Premature mortality a, b (adults,   PM b.................  4,300....................  $23,380
 30 and over).
Chronic asthma (adult males, 27     Ozone................  400......................  10
 and over).
Chronic bronchitis................  PM...................  2,300....................  730
Hospital Admissions from            Ozone and PM.........  2,200....................  20
 Respiratory Causes.
Hospital Admissions from            Ozone and PM.........  800......................  10
 Cardiovascular Causes.
Emergency Room Visits for Asthma..  Ozone and PM.........  1,200....................  1
Acute bronchitis (children, 8-12).  PM...................  7,900....................  1
Lower respiratory symptoms (LRS)    PM...................  87,100...................  5
 (children, 7-14).
Upper respiratory symptoms (URS)    PM...................  86,500...................  5
 (asthmatic children, 9-11).
Shortness of breath (African        PM...................  17,400...................  1
 American asthmatics, 7-12).
Work loss days (WLD) (adults, 18-   PM...................  682,900..................  70
 65).
Minor restricted activity days      Ozone and PM.........  5,855,000................  270
 (MRAD)/Acute respiratory symptoms.
Other health effects c............  Ozone, PM, CO, HAPS..  U1+U2+U3+U4..............  B1+B2+B3+B4
Decreased worker productivity.....  Ozone................  .........................  140
Recreational visibility (86 Class   PM...................  .........................  370
 I Areas).
Residential visibility............  PM...................  .........................  B5
Household soiling damage..........  PM...................  .........................  B6
Materials damage..................  PM...................  .........................  B7
Nitrogen Deposition to Estuaries..  Nitrogen.............  .........................  B8
Agricultural crop damage (6 crops)  Ozone................  .........................  220
Commercial forest damage..........  Ozone................  .........................  B9
Other welfare effects e...........  Ozone, PM, CO, HAPS..  .........................  B10+B11+B12+B13
      Monetized Total f, g........  .....................  .........................  $25,220+B
----------------------------------------------------------------------------------------------------------------
Notes:
a Premature mortality associated with ozone is not separately included in this analysis. It is assumed that the
  Pope, et al. C-R function for premature mortality captures both PM mortality benefits and any mortality
  benefits associated with other air pollutants. Also note that the valuation assumes the 5 year distributed lag
  structure described earlier.
b PM reductions are due to reductions in NOX and SO2 resulting from the Tier 2/Gasoline Sulfur rule.
c Incidences are rounded to the nearest 100.
d Dollar values are rounded to the nearest 10 million.
e The Ui are the incidences and the Bi are the values for the unquantified category i. A detailed listing of
  unquantified PM, ozone, CO, and HAPS related health and welfare effects is provided in Table IV.D.-8.
f B is equal to the sum of all unmonetized categories, i.e. B1+B2+ * * * +B13.
g These estimates are based on the EPA preferred approach for valuing reductions in premature mortality, the VSL
  approach. This approach and an alternative, age-adjusted approach--the VSLY approach--are discussed more fully
  in section f above.


  Table IV.D.-7.--Tier 2/Gasoline Sulfur Rule: 2030 Monetized Benefits
   Estimates for Alternative Premature Mortality Valuation Approaches
                       [Millions of 1997 dollars]
------------------------------------------------------------------------
  Premature mortality valuation     PM mortality
             approach                 benefits         Total benefits
------------------------------------------------------------------------
Value of statistical life (VSL)           $23,380  $25,220 + B
 ($5.9 million per life saved) a.
Value of statistical life-years            11,900  13,790 + B
 (VSLY) ($360,000 per life-year
 saved, which implies $3.6
 million per life saved, based on
 the mean of 14 life years saved)
 a,b.
------------------------------------------------------------------------
Notes:
a Premature mortality estimates are determined assuming a 5 year
  distributed lag, which applies 25 percent of the incidence in year 1
  and 2, and then 16.7 percent of the incidence in years 3, 4, and 5.
b The VSLY estimate is calculated by amortizing the $5.9 million mean
  VSL estimate over the 35 years of life expectancy associated with
  subjects in the labor market studies used to obtain the VSL estimate.
  The resulting estimate, using a 5 percent discount rate, is $360,000
  per life-year saved in 1997 dollars. This approach is discussed more
  fully in section f above.


[[Page 6786]]


    Table IV.D.-8.--Additional, Non-monetized Benefits of the Tier 2/
                        Gasoline Sulfur Standards
------------------------------------------------------------------------
             Pollutant                      Unquantified effects
------------------------------------------------------------------------
Ozone Health......................  Premature mortality.a
                                    Increased airway responsiveness to
                                     stimuli.
                                    Inflammation in the lung
                                    Chronic respiratory damage
                                    Premature aging of the lungs
                                    Acute inflammation and respiratory
                                     cell damage
                                    Increased susceptibility to
                                     respiratory infection
                                    Non-asthma respiratory emergency
                                     room visits
                                    Reductions in screening of UV-b
                                     radiation
Ozone Welfare.....................  Decreased yields for commercial
                                     forests
                                    Decreased yields for fruits and
                                     vegetables
                                    Decreased yields for non-commercial
                                     crops
                                    Damage to urban ornamental plants
                                    Impacts on recreational demand from
                                     damaged forest aesthetics
                                    Damage to ecosystem functions
PM Health.........................  Infant mortality
                                    Low birth weight
                                    Changes in pulmonary function
                                    Chronic respiratory diseases other
                                     than chronic bronchitis
                                    Morphological changes
                                    Altered host defense mechanisms
Nitrogen and Sulfate Deposition     Impacts of acidic sulfate and
 Welfare.                            nitrate deposition on commercial
                                     forests
                                    Impacts of acidic deposition to
                                     commercial freshwater fishing
                                    Impacts of acidic deposition to
                                     recreation in terrestrial
                                     ecosystems
                                    Reduced existence values for
                                     currently healthy ecosystems
                                    Impacts of nitrogen deposition on
                                     commercial fishing, agriculture,
                                     and forests
                                    Impacts of nitrogen deposition on
                                     recreation in estuarine ecosystems
CO Health.........................  Premature mortality a
                                    Behavioral effects
                                    Hospital admissions--respiratory,
                                     cardiovascular, and other
                                    Other cardiovascular effects
                                    Developmental effects
                                    Decreased time to onset of angina
                                    Non-asthma respiratory ER visits
HAPS Health.......................  Cancer (benzene, 1,3-butadiene,
                                     formaldehyde, acetaldehyde)
                                    Anemia (benzene)
                                    Disruption of production of blood
                                     components (benzene)
                                    Reduction in the number of blood
                                     platelets (benzene)
                                    Excessive bone marrow formation
                                     (benzene)
                                    Depression of lymphocyte counts
                                     (benzene)
                                    Reproductive and developmental
                                     effects (1,3-butadiene)
                                    Irritation of eyes and mucus
                                     membranes (formaldehyde)
                                    Respiratory irritation
                                     (formaldehyde)
                                    Asthma attacks in asthmatics
                                     (formaldehyde)
                                    Asthma-like symptoms in non-
                                     asthmatics (formaldehyde)
                                    Irritation of the eyes, skin, and
                                     respiratory tract (acetaldehyde)
HAPS Welfare......................  Direct toxic effects to animals
                                    Bioaccumlation in the food chain
------------------------------------------------------------------------
a Premature mortality associated with ozone and carbon monoxide is not
  separately included in this analysis. It is assumed that the Pope, et
  al. C-R function for premature mortality captures both PM mortality
  benefits and any mortality benefits associated with other air
  pollutants.

    In addition, in analyzing the present rule, we recognized that the 
benefits estimates were subject to a number of uncertainties with other 
parameters. In Table IV D-9, we present alternative calculations 
representing the effect of different assumptions on individual elements 
of the benefits analysis and on the total benefits estimate. For 
example, this table can be used to answer questions like ``What would 
total benefits be if we were to use the Dockery, et al. C-R function to 
estimate avoided premature mortality?'' This table also displays some 
assumptions that can be made to value some of the categories that are 
indicated with a ``B'' in the primary estimate. Overall, this table 
provides alternative calculations both for valuation issues (e.g., the 
correct value for a statistical life saved) and for physical effects 
issues (e.g., how reversals in chronic illnesses are treated). We show 
how the alternative assumption being valued would change the resulting 
total primary estimate, and the percentage change from the primary 
estimate associated with the alternative calculation. This table is not 
meant to be comprehensive. Rather, it reflects some of the key issues 
identified by EPA or commenters as likely to have a significant impact 
on total benefits.

[[Page 6787]]



    Table IV.D.-9.--Alternative Benefits Calculations for the Tier 2
                      Gasoline Sulfur Rule in 2030
------------------------------------------------------------------------
                                   Impact on  primary benefit  estimate
    Alternative calculation                  (million 1997$)
------------------------------------------------------------------------
5th percentile of                -$20,300 (-81%)
 ``measurement'' uncertainty
 distribution.
95th percentile of               +33,900 (+134%)
 ``measurement'' uncertainty
 distribution.
PM-related premature mortality   +30,200 (+120%)
 based on Dockery et al..
Value of avoided premature       -11,500 (-46%)
 mortality incidences based on
 statistical life years..
Reversals in chronic bronchitis  +280 (+1%)
 treated as lowest severity
 cases.
Value of visibility changes in   +180 (+1%)
 all class I areas.
Value of visibility changes in   +420 (+2%)
 eastern U.S. residential areas.
Value of visibility changes in   +130 (+1%)
 western U.S. residential areas.
Household soiling damage.......  +110 (+1%)
Avoided costs of reducing        +160 (+1%)
 nitrogen loadings in east
 coast estuaries.
------------------------------------------------------------------------

    The estimated adjusted cost of implementing the final Tier 2 
program is $5.3 billion (1997$), while the estimate of monetized 
benefits using EPA's preferred approach for monetizing reductions in 
PM-related premature mortality--the VSL approach--are $25.2 billion 
(1997$). Monetized net benefits using EPA's preferred method for 
valuing avoided incidences of premature mortality are approximately 
$19.9 billion (1997$). Using the alternative, age-adjusted approach--
the VSLY approach--total monetized benefits are projected to be around 
$13.8 billion (1997$). Monetized net benefits using this approach are 
approximately $8.5 billion (1997$). Therefore, implementation of the 
Tier 2 program will provide society with a net gain in social welfare. 
Tables VI.D.-10a and IV.D.-10b summarize the costs, benefits, and net 
benefits for the two alternative valuation approaches.

    Table IV.D.-10a.--2030 Annual Monetized Costs, Benefits, and Net
    Benefits for the Final Tier 2/Gasoline Sulfur Rule: EPA Preferred
  Estimate Using the Value of Statistical Lives Saved Approach to Value
                   Reductions In Premature Mortality a
------------------------------------------------------------------------
                                              Billion 1997  (dollars)
------------------------------------------------------------------------
Adjusted compliance costs................  $5.3
Monetized PM-related benefits b..........  24.7+BPM
Monetized Ozone-related benefitsb........  0.5+BOzone
Monetized net benefits c,d...............  19.9+B
------------------------------------------------------------------------
Notes:
a For this section , all costs and benefits are rounded to the nearest
  100 million. Thus, figures presented in this chapter may not exactly
  equal benefit and cost numbers presented in earlier sections of the
  chapter.
b Not all possible benefits or disbenefits are quantified and monetized
  in this analysis. Potential benefit categories that have not been
  quantified and monetized are listed in Table IV.D.-8. Unmonetized PM-
  and ozone-related benefits are indicated by BPM. And BOzone,
  respectively.
c B is equal to the sum of all unmonetized benefits, including those
  associated with PM, ozone, CO, and HAPS.
d These estimates are based on the EPA preferred approach for valuing
  reductions in premature morality, the VSL approach. This approach and
  an alternative, age-adjusted approach--the VSLY approach--are
  discussed more fully in section f above.


    Table IV.D.-10b.--2030 Annual Monetized Costs, Benefits, and Net
     Benefits for the Final Tier 2/Gasoline Sulfur Rule: Alternative
  Estimates Using the Value of Statistical Life Years Saved Approach to
                Value Reductions in Premature Mortality a
------------------------------------------------------------------------
                                              Billion 1997  (dollars)
------------------------------------------------------------------------
Adjusted compliance costs................  $5.3
Monetized PM-related benefits b..........  $13.3+BPM
Monetized Ozone-related benefits b.......  $0.5+BOzone
Monetized net benefits c, d..............  $8.5+B
------------------------------------------------------------------------
Notes:
a For this section, all costs and benefits are rounded to the nearest
  100 million. Thus, figures presented in this chapter may not exactly
  equal benefit and cost numbers presented in earlier sections of the
  chapter.
b Not all possible benefits or disbenefits are quantified and monetized
  in this analysis. Potential benefit categories that have not been
  quantified and monetized are listed in Table IV.D.-8. Unmonetized PM-
  and ozone-related benefits are indicated by BPM. And BOzone,
  respectively.
c B is equal to the sum of all unmonetized benefits, including those
  associated with PM, ozone, CO, and HAPS.
d The VSLY estimate is calculated by amortizing the $5.9 million mean
  VSL estimate over the 35 years of life expectancy associated with
  subjects in the labor market studies used to obtain the VSL estimate.
  The resulting estimate, using a 5 percent discount rate, is $360,000
  per life-year saved in 1997 dollars. This approach is discussed more
  fully in section f above.

V. Other Vehicle-Related Provisions

    The section describes several additional provisions of today's 
final rule that were not previously discussed in this preamble.\108\
---------------------------------------------------------------------------

    \108\ Generally the provisions of this section V that apply to 
HLDTs also apply to MDPVs. See section IV.B.4.g for a thorough 
discussion of the main program elements and how they impact MDPVs.
---------------------------------------------------------------------------

A. Final Tier 2 CO, HCHO and PM Standards

    Tables IV.B.-4 and -5 in Section IV.B.4.a. above presented the Tier 
2 standards for carbon monoxide (CO), formaldehyde (HCHO), and 
particulate matter (PM). The following paragraphs discuss our selection 
of these specific standards.
1. Carbon Monoxide (CO) Standards
    Beyond aligning carbon monoxide (CO) standards for all LDVs and 
LDTs, and harmonizing with California vehicle technology, reduction in 
CO emissions is not a primary goal of the Tier 2 program. However, we 
note that more than three-fourths of CO emissions in 1997 came from 
mobile sources and that there are currently 20 officially designated CO 
nonattainment areas in the U.S. These areas include 47 counties with a 
combined population of 34 million. In addition, there are 23 officially 
designated maintenance areas also with a combined population of 34 
million. Further, CO is a deadly gas that leads to accidental poisoning 
fatalities and injuries. Also, CO may play a role in ozone formation by 
increasing the reactivities of VOCs in the atmosphere.
    Although there remain many areas of nonattainment and maintenance 
for the

[[Page 6788]]

CO NAAQS, and those areas include large populations, the broad trends 
indicate that ambient levels are being reduced and the amount of 
further reductions needed to meet the CO NAAQS will not be as 
substantial as for the ozone NAAQS. The reductions in this program will 
help ensure that emissions and ambient levels of CO continue to 
decline, which will contribute to the attainment and maintenance of the 
CO NAAQS in current nonattainment areas. These standards will also 
ensure that CO levels do not increase in the future, which could 
exacerbate any CO attainment and maintenance concerns. Our analysis 
estimating of the tons of CO reduction due to the Tier 2/Gasoline 
Sulfur program is found in Chapter III of the RIA.
    Thus the CO standards we are finalizing for all Tier 2 LDVs and 
LDTs are essentially the same as those from the NLEV program for LDV/
LLDTs. These standards will harmonize with CalLEV II CO standards 
except at California's SULEV level (EPA Bin 2). This lone divergence 
will not pose additional burden to manufacturers because the federal 
Tier 2 CO standards for these vehicles will be less stringent than 
California's. Bins applicable during the interim programs will include 
CO values from the NLEV program for LDV/LLDTs and from the Cal LEV I 
program for HLDTs.\109\ In our NPRM, we proposed tighter CO standards 
than California for certain higher bins. Based upon comment, we are 
aligning our CO standards with those of California to help ensure that 
carry over between the two programs can occur.\110\ This alignment is 
consistent with our goal of bringing all LDVs and all categories of 
LDTs under common standards that allow for technology to be harmonized 
to the extent possible with California. Despite these minor changes, we 
still expect the standards in today's rule to lead to CO reductions.
---------------------------------------------------------------------------

    \109\ We recognize that the standards we are finalizing for 
interim LDT4s are more stringent than for equivalent vehicles 
(MDV3s) under Cal LEV I. Still our interim HLDT standards harmonize 
with Cal LEV I standards applicable to MDV2s.
    \110\ Ibid.
---------------------------------------------------------------------------

2. Formaldehyde (HCHO) Standards
    Similar to our approach to CO standards, we are aligning all Tier 2 
LDVs and LDTs under the formaldehyde standards from the NLEV program or 
CalLEV II program. HLDTs, which are not subject to the NLEV program, 
will become subject to federal formaldehyde standards for the first 
time under the provisions of this rulemaking.
    Formaldehyde is a hazardous air pollutant and EPA is required to 
regulate motor vehicle formaldehyde under section 202(l) of the Act. 
The standards finalized today are primarily of concern for methanol and 
methane (compressed natural gas or CNG)-fueled vehicles, because 
formaldehyde is chemically similar to methanol and methane and is 
likely to be produced when methanol or methane are not completely 
burned in the engine. HLDTs are not included under the NLEV program and 
will therefore not face formaldehyde standards as LDVs and LLDTs will 
in 2001 (1999 in the northeast states). We believe it is appropriate to 
bring HLDTs under HCHO standards in this rulemaking. Applying 
formaldehyde standards to HLDTs will be consistent with our goals of 
aligning standards for all LDVs and LDTs regardless of fuel type and 
harmonizing technologically with California standards wherever possible 
and reasonable and the burden will be minimal. Consequently, we are 
including formaldehyde standards for HLDTs under the Tier 2 program as 
well as under the interim programs.
3. Use of NMHC Data To Show Compliance with NMOG Standards; Alternate 
Compliance With Formaldehyde Standards
    In response to comments, we are finalizing a provision to allow 
manufacturers to demonstrate compliance with the interim and Tier 2 
NMOG standards using NMHC data (non-methane hydrocarbons) for gasoline 
and diesel vehicles. For these vehicles, NMOG and NMHC emissions are 
very similar and testing for NMHC is considerably simpler and cheaper 
than measuring NMOG. Data available to us show that NMHC emissions at 
levels expected from interim and Tier 2 LDVs and LDTs can be adjusted 
to represent NMOG emissions by a small multiplicative factor. We are 
finalizing to accept NMHC test results to demonstrate compliance with 
the NMOG standards, but are requiring that the NMHC results be 
multiplied by 1.04. We will permit the use of other adjustment factors 
based upon comparative testing.
    A drawback to NMHC testing is that NMHC testing does not yield 
formaldehyde results as NMOG testing does. We noted in the NPRM that 
HCHO is actually a component of NMOG and that we expect that all 
vehicles able to meet the proposed Tier 2 or interim standards 
(including methanol and CNG-fueled vehicles) will readily comply with 
the HCHO standards. In fact, based upon a review of certification data, 
we believe that gasoline and diesel vehicles will be far below the HCHO 
standards, perhaps by as much as 90%. (See the Response to Comments 
document for details)
    To reduce testing costs while harmonizing with the CalLEV II 
standards we are finalizing a provision that will permit manufacturers 
of gasoline and diesel vehicles to demonstrate compliance with the 
formaldehyde standards based on engineering judgement. This provision 
will apply only to diesel and gasoline fueled vehicles and will require 
manufacturers to make a demonstration in their certification 
application that vehicles having similar engine and vehicle size and 
engine and aftertreatment technologies have been shown to exhibit 
compliance with the applicable formaldehyde standard for their full 
useful life. This demonstration will be similar to that currently 
required for gasoline vehicles to demonstrate compliance with the 
particulate matter standard (see 40 CFR 86.1829(b)(1)), and should be 
readily available from California vehicles where NMOG testing is 
required and formaldehyde data is routinely generated.
4. Particulate Matter (PM) Standards
    We proposed to adopt tighter PM standards. For Tier 2 vehicles, we 
proposed PM bin values such that PM would consistently be 0.01 g/mi or 
less. To provide manufacturers with flexibility, we proposed a 0.02 g/
mi PM standard for vehicles that certify to the highest Tier 2 bins. As 
we have indicated elsewhere in this preamble, we anticipate that low 
sulfur diesel fuel will be available by 2007 to enable diesel vehicles 
to utilize advanced diesel technologies and meet these PM standards.
    For the interim standards we proposed a PM standard of 0.06 g/mi 
for the highest bins. We received considerable comment from 
manufacturers and others about the PM standards we proposed. In the 
final rule, we are raising the PM standard to 0.08 g/mi for bin 10. For 
HLDTs, manufacturers would likely have had to use advanced diesel 
technologies to attain our proposed interim standards and these 
technologies require low sulfur diesel fuel. Since we do not expect 
that fuel to be widely available until the 2006-2007 timeframe, we are 
raising the PM standard so that diesels are not barred from the interim 
program by a fuel situation beyond their manufacturers' control.
    PM standards are primarily a concern for diesel-cycle vehicles, but 
they also apply to gasoline and other otto-cycle

[[Page 6789]]

vehicles. We will continue to permit otto-cycle vehicles to certify to 
PM standards based on representative test data from similar technology 
vehicles.

B. Useful Life

    The ``useful life'' of a vehicle is the period of time, in terms of 
years and miles, during which a manufacturer is formally responsible 
for the vehicle's emissions performance. For LDVs and LDTs, there have 
historically been both ``full useful life'' values, approximating the 
average life of the vehicle on the road, and ``intermediate useful 
life'' values, representing about half of the vehicle's life. We 
proposed and are finalizing several changes to the current useful life 
provisions for LDVs and LDTs.
1. Mandatory 120,000 Mile Useful Life
    We are finalizing our proposal to equalize full useful life values 
for all Tier 2 LDVs and LDTs at 120,000 miles. Congress, in directing 
EPA to perform the Tier 2 study, also directed EPA to consider changing 
the useful lives of LDVs and LDTs. Manufacturers have made numerous 
advances in quality, materials and engineering that have led to longer 
actual vehicle lives and data show that each year of a vehicle's life, 
people are driving more miles. Current data indicate that passenger 
cars are driven approximately 120,000 miles in their first ten years of 
life. Trucks are driven further. Current regulatory useful lives are 10 
years/100,000 miles for LDV/LLDTs and 11 years/120,000 miles for HLDTs. 
We project, based on our Tier 2 model, that approximately 13 percent of 
light-duty NOX and 11 percent of light-duty VOCs is produced 
between 100,000 and 120,000 miles. Given the trend toward longer actual 
vehicle lives and increases in annual mileage, we believe that it is 
reasonable to extend the regulatory useful life requirements 
California, in its LEV II program, has adopted full useful life 
standards for all LDVs and LDTs of 10 years or 120,000 miles, whichever 
occurs first. The time period for federal LDV/LLDTs will be 10 years, 
but will remain at 11 years for HLDTs consistent with the Clean Air 
Act. Intermediate useful life values, where applicable, will remain at 
5 years or 50,000 miles, whichever occurs first. Where manufacturers 
elect to certify Tier 2 vehicles for 150,000 miles to gain additional 
NOX credits, as discussed below, the useful life of those 
vehicles will be 15 years and 150,000 miles. We are not harmonizing 
with California on the mandatory useful life for evaporative emissions 
of 15 years and 150,000 miles, but rather this useful life will be 
mandatory for evaporative emissions only when a manufacturer elects 
optional 150,000 mile exhaust emission certification.
    We proposed to extend the useful life of interim LDV/LLDTs to 10 
years/ 120,000 miles beginning in 2004. Based upon extensive comment, 
we are not finalizing that provision and the useful lives of interim 
LDV/LLDTs will remain unchanged to help facilitate their carryover from 
the NLEV program into the interim program. Commenters provided 
persuasive argument that the proposed provision, along with others, 
would impose a large workload burden on manufacturers because they 
would be unable to carry over certification data from 2003 and would 
have to recertify virtually all of their LDV/LLDTs in 2004. 
Manufacturers stressed that this would be an especially unproductive 
use of their resources because these vehicles would all have to be 
recertified again as they were phased into the Tier 2 standards between 
2005 and 2007. This change in the final rule will have only minimal 
impact on the benefits of our program.
2. 150,000 Mile Useful Life Certification Option
    We are adopting as proposed a provision to provide additional 
NOX credit in the fleet average calculation for vehicles 
certified to a useful life of 150,000 miles. A manufacturer certifying 
a test group to a 150,000 mile useful life will incorporate those 
vehicles into its corporate NOX average as if they were 
certified to a full useful life standard 0.85 times the applicable 
120,000 mile NOX standard. To use this option, the 
manufacturer will have to agree to (1) certify the engine family to the 
applicable 120,000 mile exhaust and evaporative standards at 150,000 
miles for all pollutants; and (2) increase the mileage on the single 
extra-high mileage in-use test vehicle from a minimum of 90,000 miles 
to a minimum of 105,000 miles.
    Today's vehicles are lasting longer and being driven farther than 
those built in past years and we believe it is reasonable to encourage 
the development of more durable emission control systems. Consequently 
we believe it is appropriate to provide incentives to manufacturers to 
certify their vehicles to extended useful lives beyond 120,000 miles. 
This is why we proposed and are today finalizing additional 
NOX credits for Tier 2 vehicles certified to a useful life 
of 150,000 miles.
    In the final rule we are adding an option that, for a test group 
certified to a 150,000 mile useful life, the manufacturer may choose 
between the additional credits or a waiver of intermediate life 
standards. Commenters suggested that some vehicles would be 
discriminated against by our intermediate life standards, because they 
might have flat deterioration curves, and could meet our full life 
standards, but not the lower intermediate life standards. We are 
reluctant to give up our intermediate life standards, because we 
believe they provide an additional measure of certainty that vehicles 
will meet standards. Nonetheless, we believe that certification to a 
longer useful life is an important goal and that manufacturers who do 
so will likely use technologies that have very flat deterioration 
curves. This option provides manufacturers with the flexibility to 
certify vehicles without having to comply with intermediate life 
standards. In exchange they must comply with full life standards for 
considerably longer mileage.

C. Supplemental Federal Test Procedure (SFTP) Standards \111\
---------------------------------------------------------------------------

    \111\ SFTP requirements do not apply to MDPVs. We plan to 
address the applicability of SFTP standards and test procedures to 
MDPVs in a future rulemaking.
---------------------------------------------------------------------------

1. Background
    Supplemental Federal Test Procedure (SFTP) standards require 
manufacturers to control emissions from vehicles when operated at high 
rates of speed and acceleration (the US06 test cycle) and when operated 
under high ambient temperatures with air conditioning loads (the SC03 
test cycle). The existing light duty SFTP requirements begin a three 
year phase-in in model year 2000 for Tier 1 LDV/LLDTs.\112\ For HLDTs, 
SFTP requirements begin a similar phase-in in 2002. Intermediate and 
full useful life SFTP standards exist for all categories of Tier 1 
vehicles except that SFTP standards do not apply to diesel fueled LDT2s 
and HLDTs. Table V.A.-1 shows the full useful life federal SFTP 
requirements applicable to Tier 1 vehicles.
---------------------------------------------------------------------------

    \112\ For vehicles included in the NLEV program, this phase-in 
becomes a four year phase-in beginning in 2001.

[[Page 6790]]



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

2. SFTP Under the NLEV Program
    The NLEV program includes SFTP requirements for LDVs, LDT1s and 
LDT2s. These requirements impose the Tier 1 intermediate and full 
useful life SFTP standards on Tier 1 and TLEV vehicles, but impose only 
4000 mile standards adopted from California LEV I program on LEVs and 
ULEVs.\113\
---------------------------------------------------------------------------

    \113\ This disparity arose because neither EPA nor CARB had full 
useful life SFTP standards for LEVs or ULEVs when the NLEV program 
was adopted. Since a major requirement of the NLEV program was 
harmony with California standards, EPA adopted the California SFTP 
standards in place for the NLEV time frame (2001 and later).
---------------------------------------------------------------------------

    NLEV SFTP standards for LEVs and ULEVs are shown in Table V.A.-2. 
Table V.A.-2 also includes the California LEV I SFTP standards for 
LDT3s and 4s. The standards in that table do not provide for a weighted 
standard for NMHC+ NOX or for CO, but rather employ separate 
sets of standards for the US06 and SC03 tests. Also, while the NLEV and 
CAL LEV I SFTP standards apply to gasoline and diesel vehicles, they do 
not include a standard for diesel particulates (PM).

                 Table V.A.-2.--SFTP Standards for LEVs and ULEVs in the NLEV/Cal LEV I Program
                                              [4000 Mile Standards]
----------------------------------------------------------------------------------------------------------------
                                                               US06                            SC03
                                                 ---------------------------------------------------------------
                                                   NMHC+NOX (g/                    NMHC+NOX (g/
                                                        mi)          CO (g/mi)          mi)          CO (g/mi)
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................            0.14             8.0            0.20             2.7
LDT2............................................            0.25            10.5            0.27             3.5
LDT 3 (Calif MDV 2).............................            0.4             10.5            0.31             3.5
LDT 4 (Calif MDV 3).............................            0.6             11.8            0.44             4.0
----------------------------------------------------------------------------------------------------------------

3. SFTP Standards for Interim and Tier 2 LDVs and LDTs: As Proposed
    Since no significant numbers of vehicles certified to SFTP 
standards will enter the fleet until 2001, manufacturers raised 
concerns during the development of the NPRM regarding significant 
changes to the SFTP program before its implementation. We stated in the 
NPRM that it was reasonable not to increase SFTP stringency beyond 
NLEV/CalLEV I levels for the Tier 2 program, but we proposed to include 
SFTP standards adjusted for intermediate and full useful life 
deterioration where there are currently only 4000 mile standards.
    Full useful life standards for Tier 2 vehicles are consistent with 
our mandate under the Clean Air Act. We derived the full and 
intermediate useful life standards in the NPRM by applying 
deterioration allowances from our draft MOBILE 6 model to the existing 
4000 mile standards for LDVs and LLDTs. For HLDTs we applied similarly 
derived deterioration allowances to California's LEV I SFTP standards 
for MDV2s and MDV3s, which are the corresponding categories to LDT3s 
and LDT4s in the California LEV I program. The full and intermediate 
useful life SFTP standards we proposed would have applied to all Tier 2 
vehicles including Tier 2 LDT3s and LDT4s. Further, since our interim 
standards are derived from NLEV and Cal LEV I standards, we proposed 
that our full life SFTP standards would apply to all interim LDV/LLDTs 
beginning in 2004.\114\
---------------------------------------------------------------------------

    \114\ Except that, we proposed to permit TLEV vehicles (EPA 
interim Bin 10 in Table IV.B.-4), which are not subject to new SFTP 
standards under NLEV, to continue to meet Tier 1 SFTP standards, and 
to permit HLDTs under the interim programs to continue to meet Tier 
1 SFTP standards that do not fully phase in until the 2004 model 
year.
---------------------------------------------------------------------------

4. Final SFTP Standards for Interim and Tier 2 LDVs and LDTs
    Based upon extensive comment from manufacturers, we are persuaded 
that our proposed intermediate and full life SFTP standards need more 
review and should possibly be reexamined in a separate rulemaking. 
Manufacturers were quite concerned that the technique we used to obtain 
the intermediate and full life SFTP standards led to standards that 
were overly stringent. They argued that they have little experience 
with SFTP compliant vehicles given the current infancy of the program 
and they do not know whether SFTP emissions can be reasonably be 
expected to deteriorate like FTP emissions. Consequently, in today's 
notice, we are finalizing a program that will adopt the existing NLEV/
Cal LEV I 4000 mile standards and utilize adjusted full life standards 
from the Tier 1 program, instead of values derived by applying the 
draft MOBILE 6 model.
    These standards will apply to all Tier 2 vehicles and to all 
interim LDV/LLDTs. We proposed and are finalizing that interim HLDTs 
meet Tier 1 SFTP standards which do not finish their phase-in until the 
2004 model year.
    With regard to intermediate and full life SFTP standards, the 
preamble to the final rule implementing the SFTP program for the Tier 1 
SFTP emission standards (61 FR 54856) provided a formula for computing 
SFTP standards to apply under more stringent future

[[Page 6791]]

FTP standards. In the Tier 1 program, SFTP standards represent a 
weighted average of FTP, US06 and SC03 standards. The three components 
are weighted by factors of 0.35, 0.28, and 0.37 respectively. The 
formula simply adjusts the Tier 1 SFTP weighted average standards 
downward to reflect the decrease in the component FTP standards. The 
weighting factors remain the same and the US06 and SC03 standards 
remain the same, but the SFTP standard becomes tighter because the FTP 
component becomes smaller. These standards will take effect for all 
LDV/LLDTs beginning in 2004 and will phase in with the Tier 2 standards 
for HLDTs in 2008 and 2009. The formula is as follows:

New SFTP Standard = Old SFTP Standard - [0.35  x  (Tier 1 FTP 
standard - New FTP Standard)]

    In today's final rule, we will employ this formula to compute full 
useful life SFTP standards for all Tier 2 vehicles and for interim LDV/
LLDTs. Because we are also adopting the California 4000 mile SFTP 
standards for these vehicles, we are not adopting intermediate life 
SFTP standards, so as to avoid the burden of three sets of SFTP 
standards.
    LDT3 and LDT4 SFTP standards do not currently apply to diesels. 
Further, the standards applicable to Tier 1 diesel LDVs and LDT1s are 
less stringent than gasoline standards and do not apply to the SC03 
cycle. There are no SFTP standards under Tier 1 for diesel LDT2s. In 
this final rule, we are applying the same approach we are using with 
other standards in this document to the Tier 2 and interim SFTP 
standards. Consequently, we are finalizing that Tier 2 vehicles and 
interim LDV/LLDTs with diesel or gasoline engines must comply with the 
same NMHC+NOX and CO SFTP limits. Thus, in computing Tier 2 
SFTP full life standards for diesel LDVs and LDT1s from Tier 1 values, 
the values for diesels must be determined from the standards applicable 
to gasoline vehicles of the same category.
    Because we lack certainty as to whether diesel vehicles can comply 
with the 4,000 mile SFTP standards for gasoline vehicles that we are 
adopting from the NLEV and Cal LEV I programs, we are providing an 
option that diesel LDV/LLDTs may comply with intermediate life SFTP 
standards instead.\115\ Manufacturers must calculate intermediate life 
standards using the same approach described for full life standards, 
but must substitute appropriate intermediate life values in the 
equation above. This provision will only apply through model year 2006, 
and thus will likely only impact interim non-Tier 2 vehicles, given the 
very small market share that diesels occupy and given our expectation 
that they will be the last LDV/LLDTs phased into Tier 2 standards. We 
noted above that interim non-Tier 2 HLDTs will have the option of 
meeting Tier 1 SFTP standards. Thus diesel HLDTs will not have to 
comply with the 4,000 mile standards in the interim years and the 
option we are providing for LDV/LLDTs is not needed for HLDTs.
---------------------------------------------------------------------------

    \115\ The 4,000 mile standards under NLEV are phased-in in such 
a way that diesels would not likely be subject to them until the 
2004 model year, given their very small market share. Today's 
rulemaking effectively supercedes the NLEV program beginning with 
the 2004 model year. In other words, while NLEV contains 4,000 mile 
SFTP standards for diesels, they are not likely to ever impact 
diesel LDV/LLDTs.
---------------------------------------------------------------------------

5. Adding a PM Standard to the SFTP Standards
    We requested comment on the appropriate SFTP PM standards for 
diesel vehicles. We suggested it would be appropriate to establish a 
margin above the applicable FTP PM standard to serve as the SFTP 
standard. EPA has implemented such margins in recent consent decrees, 
under which heavy-duty engine manufacturers have agreed not to exceed 
emission levels 1.25 times the applicable exhaust standards (including 
PM standards) when engines are operated over a wide range of operating 
conditions. We received comments in favor of an SFTP PM standard of 
1.25 times the FTP standard and we received many comments from 
manufacturers against setting any SFTP PM standard until more data 
become available.
    We believe it is reasonable to include an SFTP standard for PM. 
However, we are uncertain as to the technical appropriateness of the 
1.25 value for passenger vehicles. Further, the 1.25 value would lead 
to an SFTP standard for PM that would not match the stringency of the 
other SFTP standards we are finalizing. Consequently, we are finalizing 
a procedure for computing diesel PM standards that is nearly identical 
to the procedure for computing weighted SFTP standards for 
NMHC+NOX and CO described above. We believe standards 
computed in this way will be readily feasible for both gasoline and 
diesel vehicles.
    To compute the SFTP PM standards, manufacturers will use the same 
formula described above for NMHC+NOX and CO. Where that 
formula calls for the Tier 1 SFTP standard to be inserted, 
manufacturers must insert the Tier 1 FTP standard. This is because, 
under Tier 1 standards, there is no SFTP standard for PM. However, the 
Tier 1 weighted SFTP standards are equal to the Tier 1 FTP standards 
(or the sum of the Tier 1 FTP standards in the case of 
NMHC+NOX). Using the Tier 1 FTP PM standards in this way 
will lead to a Tier 2 SFTP PM standard whose stringency is 
appropriately matched to the other pollutants.
    For HLDTs , we proposed and are finalizing that Tier 1 SFTP 
standards would apply through the interim program. because of the late 
start of SFTP phase-in for Tier 1 vehicles. We see no reason to impose 
SFTP PM standards on these vehicles during the interim period when 
their manufacturers will be under pressure to develop diesel vehicles 
to comply with the Tier 2 standards. Also, if we were to impose an FTP 
PM standard on the interim vehicles, it would likely be matched to the 
interim phase in for HLDTs and manufacturers would simply defer 
compliance for diesels until the last phase-in year (2007). The 
manufacturers would then have to recertify to the Tier 2 standards by 
2009. Given the relatively small number of diesel vehicles, we believe 
the most reasonable approach is to defer SFTP PM standards for HLDTs 
until the Tier 2 phase-in. Consequently, we are finalizing that Tier 2 
HLDTs will have to comply with an SFTP PM standard computed as 
described above.
    For LDV/LLDTs we are also including the SFTP PM standard for the 
Tier 2 vehicles. There are only a few diesel LDV/LLDTs currently 
produced and no large increase in their numbers is expected. We see 
little environmental benefit in imposing the SFTP PM standard on 
interim vehicles.
6. Future Efforts Relevant to SFTP Standards
    We are very concerned about ``off cycle'' emissions, i.e. those 
emissions that occur under vehicle operational modes that are not 
captured in the FTP. SFTP standards help to address our concerns and we 
believe that they should apply to all vehicles, regardless of fuel. Our 
final rule essentially promulgates Tier 1 SFTP standards that are 
reduced to represent the reduction in the FTP component standards. As 
we indicate under our discussion of SFTP for medium duty passenger 
vehicles (see section IV.B.4.g) we expect to conduct a rulemaking to 
establish appropriate ``Tier 2'' SFTP standards for all Tier 2 
vehicles. In that rule, we expect to reexamine the US06 and SC03 test 
cycles and their applicability to vehicles using different fuels and 
technologies,

[[Page 6792]]

including whether these cycles are the most appropriate ones for 
diesels. We will also examine whether it is necessary to have different 
sets of standards for different vehicle sizes or whether it is possible 
to establish one set of standards for all vehicles.

D. LDT Test Weight

    Historically, HLDTs (LDT3s and LDT4s) have been emission tested at 
their adjusted loaded vehicle weight (ALVW), while LDVs, LDT1s, and 
LDT2s have been tested at their loaded vehicle weight (LVW). ALVW is 
equivalent to the curb weight of the truck plus half its maximum 
payload, while LVW is equivalent to the curb weight of the truck plus a 
driver and one adult passenger (300 pounds). As we are equalizing 
standards and useful lives across LDVs and all categories of LDTs, we 
believe it is appropriate to test all the vehicles under the same 
conditions. Therefore, we are finalizing as proposed to test HLDTs at 
their loaded vehicle weight. We believe this is appropriate because the 
standards we are imposing on HLDTs under Tier 2 are considerably more 
stringent than the Tier 1 standards. Further, one of our reasons for 
bringing HLDTs under the same standards as passenger cars is that these 
trucks include many vans and sport utility vehicles that are often used 
as passenger cars with just one or two passengers. Lastly, we note that 
testing HLDTs at LVW is consistent with the way they have been tested 
for fuel economy purposes for many years. Consequently, we believe it 
is appropriate to test them at LVW.
    The NPRM proposed that all HLDTs would certify using LVW beginning 
in the 2004 model year. Based upon comments, the final rule will allow 
the certification of HLDTs based on ALVW until those vehicles are 
phased into the Tier 2 standards in 2008 and 2009 at which time they 
must be tested at LVW. This will enhance carryover of California 
vehicles to the Federal interim program in cases where the California 
vehicles meet our interim standards.

E. Test Fuels

    As discussed elsewhere in this preamble, the NLEV program was 
adopted virtually in its entirety from California's program. Because 
California's standards were developed around the use of California 
Phase II reformulated gasoline (RFG) as the exhaust emission test fuel, 
we adopted California Phase II test fuel as the exhaust emission test 
fuel for gasoline-fueled vehicles in the federal NLEV program, although 
we recognized at the time that vehicles outside of California would be 
unlikely to operate on that fuel in use. In the NPRM we proposed 
interim programs that were derived from NLEV (for LDV/LLDTs) and the 
CAL LEVI program (for HLDTs), and we proposed to accept certification 
test results generated on California fuel, but indicated that we might 
test or require in-use testing on federal fuel.
    Based upon comment we are finalizing provisions to permit, for 
interim vehicles, that if a test group has been certified to the 
exhaust emission standards using California fuel and is being carried 
into the interim program from NLEV or is being carried across from 
California LEV I certification, then we will not test or require in-use 
exhaust testing on federal fuel. This change is intended to help 
address recertification workload concerns raised by manufacturers. For 
new certification not carried across from California LEV I or carried 
over from NLEV, and for any Tier 2 vehicles, we will accept exhaust 
certification test results based on California fuel for 50 state 
vehicles only, but we will reserve the right to perform or require 
certification confirmatory testing and in-use testing on federal test 
fuel.
    We recognize that manufacturers may want to perform calibration 
changes on vehicles carried across from the California LEV I program or 
carried over from NLEV program. These calibration changes will likely 
be aimed at certifying the test group to the lowest possible 
NOX value. We believe that these calibration changes would 
be appropriate, provided they can still be covered by the existing 
worst case durability data vehicle. We will perform or require 
certification confirmatory testing and in-use emission testing on these 
vehicles using California fuel.
    Because differences exist between the California and federal 
evaporative emission testing procedures, we proposed to continue to 
require the use of federal certification fuel as the test fuel in 
evaporative emission testing. Under current programs, where California 
and federal evaporative emission standards are essentially the same, 
California accepts evaporative results generated on the federal 
procedure (using federal test fuel), because available data indicates 
the federal procedure to be a ``worst case'' procedure. The evaporative 
standards California has adopted for their LEV II program are more 
stringent than those we are finalizing in this document. In the NPRM, 
we requested comment and supporting emission test data on whether 
vehicles certified to CalLEV II evaporative standards using California 
fuels will necessarily comply with the federal Tier 2 evaporative 
standards, including ORVR standards, when tested with federal test 
fuel. While we got comments from manufacturers advocating that we 
accept the results of California evaporative testing to demonstrate 
compliance with the federal evaporative standards, we received no 
supporting data. Still, given the fairly large difference between 
California and federal evaporative standards, it seems reasonable that 
a vehicle meeting the California standards under California fuels and 
test conditions might also meet federal standards under federal fuels 
and conditions. We believe it may be possible for manufacturers to 
establish a relationship between the two sets of standards, fuels and 
conditions that would enable us to grant federal certification based 
upon data showing conformity with the California standards under 
California fuels and conditions. Consequently, we are including a 
provision in the certification regulations to enable manufacturers to 
obtain federal evaporative certification based upon California results, 
if they obtain advance approval from EPA. EPA will review test data 
from manufacturers to establish whether it is appropriate to accept 
California data to demonstrate compliance with federal standards.

F. Changes to Evaporative Certification Procedures To Address Impacts 
of Alcohol Fuels

    Current certification procedures, including regulations under the 
new CAP2000 program,\116\ allow manufacturers to develop their own 
durability process for calculating deterioration factors for 
evaporative emissions. The regulations (Sec. 86.1824-01) permit 
manufacturers to develop service accumulation (aging) methods based on 
``good engineering judgement''. The manufacturer's durability process 
must be designed to predict the expected evaporative emission 
deterioration of in-use vehicles over their full useful lives. We 
proposed and are finalizing requirements that these aging methods 
include the use of alcohol fuels to address concerns that alcohol fuels 
increase the permeability and thus the evaporative losses from hoses 
and other evaporative components. Based upon comment, we are also 
finalizing an option to the requirement that the manufacturer use the 
alcohol fuel. Under this option, the manufacturer may demonstrate to 
EPA using good engineering judgement

[[Page 6793]]

acceptable to EPA that its durability process for calculating 
evaporative emission deterioration factors accurately predicts 
deterioration under prolonged exposure to alcohol fuels.
---------------------------------------------------------------------------

    \116\ The Compliance Assurance Program, (64 FR 23906) takes 
effect in the 2000 model year.
---------------------------------------------------------------------------

    We have reviewed data indicating that the permeability, and 
therefore the evaporative losses, of hoses and other evaporative 
components can be greatly increased by exposure to fuels containing 
alcohols.\117\ Alcohols have been shown to promote the passage of 
hydrocarbons through a variety of different materials commonly used in 
evaporative emission systems. Data from component and fuel line 
suppliers indicate that alcohols cause many elastomeric materials to 
swell, which opens up pathways for hydrocarbon permeation and also can 
lead to distortion and tearing of components like ``O'' ring seals. 
Ethers such as MTBE and ETBE have a much smaller effect. Alcohol-
resistant materials such as fluoroelastomers are available and are 
currently used by manufacturers to varying extents.
---------------------------------------------------------------------------

    \117\ Numerous SAE papers examine the permeability of fuel and 
evaporative system materials as well as the influence of alcohols on 
permeability. See, for example SAE Paper #s 910104, 920163, 930992, 
970307, 970309, 930992, and 981360, copies of which are in the 
docket for this rulemaking.
---------------------------------------------------------------------------

    Alcohols do not impact evaporative components and hoses 
immediately, but rather it may take as long as one year of exposure to 
alcohol fuels for permeation rates to stabilize. The end result is 
higher permeation and increased in-use evaporative emissions.\118\
---------------------------------------------------------------------------

    \118\ Ibid.
---------------------------------------------------------------------------

    Today, roughly 10% of fuel sold in the U.S. contains alcohol, 
mainly in the form of ethanol, and such fuels are often offered in 
ozone nonattainment areas. We believe it is appropriate to ensure that 
evaporative certification processes expose evaporative components to 
alcohols and do so long enough to stabilize their permeability. 
Therefore, we are finalizing our proposal to the evaporative 
certification requirements to require manufacturers to develop their 
deterioration factors using a fuel that contains the highest legal 
quantity of ethanol available in the U.S.
    To implement this change, we are modifying the Durability 
Demonstration Procedures for Evaporative Emissions found at 
Sec. 86.1824-01. The amendments will require manufacturers not using an 
approved option, to age their systems using a fuel containing the 
maximum concentration of alcohols allowed by EPA in the fuel on which 
the vehicle is intended to operate, i.e., a ``worst case'' test fuel. 
(Under current requirements, this fuel would be about 10% ethanol, by 
volume.) We are also modifying the Durability Demonstration Procedures 
to require manufacturers to ensure that their aging procedures are of 
sufficient duration to stabilize the permeability of the fuel and 
evaporative system materials. These modifications will take place as 
vehicles are phased into the evaporative emission standards contained 
in this final rule.
    We requested comment on alternative ways by which manufacturers 
could document or demonstrate that their components are made of 
materials whose permeability is not significantly affected by alcohols. 
We received no comments responsive to this request, but we did receive 
comments that EPA should not change the CAP2000 provision allowing 
manufacturers to develop their own durability process for calculating 
evaporative emission deterioration factors ``using good engineering 
judgement''. We do not wish to foreclose the possibility that an 
alternative method may exist or may arise in the future. Consequently, 
in the final rule we will permit manufacturers to use an optional 
method based on good engineering judgement acceptable to EPA. As an 
example, one method would be for the manufacturer to show that it is 
exclusively using materials documented in the technical literature to 
have low permeability in the presence of alcohols.

G. Other Test Procedure Issues

    California's LEV II program implements a number of minor changes to 
exhaust emissions test procedures. We have evaluated these changes and 
found that, for tailpipe emissions, the California test procedures fall 
within ranges and specifications permitted under the Federal Test 
Procedure.
    With regard to hybrid electric vehicles (HEVs) and zero emission 
vehicles (ZEVs), we believe that these vehicles will be predominantly 
available in California, or that they will typically be first offered 
for sale in California, because of California's ZEV requirement, which 
promotes the sale of HEVs and ZEVs. Where manufacturers market HEVs or 
ZEVs outside of California, it is likely that they will market the same 
vehicles in California. Consequently, we are finalizing our proposal to 
incorporate by reference California's exhaust emission test procedures 
for HEVs and ZEVs.\119\
---------------------------------------------------------------------------

    \119\ California Exhaust Emission Standards and Test Procedures 
for 2003 and Subsequent Model Zero-Emission Vehicles, and 2001 and 
Subsequent Model Hybrid Electric Vehicles. In the Passenger Car, 
Light-Duty Truck and Medium-Duty Vehicle Classes; adopted August 5, 
1999.
---------------------------------------------------------------------------

    In the NLEV program, we provided a specific formula used by 
California that could be used to compute an HEV contribution factor to 
NMOG emissions. This formula took into consideration the range without 
engine operation of various types of HEVs and had the effect of 
reducing the NMOG emission standard for a given emission bin (for HEV 
vehicles only). This would have obvious beneficial effects on a 
manufacturer's calculation of its corporate NMOG average.
    The technology of HEVs is under rapid change and we do not believe 
that we can design a formula now that will accurately predict the 
impact of HEVs on corporate average NOX emissions in the 
Tier 2 time frame. Consequently, we are finalizing the proposed 
provision by which manufacturers could propose HEV contribution factors 
for NOX to EPA. If approved, these factors can be used in 
the calculation of a manufacturer's fleet average NOx emissions and 
will provide a mechanism to credit an HEV for operating with no 
emissions over some portion of its life.
    These factors will be based on good engineering judgement and will 
consider such vehicle parameters as vehicle weight, the portion of the 
time during the test procedure that the vehicle operates with zero 
emissions, the zero emission range of the vehicle, NOX 
emissions from fuel-fired heaters and any measurable NOX 
emissions from on-board electricity production and storage.
    The final NLEV rule (See 62 FR pg 31219, June 6, 1997) incorporated 
by reference California's NMOG measurement procedure and adopts 
California's approach of using Reactivity Adjustment Factors (RAFs) to 
adjust vehicle emission test results to reflect differences in the 
impact on ozone formation between an alternative-fueled vehicle and a 
vehicle fueled with conventional gasoline. As has been discussed 
elsewhere in this preamble, the NLEV program is a special case in which 
California standards and provisions were adopted virtually in their 
entirety. In the preamble to the final NLEV rule (See 62 FR 31203), we 
expressed our reservations about the use of RAFs. We also addressed our 
reservations about the use of reactivity factors developed in 
California in a program that spans a range of climates and geographic 
locations across the United States in the final rule on reformulated 
gasoline (RFG) (see 59 FR 7220). We continue to be concerned about the 
validity of RAFs to predict ozone formation nationwide and asked the 
National Academy of Sciences to

[[Page 6794]]

look at the scientific evidence in support of the use of these factors 
nationwide. While we have recently received a report from NAS,\120\ we 
have not yet developed a final position on how RAFs should be treated 
in federal regulations. We are finalizing as proposed not to permit the 
use of RAFs in the Tier 2 program.
---------------------------------------------------------------------------

    \120\ Ozone-Forming Potential of Reformulated Gasoline, May 
1999. National Academy of Sciences; National Academy Press. 
Available from the NAS web site: http://www.nap.edu.
---------------------------------------------------------------------------

    The issue of RAFs is relevant primarily to alcohol and CNG-fueled 
vehicles. RAFs are not relevant at all if a manufacturer elects to use 
NMHC data to show compliance with the NMOG standards. While, in our 
final rule, alcohol and CNG vehicles will have to comply with NMOG 
standards beginning in 2004 and while we desire to harmonize with 
California when practical and reasonable, we will not permit the use of 
RAFs for Tier 2 vehicles and interim non-Tier 2 vehicles. We note that 
we are finalizing a provision from the NPRM that permits dual fueled 
and flexible fueled vehicles to elect an NMOG value from the next 
higher bin when they are tested on an alternative fuel. This provides 
flexibility in compliance with applicable NMOG standards for these 
vehicles. We do not believe that dedicated alcohol or CNG vehicles 
should have any problems complying with the NMOG standards we are 
finalizing and consequently the relief these vehicles might get when 
RAFs are employed is unnecessary.
    In its LEV II program, California is also implementing a number of 
changes to evaporative emission test procedures.\121\ Many of these 
changes address the evaporative emission testing of hybrid electric 
vehicles. We proposed not to adopt California's changes, because 
California uses different test temperatures and different test fuel in 
its evaporative emission testing of gasoline vehicles than we use in 
the federal program. The preamble to the final NLEV rule (See 62 FR 
31227) explains that California and EPA are reviewing an industry 
proposal to streamline and reconcile the California and federal 
procedures. That work has not been completed. However, where California 
adopts procedures specific to HEVs and ZEVs, we are adopting those 
procedures, except that our testing will occur at lower temperatures, 
and use a fuel determined by EPA to be representative of federal usage 
(for HEVs only).
---------------------------------------------------------------------------

    \121\ California Evaporative Emission Standards and Test 
Procedures for 2001 and Subsequent Model Motor Vehicles. Adopted 
August 5, 1999.
---------------------------------------------------------------------------

H. Small Volume Manufacturers

    Our final rule includes the following flexibilities intended to 
assist all manufacturers in complying with the stringent proposed 
standards without harm to the program's environmental goals as 
presented in the NPRM:
     A four year phase-in of the standards for LDV/LLDTs;
     A delayed phase-in for HLDTs;
     The freedom to select from specific bins of standards;
     A standard that can be met through averaging, banking and 
trading of NOX credits;
     Provisions for NOX credit deficit carryover; 
and,
     Provisions for alternative phase-in schedules.
    These flexibilities apply to all manufacturers, regardless of size, 
and in general we believe they eliminate the need for more specific 
provisions for small volume manufacturers.\122\ However, we proposed 
and are finalizing one additional flexibility for small volume 
manufacturers. Today's rule exempts small volume manufacturers from the 
25%, 50% and 75% Tier 2 phase-in requirements applicable to the 2004, 
2005 and 2006 LDV/LLDTs and the 50% phase-in requirement applicable to 
2008 HLDTs. Instead, small volume manufacturers will simply comply with 
the appropriate Tier 2 100% requirement in the 2007 and 2009 model 
year. In the phase-in years, small volume manufacturers will simply 
comply with the appropriate interim standards for all of their 
vehicles, except that we will also exempt small volume manufacturers 
from the 25%, 50% and 75% phase-in requirements for the 0.20 g/mi 
corporate average NOX standard applicable to interim HLDTs 
in 2004-2006. Small volume HLDT manufacturers must simply comply with 
the interim standards, including the corporate average NOX 
standard, in 2007 for 100% of their vehicles. During model years 2004-
2006, these same small volume manufacturers must comply with any of the 
applicable bins of standards for 100% of their HLDTs.\123, 124\ 
Provisions to deal with the leadtime issue related to HLDTs and 
outlined in section IV.B. apply to small volume manufacturers. 
Therefore unless the small volume manufacturer wants to use the 
optional NMOG standards for interim LDT2s and LDT4s, it may optionally 
meet the Tier 1 standards for its 2004 model year HLDTs, provided it 
commences its model year for those vehicles before the fourth 
anniversary date of today's rulemaking.
---------------------------------------------------------------------------

    \122\ We define small volume manufacturers to be those with 
total U.S. sales of less than 15,000 highway units per year. 
Independent commercial importers (ICIs) with sales under 15,000 per 
year are included under this term.
    \123\ For a graphical illustration of the phase-ins through 
time, see Table IV.B.-2.
    \124\ 2005-2006 for vehicles where the small volume manufacturer 
commences its 2004 model year for all its 2004 vehicles before the 
fourth anniversary date of the signature of this rule.
---------------------------------------------------------------------------

    As explained in the NPRM, we will continue to apply the federal 
small volume manufacturer provisions, which provide relief from 
emission data and durability showing and reduce the amount of 
information required to be submitted to obtain a certificate of 
conformity. In addition, the CAP2000 program contains reduced in-use 
testing requirements for small volume manufacturers.
    Exempting small volume manufacturers from the Tier 2 and interim 
HLDT phase-in requirements eliminates a dilemma that phase-in 
percentages can pose to a manufacturer that has a limited product line, 
i.e., how to address percentage phase-in requirements if the 
manufacturer makes vehicles in only one or two test groups. We have 
implemented similar provisions for small entities in other rulemakings. 
Approximately 15-20 manufacturers that currently certify vehicles, many 
of which are independent commercial importers (ICIs), will qualify. 
These manufacturers represent just a fraction of one percent of LDVs 
and LDTs produced. We do not believe that this provision will have any 
measurable impact on air quality.
1. Special Provisions for Independent Commercial Importers (ICIs)
    We requested comment in the NPRM as to whether ICIs should be 
exempted from the interim and Tier 2 fleet average NOX 
standards. We explained that ICIs may not be able to predict their 
sales and control their fleet average emissions because they may be 
dependent upon vehicles brought to them by individuals attempting to 
import uncertified vehicles. We noted that the NLEV program is optional 
for ICIs and that ICIs are specifically prohibited, under existing 
regulations, from complying with the fleet average NMOG standard under 
the NLEV program. (See 40 CFR 85.1515(c)). Also, the existing 
regulations specifically bar ICIs from participating in any emission 
related averaging, banking or trading program. (See 40 CFR 85.1515(d)). 
We expressed our concern that if we do not amend this provision, ICIs 
would likely just pick the least stringent bin available to certify 
their vehicles. This would create an inequity for other manufacturers,

[[Page 6795]]

especially other small volume manufacturers that must comply with the 
fleet average NOX standards.
    Since we do not believe it is wise to finalize a provision that 
could lead to an inequity like this, and since averaging may not be 
workable for ICIs, we are finalizing that ICIs must comply with the 
standards from the bin that contains the relevant fleet average 
NOX standard, e.g., in model years 2007 and later an ICI 
would have to use bin 5 or below for all of its LDV/LLDTs. However, if 
an ICI is able to purchase credits or to certify to bins below the one 
containing the fleet average NOX standard, we will permit 
the ICI to bank credits for future use. Where an ICI desires to certify 
to bins above the fleet average standard, we will permit them to do so 
if they have adequate and appropriate credits. Where an ICI desires to 
certify to bins above the fleet average standard and does not have 
adequate or appropriate credits to offset the vehicles, we will permit 
the manufacturer to obtain a certificate for vehicles using those bins, 
but will condition the certificate such that the manufacturer can only 
produce vehicles if it first obtains credits from other manufacturers 
or from other vehicles certified to lower bins during that model year.
    We do not believe that ICIs can predict or estimate their sales of 
various vehicles well enough to participate in a program that will 
allow them leeway to produce some vehicles to higher bins now, knowing 
that they will sell vehicles from lower bins later. We also do not 
believe that we can reasonably assume that an ICI that certifies and 
produces vehicles one year, will certify or even be in business the 
next, consequently, we are also not permitting ICIs to utilize the 
deficit carryforward provisions of the rule.
    Essentially, ICIs will be allowed the major benefits of the 
averaging, banking and trading program, but will be constrained from 
getting into a situation where they can ever produce vehicles to higher 
bins that they can not cover with credits at the time they produce the 
vehicles.
2. Hardship Provision for Small Volume Manufacturers
    The panel convened under the Small Business Regulatory Enforcement 
Fairness Act recommended that we seek comment on the inclusion of a 
hardship provision. We requested comment on whether we should include 
such a provision in the NPRM. Based upon comment, we are including a 
limited hardship provision in the final rule that will be applicable to 
small volume manufacturers.
    Small volume manufacturers include companies that independently 
import motor vehicles (Independent Commercial Importers or ICIs), 
companies that modify vehicles to operate on alternative fuels, 
companies that produce specialty vehicles by modifying vehicles 
produced by others, and companies that produce small quantities of 
their own vehicles, but rely on major manufacturers for engines and 
other vital emission related components. In these businesses, 
predicting sales is difficult and it is often necessary to rely on 
others for technology.
    This provision will provide limited relief in the case where a 
small volume manufacturer is unable to comply with the phase-in dates 
or average NOX standard. The manufacturer will need to 
provide evidence that, despite its best efforts, it cannot meet 
implementation dates or required NOX averages.
    Appeals for hardship relief must be made in writing, must be 
submitted before the earliest date of noncompliance, must include 
evidence that the noncompliance will occur despite the manufacturer's 
best efforts to comply and must include evidence that severe economic 
hardship will be faced by the company if the relief is not granted. 
Hardship relief will only be granted for the first year after a new 
standard is finally implemented. For small volume manufacturers, which 
are already exempted from the phase-in schedules for the interim and 
Tier 2 programs, this means that relief would be available for the 
final phase-in year for the LDV/LLDT Tier 2 phase-in (2007), for the 
final phase-in year for the interim HLDT phase-in (2007), and the final 
phase-in year for the Tier 2 HLDT phase-in (2009). Relief will also be 
available for manufacturers that did not opt into NLEV and must meet 
our interim standards for all their LDV/LLDTs in 2004, and relief will 
be available for HLDTs and MDPVs which must be brought under our 
interim program in the 2004 model year.
    We will work with the applicant to ensure that all other remedies 
available under this rule, e.g., use of banked or purchased credits, 
are exhausted before granting additional relief, and will limit the 
period of relief to one year. Note that in our discussion of the credit 
deficit carryforward provision in section IV.B.4.d.vi, we indicate that 
we are not permitting small volume manufacturers to carry deficits 
forward until they have demonstrated compliance with the NOX 
averaging provisions for one year. This is to prevent small volume 
manufacturers, that have already received additional time due to the 
waiver of the phase-in requirements, from gaining even more time to 
finally comply through the credit deficit carryforward provisions.
    To avoid this provision creating a self-implementing problem, by 
which the very existence of the hardship provision prompts small volume 
manufacturers to delay development, acquisition and application of new 
technology, we want to make clear that we expect this provision to be 
rarely used. Our final rule contains numerous flexibilities for all 
manufacturers and it waives the phase-in steps for small volume 
manufacturers, which effectively provides them more time. We expect 
small manufacturers, to prepare for the applicable implementation dates 
in today's rule.

I. Compliance Monitoring and Enforcement

1. Application of EPA's Compliance Assurance Program, CAP2000
    The CAP2000 program (64 FR 23905, May 14, 1999) streamlines and 
simplifies the procedures for certification of new vehicles and will 
also require manufacturers to test in-use vehicles to monitor 
compliance with emission standards. The CAP2000 program was developed 
jointly with the State of California and involved considerable input 
and support from manufacturers. As the name implies, it can be 
implemented as early as the 2000 model year.
    We are finalizing our proposal that the Tier 2 and the interim 
requirements will be implemented subject to the requirements of the 
CAP2000 program. Certain CAP2000 requirements are being slightly 
modified to reflect changes to useful lives, standard structure and 
other aspects of the Tier 2 program, but we proposed no major changes 
to fundamental principles of the CAP2000 program, and we are not adding 
any major changes with today's final rule.
    Although we proposed changes to useful lives, we did not propose to 
amend the 50,000 mile minimum mileage used in manufacturer in-use 
verification testing or in-use confirmatory testing under the CAP2000 
program at this time. The CAP2000 in-use program is not yet implemented 
and we believe it is appropriate to allow manufacturers to gain 
experience with procuring and testing vehicles at the 50,000 mile level 
before making significant changes. However, where one vehicle from each 
in-use test group would have a minimum mileage of 75,000 miles under 
the CAP2000 program, we proposed and are finalizing, consistent with 
California, to

[[Page 6796]]

change that figure to 90,000 miles for Tier 2 vehicles.
    We may, in our own in-use program, procure and test vehicles at 
mileages higher than 50,000 and pursue remedial actions (e.g., recalls) 
based on that data. We may also use that data as the basis to initiate 
a rulemaking to make changes in the CAP2000 in-use requirements, if the 
data indicate significant non-conformity at higher mileages.
    We are finalizing certification test fuel specifications consistent 
with our final fuel sulfur requirements. Given the phase-in for low 
sulfur fuel we are finalizing in this rulemaking, we recognize that 
2004 to 2007 vehicles (and vehicles certified in earlier model years to 
bank early NOX credits) may be exposed to higher sulfur 
levels early in their lives. Because of this sulfur exposure, these 
vehicles could experience problems with OBD indicator light 
illuminations.
    Consistent with our approach under the NLEV program, we will 
consider requests from manufacturers to permit OBD systems that 
function properly on low sulfur fuel, but exhibit sulfur-induced passes 
when operated on higher sulfur fuel. For OBD systems that exhibit 
sulfur-induced indicator light illumination, we will consider requests 
to modify such vehicles on a case-by-case basis.
2. Compliance Monitoring
    We plan no new compliance monitoring activities or programs for 
Tier 2 vehicles. These vehicles will be subject to the certification 
and manufacturer in-use testing provisions of the CAP2000 rule. Also, 
we expect to continue our own in-use testing program for exhaust and 
evaporative emissions. We will pursue remedial actions when substantial 
numbers of properly maintained and used vehicles fail any standard in 
either in-use testing program.
    Consistent with our approach under NLEV we will consider requests, 
prior to manufacturer or EPA in-use testing to permit preconditioning 
procedures designed solely to remove the effects of high sulfur 
gasoline on vehicles produced through the 2007 model year.
    We retain the right to conduct Selective Enforcement Auditing of 
new vehicles at manufacturer's facilities. In recent years, we have 
discontinued SEA testing of new LDVs and LDTs, because compliance rates 
were routinely at 100%. We recognize that the need for SEA testing may 
be reduced by the low mileage in-use testing requirements of the 
CAP2000 program. However, we expect to re-examine the need for SEA 
testing as standards tighten under the NLEV, interim, and Tier 2 
programs.
    We have established a data base to record and track manufacturers' 
compliance with NLEV requirements including the corporate average NMOG 
standards. We expect to monitor manufacturers' compliance with the Tier 
2 and interim corporate average NOX standards in a similar 
fashion and also to monitor manufacturers' phase-in percentages for 
Tier 2 vehicles.
3. Relaxed In-Use Standards for Vehicles Produced During the Phase-in 
Period
    The Tier 2 standards will be challenging for manufacturers to 
achieve, and some vehicles will pose more of a challenge than others. 
Not only will manufacturers be responsible for assuring that vehicles 
can meet the standards at the time of certification, they will also 
have to ensure that the vehicles comply when self-tested in-use under 
the provisions of the CAP2000 program, and when tested by EPA under its 
in-use (``Recall'') test program.
    With any new technology, or even with new calibrations of existing 
technology, there are risks of in-use compliance problems that may not 
appear in the certification process. In-use compliance concerns may 
discourage manufacturers from applying new technologies or new 
calibrations. Thus, we proposed and are finalizing, relaxed in-use 
standards for those bins most likely to require the greatest 
applications of effort, to provide assurance to the manufacturers that 
they will not face recall if they exceed standards by a specified 
amount.
    For the first two years after a test group meeting a new standard 
is introduced, that test group will be subject to more lenient in-use 
standards. These ``in-use standards'' will apply only to bin 5 and 
below, only for the pollutants indicated, and only for the first two 
model years that a test group is certified under that bin. The in-use 
standards will not be applicable to any test group first certified to a 
new standard after 2007 for LDV/LLDTs or after 2009 for HLDTs.
    The temporary in-use standards are shown in Table V.A.-3 below.

            Table V.A.-3.--In-use Compliance Standards (g/mi)
         [Certification standards shown for reference purposes]
------------------------------------------------------------------------
          Durability
   Bin      period    NOX  In-      NOX       NMOG in-use       NMOG
            (miles)     use    certification               certification
------------------------------------------------------------------------
5.......     50,000      0.05                 n/a               0.075
5.......    120,000      0.10        0.07     n/a               0.090
4.......    120,000      0.06        0.04     n/a               0.070
3.......    120,000      0.05        0.03     0.09              0.055
2.......    120,000      0.03        0.02     0.02              0.010
------------------------------------------------------------------------

    Because we are concerned that diesel vehicles may require low 
sulfur fuel to comply with our interim requirements and that such fuel 
may not be widely available until the 2006-2007 timeframe, we are 
providing in-use standards specifically for diesel vehicles certified 
to bin 10 standards. These standards will be determined by multiplying 
the applicable NOX and PM certification standards by factors 
of 1.2 and 1.35, respectively. These multipliers can be used only for 
years during which bin 10 is viable, only for diesels and only for the 
pollutants indicated.
    We believe manufacturers should and will strive to meet 
certification standards for the full useful lives of the vehicles, but 
we recognize that the existence of such in-use standards poses some 
risk that a manufacturer might aim for the in-use standard in its 
design efforts rather than the certification standard, and thus market 
less durable designs. We do not believe that risk to be significant. We 
believe that such risks are more than balanced by the gains that can 
result from earlier application of new technology or new calibration 
techniques that might occur in a scenario where in-use liability is 
slightly reduced. Further, we believe that the in-use standards will be 
of short enough duration that any risks are minimal.

[[Page 6797]]

4. Enforcement of the Tier 2 and Interim Corporate Average 
NOX Standards
    We are finalizing, as proposed, that manufacturers can either 
report that they meet the relevant corporate average NOX 
standard in their annual reports to the Agency or they can show via the 
use of NOX credits that they have offset any exceedance of 
the corporate average NOX standard. Manufacturers will also 
have to report their NOX credit balances or deficits.
    The averaging, banking and trading program will be enforced through 
the certificate of conformity that the manufacturer must obtain in 
order to introduce any regulated vehicles into commerce. The 
certificate for each test group will require all vehicles to meet the 
applicable Tier 2 emission standards from the applicable bin of the 
Tier 2 program, and will be conditioned upon the manufacturer meeting 
the corporate average NOX standard within the required time 
frame. If a manufacturer fails to meet this condition, the vehicles 
causing the corporate average NOX exceedance will be 
considered to be not covered by the certificate of conformity for that 
engine family. A manufacturer will be subject to penalties on an 
individual vehicle basis for sale of vehicles not covered by a 
certificate. These provisions will also apply to the interim corporate 
average standards.
    As outlined in detail in the preamble to the final NLEV rule, EPA 
will review the manufacturer's sales to designate the vehicles that 
caused the exceedance of the corporate average NOX standard. 
We will designate as nonconforming those vehicles in those test groups 
with the highest certification emission values first, continuing until 
a number of vehicles equal to the calculated number of noncomplying 
vehicles as determined above is reached. In a test group where only a 
portion of vehicles are deemed nonconforming, we will determine the 
actual nonconforming vehicles by counting backwards from the last 
vehicle produced in that test group. Manufacturers will be liable for 
penalties for each vehicle sold that is not covered by a certificate.
    During phase in years, the certificates will also require 
manufacturers to meet the applicable phase-in requirements. Compliance 
with the phase-in requirements will be enforced in the same manner as 
for the corporate average NOX standard. For the optional 
phase-in requirement for HLDTs for model year 2004, manufacturers must 
declare in their application for certification whether they intend to 
comply with the interim requirements for all of their HLDTs and 
initiate phase-in to the interim corporate average NOX 
standard in 2004 and receive the benefits of that phase-in (less 
stringent NMOG standards for certain LDT2s and LDT4s). Compliance with 
this phase-in requirement and the fleet average NOX standard 
will be enforced just like compliance with any other average 
NOX standard and phase-in requirement of today's program.
    We will also condition certificates to enforce the requirements 
that manufacturers not sell NOX credits that they have not 
generated. A manufacturer that transfers NOX credits it does 
not have will create an equivalent number of debits that it must offset 
by the reporting deadline for the same model year. Failure to cover 
these debits with NOX credits by the reporting deadline will 
be a violation of the conditions under which EPA issued the certificate 
of conformity, and nonconforming vehicles will not be covered by the 
certificate. EPA will identify the nonconforming vehicles in the same 
manner described above.
    In the case of a trade that results in a negative credit balance 
that a manufacturer could not cover by the reporting deadline for the 
model year in which the trade occurred, we proposed, and are 
finalizing, to hold both the buyer and the seller liable. This is 
consistent with other mobile source rules, except for the NLEV rule as 
discussed below. We believe that holding both parties liable will 
induce the buyer to exercise diligence in assuring that the seller has 
or will be able to generate appropriate credits and will help to ensure 
that inappropriate trades do not occur.
    In the NLEV program we implemented a system in which only the 
seller of credits would be liable. In the preamble to the final NLEV 
rule (See 62 FR 31216), we explained that a multiple liability approach 
would be unnecessary in the context of the NLEV program given that the 
main benefit to a multiparty liability approach would be to ``protect 
against a situation where one party sells invalid credits and then goes 
bankrupt, leaving no one liable for either penalties or compensation 
for the environmental harm.'' Our preamble stated further that EPA 
would not necessarily take the same approach for ``other differently 
situated trading programs.''
    The NLEV program was implemented to be a relatively short duration 
program, during which time we could expect relative stability in the 
industry. Also, given that NLEV is a voluntary program of lower than 
mandated standards, we did not expect that the smallest manufacturers 
would opt in. These are the companies whose stability is most in 
jeopardy in a dynamic and very competitive worldwide business.
    We currently believe that the Tier 2 program and its framework will 
remain for many years. We note that the program is not scheduled for 
complete phase-in for almost nine years after the publication of 
today's rule. All manufacturers, large and small, will ultimately have 
to meet the Tier 2 standards. We cannot predict that in the Tier 2 
timeframe there will not be companies that leave the market or are 
divided between other companies in mergers and acquisitions. Thus we 
believe it is prudent to implement a program to provide inducements to 
the seller to assure the validity of any credits that it purchases or 
contracts for.

J. Addressing Environmentally Beneficial Technologies Not Recognized by 
Test Procedures

    Compliance with the current and proposed EPA motor vehicle emission 
standards is based on the emission performance of a vehicle over EPA's 
prescribed test procedure. While this test procedure addresses many of 
the aspects of a vehicle's impact on air quality, it does not address 
all such impacts. EPA is aware of two developing technologies which 
have potential to improve ozone-related air quality, but that would not 
do so over the current EPA test procedure.
    The first example is a device that removes ozone from the air as 
the vehicle is driven. A major producer of automotive catalysts, 
Englehard, has developed a catalytic coating for vehicle radiators 
(called PremAir) that converts ambient ozone to oxygen. ARB has been 
working with Englehard for some time to develop a procedure which would 
grant PremAir and other direct ozone reducing technologies a NMOG 
credit under its LEV I and LEV II programs. ARB issued on December 20, 
1999 a Manufacturers Advisory Circular outlining procedures for 
establishing such a NMOG credit.
    Englehard submitted substantial comments to the Tier 2 NPRM, 
including ozone modeling results for five cities (Los Angeles, Houston, 
Atlanta, New York City, and Chicago). This ozone modeling compared the 
ozone reductions from reduced exhaust VOC and NOX emissions 
to that from using PremAir. As a result of this modeling, Englehard 
requested that EPA grant a typical PremAir system a NMOG or 
NOX emission credit of 0.015 g/mi. This credit would be 
adjusted based the exact design and performance of the system and 
vehicle being certified.

[[Page 6798]]

    The second example is an insulated catalyst. The insulation retains 
heat for extended periods of time, increasing the catalyst temperature 
when the engine is started and reducing the time required for the 
catalyst to reach an operational temperature. This technology can 
reduce cold start emissions for engine off times (called soaks) of 24 
hours or less. The vast majority of engine soaks in-use are less than 
24 hours. However, EPA's test procedure only tests emissions at two 
fairly extreme soak times: 10 minutes and 12-36 hours. The 10 minute 
soak is so short that even an uninsulated catalyst is warm enough to 
quickly begin working upon restart. The 36 hour soak is beyond the 
practical limit of cost-effective insulating techniques. As a result of 
the Tier 2 NPRM, EPA received a number of inquiries from potential 
manufacturers of insulated catalysts, requesting further information 
about emission credits, test procedures and certification requirements.
    EPA believes that both of these technologies, as well as other 
potential technologies, will reduce regulated emissions and/or ambient 
ozone levels, as long as they operate as designed in-use. EPA will work 
with the developers of such technologies to establish regulatory 
procedures to determine whether it is appropriate to grant emission 
credit for particular technologies. This process will involve the 
opportunity for public notice and comment.
    With regard to Englehard's PremAir technology, EPA specifically 
requested comments on ARB's proposed approach to determining an NMOG 
credit and received no adverse comment on granting this type of 
technology a VOC emission credit. Thus, EPA is promulgating today 
procedures very similar to ARB's for certifying such technologies and 
determining the appropriate VOC emission credit. The only difference 
between EPA's and ARB's procedures involve assessing the effectiveness 
of VOC emission reductions and ozone reducing devices in areas outside 
of California.
    In summary, the ozone reductions associated by both the ozone 
reducing technology, such as PremAir, and exhaust VOC emission 
reductions will be estimated using urban airshed modeling, using up-to-
date chemical and meteorological simulation techniques. Four local 
areas shall be modeled: New York City, Chicago, Atlanta and Houston. 
The ozone episodes to be modeled shall be those selected by the states 
for use in their most recent ozone SIPs. Emissions shall be projected 
for calendar year 2007. Baseline emissions will include the benefits of 
the Tier 2 and sulfur standards being promulgated today, as well as all 
other emission controls assumed in EPA's ozone modeling of the benefits 
of the Tier 2 and sulfur standards described above. The ozone benefit 
of VOC emission reductions will be modeled by assuming that Tier 2 LDVs 
and LDTs meet a 0.055 g/mi exhaust NMOG standard instead of a 0.09 g/mi 
NMOG standard. The relationship between changes in exhaust NMOG 
emission standards and in-use VOC emissions shall be determined by 
modeling LDV+LDT emission in 2030 assuming that all Tier 2 vehicles 
meet a 0.055 g/mi exhaust NMOG standard instead of a 0.09 g/mi NMOG 
standard. All emission modeling shall utilize the updated Tier 2 
emission model developed by EPA as part of this rule, or MOBILE6, once 
it is available. The measure of ozone to be used in calculating VOC 
emission equivalency will be the peak one-hour ozone level anywhere in 
the modeled region on the day when ozone is at its highest. The NMOG 
credit will be determined by averaging the NMOG credit determined in 
each of the four local areas.
    Simulation of the benefits of the direct ozone reducing device will 
assume that ozone levels immediately around the roadway will be 40% 
less than that existing in the broader grid. The performance aspects of 
the direct ozone reducing device can be simulated by any reasonable 
values, since the appropriate NMOG credit for any specific application 
of this technology will be scaled to the performance of the specific 
application.
    The manufacturer wishing to obtain an NMOG credit for use of this 
technology must demonstrate its effectiveness to EPA as part of the 
certification process. This will involve demonstrating the air flow 
through the device, its ozone destruction capability under conditions 
analogous to those photochemically modeled, the durability of this 
capability over the useful life of the vehicle and the method to be 
used to diagnose its effectiveness in-use.
    Regarding the insulated catalyst technology, less information has 
been received to date on its performance. We are not promulgating 
regulations for determining the appropriate credit for such technology 
today. However, when we were developing our SFTP standards, EPA 
developed a methodology to assess the emission benefits of insulated 
catalysts or other techniques which reduced emissions after the vehicle 
soaks between 10 minutes and 12-36 hours. Thus, EPA expects to use this 
methodology as a starting point in assessing the benefit of insulated 
catalysts and will continue to assess development of options in this 
area. Because an insulated catalyst operates essentially like a typical 
catalyst, we do not expect that the test procedures for its 
certification would differ from those applicable to typical Tier 2 
vehicles. The primary difference will be an assessment of its 
effectiveness relative to conventional catalyst technology over a range 
of vehicle soak times between 10 minutes and 36 hours. Then, it will be 
necessary to estimate the average effectiveness in-use relative to 
conventional technology using the in-use frequency of vehicle soak 
times.

K. Adverse Effects of System Leaks

    The standards set forth in today's final rule are very stringent. 
They require extremely tight control of air/fuel ratios and also tight 
control of the inputs to the catalyst(s). A sealed exhaust system is 
crucial to the proper operation and emission control of current 
vehicles and even more so to the expected Tier 2 vehicles. Because a 
given point in the exhaust system intermittently sees negative 
pressure, exhaust leaks can permit air to enter the exhaust system. 
Even tiny amounts of air entering this way can have large impacts on 
the output of the oxygen sensor. If the output of the oxygen sensor is 
affected, then the exhaust output of the cylinders will be affected. 
Consequently, an exhaust leak can lead to both excess NOX 
and NMOG emissions. Air entering through exhaust leaks can also impact 
the NOX conversion efficiency of catalysts.
    In the preamble to the NPRM, we expressed our concerns about the 
impact of small exhaust leaks and requested comment on design or on-
board monitoring measures we could finalize to ensure that exhaust 
systems were manufactured and installed in such a way that leaks are 
prevented. We also asked for comment on whether we should implement a 
provision that would require manufacturers to demonstrate through 
engineering analysis or design that the possibilities of exhaust leaks 
have been addressed.
    Manufacturers indicated in their comments that they believe 
addressing exhaust leaks is unnecessary. We believe otherwise. Data we 
have seen suggest that very large emission effects can occur due to 
very small leaks. Consequently, we are finalizing a provision in 
today's rule that will require, as part of the certification process, 
for manufacturers to indicate that they have conducted an engineering 
analysis of the exhaust system. This

[[Page 6799]]

analysis must cover the entire exhaust system, including air injection 
systems, from the engine block exhaust manifold gasket surface to a 
point beyond the last catalyst or oxygen sensor. This analysis must 
determine whether the exhaust system has been designed to facilitate 
leak-free assembly, installation, repair and operation for the full 
useful life of the vehicle.
    With regard to the concept of ``facilitating leak-free repair'', we 
intend that manufacturers should ascertain that the exhaust system can 
be removed in a dealership or repair shop for repairs to the exhaust 
system itself or to other components of the vehicle and be able to be 
reassembled and reinstalled in a leak free manner using commonly 
available tools. It is not our intention that the concept of 
``facilitating leak-free repair'' apply to situations of gross misuse, 
tampering or serious vehicle damage.

L. The Future Development of Advanced Technology and the Role of Fuels

    The EPA staff will continue to assess the emission control 
potential of vehicles powered by technologies such as lean-burn and/or 
fuel-efficient technologies, including diesel engines equipped with 
advanced aftertreatment systems, gasoline direct injection engines, and 
other technologies that show promise for significant advances in fuel 
economy and meeting the Tier 2 standards in the post-2004 time frame. 
In this assessment, we will maintain a ``systems'' perspective, 
considering the progress of advanced vehicle technologies in the 
context of the role that sulfur in fuels plays in enabling the 
introduction of these advanced technologies or maximizing their 
effectiveness.

M. Miscellaneous Provisions

    We are finalizing, as proposed, to continue existing emission 
standards from Tier 1 and NLEV that apply to cold CO, certification 
short testing, refueling, running loss, and highway NOX. We 
are discontinuing, as proposed, the 50 degree (F) standards and testing 
included in the NLEV program. The 50 degree standards are a part of the 
NLEV program because that national program adopted California 
requirements virtually in their entirety. These standards had not 
previously been part of any federal program. We are also discontinuing 
idle CO standards for LDTs, based upon comment. These standards are 
adequately covered by the certification short test standards.

VI. Gasoline Sulfur Program Compliance and Enforcement Provisions

A. Overview

    The gasoline sulfur program promulgated today has many of the same 
features as the reformulated gasoline/conventional gasoline (RFG/CG) 
program, including refinery averaging, refinery and downstream level 
caps, and the generation and use of credits. These features raise 
similar compliance issues for both programs. As a result, the 
enforcement mechanisms of the gasoline sulfur rule generally track 
those of the RFG/CG rule, where applicable. Because low sulfur gasoline 
is necessary to avoid significant impairment of Tier 2 motor vehicle 
emissions technology, we believe measures are needed to assure that 
gasoline meets the standards promulgated in today's rule at the time 
the gasoline leaves the refinery gate or is imported, and to assure 
that the quality of the gasoline is maintained downstream of the 
refinery.
    More specifically, today's rule includes the following provisions:
     Refiners and importers must test each batch of gasoline 
produced or imported for sulfur content and maintain testing records 
and retain test samples;
     Refiners and importers must submit reports regarding 
compliance with the average standards and credit provisions;
     Attest procedures \125\ similar to those of the RFG/CG 
rule will be applied to the sulfur standards and credit provisions;
---------------------------------------------------------------------------

    \125\ 40 CFR Part 80, subpart F.
---------------------------------------------------------------------------

     Refiners and importers are prohibited from using, selling 
or purchasing invalid sulfur credits, and are required to adjust 
compliance calculations if invalid credits have been used, sold or 
purchased;
     Small foreign refiners subject to the small refiner 
standards described in section IV.C. above must comply with the rule's 
small refiner compliance requirements and other requirements to ensure 
the separation of such foreign gasoline from all other gasoline to the 
U.S. port of entry; any foreign refiners participating in the early 
credit generation program must also meet certain provisions concerning 
credit generation, including reporting and recordkeeping;
     All regulated parties in the gasoline distribution system 
who are downstream from the refiner or importer must comply with 
downstream sulfur cap standards;
     Regulated parties are subject to presumptive liability for 
violations at a party's own facility and for violations at other 
facilities that could have been caused by the regulated party; branded 
refiners are subject to liability for violations occurring at branded 
facilities.
     Refiners and distributors may implement downstream quality 
assurance testing to assure compliance and to establish an element of 
defense against presumptive liability.
    As in other fuels programs, the sulfur standards apply to all motor 
vehicle fuel that meets the definition of gasoline, except for aviation 
fuel and racing gasoline, as was proposed in the NPRM. See 40 CFR 
80.2(c). Gasoline sulfur standards apply, however, to gasoline that is 
ultimately used in nonroad equipment or marine engines.
    As we noted in the NPRM, we are aware there are certain fuels, such 
as aviation fuel and racing fuel, that are generally segregated from 
gasoline throughout the distribution system. Where such fuels are 
segregated from motor vehicle gasoline and not made available for use 
in motor vehicles, the fuel is not subject to sulfur rule standards. 
However, if such fuels are not segregated throughout the distribution 
system, but are used as motor vehicle gasoline or are commingled with 
motor vehicle gasoline, then any person who introduces such fuels into 
the gasoline distribution system is a refiner, subject to all the 
refiner requirements of today's regulations, including registration, 
reporting, testing and meeting the national refiner average and cap 
standards for the volume of gasoline that person added to the 
distribution system. Today's rule adopts the provisions concerning fuel 
used for racing vehicles as proposed.
    One commenter suggested that racing gasoline or aviation gas should 
be allowed to be used as motor vehicle gasoline by downstream parties 
so long as the racing gasoline or aviation gas does not exceed the 
applicable downstream cap standard. We disagree. Racing gas that meets 
the applicable downstream sulfur cap would nevertheless not be subject 
to the refinery gate cap or averaging standards, and may not meet such 
standards. Allowing such fuels to be distributed for motor vehicle use 
would thus circumvent the intent of the rule.
    The rule promulgated today clarifies the definition of ``refinery'' 
at 40 CFR 80.2(h), as was proposed in the NPRM. We received no comments 
on this clarifying change. Specifically, section 80.2(h) now provides 
that ``refinery''

[[Page 6800]]

means any facility, including a plant, tanker truck or vessel where 
gasoline or diesel fuel is produced, including any facility at which 
blendstocks are combined to produce gasoline or diesel fuel, or at 
which blendstock is added to gasoline or diesel fuel. This is 
consistent with all current EPA fuels rules, interpretations, policies 
and question and answer documents.

Oxygenate Blenders

    In the NPRM we proposed that oxygenate blenders \126\ would not be 
subject to the refiner sulfur standard like other blenders, because we 
felt it unlikely that oxygenates will have sulfur levels that will 
raise the sulfur content of the gasoline. This approach also was 
proposed because gasoline is the denaturant normally used to produce 
denatured ethanol. However, we received comments that denatured ethanol 
may contain as much as 50 ppm sulfur, which could result in significant 
increases in sulfur content from ethanol blending alone.
---------------------------------------------------------------------------

    \126\ The term ``oxygenate blenders'' includes ``ethanol 
elnders.''
---------------------------------------------------------------------------

    While it is true that some of today's gasoline has a sulfur content 
as high as 1,000 ppm which if used as an ethanol denaturant results in 
ethanol having a sulfur content of 50 ppm, the average sulfur content 
of gasoline is about 300 ppm which if used as an ethanol denaturant 
results in ethanol with a sulfur content of 15 ppm. In addition, when 
the gasoline sulfur standards being promulgated today are in effect, 
the average sulfur levels of gasoline will be significantly reduced, 
which will further reduce the sulfur content of denatured ethanol to 
very low levels. For this reason, we are finalizing the regulation as 
proposed that oxygenate blenders are not subject to refiner sulfur 
standards.
    However, if gasoline blendstock instead of finished gasoline is 
used as a denaturant for ethanol the oxygenate blender who adds the 
ethanol would become a ``refiner,'' who is required to demonstrate 
compliance with the sulfur standards for the denatured ethanol added to 
gasoline. This is because the oxygenate blender would be adding a 
blendstock along with the ethanol, which subjects the blendstock 
blender to refiner standards and requirements. Moreover, if the 
blendstock has a high sulfur content the denatured ethanol could have a 
sulfur content greater than 30 ppm, or even greater than 80 ppm, which 
could make compliance by such a ``refiner'' difficult or impossible. In 
addition, as discussed above, in certain cases ethanol is included in 
the refinery compliance calculations of the refiner who produced the 
gasoline or RBOB with which the ethanol is blended. Refiners assume 
this ethanol has no sulfur content, an assumption that could be 
incorrect if high sulfur blendstock is used as the denaturant.
    For these reasons we believe it is important that ethanol blenders 
use denatured ethanol with a sulfur content of 30 ppm or less, which 
would occur if the current practice of using finished gasoline as 
ethanol denaturant continues. In order to ensure this result, the 
regulations include a provision that prohibits ethanol blenders from 
using denatured ethanol with a sulfur content greater than 30 ppm. We 
believe ethanol blenders can comply with this requirement through 
commercial arrangements with their ethanol suppliers, that specify the 
maximum sulfur content of denatured ethanol. In addition, ethanol 
blenders can assure compliance with this requirement by testing to 
determine the sulfur content of denatured ethanol received.

Gasoline Treated as Blendstock (GTAB)

    One commenter suggested that the Agency policy under the RFG/CG 
rule that allows certain imported gasoline to be treated as a 
blendstock by importer-refiners should be applied to today's rule. The 
GTAB policy was originally issued in the RFG Question and Answer 
document, and was subsequently published as part of a proposed RFG 
rulemaking in 1997.\127\ We intend to address GTAB issues in that RFG 
rulemaking, including issues regarding compliance with today's rule.
---------------------------------------------------------------------------

    \127\ Reformulated Gasoline and Anti-dumping Questions and 
Answers, (11/12/96); Proposed Rule for Modifications to Standards 
and Requirements for Reformulated and Conventional Gasoline; 62 FR 
37337 et seq. (July 11, 1997).
---------------------------------------------------------------------------

Transmix

    We are aware that when gasoline meeting the requirements finalized 
in today's rule is transported through pipelines, there will be some 
situations where adjacent distillate product in the pipeline will mix 
with a portion of the gasoline to create an interface product, commonly 
referred to as transmix. This transmix may not be blended into the 
diesel fuel because the gasoline in the transmix may result in diesel 
fuel performance problems. Historically, this type of transmix product 
has either been blended into the gasoline, in limited concentrations, 
or the transmix has been separated into its gasoline and distillate 
components at a reprocessing plant. However, the practice of blending 
the transmix into gasoline may result in violations of the downstream 
standards for RFG, and such blending could violate the downstream 
sulfur caps finalized in today's rule, because many distillates have a 
very high sulfur content. Therefore, we believe regulatory provisions 
are needed to resolve these issues. We have not addressed transmix 
issues in today's rule because we have already proposed regulations 
regarding transmix blending and processing in another rulemaking.\128\ 
We plan to address transmix issues, including issues regarding 
compliance with today's rule, in that rulemaking, which we plan to 
finalize in the near future.
---------------------------------------------------------------------------

    \128\ 62 FR 37337 et seq. (July 11, 1997) (proposed 40 CFR 
80.84).
---------------------------------------------------------------------------

Inability To Produce Conforming Gasoline in Extraordinary Circumstances

    Several commenters suggested the rule should include a provision, 
similar to the RFG rule provision at 40 CFR 80.73, to address 
situations where, due to extraordinary circumstances, a refiner or 
importer cannot produce or distribute conforming gasoline. Section 
80.73 applies to refiners, importers and oxygenate blenders. Today's 
rule has adopted the provisions of section 80.73 for RFG and CG, for 
importers and refiners, but not for oxygenate blenders. This is because 
the gasoline sulfur program does not include provisions that would be 
expected to require oxygenate blender relief.
    In the remainder of this section we discuss enforcement issues 
regarding today's rule that are not covered in this Overview or in 
section IV.C., above.

B. Requirements for Foreign Refiners and Importers

    In the NPRM we proposed that standards for gasoline produced by 
foreign refineries that are not subject to small refiner individual 
refinery standards would be met by the importer. Standards for gasoline 
produced by a foreign refinery subject to an individual sulfur rule 
standard would be met by the foreign refinery, with certain limited 
exceptions as provided in the foreign refinery provisions. The rule 
promulgated today adopts the provisions as proposed, except for several 
changes aimed at clarifying the proposed requirements, changes relating 
to the temporary relief provision, and changes relating to foreign 
refiners' participation in the early credit program. These provisions 
are very similar to the foreign refinery provisions of the RFG/CG rule.

[[Page 6801]]

1. Requirements for Foreign Refiners With Individual Refinery Sulfur 
Standards or Credit Generation Baselines
    Under the RFG/CG rule, EPA promulgated regulations \129\ addressing 
the establishment and implementation of individual baselines for CG 
produced by certain foreign refiners. The purpose of these regulations 
is to ensure the compliance of gasoline supplied from foreign 
refineries with individual compliance baselines. It includes 
comprehensive controls, requirements and enforcement mechanisms to 
monitor the movement of gasoline from the foreign refinery to the U.S., 
to monitor gasoline quality and to provide for enforcement as 
necessary.
---------------------------------------------------------------------------

    \129\ 40 CFR 80.94.
---------------------------------------------------------------------------

    In the NPRM, we proposed similar requirements for compliance with 
the applicable sulfur standards that would apply to any foreign refiner 
who demonstrates that it meets the sulfur program's small refiner 
criteria. We proposed that foreign refinery baselines would be based on 
annual average sulfur levels and the volume of gasoline imported to the 
U.S. during the same baseline period as would be applicable to domestic 
small refiners. In today's final rule we have also adopted provisions 
for foreign refiners to establish baselines to participate in the early 
credit generation program, and to request temporary relief. Any foreign 
refiner who obtains a foreign refinery gasoline sulfur baseline would 
be subject to the same requirements as domestic refiners with 
individual refinery baselines under today's rule. Additionally, 
provisions similar to the provisions at 40 CFR 80.94 would apply, which 
include:
     Segregating gasoline produced at the small refinery until 
it reaches the U.S.;
     Refinery registration;
     Controls on product designation;
     Load port and port of entry testing;
     Attest requirements; and
     Requirements regarding bonds and sovereign immunity.
    The rationale for these enforcement provisions is discussed more 
fully in the Agency's preamble to the final RFG/CG foreign refineries 
rule (62 FR 45533 (Aug. 28, 1997)).
    Several commenters suggested that the rule should have even 
stronger enforcement provisions concerning foreign refiners, including 
criminal provisions against foreign individuals who violate the 
requirements of the rule. While we agree that the rule's enforcement 
provisions pertaining to foreign refiners must be effective, we believe 
the proposed enforcement provisions are sufficient, and that attempts 
to further strengthen them would not significantly increase their 
overall effectiveness. Today's rule imposes various requirements on 
foreign refiners not required of domestic refiners, as noted above, 
which we believe are more effective for ensuring environmental 
compliance than criminal provisions would be for foreign individuals, 
in light of the potential difficulties of enforcing sanctions against 
foreign individuals. EPA's experience to date with the similar RFG/CG 
requirements under section 80.94 of the RFG/CG rule does not indicate 
the provisions are inadequate.
    Therefore, today's rule generally retains these provisions as 
proposed. The final rule makes several technical changes, including 
changes regarding baselines for foreign refiners, to be consistent with 
the requirements for domestic small refiners and refiners generating 
early credits finalized in today's rule. The rule's foreign refiner 
enforcement provisions now also apply to foreign refiners participating 
in the early credits program, and to the use of credits by foreign 
small refiners.
    One commenter stated that the language of the proposed 
Sec. 80.410(n) would be too broad in that prohibiting any ``person'' 
from combining certified small foreign refiner gasoline with non-
certified small foreign refiner gasoline or with certified small 
foreign refinery gasoline produced at a different refinery would 
prohibit even retail level commingling of such products. This was not 
intended and today's rule clarifies that such commingling can occur 
subsequent to importation.
    Under the proposal, when the small refiner standards sunset (and 
additionally under today's rule, when the temporary refiner relief 
provisions sunset),\130\ all gasoline would be subject to a single 
national averaged standard and one national refinery level cap. 
Thereafter, standards for all imported gasoline would be met by U.S. 
importers. We have retained this provision as proposed. With a single 
national average standard and cap standard, gasoline sulfur content can 
most readily be monitored at the U.S. importer level, since there will 
no longer be a special class of gasoline with different standards that 
would need to be monitored.
---------------------------------------------------------------------------

    \130\ Small refiner and temporary refiner hardship individual 
refinery standards sunset January 1, 2008, except for any small 
refineries that receive a hardship extension not to exceed two 
years.
---------------------------------------------------------------------------

2. Requirements for Truck Importers
    Today's final rule adopts the proposed requirement for importers to 
sample and test each batch of gasoline imported. However, as noted in 
the preamble to the NPRM, for parties that import gasoline into the 
U.S. by truck, the every-batch testing requirement would include 
testing the gasoline in each truck compartment, or if the gasoline is 
homogeneous, testing the gasoline in the truck.
    In the NPRM we recognized that this every-batch testing requirement 
may not be feasible for truckers hauling many small loads of gasoline, 
and we therefore proposed a limited alternative approach for truck 
importers in lieu of every-batch testing. The proposed alternative 
approach is based on the importer meeting the 30 ppm sulfur standard on 
a per-gallon basis. Under this alternative approach, the importer would 
be allowed to rely on the sulfur results based on sampling and testing 
conducted by the operator of the foreign truck loading terminal. 
Because, in most cases, the terminal operator will not be subject to 
United States laws, we also proposed safeguards intended to ensure that 
the gasoline in fact meets the applicable standard. This includes the 
requirement that the importer conduct a quality assurance sampling and 
testing program independent from the sampling and testing conducted by 
the terminal. Under this approach the reporting requirements would be 
minimized since no averaging would be required. The environmental 
consequences of this approach would be neutral, because by meeting the 
30 ppm sulfur standard on an every-gallon basis the standard also would 
be met on average.
    One commenter stated that the 30 ppm per-gallon standard would be 
difficult for truck importers to meet due to the fact that Canadian 
terminals may not always have gasoline with a sulfur content no greater 
than 30 ppm. The commenter suggested that truck importers be allowed to 
rely on testing conducted by the foreign gasoline terminal, as 
discussed above, to meet the average and cap standards like other 
importers.
    We agree that truck importers may have difficulty obtaining 
gasoline that meets the 30 ppm sulfur standard on a per-gallon basis. 
Under Canadian regulations, Canadian refiners will be subject to a 150 
ppm average standard and a 300 ppm cap in 2004, and in 2005 Canadian 
refiners will be subject to a 30 ppm average standard and an 80 ppm

[[Page 6802]]

cap.\131\ This means that truck importers should be able to meet the 
standards applicable to other importers, including the ultimate average 
standard and cap standard under today's rule (30 ppm average and 80 ppm 
cap), without great difficulty. However, meeting a per-gallon cap of 30 
ppm might be difficult since the sulfur content of gasoline in the 
storage tanks of Canadian terminals, like those of U.S. terminals, will 
likely exceed 30 ppm at times, even after the 30/80 standards are 
implemented. We have concluded that we can address this concern by 
providing additional flexibility to truck importers, and still assure 
compliance.
---------------------------------------------------------------------------

    \131\ Vol. 133 23/6/99 C. Gaz. II, 23 June 99 (pp. 1469 et seq.)
---------------------------------------------------------------------------

    While today's rule retains the proposed alternative, with some 
modifications, it also provides a second alternative approach. Under 
this second approach, truckers are allowed to meet the national average 
and cap applicable to other importers, and rely on testing conducted by 
the foreign gasoline terminal so long as all the other requirements 
applicable to the proposed alternative approach are complied with. In 
addition, truckers using this second alternative approach will be 
subject to more extensive reporting than required for the proposed 
alternative, since the importer will have to demonstrate compliance 
with the annual average sulfur standard applicable to other importers.
    One commenter urged that truckers should be subject only to the 
national downstream cap. We cannot agree to this approach as it is not 
environmentally neutral relative to the national standards in effect 
for other importers and refiners. If truck importers were required to 
meet only the downstream cap, sulfur levels for their imported gasoline 
could be substantially higher than for other importers, which could 
have a detrimental environmental consequence.
    One commenter stated that the 30 ppm per-gallon standard for truck 
importers should not go into effect until the 30 ppm standard becomes 
the national average standard for refineries and other importers. We 
agree. Under today's rule, the per-gallon standards applicable to truck 
importers under the proposed alternative will be the same sulfur level 
as the sulfur average standard that applies to other importers (in 2004 
there is no average standard; however, truck importers using this 
alternative compliance approach must meet the corporate pool standard 
on a per-gallon basis).\132\ Under the second alternative approach, the 
truck importer will be subject to the same average standard and cap 
standard applicable to other importers.\133\
---------------------------------------------------------------------------

    \132\ In 2004, a 120 ppm cap; In 2005 and beyond, a 30 ppm cap. 
See Table IV.C.-1.
    \133\ In 2004, a 120 ppm average standard and a 300 ppm cap; In 
2005, a 30 ppm average standard, a corporate pool average no greater 
than 90 ppm, and a 300 ppm cap; In 2006 and beyond, a 30 ppm average 
standard and a 80 ppm cap. See Table IV.C.-1.
---------------------------------------------------------------------------

    Similar provisions as provided above apply to truck importers for 
gasoline subject to the geographic phase-in area (GPA) standards (see 
section IV.C. of this preamble for a discussion of GPA standards). 
However, because of the small volumes of truck-imported gasoline, and 
the consequent difficulty in meeting corporate pool averages for a 
trucker who imports gasoline into both the GPA and areas outside the 
GPA, today's rule requires that for truck importers using the averaging 
option, the corporate pool average does not have to be met. The 150 ppm 
average standard and the 300 ppm cap standard apply to gasoline 
imported by truck into the GPA in 2004 through 2006. For truck 
importers meeting the per-gallon standard option for gasoline imported 
into the GPA, the per-gallon standards are 150 ppm for 2004 through 
2006.

Truck Import of Foreign Small Refiner Gasoline

    The NPRM addressed issues associated with gasoline produced by a 
foreign small refinery with an individual baseline and certified as 
subject to the refinery's individual interim standard (S-FRGAS), and 
imported by truck. The proposed requirements for S-FRGAS included 
segregating the gasoline from all other gasoline from the refinery gate 
to the U.S., so that compliance with standards can be tracked. For 
ordinary, non-truck importers, each batch of certified S-FRGAS must be 
tested at the load port and port of entry. Today's rule finalizes these 
proposed requirements for S-FRGAS.
    However, in the case of gasoline imported by truck, the NPRM 
acknowledged that the testing and other procedures proposed for 
certified S-FRGAS may not be feasible. As a result, we proposed an 
alternative to the requirement for testing every truckload of imported 
certified S-FRGAS, and to other importer requirements. This alternative 
approach includes a requirement that small foreign refiners producing 
any S-FRGAS that will be imported by truck submit a petition to EPA 
that includes a plan which is designed to ensure that certified S-FRGAS 
remains segregated from all other gasoline from the refinery to the 
U.S. Rather than specifying the precise requirements of such a plan in 
the regulations, we proposed to allow the refiner to develop its own 
procedures for ensuring that S-FRGAS remains segregated. However, the 
plan must contain certain elements, such as product transfer documents 
which identify the origin of the gasoline and prohibit its commingling 
with any product other than certified S-FRGAS from that refinery.
    This approach also requires the refiner of such truck-imported 
gasoline to receive and maintain all such product shipment documents, 
including U.S. import documents, for five years and review these to 
ensure that segregation is maintained until reaching the U.S. To ensure 
that refiners conduct this review, we proposed to require the refiner's 
plan to include attest audit procedures to be conducted annually by an 
independent third party.
    We received no comments on this proposal for ensuring the integrity 
of S-FRGAS imported by truck. Today's final rule adopts the petitioning 
provision to permit alternative segregation procedures for S-FRGAS 
imported by truck as proposed since we continue to believe that it will 
provide flexibility to foreign refiners and to importers and will 
adequately assure enforceability.

C. What Standards and Requirements Apply Downstream?

    We proposed per-gallon cap standards that would apply to all 
parties in the distribution system downstream of the refinery and 
importer level, including pipelines, terminals, oxygenate blenders, 
distributors, carriers, retailers and wholesale purchaser-consumers. We 
believe that downstream cap standards and compliance monitoring based 
on downstream standards are needed to ensure that the sulfur level of 
gasoline remains below the cap level when dispensed for use in motor 
vehicles, to avoid adverse emissions consequences that would be caused 
by the use of gasoline having a sulfur content above the cap level. The 
following discussion addresses downstream standards generally, 
downstream standards and requirements for gasoline produced by 
refineries subject to standards under Sec. 80.240 and 80.270, and 
downstream standards and requirements for gasoline produced or imported 
for the geographic phase-in area (GPA).

[[Page 6803]]

Determination of Downstream Cap Standards

    We proposed that the downstream standards would be more lenient 
than the refinery-level cap standards so that refiners and importers 
can produce gasoline that equals the refinery-level cap standard. We 
did so because it has been EPA's experience that if a refiner produces 
gasoline that equals, or almost equals a standard, that gasoline may be 
shown to violate the standard when subsequently tested at a location 
downstream of the refinery due to testing variability. As a result, 
parties downstream of the refinery (primarily pipelines) set commercial 
specifications for the quality of the gasoline they will accept that 
are more stringent than the standard that applies to the downstream 
party. This, in effect, forces refiners to produce gasoline that is 
``cleaner'' than the refinery-level standard.
    In other fuels programs (for example, the benzene per-gallon 
standard for RFG) we resolved this concern by announcing enforcement 
tolerances for fuels standards that apply downstream of the refinery-
level, thereby reducing the need for pipelines to set specifications 
more stringent than the refinery level standards. We believe that 
having more lenient downstream standards will have the same effect as 
enforcement tolerances.
    In the NPRM we proposed that the values of the downstream cap 
standards would reflect the testing variability that could reasonably 
be expected when different laboratories test gasoline for sulfur 
content; that is, lab-to-lab variability, or reproducibility. Industry 
commenters supported this approach, and today's rule adopts this 
approach. For gasoline subject to the 80 ppm refinery-level sulfur cap, 
the downstream maximum standard is 95 ppm. This difference reflects the 
reproducibility established by the American Society for Testing and 
Materials (ASTM).\134\ For gasoline subject to refinery-level sulfur 
caps higher than 80 ppm, which will be the case for gasoline produced 
before 2006 and for gasoline produced by certain small refineries 
through 2007, the downstream cap is similarly established by using ASTM 
reproducibility data. The national downstream cap is 378 in 2004, when 
the refinery level cap can be as high as 350 ppm. The national 
downstream cap in 326 in 2005, when the refinery level cap is 300.
---------------------------------------------------------------------------

    \134\ ASTM standard method D 2622-98, entitled `Standard Test 
Method for Sulfur in Petroleum Products by Wavelength Dispersive X-
ray Fluorescence Spectrometry.''
---------------------------------------------------------------------------

    Because these downstream caps are based on sulfur test 
reproducibility, we intend to amend the rule in the future if 
improvements in test precision are made for the designated method. We 
may also consider amending the rule to make some other method the 
designated method if a more precise method is available in the future.

The Proposed Downstream Standards Compliance Scheme

    Under the proposal, if gasoline produced by a small refiner with a 
less stringent cap standard is mixed in the distribution system with 
gasoline subject to the national cap standard, the entire mixture would 
then be subject to the higher cap standard, even though most of the 
gasoline, at the refinery level, would be subject to the more stringent 
national cap standard. We proposed that during the period that small 
refinery individual standards are in effect, for gasoline that is 
comprised, in whole or in part, of small refiner gasoline with a higher 
sulfur cap standard than the national cap standard, product transfer 
documents (PTDs) would specify that the gasoline is small refiner 
gasoline and the level of the downstream cap applicable to the 
gasoline.
    The purpose of the proposed provisions was to make it possible to 
determine the standard that applies to any gasoline downstream of the 
refinery. If the gasoline contains no small refiner gasoline, the 
downstream standard would be based on the national cap. If the gasoline 
is comprised, in whole or in part, of small refiner gasoline subject to 
a less stringent cap standard, the downstream standard would be based 
on this less stringent cap standard. As gasoline is mixed and remixed 
in the fungible distribution system, the percentage of gasoline that is 
small refinery gasoline will progressively diminish until the fungibly 
mixed gasoline meets the national downstream cap. Therefore, we 
proposed in the NPRM that a downstream party may no longer classify 
gasoline as containing small refiner gasoline if a test result shows 
the sulfur content of the gasoline is below the applicable national 
(i.e., not small refiner) downstream cap.
    Several commenters suggested that this tracking scheme would be 
unworkable. Some of these comments were based on the belief that the 
proposal intended to require segregation of the small refiner gasoline 
through the distribution system. The proposal was not intended to 
require that small refiner gasoline must be segregated, and under 
today's final rule there is no requirement that small refiner gasoline 
must be segregated from gasoline produced by other refiners. Some 
commenters also believed that testing by downstream parties would be 
required under the proposed rule. These commenters were concerned that 
a downstream testing requirement could be costly and could delay 
distribution of gasoline. This latter point is addressed later in this 
discussion. Some commenters stated that the proposed PTD provisions of 
the downstream enforcement scheme were too complex and that some means 
other than changing PTD designations should be found to track small 
refiner gasoline.
    Other commenters, including automobile manufacturer trade 
associations, stated they believed that EPA enforcement and testing 
downstream of the refinery is necessary to assure that gasoline 
complies with standards at the retail gasoline pump.
    We have carefully considered the comments and we have concluded 
that the tracking scheme as proposed would not be effective because 
most pipeline shipments are expected to include some small refiner 
gasoline (although the amount of small refiner gasoline may comprise 
less than 1% of the shipment) and therefore, most of the gasoline in 
the nation might be classified as small refiner gasoline, even though 
only a small fraction of the supply will actually be small refiner 
gasoline. Therefore, a downstream cap much less stringent than the 
national downstream cap would attach to most gasoline produced to meet 
the national refinery standards, and the scheme would not be effective 
in monitoring whether the quality of most gasoline is maintained after 
it enters the gasoline distribution system.
    The proposed scheme could lead to other unintended results. The 
gasolines contained in a fungible mixture in the distribution system 
may not be fully mixed and homogenous. As a result, a distinct, 
unmixed, portion of gasoline within a fungible mixture could be small 
refiner gasoline with a sulfur content above the national downstream 
cap, while other parts of the fungible mixture would meet the national 
downstream cap. This is especially true for fungible mixtures in 
pipelines and could also be true for gasoline in storage tanks. If a 
test result for a sample collected from part of such a fungible mixture 
in a pipeline shows compliance with the national downstream cap, under 
the proposed rule the entire mixture would become subject to the 
national downstream cap, and the pipeline PTDs could not classify the 
gasoline as small refiner gasoline. Thus,

[[Page 6804]]

under the proposal, parties downstream of the pipeline could be subject 
to liability because they might receive small refiner gasoline not 
meeting the national standard even where a pipeline PTD does not 
represent that the gasoline is small refiner gasoline. That was not 
intended by the proposal.
    Because of these difficulties, we concluded that the proposed 
scheme must be modified to address these concerns, in order for there 
to be effective enforcement of the downstream standards. We are 
concerned that the quality of gasoline will be affected downstream of 
the refinery. Gasoline may be contaminated with high sulfur blendstocks 
or other high sulfur products such as distillates after it leaves the 
refinery gate. There is likely to be an economic incentive for some 
downstream parties to sell or use gasoline or blendstocks that have a 
higher sulfur content than the national downstream standard. The 
inability to monitor downstream compliance would result in 
environmental degradation that is not intended by the rule, and in an 
inability to assure a level playing field for all parties in the 
gasoline distribution industry.

Tracking Gasoline Downstream of the Refinery

    We believe that an effective downstream compliance and enforcement 
scheme is necessary in order to achieve the full emissions reduction 
benefits of the rule. Today's rule modifies the proposed tracking 
scheme so that compliance with the program can be monitored.
    Under today's rule, all gasoline downstream of the refiner or 
importer is subject to the national downstream standard unless a 
different downstream standard, based on the highest sulfur content of 
any small refiner/temporary refiner relief gasoline in the gasoline 
mixture (as determined by the small refiners' batch testing), is 
supported by PTDs and a test result confirming the presence of small 
refiner/temporary refiner relief gasoline. The test result must be for 
gasoline sampled from the downstream facility classifying the gasoline 
as small refiner gasoline, unless the facility is a trucker, retailer 
or wholesale purchaser-consumer. We have concluded that this 
requirement is necessary to monitor compliance with the downstream 
standards during the period that small refiner/temporary refiner relief 
standards are in effect, because the vast majority of the gasoline 
transported by pipelines will be gasoline produced to comply with the 
national cap,\135\ even though most of those pipeline shipments will be 
classified as small refiner gasoline.\136\
---------------------------------------------------------------------------

    \135\ For example, most pipeline shipments are expected to 
contain small refiner gasoline in the two U.S. pipelines that carry 
the highest volume of gasoline. However, in most shipments the small 
refiner gasoline is expected to account for substantially less than 
5% of the total volume of gasoline in the shipment.
    \136\ For purposes of this discussion, ``small refiner gasolne'' 
includes any gasoline from a refiner to whom EPA grants relief based 
on a showing of extreme hardship.
---------------------------------------------------------------------------

    We believe that the ability to track small refiner gasoline is made 
even more important due to the geographic phase-in area (GPA) gasoline 
provisions finalized today.\137\ GPA gasoline is subject to less 
stringent refiner/importer standards than gasoline produced for use in 
other parts of the country. Therefore, its use is limited to the GPA 
states. However, it may be produced or imported at any location in the 
country before it is transported for use in the GPA. EPA would have 
little ability to assure GPA-designated gasoline is only being used in 
the GPA if it cannot determine if gasoline at a downstream location 
outside the GPA that exceeds the applicable downstream cap for non-
small refiner gasoline, is in fact small refiner gasoline or if it may 
include gasoline that was designated for use in the GPA but has been 
diverted for use elsewhere. The tracking requirements for small refiner 
gasoline will help us to make that determination.
---------------------------------------------------------------------------

    \137\ See section IV.C. of this preamble for refiner/importer 
standards and the discussion below regarding downstream compliance 
and enforcement provisions.
---------------------------------------------------------------------------

    The only parties required to perform testing in order to 
demonstrate that a shipment, or tank, of gasoline contains small 
refiner gasoline are gasoline pipelines and terminals. Where a terminal 
properly classifies gasoline in its storage tank as small refiner 
gasoline, and subsequently receives a load of gasoline into that tank, 
it may not continue to classify the gasoline as small refiner gasoline 
unless the tank is sampled, and a test demonstrates that the tank still 
contains small refiner gasoline and the gasoline sulfur content exceeds 
the national refinery level cap. In 2004 the test result would have to 
exceed 350 ppm; in 2005, 300 ppm; and starting with 2006, 80 ppm. In 
the GPA, the test result would have to exceed 350 ppm in 2004, and 300 
ppm in 2005 and 2006.
    We have concluded that the pipeline and terminal testing provisions 
are necessary for effective enforcement. We believe that terminals and 
pipelines will be able to perform sampling and testing that will enable 
them to identify the presence of small refiner gasoline in a cost-
effective manner. These parties have knowledge regarding the mixing of 
gasoline as it moves from the pipeline and into the terminal tank, and 
knowledge of the distribution system, that will enable them to make 
judgments regarding the extent of testing that may be needed to 
demonstrate whether gasoline meets the national downstream cap. 
Further, a terminal operator may take additional tests if it believes a 
tank may contain a stratified portion of small refiner gasoline, 
despite a test result showing the tank complies with the national 
downstream cap.
    Many terminals may have sufficient reason to believe they are 
receiving only gasoline meeting the national cap such that they will 
not normally test each receipt of gasoline. Additionally, even for 
terminals who receive small refiner gasoline, we do not believe the 
sampling and testing will be burdensome. This is partly because many 
terminals already conduct periodic sampling, or even sampling after 
every delivery of gasoline into storage tanks, at least in the summer 
VOC or RVP season, to test gasoline for various parameters, which may 
already include sulfur testing in RFG areas. Field test instruments 
already exist that are adequate for this testing in 2004 and 2005 when 
the national downstream cap is 378 ppm and 326 ppm, respectively. 
Moreover, we believe that because of today's rule, better field test 
instruments for sulfur analysis at lower levels are likely to be 
developed in the next few years. Therefore, it will not be necessary 
for quality assurance samples to be sent to a laboratory for testing. 
Thus, we do not believe shipments will be held up while terminals await 
a test result. We also believe that it is likely that these instruments 
will be available for a cost that will be far less than most laboratory 
instruments available today.
    Under today's rule, retailers are not required to conduct testing. 
The retailer can demonstrate that the gasoline is properly designated 
small refiner gasoline subject to a less stringent downstream standard 
by maintaining PTDs from its suppliers that demonstrate a terminal 
classified gasoline supplied to the retailer's storage tank as small 
refiner gasoline.

Downstream Standards and Requirements for GPA Gasoline

    Consistent with the way today's rule sets downstream sulfur 
standards for other gasoline, the GPA program downstream standard is 
determined by adding the ASTM reproducibility applicable to the 
refinery level sulfur

[[Page 6805]]

cap to that refinery level cap, which for GPA gasoline is as high as 
350 ppm in 2004, and 300 ppm in 2005 and 2006. This results in 
downstream standards for GPA gasoline of 378 ppm in 2004, and 326 ppm 
in 2005 and 2006.
    Because GPA gasoline must be used only within the GPA states,\138\ 
today's rule requires that refiners and importers producing or 
importing gasoline subject to the GPA standards must designate each 
such batch of gasoline as GPA gasoline and segregate such batches from 
all other gasoline. Product transfer documents must identify the 
gasoline as GPA gasoline so that all downstream parties will be aware 
that it must be sold or distributed for use only in the GPA.
---------------------------------------------------------------------------

    \138\ As stated in section IV.C. of this preamble, the GPA 
states are Alaska, Idaho, Montana, North Dakota, Wyoming, Utah, 
Colorado and New Mexico.
---------------------------------------------------------------------------

    Gasoline produced for use in all areas of the country outside the 
GPA may be sold for use in the GPA, including gasoline subject to small 
refiner standards under section 80.240 of today's rule.
    Where GPA gasoline is commingled with other gasoline, the 
commingled gasoline must be classified as GPA gasoline and used only in 
the GPA states. Where GPA gasoline is commingled with S-RGAS, the 
applicable downstream sulfur standard for that gasoline is the greater 
of the GPA downstream standard or the applicable small refiner/
temporary refiner relief standard as determined under section 80.210 of 
the rule.
Lead-Time for Downstream Compliance With New Standards
    Some commenters stated that there should be a lead-time of several 
months between the implementation date of a new refinery level sulfur 
standard and the implementation date of the corresponding downstream 
standard. Based on our experience with other fuels programs, we believe 
that a one-month lead time will be adequate for gasoline at the 
terminal level to meet new standards. An additional one month for 
retailers will give them ample time to comply. Therefore, under today's 
rule, the 378 ppm downstream sulfur standard (or any applicable small 
refiner downstream cap standard) is effective February 1, 2004 at the 
terminal level and March 1, 2004 at the retail level. The 326 ppm 
downstream sulfur standard is effective February 1, 2005 at the 
terminal level and March 1, 2005 at the retail level. The 95 ppm 
downstream standard is effective February 1, 2006 at the terminal level 
and March 1, 2006 at the retail level (or February 1, 2007, and March 
1, 2007, respectively, in the case of gasoline at facilities in the 
GPA).
Retail Gasoline Pump Labeling
    EPA believes gasoline advertised as being ``low sulfur gasoline'' 
when sold at retail outlets should have a sulfur content of no more 
than 95 ppm because this is the maximum sulfur level of gasoline at 
retail outlets that would protect the emission controls of Tier 2 
vehicles. We are stating this to inform refiners and other regulated 
parties, when making advertisement decisions regarding gasoline, that 
it is EPA's position that effective January 1, 2004, if any retailer 
represents that gasoline is low sulfur gasoline, or representations to 
the same effect, the gasoline sulfur content should be no greater than 
95 ppm.

D. Testing and Sampling Methods and Requirements

1. Test Method for Sulfur in Gasoline
    We proposed ASTM standard method D 2622-98, ``Standard Test Method 
for Sulfur in Petroleum Products by Wavelength Dispersive X-ray 
Fluorescence Spectrometry,'' as the primary method for testing sulfur 
in gasoline by refiners and importers. This is the designated method 
under the RFG/CG rule.\139\ We also requested comment on adopting other 
methods as the primary method, in particular, ASTM method D 5453-93, 
``Standard Test Method for Determination of Total Sulfur in Light 
Hydrocarbons, Motor Fuels and Oils by Ultraviolet Fluorescence,'' and 
ASTM D 4045, ``Standard Test Method for Sulfur in Petroleum Products by 
Hydrogenolysis and Rateometric Colorimetry,'' which is used under the 
California fuels program for sulfur levels below 10 ppm. We also 
proposed ASTM D 5453 as an alternative method for determining the 
sulfur content of gasoline and we requested comment on this proposal.
---------------------------------------------------------------------------

    \139\ See 40 CFR 80.46(a). Today's rule updates the former 
designated test method, ASTM D 2622-94.
---------------------------------------------------------------------------

    Most comments supported the continued use of ASTM D 2622 as the 
designated method for testing sulfur in gasoline under the various 
fuels rules, including today's rule. Commenters indicated that most 
refineries outside of California are currently using ASTM D 2622. Under 
the California fuels regulations, California refineries currently use 
ASTM D 5453, as well as ASTM D 2622 and ASTM D 4045. Comments were 
generally favorable to the proposed use of ASTM D 5453 as an alternate 
method. However, one California refinery, an automobile manufacturers 
association and a manufacturer of analytical equipment stated that ASTM 
D 5453 should be the primary method, primarily due to its greater 
precision at low sulfur levels. Favorable comments were received to the 
use of ASTM D 4045, especially for gasoline sulfur content of 10 ppm or 
less. One commenter suggested that ASTM D 5623-94 should be allowed; 
one commenter suggested that ASTM D 3120 should be allowed, and one 
commenter suggested that ASTM D 6428 should be allowed. Several 
commenters stated that we should utilize a performance based criteria 
system to determine what test methods can be used.
    We have considered the comments carefully. We believe there are a 
number of test methods for determining the sulfur content of gasoline 
that may eventually be shown to be as good as, or better than, ASTM D 
2622. We also considered that the Agency is likely to issue a proposed 
rulemaking for a performance-based test method approach that would 
apply to motor vehicle fuel parameters. This rule, once promulgated, 
would set forth criteria for determining whether an alternative 
analytical test method could be used instead of the designated 
analytical test method for a given fuel parameter and would set forth 
criteria for correlating alternative analytical test methods to the 
designated analytical test method.
    We believe it is appropriate that alternate analytical methods 
should be qualified and correlated to the regulatory method according 
to standardized criteria. Today's rule therefore provides that ASTM D 
2622, the recognized standard analytical method for determining sulfur 
in gasoline, is the sole regulatory method, anticipating that a 
performance-based testing rule may be issued before 2004, and that 
under its terms anyone will be able to qualify and correlate additional 
testing methods. We do not believe this will result in undue hardship 
for several reasons. First, our current fuels rules already provide 
that ASTM D 2622 is the sole regulatory method for determining the 
sulfur content of gasoline. Second, California refiners currently using 
ASTM D 5453 or ASTM D 4045 will not face any hardship because today's 
rule allows the use of approved California test methods by California 
refiners.\140\ Third, today's rule allows continued use of composite 
samples for sulfur testing for CG during the period of early credit 
generation, and therefore refiners currently using outside labs to test 
composite samples,

[[Page 6806]]

but who may elect to conduct testing in-house when the every-batch 
sulfur testing requirement is implemented, will not need to determine 
whether a less expensive alternative to ASTM D 2622 is available for 
several years. Last, if a performance-based test method rule is not 
issued by the Agency in the near future, then we may reconsider this 
issue in a subsequent rulemaking.
---------------------------------------------------------------------------

    \140\ See preamble discussion in section VI.E., below.
---------------------------------------------------------------------------

    We also believe that a standardized approach for determining the 
appropriateness of alternate test methods, correlation methodology and 
quality control criteria for alternate test methods would be the most 
fair approach to the test equipment manufacturers and to the purchasers 
of testing equipment. It should result in a level playing field for 
competition among manufacturers of test equipment. We already know that 
ASTM D 5453 can be purchased for about half the price of ASTM D 2622 
equipment, and competition may result in even less expensive equipment.
    Some commenters suggested that where a refiner or importer uses 
ASTM D 2622 to test gasoline, and where the test result is less than 10 
ppm, the refiner or importer should be able to report a test result of 
zero or perhaps use a default value of 5 ppm. This sort of approach has 
been allowed under the RFG and Anti-dumping Question and Answer 
Document. However, we disagree with the commenters that this practice 
is appropriate under the sulfur rule. Under the sulfur rule, with a 
refiner average standard of 30 ppm, it is important whether a bias is 
consistently drawn in favor of zero ppm as opposed to 10 ppm. This 
could artificially increase the number of credits earned or could allow 
more batches to be produced by the refiner that are near the 80 ppm 
cap. We believe that any imprecision of sulfur values derived from 
analysis using ASTM D 2622, will, over the course of numerous batches, 
average out to near zero. Further, we believe that the precision of 
ASTM D 2622 is likely to be improved by 2004. Also, by 2004 there may 
be other methods that will be shown to be precise at low sulfur levels 
that may be made available for use under a performance-based test 
method rule. Under today's rule the refiner or importer must report the 
test result that the test method provides, so long as the result is not 
less than zero (in which case a result of zero would be reported).
    If alternative methods are ultimately made available for use under 
a performance based rule, refiners and importers who are producing or 
importing gasoline with low levels of sulfur may desire to use an 
alternative test method for low sulfur levels, especially if ASTM D 
2622 is less precise at such levels. Under today's rule, if any 
approved alternative method is used for this purpose, a party could not 
choose to use the test result from ASTM D 2622 when its result is 
lower, and the test result from the alternative method when its result 
is lower. For any alternative test method that is eventually approved, 
if the party uses it for a certain range of sulfur concentrations, and 
ASTM D 2622 for another range, it must be consistent in such use. For 
example, if the alternate method were used for test results below 10 
ppm, its result would always have to be used for sulfur levels below 10 
ppm and ASTM D 2622 would always have to be used for sulfur levels 
greater than 10 ppm.
2. Test Method for Sulfur in Butane
    We proposed the use of ASTM standard test method D 5623-94 \141\ as 
the designated method for testing the sulfur content of butane and 
requested comment on whether this method should be the designated 
method. Although some butane suppliers or refiners currently use this 
method, several commenters stated that many refiners do not have ready 
access to ASTM D 5623 and that it is not necessarily the most precise 
method for determination of low levels of sulfur in butane. Commenters 
suggested at least three other methods are equal to ASTM D 5623. These 
are ASTM D 2784, ASTM D 4468, and ASTM D 3246.\142\ One commenter also 
suggested that ASTM D 3227-92,\143\ should be allowed. Several 
commenters requested that EPA at least allow alternative test methods 
for quality assurance testing.
---------------------------------------------------------------------------

    \141\ ASTM D 5623, entitled ``Standard Test Method for Sulfur 
Compounds in Light Petroleum Liquids by Gas Chromatography and 
Sulfur Selective Detection.''
    \142\ ASTM D 2784, entitled ``Standard Test Method for Sulfur in 
liquefied Petroleum Gases''; ASTM D 4468-85(1995), entitled 
``Standard Test Method for Total Sulfur in Gaseous Fuels by 
Hydrogenolysis and Rateometric Colorimetry''; and ASTM D 3246-96, 
entitled ``Standard Test Method for Sulfur in Petroleum Gas by 
Oxidative Microcoulometry.''
    \143\ ASTM D 3227, entitled ``Mercaptan sulfur in Gasoline, 
Kerosine, Aviation Turbine, and Distillate Fuels''. The commenter 
suggested it should be allowed with the use of the x-ray finish.
---------------------------------------------------------------------------

    We have reviewed the suitability of ASTM D 5623 and agree that it 
is not the best method for testing for sulfur content in butane. ASTM D 
5623 measures sulfur compounds rather than total elemental sulfur, and 
the current ASTM 5623 method is specified for liquid fuels, not gaseous 
fuels.
    ASTM D 2784 does not seem to be a better method than ASTM D 5623. 
Commenters stated that ASTM D 2784 is not the most precise method and 
that it is not widely used. We believe there may be some difficulty in 
even obtaining the apparatus for ASTM D 2784. ASTM D 3227 is not 
appropriate since it is designed for measuring a single sulfur 
compound, and it is currently designated for testing liquid samples.
    We believe that ASTM D 4468 appears to be a good method for testing 
butane for sulfur levels below 20 ppm. However, dilution would be 
necessary to test for sulfur levels above 20 ppm. This may be 
problematical, since it may be difficult to dilute a gaseous fuel. We 
expect that under today's rule, butane being tested will frequently 
have sulfur content in excess of 20 ppm. Several other methods exist 
that might work well for testing for sulfur content of gaseous fuels, 
but their current scope does not include determination of sulfur in 
gaseous fuels.
    ASTM D 3246-96, which was suggested by API and NPRA as a suitable 
method, is an appropriate method for measuring gaseous compounds and 
provides test results for total elemental sulfur. Its range is 1.5 to 
100 ppm, which is ideal for testing for the alternative 30 ppm butane 
sulfur standard applicable to butane blenders promulgated in today's 
rule.\144\
---------------------------------------------------------------------------

    \144\ Discussed in section VI.D.3.
---------------------------------------------------------------------------

    After considering the strengths and weaknesses of all the available 
options we believe ASTM D 3246 is the best currently-available method. 
Therefore, today's rule makes ASTM D 3246 the designated method for 
testing the sulfur content of butane or other gaseous blendstocks. As 
discussed above, we anticipate that a performance-based test method 
rule for motor vehicle fuel parameters may be promulgated before 2004, 
and that the efficacy of other methods would be demonstrable under that 
rule. However, if that is not the case, the Agency may reconsider the 
issue of appropriate alternate test methods in a future rulemaking.
3. Quality Assurance Testing
    Several commenters urged that alternate test methods be allowed for 
quality assurance test purposes. Under today's rule, the use of 
alternate test methods for quality assurance testing for purposes of 
establishing a defense to liability, for butane quality assurance 
testing under section 80.340(b)(4), and for determination of whether 
gasoline is small refiner gasoline, is allowed, so long as the 
alternate test method is correlated to the regulatory test method, the 
method is ASTM approved, and the

[[Page 6807]]

protocols under the method are followed. However, the regulatory method 
is required for the truck importer quality assurance testing under 
section 80.350(c).
4. Requirement To Test Every Batch of Gasoline Produced or Imported
    We proposed in the NPRM that refiners and importers \145\ would be 
required to sample each batch of gasoline produced or imported and 
perform a test on each sample to determine the sulfur content prior to 
the gasoline leaving the refinery gate or importer facility. We 
received comments on several aspects of this proposed requirement.
---------------------------------------------------------------------------

    \145\ Except for certain truck importers, as noted above.
---------------------------------------------------------------------------

    Several commenters urged that we continue to allow composite 
sampling and testing for sulfur. Some refiners commented that the 
requirement to test each batch would raise testing costs. However, one 
refiner commented that every-batch testing for sulfur would not be a 
substantial burden so long as every-batch testing for other CG 
parameters is not required.\146\ This commenter stated that testing for 
sulfur content is much less complex than testing for certain other CG 
parameters.
---------------------------------------------------------------------------

    \146\ As noted above, we are not requiring every batch testing 
for CG parameters other than sulfur.
---------------------------------------------------------------------------

    We believe that with a refinery gate sulfur cap combined with 
refinery averaged standards, there is no realistic alternative to 
every-batch testing. The Agency has no way to know whether a composite 
sample that is tested and found to meet the applicable refinery cap 
included a sample from an individual batch of gasoline that was 
introduced into commerce that exceeded the cap by a factor of 2 or 3. 
Further, we believe that with averaged standards for refiners and 
importers, and with multiple cap standards in effect during the phase-
in period, monitoring compliance without every-batch testing would be 
impossible even if we could somehow be assured that no individual batch 
significantly exceeded the applicable refinery level cap.
    We realize that there will be an additional cost associated with 
testing every batch of CG--for sulfur content (this is already required 
for RFG). However, we believe less expensive test methods for sulfur 
content already exist, and may continue to be developed, that will 
likely be acceptable as alternative methods in the future, as discussed 
above. Therefore, today's rule retains the requirement for every-batch 
testing. Under today's final rule, the test results for each batch of 
gasoline will be used to determine compliance with the applicable 
refiner/importer cap standard and to calculate the refiner's or 
importer's annual average sulfur level. Any batch of gasoline that 
exceeds the applicable sulfur cap cannot be distributed or sold in the 
U.S. (unless it is exempted from the standards under today's rule, as 
described in section VI.G., below).
    Refiners who use computerized in-line blending methods objected to 
the proposed requirement for a batch test before the gasoline is 
released from the refinery. These commenters stated that refiners using 
the sophisticated in-line blending practice cannot produce a complete 
batch test until a portion of the batch is already past the refinery 
gate. These commenters did not urge that we eliminate the requirement 
for every-batch testing, but urged that the sulfur rule adopt the RFG 
rule provisions for in-line blending found at 40 CFR 80.65(f)(4), for 
both RFG and CG.
    We believe that the importance of assuring compliance with the 
refinery level cap is such that the rule must generally require that 
gasoline must be tested for sulfur content before it leaves the 
refinery. Based on experience under the RFG rule, we do not believe 
that the requirement to test each batch before it is released will 
substantially increase the cost of testing or cause delays in 
shipments.
    However, today's rule recognizes the unique circumstances involved 
in computerized in-line blending. We believe that with appropriate 
safeguards, compliance with sulfur standards for gasoline produced by 
refineries using in-line blending can be assured. Therefore, today's 
rule incorporates the RFG rule provisions for in-line blending at 40 
CFR 80.65(f)(4). Such provisions will be applicable to RFG and CG. 
However, refineries presently having an in-line blending waiver will be 
asked to submit additional information under the auditing procedures 
included in approvals of in-line blending petitions already in place. 
We will contact individual holders of in-line blending approvals to 
request information on how sulfur is monitored and how streams of 
gasoline are distributed in the in-line blending process. If we cannot 
conclude that the monitoring procedures will assure compliance with 
sulfur standards, we will revoke the in-line blending approval for that 
purpose. We believe it is important to ensure that the in-line analyzer 
technology and the refiner's methodology and procedures are sufficient 
for the gasoline sulfur levels the refinery will have after this rule 
is implemented, for both RFG and CG.
    Several commenters stated that the proposed rule's requirement to 
test every batch of CG for sulfur is unnecessary during the period of 
early credit generation because there is no cap standard in effect 
during this period, even for those refiners generating credits. We 
agree that every-batch testing is not essential for CG until the 
refinery gate per-gallon cap standards go into effect. Thus, today's 
final rule allows composite sample testing for CG to continue during 
the period of early credits generation, until January 1, 2004, when a 
cap standard for sulfur is first imposed on gasoline.
5. Exceptions to the Every-Batch Testing Requirement
    Under the RFG rule, refiners who blend butane or other blendstocks 
to previously certified gasoline (PCG) must determine the volume and 
parameter values of the blendstock, including sulfur content, by 
testing the gasoline before and after blending, and calculating the 
properties of the blendstock by subtracting the volume and parameter 
values of the PCG. For CG only, under certain conditions, we have 
allowed butane blenders to use the parameter specifications of butane 
as tested by the butane producer. We have allowed this alternative to 
every-batch testing because of the costs of testing each load of 
butane. We proposed a similar alternative to every-batch testing for 
butane blenders in the NPRM, which allows butane blenders to use the 
sulfur test result of their suppliers, if the butane contains no more 
than 30 ppm sulfur and if the butane blender undertakes a quality 
assurance program of periodic sampling and testing to ensure that the 
supplier's sampling and testing is accurate.
    We also proposed to allow refiners that blend other blendstocks 
into PCG to meet an alternative testing requirement in lieu of testing 
every batch of gasoline. Provided that the refiner's test result for 
the sulfur content of each of the blendstocks is less than the national 
refinery level per-gallon cap standard, a refiner can sample and test 
each blendstock when received at the refinery, and treat each 
blendstock receipt as a separate batch for purposes of compliance 
calculations for the annual average sulfur standard.
    Today's rule adopts these provisions. Several commenters urged us 
to delay the 30 ppm per-gallon cap standard until other refiners must 
meet a 30 ppm average standard. The proposed 30 ppm per gallon standard 
was intended to be environmentally neutral in relation to

[[Page 6808]]

the standard applicable to other refiners. Therefore, today's final 
rule makes clear that for the alternative compliance approach for 
butane blenders, the 30 ppm per-gallon cap is not applicable until 
January 1, 2005. The per-gallon cap starting January 1, 2004 is 120 
ppm.\147\ For GPA gasoline the per-gallon cap under this alternative 
compliance option is 150 ppm in 2004 through 2006.
---------------------------------------------------------------------------

    \147\ See Table IV.C.-1.
---------------------------------------------------------------------------

6. Sampling Methods
    Sampling methods apply to all parties who conduct sampling and 
testing under the rule. We proposed to require the use of sampling 
methods that were proposed in the July 11, 1997 Federal Register notice 
for the RFG/CG rule (62 FR 37338, at 37341-37342, 37375-37376). These 
sampling methods include ASTM D 4057-95 (manual sampling), ASTM D 4177-
95 (automatic sampling from pipelines/in-line blending), and ASTM D 
5842 (this sampling method is primarily concerned with sampling where 
gasoline volatility is going to be tested, but it would also be an 
appropriate sampling method to use when testing for sulfur). There were 
no adverse comments to the proposed sampling provisions. Today's rule 
adopts the methods as proposed.
7. Gasoline Sample Retention Requirements
    In the NPRM, we proposed a refiner and importer (collectively 
referred to in this section as ``refiner'') sampling and testing 
program to establish the sulfur compliance of each batch of gasoline 
produced or imported. We were aware that there were possible drawbacks 
to a self-testing scheme. For example, a party might sample or test 
gasoline in a manner that is inconsistent with the required procedures, 
or employees might inaccurately record the test results by mistake or 
otherwise. Parties might also attempt to conceal a discovered violation 
or to save money by not correcting a violation.
    To address our concerns about self-testing, we considered an 
alternative option of requiring independent sampling and testing for 
all gasoline, including conventional gasoline. We did not propose this 
requirement for independent sampling and testing for all gasoline 
because of the costs of such a requirement,\148\ and we are not 
adopting such a program in today's final rule. Instead, we proposed in 
the NPRM a different strategy to complement the self-testing program 
that would help ensure refinery sulfur compliance. This strategy would 
have required refiners to retain for thirty days a representative 
sample from each batch of gasoline produced, and to provide such 
samples to the Agency upon request. We believed that, by means of this 
option, EPA could verify the refiner test results. We believe that this 
would create an incentive for refiners to sample, test, and record 
their sulfur results in an accurate and truthful manner. We also 
proposed that refiners be required to certify annually that the samples 
have been collected in the manner required under the sulfur rule. In 
addition, we proposed that specific procedures be followed by refiners 
to properly collect, retain, and ship the samples in a manner 
consistent with requirements already imposed or proposed under the RFG 
program. Under the proposal, a minimum representative sample of 330 ml 
of each gasoline batch would need to be retained (and submitted to EPA 
upon request).\149\
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    \148\ See the discussion on this subject in the preamble to the 
reformulated gasoline program's final rule, 59 FR 7765 (Feb. 16, 
1994).
    \149\ See 40 CFR 80.65(f)(3)(F)(ii), and the Proposed Rule for 
Modifications to Standards and Requirements for Reformulated and 
Conventional Gasoline, 62 FR 37337 et seq, proposed 40 CFR 
80.101(i)(1)(i)(C)(iii).
---------------------------------------------------------------------------

    Although there were few comments on this proposal, one commenter, 
the National Petrochemical & Refiners Association (``NPRA''), did 
comment extensively on it, and strongly urged the Agency not to 
finalize it. One of the points raised by the NPRA was that the RFG 
regulations have their own sample retention and submission 
requirements, (40 CFR 80.65), so that a sulfur rule provision for RFG 
batches was not necessary. The Agency continues to believe that sample 
and retention requirements are useful to ensure compliance with the 
sulfur standards, but we agree with NPRA that the sample retention and 
submission requirements found in the RFG rule will serve equally as 
well for the sulfur rule. Therefore, the final sulfur rule requires all 
refiners, including those producing RFG, to comply with the sulfur 
rule's retention requirements. However, any refiner of RFG using an 
independent laboratory pursuant to 40 CFR 80.65(f), either under the 
100% Option or the 10% Option, will be considered to be in compliance 
with the sulfur rule's retain requirements provided the refiner ensures 
that the independent laboratory conducting the retain program for the 
refiner, is in compliance with these requirements. In particular, the 
refiner must ensure that its independent laboratory sends the 
appropriate certificate of analysis along with any sample forwarded to 
EPA. Under the RFG program's 100% Option, the refiner must ensure that 
its independent laboratory sends the independent lab's certificate of 
analysis; and under the 10% Option, the refiner must ensure that its 
independent laboratory sends the refiner's certificate of analysis.
    In addition to urging EPA not to finalize the sample retention and 
submission requirements for RFG gasoline, NPRA urged us not to finalize 
these requirements for CG as well. NPRA argued that these requirements 
would not prove useful in deterring non-compliance with the sulfur 
requirements for this product, primarily because false samples could be 
forwarded to EPA. The Agency disagrees with NPRA's argument. First, the 
goal of these requirements is not only to deter cheating but also to 
reveal inadequacies that exist in refiners' sulfur testing procedures. 
We do not expect that most non-compliance with the sulfur standards 
will occur through cheating, but rather through operational problems. 
Agency enforcement experience under the RFG rule reveals that some 
refiners' testing procedures are not always accurate in measuring 
parameters and thus detecting noncompliance. EPA verification testing 
will expose such testing inaccuracy, enabling the refiner to improve 
its testing procedures and thus improve its ability to detect, and 
correct, its own compliance problems. To ensure the effectiveness of 
these sulfur sample retention and submission requirements, the final 
rule requires all refiners to provide EPA with the sulfur test result 
the refiner has obtained for the sample, along with each sample the 
refiner provides to the Agency under this rule.
    EPA will use these retained samples in compliance determinations. 
Gasoline samples that are forwarded to EPA under the sample retention 
requirements that are found to be in violation of a refinery cap, will 
be considered by EPA to be evidence of violations of the cap standard, 
regardless of the refiner's own test result. In addition, EPA testing 
of these samples may establish that the refiners' test results are 
generally incorrect, i.e., are biased. EPA will evaluate whether such a 
bias constitutes evidence of a violation of the sulfur average 
standards applicable to the refiner, including whether the bias extends 
to other sulfur tests conducted by the refiner during the current or 
previous averaging periods. Further, evidence of testing bias could 
constitute evidence a refiner has not met the requirement to conduct 
sulfur testing in accordance with specified

[[Page 6809]]

procedures, and any reports submitted to EPA that reflect the bias 
could be evidence a refiner has not met the requirement to properly 
report the sulfur content of gasoline produced.
    While it is true that a party can submit false samples to EPA in 
order to prevent the Agency from discovering what in actuality is a 
non-compliant batch of gasoline, we do not believe that there will be 
many examples of such flagrant cheating. Our enforcement experience 
indicates that the great majority of parties regulated under the fuels 
programs work to comply with the regulatory requirements. We believe 
that the potential penalties for the submission of false samples to the 
government, and the potential criminal liability which such conduct 
would subject parties to under to section 113 of the Clean Air Act, 
will act as significant deterrents to this cheating. Last, to further 
decrease perceived incentives for such cheating, the regulation 
specifically requires that the refinery official signing and submitting 
the refinery's annual sulfur report must make inquiries to verify the 
correctness of the sampling collection and retention procedures and 
include with the annual sulfur report a personal certification of the 
correctness of the procedures used to collect the retained samples. If 
such certification cannot be made, then the report cannot be timely 
filed.
    NPRA further commented that CG being counted to create early 
credits under the sulfur rule's ABT program should not be subject to 
the proposed sample retention and submission requirements. NPRA argues 
that the lack of a sulfur cap during the early credit timeframe makes 
such retention and submission unnecessary. The Agency disagrees. During 
the early credit generation timeframe, refiners participating in the 
credit program must comply with sulfur averaging requirements, even 
though sulfur caps are not required to be met. Accurate determination 
of compliance with the averaging requirements necessitates accurate 
sulfur testing in the early credit period, just as it does during 
implementation of the full sulfur program, even though sulfur testing 
of CG composite samples will be permitted. Hence, the sample retention 
and submission requirements, whose purpose is to ensure accurate 
testing and compliance determination, continue to be necessary for the 
early credit period. The final rule retains the sample retention 
requirements for CG during the early credit time frame.
    NPRA also suggested that in place of the proposed 30 day sample 
retention requirement, EPA instead should require refiners to maintain 
samples only from the last three batches of gasoline produced. NPRA 
argued that this alternative requirement would prove more economical 
for the refiners, yet would still provide EPA with the ability to test 
some samples itself. Although the Agency believes that the proposed 30 
day retention period would provide a valuable amount of samples to be 
retained and thus available for testing by EPA, the Agency agrees that 
a more limited sample retention requirement could provide an acceptable 
means of confirming refiner testing accuracy and sulfur compliance, 
while being less burdensome to refiners. We do not believe, however, 
that retention of samples from only three batches of gasoline would be 
effective in accomplishing the goal of producing greater testing 
accuracy. Three samples would not be a great enough number to 
realistically demonstrate if a pattern of testing irregularities exists 
or to demonstrate that a significant volume of the refiner's production 
is covered by the testing verification process. Consequently, instead 
of the three batch sample retention requirement proposed by this 
commenter, the Agency has instead required in the final rule that at 
least the last 20 samples be retained, and that each sample be retained 
for a minimum of 21 days. The Agency believes this amended requirement 
addresses NPRA's concern that the amount of days of sample retention be 
reduced from thirty days, while also providing the Agency with an 
effective means of assuring a reasonable number of samples, 
representing a significant period of refining activity, will be 
available for accuracy testing. We believe the retention requirement is 
not burdensome given the limited number of samples that must be 
retained. Further, many refineries already retain samples.
    A final comment by NPRA about the sample retention and submission 
requirements is addressed in the final rule. NPRA raised a concern 
about the required retention and submission of samples of pressurized 
blendstock, particularly butane, which would require the use of 
specialized high-pressure containers. The Agency agrees that there is 
legitimate concern about the handling, storing and shipping of such 
samples. We also believe that the final rule's quality assurance 
testing requirements and the testing requirements for blendstock 
suppliers provides adequate assurance of the compliance of these 
blendstocks. Hence, the final sulfur rule does not contain a 
requirement that samples of pressurized blendstock must be retained.

E. Federal Enforcement Provisions for California Gasoline and for Use 
of California Test Methods To Determine Compliance

Requirements to Segregate Gasoline and to Use Product Transfer 
Documents for Certain California gasoline; Definition of California 
Gasoline
    In the NPRM, the Agency proposed to generally exempt from the 
requirements of the federal sulfur rule certain gasoline sold or 
intended for sale in California. For the purpose of program 
consistency, the gasoline to be exempt in the sulfur rule would meet 
the same definition of California gasoline as found in the RFG rule (40 
CFR 80.81(a)(2)). The exempt gasoline would include all gasoline sold, 
intended for sale, or made available for sale in California that was 
also either: produced within California; imported into California from 
outside the U.S.; or imported into California from another state, 
provided that the out-of-state refinery did not also produce federal 
RFG.
    Although the NPRM proposed to exempt California gasoline from 
compliance with the proposed sulfur standards (for reasons discussed 
elsewhere in this preamble), we did propose two requirements that would 
apply to some exempt California gasoline. The first would require 
exempt gasoline produced outside of California but intended for use in 
California, to be segregated from non-exempt gasoline at all points in 
the distribution system. The second would require out-of-state 
producers of exempt gasoline intended for sale in California to create 
PTDs identifying the product as California gasoline, and would require 
such PTDs to be provided to all transferees of this gasoline in the 
distribution system. Requiring such documentation is intended to 
facilitate enforcement and compliance by identifying gasoline that is 
not federally regulated. The same PTD requirements currently apply 
under the RFG program.\150\
---------------------------------------------------------------------------

    \150\ See 40 CFR 80.81(g).
---------------------------------------------------------------------------

    One commenter expressed a reservation about the sulfur rule's 
proposed segregation requirement. The commenter was concerned that the 
segregation requirement for exempt California gasoline might interfere 
with the ability of California importers to import into California, 
non-exempt, federal RFG gasoline that happened to comply with 
California Air Resources Board (ARB) sulfur requirements, but had not 
been kept segregated by its out-

[[Page 6810]]

of-state refiner from the refiner's federal RFG product. Out of a 
concern about potential gasoline supply problems in California, the 
commenter asked for assurances from the Agency that such gasoline would 
not be prohibited from sale in California because of the sulfur rule's 
segregation requirement.
    The Agency agrees that it would not be beneficial to restrict the 
flow of complying gasoline into California. However, since the federal 
and the ARB sulfur control programs provide for differing calculations 
of standard compliance, and since the standards themselves are not 
always consistent between the two programs, EPA does not believe that 
the compliance of gasoline produced for federal purposes will 
necessarily assure its compliance with ARB program requirements, and 
vice-versa. Therefore, we believe it is necessary to require the 
physical segregation of the gasolines produced for the different 
programs in order to best ensure compliance with our uniquely 
determined federal sulfur standards. To ensure segregation, it is 
necessary that refiners and importers designate gasoline batches 
destined for California as California gasoline and that PTDs identify 
the gasoline as being for use only in California.
    Further, one of the purposes of creating the California exemption 
in the federal sulfur rule is to ensure the exclusion of California 
gasoline from the refiner's compliance calculations under the federal 
rule. This exclusion is necessary to prevent gasoline that is produced 
to comply with the strict California standards from unfairly effecting 
the refiner's compliance with the federal requirements, thereby 
facilitating the production of higher sulfur gasoline for use in a 
federal market supplied by the refiner. EPA believes that segregation 
of the two gasolines is necessary because it facilitates accurate 
identification of the product to be included solely in the federal 
compliance calculations.
    EPA does not believe that requiring the segregation of California 
gasoline from gasoline produced for the federal market should create a 
significant restriction in the flow of gasoline to California. The 
Agency believes that if a California marketer needs to acquire ARB-
complying gasoline from out-of-state, the marketer should generally be 
able to satisfy that need by ordering a batch of California gasoline to 
be created for it by out-of-state producers. Under this circumstance of 
the creation of a unique batch of California gasoline, segregation of 
the gasoline will typically be assured.
    In analyzing the above comment on segregation of California 
gasoline, the Agency realized that the sulfur rule's proposed 
definition of exempted California gasoline, which paralleled the 
definition existing in the RFG rule, was not as complete as it should 
be to properly address the unique needs of the sulfur program. 
Specifically, the exclusion from the sulfur rule's exemption of out-of-
state gasoline sold or intended for sale in California solely because 
it happens to be produced at a refinery that produces federal RFG 
gasoline, is not appropriate. Basing an exemption on whether or not an 
out-of-state refinery produces federal RFG is relevant to the RFG 
program, but it has no relevance to the sulfur control program. To 
ensure effective determination of compliance with federal sulfur 
standards, the final sulfur rule deletes any reference to RFG 
production in the rule's definition of exempt California gasoline. 
Hence, the example presented in the comment, in which out-of-state 
gasoline for sale in California could be considered non-exempt 
gasoline, would not arise under the expanded definition of California 
gasoline.
Use of California Test Methods and Off-Site Sampling Procedures for 49 
State Gasoline
    Under the NPRM and the final rule, refineries and importers located 
in California would be required to meet the federal sulfur standards 
and other requirements with regard to their ``federal'' gasoline to be 
used outside of California. However, we proposed that gasoline produced 
in California for sale outside of California could be tested for 
compliance under the federal sulfur rule using the methodologies 
approved by the ARB, provided that the producer complies with the 
procedures for such testing as already required under 40 CFR 80.81(h), 
which permits California test methods not identical to federal test 
methods to be used for conventional gasoline. Today's rule adopts this 
provision, as well as the corollary proposed provision that gasoline 
produced by California refiners for use out-of-state may be tested at 
off-site testing as already permitted pursuant to 40 CFR 80.81(h) for 
CG purposes. Both provisions in today's rule should alleviate duplicate 
testing burdens on California refiners subject to both the federal and 
California programs, since the test methods acceptable under these 
alternative provisions in today's rule are also currently used to 
comply with California requirements. No comments were received on these 
provisions.

F. Recordkeeping and Reporting Requirements

1. Product Transfer Documents
Small Refiner Gasoline Transfers
    The NPRM proposed that the business practice PTDs that accompany 
each transfer of custody or title of gasoline that includes gasoline 
produced by any small refiner subject to sulfur rule individual 
refinery standards would be required to identify the gasoline as such, 
including the applicable downstream cap, as an aid to enforcing the 
national downstream cap. Today's rule adopts the proposed PTD 
requirement, with modifications regarding how the PTD requirement 
relates to testing, as described in section VI.C. The requirement for 
printing information on PTDs has been simplified in the final rule. All 
parties may use brief codes to identify the small refiner status of the 
gasoline and to identify the small refiner downstream standard it is 
subject to. This small refiner gasoline PTD provision is also applied 
to gasoline subject to individual refinery standards under the 
temporary refiner relief provision of today's rule.
GPA Gasoline Transfers
    Under the geographic phase-in program finalized today, gasoline 
produced or imported for use in the GPA may be used only in the GPA 
states. Therefore, it is necessary for PTDs for gasoline that is 
comprised in whole, or in part, of GPA gasoline, to identify the 
gasoline as such and state that the gasoline may not be distributed or 
sold for use outside the GPA. Product codes may be used to provide this 
information, except in the case of transfers to truck carriers, 
retailers and wholesale purchaser-consumers.
2. Recordkeeping Requirements
    Under today's rule, refiners and importers will be required to keep 
and make available to EPA certain records that demonstrate compliance 
with the sulfur program standards and requirements. This includes 
records pertaining to the generation, use and transfer of credits and 
allotments. The RFG/CG regulations currently require refiners and 
importers to retain records that include much of the information 
required in the sulfur rule. Where this is the case, there is no 
requirement for duplication of records or information.
    Under the final rule, all parties in the gasoline distribution 
system, including refiners, importers, oxygenate blenders, retailers, 
and all types of distributors will be required to retain PTDs and 
records of quality assurance programs (including, where applicable, 
sulfur test

[[Page 6811]]

results) that parties conduct to establish a defense to downstream 
violations. All parties in the gasoline distribution system currently 
are required to keep PTDs for RFG. However, since there are no 
downstream CG standards under the anti-dumping regulations, only 
refiners and importers are required to retain PTDs for conventional 
gasoline under the current regulations. Because the sulfur rule, like 
the RFG rule, includes downstream standards, we believe that a 
requirement to retain PTDs for all parties in the gasoline distribution 
system is appropriate under the sulfur rule. The PTD information will 
help us identify the source of any gasoline found to be in violation of 
the sulfur standards, and will provide downstream parties with 
information regarding the applicable downstream standard.
    Parties are required to keep records for a period of five 
years,\151\ with additional requirements for records pertaining to 
credits and allotments. Records pertaining to credits or allotments 
that were banked and never transferred to another party are required to 
be retained for five years after the credits or allotments are used for 
compliance purposes. Records pertaining to credits or allotments that 
were transferred are required to be retained by the transferor for five 
years after the year the credits or allotments were transferred, and by 
the transferee for five years after use.
---------------------------------------------------------------------------

    \151\ Five years is the applicable statute of limitations for 
the RFG and other fuels programs. See 28 U.S.C. 2462.
---------------------------------------------------------------------------

    We received comment that the regulations should allow records to be 
maintained in non-hard copy formats, such as photographic or electronic 
means. We do not believe that the recordkeeping requirements, as 
proposed, disallow the retention of records in electronic or 
photographic form. However, parties that electronically generate and/or 
maintain records must make available to EPA the hardware and software 
necessary to review the records, or if requested by EPA, electronic 
records shall be converted to paper documents.
    The sulfur rule, like the RFG/CG rule, requires regulated parties 
to keep the results of tests conducted on the gasoline. A number of 
parties previously have asked EPA to clarify whether, under the RFG/CG 
rule, this recordkeeping requirement requires parties to keep copies of 
all documents that contain test results. To clarify what the 
recordkeeping requirements require with regard to test data, we 
proposed for the RFG/CG rule to add language which specifies that the 
test result as originally printed by the testing apparatus is required 
to be kept, or, where no printed result is generated by the testing 
apparatus, the results as originally recorded by the person who 
performed the tests. Today's action incorporates this clarification in 
the sulfur rule. Under this provision, where the test data is initially 
recorded into a database system and there are no prior written 
recordings of the data, the information in the database system may 
serve as the original record of the test data. The final rule also 
specifies that any record that contains results for a test that are not 
identical to the results as originally printed by the testing apparatus 
or recorded by the person who performed the test must also be kept. 
Although this language was not included in the NPRM, we have concluded 
it is a logical outgrowth of the proposal regarding recordkeeping for 
test data, and that it will make the regulation clearer with regard to 
this requirement. As a result, it is appropriate to include this 
language in the final rule.
3. Reporting Requirements
    Refiners and importers will be required to submit an annual report 
that demonstrates compliance with the applicable sulfur standards and 
data on individual batches of gasoline, including batch volume and 
sulfur content. The rule requires that refiners and importers report on 
the generation, use and transfer of credits and allotments. The RFG/CG 
programs contain similar reporting requirements. Based on our 
experience with these programs, we believe that requiring an annual 
sulfur report and batch information will provide an appropriate and 
effective means of monitoring compliance with the average standards 
under the sulfur program. The batch data also will serve to verify that 
each batch of gasoline met the applicable sulfur cap standard when it 
left the refinery or import facility. The batch data must also show 
which batches were designated as GPA gasoline, as appropriate.
    For the 2004 and 2005 annual averaging periods, refiners will be 
required to submit a report for the refiner's gasoline production (RFG 
and conventional gasoline) for all refineries during the averaging 
period, which demonstrates compliance with the applicable corporate 
average and per-gallon cap standards. For the 2005 annual averaging 
period, refiners will also be required to submit a separate report for 
each refinery, which demonstrates compliance with the refinery average 
standard. For the 2004 and 2005 annual averaging periods, importers 
will be required to submit a report for all of the gasoline they import 
during the averaging period, which demonstrates compliance with the 
applicable corporate average and per-gallon cap standards. The 
importer's report for 2005 must also demonstrate compliance with the 
refinery average (30 ppm) standard. Any refiner who is also an importer 
must aggregate the refining and importing activities for the purpose of 
demonstrating compliance with the applicable corporate average 
standards. Importers of gasoline produced by foreign refiners with 
individual baselines have additional reporting requirements. For the 
2006 averaging period and beyond, corporate average reports are no 
longer required for either refiners or importers. Refiners will be 
required to submit an annual report for each refinery (importers for 
the gasoline they import), which demonstrates compliance with the 
refinery average and per-gallon cap standards. Refiners or importers 
producing both GPA gasoline and gasoline for the remainder of the 
country, must separately report compliance with the different 
standards. Annual reports, on forms provided by the Agency, must be 
received by EPA by the last day of February for the prior calendar 
year.
    The annual reports will also provide a vehicle for accounting for 
any sulfur allotments or credits created, sold or used to achieve 
compliance during the averaging period. (See Section IV.C. for a 
discussion of the sulfur allotment and ABT credit programs.) Each 
refiner or importer choosing to participate in the ABT program will be 
required to report to the Agency on an annual basis (refiners for each 
refinery, and importers for the gasoline they import) the applicable 
sulfur baseline and the annual average gasoline sulfur level produced 
at that refinery or by that importer (in ppm sulfur) during the 
averaging period. Credit calculations will be reported, along with an 
accounting of credits banked, used, traded, acquired or terminated. The 
credits will be in units of ppm-gallons. The identity of the refiners/
refineries and importers involved in these transactions will be 
reported, along with the registration numbers assigned to them by the 
Agency under the RFG/CG program (40 CFR 80, subparts D, E, and F).
    For years 2000 through 2003, parties who generate early ABT credits 
will be required to report information relating to the generation of 
these credits. These early credit reports will only cover credits 
banked and traded. Beginning in 2004 and beyond, refiners and importers

[[Page 6812]]

who generate and/or use ABT credits will be required to submit 
information relating to the generation and use of the credits as part 
of their annual compliance reports, including any credit debit that is 
carried over to the subsequent year. For each purchase of ABT credits, 
as reported on the buyer's annual report, there must be a corresponding 
entry on the seller's annual report. The annual report must also 
indicate any credits that are used to achieve compliance with the 
refinery average standard.
    As discussed above, during the 2004 and 2005 annual averaging 
periods, refiners for the combined production from all their 
refineries, and importers for the gasoline they import, will also be 
required to demonstrate compliance with the applicable corporate 
average standard. In addition, refiners and importers must demonstrate 
compliance with the requirements for the generation, use, transfer and 
termination of allotments. Refiners and importers who trade sulfur 
allotments to meet the corporate average standard will be required to 
submit information relating to these transactions. All sulfur allotment 
transactions must be concluded by the last day of February of the 
calendar year following the year the allotments were used to meet the 
corporate average. Information relating to such transactions, including 
the identity of the refiners and importers involved in the transactions 
and their EPA registration numbers, must be reported by both parties to 
the transaction as part of their annual compliance reports.
    As discussed in Section IV.C., above, parties that only blend 
oxygenates into gasoline are not treated as refiners under the sulfur 
rule, and, as a result, are not subject to the reporting requirements 
under Sec. 80.370.
    Refiners and importers are also required to arrange for a certified 
public accountant or certified internal auditor to conduct an annual 
review of the company's records that form the basis of the annual 
sulfur compliance report (called an ``attest engagement''). The purpose 
of the attest engagement is to determine whether representations by the 
company are supported by the company's internal records. Attest 
engagements are already required under the RFG/CG regulations. The 
refiner's attest engagement under the RFG/CG rule partially encompasses 
sulfur rule compliance since the attest auditors are already required 
to verify sulfur results for both CG and RFG. However, the RFG/CG 
attest engagements do not require the attest auditor to review sulfur 
credit generation, credit purchases, credit trading or small refiner 
issues. Because of the complexity of the sulfur credit program and 
small refiner program, sulfur attest engagement provisions have been 
adopted by today's rule that require the attest auditor to review 
sulfur credit generation, credit trading, credit purchasing, credit 
selling, corporate pool averaging, and small refiner issues. Consistent 
with the RFG regulations, the attest reports for sulfur are to be 
included in the presently required attest engagement submitted by May 
31 of each year.

G. Exemptions for Research, Development, and Testing

    The final rule provides for an exemption from the sulfur 
requirements for gasoline used for research, development and testing 
purposes. We recognize that there may be legitimate research programs 
that require the use of gasoline with higher sulfur levels than those 
allowed under the sulfur rule. As a result, the final rule includes 
provisions for obtaining an exemption from the prohibitions for persons 
distributing, transporting, storing, selling or dispensing gasoline 
that exceeds the standards, where such gasoline is necessary to conduct 
a research, development or testing program. Parties are required to 
submit to EPA an application for exemption that describes the purpose 
and scope of the program and the reasons why use of the higher sulfur 
gasoline is necessary. In approving any application, EPA will impose 
reasonable conditions such as recordkeeping, reporting, volume 
limitations and possible requirements to repair vehicles.
    We received comment that the regulations should clarify that 
suppliers of gasoline used for R&D purposes are exempt from the 
prohibitions and penalties under the sulfur rule. To clarify this 
point, we have added a provision which explicitly states that gasoline 
subject to an R&D exemption is exempt from the provisions of subpart H, 
so long as the gasoline is used in a way that complies with the terms 
of the memorandum of exemption. If the R&D exemption is shown to be 
based on false information or is not properly maintained, parties will 
be liable for violations of the provisions under subpart H regarding 
any gasoline covered under the exemption.
    We also received comment that the regulations should ensure that 
vehicles which have been used for testing with high sulfur test fuels 
are not later returned to the general fleet, or if they are, the 
vehicles should be required to be restored to their original condition. 
EPA agrees that it would be improper to permit such vehicles to be used 
in general use if their emission controls have been rendered 
inoperative through fueling with high sulfur gasoline. This issue may 
be effectively addressed through the anti-tampering requirements of 
section 203(a)(3) of the Clean Air Act, 42 U.S.C. Sec. 7522(a)(3), and 
is also addressed in today's rule, which provides the Administrator 
with the power to include appropriate conditions when granting R&D 
exemptions.

H. Liability and Penalty Provisions for Noncompliance

    The liability and penalty provisions under the sulfur rule are 
similar to the liability and penalty provisions of the RFG and other 
fuels regulations.\152\ Regulated parties will be liable for committing 
certain prohibited acts, such as selling or distributing gasoline that 
does not meet the sulfur standards, or causing others to commit 
prohibited acts. In addition, parties will be liable for a failure to 
meet certain affirmative requirements, such as the recordkeeping or PTD 
requirements, or causing others to fail to meet such requirements.
---------------------------------------------------------------------------

    \152\ See section 80.5 (penalties for fuels violations); section 
80.23 (liability for lead violations); section 80.28 (liability for 
volatility violations); section 80.30 (liability for diesel 
violations); section 80.79 (liability for violation of RFG 
prohibited acts); section 80.80 (penalties for RFG/CG violations).
---------------------------------------------------------------------------

    The sulfur rule, like other EPA fuels regulations, includes a 
presumptive liability scheme for violations of prohibited acts. Under 
this approach, the party in the gasoline distribution system that 
controls the facility where the violation occurred, and other parties 
in that gasoline's distribution system (such as the refiner, reseller, 
and distributor), are presumed liable for the violation.\153\ The 
sulfur rule explicitly includes causing another person to commit a 
prohibited act and causing the presence of non-conforming gasoline to 
be in the distribution system as prohibitions. The final rule clarifies 
that causing the presence of non-conforming gasoline to be in the 
distribution system includes gasoline that does not conform to the 
applicable average standard, as well as gasoline that does not conform 
to the cap standard. Affirmative defenses are provided for each party 
that is deemed presumptively liable for a violation, and all 
presumptions of liability are refutable. The defenses under the sulfur 
rule are similar to those

[[Page 6813]]

available to parties for violations of the RFG regulations.
---------------------------------------------------------------------------

    \153\ An additional type of liability, vicarious liability, is 
also imposed on branded refiners under these fuels programs.
---------------------------------------------------------------------------

    The final sulfur rule, like the proposal, applies the provisions of 
section 211(d)(1) of the Clean Air Act (Act) for the collection of 
penalties. The penalty provisions subject any person who violates any 
requirement or prohibition of the sulfur rule to a civil penalty of up 
to $27,500 for every day of each such violation and the amount of 
economic benefit or savings resulting from the violation. A violation 
of the applicable average sulfur standard constitutes a separate day of 
violation for each day in the averaging period. A violation of a sulfur 
cap standard constitutes a separate day of violation for each day the 
gasoline giving rise to the violation remained in the gasoline 
distribution system. The length of time the gasoline in question 
remained in the distribution system is deemed to be twenty-five days 
unless there is evidence that the gasoline remained in the gasoline 
distribution system for fewer than or more than twenty-five days. The 
penalty provisions are similar to the penalty provisions for violations 
of the RFG regulations.
    After consideration of the comments received, the Agency is 
adopting regulations that specify the regulated parties who may be 
subject to liability for causing a violation of the sulfur rule. As 
proposed, the regulation would have applied to any person, not limited 
to the parties in the gasoline distribution system whose actions could 
logically have caused the nonconformity. This provision would have 
potentially broadened the range of liable parties under the sulfur rule 
beyond the range established under other fuel programs. EPA believes 
that the presumptive liability schemes of current fuels regulations 
have generally been effective and finds no compelling reason to apply 
the regulatory provision at issue to ``any person'' rather than to 
specific parties. Therefore, in the final sulfur rule, the liability 
sections for the causation violations will specify the regulated 
parties subject to the liability, and will not encompass unspecified 
parties. The final rule clarifies that oxygenate blenders are among the 
specified parties potentially subject to liability. Today's final rule 
also clarifies that parent corporations are liable for violations of 
subsidiaries. This is consistent with our interpretation of the RFG 
rule, as stated in the RFG and Anti-dumping Question and Answer 
document. Finally, the final rule clarifies that each partner to a 
joint venture will be jointly and severally liable for the violations 
at a joint venture facility or by a joint venture operation.
    We received several comments on the proposal. Some commenters 
believe that the Act does not authorize EPA to establish prohibitions 
against causing another person to commit a prohibited act or causing 
the presence of non-conforming gasoline to be in the distribution 
system. These commenters believe that these prohibitions are a 
departure from the liability scheme under the existing fuels 
regulations and that they constitute double jeopardy by imposing 
liability for multiple violations for a single act. The commenters also 
believe that imposing liability for causing another person to commit a 
prohibited act extends the limits that Congress placed on liability 
under section 211 of the Act, since sections 211(d) and 211(k)(5) do 
not expressly mention imposing liability for causing another person to 
violate regulations. The commenter also noted that, had Congress 
intended for such actions to be prohibited, it could have expressly 
included such a prohibition in section 211. This commenter cites 
section 211(g) as an example of a statutory provision with such a 
prohibition. One commenter said that, rather than clarify the 
presumptive liability scheme, the rule provides no guidance regarding 
what it means to cause someone to violate a prohibition or cause non-
conforming gasoline to be in the distribution system. A commenter also 
stated that these proposed prohibitions are unnecessary, since EPA has 
issued violations to multiple parties under current fuels regulations.
    EPA disagrees with the comment that the sulfur rule's proposed 
liability scheme is a marked departure from the liability schemes 
typically found in the other fuels programs promulgated pursuant to 
section 211 of the Act and with the comment that the regulations 
constitute double jeopardy (the double jeopardy issue is addressed in 
the Response to Comment document). The majority of these programs, 
including the proposed sulfur rule, contain presumptive liability 
enforcement structures which impose liability on parties who, through 
their actions, could logically have caused the fuel nonconformity. The 
sulfur rule's presumptive liability scheme is thus consistent with the 
liability schemes of typical prior fuels programs. While EPA has issued 
notices of violations to multiple parties for violations under current 
fuels regulations, the Agency believes it is appropriate to clarify 
that the act of causing another party to violate the regulations is a 
prohibited act. Therefore, the regulatory language in the sulfur 
regulations explicitly addresses this issue.
    EPA also disagrees with the comment that this provision is 
inconsistent with Section 211(d) of the Act because Section 211(d) does 
not mention imposing liability for causing another person to violate 
the regulations promulgated under Section 211(c). For the reasons 
described above, EPA is adopting a provision in today's regulations 
that prohibits causing another entity to violate the standards. This 
prohibition is a reasonable exercise of EPA's discretion under Section 
211(c), and the penalty provision of Section 211(d) apply to violations 
of the prohibition. The fact that Section 211(d) does not specifically 
mention causing another person to violate the regulations is therefore 
irrelevant, such action is itself a violation of the regulations. 
Moreover, Section 211(d) does not mention any specific violations for 
which penalties may be assessed, but rather states generally that 
violations shall result in penalties. Thus, the absence of specific 
mention of causing another entity to violate the regulations is 
irrelevant, since all other specific prohibitions in regulations 
subject to Section 211(d) penalties are similarly not mentioned.
    The Agency also disagrees with the comment that the Clean Air Act 
does not give EPA the authority to establish causation violations under 
the sulfur rule. We believe that the Act gives us ample authority to 
categorize the sulfur rule's causative acts, i.e., the causing of 
another party to commit a violation, and the causing of nonconforming 
gasoline to be present in the distribution system, as prohibited acts. 
Section 211(c) of the Act authorizes the Agency to promulgate 
regulations for the purpose of prohibiting or controlling the 
manufacture, introduction into commerce, sale, or offering for sale of 
fuels or fuel additives where the fuel or additive causes or 
contributes to air pollution which may reasonably be anticipated to 
endanger public health or welfare, or where the fuel or additive will 
impair to a significant degree the performance of emission control 
devices that are or will be in general use. Today's gasoline sulfur 
rule is promulgated pursuant to this authority.
    Section 211(c) gives EPA broad discretion to fashion regulations to 
control or prohibit the manufacture, introduction into commerce, sale, 
or offering for sale of fuels once the Agency has made the requisite 
findings regarding contribution to harmful air pollution or impairment 
of vehicle emissions control system performance. This includes the 
discretion to adopt

[[Page 6814]]

reasonable regulatory provisions that are necessary and appropriate to 
ensure that the controls or prohibitions are effective. To effectively 
regulate sulfur in gasoline under section 211, it is necessary for the 
Agency to regulate the actions of those parties who do the 
manufacturing, introducing into commerce, and selling of gasoline 
subject to the sulfur requirements.
    When one or several of these regulated parties causes another 
regulated party to violate the rule (or causes nonconforming gasoline 
to be present in the system), such an act could logically result in the 
high sulfur gasoline contributing to harmful air pollution or to the 
impairment of vehicle emission control device performance, which are 
the adverse impacts that legislative authority under section 211(c) was 
created to control. Examples of such upstream causative acts include 
the scenario where a refiner produces high sulfur gasoline which it 
sells to a distributor. That distributor then resells the nonconforming 
product to a variety of retail outlets which, in their turn, also 
violate the rule by selling the high sulfur gasoline to owners of motor 
vehicles. Another example occurs where a distributor has created high 
sulfur gasoline by blending high sulfur blendstock into his gasoline. 
This distributor then makes several different sales of this 
noncomplying product to a variety of retail outlets, which, in their 
turn, also violate the rule by selling the product to numerous motor 
vehicle owners. A third upstream causation scenario could occur if 
several refiners happen to make nonconforming gasoline. Each then sells 
its nonconforming product to a different distributor, and a retail 
outlet which is a customer of both distributors, purchases some of the 
noncomplying gasoline from both distributors. The retailer then commits 
a violation by offering this product for sale to its customers.
    In some cases, an upstream action has more severe environmental 
impacts through causing a downstream violation than would occur if the 
violation was corrected upstream. For example, a refiner may violate 
the sulfur regulations by shipping gasoline that exceeds the applicable 
standards when it leaves the refinery. If that violation is corrected 
before the gasoline reaches the retail outlets, the adverse 
environmental impacts could be mitigated or avoided. However, if the 
refiner's violation is not corrected and ultimately causes a number of 
violations of the standards at retail outlets, the environmental impact 
would be more severe, since high sulfur gasoline would be introduced 
into vehicles and impair catalyst performance. Therefore, it is 
reasonable to consider causing a downstream violation by another party 
to be a separate violation, since an upstream party's actions can have 
more severe environmental consequences if they cause downstream parties 
to violate applicable requirements. For these reasons, it is reasonable 
to conclude that section 211(c) authorizes the Agency to prohibit and 
control such causative acts in order to ensure that gasoline ultimately 
introduced into vehicles meets the low sulfur standards.
    Our approach is also reasonable under section 211(c) even though 
section 211(c) does not expressly prohibit causing another party to 
violate standards adopted under this subsection. In fact, section 
211(c) itself does not contain any express prohibitions, but rather 
provides EPA authority to regulate fuels and fuel additives, based on 
certain findings. In contrast, other provisions of section 211, such as 
section 211(g), do include express prohibitions against certain 
actions. Thus, under section 211(g), the specified actions are 
prohibited even in the absence of EPA adopting regulations to codify 
the prohibitions. In section 211(g), Congress indicated a clear intent 
to prohibit a specific action (misfueling), without requiring EPA to 
adopt regulations to implement that prohibition. However, section 
211(c) authorizes EPA to establish regulations with certain controls 
and prohibitions, and, as described above, EPA has the discretion to 
adopt reasonable measures to ensure that the requirements of such 
regulations are met.
    Moreover, the commenters' assertion that this provision is 
inconsistent with other subsections of section 211 of the Act is 
misplaced. First, while the sulfur standards do apply to all gasoline, 
including gasoline subject to the reformulated gasoline requirements, 
the sulfur standards are being adopted pursuant to EPA's authority 
under section 211(c)(1), not under section 211(k). Therefore, section 
211(k)(5)'s prohibitions, which describe actions that are violations of 
section 211(k), are not relevant to the sulfur standards. In addition, 
the enumeration of specific prohibitions in section 211(k) does not 
mean that EPA may establish no other prohibited acts with respect to 
reformulated gasoline; rather, it simply identifies certain actions 
that ``shall be'' violations of section 211(k), but does not preclude 
establishment of other appropriate prohibited acts pursuant to EPA's 
authority under the Act.
    The Agency also disagrees with the argument that the proposed 
causation violations under the sulfur rule would impose unjustifiable, 
multiple liability for the commission of a single prohibited act. The 
Agency is generally not in the best position to know the exact cause of 
a gasoline nonconformity since so many parties and actions are involved 
with the sale and transfer of the gasoline. Therefore, for effective 
enforcement, we must have the ability to assert the liability of all 
the parties in the system who were connected with the nonconforming 
gasoline because they each could have caused the violation. Similarly, 
we must also have the ability to assert upstream liability for the full 
number of downstream violations a party may be responsible for causing, 
even if the multiple downstream violations may all ultimately be found 
to stem from one gasoline sale or transfer on the part of the upstream 
party. The enforcement possibility exists that the separate downstream 
violations may each have stemmed from separate actions by that party.
    Any party may rebut the presumption of liability for each asserted 
violation by establishing through affirmative defenses that it did not 
cause the violation. Moreover, any party against whom EPA institutes an 
enforcement action may raise equitable factors about its own conduct as 
part of settlement of the violation enforcement action. In settling 
fuels matters, the Agency typically takes into account such matters as 
the volume of nonconforming product that a party was connected with, 
and the severity and the amount of proscribed activity that the party 
was actually involved with in causing the violation. We do not believe 
that either the sulfur rule's liability scheme or its future 
implementation will be arbitrary or unjustified.
    To further alleviate commenters' concern about potential liability 
for multiple violations under the sulfur rule, we want to clarify that 
the Agency does not ordinarily attempt to collect separate penalties 
from an entity for   the array of possible standard violations (e.g., 
both for the manufacturing and the selling of noncomplying product), 
that a party might be liable for in respect to the same gasoline. In 
addition, we do not intend to seek penalties from a single party for 
violating regulatory standard requirements while also seeking penalties 
for that party's causing of other entities to violate regulatory 
standard requirements, where both violations involve the same gasoline, 
unless very unusual circumstances exist which would warrant such 
action, such as egregious conduct on the part of the party.

[[Page 6815]]

    In a similar fashion, we do not expect to collect penalties from 
one party for both types of causation violations for the same amount of 
gasoline under normal circumstances. A primary Agency purpose in 
defining the causation violations as two separate prohibited acts 
(i.e., causing another to commit a violation, and causing the presence 
of nonconforming product in the distribution system), was not to 
collect a double penalty, but to address different scenarios of 
evidence collection. For example, if the Agency finds a sulfur rule 
standard violation in a sample from a retail outlet supplied by a 
certain distributor, but we do not have a nonconforming sample from the 
distributor, the evidence would most easily permit us to assert that 
the distributor was responsible for causing the retailer violation that 
we do have evidence for. It is reasonable for us to assert the 
causation violation against the distributor in spite of our lack of a 
sample from the distributor, because any distributor who transfers 
gasoline to a retailer, which gasoline is found to be noncompliant, 
could logically have caused the noncompliance of the gasoline when it 
was under the distributor's control, such as by blending high sulfur 
blendstock into the gasoline.
    On the other hand, if we have a violation sample from a 
distributor, but no samples from its downstream customers, we may 
assert that the distributor caused the presence of nonconforming 
gasoline in the distribution system, rather than assert that the 
distributor caused another party to sell nonconforming product, since 
we don't have a nonconforming sample from another party's facility. It 
would be reasonable for us to assert that the distributor caused the 
presence of nonconforming gasoline in the distribution system since we 
do have a sample of nonconforming gasoline from the distributor, and 
provided also that there is evidence that the distributor had sold, 
transferred, etc. this product to downstream customers.
    In summary, the Agency intends to enforce the liability scheme of 
the sulfur rule in the same reasonable manner that we have enforced the 
similar liability schemes in our prior fuels regulations. This does not 
include attempting to penalize a party for multiple variations of 
noncompliance in regard to the same gasoline unless unusual 
circumstances make such action appropriate.

I. How Will Compliance With the Sulfur Standards Be Determined?

    We have often used a variety of evidence to establish non-
compliance with the requirements imposed under our current fuels 
regulations. Test results of the content of gasoline have been used to 
establish violations, both in situations where the sample has been 
taken from the facility at which the violation occurred, and where the 
sample has been obtained from other parties' facilities when such test 
results have had probative value of the gasoline's characteristics at 
points upstream or downstream. The Agency has also commonly used 
documentary evidence to establish non-compliance or a party's liability 
for non-compliance. Typical documentary evidence has included PTDs 
identifying the gasoline as inappropriate for the facility it is being 
delivered to, or identifying parties having connection with the non-
complying gasoline.
    EPA proposed that compliance with the sulfur standards would be 
determined based on the sulfur level of the gasoline, as measured using 
the regulatory testing methodologies. We further proposed that any 
evidence from any source or location could be used to establish the 
gasoline sulfur level, provided that such evidence is relevant to 
whether the level would have been in compliance if the regulatory 
sampling and testing methodology had been correctly performed. In 
today's action, EPA is adopting the proposed regulatory provision.
    Several commenters interpreted this proposed language as evidencing 
the Agency's intent to make all evidence, including evidence not 
derived from regulatory test methods, equal in probative value to that 
from the regulatory test methods. One commenter also stated that the 
proposed provision is inconsistent with other parts of the proposal 
because it undercuts the benefits of having clearly defined regulatory 
test methodologies. EPA disagrees that the regulatory language 
indicates such an intent, or has such an effect. The regulations 
provide that compliance with the standards is to be determined using 
specified test methodologies. While other information may be used, 
including test results using different test methods, such other 
information may only be used if it is relevant to determining whether 
the sulfur level would meet applicable standards had compliance been 
properly measured using the specified test methodologies. Thus, the 
regulation adopted today does not result in a situation where any and 
all evidence carries equal weight in an enforcement action. In fact, 
the regulation establishes the regulatory test method as the standard 
against which other evidence is measured. Moreover, since any evidence 
other than regulatory test results must be relevant to compliance using 
the test method, EPA disagrees with the commenter who stated that the 
validity of the sulfur standards can be challenged in any enforcement 
action because neither EPA nor regulated entities will be able to rely 
on measurements taken using the regulatory test methods. Rather than 
causing more confusion regarding compliance with the standard, this 
provision clarifies that the regulatory test method defines compliance, 
since other evidence can only be used if it relates to compliance using 
that test method.
    The following is an example of how the Agency believes evidence of 
standard non-compliance not based on regulatory test results might be 
used for compliance purposes under today's rule provisions. Under a 
first scenario, the Agency might not have sulfur results derived from 
regulatory test methods for a certain amount of gasoline sold by a 
terminal, yet the terminal's own test results, based on testing using 
methods other than those specified in the regulations, show an 
exceedance of the sulfur standard. Under the requirements of today's 
rule, the evidence from the non-regulatory test method could only be 
used to establish noncompliance if the terminal's test results are 
relevant to the determination of the gasoline's sulfur level that would 
have resulted if the regulatory test method had been used. Thus, the 
Agency would have to present evidence to link the results of the 
alternative test method to sulfur levels as measured using the 
regulatory test method.
    Another commenter has suggested that, if the Agency decides to 
finalize a ``credible evidence'' provision, it use the language in the 
current RFG regulations which establishes a presumption that the 
regulatory testing methods prevail, except in exceptional 
circumstances. Other commenters also opposed the proposed provision in 
part because it differs from that in EPA's current fuels regulations. 
As described above, EPA believes that the provision adopted today does 
not undercut the importance of the regulatory testing methodologies, 
since other evidence may be used only as relevant to compliance as 
measured using the regulatory methods. In addition, as is consistent 
with the RFG scheme, EPA believes it is appropriate to use such other 
evidence even in some circumstances where test results using the 
regulatory test methods do exist, and the provision adopted today 
clarifies this. EPA also notes that it intends to undertake rulemaking 
in the near future to revise the current fuels regulations to

[[Page 6816]]

include the same language for use of other evidence as adopted today in 
the final sulfur rule.
    The provision adopted today also clarifies that any probative 
evidence obtained from any source or location may be used to establish 
non-compliance with requirements other than the sulfur standards, such 
as recordkeeping requirements and requirements to properly calculate 
sulfur credits and averages, as well as to establish which parties have 
facility control or some other basis for liability for sulfur rule non-
compliance. Since proof of these elements is not predicated on 
establishing sulfur levels, whether or not regulatory test methods are 
used is not significant. Therefore commenters' concern about the use of 
other evidence undercutting the primacy of the regulatory test methods 
is not germane to this part of the regulation which is not directed 
toward standards. This provision is being included in the final sulfur 
rule to clarify that this rule, as is consistent with our 
interpretation of our other fuels rules, contemplates the full use of 
all relevant evidence to establish non-standard violations and rule 
liability.
    EPA disagrees with the commenters who stated that EPA lacks 
authority under the Clean Air Act to permit the use of any evidence of 
non-compliance of the sulfur standards other than test results using 
the regulatory test methods. One commenter notes that the only explicit 
reference in the Act to the use of ``credible evidence'' is in section 
113(e), which applies only to stationary sources, and that neither 
section 211 nor section 205 mention ``credible evidence.'' Finally, the 
commenter states that the proposed provision is inconsistent with the 
directive of section 211(k) that EPA determine appropriate measures of 
and methods for ascertaining the emissions of air pollutants.
    EPA disagrees with the comments asserting that the Agency lacks 
authority to promulgate this provision. While section 113(e) does refer 
to ``credible evidence,'' that provision is not relevant to EPA's 
action today. Moreover, the absence of the explicit use of the term 
``credible evidence'' in sections 205 and 211 does not compel a 
conclusion that EPA lacks authority to allow the consideration of 
relevant evidence in determining compliance with the sulfur standards. 
EPA believes that section 211(c) provides sufficient authority to adopt 
such a provision. Section 211(c) authorizes the Agency to promulgate 
regulations for the purpose of prohibiting or controlling the 
manufacture, introduction into commerce, sale, or offering for sale of 
fuels or fuel additives where the fuel or additive causes or 
contributes to air pollution which may reasonably be anticipated to 
endanger public health or welfare, or where the fuel or additive will 
impair to a significant degree the performance of emission control 
devices that are or will be in general use. As described in other 
sections of this preamble and in the RIA, today's regulation is 
promulgated pursuant to this authority. Section 211(c) gives EPA broad 
discretion to fashion regulations to control or prohibit the 
manufacture, introduction into commerce, sale, or offering for sale of 
fuels once the Agency has made the requisite findings regarding 
contribution to harmful air pollution or impairment of vehicle 
emissions control system performance. This includes the discretion to 
adopt reasonable regulatory provisions that are necessary and 
appropriate to ensure that the controls or prohibitions are effective 
and can be enforced.
    To ensure the effectiveness and the ability to adequately enforce 
the sulfur standards, it is reasonable for EPA to consider evidence 
other than actual test results using the regulatory test method, where 
such evidence can be related to the test results. As described above, 
test results using the regulatory test method are often not available. 
In such circumstances, it is reasonable to consider other evidence of 
compliance, such as test results using other methods or commercial 
documents, if such evidence can be shown to be relevant to determining 
whether the gasoline would meet the standard if tested using the 
regulatory methods. This provision would not permit the use of other 
evidence that is not relevant to such a determination, and is therefore 
reasonably limited to allow for effective enforcement, without creating 
uncertainty about compliance.
    Finally, EPA disagrees with the commenter's assertion that this 
provision is inconsistent with section 211(k). First, while the sulfur 
standards do apply to all gasoline, including gasoline subject to the 
reformulated gasoline requirements, the sulfur standards are being 
adopted pursuant to EPA's authority under section 211(c)(1), not under 
section 211(k). In any case, the directive of section 211(k)(4) that 
EPA determine through regulation appropriate measures of and methods 
for ascertaining the emissions of air pollutants explicitly applies 
only for purposes of section 211(k), and applies for determining the 
emissions levels of VOCs and toxic air pollutants from baseline 
vehicles when operating on baseline gasoline, as defined by section 
211(k). Thus, the commenter's reference to section 211(k)(4) as 
inconsistent with the provision adopted today is misplaced, 
particularly in light of the limited applicability of the language in 
section 211(k)(4).\154\
---------------------------------------------------------------------------

    \154\ The commenter references section 211(k)(5) as support for 
its assertion, but quotes language from section 211(k)(4). EPA 
assumes that the commenter intended to cite section 211(k)(4) rather 
than section 211(k)(5).
---------------------------------------------------------------------------

    As described in the NPRM, the Agency frequently uses a variety of 
evidence to establish compliance with fuel programs' regulatory 
requirements and liability for non-compliance. Such evidence has 
included test results obtained from a variety of sources, including 
bills of lading, delivery records, manifests, and other commercial 
documents. The compliance determination provisions included in today's 
final rule are created to provide the most effective Agency capability 
to enforce the rule's requirements.

VII. Public Participation

    A wide variety of interested parties participated in the rulemaking 
process that culminates with this final rule. The formal comment period 
and four public hearings associated with the NPRM provided additional 
opportunities for public input. EPA also met with a variety of 
stakeholders, including environmental and public health organizations, 
oil company representatives, auto company representatives, emission 
control equipment manufacturers, and states at various points in the 
process.
    We have prepared a detailed Response to Comments document that 
describes the comments received on the NPRM and presents our response 
to each of these comments. The Response to Comments document is 
available in the docket for this rule and on the Office of Mobile 
Sources internet home page. Comments and our responses are also 
included throughout this preamble for several key issues.

VIII. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

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

[[Page 6817]]

     Have an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
     Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or,
     Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, EPA has determined 
that this final rule is a ``significant regulatory action'' because the 
vehicle standards, gasoline sulfur standards, and other regulatory 
provisions, if implemented, would have an annual effect on the economy 
in excess of $100 million. Accordingly, we have prepared a Final 
Regulatory Impact Analysis (RIA) which is available in the docket for 
this rulemaking and at the internet address listed under ADDRESSES 
above. This action was submitted to the Office of Management and Budget 
(OMB) for review as required by Executive Order 12866. Any written 
comments from OMB on today's action and any responses from EPA to OMB 
comments are in the public docket for this rulemaking.

B. Regulatory Flexibility

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, was amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), Public Law 104-121, to ensure that concerns regarding small 
entities are adequately considered during the development of new 
regulations that affect them. EPA has identified industries subject to 
this rule and has provided information to, and received comment from, 
small entities and representatives of small entities in these 
industries. We have prepared a Final Regulatory Flexibility Analysis 
(RFA) to evaluate the economic impacts of today's proposal on small 
entities.\155\ The key elements of the RFA include:
---------------------------------------------------------------------------

    \155\ The Final RFA is contained in Chapter 8 of the Regulatory 
Impact Analysis.
---------------------------------------------------------------------------

     The number of affected small entities;
     The projected reporting, record keeping, and other 
compliance requirements of the proposed rule, including the classes of 
small entities that would be affected and the type of professional 
skills necessary for preparation of the report or record;
     Other federal rules that may duplicate, overlap, or 
conflict with the proposed rule; and
     Any significant alternatives to the proposed rule that 
accomplish the stated objectives of applicable statutes and that 
minimize significant economic impacts of the proposed rule on small 
entities.
    The Agency convened a Small Business Advocacy Review Panel (the 
Panel) under section 609(b) of the Regulatory Flexibility Act as added 
by SBREFA. The purpose of the Panel was to collect the advice and 
recommendations of representatives of small entities that could be 
affected by today's proposed rule and to report on those comments and 
the Panel's findings as to issues related to the key elements of the 
Regulatory Flexibility Analysis under section 603 of the Regulatory 
Flexibility Act. The report of the Panel has been placed in the docket 
for this rulemaking.\156\
---------------------------------------------------------------------------

    \156\ Report of the Small Business Advocacy Panel on Tier 2 
Light-Duty Vehicle and Light-Duty Truck Emission Standards, Heavy-
Duty Gasoline Engine Standards, and Gasoline Sulfur Standards, 
October 1998.
---------------------------------------------------------------------------

    The contents of today's final rule and the Final Regulatory 
Flexibility Analysis reflect the recommendations in the Panel's report. 
We summarize our outreach to small entities and our responses to the 
recommendations of the Panel below.
1. Potentially Affected Small Businesses
    The Regulatory Flexibility Analysis identifies small businesses 
from the industries in the following table as subject to the provisions 
of today's rule:

           Table VIII.1.--Industries Containing Small Businesses Potentially Affected by Today's Rule
----------------------------------------------------------------------------------------------------------------
                                                                              Defined by SBA as a small business
                  Industry                    NAICS a codes    SIC b codes                  if: c
----------------------------------------------------------------------------------------------------------------
Motor Vehicle Manufacturers................          336111            3711   1000 employees.
                                                     336112
                                                     336120
Alternative Fuel Vehicle Converters........          336311            3592   500 employees.
                                                     541690            8931
                                                     336312            3714   750 employees.
                                                     422720            5172   100 employees.
                                                     454312       5984 7549   $5 million annual sales.
                                                     811198            8742
                                                     541514
Independent Commercial Importers of                  811112            7533   $5 million annual sales.
 Vehicles and Vehicle Components.                                      7549
                                                     811198            8742
                                                     541514
Petroleum Refiners.........................          324110            2911   1500 employees.
Petroleum Marketers and Distributors.......          422710       5171 5172   100 employees.
                                                     422720
----------------------------------------------------------------------------------------------------------------
a North American Industry Classification System.
b Standard Industrial Classification system.
c According to SBA's regulations (13 CFR 121), businesses with no more than the listed number of employees or
  dollars in annual receipts are considered ``small entities'' for purposes of a regulatory flexibility
  analysis.

    The Final RFA identifies about 15 small petroleum refiners, several 
hundred small petroleum marketers, and about 15 small certifiers of 
covered vehicles (belonging to the other categories in the above table) 
that would be subject to the rule.

[[Page 6818]]

2. Small Business Advocacy Review Panel and the Evaluation of 
Regulatory Alternatives
    The Small Business Advocacy Review Panel was convened by EPA on 
August 27, 1998. The Panel consisted of representatives of the Small 
Business Administration (SBA), the Office of Management and Budget 
(OMB), and EPA. During the development of the proposal, EPA and the 
Panel were in contact with representatives from the small businesses 
that would be subject to the provisions of the rule. In addition to 
verbal comments from industry noted by the Panel at meetings and 
teleconferences, we received written comments from each of the affected 
industry segments or their representatives. These comments, 
alternatives suggested by the Panel to mitigate adverse impacts on 
small businesses, and issues the Panel requested EPA take additional 
comment on are contained in the report of the Panel and are summarized 
below. Today's final rule incorporates the major recommendations of the 
Panel.
Fuel-Related Small Business Issues
    Most of the small refiners stated that if they were required to 
achieve 30 ppm sulfur levels on average with an 80 ppm per-gallon cap 
without some regulatory relief, they would be forced out of business. 
Thus, the Panel devoted much attention to regulatory alternatives to 
address this concern. Most small refiners strongly supported delaying 
mandatory compliance for their facilities. On the other hand, most 
small refiners stated that a phase-in of gasoline sulfur standards 
would not be helpful because it would be more cost-effective for them 
to install the maximum technology required for the most stringent 
sulfur levels that would ultimately be imposed.
    The Society of Independent Gasoline Marketers of America (SIGMA) 
commented that EPA should consider giving relief not only to refiners 
that meet the SBA definition of small refiner but also to refineries 
with relatively small production capacity that are owned by large 
refining companies. This was because a refinery with a small production 
capacity would operate essentially as an SBA-defined small refiner 
would. SIGMA also noted that small gasoline marketers would be affected 
by the closure of any refinery with small production capacity, whether 
it was owned by a large company or an SBA-defined small refining 
company.
    The Panel recommended that small refiners be given a four to six 
year period of relief during which less stringent gasoline sulfur 
requirements would apply. The Panel also advised that EPA specifically 
request comment on an alternative duration of ten years for the relief 
period. Small refiners would be assigned interim sulfur standards 
during this relief period based on their current individual refinery 
sulfur levels. Following this relief period, small refiners would be 
required to meet the industry-wide standard, although temporary 
hardship relief would be available on a case-by-case basis. The Panel 
concluded that additional time provided to small refiners before 
compliance with the industry-wide standard was required would allow (1) 
new sulfur-reduction technologies to be proven-out by larger refiners, 
(2) the costs of advanced technology units to drop as the volume of 
their sales increases, (3) industry engineering and construction 
resources to be freed-up, and (4) the acquisition of the necessary 
capital by small refiners.
    The Panel also concluded that adding gasoline sulfur to the fuel 
parameters already being sampled and tested by gasoline marketers would 
likely result in little, if any, additional burden. Therefore, the 
Panel did not recommend any special provision for gasoline marketers.
    EPA's final action on this issue closely follows the Panel's 
recommendations. You can find a description of the small refiner 
provisions of today's final rule in Section IV.C.2. above. Comments and 
our responses on related issues are collected in the Response to 
Comments document.

Vehicle-Related Small Business Issues

    Independent commercial importers of vehicles (ICIs) suggested that 
the new emissions standards be phased-in with the phase-in schedule 
based on the small vehicle manufacturer's annual production volume. 
Secondly, the ICIs requested that small testing laboratories be 
permitted to use older technology dynamometers than proposed for use by 
the Agency. Finally, the ICIs commented that the certification process 
should be waived for certain foreign vehicles. Small-volume vehicle 
manufacturers (SVMs) stated that a phase-in of Tier-2 emissions 
standards is essential. They further stated that SVMs should not be 
required to comply until the end of the phase-in period, which should 
not be before model year 2007. The SVMs also stated that a case-by-case 
hardship relief provision should be provided for their members. SVMs 
requested that a credit program be established with incentives for 
larger manufacturers to make credits available to SVMs in meeting their 
compliance goals.
    Based on the above comments, the Panel advised that EPA consider 
several alternatives, individually or in combination, for the potential 
relief that they might provide to small certifiers of vehicles.
    The Final Regulatory Flexibility Analysis evaluates the financial 
impacts of the proposed vehicle standards and fuel controls on small 
entities. EPA believes that the regulatory alternatives incorporated in 
today's final rule will provide substantial relief to small business 
from the potential adverse economic impacts of complying with today's 
proposed rule.

C. Paperwork Reduction Act

    The information collection requirements (ICRs) associated with 
today's rule belong to two distinct categories: (1) those that pertain 
to amendments to the vehicle certification requirements, and (2) those 
that pertain to requirements for the control of gasoline sulfur 
content. These information collection requirements are contained in two 
separate ICR documents according to the category to which they belong.
    The ICR in this final rule that pertains to the amendments to the 
vehicle certification requirements has been submitted for approval to 
the Office of Management and Budget (OMB) under the Paperwork Reduction 
Act, 44 U.S.C. 3501 et seq. Copies of this ICR \157\ can be obtained 
from Sandy Farmer, Office of Environmental Information, Collections 
Strategy Division, U.S. Environmental Protection Agency (Mail Code 
2822), 401 M Street, SW, Washington, D.C. 20460, or by calling (202) 
260-2740. Please refer to ICR #783.40 in any correspondence. Copies may 
also be downloaded from the internet at http://www.epa.gov/icr.
---------------------------------------------------------------------------

    \157\ The information collection requirements associated with 
the amendments to the requirements for vehicle certification are 
contained in the Information Collection Request entitled 
``Amendments to the Reporting and Recordkeeping Requirements for 
Motor Vehicle Certification Under the Tier 2 Rule'', OMB No. 2060-
0114, EPA ICR # 783.40.
---------------------------------------------------------------------------

    The ICR in this final rule that pertains to the requirements for 
the control of gasoline sulfur will be submitted for approval to the 
Office of Management and Budget (OMB) under the Paperwork Reduction 
Act, 44 U.S.C. 3501 et seq. The submission to OMB of the ICR document 
that contains this ICR and its availability to the public will be 
announced in a subsequent Federal Register notice.

[[Page 6819]]

    The Agency may not conduct or sponsor an information collection, 
and a person is not required to respond to a request for information 
unless the information collection request displays a currently valid 
OMB control number. The OMB control numbers for EPA's regulations are 
listed in 40 CFR Part 9 and 48 CFR Chapter 15. The OMB control numbers 
for the information collection requirements in this rule will be listed 
in an amendment to 40 CFR part 9 in a subsequent Federal Register 
notice after OMB approves the ICRs.
    The Paperwork Reduction Act stipulates that ICR documents estimate 
the burden of activities required of regulated parties within a three 
year time period. Consequently, the ICR documents associated with 
today's final rule contain burden estimates for the activities that 
will be required under the first three years of the program.
    ICRs Pertaining to the Amendments to Vehicle Certification 
Requirements: The information collection burden to vehicle certifiers 
associated with the amendments to the vehicle certification 
requirements in today's notice pertain to the fleet-average 
NOX standard and emission credits provisions. These 
requirements are very similar to those under the voluntary National Low 
Emission Vehicle (NLEV) program, which includes a fleet-average 
standard for nonmethane hydrocarbon organic gases (NMOG) and associated 
emission credits provisions. The hours spent annually by a given 
vehicle certifier on the information collection activities associated 
with the these recordkeeping and reporting requirements depends upon 
certifier-specific variables, including: the scope/variety of their 
product line as reflected in the number of test groups and strategy 
used to comply with the fleet-average NOX standard, the 
extent they utilize emissions credits provisions, and whether they 
opted into the NLEV program. Vehicle certifiers that use the provisions 
for early banking of emission credits will be subject to the associated 
information collection requirements as early as September 1, 2000.\158\ 
All vehicle certifiers will be required to comply with the information 
collection requirements associated with the amendments to the vehicle 
certification program beginning September 1, 2003.\159\ The ICR 
document for the amendments to the vehicle certification program in 
this final rule provides burden estimates for all of the associated 
information collection requirements. The total information collection 
burden associated with the amendments to the vehicle certification 
requirements is estimated at 8,406 hours and $567,217 annually for the 
certifiers of light-duty vehicles, medium-duty passenger vehicles, and 
light-duty trucks.
---------------------------------------------------------------------------

    \158\ These ICRs will become effective on the date that model 
year 2001 vehicles are introduced into commerce. EPA assumes that 
September 1, 2000 is the earliest date that model year 2001 vehicles 
will be marketed.
    \159\ Assuming model year 2004 vehicles are introduced into 
commerce on this date.
---------------------------------------------------------------------------

    ICRs Pertaining to the Requirements for Gasoline Sulfur Control: 
The information collection burden to gasoline refiners, importers, 
marketers, distributors, retailers and wholesale purchaser-consumers 
(WPCs), and users of research and development (R&D) gasoline pertain to 
the gasoline sulfur control program in today's rule. The scope of the 
recordkeeping and reporting requirements for each regulated party, and 
therefore the cost to that party, reflects the party's opportunity to 
create, control, or alter the sulfur content of gasoline. As a result, 
refiners and importers have significant requirements, which are 
necessary both for their own tracking, and that of downstream parties, 
and for EPA enforcement. Parties downstream from the gasoline 
production or import point, such as retailers, have minimal burdens 
that are primarily associated with the transfer and retention of 
product transfer documents. Many of the reporting and recordkeeping 
requirements for refiners and importers regarding the sulfur content of 
gasoline currently exist under EPA's Reformulated Gasoline (RFG) and 
Anti-Dumping programs. The ICR for the RFG program covered start up 
costs associated with reporting gasoline sulfur content under the RFG 
program. Consequently, much of the cost of the information collection 
requirements under the gasoline sulfur control program has already been 
accounted for under the RFG program ICR. In addition, many of the 
information collection burdens associated with the sulfur program are 
the result of provisions designed to provide refiners with flexibility 
in demonstrating compliance with the sulfur standards in the early 
years of the program, such as the credit trading and small refiner 
programs.
    The information collection requirements under the sulfur control 
program evolve over time as the program is phased-in. Beginning July 1, 
2000, certain requirements apply to parties that voluntarily opt to 
generate credits for early sulfur reduction under the average banking 
and trading (ABT) provisions. Many of the requirements do not become 
applicable until the beginning of the sulfur control program on October 
1, 2003, when all refiners are required to meet the sulfur standards. 
The information collection requirements under the sulfur control 
program become stable after January 1, 2008, when the optional small 
refiner provisions expire.\160\
---------------------------------------------------------------------------

    \160\ A refiner can petition EPA for an extension of the small 
refiner provisions beyond January 1, 2008, based on hardship.
---------------------------------------------------------------------------

    The ICR document for the sulfur control program in this final rule 
will provide burden estimates for the activities required under the 
first three years of the program, from July 1, 2000, through June 30, 
2003. The burden associated with activities required after June 30, 
2003, will be estimated in later ICRs. The initial ICR for the gasoline 
sulfur control program, however, will provide a qualitative 
characterization of all of the required activities and associated 
burdens for the various regulated parties as they develop, and until 
they become stable after January 1, 2008.
    In the ICR associated with the NPRM for this final rule, we 
estimated that the total burden of the information collection 
requirements that would be applicable during the first three years of 
the proposed gasoline sulfur control program would be 42,479 hours and 
$2,149,865 annually.\161\ Annual burden estimates for the various 
regulated entities under the initial three year period of the gasoline 
sulfur control program were also provided in the NPRM ICR as follows:
---------------------------------------------------------------------------

    \161\ The information collection requirements associated with 
the proposed gasoline sulfur control program are contained in the 
Information Collection Request that accompanied the Tier 2 NPRM 
which is entitled ``Recordkeeping and Reporting Requirements 
Regarding the Sulfur Content of Motor Vehicle Gasoline Under the 
Tier 2 Proposed Rule'', ICR #1907.01. Copies of this ICR can be 
obtained as discussed earlier in this section.
---------------------------------------------------------------------------

     Refiners: 31,231 hours; $1,879,822.
     Importers: 40 hours; $2,067.
     Pipelines: 85 hours; $2,785.
     Terminals: 1,700 hours; $55,700.
     Truckers: 3,333 hours; $118,000.
     Retailers/WPCs: 6,087 hours; $91,298.
     R&D Gasoline Users: 3 hours; $193.
    We received few comments on the ICR burden estimates in the 
proposed sulfur rule. Most regulated parties have been fulfilling 
reporting, recordkeeping and testing requirements under the 
reformulated and conventional gasoline regulations. The only negative 
comments we received related to the batch testing for sulfur content 
and sample retention for conventional gasoline. We believe the 
estimated cost of complying with these requirements is somewhat higher 
than the actual

[[Page 6820]]

burdens industry will realize. The ICR for this final rule will be 
adjusted accordingly.
    We estimate that there will be some additional costs and hourly 
burdens over those estimated in the NPRM associated with certain 
changes made to the sulfur program from the NPRM to this final rule. In 
particular, this final rule includes a program which provides for 
relaxed standards in the early years of the program for refiners and 
importers who produce or import gasoline for use in certain states in 
the western U.S. This program requires some additional reporting and 
recordkeeping burdens for those refiners and importers who participate 
in the program, since they will be required to submit an application 
for the program, including a baseline for purposes of establishing 
their sulfur standard. This program requires gasoline intended for use 
in the geographic area to be identified on product transfer documents 
and segregated from other gasoline in the distribution system. This 
final rule also includes provisions for trading sulfur allotments to 
provide refiners and importers additional flexibility in meeting the 
corporate pool average standards. This program requires additional 
reporting and recordkeeping to track allotment trading activity. In 
addition, the final rule requires small refiners to submit information 
regarding their crude oil capacity in order to qualify for the small 
refiner standards under the rule. Small refiners are also required to 
submit reports of their progress toward compliance with the sulfur 
standards. The additional total annual cost and hourly burden over the 
first three years of the program, as a result of changes made to the 
program in the final rule, are estimated to add less than one percent 
to the overall burden estimates contained in the NPRM ICR for the 
sulfur control program.
    Total Burden of the ICRs: In the NPRM, we estimated that the total 
burden of the recordkeeping and reporting requirements associated with 
the proposed vehicle certification and gasoline sulfur control 
requirements would be 50,840 hours and $2,714,037 annually over the 
first three years that these requirements would be in effect. In the 
ICR document for this final rule which covers the ICRs for the vehicle 
certification program, the burden estimates were increased by 45 hours 
and $3,045 over the burden estimates in the NPRM ICR. This increase 
reflects changes from the NPRM in the final rule associated the 
inclusion of the medium-duty passenger vehicles (MDPVs) under the 
program. As discussed above, we anticipate that changes to the ICR 
document for this final rule which covers the ICRs for the sulfur 
control program will have burden estimates less than one percent higher 
than the estimates contained in the NPRM. Adding these increased costs 
to the burden estimates presented in the NPRM, we arrive at an estimate 
of the total burden of the recordkeeping and reporting requirements 
associated with the vehicle certification and gasoline sulfur control 
requirements in this final rule of less than 51,350 hours and 
$2,742,000 annually over the first three years that these requirements 
will be in effect. These burden estimates will be more precisely stated 
in the forthcoming Federal Register notice which announces the 
submission to OMB of the ICR document for this final rule that covers 
the ICRs for the sulfur control program and the availability of this 
ICR document to the public.

D. Intergovernmental Relations

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

[[Page 6821]]

vehicle emissions, motor vehicle fuel, and other related requirements 
for private businesses in today's rule would have national 
applicability, and thus would not uniquely affect the communities of 
Indian Tribal Governments. Further, no circumstances specific to such 
communities exist that would cause an impact on these communities 
beyond those discussed in the other sections of today's document. Thus, 
EPA's conclusions regarding the impacts from the implementation of 
today's rule discussed in the other sections of this preamble are 
equally applicable to the communities of Indian Tribal governments. 
Accordingly, the requirements of section 3(b) of Executive Order 13084 
do not apply to this rule.
3. Executive Order 13132 (Federalism)
    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.
    Under Section 6 of Executive Order 13132, EPA may not issue a 
regulation that has federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the Federal government provides the funds necessary to pay the direct 
compliance costs incurred by State and local governments, or EPA 
consults with State and local officials early in the process of 
developing the proposed regulation. EPA also may not issue a regulation 
that has federalism implications and that preempts State law, unless 
the Agency consults with State and local officials early in the process 
of developing the proposed regulation.
    Section 4 of the Executive Order contains additional requirements 
for rules that preempt State or local law, even if those rules do not 
have federalism implications (i.e., the rules will not have substantial 
direct effects on the States, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government). Those 
requirements include providing all affected State and local officials 
notice and an opportunity for appropriate participation in the 
development of the regulation. If the preemption is not based on 
express or implied statutory authority, EPA also must consult, to the 
extent practicable, with appropriate State and local officials 
regarding the conflict between State law and Federally protected 
interests within the agency's area of regulatory responsibility.
    This final rule does not have federalism implications. It will not 
have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in Executive Order 13132. This rule adopts national 
emissions standards for certain categories of motor vehicles and 
national standards to control gasoline sulfur. The requirements of the 
rule will be enforced by the federal government at the national level. 
Thus, the requirements of section 6 of the Executive Order do not apply 
to this rule. Although section 6 of Executive Order 13132 does not 
apply to this rule, EPA did consult with State and local officials in 
developing this rule. In addition, EPA provided state and local 
officials an opportunity to comment on the proposed regulations. A 
summary of concerns raised by commenters, including state and local 
commenters, and EPA's response to those concerns, is found in the 
Response to Comments document for this rulemaking.
    This final rule preempts State and local controls or prohibitions 
respecting gasoline sulfur content, pursuant to Section 211(c)(4) of 
the Clean Air Act. The basis and scope of preemption is described in 
Section IV.C.1.d of this notice. Although this rule was proposed before 
the November 2, 1999 effective date of Executive Order 13132, EPA 
provided State and local officials notice and an opportunity for 
appropriate participation when it published the proposed rule, as 
described above. Thus, EPA has complied with the requirements of 
section 4 of the Executive Order.

E. National Technology Transfer and Advancement Act

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

F. Executive Order 13045: Children's Health Protection

    Executive Order 13045, ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that (1) is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, section 5-501 of the Order directs the Agency to 
evaluate the environmental health or safety effects of the planned rule 
on children, and explain why the planned regulation is preferable to 
other potentially effective and reasonably feasible alternatives 
considered by the Agency.
    This rule is subject to the Executive Order because it is an 
economically significant regulatory action as defined by Executive 
Order 12866 and it concerns in part an environmental health or safety 
risk that we have reason to believe may have a disproportionate effect 
on children.
    This rulemaking will achieve significant reductions of various 
emissions from passenger cars and light trucks, primarily 
NOX, but also NMOG

[[Page 6822]]

and PM. These pollutants raise concerns regarding environmental health 
or safety risks that EPA has reason to believe may have a 
disproportionate effect on children, such as impacts from ozone, PM and 
certain toxic air pollutants. See Section III of this preamble and the 
RIA for a further discussion of these issues.
    The effects of ozone and PM on children's health were addressed in 
detail in EPA's rulemaking to establish the NAAQS for these pollutants, 
and we are not revisiting those issues here. We believe, however, that 
the emission reductions from the strategies established in this 
rulemaking will further reduce air toxics and the related adverse 
impacts on children's health. We will be addressing the issues raised 
by air toxics from motor vehicles and their fuels in a separate 
rulemaking that we will initiate in the near future under section 
202(l) of the Act. That rulemaking will address the emissions of 
hazardous air pollutants from vehicles and fuels, and the appropriate 
level of control of HAPs from these sources.
    In this final rule, we have evaluated several regulatory strategies 
for reductions in emissions from passenger cars and light trucks. (See 
sections IV, V, and VI of this preamble as well as the RIA.) For the 
reasons described there, we believe that these strategies are 
preferable under the Clean Air Act to other potentially effective and 
reasonably feasible alternatives that we considered for purposes of 
reducing emissions from these sources (as a way of helping areas 
achieve and maintain the NAAQS for ozone and PM). Moreover, we believe 
that we have selected for proposal the most stringent and effective 
control reasonably feasible at this time, in light of the technology 
and cost requirements of the Act.

G. Congressional Review Act

    The congressional review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. This rule is a 
``major rule'' as defined by 5 U.S.C. 804(2).

IX. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls set in today's final 
rule can be found in sections 202, 206, 207, 208, and 301 of the Clean 
Air Act (CAA), as amended, 42 U.S.C. sections 7521, 7525, 7541, 7542 
and 7601.
    Statutory authority for the fuel controls set in today's final rule 
comes from section 211(c) of the CAA (42 U.S.C., section 7545(c)), 
which allows EPA to regulate fuels that either contribute to air 
pollution which endangers public health or welfare or which impair 
emission control equipment. Both criteria are satisfied for the 
gasoline sulfur controls we are establishing today. Additional support 
for the procedural and enforcement-related aspects of the fuel's 
controls in today's final rule, including the record keeping 
requirements, comes from sections 114(a) and 301(a) of the CAA.

List of Subjects

40 CFR Part 80

    Environmental protection, Air pollution control, Fuel additives, 
Gasoline, Imports, Incorporation by reference, Labeling, Motor vehicle 
pollution, Penalties, Reporting and recordkeeping requirements.

40 CFR Part 85

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

40 CFR Part 86

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

    Dated: December 21, 1999.
Carol M. Browner,
Administrator.

    For the reasons set forth in the preamble, parts 80, 85 and 86 of 
title 40, of the Code of Federal Regulations are amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

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

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

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


Sec. 80.2  Definitions.

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

    3. Section 80.46 is amended by revising paragraphs (a) and (h) to 
read as follows:


Sec. 80.46  Measurement of reformulated gasoline fuel parameters.

    (a) Sulfur. Sulfur content of gasoline and butane must be 
determined by use of the following methods:
    (1) The sulfur content of gasoline must be determined by use of 
American Society for Testing and Materials (ASTM) standard method D 
2622-98, entitled ``Standard Test Method for Sulfur in Petroleum 
Products by Wavelength Dispersive X-ray Fluorescence Spectrometry.''
    (2) The sulfur content of butane must be determined by the use of 
ASTM standard method D 3246-96, entitled ``Standard Test Method for 
Sulfur in Petroleum Gas by Oxidative Microcoulometry.''
* * * * *
    (h) Incorporations by reference. ASTM standard methods D 2622-98, D 
3246-96, D 3606-92, D 1319-93, D 4815-93, and D 86-90 with the 
exception of the degrees Fahrenheit figures in Table 9 of D 86-90, are 
incorporated by reference. These

[[Page 6823]]

incorporations by reference were approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. 
Copies may be obtained from the American Society for Testing and 
Materials, 100 Barr Harbor Dr., West Conshohocken, PA 19428. Copies may 
be inspected at the Air Docket Section (LE-131), room M-1500, U.S. 
Environmental Protection Agency, Docket No. A-97-03, 401 M Street, SW., 
Washington, DC 20460, or at the Office of the Federal Register, 800 
North Capitol Street, NW., Suite 700, Washington, DC.

    4. Subpart H is added to part 80 to read as follows:

Subpart H--Gasoline Sulfur

General Information

Sec.
80.180   [Reserved]
80.185   [Reserved]
80.190   Who must register with EPA under the sulfur program?
Gasoline Sulfur Standards
80.195   What are the gasoline sulfur standards for refiners and 
importers?
80.200   What gasoline is subject to the sulfur standards and 
requirements?
80.205   How is the annual refinery or importer average and 
corporate pool average sulfur level determined?
80.210   What sulfur standards apply to gasoline downstream from 
refineries and importers?
80.211   [Reserved]
80.212   What requirements apply to oxygenate blenders?
80.213-80.214   [Reserved]
Geographic Phase-In Program
80.215   What is the scope of the geographic phase-in program?
80.216   What standards apply to gasoline produced or imported for 
use in the GPA?
80.217   How does a refiner or importer apply for the GPA standards?
80.218   [Reserved]
80.219   Designation and downstream requirements for GPA gasoline.
80.220   What are the downstream standards for GPA gasoline?
Hardship Provisions
80.225   What is the definition of a small refiner?
80.230   Who is not eligible for the hardship provisions for small 
refiners?
80.235   How does a refiner obtain approval as a small refiner?
80.240   What are the small refiner gasoline sulfur standards?
80.245   How does a small refiner apply for a sulfur baseline?
80.250   How is the small refiner sulfur baseline and volume 
determined?
80.255   Compliance plans and demonstration of commitment to produce 
low sulfur gasoline.
80.260   What are the procedures and requirements for obtaining a 
hardship extension?
80.265   How will the EPA approve or disapprove a hardship extension 
application?
80.270   Can a refiner seek temporary relief from the requirements 
of this subpart?
Allotment Trading Program
80.275   How are allotments generated and used?
Averaging, Banking and Trading (ABT) Program--General Information
80.280   [Reserved]
80.285   Who may generate credits under the ABT program?
80.290   How does a refiner apply for a sulfur baseline?
ABT Program--Baseline Determination
80.295   How is a refinery sulfur baseline determined?
80.300   [Reserved]
ABT Program--Credit Generation
80.305   How are credits generated during the time period 2000 
through 2003?
80.310   How are credits generated beginning in 2004?
ABT Program--Credit Use
80.315   How are credits used and what are the limitations on credit 
use?
80.320   [Reserved]
80.325   [Reserved]
Sampling, Testing and Retention Requirements for Refiners and Importers
80.330   What are the sampling and testing requirements for refiners 
and importers?
80.335   What gasoline sample retention requirements apply to 
refiners and importers?
80.340   What standards and requirements apply to refiners producing 
gasoline by blending blendstocks into previously certified gasoline 
(PCG)?
80.345   [Reserved]
80.350   What alternative sulfur standards and requirements apply to 
importers who transport gasoline by truck?
80.355   [Reserved]
Recordkeeping and Reporting Requirements
80.360   [Reserved]
80.365   What records must be kept?
80.370   What are the sulfur reporting requirements?
80.371-80.373   [Reserved]
Exemptions
80.374   What if a refiner or importer is unable to produce gasoline 
conforming to the requirements of this subpart?
80.375   What requirements apply to California gasoline?
80.380   What are the requirements for obtaining an exemption for 
gasoline used for research, development or testing purposes?
Violation Provisions
80.385   What acts are prohibited under the gasoline sulfur program?
80.390   What evidence may be used to determine compliance with the 
prohibitions and requirements of this subpart and liability for 
violations of this subpart?
80.395   Who is liable for violations under the gasoline sulfur 
program?
80.400   What defenses apply to persons deemed liable for a 
violation of a prohibited act?
80.405   What penalties apply under this subpart?
Provisions for Foreign Refiners With Individual Sulfur Baselines
80.410   What are the additional requirements for gasoline produced 
at foreign refineries having individual small refiner sulfur 
baselines, foreign refineries granted temporary relief under 
Sec. 80.270, or baselines for generating credits during 2000 through 
2003?
Attest Engagements
80.415   What are the attest engagement requirements for gasoline 
sulfur compliance applicable to refiners and importers?

Subpart H--Gasoline Sulfur

General Information


Sec. 80.180  [Reserved]


Sec. 80.185  [Reserved]


Sec. 80.190  Who must register with EPA under the sulfur program?

    (a) Refiners and importers who are registered by EPA under 
Sec. 80.76 are deemed to be registered for purposes of this subpart.
    (b) Refiners and importers subject to the standards in Sec. 80.195 
who are not registered by EPA under Sec. 80.76 must provide to EPA the 
information required by Sec. 80.76 by November 1, 2003, or not later 
than three months in advance of the first date that such person 
produces or imports gasoline, whichever is later.
    (c) Refiners with any refinery subject to the small refiner 
standards under Sec. 80.240, or refiners subject to the geographic 
phase-in area (GPA) standards under Sec. 80.216, who are not registered 
by EPA under Sec. 80.76 must provide to EPA the information required 
under Sec. 80.76 by December 31, 2000.
    (d) Any refiner who plans to generate credits or allotments under 
Sec. 80.305 or Sec. 80.275 in any year prior to 2004 who is not 
registered by EPA under Sec. 80.76 must register under Sec. 80.76 no 
later than September 30 of the year prior to the first year of credit 
generation. Any refiner who plans to generate credits in 2000 who is 
not registered by EPA under Sec. 80.76 must register under Sec. 80.76 
no later than May 10, 2000.

[[Page 6824]]

Gasoline Sulfur Standards


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

    (a)(1) The gasoline produced by small refiners subject to the 
standards at Sec. 80.240, and gasoline designated as GPA gasoline under 
Sec. 80.219(a), are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                   Gasoline sulfur standards for the  averaging
                                                                                period  beginning:
                                                                 -----------------------------------------------
                                                                                                    January 1,
                                                                    January 1,      January 1,       2006 and
                                                                       2004            2005         subsequent
----------------------------------------------------------------------------------------------------------------
Refinery or Importer Average....................................           \(1)\           30.00           30.00
Corporate Pool Average..........................................          120.00           90.00           \(1)\
Per-Gallon Cap..................................................             300             300             80
----------------------------------------------------------------------------------------------------------------
\1\ Not applicable.

    (2) The sulfur standards and all compliance calculations for sulfur 
under this subpart are in parts per million (ppm) and volumes are in 
gallons.
    (3) The averaging period is January 1 through December 31 of each 
year.
    (4) The standards under this paragraph (a) for all imported 
gasoline shall be met by the importer.
    (b)(1) The refinery or importer annual average gasoline sulfur 
standard is the maximum average sulfur level allowed for gasoline 
produced at a refinery or imported by an importer during each calendar 
year starting January 1, 2005.
    (2) The annual average sulfur level is calculated in accordance 
with Sec. 80.205.
    (3) The refinery or importer annual average gasoline sulfur 
standard may be met using credits as provided under Sec. 80.275 or 
Sec. 80.315.
    (4) In 2005 only, the refinery or importer annual average sulfur 
standard may be met using credits or allotments as provided under 
Sec. 80.275 or credits as provided under Sec. 80.315.
    (c)(1) The corporate pool average gasoline sulfur standards 
applicable in 2004 and 2005 are the maximum average sulfur levels 
allowed for a refiner's or importer's gasoline production from all of 
the refiner's refineries or all gasoline imported by an importer in a 
calendar year. The corporate pool average standards for a party that is 
both a refiner and an importer are the maximum average sulfur levels 
allowed for all the party's combined gasoline production from all 
refineries and imported gasoline in a calendar year.
    (2) The corporate pool average is calculated in accordance with the 
provisions of Sec. 80.205.
    (3) The corporate pool average standard may be met using sulfur 
allotments under Sec. 80.275.
    (4) The corporate pool average standards do not apply to approved 
small refiners subject to the small refiner gasoline sulfur standards 
under Sec. 80.240.
    (5)(i) Joint ventures, in which two or more parties collectively 
own and operate one or more refineries, will be treated as a separate 
refiner under this section.
    (ii) One partner to a joint venture may include one or more joint 
venture refineries in its corporate pool for purposes of complying with 
the corporate pool average standards. The joint venture will be in 
compliance for such joint venture refinery(ies) if the partner's 
corporate pool average meets the corporate pool average standards. The 
joint venture entity must demonstrate compliance with the corporate 
pool average standards for any refinery(ies) owned by the joint venture 
that are not included in one partner's corporate pool.
    (d)(1) The per-gallon cap standard is the maximum sulfur level 
allowed for each batch of gasoline produced or imported starting 
January 1, 2004.
    (2) In 2004 only, a refiner or importer may produce or import 
gasoline with a per-gallon sulfur content greater than 300 ppm, to a 
maximum of 350 ppm, provided the following conditions are met:
    (i) The refinery or importer becomes subject to an adjusted per-
gallon cap standard in 2005, calculated using the following formula:

ACS=300-(Smax-300)

Where:

ACS=Adjusted cap standard.
Smax=Maximum sulfur content of any gasoline produced at a 
refinery or imported by an importer during 2004.

    (ii) The adjusted cap standard calculated under paragraph (d)(2)(i) 
of this section applies to all gasoline produced at a refinery or 
imported by an importer during 2005.
    (iii) The refinery or importer remains subject to the 30.00 average 
standard under paragraph (a) of this section for 2005.
    (iv) The provisions of this paragraph (d)(2) apply to gasoline 
designated as GPA gasoline under Sec. 80.219(a).
    (v) The provisions of this paragraph (d)(2) do not apply to small 
refiners as defined in Sec. 80.225.


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

    For the purpose of this subpart, all reformulated and conventional 
gasoline and RBOB, collectively called ``gasoline'' unless otherwise 
specified, is subject to the standards and requirements under this 
subpart, with the following exceptions:
    (a) Gasoline that is used to fuel aircraft, racing vehicles or 
racing boats that are used only in sanctioned racing events, provided 
that:
    (1) Product transfer documents associated with such gasoline, and 
any pump stand from which such gasoline is dispensed, identify the 
gasoline either as gasoline that is restricted for use in aircraft, or 
as gasoline that is restricted for use in racing motor vehicles or 
racing boats that are used only in sanctioned racing events;
    (2) The gasoline is completely segregated from all other gasoline 
throughout production, distribution and sale to the ultimate consumer; 
and
    (3) The gasoline is not made available for use as motor vehicle 
gasoline, or dispensed for use in motor vehicles, except for motor 
vehicles used only in sanctioned racing events.
    (b) California gasoline as defined in Sec. 80.375.
    (c) Gasoline that is exported for sale outside the U.S.

[[Page 6825]]

Sec. 80.205  How is the annual refinery or importer average and 
corporate pool average sulfur level determined?

    (a) The annual refinery or importer average and corporate pool 
average gasoline sulfur level is calculated as follows:
[GRAPHIC] [TIFF OMITTED] TR10FE00.007

Where:

Sa=The refinery or importer annual average sulfur value, or 
corporate pool average sulfur value, as applicable.
Vi=The volume of gasoline produced or imported in batch i.
Si=The sulfur content of batch i determined under 
Sec. 80.330.
n=The number of batches of gasoline produced or imported during the 
averaging period.
i=Individual batch of gasoline produced or imported during the 
averaging period.
    (b) All annual refinery or importer average or corporate pool 
average calculations shall be conducted to two decimal places.
    (c) A refiner or importer may include oxygenate added downstream 
from the refinery or import facility when calculating the sulfur 
content, provided the following requirements are met:
    (1) For oxygenate added to conventional gasoline, the refiner or 
importer must comply with the requirements of Sec. 80.101(d)(4)(ii).
    (2) For oxygenate added to RBOB, the refiner or importer must 
comply with the requirements of Sec. 80.69(a).
    (d) Refiners and importers must exclude from compliance 
calculations all of the following:
    (1) Gasoline that was not produced at the refinery;
    (2) In the case of an importer, gasoline that was imported as 
Certified Sulfur-FRGAS;
    (3) Blending stocks transferred to others;
    (4) Gasoline that has been included in the compliance calculations 
for another refinery or importer; and
    (5) Gasoline exempted from standards under Sec. 80.200.
    (e)(1) A refiner or importer may exceed the refinery or importer 
annual average sulfur standard specified in Sec. 80.195 for a given 
averaging period for any calendar year through 2010, creating a 
compliance deficit, provided that in the calendar year following the 
year the standard is not met, the refinery or importer shall:
    (i) Achieve compliance with the refinery or importer annual average 
sulfur standard specified in Sec. 80.195; and
    (ii) Use additional sulfur credits sufficient to offset the 
compliance deficit of the previous year.
    (2) No refiner or importer may have a compliance deficit in any 
year after 2010. Any deficit that exists in 2010 must be made up in 
2011.
    (f) For refiners subject to the corporate pool average who produce 
some GPA gasoline, the refinery average sulfur value for its GPA 
gasoline shall be the average sulfur value after applying credits.


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

    The sulfur standard for gasoline at any point in the gasoline 
distribution system downstream from refineries and import facilities, 
including gasoline at facilities of distributors, carriers, oxygenate 
blenders, retailers and wholesale purchaser-consumers (``downstream 
location''), shall be determined in accordance with the provisions of 
this section.
    (a) Definition. S-RGAS means gasoline that is subject to the 
standards under Sec. 80.240 or Sec. 80.270, including Certified Sulfur-
FRGAS as defined in Sec. 80.410, except that no batch of gasoline may 
be classified as S-RGAS if the actual sulfur content is less than the 
applicable per-gallon refinery cap standard specified in Sec. 80.195.
    (b) Standards for gasoline that does not qualify for S-RGAS 
downstream standards. The following standards apply to any gasoline 
that does not qualify for S-RGAS downstream standards under in 
paragraph (d) of this section:
    (1) Starting February 1, 2004 the sulfur content of gasoline at any 
downstream location other than at a retail outlet or wholesale 
purchaser-consumer facility, and starting March 1, 2004 the sulfur 
content of gasoline at any downstream location, shall not exceed 378 
ppm.
    (2) Except as provided in Sec. 80.220(a), starting February 1, 2005 
the sulfur content of gasoline at any downstream location other than at 
a retail outlet or wholesale purchaser-consumer facility, and starting 
March 1, 2005 the sulfur content of gasoline at any downstream 
location, shall not exceed 326 ppm.
    (3) Except as provided in Sec. 80.220(a), starting February 1, 2006 
the sulfur content of gasoline at any downstream location other than at 
a retail outlet or wholesale purchaser-consumer facility, and starting 
March 1, 2006 the sulfur content of gasoline at any downstream 
location, shall not exceed 95 ppm.
    (c) Standards for gasoline that qualifies for S-RGAS downstream 
standards. In the case of any gasoline that qualifies for S-RGAS 
downstream standards under paragraph (d) of this section, the sulfur 
standard shall be the downstream standard for the gasoline calculated 
under paragraph (f) of this section. In the case of mixtures of 
gasoline that qualify for different S-RGAS downstream standards, the 
sulfur standard shall be the highest downstream standard applicable to 
any of the S-RGAS in the mixture.
    (d) Gasoline that qualifies for S-RGAS downstream standards. 
Gasoline qualifies for S-RGAS downstream standards if all of the 
following conditions are met:
    (1) The gasoline must be comprised in whole or part of S-RGAS.
    (2) Product transfer documents applicable to the gasoline when 
received at that location must represent that the gasoline contains S-
RGAS.
    (3) Except as provided in paragraph (d)(4) of this section, the 
gasoline must have been sampled and tested at that location subsequent 
to the most recent receipt of gasoline at that location, and the test 
result must show a sulfur content greater than:
    (i) 350 ppm starting February 1, 2004;
    (ii) 300 ppm starting February 1, 2005; and
    (iii) 80 ppm (or in the GPA, 300 ppm) starting February 1, 2006.
    (4) This sampling and testing condition does not apply for gasoline 
at any retail outlet, wholesale purchaser-consumer facility, or 
contained in any transport truck.
    (e) Product transfer document information for S-RGAS. (1) On each 
occasion when any refiner or importer of S-RGAS transfers custody or 
title to such gasoline, the refiner or importer shall provide to the 
transferee documents that include the following information:
    (i) Identification of the gasoline as being S-RGAS; and
    (ii) The downstream standard applicable to the batch of gasoline 
under paragraph (f) of this section.
    (2) Where gasoline in whole or part is classified as S-RGAS when 
received by the transferor, and where the gasoline transferred meets 
the conditions under paragraph (d) of this section, the transferor 
shall provide to the transferee, on each occasion when custody or title 
to gasoline is transferred, documents that include the following 
information:
    (i) Identification of the gasoline as S-RGAS; and

[[Page 6826]]

    (ii) The applicable downstream standard under paragraph (c) of this 
section. This does not apply when gasoline is sold or dispensed for use 
in motor vehicles at a retail outlet or wholesale purchaser-consumer 
facility.
    (3) No person shall classify gasoline as being S-RGAS except as 
provided in paragraphs (e)(1) and (e)(2) of this section.
    (4) Product codes may be used to convey the information required by 
paragraphs (e)(1) and (e)(2) of this section if such codes are clearly 
understood by each transferee.
    (f) Downstream standards applicable to S-RGAS when produced or 
imported. (1) The downstream standard applicable to any gasoline 
classified as S-RGAS when produced or imported shall be calculated 
using the following equation:

D=S+105 x ((S+2)/104)0.4

Where:

D=Downstream sulfur standard.
S=The sulfur content of the refiner's batch determined under 
Sec. 80.330.

    (2) Where more than one S-RGAS batch is combined, prior to 
shipment, at the refinery or import facility where the S-RGAS is 
produced or imported, the downstream standard applicable to the mixture 
shall be the highest downstream standard, calculated under paragraph 
(f)(1) of this section, for any S-RGAS contained in the mixture.


Sec. 80.211  [Reserved]


Sec. 80.212  What requirements apply to oxygenate blenders?

    Effective January 1, 2004, oxygenate blenders who blend oxygenate 
into gasoline downstream of the refinery that produced the gasoline or 
the import facility where the gasoline was imported, are not subject to 
the requirements of this subpart applicable to refiners for this 
gasoline, but are subject to the requirements and prohibitions 
applicable to downstream parties and the prohibition specified in 
Sec. 80.385(e).


Secs. 80.213-80.214  [Reserved]

Geographic Phase-In Program


Sec. 80.215  What is the scope of the geographic phase-in program?

    (a) Geographic phase-in area. (1) The following states comprise the 
geographic phase-in area (GPA) subject to the provisions of the 
geographic phase-in program: North Dakota, Montana, Idaho, Wyoming, 
Utah, Colorado, New Mexico, and Alaska.
    (2) Additional counties or tribal lands in states adjacent to the 
states identified in paragraph (a) of this section will be included in 
the GPA if any of the following criteria is met:
    (i) Approximately 50% or more of the total volume of gasoline in 
the county or tribal land in 1999, as measured at the terminal(s) and 
bulk station(s) in the county or tribal land, was received from a 
refinery or refineries located in the area specified in paragraph 
(a)(1) of this section; or
    (ii) Approximately 50% or more of the total volume of gasoline 
dispensed in the county or tribal land in 1999 was received from a 
refinery or refineries located in the area specified in paragraph 
(a)(1) of this section; or
    (iii) Approximately 50% or more of the total commercial and private 
dispensing outlets in the county or tribal land in 1999 were supplied 
by gasoline produced by a refinery or refineries located in the area 
specified in paragraph (a)(1) of this section.
    (3) The criteria of paragraphs (a)(2)(i), (ii) and (iii) of this 
section are without regard to the method of gasoline delivery (e.g, 
pipeline, truck, rail or barge). The criteria of paragraphs (a)(2)(ii) 
and (a)(2)(iii) of this section are without regard to whether the 
gasoline was transported directly from the refinery to the dispensing 
outlet or distributed through a terminal or bulk station.
    (b) Duration of the program. The geographic phase-in program 
applies to the 2004, 2005, and 2006 annual averaging periods.
    (c) Persons eligible. Any refiner or importer who produces or 
imports gasoline for use in the geographic area under paragraph (a) of 
this section is eligible to apply for the geographic phase-in program. 
The provisions of the geographic phase-in program shall apply to 
imported gasoline through the importer.


Sec. 80.216  What standards apply to gasoline produced or imported for 
use in the GPA?

    (a)(1) The refinery or importer annual average sulfur standard for 
gasoline produced or imported for use in the geographic area under 
Sec. 80.215 shall be the lesser of:
    (i) 150 ppm; or
    (ii) The refinery's or importer's 1997/1998 average sulfur level, 
calculated in accordance with Sec. 80.295, plus 30 ppm.
    (2) In the case of any refinery whose actual annual sulfur average 
decreases to a level lower than the refinery's annual average sulfur 
standard established under paragraph (a)(1) of this section during the 
period 2000 through 2003, the standard applicable to that refinery from 
2004 through 2006 shall be the lowest average sulfur content for any 
year in which the refinery generated allotments or credits under 
Sec. 80.275(a) or Sec. 80.305 plus 30 ppm, not to exceed 150 ppm.
    (b) The per-gallon cap standard for gasoline produced or imported 
for use in the GPA under paragraph (a) of this section shall be 300 
ppm, except as specified in Sec. 80.195(d).
    (c) The refinery or importer annual average sulfur level is 
calculated in accordance with the provisions of Sec. 80.205.
    (d) The refinery or importer annual average standard under 
paragraph (a) of this section may be met using sulfur allotments or 
credits as provided under Secs. 80.275 and 80.315.
    (e) Gasoline produced by approved small refiners subject to the 
standards under Sec. 80.240 is not subject to the standards under 
paragraphs (a) and (b) of this section.
    (f)(1) A refiner or importer whose gasoline production or volume of 
imported gasoline in 2004 or 2005 is comprised of 50% of 
gasoline designated as GPA gasoline under Sec. 80.219 shall not be 
required to meet the corporate pool average standards under Sec. 80.195 
for its gasoline production or imported gasoline during the applicable 
averaging period.
    (2) A refiner or importer whose gasoline production or volume of 
imported gasoline in 2004 or 2005 is comprised of less than 50% of 
gasoline designated as GPA gasoline under Sec. 80.219 must meet the 
corporate pool average standards under Sec. 80.195 for all the 
refiner's gasoline production or the importer's volume of imported 
gasoline during the applicable averaging period.
    (g) The provisions for compliance deficits under Sec. 80.205(e) do 
not apply to gasoline subject to the standards under paragraphs (a) and 
(b) of this section.


Sec. 80.217  How does a refiner or importer apply for the GPA 
standards?

    (a) To apply for the GPA standards under Sec. 80.216, a refiner or 
importer must submit an application in accordance with the provisions 
of Sec. 80.290.
    (b) Applications under paragraph (a) of this section must be 
submitted by December 31, 2000.
    (c)(1) If approved, EPA will notify the refiner or importer of each 
refinery's or the importer's annual average sulfur standard for 
gasoline produced for use in the GPA for the 2004 through 2006 annual 
averaging periods.
    (2) If disapproved, the refiner or importer must comply with the 
standards in Sec. 80.195 for gasoline produced for use in the GPA.
    (d) If EPA finds that a refiner or importer provided false or 
inaccurate

[[Page 6827]]

information on its application under this section, upon notice from 
EPA, the refiner's or importer's application will be void ab initio.


Sec. 80.218  [Reserved]


Sec. 80.219  Designation and downstream requirements for GPA gasoline.

    The requirements and prohibitions specified in this section apply 
during the period January 1, 2004 through December 31, 2006.
    (a) Designation. Any refiner or importer shall designate any 
gasoline produced or imported that is subject to the standards under 
Sec. 80.216 as ``GPA'' gasoline.
    (b) Product transfer documents. (1) On each occasion that any 
person transfers custody or title to gasoline designated as GPA 
gasoline, other than when gasoline is sold or dispensed for use in 
motor vehicles at a retail outlet or wholesale purchaser-consumer 
facility, the transferor shall provide to the transferee documents that 
include the following information:
    (i) Identification of the gasoline as being GPA gasoline;
    (ii) A statement that the gasoline may not be distributed or sold 
for use outside the geographic phase-in area.
    (2) Except for transfers to truck carriers, retailers and wholesale 
purchaser-consumers, product codes may be used to convey the 
information required by paragraph (b)(1) of this section if such codes 
are clearly understood by each transferee.
    (3) The requirements under paragraph (b)(1) of this section are in 
addition to the requirement under Sec. 80.210(e), where appropriate, to 
identify gasoline as being S-RGAS.
    (c) GPA gasoline use prohibitions. (1) All parties in the 
distribution system, including refiners, importers, distributors, 
carriers, oxygenate blenders, retailers and wholesale purchaser-
consumers, are prohibited from:
    (i) Selling, offering for sale, dispensing, distributing, storing 
or transporting GPA gasoline for use outside the geographic phase-in 
area; and
    (ii) Commingling GPA gasoline with gasoline not designated as GPA 
gasoline unless the mixture is classified as GPA gasoline.
    (2) Gasoline not designated as GPA gasoline may be distributed or 
sold for use in the geographic phase-in area.


Sec. 80.220  What are the downstream standards for GPA gasoline?

    (a) GPA gasoline. (1) During the period February 1, 2004 through 
January 31, 2005, the sulfur content of GPA gasoline at any downstream 
location other than at a retail outlet or wholesale purchaser-consumer 
facility, and during the period March 1, 2004 through February 28, 
2005, the sulfur content of GPA gasoline at any downstream location 
shall not exceed 378 ppm.
    (2) During the period February 1, 2005 through January 31, 2007, 
the sulfur content of GPA gasoline at any downstream location other 
than at a retail outlet or wholesale purchaser-consumer facility, and 
during the period March 1, 2005 through February 28, 2007, the sulfur 
content of GPA gasoline at any downstream location shall not exceed 326 
ppm.
    (b) GPA gasoline mixed with S-RGAS. Notwithstanding the 
requirements in paragraph (a) of this section, the sulfur standard 
applicable to a mixture of GPA gasoline and S-RGAS gasoline at a 
downstream location shall be the greater of the standard under 
paragraph (a) of this section or the standard determined under 
Sec. 80.210.

Hardship Provisions


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

    (a) A small refiner is defined as any person, as defined by 42 
U.S.C. 7602(e), who: (1)(i) Produces gasoline at a refinery by 
processing crude oil through refinery processing units;
    (ii) Employed an average of no more than 1,500 people, based on the 
average number of employees for all pay periods from January 1, 1998, 
to January 1, 1999; and
    (iii) Had an average crude capacity less than or equal to 155,000 
barrels per calendar day (bpcd) for 1998.
    (2) For the purpose of determining the number of employees and 
crude capacity under paragraph (a)(1) of this section, the refiner 
shall include the employees and crude capacity of any subsidiary 
companies, any parent company and subsidiaries of the parent company, 
and any joint venture partners.
    (b) The definition under paragraph (a) of this section applies to 
domestic and foreign refiners. For any refiner owned by a governmental 
entity, the number of employees as specified in paragraph (a) of this 
section shall include all employees of the governmental entity.
    (c) If, without merger with, or acquisition of, another business 
unit, a company with approved small refiner status under Sec. 80.235 
exceeds 1,500 employees, or a corporate crude capacity of 155,000 bpcd 
after January 1, 1999, it will be considered a small refiner for the 
duration of the small refiner program.
    (d) Notwithstanding the definition in paragraph (a) of this 
section, refiners who acquire a refinery after January 1, 1999, or 
reactivate a refinery that was shutdown or was non-operational between 
January 1, 1998, and January 1, 1999, may apply for small refiner 
status in accordance with the provisions of Sec. 80.235.


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

    (a) The following are not eligible for the hardship provisions for 
small refiners:
    (1) Refiners of refineries built after January 1, 1999;
    (2) Refiners who exceed the employee or crude oil capacity criteria 
under Sec. 80.225(a) on January 1, 1999, but who meet these criteria 
after that date, regardless of whether the reduction in employees or 
crude capacity is due to operational changes at the refinery or a 
company sale or reorganization;
    (3) Importers; and
    (4) Refiners who produce gasoline other than by processing crude 
oil through refinery processing units.
    (b)(1) Refiners who qualify as small under Sec. 80.225, and 
subsequently employ more than 1,500 people as a result of merger with 
or acquisition of or by another entity, are disqualified as small 
refiners. If this occurs the refiner shall notify EPA in writing no 
later than 20 days following this disqualifying event.
    (2) Any refiner who qualifies as small under Sec. 80.225 may elect 
to meet the standards under Sec. 80.195 by notifying EPA in writing no 
later than November 15 prior to the year the change will occur.
    (3) Any refiner whose status changes under paragraph (b)(1) or (2) 
of this section shall meet the standards under Sec. 80.195 beginning 
with the first averaging period subsequent to the status change.


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

    (a) Applications for small refiner status must be submitted to EPA 
by December 31, 2000, except for applications submitted pursuant to 
Sec. 80.225(d), which must be submitted by June 1, 2002.
    (b) Applications for small refiner status must be sent to: U.S. 
EPA, Attn: Sulfur Program (6406J), 401 M Street, SW, Washington, DC 
20460. For commercial delivery: U.S. EPA, Attn: Sulfur Program (6406J), 
501 3rd Street, NW, Washington, DC 20001.
    (c) The small refiner status application must contain the following 
information for the company seeking

[[Page 6828]]

small refiner status, plus any subsidiary companies, any parent company 
and subsidiaries of the parent company, and any joint venture partners:
    (1)(i) A listing of the name and address of each location where any 
employee worked during the 12 months preceding January 1, 1999; the 
average number of employees at each location based upon the number of 
employees for each pay period for the 12 months preceding January 1, 
1999; and the type of business activities carried out at each location; 
or
    (ii) In the case of a refiner who acquires a refinery after January 
1, 1999, or reactivates a refinery that was shutdown between January 1, 
1998, and January 1, 1999, a listing of the name and address of each 
location where any employee of the refiner worked since the refiner 
acquired or reactivated the refinery; the average number of employees 
at any such acquired or reactivated refinery during each calendar year 
since the refiner acquired or reactivated the refinery; and the type of 
business activities carried out at each location.
    (2) The total corporate crude capacity of each refinery as reported 
to the Energy Information Administration (EIA) of the U.S. Department 
of Energy (DOE). The information submitted to EIA is presumed to be 
correct. In cases where a company disagrees with this information, the 
company may petition EPA with appropriate data to correct the record 
within 60 days after the company submits its application for small 
refiner status.
    (3) A letter signed by the president, chief operating or chief 
executive officer of the company, or his/her designee, stating that the 
information contained in the application is true to the best of his/her 
knowledge.
    (4) Name, address, phone number, facsimile number and E-mail 
address (if available) of a corporate contact person.
    (d) For joint ventures, the total number of employees includes the 
combined employee count of all corporate entities in the venture.
    (e) For government-owned refiners, the total employee count 
includes all government employees.
    (f) Approval of small refiner status for refiners who apply under 
Sec. 80.225(d) will be based on all information submitted under 
paragraph (c) of this section. Where appropriate, the employee and 
crude oil capacity criteria for such refiners will be based on the most 
recent 12 months of operation.
    (g) EPA will notify a refiner of approval or disapproval of small 
refiner status by letter.
    (1) If approved, EPA will notify the refiner of each refinery's 
applicable baseline standard and volume, and per-gallon cap under 
Sec. 80.240.
    (2) If disapproved, the refiner must comply with the standards in 
Sec. 80.195.
    (h) If EPA finds that a refiner provided false or inaccurate 
information on its application for small refiner status, upon notice 
from EPA the refiner's small refiner status will be void ab initio.
    (i) Upon notification to EPA, an approved small refiner may 
withdraw its status as a small refiner. Effective on January 1 of the 
year following such notification, the small refiner will become subject 
to the standards at Sec. 80.195.


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

    (a) The gasoline sulfur standards for an approved small refiner are 
as follows:

----------------------------------------------------------------------------------------------------------------
                                          Temporary sulfur standards for small refiners applicable from January
                                                            1, 2004 through December 31, 2007
     Refinery baseline sulfur level     ------------------------------------------------------------------------
                                                    Annual average                      Per gallon cap
----------------------------------------------------------------------------------------------------------------
0 to 30................................  30.00                                300
31 to 200..............................  Baseline level                       300
201 to 400.............................  200.00                               300
401 to 600.............................  50% of baseline                      Factor of 1.5 times the average
                                                                               standard.
601 and above..........................  300.00                               450
----------------------------------------------------------------------------------------------------------------

    (b) The refinery annual average sulfur standards must be met on an 
annual calendar year basis for each refinery owned by a small refiner. 
The refinery annual average sulfur level is calculated in accordance 
with the provisions of Sec. 80.205.
    (c)(1) The refinery annual average standards specified in paragraph 
(a) of this section apply to the volume of gasoline produced by a small 
refiner's refinery up to the lesser of:
    (i) 105% of the baseline gasoline volume as determined under 
Sec. 80.250(a)(1); or
    (ii) The volume of gasoline produced at that refinery during the 
averaging period by processing crude oil.
    (2) If a refiner exceeds the volume limitation in paragraph (c)(1) 
of this section during any averaging period, the annual average sulfur 
standard applicable to the refiner for that averaging period is 
calculated as follows:
[GRAPHIC] [TIFF OMITTED] TR10FE00.008


Where:
Ssr=Small refiner annual average sulfur standard.
Vb=Applicable volume under paragraph (c)(1) of this section.
Va=Averaging period gasoline volume.
Sb=Small refiner sulfur baseline as determined under 
Sec. 80.250.
AF=Adjustment factor (120 in 2004; 90 in 2005; and 30 in 2006 and 
thereafter).

    (3) The small refiner average standards under paragraph (a) of this 
section may be met using sulfur allotments or credits as provided under 
Sec. 80.275 or Sec. 80.315.
    (4) The provisions for compliance deficits under Sec. 80.205(e) do 
not apply to small refiners subject to the standards under this 
section.
    (d) In the case of any refiner with small refiner status who 
generates sulfur allotments or credits pursuant to Sec. 80.275(a) or 
Sec. 80.305, the baseline applicable to that refiner's refinery for 
purposes of establishing the standard for the refinery under paragraph 
(a) of this section beginning in 2004 shall be the lowest annual 
average sulfur content for any year during the period in which the 
refiner generated allotments or credits.


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

    (a) Any refiner seeking small refiner status must apply for a 
refinery sulfur baseline by the deadline under Sec. 80.235 for each of 
the refiner's refineries by providing the following information:

[[Page 6829]]

    (1) A sulfur baseline and baseline volume for every refinery 
calculated in accordance with Sec. 80.250.
    (2) The following information for each batch of gasoline produced 
in 1997-1998:
    (i) Batch number assigned to the batch under Sec. 80.65(d) or 
Sec. 80.101(i);
    (ii) Volume; and
    (iii) Sulfur content.
    (3) For any refiner who acquires a refinery after January 1, 1999, 
or reactivates a refinery that was shut down or non-operational between 
January 1, 1998, and January 1, 1999, the average sulfur level and 
average volume of gasoline produced during each year the refinery was 
in operation after the refinery was acquired or reactivated. Where 
appropriate, the baseline sulfur level and volume for such refineries 
will be determined based on the annual average for the most recent year 
of operation.
    (b) The sulfur baseline application must be submitted to the 
address specified in Sec. 80.235(b).


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

    (a)(1) The small refiner baseline volume is determined for each 
refinery as follows:
[GRAPHIC] [TIFF OMITTED] TR10FE00.009


Where:
VB=Baseline volume.
VI=Volume of gasoline batch i.
n=Total number of batches of gasoline produced from January 1, 1997, 
through December 31, 1998.
i=Individual batch of gasoline produced from January 1, 1997, through 
December 31, 1998.

    (2) The small refiner sulfur baseline is determined for each 
refinery as follows:
[GRAPHIC] [TIFF OMITTED] TR10FE00.010


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

    (b) Foreign refiners who do not have an approved refinery baseline 
under Sec. 80.94 must follow the procedures specified in 
Sec. 80.410(b).
    (c) If at any time a small refinery baseline is determined to be 
incorrect, the corrected baseline applies ab initio and the annual 
average standards and cap standards are deemed to be those applicable 
under the corrected information.


Sec. 80.255  Compliance plans and demonstration of commitment to 
produce low sulfur gasoline.

    The requirements of this section apply to any refiner approved for 
small refiner standards who wishes to be eligible for a hardship 
extension under Sec. 80.260.
    (a) Compliance commitment. By no later than June 1, 2004, any 
refiner who is approved for small refinery standards must submit a 
preliminary report to EPA which outlines the refiner's timeline for 
compliance and a project plan which discusses permits, capital 
commitments and engineering plans for making the necessary 
modifications to produce gasoline that meets the 30 ppm refinery 
average and 80 ppm per-gallon cap sulfur standards under Sec. 80.195 on 
or before January 1, 2008. Documents showing activities and progress in 
these areas should be provided, if available.
    (b) Demonstration of Progress. (1)(i) By no later than June 1, 
2005, the small refiner must submit a report to EPA that states in 
detail the progress toward compliance with the 30 ppm refinery average 
and 80 ppm cap sulfur standards to date based on their timeline and 
project plan. The report must include:
    (A) Copies of approved permits for construction of the equipment, 
or the permit application if approval is still pending;
    (B) Copies of contracts for design and construction; and
    (C) Any available evidence of having secured the necessary 
financing to complete the required construction;
    (ii) If the refiner anticipates any difficulties in meeting its 
compliance commitments under this section, the refiner must submit a 
detailed report of all efforts made to date and the factors that may 
cause delay, including costs, specification of engineering or other 
design work needed and reasons for delay, specification of equipment 
needed and any reasons for delay, potential equipment suppliers and 
history of negotiations, and any other relevant information. If 
unavailability of equipment is a factor, the report must include a 
discussion of other options considered and the reasons these other 
options are not feasible.
    (2) By no later than June 1, 2006, the small refiner must submit to 
EPA evidence that on-site construction has begun and that, absent 
unforeseen difficulties, the small refiner will be producing complying 
gasoline by January 1, 2008. If construction has not begun, the refiner 
must demonstrate that it has made all reasonable efforts to begin 
construction, that substantial progress is being made to begin 
construction as soon as possible, and that construction can be 
completed in time to begin production of gasoline that complies with 
the standards of Sec. 80.195 by January 1, 2008.
    (c) Additional information. The Administrator may request any 
additional information necessary to determine a refiner's commitment 
and/or progress toward meeting the standards in Sec. 80.195 by 2008.
    (d) Failure to comply with requirements. Any small refiner who 
fails to submit the progress reports required under this section will 
not be eligible for a hardship extension under Sec. 80.260.


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

    (a) An approved small refiner who has filed the reports specified 
in Sec. 80.255 may apply to EPA for a hardship extension of the small 
refiner standards for calendar years 2008 and 2009. The application 
must be submitted in writing no later than January 1, 2007, to U.S. 
EPA, Attn: Sulfur Program (6406J), 401 M Street, SW, Washington, DC 
20460. For commercial (non-postal) delivery: U.S. EPA, Attn: Sulfur 
Program, 501 3rd Street NW, Washington, DC 20001.
    (b) The application must specify the factors that demonstrate a 
significant economic hardship and must provide a detailed discussion 
regarding the inability of the refinery to produce gasoline meeting the 
requirements of Sec. 80.195. Such an application must include, at a 
minimum, the following information:
    (1) Documentation of efforts made to obtain necessary financing, 
including:
    (i) Copies of loan applications for the necessary financing of the 
construction of appropriate sulfur reduction technology and other 
equipment procurements or improvements; and
    (ii) If financing has been disapproved or is otherwise 
unsuccessful, documents supporting the basis for that disapproval and 
evidence of efforts to pursue other means of financing;
    (2) A detailed analysis of the reasons the refinery is unable to 
produce gasoline meeting the standards of

[[Page 6830]]

Sec. 80.195 in 2008, including costs, specification of equipment still 
needed, potential equipment suppliers, and efforts already completed to 
obtain the necessary equipment;
    (3) If unavailability of equipment is part of the reason for the 
inability to comply, a discussion of other options considered, and the 
reasons these other options are not feasible;
    (4) If relevant, a demonstration that a needed or lower cost 
technology is immediately unavailable, but will be available in the 
near future, and full information regarding when and from what sources 
it will be available;
    (5) Schematic drawings of the refinery configuration as of January 
1, 1999, and as of the date of the hardship extension application, and 
any planned future additions or changes;
    (6) If relevant, a demonstration that a temporary unavailability 
exists of engineering or construction resources necessary for design or 
installation of the needed equipment;
    (7) If sources of crude oil lower in sulfur than what the refiner 
is currently using are available, full information regarding the 
availability of these different crude sources, the sulfur content of 
those crude sources, the cost of the different crude sources over the 
past five years, and an estimate of gasoline sulfur levels achievable 
by the refinery if the lower sulfur crude sources were used;
    (8) A discussion of any sulfur reductions that can be achieved from 
current levels;
    (9) The date the refiner anticipates compliance with the standards 
in Sec. 80.195 can be achieved at its refinery;
    (10) An analysis of the economic impact of compliance on the 
refiner's business (including financial statements from the last 5 
years, or for any time period up to 10 years, at EPA's request); and
    (11) Any other information regarding other strategies considered, 
including strategies or components of strategies that do not involve 
installation of equipment, and why meeting the standards in Sec. 80.195 
beginning in 2008 is infeasible.
    (c) The hardship extension application must contain a letter signed 
by the president or the chief operating or chief executive officer of 
the company, or his/her designee, stating that the information 
contained in the application is true to the best of his/her knowledge.


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

    (a) EPA will evaluate each application for hardship extension on a 
case-by-case basis. The factors considered for a hardship extension may 
include: The refiner's financial position and efforts to obtain capital 
funding; the refiner's efforts to procure necessary equipment, obtain 
design and engineering services and construction contractors; the 
availability of desulfurization equipment; and any other relevant 
factor. An extension will be granted for a refinery for the 2008 
averaging period if the small refiner who owns the refinery adequately 
demonstrates that severe economic hardship would result if compliance 
with the standards in Sec. 80.195 is required in 2008, or that 
compliance with the standard in 2008 is not feasible for reasons beyond 
the refiner's control, and that the refiner has made the best efforts 
possible to achieve compliance with the national standards by January 
1, 2008. Upon reapplication by the refiner, if EPA determines that 
further relief is appropriate, EPA may grant a further extension 
through the 2009 averaging period. In no case will a further extension 
for the 2009 averaging period be granted unless the refiner 
demonstrates conclusively that it has financing in place and that it 
will be able to complete construction and meet the national gasoline 
sulfur standards no later than December 31, 2009.
    (b) EPA may request more information, if necessary, for evaluation 
of the application. If requested information is not submitted within 
the time specified in EPA's request, or any extensions granted, the 
application may be denied.
    (c) EPA will notify the refiner of approval or disapproval of 
hardship extension by letter.
    (1) If approved, EPA will also notify the refiner of the date that 
full compliance with the standards specified at Sec. 80.195 must be 
achieved or what interim sulfur levels or schedules apply, if any.
    (2) If disapproved, beginning January 1, 2008, the refinery is 
subject to the requirements in Sec. 80.195. Refiners who receive an 
extension for the 2008 averaging period shall meet the standards in 
Sec. 80.195 beginning on January 1, 2009, unless EPA grants an 
extension of the hardship relief for an additional year. If such an 
additional extension is granted, the refiner shall meet the standards 
in Sec. 80.195 on January 1, 2010.
    (d) Refiners who receive a hardship extension may be required to 
meet more stringent standards than those which apply to them during 
2007, and/or could be required to offset excess sulfur levels. EPA may 
impose reasonable conditions on an extension, such as requiring 
segregation of the small refiner's gasoline or requiring the gasoline 
to be sold for use in older vehicles only.


Sec. 80.270  Can a refiner seek temporary relief from the requirements 
of this subpart?

    (a) EPA may permit a refiner to produce and distribute gasoline 
which does not meet the requirements of this subpart if the refiner 
demonstrates that:
    (1) Unusual circumstances exist that impose extreme hardship and 
significantly affect ability to comply by the applicable date; and
    (2) It has made best efforts to comply with the requirements of 
this subpart (including making efforts to obtain credits and/or 
allotments).
    (b) Applications must be submitted to EPA by September 1, 2000. 
Relief may be granted from some or all of the requirements of this 
subpart, at EPA's discretion; however, EPA reserves the right to deny 
applications for appropriate reasons, including unacceptable 
environmental impact. Approval to distribute gasoline which does not 
meet the requirements of this subpart may be granted for such time 
period as EPA determines is appropriate, but shall not extend beyond 
January 1, 2008.
    (c)(1) Applications must include a plan demonstrating how the 
refiner will comply with the requirements of this subpart as 
expeditiously as possible. The plan shall include a showing that 
contracts are or will be in place for engineering and construction of 
desulfurization equipment, a plan for applying for and obtaining any 
permits necessary for construction, a description of plans to obtain 
necessary capital, and a detailed estimate of when the requirements of 
this subpart will be met.
    (2) Applications must include a detailed description of the 
refinery configuration and operations, including, at a minimum, the 
following information:
    (i) The portion of gasoline production that is produced using an 
FCC unit;
    (ii) The refinery's hydrotreating capacity;
    (iii) The refinery's total reformer unit throughput capacity;
    (iv) The refinery's total crude capacity;
    (v) Total crude capacity of any other refineries owned by the same 
entity;
    (vi) Total volume of gasoline production at the refinery;
    (vii) Total volume of other refinery products; and
    (viii) Geographic location(s) in which gasoline will be sold.
    (3) Applications must include, at a minimum, the following 
information:

[[Page 6831]]

    (i) Detailed description of efforts to obtain capital for refinery 
investments;
    (ii) Bond rating of entity that owns the refinery; and
    (iii) Estimated capital investment needed to comply with the 
requirements of this subpart by the applicable date.
    (4) Applicants must also provide any other relevant information 
requested by EPA.
    (d) EPA may impose any reasonable conditions on waivers granted 
under this section.

Allotment Trading Program


Sec. 80.275  How are allotments generated and used?

    (a) Generation of allotments and credits in 2003. (1) During 2003 
only, any domestic or foreign refiner may have the option to generate 
credits in accordance with the provisions of Sec. 80.305 or generate 
allotments and credits under paragraph (a)(2) of this section.
    (2) If the average sulfur content of the gasoline produced at a 
refinery is less than the refinery's baseline as determined under 
Sec. 80.295 and is 60 ppm or less, allotments and credits may be 
generated using the following procedures. This paragraph (a) does not 
apply to importers.
    (i) If the average sulfur content of the gasoline produced at a 
refinery is less than or equal to 30, and the refinery's sulfur 
baseline is greater than 120, the following procedures apply:

SATypeB = (30 - Saa)  x  V
SATypeA = (V  x  90)  x  0.8
CR = (SBase - 120)  x  V

    (ii) If the average sulfur content of the gasoline produced at a 
refinery is less than or equal to 30, and the refinery's sulfur 
baseline is greater than 30 but less than or equal to 120, the 
following procedures apply:

SATypeB = (30 - Sa)  x  V
SATypeA = ((SBase - 30)  x  V)  x  0.8

    (iii) If the average sulfur content of the gasoline produced at a 
refinery is less than or equal to 30, and the refinery's sulfur 
baseline is less than or equal to 30, the following procedures apply:

SATypeB = ( SBase - Sa)  x  V

    (iv) If the average sulfur content of the gasoline produced at a 
refinery is greater than 30, and the refinery's sulfur baseline is 
greater than 120, the following procedures apply:

SATypeA = ((120 - Sa)  x  V)  x  0.8
CR = (SBase - 120)  x  V

    (v) If the average sulfur content of the gasoline produced at a 
refinery is greater than 30, and the refinery's sulfur baseline is less 
than or equal to 120, the following procedures apply:

SATypeA = ((SBase - Sa)  x  V)  x  0.8

    (vi) For purposes of the equations under paragraphs (a)(2)(i) 
through (v) of this section, the following definitions apply:

SATypeB = Type B sulfur allotments generated.
SATypeA = Type A sulfur allotments generated.
CR = Credits generated.
SBase = Refinery's sulfur baseline value under Sec. 80.295.
Sa = Average sulfur content of the gasoline produced at the 
refinery during 2003 (or for a foreign refinery, all gasoline produced 
during 2003 that was imported into the U.S.).
V = Volume of gasoline produced at the refinery during 2003 (or for a 
foreign refinery, all gasoline produced during 2003 that was imported 
into the U.S.).
    (b) Generation of allotments in 2004 and 2005. During 2004 and 2005 
only, refiners and importers that have corporate pool average sulfur 
levels below the corporate pool average standards under Sec. 80.195 may 
generate sulfur allotments separately for each year using the following 
procedures.
    (1) If the average sulfur content of the gasoline produced or 
imported is less than 30 the following procedures apply:

SATypeB = (30 - Sa)  x  Va
SATypeA = (SPS - 30)  x  Va

    (2) If the average sulfur content of the gasoline produced or 
imported is equal to or greater than 30 the following procedures apply:

SATypeA = (SPS - Sa)  x  Va

    (3) For purposes of the equations under paragraphs (b)(1) and (2) 
of this section, the following definitions apply:

SATypeB = Type B sulfur allotments generated.
SATypeA = Type A sulfur allotments generated.
Sa = Corporate pool average sulfur level for the year.
SPS = Corporate pool average standard (120 in 2004; 90 in 
2005).
Va = Total volume of gasoline produced and/or imported 
during the year.

    (c) Use of sulfur allotments to meet standards. (1) Refiners and 
importers may use Type A and Type B sulfur allotments to meet the 
corporate pool average standards under Sec. 80.195, except that if 
allotments generated in 2003 or 2004 are used to meet the corporate 
pool standard in 2005 the allotments generated in 2003 or 2004 shall be 
reduced in value by 50%.
    (2) Small refiners subject to the standards under Sec. 80.240, and 
refiners and importers of gasoline designated as GPA gasoline under 
Sec. 80.219(a), may use sulfur allotments to meet their annual average 
refinery or importer standards.
    (d) Transfers of sulfur allotments. Sulfur allotments generated 
under this section may be transferred, provided that:
    (1) No allotment may be transferred more than twice: The first 
transfer by the refiner or importer who generated the allotment may 
only be made to a refiner or importer who intends to use the allotment; 
if the transferee cannot use the allotment, it may make the second, and 
final, transfer only to a refiner or importer who intends to use the 
allotment. In no case may an allotment be transferred more than twice 
before being used or terminated.
    (2) The allotment transferor must apply any allotments necessary to 
meet the transferor's corporate pool average standard before 
transferring allotments to any other refiner or importer or before 
converting allotments into credits.
    (3) The transferor must supply to the transferee records indicating 
the year of generation and type of the allotments, the identity of the 
refiner or importer who generated the allotments, and the identity of 
the transferring party, if it is not the same part that generated the 
allotments.
    (4) The transferor must inform the transferee whether any 
transferred allotments are Type A allotments or Type B allotments, as 
defined in paragraphs (a) and (b) of this section.
    (5) In the case of allotments that have been calculated or created 
improperly, or are otherwise determined to be invalid, the following 
provisions apply:
    (i) Invalid allotments cannot be used to achieve compliance with 
the transferee's corporate pool average standard or be converted to 
credits, regardless of the transferee's good faith belief that the 
allotments were valid.
    (ii) The refiner or importer who used the allotments, and any 
transferor of the allotments, must adjust their allotment records and 
reports and sulfur calculations as necessary to reflect the proper 
allotments.
    (iii) Any allotments remaining after correcting for the improperly 
created allotments must first be applied to correct the invalid 
transfers before the transferor may transfer any other allotments or 
before converting allotments into credits.
    (e) Conversion of allotments into credits. A refiner or importer 
may convert allotments into credits using the following procedures:
    (1) Type A allotments may be converted into credits with the same 
requirements and limitations on use that

[[Page 6832]]

apply under Sec. 80.315 to credits generated in 2000 through 2003.
    (2) Type B allotments may be converted into credits with the same 
requirements and limitations on use that apply under Sec. 80.315 to 
credits generated in 2004 and later, based on the year of creation of 
the allotment.
    (f) Small refiners. Small refiners subject to the standards under 
Sec. 80.240 may not generate sulfur allotments under paragraph (b) of 
this section.
    (g) GPA gasoline. GPA gasoline that is included in the refiner's or 
importer's corporate pool average under Sec. 80.216(f)(2) must be 
included in the calculations under paragraph (b) of this section. No 
refiner or importer may generate allotments in 2004 or 2005 who is not 
required to meet the corporate pool average standards.

Averaging, Banking and Trading (ABT) Program--General Information


Sec. 80.280  [Reserved]


Sec. 80.285  Who may generate credits under the ABT program?

    (a) Credit generation in 2000 through 2003. (1) Credits may be 
generated in 2000 through 2003 under Sec. 80.305 by refiners who 
produce gasoline from crude oil, and are:
    (i) Refiners who establish a sulfur baseline under Sec. 80.295;
    (ii) Foreign refiners with approved baselines under Sec. 80.94, or 
baselines established in accordance with Sec. 80.410; or
    (iii) Small refiners for any refinery subject to the standards 
under Sec. 80.240, using their small refiner baseline established under 
Sec. 80.250.
    (2) Importers and oxygenate blenders may not generate credits under 
Sec. 80.305.
    (b) Credit generation beginning in 2004. (1) Credits may be 
generated beginning in 2004 under Sec. 80.310 by:
    (i) Refiners and importers subject to the standards under 
Sec. 80.195;
    (ii) Refiners and importers of gasoline designated as GPA gasoline 
under Sec. 80.219, using the lesser of: 150 ppm; or the refiner's or 
importer's baseline calculated under Sec. 80.295; or the refinery's 
lowest annual average sulfur content for any year from 2000 through 
2003 during which the refiner generated credits (for any party 
generating credits under both paragraph (b)(1)(i) of this section and 
this paragraph (b)(1)(ii), such credits must be calculated separately); 
or
    (iii) Small refiners for any refinery subject to the standards 
under Sec. 80.240, using refinery's standard established under 
Sec. 80.240.
    (2) Generation of credits for all imported gasoline shall be 
through the importer.
    (3) Oxygenate blenders may not generate credits under Sec. 80.310.


Sec. 80.290  How does a refiner apply for a sulfur baseline?

    (a) The refiner must submit an application to EPA which includes 
the information required under paragraph (c) of this section no later 
than September 30 of the year in which the refiner plans to begin 
generating credits, or the refiner or an importer plans to sell 
gasoline in the geographic phase-in area in accordance with 
Sec. 80.217.
    (b) The sulfur baseline request must be sent to: U.S. EPA, Attn: 
Sulfur Program (6406J), 401 M Street SW., Washington, DC 20460. For 
commercial (non-postal) delivery: U.S. EPA, Attn: Sulfur Program, 501 
3rd Street NW., Washington, DC 20001.
    (c) The sulfur baseline application must include the following 
information:
    (1) A listing of the names and addresses of all refineries owned by 
the corporation for which the refiner is applying for a sulfur 
baseline.
    (2) The annual average gasoline sulfur baseline for gasoline 
produced in 1997-1998, for each refinery for which the refiner is 
applying for a sulfur baseline, calculated in accordance with 
Sec. 80.295.
    (3) A letter signed by the president, chief operating or chief 
executive officer, of the company, or his/her delegate, stating that 
the information contained in the sulfur baseline determination is true 
to the best of his/her knowledge.
    (4) Name, address, phone number, facsimile number and E-mail 
address of a corporate contact person.
    (5) The following information for each batch of gasoline produced 
in 1997-1998:
    (i) Batch number assigned to the batch under Sec. 80.65(d) or 
Sec. 80.101(i);
    (ii) Volume; and
    (iii) Sulfur content.
    (d) Foreign refiners who do not have an approved refinery baseline 
under Sec. 80.94 must follow the procedures specified in 
Sec. 80.410(b).
    (e) Within 60 days of receipt of an application under this section, 
EPA will notify the refiner of approval of the refinery's baseline or 
of any deficiencies in the application.
    (f) If at any time the baseline submitted in accordance with the 
requirements of this section is determined to be incorrect, EPA will 
notify the refiner of the corrected baseline.
    (g) Any refiner that seeks temporary relief under Sec. 80.270 shall 
apply for a refinery sulfur baseline in accordance with the provisions 
of this section and Sec. 80.295, and if applicable, Sec. 80.410(b), no 
later than September 1, 2000.

ABT Program--Baseline Determination


Sec. 80.295  How is a refinery sulfur baseline determined?

    (a) A refinery's gasoline sulfur baseline for the purpose of 
generating credits during years 2000 through 2003 is calculated using 
the following equation:
[GRAPHIC] [TIFF OMITTED] TR10FE00.011


Where:
SBase=Sulfur baseline value.
Vi=Volume of gasoline batch i.
Si=Sulfur content of gasoline batch i.
n=Total number of batches of gasoline produced during January 1, 1997 
through December 31, 1998.
i=Individual batch of gasoline produced during January 1, 1997 through 
December 31, 1998.

    (b) Any refiner who, under Sec. 80.65 or Sec. 80.101(d)(4), 
included oxygenate blended downstream in compliance calculations for 
1997-1998 must include this oxygenate in the baseline calculations for 
sulfur content under paragraph (a) of this section.


Sec. 80.300  [Reserved]

ABT Program--Credit Generation


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

    (a) Credits must be calculated as follows:
    CRa=Va  x  (SBase - Sa)

Where:
CRa=Credits generated for the averaging period.
Va=Total volume of gasoline produced during the averaging 
period at the refinery.
SBase=Sulfur baseline value for the refinery established 
under Sec. 80.250 or Sec. 80.295.
Sa=Actual annual average sulfur level for gasoline produced 
during the averaging period by the refinery exclusive of any credits.

    (b) The refiner may include any oxygenates included in its RFG or 
conventional gasoline volume under Secs. 80.65 and 80.101(d)(4), 
respectively, for the purpose of generating credits.
    (c) Credits under this program are in units of ``ppm-gallons''.
    (d) Refiners may generate credits for gasoline produced during an 
averaging period only if the annual average sulfur level for the 
gasoline produced during the averaging period is less than 0.90 of the 
refiners baseline under Sec. 80.250 or Sec. 80.295.

[[Page 6833]]

    (e) Credits generated in accordance with paragraph (a) of this 
section must be identified by the year of creation.


Sec. 80.310  How are credits generated beginning in 2004?

    (a) A refiner for any refinery, or an importer, may generate 
credits in 2004 and thereafter if the annual average sulfur level for 
gasoline produced or imported for the averaging period is less than the 
applicable refinery or importer annual average sulfur standard for that 
refinery or importer in that year.
(b) Credits are calculated as follows:

    CRa=Va  x  (SStd - Sa)

Where:
CRa=Credits generated for the averaging period.
Va=Total annual volume gasoline produced at a refinery or 
imported during the averaging period.
Sstd=30 ppm; or the sulfur standard for a small refinery 
established under Sec. 80.240; or, for gasoline designated as GPA 
gasoline under Sec. 80.219, the lesser of 150 ppm, the refinery's or 
importer's baseline calculated under Sec. 80.295, or the refinery's 
lowest annual average sulfur content for any year from 2000 through 
2003 during which the refinery generated credits or allotments.
Sa=Actual annual average sulfur level of gasoline produced 
at a refinery or imported during the averaging period exclusive of any 
credits.

    (c) Credits generated in accordance with this section must be 
identified by the year of creation.

ABT Program--Credit Use


Sec. 80.315  How are credits used and what are the limitations on 
credit use?

    (a) Credit use. Credits may be used to meet the applicable refinery 
or importer annual average sulfur standards under Sec. 80.195, 
Sec. 80.216, or Sec. 80.240, provided that:
    (1) Sulfur credits used were generated pursuant to the requirements 
of this subpart; and
    (2) The requirements of paragraphs (b) and (c) of this section are 
met.
    (b) Credit transfers. (1) Credits obtained from other persons may 
be used to meet the annual average standards specified in Sec. 80.195, 
Sec. 80.216, or Sec. 80.240 if all the following conditions are met:
    (i) The credits are generated and reported according to the 
requirements of this subpart.
    (ii) The credits are used in compliance with the limitations 
regarding the appropriate periods for credit use in this subpart.
    (iii) Any credit transfer takes place no later than the last day of 
February following the calendar year averaging period when the credits 
are used.
    (iv) No credit may be transferred more than twice: The first 
transfer by the refiner or importer who generated the credit may only 
be made to a refiner or importer who intends to use the credit; if the 
transferee cannot use the credit, it may make the second, and final, 
transfer only to a refiner or importer who intends to use the credit. 
In no case may a credit be transferred more than twice before being 
used or terminated.
    (v) The credit transferor must apply any credits necessary to meet 
the transferor's applicable average standard before transferring 
credits to any other refiner or importer.
    (vi) No credits may be transferred that would result in the 
transferor having a negative credit balance.
    (vii) Each transferor must supply to the transferee records 
indicating the years the credits were generated, the identity of the 
refiner or importer who generated the credits, and the identity of the 
transferring party, if it is not the same party that generated the 
credits.
    (2) In the case of credits that have been calculated or created 
improperly, or are otherwise determined to be invalid, the following 
provisions apply:
    (i) Where a refiner's baseline has been determined to be incorrect 
under Sec. 80.250(c) or Sec. 80.290(f), any credits generated, banked, 
used or traded must be adjusted to reflect the corrected baseline.
    (ii) Invalid credits cannot be used to achieve compliance with the 
transferee's averaging standard, regardless of the transferee's good 
faith belief that the credits were valid.
    (iii) The refiner or importer who used the credits, and any 
transferor of the credits, must adjust their credit records and reports 
and sulfur calculations as necessary to reflect the proper credits.
    (iv) Any properly created credits existing in the transferor's 
credit balance after correcting the credit balance, and after the 
transferor applies credits as needed to meet the average standard at 
the end of the compliance year, must first be applied to correct the 
invalid transfers before the transferor trades or banks the credits.
    (c) Limitations on credit use. (1) Credits generated prior to 2004 
may only be used for demonstrating compliance with the refinery or 
importer annual average standards under Sec. 80.195 during the 2005 and 
2006 averaging periods. Such credits may be used to demonstrate 
compliance with the standards under Sec. 80.216 during the 2004 through 
2006 averaging periods, and with the standards under Sec. 80.240 during 
the 2004 through 2007 averaging periods, and the 2008 and 2009 
averaging periods, if allowed under the terms of a hardship extension 
under Sec. 80.265.
    (2) Credits generated in 2004 or later may only be used for 
demonstrating compliance with standards during an averaging period 
within five years of the year of generation.
    (3) A refiner or importer possessing credits must use all credits 
prior to falling into compliance deficit under Sec. 80.205(e).
    (4) Credits may not be used to meet corporate pool average 
standards under Sec. 80.195.


Sec. 80.320  [Reserved]


Sec. 80.325  [Reserved]

Sampling, Testing and Retention Requirements for Refiners and 
Importers


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

    (a) Sample and test each batch of gasoline. (1) Refiners and 
importers shall collect a representative sample from each batch of 
gasoline produced or imported and test each sample to determine its 
sulfur content for compliance with requirements under this subpart 
prior to the gasoline leaving the refinery or import facility, using 
the sampling and testing methods provided in this section.
    (2) Except as provided in paragraph (a)(3) of this section, the 
requirements of this section apply beginning January 1, 2004, or 
January 1 of the first year of allotment or credit generation under 
Sec. 80.275 or Sec. 80.305, whichever is earlier.
    (3) Prior to January 1, 2004, for purposes of meeting the sampling 
and testing requirements of this section for conventional gasoline, any 
refiner may, prior to analysis, combine samples of gasoline from more 
than one batch of gasoline or blendstock and treat such composite 
sample as one batch of gasoline or blendstock pursuant to the 
requirements of Sec. 80.101(i)(2).
    (4) Any refiner who produces reformulated gasoline or conventional 
gasoline using computer-controlled in-line blending equipment may meet 
the testing requirement of paragraph (a)(1) of this section under the 
terms of an exemption granted under Sec. 80.65(f)(4).
    (b) Sampling methods. For purposes of paragraph (a) of this 
section, refiners and importers shall sample each batch of gasoline by 
using one of the following methods:

[[Page 6834]]

    (1) Manual sampling of tanks and pipelines shall be performed 
according to the applicable procedures specified in one of the two 
following methods:
    (i) American Society for Testing and Materials (ASTM) method D 
4057-95, entitled ``Standard Practice for Manual Sampling of Petroleum 
and Petroleum Products.''
    (ii) Samples collected under the applicable procedures in ASTM 
method D 5842-95, entitled ``Standard Practice for Sampling and 
Handling of Fuels for Volatility Measurement,'' may be used for 
measuring sulfur content if there is no contamination present that 
could affect the sulfur test result.
    (2) Automatic sampling of petroleum products in pipelines shall be 
performed according to the applicable procedures specified in ASTM 
method D 4177-95, entitled ``Standard Practice for Automatic Sampling 
of Petroleum and Petroleum Products.''
    (c) Test method for measuring the sulfur content of gasoline. (1) 
For purposes of paragraph (a) of this section, refiners and importers 
shall use the method provided in Sec. 80.46(a)(1) to measure the sulfur 
content of gasoline they produce or import.
    (2) Except as provided in Sec. 80.350 and in paragraph (c)(1) of 
this section, any ASTM sulfur test method for liquefied fuels may be 
used for quality assurance testing under Sec. 80.400, or to determine 
whether gasoline qualifies for a S-RGAS downstream standard, if the 
protocols of the ASTM method are followed and the alternative method is 
correlated to the method provided in Sec. 80.46(a)(1).
    (d) Test method for sulfur in butane. (1) Refiners and importers 
shall use the method provided in Sec. 80.46(a)(2) to measure the sulfur 
content of butane when the butane constitutes a batch of gasoline.
    (2) Except as provided in paragraph (d)(1) of this section, any 
ASTM sulfur test method for gaseous fuels may be used for quality 
assurance testing under Secs. 80.340(b)(4) and 80.400, if the protocols 
of the ASTM method are followed and the alternative method is 
correlated to the method provided in Sec. 80.46(a)(2).
    (e) Incorporations by reference. ASTM standard practices D 4057-95, 
D 4177-95 and D 5842-95 are incorporated by reference. These 
incorporations by reference were approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. 
Copies may be obtained from the American Society for Testing and 
Materials, 100 Barr Harbor Dr., West Conshohocken, PA 19428. Copies may 
be inspected at the Air Docket Section (LE-131), room M-1500, U.S. 
Environmental Protection Agency, Docket No. A-97-03, 401 M Street, SW., 
Washington, DC 20460, or at the Office of the Federal Register, 800 
North Capitol Street, NW., Suite 700, Washington, DC.


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

    (a) Sample retention requirements. Beginning January 1, 2004, or 
January 1 of the first year allotments or credits are generated under 
Secs. 80.275 and 80.305, whichever is earlier, any refiner or importer 
shall:
    (1) Collect a representative portion of each sample analyzed under 
Sec. 80.330(a), of at least 330 ml in volume;
    (2) Retain sample portions for the most recent 20 samples 
collected, or for each sample collected during the most recent 21 day 
period, whichever is greater;
    (3) Comply with the gasoline sample handling and storage procedures 
under Sec. 80.330(b) for each sample portion retained; and
    (4) Comply with any request by EPA to:
    (i) Provide a retained sample portion to the Administrator's 
authorized representative; and
    (ii) Ship a retained sample portion to EPA, within 2 working days 
of the date of the request, by an overnight shipping service or 
comparable means, to the address and following procedures specified by 
EPA, and accompanied with the sulfur test result for the sample 
determined under Sec. 80.330(a).
    (b) Sample retention requirement for samples subject to independent 
analysis requirements. (1) Any refiner or importer who meets the 
independent analysis requirements under Sec. 80.65(f) for any batch of 
reformulated gasoline or RBOB will have met the requirements of 
paragraph (a) of this section, provided the independent laboratory 
meets the requirements of paragraph (a) of this section for the 
gasoline batch.
    (2) For samples retained by an independent laboratory under 
paragraph (b) of this section, the test results required to be 
submitted under paragraph (a) of this section shall be the test results 
determined under Sec. 80.65(e).
    (c) Sampling compliance certification. Any refiner or importer 
shall include with each annual report filed under Sec. 80.370, the 
following statement, which must accurately reflect the facts and must 
be signed and dated by the same person who signs the annual report:

    I certify that I have made inquiries that are sufficient to give 
me knowledge of the procedures to collect and store gasoline 
samples, and I further certify that the procedures meet the 
requirements of the ASTM procedures required under 40 CFR 80.330.

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

    (a) Any refiner who produces gasoline by blending blendstock into 
PCG must meet the requirements of Sec. 80.330 to sample and test every 
batch of gasoline as follows:
    (1)(i) Sample and test to determine the volume and sulfur content 
of the PCG prior to blendstock blending.
    (ii) Sample and test to determine the volume and sulfur content of 
the gasoline subsequent to blendstock blending.
    (iii) Calculate the volume and sulfur content of the blendstock, by 
subtracting the volume and sulfur content of the PCG from the volume 
and sulfur content of the gasoline subsequent to blendstock blending. 
The blendstock is a batch for purposes of compliance calculations and 
reporting. For purposes of this paragraph (a), compliance with the 
applicable cap standard under Sec. 80.195(a) shall be determined based 
on the sulfur content of the gasoline subsequent to blendstock 
blending.
    (2) In the alternative, a refiner may sample and test each batch of 
blendstock when received at the refinery to determine the volume and 
sulfur content, and treat each blendstock receipt as a separate batch 
for purposes of compliance calculations for the annual average sulfur 
standard and for reporting. This alternative applies only if every 
batch of blendstock used at a refinery during an averaging period has a 
sulfur content that is equal to, or less than, the applicable per-
gallon cap standard under Secs. 80.195 or 80.216.
    (b) Refiners who blend only butane into PCG may meet the sampling 
and testing requirements by using sulfur test results of the butane 
supplier, provided that the following requirements are also met:
    (1) The sulfur content of the butane received from the butane 
supplier must not exceed the following sulfur standards on a per-gallon 
basis as follows:
    (i) 120 ppm in 2004, and 30 ppm for 2005 and any subsequent year;
    (ii) Except that the per-gallon sulfur content of butane blended to 
PCG that is designated as GPA gasoline shall not exceed 150 ppm from 
January 1, 2004, through December 31, 2006.
    (2) The refiner obtains test results from the butane supplier that 
demonstrate that the sulfur content of

[[Page 6835]]

each load of butane supplied does not exceed the applicable per-gallon 
sulfur standard under paragraph (b)(1) of this section through test 
results of samples of the butane contained in the storage tank from 
which the butane blender is supplied.
    (i) Testing for the sulfur content of the butane by the supplier 
must be subsequent to each receipt of butane into the supplier's 
storage tank, or the testing must be immediately before transfer of 
butane to the butane blender.
    (ii) The testing must be performed by the method specified in 
Sec. 80.46(a)(2).
    (iii) The butane blender must obtain a copy of the butane 
supplier's test results, at the time of each transfer of butane to the 
butane blender, that reflect the sulfur content of each load of butane 
supplied to the butane blender.
    (3) The sulfur content and volume of each batch of gasoline 
produced is that of the butane the refiner blends into gasoline for 
purposes of calculating compliance with the standards in Secs. 80.195 
and 80.216.
    (4) The refiner must conduct a quality assurance program of 
sampling and testing for each butane supplier that demonstrates the 
butane sulfur content does not exceed the applicable per-gallon sulfur 
standard in paragraph (b)(1) of this section. The frequency of butane 
sampling and testing, for each butane supplier, must be one sample for 
every 500,000 gallons of butane received, or one sample every 3 months, 
whichever results in more frequent sampling.
    (5) If any of the requirements of this section are not met, in 
whole or in part, for any butane blended into gasoline, that butane is 
deemed in violation of the gasoline sulfur standards in Sec. 80.195 or 
Sec. 80.216, as applicable.


Sec. 80.345  [Reserved]


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

    Importers who import gasoline into the United States by truck may 
comply with the following requirements instead of the requirements to 
sample and test every batch of gasoline under Sec. 80.330, and the 
annual sulfur average and per-gallon cap standards otherwise applicable 
to importers under Secs. 80.195 and 80.216:
    (a) Alternative standards. The imported gasoline must comply with 
the standards in paragraph (a)(1) or (a)(2) of this section as follows:
    (1) The applicable average standards, corporate average standards 
and per-gallon standards under Sec. 80.195(a)(1), except that imported 
gasoline designated for use in the geographic phase-in area from 
January 1, 2004, through December 31, 2006 must comply with an average 
standard of 150 ppm and a per-gallon standard of 300 ppm; or
    (2) In 2004, a per-gallon standard of 120 ppm, and in 2005 and 
subsequent years a per-gallon standard of 30 ppm, except that imported 
gasoline designated for use in the geographic phase-in area from 
January 1, 2004, through December 31, 2006 must comply with a per-
gallon standard of 150 ppm.
    (b) Terminal testing. The importer may use test results for sulfur 
content testing conducted by the terminal operator, for gasoline 
contained in the storage tank from which trucks used to transport 
gasoline into the United States are loaded, for purposes of 
demonstrating compliance with the standards in paragraph (a) of this 
section, provided the following conditions are met:
    (1) The sampling and testing shall be performed after each receipt 
of gasoline into the storage tank, or immediately before each transfer 
of gasoline to the importer's truck.
    (2) The sampling and testing shall be performed using the methods 
specified in Sec. 80.330(b) and 80.46(a)(1), respectively.
    (3) At the time of each transfer of gasoline to the importer's 
truck for import to the U.S., the importer must obtain a copy of the 
terminal test result that indicates the sulfur content of the truck 
load.
    (c) Quality assurance program. The importer must conduct a quality 
assurance program, as specified in this paragraph, for each truck 
loading terminal.
    (1) Quality assurance samples must be obtained from the truck-
loading terminal and tested by the importer, or by an independent 
laboratory, and the terminal operator must not know in advance when 
samples are to be collected.
    (2) The sampling and testing must be performed using the methods 
specified in Secs. 80.330(b) and 80.46(a)(1), respectively.
    (3) The quality assurance test results for sulfur must differ from 
the terminal test result by no more than the ASTM reproducibility of 
the terminal's test results, as determined by the following equation:

R = 105 x  ((S+2)/104)0.4

Where:

R = ASTM reproducibility.
S = Sulfur content based on the terminal's test result.

    (4) The frequency of the quality assurance sampling and testing 
must be at least one sample for each fifty of an importer's trucks that 
are loaded at a terminal, or one sample per month, whichever is more 
frequent.
    (d) Party required to conduct quality assurance testing. The 
quality assurance program under paragraph (c) of this section shall be 
conducted by the importer. In the alternative, this testing may be 
conducted by an independent laboratory that meets the criteria under 
Sec. 80.65(f)(2)(iii), provided the importer receives, no later than 21 
days after the sample was taken, copies of all results of tests 
conducted.
    (e) Assignment of batch numbers. The importer must treat each truck 
load of imported gasoline as a separate batch for purposes of assigning 
batch numbers and maintaining records under Sec. 80.365, and reporting 
under Sec. 80.370.
    (f) EPA inspections of terminals. EPA inspectors or auditors, and 
auditors conducting attest engagements under Sec. 80.415, must be given 
full and immediate access to the truck-loading terminal and any 
laboratory at which samples of gasoline collected at the terminal are 
analyzed, and must be allowed to conduct inspections, review records, 
collect gasoline samples, and perform audits. These inspections or 
audits may be either announced or unannounced.
    (g) Certified Sulfur-FRGAS. This section does not apply to 
Certified Sulfur-FRGAS.
    (h) Reporting requirements. Any importer who elects to comply with 
the alternative standards in paragraph (a) of this section shall comply 
with the following requirements:
    (1) All importer recordkeeping and reporting requirements under 
Secs. 80.365 and 80.370, except as provided in paragraph (h)(2) of this 
section.
    (2) An importer who elects to comply with the alternative standards 
in paragraph (a)(2) of this section must certify in the annual report 
whether it is in compliance with the applicable per-gallon batch 
standard set forth in paragraph (a)(2) of this section, in lieu of 
providing the information required by Sec. 80.370(a) regarding annual 
average sulfur content and compliance with the average standard under 
Sec. 80.195.
    (i) Effect of noncompliance. If any of the requirements of this 
section are not met, all gasoline imported by the truck importer during 
the time any requirements are not met is deemed in violation of the 
gasoline sulfur average and per-gallon cap standards in Sec. 80.195 or 
Sec. 80.216, as applicable. Additionally, if any requirement is not 
met, EPA may notify the importer of the violation and,

[[Page 6836]]

if the requirement is not fulfilled within 10 days of notification, the 
truck importer may not in the future use the sampling and testing 
provisions in this section in lieu of the provisions in Sec. 80.330.


Sec. 80.355  [Reserved]

Recordkeeping and Reporting Requirements


Sec. 80.360  [Reserved]


Sec. 80.365  What records must be kept?

    (a) Records that must be kept. Beginning January 1, 2004, any 
person who produces, imports, sells, offers for sale, dispenses, 
distributes, supplies, offers for supply, stores, or transports 
gasoline, shall keep records that contain the following information:
    (1) The product transfer document information required under 
Secs. 80.77, 80.106, 80.210 and 80.219; and
    (2) For any sampling and testing for sulfur content required under 
this subpart:
    (i) The location, date, time and storage tank or truck 
identification for each sample collected;
    (ii) The name and title of the person who collected the sample and 
the person who performed the test;
    (iii) The results of the test as originally printed by the testing 
apparatus, or where no printed result is produced, the results as 
originally recorded by the person who performed the test; and
    (iv) Any record that contains a test result for the sample that is 
not identical to the result recorded under paragraph (a)(2)(iii) of 
this section.
    (b) Additional records that refiners and importers must keep. 
Beginning January 1, 2004, or January 1 of the first year allotments or 
credits are generated under Sec. 80.275 or Sec. 80.305, whichever is 
earlier, any refiner for each of its refineries, and any importer for 
the gasoline it imports, shall keep records that include the following 
information:
    (1) For each batch of gasoline produced or imported:
    (i) The batch volume;
    (ii) The batch number assigned under Sec. 80.65(d)(3) and the 
appropriate designation under paragraph (b)(1)(i) of this section; 
except that if composite samples of conventional gasoline representing 
multiple batches produced subsequent to December 31, 2003, are tested 
under Sec. 80.101(i)(2) for anti-dumping compliance purposes, for 
purposes of this subpart a separate batch number must be assigned to 
each batch using the batch numbering procedures under Sec. 80.65(d)(3);
    (iii) The date of production or importation; and
    (iv) If appropriate, the designation of the batch as GPA gasoline 
under Sec. 80.219, California gasoline under Sec. 80.375, exempt 
gasoline for research and development under Sec. 80.380, or for export 
outside the United States.
    (2) Information regarding credits and allotments, separately kept 
for credits and for allotments; separately kept according to the year 
of creation for the credits and for the allotments; and for credit 
generation or use starting in 2004, separately kept for GPA gasoline 
and other gasoline. Information shall be kept separately for different 
types of allotments and credits generated under Secs. 80.275(e)(1), 
80.275(e)(2), 80.305 and 80.310:
    (i) The number in the refiner's or importer's possession at the 
beginning of the averaging period;
    (ii) The number generated;
    (iii) The number used;
    (iv) If any were obtained from or transferred to other parties, for 
each other party its name, its EPA refiner or importer registration 
number, and the number obtained from, or transferred to, the other 
party;
    (v) The number that expired at the end of the averaging period;
    (vi) The number of allotments, by type, that were converted into 
credits under Sec. 80.275(e);
    (vii) The number in the refiner's or importer's possession that 
will carry over into the subsequent averaging period; and
    (viii) Contracts or other commercial documents that establish each 
transfer of credits and allotments from the transferor to the 
transferee.
    (3) The calculations used to determine the applicable refiner 
baseline under Sec. 80.250 or Sec. 80.295.
    (4) The calculations used to determine compliance with the 
applicable sulfur average standards of Sec. 80.195, Sec. 80.216, 
Sec. 80.240, or Sec. 80.270.
    (5) The calculations used to determine the number of credits or 
allotments generated under Sec. 80.305, Sec. 80.310 or Sec. 80.275.
    (6) The calculations used to determine any applicable adjusted cap 
standard under Sec. 80.195(d).
    (7) A copy of all reports submitted to EPA under Sec. 80.370.
    (c) Additional records importers must keep. Any importer shall keep 
records that identify and verify the source of each batch of certified 
Sulfur-FRGAS and non-certified Sulfur-FRGAS imported and demonstrate 
compliance with the requirements for importers under Sec. 80.410(o).
    (d) Length of time records must be kept. The records required in 
this section shall be kept for five years from the date they were 
created; except that:
    (1) Transfers of credits and allotments. Records relating to credit 
and allotment transfers, except as provided in paragraph (d)(2) of this 
section, shall be kept by the transferor for 5 years from the date the 
credits or allotments are transferred, and shall be kept by the 
transferee for 5 years from the date the credits or allotments were 
transferred, used or terminated, whichever is later.
    (2) Early credits. (i) Where the party generating the credits does 
not transfer the credits, records must be kept for 5 years from the 
date of creation, use or termination whichever is later.
    (ii) Where early credits are transferred, records relating to such 
credits shall be kept by both parties for 5 years from the date the 
credits were transferred, used or terminated, whichever is later.
    (e) Make records available to EPA. On request by EPA the records 
required in paragraphs (a), (b) and (c) of this section shall be 
provided to the Administrator's authorized representative. For records 
that are electronically generated or maintained the equipment and 
software necessary to read the records shall be made available, or if 
requested by EPA, electronic records shall be converted to paper 
documents which shall be provided to the Administrator's authorized 
representative.


Sec. 80.370  What are the sulfur reporting requirements?

    Beginning with the 2004 averaging period, or the first year credits 
or allotments are generated under Sec. 80.275 or Sec. 80.305, whichever 
is earlier, and continuing for each averaging period thereafter, any 
refiner or importer shall submit to EPA annual reports that contain the 
information required in this section, and such other information as EPA 
may require.
    (a) Refiner and importer annual reports. Any refiner, for each of 
its refineries, and any importer for the gasoline it imports, shall 
submit a report for each calendar year averaging period that includes 
the following information, and in the case of a refiner or importer 
producing or importing both GPA gasoline and other gasoline, the 
information shall be separately reported:
    (1) The EPA importer, or refiner and refinery facility registration 
numbers;
    (2) The applicable baseline, average standard, and adjusted cap 
standard as follows:
    (i) For the years 2000 through 2003, the applicable baseline under 
Sec. 80.250 or Sec. 80.295.
    (ii) For the 2004 averaging period and subsequent averaging 
periods:

[[Page 6837]]

    (A) All applicable average standards under Sec. 80.195, 
Sec. 80.216, Sec. 80.240 or Sec. 80.270;
    (B) All applicable adjusted cap standards under Sec. 80.195(d), 
with the 2005 report identifying both the 2004 and 2005 applicable 
adjusted cap standards;
    (3) The total volume of gasoline produced or imported;
    (4) The annual average sulfur content of the gasoline produced or 
imported;
    (5) The annual average sulfur level after inclusion of any credits 
and allotments;
    (6) Information, separately provided, for credits and allotments, 
and separately by year of creation, as follows:
    (i) The number of credits and allotments at the beginning of the 
averaging period;
    (ii) The number of credits and allotments generated;
    (iii) The number of credits and allotments used;
    (iv) If any credits or allotments were obtained from or transferred 
to other parties, for each other party its name and EPA refiner or 
importer registration number, and the number of credits or allotments 
obtained from or transferred to the other party;
    (v) The number of credits and allotments that expired at the end of 
the averaging period;
    (vi) The number of credits and allotments that will carry over into 
the subsequent averaging period; and
    (vii) The number of each type of allotments converted to credits;
    (7) For each batch of gasoline produced or imported during the 
averaging period:
    (i) The batch number assigned under Sec. 80.65(d)(3) and the 
appropriate designation under Sec. 80.365; except that if composite 
samples of conventional gasoline representing multiple batches produced 
subsequent to December 31, 2003, are tested under Sec. 80.101(i)(2) for 
anti-dumping compliance purposes, for purposes of this subpart a 
separate batch number must be assigned to each batch using the batch 
numbering procedures under Sec. 80.65(d)(3);
    (ii) The date the batch was produced;
    (iii) The volume of the batch; and
    (iv) The sulfur content of the batch as determined under 
Sec. 80.330; and
    (8) When submitting reports under this paragraph (a), any importer 
shall exclude certified Sulfur-FRGAS.
    (b) Additional reporting requirements for importers. Any importer 
shall report the following information for Sulfur-FRGAS imported during 
the averaging period:
    (1) The EPA refiner and refinery registration numbers of each 
foreign refiner and refinery where the certified Sulfur-FRGAS was 
produced; and
    (2) The total gallons of certified Sulfur-FRGAS and non-certified 
Sulfur-FRGAS imported from each foreign refiner and refinery.
    (c) Corporate pool average reports. (1) Annual reports filed under 
this section for the 2004 and 2005 averaging periods must include the 
party's corporate pool average as determined under Sec. 80.205.
    (2) If the party submitting the annual report under paragraph 
(c)(1) of this section is a refiner with more than one refinery or is a 
refiner who also imports gasoline, then for the purposes of this 
paragraph, the party shall report the information required for 
individual refineries and for importers under paragraph (a) of this 
section, also in the aggregate for all the gasoline produced and 
imported during the calendar year.
    (3) Refiners and importers exempted from corporate pool standards 
under Sec. 80.216 or Sec. 80.240 are exempt from reporting the 
information required under paragraphs (c)(1) and (c)(2) of this 
section.
    (d) Report submission. Any annual report required under this 
section shall be:
    (1) Signed and certified as meeting all of the applicable 
requirements of this subpart by the owner or a responsible corporate 
officer of the refiner or importer; and
    (2) Submitted to EPA no later than the last day of February for the 
prior calendar year averaging period.
    (f) Attest reports. Attest reports for refiner and importer attest 
engagements required under Sec. 80.415 shall be submitted to the 
Administrator by May 31 of each year for the prior calendar year 
averaging period.


Secs. 80.371--80.373  [Reserved]

Exemptions


Sec. 80.374  What if a refiner or importer is unable to produce 
gasoline conforming to the requirements of this subpart?

    In appropriate extreme and unusual circumstances (e.g., natural 
disaster or Act of God) which are clearly outside the control of the 
refiner or importer and which could not have been avoided by the 
exercise of prudence, diligence, and due care, EPA may permit a refiner 
or importer, for a brief period, to distribute gasoline which does not 
meet the requirements of this subpart provided the refiner or importer 
meets all the criteria, requirements and conditions contained in 
Sec. 80.73 (a) through (e).


Sec. 80.375  What requirements apply to California gasoline?

    (a) Definition. For purposes of this subpart California gasoline 
means any gasoline designated by the refiner as for use in California.
    (b) California gasoline exemption. California gasoline that 
complies with all the requirements of this section is exempt from all 
other provisions of this subpart.
    (c) Requirements for California gasoline. The requirements are:
    (1) Each batch of California gasoline must be designated as such by 
its refiner or importer;
    (2) Designated California gasoline must be kept segregated from 
gasoline that is not California gasoline, at all points in the 
distribution system;
    (3) Designated California gasoline must ultimately be used in the 
State of California and not used elsewhere;
    (4) In the case of California gasoline produced outside the State 
of California, the transferors and transferees must meet the product 
transfer document requirements under Sec. 80.81(g); and
    (5) Gasoline that is ultimately used in any part of the United 
States outside of the State of California must comply with the 
standards and requirements of this subpart, regardless of any 
designation as California gasoline.
    (d) Use of California test methods and off site sampling 
procedures. In the case of any gasoline that is not California gasoline 
and that is either produced at a refinery located in the State of 
California or is imported from outside the United States into the State 
of California, the refiner or importer may, with regard to such 
gasoline:
    (1) Use the sampling and testing methods approved in Title 13 of 
the California Code of Regulations instead of the sampling and testing 
methods required under Sec. 80.330; and
    (2) Determine the sulfur content of gasoline at off site tankage as 
permitted in Sec. 80.81(h)(2).


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

    Any person may request an exemption from the provisions of this 
subpart for gasoline used for research, development or testing 
(``R&D'') purposes by submitting to EPA an application that includes 
all the information listed in paragraph (b) of this section.
    (a) Criteria for an R&D exemption. For an R&D exemption to be 
granted, the proposed test program must:
    (1) Have a purpose that constitutes an appropriate basis for 
exemption;

[[Page 6838]]

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

Violation Provisions


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

    No person shall:
    (a) Averaging violation. Produce or import gasoline that does not 
comply with the applicable sulfur average standard under Sec. 80.195, 
Sec. 80.216 or Sec. 80.240.
    (b) Cap standard violation. Produce, import, sell, offer for sale, 
dispense, supply, offer for supply, store or transport gasoline that 
does not comply with the applicable sulfur cap standard under 
Sec. 80.195, Sec. 80.216, Sec. 80.210, Sec. 80.220 or Sec. 80.240.
    (c) Causing an averaging, cap standard, or geographic phase-in area 
(GPA) use violation. Cause another person to commit an act in violation 
of paragraph (a), (b), or (f) of this section.
    (d) Causing violating gasoline to be in the distribution system. 
Cause gasoline to be in the distribution system which does not comply 
with an applicable sulfur cap standard under Sec. 80.195, Sec. 80.210, 
Sec. 80.216, Sec. 80.220 or Sec. 80.240; a sulfur average standard 
under Sec. 80.195, Sec. 80.216 or Sec. 80.240; or a GPA use prohibition 
under Sec. 80.219(c).
    (e) Denatured ethanol violation. Blend into gasoline denatured 
ethanol with a sulfur content higher than 30 ppm.
    (f) GPA use violation. Produce, import, sell, offer for sale, 
dispense, supply, offer for supply, store or transport gasoline that 
does not comply with a GPA use prohibition under Sec. 80.219(c).


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

    (a) Compliance with the sulfur standards of this subpart shall be 
determined based on the sulfur level of the gasoline, measured using 
the methodologies specified in Secs. 80.330(b) and 80.46(a). Any 
evidence or information, including the exclusive use of such evidence 
or information, may be used to establish the sulfur level of gasoline 
if the evidence or information is relevant to whether the sulfur level 
of gasoline would have been in compliance with the standards if the 
appropriate sampling and testing methodology had been correctly 
performed. Such evidence may be obtained from any source or location 
and may include, but is not limited to, test results using methods 
other than those specified in Secs. 80.330(b) and 80.46(a), business 
records, and commercial documents.
    (b) Determinations of compliance with the requirements of this 
subpart other than the sulfur standards, and determinations of 
liability for any violation of this subpart, may be based on 
information obtained from any source or location. Such information may 
include, but is not limited to, business records and commercial 
documents.


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

    (a) Persons liable for violations of prohibited acts. (1) Averaging 
violation.

[[Page 6839]]

Any refiner or importer who violates Sec. 80.385(a) is liable for the 
violation.
    (2) Causing an averaging violation. Any refiner, importer, 
distributor, reseller, carrier, retailer, wholesale purchaser-consumer, 
or oxygenate blender who causes another party to violate 
Sec. 80.385(a), is liable for a violation of Sec. 80.385(c).
    (3) Cap standard violation. Any refiner, importer, distributor, 
reseller, carrier, retailer, wholesale purchaser-consumer, or oxygenate 
blender who owned, leased, operated, controlled or supervised a 
facility where a violation of Sec. 80.385 (b) occurred, is deemed in 
violation of Sec. 80.385(b).
    (4) Causing a cap standard violation. Any refiner, importer, 
distributor, reseller, carrier, retailer, wholesale purchaser-consumer, 
or oxygenate blender who produced, imported, sold, offered for sale, 
dispensed, supplied, offered for supply, stored, transported, or caused 
the transportation or storage of gasoline that violates Sec. 80.385(b), 
is deemed in violation of Sec. 80.385(c).
    (5) GPA use violation. Any refiner, importer, distributor, 
reseller, carrier, retailer, wholesale purchaser-consumer, or oxygenate 
blender who produced, imported, sold, offered for sale, dispensed, 
supplied, offer for supply, stored, transported, or caused the 
transportation or storage of gasoline that violates Sec. 80.385(f), is 
deemed in violation of Sec. 80.385(f).
    (6) Causing a GPA use violation. Any refiner, importer, 
distributor, reseller, carrier, retailer, wholesale purchaser-consumer, 
or oxygenate blender who causes another party to violate 
Sec. 80.385(f), is deemed liable for a violation of Sec. 80.385(c).
    (7) Branded refiner/importer liability. Any refiner or importer 
whose corporate, trade, or brand name, or whose marketing subsidiary's 
corporate, trade, or brand name appeared at a facility where a 
violation of Sec. 80.385(b) or (f) occurred, is deemed in violation of 
Sec. 80.385(b) or (f), as applicable.
    (8) Causing violating gasoline to be in the distribution system. 
Any refiner, importer, distributor, reseller, carrier, or oxygenate 
blender, who owned, leased, operated, controlled or supervised a 
facility from which gasoline was released into the distribution system 
which does not comply with an applicable sulfur cap standard, a sulfur 
averaging standard, or a GPA use prohibition, is deemed in violation of 
Sec. 80.385(d).
    (9) Carrier causation. In order for a carrier to be liable under 
paragraph (a)(2), (4), (6), or (8) of this section, EPA must 
demonstrate, by reasonably specific showing by direct or circumstantial 
evidence, that the carrier caused the violation.
    (10) Denatured ethanol violation. Any oxygenate blender who 
violates Sec. 80.385(e) is liable for the violation.
    (11) Parent corporation liability. Any parent corporation is liable 
for any violations of this subpart that are committed by any of its 
wholly-owned subsidiaries.
    (12) Joint venture liability. Each partner to a joint venture is 
jointly and severally liable for any violation of this subpart that 
occurs at the joint venture facility or is committed by the joint 
venture operation.
    (b) Persons liable for failure to meet other provisions of this 
subpart. (1) Any refiner, importer, distributor, reseller, carrier, 
wholesale purchaser-consumer, retailer, or oxygenate blender who fails 
to meet a provision of this subpart not addressed in paragraph (a) of 
this section is liable for a violation of that provision.
    (2) Any refiner, importer, distributor, reseller, carrier, 
wholesale purchaser-consumer, retailer, or oxygenate blender who caused 
another person to fail to meet a requirement of this subpart not 
addressed in paragraph (a) of this section, is liable for causing a 
violation of that provision.


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

    (a) Any person deemed liable for a violation of a prohibition under 
Sec. 80.395 (a)(3) through (8), will not be deemed in violation if the 
person demonstrates that:
    (1) The violation was not caused by the person or the person's 
employee or agent; and
    (2) The person conducted a quality assurance sampling and testing 
program, as described in paragraph (d) of this section. A carrier may 
rely on the quality assurance program carried out by another party, 
including the party who owns the gasoline in question, provided that 
the quality assurance program is carried out properly. Retailers and 
wholesale purchaser-consumers are not required to conduct quality 
assurance programs.
    (b) In the case of a violation found at a facility operating under 
the corporate, trade or brand name of a refiner or importer, or a 
refiner's or importer's marketing subsidiary, the refiner or importer 
must show, in addition to the defense elements required under 
paragraphs (a)(1) and (2) of this section, that the violation was 
caused by:
    (1) An act in violation of law (other than the Clean Air Act or 
this part 80), or an act of sabotage or vandalism;
    (2) The action of any refiner, importer, retailer, distributor, 
reseller, oxygenate blender, carrier, retailer or wholesale purchaser-
consumer in violation of a contractual agreement between the branded 
refiner or importer and the person designed to prevent such action, and 
despite periodic sampling and testing by the branded refiner or 
importer to ensure compliance with such contractual obligation; or
    (3) The action of any carrier or other distributor not subject to a 
contract with the refiner or importer, but engaged for transportation 
of gasoline, despite specifications or inspections of procedures and 
equipment which are reasonably calculated to prevent such action.
    (c) Under paragraph (a) of this section for any person to show that 
a violation was not caused by that person, or under paragraph (b) of 
this section to show that a violation was caused by any of the 
specified actions, the person must demonstrate by reasonably specific 
showing, by direct or circumstantial evidence, that the violation was 
caused or must have been caused by another person and that the person 
asserting the defense did not contribute to that other person's 
causation.
    (d) Quality assurance and testing program. To demonstrate an 
acceptable quality assurance and testing program under paragraph (a)(2) 
of this section, a person must present evidence of the following:
    (1) A periodic sampling and testing program to ensure the gasoline 
the person sold, dispensed, supplied, stored, or transported, meets the 
applicable sulfur standard; and
    (2) On each occasion when gasoline is found not in compliance with 
the applicable sulfur standard:
    (i) The person immediately ceases selling, offering for sale, 
dispensing, supplying, offering for supply, storing or transporting the 
non-complying product; and
    (ii) The person promptly remedies the violation and the factors 
that caused the violation (for example, by removing the non-complying 
product from the distribution system until the applicable standard is 
achieved and taking steps to prevent future violations of a similar 
nature from occurring).
    (3) For any carrier who transports gasoline in a tank truck, the 
quality assurance program required under this paragraph (d) need not 
include periodic sampling and testing of gasoline in the tank truck, 
but in lieu of such tank truck sampling and testing, the carrier shall 
demonstrate evidence of an oversight program for monitoring compliance 
with the requirements of this subpart

[[Page 6840]]

relating to the transport or storage of gasoline by tank truck, such as 
appropriate guidance to drivers regarding compliance with the 
applicable sulfur standard and product transfer document requirements, 
and the periodic review of records received in the ordinary course of 
business concerning gasoline quality and delivery.


Sec. 80.405  What penalties apply under this subpart?

    (a) Any person liable for a violation under Sec. 80.395 is subject 
to civil penalties as specified in section 205 of the Clean Air Act for 
every day of each such violation and the amount of economic benefit or 
savings resulting from each violation.
    (b) Any person liable under Sec. 80.395(a)(1) or (2) for a 
violation of the applicable sulfur averaging standard or causing 
another party to violate that standard during any averaging period, is 
subject to a separate day of violation for each and every day in the 
averaging period. Any person liable under Sec. 80.395(b) for a failure 
to fulfill any requirement for credit or allotment generation, 
transfer, use, banking, or deficit correction, is subject to a separate 
day of violation for each and every day in the averaging period in 
which invalid credits or allotments are generated or used.
    (c)(1) Any person liable under Sec. 80.395(a)(3), (4), (5), or (6) 
for a violation of an applicable sulfur per gallon cap standard under 
Sec. 80.195, Sec. 80.210, Sec. 80.216, Sec. 80.220 or Sec. 80.240, a 
GPA use prohibition under Sec. 80.219(c), or of causing another party 
to violate a cap standard or a GPA use prohibition, is subject to a 
separate day of violation for each and every day the non-complying 
gasoline remains any place in the gasoline distribution system.
    (2) Any person liable under Sec. 80.395(a)(8) for causing gasoline 
to be in the distribution system which does not comply with an 
applicable sulfur cap standard, a sulfur averaging standard, or a GPA 
use prohibition, is subject to a separate day of violation for each and 
every day that the non-complying gasoline remains any place in the 
gasoline distribution system.
    (3) For purposes of paragraph (c) of this section, the length of 
time the gasoline in question remained in the gasoline distribution 
system is deemed to be twenty-five days, unless a person subject to 
liability or EPA demonstrates by reasonably specific showings, by 
direct or circumstantial evidence, that the non-complying gasoline 
remained in the gasoline distribution system for fewer than or more 
than twenty-five days.
    (d) Any person liable under Sec. 80.395(b) for failure to meet, or 
causing a failure to meet, a provision of this subpart is liable for a 
separate day of violation for each and every day such provision remains 
unfulfilled.

Provisions for Foreign Refiners With Individual Sulfur Baselines


Sec. 80.410  What are the additional requirements for gasoline produced 
at foreign refineries having individual small refiner sulfur baselines, 
foreign refineries granted temporary relief under Sec. 80.270, or 
baselines for generating credits during 2000 through 2003?

    (a) Definitions. (1) A foreign refinery is a refinery that is 
located outside the United States, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands (collectively referred to in this section as 
``the United States'').
    (2) A foreign refiner is a person who meets the definition of 
refiner under Sec. 80.2(i) for a foreign refinery.
    (3) A small foreign refiner is a refiner that meets the definition 
of a small refiner under Sec. 80.225.
    (4) ``Sulfur-FRGAS'' means gasoline produced at a foreign refinery 
that has been assigned an individual refinery sulfur baseline under 
Secs. 80.250 or 80.295, or has been granted temporary relief under 
Sec. 80.270, and that is imported into the United States.
    (5) ``Non-Sulfur-FRGAS'' means gasoline that is produced at a 
foreign refinery that has not been assigned an individual refinery 
sulfur baseline, gasoline produced at a foreign refinery with an 
individual refinery sulfur baseline that is not imported into the 
United States, and gasoline produced at a foreign refinery with an 
individual sulfur baseline during a year when the foreign refiner has 
opted to not participate in the Sulfur-FRGAS program under paragraph 
(c)(3) of this section.
    (6) ``Certified Sulfur-FRGAS'' means Sulfur-FRGAS the foreign 
refiner intends to include in the foreign refinery's sulfur compliance 
calculations under Sec. 80.205 pursuant to Sec. 80.240 or Sec. 80.270 
or credit calculations under Secs. 80.305 or 80.310 and allotment 
calculations under Sec. 80.275(a), and does include in these compliance 
calculations when reported to EPA.
    (7) ``Non-Certified Sulfur-FRGAS'' means Sulfur-FRGAS that is not 
Certified Sulfur-FRGAS.
    (b) Baseline establishment. Any foreign refiner who does not have 
an approved refinery baseline under Sec. 80.94 may submit a petition to 
the Administrator for an individual refinery sulfur baseline pursuant 
to Secs. 80.245 and 80.250, a baseline for generating credits or 
allotments under Secs. 80.290 and 80.295, or a baseline for temporary 
refinery relief under Secs. 80.270 and 80.295.
    (1) The refiner shall follow the procedures specified in 
Secs. 80.91 through 80.93 to establish the volume and sulfur content of 
gasoline that was produced at the foreign refinery and imported into 
the United States during 1997 and 1998 for purposes of establishing 
baselines under Sec. 80.250 or Sec. 80.295.
    (2) In making determinations for foreign refinery baselines EPA 
will consider all information supplied by a foreign refiner, and in 
addition may rely on any and all appropriate assumptions necessary to 
make such determinations.
    (3) Where a foreign refiner submits a petition that is incomplete 
or inadequate to establish an accurate baseline, and the refiner fails 
to cure this defect after a request for more information, EPA will not 
assign an individual refinery sulfur baseline.
    (c) General requirements for foreign refiners with individual 
refinery sulfur baselines. A foreign refiner of a refinery that has 
been assigned an individual sulfur baseline under Sec. 80.250 or 
Sec. 80.295 must designate all gasoline produced at the foreign 
refinery that is exported to the United States as either Certified 
Sulfur-FRGAS or as Non-Certified Sulfur-FRGAS, except as provided in 
paragraph (c)(3) of this section.
    (1) In the case of Certified Sulfur-FRGAS, the foreign refiner must 
meet all provisions that apply to refiners under this subpart H.
    (2) In the case of Non-Certified Sulfur-FRGAS, the foreign refiner 
shall meet all the following provisions, except the foreign refiner 
shall substitute the name Non-Certified Sulfur-FRGAS for the names 
``reformulated gasoline'' or ``RBOB'' wherever they appear in the 
following provisions:
    (i) The designation requirements in this section;
    (ii) The recordkeeping requirements under Sec. 80.365;
    (iii) The reporting requirements in Sec. 80.370 and this section;
    (iv) The product transfer document requirements in this section;
    (v) The prohibitions in this section and Sec. 80.385; and
    (vi) The independent audit requirements under Sec. 80.415, 
paragraph (h) of this section, Secs. 80.125 through

[[Page 6841]]

80.127, Sec. 80.128(a),(b),(c),(g) through (i), and Sec. 80.130.
    (3)(i) Any foreign refiner that generates sulfur credits under 
Sec. 80.305 during the period 2000 through 2003, or allotments under 
Sec. 80.275(a) during 2003, and any small refiner generating credits 
under Sec. 80.310, shall designate all Sulfur-FRGAS as Certified 
Sulfur-FRGAS for any year that such credits are generated.
    (ii) Any foreign refiner that has been assigned an individual 
sulfur baseline for a foreign refinery under Sec. 80.250 or Sec. 80.295 
may elect to classify no gasoline imported into the United States as 
Sulfur-FRGAS, provided the foreign refiner notifies EPA of the election 
no later than November 1 of the prior calendar year.
    (iii) An election under paragraph (c)(3)(ii) of this section shall:
    (A) Apply to an entire calendar year averaging period, and apply to 
all gasoline produced during the calendar year at the foreign refinery 
that is used in the United States; and
    (B) Remain in effect for each succeeding calendar year averaging 
period, unless and until the foreign refiner notifies EPA of a 
termination of the election. The change in election shall take effect 
at the beginning of the next calendar year.
    (d) Designation, product transfer documents, and foreign refiner 
certification. (1) Any foreign refiner of a foreign refinery that has 
been assigned an individual sulfur baseline must designate each batch 
of Sulfur-FRGAS as such at the time the gasoline is produced, unless 
the refiner has elected to classify no gasoline exported to the United 
States as Sulfur-FRGAS under paragraph (c)(3)(i) of this section.
    (2) On each occasion when any person transfers custody or title to 
any Sulfur-FRGAS prior to its being imported into the United States, it 
must include the following information as part of the product transfer 
document information in this section:
    (i) Identification of the gasoline as Certified Sulfur-FRGAS or as 
Non-Certified Sulfur-FRGAS; and
    (ii) The name and EPA refinery registration number of the refinery 
where the Sulfur-FRGAS was produced.
    (3) On each occasion when Sulfur-FRGAS is loaded onto a vessel or 
other transportation mode for transport to the United States, the 
foreign refiner shall prepare a certification for each batch of the 
Sulfur-FRGAS that meets the following requirements:
    (i) The certification shall include the report of the independent 
third party under paragraph (f) of this section, and the following 
additional information:
    (A) The name and EPA registration number of the refinery that 
produced the Sulfur-FRGAS;
    (B) The identification of the gasoline as Certified Sulfur-FRGAS or 
Non-Certified Sulfur-FRGAS;
    (C) The volume of Sulfur-FRGAS being transported, in gallons;
    (D) In the case of Certified Sulfur-FRGAS:
    (1) The sulfur content as determined under paragraph (f) of this 
section; and
    (2) A declaration that the Sulfur-FRGAS is being included in the 
compliance calculations under Sec. 80.205 or credit calculations under 
Sec. 80.305 or allotments under Sec. 80.275(a) for the refinery that 
produced the Sulfur-FRGAS.
    (ii) The certification shall be made part of the product transfer 
documents for the Sulfur-FRGAS.
    (e) Transfers of Sulfur-FRGAS to non-United States markets. The 
foreign refiner is responsible to ensure that all gasoline classified 
as Sulfur-FRGAS is imported into the United States. A foreign refiner 
may remove the Sulfur-FRGAS classification, and the gasoline need not 
be imported into the United States, but only if:
    (1)(i) The foreign refiner excludes:
    (A) The volume of gasoline from the refinery's compliance 
calculations under Sec. 80.205; and
    (B) In the case of Certified Sulfur-FRGAS, the volume and sulfur 
content of the gasoline from the compliance calculations under 
Sec. 80.205 or credit calculations under Sec. 80.305.
    (ii) The exclusions under paragraph (e)(1)(i) of this section shall 
be on the basis of the sulfur content and volumes determined under 
paragraph (f) of this section; and
    (2) The foreign refiner obtains sufficient evidence in the form of 
documentation that the gasoline was not imported into the United 
States.
    (f) Load port independent sampling, testing and refinery 
identification. (1) On each occasion Sulfur-FRGAS is loaded onto a 
vessel for transport to the United States a foreign refiner shall have 
an independent third party:
    (i) Inspect the vessel prior to loading and determine the volume of 
any tank bottoms;
    (ii) Determine the volume of Sulfur-FRGAS loaded onto the vessel 
(exclusive of any tank bottoms present before vessel loading);
    (iii) Obtain the EPA-assigned registration number of the foreign 
refinery;
    (iv) Determine the name and country of registration of the vessel 
used to transport the Sulfur-FRGAS to the United States; and
    (v) Determine the date and time the vessel departs the port serving 
the foreign refinery.
    (2) On each occasion Certified Sulfur-FRGAS is loaded onto a vessel 
for transport to the United States a foreign refiner shall have an 
independent third party:
    (i) Collect a representative sample of the Certified Sulfur-FRGAS 
from each vessel compartment subsequent to loading on the vessel and 
prior to departure of the vessel from the port serving the foreign 
refinery;
    (ii) Prepare a volume-weighted vessel composite sample from the 
compartment samples, and determine the value for sulfur using the 
methodology specified in Sec. 80.330 by:
    (A) The third party analyzing the sample; or
    (B) The third party observing the foreign refiner analyze the 
sample;
    (iii) Review original documents that reflect movement and storage 
of the certified Sulfur-FRGAS from the refinery to the load port, and 
from this review determine:
    (A) The refinery at which the Sulfur-FRGAS was produced; and
    (B) That the Sulfur-FRGAS remained segregated from:
    (1) Non-Sulfur-FRGAS and Non-Certified Sulfur-FRGAS; and
    (2) Other Certified Sulfur-FRGAS produced at a different refinery.
    (3) The independent third party shall submit a report:
    (i) To the foreign refiner containing the information required 
under paragraphs (f)(1) and (2) of this section, to accompany the 
product transfer documents for the vessel; and
    (ii) To the Administrator containing the information required under 
paragraphs (f)(1) and (2) of this section, within thirty days following 
the date of the independent third party's inspection. This report shall 
include a description of the method used to determine the identity of 
the refinery at which the gasoline was produced, assurance that the 
gasoline remained segregated as specified in paragraph (n)(1) of this 
section, and a description of the gasoline's movement and storage 
between production at the source refinery and vessel loading.
    (4) The independent third party must:
    (i) Be approved in advance by EPA, based on a demonstration of 
ability to perform the procedures required in this paragraph (f);
    (ii) Be independent under the criteria specified in 
Sec. 80.65(e)(2)(iii); and
    (iii) Sign a commitment that contains the provisions specified in 
paragraph (i) of this section with regard to activities, facilities and 
documents relevant to

[[Page 6842]]

compliance with the requirements of this paragraph (f).
    (g) Comparison of load port and port of entry testing. (1)(i) 
Except as described in paragraph (g)(1)(ii) of this section, any 
foreign refiner and any United States importer of Certified Sulfur-
FRGAS shall compare the results from the load port testing under 
paragraph (f) of this section, with the port of entry testing as 
reported under paragraph (o) of this section, for the volume of 
gasoline and the sulfur value.
    (ii) Where a vessel transporting Certified Sulfur-FRGAS off loads 
this gasoline at more than one United States port of entry, and the 
conditions of paragraph (g)(2)(i) of this section are met at the first 
United States port of entry, the requirements of paragraph (g)(2) of 
this section do not apply at subsequent ports of entry if the United 
States importer obtains a certification from the vessel owner, that 
meets the requirements of paragraph (s) of this section, that the 
vessel has not loaded any gasoline or blendstock between the first 
United States port of entry and the subsequent port of entry.
    (2)(i) The requirements of this paragraph (g)(2) apply if:
    (A) The temperature-corrected volumes determined at the port of 
entry and at the load port differ by more than one percent; or
    (B) The sulfur value determined at the port of entry is higher than 
the sulfur value determined at the load port, and the amount of this 
difference is greater than the reproducibility amount specified for the 
port of entry test result by the American Society of Testing and 
Materials (ASTM).
    (ii) The United States importer and the foreign refiner shall treat 
the gasoline as Non-Certified Sulfur-FRGAS, and the foreign refiner 
shall exclude the gasoline volume and properties from its gasoline 
sulfur compliance calculations under Sec. 80.205.
    (h) Attest requirements. The following additional procedures shall 
be carried out by any foreign refiner of Sulfur-FRGAS as part of the 
applicable attest engagement for each foreign refinery under 
Sec. 80.415:
    (1) The inventory reconciliation analysis under Sec. 80.128(b) and 
the tender analysis under Sec. 80.128(c) shall include Non-Sulfur-FRGAS 
in addition to the gasoline types listed in Sec. 80.128(b) and (c).
    (2) Obtain separate listings of all tenders of Certified Sulfur-
FRGAS, and of Non-Certified Sulfur-FRGAS. Agree the total volume of 
tenders from the listings to the gasoline inventory reconciliation 
analysis in Sec. 80.128(b), and to the volumes determined by the third 
party under paragraph (f)(1) of this section.
    (3) For each tender under paragraph (h)(2) of this section where 
the gasoline is loaded onto a marine vessel, report as a finding the 
name and country of registration of each vessel, and the volumes of 
Sulfur-FRGAS loaded onto each vessel.
    (4) Select a sample from the list of vessels identified in 
paragraph (h)(3) of this section used to transport Certified Sulfur-
FRGAS, in accordance with the guidelines in Sec. 80.127, and for each 
vessel selected perform the following:
    (i) Obtain the report of the independent third party, under 
paragraph (f) of this section, and of the United States importer under 
paragraph (o) of this section.
    (A) Agree the information in these reports with regard to vessel 
identification, gasoline volumes and test results.
    (B) Identify, and report as a finding, each occasion the load port 
and port of entry parameter and volume results differ by more than the 
amounts allowed in paragraph (g) of this section, and determine whether 
the foreign refiner adjusted its refinery calculations as required in 
paragraph (g) of this section.
    (ii) Obtain the documents used by the independent third party to 
determine transportation and storage of the Certified Sulfur-FRGAS from 
the refinery to the load port, under paragraph (f) of this section. 
Obtain tank activity records for any storage tank where the Certified 
Sulfur-FRGAS is stored, and pipeline activity records for any pipeline 
used to transport the Certified Sulfur-FRGAS, prior to being loaded 
onto the vessel. Use these records to determine whether the Certified 
Sulfur-FRGAS was produced at the refinery that is the subject of the 
attest engagement, and whether the Certified Sulfur-FRGAS was mixed 
with any Non-Certified Sulfur-FRGAS, Non-Sulfur-FRGAS, or any Certified 
Sulfur-FRGAS produced at a different refinery.
    (5)(i) Select a sample from the list of vessels identified in 
paragraph (h)(3) of this section used to transport certified and Non-
Certified Sulfur-FRGAS, in accordance with the guidelines in 
Sec. 80.127, and for each vessel selected perform the following:
    (ii) Obtain a commercial document of general circulation that lists 
vessel arrivals and departures, and that includes the port and date of 
departure of the vessel, and the port of entry and date of arrival of 
the vessel. Agree the vessel's departure and arrival locations and 
dates from the independent third party and United States importer 
reports to the information contained in the commercial document.
    (6) Obtain separate listings of all tenders of Non-Sulfur-FRGAS, 
and perform the following:
    (i) Agree the total volume of tenders from the listings to the 
gasoline inventory reconciliation analysis in Sec. 80.128(b).
    (ii) Obtain a separate listing of the tenders under paragraph 
(h)(6) of this section where the gasoline is loaded onto a marine 
vessel. Select a sample from this listing in accordance with the 
guidelines in Sec. 80.127, and obtain a commercial document of general 
circulation that lists vessel arrivals and departures, and that 
includes the port and date of departure and the ports and dates where 
the gasoline was off loaded for the selected vessels. Determine and 
report as a finding the country where the gasoline was off loaded for 
each vessel selected.
    (7) In order to complete the requirements of this paragraph (h) an 
auditor shall:
    (i) Be independent of the foreign refiner;
    (ii) Be licensed as a Certified Public Accountant in the United 
States and a citizen of the United States, or be approved in advance by 
EPA based on a demonstration of ability to perform the procedures 
required in Secs. 80.125 through 80.130 and this paragraph (h); and
    (iii) Sign a commitment that contains the provisions specified in 
paragraph (i) of this section with regard to activities and documents 
relevant to compliance with the requirements of Secs. 80.125 through 
80.130, Sec. 80.415 and this paragraph (h).
    (i) Foreign refiner commitments. Any foreign refiner shall commit 
to and comply with the provisions contained in this paragraph (i) as a 
condition to being assigned an individual refinery sulfur baseline.
    (1) Any United States Environmental Protection Agency inspector or 
auditor will be given full, complete and immediate access to conduct 
inspections and audits of the foreign refinery.
    (i) Inspections and audits may be either announced in advance by 
EPA, or unannounced.
    (ii) Access will be provided to any location where:
    (A) Gasoline is produced;
    (B) Documents related to refinery operations are kept;
    (C) Gasoline or blendstock samples are tested or stored; and
    (D) Sulfur-FRGAS is stored or transported between the foreign 
refinery

[[Page 6843]]

and the United States, including storage tanks, vessels and pipelines.
    (iii) Inspections and audits may be by EPA employees or contractors 
to EPA.
    (iv) Any documents requested that are related to matters covered by 
inspections and audits will be provided to an EPA inspector or auditor 
on request.
    (v) Inspections and audits by EPA may include review and copying of 
any documents related to:
    (A) Refinery baseline establishment, including the volume and 
sulfur content, and transfers of title or custody, of any gasoline or 
blendstocks, whether Sulfur-FRGAS or Non-Sulfur-FRGAS, produced at the 
foreign refinery during the period January 1, 1997 through the date of 
the refinery baseline petition or through the date of the inspection or 
audit if a baseline petition has not been approved, and any work papers 
related to refinery baseline establishment;
    (B) The volume and sulfur content of Sulfur-FRGAS;
    (C) The proper classification of gasoline as being Sulfur-FRGAS or 
as not being Sulfur-FRGAS, or as Certified Sulfur-FRGAS or as Non-
Certified Sulfur-FRGAS;
    (D) Transfers of title or custody to Sulfur-FRGAS;
    (E) Sampling and testing of Sulfur-FRGAS;
    (F) Work performed and reports prepared by independent third 
parties and by independent auditors under the requirements of this 
section and Sec. 80.415 including work papers; and
    (G) Reports prepared for submission to EPA, and any work papers 
related to such reports.
    (vi) Inspections and audits by EPA may include taking samples of 
gasoline or blendstock, and interviewing employees.
    (vii) Any employee of the foreign refiner will be made available 
for interview by the EPA inspector or auditor, on request, within a 
reasonable time period.
    (viii) English language translations of any documents will be 
provided to an EPA inspector or auditor, on request, within 10 working 
days.
    (ix) English language interpreters will be provided to accompany 
EPA inspectors and auditors, on request.
    (2) An agent for service of process located in the District of 
Columbia will be named, and service on this agent constitutes service 
on the foreign refiner or any employee of the foreign refiner for any 
action by EPA or otherwise by the United States related to the 
requirements of this subpart H.
    (3) The forum for any civil or criminal enforcement action related 
to the provisions of this section for violations of the Clean Air Act 
or regulations promulgated thereunder shall be governed by the Clean 
Air Act, including the EPA administrative forum where allowed under the 
Clean Air Act.
    (4) United States substantive and procedural laws shall apply to 
any civil or criminal enforcement action against the foreign refiner or 
any employee of the foreign refiner related to the provisions of this 
section.
    (5) Submitting a petition for an individual refinery sulfur 
baseline, producing and exporting gasoline under an individual refinery 
sulfur baseline, and all other actions to comply with the requirements 
of this subpart H relating to the establishment and use of an 
individual refinery sulfur baseline constitute actions or activities 
that satisfy the provisions of 28 U.S.C. section 1605(a)(2), but solely 
with respect to actions instituted against the foreign refiner, its 
agents and employees in any court or other tribunal in the United 
States for conduct that violates the requirements applicable to the 
foreign refiner under this subpart H, including conduct that violates 
Title 18 U.S.C. section 1001 and Clean Air Act section 113(c)(2).
    (6) The foreign refiner, or its agents or employees, will not seek 
to detain or to impose civil or criminal remedies against EPA 
inspectors or auditors, whether EPA employees or EPA contractors, for 
actions performed within the scope of EPA employment related to the 
provisions of this section.
    (7) The commitment required by this paragraph (i) shall be signed 
by the owner or president of the foreign refiner business.
    (8) In any case where Sulfur-FRGAS produced at a foreign refinery 
is stored or transported by another company between the refinery and 
the vessel that transports the Sulfur-FRGAS to the United States, the 
foreign refiner shall obtain from each such other company a commitment 
that meets the requirements specified in paragraphs (i)(1) through (7) 
of this section, and these commitments shall be included in the foreign 
refiner's baseline petition.
    (j) Sovereign immunity. By submitting a petition for an individual 
foreign refinery baseline under this section, or by producing and 
exporting gasoline to the United States under an individual refinery 
sulfur baseline under this section, the foreign refiner, its agents and 
employees, without exception, become subject to the full operation of 
the administrative and judicial enforcement powers and provisions of 
the United States without limitation based on sovereign immunity, with 
respect to actions instituted against the foreign refiner, its agents 
and employees in any court or other tribunal in the United States for 
conduct that violates the requirements applicable to the foreign 
refiner under this subpart H, including conduct that violates Title 18 
U.S.C. section 1001 and Clean Air Act section 113(c)(2).
    (k) Bond posting. Any foreign refiner shall meet the requirements 
of this paragraph (k) as a condition to being assigned an individual 
refinery sulfur baseline.
    (l) The foreign refiner shall post a bond of the amount calculated 
using the following equation:


Bond=G x $ 0.01

where:

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

    (2) Bonds shall be posted by:
    (i) Paying the amount of the bond to the Treasurer of the United 
States;
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign refiner, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement; 
or
    (iii) An alternative commitment that results in assets of an 
appropriate liquidity and value being readily available to the United 
States, provided EPA agrees in advance as to the alternative 
commitment.
    (3) If the bond amount for a foreign refinery increases, the 
foreign refiner shall increase the bond to cover the shortfall within 
90 days of the date the bond amount changes. If the bond amount 
decreases, the foreign refiner may reduce the amount of the bond 
beginning 90 days after the date the bond amount changes.
    (4) Bonds posted under this paragraph (k) shall:
    (i) Be used to satisfy any judicial judgment that results from an 
administrative or judicial enforcement action for conduct in violation 
of this subpart H, including where such conduct violates Title 18 
U.S.C. section

[[Page 6844]]

1001 and Clean Air Act section 113(c)(2);
    (ii) Be provided by a corporate surety that is listed in the United 
States Department of Treasury Circular 570 ``Companies Holding 
Certificates of Authority as Acceptable Sureties on Federal Bonds and 
Acceptable Reinsuring Companies'' (Available from the U.S. Department 
of the Treasury, Financial Management Service, Surety Bond Branch, 3700 
East-West Highway, Room 6A04, Hyattsville, Md. 20782. Also available on 
the internet at http://www.fms.treas.gov/c570/c570.html); and
    (iii) Include a commitment that the bond will remain in effect for 
at least five (5) years following the end of latest averaging period 
that the foreign refiner produces gasoline pursuant to the requirements 
of this Subpart H.
    (5) On any occasion a foreign refiner bond is used to satisfy any 
judgment, the foreign refiner shall increase the bond to cover the 
amount used within 90 days of the date the bond is used.
    (l) [Reserved]
    (m) English language reports. Any report or other document 
submitted to EPA by an foreign refiner shall be in English language, or 
shall include an English language translation.
    (n) Prohibitions. (1) No person may combine Certified Sulfur-FRGAS 
with any Non-Certified Sulfur-FRGAS or Non-Sulfur-FRGAS, and no person 
may combine Certified Sulfur-FRGAS with any Certified Sulfur-FRGAS 
produced at a different refinery, until the importer has met all the 
requirements of paragraph (o) of this section, except as provided in 
paragraph (e) of this section.
    (2) No foreign refiner or other person may cause another person to 
commit an action prohibited in paragraph (n)(1) of this section, or 
that otherwise violates the requirements of this section.
    (o) United States importer requirements. Any United States importer 
shall meet the following requirements:
    (1) Each batch of imported gasoline shall be classified by the 
importer as being Sulfur-FRGAS or as Non-Sulfur-FRGAS, and each batch 
classified as Sulfur-FRGAS shall be further classified as Certified 
Sulfur-FRGAS or as Non-certified Sulfur-FRGAS.
    (2) Gasoline shall be classified as Certified Sulfur-FRGAS or as 
Non-Certified Sulfur-FRGAS according to the designation by the foreign 
refiner if this designation is supported by product transfer documents 
prepared by the foreign refiner as required in paragraph (d) of this 
section, unless the gasoline is classified as Non-Certified Sulfur-
FRGAS under paragraph (g) of this section.
    (3) For each gasoline batch classified as Sulfur-FRGAS, any United 
States importer shall perform the following procedures:
    (i) In the case of both Certified and Non-Certified Sulfur-FRGAS, 
have an independent third party:
    (A) Determine the volume of gasoline in the vessel;
    (B) Use the foreign refiner's Sulfur-FRGAS certification to 
determine the name and EPA-assigned registration number of the foreign 
refinery that produced the Sulfur-FRGAS;
    (C) Determine the name and country of registration of the vessel 
used to transport the Sulfur-FRGAS to the United States; and
    (D) Determine the date and time the vessel arrives at the United 
States port of entry.
    (ii) In the case of Certified Sulfur-FRGAS, have an independent 
third party:
    (A) Collect a representative sample from each vessel compartment 
subsequent to the vessel's arrival at the United States port of entry 
and prior to off loading any gasoline from the vessel;
    (B) Prepare a volume-weighted vessel composite sample from the 
compartment samples; and
    (C) Determine the sulfur value using the methodologies specified in 
Sec. 80.330, by:
    (1) The third party analyzing the sample; or
    (2) The third party observing the importer analyze the sample.
    (4) Any importer shall submit reports within thirty days following 
the date any vessel transporting Sulfur-FRGAS arrives at the United 
States port of entry:
    (i) To the Administrator containing the information determined 
under paragraph (o)(3) of this section; and
    (ii) To the foreign refiner containing the information determined 
under paragraph (o)(3)(ii) of this section.
    (5)(i) Any United States importer shall meet the requirements 
specified in Sec. 80.195 for any imported gasoline that is not 
classified as Certified Sulfur-FRGAS under paragraph (o)(2) of this 
section.
    (p) Truck imports of Certified Sulfur-FRGAS produced at a small 
refinery. (1) Any refiner whose Certified Sulfur-FRGAS is transported 
into the United States by truck may petition EPA to use alternative 
procedures to meet the following requirements:
    (i) Certification under paragraph (d)(5) of this section;
    (ii) Load port and port of entry sampling and testing under 
paragraphs (f) and (g) of this section;
    (iii) Attest under paragraph (h) of this section; and
    (iv) Importer testing under paragraph (o)(3) of this section.
    (2) These alternative procedures must ensure Certified Sulfur-FRGAS 
remains segregated from Non-Certified Sulfur-FRGAS and from Non-Sulfur-
FRGAS until it is imported into the United States. The petition will be 
evaluated based on whether it adequately addresses the following:
    (i) Provisions for monitoring pipeline shipments, if applicable, 
from the refinery, that ensure segregation of Certified Sulfur-FRGAS 
from that refinery from all other gasoline;
    (ii) Contracts with any terminals and/or pipelines that receive 
and/or transport Certified Sulfur-FRGAS, that prohibit the commingling 
of Certified Sulfur-FRGAS with any of the following:
    (A) Other Certified Sulfur-FRGAS from other refineries;
    (B) All Non-Certified Sulfur-FRGAS; or
    (C) All Non-Sulfur-FRGAS;
    (iii) Procedures for obtaining and reviewing truck loading records 
and United States import documents for Certified Sulfur-FRGAS to ensure 
that such gasoline is only loaded into trucks making deliveries to the 
United States; and
    (iv) Attest procedures to be conducted annually by an independent 
third party that review loading records and import documents based on 
volume reconciliation, or other criteria, to confirm that all Certified 
Sulfur-FRGAS remains segregated throughout the distribution system and 
is only loaded into trucks for import into the United States.
    (3) The petition required by this section must be submitted to EPA 
along with the application for small refiner status and individual 
refinery sulfur baseline and standards under Sec. 80.240 and this 
section.
    (q) Withdrawal or suspension of a foreign refinery's baseline. EPA 
may withdraw or suspend a baseline that has been assigned to a foreign 
refinery where:
    (1) A foreign refiner fails to meet any requirement of this 
section;
    (2) A foreign government fails to allow EPA inspections as provided 
in paragraph (i)(1) of this section;
    (3) A foreign refiner asserts a claim of, or a right to claim, 
sovereign immunity in an action to enforce the requirements in this 
subpart H; or
    (4) A foreign refiner fails to pay a civil or criminal penalty that 
is not satisfied using the foreign refiner bond specified in paragraph 
(k) of this section.

[[Page 6845]]

    (r) Early use of a foreign refinery baseline. (1) A foreign refiner 
may begin using an individual refinery baseline before EPA has approved 
the baseline, provided that:
    (i) A baseline petition has been submitted as required in paragraph 
(b) of this section;
    (ii) EPA has made a provisional finding that the baseline petition 
is complete;
    (iii) The foreign refiner has made the commitments required in 
paragraph (i) of this section;
    (iv) The persons who will meet the independent third party and 
independent attest requirements for the foreign refinery have made the 
commitments required in paragraphs (f)(3)(iii) and (h)(7)(iii) of this 
section; and
    (v) The foreign refiner has met the bond requirements of paragraph 
(k) of this section.
    (2) In any case where a foreign refiner uses an individual refinery 
baseline before final approval under paragraph (r)(1) of this section, 
and the foreign refinery baseline values that ultimately are approved 
by EPA are more stringent than the early baseline values used by the 
foreign refiner, the foreign refiner shall recalculate its compliance, 
ab initio, using the baseline values approved by EPA, and the foreign 
refiner shall be liable for any resulting violation of the conventional 
gasoline requirements.
    (s) Additional requirements for petitions, reports and 
certificates. Any petition for a refinery baseline under Sec. 80.250 or 
Sec. 80.295, any alternative procedures under paragraph (r) of this 
section, any report or other submission required by paragraphs (c), 
(f)(2), or (i) of this section, and any certification under paragraph 
(d)(3) of this section shall be:
    (1) Submitted in accordance with procedures specified by the 
Administrator, including use of any forms that may be specified by the 
Administrator; and
    (2) Be signed by the president or owner of the foreign refiner 
company, or by that person's immediate designee, and shall contain the 
following declaration:

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

Attest Engagements


Sec. 80.415  What are the attest engagement requirements for gasoline 
sulfur compliance applicable to refiners and importers?

    In addition to the requirements for attest engagements that apply 
to refiners and importers under Secs. 80.125 through 80.130, and 
Sec. 80.410, the attest engagements for importers and refiners must 
include the following procedures and requirements each year.
    (a) Baseline. (1) Obtain the EPA sulfur baseline approval letter 
for the refinery to determine the refinery's applicable sulfur baseline 
and baseline volume under Secs. 80.250 or 80.295.
    (2) If the year being reviewed is 2004 through 2006 (2007 for 
refineries with small refiner status) and the refinery or importer 
produced or imported any GPA gasoline under Sec. 80.216 or the refiner 
has approved status for a small refinery:
    (i) Obtain the refinery's annual sulfur reports for 2000 through 
2003; and
    (ii) Determine whether the annual average sulfur level for any year 
credits were generated for 2000 through 2003 was less than the baseline 
level under paragraph (a)(1) of this section.
    (3) If the annual average sulfur content for any year credits were 
created for 2000 through 2003 was less than the baseline level under 
paragraph (a)(1) of this section, report as a finding the lowest annual 
sulfur level as the new baseline value. For GPA gasoline add 30 ppm to 
obtain the GPA standard, not to exceed 150 ppm.
    (4) If the refinery being reviewed is a small refinery and the 
annual volume under paragraph (b)(2) of this section is greater than 
the baseline volume, calculate the applicable standard in accordance 
with Sec. 80.240(c).
    (5) Obtain a written representation from the company representative 
stating the sulfur value that the company used as its baseline and 
agree that number to paragraphs (a)(1) through (a)(4) of this section 
and to the reports to EPA.
    (b) EPA reports. (1) Obtain and read a copy of the refinery's or 
importer's annual sulfur reports filed with EPA for the year.
    (2) Agree the yearly volume of gasoline reported to EPA in the 
sulfur reports with the inventory reconciliation analysis under 
Sec. 80.128.
    (3) For the years 2004 through 2006, calculate the annual volume 
and average sulfur level for gasoline classified as GPA gasoline under 
Secs. 80.216 and 80.219, and calculate the annual volume and average 
sulfur level for gasoline not classified as GPA gasoline, and agree 
these values with the values reported to EPA.
    (4) Except as provided in paragraph (b)(3) of this section, 
calculate the annual average sulfur level for all gasoline and agree 
that value with the value reported to EPA.
    (5) Obtain and read a copy of the refinery's or importer's sulfur 
credit report.
    (c) Credit generation before 2004. In the case of a refinery that 
only generates credits during 2000 through 2003:
    (1) Obtain a written representation from the company representative 
stating the refinery produces gasoline from crude oil.
    (2) Compute and report as a finding the sulfur baseline from 
paragraph (a) of this section multiplied by 0.9.
    (3) Obtain the annual average sulfur level from paragraph (b)(4) of 
this section.
    (4) If the sulfur value under paragraph (c)(3) of this section is 
less than the sulfur value under paragraph (c)(2) of this section, 
compute and report as a finding the difference between the annual 
average sulfur level and the refinery's sulfur baseline from paragraph 
(a) of this section.
    (5) Compute and report as a finding the total number of sulfur 
credits generated by multiplying the value in paragraph (c)(4) of this 
section by the volume of gasoline in paragraph (b)(2) of this section, 
and agree this value with the value reported to EPA.
    (d) Credit generation in 2004 and thereafter. The following 
procedures shall be completed for a refinery or importer that generates 
credits in 2004 and thereafter:
    (1) Obtain the annual average sulfur level for gasoline not 
classified as GPA from paragraph (b)(3) of this section.
    (2) If the sulfur value under paragraph (d)(1) of this section is 
less than 30 ppm, compute and report as a finding the difference 
between the sulfur level under paragraph (d)(1) of this section and 30 
ppm.
    (3) Compute and report as a finding the total number of sulfur 
credits generated by multiplying the value calculated in paragraph 
(d)(2) of this

[[Page 6846]]

section by the volume of gasoline not classified as GPA in paragraph 
(b)(3) of this section, and agree this number with the number reported 
to EPA.
    (4) Obtain the annual average sulfur level for gasoline classified 
as GPA from paragraph (b)(3) of this section.
    (5) If the sulfur value under paragraph (d)(4) of this section is 
less than the applicable level under Sec. 80.310, compute and report as 
a finding the difference between the sulfur level under paragraph 
(d)(4) of this section and the appropriate level in Sec. 80.310 .
    (6) Compute and report as a finding the total number of sulfur 
credits generated by multiplying the value calculated in paragraph 
(d)(5) of this section by the volume of gasoline classified as GPA in 
paragraph (b)(3) of this section, and agree this number with the number 
reported to EPA.
    (7) If the refiner has an approved status as a small refinery, 
obtain the annual average sulfur level for gasoline from paragraph 
(b)(4) of this section.
    (8) If the sulfur value under paragraph (d)(7) of this section is 
less than the applicable standard under Sec. 80.240, compute and report 
as a finding the difference between the sulfur level under paragraph 
(d)(7) of this section and the appropriate standard under Sec. 80.240.
    (9) Compute and report as a finding the total number of sulfur 
credits generated by multiplying the value calculated in paragraph 
(d)(8) of this section by the volume of gasoline in paragraph (b)(4) of 
this section, and agree this number with the number reported to EPA.
    (e) Credit purchases and sales. The following attest procedures 
shall be completed for a refinery or importer that is a transferor or 
transferee of credits during an averaging period:
    (1) Obtain contracts or other documents for all credits transferred 
to another refinery or importer during the year being reviewed; compute 
and report as a finding the number and year of creation of credits 
represented in these documents as being transferred away; and agree 
with the report to EPA.
    (2) Obtain contracts or other documents for all credits received 
during the year being reviewed; compute and report as a finding the 
number and year of creation of credits represented in these documents 
as being received; and agree with the report to EPA.
    (f) Credits required for non-GPA gasoline. The following attest 
procedures shall be completed for refineries and importers in 2005 and 
thereafter (2004 and thereafter for refineries having standards under 
Sec. 80.240):
    (1) Obtain the annual average sulfur level for gasoline not 
classified as GPA from paragraph (b)(3) of this section.
    (2) If the value in paragraph (f)(1) of this section is greater 
than 30 ppm (or greater than the small refinery standard), compute and 
report as a finding the difference between 30 ppm (or the standard 
under Sec. 80.240) and the value in paragraph (f)(1) of this section.
    (3) Compute and report as a finding the total sulfur credits 
required by multiplying the value in paragraph (f)(2) of this section 
times the volume of gasoline not classified as GPA in paragraph (b)(3) 
of this section, and agree with the report to EPA.
    (4) Obtain the refiner's or importer's representation as to the 
portion of the deficit under paragraph (f)(3) of this section that was 
resolved with credits, the portion that was resolved with allotments in 
2005 only or that was carried forward as a deficit under Sec. 80.205, 
and agree with the report to EPA (refineries subject to standards under 
Sec. 80.240 cannot carry deficits forward).
    (g) Credits required for GPA gasoline. The following attest 
procedures shall be completed in 2004 through 2006 for a refinery or 
importer that produces gasoline subject to the geographic phase-in area 
standards under Sec. 80.216:
    (1) Obtain the annual average sulfur level for the refinery's or 
importer's GPA gasoline from paragraph (b)(3) of this section.
    (2) If the value in paragraph (g)(1) of this section is greater 
than the refinery's or importer's baseline plus 30 ppm under 
Sec. 80.216, as determined in paragraph (a) of this section or 150 ppm, 
whichever is less, compute and report as a finding the difference 
between the annual average sulfur level and the baseline level plus 30 
ppm, or 150 ppm, whichever is less.
    (3) Compute and report as a finding the total sulfur credits and/or 
allotments required by multiplying the value in paragraph (g)(2) of 
this section times the volume of GPA gasoline from paragraph (b)(3) of 
this section.
    (4) Obtain the refiner's or importer's representation as to the 
portion of the deficit under paragraph (g)(3) of this section that was 
resolved with credits, or the portion that was resolved with allotments 
in 2004 or 2005 only (compliance deficits for GPA gasoline cannot be 
carried forward.
    (h) Credit expiration. The following attest procedures shall be 
completed for a refinery or importer that possesses credits during an 
averaging period:
    (1) Obtain a list of all credits in the refiner's or importer's 
possession at any time during the year being reviewed, identified by 
the year of creation of the credits.
    (2) If the year being reviewed is 2006 and thereafter, except in 
the case of gasoline produced for use in the GPA and gasoline produced 
by small refiners, determine whether any credits identified in 
paragraph (h)(1) of this section or Type A sulfur allotments created 
under paragraph (i) of this section and converted to credits were 
created before 2004, and if so, report as a finding this number of 
expired credits.
    (3) If the year being reviewed is 2008 and thereafter, determine 
whether any credits identified in paragraph (h)(1) of this section or 
Type B sulfur allotments created under paragraph (i) of this section 
and converted to credits were created more than 5 years before the year 
being reviewed, and if so, report as a finding this number of expired 
credits (for example, unused credits created during the 2004 averaging 
period expire at the end of the 2009 averaging period).
    (i) Optional credit and allotment generation in 2003. The following 
requirements apply to any refinery that generates credits and 
allotments in 2003 under Sec. 80.275(a):
    (1) Obtain a written representation from the company representative 
stating the refinery produces gasoline from crude oil.
    (2) Obtain the refinery baseline value from paragraph (b)(1) of 
this section, the annual volume from paragraph (b)(2) of this section 
and the annual average sulfur level from paragraph (b)(4) of this 
section.
    (3) Based on the annual sulfur level and refinery baseline, 
determine which equation under Sec. 80.275(a)(2) applies.
    (4) Using the applicable equations under Sec. 80.275(a)(2), 
recalculate the sulfur allotments, by type, and credits and report as a 
finding.
    (j) Credit reconciliation. The following attest procedures shall be 
completed each year credits were in the refiner's or importer's 
possession at any time during the year:
    (1) Obtain the credits remaining or the credit deficit from the 
previous year from the refiner's or importer's report to EPA for the 
previous year.
    (2) Compute and report as a finding the net credits remaining at 
the conclusion of the year being reviewed by totaling:
    (i) Credits remaining from the previous year; plus
    (ii) Credits generated under paragraphs (c), (d) and (i) of this 
section; plus

[[Page 6847]]

    (iii) Allotments generated under paragraph (i) of this section 
which are converted to credits; plus
    (iv) Credits purchased under paragraph (e) of this section; minus
    (v) Credits sold under paragraph (e) of this section; minus
    (vi) Credits used under paragraphs (f) and (g) of this section; 
minus
    (vii) Credits expiring under paragraph (h) of this section; minus
    (viii) Credit deficit from the previous year.
    (3) Agree the credits remaining or the credit deficit at the 
conclusion of the year being reviewed with the report to EPA.
    (4) If the refinery or importer had a credit deficit for both the 
previous year and the year being reviewed, report this fact as a 
finding.
    (k) Sulfur allotments in 2004 and 2005. The following requirements 
apply to any refinery or importer that is subject to corporate pool 
average standards under Sec. 80.195:
    (1) Corporate pool average. (i) Obtain the annual average sulfur 
level for the refiner or importer from the sulfur report filed with EPA 
for all gasoline subject to corporate pool standards (all gasoline 
produced and imported, except that if 50% or greater of the gasoline 
volume was GPA gasoline the refiner or importer is not subject to the 
corporate pool average).
    (ii) Compute and report as a finding the company's gasoline volume 
subject to corporate pool standards and average sulfur level for 
gasoline subject to corporate pool standards, and agree with the values 
reported to EPA.
    (2) Allotment generation. (i) For 2004, if the corporate pool 
average is less than 120 ppm, compute and report as a finding the 
number and type of sulfur allotments generated in accordance with the 
applicable provisions under Sec. 80.275(b).
    (ii) For 2005, if the corporate pool average is less than 90 ppm, 
compute and report as a finding the number and type of sulfur 
allotments generated in accordance with the applicable provisions under 
Sec. 80.275(b).
    (iii) If the refiner or importer produced and imported 50% or more 
of its gasoline for GPA use in 2004 or 2005, no allotments can be 
generated in that year.
    (3) Allotment purchases and sales. (i) Obtain contracts or other 
documents for all allotments transferred to another company during the 
year being reviewed; compute and report as a finding the number of 
allotments represented in these documents as being transferred away; 
and agree with the report to EPA.
    (ii) Obtain contracts or other documents for all allotments 
received during the year being reviewed; compute and report as a 
finding the number of allotments represented in these documents as 
being received; and agree with the report to EPA.
    (4) Allotments required. (i) For 2004, if the corporate pool 
average is greater than 120 ppm, compute and report as a finding the 
number of allotments required by multiplying the amount the corporate 
pool average is above 120 ppm times the corporate pool volume, and 
agree with the report to EPA.
    (ii) For 2005, if the corporate pool average is greater than 90 
ppm, compute and report as a finding the number of allotments required 
by multiplying the amount the corporate pool average is above 90 ppm 
times the corporate pool volume, and agree with the report to EPA.
    (iii) Obtain the number of allotments used to meet standards for 
GPA gasoline determined in paragraph (g) of this section.
    (5) Allotment reconciliation. (i) Compute and report as a finding 
the net allotments remaining at the conclusion of the year being 
reviewed by totaling allotments:
    (A) Generated under paragraphs (i)(4) and (k)(2) of this section; 
plus
    (B) Purchased under paragraph (k)(3) of this section; minus
    (C) Sold under paragraph (k)(3) of this section; minus
    (D) Used under paragraph (k)(4) of this section for demonstrating 
compliance with the corporate pool average.
    (ii) Report as a finding any allotments generated in 2003 or 2004 
that are used to meet the corporate pool standards in 2005 that were 
not reduced to 50% of their original value.
    (iii) If the company's net allotments remaining are less than zero, 
report this fact as a finding.

PART 85--CONTROL OF AIR POLLUTION FROM MOBILE SOURCES

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

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

    6. Section 85.1515 is amended by:
    a. redesignating the existing paragraph (c) as paragraph (c)(1),
    b. adding new paragraphs (c)(2), (c)(3), (c)(5), (c)(6) and (c)(7), 
and adding and reserving paragraph (c)(4), and
    c. revising paragraph (d).
    The revisions and additions read as follows:


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

* * * * *
    (c)(1) * * *
    (2)(i) The provisions of paragraph (c)(1) of this section 
notwithstanding, nonconforming light-duty vehicles and light light-duty 
trucks (LDV/LLDTs) modified in model years 2004, 2005 or 2006 must meet 
the FTP exhaust emission standards of bin 9 in Tables S04-1 and S04-2 
in 40 CFR 86.1811-04 and the evaporative emission standards for light-
duty vehicles and light light-duty trucks specified in 40 CFR 86.1811-
04(e)(5).
    (ii) Nonconforming LDT3s and LDT4s (HLDTs) and medium-duty 
passenger vehicles (MDPVs) modified in model years 2004 through 2006 
must meet the FTP exhaust emission standards of bin 10 in Tables S04-1 
and S04-2 in 40 CFR 86.1811-04 and the applicable evaporative standards 
specified in 40 CFR 86.1811-04(e)(5). For 2004 model year HLDTs and 
MDPVs where modifications commence on the first vehicle of a test group 
before December 21, 2003, this requirement does not apply to the 2004 
model year. ICIs opting to bring all of their 2004 model year HLDTs and 
MDPVs into compliance with the exhaust emission standards of bin 10 in 
Tables S04-1 and S04-2 in 40 CFR 86.1811-04, may use the optional 
higher NMOG values for their 2004-2006 model year LDT2s and 2004-2008 
LDT4s.
    (iii) Nonconforming LDT3s and LDT4s (HLDTs) and medium-duty 
passenger vehicles (MDPVs) modified in model years 2007 and 2008 must 
meet the FTP exhaust emission standards of bin 8 in Tables S04-1 and 
S04-2 in 40 CFR 86.1811-04 and the applicable evaporative standards 
specified in 40 CFR 86.1811-04(e)(5).
    (iv) Nonconforming LDV/LLDTs modified in model years 2007 and later 
and nonconfoming HLDTs and MDPVs modified in model years 2009 and later 
must meet the FTP exhaust emission standards of bin 5 in Tables S04-1 
and S04-2 of 40 CFR 86.1811-04, and the evaporative standards specified 
in 40 CFR 86.1811(e)(1) through (e)(4).
    (v) ICIs are exempt from the Tier 2 and the interim non-Tier 2 
phase-in intermediate percentage requirements for exhaust, evaporative 
and refueling emissions described in 40 CFR 86.1811-04.
    (3)(i) As an option to the requirements of paragraph (c)(2) of this 
section, independent commercial importers may elect to meet lower bins 
in Tables S04-1 and S04-2 of 40 CFR 86.1811-04 than

[[Page 6848]]

specified in paragraph (c)(2) of this section and bank or sell credits 
as permitted in 40 CFR 86.1860-04 and 40 CFR 86.1861-04. An ICI may not 
meet higher bins in Tables S04-1 and S04-2 of 40 CFR 86.1811-04 than 
specified in paragraph (c)(2) of this section unless it demonstrates to 
the Administrator at the time of certification that it has obtained 
appropriate and sufficient NOX credits from another 
manufacturer, or has generated them in a previous model year or in the 
current model year and not transferred them to another manufacturer or 
used them to address other vehicles as permitted in 40 CFR 86.1860-04 
and 40 CFR 86.1861-04.
    (ii) Where an ICI desires to obtain a certificate of conformity 
using a bin higher than specified in paragraph (c)(2) of this section, 
but does not have sufficient credits to cover vehicles produced under 
such certificate, the Administrator may issue such certificate if the 
ICI has also obtained a certificate of conformity for vehicles 
certified using a bin lower than that required under paragraph (c)(2) 
of this section. The ICI may then produce vehicles to the higher bin 
only to the extent that it has generated sufficient credits from 
vehicles certified to the lower bin during the same model year.
    (4) [Reserved]
    (5) Except for the situation where an ICI desires to bank, sell or 
use NOX credits as described in paragraph (c)(3) of this 
section, the requirements of 40 CFR 86.1811-04 related to fleet average 
NOX standards and requirements to comply with such standards 
do not apply to vehicles modified under this subpart.
    (6) ICIs using bins higher than those specified in paragraph (c)(2) 
of this section must monitor their production so that they do not 
produce more vehicles certified to the standards of such bins than 
their available credits can cover. ICIs must not have a credit deficit 
at the end of a model year and are not permitted to use the deficit 
carryforward provisions provided in 40 CFR 86.1860-04(e).
    (7) The Administrator may condition the certificates of conformity 
issued to ICIs as necessary to ensure that vehicles subject to 
paragraph (c) of this section comply with the appropriate average 
NOX standard for each model year.
    (d) Except as provided in paragraph (c) of this section, ICI's must 
not participate in emission-related programs for emissions averaging, 
banking and trading, or nonconformance penalties.
* * * * *

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

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

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

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


Sec. 86.1  Reference materials.

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

------------------------------------------------------------------------
         Document No. and name               40 CFR part 86 reference
------------------------------------------------------------------------
California Regulatory Requirements
 Applicable to the ``LEV II'' Program,
 including:.
    1. California Exhaust Emission       86.1806-01; 86.1811-04; 86.1844-
     Standards and Test Procedures for    01.
     2003 and Subsequent Model Zero-
     Emission Vehicles and 2001 and
     Subsequent Model Hybrid Electric
     Vehicles, in the Passenger Car,
     Light-duty Truck and Medium-duty
     Vehicle Classes. August 5, 1999.
    2. California Non-Methane Organic    86.1803-01; 86.1810-01; 86.1811-
     Gas Test Procedures. August 5,       04.
     1999.
California Regulatory Requirements       86.113-004; 86.612-97; 86.1012-
 Applicable to the National Low           97; 86.1702-99; 86.1708-99;
 Emission Vehicle Program, October        86.1709-99; 86.1717-99;
 1996.                                    86.1735-99; 86.1771-99;
                                          86.1775-99; 86.1776-99;
                                          86.1777-99; Appendix XVI;
                                          Appendix XVII.
------------------------------------------------------------------------

* * * * *

Subpart A--General Provisions for Emission Regulations for 1977 and 
Later Model Year New Light-Duty Vehicles, Light-Duty Trucks and 
Heavy-Duty Engines, and for 1985 and Later Model Year New Gasoline-
Fueled, Natural Gas-Fueled, Liquefied Petroleum Gas-Fueled and 
Methanol-Fueled Heavy-Duty Vehicles

    9. Section 86.004-11 is amended by adding paragraph (e) to read as 
follows:


Sec. 86.004-11  Emission standards for 2004 and later model year diesel 
heavy-duty engines and vehicles.

* * * * *
    (e) The standards described in this section do not apply to diesel-
fueled medium-duty passenger vehicles (MDPVs) that are subject to 
regulation under subpart S of this part, except as specified in subpart 
S of this part. The standards described in this section also do not 
apply to diesel engines used in such MDPVs, except as specified in the 
regulations in subpart S of this part. The term ``medium-duty passenger 
vehicle'' is defined in Sec. 86.1803.

    10. Section 86.099-10 is amended by adding paragraph (e) to read as 
follows:


Sec. 86.099-10  Emission standards for 1999 and later model year Otto-
cycle heavy-duty engines and vehicles.

* * * * *
    (e) The standards described in this section do not apply to Otto-
cycle medium-duty passenger vehicles (MDPVs) that are subject to 
regulation under subpart S of this part, except as specified in subpart 
S of this part. The standards described in this section also do not 
apply to Otto-cycle engines used in such MDPVs, except as specified in 
subpart S of this part. The term ``medium-duty passenger vehicle'' is 
defined in Sec. 86.1803.

    10a. The heading of Subpart B is revised to read as follows:

Subpart B--Emission Regulations for 1977 and Later Model Year New 
Light-duty Vehicles, New Light-duty Trucks and New Medium-Duty 
Passenger Vehicles; Test Procedures

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


Sec. 86.113-04  Fuel specifications.

    This section includes text that specifies requirements that differ 
from Sec. 86.113-94. Where a paragraph in Sec. 86.113-94 is identical 
and applicable to this section, this will be indicated by specifying 
the corresponding paragraph

[[Page 6849]]

and the statement ``[Reserved]. For guidance see Sec. 86.113-94.''.
    (a) Gasoline fuel. (1) Gasoline having the following specifications 
will be used by the Administrator in exhaust and evaporative emission 
testing of petroleum-fueled Otto-cycle vehicles, except that the 
Administrator will not use gasoline having a sulfur specification 
higher than 0.0045 weight percent. Gasoline having the following 
specification or substantially equivalent specifications approved by 
the Administrator, must be used by the manufacturer in exhaust and 
evaporative testing except that octane specifications do not apply:

------------------------------------------------------------------------
                                    ASTM test method
              Item                        No.                Value
------------------------------------------------------------------------
Octane, Research, Min...........  D 2699.............                 93
Sensitivity, Min................    .................                7.5
Lead (organic), max. g/U.S. gal.  D 3237.............      0.050 (0.013)
 (g/liter).
Distillation Range:                D 86..............
    IBP1:deg. F (deg. C)........    .................    75-95 (23.9-35)
    10 pct. point: deg.F (deg.C)    .................     120-135 (48.9-
                                                                   57.2)
    50 pct. point: deg.F.           .................     200-230 (93.3-
     (deg.C).                                                       110)
    90 pct. point: deg.F (deg.C)    .................    300-325 (148.9-
                                                                  162.8)
    EP, max: deg.F (deg.C)......    .................        415 (212.8)
Sulfur, weight pct..............  D 1266.............       0.0015-0.008
Phosphorous, max. g/U.S. gal (g/  D 3231.............     0.005 (0.0013)
 liter).
RVP 2,3.........................  D 3231.............     8.7-9.2 (60.0-
                                                                   63.4)
Hydrocarbon composition:          D 1319.............
    Olefins, max. pct...........    .................                 10
    Aromatics, max, pct.........    .................                 35
    Saturates...................    .................         Remainder
------------------------------------------------------------------------
\1\ For testing at altitudes above 1,219 m (4000 feet), the specified
  range is 75-105 deg. F (23.9-40.6 deg. C).
\2\ For testing which is unrelated to evaporative emission control, the
  specified range is 8.0-9.2 psi (55.2-63.4 kPa).
\3\ For testing at altitudes above 1,219 m (4000 feet), the specified
  range is 7.6-8.0 psi (52-55 kPa).

    (2) For light-duty vehicles, light-duty trucks and medium-duty 
passenger vehicles certified for 50 state sale, and for Tier 2 and 
interim non-Tier 2 vehicles whose certification is carried over from 
the NLEV program or carried across from the California LEV I program, 
``California Phase 2'' gasoline having the specifications listed in the 
table in this section may be used in exhaust emission testing as an 
option to the specifications in paragraph (a)(1) of this section. If a 
manufacturer elects to utilize this option, the manufacturer must 
conduct exhaust emission testing with gasoline having the 
specifications listed in the table in this paragraph (a)(2) and in the 
case of interim non-Tier 2 LDV/Ts and interim non-Tier 2 MDPVs whose 
certification is carried over from the NLEV program or carried across 
from California LEV I program certification the Administrator must also 
conduct exhaust emission testing with gasoline having the 
specifications listed in the table in this paragraph (a)(2) . However, 
the Administrator may use or require the use of test fuel meeting the 
specifications in paragraph (a)(1) of this section for certification 
confirmatory testing, selective enforcement auditing and in-use testing 
for all other vehicles. All fuel property test methods for this fuel 
are contained in Chapter 4 of the California Regulatory Requirements 
Applicable to the National Low Emission Vehicle Program (October, 
1996). These requirements are incorporated by reference (see 
Sec. 86.1). The table follows:

------------------------------------------------------------------------
           Fuel property                            Limit
------------------------------------------------------------------------
Octane, (R+M)/2 (min)..............  91
Sensitivity (min)..................  7.5
Lead, g/gal (max) (No lead added)..  0-0.01
Distillation range,  deg.F.........
10 pct. point,.....................  130-150
50 pct. point,.....................  200-210
90 pct. point,.....................  290-300
EP, maximum........................  390
Residue, vol% (max)................  2.0
Sulfur, ppm by wt..................  15-40, except that administrator
                                      may use and approve for use, lower
                                      ranges where such ranges are
                                      consistent with current California
                                      requirements.
Phosphorous, g/gal (max)...........  0.005
RVP, psi...........................  6.7-7.0
Olefins, vol%......................  4.0-6.0
Total aromatic hydrocarbons (vol%).  22-25
Benzene, vol%......................  0.8-1.0
Multi-substituted alkyl Aromatic     12-14
 hydrocarbons, vol%.
MTBE, vol %........................  10.8-11.2
Additives:.........................  See chapter 4 of the California
                                      Regulatory Requirements Applicable
                                      to the National Low Emission
                                      Vehicle Program (October, 1996).
                                      These procedures are incorporated
                                      by reference (see Sec.  86.1).

[[Page 6850]]

 
Copper corrosion...................  No. 1.
Gum, washed, mg/100 ml (max).......  3.0
Oxidation stability, minutes (min).  1000
Specific gravity...................  No limit; report to purchaser
                                      required.
Heat of combustion.................  No limit; report to purchaser
                                      required.
Carbon, wt%........................  No limit; report to purchaser
                                      required.
Hydrogen, wt%......................  No limit; report to purchaser
                                      required.
------------------------------------------------------------------------

    (3)(i) Unless otherwise approved by the Administrator, unleaded 
gasoline representative of commercial gasoline that will be generally 
available through retail outlets must be used in service accumulation. 
For model years 2004 and later, and unless otherwise approved by the 
Administrator, this gasoline must have a minimum sulfur content of 15 
ppm. Unless otherwise approved by the Administrator, where the vehicle 
is to be used for evaporative emission durability demonstration, such 
fuel must contain ethanol as required by Sec. 86.1824-01(a)(2)(iii). 
Leaded gasoline must not be used in service accumulation.
    (ii) Unless otherwise approved by the Administrator, the octane 
rating of the gasoline used must be no higher than 1.0 Retail octane 
number above the lowest octane rating that meets the fuel grade the 
manufacturer will recommend to the ultimate purchaser for the relevant 
production vehicles. If the manufacturer recommends a Retail octane 
number rather than a fuel grade, then the octane rating of the service 
accumulation gasoline can be no higher than 1.0 Retail octane number 
above the recommended Retail octane number. The service accumulation 
gasoline must also have a minimum sensitivity of 7.5 octane numbers, 
where sensitivity is defined as the Research octane number minus the 
Motor octane number.
    (iii) The Reid Vapor Pressure of the gasoline used must be 
characteristic of the motor fuel used during the season in which the 
service accumulation takes place.
    (4) The specification range of the gasoline to be used under this 
paragraph (a) must be reported in accordance with Secs. 86.094-21(b)(3) 
and 86.1844-01.
    (b) through (g) [Reserved]. For guidance see Sec. 86.113-94.

    12. Section 86.129-00 is amended by adding a new paragraph 
(f)(1)(ii)(C) to read as follows:


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

* * * * *
    (f)* * *
    (1)*  * *
    (ii)* * *
    (C) Regardless of other requirements in this section relating to 
the testing of HLDTs, for Tier 2 HLDTs, the test weight basis for FTP 
and SFTP testing (both US06 and SC03), if applicable, is the vehicle 
curb weight plus 300 pounds. For MDPVs certified to standards in bin 11 
in Tables S04-1 and 2 in Sec. 86.1811-04, the test weight basis must be 
adjusted loaded vehicle weight (ALVW) as defined in this part.
* * * * *

    12.a. The heading of Subpart C is revised to read as follows:

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

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


Sec. 86.213-04  Fuel specifications.

    Gasoline having the following specifications will be used by the 
Administrator except that the Administrator will not use gasoline 
having a sulfur specification higher than 0.0045 weight percent. 
Gasoline having the specifications set forth in the table in this 
section, or substantially equivalent specifications approved by the 
Administrator, may be used by the manufacturer except that the octane 
specification does not apply. In lieu of using gasoline having these 
specifications, the manufacturer may, for certification testing, use 
gasoline having the specifications specified in Sec. 86.113-04 provided 
the cold CO emissions are not decreased. Documentation showing that 
cold CO emissions are not decreased must be maintained by the 
manufacturer and must be made available to the Administrator upon 
request. The table listing the cold CO fuel specifications described in 
the text in this section follows:

                                       Table--Cold CO Fuel Specifications
----------------------------------------------------------------------------------------------------------------
                                                              Cold CO low octane value   Cold CO high octane \1\
               Item                         ASTM test                 or range               value or range
----------------------------------------------------------------------------------------------------------------
(RON+MON)/2, min..................   D 2699                    87.8.3        92.30.5
Sensitivity, min..................   D 2699                    7.5                      7.5
Distillation range:...............
  IBP, deg.F......................   D 86                      76-96                     76-96
  10% point, deg.F................   D 86                     98-118                     105-125
  50% point, deg.F................   D 86                     179-214                    195-225
  90% point, deg.F................   D 86                     316-346                    316-346
  EP, max, deg.F..................   D 86                      413                       413
Sulfur, wt. %.....................   D 3120                    0.0015-0.008              0.0015-0.008
Phosphorous, g/U.S gal, max.......   D 3231                    0.005                     0.005
Lead, g/gal, max..................                             0.01                      0.01
RVP, psi..........................   D 4953                    11.5.3        11.5.3
Hydrocarbon composition...........   D 1319
  Olefins, vol. pct...............                             12.55.0       10.05.0
  Aromatics, vol. pct.............                             26.44.0       32.04.0
  Saturates.......................                             Remainder                 Remainder.
----------------------------------------------------------------------------------------------------------------
\1\ Gasoline having these specifications may be used for vehicles which are designed for the use of high-octane
  premium fuel.


[[Page 6851]]

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

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


Sec. 86.1701-99  General applicability.

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

    14.a. The title of subpart S is revised to read as follows:

Subpart S--General Compliance Provisions for Control of Air 
Pollution From New and In-use Light-Duty Vehicles, Light-Duty 
Trucks and Medium Duty Passenger Vehicles

    15. Section 86.1801-01 is amended by:
    a. revising the first sentence of paragraph (a),
    b. adding one sentence to the end of paragraph (c)(1),
    c. revising the first sentence of paragraph (e), and
    d. adding paragraphs (f), (g) and (h).
    These revisions and additions read as follows:


Sec. 86.1801-01  Applicability.

    (a) Except as otherwise indicated, the provisions of this subpart 
apply to new 2001 and later model year Otto-cycle and diesel cycle 
light-duty vehicles, light-duty trucks and medium-duty passenger 
vehicles, including multi-fueled, alternative fueled, hybrid electric, 
and zero emission vehicles. * * *
* * * * *
    (c) * * * (1) * * * A 2004 or later model year heavy-duty vehicle 
optionally certified as a light-duty truck under this provision must 
comply with all provisions applicable to MDPVs including exhaust and 
evaporative emission standards, test procedures, on-board diagnostics, 
refueling standards, phase-in requirements and fleet average standards 
under 40 CFR Part 85 and this part.
* * * * *
    (e) National Low Emission Vehicle Program for light-duty vehicles 
and light light-duty trucks. A manufacturer may elect to certify 2001-
2003 model year light-duty vehicles and light light-duty trucks (LDV/
LLDTs) to the provisions of the National Low Emission Vehicle Program 
contained in Subpart R of this part. * * *
    (f) ``Early'' Tier 2 LDVs, LDTs and MDPVs. Any LDV/LLDT which is 
certified to Tier 2 FTP exhaust standards prior to the 2004 model year, 
or any HLDT or MDPV which is certified to the Tier 2 FTP exhaust 
standards prior to the 2008 model year, to utilize alternate phase-in 
schedules and/or for purposes of generating and banking Tier 2 
NOX credits, must comply with all the exhaust emission 
requirements applicable to Tier 2 LDV/LLDTs or HLDT/ MDPVs, as 
applicable, under this subpart.
    (g) Interim non-Tier 2 LDVs, LDTs and MDPVs. Model year 2004-2008 
LDVs, LDTs and MDPVs, that do not comply with the Tier 2 FTP exhaust 
emission requirements (interim non-Tier 2 LDV/LLDTs and interim non-
Tier 2 HLDT/MDPVs) as permitted under the phase-in requirements of 
Sec. 86.1811-04(k) must comply with all applicable interim non-Tier 2 
exhaust emission requirements contained in this subpart, including FTP 
exhaust emission requirements for all interim non-Tier 2 LDV/LLDTs and 
HLDT/MDPVs found at Sec. 86.1811-04(l). Additional emission bins and 
separate fleet average NOX emission standards and other 
provisions are provided for interim non-Tier 2 LDV/LLDTs, and interim 
non-Tier 2 HLDT/MDPVs.
    (h) Applicablity of provisions of this subpart to LDVs, LDTs and 
MDPVs. Numerous sections in this subpart provide requirements or 
procedures applicable to a ``vehicle'' or ``vehicles''. Unless 
otherwise specified or otherwise determined by the Administrator, the 
term ``vehicle'' or ``vehicles'' in those provisions apply equally to 
LDVs, LDTs and MDPVs.

    16. Section 86.1803-01 is amended by adding the following 
definitions in alphabetical order to read as follows:


Sec. 86.1803-01  Definitions.

* * * * *
    Bin or emission bin means a set of emission standards applicable to 
exhaust pollutants measured on the Federal Test Procedure (FTP). A bin 
is equivalent to a horizontal row of FTP standards in Tables S04-1 and 
S04-2 shown in this subpart. Manufacturers are generally free to choose 
the bin of standards that will apply to a certain test group of 
vehicles, provided that on a sales weighted average of those bins, all 
of their vehicles meet a specified fleet average standard for a 
particular pollutant.
* * * * *
    CalLEV II or California LEV II refers to California's second phase 
of its low emission vehicle (LEV) program. This program was adopted at 
the hearing of the California Air Resources Board held on November 5, 
1998 and became effective on November 27, 1999.
* * * * *
    Fleet average NOX standard means, for light-duty 
vehicles, light-duty trucks and medium-duty passenger vehicles, a 
NOX standard imposed over an individual manufacturer's total 
U.S. sales (or a fraction of total U.S. sales during phase-in years), 
as `U.S. sales'' is defined in this subpart, of a given model year. 
Manufacturers determine their compliance with such a standard by 
averaging, on a sales weighted basis, the individual NOX 
standards they choose for the fleet of light-duty vehicles, light-duty 
trucks and medium-duty passenger vehicles they sell of that model year.
* * * * *
    Interim non-Tier 2 vehicle, interim non-Tier 2 LDV/LLDT, interim 
non-Tier 2 HLDT/MDPV, or interim vehicle refer to 2004 or later model 
year light-duty vehicles, light-duty trucks or MDPVs, or a specific 
combination thereof, not certified to Tier 2 FTP exhaust emission 
standards during the Tier 2 phase-in period. Model year 2004 HLDTs 
belonging to test groups whose model year commences before December 21, 
2003, are not interim non-Tier 2 HLDTs unless their manufacturer 
chooses to comply with the interim requirements applicable to HLDTs for 
all of its 2004 model year HLDTs as permitted in this subpart. 
Similarly 2004 model year heavy-duty vehicles whose model year 
commences before December 21, 2003, are not interim non-Tier 2 MDPVs 
unless their manufacturer chooses to comply with the interim 
requirements applicable to MDPVs for all of its 2004 model year MDPVs 
as permitted in this subpart. The terms interim non-Tier 2 vehicle, 
interim non-Tier 2 LDV, interim non-Tier 2 LDT, interim non-Tier 2 
HLDT, interim non-Tier 2 MDPV, etc. have the same meaning without the 
words ``non-Tier 2''.
* * * * *
    LDV/T means light-duty vehicles and light-duty trucks collectively, 
without regard to category.
* * * * *
    Medium-duty passenger vehicle (MDPV) means any heavy-duty vehicle

[[Page 6852]]

(as defined in this subpart) with a gross vehicle weight rating (GVWR) 
of less than 10,000 pounds that is designed primarily for the 
transportation of persons. The MDPV definition does not include any 
vehicle which:
    (1) Is an ``incomplete truck'' as defined in this subpart; or
    (2) Has a seating capacity of more than 12 persons; or
    (3) Is designed for more than 9 persons in seating rearward of the 
driver's seat; or
    (4) Is equipped with an open cargo area (for example, a pick-up 
truck box or bed) of 72.0 inches in interior length or more. A covered 
box not readily accessible from the passenger compartment will be 
considered an open cargo area for purposes of this definition.
* * * * *
    Non-methane organic gases (NMOG) means the sum of oxygenated and 
non-oxygenated hydrocarbons contained in a gas sample as measured in 
accordance with the California Non-Methane Organic Gas Test Procedures. 
These requirements are incorporated by reference (see Sec. 86.1)
* * * * *
    Periodically regenerating trap oxidizer system means a trap 
oxidizer that utilizes, during normal driving conditions, an automated 
regeneration mode for cleaning the trap, the operation of which can be 
easily detected.
* * * * *
    Point of first sale means the location where the completed vehicle 
is first purchased. This term is synonymous with final product purchase 
location. The point of first sale may be a retail customer, dealer, 
distributor, fleet operator, broker, secondary manufacturer, or any 
other entity which purchases a vehicle from a manufacturer. In cases 
where the end user purchases the completed vehicle directly from the 
manufacturer, the end user is the point of first sale.
* * * * *
    Round, rounded or rounding means, unless otherwise specified, that 
numbers will be rounded according to ASTM-E29-93a, which is 
incorporated by reference in this part pursuant to Sec. 86.1.
* * * * *
    Tier 2 HLDT/MDPV means any heavy light-duty truck or medium-duty 
passenger vehicle, including HEVs and ZEVs, of the 2008 or later model 
year certified to comply with the Tier 2 FTP exhaust standards 
contained in Sec. 86.1811-04 including the 0.07 g/mi fleet average 
NOX standard. The term Tier 2 HLDT/MDPV also includes any 
heavy light-duty truck or medium-duty passenger vehicle, of any model 
year, which is certified to Tier 2 FTP exhaust standards for purposes 
of generating or banking early NOX credits for averaging 
under Tier 2 requirements, or utilizing alternate phase-in schedules, 
as allowed in this subpart.
    Tier 2 LDV/LLDT means any light-duty vehicle or light light-duty 
truck, including HEVs and ZEVs, of the 2004 or later model year 
certified to comply with the Tier 2 FTP exhaust standards contained in 
Sec. 86.1811-04 including the 0.07 g/mi fleet average NOX 
standard. The term Tier 2 LDV/LLDT also includes any light-duty vehicle 
or light light-duty truck, of any model year, which is certified to 
Tier 2 FTP exhaust standards for purposes of generating or banking 
early NOX credits for averaging under Tier 2 requirements, 
or utilizing alternate phase-in schedules as allowed in this subpart.
    Tier 2 standards means those FTP exhaust emission standards 
including the 0.07 g/mi full useful life fleet average NOX 
standard, applicable to new light-duty vehicles and light light-duty 
trucks that begin a phase-in in the 2004 model year, and those exhaust 
emission standards including the 0.07 g/mi full useful life fleet 
average NOX standard, applicable to heavy light-duty trucks 
and medium-duty passenger vehicles that begin a phase-in in the 2008 
model year. These standards are found in Sec. 86.1811-04 of this 
subpart.
    Tier 2 vehicle means any vehicle certified to comply with the Tier 
2 FTP exhaust standards contained in Sec. 86.1811-04 including the 0.07 
g/mi fleet average NOX standard.
* * * * *
    U.S. sales means, unless otherwise specified, sales in any state of 
the United States except for California or a state that has adopted 
California motor vehicle standards for that model year pursuant to 
section 177 of the Clean Air Act. This definition applies only to those 
regulatory requirements addressing Tier 2 and interim non-Tier 2 
vehicles.
* * * * *

    17. Section 86.1804-01 is amended by adding the following acronyms 
and abbreviations, in alphabetical order, to read as follows:


Sec. 86.1804-01  Acronyms and abbreviations.

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

    18. Section 86.1805-04 is added to read as follows:


Sec. 86.1805-04  Useful life.

    (a) Except as required under paragraph (b) of this section or 
permitted under paragraphs (d), (e) and (f) of this section, the full 
useful life for all LDVs, LDT1s and LDT2s is a period of use of 10 
years or 120,000 miles, whichever occurs first. For all HLDTs and 
MDPVs, full useful life is a period of 11 years or 120,000 miles, 
whichever occurs first. This full useful life applies to all exhaust, 
evaporative and refueling emission requirements except for standards 
which are specified to only be applicable at the time of certification.
    (b) Manufacturers may elect to optionally certify a test group to 
the Tier 2 exhaust emission standards for 150,000 miles to gain 
additional NOX credits, as permitted in Sec. 86.1860-04(g), 
or to opt out of intermediate life standards as permitted in 
Sec. 86.1811-04(c). In such cases, useful life is a period of use of 15 
years or 150,000 miles, whichever occurs first, for all exhaust, 
evaporative and refueling emission requirements except for cold CO 
standards and standards which are applicable only at the time of 
certification.
    (c) Where intermediate useful life exhaust emission standards are

[[Page 6853]]

applicable, such standards are applicable for five years or 50,000 
miles, whichever occurs first.
    (d) Where cold CO standards are applicable, the useful life 
requirement for compliance with the cold CO standard only, is 5 years 
or 50,000 miles, whichever occurs first.
    (e) Where LDVs, LDT1s and LDT2s of the 2003 or earlier model years 
are certified to Tier 2 exhaust emission standards for purposes of 
generating early Tier 2 NOX credits, manufacturers may 
certify those vehicles to full useful lives of 100,000 miles in lieu of 
the otherwise required 120,000 mile full useful lives, as provided 
under Sec. 86.1861-04(c)(4).
    (f) For interim non-Tier 2 LDV/LLDTs, the useful life requirement 
for exhaust, evaporative and refueling emissions is 10 years or 100,000 
miles, whichever occurs first.

    19. Section 86.1806-01 is amended by:
    a. revising paragraph (a);
    b. adding paragraph (b)(8);
    c. redesignating the text of paragraph (d) after the paragraph 
heading as (d)(1); and
    d. adding paragraph (d)(2).
    The revisions and additions read as follows:


Sec. 86.1806-01  On-board diagnostics.

    (a)(1) Except as provided by paragraph (a)(2) of this section, all 
light-duty vehicles, light-duty trucks and MDPVs must be equipped with 
an onboard diagnostic (OBD) system capable of monitoring, for each 
vehicle's useful life, all emission-related powertrain systems or 
components. All systems and components required to be monitored by 
these regulations must be evaluated periodically, but no less 
frequently than once per Urban Dynamometer Driving Schedule as defined 
in Appendix I, paragraph (a), of this part, or similar trip as approved 
by the Administrator.
    (2) Diesel fueled chassis-certified MDPVs and engine-certified 
diesel engines used in MDPVs, are subject to the requirements of this 
section only if the exhaust emission certification of the applicable 
test group is being carried across from a California configuration to 
which California OBD-II requirements are applicable.
    (b) * * *
    (8) For Tier 2 and interim non-Tier 2 hybrid electric vehicles 
(HEVs) only. Unless added to HEVs in compliance with other requirements 
of this section, or unless otherwise approved by the Administrator:
    (i) The manufacturer must equip each HEV with a maintenance 
indicator consisting of a light that must activate automatically by 
illuminating the first time the minimum performance level is observed 
for each battery system component. Possible battery system components 
requiring monitoring are: battery water level, temperature control, 
pressure control, and other parameters critical for determining battery 
condition.
    (ii) The manufacturer must equip ``off-vehicle charge capable 
HEVs'' with a useful life indicator for the battery system consisting 
of a light that must illuminate the first time the battery system is 
unable to achieve an all-electric operating range (starting from a full 
state-of-charge) which is at least 75 percent of the range determined 
for the vehicle in the Urban Driving Schedule portion of the All-
Electric Range Test (see the California Exhaust Emission Standards and 
Test Procedures for 2003 and Subsequent Model Zero-Emission Vehicles, 
and 2001 and Subsequent Model Hybrid Electric Vehicles, in the 
Passenger Car, Light-Duty Truck and Medium-Duty Vehicle Classes. These 
requirements are incorporated by reference (see Sec. 86.1).
    (iii) The manufacturer must equip each HEV with a separate odometer 
or other device subject to the approval of the Administrator that can 
accurately measure the mileage accumulation on the engines used in 
these vehicles.
* * * * *
    (d) MIL illumination. (1) * * *
    (2)(i) For interim non-Tier 2 and Tier 2 LDV/LLDTs and HLDT/MDPVs, 
vehicles produced through the 2007 model year, upon a manufacturer's 
written request, EPA will consider allowing the use of an on-board 
diagnostic system during the certification process, that functions 
properly on low-sulfur gasoline, but indicates sulfur-induced passes 
when exposed to high sulfur gasoline.
    (ii) For interim non-Tier 2 and Tier 2 LDV/LLDTs and HLDT/MDPVs, if 
vehicles produced through the 2007 model year exhibit illuminations of 
the emission control diagnostic system malfunction indicator light due 
to high sulfur gasoline, EPA will consider, upon a manufacturer's 
written request, allowing modifications to such vehicles on a case-by-
case basis so as to eliminate the sulfur induced illumination.
* * * * *

    20. Section 86.1807-01 is amended by revising paragraph (a)(3)(vi) 
to read as follows:


Sec. 86.1807-01  Vehicle labeling.

    (a) * * *
    (3) * * *
    (vi) The exhaust emission standards to which the test group is 
certified, and for test groups having different in-use standards, the 
corresponding exhaust emission standards that the test group must meet 
in use. In lieu of this requirement, manufacturers may use the 
standardized test group name designated by EPA;
* * * * *

    21. Section 86.1809-01 is amended by adding paragraph (e) to read 
as follows:


Sec. 86.1809-01  Prohibition of defeat devices.

* * * * *
    (e) For each test group of Tier 2 LDV/LLDTs and HLDT/MDPVs and 
interim non-Tier 2 LDV/LLDTs and HLDT/MDPVs the manufacturer must 
submit, with the Part II certification application, an engineering 
evaluation demonstrating to the satisfaction of the Administrator that 
a discontinuity in emissions of non-methane organic gases, carbon 
monoxide, oxides of nitrogen and formaldehyde measured on the Federal 
Test Procedure (subpart B of this part) does not occur in the 
temperature range of 20 to 86 degrees F. For diesel vehicles, the 
engineering evaluation must also include particulate emissions.

    22. Section 86.1810-01 is amended by:
    a. adding two new sentences to the end of the introductory text;
    b. adding one new sentence to the end of paragraph (f);
    c. adding a new sentence to the end of paragraph (i)(6); and
    d. adding new paragraphs (i)(13), (i)(14), (o) and (p).
    The additions read as follows:


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

     * * * For Tier 2 and interim non-Tier 2 vehicles, this section 
also applies to hybrid electric vehicles and zero emission vehicles. 
Unless otherwise specified, requirements and provisions of this subpart 
applicable to methanol fueled vehicles are also applicable to Tier 2 
and interim non-Tier 2 ethanol fueled vehicles.
* * * * *
    (f) * * * Interim non-Tier 2 LDV/Ts may be certified to applicable 
Tier 1 exhaust emission standards at high altitude as set forth in 
Secs. 86.1811-01, 86.1812-01, 86.1813-01, 86.1814-02 and 86.1815-02. 
Requirements to meet emission standards at high altitude are optional 
for interim non-Tier 2 MDPVs.
* * * * *
    (i) * * *
    (6) * * * For Tier 2 and interim non-Tier 2 vehicles, this 
provision does not

[[Page 6854]]

apply to enrichment that occurs upon cold start, warm-up conditions and 
rapid-throttle motion conditions (``tip-in'' or ``tip-out'' 
conditions).
* * * * *
    (13) A/C-on specific calibrations. (i) For Tier 2 and interim non-
Tier 2 vehicles, A/C-on specific calibrations (e.g. air to fuel ratio, 
spark timing, and exhaust gas recirculation), may be used which differ 
from A/C-off calibrations for given engine operating conditions (e.g., 
engine speed, manifold pressure, coolant temperature, air charge 
temperature, and any other parameters).
    (ii) Such calibrations must not unnecessarily reduce the 
NMHC+NOX emission control effectiveness during A/C-on 
operation when the vehicle is operated under conditions which may 
reasonably be expected to be encountered during normal operation and 
use.
    (iii) If reductions in control system NMHC+NOX 
effectiveness do occur as a result of such calibrations, the 
manufacturer must, in the Application for Certification, specify the 
circumstances under which such reductions do occur, and the reason for 
the use of such calibrations resulting in such reductions in control 
system effectiveness.
    (iv) A/C-on specific ``open-loop'' or ``commanded enrichment'' air-
fuel enrichment strategies (as defined below), which differ from A/C-
off ``open-loop'' or ``commanded enrichment'' air-fuel enrichment 
strategies, may not be used, with the following exceptions: Cold-start 
and warm-up conditions, or, subject to Administrator approval, 
conditions requiring the protection of the vehicle, occupants, engine, 
or emission control hardware. Other than these exceptions, such 
strategies which are invoked based on manifold pressure, engine speed, 
throttle position, or other engine parameters must use the same engine 
parameter criteria for the invoking of this air-fuel enrichment 
strategy and the same degree of enrichment regardless of whether the A/
C is on or off. ``Open-loop'' or ``commanded'' air-fuel enrichment 
strategy is defined as enrichment of the air to fuel ratio beyond 
stoichiometry for the purposes of increasing engine power output and 
the protection of engine or emissions control hardware. However, 
``closed-loop biasing,'' defined as small changes in the air-fuel ratio 
for the purposes of optimizing vehicle emissions or driveability, must 
not be considered an ``open-loop'' or ``commanded'' air-fuel enrichment 
strategy. In addition, ``transient'' air-fuel enrichment strategy (or 
``tip-in'' and ``tip-out'' enrichment), defined as the temporary use of 
an air-fuel ratio rich of stoichiometry at the beginning or duration of 
rapid throttle motion, must not be considered an ``open-loop'' or 
``commanded'' air-fuel enrichment strategy.
    (14) ``Lean-on-cruise'' calibration strategies. (i) For Tier 2 and 
interim non-Tier 2 vehicles, the manufacturer must state in the 
Application for Certification whether any ``lean-on-cruise'' strategies 
are incorporated into the vehicle design. A ``lean-on-cruise'' air-fuel 
calibration strategy is defined as the use of an air-fuel ratio 
significantly greater than stoichiometry, during non-deceleration 
conditions at speeds above 40 mph. ``Lean-on-cruise'' air-fuel 
calibration strategies must not be employed during vehicle operation in 
normal driving conditions, including A/C usage, unless at least one of 
the following conditions is met:
    (A) Such strategies are substantially employed during the FTP or 
SFTP;
    (B) Such strategies are demonstrated not to significantly reduce 
vehicle NMHC+NOX emission control effectiveness over the 
operating conditions in which they are employed; or
    (C) Such strategies are demonstrated to be necessary to protect the 
vehicle occupants, engine, or emission control hardware.
    (ii) If the manufacturer proposes to use a ``lean-on-cruise'' 
calibration strategy, the manufacturer must specify the circumstances 
under which such a calibration would be used, and the reason or reasons 
for the proposed use of such a calibration.
* * * * *
    (o) Unless otherwise approved by the Administrator, manufacturers 
must measure NMOG emissions in accordance with the California Non-
Methane Organic Gas Test Procedures. These procedures are incorporated 
by reference (see Sec. 86.1).
    (p) For gasoline and diesel-fueled Tier 2 and interim non-Tier 2 
vehicles, manufacturers may measure non-methane hydrocarbons (NMHC) in 
lieu of NMOG. Manufacturers must multiply NMHC measurements from 
gasoline vehicles by an adjustment factor of 1.04 before comparing with 
the NMOG standard to determine compliance with that standard. 
Manufacturers may use other factors to adjust NMHC results to more 
properly represent NMOG results. Such factors must be based upon 
comparative testing of NMOG and NMHC emissions and be approved in 
advance by the Administrator.

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


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

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

    24. Section 86.1811-04 is added to read as follows:


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

    (a) Applicability. (1) This section contains regulations 
implementing emission standards for all LDVs, LDTs and MDPVs. This 
section applies to 2004 and later model year LDVs, LDTs and MDPVs 
fueled by gasoline, diesel, methanol, ethanol, natural gas and 
liquefied petroleum gas fuels, except as noted. Additionally, this 
section contains provisions applicable to hybrid electric vehicles 
(HEVs) and zero emission vehicles (ZEVs). Multi-fueled vehicles must 
comply with all requirements established for each consumed fuel.
    (2) This section also applies to LDVs, LDTs and MDPVs of model 
years prior to 2004, when manufacturers certify such vehicles to Tier 2 
exhaust emission requirements to utilize alternate phase-in schedules, 
as allowed under paragraph (k)(6) of this section, and/or to earn early 
NOX credits for use in complying with the Tier 2 fleet 
average NOX standard which takes effect in the 2004 model 
year for LDV/LLDTs and 2008 for HLDT/MDPVs.
    (3) Except where otherwise specified, this section applies instead 
of Secs. 86.1811-01, 86.1812-01, 86.1813-01, 86.1814-01, 86.1814-02, 
86.1815-01, and 86.1815-02.
    (4) Except where otherwise specified, the provisions of this 
section apply equally to LDVs and all categories of LDTs, and to all 
MDPVs. Numerous provisions are applicable equally to HLDTs and MDPVs, 
as reflected by the term HLDT/MDPV. Numerous provisions apply equally 
to LDVs and LLDTs as reflected by the term LDV/LLDT.
    (5) The exhaust emission standards and evaporative emission 
standards of this section apply equally to certification and in-use 
LDVs, LDTs and MDPVs, unless otherwise specified.
    (b) Test weight. (1) Except as required in paragraphs (b)(2) and 
(b)(4) of this section, or permitted under paragraph (b)(3) of this 
section, emission testing of all LDVs, LDTs and MDPVs to

[[Page 6855]]

determine compliance with any exhaust or evaporative emission standard 
set forth in this Part must be on a loaded vehicle weight (LVW) basis, 
as that term is defined in this subpart.
    (2) Interim non-Tier 2 HLDTs tested to Tier 1 SFTP standards, must 
be tested on an adjusted loaded vehicle weight (ALVW) basis, as that 
term is defined in this subpart, during the SC03 element of the SFTP.
    (3) Except as required in paragraphs (b)(2) and (b)(4) of this 
section, interim non-Tier 2 HLDT/MDPVs may be tested on an ALVW basis 
or an LVW basis to demonstrate compliance with any exhaust or 
evaporative emission standard set forth in this Part.
    (4) MDPVs certified to bin 11 standards from Tables S04-1 and -2 
must be tested on an ALVW basis to demonstrate compliance with any 
exhaust emission standard set forth in this part.
    (c) Tier 2 FTP exhaust emission standards. Exhaust emissions from 
Tier 2 vehicles must not exceed the standards in Table S04-1 of this 
section at full useful life when tested over the Federal Test Procedure 
(FTP) described in subpart B of this part. Exhaust emissions from Tier 
2 vehicles must not exceed the standards in Table S04-2 of this section 
at intermediate useful life, if applicable, when tested over the FTP.
    (1) For a given test group a manufacturer desires to certify to 
operate only on one fuel, the manufacturer must select a set of 
standards from the same bin (line or row) in Table S04-1 of this 
section for non-methane organic gases (NMOG), carbon monoxide (CO), 
oxides of nitrogen (NOX), formaldehyde (HCHO) and 
particulate matter (PM). The manufacturer must certify the test group 
to meet those standards, subject to all the applicable provisions of 
this subpart. The manufacturer must also certify the test group to meet 
the intermediate useful life standards (if any) in Table S04-2 of this 
section having the same EPA bin reference number as the chosen full 
useful life standards.
    (2) For a given test group of flexible-fueled, bi-fuel or dual fuel 
vehicles when operated on the alcohol or gaseous fuel they are designed 
to use, manufacturers must select a bin of standards from Table S04-1 
of this section and the corresponding bin in Table S04-2, if any. When 
these flexible-fueled, bi-fuel or dual fuel vehicles are certified to 
operate on gasoline or diesel fuel, the manufacturer may choose to 
comply with the next numerically higher applicable NMOG standard, if 
any, above the bin which contains the standards selected for 
certification on the gaseous or alcohol fuel.
    (3)(i) For a given test group of flexible-fueled, bi-fuel or dual 
fuel vehicles certified to bin 10 in Table S04-1, when operated on the 
alcohol or gaseous fuel they are designed to use, manufacturers may 
choose to comply with a NMOG standard of 0.230 for LDV/LLDTs or 0.280 
g/mi for HLDT/MDPVs at full useful life and corresponding intermediate 
life standards of 0.160 g/mi and 0.195 g/mi, respectively.
    (ii) For a given test group of flexible-fueled, bi-fuel or dual 
fuel vehicles certified to bin 8 in Table S04-1, when operated on the 
alcohol or gaseous fuel they are designed to use, manufacturers may 
choose to comply with a NMOG standard of 0.156 g/mi for LDV/LLDTs and 
0.180 for HLDT/MDPVs at full useful life and corresponding intermediate 
life standards of 0.125 g/mi and 0.140 g/mi, respectively.
    (4)(i) For bins where intermediate life standards are applicable, a 
manufacturer may elect not to comply with such standards. Except as 
permitted in paragraph (c)(4)(iv) of this section, the manufacturer 
must certify such vehicles to a useful life of 15 years or 150,000 
miles, whichever occurs first, for LDV/LLDTs and HLDT/MDPVs.
    (ii) A manufacturer electing not to comply with intermediate life 
standards, as permitted in paragraph (c)(4)(i) of this section, may not 
generate additional NOX credits as described under 
Sec. 86.1860-04 (g), except as permitted in paragraph (c)(4)(iii) of 
this section.
    (iii) For bins where intermediate life standards are not 
applicable, or are specified to be optional by paragraph (c)(4)(iv) of 
this section, a manufacturer may generate additional NOX 
credits subject to the provisions in Sec. 86.1860-04 (g).
    (iv) For diesel vehicles certified to bin 10, intermediate life 
standards are optional regardless of whether the manufacturer certifies 
the test group to a full useful life of 120,000 miles or 150,000 miles.
    (5) In a given model year, an individual vehicle may not be 
included in both the Tier 2 program and an interim program.
    (6) Tables S04-1 and S04-2 follow:

          Table S04-1.--Tier 2 and Interim Non-Tier 2 Full Useful Life Exhaust Mass Emission Standards
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
             Bin No.                  NOX          NMOG           CO          HCHO           PM         Notes
----------------------------------------------------------------------------------------------------------------
11..............................          0.9         0.280          7.3         0.032         0.12         a, c
10..............................          0.6   0.156/0.230      4.2/6.4   0.018/0.027         0.08      a, b, d
9...............................          0.3   0.090/0.180          4.2         0.018         0.06      a, b, e
8...............................         0.20   0.125/0.156          4.2         0.018         0.02         b, f
7...............................         0.15         0.090          4.2         0.018         0.02
6...............................         0.10         0.090          4.2         0.018         0.01
5...............................         0.07         0.090          4.2         0.018         0.01
4...............................         0.04         0.070          2.1         0.011         0.01
3...............................         0.03         0.055          2.1         0.011         0.01
2...............................         0.02         0.010          2.1         0.004         0.01
1...............................         0.00         0.000          0.0         0.000        0.00
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ This bin and its corresponding intermediate life bin are deleted at end of 2006 model year (end of 2008
  model year for HLDTs and MDPVs).
\b\ Higher NMOG, CO and HCHO values apply for HLDTs and MDPVs only.
\c\ This bin is only for MDPVs.
\d\ Optional NMOG standard of 0.280 g/mi applies for qualifying LDT4s and qualifying MDPVs only.
\e\ Optional NMOG standard of 0.130 g/mi applies for qualifying LDT2s only.
\f\ Higher NMOG standard deleted at end of 2008 model year.


[[Page 6856]]


    Table S04-2.--Tier 2 and Interim Non-Tier 2 Intermediate Useful Life (50,000 Mile) Exhaust Mass Emission
                                                    Standards
                                                 [grams per mile]
----------------------------------------------------------------------------------------------------------------
             Bin No.                  NOX          NMOG           CO          HCHO           PM         Notes
----------------------------------------------------------------------------------------------------------------
11..............................          0.6         0.195          5.0         0.022                   a c f h
10..............................          0.4   0.125/0.160      3.4/4.4   0.015/0.018  ...........    a b d f g
                                                                                                               h
9...............................          0.2   0.075/0.140          3.4         0.015  ...........    a b c f h
8...............................         0.14   0.100/0.125          3.4         0.015  ...........      b f h i
7...............................         0.11         0.075          3.4         0.015  ...........          f h
6...............................         0.08         0.075          3.4         0.015  ...........          f h
5...............................         0.05         0.075          3.4         0.015  ...........         f h
----------------------------------------------------------------------------------------------------------------
Notes:
a This bin deleted at end of 2006 model year (end of 2008 model year for HLDTs and MDPVs ).
b Higher NMOG, CO and HCHO values apply for HLDTs and MDPVs only.
c This bin is only for MDPVs.
d Optional NMOG standard of 0.195 g/mi applies for qualifying LDT4s and qualifying MDPVs only.
e Optional NMOG standard of 0.100 g/mi applies for qualifying LDT2s only.
f The full useful life PM standards from Table S04-1 also apply at intermediate useful life.
g Intermediate life standards of this bin are optional for diesels.
h Intermediate life standards are optional for vehicles certified to a useful life of 150,000 miles.
i Higher NMOG standard deleted at end of 2008 model year.

    (d) Fleet average NOX Standards. (1)(i) For a given 
individual model year's sales of Tier 2 vehicles, including model years 
during the phase-in years of the Tier 2 standards, manufacturers must 
comply with a fleet average oxides of nitrogen (NOX) 
standard of 0.07 grams per mile. The manufacturer must calculate its 
fleet average NOX emission level(s) as described in 
Sec. 86.1860-04. Up through and including model year 2008, 
manufacturers must calculate separate fleet average NOX 
emission levels for LDV/LLDTs and for HLDT/MDPVs as described in 
Sec. 86.1860-04.
    (ii) During a phase-in year, the manufacturer must comply with the 
0.07 g/mi fleet average standard for the required phase-in percentage 
for that year as specified in paragraph (k)(1) of this section, or for 
the alternate phase-in percentage as permitted under paragraph (k)(6) 
of this section.
    (2) For Early Tier 2 LDV/LLDTs. For model years prior to 2004, 
where the manufacturer desires to bank early Tier 2 NOX 
credits as permitted under Sec. 86.1861(c), the manufacturer must 
comply with a fleet average standard of 0.07 grams per mile for its 
Tier 2 LDV/LLDTs. Manufacturers must determine compliance with the 
NOX fleet average standard according to regulations in 
Sec. 86.1860-04 of this subpart.
    (3) For Early Tier 2 HLDT/MDPVs. For model years prior to 2008, 
where the manufacturer desires to bank early Tier 2 NOX 
credits as permitted under Sec. 86.1861(c), the manufacturer must 
comply with a fleet average standard of 0.07 grams per mile for its 
Tier 2 HLDT/MDPVs. Manufacturers must determine compliance with the 
NOX fleet average standard according to regulations in 
Sec. 86.1860-04.
    (e) Evaporative emission standards. Consistent with the phase-in 
requirements in paragraph (k) of this section, evaporative emissions 
from gasoline-fueled, natural gas-fueled, liquefied petroleum gas-
fueled, ethanol-fueled and methanol-fueled vehicles must not exceed the 
standards in this paragraph. The standards apply equally to 
certification and in-use vehicles, except that the spitback standard 
applies only to newly assembled vehicles.
    (1) Diurnal-plus-hot soak evaporative hydrocarbon standards. 
Hydrocarbons for LDV/LLDTs, HLDTs and MDPVs must not exceed the diurnal 
plus hot soak standards shown in Table S04-3 for the full three diurnal 
test sequence and for the supplemental two diurnal test sequence. Table 
S04-3 follows:

   Table S04-3.--Light-Duty Diurnal Plus Hot Soak Evaporative Emission
                                Standards
                            [grams per test]
------------------------------------------------------------------------
                                                            Supplemental
                                                  3 day         2 day
               Vehicle category                diurnal+hot   diurnal+hot
                                                   soak         soak
------------------------------------------------------------------------
LDV/LLDTs....................................        0.95           1.2
HLDTs........................................         1.2           1.5
MDPVs........................................         1.4          1.75
------------------------------------------------------------------------

    (2) Running loss standard. Hydrocarbons for LDVs, LDTs and MDPVs 
measured on the running loss test must not exceed 0.05 grams per mile.
    (3) Refueling emission standards. Refueling emissions must not 
exceed the following standards:
    (i) For gasoline-fueled, diesel-fueled and methanol-fueled LDVs, 
LDTs and MDPVs: 0.20 grams hydrocarbon per gallon (0.053 grams per 
liter) of fuel dispensed.
    (ii) For liquefied petroleum gas-fueled LDV, LDTs and MDPVs: 0.15 
grams hydrocarbon per gallon (0.04 grams per liter) of fuel dispensed.
    (iii) Refueling standards for HLDTs are subject to the phase-in 
requirements found in Sec. 86.1810-01(k). MDPVs must also comply with 
the phase-in requirement in Sec. 86.1810-01(k) and must be grouped with 
HLDTs to determine phase-in compliance.
    (4) Spitback standards. For gasoline and methanol fueled LDV/Ts and 
MDPVs, hydrocarbons measured on the fuel dispensing spitback test must 
not exceed 1.0 grams hydrocarbon (carbon if methanol-fueled) per test.
    (5) Evaporative emission requirements for interim vehicles. (i) 
LDV/Ts not certified to meet the evaporative emission standards in this 
paragraph (e) as permitted under the phase-in schedule of paragraph (k) 
of this section, must meet applicable evaporative emission standards in 
Secs. 86.1811-01, 86.1812-01, 86.1813-01, 86.1814-02 or 86.1815-02 
except that all LDV/Ts must meet the refueling emission standards in 
paragraph (e)(3) of this section.
    (ii) MDPVs not certified to meet the evaporative emission standards 
in this paragraph (e) as permitted under the phase-in schedule of 
paragraph (k) of this section, must meet applicable evaporative 
emission standards for heavy-duty vehicles in Sec. 86.099-10.
    (6) In cases where applicable California emission standards are as 
stringent or more stringent than applicable standards specified under 
this paragraph (e), the Administrator may accept data indicating 
compliance with California standards to

[[Page 6857]]

demonstrate compliance for certification purposes with the standards 
required under this paragraph (e). The Administrator may require 
manufacturers to provide comparative test data to show that a vehicle 
meeting California standards under California test conditions and 
procedures will also meet the standards under this paragraph (e) when 
tested under test conditions and procedures in this Part 86.
    (f) Supplemental exhaust emission standards for LDV/Ts. (1) 
Supplemental exhaust emission standards are applicable to gasoline and 
diesel-fueled LDV/Ts but are not applicable to MDPVs, alternative 
fueled LDV/Ts, or flexible fueled LDV/Ts when operated on a fuel other 
than gasoline or diesel. Except as otherwise specified in this 
paragraph (f), manufacturers must comply with 4000 mile and full useful 
life SFTP standards as determined in this paragraph (f). The 4000 mile 
SFTP standards must be taken from Table S04-4 and the full life SFTP 
standards must be calculated using the formula in paragraph (f)(2) of 
this section. Table S04-4 follows:

             Table S04-4.--4000 Mile SFTP Standards for Tier 2 and Interim Non-Tier 2 LDVs and LDTs
----------------------------------------------------------------------------------------------------------------
                                                                        US06                      SC03
                                                             ---------------------------------------------------
                                                              NMHC+NOX (g/              NMHC+NOX (g/
                                                                  mi)       CO (g/mi)       mi)       CO (g/mi)
----------------------------------------------------------------------------------------------------------------
LDV/LDT1....................................................         0.14          8.0         0.20          2.7
LDT2........................................................         0.25         10.5         0.27          3.5
LDT3........................................................          0.4         10.5         0.31          3.5
LDT4........................................................          0.6         11.8         0.44          4.0
----------------------------------------------------------------------------------------------------------------

    (2)(i) Manufacturers must calculate their applicable full useful 
life SFTP standards for NMHC+NOX, PM and for CO, if using 
the weighted CO standard. If not using the weighted CO standard, 
manufacturers may use the full useful life standalone Tier 1 standards 
for US06 and SC03. To calculate the applicable full useful life 
weighted NMHC+NOX, PM and CO standards, manufacturers must 
use the following formula and values from Table S04-1 in paragraph (c) 
of this section and values from Tables S04-5 and S04-6 which follow:

SFTP Standard = SFTP Standard1 - [0.35 x (FTP 
Standard1--Current FTP Standard)]

Where:
SFTP Standard = Applicable full life weighted SFTP standard for 
NMHC+NOX, PM or CO. This standard must be rounded to two 
decimal places.
SFTP Standard1 = Applicable full life Tier 1 SFTP standard 
for NMHC+NOX or CO from Table S04-5. For PM only, use FTP 
Standard1 for SFTP Standard1.
FTP Standard1 = Applicable full life Tier 1 FTP standard 
from Table S04-6 in this paragraph (f). For the Tier 1 
NMHC+NOX standard, add the applicable NMHC and NOx 
standards.
Current FTP Standard = Applicable full life FTP standard from Table 
S04-1 in paragraph (c) of this section. For the current 
NMHC+NOX standard, add the NMOG and NOX standards 
from the applicable bin.

                              Table S04-5.--Tier 1 Full Useful Life SFTP Standards
----------------------------------------------------------------------------------------------------------------
                                                    NMHC + NOX                     CO (g/mi)b, c
                Vehicle category                   (weighted  g/ -----------------------------------------------
                                                      mi)a, c          US06            SC03          Weighted
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................     0.91 (0.65)      11.1 (9.0)       3.7 (3.0)       4.2 (3.4)
LDT2............................................     1.37 (1.02)     14.6 (11.6)       4.9 (3.9)       5.5 (4.4)
LDT3............................................            1.44            16.9             5.6             6.4
LDT4............................................            2.09            19.3             6.4            7.3
----------------------------------------------------------------------------------------------------------------
a Weighting for NMHC+NOX and optional weighting for CO is 0.35x(FTP) +0.28x(US06)+0.37x(SC03).
b CO standards are stand alone for US06 and SC03 with option for a weighted standard.
c Intermediate life standards are shown in parentheses for diesel LDV/LLDTs opting to calculate intermediate
  life SFTP standards in lieu of 4,000 mile SFTP standards as permitted under paragraph (f)(6) of this section.


                           Table S04-6.--Tier 1 Full Useful Life FTP Standards (g/mi)
----------------------------------------------------------------------------------------------------------------
                Vehicle category                      NMHC a           NOXa            CO a             PM
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................     0.31 (0.25)       0.6 (0.4)       4.2 (3.4)            0.10
LDT2............................................     0.40 (0.32)       0.97(0.7)       5.5 (4.4)            0.10
LDT3............................................            0.46            0.98             6.4            0.10
LDT4............................................            0.56            1.53             7.3           0.12
----------------------------------------------------------------------------------------------------------------
a Intermediate life standards are shown in parentheses for diesel LDV/LLDTs opting to calculate intermediate
  life SFTP standards in lieu of 4,000 mile SFTP standards as permitted under paragraph (f)(6)of this section.

    (ii)(A) Manufacturers must determine compliance with 
NMHC+NOX, CO and PM weighted SFTP standards calculated in 
paragraph (f)(2)(i) of this section by weighting their emission results 
as follows:

0.35 x (FTP)+0.28 x (US06)+0.37 x (SC03).

    (B) The results of the calculation in paragraph (f)(2)(ii)(A) of 
this section must be rounded to one more decimal place than the 
applicable standard calculated in paragraph (f)(2)(i) of this section 
and then compared with that standard.

[[Page 6858]]

    (3) For interim non-Tier 2 gasoline, diesel and flexible-fueled 
LDT3s and LDT4s, manufacturers may, alternatively, meet the gasoline-
fueled vehicle SFTP standards found in Secs. 86.1814-02 and 86.1815-02, 
respectively.
    (4) Interim non-Tier 2 gasoline, diesel and flexible-fueled LDV/
LLDTs certified to bin 10 FTP exhaust emission standards from Table 
S04-1 in paragraph (c) of this section may meet the gasoline Tier 1 
SFTP requirements found at Sec. 86.1811-01(b).
    (5) SFTP standards for PM are not applicable to interim non-Tier 2 
LDV/Ts. For Tier 2 LDV/Ts, the 4000 mile PM standard is equal to the 
full life PM standard calculated under paragraph (f)(2) of this 
section. The requirements of this paragraph (f)(5) also apply to Tier 2 
flexible fuel vehicles when operated on gasoline or diesel fuel. (See 
regulations in Sec. 86.1829-01(b)(1)(iii)(B) regarding data submittal 
for PM results for gasoline vehicles.)
    (6)(i) In lieu of complying with 4000 mile SFTP standards described 
in this paragraph, diesel LDV/LLDTs through model year 2006, may comply 
instead with intermediate life SFTP standards derived from Tier 1 
intermediate life SFTP standards for gasoline vehicles.
    (ii) To calculate intermediate life SFTP standards, substitute 
intermediate life Tier 1 FTP and SFTP values from Tables S04-5 and S04-
6 in this paragraph (f), as appropriate, for the full life values in 
the equation in paragraph (f)(2)(i) of this section. Substitute the 
applicable intermediate life standards for the full life current FTP 
standard. If there is no applicable intermediate life standard use the 
full life current FTP standard.
    (iii) A manufacturer of diesel LDV/LLDTs must declare which option 
it will use (4,000 mile or intermediate life standards) in Part I of 
its certification application.
    (g) Cold temperature exhaust emission standards. These standards 
are applicable only to gasoline fueled LDV/Ts and MDPVs. For cold 
temperature exhaust emission standards, a useful life of 50,000 miles 
applies.
    (1) For LDVs and LDT1s, the standard is 10.0 grams per mile CO.
    (2) For LDT2s, LDT3s and LDT4s, and MDPVs the standard is 12.5 
grams per mile CO.
    (3) These standards do not apply to interim non-Tier 2 MDPVs.
    (h) Certification short test exhaust emission standards. 
Certification short test emissions from all gasoline-fueled otto cycle 
LDV/Ts and MDPVs must not exceed the following standards:
    (1) Hydrocarbons: 100 ppm as hexane, for certification and SEA 
testing; 220 ppm as hexane, for in-use testing.
    (2) Carbon monoxide: 0.5% for certification and SEA testing; 1.2% 
for in-use testing.
    (3) These standards do not apply to interim non-Tier 2 MDPVs.
    (i) Idle CO standards and references to such standards in this 
subpart, do not apply to any 2004 or later model year LDV, LDT, or MDPV 
or to any LDV, LDT or MDPV certified to Tier 2 standards before model 
year 2004 for purposes of generating early NOX credits or 
meeting the requirements of an alternative phase-in schedule that 
begins prior to the 2004 model year.
    (j) Highway NOX exhaust emission standard. The maximum 
projected NOX emissions measured on the federal Highway Fuel 
Economy Test in 40 CFR part 600, subpart B, must not be greater than 
1.33 times the applicable FTP NOX standard to which the 
manufacturer certifies the test group. Both the projected emissions and 
the product of the NOX standard and 1.33 must be rounded to 
the nearest 0.01 g/mi before being compared. This standard is not 
applicable to MDPVs.
    (k) Phase-in of the Tier 2 FTP exhaust and evaporative 
requirements; small volume manufacturer flexibilities. (1) 
Manufacturers must comply with the phase-in requirements in Tables S04-
7 and S04-8 of this paragraph (k) for the Tier 2 FTP exhaust emission 
requirements specified in paragraph (c) of this section. Separate 
phase-in schedules are provided for LDV/LLDTs and for HLDT/MDPVs. These 
requirements specify the minimum percentage of the manufacturer's LDV/
LLDT and HLDT/MDPV U.S. sales, by model year, that must meet the Tier 2 
requirements, including the applicable fleet average standard, for 
their full useful lives. As the terms LDV/LLDT and HLDT/MDVP imply, 
LDVs and LLDTs must be grouped together to determine compliance with 
these phase-in requirements and HLDTs and MDPVs must also be grouped 
together to determine compliance with these phase-in requirements. 
Tables S04-7 and S04-8 follow:

   Table S04-7.--Phase-in Percentages for LDV/LLDT Tier 2 Requirements
------------------------------------------------------------------------
                                                             Percentage
                                                            of LDV/LLDTs
                        Model year                            that must
                                                             meet tier 2
                                                            requirements
------------------------------------------------------------------------
2004......................................................            25
2005......................................................            50
2006......................................................            75
2007 and subsequent.......................................           100
------------------------------------------------------------------------


  Table S04-8.--Phase-in Percentages for HLDT/MDPV Tier 2 Requirements
------------------------------------------------------------------------
                                                           Percentage of
                                                            HLDT/MDPVs
                       ModeL year                         that must meet
                                                              tier 2
                                                           requirements
------------------------------------------------------------------------
2008....................................................              50
2009 and subsequent.....................................             100
------------------------------------------------------------------------

    (2) Manufacturers must also comply with the phase-in requirements 
in Tables S04-7 and S04-8 of this paragraph (k) for the evaporative 
emission requirements contained in paragraph (e) of this section.
    (3) Manufacturers may opt to use different LDV/LLDTs and HLDT/MDPVs 
to meet the phase-in requirements for evaporative emissions and FTP 
exhaust emissions, provided that the manufacturer meets the minimum 
applicable phase-in requirements in Table S04-7 and Table S04-8 of this 
paragraph (k) for both FTP exhaust and evaporative emissions. A LDV, 
LDT or MDPV counted toward compliance with any phase-in requirement for 
FTP exhaust or evaporative standards, must comply with all applicable 
Tier 2 exhaust requirements or all applicable evaporative requirements, 
respectively, described in this section.
    (4) LDVs, LDTs and MDPVs not certified to meet the Tier 2 FTP 
exhaust requirements during model years 2004-2008, as allowed under 
this subpart, are subject to the provisions of paragraph (l) of this 
section.
    (5) Provisions for small volume manufacturers (i) Small volume 
manufacturers, as defined in this part, are exempt from the Tier 2 LDV/
LLDT exhaust and evaporative emissions phase-in requirements for model 
years 2004, 2005 and 2006 in Table S04-7 of this paragraph (k), but 
must comply with the 100% requirement for the 2007 and later model 
years for exhaust and evaporative emissions. If not complying with Tier 
2 requirements during 2004, 2005 and 2006, small volume

[[Page 6859]]

manufacturers must comply with the requirements for interim non-Tier 2 
LDV/LLDTs.
    (ii) Small volume manufacturers, as defined in this part, are 
exempt from the HLDT/MDPV exhaust and evaporative phase-in requirement 
for model year 2008 in Table S04-8 of this section but must comply with 
the 100% requirement for the 2009 model year. Small volume 
manufacturers are also exempt from the HLDT/MDPV interim fleet average 
NOX standard (0.20 g/mi) and its phase-in for the 2004, 2005 
and 2006 model years.
    (iii) Small volume manufacturers must comply with the FTP exhaust 
emission standards from Tables S04-1 and 2 of paragraph (c) of this 
section for all HLDT/MDPVs of model years 2004 and later, except that 
2004 model year HLDTs may comply with Tier 1 exhaust emission standards 
subject to the provisions of paragraph (l)(2)(vii) of this section, and 
2004 model year MDPVs may comply with heavy-duty vehicle standards 
subject to the provisions of paragraph (l)(2)(viii) of this section. 
Small volume manufacturers must also comply with the 0.20 g/mi fleet 
average NOX standard for 2007 and 2008 model year HLDT/
MDPVs; the Tier 2 0.07 g/mi fleet average NOX standard for 
the 2009 and later model year HLDT/MDPVs; and the evaporative emission 
standards in Table S04-3 of this section for the 2009 and later model 
years.
    (6)(i) A manufacturer may elect an alternate phase-in schedule that 
results in 100% phase-in for LDV/LLDTs by 2007. Alternate phase-in 
schedules must produce a sum of at least 250% when the percentages of 
LDV/LLDTs certified to Tier 2 requirements for each model year from 
2001 through 2007 are summed. As an example, a 10/25/50/65/100 percent 
phase-in that began in 2003 would have a sum of 250 percent and would 
be acceptable. However, a 10/25/40/70/100 percent phase-in that began 
the same year would have a sum of 245 percent and would not be 
acceptable.
    (ii) A manufacturer electing this option for LDV/LLDTs may 
calculate its compliance with the evaporative standards in paragraph 
(e)(1) of this section separately from its compliance with Tier 2 
exhaust standards, provided that the phase-in schedules for each 
separately produce a sum of at least 250 percent when calculated as 
described in paragraph (k)(6)(i) of this section. A vehicle counted 
towards compliance with any phase-in requirement for the Tier 2 exhaust 
standards or the evaporative standards in paragraph (e)(1) of this 
section, must comply with all applicable Tier 2 exhaust standards or 
all evaporative standards, as applicable, described in this section.
    (iii) In addition to the requirements of paragraphs (k)(6)(i) and 
(ii) of this section, except as permitted in paragraph (k)(6)(vii) of 
this section, a manufacturer of LDV/LLDTs electing to use an alternate 
phase-in schedule for compliance with the Tier 2 exhaust standards or 
the evaporative standards in paragraph (e)(1) of this section must 
ensure that the sum of the percentages of vehicles from model years 
2001 through 2004, meeting such exhaust or evaporative standards, as 
applicable, is at least 25%.
    (iv) A manufacturer may elect an alternate phase-in schedule that 
results in 100% phase-in for HLDT/MDPVs by 2009. The requirements of 
paragraphs (k)(6)(i) through (k)(6)(ii) of this section apply, except 
that for HLDT/MDPVs, the calculation described in paragraphs (k)(6)(i) 
and (k)(6)(ii) of this section may cover model years 2001 through 2009 
and must produce a sum of at least 150%.
    (v) A manufacturer electing to use any alternate phase-in schedule 
permitted under this section must provide in its Application for 
Certification for the first year in which it intends to use such a 
schedule, and in each succeeding year during the phase-in, the intended 
phase-in percentages for that model year and the remaining phase-in 
years along with the intended final sum of those percentages as 
described in this paragraph (k)(6). This information may be included 
with the information required under Sec. 86.1844-01(d)(13). In its year 
end annual reports, as required under Sec. 86.1844-01(e)(4) the 
manufacturer must include sufficient information so that the 
Administrator can verify compliance with the alternative phase-in 
schedule established under paragraph (k)(6) of this section.
    (vi) Under an alternate phase-in schedule, the projected phase-in 
percentage is not binding for a given model year, provided the sums of 
the actual phase-in percentages that occur meet the appropriate total 
sums as required in paragraph (k)(6) of this section, and provided that 
100% actual compliance is reached for the appropriate model year, 
either 2007 or 2009, as described in paragraph (k)(6) of this section.
    (vii) A manufacturer unable to meet the 25% requirement in 
paragraph (k)(6)(iii) of this section, must:
    (A) Ensure that the sum of the percentages of vehicles for model 
years 2001 through 2004, meeting such exhaust or evaporative standards, 
as applicable, is at least 20%.
    (B) Subtract that sum of percentages for model years 2001 through 
2004 from 25%, and multiply the unrounded result by 2.
    (C) Round the product from paragraph (k)(6)(vii)(B) of this section 
to the nearest 0.1% and add that to 50%. That sum becomes the required 
phase-in percentage for the 2005 model year.
    (D) Comply with the phase-in percentage for the 2005 model year 
determined in paragraph (k)(6)(vii)(C) of this section.
    (E) Comply with a minimum phase-in percentage for the 2006 model 
year determined by the following equation:

minimum phase-in percentage for 2006 = [75% - (2005api - 
2005rpi)]


Where:

2005rpi = the required phase-in for the 2005 model year as 
determined in paragraph (k)(6)(vii)(C) of this section; and
2005api = the manufacturer's actual phase-in quantity for 
the 2005 model year.

    (7)(i) Sales percentages for the purpose of determining compliance 
with the phase-in of the Tier 2 requirements and the phase-in of the 
evaporative standards in paragraph (e)(1) of this section, must be 
based upon projected U.S. sales of LDV/LLDTs and HLDT/MDPVs of the 
applicable model year by the manufacturer to the point of first sale. 
Such sales percentages must be rounded to the nearest one tenth of a 
percent, and must not include vehicles and trucks projected to be sold 
to points of first sale in California or a state that has adopted 
California requirements for that model year as permitted under section 
177 of the Act.
    (ii) Alternatively, the manufacturer may petition the Administrator 
to allow actual volume produced for U.S. sales to be used in lieu of 
projected U.S. sales for purposes of determining compliance with the 
phase-in percentage requirements under this section. The manufacturer 
must submit its petition within 30 days of the end of the model year to 
the Vehicle Programs and Compliance Division. For EPA to approve the 
use of actual volume produced for U.S. sales, the manufacturer must 
establish to the satisfaction of the Administrator, that actual 
production volume is functionally equivalent to actual sales volume of 
LDV/LLDTs and HLDT/MDPVs sold in states other than California and 
states that have adopted California standards.
    (iii) Manufacturers must submit information showing compliance with 
all phase-in requirements of this section

[[Page 6860]]

with its Part I application as required by Sec. 86.1844(d)(13).
    (l) FTP exhaust standards for interim non-Tier 2 vehicles.--(1) FTP 
exhaust emission standards for interim non-Tier 2 LDV/LLDTs. (i) LDV/
LLDTs that are not used to meet the Tier 2 phase-in requirements 
including the Tier 2 fleet average NOX requirement during 
the Tier 2 phase-in period (model years 2004-2006) must comply with the 
full useful life FTP exhaust emission standards listed in Table S04-1 
of paragraph (c) of this section and the corresponding intermediate 
useful life standards, if any, in Table S04-2 of paragraph (c) of this 
section. Manufacturers may choose the bin of full useful life standards 
to which they certify a test group of vehicles, subject to the 
requirements in paragraph (l)(3)(i) of this section. In a given model 
year, an individual vehicle may not be used to comply with both the 
Tier 2 fleet average NOX standard and the applicable interim 
fleet average NOX standard although vehicles from the same 
test group may be separated and the vehicles counted toward compliance 
with either program.
    (ii) The provisions of paragraphs (c) (1), (2) and (3) of this 
section apply to flexible-fueled, dual fuel and multi-fuel interim non-
Tier 2 LDV/LLDTs.
    (iii) Only manufacturers that comply with the applicable FTP 
standards in Tables S04-1 and 2 of paragraph (c) of this section for 
all of their 2004 model year HLDTs and declare their intention to 
comply with the 2004 model year 25% phase-in requirement to the 0.20 g/
mi interim fleet average NOX standard for HLDTs (or HLDT/
MDPVs) described in this paragraph (l) may use the optional higher NMOG 
values for interim LDT2s certified to bin 9 standards that are shown in 
Tables S04-1 and 2. Manufacturers must declare their intention to 
comply with the full 2004 model year 25% phase-in requirement in Part I 
of their HLDT or their HLDT/MDPV, as applicable, certification 
applications.
    (iv) The provisions of paragraph (c)(4) of this section apply to 
interim non-Tier 2 vehicles.
    (2) FTP exhaust emission standards for interim non-Tier 2 HLDTs and 
interim non-Tier 2 MDPVs. (i) Except as permitted under paragraphs 
(l)(2) (vii) and (viii) of this section, HLDTs and MDPVs of model years 
2004-2008 that are not used to meet the Tier 2 FTP phase-in 
requirements including the Tier 2 fleet average NOX 
requirement must comply with the full useful life FTP exhaust emission 
standards listed in Table S04-1 of paragraph (c) of this section and, 
the corresponding intermediate useful life standards, if any, in Table 
S04-2 of paragraph (c) of this section. Manufacturers may choose the 
bin of full useful life standards to which they certify a test group of 
vehicles, subject to the requirements in paragraph (l)(3)(ii) of this 
section.
    (ii) Except as permitted under paragraphs (l)(2) (vii) and (viii) 
of this section, HLDTs and MDPVs of model years 2004-2008 that are not 
used to meet the Tier 2 FTP phase-in requirements including the Tier 2 
fleet average NOX requirement must comply with the fleet 
average NOX standard described in paragraph (l)(3)(ii) of 
this section subject to the phase-in schedule in paragraph (l)(2)(iv) 
of this section, i.e. 25 percent of the HLDT and MDPVs must meet the 
fleet average standard of 0.20 g/mi in 2004, 50 percent in 2005, and so 
on.
    (iii) Manufacturers may choose the bin of full useful life 
standards and corresponding intermediate life standards to which they 
certify test groups of HLDTs and MDPVs, subject to the requirements in 
paragraph (l)(3)(ii) of this section. Manufacturers may include HLDT/
MDPVs in the interim program that are not used to meet the Tier 2 fleet 
average NOX standard or the phase-in percentage requirements 
in the Tier 2 program or to generate Tier 2 NOX credits. In 
a given model year, an individual vehicle may not be used to comply 
with both the Tier 2 fleet average NOX standard and the 
applicable interim fleet average NOX standard although 
vehicles from the same test group may be separated and the vehicles 
counted toward compliance with either program.
    (iv) Phase-in schedule for interim non-Tier 2 HLDT/MDPVs. Table 
S04-9 of this paragraph (l) specifies the minimum percentage of the 
manufacturer's interim non-Tier 2 HLDT/MDPV U.S. sales, by model year, 
that must comply with the fleet average NOX standard 
described in paragraph (l)(3)(ii) of this section. Table S04-9 follows:

 Table S04-9.--Phase-in Percentages for Compliance With Interim Non-Tier
               2 Fleet Average NOX Standard for HLDT/MDPVs
------------------------------------------------------------------------
                                                           Percentage of
                                                            non-tier 2
                                                            HLDT/MDPVs
                                                          that must meet
                       Model year                          interim non-
                                                           tier 2 fleet
                                                            average NOX
                                                             standard
------------------------------------------------------------------------
2004....................................................              25
2005....................................................              50
2006....................................................              75
2007 and 2008...........................................             100
------------------------------------------------------------------------

    (v)(A) A manufacturer may elect an alternate phase-in schedule, 
beginning as early as the 2001 model year, that results in 100% 
compliance by 2007 with the fleet average NOX standard for 
interim non-Tier 2 HLDT/MDPVs described in paragraph (l)(3)(ii) of this 
section. The requirements of paragraph (k)(6) of this section apply to 
the selection of an alternate phase-in schedule.
    (B) If a manufacturer elects not to bring all of its HLDT/MDPVs 
into compliance with the interim requirements in 2004 as permitted 
under paragraphs (l)(2)(vii) and
    (viii) of this section, it may still use an alternate phase-in 
schedule to attain 100% compliance with the interim fleet average 
NOX standard for HLDT/MDPVs, but the sum of phase-in 
percentages it must meet will be 225% rather than 250%. If the 
manufacturer commences its 2004 model year on or after December 21, 
2003, for any HLDT/MDPVs, the manufacturer must increase the 225% by 
the fraction of its 2004 model year HLDT/MDPVs whose model year 
commenced on or after that date and which were brought into compliance 
with the 0.20 g/mi corporate average NOX standard as 
required under paragraph (l)(2)(ix) of this section. The manufacturer 
must ensure that the sum of the percentages of vehicles up through 
model year 2005 complying with the interim fleet average NOX 
standard is at least 50%.
    (vi) The provisions of paragraphs (c) (1), (2) and (3) of this 
section apply to flexible-fueled, dual fuel and multi-fuel interim non-
Tier 2 HLDT/MDPVs.
    (vii) For 2004 model year HLDT test groups whose model year 
commences before December 21, 2003, the manufacturer may exempt such 
HLDTs from compliance with any requirements applicable to interim non-
Tier 2 HLDTs, and such HLDTs must be produced in accordance with 
standards and requirements in Secs. 86.1814-02 and Secs. 86.1815-02. 
Such HLDTs must also meet the refueling emission standards

[[Page 6861]]

contained in paragraph (e)(3) of this section.
    (viii) For 2004 model year heavy-duty vehicles whose model year 
commences before December 21, 2003, the manufacturer may exempt such 
vehicles from compliance with any requirements applicable to interim 
non-Tier 2 MDPVs. Exempted vehicles will not be considered MDPVs and 
must be produced in accordance with standards and requirements in 
Sec. 86.099-10. Exempted vehicles are also exempted from refueling 
emission standards.
    (ix) For 2004 model year HLDT and MDPV test groups whose model year 
commences on or after December 21, 2003, the manufacturer must comply 
with all interim non-Tier 2 requirements in this section.
    (A) All such vehicles, but not more than 25% of the manufacturer's 
total sales of 2004 model year HLDT/MDPVs must meet the interim non-
Tier 2 fleet average NOX standard as described in paragraph 
(l)(3)(ii) of this section.
    (B) All such vehicles but not more than 40% of the manufacturer's 
2004 model year HLDT/MDPVs must comply with the refueling requirements 
in paragraph (e)(3) of this section.
    (x) Only those manufacturers that comply with the interim non-Tier 
2 FTP standards for all of their 2004 model year HLDTs and declare 
their intention to comply with the 2004 model year 25% phase-in 
requirement to the fleet average interim NOX standard for 
HLDTs or HLDT/MDPVs of 0.20 g/mi described in paragraph (l) of this 
section may use the optional higher NMOG values for interim LDT4s 
certified to bin 10 standards that are shown in Tables S04-1 and 2 of 
paragraph (c) of this section. Manufacturers must declare their 
intention to comply with the 2004 model year 25% phase-in requirement 
in Part I of their HLDT certification applications.
    (xi) Only those manufacturers that comply with the interim non-Tier 
2 FTP standards for all of their 2004 model year MDPVs, and declare 
their intention to comply with the 2004 model year 25% phase-in 
requirement to the fleet average interim NOX standard for 
MDPVs or HLDT/MDPVs of 0.20 g/mi described in paragraph (l) of this 
section may:
    (A) Use the exhaust emission standards of bin 11 in Tables S04-1 
and S04-2 of paragraph (c) in this section for MDPVs through model year 
2008;
    (B) For diesel-fueled vehicles, certify the engines in such 
vehicles, through model year 2007, to provisions in this part 86 
applicable to diesel-fueled heavy-duty engines of the appropriate model 
year. Such diesel fueled vehicles must not be included in any count or 
determination of compliance with the phase-in requirements applicable 
to interim non-Tier 2 MDPVs; and
    (C) Use the optional higher NMOG values for interim LDT4s certified 
to bin 10 standards that are shown in Tables S04-1 and 2.
    (xii) Manufacturers electing to comply with the provisions of 
paragraph (l)(2)(xi) of this section must declare their intention to 
comply with the 2004 model year 25% phase-in requirement to the fleet 
average interim NOX standard for MDPVs or HLDT/MDPVs of 0.20 
g/mi in Part I of their MDPV certification applications.
    (xiii) Where diesel-fueled heavy-duty engines are used as permitted 
under paragraph (l)(2)(xi)(B) of this section, such engines must be 
treated as a separate averaging set--MDPV HDDEs-- under the averaging, 
banking and trading provisions applicable to heavy-duty diesel engines. 
Only NOX credits generated by engine-certified diesel 
engines that are used in other MDPVs can be applied to these engines. 
Manufacturers wishing to average, bank or trade credits for MDPV HDDEs 
must comply with the requirements in this paragraph and with all 
requirements applicable to heavy-duty engine averaging, banking and 
trading in this part.
    (3) Fleet average NOX standards for interim non-Tier 2 
LDV/Ts and MDPVs. (i) Manufacturers must comply with a fleet average 
full useful life NOX standard for their interim non-Tier 2 
LDV/LLDTs, on an annual basis, of 0.30 grams per mile.
    (ii) Manufacturers must comply with a fleet average full useful 
life NOX standard for their interim non-Tier 2 HLDT/MDPVs, 
excluding those HLDTs and MDPVs not yet covered by the phase-in 
requirement described in paragraph (l)(2)(ii) of this section, on an 
annual basis, of 0.20 grams per mile.
    (iii) Manufacturers must determine their compliance with these 
interim fleet average NOX standards for each model year by 
separately computing the sales weighted average NOX level of 
all interim non-Tier 2 LDV/LLDTs and all interim non-Tier 2 HLDT/MDPVs 
(excluding those not yet phased in as described in paragraph (l)(2)(ii) 
of this section), using the methodology in Sec. 86.1860.
    (iv) Manufacturers may generate, bank, average, trade and use 
interim non-Tier 2 NOX credits based on their NOX 
fleet average as determined under paragraph (l)(3)(iii) of this 
section. Unless waived or modified by the Administrator, the provisions 
of Sec. 86.1861 of this part apply to the generation, banking, 
averaging, trading and use of credits generated by interim non-Tier 2 
vehicles. NOX credits generated by interim non-Tier 2 
vehicles are not subject to any discount except as required by 
Sec. 86.1861-04(e).
    (m) NMOG standards for diesel, flexible fueled and dual-fueled LDV/
Ts and MDPVs. (1) For diesel fueled LDV/Ts and MDPVs, the term ``NMOG'' 
in both the Tier 2 and interim non-Tier 2 standards means non-methane 
hydrocarbons.
    (2) Flexible-fueled and dual-fuel Tier 2 and interim non-Tier 2 
vehicles must be certified to NMOG exhaust emission standards both for 
operation on gasoline and on any alternate fuel they are designed to 
use. Manufacturers may measure NMHC in lieu of NMOG when flexible-
fueled and dual-fuel vehicles are operated on gasoline, subject to the 
requirements of Sec. 86.1810(p).
    (n) Hybrid electric vehicle (HEV) and Zero Emission Vehicle (ZEV) 
requirements. For FTP and SFTP exhaust emissions, and unless otherwise 
approved by the Administrator, manufacturers must measure emissions 
from all HEVs and ZEVs according to the requirements and test 
procedures found in the document entitled California Exhaust Emission 
Standards and Test Procedures for 2003 and Subsequent Model Zero-
Emission Vehicles and 2001 and Subsequent Model Hybrid Electric 
Vehicles, in the Passenger Car, Light-duty Truck and Medium-duty 
Vehicle Classes. This document is incorporated by reference (see 
Sec. 86.1) . Requirements and procedures in this document that are 
relevant only to complying with the California ZEV mandate, computing 
partial and full ZEV allowance credits, or generating and using ZEV 
credits, are not relevant to the federal program and may be 
disregarded. Discussion in that document relevant to fleet average NMOG 
standards and NMOG credits may also be disregarded.
    (o) NMOG measurement. (1) Manufacturers must measure NMOG emissions 
in accordance with Part G of the California Non-Methane Organic Gas 
Test Procedures. These requirements are incorporated by reference (see 
Sec. 86.1).
    (2) Manufacturers must not apply reactivity adjustment factors 
(RAFs) to NMOG measurements. See Sec. 86.1841.
    (p) In-use standards. (1) Table S04-10 of this paragraph (p) 
contains in-use emission standards applicable only to vehicles 
certified to the bins shown in the table. These standards apply to in-
use testing performed by the manufacturer pursuant to regulations at 
Secs. 86.1845-01, 86.1845-04 and 86.1846-01 and to in-use testing

[[Page 6862]]

performed by EPA. These standards do not apply to certification or 
Selective Enforcement Auditing.
    (2) These standards apply only to LDV/LLDTs produced up through the 
2008 model year, and HLDT/MDPVs produced up through the 2010 model 
year. These standards are subject to other limitations described in 
paragraph (p)(3) of this section.
    (3) For the first model year and also for the next model year after 
that, in which a test group of vehicles is certified to a bin of 
standards to which it has not previously been certified, the standards 
in Table S04-10 of this paragraph (p) apply for purposes of in-use 
testing only. The standards apply equally to all LDV/Ts and MDPVs 
subject to the model year limitation in paragraph (p)(2) of this 
section. Table S04-10 follows:

                                                    Table S04-10--In-use Compliance Standards (g/mi)
                                                 [Certification standards shown for reference purposes]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          NOX
             Bin number                 Durability period (miles)     NOX In-use     certification        NMOG In-use            NMOG certification
--------------------------------------------------------------------------------------------------------------------------------------------------------
5...................................                        50,000            0.07            0.05  n/a...................                         0.075
5...................................                       120,000            0.10            0.07  n/a...................                         0.090
4...................................                       120,000            0.06            0.04  n/a...................                         0.070
3...................................                       120,000            0.05            0.03  0.09..................                         0.055
2...................................                       120,000            0.03            0.02  0.02..................                         0.010
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (4) For diesel vehicles certified to bin 10, separate in-use 
standards apply for NOX and PM emissions. These standards 
are determined by multiplying the applicable NOX and PM 
certification standards by factors of 1.2 and 1.35, respectively, and 
then rounding the result to one more decimal place than contained in 
the certification standard. The resultant standards do not apply for 
certification or selective enforcement auditing.
    (q) Hardship provision for small volume manufacturers. (1) A small 
volume manufacturer may apply for relief from any applicable final 
phase-in model year contained in this section. Relief will only be 
available to defer required compliance with a completely new set of 
standards, a fleet average NOX standard, and/or evaporative 
emission standard for 100% of affected vehicles for one model year. 
Thus, a small volume manufacturer that obtains relief may:
    (i) Defer 100% compliance with the fleet average NOX 
standard for interim LDV/LLDTs (0.30 g/mi) until 2005;
    (ii) Defer 100% compliance with the evaporative emission standards 
and/or fleet average NOX standard for Tier 2 LDV/LLDTs (0.07 
g/mi) until 2008;
    (iii) Defer 100% compliance with the requirements that interim 
HLDTs and MDPVs comply with applicable emission standards shown in 
Tables S04-1 and S04-2, until 2005;
    (iv) Defer 100% compliance with the fleet average NOX 
standard for interim HLDT/MDPVs (0.20 g/mi) until 2008; and
    (v) Defer 100% compliance with the the evaporative emission 
standards and/or fleet average NOX standard for Tier 2 HLDT/
MDPVs (0.07 g/mi) until 2010.
    (2) Applications for relief must be in writing and must:
    (i) Be submitted before the earliest date of noncompliance;
    (ii) Include evidence that the manufacturer will incur severe 
economic hardship if relief is not granted;
    (iii) Include evidence that the noncompliance will occur despite 
the best efforts of the manufacturer to comply; and
    (iv) Include evidence that the manufacturer has made every 
reasonable effort to purchase credits to address the noncompliance, 
where applicable.
    (r) NMOG standard adjustment for direct ozone reducing devices. (1) 
A manufacturer may obtain NMOG credit for use in certifying to the 
exhaust NMOG standards listed in paragraph (c) of this section and for 
use in complying with the in-use standards of paragraph (p) of this 
section, where applicable. This credit effectively allows the 
manufacturer to increase the exhaust NMOG emission standards listed in 
these paragraphs by the amount of the applicable credit. For example, 
if the applicable NMOG credit was 0.01 g/mi, and the vehicle was being 
certified in Bin 5, as described in Table S04-1 of paragraph (c) of 
this section, exhaust NMOG emissions must be no greater than 0.10 g/mi, 
as opposed to the normal NMOG certification standard of 0.09 g/mi in 
Bin 5.
    (2) The NMOG credit must be determined through a two-step process.
    (i) The first step must determine the ozone reduction potential of 
the direct ozone reducing device, the ozone reduction potential of 
exhaust NMOG reductions beyond Bin 5 of the Tier 2 standards, and the 
ratio of the two methods of reducing ambient ozone levels. The 
requirements for this step are described in paragraph (r)(3) of this 
section.
    (ii) The second step must demonstrate and certify the relevant 
performance characteristics of the specific ozone reducing device. The 
requirements for this step are described in paragraph (r)(4) of this 
section.
    (3) The ozone reduction potential of the direct ozone reducing 
device and the ozone reduction potential of exhaust NMOG reductions 
beyond Bin 5 of the Tier 2 standards must be estimated using procedures 
which are approved by the Administrator in advance. At a minimum:
    (i) The modeling must utilize an urban airshed model using up-to-
date chemical and meteorological simulation techniques;
    (ii) Four local areas must be modeled: New York City, Chicago, 
Atlanta and Houston;
    (iii) The ozone episodes to be modeled must meet the selection 
criteria established by EPA for State ozone SIPs;
    (iv) Photochemical and dispersion modeling must follow that used by 
EPA to project the ozone impacts of this rule, or its equivalent;
    (v) Emission projections must be made for calendar year 2007 and be 
consistent with those used by EPA in support of this final rule, or 
reflect updates approved by EPA;
    (vi) Baseline emissions (emissions prior to use of the direct ozone 
reducing device or the VOC emission reductions) must include the 
benefits of the Tier 2 emission and sulfur standards; as well as all 
other emission controls assumed in EPA's ozone modeling of the benefits 
of the Tier 2 and sulfur standards, as described in the Final 
Regulatory Impact Analysis to the Tier 2 and Sulfur Rule;
    (vii) The ozone benefit of the direct ozone reducing device must 
assume a radiator area of 0.29 square meters, an air flow velocity 
through the radiator of 40% of vehicle speed, and an ozone reduction 
efficiency of 80%, or other

[[Page 6863]]

values as approved by the Administrator;
    (viii) The ozone level of the air entering the direct ozone 
reducing device must be assumed to be 40% less than that existing in 
the grid cell where the vehicle is located;
    (ix) The ozone benefit of VOC emission reductions must be modeled 
by assuming that all Tier 2 LDVs, LDTs and MDPVs meet an exhaust NMOG 
standard of 0.055 g/mi or lower instead of a 0.09 g/mi NMOG standard;
    (x) The ozone reducing device must be assumed to be present on all 
of the Tier 2 LDVs, LDTs and MDPVs modeled as meeting the more 
stringent NMOG standard described in paragraph (r)(3)(ix) of this 
section;
    (xi) The relationship between changes in exhaust NMOG emission 
standards and in-use VOC emissions must be determined sufficiently far 
in the future to ensure that the change in ozone being modeled is 
sufficiently large to allow comparison with the impact of the ozone 
reducing device;
    (xii) LDV, LDT and MDPV emissions must be modeled using the updated 
Tier 2 emission model developed by EPA as part of the Tier 2 rulemaking 
(available from EPA upon request) or MOBILE6, once this model is 
available;
    (xiii) The ozone benefit of the direct ozone reducing device must 
be the reduction in the peak one-hour ozone level anywhere in the 
modeled region on the day when ozone is at its highest;
    (xiv) The NMOG credit in each local area must be the reduction in 
peak one hour ozone associated with use of the direct ozone reducing 
device divided by the reduction in peak one hour ozone associated with 
the more stringent exhaust NMOG emission standard multiplied by the 
reduction the exhaust NMOG standard (in g/mi) modeled in paragraph 
(r)(3)(ix) of this section; and
    (xv) The NMOG credit applicable to the generic direct ozone 
reducing device modeled in paragraph (r)(3)(vii) of this section must 
be determined by arithmetically averaging the NMOG credit determined in 
paragraph (r)(3)(xiv) of this section for each of the four local areas.
    (4) The manufacturer must submit data, using procedures which have 
been approved by the Administrator in advance, that demonstrate the 
following aspects of the device being certified:
    (i) The air flowrate through the device as a function of vehicle 
speed;
    (ii) The ozone reduction efficiency of the device over the useful 
life of the vehicle for a range of vehicle speeds and ozone levels;
    (iii) The method through which the onboard diagnostic system will 
detect improper performance.
    (5) The NMOG credit for the specific application of this technology 
tested under the provisions of paragraph (r)(4) of this section is the 
four-area NMOG credit determined in paragraph (r)(3)(xv) of this 
section scaled based on the performance of the specific application 
tested under the provisions of paragraph (r)(4) of this section 
relative to those assumed in paragraph (r)(3)(vii) of this section. 
This scaling must assume a linear relationship between the NMOG credit 
and three aspects of the direct ozone reducing device: radiator area, 
average air flow through the radiator relative to vehicle speed, and 
ozone reduction efficiency and the NMOG credit. The NMOG credit must be 
rounded to the nearest 0.001 g/mi. For example, if the NMOG credit 
determined in paragraph (r)(3)(xv) of this section was 0.01 g/mi and 
the specific direct ozone reducing device being certified had an area 
of 0.20 square meters, an air flow velocity of 30% of vehicle speed and 
an ozone reducing efficiency of 70%, and the generic ozone reducing 
device simulated in the ozone model under paragraph (r)(3)(vii) of this 
section had an area of 0.29 square meters, an air flow velocity of 40% 
of vehicle speed and an ozone reducing efficiency of 80%, the NMOG 
credit applicable to the specific device being certified would be:
0.01 g/mi * (0.20/0.29) * (30%/40%) * 70%/80%) = 0.005

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


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

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

    26. Section 86.1813-01 is amended by adding a sentence to the end 
of the introductory text to read as follows:


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

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

    27. Section 86.1814-02 is amended by adding a sentence to the end 
of the introductory text to read as follows:


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

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


Sec. 86.1814-04  [Removed]

    28. Section 86.1814-04 is removed.
    29. Section 86.1815-02 is amended by adding a sentence to the end 
of the introductory text to read as follows:


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

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


Sec. 86.1815-04  [Removed]

    30. Section 86.1815-04 is removed.
    31. Section 86.1824-01 is amended by revising the first sentence of 
the introductory text and adding paragraphs (a)(2)(iii), (a)(2)(iv) and 
(a)(2)(v) to read as follows:


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

    This section applies to gasoline-, methanol-, liquefied petroleum 
gas-, and natural gas-fueled LDV/Ts and MDPVs. * * *
    (a) * * *
    (2) * * *
    (iii) For gasoline fueled vehicles certified to meet the 
evaporative emission standards set forth in Sec. 86.1811-04(e)(1), any 
service accumulation method for evaporative emissions must employ 
gasoline fuel for the entire service accumulation period which contains 
ethanol in, at least, the highest concentration permissible in gasoline 
under federal law and that is commercially available in any state in 
the United States. Unless otherwise approved by the Administrator, the 
manufacturer must determine the appropriate ethanol concentration by 
selecting the highest legal concentration commercially available during 
the calendar year before the one in which the manufacturer begins its 
service accumulation. The manufacturer must also provide information 
acceptable to the Administrator to indicate that the service 
accumulation method is of sufficient design, duration and severity to 
stabilize the permeability of all non-metallic fuel and evaporative 
system components to the service accumulation fuel constituents.
    (iv) For flexible-fueled, dual-fueled, multi-fueled, ethanol-fueled 
and methanol-fueled vehicles certified to

[[Page 6864]]

meet the evaporative emission standards set forth in Sec. 86.1811-
04(e)(1), any service accumulation method must employ fuel for the 
entire service accumulation period which the vehicle is designed to use 
and which the Administrator determines will have the greatest impact 
upon the permeability of evaporative and fuel system components. The 
manufacturer must also provide information acceptable to the 
Administrator to indicate that the service accumulation method is of 
sufficient design, duration and severity to stabilize the permeability 
of all non-metallic fuel and evaporative system components to service 
accumulation fuel constituents.
    (v) A manufacturer may use other methods, based upon good 
engineering judgment, to meet the requirements of paragraphs (a)(2) 
(iii) and (iv) of this section, as applicable. These methods must be 
approved in advance by the Administrator and meet the objectives of 
paragraphs (a)(2) (iii) and (iv) of this section, as applicable: to 
provide assurance that the permeability of all non-metallic fuel and 
evaporative system components will not lead to evaporative emission 
standard exceedance under sustained exposure to commercially available 
alcohol-containing fuels for the useful life of the vehicle.
* * * * *

    32. Section 86.1827-01 is amended by adding paragraph (e) to read 
as follows:


Sec. 86.1827-01  Test group determination.

* * * * *
    (e) Unless otherwise approved by the Administrator, a manufacturer 
of hybrid electric vehicles must create separate test groups based on 
both the type of battery technology employed by the HEV and upon 
features most related to their exhaust emission characteristics.

    33. Section 86.1829-01 is amended by adding paragraphs 
(b)(1)(iii)(E) and (d) to read as follows:


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

* * * * *
    (b) * * * (1) * * *
    (iii) * * *
    (E) In lieu of testing a gasoline or diesel fueled Tier 2 or 
interim non-Tier 2 vehicle for formaldehyde emissions when such 
vehicles are certified based upon NMHC emissions, a manufacturer may 
provide a statement in its application for certification that such 
vehicles comply with the applicable standards. Such a statement must be 
based on previous emission tests, development tests, or other 
appropriate information.
* * * * *
    (d)(1) Beginning in the 2004 model year, the exhaust emissions must 
be measured from all LDV/T exhaust emission data vehicles tested in 
accordance with the federal Highway Fuel Economy Test (HWFET; 40 CFR 
part 600, subpart B). The oxides of nitrogen emissions measured during 
such tests must be multiplied by the oxides of nitrogen deterioration 
factor computed in accordance with Sec. 86.1823-01 and subsequent model 
year provisions, and then rounded and compared with the applicable 
emission standard in Sec. 86.1811-04. All data obtained from the 
testing required under this paragraph (d) must be reported in 
accordance with the procedures for reporting other exhaust emission 
data required under this subpart.
    (2) In the event that one or more emission data vehicles fail the 
applicable HWFET standard in Sec. 86.1811-04, the manufacturer may 
submit to the Administrator engineering data or other evidence showing 
that the system is capable of complying with the standard. If the 
Administrator finds, on the basis of an engineering evaluation, that 
the system can comply with the HWFET standard, he or she may accept the 
information supplied by the manufacturer in lieu of the test data.
    (3) The provisions of paragraphs (d)(1) and (d)(2) of this section 
do not apply to MDPVs.

    34. Section 86.1837-01 is amended by designating the existing text 
as paragraph (a) and by adding paragraph (b) to read as follows:


Sec. 86.1837-01  Rounding of emission measurements.

* * * * *
    (b) Fleet average NOX value calculations, where 
applicable, must be rounded before comparing with the applicable fleet 
average standard and calculating credits generated or needed as 
follows: manufacturers must round to the same number of significant 
figures that are contained in the quantity of vehicles in the 
denominator of the equation used to compute the fleet average 
NOX emissions, but to no less than one more decimal place 
than that of the applicable fleet average standard.

    35. Section 86.1838-01 is amended by revising paragraphs (b)(1)(i) 
and (c)(2)(iii) to read as follows:


Sec. 86.1838-01  Small volume manufacturer certification procedures.

* * * * *
    (b) * * *
    (1) * * *
    (i) The optional small-volume manufacturers certification 
procedures apply to LDV/Ts and MDPVs produced by manufacturers with 
U.S. sales, including all vehicles and engines imported under 
provisions of 40 CFR 85.1505 and 85.1509 (for the model year in which 
certification is sought) of fewer than 15,000 units (LDV/Ts, MDPVs, 
heavy-duty vehicles and heavy-duty engines combined).
* * * * *
    (c) * * *
    (2) * * *
    (iii) The provisions of Sec. 86.1845-01(c)(2) and Sec. 86.1845-
04(c)(2) that require one vehicle of each test group during high 
mileage in-use verification testing to have a minimum odometer mileage 
of 75 percent of the full useful life mileage for Tier 1 and NLEV LDV/
Ts, or 90,000 (or 105,000) miles for Tier 2 and interim non-Tier 2 
vehicles, do not apply.
* * * * *

    36. Section 86.1840-01 is amended by adding paragraphs (c) and (d) 
to read as follows:


Sec. 86.1840-01  Special test procedures.

* * * * *
    (c) Manufacturers of vehicles equipped with periodically 
regenerating trap oxidizer systems must propose a procedure for testing 
and certifying such vehicles including SFTP testing for the review and 
approval of the Administrator. The manufacturer must submit its 
proposal before it begins any service accumulation or emission testing. 
The manufacturer must provide with its submittal, sufficient 
documentation and data for the Administrator to fully evaluate the 
operation of the trap oxidizer system and the proposed certification 
and testing procedure.
    (d) The provisions of paragraphs (a) and (b) of this section also 
apply to MDPVs.

    37. Section 86.1841-01 is amended by revising paragraph (a)(1)(iii) 
and adding paragraph (e) to read as follows:


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

    (a) * * *
    (1) * * *
    (iii) For the SFTP composite standard of NMHC+NOX, the 
measured results of NMHC and NOX must each be adjusted by 
their corresponding deterioration factors before the composite 
NMHC+NOX certification level is calculated. Where the 
applicable FTP exhaust hydrocarbon emission standard is an NMOG 
standard, the applicable NMOG deterioration factor must be used in 
place of the NMHC deterioration

[[Page 6865]]

factor, unless otherwise approved by the Administrator.
* * * * *
    (e) Unless otherwise approved by the Administrator, manufacturers 
must not use Reactivity Adjustment Factors (RAFs) in their calculation 
of the certification levels of any pollutant, regardless of the fuel 
used in the test vehicle.

    38. Section 86.1844-01 is amended by adding new paragraphs (d)(15), 
(d)(16), (e)(6) and (i) to read as follows:


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

* * * * *
    (d) * * *
    (15) For HEVs, unless otherwise approved by the Administrator, the 
information required by the ``California Exhaust Emission Standards and 
Test Procedures for 2003 and Subsequent Model Zero-Emission Vehicles, 
and 2001 and Subsequent Model Hybrid Electric Vehicles, in the 
Passenger Car, Light-Duty Truck and Medium-duty Vehicle Classes'' must 
be supplied. These procedures are incorporated by reference (see 
Sec. 86.1).
    (16) (i) For Tier 2 and interim non-Tier 2 vehicles beginning with 
the 2004 model year, a statement indicating that the manufacturer has 
conducted an engineering analysis of the complete exhaust system to 
ensure that the exhaust system has been designed:
    (A) To facilitate leak-free assembly, installation and operation 
for the full useful life of the vehicle; and
    (B) To facilitate that such repairs as might be necessary on a 
properly maintained and used vehicle can be performed in such a manner 
as to maintain leak-free operation, using tools commonly available in a 
motor vehicle dealership or independent repair shop for the full useful 
life of the vehicle.
    (ii) The analysis must cover the exhaust system and all related and 
attached components including the air injection system, if present, 
from the engine block manifold gasket surface to a point sufficiently 
past the last catalyst and oxygen sensor in the system to assure that 
leaks beyond that point will not permit air to reach the oxygen sensor 
or catalyst under normal operating conditions.
    (iii) A ``leak-free'' system is one in which leakage is controlled 
so that it will not lead to a failure of the certification exhaust 
emission standards in-use.
    (iv) The provisions of paragraphs (d)(16)(i) and (ii) do not apply 
to vehicles whose certification is carried over from the NLEV program 
or carried across from the Cal LEV I program.
    (e) * * *
    (6) The NMOG/NMHC and HCHO to NMHC ratios established according to 
Sec. 86.1845-04.
* * * * *
    (i) For exhaust emission testing for Tier 2 and interim non-Tier 2 
vehicles, if approved by the Administrator in advance, manufacturers 
may submit exhaust emission test data generated under California test 
procedures to comply with any certification and in-use testing 
requirements under this subpart. The Administrator may require 
supporting information to establish that differences between California 
and Federal exhaust testing procedures and fuels will not produce 
significant differences in emission results. The Administrator may 
require that in-use testing be performed using Federal test fuels as 
specified in Sec. 86.113-04(a)(1).

    39. Section 86.1845-04 is amended by:
    a. revising paragraph (a),
    b. revising paragraph (c)(2), and
    c. adding paragraph (f).
    The revisions and additions read as follows:


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

    (a) General requirements. (1) A manufacturer of LDVs, LDTs and/or 
MDPVs must test, or cause to have tested, a specified number of LDVs, 
LDTs and MDPVs. Such testing must be conducted in accordance with the 
provisions of this section. For purposes of this section, the term 
vehicle includes light-duty vehicles, light-duty trucks and medium-duty 
vehicles.
    (2) Unless otherwise approved by the Administrator, no emission 
measurements made under the requirements of this section may be 
adjusted by Reactivity Adjustment Factors (RAFs).
    (3) Upon a manufacturer's written request, prior to in-use testing, 
that presents information to EPA regarding pre-conditioning procedures 
designed solely to remove the effects of high sulfur in gasoline from 
vehicles produced through the 2007 model year, EPA will consider 
allowing such procedures on a case-by-case basis. EPA's decision will 
apply to manufacturer in-use testing conducted under this section and 
to any in-use testing conducted by EPA.
* * * * *
    (c) * * *
    (2) Vehicle mileage:
    (i) All test vehicles must have a minimum odometer mileage of 
50,000 miles. At least one vehicle of each test group must have a 
minimum odometer mileage of 75 percent of the full useful life mileage. 
See Sec. 86.1838-01(c)(2) for small volume manufacturer mileage 
requirements; or
    (ii) For engine families certified for a useful life of 150,000 
miles, at least one vehicle must have a minimum odometer mileage of 
105,000 miles. See Sec. 86.1838-01(c)(2) for small volume manufacturer 
mileage requirements.
* * * * *
    (f)(1) A manufacturer may conduct in-use testing on a test group by 
measuring NMHC exhaust emissions rather than NMOG exhaust emissions. 
The measured NMHC exhaust emissions must be multiplied by the 
adjustment factor used for certification of the test group, or another 
adjustment factor acceptable to the Administrator, to determine the 
equivalent NMOG exhaust emission values for the test vehicle. The 
equivalent NMOG exhaust emission value must be used in place of the 
measured NMOG exhaust emission value in determining the exhaust NMOG 
results. The equivalent NMOG exhaust emission values must be compared 
to the NMOG exhaust emission standard from the emission bin to which 
the test group was certified.
    (2) For flexible-fueled LDVs, LDTs and MDPVs certified to NMOG 
standards, the manufacturer may request from the Administrator the use 
of a methanol (M85) or ethanol (E85) NMOG exhaust emission to gasoline 
NMHC exhaust emission ratio which must be established during 
certification for each emission data vehicle for the applicable test 
group. The results must be submitted to the Administrator in the Part 
II application for certification. After approval by the Administrator, 
the measured gasoline NMHC exhaust emissions must be multiplied by the 
M85 or E85 NMOG to gasoline NMHC ratio submitted in the application for 
certification for the test group to determine the equivalent NMOG 
exhaust emission values for the test vehicle. The equivalent NMOG 
exhaust emission value must be used in place of the measured NMOG 
exhaust emission value in determining the exhaust NMOG results. The 
equivalent NMOG exhaust emission values must be compared to the NMOG 
exhaust emission standard from the vehicle emission standard bin to 
which the test group was certified.
    (3) If the manufacturer measures NMOG it must also measure and 
report HCHO emissions. As an alternative to measuring the HCHO content, 
if the manufacturer measures NMHC as permitted in paragraph (f)(1) of 
this section, the Administrator may approve,

[[Page 6866]]

upon submission of supporting data by a manufacturer, the use of HCHO 
to NMHC ratios. To request the use of HCHO to NMHC ratios, the 
manufacturer must establish during certification testing the ratio of 
measured HCHO exhaust emissions to measured NMHC exhaust emissions for 
each emission data vehicle for the applicable test group. The results 
must be submitted to the Administrator with the Part II application for 
certification. Following approval of the application for certification, 
the manufacturer may conduct in-use testing on the test group by 
measuring NMHC exhaust emissions rather than HCHO exhaust emissions. 
The measured NMHC exhaust emissions must be multiplied by the HCHO to 
NMHC ratio submitted in the application for certification for the test 
group to determine the equivalent HCHO exhaust emission values for the 
test vehicle. The equivalent HCHO exhaust emission values must be 
compared to the HCHO exhaust emission standard applicable to the test 
group.

    40. Section 86.1846-01 is amended by revising paragraph (a) to read 
as follows:


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

    (a) General requirements. (1) A manufacturer of LDVs, LDTs and/or 
MDPVs must test, or cause testing to be conducted, under this section 
when the emission levels shown by a test group sample from testing 
under Sec. 86.1845-01 exceeds the criteria specified in paragraph (b) 
of this section. The testing required under this section applies 
separately to each test group and at each test point (low and high 
mileage) that meets the specified criteria. The testing requirements 
apply separately for each model year starting with model year 2001.
    (2) Except for vehicles certified under the NLEV provisions of 
subpart R of this part or unless otherwise approved by the 
Administrator, no emission measurements made under the requirements of 
this section may be adjusted by Reactivity Adjustment Factors (RAFs).
    (3) For purposes of this section, the term vehicle includes light-
duty vehicles, light-duty trucks and medium-duty vehicles.
    (4) Upon a manufacturer's written request, prior to in-use testing, 
that presents information to EPA regarding pre-conditioning procedures 
designed solely to remove the effects of high sulfur in gasoline from 
vehicles produced through the 2007 model year, EPA will consider 
allowing such procedures on a case-by-case basis. EPA's decision will 
apply to manufacturer in-use testing conducted under this section and 
to any in-use testing conducted by EPA.
* * * * *

    41. Section 86.1848-01 is amended by adding paragraph (c)(7) to 
read as follows:


Sec. 86.1848-01  Certification.

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

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


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

    (a) The fleet average standards referred to in this section are the 
corporate fleet average standards for FTP exhaust NOX 
emissions set forth in: Sec. 86.1811-04(d) for Tier 2 LDV/Ts and MDPVs 
(0.07 g/mi); Sec. 86.1811-04(l)(3) for interim non-Tier 2 LDV/LLDTs 
(0.30 g/mi); and, Sec. 86.1811-04(l)(3) for interim non-Tier 2 HLDT/
MDPVs (0.20 g/mi). Unless otherwise indicated in this section, the 
provisions of this section apply to all three corporate fleet average 
standards, except that the interim non-Tier 2 fleet average 
NOX standards do not apply to a manufacturer whose U.S. LDV/
T and MDPV sales are 100% Tier 2 LDV/Ts and MDPVs.
    (b)(1) Each manufacturer must comply with the applicable fleet 
average NOX standard, or standards, on a sales weighted 
average basis, at the end of each model year, using the procedure 
described in this section.
    (2) During a phase-in year, the manufacturer must comply with the 
applicable fleet average NOX standard for the required 
phase-in percentage for that year as specified in Sec. 86.1811-
04(k)(1), or for the alternate phase-in percentage as permitted under 
Sec. 86.1811-04(k)(6).
    (c)(1)(i) Each manufacturer must separately compute the sales 
weighted averages of the individual NOX emission standards 
to which it certified all its Tier 2 vehicles, interim non-Tier 2 LDV/
LLDTs, and interim non-Tier 2 HLDT/MDPVs of a given model year as 
described in Sec. 86.1804(l)(2).
    (ii) For model years up to and including 2008, manufacturers must 
compute separate NOX fleet averages for Tier 2 LDV/LLDTs and 
Tier 2 HLDT/MDPVs.
    (2)(i) For model years up to and including 2008, if a manufacturer 
certifies its entire U.S. sales of Tier 2 or interim non-Tier 2 LDV/
LLDTs or interim non-Tier 2 HLDT/MDPVs, to full useful life bins having 
NOX standards at or below the applicable fleet average 
NOX standard, that manufacturer may elect not to compute a 
fleet average NOX level for that category of vehicles. A 
manufacturer making such an election must not generate NOX 
credits for that category of vehicles for that model year.
    (ii) For model years after 2008, if a manufacturer certifies its 
entire U.S. sales of Tier 2 vehicles to full useful life bins having 
NOX standards at or below 0.07 gpm, that manufacturer may 
elect not to compute a fleet average NOX level for its Tier 
2 vehicles. A manufacturer

[[Page 6867]]

making such an election must not generate NOX credits for 
that model year.
    (d) The sales weighted NOX fleet averages determined 
pursuant to paragraph (c) of this section must be compared with the 
applicable fleet average standard; 0.07 g/mi for NOX for 
Tier 2 LDV/Ts and MDPVs, 0.30 g/mi for NOX for interim non-
Tier 2 LDV/LLDTs, and 0.20 g/mi for NOx for interim non-Tier 2 HLDT/
MDPVs. Each manufacturer must comply on an annual basis with the fleet 
average standards by:
    (1) Showing that its sales weighted average NOX 
emissions of its LDV/LLDTs, HLDT/MDPVs or LDV/Ts, as applicable, are at 
or below the applicable fleet average standard; or
    (2) If the sales weighted average is not at or below the applicable 
fleet average standard, by obtaining and applying sufficient Tier 2 
NOX credits, interim non-Tier 2 LDV/LLDT NOX 
credits or interim non-Tier 2 HLDT/MDPV NOX credits, as 
appropriate, and as permitted under Sec. 86.1861-04.
    (i) Manufacturers may not use NMOG credits generated under the NLEV 
program in subpart R of this part to meet any Tier 2 or interim non-
Tier 2 NOX fleet average standard.
    (ii) Tier 2 NOX credits may not be used to meet any 
fleet average interim non-Tier 2 NOX standard except as 
permitted by Sec. 86.1860-04(e)(1).
    (iii) Interim non-Tier 2 NOX credits may not be used to 
meet the Tier 2 fleet average NOX standard.
    (iv) Interim non-Tier 2 NOX credits from HLDT/MDPVs may 
not be used to meet the fleet average NOX standard for 
interim non-Tier 2 LDV/LLDTs, and interim non-Tier 2 credits from LDV/
LLDTs may not be used to meet the fleet average NOX standard 
for interim non-Tier 2 HLDT/MDPVs.
    (e) (1) Manufacturers that cannot meet the requirements of 
paragraph (d) of this section, may carry forward a credit deficit for 
three model years, but must not carry such deficit into the fourth 
year. When applying credits to reduce or eliminate a deficit under the 
fleet average standard for interim LDV/LLDTs or interim HLDT/MDPVs, 
that has been carried forward into a year subsequent to its generation, 
a manufacturer may apply credits from Tier 2 LDV/LLDTs or Tier 2 HLDT/
MDPVs, respectively, as well as from the appropriate group of interim 
vehicles. A manufacturer must not use interim credits to reduce or 
eliminate any NOX credit deficit under the Tier 2 fleet 
average standard.
    (2) A manufacturer carrying a credit deficit into the third year 
must generate or obtain credits to offset that deficit and apply them 
to the deficit at a rate of 1.2:1, (i.e. deficits carried into the 
third model year must be repaid with credits equal to 120 percent of 
the deficit).
    (3) A manufacturer must not bank credits for future model years or 
trade credits to another manufacturer during a model year into which it 
has carried a deficit.
    (f) Computing fleet average NOX emissions. (1) 
Manufacturers must separately compute these fleet NOX 
averages using the equation contained in paragraph (f)(2) of this 
section:
    (i) Their Tier 2 LDV/LLDT and Tier 2 HLDT/MDPV fleet average 
NOX emissions for each model year through 2008;
    (ii) Their combined Tier 2 LDV/T and MDPV fleet average 
NOX emissions for each model year after 2008;
    (iii) Their interim non-Tier 2 LDV/LLDT fleet average 
NOX emissions for each model year through 2006; and
    (iv) Their interim non-Tier 2 HLDT/MDPV fleet average 
NOX emissions for each model year through 2008.
    (2) The equation for computing fleet average NOX 
emissions is as follows:
[GRAPHIC] [TIFF OMITTED] TR10FE00.012


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

    (3) The results of the calculation in paragraph (f)(2) of this 
section must be rounded as required by Sec. 86.1837-01.
    (4) When approved in advance by the Administrator, the numerator in 
the equation in paragraph (f)(2) of this section may be adjusted 
downward by the product of the number of HEVs from each NOX 
emission bin times a HEV NOX contribution factor determined 
through mathematical estimation of the reduction in NOX 
emissions over the test procedure used to certify the HEVs. The 
reduction in NOX emissions must be determined using good 
engineering judgement and reflect the relation in actual full useful 
life NOX emissions to the full useful life NOX 
standards for the certification bin applicable to the vehicles. The 
Administrator may require that calculation of the HEV NOX 
contribution factor include vehicle parameters such as vehicle weight, 
portion of time during the test procedure that the HEV operates with 
zero exhaust emissions, zero emission range, NOX emissions 
from fuel-fired heaters and NOX emissions from electricity 
production and storage.
    (g) Additional credits for vehicles certified to 150,000 mile 
useful lives. (1) A manufacturer may certify any test group to an 
optional useful life of 15 years or 150,000 miles, whichever occurs 
first.
    (2)(i) For any test group certified to the optional 15 year/150,000 
mile useful life, the manufacturer may generate additional 
NOX credits, except as prohibited in paragraph (g)(3) of 
this section.
    (ii) The manufacturer must calculate these extra NOX 
credits, where permitted, by substituting an adjusted NOX 
standard for the applicable NOX standard from the full 
useful life certification bin when it calculates the applicable fleet 
average NOX emissions by the procedure in paragraph (f) of 
this section. The adjusted standard must be equal to the applicable 
full useful life NOX standard multiplied by 0.85 and rounded 
to the same number of decimal places as the applicable full useful life 
NOX standard.
    (3) A manufacturer electing not to comply with applicable 
intermediate life standards as permitted under Sec. 86.1811-04(c)(4) 
may not generate additional credits from vehicles certified to a useful 
life of 15 years/150,000 miles; except that, for bins where such 
intermediate life standards do not exist or are specifically deemed to 
be optional in Sec. 86.1811-04(c)(4), the manufacturer may generate 
additional

[[Page 6868]]

NOX credits from vehicles certified to a useful life of 15 
years/150,000 miles.
    (h) Additional credits for vehicles certified to low bins. A 
manufacturer may obtain additional NOX credits by certifying 
vehicles to bins 1 and/or 2 in model years from 2001 through 2005 
subject to the following requirements:
    (1) When computing the fleet average Tier 2 NOX 
emissions using the formula in paragraph (f)(2) of this section, the 
manufacturer may multiply the number (N) of vehicles certified to bins 
1 and 2 by the applicable multiplier shown in Table S04-11. These 
multipliers may not be used after model year 2005. The table follows:

  Table S04-11--Multipliers for Additional Tier 2 NOX Credits for Bin 1
                              and 2 LDV/Ts.
------------------------------------------------------------------------
                Bin                      Model year         Multiplier
------------------------------------------------------------------------
2.................................  2001, 2002, 2003,                1.5
                                     2004, 2005.
1.................................  2001, 2002, 2003,                2.0
                                     2004, 2005.
------------------------------------------------------------------------

    (2) [Reserved]
    44. Section 86.1861-04 is added to read as follows:


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

    (a) General provisions for Tier 2 credits and debits. (1) A 
manufacturer whose Tier 2 fleet average NOX emissions 
exceeds the 0.07 g/mile standard must complete the calculation at 
paragraph (b) of this section to determine the size of its 
NOX credit deficit. A manufacturer whose Tier 2 fleet 
average NOX emissions is less than or equal to the 0.07 g/
mile standard must complete the calculation in paragraph (b) of this 
section if it desires to generate NOX credits. In either 
case, the number of credits or debits determined in the calculation at 
paragraph (b) of this section must be rounded to the nearest whole 
number.
    (2) Credits generated according to the calculation in paragraph 
(b)(1) of this section may be banked for future use or traded to 
another manufacturer.
    (3) NOX credits are not subject to any discount or 
expiration date except as required under the deficit carryforward 
provisions of Sec. 86.1860-04(e)(2).
    (4) If a manufacturer calculates that it has negative credits 
(debits or a credit deficit) for a given model year, it must obtain 
sufficient credits, as required under Sec. 86.1860-04(e)(2), from 
vehicles produced by itself or another manufacturer in a model year no 
later than the third model year following the model year for which it 
calculated the credit deficit. (Example: if a manufacturer calculates 
that it has a NOX credit deficit for the 2008 model year, it 
must obtain sufficient NOX credits to offset that deficit 
from its own production or that of other manufacturers' 2011 or earlier 
model year vehicles.)
    (5) A small volume manufacturer that has opted not to meet all 
phase-in requirements as permitted under Sec. 86.1811-04(k)(5), must:
    (i) Demonstrate compliance or obtain appropriate credits to comply 
with the 0.30 g/mi. fleet average NOX standard for interim 
LDV/LLDTs for 100% of its LDV/LLDTs in 2004, in order to carry forward 
a credit deficit for later model year interim LDV/LLDTs; and
    (ii) Demonstrate compliance or obtain appropriate credits to comply 
with the 0.07 g/mi. fleet average NOX standard for 100% of 
its LDV/LLDTs in 2007, in order to carry forward a credit deficit for 
later model year Tier 2 LDV/LLDTs; and
    (iii) Demonstrate compliance or obtain appropriate credits to 
comply with the 0.20 g/mi. fleet average interim NOX 
standard for 100% of its HLDT/MDPVs in 2007, in order to carry forward 
a credit deficit for later model year interim HLDT/MDPVs.
    (6)(i) Manufacturers may not use NOX credits to comply 
with the NLEV requirements of subpart R of this part.
    (ii) Manufacturers may not use NMOG credits generated by vehicles 
certified to the NLEV requirements of subpart R of this part to comply 
with any NOX requirements of this subpart.
    (iii) Manufacturers may not use NOX credits generated by 
interim non-Tier 2 vehicles to comply with the fleet average 
NOX standard for Tier 2 vehicles.
    (iv) Manufacturers may not use NOX credits generated by 
Tier 2 vehicles to comply with any fleet average NOX 
standard for interim non-Tier 2 vehicles, except as permitted under 
Sec. 86.1860-04(e).
    (v) Manufacturers may not use NOX credits generated by 
interim non-Tier 2 LDV/LLDTs to comply with the fleet average 
NOX standard for interim non-Tier 2 HLDT/MDPVs.
    (vi) Manufacturers may not use NOX credits generated by 
interim non-Tier 2 HLDT/MDPVs to comply with the fleet average 
NOX standard for interim non-Tier 2 LDV/LLDTs.
    (vii) Manufacturers may not use NOX credits generated by 
Tier 2 LDV/LLDTs to comply with the Tier 2 NOX average 
standard for HLDT/MDPVs before the 2009 model year.
    (viii) Manufacturers may not use NOX credits generated 
by Tier 2 HLDT/MDPVs to comply with the Tier 2 NOX average 
standard for LDV/LLDTs before the 2009 model year.
    (7) Manufacturers may bank Tier 2 NOX credits for later 
use to meet the Tier 2 fleet average NOX standard or trade 
them to another manufacturer. Credits are earned on the last day of the 
model year. Before trading or carrying over credits to the next model 
year, a manufacturer must apply available credits to offset any credit 
deficit, where the deadline to offset that credit deficit has not yet 
passed.
    (8) There are no property rights associated with NOX 
credits generated under this subpart. Credits are a limited 
authorization to emit the designated amount of emissions. Nothing in 
this Part or any other provision of law should be construed to limit 
EPA's authority to terminate or limit this authorization through a 
rulemaking.
    (b) Calculating Tier 2 credits and debits. (1) Manufacturers that 
achieve fleet average NOX values from the calculation in 
Sec. 86.1860-04(f), lower than the applicable fleet average 
NOX standard, may generate credits for a given model year, 
in units of vehicle-g/mi NOX, determined in this equation:

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

Where: The number of Tier 2 vehicles sold is based on the point of 
first sale and does not include vehicles sold in California or a state 
that adopts, and has in effect for that model year, California emission 
requirements.
    (2) Where the result of the calculation in paragraph (b)(1) of this 
section is a negative number, the manufacturer must generate negative 
NOX credits (debits).
    (c) Early banking. (1)(i) Manufacturers may certify LDV/LLDTs to 
the Tier 2 FTP exhaust standards in Sec. 86.1811-04 for model years 
2001-2003 in order to bank credits for use in the 2004 and later model 
years. Such vehicles must also meet SFTP exhaust emission standards 
specified in Sec. 86.1811-04.
    (ii) Manufacturers may certify HLDT/MDPVs to the Tier 2 FTP exhaust 
standards in Sec. 86.1811-04 for model years 2001-2007 in order to bank 
credits for use in the 2008 and later model years. Such vehicles must 
also meet applicable SFTP exhaust emission standards specified in 
Sec. 86.1811-04.
    (iii) This process is referred to as ``early banking'' and the 
resultant credits are referred to as ''early credits''. In order to 
bank early credits, a manufacturer must comply with all exhaust 
emission standards and requirements applicable to Tier 2 LDV/LLDTs and/
or HLDT/MDPVs, as applicable, except as allowed under paragraph (c)(4) 
of this section.
    (2) To generate early credits, a manufacturer must separately 
compute

[[Page 6869]]

the sales weighted NOX average of the LDV/LLDTs and HLDT/
MDPVs it certifies to the Tier 2 exhaust requirements and separately 
compute credits using the calculations in this section and in 
Sec. 86.1860-04.
    (3) Early HLDT/MDPV credits may not be applied to LDV/LLDTs before 
the 2009 model year. Early LDV/LLDT credits may not be applied to HLDT/
MDPVs before the 2009 model year.
    (4) Manufacturers may generate early Tier 2 credits from LDVs, 
LDT1s and LDT2s that are certified to a full useful life of 100,000 
miles, provided that the credits are prorated by a multiplicative 
factor of 0.833 (the quotient of 100,000/120,000). Where a manufacturer 
has both 100,000 and 120,000 mile full useful life vehicles for which 
it desires to bank early credits, it must compute the credits from each 
group of vehicles separately and then add them together.
    (5) Manufacturers may bank early credits for later use to meet the 
Tier 2 fleet average NOX standard or trade them to another 
manufacturer subject to the restriction in paragraph (c)(3) of this 
section.
    (6) Early credits must not be used to comply with the fleet average 
NOX standards for interim non-Tier 2 vehicles.
    (7) Nothing in this section prevents the use of the NMOG values of 
2003 and earlier model year LDV/LLDTs from being used in calculations 
of the NMOG fleet average and subsequent NMOG credit generation, under 
subpart R of this part.
    (d) Reporting and recordkeeping for Tier 2 NOX credits 
including early credits. Each manufacturer must comply with the 
reporting and recordkeeping requirements of Sec. 86.1862-04.
    (e) Fleet average NOX debits. (1) Manufacturers must 
offset any debits for a given model year by the fleet average 
NOX reporting deadline for the third model year following 
the model year in which the debits were generated as required in 
Sec. 86.1860.04(e)(2). Manufacturers may offset debits by generating 
credits or acquiring credits generated by another manufacturer.
    (2)(i) Failure to meet the requirements of paragraphs (a) through 
(d) of this section and of this paragraph (e), within the required 
timeframe for offsetting debits will be considered to be a failure to 
satisfy the conditions upon which the certificate(s) was issued and the 
individual noncomplying vehicles not covered by the certificate must be 
determined according to this section.
    (ii) If debits are not offset within the specified time period, the 
number of vehicles not meeting the fleet average NOX 
standards and not covered by the certificate must be calculated by 
dividing the total amount of debits for the model year by the fleet 
average NOX standard applicable for the model year in which 
the debits were first incurred.
    (iii) EPA will determine the vehicles for which the condition on 
the certificate was not satisfied by designating vehicles in those test 
groups with the highest certification NOX emission values 
first and continuing until a number of vehicles equal to the calculated 
number of noncomplying vehicles as determined above is reached. If this 
calculation determines that only a portion of vehicles in a test group 
contribute to the debit situation, then EPA will designate actual 
vehicles in that test group as not covered by the certificate, starting 
with the last vehicle produced and counting backwards.
    (3) If a manufacturer ceases production of LDV/Ts and MDPVs or is 
purchased by, merges with or otherwise combines with another 
manufacturer, the manufacturer continues to be responsible for 
offsetting any debits outstanding within the required time period. Any 
failure to offset the debits will be considered to be a violation of 
paragraph (e)(1) of this section and may subject the manufacturer to an 
enforcement action for sale of vehicles not covered by a certificate, 
pursuant to paragraph (e)(2) of this section.
    (4) For purposes of calculating the statute of limitations, a 
violation of the requirements of paragraph (e)(1) of this section, a 
failure to satisfy the conditions upon which a certificate(s) was 
issued and hence a sale of vehicles not covered by the certificate, all 
occur upon the expiration of the deadline for offsetting debits 
specified in paragraph (e)(1) of this section.
    (f) NOX credit transfers. (1) EPA may reject 
NOX credit transfers if the involved manufacturers fail to 
submit the credit transfer notification in the annual report.
    (2) A manufacturer may not sell credits that are not available for 
sale pursuant to the provisions in paragraphs (a)(2) and (a)(7) of this 
section.
    (3) In the event of a negative credit balance resulting from a 
transaction, both the buyer and seller are liable, except in cases 
involving fraud. EPA may void ab initio the certificates of conformity 
of all engine families participating in such a trade.
    (4)(i) If a manufacturer transfers a credit that it has not 
generated pursuant to paragraph (b) of this section or acquired from 
another party, the manufacturer will be considered to have generated a 
debit in the model year that the manufacturer transferred the credit. 
The manufacturer must offset such debits by the deadline for the annual 
report for that same model year.
    (ii) Failure to offset the debits within the required time period 
will be considered a failure to satisfy the conditions upon which the 
certificate(s) was issued and will be addressed pursuant to paragraph 
(e) of this section.
    (g) Interim non-Tier 2 NOX credits and debits; Interim 
non-Tier 2 averaging, banking and trading. Interim non-Tier 2 
NOX credits must be generated, calculated, tracked, 
averaged, banked, traded, accounted for and reported upon separately 
from Tier 2 credits. The provisions of this section applicable to Tier 
2 NOX credits and debits and Tier 2 averaging banking and 
trading are applicable to interim non-Tier 2 LDV/LLDTs and interim non-
Tier 2 HLDT/MDPVs with the following exceptions:
    (1) Provisions for early banking under paragraph (c) of this 
section do not apply.
    (2) The fleet average NOX standard used for calculating 
credits is 0.30 grams per mile for interim non-Tier 2 LDV/LLDTs and 
0.20 g/mi for interim non-Tier 2 HLDT/MDPVs. (The interim non-Tier 2 
NOX standard of 0.30 (or 0.20) g/mi replaces 0.07 in the 
text and calculation in this section.)
    (3) Interim non-Tier 2 NOX credit deficits may be 
carried forward for three years subject to the requirements of 
Sec. 86.1860-04(e).
    45. Section 86.1862-04 is added to read as follows:


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

    (a) Maintenance of records. (1) The manufacturer producing any 
light-duty vehicles and/or light-duty trucks subject to the provisions 
in this subpart must establish, maintain, and retain the following 
information in adequately organized and indexed records for each model 
year:
    (i) Model year;
    (ii) Applicable fleet average NOX standard: 0.07g/mi for 
Tier 2 LDV/Ts; 0.30 g/mi for interim non-Tier 2 LDV/LLDTs; or 0.20 g/mi 
for interim non-Tier 2 HLDT/MDPVs;
    (iii) Fleet average NOX value achieved; and
    (iv) All values used in calculating the fleet average 
NOX value achieved.
    (2) The manufacturer producing any LDV/Ts or MDPVs subject to the 
provisions in this subpart must establish, maintain, and retain the 
following information in adequately organized and indexed records for 
each LDV/T or MDPV subject to this subpart:
    (i) Model year;

[[Page 6870]]

    (ii) Applicable fleet average NOX standard;
    (iii) EPA test group;
    (iv) Assembly plant;
    (v) Vehicle identification number;
    (vi) NOX standard to which the LDV/T or MDPV is 
certified; and
    (vii) Information on the point of first sale, including the 
purchaser, city, and state.
    (3) The manufacturer must retain all records required to be 
maintained under this section for a period of eight years from the due 
date for the annual report. Records may be retained as hard copy or 
reduced to microfilm, ADP diskettes, and so forth, depending on the 
manufacturer's record retention procedure; provided, that in every case 
all information contained in the hard copy is retained.
    (4) Nothing in this section limits the Administrator's discretion 
to require the manufacturer to retain additional records or submit 
information not specifically required by this section.
    (5) Pursuant to a request made by the Administrator, the 
manufacturer must submit to the Administrator the information that the 
manufacturer is required to retain.
    (6) EPA may void ab initio a certificate of conformity for a 
vehicle certified to emission standards as set forth or otherwise 
referenced in this subpart for which the manufacturer fails to retain 
the records required in this section or to provide such information to 
the Administrator upon request.
    (b) Reporting. (1) Each covered manufacturer must submit an annual 
report. Except as provided in paragraph (b)(2) of this section, the 
annual report must contain, for each applicable fleet average 
NOX standard, the fleet average NOX value 
achieved, all values required to calculate the NOX value, 
the number of credits generated or debits incurred, and all the values 
required to calculate the credits or debits. The annual report must 
contain the resulting balance of credits or debits.
    (2) When a manufacturer calculates compliance with the fleet 
average NOX standard using the provisions in Sec. 86.1860-
04(c)(2), then the annual report must state that the manufacturer has 
elected to use such provision and must contain the fleet average 
NOX standard as the fleet average NOX value for 
that model year.
    (3) For each applicable fleet average NOX standard, the 
annual report must also include documentation on all credit 
transactions the manufacturer has engaged in since those included in 
the last report. Information for each transaction must include:
    (i) Name of credit provider;
    (ii) Name of credit recipient;
    (iii) Date the transfer occurred;
    (iv) Quantity of credits transferred; and
    (v) Model year in which the credits were earned.
    (4) Unless a manufacturer reports the data required by this section 
in the annual production report required under Sec. 86.1844-01(e) and 
subsequent model year provisions, a manufacturer must submit an annual 
report for each model year after production ends for all affected 
vehicles and trucks produced by the manufacturer subject to the 
provisions of this subpart and no later than May 1 of the calendar year 
following the given model year. Annual reports must be submitted to: 
Director, Vehicle Programs and Compliance Division, U.S. Environmental 
Protection Agency, 2000 Traverwood, Ann Arbor, Michigan 48105.
    (5) Failure by a manufacturer to submit the annual report in the 
specified time period for all vehicles and trucks subject to the 
provisions in this section is a violation of section 203(a)(1) of the 
Clean Air Act for each subject vehicle and truck produced by that 
manufacturer.
    (6) If EPA or the manufacturer determines that a reporting error 
occurred on an annual report previously submitted to EPA, the 
manufacturer's credit or debit calculations will be recalculated. EPA 
may void erroneous credits, unless transferred, and must adjust 
erroneous debits. In the case of transferred erroneous credits, EPA 
must adjust the selling manufacturer's credit or debit balance to 
reflect the sale of such credits and any resulting generation of 
debits.
    (c) Notice of opportunity for hearing. Any voiding of the 
certificate under paragraph (a)(6) of this section will be made only 
after EPA has offered the manufacturer concerned an opportunity for a 
hearing conducted in accordance with Sec. 86.614 for light-duty 
vehicles or Sec. 86.1014 for light-duty trucks and, if a manufacturer 
requests such a hearing, will be made only after an initial decision by 
the Presiding Officer.

[FR Doc. 00-19 Filed 2-9-00; 8:45 am]
BILLING CODE 6560-50-P