[Federal Register Volume 65, Number 80 (Tuesday, April 25, 2000)]
[Rules and Regulations]
[Pages 24268-24314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7887]



[[Page 24267]]

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

Part III





Environmental Protection Agency





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



40 CFR Parts 90 and 91



Phase 2 Emission Standards for New Nonroad Spark-Ignition Handheld 
Engines at or Below 19 Kilowatts and Minor Amendments to Emission 
Requirements Applicable to Small Spark-Ignition Engines and Marine 
Spark-Ignition Engines; Final Rule

  Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Rules 
and Regulations  

[[Page 24268]]


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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 90 and 91

[FRL-6548-2]
RIN 2060-AE29


Phase 2 Emission Standards for New Nonroad Spark-Ignition 
Handheld Engines At or Below 19 Kilowatts and Minor Amendments to 
Emission Requirements Applicable to Small Spark-Ignition Engines and 
Marine Spark-Ignition Engines

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: In this action, we are finalizing a second phase of 
regulations to control emissions from new nonroad spark-ignition 
handheld engines at or below 19 kilowatts (25 horsepower). The engines 
covered by this action are used principally in handheld lawn and garden 
equipment applications such as trimmers, leaf blowers, and chainsaws. 
The standards will result in an estimated 70 percent reduction of 
emissions of hydrocarbons plus oxides of nitrogen from handheld engine 
emissions under the current Phase 1 standards by year 2010. The 
standards will be phased in beginning with the 2002 model year. The 
standards will result in important reductions in emissions which 
contribute to excessively high ozone levels in many areas of the United 
States. We have estimated the cost at approximately $20 to $56 for 
individual units and significantly air quality benefits of 3.6 millions 
of HC over the life of the program.
    In March 1999 we adopted Phase 2 regulations for small spark-
ignition engines used in nonhandheld equipment. In this action we are 
including two provisions for Phase 2 nonhandheld engines that would 
partially modify the scope of the March 1999 final rule. First, we are 
adopting standards for two additional classes of nonhandheld engines 
that apply to engines below 100 cubic centimeters displacement used in 
nonhandheld equipment applications. Second, we are finalizing an option 
that allows manufacturers to certify engines greater than 19 kilowatts 
and less than or equal to one liter in displacement to the small engine 
Phase 2 standards.
    With this document, we are also amending the provisions of the 
existing regulations for small spark-ignition nonroad engines at or 
below 19 kilowatts and marine spark-ignition nonroad engines. (We 
proposed these amendments in a separate document, and received no 
comments objecting to the proposal.) For small spark-ignition nonroad 
engines at or below 19 kilowatts, we are revising the applicability of 
the rule to certain engines used in recreational applications and 
revising the applicability of the handheld emission standards to 
accommodate cleaner but heavier 4-stroke engines. For marine spark-
ignition engines, we are amending the existing regulations to provide 
compliance flexibility for small volume engine manufacturers during the 
standards' phase in period. Lastly, we are adopting a minor revision to 
the existing replacement engine provisions for both small spark-
ignition nonroad engines at or below 19 kilowatts and marine spark-
ignition nonroad engines to address issues that may arise concerning 
the importation of such engines. No significant air quality impact is 
expected from the amendments included in today's action.

DATES: The amendments to 40 CFR parts 90 and 91 are effective June 26, 
2000.

ADDRESSES: Materials relevant to the Phase 2 provisions of this final 
rule, including the Final Regulatory Impact Analysis are contained in 
Public Docket A-96-55. Materials relevant to the amendments for small 
spark-ignition nonroad engines and marine spark-ignition engines are 
contained in Public Docket A-98-16. Both of these dockets are located 
at room M-1500, Waterside Mall (ground floor), U.S. Environmental 
Protection Agency, 401 M Street, SW, Washington, D.C. 20460. The 
dockets may be inspected from 8:00 a.m. until 5:30 p.m. Monday through 
Friday. The docket may also be reached by telephone at (202) 260-7548. 
As provided in 40 CFR part 2, we may charge a reasonable fee for 
photocopying.
    For further information on electronic availability of this final 
rule, see the SUPPLEMENTARY INFORMATION section of this Federal 
Register.

FOR FURTHER INFORMATION CONTACT: For information on the Phase 2 
provisions adopted in today's action contact Philip Carlson, U.S. EPA, 
Office of Air and Radiation, Office of Transportation and Air Quality, 
Assessment and Standards Division, (734) 214-4270; 
[email protected]. For information on the amendments to the 
existing provisions for small spark-ignition nonroad engines and marine 
spark-ignition engines contact John Guy, U.S. EPA, Office of Air and 
Radiation, Office of Transportation and Air Quality, Certification and 
Compliance Division, (202) 564-9276; [email protected].

SUPPLEMENTARY INFORMATION:

Regulated Entities

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

------------------------------------------------------------------------
                Category                  Examples of regulated entities
------------------------------------------------------------------------
Industry...............................  Manufacturers or importers of
                                          new nonroad small (at or below
                                          19 kilowatt) spark-ignition
                                          handheld or nonhandheld
                                          engines and equipment.
                                         Manufacturers or importers of
                                          new marine spark-ignition
                                          outboard, personal watercraft,
                                          and jetboat engines and
                                          equipment.
------------------------------------------------------------------------

This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that we are now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your company is regulated by this action, you should carefully examine 
the applicability criteria in section 90.1 and section 91.1 of title 40 
of the Code of Federal Regulations. If you have questions regarding the 
applicability of this action to a particular entity, consult the people 
listed in the preceding FOR FURTHER INFORMATION CONTACT section.

Obtaining Electronic Copies of the Regulatory Documents

    The preamble, regulatory language, Final Regulatory Impact 
Analysis, and Summary and Analysis of Comments are also available 
electronically from the EPA Internet Web site. This service is free of 
charge, except for any cost already incurred for Internet connectivity. 
The electronic version of this final rule is made available on the day 
of publication on the primary Web site listed below. The EPA Office of 
Transportation and Air Quality also publishes Federal Register notices 
and related documents on the secondary Web site listed below.

1. http://www.epa.gov/docs/fedrgstr/EPA-AIR/ (select the desired date 
or use the ``Search'' feature)
2. http://www.epa.gov/OMSWWW/ (look in ``What's New'' or under the 
specific rulemaking topic)


[[Page 24269]]


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

Table of Contents

I. Introduction
    A. What Is the Background of This Final Rule?
    B. What Are the Basic Provisions of This Final Rule?
II. Detailed Description of This Final Rule
    A. What Are the Emission Standards and Other Related Provisions?
    1. Class Structure
    2. Emission Standards and Implementation Schedule
    3. NMHC+NOX Standard for Class I-B Natural Gas-Fueled 
Engines
    4. Useful Life Categories
    5. Selection of Useful Life Category
    6. Certification Test Procedure
    B. What Are the Provisions of the Averaging, Banking, and 
Trading Program?
    C. What Are the Provisions of the Compliance Program?
    1. Certification
    2. Production Line Testing--Cumulative Summation Procedure
    3. Voluntary In-Use Testing
    4. Selective Enforcement Auditing
    D. What Flexibilities Are Being Adopted for Engine and Equipment 
Manufacturers?
    1. Carry-Over Certification
    2. Flexibilities for Small Volume Engine Manufacturers and Small 
Volume Engine Families
    3. Small Volume Engine Manufacturer Definition
    4. Small Volume Engine Family Definition
    5. Flexibilities for Equipment Manufacturers and Small Volume 
Equipment Models
    6. Small Volume Equipment Manufacturer Definition
    7. Small Volume Equipment Model Definition
    E. Nonregulatory Programs
    F. General Provisions of This Final Rule
    1. Engine Labeling
    2. Emission Warranty
    G. Amendments to the Small Spark-Ignition (SI) Engine and Marine 
SI Engines Programs
    1. Definition of Handheld Engine
    2. Engines Used in Recreational Vehicles and Applicability of 
the Small SI Regulations to Model Airplanes
    3. Phase-in Flexibility for Small Volume Marine SI Engine 
Manufacturers
    4. Replacement Engines
III. What Are the Projected Impacts of This Final Rule?
    A. Environmental Benefit Assessment
    1. Roles of HC and NOx in Ozone Formation
    2. Health and Welfare Effects of Tropospheric Ozone
    3. Estimated Emissions Impact of This Final Rule
    4. Health and Welfare Effects of CO Emissions
    5. Health and Welfare Effects of Hazardous Air Pollutant 
Emissions
    B. Cost and Cost-Effectiveness
    1. Class I-A and Class I-B Costs
    2. Handheld Engine Costs
    3. Handheld Equipment Costs
    4. Handheld Operating Costs
    5. Cost Per Engine and Cost-Effectiveness
IV. Public Participation
V. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility
    C. Paperwork Reduction Act
    D. Unfunded Mandates Reform Act
    E. Congressional Review Act
    F. National Technology Transfer and Advancement Act
    G. Executive Order 13045: Protection of Children's Health
    H. Executive Order 13132: Federalism
    I. Executive Order 13084: Consultation and Coordination With 
Indian Tribal Governments
VI. Statutory Authority

I. Introduction

A. What Is the Background of This Final Rule?

    On January 27, 1998, we issued a Notice of Proposed Rulemaking 
(NPRM) proposing a second phase of regulations to control emissions 
from new handheld and nonhandheld nonroad spark-ignition (SI) engines 
at or below 19 kilowatts (kW), hereafter referred to as ``small SI 
engines'' (see 63 FR 3950). This action was preceded by a March 27, 
1997, Advance Notice of Proposed Rulemaking (see 62 FR 14740). We 
solicited comment on all aspects of the January 1998 NPRM and held a 
public hearing on February 6, 1998. The public comment period for the 
January 1998 NPRM closed March 13, 1998. On March 30, 1999, we 
finalized Phase 2 standards and compliance program requirements for 
Class I and Class II nonhandheld engines (see 64 FR 15208). In the 
final rule for nonhandheld engines, we noted that we planned to address 
the Phase 2 program for handheld engines in future Federal Register 
documents. We issued a Supplemental Notice of Proposed Rulemaking 
(SNPRM) for Phase 2 handheld engines on July 28, 1999 (see 64 FR 
40940). We solicited comment on all aspects of the July 1999 SNPRM and 
held a public hearing on August 17, 1999. The public comment period for 
the July 1999 SNPRM closed September 17, 1999. The purpose of today's 
final rule is to adopt Phase 2 standards and compliance program 
requirements for handheld engines.
    Today's action also contains two provisions that affect nonhandheld 
engines. First, we are adopting standards and compliance program 
requirements for two newly designated classes of nonhandheld engines 
with displacements below 100 cubic centimeters (cc), hereafter referred 
to as Class I-A and Class I-B engines. Second, we are adopting an 
optional provision that allows manufacturers to certify engines above 
19 kW with displacement less than or equal to one liter to the Phase 2 
small SI engine regulations.
    Today's action is taken in response to section 213(a)(3) of the 
Clean Air Act, 42 U.S.C. 7547, which requires our standards for nonroad 
engines and vehicles to achieve the greatest degree of emission 
reduction achievable through the application of technology which the 
Administrator determines will be available, giving appropriate 
consideration to cost, lead time, noise, energy and safety factors. The 
standards and other compliance program requirements being adopted today 
satisfy this Clean Air Act mandate.
    The development of this regulation started in 1996, shortly after 
the Phase I standards were finalized. Initially a formal regulatory 
negotiation process was attempted. After it became clear that the 
disparate interest of the multiple parties would not result in an 
agreement, the regulatory negotiation process was abandoned. Instead, 
at the request of industry, EPA developed the framework for a Phase II 
rule which was described in a Statement of Principles signed by 
manufacturers representing a significant portion of the US market. This 
SOP formed the basis for the Phase 2 NPRM.
    The January 1998 NPRM contained lengthy discussion of the first set 
of proposed Phase 2 standards, the expected costs of their 
implementation, and the technologies that we expected manufacturers 
would use to meet the standards. The January 1998 NPRM also discussed 
the potential costs and benefits of adopting more stringent standards 
such as the second phase of standards that were then under 
consideration by the California Air Resources Board (ARB). In the 
January 1998 NPRM, we explicitly asked for comment regarding the level 
of the proposed standards and the impacts and timing for implementing 
more stringent standards, so as to allow us to establish the most 
appropriate standards in the final rule. In particular, we requested 
comment on the impacts and timing for implementing emission standards 
that would require the same types of technology as anticipated by 
proposed rules under consideration at that time by the California ARB.
    After the close of the comment period on the January 1998 NPRM and 
upon reviewing information supplied during

[[Page 24270]]

and after the comment period, we determined that it was desirable to 
get further details regarding the technological feasibility, cost and 
lead time implications of meeting standards more stringent than those 
contained in the January 1998 NPRM. The January 1998 NPRM already 
contained estimates of the costs and feasibility of more stringent 
standards. Some commenters had charged that, based on these discussions 
in the January 1998 NPRM, our proposed standards would not be stringent 
enough to satisfy the stringency requirements of Clean Air Act section 
213(a)(3). For the purpose of gaining additional information on 
feasibility, cost and lead time implications of more stringent 
standards, we had several meetings, phone conversations, and written 
correspondence with specific engine manufacturers, with industry 
associations representing engine and equipment manufacturers, with 
developers of emission control technologies and suppliers of emission 
control hardware, with representatives of state regulatory 
associations, and with members of Congress. We also sought information 
relating to the impact on equipment manufacturers, if any, of changes 
in technology potentially required to meet more stringent standards 
than were proposed in the January 1998 NPRM. We published a Notice of 
Availability on December 1, 1998, highlighting the additional 
information gathered in response to the January 1998 NPRM (see 63 FR 
66081) and continued having discussions with various parties regarding 
low emission technologies for the small SI handheld engine market.
    Since the publication of the January 1998 NPRM, there have been 
rapid and dramatic advances in emission reduction technologies for 
handheld engines. We were not able to fully evaluate these technologies 
or discuss their possible availability at the time of the January 1998 
NPRM. After having reviewed the most up-to-date information available 
on these new technologies, we believed the information supported Phase 
2 standards for handheld engines that were significantly more stringent 
than those proposed in the January 1998 NPRM and even more stringent 
than the second phase of California ARB standards. In light of this new 
information, and in the interest of providing an opportunity for public 
comment on the stringent levels being considered for the Phase 2 
handheld engine emission standards and the potential technologies 
available for meeting such standards, we reproposed Phase 2 regulations 
for handheld engines in the July 28, 1999, SNPRM (see 64 FR 40940). The 
July 1999 SNPRM proposed Phase 2 hydrocarbon plus oxides of nitrogen 
(HC+NOx) standards of 50 grams per kilowatt-hour (g/kW-hr) 
for Class III and Class IV engines and of 72 g/kW-hr for Class V 
engines, phased in over several years. The proposal also included an 
averaging, banking, and trading program. The July 1999 SNPRM also 
proposed revised compliance program requirements for handheld engines. 
Most of the proposed compliance program changes were intended to make 
the handheld engine compliance program the same as the requirements 
finalized for nonhandheld engines in March 1999 and to establish a 
consistent approach to compliance for all nonroad small SI engines.
    In addition to the reproposed Phase 2 standards for handheld 
engines, we also proposed standards for two new classes of small 
displacement nonhandheld engines in the July 1999 SNPRM. We had 
requested comment on the need for such standards in the January 1998 
NPRM and received comments from a number of engine manufacturers 
supporting such standards. Originally, we did not propose different 
standards for small displacement nonhandheld engines citing the 
availability of the averaging, banking and trading program as a reason 
for not proposing separate standards. However, because the Phase 2 
standards we finalized for nonhandheld Class I engines are more 
stringent than originally proposed in the January 1998 NPRM and because 
it is technologically more difficult to meet a given level of emissions 
(in g/kW-hr) as the engine displacement is decreased, manufacturers who 
would likely produce such small displacement engines would not likely 
be able to meet the Phase 2 Class I standards recently finalized and 
would not be able to produce such small displacement nonhandheld 
engines even if they could take advantage of the averaging, banking and 
trading program. Therefore, we proposed standards for two classes of 
small displacement nonhandheld engines that would take effect upon the 
effective date of today's final rule. The first small displacement 
class covered nonhandheld engines with displacements below 66cc and was 
referred to as Class I-A engines. The second small displacement class 
covered nonhandheld engines at or above 66cc and below 100cc and was 
referred to as Class I-B engines.
    In response to a request from manufacturers of small engines, we 
also included in the July 1999 SNPRM a proposal to allow manufacturers 
the option of certifying engines greater than 19 kW and less than or 
equal to one liter in displacement to the small SI engine Phase 2 
regulations for nonhandheld engines beginning with the 2001 model year. 
Because of their size, these engines are not required to be certified 
under the current Phase 1 small SI engine program, and they do not have 
to meet any previously existing Federal requirements because we do not 
currently regulate spark-ignition engines above 19 kilowatts. However, 
because there are a small number of these engines that are primarily 
derivatives of other certified small SI engines at or below 19 kW, we 
believed it would be appropriate for manufacturers to have the option 
to certify these engines to the Phase 2 requirements for small SI 
engines. As noted in the July 1999 SNPRM, engines certified under the 
proposed option would be required to certify for the longest useful 
life period of 1,000 hours. The requirements of this option were 
consistent with those that had already been adopted by the California 
ARB.
    We solicited comment on all aspects of the July 1999 SNPRM and held 
a public hearing on August 17, 1999. The public comment period for the 
July 1999 SNPRM closed September 17, 1999.
    In addition to the Phase 2 provisions for small SI nonroad engines 
highlighted above, today's action adopts several minor amendments to 
the existing regulations for small SI nonroad engines and marine SI 
engines. These amendments were included in a separate proposal on 
February 3, 1999 (see 64 FR 5251). We originally promulgated final 
regulations applicable to small SI engines on July 3, 1995 (see 60 FR 
34582, codified at 40 CFR Part 90) and final regulations applicable to 
spark-ignition marine outboard and personal watercraft (including 
jetboat) engines (marine SI engines) on October 4, 1996 (see 61 FR 
52088, codified at 40 CFR Part 91).\1\
---------------------------------------------------------------------------

    \1\ The preamble to the final marine SI rule (61 FR 52090) 
explains that for purposes of the marine SI rule, jetboats are 
considered as personal watercraft, except where their engines are 
derived from sterndrive or inboard type marinized automotive blocks.
---------------------------------------------------------------------------

    The small SI regulations took effect with model year 1997 for the 
majority of covered engines and in the 1998 model year for certain 
higher displacement handheld engines. The marine SI rule took effect 
with 1998 or 1999 engines, depending upon their usage, and involves a 
corporate average standard which tightens each year through 2006. (The 
marine SI rule does

[[Page 24271]]

not apply to sterndrive or inboard engines. We expect to issue a 
proposal to regulate such engines in the coming year). Under the 
regulations, both small SI engine and marine SI engine manufacturers 
are prohibited from introducing into commerce any engine not covered by 
a EPA-issued certificate of conformity (40 CFR 90.1003(a)(1)(I); 40 CFR 
91.1103(a)(1)(I)). The rules also prohibit equipment and vessel 
manufacturers from introducing new nonroad equipment and vessels into 
commerce unless the engine in the equipment or vessel is certified to 
comply with the applicable nonroad emission requirements (40 CFR 
90.1003(a)(5); 40 CFR 91.1103(a)(5)).\2\ We added provisions to allow 
engine manufacturers to produce replacement engines that were not 
certified to currently applicable standards to each of the two rules 
described above by a direct final rule issued August 7, 1997 (62 FR 
42638).
---------------------------------------------------------------------------

    \2\ The regulations also prohibit, in the case of any person, 
the importation of uncertified small SI engines and marine SI 
engines manufactured after the applicable implementation date for 
the engine. The regulations also prohibit the importation of 
equipment containing small SI engines unless the engine is covered 
by a certificate of conformity. (40 CFR 90.1003(a)(1)(ii) and 40 CFR 
91.1103(a)(1)(ii)).
---------------------------------------------------------------------------

B. What Are the Basic Provisions of This Final Rule?

    The following section provides an overview of the Phase 2 
provisions being finalized with today's action as well as the 
amendments to the current small SI engine and marine SI engine 
programs. Additional detail explaining the program as well as 
discussion of information and analyses which led to the selection of 
these requirements is contained in subsequent sections. Summaries of 
comments we received on the July 1999 SNPRM (for the Phase 2 program) 
and the February 1999 NPRM (for the amendments) and detailed responses 
to those comments are contained in a separate document included in the 
dockets for today's final rule.
    Consistent with the Phase 1 regulations for small SI engines, 
today's action and the recently finalized Phase 2 program for 
nonhandheld engines distinguish between engines used in handheld 
equipment and those used in nonhandheld equipment. In today's action, 
we are adopting Phase 2 emission standards for distinct engine size 
categories referred to as ``engine classes'' within the handheld engine 
equipment designation. Table 1 summarizes the HC+NOX 
emission standards for Class III, Class IV, and Class V handheld 
engines and when these standards are scheduled to take effect under 
this final rule. Table 2 summarizes the CO standards and the effective 
dates of the CO standards. In response to comments submitted on the 
July 1999 SNPRM, the standards and implementation schedule contained in 
today's final rule for handheld engines reflect a four year phase in 
schedule instead of a five year phase in schedule as proposed in the 
SNPRM.

                        Table 1.--Phase 2 HC+NOX Emission Standards for Handheld Engines
----------------------------------------------------------------------------------------------------------------
                                                            HC+NOX Standards (g/kW-hr) by model year
                                               -----------------------------------------------------------------
                 Engine class                                                                           2007 and
                                                   2002       2003       2004       2005       2006      later
----------------------------------------------------------------------------------------------------------------
Class III.....................................        238        175        113         50         50         50
Class IV......................................        196        148         99         50         50         50
Class V.......................................  .........  .........        143        119         96         72
----------------------------------------------------------------------------------------------------------------


      Table 2.--Phase 2 CO Emission Standards for Handheld Engines
------------------------------------------------------------------------
                                                CO standard   Effective
                 Engine class                    (g/kW-hr)    model year
------------------------------------------------------------------------
Class III.....................................          805         2002
Class IV......................................          805         2002
Class V.......................................          603         2004
------------------------------------------------------------------------

    When fully phased in, these Phase 2 standards are expected to 
result in an estimated 70 percent annual reduction in combined 
HC+NOX emissions from small SI handheld engines compared to 
the Phase 1 emission requirements for such engines. Due to the use of 
improved technology, CO emissions are also expected to decrease below 
Phase 1 levels.
    To help engine manufacturers meet the HC+NOX standards 
noted in Table 1, we are adopting provisions to include Phase 2 
handheld engines in the certification averaging, banking and trading 
(ABT) program. The combination of the declining Phase 2 handheld 
standards and the ABT program should allow manufacturers to make an 
orderly and efficiently transition from their existing Phase 1 engine 
designs and technologies to those necessary to meet the new Phase 2 
requirements and should provide an incentive for the early introduction 
of clean engines. We believe that the ABT program is an integral part 
of the Phase 2 HC+NOX standards being adopted for Classes 
III, IV, and V. (As noted later, the ABT program does not apply to CO 
emissions.)
    As noted earlier, we are adopting provisions that will add two new 
classes of small SI nonhandheld engines. Class I-A will cover engines 
with displacement less than 66cc that are installed in nonhandheld 
equipment. Class I-B will cover engines equal to or greater than 66cc 
but less than 100cc that are installed in nonhandheld equipment. Table 
3 contains the HC+NOX standards and CO standards we are 
adopting for Class I-A and Class I-B engines. The standards contained 
in today's final rule for Class I-A and Class I-B nonhandheld engines 
are the same as we proposed in the July 1999 SNPRM. Implementation of 
the standards for the new classes of Class I-A and Class I-B engines 
will begin with the 2001 model year. Class I-A and Class I-B engines 
will also be allowed to participate in the ABT program for small SI 
engines.

[[Page 24272]]



Table 3.--Phase 2 Emission Standards for Class I-A and Class I-B Engines
------------------------------------------------------------------------
                                           HC+NOX       CO     Effective
              Engine class                standard   standard    model
                                         (g/kW-hr)  (g/kW-hr)     year
------------------------------------------------------------------------
Class I-A..............................         50        610       2001
Class I-B..............................         40        610       2001
------------------------------------------------------------------------

    With today's action, we are also finalizing the provision which 
will allow manufacturers the option of certifying engines greater than 
19 kW and less than or equal to one liter in displacement to the small 
SI engine Phase 2 regulations beginning with the 2001 model year. 
Because the power rating of such engines is above 19 kW, we do not 
currently regulate such engines and therefore the engines are not 
required to comply with any previously existing emission standards at 
the federal level. We issued a Notice of Proposed Finding on February 
8, 1999, which announced our intent to propose regulations for ``large 
nonroad SI engines'' and we are currently developing a NPRM for large 
nonroad SI engines to be issued in late 2000 (see 64 FR 6008). We 
expect this proposal would be consistent with actions taken for these 
engines in today's rule.
    For the Phase 2 handheld engine program, we are retaining the 
current test procedure used by manufacturers to certify engines with 
one modification. The weighting of the two different test modes used 
for calculating the certification emission levels for handheld engines 
is being changed to 85 percent wide open throttle and 15 percent idle. 
(The weighting of the modes for the Phase 1 program is 90 percent wide 
open throttle and 10 percent idle.)
    The Phase 2 standards and the compliance program elements being 
adopted today require engine manufacturers to consider expected in-use 
deterioration. In contrast to the Phase 1 program which only regulates 
the emission performance of engines when new, the Phase 2 program will 
require manufacturers to account for expected deterioration in emission 
performance as an engine is used. Manufacturers will be required to 
evaluate the emission deterioration performance of their engine designs 
and certify their designs to meet the standards after factoring in the 
anticipated emission deterioration of a typical in-use engine over its 
useful life.
    Under today's action, an engine manufacturer will select from one 
of three different useful life categories based on the type of engine 
and equipment in which the engine is installed. Handheld engine 
manufacturers can certify for a useful life period of 50, 125, or 300 
hours based on design features and the intended use of the application. 
For Class I-A engines, we are also adopting useful life periods of 50, 
125, and 300 hours. For Class I-B engines, we are adopting useful life 
periods of 125, 250, or 500 hours.
    Under the Phase 2 certification program being adopted today, 
manufacturers are allowed to determine an appropriate methodology for 
accumulating hours of operation to ``age'' an engine in a manner which 
duplicates the same type of wear and other deterioration mechanisms 
expected under typical consumer use which could affect emission 
performance. We expect laboratory-based bench testing will often be 
used to conduct this aging operation because it can save time and 
perhaps money, but actual in-use operation (e.g., trimming grass) will 
also be allowed. Emission tests will be conducted when the engine is 
new and when it has finished accumulating the equivalent of its useful 
life. The engine will have to pass the applicable standards both when 
it is new and at the end of its designated useful life to qualify for 
certification. Additionally, the new engine and fully aged engine 
emission test levels will be compared to determine the expected 
deterioration in emission performance for engines of this design.
    We are also adopting a Production Line Testing (PLT) program for 
Phase 2 engines covered by today's action. The PLT program is explained 
in more detail in a following section but, briefly, the intent is to 
require a sampling of production line engines to be tested for emission 
performance to assure that the design intent as certified prior to 
production has been successfully transferred by the engine manufacturer 
to mass production. The volume of PLT testing required by the 
manufacturer would depend on how close the test results from the 
initial engines tested are to the applicable standards. If the initial 
test results indicate the design is well below the applicable 
standards, few engines will need to be tested. For those designs where 
the test results indicate emission levels are very close to the 
applicable standards, additional tests will be required to make sure 
the design is being produced with acceptable emission performance.
    While the newly adopted Phase 2 compliance program will not require 
manufacturers to conduct any in-use testing to verify continued 
satisfactory emission performance in the hands of typical consumers, we 
are adopting an optional program for such in-use testing with today's 
action. We believe it is important for manufacturers to conduct in-use 
testing to monitor the success of their designs and to factor back into 
their design and/or production process any information suggesting 
emission problems in the field. While not mandating such a program, 
today's action will encourage such testing by allowing a manufacturer 
to avoid the cost of the PLT program for a portion of its product line 
by instead supplying data from in-use engines. Under this voluntary in-
use testing program, up to twenty percent of the engine families 
certified in a year by a manufacturer can be designated for in-use 
testing. For these families, no PLT testing will be required for two 
model years including that model year. Instead, the manufacturer will 
select a minimum of three engines off the assembly line or from another 
source of new engines and emissions test them when aged to at least 75 
percent of their useful life under typical in-use operating conditions 
for this engine. The information related to this in-use testing program 
will need to be shared with us. If any information derived from this 
program indicates a possible substantial in-use emission performance 
problem, we anticipate the manufacturer will seek to determine the 
nature of the emission performance problem and what corrective actions 
might be appropriate. We plan to offer our assistance in analysis of 
the reasons for unexpectedly high in-use emission performance and what 
actions might be appropriate for reducing these high emissions.
    Separate from the program allowing manufacturers to perform 
voluntary in-use testing, we could choose to conduct our own in-use 
compliance program, either generally or on a case-by-case basis. If we 
determine that such action is appropriate, we expect that we will 
perform our own in-use testing to determine whether a specific class or 
category of engines is complying with applicable standards in use.
    All of the general provisions of the Phase 2 compliance program 
contained in today's action have been adopted as part of California's 
compliance program for these classes of small engines.\3\ Importantly, 
the testing and data

[[Page 24273]]

requirements, engine family descriptors, compliance statements and 
similar testing and information requirements of these federal Phase 2 
handheld regulations are, to the best of our knowledge, the same 
general compliance program requirements adopted by the California ARB. 
This will be advantageous to manufacturers marketing the same product 
designs in California as in the other states, as they would need to 
prepare only one set of certification application information, 
supplying one copy to the California ARB for certification in the State 
of California and one copy to us for federal certification. This 
similar treatment under the regulations also extends to the PLT program 
and is also likely to extend to the optional in-use testing program, 
such that any test data and related information developed for the 
federal regulatory requirements being adopted today should also satisfy 
the requirements of the California ARB.
---------------------------------------------------------------------------

    \3\ While the voluntary in-use test program has not been 
codified in the California ARB Tier 2 rules for these engines, we 
have discussed the program with the California ARB. The California 
ARB supports our voluntary in-use test program provisions as 
contained in today's action.
---------------------------------------------------------------------------

    In addition to the Phase 2 provisions highlighted above, today's 
action includes special provisions for small volume engine 
manufacturers, small volume engine families produced by other engine 
manufacturers, small volume equipment manufacturers who rely on other 
manufacturers to supply them with these small SI handheld engines, and 
small volume equipment models. These handheld small volume provisions 
should help to lessen the demonstration requirements and smooth the 
transition to these Phase 2 requirements. This is especially important 
for small volume applications because the eligible manufacturers 
involved may not have the resources to ensure that engines complying 
with the Phase 2 standards will be available within the time frames 
otherwise envisioned under these regulations. Without these provisions, 
we believe the economic impacts to small volume manufacturers would be 
increased and the possibility of reduced product offering would be 
greater, especially for those products intended to serve niche markets 
which satisfy special needs.
    Finally, today's action includes amendments to the existing rules 
for small SI nonroad engines and marine SI engines. First, for small SI 
engines, we are revising the definition of handheld engine by removing 
a restriction that may prevent equipment manufacturers from using 
cleaner, but heavier, engines in certain handheld lawn and garden 
equipment. Second, we are modifying the applicability of the rule so 
that a small number of engines used in model aircraft can be considered 
``recreational'' and excluded from coverage. Third, we are adopting 
provisions that would add phase-in flexibility to reduce the regulatory 
impact on a few very small manufacturers of marine engines. Lastly, the 
amendments include provisions for both the small SI engine and marine 
SI rules that closes a potential loophole that could have led to the 
abuse of special provisions that exist to permit the sale of 
uncertified engines for replacement purposes.

II. Detailed Description of This Final Rule

    The following sections provide additional detail on the provisions 
of the today's action outlined above.

A. What Are the Emission Standards and Other Related Provisions?

1. Class Structure
    With today's action we are retaining the same basic class structure 
for handheld engines as implemented in the Phase 1 regulations. Phase 2 
handheld engines will continue to be categorized as either Class III, 
Class IV, or Class V engines based on the displacement of the engine.
    As noted above, we are adopting provisions for two new classes of 
nonhandheld engines in today's action. The Phase 1 program separated 
the small engine category into those intended for use in equipment 
typically carried by the operator during its use, such as chain saws or 
string trimmers, referred to as handheld equipment, and those engines 
normally used in equipment which is not carried by the operator, such 
as lawnmowers and generators, referred to as nonhandheld equipment. 
Under the Phase 1 program, there are two classes of nonhandheld 
engines, Class I and Class II. Class I includes all nonhandheld engines 
with displacements below 225cc. The July 1999 SNPRM contained a 
proposal to include two new classes of nonhandheld engines below 100cc. 
The July 1999 SNPRM provisions were based on comments received from the 
Engine Manufacturers Association (EMA) and several individual engine 
manufacturers on the January 1998 NPRM. EMA and engine manufacturers 
requested the creation of smaller displacement classes of nonhandheld 
engines for several reasons including the need to fill a void in the 
equipment market left by products that would no longer be able to 
utilize 2-stroke engines if the Phase 2 Class I standard as proposed at 
that time was adopted. Manufacturers asserted the infeasibility of the 
Phase 2 Class I standard proposed at that time for the smallest engines 
in the class because of the increased difficulty in reducing emissions 
with small displacement engines.
    The comments we received regarding Class I-A and Class I-B engines 
generally supported the addition of the new classes of nonhandheld 
engines. (Additional discussion of the actual standards being adopted 
for Class I-A and Class I-B engines is included in the following 
section of today's action.) Based on the fact that it is generally more 
difficult for smaller displacement engines to meet the same emission 
standards as larger displacement engines, we continue to believe that 
the recently adopted Phase 2 Class I standard which is technically 
feasible and economically viable for the existing larger displacement 
4-stroke engines in Class I (which have displacements typically above 
125cc and are used primarily in lawnmowers), could be too costly for 
manufacturers to be achievable for not currently marketed smaller 
displacement engines that equipment manufacturers assert they need to 
use in applications requiring the use of much smaller displacement 
nonhandheld engines. Therefore, we are adopting the proposed provisions 
to subdivide the Class I engine category by adding two new nonhandheld 
engine classes and redesignating the span of displacements covered by 
Class I. Under today's action, Class I-A will include nonhandheld 
engines below 66cc, Class I-B will include nonhandheld engines equal to 
or greater than 66cc but less than 100cc, and Class I will cover 
engines equal to or greater than 100cc but less than 225cc.
    In the July 1999 SNPRM, we requested comment regarding the 
possibility that if the proposed Class I-A and I-B standards were 
adopted, manufacturers might shift significant production from Class I 
to the smaller displacement engines. We also requested comment on the 
potential for 2-stroke engines to meet the proposed Class I-A and I-B 
standards and the potential for such engines to be used in existing 
nonhandheld applications such as mowers. We noted that if such a change 
in the market were to occur, the benefits of the recently finalized 
Phase 2 program for Class I engines which anticipates a turnover to 
clean 4-stroke OHV technology would be seriously compromised. Based on 
the comments submitted on the proposed Class I-A and Class I-B 
provisions, we do not believe that it is likely manufacturers would 
shift significant production from Class I to the smaller displacement 
engines. Neither do we believe that manufacturers could design and 
market to any appreciable extent significant

[[Page 24274]]

numbers of 2-stroke engines in nonhandheld applications.
    In response to a request from manufacturers, we included in the 
July 1999 SNPRM an option for manufacturers to certify engines above 19 
kW with displacements less than or equal to one liter to the small SI 
standards. As noted earlier, such engines are currently unregulated at 
the federal level. We received comments from one trade group and one 
manufacturer supporting the proposed provisions. Therefore, we are 
adopting the provisions as proposed that allow manufacturers the option 
of certifying engines above 19 kW and less than or equal to one liter 
in displacement to the small SI engine program beginning with the 2001 
model year. It should be noted that if a manufacturer chooses to 
certify such engines under the small engine program, the engines will 
need to be certified to the Phase 2 requirements for the appropriate 
class of nonhandheld engines, which is expected to be the Class II 
requirements (i.e., engines above 225cc in displacement), for a useful 
life period of 1,000 hours. We recently issued a Notice of Proposed 
Finding (see 64 FR 6008) which announced our intent to propose 
regulations for ``large nonroad SI engines'' (which include these 
greater than 19 kW but less than one liter engines). We expect to issue 
a NPRM for large nonroad SI engines in 2000, and to propose that 
engines greater than 19 kW and less than one liter in displacement meet 
small SI nonroad engine requirements. If, however, we do not propose 
and/or adopt such a requirement for these engines as part of the large 
SI nonroad program, we would expect to consider reasonable approaches 
to minimizing disruption, as appropriate, to the affected industry. 
Such approaches would be addressed in the rulemaking process for large 
SI nonroad engines.
2. Emission Standards and Implementation Schedule
    In response to comments submitted on the July 1999 SNPRM, with 
today's action we are adopting a slightly different schedule of Phase 2 
HC+NOX standards compared to those proposed in the SNPRM. 
(The phase-in standards are changing from the proposal because we are 
adopting a four year phase-in schedule with today's action instead of 
the proposed five year phase-in schedule.) The CO standards being 
adopted with today's action are the same as proposed in the July 1999 
SNPRM. The new Phase 2 standards will begin to take effect with the 
2002 model year for Classes III and IV and the 2004 model year for 
Class V. For HC+NOX, engine manufacturers will be required 
to meet a declining standard that varies by engine class. As proposed 
in the July 1999 SNPRM, engine manufacturers will be required to meet a 
HC+NOX standard of 50 g/kW-hr for Classes III and IV and 72 
g/kW-hr for Class V SNPRM at the end of the phase in. However, the 
fleet average standards that a manufacturer is required to meet during 
the phase-in period differ from those proposed in response to comments 
that have persuaded EPA that a faster phase-in is more appropriate 
under the Act. Table 1 and Table 2, presented earlier, contain the full 
schedule of Phase 2 HC+NOX standards and CO standards, 
respectively, being adopted today for handheld engines by model year. 
As described in section II.B., engine manufacturers will be able to use 
the averaging, banking and trading program to demonstrate compliance 
with the Phase 2 HC+NOX standards on average. Engine 
manufacturers will be required to meet the Class III and Class IV CO 
standard beginning with the 2002 model year and the Class V CO standard 
beginning with the 2004 model year. Unlike the HC+NOx standards, the CO 
standards do not decrease over time, and the averaging, banking and 
trading program does not apply to the CO standards.
    The Clean Air Act at section 213(a)(3) requires us to adopt 
standards that result in the greatest emission reductions achievable 
through the application of technology which the Administrator 
determines will be available, giving appropriate consideration to cost, 
lead time, noise, energy and safety factors. As a result of information 
now available, and due to the rapid technological advances the handheld 
engine industry is making in an effort to design engines which are more 
environmentally friendly, we have determined that the standards being 
adopted today are achievable during the timeframe being adopted today. 
Table 4 summarizes the handheld technologies we conclude are capable of 
meeting the newly adopted standards by engine class. Note that for the 
purpose of generating a cost estimate for this rule, a subset of these 
available technologies were evaluated for their cost impact.

  Table 4.--Potential Technologies for Meeting the Phase 2 Standards for
                            Handheld Engines
------------------------------------------------------------------------
      Engine class                         Technologies
------------------------------------------------------------------------
III....................  --Compression Wave Technology + low-medium
                          efficiency Catalyst.
                         --Stratified Scavenging with Lean Combustion +
                          medium-high efficiency Catalyst.
                         --4-Stroke.
IV.....................  --Compression Wave Technology.
                         --Compression Wave Technology + low efficiency
                          Catalyst.
                         --Stratified Scavenging with Lean Combustion +
                          medium efficiency Catalyst.
                         --4-Stroke.
V......................  --Compression Wave Technology.
                         --4-Stroke (on certain applications).
                         --Stratified Scavenging with Lean Combustion.
------------------------------------------------------------------------

    While not all of the technologies discussed above have yet been 
demonstrated in mass-produced production engines operated under typical 
in-use conditions, we are confident that these technologies will 
provide industry with several emission control alternatives for meeting 
the new Phase 2 standards. Manufacturer prototype testing, California 
ARB certification information, and testing that we have performed as 
listed in Chapter 3 of the Final Regulatory Impact Analysis (RIA) 
demonstrate that currently available 2-stroke and 4-stroke technologies 
can achieve the newly adopted emission standards, especially if one 
considers catalysts are available to use along with the 2-stroke engine 
technologies. In addition to the technologies highlighted in today's 
action, we have examined though not included in our feasibility and 
costs analyses other promising technologies that may be available to 
help manufacturers meet the standards being adopted today. One of these 
technologies, a new engine design, referred to as DIPS, utilizes direct 
fuel injection and has shown promise in

[[Page 24275]]

achieving HC emissions levels below the standards being adopted today 
possibly without the use of a catalyst. Another technology is a 
redesigned spark plug developed by Pyrotek that has been shown to 
achieve incremental emission HC reductions (at low cost) that could be 
beneficial for engines which may need slightly more reductions to meet 
the emission standards being adopted today. Both of these technologies 
are described in further detail in Chapter 3 of the Final RIA. Finally, 
we understand that manufacturers are developing electronic fuel 
injection systems which if successful, should also allow low emissions. 
However, we have insufficient information at this time to consider this 
technology in this rulemaking although it may well be available during 
the 2002-2007 time period during which these standards will take 
effect.
    For 2-stroke engines, John Deere has certified a 25cc trimmer 
engine outfitted with the compression wave technology (also referred to 
as the John Deere LE engine) under the California ARB's Tier 2 program 
for small SI engines. The engine, which would be a Class IV engine 
under our classifications, was certified to a HC+NOX 
emissions level of 61 g/kW-hr at a useful life of 125 hours. In 
addition, John Deere adapted two Class V chainsaw engines and achieved 
HC+NOX emissions below the Class V standard of 72 g/kW-hr. 
Both of the chainsaw prototype applications did have significantly 
lower power with the compression wave technology retrofitted to the 
engine. However, the revised engine designs had been developed in a 
very short period of time and the fuel metering system had not been 
optimized for either of the engines, which would explain the loss in 
power. We believe, however, John Deere's efforts to retrofit the 
compression wave technology on these two Class V engines demonstrates 
the potential to apply the technology to Class V applications. Other 
manufacturers have also certified a number of advanced 2-stroke engine 
designs in California to meet the California ARB's Tier 2 
HC+NOX standard for model year 2000. Among these engines, 
Komatsu Zenoah has certified two stratified scavenging with lean 
combustion engine designs at 66 g/kW-hr HC+NOX at a useful 
life of 300 hours with a 25.4cc engine and 53 g/kW-hr HC+NOX 
at a useful life of 300 hours with a 33.6cc engine. Stihl has certified 
an engine at 66 g/kW-hr HC+NOX at a useful life of 300 hours 
for a 56.5cc engine (i.e., Class V under our classifications).
    While neither John Deere's compression wave technology engine nor 
the Komatsu Zenoah stratified scavenging with lean combustion engines 
noted above currently meets the newly adopted emission standards alone, 
John Deere has informed us that perhaps 50% of their Class IV 
applications are expected to comply with the standards while relying on 
the compression wave technology only. This may be due to their 
expectations for further improvement to that technology and their 
ability to take advantage of averaging to reduce costs. Thus, the 
addition of a catalyst on at least some applications, along with 
further engine improvements should allow them to demonstrate compliance 
with the Phase 2 standards. Allowing for a 20% compliance margin to 
account for variances within production runs and less precise 
manufacturing from prototype models to production runs, the target 
certification level in Classes III and IV is estimated to be around 40 
g/kW-hr HC+NOX for the technology prototypes (i.e., 
certification engines) at the end of their regulatory useful lives. The 
required catalyst conversion efficiencies for these engines to meet the 
target level noted above have been estimated using information from a 
number of sources. Engine-out emissions (without catalyst) at the end 
of the useful life are taken from the California ARB's Tier 2 
certification data. HC+NOX emission deterioration 
information for the compression wave technology is also obtained from 
the California ARB certification data, which states the deterioration 
for the compression wave technology is 1.1. HC+NOX emission 
deterioration information for the stratified scavenging with lean 
combustion is estimated from EPA test data (Docket A-96-55 Item VI-A-
01) and is assumed to be 1.0. Finally, a 30% deterioration in catalyst 
efficiency is assumed as the catalyst goes from new to the end of the 
certification useful life. Using this information, it is estimated 
that, without improvements in engine emission performance, the new 
engine catalyst conversion efficiency for the 25cc compression wave 
technology engine would need to be approximately 50% (30 g/kW-hr 
HC+NOX). For the 25.4cc stratified scavenged with lean 
combustion engine a 57% (38 g/kW-hr HC+NOX) efficiency 
catalyst would be needed and for the 33.6cc stratified scavenged with 
lean combustion engine a 36% (19 g/kW-hr HC+NOX) efficiency 
catalyst would be needed, given the current level of engine-out 
emissions.
    Concerns regarding catalyst heat management need to be addressed, 
especially in cases where high levels of HC+NOX need to be 
converted in a catalyst. However, given the fact that catalysts used on 
currently certified handheld engines have been shown to have conversion 
efficiencies in the range cited above, the amount of lead time 
available to manufacturers prior to the implementation of the Phase 2 
standards will be sufficient for manufacturers to implement additional 
engine and equipment improvements such that catalysts may be utilized 
on handheld engines without catalyst heat management concerns. Further, 
we believe that John Deere's, Ryobi's, and Echo's support of the 50 g/
kW-hr standard supports the conclusion that if catalysts are used then 
catalyst heat issues can adequately be addressed. Although the current 
California standards are somewhat less stringent than the federal 
standards being adopted today, the fact that catalysts are being used 
in some of these California certified applications demonstrates that 
manufacturers have the ability to design equipment adequately 
addressing catalyst temperature issues.
    We believe that the leadtime available before implementation of 
this rule and the period during phase-in to the final standards will 
allow additional improvements in engine-out emission performance. These 
improvements will include refinements of the fuel metering technology, 
improvements in combustion chamber and piston head design, and 
improvements in spark ignition via such devices as the Pyrotek spark 
plug mentioned earlier. Lastly, as the test data from the California 
ARB certification list shows, emissions of larger engines (as 
illustrated in comparison of the 25.4cc and 34cc stratified scavenged 
with lean combustion engines) decrease with increased engine size and 
therefore catalyst conversion requirements (and catalyst temperatures) 
will not be as high with larger Class IV engine displacements. It 
should be noted that for Class V (engines with displacement above 
50cc), we do not believe that manufacturers will need to employ 
catalysts to meet the standards being adopted today, and therefore 
catalyst heat management concerns should not be a concern.
    Although 2-stroke engines currently dominate the handheld engine 
market, we have determined that 4-stroke engines have the potential to 
achieve a significant share of the handheld market in the future. 
Ryobi, one of the biggest manufacturers of handheld equipment, has 
commented that it intends to

[[Page 24276]]

expand the number of 4-stroke models available under the Phase 2 
program. Three manufacturers have recently certified 4-stroke engines 
with the California ARB for the 2000 model year Tier 2 program that are 
used in handheld applications. Fuji Heavy Industries has certified a 4-
stroke engine at 17 g/kW-hr HC+NOX for a useful life of 125 
hours with a 24.5cc engine. Komatsu Zenoah has certified a 4-stroke 
engine at 31 g/kW-hr HC+NOX for a useful life of 300 hours 
with a 26.4cc engine. Ryobi has also certified two different 4-stroke 
engine families at 15 g/kW-hr HC+NOX for a useful life of 50 
hours and at 21 g/kW-hr HC+NOX for a useful life of 300 
hours. Both of these designs are on a 26.2cc engine. All of the 4-
stroke engines noted above would be expected to meet the standards 
adopted today without use of a catalyst.
    In the July 1999 SNPRM, we requested comment on a number of items 
related to the standards and the technologies we considered in 
developing the reproposed standards. The bulk of the comments received 
on the July 1999 SNPRM focused on the technologies, standards and 
implementation schedule proposed in the SNPRM. The following paragraphs 
summarize the major comments received and our responses. The full set 
of comments and more detailed responses related to the technologies, 
standards and implementation schedule can be found in the Summary and 
Analysis of Comments Document.
    John Deere, Ryobi, and the California ARB supported the reproposed 
standards and suggested an additional change in the HC+NOX 
standard for Class V to 50 g/kW-hr. John Deere asserted that 
compression wave technology is available for meeting a 50 g/kW-hr 
HC+NOX standard in all classes. Ryobi commented that the 4-
stroke engine is capable of meeting a 50 g/kW-hr HC+NOX 
standard in all classes. One additional engine manufacturer, Echo, 
supported the standards as proposed. A number of other engine 
manufacturers opposed the HC+NOX standards, including 
Husqvarna/Frigidaire Home Products (FHP), Stihl, and Tecumseh. 
Technical feasibility concerns regarding the technologies noted in the 
July 1999 SNPRM were the focus of comments from those in industry who 
opposed the reproposed HC+NOX emission standards. (The July 
1999 SNPRM noted that technologies such as John Deere's LE engine with 
a catalyst, Komatsu Zenoah's stratified scavenging with lean combustion 
engine with a catalyst, and 4-stroke engines are all technologies which 
have shown or have the potential to achieve the proposed standards on 
all or a portion of the engines covered in this rulemaking. For Class V 
engines, the July 1999 SNPRM noted that catalysts would likely not be 
required to meet the standards.) Two handheld industry associations 
supported the CO standards as proposed. Several months after the close 
of the comment period for the July 1999 SNPRM, we received comments 
from the Sierra Club and from the State and Territorial Air Pollution 
Program Administrators/Association of Local Air Pollution Control 
Officials (STAPPA/ALAPCO) asking us to adopt more stringent standards 
for Class V, and to expedite the effective dates for all of the 
handheld standards, based on their belief that manufacturers could meet 
such standards on a more accelerated schedule. We also received 
comments from equipment users and representatives of the forestry 
industry expressing concern about the potential impact of these 
regulations on safety, in particular a concern that chainsaws could 
cause a fire hazard if their exhaust systems became very hot.
    With regard to John Deere's compression wave technology, we 
requested comments on the likelihood that cost-effective solutions can 
be made available over the next two to three years across the full 
range of handheld engines and applications. John Deere, Stihl, and 
Husqvarna/FHP commented on this item. While John Deere had nearly 
completed a successful prototype on a Class IV trimmer engine prior to 
the July 1999 SNPRM, it was constructing a preliminary prototype for a 
70cc Class V chainsaw engine during the comment period and was able to 
submit a video and emission test results showing successful preliminary 
application of the technology to a Class V chainsaw in their comments 
on the July 1999 SNPRM. Stihl and Husqvarna/FHP also each submitted 
comments stating that they conducted individual short term studies on 
their interpretation of the compression wave technology on Class V and 
Class IV chainsaw engines, respectively. As detailed in their comments, 
the results of their limited studies lead Stihl and Husqvarna/FHP to 
believe that the technology is not feasible based on a number of issues 
with their chainsaw prototypes. After the close of the comment period, 
John Deere submitted additional feedback on the analysis performed by 
Stihl and Husqvarna on their respective prototypes. While John Deere 
did address the majority of each company's concerns listed in their 
reports, John Deere also acknowledged that more development time is 
needed in order to optimize the system for Class V applications and to 
determine if an additional lubrication system will be necessary on 
chainsaw and similar application engines. Nevertheless, based on the 
fact that John Deere has been successfully developing the technology 
for approximately one year, and has shown us that it can in this 
relatively short period of time, address the majority of issues that 
have been raised by Stihl and Husqvarna, we have concluded that the 
compression wave technology holds a great deal of promise and that 
industry will be able to address all issues raised in the lead time 
provided under today's rule.
    Under today's action, Class V engines have until 2004 to start 
certifying, and this is sufficient time for engine manufacturers to 
develop the compression wave technology, or stratified scavenging with 
lean combustion, or develop their own technology, for Class V engines. 
Therefore, we conclude that the issues raised by Stihl and Husqvarna 
regarding technological feasibility do not undermine the achievability 
of the Class V standards, since adequate technology will be available.
    With regard to the more stringent Class V standard supported by 
John Deere, Ryobi, and the California ARB, we do not believe the 
existing information provides us with a high enough degree of certainty 
to determine that a tighter standard is feasible for all applications 
within the leadtime provided by the rule. As noted earlier, John Deere 
has submitted information on two Class V engines equipped with the 
compression wave technology. The test results show that emission levels 
close to the standard are currently achievable on the larger engines as 
well. However, as noted earlier, the redesigned engines were not fully 
developed to address all issues, including emissions deterioration over 
the longest useful life category to which Class V engines are expected 
to certify. Based on John Deere's experience with applying the 
compression wave technology to its 25cc engine, at least in the near 
term, emissions will likely increase as the system is redesigned to 
address issues needed to make the engine production ready and deliver 
maximum performance. In addition, while we are optimistic that low 
deterioration can be demonstrated, the deterioration characteristics of 
the compression wave technology out to 300 hours remain unknown at this 
time. Due to these concerns, we cannot be as certain that Class V 
engines can achieve a standard of 50 g/kW-hr as is being

[[Page 24277]]

adopted for Class III and IV engines and applications within the 
timeframe of implementation of the Class V standards. Therefore, for 
Class V we are adopting the 72 g/kW-hr HC+NOX standard as 
proposed. It should be noted that the Class V standards during the 
phase-in period differ from those proposed because of the revised four 
year implementation schedule described below.
    With regard to the provisions of the patent as offered by John 
Deere for the compression wave technology, the licensing fee printed in 
John Deere's literature had been claimed to be excessive by some in the 
industry. We therefore requested comment on the licensing fees 
suggested by John Deere, the impact such fees would have on competition 
given the cost for other technology options, and the level of the 
licensing fee necessary to allow this licensed technology to be a more 
cost effective option for other manufacturers. Manufacturers claimed 
that the provisions of the current licensing agreement offered by John 
Deere are unworkable since they include provisions that development 
work is the responsibility of the licensee, and any patentable ideas a 
manufacturer develops become the property of John Deere. One 
manufacturer stated that the small engine industry typically bases 
royalties (usually 1 to 4%) on the cost of the component and not the 
cost of the equipment as John Deere has established. In addition, 
typical per unit profits in the consumer market are claimed by some 
manufacturers to be well below the minimum fee of $7.50 proposed by 
John Deere and, according to these manufacturers, a license fee of 
$7.50 would drive out competitors from the market. While the provisions 
of the licensing agreement currently published by John Deere may not be 
acceptable to other manufacturers, especially those that compete 
directly against John Deere in the consumer market, we are confident 
that future competing technologies, such as the stratified scavenging 
with lean combustion engine and the 4-stroke engine, will lead to lower 
licensing fees and perhaps licensing agreement provisions for all 
technologies which the licensee will find more favorable. Therefore, we 
do not view the initial licensing fee proposal offered by John Deere to 
be an impediment to the availability of LE technology for purposes of 
achieving the standards adopted today. The fact that no manufacturer 
has agreed to pay the license fee as proposed by John Deere suggests 
that it is too high and will necessarily have to be lowered. However, 
we do not know what the ultimate level of the licensing fee will be and 
therefore, for cost purposes, we have assumed the levels proposed by 
John Deere. Lower license fees would obviously result in lower overall 
costs of this technology and reduced impacts on consumer prices.
    With respect to other low emission technologies, we requested 
information on the idea that 4-stroke engines could be used for the 
majority of Class IV applications. The July 1999 SNPRM also stated that 
it is likely the 4-stroke would be applicable to the smallest of Class 
V engines. We received comments questioning the applicability of 4-
stroke engines in all handheld applications and expressing concerns 
about the heavy weight of the 4-stroke engine design, its slow 
acceleration, lower power, decreased durability due to the increased 
number of parts compared to 2-stroke engines, and the need for new 
manufacturing facilities for 4-stroke engines. Additional comments also 
questioned whether 4-stroke engines can be useful to the commercial 
user. Other comments supported use of 4-stroke engines and noted that 
they are currently used to power trimmers and brushcutters and weigh 
little more than comparable 2-stroke engines. In addition, commenters 
noted that 4-strokes provide more power in the lower engine speed range 
and no oil/fuel mixing is required.
    Considering all of these comments and the fact that manufacturers 
are already certifying low-emitting 4-stroke engines for use in 
handheld applications under the California ARB's Tier 2 program, we 
have concluded that the 4-stroke engine has a significant place among 
the technologies capable of meeting the finalized standards. However, 
4-stroke engines may not be the manufacturer's preferred choice for all 
engine displacements or equipment applications. While the 4-stroke is 
currently being applied in Class IV applications, such as trimmers, it 
may be a less desirable solution for Class III due to the cost of 
developing whole new 4-stroke engines for the few engine families in 
this class. (Class III applications tend to be the lowest priced 
consumer products.) The low volumes of the majority of Class III engine 
family sales may make the 4-stroke engine a less cost effective 
solution than other technologies unless the engine block and components 
can be adapted from a larger Class IV engine production line. Some 
manufacturers may find the cost of the 4-stroke technology on Class III 
equipment to be too large compared to the retail price, especially 
given the consumer market focus for these engines. For Class V engines 
we are confident that the 4-stroke engine design can be adapted to 
equipment in the lower displacement Class V engines. However, 4-stroke 
engines have not been demonstrated in the larger Class V applications 
where manufacturers have especially expressed concerns over potential 
increased weight, ergonomic problems, and the need to assure sufficient 
lubrication. To our knowledge, the manufacturers who currently market 
large displacement Class V equipment in the United States have no 
experience in designing and producing 4-stroke engines for handheld 
equipment, adding to their difficulty in applying this technology. 
Therefore, we conclude that 4-stroke technology will be cost-effective 
and widely available for Class IV engines, will be available but 
possibly less cost-effective for Class III engines, and will be 
available for at least the lower displacement Class V engines under the 
standards adopted today. However, we cannot similarly predict the 
applicability of 4-stroke technology for the largest displacement Class 
V engines within the time constraints for implementation of Class V 
standards.
    For stratified scavenging with lean combustion engine designs, 
comments were received asserting the inability of current designs with 
a catalyst to meet the standards proposed in the July 1999 SNPRM. As 
suggested evidence that lean combustion designs could not meet the 
proposed standards, one manufacturer stated that Kawasaki recently 
introduced a stratified scavenged 2-stroke engine with a catalyst that 
obtains 46 g/hp-hr (61.3 g/kW-hr) HC+NOX. Another 
manufacturer stated that the suggestion that stratified scavenging 
technology is a feasible way to achieve the proposed standards for 
Classes III and IV is unfounded. It cited the results of our recent 
testing that showed a prototype Komatsu Zenoah engine exceeded the U. 
S. Department of Agriculture's Forest Service (USFS) temperature 
requirements even without a catalyst. Komatsu Zenoah did not submit any 
comments on the July 1999 SNPRM. However, Komatsu Zenoah has developed 
25.4cc and 33.6cc versions of this technology and certified them with 
the California ARB under the Tier 2 program at HC+NOX levels 
of 66 g/kW-hr for a useful life of 300 hours and 53 g/kW-hr for a 
useful life of 300 hours, respectively. (They are also certified to 
meet the USFS temperature requirements.) Neither of these engines is 
equipped with a catalyst. While our recent testing of their prototype 
trimmer did reveal concerns of high surface

[[Page 24278]]

temperature of the exhaust housing, observation of the current muffler/
housing arrangement revealed that the design was not optimized and that 
there was room for improvement in its design. While the California ARB 
certification emissions data shows that current engines equipped with 
stratified scavenging with lean combustion are emitting at levels above 
the 50 g/kW-hr HC+NOX standard adopted today for Class III 
and IV, our emission test data on Komatsu Zenoah's 25cc stratified 
scavenging with lean combustion engine with one medium/high and one 
medium efficiency catalyst ranged from 28 to 39 g/kW-hr 
HC+NOX, respectively. Using the data associated with the 
catalyst that yielded 28 g/kW-hr, and assuming a 30% deterioration of 
the catalyst and 10% deterioration of the engine, the resultant 
emission level in-use is estimated to be 48 g/kW-hr. While this result 
shows compliance with the standards adopted in this rulemaking can 
already be achieved with this technology, it is likely that emissions 
will need to be lowered even more either through engine improvements or 
better catalyst designs to allow for a compliance margin with 
production engines. Compliance with the USFS temperature requirements 
may also need to be further addressed. However, several years still 
remain before full compliance with these standards is required and we 
are confident that further development will bring this technology 
within reasonable emissions for use in meeting these standards. In 
addition, our testing was conducted on the 25.4cc engine, and 
application of this technology to larger displacement engines will 
result in lower emissions. This is seen in the California ARB 
certification results where emissions on the 33.6cc engine are lower 
than the emission on the 25.4cc engine. Therefore, we conclude that 
stratified scavenging with lean combustion plus a catalyst will be an 
available technology for meeting the Class IV standards.
    In regard to application of the stratified scavenging with lean 
combustion technology to Class V engines, we expect that the decrease 
in emissions with this technology in larger engines, as was shown in 
the comparison of the 25.4cc to the 33.6cc engines, to continue due to 
the favorable surface to volume ratios in larger displacement engines. 
This will be beneficial because catalysts should not need to be 
utilized on Class V engines and the degree of enleanment can be 
decreased and therefore provide the amount of lubrication needed in 
high speed applications, such as chainsaws. Therefore, we believe the 
technology will also be available for Class V engines under the 
standards adopted today. We conclude that the stratified scavenging 
with lean combustion technology should be available for Class III 
engines as well, but manufacturers will need to address the unfavorable 
surface to volume ratios in the smallest engines which tend to result 
in higher g/kW-hr emission levels, which suggest the need for higher 
efficiency catalysts.
    We requested comment on the status of catalyst technology 
development for handheld engine applications and the likelihood that 
catalysts will be able to be applied to the full range of handheld 
engine applications to meet the proposed standards and appropriate 
safety requirements. Three engine manufacturers commented on catalysts, 
one of which has three catalyst equipped trimmers in the marketplace, 
and one catalyst industry trade organization commented. Two 
manufacturers commented that heat dissipation is an important issue and 
claimed that meeting the USFS and UL-82 requirements will be difficult 
on all engine applications. Of particular concern are equipment such as 
chainsaws where the ability to redesign the engine housing is limited 
due to weight and power issues. A number of parties related to the 
timber industry have also submitted comments regarding their concern 
over potential forest fires with the use of catalysts on Class V 
commercial equipment. In regard to the application of catalysts in 
Classes III and IV, a variety of catalyst substrates exist in the 
marketplace today, including the traditional honeycomb substrate, a 
plate substrate (as currently used in several trimmer applications), 
and a circular wire mesh substrate. Some catalyst designs are able to 
achieve higher conversion percentage than others based on the available 
surface area of the catalyst. Data from our testing of two engines with 
low engine-out emissions retrofitted with catalysts (a Komatsu Zenoah 
stratified scavenging with lean combustion engine retrofitted with a 
flat plat and honeycomb catalyst, and a John Deere compression wave 
technology engine retrofitted with a prototype metallic sponge 
catalyst) have shown catalyst conversion efficiencies of 45% or higher.
    The main concern raised by manufacturers with the use of catalysts 
is safety and compliance with the USFS temperature requirements. Higher 
conversion efficiencies of the catalyst and higher exhaust flow rate 
(which tends to increase with engine size) both can result in higher 
catalyst and exhaust gas temperatures. The needed conversion efficiency 
of the catalyst and available cooling are factors that need to be 
addressed in order to successfully apply catalysts to small engines. 
While catalyst and muffler designs can influence the conversion 
efficiency, the ability to cool the muffler is largely dependent on the 
application. Leaf blowers can blow air past the muffler, and thereby 
can achieve a high degree of cooling. Trimmers typically have ample 
available space around the muffler and therefore can be designed to 
handle a certain amount of additional cooling by extending the muffler 
housing out beyond current equipment designs. (It should be noted that 
there are a number of such handheld applications currently certified, 
both federally and with the California ARB, that employ catalysts and 
also comply with the USFS temperature requirements.) Chainsaws on the 
other hand have compact packaging requirements and therefore have less 
flexibility in being able to handle increased amounts of cooling.
    The power of an engine will influence the amount of heat that is 
generated in a catalyst. The general trend is that while larger engines 
produce more power, they also have larger surface to volume ratios 
which typically means lower engine out emissions (on a g/kW-hr basis), 
therefore decreasing the needed efficiency of a catalyst to obtain a 
given emission standard in g/kW-hr. Therefore, in regards to various 
engine classes and applications, we conclude that because the large 
majority of Class III engines are trimmers, they have the capability to 
easily incorporate a low- to medium-efficiency catalyst and that any 
additional heat can be managed by muffler and muffler housing redesign. 
Class IV incorporates a large range of engine sizes and applications 
from trimmers to chainsaws. The low emitting 2-stroke engine 
technologies that will be available for these engines reveal that, 
except in the case of 4-stroke engines, a catalyst may be needed to 
certify to the emission standards being adopted today. The major sales 
application in Class IV is trimmers and, as with Class III, this 
application will be able to incorporate a fair degree of cooling with 
muffler and muffler housing redesign. Blowers will also be able to 
incorporate a catalyst with sufficient ability to achieve a high degree 
of cooling. Chainsaws using Class IV engines will be limited in the 
degree of catalyst conversion based on the tight packaging. However, 
such applications should still be able to meet the standards through 
controlling

[[Page 24279]]

engine out emissions and the use of a catalyst. Additionally, 
averaging, banking and trading gives the manufacturer additional 
flexibility. Averaging, banking and trading can assist a manufacturer 
who may have Class IV chainsaws, or other more difficult cooling 
applications, in need of emission reduction by allowing the 
manufacturer to, for example, produce a chainsaw without a catalyst 
(thereby forgoing the cost and lead time associated with catalyst and 
cooling redesign) and, if emitting above the standard, offset these 
excess emissions with credits from lower emitting trimmers and blowers 
equipped with catalysts. With regard to Class IV 4-stroke engines, 
based on the certification data submitted by manufacturers to the 
California ARB, we believe that such engines will not require the use 
of a catalyst to meet the standards being adopted today and therefore 
will not have any heat issues that need to be addressed. Finally, with 
regard to Class V engines, the standards being adopted today have been 
set at levels that are not expected to require the use of catalysts. 
Therefore, Class V applications should not have any catalyst heat 
issues that need to be addressed.
    In the July 1999 SNPRM, we requested comment on the appropriateness 
of the proposed two year delay for Class V engines. We received 
comments on the phase-in schedule for the Phase 2 standards for all 
classes from two manufacturers (with relatively small number of engine 
families) recommending a shorter implementation schedule of one year or 
three years beginning in 2002 for all classes. The California ARB also 
requested a more expeditious timeline, recommending nationwide phase in 
of the standards within five years after the implementation of 
California's Tier 2 standard which took effect January 1, 2000. Sierra 
Club and STAPPA/ALAPCO also asserted that the standards can be met by 
all engines earlier than we proposed. One additional manufacturer (with 
a relatively large number of engine families) indicated that the 
timeline is not long enough to develop new technologies for the 50 g/
kW-hr and 72 g/kW-hr standards.
    As noted earlier, in response to comments submitted on the July 
1999 SNPRM, with today's action we are adopting a shorter phase in 
schedule than we proposed in the SNPRM. We are finalizing a four year 
implementation schedule instead the five year schedule proposed in the 
July 1999 SNPRM. Each manufacturer's position with regard to 
implementing new technologies is unique. While some manufacturers have 
a small number of families, or have sales heavily dominated by one or 
two large engine families, other manufacturers have many families and 
do not have sales dominated by any specific engine family. Therefore, 
in determining the appropriate implementation schedule, we must balance 
the need for those manufacturers which have large numbers of families 
to have adequate time to address all of their families against the 
environmental benefit of achieving emission reductions as soon as 
possible. Based on the number of families currently certified by small 
SI engine manufacturers, we have determined that a four year 
implementation schedule of the Phase 2 standards is feasible, 
especially when taking into consideration the benefits of the 
averaging, banking, and trading program as well as the flexibilities 
provided for small volume engine manufacturers and small volume engine 
families. Some commenters requested us to adopt an even more aggressive 
schedule than a four year phase-in. However, we believe the leadtime 
before the standards are scheduled to take effect is appropriate. The 
HC+NOX standards being adopted today for Class III and Class 
IV are more stringent than the California ARB's HC+NOX 
standards for these engines (i.e., 72 g/kW-hr for engines 0-65cc with 
the exception of exempted applications), on which industry had been 
focusing and developing technologies over the past few years, and will 
necessitate additional effort and time to assure compliance. 
Additionally, these will be the first low emission standards to apply 
to many of the Class V engine families which are used in certain farm 
and construction equipment applications and are exempted from meeting 
the California ARB standards. In addition, we believe that industry 
will benefit from additional lead time since in the near term they will 
be finishing development of products for the California market that 
meet the California ARB Tier 2 emission standards for small SI engines. 
Furthermore, we believe the schedule of standards being adopted today 
will allow manufacturers to sell their engines designed to meet the 
California ARB Tier 2 standards nationwide for a number of years, 
recouping the investments made for such designs, while redesigning 
their product offerings to meet the proposed HC+NOX 
standards on average. Finally, because most of the Class V engines are 
exempt from the California ARB Tier 2 requirements, and because the 
manufacturers of most Class V engines also have significant numbers of 
Class IV engines to redesign, we are retaining the delayed 
implementation schedule for Class V engines as proposed, as modified to 
accommodate a four year phase-in period.
    In addition to the standards contained in the July 1999 SNPRM, we 
requested comments on the costs, feasibility, and other effects of 
complying nationwide with a 72 g/kW-hr HC+NOX standard for 
all three classes of handheld engines. Specific areas on which we 
requested comment included the engine designs and technologies that 
would be used to comply with a 72 g/kW-hr HC+NOX standard, 
the cost of adopting such technologies (both relative to engines 
currently certified under the Phase 1 program and as an extension of 
production of California compliant engines), and the potential for such 
Class III and Class IV engines to be modified to meet a 50 g/kW-hr 
HC+NOX standard. We also requested comment on an alternative 
set of standards (72 g/kW-hr for Classes III and IV and 87 g/kW-hr for 
Class V) supported by a number of engine manufacturers in previous 
discussions with us. In response to these requests, Husqvarna/FHP and 
Stihl submitted comments supporting the standards of 72 g/kW-hr for 
Classes III and IV and 87 g/kW-hr for Class V noting that technologies 
they were selecting to meet those levels for purposes of meeting the 
California ARB standards would not be able to be modified to meet the 
reproposed standards of 50 g/kW-hr for Classes III and IV and 72 g/kW-
hr for Class V. Husqvarna/FHP also submitted a study performed by 
National Economic Research Associates (NERA) examining the cost 
effectiveness of the standards supported by Husqvarna/FHP (relative to 
the Phase 1 standards) and the cost effectiveness of the standards 
contained in the July 1999 SNPRM (relative to the standards supported 
by Husqvarna/FHP). The results of the NERA study suggested that the 
cost effectiveness of the standards supported by Husqvarna/FHP relative 
to Phase 1 were significantly lower than the cost effectiveness of the 
reproposed standards (relative to the standards supported by Husqvarna/
FHP). For more discussion of this study, including our response, see 
section III.B. below.
    We note that in the course of this rulemaking we have proposed and 
considered a variety of alternative approaches to the Phase 2 handheld 
program, and that our thinking has evolved in parallel with the 
industry's

[[Page 24280]]

recent and rapid technological development. In many respects, our 
developing rule would become more stringent with each proposed 
approach, but in many others it would become less so. For example, our 
March 1997 ANPRM and our January 1998 NPRM reflected significantly less 
stringent proposed standards that would phase in according to 
production percentages, with all three handheld classes having to meet 
the final standards by 2005. Under that alternative approach, there 
would have been a mandatory in-use testing program, and no ABT program. 
Under the ANPRM, there were no flexibility provisions under 
consideration, and we would have committed to conducting a technology 
review for possibly more stringent Phase 3 standards by 2002. Under the 
NPRM, the proposed flexibility provisions would have applied much more 
narrowly for ``small volume'' engine families, equipment manufacturers, 
and equipment models.
    However, as some manufacturers' technical options for reducing 
emissions from handheld engines rapidly and dramatically increased over 
the rulemaking, thereby increasing the amount of emissions reduction 
achievable from handheld engines in general, we developed additional 
alternatives and refined and/or eliminated earlier considered 
alternatives. This was driven by Clean Air Act section 213(a)(3)'s 
requirement that our rule achieve the greatest degree of emissions 
reduction achievable through the application of technology that we 
determine will be available within the lead time provided by the 
program, and by our developing understanding of what kind of program 
would be needed in order to ensure those emissions reductions are 
obtained. For example, we now know that the initially considered 
standards in the ANPRM and NPRM are not sufficiently stringent to meet 
the requirements of the Act, as they were premised on a much more 
limited set of technological options than we now know will be 
available.
    Similarly, while some manufacturers have continued to advocate the 
standards of 72/72/87 g/kW-hr for Classes III-V that we were 
considering in late 1998, based on the continuing development of clean 
technology by other manufacturers we have determined that such 
standards would also fall short of meeting section 213(a)(3)'s 
requirements, in that they would result in losing approximately 13 
percent of the emissions reduction achieved by the final standards 
using technology we have determined will be available and would not 
prompt all manufacturers to shift to these more innovative and cleaner 
engine technologies. This is because standards of 72/72/87 g/kW-hr 
could be met, indefinitely, without having to convert to the available 
technology options that support our final standards, and the 
substantial emission reduction benefits of converting to those 
technologies would be lost. In order to adopt the 72/72/87 g/kW-hr 
standards that these particular manufacturers support, we would have to 
conclude that the technologies underlying standards of 50/50/72 g/kW-hr 
will not be available in the lead time provided by the rule considering 
costs, safety, energy, and noise impacts, even in the face of evidence 
supplied by other manufacturers that these technologies and the more 
stringent standards are achievable. Since we do not believe we could 
validly reach such a conclusion and still meet the requirements of the 
Clean Air Act, we must eliminate the manufacturer-supported standard 
set of 72/72/87 g/kW-hr as a potential alternative that achieves the 
objectives of the rule.
    While it may be true that the technologies certain manufacturers 
have been developing to meet the California ARB's Tier 2 standards will 
not be capable of meeting the tighter standards being adopted today, we 
have concluded that the standards being adopted today are the most 
appropriate standards given the requirements of section 213(a)(3) of 
the Clean Air Act, which requires our standards for nonroad engines and 
vehicles to achieve the greatest degree of emission reduction 
achievable through the application of technology which the 
Administrator determines will be available, giving appropriate 
consideration to cost, lead time, noise, energy and safety factors. 
This statutory requirement is a technology-forcing provision that 
reflects Congress' intent that our standards encourage manufacturers to 
shift their production to more innovative, environmentally friendly 
technologies. It does not mean that our standards should be able to be 
met by all currently used technologies or preclude our standards from 
rendering less innovative and environmentally beneficial technologies 
obsolete. In addition, as described later in section III.B., the cost 
effectiveness of the adopted standards (relative to the currently 
applicable Phase 1 standards) is in the range of other nonroad programs 
we have adopted in recent years. It should also be noted that 
manufacturers who have invested in technologies not capable of meeting 
the Phase 2 standards being adopted today, but capable of meeting the 
slightly less stringent California ARB HC+NOx standard of 72 
g/kW-hr, will still be able to certify such technologies under the 
Phase 2 program and earn credits in the ABT program during the 
transition years. Such credits will help them as they transition their 
entire selection of engines to meet the Phase 2 standards being adopted 
today. Manufacturers who have not yet developed compliant technologies 
can learn from the technologies already developed and/or expand the 
application of these technologies to their own production lines.
    With regard to emissions of particulate matter (PM), the July 1999 
SNPRM did not propose any standards. Nor did the SNPRM take any 
position regarding whether such standards would be appropriate. 
However, we requested information on PM emissions from handheld engines 
and the need for PM standards for small SI nonroad engines under 
section 213(a)(4) of the Clean Air Act. Two industry associations 
commented that they did not support establishing PM limits. The 
California ARB stated it recommend the study of PM and toxics from 
handheld engines and that a study include the classification and 
ranking of the toxicity of emissions from various 2-stroke designs 
compared to diesel PM emissions. We are not prepared to establish PM 
standards under section 213(a)(4) of the Clean Air Act at this time. 
However, we have agreed with other parties that a PM and hazardous air 
pollutant (HAP) test program should be conducted (see 62 FR 14746). The 
Portable Power Equipment Manufacturers Association (PPEMA), in 
cooperation with us, has agreed to conduct a test program to evaluate 
and quantify emissions of PM and HAP including, but not limited to, 
formaldehyde, acetaldehyde, benzene, toluene, and 1,3 butadiene. We 
anticipate that testing will be conducted on Phase 2 technology 
handheld engines, with a sufficient magnitude of engines tested to 
represent the range of new basic technologies used to comply with the 
Phase 2 engine standards being adopted today. We expect that the 
information generated by this program will be useful in informing any 
future consideration of PM or HAP standards for small SI engines.
    In the July 1999 SNPRM, we proposed the addition of two nonhandheld 
classes and standards for each class that would be implemented upon the 
effective date of the final rule. We specifically requested comment on 
the assumption

[[Page 24281]]

that 2-stroke engines would not proliferate into these new classes, on 
the level of the proposed standards, and the feasibility of achieving 
tighter emission standards with OHV, SV and 2-stroke engines. We 
received a number of comments related to the proposed Class I-A and 
Class I-B provisions. In general, engine manufacturers supported the 
proposed program for Class I-A and Class I-B engines, including the 
proposed standards. One engine manufacturer commented that we should 
consider tightening the standards because catalysts are more practical 
on nonhandheld applications. In terms of concern of 2-stroke lawnmowers 
proliferating into these new classes, several engine manufacturers 
stated that the power requirements of the lawnmower will not allow such 
small engines to be used in the application. (Under our Phase 1 
program, engine manufacturers are allowed to certify a limited number 
of 2-stroke engines for use in lawnmowers to the handheld engine 
standards through the 2002 model year. Beginning with the 2003 model 
year, such engines will be required to meet the applicable nonhandheld 
engine standards.) One manufacturer commented that the standards are so 
low in the proposed classes that the only 2-stroke engine likely to be 
able to meet such standards in applications is a 2-stroke with fuel 
injection, which would be prohibitively expensive and therefore 
commercially unrealistic. Finally, one manufacturer that currently 
certifies an engine that would be considered a Class I-B engine under 
the proposed changes, submitted comments suggesting that we consider a 
short delay in implementing the Class I-B standards because of 
difficulty in recertifying current engines in a such short period of 
time.
    With today's action, we are adopting the Class I-A and Class I-B 
standards as proposed. Table 3, presented earlier, contains the Phase 2 
standards being adopted for Class I-A and Class I-B engines. Based on 
the comments submitted by manufacturers, we do not believe there is any 
need to be concerned at this time over the possibility of 2-stroke 
engines proliferating in these nonhandheld engine classes. With regard 
to the issue of tighter standards through the application of catalysts 
raised by one manufacturer, we believe that issue should be addressed 
in future rulemakings that affect all nonhandheld engines, since the 
current standards for Phase 2 nonhandheld engines were set at levels 
that did not consider the use of catalysts. With regard to the 
implementation date of the new standards, we are adopting a slight 
delay for implementation of the Class I-A and Class I-B standards to 
the 2001 model year. Under the provisions of the July 1999 SNPRM, 
implementation of the Class I-A and Class I-B standards would have 
begun upon the effective date of the final rule, which is 60 days after 
publication in the Federal Register. This would have meant a 
manufacturer would have to immediately recertify current Phase 1 
designs that fall under the 100cc displacement cutoff for Class I-A and 
Class I-B. We do not believe this is necessary given the limited number 
of engines expected to covered by these provisions. Therefore, under 
today's action, manufacturers may wait until the 2001 model year to 
certify engines below 100cc to the Class I-A and Class I-B provisions.
    We received comments from a large number of logging related 
companies requesting an exemption for professional and commercial 
chainsaws above 50cc from the Phase 2 regulations. The parties 
expressed concerns that increased weight could lead to operator fatigue 
and a greater risk of injury, about power loss, cost, limited impact of 
such equipment on the environment, and forest fire/safety concerns from 
catalysts. They also noted these applications are already subject to 
Phase 1 requirements. Under today's action, handheld engines used in 
professional and commercial chainsaws above 50cc (i.e., Class V 
engines) will be required to meet the Phase 2 standards. We are aware 
of the impact that increased weight can have on a logger that utilizes 
the equipment on a regular basis as well as the concern over the 
increased risk of potential forest fires with the use of catalysts. 
However, we conclude that manufacturers of engines used in professional 
chainsaws will be able to meet the standards being adopted today for 
Class V through the use of technologies such as the stratified 
scavenging with lean combustion technology or compression wave 
technology which do not have significant impacts on equipment weight or 
power. In addition, the estimated increase in equipment cost due to the 
Phase 2 standards compared to the current cost of such equipment is 
estimated to be at or below 10 percent. With regards to the use of 
catalysts on these applications, we believe the standard for Class V 
engines being adopted today and the technologies expected to be 
available for meeting the standards will not require the use of 
catalysts on these engines. Therefore the increased exhaust temperature 
concerns noted by commenters are not expected to be an issue for these 
engines.
    As described in section II.A.2 of the Preamble and Chapter 3 of the 
RIA, EPA's conclusion is that the standards adopted today, considering 
the lead time provided and other flexibility provisions such as 
averaging, banking, and trading, are technologically feasible for this 
industry and appropriate under section 213 of the Clean Air Act. At the 
same time, EPA recognizes that certain manufacturers who will be 
subject to these provisions believe that the standards may not be 
technologically feasible for them. This issue was most clearly raised 
with respect to the Class V standards, even though Stihl has certified 
a Class V engine in California at levels that would meet our final 
standards. While EPA's adoption of the standards reflects our view that 
our Class V standards are achievable, EPA also believes that it is 
appropriate in responding to the manufacturers' comments and concerns 
to establish a procedure that will allow all members of the regulated 
industry as well as other interested parties to continue to explore the 
issue of technological feasibility of the Class V standards as industry 
makes progress in moving towards implementation of this program. EPA is 
therefore committing to perform a study of the technological 
feasibility of the Class V standards we are adopting today, to be 
completed by the end of 2002. EPA intends the technology study to focus 
on availability of technology, certification data, in-use performance, 
and other factors of interest to the parties, such as availability and 
pricing of credits. EPA expects that this study will involve EPA 
discussion with individual manufacturers, as well as a public notice 
and comment process exploring the issues of technological feasibility 
for Class V.
3. NMHC+NOX Standard for Class I-B Natural Gas-Fueled 
Engines
    In the July 1999 SNPRM, we proposed standards for Class I-B engines 
fueled by natural gas. We also requested comment on the need to 
establish standards for Class I-A engines operated on natural gas. No 
comments were received on either of these issues. We are finalizing the 
NMHC+NOX standard for Class I-B natural gas-fueled engines 
as proposed. To be consistent with the implementation date for Class I-
A and Class I-B noted in section II.A.3., the standard for Class I-B 
natural gas-fueled engines will take effect with the 2001 model year.

[[Page 24282]]

4. Useful Life Categories
    With today's action, we are adopting the three different useful 
life categories for handheld engines as proposed. Therefore, a 
manufacturer will choose between useful life categories of 50, 125, and 
300 hours. A manufacturer would be responsible for demonstrating 
compliance with the Phase 2 handheld engine standards described in 
today's action at whichever useful life level it designated for its 
engine families. We believe that 50 hours is appropriate for most of 
the products targeted at the home consumer and 300 hours is appropriate 
for products targeted at the commercial market. Some engines targeted 
for home consumer use (including some new engines which are expected to 
enter the market in the next few years) are expected to have designs 
which tend to be more durable than the 50 hour consumer grade designs 
yet are not as durable as the 300 hour commercial grade designs. Such 
engines can be certified to the intermediate useful life category of 
125 hours.
    For the newly designated category of Class I-A engines, we are 
adopting the handheld engine useful life categories of 50, 125, and 300 
hours, as proposed. We believe the engine designs in Class I-A will be 
similar to handheld engines in terms of design durability. In addition, 
the useful life designations for Class I-A engines are the same as 
those established by the California ARB in its Tier 2 rule for engines 
of this size range. For the newly designated category of Class I-B 
engines, we are adopting useful life categories of 125, 250 or 500 
hours, as proposed. These useful life categories are the same as we 
finalized for Class I nonhandheld engines in March 1999 because we 
believe the engines designs in Class I-B will be similar to Class I 
nonhandheld engines in terms of design durability. In addition, the 
useful life designations for Class I-B engines are the same as those 
established by the California ARB in its Tier 2 rule for engines of 
this size range.
5. Selection of Useful Life Category
    As proposed in the July 1999 SNPRM, today's action assigns the 
responsibility for selecting the useful life category to the engine 
manufacturer. For manufacturers of handheld engines, virtually all 
engines are placed in specific equipment also manufactured by the 
engine manufacturer or, in those cases where engines are supplied to 
another equipment manufacturer, into equipment well known by the engine 
manufacturer. Handheld engine manufacturers know the design features 
and performance characteristics of both their engines and the equipment 
in which they are installed, and understand the expected in-use 
operation of this equipment and thus the expected useful life of the 
engine. Additionally, based on design features these manufacturers 
build into their engines, they have a good idea of the expected useful 
life in such applications. Similarly, we expect that manufacturers of 
Class I-A and Class I-B engines will have a good idea of the types of 
equipment their engines are expected to be used in and, from their 
marketing information, a reasonably accurate projection of the relative 
volumes in such applications. Given that many of these engines will be 
used in new applications, manufacturers should have an even clearer 
understanding of these projections. Relying on this information, 
manufacturers should be able to make good selections of appropriate 
useful life categories for their engines.
    While today's action leaves the responsibility of selecting the 
useful life category to the manufacturer, we expect that we would 
periodically review manufacturers' decisions to ensure this regulation 
is being properly implemented and to determine whether modifications to 
the rules are appropriate. We believe it is important that appropriate 
useful life periods be selected especially because handheld engines, 
Class I-A engines, and Class I-B engines covered by today's action are 
included in the ABT program where the useful life period selected by 
the manufacturer has a direct impact on the number of credits which can 
be generated or need to be used. Therefore, proper selection of the 
useful life period is important to ensure that the ABT program is fair 
and environmentally sound.
6. Certification Test Procedure
    With today's action, we are retaining the current test procedure 
used by manufacturers to certify handheld engines with one change that 
was proposed in the January 1998 NPRM. For Phase 2, the weighting of 
the two different test modes used for calculating certification 
emission levels for handheld engines is being changed to 85 percent for 
the wide open throttle mode and 15 percent for the idle mode. The 
revised weightings are based on information submitted by manufacturers 
on actual handheld equipment being operated in real world conditions. 
(The weighting of the modes for Phase 1 handheld engines is 90 percent 
for the wide open throttle mode and 10 percent for the idle mode, and 
will remain so for the duration of the Phase 1 program.)
B. What Are the Provisions of the Averaging, Banking, and Trading 
Program?
    With today's action, we are adopting provisions to include all 
Phase 2 handheld engines and the newly designated nonhandheld engine 
classes (Class I-A and Class I-B) in the certification averaging, 
banking, and trading (ABT) program adopted in the March 1999 final rule 
for Phase 2 nonhandheld engines. Averaging means the exchange of 
emission credits among engine families within a given engine 
manufacturer's product line. Averaging allows a manufacturer to certify 
one or more engine families to Family Emissions Limits (FELs) above the 
applicable emission standard. However, the increased emissions have to 
be offset by one or more engine families certified to FELs below the 
same emission standard, such that the average emissions in a given 
model year from all of the manufacturer's families (weighted by various 
parameters including engine power, useful life, and number of engines 
produced) are at or below the level of the emission standard. Banking 
means the retention of emission credits by the engine manufacturer 
generating the credits for use in future model year averaging or 
trading. Trading means the exchange of emission credits between engine 
manufacturers which then can be used for averaging purposes, banked for 
future use, or traded to another engine manufacturer.
    The following section describes the ABT program as it will apply to 
handheld engines, Class I-A engines, and Class I-B engines. The basic 
framework of the ABT program is the same as that finalized for 
nonhandheld engines in March 1999. To address comments submitted on the 
July 1999 SNPRM relating to the stringency of the standards and the 
phase-in periods, we have made a number of changes to the ABT program 
proposed in the July 1999 SNPRM and such changes are noted in the 
following section. In addition, the Summary and Analysis of Comments 
Document contains a complete description of comments received on the 
proposed ABT program and our response to those comments.
    Because the Phase 1 rule did not include an ABT program, this will 
be the first ABT program for handheld engines. We believe the ABT 
program is an important element in ensuring that the stringent Phase 2 
emissions standards being adopted today will be achievable with regard 
to technological feasibility, lead time, and cost. The ABT program is 
intended to enhance the flexibility offered to engine

[[Page 24283]]

manufacturers that will be needed in transitioning their product lines 
to meet the stringent HC+NOX standards being adopted with 
today's action. The ABT program also encourages the early introduction 
of clean engines certified under the Phase 2 requirements, thus 
securing earlier emission benefits.
    We believe that the ABT program being adopted for handheld engines, 
Class I-A engines, and Class I-B engines is consistent with the 
statutory requirements of section 213 of the Clean Air Act. Although 
the language of section 213 is silent on the issue of averaging, it 
allows us considerable discretion in determining what regulations are 
most appropriate for nonroad engines. The statute does not specify that 
a specific standard or technology must be implemented, and it requires 
us to consider costs, lead time, safety, and other factors in making 
our determination of the greatest degree of emissions reduction 
achievable through the application of technology which will be 
available. Section 213(a)(3) also indicates that our regulations may 
apply to nonroad engine classes in the aggregate, and need not apply to 
each nonroad engine individually.
    As noted above, the ABT program will apply to all classes of 
handheld engines as well as Class I-A and Class I-B engines. The ABT 
program will be available for HC+NOX emissions but will not 
be available for CO emissions. The ABT program will also apply to 
natural gas-fueled engines. All credits for natural gas-fueled engines 
will be determined against the standards to which the engine is 
certified (either the HC+NOX standard or the optional 
NMHC+NOX standards noted earlier). Under the program being 
adopted today, manufacturers are allowed to freely exchange 
NMHC+NOX credits with HC+NOX credits.
    Today's action places no restrictions on credit exchanges across 
any of the classes of small SI engines. Under the ABT program, 
manufacturers will be allowed to exchange credits from handheld engines 
to nonhandheld engines and visa versa. Given the stringent level of the 
standards recently finalized for nonhandheld engines and the stringent 
level of the standards contained in today's final rule, we do not 
expect that credits from one class will result in delays in technology 
improvement for other classes, and do not believe that any cross-class 
restrictions are necessary.
    Under an ABT program, a manufacturer establishes a family emission 
limit (FEL) for an engine family that takes the place of the emission 
standard for all compliance determinations. In addition, as part of the 
ABT program, we establish upper limits on the FEL values that may be 
declared by manufacturers. The FEL upper limits contained in the July 
1999 SNPRM for handheld engines were 300 g/kW-hr for Class III engines, 
246 g/kW-hr for Class IV engines, and 166 g/kW-hr for Class V engines 
and were based on the combination of the Phase 1 HC standard and 
NOX standard. One engine manufacturer submitted comments on 
the proposed FEL upper limits and suggested that they should be raised 
by 12 percent to account for differences between the Phase 1 and Phase 
2 programs. The differences specifically cited by the manufacturer that 
could cause current Phase 1 engines to exceed the proposed FEL upper 
limits included the change in the weighting of the two test modes (when 
calculating certification emission levels) and the need to factor in 
deterioration over the useful life of the engine. While most current 
engines are certified well below the Phase 1 emission standards, we 
agree that certain engines, especially those certified closer to the 
Phase 1 standards, could exceed the proposed FEL upper limits under the 
Phase 2 program, primarily because the new weighting of the individual 
test modes in Phase 2 will lead to a higher certification level for 
such engines, and to a lesser extent because of potential deterioration 
over the useful life that must be accounted for under the Phase 2 
program. Therefore, we are adopting FEL upper limits suggested by the 
manufacturer that are slightly higher than those proposed in the July 
1999 SNPRM to account for the differences between the Phase 1 and Phase 
2 programs noted above. The HC+NOX FEL upper limits being 
adopted with today's action are 336 g/kW-hr for Class III engines, 275 
g/kW-hr for Class IV engines, and 186 g/kW-hr for Class V engines. For 
the newly designated categories of Class I-A and Class I-B engines, we 
did not receive any comments on the proposed FEL upper limits. 
Therefore, we are adopting HC+NOX FEL upper limits of 94 g/
kW-hr and 50 g/kW-hr, respectively, as proposed.
    Under the ABT program, all credits will be calculated based on the 
difference between the manufacturer-established FEL and the Phase 2 
HC+NOX standard for the applicable model year using the 
following equation.

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

    At the time of certification, manufacturers will be required to 
supply to us the appropriate information used in the above noted 
equation. ``Production'' represents the manufacturer's U.S. production 
of engines for the given engine family, excluding exported engines and 
engines that are introduced into commerce for use in California. 
``Power'' represents the maximum modal power of the certification test 
engine over the certification test cycle. ``Useful Life'' is the 
regulatory useful life established by the manufacturer for the given 
engine family. ``Load Factor'' is a constant that is dependent on the 
test cycle over which the engine is certified.
    In order to demonstrate compliance with the applicable 
HC+NOX emission standard in a given model year, a 
manufacturer participating in the ABT program will be required to show 
that the number of HC+NOX credits available to the 
manufacturer are equal to or greater than the number of credits needed 
by engines certified with FELs above the applicable standards in that 
model year. This will be done by using credits generated in that model 
year by engines certified with FELs below the applicable standard, 
banked credits, or credits obtained in a trade from another small SI 
engine manufacturer.
    With regard to credit life, the final rule differs from the 
proposed provisions of the ABT program in order to address comments 
received on the SNPRM relating to the stringency of the standards and 
the phase in periods. Under the ABT provisions being adopted today for 
handheld engines, manufacturers will be able to select from two options 
for the purpose of generating credits. These two programs also have 
unique credit life opportunities. Under the program referred to as the 
``Normal Credit'' program, manufactures certifying engine families with 
FELs at or below 72 g/kW-hr will have an unlimited credit life. Such 
credits will be available to the manufacturer for the duration of the 
Phase 2 program and will not be discounted in any manner under the 
Normal Credit program. Credits generated by engines certified with FELs 
above 72 g/kW-hr can be used by a manufacturer in the model year in 
which they are generated for its own averaging purposes, or traded to 
another manufacturer to be used for averaging purposes in that model 
year. However, such credits generated by engines may not be carried 
over to the next model year, including when traded to another 
manufacturer.
    Alternatively a manufacturer may choose to have a family 
participate in what is referred to as the ``Optional Transition Year'' 
credit program. Under

[[Page 24284]]

this program, any family with FELs below the applicable phase-in 
standards is eligible to generate credits. However, these credits will 
be progressively discounted the higher the family's FEL is compared to 
the final standards for that class. For example, in Class IV, a family 
with an FEL 99 g/kW-hr or higher in 2002 will have its credits 
discounted by 75 percent before they can be used in future model years. 
If the family's FEL was equal to 87 g/kW-hr but less than 99 g/kW-hr, 
its credits will be determined by the difference between its FEL and 
the Class IV standard for model year 2002 (196 g/kW-hr) and then 
discounted by 50 percent before being used in future model years. This 
combination of ability to generate credits with families of higher 
emission levels but discounting the credits for these higher emitting 
engines provides an increased incentive for manufacturers to make 
interim emission improvements while still preserving the environmental 
benefits of this program. We are also providing an additional incentive 
for manufacturers who produce especially clean equipment by providing a 
25% bonus for credits generated below specified levels.
    While normal program credits do not have an expiration date, 
special program credits have a limited life and application. They may 
be used without limitation through the 2007 model year. For model years 
2008 through 2010, they may also be used, but only if the 
manufacturer's product line is, without the use of any credits, below a 
level determined by production weighting the manufacturer's product 
line assuming emission levels of 72 g/kW-hr for Class III, 72 g/kW-hr 
for Class IV and 87 g/kW-hr for Class V.
    These programs also respond to manufacturer concerns that the rule 
should provide that the technologies in which they considerably 
invested to meet California standards could also be sold nationally, at 
least through the phase-in years without penalty. Also, allowing 
carryover credits to be generated from such engines provides an 
additional incentive for manufacturers to market nationally the clean 
technologies they have developed for California.
    Under the ABT program, manufacturers of handheld engines will be 
allowed to use portions of the ABT program prior to implementation of 
the Phase 2 standards to provide an incentive to accelerate 
introduction of cleaner technologies into the marketplace. We believe 
that making bankable credits available prior to the effective date of 
the new standards will reward those manufacturers who take on the 
responsibility of complying with the Phase 2 requirements sooner than 
required and will also result in early environmental benefits.
    Under the early banking provisions for handheld engines, 
manufacturers will be allowed to begin using the averaging and banking 
portions of the ABT program beginning with the 2000 model year. 
However, only those engines certified to the Phase 2 requirements and 
produced after the effective date of this action will be eligible for 
early credits in the 2000 model year. As proposed, all early credits 
will be calculated against the first year phase in standards for the 
applicable engine class (i.e., 238 g/kW-hr for Class III engines, 196 
g/kW-hr for Class IV engines, and 143 g/kW-hr for Class V engines) 
until the first year that the Phase 2 standards apply for the 
appropriate engine class. This approach for early credits from handheld 
engines is similar to the approach recently finalized for nonhandheld 
engines where early credits are generated only from engines with FELs 
below the final standards, not the initial phase in standards. After 
considering comments submitted on the SNPRM, we now believe a similar 
approach is appropriate for handheld engines in order to provide us 
with sufficient assurance that the ABT program will not contribute to a 
significant delay in implementation of the low-emitting technologies 
envisioned under the Phase 2 program.
    Because the Phase 2 standards for Class I-A and Class I-B engines 
that are being adopted today are scheduled to take effect so soon 
(beginning with the 2001 model year) and because manufacturers 
indicated they would not be ready to implement these standards sooner, 
no opportunity exists for generating credits. Therefore, we are not 
adopting early credit provisions for Class I-A and Class I-B engines.
    Engines for which a manufacturer generates early credits will have 
to comply with all of the requirements for Phase 2 engines (e.g., full 
useful life certification, the Production Line Testing program 
requirements, etc.). Manufacturers of handheld engines will not be 
allowed to trade their early engine credits to other manufacturers 
until the first effective model year of the Phase 2 standards for the 
applicable engine class.
    As discussed in section II.D. of today's action, we are adopting 
several compliance flexibility provisions for engine manufacturers and 
equipment manufacturers that allow the limited use of Phase 1 engines 
in the Phase 2 time frame. Phase 1 engines sold by engine manufacturers 
under the flexibility provisions will be excluded from the ABT program. 
In other words, engine manufacturers will not have to use credits to 
certify Phase 1 engines used for the flexibility provisions even though 
they will likely exceed the Phase 2 standards being adopted today.
    As noted elsewhere in today's final rule, we are adopting a number 
of provisions that address post-certification compliance aspects of the 
new standards. Under certain conditions, we will allow manufacturers to 
use credits from the certification ABT program to address excess 
emissions situations determined after the time of certification. As 
noted in the discussion on compliance, we do not believe that the 
typical type of enforcement action that could be taken when a 
substantial nonconformity is identified (i.e., an engine family recall 
order) will generally be workable for small SI engines given the nature 
of the market. Instead, for the purposes of implementing the PLT 
program, we are adopting provisions to allow manufacturers to use 
engine certification ABT credits to offset limited emission performance 
shortfalls for past production of engines determined through the PLT 
program. The conditions under which we will allow manufacturers to use 
certification ABT credits to offset such emission performance 
shortfalls are described in section II.C. of today's action.
    Under today's action, we will not allow manufacturers to 
automatically use ABT credits to remedy a past production 
nonconformance situation identified through the Selective Enforcement 
Audit (SEA) program. As described in today's action, we expect to 
primarily rely on the PLT program to monitor the emissions performance 
of production engines. However, it is possible that we may conduct SEAs 
in certain cases. Therefore, as discussed in section II.C., if we 
determine that an engine family is not complying with the standards as 
the result of an SEA, we will work with the manufacturer on a case-by-
case basis to determine an appropriate method for dealing with such a 
nonconformity. The option(s) we select, after consultation with the 
engine manufacturer may, or may not, include the use of ABT credits to 
make up for any ``lost'' emission benefits uncovered by the SEA. This 
program is consistent with the program adopted for nonhandheld engines 
under Phase 2.

[[Page 24285]]

C. What Are the Provisions of the Compliance Program?

    The compliance program being adopted today is comprised of three 
parts: a pre-production certification program during which 
manufacturers evaluate the expected emission performance of their 
engine designs including the durability of that emission performance; a 
production line test program during which manufacturers perform 
emission tests on randomly selected products coming off the assembly 
line to assure their designs as certified continue to have acceptable 
emission performance when put into mass production; and a voluntary in-
use test program during which participating manufacturers evaluate the 
in-use emission performance of their product under typical operating 
conditions. In addition to the manufacturer-directed provisions of the 
compliance program, we will also have the option to conduct our SEA 
program and our own in-use testing program for small SI engines, either 
generally or on a case-by-case basis.
    Under the compliance programs, a manufacturer will divide its 
product offering based upon specific design criteria which have the 
potential for significantly different emission performance; these 
subdivisions are called engine families. Each engine family will be 
required to meet the standard applicable for the class in which that 
engine resides unless the manufacturer chooses to participate in the 
ABT program also being proposed today. (See section II.B. of today's 
action for discussion of the ABT program.) The other provisions of the 
compliance program are explained in more detail below. In all cases, to 
the best of our knowledge, the requirements of the federal compliance 
program will be sufficiently similar to the requirements of the 
California ARB program for these engines such that for engine families 
sold in both the State of California and nationally, the engines 
selected for testing, the test procedures under which they are tested, 
and the data and other information required to be supplied by 
regulations, can be the same under both programs. Thus, we expect that 
a manufacturer will be able to compile one application for 
certification satisfying the information needs of both programs, saving 
the manufacturer time and expense. Similarly, the EPA and the 
California ARB expect to share information from their compliance 
programs such that any production line testing or in-use testing 
conducted for one agency should satisfy the similar needs of the other 
agency, again minimizing the burden on the manufacturers.
1. Certification
    This section addresses the certification program for engine 
manufacturers covered by today's action. As required in the Act, the 
certification process is an annual process. In addition, the Act 
prohibits the sale, importation, or introduction into commerce of 
regulated engines that are not covered by a certificate. The provisions 
of the certification program being adopted today are the same as 
contained in the July 1999 SNPRM. The only comments received on the 
July 1999 SNPRM supported the certification program as proposed. With 
today's action, we are adopting a certification program that harmonizes 
the handheld Phase 2 program with the requirements of the California 
ARB's Regulations for 1995 and Later Small Off-Road Engines, amended 
January 29, 1999. In addition, the general certification requirements 
for manufacturers of handheld engines will be the same as those 
finalized for nonhandheld engines in March 1999.
    Under today's action, manufacturers of handheld engines will be 
required to demonstrate that their regulated engines comply with the 
appropriate emission standards throughout the useful life of the engine 
family. To account for emission deterioration over time, manufacturers 
will need to establish deterioration factors for each regulated 
pollutant for each engine family. Manufacturers will be able to 
establish deterioration factors by using bench aging procedures which 
appropriately predict the in-use emission deterioration expected over 
the useful life of an engine or an in-use evaluation which directly 
accounts for this deterioration. As is the case with many of our mobile 
source regulations, the multiplicative deterioration factors cannot be 
less than one. Additionally, where appropriate and with suitable 
justification, deterioration factors can be carried over from one model 
year to another and from one engine family to another.
    Today's action also provides flexibility for small volume engine 
manufacturers and small volume engine families. Under the flexibilities 
being adopted today, handheld engine manufacturers will be allowed the 
option of using assigned deterioration factors we have established in 
the regulations. The deterioration factors, either assigned or 
generated, will be used to determine whether an engine family complies 
with the applicable emission standards in the certification program, 
the PLT program, and the SEA program.
    As with the Phase 1 program, manufacturers will be allowed to 
submit Phase 2 certification applications to us electronically, either 
on a computer disk or through electronic mail, making the certification 
application process efficient for both manufacturers and for us. Also, 
in coordination with the California ARB, we have established a common 
application format that will allow manufacturers to more easily apply 
for certification.
    In today's final rule, we are also adopting a method by which 
manufacturers can separately certify configurations for use at high 
altitude. The provisions being adopted today are the same as we 
proposed in the July 1999 SNPRM. Manufacturers are currently required 
by the Phase 1 rule to certify engines for use at any altitude, but the 
rule does not specifically address separate high altitude and low 
altitude configuration testing. The need for the high altitude 
modifications has been a topic of recent discussions between us and 
manufacturers. To allow an engine to perform properly and meet emission 
standards while being operated at high altitudes, many manufacturers 
have developed special high altitude adjustments or high altitude kits 
which include replacement of some parts such as carburetor jets. 
However, if an engine with such a kit installed is operated outside of 
a high altitude location, the kit would have to be removed and the 
engine returned to its original configuration for the engine to 
continue to perform properly and meet emission standards.
    Today's action will allow manufacturers of both handheld and 
nonhandheld engines to certify an engine for separate standard and high 
altitude configurations. All engines will be required to meet, under 
all altitude conditions, the applicable emission standards. The option 
will be available for both Phase 1 and Phase 2 handheld and nonhandheld 
engines. Without such a certification option, we could potentially 
consider the installation of an altitude kit and other associated 
modifications as tampering. No test data on engines with high altitude 
modifications performed will be required as a condition of 
certification, as this would add significantly to the manufacturer's 
certification compliance testing cost. Furthermore, no testing seems 
necessary since the altitude kits and associated modifications are 
intended to compensate for the change in air density when moving to 
high altitude by returning the engine to approximately the same 
operating point

[[Page 24286]]

as evaluated during required certification testing. Similarly, no 
special labeling will be required for engines which have such altitude 
kits certified or for those in-use engines which have had altitude 
modifications performed. Consumers have a natural incentive to have the 
high altitude kit installed and adjustments performed when using an 
engine at high altitude as this greatly improves performance; for the 
same reason we expect the modifications would be removed when returning 
the engine to low altitude. However, we believe some additional 
assurance is needed that the high altitude modifications are designed 
to provide good emission control and that the instructions for making 
these modifications are clear and readily available and thus likely to 
be performed correctly.
    To provide this assurance, today's action requires a manufacturer 
to list these altitude kits with their appropriate part numbers along 
with all the other certified parts in the certification application. In 
the application, the manufacturer will have to declare the altitude 
ranges at which the appropriate kits should be installed on or removed 
from an engine for proper emission and engine performance. The 
manufacturer will also be required to include a statement in the 
owner's manual for the engine or engine/equipment combination (and 
other maintenance-related literature intended for the consumer) that 
also declares the altitude ranges at which the appropriate kits must be 
installed or removed. Finally, the manufacturer, using appropriate 
engineering judgement which, at the manufacturer's option, can also 
include test data, will be required to determine that an engine with 
the altitude kit installed will meet all of the applicable emission 
standards throughout its useful life. The rationale for this assessment 
will need to be documented and provided to us as part of the 
certification application.
2. Production Line Testing--Cumulative Summation Procedure
    This section addresses the production line testing (PLT) program 
for engines covered by today's action. The provisions of the PLT 
program being adopted today are the same as we proposed in the July 
1999 SNPRM and mirror the provisions of the PLT program adopted in 
March 1999 for nonhandheld engines. In addition, the provisions of the 
PLT program are the same as the corresponding program implemented by 
the California ARB, allowing manufacturers to use the same procedures 
for testing production engines for both agencies. The PLT program will 
require manufacturers to conduct manufacturer-run testing programs 
using the Cumulative Summation Procedure (CumSum).\4\ The CumSum 
program, will require manufacturers to conduct testing on each of their 
engine families (unless they have been relieved of this requirement 
under the flexibility provisions described in section II.D.). The 
maximum sample size that will be required for each engine family is 30 
engines or 1 percent of a family's projected production, whichever is 
smaller. However, the actual number of tests ultimately required will 
be determined by the results of the testing. Manufacturers will be able 
to submit PLT reports to us electronically, either on a computer disk 
or through electronic mail, which will save time and money for both the 
engine manufacturers and for us.
---------------------------------------------------------------------------

    \4\ The CumSum procedure has been promulgated for marine SI 
engines at 40 CFR Part 91 (61 FR 52088, October 4, 1996) and for 
nonhandheld small SI engines at 40 CFR Part 90 (64 FR 15208, March 
30, 1999). In this section, ``PLT'' refers to the manufacturer-run 
CumSum procedure. ``PLT'' does not include Selective Enforcement 
Auditing (SEA), which is addressed separately in section II.C.4. of 
this preamble.
---------------------------------------------------------------------------

    As mentioned in the discussion of the certification ABT program, 
above, manufacturers can, for a limited amount of production, use ABT 
credits to offset the estimated excess emissions of previously produced 
noncomplying engine designs as determined in the PLT program. (The 
amount of excess emissions will be determined based on the difference 
between the new FEL established by the manufacturer as a result of the 
PLT program and the original FEL established prior to the PLT program.) 
Under today's action, a manufacturer will be allowed to raise the FEL 
for one engine family per model year. If a PLT program failure requires 
a manufacturer to raise the FEL for more than one engine family per 
model year, the manufacturer can do so only if the applicable engine 
family represents no more than ten percent of the manufacturer's 
production for that model year. For any additional engine families that 
are found to be in noncompliance as a result of the PLT program, the 
engine manufacturer will need to conduct projects approved by us that 
are designed to offset the excess emissions from those engines.
    Several engine manufacturers commented that we should eliminate any 
restrictions on the use of ABT credits to offset PLT noncompliance. 
However, as noted above, we are retaining the limitations. We believe a 
major purpose of the PLT program is to help verify that the engine 
designs certified by manufacturers have been successfully implemented 
in the manufacturing process. Therefore, we expect few instances in 
which manufacturers will need to correct a PLT failure through raising 
the FEL since that would imply the manufacturer incorrectly set the 
initial FEL for that family. Frequent use of this remedy would suggest 
the manufacturer was incapable of correctly setting the FELs for its 
product, in which case we would have to reconsider allowing a 
manufacturer to participate in the ABT program at its option.
    With regard to future production of engines identified to be in 
noncompliance as a result of PLT testing, the manufacturer will be 
expected to correct the problem causing the emission noncompliance 
either by changing the production process, changing the design (which 
will require recertification), or raising the FEL to compensate for the 
higher emissions (also requiring recertification). In the event a 
manufacturer raises an FEL as a result of a PLT failure, it can do so 
for future production as well as past production under the provisions 
described above which will require a calculation of the number of 
credits a manufacturer would need to obtain for the past production 
engines. It can also be noted that compliance with the applicable 
standard (or the applicable FEL) will be required of every covered 
engine. Thus, every engine that failed a PLT test will be considered in 
noncompliance with the standards and must be brought into compliance. 
Our rules allowing the use of the average of tests to determine 
compliance with the PLT program is intended only as a tool to decide 
when it is appropriate to suspend or revoke the certificate of 
conformity for that engine family, and is not meant to imply that not 
all engines have to comply with the standards or applicable FEL.
    As discussed further in section II.D, we are adopting provisions 
that allow small volume manufacturers and small volume engine families 
to be excluded from the PLT program at the manufacturer's option.
3. Voluntary In-Use Testing
    This section addresses the voluntary in-use testing program being 
adopted today. The voluntary in-use testing program for engines covered 
by today's action is the same as we proposed in the July 1999 SNPRM. 
The comments we received on the July 1999 SNPRM supported the proposed 
program. The program being adopted today for

[[Page 24287]]

handheld engines is the same as the voluntary in-use testing program we 
finalized in March 1999 for nonhandheld engines. The voluntary in-use 
testing program gives engine manufacturers the option of using a 
portion of their PLT resources to generate field aged emissions data. 
At the start of each model year, manufacturers can elect to place up to 
20 percent of their engine families in this voluntary program. For 
those families in this program, manufacturers will not be required to 
conduct PLT for two model years, the current year and the subsequent 
year. (As noted earlier, the voluntary in-use test program has not been 
codified in the California ARB Tier 2 rules for small SI engines. 
However, we have discussed the program with the California ARB and it 
supports the voluntary in-use testing provisions contained in today's 
action.) Instead, manufacturers will place a minimum of three randomly 
selected production engines in existing consumer-owned, independently-
owned, or manufacturer-owned fleets. Manufacturers will install the 
engines in equipment that represents at least 50 percent of the 
production for an engine family and age the engine/equipment 
combination in actual field conditions to at least 75 percent of each 
engine's regulatory useful life. Once an engine in this program has 
been sufficiently field aged, the manufacturer will conduct an 
emissions test on that engine. The results of these tests will then be 
shared with us. If any information derived from this program indicates 
a potential substantial in-use emission performance problem, we 
anticipate that the manufacturer will seek to determine the nature of 
the emission performance problem and what corrective actions might be 
appropriate. We plan to offer our assistance in analysis of the reasons 
for unexpectedly high in-use emission performance as well, and of what 
actions may be necessary or appropriate for reducing such high 
emissions. Manufacturers will have three calendar years from the date 
they notify us of their intent to include a family in the voluntary in-
use testing program to complete the actual in-use testing.
    While the compliance program being adopted today will not require a 
manufacturer to conduct any in-use testing to verify the continued 
satisfactory emission performance in the hands of typical consumers, we 
believe it is worthwhile to have an optional program for such in-use 
testing. We believe it is important for manufacturers to conduct in-use 
testing to assure the success of their designs and to factor back into 
their design and/or production process any information suggesting 
emission problems in the field. In order to encourage participation in 
this voluntary in-use testing program, we would not expect to use the 
data from this program as the primary basis for a noncompliance 
determination. However, neither could we entirely disregard it, and we 
could always choose to conduct our own in-use compliance program that 
could form the primary basis for a noncompliance determination. We 
would expect to conduct such a test program separate from this 
voluntary manufacturer testing program, to further enable us to 
determine whether a specific group of engines is complying with 
applicable in-use standards.
    Although we are not finalizing a mandatory in-use testing program 
as proposed in the January 1998 NPRM, we did finalize the in-use 
noncompliance provisions for Phase 2 engines as part of the March 1999 
final rule for nonhandheld engines (see 64 FR 15208: Subpart I, section 
90.808). These provisions will now apply to Phase 2 handheld engines as 
well. Under these provisions, if we determine that a substantial number 
of engines within an engine family, although properly used and 
maintained, do not conform to the appropriate emission standards, the 
manufacturer will be required to remedy the problem and conduct a 
recall of the noncomplying engine family as required by CAA section 
207. However, we also recognize the practical difficulty in 
implementing an effective recall program as it would likely be 
impossible to properly identify all of the owners of equipment using 
small engines (there is no national requirement to register the 
ownership of such equipment), and it is also highly questionable 
whether all owners or operators of such equipment would respond to an 
emission-related recall notice. Therefore, under the final program, our 
intent is to generally allow manufacturers to nominate alternative 
remedial measures to address most potential non-compliance situations, 
as the January 1998 NPRM discussed (see 63 FR 3992). We expect that, if 
successfully implemented, the use of appropriate alternatives should 
obviate the need for us to make findings of substantial nonconformity 
under section 207. In evaluating manufacturer-nominated alternatives, 
we would consider those alternatives which (1) represent a new 
initiative that the manufacturer was not otherwise planning to perform 
at that time and that has a nexus to the emission problem demonstrated 
by the subject engine family; (2) cost substantially more than foregone 
compliance costs and consider the time value of the foregone compliance 
costs and the foregone environmental benefit of the subject family; (3) 
offset at least 100 percent of the exceedance of the standard or FEL; 
and (4) are able to be implemented effectively and expeditiously and 
completed in a reasonable time. These criteria would guide us in 
evaluating projects to determine whether their nature and burden is 
appropriate to remedy the environmental impact of the nonconformity 
while providing assurance to the manufacturer that we would not require 
excessive projects.
    In addition to being evaluated according to the above criteria, 
alternatives would be subject to a cost cap. We would expect to 
generally apply a cost cap of 75 percent above and beyond the foregone 
costs adjusted to present value, provided the manufacturer can 
appropriately itemize and justify these costs. We believe that this is 
an appropriate value that, in most cases, should be both 
``substantial'' and sufficient to encourage manufacturers to produce 
emission durable engines.
4. Selective Enforcement Auditing
    This section addresses the SEA program being adopted today. The 
provisions of the SEA program being adopted are the same as those 
adopted in March 1999 for Phase 2 nonhandheld engines. As noted in the 
both the January 1998 NPRM and July 1999 SNPRM, we do not view the SEA 
program as the preferred production line testing program for small 
engines. The CumSum procedures, described above, are being adopted as 
the production line program that manufacturers will conduct. The SEA 
program included in today's action is intended as a ``backstop'' to the 
CumSum program and will be used in cases where we believe there is 
evidence of improper testing or of a nonconformity that is not being 
addressed by the CumSum program. The SEA program will also be primarily 
applicable to engine families optionally certified under the small 
volume manufacturer provisions and the small volume engine family 
provisions, where manufacturers may elect not to conduct PLT testing 
for such families. However, as for other families, we do not expect 
families certified under the small volume provisions will be routinely 
tested through an SEA program.
    Two handheld industry groups commented that we should eliminate the 
proposed restrictions on the

[[Page 24288]]

retroactive use of ABT credits for SEA failures. We believe the main 
purpose of an SEA program is to determine whether the engine designs 
certified by manufacturers have been successfully implemented by 
manufacturers in the manufacturing process. Therefore, in contrast to 
the PLT program being adopted today, we do not believe manufacturers 
who fail an SEA should have the automatic option of using ABT credits 
to remedy noncomplying engines already introduced into commerce. The 
PLT program is designed to allow a manufacturer to continually evaluate 
its entire production and quickly respond to the results throughout the 
model year. We believe that allowing a manufacturer to use credits, for 
a limited amount of engines, to remedy past production emission 
failures is consistent with the continual evaluation provided by the 
PLT program. The SEA program, in contrast, is designed to be a one 
time, unannounced inspection of a manufacturer's production line with 
definitive passing or failing results. We believe that in this type of 
a compliance program, where at most only a few engine families might be 
tested each year, manufacturers must place more emphasis on the 
transition from certification to the production line and must set 
initial FELs accurately. Therefore, to encourage accurate FEL settings 
at the time of certification, the SEA program adopted today will not 
allow manufacturers to automatically remedy SEA failures by 
retroactively adjusting FELs. We continue to believe the remedies for 
an SEA failure will be best determined on a case-by-case basis which 
may or may not include the use of ABT credits, in our judgement, 
depending upon our assessment of the specific case.

D. What Flexibilities Are Being Adopted for Engine and Equipment 
Manufacturers?

    The following section describes the flexibilities available to 
engine and equipment manufacturers under the Phase 2 program being 
adopted today. The flexibilities are being adopted to ease the 
transition from the Phase 1 to the Phase 2 program, to ensure that the 
Phase 2 standards are cost-effective and achievable, and to reduce the 
compliance burden while maintaining the environmental benefits of the 
rule. Several comments were received on the flexibilities proposed in 
the July 1999 SNPRM, some supporting the proposed flexibilities and 
others offering recommended changes. Areas where changes have been made 
in response to comments on the July 1999 SNPRM are noted in the 
following discussion. The Summary and Analysis of Comments Document 
contains a complete summary and analysis of the comments submitted on 
the flexibilities proposed in the July 1999 SNPRM.
1. Carry-Over Certification
    Consistent with other mobile source emission certification 
programs, we will continue to allow a manufacturer to use test data and 
other relevant information from a previous model year to satisfy the 
same requirements for the existing model year certification program as 
long as the data and other information are still valid. Such ``carry-
over'' of data and information is common in mobile source programs 
where the engine family being certified in the current model year is 
identical to the engine family previously certified.
2. Flexibilities for Small Volume Engine Manufacturers and Small Volume 
Engine Families
    In the July 1999 SNPRM, we reproposed a number of compliance 
flexibilities for small volume engine manufacturers and small volume 
engine families. The comments we received from handheld engine 
manufacturers and industry groups supported the flexibilities for 
handheld engines, while the California ARB questioned the need for such 
extensive flexibilities. We continue to believe the flexibilities are 
appropriate to ease the transition from Phase 1 to Phase 2 for those 
engine families and engine manufacturers where relief is most needed. 
In addition, we have considered the air quality impact of these 
flexibilities and estimate that less than two percent of the total 
small engine production will likely take advantage of this option to 
delay compliance with the Phase 2 standards, with only a negligible 
impact on the emission benefits expected from the program. Therefore, 
with today's action, we are adopting the flexibilities as proposed in 
the July 1999 SNPRM with one revision to accommodate the final four 
year phase-in schedule being adopted today.
    The three flexibilities that will be available to both small volume 
handheld engine families and small volume handheld engine manufacturers 
are as follows. (The criteria for determining whether a specific engine 
family is a small volume engine family or whether an engine 
manufacturer is a small volume engine manufacturer is described below 
in sections II.D.3. and II.D.4.) First, the eligible family or 
manufacturer can certify to Phase 1 standards and regulations until the 
third year after the end of the Phase 2 implementation schedule. 
Because we are adopting a four year implementation schedule instead of 
a five year schedule as proposed in the July 1999 SNPRM, small volume 
engine families or small volume engine manufacturers will have until 
the 2008 model year for Classes III and IV and the 2010 model year for 
Class V engines to comply with the Phase 2 standards. Such engines will 
be excluded from the ABT program until they are certified to the Phase 
2 standards. Second, once subject to the Phase 2 standards, the 
eligible family or manufacturer can certify using assigned 
deterioration factors. Third, the eligible family or manufacturer can 
elect to not participate in the Phase 2 PLT program, however, the SEA 
program will still be applicable.
    Given the stringency of the newly adopted standards for handheld 
engines, we expect the major engine manufacturers will choose to modify 
their small volume engine families last as these often represent niche 
markets. Additionally, these niche applications may represent some of 
the more difficult engine applications due to their unique 
requirements. The experience gained in designing, producing and getting 
in-use feedback on engine family designs with large production volumes 
should be helpful in minimizing the cost and assuring the performance 
of the small volume engines. Similarly, the design challenges for the 
small volume engine manufacturer due to the stringent Phase 2 standards 
are expected to be significant and, given the limited resources of such 
manufacturers, suggest that more time to accomplish the transition to 
Phase 2 standards is warranted. We expect manufacturers will take 
advantage of the extra time to smooth the transition to Phase 2 
standards by bringing the small volume engines into compliance 
throughout this time period. Due to the fact that circumstances vary 
greatly from one manufacturer to another, we believe it would be 
inappropriate to mandate a percent phase-in schedule or some other 
mandatory rate of phase-in for these small volume engine families and 
small volume engine manufacturers. Therefore, we are adopting only a 
final compliance requirement that is effective three years after the 
end of the Phase 2 phase-in schedule. We believe that a three year 
delay is appropriate based on discussions with manufacturers and given 
the number of engine families expected to be eligible for the proposed 
flexibilities, even with the final implementation schedule.
    We did receive specific comments on one facet of one of the 
flexibilities for small volume engine manufacturers and

[[Page 24289]]

small volume engine families. Two manufacturers suggested that the 
assigned deterioration factors we proposed in the July 1999 SNPRM 
should only apply for known or existing commercialized technologies. 
They noted that deterioration factors for new technologies cannot be 
assigned at this time. We agree with the comment that new technologies 
which have yet to be developed should not automatically be allowed to 
use the assigned deterioration factors specified as part of the 
flexibility regulations. However, based on data from currently 
available technologies, such as current 4-stroke engines, standard 2-
stroke designs (i.e., 2-stroke designs certified under the Phase 1 
program), the compression wave technology, and the stratified 
scavenging with lean combustion design, we believe the assigned 
deterioration factors as proposed are appropriate. Therefore, we are 
revising the regulations to note that the assigned deterioration 
factors may be used by 4-stroke engines, standard 2-stroke designs, the 
compression wave technology, and the stratified scavenging with lean 
combustion design. A manufacturer that would like to use assigned 
deterioration factors for any other technology would need to make a 
request to us. We would then, with the assistance of the requesting 
manufacturer, determine whether the existing assigned deterioration 
factors were appropriate or alternative factors better represented the 
expected deterioration of the technology.
    No comments were received on the flexibility proposed in the July 
1999 SNPRM for Class I-A and Class I-B engines. Therefore, as proposed 
in the July 1999 SNPRM, for Class I-A and Class I-B, we are adopting 
only one flexibility for small volume engine families and small volume 
engine manufacturers. Under today's action, eligible Class I-A and 
Class I-B small volume engine families or manufacturers can elect to 
not participate in the PLT program, however, the SEA program will still 
be applicable.
3. Small Volume Engine Manufacturer Definition
    In order to qualify as a small volume engine manufacturer and be 
eligible for the flexibilities described earlier, we proposed in the 
July 1999 SNPRM that a handheld engine manufacturer would need to 
produce no more than 25,000 handheld engines annually. In addition, for 
manufacturers of Class I-A and Class I-B nonhandheld engine families, 
where we also proposed limited small volume engine manufacturer 
flexibility, a manufacturer of such engines would need to produce no 
more than 10,000 nonhandheld engines annually. We received no comments 
on the proposed cutoff levels for the small volume engine manufacturer 
definitions. Therefore, we are adopting the definition of small volume 
engine manufacturers for handheld engines, Class I-A, and Class I-B 
engines that includes the production cutoffs as proposed in the July 
1999 SNPRM.
4. Small Volume Engine Family Definition
    In order to qualify as a small volume engine family and be eligible 
for the flexibilities described earlier, we proposed in the July 1999 
SNPRM that a handheld engine family, or a Class I-A or Class I-B engine 
family, would need to have an annual production level of no more than 
5,000 engines. Without such flexibilities, we noted our belief that the 
cost and other difficulties of modifying small volume engine families 
to comply with the Phase 2 standards may be difficult enough that the 
manufacturer might either be unable to complete the modification of the 
engine design in time or may choose for economic reasons to discontinue 
production of the small volume engine family. The impact of such a 
scenario would of course fall on the engine manufacturer through 
reduced engine sales, but would also fall perhaps even more 
significantly on small volume equipment applications, the most typical 
use for these small volume engine families. Due to the unique character 
of these small volume equipment applications, it is quite possible that 
some equipment manufacturers might not be able to find a suitable 
replacement engine. In such a case, that equipment manufacturer would 
also be significantly impacted through lost sales, and consumers would 
be harmed through the loss in availability of the equipment.
    We received one comment from an engine manufacturer suggesting that 
we raise the cutoff for small volume engine family to 10,000 units, 
noting that more than 95% of engines would still be covered by the full 
compliance program. We believe it is important to set the cutoff level 
for small volume engine family at a level which provides relief to 
those manufacturers which genuinely need the relief the flexibilities 
allow. Given the other provisions being adopted today, including the 
four year implementation schedule and the ABT program, we continue to 
believe that the 5,000 unit level for determining whether an engine 
family is a small volume engine family is most appropriate. Therefore, 
with today's action, we are adopting the definition of small volume 
engine family as contained in the July 1999 SNPRM that includes the 
annual production cap to 5,000 units for handheld engine families as 
well as Class I-A and Class I-B engine families. Based on the cutoff 
being adopted today, we estimate that 98 percent of handheld engines 
will still be covered by the full compliance program and subject to the 
earliest practical implementation of the Phase 2 rule.
5. Flexibilities for Equipment Manufacturers and Small Volume Equipment 
Models
    In the July 1999 SNPRM, we proposed three flexibilities aimed at 
assuring the continued supply under the Phase 2 regulations of engines 
for unique, typically small volume equipment applications. All of the 
comments received on this issue supported the proposed flexibilities. 
Therefore, with today's action, we are retaining the flexibilities as 
proposed. The three flexibilities that will be available to equipment 
manufacturers and small volume equipment models under the Phase 2 
program for handheld engines are as follows. First, small volume 
equipment manufacturers will be allowed to continue using Phase 1 
compliant engines through the third year after the last applicable 
phase-in date of the final Phase 2 standards for that engine class if 
the equipment manufacturer is unable to find a suitable Phase 2 engine 
before then. (As noted earlier, because we are adopting a four year 
phase in schedule instead of a five year phase in, the actual year this 
flexibility expires is one year earlier than was proposed.) Second, 
individual small volume equipment models will be allowed to continue 
using Phase 1 compliant engines throughout the time period the Phase 2 
regulation is in effect if no suitable Phase 2 engine is available and 
the equipment is currently in production at the time we are adopting 
these Phase 2 rules. If the equipment is ``significantly modified'' in 
the future then this exemption will end, because we believe design 
accommodations can and should be made during such a modification to 
accept an engine meeting Phase 2 standards. Third, a hardship provision 
will be available that allows any equipment manufacturer, regardless of 
size, for any of its applications, regardless of size, to continue 
using a Phase 1 engine for up to one more year beyond the last phase-in 
of the final standard for that engine class if the requirement to 
otherwise use a Phase 2 compliant engine will cause substantial 
financial hardship. This

[[Page 24290]]

hardship provision is intended to cover those extreme and unanticipated 
circumstances which, despite the equipment manufacturer's best efforts, 
place it in a situation where a lack of Phase 2 complying engines will 
cause such great harm to the company that the ability of the company to 
stay in business is at stake. It is not intended to protect an 
equipment manufacturer against any financial harm or potential loss of 
market share. It should be noted that the flexibilities for small 
volume equipment manufacturers and small volume equipment models being 
adopted today are for equipment manufacturers only and cannot be used 
by engine manufacturers who also manufacture equipment. (Engine 
manufacturers are subject to the flexibilities for small volume engine 
manufacturers and small volume engine families described in section 
II.D.2. above.) The criteria for determining whether an equipment 
manufacturer is a small volume equipment manufacturer or whether a 
specific equipment model is a small volume equipment model is described 
below (see sections II.D.6. and II.D.7.).
    As proposed in the July 1999 SNPRM, no flexibilities are being 
adopted for Class I-A or Class I-B equipment manufacturers or equipment 
models with today's action. Because the applications expected to use 
Class I-A or Class I-B engines will either be new engines and equipment 
designs or existing applications that use engines already certified 
under the Phase 1 program (and expected to be able to meet the Phase 2 
standards being adopted today), we do not believe there is a need to 
provide flexibilities for small volume equipment manufacturers and 
small volume equipment models in the newly designated engine classes 
which allow delayed introduction of engines certified to the Phase 2 
standards. We did not receive any comments on the lack of flexibilities 
as proposed in the July 1999 SNPRM for Class I-A or Class I-B equipment 
manufacturers or equipment models.
6. Small Volume Equipment Manufacturer Definition
    In the July 1999 SNPRM, we proposed that small volume equipment 
manufacturers would be defined as those manufacturers whose annual 
production for sale in the U.S. across all models was 25,000 or fewer 
pieces of equipment utilizing handheld engines. We received no comments 
on this issue. Therefore, with today's action, we are adopting the 
definition of small volume handheld equipment manufacturer as proposed 
in the July 1999 SNPRM. We estimate that this limit will cover 
approximately two percent of the annual sales in the handheld category. 
Providing the flexibilities described in the previous section is 
expected to allow significant relief to these smallest equipment 
manufacturers while at the same time assuring the vast majority of 
equipment uses the lowest emitting engines available.
7. Small Volume Equipment Model Definition
    In the July 1999 SNPRM, we proposed that the small volume equipment 
model definition would cover handheld models of 2,500 or less annual 
production. We received comments from two handheld industry 
organizations and two engine manufacturers suggesting that we should 
raise the cutoff to 5,000 units, the same as the cutoff for the small 
volume engine family as described earlier. Because many of the small 
volume equipment models use engines specifically designed for that 
application, we believe it would be beneficial to set the cutoff for 
the small volume handheld engine family and small volume handheld 
equipment model at the same level. Therefore, with today's action, we 
are revising the small volume equipment model definition by increasing 
the cutoff to 5,000 units or less of annual production. Providing the 
flexibility for small volume equipment models described earlier in 
section II.D.5. should allow significant relief to equipment 
manufacturers while at the same time assuring the vast majority of 
equipment uses the lowest emitting engines available.

E. Nonregulatory Programs

    In the January 1998 NPRM, we discussed a voluntary ``green'' 
labeling program and a voluntary fuel spillage and evaporative emission 
reduction program. These programs, which could yield important 
environmental benefits from the small SI engine sector, are discussed 
in this section of the preamble.
1. Voluntary ``Green'' Labeling Program
    In the January 1998 NPRM, we discussed the concept of a voluntary 
program for labeling engines with superior emission performance as a 
way of providing public recognition and also allowing consumers to 
easily determine which engines have especially clean emission 
performance. We discussed a threshold of around 50 percent of the 
proposed standard (e.g., around 12.5 g/kW-hr for Class I engines) as 
the level below which engines would qualify for ``green'' labeling. We 
requested comment on all aspects of the program, as well as indication 
of interest on the part of consumer groups, engine and equipment 
manufacturers, and others in working with us to develop and implement 
the program.
    We received support for the voluntary ``green'' labeling program 
concept from several commenters, as well as suggestions for the design 
of such as program. Other commenters argued that a green labeling 
program is inconsistent with ABT, and still others supported a 
mandatory comprehensive labeling program to identify emissions levels 
above and below standards.
    We remain committed to promoting clean technology, and we are 
interested in developing a green labeling program for small SI engines 
in a way that does not confuse consumers or undermine environmental 
goals of the Phase 2 regulations. In the design of a program, it would 
be necessary to review appropriate levels for a green label, given the 
stringency of the standards in the final program, as well as to 
consider the appropriate interface between a green labeling program and 
the ABT program that is being finalized for handheld engines. We will 
continue to pursue the development of voluntary green labeling program 
for small SI engines as a nonregulatory program.
2. Voluntary Fuel Spillage and Evaporative Emission Reduction Program
    In the January 1998 NPRM, we discussed our interest in involving 
stakeholders in the design of a voluntary fuel spillage and evaporative 
emission reduction program specifically for the small engine industry 
and its customers. We requested comment on the proposed voluntary 
partnership program, and indication of interest in participating in the 
partnership. Comments on this concept included both disappointment that 
we have not done more in these areas, as well as a willingness on the 
part of several commenters to work with us. We are aware of the 
California ARB's recent proposal to control portable fuel container 
spillage. However, we are not adopting such a program with today's 
action. At this time, we have not been able to determine the technical 
feasibility of substantially controlling fuel spillage and evaporative 
emissions from the small engine equipment sector and therefore we have 
not been able to determine that a program mandating such controls would 
be achievable for this industry. Nevertheless, we remain committed to 
developing voluntary programs to address fuel spillage and evaporative 
emission reductions.

[[Page 24291]]

F. General Provisions of This Final Rule

    In the July 1999 SNPRM, we discussed a number of general provisions 
that would impact Phase 2 engines covered by today's action. These 
general provisions included engine labeling and emissions warranty and 
are discussed in the following section. Two additional general 
provisions noted in the July 1999 SNPRM, the handheld engine definition 
and use of engines in recreational equipment, referred to a separate 
February 3, 1999, notice (64 FR 5251) which contained proposed 
amendments to the existing small SI and marine SI rules. These two 
additional issues, along with the other proposed amendments contained 
in the February 1999 proposal, are discussed in section II.G. of 
today's action.
1. Engine Labeling
    In the July 1999 SNPRM, we proposed that manufacturers would be 
required to state the useful life hours on the engine label. We also 
proposed an alternative labeling option under which engine 
manufacturers could use a designator of useful life hours (e.g., A, B, 
or C) and then include words on the label which would direct the 
consumer to the owner's manual for an explanation of the meaning of the 
useful life designator. Finally, the July 1999 SNPRM proposed to allow 
other labeling options provided the Administrator determined that such 
options satisfied the information intent of the label. This proposed 
option was intended to allow for the nationwide use of the California 
labeling system. We also noted that in evaluating the adequacy of an 
alternative label, we would consider the extent to which the 
manufacturer's alternative engine label combined with other readily 
accessible consumer information adequately informed the consumer of the 
emission performance of the engine. The labeling requirements contained 
in the July 1999 SNPRM for handheld engines were the same as those 
adopted in the March 1999 final rule for nonhandheld engines.
    We received comments on this issue from four engine manufacturers 
and one handheld industry organization. One manufacturer noted that 
they do not believe putting useful life information on the engine label 
will be meaningful to consumers. However, they supported the proposed 
alternatives. The other commenters said the we should clearly state our 
intention to allow the use of the California labeling system 
nationwide. With today's action we are adopting the labeling provisions 
as contained in the July 1999 SNPRM. Therefore, a manufacturer can 
either state the useful life hours on the engine label, or use a 
designator of useful life hours (e.g., A, B, or C) and then include 
words on the label which directs the consumer to the owner's manual for 
an explanation of the meaning of the useful life designator. Finally, a 
manufacturer could seek our approval to use the California ARB labeling 
system. Based on the current California ARB labeling system, we plan to 
approve such requests. (We are not revising the regulations at this 
point in time because they apply to nonhandheld engines, as well, and 
we did not propose such a change for nonhandheld engines.) It should be 
noted that we expect to work in partnership with the industry in 
developing consumer outreach material to better inform consumers of the 
emission improvements available through the purchase of equipment using 
Phase 2 engines. We expect such outreach material will help to better 
serve the informational needs of consumers instead of having to rely 
only on any of the labeling options adopted today.
2. Emission Warranty
    Under the current regulations, the base emission performance 
warranty extends for a period of two years of engine use from the date 
of sale. However, after the original Phase 2 NPRM was issued in January 
1998, manufacturers of handheld engines indicated to us that there are 
applications, particularly for commercial equipment, in which the 
useful life hours of the entire piece of equipment can be surpassed in 
one year of typical in-use operation. Therefore, in the July 1999 SNPRM 
we proposed an option whereby manufacturers of handheld engines could 
request approval from us to adopt an emission warranty period of one 
year if they could demonstrate such a shorter warranty period would be 
appropriate for that engine/equipment combination.
    We received comments from three handheld engine manufacturers and 
two handheld industry organizations noting that there are some handheld 
applications which will reach their expected useful life level in less 
than one year. Therefore, the commenters recommended that we adopt 
provisions to allow a manufacturer to select a warranty period of less 
than one year. In addition, we received a comment from one engine 
manufacturer that this special warranty provision should be available 
to all classes of small SI engines at or below 19 kW. With today's 
action, we are finalizing provisions for handheld engines only that 
would allow a manufacturer to request approval from us to adopt an 
emissions warranty period of less than two years if the manufacturer 
can demonstrate such a shorter warranty period is appropriate for that 
engine/equipment combination. In order to demonstrate that a shorter 
period is warranted, the manufacturer would need to submit information 
satisfactory to us demonstrating that the regulatory useful life is 
reached in less than two years for the typical piece of equipment. 
Normally, when we have established emission warranty periods, we have 
established both a years requirement and a second requirement based on 
hours of use (or miles in some cases). The emissions warranty lasts 
until one of the two levels, either years or hours, is reached. 
However, under the Phase 1 rule for small SI engines, we established 
only a years requirement for the emissions warranty because there was 
no useful life requirement under Phase 1 and also because handheld 
equipment is not equipped with an hour meter. By making this change for 
handheld engines, and requiring manufacturers to submit information 
showing that a shorter warranty period is justified, we believe the 
emissions warranty period will not require a manufacturer to be liable 
for emissions performance of equipment beyond its regulatory useful 
life. Alternatively, we are also adopting a provision that would allow 
a manufacturer to request that the emissions warranty period be the 
shorter of two years or the regulatory useful life if the engine/
equipment is equipped with an hours meter that ensures verification of 
hours of use. At this time, these changes to the emission warranty 
period will only apply to handheld engines. We did not propose such a 
change for nonhandheld engines in the July 1999 SNPRM and we have not 
received comments from anyone suggesting that such a change for 
nonhandheld engines is appropriate at this time.

G. Amendments to the Small Spark-Ignition (SI) Engine and Marine SI 
Engines Programs

    The following section addresses the amendments to the small SI 
engine and marine SI engine rules that have been included in today's 
action. These provisions were proposed in a February 1999 NPRM separate 
from the July 1999 SNPRM. We have chosen to combine these amendments 
with the Phase 2 handheld engine provisions because most of the 
amendments directly affect small SI handheld engines.

[[Page 24292]]

1. Definition of Handheld Engine
    The February 1999 NPRM included modifications to the criteria used 
for determining whether an engine could be classified as handheld. The 
proposed change was made in response to comments from Honda and others. 
(The July 1999 SNPRM did not propose to change the existing definition 
of handheld engine in effect for Phase 1, but directed readers to the 
February 1999 NPRM noting that we had proposed a modification to the 
definition.) Under the February 1999 NPRM, a manufacturer would have 
been permitted to exceed the current handheld engine weight limit of 14 
kilograms (kg), or 20 kg for augers, in cases where the manufacturer 
could demonstrate that the extra weight was the result of using a 4-
stroke engine or other technology cleaner than the otherwise allowed 2-
stroke engine. As proposed, the revised handheld definition would have 
been applicable for the remainder of Phase 1 and would also apply for 
the Phase 2 program.
    The February 1999 NPRM drew supportive comments on the change to 
accommodate 4-stroke engines and other clean technologies. We also 
received comments related to this issue in response to the July 1999 
SNPRM. Some of these comments advocated that we change the weight limit 
we have applied to handheld equipment with most commenters indicating 
that we should raise the weight limit to 20 kilogram for all types of 
equipment. Other commenters to the July 1999 SNPRM suggested that it 
was not appropriate to modify the weight limit to address certain 
technologies and that the same limit should apply regardless of 
technology type.
    With today's action, we are adopting the revised handheld engine 
definition as proposed in the February 1999 NPRM. Therefore, the weight 
limit for handheld equipment will remain at 14kg (20kg for augers), 
except for cases where the manufacturer can demonstrate that the excess 
weight is the result of using a four stroke engine or advanced two 
stroke technology acceptable to the Administrator. We conclude that is 
appropriate to allow equipment classified as ``handheld'' to exceed the 
14 kg weight limit (or 20 kg limit for augers) if the equipment exceeds 
the limit because of the use of 4-stroke engines or other clean 
technology. Otherwise, equipment manufacturers that might want to use a 
cleaner technology engine in a piece of equipment historically powered 
by a 2-stroke engine, would be prevented from doing so because of the 
extra weight of the cleaner engine. That result would conflict with the 
purpose of the program, which is to encourage technological innovation 
and transition to cleaner power sources for equipment. This change 
should prevent the undesirable situation where a manufacturer is 
prohibited from using cleaner technologies because of our regulatory 
weight limit.
    We do not believe that it is appropriate to change the weight limit 
for all engines. The current weight limit of 14 kg for handheld 
equipment was established in our Phase 1 final rule after a review of 
available products ascertained that 14 kilograms was the break point 
that the market had chosen between equipment types powered with 2-
stroke engines and those powered by 4-stroke engines (see 60 FR 34591; 
July 3, 1995). No new information was submitted with the July 1999 
SNPRM comments that would cause us to believe the current weight limit 
is inappropriate. In addition, as noted in the February 1999 NPRM, 
raising the weight limit across the board would allow manufacturers to 
convert current 4-stroke nonhandheld equipment to dirtier 2-stroke 
power. We believe that, in the long run, such an increase in weight 
limit would encourage this change if the 2-stroke engine would be 
cheaper. This would tend to be environmentally detrimental.
2. Engines Used in Recreational Vehicles and Applicability of the Small 
SI Regulations to Model Airplanes
    The February 1999 NPRM included a proposal to classify model 
airplanes powered by small SI engines as recreational equipment and 
therefore exempt engines used in such applications from the small SI 
regulations. (In the July 1999 SNPRM, we directed readers to the 
February 1999 NPRM noting that we had proposed such a modification.)
    The small SI rule as currently effective covers all nonroad spark-
ignition engines at or below 19 kW ``used for any purpose,'' subject to 
certain exclusions. We provided specific exclusions for certain engines 
used in underground mining, for engines used in motorcycles that are 
subject to emission regulation under 40 CFR Part 86, for engines used 
in passenger aircraft, and for engines used in recreational vehicles 
which meet certain prescribed criteria.
    To qualify as an engine used in a recreational vehicle, the engine 
must meet all of the following criteria: (i) The engine's rated speed 
is greater than or equal to 5,000 rpm; (ii) the engine has no installed 
speed governor; (iii) the engine is not used for the propulsion of a 
marine ``vessel'' as that term is defined by the U.S. Coast Guard; and 
(iv) the engine does not meet the criteria to be categorized as a Class 
III, IV or V engine (i.e., the criteria by which an engine qualifies as 
``handheld''). Criteria (I) and (ii) reflect our belief that engines 
used to operate recreational vehicles will operate at high rated speeds 
and will differ significantly in design and operation from those used 
to power nonhandheld equipment such as lawn, garden and construction 
equipment. Recreational vehicles also typically have a variable 
throttle that is held open by the operator to achieve speeds above idle 
and returns to idle when released. These vehicles experience extremely 
transient operation. Further, these vehicles do not have the types of 
governors commonly present on nonhandheld lawn and garden type engines 
which serve to automatically open the throttle farther when the engine 
experiences increased loading. Increased loading is encountered when, 
for example, the operator moves a lawnmower from an area of short grass 
into an area of long grass. Finally, we believe that the steady-state 
test procedures adopted for the small SI rule would not be appropriate 
for these more transient applications.
    We established criteria which serve to define an engine as 
``handheld'' to restrict the use of the more lenient Class III, IV or V 
standards to engines in equipment that needed to be extremely light in 
weight so that it may be easily carried or easily supported during its 
operation, and/or which needed to be able to operate multipositionally. 
Manufacturers have historically addressed need for very low weight 
through the use of 2-stroke technology, which produces greater power 
for a given weight and size (but higher emissions) than a 4-stroke 
engine and does so without the need for a sump full of oil at the 
bottom of the engine.
    We adopted the small SI rule without the knowledge that 
approximately 8,000 small SI engines are built each year by a variety 
of companies (including a number of very small entities) for specific 
application in model boats, aircraft and cars. We did not include these 
engines in any calculations of emission inventories, nor did we 
consider reductions from these engines or costs of compliance in the 
development of the Phase 1 small SI final rule or the Phase 2 
proposals. We have no emission data from these engines and do not have 
data appropriate to determine whether the test cycle used for handheld 
(or nonhandheld) engines is appropriate for

[[Page 24293]]

these engines. These vehicles are predominantly radio-controlled model 
airplanes and as such are clearly ``recreational'' in nature as that 
term is generally understood. However, according to the definition of 
that term in the existing small SI rule, such engines could qualify as 
handheld because of their multi positional capabilities and therefore 
fall outside of coverage under the term ``recreational''.\5\
---------------------------------------------------------------------------

    \5\ A few of these vehicles may be controlled by flexible tether 
lines, but in any case they are not held in hand during operation.
---------------------------------------------------------------------------

    We received no comments on the February 1999 NPRM (or the July 1999 
SNPRM) with regard to our proposed treatment of this issue. Therefore, 
we are amending the existing regulations and we will consider these 
vehicles and engines as recreational and, as a result, excluded from 
coverage under the small SI rule. Thus, engines used to propel vehicles 
in flight through air provided those engines meet the other existing 
criteria to be categorized as recreational, are now excluded from the 
scope of the rule. As noted in the February 1999 NPRM, we believe that 
model cars and boats are not required to operate ``multipositionally'' 
to complete their intended function so that the small SI engines used 
in model cars and boats are therefore considered ``recreational'' by 
the existing regulatory text and are already excluded from the small SI 
rule.
3. Phase-in Flexibility for Small Volume Marine SI Engine Manufacturers
    We promulgated emission requirements for marine SI engines on 
October 4, 1996. The rules took effect with the 1998 model year for 
outboard engines and the 1999 model year for personal watercraft and 
jetboats. We developed the marine SI rule with considerable input from 
large volume marine engine manufacturers and their association, the 
National Marine Manufacturers Association (NMMA). We estimate that this 
rule will result in a 75% reduction in exhaust hydrocarbons when 
calculated from uncontrolled engines. The standards phase in via 
incremental reductions each year through 2006. The standards will 
result in considerable shifts in technology away from high emitting 2-
stroke technology to cleaner 2-stroke or direct injection 2-stroke 
designs.
    The standards are ``averaging standards'' in that we expect some 
engine families to be below the standards and generate emission credits 
while other engine families will be above the standards and use 
credits. The ``averaging standards'' were derived from a corporate 
average calculation based on the introduction of new technology across 
product lines. Similar to other mobile source programs, manufacturers 
may bank them these credits for future use or trade them between 
manufacturers.
    We designed the phase in of the standards to permit marine engine 
manufacturers to introduce new technology engines and phase out old 
technology engines in an orderly and cost effective fashion. In 
addition, we developed flexible certification testing requirements and 
exemptions from production line testing and in-use testing requirements 
implemented for old technology engines to reduce the compliance costs 
of the rule for engines destined for phase out.
    The development of the marine SI final rule took several years and 
involved numerous meetings with manufacturers. We published both an 
NPRM (see 59 FR 55930, November 9, 1994) and a SNPRM (see 61 FR 4600, 
February 7, 1996). We, as well as NMMA, did considerable outreach to 
marine engine manufacturers during this period to inform them of 
progress and likely requirements of various proposals. Despite this 
process, we received no input from small volume outboard and personal 
watercraft engine manufacturers until after the closing date of the 
comment period for the SNPRM. In this one comment, Tanaka expressed 
concerns about the appropriateness of the averaging standards on an 
engine manufacturer with likely only one engine family.\6\ Tanaka also 
expressed doubts that credits would be available in the marketplace and 
questioned whether, even if available, they would be affordable to a 
manufacturer with a very small annual sales volume. Our Response to 
Comments document addressed small volume concerns by pointing out that 
the final rule provided reduced production line and in-use testing 
requirements, simplified certification procedures and administrative 
flexibilities for existing technology engines (the likely products of 
small volume manufacturers).\7\ Beyond those flexibilities, the 
Response to Comments document explained that ``for smaller volume 
manufacturers the final regulation allows these manufacturers to 
purchase emission credits from the market place as an alternative to 
employing control technologies to meet the standard.''
---------------------------------------------------------------------------

    \6\ Letter of May 13, 1996 from Randy W. Haslam, Vice-President, 
Tanaka International Sales and Marketing as contained in the docket 
established for the amendment portion of today's action (EPA Air 
Docket No. A-98-16).
    \7\ The ``Response To Comments'' document prepared for the 
marine SI final rule can be found in the docket established for the 
amendment portion of today'' action (EPA Air Docket No. A-98-16).
---------------------------------------------------------------------------

    Since implementation of the marine SI rule began, we have received 
further correspondence from Tanaka petitioning us to amend the rule on 
the basis that the rule's fleet averaging concept provides benefits to 
manufacturers with diverse product lines but not to a company like 
Tanaka, which has only one engine family--a very low production, low 
powered engine.\8\ Tanaka argues that its competitors could sell 
similar engines with higher emissions because they could offset those 
emissions with credits from larger engines. Tanaka desires flexibility 
to continue production of its engine until the final phase-in of the 
standards at which time it will exit the market. Tanaka believes it can 
comply with the marine SI requirements through about the 2002 model 
year through engine improvement and credits it plans to generate in 
earlier years. After that, it desires flexibility to stage an orderly 
exit from the market. It does not wish to commit the funds necessary to 
meet the final phase in standards for its low level of U.S. sales.
---------------------------------------------------------------------------

    \8\ Letter of June 30, 1997 from Randy W. Haslam, Vice-
President, Tanaka International Sales and Marketing as contained in 
the docket established for the amendment portion of today's action 
(EPA Air Docket No. A-98-16).
---------------------------------------------------------------------------

    Inboard Marine Corporation, a low volume manufacturer of personal 
watercraft engines, has also contacted us. This company maintains that 
it is dependent upon ``off-the-shelf'' technology to reduce its 
emissions. Like Tanaka, it has a narrow product line and argues that it 
cannot count on the averaging, banking and trading (ABT) program in the 
marine SI rule to provide credits through trading, nor to provide them 
at a reasonable price. Inboard Marine believes it can comply in the 
early years of the marine SI rule but may need relief in the late years 
of the standard phase-in. It intends to discontinue its current engine 
by the final phase-in year (2005) and meet the ultimate standards of 
2006 with a redesigned engine.
    We recognize that the marine SI standards are technology forcing. 
Thus, it was appropriate to include ABT provisions to facilitate their 
economical implementation. However, ABT is most useful to manufacturers 
with diverse product offerings. The two companies mentioned above 
appear to be at a disadvantage to their competitors because of their 
limited offerings. Further, we can not provide any

[[Page 24294]]

certainty that credits will be available to them.
    In rules proposed since we promulgated the marine SI rule, we have 
gone to considerable lengths to provide mechanisms to ease the 
implementation of new standards and requirements for low volume 
producers. Both the Phase 2 FRM for nonhandheld SI engines and the 
Nonroad CI Phase 2 and 3 NPRM contain numerous special provisions to 
delay or otherwise ease the impact of the standards on low volume 
engine families, low volume equipment manufacturers or low volume 
engine manufacturers. By contrast, the marine SI rule contains no such 
provisions.
    In response to these comments, we proposed provisions in the 
February 1999 NPRM that would modify the marine SI rule to permit small 
volume engine manufacturers to have family emission limits (FELs) in 
excess of applicable standards where credits are not available to cover 
such excess. This proposed provision was limited to one period of four 
consecutive model years which cannot begin until the 2000 model year. 
We noted our belief that the affected manufacturers could likely make 
changes to the affected engines to achieve compliance with standards in 
the early years and even bank a few credits, but may have more 
difficulty as the standards tighten later in the phase-in. As proposed, 
this flexibility would have expired at the end of the 2009 model year. 
We noted our belief that this expiration date would provide adequate 
time for small volume engine manufacturers to adapt off the shelf 
technology to their engines, if available, or to redesign their engines 
to comply with the final standards. We also noted that the inclusion of 
this provision was consistent with our approach in other rules and it 
would meet the needs of small volume manufacturers without creating 
adverse impacts on air quality or adverse competitive situations. 
Further, we noted that the way we structured this proposed provision 
could lead the affected manufacturers to clean up their engines more in 
the early years than their competitors. As proposed, the applicability 
of this provision was limited to engine manufacturers who sell no more 
than 1000 marine outboards and personal watercraft engines per year in 
the United States.
    All comments received on the proposed flexibility provisions for 
small volume marine SI engine manufacturers contained in the February 
NPRM were favorable. Based on the technological limitations that these 
small volume manufacturers have, and their limited abilities to use 
flexibilities offered by ABT to avoid increased costs, we continue to 
believe that additional flexibility is appropriate. Therefore, with 
today's action, we are adopting the flexibility provisions as proposed 
in the February 1999 NPRM. Under these provisions, small volume marine 
SI engine manufacturers will be allowed to have family emission limits 
(FELs) in excess of applicable standards where credits are not 
available to cover such excess. This provision is limited to one period 
of four consecutive model years which cannot begin until the 2000 model 
year. This flexibility will expire at the end of the 2009 model year. 
These flexibility provisions are limited to engine manufacturers who 
sell no more than 1,000 marine outboards and personal watercraft 
engines per year in the United States.
    The implementation of this flexibility for small volume marine SI 
engine manufacturers does not change our overall conclusion that the 
category of marine SI engines will allow the greatest achievable 
emission reduction considering technology and cost.
4. Replacement Engines
    In a recent direct final rule, we modified our regulations 
applicable to small SI and marine SI engines (see 62 FR 42638, August 
7, 1997) to permit the sale of uncertified engines for replacement 
purposes. The direct final rule addressed limited instances involving 
equipment built before our regulations went into effect where engine 
replacement is a more economical alternative than engine repair and 
certified engines are not available to fit.
    Under the direct final rule, the engine manufacturer being 
approached to sell an uncertified engine for replacement purposes must 
first ascertain that no certified engine produced by itself or the 
manufacturer of the original engine (if different) is available with 
suitable physical or performance characteristics to re-power the 
equipment. If the manufacturer determines that no certified engine is 
available that will fit or perform adequately, it can sell an 
uncertified engine subject to certain controls. For example, the 
manufacturer must take the old engine in exchange and the new engine 
must be clearly labeled for replacement purposes only.
    Our small SI and marine SI engines regulations adopt the Clean Air 
Act definition for the term ``manufacturer.'' We have become concerned 
that the term ``manufacturer'' as defined in the Clean Air Act can 
include an importer who may have had nothing to do with the actual 
production of the engine.\9\ In such a case the requirement to 
ascertain whether a certified engine produced by itself has suitable 
physical or performance characteristics could lead to abuse. We are 
concerned that importers could misinterpret this provision to permit, 
for example, an equipment operator to import an uncertified engine and 
determine, since the importer does not make engines, that no certified 
engines are available from itself to appropriately power the vehicle. 
Therefore, in the February 1999 NPRM we proposed to amend the 
replacement engine provisions in both the small SI and marine SI engine 
rules to require that, in cases where a replacement engine might be 
imported, the determination be made by the manufacturer's U.S. 
representative of the company holding a current certificate of 
conformity from EPA for the particular make of engine requiring 
replacement. We proposed as an alternative, and especially if no such 
entity exists (as may happen in a piece of imported equipment built 
prior to the effective date of our regulations), the equipment operator 
could approach other engine manufacturers to obtain a suitable 
replacement engine under the existing replacement engine provisions.
---------------------------------------------------------------------------

    \9\ Section 216(1) of the Clean Air Act defines ``manufacturer'' 
as ``any person engaged in the manufacturing or assembling of new * 
* * nonroad engines or importing such * * * engines for resale * * * 
but shall not include any dealer with respect to * * * new nonroad 
engines received by him in commerce'.
---------------------------------------------------------------------------

    We received no comments objecting to our proposed treatment of the 
replacement engine issue. Therefore, today's action amends the 
replacement engine provisions for small SI engines and marine SI 
engines as proposed.

III. What Are the Projected Impacts of This Final Rule?

A. Environmental Benefit Assessment

    National Ambient Air Quality Standards (NAAQS) have been set for a 
number of criteria pollutants, including ozone (O3), which 
adversely affect human health, vegetation, materials and visibility. 
Concentrations of ozone are impacted by HC and NOX 
emissions. We believe that the Phase 2 standards being adopted today 
for handheld engines will reduce emissions of HC and NOX and 
help most areas of the nation in their progress towards attainment and 
maintenance of the NAAQS for ozone. The following section provides a 
summary of the roles of HC and NOX in ozone formation. The 
following section also addresses the estimated emissions impact of this 
rule, and the health and

[[Page 24295]]

welfare effects of ozone, CO, and hazardous air pollutants.
1. Roles of HC and NOX in Ozone Formation
    Both HC and NOX contribute to the formation of 
tropospheric ozone through a complex series of reactions. Our primary 
reason for controlling emissions from small SI handheld engines is the 
role of their HC emissions in forming ozone. Of the major air 
pollutants for which NAAQS have been designated under the CAA, the most 
widespread problem continues to be ozone, which is the most prevalent 
photochemical oxidant and an important component of smog. Ozone is a 
product of the atmospheric chemical reactions involving oxides of 
nitrogen and volatile organic compounds. These reactions occur as 
atmospheric oxygen and sunlight interact with hydrocarbons and oxides 
of nitrogen from both mobile and stationary sources.
    A critical part of this problem is the formation of ozone both in 
and downwind of large urban areas. Under certain weather conditions, 
the combination of NOX and HC has resulted in urban and 
rural areas exceeding the national ambient ozone standard by as much as 
a factor of three. Thus it is important to control HC over wider 
regional areas if these areas are to come into and maintain compliance 
with the ozone NAAQS.
2. Health and Welfare Effects of Tropospheric Ozone
    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.
    Ozone chemically attacks elastomers (natural rubber and certain 
synthetic polymers), textile fibers and dyes, and, to a lesser extent, 
paints. For example, elastomers become brittle and crack, and dyes fade 
after exposure to ozone. Finally, by trapping energy radiated from the 
earth, tropospheric ozone may contribute to heating of the earth's 
surface via the ``greenhouse effect,'' thereby contributing to global 
warming.1 Tropospheric ozone is also known to reduce levels 
of UVB radiation reaching the earth's surface.2
3. Estimated Emissions Impact of this Final Rule
    Table 5 presents the emission inventories for the handheld engines 
covered by today's action under both the baseline scenario (i.e., with 
Phase 1 controls applied) and the controlled scenario (i.e., with the 
Phase 2 controls applied). Table 5 also presents the expected emission 
reductions due to the Phase 2 HC+NOX standards being adopted 
today. The emission standards adopted in today's action are expected to 
reduce average in-use exhaust HC+NOX emissions from small SI 
handheld engines by approximately 70 percent beyond Phase 1 standards 
for handheld engines by the year 2010, by which time a complete fleet 
turnover is expected. This translates into an annual nationwide 
reduction of nearly 500,000 tons of exhaust HC+NOX in the 
year 2025 over that expected from Phase 1.

             Table 5.--Projected Annual Exhaust HC+NOX Emissions from Handheld Equipment (tons/year)
----------------------------------------------------------------------------------------------------------------
                                                                                   Tons reduced
                                                   With phase 1    With phase 2     due to the      Percentage
                      Year                         controls only     controls         phase 2        reduction
                                                                                    program \a\
----------------------------------------------------------------------------------------------------------------
2000............................................         421,000         421,000  ..............  ..............
2005............................................         471,000         269,000         202,000            43.0
2010............................................         525,000         155,000         373,000            70.5
2015............................................         579,000         170,000         412,000            70.5
2020............................................         633,000         186,000         450,000            70.6
2025............................................         687,000         202,000         488,000           70.6
----------------------------------------------------------------------------------------------------------------
\a\ Includes a small benefit for California engines that would need to comply with the more stringent EPA
  standards.

    These emission reduction estimates were developed using our NONROAD 
emissions model. As previously stated, Husqvarna/FHP submitted a list 
of questions on our assumptions in the cost effectiveness for the 
SNPRM. (The list was prepared by the National Economic Research 
Associates (NERA)). Some of the questions led us to review several 
inputs to the NONROAD model from which the rulemaking benefits were 
calculated. The inputs that were reviewed included the professional/
consumer split for the largest handheld applications as well as the 
load factor assumed for handheld applications. Based on conversations 
with the major manufacturers of professional equipment and a review of 
available literature with regard to the load factor, we have made 
several modifications to the NONROAD model for the final rulemaking 
analysis. The modifications include class specific estimates of 
professional/consumer splits for chainsaws, blowers, and trimmers, and 
revised load factor estimates for

[[Page 24296]]

chainsaws, blowers, and trimmers. As a result of these changes, the 
handheld emissions inventory estimates have increased significantly, 
resulting in an increase in the estimated emission benefits and 
improved cost-effectiveness estimates compared to the July 1999 SNPRM. 
The reader is directed to Chapter 6 of the RIA for today's action for a 
more detailed description of the changes to the NONROAD model and a 
more detailed presentation of the expected HC+NOX emission 
reductions. Because there are so few engines expected to be certified 
under the new Class I-A and Class I-B standards, we have not included 
any emissions from such engines in the HC+NOX inventory or 
benefit projections.
    Reductions in CO levels beyond Phase 1 levels, due to improved 
technology, are also to be expected but have not been estimated because 
we do not believe we can accurately quantify the expected benefit. In 
addition, along with the control of hydrocarbons, the newly adopted 
standards should be effective in reducing emissions of those 
hydrocarbons considered to be hazardous air pollutants (HAPs), 
including benzene and 1,3-butadiene. However, the magnitude of 
reduction will depend on whether the control technology reduces the 
individual HAPs in the same proportion as total hydrocarbons. We have 
not attempted to quantify the anticipated reductions in HAPs due to 
this rule.
    The intent of the amendments for small SI and marine SI engines 
included in this rule (as described in section II.G.) is to reduce the 
burden or prevent abuse of various provisions of several existing 
rules. As a result, we expect no significant air quality impacts one 
way or the other as a result of the amendments. The provisions to 
revise the handheld engine definition to accommodate cleaner but 
heavier engines remove a barrier to the incorporation of cleaner engine 
technology in handheld equipment. The provisions to exempt recreational 
engines used to propel model aircraft are not expected to have any 
significant impact on air quality. As noted earlier, the engines 
subject to the recreational exemption included in today's action have 
never been included in small SI inventory calculations or in benefits 
attributed to the small SI rules. The revisions to provide phase-in 
flexibility to small marine engine manufacturers will also have no 
significant impact on air quality. The marine rule revisions are 
designed to encourage these companies to clean up their engines as much 
as possible in the early phase-in years and may actually result in the 
production of small quantities of engines that are cleaner than those 
of similar power built by larger competitors using credits. Lastly, the 
revisions to replacement engine provisions will reduce the likelihood 
of abuse in cases where older design engines may be desired for 
replacement needs.
4. Health and Welfare Effects of CO Emissions
    CO is a colorless, odorless gas which can be emitted or otherwise 
enters into ambient air as a result of both natural processes and human 
activity. Although CO exists as a trace element in the troposphere, 
much of human exposure resulting in elevated levels of 
carboxyhemoglobin (COHb) in the blood is due to incomplete fossil fuel 
combustion, as occurs in small SI engines. The concentration and direct 
health effect of CO exposure are especially important for small SI 
handheld engines because the operator of a handheld application is 
close to the equipment as it functions. In some applications, the 
operator must be adjacent to the exhaust outlet and is in the direct 
path of the exhaust as it leaves the engine.
    The toxicity of CO effects on blood and tissues, and how these 
effects manifest themselves as organ function changes, have also been 
topics of substantial research efforts. Such studies provided 
information for establishing the National Ambient Air Quality Standard 
for CO. The current primary and secondary NAAQS for CO are 9 parts per 
million for the one-hour average and 35 parts per million for the 
eight-hour average.
5. Health and Welfare Effects of Hazardous Air Pollutant Emissions
    The focus of today's action is reduction of HC emissions as part of 
the solution to the ozone nonattainment problem. However, direct health 
effects are also a reason for concern due to direct human exposure to 
emissions from small SI handheld engines during the operation of 
handheld equipment. Of specific concern is the emission of hazardous 
air pollutants (HAPs). In some applications, the operator must be 
adjacent to the exhaust outlet and is in the direct path of the exhaust 
as it leaves the engine. Today's action should be effective in reducing 
HAPs such as benzene and 1,3-butadiene, in so far as these are 
components of the HC emissions being reduced by the Phase 2 standards.
    Benzene is an aromatic hydrocarbon which is present as a gas in 
both exhaust and evaporative emissions from motor vehicles. Benzene in 
the exhaust, expressed as a percentage of total organic gases (TOG), 
varies depending on control technology (e.g., type of catalyst) and the 
levels of benzene and aromatics in the fuel, but is generally about 
three to five percent. The benzene fraction of evaporative emissions 
depends on control technology (i.e., fuel injector or carburetor) and 
fuel composition (e.g., benzene level and Reid Vapor Pressure, or RVP) 
and is generally about one percent. As more fully discussed in the 
Regulatory Impact Assessment for this rulemaking, EPA has recently 
reconfirmed that benzene is a known human carcinogen by all routes of 
exposure. Respiration is the major source of human exposure. At least 
half of this exposure is by way of gasoline vapors and automotive 
emissions. Long-term exposure to high levels of benzene in air has been 
shown to cause cancer of the tissues that form white blood cells. Among 
these are acute nonlymphocytic3 leukemia, chronic lymphocytic leukemia 
and possibly multiple myeloma (primary malignant tumors in the bone 
marrow), although the evidence for the latter has decreased with more 
recent studies.
    1,3-Butadiene is formed in vehicle exhaust by the incomplete 
combustion of the fuel. It is not present in vehicle evaporative and 
refueling emissions, because it is not present in any appreciable 
amount in gasoline. 1,3-Butadiene accounts for 0.4 to 1.0 percent of 
total exhaust TOG, depending on control technology and fuel 
composition. As discussed more fully in the Regulatory Impact 
Assessment for this rulemaking, 1,3-Butadiene was classified by EPA as 
a Group B2 (probable human) carcinogen in 1985. This classification was 
based on evidence from two species of rodents and epidemiologic data. 
EPA recently prepared a draft assessment that would determine 
sufficient evidence exists to propose that 1,3-butadiene be classified 
as a known human carcinogen.

B. Cost and Cost-Effectiveness

    We have calculated the cost-effectiveness of the Phase 2 standards 
contained in today's action by estimating costs and emission benefits 
for these engines. We made our best estimates of the combination of 
technologies that engine manufacturers might use to meet the new 
standards, best estimates of resultant changes to equipment design, 
engine manufacturer compliance program costs, and fuel savings in order 
to assess the expected economic impact of the final Phase 2 emission 
standards for handheld engines. Emission benefits are taken

[[Page 24297]]

from the results of the environmental benefit assessment (see section 
III.A. above). The cost of this rule will be approximately $180 million 
annually, the result of adding manufacturer costs ranging from 
approximately $20 for a typical low cost residential string trimmer to 
approximately $56 for a typical piece of commercial equipment. The 
resulting cost-effectiveness of the Phase 2 standards is approximately 
$830 per ton of HC+NOX if fuel savings are not taken into 
account. If fuel savings are considered as a credit against cost, the 
cost-effectiveness calculation results in approximately $560 per ton of 
HC+NOX. This section describes the background and analysis 
behind these results.
    In the July 1999 SNPRM, we requested comment on our cost analysis 
and any relevant information that would assist us in revising the 
analysis as appropriate. Comments on this topic were received by 
Husqvarna/FHP who had hired NERA to perform a study of the incremental 
cost and cost effectiveness using our cost data and industry-supplied 
cost data, separately. NERA performed a cost benefit analyses for each 
set of standards, those being proposed (50-50-72 (g/kW-hr)) and those 
in an alternative set (72-72-87 (g/kW-hr)). NERA performed the analysis 
on a class basis (Classes IV and V separately) and incrementally from 
Phase 1 to 72-72-87 and from 72-72-87 to 50-50-72 based on the 
technology development situation of Husqvarna/FHP. NERA significantly 
underestimated the benefits of this rule due to differences in modeling 
assumptions NERA used compared to EPA's current NONROAD model. 
Additionally, some of NERA's cost estimates were higher than estimates 
documented in greater detail by other sources (including manufacturers) 
and which formed the basis for our cost analysis. NERA also submitted a 
list of questions on our SNPRM cost analysis requesting clarification 
on a number of items. A list of these questions and our responses are 
listed in the Summary and Analysis of Comments document in the docket. 
The estimates of cost and cost effectiveness we have made for this 
rulemaking are calculated on the basis of the standards finalized in 
this rulemaking (50 g/kW-hr in Classes III and IV and 72 g/kW-hr in 
Class V) compared to the Phase 1 standards. (For equipment subject to 
the State of California's regulations beginning with the 2000 model 
year, we have estimated the additional costs required to have that 
equipment comply with the more stringent federal when they take effect. 
Similarly, we estimate the emission reductions that would occur for 
these pieces of equipment. This presumes California will not revise its 
standards in the meantime.)
    Nevertheless, we have reviewed NERA's analyses and have the 
following responses with regard to several specific points raised by 
the NERA report. With respect to NERA's concerns over licensing fees, 
we have chosen to use the licensing fee schedule published by John 
Deere even though John Deere anticipates agreements with manufacturers 
may result in a lower fee structure. NERA believes we did not include 
the cost of modifying the fuel system when developing the costs of the 
compression wave technology, but we did in fact do so, using 
information supplied by John Deere Consumer Products, the industry 
member with the most experience in developing this technology. The EPA 
costs of adding a catalyst are lower than estimated by NERA which 
apparently used confidential data. The catalyst cost information used 
by EPA is based upon publicly available estimates provided by the 
catalyst industry who should be the best source for accurately 
estimating catalyst costs. Finally, NERA may have assumed the use of 
catalysts in Class V equipment which may have added to their cost 
compared to ours since we do not believe catalysts need be used in 
Class V equipment.
    The analysis for this final rule is based on data from engine 
families certified to our Phase 1 standards, and information on the 
latest technology developments and related emission levels. The 
analysis does not include any production volumes that are covered by 
the California ARB's standards (except to account for the incremental 
costs that will be incurred as manufacturers must certify their non-
pre-empted California engines to meet the more stringent EPA Phase 2 
standards). The California ARB has already begun implementing a second 
round of emission standards for many of these engines prior to these 
federal Phase 2 regulations. Therefore, this analysis only accounts for 
costs for each engine sold outside California and those engines sold in 
California that are not covered by the California ARB rules, such as 
those that California determined are used in farm and construction 
equipment. We assumed that any Phase 1 engine design that would need to 
be modified to meet Phase 2 standards incurred the full cost of that 
modification, including design cost. Similarly, the cost to equipment 
manufacturers was assumed to be fully attributed to this federal rule 
even if an equipment manufacturer would have to make the same 
modifications in response to the California ARB regulations. The 
details of our cost and cost-effectiveness analyses can be found in 
Chapters 4 and 7 of the Final RIA for this rule.
    With regard to the amendments for small SI and marine SI engines 
contained in today's action (as described in section II.G.), we do not 
expect the revisions to increase costs for any entity. In fact, the 
revisions to exempt recreational engines used to propel model aircraft 
will eliminate potential costs under the small SI rule for affected 
manufacturers. The revisions to the handheld definition will provide 
greater flexibility in engine choice to handheld equipment 
manufacturers. The phase-in flexibility being adopted under the marine 
SI rule should reduce adverse economic impacts of that rule on small 
entities. Lastly, the revisions to replacement engine provisions serve 
only to remove a potential unintended benefit that would accrue only to 
importers of replacement engines who were not also engine producers. 
Therefore, because these amendments alter existing provisions, and that 
alteration provides regulatory relief, there are no additional costs to 
original equipment manufacturers associated with the amendments 
contained in today's action.
    We developed costs and emission reductions associated with the 
Phase 1 small SI rule in support of the July 3, 1995 final rulemaking. 
We developed costs and emission reductions associated with the marine 
SI rule in support of the October 4, 1996 rulemaking. We developed 
costs for Phase 2 small SI nonhandheld engines in support of the March 
3, 1999 rulemaking and cost for Phase 2 small SI handheld engines in 
support of today's action. We do not believe the amendments being 
adopted today affect the costs and emission reductions published as 
part of those rulemaking analyses.
1. Class I-A and Class I-B Costs
    No costs for Class I-A are included in this Phase 2 regulation. 
This is due to several factors. First, costs for research and 
development for engines in Class I-A are included in the research and 
development of handheld engine families (i.e., Classes III, IV, and V) 
since they are expected to be the same engine families, but would just 
be allowed to be used in nonhandheld applications. Second, 
certification and PLT testing for these engine families developed for 
use in handheld

[[Page 24298]]

applications will likely be used toward certification for Class I-A. In 
regards to benefits, no benefits for Class I-A engine families were 
estimated due to the anticipated limited use (i.e., small niche 
markets) of these engines in nonhandheld applications. Because no Class 
I engine families currently exist in this displacement range, we do not 
expect any loss in the Phase 2 Class I emission benefits from adoption 
of the Class I-A standards.
    The costs for Class I-B include only certification to the Phase 2 
regulation. Our Phase 1 certification database (as of September 1998) 
indicates there are only three engine families (two of which meet the 
small volume engine family cutoff) that would be certified to this 
class, two are SV engines and one is an OHV engine, all with similar 
emission results for HC+NOx. The engine families can already 
meet the newly adopted emission standards for this class and therefore 
no additional variable costs or fixed costs have been included for 
research and development or production. In addition, the Phase 2 
program allows small volume engine families and manufacturers an option 
to perform PLT. No emission benefits have been included for it is not 
known if all of the engine families in this newly designated 
displacement category will utilize the new class due to the fact that 
these engines must be certified to the California ARB standards (16.1 
g/kW-hr HC+NOx for engines between 60cc and 225cc) if they are to be 
sold in California. Also, the low production estimates for engine 
families in this class are a very small fraction of the overall engine 
sales in this category which make up the benefits for the Phase 2 
nonhandheld engine rulemaking and therefore should have no appreciable 
impact on the emission benefits of the Phase 2 rule for nonhandheld 
engines.
2. Handheld Engine Costs
    The engine cost increase is based on incremental purchase prices 
for new engines and is comprised of variable costs (for hardware, 
assembly time and compliance programs), and fixed costs (for R&D and 
retooling). Variable costs were applied on a per engine basis and fixed 
costs were amortized at seven percent over five years. Engine 
technology cost estimates were based on a study performed by ICF and 
EF&EE in October 1996 entitled ``Cost Study for Phase Two Small Engine 
Emission Regulations'' and cost estimates provided by industry. Details 
of the assumed costs and analysis can be found in Chapters 3, 4, 5, and 
7 of the Final RIA.
    Analysis of the Phase 1 certification database, as of September 
1998, was conducted to determine a potential impact of the Phase 2 
standards on each manufacturer assuming the ABT program would be 
available to engine manufacturers. While the ABT program allows credit 
exchanges across classes, this analysis considered only ABT within each 
class since some manufacturers produce substantially in only one 
handheld class. The assumed schedule for implementing emission 
improvements for a manufacturer's engine families was based on the 
phase in schedule used to develop the fleet average emission standards 
for each engine class (i.e., 25% of production the first year, 50% the 
second year, 75% the third year, and 100% the fourth year, excluding 
any small volume engine families). The cost analysis was updated for 
this final rule with consideration of additional information submitted 
to us by manufacturers.
    The Phase 2 emission standards for this diverse industry will 
impact companies differently depending on a company's current product 
offering and related deteriorated emission characteristics used in 
establishing FELs for use in averaging emissions across engine 
families. Some companies may improve the emission characteristics of 
their large volume engine families to provide credits for their smaller 
volume families. The real world impact on engine manufacturers will 
also be influenced by a manufacturer's ability to reduce the emissions 
from its major impact engine family in light of competition with others 
in the marketplace. For this cost analysis, we have assumed that Class 
III engines will utilize compression wave technology with a catalyst. 
For Class IV, we have assumed manufacturers will primarily use 
compression wave technology with a catalyst on half of their engines, 
and a smaller number of engines will use stratified scavenging with a 
catalyst or 4-stroke technology. We have assumed Class V engines will 
utilize compression wave technology.
3. Handheld Equipment Costs
    In most cases, the companies that manufacture engines for use in 
handheld equipment also manufacture the equipment. There are a small 
number of independent equipment manufacturers which do not make their 
own engines. Due to the overwhelming number of equipment models 
manufactured by engine/equipment manufacturers compared to the small 
number of independent equipment manufacturers, information for this 
analysis was taken from our certification database which contains 
information from the engine/equipment manufacturers on Phase 1 engines. 
Additional information was added from the auger equipment manufacturers 
who have been in touch with us throughout the Phase 2 process. The 
costs for equipment conversion for handheld equipment were derived from 
the ICF/EF&EE cost study \10\ which contains estimates based on the 
engine technology being utilized. Full details of our cost analysis can 
be found in Chapter 4 of the Final RIA. We have assumed that capital 
costs for equipment will be amortized at seven percent over five years.
---------------------------------------------------------------------------

    \10\ ICF and Engine, Fuel and Emissions Engineering, 
Incorporated; ``Cost Study for Phase Two Small Engine Emission 
Regulations'', Draft Final Report, October 25, 1996, in EPA Air 
Docket A-93-29, Item #II-A-04.
---------------------------------------------------------------------------

    The cost analysis for this rulemaking assumes that the bulk of 
Class III through V engines will be converted to either compression 
wave technology or compression wave technology with a catalyst. In 
addition, in Class IV the cost analysis assumes some engines will be 
converted to stratified scavenging with a catalyst or 4-stroke 
technology. The equipment impact was dependent on the split in 
technologies assumed among engines in each engine class since engine 
manufacturers produce almost all of the handheld equipment. The 
equipment design impacts with the compression wave technology with 
catalyst or the stratified scavenging technology with catalyst are 
assumed to include injection mold design change for the engine shroud. 
Modifications to the shroud design would be made to accommodate items 
including cooling patterns for the engine and the muffler/exhaust gas 
temperatures, heat shields, and potentially additional room to 
accommodate a potentially slightly larger carburetor and other related 
fuel system components. Mini 4-strokes require a total redesign of the 
engine shroud, tank placements, etc. for a manufacturer currently 
producing a 2-stroke engine. As noted earlier, this analysis assumes 
that Class III engines will employ compression wave technology with a 
catalyst. The analysis assumes that the bulk of Class IV engines will 
use compression wave technology either with or without a catalyst, and 
a smaller number of Class IV engines will use stratified scavenging 
technology with a catalyst or 4-stroke technology. The analysis assumes 
that Class V engines will utilize compression wave technology. 
Equipment costs are addressed in detail in the Regulatory Impact 
Analysis for this rule and rely

[[Page 24299]]

heavily on analyses conducted by ICF Consulting Group as contracted by 
EPA. These cost estimates were modified if justified by data supplied 
by industry members experienced in producing this equipment.
4. Handheld Operating Costs
    The estimate of total life-cycle operating costs for this final 
rule include any expected decreases in fuel consumption. Life cycle 
fuel cost savings have been calculated per class using the NONROAD 
emission model. The model calculates fuel savings from the years of 
implementation to 2027 and takes into account factors including 
equipment scrappage, projected yearly sales increase per equipment 
type, and engine power. Details on the assumptions and calculations on 
fuel savings are included in Chapters 4 and 7 of the Final RIA.
    Based on information described in Chapter 3 of the Final RIA, a 
fuel consumption savings of 30 percent has been assumed from the 2-
stroke engines as they are converted to compression wave, mini 4-
stroke, or stratified scavenging design with lean combustion. The new 
designs are expected to result in improved fuel economy because they 
may run on a leaner air/fuel mixture with or without improved 
combustion efficiency, and because they may reduce or altogether 
eliminate scavenging with fuel/oil mixture.
5. Cost Per Engine and Cost-Effectiveness
    a. Cost Per Engine. Total costs for today's action will vary per 
year as engine families are phased-in to compliance with the Phase 2 
standards over several years, as capital costs are recovered, and as 
compliance programs are conducted. The term ``uniform annualized cost'' 
is used to express the cost of today's action over the years of this 
analysis.
    The methodology used for estimating the uniform annualized cost per 
unit is as follows. Cost estimates from 1996 and 1997 model years, for 
technology and compliance programs respectively, were estimated and 
increased to 1998 dollars using the GDP Implicit Price deflator (1.9% 
in 1996, 1.9% in 1997 and 1.0% in 1998).\11\ While a number of 
technologies are potentially possible for these engines, the costs for 
three technologies were chosen in order to simplify the estimates of 
the technologies manufacturers will choose to implement in the future 
years. Engine technology costs for engine designs in Class III were 
based on the compression wave technology with a catalyst. Engine 
technology costs for most of the engines in Class IV were based on 
compression wave design with half of those engines using a catalyst, 
and the other half without a catalyst. We assumed compression wave 
technology costs for all engines we have good reason to anticipate will 
use this technology. For some engines we do not know what technology 
option will be used; for these we assume the cost of the compression 
wave technology, including appropriate licensing fees. The costs for 
the compression wave technology were based on comments submitted by 
John Deere. We also assumed a number of Class IV engines would use 
stratified scavenging or 4-stroke technology. The cost estimates for 
the catalyst system were taken from MECA and ICF, for shorter 
durability catalysts. We did not use Echo's cost estimate which was 
higher than the MECA data suggests would be necessary. We believe 
Echo's cost estimate may have been high since their current experience 
is in using catalysts on relatively high emitting Phase 1 engines. The 
cost for the stratified scavenging design with a catalyst was 
separately estimated for that technology again based upon information 
supplied by ICF. The costs for the 4-stroke technology were taken from 
Ryobi's comments on the July 1999 SNPRM. Engine technology costs for 
engine designs in Class V were also based on the compression wave 
technology, however no catalyst cost was applied for it is assumed that 
the Class V standards will not require catalysts. We believe the cost 
estimates used in this analysis, including licensing fee, would be 
similar to the costs of other technologies manufacturers might use to 
comply with the new standards.
---------------------------------------------------------------------------

    \11\ Information obtained from the Bureau of Economic Analysis' 
website (www.bea.doc.gov/bea/dn/niptbl-d.htm#).
---------------------------------------------------------------------------

    Our Phase 1 database was analyzed to determine the number of engine 
families per class that will likely incorporate the emission reduction 
technologies taking into consideration the availability of the proposed 
ABT program. The estimated costs per year are calculated by multiplying 
the number of engine families and corresponding production volume by 
the fixed and variable costs per technology grouping, respectively. The 
variable engine/equipment costs have been marked up using a 29% retail 
markup. All markups are based on industry-specific information from the 
Phase 1 program, additional analyses performed by EPA and consideration 
of the comments received on this item in the docket. For compliance 
program costs, the costs for certification bench aging are estimated 
based on the number of engine families in our Phase 1 database and the 
expected certification date under the phase in of the Phase 2 
standards. To complete the calculation of the uniform annualized cost 
per unit, all of these costs are summed per year and then discounted 
seven percent to the first year of Phase 2 regulation. The yearly costs 
are summed and a uniform annualized cost is calculated. The uniform 
annualized cost is then divided by production at two points in time, 
the first year of full implementation of the Phase 2 standards (i.e., 
2005 for Classes III and IV and 2007 for Class V), and the last year of 
this analysis (i.e., 2027), to obtain two separate uniform annualized 
costs per unit. These two values are presented in Table 6. The total 
cost to industry in the first year (i.e., 2002 model year costs for 
Class III and Class IV engines and equipment and 2004 model year costs 
for Class V engines and equipment) will be substantially less since 
only a portion (approximately 
25%) of the engines need comply with the final standards at that time.
    The yearly fuel savings (tons/yr) per class are calculated by the 
NONROAD model. The yearly fuel savings (tons/yr) are converted to 
savings (in 1998$) through conversion to gallons per year multiplied by 
$0.765 (a 1995 average refinery price of gasoline to end user, without 
taxes) increased to 1998 using the GDP deflator for 1996, 1997 and 
1998. The yearly fuel savings are then calculated by dividing the 
yearly fuel savings by the population of Phase 2 engines in each engine 
class. The reader is directed to Chapter 7 of the Final RIA for more 
details of this analysis.

[[Page 24300]]



                             Table 6.--Cost Per Unit and Yearly Fuel Savings (1998$)
                             (Unit Costs Based on Average Uniform Annualized Costs)
----------------------------------------------------------------------------------------------------------------
                                                                           Cost Per Unit
                                                                 --------------------------------
                                                                    First Full
                          Engine class                             Year (2005 in                    Yearly fuel
                                                                   class III/IV      Long term        savings
                                                                   2007 in class      (2027)
                                                                        V)
----------------------------------------------------------------------------------------------------------------
III.............................................................          $23.00          $16.00           $0.50
IV..............................................................           20.00           14.00            1.70
V...............................................................           56.00           39.00          30.80
----------------------------------------------------------------------------------------------------------------
Note: Nearly all of the handheld industry is vertically integrated. Therefore it is most appropriate to
  acknowledge cost/unit, rather than cost/engine, because the engine and equipment manufacturers are the same in
  nearly all cases.

    b. Cost-Effectiveness. We have estimated the cost-effectiveness 
(i.e., the cost per ton of emission reduction) of the Phase 2 
HC+NOX standards over the typical lifetime of the handheld 
equipment that are covered by today's action. (Both a ``high cost'' 
estimate and a ``mid-cost'' estimate have been prepared and are in the 
RIA; however, we believe the ``mid-cost'' estimate more accurately 
represents reasonable costs to the industry.) We have examined the 
cost-effectiveness by performing a nationwide cost-effectiveness 
analysis in which the net present value of the cost of compliance per 
year is divided by net present value of the HC+NOX benefits. 
The resultant discounted cost-effectiveness is approximately $830/ton 
HC+NOX without fuel savings factored in, and $560 with fuel 
savings taken into consideration. Chapter 7 of the Final RIA contains a 
more detailed discussion of the cost-effectiveness analysis. It should 
be noted that the cost of the compression wave technology used in this 
analysis assumed that other manufacturers would pay the full cost of 
the licensing fee as announced by John Deere in December 1998. As noted 
earlier, no manufacturer has agreed to the licensing fee schedule as 
proposed by John Deere. John Deere suggests that this licensing fee may 
be too high and will be lowered. If the licensing fee is lowered, the 
cost-effectiveness as estimated for the rulemaking would be better.
    The overall cost-effectiveness of this final rule based on 
HC+NOX emission reductions, with fuel savings factored in, 
is shown in Table 7 compared to the cost effectiveness of other nonroad 
rulemakings, which also reflect fuel savings.

   Table 7.--Cost-Effectiveness of the Phase 2 Handheld Engine Standards (With Fuel Savings) Compared to Other
                                                Nonroad Programs
----------------------------------------------------------------------------------------------------------------
               Non-road program                         Cost-effectiveness                   Pollutants
----------------------------------------------------------------------------------------------------------------
Phase 2 Small SI Handheld Engines.............  $560/ton                           HC+NOX
Phase 2 Small SI Nonhandheld Engines..........  -$507/ton                          HC+NOX
Phase 1 Small SI Engines......................  $217/ton                           HC+NOX
Recreational Marine SI Engines................  $1,000/ton                         HC
Tier 2/3 Standards for Nonroad CI Engines.....  $410 to $650/ton                   HC+NOX
----------------------------------------------------------------------------------------------------------------

IV. Public Participation

    The process for developing this final rule provided several 
opportunities for formal public comment. We published an Advance Notice 
of Proposed Rulemaking (ANPRM) on March 27, 1997 (62 FR 14740) which 
announced the signing of two Statements of Principles (SOPs) with the 
small engine industry and several other interested parties. The ANPRM 
and included SOPs outlined possible programs which would increase the 
stringency of the small engine regulations compared to Phase 1 rules. 
Comments were received in response to this ANPRM which, in combination 
with the programs outlined in the ANPRM, formed the basis of the Notice 
of Proposed Rulemaking (NPRM) for Phase 2 standards which was published 
on January 27, 1998 (63 FR 3950). A public hearing was held on February 
11, 1998 during which oral testimony was received on the proposal. 
Written comments were received during the formal comment period for the 
proposal and some additional written comments were received after the 
formal comment period closed. To expand upon comments received during 
the comment period and to address specific questions we had of the 
industry regarding technical feasibility and cost of some options for 
Phase 2 standards, we received additional information after the close 
of the formal comment period and participated in a number of phone 
conversations and meetings with industry representatives for this 
purpose. All of this information that was germane to Phase 2 handheld 
small SI standards, including documentation of phone calls and 
meetings, was included in the public docket for this Phase 2 rulemaking 
(EPA Air Docket A-96-55).
    Subsequent to the close of the comment period for the NPRM, we 
continued to have discussions with industry representatives, primarily 
from the engine industry but also representing suppliers and technology 
developers. Because considerable information was received after the 
formal comment period closed, a Notice of Availability highlighting the 
supplemental information was also published on December 1, 1998 (63 FR 
66081) alerting interested parties to the availability of this 
supplemental information. (Much of this information was relied upon in 
support of the Phase 2 final rule for nonhandheld engines published on 
March 30, 1999 (64 FR 15208).) We continued having discussions with 
various parties regarding the rapid and dramatic advances in low 
emission technologies for handheld engines. In light of this new 
information, and in the interest of providing an opportunity for public 
comment on the stringent levels being

[[Page 24301]]

considered for the Phase 2 handheld engine emission standards and the 
potential technologies available for meeting such standards, we 
reproposed Phase 2 regulations for handheld engines in a SNPRM on July 
28, 1999 (see 64 FR 40940). We held a public hearing on August 17, 1999 
and the formal written comment period closed September 17, 1999. All 
relevant information received, regardless of the date of receipt, was, 
to the maximum extent possible, considered in the development of this 
final rule for the Phase 2 handheld engines.
    The amendments to the small SI and marine SI engine rules contained 
in today's action were proposed on February 3, 1999. We stated in the 
proposal that we would hold a public hearing if requested. No party 
requested a hearing. We provided a sixty-day public comment period, 
during which we received only comments in favor of the proposed 
amendments. These comments are available in the public docket for the 
amendments (EPA Air Docket A-98-16).

V. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866, we must assess whether this regulatory 
action is ``significant'' and therefore subject to Office of Management 
and Budget (OMB) review and the requirements of the Executive Order (58 
FR 51735, Oct. 4, 1993). The order defines ``significant regulatory 
action'' as any regulatory action that is likely to result in a rule 
that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or,
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
Pursuant to the terms of Executive Order 12866, we have determined that 
this rulemaking is a ``significant regulatory action'' because the 
standards and other regulatory provisions are expected to have an 
annual effect on the economy in excess of $100 million. An RIA has been 
prepared and is available in the docket associated with this 
rulemaking. This final rule was submitted to OMB for review as required 
by Executive Order 12866. As required by section 307(d)(4)(B)(ii) of 
the Clean Air Act, the drafts of the final rule submitted for such 
review, any written comments from OMB on the draft rule, all documents 
accompanying such drafts, and written responses thereto are in the 
public docket for this rulemaking.

B. Regulatory Flexibility

    We have determined that it is not necessary to prepare a regulatory 
flexibility analysis in connection with this final rule. We have also 
determined this rule will not have a significant economic impact on a 
substantial number of small entities.
    We have identified industries that would be subject to this rule 
and have contacted small entities and small entity representatives to 
gain a better understanding of the potential impacts of the Phase 2 
handheld engine program on their businesses. This information was 
useful in estimating potential impacts of today's action on affected 
small entities, the details of which are more fully discussed in 
Chapter 8 of the Final RIA. Small entities include small businesses, 
small not-for-profit enterprises, and small governmental jurisdictions. 
Small not-for-profit organizations and small governmental jurisdictions 
are not expected to be impacted by this final rule because they are not 
directly regulated by it. Thus, our impact analysis focuses on small 
businesses. For purposes of the impact analysis, ``small business'' is 
defined by the number of employees, according to published Small 
Business Administration (SBA) definitions. Because handheld equipment 
manufacturers also tend to be the engine manufacturers, which also tend 
to be larger businesses, there are few small business entities involved 
in the analysis.
    However, we desire to minimize, to the extent appropriate, impacts 
on those companies which may be adversely affected, and to ensure that 
the emissions standards are achievable. Thus, flexibility provisions 
for the rule (discussed earlier in section II.D.) were developed based 
on analysis of information we gained through discussions with 
potentially-affected small entities as well as analysis of other 
sources of information, as detailed in Chapters 8 and 9 of the Final 
RIA. Many of the flexibilities in today's action should benefit the 
engine and equipment manufacturers that do qualify as small business 
entities.
    The economic impact of the rule on small entity engine and 
equipment manufacturers was evaluated using a ``sales test'' approach 
which calculates annualized compliance costs as a percent of sales 
revenue. The ratio is an indication of the severity of the potential 
impacts. We expect that, at worst, three small entity engine 
manufacturers and five small entity equipment manufacturers would be 
impacted by more than one percent of their sales revenue. Also, no more 
than two small entities would be impacted by more than three percent of 
their annual sales revenue, as indicated by the analysis. This base 
case analysis assumes that manufacturers do not take advantage of the 
flexibilities being offered, but that they would be able to pass 
through most necessary price increases to the ultimate consumer. We 
would thus expect today's final rule to have a minimal impact on small 
business entities.
    However, we are adopting a number of flexibilities to further 
reduce the burden of compliance on any small-volume engine 
manufacturers, small volume equipment manufacturers and manufacturers 
of small-volume engine families and small-volume equipment models. We 
received a number of comments from handheld engine and equipment 
manufacturers, which generally supported the flexibilities contained in 
the July 1999 SNPRM, but which suggested changes in the production caps 
for small volume engine families and small volume equipment models. We 
have incorporated the suggested change to the definition of small 
volume equipment model in this rule, keeping in mind equity and air 
quality considerations. Given these flexibilities being offered to the 
handheld engine and equipment manufacturers, the results of the 
analysis suggest that of those small entities analyzed, only one small 
business engine manufacturer and none of the small business equipment 
manufacturers would likely experience an impact of greater than one 
percent of their sales revenue. In addition, no small business engine 
manufacturers and no small business equipment manufacturers would 
likely experience an impact of greater than three percent of their 
sales revenue. Our other outreach activities have also indicated that 
the impact of today's final rule could be minimized, given sufficient 
lead time to incorporate the new technology with normal model changes. 
Again, we have not attempted to quantify the beneficial impact on small

[[Page 24302]]

volume manufacturers of the lead time provided (which can include 
delaying the impact of these rules up until the 2008 model year for 
Classes III and IV and up until the 2010 model year for Class V).
    Although we believe that the above-mentioned flexibility provisions 
will minimize any adverse impact on small entities (see Chapter 8 of 
the Final RIA), we have already adopted a hardship relief provision for 
nonhandheld engines that would also apply to handheld engines. This was 
developed to further ensure that standards can be achieved without 
undue hardship on the business entities involved. While it is difficult 
to project utilization of such a provision, we expect that it could 
further reduce any possible adverse economic impacts of this final 
rule.
    The results of the impact analysis show minimal impacts on small 
businesses. We expect that such impacts will be negligible if small 
companies take advantage of the above-mentioned flexibilities. Most of 
the small companies contacted considered it likely that they would be 
able to pass most of their cost increases through to their customers. 
Many of these entities are also involved in filling niche markets, and 
are thus in a particularly good position to pass these costs along to 
the ultimate consumers. Finally, the ample lead time contained by 
today's rule should also allow for an orderly transition to the more 
advanced technology.

C. Paperwork Reduction Act

    The information collection requirements in this final rule have 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. We have 
prepared an Information Collection Request (ICR) document (ICR Numbers 
1695.06 and 1845.01) and a copy may be obtained by mail from Sandy 
Farmer at U.S. Environmental Protection Agency, Office of Environmental 
Information, Collection Strategies Division (2822), 1200 Pennsylvania 
Avenue, NW., Washington, DC 20460, by email at [email protected], or 
by calling (202) 260-2740. A copy may also be downloaded off the 
Internet at http://www.epa.gov/icr.
    The information planned to be collected via this final rule is 
necessary to assure that the engine manufacturers required to seek 
certification of their engines have fulfilled all the essential 
requirements of these new regulations. In particular, this information 
will document the design of the engine for which certification is 
sought, the type(s) of equipment in which it is intended to be used and 
the emission performance of these engines based upon testing performed 
by or on behalf of the engine manufacturer. Additional, essential 
information is necessary to document the results of testing performed 
by the manufacturer under the production line testing program to 
determine that the engines, as manufactured continue to have acceptable 
emission performance. Finally, if the manufacturer elects to conduct 
testing of in-use engines under the voluntary in-use testing program, 
information is necessary to document the results of that in-use testing 
program.
    Table 8 provides a listing of the information collection 
requirements associated with the Phase 2 program for nonroad SI 
handheld engines at or below 19 kW along with the appropriate OMB 
control numbers. The cost of this burden has been incorporated into the 
cost estimate for this rule. We have estimated that the public 
reporting burden for the collection of information required under this 
rule would average approximately 87,120 hours annually for the industry 
at an estimated annual cost of $5,360,000. The hours spent by an 
individual manufacturer on information collection activities in any 
given year would be highly dependent upon manufacturer specific 
variables, such as the number of engine families, production changes, 
and emission defects.

                    Table 8.--Public Reporting Burden
------------------------------------------------------------------------
                                                            OMB Control
                   Type of information                          No.
------------------------------------------------------------------------
Certification...........................................       2060-0338
Averaging, banking and trading..........................       2060-0338
Production line testing.................................             N/A
Pre-certification and testing exemption.................       2060-0007
Selective enforcement audit.............................       2060-0295
Engine exclusion determination..........................       2060-0124
Emission defect information.............................       2060-0048
Importation of nonconforming engines....................       2060-0294
------------------------------------------------------------------------

    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for our 
regulations are listed in 40 CFR part 9 and 48 CFR chapter 15.

D. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act'') requires that we prepare a budgetary impact statement 
before promulgating a rule that includes a Federal mandate that may 
result in expenditure by State, local, and tribal governments, in 
aggregate, or by the private sector, of $100 million or more in any one 
year. Section 203 requires us to establish a plan for obtaining input 
from and informing, educating, and advising any small governments that 
may be significantly or uniquely affected by the rule.
    Under section 205 of the Unfunded Mandates Act, we must identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a regulatory budgetary impact statement 
must be prepared. We must select from those alternatives the least 
costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule, unless we explain why this 
alternative is not selected or the selection of this alternative is 
inconsistent with law.
    Because this final rule is estimated to result in the expenditure 
by State, local and tribal governments or the private sector of greater 
than $100 million in any one year, we have prepared a regulatory impact 
statement and have addressed the selection of the least costly, most 
cost-effective or least burdensome alternative. While this final rule 
does not impose enforceable obligations on State, local, and tribal 
governments, because they do not produce small SI handheld engines or 
equipment, we have estimated the final rule to cost the private sector 
an annualized cost of approximately $180 million per year (over the 20 
year period from 2002 to 2021). Because small governments would not be 
significantly or uniquely affected by this rule, we are not required to 
develop a plan with regard to small governments.

[[Page 24303]]

    The impact statement under Section 202 of the Unfunded Mandates Act 
must include: (1) A citation of the statutory authority under which the 
rule is adopted; (2) an assessment of the costs and benefits of the 
rule including the effect of the mandate on health, safety and the 
environment; (3) where feasible, estimates of future compliance costs 
and disproportionate impacts upon particular geographic or social 
segments of the nation or industry; (4) where relevant, an estimate of 
the effect on the national economy; and (5) a description of our 
consultation with State, local, and tribal officials. Because this 
final rule is estimated to impose costs to the private sector in excess 
of $100 million per year, it is considered a significant regulatory 
action. Therefore, we have prepared the following statement with 
respect to Sections 202 through 205 of the Unfunded Mandates Act.
    EPA believes that today's rule represents the least costly, most 
cost-effective approach to achieve the air quality goals of the rule. 
The analysis required by the UMRA is discussed below, and in sections 
II.A.-D. and III.A.-B. of today's final rule notice and in the Final 
RIA. See the ``Administrative Designation and Regulatory Analysis'' 
section in today's notice for further information regarding these 
analyses.
1. Statutory Authority
    This rule adopts standards for emissions of HC+NOX and 
CO from small nonroad SI handheld engines pursuant to section 213 of 
the Clean Air Act. Section 216 defines the terms ``nonroad engine'' and 
``nonroad vehicle.'' Section 213(a)(3) requires these standards to 
achieve the greatest degree of emission reduction achievable through 
the application of technology which the Administrator determines will 
be available for the engines or vehicles to which such standards apply, 
giving appropriate consideration to the cost of applying such 
technology within the period of time available to manufacturers and to 
noise, energy, and safety factors associated with the application of 
such technology. Section 213(b) requires the standards to take effect 
at the earliest possible date considering the lead time necessary to 
permit the development and application of the requisite technology, 
giving appropriate consideration to the cost of compliance within such 
period and energy and safety. Section 213(d) provides that the 
standards shall be subject to sections 206, 207, 208 and 209 of the 
CAA, with such modifications of the applicable regulations implementing 
such sections as the Administrator deems appropriate, and shall be 
enforced in the same manner as standards prescribed under Section 202. 
Therefore, the statutory authority for this rule is as follows: 
sections 202, 203, 204, 205, 206, 207, 208, 209, 213, 215, 216, and 
301(a) of the Clean Air Act, as amended. Moreover, this final rule is 
being issued pursuant to a court order entered in Sierra Club v. 
Browner, No. 93-0124 and consolidated cases (D.D.C.).
2. Social Costs and Benefits
    The social costs and benefits of this final rule are discussed in 
sections III.A. and III.B. of this final rule, and in Chapters 6 
through 7 of the Final RIA. Those discussions are incorporated into 
this statement by reference.
3. Effects on the National Economy
    As stated in the Unfunded Mandates Act, macroeconomic effects tend 
to be measurable, in nationwide economic models, only if the economic 
effect of the regulation reaches 0.25 to 0.5 percent of gross domestic 
product (in the range of $15 billion to $30 billion). A regulation with 
a smaller aggregate effect is highly unlikely to have any measurable 
impact in macroeconomic terms unless it is highly focused on a 
particular geographic region or economic sector. Because the economic 
impact of this final rule for small SI handheld engines is expected to 
be far less than these thresholds, no estimate of this rule's effect on 
the national economy has been conducted.
4. Consultation with Government Officials
    Today's final rule would not create a mandate on State, local or 
tribal governments, since it would not impose any enforceable duties on 
these entities who do not produce small SI handheld engines or 
equipment. Thus, we did not consult with State, local or tribal 
governments in the context of discussing mandated costs that would 
apply to such governments. However, we did consult with state 
governmental representatives, and with representatives of associations 
representing state air regulatory agencies, in the contexts of 
developing the most stringent achievable regulations and of addressing 
state ozone attainment needs. The consulted entities include the 
California ARB and the Northeast States for Coordinated Air Use 
Management (NESCAUM). These consultations are documented in the record 
for this rule, and are reflected in the March 1997 ANPRM, the January 
1998 NPRM, the December 1998 Notice of Availability, the recently 
finalized Phase 2 rule for nonhandheld small SI engines and equipment, 
the July 1999 SNPRM, and today's final rule.
5. Regulatory Alternatives Considered
    To ensure the cost-effectiveness of this final rule and still 
fulfill the intent of the Clean Air Act, we have adopted numerous 
flexibility provisions that we expect will reduce the burden of the 
Phase 2 program for small volume engine and equipment manufacturers and 
manufacturers of small volume equipment models and engine families. The 
flexibility provisions are discussed in section II.D. of today's final 
rule. Moreover, the technological options considered for the final 
rule's standards and related provisions are discussed in section II.A. 
of today's action. Section II.B. discusses the ABT program, and section 
II.C. discusses the compliance program for Phase 2 handheld engines.
    Throughout this rulemaking process, we have considered numerous 
alternatives regarding the central aspects of the Phase 2 program, 
including stringency levels of the standards, phase in lead time 
periods, compliance and testing provisions, ABT provisions, and 
flexibility provisions. During this process, we have also considered 
the costs and benefits of adopting a program that consisted of these 
alternative approaches. In addition to the sections of today's notice 
mentioned above that discuss our final rule's provisions, these 
alternatives have been addressed in the following documents contained 
in the rulemaking record: For discussions of alternative levels of 
standards, see sections E and O in the SOP for handheld engines in 
Appendix A to the ANPRM, 62 FR 14740 (March 27, 1997); sections III.A.2 
and IV.A of the January 27, 1998, NPRM (63 FR 3950); and sections I.B 
and II.A.2 of the July 28, 1999, SNPRM (64 FR 40940). Discussions of 
alternative phase in lead time periods are located in section C of 
Appendix A to the ANPRM; sections III.A.2 and IV.A of the NPRM; and 
sections I.B and II.A.2 of the SNPRM. For alternatives regarding 
compliance and testing provisions, including the ABT program, see 
sections G-J and section M of Appendix A to the ANPRM; sections III.B 
and IV.B-D of the NPRM; and sections I.B and II.B-C of the SNPRM. 
Alternative provisions for flexibilities are in section L of Appendix A 
to the ANPRM; section IV.E of the NPRM; and section II.D of the SNPRM. 
Assessments of costs and benefits of alternative approaches to the 
program that we anticipated at different stages of development of the 
rule are located in sections V, VI, and VIII of the NPRM; sections 
III.A-B and V of the

[[Page 24304]]

SNPRM; and in the draft RIAs for the NPRM and SNPRM. As stated above, 
having considered these alternatives over the course of the rulemaking, 
in EPA's view the final program is the least costly and most cost-
effective rule that achieves the objectives of section 213(a)(3) of the 
Clean Air Act.

E. 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. We 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). This rule will be 
effective June 26, 2000.

F. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law No. 104-113, Section 12(d) (15 
U.S.C. 272 note), directs us to use voluntary consensus standards in 
its regulatory activities unless doing so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (e.g., materials specifications, test methods, 
sampling procedures, and business practices) that are developed or 
adopted by voluntary consensus standards bodies. The NTTAA directs us 
to provide Congress, through OMB, explanations when we decide not to 
use available and applicable voluntary consensus standards.
    This final rule involves technical standards. While commenters on 
the January 1998 NPRM suggested the use of ISO 8178 test procedures for 
measuring emissions, we have decided not to adopt the ISO procedures in 
this final rule. We believe that these procedures would be impractical 
because they rely too heavily on reference testing conditions. Since 
the test procedures in these regulations will need to be used not only 
for certification, but also for production line testing, selective 
enforcement audits, and voluntary in-use testing, we believe they must 
be broadly based. In-use testing is best done outside tightly 
controlled laboratory conditions so as to be representative of in-use 
conditions. We believe that the ISO procedures are not sufficiently 
broadly usable in their current form for this program, and therefore 
should not be adopted by reference. We are instead continuing to rely 
on the procedures outlined in 40 CFR part 90. We are hopeful that 
future ISO test procedures will be developed that are usable for the 
broad range of testing needed, and that such procedures could be 
adopted by reference at that point.

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

    Executive Order 13045, entitled ``Protection of Children from 
Environmental Health Risks and Safety Risks'' (62 FR 19885, April 23, 
1997), applies to any rule that: (1) Was initiated after April 21, 1997 
or for which a Notice of Proposed Rulemaking was published after April 
21, 1998; (2) is determined to be ``economically significant'' as 
defined under Executive Order 12866; and (3) concerns an environmental 
health or safety risk that we have reason to believe may have a 
disproportionate effect on children. If the regulatory action meets all 
three criteria, we must evaluate the environmental health or safety 
effects of the planned rule on children, and explain why the planned 
regulation is preferable to other potentially effective and reasonably 
feasible alternatives we considered.
    This final rule is not subject to Executive Order 13045, because 
substantive actions were initiated before April 21, 1997 and we 
published a Notice of Proposed Rulemaking before April 21, 1998. This 
final rule is also not subject to Executive Order 13045 because it does 
not involve decisions on environmental health or safety risks that may 
disproportionately affect children.

H. 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.
    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. Today's final rule will not 
impose any enforceable duties on these entities, because they do not 
produce small SI handheld engines or equipment. 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, we did 
consult with officials from the State of California in developing this 
rule. The State of California also regulates small SI engines and the 
purpose of the consultations was to develop harmonized requirements, to 
the extent possible, between our Phase 2 program for small SI handheld 
engines and California's program for the same engines.
    Under section 209(e)(2) of the Clean Air Act, the State of 
California may adopt and enforce standards and other requirements 
relating to the control of emissions from new nonroad engines or 
vehicles if California determines that its standards will be, in the 
aggregate, at least as protective of public health and welfare as 
applicable federal standards. In such cases, other states may adopt and 
enforce standards that are identical to California's. Therefore, 
today's final rule does preempt state and local law to the extent 
provided by section 209(e)(2). Although this rule was proposed before 
the November 2, 1999, effective date of Executive Order 13132, we 
provided state and local officials notice and an opportunity for 
appropriate participation when we published the January 1998 NPRM and 
July 1999 SNPRM. Thus, we have complied with the requirements of 
section 4 of the Executive Order.

[[Page 24305]]

I. Executive Order 13084: Consultation and Coordination With Indian 
Tribal Governments

    Under Executive Order 13084, we 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 we consult with those 
governments. If we comply by consulting, Executive Order 13084 requires 
us to provide to the Office of Management and Budget a description of 
the extent of our prior consultation with representatives of affected 
tribal governments and a statement supporting the need to issue the 
regulation. In addition, Executive Order 13084 requires us 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 final rule will not significantly or uniquely affect the 
communities of Indian tribal governments because it will not impose any 
enforceable obligations on them. Accordingly, the requirements of 
section 3(b) of Executive Order 13084 do not apply to this final rule.

VI. Statutory Authority

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

List of Subjects

40 CFR Part 90

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

40 CFR Part 91

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

    Dated: March 1, 2000.
Carol M. Browner,
Administrator.

    For the reasons set out in the preamble, title 40, chapter I of the 
Code of Federal Regulations is amended as follows:

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

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

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

Subpart A--General

    2. Section 90.1 is amended by adding a sentence to the end of 
paragraph (a) and by revising paragraph (b)(5)(iv) to read as follows:


Sec. 90.1  Applicability.

    (a) * * * To the extent permitted by other parts of this chapter, 
this part may, at the engine manufacturer's option, apply to engines 
with gross power output greater than 19 kW that have an engine 
displacement of less than or equal to one liter:
    (b) * * *
    (5) * * *
    (iv) The engine does not meet the criteria to be categorized as a 
Class III, IV or V engine, as indicated in Sec. 90.103, except for 
cases where the engine will be used only to propel a flying vehicle 
forward, sideways, up, down or backward through air;
* * * * *
    3. Section 90.3 is amended by:
    a. Revising the definition of ``Handheld equipment engine''.
    b. Adding the words ``handheld and'' immediately preceding the word 
``nonhandheld'' in the definition of ``Phase 2 engine''.
    c. Adding the words ``any handheld engine family or'' immediately 
preceding the words ``any nonhandheld engine family'' in the definition 
of ``Small volume engine family''.
    d. Adding a sentence to the end of the definitions of ``Small 
volume engine manufacturer,'' ``Small volume equipment manufacturer'' 
and ``Small volume equipment model''.
    The revisions and additions read as follows:


Sec. 90.3  Definitions.

* * * * *
    Handheld equipment engine means a nonroad engine that meets the 
requirements specified in Sec. 90.103(a)(2)(I) through (v).
* * * * *
    Small volume engine manufacturer * * * For handheld engines, the 
term small volume engine manufacturer means any engine manufacturer 
whose total eligible production of handheld engines are projected at 
the time of certification of a given model year to be no more than 
25,000 handheld engines.
    Small volume equipment manufacturer * * * For handheld equipment, 
the term small volume equipment manufacturer has the same meaning 
except that it is limited to 25,000 pieces of handheld equipment rather 
than 5,000 pieces of nonhandheld equipment.
    Small volume equipment model * * * For handheld equipment, the term 
small volume equipment model has the same meaning except that it is 
limited to 5,000 pieces of handheld equipment, rather than 500 pieces 
of nonhandheld equipment.
* * * * *

Subpart B--Emission Standards and Certification Provisions

    4. Section 90.103 is amended by:
    a. Revising the heading for Table 2 in paragraph (a) introductory 
text.
    b. Adding two new entries in numerical order to Table 2 in 
paragraph (a) introductory text.
    c. Adding Table 4 in numerical order to paragraph (a) introductory 
text.
    d. Removing the period at the end of paragraph (a)(2)(iv) and 
adding a semicolon in its place.
    e. Adding paragraph (a)(2)(v).
    f. Revising the first and last sentences in paragraph (a)(6).
    g. Revising the first and last sentences in paragraph (a)(7).
    The revisions and additions read as follows:


Sec. 90.103  Exhaust emission standards.

    (a) * * *

[[Page 24306]]



              TABLE 2.--Phase 2 Class I-A, Class I-B, and Class I Engine Exhaust Emission Standards
                                            (grams per kilowatt-hour)
----------------------------------------------------------------------------------------------------------------
             Engine class                   HC+NOX         NMHC+NOX           CO             Effective date
----------------------------------------------------------------------------------------------------------------
    *                   *                    *                    *                    *                    *
                                                             *
I-A...................................              50                             610  2001 Model Year.
I-B...................................              40              37             610  2001 Model Year.
 
----------------------------------------------------------------------------------------------------------------

* * * * *

                       TABLE 4.--Phase 2 Handheld Exhaust Emission Standards by Model Year
                                            [grams per kilowatt-hour]
----------------------------------------------------------------------------------------------------------------
                                                                                 Model year
                                                           -----------------------------------------------------
            Engine class              Emission requirement                                                 2007
                                                              2002     2003     2004     2005     2006     and
                                                                                                          later
----------------------------------------------------------------------------------------------------------------
Class III..........................  HC+NOX...............      238      175      113       50       50       50
                                     CO...................      805      805      805      805      805      805
Class IV...........................  HC+NOX...............      196      148       99       50       50       50
                                     CO...................      805      805      805      805      805      805
Class V............................  HC+NOX...............                        143      119       96       72
                                     CO...................                        603      603      603      603
----------------------------------------------------------------------------------------------------------------

* * * * *
    (2) * * *
    (v) Where a piece of equipment otherwise meeting the requirements 
of paragraph (a)(2)(iii) or (a)(2)(iv) of this section exceeds the 
applicable weight limit, emission standards for class III, IV or V, as 
applicable, may still apply if the equipment exceeds the weight limit 
by no more than the extent necessary to allow for the incremental 
weight of a four stroke engine or the incremental weight of a two 
stroke engine having enhanced emission control acceptable to the 
Administrator. Any manufacturer utilizing this provision to exceed the 
subject weight limitations shall maintain and make available to the 
Administrator upon request, documentation to substantiate that the 
exceedance of either weight limitation is a direct result of 
application of a four stroke or enhanced two stroke engine having the 
same, less or very similar power to two stroke engines that could 
otherwise be used to power the equipment and remain within the weight 
limitations.
* * * * *
    (6) In lieu of certifying to the applicable Phase 2 standards, 
small volume engine manufacturers as defined in this part may, at their 
option, certify their engine families as Phase 1 engines until the 2010 
model year for nonhandheld engine families excluding Class I-A and 
Class I-B engine families, until the 2008 model year for Class III and 
Class IV engine families, and until the 2010 model year for Class V 
engine families. * * * Beginning with the 2010 model year for 
nonhandheld engine families, the 2008 model year for Class III and 
Class IV engine families, and the 2010 model year for Class V engine 
families, these engines must meet the applicable Phase 2 standards.
    (7) In lieu of certifying to the applicable Phase 2 standards, 
manufacturers of small volume engine families, as defined in this part 
may, at their option, certify their small volume engine families as 
Phase 1 engines until the 2010 model year for nonhandheld engine 
families excluding Class I-A and Class I-B engine families, until the 
2008 model year for Class III and Class IV engine families, and until 
the 2010 model year for Class V engine families. * * * Beginning with 
the 2010 model year for nonhandheld engine families, the 2008 model 
year for Class III and Class IV engine families, and the 2010 model 
year for Class V engine families, these engines must meet the 
applicable Phase 2 standards.
* * * * *

    5. Section 90.104 is amended by:
    a. Revising paragraph (g)(1).
    b. Removing the reference ``90.104(g)(3)'' in the last column of 
Table 1 of paragraph (g)(2) and adding the reference ``90.104(g)(4)'' 
in its place.
    c. Redesignating paragraph (g)(3) as paragraph (g)(4).
    d. Adding new paragraph (g)(3).
    e. Revising the newly designated paragraph (g)(4).
    f. Revising the introductory text of paragraph (h)(2).
    The revisions and addition read as follows:


Sec. 90.104  Compliance with emission standards.

* * * * *
    (g)(1) Small volume engine manufacturers and small volume engine 
families may, at their option, take deterioration factors for 
HC+NOX (NMHC+NOX) and CO from Table 1 or Table 2 
of this paragraph (g), or they may calculate deterioration factors for 
HC+NOX (NMHC+NOX) and CO according to the process 
described in paragraph (h) of this section. For technologies that are 
not addressed in Table 1 or Table 2 of this paragraph (g), the 
manufacturer may ask the Administrator to assign a deterioration factor 
prior to the time of certification. The provisions of this paragraph 
(g) do not apply to Class I-A and Class I-B engines.
* * * * *
    (3) Table 2 follows:

[[Page 24307]]



 Table 2.--Handheld Engine HC+NOX and CO Assigned Deterioration Factors for Small Volume Manufacturers and Small
                                             Volume Engine Families
----------------------------------------------------------------------------------------------------------------
                                         Two-stroke engines1       Four-stroke engines
            Engine class             ----------------------------------------------------      Engines with
                                         HC+NOX         CO         HC+NOX         CO          aftertreatment
----------------------------------------------------------------------------------------------------------------
Class III...........................          1.1          1.1          1.5          1.1  Dfs must be calculated
                                                                                           using the formula in
                                                                                           Sec.  90.104(g)(4).
Class IV............................          1.1          1.1          1.5          1.1
Class V.............................          1.1          1.1          1.5         1.1
----------------------------------------------------------------------------------------------------------------
1 Two-stroke technologies to which these assigned deterioration factors apply include conventional two-strokes,
  compression wave designs, and stratified scavenging designs.

    (4) Formula for calculating deterioration factors for engines with 
aftertreatment:

DF = [(NE * EDF)-(CC * F)]/(NE-CC)

Where:

DF = deterioration factor.
NE = new engine emission levels prior to the catalyst (g/kW-hr)
EDF = deterioration factor for engines without catalyst as shown in 
Table 1 or Table 2 of this paragraph (g)
CC = amount converted at 0 hours in g/kW-hr.
F = 0.8 for HC (NMHC), 0.0 for NOX, and 0.8 for CO for all 
classes of engines.
    (h) * * *
    (2) For engines not using assigned dfs from Table 1 or Table 2 of 
paragraph (g) of this section, dfs shall be determined as follows:
* * * * *

    6. Section 90.105 is amended by adding a sentence to the end of 
paragraph (a)(1), by adding two entries in numerical order to Table 1 
of paragraph (a)(2), and adding new paragraphs (a)(3) and (a)(4) to 
read as follows:


Sec. 90.105  Useful life periods for Phase 2 engines.

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

         Table 1: Useful Life Categories for Nonhandheld Engines
                                 [hours]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
 
Class I-A....................................       50      125      300
Class I-B....................................      125      250      500
 
                 *        *         *        *        *
------------------------------------------------------------------------

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

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

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


Sec. 90.107  Application for certification.

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

    8. Section 90.114 is amended by revising paragraph (f)(1), by 
adding a new paragraph (f)(2), and by revising paragraph (f)(3) to read 
as follows:


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

* * * * *
    (f) * * *
    (1) For nonhandheld engines: The Emissions Compliance Period 
referred to on the Emissions Compliance label indicates the number of 
operating hours for which the engine has been shown to meet Federal 
emission requirements. For engines less than 66 cc, Category C=50 
hours, B=125 hours, and A=300 hours. For engines equal to or greater 
than 66 cc but less than 225 cc displacement, Category C=125 hours, 
B=250 hours, and A=500 hours. For engines of 225 cc or more, Category 
C=250 hours, B=500 hours, and A=1000 hours.
    (2) For handheld engines: The Emissions Compliance Period referred 
to on the Emissions Compliance label indicates the number of operating 
hours for which the engine has been shown to meet Federal emission 
requirements. Category C=50 hours, B=125 hours, and A=300 hours.
    (3) The manufacturer must provide, in the same document as the 
statement in paragraph (f)(1) or (f)(2) of this section, a statement of 
the engine's displacement or an explanation of how to readily determine 
the engine's displacement. The Administrator may approve alternate 
language to the statement in paragraph (f)(1) or (f)(2) of this 
section,

[[Page 24308]]

provided that the alternate language provides the ultimate purchaser 
with a clear description of the number of hours represented by each of 
the three letter categories for the subject engine's displacement.

    9. Section 90.116 is amended by redesignating paragraphs (b)(1) 
through (b)(5) as paragraphs (b)(3) through (b)(7), respectively, and 
by adding new paragraphs (b)(1) and (b)(2), and revising newly 
designated paragraphs (b)(3) and (b)(4) to read as follows:


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

* * * * *
    (b)* * *
    (1) Class I-A--nonhandheld equipment engines less than 66 cc in 
displacement;
    (2) Class I-B--nonhandheld equipment engines greater than or equal 
to 66 cc but less than 100 cc in displacement;
    (3) Class I--nonhandheld equipment engines greater than or equal to 
100 cc but less than 225 cc in displacement;
    (4) Class II--nonhandheld equipment engines greater than or equal 
to 225 cc in displacement;
* * * * *

    10. Section 90.119 is amended by revising paragraphs (a)(1)(i) and 
(a)(1)(ii) to read as follows:


Sec. 90.119  Certification procedure--testing.

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

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

    11. Section 90.203 is amended by revising paragraphs (e)(1), 
(e)(3), (e)(5), paragraph (f), paragraph (g)(1), and the second 
sentence of paragraph (h) to read as follows:


Sec. 90.203  General provisions.

* * * * *
    (e)(1) A manufacturer may certify engine families at Family 
Emission Limits (FELs) above or below the applicable emission standard 
subject to the limitation in paragraph (f) of this section, provided 
the summation of the manufacturer's projected balance of credits from 
all credit transactions for all engine classes in a given model year is 
greater than or equal to zero, as determined under Sec. 90.207 or 
Sec. 90.216, as applicable.
* * * * *
    (3) A nonhandheld engine family with an FEL below the applicable 
emission standard may generate positive emission credits for averaging, 
banking, or trading, or a combination thereof. A handheld engine family 
with an FEL below the applicable emission standard may generate 
positive emission credits for averaging or trading. A handheld engine 
family meeting the requirements of Sec. 90.205(a)(4) or (5), whichever 
is applicable, may generate positive emission credits for banking.
* * * * *
    (5) In the case of a production line testing (PLT) failure pursuant 
to subpart H of this part, a manufacturer may revise the FEL based upon 
production line testing results obtained under subpart H of this part 
and upon Administrator approval pursuant to Sec. 90.122(d). The 
manufacturer may use credits to cover both past production and 
subsequent production of the engines as needed as allowed under 
Sec. 90.207(c) or Sec. 90.216(c), as applicable.
    (f) No Phase 2 engine family may have a HC + NOX FEL 
that is greater than 32.2 g/kW-hr for Class I engines, 94 g/kW-hr for 
Class I-A engines, 50 g/kW-hr for Class I-B engines, 26.8 g/kW-hr for 
Class II engines, 336 g/kW-hr for Class III engines, 275 g/kW-hr for 
Class IV engines, or 186 g/kW-hr for Class V engines.
    (g)(1) Credits generated in a given model year by an engine family 
subject to the Phase 2 emission requirements may only be used in 
averaging, banking or trading, as appropriate, for any other engine 
family for which the Phase 2 requirements are applicable. Credits 
generated in one model year may not be used for prior model years, 
except as allowed under Sec. 90.207(c) or Sec. 90.216(c), as 
applicable.
* * * * *
    (h) * * * Except as provided in Sec. 90.207(c) or Sec. 90.216(c), 
as applicable, an engine family generating negative credits for which 
the manufacturer does not obtain or generate an adequate number of 
positive credits by that date from the same or previous model year 
engines will violate the conditions of the certificate of conformity. * 
* *
* * * * *

    12. Section 90.204 is amended by removing the word ``nonhandheld'' 
in paragraph (b) and revising paragraph (c) to read as follows:


Sec. 90.204  Averaging.

* * * * *
    (c) Credits used in averaging for a given model year may be 
obtained from credits generated in the same model year by another 
engine family, credits banked in previous model years, or credits of 
the same or previous model year obtained through trading subject to the 
provisions of Sec. 90.205(a). The restrictions of this paragraph 
notwithstanding, credits from a given model year may be used to address 
credit needs of previous model year engines as allowed under 
Sec. 90.207(c).
* * * * *

    13. Section 90.205 is amended by adding new paragraphs (a)(2), 
(a)(4), (a)(5) and (b)(3), (b)(4), and (b)(5) to read as follows:


Sec. 90.205  Banking.

    (a) * * *
    (2) Beginning with the 2000 model year, a manufacturer of a Class 
I-A or Class I-B engine family with an FEL below the applicable 
emission standard for a given model year may bank credits in that model 
year for use in averaging and trading.
* * * * *
    (4) For the 2002 through 2004 model years, a manufacturer of a 
Class III or Class IV engine family may bank credits for use in future 
model year averaging and trading from only those Class III or Class IV 
engine families with an FEL at or below 72 g/kW-hr. Beginning with the 
2005 model year, a manufacturer of a Class III or Class IV engine 
family with an FEL below the applicable emission standard may generate 
credits for use in future model year averaging and trading.
    (5) For the 2004 through 2006 model years, a manufacturer of a 
Class V engine family may bank credits for use in future model year 
averaging and trading from only those Class V engine families with an 
FEL at or below 87 g/kW-hr. Beginning with the 2007 model year, a 
manufacturer of a Class V engine family with an FEL below the 
applicable emission standard may generate credits for use in future 
model year averaging and trading.
* * * * *
    (b) * * *
    (3) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class III engines, a 
manufacturer may bank early credits for all Class III engines with 
HC+NOX FELs below 72 g/kW-hr. All early credits for Class 
III engines shall be calculated against a HC+NOX level of 
238 g/kW-hr.
    (4) Beginning with the 2000 model year and prior to the applicable 
date

[[Page 24309]]

listed in paragraph (a) of this section for Class IV engines, a 
manufacturer may bank early credits for all Class IV engines with 
HC+NOX FELs below 72 g/kW-hr. All early credits for Class IV 
engines shall be calculated against a HC+NOX level of 196 g/
kW-hr.
    (5) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class V engines, a 
manufacturer may bank early credits for all Class V engines with 
HC+NOX FELs below 87 g/kW-hr. All early credits for Class V 
engines shall be calculated against a HC+NOX level of 143 g/
kW-hr.
* * * * *
    14. Section 90.206 is amended by revising paragraph (c) to read as 
follows:


Sec. 90.206  Trading.

* * * * *
    (c) Traded credits can be used for averaging, banking, or further 
trading transactions, subject to the provisions of Sec. 90.205(a).
* * * * *

    15. Section 90.207 is amended in paragraph (a) by revising the 
first sentence in the definition of ``Load factor'' following the 
equation to read as follows:


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

    (a) * * *

Load Factor = 47 percent (i.e., 0.47) for Test Cycle A and Test Cycle 
B, and 85 percent (i.e., 0.85) for Test Cycle C. * * *
* * * * *
    16. New Secs. 90.212 through 90.220 are added to subpart C to read 
as follows:


Sec. 90.212  Optional transition year averaging, banking, and trading 
program for Phase 2 handheld engines.

    (a) In lieu of the averaging, banking, and trading program 
described in Secs. 90.204 through 90.211, a handheld engine 
manufacturer may, through model year 2010, participate in an optional 
transition year averaging, banking and trading program as described in 
Secs. 90.213 through 90.220.
    (b) Under this optional transition year program, if an engine 
family has an FEL below the applicable standard for that year, it can 
generate emission credits as calculated in Sec. 90.216. These credits 
will be determined by subtracting the engine family's FEL from the 
standard and multiplying by the appropriate adjustment factor selected 
from Tables 1 through 3 in Sec. 90.216. These credits will be 
designated as ``Optional Transition Year'' credits. These credits, as 
adjusted by these factors, may be used in subsequent model years 
through model year 2007 to demonstrate manufacturer compliance with the 
applicable standard. Beginning in model year 2008 and continuing 
through model year 2010, these optional transition credits can be used 
to demonstrate compliance if, prior to the use of any credits, the 
manufacturer's average emission level as calculated using the FELs set 
by the manufacturer is equal to or lower than the manufacturer's 
average emission level using the manufacturer's actual production, but 
substituting values of 72 g/kW-hr for Class III and IV engines, and 87 
g/kW-hr for Class V engines. Manufacturer will choose to participate in 
this optional transition year program each year and for each engine 
family. Manufacturers will notify EPA of their program choice at the 
time they request certification. Once a family has been designated as 
generating credits under either the optional program or the program 
described in Secs. 90.204 through 90.211, the manufacturer may not 
change that program selection for any of the engines of that engine 
family produced under that model year certification approval.


Sec. 90.213  Averaging under the optional program.

    (a) Negative credits from engine families with FELs above the 
applicable emission standard must be offset by positive credits from 
engine families having FELs below the applicable emission standard, as 
allowed under the provisions of this subpart. Averaging of credits in 
this manner is used to determine compliance under Sec. 90.216(b).
    (b) Cross-class averaging of credits is allowed across all classes 
of nonroad spark-ignition handheld engines at or below 19 kW 
participating in the optional transition year program.
    (c) Credits used in averaging for a given model year may be 
obtained from credits generated in the same model year by another 
engine family, credits banked in previous model years, or credits of 
the same or previous model year obtained through trading. The 
restrictions of this paragraph (c) notwithstanding, credits from a 
given model year may be used to address credit needs of previous model 
year engines as allowed under Sec. 90.216(c).
    (d) The use of credits generated under the early banking provisions 
of Sec. 90.214(b) is subject to regulations under this subpart.


Sec. 90.214  Banking under the optional program.

    (a)(1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) For the 2002 through 2004 model years, a manufacturer of a 
Class III or Class IV engine family may bank credits for use in future 
model year averaging and trading from those Class III or Class IV 
engine families with an FEL at or below the applicable standard.
    (5) For the 2004 through 2006 model years, a manufacturer of a 
Class V engine family may bank credits for use in future model year 
averaging and trading from those Class V engine families with an FEL at 
or below the applicable standard.
    (6) Negative credits may be banked only according to the 
requirements under Sec. 90.216(c).
    (b)(1) [Reserved]
    (2) [Reserved]
    (3) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class III engines, a 
manufacturer may bank early credits for all Class III engines with 
HC+NOX FELs below the applicable standard. All early credits 
for Class III engines shall be calculated against a HC+NOX 
level of 238 g/kW-hr.
    (4) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class IV engines, a 
manufacturer may bank early credits for all Class IV engines with 
HC+NOX FELs below the applicable standard. All early credits 
for Class IV engines shall be calculated against a HC+NOX 
level of 196 g/kW-hr.
    (5) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class V engines, a 
manufacturer may bank early credits for all Class V engines with 
HC+NOX FELs below the applicable standard. All early credits 
for Class V engines shall be calculated against a HC+NOX 
level of 143 g/kW-hr.
    (6) Engines certified under the early banking provisions of this 
paragraph are subject to all of the requirements of this part 
applicable to Phase 2 engines.
    (c) A manufacturer may bank actual credits only after the end of 
the model year and after EPA has reviewed the manufacturer's end-of-
year reports. During the model year and before submittal of the end-of-
year report, credits originally designated in the certification process 
for banking will be considered reserved and may be redesignated for 
trading or averaging in the end-of-year report and final report.
    (d) Credits declared for banking from the previous model year that 
have not been reviewed by EPA may be used in averaging or trading 
transactions. However, such credits may be revoked at a later time 
following EPA review of

[[Page 24310]]

the end-of-year report or any subsequent audit actions.


Sec. 90.215  Trading under the optional program.

    (a) An engine manufacturer may exchange emission credits with other 
engine manufacturers in trading.
    (b) Credits for trading can be obtained from credits banked in 
previous model years or credits generated during the model year of the 
trading transaction.
    (c) Traded credits can be used for averaging, banking, or further 
trading transactions.
    (d) Traded credits are subject to the limitations on use for past 
model years, as set forth in Sec. 90.213(c).
    (e) In the event of a negative credit balance resulting from a 
transaction, both the buyer and the seller are liable, except in cases 
involving fraud. Certificates of all engine families participating in a 
negative trade may be voided ab initio pursuant to Sec. 90.123.


Sec. 90.216  Credit calculation and manufacturer compliance with 
emission standards under the optional program.

    (a)(1) For each engine family, HC+NOX 
[NMHC+NOX] certification emission credits (positive or 
negative) are to be calculated according to the following equation and 
rounded to the nearest gram. Consistent units are to be used throughout 
the following equation:

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

Where:

Production = eligible production as defined in this part. Annual 
production projections are used to project credit availability for 
initial certification. Eligible production volume is used in 
determining actual credits for end-of-year compliance determination.
Standard = the current and applicable Small SI engine HC+NOX 
(NMHC+NOX) emission standard in grams per kilowatt hour as 
determined in Sec. 90.103 or, for early credits, the applicable 
emission level as specified in Sec. 90.214(b).
FEL = the family emission limit for the engine family in grams per 
kilowatt hour.
Power = the maximum modal power of the certification test engine, in 
kilowatts, as calculated from the applicable federal test procedure as 
described in this part.
Useful Life = the useful life in hours corresponding to the useful life 
category for which the engine family was certified.
Load Factor = 85 percent (i.e., 0.85) for Test Cycle C. For approved 
alternate test procedures, the load factor must be calculated according 
to the formula in paragraph (a)(2) of this section:
Adjustment Factor = 1.0, except for purposes of calculating credits for 
banking under the optional transition year program, in which case the 
adjustment factor is listed in Table 1, Table 2, or Table 3 of 
paragraph (a)(3) of this section, whichever is applicable, based on the 
model year of the engine and its certified FEL.

    (2) Use the following formula to calculate the load factor in 
paragraph (a)(1) of this section:
[GRAPHIC] [TIFF OMITTED] TR25AP00.002

Where:

%MTT modei = percent of the maximum FTP torque for mode i.
%MTS modei = percent of the maximum FTP engine rotational 
speed for mode i.
WF modei = the weighting factor for mode i.
    (3) Tables 1, 2, and 3 follow:

           Table 1.--Adjustment Factors for Class III Engines
------------------------------------------------------------------------
 Model year 2002 or    Model year 2003     Model year 2004
   earlier engine      engine families     engine families    Adjustment
families with FELs:      with FELs:          with FELs:         factor
------------------------------------------------------------------------
>113 g/kW-hr         >87 g/kW-hr         ..................         0.25
>87-113 g/kW-hr      >72-87 g/kW-hr      >72-87 g/kW-hr             0.50
>72-87 g/kW-hr       >50-72 g/kW-hr      72 g/kW-        1.00
                                          hr
72 g/kW-  50 g/kW- ..................         1.25
 hr                   hr
------------------------------------------------------------------------


            Table 2.--Adjustment Factors for Class IV Engines
------------------------------------------------------------------------
 Model year 2002 or    Model year 2003     Model year 2004
   earlier engine      engine families     engine families    Adjustment
families with FELs:      with FELs:          with FELs:         factor
------------------------------------------------------------------------
>99 g/kW-hr          >87 g/kW-hr         ..................         0.25
>87-99 g/kW-hr       >72-87 g/kW-hr      >72-87 g/kW-hr             0.50
>72-87 g/kW-hr       >50-72 g/kW-hr      72 g/kW-        1.00
                                          hr
72 g/kW-  50 g/kW- ..................         1.25
 hr                   hr
------------------------------------------------------------------------


            Table 3.--Adjustment Factors for Class V Engines
------------------------------------------------------------------------
 Model year 2004 or    Model year 2005     Model year 2006
   earlier engine      engine families     engine families    Adjustment
families with FELs:      with FELs:          with FELs:         factor
------------------------------------------------------------------------
>96 g/kW-hr          ..................  ..................         0.25
>87-96 g/kW-hr       >87 g/kW-hr         >72-87 g/kW-hr             0.50
>72-87 g/kW-hr       >72-87 g/kW-hr      72 g/kW-        1.00
                                          hr
72 g/kW-  72 g/kW- ..................         1.25
 hr                   hr
------------------------------------------------------------------------


[[Page 24311]]

    (b) Manufacturer compliance with the emission standards is 
determined on a corporate average basis at the end of each model year. 
A manufacturer is in compliance when the sum of positive and negative 
emission credits it holds is greater than or equal to zero, except that 
the sum of positive and negative credits may be less than zero as 
allowed under paragraph (c) of this section.
    (c) If, as a result of production line testing as required in 
subpart H of this part, an engine family is determined to be in 
noncompliance pursuant to Sec. 90.710, the manufacturer may raise its 
FEL for past and future production as necessary. Further, a 
manufacturer may carry a negative credit balance (known also as a 
credit deficit) for the subject class and model year and for the next 
three model years. The credit deficit may be no larger than that 
created by the nonconforming family. If the credit deficit still exists 
after the model year following the model year in which the 
nonconformity occurred, the manufacturer must obtain and apply credits 
to offset the remaining credit deficit at a rate of 1.2 grams for each 
gram of deficit within the next two model years. The provisions of this 
paragraph (c) are subject to the limitations in paragraph (d) of this 
section.
    (d) Regulations elsewhere in this part notwithstanding, if an 
engine manufacturer experiences two or more production line testing 
failures pursuant to the regulations in subpart H of this part in a 
given model year, the manufacturer may raise the FEL of previously 
produced engines only to the extent that such engines represent no more 
than 10 percent of the manufacturer's total eligible production for 
that model year, as determined on the date when the FEL is adjusted. 
For any additional engine families determined to be in noncompliance, 
the manufacturer must conduct offsetting projects approved in advance 
by the Administrator.
    (e) If, as a result of production line testing under this subpart, 
a manufacturer desires to lower its FEL it may do so subject to 
Sec. 90.708(c).
    (f) Except as allowed at paragraph (c) of this section, when a 
manufacturer is not in compliance with the applicable emission standard 
by the date 270 days after the end of the model year, considering all 
credit calculations and transactions completed by then, the 
manufacturer will be in violation of these regulations and EPA may, 
pursuant to Sec. 90.123, void ab initio the certificates of engine 
families for which the manufacturer has not obtained sufficient 
positive emission credits.


Sec. 90.217  Certification under the optional program.

    (a) In the application for certification a manufacturer must:
    (1) Submit a statement that the engines for which certification is 
requested will not, to the best of the manufacturer's belief, cause the 
manufacturer to be in noncompliance under Sec. 90.216(b) when all 
credits are calculated for the manufacturer's engine families.
    (2) Declare an FEL for each engine family for HC+NOX 
(NMHC+NOX). The FEL must have the same number of significant 
digits as the emission standard.
    (3) Indicate the projected number of credits generated/needed for 
this family; the projected applicable eligible annual production 
volume, and the values required to calculate credits as given in 
Sec. 90.216.
    (4) Submit calculations in accordance with Sec. 90.216 of projected 
emission credits (positive or negative) based on annual production 
projections for each family.
    (5)(i) If the engine family is projected to have negative emission 
credits, state specifically the source (manufacturer/engine family or 
reserved) of the credits necessary to offset the credit deficit 
according to projected annual production.
    (ii) If the engine family is projected to generate credits, state 
specifically (manufacturer/engine family or reserved) where the 
projected annual credits will be applied.
    (iii) The manufacturer may supply the information required by this 
section in the form of a spreadsheet detailing the manufacturer's 
annual production plans and the credits generated or consumed by each 
engine family.
    (b) All certificates issued are conditional upon manufacturer 
compliance with the provisions of this subpart both during and after 
the model year of production.
    (c) Failure to comply with all provisions of this subpart will be 
considered to be a failure to satisfy the conditions upon which the 
certificate was issued, and the certificate may be determined to be 
void ab initio pursuant to Sec. 90.123.
    (d) The manufacturer bears the burden of establishing to the 
satisfaction of the Administrator that the conditions upon which the 
certificate was issued were satisfied or waived.
    (e) Projected credits based on information supplied in the 
certification application may be used to obtain a certificate of 
conformity. However, any such credits may be revoked based on review of 
end-of-year reports, follow-up audits, and any other verification steps 
considered appropriate by the Administrator.


Sec. 90.218  Maintenance of records under the optional program.

    (a) The manufacturer must establish, maintain, and retain the 
following adequately organized and indexed records for each engine 
family:
    (1) EPA engine family identification code;
    (2) Family Emission Limit (FEL) or FELs where FEL changes have been 
implemented during the model year;
    (3) Maximum modal power for the certification test engine;
    (4) Projected production volume for the model year; and
    (5) Records appropriate to establish the quantities of engines that 
constitute eligible production as defined in Sec. 90.3 for each FEL.
    (b) Any manufacturer producing an engine family participating in 
trading reserved credits must maintain the following records on an 
annual basis for each such engine family:
    (1) The engine family;
    (2) The actual applicable production volume;
    (3) The values required to calculate credits as given in 
Sec. 90.216;
    (4) The resulting type and number of credits generated/required;
    (5) How and where credit surpluses are dispersed; and
    (6) How and through what means credit deficits are met.
    (c) 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 end-of-model year 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.
    (d) Nothing in this section limits the Administrator's discretion 
in requiring the manufacturer to retain additional records, or submit 
information not specifically required by this section, if otherwise 
permitted by law.
    (e) Pursuant to a request made by the Administrator, the 
manufacturer must submit to the Administrator the information that the 
manufacturer is required to retain.
    (f) EPA may, pursuant to Sec. 90.123, void ab initio a certificate 
of conformity for an engine family for which the manufacturer fails to 
retain the records required in this section or to provide such 
information to the Administrator upon request.

[[Page 24312]]

Sec. 90.219  End-of-year and final reports under the optional program.

    (a) End-of-year and final reports must indicate the engine family, 
the engine class, the actual production volume, the values required to 
calculate credits as given in Sec. 90.216, and the number of credits 
generated/required. Manufacturers must also submit how and where credit 
surpluses were dispersed (or are to be banked) and/or how and through 
what means credit deficits were met. Copies of contracts related to 
credit trading must be included or supplied by the broker, if 
applicable. The report must include a calculation of credit balances to 
show that the credit summation for all engines is equal to or greater 
than zero (or less than zero in cases of negative credit balances as 
permitted in Sec. 90.216(c)). For model years 2008 through 2010, the 
report must include a calculation of the production weighted average 
HC+NOX FEL for handheld engine families to show compliance 
with the provisions of Sec. 90.212(b).
    (b) The calculation of eligible production for end-of-year and 
final reports must be based on engines produced for the United States 
market, excluding engines which are subject to state emission standards 
pursuant to a waiver granted by EPA under section 209(e) of the Act. 
Upon advance written request, the Administrator will consider other 
methods to track engines for credit calculation purposes that provide 
high levels of confidence that eligible production or sales are 
accurately counted.
    (c)(1) End-of-year reports must be submitted within 90 days of the 
end of the model year to: Manager, Engine Compliance Programs Group 
(6403-J), U.S. Environmental Protection Agency, Washington, DC 20460.
    (2) Unless otherwise approved by the Administrator, final reports 
must be submitted within 270 days of the end of the model year to: 
Manager, Engine Compliance Programs Group (6403-J), U.S. Environmental 
Protection Agency, Washington, DC 20460.
    (d) Failure by a manufacturer to submit any end-of-year or final 
reports in the specified time for any engines subject to regulation 
under this part is a violation of Sec. 90.1003(a)(2) and section 213(d) 
of the Clean Air Act for each engine.
    (e) A manufacturer generating credits for banking only who fails to 
submit end-of-year reports in the applicable specified time period (90 
days after the end of the model year) may not use the credits until 
such reports are received and reviewed by EPA. Use of projected credits 
pending EPA review is not permitted in these circumstances.
    (f) Errors discovered by EPA or the manufacturer in the end-of-year 
report, including errors in credit calculation, may be corrected in the 
final report.
    (g) If EPA or the manufacturer determines that a reporting error 
occurred on an end-of-year or final report previously submitted to EPA 
under this section, the manufacturer's credits and credit calculations 
must be recalculated. Erroneous positive credits will be void except as 
provided in paragraph (h) of this section. Erroneous negative credit 
balances may be adjusted by EPA.
    (h) If EPA review determines a reporting error in the 
manufacturer's favor (that is, resulting in an increased credit 
balance) or if the manufacturer discovers such an error within 270 days 
of the end of the model year, EPA shall restore the credits for use by 
the manufacturer.


Sec. 90.220  Request for hearing.

    An engine manufacturer may request a hearing on the Administrator's 
voiding of the certificate under Secs. 90.203(h), 90.215(e), 90.216(f), 
90.217(c), or 90.218(f), pursuant to Sec. 90.124. The procedures of 
Sec. 90.125 shall apply to any such hearing.

Subpart D--Emission Test Equipment Provisions

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


Sec. 90.301  Applicability.

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

Subpart E--Gaseous Exhaust Test Procedures

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


Sec. 90.401  Applicability.

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

    18. Section 90.404 is amended by revising paragraph (b) to read as 
follows:


Sec. 90.404  Test procedure overview.

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

    19. Section 90.408 is amended by designating the text in paragraph 
(b)(2) preceding the table as paragraph (b)(2)(i), designating the text 
following the table as paragraph (b)(2)(ii), and revising the table in 
newly designated paragraph (b)(2)(i) to read as follows:


Sec. 90.408  Pre-test procedures.

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

[[Page 24313]]



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

* * * * *

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


Sec. 90.409  Engine dynamometer test run.

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

    21. Section 90.410 is amended by revising paragraph (a), the first 
and third sentences of paragraph (b), and the first sentence of 
paragraph (c) to read as follows:


Sec. 90.410  Engine test cycle.

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

    22. Appendix A to Subpart E of Part 90 is amended in Table 2 by 
revising the table heading, removing the last entry and adding two new 
entries in its place to read as follows:

Apendix A to Subpart E of Part 90 --Tables

* * * * *

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

Subpart H--Manufacturer Production Line Testing Program

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

Subpart K--Prohibited Acts and General Enforcement Provisions

    24. Section 90.1003 is amended by adding paragraph (b)(5)(v), by 
revising the first sentence of paragraph (b)(6)(i) and adding a new 
sentence to the end of paragraph (b)(6)(i), by revising the first two 
sentences of paragraph (b)(6)(ii) and adding a new sentence to the end 
of paragraph (b)(6)(ii), by revising paragraph (b)(6)(iii) introductory 
text, and by adding a new paragraph (b)(7) to read as follows:


Sec. 90.1003  Prohibited acts.

* * * * *
    (b) * * *
    (5) * * *
    (v) In cases where an engine is to be imported for replacement 
purposes under the provisions of this paragraph (b)(5), the term 
``engine manufacturer'' shall not apply to an individual or other 
entity that does not possess a current Certificate of Conformity issued 
by EPA under this part.
    (6)(i) Regulations elsewhere in this part notwithstanding, for 
three model years after the phase-in of each set of Class I through 
Class V Phase 2 standards; i.e. up to and including August 1, 2010 for 
Class I engines, up to and including model year 2008 for Class II 
engines, up to and including model year 2008 for Class III and Class IV 
engines, and up to and including model year 2010 for Class V engines, 
small volume equipment manufacturers as defined in this part, may 
continue to use, and engine manufacturers may continue to supply, 
engines certified to Phase 1 standards (or identified and labeled by 
their manufacturer to be identical to engines previously certified 
under Phase 1 standards), provided the equipment manufacturer has 
demonstrated to the satisfaction of the Administrator that no certified 
Phase 2 engine is available with suitable physical or performance 
characteristics to power a piece of equipment in production prior to 
the initial effective date of Phase 2 standards, as indicated in 
Sec. 90.103(a). * * * These provisions do not apply to Class I-A and 
Class I-B engines.
    (ii) Regulations elsewhere in this part notwithstanding, for the 
duration of the Phase 2 rule in this part, equipment manufacturers that 
produce small volume equipment models, as defined in this part, for a 
Class I model in production prior to August 1, 2007, or a Class II 
model in production prior to the 2001 model year, or a Class III or 
Class IV model in production prior to the 2002 model year, or a Class V 
model in production prior to the 2004 model year, may continue to use 
in that small volume equipment model, and engine

[[Page 24314]]

manufacturers may continue to supply, engines certified to Phase 1 
requirements (or identified and labeled by their manufacturer to be 
identical to engines previously certified under Phase 1 standards). To 
be eligible for this provision, the equipment manufacturer must have 
demonstrated to the satisfaction of the Administrator that no certified 
Phase 2 engine is available with suitable physical or performance 
characteristics to power the small volume equipment model. * * * These 
provisions do not apply to Class I-A and Class I-B engines.
    (iii) An equipment manufacturer which is unable to obtain suitable 
Phase 2 engines and which can not obtain relief under any other 
provision of this part, may, prior to the date on which the 
manufacturer would become in noncompliance with the requirement to use 
Phase 2 engines, apply to the Administrator to be allowed to continue 
using Phase 1 engines, through August 1, 2008 for Class I engines, 
through the 2006 model year for Class II engines, through the 2006 
model year for Class III and Class IV engines, and through the 2008 
model year for Class V engines, subject to the following criteria 
(These provisions do not apply to Class I-A and Class I-B engines.):
* * * * *
    (7) Actions for the purpose of installing or removing altitude kits 
and performing other changes to compensate for altitude change as 
described in the application for certification pursuant to 
Sec. 90.107(d) and approved at the time of certification pursuant to 
Sec. 90.108(a) are not considered prohibited acts under paragraph (a) 
of this section.

Subpart L--Emission Warranty and Maintenance Instructions

    25. Section 90.1103 is amended by adding four sentences to the end 
of paragraph (a) to read as follows:


Sec. 90.1103  Emission warranty, warranty period.

    (a) * * * Manufacturers of handheld engines subject to Phase 2 
standards may apply to the Administrator for approval for a warranty 
period of less than two years for handheld engines that are subject to 
severe service in seasonal equipment and are likely to run their full 
useful life hours in less than two years. Such an application must be 
made prior to certification. Alternatively, manufacturers of handheld 
engines subject to Phase 2 standards may apply to the Administrator for 
approval for a warranty period equal to the useful life of the engine 
or two years, whichever is less, if the equipment in which the engine 
is placed is equipped with a meter for measuring hours of use. Such an 
application must be made prior to certification.
* * * * *

Subpart M--Voluntary In-Use Testing

    26. Section 90.1201 is amended by adding the words ``handheld and'' 
immediately preceding the word ``nonhandheld''.

PART 91--CONTROL OF EMISSIONS FROM MARINE SPARK-IGNITION ENGINES

    27. The authority citation for part 91 is revised to read as 
follows:

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

Subpart C--Averaging, Banking, and Trading Provisions

    28. Section 91.207 is amended by adding paragraph (e) to read as 
follows:


Sec. 91.207  Credit calculation and manufacturer compliance with 
emission standards.

* * * * *
    (e) Notwithstanding other provisions of this part, for model years 
beginning with model year 2000, a manufacturer having a negative credit 
balance during one period of up to four consecutive model years will 
not be considered to be in noncompliance in a model year up through and 
including model year 2009 where:
    (1) The manufacturer has a total annual production of engines 
subject to regulation under this part of 1000 or less; and
    (2) The manufacturer has not had a negative credit balance other 
than in three immediately preceding model years, except as permitted 
under paragraph (c) of this section; and
    (3) The FEL(s) of the family or families produced by the 
manufacturer are no higher than those of the corresponding family or 
families in the previous model year, except as allowed by the 
Administrator; and
    (4) The manufacturer submits a plan acceptable to the Administrator 
for coming into compliance with future model year standards including 
projected dates for the introduction or increased sales of engine 
families having FEL(s) below standard and projected dates for 
discontinuing or reducing sales of engines having FEL(s) above 
standard; and
    (5)(i) The manufacturer has set its FEL using emission testing as 
prescribed in subpart E of this part; or
    (ii) The manufacturer has set its FEL based on the equation and 
provisions of Sec. 91.118(h)(1)(i) and the manufacturer has submitted 
appropriate test data and revised its FEL(s) and recalculated its 
credits pursuant to the provisions of Sec. 91.118(h)(1); or
    (iii) The manufacturer has set its FEL using good engineering 
judgement, pursuant to the provisions of Sec. 91.118(h)(1)(ii) and 
(h)(2).

Subpart L--Prohibited Acts and General Enforcement Provisions

    29. Section 91.1103 is amended by removing the period at the end of 
paragraph (b)(4)(iv) and adding ``; and'' in its place and adding 
paragraph (b)(4)(v) to read as follows:


Sec. 91.1103  Prohibited acts.

* * * * *
    (b) * * *
    (4) * * *
    (v) In cases where an engine is to be imported for replacement 
purposes under the provisions of this paragraph (b)(4), the term 
``engine manufacturer'' does not apply to an individual or other entity 
that does not possess a current Certificate of Conformity issued by EPA 
under this part.

[FR Doc. 00-7887 Filed 4-24-00; 8:45 am]
BILLING CODE 6560-50-U