[Federal Register Volume 67, Number 11 (Wednesday, January 16, 2002)]
[Proposed Rules]
[Pages 2159-2175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1109]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 86

[AMS-FRL-7129-2]
RIN 2060-AJ73


Control of Air Pollution From New Motor Vehicles and New Motor 
Vehicle Engines; Proposed Non-Conformance Penalties for 2004 and Later 
Model Year Emission Standards for Heavy-Duty Diesel Engines and Heavy-
Duty Diesel Vehicles

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: EPA is proposing that nonconformance penalties (NCPs) be made 
available for the 2004 and later model year non-methane hydrocarbons 
and nitrogen oxides (NMHC+NOX) standard for heavy-duty 
diesel engines and vehicles. In general, the availability of NCPs 
allows a manufacturer of heavy-duty engines (HDEs) or heavy-duty 
vehicles (HDVs) (which include heavy light-duty trucks) whose engines 
or vehicles fail to conform with certain applicable emission standards, 
but do not exceed a designated upper limit, to be issued a certificate 
of conformity upon payment of a monetary penalty. The proposed upper 
limit associated with the 2004 emission standard for 
NMHC+NOX is 4.5 grams per brake-horsepower-hour for light 
and medium heavy-duty engines and urban buses, and 6.0 grams per brake-
horsepower-hour for heavy heavy-duty engines.

DATES: Public comment: We must receive your comments by March 18, 2002.
    Public hearing: We will hold a public hearing regarding this 
proposed rule on February 15, 2002, beginning at 10:00 a.m.

ADDRESSES: Comments: We must receive your comments by the date 
indicated under DATES above. Send paper copies of written comments (in 
duplicate if possible) to the contact person listed below. In your 
correspondence, refer to Docket A-2000-30. See Section VI.B for more 
information on comment procedures.
    Public hearing: We will hold a public hearing on February 15, 2002 
at the Washington Dulles Airport Marriott, 45020 Aviation Drive, 
Dulles, Virginia 20166. Phone: (703-471-9500). If you want to testify 
at the hearing, notify the contact person listed below at least ten 
days before the date of the hearing. See Section VI.B for more 
information on the public-hearing procedures.
    Public docket: EPA's Air Docket makes materials related to this 
rulemaking available for review in Docket No. A-2001-30 located at U.S. 
Environmental Protection Agency (EPA), Air Docket (6102), Room M-1500, 
401 M. Street, SW, Washington, DC 20460 (on the ground floor in 
Waterside Mall) from 8 a.m. to 5:30 p.m., Monday through Friday, except 
on government holidays. You can reach the Air Docket by telephone at 
(202) 260-4400. We may charge a reasonable fee for copying docket 
materials, as provided in 40 CFR part 2.

FOR FURTHER INFORMATION CONTACT: Margaret Borushko, U.S. EPA, National 
Vehicle and Fuels Emission Laboratory, 2000 Traverwood, Ann Arbor, MI 
48105; Telephone (734) 214-4334; Fax: (734) 214-4816; E-mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

Regulated Entities

    This proposed action would affect you if you produce or import new 
heavy-duty diesel engines which are intended for use in highway 
vehicles such as trucks and buses or heavy-duty highway vehicles. The 
table below gives some examples of entities that may have to follow the 
proposed regulations. But because these are only examples, you should 
carefully examine the proposed and existing regulations in 40 CFR part 
86. If you have questions, call the person listed in the FOR FURTHER 
INFORMATION CONTACT section above.

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                                                           Examples of
                                 NAICS a                   potentially
           Category               Codes     SIC Codes b     regulated
                                                             entities
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Industry.....................       336112         3711  Engine and
                                                          truck
                                                          manufacturers
                                   336120
------------------------------------------------------------------------
a North American Industry Classification System (NAICS).
b Standard Industrial Classification (SIC) system code.

Access to Rulemaking Documents Through the Internet

    Today's proposal is available electronically on the day of 
publication from the Environmental Protection Agency Internet Web site 
listed below. Electronic copies of the preamble, regulatory language, 
Draft Technical Support Document, and other documents associated with 
today's proposal are available from the EPA Office of Transportation 
and Air Quality (formerly the Office of Mobile Sources) Web site listed 
below shortly after the rule is signed by the Administrator. This 
service is free of charge, except any cost that you incur for 
connecting to the Internet.
    Environmental Protection Agency Web Site: http://www.epa.gov/fedrgstr/
    (Either select a desired date or use the Search feature.)
    Office of Transportation and Air Quality (OTAQ) Web Site: http://www.epa.gov/otaq/
    (Look in ``What's New'' or under the ``Heavy Trucks/Buses'' topic.)
    Please note that due to differences between the software used to 
develop the document and the software into which document may be 
downloaded, changes in format, page length, etc. may occur.

Table of Contents

I. Background and Statutory Authority
    A. Background to Nonconformance Penalty Rules
    B. Statutory Authority
    C. Heavy-duty Diesel Consent Decrees
II. Nonconformance Penalties for 2004 and Later Heavy-Duty Engines 
and Heavy-Duty Vehicles
    A. NCP Eligibility: Emission Standards for Which NCPs are 
Proposed
    1. Heavy-Duty Diesel NMHC+NOX Standard
    B. NCP Eligibility: Emission Standards for Which NCPs are Not 
Proposed
    1. Heavy-Duty Gasoline Standards
    2. 2004 Tier 2 Medium-duty Passenger Vehicles & Heavy Light-duty 
Trucks
III. Penalty Rates
    A. Parameters
    1. Upper Limit
    2. Parameter Values
    3. Penalty Curves

[[Page 2160]]

B. Issues and Alternatives
    1. Adjustment to Reflect Differences in Performance (other than 
fuel economy)
    2. Projected Fuel Price
    3. Discount Rates
IV. Economic Impact
V. Environmental Impact
VI. Public Participation
    A. How Do I Submit Comments?
    B. Will There Be a Public Hearing?
VII. Administrative Requirements
    A. Regulatory Planning and Review: Executive Order 12866
    B. Regulatory Flexibility Act, as amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 USC 601 et. 
seq.
    C. Paperwork Reduction Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13175: Consultation and Coordination with 
Indian Tribal Governments
    F. National Technology Transfer and Advancement Act
    G. Executive Order 13045: Children's Health Protection
    H. Executive Order 13132: Federalism
    I. Executive Order 13211: Energy Effects
    J. Plain Language

I. Background and Statutory Authority

A. Background to Nonconformance Penalty Rules

    Since the promulgation of the first NCP rule in 1985, NCP rules 
have generally been described as continuing ``phases'' of the NCP 
program. The first NCP rule (Phase I), sometimes referred to as the 
``generic'' NCP rule, established three basic criteria for determining 
the eligibility of emission standards for nonconformance penalties in 
any given model year (50 FR 35374, August 30, 1985). For regulatory 
language, see 40 CFR 86.1103-87. First, the emission standard in 
question must become more difficult to meet. This can occur in two 
ways, either by the emission standard itself becoming more stringent, 
or due to its interaction with another emission standard that has 
become more stringent. Second, substantial work must be required in 
order to meet the emission standard. EPA considers ``substantial work'' 
to mean the application of technology not previously used in that 
vehicle or engine class/subclass, or a significant modification of 
existing technology, in order to bring that vehicle/engine into 
compliance. EPA does not consider minor modifications or calibration 
changes to be classified as substantial work. Third, a technological 
laggard must be likely to develop. Prior NCP rules have considered a 
technological laggard to be a manufacturer who cannot meet a particular 
emission standard due to technological (not economic) difficulties and 
who, in the absence of NCPs, might be forced from the marketplace. EPA 
will make the determination that a technological laggard is likely to 
develop, based in large part on the above two criteria. However, these 
criteria are not always sufficient to determine the likelihood of the 
development of a technological laggard. An emission standard may become 
more difficult to meet and substantial work may be required for 
compliance, but if that work merely involves transfer of well-developed 
technology from another vehicle class, it is unlikely that a 
technological laggard would develop.
    The criteria and methodologies established in the 1985 rule have 
since been used to determine eligibility and to establish NCPs for a 
number of heavy-duty emission standards. Phases II, III, IV, and V, 
published in the period from 1985 to 1996, established NCPs that, in 
combination, cover the full range of heavy-duty--from heavy light-duty 
trucks (6,000-8,500 pounds gross vehicle weight) to the largest diesel 
truck and urban bus engines. NCPs have been established for 
hydrocarbons (HC), carbon monoxide (CO), nitrogen oxides 
(NOX), and particulate matter (PM). The most recent NCP rule 
(61 FR 6949, February 23, 1996) established NCPs for the 1998 and later 
model year NOX standard for heavy-duty diesel engines 
(HDDEs), the 1996 and later model year for Light-Duty Truck 3 (LDT3) 
NOX standard, and the 1996 and later urban bus PM standard. 
A concurrent but separate final rule (61 FR 6944, February 23, 1996) 
established NCPs for the 1996 LDT3 PM standard. The NCP rulemaking 
phases are summarized in greater detail in the Draft Technical Support 
Document for this proposal.

B. Statutory Authority

    Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), 
requires EPA to issue a certificate of conformity for HDEs or HDVs 
which exceed a federal emissions standard, but do not exceed an upper 
limit associated with that standard, if the manufacturer pays an NCP 
established by rulemaking. Congress adopted section 206(g) in the Clean 
Air Act Amendments of 1977 as a response to perceived problems with 
technology-forcing heavy-duty emissions standards. Following 
International Harvester v. Ruckelshaus, 478 F.2d 615 (D.C. Cir. 1973), 
Congress realized the dilemma that technology-forcing standards were 
likely to cause. If strict standards were maintained, then some 
manufacturers, ``technological laggards,'' might be unable to comply 
initially and would be forced out of the marketplace. NCPs were 
intended to remedy this potential problem. The laggards would have a 
temporary alternative that would permit them to sell their engines or 
vehicles by payment of a penalty. At the same time, conforming 
manufacturers would not suffer an economic disadvantage compared to 
nonconforming manufacturers, because the NCP would be based, in part, 
on money saved by the technological laggard and its customer from the 
nonconforming engine or vehicle.
    Under section 206(g)(1), NCPs may be offered for HDVs or HDEs. The 
penalty may vary by pollutant and by class or category of vehicle or 
engine. HDVs are defined in section 202(b)(3)(C) of the CAA as vehicles 
in excess of 6,000 pounds gross vehicle weight rating (GVWR). The 
light-duty truck (LDT) classification includes trucks that have a GVWR 
of 8500 lbs or less. Therefore, certain LDTs may be classified as HDVs. 
Historically, LDTs up through 6000 lbs GVWR have been considered 
``light light-duty trucks'' (LLDTs) and LDTs between 6,001 and 8,500 
pounds GVWR have been considered ``heavy light-duty trucks'' (HLDTs). 
Based on various new requirements established by the Clean Air Act 
Amendments of 1990, each of these two light truck categories has been 
further subdivided into groups by weight. The LLDTs are classified by 
weight based on ``loaded vehicle weight,'' or LVW, which maintains its 
current definition: curb weight plus 300 lbs. The trucks up through 
3750 lbs LVW make up a subclass called light-duty-trucks-1, or LDT1. 
Those greater than 3750 lbs LVW but less than or equal to 6000 lbs GVWR 
are the subclass light-duty-trucks-2, or LDT2. The HLDTs are divided at 
5750 lbs ``adjusted loaded vehicle weight,'' or ALVW. Adjusted loaded 
vehicle weight is the average of the curb weight and the GVWR. The 
HLDTs that are up through 5750 lbs ALVW are called light-duty trucks-3, 
or LDT3. Those above 5750 lbs ALVW but less than or equal to 8500 lbs 
GVWR are light-duty-trucks-4, or LDT4. The LDT3 and LDT4 subclasses 
make up the HLDT vehicle class. Since NCPs can only be established for 
heavy duty vehicles or engines, emission standards for light-duty 
trucks of the LDT3 and LDT4 categories are the only light-duty truck 
categories eligible for NCPs.
    Section 206(g)(3) requires that NCPs:
     Account for the degree of emission nonconformity;
     Increase periodically to provide incentive for 
nonconforming manufacturers to achieve the emission standards; and
     Remove the competitive disadvantage to conforming 
manufacturers.

[[Page 2161]]

    Section 206(g) authorizes EPA to require testing of production 
vehicles or engines in order to determine the emission level on which 
the penalty is based. If the emission level of a vehicle or engine 
exceeds an upper limit of nonconformity established by EPA through 
regulation, the vehicle or engine would not qualify for an NCP under 
section 206(g) and no certificate of conformity could be issued to the 
manufacturer. If the emission level is below the upper limit but above 
the standard, that emission level becomes the ``compliance level,'' 
which is also the benchmark for warranty and recall liability; the 
manufacturer who elects to pay the NCP is liable for vehicles or 
engines that exceed the compliance level in-use, unless, for the case 
of HLDTs, the compliance level is below the in-use standard. The 
manufacturer does not have in-use warranty or recall liability for 
emissions levels above the standard but below the compliance level.

C. Heavy-duty Diesel Consent Decrees

    On October 22, 1998, the Department of Justice and the 
Environmental Protection Agency announced settlements with seven major 
manufacturers of diesel engines that represent a majority of the diesel 
engine market. The settlements resolved claims that they installed 
computer software on heavy duty diesel engines that turned off the 
engine emission control system during highway driving in violation of 
the CAA's prohibition on defeat devices (42 USC 7522(a)(3)). The 
settlements were entered by the Court on July 1, 1999. These consent 
decrees with the Federal Government contained a number of provisions 
applying to heavy-duty on-road, and in some cases, nonroad, engines. 
Specific to the engines that would be addressed by the proposed 2004 
NCPs, the decrees permit the continued use of non-complying engines for 
a period of time (although emissions are capped by limits associated 
with new supplemental test procedures). Other elements of these consent 
decrees include a program under which the consent decree manufacturers 
are required to invest considerable resources to evaluate 
instrumentation and methodologies for on-road testing. Because the 
Consent Decrees refer to NCPs for the 2004 model year, if published, 
promulgation of this rule would have an impact on the penalties 
determined under the Consent Decrees.

II. Nonconformance Penalties for 2004 and Later Heavy-Duty Engines 
and Heavy-Duty Vehicles

A. NCP Eligibility: Emission Standards for Which NCPs are Proposed

1. Heavy-Duty Diesel NMHC+NOX Standard
    As discussed in section III.A., EPA must determine that three 
criteria are met in order to determine an NCP should be established in 
any given model year. For the model year 2004 heavy-duty diesel 
NMHC+NOX standard, we believe these criteria have been met 
and it is therefore appropriate to establish NCPs for the 2004 model 
year NMHC+NOX standard.
    The first criteria requires that the emission standard in question 
must become more difficult to meet. This is the case with the 2004 
NMHC+NOX standard. The previous emission standards for this 
category are 4.0 g/bhp-hr NOX and 1.3 g/bhp-hr HC. The 2004 
standards is a combined NMHC+NOX standard of 2.4 g/bhp-hr, 
or optionally a 2.5 g/bhp-hr NMHC+NOX with a limit of 0.5 g/
bhp-hr NMHC.\1\ When promulgated, the Agency concluded that the 2004 
standard was a technology forcing standard, and therefore it is logical 
to conclude the standard is more difficult to meet.
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    \1\ NMHC stands for non-methane hydrocarbons, which is a measure 
of total hydrocarbons with the methane emissions subtracted out. For 
typical on-highway diesel fueled heavy-duty engines, methane 
emissions are on the order of 10 percent of the total hydrocarbon 
emissions.
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    The second criteria which must be met in order for EPA to determine 
that an NCP should be established is substantial work must be required 
to meet the emission standard. This criteria has also been met. As 
discussed in both the 1997 final rule (See 62 FR 54694, October 21, 
1997) which established the 2004 standards, as well as the 2000 final 
rule (See 65 FR 59896, October 6, 2000) which reaffirmed those 
standards, EPA projected that new emission control technologies would 
be needed to achieve the 2004 standards. In these previous rulemakings 
EPA pointed to technologies such as cooled exhaust gas recirculation 
(EGR) and variable geometry turbochargers (VGT) as some of the 
technologies manufacturers could use to meet the 2004 standards. Such 
technologies have not previously been used in the on-highway heavy-duty 
diesel market, and EPA estimated substantial research and development 
efforts by the engine manufacturers would be undertaken to meet the 
2004 standards. We continue to believe such new technologies will be 
used by a number of engine manufacturers, and in fact several 
manufacturers have indicated in recent statements they will use new 
emission control technologies in order to achieve the 2004 
standards.\2\
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    \2\ See press releases from Caterpillar Inc., Cummins, Detroit 
Diesel Corp. and Mack, available in EPA Air Docket A-2001-30.
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    The final criteria for EPA to determine that an NCP should be 
established is that a technological laggard is likely to develop. EPA 
has several reasons to believe a technological laggard is likely. 
First, during our recent discussions with a number of engine 
manufacturers, several manufacturers have indicated they may not be 
able to make the necessary technological changes to meet the 2004 
emission standards for some of their high horsepower ratings by model 
year 2004. Manufacturers have indicated that while they are continuing 
to develop cooled EGR systems and associated technologies (such as 
advanced turbocharger technologies) and have reached no definitive 
conclusion, they are concerned regarding their ability to comply in 
2004 with these higher horsepower engines. Engines with higher 
horsepower ratings typically operate at higher boost levels (higher 
intake manifold pressures), as well as higher fueling rates. This is 
the case on today's engines. With the addition of cooled EGR, boost 
levels must be increased even further in order to accommodate EGR while 
maintaining the same power ratings. This can push both peak cylinder 
pressures and turbocharger designs to their physical limitations. While 
manufacturers are exploring a number of technologies to extend the 
current limitations, they are concerned with their ability to do so 
with all of the currently available power ratings between now and 2004.
    Second, during recent discussions with engine manufacturers, one 
manufacturer has indicated that some low volume engine families 
currently available may not be ready by 2004. A low volume engine 
family may require specific and targeted research and development 
efforts in order to comply with the 2004 standards, and it is 
reasonable to expect that manufacturers may focus their efforts on 
these low volume products later in the development process, and time 
may be too short to bring the product into compliance for the 2004 
model year.
    Finally, in the final rule completed in 2000 which reaffirmed the 
2004 NMHC+NOX standard, three engine manufactures as well as 
the Engine Manufacturers Association (EMA),

[[Page 2162]]

commented that EPA should establish NCPs for the 2004 standards.\3\ EMA 
commented the standards ``will be technology-forcing and likely will 
result in the inability of some engine manufacturers and/or engine 
families to comply with the standards.'' Detroit Diesel Corp. commented 
``Meeting the 2004 standards will require the use of sophisticated new 
emission control technology and will require emission durability 
evaluation over a greatly extended useful life period. * * * Any 
development setbacks or misjudgement regarding the capability or 
durability of the new emission control technology could, at the last 
minute, put an engine manufacturer into a laggard position and prevent 
certification of an engine family. The likelihood of a technological 
laggard for 2004 is at least as great and probably much greater than 
for other standards for which NCPs have been provided.'' When we 
finalized the reaffirmation of the 2004 NOX+NMHC standard in 
2000 we agreed that the standards were technology-forcing and that 
sophisticated technologies would be required, and thus, that the first 
two eligibility criteria were likely met. However, we concluded at the 
time that it was too early to determine the likelihood of a 
technological laggard, and further, that it was not necessary to 
attempt to make such a judgement at that time. Now we are a year closer 
to implementation of the 2004 standards, and manufacturers have not 
revoked their claims that the likelihood of a technological laggard is 
high. The fact that several engine manufacturers as well as a major 
trade organization have indicated they believe a technological laggard 
is likely to develop is an important indicator for the Agency regarding 
the technological laggard criteria.
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    \3\ See EPA Air Docket A-98-32, comments from Navistar (item IV-
D-29), Mack Truck (IV-D-06), Detroit Diesel Corp. (IV-D-28), and EMA 
(IV-D-05).
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    Based on this information, the Agency believes it is reasonable to 
conclude that a technological laggard is likely to develop for the 2004 
NMHC+NOX standards.

B. NCP Eligibility: Emission Standards for Which NCPs are Not Proposed

1. Heavy-Duty Gasoline Standards
    In a final rule published on October 6, 2000 (65 FR 59896), EPA 
established more stringent emission standards for all heavy-duty 
gasoline (or ``Otto-cycle'') vehicles and engines. These standards took 
two forms: A chassis-based set for complete vehicles under 14,000 
pounds GVWR (the chassis-based program), and an engine-based set for 
all other Otto-cycle heavy-duty engines (the engine-based program). 
Each of the two programs has an associated averaging, banking, and 
trading (ABT) program. The new standards generally take effect starting 
with the 2005 model year, but manufacturers are provided with two 
additional options for early compliance, each of which provides 
additional flexibility relative to the 2005 model year compliance 
option.
    We have considered the potential need for NCPs to be provided for 
the new standards applicable to Otto-cycle heavy-duty engines and 
vehicles, and have concluded at this time that NCPs are not required 
for any of these standards. We recognize that in general these new 
standards represent an increase in stringency over the prior federal 
standards, and thus, that the first criterion for NCP eligibility is 
satisfied. While some additional work is likely required to meet these 
new standards, the second and third eligibility criteria are not 
satisfied.
    With respect to the chassis-based standards, manufacturers will 
largely be using vehicles already certified to California standards to 
meet the federal requirements. The new federal chassis-based standards 
effectively extend the current California medium-duty vehicle standards 
to a nationwide basis. California began requiring some vehicles to meet 
these standards in 1998, and the phase-in reached completion in the 
2001 model year. Thus, manufacturers will be producing a fleet of 
vehicles for California that meets the new federal chassis-based 
requirements several years prior to having to introduce the vehicles on 
a nationwide basis. The technology required to meet the new federal 
standards has therefore already been successfully demonstrated on this 
class of vehicles, and manufacturers have up to several additional 
years to further develop and improve these systems prior to introducing 
them nationwide. Therefore, for vehicles required to meet the chassis-
based standards, we do not believe that substantial work, as described 
above, will be necessary to meet the new standards. For similar 
reasons, as well as the fact that manufacturers have not raised the 
possibility of requiring NCPs, we do not believe that a technological 
laggard is likely to develop for this class of vehicles.
    Vehicles meeting the new engine-based standards will generally be 
employing more advanced versions of technologies that are currently in 
use, such as advanced catalytic converters and closed loop electronic 
control of the air-fuel ratio. All heavy-duty Otto-cycle engines are 
already equipped with three-way catalysts, and some recently introduced 
engines featuring precise air/fuel control and superior catalyst 
designs have been certified at levels below the most stringent 
standards included under the three optional compliance programs. In 
fact, the level of the engine-based standard under the optional 
programs that manufacturers are likely to select (1.5 grams per brake-
horsepower-hour) is consistent with the recommendations of two 
manufacturers providing comment on the rule. Given these factors, we do 
not believe that a technological laggard is likely to emerge. Thus, for 
vehicles required to meet the engine-based standards, we do not believe 
that substantial work, as described above, will be necessary to meet 
the new standards.
    In addition, the three compliance options that we included in the 
rule were developed through discussions with manufacturers, and based 
on those discussions we believe that these options are viable options 
that provide a range of choices and offer manufacturers flexibility to 
fit the program with their product planning. Due to the availability of 
these options and the discussions with manufacturers, we do not believe 
that a technological laggard is likely to develop with respect to any 
of the new Otto-cycle heavy-duty vehicle or engine standards. The ABT 
programs also offer considerable additional flexibility to meet the new 
standards.
    In conclusion, based on the factors described above, we do not 
believe that there is sufficient evidence at this time that either 
substantial work is required to meet the new standards or that a 
technological laggard is likely to develop. Therefore, we are not 
proposing NCPs for any of the Otto-cycle heavy-duty emission standards.
2. 2004 Tier 2 Medium-duty Passenger Vehicles & Heavy Light-duty Trucks
    In December 1999, EPA promulgated a new set of emission control 
requirements for heavy-duty vehicles with a GVWR between 6,001 and 
10,000 lbs. (See 65 FR 6698, February 10, 2000). These requirements 
were implemented as part of EPA's Tier 2 vehicle emission control 
program. Beginning in 2004, heavy light-duty trucks ( HLDTs) and 
medium-duty passenger vehicles (MDPVs) are combined in an averaging set 
which must meet a fleet average NOX emission standard of 
0.20 g/mi. The program phases in at 25/50/75/100% of each years sales 
over the period 2004-2007. Those not included in this fleet average

[[Page 2163]]

must meet the current standards. This is referred to as the interim 
program. Beginning in 2008, the fleet must average 50% at 0.20 g/mi 
NOX and the remaining 50% at 0.07 g/mi NOX on 
average. And, by 2009 the fleet must average 0.07 g./mi NOX. 
This is referred to as the Tier 2 program. This fleet average includes 
all covered vehicles without regard to fuel-type or combustion cycle. 
To be considered as part of the average, vehicle families must certify 
to NOX, NMOG, CO, HCHO, and PM standards in one of a number 
of the emission ``bins.'' There are 11 bins available for the interim 
program and eight for the Tier 2 program. In order for a family to 
qualify for the program it need only be able to certify in the top bin 
of each program.
    EPA believes that NCPs are not necessary for either the interim or 
Tier 2 programs applicable to HLDTs and MDPVs. While the standard will 
be more difficult to meet, it does not involve ``substantial work'' as 
defined in the regulation and discussed above, nor does EPA expect 
there to be a ``technological laggard.'' The technology needed to meet 
these standards is well understood now, and, as discussed in the 
rulemaking, there are already a number of vehicle families capable of 
meeting the requirements. To enable this technology further, EPA has 
promulgated fuel quality requirements for gasoline and diesel fuel 
aimed at substantially reducing sulfur content and thus enabling highly 
efficient aftertreatment technology.
    Beyond that, these programs are constructed with a phase-in, which 
means that there is ample opportunity for technological development 
with the potentially more difficult vehicle configurations deferrable 
until the final year of each program's phase-in. Furthermore, the 
programs are based on fleet average standards independent of fuel or 
combustion cycle and do not limit emission standards to the fleet 
average. In order to be certified, a vehicle family need only qualify 
in one of the emission bins. For the interim and Tier 2 programs there 
are three bins above the average. Generally, the top bin in the interim 
program was constructed such that current technology vehicles could 
qualify. The top bin of the Tier 2 program was set at the fleet average 
value of the interim program.
    The program also includes a number of flexibilities designed to 
enhance compliance. These include a provision to allow the generation 
of credits through early banking, manufacturer-developed alternative 
phase-in schedules, deficit carryforward for the fleet average, and a 
number of technology phase-in flexibilities such as in-use standards 
and alternative certification test-cycles.
    In conclusion, given the significant flexibilities and options 
contained in the Tier 2 rule, we are not proposing NCPs for 2004 and 
later model year HLDTs or MDPVs.

III. Penalty Rates

    This proposed rule is the most recent in a series of NCP 
rulemakings. The discussion of penalty rates in the Phase IV rulemaking 
(58 FR 68532, December 28, 1993), Phase III rulemaking (55 FR 46622, 
November 5, 1990), the Phase II rulemaking (50 FR 53454, December 31, 
1985) as well as the Phase I rulemaking (50 FR 35374, August 30, 1985) 
are incorporated by reference. This section briefly reviews the penalty 
rate formula and discusses how EPA arrived at the penalty rates in this 
proposed rule.

A. Parameters

    As in the previous NCP rules, we are specifying the NCP formula for 
each standard using the following parameters: COC50, 
COC90, MC50, F, and UL. The NCP formula is the 
same as that promulgated in the Phase I rule. As was done in previous 
NCP rules, costs include additional manufacturer costs and additional 
owner costs, but do not include certification costs because both 
complying and noncomplying manufacturers must incur certification 
costs. COC50 is an estimate of the industry-wide average 
incremental cost per engine (references to engines are intended to 
include vehicles as well) associated with meeting the standard for 
which an NCP is offered, compared with meeting the upper limit. More 
precisely, the values of COC50 presented here are estimates 
of the sales weighted mean incremental cost. We request comment 
regarding whether it would be more appropriate to set COC50 
equal to the 50th percentile costs of compliance (i.e., median) instead 
of the mean costs. Commenters supporting the use of the median costs 
should address whether such an approach would reveal confidential 
business information.
    COC90 is EPA's best estimate of the 90th percentile 
incremental cost per-engine associated with meeting the standard for 
which an NCP is offered, compared with meeting the associated upper 
limit. MC50 is an estimate of the industry-wide average 
marginal cost of compliance per unit of reduced pollutant associated 
with the least cost effective emission control technology installed to 
meet the new standard. MC50 is measured in dollars per g/
bhp-hr for HDEs. F is a factor used to derive MC90, the 90th 
percentile marginal cost of compliance with the NCP standard for 
engines in the NCP category. MC90 defines the slope of the 
penalty rate curve near the standard and is equal to MC50 
multiplied by F. UL is the upper limit above which no engine may be 
certified. UL is specified for each of the four service classes for 
which NCPs are being proposed.
    The derivation of the proposed cost parameters is described in a 
support document entitled ``Draft Technical Support Document: 
Nonconformance Penalties for 2004 Highway Heavy-Duty Diesel Engines,'' 
which is available in the public docket for this rulemaking. All costs 
are presented in 2001 dollars. Because we are trying to account for 
cost differences at the point of sale, all costs were converted to net 
present value (NPV) for calendar year 2004 using a discount rate of 7.0 
percent. The upper limits applicable to a pollutant emission standard 
are described in the following section.
    We requested cost information from several of the engine 
manufacturers for each engine model that they plan to produce for model 
year 2004. We used these estimates along with all other available 
information to estimate the average and 90th percentile compliance 
costs. However, as we have in previous NCP rules, we relied heavily on 
the manufacturers' projections of their own costs, especially for 
fixed, hardware, and warranty costs. We request comment on the 
availability of other data to estimate these costs on a manufacturer-
specific basis.
    It is important to note that this analysis differs from the 
analyses for the model year 2004 standard-setting rulemakings in three 
basic ways:
    (1) The goal of this analysis is to estimate manufacturer and 
operator costs during the first year of the new standards rather than 
to project the long-term costs.
    (2) The baselines for calculation of compliance costs differ 
significantly due to issues associated with the Consent Decrees.
    (3) We now have more detailed information about costs identified in 
the earlier analysis, as well as cost categories not previously 
included.
    Thus, the costs estimated here are not comparable to the estimates 
described in the standard-setting rulemakings. These differences are 
discussed in detail in Chapter 3 of the Draft Technical Support 
Document for this rulemaking, and only a summary will be presented 
here.
    First, it is necessary for this NCP analysis to focus solely on the 
compliance costs associated with the first year of production, while 
standard-

[[Page 2164]]

setting analyses require a longer term view. This is most significant 
with respect to the costs associated with hardware, reliability 
(warranty, repairs, and associated costs), and fuel consumption. 
Manufacturers often make significant progress in reducing these costs 
with additional time.
    Second, as is discussed in Section III(A)(1) of this preamble, the 
engine designs currently produced and sold under the Consent Decrees 
lead us to propose an Upper Limit value of 6.0 g/bhp-hr 
NMHC+NOX, for the heavy-heavy duty service class, which 
fundamentally changes the cost analysis. The penalty rate factors are 
based on the compliance costs associated with lowering the emissions 
from model year 2001 engines to the 2004 standard. For heavy-heavy duty 
engines the NCPs are therefore based on the compliance costs associated 
with lowering the emissions from 6.0 g/bhp-hr NMHC+NOX to 
the 2004 standard of 2.5g/bhp-hr NMHC+NOX. This analysis was 
not performed in the standards-setting rules, and therefore the costs 
estimates in the standard-setting rule and this NCP proposal are not 
comparable. For the standard-setting rules, we estimated the compliance 
costs associated with bringing an engine which meets the current 
NOX standard of 4.0 g/bhp-hr into compliance with the 2.5g/
bhp-hr NMHC+NOX. Even for the other service classes, where 
we have proposed an Upper Limit based directly on the 4.0 g/bhp-hr 
NOX standard, the impact on engine designs of the alleged 
defeat device strategies used by a number of engine manufacturers over 
the past decade makes comparison between the standard-setting rule cost 
analysis and this analysis difficult.
    Finally, for this NCP proposal we have received new information 
since the standard-setting FRMs. This included more detailed estimates 
of actual manufacturer costs, plus data on a few additional cost items 
which were not part of the standards-setting rulemaking analysis. 
Specifically, we have included new cost items for vehicle manufacturer 
costs, post-warranty repairs, and revenue impacts (lost revenue due to 
the increased weight of the engine and the loss in freight capacity). 
We did not have this information during the standard-setting rule. As a 
result of the three factors summarized above, the costs estimated in 
this NCP proposal are not directly comparable to the estimates 
described in the standard-setting rulemakings.
    The significance of the various cost categories varied with service 
class. For example, the largest costs for light-heavy duty were 
hardware costs, while fuel costs were relatively low. However, for 
heavy-heavy duty, the fuel costs represent about half of the total cost 
of compliance.
1. Upper Limit
    The upper limit is the emission level established by regulation 
above which NCPs are not available and a heavy duty engine cannot be 
certified or introduced into commerce. CAA section 206(g)(2) refers to 
the upper limit as a percentage above the emission standard, set by 
regulation, that corresponds to an emission level EPA determines to be 
``practicable.'' The upper limit is an important aspect of the NCP 
regulations not only because it establishes an emission level above 
which no engine can be certified, but it is also a critical component 
of the cost analysis used to develop the NCP factors. The regulations 
specify that the relevant NCP costs for determining the 
COC50 and the COC90 factors are the difference 
between an engine at the upper limit and one that meets the new 
standards (see 40 CFR 86.1113-87).
    The regulatory approach adopted under the NCP rules sets the Upper 
Limit (UL) at the prior emission standard when a prior emission 
standard exists and that standard is changed and becomes more 
stringent. EPA concluded that the UL should be reasonably achievable by 
all manufacturers with vehicles in the relevant class. It should be 
within reach of all manufacturers of HDEs or HDVs that are currently 
allowed so that they can, if they choose, pay NCPs and continue to sell 
their engines and vehicles while finishing their development of 
complying engines. A manufacturer of a previously certified engine or 
vehicle should not be forced to immediately remove an HDE or HDV from 
the market when an emission standard becomes more stringent. The prior 
emissions standard meets these goals, because manufacturers have 
already certified their vehicles to that standard.
    EPA also concluded that the prior emission standard is the 
appropriate upper limit when an emission standard is tightened by 
operation of another standard. EPA recognized that the previous 
standard would not necessarily represent the level that is reasonably 
achievable by all manufacturers with engines in the relevant class, but 
in practice the prior standard should be achievable in almost all 
cases. EPA rejected a suggestion that the upper limit, in such cases, 
should be more stringent than the prior emission standard, because it 
would be very difficult to identify a limit that would be within reach 
of, and could be met by, all manufacturers.
    In this case, the new standard is a limit on the combination of 
NOX+NMHC, while the prior regulatory standards are separate 
limits, one for NOX and one for total HC. For a large 
portion of the industry, there are also emissions limits set under 
judicial Consent Decrees, many of which vary from the regulatory 
standards, in particular for the heavy-heavy service class as discussed 
latter in this section. In this situation, there is no simple way to 
determine the appropriate prior emission standard to use as an Upper 
Limit. One option would be to add the current NOX and HC 
standards together, resulting in a 5.3 NOX+NMHC standard. 
Another option would recognize that the HC standard has resulted in 
emissions of NMHC that are generally at 0.5 or below, producing 
NOX+NMHC levels consistent with a standard of 4.5 for 
engines meeting a 4.0 g/bhp-hr NOX standard. If there were 
no Consent Decree emissions limits, and the entire industry was already 
operating at these levels, a 4.5 standard would be more consistent with 
the policy and purposes of 40 CFR 86.1104-91, the general regulatory 
provision addressing Upper Limits. A NOX+NMHC standard of 
5.3 would in effect allow for increases in NOX above the 
current regulatory emissions standards, because there is no reason to 
expect NMHC levels would increase above 0.5. The UL is designed to 
allow continued production of current engines, but not to allow 
backsliding.
    EPA also considered the CD emissions limits in this analysis, as 
they establish legally binding requirements on the manufacturers that 
directly affect the way engine manufacturers design their engines. In 
many cases it is the CD limits, and not the regulatory standards, that 
are the controlling factor and dictate the level of emissions control 
required on engines produced during the term of the Decrees. Since the 
role of an NCP is to address the real world problems associated with a 
transition from a prior emissions requirement to a new more stringent 
requirement, it is appropriate to take the CD requirements into account 
where the levels required under the CD are in fact the controlling 
factor in establishing the prior level of control.
    For light heavy-duty, medium heavy-duty, and urban bus engines, the 
CD requirements are consistent with the regulatory requirements for FTP 
standards and the defeat device prohibition. Manufacturers are 
currently certifying to the emissions levels provided under the CD. An 
examination

[[Page 2165]]

of model year 2001 certification data shows that for both CD and non-CD 
engine manufacturers, engines are generally being certified with HC 
emissions below 0.3 g/bhp-hr, and no engines in these service classes 
certified to the 4.0 g/bhp-hr NOX standard have a combined 
NOX plus HC emission level greater than 4.5 g/bhp-hr.\4\ 
Hence, an UL of 4.5 NOX+NMHC on the FTP would be most 
consistent with the policy approach embodied in 40 CFR 86.1104-91.
---------------------------------------------------------------------------

    \4\ EPA Memorandum ``Summary of Model Year 2001 Heavy-duty 
Diesel Engine HC and NOX Certification Data'', copy 
available in the docket for this rulemaking.
---------------------------------------------------------------------------

    For heavy heavy-duty engines, however, the CD provides a 
significantly different approach. For these engines, limits are set for 
Euro III and NTE levels that allow for significantly higher emissions 
off the FTP than EPA would expect to allow under the defeat device 
prohibition. While the FTP standard under the CD is the same as in the 
regulations, it is the level of off-cycle control that drives the 
design requirements for the engine manufacturers. They are the legal 
requirements that drive the level of control embodied in the engine 
design. Model year 2001 certification data shows that combined HC and 
NOX emissions for these engines are at or below 6.0 g/bhp-hr 
when measured using the Euro III test.\5\
---------------------------------------------------------------------------

    \5\ EPA Memorandum ``Summary of Model Year 2001 Heavy-duty 
Diesel Engine HC and NOX Certification Data'', copy 
available in the docket for this rulemaking.
---------------------------------------------------------------------------

    This NCP rulemaking focuses on technological laggards, which would 
be those heavy-duty engines that need more lead time to comply with the 
2004 NOX+NMHC standard. For heavy heavy-duty engines, the 
prior actual level of control that they are now achieving and 
certifying to is driven by the CD levels. As such, an UL at the level 
of control required under the CD would set a level that is within the 
reach of all such manufacturers, including the technological laggards. 
It would be reasonably achievable by all manufacturers in this class, 
and would avoid forcing the technical laggards to remove an engine from 
the market when the 2004 emissions standards go into effect. This UL 
would be consistent with the policy embodied in the NCP regulations.
    EPA recognizes that under the CD this group of heavy-duty engines 
is also required to achieve the 2004 emissions levels by October 2002. 
However, as discussed before, EPA has determined that there is likely 
to be a technological laggard for purposes of meeting this standard in 
2004. The prior deadline in the CD does not change this determination, 
and means only that such manufacturers would also be subject to the 
constraints in the CD, including its compliance and enforcement 
provisions. EPA also recognizes that the CD calls for compliance with a 
4.0 NOX standard on the FTP with a 6.0 NOX 
standard for the Euro III, and the UL we are proposing is for the FTP. 
Setting the UL at 6.0 NOX+NMHC for the FTP would be expected 
to allow continued production of engines with NOX at their 
CD levels, as the Euro III levels would not be expected to raise 
serious concerns about compliance with the defeat device prohibition.
    EPA also considered an UL or 4.5 or 5.3 for the heavy heavy-duty 
engines An UL of 4.5 NOX +NMHC would significantly reduce 
the level of off-cycle emissions for these engines, but would do it by 
requiring significant design changes at the same time design work is 
underway to meet the 2.5 standard. It is questionable whether there is 
adequate lead time to accomplish this in time for 2004 model year, and 
it is not consistent with the policy underlying the NCP regulation 
concerning ULs. In addition, the majority of the heavy-heavy cost 
numbers obtained by EPA from industry involved bringing an engine to 
compliance from the CD levels to the 2004 levels, and not for reducing 
from some third level to the 2004 levels. EPA does not believe it could 
readily develop the cost figures for such a development phase. An UL of 
5.3 NOX+NMHC would involve a hybrid of these two options--it 
would involve some change from the CD levels, but less of a change than 
going to the 4.5 level.
    Of the three possible ULs for heavy heavy-duty engines, EPA 
believes that 6.0 NOX+NMHC is most consistent with the 
policy approach embodied in 40 CFR 86.1104-91. The cost calculation in 
this proposal are based on this as the UL. However, EPA invites comment 
on using an UL of either 5.3 or 4.5 NOX+NMHC, including 
information on the technology such an engine would use to comply with 
either 5.3 or 4.5, as well as the costs associated with these options.
2. Parameter Values
    We propose that the values in Table 1 (in 2001 dollars) be used in 
the NCP formula for the 2004 and later model year NMHC+NOX 
standard of 2.5 g/bhp-hr for diesel heavy-duty engines and diesel urban 
bus engines at full useful life. The derivation of these parameters is 
described in the Draft Technical Support Document for this rulemaking. 
We request comment on our estimates of these parameters.

[[Page 2166]]



                                  Table 1.--Proposed NCP Calculation Parameters
----------------------------------------------------------------------------------------------------------------
                                                   Light heavy-    Medium heavy-
                    Parameter                       duty diesel     duty diesel     Heavy-duty       Urban bus
                                                      engines         engines     diesel engines      engines
----------------------------------------------------------------------------------------------------------------
COC 50..........................................          $1,080          $3,360          $8,940         $4,400.
COC 90..........................................          $2,610          $6,870         $14,790         $7,120.
MC 50...........................................      \1\ $2,000      \1\ $1,800      \1\ $7,200      \1\ $4,900
F...............................................             1.3             1.3             1.3             1.3
UL..............................................         \1\ 4.5         \1\ 4.5         \1\ 6.0        \1\ 4.5
----------------------------------------------------------------------------------------------------------------
\1\ Per gram per brake-horsepower-hour.

3. Penalty Curves
    The calculation parameters listed in Table 1 are used to calculate 
the penalty rates for each heavy-duty service class. These parameters 
are used in the penalty rate formulas which are defined in the existing 
NCP regulations (See 40 CFR 86.1113(a)(1) and (2)). Using the 
parameters in Table 1, and the equations in the regulations, we have 
plotted penalty rates versus compliance levels for each service class 
in Figures 1-4 below. These penalty curves are for the first year of 
use of the NCPs, that is, the annual adjustment factors specified in 
the regulations have been set equal to one.

BILLING CODE 6560-50-P

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[GRAPHIC] [TIFF OMITTED] TP16JA02.003


[[Page 2168]]


[GRAPHIC] [TIFF OMITTED] TP16JA02.002

BILLING CODE 6560-50-C

[[Page 2169]]

B. Issues and Alternatives

    The Clean Air Act requires EPA to set the NCPs ``to remove any 
competitive disadvantage to manufacturers whose engines or vehicles 
achieve the required degree of emission reduction''. The analysis 
presented in detail in the Draft Technical Support Document deals with 
an assessment of the cost of compliance, using essentially the same 
methodology that has historically been used to establish NCPs. We 
believe that our estimates of the costs are appropriate and that the 
methodology is sound. In establishing prior NCP rules, we have 
frequently made it clear that satisfying the statutory objective of 
protecting the complying manufacturer was paramount.
    The NCP generic rule establishes an approach which attempts to 
remove any competitive disadvantage to complying manufacturers by 
assessing a cost to the manufacturer of a non-complying engine in the 
form of an NCP, with the expectation that this cost is at least 
equivalent to or exceeds the value of the competitive benefit gained by 
building a noncomplying engine. Imposing such a cost is a way to level 
the playing field without interfering in the actual marketing or 
pricing of the engines. The problem here is that for some factors it is 
hard to quantify with certainty the value of this competitive benefit, 
and EPA is concerned that the calculation may not remove all 
competitive disadvantages.
1. Purchaser Perception Effects on Competition
    A manufacturer of a non-complying engine generally gains a 
competitive advantage or benefit of two types. The first typically 
involves production expenses saved by not producing a complying engine, 
such as fixed costs, hardware costs, and the like. The second category 
involves, in some cases, the competitive benefits gained by producing 
an engine that has better performance characteristics compared to a 
complying engine, including reduced operating expenses for the 
purchasers of noncomplying engines. In addition, manufacturers may 
realize a reduced number of warranty claims by producing current 
technology noncomplying engines.
    The first category is easier to quantify, as it involves 
considering costs directly incurred by the industry, and it is 
generally easier to get a fuller quantification of amounts in 
categories such as hardware costs. The second category is much harder 
to quantify with certainty. For example, as discussed below with 
respect to fuel economy, the actual amount of savings to the operator 
will vary based on several factors. An even harder to quantify 
competitive advantage is the benefit in the marketplace from producing 
an engine that is, or may be perceived to perform better, such as being 
more durable or reliable, and thus less prone to malfunction or 
breakdown. Including the cost of warranty claims and related expenses 
for the new technology engines in the NCP is one way to take into 
consideration the expected durability of complying engines. Including 
this cost helps to level the playing field with respect to this 
increased cost experienced by manufacturers of complying engines. This 
cost component of the NCP is therefore like the costs in the first 
category--out of pocket expenses experienced by complying manufacturers 
that a non-complying manufacturer might otherwise avoid.
    There is significant uncertainty as to whether warranty and related 
costs in the NCP calculation fully reflect the competitive benefit 
gained in the marketplace by a non-complying engine. This competitive 
benefit could readily be greater than the out-of-pocket warranty 
expenses paid by the manufacturer of a complying engine. For example, 
non-complying engines may be either perceived or may in fact be more 
reliable during the early years of the transition to the new technology 
engines. This difference in performance gives a competitive advantage 
to producers of noncomplying engines. In order to remove this 
advantage, the cost of an NCP needs to account for the marketplace 
value of this difference in performance.
    However, it is hard to quantify this value with certainty. For 
example it is hard to quantify in dollar terms the value purchasers 
will attribute to a real or perceived difference in durability or 
reliability. There is little real world experience with the new 
technology engines; hence it will be hard for a purchaser to judge with 
certainty the actual difference in reliability and the increased costs 
associated with it. It is also unlikely that the dollar amount of a 
warranty claim would fully reflect the loss in value expected from a 
malfunction or breakdown. The purchaser experiences both the repair 
expenses as well as down time for their equipment, disruption of their 
business, and other potential adverse impacts, which may not be fully 
covered by payment of a warranty claim. Especially where there is 
little historical evidence to rely on regarding a new technology, there 
may be significant uncertainty concerning the reliability of new 
technology engines when they are first introduced, and the value a 
purchaser places on the proven reliability of an older technology 
engine may therefore be magnified. While this proposal includes costs 
related to downtime and demurrage expenses during warranty repairs in 
the NCP, it is not clear how, as part of a business decision, the 
engine purchasers will trade-off higher purchase costs for the 
noncomplying engine versus the uncertainty of the reliability and 
durability of the new technology.
    This is potentially a significant issue in this action because 
there is reason to believe that manufacturers may choose to make 
extensive use of NCPs and continue to produce pre-2004 technology 
engines. As has been the case in past NCP rules, where a noncomplying 
manufacturer does essentially nothing in terms of new technology (i.e., 
produces an upper limit engine), it must pay an NCP based on 
COC90. The noncomplying manufacturer would then raise prices 
on its engines to levels comparable to those for complying engines in 
order to be able to capture back at least part of that NCP (the portion 
related to first price increase). The noncomplying manufacturer may 
even be able to charge a premium (relative to the first price increase 
of the complying manufacturer) if the engine purchaser perceives its 
``old technology'' engine to be more desirable than the relatively 
unproven new technology engine.
    Thus, in summary, we have three related factors affecting the issue 
of whether the proposed NCP would remove competitive disadvantage 
(purchase price, operating cost, purchaser perception). Even with an 
NCP set at a level which addresses quantifiable cost differences 
between complying and non-complying engines, in the eyes of the 
purchaser there still may be an advantage to paying the higher first 
cost for an engine (including the NCP) with known performance.
    It is difficult to establish the degree to which the NCP 
calculation discussed above will fully remove any competitive advantage 
for non-compliers attributable to purchaser perception. Therefore, EPA 
is requesting comment on whether there is an additional factor that 
should be included in the NCP calculation and on methods to value these 
potential performance advantages. If engine purchaser perception favors 
noncomplying engines, this affects market share and thus business 
viability, per engine amortized fixed costs, and overall profitability. 
Therefore, we are considering adding a factor to the NCP formula to 
address

[[Page 2170]]

such an advantage if it exists, and there is an appropriate way to 
quantify it. Conceptually, such a factor would need to be equal to the 
purchase price difference at which a potential purchaser would be 
indifferent between purchasing a complying and non-complying engine, 
after accounting for all of the factors that are currently included in 
the proposed NCP calculation (e.g., fuel costs, maintenance, warranty, 
demurrage, and the revenue impact of additional engine weight. These 
factors are discussed in more detail in the draft Technical Support 
Document for this proposal. EPA requests comment on whether such an 
additional factor is needed here and if so what is the appropriate 
means to implement this adjustment. Commenters who believe that such a 
factor is appropriately included in the NCP calculation should provide 
an empirical and quantitative basis for calculating the appropriate 
level at which to set it.
2. Projected Fuel Price
    One of the most significant categories of cost is the impact of the 
standards on fuel consumption rates. However, this cost element is 
difficult to estimate because actual fuel costs will vary based on the 
price of the fuel and on the vehicle operation. We, therefore, are 
requesting comment on our estimates of the economic impact of increased 
fuel consumption.
    Fuel price varies with time and with location. According to the 
Energy Information Administration (EIA), the national average highway 
diesel fuel price in February of 1999 was 95 cents per gallon (with 
taxes), but in October of 2000 it was $1.67 per gallon (with taxes). 
That represents a 76 percent increase in the fuel price within a two 
year period. The average price for diesel fuel over the past five years 
was $1.25 per gallon. This kind of variation makes it difficult to 
project future prices. For our analysis, we estimated the fuel price to 
be $1.50 for 2004 and 2005. This is equal to the national average 
highway diesel fuel price for last year. We are requesting comment on 
the use of the five-year average price of $1.25 per gallon. Our 
analysis projects that fuel costs will be five cents per gallon higher 
after 2005 to account for the additional cost of the very low sulfur 
fuel that will be required beginning in 2006. This would also be true 
if we started with the five-year average price instead of the 2000 
price. Given the difficulty in projecting future fuel prices, we are 
also requesting comments on the concept of adjusting the NCP based on 
price of diesel fuel. This could be done in two ways. First, we could 
adjust the NCP by regulation before the beginning of the 2004 model 
year if we determine that the fuel price used to determine the NCP 
inputs is no longer appropriate. Second, we could finalize in this 
rulemaking a regulatory provision that makes COC50, 
COC90 and MC50 functions of the national average 
highway diesel fuel price in the preceding year (or preceding five 
years). This would be similar to the use of the Consumer Price Index to 
adjust the penalties for inflation (see 40 CFR 86.113-87(a)(4). The NCP 
could be adjusted ``automatically'' using the latest EIA estimate of 
national average highway diesel fuel price, or some other independent 
estimate.
    In addition, at any given time, fuel prices before taxes can vary 
regionally by as much as 10 percent from the national 
average. This is compounded by differences in state taxes, which vary 
from 8 to 29 cents per gallon. This regional variability is potentially 
significant for our 90th percentile analysis. Some trucks may operate 
locally in an area that has fuel prices significantly higher than the 
national average. However, we believe that the number of these trucks 
will be relatively small, and thus did not include a regional fuel 
price component in our 90th percentile analysis. Nevertheless, we 
request comment on this issue.
    Another important factor in estimating fuel cost is how much fuel a 
model year 2004 vehicle will use over its lifetime. This is most 
important for heavy-heavy duty engines. Some vehicles may be scrapped 
after their useful life (435,000 miles) while others may be rebuilt 
more than once and not be scrapped until after 2 million miles. Thus, 
the fuel cost could vary by a factor of four from one vehicle to 
another. The mileage estimates that we used in our analysis are shown 
in the table below. You should read the Draft Technical Support 
Document for more information about how we used these mileage 
estimates.

Estimates of Lifetime Vehicle Miles Traveled (VMT) Used in Cost Analysis
------------------------------------------------------------------------
                                     VMT for average      VMT used for
                                         vehicle         COC90 analysis
------------------------------------------------------------------------
Light Heavy.......................            209,000            280,000
Medium Heavy......................            262,000            343,000
Heavy Heavy.......................            767,000          1,000,000
------------------------------------------------------------------------

    Finally, our methodology for calculating the cost of changes in 
fuel consumption uses estimates of average miles driven per gallon of 
fuel used. These estimates are 14.0, 8.0 and 6.0 miles per gallon (MPG) 
for light-, medium, and heavy-heavy duty, respectively. We used these 
same estimates for both the COC50 and COC90 
analyses. Using different estimates could significantly change the 
projected costs. For a typical light-heavy duty vehicle, where we are 
projecting a decrease in the brake-specific fuel consumption rate, 
using a higher MPG rate would increase net costs for a given number of 
miles traveled because the fuel savings would be reduced. The opposite 
is true for medium- and heavy-heavy duty, where we project increases in 
brake-specific fuel consumption rates. For these larger engines, using 
a higher MPG rate would decrease net costs for a given number of miles 
traveled. We request comment on these MPG estimates.
3. Discount Rates
    All of the compliance costs in this analysis are presented in terms 
of net present value (NPV) for calendar year 2004. This means that 
costs that occur before 2004 are adjusted upward, and costs that occur 
after 2004 are adjusted downward to reflect the time or opportunity 
value of the money involved. (i.e., discounted).
    In our analysis, each manufacturer's pre-production investment 
costs were adjusted upward to reflect the lost opportunity cost or the 
cost of borrowing the capital for the investment. A manufacturer would 
typically seek to set its prices to recover this adjusted investment 
from sales within the first several years of production. We used a 
seven percent annual discount rate for these costs, as we have done in 
previous analyses for pre-production costs. EPA also used a seven 
percent discount rate in

[[Page 2171]]

Regulatory Impact Analyses for the 1997 and 2000 FRMs that established 
the 2004 standards. This rate is based on studies which indicate that 
this has been a reasonable opportunity cost of diverting private 
capital to support Federal regulatory objectives (See OMB Circular A-
94; available at www.whitehouse.gov/omb/circulars/a094/a094.html). We 
request comment in whether this rate is appropriate for the opportunity 
costs for the period of 1998 through 2003, the time period when the 
2004 model year investment is being made by the manufacturers.
    The NPV analysis also requires that all in-use operating costs be 
adjusted downward to reflect the time value of money for future costs. 
More specifically, the stream of operating costs must be discounted to 
make them equivalent to costs incurred at the time of purchase. Truck 
purchasers would use this approach before purchase when comparing 
future operating costs of two or more engines before purchase. We used 
a seven percent discount rate for these costs as well. However, there 
is evidence in other contexts that users might apply a different 
discount rate than seven percent when considering future operating 
costs during a purchase decision. We request comment on whether there 
is evidence to support the application of such an alternative discount 
rate to operating costs in the various segments of the heavy duty 
engine market. Your comments in support of an alternative discount rate 
(a higher or lower value) should include a discussion of the supporting 
economic and business rationale for the alternative rate. We have 
included an example of the impact on the NCP parameters from using a 
smaller discount rate (three percent) in the draft Technical Support 
Document for this proposal.

IV. Economic Impact

    Because the use of NCPs is optional, manufacturers have the 
flexibility and will likely choose whether or not to use NCPs based on 
their ability to comply with emissions standards. If no HDE 
manufacturer elects to use NCPs, these manufacturers and the users of 
their products will not incur any additional costs related to NCPs. 
NCPs remedy the potential problem of having a manufacturer forced out 
of the marketplace due to that manufacturer's inability to conform to 
new, strict emission standards in a timely manner. Without NCPs, a 
manufacturer which has difficulty certifying HDEs in conformance with 
emission standards or whose engines fail a SEA has only two 
alternatives: fix the nonconforming engines, perhaps at a prohibitive 
cost, or prevent their introduction into commerce. The availability of 
NCPs provides manufacturers with a third alternative: continue 
production and introduce into commerce upon payment of a penalty an 
engine that exceeds the standard until an emission conformance 
technique is developed. Therefore, NCPs represent a regulatory 
mechanism that allows affected manufacturers to have increased 
flexibility. A decision to use NCPs may be a manufacturer's only way to 
continue to introduce HDEs into commerce.

V. Environmental Impact

    When evaluating the environmental impact of this proposed rule, one 
must keep in mind that, under the Act, NCPs are a consequence of 
enacting new, more stringent emissions requirements for heavy duty 
engines. Emission standards are set at a level that most, but not 
necessarily all, manufacturers can achieve by the model year in which 
the standard becomes effective. Following International Harvester v. 
Ruckelshaus, 478 F. 2d 615 (D.C. Cir. 1973), Congress realized the 
dilemma that technology-forcing standards were likely to cause, and 
allowed manufacturers of heavy-duty engines to certify nonconforming 
vehicles/engines upon the payment of an NCP, under certain conditions. 
This mechanism would allow manufacturer(s) who cannot meet technology-
forcing standards immediately to continue to manufacture these 
nonconforming engines while they tackle the technological problems 
associated with meeting new emission standard(s). Thus, as part of the 
statutory structure to force technological improvements without driving 
manufacturers out of the market, NCPs provide flexibility that fosters 
long-term emissions improvement through the setting of lower emission 
standards at an earlier date than could otherwise be possible. By 
design, NCPs encourage the technological laggard that is using NCPs to 
reduce emission levels to the more stringent standard as quickly as 
possible.
    However, we believe that the potential exists for there to be more 
widespread use of the NCPs proposed in this rule in comparison to prior 
NCPs, thus indicating the possibility for an environmental impact 
somewhat greater in magnitude than we have suggested in prior NCP 
rules. Nevertheless, we believe that any such impacts would be short-
term in nature. By including an annual adjustment factor that increases 
the levels of the penalties, the NCP program is structured such that 
the incentives to produce engines that meet the standards increase 
year-by-year. The practical impact of this adjustment factor is that 
the NCPs will rapidly become an obsolete option for non-complying 
manufacturers. However, we have no way of predicting at this time how 
many manufacturers will make use of the proposed NCPs, or how many 
engine families would be subject to the NCP program. Because of these 
uncertainties we are unable to accurately quantify the potential impact 
the proposed NCPs might have on emission inventories, although, as 
stated above, any impacts are expected to be short-term in nature.

VI. Public Participation

    We request comment on all aspects of this proposal. This section 
describes how you can participate in this process.

A. How Do I Submit Comments?

    We are opening a formal comment period by publishing this document. 
We will accept comments for the period indicated under DATES above. If 
you have an interest in the program described in this document, we 
encourage you to comment on any aspect of this rulemaking. We request 
comment on various topics throughout this proposal.
    Your comments will be most useful if you include appropriate and 
detailed supporting rationale, data, and analysis. If you disagree with 
parts of the proposed program, we encourage you to suggest and analyze 
alternate approaches to meeting the air quality goals described in this 
proposal. You should send all comments, except those containing 
proprietary information, to our Air Docket (see Addresses) before the 
end of the comment period.
    If you submit proprietary information for our consideration, you 
should clearly separate it from other comments by labeling it 
``Confidential Business Information.'' You should also send it directly 
to the contact person listed under FOR FURTHER INFORMATION CONTACT 
instead of the public docket. This will help ensure that no one 
inadvertently places proprietary information in the docket. If you want 
us to use your confidential information as part of the basis for the 
final rule, you should send a non-confidential version of the document 
summarizing the key data or information. We will disclose information 
covered by a claim of confidentiality only through the application of 
procedures described in 40 CFR part 2. If you don't identify 
information as confidential when we receive it, we may make it 
available to the public without notifying you.

[[Page 2172]]

B. Will There Be a Public Hearing?

    We will hold a public hearing in the Washington, DC area on 
February 15, 2002. The hearings will start at 10:00 am and continue 
until everyone has had a chance to speak.
    If you would like to present testimony at a public hearing, we ask 
that you notify the contact person listed above at least ten days 
before the hearing. You should estimate the time you will need for your 
presentation and identify any needed audio/visual equipment. We suggest 
that you bring copies of your statement or other material for the EPA 
panel and the audience. It would also be helpful if you send us a copy 
of your statement or other materials before the hearing.
    We will make a tentative schedule for the order of testimony based 
on the notifications we receive. This schedule will be available on the 
morning of each hearing. In addition, we will reserve a block of time 
for anyone else in the audience who wants to give testimony. We will 
conduct the hearing informally, and technical rules of evidence won't 
apply. We will arrange for a written transcript of the hearing and keep 
the official record of the hearing open for 30 days to allow you to 
submit supplementary information. You may make arrangements for copies 
of the transcript directly with the court reporter.

VII. Administrative Requirements

A. Regulatory Planning and Review: Executive Order 12866

    Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the Agency 
is required to determine whether this regulatory action would be 
``significant'' and therefore subject to review by the Office of 
Management and Budget (OMB) and the requirements of the Executive 
Order. The order defines a ``significant regulatory action'' as any 
regulatory action that is likely to result in a rule that may:
     Have an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
     Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or,
     Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, OMB has notified 
EPA that it considers this a ``significant regulatory action'' within 
the meaning of the Executive Order. EPA has submitted this action to 
OMB for review. Changes made in response to OMB suggestions or 
recommendations will be documented in the public record. This 
regulation is intended to assist manufacturers that are having 
difficulty developing and marketing vehicles which comply with the 2004 
NMHC+NOX standard for diesel heavy-duty engines and heavy-
duty vehicles. Without this proposed rule, a manufacturer experiencing 
difficulty in complying with this new emission standard (after the use 
of credits) has only two alternatives: fix the non-conforming engines 
for the associated model years or not sell them at all. NCPs provide 
manufacturers with additional time to bring their engines into 
conformity. In addition, NCPs are calculated to deprive non-conforming 
manufacturers of any cost savings and competitive advantages stemming 
from marketing a non-conforming engine. Thus, NCPs will not have 
significant adverse effects on competition, employment, investment, 
productivity, innovation or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic or 
export markets.

B. Regulatory Flexibility Act, as Amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et. 
seq.

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's rule on small 
entities, small entity is defined as: (1) A small business that has no 
more than 1,000 employees; (2) a small governmental jurisdiction that 
is a government of a city, county, town, school district or special 
district with a population of less than 50,000; and (3) a small 
organization that is any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.
    After considering the economic impacts of today's proposed rule on 
small entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. This 
proposed rule will not impose any requirements on small entities. The 
non-conformance penalties that would be established by this proposed 
rule are for emission standards that pertain to heavy-duty diesel 
engines. When these emission standards were established, the final 
rulemaking (65 FR 59895, October 6, 2000) noted that only two small 
entities were known to be affected. Those entities were small 
businesses that certify alternative fuel engines or vehicles, either 
newly manufactured or modified from previously certified gasoline 
engines. The emission standards for heavy-duty diesel engines, for 
which NCPs are proposed, do not pertain to the engines manufactured by 
these businesses.

C. Paperwork Reduction Act

    The information collection requirements in this proposed rule will 
be submitted for approval to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An 
Information Collection Request (ICR) document will be prepared and its 
availability for comment will be announced in a separate Federal 
Register document when the ICR is sent to OMB.
    The existing regulations in 40 CFR part 86, subpart L require that 
manufacturers seeking NCPs annually conduct a Production Compliance 
Audit (PCA) for each engine configuration. This means that they must 
perform additional emission testing. This testing is necessary to 
determine more precisely the emission levels for engine configurations 
that exceed an applicable emission standard. While the use of NCPs is 
voluntary, manufacturers choosing to use them must submit the 
additional testing information (40 CFR 86.1106-87). Manufacturers may 
assert that some or all of the information provided is entitled to 
confidential treatment as provided by 40 CFR part 2, subpart B.
    EPA has previously estimated the annual burden associated with NCPs 
to 906 hours and $51,786, based on a projection of six respondents per 
year. We estimated the average burden hours per response to 144 hours 
for reporting, and 7 hours for recordkeeping. 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

[[Page 2173]]

to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations are listed in 40 CFR part 9 and 48 CFR chapter 15.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating an EPA rule for which a written statement 
is needed, section 205 of the UMRA generally requires EPA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective or least burdensome alternative 
that achieves the objectives of the rule. The provisions of section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows EPA to adopt an alternative other than the least 
costly, most cost-effective or least burdensome alternative if the 
Administrator publishes with the final rule an explanation why that 
alternative was not adopted.
    Before EPA establishes any regulatory requirements that may 
significantly or uniquely affect small governments, including tribal 
governments, it must have developed under section 203 of the UMRA a 
small government agency plan. The plan must provide for notifying 
potentially affected small governments, enabling officials of affected 
small governments to have meaningful and timely input in the 
development of EPA regulatory proposals with significant Federal 
intergovernmental mandates, and informing, educating, and advising 
small governments on compliance with the regulatory requirements.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, or 
tribal governments or the private sector. The proposed rule would 
impose no enforceable duty on any State, local or tribal governments or 
the private sector.
    EPA has determined that this rule does not contain a Federal 
mandate that may result in expenditures of $100 million or more for 
State, local, and tribal governments, in the aggregate, or the private 
sector in any one year. Because the use of NCPs is optional, 
manufacturers have the flexibility and will likely choose whether or 
not to use NCPs based on their ability to comply with emissions 
standards. The availability of NCPs provides manufacturers with a third 
alternative: continue production and introduce into commerce upon 
payment of a penalty an engine that exceeds the standard until an 
emission conformance technique is developed. Therefore, NCPs represent 
a regulatory mechanism that allows affected manufacturers to have 
increased flexibility. Thus, today's rule is not subject to the 
requirements of sections 202 and 205 of the UMRA.

E. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000), 
requires EPA to develop an accountable process to ensure ``meaningful 
and timely input by tribal officials in the development of regulatory 
policies that have tribal implications.'' ``Policies that have tribal 
implications'' is defined in the Executive Order to include regulations 
that have ``substantial direct effects on one or more Indian tribes, on 
the relationship between the Federal government and the Indian tribes, 
or on the distribution of power and responsibilities between the 
Federal government and Indian tribes.''
    This proposed rule does not have tribal implications. It will not 
have substantial direct effects on tribal governments, on the 
relationship between the Federal government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
government and Indian tribes, as specified in Executive Order 13175. 
The proposed non-conformance penalties and associated requirements for 
heavy-duty diesel engine manufacturers in this proposal would have 
national applicability, and thus would not uniquely affect the 
communities of Indian Tribal Governments. Thus, Executive Order 13175 
does not apply to this rule.
    In the spirit of Executive Order 13175, and consistent with EPA 
policy to promote communications between EPA and tribal governments, 
EPA specifically solicits additional comment on this proposed rule from 
tribal officials.

F. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (NTTAA), Section 12(d) of Public Law 104-113, directs EPA 
to use voluntary consensus standards in its regulatory activities 
unless it would be inconsistent with applicable law or otherwise 
impractical. Voluntary consensus standards are technical standards 
(e.g., materials specifications, test methods, sampling procedures, and 
business practices) developed or adopted by voluntary consensus 
standards bodies. The NTTAA directs EPA to provide Congress, through 
OMB, explanations when the Agency decides not to use available and 
applicable voluntary consensus standards.
    This proposed rulemaking does not involve technical standards. 
Therefore, EPA is not considering the use of any voluntary consensus 
standards.
    EPA welcomes comments on this aspect of the proposed rulemaking 
and, specifically, invites the public to identify potentially-
applicable voluntary consensus standards and to explain why such 
standards should be used in this regulation.

G. Executive Order 13045: Children's Health Protection

    Executive Order 13045: ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that: (1) Is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, the Agency must evaluate the environmental health 
or safety effects of the planned rule on children, and explain why the 
planned regulation is preferable to other potentially effective and 
reasonably feasible alternatives considered by the Agency.
    EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that are based on health or safety risks, such that 
the analysis required

[[Page 2174]]

under section 5-501 of the Order has the potential to influence the 
regulation. This proposed rule is not subject to Executive Order 13045 
because it does not establish an environmental standard intended to 
mitigate health or safety risks.

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.''
    This proposed rule does not have federalism implications. It will 
not have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in Executive Order 13132. This proposed rule proposes to 
adopt non-conformance penalties for national emission standards for 
certain categories of motor vehicles. The requirements of the proposed 
rule would be enforced by the federal government at the national level. 
Thus, Executive Order 13132 does not apply to this rule.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicits comment on this proposed rule 
from State and local officials.

I. Executive Order 13211: Energy Effects

    This proposed rule is not a ``significant energy action'' as 
defined in Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 
28355, May 22, 2001) because it is not likely to have a significant 
adverse effect on the supply, distribution, or use of energy. As 
described in the 2000 final rule in which we affirmed the 2004 standard 
(65 FR 59896, Oct. 6, 2000), we have concluded that there would be no 
net long-term change in the fuel consumption performance of heavy-duty 
diesel engines as a result of the 2004 model year emission standards. 
However, there may be the potential for higher fuel consumption rates 
in the short term as diesel engine manufacturers work to balance the 
inherent tradeoff between control of NOX emissions and fuel 
consumption. The availability of NCPs for the 2004 and later model 
years provides manufacturers with another option for balancing this 
tradeoff and working towards optimizing fuel consumption and 
emissions--they would be able to use NCPs to emit somewhat higher 
NOX levels than they would otherwise be allowed, while at 
the same time avoiding undesirable fuel consumption impacts. Thus, we 
have concluded that this proposed rule is not likely to have any 
significant adverse energy effects.

J. Plain Language

    This document follows the guidelines of the June 1, 1998 Executive 
Memorandum on Plain Language in Government Writing. To read the text of 
the regulations, it is also important to understand the organization of 
the Code of Federal Regulations (CFR). The CFR uses the following 
organizational names and conventions.
Title 40--Protection of the Environment
Chapter I--Environmental Protection Agency
    Subchapter C--Air Programs. This contains parts 50 to 99, where the 
Office of Air and Radiation has usually placed emission standards for 
motor vehicle and nonroad engines.
    Subchapter U--Air Programs Supplement. This contains parts 1000 to 
1299, where we intend to place regulations for air programs in future 
rulemakings.
    Part 86--Control of Emissions from New and In-use Highway Vehicles 
and Engines. Provisions of this part apply generally to highway 
vehicles and engines used in highway vehicles.
    Each part in the CFR has several subparts, sections, and 
paragraphs. The following illustration shows how these fit together.

Part 86

Subpart A

Section 86.1
    (a)
    (b)
    (1)
    (2)
    (i)
    (ii)
    (A)
    (B)
    A cross reference to Sec. 1048.001(b) in this illustration would 
refer to the parent paragraph (b) and all its subordinate paragraphs. A 
reference to ``Sec. 1048.001(b) introductory text'' would refer only to 
the single, parent paragraph (b).

List of Subjects in 40 CFR Part 86

    Administrative practice and procedure, Confidential Business 
Information, Incorporation by reference, Labeling, Motor vehicle 
pollution, Reporting and recordkeeping requirements.

    Dated: January 10, 2002.
Christine Todd Whitman,
Administrator.
    For the reasons set forth in the preamble, chapter I, title 40 of 
the Code of Federal Regulations is proposed to be amended as follows:

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

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

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

    2. Section 86.1105-87 is proposed to be amended by revising 
paragraph (e) and by adding paragraph (i), to read as follows:


Sec. 86.1105-87  Emission standards for which nonconformance penalties 
are available.

* * * * *
    (e) The values of COC50, COC90, and 
MC50 in paragraphs (a) and (b) of this section are expressed 
in December 1984 dollars. The values of COC50, 
COC90, and MC50 in paragraphs (c) and (d) of this 
section are expressed in December 1989 dollars. The values of 
COC50, COC90, and MC50 in paragraph 
(f) of this section are expressed in December 1991 dollars. The values 
of COC50, COC90, and MC50 in 
paragraphs (g) and (h) of this section are expressed in December 1994 
dollars. The values of COC50, COC90, and 
MC50 in paragraph (i) of this section are expressed in 
December 2001 dollars. These values shall be adjusted for inflation to 
dollars as of January of the calendar year preceding the model year in 
which the NCP is first available by using the change in the overall 
Consumer Price Index, and rounded to the nearest whole dollar in 
accordance with ASTM E29-67 (reapproved 1980), Standard Recommended 
Practice for Indicating Which Places of Figures are to be Considered 
Significant in Specified Limiting Values. The method was approved by 
the Director of the Federal Register in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51. This document is available from ASTM, 1916 Race 
Street, Philadelphia, PA 19103, and is also available for inspection as 
part of Docket A-91-06, located at the

[[Page 2175]]

Central Docket Section, EPA, 401 M Street, SW, Washington, DC or at the 
Office of the Federal Register, 800 North Capitol Street, NW, suite 
700, Washington, DC. This incorporation by reference was approved by 
the Director of the Federal Register on January 13, 1992. These 
materials are incorporated as they exist on the date of the approval 
and a notice of any change in these materials will be published in the 
Federal Register.
* * * * *
    (i) Effective in the 2004 model year, NCPs will be available for 
the following emission standard:
    (1) Diesel heavy-duty engine non-methane hydrocarbon plus oxides of 
nitrogen standard of 2.4 grams per brake horsepower-hour (or 
alternatively, 2.5 grams per brake horsepower-hour with a limit on non-
methane hydrocarbon emissions of 0.5 grams per brake horsepower-hour), 
in Sec. 86.004-11(a)(1)(i).
    (i) For light heavy-duty diesel engines:
    (A) The following values shall be used to calculate an NCP in 
accordance with Sec. 86.1113-87(a):
    (1) COC50: $1080.
    (2) COC90: $2610.
    (3) MC50: $2000 per gram per brake horsepower-hour.
    (4) F: 1.3.
    (5) UL: 4.5 grams per brake horsepower-hour; notwithstanding 
Sec. 86.1104-91.
    (B) The following factor shall be used to calculate the engineering 
and development component of the NCP for the standard set forth in 
Sec. 86.004-11(a)(1)(i) in accordance with Sec. 86.1113-87(h): 0.333.
    (ii) For medium heavy-duty diesel engines:
    (A) The following values shall be used to calculate an NCP in 
accordance with Sec. 86.1113-87(a):
    (1) COC50: $3360.
    (2) COC90: $6870.
    (3) MC50: $1800 per gram per brake horsepower-hour.
    (4) F: 1.3.
    (5) UL: 4.5 grams per brake horsepower-hour; notwithstanding 
Sec. 86.1104-91.
    (B) The following factor shall be used to calculate the engineering 
and development component of the NCP for the standard set forth in 
Sec. 86.004-11(a)(1)(i) in accordance with Sec. 86.1113-87(h): 0.167.
    (iii) For heavy heavy-duty diesel engines:
    (A) The following values shall be used to calculate an NCP in 
accordance with Sec. 86.1113-87(a):
    (1) COC50: $8940.
    (2) COC90: $14790.
    (3) MC50: $7200 per gram per brake horsepower-hour.
    (4) F: 1.3.
    (5) UL: 6.0 grams per brake horsepower-hour; notwithstanding 
Sec. 86.1104-91.
    (B) The following factor shall be used to calculate the engineering 
and development component of the NCP for the standard set forth in 
Sec. 86.004-11(a)(1)(i) in accordance with Sec. 86.1113-87(h): 0.067.
    (iv) For diesel urban bus engines:
    (A) The following values shall be used to calculate an NCP in 
accordance with Sec. 86.1113-87(a):
    (1) COC50: $4400.
    (2) COC90: $7120.
    (3) MC50: $4895 per gram per brake horsepower-hour.
    (4) F: 1.3.
    (5) UL: 4.5 grams per brake horsepower-hour; notwithstanding 
Sec. 86.1104-91.
    (B) The following factor shall be used to calculate the engineering 
and development component of the NCP for the standard set forth in 
Sec. 86.004-11(a)(1)(i) in accordance with Sec. 86.1113-87(h): 0.136.
    (2) [Reserved]

[FR Doc. 02-1109 Filed 1-15-02; 8:45 am]
BILLING CODE 6560-50-P