[Federal Register Volume 69, Number 124 (Tuesday, June 29, 2004)]
[Rules and Regulations]
[Pages 38958-39273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11293]



[[Page 38957]]

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Part II





Environmental Protection Agency





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40 CFR Parts 9, 69, et al.



Control of Emissions of Air Pollution From Nonroad Diesel Engines and 
Fuel; Final Rule

  Federal Register / Vol. 69, No. 124 / Tuesday, June 29, 2004 / Rules 
and Regulations  

[[Page 38958]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 9, 69, 80, 86, 89, 94, 1039, 1048, 1051, 1065, and 
1068

[OAR-2003-0012; FRL-7662-4]
RIN 2060-AK27


Control of Emissions of Air Pollution From Nonroad Diesel Engines 
and Fuel

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Nonroad diesel engines contribute considerably to our nation's 
air pollution. These engines, used primarily in construction, 
agricultural, and industrial applications, are projected to continue to 
contribute large amounts of particulate matter, nitrogen oxides, and 
sulfur oxides, all of which contribute to serious public health 
problems in the United States. These problems include premature 
mortality, aggravation of respiratory and cardiovascular disease, 
aggravation of existing asthma, acute respiratory symptoms, chronic 
bronchitis, and decreased lung function. We believe that diesel exhaust 
is likely to be carcinogenic to humans by inhalation.
    Today, EPA is adopting new emission standards for nonroad diesel 
engines and sulfur reductions in nonroad diesel fuel that will 
dramatically reduce harmful emissions and will directly help States and 
local areas recently designated as 8-hour ozone nonattainment areas to 
improve their air quality. This comprehensive national program 
regulates nonroad diesel engines and diesel fuel as a system. New 
engine standards will begin to take effect in the 2008 model year, 
phasing in over a number of years. These standards are based on the use 
of advanced exhaust emission control devices. We estimate particulate 
matter reductions of 95 percent, nitrogen oxides reductions of 90 
percent, and the virtual elimination of sulfur oxides from nonroad 
engines meeting the new standards. Nonroad diesel fuel sulfur 
reductions of more than 99 percent from existing levels will provide 
significant health benefits as well as facilitate the introduction of 
high-efficiency catalytic exhaust emission control devices as these 
devices are damaged by sulfur. These fuel controls will be phased-in 
starting in mid-2007. Today's nonroad final rule is largely based on 
the Environmental Protection Agency's 2007 highway diesel program.
    To better ensure the benefits of the standards are realized in-use 
and throughout the useful life of these engines, we are also adopting 
new test procedures, including not-to-exceed requirements, and related 
certification requirements. The rule also includes provisions to 
facilitate the transition to the new engine and fuel standards and to 
encourage the early introduction of clean technologies and clean 
nonroad diesel fuel. We have also developed provisions for both the 
engine and fuel programs designed to address small business 
considerations.
    The requirements in this rule will result in substantial benefits 
to public health and welfare through significant reductions in 
emissions of nitrogen oxides and particulate matter, as well as 
nonmethane hydrocarbons, carbon monoxide, sulfur oxides, and air 
toxics. We are now projecting that by 2030, this program will reduce 
annual emissions of nitrogen oxides and particulate matter by 738,000 
and 129,000 tons, respectively. These emission reductions will prevent 
12,000 premature deaths, over 8,900 hospitalizations, and almost a 
million work days lost, and will achieve other quantifiable benefits 
every year. The total benefits of this rule will be approximately $80 
billion annually by 2030. The substantial health and welfare benefits 
we are projecting for this final action exceed those we anticipated at 
the time of this proposal. Costs for both the engine and fuel 
requirements will be many times less, at approximately $2 billion 
annually.

DATES: This final rule is effective on August 30, 2004.
    The incorporation by reference of certain publications listed in 
this regulation is approved by the Director of the Federal Register as 
of August 30, 2004.

ADDRESSES: EPA has established a docket for this action under Docket ID 
Nos. OAR-2003-0012 and A-2001-28. All documents in the docket are 
listed in the EDOCKET index at http://www.epa.gov/edocket. Although 
listed in the index, some information is not publicly available, i.e., 
CBI or other information whose disclosure is restricted by statute. 
Certain other material, such as copyrighted material, is not placed on 
the Internet and will be publicly available only in hard copy form. 
Publicly available docket materials are available either electronically 
in EDOCKET or in hard copy at the Air Docket in the EPA Docket Center, 
EPA/DC, EPA West, Room B102, 1301 Constitution Ave., NW, Washington, 
DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday 
through Friday, excluding legal holidays. The telephone number for the 
Public Reading Room is (202) 566-1744, and the telephone number for the 
Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: Carol Connell, Assessment and 
Standards Division, Office of Transportation and Air Quality, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; telephone number: (734) 214-4349; fax number: (734) 214-4050; e-
mail address: [email protected], or Assessment and Standards 
Division Hotline; telephone number: (734) 214-4636; e-mail address: 
[email protected].

SUPPLEMENTARY INFORMATION:

Does This Action Apply To Me?

    This action may affect you if you produce or import new diesel 
engines which are intended for use in nonroad vehicles or equipment, 
such as agricultural and construction equipment, or if you produce or 
import such nonroad vehicles or equipment. It may also affect you if 
you convert nonroad vehicles or equipment, or the engines used in them, 
to use alternative fuels. It may also affect you if you produce, 
import, distribute, or sell nonroad diesel fuel.
    The following table gives some examples of entities that may have 
to follow the regulations. But because these are only examples, you 
should carefully examine the regulations in 40 CFR parts 80, 89, 1039, 
1065, and 1068. If you have questions, call the person listed in the 
FOR FURTHER INFORMATION CONTACT section of this preamble:

------------------------------------------------------------------------
                                                         Examples of
          Category              NAICS       SIC          potentially
                               codes\a\   codes\b\   regulated entities
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Industry....................     333618       3519  Manufacturers of new
                                                     nonroad diesel
                                                     engines.
Industry....................     333111       3523  Manufacturers of
                                                     farm machinery and
                                                     equipment.
Industry....................     333112       3524  Manufacturers of
                                                     lawn and garden
                                                     tractors (home).
Industry....................     333924       3537  Manufacturers of
                                                     industrial trucks.
Industry....................     333120       3531  Manufacturers of
                                                     construction
                                                     machinery.

[[Page 38959]]

 
Industry....................     333131       3532  Manufacturers of
                                                     mining machinery
                                                     and equipment.
Industry....................     333132       3533  Manufacturers of oil
                                                     and gas field
                                                     machinery and
                                                     equipment.
Industry....................     811112       7533  Commercial importers
                                                     of vehicles and
                                                     vehicle components.
                                 811198       7549  ....................
Industry....................     324110       2911  Petroleum refiners.
Industry....................     422710       5171  Diesel fuel
                                                     marketers and
                                                     distributors.
                                 422720       5172  ....................
Industry....................     484220       4212  Diesel fuel
                                                     carriers.
                                 484230       4213  ....................
------------------------------------------------------------------------
Notes:
\a\ North American Industry Classification System (NAICS).
\b\ Standard Industrial Classification (SIC) system code.

How Can I Get Copies of This Document and Other Related Information?

    Docket. EPA has established an official public docket for this 
action under Docket ID No. OAR-2003-0012 at http://www.epa.gov/edocket. 
The official public docket consists of the documents specifically 
referenced in this action, any public comments received, and other 
information related to this action. Although a part of the official 
docket, the public docket does not include Confidential Business 
Information (CBI) or other information whose disclosure is restricted 
by statute. The official public docket is the collection of materials 
that is available for public viewing at the Air Docket in the EPA 
Docket Center, (EPA/DC) EPA West, Room B102, 1301 Constitution Ave., 
NW, Washington, DC. The EPA Docket Center Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal 
holidays. The telephone number for the Reading Room is (202) 566-1742, 
and the telephone number for the Air Docket is (202) 566-1742.
    Electronic Access. You may access this Federal Register document 
electronically through the EPA Internet under the ``Federal Register'' 
listings at http://www.epa.gov/fedrgstr/.
    An electronic version of the public docket is available through 
EPA's electronic public docket and comment system, EPA Dockets. You may 
use EPA Dockets at http://www.epa.gov/edocket/ to view public comments, 
access the index listing of the contents of the official public docket, 
and to access those documents in the public docket that are available 
electronically. Although not all docket materials may be available 
electronically, you may still access any of the publicly available 
docket materials through the docket facility identified above. Once in 
the system, select ``search,'' then key in the appropriate docket 
identification number.

Outline of This Preamble

I. Overview
    A. What Is EPA Finalizing?
    B. Why Is EPA Taking This Action?
II. Nonroad Engine Standards
    A. What Are the New Engine Standards?
    B. Are the New Standards Feasible?
    C. Why Do We Need 15ppm Sulfur Diesel Fuel?
III. Requirements for Engine and Equipment Manufacturers
    A. Averaging, Banking, and Trading
    B. Transition Provisions for Equipment Manufacturers
    C. Engine and Equipment Small Business Provisions (SBREFA)
    D. Certification Fuel
    E. Temporary In-Use Compliance Margins
    F. Test Cycles
    G. Other Test Procedure Issues
    H. Engine Power
    I. Auxiliary Emission Control Devices and Defeat Devices
    J. Not-To-Exceed Requirements
    K. Investigating and Reporting Emission-Related Defects
    L. Compliance With the Phase-In Provisions
    M. Incentive Program for Early or Very Low Emission Engines
    N. Labeling and Notification Requirements
    O. General Compliance
    P. Other Issues
    Q. Highway Engines
    R. Changes That Affect Other Engine Categories
IV. Our Program for Controlling Nonroad, Locomotive and Marine 
Diesel Fuel Sulfur
    A. Nonroad, Locomotive and Marine Diesel Fuel Quality Standards
    B. Hardship Relief Provisions for Qualifying Refiners
    C. Special Provisions for Alaska and the Territories
    D. NRLM Diesel Fuel Program Design
    E. How Are State Diesel Fuel Programs Affected by the Sulfur 
Diesel Program?
    F. Technological Feasibility of the 500 and 15 ppm Sulfur Diesel 
Fuel Program
    G. What Are the Potential Impacts of the 15 ppm Sulfur Diesel 
Program on Lubricity and Other Fuel Properties?
    H. Refinery Air Permitting
V. Nonroad, Locomotive and Marine Diesel Fuel Program: Details of 
the Compliance and Enforcement Provisions
    A. Special Fuel Provisions and Exemptions
    B. Additional Requirements for Refiners and Importers
    C. Requirements for Parties Downstream of the Refinery or Import 
Facility
    D. Diesel Fuel Sulfur Sampling and Testing Requirements
    E. Selection of the Marker for Heating Oil
    F. Fuel Marker Test Method
    G. Requirements for Record-keeping, Reporting, and PTDs
    H. Liability and Penalty Provisions for Noncompliance
    I. How Will Compliance With the Sulfur Standards Be Determined?
VI. Program Costs and Benefits
    A. Refining and Distribution Costs
    B. Cost Savings to the Existing Fleet From the Use of Low Sulfur 
Fuel
    C. Engine and Equipment Cost Impacts
    D. Annual Costs and Cost Per Ton
    E. Do the Benefits Outweigh the Costs of the Standards?
    F. Economic Impact Analysis
VII. Alternative Program Options Considered
    A. Summary of Alternatives
    B. Introduction of 15 ppm Nonroad Diesel Sulfur Fuel in One Step
    C. Applying the 15 ppm Sulfur Cap to Locomotive and Marine 
Diesel Fuel
    D. Other Alternatives
VIII. Future Plans
    A. Technology Review
    B. Test Procedure Issues
    C. In-use Testing
    D. Engine Diagnostics
    E. Future NOX Standards for Engines in Mobile 
Machinery Over 750 hp
    F. Emission Standards for Locomotive and Marine Diesel Engines
    G. Retrofit Programs
    H. Reassess the Marker Specified for Heating Oil
IX. Public Participation
X. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 
U.S.C. 601 et. seq
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children from 
Environmental Health and Safety Risks

[[Page 38960]]

    H. Executive Order 13211: Actions That Significantly Affect 
Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Congressional Review Act
XI. Statutory Provisions and Legal Authority

I. Overview

    EPA today is completing the third recent major program to reduce 
emissions from the nation's mobile sources. Today's final rule 
establishes standards for nonroad diesel engines and fuel and builds on 
the recently adopted Tier 2 program for cars and light trucks and the 
2007 highway diesel program for on-highway diesel engines. These three 
programs have in common large reductions in sulfur levels in fuel that 
will not only achieve public health benefits but also facilitate the 
introduction of advanced emissions control technologies. In 1996, 
emissions from land-based nonroad, marine, and locomotive diesel 
engines were estimated to be about 40 percent of the total mobile 
source inventory of PM2.5 (particulate matter less than 2.5 
microns in diameter) and 25 percent of the NOX (nitrogen 
oxides) inventory. Without today's final rule, these contributions 
would be expected to grow to 44 percent and 47 percent by 2030 for 
PM2.5 and NOX, respectively. By themselves, land-
based nonroad diesel engines are a very large part of the diesel mobile 
source PM2.5 inventory, contributing about 47 percent in 
1996, and growing to 70 percent of this inventory by 2020 without 
today's final rule. In order to meet the Clean Air Act's goal of 
cleaning up the nation's air, emissions reductions from the nonroad 
sector are necessary.
    This program begins to get important emission reductions in 2008, 
and by 2030 we estimate that this program will reduce over 129,000 tons 
PM2.5 and 738,000 tons of NOX annually. These 
emission reductions will be directly helpful to the 474 counties 
nationwide that have been recently designated as nonattainment areas 
for the 8-hour ozone standard and for counties that will be designated 
as nonattainment for PM2.5 later this year. The resulting 
ambient PM2.5 and NOX reductions correspond to 
public health improvements in 2030 including approximately 12,000 fewer 
premature mortalities, 15,000 fewer heart attacks, 1 million fewer lost 
days of work due to adults with respiratory symptoms, 5.9 million fewer 
days when adults have to restrict their activities due to respiratory 
symptoms, and almost 6,000 emergency room visits for asthma attacks in 
children. Our projections in this final rule for public health and 
welfare improvements are greater than estimated at proposal.
    This final rule sets out emission standards for nonroad diesel 
engines--engines used mainly in construction, agricultural, industrial 
and mining operations--that will achieve reductions in PM and 
NOX emissions levels in excess of 95 percent and 90 percent 
respectively. This action also regulates nonroad diesel fuel for the 
first time by reducing sulfur levels in this fuel more than 99 percent 
to 15 parts per million (ppm). These provisions mirror those already in 
place for highway diesel engines, which will lead to the introduction 
of 15 ppm sulfur diesel fuel, followed by stringent engine standards in 
that sector beginning in 2007 based on advanced aftertreatment 
technologies. We believe it is highly appropriate to bring the same 
types of expected advanced aftertreatment technologies to the nonroad 
market as soon as possible and we believe today's nonroad fuel and 
engine program represents the next step in a feasible progression in 
the application of clean technologies to nonroad diesel engines and the 
associated diesel fuel.
    As we did with the proposed nonroad rulemaking, we followed 
specific principles when developing this final rule. First, the program 
achieves reductions in NOX, sulfur oxides (SOX), 
and PM emissions as early as possible. Second, it does so by 
implementing the fuel program as soon as possible while at the same 
time not interfering with the implementation and expected benefits of 
introducing ultra low sulfur fuel (diesel fuel containing no greater 
than 15 ppm sulfur) in the highway market as required by the 2007 
highway diesel rule. Next, we are generally treating vehicles and fuels 
as a system, that is promulgating engine and fuel standards in tandem 
in order to cost-effectively achieve the greatest emission reductions. 
Lastly, the program provides sufficient lead time to allow the 
migration of advanced emissions control technologies from the highway 
sector to nonroad diesel engines as well as the expansion of ultra low 
sulfur diesel fuel production to the nonroad market.
    The May 2003 proposed rulemaking culminated a multi-year effort to 
develop control strategies for nonroad engines. EPA worked 
collaboratively with stakeholders from industry, state and local 
government, and public health organizations in putting together its 
comprehensive (and widely praised) new engine standards and sulfur fuel 
controls. We received about 150,000 comments on the proposal, almost 
all of them in support. We held three public hearings on the proposal 
and have participated in scores of meetings with commenters in 
developing the provisions of today's final rule. An important aspect of 
this collaborative development effort has been EPA's coordination with 
other governments in helping to further world harmonization of nonroad 
engine controls and fuel sulfur levels. Information gathered in these 
comments and discussions, taken in context with the principles 
described above, has been the basis for our action today.
    In summary, this rule sets out engine standards and emission test 
procedures (including not-to-exceed requirements) for new nonroad 
diesel engines, and sulfur control requirements for diesel fuel used in 
land-based nonroad, locomotive, and marine engines (NRLM fuel). 
Beginning in 2008, the new Tier 4 engine standards for five power 
categories for engines from under 25 horsepower (hp) to above 750 
horsepower will be phased in. New engine emissions test procedures will 
be phased in along with these new standards to better ensure emissions 
control over real-world engine operation and to help provide for 
effective compliance determination. The sulfur reductions to land-based 
nonroad diesel fuel will be accomplished in two steps, with an interim 
step from currently uncontrolled levels to a 500 ppm cap starting in 
June, 2007 and the final step to 15 ppm in June, 2010. This change in 
fuel quality will directly lead to important health and welfare 
benefits associated with the reduced generation of sulfate PM and 
SOX. Even more important, introduction of 15 ppm sulfur 
nonroad diesel fuel facilitates the introduction of advanced 
aftertreatment devices for nonroad engines.
    Although we did not propose to control locomotive and marine diesel 
fuel sulfur levels to 15 ppm in the NPRM, recognizing the important 
environmental and public welfare benefits that such a program could 
enable, we have decided to finalize this second step to 15 ppm sulfur 
fuel control program for locomotive and marine diesel fuel beginning in 
2012. Locomotive and marine diesel fuel will first be reduced from 
current uncontrolled levels to a 500 ppm cap starting in June 2007 and 
the second step down to a 15 ppm cap will take place in June, 2012. 
While we have chosen to reduce sulfur levels in locomotive and marine 
diesel fuel to 15 ppm in this rulemaking without adopting corresponding 
engine controls, we note that the Agency has already begun work to 
promulgate appropriate

[[Page 38961]]

new standards for these engines.\1\ The monetized health and welfare 
benefits associated with further sulfur reduction to 15 ppm outweigh 
the costs of the sulfur reductions. Also, doing so now allows for the 
promulgation of a single integrated fuel program and provides the 
refining industry with long term predictability for sulfur control.
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    \1\ EPA is issuing an Advanced Notice of Proposed Rulemaking for 
locomotive and marine engine standards as part of this effort.
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    The requirements in this rule will result in substantial benefits 
to public health and welfare and the environment through significant 
reductions in NOX and PM as well as nonmethane hydrocarbons 
(NMHC), carbon monoxide (CO), SOX, and air toxics. As noted, 
by 2030 this program will reduce annual emissions of NOX and 
PM by 738,000 and 129,000 tons, respectively. We estimate these annual 
emission reductions will prevent 12,000 premature deaths, over 8,900 
hospitalizations, 15,000 nonfatal heart attacks, and approximately 1 
million days that people miss work because of respiratory symptoms, 
among quantifiable benefits. The overall quantifiable benefits will 
total $83 billion annually by 2030 using a 3 percent discount rate and 
$78 billion using a 7 percent discount rate at a cost of approximately 
$2 billion, with a 30-year net present value for the benefits of $805 
billion at 3 percent discounting and $352 billion at 7 percent 
discounting at a net present value cost of $27 billion at 3 percent 
discounting and $14 billion at 7 percent discounting. Clearly the 
benefits of this program dramatically outweigh its cost at a ratio of 
approximately 40:1 in 2030.

A. What Is EPA Finalizing?

    As part of the proposed rulemaking, we set out very detailed 
provisions for new engine exhaust emission controls, sulfur limitations 
in nonroad and locomotive/marine diesel fuels, test procedures, 
compliance requirements, and other information. We also looked at a 
number of alternative program options, such as requiring refiners to 
reduce sulfur from uncontrolled levels to 15 ppm in one step in 2008. 
We continue to believe that the main program options set out in the 
proposal are feasible and the most cost-effective requirements, taking 
into account other factors such as lead time and interaction with the 
highway diesel program, so we are generally adopting the engine and 
fuel provisions which we proposed.
1. Nonroad Diesel Engine Emission Standards
    Today's action adopts Tier 4 standards for nonroad diesel engines 
of all horsepower ratings. These standards are technology-neutral in 
the sense that manufacturers are the responsible party in determining 
which emission control technologies will be needed to meet the 
requirements. Applicable emissions standards are determined by model 
year for each of five engine power band categories. For engines less 
than 25 hp, we are adopting a new engine standard for PM of 0.30 g/bhp-
hr (grams per brake-horsepower-hour) beginning in 2008, and leaving the 
previously-set 5.6 g/bhp-hr combined standard for NMHC+NOX 
in place. For engines of 25 to 75 hp, we are adopting standards 
reflecting approximately 50 percent reductions in PM control from 
today's engines, again applicable beginning in 2008. Then, starting in 
2013, standards of 0.02 g/bhp-hr for PM and 3.5 g/bhp-hr for 
NMHC+NOX will apply for this power category. For engines of 
75 to 175 hp, the standards will be 0.01 g/bhp-hr for PM, 0.30 g/bhp-hr 
for NOX and 0.14 g/bhp-hr for NMHC starting in 2012, with 
the NOX and NMHC standards phased in over a period of three 
to four years in order to address lead time, workload, and feasibility 
considerations. These same standards will apply to engines of 175 to 
750 hp as well starting in 2011, with a similar phase-in. These PM, 
NOX, and NMHC standards and phase-in schedules are similar 
in stringency to the 2007 highway diesel standards and are expected to 
require the use of high-efficiency aftertreatment systems to ensure 
compliance.
    For engines above 750 hp, we are requiring PM and NMHC control to 
0.075 g/bhp-hr and 0.30 g/bhp-hr, respectively, starting in 2011. More 
stringent standards take effect in 2015 with PM standards of 0.02 g/
bhp-hr (for engines used in generator sets) and 0.03 g/bhp-hr (for non-
generator set engines), and an NMHC standard of 0.14 g/bhp-hr. The 
NOX standard in 2011 will be 0.50 g/bhp-hr for generator set 
engines above 1200 hp, and 2.6 g/bhp-hr for all other engines in the 
above 750 hp category. This application of advanced NOX 
emission control technologies to generator set engines above 1200 hp 
will provide substantial NOX reductions and will occur 
earlier than we had proposed in the NPRM. In 2015, the 750-1200 hp 
generator set engines will be added to the stringent 0.50 g/bhp-hr 
NOX requirement as well. The long-term NOX 
standard for engines not used in generator sets (mobile machinery) will 
be addressed in a future action (we are currently considering such an 
action in the 2007 time frame).
    We are also continuing the averaging, banking, and trading 
provisions engine manufacturers can use to demonstrate compliance with 
the standards. We also are continuing provisions providing 
flexibilities which equipment manufacturers may use to facilitate 
transition to compliance with the new standards. In addition, we are 
including turbocharged diesels in the existing regulation of crankcase 
emissions, effective in the same year that the new standards first 
apply in each power category.
    As discussed at length in the proposal, new test procedures and 
compliance provisions, especially the not-to-exceed and transient 
tests, are necessary to ensure the benefits of the standards being 
adopted today are achieved when the aftertreatment-based standards go 
into place. We are therefore adopting the proposed test procedures and 
compliance provisions, with slight modifications designed to better 
implement the provisions, in today's rule. We continue to believe the 
new transient test, cold start transient test, and not-to-exceed test 
procedures and standards will all help achieve our goal of emissions 
reductions being achieved in actual engine operation.
    As noted, the final rule also continues, and in some cases 
modifies, existing provisions that will facilitate the transition to 
the new engine and fuel standards. Many of these provisions will help 
small business engine and equipment manufacturers meet the 
requirements. They will also aid manufacturers in managing their 
development of engines and equipment that will meet our new standards.
2. Nonroad, Locomotive, and Marine Diesel Fuel Quality Standards
    The fuel program requirements are very similar to those included in 
the proposal, with two notable exceptions. The first involves the 
standards themselves with the inclusion of locomotive and marine diesel 
fuel in the 15 ppm standard. The second addresses the compliance 
provisions designed to ensure the effectiveness of the program.
    We are adopting the two-step approach to sulfur control, with all 
land-based nonroad, locomotive, and marine diesel fuel going from 
uncontrolled sulfur levels of approximately 3,000 ppm sulfur to 500 ppm 
in June, 2007. The interim step will by itself achieve significant PM 
and SOX emission reductions with associated important health 
benefits as early as is practicable. Then, in June

[[Page 38962]]

2010, the sulfur cap for land-based nonroad engine diesel fuel will be 
reduced to the final standard of 15 ppm. Two years later, in 2012, the 
15 ppm cap for locomotive and marine engine diesel fuel will go into 
effect. The reduction to 15 ppm sulfur provides additional direct 
control of PM and SOX emissions and is an enabling 
technology for the application of advanced catalyst-based emission 
control technologies.
    Although we did not propose to control locomotive and marine diesel 
fuel to 15 ppm in the NPRM, after careful consideration and reviewing 
substantial comments from stakeholders, we have decided to include fuel 
used in locomotive and marine applications in the final step to 15 ppm 
beginning in 2012. The incremental PM health and welfare benefits 
associated with this standard outweigh the costs. The locomotive and 
marine diesel fuel program provides a near-term positive impact on 
public health and welfare. Also, the 15 ppm sulfur diesel fuel provides 
an opportunity that may enable the application of advanced catalyst-
based emission control technologies to locomotive and marine diesel 
engines. We are issuing an Advance Notice of Proposed Rulemaking for 
locomotive and marine diesel engines that investigates this potential. 
Recognizing the value that a locomotive and marine fuel program could 
have for public health and welfare, State and local authorities and 
public health advocacy organizations provided a large number of 
comments encouraging us to take action in this rulemaking to address 
emissions from this category.
    Including locomotive and marine fuel in the 15 ppm sulfur diesel 
fuel pool also simplifies the overall design of the fuel program and 
will simplify the distribution of diesel fuel. At the same time, we 
have finalized this standard with flexibilities designed specifically 
to address fuel program implementation issues raised in the comments.
    Noting that sulfur levels in highway diesel fuel will generally be 
at or below 15 ppm starting in 2006 and not wanting to reduce the 
benefits of introducing this clean fuel, we spent considerable time 
developing a compliance assurance scheme for introducing our nonroad 
diesel sulfur program to mesh with the highway program requirements. We 
initially thought that a ``baseline'' approach essentially requiring 
refiners to maintain a constraint on sulfur levels of various 
distillate fuels, based on historical production volumes, was the most 
appropriate mechanism. Subsequently we learned that the other mechanism 
we discussed in the proposal, a ``designate and track'' type approach, 
is better suited to address our priorities and commitments for the 
nonroad diesel sulfur control program. This approach allows refiners to 
designate volumes of nonroad fuel into various categories and these 
designations would follow the fuel throughout the distribution system. 
We have successfully worked through our enforceability and other 
concerns with this approach and are now including it as our compliance 
mechanism for the fuel standards of today's program.

B. Why Is EPA Taking This Action?

    As we have discussed extensively in both the proposal and today's 
action, EPA strongly believes it is appropriate to take steps now to 
reduce future emissions from nonroad, locomotive, and marine diesel 
engines. Emissions from these engines contribute greatly to a number of 
serious air pollution problems and would continue to do so in the 
future absent further reduction measures. Such emissions lead to 
adverse health and welfare effects associated with ozone, PM, 
NOX, SOX, and volatile organic compounds, 
including toxic compounds. In addition, diesel exhaust is of specific 
concern because it is likely to be carcinogenic to humans by inhalation 
as well as posing a hazard from noncancer respiratory effects. Ozone, 
NOX, and PM also cause significant public welfare harm such 
as damage to crops, eutrophication, regional haze, and soiling of 
building materials.
    Millions of Americans continue to live in areas with unhealthy air 
quality that may endanger public health and welfare. As discussed in 
more detail below, there are approximately 159 million people living in 
areas that either do not meet the 8-hour ozone National Ambient Air 
Quality Standards (NAAQS) or contribute to violations in other counties 
as noted in EPA's recent nonattainment designations for part or all of 
474 counties. In addition, approximately 65 million people live in 
counties where air quality measurements violate the PM2.5 
NAAQS. These numbers do not include the tens of millions of people 
living in areas where there is a significant future risk of failing to 
maintain or achieve the ozone or PM2.5 NAAQS. Federal, 
state, and local governments are working to bring ozone and PM levels 
into compliance with the NAAQS attainment and maintenance plans and the 
reductions included in today's rule will play a critical part in these 
actions. Reducing regional emissions of SOX is critical to 
this strategy for attaining the PM NAAQS and meeting regional haze 
goals in our treasured national parks. SOX levels can 
themselves pose a respiratory hazard.
    Although controlling air pollution from nonroad diesel exhaust is 
challenging, we strongly believe it can be accomplished through the 
application of high-efficiency emissions control technologies. As 
discussed in much greater detail in section II, very large emission 
reductions (in excess of 90 percent) are possible, especially through 
the use of catalytic emission control devices installed in the nonroad 
equipment's exhaust system and integrated with the engine controls. To 
meet the standards being adopted today, application of such 
technologies for both PM and NOX control will be needed for 
most engines. High-efficiency PM exhaust emission control technology 
has been available for several years, and it is the same technology we 
expect to be applied to meet the PM standards for highway diesel 
engines in 2007. For NOX, we expect the same high-efficiency 
technologies being developed for the 2007 highway diesel engine program 
will be used to meet our new nonroad requirements. All of these 
technologies are dependent on the 15 ppm maximum sulfur levels for 
nonroad diesel fuel being adopted today. The fuel control program being 
adopted today also yields significant and important reductions in 
SOX from these sources.
1. Basis for Action Under the Clean Air Act
    Section 213 of the Clean Air Act (``the Act'' or CAA) gives us the 
authority to establish emissions standards for nonroad engines and 
vehicles. Section 213(a)(3) authorizes the Administrator to set 
standards for NOX, volatile organic compounds (VOCs), and CO 
which ``standards shall achieve the greatest degree of emission 
reduction achievable through the application of technology which the 
Administrator determines will be available for the engines or 
vehicles.'' As part of this determination, the Administrator must give 
appropriate consideration to cost, lead time, noise, energy, and safety 
factors associated with the application of such technology. The 
standards adopted today for NOX implement this provision. 
Section 213(a)(4) authorizes the Administrator to establish standards 
to control emissions of pollutants (other than those covered by section 
213(a)(3)) which ``may reasonably be anticipated to endanger public 
health and welfare.'' Here, the Administrator may promulgate 
regulations that are deemed appropriate for new nonroad vehicles and 
engines

[[Page 38963]]

which cause or contribute to such air pollution, taking into account 
costs, noise, safety, and energy factors. EPA believes the new controls 
for PM in today's rule are an appropriate exercise of EPA's discretion 
under the authority of section 213(a)(4).
    We believe the evidence provided in section II of this preamble and 
in the Regulatory Impact Analysis (RIA) indicates that the stringent 
emission standards adopted today are feasible and reflect the greatest 
degree of emission reduction achievable in the model years to which 
they apply. We have given appropriate consideration to costs in 
promulgating these standards. Our review of the costs and cost-
effectiveness of these standards indicate that they will be reasonable 
and comparable to the cost-effectiveness of other emission reduction 
strategies for the same pollutants that have been required or could be 
required in the future. We have also reviewed and given appropriate 
consideration to the energy factors of this rule in terms of fuel 
efficiency and effects on diesel fuel supply, production, and 
distribution, as discussed below, as well as any safety factors 
associated with these new standards.
    The information in this section and chapters 2 and 3 of the RIA 
regarding air quality and the contribution of nonroad, locomotive, and 
marine diesel engines to air pollution provides strong evidence that 
emissions from such engines significantly and adversely impact public 
health or welfare. First, as noted earlier, there is a significant risk 
that several areas will fail to attain or maintain compliance with the 
NAAQS for 8-hour ozone concentrations or the NAAQS for PM2.5 
during the period that these new vehicle and engine standards will be 
phased into the vehicle population, and that nonroad, locomotive, and 
marine diesel engines contribute to such concentrations, as well as to 
concentrations of other criteria pollutants. This risk will be 
significantly reduced by the standards adopted today, as also noted 
above. However, the evidence indicates that some risk remains even 
after the reductions achieved by these new controls on nonroad diesel 
engines and nonroad, locomotive, and marine diesel fuel. Second, EPA 
believes that diesel exhaust is likely to be carcinogenic to humans. 
The risk associated with exposure to diesel exhaust includes the 
particulate and gaseous components among which are benzene, 
formaldehyde, acetaldehyde, acrolein, and 1,3-butadiene, all of which 
are known or suspected human or animal carcinogens, or have noncancer 
health effects. Moreover, these compounds have the potential to cause 
health effects at environmental levels of exposure. Third, emissions 
from nonroad diesel engines (including locomotive and marine diesel 
engines) contribute to regional haze and impaired visibility across the 
nation, as well as to odor, acid deposition, polycyclic organic matter 
(POM) deposition, eutrophication and nitrification, all of which are 
serious environmental welfare problems.
    EPA has already found in previous rules that emissions from new 
nonroad diesel engines contribute to ozone and CO concentrations in 
more than one area which has failed to attain the ozone and CO NAAQS 
(59 FR 31306, June 17, 1994). EPA has also previously determined that 
it is appropriate to establish standards for PM from new nonroad diesel 
engines under section 213(a)(4), and the additional information on 
diesel exhaust carcinogenicity noted above reinforces this finding. In 
addition, we have already found that emissions from nonroad engines 
significantly contribute to air pollution that may reasonably be 
anticipated to endanger public welfare due to regional haze and 
visibility impairment (67 FR 68242-68243, Nov. 8, 2002). We find here, 
based on the information in this section of the preamble and chapters 2 
and 3 of the RIA, that emissions from the new nonroad diesel engines 
covered by this final action likewise contribute to regional haze and 
to visibility impairment that may reasonably be anticipated to endanger 
public welfare. Taken together, these findings indicate the 
appropriateness of the nonroad diesel engine standards adopted today 
for purposes of section 213(a)(3) and (4) of the Act. These findings 
were unchallenged by commenters.
    These standards must take effect at ``the earliest possible date 
considering the lead time necessary to permit development and 
application of the requisite technology,'' giving ``appropriate 
consideration'' to cost, energy, and safety.\2\ The compliance dates we 
are adopting reflect careful consideration of these factors. The 
averaging, banking, and trading (ABT), equipment manufacturer 
flexibilities, and phase-in provisions for NOX are elements 
in our determination that we have selected appropriate lead times for 
the standards.
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    \2\ See Clean Air Act section 213(b).
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    Section 211(c) of the CAA allows us to regulate fuels where 
emission products of the fuel either: (1) Cause or contribute to air 
pollution that reasonably may be anticipated to endanger public health 
or welfare, or (2) will impair to a significant degree the performance 
of any emission control device or system which is in general use, or 
which the Administrator finds has been developed to a point where in a 
reasonable time it will be in general use were such a regulation to be 
promulgated. This rule meets both of these criteria. Sulfur dioxide 
(SO2)and sulfate PM emissions from nonroad, locomotive, 
marine and diesel vehicles are due to sulfur in diesel fuel. As 
discussed above, emissions of these pollutants cause or contribute to 
ambient levels of air pollution that endanger public health and 
welfare. Control of sulfur to 15 ppm for this fuel through a two-step 
program would lead to significant, cost-effective reductions in 
emissions of these pollutants. Control of sulfur to 15 ppm in nonroad 
diesel fuel will also enable emissions control technology that will 
achieve significant, cost-effective reduction in emissions of these 
pollutants, as discussed in section I.B.2 below. The substantial 
adverse effect of high sulfur levels on the performance of diesel 
emission control devices or systems that would be expected to be used 
to meet the nonroad standards is discussed in detail in section II. 
Control of sulfur to 15 ppm for locomotive and marine diesel fuel, as 
with nonroad diesel fuel, will provide meaningful additional benefits 
that outweigh the costs. In addition, our authority under section 
211(c) is discussed in more detail in Appendix A to chapter 5 of the 
RIA.
2. What Is the Air Quality Impact of This Final Rule?
a. Public Health and Environmental Impacts
    With this rulemaking, we are acting to extend advanced emission 
controls to another major source of diesel engine emissions: Nonroad 
land-based diesel engines. This final rule sets out emission standards 
for nonroad land-based diesel engines--engines used mainly in 
construction, agricultural, industrial and mining operations--that will 
achieve reductions in PM and NOX standards in excess of 95 
percent and 90 percent, respectively for this class of vehicles. This 
action also regulates nonroad diesel fuel for the first time by 
reducing sulfur levels in this fuel more than 99 percent to 15 ppm. The 
diesel fuel sulfur requirements will decrease PM and SO2 
emissions for land-based diesel engines, as well as for three other 
nonroad source categories: Commercial marine diesel vessels, 
locomotives, and recreational marine diesel engines.

[[Page 38964]]

    These sources are significant contributors to atmospheric pollution 
of (among other pollutants) PM, ozone and a variety of toxic air 
pollutants. In 1996, emissions from these four source categories were 
estimated to be 40 percent of the mobile source inventory for 
PM2.5 and 25 percent for NOX, and 10 percent and 
13 percent of overall emissions for these potential health hazards, 
respectively. Without further controls beyond those we have already 
adopted, these sources will emit 44 percent of PM2.5 from 
mobile sources and 47 percent of NOX emissions from mobile 
sources by the year 2030.
    Nonroad engines, and most importantly nonroad diesel engines, 
contribute significantly to ambient PM2.5 levels, largely 
through direct emissions of carbonaceous and sulfate particles in the 
fine (and even ultrafine) size range. Nonroad diesels also currently 
emit high levels of NOX which react in the atmosphere to 
form secondary PM2.5 (namely ammonium nitrate) as well as 
ozone. Nonroad diesels also emit SO2 and hydrocarbons which 
react in the atmosphere to form secondary PM2.5 (namely 
sulfates and organic carbonaceous PM2.5). This section 
summarizes key points regarding the nonroad diesel engine contribution 
to these pollutants and their impacts on human health and the 
environment. EPA notes that we are relying not only on the information 
presented in this preamble, but also on the more detailed information 
in chapters 2 and 3 of the RIA and technical support documents, as well 
as information in the preamble, RIA, and support documents for the 
proposed rule.
    When fully implemented, this final rule will reduce nonroad 
(equipment such as construction, agricultural, and industrial), diesel 
PM2.5 and NOX emissions by 95 percent and 90 
percent, respectively. It will also virtually eliminate nonroad diesel 
SO2 emissions, which amounted to approximately 234,000 tons 
in 1996, and would otherwise grow to approximately 326,000 tons by 
2020. These dramatic reductions in nonroad emissions are a critical 
part of the effort by federal, state and local governments to reduce 
the health related impacts of air pollution and to reach attainment of 
the NAAQS for PM and ozone, as well as to improve other environmental 
effects such as atmospheric visibility. Based on the most recent data 
available for this rule, such problems are widespread in the United 
States. There are almost 65 million people living in 120 counties with 
monitored PM2.5 levels (2000-2002) exceeding the 
PM2.5 NAAQS, and 159 million people living in areas recently 
designated as exceeding 8-hour ozone NAAQS. Figure I-1 illustrates the 
widespread nature of these problems. Shown in this figure are counties 
exceeding the PM2.5 NAAQS or designated for nonattainment 
with the 8-hour ozone NAAQS plus mandatory Federal Class I areas, which 
have particular needs for reductions in atmospheric haze.
    Our air quality modeling also indicates that similar conditions are 
likely to continue to persist in the future in the absence of 
additional controls and that the emission reductions would assist areas 
with attainment and future maintenance of the PM and ozone NAAQS.\3\ 
For example, in 2020, based on emission controls currently adopted, we 
project that 66 million people will live in 79 counties with average 
PM2.5 levels above 15 micrograms per cubic meter (ug/m\3\). 
In 2030, the number of people projected to live in areas exceeding the 
PM2.5 standard is expected to increase to 85 million in 107 
counties. An additional 24 million people are projected to live in 
counties within 10 percent of the standard in 2020, which will increase 
to 64 million people in 2030. Furthermore, for ozone, in 2020, based on 
emission controls currently adopted, the number of counties violating 
the 8-hour ozone standard is expected to decrease to 30 counties where 
43 million people are projected to live. Thereafter, exposure to 
unhealthy levels of ozone is expected to begin to increase again. In 
2030 the number of counties violating the 8-hour ozone NAAQS is 
projected to increase to 32 counties where 47 million people are 
projected to live. In addition, in 2030, 82 counties where 44 million 
people are projected to live will be within 10 percent of violating the 
ozone 8-hour NAAQS.
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    \3\ Note this analysis does not include the effects of the 
proposed Rule to Reduce Interstate Transport of Fine Particulate 
Matter and Ozone (Interstate Air Quality Rule). 69 FR 4566 (January 
30, 2004). See http://www.epa.gov/interstateairquality/rule.html.
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BILLING CODE 6560-50-P

[[Page 38965]]

[GRAPHIC] [TIFF OMITTED] TR29JN04.000

    EPA is still developing the implementation process for bringing the 
nation's air into attainment with the PM2.5 and 8-hour ozone 
NAAQS. Based on section 172(a) provisions in the Act, designated areas 
will need to attain the PM2.5 NAAQS in the 2010 (based on 
2007-2009 air quality data) to 2015 (based on 2012 to 2014 air quality 
data) time frame, and then be required to maintain the NAAQS 
thereafter. Similarly, we expect that most areas covered under subpart 
1 and 2 will attain the ozone standard in the 2007 to 2014 time frame, 
depending on an area's classification and other factors, and then be 
required to maintain the NAAQS thereafter.
    Since the emission reductions expected from this final rule would 
begin in this same time frame, the projected reductions in nonroad 
emissions would be used by states in meeting the PM2.5 and 
ozone NAAQS. In their comments on the proposal, states told EPA that 
they need nonroad diesel engine reductions in order to be able to meet 
and maintain the PM2.5 and ozone NAAQS as well as to make 
progress toward visibility requirements.\4\ Furthermore, this action 
would ensure that nonroad diesel emissions will continue to decrease as 
the fleet turns over in the years beyond 2014; these reductions will be 
important for maintenance of the NAAQS following attainment.
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    \4\ The following are sample comments from states and state 
associations on the proposed rule, which corroborate that this rule 
is a critical element in States' NAAQS attainment efforts. Fuller 
information can be found in the Summary and Analysis of Comments.
    --``Unless emissions from nonroad diesels are sharply reduced, 
it is very likely that many areas of the country will be unable to 
attain and maintain health-based NAAQS for ozone and PM.'' (STAPPA/
ALAPCO)
    --``Adoption of the proposed regulation * * * is necessary for 
the protection of public health in California and to comply with air 
quality standards * * * The need for 15 ppm sulfur diesel fuel 
cannot be overstated.'' (California Air Resources Board)
    --``The EPA's proposed regulation is necessary if the West is to 
make reasonable progress towards improving visibility in our 
nation's Class I areas.'' (Western Regional Air Partnership (WRAP))
    --``Attainment of the NAAQS for ozone and PM2.5 is of 
immediate concern to the states in the northeast region.* * * Thus, 
programs * * * such as the proposed rule for nonroad diesel engines 
are essential.'' (NESCAUM)
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    Scientific studies show ambient PM is associated with a series of 
adverse health effects. These health effects are discussed in detail in 
the EPA Criteria Document for PM as well as the draft updates of this 
document released in the

[[Page 38966]]

past year.5, 6 EPA's ``Health Assessment Document for Diesel 
Engine Exhaust,'' (the ``Diesel HAD'') also reviews health effects 
information related to diesel exhaust as a whole including diesel PM, 
which is one component of ambient PM.\7\ In the Diesel HAD, we note 
that the particulate characteristics in the zone around nonroad diesel 
engines are likely to be substantially the same as published air 
quality measurements made along busy roadways. This conclusion supports 
the relevance of health effects associated with highway diesel engine-
generated PM to nonroad applications.
---------------------------------------------------------------------------

    \5\ U.S. EPA (1996.) Air Quality Criteria for Particulate 
Matter--Volumes I, II, and III, EPA, Office of Research and 
Development. Report No. EPA/600/P-95/001a-cF. This material is 
available electronically at http://www.epa.gov/ttn/oarpg/ticd.html.
    \6\ U.S. EPA (2003). Air Quality Criteria for Particulate 
Matter--Volumes I and II (Fourth External Review Draft) This 
material is available electronically at http://cfpub.epa.gov/ncea/cfm/partmatt.cfm.
    \7\ U.S. EPA (2002). Health Assessment Document for Diesel 
Engine Exhaust. EPA/600/8-90/057F Office of Research and 
Development, Washington, DC. This document is available 
electronically at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=29060.
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    As described in these documents, health effects associated with 
short-term variation in ambient PM have been indicated by epidemiologic 
studies showing associations between exposure and increased hospital 
admissions for ischemic heart disease, heart failure, respiratory 
disease, including chronic obstructive pulmonary disease (COPD) and 
pneumonia. Short-term elevations in ambient PM have also been 
associated with increased cough, lower respiratory symptoms, and 
decrements in lung function. Additional studies have associated changes 
in heart rate and/or heart rhythm in addition to changes in blood 
characteristics with exposure to ambient PM. Short-term variations in 
ambient PM have also been associated with increases in total and 
cardiorespiratory mortality. Studies examining populations exposed to 
different levels of air pollution over a number of years, including the 
Harvard Six Cities Study and the American Cancer Society Study, suggest 
an association between long-term exposure to ambient PM2.5 
and premature mortality, including deaths attributed to lung 
cancer.\8\, \9\ Two studies further analyzing the Harvard 
Six Cities Study's air quality data have also established a specific 
influence of mobile source-related PM2.5 on daily mortality 
and a concentration-response function for mobile source-associated 
PM2.5 and daily mortality. Another recent study in 14 U.S. 
cities examining the effect of PM10 (particulate matter less 
than 10 microns in diameter) on daily hospital admissions for 
cardiovascular disease found that the effect of PM10 was 
significantly greater in areas with a larger proportion of 
PM10 coming from motor vehicles, indicating that 
PM10 from these sources may have a greater effect on the 
toxicity of ambient PM10 when compared with other 
sources.\10\
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    \8\ Dockery, DW; Pope, CA, III; Xu, X; et al. (1993) An 
association between air pollution and mortality in six U.S. cities. 
N Engl J Med 329:1753-1759.
    \9\ Pope, CA, III; Burnett, RT; Calle, EE; et al. (2002) Lung 
cancer, cardiopulmonary mortality, and long-term exposure to fine 
particulate air pollution. JAMA 287: 1132-1141.
    \10\ Janssen, NA; Schwartz J; Zanobetti A; et al. (2002) Air 
conditioning and source-specific particles as modifiers of the 
effect of PM10 on hospital admissions for heart and lung 
disease. Environ Health Perspect 110(1):43-49.
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    Of particular relevance to this rule is a recent cohort study which 
examined the association between mortality and residential proximity to 
major roads in the Netherlands. Examining a cohort of 55 to 69 year-
olds from 1986 to 1994, the study indicated that long-term residence 
near major roads, an index of exposure to primary mobile source 
emissions (including diesel exhaust), was significantly associated with 
increased cardiopulmonary mortality.\11\ Other studies have shown 
children living near roads with high truck traffic density have 
decreased lung function and greater prevalence of lower respiratory 
symptoms compared to children living on other roads.\12\ A recent 
review of epidemiologic studies examining associations between asthma 
and roadway proximity concluded that some coherence was evident in the 
literature, indicating that asthma, lung function decrement, 
respiratory symptoms, and other respiratory problems appear to occur 
more frequently in people living near busy roads.\13\ As discussed 
later, nonroad diesel engine emissions, especially particulate, are 
similar in composition to those from highway diesel vehicles. Although 
difficult to associate directly with PM2.5, these studies 
indicate that direct emissions from mobile sources, and diesel engines 
specifically, may explain a portion of respiratory health effects 
observed in larger-scale epidemiologic studies. Recent studies 
conducted in Los Angeles have illustrated that a substantial increase 
in the concentration of ultrafine particles is evident in locations 
near roadways, indicating substantial differences in the nature of PM 
immediately near mobile source emissions.\14\ For additional 
information on health effects, see the RIA.
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    \11\ Hoek, G; Brunekreef, B; Goldbohm, S; et al. (2002) 
Association between mortality and indicators of traffic-related air 
pollution in the Netherlands: a cohort study. Lancet 360(9341):1203-
1209.
    \12\ Brunekreef, B; Janssen NA; de Hartog, J; et al. (1997) Air 
pollution from traffic and lung function in children living near 
motor ways. Epidemiology (8): 298-303.
    \13\ Delfino RJ. (2002) Epidemiologic evidence for asthma and 
exposure to air toxics: linkages between occupational, indoor, and 
community air pollution research. Env Health Perspect Suppl 110(4): 
573-589.
    \14\ Yifang Zhu, William C. Hinds, Seongheon Kim, Si Shen and 
Constantinos Sioutas Zhu Y; Hinds WC; Kim S; et al. (2002) Study of 
ultrafine particles near a major highway with heavy-duty diesel 
traffic. Atmos Environ 36(27): 4323-4335.
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    In addition to its contribution to ambient PM concentrations, 
diesel exhaust is of specific concern because it has been judged to 
pose a lung cancer hazard for humans as well as a hazard from noncancer 
respiratory effects. In this context, diesel exhaust PM is generally 
used as a surrogate measure for diesel exhaust. Further, nonroad diesel 
engine emissions also contain several substances known or suspected as 
human or animal carcinogens, or that have noncancer health effects as 
described in the Diesel HAD. Moreover, these compounds have the 
potential to cause health effects at environmental levels of exposure. 
These other compounds include benzene, 1,3-butadiene, formaldehyde, 
acetaldehyde, acrolein, dioxin, and POM. For some of these pollutants, 
nonroad diesel engine emissions are believed to account for a 
significant proportion of total nation-wide emissions. All of these 
compounds were identified as national or regional ``risk drivers'' in 
the 1996 NATA.\15\ That is, these compounds pose a significant portion 
of the total inhalation cancer risk to a significant portion of the 
population. Mobile sources contribute significantly to total emissions 
of these air toxics. As discussed in more detail in the RIA, this final 
rulemaking will result in significant reductions of these emissions.
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    \15\ U.S. EPA (2002). National-Scale Air Toxics Assessment. This 
material is available electronically at http://www.epa.gov/ttn/atw/nata/.
---------------------------------------------------------------------------

    In EPA's Diesel HAD.\16\ diesel exhaust was classified as likely to 
be carcinogenic to humans by inhalation at environmental exposures, in 
accordance with the revised draft 1996/1999 EPA cancer guidelines. A 
number of other agencies (National Institute for Occupational Safety 
and Health, the International Agency for Research on Cancer, the World 
Health Organization,

[[Page 38967]]

California EPA, and the U.S. Department of Health and Human Services) 
have made similar classifications.
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    \16\ U.S. EPA (2002). Health Assessment Document for Diesel 
Engine Exhaust. EPA/600/8-90/057F Office of Research and 
Development, Washington DC. This document is available 
electronically at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=29060.
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    EPA generally derives cancer unit risk estimates to calculate 
population risk more precisely from exposure to carcinogens. In the 
simplest terms, the cancer unit risk is the increased risk associated 
with average lifetime exposure of 1 ug/m3. EPA concluded in 
the Diesel HAD that it is not possible currently to calculate a cancer 
unit risk for diesel exhaust due to a variety of factors that limit the 
current studies, such as lack of an adequate dose-response relationship 
between exposure and cancer incidence.
    However, in the absence of a cancer unit risk, the EPA Diesel HAD 
sought to provide additional insight into the significance of the 
cancer hazard by estimating possible ranges of risk that might be 
present in the population. The possible risk range analysis was 
developed by comparing a typical environmental exposure level for 
highway diesel sources to a selected range of occupational exposure 
levels and then proportionally scaling the occupationally observed 
risks according to the exposure ratios to obtain an estimate of the 
possible environmental risk. A number of calculations are needed to 
accomplish this, and these can be seen in the EPA Diesel HAD. The 
outcome was that environmental risks from diesel exhaust exposure could 
range from a low of 10-4 to 10-5 or be as high as 
10-3 this being a reflection of the range of occupational 
exposures that could be associated with the relative and absolute risk 
levels observed in the occupational studies. Because of uncertainties, 
the analysis acknowledged that the risks could be lower than 
10-4 or 10-5 and a zero risk from diesel exhaust 
exposure was not ruled out. Although the above risk range is based on 
environmental exposure levels for highway mobile sources only, the 1996 
NATA estimated exposure for nonroad diesel sources as well. Thus, the 
exposure estimates were somewhat higher than those used in the risk 
range analysis described above. The EPA Diesel HAD, therefore, stated 
that the NATA exposure estimates result in a similar risk perspective.
    The ozone precursor reductions expected as a result of this rule 
are also important because of health and welfare effects associated 
with ozone, as described in the Air Quality Criteria Document for Ozone 
and Other Photochemical Oxidants. Ozone can irritate the respiratory 
system, causing coughing, throat irritation, and/or uncomfortable 
sensation in the chest.17, 18 Ozone can reduce lung function 
and make it more difficult to breathe deeply, and breathing may become 
more rapid and shallow than normal, thereby limiting a person's normal 
activity. Ozone also can aggravate asthma, leading to more asthma 
attacks that require a doctor's attention and/or the use of additional 
medication. In addition, ozone can inflame and damage the lining of the 
lungs, which may lead to permanent changes in lung tissue, irreversible 
reductions in lung function, and a lower quality of life if the 
inflammation occurs repeatedly over a long time period (months, years, 
a lifetime). People who are of particular concern with respect to ozone 
exposures include children and adults who are active outdoors. Those 
people particularly susceptible to ozone effects are people with 
respiratory disease, such as asthma, and people with unusual 
sensitivity to ozone, and children. Beyond its human health effects, 
ozone has been shown to injure plants, which has the effect of reducing 
crop yields and reducing productivity in forest 
ecosystems.19, 20
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    \17\ U.S. EPA (1996). Air Quality Criteria for Ozone and Related 
Photochemical Oxidants, EPA/600/P-93/004aF. Docket No. A-99-06. 
Document Nos. II-A-15 to 17.
    \18\ U.S. EPA (1996). Review of National Ambient Air Quality 
Standards for Ozone, Assessment of Scientific and Technical 
Information, OAQPS Staff Paper, EPA-452/R-96-007. Docket No. A-99-
06. Document No. II-A-22.
    \19\ U.S. EPA (1996). Air Quality Criteria for Ozone and Related 
Photochemical Oxidants, EPA/600/P-93/004aF. Docket No. A-99-06. 
Document Nos. II-A-15 to 17.
    \20\ U.S. EPA (1996). Review of National Ambient Air Quality 
Standards for Ozone, Assessment of Scientific and Technical 
Information, OAQPS Staff Paper, EPA-452/R-96-007. Docket No. A-99-
06. Document No. II-A-22.
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    New research suggests additional serious health effects beyond 
those that were known when the 8-hour ozone health standard was set. 
Since 1997, over 1,700 new health and welfare studies relating to ozone 
have been published in peer-reviewed journals.\21\ Many of these 
studies investigate the impact of ozone exposure on such health effects 
as changes in lung structure and biochemistry, inflammation of the 
lungs, exacerbation and causation of asthma, respiratory illness-
related school absence, hospital and emergency room visits for asthma 
and other respiratory causes, and premature mortality. EPA is currently 
evaluating these and other studies as part of the ongoing review of the 
air quality criteria and NAAQS for ozone. A revised Air Quality 
Criteria Document for Ozone and Other Photochemical Oxidants will be 
prepared in consultation with EPA's Clean Air Science Advisory 
Committee (CASAC). Key new health information falls into four general 
areas: Development of new-onset asthma, hospital admissions for young 
children, school absence rate, and premature mortality. In all, the new 
studies that have become available since the 8-hour ozone standard was 
adopted in 1997 continue to demonstrate the harmful effects of ozone on 
public health and the need for areas with high ozone levels to attain 
and maintain the NAAQS.
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    \21\ New Ozone Health and Environmental Effects References, 
Published Since Completion of the Previous Ozone AQCD, National 
Center for Environmental Assessment, Office of Research and 
Development, U.S. Environmental Protection Agency, Research Triangle 
Park, NC 27711 (7/2002) Docket No. A-2001-28, Document II-A-79.
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    Finally, nonroad diesel emissions contribute to nine categories of 
non-health impacts: visibility impairment, soiling and material damage, 
acid deposition, eutrophication of water bodies, plant and ecosystem 
damage from ozone, water pollution resulting from deposition of toxic 
air pollutants with resulting effects on fish and wildlife, and odor. 
In particular, EPA determined that nonroad engines contribute 
significantly to unacceptable visibility conditions where people live, 
work and recreate, including contributing to visibility impairment in 
Federally mandated Class I areas that are given special emphasis in the 
Clean Air Act (67 FR 68242, November 8, 2002). Visibility is impaired 
by fine PM and precursor emissions from nonroad diesel engines subject 
to this final rule. Reductions in emissions from this final rule will 
improve visibility as well as other environmental outcomes as described 
in the RIA.
    As supplementary information, we have made estimates using air 
quality modeling to illustrate the types of change in future 
PM2.5 and ozone levels that we would expect to result from a 
final rule like this as described in chapter 2 of the RIA. That 
modeling shows that control of nonroad emissions would produce 
nationwide air quality improvements in PM2.5 and ozone 
levels as well as visibility improvements. On a population-weighted 
basis, the average modeled change in future-year PM2.5 
annual averages is projected to decrease by 0.42 [mu]g/m\3\ (3.3%) in 
2020, and 0.59 [mu]g/m3 (0.6%) in 2030. In addition, the population-
weighted average modeled change in future year design values for ozone 
would decrease by 1.8 parts per billion (ppb) in 2020, and 2.5 ppb in 
2030. Within areas predicted to violate the ozone NAAQS in the 
projected base case, the average decrease would be somewhat higher: 1.9 
ppb in 2020 and 3.0 ppb in 2030.

[[Page 38968]]

    The PM air quality improvements expected from this final rule are 
anticipated to produce major benefits to human health and welfare, with 
a combined value in excess of half a trillion dollars between 2007 and 
2030. For example, in 2030, we estimate that this program will reduce 
approximately 129,000 tons PM2.5 and 738,000 tons of 
NOX. The resulting ambient PM reductions correspond to 
public health improvements in 2030, including 12,000 fewer premature 
mortalities, 15,000 fewer heart attacks, 200,000 fewer asthma 
exacerbations in children, and 1 million fewer days when adults miss 
work due to their respiratory symptoms, and 5.9 million fewer days when 
adults have to restrict their activities due to respiratory symptoms. 
The reductions will also improve visibility and reduce diesel odor. For 
further details on the economic benefits of this rule, please refer to 
the benefit-cost discussion in section VI of this preamble and chapter 
9 of the RIA.
b. Emissions From Nonroad Diesel Engines
    The engine and fuel standards in this final rule will affect 
emissions of direct PM2.5, SO2, NOX, 
VOCs, and air toxics for land-based nonroad diesel engines. \22\ For 
locomotive, commercial marine vessel (CMV), and recreational marine 
vessel (RMV) engines, the final fuel standards will affect direct 
PM2.5 and SO2 emissions. Each sub-section below 
discusses one of these pollutants,\23\ including expected emission 
reductions associated with the final standards.\24\ Table I.B-1 
summarizes the impacts of this rule for 2020 and 2030. Further details 
on our inventory estimates, including results for other years, are 
available in chapter 3 of the RIA.
---------------------------------------------------------------------------

    \22\ We are also adopting a few minor adjustments of a technical 
nature to current CO standards. Emissions effects from these 
standards are discussed in the RIA.
    \23\ The estimates of baseline emissions and emissions 
reductions from the final rule reported here for nonroad land-based, 
recreational marine, locomotive, and commercial marine vessel diesel 
engines are based on 50 state emissions inventory estimates. A 48 
state inventory was used for air quality modeling that EPA conducted 
for this rule, of which Alaska and Hawaii are not a part. In cases 
where land-based nonroad diesel engine emissions are compared with 
non-mobile source portions of the inventory, we use a 48 state 
emissions inventory, to match the 48 state nature of those other 
inventories.
    \24\ Please see the Summary and Analyses of Comments document 
for discussions of issues raised about the emission inventory 
estimates during the comment period for the NPRM.

Table I.B-1.--Estimated National (50 State) Reductions in Emissions From
   Nonroad Land-Based, Locomotive, Commercial Marine, and Recreational
                          Marine Diesel Engines
------------------------------------------------------------------------
            Pollutant [short tons]                  2020         2030
------------------------------------------------------------------------
Direct PM2.5:
    PM2.5 Emissions Without Rule..............      167,000      181,000
    PM2.5 Emissions With 500 ppm Sulfur in          144,000      155,000
     2007 and No Other Controls...............
    PM2.5 Emissions With 15 ppm Sulfur in 2012      141,000      152,000
     and No Other Controls....................
    PM2.5 Emissions With Entire Rule..........       81,000       52,000
    PM2.5 Reductions Resulting from this Rule.       86,000      129,000
SO2:
    SO2 Emissions Without Rule................      326,000      379,000
    SO2 Emisions With 500 ppm Sulfur in 2007..       37,000       43,000
    SO2 Emissions With Entire Rule (15 ppm            3,000        3,000
     Sulfur in 2012)..........................
    SO2 Reductions Resulting from this Rule...      323,000      376,000
NOX--Land-Based Nonroad Engines Only\a\:
    NOX Emissions Without Rule................    1,125,000    1,199,000
    NOX Emissions With Rule...................      681,000      461,000
    NOX Reductions Resulting from this Rule...      444,000      738,000
VOC--Land-Based Nonroad Engines Only\a\:
    VOC Emissions Without Rule................       98,000       97,000
    VOC Emissions With Rule...................       75,000       63,000
    VOC Reductions Resulting from this Rule...       23,000       34,000
------------------------------------------------------------------------
Notes:
\a\ NOX and VOC numbers only include emissions for land-based nonroad
  diesel engines because the Tier 4 controls will not be applied to
  locomotive, commercial marine, and recreational marine engines; and no
  NOX and VOC emission reductions are generated through the lowering of
  fuel sulfur levels.

i. Direct PM2.5
    As described earlier, the Agency believes that reductions of diesel 
PM2.5 emissions are needed as part of the nation's progress 
toward clean air. Direct PM2.5 emissions from land-based 
nonroad diesel engines amount to increasingly large percentages of 
total man-made diesel PM2.5. Between 1996 and 2030, we 
estimate that the percentage of total man-made diesel PM2.5 
emissions coming from land-based nonroad diesel engines will increase 
from about 46 percent to 72 percent (based on a 48 state inventory).
    Emissions of direct PM2.5 from land-based nonroad diesel 
engines based on a 50 state inventory are shown in table I.B-1, along 
with our estimates of the reductions in 2020 and 2030 we expect would 
result from our final rule for a PM2.5 exhaust emission 
standard and from changes in the sulfur level in land-based nonroad, 
locomotive, and marine diesel fuel. Land-based nonroad, locomotive, and 
marine diesel fuel sulfur levels will be lowered to about 340 ppm in-
use (500 ppm maximum) in 2007. Land-based nonroad diesel fuel sulfur 
will be lowered further to about 11 ppm in-use (15 ppm maximum) in 2010 
and locomotive and marine diesel fuel sulfur will be lowered to the 
same level in 2012. In addition to PM2.5 emissions estimates 
with the final rule, emissions estimates based on lowering diesel fuel 
sulfur without any other controls are shown in table I.B-1 for 2020 and 
2030.
    Figure I.B-1a shows our estimate of PM2.5 emissions 
between 2000 and 2030 both without and with the final standards and 
fuel sulfur requirements of this rule. We estimate that 
PM2.5 emissions from this source would be reduced by 71 
percent in 2030.
ii. SO2
    We estimate that land-based nonroad, CMV, RMV, and locomotive 
diesel engines emitted about 234,000 tons of

[[Page 38969]]

SO2 in 1996, accounting for about 33 percent of the 
SO2 from mobile sources (based on a 48 state inventory). 
With no reduction in diesel fuel sulfur levels, we estimate that these 
emissions will continue to increase, accounting for about 44 percent of 
mobile source SO2 emissions by 2030.
    As part of this final rule, sulfur levels in fuel will be 
significantly reduced, leading to large reductions in nonroad, 
locomotive, and marine diesel SO2 emissions. By 2007, the 
sulfur in diesel fuel used by all land-based nonroad, locomotive, and 
marine diesel engines will be reduced from the current average in-use 
level of between 2,300 to 2,400 ppm \25\ to an average in-use level of 
about 340 ppm, with a maximum level of 500 ppm. By 2010, the sulfur in 
diesel fuel used by land-based nonroad engines will be reduced to an 
average in-use level of 11 ppm with a maximum level of 15 ppm. Sulfur 
in diesel fuel used by locomotive and marine engines will be reduced to 
the same level by 2012. Table II.B-1 and figure II.B-1b show the 
estimated reductions from these sulfur changes.
---------------------------------------------------------------------------

    \25\ Highway fuel is currently used in a significant fraction of 
land based nonroad equipment, locomotives, and marine vessels, 
reducing the in-use average sulfur level from about 3,000 ppm for 
uncontrolled high-sulfur fuel to 2,300 or 2,400 ppm.
---------------------------------------------------------------------------

iii. NOX
    Table I.B-1 shows the 50 state estimated tonnage of NOX 
emissions for 2020 and 2030 without the final rule and the estimated 
tonnage of emissions eliminated with the final rule in place. These 
results are shown graphically in Figure I.E-1c at the end of this 
section. We estimate that NOX emissions from these engines 
will be reduced by 62 percent in 2030.
    We note that the magnitude of NOX reductions determined 
in the final rule analysis is somewhat less than what was reported in 
the proposal's preamble and RIA, especially in the later years when the 
fleet has mostly turned over to Tier 4 designs. The greater part of 
this is due to the fact that we have deferred setting a long-term 
NOX standard for mobile machinery over 750 horsepower to a 
later action. When this future action is completed, we would expect 
roughly equivalent reductions between the proposal and the overall 
final program, though there are some other effects reflected in the 
differing NOX reductions as well, due to updated modeling 
assumptions and the adjusted NOX standards levels for 
engines over 750 horsepower. Section II.A.4 of this preamble contains a 
detailed discussion of the NOX standards we are adopting for 
engines over 750 horsepower as well as the basis for those standards.
iv. VOCs and Air Toxics
    Based on a 48 state emissions inventory, we estimate that land-
based nonroad diesel engines emitted over 221 thousand tons of VOC in 
1996. Between 1996 and 2030, we estimate that land-based nonroad diesel 
engines will contribute about 2 to 3 percent of mobile source VOC 
emissions. Without further controls, land-based nonroad diesel engines 
will emit about 97 thousand tons/year of VOC in 2020 and 2030 
nationally.
    Table I.B-1 shows our projection of the reductions in 2020 and 2030 
for VOC emissions that we expect from implementing the final NMHC 
standards. This estimate is based on a 50 state emissions inventory. By 
2030, VOC emissions from this category would be reduced by 35 percent 
from baseline levels.
    While we are not adopting any specific gaseous air toxics standards 
in today's rule, air toxics emissions would nonetheless be 
significantly reduced through the NMHC standards included in the final 
rule. By 2030, we estimate that emissions of air toxics pollutants, 
such as benzene, formaldehyde, acetaldehyde, 1,3-butadiene, and 
acrolein, would be reduced by 35 percent from land-based nonroad diesel 
engines. Diesel PM reductions were discussed above. For specific air 
toxics reduction estimates, see chapter 3 of the RIA.

[[Page 38970]]

[GRAPHIC] [TIFF OMITTED] TR29JN04.001

II. Nonroad Engine Standards

    In this section we describe the emission standards for nonroad 
diesel engines that we are setting to address the serious air quality 
problems discussed in section I. These Tier 4 standards, which take 
effect starting in 2008, are very similar to those proposed, and obtain 
very similar emissions reductions. The long-term PM filter-based 
standards that apply to all engines over 25 hp, combined with the fuel 
change and new requirements to ensure robust control in the field, will 
yield PM reductions of over 95% from the in-use levels of today's 
cleanest Tier 2 engines. Likewise, the long-term NOX 
standards we are adopting for nearly all engines above 75 hp will yield 
NOX reductions of about 90% from the NOX levels 
expected from even the low-emitting Tier 3 engines due to first reach 
the market in 2006 or later. The Tier 4 standards will bring about 
large

[[Page 38971]]

reductions in toxic hydrocarbon emissions as well.
    In this final rule we are largely adopting the standards and timing 
we proposed, with the exception of those that apply to engines over 750 
hp. We restructured and modified the standards and timing for these 
engines to address technical concerns and to focus on achieving 
comparable emission reductions through the introduction of advanced 
technology as early as feasible from specific applications within this 
power category. See section II.A.4 for a detailed discussion. We also 
are not adopting the proposed minor adjustments to the CO standard 
levels for some engines under 75 hp, as explained in section II.A.6. In 
addition, there are minor changes from the proposal in the phase-in 
approach we are adopting for NOX and NMHC standards, as 
detailed in this section.
    In this section we discuss:
     The Tier 4 engine standards, and the schedule for 
implementing them;
     The feasibility of the Tier 4 standards (in conjunction 
with the low-sulfur nonroad diesel fuel requirement discussed in 
section IV); and
     How diesel fuel sulfur affects an engine's ability to meet 
the new standards.
    Additional provisions for engine and equipment manufacturers are 
discussed in detail in section III. These include:
     The averaging, banking, and trading (ABT) program.
     The transition program for equipment manufacturers.
     The addition of a ``not-to-exceed'' program to ensure in-
use emissions control. This program includes new emission standards and 
related test procedures to supplement the standards discussed in this 
section.
     The test procedures and other compliance requirements 
associated with the emission standards.
     Special provisions to aid small businesses in implementing 
our requirements.
     An incentive program to encourage innovative technologies 
and the early introduction of new technologies.

A. What Are the New Engine Standards?

    The Tier 4 exhaust emissions standards for PM, NOX, and 
NMHC are summarized in tables II.A-1, 2, and 4.\26\ Crankcase emissions 
control requirements are discussed in section II.A.7. Previously 
adopted CO emission standards continue to apply as well. All of these 
standards apply to covered nonroad engines over the useful life periods 
specified in our regulations, except where temporary in-use compliance 
margins apply as discussed in section III.E. To help ensure that these 
emission reductions will be achieved in use, we have adopted test 
procedures for measuring compliance with these standards tailored to 
both steady-state and transient nonroad engine operating 
characteristics. These test procedures are discussed in several 
subsections of section III. Another component of our program to ensure 
control of emissions in-use is the new ``not-to-exceed'' (NTE) emission 
standards and associated test procedures, discussed in section III.J.
---------------------------------------------------------------------------

    \26\ Consistent with past EPA rulemakings for nonroad diesel 
engines, our regulations express standards, power ratings, and other 
quantities in international SI (metric) units--kilowatts, gram per 
kilowatt-hour, etc. This aids in achieving harmonization with 
standards-setting bodies outside the U.S., and in laboratory 
operations in which these units are the norm. However, in this 
preamble and in other rulemaking documents for the general reader, 
we have chosen to use terms more common in general usage in the U.S. 
Hence standards are expressed in units of grams per brake 
horsepower-hour, power ratings in horsepower, etc. In any compliance 
questions that might arise from differences in these due to, for 
example, rounding conventions, the regulations themselves establish 
the applicable requirements.

                           Table II.A-1.--Tier 4 PM Standards (g/bhp-hr) and Schedule
----------------------------------------------------------------------------------------------------------------
                                                                           Model year
                 Engine power                  -----------------------------------------------------------------
                                                   2008       2009       2010       2011       2012       2013
----------------------------------------------------------------------------------------------------------------
hp < 25 (kW < 19).............................   \a\ 0.30  .........  .........  .........  .........  .........
25 <= hp < 75 (19 <= kW < 56).................   \b\ 0.22  .........  .........  .........  .........       0.02
75 <= hp < 175 (56 <= kW < 130)...............  .........  .........  .........  .........       0.01  .........
175 <= hp <= 750 (130 <= kW <= 560)...........  .........  .........  .........       0.01  .........  .........
                                               ------------
hp 750 (kW > 560).............................                          See table II.A-4
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ For air-cooled, hand-startable, direct injection engines under 11 hp, a manufacturer may instead delay
  implementation until 2010 and demonstrate compliance with a less stringent PM standard of 0.45 g/bhp-hr,
  subject also to additional provisions discussed in section II.A.3.a.
\b\ A manufacturer has the option of skipping the 0.22 g/bhp-hr PM standard for all 50-75 hp engines. The 0.02 g/
  bhp-hr PM standard would then take effect one year earlier for all 50-75 hp engines, in 2012.


                            Table II.A-2.--Tier 4 NOX and NMHC Standards and Schedule
----------------------------------------------------------------------------------------------------------------
                                                Standard  (g/bhp-hr)  Phase-in schedule  (model year)  (percent)
                 Engine power                  -----------------------------------------------------------------
                                                   NOX        NMHC       2011       2012       2013       2014
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75 (19 <= kW < 56).................     3.5 NMHC+NOX\a\    .........  .........       100%  .........
75 <= hp < 175 (56 <= kW < 130)...............       0.30       0.14      \b\50      \b\50     \b\100
175 <= hp <= 750 (130 <= kW <= 560)...........       0.30       0.14         50         50         50        100
                                               ------------
hp > 750 (kW > 560)...........................                          See table II.A-4
----------------------------------------------------------------------------------------------------------------
Notes: Percentages indicate production required to comply with the Tier 4 standards in the indicated model year.
 
\a\ This is the existing Tier 3 combined NMHC+NOX standard level for the 50-75 hp engines in this category. In
  2013 it applies to the 25-50 hp engines as well.
\b\ Manufacturers may use banked Tier 2 NMHC+NOX credits from engines at or above 50 hp to demonstrate
  compliance with the 75-175 hp engine NOX standard in this model year. Alternatively, manufacturers may forego
  this special banked credit option and instead meet an alternative phase-in requirement of 25/25/25% in 2012,
  2013, and 2014 through December 30, with 100% compliance required beginning December 31, 2014. See sections
  III.A and II.A.2.b.


[[Page 38972]]

    The long-term 0.01 and 0.02 g/bhp-hr Tier 4 PM standards for 75-750 
hp and 25-75 hp engines, respectively, combined with the fuel change 
and new requirements to ensure robust control in the field, represent a 
reduction of over 95% from in-use levels expected with Tier 2/Tier 3 
engines.\27\ The 0.30 g/bhp-hr Tier 4 NOX standard for 75-
750 hp engines represents a NOX reduction of about 90% from 
in-use levels expected with Tier 3 engines. Emissions reductions from 
engines over 750 hp are discussed in section II.A.4.
---------------------------------------------------------------------------

    \27\ Note that we are grouping all standards in this rule, 
including those that take effect in 2008, under the general 
designation of ``Tier 4 standards.'' As a result, there are no 
``Tier 3'' standards in the multi-tier nonroad program for engines 
below 50 hp or above 750 hp.
---------------------------------------------------------------------------

    In general, there was widespread support in the comments for the 
proposed Tier 4 engine standards and for the timing we proposed for 
them. Some commenters raised category-specific concerns, especially for 
the smaller and the very large engine categories. These comments are 
discussed below.
1. Standards Timing
a. 2008 Standards
    The timing of the Tier 4 engine standards is closely tied to the 
timing of fuel quality changes discussed in section IV, in keeping with 
the systems approach we are taking for this program. The earliest Tier 
4 engine standards take effect in model year 2008, in conjunction with 
the introduction of 500 ppm maximum sulfur nonroad diesel fuel in mid-
2007. This fuel change serves a dual environmental purpose. First, it 
provides a large immediate reduction in PM and SOX emissions 
for the existing fleet of engines in the field. Second, its widespread 
availability by the end of 2007 aids engine designers in employing 
emissions controls capable of achieving the Tier 4 standards for model 
year 2008 and later engines; this is because the performance and 
durability of such technologies as exhaust gas recirculation (EGR) and 
diesel oxidation catalysts is improved by lower sulfur fuel.\28\ The 
reduction of sulfur in nonroad diesel fuel will also provide sizeable 
economic benefits to machine operators as it will reduce wear and 
corrosion and will allow them to extend oil change intervals (see 
section VI.B). These economic benefits will occur for all diesel 
engines using the new fuel, not just for those built in 2008 or later.
---------------------------------------------------------------------------

    \28\ ``Nonroad Diesel Emissions Standards Staff Technical 
Paper,'' EPA420-R-01-052, October 2001.
---------------------------------------------------------------------------

    As we proposed, these 2008 Tier 4 engine standards apply only to 
engines below 75 hp. We are not setting Tier 4 standards taking effect 
in 2008 for larger engines. The reasons for this differ depending on 
the engines' hp rating. Setting Tier 4 2008 standards for engines at or 
above 100 hp would provide an insufficient period of stability (an 
element of lead time) between Tier \2/3\ and Tier 4, and so would not 
be appropriate. This is because these engines become subject to 
existing Tier 2 or 3 NMHC+NOX standards in 2006 or 2007. 
Setting new 2008 standards for them thus would provide only one or two 
years of Tier 2/Tier 3 stability before another round of design changes 
would have to be made in 2008 for Tier 4.
    It is also inappropriate to establish 2008 Tier 4 standards for 
engines of 75-100 hp. The stability issue just noted for larger engines 
is not present for these engines, because these engines are subject to 
Tier 3 NMHC+NOX standards starting in 2008, so that our 
setting a Tier 4 PM standard for them in the same year would not create 
the situation in which engines have to be redesigned twice to comply 
with new standards within a space of one or two years. However, EPA 
believes the more significant concern for these engines is meeting the 
stringent aftertreatment-based standards for PM and NOX in 
2012. We are concerned that adopting interim 2008 standards for these 
engines would divert resources needed to achieve these 2012 standards 
and indeed jeopardize attaining them. Thus, although early emission 
reductions from these engines in 2008 would of course be desirable, we 
felt that the focus we are putting on obtaining much larger reductions 
from them in 2012, together with the fact that we already have a Tier 3 
NMHC+NOX standard taking effect for 75-100 hp engines in 
2008, warrants our not adding additional control requirements for these 
engines during this interim period.
    We note that the 50-75 hp engines also have a Tier 3 
NMHC+NOX standard taking effect in 2008 and, as noted above, 
we are setting a new Tier 4 2008 PM standard for them. Unlike the 
larger 75-100 hp engines, however, the 50-75 hp engines have one 
additional year, until 2013, before filter-based PM standards take 
effect, and also have no additional NOX control requirement 
being set beyond the 2008 Tier 3 standard. These differences justify 
including the interim Tier 4 PM standard for these engines. We note too 
that achieving the 2008 PM standard is enabled in part by the large 
reduction in certification fuel sulfur that applies in 2008 (see 
section III.D). Fuel sulfur has a known correlation to PM generation, 
even for engines without aftertreatment. Moreover, for any 
manufacturers who believe that accomplishing this PM pull-ahead will 
hamper their Tier 3 compliance efforts for these engines, there is an 
alternative Tier 4 compliance option. Instead of meeting new Tier 4 PM 
standards in both 2008 and 2013, manufacturers may skip the Tier 4 2008 
PM standard, and instead focus design efforts on introducing PM filters 
for these engines one year earlier, by complying with the 
aftertreatment-based standard for PM in 2012. These options are 
discussed in more detail in section II.A.3.b.
    We view the 2008 portion of the Tier 4 program as highly important 
because it provides substantial PM and SOX emissions 
reductions during the several years prior to 2011. Initiating Tier 4 in 
2008 also fits well with the lead time (including stability), cost, and 
technology availability considerations of the overall program. 
Initiating the Tier 4 engine standards in 2008 provides three to four 
years of stability after the start of Tier 2 for engines under 50 hp. 
As mentioned above, it also coincides with the start date of Tier 3 
NMHC+NOX standards for 50-75 hp engines and so introduces no 
stability issues for these engines (as redesign for both PM and 
NOX occurs at the same time). The 2008 start date provides 
almost 4 years of lead time to accomplish redesign and testing. The 
evolutionary character of the 2008 standards, based as they are on 
proven technologies, and the fact that some certified engines already 
meet these standards as discussed in section II.B, leads us to conclude 
that the standards are appropriate within the meaning of section 
213(a)(4) of the Clean Air Act and that we are providing adequate lead 
time to achieve those standards.
    Engine and equipment manufacturers argued in their comments that 
the PM pull-ahead option for 50-75 hp engines is inappropriate because 
it constitutes a re-opening of the Tier 3 rule, involving as it does a 
Tier 4 PM standard in 2008, the same year that the Tier 3 
NMHC+NOX takes effect. They further argued that the non-
pull-ahead option is not a real option because PM aftertreatment cannot 
be implemented for these engines in 2012.
    We disagree with both contentions. We determined, as part of our 
feasibility analysis for Tier 4, that it is feasible to design engines 
to meet the 2008 PM standard in the same year that a Tier 3 
NMHC+NOX standard takes effect. See section II.B and RIA 
sections 4.1.4 and 4.1.5. One reason is that a substantial

[[Page 38973]]

part of the 2008 PM emission reductions do not result from engine 
redesign, but rather are due to the reduction in certification test 
fuel maximum sulfur levels from 2000 to 500 ppm that results from the 
fuel change in the field. This reduction in sulfur levels also aids 
engine designers in employing emission control technologies that are 
detrimentally affected by sulfur, not only for PM control, but also for 
NMHC and NOX control. Examples of these sulfur-sensitive 
technologies are oxidation catalysts, which can substantially reduce PM 
and NMHC, and EGR, which is effective at reducing NOX. We 
note further that designing engines to meet the 2008 PM standard is 
also made less difficult by our not requiring engine designers to 
consider the transient test, cold start, and not-to-exceed requirements 
that are otherwise part of the Tier 4 program. These requirements do 
not take effect for these engines until the 0.02 g/bhp-hr standard is 
implemented in 2012 or 2013. See section III.F for details.
    We also believe that the second option (compliance with the 
aftertreatment-based PM standard in 2012, with no interim 2008 
standard) is viable, and may be an attractive choice especially for 
engine families on the higher side of the 50-75 hp range that share a 
design platform with larger engines being equipped with PM filters to 
meet the Tier 4 standard for 75-175 hp engines in 2012. We believe 75 
hp is the appropriate cutpoint for setting and timing emissions 
standards (see section II.A.5), but it obviously is not a hard-and-fast 
separator between engine platforms for all manufacturers in all product 
lines. Even for many 50-75 hp engines that do not share a design 
platform with larger engines, we believe that a 2012 implementation 
date for PM filter technology may be practical, considering the 4-year 
lead time it affords after Tier 3 begins for these engines (in 2008), 
8-year lead time after the last PM standard change (in 2004), and 5-
year lead time after full-scale PM filter technology implementation on 
highway engines (in 2007).
    Engine manufacturers also commented that the two-options approach 
would cause their customers to switch engine suppliers in 2012 to get 
the least expensive engines possible in every year, thus compromising 
the environmental objectives and creating market disruptions. We have 
addressed these concerns as discussed in section II.A.3.b.
b. 2011 and Later Standards
    The second fuel change for nonroad diesel fuel, to 15 ppm maximum 
sulfur in mid-2010, and the related engine standards for PM, 
NOX, and NMHC that begin to phase-in in the 2011 model year, 
provide most of the environmental benefits of the program. Like the 
2008 standards, these standards are timed to provide adequate lead time 
for engine and equipment manufacturers. They also are phased in over 
time to allow for the orderly transfer of technology from the highway 
sector, and to spread the overall workload for engine and equipment 
manufacturers engaged in redesigning a large number and variety of 
products for Tier 4.
    As we explained at proposal, we believe that the high-efficiency 
exhaust emission control technologies being developed to meet our 2007 
emission standards for heavy-duty highway diesel engines can be adapted 
to most nonroad diesel applications. The engines for which we believe 
this adaptation from highway applications will be most straightforward 
are those in the 175-750 hp power range, and thus these engines are 
subject to new standards requiring high-efficiency exhaust emission 
controls as soon as the 15 ppm sulfur diesel fuel is widely available, 
that is, in the 2011 model year. Engines of 75-175 hp are subject to 
the new standards in the following model year, 2012, reflecting the 
need to spread the redesign workload and, to some extent, the greater 
effort that may be involved in adapting highway technologies to these 
engines. Engines between 25 and 75 hp are subject to new standards for 
PM based on high-efficiency exhaust emission controls in 2013, 
reflecting again the need to spread the workload and the challenge of 
adapting this technology to these engines which typically do not have 
highway counterparts. Engines over 750 hp involve a number of special 
considerations, necessitating an implementation approach unique to 
these engines as explained in section II.A.4. Lastly , there are 
additional provisions discussed in sections III.B.2 and III.M to 
encourage early technology introduction and to further draw from the 
highway technology experience.
    This approach of implementing Tier 4 standards by power category 
over 2011-2013 provides for the orderly migration of technology and 
distribution of redesign workload over three model years, as EPA 
provided in Tier 3. Overall, this approach provides 4 to 6 years of 
real world experience with the new technology in the highway sector, 
involving millions of engines (in addition to the several additional 
years provided by demonstration fleets on the road in earlier years), 
before the new standards take effect. We consider the implementation of 
Tier 4 standard start dates over 2011-2013 as described above to be 
responsive to the technology migration and workload distribution 
concerns.
2. Phase-In of NOX and NMHC Standards for 75-750 hp Engines
a. Percent-of-Production Phase-In for NOX and NMHC
    We are finalizing the percent-of-production phase-in for 
NOX and NMHC that we proposed for 75-750 hp engines. Because 
Tier 4 NOX emissions control technology is expected to be 
derived from technology first introduced in highway heavy-duty diesels, 
we proposed to adopt the implementation pattern for the Tier 4 
NOX standard which we adopted for the heavy-duty highway 
diesel program. This will help to ensure a focused, orderly development 
of robust high-efficiency NOX control in the nonroad sector 
and will also help to ensure that manufacturers are able to take 
maximum advantage of the highway engine development program, with 
resulting cost savings.
    The heavy-duty highway rule allows for a gradual phase-in of the 
NOX and NMHC requirements over multiple model years: 50% of 
each manufacturer's U.S.-directed production volume must meet the new 
standard in 2007-2009, and 100% must do so by 2010. Through the use of 
emissions averaging, this phase-in approach also provides the 
flexibility for highway engine manufacturers to meet that program's 
environmental goals by allowing somewhat less-efficient NOX 
controls on more than 50% of their production during the 2007-2009 
phase-in years.
    We follow the same pattern in this rule. As proposed, we are 
phasing in the NOX standards for nonroad diesels over 2011-
2013 as indicated in table II.A-2, based on compliance with the Tier 4 
standards for 50% of a manufacturer's U.S.-directed production in each 
power category between 75 and 750 hp in each phase-in model year. The 
phase-in of standards for engines over 750 hp is discussed in section 
II.A.4. With a NOX phase-in, all manufacturers are able to 
introduce their new technologies on a limited number of engines, 
thereby gaining valuable experience with the technology prior to 
implementing it on their entire product line. In tandem with the 
equipment manufacturer transition program discussed in section III.B, 
the phase-in ensures timely progress to the Tier 4 standard levels 
while providing a great degree of implementation flexibility for the 
industry.

[[Page 38974]]

    This ``percent of production phase-in'' is intended to take maximum 
advantage of the highway program technology development. It adds a new 
dimension of implementation flexibility to the staggered ``phase-in by 
power category'' used in the nonroad program for Tiers 1-3 (and also in 
this Tier 4) which, though structured to facilitate technology 
development and transfer, is more aimed at spreading the redesign 
workload. Because the Tier 4 program involves challenges in addressing 
both technology development and redesign workload, we believe that 
incorporating both of these phase-in mechanisms into the program is 
warranted, resulting in the coordinated phase-in plan shown in table 
II.A-2, which we are finalizing essentially as proposed. Note that this 
results in the new NOX requirements for 75-175 hp engines 
taking effect starting in the second year of the 2011-2013 general 
phase-in, in effect creating a 50-50% phase-in in 2012-2013 for this 
category. This then staggers the Tier 4 start years by power category 
as in past tiers: 2011 for engines at or above 175 hp, 2012 for 75-175 
hp engines, and 2013 for 25-75 hp engines (for which no NOX 
adsorber-based standard and thus no percentage phase-in is being 
adopted), while still providing a production-based phase-in for 
advanced NOX control technologies.
    Comments from the States and environmental organizations argued for 
the completion of the phase-in by the end of 2012, contending that 
technology progress for NOX control in the highway sector 
has been good to date and would support an accelerated phase-in in the 
nonroad sector. However, our assessment continues to show unique 
(though surmountable) challenges in adapting advanced technologies to 
nonroad engines, especially for engines least like highway diesels, and 
it is these engines that would be most affected by a truncated phase-in 
schedule. Furthermore, even if we were to conclude that advanced 
technologies will be ready earlier than expected, we would not be able 
to move up the start of phase-in dates because these dates also depend 
on low-sulfur fuel availability. Thus an end-of-2012 phase-in 
completion date would result in phase-ins as short as one year, thus 
degrading the industry's opportunity to distribute the redesign 
workload and departing from the pattern set by the highway program. 
Both of these are critical factors in our assessment that the proposed 
engine standards are feasible, and so a change to shorter phase-ins 
would jeopardize achievement of our environmental objectives for 
nonroad diesels. Therefore we are not adopting the suggested earlier 
completion of the phase-in.
    As proposed, we are phasing in the Tier 4 NMHC standard for 75-750 
hp engines with the NOX standard, as is being done in the 
highway program. Engines certified to the new NOX 
requirement would be expected to certify to the NMHC standard as well. 
The ``phase-out'' engines (those not certified to the new Tier 4 
NOX and NMHC standards) would continue to be certified to 
the applicable Tier 3 NMHC+NOX standard. As discussed in 
section II.B, we believe that the NMHC standard is readily achievable 
through the application of PM traps to meet the PM standard, which does 
not involve such a phase-in. However, in the highway program we chose 
to phase in the NMHC standard with the NOX standard to 
simplify the phase-in under the percent-of-production approach taken 
there, thus avoiding subjecting the ``phase-out'' engines to separate 
standards for NMHC and NMHC+NOX (which could lead to 
increased administrative costs with essentially no different 
environmental result). The same reasoning applies here because, as in 
the highway program, the previous-tier standards are combined 
NMHC+NOX standards. No commenters objected to this approach.
    Because of the tremendous variety of engine sizes represented in 
the nonroad diesel sector, we are finalizing our proposed requirement 
that the phase-in requirement be met separately in both of the power 
categories with a phase-in (75-175 hp and 175-750 hp).\29\ For example, 
a manufacturer that produces 1000 engines for the 2011 U.S. market in 
the 175 to 750 hp range would have to demonstrate compliance with the 
NOX and NMHC standards on at least 500 of these engines, 
regardless of how many complying engines the manufacturer produces in 
the 75-175 hp category. (Note however that we are allowing averaging of 
emissions between these engine categories through the use of power-
weighted ABT program credits.) We believe that this restriction 
reflects the availability of emissions control technology, and is 
needed to avoid erosion of environmental benefits that might occur if a 
manufacturer with a diverse product offering were to meet the phase-in 
with relatively low cost smaller engines, thereby delaying compliance 
on larger engines with much higher lifetime emissions potential. Even 
so, the horsepower ranges for these power categories are fairly broad, 
so this restriction allows ample freedom to manufacturers to structure 
compliance plans in the most cost-effective manner. There were no 
adverse comments on this approach.
---------------------------------------------------------------------------

    \29\ Note exceptions to the percent phase-in requirements during 
the phase-in model years discussed in sections III.L and III.M. 
These deal with differences between a manufacturer's actual and 
projected production levels, and with incentives for early or very 
low emission engine introductions.
---------------------------------------------------------------------------

b. Special Considerations for the 75-175 hp Category
    As discussed in the proposal, the 75-175 hp category of engines and 
equipment may involve added workload challenges for the industry to 
develop and transfer technology. Though spanning only 100 hp, this 
category represents a great diversity of applications, and comprises a 
disproportionate number of the total nonroad engine and machine models. 
Some of these engines, though having characteristics comparable to many 
highway engines such as turbocharging and electronic fuel control, are 
not directly derived from highway engine platforms and so are likely to 
require more development work than larger engines to transfer emission 
control technology from the highway sector. Furthermore, the engine and 
equipment manufacturers have greatly varying market profiles in this 
category, from focused one- or two-product offerings to very diverse 
product lines with a great many models.
    Therefore, in addition to the flexibility provided through the 
phase-in mechanism, we proposed two optional measures to provide added 
flexibility in implementing the Tier 4 NOX standards, while 
keeping a priority on bringing PM emissions control into this diverse 
power category as quickly as possible. First, we proposed to allow 
manufacturers to use NMHC+NOX credits generated by any Tier 
2 engines over 50 hp (in addition to any other allowable credits) to 
demonstrate compliance with the Tier 4 requirement for 75-175 hp 
engines in 2012, 2013, and 2014 only. Second, we proposed allowing a 
manufacturer to instead demonstrate compliance with a reduced phase-in 
requirement of 25% for NOX and NMHC in each of 2012, 2013, 
and the first 9 months of 2014. Full compliance (100% phase-in) with 
the Tier 4 standards would have needed to be demonstrated beginning 
October 1, 2014.
    Engine manufacturers reinforced the points we made in the proposal 
regarding added workload challenges for this diverse category of 
engines and machines. However, they suggested that the first of the 
proposed options to address these challenges (allowing use

[[Page 38975]]

of Tier 2 credits) is not likely to be used due to a lack of available 
Tier 2 credits, and therefore should be dropped, and that the second 
option (allowing a slower phase-in) provided too short a stability 
period, and should be modified to delay final compliance by an 
additional 3 months, to December 31, 2014 or January 1, 2015. In 
addition to describing the very large redesign workload, they pointed 
out that engines and machines in this category typically do not have a 
model year that differs from the calendar year, and so the substantial 
changes required for Tier 4 compliance in October 2014 could force the 
need to change the product for all of 2014, effectively shortening the 
phase-in to two years. One manufacturer argued that the compliance date 
for the 75-100 hp engines in this category should be delayed an 
additional year, to 2016, and that the start of the phase-in for these 
engines should be likewise delayed from 2012 to 2013.
    We do not feel that the first option (allowing use of Tier 2 
credits) should be dropped, as it provides an alternative flexibility 
mechanism for a power category in which flexibility is clearly 
important, and is environmentally helpful as it provides an option for 
manufacturers to achieve NOX emission reductions earlier 
than under the second option. By providing an opportunity to use Tier 2 
credits in the 75-175 hp category, it coordinates well with the Tier 2 
credit use opportunity we are providing for the 50-75 hp engines 
meeting the 2008 PM standard (see section III.A), and allows for 
coordinated redesign and credit use planning by a manufacturer over 
this wide power range over many years. Nonetheless, recognizing that 
the second option may be more attractive to manufacturers, and 
considering the comments they provided on it, we have concluded that a 
three month phase-in extension until the end of 2014 is warranted to 
address the workload burden and to align product cycle dates. Thus we 
are adopting the December 31, 2014 implementation date suggested in 
comments for completion of the 75-175 hp engine phase-in.
    We do not agree that an additional year of delay is appropriate for 
the 75-100 hp engines in this category. The comment expressing interest 
in our doing so did not provide any basis for it in technological 
feasibility or in workload burden, and we do not see any basis for it 
ourselves.
    Therefore, we are adopting both of the proposed optional measures 
for the 75-175 hp engine phase-in, except that in the second option, 
full compliance (100% phase-in) with the Tier 4 standards will need to 
be demonstrated beginning December 31, 2014. As proposed, manufacturers 
using this reduced phase-in option will not be allowed to generate 
NOX credits from engines in this power category in 2012, 
2013, and 2014, except for use in averaging within the 75-175 hp 
category (that is, no banking or trading, or averaging with engines in 
other power categories). We believe that this restriction on credit use 
is appropriate, considering that larger engine categories will be 
required to demonstrate a substantially greater degree of compliance 
with the 0.30 g/bhp-hr NOX standard several years earlier 
than engines built under this option. As the purpose of this option is 
to aid manufacturers in implementing Tier 4 NOX standards 
for this challenging power category, we do not want any manufacturers 
who might be capable of building substantially greater numbers of 
cleaner engines to use this option as an easy and copious source of 
credits (owing to its slower phase-in of stringent standards) that in 
turn can be used to delay building clean engines in other categories or 
model years.
c. Alternative Phase-In Standards
    To ensure that Tier 4 engine development is able to take maximum 
advantage of highway diesel technology advances, we proposed to adopt 
nonroad diesel provisions in the averaging, banking, and trading 
program that would parallel the heavy-duty highway engine program's 
``split family provisions'' (see 68 FR 28470, May 23, 2003). In 
essence, these allow a manufacturer to declare an engine family during 
the phase-in years that is certified at NOX levels roughly 
midway between the phase-out standard and phase-in standard, without 
the complication of tracking credit generation and use. Because they 
constitute a calculational simplification of the emissions averaging 
provisions, these split family provisions do not result in a loss in 
environmental benefits compared to what the phase-in can achieve.
    The nonroad proposal also included specific emission levels for 
these split families, rather than just describing how they are 
calculated. Commenters suggested that we go one step further still and 
express these levels as alternative standards. They argued that this 
would facilitate attempts at harmonizing standards globally, especially 
for standards-setting bodies such as the European Commission that do 
not have emissions averaging programs. We are also aware that most 
manufacturers of highway diesel engines are now planning to comply with 
our 2007 standards using this emissions averaging approach, increasing 
the significance of comments on the topic from nonroad engine 
manufacturers, many of whom also make highway engines.\30\
---------------------------------------------------------------------------

    \30\ See the recently published ``Highway Diesel Progress Review 
Report 2,'' EPA420-R-04-004, available at http://www.epa.gov/otaq/diesel.htm#progreport2.
---------------------------------------------------------------------------

    After carefully considering the issues involved, we agree that the 
proposed approach lends itself to expression in terms outside of the 
averaging, banking, and trading program and that it makes sense to do 
so. We are creating such an alternative in the final regulations 
accordingly. These alternative standards do not substantively change 
our Tier 4 program from what we proposed, but rather respond to 
manufacturers' suggestions for administrative simplifications to what 
is essentially an averaging-based flexibility option in demonstrating 
compliance with the percent-of-production NOX phase-in. The 
alternative NOX phase-in standards are shown in table II.A-
3. They apply only during the NOX phase-in years. 
Manufacturers may use both approaches within a power category if 
desired, certifying some engines to the alternative standards, with the 
rest subject to the phase-in percentage requirement. Note that engines 
under 75 hp subject to Tier 4 NOX standards do not have an 
alternative standard because they do not have a NOX phase-
in, and engines over 750 hp do not have an alternative standard because 
of the separate standards we are adopting for these engines (explained 
in section II.A.4).

   Table II.A-3.--Tier 4 Alternative NOX Phase-in Standards (g/bhp-hr)
------------------------------------------------------------------------
                                                           NOX standard
                      Engine power                          (g/bhp-hr)
------------------------------------------------------------------------
75 <= hp < 175 (56 <= kW < 130)........................          \a\ 1.7
175 <= hp <= 750 (130 <= kW <= 560)....................             1.5
------------------------------------------------------------------------
Notes: \a\ Under the option identified in footnote b of table II.A-2, by
  which manufacturers may meet an alternative phase-in requirement of 25/
  25/25% in 2012, 2013, and 2014 through December 30, the corresponding
  alternative NOX standard is 2.5 g/bhp-hr.

    The engines certified under these standards will of course also 
need to meet the Tier 4 PM and crankcase control requirements that take 
effect for all engines in the first phase-in year. They will also need 
to comply with all Tier 4 provisions that would apply to

[[Page 38976]]

phase-in engines, including the 0.14 g/bhp-hr NMHC standard and the NTE 
and transient test requirements for all pollutants. We recognize that 
this differs from what is required under the phase-in approach, in 
which these requirements would not apply to the 50% of engines 
categorized as ``phase-out'' engines. However, under the alternative 
standards approach, what would have been two different engine families 
(one meeting phase-in requirements and one meeting phase-out 
requirements, with NOX and PM emissions averaging allowed 
between them under the ABT provisions) are replaced by a single engine 
family meeting the one set of alternative standards. Therefore all of 
the engines in this family must by default meet the phase-in 
requirements for provisions that lack any sort of averaging mechanism 
(NMHC standard, NTE, etc). As a result, any manufacturer choosing to 
design to the alternative standards rather than using the phase-in 
approach provides some additional environmental benefit as an indirect 
result of choosing this approach.
    We also believe that this alternative standards provision makes 
appropriate a further adjustment to the NOX phase-in scheme 
to better preserve both the advanced technology phase-in approach, for 
those manufacturers choosing that compliance path, and the alternative 
standards approach, for those choosing that path. Under the proposal, 
the provision for certifying a split engine family at a pre-designated 
NOX level would not allow credit generation by or credit use 
on engines in the split family (other than for averaging within the 
family). This was consistent with our goal of providing a simple, 
single average NOX standard level for the family, equivalent 
to arbitrarily designating a portion of the engines in the family as 
``phase-out'' engines (credit generators) and the rest as ``phase-in'' 
engines (credit users) with a net credit balance of zero, while 
avoiding the burden of actually calculating and tracking credits. This 
was also consistent with our approach under the 2007 highway engine 
program from which this concept is derived.
    However, because this split family provision has evolved into a set 
of alternative standards, there is no longer a need to prohibit the 
generation and use of ABT credits for these engines to preserve a de 
facto net zero credit balance, and so, considering that it is also not 
environmentally detrimental, we believe it is appropriate to allow 
credit use and generation for these engines as for other engines. A 
consequence of doing so, consistent with all of our ABT programs, is 
the adoption of NOX FEL caps for these engines. To maintain 
the character of this compliance path as producing engines during the 
phase-in years that emit at NOX levels which are roughly 
averaged between Tier 3 and final Tier 4 levels, we are setting 
NOX FEL caps for these engines at levels reasonably close to 
the alternative standards. (See section III.A for details.) Because we 
are also maintaining the original phase-in/phase-out compliance path, a 
manufacturer wishing to build engines with NOX levels higher 
than these FEL caps, at or approaching the Tier 3 levels, could still 
do so; in fact these would in actuality fit the description of a phase-
out engine. This manufacturer would also, of course, have to produce a 
corresponding number of phase-in engines meeting the aftertreatment-
based Tier 4 NOX standards.
    We also observe that the creation of alternative standards provides 
the opportunity to adjust the phase-in/phase-out provisions so as to 
reinforce their focus on introducing high-efficiency NOX 
aftertreatment technology during the phase-in years, which is, of 
course, their aim. We are doing this by setting NOX family 
emission limit (FEL) caps for phase-in engines at the same low levels 
as for Tier 4 engines produced in the post-phase-in years. (Again, see 
section III.A for details.) Although the engine manufacturers indicated 
in their comments that they did not believe it likely that anyone would 
choose this phase-in/phase-out compliance path, we believe that 
preserving it and focusing it on encouraging very low-NOX 
engines as early as possible provides a potentially useful and 
environmentally desirable alternative path. Thus these two concepts 
have been developed to provide complementary compliance paths obtaining 
equivalent overall NOX reductions, one focused on phasing in 
high-efficiency NOX aftertreatment and the other on 
achieving NOX control for all subject engines during the 
phase-in years at an average level between the Tier 3 and final Tier 4 
standards levels.
3. Standards for Smaller Engines
a. Engines Under 25 hp
    We are finalizing the Tier 4 program we proposed for engines under 
25 hp. In the proposal we presented our view that standards based on 
the use of PM filters should not be set at this time for the very small 
diesel engines below 25 hp. We also discussed our plan to reassess the 
appropriate long-term standards in a technology review. However, for 
the nearer-term, we concluded that other proven PM-reducing 
technologies such as diesel oxidation catalysts and engine optimization 
could be applied to engines under 25 hp. Accordingly, we proposed Tier 
4 PM standards to take effect beginning in 2008 for these engines based 
on use of these technologies.
    In contrast to our proposals for other engine categories, the 
proposed Tier 4 standards for this category elicited very little 
comment from the engine manufacturers other than an expression of 
support for deferring consideration of any more stringent standards 
pending results of a future technology review. The States and 
environmental organizations expressed disappointment that EPA had not 
proposed more stringent standards for these engines, given the very 
large number of these engines in the field and the significant risk 
they pose due to individuals' exposure to diesel PM and air toxics. 
They urged more stringent 2008 PM standards and the adoption of 
standards obtaining emission reductions of 90% or more by the end of 
2012. Emissions control manufacturers argued that more stringent 2008 
standards based on the use of more efficient oxidation catalysts are 
feasible.
    As discussed in section II.B.4, we continue to believe that the 
standards we proposed for engines under 25 hp are feasible, and 
commenters in the nonroad diesel industry provided no comments to the 
contrary. Our reasons for not proposing more stringent Tier 4 standards 
for these engines based on the use of PM filters and NOX 
aftertreatment were mainly focused on the cost of equipping these 
relatively low cost engines with such devices, especially considering 
the prerequisite need for electronic fuel control systems to facilitate 
regeneration. The comments supporting more stringent standards were not 
convincing, as they did not address these cost issues. However, we do 
agree that these small engines likely have a large impact on human 
health, and, as discussed in section VIII.A, we are reaffirming the 
plan we described in the proposal to reassess the appropriate long-term 
standards for these engines in a technology review to take place in 
2007. We will set more stringent standards for these engines at that 
time, if appropriate.
    We also disagree with comments supporting more stringent 2008 
standards that would require the use of diesel oxidation catalysts on 
all small engines. Although we agree that these catalysts can be 
applied so as to achieve emission reductions on some small engines, the 
emissions performance data

[[Page 38977]]

we have analyzed do not support our setting a more stringent standard. 
Section 4.1.5 of the RIA summarizes such data showing a very wide range 
of engine-out PM emissions in this power category. Applying oxidation 
catalyst technology to these engines, though capable of some PM 
reduction if properly designed and matched to the application, is 
limited by sulfur in the diesel fuel. Specifically, precious-metal 
oxidation catalysts (which have the greatest potential for reducing PM) 
can oxidize the sulfur in the fuel and form particulate sulfates. Even 
with the 500 ppm maximum sulfur fuel available after 2007, the sulfate 
production potential is large enough to limit what can be done to set 
more stringent 2008 PM standards through the use of these catalysts. 
The 15 ppm maximum sulfur fuel available after 2010 will greatly 
improve the potential for use of oxidation catalysts, but as we 
discussed above, we believe that the much larger potential reduction 
afforded by PM filter technology warrants our waiting until the 
technology review in 2007 to evaluate the appropriate long-term 
standards for these engines. See section II.B.5 and RIA section 4.1.5 
for further discussion.
    When implemented, the Tier 4 PM standard and related provisions we 
are adopting today for engines under 25 hp will yield an in-use PM 
reduction of over 50% for these engines, and large reductions in toxic 
hydrocarbons as well. Achieving these emission reductions is very 
important, considering the fact that many of these smaller engines 
operate in populated areas and in equipment without closed cabs--in 
mowers, portable electric power generators, small skid steer loaders, 
and the like.
    We are also adopting the alternative compliance option that we 
proposed for air-cooled, direct injection engines under 11 hp that are 
startable by hand, such as with a crank or recoil starter. As we 
explained in the proposal, the alternative is justified due (among 
other things) to these engines' need for loose design fit tolerances, 
their small cylinder displacement and bore sizes, and the difficulty in 
obtaining components for them with tight enough tolerances (68 FR 
28363, May 23, 2003). This alternative allows manufacturers of these 
engines to delay Tier 4 compliance until 2010, and in that year to 
certify them to a PM standard of 0.45 g/bhp-hr, rather than to the 0.30 
g/bhp-hr PM standard applicable beginning in 2008 to the other engines 
in this power category. As proposed, engines certified under this 
alternative compliance requirement will not be allowed to generate 
credits as part of the ABT program, although credit use by these 
engines will still be allowed.
    We received no adverse comments on this proposed alternative for 
qualifying engines under 11 hp. Euromot commented that there are hand-
startable engines in the 11-25 hp range, and that we should extend the 
alternative compliance option to these engines as well. However, hand-
startability is not the sole defining feature of engines for which we 
established this alternative. Rather, the alternative is for a class of 
engines typified by a combination of characteristics (very small, air-
cooled, direct injection, hand-startable), which give rise to the 
potential technical difficulties noted above. To extend the alternative 
to other engines simply because they have a hand-start is not 
justified, because they do not share these technical difficulties (or 
do not share them to the same degree). Such an extension could also 
potentially encourage manufacturers of the many models of these larger 
engines to market a hand-start option simply to avoid more stringent 
standards.
b. Standards for 25-75 hp Engines
    We proposed a 0.22 g/bhp-hr PM standard for 25-75 hp engines, to 
take effect in 2008. We also proposed a filter-based 0.02 g/bhp-hr PM 
standard for these engines, to take effect in 2013, the year in which 
filter-based technology for these engines is expected to be applicable 
on a widespread basis (see section II.A.1). Also in 2013, the 25-50 hp 
engines would be subject to the 3.5 g/bhp-hr NMHC+NOX 
standard already adopted for 50-75 hp engines (taking effect in 2008 as 
part of Tier 3). We are adopting all of these proposed standards in 
this final rule.
    The 2008 PM standard for these engines should maximize reduction of 
PM emissions using technology available in that year. We believe that 
the 2008 PM standard is feasible for these engines, based on the same 
engine or oxidation catalyst technologies feasible for engines under 25 
hp in 2008, following the introduction of nonroad diesel fuel with 
sulfur levels reduced below 500 ppm. We expect in-use PM reductions for 
these engines of over 50% (and large reductions in toxic hydrocarbons 
as well) over the five model years this standard would be in effect 
(2008-2012). These engines will constitute a large portion of the in-
use population of nonroad diesel engines for many years after 2008. 
Although we are finalizing the 2013 standards for 25-75 hp engines 
today, we are also reaffirming our commitment to conducting a 
technology review for these standards in 2007. This planned review is 
discussed in section VIII.A. Additional discussion of our feasibility 
assessment for the 2008 and 2013 standards can be found in section 
II.B.4 and RIA section 4.1.4.
    In comments, emissions controls manufacturers argued that more 
stringent 2008 standards for PM and NMHC based on the use of more 
efficient oxidation catalysts are feasible and should be adopted. 
Environmental organizations argued that PM and NOX standards 
for 2008 should be set at more stringent levels, based on the use of 
oxidation catalysts and improved engine optimization. The California 
Air Resources Board argued for more stringent 2008 standards for 
HC+NOX, PM and toxics, based on the use of oxidation 
catalysts.
    We disagree with the comments calling for more stringent 2008 
standards than proposed for 25-75 hp engines, based on the use of 
diesel oxidation catalysts. The standards we proposed and are adopting 
for these engines pull ahead sizeable PM reductions starting three 
years ahead of the earliest PM filter-based standards for any engine 
size. The pull-ahead standard level balances early reductions with the 
need to ensure that the PM filter-based standards and Tier 3 
NMHC+NOX standards are not jeopardized by an overemphasis on 
early reductions. Although we agree that oxidation catalysts can be 
applied to these engines, the emissions performance data we have 
analyzed do not support our setting a more stringent standard, for the 
same reasons described above in section II.A.3.a for engines under 25 
hp. Refer to section II.B.4 and to section 4.1.4 of the RIA for 
additional discussion. For a discussion of comments opposed to new 
standards in 2008, see sections II.A.1 and II.B of this preamble.
    We also do not agree that more stringent NOX 
requirements based on improved engine optimization are appropriate for 
these engines in 2008. In 2001 we reviewed and confirmed the previously 
set NMHC+NOX emission standards that will be in effect for 
these engines during the time frame in question.\31\ Because of the 
focus we are putting on achieving large PM reductions from these 
engines as early as possible, we felt that it was important to strike a 
balance between PM and NOX control. As a result, we did not 
propose more stringent NOX standards for 50-75 hp engines, 
and we proposed to apply

[[Page 38978]]

the 3.5 g/bhp-hr NMHC+NOX standard to 25-50 hp engines in 
2013 because this is the year in which the PM filter-based standard is 
being implemented. Requiring new NOX controls for these 
engines earlier than 2013 would add a third redesign step to those 
already called for in 2008 and 2013. This would add a potentially 
unacceptable amount of redesign workload, to a point that it could 
jeopardize our objective of bringing stringent PM control to these 
engines as early as possible.
---------------------------------------------------------------------------

    \31\ ``Nonroad Diesel Emissions Standards Staff Technical 
Paper,'' EPA420-R-01-052, October 2001.
---------------------------------------------------------------------------

    Consistent with the proposal, we are not setting more stringent 
NOX standards for engines below 75 hp at this time based on 
the use of NOX aftertreatment. As discussed in section 
4.1.2.3 of the RIA, a high degree of complexity and engine/
aftertreatment integration will be involved in applying NOX 
adsorber technology to nonroad diesel engines. The similarity of larger 
nonroad engines (above 75 hp) to highway diesel engines, which will 
provide the initial experience base for this integration process, is 
key to our assessment that NOX adsorbers are feasible for 
these engines. On the other hand, although engines under 75 hp are 
gradually increasing in sophistication over time, the accumulation of 
experience with designing and operating these engines with more 
advanced technology clearly lags significantly behind the sizeable 
experience base already developed for larger engines. At this point, we 
are unable to forecast how quickly adequate experience may accrue. 
Because this experience is crucial to ensuring the successful 
integration of the engines with NOX adsorber technology, we 
are not adopting NOX adsorber-based standards for engines 
under 75 hp in this final rule. Rather, as discussed in section VIII.A, 
we plan to undertake a technology assessment in the 2007 time frame 
which would evaluate the status of engine and emission control 
technologies, including NOX controls, for engines less than 
75 hp.
    As described in section II.A.1.a, we are providing two PM standard 
compliance options to engine manufacturers for 50-75 hp engines. As 
part of this, we also proposed a measure to ensure that it would not be 
abused by equipment manufacturers who use engines that do not meet the 
PM pull-ahead standard in 2008-2011, but who then switch engine 
suppliers to avoid PM filter-equipped engines in 2012 as well (68 FR 
28360, May 23, 2003). We proposed that an equipment manufacturer making 
a product with engines not meeting the pull-ahead standard in any of 
the years 2008-2011 must use engines in that product in 2012 meeting 
the 0.02 g/bhp-hr PM standard; that is, the equipment manufacturer 
would have to use an engine from the same engine manufacturer or from 
another engine manufacturer choosing the same compliance option. We 
also solicited comment on possible alternative solutions using a 
numerical basis, describing an example that would require the 
percentage of 50-75 hp machines equipped with PM filters in 2012 to be 
no less than the same percentage of 50-75 hp machines produced with 
non-pull-ahead engines in 2008-2011.
    The Engine Manufacturers Association (EMA) and Deere commented on 
the unenforceability of the proposed ``no switch'' measure as part of a 
broader objection to our proposal for 50-75 hp engines. They pointed 
out that changing equipment model designations could easily allow an 
equipment manufacturer seeking to avoid PM filter-equipped engines in 
2012 to declare a product in this model year a ``new product,'' not the 
same as the 2008-2011 product. We have concluded that there is indeed 
potential for this abuse to occur and, although no one commented 
specifically on the alternative approach, we believe it clearly 
addresses this problem because it does not depend on product 
designations.
    Therefore, we are adopting a provision to discourage engine 
switching based on this alternative approach. An equipment manufacturer 
who uses 50-75 hp engines will have three options:

    (1) The manufacturer may exclusively use engines certified to 
the 0.22 g/bhp-hr PM standard (including through use of ABT credits) 
over the 2008-2011 period. This manufacturer is then free to use any 
number of 50-75 hp engines not certified to the 0.02 g/bhp-hr 
standards in 2012.
    (2) The manufacturer may exclusively use engines not certified 
to the 0.22 g/bhp-hr PM standard over the 2008-2011 period. This 
manufacturer must then use only 50-75 hp engines that are certified 
to the 0.02 g/bhp-hr standards in 2012 (including through use of ABT 
credits).
    (3) The manufacturer may use a mix of engines in 2008-2011. In 
this case, the manufacturer must calculate the percentage of 50-75 
hp engines used (in U.S.-directed equipment) over the 2008-2010 
period that are not certified to the 0.22 g/bhp-hr PM pull-ahead 
standard. Then the percentage of 50-75 hp engines this manufacturer 
uses in 2012 that are certified to the 0.02 g/bhp-hr PM standard 
must be no less than this 2008-2010 non-pull-ahead percentage figure 
minus a 5% margin.\32\

    \32\ The 2011 production is not included in the percentage 
calculation to avoid the need for post-2011 confirmation of 
production volumes which, as it would occur in 2012, would be too 
late to easily re-focus 2012 production if the confirmed volumes 
differ from projections. It is not likely that manufacturers would 
abuse the program by switching engine suppliers for this one year of 
production.
---------------------------------------------------------------------------

    As an example of this third option, consider an equipment 
manufacturer who does not use the transition flexibility provisions 
(described in section III.B), and over the 2008-2010 period makes 1000 
50-75 hp machines for use in the U.S., 200 (20%) of which use engines 
not certified to the 0.22 g/bhp-hr standard. In 2012, that manufacturer 
must make at least 15% of his 50-75 hp machines for use in the U.S. 
using engines certified to the 0.02 g/bhp-hr standard. We feel that the 
5% margin is needed to allow for some reasonable sales shifts within 
the manufacturer's product offering over time, but is small enough to 
ensure that any possible advantage gained from selling higher-emissions 
products remains minimal. Equipment manufacturers must keep production 
records sufficient to prove compliance. This restriction and the 
percentage calculation will not apply to any 2008-2012 engines at issue 
that are being produced under the equipment manufacturer transition 
flexibility provisions discussed in section III.B. For example, if in 
addition to the 200 engines in 2008-2010 not certified to the 0.22 g/
bhp-hr standard in the above example, this manufacturer also used 500 
previous-tier engines in 2008-2010 under the flexibility allowance 
program, his percentage target for PM filter-equipped engines in 2012 
would be 35% of all the engines used in 2012 that are not previous-tier 
engines under the flexibility allowance program. \33\
---------------------------------------------------------------------------

    \33\ That is: [200/(1000-500)] = 40%; subtracting the 5% margin 
then yields 35%.
---------------------------------------------------------------------------

4. Standards for Engines Above 750 hp
    We are adopting different Tier 4 standards for over 750 hp engines 
from those we proposed, and we are also adopting different 
implementation dates for these engine standards, though both the 
proposed and final programs have as their primary focus the 
implementation of high-efficiency exhaust emission controls as quickly 
as possible. The approach being adopted reflects our careful review of 
the technical issues presented by these engines. For some of these 
engines, we are accelerating standards based on the use of 
aftertreatment controls. For others, we are deferring a decision on 
such aftertreatment-based standards. This approach represents a 
feasible and efficient approach to redesigning

[[Page 38979]]

engines and installing aftertreatment in a coordinated, orderly manner 
over a decade or more, and will achieve major reductions in PM and 
NOX from these large diesel engines.
    Under the proposal, all engines above 750 hp were treated the same, 
with a phase-in of PM and NOX aftertreatment technology that 
started in 2011 and finished in 2014. The final standards are based on 
our evaluation of the differing technical issues presented by the two 
primary kinds of equipment in this category, mobile power generation 
equipment (generator sets) and mobile machinery. For both generator 
sets and mobile machinery, PM aftertreatment-based standards will start 
in 2015, with no prior phase-in. EPA is replacing the proposed phase-in 
with a PM standard starting in 2011 that is comparable to the overall 
level of control that the proposed phase-in would achieve. Differences 
within these applications, however, call for different approaches to 
the implementation of NOX aftertreatment technology. For 
generator sets above 1200 hp, an aftertreatment-based NOX 
standard will start in 2011, three years earlier than the date we 
proposed for full implementation of such standards. For generator sets 
below 1200 hp, the same aftertreatment-based NOX standard 
will start in 2015. As with the PM standard, there is no phase-in. For 
engines used in mobile machinery, which is assumed to include all 
equipment that is not a generator set, EPA is deferring a decision on 
setting aftertreatment-based NOX standards to allow 
additional time to evaluate the technical issues involved in adapting 
NOX adsorber technology to these applications and engines. 
However, EPA is adopting a NOX standard for these engines 
starting in 2011 that will achieve large NOX reductions by 
relying on engine-based emissions control technology. Consistent with 
the different approaches we are taking to setting standards for engines 
above and below 750 hp, we are also adopting restrictions on ABT credit 
use between these power categories, as described in section III.A.
    Consistent with the approach we took in previous standard-setting 
for these engines, we proposed that nonroad diesels above 750 hp be 
given more lead time than engines in other power categories to fully 
implement Tier 4 standards, due primarily to the relatively long 
product design cycles typical of these high-cost, low-sales volume 
engines and machines. Specifically, we proposed that this category of 
engines move directly from Tier 2 to Tier 4, and that the Tier 4 PM 
standard be phased in for these engines on the same 50-50-50-100% 
schedule as the NOX and NMHC phase-in schedule, over the 
2011-2014 model years. This would provide engine manufacturers with up 
to 8 years of design stability to address concerns specific to this 
category. Although we expressed our belief that these proposed 
provisions would enable the manufacturers to meet proposed Tier 4 
engine standards, we also acknowledged concerns the manufacturers had 
expressed to us, and asked for comment on whether this category, or 
some subset of it defined by hp or application, should have a later 
phase-in start date, a later phase-in end date, adjusted standards, 
additional equipment manufacturer transition flexibility provisions, or 
some combination of these (68 FR 28364, May 23, 2003).
    Comments from manufacturers of engines and equipment in this power 
category expressed their widespread view that the proposed standards 
were inappropriate in critical respects. In addition to reiterating the 
need for extra lead time due to long product design cycles, they 
pointed to difficulties with aftertreatment placement, with fabrication 
of the large filters that would be needed for these engines, with 
potential failures caused by uneven soot loading and regeneration in 
large filters, with stresses due to thermal gradients across large 
filters, and with mechanical stresses in mining applications with high 
shock loads. The manufacturers noted that aftertreatment-based 
standards for NOX and PM were feasible for engines used in 
large mobile power generators. However, manufacturers did not believe 
aftertreatment-based NOX standards could be implemented in 
the time frame proposed for engines used in large mobile machinery such 
as bulldozers and mine haul trucks. States, environmental 
organizations, and manufacturers of emissions controls, on the other 
hand, expressed support for the standards we proposed for these 
engines.
    After evaluating these issues, EPA is adopting an approach that 
tailors the standards to the circumstances presented by the different 
kinds of engines in this power category. The NOX standards 
we are adopting will achieve effective NOX control by 
accelerating the proposed schedule for final NOX standards 
based on high-efficiency NOX aftertreatment for the largest 
generator sets, and by requiring engines in other generator sets to 
also meet aftertreatment-based NOX standards, although we 
are delaying the implementation date for these standards compared to 
the implementation schedule we proposed. We believe that NOX 
adsorber technology will be feasible for these generator set engines. 
We also believe that they may be an especially attractive application 
for Selective Catalytic Reduction (SCR) technology, which relies on the 
injection of urea into the exhaust stream. There are many stationary 
diesel generator sets using SCR today. Large mobile generator sets, 
though moved from location to location, operate much like stationary 
units once in place, with fuel (and potentially urea) delivered and 
replenished periodically. See section II.B.3 for further discussion.
    For equipment other than generator sets, we are deferring a 
decision on setting aftertreatment-based NOX standards to 
allow additional time to evaluate the technical issues involved in 
adapting NOX control technology to these applications and 
engines. We are still evaluating the issues involved for these engines 
to achieve a more stringent NOX standard, and believe that 
these issues are resolvable. We intend to continue evaluating the 
appropriate long-term NOX standard for mobile machinery over 
750 hp and expect to announce further plans regarding these issues (we 
are currently considering such an action in the 2007 time frame). The 
basis for the 0.50 g/bhp-hr NOX standard we are adopting for 
generator sets over 750 hp is discussed in section II.B.3. We are also 
modifying the PM and NMHC standards we proposed (as well as certain 
implementation dates for these provisions), and modifying our proposed 
approach to ensuring transient emissions control for these engines 
(discussed in section III.F). The Tier 4 standards for engines over 750 
hp are shown in table II.A-4.

[[Page 38980]]



                       Table II.A-4.--Tier 4 Standards for Engines Over 750 hp (g/bhp-hr)
----------------------------------------------------------------------------------------------------------------
                                              2011                                      2015
                              ----------------------------------------------------------------------------------
                                   PM          NOX        NMHC         PM              NOX              NMHC
----------------------------------------------------------------------------------------------------------------
Engines used in:
    generator sets <=1200 hp.       0.075         2.6        0.30        0.02                0.50  0.14
    generator sets >1200 hp..       0.075        0.50        0.30        0.02     No new standard  0.14
    all other equipment......       0.075         2.6        0.30        0.03     No new standard  0.14
----------------------------------------------------------------------------------------------------------------

    Unlike NOX control technology, we believe that the more 
advanced state of PM filter technology development today makes their 
availability for these engines by 2015, with over ten years of 
development lead time, more certain, and so we are setting PM standards 
for both mobile machinery and generator sets based on use of this 
technology. We note in section II.B.3 that achieving durable PM filter 
designs for these large applications will likely require the use of 
wire mesh filter technology rather than the somewhat more efficient 
wall flow ceramic-based technology applicable to smaller engines, 
justifying the somewhat higher level for the 2015 PM standards shown in 
table II.A-4 (0.03 or 0.02 g/bhp-hr compared to 0.01 g/bhp-hr). Section 
II.B.3 also contains discussion of our bases for the other Tier 4 
standard levels in this category. We believe that the 2015 
implementation year (versus the proposed 2014 date for the fully 
phased-in standard) is necessary to allow development of the requisite 
technologies for these large engines, and to deal with the redesign 
workload Tier 4 will create for the many engine and equipment models in 
this category which, as noted, typically have very low production 
volumes and long product cycles.
    For the purpose of determining which nonroad engines are subject to 
the generator set standards, we are defining a generator set engine as: 
``An engine used primarily to operate an electrical generator or 
alternator to produce electric power for other applications.'' This 
definition makes it clear that generator set engines do not include 
engines used in machines such as mine trucks that do mechanical work 
but that employ engine-powered electric motors to propel the machine, 
but they do include engines in nonroad equipment for which the primary 
purpose is to generate electric power, even if the machine is also 
self-propelled.
    Similar to other power categories, we proposed a 50% phase-in to 
the final Tier 4 PM, NOX and NMHC standards, with 
opportunity to average PM and NOX between phase-in and 
phase-out engines in the 2011-2013 phase-in years via the ABT program. 
Because in this rule we are no longer phasing in to a final 
NOX standard for some engines over 750 hp, it no longer 
makes sense to express the 2011 standards for these engines in this 
manner. Instead we are setting brake-specific emission standards 
effective in 2011. Furthermore, to avoid further complicating an 
already complex standards structure, we are adopting this pattern for 
the entire category, even with engines such as those used in generator 
sets for which the standards could still be expressed as a percent 
phase-in to final standards. Except for the pull-ahead of the long-term 
NOX standard for large generator sets (which will increase 
the environmental benefit compared to the proposal), these 2011 PM and 
NOX standards essentially correspond to averaged standards 
under a 50% phase-in to aftertreatment-based standards, hence our 
conclusion that the Tier 4 program will provide a level of control in 
2011 that is substantially equivalent to that of the proposal. In 
addition, PM and NOX emissions averaging through the ABT 
program will allow a manufacturer to comply by phasing in 
aftertreatment technologies as in the proposed program, should they 
desire to do so. Although there is no such averaging program for NMHC, 
the 2011 NMHC standard can be achieved without the use of advanced 
aftertreatment (as explained in section II.B.3), thus helping to enable 
a manufacturer to pursue this compliance strategy if desired.
    This approach involving separate 2011 and 2015 standards is 
comparable to the proposed percent phase-in approach with emissions 
averaging. We believe that it enables manufacturers to redesign engines 
and equipment in a coordinated, orderly manner over a decade or more, 
and effectively gives targeted additional flexibility to the industry. 
Given the continuing availability of emissions averaging, we do not 
view this change as the creation of an additional, separate tier of 
standards compared to the proposal's phase-in of the Tier 4 standards.
5. Establishment of New Power Categories
    We are finalizing our proposal to regroup the nine power categories 
established for previous tiers into the five Tier 4 power categories 
shown in table II.A-1. As we explained in the proposal, this regrouping 
will more closely match the degree of challenge involved in 
transferring advanced emissions control technology from highway engines 
to nonroad engines. The proposed choice of 75 hp as the appropriate 
cutpoint for applying aftertreatment-based NOX control drew 
particular attention. In the proposal, we recognized that there is not 
an abrupt power cutpoint above and below which the highway-derived 
nonroad engine families do and do not exist, but noted further that 75 
hp is a more appropriate cutpoint to generally identify nonroad engines 
in Tier 4 that will most likely be using highway-like engine technology 
than either of the closest previously-adopted power category cutpoints 
of 50 or 100 hp. Nonroad diesels produced today with rated power above 
75 hp (up to several hundred hp) are mostly variants of nonroad engine 
platforms with four or more cylinders and per-cylinder displacements of 
one liter or more. These in turn are largely derived from or are 
similar to heavy-duty highway engine platforms. Even where nonroad 
engine models above 75 hp are not so directly derived from highway 
models, they typically share many common characteristics such as 
displacements of one liter per cylinder or more, direct injection 
fueling, turbocharging, and, increasingly, electronic fuel injection. 
These common features provide key building blocks in transferring high-
efficiency exhaust emission control technology from highway to similar 
nonroad diesel engines. We therefore proposed to regroup power ratings 
using the 75 hp cutpoint.
    The Engine Manufacturers Association and Euromot, which together 
represent the companies that make all but a tiny fraction of nonroad 
diesel engines sold in the U.S., expressed their support for the 75 hp 
cutpoint, as did every individual engine

[[Page 38981]]

manufacturer who commented on this subject. These companies generally 
endorsed EPA's reasoning that the 75 hp level is appropriate to 
``delineate those engines (and applications) for which the application 
of on-highway like NOX aftertreatment technologies is not 
likely to be feasible or practical'' (EMA Comments p.10).
    However, the Association of Equipment Manufacturers (AEM) and the 
equipment manufacturer Ingersoll-Rand commented that 100 hp is the more 
appropriate cutpoint for application of advanced NOX control 
technology. They based this view on their observations that 75-100 hp 
engines do not share many of the characteristics of highway diesels, 
thus making technology transfer from the highway sector very costly, 
and customers will be negatively affected due to the relatively large 
cost impacts of NOX aftertreatment on these smaller engines. 
They also argued that the 75 hp cutpoint would create significant 
misalignment in the global marketplace because European regulations do 
not use this cutpoint.
    We agree with the equipment manufacturers' observation that there 
are engines above 75 hp without turbocharging or electronic controls. 
However, EPA did not choose the 75 hp cutpoint with the expectation 
that all engines above it had the same technology characteristics. 
There is a continuum in the degree to which key technology 
characteristics exist on engines throughout the power spectrum, and the 
75 hp cutpoint was based on information from the current fleet of 
engines and on manufacturers' and EPA's expectations for future design 
trends, showing there is a marked difference in the prevalence of these 
and other key engine design characteristics for engines above and below 
75 hp, and that, over time, 75-100 hp engines increasingly share 
advanced technology characteristics common in larger engines. Clear 
evidence of this trend over recent model years is documented in the 
RIA, section 4.1.4. As discussed in section II.B.2, the kind of engine 
technology generally employed by engines in the 75-100 hp range, 
combined with the lead time and phase-in provided for the Tier 4 
NOX standards, leads us to conclude that highway-like 
NOX aftertreatment can be transferred to these engines. In 
addition, since our proposal, the Council of the European Union (EU) 
has issued a revised final version of new nonroad diesel emission 
standards that essentially aligns their power cutpoints with our own, 
including adoption of the 75 hp cutpoint for advanced technology 
NOX control. EPA does not believe that the costs of meeting 
the NOX standard for engines in the 75-100 hp range are 
unreasonable, and we refer the reader to section VI for a detailed 
discussion of our cost analysis for engines and equipment meeting Tier 
4 standards in this power range. Moreover, EPA firmly believes such 
standards are technologically feasible for 75-100 hp engines. (See 
section II.B.2.)
    Ingersoll-Rand also expressed concern that the proposed 
consolidation of 3 previous power categories into a single 175-750 hp 
category creates significant hardship by requiring the introduction of 
aftertreatment technologies in a single year, contrasting this with the 
Tier 2 standards, which phased in over 2001-2003 for these engines. In 
response, we note that the Tier 3 standards, which were set in the same 
rule that established the Tier 2 standards, will be introduced in a 
single year for these engines (2006), and that the Tier 2 phase-in over 
3 years was established in response to particular issues and 
opportunities that were identified, specific to that time frame (see 62 
FR 50181, September 24, 1997). In addition to the gradual phase-in of 
Tier 4 standards over several years, we are adopting significant 
flexibility provisions specifically to provide adequate lead time for 
equipment manufacturers to make the transition to the new standards, 
including some provisions that provide additional flexibility from what 
we proposed, as explained in section III.B.
6. CO Standards
    We proposed minor changes in CO standards for some engines solely 
for the purpose of helping to consolidate power categories. We stated 
in the proposal that we were not exercising our authority to revise the 
CO standard for the purpose of improving air quality, but rather for 
purposes of administrative efficiency. However, manufacturers objected 
to these proposed changes, citing technological feasibility concerns, 
and a lack of parity with highway diesel and nonroad spark-ignition 
engines, given that existing CO standards levels for nonroad engines 
are already five times lower than the standard level for highway 
engines.
    Because we proposed the CO standard changes for the sake of 
simplifying and consolidating power categories and not because of any 
technical considerations relating to emission reductions, we do not 
believe it productive to take issue with the views expressed that these 
proposed changes raise serious feasibility concerns. We instead are 
withdrawing this aspect of the proposal, the result being that the 
existing CO standards remain in place. In doing so, we are not 
considering or reexamining (and at proposal did not consider or 
reexamine) the substantive basis for those standards. Having multiple 
CO standards within a power category will, at worst, create minor 
inconveniences in certification and compliance efforts. As a result, in 
the less than 25 hp category, Tier 4 engines below 11 hp will continue 
to be subject to a different CO standard than 11-25 hp engines, 
identical to Tier 2. Likewise, different CO standards will continue to 
apply in Tier 4 to engines above and below 50 hp in the 25-75 hp 
category.
    We do note, however, that we are applying new certification tests 
to all pollutants covered by the rule, the result being that Tier 4 
engines will have to certify to CO standards measured by the transient 
test (NRTC) (which includes a cold start test), and the NTE. Our intent 
in adopting these new certification requirements is not to alter the 
level of stringency of the standard but rather to ensure robust control 
of emissions to this standard in use. The CO standards remain readily 
achievable using these tests, and we anticipate that no additional 
engine adjustments are necessary for the standards to be achievable (so 
there are no significant associated costs). We also explain there that 
the CO standards can be achieved without jeopardizing the ability to 
achieve all of the other engine standards.
7. Crankcase Emissions Control
    We currently require the control of crankcase emissions from 
naturally-aspiriated nonroad diesel engines. We proposed to extend this 
requirement to turbocharged nonroad diesel engines as well, starting in 
the same model year that Tier 4 exhaust emission standards first apply 
in each power category.
    EMA opposed the proposed extension, reiterating concerns expressed 
in comments on a similar proposed provision in the 2007 heavy-duty 
highway rule, including concerns over the impact that recirculating 
crankcase emissions may have on the feasibility of engine standards 
over the full useful life. These concerns are addressed in the Summary 
and Analysis of Comments document for that rule, which is included in 
the docket for today's rule. Besides the feasibility issues raised by 
EMA for nonroad diesels that are addressed in the highway rule, two 
nonroad-specific issues were raised as well: (1) The need to design 
crankcase emission control systems that operate at the high angularity 
experienced by some

[[Page 38982]]

nonroad machines on uneven ground, and (2) the concern that this 
requirement adds to the large number of ``first time'' requirements 
being adopted for Tier 4. We agree that high angularity operation may 
add new design considerations for these controls, but do not see how it 
would pose a serious barrier that could not be overcome in time. The 
grouping of new EPA requirements in a specific model year is an 
important objective of our program aimed at providing stability to the 
design process, a goal much supported by the engine manufacturers. We 
have accounted for this in assessing feasibility, costs, and 
flexibility needs for the program. One flexibility we are providing is 
the three-path opportunity to satisfy our crankcase control 
requirement, as described below. In fact, in its written comments EMA 
recommended that, if EPA were to proceed with crankcase emission 
control requirements for Tier 4, it adopt all three options for 
demonstrating compliance. This is indeed what we are doing.
    Thus, as proposed, in addition to allowing for compliance through 
the routing of crankcase emissions to the engine air intake system, we 
are also allowing manufacturers to instead meet the requirement by 
routing the crankcase gases into the exhaust stream, provided they keep 
the combined total of the crankcase emissions and the exhaust emissions 
below the applicable exhaust emission standards. Also as proposed, we 
are allowing manufacturers to instead meet the requirement by measuring 
crankcase emissions instead of completely eliminating them, provided 
manufacturers add these measured emissions to exhaust emissions in 
assessing compliance with exhaust emissions standards. Manufacturers 
using this option must also modify their exhaust deterioration factors 
or develop separate deterioration factors to account for increases in 
crankcase emissions as the engine ages, and must ensure that crankcase 
emissions can be readily measured in use. We see no reason to treat 
naturally-aspirated engines differently than turbocharged engines, and 
so are allowing these options for all Tier 4 engines subject to the 
crankcase control requirement, both turbocharged and naturally-
aspirated. The wording of the proposed regulations limiting the options 
to turbocharged engines was inadvertent.
8. Prospects for International Harmonization
    We received numerous comments, especially from engine and equipment 
manufacturers, stressing the need for EPA to work with other 
governmental standards-setting bodies to harmonize standards. We 
recognize the importance of harmonization of international standards 
and have worked diligently with our colleagues in Europe and Japan to 
achieve that objective. Harmonization of these standards will allow 
manufacturers continued access to world markets and lower the required 
research and development and tooling costs needed to meet different 
standards. We will continue to work with standards-setting governmental 
entities and with foreign and domestic manufacturers.
    In October 2003, the Council and Parliament of the European Union 
reached agreement on revisions to a proposal developed by the European 
Commission that would amend Directive 97/68/EC to include nonroad 
diesel emissions standards similar to those in our Tier 4 program, and, 
as in the U.S., coordinated with low sulfur diesel fuel requirements in 
Europe. This revised proposal has since been finalized.\34\ This 
revised Directive aligns well with our program in the Tier 4 time 
frame, even more so than did the original Commission proposal. It also 
closely aligns with our Tier 3 standards in the Tier 3 time frame.
---------------------------------------------------------------------------

    \34\ Council of the European Union, ``Directive of the European 
Parliament and of the Council amending Directive 97/68/EC'', March 
15, 2004.
---------------------------------------------------------------------------

    For engines of 50-750 hp, the Directive's standards are very 
closely aligned with our own Tier 4 standards, including emissions 
levels, implementation dates, the defined power categories, and the 
lower hp limit of NOX control based on high-efficiency 
exhaust emission controls (75 hp). Exceptions are noted below:
     The 2008 PM standard level for 50-75 hp engines (the 
equivalent of 0.3 g/bhp-hr vs our 0.22 g/bhp-hr level). Note, however, 
that we do allow certification to the 0.3 g/bhp-hr level as an option, 
provided the manufacturer must then meet our 0.02 g/bhp-hr standard in 
2012, one year earlier than otherwise.
     The 2013 PM standard level for 50-75 hp engines (the 
equivalent of 0.01 g/bhp-hr vs our 0.02 g/bhp-hr level).
     An October 1, 2014 start for the final 75-175 hp 
NOX standard (the same as our proposed date), compared to 
the December 31, 2014 date we are adopting in this final rule.
     For constant speed engines: no Tier 4-equivalent 
standards. Also, the EU's Tier 3-equivalent standards are not 
implemented on these engines until 2011-2012.
    As the EU program does not provide for emissions averaging, the 
alternative NOX standards we are setting for 75-750 hp 
engines are the NOX levels at which the EU standards are 
generally aligned during our NOX phase-in years. The EU 
Directive also includes transition flexibility provisions for equipment 
manufacturers similar to those in our program, discussed in section 
III.B.
    The EU program for nonroad diesels has not adopted or proposed any 
current or future standards for engines above 750 hp or below 25 hp, 
and its revised Directive for 25-50 hp engines does not subject them to 
any future standards beyond those entering into force in 2007 
(equivalent to 0.45 g/bhp-hr PM and 5.6 g/bhp-hr 
hydrocarbon+NOX), in contrast to our 2013 standards based 
the use of PM filters and more advanced engine-based control 
technologies (0.02 g/bhp-hr PM and 3.5 g/bhp-hr NMHC+NOX). 
However, as discussed further in section VIII.A, the EU Directive 
includes plans to conduct a future technology review of appropriate 
standards for engines below 50 hp and above 750 hp. The year that this 
is planned for is 2007, the same year in which we are planning a 
technology review for engines below 75 hp. Considering progress to 
date, and announced plans for reviews in 2007, we believe that 
prospects for harmonized standards are excellent.
9. Exclusion of Marine Engines
    For reasons outlined in the proposal, we are not applying Tier 4 
standards to the marine diesel engines under 50 hp that are covered 
under our Tier 1 and 2 standards. We believe it is more appropriate to 
consider more stringent standards for a range of marine diesel engines, 
including these, in a future action. It should be noted that the 
existing Tier 2 standards will continue to apply to marine diesel 
engines under 50 hp until that future action is completed. We did not 
receive any adverse comments on this proposed approach.

B. Are the New Standards Feasible?

    Today we are finalizing a program of stringent new standards for a 
broad category of nonroad diesel engines coupled with a new nonroad 
diesel fuel standard that dramatically lowers the sulfur level in 
nonroad diesel fuel ultimately to 15 ppm. We believe these standards 
are technically feasible in the leadtime provided given the 
availability of 15 ppm sulfur fuel and the rapid progress to develop 
the needed emission control technologies. We acknowledge, as pointed 
out by a number of commenters, that these standards will be challenging 
for industry to meet, in

[[Page 38983]]

part due to differences in operating conditions and duty cycles for 
nonroad equipment and the diesel engines used in that equipment. Also, 
we recognize that transferring and effectively applying these 
technologies, which have largely been developed for highway engines, 
will require additional time after the application of the technology to 
on-highway engines. Diesel engine industry commenters and environmental 
stakeholder commenters on our proposal consistently agreed with our 
position that for most engine horsepower categories the technologies to 
meet the standards exist and that the transfer of these technologies to 
nonroad is possible. The biggest difference of opinions in the range of 
comments received by the Agency concerns the timing of the emission 
standards and the flexibility provisions (i.e., the leadtime necessary 
to transfer the technology). One of the most important tasks for a 
feasibility analysis is to determine the appropriate amount of 
development time needed to successfully bring new technologies to 
market. We have carefully weighed the desire to have clean engines 
sooner, with the challenges yet to be overcome in applying the 
technologies to nonroad engines and equipment, in determining the 
appropriate timing and emission levels for the standards finalized 
today.
    The RIA associated with today's action contains a detailed 
description and analysis of diesel emission control technologies, 
issues specific to applying these technologies to nonroad engines, and 
why we believe the new emission standards are feasible. Additional in-
depth discussion of these technologies can be found in the final RIA 
for the HD2007 emission standards, the final RIA for the HD2004 
emission standards, the 2002 Highway Diesel Progress Review and the 
recently released Highway Diesel Progress Review Report 
2.\35\ \36\ \37\ \38\ The following 
sections summarize the challenges to applying these technologies to 
nonroad engines and why we believe the emission standards finalized 
today are technically feasible in the leadtime provided.
---------------------------------------------------------------------------

    \35\ Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle 
Standards and Highway Diesel Fuel Sulfur Control Requirements, 
United States Environmental Protection Agency, December 2000, 
EPA420-R-00-026. Copy Available in EPA Air Docket A-2001-28 Item II-
A-01.
    \36\ Regulatory Impact Analysis: Control of Emissions of Air 
Pollution from Highway Heavy-Duty Engines, United States 
Environmental Protection Agency, June 2000, EPA420-R-00-010. Copy 
available in EPA Air Docket A-2001-28 Item II-A-02.
    \37\ Highway Diesel Progress Review, United States Environmental 
Protection Agency, June 2002, EPA 420-R-02-016. Copy available in 
EPA Air Docket A-2001-28 Item II-A-52.
    \38\ Highway Diesel Progress Review Report 2, United States 
Environmental Protection Agency, March 2004, EPA420-R-04-004. Copy 
available in Docket OAR-2003-0012-0918.
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1. Can Advanced Diesel Emission Control Technologies Be Applied to 
Nonroad Engines and Equipment?
    The emission standards and the introduction dates for those 
standards, as described earlier in this section, are premised on the 
transfer of diesel engine technologies being or already developed to 
meet light-duty and heavy-duty vehicle standards that begin in 2007. 
The advanced technology standards that we are finalizing today for 
engines over 25 horsepower will begin to go into effect four years 
later. This time lag between equivalent highway and nonroad diesel 
engine standards is necessary in order to allow time for engine and 
equipment manufacturers to further develop these highway technologies 
for nonroad engines and to align this program with nonroad Tier 3 
emission standards that begin to go into effect in 2006.
    This section summarizes the engineering challenges to applying 
advanced emission control technologies to nonroad engines and 
equipment, and why we believe that technologies developed for highway 
diesel engines can be further refined to address these issues in a 
timely manner for nonroad engines consistent with the emission 
standards finalized today.
a. Nonroad Operating Conditions and Exhaust Temperatures
    Nonroad equipment is highly diverse in design, application, and 
typical operating conditions. This variety of operating conditions 
affects emission control systems through the resulting variety in the 
torque and speed demands (i.e., power demands). In our proposal, we 
highlighted the challenge for design and implementation of advanced 
emission control technologies posed by this wide range in what 
constitutes typical nonroad operation. Some commenters emphasized their 
concerns regarding this issue as well, and their belief that these 
issues make the application of the technology to nonroad infeasible. 
While we recognize and agree with the commenters regarding the nature 
of the challenges, we disagree with their conclusion regarding 
feasibility because, as described in the following section, we see a 
clear path to overcome the challenges.
    The primary concern for catalyst-based emission control 
technologies is exhaust temperature. In general, exhaust temperature 
increases with engine power and can vary dramatically as engine power 
demands vary. For catalyzed diesel particulate filters (CDPFs), exhaust 
temperature determines the rate of filter regeneration, and if too low, 
causes a need for supplemental means to ensure proper filter 
regeneration. In the case of the CDPF, it is the aggregate soot 
regeneration rate that is important, not the regeneration rate at any 
particular moment in time. A CDPF controls PM emissions under all 
conditions and can function properly (i.e., not plug) even when exhaust 
temperatures are low for an extended time and the regeneration rate is 
lower than the soot accumulation rate, provided that occasionally 
exhaust temperatures and thus the soot regeneration rate are increased 
enough to regenerate the CDPF. Similarly, there is a minimum 
temperature (e.g., 200 [deg]C) for NOX adsorbers below which 
NOX regeneration is not readily possible and a maximum 
temperature (e.g., 500 [deg]C) above which NOX adsorbers are 
unable to effectively store NOX. Therefore, there is a need 
to match diesel exhaust temperatures to conditions for effective 
catalyst operation under the various operating conditions of nonroad 
engines.
    Although the range of products for highway vehicles is not as 
diverse as for nonroad equipment, the need to match exhaust 
temperatures to catalyst characteristics is still present. This is an 
important concern for highway engine manufacturers and has been a focus 
of our ongoing 2007 diesel engine progress review. There we have 
learned that substantial progress is being made to broaden the 
operating temperature window of catalyst technologies while at the same 
time to design engine systems to better control average exhaust 
temperatures (for ongoing catalyst performance) and to attain 
periodically higher temperatures (to control PM filter regeneration and 
NOX adsorber desulfation). Highway diesel engine 
manufacturers are working to address this need through modifications to 
engine design, modifications to engine control strategies, and 
modifications to exhaust system designs. New engine control strategies 
designed to take advantage of engine and exhaust system modifications 
can be used to manage exhaust temperatures across a broad range of 
engine operation. The technology solutions being developed for highway 
engines to better manage exhaust temperature are built upon the same 
emission control technologies (i.e., advanced air handling systems and 
electronic fuel injection systems) that we expect nonroad engine

[[Page 38984]]

manufacturers to use in order to comply with the existing Tier 3 
emission standards.
    Matching the emission control technology and the operating 
temperature window of the broad range of nonroad equipment may be 
somewhat more challenging for nonroad engines than for many highway 
diesel engines simply because of the diversity in equipment design and 
equipment use. Nonetheless, the problem has been successfully solved in 
highway applications facing low exhaust temperature performance 
situations as difficult to address as any encountered by nonroad 
applications. The most challenging temperature regime for highway 
engines are encountered at very light-loads as typified by congested 
urban driving with periods of extended idle operation. Under congested 
urban driving conditions, exhaust temperatures may be too low for 
effective NOX reduction with a NOX adsorber 
catalyst. Similarly, exhaust temperatures may be too low to ensure 
passive CDPF regeneration. To address these concerns, light-duty diesel 
engine manufacturers have developed active temperature management 
strategies that provide effective emissions control even under these 
difficult light-load conditions. Toyota has shown with their prototype 
diesel particulate NOX reduction (DPNR) vehicles that 
changes to EGR and fuel injection strategies can realize an increase in 
exhaust temperatures of more than 100 [deg]F under even very light-load 
conditions allowing the NOX adsorber catalyst to function 
under these normally cold exhaust conditions.\39\ Similarly, PSA 
Peugeot Citroen (PSA) has demonstrated effective CDPF regeneration 
under demanding light-load taxi cab conditions with current production 
technologies. \40\ Both of these are examples of technology paths 
available to nonroad engine manufacturers to increase temperatures 
under light-load conditions.
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    \39\ Sasaki, S., Ito, T., and Iguchi, S., ``Smoke-less Rich 
Combustion by Low Temperature Oxidation in Diesel Engines,'' 9th 
Aachener Kolloquim Fahrzeug--und Motorentechnik 2000. Copy available 
in EPA Air Docket A-2001-28 Item II-A-56.
    \40\ Jeuland, N., et al., ``Performances and Durability of DPF 
(Diesel Particulate Filter) Tested on a Fleet of Peugeot 607 Taxis 
First and Second Test Phases Results,'' October 2002, SAE 2002-01-
2790.
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    While a number of commenters expressed concerns about low 
temperature operation for nonroad equipment, no commenters provided 
data showing that nonroad equipment in-use operating cycles would be 
more demanding of low temperature performance than passenger car urban 
driving. Both the Toyota and PSA systems are designed to function even 
with extended idle operation as would be typified by a taxi waiting to 
pick up a fare.
    It is our conclusion that by actively managing exhaust 
temperatures, for example through engine management to increase exhaust 
temperatures, engine manufacturers can ensure highly effective 
catalyst-based emission control performance (i.e., compliance with the 
emission standards across the applicable tests) and reliable filter 
regeneration across a wide range of engine operation as would be 
typified by the broad range of in-use nonroad duty cycles. Active 
methods of regenerating PM filters have been shown to be reliable under 
all operating conditions and can be applied to nonroad diesel engines 
in the time frame required by these regulations. The additional cost 
for active regeneration, beyond the cost for the PM filter alone, has 
been accounted for in the cost analysis summarized in section VI of 
this preamble.
    We have conducted an analysis of various nonroad equipment 
operating cycles and various nonroad engine power density levels to 
better understand the matching of nonroad engine exhaust temperatures, 
catalyst installation locations and catalyst technologies. This 
analysis, documented in the RIA, shows that for many engine power 
density levels and equipment operating cycles, exhaust temperatures are 
quite well matched to catalyst temperature window characteristics. In 
particular, the nonroad transient cycle (NRTC), the cycle we are 
finalizing to use for certification for most engines with rated power 
less than 750 hp, was shown to be well matched to the NOX 
adsorber characteristics with estimated performance in excess of 90 
percent for a turbocharged diesel engine tested under a range of power 
density levels. The analysis also indicated that the exhaust 
temperatures experienced over the NRTC are better matched to the 
NOX adsorber catalyst temperature window than the 
temperatures that would be expected over the highway FTP test cycle. 
This suggests (when coupled with the fact that PM filters function with 
equal effectiveness at essentially all conditions) that compliance 
based on testing with the nonroad Tier 4 standards on the NRTC will be 
somewhat easier, using similar technology, than complying with the 
highway 2007 emission standards on the highway transient test cycle.
    In sum, we believe based on our analysis of nonroad engines and 
equipment operating characteristics, that, in use, some nonroad engines 
will experience conditions that require the use of temperature 
management strategies (e.g., active regeneration) in order to 
effectively use the NOX adsorber and CDPF systems. We have 
assumed in our cost analysis that all nonroad engines complying with a 
PM standard of 0.03 g/bhp-hr or lower will have an active means to 
control temperature (i.e. we have costed a backup regeneration system, 
although some applications likely may not need one). We have made this 
assumption believing, as indicated by a number of commenters, that 
manufacturers will not be able to accurately predict in-use conditions 
for every piece of equipment and will thus choose to provide the 
technologies on a back-up basis. As explained earlier, the technologies 
necessary to accomplish this temperature management are enhancements of 
both the Tier 3 emission control technologies that will form the 
starting point for Tier 4 engines larger than 50 hp, and the control 
strategies being developed for highway diesel engines.\41\ Based on our 
analyses, we believe that there are no nonroad engine applications 
above 25 horsepower for which these highway engine approaches for 
temperature management will not work. However, we agree with commenters 
that given the diversity in nonroad equipment design and application, 
additional time will be needed in order to match the engine performance 
characteristics to the full range of nonroad equipment.
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    \41\ We do not have Tier 3 emission standards for engines in the 
horsepower category from 25-50 hp. However, we expect that similar 
Tier 3 emission control technologies will form part of the emission 
control technology package used for compliance with the Tier 4 
standards for these engines in 2013. Our cost analysis reflects the 
additional cost to apply these technologies for NOX and 
PM control.
---------------------------------------------------------------------------

    We have concluded that, given the timing of the emissions standards 
finalized today, and the availability and continuing development of 
technologies to address temperature management for highway engines 
which technologies are transferrable to all nonroad engines with 
greater than 25 hp power rating, nonroad engines can be designed to 
meet the new standards in the lead time provided, and can be provided 
to equipment makers in a timely manner within that lead time.
b. Nonroad Operating Conditions and Durability
    Nonroad equipment is designed to be used in a wide range of tasks, 
from mining equipment to crop cultivation and harvesting to excavation 
and

[[Page 38985]]

loading, and operated in harsh environments. In the normal course of 
equipment operation the engine and its associated hardware will 
experience levels of vibration, impacts, and dust that may exceed 
conditions typical of highway diesel vehicles. For this reason, some 
commenters said that the PM filter technology was infeasible for 
nonroad equipment. We disagree with this assertion and continue to 
believe that PM filter technologies can be applied to a wide range of 
nonroad equipment.
    Specific efforts to design for the nonroad operating conditions 
will be required in order to ensure that the benefits of these new 
emission control technologies are realized for the life of nonroad 
equipment. Much of the engineering knowledge and experience to address 
these issues already exists with the nonroad equipment manufacturers. 
Vibration and impact issues are fundamentally mechanical durability 
concerns (rather than issues of technical feasibility of achieving 
emissions reductions) for any component mounted on a piece of equipment 
(e.g., an engine coolant overflow tank). Equipment manufacturers must 
design mounting hardware such as flanges, brackets, and bolts to 
support the new component without failure. Further, the catalyst 
substrate material itself must be able to withstand the conditions 
encountered on nonroad equipment without itself cracking or failing. 
There is a large body of real world testing with retrofit emission 
control technologies on engines up to 750 hp that demonstrate the 
durability of the catalyst components themselves even in the harshest 
of nonroad equipment applications. The evidence for even larger engines 
(i.e., those above 750 hp) is less conclusive because of the limited 
number of applications.
    Deutz, a nonroad engine manufacturer, sold approximately 2,000 
diesel particulate filter systems for nonroad equipment in the period 
from 1994 through 2000. The very largest of these systems were limited 
to engine sizes below 850 hp. The majority of these systems were sold 
into significantly smaller applications. Many of these systems were 
sold for use in mining equipment. Mining equipment is exposed to 
extraordinarily high levels of vibration, experiences impacts with the 
mine walls and face, and encounters high levels of dust. Yet in 
meetings with the Agency, Deutz shared their experience that no system 
had failed due to mechanical failure of the catalyst or catalyst 
housing.\42\ The Deutz system utilized a conventional cordierite PM 
filter substrate as is commonly used for heavy-duty highway truck CDPF 
systems. The canning and mounting of the system was a Deutz design. 
Deutz was able to design the catalyst housing and mounting in such a 
way as to protect the catalyst from the harsh environment as evidenced 
by its excellent record of reliable function.
---------------------------------------------------------------------------

    \42\ ``Summary of Conference Call between U.S. EPA and Deutz 
Corporation on September 19, 2002 regarding Deutz Diesel Particulate 
Filter System'', EPA Memorandum to Air Docket A-2001-28 Item II-B-
31.
---------------------------------------------------------------------------

    A number of commenters asserted that it was not possible to apply 
conventional CDPF technologies (i.e., ceramic wall-flow filter media) 
to the largest diesel engines with power ratings above 750 hp. In the 
draft RIA for the proposal, we described our expectation that these 
highway-based systems could be assembled into larger systems to work 
well for these largest diesel engines. While we continue to believe 
that it may be possible in the time frame of this rulemaking for these 
conventional CDPFs to be applied to engines with more than 750 hp, 
based on the evidence provided by the commenters, we now agree that too 
much uncertainty remains for us to reach that conclusion today. We 
cannot clearly today describe a method to monitor the soot loading of 
individual filter elements in a parallel system made up of a 
significant number of smaller components. This is because for parallel 
systems the pressure drop (the best current method to monitor filter 
condition) across all of the parallel components is exactly the same. 
If a single filter begins to plug and needs to be regenerated it may 
not be detected in such a system. Therefore, we believe that instead of 
a massively parallel filter system, an alternate PM filtering media may 
be more appropriate in order to address issues of scalability, 
durability and packaging for these largest engines. Fortunately, there 
are other filter media technologies (e.g., wire or fiber mesh depth 
filters) that can be successfully scaled to any size and which we have 
confidence in projecting today will be a more appropriate solution for 
the bulk of the engines in this size category. Because these depth 
filtration technologies are not quite as efficient at filtering PM as 
the ceramic systems that are the dominant solution for the smaller 
highway diesel engines, we are finalizing a set of PM filter-based 
standards for engines greater than 750 hp which are slightly higher 
than the proposed PM standards for these engines. Those standards are 
discussed in sections II.A and II.B.3 below. Our cost estimates 
summarized in section VI for engines greater than 750 hp are consistent 
with the use of either silicon carbide or wire mesh PM filter 
technologies.
    Certain nonroad applications, including some forms of harvesting 
equipment, consumer lawn and garden equipment, and mining equipment, 
may have specific limits on maximum surface temperature for equipment 
components in order to ensure that the components do not serve as 
ignition sources for flammable dust particles (e.g., coal dust or fine 
crop/lawn dust). Some commenters have raised concerns that these design 
constraints might limit the equipment manufacturers ability to install 
advanced diesel catalyst technologies such as NOX adsorbers 
and CDPFs. This concern seems to be largely based upon anecdotal 
experience with gasoline catalyst technologies where under certain 
circumstances catalyst temperatures can exceed 1,000 [deg]C and without 
appropriate design considerations could conceivably serve as an 
ignition source. We do not believe that these concerns are justified in 
the case of either the NOX adsorber catalyst or the CDPF 
technology. Catalyst temperatures for NOX adsorbers and 
CDPFs should not exceed the maximum exhaust manifold temperatures 
already commonly experienced by diesel engines (i.e., catalyst 
temperatures are expected to be below 800 [deg]C).\43\ CDPF 
temperatures are not expected to exceed approximately 700 [deg]C in 
normal use and are expected to only reach the 650 [deg]C temperature 
during periods of active regeneration. Similarly, NOX 
adsorber catalyst temperatures are not expected to exceed 700 [deg]C 
and again only during periods of active sulfur regeneration as 
described in section III.C below. Under conditions where diesel exhaust 
temperatures are naturally as high as 650 [deg]C, no supplemental heat 
addition from the emission control system will be necessary for 
regeneration and therefore exhaust temperatures will not exceed their 
natural level. When natural exhaust temperatures are too low for 
effective emission system regeneration

[[Page 38986]]

then supplemental heating, as described earlier, may be necessary but 
would not be expected to produce temperatures higher than the maximum 
levels normally encountered in diesel exhaust. Furthermore, even if it 
were necessary to raise exhaust temperatures to a higher level in order 
to promote effective emission control, there are technologies available 
to isolate the higher exhaust temperatures from flammable materials 
such as dust. One approach would be the use of air-gapped exhaust 
systems (i.e., an exhaust pipe inside another concentric exhaust pipe 
separated by an air-gap) that serve to insulate the inner high 
temperature surface from the outer surface which could come into 
contact with the dust. The use of such a system also may be desirable 
in order to maintain higher exhaust temperatures inside the catalyst in 
order to promote better catalyst function. Another technology to 
control surface temperature already used by some nonroad equipment 
manufacturers is water cooled exhaust systems.\44\ This approach is 
similar to the air-gapped system but uses engine coolant water to 
actively cool the exhaust system.
---------------------------------------------------------------------------

    \43\ The hottest surface on a diesel engine is typically the 
exhaust manifold which connects the engines exhaust ports to the 
inlet of the turbocharger. The hot exhaust gases leave the engine at 
a very high temperature (800 [deg]C at high power conditions) and 
then pass through the turbocharger where the gases expand driving 
the turbocharger providing work. The process of extracting work from 
the hot gases cools the exhaust gases. The exhaust leaving the 
turbocharger and entering the catalyst and the remaining pieces of 
the exhaust system is cooler (as much as 200 [deg]C at very high 
loads) than in the exhaust manifold.
    \44\ ``Engine Technology and Application Aspects for Earthmoving 
Machines and Mobile Cranes,'' Dr. E. Brucker, Liebherr Machines 
Bulle, SA, AVL International Commercial Powertrain Conference, 
October 2001. Copy available in EPA Air Docket A-2001-28, Docket 
Item  II-A-12.
---------------------------------------------------------------------------

    We thus do not believe that flammable dust concerns will prevent 
the use of either a NOX adsorber or a CDPF because catalyst 
temperatures are not expected to be unacceptably high and because 
remediation technologies exist to address these concerns. In fact, 
exhaust emission control technologies (i.e., aftertreatment) have 
already been applied on both an original equipment manufacturer (OEM) 
basis and for retrofit to nonroad equipment for use in potentially 
explosive environments. Many of these applications must undergo 
Underwriters Laboratory (UL) approval before they can be used.\45\ 
Therefore, while we appreciate the commenters' concerns regarding 
safety, we remain convinced that the application of these emission 
control technologies will not compromise (or decrease) equipment 
safety.
---------------------------------------------------------------------------

    \45\ Phone conversation between Byron Bunker, United States 
Environmental Protection Agency and Dale McKinnon, Manufacturers of 
Emission Control Association (MECA), 9 April, 2003 confirming the 
use of emission control technologies on nonroad equipment used in 
coal mines, refineries, and other locations where explosion proofing 
may be required.
---------------------------------------------------------------------------

    We agree that nonroad equipment must be designed to address safety 
and durable performance for a wide range of operating conditions and 
applications that would not commonly be experienced by highway 
vehicles. We believe further as demonstrated by retrofit experiences 
around the world that technical solutions exist which allow catalyst-
based emission control technologies to be applied to nonroad equipment.
2. Are the Standards for Engines 75-750 hp Feasible?
    There are three primary test provisions and associated standards in 
the Tier 4 program we are finalizing today. These are the Nonroad 
Transient Cycle (NRTC), the existing International Organization for 
Standardization (ISO) C1 steady-state cycle, and the highway-based Not-
To-Exceed (NTE) provisions.\46\ Under today's rules, most nonroad 
diesel engines must meet the new standards for each of these three test 
cycles (the exceptions are noted below). Compliance on the transient 
test cycle includes weighting the results from a cold start and hot 
start test with the cold start emissions weighted at 1/20 and hot start 
emissions weighted at 19/20. Additionally, we have alternative optional 
test cycles including the existing ISO-D2 steady-state cycle and the 
Transportation Refrigeration Unit (TRU) cycle which a manufacturer can 
choose to use for certification in lieu of the NRTC and the ISO-C1, 
provided that the manufacturer can demonstrate to the Agency that the 
engine will only be used in a limited range of nonroad equipment with 
known operating conditions. A complete discussion of these various test 
cycles can be found in chapter 4.2, 4.3, and 4.4 of the RIA.
---------------------------------------------------------------------------

    \46\ As an alternative to compliance with the ISO C1 test 
procedure, a manufacturer can show compliance with the standards by 
testing over the Ramped Modal Cycle (RMC) as described in section 
III.F.
---------------------------------------------------------------------------

    The standards we are finalizing today for nonroad engines with 
rated power from 75 to 750 hp are based upon the performance of 
technologies and standards for highway diesel engines which go into 
effect in 2007. As explained above, we believe these technologies, 
namely NOX adsorbers and catalyzed diesel particulate 
filters enabled by 15 ppm sulfur diesel fuel, can be applied to nonroad 
diesel engines in a similar manner as for highway diesel engines. The 
combustion process and the means to modify that process are 
fundamentally the same for highway and nonroad diesel engines 
regardless of engine size. The formation mechanism and quantity of 
pollutants formed in diesel engines are fundamental characteristics of 
engine design and are not inherently different for highway and nonroad 
engines regardless of engine size. The effectiveness of NOX 
adsorbers to control NOX emissions and CDPFs to control PM, 
NMHC, and CO emissions are determined by fundamental catalyst and 
filter characteristics. Therefore, we disagree with commenters who 
suggest that these highway technology based emission standards are 
infeasible for nonroad engines. We acknowledge the comments raised 
regarding the unique characteristics nonroad diesel engines which must 
be considered in setting these standards, and we have addressed those 
issues by allowing (where appropriate) for additional lead time or 
slightly less stringent standards for nonroad diesel engines in 
comparison to highway diesel engines (and likewise have made 
appropriate cost estimates to account for the technology and 
engineering needed to address these issues).
    PM Standard. We are finalizing a PM standard for engines in this 
category of 0.01 g/bhp-hr based upon the emissions reductions possible 
through the application of a CDPF and 15 ppm sulfur diesel fuel. This 
is the same emissions level as for highway diesel engines in the heavy-
duty 2007 (HD2007) program (66 FR 5001, January 18, 2001). While 
emission levels of engine-out soot (the solid carbon fraction of PM) 
may be somewhat higher for some nonroad engines when compared to 
highway engines, these emissions are virtually eliminated (reduced by 
99 percent) by the CDPF technology. With application of the CDPF 
technology, the soluble organic fraction (SOF) portion of diesel PM is 
predicted to be all but eliminated. The primary emissions from a CDPF 
equipped engine are sulfate PM emissions formed from sulfur in diesel 
fuel. The emissions rate for sulfate PM is determined primarily by the 
sulfur level of the diesel fuel and the rate of fuel consumption. With 
the 15 ppm sulfur diesel fuel, the PM emissions level from a CDPF 
equipped nonroad diesel engine will be similar to the emissions rate of 
a comparable highway diesel engine. Therefore, the 0.01 g/bhp-hr 
emission level is feasible for nonroad engines tested on the NRTC cycle 
and on the steady-state cycles, ISO-C1 and ISO-D2. Put another way, 
control of PM using CDPF technology is essentially independent of duty 
cycle given active catalyst technology (for reliable regeneration and 
SOF oxidation), adequate control of temperature (for reliable 
regeneration) and low sulfur diesel fuel (for reliable regeneration and 
low PM emissions). While some commenters argued that PM filters will

[[Page 38987]]

not enable the 0.01 PM emission standard for nonroad engines, we remain 
convinced by the demonstration of 0.01 or lower PM emission levels from 
a number of diesel engines described in the RIA, that the standard is 
feasible given the leadtime provided and the availability of 15 ppm 
sulfur diesel fuel. Likewise, the NTE provisions for nonroad engines 
are the same as for on-highway engines meeting an equivalent PM control 
level. The maximum PM emission level from a CDPF equipped diesel engine 
is primarily determined by the maximum fuel sulfur conversion level 
experienced at the highest operating conditions. As documented in RIA 
chapter 4.1.1.3, testing of diesel engines at conditions representative 
of the highest sulfate PM formation rates shows PM levels below the 
level required by the NTE provisions when tested on less than 15 ppm 
sulfur diesel fuel.
    NOX Standard. We are finalizing a NOX 
standard of 0.30 g/bhp-hr for engines in this category based upon the 
emission reductions possible from the application of NOX 
adsorber catalysts and the expected emission levels for Tier 3 
compliant engines which form the baseline technology for Tier 4 
engines. The Tier 3 emission standards are a combined 
NMHC+NOX standard of 3.0 g/bhp-hr for engines greater than 
100 hp and less than 750 horsepower. For engines less than 100 hp but 
greater than 50 horsepower the Tier 3 NMHC+NOX emission 
standard is 3.5 g/bhp-hr. We believe that in the time-frame of the Tier 
4 emission standards, all engines from 75 to 750 hp can be developed to 
control NOX emissions to engine-out levels of 3.0 g/bhp-hr 
or lower.\47\ This means that all engines will need to apply Tier 3 
emission control technologies (i.e., turbochargers, charge-air-coolers, 
electronic fuel systems, and for some manufacturers EGR systems) to get 
to this baseline level. As discussed in more detail in the RIA, our 
analysis of the NRTC and the ISO-C1 cycles indicates that the 
NOX adsorber catalyst can provide a 90 percent or greater 
NOX reduction level on the cycles. The standard of 0.30 g/
bhp-hr reflects a baseline emissions level of 3.0 g/bhp-hr and a 
greater than 90 percent reduction of NOX emissions through 
the application of the NOX adsorber catalyst. The additional 
lead time available to nonroad engine manufacturers and the substantial 
learning that will be realized from the introduction of these same 
technologies to highway diesel engines, plus the lack of any 
fundamental technical impediment, makes us confident that the new 
NOX standards can be met.
---------------------------------------------------------------------------

    \47\ For engines between 75 and 100 horsepower, this may require 
re-optimization of the engine to lower NOX emissions if 
they are higher than 3.0, but we would not expect any new hardware 
beyond the Tier 3 hardware to be required in the Tier 4 timeframe to 
accomplish this reduction.
---------------------------------------------------------------------------

    Given the fundamental similarities between highway and nonroad 
diesel engines, we believe that the NOX adsorber technology 
developed for highway engines can be applied with equal effectiveness 
to nonroad diesel engines with additional developments in engine 
thermal management (as discussed in section II.B.2 above) to address 
the more widely varied nonroad operating cycles. In fact, as discussed 
previously, the NOX adsorber catalyst temperature window is 
particularly well matched to transient operating conditions as typified 
by the NRTC.
    As pointed out by some commenters, compliance with the NTE 
provisions will be challenging for the nonroad engine industry due to 
the diversity of nonroad products and operating cycles. However, the 
technical challenge is reduced somewhat by the 1.5 multiplier used to 
calculate the NTE standard as discussed in section III.J. Controlling 
NOX emissions under NTE conditions is fundamentally similar 
for both highway and nonroad engines. The range of control is the same 
and the amount of reduction required is also the same. We know of no 
technical impediment, nor were any raised by commenters, that would 
prevent achieving the NTE standard under the zone of operating 
conditions required by the NTE.
    NMHC Standard. Meeting the NMHC standard under the lean operating 
conditions typical of the biggest portion of NOX adsorber 
operation should not present any special challenges to nonroad diesel 
engine manufacturers. Since CDPFs and NOX adsorbers contain 
platinum and other precious metals to oxidize NO to NO2, 
they are also very efficient oxidizers of hydrocarbons. NMHC reductions 
of greater than 95 percent have been shown over transient and steady-
state test procedures.\48\ Given that typical engine-out NMHC is 
expected to be in the 0.40 g/bhp-hr range or lower for engines meeting 
the Tier 3 standards, this level of NMHC reduction will mean that under 
lean conditions emission levels will be well below the standard. For 
the same reasons, there is no obstacle which would prevent achieving 
the NTE standard.
---------------------------------------------------------------------------

    \48\ ``The Impact of Sulfur in Diesel Fuel on Catalyst Emission 
Control Technology,'' report by the Manufacturers of Emission 
Controls Association, March 15, 1999, pp. 9 & 11. Copy available in 
EPA Air Docket A-2001-28 Item II-A-67.
---------------------------------------------------------------------------

    Under the brief episodic periods of rich operation necessary to 
regenerate NOX adsorber catalysts, it is possible to briefly 
experience higher levels of NMHC emissions. Absent a controlling 
standard, it is possible that these NMHC emissions could be high. There 
are two possible means to control the NMHC emissions during these 
periods in order to meet the NMHC standard finalized today. 
Manufacturers can design the regeneration system and the oxygen storage 
(oxidation function under rich conditions) of the NOX 
adsorber catalyst such that the NMHC emissions are inherently 
controlled. This is similar to the control realized on today's three-
way automotive catalysts which also experience operation that toggles 
between rich and lean conditions. Secondly, a downstream clean-up 
catalyst can be used to oxidize the excess NMHC emissions to a level 
below the standard. This approach has been used in the NOX 
adsorber demonstration program at EPA described in the RIA. Our cost 
analysis for engines in the 75 to 750 hp category includes a cost for a 
clean-up catalyst to perform this function.
    Cold Start. The standards include a cold start provision for the 
NRTC procedure. This means that the results of a cold start transient 
test will be weighted with the emissions of a hot start test in order 
to calculate the emissions for compliance against the standards. In a 
change from the proposed rule, the weightings are 1/20 cold start and 
19/20 for the hot start (as opposed to the proposed weightings of 1/10 
and 9/10, respectively) as described more fully in chapter 4.2 of the 
RIA and section III.F below. Because exhaust temperatures are so 
important to catalyst performance, a cold start provision is an 
important tool to ensure that the emissions realized in use are 
consistent with the expectations of this program. Achieving this 
standard represents an additional technical challenge for 
NOX control and to a lesser extent CO and NMHC control 
(i.e., control of gaseous pollutants). PM control with a CDPF is not 
expected to be significantly impacted by cold-start provisions due to 
the primary filter mechanism being largely unaffected by temperature.
    With respect to achievability of the NOX, CO and NMHC 
standards, during the initial start and warmup period for a diesel 
engine, the exhaust temperatures are typically below the light-off 
temperature of a catalyst. As a result, exhaust stack emissions may 
initially be higher during this period of

[[Page 38988]]

operation. The cold start test procedure is designed to quantify these 
emissions to ensure that emission control systems are designed 
appropriately to minimize the contribution of cold-start emissions. 
Cold-start emissions can be minimized by improving catalyst technology 
to allow for control at lower exhaust temperatures (i.e., by lowering 
the catalyst light-off temperature) and by applying strategies to 
quickly raise the exhaust temperature to a level above the catalyst 
light-off temperature.
    There are a number of technologies available to the engine 
manufacturer to promote rapid warmup of the exhaust and emission 
control system. These include retarding injection timing, increasing 
EGR, and potentially late cycle injection, all of which are 
technologies we expect manufacturers to apply as part of the normal 
operation of the NOX adsorber catalyst system. These are the 
same technologies we expect highway engine manufacturers to use in 
order to comply with the highway cold start FTP provision which weights 
cold start emissions more heavily with a 1/7 weighting. As a result, we 
expect the transfer of highway technology to be well matched to 
accomplish this control need for nonroad engines as well. Using these 
technologies we expect nonroad engine manufacturers to be able to 
comply with the new Tier 4 NOX, CO, and NMHC emission 
standards including the cold start provisions of the transient test 
procedure.
    One commenter has raised the concern that if diesel engines are no 
cleaner than 3 g/bhp-hr NOX and if NOX adsorbers 
can be no more efficient than 90 percent, then any increase in 
NOX emissions above the 0.30 g/bhp-hr level on a cold-start 
test will make the emission standards infeasible. We should clarify, 
when discussing the emission reduction potential of the NOX 
adsorber catalyst generically in the NPRM, we have sometimes simply 
stated that it is 90 percent or more effective without plainly saying 
that this refers to our expectation for average performance considering 
both cold and hot start emissions. More precisely then, we would expect 
lower effectiveness over the cold-start test procedure with somewhat 
higher effectiveness realized over the hot-start test procedure. 
Because of the relative weightings of the two test cycles (i.e., 1/20 
for the cold-start and 19/20 for the hot-start), although the 
degradation of performance below 90 percent over the cold-start cycle 
can be substantially greater than the performance above 90 percent 
realized over the hot-start cycle, the standards remain feasible. For 
example, even if the average NOX adsorber performance over 
the cold-start test cycle was only 70 percent, the average 
NOX adsorber performance over the hot-start portion of the 
test cycle would only need to be 91 percent in order to realize a 
weighted average performance of 90 percent. Similarly, were the cold-
start test cycle performance only 50 percent, the hot-start performance 
would only need to be 92 percent in order to realize a weighted average 
performance of 90 percent.\49\ We are confident, based on our estimates 
of NOX adsorber performance over the nonroad test cycle 
summarized in the RIA, that NOX adsorber performance in 
excess of 92 percent can be expected in the time frame of the 
requirements finalized today.
---------------------------------------------------------------------------

    \49\ The combined weighted average performance is calculated as 
1/20 (cold-start) + 19/20 (hot-start). Hence it can be seen that 1/
20 (70%) + 19/20 (91%) = 90% and likewise that 1/20 (50%) + 19/20 
(92%) = 90%.
---------------------------------------------------------------------------

    Complying with the PM standard given consideration of the cold 
start test procedure is not expected to be as challenging as compliance 
with the NOX standard. The effectiveness for PM filtration 
is not significantly effected by exhaust temperatures, as noted 
earlier. Thus, PM emission levels are similar over the cold and hot 
start tests.
    The standards that we are finalizing today for nonroad engines with 
rated horsepower levels from 75 to 750 hp are based upon the same 
emission control technologies, clean 15 ppm or lower sulfur diesel 
fuel, and relative levels of emission control effectiveness as the HD 
2007 emission standards. We have given consideration to the diversity 
of nonroad equipment for which these technologies must be developed and 
the timing of the Tier 3 emissions standards in determining the 
appropriate timing for the Tier 4 standards. Based upon the 
availability of the emission control technologies, the proven 
effectiveness of the technologies to control diesel emissions to these 
levels, the technology paths identified here to address constraints 
specific to nonroad equipment, and the additional lead time afforded by 
the timing of the standards, we have concluded that the standards are 
technically feasible in the leadtime provided.
3. Are the Standards for Engines Above 750 hp Feasible?
    The preceding discussion of the standards for engines of 75 to 750 
hp highlights the main thrust of our new Tier 4 program, a focus on 
realizing very low on-highway like emission levels for the vast 
majority of nonroad diesel engines. The emission standards and the 
combination of technologies that we expect will be used to meet those 
standards are virtually identical to the HD2007 program for on-highway 
engines. The following three sections (II.B.3, II.B.4, and II.B.5) 
describing the feasibility of the standards for engines above 750 hp, 
from 25 to 75 hp, and below 25 hp, while following the same pattern and 
objective, take additional consideration of the fact that engines and 
equipment in these size categories have no direct on-highway equivalent 
and differ from highway engines in substantial ways that cause us to 
reach differing conclusions regarding the appropriate standards and 
timing for those standards. Whether in scale, or use, or operating 
conditions, the characteristics of these engines and equipment are such 
that we have taken particular consideration of them in setting the 
timing and level of the standards. The remainder of this section 
(II.B.3) discusses what makes the above 750 hp category unique and why 
the standards which we are adopting are technologically feasible.
a. What Makes the Over 750 hp Category Different?
    The first and most obvious difference for engines in this 
horsepower category is scale. No on-highway engines come close to the 
size of the largest engines in this category which can produce in 
excess of 3,000 horsepower, consist of 16 or more cylinders and have 12 
or more turbochargers. The engines, and the equipment that they power, 
are quite simply significantly larger than any on-highway diesel 
engine. Many commenters argued that emission technologies from on-
highway vehicles could not be simply scaled up for these larger engines 
and that if they were, the consequences of this resizing would include 
structural weakness and reduced system robustness. As discussed below, 
our review of the information provided with these comments and our 
subsequent analysis of the technical characteristics of some emission 
control components has led us to conclude that revised emission 
standards (based on performance of different technologies that those 
whose performance formed the basis for the proposed rule) from those we 
proposed for this horsepower category are appropriate and available.
    We have concluded that it is appropriate to distinguish between two 
broad categories of engines over 750 hp grouped by application: Mobile 
machines and generator sets. Mobile machines include the very largest 
nonroad equipment used in mining trucks and large excavation equipment.

[[Page 38989]]

The environment and operating conditions (especially for vibration) 
represent the harshest application into which nonroad engines are 
applied. Design considerations for technologies used to control 
emissions from engines in these applications must first consider 
robustness to the harsh environments that will be experienced in use. 
In contrast, mobile nonroad generator sets operate in relatively good 
operating environments. In addition, while mobile nonroad generator 
sets can, and are moved between operating locations, they are always 
stationary during actual operation. Thus the levels of vibration and 
the general environment for engine operation are significantly less 
demanding for generator sets than for mobile machines. Also the dynamic 
range of operation is significantly narrower and less demanding for 
generator sets. Designed to operate at a set engine speed, synchronous 
to the frequency cycle desired for electric generation (i.e., 1200 or 
1800 RPM for 60 hz), diesel engines designed for generator set 
applications can be optimized for operation in this narrow range.
    We have given specific consideration to the unique engineering 
challenges for engines in this horsepower category in determining the 
appropriate emission standards set in today's action. We have also 
taken into account the important differences between generator set 
applications and other mobile applications in developing standards for 
this horsepower category.
b. Are the New Tier 4 Standards for Over 750 hp Engines Technologically 
Feasible?
    The emission standards described in section II.A above describe a 
comprehensive program for engines over 750 hp that give consideration 
to both the physical size of these engines and the applications into 
which these engines are applied. Engines in this power category must 
show compliance with the C1 or D2 steady-state test cycles as 
appropriate as well as with the NTE provisions finalized today. As 
described in sections III.F and III.G, these engines will not be tested 
over the NRTC nor will they be subject to a cold-start test procedure. 
The feasibility discussion in this section describes expected 
performance of the engines over the required test cycles and the NTE. 
This section will briefly summarize the feasibility analysis contained 
in the RIA for these engines.
    PM Standards. Beginning in 2011 all nonroad diesel engines above 
750 hp must meet a PM standard of 0.075 g/bhp-hr. We believe that this 
PM standard is feasible based on the substantial reductions in sulfate 
PM due to the use of 15 ppm sulfur diesel fuel and the potential to 
improve the combustion process to reduce PM emissions formed in the 
engine. Specifically, we believe based on the evidence in the RIA that 
increasing fuel injection pressure, improving electronic controls and 
optimizing the combustion system geometry will allow engine 
manufacturers to meet this level of PM control in 2011. Some engine 
manufacturers have in fact indicated to the Agency that this level of 
control represents an achievable goal by 2011. One commenter argued 
however, that a more relaxed standard of 0.1 g/bhp-hr based on today's 
on-highway diesel engine performance would be appropriate. We disagree 
with this comment, believing that given the substantial leadtime 
available and the potential for further improvements in combustion 
systems, that it is appropriate to set a forward looking PM standard of 
0.075 g/bhp-hr. Conversely, other commenters argued that future on-
highway PM filter technology should be applied to this class of engines 
as early as 2011 (i.e., that a standard of 0.01 g/bhp-hr PM is 
appropriate). While we agree with the commenters that in the long-term 
it will be appropriate to apply filter-based emission control 
technologies to these engines, we do not agree that such control is 
appropriate as early as 2011. As the following section explains, we 
believe that there are remaining technical challenges to be addressed 
prior to the application of PM filters to these engines and that it is 
necessary to allow additional leadtime for those challenges to be 
addressed.
    Beginning in 2015 all nonroad engines over 750 hp must meet 
stringent PM filter technology-based emission standards of 0.02 g/bhp-
hr for engines used in generator set applications and 0.03 g/bhp-hr for 
engines used in mobile machine applications. We are predicating these 
emission standards based on the application of a different form of 
diesel particulate filter technology, a wire or fiber mesh depth filter 
rather than a ceramic wall flow filter. Wire mesh filters are capable 
of reducing PM by 70 percent or more. We have not based these standards 
upon the more efficient (>90 percent) control possible from ceramic 
wall flow style PM filters, because we believe that the application of 
the wall flow filter technology on engines of this size has not been 
adequately demonstrated at this time. While it would certainly be 
possible to apply the ceramic-based technology to these larger engines, 
we cannot today conclude with certainty that such systems would be as 
robust in-use as needed (see earlier discussion in section II.B.1.b). 
Considering the information available to the Agency today, we believe 
it appropriate to set the long term PM standard for these very large 
engines based on technologies which we can project with confidence will 
give high levels of emission reduction, durability, and robustness when 
scaled to these very large engine sizes.
    The 0.01 g/bhp-hr difference in the PM emission standards between 
the standard for generator sets and for other mobile applications in 
this category (0.01 g/bhp-hr lower for generator sets) reflects our 
expectation that engine-out emissions from generator sets can be 
reduced below the level for mobile machines due to generator set 
operation at a single engine speed. Without the need to provide full 
power and control over the wider range of possible operating conditions 
that mobile machines must deliver, we believe that the air handling 
systems (especially the turbocharger match to the engine) can be 
improved to provide a moderate reduction in engine-out emissions. This, 
coupled with the reduction afforded by the PM filter technology, would 
allow generator sets to meet a more stringent 0.02 g/bhp-hr standard. 
Diesel engines designed for use in generator sets meeting this standard 
will need to demonstrate compliance over the appropriate test cycles, 
either the ISO C1 or D2 tests. As discussed in RIA chapter 4.3.6.2, PM 
emission rates are nearly the same for steady-state testing or for 
alternative ramped modal cycle (RMC) testing. These test cycles, like 
the engines, are designed to be representative of the range of 
operation expected from a generator set.
    As discussed previously, PM emission control over the NTE region 
for PM filter equipped diesel engines is predominantly a function of 
sulfate formation at high exhaust temperatures. Given that fuel 
consumption (and thus sulfur) consumption rates on a brake specific 
basis tend to be lower for engines above 750 hp, we can conclude that 
the increase in PM emissions over the NTE region will likely be lower 
for these engines than for engines meeting the 0.01 g/bhp-hr standard. 
Thus, we can conclude based on the evidence in the RIA that compliance 
with the NTE provisions for PM is feasible for engines over 750 hp.
    Although we are projecting that manufacturers will comply with this 
standard using a slightly less efficient PM filter technology, we 
remain convinced that 15 ppm sulfur diesel fuel

[[Page 38990]]

will still be a necessity for this technology to be applied. Regardless 
of the filter media chosen for the PM filter, the filter will still 
require catalyst-based systems to ensure robust regeneration and 
adequate control of the SOF portion of PM. As these catalyst-based 
technologies are adversely impacted by sulfur in diesel fuel as 
described in II.C below, 15 ppm sulfur diesel fuel will be required in 
order to ensure compliance with the PM standards finalized here for 
engines over 750 hp.
    NOX Standards. As with the PM standards, we are setting 
distinct NOX standards for this category of engines 
reflecting particular concerns with the application of technologies to 
engines of this size and our desire to realize significant 
NOX reductions as soon as possible. There are two sets of 
NOX standards that we are finalizing today, a 0.50 g/bhp-hr 
NOX standard for engines used in generator set applications 
and a 2.6 g/bhp-hr NOX standard for mobile machines.
    For engines used in generator set applications we are finalizing a 
0.50 g/bhp-hr standard that goes into effect for engines above 1,200 hp 
in 2011 and in 2015 for engines above 750 hp. We see two possible 
technology options for manufacturers to meet these standards. First, 
compliance with this NOX standard will be possible through 
the application of a dual bed NOX adsorber system (i.e., a 
system that allows regeneration to be controlled external to the 
engine). This approach can work well for generator set applications 
where packaging constraints and vibration issues are greatly reduced. 
Since this approach requires limited engine redesign, it would be an 
appealing approach for these large engines sold in very low volumes. 
NOX adsorber systems for stationary power generation 
(systems that never move) are available today on a retrofit basis, and 
we believe with further development to address packaging and durability 
concerns that similar systems can be applied to mobile generator 
sets.\50\
---------------------------------------------------------------------------

    \50\ Emerachem EMx\TM\ Datasheet--Describing the EMx IC 
(Internal Combustion) System Air Docket OAR-2003-0012-0948.
---------------------------------------------------------------------------

    A second possible technology option for engines in this category is 
urea SCR. The challenges for urea SCR in mobile applications are well 
known, specifically a lack of urea infrastructure to provide urea 
refill at diesel fueling locations and a need to ensure that urea is 
added as necessary in use.\51\ These hurdles can be addressed more 
easily for generator sets than for virtually any other mobile source 
emission category. Although nonroad generator sets are mobile, in 
operation they remain at a fixed location where fuel is delivered to 
them periodically (i.e., a 1,200 hp generator set does not and cannot 
pull into the local truck stop for a fuel fill). Therefore, the same 
infrastructure that currently provides urea delivery for stationary 
power generation can also be utilized for nonroad generator set 
applications.\52\ It would still remain for the manufacturer to develop 
a mechanism to ensure urea refill, but we believe it is likely that 
solutions to this problem can be addressed through monitoring as for 
stationary source emissions or other technology options (e.g., a urea 
interlock that precludes engine operation without the presence of 
urea).
---------------------------------------------------------------------------

    \51\ See for example 68 FR 28375, May 23, 2003.
    \52\ Fleetguard StableGuard\TM\ Urea Premix for use with SCR 
NOX Reduction Systems, Air Docket A-2001-28 Item IV-A-04.
---------------------------------------------------------------------------

    Either of these technology approaches could be applied to realize 
an approximately 90 percent reduction from the current Tier 2 emission 
levels for these engines in order to comply with an emission standard 
of 0.50 g/bhp-hr. The 0.50 g/bhp-hr standard is different from our 
proposed level of 0.30 g/bhp-hr reflecting the changes we have made in 
this final action to the implementation schedule for this class of 
engines and therefore our projections for a technology path. At the 
time of the proposal, we projected that this class of engine would 
follow an integrated two-step technology path. We are now finalizing a 
program that anticipates the application of 90 percent effective 
NOX control to diesel engines for use in generator sets 
without a reduction in engine-out NOX levels beyond Tier 2. 
This reflects our desire to focus on getting the largest emission 
reduction possible in the near term (beginning in 2011) from these 
engines. Where we believe additional technology development is needed, 
as is the case for mobile machines over 750 hp, we are finalizing a 
more gradual emission reduction technology pathway anticipating further 
reductions in engine-out NOX emissions followed by a 
possible future action to reduce emissions further as described in 
section II.A. RIA chapter 4.1.2.3.3 describes NOX adsorber 
effectiveness to control NOX emissions including 
effectiveness over the NTE region. The discussion there is equally 
applicable to engines above and below 750 hp regarding NTE performance 
because the key attribute of NTE performance (exhaust temperature) is 
similar for engines across the horsepower range.
    For engines over 750 hp used in mobile machines (and for 750-1200 
hp generator sets from 2011 until 2015) we are setting a new 
NOX standard of 2.6 g/bhp-hr beginning in 2011. We are 
predicating this level of emission control (an approximate 50 percent 
reduction from Tier 2) on an improved combustion system and proven 
engine-based NOX control technologies. Specifically, we 
believe manufacturers can apply either proven cooled EGR technology, or 
apply additional levels of engine boost, a limited form of Miller Cycle 
operation, and increased intercooling capacity for the two-stage 
turbocharging systems that are used on these engines. The second 
approach for in-cylinder emissions reductions is similar in description 
at least to the Caterpillar ACERT technology which we believe could be 
another path for compliance with this standard. We are projecting a 
modest increase in heat-rejection to the engine coolant for these in-
cylinder emission control solutions and have accounted for those costs 
in our cost analysis. These approaches for NOX reduction 
have been proven for on-highway diesel engines since 2003 including 
compliance with NTE provisions similar to those for nonroad engines 
finalized here. We can conclude based on the on-highway experience that 
the NTE provisions can be met for engines in this horsepower category. 
One commenter suggested that a standard of 3.5 g/bhp-hr would be 
achievable in this time frame. As described here, we believe that 
further emission reductions to 2.6 g/bhp-hr are possible in this time 
frame. Engine manufacturers have indicated to the Agency that they 
believe this level of in-cylinder emission control can be realized for 
these very large diesel engines by 2011. We are deferring any decision 
on setting aftertreatment based NOX standards for mobile 
machinery above 750 hp to allow additional time to evaluate the 
technical issues involved, as discussed in section II.A.4.
    NMHC Standards. We are setting two different NMHC emission 
standards for engines in this category linked to the technologies used 
to control PM emissions. We are requiring all engines over 750 hp to 
meet an NMHC standard of 0.30 g/bhp-hr starting in 2011. As explained 
earlier, in 2011 all engines over 750 hp must meet a PM emission 
standard of 0.075 g/bhp-hr. We are projecting that manufacturers will 
meet this standard through improvements in in-cylinder emission control 
of PM (in conjunction with use of 15 ppm sulfur diesel fuel). These PM 
control technologies, increased fuel injection

[[Page 38991]]

pressure, improved electronic controls and enhanced combustion system 
designs will concurrently lower NMHC emissions to the NMHC standard of 
0.30 g/bhp-hr.
    The second step in our NMHC standards is to a level of 0.14 g/bhp-
hr, consistent with the standard for on-highway diesels beginning in 
2007 and for other nonroad diesel engines from 75 to 750 hp beginning 
in 2011. This change in NMHC standards is timed to coincide with the 
requirement that engines over 750 hp meet stringent PM emission 
standards that we believe will require the use of catalyst-based diesel 
particulate filter systems. These systems are expected to incorporate 
oxidation catalyst functions to control the SOF portion of diesel PM 
and to promote robust soot regeneration within the filter. This same 
oxidation function is highly effective at controlling NMHC emissions 
(the RIA documents reductions of more than 80 percent) and will result 
in a reduction in NMHC emissions below the 0.14 g/bhp-hr standard for 
these engines. As the high level of NMHC control afforded by the 
application of this technology is broadly realized across the wide 
range of diesel engine operation, it will allow for compliance with the 
NTE provisions as well. Although in practice we expect that NMHC 
emissions may be lower than the 0.14 g/bhp-hr standard, we have not 
finalized a more stringent standard for NMHC in order to maintain 
consistency with the NMHC standard we are finalizing for engines from 
75 hp to 750 hp, for which the NMHC standard is in part based on 
feasibility considerations for NOX adsorber catalyst systems 
that use diesel fuel to regenerate themselves (with consequent 
increased NMHC emissions during regeneration events). We believe this 
is appropriate considering our expectation that NOX adsorber 
technology will be found feasible for all nonroad engines over 750 hp.
4. Are the New Tier 4 Standards for Engines 25-75 hp Feasible?
    As discussed in section II.B, our standards for 25-75 hp engines 
consist of a 2008 transitional standard and long-term 2013 standards. 
The transitional standard is a 0.22 g/bhp-hr PM standard. The 2013 
standards consist of a 0.02 g/bhp-hr PM standard and a 3.5 g/bhp-hr 
NMHC+NOX standard.\53\ As discussed in section II.A, the 
transitional standard is optional for 50-75 hp engines, as the 2008 
implementation date is the same as the effective date of the Tier 3 
standards. Manufacturers may decide, at their option, not to undertake 
the 2008 transitional PM standard, in which case their implementation 
date for the 0.02 g/bhp-hr PM standard begins in 2012. The remainder of 
this section discusses what makes the 25-75 hp category unique and why 
the standards are technologically feasible.
---------------------------------------------------------------------------

    \53\ The 2013 NOX+NMHC standard is a new standard 
only for engines in the 25-50 hp category. For engines in the 50-75 
hp category, 3.5 g/bhp-hr NOX+NMHC is the existing Tier 3 
emission standard which will now also apply across the new regulated 
test cycles (e.g., NRTC).
---------------------------------------------------------------------------

a. What Makes the 25-75 hp Category Unique?
    As EPA explained in the proposal, and as discussed in section II.A, 
one cannot assume that highway technologies are automatically 
transferable to 25-75 hp nonroad engines. In contrast with 75-750 hp 
engines, which share similarities in displacement, aspiration, fuel 
systems, and electronic controls with highway diesel engines, engines 
in the 25-75 hp category have a number of technology differences from 
the larger engines. These include a higher percentage of indirect-
injection fuel systems, and a low fraction of turbocharged engines (see 
generally RIA chapter 4.1). The distinction in the under 25 hp category 
is even more pronounced, with no turbocharged engines, nearly one-fifth 
of the engines have two cylinders or less, and a significant majority 
of the engines have indirect-injection fuel systems.
    The distinction is particularly marked with respect to 
electronically controlled fuel systems. These are commonly available in 
the power categories greater than or equal to 75 hp, but, based on the 
available certification data as well as our discussions with engine 
manufacturers, we believe there are very limited numbers, if any, in 
the 25-75 hp category (and no electronic fuel systems in the less than 
25 hp category). The research and development work being performed 
today for the heavy-duty highway market is targeted at engines which 
are 4-cylinders or more, direct-injection, electronically controlled, 
turbocharged, and with per-cylinder displacements greater than 0.5 
liters. As discussed in more detail below, as well as in section II.B.5 
(regarding the under 25 hp category), these engine distinctions are 
important from a technology perspective and warrant a different set of 
standards for the 25-75 hp category (as well as for the under 25 hp 
category).
b. Are the New Tier 4 Standards for 25-75 hp Engines Technologically 
Feasible?
    This section will discuss the technical feasibility of both the 
interim 2008 PM standard and the 2013 standards. For an explanation and 
discussion of the implementation dates, please refer to section II.A.
i. 2008 PM Standards \54\
---------------------------------------------------------------------------

    \54\ As discussed in section II.B., manufacturers can choose, at 
their option, to pull-ahead the 2013 PM standard for the 50-75 hp 
engines to 2012, in which case they do not need to comply with the 
transitional 2008 PM standard.
---------------------------------------------------------------------------

    We are today finalizing the interim PM control program as proposed 
for engines in the power category from 25-75 hp. The new PM standard 
for 2008 is 0.22 g/bhp-hr over the appropriate steady-state test cycle 
(the NRTC and NTE do not apply, for the reasons explained below).\55\ 
The standard is premised on the use of 500 ppm sulfur diesel fuel and 
the potential for improvements in engine-out emission control where 
possible or the application of a diesel oxidation catalyst (DOC). Some 
commenters raised concerns that this level of emission control from 
diesel engines may not be possible in 2008 without fuel cleaner than 
500 ppm or without changes in the Tier 3 NMHC+NOX emission 
standards. Other commenters, including some engine manufacturers, 
supported this interim program. As explained in the following sections, 
we continue to believe that these standards are appropriate and 
feasible in the leadtime provided.
---------------------------------------------------------------------------

    \55\ However, a manufacturer can choose to comply over the TRU 
cycle including the associated NTE provisions. Compliance with the 
NTE for engines selecting to certify on the TRU cycle is 
straightforward because by the very nature of the products, their 
operation is directly limited to a small range of operating modes 
over which compliance with the emission standard has already been 
shown.
---------------------------------------------------------------------------

    Engines in the 25-50 hp category must meet Tier 2 
NMHC+NOX and PM standards today. We have examined the model 
year 2004 engine certification data for engines in the 25-50 hp 
category. These data indicate that over 35 percent of the engine 
families meet the 2008 0.22 g/bhp-hr PM standard and 5.6 g/bhp-hr 
NMHC+NOX standard (unchanged from Tier 2 in 2008) today 
(even without 500 ppm sulfur diesel fuel). At the time of the proposal, 
we had analyzed model year 2002 data for this power range, which at 
that time indicated approximately 10 percent of the engine families 
complied with the 2008 requirements. The most recent data for model 
year 2004 indicates substantial progress has already been made in just 
the past few year in lowering emissions from these engines. This is 
primarily due to the implementation of the Tier 2 standards in model 
year 2004. The model year

[[Page 38992]]

2001 certification data also showed the 2008 standard were achievable 
using a mix of engine technologies (IDI and DI, turbocharged and 
naturally aspirated) tested on a variety of certification test 
cycles.\56\ A detailed discussion of these data is contained in the 
RIA.
---------------------------------------------------------------------------

    \56\ The Tier 1 and Tier 2 standards for this power category 
must be demonstrated on one of a variety of different engine test 
cycles. The appropriate test cycle is selected by the engine 
manufacturer based on the intended in-use application of the engine.
---------------------------------------------------------------------------

    At the time of the proposal, no certification data was available 
for engines in the 50-75 hp range, because those engines were not 
subject to a Tier 1 standard and were not subject to Tier 2 standards 
until model year 2004. We have now had an opportunity to analyze the 
model year 2004 certification data for engines in the 50-75 hp range. 
These data shows that more than 70 percent of the engine families in 
this power range are capable of meeting the 2008 PM standards today. 
However, most of these engines do not yet meet the 3.5 g/bhp-hr Tier 3 
NMHC+NOX standard, which is required in 2008. We expect that 
to comply with the Tier 3 standards, these engines will use 
technologies such as EGR and electronically controlled fuel injection 
systems (and we included the costs of these technologies in assessing 
the costs of the Tier 3 standards). These technologies have been shown 
to reduce NOX emissions by 50 percent without increasing PM 
emissions. The certification data show that for the 70 percent of the 
engine families which meet the 2008 Tier 4 PM standard (0.22 g/bhp-hr), 
a NOX reduction of less than 50 percent is needed for most 
of these engines to meet the 2008 Tier 4 NMHC+NOX standard. 
A detailed discussion of these data is contained in the RIA.
    In addition to using known engine-out techniques, we also project 
that the 2008 standards can be achieved with the use of DOCs. DOCs are 
passive flow-through emission control devices which are typically 
coated with a precious metal or a base-metal washcoat. DOCs have been 
proven to be durable in use on both light-duty and heavy-duty diesel 
applications. In addition, DOCs have already been used to control 
carbon monoxide on some nonroad applications.\57\ Some commenters 
raised concerns that DOCs could actually increase PM emissions when 
used on 500 ppm sulfur diesel fuel due to the potential for oxidation 
of the sulfur in the fuel to sulfate PM. While we agree with the 
commenters that sulfur reductions are important to control PM and in 
the long term that a 15 ppm fuel sulfur level will be the best 
solution, we disagree with the assertion that the amount of sulfate PM 
formed from a DOC will be such that compliance with the 0.22 g/bhp-hr 
standard will be infeasible. While commenters shared data showing 
increased PM emissions when DOCs are used, we have similarly found data 
(included in the RIA) that shows an overall reduction in emissions. To 
understand this discrepancy, it is important to realize that DOCs can 
be designed for operation on a range of fuel sulfur levels. The lower 
the fuel sulfur level, the more effective the PM oxidation function, 
but even at 500 ppm sulfur a properly designed DOC will realize a net 
reduction in PM emissions. DOCs have been successfully applied to 
diesel engines for on-highway applications for PM control on 500 ppm 
fuel since 1994 through careful design of the DOC trading-off PM 
reduction potential and sulfur oxidation potential. The RIA contains 
additional analysis describing DOC function, and its expected 
effectiveness when applied to nonroad diesel engines.
---------------------------------------------------------------------------

    \57\ EPA Memorandum ``Documentation of the Availability of 
Diesel Oxidation Catalysts on Current Production Nonroad Diesel 
Equipment,'' William Charmley. Copy available in EPA Air Docket A-
2001-28 Item II-B-15.
---------------------------------------------------------------------------

    Other commenters argued that the application of DOC to diesel 
engines in this category would lead to an even greater emission 
reduction than estimated in our proposal, thus allowing the Agency to 
finalize a lower PM standard. While we agree that some engines will 
have lower emissions than required to meet the standard and that in the 
long term (once 15 ppm fuel is widely available) the PM emissions will 
be further reduced, we do not believe that an emission level lower than 
0.22 g/bhp-hr will be generally feasible in 2008 due to the sulfur 
level of diesel fuel of 500 ppm sulfur and the potential for sulfate PM 
formation.
    In summary then, there are two likely means by which companies can 
comply with the interim 2008 PM standard. First, engine manufacturers 
can comply with this standard using known engine-out techniques (e.g., 
optimizing combustion chamber designs, fuel-injection strategies). In 
fact, some fraction of engines already would comply with the emission 
standard. In addition, some engine manufacturers may choose to use 
diesel oxidation catalysts to meet this standard. Our cost analysis 
makes the conservative assumption (i.e., the higher cost assumption) 
that all manufacturers will use DOC catalysts to comply with these 
emission standards.
    Based on the existence of a number of engine families which already 
comply with the 0.22 g/bhp-hr PM standard (and the 2008 
NMHC+NOX standard), and the availability of well known PM 
reduction technologies such as engine-out improvements and diesel 
oxidation catalysts, we project that the 0.22 g/bhp-hr PM standards is 
technologically feasible by model year 2008.
ii. 2013 Standards
    For engines in the 25-50 range, we are finalizing standards 
commencing in 2013 of 3.5 g/bhp-hr for NMHC+NOX and 0.02 g/
bhp-hr for PM. For the 50-75 hp engines, we are finalizing a 0.02 g/
bhp-hr PM standard which will be implemented in 2013, and for those 
manufacturers who choose to pull-ahead the standard one-year, 2012 
(manufacturers who choose to pull-ahead the 2013 standard for engines 
in the 50-75 range do not need to comply with the transitional 2008 PM 
standard). A more complete discussion of the options available to 
manufacturers and the nature of the transitional program can be found 
in section II.A. These standards are measured using the NRTC and 
steady-state tests. These engines also will be subject to the NTE 
starting with the 2013 model year.
    PM Standard. For engines in the horsepower category from 25-75 hp, 
we are finalizing a PM standard of 0.02 g/bhp-hr based on the 
application of catalyzed diesel particulate filters to engines in this 
category. We received a wide range of comments on our proposal with 
some arguing that the emission standard could be met earlier than 2013 
and others arguing that while technically possible to apply PM filters 
to engines in this category, that it was not economically or otherwise 
practical to do so.
    The RIA discusses in detail catalyzed diesel particulate filters, 
including explanations of how CDPFs reduce PM emissions, and how to 
apply CDPFs to nonroad engines. We have concluded, as explained above, 
that CDPFs can be used to achieve the 0.01 g/bhp-hr PM standard for 75-
750 hp engines. As also discussed in section II.B.2.a above, PM filters 
will require active back-up regeneration systems for many nonroad 
applications above and below 75 hp because low temperature operation is 
an issue across all power categories. One commenter raised concerns 
regarding the low exhaust temperatures possibly experienced by small 
nonroad engines and argued that such low temperatures make PM filter 
regeneration impossible absent the use of active regeneration 
technologies. We agree with the commenter that active regeneration, as 
described previously, may be necessary and have included the cost for 
such

[[Page 38993]]

systems in our cost estimates. See section II.B.1.a. A number of 
secondary technologies are likely required to enable proper 
regeneration, including possibly electronic fuel systems such as common 
rail systems which are capable of multiple post-injections which can be 
used to raise exhaust gas temperatures to aid in filter regeneration.
    Particulate filter technology, with the requisite trap regeneration 
technology, can also be applied to engines in the 25 to 75 hp range. As 
explained earlier, the fundamentals of how a filter is able to reduce 
PM emissions are not a function of engine power, so that CDPF's are 
just as effective at capturing soot emissions and oxidizing SOF on 
smaller engines as on larger engines. The PM filter regeneration 
systems described in section II.B.2 are also applicable to engines in 
this size range and are likewise feasible. There are specific trap 
regeneration technologies which we believe engine manufacturers in the 
25-75 hp category may prefer over others. For example, some 
manufacturers may choose to apply an electronically-controlled 
secondary fuel injection system (i.e., a system which injects fuel into 
the exhaust upstream of a PM filter). Such a system has been 
commercially used successfully by at least one nonroad engine 
manufacturer, and other systems have been tested by technology 
companies.\58\ However, we recognize that the application of these 
technologies will be challenging and will require additional time to 
develop. We therefore disagree with commenters who say that the 
standard could be met sooner and have decided to finalize the 
implementation schedule as proposed.
---------------------------------------------------------------------------

    \58\ ``The Optimized Deutz Service Diesel Particulate Filter 
System II,'' H. Houben et. al., SAE Technical Paper 942264, 1994 and 
``Development of a Full-Flow Burner DPF System for Heavy Duty Diesel 
Engines,'' P. Zelenka et. al., SAE Technical Paper 2002-01-2787, 
2002.
---------------------------------------------------------------------------

    As we proposed, we are finalizing a slightly higher PM standard 
(0.02 g/bhp-hr rather than 0.01) for engines in this power category. As 
discussed in the preamble to the proposed rule and in some detail in 
the RIA, with the use of a CDPF, the PM emissions emitted by the filter 
are primarily derived from the fuel sulfur (68 FR 28389-28390, May 23, 
2003). The smaller power category engines tend to have higher fuel 
consumption per unit of work than larger engines. This occurs for a 
number of reasons. First, the lower power categories include a high 
fraction of IDI engines which by their nature consume approximately 15 
percent more fuel than a DI engine. Second, as engine displacements get 
smaller, the engine's combustion chamber surface-to-volume ratio 
increases. This leads to higher heat-transfer losses and therefore 
lower efficiency and higher fuel consumption. In addition, frictional 
losses are a higher percentage of total power for the smaller 
displacement engines which also results in higher fuel consumption. 
Because of the higher fuel consumption rate, we expect a higher 
particulate sulfate level, and therefore we have set a 0.02 g/bhp-hr 
standard for engines in this power category. We did not receive any 
comments on our proposal arguing that the technical basis for this 
higher PM level was inappropriate.
    The 0.02 g/bhp-hr standard applies to all of the test cycles 
applicable to engines in this power category (i.e., the NRTC including 
cold-start, the ISO C1, D2 and G2 cycles and the alternative TRU and 
RMC cycles, as appropriate). Our feasibility analysis summarized here 
and detailed in the RIA takes into consideration these different test 
cycles. The control technologies work in a similar manner and provide 
the same high level of emission control across these different 
operating regimes including the NTE. The most significant effect on 
emission performance is related to sulfate PM formation at high load, 
high temperature operating conditions. As the RIA details, this level 
of high sulfate formation rate is not high enough to preclude 
compliance with the PM emission standard with 15 ppm fuel sulfur on the 
regulated test cycles nor is it high enough to preclude compliance with 
the NTE provisions. At higher fuel sulfur levels however, compliance 
with the PM emission standard would not be feasible.
    The majority of negative comments on our proposal to set a PM 
standard based on the control possible from PM filter technologies 
focused on the economic and technical challenges to apply these 
technologies and the major engine technology enabler, electronic fuel 
systems, to smaller diesel engines. Some commenters acknowledged that 
the technologies were ``technically feasible'' but not economically 
feasible or practical for engines in this power category. While we 
acknowledge that the application of these technologies to diesel 
engines in this horsepower category will be challenging and have given 
consideration to this in setting the timing for the new standard, we 
believe that the technical path for compliance is clear and that the 
cost estimates we have made for these engines accurately represent this 
technical path. As discussed in the RIA, at the time of the proposal we 
projected no significant penetration of electronic fuel systems for 
engines in the 50-100 hp range prior to the Tier 3 standards (2008). 
Since the proposal, new information regarding model year 2004 engine 
certifications has become available. That data show 18 percent of the 
engines in the 75-100 hp category already use electronically controlled 
fuel systems. In model year 2001, no engines in this category used 
electronic fuel systems. We believe this strong trend toward the 
introduction of more advanced electronic fuel system technology will 
continue in the future and, importantly for engines in the 25-75 hp 
category, will extend to ever smaller engine categories due to the user 
benefits provided by the technology and the falling cost for such 
systems. However, acknowledging the substantial time between now and 
2012, and the potential for technologies to mature faster or slower 
than we are estimating here, we have decided to conduct a technology 
review of these standards as described in section II.A above. This 
review will provide EPA with another opportunity to confirm that the 
technical path laid out here is indeed progressing in a manner 
consistent with our expectations.
    NMHC+NOX Standard. As we proposed, we are finalizing a 
3.5 g/bhp-hr NMHC+NOX standard for engines in the 25-50 hp 
range for 2013. We received limited comments arguing that the 
NMHC+NOX standard should be less stringent. Like the PM 
standard, some commenters argued that the NOX standard would 
be costly and complicated, although not necessarily infeasible to 
apply. Other commenters argued that the NOX standard for 
engines in this category like the new standard for larger engines, 
should be based upon the application of advanced NOX 
catalyst-based technologies. As described previously in section II.A, 
we do not believe that the catalyst-based NOX technologies 
have matured to a state were we can accurately define a feasible 
technical path for compliance for engines in this power category. We 
intend to revisit this question in our technology review and if we find 
that a viable technical path can be described we will consider the 
appropriateness of a more stringent catalyst-based standard.
    The new standard aligns the NMHC+NOX standard for 
engines in this power range with the Tier 3 standard for engines in the 
50-75 hp range which are implemented in 2008. EPA's recent Staff 
Technical paper which reviewed the technological feasibility of the 
Tier 3 standards contains a detailed discussion of a number of 
technologies which are capable of achieving a 3.5 g/bhp-hr standard. 
These include cooled EGR, uncooled EGR, as well as advanced in-

[[Page 38994]]

cylinder technologies relying on electronic fuel systems and 
turbocharging.\59\ These technologies are capable of reducing 
NOX emissions by as much as 50 percent. Given the Tier 2 
NMHC+NOX standard of 5.6 g/bhp-hr, a 50 percent reduction 
would allow a Tier 2 engine to comply with the 3.5 g/bhp-hr 
NMHC+NOX standard set in this action. Therefore, we are 
projecting that 3.5 g/bhp-hr NOX+NMHC standard is feasible 
with the addition of cooled EGR (the basis for our cost analysis) or 
other equally effective in-cylinder NOX control technology 
as described in the RIA and our recent Staff Technical Paper. In 
addition, because this NMHC+NOX standard is concurrent with 
the 0.02 g/bhp-hr PM standards which we project will be achievable with 
the use of particulate filters, engine designers will have significant 
additional flexibility in reducing NOX because the PM filter 
will lessen the traditional concerns with the engine-out NOX 
vs. PM trade-off.
---------------------------------------------------------------------------

    \59\ See section 2.2 through 2.3 in ``Nonroad Diesel Emission 
Standards--Staff Technical Paper,'' EPA Publication EPA420-R-01-052, 
October 2001. Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

    Our recent highway 2004 standard review rulemaking (see 65 FR 
59896, October 2000) demonstrated that a diesel engine with advanced 
electronic fuel injection technology as well as NOX control 
technology such as cooled EGR is capable of complying with an NTE 
standard set at 1.25 times the laboratory-based FTP standard. We 
project that the same technology (electronic fuel systems and cooled 
EGR) are also capable for engine in the 25-75 hp range of complying 
with the NTE standard of 4.4 g/bhp-hr NMHC+NOX (1.25 x 3.5) 
in 2013. This is based on the broad NOX reduction capability 
of cooled EGR technology, which is capable of reducing NOX 
emissions across the engine operating map (including the NTE region) by 
at least 30 percent even under high load conditions.\60\
---------------------------------------------------------------------------

    \60\ See section 8 of ``Control of Emissions of Air Pollution 
from 2004 and Later Model Year Heavy-Duty Highway Engines and 
Vehicles: Response to Comments,'' EPA document EPA420-R-00-011, July 
2000, and chapter 3 of ``Regulatory Impact Analysis: Control of 
Emissions of Air Pollution from Highway Heavy-duty Engines,'' EPA 
document EPA420-R-00-010, July 2000. Copies of both documents 
available in EPA docket A-2001-28.
---------------------------------------------------------------------------

    Based on the information available to EPA and presented here, and 
giving appropriate consideration to the lead time necessary to apply 
the technology as well, we have concluded the 0.02 g/bhp-hr PM standard 
for engines in the 25-75 hp category and the 3.5 g/bhp-hr 
NMHC+NOX standards for the 25-50 hp engines are achievable.
5. Are the Standards for Engines Under 25 hp Feasible?
    As we explained at proposal and as discussed in section II.A, the 
new PM standard for engines less than 25 hp is 0.30 g/bhp-hr beginning 
in 2008. The certification test cycle for this standard is the ISO C1 
cycle (or other appropriate steady-state test as defined by the 
engine's intended use) from 2008 through 2012. Beginning in 2013, the 
NRTC (with cold-start) and the NTE will also apply to engines in this 
category. As discussed below, we are not setting a new standard more 
stringent than the existing Tier 2 NMHC+NOX standard for 
this power category at this time. This section describes what makes the 
less than 25 hp category different and why the standards are 
technologically feasible.
a. What Makes the Under 25 hp Category Unique?
    As we explained at proposal and in the RIA, nonroad engines less 
than 25 hp are the least sophisticated nonroad diesel engines from a 
technological perspective. All of the engines currently sold in this 
power category lack electronic fuel systems and turbochargers. Nearly 
20 percent of the products have two-cylinders or less, and 14 percent 
of the engines sold in this category are single-cylinder products, a 
number of these have no batteries and are crank-start machines, much 
like today's simple walk behind lawnmower engines. In addition, given 
what we know today and taking into account the Tier 2 standards which 
have not yet been implemented, we are not projecting any significant 
penetration of advanced engine technology, such as electronically 
controlled fuel systems, into this category in the next 5 to 10 years.
b. What Data Indicate That the Standards Are Feasible?
    We project the Tier 4 PM standard can be met by 2008 based on: The 
existence of a large number of engine families which meet the new 
standards today; the use of engine-out reduction techniques; and the 
use of diesel oxidation catalysts.
    Engines in the less than 25 hp category must meet Tier 1 
NMHC+NOX and PM standards today. We have examined the 2004 
model year engine certification data for nonroad diesel engines less 
than 25 hp. These data indicate that a number of engine families meet 
the new Tier 4 PM standard (and the 2008 NMHC+NOX standard, 
unchanged from Tier 2) today. The data show that 31 percent of the 
engine families are at or below the PM standard today, while meeting 
the 2008 NMHC+NOX standard. At the time of the proposal, we 
examined the model year 2002 certification, which indicated 
approximately 30 percent of the engine families were at or below the 
2008 emission standards. This certification data includes both IDI and 
DI engines, as well as a range of certification test cycles.\61\ Many 
of the engine families are certified well below the Tier 4 standard 
while meeting the 2008 NMHC+NOX level. Specifically, for the 
model year 2002 data, 15 percent of the engine families are cleaner 
than the new Tier 4 PM standard by more than 20 percent. The public 
certification data indicate that these engines do not use 
turbocharging, electronic fuel systems, exhaust gas recirculation, or 
aftertreatment technologies. We saw little change between the model 
year 2002 and 2004 data for this power category primarily because both 
model years are subject to the Tier 1 standards, and many engine 
families are simply carried over from the previous model year. Tier 2 
standards for these engines will not be implemented until model year 
2005. A detailed discussion of these data is contained in the RIA.
---------------------------------------------------------------------------

    \61\ The Tier 1 and Tier 2 standards for this power category 
must be demonstrated on one of a variety of different engine test 
cycles. The appropriate test cycle is selected by the engine 
manufacturer based on the intended in-use application(s) of the 
engine.
---------------------------------------------------------------------------

    In summary then, there are two likely means by which companies can 
comply with the 2008 PM standard for engines under 25 hp. First, engine 
manufacturers can comply with this standard using known engine-out 
techniques (e.g., optimizing combustion chamber designs, fuel-injection 
strategies). In fact, some fraction of engines already would comply 
with the emission standard. In addition, some engine manufacturers may 
choose to use diesel oxidation catalysts to meet this standard. Our 
cost analysis makes the conservative assumption (i.e., the higher cost 
assumption) that all manufacturers will use DOCs to comply with these 
emission standards.
    As discussed in section II.A, we are finalizing supplemental test 
procedures and standards (nonroad transient test cycle and not-to-
exceed requirements) for engines in the under 25 hp category beginning 
in 2013. The supplemental test procedures and standards will apply not 
only to PM, but also to NMHC+NOX. The engine technologies 
necessary to comply with the supplemental test procedures and standards 
are the same as the technology necessary to comply with the 2008 
standard, and we have given

[[Page 38995]]

consideration to these test conditions in setting this standard. The 
range of operating conditions covered by the various test cycles and 
the mechanism for emission control over those ranges of operation are 
substantially similar allowing us to conclude that emission control 
will be substantially uniform across these test procedures. However, we 
are delaying the implementation of the supplemental test procedures and 
standards until 2013, as proposed, in order to implement these 
supplemental requirements on the larger powered nonroad engines before 
the smallest power category. (There were no adverse comments on this 
aspect of the proposed rule.) This will also provide engine 
manufacturers with additional time to install any emission testing 
equipment upgrades they may need in order to implement the new nonroad 
transient test cycle.
    Based on the existence of a number of engine families which already 
comply with the new Tier 4 PM standard (and the 2008 
NMHC+NOX standard), and the availability of PM reduction 
technologies such as improved mechanical fuel systems, combustion 
chamber improvements, and in particular diesel oxidation catalysts, we 
project that the 0.30 g/bhp-hr PM standards is technologically feasible 
by model year 2008.
6. Meeting the Crankcase Emissions Requirements
    The most common way to eliminate crankcase emissions has been to 
vent the blow-by gases into the engine air intake system, so that the 
gases can be recombusted. Prior to the HD2007 rulemaking, we have 
required that crankcase emissions be controlled only on naturally 
aspirated diesel engines. We had made an exception for turbocharged 
diesel engines (both highway and nonroad) because of concerns in the 
past about fouling that could occur by routing the diesel particulates 
(including engine oil) into the turbocharger and aftercooler. However, 
this is an environmentally significant exception since most nonroad 
equipment over 75 hp use turbocharged engines, and a single engine can 
emit over 100 pounds of NOX, NMHC, and PM from the crankcase 
over its lifetime.
    Given the available means to control crankcase emissions, we 
eliminated this exception for highway engines in 2007 and similarly in 
today's action are eliminating the exception for nonroad diesel engines 
as well. A number of commenters supported this provision noting that 
the necessary technologies are already in application in Europe and 
will be required for heavy-duty diesel trucks in the United States 
beginning in 2007.
    We anticipate that the diesel engine manufacturers will be able to 
control crankcase emissions through the use of closed crankcase 
filtration systems or by routing unfiltered blow-by gases directly into 
the exhaust system upstream of the emission control equipment. However, 
the provisions have been written such that if adequate control can be 
had without ``closing'' the crankcase then the crankcase can remain 
``open.'' Compliance would be ensured by adding the emissions from the 
crankcase ventilation system to the emissions from the engine control 
system downstream of any emission control equipment. We have limited 
this provision for controlling emissions from open crankcases to 
turbocharged engines, which is the same as for heavy-duty highway 
diesel engines.
    Some commenters in essence argued that the Agency was obligated to 
show that all potential compliance paths were feasible and absent that 
showing that the Agency should reconsider this provision. Our 
feasibility analysis is based on the use of closed crankcase 
technologies designed to filter crankcase gases sending the clean gas 
to the engine intake for combustion and returning the oil filtered from 
the gases to the engine crankcase. These systems are proven in use and 
the use of this technology to eliminate crankcase emissions is 
acceptable to demonstrate compliance. The other options, the option to 
vent crankcase emissions into the exhaust or to continue to vent 
crankcase emissions to the atmosphere provided the total emissions 
including tailpipe and crankcase emissions do not exceed the standards 
are provided as alternate solutions that are clearly effective to 
control emissions (i.e., if the emissions are measured and are below 
the standard they are adequately controlled). The commenter suggests 
however, that they may not be able to control the emissions to the 
required level using these alternate approaches. In this case, a 
manufacturer would need to use the primary approach identified by EPA, 
closing the crankcase and routing the filtered gases to the engine's 
intake (this is the approach we used in the cost analysis summarized in 
section VI). We have allowed the alternative approaches at the 
recommendation of some in industry, because if they prove to be 
effective we accept that resulting total emissions will be acceptably 
low.

C. Why Do We Need 15 ppm Sulfur Diesel Fuel?

    The new Tier 4 emission standards for most categories of nonroad 
diesel engines are predicated on the application of advanced diesel 
emission control technologies that are being developed for on-highway 
diesel engines to meet the HD2007 emission standards, namely catalyzed 
diesel particulate filters and NOX adsorber catalysts. 
Sulfur in diesel fuel significantly impacts the durability, efficiency 
and cost of applying these technologies. Therefore, we required that 
on-highway diesel fuel produced for use in 2007 or newer on-highway 
diesel engines have sulfur content no higher than 15 ppm. Based on the 
same concerns outlined in the 2007 rulemaking, discussed in the 
proposal at 68 FR 28395-28400, set out in the RIA, and briefly 
summarized below, we today are finalizing a requirement that diesel 
fuel for nonroad engines be reduced to no higher than 15 ppm beginning 
in 2010. There was consensus among commenters that such standards were 
necessary if the proposed standards based on advanced diesel emission 
control technologies were to be achievable.
    Sulfur in diesel fuel acts to poison the oxidation function of 
platinum-based catalysts including DOCs and CDPFs reducing the 
oxidation efficiency substantially, especially at lower temperatures. 
This poisoning limits the effectiveness of DOCs and CDPFs to oxidize CO 
and HC emissions. Of even greater concern is the reduction in NO 
oxidation efficiency of the CDPF due to sulfur poisoning. NO oxidation 
to NO2 is a fundamental mechanism for PM filter regeneration 
necessary to ensure robust operation of the CDPF (i.e., to prevent 
filter plugging). Sulfur poisoning from sulfur in diesel fuel at levels 
higher than 15 ppm has been shown to increase the likelihood of PM 
filter failure due to a depressed NO to NO2 oxidation 
efficiency of the CDPF. The RIA documents substantial field experience 
in Europe regarding this phenomenon.
    Sulfur in diesel fuel can itself be oxidized to form sulfate PM 
emitted into the environment. CDPFs in particular are designed for 
robust regeneration and are highly effective at oxidizing sulfur to 
sulfate PM (approaching 100 percent conversion under some 
circumstances). The sulfate PM emissions from a CDPF when operated on 
350 ppm fuel can be so high as to actually increase the PM emission 
rate above the baseline level for an engine without a PM filter. In 
spite of more than ten years of research,

[[Page 38996]]

no effective means has been found to provide the NO to NO2 
oxidation efficiency needed to ensure robust filter regeneration 
without similarly increasing efficiency to oxidize sulfur to sulfate 
PM. Conversely, technologies developed to suppress sulfate PM formation 
(e.g., the addition of vanadium to DOCs designed to operate on 500 ppm 
sulfur fuel) also suppress NO to NO2 formation. Therefore, 
it is not possible to apply the robust CDPF technology to achieve the 
PM standards without first having lower diesel fuel sulfur levels. The 
RIA documents substantial test data showing the impact of sulfur in 
diesel fuel on total PM emissions due to an increase in sulfate PM 
emissions.
    Sulfur from diesel fuel likewise poisons the storage function of 
the NOX adsorber catalyst. Sulfur in the exhaust in the form 
of SOX is stored on the catalyst in the same way as the 
NOX emissions are stored. Unfortunately, due to the chemical 
properties of the materials, the sulfur is stored preferentially to the 
NOX and will actually displace the stored NOX 
emissions. The stored sulfur is not easily removed from the catalyst. A 
sulfur removal step, called a desulfation, can be accomplished by 
raising exhaust temperatures to a very high level while simultaneously 
increasing the reductant content of the exhaust above the 
stoichiometric level (i.e., more fuel than oxygen in the exhaust). This 
process can be effective to remove sulfur from the catalyst but at the 
expense of damaging the catalyst slightly. Over the lifetime of a 
diesel engine the cumulative damage from repeated desulfation events, 
as would be required if operation on higher than 15 ppm sulfur fuels 
were attempted, would lead to excessive damage and loss in 
NOX control. The RIA contains an extensive description of 
this phenomena including the tradeoff between higher fuel sulfur levels 
and more frequent desulfation events.
    The damage that sulfur inflicts on both the CDPF and NOX 
adsorber technologies not only reduces their effectiveness but also 
impacts the fuel economy of their application. Reduced soot 
regeneration potential due to sulfur poisoning would lead to the need 
for more frequent active CDPF regeneration. As each active soot 
regeneration event consumes fuel, more frequent regeneration events 
with higher fuel sulfur levels leads to an increase in fuel 
consumption. Similarly, higher fuel sulfur levels would necessitate 
more frequent NOX adsorber desulfation events and thus 
higher fuel consumption. An estimate of the impact of higher fuel 
sulfur levels on fuel economy due to more frequent desulfation events 
can be found in the RIA.
    For all of the reasons documented in the RIA and summarized here, 
we remain convinced that a cap of 15 ppm fuel sulfur is necessary for 
both on-highway and nonroad diesel engines in order to apply the 
advanced emission control technologies necessary to meet the emission 
standards we are finalizing today.

III. Requirements for Engine and Equipment Manufacturers

    This section describes the regulatory changes being made for the 
engine and equipment compliance program. A number of specific items are 
discussed in this section, including test procedures, certification 
fuels, and credit program provisions. These provisions are important in 
that they help us ensure the engines and equipment will meet the new 
requirements throughout their entire useful life, thus achieving the 
expected emission and public health benefits.
    One of the most obvious changes from the Tier 2/Tier 3 program is 
that the regulations for Tier 4 engines have been written in a plain 
language format. They are structured to contain the provisions that are 
specific to nonroad compression ignition (CI) engines in a new part 
1039, and to apply the general provisions of existing parts 1065 and 
1068. The plain language regulations, however, are not intended to 
significantly change the compliance program, except as specifically 
noted in today's notice and supporting documents. These plain language 
regulations will only apply for Tier 4 engines. The changes from the 
existing nonroad program are described below along with other notable 
aspects of the compliance program.
    As described below, we received comments from a broad range of 
commenters for some of these issues. For other issues, we received only 
manufacturer comments or no comments at all. See Chapter 9 of the 
Summary and Analysis of Comments for more information about the 
comments received and our responses to them.

A. Averaging, Banking, and Trading

1. Why Are We Adopting an ABT Program for Tier 4 Nonroad Diesel 
Engines?
    EPA has included averaging, banking, and trading (ABT) programs in 
almost all of its recent mobile source emission control programs. Our 
existing regulations for nonroad diesel engines include an ABT program 
(40 CFR 89.201 through 89.212). With today's action we are retaining 
the basic structure of the existing nonroad diesel ABT program, though 
we are adopting a number of changes to accommodate implementation of 
the newly adopted Tier 4 emission standards. The ABT program is 
intended to enhance the ability of engine manufacturers to meet the 
stringent standards adopted today. The program is also structured to 
limit production of very high-emitting engines and to avoid unnecessary 
delay of the transition to the new exhaust emission control 
technologies.
    We view the ABT program as an important element in setting emission 
standards that are appropriate under CAA section 213(a) with regard to 
technological feasibility, lead time, and cost, given the wide breadth 
and variety of engines covered by the standards. As we noted at 
proposal, if there are engine families that will be particularly costly 
or have a particularly hard time coming into compliance with the 
standard, this flexibility allows the manufacturer to adjust the 
compliance schedule accordingly, without special delays or exceptions 
having to be written into the rule. Emission-credit programs also 
create an incentive for the early introduction of new technology (for 
example, to generate credits in early years to create compliance 
flexibility for later engines), which allows certain engine families to 
act as trailblazers for new technology. This can help provide valuable 
information to manufacturers on the technology before they apply the 
technology throughout their product line. This early introduction of 
clean technology improves the feasibility of achieving the standards 
and can provide valuable information for use in other regulatory 
programs that may benefit from similar technologies. Early introduction 
of such engines also secures earlier emission benefits.
    In an effort to make information on the ABT program more available 
to the public, we intend to issue an annual report summarizing use of 
the ABT program by engine manufacturers. The information contained in 
the reports will be based on the information submitted to us by engine 
manufacturers in their annual reports, and summarized in a way that 
protects the confidentiality of individual engine manufacturers. We 
believe this information will also be helpful to engine manufacturers 
by giving them a better indication of the availability of credits.

[[Page 38997]]

2. What Are the Provisions of the ABT Program?
    The following section describes the ABT provisions being adopted 
with today's action. Areas in which we have made changes to the 
proposed ABT program are highlighted. A complete summary of comments 
received on the proposed ABT program and our response to those comments 
are contained in the Summary and Analysis of Comments document for this 
rule.
    The ABT program has three main components. Averaging means the 
exchange of emission credits between engine families within a given 
engine manufacturer's product line. Engine manufacturers divide their 
product line into ``engine families'' that are comprised of engines 
expected to have similar emission characteristics throughout their 
useful life. Averaging allows a manufacturer to certify one or more 
engine families at levels above the applicable emission standard, but 
below a set upper limit. However, the increased emissions must be 
offset by one or more engine families within that manufacturer's 
product line that are certified below the same emission standard, such 
that the average emissions from all the manufacturer's engine families, 
weighted by engine power, regulatory useful life, and production 
volume, are at or below the level of the emission standard. (The 
inclusion of engine power, useful life, and production volume in the 
averaging calculations is designed to reflect differences in the in-use 
emissions from the engines.) Averaging results are calculated for each 
specific model year. The mechanism by which this is accomplished is 
certification of the engine family to a ``family emission limit'' (FEL) 
set by the manufacturer, which may be above or below the standard. An 
FEL that is established above the standard may not exceed an upper 
limit specified in the ABT regulations. Once an engine family is 
certified to an FEL, that FEL becomes the enforceable emissions limit 
for all the engines in that family for purposes of compliance testing. 
Averaging is allowed only between engine families in the same averaging 
set, as defined in the regulations.
    Banking means the retention of emission credits by the engine 
manufacturer for use in future model year averaging or trading. Trading 
means the exchange of emission credits between nonroad diesel engine 
manufacturers which can then be used for averaging purposes, banked for 
future use, or traded to another engine manufacturer.
    The existing ABT program for nonroad diesel engines covers 
NMHC+NOX emissions as well as PM emissions. With today's 
action and as proposed, we are making the ABT program available for the 
Tier 4 NOX standards (and NMHC+NOX standards, 
where applicable) and the Tier 4 PM standards. As proposed, ABT will 
not be available for the Tier 4 NMHC standards for engines above 75 
horsepower.
    Engine manufacturers commented that ABT will most likely be 
necessary for the Tier 4 CO standards, given the reductions in PM and 
NOX emissions. In the Tier 4 proposal, we proposed minor 
changes in CO standards for some engines solely for the purpose of 
helping to consolidate power categories and improving administrative 
efficiency. However, as noted earlier in section II.A.6, we have 
withdrawn this aspect of the proposal. We do note, however, that we are 
applying new certification tests to all pollutants covered by the rule, 
the result being that Tier 4 engines will have to certify to CO 
standards measured by the transient test (including a cold start 
component), and the NTE. However, as shown in RIA chapter 4.1.1.2 (see 
e.g., note F), we believe that application of Tier 4 technologies will 
lead to a reduction in CO emissions over the Tier 3 baseline. We thus 
believe the CO standards will be readily achievable under the transient 
test and NTE. Moreover, we believe that there will not be any 
associated costs: The CO standards can be met without any further 
technological improvements (i.e., improvements other than those already 
necessary to meet the Tier 4 standards) and these tests will already be 
used for certification. Since CO standards measured by the new 
certification tests are achievable without cost, there is no basis for 
allowing ABT because no additional lead time is needed.
    As noted earlier, the existing ABT program for nonroad diesel 
engines includes FEL caps--limits on how high the emissions from 
credit-using engine families can be. No engine family may be certified 
above these FEL caps. These limits provide manufacturers with 
compliance flexibility while protecting against the introduction of 
unnecessarily high-emitting engines. In the past, we have generally set 
the FEL caps at the emission levels allowed by the previous standard, 
unless there was some specific reason to do otherwise. With today's 
action, we are taking a different approach because the level of the 
standards being adopted for most engines are significantly lower than 
the current level of the standards. The transfer to new technology is 
feasible and appropriate. Thus, as proposed, to ensure that the ABT 
provisions are not used to continue unnecessarily to produce old-
technology high-emitting engines under the new program, the FEL caps 
are not, in general, set at the previous standards. Exceptions have 
been made for the NMHC+NOX standard for engines between 25 
and 50 horsepower effective in model year 2013 and the NOX 
standards applicable to engines above 750 horsepower in 2011, where we 
are using the estimated NOX-only equivalent for the 
previously applicable NMHC+NOX standard for the FEL cap 
since the gap between the previous and newly adopted standards is 
approximately 40 percent (rather than 90 percent for engines between 75 
and 750 horsepower), and because the technology basis for these 
standards can be a form of engine-out control, like the previous tier 
standards. This approach of setting FEL caps at lower levels than the 
previously applicable standards is consistent with the level of the FEL 
limits set in the 2007 on-highway heavy-duty diesel engine program.
    STAPPA/ALAPCO supported the proposed FEL caps. The Engine 
Manufacturers Association (EMA) commented that EPA should eliminate the 
FEL caps altogether. They believe FEL caps are unnecessary because the 
zero-sum requirement of ABT will ensure that there are no adverse 
emission impacts. Short of eliminating the FEL caps, they commented 
that EPA should set FEL caps at the level of the previous standards, 
not the more stringent levels proposed. With today's action, EPA is 
adopting the FEL caps as proposed, with some exceptions for engines 
above 750 horsepower (where we are adopting different standards than 
originally proposed) and for phase-in engines between 75 and 750 
horsepower (where we have adopted an option for manufacturers to 
certify to alternative NOX standards during the phase-in 
period). We continue to believe that it is important to ensure that 
technology turns over in a timely manner and that manufacturers do not 
continue producing large numbers of high-emitting, old technology 
engines once the Tier 4 standards become fully effective. (As noted 
below, however, we are adopting provisions that allow manufacturers to 
produce a limited number of 75 to 750 horsepower engines for a limited 
period that are certified with FELs as high as the previous tier of 
standards.) For the Tier 4 standards, where the standards are being 
reduced by an order of magnitude, we believe this goal to be 
particularly important, and in keeping with the technology-

[[Page 38998]]

forcing provisions of section 213(a). It simply would not be 
appropriate to have long-term FEL caps that allowed engines to 
indefinitely have emissions as high as ten times the level of the 
standard.
    For engines between 75 and 750 horsepower certified using the 
phase-in/phase-out approach, there will be two separate sets of engines 
with different FEL caps. For engines certified to the existing (Tier 3) 
NMHC+NOX standards during the NOX phase-in 
(referred to generally as ``phase-out'' engines), the FEL cap for these 
pollutants will (almost necessarily) be the existing FEL caps adopted 
in the October 1998 Tier 3 rule. For engines certified to the newly 
adopted Tier 4 NOX standard during the phase-in (referred to 
generally as ``phase-in'' engines), we have revised the proposed FEL 
cap to be 0.60 g/bhp-hr, consistent with the proposed long-term Tier 4 
NOX FEL cap. As described in section II.A.2.c above, we have 
used the creation of alternative NOX standards for engines 
between 75 and 750 horsepower to restate the phase-in/phase-out concept 
as a path truly focused on achieving high-efficiency NOX 
aftertreatment during the phase-in years. Setting the NOX 
FEL cap at 0.60 g/bhp-hr for phase-in engines will ensure this happens 
if a manufacturer chooses to certify to the phase-in provisions. In 
contrast, the higher FEL caps which we proposed (see 68 FR 28467-28468) 
would not have achieved this objective.
    Beginning in model year 2014 when the Tier 4 NOX 
standards for engines between 75 and 750 horsepower take full effect, 
we are adopting a NOX FEL cap of 0.60 g/bhp-hr for all 
engines. We reiterate that given the fact that the Tier 4 
NOX standard is approximately a 90 percent reduction from 
the existing standards for engines between 75 and 750 horsepower, we do 
not believe the previous standard is appropriate as the FEL cap for 
engines having to comply with the Tier 4 NOX standard of 
0.30 g/bhp-hr. We believe that the NOX FEL caps will ensure 
that manufacturers adopt NOX aftertreatment technology 
across all of their engine designs.
    For the interim PM standards for engines between 25 and 75 
horsepower effective in model year 2008 and for the Tier 4 PM standards 
for engines below 25 horsepower, we are adopting the previously 
applicable Tier 2 PM standards for the FEL caps (which do vary within 
the 25 to 75 horsepower category) because the gap between the previous 
standards and the newly adopted standards is approximately 50 percent 
(rather than in excess of 90 percent for engines between 75 and 750 
horsepower), and the technology basis for the 2008 PM standards can be 
a form of engine-out control, like the previous tier standard. For the 
Tier 4 PM standard effective in model year 2013 for engines between 25 
and 75 horsepower, we are adopting a PM FEL cap of 0.04 g/bhp-hr, and 
for the Tier 4 PM standard effective in model years 2011 and 2012 for 
engines between 75 and 750 horsepower, we are adopting a PM FEL cap of 
0.03 g/bhp-hr. As with the Tier 4 NOX standards for these 
engines, given the fact that these Tier 4 aftertreatment-based PM 
standards for engines between 25 and 750 horsepower are over 90 per 
cent more stringent than the previous standards, we do not believe the 
previous standards are appropriate as FEL caps once the Tier 4 
standards take effect. We believe that the newly adopted PM FEL caps 
will ensure that manufacturers adopt PM aftertreatment technology 
across all of their engine designs (except for a limited number of 
engines), yet will still provide substantial flexibility in meeting the 
standards.
    The final Tier 4 standards for engines above 750 horsepower have 
been revised from the proposal. We similarly revised a number of the 
proposed ABT provisions for engines above 750 horsepower. Beginning in 
2011, all engines above 750 horsepower will be required to meet a 
NOX standard of 2.6 g/bhp-hr, except for those above 1200 
horsepower used in generator sets which will be required to meet a 
NOX standard of 0.50 g/bhp-hr. The NOX FEL cap 
for the 2011 standards will be 4.6 g/bhp-hr, which is an estimate of 
the NOX emissions level that is expected under the combined 
NMHC+NOX standards that apply with the previously applicable 
tier for engines above 750 horsepower. Beginning in 2011, all engines 
above 750 horsepower will have to meet a PM standard of 0.075 g/bhp-hr. 
The PM FEL cap for the 2011 PM standard will be the previously-
applicable Tier 2 standard of 0.15 g/bhp-hr. As noted above, because 
the 2011 NOX and PM standards are approximately 50 percent 
lower than the previous standard (rather than in excess of 90 percent 
for engines between 75 and 750 horsepower), and for most engines are 
based on performance of the same type of technology (engine-out), we 
are adopting the previously applicable Tier 2 standards for the FEL 
caps.
    Beginning in model year 2015, the 0.50 g/bhp-hr NOX 
standard will apply to all engines above 750 horsepower used in 
generator sets. Beginning in model year 2015, the PM standard drops to 
0.02 g/bhp-hr for engines greater than 750 horsepower used in generator 
sets and 0.03 g/bhp-hr for engines greater than 750 horsepower used in 
other machines. Consistent with the Tier 4 FEL caps for lower 
horsepower categories where the new standards are significantly lower 
than the previously applicable standards and reflect performance of 
aftertreatment technology, we are adopting a NOX FEL cap of 
0.80 g/bhp-hr for engines used in generator sets and PM FEL caps of 
0.04 g/bhp-hr for engines used in generator sets and 0.05 g/bhp-hr for 
engines used in other machines (i.e., mobile machines). We believe that 
the FEL caps for engines above 750 horsepower will ensure that 
manufacturers adopt PM aftertreament technology across all of their 
engine designs and NOX aftertreatment for generator sets 
once the 2015 standards are adopted, while allowing for some meaningful 
use of averaging beginning in 2015.
    Table III.A-1 contains the FEL caps and the effective model year 
for the FEL caps (along with the associated standards adopted for Tier 
4). It should be noted that for Tier 4, where we are adopting a new 
transient test for most engines, as well as retaining the current 
steady-state test, the FEL established by the engine manufacturer will 
be used as the enforceable limit for the purpose of compliance testing 
under both test cycles. In addition, under the NTE requirements, the 
FEL times the appropriate multiplier will be used as the enforceable 
limit for the purpose of such compliance testing. This is consistent 
with how FELs are used for compliance purposes in the 2007 on-highway 
heavy-duty diesel engine program.

[[Page 38999]]



                 Table III.A-1.--FEL Caps for the Tier 4 Standards in the ABT Program (g/bhp-hr)
----------------------------------------------------------------------------------------------------------------
                                                               NOX                                PM      PM FEL
          Power category             Effective model year    standard        NOX FEL cap       standard    cap
----------------------------------------------------------------------------------------------------------------
hp <25 (kW <19)...................  2008+................     \a\ 5.6   7.8 \a\ for <11hp...   \c\ 0.30     0.60
                                                                        7.1 \a\ for >11hp...
25 <= hp < 50 (19 <= kW <37)......  2008-2012............     \a\ 5.6   7.1 \a\.............       0.22     0.45
25 <= hp < 50 (19 <= kW <37)......  2013+................      \b\3.5   5.6 \b\.............       0.02   f 0.04
50 <= hp < 75 (37 <= kW <56)......  2008-2012 \d\........     \a\ 3.5   5.6 \a\.............       0.22     0.30
50 <= hp < 75 (37 <= kW <56)......  2013+ \e\............     \a\ 3.5   5.6 \a\.............       0.02      \f\
                                                                                                            0.04
75 <= hp < 175 (56 <= kW <130)....  2012+................         0.30  0.60 f g h..........       0.01      \f\
                                                                                                            0.03
175 <= hp <= 750 (130 <= kW <=      2011+................         0.30  0.60 f g h..........       0.01      \f\
 560).                                                                                                      0.03
hp > 750 (kW >560)................  2011-2014............         2.6   4.6.................      0.075     0.15
                                                              \i\ 0.50  4.6
Generator Sets hp > 750 (kW >560).  2015+................         0.50  0.80 \f\............       0.02      \f\
                                                                                                            0.04
Other Machines hp > 750 (kW >560).  2015+................     \j\ 2.6   4.6 \j\.............       0.03      \f\
                                                                                                           0.05
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ These are the previous tier NMHC+NOX standards and FEL caps. These levels are not being revised with today's
  rule and are printed here solely for readers' convenience.
\b\ These are a combined NMHC+NOX standard and FEL cap.
\c\ A manufacturer may delay implementation until 2010 and then comply with a PM standard of 0.45 g/bhp-hr for
  air-cooled, hand-startable, direct injection engines under 11 horsepower.
\d\ These FEL caps do not apply if the manufacturer opts out of the 2008 standards. In such cases, the existing
  Tier 3 standards and FEL caps continue to apply.
\e\ The FEL caps apply in model year 2012 if the manufacturer opts out of the 2008 standards.
\f\ As described in this section, a small number of engines are allowed to exceed these FEL caps.
\g\ For engines certified as phase-out engines, the NMHC+NOX FEL caps for the Tier 3 standards apply.
\h\ For engines certified to the alternative NOX standards during the phase-in, the NOX FEL caps shown in tables
  III.A-3 and III.A-4 apply.
\i\ The 0.50 g/bhp-hr NOX standard applies only to engines above 1200 horsepower used in generator sets.
\j\ The 2011 NOX standard and FEL cap continue to apply unless and until revised by EPA in a future action.

    As noted above, we are allowing a limited number of engines to have 
a higher FEL than the caps noted in Table III.A-1 in certain instances. 
The FEL cap for such engines would be set based on the level of the 
standards that applied in the year prior to the new standards and will 
allow manufacturers to produce a limited number of engines certified to 
these earlier standards in the Tier 4 timeframe. The allowance to 
certify up to these higher FEL caps will apply to Tier 4 engines 
between 25 and 750 horsepower beginning as early as the 2011 model 
year, and will apply to engines above 750 horsepower starting with the 
2015 model year. The provisions are intended to provide some limited 
flexibility for engine manufacturers as they make the transition to the 
aftertreatment-based Tier 4 standards while ensuring that the vast 
majority of engines are converted to the advanced low-emission 
technologies expected under the Tier 4 program.
    Under the proposal, manufacturers would have been allowed to 
certify at levels up to these FEL caps for ten percent of its engines 
in each of the first four years after the Tier 4 standards took effect 
and then five percent for subsequent years. The California Air 
Resources Board supported the proposed allowance. The Engine 
Manufacturers Association commented that the percentages of engines 
allowed to the higher FEL caps may not be sufficient, noting that it is 
too early to tell if the proposed amounts provided enough flexibility.
    In an effort to provide flexibility to engine manufacturers while 
preserving the effective number of engines allowed to certify at levels 
up to the higher FEL caps, we are revising the proposed provisions with 
today's action. The revised provisions are intended to allow 
manufacturers to produce the same number of engines certified to the 
higher FEL caps as would have been allowed under the proposal, but 
provide added flexibility in how they distribute the allowances over 
the first four years of the transition to the new standards. This 
additional lead time appears appropriate, given the potential that a 
limited set of nonroad engines may face especially challenging 
compliance difficulties. Under the provisions adopted today and subject 
to the limitations explained below, a manufacturer would be allowed to 
certify up to 40 percent of its engines above the FEL caps shown in 
Table III.A-1 over the first four years the aftertreatment-based Tier 4 
standards take effect (calculated as a cumulative total of the percent 
of engines exceeding these FEL caps in each year over the four years), 
with a maximum of 20 percent allowed in any given year (provided the 
FELs for these engines do not exceed levels specified below). During 
this four year period, manufacturers would not be required to perform 
transient testing or NTE testing on these engines because we expect 
these engines would be carried over directly from the previous tier 
without any modification. (NTE testing would apply to engines above 750 
horsepower because the previously applicable set of standards required 
NTE testing.) Similarly, for engines between 75 and 750 horsepower, 
manufacturers would not be required to have closed crankcase controls 
on these engines because we also expect that these engines would be 
carried over directly from the previous tier without any modification. 
(Engines between 25 and 75 horsepower, and engines above 750 
horsepower, would be required to have closed crankcase controls because 
the previously applicable set of standards require closed crankcase 
controls.)
    For the purpose of calculating the number of credits such engines 
would use, the manufacturer would include an adjustment to the FEL to 
be used in the credit calculation equation. The adjustment would be 
included by multiplying the steady-state FEL by a Temporary Compliance 
Adjustment Factor (TCAF) of 1.5 for PM and 1.1 for NOX. (The 
NOX TCAF would not apply to engines that are not subject to 
the transient testing requirements for NOX as discussed in 
section III.F.) We are adopting TCAFs in part to assure in-use control 
of emission from these engines in the absence of transient and NTE 
testing, and also to assure that any credits these engines use reflect 
the

[[Page 39000]]

level of reductions expected in use. The level of the TCAFs are based 
on data from pre-control, Tier 1, and Tier 2 engines which show that 
the emissions from such engines tested over transient test cycles which 
are more representative of real in-use operation are higher than 
emissions from those engines tested over the steady-state certification 
test cycle. This is a sales weighted version of the Transient 
Adjustment Factor used in the NONROAD model. For compliance purposes, a 
manufacturer would be held accountable to the unadjusted steady-state 
FEL established for the engine family.
    As proposed, after the fourth year the Tier 4 standards apply, the 
allowance to certify engines using the higher FEL caps shown in Table 
III.A-2 will still be available but for no more than five percent of 
the engines a manufacturer produces in each power category in a given 
year. When the 5 percent allowance takes effect, these engines will be 
considered Tier 4 engines and all other requirements for Tier 4 engines 
will also apply, including the Tier 4 NMHC standard, transient testing, 
NTE testing, and closed crankcase controls. TCAFs thus do not apply 
when calculating the number of credits such engines would use.
    In the two power categories where we are adopting phase-in 
provisions (i.e., 75 to 175 horsepower engines and 175 to 750 
horsepower engines), the allowance to use a higher FEL cap will only 
apply to PM from phase-out engines during the phase-in years. We 
originally proposed that the allowance to use a higher FEL cap would 
apply to PM from either phase-in or phase-out engines during the phase-
in years. On reflection, this is inconsistent with our policy that 
phase-in engines truly have low emissions reflecting use of 
aftertreatment (see also the discussion above where we explain that, 
for the same reason, we are adopting a NOX FEL cap of 0.60 
g/bhp-hr for phase-in engines). We consequently are revising the 
proposed allowance so that it is available for PM emissions only from 
phase-out engines. As proposed, the allowance to use a higher FEL cap 
for NOX will apply starting in 2014 when the phase-in period 
is complete.
    For the power category between 25 and 75 horsepower, this allowance 
to certify engines at levels up to the higher FEL caps will apply 
beginning with the Tier 4 standards taking effect in the 2013 model 
year and will apply to PM only. For manufacturers choosing to opt out 
of the 2008 model year Tier 4 standards for engines between 50 and 75 
horsepower and instead comply with the Tier 4 standards beginning in 
2012, the 40% allowance would apply to model years 2012 through 2015, 
and the 5% allowance would apply to model year 2016 and thereafter. The 
allowance to use the higher FEL caps is not applicable for the 2008 
standards or the 2013 NMHC+NOX standards for these engines 
because the FEL caps for those standards already are set at the level 
of the standard which previously applied.
    For engines above 750 horsepower, the allowance to certify a 
limited number of engines at levels up to the higher FEL caps would 
apply beginning in model year 2015. (As noted, this is because the FEL 
caps being adopted for the 2011 standards for engines above 750 
horsepower are the previous tier PM standard and the NOX-
only equivalent of the previous tier standard.) For NOX, the 
allowance to certify a limited number of engines above the FEL cap 
beginning in model year 2015 will apply only to engines used in 
generator sets. Engines used in other machines are still subject to the 
model year 2011 NOX standard and FEL caps. For PM, the 
allowance to certify a limited number of engines above the FEL caps 
beginning in model year 2015 will apply to all engines above 750 
horsepower.
    Table III.A-2 presents the model years, percent of engines, and 
higher FEL caps that will apply under these allowances. As noted above, 
engines certified under these higher FEL caps during the first four 
years would not be required to perform transient testing or NTE testing 
and engines between 75 and 750 horsepower would not be required to have 
closed crankcase controls on these engines. However, as also noted 
earlier, beginning in the fifth year, when the 5 percent allowance 
takes effect, these engines will be considered Tier 4 engines and all 
other requirements for Tier 4 engines will also apply, including the 
Tier 4 NMHC standard, transient testing, NTE testing, and closed 
crankcase controls.

             Table III.A-2.--Allowance for Limited Use of an FEL Cap Higher than the Tier 4 FEL Caps
----------------------------------------------------------------------------------------------------------------
                                                           Engines
                                                          allowed to   NOX FEL cap (g/bhp-   PM FEL cap (g/bhp-
         Power category                Model years       have higher           hr)                   hr)
                                                           FELs (%)
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75...................  2013-2016 \a\........       \b\ 40  Not applicable......  0.22
(19 <= kW < 56).................  2017+ \a\............            5
75 <= hp < 175..................  2012-2015............       \b\ 40  3.3 \c\ for hp <100.  0.30 \d\ for hp <100
(56 <= kW <130).................  2016+................            5  2.8 \c\ for hp >=100  0.22 \d\ for hp
                                                                                             >=100
175 <= hp <= 750................  2011-2014............       \b\ 40  2.8 \c\.............  0.15 \d\
(130 <= kW <= 560)..............  2015+................            5
>750 hp.........................  2015-2018............   \b\ \c\ 40  2.6.................  0.075
(>560 kW).......................  2019+................        \e\ 5  ....................
----------------------------------------------------------------------------------------------------------------
\a\ For manufacturers choosing to opt out of the 2008 model year Tier 4 standards for engines between 50 and 75
  horsepower and instead comply with the Tier 4 standards beginning in 2012, the 40% allowance would apply to
  model years 2012 through 2015, and the 5% allowance would apply to model year 2016 and thereafter.
\b\ Compliance with the 40% limit is determined by adding the percent of engines that have FELs above the FEL
  caps shown in Table III.A.-1 in each of the four years. A manufacturer may not have more than 20% of its
  engines exceed the FEL caps shown in Table III.A-1 in any model year in any power category.
\c\ The allowance to certify to these higher NOX FEL caps is not applicable during the phase-in period.
\d\ These higher PM FEL caps are applicable to phase-out engines only during the phase-in period.
\e\ The limits of 40% or 5% allowed to exceed the NOX FEL cap would apply to engines used in generator sets
  only. (Engines >750 hp used in other machines are allowed to have an NOX FEL as high as 4.6 g/bhp-hr.) The
  limits of 40% or 5% allowed to exceed the PM FEL cap would apply to all engines above 750 hp.

    Under the Tier 4 program, there will be two different groups of 75-
750 horsepower engines during the NOX phase-in period. In 
one group (``phase-out engines''), engines will certify to the 
applicable Tier 3 NMHC+NOX standard

[[Page 39001]]

and will be subject to the NMHC+NOX ABT restrictions and 
allowances previously established for Tier 3. In the other group 
(``phase-in engines''), engines will certify to the 0.30 g/bhp-hr 
NOX standard, and will be subject to the restrictions and 
allowances in this program. Although engines in each group are 
certified to different standards, we are (as proposed) allowing 
manufacturers to transfer credits across these two groups of engines 
with the following adjustment to the amount of credits generated. 
Manufacturers will be able to use credits generated during the phase-
out of engines subject to the Tier 3 NMHC+NOX standard to 
average with engines subject to the 0.30 g/bhp-hr NOX 
standard, but these credits will be subject to a 20 percent discount, 
the adjustment reflecting the NMHC contribution. Thus, each gram of 
NMHC+NOX credits from the phase-out engines will be worth 
0.8 grams of NOX credits in the new ABT program. The ability 
to average credits between the two groups of engines will give 
manufacturers a greater opportunity to gain experience with the low-
NOX technologies before they are required to meet the final 
Tier 4 standards across their full production. The 20 percent discount 
will also apply, for the same reason, to all NMHC+NOX 
credits used for averaging purposes with the NOX standards 
for engines greater than 75 horsepower.
    The California Air Resources Board supported the proposed discount 
of 20 percent on NMHC+NOX credits used for NOX 
compliance. The Engine Manufacturer's Association commented that we 
should eliminate the 20 percent ``discount'' on NMHC+NOX 
credits used for NOX compliance.
    We disagree with the Engine Manufacturer's Association comments. As 
noted in the proposal, we have two main reasons for adopting this 
adjustment. First, the discounting addresses the fact that NMHC 
reductions can provide substantial NMHC+NOX credits, which 
are then treated as though they were NOX credits. For 
example, a 2010 model year 175 horsepower engine emitting at 2.7 g/bhp-
hr NOX and 0.3 g/bhp-hr NMHC meets the 3.0 g/bhp-hr 
NMHC+NOX standard in that year, but gains no credits. In 
2011, that engine, equipped with a PM trap to meet the new PM standard, 
will have very low NMHC emissions because of the trap, an emission 
reduction already accounted for in our assessment of the air quality 
benefit of this program. As a result, without substantially redesigning 
the engine to reduce NOX or NMHC, the manufacturer could 
garner nearly 0.3 g/bhp-hr of NMHC+NOX credit for each of 
these engines produced. Allowing these NMHC-derived credits to be used 
undiscounted to offset NOX emissions on the phase-in engines 
in 2011 (for which each 0.1 g/bhp-hr of margin can make a huge 
difference in facilitating the design of engines to meet the 0.30 g/
bhp-hr NOX standard) would be inappropriate. Therefore, 
while we are reducing the value of credits earned from Tier 2/Tier 3 
engines, the adjustment accounts for the NMHC fraction of the credits 
which we do not believe should be used to demonstrate compliance with 
the NOX-only Tier 4 standards (such credits would be 
``windfalls'' because they would necessarily occur by virtue of the 
technology needed to meet the PM standard) (68 FR 28469, May 23, 2003). 
Second, the discounting will work toward providing a small net 
environmental benefit from the ABT program, such that the more 
manufacturers use banked and averaged credits, the greater the 
potential emission reductions overall. Most basically, it is inherently 
reasonable, in using NOX+NMHC reductions to show credit with 
a NOX-only standard, to use only that portion which 
represents NOX reductions. (Indeed, for this reason, terming 
the 20 per cent a ``discount factor'' is a misnomer; it apportions the 
NMHC fraction of the reduction.) As noted, this is further supported by 
the fact that the NMHC reductions for phase-out engines are not extra 
reductions above and beyond what would otherwise occur, and therefore 
don't warrant eligibility as credits.
    We are adopting one additional restriction on the use of credits 
under the ABT program. For the Tier 4 standards, we proposed that 
manufacturers could only use credits generated from other Tier 4 
engines or from engines certified to the previously applicable tier of 
standards (i.e., Tier 2 for engines below 50 horsepower, Tier 3 for 
engines between 50 and 750 horsepower, and Tier 2 engines above 750 
horsepower). This proposed restriction was similar to a restriction we 
currently have that prohibits the use of Tier 1 credits to demonstrate 
Tier 3 compliance. STAPPA/ALAPCO and the Natural Resources Defense 
Council supported the proposed approach that limited the use of 
previous-tier credits for Tier 4. The Engine Manufacturer's Association 
commented that by limiting the use of previous-tier credits, we are 
engaged in an unconstitutional taking because EPA had guaranteed in the 
previous Tier 2/Tier 3 rulemaking that such credits would not expire. 
We disagree that adopting a restriction on the use of the previous tier 
ABT credits is an unconstitutional taking. EPA did not, and could not, 
decide in the Tier 2/3 rulemaking that Tier 2/3 credits could be used 
to show compliance with some future standards that had not yet even 
been adopted. Thus, EPA in this rulemaking is not taking away something 
previously given. We are not revisiting the Tier 2/3 standards but 
establishing a new set of engine standards. In doing so, we necessarily 
must evaluate the provisions of previous rules and their potential 
impact on the future standards being considered. We are reasonably 
concerned that credits from engines certified to relatively high 
standards could be used to significantly delay the implementation of 
the final Tier 4 program and its benefits, resulting in a situation 
where the standards would no longer reflect the greatest degree of 
emission reduction available as required under section 213(a)(3) of the 
Clean Air Act, or would no longer be appropriate under section 
213(a)(4) of the Clean Air Act. Therefore, with today's action, we are 
adopting the proposed provisions regarding the use of credits from 
previous tier engines, with one minor revision.
    Under today's action, manufacturers may only use credits generated 
from other Tier 4 engines or from engines certified to the previously 
applicable tier of standards--except for engines between 50 and 75 
horsepower. Because we are adopting Tier 4 standards that take effect 
as early as 2008 for those engines, the same year the previously-
adopted Tier 3 standards are scheduled to take effect (see section 
II.A.1.a above), there is no possibility to earn credits against the 
Tier 3 standards for manufacturers that certify with the pull-ahead 
standards in 2008 for engines between 50 and 75 horsepower. Therefore, 
we will allow manufacturers to use credits from engines in the Tier 2 
power category that includes 50 to 75 horsepower (i.e., the 50 to 100 
horsepower category) that are certified to the Tier 2 standards if they 
choose to demonstrate compliance with the pull-ahead Tier 4 standards 
in 2008 for engines between 50 and 75 horsepower. Manufacturers that do 
not choose to comply with the 2008 Tier 4 standards for engines between 
50 and 75 horsepower and instead comply with the 2012 Tier 4 standards 
for such engines will not be allowed to use Tier 2 credits in Tier 4, 
but instead will be allowed to use Tier 3 credits as allowed under the 
standard provisions regarding

[[Page 39002]]

use of previous-tier credits only for Tier 4 compliance demonstration.
    With regard to other restrictions on the use of ABT credits, we are 
adopting one restriction on the use of credits across the 750 
horsepower threshold. In previous rulemakings, EPA has defined 
``averaging sets'' within which manufacturers may use credits under the 
ABT program. Credits may not be used outside of the averaging set in 
which they were generated. As described in section II.A.4 of today's 
action, we have revised the Tier 4 standards for engines above 750 
horsepower. Because the standards for Tier 4 engines greater than 750 
horsepower will not be based on the use of PM aftertreatment technology 
in 2011 or NOX aftertreatment technology for all mobile 
machinery engines in 2015, we are adopting provisions that prevent 
manufacturers from using credits from model year 2011 and later model 
year engines greater than 750 horsepower to demonstrate compliance with 
engines below 750 horsepower. Without such a limit, we are concerned 
that manufacturers could use credits from such engines to significantly 
delay compliance with the numerically lower standards for engines below 
750 horsepower. In addition, without such a limit, we are concerned 
that manufacturers could use credits from engines below 750 horsepower 
to delay implementation of aftertreatment technology for engines above 
750 horsepower.
    One engine manufacturer commented that EPA should include a barrier 
to trading credits across the 75 horsepower level. They cited concerns 
over the ability of manufacturers that produce a large range of engine 
sizes to use credits from high horsepower engines to offset emissions 
from their small horsepower engines. We are not adopting any averaging 
set restrictions for Tier 4 engines below 750 horsepower in today's 
action. In the current nonroad diesel ABT program, there are averaging 
set restrictions. The current averaging sets consist of engines less 
than 25 horsepower and engines greater than or equal to 25 horsepower. 
We adopted this restriction because of concerns over the ability of 
manufacturers to generate significant credits from the existing engines 
and use the credits to delay compliance with the newly adopted 
standards (63 FR 56977, October 23, 1998). We believe the Tier 4 
standards for engines below 750 horsepower are sufficiently rigorous to 
limit the ability of manufacturers to generate significant credits from 
their engines. In addition, we believe the FEL caps being adopted today 
provide sufficient assurance that low-emissions technologies will be 
introduced in a timely manner. Therefore, we believe averaging can be 
allowed between all engine power categories below 750 horsepower 
without restriction effective with the Tier 4 standards. (It should be 
noted that the averaging set restriction placed on credits generated 
from Tier 2 and Tier 3 engines will continue to apply if they are used 
to demonstrate compliance for Tier 4 engines.)
    EPA also proposed to allow engine manufacturers to demonstrate 
compliance with the NOX phase-in requirements by certifying 
evenly split engine families at, or below, specified NOX 
FELs (68 FR 28470, May 23, 2003). As described in section II.A.2.c 
above, EPA is revising the evenly split family provisions for the Tier 
4 program and is now codifying them as alternative standards. (As 
described in section III.L, we also are adopting the proposed 
provisions allowing manufacturers to certify ``split'' engine families 
during the phase-in years.) Because the evenly split family provision 
has evolved into a set of alternative NOX standards, we 
believe it is appropriate to allow manufacturers to use ABT for them. 
Table III.A-3 presents the FEL caps that will apply to engines 
certified to the alternative NOX standards during the phase-
in years. The FEL caps for these alternative standards have been set at 
levels reasonably close to the alternative standards and are intended 
to ensure sizeable emission reductions from the previously-applicable 
Tier 3 standards. (For engines between 75 and 175 horsepower certified 
under the reduced phase-in option, the FEL cap is the NOX-
only equivalent of the previously applicable NMHC+NOX 
standards because the alternative standard is sufficiently close to the 
Tier 3 standard.)

  Table III.A-3.--NOX FEL Caps for Engines Certified To the Alternative
                              NOX Standards
------------------------------------------------------------------------
                                Alternative
       Power category          NOX standard     NOX FEL cap (g/bhp-hr)
                                (g/bhp-hr)
------------------------------------------------------------------------
50/50/100 phase-in option                1.7  2.2.
 for 75 <= hp < 175 (56 <=
 kW <130).
25/25/25/100 phase-in option             2.5  3.3 (for 75-100 hp).
 for 75 <= hp < 175 (56 <=                    2.8 (for 100-175 hp)
 kW <130).
175 <= hp <= 750 (130 <= kW              1.5  2.0.
 <= 560).
------------------------------------------------------------------------

    Because we are allowing manufacturers to use ABT for demonstrating 
compliance with the alternative standards for engines between 75 and 
750 horsepower, we are allowing manufacturers to exceed the FEL caps 
noted in table III.A-3 and include them in the count of engines allowed 
to exceed the FEL caps (i.e., the 40 percent over the first four years 
the Tier 4 standards take effect as described earlier). Table III.A-4 
presents the NOX FEL caps that would apply to engines 
certified under the alternative standards (limited by the 40 percent 
cap over the first four years). The higher NOX FEL caps are 
set at the estimated NOX-only equivalent of the previous-
tier NMHC+NOX standards. For manufacturers certifying under 
the reduced phase-in ( 25 percent) option, because the FEL caps are the 
NOX-only equivalent of the Tier 3 NMHC+NOX 
standards, they may not exceed the FEL cap during the years the 
alternative standard applies.

   Table III.A-4.--Limited-Use NOX FEL Caps Under the Alternative NOX
                                Standards
------------------------------------------------------------------------
       Power category           Model years     NOX FEL cap (g/bhp-hr)
------------------------------------------------------------------------
50/50/100 phase-in option          2012-2013  3.3 for hp <100.
 for 75 <= hp < 175\a\.
(56 <= kW <130).............  ..............  2.8 for hp >=100.
175 <= hp <= 750............       2011-2013  2.8.

[[Page 39003]]

 
(130 <= kW <= 560)..........  ..............  ..........................
------------------------------------------------------------------------

    For reasons explained in section II.A.1.b.i above, we are also 
adopting unique phase-in requirements for NOX standards for 
engines between 75 and 175 horsepower in order to ensure appropriate 
lead time for these engines. Because of these unique phase-in 
provisions, as proposed, we are adopting slightly different provisions 
regarding 75 to 175 horsepower engines' use of previous-tier credits. 
Under today's action, manufacturers that choose to demonstrate 
compliance with these phase-in requirements (i.e., 50 percent in 2012 
and 2013 and 100 percent in 2014) or the 1.7 g/bhp-hr alternative 
NOX standard (which is based on the 50 percent phase-in 
option) will be allowed to use Tier 2 NMHC+NOX credits 
generated by engines between 50 and 750 horsepower (even though they 
are not generated by previous-tier engines), along with any other 
allowable credits, to demonstrate compliance with the Tier 4 
NOX standards for engines between 75 and 175 horsepower 
during model years 2012, 2013 and 2014 (the years of the phase-in) 
only. These Tier 2 credits will be subject to the power rating 
conversion already established in our ABT program, and to the 20% 
credit adjustment being adopted today for use of NMHC+NOX 
credits as NOX credits.
    The requirements for manufacturers that choose to demonstrate 
compliance with the optional reduced phase-in requirement for engines 
between 75 and 175 horsepower (i.e, the 25/25/25 percent phase-in 
option; see Table II.A.-2, note b) or the 2.5 g/bhp-hr alternative 
NOX standard (which is based on the 25 percent phase-in 
option) are different. Under the reduced phase-in requirement, use of 
credits will be allowed in accordance with the general ABT program 
provisions. In other words, manufacturers will not have the special 
allowance to use Tier 2 NMHC+NOX credits generated by 
engines between 50 and 750 horsepower noted above to demonstrate 
compliance with the Tier 4 standards. In addition, manufacturers 
choosing the reduced phase-in option will not be allowed to generate 
NOX credits from engines in this power category in 2012, 
2013, and most of 2014, except for use in averaging within this power 
category (i.e., no banking or trading, or averaging with engines in 
other power categories will be permitted). This restriction will apply 
throughout this period even if the reduced phase-in option is exercised 
during only a portion of this period. We believe that this restriction 
is important to avoid potential abuse of the added flexibility 
allowance, considering that larger engine categories will be required 
to demonstrate substantially greater compliance levels with the 0.30 g/
bhp-hr NOX standard several years earlier than engines built 
under the reduced phase-in option.
    As described in section II.A.3.a of today's action, and as 
proposed, we are adopting an optional PM standard for air-cooled, hand-
startable, direct injection engines under 11 horsepower effective in 
2010. In order to avoid potential abuse of this standard, engines 
certified under this requirement will not be allowed to generate any 
credits as part of the ABT program. Credit use by these engines will be 
allowed. The restriction on generating credits should not be a burden 
to manufacturers, as it will apply only to those air-cooled, hand-
startable, direct injection engines under 11 horsepower that are 
certified under the optional approach, and the production of credit-
generating engines would be contrary to the standard's purpose. No 
adverse comments were submitted to EPA on this issue.
    The current ABT program contains a restriction on trading credits 
generated from indirect injection engines greater than 25 horsepower. 
The restriction was originally adopted because of concerns over the 
ability of manufacturers to generate significant credits from existing 
technology engines (63 FR 56977, October 23, 1998). With today's 
action, there will be no restriction prohibiting manufacturers from 
trading credits generated on Tier 4 indirect fuel injection engines 
greater than 25 horsepower. Based on the certification levels of 
indirect injection engines, we do not believe there is the potential 
for manufacturers to generate significant credits from their currently 
certified engines against the Tier 4 standards. Therefore, as proposed, 
we are not adopting any restrictions on the trading of credits 
generated on Tier 4 indirect injection engines to other manufacturers. 
The restriction placed on the trading of credits generated from Tier 2 
and Tier 3 indirect injection engines will continue to apply in the 
Tier 4 timeframe. No adverse comments were submitted to EPA on this 
issue.
    As explained in the proposal, we are not applying a specific 
discount to Tier 3 PM credits used to demonstrate compliance with the 
Tier 4 standards (68 FR 28471, May 23, 2003). PM credits generated 
under the Tier 3 standards are based on testing performed over a 
steady-state test cycle. Under the Tier 4 standards, the test cycle is 
being supplemented with a transient test (see section III.F.1 below). 
Because in-use PM emissions from Tier 3 engines will vary depending on 
the type of application in which the engine is used (most applications 
having higher in-use PM emissions, some having lower in-use PM 
emissions), the relative ``value'' of the Tier 3 PM credits in the Tier 
4 timeframe will differ. Instead of requiring manufacturers to gather 
information to estimate the level of in-use PM emissions compared to 
the PM level of the steady-state test, we believe allowing 
manufacturers to bring Tier 3 PM credits directly into the Tier 4 time 
frame without any adjustment is appropriate because it discounts their 
value for use in the Tier 4 timeframe (since the initial baseline being 
reduced is higher than measured in the Tier 2 test procedure for most 
applications). No adverse comments were submitted to EPA on this issue.
3. Are We Expanding the Nonroad ABT Program To Include Credits From 
Retrofit of Nonroad Engines?
    In the proposal, we requested comment on expanding the scope of the 
standards by setting voluntary new engine emission standards applicable 
to the retrofit of nonroad diesel engines (68 FR 28471, May 23, 2003). 
As described in the proposal, retrofit nonroad engines would be able to 
generate PM and NOX credits which would be available for use 
by new nonroad engines in the certification ABT program. We received a 
significant number of comments on a retrofit ABT program. A number of 
commenters associated with the agricultural sector were concerned 
retrofits would be mandatory. Some commenters were opposed to a 
retrofit credit program that would allow use of the credits under the 
certification ABT program. However, a number of commenters supported 
the concept of a retrofit program, but noted a number of

[[Page 39004]]

concerns regarding the details of such a program, including making sure 
that any credits earned would be verifiable and enforceable. Some 
commenters suggested that EPA consider the establishment of a retrofit 
credit program through a separate rulemaking because there were many 
details of the program that needed to be explored more fully before 
adopting such a program. In response to the comments, we are not 
adopting a retrofit credit program with today's action. Although we 
provided a detailed explanation of a potential program at proposal, 
\62\ we believe it is important to more fully consider the details of a 
nonroad engine retrofit credit program and work with interested parties 
in determining whether a viable program can be developed. EPA intends 
to explore the possibility of a voluntary, opt-in nonroad retrofit 
credit program through a separate action later this year. Such a 
program would be based on the generation of credits beyond the scope of 
any existing retrofit program. The final rule contains no requirements 
for retrofitting existing engines or equipment.
---------------------------------------------------------------------------

    \62\ See memorandum referenced at 68 FR 28471 (May 23, 2003), 
footnote 299.
---------------------------------------------------------------------------

B. Transition Provisions for Equipment Manufacturers

1. Why Are We Adopting Transition Provisions for Equipment 
Manufacturers?
    As EPA developed the 1998 Tier 2/3 standards for nonroad diesel 
engines, we determined, as an aspect of determining an appropriate lead 
time for application of the requisite technology (pursuant to section 
213(b) of the Act), that provisions were needed to avoid unnecessary 
hardship and to create additional flexibility for equipment 
manufacturers. The specific concern is the amount of work required and 
the resulting time needed for equipment manufacturers to incorporate 
all of the necessary equipment redesigns into their applications in 
order to accommodate engines that meet the new emission standards. We 
therefore adopted a set of provisions for equipment manufacturers to 
provide them with reasonable lead time for the transition process to 
the newly adopted standards. The program consisted of four major 
elements: (1) A percent-of-production allowance, (2) a small-volume 
allowance, (3) availability of hardship relief, and (4) continuance of 
the allowance to use up existing inventories of engines (63 FR 56977-
56978, October 23, 1998 and 68 FR 28472-28476, May 23, 2003).
    Given the levels of the newly adopted Tier 4 standards, we believe 
that there will be engine design and other changes at least comparable 
in magnitude to those involved during the transition to Tier 2/3. 
Therefore, with a few exceptions described in more detail below, we are 
adopting transition provisions for Tier 4 that are similar to those 
adopted with the previous Tier 2/3 rulemaking. We also note that 
opportunities for greater flexibility arises from the structure of the 
Tier 4 rule. For example, Tier 4 consolidates the nine power categories 
in Tier 2/3 into five categories, providing opportunities for more 
flexibility by allowing more engine families within each power 
category, with consequent increased averaging possibilities. The 
NOX phase-in also provides increased flexibility 
opportunities, as do the longer Tier 4 lead times.
    We are adding new notification, reporting, and labeling 
requirements to the Tier 4 program. We believe these additional 
provisions are necessary for EPA to gain a better understanding of the 
extent to which these provisions will be used and to ensure compliance 
with the Tier 4 transition provisions. We are also adopting new 
provisions dealing specifically with foreign equipment manufacturers 
and the special concerns raised by the use of the transition provisions 
for equipment imported into the U.S. The following section describes 
the Tier 4 transition provisions available to equipment manufacturers. 
(Section III.C of this preamble describes all of the provisions that 
will be available specifically for small businesses.)
    As under the existing Tier 2/Tier 3 provisions, equipment 
manufacturers are not obligated to use any of these provisions, but all 
equipment manufacturers are eligible to do so. Also, as under the 
existing program, all entities under the control of a common entity, 
and that meet the regulatory definition of a nonroad vehicle or nonroad 
equipment manufacturer, must be considered together for the purpose of 
applying exemption allowances. This will not only provide certain 
benefits for the purpose of pooling exemptions, but will also preclude 
the abuse of the small-volume allowances that would exist if companies 
could treat each operating unit as a separate equipment manufacturer.
2. What Transition Provisions Are We Adopting for Equipment 
Manufacturers?
    The following section describes the transition provisions being 
adopted with today's action. Areas in which we have made changes to the 
proposed transition program are highlighted. A complete summary of 
comments received on the proposed transition program and our response 
to those comments are contained in the Summary and Analysis of Comments 
document for this rule.
    EPA believes that the lead time provided through the equipment 
maker transition flexibilities, as adopted in this rule, will be 
sufficient, as has proved the case in past tiers. These flexibilities 
provide equipment manufacturers with the selective ability to delay use 
of the Tier 4 engines in those applications where additional time is 
needed to successfully incorporate the redesigned engines into their 
equipment.
    Ingersoll-Rand, an equipment manufacturer, submitted a number of 
comments arguing that significant expansions of the proposed 
flexibility program are needed if equipment manufacturers are to 
produce compliant applications within the effective dates of the 
standards. One suggestion was for EPA to include provisions that 
provide a definitive period of lead time for incorporation of Tier 4 
engines into nonroad equipment. Ingersoll-Rand would have the rules 
specify a ``made available'' date before which each engine supplier 
must provide technical and performance specifications, complete 
drawings, and a final compliant engine to EPA and the open market. 
After the mandated ``made available'' date, equipment manufacturers 
should be provided a minimum 18 months of lead time to incorporate the 
new engines into nonroad equipment. One form of the suggestion also 
entailed a prohibition on design changes once the engine, 
specifications, drawings, etc. had been initially provided to EPA and 
to the open market. As an alternative, Ingersoll-Rand urged that the 
percent of production allowance flexibility be expanded to 150 percent 
for the power categories between 75 and 750 horsepower and 120 percent 
for the power category between 25 and 75 horsepower. Ingersoll-Rand 
believes these levels correspond proportionately to the increased 
challenges facing equipment manufacturers during Tier 4 as opposed to 
Tier 2 and Tier 3.
    As discussed in greater detail in the Summary and Analysis of 
Comments, as well as in later parts of this section of this preamble 
and elsewhere in the administrative record, we disagree with most of 
Ingersoll-Rand's suggestions. Our fundamental disagreement is with 
Ingersoll-Rand's premise that Tier 4 will create a situation where need 
for

[[Page 39005]]

expanded equipment maker lead time is the norm rather than the 
exception so that the rule must provide a drastic, across-the-board 
expansion of equipment manufacturer lead time. We believe that the lead 
time provided for equipment makers in this rule is adequate, and that 
the equipment maker flexibilities we are adopting provide a reasonable 
and targeted safety valve to deal with isolated problems. There is no 
across-the-board problem necessitating a drastic expansion of equipment 
manufacturer lead time, or a drastic expansion of equipment 
manufacturer flexibilities. We base these conclusions largely on three 
factors: (a) Our investigation and understanding of the engineering 
process by which engine makers and equipment manufacturers bring new 
products to market; (b) the specific engineering challenges which 
equipment manufacturers will address in complying with the Tier 4 rule; 
and (c) past practice of equipment manufacturers under previous rules 
providing transition flexibilities for nonroad equipment.
    Because it is in both parties' interest for new engines and new 
equipment applications to reach the market expeditiously, engine makers 
and equipment manufacturers usually adopt concurrent engineering 
programs whereby the new equipment design process occurs simultaneous 
to the new engine development process. We believe that this concurrent 
process should work well for Tier 4 because, in many important ways, 
the engineering challenges facing equipment manufacturers can be 
anticipated and dealt with early in the design process. We expect that 
relatively early in the design process, engine manufacturers will be 
able to define the size and characteristics of the emission control 
technologies (e.g., NOX adsorbers and CDPFs), based on the 
same systems that will be in production for on-highway engines. The 
equipment manufacturers will concurrently redesign their equipment to 
accommodate these new technologies, including designing, mounting and 
supporting the catalytic equipment similar to current exhaust muffler 
systems.
    Moreover, while we expect the redesign challenge for Tier 4 
equipment to be similar to that for Tier 2/3, we also expect the 
redesign to be better and more clearly defined well in advance of the 
Tier 4 introduction dates. This is because we do not expect the 
catalyst system size or shape to change significantly during the last 
24 months of the engine design and validation process.\63\
---------------------------------------------------------------------------

    \63\ ``Tier 4 Nonroad Diesel Equipment Flexibility Provisions,'' 
memorandum from Byron Bunker, et al., (EPA) to EPA Air Docket OAR-
2003-0012.
---------------------------------------------------------------------------

    We also have studied the extent to which equipment manufacturers 
have used their flexibilities under the Tier 2/3 program. Although at 
an early stage in the Tier 2/3 process, initial indications are that 
the flexibility program is being used by many equipment manufacturers, 
but in general, manufacturers do not appear to be using the full level 
of allowances.\64\ It appears that the flexibilities are being used as 
EPA intended, providing manufacturers with flexibility to deal with 
specific limited situations, rather than to deal with an across-the-
board problem.
---------------------------------------------------------------------------

    \64\ ``Tier 4 Nonroad Diesel Equipment Flexibility Provisions,'' 
memorandum from Byron Bunker, et al., (EPA) to EPA Air Docket OAR-
2003-0012.
---------------------------------------------------------------------------

    The emerging pattern is thus the one on which the flexibility 
program is predicated: there is not a need for across-the-board drastic 
expansion of equipment manufacturer lead time. Indeed, such an 
expansion would be inconsistent with the lead time-forcing nature of 
section 213 (b) of the Act. This is not to say that there is no need 
for equipment manufacturer flexibilities, or that the Tier 2/3 
flexibility format need not be adjusted to accommodate potential 
problems to be faced under the Tier 4 regime. Instances where 
additional lead time could be justified are where resource constraints 
prevent completion of certain applications, or where for business 
reasons it makes sense for equipment manufacturers to delay completion 
of small volume families in order to complete larger volume equipment 
applications. In addition, the Tier 2/3 experience illustrates that 
there can be instances where emission control optimization which 
necessitates equipment design changes occurs late in the design cycle, 
resulting in a need for additional equipment manufacturer lead time. 
The equipment manufacturer flexibilities adopted in today's rule 
accommodate these possibilities.
    We have specific objections to Ingersoll-Rand's preferred approach 
of a mandated made available date, followed by 18 months of additional 
lead time for equipment manufacturers. Superimposing a government 
mandate on the engine maker--equipment manufacturer business 
relationship insinuates EPA into the middle of contractual/market 
relationships (e.g., when is an objectively reasonable delivery date?), 
forcing EPA to prejudge myriad differing business relationships/
engineering situations. Moreover, selection of any single made 
available date is bound to be arbitrary in most situations. We also 
believe that the 18-month lead time following a made available date 
entails a mandated 18-month period (at least) with no return on 
investment to engine suppliers (i.e. the period between when the Tier 4 
engine would be produced and when it could lawfully be sold), which 
would increase the engine cost, and discourage design changes (since 
such changes would entail more investment with delayed return on that 
investment). The ultimate result would be a costlier rule and less 
environmental benefit due to the delay in introducing Tier 4 engines. 
Even were EPA to put forth such a regulation, it is not clear that it 
could be enforced or that it would help the situation. It would only be 
natural for engine manufacturers to continue to improve its products 
even after the predefined ``made available date'' and equipment 
manufacturers would want to use this improved product even if it meant 
they had to make last minute changes to the equipment design. For EPA 
to preclude engine manufacturers from changing their product designs 
over the period between the certification date and the equipment 
manufacturer date would be both unusual and counterproductive to our 
goal of seeing the best possible products available in the market. 
Moreover, EPA sees no need to interfere with the concurrent design 
market mechanism, which allows engine makers and equipment 
manufacturers to negotiate optimal solutions. We believe it is better 
to leave to the market participants the actual decision for how and 
when to conduct concurrent engineering designs.
    The California Air Resources Board commented that EPA should 
eliminate or reduce the amount of flexibilities provided for less than 
25 horsepower engines, because the Tier 4 engine standards are not 
aftertreatment-based. The Engine Manufacturers Association commented 
that we should expand the amount of flexibilities for engines greater 
than 750 horsepower, given the difficulty of complying with the 
proposed standards for engines above 750 horsepower. With today's 
action, we are applying the same flexibility for all power categories, 
including engines below 25 horsepower and engines above 750 horsepower. 
While it is true that the Tier 4 standards for engines below 25 
horsepower are not aftertreatment-based, we believe there will be 
changes in engine design for many of those engines in response to the 
Tier 4 standards. As engine designs change, there is the potential for 
impacts on

[[Page 39006]]

equipment design as well (as shown in implementing the Tier 2/3 rule). 
Therefore, we believe providing equipment manufacturer flexibility for 
engines below 25 horsepower is appropriate and we are adopting the same 
flexibilities for engines below 25 horsepower as for other power 
categories. With regard to engines above 750 horsepower, we are 
retaining the same flexibilities for those engines as for other power 
categories. As described in section II.A.4, the Tier 4 standards being 
adopted today for engines above 750 horsepower have been revised from 
the proposal. We believe that these revisions have appropriately 
accommodated concerns for the most difficult to design applications 
(i.e., NOX adsorbers for engines in mobile applications), so 
that additional equipment flexibilities are not warranted for these 
engines.
    The Engine Manufacturers Association commented that some equipment 
manufacturers may be capable of making an on-time transition to the 
interim Tier 4 standards (e.g. the 2011 standards applicable for 175-
750 horsepower engines) without the use of flexibilities. Such 
equipment manufacturers would like the ability to start the seven-year 
period in which they may use flexibilities in the year the final Tier 4 
standards (the aftertreatment-based standards for both PM and 
NOX) take effect. Put another way, they would not need more 
lead time for equipment to meet the interim standards, but could need 
more lead time for equipment required to meet the final standards. In 
addition, the commenter suggested a modified approach that could lead 
to earlier emission reductions than under the proposed rule: Requiring 
delayed flexibility engines to meet the interim Tier 4 standards 
instead of meeting the Tier 2/3 standards (as would have been allowed 
under the proposal if the flexibilities started in the first year of 
the interim Tier 4 standards).
    EPA wants to encourage the implementation of the Tier 4 standards 
as early as possible. Therefore, we believe it makes sense to provide 
incentives to equipment manufacturers to use interim Tier 4 compliant 
engines in their equipment during the transition to the final Tier 4 
standards. Moreover, it is reasonable to expect that more lead time 
will be needed for the aftertreatment-based standards than for the 
interim standards. Therefore, in response to these comments, we are 
revising the proposed flexibility provisions to allow equipment 
manufacturers to have the option of starting the seven-year period in 
which flexibility engines may be used in either the first year of the 
interim Tier 4 standards or the first year of the final Tier 4 
standards. For engines between 25 and 75 horsepower, the final Tier 4 
standards may begin in 2012 or 2013 depending on whether the 
manufacturer chooses to comply with the interim 2008 Tier 4 standards. 
An equipment manufacturer who does not use flexibilities in 2008 thus 
may need flexibilities as early as 2012. Therefore, the seven-year 
period for the final Tier 4 standards for engines between 25 and 75 
horsepower will begin in 2012 instead of 2013. Moreover, it is clearly 
appropriate that these delayed flexibility engines meet the interim 
Tier 4 standards, in order not to backslide from existing levels of 
performance.
    Table III.B-1 shows the years in which manufacturers could choose 
to start the Tier 4 flexibilities given the standards being adopted 
today. (The seven-year period for engines below 25 horsepower takes 
effect in 2008 as proposed, because there are no interim standards for 
such engines.)

                          Table III.B-1.--Flexibility Periods for the Tier 4 Standards
----------------------------------------------------------------------------------------------------------------
                                            Model year
                                            flexibility    Standards to which flexibility engines would have to
             Power category                   period                              certify
                                              options
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75...........................       2008-2014  Tier 2 standards.
(19 <= kW < 56).........................       2012-2018  Model Year 2008 Tier 4 standards.
75 <= hp < 175..........................       2012-2018  Tier 3 standards.
(56 <= kW <130).........................       2014-2020  Model Year 2012 Tier 4 standards.
175 <= hp <= 750........................       2011-2017  Tier 3 standards.
(130 <= kW <= 560)......................       2014-2020  Model Year 2011 Tier 4 standards.
>750 hp.................................       2011-2017  Tier 2 standards.
(>560 kW)...............................       2015-2021  Model Year 2011 Tier 4 standards.
----------------------------------------------------------------------------------------------------------------

    Under today's action, and as proposed, only those nonroad equipment 
manufacturers that install engines and have primary responsibility for 
designing and manufacturing equipment will qualify for the allowances 
or other relief provided under the Tier 4 transition provisions. As a 
result of this definition, importers that have little involvement in 
the manufacturing and assembling of the equipment will be ineligible to 
receive any allowances. The Engine Manufacturers Association and one 
engine manufacturer commented that the proposed definition of equipment 
manufacturer needed to be revised to cover situations in which a 
manufacturer contracts out the design and production of equipment to 
another manufacturer. While we understand there are many different 
types of relationships between equipment manufacturers, we believe it 
is important to establish firm criteria for determining eligibility to 
use the equipment manufacturer allowances. We are concerned that the 
change to the equipment manufacturer definition suggested by the 
commenters would allow entities that have little or no involvement in 
the actual design, manufacture and assembly of equipment (e.g., 
companies that only import equipment) to claim they contracted with an 
equipment manufacturer to produce equipment for them and therefore 
claim allowances. This is the exact situation we are attempting to 
prevent with the changes to the eligibility requirements for the 
allowances. Therefore, we are adopting the proposed requirement that 
only those nonroad equipment manufacturers that install engines and 
have primary responsibility for designing, and manufacturing equipment 
will qualify for the allowances or other relief provided under the Tier 
4 transition provisions. However, we are revising the provisions 
regarding which engines an equipment manufacturer may include in its 
total count of U.S.-directed equipment production, which in turn 
affects the number of allowances an equipment manufacturer may claim. 
Under today's action, an equipment

[[Page 39007]]

manufacturer may include equipment produced by other manufacturers 
under license to them for which they had primary design responsibility 
(see section 1039.625(a) of the regulations). This should cover the 
type of situation described by the commenters while preventing an 
import-only entity from claiming it is an equipment manufacturer and 
thereby gaining access to the allowances.
a. Percent-of-Production Allowance
    Under the percent-of-production allowance adopted today, each 
equipment manufacturer will be allowed to install engines not certified 
to the Tier 4 emission standards in a limited percentage of machines 
produced for the U.S. market. Equipment manufacturers will need to 
provide written assurance to the engine manufacturer that such engines 
are being procured for the purpose of the transition provisions for 
equipment manufacturers. These engines will instead have to be 
certified to the standards that would apply in the absence of the Tier 
4 standards (see Table III.B-1 for the applicable standards). As 
proposed, this percentage will apply separately to each of the Tier 4 
power categories (engines below 25 horsepower, engines between 25 and 
75 horsepower, engines between 75 and 175 horsepower, engines between 
175 and 750 horsepower, and engines above 750 horsepower) and is 
expressed as a cumulative percentage of 80 percent over the seven years 
beginning when the Tier 4 standards apply in a category (see Table 
III.B-1 for the applicable seven-year periods). No exemptions will be 
allowed after the seventh year. For example, an equipment manufacturer 
could install engines certified to the Tier 3 standards in 40 percent 
of its entire 2011 production of nonroad equipment that use engines 
rated between 175 and 750 horsepower, 30 percent of its entire 2012 
production in this horsepower category, and 10 percent of its entire 
2013 production in this horsepower category. (During the transitional 
period for the Tier 4 standards, the fifty percent of engines that are 
allowed to certify to the previous tier NOX standard but 
meet the Tier 4 PM standard are considered Tier 4-compliant engines for 
the purpose of the equipment manufacturer transition provisions.) If 
the same manufacturer produces equipment using engines rated above 750 
horsepower, a separate cumulative percentage allowance of 80 percent 
will apply to those machines during the seven years beginning in 2011 
or 2015. This percent-of-production allowance is almost identical to 
the percent-of-production allowance adopted in the October 1998 final 
rule (63 FR 56967, October 23, 2003), the difference being, as 
explained earlier, that there are fewer power categories (and 
consequent increased flexibility in spreading the flexibility among 
engine families) associated with the Tier 4 standards.
    The 80 percent exemption allowance, were it to be used to its 
maximum extent by all equipment manufacturers, will bring about the 
introduction of cleaner engines several months later than would have 
occurred if the new standards were to be implemented on their effective 
dates. However, the equipment manufacturer flexibility program has been 
integrated with the standard-setting process from the initial 
development of this rule, and as such we believe it is a key factor in 
assuring that there is sufficient lead time to initiate the Tier 4 
standards according to the final implementation schedule.\65\
---------------------------------------------------------------------------

    \65\ As explained at proposal, for emissions modeling purposes, 
we have assumed that manufacturers take full advantage of the 
allowances under the existing transition program for equipment 
manufacturers (adopted in the October 1998 rule; see 63 FR 56967 
(October 23, 2003) in establishing the baseline emissions inventory. 
In modeling the impact of the Tier 4 standards, because the 
standards will not take effect for many years and it is not possible 
to accurately forecast use of the transition program for equipment 
manufacturers, so to assess costs in a conservative manner, we have 
assumed that all engines will meet the Tier 4 standards in the 
timeframe required by the standards without use of the Tier 4 
transition provisions. As discussed in section VI.C, this is 
consistent with our cost analysis, which assumes no use of the 
transition program for equipment manufacturers.
---------------------------------------------------------------------------

    As proposed, machines that use engines built before the effective 
date of the Tier 4 standards do not have to be included in an equipment 
manufacturer's percent of production calculations under this allowance. 
Machines that use engines certified to the previous tier of standards 
under our Small Business provisions (as described in section III.C of 
this preamble ) do not have to be included in an equipment 
manufacturer's percent of production calculations under this allowance. 
All engines certified to the Tier 4 standards, including those engines 
that produce emissions at higher levels than the standards, but for 
which an engine manufacturer uses ABT credits to demonstrate 
compliance, will count as Tier 4 complying engines and do not have to 
be included in an equipment manufacturer's percent of production 
calculations. Engines that meet the Tier 4 PM standards but are allowed 
to meet the Tier 3 NMHC+NOX standards during the phase-in 
period also count as Tier 4 complying engines and do not have to be 
included in an equipment manufacturer's percent of production 
calculations.
    The choice of a cumulative percent allowance of 80 percent is based 
on our best estimate of the degree of reasonable lead time needed by 
equipment manufacturers. We believe the 80 percent allowance responds 
to the need for flexibility identified by equipment manufacturers, 
while ensuring a significant level of emission reductions in the early 
years of the program. (As noted in the following section III.B.2.b, we 
are adopting a technical hardship provision that allows an equipment 
manufacturer to request additional relief under the percent of 
production allowance under certain conditions and with EPA approval.)
b. Technical Hardship Flexibility
    Ingersoll-Rand commented that the 80% percent of production 
allowance level is not sufficient for Tier 4 given the stringency of 
the standard and the difficulty engine manufacturers will have 
complying with the standards. In further discussions with Ingersoll-
Rand on this issue, they suggested that a percent of production 
allowance level of 150% for totally non-integrated equipment 
manufacturers (i.e., equipment manufacturers producing no diesel 
engines) was appropriate for Tier 4 power categories above 25 
horsepower. A fully integrated manufacturer would still receive the 80% 
level and partially-integrated companies would receive somewhere 
between 80% and 150% depending on the share of self-produced engines in 
each specific power category. The basis for this comment is their 
belief that non-integrated manufacturers are at a disadvantage to 
integrated manufacturers (manufacturers making both the engine and 
equipment) when it comes to planning for new Tier 4 engine designs.
    Although we do not accept the premise that equipment manufacturer 
lead time must be drastically expanded across-the-board for the Tier 4 
program, we do agree, as explained earlier, that there may be 
situations where additional lead time, in the form of increased 
equipment manufacturer transition flexibilities, can be justified. 
Therefore, we have added an additional flexibility (which has no direct 
analogue in the Tier 2/3 rule) to this rule in order to provide 
additional needed lead time in appropriate, individualized 
circumstances based on a showing of extreme technical or engineering 
hardship. Ingersoll-Rand has agreed, by letter to EPA, that this 
provision satisfies all of its concerns regarding

[[Page 39008]]

adequacy of lead time for meeting Tier 4 standards.
    This additional flexibility would be available for the three Tier 4 
power categories between 25 and 750 horsepower. As noted earlier, 
Ingersoll-Rand did not believe additional flexibility was needed for 
engines below 25 horsepower. We agree because the Tier 4 standards for 
engines below 25 horsepower are not based on the use of advanced 
aftertreatment. We also are not including this new provision for 
engines above 750 horsepower because nearly all of the equipment 
manufacturers utilizing engines above 750 horsepower make small volumes 
of equipment. The small-volume allowance (described in the following 
section) allows a manufacturer to exempt a specific number of engines 
over a seven-year period, which in most cases will be greater than the 
increased percentage potentially available under this new provision.
    This new provision, found in new Sec.  1039.625(m), is a case-by-
case exemption granted by EPA to an equipment manufacturer. The 
equipment manufacturer would have the burden of demonstrating existence 
of extreme technical or engineering hardship conditions that are 
outside its control. It must also demonstrate that it has exercised 
reasonable due diligence to avoid the situation. EPA would treat each 
request for technical hardship separately, with no guarantee that it 
would grant the exemption. If EPA grants the exemption, the equipment 
manufacturer could receive up to an additional 70 percent under the 
percent of production allowance for each of the three power categories 
noted above (meaning that there is a potential total 150 percent under 
the percent of production allowance available, the initial 80 percent 
available without application, and an additional potential increment of 
up to 70 percent available on a case-by-case basis).
    The exemption could only be granted upon written application to EPA 
setting forth essentially why the normally successful elements of 
engine maker/equipment manufacturer design cycle have not provided 
adequate lead time for a particular equipment model. The application 
would therefore have to address, with documentation: The engineering or 
technical problems that have proved unsolvable within the lead time 
provided, the normal design cycle between the engine maker and 
equipment manufacturer and why that cycle has not worked in this 
instance, all information (such as written specifications, performance 
data, prototype engines) the equipment manufacturer has received from 
the engine supplier, and a comparison of the design process for the 
equipment model for which the exemption is requested with the design 
process for other models for which no exemption is needed. The 
equipment manufacturer also would have to make and describe all efforts 
to find other compliant engines for the model. EPA will then evaluate 
and determine whether or not to grant each such request, and what 
additional increment under the percent of production allowance (above 
the 80 percent normally allowed) is justified (not to exceed an 
additional 70 percent as noted above). As part of our evaluation of 
requests based on technical hardship, we may contact the engine 
supplier(s) listed by the equipment manufacturer to check on the 
accuracy of the engine-related information supplied by the equipment 
manufacturer. This extension of lead time is premised on the existence 
of extreme technical or engineering problems, in contrast to the 
economic hardship provision described in section III.B.2.f below, where 
consideration of economic impact is critical.
    EPA would not grant an application for technical hardship exemption 
unless the equipment manufacturer demonstrates that the full 80 percent 
allowed under the percent of production allowance is reasonably 
expected to be used up in the first two years of the seven-year 
flexibility period. The reason is obvious. If that allowance would not 
be fully utilized, then no further extension of lead time can be 
justified. Furthermore, any technical hardship allowance would have to 
be used up within two years after the Tier 4 percent of production 
allowances start for any power category. This is because, although we 
believe that circumstances of extreme technical or engineering hardship 
may arise, we cannot see that these circumstances could not be solved 
within the first two years of the transition. Indeed, Ingersoll-Rand 
itself clearly indicated that this is a temporary burden which exists 
during initial model transition and indicated that only 18 months 
(rather than two years) could be needed from receipt of the certified 
engine.
    This flexibility will be available to all equipment manufacturers, 
but may only be requested for equipment in which the equipment 
manufacturer is different than the engine manufacturer. We believe that 
integrated manufacturers who produce both the equipment and the engine 
used in the piece of equipment could have an advantage in the equipment 
redesign process (compared to an equipment manufacturer, whether 
integrated or not, that uses engines from a different manufacturer) 
that makes additional relief under the percent of production allowance 
unnecessary. In addition, integrated equipment manufacturers have other 
programs available to them (that non-integrated manufacturers do not 
have) such as the engine averaging, banking and trading program, which 
can provide lead time flexibility during the transition years. Most 
basically, integrated manufacturers should be able to design 
concurrently in all circumstances, so that extreme technical or 
engineering hardships should not arise.
c. Small-Volume Allowance
    The percent-of-production approach described above may provide 
little benefit to businesses focused on a small number of equipment 
models, and hence there could be situations where there is insufficient 
lead time for such models. Therefore, with today's action, we are 
adopting a small-volume allowance that will allow any equipment 
manufacturer to exceed the percent-of-production allowances described 
above during the same seven-year period, provided the manufacturer 
limits the number of exempted engines to 700 total over the seven 
years, and to 200 in any one year. The limit of 700 exempted engines 
(and no more than 200 engines per year) applies separately to each of 
the Tier 4 power categories (engines below 25 horsepower, engines 
between 25 and 75 horsepower, engines between 75 and 175 horsepower, 
engines between 175 and 750 horsepower, and engines above 750 
horsepower). In addition, manufacturers making use of this provision 
must limit exempted engines to a single engine family in each Tier 4 
power category.
    We are also adopting an alternative small-volume allowance, which 
equipment manufacturers have the option of utilizing. In discussions 
regarding the current small-volume allowance, some manufacturers 
expressed the desire to be able to exempt engines from more than one 
engine family, but still fall under the number of exempted engine 
limit. For that reason, we solicited comment on a small-volume 
allowance program that would allow manufacturers to exempt engines in 
more than one family, but have lower numerical limits. Under this 
alternative, manufacturers using the small-volume allowance could 
exempt 525 machines over seven years (with a maximum of 150 in any 
given year) for each of the three power categories below 175 
horsepower, and 350 machines over seven years (with a maximum of 100 in

[[Page 39009]]

any given year) for the two power categories above 175 horsepower. 
Concurrent with the revised caps of 525 or 350, depending on power 
category, manufacturers could exempt engines from more than one engine 
family under the small-volume allowance program. Based on sales 
information for small businesses, we estimated that the alternative 
small-volume allowance program to include lower numbers of eligible 
engines and allow manufacturers to exempt more than one engine family 
would keep the total number of engines eligible for the allowance at 
roughly the same overall level as the 700-unit program.\66\ We also 
requested comment on allowing equipment manufacturers to choose between 
the two small-volume allowance programs described above (68 FR 28474-
28475, May 23, 2003).
---------------------------------------------------------------------------

    \66\ ``Analysis of Small Volume Equipment Manufacturer 
Flexibilities,'' memo from Phil Carlson (EPA) to Docket A-2001-28.
---------------------------------------------------------------------------

    Both engine and equipment manufacturers supported dropping the one 
engine family restriction from the 700 unit small-volume allowance. In 
addition, they commented that if the one engine family restriction was 
not dropped from the 700 unit option, they supported the option of 
allowing equipment manufacturers to choose between the two small-volume 
allowance options. With today's action, we are revising the proposed 
small-volume allowance to allow equipment manufacturers to choose 
between the 700 unit over seven years option, with exempted engines 
limited to one engine family, or the proposed alternative which would 
allow equipment manufacturers to exempt fewer engines over seven years 
(525 or 350 units, depending on the power category), but with no 
restriction on the number of engine families that could be included in 
the exempted engine count. Based on our analysis of small businesses 
noted above, we expect the number of engines that could be exempted 
under either option is roughly the same. Giving equipment manufacturers 
the ability to choose between the two options should not significantly 
impact the number of engines likely to be exempted under the small-
volume allowance. We have not chosen to drop the one engine family 
restriction from the 700-unit small-volume allowance because it would 
result in a significant increase in the number of engines eligible to 
be exempted to levels which we believe are not needed to provide 
adequate lead time for the Tier 4 program.\67\
---------------------------------------------------------------------------

    \67\ Memorandum, Phil Carlson to Docket A-2001-28, ``Analysis of 
Equipment Manufacturer Flexibilities,'' April 15, 2003. Docket A-
2001-28, document no. II-B-24.
---------------------------------------------------------------------------

    As with the percent-of-production allowance, machines that use 
engines built before the effective date of the Tier 4 standards do not 
have to be included in an equipment manufacturer's count of engines 
under the small-volume allowance. Similarly, machines that use engines 
certified to the previous tier of standards under our Small Business 
provisions (as described in section III.C of today's action) do not 
have to be included in an equipment manufacturer's count of engines 
under the small-volume allowance. All engines certified to the Tier 4 
standards, including those that produce emissions at higher levels than 
the standards but for which an engine manufacturer uses ABT credits to 
demonstrate compliance, will be considered to be Tier 4 complying 
engines and do not have to be included in an equipment manufacturer's 
count of engines under the small-volume allowance. Engines that meet 
the Tier 4 PM standards but are allowed to meet the Tier 3 
NMHC+NOX standards during the phase-in period (i.e., phase-
out engines) will also be considered as Tier 4 complying engines and do 
not have to be included in an equipment manufacturer's count of engines 
under the small-volume allowance. All engines used under the small-
volume allowance must certify to the standards that would be in effect 
in the absence of the Tier 4 standards (see Table III.B-1 for the 
applicable standards). As noted earlier, equipment manufacturers will 
need to provide written assurance to the engine manufacturer when it 
purchases engines under the transition provisions for equipment 
manufacturers.
    The Engine Manufacturers Association commented that the proposed 
regulations for the small-volume allowance established a limit on the 
total number of engines an equipment manufacturer could use that did 
not meet the Tier 4 standards and should be revised to set a limit 
based on U.S.-directed production (consistent with the proposed 
regulatory language for the percent-of-production allowance). EPA 
agrees that the limit under the small-volume allowance should apply to 
U.S.-directed production only--as the commenter surmised, this is what 
EPA intended--and has revised the final regulations for the small-
volume allowance accordingly.
    We are also finalizing a technical hardship provision for small 
business equipment manufacturers using 25-50 horsepower engines, as 
discussed in III.C.2.b.ii.
d. Early Use of Tier 4 Flexibilities in the Tier 2/3 Timeframe
    As proposed, we are also adopting provisions that allow equipment 
manufacturers to start using a limited number of the new Tier 4 percent 
of production allowances or Tier 4 small-volume allowances once the 
seven-year period for the existing Tier 2/Tier 3 program expires (and 
so continue using engines meeting Tier 1 or Tier 2 standards). In this 
way, a manufacturer can potentially continue exempting the most 
difficult applications once the seven-year period of the current Tier 
2/3 flexibility provisions is finished. (Under the existing transition 
program for equipment manufacturers, any unused Tier 2/3 allowances 
expire after the seven-year period.) However, opting to start using 
Tier 4 allowances once the seven-year period from the current Tier 2/
Tier 3 program expires will reduce the number of exemptions available 
from the Tier 4 standards under either the percent of production 
allowance or the small-volume allowance.
    With today's action, equipment manufacturers may use up to a total 
of 10 percent of their Tier 4 percent of production allowances or up to 
100 of their Tier 4 small-volume allowances prior to the effective date 
of the Tier 4 standards. (The early use of Tier 4 allowances will be 
allowed in each Tier 4 power category.) This amount of equipment 
utilizing the early Tier 4 allowances will be subtracted from either 
the Tier 4 allowance of 80 percent under the percent of production 
allowance or the applicable limit under the small-volume allowance for 
the appropriate power category, resulting in fewer allowances once the 
Tier 4 standards take effect. For example, if an equipment manufacturer 
uses the maximum amount of early Tier 4 percent of production 
allowances of 10 percent, then the manufacturer will have a cumulative 
total of 70 percent remaining for that power category when the Tier 4 
standards take effect (i.e., 80 percent production allowance minus 10 
percent).
    The California Air Resources Board commented that we should 
discount the early use of Tier 4 flexibilities to discourage abuse of 
the provisions, by requiring equipment manufacturers to give up more 
than one flexibility after Tier 4 begins for every flexibility used 
prior to Tier 4. California did not specifically recommend what the 
discount level should be. We are not adopting a discount for early use 
of the Tier 4 flexibilities. The intent of

[[Page 39010]]

allowing manufacturers to use the Tier 4 flexibilities early was to 
allow them to carry over the few remaining equipment models that might 
not have been redesigned at the end of the seven-year Tier 2/Tier 3 
flexibility period until Tier 4 begins, and not requiring a possible 
double redesign in a short period of time. Because we have placed a 
relatively low cap (10% under the percent of production allowance or 
100 units under the small volume allowance) on the amount an equipment 
manufacturer could use early from Tier 4, we do not believe that 
manufacturers will be able to abuse the program and therefore should 
not have to discount the number of Tier 4 flexibilities used early.
    We view this provision on early use of Tier 4 allowances as 
providing reasonable lead time for introducing Tier 4 engines, since it 
should result in earlier introduction of Tier 4-compliant engines 
(assuming that the allowances would otherwise be fully utilized) with 
resulting net environmental benefit (notwithstanding longer utilization 
of earlier Tier engines, due to the stringency of the Tier 4 standards) 
and should do so at net reduction in cost by providing cost savings for 
the engines that have used the Tier 4 allowances early. (This is 
another reason we see no reason to discount the allowance.)
e. Early Tier 4 Engine Incentive Program for Equipment Manufacturers
    Ingersoll-Rand commented that non-integrated equipment 
manufacturers who incorporate Tier 4 compliant engines into their 
equipment prior to the applicable date for the Tier 4 standards should 
be able to earn early compliance credits. These early compliance 
credits could allow use of the previous-tier engine (above and beyond 
the base percentage granted under the flexibility program) for up to 18 
months after the certification date of the engine. Ingersoll-Rand also 
commented that such early compliance credits should be able to be 
traded across power categories with appropriate weightings applied.
    We believe a program that provides an incentive for equipment 
manufacturers to use early Tier 4-compliant engines is worthwhile from 
both a technology development perspective and an environmental 
perspective. As we noted at proposal when we proposed a similar 
incentive program for engine makers, early use of Tier 4 compliant 
engines will help foster technology development by getting the Tier 4 
technologies out in the market early and provide real-world experience 
to manufacturers and users (68 FR 28482, May 23, 2003). It will also 
lead to additional emission reductions above and beyond those expected 
under the existing Tier 2/3 standards in the years prior to Tier 4 
taking effect. Moreover, equipment manufacturers (and especially non-
integrated equipment manufacturers) are unlikely to buy early Tier 4 
engines without some incentive to do so since these engines are likely 
to be more expensive than Tier 2/3 engines. For these reasons, we are 
adopting new provisions that will allow any equipment manufacturer to 
earn early compliance credits that could be used to increase the number 
of equipment flexibilities above and beyond the levels allowed under 
the percent of production allowance or small-volume allowance (and for 
reasons independent of those allowances: namely, an inducement to make 
early use of Tier 4 engines).
    The program will be available to all equipment manufacturers 
regardless of whether they are integrated or non-integrated. While 
Ingersoll-Rand commented that the program should be available to non-
integrated equipment manufacturers only, we believe the program should 
provide an incentive for all equipment manufacturers to use early Tier 
4 engines (since the benefits accruing from early use of such engines 
exist regardless of whether the equipment manufacturer is integrated 
with the engine maker).
    Before describing this provision further, it is desirable to put it 
in context by explaining its relationship to the engine manufacturer 
incentive program for early Tier 4 or very low emission engines 
(described in section III.M below), as well as to the similar incentive 
provisions for engine manufacturers which we proposed (68 FR 28482, May 
23, 2003). We are, in essence, redirecting the proposed incentive for 
using early Tier 4 compliant engines to equipment manufacturers. Thus, 
under today's rule, an engine manufacturer could use the incentive 
program (as described in section III.M) only if an equipment 
manufacturer uses an early Tier 4 engine but (for whatever reason) 
declines to use the early engine flexibility allowance. In such a case, 
the engine manufacturer could opt to earn either ``engine offsets'' 
(which would allow them to make fewer engines certified to the Tier 4 
standards once the Tier 4 program takes effect) or ABT credits, but not 
both. In the more likely case of an equipment manufacturer using early 
Tier 4 engines and using the incentive flexibilities itself, the engine 
manufacturer would be eligible to generate ABT credits from such early 
Tier 4 compliant engines.
    The early Tier 4 engine incentive program for equipment 
manufacturers will apply to the four power categories above 25 
horsepower where the use of advanced exhaust aftertreatment is expected 
under the Tier 4 standards. Because the Tier 4 standards for engines 
below 25 horsepower are not expected to result in the use of advanced 
aftertreatment technologies, we are not including such engines in the 
program.
    In order for an engine to be considered an early Tier 4 compliant 
engine, it will need to be certified to the final Tier 4 standards for 
PM, NOX, and NMHC (i.e., the 2013 standards for engines 
between 25 and 75 horsepower, the 2014 standards for engines between 75 
and 175 horsepower, the 2014 standards for engines between 175 and 750 
horsepower, and the 2015 standards for engines above 750 horsepower) or 
to the final PM and NMHC standards and the alternative NOX 
standards during the phase-in (as described in section II.A.2.c of 
today's rule for engines between 75 and 750 horsepower). In order to be 
an early Tier 4 compliant engine, these engines would also have to 
certify to the Tier 4 CO standards. Because 15 ppm sulfur diesel fuel 
will be available on a widespread basis in time for 2007 (due to the 
requirements for on-highway heavy-duty engines), we are allowing engine 
manufacturers to begin certifying engines to the Tier 4 standards, and 
therefore have engines eligible for the early Tier 4 engine incentive 
program, beginning with the 2007 model year.
    In order to provide assurance that early Tier 4 compliant engines 
are placed into equipment earlier than would otherwise happen under the 
Tier 4 program, engine manufacturers will be required to certify and 
start producing such engines before September 1 of the year prior to 
the post-2011 Tier 4 standards taking effect or before September 1, 
2010 for engines in the 175 to 750 horsepower category. Similarly, 
equipment manufacturers will be required to install such engines in 
equipment before January 1 of the year the post-2011 Tier 4 standards 
take effect or before January 1, 2011 for engines in the 175 to 750 
horsepower category. In addition, in order to be considered an early 
Tier 4 compliant engine, such engines would be required to comply with 
all of the requirements associated with the final Tier 4 standards such 
as NTE requirements, transient testing (where otherwise required for 
certification, i.e. for 25-750 horsepower engines), and closed 
crankcase requirements. Finally, for engines certified prior to model 
year 2011, the engine manufacturer would be

[[Page 39011]]

allowed to demonstrate early compliance with the Tier 4 standards on a 
15 ppm sulfur fuel (as allowed under the certification fuel 
requirements specified in section III.D of today's rule) provided the 
engine manufacturer demonstrates that the equipment in which the 
engines are placed will use fuel meeting this low sulfur specification 
and includes appropriate information on the engine label and ensures 
that ultimate purchasers of equipment using these engines are informed 
that ultra low-sulfur diesel fuel is recommended (see section 
1039.104(e) of the regulations). Equipment manufacturers using such 
pre-2011 engines in their equipment would likewise need to take steps 
to ensure that fuel meeting this low sulfur specification is used in 
the equipment once operated in use to earn the additional flexibility 
allowances.
    Equipment manufacturers installing engines complying with the final 
Tier 4 standards (as described above) would earn one flexibility 
allowance for each early Tier 4 compliant engine used in its equipment. 
Equipment manufacturers installing engines between 75 and 750 
horsepower that comply with the final Tier 4 PM standard and the 
alternative NOX standard (described in section II.A.2.c) 
would earn one-half of a flexibility allowance for each early Tier 4 
compliant engine used in its equipment. Table III.B-2 presents the 
requirements an engine would need to meet to be considered an early 
Tier 4 engine for the purposes of this early Tier 4 engine incentive 
program.

                                    Table III.B-2.--Requirements for Engines
                                [Under the Early Tier 4 Engine Incentive Program]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                                                                                                    flexibility
                                            Tier 4 standards the      Date before which engines     allowances
            Power category                   engines must meet         must be installed by the   earned for use
                                                                        equipment manufacturer     of early tier
                                                                                                     4 engines
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75.........................  Model Year 2013............  January 1, 2013\a\.........          1-to-1
(19 <= kW < 56).......................
75 <= hp < 175........................  Model Year 2014............  January 1, 2012............          1-to-1
(56 <= kW <130).......................  Model Year 2012\b\.........  January 1, 2012............        0.5-to-1
175 <= hp <= 750......................  Model Year 2014............  January 1, 2011............          1-to-1
(130 <= kW <= 560)....................  Model Year 2011\b\.........  January 1, 2011............        0.5-to-1
Generator Sets........................  Model Year 2015............  January 1, 2015............          1-to-1
>750 hp...............................
(>560 kW).............................
Other Machines........................  Model Year 2015............  January 1, 2015............          1-to-1
>750 hp...............................
(>560 kW).............................
----------------------------------------------------------------------------------------------------------------
\a\ The installation date for 50 to 75 horsepower engines purchased from manufacturers choosing to opt out of
  the 2008 model year Tier 4 standards and instead comply with the Tier 4 standards beginning in 2012 would be
  January 1, 2012.
\b\ To be eligible, engines must meet the 0.01g/bhp-hr PM standard and the alternative NOX standards in section
  1039.102 (e) described in section II.A.2.c.

    As described above, equipment manufacturers using early Tier 4 
compliant engines can earn flexibility allowances that can be used to 
effectively increase the number of allowances provided under the 
percent of production allowance or the small volume allowance in the 
same power category. For example, an equipment manufacturer that uses 
500 engines in the 175 to 750 horsepower category that met the model 
year 2011 PM standards and alternative NOX standards would 
earn 250 additional flexibility allowances in that power category. That 
manufacturer could then exclude 250 engines from its calculations 
before demonstrating compliance with the 80 percent limit under the 
percent of production allowance (or the applicable limit under the 
small volume allowance if the equipment manufacturer is using that 
option) once Tier 4 starts in that power category.
    Equipment manufacturers would be required to report certain 
information regarding the early Tier 4 compliant engines (such as 
engine family name, number of engines used prior to Tier 4 in each 
power category, the rated power of the engines, and the type of 
application the engines above 750 horsepower were used in) when they 
submit their first report under the Tier 4 flexibility program. For 
engines above 750 horsepower, equipment manufacturers also would be 
required to keep records of how many early Tier 4 compliant engines are 
used in generator sets, versus how many are used in other machinery. 
This is because the additional flexibility allowances earned from the 
use of early Tier 4 compliant engines used in generator sets could only 
be used for additional flexibility allowances for generator sets. 
Likewise, the additional flexibility allowances earned from the use of 
early Tier 4 compliant engines used in mobile machinery (labeled `other 
machinery' in the table above) applications could only be used for 
additional flexibility allowances for other non-generator set 
applications.
    Under the early Tier 4 engine incentive program, we will allow 
equipment manufacturers to ``trade'' the additional flexibilities 
earned in the two power categories between 75 and 750 horsepower, with 
the power rating of the engines factored into the ``trade'' to ensure 
equivalent emissions for the engines generating the early allowances 
and the engines using the allowances. For example, an equipment 
manufacturer that earned 100 additional flexibility allowances under 
the early Tier 4 engine incentive program from 100 horsepower engines, 
could ``trade'' those flexibilities into the next power category up 
(175 to 750 horsepower). The equipment manufacturer would generate 
10,000 horsepower-allowances from those early engines (i.e., 100 
horsepower times 100 allowances). The equipment manufacturer could then 
produce, for this example, an additional 25 engines with a power rating 
of 400 horsepower above and beyond the normal limit on allowances (or 
any other combination of engines such that the sum of the horsepower-
weighted allowances adds up to the 10,000 horsepower-allowances used in 
this

[[Page 39012]]

example). We are not allowing trading for engines in the 25 to 75 
horsepower category because the Tier 4 standards for these engines are 
based on the application of only PM aftertreatment technology. 
Similarly, we are not allowing trading for engines in the above 750 
horsepower category because the Tier 4 standards are based on the 
application of PM aftertreatment to all engines, but NOX 
aftertreatment for only some engines.
f. Economic Hardship Relief Provision
    With today's action, and as proposed, we are providing an 
additional Tier 4 transition flexibility for ``economic hardship 
relief'' for equipment manufacturers. Under the economic hardship 
relief provisions, an equipment manufacturer that does not make its own 
engines could obtain limited additional relief by providing evidence 
that, despite its best efforts, it cannot meet the implementation 
dates, even with the Tier 4 equipment flexibility program provisions 
outlined above. Such a situation could occur if an engine supplier 
without a major business interest in the equipment manufacturer were to 
change or drop an engine model very late in the implementation process. 
The purpose of the provision is to redress individual situations of 
extreme economic hardship, not merely to perpetuate existing market 
share. That is, if situations arise where one equipment maker cannot 
produce equipment using Tier 4-compliant engines by the compliance 
date, but another can, ordinarily EPA would not adjust the program to 
allow use of the non-compliant application absent extreme, compelling 
equitability considerations.
    Applications for economic hardship relief will have to be made in 
writing, and will need to be submitted before the earliest date of 
noncompliance. The application will also have to include evidence that 
failure to comply is not the fault of the equipment manufacturer (such 
as a supply contract broken by the engine supplier), and include 
evidence that serious economic hardship to the company will result if 
relief is not granted. (As explained in section III.B.2.b above, this 
is a significant difference between this economic hardship provision 
and the technical hardship flexibility, where consideration of cost is 
generally irrelevant.) We expect to work with the applicant to ensure 
that all other remedies available under the flexibility provisions are 
exhausted before granting additional relief (if appropriate), and place 
a limit on the period of relief to no more than one year. Applications 
for economic hardship relief generally will only be accepted during the 
first year after the effective date of an applicable new emission 
standard.
    The Agency expects this provision will be rarely used. This 
expectation has been supported by our initial experience with the Tier 
2 standards in which only one equipment manufacturer has applied under 
the existing hardship relief provisions (and the request was 
subsequently denied). Requests for economic hardship relief will be 
evaluated by EPA on a case-by-case basis, and may require, as a 
condition of granting the applications, that the equipment manufacturer 
agree (in writing) to some appropriate measure to recover the lost 
environmental benefit.
    Ingersoll-Rand commented that the provisions regarding eligibility 
for hardship relief should be revised so that they do not require a 
demonstration of severe economic hardship, noting that such a showing 
would invariably preclude large entities (like Ingersoll-Rand) from 
utilizing the provision, even though delays were beyond their control. 
As described earlier in this section, we have included an additional 
flexibility in the Tier 4 rule in order to provide additional needed 
lead time in appropriate, individualized circumstances based on a 
showing of extreme technical or engineering hardship. We believe the 
provisions of the technical hardship address the concerns noted by 
Ingersoll-Rand in their comments, and therefore we are not revising the 
existing economic hardship relief provisions (which require a 
demonstration of severe economic impact) for the Tier 4 final program.
g. Existing Inventory Allowance
    The current program for nonroad diesel engines includes a provision 
for equipment manufacturers to continue to use engines built prior to 
the effective date of new standards, until the older engine inventories 
are depleted. It also prohibits stockpiling of previous tier engines. 
As proposed, we are extending these provisions for the transition to 
the Tier 4 standards adopted today. We are also extending the existing 
provision that provides an exception to the applicable compliance 
regulations for the sale of replacement engines. In extending this 
provision, we are requiring that engines built to replace certified 
engines be identical in all material respects to an engine of a 
previously certified configuration that is of the same or later model 
year as the engine being replaced. The term ``identical in all material 
respects'' allows for minor differences that would not reasonably be 
expected to affect emissions such as a change in materials or a change 
in the company supplying the components of the engine.
3. What Are the Recordkeeping, Notification, Reporting, and Labeling 
Requirements Associated With the Equipment Manufacturer Transition 
Provisions?
    The following section describes the recordkeeping, notification, 
reporting, and labeling requirement being adopted today. As proposed, 
failure to comply with these requirements will subject the noncomplying 
party to penalties as described in 40 CFR 1068.101.
a. Recordkeeping Requirements for Engine and Equipment Manufacturers
    With today's action, we are extending the recordkeeping 
requirements from the current equipment manufacturer transition 
program. Under the Tier 4 transition program, engine manufacturers will 
be allowed to continue to build and sell previous tier engines needed 
to meet the market demand created by the equipment manufacturer 
flexibility program, provided they receive written assurance from the 
engine purchasers that such engines are being procured for this 
purpose. Engine manufacturers will be required to keep copies of the 
written assurance from the engine purchasers for at least five full 
years after the final year in which allowances are available for each 
power category.
    Equipment manufacturers choosing to take advantage of the Tier 4 
allowances will be required to: (1) Keep records of the production of 
all pieces of equipment excepted under the allowance provisions for at 
least five full years after the final year in which allowances are 
available for each power category; (2) include in such records the 
serial and model numbers and dates of production of equipment and 
installed engines, and the rated power of each engine, (3) calculate 
annually the number and percentage of equipment made under these 
transition provisions to verify compliance that the allowances have not 
been exceeded in each power category; and (4) make these records 
available to EPA upon request.
b. Notification Requirements for Equipment Manufacturers
    We are adopting new notification requirements for equipment 
manufacturers with the Tier 4 program. Under the Tier 4 transition 
program, equipment manufacturers wishing to participate in the Tier 4 
transition provisions will be required to notify EPA prior to their use 
of the Tier 4

[[Page 39013]]

transition provisions. Equipment manufacturers will be required to 
submit their notification before the first calendar year in which they 
intend to use the transition provisions. We believe that prior 
notification will greatly enhance our ability to ensure compliance. 
Under the newly adopted notification requirements, each equipment 
manufacturer will be required to notify EPA in writing and provide the 
following information prior to the start of the first year in which the 
manufacturer intends to use the flexibilities:
    (1) The nonroad equipment manufacturer's name, address, and contact 
person's name, phone number;
    (2) The allowance program that the nonroad equipment manufacturer 
intends to use by power category;
    (3) The calendar years in which the nonroad equipment manufacturer 
intends to use the exception;
    (4) An estimation of the number of engines to be exempted under the 
transition provisions by power category;
    (5) The name and address of the engine manufacturer from whom the 
equipment manufacturer intends to obtain exempted engines; and
    (6) Identification of the equipment manufacturer's prior use of 
Tier 2/3 transition provisions.
    Engine manufacturers supported the new notification requirements 
for equipment manufacturers. One equipment company, however, commented 
that the notification requirements are of minimal value and should be 
deleted. We disagree and continue to believe the new notification 
requirements will greatly enhance our ability to ensure compliance with 
the flexibility provisions. Given the limited information that must be 
provided by equipment manufacturers, we do not expect that the 
notifications will require any significant effort to pull the 
information together and submit to EPA.
    EPA had requested comment on whether the notification provisions 
should also apply to the current Tier 2/Tier 3 transition program, and 
if so, how these provisions should be phased in for equipment 
manufacturers using the current Tier 2/Tier 3 transition provisions. We 
did not receive any comments on this issue. However, consistent with 
our approach to several other Tier 4 requirements that we were 
considering applying to the Tier 2/Tier 3 transition program, we are 
not adopting such notification requirements for equipment manufacturers 
for the current Tier 2/Tier 3 program.
c. Reporting Requirements for Engine and Equipment Manufacturers
    As with the current program, engine manufacturers who participate 
in the Tier 4 program will be required to submit information each year 
on the number of such engines produced and to whom the engines are 
provided. The purpose of these submittals is to help EPA monitor 
compliance with the program and prevent abuse of the program.
    We are adopting new reporting requirement for equipment 
manufacturers participating in the Tier 4 equipment manufacturer 
transition provisions. With today's action, equipment manufacturers 
participating in the program will be required to submit an annual 
written report to EPA that calculates its annual number of exempted 
engines under the transition provisions by power category in the 
previous year. Equipment manufacturers using the percent of production 
allowance, will also have to calculate the percent of production the 
exempted engines represented for the appropriate year. Each report will 
include a cumulative calculation (both total number and, if 
appropriate, the percent of production) for all years the equipment 
manufacturer is using the transition provisions for each of the Tier 4 
power categories. In order to ease the reporting burden on equipment 
manufacturers, EPA intends to work with the manufacturers to develop an 
electronic means for submitting information to EPA.
    EPA had requested comment on whether these new reporting 
requirements for equipment manufacturers should also apply to the 
current Tier 2/Tier 3 transition program, and if so, how these 
provisions should be phased in for equipment manufacturers using the 
current Tier 2/Tier 3 transition provisions. We did not receive any 
comments on this issue. However, consistent with our approach to 
several other Tier 4 requirements that we were considering applying to 
the Tier 2/Tier 3 transition program, we are not adopting reporting 
requirements for equipment manufacturers for the current Tier 2/Tier 3 
program.
d. Labeling Requirements for Engine and Equipment Manufacturers
    Engine manufacturers are currently required to label their 
certified engines with a label that contains a variety of information. 
Under today's action, as proposed, we are adopting requirements that 
engine manufacturers be required to identify on the engine label if the 
engine is exempted under the Tier 4 transition program. In addition, 
and also as proposed, equipment manufacturers will be required to apply 
a label to the engine or piece of equipment that identifies the 
equipment as using an engine produced under the Tier 4 transition 
program for equipment manufacturers.
    Engine manufacturers were opposed to the new labeling requirements. 
We believe these new labeling requirements will allow EPA to easily 
identify the exempted engines and equipment, verify which equipment 
manufacturers are using these exceptions, and more easily monitor 
compliance with the transition provisions. Labeling of the equipment 
should also help U.S. Customs to quickly identify equipment being 
imported using the exemptions for equipment manufacturers.
4. What Are the Requirements Associated With Use of Transition 
Provisions for Equipment Produced by Foreign Manufacturers?
    Under the current regulations in 40 CFR 89.2, importers are treated 
as equipment manufacturers and are each allowed the full allowance 
under the transition provisions in 40 CFR 89.102(d). Therefore, under 
the current provisions, importers of equipment from a foreign equipment 
manufacturer could as a group import more excepted equipment from that 
foreign manufacturer than 80% of that manufacturer's production for the 
U.S. market (i.e., more than the percent-of-production), or more than 
the small-volume allowance. Therefore, the current regulation creates a 
potentially significant adverse environmental impact. EPA did not 
intend this outcome, and does not believe it is needed to provide 
reasonable lead time to foreign equipment manufacturers. EPA thus 
proposed to change the current regulations to eliminate this disparity.
    As noted earlier, with today's action, only those nonroad equipment 
manufacturers that install engines and have primary responsibility for 
designing and manufacturing equipment will qualify for the allowances 
or other relief provided under the Tier 4 transition provisions. 
Foreign equipment manufacturers who comply with the compliance related 
provisions discussed below will receive the same allowances and other 
transition provisions as domestic manufacturers. Foreign equipment 
manufacturers who do not comply with these compliance related 
provisions will not receive allowances. Importers that have little 
involvement in the manufacturing and assembling of the equipment will 
not

[[Page 39014]]

receive any allowances or other transition relief directly, but can 
import exempt equipment if it is covered by an allowance or transition 
provision associated with a foreign equipment manufacturer. These 
provisions allow the transition allowances and other provisions to be 
used by foreign equipment manufacturers in the same way as domestic 
equipment manufacturers, while avoiding the potential for importers 
using unnecessary allowances.
    Under today's action, a foreign equipment manufacturer includes any 
equipment manufacturer that produces equipment outside of the United 
States that is eventually sold in the United States. All foreign 
nonroad equipment manufacturers wishing to use the transition 
provisions will have to comply with all requirements of the regulation 
discussed above including: Notification, recordkeeping, reporting and 
labeling. Along with the equipment manufacturer's notification 
described earlier, a foreign nonroad equipment manufacturer will have 
to comply with various compliance related provisions similar to those 
adopted in several fuel regulations relating to foreign refiners.\68\ 
As part of the notification, the foreign nonroad equipment manufacturer 
will have to:
---------------------------------------------------------------------------

    \68\ See, for example, 40 CFR 80.410 concerning provisions for 
foreign refiners with individual gasoline sulfur baselines.

    (1) Agree to provide EPA with full, complete and immediate 
access to conduct inspections and audits;
    (2) Name an agent in the District of Columbia for service of 
process;
    (3) Agree that any enforcement action related to these 
provisions will be governed by the Clean Air Act;
    (4) Submit to the substantive and procedural laws of the United 
States;
    (5) Agree to additional jurisdictional provisions;
    (6) Agree that the foreign nonroad equipment manufacturer will 
not seek to detain or to impose civil or criminal remedies against 
EPA inspectors or auditors for actions performed within the scope of 
EPA employment related to the provisions of this program;
    (7) Agree that the foreign nonroad equipment manufacturer 
becomes subject to the full operation of the administrative and 
judicial enforcement powers and provisions of the United States 
without limitation based on sovereign immunity; and
    (8) Submit all reports or other documents in the English 
language, or include an English language translation.

    In addition to these requirements, we are adopting a new provision 
for foreign equipment manufacturers that participate in the transition 
program to comply with a bond requirement for engines imported into the 
U.S. We believe the bond requirements are an important tool to ensure 
that foreign equipment manufacturers are subject to the same level of 
enforcement as domestic equipment manufacturers. Furthermore, we 
believe that a bonding requirement for the foreign equipment 
manufacturer is an important enforcement tool in order to ensure that 
EPA has the ability to collect any judgements assessed against a 
foreign equipment manufacturer for violations of these transition 
provisions.
    Under the bond program adopted today, a participating foreign 
equipment manufacturer will have to obtain annually a bond in the 
proper amount that is payable to satisfy United States judicial 
judgments that results from administrative or judicial enforcement 
actions for conduct in violation of the Clean Air Act. The foreign 
equipment manufacturer will have two options for complying with the 
bonding requirement. The foreign equipment manufacturer can:

    (1) Obtain a bond in the proper amount from a third-party surety 
agent that is cited in the U.S. Department of Treasury Circular 570, 
``Companies Holding Certificates of Authority as Acceptable Sureties 
on Federal Bonds and as Acceptable Reinsuring Companies''; or
    (2) Obtain an EPA waiver from the bonding requirement, if the 
foreign equipment manufacturer can show that it has assets of an 
appropriate value in the United States.

    EPA expects the second bond option to address instances where an 
equipment manufacturer produces equipment outside the United States 
containing flexibility engines, but also has facilities (and thus 
significant assets) inside the United States. Under this second option, 
such a manufacturer can apply to the EPA for a waiver of the bonding 
requirement.
    Because EPA's concerns of compliance will relate to the nature and 
tier of engines used in the transition equipment, we believe the bond 
value should be related to the value of the engine used. Therefore, we 
are adopting requirements that the bond be set at a level designed to 
represent approximately 10% of the cost of the engine for each piece of 
transition equipment produced for import into the United States under 
this program. So that manufacturers have certainty regarding the bond 
amounts and so that there isn't a need for extensive data submittals 
and evaluation between EPA and the manufacturer, the rule specifies the 
bond value for each imported engine based on the estimated average cost 
for a Tier 4 engine on which the bond would be based. Based on average 
engine cost estimates from table 6.2-5 of the final RIA, equipment 
using engines exempted under the transition program will require a bond 
in the amount shown in table III.B-3.

             Table III.B-3.--Bond Value For Engines Imported
                  [Under the Tier 4 Transition Program]
------------------------------------------------------------------------
                                                                  Per
                                                                 engine
                         Power range                              bond
                                                                 value
                                                               (dollars)
------------------------------------------------------------------------
0 < hp < 25..................................................        150
25 <= hp < 75................................................        300
75 <= hp < 175...............................................        500
175 <= hp < 300..............................................      1,000
300 <= hp < 600..............................................      3,000
hp >= 600 hp.................................................      8,000
------------------------------------------------------------------------

    Depending on the number of engines/equipment brought into the U.S. 
each year, the value of the bond calculated using the above values 
could change from year to year. Under the provisions adopted today, an 
importer would calculate the estimated bond amount using the values in 
table III.B-3 and be required to obtain a bond equal to the highest 
bond value estimated over the seven-year flexibility period. Because we 
have the authority to bring enforcement actions against a manufacturer 
for five years beyond the end of the program, the manufacturer would be 
required to maintain the bond for five years beyond the end of the 
flexibility period or five years after using up all of its available 
allowances, whichever occurs first. Finally, if a foreign equipment 
manufacturer's bond is used to satisfy a judgment within the seven-year 
flexibility period, the foreign equipment manufacturer will then be 
required to increase the bond to cover the amount used within 90 days 
of the date the bond is used.
    Most comments received on this issue supported the proposed 
provisions. However, Ingersoll-Rand commented that EPA should clarify 
whether the special requirements for foreign equipment manufacturers 
apply to U.S.-based companies that have foreign manufacturing 
facilities. Ingersoll-Rand believes that such requirements should not 
apply because EPA appears to be concerned about abuse of the program by 
foreign companies that export machines into the U.S. With today's 
action, all equipment manufacturers who import equipment into the U.S. 
will be required to comply with the provisions for foreign equipment 
manufacturers, even if they are U.S.-based companies. Because there is 
a wide range of actual presence in this country for ``U.S.-based'' 
companies,

[[Page 39015]]

EPA believes it is important that all companies importing equipment to 
the U.S. comply with the requirements for foreign equipment 
manufacturers. Neither the notification requirements described earlier 
for foreign equipment manufacturers nor the bonding requirements should 
cause any burden for companies with significant presence in this 
country. We would expect that only those companies with limited 
presence or no presence in this country will be impacted to any 
measurable degree because of the requirements placed on foreign 
equipment manufacturers.
    In addition to the foreign equipment manufacturer requirements 
discussed above, EPA is also requiring importers of exempted equipment 
from a complying foreign equipment manufacturer to comply with certain 
provisions. EPA believes these importer provisions are essential to 
EPA's ability to monitor compliance with the transition provisions. 
Under today's action, each importer will be required to notify EPA 
prior to their initial importation of equipment exempted under the Tier 
4 transition provisions. Importers will be required to submit their 
notification prior to the first calendar year in which they intend to 
import exempted equipment from a complying foreign equipment 
manufacturer under the transition provisions. The importer's 
notification will need to include the following information:

    (1) The name and address of importer (and any parent company);
    (2) The name and address of the manufacturers of the exempted 
equipment and engines the importer expects to import;
    (3) Number of exempted equipment the importer expects to import 
for each year broken down by equipment manufacturer and power 
category; and
    (4) The importer's use of the transition provisions in prior 
years (number of flexibility engines imported in a particular year, 
under what power category, and the names of the equipment and engine 
manufacturers).

    In addition, EPA is requiring that any importer electing to import 
to the United States exempted equipment from a complying foreign 
equipment manufacturer will have to submit annual reports to EPA. The 
annual report will have to include the number of exempted equipment the 
importer actually imported to the United States in the previous 
calendar year; and the identification of the equipment manufacturers 
and engine manufacturers whose exempted equipment/engines were 
imported.

C. Engine and Equipment Small Business Provisions (SBREFA)

    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. As EPA 
believed that the ultimate rule could have a significant economic 
impact on small businesses, we prepared a regulatory flexibility 
analysis as part of this rulemaking. We prepared an Initial Regulatory 
Flexibility Analysis (IRFA) pursuant to section 603 of the RFA which is 
part of the record for the NPRM, and we prepared a Final Regulatory 
Flexibility Analysis (FRFA) to support today's action.
    Under section 609(b) of the RFA, a Small Business Advocacy Review 
Panel (SBAR Panel or Panel) is required to be convened prior to 
publication of both an IRFA and a FRFA. Section 609(b) of the RFA 
directs the Panel to, through outreach with small entity 
representatives (SERs), report on the comments of the SERs and make 
findings under section 603 of the RFA on issues related to identified 
elements of an IRFA during the proposal stage of a rulemaking. During 
the development of the rulemaking, EPA is to analyze the elements of 
the IRFA in developing the FRFA for the final rulemaking (see section 
X.C of this preamble for more discussion on the elements of a FRFA). 
The purpose of the Panel was to gather information to identify impacts 
on small businesses and to develop potential regulatory options to 
mitigate these concerns. At the completion of the SBAR Panel process, 
the Panel prepared a Final Panel Report. This report includes:
     Background information on the proposed rule being 
developed;
     Information on the types of small entities that would be 
subject to the proposed rule;
     A description of efforts made to obtain the advice and 
recommendations of representatives of those small entities; and,
     A summary of the comments that had been received to date 
from those representatives.
    The Panel report was included in the proposal's rulemaking record 
(and hence in the rulemaking record for this final rule), and provided 
the Panel and the Agency with an opportunity to identify and explore 
potential ways of shaping the rule to minimize the burden of the rule 
on small entities while achieving the rule's purposes and being 
consistent with Clean Air Act statutory requirements.
    EPA approached this process with care and diligence. To identify 
representatives of small businesses for this process, we used the 
definitions provided by the Small Business Administration (SBA) for 
manufacturers of nonroad diesel engines and vehicles. The categories of 
small entities in the nonroad diesel sector that will potentially be 
affected by this rulemaking are defined in the following table:

------------------------------------------------------------------------
                                   Defined as small
            Industry               entity by SBA if:    Major SIC codes
------------------------------------------------------------------------
Engine manufacturers............  Less than 1,000     Major Group 35
                                   employees.
Equipment manufacturers:
  --construction equipment......  Less than 750       Major Group 35
                                   employees.
  --industrial truck              Less than 750       Major Group 35
   manufacturers (i.e.,            employees.
   forklifts).
  --all other nonroad equipment   Less than 500       Major Group 35
   manufacturers.                  employees.
------------------------------------------------------------------------

    One small engine manufacturer and 5 small equipment manufacturers 
agreed to serve as Small Entity Representatives (SERs) throughout the 
SBAR Panel process for this proposal. These companies represented the 
nonroad market well, as the group of SERs consisted of businesses that 
manufacture various types of nonroad diesel equipment.
    The following are the provisions recommended by the SBAR Panel. As 
described in section III.B above, there are other provisions that apply 
to all equipment manufacturers; however, the discussion in this section 
focuses mainly on small entities.

[[Page 39016]]

1. Nonroad Diesel Small Engine Manufacturers
a. Lead Time Transition Provisions for Small Business Engine 
Manufacturers
i. Panel Recommendations and Our Proposal
    The transition provisions recommended by the SBAR Panel for engines 
produced or imported by small entities are listed below. For all of the 
provisions, the Panel recommended that small business engine 
manufacturers and small importers must have certified engines in model 
year 2002 or earlier in order to take advantage of these provisions. 
Each manufacturer would be limited to 2,500 units per year as this 
number allows for some market growth. The Panel recommended these 
stipulations in order to prohibit the misuse of the transition 
provisions as a tool to enter the nonroad diesel market or to gain 
unfair market position relative to other manufacturers.
    Currently, certified nonroad diesel engines produced by small 
manufacturers all have a horsepower rating of 80 or less. At proposal, 
we considered both a one-step approach, and the two-step approach which 
we are finalizing today. Due to the structure of the standards and 
their timing, EPA proposed transition provisions for small business 
engine manufacturers which encompassed both approaches recommended by 
the Panel, with the inclusion of the 2,500 unit limit (as suggested by 
the Panel) for each manufacturer. Given the two-step structure of the 
final rule, we are only providing those proposed provisions related to 
that approach (a complete description of the provisions proposed by the 
Panel, and also by specific Panel members, is located in the SBAR Final 
Panel Report).
    For a two-step approach the Panel recommended that:
     An engine manufacturer should be allowed to skip the first 
phase and comply on time with the second; or,
     A manufacturer could delay compliance with each phase of 
standards for up to three years.
    We proposed the following provisions in the NPRM (based on 
available data, we believe that there are no small manufacturers of 
nonroad diesel engines above the 75-175 hp category):
    With regard to PM--
     Engines under 25 hp and those between 75 and 175 hp have 
only one standard so the manufacturer could delay compliance with these 
standards for up to three years.
     For engines between 50 and 75 hp, we proposed to delay 
compliance for one year if the 2008 interim standards are met, with the 
stipulation that small business manufacturers cannot use PM credits to 
meet the interim standard. However, if a small manufacturer elects the 
optional approach to the standard (elects to skip the interim 
standard), no further relief will be provided.
    With regard to NOX--
     There is no change in the level of the NOX 
standard for engines under 25 hp and those between 50 and 75 hp, so we 
did not propose any special provisions for these categories.
     For engines in the 25-50 hp and the 75-175 hp categories 
we proposed a three year delay in the program consistent with the one-
phase approach recommendation above.
ii. What We Are Finalizing
    We are finalizing all of the provisions set out above for 
NOX. For PM, we are finalizing some of the proposed 
provisions with certain revisions, as described below. In finalizing 
these provisions, we considered not only the recommendations of the 
Panel, but also the public comments on the proposed small business 
engine manufacturer transition provisions. Extensions of an applicable 
standard also apply to all certification requirements associated with 
that standards (so that transient and NTE testing would not be required 
until expiration of the extension). Based on available data, and 
further conversations with manufacturers during the development of this 
rulemaking (documented in the administrative record), we have found no 
small business manufacturers of nonroad diesel engines above 175 hp.
    For engines under 25 hp:
     PM--a manufacturer may elect to delay compliance with the 
standard for up to three years.
     NOX--there is no change in the level of the 
existing NOX standard for engines in this category, so no 
special provisions are being provided.
    For engines in the 25-50 hp category:
     PM--manufacturers must comply with the interim standards 
(the Tier 4 requirements that begin in model year 2008) on time, and 
may elect to delay compliance with the 2013 Tier 4 requirements (0.02 
g/bhp-hr PM standard) for up to three years. Due to an oversight at 
proposal, we did not include transition provisions for this category in 
the NPRM, but there is no reason to exclude them when all other small 
business engines are eligible for extensions. We therefore are adopting 
a three year extension with today's action. As engines in this category 
must meet the 2008 standard, we are not conditioning this three year 
extension on meeting this standard. (Please note the distinction 
between these engines and engines in the 50-75 hp power band, where we 
are conditioning a three-year extension on meeting the 2008 standards. 
The difference is that engines in the 50-75 hp category have an option 
of whether or not to meet those 2008 standards. We consequently have 
structured the small business engine extension to encourage a choice to 
comply with those standards.)
     NOX--a manufacturer may elect to delay 
compliance with the standard for up to three years.
    For engines in the 50-75 hp category:
     As proposed, EPA is adopting special provisions for these 
engines, reflecting the special provisions in the rules which give 
engine manufacturers the choice of meeting an interim standard for PM 
in 2008 and meeting the aftertreatment-based standard in 2013, or 
meeting the aftertreatment-based standard in 2012 without meeting an 
interim standard. A small business engine manufacturer may delay 
compliance with the 2013 Tier 4 requirement of 0.02 g/bhp-hr PM for up 
to three years provided that it complies with the interim Tier 4 
requirements that begin in model year 2008 on time, without the use of 
credits. We proposed an extension of only one year, but this would be 
inconsistent with the extension period we are adopting, and which we 
proposed, for all of the other power categories. In addition, this 
provision for 50-75 hp engines is structured to encourage small 
business engine manufacturers to opt for early PM reductions by meeting 
the 2008 interim PM standard, so that an extension of three years is 
appropriate as an incentive. We are requiring that these engines 
achieve the 2008 standard without use of credits to assure that there 
be improvements in actual performance by engines certifying to the 
standard. We believe that such assurance is a necessary and reasonable 
balance for the three year additional lead time for meeting the 
aftertreatment-based standard. There were no adverse comments on 
conditioning the extension in this manner.
    In the alternative, a manufacturer may elect to skip the interim 
standard completely. However, manufacturers choosing this option will 
receive only one additional year for compliance with the 0.02 g/bhp-hr 
standard (i.e. compliance in 2013, rather than 2012). These engines 
would already have had eight years of lead time to prepare for the PM 
standard without any diversion of resources to meet an interim PM 
standard, so that an extension of longer than one year would not be 
appropriate,

[[Page 39017]]

within the meaning of section 213(b) of the Act. In addition, 
structuring the extension in this way encourages small engine 
manufacturers to choose to meet the 2008 interim standard for PM, 
furthering the objective of early PM emission reductions.
     NOX--there is no change in the NOX 
standard for engines in this category, therefore no special provisions 
are being provided.
    For engines in the 75 to 175 hp category:
     PM--a manufacturer may elect to delay compliance with the 
standard for up to three years.
     NOX--a manufacturer may elect to delay 
compliance with the standard for up to three years.
    These provisions are also set out below in the following table (in 
all instances, these engines must meet the previously applicable 
standards as set out in Sec.  1039.104 (c):

------------------------------------------------------------------------
       Horsepower category                           Provision
------------------------------------------------------------------------
<25 hp..........................     NOX  No special provisions are
                                           being provided.
                                      PM  Manufacturers may delay
                                           compliance with the standard
                                           for three years.
                                     NOX  Manufacturers may delay
                                           compliance with the standard
                                           for three years.
25-50 hp........................      PM  Manufacturers must comply with
                                           the interim standards in
                                           2008, and may delay
                                           compliance with the 2013 Tier
                                           4 requirements (0.02 g/bhp-hr
                                           PM standard) for three years.
                                     NOX  No special provisions are
                                           being provided.
                                  ......  Manufacturers must comply with
                                           the interim Tier 4
                                           requirements in 2008, without
                                           the use of credits, and may
                                           elect to delay compliance
                                           with the 2013 Tier 4
                                           requirements (0.02 g/bhp-hr
                                           PM standard) for three years
50-75 hp........................      PM  --OR--
                                  ......  Manufacturers may skip the
                                           interim standard completely,
                                           and will receive an
                                           additional year for
                                           compliance with the 0.02 g/
                                           bhp-hr PM Tier 4 standard
                                           (i.e. compliance in 2013,
                                           rather than 2012).
75-175 hp.......................     NOX  Manufacturers may delay
                                           compliance with the standard
                                           for three years.
                                      PM  Manufacturers may delay
                                           compliance with the standard
                                           for three years.
------------------------------------------------------------------------

b. Hardship Provisions for Small Business Engine Manufacturers
i. Panel Recommendations and Our Proposals
    The Panel recommended two types of hardship provisions for small 
business engine manufacturers. These provisions would allow for relief 
in the following cases:
     A catastrophic event, or other extreme unforseen 
circumstances, beyond the control of the manufacturer that could not 
have been avoided with reasonable discretion (i.e., fire, tornado, 
supplier not fulfilling contract, etc.); and
     The event where a manufacturer has taken all reasonable 
business, technical, and economic steps to comply but cannot.
    The Panel believed that either hardship relief provision would 
provide lead time for up to 2 years, and that a manufacturer should 
have to demonstrate to EPA's satisfaction that failure to sell the 
noncompliant engines would jeopardize the company's solvency. EPA may 
also require that the manufacturer make up the lost environmental 
benefit.
    We proposed the Panel recommendations for hardship provisions for 
small business engine manufacturers. While perhaps ultimately not 
necessary given the phase-in schedule discussed above, we stated that 
such provisions provide a useful safety valve in the event of 
unforeseen extreme hardship.
ii. What We Are Finalizing
    We received two comments on the provisions for small business 
engine manufacturers. SBA's Office of Advocacy commented that the rule 
would impose significant burdens on a substantial number of small 
entities with little corresponding environmental benefit; and further, 
that we should exclude smaller engines (those under 75 hp) from further 
regulation in order to comply with the Regulatory Flexibility Act and 
fulfill the requirement of reducing the burden on small engine classes. 
As proposed, we are not adopting standards based on performance of 
NOX aftertreatment technologies for engines under 75 hp. As 
described in more detail in section II of this preamble, the Summary 
and Analysis of Comment Document, and the RIA, we have found no factual 
basis supporting the assertion that standards for PM for engines 
between 25 and 75 hp based on use of advanced aftertreatment impose 
costs out of relation to environmental benefit, have a disproportionate 
impact on small businesses, or are otherwise inappropriate. In fact, it 
is our finding that these standards for PM are ``appropriate'' within 
the meaning of section 213(a)(4) of the Clean Air Act, and that PM 
standards for these engines not based on performance of advanced 
aftertreatment would be inappropriate as failing to reflect standards 
based on available treatment for these engines (taking into account 
costs, noise, safety, and energy factors). We received no adverse 
comments from small business engine manufacturers on the proposed 
transition provisions for those manufacturers.\69\ Accordingly, we are 
finalizing the small business engine manufacturer hardship provisions 
that we proposed in the NPRM (as recommended by the Panel). We believe 
that these provisions will provide adequate regulatory flexibility for 
these manufacturers, while remaining consistent with the requirements 
of section 213(a)(4) and 213(b) of the Clean Air Act.
---------------------------------------------------------------------------

    \69\ The one comment that we received supported the provisions 
proposed for small business engine manufacturers.
---------------------------------------------------------------------------

c. Other Small Business Engine Manufacturer Issues
i. Panel Recommendations and Our Proposals
    The Panel also recommended that an ABT program be included as part 
of the overall rulemaking program. In addition, the Panel suggested 
that EPA take comment on including specific ABT provisions for small 
business engine manufacturers. We proposed an ABT program for all 
engine manufacturers, with this program retaining the basic structure 
of the current nonroad diesel ABT program.
    We did not include small business engine manufacturer-specific ABT

[[Page 39018]]

provisions in the proposal. Discussions during the SBAR process 
indicated that small volume manufacturers would need extra time to 
comply due to cost and personnel constraints, and there is little 
reason to believe that small business manufacturer specific ABT 
provisions could create an incentive to accelerate compliance.
ii. What We Are Finalizing
    As discussed above in section III.B, we are finalizing an ABT 
program in today's action similar to that already in place for nonroad 
engine manufacturers. We have also made a number of changes to 
accommodate implementation of these new emission standards.
2. Small Nonroad Diesel Equipment Manufacturers
a. Transition Provisions for Small Business Equipment Manufacturers
i. Panel Recommendations and Our Proposals
    The Panel recommended that we adopt the transition provisions 
described below for small business manufacturers and small business 
importers of nonroad diesel equipment. These transition provisions are 
similar to those in the Tier 2/3 rule (see 40 CFR 89.102). The 
recommended transition provisions were as follows:
     Percent-of-Production Allowance: Over a seven model year 
period, equipment manufacturers may install engines not certified to 
the new emission standards in an amount of equipment equivalent to 80 
percent of one year's production. This is to be implemented by power 
category with the average determined over the period in which the 
flexibility is used.
     Small Volume Allowance: A manufacturer may exceed the 80 
percent allowance in seven years as described above, provided that the 
previous Tier engine use does not exceed 700 total over seven years, 
and 200 in any given year. This is limited to one family per power 
category. Alternatively, the Panel recommended, at the manufacturer's 
choice by hp category, a program that eliminates the ``single family 
provision'' restriction with revised total and annual sales limits as 
shown below:
    --For categories <=175 hp-525 previous Tier engines (over 7 years) 
with an annual cap of 150 units (these engine numbers are separate for 
each hp category defined in the regulations)
    --For categories of > 175 hp-350 previous Tier engines (over 7 
years) with an annual cap of 100 units (these engine numbers are 
separate for each hp category defined in the regulations).
    The Panel recommended that EPA seek comment on the total number of 
engines and annual cap values listed above. In contrast to the Tier 2/
Tier3 rule, the SBA Office of Advocacy expected the transition to the 
Tier 4 technology will be more costly and technically difficult. 
Therefore, the small business equipment manufacturers may need more 
liberal flexibility allowances especially for equipment using the lower 
hp engines. The Panel's recommended flexibility may not adequately 
address the approximately 50 percent of small business equipment models 
where the annual sales per model is less than 300 and the fixed costs 
are higher. Thus, the SBA Office of Advocacy and the Office of 
Management and Budget (OMB) Panel members recommended that comment be 
sought on implementing the small volume allowance (700 engine 
provision) for small business equipment manufacturers without a limit 
on the number of engine families which could be covered in any hp 
category.
     Due to the changing nature of the technology as the 
manufacturers make the transition from Tier 2 to Tier 3 and Tier 4, the 
Panel recommended that the equipment manufacturers be permitted to 
borrow from the Tier3/Tier 4 flexibilities for use in the Tier 2/Tier 3 
time frame.
     Lastly, the Panel recommended proposing a continuation of 
the current transition provisions, without modifications to the levels 
or nature of the provisions, that are available to these manufacturers.
    To maximize the likelihood that the application of these provisions 
will result in the availability of previous Tier engines for use by the 
small business equipment manufacturers, the Panel recommended that--
similar to the application of flexibility options that are currently in 
place--these provisions should be provided to all equipment 
manufacturers.\70\
---------------------------------------------------------------------------

    \70\ The Panel recognized that, similar to the Tier 2/3 
standards, it may be necessary to provide transition provisions for 
all equipment manufacturers, not just for small entities, and the 
Panel recommended that this be taken into account.
---------------------------------------------------------------------------

    We did in fact propose the Percent-of-Production and Small Volume 
Allowances listed above for all equipment manufacturers, and explicitly 
took the Panel report into account in making that proposal. We also 
requested comment on a number of additional items, some of which were 
proposed by the Panel (see section III.B above).
ii. What We Are Finalizing
    We are finalizing the Percent-of-Production and Small Volume 
Allowances for all equipment manufacturers, with a few changes. Some 
non-small equipment manufacturers commented that the small-volume 
provision should enable manufacturers to exempt up to 700 pieces of 
equipment over a seven-year period, with no engine family restriction. 
As explained earlier in section III.B.2.c, we are finalizing provisions 
that allow manufacturers to choose between two options: (a) 
Manufacturers would be allowed to exempt 700 pieces of equipment over 
seven years, within one engine family; or (b) manufacturers using the 
small-volume allowance could exempt 525 machines over seven years (with 
a maximum of 150 in any given year) for each of the three power 
categories below 175 horsepower, and 350 machines over seven years 
(with a maximum of 100 in any given year) for the two power categories 
above 175 horsepower. Concurrent with the revised caps, manufacturers 
could exempt engines from more than one engine family under the small-
volume allowance program. As explained earlier, based on sales 
information for small businesses, we estimated that the alternative 
small-volume allowance program to include lower caps and allow 
manufacturers to exempt more than one engine family would keep the 
total number of engines eligible for the allowance at roughly the same 
overall level as the 700-unit program. The Agency believes that these 
provisions will afford manufacturers the type of transition leeway 
recommended by the Panel. Further, these transition provisions could 
allow small business equipment manufacturers to postpone any redesign 
needed on low sales volume or difficult equipment packages, thus saving 
both money and strain on limited engineering staffs. Within limits, 
small equipment manufacturers would be able to continue to use their 
current engine/equipment configuration and avoid out-of-cycle equipment 
redesign until the allowances are exhausted or the time limit passes.
    During the SBREFA Panel process, the Panel discussed the possible 
misuse of the transition provisions by using them as a loophole to 
enter the nonroad diesel equipment market or to gain unfair market 
position relative to other manufacturers. See 68 FR at 28481. EPA was 
concerned that importers of equipment from a foreign equipment 
manufacturer could, as a group, import more exempted equipment from 
that foreign manufacturer than 80 percent of

[[Page 39019]]

that manufacturer's production for the United States market or more 
than the small volume allowances identified in the transition 
provisions. This would create a potentially significant disparity 
between the treatment of foreign and domestic equipment manufacturers. 
EPA did not intend this outcome, and did not believe it was needed to 
provide reasonable lead time to foreign equipment manufacturers. The 
Panel recognized that this was a possible problem, and believed that a 
requirement that small equipment manufacturers and importers must have 
reported equipment sales using certified engines in model year 2002 or 
earlier in order to be eligible to access the transition provisions was 
sufficient to alleviate this problem. Upon further analysis during the 
development of the proposal, EPA decided to limit the availability of 
transition provisions to entities that install engines and have primary 
responsibility for designing and manufacturing equipment and included 
such a requirement in the proposal. Id. at 28477. Therefore, a company 
that only imported equipment, and had no involvement in the actual 
manufacturing of the equipment, would be ineligible to access the 
transition provisions. As described in section III.B.4, we are 
finalizing the proposed requirements associated with the use of 
transition provisions by foreign importers. Therefore, we no longer 
believe it is necessary to have a separate requirement that small 
equipment manufacturers and importers have reported equipment sales 
using certified engines in model year 2002 or earlier, and therefore 
are not finalizing this redundant provision.
    We are also finalizing the Panel's recommendation that equipment 
manufacturers be allowed to borrow from Tier 4 flexibilities in the 
Tier2/3 time frame. See the more extended discussion on this issue in 
section III.B.2.d above.
    We are not finalizing the Panel recommendation of a provision 
allowing small manufacturers to request limited ``application 
specific'' alternative standards for equipment configurations which 
present unusually challenging technical issues for compliance. We do 
not believe that the need for such a provision has been established, 
and further, it could likely provide more lead time than can be 
justified, and undermine emission reductions which are achievable. 
Moreover, no participant in the SBAR process or during the public 
comment period offered any empirical support that such a problem even 
exists. Nor have such issues been demonstrated (or raised) by equipment 
manufacturers, small or large, in implementing the current nonroad 
standards. In addition, we believe that any application-specific 
difficulties can be accommodated by the transition provisions the 
Agency is proposing including ABT.
    We are also finalizing two additional provisions for all equipment 
manufacturers that small business equipment manufacturers may take 
advantage of. These provisions are the Technical Hardship Provision and 
the Early Tier 4 Engine Incentive Program. Both provisions are 
discussed in greater detail in sections III.B.2.b and e above.
b. Hardship Provisions for Small Business Equipment Manufacturers
i. Panel Recommendations and Our Proposals
    The Panel also recommended that two types of hardship provisions be 
extended to small business equipment manufacturers. These provisions 
would allow for relief in the following cases:
     A catastrophic event, or other extreme unforseen 
circumstances, beyond the control of the manufacturer that could not 
have been avoided with reasonable discretion (i.e., fire, tornado, 
supplier not fulfilling contract, etc.).
     The event where a manufacturer has taken all reasonable 
business, technical, and economic steps to comply but cannot. In this 
case relief would have to be sought before there is imminent jeopardy 
that a manufacturer's equipment could not be sold and a manufacturer 
would have to demonstrate to the Agency's satisfaction that failure to 
get permission to sell equipment with a previous Tier engine would 
create a serious economic hardship. Hardship relief of this nature 
cannot be sought by an ``integrated'' manufacturer (one which also 
manufactures the engines for its equipment).
    We proposed that the hardship provisions recommended by the Panel 
be extended to small business equipment manufacturers in addition to 
the transition provisions described above. We also requested comment on 
the stipulation that, to be eligible for these hardship provisions (as 
well as the other proposed transition provisions), equipment 
manufacturers and importers must have reported equipment sales using 
certified engines in model year 2002 or earlier.
ii. What We Are Finalizing
    We are finalizing the Panel-recommended hardship provisions for 
small business equipment manufacturers (which are the same provisions 
that are being adopted for all equipment manufacturers).
    EPA also received comment concerning the situation faced by small 
business equipment manufacturers using engines in the 25-50 horsepower 
range. The concern was raised that small businesses in this power 
grouping will face a greater relative burden in designing equipment for 
engines with aftertreatment, and that they may need additional lead 
time beyond that provided by the small volume allowances. EPA believes 
that in general the small volume allowances should provide reasonable 
lead time opportunity for these manufacturers, but recognizes that 
there may be individual cases where more lead time would be appropriate 
for small business manufacturers in this power category. EPA is 
therefore adopting a technical hardship provision similar to that 
adopted for the percent of production allowance. Small business 
manufacturers using engines in the 25-50 hp range could petition EPA to 
approve additional needed lead time in appropriate, individualized 
circumstances, based on a showing of extreme technical or engineering 
hardship as provided in 40 CFR 1039.625(m). EPA could approve 
additional small volume allowances, up to a total number of 1100 units. 
This total number includes the allowances that are already available 
under the rule without request. These additional allowances could only 
be used for engines in the 25-50 horsepower range, and could only be 
approved for qualifying small business equipment manufacturers. The 
limitations on the use of small volume allowances (such as when 
allowances may only be used within a single engine family and the 
annual limits) continue to apply to the standard allowances (that are 
available under the rule without request). Finally, any additional 
allowances granted under this provision would have to be used within 36 
months after the transition flexibility period commences for these 
engines. The additional allowances would not be subject to the annual 
limits noted earlier but they could only be used after the maximum 
amount of standard allowances are used in a given year (e.g., a 
manufacturer using the 700 unit allowance would have to use 200 of 
their standard allowances for that year before they could use any of 
the additional allowances granted by EPA under this technical hardship 
provisions).
    EPA recognizes that it is important to facilitate the process for 
small business equipment manufacturers to seek such approval, and 
intends to work with

[[Page 39020]]

small manufacturers so that any transaction costs for them or for EPA 
can be minimized. For example, EPA could consider at one time a common 
request from similarly situated small business equipment manufacturers, 
as long as all of the necessary individual information for each 
applicant were provided. Given that information in such an application 
would still be both company- and fact-specific (and likely confidential 
as well), and that the criteria for relief as well as the scope of 
appropriate relief are case-specific, we would necessarily evaluate and 
decide whether or not to approve additional small volume allowances on 
a company-by-company, case-by-case basis.
    For a detailed description of the comments received on small 
business engine and equipment manufacturer issues, please refer to the 
Summary and Analysis of comments, which is a part of the rulemaking 
record (E-DOCKET number OAR-2003-0012, and legacy docket number A-2001-
28). A summary of the SBREFA process is located in section X.C of this 
preamble.

D. Certification Fuel

    It is well-established that measured emissions may be affected by 
the properties of the fuel used during the test. For this reason, we 
have historically specified allowable ranges for test fuel properties 
such as cetane number and sulfur content. These specifications are 
intended to represent most typical fuels that are commercially 
available in use. This helps to ensure that the emissions reductions 
expected from the standards occur in use as well as during emissions 
testing.
    We are establishing all 6 provisions that we proposed related to 
the sulfur content of fuel used in conducting nonroad diesel engine 
emissions testing:
     300-500 ppm for model year 2008 to 2010 engines,
     7-15 ppm for 2011 and later model year engines,
     Extension through model year 2007 of the maximum 2000 ppm 
specification for Agency testing on pre-Tier 4 engines,
     7-15 ppm for 2007-2010 model year engines that use sulfur-
sensitive technology,
     7-15 ppm for 2008-2010 model year engines under 75 hp,
     300-500 ppm for some model year 2006-2007 engines at or 
above 100 hp.

The last 3 of these provisions are at the certifying manufacturer's 
option, and involve additional measures that the manufacturer must take 
to help ensure that the specified fuel is used in the field. The below 
discussion provides more detail on each of these provisions.
    We received very little comment on our proposed certification fuel 
provisions. Detroit Diesel commented that we should set a maximum 
sulfur specification of 500 ppm for Tier 3 engines, which we are in 
fact doing beginning in model year 2008 after this fuel is introduced 
in the nonroad market, and optionally allowing as early as 2006, the 
earliest Tier 3 model year, provided manufacturers take steps to 
encourage the use of this fuel, as discussed below.
    Because we are lowering the upper limit for in-use nonroad diesel 
fuel sulfur content to 500 ppm in 2007, and again to 15 ppm in 2010, we 
are also establishing new ranges of allowable sulfur content for 
testing. These are 300 to 500 ppm (by weight) for model year 2008 to 
2010 engines, and 7 to 15 ppm (by weight) for 2011 and later model year 
engines. We believe that these ranges best correspond to the fuels that 
diesel machines will potentially see in use.\71\ These specifications 
will apply to emission testing conducted for certification, selective 
enforcement audits, in-use, and NTE testing, as well as any other 
laboratory engine testing for compliance purposes for engines in the 
designated model years. Any compliance testing of previous model year 
engines will be done with the fuels designated in our regulations for 
those model years. Note that, as proposed, we are allowing 
certification with fuel meeting the 7 to 15 ppm sulfur specification in 
2010 for under 11 hp, air-cooled, hand-startable, direct injection (DI) 
engines certified under the optional standard provision discussed in 
section II.A.3.a.
---------------------------------------------------------------------------

    \71\ See 66 FR 5112-5113 (January 18, 2001) where we adopted a 
similar approach to certification fuels for highway heavy-duty 
diesel engines (HDDEs).
---------------------------------------------------------------------------

    It is important to note that while these specifications include the 
maximum sulfur level allowed for in-use fuel, we believe that it is 
generally appropriate to test using the most typical fuels. As for 
highway fuel, we expect that, under the 15 ppm maximum sulfur 
requirement, refineries will typically produce diesel fuel with about 7 
ppm sulfur, and that the fuel could have slightly higher sulfur levels 
after distribution. Thus, we expect that we will use fuel having a 
sulfur content between 7 and 10 ppm sulfur for our emission testing. 
This is the same as the range we indicated will be used for heavy-duty 
diesel engine (HDDE) engine testing in model year 2007 and later (66 FR 
5002, January 18, 2001). As with the highway fuel, should we determine 
that the typical in-use nonroad diesel fuel has significantly more 
sulfur than this, we would adjust this target upward.
    We are also adopting two options for early use of the new 7 to 15 
ppm sulfur diesel test fuel. The first will be available beginning in 
the 2007 model year for engines employing sulfur-sensitive technology. 
(Model year 2007 coincides approximately with the introduction of 15 
ppm highway fuel.) This allowance to use the new fuel in model years 
before 2011 will only be available for engines which the manufacturer 
demonstrates will be operated in use on fuel with 15 ppm sulfur or 
less. Any testing that we perform on these engines will also use fuel 
meeting this lower sulfur specification. This optional certification 
fuel provision is intended to encourage the introduction of low-
emission diesel technologies in the nonroad sector. These engines will 
be able to use the lower sulfur fuel throughout their operating life, 
given the early availability of this fuel under the highway program, 
and the assured availability of this fuel for nonroad engines by mid-
2010.
    Considering that our Tier 4 program will subject engines under 75 
hp to new emission standards in 2008 when 15 ppm maximum sulfur fuel 
will be readily available from highway fuel pumps (and will enter the 
nonroad fuel market shortly after in 2010), we believe it is 
appropriate to provide a second, less proscriptive, option for use of 
15 ppm sulfur certification fuel. This option will be available to any 
manufacturers willing to take extra steps to encourage the use of this 
fuel before it is required in the field. We are allowing the early use 
of 15 ppm certification fuel for 2008-2010 engines under 75 hp, 
provided the certifying manufacturer ensures that ultimate purchasers 
of equipment using these engines are informed that the use of fuel 
meeting the 15 ppm specification is recommended, and also recommends to 
equipment manufacturers buying these engines that labels be applied at 
the fuel inlet to remind users of this recommendation. This option does 
not apply to those 50-75 hp engines not being certified to the 0.22 g/
bhp-hr PM standard, under the manufacturers' option discussed in 
section II.A.1.a.
    We believe that there may be a very small loss of emissions benefit 
from any of these engines for which the operator chooses to ignore the 
recommendation. This is because the engine manufacturer will be 
designing the engine to comply with the emissions standards when tested 
using 15 ppm fuel, potentially resulting in slightly higher emissions 
when it is not operated on the 15 ppm

[[Page 39021]]

fuel. We also believe, however, that this is more than offset overall 
by the encouragement this provision provides for early use of 15 ppm 
fuel. We are not making this option available for engine designs 
employing oxidation catalysts or other sulfur-sensitive exhaust 
emission control devices except under the more restrictive provision 
for early use of 15 ppm fuel described above, involving a demonstration 
by the manufacturer that the fuel will indeed be used. Because these 
devices could potentially have very high sulfur-to-sulfate conversion 
rates (see section II.B.4 and 5 above), and because very high-sulfur 
fuels will still be available to some extent, we believe that allowing 
this provision for these engines would risk very high PM emissions 
until the 15 ppm nonroad fuel is introduced. We are not making this 
second early 15 ppm test fuel option available for engines not subject 
to a new Tier 4 standard in 2008 as these engines should already be 
designed to meet applicable standards in earlier years without need for 
the 15 ppm fuel.
    We are also adopting a similar provision for use of certification 
fuel meeting the 300-500 ppm sulfur specification before the 2008 model 
year. We believe certification of model year 2006 and 2007 engines 
being designed without the use of sulfur-sensitive technologies to meet 
new Tier 2 or Tier 3 emission standards taking effect in those years 
(2006 for engines at or above 175 hp and 2007 for 100-175 hp engines) 
should be able to use this fuel, provided the certifying manufacturer 
is willing to take measures equivalent to those discussed above to 
encourage the early use of this fuel (a recommendation to the ultimate 
purchaser to use fuel with 500 ppm maximum sulfur and a recommendation 
to equipment manufacturers to so label their equipment).
    The widespread availability of 500 ppm sulfur highway fuel, the 
short time that these 2006 and 2007 engines could use higher sulfur 
fuels if an operator were to ignore the recommendation, and the 
eventual use of 15 ppm sulfur fuel in most of these engines for most of 
their operating lives, gives us confidence that this provision to 
encourage early use of lower sulfur fuel will be beneficial to the 
environment overall. As with the change to 300-500 ppm cert fuel for 
model years 2008-2010, engine manufacturers will design their engines 
to comply based on the test fuel specifications for certification and 
compliance testing. The change from a fuel specification for compliance 
testing that ranges up to 2000 ppm sulfur for Tier 2 and 3 engines to a 
specification of 500 ppm sulfur maximum could have some limited effect 
on the emissions control designs used on these Tier 2 and 3 engines, in 
that it will be slightly easier to meet the Tier 2 and 3 standards 
using the lower sulfur test fuel. In general, it is reasonable to set 
specifications of test fuel reflecting representative in-use fuels, and 
here the engines are expected to be using fuel with sulfur levels of 
500 ppm or lower until 2010, and 15 ppm or lower after that. In this 
case, any impact on expected engine emissions from this change in test 
fuel for Tier 2 and 3 is expected to be slight.
    We note that under current regulations manufacturers are already 
allowed to conduct testing with certification fuel sulfur levels as low 
as 300 ppm. The additional provision for early use of 300-500 ppm 
sulfur test fuel will, however, result in any compliance testing 
conducted by the Agency being done with fuel meeting the 300-500 ppm 
specification. Likewise choice of the option for early use of 15 ppm 
sulfur test fuel would result in any Agency testing being done using 
that fuel. However, under both of these early certification fuel 
options involving a recommended fuel use provision, the Agency will not 
reject engines from in-use testing for which there is evidence or 
suspicion that the engine had been fueled at some time with higher 
sulfur fuel.
    Finally, we are extending a provision adopted in the 1998 final 
rule (63 FR 56967, October 23, 1998). In that rule we set a 2000 ppm 
upper limit on the test fuel sulfur concentration for any testing to be 
performed by the Agency on Tier 1 engines under 50 hp and Tier 2 
engines at or above 50 hp. We did not extend this provision to later 
model year engines at that time because we felt that more time was 
needed to assess trends in fuel sulfur levels for fuels used in nonroad 
diesels. At this time we are not aware of any additional information 
that would indicate that a change in this test specification is 
warranted. More importantly, because the fuel regulation we are 
adopting will make 500 ppm maximum sulfur nonroad diesel fuel available 
by mid-2007, Tier 3 engines at or above 50 hp (which phase in beginning 
in 2006) will be in the field for only 1\1/2\ years prior to the in-use 
introduction of 500 ppm fuel, and Tier 2 engines under 50 hp (which 
phase in beginning in 2004) will be in the field for at most 3\1/2\ 
years prior to this time. We believe it is appropriate to avoid adding 
the unnecessary complication of frequent multiple changes to the test 
fuel specification. We are therefore extending the 2000 ppm limit to 
testing conducted on engines until the 2008 model year when the 500 ppm 
maximum test fuel sulfur level takes effect as discussed above.

E. Temporary In-Use Compliance Margins

    The Tier 4 standards will be challenging for diesel engine 
manufacturers to achieve, and will require manufacturers to develop and 
adapt new technologies for a large number and wide variety of engine 
platforms. Not only will manufacturers be responsible for ensuring that 
these technologies enable compliance with Tier 4 standards at the time 
of certification, they will also have to ensure that these technologies 
continue to be highly effective in a wide range of in-use environments 
so that their engines will comply in use when tested by EPA. 
Furthermore, for the first time, these nonroad diesel engines will be 
subject to transient emissions control requirements and to NTE 
standards.
    However, in the early years of a program that introduces new 
technology, there are risks of in-use compliance problems that may not 
appear in the certification process or during developmental testing. 
Thus, we believe that for a limited number of model years after new 
standards take effect it is appropriate to adjust the compliance levels 
for assessing in-use compliance for diesel engines equipped with high-
efficiency exhaust emissions control devices. This provides assurance 
to the manufacturers that they will not face recall if they exceed 
standards by a small amount during this transition to clean 
technologies. This approach is very similar to that taken in the light-
duty highway Tier 2 final rule (65 FR 6796, February 10, 2000) and the 
highway heavy-duty rule (66 FR 5113-5114, January 18, 2001), both of 
which involve similar approaches to introducing the new technologies. 
In fact, the similarities of nonroad diesel engines and expected Tier 4 
control technologies to counterpart engines and technologies for heavy-
duty highway diesel engines led us to model the proposed Tier 4 add-on 
provisions after the 2007 heavy-duty highway diesel program, with add-
on levels chosen to be roughly equivalent to the levels adopted in the 
highway rule.
    Comments on the proposal were received from engine manufacturers, 
requesting changes that would make the temporary in-use adjustments 
more closely parallel the highway requirements. Specifically, they 
requested: (1) Providing two full model years of applicability 
following the completion of standards phase-in for the

[[Page 39022]]

75-175 hp category, as was proposed for the other power categories, (2) 
adjusting the NOX threshold for applicability of the 
provisions to a level 8% above the split family standard, (3) adopting 
3 levels of add-ons based on how many hours the test engine had been 
used, with cutpoints at 2000 and 3400 hours, and (4) a 25% upward 
adjustment to the add-on levels. We agree that these changes would 
result in a closer approximation to the highway program. Our goal in 
proposing provisions somewhat different from the highway program was to 
avoid unnecessary complexity. However, we believe that maintaining 
consistency with the highway program is a more important goal and the 
manufacturers' suggested changes do not overly complicate the program, 
and so we have decided to make these changes.
    We note too that changes we are making to the Tier 4 program for 
engines over 750 hp necessitate other changes to the in-use add-on 
program for these engines as well. Specifically, these are the 
extension of model year applicability to 2016, two years after the 
final Tier 4 standards take effect, and the clarification of what PM 
thresholds apply for engines used in generator sets and for other 
engines.
    Table III.E-1 shows the in-use adjustments that we will apply. 
These in-use add-on levels will be applied only to engines certified in 
the indicated model years and having FELs (or certifying to standards 
without FELs) at or below the specified threshold levels. These 
adjustments are added to the appropriate FELs (see section III.A) or, 
for engines certified to the standards without the use of ABT program 
credits, to the standards themselves, in determining the in-use 
compliance level for a given in-use hours accumulation on the engine 
being tested. Note that the PM adjustment is the same for all in-use 
hours accumulation. Note also that, because the standards in the 
regulations are expressed in g/kW-hr, the adjustments included in the 
regulations are set at levels that make the resulting adjusted in-use 
standard equivalent in stringency to the standards in this preamble 
(expressed in g/bhp-hr) adjusted by the values in Table III.E-1 (also 
expressed in g/bhp-hr).
    Note too that, as part of the certification demonstration, 
manufacturers will still be required to demonstrate compliance with the 
unadjusted Tier 4 certification standards using deteriorated emission 
rates. Therefore, the manufacturer will not be able to use these in-use 
standards as the design targets for the engine. They will need to 
project that most engines will meet the standards in-use without 
adjustment. The in-use adjustments will merely provide some assurance 
that they will not be forced to recall engines because of some small 
miscalculation of the expected deterioration rates.

                       Table III.E-1.--Add-on Levels Used in Determining In-use Standards
----------------------------------------------------------------------------------------------------------------
                                                                              NOX                       PM
                                                              --------------------------------------------------
                Engine power                    Model years      Add-on level    For operating     Add-On level
                                                               \a\  (g/bhp-hr)       hours       \b\  (g/bhp-hr)
----------------------------------------------------------------------------------------------------------------
25 <= hp <75................................        2013-2014                none                           0.01
(19 <= kW <56)..............................
---------------------------------------------
                                                                          0.12          <= 2000
75 <= hp <175...............................        2012-2016             0.19        2001-3400             0.01
(56 <= kW <130).............................                              0.25           > 3400
---------------------------------------------
                                                                          0.12          <= 2000
175 <= hp <=750.............................        2011-2015             0.19        2001-3400             0.01
(130<= kW <=560)............................                              0.25           > 3400
---------------------------------------------
                                                                          0.12          <= 2000
hp >750.....................................        2011-2016             0.19        2001-3400             0.01
(kW >560)...................................                              0.25          > 3400
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Applicable only to those engines certifying to standards or with FELs at or below 1.6 g/bhp-hr NOX.
\b\ Applicable only to those engines certifying to standards or with FELs at or below the filter-based Tier 4 PM
  standards (0.01 g/bhp-hr for 75-750 hp engines, 0.02 g/bhp-hr for 25-75 hp engines and for >750 hp engines in
  generator sets, and 0.03 g/bhp-hr for all other >750 hp engines).

F. Test Cycles

1. Transient Test
    In the 1998 final rule that set new emission standards for nonroad 
diesel engines, EPA expressed a concern that the steady-state test 
cycles used to demonstrate compliance with emission standards did not 
adequately reflect transient operation as many nonroad engines are used 
in applications that are largely transient in nature and would not 
therefore yield adequate control of emissions in use (63 FR 56984, 
October 23, 1998). Although we were not prepared to adopt a transient 
test at that time, we announced our intention in that final rule to 
move forward with the development of such a test. This development 
progressed steadily and has resulted in the creation of the Nonroad 
Transient Composite (NRTC) test cycle which we are adopting in our Tier 
4 nonroad diesel program. The NRTC cycle supplements the existing 
nonroad steady-state test requirements. Thus, most nonroad engines 
subject to today's Tier 4 standards will be required to certify using 
both of these tests.\72\ The NRTC cycle captures transient emissions 
over much of the typical nonroad engine operating range, and thus helps 
to ensure effective control of all regulated pollutants. The speed and 
load operating schedule for EPA's NRTC test cycle is described in 
regulations at 40 CFR 1039.505. A detailed discussion of the transient 
test cycle and its derivation is contained in chapter 4.2 of the RIA 
for this rule.
---------------------------------------------------------------------------

    \72\ See EPA Dear Manufacturer Letter VPCD-98-13, ``Heavy-duty 
Diesel Engines Controlled by Onboard Computers: Guidance on 
Reporting and Evaluating Auxiliary Emission Control Devices and the 
Defeat Device Prohibition of the Clean Air Act,'' October 15, 1998 
and EPA Advisory Circular 24-3, ``Implementation of Requirements 
Prohibiting Defeat Devices for On-Highway Heavy-Duty Diesel 
Engines.'' A copy of both of these documents is available in EPA Air 
Docket A-2001-28.
---------------------------------------------------------------------------

    We expect that this transient test requirement will significantly 
reduce real world emissions from nonroad diesel equipment. Proper 
transient

[[Page 39023]]

operation testing captures engine emissions from the broad range of 
engine speed and load combinations that the engine may attain in-use, 
while the steady-state emission test characterizes emissions at the few 
isolated operating points that may be typical for that family of 
engines. Testing for transient emissions will likewise identify 
emissions which result from the operation of the engine, as with speed 
and load changes, turbocharger lag, etc.
    In keeping with our goal to maximize the harmonization of emissions 
control programs as much as possible, we have developed this cycle in 
collaboration with nonroad engine manufacturers and regulatory bodies, 
both domestic and foreign, over the last several years.\73\ Further, 
the NRTC cycle has been introduced as a work item for possible adoption 
as a potential global technical regulation under the 1998 Agreement for 
Working Party 29 at the United Nations.\74\
---------------------------------------------------------------------------

    \73\ Letter from Jed Mandel of the Engine Manufacturers 
Association to Chet France of U.S. EPA, Office of Transportation and 
Air Quality, ``Development of appropriate transient test cycle for 
variable speed land-based compression ignition non-road engines,'' 
Air Docket A-2001-28, II-B-33.
    \74\ Informal Document No.2, ISO--45th GRPE, ``Proposal for a 
Charter for the Working Group on a New Test Protocol for Exhaust 
Emissions from Nonroad Mobile Machinery,'' Jan. 13-17, 2003, Air 
Docket A-2001-28, document II-A-171.
---------------------------------------------------------------------------

    EPA's nonroad transient test will apply (with one exception noted 
below) to a nonroad diesel engine when that engine must first show 
compliance with EPA's Tier 4 PM and NOX+NMHC emissions 
standards which are based on the performance of the advanced post-
combustion emissions control systems (e.g. catalyzed-diesel particulate 
filters and NOX adsorbers). This is 2011 for engines at 175 
hp-750 hp, 2012 for 75-175 hp engines (2012, as well, for 50-75 hp 
engines made by a manufacturer choosing the option to not comply with 
the 2008 transitional PM standard.), and 2013 for engines under 75 hp. 
The transient test cycle will not apply to engines greater than 750 hp. 
Specific provision is made for engines under 25 hp for PM and under 75 
hp for NOX (which are not based on performance of advanced 
aftertreatment). Constant-speed, variable-load engines of any 
horsepower category currently certify to EPA's 5-Mode Steady State duty 
cycle and are not subject to transient duty cycle testing. As with 
current nonroad diesel standards, today's Tier 4 emission standards 
will apply to certification, Selective Enforcement Audits (SEAs) and to 
recall testing of equipment in-use for all engines subject to these 
standards.

 Table III.F-1.--Implementation Model Year for Nonroad Transient Testing
------------------------------------------------------------------------
                                                         Transient test
                    Power category                       implementation
                                                           model years
------------------------------------------------------------------------
< 25 hp...............................................              2013
25 <= hp < 75.........................................              2013
75 <= hp < 175........................................              2012
175<= hp < 750........................................              2011
------------------------------------------------------------------------

    In addition, any engines for which an engine manufacturer (see 
section III.M) or equipment maker (see section III.B.2.c) claims credit 
under the incentive program for early-introduction engines will have to 
be certified to that program's standards under applicable Tier 4 
nonroad transient and steady-state duty cycles, e.g., NRTC, 8-mode and 
5-mode steady-state cycles. In turn, any 2011 or later model year 
engine that uses these engine count-based credits will not need to 
demonstrate compliance under the NRTC cycle. Engines in any power 
category certified to an alternate NOX standard are all 
subject to the transient test requirement, as they clearly will be 
substantially redesigned to achieve Tier 4 compliance, regardless of 
whether or not they use high-efficiency exhaust emission controls. See 
section II.A.1.c above.
    We solicited comment on whether the transient duty cycle should 
apply to NOX emissions from phase-out engines (68 FR 28484, 
May 23, 2003) and received comment from EMA. EMA prefers that the 
transient cycle only be applicable to PM emission testing and not for 
NOX, NMHC and CO for phase-out engine families. They believe 
that the application of the transient NRTC and standards could result 
in the need to redevelop the NOX/NMHC/CO emission control 
systems used for their members' compliance with Tier 3 standards.
    We essentially agree with this comment to the extent that phase-out 
engines do not include improvements in gaseous pollutant emission 
control (i.e. they remain essentially Tier 3 engines for emissions 
other than PM). Imposing new requirements with respect to these 
engines' gaseous pollutant emissions could divert resources 
inappropriately. The rule therefore states (in 40 CFR 1039.102 (a)(2)) 
that gaseous pollutant emissions from these engines are not subject to 
transient testing standards. This would not apply if a manufacturer 
declares a new NOX+NMHC FEL for the engine family (since the 
manufacturer would then already be choosing to alter these engines' 
performance with respect to gaseous pollutant emissions).\75\
---------------------------------------------------------------------------

    \75\ Please note that this discussion does not apply to engines 
certifying to the alternative NOX phase-in standards, 
which engines are required to meet transient and NTE requirements 
for gaseous pollutants (as well as all other requirements that would 
apply to phase-in engines). See discussion at II.A.2.c; also please 
note that these engines are expressly not defined as phase-out 
engines in the rules; see section 1039.801 and 1039.102 (e).
---------------------------------------------------------------------------

    Transient testing standards do apply with respect to PM emissions 
from phase-out engines, however. The reason is evident: the PM standard 
for phase-out (and phase-in) engines is based on performance of 
aftertreatment, so the full complement of test cycles (NTE as well as 
transient testing) should apply. A consequence of this is that phase-
out engines will generally be tested over the transient cycle, since 
they must do so with respect to PM emissions. We repeat, however, that 
although the engines will do transient testing, only PM (and not 
gaseous pollutants) is subject to the transient test standard.
    In addition, manufacturers choosing to certify engines under 750 hp 
using alternative FEL caps during the first four years that the 
alternative caps are available (see section III.A.i.2 above) will not 
be subject to the transient or NTE standards. However, to properly 
account for the transient effects when calculating credits, we are 
requiring the FELs of such engines to be adjusted upwards by applying a 
Temporary Compliance Adjustment Factor (TCAF) \76\. See 40 CFR 1039.104 
(g) (2).
---------------------------------------------------------------------------

    \76\ As noted elsewhere, the TCAFs are derived identically to 
the Transient Adjustment Factor used in the NONROAD emissions model.
---------------------------------------------------------------------------

    Even though we are requiring that NRTC testing start when the PM 
aftertreatment-based standards take effect, one should not infer that 
the NRTC is directed at solely (or even primarily) at PM control. In 
fact, we believe that advanced NOX emission controls may be 
even more sensitive to transient operation than PM filters, since the 
PM filters ordinarily operate equally effectively in all operating 
modes, as noted earlier. It is, however, our intent that the control of 
emissions during transient operation be an integral part of Tier 4 
engine design considerations. We have therefore chosen to apply the 
transient test requirement starting with the PM filter-based Tier 4 PM 
standards as these standards precede or accompany the earliest Tier 4 
NOX or NMHC standards in all power categories except engines 
over 750 hp.
    As EPA is not promulgating PM filter-based standards for engines 
below 25 hp in today's rulemaking, we are likewise not requiring these 
engines to be tested

[[Page 39024]]

over the NRTC test cycle until model year 2013. More broadly, though we 
intend for transient emissions control to be an integral part of Tier 4 
design considerations, we do not believe it appropriate to mandate 
compliance with the transient test for the engines under 50 hp which 
are subject to PM standards in 2008. We recognize that transient 
emission testing, though routine in highway engine programs, involves a 
fair amount of laboratory equipment and new expertise in the nonroad 
engine certification process. As with the transfer of advanced emission 
control technology itself, we believe that the transient test 
requirement should be implemented first for larger displacement 
engines. These engines are more likely to be made by manufacturers who 
provide engines to the on-highway market and therefore have had prior 
on-highway engine development and certification experience. We do not 
believe that the smaller engines should be the power categories first 
charged with implementing the new transient test, as early as 2008, 
especially because manufacturers of these engines do not generally make 
highway engines and are neither as experienced nor as well-equipped as 
their larger engine manufacturer counterparts at conducting transient 
cycle testing. However, to encourage earlier transient emission control 
in these engines, EPA will allow manufacturers of engines below 25 hp 
to submit data describing emission levels for their engines over the 
appropriate certification transient duty cycle beginning in model year 
2008. We extend this option as well to manufacturers of 25-50 hp 
engines, subject to those engines meeting the Tier 4 transitional PM 
standard in 2008. Should a manufacturer choose to submit data in the 
2008-2011 time frame, prior to required certification data submissions, 
that transient data will not be used for compliance enforcement.
    EPA requested comment on whether engines greater than 750 hp should 
be subject to the transient cycle, noting concerns of technical 
difficulties and cost for these engines (68 FR 28484, May 23, 2003). 
STAPPA-ALAPCO and other agencies representing the States' interests 
responded to EPA that all nonroad engines should be uniformly required 
to test their transient emissions. Likewise, they asked that the Agency 
not delay implementation of this particular requirement. However, at 
this time, the Agency is not adopting a transient emission testing 
requirement for engines 750 hp and over. EPA sees the burden of 
transient cycle testing in these very large displacement engines as 
being greater than the benefit of gathering transient emission 
measurements from them. For example, in many instances, these engines 
will have multiple aspiration and exhaust systems requiring a test cell 
designed to accommodate multiple large flow volumes in real-time on a 
five Hertz, or faster, basis. New transient test requirements could 
require manufacturers to create new or expanded testing facilities to 
house, prepare and run transient tests on these larger engines. The 
space requirements, i.e., ``footprint,'' of such facilities could make 
building them cost-prohibitive.
    Absent transient testing, these engines will still be required to 
certify to both steady-state and NTE test requirements. Moreover, we 
are modifying the certification requirements to include additional 
information for engines under 750 hp. For more detail on this 
submission, see the discussion in section III.I of this preamble and 40 
CFR 1039.205(p) of the regulations.
    Finally, engines in this power category are found in a relatively 
small proportion of the nonroad equipment population and, despite the 
potential for large quantities of emissions from this class of engines 
during operation, units equipped with these engines have likewise been 
noted to contribute a small proportion of total diesel nonroad engine 
emissions.\77\ Many of these larger-displacement engines operate 
predominately in a constant-speed fashion with few transient 
excursions, as with electric power generation sets (gen sets) which 
make up a significant percent of these larger engines. Many of these 
gen sets, too, operate on an intermittent or stand-by only basis. 
Indeed, as explained below, such constant-speed, variable-load engines 
(for example, those certifying exclusively to the 5-mode steady-state 
cycle) of any horsepower category are not subject to the nonroad 
transient test cycle.
---------------------------------------------------------------------------

    \77\ Memorandum from Kent Helmer to Cleophas Jackson, 
``Applicability EPA's NRTC cycle to Nonroad Diesel Population,'' Air 
Docket A-2001-28, document II-B-34.
---------------------------------------------------------------------------

    Further, the Agency does not intend at this time to require that 
manufacturers use partial-flow sampling systems (PFSS) to determine PM 
emissions from their engines for certification. A large engine 
manufacturer may, however, choose to submit PM data to the Agency using 
PFSS as an alternative test method, if that manufacturer can 
demonstrate test equivalency using a paired-T test and F-Test, as 
outlined in regulations at 40 CFR 86.1306-07.
    Transient testing requires consideration of statistical parameters 
for verifying that test engines adequately follow the prescribed 
schedule of speed and load values. The regulations in 40 CFR 1065.514, 
table 1, detail these statistical parameters, also known as cycle 
performance statistics. These values are somewhat different than the 
comparable values for highway diesel engines to take into account the 
characteristics of nonroad engine operation. The values are an 
outgrowth of the long development process for the NRTC test cycle, 
itself.
2. Cold Start Transient Testing
    Nonroad diesel engines typically operate in the field by starting 
and warming to a point of stabilized hot operation at least once in a 
workday. Such ``cold-start'' conditions may also occur at other times 
over the course of the workday, such as after a lunch break. We have 
observed that certain test engines, which generally had emission-
control technologies for meeting Tier 2 or Tier 3 standards, had 
elevated emission levels for about 10 minutes after starting from a 
cold condition. The extent and duration of increased cold-start 
emissions will likely be affected by changing technology for meeting 
Tier 4 standards, but there is no reason to believe that this effect 
will lessen. In fact, cold-start concerns are especially pronounced for 
engines with catalytic devices for controlling exhaust emissions, 
because many require heating to a ``light-off'' or peak-efficiency 
temperature to begin working. See, for example, RIA section 4.1.2.2 and 
following. EPA's highway engine and vehicle programs, which 
increasingly involve such catalytic devices, address this by specifying 
a test procedure that first measures emissions with a cold engine, then 
repeats the test after the engine is warmed up, weighting emission 
results from the two tests for a composite emission measurement.
    In the proposal, we described an analytical approach that led to a 
weighting of 10 percent for the cold-start test and 90 percent for the 
hot-start test. Manufacturers pointed out that their analysis of the 
same data led to a weighting of about 4 percent for cold-start testing 
and that a high cold-start weighting would affect the feasibility of 
the proposed emission standards. Manufacturers also expressed a concern 
that there would be a significant test burden associated with cold-
start testing.

[[Page 39025]]

    Unlike steady-state tests, which always start with hot-stabilized 
engine operation, transient tests come closer to simulating actual in-
use operation, in which engines may start operating after only a short 
cool-down (hot-start) or after an extended soak (cold-start). The new 
transient test and manufacturers' expected use of catalytic devices to 
meet Tier 4 emission standards make it imperative to address cold-start 
emissions in the measurement procedure.\78\ We are therefore adopting a 
test procedure that requires measurement of both cold-start and hot-
start emissions over the transient duty cycle, much like for highway 
diesel engines. We acknowledge, however, that limited data are 
available to establish an appropriate cold-start weighting. For this 
final rule, we are therefore opting to establish a cold-start weighting 
of 5 percent. This is based on a typical scenario of engine operation 
involving an overnight soak and a total of seven hours of operation 
over the course of a workday. Under this scenario, the 20-minute cold-
start portion constitutes 5 percent of total engine operation for the 
day. Section II.B above addresses the feasibility of meeting the 
emission standards with cold-start testing. Regarding the test burden 
associated with cold-start testing, we believe that manufacturers will 
be able to take steps to minimize the burden by taking advantage of the 
provision that allows for forced cooling to reduce total testing time 
(40 CFR 1039.510(c)).
---------------------------------------------------------------------------

    \78\ Note that this discussion applies only to engines that are 
subject to testing with transient test procedures. For example, this 
excludes constant-speed engines and all engines over 750 hp.
---------------------------------------------------------------------------

    We believe the 5-percent weighting is based on a reasonable 
assessment of typical in-use operation and it addresses the need to 
design engines to control emissions under cold-start operation. We 
believe cold-start testing with these weighting factors will be 
sufficient to require manufacturers to take steps to minimize emission 
increases under cold-start conditions. Once manufacturers have applied 
technologies and strategies to minimize cold-start emissions, they will 
be achieving the greatest degree of emission reductions achievable 
under those conditions. A higher weighting factor for cold-start 
testing is not likely be more effective in achieving in-use emission 
control as new technologies will be expected to have resulted in 
significant control of emissions at engine startup.
    However, given our interest in controlling emissions under cold-
start conditions and the relatively small amount of information 
available in this area at this time, we intend to revisit the cold-
start weighting factor for transient testing in the future as 
additional data become available. Since the composite transient test 
represents a combination of variable-speed and constant-speed 
operation, we would consider operation from both of these types of 
engines in evaluating the cold-start weighting. Also, we intend to 
apply the same cold-start weighting when we adopt a transient duty 
cycle specifically for engines certified only for constant-speed 
operation.
    The planned data-collection effort will focus on characterizing 
cold-start operation for nonroad diesel equipment. The objective will 
be to reassess, and if necessary, redevelop a weighting factor that 
properly accounts for the degree of cold-start operation so that in-use 
engines effectively control emissions during these conditions. As we 
move forward with this investigation, other interested parties, 
including the State of California, will be invited to participate. We 
are interested in pursuing a joint effort, in consultation with other 
national government bodies, to ensure a robust and portable data set 
that will facilitate common global technical regulations. This effort 
will require consideration of at least the following factors:

     What types of equipment will we investigate?
     How many units of each equipment type will we 
instrument?
     How do we select individual models that will together 
provide an accurate cross-section of the type of equipment they 
represent?
     When will the program start and how long will it last?
     How should we define a cold-start event from the range 
of in-use operation?

    We expect to complete our further evaluation of the cold-start 
weighting in the context of the 2007 Technology Review, if not sooner. 
In case changes to the regulation are necessary, this timing will allow 
enough time for manufacturers to adjust their designs as needed to meet 
the Tier 4 standards.
3. Constant-Speed Tests
    The Agency proposed that engine manufacturers could certify 
constant-speed engines using EPA's Constant-Speed, Variable-Load (CSVL) 
transient duty cycle \79\ as an alternative to certifying these engines 
under its NRTC test cycle. The CSVL transient cycle was developed to 
approximate the speed and load operating characteristics of many 
constant-speed nonroad diesel applications.\80\ It, too, would have 
been subject to the cold-start requirement of nonroad transient test 
cycles as is the NRTC. However, after considerable discussion with and 
comment from engine manufacturers, equipment makers and other 
interested parties, the Agency has decided not to promulgate an 
alternative nonroad transient test cycle for constant-speed engines at 
this time. EMA, in its comments on the CSVL cycle, felt generally that: 
(1) The average load factor is much too low; (2) the frequency of the 
transient operations was too high; (3) the amplitudes of the transients 
were too great; and (4) the rates of transient load increase and 
response were too fast.
---------------------------------------------------------------------------

    \79\ Two Memoranda from Kent Helmer to Cleophas Jackson, ``Speed 
and Load Operating Schedule for the Constant Speed Variable Load 
(CSVL) transient test cycle,'' e-Docket OAR-2003-0012-0993, and 
``CSVL Cycle Construction,'' A-2001-28, II-B-50.
    \80\ Memorandum from Kent Helmer to Cleophas Jackson, ``Brake-
specific Emissions Impact of Nonroad Diesel Engine Testing Over the 
NRTC, AWQ, and AW1 duty cycles,'' Docket A-2001-28, .
---------------------------------------------------------------------------

    It was further noted that the CSVL test cycle is based solely upon 
the operation of a single, relatively small, naturally-aspirated arc 
welder engine, which EMA claims is a variable-speed type of engine 
certified generally on the 8-mode test cycle. Arc welders, Cummins 
noted, are not much like generator sets, which comprise around 50% of 
population of constant-speed engines and have a very different 
operation and test cycle than the typical portable generator set. 
Generator sets, DDC wrote, were built generally for a higher power 
capability at a single speed, many having larger, less-responsive 
turbochargers to achieve the higher brake mean effective pressure 
(BMEP). This made it difficult for these engines to shed load as 
quickly as the CSVL test cycle would require them to do. Commenters 
likewise wrote that the test cycle was costly and burdensome for 
equipment which, like generator sets, was only operated infrequently or 
when emergencies occurred. Some wrote that it would compromise 
generator set engine performance if manufacturers had to re-engineer 
their products to run over the CSVL test cycle, especially for larger 
BMEP engines. One commenter noted that these changes to nonroad engines 
would carry over to other stationary applications of these generator 
sets. A more extensive discussion of comments relating to the CSVL 
cycle may be read in the Summary and Analysis of Comment document for 
this rule.
    Given these potential problems and the strong possibility of fixing 
them by 2007, the Agency has decided to defer adopting the CSVL test 
cycle here.

[[Page 39026]]

Instead, EPA with all of its stakeholders in this regard will map out a 
process of engine testing and analysis to better characterize constant-
speed equipment in-use to design the most appropriate test cycle for 
the largest number of constant-speed engines. EPA undertakes this 
process with an eye to initiating rulemaking which would lead to 
promulgation of a transient cycle for constant-speed engines before the 
Agency's 2007 Nonroad Diesel Technical Review.
    EPA defines a constant-speed engine in this regard as one which is 
certified to constant-speed operation, in other words, an engine which 
may not operate at a speed outside a single, fixed reference speed set 
by the engine's governor. It should be clear then that any engine for 
which the governor doesn't strictly limit the engine speed in-use to 
constant-speed operation, that engine will be subject to the NRTC. 
Thus, if a manufacturer's engine is certified to EPA's 8-mode steady-
state test, the engine would also need to certify to the NRTC, since 
the 8-mode test does not limit the engine's fixed operating speed. 
Conversely, those manufacturers who certify their engines to EPA's 
constant-speed steady-state test, the 5-mode test cycle, are not 
required to have their engines certify to the NRTC.
    By utilizing an inclusive, data-driven approach (see Summary and 
Analysis document for more detail), the Agency is allowing time to 
develop, and if appropriate, finalize and implement a test procedure 
that meets the needs of the Agency, manufacturers, and other parties in 
advance of the 2007 Technology Review. In fact, the Agency envisions 
constant speed variable load cycle generation to be completed by July 
2005. This approach should allow the Agency to develop a testing 
program which ensures robust control in-use, is data-driven and remains 
globally harmonized. We expect to initiate this effort within 3 months 
of promulgation of this rule and to conclude the work on the new test 
cycle in enough time to promulgate it through rulemaking and to provide 
industry adequate lead time to implement it in an orderly manner. If we 
encounter unforeseen and unavoidable delays or complications in this 
process, we will consider approaches to control based on available data 
at the time of the 2007 Technology Review.
    The Agency is adopting additional requirements, in conjunction with 
existing steady-state test requirements, which will help ensure that 
constant-speed nonroad diesel engines are subject to a rigorous program 
of in-use control of emissions and that diesel engine emissions will be 
controlled over a wide range of speed and load combinations. EPA is 
finalizing stringent nonroad NTE limits and related test procedures for 
all new nonroad diesel engines subject to the Tier 4 emissions 
standards beginning in 2011 which will supplement the existing steady-
state five-mode test cycle for constant-speed application engines. NTE 
testing for transient operation will add further assurance that 
emissions from constant-speed engines within this class, which have a 
limited speed response in-use, are controlled under in-use operation. 
Typically, engines which are designed to a particular transient cycle 
will control emissions effectively under other types of transient 
operation not specifically included in that certification procedure. 
Engines that are capable of meeting emission standards on a constant-
speed, variable-load cycle will have the transient-response 
characteristics that are appropriate for controlling emissions at 
higher engine loads and for less dynamic transient operation. EPA, 
engine manufacturers, and interested parties will, in the mean time, 
work to develop a more appropriate transient test for constant-speed 
engines. A transient test for this broad class of nonroad engines will 
ensure a robust level of emissions control in-use within the diverse 
population of constant-speed engines and equipment.
4. Steady-State Tests
    Recognizing the variety of both power classes and work applications 
to be found within the nonroad equipment and engine population, and as 
proposed, EPA is retaining current Federal steady-state test procedures 
for nonroad engines. (Manufacturers are thus required to meet emission 
standards under steady-state conditions, in addition to meeting 
emission standards under the transient test cycle, whenever the 
transient test cycle applies.) This requirement, like NTE emission 
testing, is one of two tests which apply to every Tier 4 engine. Table 
III-2 below sets out the particular steady-state duty cycle applicable 
to each of the following categories: (1) Nonroad engines 25 hp and 
greater; (2) nonroad engines less than 25 hp; and (3) nonroad engines 
having constant-speed, variable-load applications, (e.g., gen sets). 
The steady-state cycles remain, respectively, the 8-mode cycle, the 6-
mode cycle and the 5-mode cycle.\81\
---------------------------------------------------------------------------

    \81\ These three steady-state test cycles are similar to test 
cycles found in the International Standard ISO 8178-4:1996 (E) and 
remain consistent with the existing 40 CFR part 89 steady-state duty 
cycles.
---------------------------------------------------------------------------

    Steady-state test cycles are needed so that testing for 
certification will reflect the broad range of operating conditions 
experienced by these engines. A steady-state test cycle represents an 
important type of modern engine operation, in power and speed ranges 
that are typical in-use. The mid-to-high speeds and loads represented 
by present steady-state testing requirements are the speeds and loads 
at which these engines are designed to operate for extended periods for 
maximum efficiency and durability. Details concerning the three steady-
state procedures for nonroad engines and equipment are found in 
regulations at 40 CFR 1039.505 and in Appendices I-III to 40 CFR part 
1039.
    Manufacturers will perform each steady-state test following all 
applicable test procedures in the regulations at 40 CFR part 1039, 
e.g., procedures for engine warm-up and exhaust emissions measurement. 
The testing must be conducted with all emission-related engine control 
variables in the maximum NOX-producing condition which could 
be encountered for a 30 second or longer averaging period at a given 
test point. Table III.F-2 below summarizes the steady-state testing 
requirements by individual engine power categories.

                            Table III.F-2.--Summary of Steady-State Test Requirements
----------------------------------------------------------------------------------------------------------------
                                                           Steady-state testing requirements
                                      --------------------------------------------------------------------------
     Nonroad engine power classes          8-Mode cycle (C1         6-Mode cycle (G3         5-Mode cycle (D2
                                              weighting)               weighting)               weighting)
----------------------------------------------------------------------------------------------------------------
hp < 25 (kW < 19)....................  applies \a\............  applies \a\............  applies \b\
25 <= hp < 75 (19 <= kW < 56)........  applies................  NA \c\.................  applies \b\
75 <= hp < 175 (56 <= kW < 130)......  applies................  NA \c\.................  applies \c\

[[Page 39027]]

 
175 <= hp <= 750 (130 <= kW <= 560)..  applies................  NA \c\.................  applies \b\
hp > 750 (kW > 560)..................  applies................  NA \c\.................  applies \b\
----------------------------------------------------------------------------------------------------------------
\a\ Manufacturers may use either of these tests for this class of engines.
\b\ For constant, or nearly constant, speed engines and equipment with variable, or intermittent, load.
\c\ Testing procedures not applicable to this class of engines.

    Nonroad engine manufacturers \82\, have called for steady-state 
testing which would collect emissions continuously ``in a pseudo-
transient manner,'' proposing in effect, one-filter PM collections 
during a steady-state duty cycle. In response to these and other 
manufacturer concerns for emission variability during certification 
testing due to unanticipated emission control system regeneration 
between steady-state test modes, the Agency \83\ has adopted, in its 40 
CFR 1065.515 regulations, the concept of modifying EPA's 40 CFR part 89 
steady-state engine certification duty cycles. The section describes 
ramped ``modal'' steady-state certification tests which would link the 
modes of a steady-state test together for the purpose of collecting a 
continuous stream of engine emissions. These tests provide for 
operating an engine at all of the modes specified in the present 
steady-state nonroad test cycles but without the breaks in emission 
collection required by switching between modes, stabilizing engine 
operation, and collecting emissions at that next operating mode. Since 
a ramped modal cycle (RMC) test cycle may more reliably and 
consistently report engine emissions from particulate trap and other 
emission control hardware-equipped nonroad engines than the comparable 
steady-state duty cycle from which it was derived, the Agency is 
providing the option of using these RMC versions of its steady-state 
engine duty cycles for nonroad diesel engine certification testing in 
lieu of the otherwise applicable steady-state cycles. Details on the 
procedures may be found in chapter 4.2 of the RIA for this rule and at 
regulations at 40 CFR 1039.505 and Appendix I of part 1039.
---------------------------------------------------------------------------

    \82\ Letter from EMA (Engine Manufacturers Association) to EPA 
Air Docket A-2001-28, IV-D-402, pp 64.
    \83\ Memorandum and summary of technical discussions (including 
Appendix ``A'' text) in the e-Docket submission, OAR-2003-0012-0028, 
to EPA's Air Docket.
---------------------------------------------------------------------------

    The optional RMC duty cycles do not represent a relaxation in 
stringency of emission testing nor are they an unreasonable increase in 
the emission test burden of diesel engine manufacturers. Rather, the 
RMC versions of EPA's steady-state test cycles allow for more 
consistent and predictable emission testing of emission control system 
hardware-equipped diesel engines. Eliminating the ``downtime'' between 
modes for the emission collection equipment allows sampling of 
emissions to be done on a composite basis for the whole test as opposed 
to sampling emissions mode-by-mode. The RMC versions of these tests 
simply create a negligible transition period 20 seconds long connecting 
each mode and collects emissions during these brief transitions, as 
well as collecting emissions during the running of each test's discrete 
operating modes. The continuous emission sampling allows regeneration 
events from engine emission control hardware to be captured more 
reliably and repeatably. By running emission testing without breaks and 
over the same engine duty schedule for each repetition of a RMC test, 
regeneration within the engine's emission control hardware should 
become almost a predictable event. The longer sampling times of RMCs, 
while creating an identical weighting of each mode's emissions, also 
help to avoid collecting a minuscule, possibly unreliably measured, 
amount of sample over the course of any single operating mode. PM 
emissions, for example, can be collected and measured more precisely 
under these test conditions as either batch or continuous samples. The 
opportunities for loss of emissions during sampling and storage due to 
sample retention by equipment at shut-down between modes or by filter 
handling and weighing are greatly reduced. As well, running a ``steady-
state'' test on a continuous basis allows cycle performance statistics 
to be applied to RMC emission tests (see 40 CFR, part 39). 
Manufacturers are familiar with test cycles run with a set of 
statistical engine duty cycle performance ``targets''. Further, their 
test runs will be subject to less test cell ``tuning'', modifying 
control strategies using repeat testing runs to fit the emission test 
cycle and the dynamometer to operate a particular engine. Finally, 
statistical targets serve to increase repeatability and reduce 
variability of engine operating parameters and emission test results on 
a test-to-test basis.
    Transport refrigeration unit (TRU) engines, a specific application 
of a steady-state operation engine (68 FR 28485, May 23, 2003), will be 
subject to both steady-state and NTE standards based on any normal 
operation that these engines would experience in the field. To that 
end, EPA has adopted a four-mode steady-state test cycle designed 
specifically for engines used in TRU applications which may be used by 
the manufacturer in lieu of normal steady-state testing. Commenters to 
the rule agreed that a TRU test cycle would be more representative of 
refrigeration unit operation than the nonroad cycles currently 
available to manufacturers of TRU engines, but some took issue with 
EPA's usage restrictions in paragraphs (d)(2), (e)(2), and (e)(3) of 
regulations proposed at 40 CFR part 1039 subpart G. In response, the 
final rule allows manufacturers to test their engines under a broad 
definition of intermediate test speed. The definition covers the 60-75% 
range of engine rpm at the specified test cycle engine load points, as 
defined in 40 CFR, 89.2. This will enable an engine manufacturer to 
more closely match the TRU cycle to the operation of their engines in-
use. Further, the engine is allowed to exhibit no more than 2% 
variation in transient operation (speed or torque change) around the 
four operating modes defined under this test cycle. The provisions to 
address load set point drift are discussed in detail in the RIA chapter 
4.3.2 and in regulations at 40 CFR part 1039 subpart G.
    In choosing to certify their engine as a TRU engine, manufacturers 
will need to state on the engine emission control label that the engine 
will only be used in a TRU application and records must be kept on the 
delivery destination(s) for their engines. Manufacturers of these 
engines may petition EPA at certification for a waiver of the 
requirement to provide smoke emission

[[Page 39028]]

data for their constant-torque engines. A more detailed discussion of 
the TRU associated provisions is contained in chapter 4.2 of the RIA. 
It should be noted that an RMC version of the steady state TRU duty 
cycle is provided in Table 2 of 40 CFR part 1039 subpart G.

G. Other Test Procedure Issues

    This section contains further detail and explanation regarding 
several related nonroad diesel engine emissions test and measurement 
provisions. The test procedures are specified in 40 CFR part 1065 and 
part 1039 subpart F. Part 1065 contains general test procedure 
requirements and part 1039 contains the provisions that are specific to 
CI nonroad engines, such as test cycles. The changes described here 
will not significantly affect the stringency of the standards. While 
some of the changes being made may appear to increase the stringency of 
the standards when considered by themselves, others would appear to 
have the opposite effect. When considered together, however, they will 
result in more repeatable and less subjective testing that is 
equivalent to the existing procedures with respect to stringency.
1. Smoke Testing
    To control smoke emissions, we are requiring in this final rule 
that the current smoke standards and procedures will continue to apply 
to certain engines. We proposed to change these smoke standards and 
procedures, based on recent developments toward an established 
international protocol that was designed to allow a straightforward 
method to test engines in the field (68 FR 28486, May 23, 2003). We 
have chosen not to adopt the proposed approach, mainly because it is 
becoming increasingly clear that ongoing development of in-use testing 
equipment will allow direct measurement of PM emissions in the field. 
We believe this will provide the best long-term control of both PM 
emissions. Controlling smoke is in some ways independent of PM, but the 
interest in developing an in-use smoke test was primarily as a means of 
providing a secondary indicator of high in-use PM emissions from these 
engines. Direct PM measurement removes much of the advantage of in-use 
smoke measurements. Relying on the existing smoke test also addresses 
concerns raised by manufacturers that the effort to comply with the new 
smoke requirements would be a large testing and development burden with 
little air-quality benefit. We believe that aftertreatment-based Tier 4 
PM standards will control smoke emissions as well as improved smoke 
testing standards and procedures. Engines below 19 kilowatts (kW) will 
generally not have particulate filters, but most of these are constant-
speed engines and are therefore not subject to smoke standards, as 
described below.
    We are continuing the established policy of exempting constant-
speed engines and single-cylinder engines from smoke standards. We do 
not believe that constant-speed engines undergo the kind of 
acceleration or lugging events that occur during this smoke test 
procedure, so it would not be appropriate for these engines to be 
subject to smoke standards. We exempt single-cylinder engines for a 
different reason. These engines, which very often provide power for 
generator sets and other constant-speed applications, but may in some 
cases experience accelerations, the nature of single-cylinder engine 
operation makes it difficult to get a valid smoke emission measurement. 
Single-cylinder engines generally have discrete puffs of smoke, rather 
than a stable emission stream for measuring smoke values. We believe it 
is not appropriate to use such erratic measurements to evaluate an 
engine's emission performance. As a result, we will not require single-
cylinder engines to meet our smoke standards until we find a test 
method that takes this into account.
    Also, as described in the proposed rule, we are exempting from 
smoke emission standards any engines that are certified to PM emission 
standards or FELs at or below 0.07 g/kW-hr. We believe any engine that 
has such low PM emissions will have inherently low smoke emissions. No 
commenters disagreed with this position.
2. Maximum Test Speed
    We are changing how test cycles are specified. As proposed, we are 
applying the existing definition of maximum test speed in 40 CFR part 
1065 to nonroad CI engines. This definition of maximum test speed is 
the single point on an engine's normalized maximum power versus speed 
curve that lies farthest away from the zero-power, zero-speed point. 
This is intended to ensure that the maximum speed of the test is 
representative of actual engine operating characteristics and is not 
improperly used to influence the parameters under which their engines 
are certified. In establishing this definition of maximum test speed, 
it was our intent to specify the highest speed at which the engine is 
likely to be operated in use. Under normal circumstances this maximum 
test speed should be close to the speed at which peak power is 
achieved. However, in past discussions, some manufacturers have 
indicated that it is possible for the maximum test speed to be 
unrepresentative of in-use operation. Since we were aware of this 
potential during the original development of this definition, we 
included provisions to address issues such as these. Part 1065 allows 
EPA to modify test procedures in situations where the specified test 
procedures would otherwise be unrepresentative of in-use operation. 
Thus, in cases in which the definition of maximum test speed resulted 
in an engine speed that was not expected to occur with in-use engines, 
we would work with the manufacturers to determine the maximum speed 
that would be expected to occur in-use (see regulations at 40 CFR 
1065.10 (c)).
3. Improvements to the Test Procedures
    As we proposed, we are making changes to the test procedures to 
improve the precision of emission measurements. These changes address 
the potential effect of measurement precision on the feasibility of the 
standards. It is important to note that these changes are not intended 
to bias results high or low, but only to improve the precision of the 
measurements. Based on our experience with these modified test 
procedures, and our discussions with manufacturers about their 
experiences, we are confident that these changes will not affect the 
stringency of the standards. These changes are summarized briefly here. 
The rationale for the changes are discussed in detail elsewhere. The 
changes affecting Constant Volume Sampling (CVS) and PM testing are 
discussed in a memo to the docket (Air Docket A-99-06, IV-B-11), which 
was originally submitted in support of the recent highway heavy-duty 
diesel engine rule (66 FR 5001, January 18, 2001).
    In general, we are applying the highway heavy-duty engine test 
procedures to nonroad CI engines in this rulemaking. Many of the 
specific changes being adopted are to the PM sampling procedures. The 
PM procedures are the procedures finalized as part of the highway 
heavy-duty diesel engine rule (66 FR 5001, January 18, 2001). These 
include changes to the type of PM filters that are used and 
improvements in how PM filters are weighed before and after emission 
measurements, including requirements for more precise microbalances.
    It is also worth noting that we intend to make additional 
improvements to the test procedures in a separate rulemaking that will 
be proposed later this year to incorporate the latest measurement

[[Page 39029]]

technologies. Many of the improvements being considered were discussed 
in the previously-mentioned memo to the docket (Air Docket A-99-06, IV-
B-11). We recognize the importance of these improvements for use in 
testing by nonroad diesel engine manufacturers and EPA. However, since 
we expect that the changes would also apply to many nonroad spark-
ignition engine manufacturers, it is appropriate to conduct a separate 
notice and comment rulemaking for all affected parties. We remain 
committed to incorporating appropriate additional improvements to the 
test procedures. We have placed into the docket a draft revised version 
of part 1065 that represents our current thinking on appropriate 
testing regulations.

H. Engine Power

    Currently, rated power and power rating are undefined, and we are 
concerned that this makes the applicability of the standards too 
subjective and confusing. One manufacturer may choose to define rated 
power as the maximum measured power output, while another may define it 
as the maximum measured power at a specific engine speed. Using this 
second approach, an engine's rated power may be somewhat less than the 
true maximum power output of the engine. Given the importance of engine 
power in defining which standards an engine must meet and when, we 
believe that it is critical that a singular power value be determined 
objectively according to a specific regulatory definition.
    To address this, we proposed to add a definition of ``maximum 
engine power'' to the regulations. This term was to be used instead of 
previously undefined terms such as ``rated power'' or ``power rating'' 
to specify the applicability of the standards. The addition of this 
definition was intended to allow for more objective applicability of 
the standards. More specifically, we proposed that:

    Maximum engine power means the measured maximum brake power 
output of an engine. The maximum engine power of an engine 
configuration is the average maximum engine power of the engines 
within the configuration. The maximum engine power of an engine 
family is the highest maximum engine power of the engines within the 
family.

    During the comment period, manufacturers opposed the proposed 
definition. (We received no other comments on this issue.) The 
manufacturers correctly pointed out that they cannot know the average 
actual power of production engines when they certify an engine family, 
because certification typically occurs before production begins. 
Therefore the definition of ``maximum engine power'' being finalized 
today relies primarily upon the manufacturer's design specifications 
and the maximum torque curve that the manufacturer expects to represent 
the actual production engines. This provision is specified in a new 
section 40 CFR 1039.140. Under this approach the manufacturer would 
take the torque curve that is projected for an engine configuration, 
based on the manufacturer's design and production specifications, and 
convert it into a ``nominal power curve'' that would relate the maximum 
power that would be expected to engine speed when a production engine 
is mapped according our specified mapping procedures. The maximum 
engine power is being defined as the maximum power point on that 
nominal power curve.
    Manufacturers will be required to report the maximum engine power 
of each configuration in their applications for certification. As with 
other engine parameters, manufacturers will be required to ensure that 
the engines that they produce under the certificate have maximum engine 
power consistent with those described in their applications. However, 
since we recognize that variability is a normal part of engine 
production, we will not require that all production engines have 
exactly the power specified in the application. Instead, we will only 
require that the power specified in the application be within the 
normal range of powers of the production engines. Typically, we would 
expect the specified power to be within one standard deviation of the 
mean power of the production engines. If a manufacturer determines that 
the specified power is outside of the normal range, we may require the 
manufacturer to change the settings of the engines being produced and/
or amend the application for certification. In deciding whether to 
require such amendment, we would consider the degree to which the 
specified power differed from the production engines, the normal power 
variability for those engines, whether the engine used or generated 
emission credits, and whether the error affected which standards 
applied to the engine.
    The preceding discussion presumes that each manufacturer will 
develop its production processes to produce the engines described in 
the application. If a manufacturer were to intentionally produce 
engines different than those described in the application, we would 
consider the application to be fraudulent, and could void the 
certificate ab initio for those engines. For example, for engines that 
use emission credits, this could occur if a manufacturer deliberately 
biased its production variability so that the engines have higher 
average power than described in the application. If we voided the 
certificate for those engines the manufacturer would be subject to 
large fines and any other appropriate enforcement provisions for each 
engine.
    Finally, in light of some of the comments that we received, it is 
worth clarifying that the maximum engine power will not be used during 
engine testing. It is only used to define power categories and 
calculate ABT emission credits.

I. Auxiliary Emission Control Devices and Defeat Devices

    Existing nonroad regulations prohibit the use of a defeat device 
(see 40 CFR 89.107) in nonroad diesel engines. The defeat device 
prohibition is intended to ensure that engine manufacturers do not use 
auxiliary emission control devices (AECD) which sense engine operation 
in a regulatory test procedure and as a result reduce the emission 
control effectiveness of that procedure.\84\ In today's notice we are 
supplementing existing nonroad test procedures with a transient engine 
test cycle and NTE emission standards with associated test 
requirements. As such, the Agency believes that a clarification of the 
existing nonroad diesel engine regulations regarding defeat devices is 
required in light of these additional emission test requirements. The 
defeat device prohibition makes it clear that AECDs which reduce the 
effectiveness of the emission control system are defeat devices, unless 
one of several conditions is met. One of these conditions is that an 
AECD which operates under conditions ``included in the test procedure'' 
is not a defeat device.\85\ While the existing defeat device definition 
does contain the term ``test procedure,'' and therefore should be 
interpreted as including the supplemental testing requirements, we want 
to make it clear that both the supplemental transient test cycle and 
NTE emission test procedures are

[[Page 39030]]

included within the defeat device regulations as conditions under which 
an operational AECD will not be considered a defeat device. Therefore, 
we are clarifying the defeat device regulations by specifying the 
appropriate test procedures (i.e., the existing steady-state procedures 
and the supplemental tests). We are clarifying the engine manufacturers 
certification reporting requirements with respect to the description of 
AECDs. Under the previous nonroad engine regulations, manufacturers are 
required to provide a generalized description of how the emissions 
control system operates and a ``detailed'' description of each AECD 
installed on the engine (see 40 CFR 89.115(d)(2)). This change 
clarifies what is meant by ``detailed.''
---------------------------------------------------------------------------

    \84\ Auxiliary emission control device is defined at 40 CFR 89.2 
as ``any element of design that senses temperature, vehicle speed, 
engine RPM, transmission gear, or any other parameter for the 
purpose of activating, modulating, delaying or deactivating the 
operation of any part of the emission control system.''
    \85\ 40 CFR 89.107(b)(1) states ``Defeat device includes any 
auxiliary emission control device (AECD) that reduces the 
effectiveness of the emission control system under conditions which 
may reasonably be expected to be encountered in normal operation and 
use unless such conditions are included in the test procedure.''
---------------------------------------------------------------------------

    For engines rated above 750 horsepower, the expanded interpretation 
of ``included in the test cycle'' extends only to the NTE because we 
are not requiring these engine to be tested over the supplemental 
transient test cycle. Transient emissions control strategies that are 
substantially included in the NTE will be considered to comply with the 
defeat device criteria. For instances where transient emissions control 
strategies are not well represented over the official test 
requirements, we will rely on the defeat device provisions to ensure 
appropriate transient off-cycle emissions control. The defeat device 
provisions restrict the ability of manufacturers to reduce the level of 
emissions control during transient operation compared to that employed 
over the steady state cycle. In order to evaluate transient emissions 
control strategies for compliance with the defeat device provisions, we 
are requiring manufacturers to submit information which indicates how 
transient emissions are controlled during normal operation and use. 
Information that would adequately fulfill this requirement includes but 
is not limited to:
    A. Emissions data gathered with portable emissions measurement 
systems from in-service engines operating over a broad range of typical 
transient conditions;
    B. Emissions data generated under laboratory conditions 
representing a broad range of typical transient operation;
    C. Transient test cycle results from certified engines rated at or 
below 750 horsepower which share nearly identical transient emissions 
control strategies;
    D. Base emissions control maps along with an explanation for 
differences in control between portions of the map substantially 
included in the steady-state test cycle and that which is predominately 
associated with transient operation;\86\
---------------------------------------------------------------------------

    \86\ Base emissions control maps describe the modulation of an 
emissions control parameter as a function of changing engine speed 
and torque.
---------------------------------------------------------------------------

    E. A comparative analysis of the base emissions control maps from 
certified engines rated at or below 750 horsepower and those rated over 
750 horsepower.
    We will use this information to determine the degree to which the 
design and effectiveness of the transient emissions control system 
compares to the control demonstrated over the steady-state cycle as 
well as the transient control used for certified engines at or below 
750 horsepower where compliance over the transient cycle is required.
    A thorough disclosure of the presence and purpose of AECDs is 
essential in allowing EPA to evaluate the AECD and determine whether it 
represents a defeat device. Clearly, any AECD which is not fully 
identified in the manufacturer's application for certification cannot 
be appropriately evaluated by EPA and therefore cannot be determined to 
be acceptable by EPA. Our clarifications to the certification 
application requirements include additional detail specific to those 
AECDs which the manufacturer believes are necessary to protect the 
engine or the equipment in which it is installed against damage or 
accident (``engine protection'' AECDs). While the definition of a 
defeat device allows as an exception strategies needed to protect the 
engine and equipment against damage or accident, we intend to continue 
our policy of closely reviewing the use of this exception. In 
evaluating whether a reduction in emissions control effectiveness is 
needed for engine protection, EPA will closely evaluate the actual 
technology employed on the engine family, as well as the use and 
availability of other emission control technologies across the 
industry, taking into consideration how widespread the use is, 
including its use in similar engines and similar equipment. While we 
have specified additional information related to engine protection 
AECDs in the regulations, we reserve the right to request additional 
information on a case-by-case basis as necessary.
    In the last several years, EPA has issued extensive guidance on the 
disclosure of AECDs for both highway and nonroad diesel engine 
manufactures. These provisions do not impose any new certification 
burden on engine manufacturers, rather, it clarifies the existing 
certification application regulations by specifying what type of 
information manufacturers must submit regarding AECDs.
    Finally, we take this opportunity to emphasize that the information 
submitted must be specific to each engine family. The practice of 
describing AECDs in a ``common'' section, wherein the strategies are 
described in general for all the manufacturer's engines, is acceptable 
as long as each engine family's application contains specific 
references to the AECDs in the common section which clearly indicate 
which AECDs are present on that engine family, and the application 
contains specific calibration information for that engine family's 
AECDs. The regulatory requirements can be found at 40 CFR 89.115(d)(2) 
in today's notice.

J. Not-To-Exceed Requirements

    In today's action we are finalizing not-to-exceed (NTE) emission 
standards for all new nonroad diesel engines subject to the Tier 4 
emissions standards beginning in 2011. These NTE standards and 
requirements are largely identical to the NTE provisions we proposed, 
except as noted below.
    The NTE standards and test procedures are being finalized to help 
ensure that nonroad diesel emissions are controlled over the wide range 
of speed and load combinations commonly experienced in-use. EPA has 
similar NTE standards for highway heavy-duty diesel engines, 
compression ignition marine engines, and nonroad spark-ignition 
engines. The NTE requirements supplement the existing steady-state test 
as well as the new transient test which is also being finalized today.
    The NTE standards and test procedures which we proposed, and which 
we are finalizing, are derived from similar NTE standards and test 
procedures which EPA adopted for highway heavy-duty diesel engines. In 
the proposal, we requested comment on an alternative NTE test procedure 
approach (see 68 FR 28369, May 23, 2003). As discussed in the proposal, 
the two NTE approaches would result in the same overall level of 
emission control, but the implementation of each approach from an in-
use measurement and data gathering perspective are quite different. We 
have decided not to finalize this alternative approach. This decision 
is based primarily on our belief that nonroad engine manufacturers will 
more easily transfer the knowledge and experience gained from the 
highway NTE implementation (which begins in 2007) to the nonroad 
program if the two programs have similar requirements. For additional 
discussion regarding our

[[Page 39031]]

decision to not finalize the alternative approach, please see the 
Summary and Analysis of Comments.
    The NTE requirements establish an area (the ``NTE zone'' or ``NTE 
control area'') under the torque curve of an engine where emissions 
must not exceed a specified value for any of the regulated 
pollutants.\87\ An illustrative NTE zone is shown in Figure III.J-1.
---------------------------------------------------------------------------

    \87\ Torque is a measure of rotational force. The torque curve 
for an engine is determined by an engine ``mapping'' procedure 
specified in the Code of Federal Regulations. The intent of the 
mapping procedure is to determine the maximum available torque at 
all engine speeds. The torque curve is merely a graphical 
representation of the maximum torque across all engine speeds.
[GRAPHIC] [TIFF OMITTED] TR29JN04.002

    The NTE standard applies during any conditions that could 
reasonably be expected to be seen by that engine in normal operation 
and use, within certain broad ranges of real ambient conditions. The 
NTE requirements will help to ensure emission benefits over the full 
range of in-use operating conditions. The NTE being finalized today for 
nonroad contains the same basic provisions as the highway NTE. This NTE 
control area is defined in the same manner as the highway NTE control 
area, and is therefore a subset of the engine's possible speed and load 
operating range. The NTE standard applies to emissions sampled during a 
time duration as small as 30 seconds. The NTE standard requirements for 
nonroad diesel engines are summarized below and specified in the 
regulations at 40 CFR 1039.101 and 40 CFR 1039.515. These requirements 
will take effect as early as 2011, as shown in table III.J-1. The NTE 
standard applies to engines at the time of certification as well as in 
use throughout the useful life of the engine.

          Table III.J-1.--NTE Standard Implementation Schedule
------------------------------------------------------------------------
                                                                NTE
                     Power category                       implementation
                                                          model year \a\
------------------------------------------------------------------------
<25 hp..................................................           2013
25-75 hp................................................       2013 \b\
75-175 hp...............................................           2012
175-750 hp..............................................           2011
>750 hp.................................................          2011
------------------------------------------------------------------------
Notes:
\a\ The NTE applies for each power category once Tier 4 standards are
  implemented, such that all engines in a given power category are
  required to meet NTE standards.
\b\ The NTE standard would apply in 2012 for any engines in the 50-75 hp
  range which choose not to comply with the proposed 2008 transitional
  PM standard.

    The NTE test procedure can be run in nonroad equipment during field 
operation or in an emissions testing laboratory using an appropriate 
dynamometer. The test itself does not involve a specific operating 
cycle of any specific length; rather, it involves nonroad equipment 
operation of any type which could reasonably be expected to occur in 
normal nonroad equipment operation that could occur within the bounds 
of the NTE control area. The nonroad engine is operated under 
conditions that may reasonably be expected to be encountered in normal 
operation and use, including operation under steady-state or transient 
conditions and under varying ambient conditions. Emissions are averaged 
over a minimum time of thirty seconds and then compared to the 
applicable emission standard. The NTE standard applies over a wide 
range of ambient conditions, including up to an altitude

[[Page 39032]]

of 5,500 feet above-sea level at ambient temperatures as high as 86 
deg. F, and at sea-level up to ambient temperatures as high as 100 deg. 
F. The specific temperature and altitude conditions under which the NTE 
applies, as well as the methodology for correcting emissions results 
for temperature and/or humidity, are specified in the regulations.
    For new nonroad diesel engines subject to the NTE standards, we 
will require that manufacturers state in their application for 
certification that they are able to meet the NTE standards under all 
conditions that may reasonably be expected to occur in normal equipment 
operation and use. Manufacturers will have to maintain a detailed 
description of any testing, engineering analysis, and other information 
that forms the basis for their statement. We believe that there is a 
variety of information that a manufacturer could use as a reasonable 
basis for a statement that engines are expected to meet NTE standards. 
For example, a reasonable basis could include data from laboratory 
steady-state and transient test cycle operation, a robust engine 
emissions map derived from laboratory testing (e.g., an emissions map 
of similar resolution to the engine's base fuel injection timing map) 
and technical analysis relying on good engineering judgment which are 
sufficient, in combination, to project emissions levels under NTE 
conditions reasonably expected to be encountered in normal operation 
and use. Data generated from in-use nonroad equipment testing to 
determine emission levels could, at the manufacturer's option, also be 
part of this combination. However, a reasonable basis for the 
manufacturer's statement does not require in-use emissions test data. 
This statement could reasonably be based solely on laboratory test 
data, analysis, and other information reasonably sufficient to support 
a conclusion that the engine will meet the NTE under conditions 
reasonably expected to be encountered in normal vehicle operation and 
use. If a manufacturer has relevant in-use nonroad emissions test data, 
it should be taken into consideration by the manufacturer in developing 
the basis for its statement.
    In addition, as we proposed, we are finalizing a transition period 
during which a manufacturer could apply for an NTE deficiency for a 
nonroad diesel engine family. The NTE deficiency provisions would allow 
the Administrator to accept a nonroad diesel engine as compliant with 
the NTE standards even though some specific requirements are not fully 
met. We are finalizing these NTE deficiency provisions because we 
believe that, despite the best efforts of manufacturers, for the first 
few model years it is possible some manufacturers may have technical 
problems that are limited in nature but cannot be remedied in time to 
meet production schedules. We are not limiting the number of NTE 
deficiencies a manufacturer can apply for during the first three model 
years for which the NTE applies. For the fourth through the seventh 
model year after which the NTE standards are implemented, a 
manufacturer could apply for no more than three NTE deficiencies per 
engine family. Within an engine family, NTE deficiencies must be 
applied for on an engine model or power rating basis; however, the same 
deficiency when applied to multiple ratings or models counts as a 
single deficiency within an engine family. No deficiency may be applied 
for or granted after the seventh model year. The NTE deficiency 
provision will only be considered for failures to meet the NTE 
requirements. EPA will not consider an application for a deficiency for 
failure to meet the FTP or supplemental transient standards.
    Similar to the 2007 highway HD rule, we are also finalizing a 
provision which would allow a manufacturer to exclude defined regions 
of the NTE engine control zone from NTE compliance if the manufacturer 
could demonstrate that the engine, when installed in a specified 
nonroad equipment application(s), is not capable of operating in such 
regions. We have also finalized a provision which would allow a 
manufacturer to petition the Agency to limit testing in a defined 
region of the NTE engine control zone during NTE testing. This optional 
provision would require the manufacturer to provide the Agency with in-
use operation data which the manufacturer could use to define a single, 
continuous region of the NTE control zone. This single area of the 
control zone must be specified such that operation within the defined 
region accounts for 5 percent or less of the total in-use operation of 
the engine, based on the supplied data. Further, to protect against 
``gaming'' by manufacturers, the defined region must generally be 
elliptical or rectangular in shape, and share a boundary with the NTE 
control zone. If approved by EPA, the regulations then disallow testing 
with sampling periods in which operation within the defined region 
constitutes more than 5.0 percent of the time-weighted operation within 
the sampling period.
    The NTE numerical standard is a function of FTP emission standards 
contained in today's final rule, which standards are described in 
section II. As with the NTE standards we have established for the 2007 
highway rule, the nonroad NTE standard is determined as a multiple of 
the engine families' underlying FTP emission standard. In addition, as 
with the 2007 highway standard, the multiple is either 1.25 or 1.5, 
depending on the emission pollutant type and the value of the FTP 
standard (or the engine families' FEL). These multipliers are based on 
EPA's assessment of the technological feasibility of the NTE standard, 
and our assessment that as the underlying FTP standard becomes more 
stringent, the NTE multiplier should increase (from 1.25 to 1.5). The 
FTP standard or FEL thresholds for the NTE standard's 1.25x multiplier 
and the 1.5x multiplier are specified for each regulated emission in 
table III.J-2.

    Table III.J-2.--Thresholds for Applying NTE Standard of 1.25x FTP
                     Standard vs. 1.5x FTP Standard
------------------------------------------------------------------------
                                    Apply 1.25x NTE    Apply 1.5x when .
            Emission                  when . . .              . .
------------------------------------------------------------------------
NOX.............................  NOX std or FEL >=   NOX std or FEL <
                                   1.9 g/bhp-hr.       1.9 g/bhp-hr
NMHC............................  NOX std or FEL >=   NOX std or FEL <
                                   1.9 g/bhp-hr.       1.9 g/bhp-hr
NOX+NMHC........................  NMHC+NOX std or     NMHC+NOX std or
                                   FEL >= 2.0 g/bhp-   FEL < 2.0 g/bhp-
                                   hr.                 hr
PM..............................  PM std or FEL >=    PM std or FEL <
                                   0.05 g/bhp-hr.      0.05 g/bhp-hr
CO..............................  All stds or FELs..  No stds or FELs
------------------------------------------------------------------------

    For example, beginning in 2011, the NTE standard for engines 
meeting a FTP PM standard of 0.01 g/bhp-hr and a FTP NOX 
standard of 0.30 g/bhp-hr would be 0.02 g/bhp-hr PM and 0.45 g/bhp-hr 
NOX. In the NPRM, we proposed a NOX

[[Page 39033]]

threshold value of 1.5 g/bhp-hr as the value at which the NTE 
multiplier would switch from 1.5 to 1.25.
    We proposed this NOX emission threshold level (1.5 g/
bhp-hr) primarily because it is the same value as we finalized for the 
highway NTE. As shown in table III.J-2, we have finalized a threshold 
value of 1.9 g/bhp-hr NOX for nonroad engines. We have 
finalized this higher NOX threshold based on the differences 
in the emission performance of NOX control technologies 
between highway and nonroad diesel engines. Specifically, nonroad 
diesel NOX standards have traditionally been higher than the 
equivalent highway NOX standard due primarily to the 
effectiveness of charge-air-cooling and the lack of ram-air for nonroad 
applications. For example, the nonroad Tier 3 NMHC+NOX 
standards are higher than the 2004 heavy-duty highway standards (e.g., 
3.0 g/bhp-hr vs. 2.5 g/bhp-hr), and the Tier 4 NOX standard 
is higher than the 2007 heavy-duty highway standard (e.g., 0.3 g/bhp-hr 
vs. 0.2 g/bhp-hr). We expect that the nonroad Tier 3 standard for 
engines above 100 hp will require NOX levels of 
approximately 2.5 g/bhp-hr and we expect that for the 2004 highway 
heavy-duty standards, NOX levels are approximately 2 g/bhp-
hr. In both cases, these emission levels are the building blocks for 
the next set of EPA standards (e.g., Tier 4 for nonroad and 2007 for 
highway). Because the nonroad Tier 3 NOX emission levels are 
expected to be approximately 25 percent greater than the 2004 highway 
level (2.5 vs 2), we believe that the NTE NOX multiplier 
threshold for nonroad should be 25 percent greater for nonroad as 
compared to highway. For these reasons, we have finalized a 
NOX multiplier threshold of 1.9 g/bhp-hr, which is 25 
percent greater than the highway multiplier threshold.
    In addition, as proposed, we are finalizing a number of specific 
engine operating conditions during which the nonroad NTE standard would 
not apply. The exact criteria for these conditions are defined in the 
regulations, but in summary: the NTE does not apply during engine 
start-up conditions; the NTE does not apply during very cold engine 
intake air temperatures for EGR-equipped engines during which the 
engine may require an engine protection strategy; and, finally, for 
engines equipped with NOX and/or NMHC aftertreatment (such 
as a NOX adsorber), the NTE does not apply during warm-up 
conditions for the exhaust emission control device. Finally, while we 
did not propose this, we are finalizing the NTE PM carve-out provisions 
for engines which will not require PM filters. The PM only carve-out is 
a sub-region of the NTE zone in which the NTE PM standard does not 
apply. Figure III.J-1 contains an illustration of the PM carve-out. 
This is a region of high engine speed and low engine torque during 
which engine-out PM emissions are difficult to control to levels below 
the PM NTE standard. The dimensions of the PM carve-out are specified 
in the regulations. For engines equipped with a PM filter, compliance 
with the PM NTE standard in this region is achievable due to the highly 
efficient PM reduction capabilities of the CDPF technology. However, 
for engines in the under 25 hp category, for which we have established 
Tier 4 emission standards that do not require the use of a PM filter, 
PM control in this sub-region of the NTE zone with conventional PM 
reduction technologies may not be achievable. Therefore, as we allowed 
with highway heavy-duty engines certifying to the 0.1 g/bhp-hr 
standard, we have created a PM carve-out for nonroad engines that use 
in-cylinder PM control technologies. Specifically, the PM carve-out 
applies to engines meeting a PM standard or FEL greater than or equal 
to 0.05 g/bhp-hr.

K. Investigating and Reporting Emission-Related Defects

    In 40 CFR part 1068, subpart F, we are adopting defect reporting 
requirements that obligate manufacturers to tell us when they learn 
that emission-control systems are defective and to conduct 
investigations under certain circumstances to determine if an emission-
related defect is present. Under these defect-reporting requirements, 
manufacturers must track available warranty claims and any other 
available information from dealers, hotlines, diagnostic reports, or 
field-service personnel to identify possible defects. If the number of 
possible defects exceeds certain thresholds, they must investigate 
future warranty claims and other information to establish whether these 
are actual defects.
    We believe the investigation requirement in this rule will allow 
both EPA and the engine manufacturers to fully understand the 
significance of any unusually high rates of warranty claims for systems 
or parts that may have an impact on emissions. In the past, defect 
reports were submitted based on a very low threshold with the same 
threshold applicable to all size engine families and with little 
information about the full extent of the problem. The new approach 
should result in fewer overall defect reports being submitted by 
manufacturers than would otherwise be required under the old defect-
reporting requirements because the number of defects triggering the 
submission requirement rises with the engine family size. The new 
approach may trigger some additional reports for small-volume families, 
but the percentage-based approach will ensure that investigations and 
reports correspond to issues that are likely to be significant.
    Part 1068, subpart F, is intended to require manufacturers to use 
information we would expect them to keep in the normal course of 
business. We believe in most cases manufacturers will not be required 
to institute new programs or activities to monitor product quality or 
performance. A manufacturer that does not keep warranty or replacement 
part information may ask for our approval to use an alternate defect-
reporting methodology that is at least as effective in identifying and 
tracking possible emission-related defects as the requirements of 40 
CFR 1068.501. Thus manufacturers will have the flexibility to develop 
defect tracking and reporting programs that work better for their 
standard business practices. However, until we approve such a request, 
the thresholds and procedures of subpart F continue to apply.
    Manufacturers may also ask for our approval to use an alternate 
defect-reporting methodology when the requirements of 40 CFR 1068.501 
can be demonstrated to be highly impractical or unduly burdensome. In 
such cases, we will generally allow alternate methodologies that are at 
least as effective in identifying, correcting, and informing EPA of 
possible emission-related defects as the requirements of 40 CFR 
1068.501. We expect this flexibility to be useful in special 
circumstances such as when new models of very large engines are 
introduced for the first time. In this situation, it may be appropriate 
to allow an alternate defect reporting method because the high cost of 
these engines often makes it impractical to build and test large 
numbers of prototype engines. The initial production of these engines 
can have similar defect rates to the high levels often associated with 
prototype engines. While we are concerned about such defects and want 
to be kept informed about them, it is not clear that our basic program 
would be the best way to address these defects. In such cases, we 
believe it may be more appropriate for manufacturers to propose an 
alternative approach that consolidates reports on a regular interval, 
such as quarterly, and identifies obvious early-life defects without a 
formal tracking process. In general, we would encourage manufacturers 
to propose an alternate

[[Page 39034]]

approach to ensure that these defects are properly addressed while 
minimizing the associated burden.
    Issues related to parts shipments received the most attention from 
commenters who pointed out that the proposed requirement to track 
shipments of all emission-related components was overly burdensome and 
not likely to reveal useful information. We have concluded that it is 
not appropriate to use parts shipments as a quantitative indicator to 
evaluate whether manufacturers exceed the threshold that would trigger 
an investigation. We generally agree with manufacturers concerns that 
parts-shipments data would be too difficult to evaluate, for example, 
because parts are often shipped for stocking purposes, parts are 
installed in compliant and noncompliant products (such as exported 
engines), and part shipments are generally not identifiable by model 
year. The final rule therefore requires manufacturers to pursue a 
defect investigation if the number of shipped parts is higher than the 
manufacturer would expect based on historical shipment levels, 
specifications for scheduled maintenance, or other factors.
    We have modified the proposed thresholds to address concerns that 
manufacturers would be required to investigate and report defects too 
frequently. For engines under 750 hp, we are adopting investigation 
thresholds of 10 percent of total production or 50 engines, whichever 
is greater, for any single engine family in one model year. Similarly, 
we are adopting defect-reporting thresholds of 2 percent of total 
production or 20 engines, whichever is greater. For engines over 750 
hp, the same percentage thresholds apply, but we are extending the 
percentage values down to smaller engine families to reflect their 
disproportionate contribution to total emissions. For these engines, 
the absolute thresholds are 25 engines for investigations and 10 or 15 
engines for defects (see table III.K-1). We believe these thresholds 
adequately balance the desire to document emission-related defects 
without imposing an unreasonable reporting burden. Also, we believe 
this approach to adopting thresholds adequately addresses reporting 
requirements for aftertreatment and non-aftertreatment components.

    Table III.K-1.--Investigation and Defect-Reporting Thresholds for
                   Varying Sizes of Engine Families\1\
------------------------------------------------------------------------
                                     Investigation     Defect-reporting
           Engine size                 threshold           threshold
------------------------------------------------------------------------
<=750 hp........................  less than 500: 50.  less than 1,000:
                                                       20
                                  500-50,000: 10%...  1,000-50,000: 2%
                                  50,000+: 5,000....  50,000+: 1,000
>750 hp.........................  ..................  less than 150: 10
                                  less than 250: 25.  150-750: 15
                                  250+: 10%.........  750+: 2%
------------------------------------------------------------------------
Notes:
\1\ For varying sizes of engine families, based on sales per family in a
  given model year.

    EMA also expressed concern about the existing regulatory language 
in 40 CFR 1068.501(b)(3), which states that manufacturers must 
``consider defects that occur within the useful life period, or within 
five years after the end of the model year, whichever is longer.'' 
However, this provision has no effect on the diesel engines subject to 
the Tier 4 standards being adopted today, since they all have useful 
lives of at least five years. We recognize that this issue may be 
relevant to engine categories that do not have five-year useful lives, 
such as small SI engines, and will consider these concerns in our 
future regulation of such engines.
    When manufacturers start an investigation, they must consider any 
available information that would help them evaluate whether any of the 
possible defects that contributed to triggering the investigation 
threshold would lead them to conclude that these were actual defects. 
Otherwise, manufacturers are expected to look prospectively at any 
possible defects and attempt to determine whether these are actual 
defects. Also, during an investigation, manufacturers should use 
appropriate statistical methods to project defect rates if they are 
unable to collect information to evaluate possible defects, taking 
steps as necessary to prevent bias in sampled data (or making adjusted 
calculations to take into account any bias that may remain). For 
example, if 75 percent of the components replaced under warranty are 
available for evaluation, it would be appropriate to extrapolate known 
information on failure rates to the components that are unavailable for 
evaluation.
    The second threshold in 40 CFR 1068.501 specifies when a 
manufacturer must report that there is an emission-related defect. This 
threshold involves a smaller number of engines because each possible 
occurrence has been screened to confirm that it is in fact an emission-
related defect. In counting engines to compare with the defect-
reporting threshold, the manufacturer generally considers a single 
engine family and model year. Where information cannot be 
differentiated by engine family and model year, the manufacturer must 
use good engineering judgment to evaluate whether the information leads 
to a conclusion that the number of defects exceeds the applicable 
thresholds. However, when a defect report is required, the manufacturer 
must report all occurrences of the same defect in all engine families 
and all model years.
    If the number of engines with a specific defect is found to be less 
than the threshold for submitting a defect report, but information such 
as warranty data later indicates that there may be additional defective 
engines, all the information must be considered in determining whether 
the threshold for submitting a defect report has been met. If a 
manufacturer has actual knowledge from any source that the threshold 
for submitting a defect report has been met, a defect report must be 
submitted even if the trigger for investigating has not yet been met. 
For example, if manufacturers receive from their dealers, technical 
staff or other field personnel information showing conclusively that 
there is a recurring emission-related defect, they must submit a defect 
report.
    If manufacturers trigger the threshold to start an investigation, 
they must promptly and thoroughly investigate whether their parts are 
defective, collecting specific information to prepare a report 
describing their conclusions. Manufacturers must send the report if an 
investigation concludes that the number of actual defects did not 
exceed reporting thresholds. Manufacturers must also send these as 
status reports twice annually during an investigation. After 
investigating for

[[Page 39035]]

several months, or perhaps a couple years, it may become clear that the 
problems that triggered the investigation will never show enough actual 
defects to trigger a defect report. In this case, the manufacturer 
would send us a report justifying this conclusion.
    In general, we believe this updated approach to defect reporting 
will decrease the number of defect reports submitted by manufacturers 
overall while significantly improving their quality and their value to 
both EPA and the manufacturer.
    Note that misbuilds are a special type of emission-related defect. 
An engine that is not built consistent with its application for 
certification violates the prohibited act of introducing into commerce 
engines that are not covered by a certificate of conformity.

L. Compliance With the Phase-In Provisions

    In section II we described the NOX and NMHC standards 
phase-in schedule, which is intended to allow engine manufacturers to 
phase-in their new advanced technology engines, while they phase-out 
existing engines. This phase-in requirement is based on percentages of 
a manufacturer's production for the U.S. market. We recognize, however, 
that manufacturers need to plan for compliance well in advance of the 
start of production, and that actual production volumes for any one 
model year may differ from their projections. On the other hand, we 
believe that it would be inappropriate and infeasible to base 
compliance solely on a manufacturer's projections. That could encourage 
manufacturers to overestimate their production of complying phase-in 
engines, and could result in significantly lower emission benefits 
during the phase-in. In response to these concerns, we proposed to 
initially only require nonroad diesel manufacturers to project 
compliance with the phase-in based on their projected production 
volumes, provided that they made up any deficits (in terms of percent 
of production) the following year. We received no comments on this 
issue and are finalizing it as proposed.
    Because we expect that a manufacturer making a good-faith 
projection of sales would not be very far off of the actual production 
volumes, we are limiting the size of the deficit that would be allowed, 
as in the highway program. In all cases, the manufacturer would be 
required to produce at least 25% of its production in each phase-in 
power category as ``phase-in'' engines (meeting the NOX and 
NMHC standards or demonstrating compliance through use of ABT credits) 
in the phase-in years (after factoring in any adjustments for early 
introduction engine credits; see section III.M). This minimum required 
production level would be 20% for the 75-175 hp category if a 
manufacturer exercises the option to comply with a reduced phase-in 
schedule in lieu of using banked Tier 2 ABT credits, as discussed in 
section III.A.1.b. Another important restriction is that manufacturers 
would not be allowed to have a deficit in the year immediately 
preceding the completion of the phase-in to 100%. This would help 
ensure that manufacturers are able to make up the deficit. Since they 
could not produce more than 100% low-NOX engines after the 
final phase-in year, it would not be possible to make up a deficit from 
this year. These provisions are identical to those adopted in the 
highway HDDE program.
    We are also finalizing the proposed ``split family'' allowance for 
the phase-in years. This provision, which is similar to a provision of 
the highway program, allows manufacturers to certify engine families to 
both the phase-in and phase-out standards. Manufacturers choosing this 
option must assign at the end of the model year specific numbers of 
engines to the phase-in and phase-out categories. All engines in the 
family must be labeled with the same NOX and PM FELs, which 
apply for all compliance testing, and must meet all other requirements 
that apply to phase-in engines. Engines assigned to the phase-out 
category may generate emission credits relative to the phase-out 
standards.

M. Incentive Program for Early or Very Low Emission Engines

    We believe that it is appropriate and beneficial to provide 
voluntary incentives for manufacturers to introduce engines emitting at 
very low levels early. Such inducements may help pave the way for 
greater and/or more cost effective emission reductions from future 
engines and vehicles. To encourage early introduction of low-emission 
engines, the proposal contained provisions to allow engine 
manufacturers to benefit from producing engines certified to the final 
(aftertreatment-based) Tier 4 standards prior to the 2011 model year, 
by being allowed to make fewer engines certified to these standards 
once the Tier 4 program takes effect, a concept that we are terming 
``engine offsets'' to avoid confusion with ABT program credits. The 
number of offsets that could be generated would depend on the degree to 
which the engines are able to meet, or perform better than, the final 
Tier 4 standards. Commenters generally supported this approach, as long 
EPA ensures that compliance requirements for these engines are 
enforced.
    However, one equipment manufacturer submitted comments suggesting 
that we should adopt a program that would provide incentives for 
equipment manufacturers to use the early Tier 4 engines in their 
equipment. For an early low-emission engine program to be successful, 
we agree that it is important to provide incentives to both the engine 
manufacturer and the equipment manufacturer, who may incur added cost 
to install and market the advanced engine in the equipment. As was 
pointed out in comments, the proposed program did not provide clear 
incentives to equipment manufacturers to use the (presumably more 
expensive) early low-emission engines. Therefore, we are adding such 
provisions. Section III.B.2.e describes these early Tier 4 engine 
incentive provisions under which equipment manufacturers can earn 
increased allowance flexibilities. Under those provisions, the engine 
manufacturer's incentive to produce the low-emitting engines will come 
from customers' demand for them, and from the fact that the engine 
manufacturer can earn ABT program credits for these engines in the same 
way as without these incentive provisions. If the equipment 
manufacturer does not wish to earn the increased allowance 
flexibilities, then the engine manufacturer would be allowed to use the 
provisions of the incentive program for early low-emission engines 
described below in this subsection, though to do so would require the 
forfeiture of any ABT credits earned by the subject engines, 
essentially to avoid double counting, as explained below. This engine 
manufacturer incentive program is being adopted as proposed, except for 
engines above 750 hp, for which the proposed program requires some 
adjustment to account for the approach we are taking to final 
standards.
    As discussed in section II.A.4, the final rule does not phase in 
standards for engines above 750 hp as proposed, and instead adopts 
application-specific standards in 2011 and 2015. The 2011 standards are 
not based on advanced aftertreatment except for NOX on 
engines above 1200 hp used in generator sets. To avoid overcomplication 
of the incentive program, which might discourage its use, we are not 
separating over and under 1200 hp generator set engines into separate 
groups for these provisions. Instead, any of these engines that meet 
the 2015 standards before 2015 can earn offsets. We are, however,

[[Page 39036]]

separating the generator set engines and non-generator set engines 
above 750 hp into separate groups, because we are deferring setting a 
NOX standard for the latter that is based on use of advanced 
aftertreatment technology.
    Table III.M-1 summarizes the requirements and available offsets for 
engine manufacturers in this program. As the purpose of the incentive 
is to encourage the introduction of clean technology engines earlier 
than required, we require that the emission standard levels actually be 
met, and met early, by qualifying engines to earn the early 
introduction offsets. The regulations specify that the standards must 
be met without the use of ABT credits and actual production of the 
engines must begin by September 1 preceding the first model year when 
the standards would otherwise be applicable. Also, to avoid double-
counting, as explained in the proposal, the early engines can earn 
either the engine offsets or the ABT emission credit, but not both. 
Note that this is different than the approach taken in the early Tier 4 
engine incentive program for equipment manufacturers described in 
section III.B.2.e, where incentives for both the engine manufacturer 
(ABT credits) and the equipment manufacturer (allowance flexibilities) 
are needed to ensure successful early introduction of clean engines. 
Because 15 ppm sulfur diesel fuel will be available on a widespread 
basis in time for 2007 (due to the requirements for on-highway heavy-
duty engines), we are allowing engine manufacturers to begin certifying 
engines to the very low emission levels required to be eligible for 
this incentive program, beginning with the 2007 model year.

                         Table III.M-1.--Program for Early Introduction of Clean Engines
----------------------------------------------------------------------------------------------------------------
              Category                    Engine group              Must meet \a\            Per-engine offset
----------------------------------------------------------------------------------------------------------------
Early..............................  25-75 hp..............  0.02 g/bhp-hr PM...........  1.5-to-1
PM-only \b\........................  75-750 hp.............  0.01 g/bhp-hr PM...........  PM-only
                                     25-75 hp..............  0.02/3.5 g/bhp-hr PM/
                                                              NMHC+NOX.
                                     75-750 hp.............  0.01/0.30/0.14 g/bhp-hr PM/
                                                              NOX/NMHC.
                                     >750 hp generator set.  0.02/0.50/0.14 g/bhp-hr PM/  1.5-to-1
                                                              NOX/NMHC.
Early Engine \b\...................  >750 hp non-generator   0.03/2.6/0.14 g/bhp-hr PM/
                                      set.                    NOX/NMHC.
Low NOX Engine.....................  >25 hp................  as above for Early Engine,   2-to-1
                                                              except must meet 0.15 g/
                                                              bhp-hr NOX standard.
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ All engines must also meet the Tier 4 crankcase emissions requirements. Engines must certify using all test
  and other requirements (such as NRTC and NTE) otherwise required for final Tier 4 standards.
\b\ Offsets must be earned prior to the start of phase-in requirements in applicable engine groups (prior to
  2013 for 25-75 hp engines, prior to 2012 for 75-175 hp engines, prior to 2011 for 175-750 hp engines, prior to
  2015 for >750 hp engines).

    For any engines being certified under this program before the 2011 
model year using 15 ppm sulfur certification fuel, the manufacturer 
would have to meet the requirements described in section III.D, 
including demonstrating that the engine would indeed be fueled with 15 
ppm sulfur fuel in the field. We expect this would occur through 
selling such engines into fleet applications, such as municipal 
maintenance fleets, large construction company fleets, or any such 
well-managed centrally-fueled fleet. While obtaining a reliable supply 
of 15 ppm maximum sulfur diesel fuel prior to the 2011 model year will 
be possible, it will require some effort by nonroad diesel machine 
operators. We therefore believe it is necessary and appropriate to 
provide a greater incentive for early introduction of clean diesel 
technology. Thus, as proposed, we would count one early engine (that 
is, an engine meeting the final Tier 4 standards) as offsetting 1.5 
engines later. This means that fewer clean diesel engines than 
otherwise required may enter the market in later years, but, more 
importantly, it means that emission reductions would be realized 
earlier than under our base program. We believe that providing 
incentives for early emission reductions is a worthwhile goal for this 
program, because improving air quality is an urgent need in many parts 
of the country as explained in section I, and because the early 
learning opportunity with new technologies can help to ensure a smooth 
transition to Tier 4 standards.
    We are providing this early introduction offset for engines over 25 
hp that meet all of today's Tier 4 emissions standards (NOX, 
PM, and NMHC) in the applicable engine category. We are also providing 
this early introduction offset to engines that pull ahead compliance 
with only the PM standard. However, a PM-only early engine would offset 
only the PM standard for an offset-using engine. For engines in power 
categories with a percentage phase-in, this would correspond (during 
the phase-in years) to offset use for ``phase-out'' engines (those 
required to meet the new Tier 4 standard for PM but not for 
NOX or NMHC). Engines using the PM-only offset would be 
subject to the other applicable Tier 4 emission standards, including 
applicable transient and NTE standards (see Section III.F) and 
crankcase requirements. The applicable PM standard and requirements for 
these PM-only offset-using engines would be those of Tier 3 (Tier 2 for 
25-50 hp engines). PM-only offsets would not offset engines required to 
meet other Tier 4 standards such as the phase-in NOX and 
NMHC standards (since there is no reason for PM offsets to offset 
emissions of other pollutants). Tier 4 engines between 25 and 75 hp 
certified to the 2008 PM standard would not participate in this 
program, nor would engines below 25 hp, because they do not have 
advanced aftertreatment-based standards.
    An important aspect of the early incentive provision is that it 
must be done on an engine count basis. That is, a diesel engine meeting 
new standards early would count as 1.5 such diesel engines later. This 
contrasts with a provision done on an engine percentage basis which 
would count one percent of diesel engines early as 1.5 percent of 
diesel engines later. Basing the incentive on an engine count 
alleviates any possible influence of fluctuations in engine sales in 
different model years.
    Another important aspect of this program is that it is limited to 
engines sold prior to the 2013 model year for engines between 25 and 75 
hp, prior to the 2012 model year for engines between 75 and 175 hp, and 
prior to the 2011 model year for engines between 175 and 750 hp. In 
other words, as in the highway program, nonroad diesel engines sold 
during the transitional ``phase-in'' model years would not be 
considered ``early'' introduction engines and would therefore be 
ineligible to

[[Page 39037]]

generate early introduction offsets. However, such engines and vehicles 
would still be able to generate ABT credits. Because the engines over 
750 hp engines have no percent-of-production phase-in provisions, we 
are allowing offsets for early engines in any model year prior to 2015. 
For the same reason, there is no PM-only offset for these engines. As 
with the phase-in itself, and for the same reasons, an early 
introduction engine could only be used to offset requirements for 
engines in the same engine group (25-75 hp, 75-175 hp, 175-750 hp, >750 
hp generator sets, and >750 hp non-generator sets) as the offset-
generating engine.
    As a further incentive to introduce clean engines and vehicles 
early, we are also adopting the proposed provision that gives engine 
manufacturers an early introduction offset equal to two engines during 
or after the phase-in years for engines with NOX levels well 
below the final Tier 4 NOX standard. This incentive applies 
for diesel engines achieving a 0.15 g/bhp-hr NOX standard 
level (one-half of the aftertreatment-based standard for most engines) 
while also meeting the NMHC and PM standards. Due to the extremely low 
emission levels to which these engines and vehicles would need to 
certify, we believe that the double engine count offset is appropriate.
    In the NPRM we asked for comment on whether or not we should extend 
the existing Blue Sky program that encourages the early introduction of 
engines with emission levels (as measured on a transient test) about 
40% lower than the Tier 2 standards levels. See 68 FR at 28483. We 
received comments both for and against doing so, but no commenter 
provided substantive arguments or information. Given the very low 
emissions levels being adopted in Tier 4, we have decided not to extend 
the existing Blue Sky Series program, because it does not encourage 
engines emitting at such low emission levels.

N. Labeling and Notification Requirements

    As explained in section II, the emissions standards will make it 
necessary for manufacturers to employ exhaust emission control devices 
that require very low-sulfur fuel (less than 15 ppm) to ensure proper 
operation. This action restricts the sulfur content of diesel fuel used 
in these engines. However, the 2008 emissions standards would be 
achievable with less sensitive technologies and thus it could be 
appropriate for those engines to use diesel fuel with up to 500 ppm 
sulfur. There could be situations in which vehicles requiring either 15 
ppm fuel or 500 ppm may be accidentally or purposely misfueled with 
higher-sulfur fuel. Any of these misfueling events could seriously 
degrade the emission performance of sulfur-sensitive exhaust emission 
control devices, or perhaps destroy their functionality altogether.
    In the highway rule, we adopted a requirement that heavy-duty 
vehicle manufacturers notify each purchaser that the vehicle must be 
fueled only with the applicable low-sulfur diesel fuel. We also 
required that diesel vehicles be equipped by the manufacturer with 
labels near the refueling inlet to indicate that low sulfur fuel is 
required. We are adopting similar requirements here.\88\ Specifically, 
manufacturers will be required to notify each purchaser that the 
nonroad engine must be fueled only with the applicable low-sulfur 
diesel fuel, and ensure that the equipment is labeled near the 
refueling inlet to indicate that low sulfur fuel is required. We 
believe that these measures would help owners find and use the correct 
fuel and would be sufficient to address misfueling concerns. Thus, more 
costly provisions, such as fuel inlet restrictors, should not be 
necessary.
---------------------------------------------------------------------------

    \88\ We also required that highway vehicles be labeled on the 
dashboard. Given the type of equipment using nonroad CI engines, we 
are not adopting any dashboard requirement here.
---------------------------------------------------------------------------

    In general, beginning in model year 2011, nonroad engines will be 
required to use the Ultra Low Sulfur diesel fuel (with less than 15 ppm 
sulfur). Thus, the default label will state ``ULTRA LOW SULFUR FUEL 
ONLY.'' The labeling requirements for earlier model year Tier 4 engines 
are specified in Sec.  1039.104(e). Some new labeling requirements for 
earlier model year Tier 3 engines are specified in 40 CFR 89.330(e). 
These requirements for earlier years generally require that engines and 
equipment be labeled consistent with the sulfur of the test fuel used 
for their certification. So where the engine is certified using Low 
Sulfur diesel fuel (with less than 500 ppm sulfur), the required label 
will state ``LOW SULFUR FUEL ONLY.'' See section III.D and the 
regulatory text for the other specific requirements related to labeling 
the earlier model years.

O. General Compliance

1. Good Engineering Judgment
    The process of testing engines and preparing an application for 
certification requires the manufacturer to make a variety of judgments. 
This includes, for example, selecting test engines, operating engines 
between tests, and developing deterioration factors. EPA has the 
authority to evaluate whether a manufacturer's use of engineering 
judgment is reasonable. The regulations describe the methodology we use 
to address any concerns related to how manufacturers use good 
engineering judgment in cases where the manufacturer has such 
discretion (see 40 CFR 1068.5). If we find a problem with a 
manufacturer's use of engineering judgment, we will take into account 
the degree to which any error in judgment was deliberate or in bad 
faith. If manufacturers object to a decision we make under this 
provisions, they are entitled to a hearing. This subpart is consistent 
with provisions already adopted for light-duty highway vehicles, marine 
diesel engines, industrial spark-ignition engines, and recreational 
vehicles.
2. Replacement Engines
    In the proposal we included a provision allowing manufacturers to 
sell a new, noncompliant engine intended to replace an engine that 
fails in service. The proposed language closely mirrored the existing 
provisions in 40 CFR 89.1003(b)(7), except that it specified that 
manufacturers could produce new, noncompliant replacement engines if no 
engine from any manufacturer were available with the appropriate 
physical or performance characteristics. Manufacturers objected to this 
provision and requested that the final regulations follow the language 
in 40 CFR part 89, in which the manufacturer of the new engine confirm 
that no appropriate engine is available from its product line (or that 
of the manufacturer of the original engine, if that were a different 
company). We agree that the language from 40 CFR part 89 is 
appropriate, but we note two things to address remaining concerns that 
manufacturers could potentially use the replacement-engine provisions 
to produce large numbers of noncompliant products. First, we are 
including a specific statement in the regulations that manufacturers 
may not use the replacement-engine exemption to circumvent the 
regulations. Second, we plan to use the data-collection provision under 
40 CFR 1068.205(d) to ask manufacturers to report the number of engines 
they sell under the replacement-engine exemption. Rather than adopting 
a specific data-reporting requirement, we believe this more flexible 
approach is most appropriate to allow us to get information to evaluate 
how manufacturers are using the exemption without imposing reporting 
requirements that may involve more or less information than is actually 
needed.

[[Page 39038]]

3. Warranty
    We are modifying 40 CFR 1068.115 regarding engine manufacturers' 
warranty obligations by removing paragraph (b). This paragraph 
addresses specific circumstances under which manufacturers may not deny 
emission-related warranty claims, while paragraph (a) of this section 
addresses the circumstances under which manufacturers may deny such 
claims. As described in our Summary and Analysis of Comments related to 
our November 8, 2002 final rule (67 FR 68242), we intended to adopt 40 
CFR1068.115 without this paragraph. We wanted to remove paragraph (b) 
because we agreed with a comment pointing out that publishing both 
paragraphs leaves ambiguous which provision applies if a situation 
applies that is not on either list. Since neither list can be 
comprehensive, we believe the provisions in paragraph (a) describing 
when manufacturers may deny warranty claims appropriately addresses the 
issue. As a result, paragraph (b) was inadvertently adopted as part of 
the November 2002 final rule.
4. Separate Catalyst Shipment
    We are adopting provisions that will allow engine manufacturers to 
ship engines to equipment manufacturers where the engine manufacturer 
had not yet installed the aftertreatment or otherwise included it as 
part of the engine shipment. This allows the engine manufacturer to 
ship the engine without the aftertreatment; for example, in cases where 
it would be impractical to install aftertreatment devices on the engine 
before shipment or even ship products with the aftertreatment devices 
uninstalled along with the engine; or where shipping it already 
installed would require it to be disassembled and reinstalled when the 
engine was placed in the equipment. Today's final rule requires that 
the components be included in the price of the engine and that the 
engine manufacturer provide sufficiently detailed and clear 
instructions so that the equipment manufacturer can readily install the 
engine and its ancillary components in a configuration covered under 
the certificate of conformity held by the engine manufacturer. We are 
also requiring that the engine manufacturer have a contractual 
agreement obligating the equipment manufacturer to complete the final 
assembly into a certified configuration. The engine manufacturer must 
ship any components directly to the equipment manufacturer or arrange 
for their shipment from a component supplier. The engine manufacturer 
must tag the engines and keep records. The engine manufacturer must 
obtain annual affidavits from each equipment manufacturer as to the 
parts and part numbers that the equipment manufacturer installed on 
each engine and must conduct a limited number of audits of equipment 
manufacturers' facilities, procedures, and production records to 
monitor adherence to the instructions it provided. Where an equipment 
manufacturer is located outside of the U.S., the audits may be 
conducted at U.S. port of distribution facilities.
    The rule also contains various provisions establishing 
responsibility for proper installation. Where the engines are not in a 
certified configuration when installed in nonroad equipment because the 
equipment manufacturer used improper emission-control devices or failed 
to install the shipped parts or failed to install the devices 
correctly, then both the engine manufacturer and the installer have 
responsibility. For the engine maker, the exemption is void for those 
engines that are not in their certified configuration after 
installation. We may also suspend or revoke the exemption for future 
engines where appropriate, or void the exemption for the entire engine 
family. The installer is also liable. We may find the equipment 
manufacturer to be in violation of the tampering prohibitions at 40 CFR 
1068.101(b)(1) for the improper installation, which could subject it to 
substantial civil penalties. In any event, the engine manufacturer 
remains liable for the in-use compliance of the engine as installed. 
For example, it has responsibility for the emission-related warranty, 
including for the aftertreatment, and is responsible for any potential 
recall liability. However, if noncompliance of the in-use engines stems 
from improper installation of the aftertreatment, then the tampering 
that occurred by the installer may remove recall liability. Where the 
engine manufacturer had complied with the regulations and the failure 
was solely due to the equipment manufacturer's actions, we would not be 
inclined to revoke or suspend the exemption or to void the exemption 
for the entire engine family. We may deny the exemption for future 
model years if the engine manufacturer does not take action to address 
the factors causing the nonconformity. On the other hand, if the 
manufacturer failed to comply, had shipped improper parts, had provided 
instructions that led to improperly installed parts, or had otherwise 
contributed to the installation of engines in an uncertified 
configuration, we might suspend, revoke, or void the exemption for the 
engine family. In this case, the engine manufacturer would be subject 
to substantial civil penalties.

P. Other Issues

    We are also making other minor changes to the compliance program. 
These changes are summarized in table III.Q-1 below. For more 
information about these changes, you should read the NPRM and Summary 
and Analysis of Comments for this rulemaking. We believe that these 
changes are straightforward and noncontroversial.

                                       Table III.Q-1.--Regulatory Changes
----------------------------------------------------------------------------------------------------------------
                          Issue                                             Regulatory provision
----------------------------------------------------------------------------------------------------------------
Applicability to alcohol-fueled engines..................  Sec.  Sec.   1039.101, 1039.107.
Prohibited controls......................................  Sec.   1039.115.
Emission-related maintenance instructions................  Sec.   1039.125.
Engine installation instructions.........................  Sec.   1039.130.
Engines labels...........................................  Sec.  Sec.   1039.20, 1039.135, 1068.320.
Engine family definition.................................  Sec.   1039.230.
Test engine selection....................................  Sec.   1039.235.
Deterioration factors....................................  Sec.   1039.240.
Engines that use noncommercial fuels.....................  Sec.   1039.615.
Use of good engineering judgment.........................  Sec.   1068.5.
Separate shipment of aftertreatment......................  Sec.   1068.260.
Exemptions...............................................  40 CFR 1068 Subpart C.
Importing engines........................................  40 CFR 1068 Subpart D.

[[Page 39039]]

 
Hearings.................................................  40 CFR 1068 Subpart G.
----------------------------------------------------------------------------------------------------------------

Q. Highway Engines

    We are changing the diesel engine/vehicle labeling requirements in 
40 CFR 86.007-35 to be consistent with the new pump labels. This change 
corrects a mistake in the proposal that would have resulted in 
confusion for highway vehicle operators. (We received no comment on 
this issue.)

R. Changes That Affect Other Engine Categories

    We are making some minor changes to the regulations in 40 CFR parts 
1048 and 1051 for nonroad spark-ignition engines over 19 kW and 
recreational vehicles, respectively. We are also changing several 
additional provisions in 40 CFR parts 1065 and 1068, which define test 
procedures and compliance provisions for these same categories of 
engines. See the regulatory text for the specific changes. The proposed 
rule included most of these changes. To the extent there were comments 
on any of these changes, those issues are addressed elsewhere in this 
document or in the Summary and Analysis of Comments.
     In 40 CFR 1048.125 and 40 CFR 1051.125, we are correcting 
the provisions related to critical emission-related maintenance to 
allow manufacturers to do maintenance during service accumulation for 
durability testing, as long as their maintenance steps meet the 
specified criteria ensuring that in-use engines will undergo those 
maintenance procedures.
     In 40 CFR 1068.27, we clarify that manufacturers must make 
available a reasonable number of production-line engines so we can test 
or inspect them if we make such a request.
     We are changing the definition of nonroad engine to 
explicitly exclude aircraft engines. This is consistent with our 
longstanding interpretation of the Clean Air Act. Clarifying the 
definition this way allows us to more clearly specify the applicability 
of the fuel requirements to nonroad engines in this final rule.
     We are adding a provision directing equipment 
manufacturers to request duplicate labels from engine manufacturers and 
keep appropriate records if the original label is obscured in the final 
installation. The former approach under 40 CFR part 1068 was to require 
equipment manufacturers to make their own duplicate labels as needed. 
We intend to amend 40 CFR parts 1048 and 1051 to correspond with this 
change.
     As described above in section III, we are revising the 
criteria manufacturers would use to show that they may use the 
replacement-engine exemption under 40 CFR 1068.240. We also clarify 
that we may require manufacturers to report to us how many engines they 
sell in given year under the replacement-engine exemption.
     As described above and in the Summary and Analysis of 
Comments, we are adding a provision in 40 CFR 1068.260 to allow 
manufacturers to ship aftertreatment devices directly from the 
component supplier to the equipment manufacturer. This regulatory 
section includes several provisions to ensure that the equipment 
manufacturer installs the aftertreatment device in a way that brings 
the engine to its certified configuration.
     As described above, we are modifying the defect-reporting 
requirements in 40 CFR 1068.501.
     While most of the changes being adopted for part 1065 will 
only affect diesel nonroad engines, we are also making minor changes 
that will also apply for SI engines. These changes, however, are 
generally limited to clarifications, corrections, and options. They 
will not affect the stringency of the standards or create new burdens 
for manufacturers.

IV. Our Program for Controlling Nonroad, Locomotive and Marine Diesel 
Fuel Sulfur

    We are finalizing today a two-step sulfur standard for nonroad, 
locomotive and marine (NRLM) diesel fuel that will achieve significant, 
cost-effective sulfate PM and SO2 emission reductions. These 
emission reductions will, by themselves, provide dramatic environmental 
and public health benefits which far outweigh the cost of meeting the 
standards necessary to achieve them. In addition, the final sulfur 
standards for nonroad diesel fuel will enable advanced high efficiency 
emission control technology to be applied to nonroad engines. As a 
result, these nonroad fuel sulfur standards, coupled with our program 
for more stringent emission standards for new nonroad engines and 
equipment, will also achieve dramatic NOX and PM emission 
reductions. Sulfur significantly inhibits or impairs the function of 
the diesel exhaust emission control devices which will generally be 
necessary for nonroad diesel engines to meet the emission standards 
finalized today. With the 15 ppm sulfur standard for nonroad diesel 
fuel, we have concluded that this emission control technology will be 
available for model year 2011 and later nonroad diesel engines to 
achieve the NOX and PM emission standards adopted today. The 
benefits of today's program also include the sulfate PM and 
SO2 reductions achieved by establishing the same standard 
for the sulfur content of locomotive and marine diesel fuel.
    The sulfur requirements established under today's program are 
similar to the sulfur limits established for highway diesel fuel in 
prior rulemakings --500 ppm in 1993 ( 55 FR 34120, August 21, 1990) and 
15 ppm in 2006 (66 FR 5002, January 18, 2001). Beginning June 1, 2007, 
refiners will be required to produce NRLM diesel fuel with a maximum 
sulfur content of 500 ppm. Then, beginning June 1, 2010, the sulfur 
content will be reduced for nonroad diesel fuel to a maximum of 15 ppm. 
The sulfur content of locomotive and marine diesel fuel will be reduced 
to 15 ppm beginning June 1, 2012. The program contains certain 
provisions to ease refiners' transition to the lower sulfur standards 
and to enable the efficient distribution of all diesel fuels. These 
provisions include the 2012 date for locomotive and marine diesel fuel, 
early credits for refiners and importers and special provisions for 
small refiners, transmix processors, and entities in the fuel 
distribution system.
    In general, the comments we received during the public comment 
period supported the proposed program. Adjustments we have made to the 
proposed program will make the final program even stronger, both in 
terms of our ability to enforce it and the environmental and public 
health benefits that it will achieve. In particular, today's final 
program contains provisions to smooth the refining industry's 
transition to the low sulfur fuel requirements, encourage earlier 
introduction of cleaner burning fuel, maintain the fuel distribution 
system's flexibility to fungibly distribute similar products, and 
provide an outlet

[[Page 39040]]

for off-specification distillate product, all while maintaining, and 
even enhancing, the health and environmental benefits of today's 
program.
    The first adjustment that we made to the proposed program was to 
move from the ``refiner baseline'' approach discussed in the proposal 
to a ``designate and track'' approach. Under the proposed refiner 
baseline approach, any refiner or importer could choose to fungibly 
distribute its 500 ppm sulfur NRLM and highway diesel fuels without 
adding red dye to the NRLM at the refinery gate. However, the refiners' 
production would then be subject to a non-highway distillate baseline, 
established as a percentage of its total distillate fuel production 
volume. While EPA preferred this approach in the proposal, we decided 
not to finalize it because we concluded that it would have 
unnecessarily constrained refiners' ability to meet market demands. It 
would have encouraged them to dye 500 ppm sulfur NRLM at the refinery 
gate, resulting in an additional grade of diesel fuel and, 
consequently, an added burden to the distribution system. Furthermore, 
we were concerned that it would have created a trend that could reduce 
the volume of 15 ppm sulfur highway diesel fuel and potential options 
to remove the market constraints could have increased the possibility 
for reduced volume.
    In place of the refiner baseline approach, we are finalizing a 
designate and track approach. The final designate and track approach is 
a modified version of the designate and track approach discussed in the 
proposal. As finalized it now allows us to enforce the program through 
the entire distribution system. In essence, the final designate and 
track approach requires refiners and importers to designate the volumes 
of diesel fuel they produce and/or import. Refiners/importers will 
identify whether their diesel fuel is highway or NRLM and the 
applicable sulfur level. They may then mix and fungibly ship highway 
and NRLM diesel fuels that meet the same sulfur specification without 
dyeing their NRLM diesel fuel at the refinery gate. The designations 
will follow the fuel through the distribution system with limits placed 
on the ability of downstream parties to change the designation. These 
limits are designed to restrict the inappropriate sale of 500 ppm 
sulfur NRLM diesel fuel into the highway market , the inappropriate 
sale of heating oil into the NRLM market, the inappropriate sale of 500 
ppm sulfur LM into the nonroad market, and to implement the downgrading 
restrictions that apply to 15 ppm sulfur highway diesel fuel. The 
designate and track approach includes record keeping and reporting 
requirements for all parties in the fuel distribution system, 
associated with tracking designated fuel volumes through each custodian 
in the distribution chain until the fuel exits the terminal. The 
program also includes enforcement and compliance assurance provisions 
to enable the Agency to rapidly and accurately review for discrepancies 
the large volume of data collected on fuel volume hand-offs. The bulk 
of the designate and track provisions end May 31, 2010 when all highway 
diesel fuel must meet the 15 ppm sulfur standard. However, as discussed 
below, scaled back designate and track provisions continue beyond 2010 
for purposes of enforcing against heating oil being used in the NRLM 
market and to enforce against 500 ppm LM diesel fuel being used in the 
nonroad market.
    The second adjustment that we made to the proposed NRLM diesel fuel 
program was to establish a 15 ppm sulfur standard at the refinery gate 
for locomotive and marine (LM) diesel fuel in addition to nonroad (NR) 
diesel fuel.\89\ We are finalizing this standard for several reasons as 
discussed below.
---------------------------------------------------------------------------

    \89\ While today's program does not establish more stringent 
emission standards for locomotive or marine diesel engines, the 
Agency intends in the near future to initiate a rulemaking to adopt 
new emission standards for locomotive and marine engines based on 
the use of high efficiency exhaust emission control technology like 
that required for the nonroad standards adopted in today's rule. An 
advanced notice of proposed rulemaking (ANPRM) for this rule is 
published elsewhere in today's Federal Register, June 29, 2004.
---------------------------------------------------------------------------

    While we are finalizing a 15 ppm sulfur standard for locomotive and 
marine diesel fuel, we are doing so in a manner that responds to the 
primary concerns raised in comments regarding the need for an outlet 
for off-specification product. We are setting a refinery gate standard 
of 15 ppm sulfur beginning June 1, 2012, two years later than for 
nonroad diesel fuel. We are also continuing to provide an outlet for 
off-specification product generated in the distribution system, thereby 
affording the opportunity to reduce reprocessing and transportation 
costs. We are leaving the downstream standard for LM diesel fuel at 500 
ppm sulfur. In this way the LM diesel fuel pool may remain an outlet 
for off-specification distillate product and interface/transmix 
material.
    In developing the provisions of the NRLM diesel fuel program 
adopted today, we identified several principles that we want the 
program to achieve. Specifically, as described in more detail below, we 
believe the fuel program--


    (1) Achieves the greatest reduction in sulfate PM and 
SO2 emissions from nonroad, locomotive, and marine diesel 
engines as early as practicable;
    (2) Provides for a smooth transition of the NRLM diesel fuel 
pool to 15 ppm sulfur;
    (3) Ensures that 15 ppm sulfur diesel fuel is produced and 
distributed widely for use in all 2011 and later model year nonroad 
diesel engines;
    (4) Ensures that the fuel program's requirements are enforceable 
and verifiable.
    (5) Enables the efficient distribution of all diesel fuels; and
    (6) Maintains the benefits and program integrity of the highway 
diesel fuel program.

    The remainder of this section covers several topics. In section 
IV.A, we discuss the fuel that is covered by today's program, the 
standards that apply for refiners and importers (for both steps of the 
program), and the standards that apply for downstream entities. In 
section IV.B, we address the various hardship provisions that we are 
including in today's program. In section IV.C, we describe the special 
provisions that apply in the State of Alaska and the Territories. Next, 
in section IV.D, we describe the design of the designate and track 
provisions of the NRLM diesel fuel program for compliance purposes and 
how it differs from what we proposed. In section IV.E, we discuss the 
impact of today's program on state NRLM diesel fuel programs. In 
sections IV.F and G, we discuss the technological feasibility of the 
NRLM diesel fuel standards adopted today and the impacts of today's 
program on lubricity and other fuel properties. Finally, in section 
IV.H, we discuss the steps the Agency will take to streamline the 
refinery air permitting process for the equipment that refiners may 
need to install to meet today's NRLM diesel fuel standards..
    Analyses supporting the design and cost of the fuel program are 
located in chapters 5, 7, and 8 of the RIA. Section V of this preamble 
discusses the details of the additional compliance and enforcement 
provisions affecting NRLM diesel fuel and explains various additional 
elements of the program.

A. Nonroad, Locomotive and Marine Diesel Fuel Quality Standards

1. What Fuel Is Covered by This Program?
    The fuel covered by today's final rule is generally the same as the 
fuel that was covered by the proposal. We have not expanded or reduced 
the pool of diesel fuel that will be subject to the lower sulfur 
standards. However, the second step of the program now includes the 
same ultra low sulfur standard for locomotive and marine diesel fuel as 
for nonroad diesel fuel.

[[Page 39041]]

    Specifically, the sulfur standards finalized under today's program 
apply to all the diesel fuel that is used in nonroad, locomotive, and 
marine diesel applications--fuel not already covered by the previous 
standards for highway diesel fuel. This includes all fuel used in 
nonroad, locomotive, and marine diesel engines, except for fuels 
heavier than a No. 2 distillate used in Category 2 and 3 marine engines 
\90\ and any fuel that is exempted for national security or other 
reasons. While we are not adopting sulfur standards for other 
distillate fuels (such as jet fuel, heating oil, kerosene, and No. 4 
fuel oil) we are adopting provisions to prevent the inappropriate use 
of these other fuels. Use of distillate fuels in nonroad, locomotive, 
or marine diesel engines will generally be prohibited unless they meet 
the fuel sulfur standards finalized today.\91\ The program includes 
several provisions, as described below in section IV.D, to ensure that 
heating oil and other higher sulfur distillate fuels will not be used 
in nonroad, locomotive, or marine applications.
---------------------------------------------------------------------------

    \90\ Category 3 marine engines frequently are designed to use 
residual fuels and include special fuel handling equipment to use 
the residual fuel.
    \91\ For the purposes of this final rule, the term heating oil 
basically refers to any No. 1 or No. 2 distillate other than jet 
fuel, kerosene, and diesel fuel used in highway, nonroad, 
locomotive, or marine applications. For example, heating oil 
includes fuel which is suitable for use in furnaces, boilers, 
stationary diesel engines and similar applications and is commonly 
or commercially known or sold as heating oil, fuel oil, or other 
similar trade names.
---------------------------------------------------------------------------

    The regulated fuels under today's program include the following:

    (1) Any No. 1 and 2 distillate fuels used, intended for use, or 
made available for use in nonroad, locomotive, or marine diesel 
engines. Fuels under this category include those meeting the 
American Society for Testing and Materials (ASTM) D 975 or D 396 
specifications for grades No. 1-D and No. 2-D. Fuels meeting ASTM 
DMX and DMA specifications would be covered;
    (2) Any No. 1 distillate fuel (e.g., kerosene) added to such No. 
2 diesel fuel, e.g., to improve its cold flow properties;
    (3) Any other fuel used in nonroad, locomotive, or marine diesel 
engines or blended with diesel fuel for use in such engines. Fuels 
under this category include non-distillate fuels such as biodiesel 
and certain specialty fuel grades such as JP-5, JP-8, and F76 if 
used in a nonroad, locomotive, or marine diesel engine, except when 
a national security or research and development exemption has been 
approved. See V. A.1. and 2.

    On the other hand, the sulfur standards do not apply to--

    (1) No. 1 distillate fuel used to power aircraft;
    (2) No. 1 or No. 2 distillate fuel used for stationary source 
purposes, such as to power stationary diesel engines, industrial 
boilers, or for heating;
    (3) Number 4, 5, and 6 fuels (e.g., residual fuels or residual 
fuel blends, IFO Heavy Fuel Oil Grades 30 and higher), used for 
stationary source purpose;
    (4) Any distillate fuel with a T-90 distillation point greater 
than 700 F, when used in Category 2 or 3 marine diesel engines. This 
includes Number 4, 5, and 6 fuels (e.g., IFO Heavy Fuel Oil Grades 
30 and higher), as well as fuels meeting ASTM specifications DMB, 
DMC, and RMA-10 and heavier; and
    (5) Any fuel for which a national security or research and 
development exemption has been approved or fuel that is exported 
from the U.S. (see section V.A.1. and 2).

    It is useful to clarify what marine diesel fuels are covered by the 
sulfur standards. As with nonroad and locomotive diesel fuel, our basic 
approach is that the standards apply to any diesel or distillate fuel 
used or intended for use in marine diesel engines. However, the fuel 
used by marine diesel engines spans a wide variety of fuels, ranging 
from No. 1 and 2 diesel fuel to residual fuel and residual fuel blends 
used in the largest engines. It is not EPA's intention to cover all 
such fuels, and EPA has adopted an objective criteria to identify those 
marine fuels subject to regulation and those that are not. Any 
distillate fuel with a T-90 greater than 700 F will not be subject to 
the sulfur standards when used in Category 2 or 3 marine engines. This 
criteria is designed to exclude fuels heavier than No. 2 distillate, 
including blends containing residual fuel. In addition, residual fuel 
is not subject to the sulfur standards.
    While many marine diesel engines use No. 2 distillate, ASTM 
specifications for marine fuels identify four kinds of marine 
distillate fuels: DMX, DMA, DMB, and DMC. DMX is a special light 
distillate intended mainly for use in emergency engines. DMA (also 
called MGO) is a general purpose marine distillate that is to contain 
no traces of residual fuel. These fuels can be used in all marine 
diesel engines but are primarily used by Category 1 engines. DMX and 
DMA fuels intended for use in any marine diesel engine are subject to 
the fuel sulfur standards.
    DMB, also called marine diesel oil, is not typically used with 
Category 1 engines, but is used for Category 2 and 3 engines. DMB is 
allowed to have a trace of residual fuel, which can be high in sulfur. 
This contamination with residual fuel usually occurs due to the 
distribution process, when distillate is brought on board a vessel via 
a barge that has previously contained residual fuel, or using the same 
supply lines as are used for residual fuel. DMB is produced when fuels 
such as DMA are brought on board the vessel in this manner. EPA's 
sulfur standards will apply to the distillate that is used to produce 
the DMB, for example the DMA distillate, up to the point that it 
becomes DMB. DMB itself is not subject to the sulfur standards when it 
is used in Category 2 or 3 engines.
    DMC is a grade of marine fuel that may contain some residual fuel 
and is often a residual fuel blend. This fuel is similar to No. 4 
diesel, and can be used in Category 2 and Category 3 marine diesel 
engines. DMC is produced by blending a distillate fuel with residual 
fuel, for example at a location downstream in the distribution system. 
EPA's standards will apply to the distillate that is used to produce 
the DMC, up to the point that it is blended with the residual fuel to 
produce DMC. DMC itself is not subject to the sulfur standards when it 
is used in Category 2 or 3 marine engines.
    Residual fuel is typically designated by the prefix RM (e.g., RMA, 
RMB, etc.). These fuels are also identified by their nominal viscosity 
(e.g., RMA10, RMG35, etc.). Most residual fuels require treatment by a 
purifier-clarifier centrifuge system, although RMA and RMB do not 
require this. For the purpose of this rule, we consider all RM grade 
fuel as residual fuel. Residual fuel is not covered by the sulfur 
content standards as it is not a distillate fuel.
    The distillation criteria adopted by EPA, T-90 greater than 700F, 
is designed to identify those fuels that are not subject to the sulfur 
standards when used in Category 2 or 3 marine diesel engines. It is 
intended to exclude DMB, DMC, and other heavy distillates or blends, 
when used in Category 2 or 3 marine diesel engines.
    Hence, the fuel that refiners and importers are required to produce 
to the more stringent sulfur standards include those No. 1 and No. 2 
diesel fuels as well as similar distillate or non-distillate fuels that 
are intended or made available for use in NRLM diesel engines. 
Furthermore, the sulfur standard also covers any fuel that is blended 
with or substituted for No. 1 or No. 2 diesel fuel for use in nonroad, 
locomotive, or marine diesel engines. For instance, as required under 
the highway diesel fuel program, in those situations where the same 
batch of kerosene is distributed for two purposes (e.g., kerosene to be 
used for heating and to improve the cold flow of No. 2 NRLM diesel 
fuel), or where a batch distributed just for heating is later 
distributed for blending with No. 2 diesel fuel, that batch of kerosene 
must meet the standards adopted today for NRLM

[[Page 39042]]

diesel fuel. The purpose of this requirement is to ensure that fuels 
like jet fuel, kerosene, and/or military specification fuels meet the 
diesel fuel sulfur standards adopted under today's program when they 
are used in nonroad, locomotive, or marine diesel engines.
2. Standards and Deadlines for Refiners and Importers
    The NRLM diesel fuel program adopted today is a two-step approach 
to reduce the sulfur content of NRLM diesel fuel from uncontrolled 
levels down to 15 ppm sulfur. While we received several comments 
supporting a single step down to 15 ppm sulfur, the vast majority of 
commenters, especially most refiners and engine manufacturers, 
supported the two-step approach. We are finalizing the two-step 
approach primarily because it achieves the greatest reduction in 
sulfate PM and SO2 emissions from nonroad, locomotive, and 
marine diesel engines as early as practicable. By starting with an 
initial step of 500 ppm sulfur we can achieve significant emission 
reductions and associated health and welfare benefits from the current 
fleet of equipment as soon as possible. As discussed in section VI, the 
health-related benefits of the fuel standards finalized today, even 
without the engine standards, amount to more than $28 billion in 2030, 
while the projected costs, after taking into account engine maintenance 
benefits amount to just $0.7 billion.
    In addition, the two-step approach encourages a more smooth and 
orderly transition by the refining industry to 15 ppm sulfur NRLM 
diesel fuel, by providing more time for refiners to develop the most 
cost-effective approaches, finance them, and then implement the 
necessary refinery modifications.
    Finally, by waiting until 2010 to drop to the 15 ppm sulfur 
standard for NR diesel fuel, the two-step approach harmonizes with the 
highway diesel fuel program by delaying the implementation of the 15 
ppm sulfur standard for NR diesel fuel until the end of the phase-in 
period for 15 ppm sulfur highway diesel fuel. The 2010 date also 
harmonizes with the date 15 ppm nonroad fuel is needed to enable the 
nonroad engines standards finalized today. The second step to 15 ppm 
sulfur for the LM diesel fuel is set for 2012. On balance we believe 
that the advantages of the two-step approach outweigh those of a single 
step down to 15 ppm.
    As discussed in section IV.C, below, later deadlines for meeting 
the 500 and 15 ppm sulfur standards apply to refineries covered by 
special hardship provisions as well as transmix processors.
a. The First Step to 500 ppm Sulfur NRLM Diesel Fuel
    Under today's program, NRLM diesel fuel produced by refiners or 
imported into the U.S. by importers must meet a 500 ppm sulfur standard 
beginning June 1, 2007. Refiners and importers may comply by either 
producing such fuel at or below 500 ppm sulfur, or they may comply by 
obtaining credits as discussed in section IV.D below.
    We believe that the adopted level of 500 ppm sulfur is appropriate 
for several reasons. First, the reduction to 500 ppm sulfur is 
significant environmentally. The 500 ppm sulfur level achieves 
approximately 90 percent of the sulfate PM and SO2 benefits 
otherwise achievable by going all the way to 15 ppm sulfur. Second, 
because this first step is only to 500 ppm sulfur, it also allows for a 
short lead time for implementation, enabling the environmental benefits 
to begin accruing as soon as possible. Third, it is consistent with the 
current specification for highway diesel fuel, a grade which may remain 
for highway purposes until 2010. As such, adopting the same 500 ppm 
sulfur level for NRLM diesel fuel helps to avoid issues and costs 
associated with more grades of fuel in the distribution system during 
this initial step of the program.
b. The Second Step to 15 ppm Sulfur NRLM Diesel Fuel
    We are finalizing a second step of sulfur control down to 15 ppm 
sulfur for all NRLM. This second step provides additional important 
direct sulfate PM and SO2 emission reductions and associated 
health benefits. As discussed in the RIA, the health related benefits 
for this second step of fuel control by itself are greater than the 
associated cost. Furthermore, the second step for nonroad diesel fuel 
is essential to enable the application of high efficiency exhaust 
emission control technologies to nonroad diesel engines beginning with 
the 2011 model year as discussed in Section II of this preamble.
    In the proposal, the second step of the program only applied to 
nonroad diesel fuel, while locomotive and marine diesel fuel could 
remain at 500 ppm sulfur. We also sought comment on finalizing the 15 
ppm sulfur standard for LM diesel fuel in 2010 along with nonroad 
diesel fuel, as well as delaying it until as late as 2012 to allow for 
an additional outlet for any off-specification product a refinery might 
produce as it shifts all of its distillate production to 15 ppm 
sulfur.\92\
---------------------------------------------------------------------------

    \92\ Off-specification fuel here refers to 15 ppm diesel fuel 
that becomes contaminated such that it no longer meets the 15 ppm 
sulfur cap. In most cases, off-specification 15 ppm sulfur diesel 
fuel is expected to easily meet a 500 ppm sulfur cap.
---------------------------------------------------------------------------

    We are finalizing the 15 ppm sulfur standard for locomotive and 
marine diesel fuel, along with nonroad diesel fuel, for several 
reasons. First, it will provide important health and welfare benefits 
from the additional sulfate PM and SO2 emission reductions 
as early as possible. Second, it is technologically feasible, as it is 
for nonroad diesel fuel. Third, the benefits outweigh the costs and the 
costs do not otherwise warrant delaying this second step for locomotive 
and marine. As shown in chapter 8 of the RIA, the costs for the 
increment of LM diesel fuel going from 500 to 15 ppm sulfur is just 
$0.20 billion in 2030. Fourth, it will simplify the fuel distribution 
system and overall design of the fuel program. For example, the 
addition of a marker to locomotive and marine diesel fuel after 2012 is 
no longer necessary to successfully enforce the program. Finally, it 
will allow refiners to coordinate plans to reduce the sulfur content of 
all of their off-highway diesel fuel at one time.
    Our primary reason in the NPRM for leaving locomotive and marine 
diesel fuel at the 500 ppm sulfur specification was to preserve an 
outlet for off-specification product that may be created in the 
distribution system through contamination of 15 ppm sulfur diesel fuel 
with higher sulfur distillates and for off-specification batches of 
fuel that are produced by refineries during the first couple years of 
the 15 ppm sulfur program (when they are still perfecting their 
production processes). However, we have concluded that it is not 
necessary to leave the standard for all locomotive and marine diesel 
fuel at the 500 ppm sulfur specification to address these concerns. 
Setting a 15 ppm sulfur standard for refiners and importers in 2012, 
but maintaining a downstream standard for locomotive and marine diesel 
fuel at 500 ppm sulfur and allowing off-specification product to 
continue to be sold into this market accomplishes the same goal.
    In addition, controlling the sulfur content of NRLM diesel fuel 
from uncontrolled levels to 15 ppm is clearly a cost-effective fuel 
control program. While the incremental cost-effectiveness from 500 ppm 
sulfur to 15 ppm sulfur is less cost-effective, the benefits of this 
second step outweigh the costs, the concerns about a market for off-
specification product have been addressed, and other factors discussed

[[Page 39043]]

above support the reasonableness of this approach. The body of evidence 
strongly supports the view that controlling sulfur in NRLM fuel to 15 
ppm, through a two-step process, is quite reasonable in light of the 
emissions reductions achieved, taking costs into consideration.
    Implementation of today's rule will reduce the sulfur level of 
almost all distillate fuel to a 15 ppm maximum sulfur level. In 
addition to the small refiner, hardship, and other provisions adopted 
in this rule, EPA is adopting several provisions that will help ensure 
a smooth transition to the second step of 15 ppm sulfur diesel fuel. 
First, refiners and importers of locomotive and marine diesel fuel, a 
small segment of the entire distillate pool, will be required to meet a 
15 ppm sulfur standard starting June 1, 2012, two years later than for 
nonroad diesel fuel. Second, 500 ppm sulfur diesel fuel generated in 
the distribution system through contamination of 15 ppm sulfur fuel can 
be marketed in the nonroad, locomotive and marine market until June 
2014, and in the locomotive and marine market after that date. Third, 
500 ppm sulfur diesel fuel produced by transmix processors from 
contaminated downstream diesel fuel can also be marketed to the 
nonroad, locomotive and marine markets, under the same schedule. While 
today's rule does not contain an end date for the downstream 
distribution of 500 ppm sulfur locomotive and marine fuel, we will 
review the appropriateness of allowing this flexibility based on 
experience gained from implementation of the 15 ppm sulfur NRLM diesel 
fuel standard. We expect to conduct such an evaluation in 2011.
    When EPA adopted a 15 ppm sulfur standard for highway diesel fuel, 
we included several provisions to ensure a smooth transition to 15 ppm 
sulfur highway fuel. One provision was a temporary compliance option, 
with an averaging, banking and trading component. In a similar manner, 
the 2012 deadline for 15 ppm sulfur LM fuel, the last, relatively small 
segment of diesel fuel, will help ensure that the entire pool of diesel 
fuel is smoothly transitioned to the 15 ppm sulfur level over a short 
period of time. (See section 8.3 of the summary and analysis of 
comments.)
    EPA is also adopting two provisions aimed at smoothing the 
transition of the distribution system to ultra low sulfur diesel fuel. 
These provisions are designed to accommodate off-specification fuel 
generated in the distribution system, such as through the mixing that 
occurs at product interfaces. This off-specification material generally 
cannot be added in any significant quantity to either of the adjoining 
products that produced the interface.\93\ Under today's program, as 
discussed in more detail in section A.3, below, off-specification 
material that is generated in the distribution system may be 
distributed as 500 ppm NRLM diesel fuel from June 1, 2010 through May 
31, 2014 and as 500 ppm LM from June 1, 2014 and beyond. Furthermore, 
as discussed in section IV.C, below, transmix processors, which are 
facilities that process transmix by separating it into its components 
(e.g., separating gasoline from diesel fuel), are treated as a separate 
class of refiners. One hundred percent of the diesel fuel they produce 
from transmix may be sold as high sulfur NRLM until June 1, 2010, 500 
ppm sulfur NRLM until June 1, 2014, and 500 ppm sulfur LM diesel fuel 
after June 1, 2014.
---------------------------------------------------------------------------

    \93\ In some cases the off-specification product can not be 
added to the adjoining products because of the applicable sulfur 
standards. In other cases, the off-specification product, called 
transmix, must be re-processed before it can be used.
---------------------------------------------------------------------------

    These provisions provide refiners and importers with a similar 
degree of flexibility for off-specification product as the proposal 
which held the sulfur standard for all locomotive and marine diesel 
fuel at 500 ppm indefinitely. If off-specification product is produced, 
there is a temporary outlet for it. If providing the off-specification 
product to a locomotive and marine market is difficult under this final 
rule, such that a refiner will choose to re-process it, then the 
refiner would have been in the same position under the proposal. 
Furthermore, these provisions provide the refining industry an 
alternative to reprocessing the off-specification material created in 
the distribution system, which preserves refining capacity for the 
production of new fuel volume, helping to maintain overall diesel fuel 
supply.
    As with the 500 ppm sulfur standard under the first step of today's 
program, refiners and importers may comply with the 15 ppm sulfur 
standard by either producing NRLM diesel fuel containing no more than 
15 ppm sulfur or by obtaining sulfur credits (until June 1, 2014), as 
described below.
c. Cetane Index or Aromatics Standard
    Currently, in addition to containing no more than 500 ppm sulfur, 
highway diesel fuel must meet a minimum cetane index level of 40 or, as 
an alternative, contain no more than 35 volume percent aromatics. 
Today's program extends this cetane index/aromatics content 
specification to NRLM diesel fuel.
    One refining company commented that EPA should not implement the 
cetane index and aromatic requirements in the proposed rule since the 
impacts are weak or nonexistent for engines to be used in the future. 
In addition, the commenter stated that the vast majority of diesel fuel 
already meets the EPA cetane index/aromatics specification for highway 
diesel fuel and that there is nothing in the RIA that either 
demonstrates the benefits or supports the need for such a requirement. 
The commenter also stated that EPA should not set a requirement simply 
because the ASTM standard has a cetane number specification for a 
particular fuel.
    Low cetane levels are associated with increases in NOX 
and PM emissions from current nonroad diesel engines.\94\ Thus, we 
expect that extending the cetane index specification to NRLM diesel 
fuel will directionally lead to a reduction in these emissions from the 
existing fleet. However, because the vast majority of NRLM diesel fuel 
already meets the specification, the NOX and PM emission 
reductions will be small. At the same time, the refining/production 
costs associated with extending the cetane index specification to NRLM 
diesel fuel are negligible as current NRLM diesel fuel already meets a 
more stringent ASTM specification.
---------------------------------------------------------------------------

    \94\ The Effect of Cetane Number Increase Due to Additives on 
NOX Emissions From Heavy-Duty Highway Engines, Final 
Technical Report, February 2003, EPA420-R-03-002.
---------------------------------------------------------------------------

    ASTM already recommends a cetane number specification of 40 for 
NRLM diesel fuel, which is, in general, more stringent than the similar 
40 cetane index specification. Because of this, the vast majority of 
current NRLM diesel fuel already meets the EPA cetane index/aromatics 
specification for highway diesel fuel. Thus, the cetane index 
specification will impact only a few refiners and there will be little 
overall cost associated with producing fuel to meet the cetane/aromatic 
requirement. In fact, as discussed in chapter 5.9 of the RIA, 
compliance with the sulfur standards adopted today is expected to 
result in a small cetane increase as increases in cetane correlate with 
decreases in sulfur, leaving little or no further control to meet the 
standard.
    While the emissions benefits and refining/production costs of 
extending the specification to NRLM diesel fuel may be small, the 
extension will reduce costs by giving refiners and distributors the 
ability to fungibly distribute highway and NRLM diesel fuels of like 
sulfur content. For that small fraction of NRLM diesel fuel today that 
does not meet the cetane index or aromatics

[[Page 39044]]

specification, the requirement will eliminate the need for refiners and 
fuel distributors to separately distribute fuels of different cetane/
aromatics specifications. Requiring NRLM diesel fuel to meet this 
cetane index specification thus gives fuel distributors certainty in 
being able to combine shipments of highway and NRLM diesel fuels. 
Perhaps more importantly, it can also give engine manufacturers and 
end-users the confidence they need that their fuel will meet the 
minimum cetane or maximum aromatics standard. Given the inherent 
difficulty in segregating two otherwise identical fuels, were we not to 
carry over these standards to NRLM, lower cetane NRLM could easily find 
its way into current highway engines. If not designed for this lower 
cetane fuel, these engines could have elevated emission levels and 
performance problems.
    Overall, we believe that there will be a small reduction in 
NOX and PM emissions from current engines and the economic 
benefits from more efficient fuel distribution will likely exceed the 
cost of raising the cetane level for the small volume of NRLM diesel 
fuel that does not already meet the cetane index or aromatics content 
specification.
3. Standards, Deadlines, and Flexibilities for Fuel Distributors
    The first years of the NRLM diesel fuel program include various 
flexibilities to smooth the refining and distribution industry's 
transition to 15 ppm sulfur fuel. These flexibilities include a 2012 
deadline for production of 15 ppm sulfur locomotive and marine diesel 
fuel, credit provisions, small refiner provisions, hardship provisions, 
and downstream off-specification fuel provisions. As a result, during 
the transition years, we are not able to simply enforce the sulfur 
standards downstream based on a single sulfur level of the new 
standard. From June 1, 2007 through May 31, 2010, both 500 ppm sulfur 
diesel fuel and high sulfur diesel fuel can be produced, distributed, 
and sold for use in NRLM diesel engines. From June 1, 2010 through May 
31, 2014, both 15 ppm sulfur and 500 ppm sulfur diesel fuel can be 
produced, distributed, and sold for use in NRLM diesel engines. Beyond 
June 1, 2014, both 15 ppm sulfur and 500 ppm sulfur diesel fuel that is 
produced from fuel product downgrade and transmix in the distribution 
system can be distributed and sold for use in locomotive and marine 
diesel engines. As these transition flexibilities expire, however, we 
are able to streamline our downstream enforcement provisions.
a. Standards and Deadlines From June 1, 2007 Through May 31, 2010
    As soon as the program begins on June 1, 2007, all NRLM diesel fuel 
must be designated or classified and must comply with the designation 
or classification stated on its product transfer document (PTD), pump 
label, or other documentation. In other words, if the fuel is intended 
for sale as NRLM diesel fuel and is labeled as 500 ppm sulfur diesel 
fuel, then beginning June 1, 2007, it must comply with the 500 ppm 
sulfur standard. Similarly, if fuel is intended for sale as NRLM diesel 
fuel and is labeled as 15 ppm sulfur, then beginning June 1, 2010 (or 
June 1, 2009 under the early credit provisions), it must comply with 
the 15 ppm sulfur standard.
    Beginning June 1, 2010, all NRLM diesel fuel produced or imported 
is required to meet at least a 500 ppm sulfur limit. In order to allow 
for a smooth and orderly transition to 500 ppm sulfur NRLM diesel fuel 
in the distribution system, and allow any remaining high sulfur fuel to 
be sold, we are providing parties downstream of refineries time to 
turnover their NRLM tanks to 500 ppm sulfur diesel fuel. At the 
terminal level, all NRLM diesel fuel must meet at least the 500 ppm 
sulfur standard beginning August 1, 2010. At any wholesale purchaser-
consumer facilities and any retail stations carrying NRLM diesel fuel, 
including bulk plants that serve as retailers, all diesel fuel must 
meet the 500 ppm sulfur standard beginning October 1, 2010.\95\ Thus, 
beginning October 1, 2010, high sulfur (greater than 500 ppm sulfur) 
NRLM diesel fuel may no longer legally exist in the fuel distribution 
system.\96\
---------------------------------------------------------------------------

    \95\ A bulk plant is a secondary distributor of refined 
petroleum products. They typically receive fuel from terminals and 
distribute fuel in bulk by truck to end users. Consequently, while 
for highway fuel, bulk plants often serve the role of a fuel 
distributor, delivering fuel to retail stations, for nonroad fuel, 
they often serve the role of the retailer, delivering fuel directly 
to the end-user.
    \96\ By December 1, 2010, all NRLM diesel fuel, including fuel 
in end-user tanks, must comply with at least the 500 ppm sulfur 
standard.
---------------------------------------------------------------------------

    Although we expect that most NRLM diesel fuel in the distribution 
system will be subject to the 500 ppm sulfur standard during the period 
from June 1, 2007 through May 31, 2010, based on its designation or 
classification, some of the 500 ppm sulfur NRLM diesel fuel may be 
mixed with high sulfur NRLM diesel fuel. Since the blended product will 
likely no longer meet the 500 ppm sulfur standard, it must be re-
designated and labeled as high sulfur NRLM diesel fuel. Similarly, fuel 
that results from blending 500 ppm sulfur NRLM diesel fuel and heating 
oil must be re-designated and labeled as heating oil.
b. Standards and Deadlines From June 1, 2010 Through May 31, 2014
    Beginning June 1, 2010, most NR diesel fuel will be required to 
meet the 15 ppm sulfur standard, and beginning June 1, 2012, most LM 
diesel fuel will be required to meet the 15 ppm sulfur standard. 
However, some production of 500 ppm sulfur NRLM diesel fuel may 
continue through May 31, 2014. As with the delayed downstream 
compliance dates for the 500 ppm sulfur standard under the first step 
of today's program, parties downstream of refineries will be allowed 
additional time to turnover their tanks to 15 ppm sulfur NR diesel 
fuel. Specifically, at the terminal level, all NR diesel fuel will be 
required to meet the 15 ppm sulfur standard beginning August 1, 2014. 
At any wholesale purchaser-consumer facilities and retail stations 
carrying all NR diesel fuel, including bulk plants serving as 
retailers, NR diesel fuel must meet the 15 ppm sulfur standard 
beginning October 1, 2014. Thus, beginning October 1, 2014, 500 ppm 
sulfur NR diesel fuel may no longer legally exist in the fuel 
distribution system.\97\
---------------------------------------------------------------------------

    \97\ By December 1, 2014, all NR diesel fuel, including fuel in 
end-user tanks, must comply with at least the 15 ppm sulfur 
standard.
---------------------------------------------------------------------------

    Like the first step to 500 ppm sulfur, prior to these 2014 
downstream deadlines all NRLM diesel fuel would still be designated or 
classified with respect to sulfur level and required to meet the 
designation or classification stated on its PTD, pump label, or other 
documentation.
c. Sulfur Standard for NRLM Diesel Fuel Beginning June 1, 2014
    As discussed above, all refiners will be required to produce and 
importers will be required to import only 15 ppm sulfur NRLM diesel 
fuel by June 1, 2014. However, we will continue to allow 500 ppm sulfur 
diesel fuel to be sold into the LM diesel fuel markets beyond 2014. The 
LM diesel fuel markets are expected to provide a valuable outlet for 
higher sulfur distillate fuel produced in the distribution system, at 
least through the early years of the program. Consequently, beyond 
2014, both 15 ppm sulfur and 500 ppm sulfur LM diesel fuel may continue 
to exist in the distribution system, and each fuel must comply with the 
designation stated on its PTD, pump label, or other documentation.

[[Page 39045]]

d. Interface/Transmix Flexibility for Fuel Distributors
    As described above, today's program provides flexibility to the 
distribution system by allowing interface/transmix material generated 
within the distribution system to be sold into the NRLM diesel fuel 
markets. Specifically, any fuel interface/transmix generated in the 
fuel distribution system may be sold as:

    (1) High sulfur NRLM diesel fuel or heating oil from June 1, 
2007 through May 31, 2010;
    (2) 500 ppm sulfur NRLM diesel fuel or heating oil from June 1, 
2010 through May 31, 2014; or
    (3) 500 ppm sulfur LM diesel fuel or heating oil after June 1, 
2014.

    Hence, beginning June 1, 2014, interface/transmix material 
exceeding 15 ppm sulfur may only be sold into the LM diesel fuel or 
heating oil markets. As discussed above, the downstream standard for LM 
diesel fuel will be 500 ppm sulfur. However, heating oil may not be 
shifted into the LM markets. Parties in the distribution system 
receiving diesel fuel with a sulfur content greater than 15 ppm sulfur 
must maintain records and report to EPA information demonstrating that 
they did not shift heating oil into the LM markets, as discussed in 
section IV.D.
    The generation of greater than 15 ppm sulfur distillate fuel from 
pipeline interface/transmix cannot be avoided due to the physical 
realities of a multi-product fuel distribution system. Such fuel first 
appears at the terminus of the pipeline distribution system; at 
terminals due to the generation of segregated interface, or at transmix 
processing facilities.\98\ In areas where there is a strong demand for 
heating oil, much of this pipeline-generated off-specification fuel can 
be sold into the heating oil market, just as it is today. However, in 
many areas of the country the demand for heating oil would not be 
sufficient to accommodate distillate fuel exceeding 15 ppm sulfur that 
is generated in the pipeline. Therefore, such fuel would need to be 
returned to a refinery for reprocessing to meet a 15 ppm sulfur 
standard. In addition, some refiners may be reluctant to accept such 
material for reprocessing given the impact this would have on their 
refinery operations. More importantly, because such material appears at 
the terminus of the pipeline distribution system and often where no 
access to pipeline or marine shipment is available, it would have to be 
shipped back to a refinery by truck, or rail if available, at 
additional cost.
---------------------------------------------------------------------------

    \98\ Segregated interface refers to the mixing zone between two 
batches of fuel that abut each other in the pipeline, where the 
volume in the mixing zone can not be cut into either of the fuel 
batches, but can still meet another fuel product specification 
without reprocessing, provided that it is drawn off of the pipeline 
separately and segregated.
---------------------------------------------------------------------------

    As discussed in chapter 7 of the RIA, fuel generated from such 
interface/transmix will typically meet a 500 ppm sulfur standard. 
Therefore, allowing the continued use of such 500 ppm sulfur diesel 
fuel in locomotive and marine engines could reduce the burden on the 
fuel distribution industry by lowering costs. Our cost estimates of 
marketing such fuel include additional shipping charges for situations 
where there is not a local locomotive or marine market (see section VI 
of this preamble).\99\ Allowing the continued sale of 500 ppm sulfur 
diesel fuel into the locomotive and marine markets without requiring it 
to be reprocessed will also help preserve refining capacity for the 
overall diesel fuel production. Therefore, this provision also serves 
to address lingering concerns expressed by some refiners regarding the 
impacts of the 15 ppm sulfur standard for highway and NRLM diesel fuel 
on overall diesel fuel supply.
---------------------------------------------------------------------------

    \99\ As mentioned above, the Agency intends in the near future 
to initiate a rulemaking to adopt new emission standards for 
locomotive and marine engines. An advanced notice of proposed 
rulemaking (ANPRM) for this rule is published elsewhere in today's 
Federal Register, June 29, 2004. While we are not finalizing a 
sunset date for this downgrade provision in today's final rule, we 
are evaluating the appropriateness of establishing a sunset date on 
this provision in the context of the subsequent engine standards 
rule. We also intend to review the appropriateness of any sunset 
provision in light of experience gained from implementation of the 
15 ppm sulfur NRLM diesel fuel standard. We would conduct such an 
evaluation in 2011.
---------------------------------------------------------------------------

    Downstream-generated 500 ppm sulfur diesel fuel may only be used in 
nonroad engines until December 1, 2014, due to concerns regarding 
enforceability and the increased potential for misfueling of nonroad 
equipment (equipment with advanced emission controls). Beginning with 
the 2011 model year, such equipment will require the use of 15 ppm 
sulfur diesel fuel to operate properly. The same concerns do not exist 
regarding the continued use of such 500 ppm sulfur diesel fuel in 
locomotive and marine engines for three reasons. First, locomotive and 
marine engines are not currently required to be equipped with the 
sulfur sensitive emissions aftertreatment that will start being used on 
nonroad equipment in 2011.\100\ Second, locomotive and marine markets 
are centrally fueled to a much greater extent than nonroad markets, and 
thus enforceability is not as significant of an issue. Finally, we 
believe the program's designate and track provisions discussed below 
will be sufficient to enforce the limits on production and use of 500 
ppm sulfur diesel fuel.
---------------------------------------------------------------------------

    \100\ Although, as mentioned above, the Agency intends in the 
near future to initiate a rulemaking to adopt new emission standards 
for locomotive and marine engines. An advanced notice of proposed 
rulemaking (ANPRM) for this rule is published elsewhere in today's 
Federal Register, June 29, 2004.
---------------------------------------------------------------------------

    It is difficult to project exactly how much of this downstream 
generated downgraded fuel could be segregated and shipped to LM 
markets. However, it is clear that this provision represents an 
important flexibility for the distribution system. In fact, it provides 
virtually the same flexibility as provided by the proposal to handle 
off-specification product. In both cases, use of the flexibility is 
dependent on the ability to segregate the interface and transport it to 
available LM markets. While today's rule does not contain an end date 
for the downstream distribution of 500 ppm sulfur locomotive and marine 
fuel, we will review the appropriateness of allowing this flexibility 
based on experience gained from implementation of the 15 ppm sulfur 
NRLM diesel fuel standard. We expect to conduct such an evaluation in 
2011.
    A summary of the NRLM sulfur levels and final deadlines for 
refiners, importers, terminals, and other downstream parties is shown 
in table IV-1 below.

                                        Table IV-1.--500 ppm Sulfur and 15 ppm Sulfur NRLM Final Compliance Dates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 Bulk plants,
                                          Refiners and                                                       wholesale purchaser-
                                            importers         Credit, small refiner        Terminals         consumers and retail     Other locations
                                                                                                                   outlets
--------------------------------------------------------------------------------------------------------------------------------------------------------
500 ppm NRLM.......................  June 1, 2007..........  June 1, 2010..........  August 1, 2010.......  October 1, 2010......  December 1, 2010.
15 ppm NR..........................  June 1, 2010..........  June 1, 2014..........  August 1, 2014.......  October 1, 2014......  December 1, 2014.

[[Page 39046]]

 
15 ppm LM..........................  June 1, 2012..........   June 1, 2014.........
--------------------------------------------------------------------------------------------------------------------------------------------------------

4. Diesel Sulfur Credit Banking and Trading Provisions
    Today's final program includes provisions for refiners and 
importers to generate early credits for the production of 500 ppm 
sulfur NRLM diesel fuel prior to June 1, 2007 and for the production of 
15 ppm sulfur NRLM diesel fuel prior to June 1, 2010. These credit 
banking and trading provisions will provide implementation flexibility 
by facilitating a somewhat smoother transition at the start of the 
program in 2007, with some refineries/import facilities complying 
early, others on time, and others a little later. These credit banking 
and trading provisions may also facilitate some of the environmental 
benefits of the program being achieved earlier than otherwise required, 
and may increase the overall environmental benefits of the program. As 
discussed below, overall benefits will accrue if refiners produce 500 
ppm earlier in lieu of high sulfur NRLM and then bank those credits to 
continue producing 500 ppm sulfur NR diesel fuel in 2010 or 500 ppm LM 
diesel fuel in 2012 in lieu of 15 ppm.\101\
---------------------------------------------------------------------------

    \101\ We are not adopting specific provisions to generate 
credits for early production of LM diesel fuel prior to June 1, 
2012. The difference in start date between 2010 and 2012 already 
provides additional flexibility to producers of LM diesel fuel, and 
setting separate credit generation periods for NR and LM diesel fuel 
would unnecessarily complicate the compliance assurance provisions.
---------------------------------------------------------------------------

    Specifically, credits generated under the NRLM diesel fuel program 
may be banked and later used to delay compliance with either the 500 
ppm sulfur NRLM standard that begins in 2007, the 15 ppm sulfur NR 
standard that begins in 2010, or the 15 ppm sulfur LM standard that 
begins in 2012. Credits may also be traded within companies such that 
credits generated at one refinery/import facility in a given company 
may be traded to another refinery/import facility within that same 
company. In addition, refiners or importers may purchase credits 
generated by other refiners or importers to meet the program 
requirements. Finally, and perhaps most importantly, individual 
refineries/import facilities may be able to use credits to permit the 
continued sale of otherwise off-specification product at the beginning 
of the program's second step when they are still adjusting their 
operations for consistent production/importation of NRLM diesel fuel 
that is subject to the new sulfur standards.
a. Credit Generation From June 1, 2006 Through May 31, 2007
    Credits may be generated under today's program to allow for the 
production of high sulfur NRLM diesel fuel after June 1, 2007. A 
refiner or importer may obtain credit for early production/importation 
of fuel meeting the 500 ppm sulfur standard that they designate as NRLM 
diesel fuel, from June 1, 2006 through May 31, 2007. In addition, small 
refiners may also generate credits for the early production of 500 ppm 
sulfur diesel fuel that they designate as NRLM diesel fuel. As 
described in section IV.B, below, small refiners are not required to 
produce any 500 ppm sulfur NRLM diesel fuel until June 1, 2010. Those 
small refiners who choose to comply with the 500 ppm sulfur standard 
earlier than required, that is before June 1, 2010, may generate 
credits for any volume of diesel fuel they produce from June 1, 2007 
through May 31, 2010 and designate as NRLM. Credits for the early 
production of 500 ppm sulfur fuel (including by small refineries) are 
fungible, may be banked for future use, or traded to any other refiner 
or importer nationwide. In order to ensure that these early credits are 
real and not merely shifts from the highway market, both early credits 
and small refinery credits will be subject to a limit determined by the 
following formula:

CreditHS = (Vol15 + Vol500) - 
Volhwy
CreditHS Limit = (Vol15 + Vol500) - 
Basehwy
Where:

Credit500 Limit = Limit for 500 ppm NRLM credits
CreditHS = High-Sulfur NRLM credits\102\
---------------------------------------------------------------------------

    \102\ For the purposes of this rule, credits are labeled on the 
basis of their use in order to follow the convention used in the 
highway diesel rule. A high-sulfur credit is generated through the 
production of one gallon of 500 ppm sulfur NRLM diesel fuel and 
allows the production of one gallon of high sulfur NRLM diesel fuel.
---------------------------------------------------------------------------

Vol15 = Volume of 15 ppm sulfur diesel fuel produced and 
designated as highway or NRLM
Vol500 = Volume of 500 ppm sulfur diesel fuel produced and 
designated as highway or NRLM
Basehwy = 2003-2005 highway diesel fuel baseline volume
Volhwy = Volume of diesel fuel produced and designated as 
highway

    If the excess production is 15 ppm sulfur diesel fuel instead of 
500 ppm sulfur diesel fuel, then the refiner will have the option of 
generating 500 ppm sulfur credits under the highway diesel fuel 
program. Credit may not be earned under both programs for a given 
volume of 500 ppm sulfur or 15 ppm sulfur diesel fuel.
b. Credit Generation From June 1, 2009 Through May 31, 2010
    In addition to allowing credit for the early production of 500 ppm 
sulfur NRLM diesel fuel, today's program also allows credit for the 
early production of 15 ppm sulfur NRLM diesel fuel. Specifically, 
refiners and importers may obtain credit for early production/
importation of fuel meeting the 15 ppm sulfur standard and that they 
designate as NRLM from June 1, 2009 through May 31, 2010. In addition, 
small refiners, which are not required to produce any 15 ppm sulfur 
NRLM diesel fuel until June 1, 2014, may also generate credits for the 
early production of any volume of 15 ppm sulfur diesel fuel that they 
designate as NRLM from June 1, 2010 through December 31, 2013. Again, 
these early credits are fungible, may be banked for future use, or 
traded to any other refinery or importer nationwide. However, in order 
to ensure these credits are real and not merely shifts from the highway 
market, credits for the early production or importation of 15 ppm 
sulfur fuel will be subject to a limit determined by the following 
formula:

Credit500 = Vol15 - Vol15hwy
Credit500 Limit = Vol15 - Base15hwy

Where:
Credit500 Limit = Limit for 500 ppm sulfur NRLM credits
Vol15 = Volume of 15 ppm sulfur diesel fuel produced and 
designated as highway or NRLM
Base15hwy = 2006-2008 15 ppm sulfur highway diesel fuel 
baseline volume


[[Page 39047]]


    Hence, to generate credits, a refiner or importer's highway diesel 
fuel volume for the compliance period must be greater than or equal to 
the baseline volume. That is, a refiner or importer may only generate 
credits for ``new'' volumes of 15 ppm sulfur diesel fuel that it 
produces. If their highway diesel fuel volume were to drop below the 
baseline volume, that would likely indicate a shift in production from 
the highway market to generate 15 ppm sulfur NRLM diesel fuel credits.
c. Credit Use
    There are two ways in which refiners or importers may use high-
sulfur NRLM credits under the NRLM diesel fuel program. First, credits 
may be used during the period from June 1, 2007 through May 31, 2010 to 
continue to produce high sulfur NRLM diesel fuel. Any high sulfur NRLM 
diesel fuel that is produced, however, must be designated and labeled 
as such for tracking purposes throughout the distribution system and be 
dyed red at the refinery gate.
    The second way in which refiners and importer could use high-sulfur 
NRLM credits is by banking them for use during the June 1, 2010 through 
May 31, 2014 period. Credits used in this manner would provide a net 
environmental benefit, since they were generated by reducing the sulfur 
level from approximately 3000 ppm to less than 500 ppm (a net change of 
2500 ppm sulfur), but when used only allow the sulfur level to increase 
from 15 ppm to 500 ppm (a net change of less than 500 ppm sulfur). 500 
ppm sulfur credits generated from the early production of 15 ppm sulfur 
NRLM diesel fuel may also be used from June 1, 2010 through May 31, 
2014. Thus, during this period, when the 15 ppm sulfur standard is in 
effect for nonroad diesel fuel, refiners/importers may use either high 
sulfur credits or 500 ppm sulfur credits to continue producing/
importing 500 ppm sulfur nonroad diesel fuel. Any 500 ppm sulfur diesel 
fuel that is produced, however, must be appropriately designated and 
labeled for tracking purposes throughout the distribution system, and 
cannot be sold for use in 2011 and later model year nonroad engines. 
From June 1, 2012, when the 15 ppm sulfur standard for LM diesel fuel 
becomes effective, through May 31, 2014, refiners/importers may use 
either high sulfur credits or 500 ppm sulfur credits to continue 
producing/importing 500 ppm sulfur NRLM diesel fuel. All credits expire 
after May 31, 2014. Hence, beginning June 1, 2014, all NRLM diesel fuel 
produced by refiners or imported in the U.S. will be subject to the 15 
ppm sulfur standard, except LM diesel fuel produced by transmix 
processors from transmix can continue to meet the 500 ppm sulfur limit.
    We proposed that all credits would expire May 31, 2012, however we 
are finalizing an expiration date of May 31, 2014 based on the comments 
we received. The additional two years that we are now allowing for 
credit use (1) will provide a longer period for refiners to sell off-
specification fuel instead of having to reprocess it, (2) is an 
environmentally neutral change to the overall program, and (3) is now 
consistent with the end-date for small refiner flexibility.
    While credits can be generated and traded nationwide, they are 
restricted from use in certain parts of the country under the 
provisions of this final rule. As discussed in section IV.D, we are 
avoiding the burden to terminals of adding marker to heating oil in 
those areas of the country where demand for heating oil is expected to 
continue to remain high after today's final rule. The NRLM diesel fuel 
sulfur standards will be enforced based on sulfur level in these areas, 
not through the refinery designation and marker provisions. 
Consequently, in the area defined in section IV.D comprising most of 
the Northeast and Mid-Atlantic region of the country, as well as in the 
State of Alaska, many of the fuel program's flexibilities, including 
refiners' ability to use credits, are not allowed. Refiners and 
importers may not use credits to produce or import diesel fuel with a 
sulfur content greater than 500 ppm beginning June 1, 2007 or 15 ppm 
beginning June 1, 2010, for sale or distribution in this Northeast/Mid-
Atlantic area or the State of Alaska. However, credits generated in 
these areas can be sold to other refiners and/or importers for use 
outside these areas.

B. Hardship Relief Provisions for Qualifying Refiners

    As in our gasoline sulfur and highway diesel fuel sulfur programs, 
today's program contains the following hardship relief provisions to 
provide regulatory flexibility to challenged refiners:
     Small refiner hardship for qualifying small refiners;
     General hardship for any refiner experiencing either--
    (1) Extreme unforeseen circumstances such as natural disaster or 
acts of God; or
    (2) Extreme hardship circumstances such as financial or technical 
hardship.
    Similar provisions have proved invaluable for some refiners in the 
recent implementation of the gasoline sulfur standards, as well as for 
refiners' planning for the highway diesel standards. The details of 
these provisions are discussed below.
1. Hardship Provisions for Qualifying Small Refiners
    As in previous fuel rulemakings, our justification for including 
provisions specific to small refiners is that, in general, small 
refiners generally have a degree of hardship in complying with the 
standards compared to other refiners. In the NPRM, we proposed 
flexibilities/transition provisions, or ``hardship provisions'' (these 
terms are equivalent), for small refiners. We are adopting the 
provisions that were proposed for small refiners virtually unchanged, 
and including similar provisions for the treatment of locomotive and 
marine fuel.
a. Regulatory Process and Justification for Small Refiner Relief
    In developing our NRLM diesel fuel sulfur program, we evaluated the 
environmental need as well as the technical and financial ability of 
refiners to meet the 500 and 15 ppm sulfur standards as expeditiously 
as possible. We believe it is feasible and necessary for the vast 
majority of the program to be implemented in the established time frame 
to achieve the air quality benefits as soon as possible. Based on 
information available from small refiners and others, we believe that 
refiners classified as small generally face unique circumstances with 
regard to compliance with environmental programs, compared to larger 
refiners. Consequently, as discussed below, we are finalizing several 
special provisions for refiners that qualify as ``small refiners'' to 
reduce the disproportionate burden that today's program will have on 
them.
    Small refiners generally lack the resources that are available to 
large refining companies, including those large companies that own 
small-capacity refineries, to raise capital for investing in 
desulfurization equipment, such as shifting of internal funds, securing 
of financing, or selling of assets. Small refiners are also likely to 
have more difficulty in competing for engineering and construction 
resources needed for the installation of the desulfurization equipment 
which will likely be required to meet the standards finalized in this 
action.
    Because small refiners are more likely to face adverse 
circumstances with regard to regulatory compliance than larger 
refiners, we are finalizing interim provisions that will provide 
additional time for refineries owned by small

[[Page 39048]]

refiners to meet the sulfur standards. This approach will allow the 
overall program to begin as early as possible, avoiding the need for 
delay in order to address the ability of small refiners to comply.
i. Regulatory Flexibility Process for Small Refiners
    As explained in the discussion of our compliance with the 
Regulatory Flexibility Act (RFA) in section X.C of this preamble, and 
in the Final Regulatory Flexibility Analysis in chapter 11 of the RIA, 
we considered the impacts of today's regulations on small businesses. 
Most of our analysis of small business impacts was performed as part of 
the Small Business Advocacy Review (SBAR) Panel convened by EPA, 
pursuant to the RFA as amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA). The Panel's final report is 
available in the rulemaking public docket (Docket A-2001-28, Document 
No. II-A-172).
    For the SBREFA process, EPA conducted outreach, fact-finding, and 
analysis of the potential impacts of the proposed nonroad regulations 
on small businesses. Based on these discussions and analyses by all 
panel members, the Panel concluded that small refiners in general would 
likely experience a significant and disproportionate financial burden 
in reaching the objectives of the proposed nonroad diesel fuel sulfur 
program.
    One indication of the disproportionate burden on small refiners is 
the relatively high cost per gallon projected for producing NRLM diesel 
fuel under today's program. Refinery modeling of refineries owned by 
refiners likely to qualify as small refiners, and of refineries owned 
by other non-small refiners, indicates significantly higher refining 
costs for small refiners. Specifically, we project that without special 
provisions, refining costs for small refiners on average would be about 
two cents per gallon higher than for other refiners in the same PADD to 
meet the 15 ppm sulfur standard.
    The Panel also noted that the burden imposed on small refiners by 
the proposed sulfur standards may vary from refiner to refiner. Thus, 
the Panel recommended more than one type of burden mitigation so that 
most, if not all, small refiners could benefit. We considered the 
issues raised during the SBREFA process, and discussed them in the 
NPRM, and have decided to finalize each of the provisions recommended 
by the Panel. A discussion of the comments we received regarding small 
refiners and terminal operators, and our responses to those comments, 
can be found in section X.C of this preamble, and also the Summary and 
Analysis of Comments.
ii. Rationale for Small Refiner Regulatory Flexibility Provisions
    Generally, we structured the small refiner provisions to reduce the 
burden on small refiners while expeditiously achieving air quality 
benefits and ensuring that the availability of 15 ppm sulfur NR diesel 
fuel will coincide with the introduction of 2011 model year nonroad 
diesel engines and equipment. We believe the special provisions for 
small refiners are necessary and appropriate for several reasons.
    First, the compliance schedule for today's program, combined with 
special relief provisions for small refiners, will achieve the air 
quality benefits of the program as soon as possible, while helping to 
ensure that small refiners will have adequate time to raise capital for 
new or upgraded fuel desulfurization equipment. Most small refiners 
have limited additional sources of income beyond refinery earnings for 
financing and typically do not have the financial backing that larger 
and generally more integrated companies have. Therefore, additional 
time to accumulate capital internally or to secure capital financing 
from lenders can be central to their ability to comply.
    Second, we recognize that while the sulfur levels in today's 
program can be achieved using conventional refining technologies, new 
technologies are also being developed that may reduce the capital and/
or operating costs of sulfur removal. Thus, we believe that providing 
small refiners some additional time to allow for new technologies to be 
proven out by other refiners will have the added benefit of reducing 
the risks faced by small refiners. The added time will likely enable 
small refiners to benefit from the lower costs of these improvements in 
desulfurization technology (e.g., better catalyst technology or lower-
pressure hydrotreater technology). This will help to offset the 
disproportionate financial burden that may be imposed upon small 
refiners.
    Finally, providing small refiners more time to comply will spread 
out the availability of engineering and construction resources. Most 
refiners will need to install additional processing equipment to meet 
the NRLM diesel fuel sulfur requirements. We anticipate that there may 
be significant competition for technology services, engineering 
resources, and construction management and labor. In addition, as has 
been the experience in gasoline sulfur control, vendors will be more 
likely to contract their services with the larger refiners first, as 
their projects will offer larger profits for the vendors. Temporarily 
delaying compliance for small refiners will spread out the demand for 
these resources and may help reduce cost premiums for everyone caused 
by limited engineering and construction supply.
    We discuss below the provisions that we are finalizing to minimize 
the degree of hardship imposed upon small refiners by this program. 
With these provisions we are confident in going forward with the 500 
ppm sulfur standard for NRLM diesel fuel in 2007 and the 15 ppm sulfur 
standard for NR diesel fuel in 2010 and for LM diesel fuel in 2012, for 
the rest of the industry. The provisions for small refiners will allow 
these refiners to continue to produce higher sulfur NRLM fuel until 
June 1, 2010, and similarly, will allow for the production of 500 ppm 
nonroad NRLM fuel until June 1, 2014. Without small refiner relief, we 
would have to consider delaying the overall program until the burden of 
the program on many small refiners was diminished, which would delay 
the air quality benefits of the overall program. By providing temporary 
relief to small refiners, we are able to adopt a program that 
expeditiously reduces NRLM diesel fuel sulfur levels in a feasible 
manner for the industry as a whole.
    The four-year leadtime from which begins in 2010 for small refiners 
for locomotive and marine diesel fuel is identical to the relief that 
was supported by small refiners for nonroad diesel fuel. We believe 
that this relief is necessary and adequate to reduce the burden on 
small entities while still achieving our air quality goals. Small 
refineries vary considerably in their markets for NRLM diesel fuels. 
Consequently, the proposal to control nonroad diesel fuel to 15 ppm 
sulfur impacted small refiners with significant nonroad market shares, 
but left those with significant locomotive and marine market shares 
relatively untouched. With control of all NRLM diesel fuel to 15 ppm 
sulfur in this final rule, all small refiners of NRLM diesel fuel will 
face similar challenges, and therefore the same four year lead time 
from 2010 proposed for those small refiners impacted by nonroad fuel 
control alone is also appropriate when the standards are expanded to 
all NRLM. In essence, while more small refiners face the challenge of 
desulfurizing all of their diesel fuel to the 15 ppm sulfur standard, 
the magnitude of this challenge is not any greater. Furthermore, 
providing

[[Page 39049]]

additional relief (beyond 2014) to small refiners would undermine the 
program by further delaying air quality benefits. The 2014 deadline for 
all small refiner diesel fuel to 15 ppm sulfur will also simplify the 
fuel program and it will allow small refiners the ability to coordinate 
their plans to reduce the sulfur content of all off-highway diesel fuel 
at the same time.
iii. Impact of Small Refiner Options on Program Emissions Benefits
    Small refiners that choose to delay the NRLM diesel fuel sulfur 
requirements will also delay to some extent the emission reductions 
that would otherwise have been achieved. However, for several reasons, 
the overall impact of these postponed emission reductions will be 
small. First, small refiners represent only a fraction of national non-
highway diesel production. Today, refiners that we expect to qualify as 
small refiners represent only about six percent of all high-sulfur 
diesel production. Second, the delayed compliance provisions described 
below will affect only engines without new emission controls. During 
the program's first step to 500 ppm sulfur NRLM diesel fuel, small 
refiner NRLM diesel fuel could be well above 500 ppm sulfur, but the 
new advanced engine controls will not yet be required. During the 
second step to 15 ppm sulfur NRLM diesel fuel, equipment with the new 
controls will be entering the market, but use of the 500 ppm small 
refiner fuel will be restricted to older engines without the new 
controls. There will be some loss of sulfate PM control in the older 
engines that operate on higher sulfur small refiner fuel, but no effect 
on the major emission reductions that the new engine standards will 
achieve starting in 2011. Finally, because small diesel refiners are 
generally dispersed geographically across the country, the limited loss 
of sulfate PM control will also be dispersed.
    One option for small refiner relief will allow a modest 20 percent 
relaxation in the gasoline sulfur interim standards for small refiners 
that produce all of their NRLM diesel fuel at 15 ppm sulfur by June 1, 
2006. To the extent that small refiners elect this option, a small loss 
of emission control from Tier 2 gasoline vehicles that use the higher 
sulfur gasoline could occur. We believe that such a loss of control 
will be very small. Very few small refiners will be in a position to 
use this provision. Further, the relatively small production of 
gasoline with slightly higher sulfur levels should have no measurable 
impact on the emissions of new Tier 2 vehicles, even if the likely 
``blending down'' of sulfur levels does not occur as this fuel mixed 
with lower sulfur fuel during distribution. This provision will also 
maintain the maximum 450 ppm gasoline sulfur per-gallon cap standard in 
all cases, providing a reasonable sulfur ceiling for any small refiners 
using this provision.
b. Small Refiner Definition for Purposes of the Hardship Provisions
    The definition of small refiner under the NRLM diesel program is 
similar to the definitions under the Tier 2/Gasoline Sulfur and Highway 
Diesel rules. Under the NRLM program, a small refiner must demonstrate 
that it meets the following criteria:
     Produced NRLM diesel from crude;
     No more than 1,500 employees corporate-wide, based on the 
average number of employees for all pay periods from January 1, 2002 to 
January 1, 2003; and,
     A corporate crude oil capacity less than or equal to 
155,000 barrels per calendar day (bpcd) for 2002.
    As with the earlier fuel sulfur programs, the effective dates for 
the determination of employee count and for calculation of the crude 
capacity represent the most recent complete year prior to the issuing 
of the proposed rulemaking (2002, in this case).
    In determining its total number of employees and crude oil 
capacity, a refiner must include the number of employees and crude oil 
capacity of any subsidiary companies, any parent company and 
subsidiaries of the parent company, and any joint venture partners. We 
define a subsidiary of a company to mean any subsidiary in which the 
company has a 50 percent or greater ownership interest. However, 
refiners owned and controlled by an Alaska Regional or Village 
Corporation organized under the Alaska Native Claims Settlement Act (43 
U.S.C. 1626), are also eligible for small refiner status, based only on 
the refiner's employees and crude oil capacity. Such an exclusion is 
consistent with our desire to grant regulatory relief to that part of 
the industry that is the most challenged with respect to regulatory 
compliance. We believe that very few refiners, probably only one, will 
qualify under this provision. We are also incorporating this exclusion 
into the small refiner provisions of the highway diesel and gasoline 
sulfur rules, which did not address this issue.
    As under the gasoline sulfur and highway diesel fuel rules, 
refiners that either acquire or restart a refinery in the future may be 
eligible for small refiner status under the NRLM program. Specifically, 
a refiner that either acquires or restarts a refinery that was shut 
down or non-operational between January 1, 2002 and January 1, 2003 may 
apply for small refiner status. In such cases, we will judge 
eligibility under the employment and crude oil capacity criteria based 
on the most recent 12 consecutive months of data unless we conclude 
from the data provided by the refiner that another period of time is 
more appropriate. Companies with refineries built after January 1, 2002 
are not eligible for the small refiner provisions. Similarly, entities 
that do not own or operate a refinery are not eligible to apply for 
small refiner status.
c. Provisions for Small Refiners
    We are finalizing several provisions intended to reduce the 
regulatory burden of today's program on small refiners as well as to 
encourage their early compliance whenever possible. As described below, 
these small refiner relief options consist of additional time for 
compliance and, for small refiners that choose to comply earlier than 
required, the option of either generating diesel fuel sulfur credits or 
receiving a limited relaxation of their gasoline sulfur standards.
i. NRLM Delay Option
    First, we are finalizing an option that allows small refiners to 
postpone their compliance with the NRLM diesel fuel sulfur standards. 
The delayed compliance schedule for small refiners is intended to 
compensate for the relatively higher compliance burdens on these 
refiners. It is not intended as an opportunity for those refiners to 
greatly expand their production of uncontrolled diesel fuel (2007-2010) 
or 500 ppm sulfur diesel fuel (2010-2014). To help ensure that any 
significant expansion of refining capacity that a small refiner might 
undertake in the future is accompanied by an expansion of 
desulfurization capacity, small refiners producing higher sulfur fuel 
must limit their production to baseline volume levels. Specifically, 
during the first step of today's diesel fuel program to 500 ppm sulfur, 
from June 1, 2007 through May 31, 2010, a small refiner may at any or 
all of its refineries produce uncontrolled NRLM diesel fuel up to the 
2003 through 2005 non-highway baseline volume for the refinery(s). Any 
diesel fuel produced over the baseline volume will be subject to the 
500 ppm sulfur standard applying to other refiners. Similarly, from 
June 1, 2010 through May 31, 2014, a small refiner may produce at any 
or all of its refineries NRLM diesel fuel subject to

[[Page 39050]]

the 500 ppm sulfur standard at a volume equal to or less than the 
refineries' 2006-2008 non-highway baseline volumes. LM fuel produced to 
the 500 ppm standard during 2010 to 2012 would be counted towards 
meeting this baseline volume. NRLM fuel produced in excess of the 
baseline volume will be subject to the 15 ppm sulfur NRLM diesel fuel 
standard. The baseline for 2003-2005 will be determined by subtracting 
the refinery's highway volume from its total highway and heating oil 
volume production. The baseline for 2006-2008 will be determined based 
upon the volume of the refinery's NRLM fuel designations discussed in 
section IV.D.
    As discussed in section IV.D, the costs to the distribution system 
to mark heating oil in areas of PADD 1 with high heating oil demand to 
distinguish it from small refiner or credit-using high sulfur NRLM made 
this option undesirable in these areas. Based on our review of 
anticipated small refiner situations, this portion of PADD 1 appears 
unlikely to provide a meaningful market for small refiners seeking this 
option. Therefore, in this part of the country it imposed costs without 
providing the intended benefit. Consequently, while this option was 
proposed to be available nationwide, we are not finalizing it for a 
portion of PADD 1. This change from the proposal should have no 
meaningful impact on small refiners' flexibility, but will reduce the 
costs for fuel distributors.
    Since new engines with sulfur sensitive emission controls will 
begin to become widespread beginning in 2011, small refiner fuel can 
only be sold for use in pre-2011 nonroad equipment or in locomotives or 
marine engines during this time. Section IV.D below discusses the 
requirements for designating and tracking the production of 500 ppm 
sulfur NRLM diesel fuel produced by small refiners during this period.
    The following table illustrates the small refiner NRLM diesel fuel 
sulfur standards as compared to the standards for the base NRLM diesel 
fuel program. As previously stated, small refiners will receive 
additional lead time, compared to non-small refiners for 15 ppm sulfur 
locomotive and marine diesel fuel. This lead time is identical to that 
which had been proposed for 15 ppm sulfur nonroad diesel fuel. This 
will ensure that emission benefits of ultra low sulfur diesel fuel are 
achieved as soon as possible, and should not significantly change the 
nature or magnitude of the burden on affected small refiners.

                      Table IV-4.--Small Refiner NRLM Diesel Fuel Sulfur Standards, ppm \a\
----------------------------------------------------------------------------------------------------------------
                                   2006    2007    2008    2009    2010    2011    2012    2013    2014    2015+
----------------------------------------------------------------------------------------------------------------
Non-Small Refiners-NR fuel......  ......     500     500     500      15      15      15      15      15      15
Non-Small Refiners-LM fuel......  ......     500     500     500     500     500      15      15      15      15
Small Refiners-NR diesel fuel...  ......  ......  ......  ......     500     500     500     500      15      15
Small Refiners-LM diesel fuel...  ......  ......  ......  ......     500     500     500     500      15      15
----------------------------------------------------------------------------------------------------------------
Notes: \a\ New standards will take effect on June 1 of the applicable year.

ii. NRLM Credit Option
    Some small refiners have indicated that, for a variety of reasons, 
they might need to produce fuel meeting the NRLM diesel fuel sulfur 
standards earlier than required under the small refiner program 
described above. For some small refiners, the distribution system might 
limit the number of grades of diesel fuel that will be carried. Others 
might find it economically advantageous to make 500 ppm or 15 ppm 
sulfur NRLM diesel fuel earlier than required to prevent losing market 
share. At least one small refiner has indicated that it might decide to 
desulfurize its NRLM pool at the same time as it desulfurizes its 
highway diesel fuel, in June 2006, due to limitations in its 
distribution system and to take advantage of economies of scale.
    The NRLM Credit option allows small refiners to participate in the 
NRLM diesel fuel sulfur credit banking and trading program discussed 
earlier in this section. Under this option, a small refiner may 
generate diesel fuel sulfur credits by producing any volume of 500 ppm 
sulfur NRLM diesel fuel from crude oil prior to from June 1, 2006 
through May 31, 2010, and by producing any volume from crude oil of 15 
ppm sulfur NRLM diesel fuel from June 1, 2010 through December 31, 
2013. The specifics of the credit program are described in section 
IV.A.4, including how the program applies to small refiners. Generating 
and selling credits could provide small refiners with funds to help 
defray the costs of early NRLM compliance.
iii. NRLM/Gasoline Compliance Option
    The NRLM/Gasoline Compliance option is available to small refiners 
that produce greater than 95 percent of their NRLM diesel fuel at the 
15 ppm sulfur standard by June 1, 2006 and elect not to use the 
provision described above to earn NRLM diesel fuel sulfur credits for 
this early compliance. Refiners choosing this option will receive a 
modest revision in their small refiner interim gasoline sulfur 
standards, beginning January 1, 2004. Specifically, the applicable 
small refiner annual average and per-gallon cap gasoline sulfur 
standards will be increased by 20 percent for the duration of the 
interim program. The interim program is through either 2007 or 2010, 
depending on whether the refiner extended the duration of its interim 
gasoline sulfur standards by producing 15 ppm sulfur highway diesel 
fuel by June 1, 2006, as provided under 40 CFR 80.552(c). In no case 
may the per-gallon gasoline sulfur cap exceed 450 ppm, the highest 
level allowed under the gasoline sulfur program.
    We believe it is very important to link any relaxation of a small 
refiner's interim gasoline sulfur standards with the environmental 
benefit of early desulfurization of a significant volume of NRLM diesel 
fuel. As such, a small refiner choosing to use this option must produce 
a minimum volume of NRLM diesel fuel at the 15 ppm sulfur standard by 
June 1, 2006. Each participating small refiner must produce a volume of 
15 ppm sulfur fuel that is at least 85 percent of the annual average 
volume of non-highway diesel fuel it produced from 2003-2005. If the 
refiner began to produce gasoline in 2004 at the higher interim 
standard under this provision but then either fails to meet the 15 ppm 
sulfur standard for its NRLM diesel fuel by June 1, 2006 or fails to 
meet the 85 percent minimum volume requirement, the original small 
refiner interim gasoline sulfur standard applicable to that refiner 
will automatically apply retroactively to 2004. In addition, the 
refiner must compensate for the higher gasoline sulfur levels by 
purchasing gasoline sulfur credits or producing an equivalent volume of 
gasoline below the required sulfur levels. Under this option, a small 
refiner could in effect shift some funds from its gasoline sulfur 
program to accelerate desulfurization of

[[Page 39051]]

NRLM diesel fuel. While there would be a small potential loss of 
emission reduction under the gasoline sulfur program from fuel produced 
by the very few small refiners that we believe would choose this second 
option, there are also environmental benefits gained from the 
production of 15 ppm sulfur diesel fuel earlier than otherwise 
required.
iv. Relationship of the Options to Each Other
    A small refiner may choose to use the NRLM Delay option, the NRLM 
Credit option or both in combination, since it has no requirement to 
produce 500 ppm sulfur NRLM diesel fuel before June 1, 2010, or 15 ppm 
sulfur NRLM diesel fuel before June 1, 2014. Thus any fuel that it 
produces from crude at or below the sulfur standards earlier than 
required will qualify for generating credits.
    On the other hand, the NRLM/Gasoline Compliance option may not be 
used in combination with either the NRLM Delay option or the NRLM 
Credit option, since a small refiner must produce at least 85 percent 
of its NRLM diesel fuel at the 15 ppm sulfur standard under the NRLM/
Gasoline Compliance option.
d. How Do Refiners Apply for Small Refiner Status?
    A refiner applying for small refiner status must provide the Agency 
with several types of information by December 31, 2004. The detailed 
application requirements are summarized in section V.F.2 below. In 
general, a potential small refiner must own the refinery/refineries in 
question and must provide the following information for the parent 
company and all subsidiaries at all locations: (1) The average number 
of employees for all pay periods from January 1, 2002 through January 
1, 2003; (2) the total corporate crude oil capacity, which must be a 
positive number; and (3) an indication of which small refiner option 
the refiner intends to use (see section IV.B.1.c above). As with 
applications for relief under other fuel programs, applications for 
small refiner status under this rule that are later found to contain 
false or inaccurate information will be void ab initio.
e. The Effect of Financial and Other Transactions on Small Refiner 
Status and Small Refiner Relief Provisions
    Since the gasoline sulfur and highway diesel fuel sulfur programs 
were finalized, several refiners have raised concerns about how various 
financial and other transactions could affect implementation of the 
small refiner fuel sulfur provisions. These types of transactions 
typically involve refiners with approved small refiner status that are 
involved in potential or actual sales of the small refiner's refinery, 
or involve the small refiner merging with another refiner or purchasing 
another refinery (or other non-refining asset). We believe that these 
concerns are also relevant to the small refiner provisions described 
below for the NRLM diesel fuel sulfur program.
i. Large Refiner Purchasing a Small Refiner's Refinery
    The first type of transaction involves a ``non-small'' refiner that 
wishes to purchase a refinery owned by an approved small refiner. In 
some cases, the small refiner may not have completed or even begun 
refinery upgrades to meet the long-term fuel sulfur standards if it was 
using an interim small refiner compliance provision. Under the gasoline 
sulfur and highway diesel fuel sulfur programs, once such a purchase 
transaction is completed, the ``non-small'' buyer does not have the 
benefit of the small refiner relief provisions that had applied to the 
previous owner.
    The purchasing refiner would have to perform the necessary upgrades 
on the acquired refinery for it to meet the ``non-small'' sulfur 
standards. As the gasoline sulfur and highway diesel fuel sulfur 
provisions existed prior to today's action, such a refiner would be 
left with very little or, in the case of the gasoline sulfur program 
which has already begun, no lead time to bring the refinery into 
compliance. The refiners that have raised this issue have claimed that 
refiners in this situation would not be able to immediately comply with 
the ``non-small refiner'' standards upon acquisition of the new 
refinery. These refiners claim that this could prevent them from 
purchasing a refinery from a small refiner and, as a result, this would 
severely limit the ability of small refiners to sell such an asset. The 
refiners that raised this issue requested additional lead time before 
the non-small refiner sulfur standards take effect.
    We received comments on this issue from two refiners. Both refiners 
commented that lead time for refiners losing their small refiner status 
should only be allowed for the case where a small refiner merges with, 
or acquires, another small refiner. Neither refiner supports allowing 
additional lead time for a large refiner that merges with or acquires a 
small refiner. In addition, these refiners also commented that it would 
be inappropriate to allow a small refiner that receives this lead time 
to be able to generate credits for ``early'' production of lower sulfur 
diesels during this two-year period.
    Nevertheless, we continue to believe these lead-time concerns are 
valid. Failure to address them could lead to unnecessary disruption to 
the diesel fuel market. Therefore, we are adopting a provision to 
provide an appropriate period of lead time for compliance with the NRLM 
diesel fuel sulfur requirements for situations in which a refiner 
purchases any refinery owned by a small refiner, whether by purchase of 
the refinery or purchase of the small refiner entity. Refiners that 
acquire a refinery from an approved small refiner will be provided 30 
additional months from the date of the completion of the purchase 
transaction (but no later than June 1, 2010 for 500 ppm NRLM fuel and 
June 1, 2014 for 15 ppm NRLM fuel). During this interim period, 
production at the newly-acquired refinery may remain at the interim 
sulfur levels that applied to that refinery for the previous small 
refiner owner under the small refiner options discussed below. At the 
end of this period, the refiner must comply with the ``non-small 
refinery'' sulfur standards.
    We received comments suggesting that the proposed 24 months of 
additional lead time would not be adequate, and further, discussions 
with several refiners indicated that in most cases, 24 months would be 
inadequate. As discussed in section IV.F, we project a range of 27-39 
months is needed to design and construct a diesel hydrotreater. 
Therefore, in order to allow a reasonable opportunity for complying, we 
are finalizing the provision that 30 months of additional lead time 
will be afforded. Thirty months should in most cases be sufficient for 
the new refiner-owner to accomplish the necessary engineering, 
permitting, construction, and start-up of the necessary desulfurization 
equipment. However, if there are instances where the technical 
characteristics of its planned desulfurization project will require 
additional lead time, we have included provisions for the refiner to 
apply for up to six months of additional time and for EPA to consider 
such requests on a case-by-case basis. Such an application must be 
based on the technical factors supporting the need for more time and 
should include detailed technical information and projected schedules 
for engineering, permitting, construction, and startup. Based on 
information provided in such an application and other relevant 
information, EPA will decide whether additional time is

[[Page 39052]]

technically necessary and, if so, how much additional time is 
appropriate. However, we anticipate that in most cases 30 months will 
be sufficient, since developing plans for compliance should be expected 
to be a part of any purchase decision.
    All existing small refiner provisions and restrictions, as 
described below, will also remain in place for that refinery during the 
30 months of additional lead time and any further lead time approved by 
EPA for the purchasing refiner; including the per-refinery volume 
limitation on the amount of NRLM diesel that may be produced at the 
small refiner standards. Furthermore, since the purpose of this grace 
period is solely to provide time to bring the refinery into compliance 
with the NRLM standards, refiners will not be allowed to generate 
credits for early compliance during this 30 month period. There will be 
no adverse environmental impact of this provision, since the small 
refiner would have already been provided this same relief prior to the 
purchase and this provision is no more generous.
ii. Small Refiner Losing Its Small Refiner Status Due To Merger or 
Acquisition
    Another type of transaction involves a refiner with approved small 
refiner status that later loses its small refiner status because it 
exceeds the small refiner criteria. Under the gasoline sulfur and 
highway diesel fuel sulfur regulations, an approved small refiner that 
exceeds 1,500 employees due to merger or acquisition will lose its 
small refiner status. We also intended for refiners that exceeded the 
155,000 barrel per calendar day crude capacity limit due to merger or 
acquisition to lose its small refiner status and in this rule we are 
amending the regulations to reflect that criterion as well. This 
includes exceedances of the employee or crude capacity criteria caused 
by acquisitions of assets such as plant and equipment, as well as 
acquisitions of business entities.
    Our intent in the gasoline and highway diesel fuel sulfur programs, 
as well as the NRLM diesel fuel sulfur program, has been and continues 
to be, limiting the small refiner relief provisions to a small subset 
of refiners that are challenged, as discussed above. At the same time, 
it is also our intent to avoid stifling normal business growth. 
Therefore, the regulations we are adopting today will disqualify a 
refiner from small refiner status if it exceeds the small refiner 
criteria through its involvement in transactions such as being acquired 
by or merging with another entity, through the small refiner itself 
purchasing another entity or assets from another entity, or when it 
ceases to process crude oil. However, an approved small refiner who 
exceeds the employee or crude oil capacity criteria without merger or 
acquisition, may retain its small refiner status for the purposes of 
the complying with the NRLM diesel fuel standards. Furthermore, in the 
sole case of a merger between two approved small refiners we will allow 
such refiners to retain their small refiner status for purposes of 
complying with the NRLM diesel fuel program. Commenters explained that 
additional financial resources would not typically be provided in the 
case of a merger between small refiners. In light of these comments, we 
believe the justification for continued small refiner relief for the 
merged entity is valid. Small refiner status for the two entities of 
the merger will not be affected, hence the original compliance plans of 
the two refiners should not be impacted. Moreover, no environmental 
detriment will result from the two small refiners maintaining their 
small refiner status within the merged entity as they would have likely 
maintained their small refiner status had the merger not occurred.
    Consistent with our intent in the gasoline sulfur and highway 
diesel fuel sulfur programs to limit the use of the small refiner 
hardship provisions, we also intended in the gasoline sulfur and 
highway diesel fuel sulfur programs that an exceedance of corporate 
crude oil capacity limit of 155,000 bpcd, due to merger or acquisition, 
would be grounds for disqualifying a refiner's small refiner status. 
However, we inadvertently failed to include this second criterion as 
grounds for disqualification in the regulations. In today's action, we 
are resolving this error by including the crude capacity limit, along 
with the employee limit for both the gasoline sulfur and highway diesel 
fuel sulfur programs, effective January 1, 2004. Thus, a refiner 
exceeding either criterion due to merger or acquisition will lose its 
small refiner status. The exception to this would be in the case of 
merger only between two small refiners. We received comments supporting 
the allowance of additional lead time for small refiners that lose 
their small refiner status through a merger with, or acquisition of, 
another small refiner.
    We recognize that a small refiner that loses its small refiner 
status because of a merger with, or acquisition of, a non-small refiner 
would face the same type of lead time concerns in complying with the 
non-small refiner standards as a non-small refiner that acquired a 
small refiner's refinery would. Therefore, the additional lead time 
described above for non-small refiners purchasing a small refiner's 
refinery will also apply to this situation. Thus, this 30 month lead 
time will apply to all of the refineries, existing or newly-purchased, 
that had previously been subject to the small refiner program, but 
would not apply to a newly-purchased refinery that is subject to the 
non-small refiner standards. Again, there would be no adverse 
environmental impact because of the pre-existing relief provisions that 
applied to the newly-purchased small refiner.
    The issues discussed in this section apply equally to the gasoline 
sulfur and highway diesel fuel sulfur programs. Thus, we are also 
adopting the same provisions relating to additional lead time in cases 
of certain financial, or other, transactions for the small refiner 
programs in the earlier fuel sulfur programs.
    In the proposal for today's final rule, we invited comment on 
several other related provisions that were considered during the 
development of this rulemaking:
    (1) Instead of merely allowing small refiners a grace period to 
come into compliance if they lose their small refiner status, we also 
asked for comment on whether or not such a small refiner should instead 
be allowed to ``grandfather'' the small refiner relief provisions for 
its existing refinery or refineries. We did not receive any specific 
comments on this issue and we are not finalizing this provision in 
today's action.
    (2) Regarding small refiners that exceed the small refiner criteria 
due to the purchase of a non-small refiner's refinery, we requested 
comment on whether or not the proposed additional lead time should 
apply to the purchased refinery. We also requested comment on whether 
or not the refiner should be required to meet the non-small refiner 
standards on schedule at the purchased refinery, since the previous 
owner could be assumed to have anticipated the new standards and taken 
steps to accomplish this prior to the purchase. One refiner commented 
that merger acquisition flexibility for refineries that lose their 
small refiner status should be limited to instances where a small 
refiner merges with another small refiner. They believed that any small 
refiner that loses its small refiner status due to an acquisition of a 
non-small refiner's refinery should not be eligible for hardship 
relief. Similarly, another refiner commented that a refiner should not 
retain small refiner status if it has

[[Page 39053]]

the financial resources to acquire additional refineries that increase 
corporate-wide crude processing above 155,000 bpd. We are not adopting 
any flexibility for the purchased refinery in this situation (except in 
the case of a merger between two small refiners, as discussed above).
f. Provisions for Approved Gasoline and Highway Diesel Fuel Small 
Refiners That Do Not Qualify for Small Refiner Status Under Today's 
Program
    Some refiners that have approved small refiner status under the 
gasoline sulfur and highway diesel fuel programs may not qualify for 
small refiner status under today's program if they have grown through 
normal business operations and now exceed the qualification criteria 
for NRLM small refiner status. One refiner commented on the lack of a 
``grandfather'' provision in the nonroad proposal that would 
automatically continue small refiner status to refiners already 
approved as small refiners under the gasoline and highway diesel fuel 
sulfur programs. Without such a provision some refiners could be 
approved small refiners under the gasoline sulfur and highway diesel 
fuel sulfur programs (because they grew through normal business 
expansions and not through merger or acquisition) but would not qualify 
under the NRLM program because they now exceed the criteria. As a 
consequence, the commenter argued that in some cases benefits afforded 
to such small refiners under the gasoline and highway diesel fuel 
sulfur programs could be negated. Specifically, under the highway 
diesel rule they were allowed until 2010 before needing to have diesel 
fuel hydrotreating capacity. Under the nonroad rule, they would have to 
do so in 2007. Since it would only make sense to invest for adequate 15 
ppm capacity when they do invest, the nonroad standards essentially 
would require them to invest to bring all highway and nonroad diesel to 
15 ppm sulfur in 2007, eliminating the flexibility granted them in the 
highway rule. Furthermore, the refiners' clean fuel projects for low 
sulfur gasoline, highway diesel fuel, and NRLM diesel fuel could no 
longer be staggered. In fact, small refiners in such situations would 
be required to make investments for compliance with all three fuel 
programs in the same three to four year period, if not virtually all at 
once.
    We believe that a refiner who no longer meets the criteria for 
small refiner status, since it has successfully grown through normal 
business operations, does not face the same level of hardship described 
earlier in this section. We do not intend for the NRLM program to 
undermine the benefits afforded to small refiners under the gasoline 
and highway diesel fuel sulfur programs, as described in the comments. 
At the same time, however, we want to preserve small refiner status 
under today's program only for those businesses that meet the criteria 
described above. Under the nonroad proposal, a refiner with approved 
small refiner status under the highway diesel fuel program but not the 
NRLM program would be required to produce 500 ppm sulfur NRLM diesel 
fuel in 2007 and both 15 ppm sulfur highway and NR diesel fuel in 2010. 
Under today's final program, such a refiner may instead skip the 2007 
500 ppm interim sulfur standard for its NRLM diesel fuel, and meet the 
15 ppm sulfur standard for both its highway and NR diesel fuel in 2010 
and LM diesel fuel in 2012. Such an approach will maintain the 
refiner's flexibility under the highway program by allowing it to delay 
diesel hydrotreating investment until 2010, while limiting its 
flexibility under the nonroad diesel program.
g. Additional Provisions and Program Elements
    To reduce the burden on all refiners (including small refiners), we 
have chosen to finalize the designate and track approach, rather than 
the baseline approach. Discussions with parties in all parts of the 
distribution system led us to believe that this is the preferred 
approach, as tracking is currently done by parties throughout the 
distribution system. We are also finalizing provisions to simplify the 
segregation, marking, and dyeing requirements. In addition, we are 
finalizing provisions to alleviate the concern raised by small terminal 
operators regarding the heating oil marker. Terminals in parts of PADD 
1 (Northeast/Mid-Atlantic Area) will not have to add the marker to home 
heating oil. Therefore we expect that no terminals inside of the 
Northeast/Mid-Atlantic Area will need to install injection equipment. 
These provisions are discussed in greater detail in section IV.D, 
below.
2. General Hardship Provisions
a. Temporary Waivers From NRLM Diesel Fuel Sulfur Requirements in 
Extreme Unforseen Circumstances
    We are finalizing a provision which, at our discretion, will permit 
any domestic or foreign refiner to seek a temporary relief from the 
NRLM diesel fuel sulfur standards under certain rare circumstances. 
This waiver provision is similar to provisions in the reformulated 
gasoline, low sulfur gasoline, and highway diesel fuel sulfur 
regulations. It is intended to provide refiners short-term relief due 
to unanticipated circumstances, such as a refinery fire or a natural 
disaster, that cannot be reasonably foreseen now or in the near future.
    Under this provision, a refiner may seek a waiver to distribute 
NRLM diesel fuel that does not meet the applicable 500 ppm or 15 ppm 
sulfur standards for a brief time period. An approved waiver of this 
type could, for example, allow a refiner to produce and distribute 
diesel fuel with higher than allowed sulfur levels, so long as the 
other conditions described below were met. Such a request must be based 
on the refiner's inability to produce complying NRLM diesel fuel 
because of extreme and unusual circumstances outside the refiner's 
control that could not have been avoided through the exercise of due 
diligence. The request must also show that other avenues for mitigating 
the problem, such as the purchase of credits to be used toward 
compliance, had been pursued yet were insufficient. As with other types 
of regulatory relief established in this rule, this type of temporary 
waiver will have to be designed to prevent fuel exceeding the 15 ppm 
sulfur standard from being used in 2011 and later model year nonroad 
engines.
    The conditions for obtaining a NRLM diesel fuel sulfur waiver are 
similar to those under the RFG, gasoline sulfur, and highway diesel 
fuel sulfur regulations. These conditions are necessary and appropriate 
to ensure that any waivers that are granted are limited in scope, and 
that refiners do not gain economic benefits from a waiver. Therefore, 
refiners seeking a waiver will be required to show that the waiver is 
in the best public interest and that they: (1) Were not able to avoid 
the nonconformity; (2) will make up the air quality detriment 
associated with the waiver; (3) will make up any economic benefit from 
the waiver; and (4) will meet the applicable diesel fuel sulfur 
standards as expeditiously as possible.
b. Temporary Relief Based on Extreme Hardship Circumstances
    In addition to the provision for short-term relief under extreme 
unforseen circumstances, we are finalizing a provision for relief based 
on extreme hardship circumstances such as circumstances that impose 
extreme hardship and significantly affect a refiners ability to comply 
with the program requirements by the applicable dates. This provision 
is also very similar to those established under the gasoline

[[Page 39054]]

sulfur and highway diesel fuel sulfur programs. Under the gasoline 
sulfur program, we have granted relief in the form of individual 
compliance plans to five refiners. Under the highway diesel program, we 
have approved two. Each plan was designed for the specific situation of 
that refiner. In all cases, the companies would have experienced severe 
hardship if temporary relief had not been granted. Moreover, some 
refineries were at a high risk of shutting down without the relief.
    In developing today's program, as under our other fuel programs, we 
considered whether any refiners would face particular difficulty in 
complying with the standards in the lead time provided. As described 
earlier in this section, we concluded that, in general, small refiners 
would experience more difficulty in complying with the standards on 
time because they have less ability to raise the capital necessary for 
refinery investments, face proportionately higher costs because of 
poorer economies of scale, and are less able to successfully compete 
for limited engineering and construction resources. However, it is 
possible that other refiners that are not small refiners may also face 
particular difficulty in complying on time with the sulfur standards 
required under today's program. Therefore, we are including in this 
rulemaking a provision which allows us, at our discretion, to grant 
temporary waivers from the NRLM diesel fuel sulfur standards based on a 
showing of extreme hardship circumstances.
    The extreme hardship provision allows any domestic or foreign 
refiner to request relief from the sulfur standards based on a showing 
of unusual circumstances that result in extreme hardship and 
significantly affect a refiner's ability to comply with either the 500 
ppm or 15 ppm sulfur NRLM diesel fuel standards by either June 1, 2007, 
June 1, 2010, or June 1, 2012, respectively. The Agency will evaluate 
each application on a case-by-case basis, considering the factors 
described below. Approved hardship applications may include compliance 
plans with relief similar to the provisions for small refiners, which 
are described in detail above in section IV.B.1.c. Depending on the 
refiner's specific situation, such approved delays in meeting the 
sulfur requirements may be more stringent than those allowed for small 
refiners, but will not likely be less stringent. Given such an 
approval, we expect to impose appropriate conditions to: (1) Assure the 
refiner is making its best effort; and (2) minimize any loss of 
emissions benefits from the program. As with other relief provisions 
established in this rule, any waiver under this provision will be 
designed to prevent fuel exceeding the 15 ppm sulfur standard from 
being used in 2011 and later model year nonroad engines.
    Providing short-term relief to those refiners that need additional 
time because they face hardship circumstances facilitates adoption of 
an overall program that reduces NRLM diesel fuel sulfur to 500 ppm 
beginning in 2007, and NRLM diesel fuel sulfur to 15 ppm in 2010 and 
2012, for the majority of the industry. However, we do not intend for 
this waiver provision to encourage refiners to delay the planning and 
investments they would otherwise make. We do not expect to grant 
temporary waivers that apply to more than approximately one percent of 
the national NRLM diesel fuel pool in any given year.
    The regulatory language for today's action includes a list of the 
information that must be included in a refiner's application for an 
extreme hardship waiver. If a refiner fails to provide all of the 
information specified in the regulations as part of its hardship 
application, we will deem the application void. In addition, we may 
request additional information as needed. Our experience to date shows 
that detailed technical and financial information from the companies 
seeking relief has been necessary to fully evaluate whether a hardship 
situation exists. The following are some examples of the types of 
information that must be contained in an application:

--The crude oil refining capacity and fuel sulfur level(s) of each 
diesel fuel product produced at each of the refiner's refineries.
--A technical plan for capital equipment and operating changes to 
achieve the NRLM diesel fuel sulfur standards.
--The anticipated timing for the overall project the refiner is 
proposing and key milestones to ultimately produce 100 percent of NRLM 
diesel fuel at the 15 ppm sulfur cap.
--The refiner's capital requirements for each step of its proposed 
projects.
--Detailed plans for financing the project and financial statements 
demonstrating the nature of and degree of financial hardship and how 
the requested relief would mitigate this hardship. This would include a 
description of the overall financial situation of the company and its 
plans to secure financing for the desulfurization project (e.g., 
internal cash flow, bank loans, issuing of bonds, sale of assets, or 
sale of stock).
--A plan demonstrating how the refiner would achieve the standards as 
quickly as possible, including a timetable for obtaining the necessary 
capital, contracting for engineering and construction resources, 
obtaining any necessary permits, and beginning and completing 
construction.
--A description of the market area for the refiner's diesel fuel 
products.
--In some cases, it could also include a compliance plan for how the 
refiner's diesel fuel will be segregated through to the end-user and 
information on each of the end-users to whom its fuel is delivered.

    We will consider several factors in our evaluation of any hardship 
waiver applications that we receive. Such factors include whether a 
refinery's configuration is unique or atypical; the proportion of non-
highway diesel fuel production relative to other refinery products; 
whether the refiner, its parent company, and its subsidiaries are faced 
with severe economic limitations and steps the refiner has taken to 
attempt to comply with the standards, including efforts to obtain 
credits towards compliance. In addition, we will consider the total 
crude oil capacity of the refinery and its parent or subsidiary 
corporations, if any, in assessing the degree of hardship and the 
refiner's role in the diesel market. Finally, we will consider where 
the diesel fuel is intended to be sold in evaluating the environmental 
impacts of granting a waiver. Typically, because of EPA's comprehensive 
evaluation of both financial and technical information, action on 
hardship applications can take six or more months.
    This extreme hardship provision is intended to address unusual 
circumstances that should be apparent now or could emerge in the near 
future. Thus, refiners seeking additional time under this provision 
must apply for relief by June 1, 2005, although we retain the 
discretion to consider hardship applications later as well for good 
cause.
3. Provisions for Transmix Facilities
    In the petroleum products distribution system, certain types of 
interface mixtures in product pipelines cannot be added in any 
significant quantity to either of the adjoining products that produced 
the interface. These mixtures are known as ``transmix.'' The pipeline 
and terminal industry's practice is to transport transmix via truck, 
pipeline, or barge to a facility with an on-site fractionator that is 
designed to separate the products. The owner or operator of such a 
facility is called a ``transmix

[[Page 39055]]

processor.'' Such entities are generally considered to be a refiner 
under existing EPA fuel regulations.
    Transmix processors, like conventional refiners, are also currently 
subject to the ``80 percent/20 percent'' production requirement for 15 
ppm and 500 ppm sulfur highway diesel fuel. This requirement, however, 
is inconsistent with the inherent nature of the transmix processors' 
business. Unlike conventional refiners, transmix processors refine 
batches of fuel that vary in volume and timing--largely unpredictably. 
Complying with set percentages of different highway diesel fuel sulfur 
grades would be very difficult, probably resulting in either a need to 
purchase credits or to postpone processing of some shipments. Transmix 
processors commented that it would not be appropriate to have any 
additional restrictions, beyond those based on sulfur content, imposed 
on their ability to market the fuel that they produce. They stated that 
the implementation of other restrictions, such as those under the 
highway diesel program's 80/20 requirement, would force them to ship 
large volumes of blendstocks back to refineries by truck, resulting in 
tank lock-outs that could cascade upstream though the distribution 
system potentially interfering with pipeline operations. \103\
---------------------------------------------------------------------------

    \103\ In a tank lock out situation a storage tank can no longer 
accept product from upstream in the distribution system because 
there is not sufficient outlet for the product it holds. A tank lock 
our downstream can quickly propagate upstream.
---------------------------------------------------------------------------

    Furthermore, transmix processors do not have the ability to change 
the nature of their products, as their processing equipment consists 
only of a distillation column to separate the blendstocks. This simple 
refinery configuration further limits their ability to install and 
operate a distillate hydrotreater. The commenters added that the sulfur 
content of the slate of fuel products that they produce is completely 
dependant on feed material that they receive, and that it is not 
feasible for them to install desulfurization equipment. We agree that 
it is not feasible for transmix processors to alter the sulfur content 
of the fuels that they produce and that limiting the market for these 
fuels could potentially lead to disruptions in the fuel distribution 
system.
    In light of this disproportionate burden on transmix processors, 
today's final rule removes the restriction on the volume of highway or 
NRLM diesel fuel they produce, if they produce diesel fuel according to 
typical operational practices involving the separation of transmix and 
not, for example, by blending of blendstocks or processing crude or 
heavy oils. Therefore, under today's final rule, transmix processors 
may choose to continue to produce all of their highway diesel fuel to 
the 500 ppm sulfur standard until 2010. They may further choose to 
continue to produce all of their NRLM diesel fuel as high sulfur diesel 
fuel until June 1, 2010, all of their NRLM diesel fuel to the 500 ppm 
sulfur standard until June 1, 2014, and all of their LM diesel fuel to 
a 500 ppm sulfur limit indefinitely.
    Transmix processors will be required to properly designate their 
fuel with the proper PTDs. Because the volume of fuel involved will be 
small and the fuel processed will already have been off-specification, 
we believe that providing this flexibility for transmix processors will 
have essentially no environmental impact and will not affect the 
efficient functioning of the NRLM diesel fuel program or the existing 
highway diesel fuel program. Rather, this approach will allow fuel 
volume to remain in the highway, NRLM, or LM (as applicable based on 
time frame) markets that might otherwise be forced into the heating oil 
market.

C. Special Provisions for Alaska and the Territories

1. Alaska
    The nationwide engine emission standards established today apply to 
all NR engines throughout Alaska. The nationwide NRLM diesel fuel 
sulfur standards and implementation dates apply to NRLM diesel fuel 
used in the areas of Alaska served by the federal aid highway system 
(FAHS). In this final rule, EPA is not finalizing fuel sulfur standards 
and implementation deadlines for NRLM diesel fuel used in the areas of 
Alaska not served by the FAHS (i.e., the ``rural'' areas). They will be 
addressed in a separate rulemaking to allow EPA to address the 
requirements for highway and NRLM diesel fuel in the rural areas in the 
same rulemaking. This final rule does, however, adopt the prohibition 
in the rural areas on the use of high sulfur (greater than 15 ppm) 
diesel fuel in model year 2011 and later nonroad engines, which will be 
manufactured to operate on ultra-low sulfur diesel fuel.
a. How Do the Highway Diesel Engine Standards, the Highway Diesel Fuel 
Standards, and Implementation Deadlines Apply in Alaska?
    Unlike the rest of the nation, Alaska is currently exempt from the 
500 ppm sulfur standard for highway diesel fuel and the dye provisions 
for diesel fuel not subject to this standard. Since the beginning of 
the 500 ppm sulfur highway diesel fuel program, we have granted Alaska 
exemptions from both the sulfur standard and dye provisions because of 
its unique geographical, meteorological, air quality, and economic 
factors. \104\ On December 12, 1995, Alaska submitted a petition for a 
permanent exemption for all areas of the state served by the FAHS, that 
is, those areas previously covered only by a temporary exemption. While 
considering that petition, we started work on a nationwide rule to 
consider more stringent highway diesel fuel requirements for sulfur 
content.
---------------------------------------------------------------------------

    \104\ Copies of information regarding Alaska?s petition for 
exemption, subsequent requests by Alaska, public comments received, 
and actions by EPA are available in public docket A-96-26.
---------------------------------------------------------------------------

    In the January 18, 2001, highway diesel rule EPA fully applied the 
2007 motor vehicle engine emission standards in Alaska. Based on 
factors unique to Alaska, we provided the state with: (1) An extension 
of the exemption from the 500 ppm sulfur fuel standard until the 
effective date of the new 15 ppm sulfur standard for highway diesel 
fuel in 2006; (2) an opportunity to request an alternative 
implementation plan for the 15 ppm sulfur diesel fuel program; and (3) 
a permanent exemption from the diesel fuel dye provisions. In response 
to these provisions in our January 18, 2001, highway rule, Alaska 
informed us that areas served by the FAHS, i.e., communities on the 
connected road system or served by the Alaska state ferry system 
(``urban'' areas), would follow the nationwide requirements. \105\ 
Diesel fuel produced for use in areas of Alaska served by the FAHS will 
therefore be required to meet the same requirements for highway diesel 
fuel as diesel fuel produced for the rest of the nation. For the rural 
parts of the state--areas not served by the FAHS--Alaska requested that 
highway diesel fuel not be subject to the highway diesel fuel sulfur 
standard until June 1, 2010. Between 2006 and 2010, the rural 
communities would choose their own fuel management strategy, except 
that all 2007 model year and newer diesel vehicles would require ultra-
low sulfur diesel fuel. Beginning June 1, 2010, all highway diesel fuel 
in the rural areas would be subject to the 15 ppm sulfur highway diesel 
fuel sulfur standard. \106\

[[Page 39056]]

EPA intends to propose and request comment on an amendment to the 
highway diesel sulfur rule to incorporate the rural area transition 
plan submitted by the state.
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    \105\ Letter and attached document to Jeffrey Holmstead of EPA 
from Michele Brown of the Alaska Department of Environmental 
Conservation, dated April 1, 2002. The communities on the connected 
road system or served by the Alaska State ferry system are listed in 
the attached document.
    \106\ Letter and attached document to Jeffrey Holmstead of EPA 
from Ernesta Ballard of the Alaska Department of Environmental 
Conservation, dated June 12, 2003.
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b. What NRLM Diesel Fuel Standards Are We Establishing for Urban Areas 
of Alaska?
    Since Alaska is currently exempt from the 500 ppm sulfur standard 
for highway diesel fuel, we also considered exempting Alaska from the 
500 ppm sulfur step of the proposed NRLM standards. However, despite 
the exemption, officials from the state of Alaska have informed us that 
some 500 ppm sulfur diesel fuel is nevertheless being marketed in many 
parts of Alaska. Market forces have brought the prices for 500 ppm 
diesel fuel down such that it is now becoming competitive with higher 
sulfur, uncontrolled diesel fuel. Assuming this trend continues, 
requiring that NRLM diesel fuel be produced to 500 ppm beginning June 
1, 2007 would not appear to be unduly burdensome. Even if 500 ppm 
diesel fuel were not available in Alaska today, our expectation is that 
compliance with the highway program described above will likely result 
in the transition of all of the urban area highway diesel fuel 
distribution system to 15 ppm sulfur beginning in 2006. It could prove 
very challenging for the distribution system in some of the areas to 
segregate a 500 ppm sulfur grade of NRLM from a 15 ppm sulfur grade of 
highway and an uncontrolled grade for other purposes. We believe 
economics would determine whether the distribution system would handle 
the new grade of fuel or substitute 15 ppm sulfur highway diesel fuel 
for NRLM applications. Thus, in the 2007 to 2010 time frame, the NRLM 
market in some urban areas might be supplied with 500 ppm sulfur 
diesel, and in other areas might be supplied with 15 ppm sulfur diesel. 
For this reason, today's action applies the 500 ppm sulfur standard for 
NRLM diesel fuel to Alaska's urban areas.
    Regardless of what occurs prior to 2010, we anticipate that 15 ppm 
sulfur highway diesel fuel will be made available in urban areas of 
Alaska by this time frame. The 2007 and later model year highway fleet 
will be growing, demanding more and more supply of 15 ppm sulfur diesel 
fuel. Adding nonroad volume to this would not appear to create any 
undue burden. Thus, today's action also applies the 15 ppm sulfur 
standard for NR and LM diesel fuel in the urban areas of Alaska, along 
with the rest of the nation beginning June 1, 2010 and June 1, 2012, 
respectively.
    The state, in its comments on the proposal, supports today's action 
for the urban areas described above. One refiner in Alaska commented 
that we should implement a one-step approach requiring 15 ppm sulfur 
diesel fuel starting in 2010. The refiner indicated that, due to the 
limited NRLM market, the benefits of introducing 500 ppm sulfur diesel 
fuel in 2007 would be minimal. Also, the distribution system in Alaska 
is not capable of handling the two grades of diesel fuel that would be 
required between 2007 and 2010, thus 15 ppm sulfur fuel would be 
distributed as NRLM. We agree that the distribution system in Alaska is 
limited compared to the rest of the nation, and that consumption of 
diesel fuel by NRLM applications in Alaska is small. However, as 
previously discussed, we expect that some 500 ppm sulfur diesel fuel 
will be available due to market forces, and that 15 ppm sulfur highway 
diesel fuel will be available beginning in 2006 in the urban areas. 
Thus, requiring 500 ppm sulfur diesel fuel (or 15 ppm sulfur diesel 
fuel as a substitute) for the limited NRLM applications beginning in 
2007 does not appear to create any undue burden on the fuel supply or 
the distribution system in urban Alaska.
    During the development of the original 500 ppm sulfur highway 
diesel fuel standards in the early 1990's, refiners and distributors in 
Alaska expressed concern that if Alaska were required to dye its non-
highway diesel fuel red along with the rest of the country, residual 
dye in tanks or other equipment would be enough to contaminate and 
disqualify Jet-A kerosene used as aviation fuel. Since much of the 
diesel fuel in Alaska is No. 1 and is indistinguishable from Jet-A 
kerosene, not only would tanks and transfer equipment have to be 
cleaned, but separate tankage would be needed. Consequently, we granted 
Alaska temporary exemptions from the dye requirement and in the January 
18, 2001, highway diesel rule granted the state a permanent exemption.
    The proposed use of a marker for heating oil in the 2007-10 time 
period presents similar concerns in Alaska's distribution system. In 
response to our request for comments on this issue, the state and 
refiners indicated that Alaska's system is not capable of accommodating 
dyes or markers and segregation. The priority of the state and fuel 
industry is to keep dyes and markers out of the fuel stream to prevent 
contamination of Jet-A and facilitate movement of the fuel. The 
comments suggested that implementation of refiner product designations, 
labeling of fuel pumps, retailer education, and rapid transition to 
ULSD would ensure that 500 ppm sulfur diesel fuel is used in NRLM 
equipment from 2007-10 and that 15 ppm sulfur diesel fuel is used in 
nonroad equipment after 2010.
    In section IV.D below, we discuss the provisions that we are 
adopting for the State of Alaska that will allow us to enforce the NRLM 
diesel fuel program without requiring the fuel marker.
c. Why Are We Deferring Final Action on NRLM Diesel Fuel Standards for 
Rural Areas of Alaska?
    We are deferring final action on the fuel sulfur standards and 
implementation deadlines for the rural areas of Alaska. We proposed to 
permanently exempt NRLM diesel fuel used in the rural areas from fuel 
content standards, except that diesel fuel used in 2011 and later model 
year nonroad engines would have had to meet the sulfur content standard 
of 15 ppm sulfur. However, this proposed action is inconsistent with 
the action requested by the state in its comments to the proposal. It 
is also inconsistent with the state's alternative implementation plan 
for highway diesel fuel in rural Alaska, which was submitted after 
publication of the proposal.
    We intend to issue a supplemental proposal that would address both 
highway and NRLM diesel fuel sulfur standards for Alaska's rural areas. 
This proposal will address the comments submitted by the state, as well 
as the state's alternative implementation plan for highway diesel fuel.
2. American Samoa, Guam, the Commonwealth of Northern Mariana Islands, 
and Puerto Rico
a. What Provisions Apply in American Samoa, Guam, and the Commonwealth 
of Northern Mariana Islands?
    As we proposed, we are excluding American Samoa, Guam and the 
Commonwealth of the Northern Mariana Islands (CNMI) from the NRLM 
diesel fuel sulfur standards and associated requirements. We also are 
excluding these territories from the tier 4 nonroad engine emissions 
standards, and other requirements associated with those emission 
standards. The territories will continue to have access to new nonroad 
diesel engines and equipment using pre-tier 4 technologies, at least as 
long as manufacturers choose to market those technologies. In the 
future, if manufacturers choose to market nonroad diesel engines and 
equipment only with tier 4 emission control

[[Page 39057]]

technologies, we believe the market will determine if and when the 
territories will make the investment needed to obtain and distribute 
the diesel fuel necessary to support these technologies.
    We are also requiring that all nonroad diesel engines and equipment 
for these territories be certified and labeled to the applicable 
requirements--either to the previous-tier standards and associated 
requirements under this exclusion, or to the Tier 4 standards and 
associated requirements applicable for the model year of production 
under the nationwide requirements of today's action. The engines would 
still be emissions warranted, as otherwise required under the CAA and 
EPA regulations. Special recall and warranty considerations due to the 
use of excluded high sulfur fuel would be the same as those for Alaska 
during its exemption and transition periods for highway diesel fuel and 
for these territories for highway diesel fuel (see 66 FR 5086, 5088, 
January 18, 2001).
    To protect against circumvention of the emission requirements 
applicable to the rest of the U.S., we are restricting the importation 
of nonroad engines and equipment from these territories into the rest 
of the U.S. After the 2010 model year, nonroad diesel engines and 
equipment certified under this exclusion for sale in American Samoa, 
Guam and the Commonwealth of the Northern Mariana Islands will not be 
permitted entry into the rest of the U.S.
b. Why Are We Treating These Territories Uniquely?
    Like Alaska, these territories are currently exempt from the 500 
ppm sulfur standard for highway diesel fuel. Unlike Alaska, they are 
also exempt from the new highway diesel fuel sulfur standard effective 
in 2006 and the new highway vehicle and engine emission standards 
effective beginning in 2007 (see 66 FR 5088, January 18, 2001).
    Section 325 of the CAA provides that upon request of Guam, American 
Samoa, the Virgin Islands, or the Commonwealth of the Northern Mariana 
Islands, we may exempt any person or source, or class of persons or 
sources, in that territory from any requirement of the CAA, with some 
specific exceptions. The requested exemption could be granted if we 
determine that compliance with such requirement is not feasible or is 
unreasonable due to unique geographical, meteorological, or economic 
factors of the territory, or other local factors as we consider 
significant. Prior to the effective date of the current highway diesel 
fuel sulfur standard of 500 ppm, the territories of American Samoa, 
Guam and the Commonwealth of the Northern Mariana Islands petitioned us 
for an exemption under section 325 of the CAA from the sulfur 
requirement under section 211(i) of the CAA and associated regulations 
at 40 CFR 80.29. We subsequently granted the petitions.\107\ Consistent 
with this decision, in our January 18, 2001 highway rule (66 FR 5088), 
we determined that the 2007 heavy-duty engine emission standards and 
2006 diesel fuel sulfur standard would not apply to these territories.
---------------------------------------------------------------------------

    \107\ See 57 FR 32010, July 20, 1992 for American Samoa; 57 FR 
32010, July 30, 1992 for Guam; and 59 FR 26129, May 19, 1994 for 
CNMI.
---------------------------------------------------------------------------

    Compliance with the NRLM diesel fuel sulfur standards would result 
in major economic burden on the territories. All three of these 
territories lack internal petroleum supplies and refining capabilities 
and rely on long distance imports. Given their remote location from 
Hawaii and the U.S. mainland, most petroleum products are imported from 
east rim nations, particularly Singapore. Australia, the Philippines, 
and certain other Asian countries are beginning to consider and in some 
cases implement lower sulfur diesel fuel standards. However, it is not 
clear that supply, especially of 15 ppm sulfur diesel fuel, would be 
possible to these territories.
    Furthermore, compliance with new 15 ppm sulfur requirement for 
highway diesel fuel beginning in 2006 and today's 15 ppm sulfur 
requirement for NRLM diesel fuel beginning in 2010 (or the 500 ppm 
sulfur requirement for NRLM diesel fuel beginning 2007) would require 
construction of separate storage and handling facilities for a unique 
grade of diesel fuel for highway and nonroad purposes, or use of 15 ppm 
sulfur diesel fuel for all diesel applications to avoid segregation. 
Either of these alternatives would require importation of 500 and 15 
ppm sulfur diesel fuel from Hawaii or the U.S. mainland, and would 
significantly add to the already high cost of diesel fuel in these 
territories, which rely heavily on U.S. support for their economies. At 
the same time, it is not clear that the environmental benefits in these 
areas would warrant this cost. Therefore, we are not applying the fuel 
and engine standards to these territories.
    The Caribbean Petroleum Corporation (CPC) commented that the 
proposed nonroad diesel rule would result in a major economic burden 
for Puerto Rico, the environmental benefits do not warrant the cost, 
and that Puerto Rico should be exempt. However, the CPC did not include 
any cost or environmental information to support its claims. We have no 
reason to believe that the costs of the NRLM diesel fuel program in 
Puerto Rico will be significantly greater than that of the U.S. For 
example, Puerto Rico is close to the U.S. mainland, and to South 
American and Central American suppliers of fuel to the U.S. mainland, 
and therefore has ready access to nearby fuel supplies that meet U.S. 
requirements. Similar to the fuel distribution system in the rest of 
the country, the fuel distribution system in Puerto Rico is geared to 
separate fuel handling and storage facilities for highway and non-
highway diesel fuels. Today's rule will require additional segregation 
for the NRLM diesel fuels, but no differently for Puerto Rico than for 
the U.S. Nevertheless, to avoid that additional fuel segregation, 
Puerto Rico could substitute highway fuel for use in NRLM diesel 
engines and equipment. We also believe that the important air quality 
benefits to be realized by today's rule for the four million people in 
Puerto Rico should not be significantly different than those for the 
rest of the country. Consequently, today's rule includes Puerto Rico in 
the NRLM diesel fuel program.

D. NRLM Diesel Fuel Program Design

    In addition to specifying the sulfur standards and the 
implementation dates when the standards take effect, the diesel fuel 
program compliance provisions must be designed and structured carefully 
to achieve the overall principles of the program. Specifically, the 
health and welfare benefits of the NRLM diesel fuel and the highway 
diesel programs, and the need for widespread availability of 15 ppm 
sulfur highway diesel fuel must be maintained. The program benefits and 
fuel availability will only happen if the NRLM diesel fuel program is 
designed such that the amount of 15 ppm sulfur fuel expected to be 
produced under the highway diesel fuel program is in fact produced and 
that 500 ppm highway fuel is not overproduced. Likewise, the benefits 
of the NRLM diesel fuel sulfur standards adopted today will only be 
achieved if the program is designed to ensure that the volume of diesel 
fuel consumed by NRLM diesel engines is matched by the supply of NRLM 
diesel fuel produced to the appropriate low sulfur levels. At the same 
time, promoting the efficiency of the distribution system calls for 
fungible distribution of physically similar products, and minimizing 
the need for product segregation.
    As discussed below, the situation faced in 1993 when EPA first 
regulated the sulfur content of highway diesel fuel parallels some of 
the issues that EPA

[[Page 39058]]

needed to address in today's rule. Prior to the implementation of the 
500 ppm sulfur standard for highway diesel fuel in 1993, most No. 2 
distillate fuel was produced to essentially the same specifications, 
shipped fungibly, and used interchangeably by highway diesel engines, 
nonroad diesel engines, locomotive and marine diesel engines, and 
heating oil applications. Beginning in 1993, highway diesel fuel was 
required to meet a 500 ppm sulfur cap and was segregated from other 
distillate fuels as it left the refinery by the use of a visible level 
of dye solvent red 164 in all non-highway distillate. At about the same 
time, the Internal Revenue Service (IRS) similarly required non-highway 
diesel fuel to be dyed red to a much higher concentration prior to 
retail sale to distinguish it from highway diesel fuel for excise tax 
purposes. Dyed non-highway fuel is exempt from this tax. This splitting 
of the distillate pool necessitated changes in the distribution system 
to ship and store the now distinct products separately. In some parts 
of the country where the costs to segregate non-highway diesel fuel 
from highway diesel fuel could not be justified, both fuels have been 
produced to highway specifications.\108\
---------------------------------------------------------------------------

    \108\ Diesel fuel produced to highway specifications but used 
for non-highway purposes is referred to as ``spill-over.'' It leaves 
the refinery gate and is fungibly distributed as if it were highway 
diesel fuel, and is typically dyed at a point later in the 
distribution system. Once it is dyed it is no longer available for 
use in highway vehicles, and is not part of the supply of highway 
fuel.
---------------------------------------------------------------------------

1. Requirements During the First Step of the Fuel Program
    EPA is adopting specific compliance provisions during the first 
step of today's NRLM diesel fuel sulfur control program for three 
reasons. The first is to maintain the integrity of the highway diesel 
program, while allowing the efficient distribution of highway and NRLM 
diesel fuel. Since 500 ppm sulfur highway diesel fuel allowed under the 
highway diesel fuel program's Temporary Compliance Option (TCO) and 
NRLM diesel fuel meeting today's 500 ppm sulfur standard will be 
physically the same, it would be impossible to maintain the benefits 
and program integrity of the highway diesel fuel program without some 
means of differentiating highway diesel fuel from NRLM diesel fuel.
    Continuing the current practice of dyeing NRLM diesel fuel at the 
refinery gate and requiring that it be segregated throughout the 
distribution system is not a practical way to differentiate NRLM diesel 
fuel from highway fuel. At the same time, allowing the unrestricted 
fungible distribution of highway and NRLM diesel fuel with the same 
sulfur level risks the loss of important benefits of the highway 
program. For example, if a refiner produced all 500 ppm sulfur fuel and 
designated it as NRLM diesel fuel, that refiner would have no 
obligation to produce any 15 ppm sulfur highway diesel fuel. Without an 
effective way of limiting the use in the highway market of 500 ppm 
sulfur diesel fuel produced as NRLM diesel fuel, much more 500 ppm 
sulfur fuel could, and likely would find its way into the highway 
market than would otherwise happen under the current highway program. 
This would displace 15 ppm sulfur diesel fuel that would have otherwise 
been produced. This likely series of events would circumvent the intent 
of the highway program's TCO and sacrifice some of the resulting PM and 
SO2 emission benefits of the overall highway diesel program. 
If this occurred to any significant degree, it could also undermine the 
integrity of the highway program by threatening the availability of 15 
ppm sulfur diesel fuel nationwide for the vehicles that need it. This 
is no longer a concern after 2010, when all highway diesel fuel is 
required to meet a 15 ppm sulfur standard.
    The second reason is to maintain the integrity of the NRLM diesel 
fuel program, while allowing the efficient distribution of NRLM diesel 
fuel and heating oil where they have similar sulfur levels. By 
establishing new sulfur standards for NRLM diesel fuel but not heating 
oil, today's program creates the need to distinguish the fuel used for 
these two purposes. Currently, there is no grade of diesel fuel which 
is produced and marketed as a distinguishable grade for NRLM diesel 
engine uses. It is typically produced and shipped fungibly with other 
distillate used for heating oil purposes, and it is all dyed red in 
accordance with EPA and IRS regulations. Because today's rule includes 
small refiner and credit provisions that allow the limited production 
of high sulfur (greater than 500 ppm) NRLM diesel fuel through 2010, it 
is not possible to rely on sulfur content alone to differentiate NRLM 
diesel fuel from heating oil during the first step of the program. 
Without adequate controls, a refiner could choose not to desulfurize 
any of its fuel that is destined for the NRLM diesel fuel market, 
instead designating that volume as heating oil at the refinery gate. 
This fuel, ostensibly manufactured for use as heating oil could be 
misdirected for use in NRLM diesel equipment, and would be 
indistinguishable from legal high sulfur NRLM diesel fuel produced by 
small refiners and/or through the use of credits. This could 
substantially reduce the environmental benefits of today's rule.
    After 2010, when the 15 ppm sulfur standard for NR diesel fuel goes 
into effect, small refiner and credit NR fuel must meet a 500 ppm 
standard. Therefore, after 2010 NRLM diesel fuel can be distinguished 
from high sulfur (greater than 500 ppm) home heating fuel based on 
sulfur content. However, 500 ppm NR (small refiner, credit) produced 
from June 1, 2010 through May 31, 2012, and 500 ppm NRLM (small 
refiner, credit) diesel fuel produced from June 1, 2012 through May 31, 
2014, could not be distinguished from heating oil produced to meet a 
similar 500 ppm sulfur limit. Likewise, from June 1, 2010 to June 1, 
2012, 500 ppm NR (small refiner, credit) diesel fuel and LM diesel fuel 
need to be distinguished from each other, so that diesel fuel produced 
as 500 ppm LM is not later misdirected to the NR diesel market. Such 
misdirected 500 ppm sulfur LM diesel fuel would be indistinguishable 
from legal 500 ppm sulfur NR diesel fuel, reducing the environmental 
benefits of today's rule. These various 500 ppm fuels could not be 
distinguished based on sulfur level. As previously discussed, the 
situation which was faced in 1993 regarding the need to differentiate 
500 ppm sulfur highway diesel fuel from other diesel fuel is similar to 
the need today to differentiate highway diesel fuel, NRLM diesel fuel, 
and heating oil.
    The third reason is to maintain the integrity of the anti-
downgrading requirements in the highway diesel program. The highway 
diesel program requires that each entity in the distribution system 
downgrade no more than 20 percent of the 15 ppm sulfur highway diesel 
fuel for which it assumes custody to 500 ppm sulfur highway diesel 
fuel. These provisions are necessary to ensure the widespread 
availability of 15 ppm sulfur diesel fuel for use in model year 2007 
and later highway vehicles, in which the use of 15 ppm sulfur fuel is 
essential to facilitate the projected emissions benefits of the highway 
program. The highway program placed no restrictions on the volume of 
highway diesel fuel that could be downgraded to NRLM diesel fuel. Under 
the proposed rule there would be no way to distinguish 500 ppm sulfur 
NRLM diesel fuel from 500 ppm sulfur highway diesel fuel downstream of 
the refinery. Therefore, to preserve the integrity of the highway 
program, the proposal would have made the highway program's anti-
downgrade requirements more stringent by also

[[Page 39059]]

restricting downgrades to 500 ppm sulfur NRLM diesel fuel. We received 
several negative comments on this proposed restriction. The compliance 
and record keeping requirements finalized to address the two concerns 
discussed above, can be utilized to facilitate the implementation of 
the highway program's anti-downgrading requirements without the need to 
further restrict downgrading. As a result, today's rule also contains 
several modifications which clarify the anti-downgrading provisions of 
the highway diesel program.
    The requirements described below will help ensure that the 
projected benefits of the highway diesel program and of today's NRLM 
diesel program are achieved.
a. Ensuring Refiner Production Volumes of 15 ppm Sulfur Highway Diesel 
Fuel Are Consistent With the Highway Rule's 80/20 Requirement
    To avoid adding unnecessary cost to the fuel distribution system, 
we proposed that the current requirement of dyeing non-highway 
distillate fuels at the refinery gate become voluntary as of June 1, 
2006.\109\ As discussed in the proposal, continuing to require that 
NRLM diesel fuel and heating oil contain a visible trace of red dye at 
the refinery gate would allow for simple enforcement of the highway 
standards throughout the duration of the highway program's TCO. Clear, 
undyed diesel fuel would have to meet the 80/20 ratio of 15 ppm to 500 
ppm sulfur highway diesel fuel, and dyed fuel could only be used in 
NRLM diesel equipment or as heating oil. Continuing the current dye 
provisions would therefore ensure that the intended benefits of the 
highway program are achieved. However, maintaining this dye distinction 
would also require segregation of a new grade of dyed 500 ppm sulfur 
NRLM diesel fuel throughout the entire distribution system. The costs 
of requiring segregation of two otherwise identical fuels throughout 
the entire distribution system could be quite substantial.\110\ 
Comments on the proposed rule confirmed EPA's assessment that the 
ability of the fuel distribution system to distribute these fuels 
fungibly is essential, since segregating the fuels could result in 
substantial additional transportation costs and necessitate additional 
storage tanks throughout the system.
---------------------------------------------------------------------------

    \109\ The IRS requirements concerning dyeing of non-highway fuel 
prior to sale to consumers are not changed by this rulemaking.
    \110\ Under the highway program the potential exists to add a 
third grade of diesel fuel in an estimated 40 percent of the 
country, and we projected one-time tankage and distribution system 
costs of $1.05 billion to accomplish this. Using similar 
assumptions, to add a second 500 ppm grade nationwide would cost in 
excess of $2 billion. This assumes that the capability exists to add 
such new tankage.
---------------------------------------------------------------------------

    The NPRM invited comment on two alternative approaches to ensure 
that refiner production of 15 ppm sulfur highway diesel fuel met the 
highway rule's 80/20 requirement; the ``refiner baseline'' approach, 
and the ``designate and track'' approach. The baseline approach is 
essentially a constraint on the sulfur levels of the various distillate 
fuel products a refiner produces, based on historical production 
volumes. Fuel with similar sulfur levels could then be fungibly 
distributed with only limited controls on the downstream distribution 
system. The designate and track approach requires that a refiner 
designate into which market discrete volumes of the distillate fuels it 
produces must be sold, without any consideration of historical 
production volumes. The fuel must then be tracked through the 
distribution system and sold only for its designated purpose (or a 
purpose that requires less control). As with the baseline approach, 
diesel fuel with similar sulfur levels could be fungibly shipped up to 
the point of distribution from a terminal where off-highway diesel fuel 
must be dyed red pursuant to IRS requirements to indicate its tax 
exempt status.
    We proposed the baseline approach because, in the absence of a red 
dye requirement at the refinery-gate for NRLM diesel fuel, we expected 
that it would: (1) Allow for the fungible distribution of 500 ppm 
sulfur highway and NRLM diesel fuel; (2) ensure the enforceability of 
the highway diesel fuel and NRLM diesel fuel standards; (3) maintain 
the projected production volume of 15 ppm sulfur highway diesel fuel; 
(4) allow refinery production of 500 ppm sulfur NRLM diesel fuel and 
heating oil to remain flexible to meet market demand; and (5) enable 
the efficient distribution of diesel fuel while imposing the least 
burden on the parties in the fuel production and distribution system. 
In the proposal, we also discussed how a refiner's baseline would be 
set, and invited comment on ways to account for changes refiners might 
make from their historical production practices in response to the 
highway diesel program.
    In the NPRM, we expressed concerns that a designate and track 
approach would raise significant workability and enforceability issues 
and therefore might not maintain the integrity of highway and NRLM 
diesel fuel sulfur programs. Our concerns about the workability and 
enforceability of a designate and track approach amplified potential 
concerns regarding whether the approach might reduce the volume of 15 
ppm sulfur diesel fuel required to be produced under the highway diesel 
program, leading to a reduction in the environmental benefits of the 
highway diesel program and calling into question the availability of 15 
ppm sulfur diesel fuel. We were also concerned about whether this 
approach would place too much burden on the numerous entities in the 
fuel distribution system, as compliance was focused on downstream 
parties. While the designate and track approach provided greater 
production flexibility to refiners than the baseline approach, it 
appeared to increase the burden and restrictions on downstream parties.
    Of the approaches discussed in the NPRM, we expected that the 
baseline approach would provide the best mechanism to achieve the fuel 
program goals described at the beginning of this section. Since the 
proposal, we have comprehensively evaluated the advantages and 
disadvantages of both approaches. Based on this review, we now believe 
that a baseline approach would produce significant adverse problems 
because of its overly restrictive impact on the ability of fuel 
producers and distributors to efficiently respond to the myriad and 
daily needs of the markets for highway and NRLM diesel fuel. 
Implementation of the approach could also produce an unintended bias 
that would tend to reduce the benefits of the highway program and 
reduce the availability of 15 ppm sulfur highway diesel fuel. At the 
same time, our review of the approaches shows that the designate and 
track approach can be implemented in an enforceable manner and likely 
would not cause a reduction in the environmental benefits of the 
highway diesel program or adversely impact the widespread availability 
of 15 ppm sulfur highway diesel fuel. Our evaluation of these alternate 
approaches is discussed in more detail in the following sections.
i. Proposed Refiner Baseline Approach
    Under the refiner baseline approach, we proposed that from June 1, 
2007 through May 31, 2010, any refiner or importer could choose to 
distribute its 500 ppm sulfur NRLM and highway diesel fuels fungibly 
without adding red dye at the refinery gate. Refiners and importers who 
elect to distribute these fuels fungibly would need to establish a non-
highway distillate baseline, defined as a percentage of its total 
distillate fuel production volume based on historical production data. 
For future production

[[Page 39060]]

purposes, this percentage of the volume of diesel fuel produced would 
have to either meet the 500 ppm sulfur NRLM diesel fuel sulfur standard 
or be marked as heating oil. All the remaining production of diesel 
fuel would have to meet the requirements of the highway fuel program 
(i.e., 80 percent of this fuel would have to meet a 15 ppm sulfur cap). 
Refiners not wishing to participate in the baseline approach would have 
to dye all of their 500 ppm sulfur NRLM diesel fuel at the refinery. 
However, we anticipated that few refiners would opt to dye 500 ppm 
sulfur NRLM diesel fuel, other than the volumes that they dispense from 
their own racks, since this would eliminate the ability to fungibly 
distribute 500 ppm sulfur highway and NRLM diesel fuels.
    Since the publication of the proposed rule, we have developed a 
better understanding of refiner concerns about the constraints 
associated with the baseline approach. Specifically, it is now clear 
that individual refiners would be significantly constrained by the 
baseline approach from efficiently responding to changes in contract 
arrangements with their clients and changes in market demands. Refiners 
commented that they win and lose contracts on a daily basis and that 
depending on which contracts they secure, they may not be able to 
comply with their baseline. Specific concerns were raised regarding the 
ability of refiners to compensate for the loss of export contracts and 
to respond to spikes in the demand for heating oil which periodically 
result from an unexpectedly cold winter. Refiners also related that the 
constraints under the baseline approach could cause an anti-competitive 
dynamic between fuel refiners and their customers.
    Based on our reevaluation of the baseline approach and the 
information gathered from the public comments, it is now clear that the 
constraints on the slate of fuels that a refiner produces under the 
baseline approach could interfere with a refiner's ability to meet 
market demands, which in turn could result in supply shortages and 
increased fuel prices. For example, if a refiner were to lose an export 
contract for high sulfur diesel fuel, the baseline approach could 
prevent that refiner from seeking to market that product domestically. 
This could impact the overall supply of diesel fuel since the refiner 
may not have sufficient facilities to desulfurize diesel fuel. Also, 
knowing that losing such an export contract would leave the refiner 
with no ability to market its fuel domestically could give the 
refiner's export client an undue advantage during contract 
negotiations.
    In the case of a spike in heating oil demand due to an unusually 
cold winter, the baseline approach would limit a refiner's ability to 
produce additional volumes of high sulfur distillate fuel beyond the 
volume established under its baseline. Refiners that were limited in 
their ability to produce additional high sulfur fuel could choose to 
supply low sulfur diesel fuel to the heating oil market. However, they 
may not have sufficient hydrotreating capacity to do so. This could 
limit their ability to respond to a supply shortage.
    The proposed rule suggested various potential modifications to the 
baseline approach to address refiner concerns regarding the associated 
constraints on the slate of fuels they produce. We received comments on 
the potential modifications discussed in the NPRM as well as other 
potential changes to the baseline approach. Some commenters suggested 
that if EPA were to finalize a baseline approach, refiners should be 
able to apply to EPA for a yearly adjustment to their baseline based on 
annual demand forecasts. Even with such flexibility, refiners still 
concluded that in many cases they would likely be forced to dye their 
fuel instead. For fuel distributors, having refiners dye their NRLM 
diesel fuel presented an unacceptable situation due to the need to 
distribute another grade of fuel. As a result, all comments from the 
refining and fuel distribution community were in agreement that the 
baseline approach may be unworkable.
    Based on our review of the comments and our discussions with fuel 
producers and distributors, it has become clear that none of the 
potential modifications to the baseline approach would adequately 
compensate for the inherent inflexibility of requiring refiners to 
comply with set production ratios. Even if EPA were to adjust such 
ratios on an annual basis, refiners might need to approach EPA for an 
interim adjustment if their contractual agreements changed or if market 
demand shifted unexpectedly. The process of evaluating requests for 
baseline adjustments could be very burdensome to the industry and to 
EPA, and EPA would unlikely be able to respond quickly enough to 
changing market conditions.
    More importantly, all of the potential alternatives that we might 
implement to mitigate the constraints of the baseline approach could 
potentially undermine the environmental benefits of the highway 
program. Such alternatives all would involve granting allowances to 
some refiners to produce additional volumes of non-highway fuels above 
the set baseline to facilitate a refiner meeting the market demand for 
such fuels. At the same time, it would not be possible for EPA to 
reduce the ability of other refiners to produce non-highway fuel who 
may have lost these markets. Therefore, for such alternatives to be 
effective in responding to changing market conditions, an unintended 
downward bias would result regarding the required production of 15 ppm 
sulfur highway diesel fuel.
    Even without any changes we discovered from the highway diesel 
program pre-compliance reports that the proposed baseline approach has 
a downward bias that could result in a reduction in the volume of 15 
ppm sulfur diesel fuel produced under the highway diesel program.\111\ 
We proposed that refiners could choose to calculate their off-highway 
baseline using either an average of 2003 through 2005 production data 
or 2006 production data. Providing the option for a 2006 baseline was 
necessary because a number of refiners will be changing the slate of 
fuels that they produce in response to the highway diesel rule which 
becomes effective in 2006. While the highway diesel pre-compliance 
reports indicate an overall increase in production volume, they also 
indicate that 40 percent of highway diesel refiners will decrease the 
volume of highway diesel fuel they produce. If all of these refiners 
were to take a 2006 baseline to determine the volume of 15 ppm sulfur 
diesel fuel they would be required to produce, a substantial drop in 
the total volume of 15 ppm sulfur diesel fuel produced could result.
---------------------------------------------------------------------------

    \111\ ``Summary and Analysis of the Highway Diesel Fuel 2003 
Pre-compliance Reports,'' EPA 420-R-03-103, October 2003.
---------------------------------------------------------------------------

    The pre-compliance reports indicate that the other 60 percent of 
refiners will be increasing the volume of highway diesel fuel they 
produce. We projected that these shifts in the slate of fuel products 
that refiners produce would have an overall positive impact on diesel 
fuel supply. However, refiners that increase the volume of highway fuel 
they produce would likely chose to calculate their baseline using their 
lower 2003-2005 production volumes. Doing so would result in a lower 
percentage of their distillate fuel that would be required to be 
produced for highway diesel use, and subject to a 15 ppm sulfur 
standard.
    The volume of spillover could also be reduced refiners were to dye 
500 ppm sulfur diesel they manufactured to meet anticipated NRLM diesel 
fuel demand in order to avoid needing to comply with the baseline 
approach. Many refiners commented that they

[[Page 39061]]

considered the baseline approach so unworkable and onerous that they 
would choose to dye all of their 500 ppm sulfur NRLM diesel fuel at the 
refinery gate. This could force some parts of the distribution systems 
which had previously not carried two grades of diesel fuel for highway 
and off-highway uses to begin doing so.
    In summary, we are not finalizing the proposed baseline system 
because we believe--
    1. It could unnecessarily constrain refiners ability to meet market 
demands, encouraging them to dye 500 ppm sulfur NRLM diesel fuel at the 
refinery resulting in an added burden to the distribution system;
    2. It could create a bias that could result in a loss in the volume 
of 15 ppm sulfur highway diesel fuel produced, and the options to 
remove these market constraints would only increase the bias to reduce 
the volume of 15 ppm sulfur highway diesel fuel; and
    3. The baseline approach would not ensure that the environmental 
benefits of the 2007 highway diesel program would be maintained.
ii. Designate and Track Approach
    At the time of the NPRM, we invited comment on an alternative to 
the baseline approach called the ``designate and track'' approach. 
Under the envisioned designate and track approach, refiners and 
importers would designate the volumes of 500 ppm sulfur diesel fuel 
they produce/import as either highway or NRLM diesel fuel and would 
ship them fungibly. These designations would follow the fuel through 
the distribution system and be used to restrict the sale of 500 ppm 
sulfur NRLM diesel fuel from the highway market. While we sought 
comment on various forms of the designate and track approach, we also 
expressed serious reservations regarding its workability, 
enforceability, impact on the benefits of the highway rule, and 
constraints on the distribution system. For example, at the time of the 
proposal, refiners supported a designate and track approach where 
certain parts of the distribution system (e.g., pipelines) did not have 
to report. EPA believed that such an approach was unenforceable. 
Refiners were also supporting the designate and track approach as an 
option for refiners to choose in addition to the baseline approach. 
However, EPA believed that the two approaches were incompatible.
    As noted in the proposal, the designate and track approach allows 
maximum flexibility for refiners and importers, but EPA had concerns 
that the volume reconciliation requirements would inappropriately 
restrict the flexibility of downstream parties to respond to market 
changes. EPA also had concerns that it would reduce the amount of 15 
ppm spillover from the highway market, reducing the environmental 
benefits of that rule.
    Since the proposal, we received extensive input both in the written 
comments and through in-depth meetings with representatives of all 
segments of the fuel distribution industry on how the designate and 
track system might be structured to provide the needed compliance 
oversight without placing an undue burden on industry. Refiners now 
agree that the designate and track approach should not be an option for 
refiners in addition to the baseline approach, and support it as a 
stand alone approach. All parties in the fuel distribution system have 
also now expressed support for the record keeping and reporting 
requirements associated with tracking designated fuel volumes through 
each custodian in the distribution chain until the fuel leaves the 
terminal either taxed or dyed. Furthermore, commenters from all 
segments of the fuel distribution industry from the refiner through to 
the terminal stated that the information needed to support the 
designate and track approach is already kept as part of normal business 
practices. Commenters stated that only modest upgrades in their record 
keeping procedures would be needed to compile the needed information 
and that preparing the necessary reports would not represent a 
significant burden. Thus, our concerns that a designate and track 
approach might represent a large burden to fuel distributors were 
unfounded.
    In addition, we have developed appropriate solutions to the various 
open questions and issues that we had with the designate and track 
approach at the time of the proposal. In the proposal it was unclear 
how a designate and track approach would be structured to account for 
the swell in highway diesel fuel volumes in the winter that results 
from downstream kerosene blending to improve cold flow properties. 
Without an adequate control mechanism, normal swell in downstream 
highway diesel fuel volumes in the North due to kerosene blending 
during winter months could mask the inappropriate shifting of NRLM-
designated 500 ppm sulfur fuel to the highway diesel pool. We have 
developed an appropriate mechanism to address this situation as 
described in section IV.D.3.
    In the proposal, we also expressed concerns regarding how normal 
volumetric fluctuations in the distribution system such as those caused 
by product downgrading in pipelines could be adequately accounted for 
under a designate and track system so that such fluctuations would not 
mask the inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to 
the highway pool. We have subsequently developed a periodic volume 
account balance system to account for such fluctuations.
    Through discussions with terminal operators, we have also resolved 
concerns expressed in the NPRM that a designate and track approach 
might limit a terminal operator's ability to respond to shifts in 
demand for 500 ppm sulfur highway versus NRLM diesel fuel. To avoid 
this potential problem today's rule allows terminal operators and 
others to switch the designation of 500 ppm sulfur NRLM diesel fuel to 
highway diesel fuel on a temporary basis but not on a cumulative basis 
over time. This will allow terminal operators to sell NRLM designated 
500 ppm sulfur fuel into the highway market provided that they later 
sell the same volume of highway-designated 500 ppm sulfur fuel into the 
NRLM market. To ensure that 500 ppm sulfur NRLM diesel fuel is not 
inappropriately shifted into the highway diesel pool, terminal 
operators will need to demonstrate that the volume of 500 ppm sulfur 
highway diesel fuel they delivered is less than or equal to the volume 
received.
    In the NPRM, we stated that determining the responsible party for a 
violation of the restriction against shifting 500 ppm sulfur NRLM 
diesel fuel into the highway pool would be difficult under a designate 
and track approach because a number of parties in the distribution 
chain take custody of the fuel without taking ownership. However, this 
concern can be addressed by structuring the provisions to hold the 
custodian of the fuel accountable for any such violation that takes 
place while the fuel is in their custody. Review of electronic data 
submitted from all custodians in the highway and NRLM diesel fuel 
distribution chain will reveal the custodian responsible for a 
violation. By comparing such data on the hand-offs of designated fuel 
volumes between all adjacent pairs of custodians in the distribution 
chain for discrepancies, we can identify any party responsible for 
inappropriately shifting volumes of 500 ppm sulfur fuel designated for 
use in NRLM equipment to the highway market. Many terminals do not take 
ownership of the fuel that they handle. Terminals that lease storage 
tanks to multiple owners will need to enter into contractual agreements 
with their tenants to ensure that they understand their obligations as

[[Page 39062]]

a custodian of designated fuel and do not inappropriately change the 
designation of fuels stored in such leased tanks.
    An effective enforcement and compliance assurance program must 
include the ability to rapidly and accurately review the large amount 
of data on the hand-offs of designated fuel volumes for discrepancies. 
This can be accomplished if all parties report electronically to a 
database which can reconcile hand-off volumes between all parties in 
the distribution chain in an automated fashion. All segments in the 
fuel distribution system are now in support of providing the necessary 
information to such an electronic reporting system. We have conducted a 
review of the Agency resources that would be needed to compile the 
industry reports on the transfer of designated fuel volumes, perform 
quality assurance on these data, and to perform the necessary analysis 
of the database to discover potential violations. Our review indicates 
that the reporting forms can be standardized and the review process 
automated in such a fashion as to minimize the Agency resource 
requirements, while at that same time ensuring the quality of the data 
and completeness of the review process. In light of the above 
discussion, we are now convinced that a designate and track approach 
can be designed to meet our enforcement and compliance assurance needs 
under today's rule.
    In addition to concerns regarding the workability and 
enforceability of a designate and track approach, the NPRM expressed 
concerns that application of such an approach could reduce the benefits 
of the highway diesel program by reducing the amount of highway diesel 
fuel that is used in nonroad equipment due to the logistical 
constraints in the distribution system (``spillover''). Specifically, 
it was thought that the opportunity to fungibly ship batches of 500 ppm 
sulfur NRLM diesel fuel and 500 ppm sulfur highway diesel fuel might 
allow refiners to supply highway and NRLM diesel fuel to markets where 
they would otherwise have supplied just highway fuel for both purposes. 
Our reevaluation since the proposal indicates that this is not a 
significant concern. As noted earlier, there are currently substantial 
regions of the country where only highway diesel fuel is supplied by 
bulk shipments to both the highway and NRLM markets due to the high 
costs associated with segregating an additional distillate grade in the 
distribution system.\112\ These are the same areas where the majority 
of spillover occurs today. After the highway diesel program becomes 
effective in 2006, we project that only 15 ppm sulfur highway diesel 
fuel will be supplied in bulk shipments to both the highway and NRLM 
markets in most of these same areas. Although 500 ppm sulfur highway 
diesel fuel could be shipped in bulk to these areas through 2010 under 
the highway program's TCO, the potential demand for such fuel and for 
500 ppm sulfur NRLM diesel fuel would not be sufficient to justify the 
cost of segregating an additional grade of 500 ppm sulfur diesel fuel 
in these areas for a short period of time. The designate and track 
approach does not impact the costs of segregation, and therefore is not 
expected to change distribution patterns that are based on these costs.
---------------------------------------------------------------------------

    \112\ This highway diesel fuel would meet the currently-
applicable 500 ppm sulfur standard for highway diesel fuel.
---------------------------------------------------------------------------

    After 2010, when 500 ppm sulfur highway fuel no longer exists, the 
total volume of 500 ppm sulfur diesel fuel in the distribution system 
will be substantially reduced, and there will be even less incentive to 
distribute an additional grade of 500 ppm sulfur diesel fuel in bulk. 
Therefore, the only areas where substantial flexibility will exist 
under today's program to supply either highway or NRLM diesel fuel to 
the NRLM market is in areas where this flexibility exists today. 
Despite this flexibility in the current regulations, spillover 
currently still occurs. Therefore, we project that there will be little 
additional potential due to today's rule for refiners to reduce highway 
spillover into the NRLM market under a designate and track approach and 
that such spillover levels would not be significantly reduced from 
historical levels. In contrast, as discussed above, we now believe that 
the baseline approach would have resulted in a significant loss of 15 
ppm diesel production.
    Furthermore, concerns regarding a potential reduction in the 
spillover of 15 ppm sulfur highway diesel into the NRLM markets has 
been lessened by the information provided in the highway program pre-
compliance reports. These reports suggest that more than 95 percent of 
highway diesel fuel will be produced to a 15 ppm sulfur standard 
beginning in 2006. In calculating the projected benefits of the highway 
diesel program, we assumed that only 80 percent of highway diesel fuel 
would meet a 15 ppm sulfur standard. Therefore, the actual benefits of 
the highway program will be substantially greater than estimated if the 
projections in the pre-compliance reports are realized.
    Based on the above discussion, we believe that the concerns 
regarding the designate and track approach's workability, 
enforceability, and ability to preserve the benefits of the highway 
program and today's NRLM diesel fuel program have been satisfactorily 
resolved.
b. Ensuring That Heating Oil Is Not Used in NRLM Equipment From June 1, 
2007 Through June 1, 2010
i. Use of a Fuel Marker in Heating Oil
    To prevent shifting heating oil into the NRLM market, we proposed 
that a fuel marker be added to heating oil at the refinery gate. We 
proposed that the presence of the marker required in heating oil would 
be strictly prohibited in NRLM diesel fuel. As noted earlier, this 
approach is similar to red dye requirements for high sulfur diesel fuel 
that were implemented in 1993 to prevent its use as highway diesel fuel 
subject to the then applicable 500 ppm sulfur standard.
    We proposed that the marker be added at the refinery gate rather 
than at the terminal for several reasons. First, this seemed to be the 
most efficient and lowest cost option for addition of the marker given 
that the number of terminals is far greater than the number of 
refineries.\113\ Second, requiring that the marker be present in 
heating oil when it is introduced into the distribution system would 
ensure that we could differentiate high sulfur small refiner and credit 
fuel from heating oil at any point in the system. This approach would 
provide good assurance that the inability to use fuel sulfur content to 
differentiate heating oil from high sulfur NRLM diesel fuel produced 
under the small refiner and credit provisions in today's rule 
(effective until June 1, 2010) would not provide an opportunity to mask 
the potential use of heating oil in NRLM equipment. Providing such 
assurance is an essential element to enable the implementation of the 
small refiner and credit provisions in today's rule. Lastly, under the 
proposed baseline approach, there was no other way to ensure that 
heating oil was not shifted into the NRLM diesel fuel pool during 
distribution from the refinery/importer to the terminal.
---------------------------------------------------------------------------

    \113\ Additional injection equipment will be required to inject 
the heating oil marker.
---------------------------------------------------------------------------

    We received numerous comments that the upstream addition of the 
proposed marker to heating oil would raise significant concerns that 
the marker

[[Page 39063]]

might contaminate jet fuel. Commenters stated that this would represent 
a substantial safety concern unless the proposed marker was proven not 
to adversely impact the quality of jet fuel and the operation of jet 
engines.
    The designate and track approach described above for 500 ppm sulfur 
NRLM diesel fuel, however, also provides an effective means to address 
concerns about the use of the fuel marker. By extending the designate 
and track approach to high sulfur NRLM diesel fuel and heating oil, 
these otherwise identical fuel grades can be tracked down to the 
terminal, and the marker then can be added at the terminal instead of 
at the refinery gate. Going beyond the terminal with designate and 
track is not feasible give the breadth and nature of entities 
involved.\114\ As a result, the marker is still required downstream of 
the terminal. However, shifting the point of marker addition downstream 
to the terminal should eliminate any significant opportunity for jet 
fuel contamination. Subsequent comments and discussions appear to have 
confirmed this.\115\ EPA will continue to work with other federal 
agencies, including FAA and DoD, and to follow ongoing research and 
studies regarding the effect of dyes and markers on jet fuel, 
particularly potential contamination that could have an adverse impact 
on the safe operation of aircraft. We will keep abreast of the ASTM, 
CRC, FAA, IRS, and EU activities regarding the evaluation of the use of 
SY-124 and commit to a review of our use of SY-124 under today's rule 
based on these findings. If alternative markers are identified that do 
not raise concerns regarding the potential contamination of jet fuel, 
we will initiate a rulemaking to evaluate the use of one of these 
markers in place of SY-124.\116\
---------------------------------------------------------------------------

    \114\ Including every end-user of heating oil.
    \115\ Letter to Paul Machiele, EPA, from James Thomas, American 
Society for Testing and Materials (ASTM), entitled ``Withdrawal of 
ASTM Request,'' January 19, 2004. In this letter ASTM withdraws its 
request for a postponement of the finalization of the heating oil 
marker requirements in today's rule. See section V.E regarding the 
selection of the heating oil marker required in today's rule.
    \116\ See section VIII.H. of today's preamble.
---------------------------------------------------------------------------

    We also received a number of comments expressing concern over the 
inability of the proposed marker to be detected using the standard 
simple test used today to detect contamination with red dye.\117\ The 
marker finalized by today's rule does not provide visual evidence of 
its presence. However, if the marker is added at the terminal it will 
only be present in heating oil when red dye is also present. The fact 
that heating oil will be dyed red pursuant to IRS requirements before 
it leaves the terminal will enable jet fuel distributors to continue to 
use the ``white bucket test'' to detect heating oil contamination, and 
hence marker contamination of jet fuel. Today's rule also includes a 
stand-alone requirement that any fuel to which the fuel marker is added 
must also contain visible evidence of red dye.\118\
---------------------------------------------------------------------------

    \117\ To test for contamination, jet fuel marketers typically 
fill a white five gallon bucket with jet fuel. The presence of a 
pink tinge to the light straw colored jet fuel indicates that the 
fuel has been contaminated with fuel that contains red dye.
    \118\ If IRS amends its red dye requirements, EPA will also 
seriously consider amending the fuel marker and associated red dye 
requirements contained in today's rule. See section V.E. of today's 
preamble.
---------------------------------------------------------------------------

ii. Provisions To Ensure Heating Oil Is Not Used in NRLM Equipment in 
the Northeast and Mid-Atlantic
    In the Northeast, heating oil will continue to be distributed in 
significant quantities after implementation of the NRLM diesel fuel 
program. Discussions with terminal operators in the Northeast, and 
other representatives of heating oil users and distributors, revealed 
concerns that the proposed heating oil marker requirement would 
represent a substantial new burden on terminal operators and users of 
heating oil. Terminal operators stated that the cost of installing new 
injection equipment would be burdensome, and that the cost of the 
marker itself would be significant given the large volume of heating 
oil used in the Northeast. They also stated that they did not expect 
any small refiner or credit fuel to be used in the Northeast, and that 
consequently, the marker requirement was not needed in this area. They 
suggested that if we prohibited the sale of small refiner and credit 
fuel in PADD I, this area could be exempted from the heating oil marker 
requirement.
    We evaluated the viability of avoiding the heating oil marker 
requirement in portions of PADD I and instead enforcing the NRLM diesel 
fuel standards on the basis of sulfur content alone. The heating oil 
marker is needed to ensure that heating oil is not sold into the NRLM 
market as high sulfur NRLM fuel. The marker is needed only if high 
sulfur NRLM fuels will otherwise be in the market. High sulfur NRLM 
fuel can be produced under the small refiner and credit provisions, and 
through the generation of high sulfur NRLM in the distribution system 
from the downgrading of 500 ppm sulfur NRLM. In evaluating the 
feasibility of avoiding the heating oil marker, EPA therefore focused 
on determining the likely production and marketing of these high sulfur 
NRLM fuels in portions of PADD I in this time frame.
    We held in-depth discussions with organizations representing 
refiners, pipelines, and terminal operators to evaluate this issue. 
Representatives of non-small refiners including API and NPRA stated 
that being precluded from selling sulfur credit fuel in the Northeast 
and Mid-Atlantic would not significantly reduce the intended benefits 
to refiners of the credit provisions in today's rule. We also spoke 
with small refiner representatives of and the specific small refiners 
whose marketing area might include the Northeast and Mid-Atlantic and 
found that in fact, small refiners were not expected to market fuel in 
this area. Finally, we evaluated the current and likely future 
practices in the Northeast and Mid-Atlantic areas for the sale of 
downgraded fuel generated in the distribution system. We found that 
this downgraded diesel fuel could easily continue to be sold in the 
very large and ubiquitous heating oil market that is expected to 
continue to exist in this region. This avoids any need for additional 
storage or tankage for both high sulfur and low sulfur NRLM fuels, and 
fits into the pre-existing market structure for heating oil.
    Consequently, unlike the rest of the country, there was little 
expected need to maintain a high sulfur NRLM market in this part of the 
country as an outlet for small refiner, credit, or off-specification, 
downgraded diesel fuel. Based on this input, we concluded that 
codifying this expected practice and making it enforceable, i.e. not 
allowing high sulfur fuel to be marketed as NRLM in this area of the 
country, would be consistent with the current distribution practices in 
this area of the country and that the potential impact of taking such 
an approach on the flexibility offered in the program would be minimal 
or nonexistent. If we codified it we would no longer need the marker 
requirement, and the resulting benefits and cost savings to terminals 
would be substantial. The approach would also simplify and strengthen 
the enforcement of today's sulfur requirements in this area by allowing 
EPA to enforce the NRLM standards simply based on the measurement of 
the sulfur content of the fuel. There would be little expected impact 
on the environment as this is not expected to change the amount of high 
sulfur fuel produced from small refiners, credit usage, or downgrade in 
the distribution system, only the market into which it is sold.

[[Page 39064]]

    In deciding which parts of PADD I to use this enforcement 
mechanism, we attempted to minimize the number of terminals that would 
need to install new injection equipment and the amount of heating oil 
that would need to be marked, while preserving the benefits of the 
small refiner and credit fuel provisions in today's rule to the maximum 
extent possible. To assess the placement of the boundary for the 
Northeast/Mid-Atlantic area where the marker requirement was waived, we 
evaluated the magnitude of heating oil demand by state (see chapter 5 
of the RIA), solicited input from the potentially affected parties, 
evaluated the area supplied by the pipeline distribution systems that 
are expected to continue to ship heating oil after the implementation 
of today's rule, evaluated the locations of terminals that are likely 
to receive bulk shipments of heating oil, evaluated the distribution 
area of small refiner(s) for high sulfur NRLM diesel fuel, and reviewed 
heating oil use levels in areas that will have access to bulk shipments 
of heating oil. Based on our assessment we concluded that defining the 
Northeast/Mid-Atlantic area as described below would best achieve our 
goals.\119\ In most cases, whole states in PADD 1 were assigned to this 
``Northeast/Mid-Atlantic'' area. This decision was primarily based on 
the continued high level of heating oil use projected in these states 
and the lack of significant concern regarding the elimination of the 
program's flexibilities to produce high sulfur NRLM diesel fuel in 
these states. A few counties in Eastern West Virginia were also 
assigned to the Northeast/Mid-Atlantic area based on supply patterns in 
the area. On the other hand, a number of counties in Western New York 
and Pennsylvania were not assigned to the Northeast/Mid-Atlantic area 
due to the need to maintain flexibilities for refiners serving this 
area.
---------------------------------------------------------------------------

    \119\ See chapter V of the RIA for a detailed discussion of the 
analysis which supports our definition of the Northeast/Mid-Atlantic 
areas where the marker requirement is waived. See section VI of 
today's preamble and chapter VII of the RIA for a discussion of the 
costs of the heating oil marker requirements finalized by today's 
rule.
---------------------------------------------------------------------------

    In summary, the areas excluded from the marker requirement and 
where the sale of NRLM diesel fuel produced or imported under the 
credit and hardship provisions or from the downstream downgrade 
provisions of today's rule is prohibited are: North Carolina, Virginia, 
Maryland, Delaware, New Jersey, Connecticut, Rhode Island, 
Massachusetts, Vermont, New Hampshire, Maine, Washington DC, New York 
(except for the counties of Chautauqua, Cattaraugus, and Allegany), 
Pennsylvania (except for the counties of Erie, Warren, Mc Kean, Potter, 
Cameron, Elk, Jefferson, Clarion, Forest, Venango, Mercer, Crawford, 
Lawrence, Beaver, Washington, and Greene), and the eight eastern-most 
counties in West Virginia (namely: Jefferson, Berkeley, Morgan, 
Hampshire, Mineral, Hardy, Grant, and Pendleton). The Northeast/Mid-
Atlantic Area is illustrated in the following figure:
[GRAPHIC] [TIFF OMITTED] TR29JN04.003

    As discussed in section IV.D.2 below, the marker requirement for 
500 ppm sulfur LM diesel fuel that will be effective outside of this 
Northeast/Mid-Atlantic area and Alaska from June 1, 2010, through May 
31, 2012, was not a significant factor in our evaluation of how to 
define the boundary of the Northeast/Mid-Atlantic area. We expect that 
locomotive and marine diesel fuel subject to the marker requirements 
will primarily be distributed via segregated pathways from a limited 
number of refineries. Therefore, a significant number of terminals will 
not need to handle LM diesel fuel that is subject to the marker 
requirement. Thus, the potential cost of installing injection

[[Page 39065]]

equipment to add the marker to 500 ppm sulfur LM diesel fuel which is 
subject to the marker requirement will be limited to only a few 
refineries and terminals (i.e. approximately 15, see section VI.A of 
today's preamble).
    In all areas of the country other than the Northeast/Mid-Atlantic 
area shown in figure IV.D-1 (and Alaska as discussed below), heating 
oil, and high sulfur NRLM diesel fuel will be designated at the 
refinery or importer and tracked through the distribution system to the 
terminal. From June 1, 2010, through May 31, 2012, 500 ppm sulfur LM 
diesel fuel and 500 ppm nonroad diesel fuel must also be designated at 
the refinery or importer and tracked through the distribution system to 
the terminal outside of the Northeast/Mid-Atlantic area and Alaska. The 
specified fuel marker (see section V.E of this preamble) must be added 
to heating oil distributed from all terminals located outside of the 
Northeast/Mid-Atlantic area defined above and Alaska. The same fuel 
marker must also be added to 500 ppm sulfur LM diesel fuel produced at 
a refinery or imported that is distributed from terminals located 
outside of the Northeast/Mid-Atlantic area and Alaska from June 1, 
2010, through May 31, 2012. This includes all heating oil and the 
subject 500 ppm sulfur LM diesel fuel distributed from terminals 
outside of the Northeast/Mid-Atlantic area regardless of whether the 
fuel is delivered to a retailer, wholesale purchaser-consumer, or end-
user located inside or outside of the Northeast/Mid-Atlantic area.
    Terminals inside the Northeast/Mid-Atlantic area are exempted from 
the fuel marker requirements in today's rule, but only for the volume 
of heating oil and 500 ppm sulfur LM diesel fuel subject to the marker 
requirements that is used by wholesale-purchaser-consumers and end-
users that are located inside the Northeast/Mid-Atlantic area. Any 
heating oil and subject 500 ppm sulfur LM diesel fuel distributed from 
terminals inside the Northeast/Mid-Atlantic area to a retailer, 
wholesale-purchaser-consumer, or end-user that is located outside of 
the Northeast/Mid-Atlantic area must be marked.
    Terminal operators do not often distribute fuel to retailers, 
wholesale-purchaser-consumers, and end-users directly. This task is 
frequently accomplished by ``jobbers'' who pick up large tank truck 
loads of fuel from the terminal for delivery to their retailer and 
wholesale-purchaser-consumer customers, ``heating oil dealers'' who 
pick up fuel from a terminal using a smaller capacity tank truck (often 
referred to as a tank wagon) for direct delivery to heating oil users, 
and by bulk plant operators. Bulk plant operators pick up fuel from 
terminals as described above. However, since they maintain their own 
bulk fuel storage facilities, they have the choice of storing the fuel 
at their facility prior to eventual delivery to their customers. Under 
the provisions of today's rule, as long as a bulk plant only receives 
heating oil to which the marker has already been added, it does not 
have to register, keep records, or report. However, if it chooses to 
receive any unmarked heating oil, then it will be treated the same as a 
large terminal under the provisions of today's final rule. We do not 
expect that bulk plants will handle LM diesel fuel to a significant 
degree. For bulk plant operators that might handle LM diesel fuel, 
today's rule provides that as long as a bulk plant does not receive any 
500 ppm sulfur LM diesel fuel which is required to be marked under 
today's rule, but which has not yet been marked, it does not have to 
register, keep records, or report. However, if it chooses to receive 
any unmarked 500 ppm sulfur LM diesel fuel which is subject to the 
marker requirements under today's rule, then it will be treated the 
same as a large terminal under the provisions of today's final rule.
    Any party that transports bulk quantities of heating oil solely to 
the Northeast/Mid-Atlantic area or within this area is not subject to 
the designate and track requirements for heating oil described below. 
Similarly, any party that transports bulk quantities of 500 ppm sulfur 
LM diesel fuel solely to the Northeast/Mid-Atlantic area or within this 
area is not subject to the designate and track requirements for LM 
diesel fuel. However, any high sulfur fuel distributed from inside the 
Northeast/Mid-Atlantic area to outside of the Northeast/Mid-Atlantic 
area must be designated as heating oil by the party responsible for the 
transfer and must be marked. Likewise, any 500 ppm sulfur LM diesel 
fuel distributed from inside the Northeast/Mid-Atlantic area from June 
1, 2010, through May 31, 2012, must be designated as 500 ppm sulfur LM 
diesel fuel by the party responsible for the transfer and must be 
marked.
    Entities who are required to inject marker into heating oil must 
maintain records of the volume of marker used in heating oil, and the 
volume of heating oil distributed over the compliance period. Entities 
that are required to inject marker into 500 ppm sulfur LM diesel fuel 
must maintain records of the volume of marker used in 500 ppm sulfur LM 
diesel fuel, and the volume of 500 ppm sulfur LM diesel that is 
required to be marked which is distributed over the compliance period. 
These records must demonstrate that the prescribed marker concentration 
was present in the heating oil and the 500 ppm sulfur LM diesel fuel 
subject to the marker requirement that they discharged.
iii. State of Alaska
    Although the fuel marker facilitates the enforcement of the NRLM 
diesel fuel sulfur standards by distinguishing it from heating oil, as 
described above, we are not requiring use in Alaska. Unlike the 
situation in the Northeast and Mid-Atlantic area, however, we are not 
prohibiting the production of high sulfur NRLM diesel fuel after 2007, 
and 500 ppm nonroad diesel fuel from after 2010 by small refiners in 
Alaska. While such a prohibition in the Northeast/Mid-Atlantic area 
does not impact small refiners, flexibility for small refiners is 
expected to be important in Alaska. Thus, we need to preserve the 
flexibility for high sulfur NRLM diesel fuel in Alaska for small 
refiners along with eliminating the marker. The program must therefore 
provide another means of enforcing the NRLM diesel fuel sulfur 
standards without eliminating a small refiner's ability to produce and 
distribute high sulfur NRLM diesel fuel.
    Under today's program we are finalizing a provision that will allow 
flexibility for small refiners to delay compliance with the NRLM diesel 
fuel sulfur standards as discussed in section IV.B. Small refiners in 
Alaska may avail themselves of this option provided that the refiner 
first obtains approval from the administrator for a compliance plan. 
The plan must at a minimum show the following information:

    (1) How they will segregate its fuel through to end-users;
    (2) How they will segregate its fuels from other grades and 
other refiners' fuels; and
    (3) All end-users to whom the fuel is sold as well as the fuel 
volumes.

    End-users who receive the fuel must retain records of all fuel 
shipments to demonstrate that no heating oil was used in NRLM diesel 
equipment and that no 500 ppm sulfur LM diesel was used in nonroad 
equipment. In order to limit the potential sources of fuel not meeting 
the sulfur standard, constrain the number of end-users who may 
legitimately have higher sulfur fuel in their NRLM diesel equipment, 
and thus maintain the overall program's enforceability, we are not 
finalizing the other provisions that allow for higher sulfur fuel to be 
produced and/or distributed in Alaska (i.e., credit, transmix 
processor, or downstream

[[Page 39066]]

distribution system provisions). In this regard, Alaska is treated in 
the same manner as the Northeast/Mid-Atlantic area.
c. Updating the Highway Program's Anti-Downgrade Requirements
    Under the highway diesel fuel program, each entity in the 
distribution system may downgrade a maximum of 20 percent of the 15 ppm 
sulfur highway diesel fuel it receives to 500 ppm sulfur highway diesel 
fuel. However, there was no limit on the volume of 15 ppm sulfur 
highway diesel fuel that could be downgraded to NRLM diesel fuel. Prior 
to today's rule, this was appropriate because the sulfur content of 
NRLM diesel fuel was uncontrolled, and hence once 15 ppm sulfur highway 
diesel fuel was downgraded to NRLM diesel fuel such fuel could not be 
used in the 500 ppm sulfur highway diesel market. The implementation of 
today's 500 ppm sulfur standard for NRLM diesel fuel, however, means 
that 15 ppm sulfur highway fuel downgraded to 500 ppm sulfur NRLM 
diesel fuel potentially could be shifted into the highway market. This 
could undermine the benefits of the highway program for the reasons 
described previously. To prevent this situation, we proposed that the 
anti-downgrading requirements under the highway diesel program would 
also apply to the downgrading of 15 ppm sulfur highway diesel fuel to 
500 ppm sulfur NRLM diesel fuel. We received comments from refiners and 
fuel distributors that such a limitation would restrict their ability 
to supply the NRLM diesel market, particularly in areas where refiners 
plan to supply only 15 ppm sulfur diesel fuel for both the highway and 
NRLM markets.
    Putting in place the designate and track provisions allows 500 ppm 
sulfur highway and 500 ppm sulfur NRLM diesel fuel to be tracked 
separately. This enables the anti-downgrading requirements to only 
apply to the downgrading of 15 ppm sulfur highway diesel fuel to 500 
ppm sulfur highway fuel as originally required in the 2007 highway 
final rule. In the context of the designate and track requirements in 
today's rule, the highway program's anti-downgrading provisions are 
clarified as described below. Similar to the approach described above 
regarding the prevention of the use of 500 ppm sulfur NRLM diesel fuel 
in the highway market, each custodian of 15 ppm sulfur No. 2 highway 
diesel fuel must maintain records that demonstrate their compliance 
with the highway program's anti-downgrade requirements. The anti-
downgrading requirements do not apply to 15 ppm sulfur No 1, diesel 
fuel. Such fuel will be manufactured for wintertime blending to improve 
diesel cold flow properties. In a number of areas we expect that 15 ppm 
sulfur No. 1 fuel will be the only No.1 fuel available for winterizing 
highway and NRLM diesel fuel, and heating oil. Therefore, applying the 
anti-downgrading requirements to 15 ppm sulfur No. 1 fuel would be 
unnecessary to maintain the availability of 15 ppm sulfur highway 
diesel fuel, and would interfere with its intended use in the range of 
No. 2 fuels.
    From October 1, 2006, through May 31, 2010, all fuel distributors 
downstream of the refiner or import facility must satisfy one of four 
criteria as outlined in 40 CFR 80.598 of today's regulation to 
demonstrate compliance with the highway program's anti-downgrading 
requirements. These criteria are based on the designate and track 
system for different grades of fuel through the distribution system. 
The first criteria is the simplest and most straightforward, with the 
least record keeping burden. It merely tracks a facility's No. 2 15 ppm 
sulfur highway diesel volume receipts and deliveries and requires the 
deliveries to be at least 80 percent of the receipts. Since the anti-
downgrading provisions were implemented to protect against intentional 
downgrading and not to limit downgrading that would occur in the normal 
distribution of 15 ppm sulfur fuel, we anticipate that most facilities 
will be able to easily meet this simple criteria.
    The second criteria tracks a facility's receipts and distribution 
of both No. 2 15 ppm sulfur fuel and No.2 500 ppm sulfur highway diesel 
fuel, and limits deliveries of No. 2 500 ppm sulfur highway diesel fuel 
to no more than what was received plus 20 percent of the No. 2 15 ppm 
sulfur highway diesel fuel volume received. This allows more 
flexibility than the first criteria by not constraining downgrades to 
NRLM diesel fuel or heating oil, but does so by requiring tracking and 
records of volumes of No. 2 15 ppm sulfur highway diesel fuel received 
and the products to which it is downgraded.
    The third and fourth criteria provide even more flexibility, 
especially for wintertime blending of No. 1 15 ppm sulfur highway 
diesel fuel, and also for any temporary shifts that might occur between 
NRLM diesel fuel and highway diesel fuel markets from 2007-2010. 
However, a facility will have to meet more extensive criteria to 
demonstrate compliance.
    Today's final rule does not change any other aspects of the anti-
downgrading provisions finalized in the 2007 highway diesel final rule, 
such as the provisions unique to fuel retailers.
2. Requirements During the Second Step of Today's Sulfur Control 
Program
    Beginning June 1, 2010, all NR diesel fuel and beginning June 1, 
2012 all LM diesel fuel produced or imported must meet a 15 ppm sulfur 
standard except for fuel manufactured under the credit and small 
refiner provisions in today's rule. This credit and small refiner 
diesel fuel must meet a 500 ppm sulfur level. From June 1, 2010 to June 
1, 2012, all LM diesel fuel must meet a 500 ppm sulfur standard. 
Today's rule also allows 500 ppm sulfur diesel fuel generated in the 
pipeline distribution system to be used in NRLM equipment through May 
31, 2014 \120\ and in locomotive and marine equipment thereafter. After 
May 31, 2014, the credit and small refiner provisions expire.
---------------------------------------------------------------------------

    \120\ The use of 500 ppm fuel in nonroad equipment is restricted 
to 2011 model year and earlier equipment.
---------------------------------------------------------------------------

    We proposed that once refiners were no longer able to produce 500 
ppm sulfur diesel fuel for use in nonroad engines and such fuel had a 
few months to work its way through the distribution system, that 500 
ppm sulfur diesel fuel could no longer be used in nonroad equipment. 
Today's rule adopts this proposed prohibition. Although today's rule 
extends the 15 ppm sulfur nonroad diesel standard to locomotive and 
marine diesel fuel, we have elected not to extend the prohibition 
against the use of 500 ppm sulfur diesel fuel in locomotive and marine 
equipment after refiners and importers are no longer allowed to 
produce/import such fuel. Diesel fuel with a maximum sulfur 
concentration of 500 ppm that is generated in the pipeline distribution 
system can continue to be used in locomotive and marine equipment after 
June 1, 2014, as discussed in section IV.A above.
    Providing for the continued use of 500 ppm sulfur diesel fuel in 
NRLM equipment through May 31, 2014, means that without adequate 
controls similar to those under the first step of today's program, a 
refiner could manufacture 500 ppm sulfur diesel fuel ostensibly for use 
as heating oil which could actually be sold downstream into the NRLM 
market through May 31, 2014. Similarly, the continued use of 500 ppm 
fuel in locomotive and marine engines after May 31, 2014, means that 
without adequate controls, a refiner could continue to manufacture 500 
ppm sulfur diesel fuel ostensibly for use as heating oil which could 
actually be sold

[[Page 39067]]

downstream into the locomotive and marine market indefinitely. To 
prevent this possibility, we have elected to continue the designate and 
track and marker requirements for heating oil applicable under the 
first step of today's program indefinitely with some simplifications. 
It is a significantly smaller program during the second step, since 
only heating oil needs to be tracked, and we expect that by then very 
little heating oil will be produced for sale outside of the Northeast/
Mid-Atlantic area. Consistent with the approach taken during the first 
step of today's program, these designate and track provisions would not 
be applicable in the Northeast/Mid-Atlantic area or Alaska, since the 
flexibility to sell greater than 15 ppm sulfur diesel fuel into the 
NRLM market there does not exist under this final rule.\121\ Any diesel 
fuel with a sulfur content greater than 500 ppm beginning June 1, 2007, 
any NR diesel fuel with greater than 15 ppm sulfur beginning June 1, 
2010, and any LM diesel fuel with greater than 15 ppm sulfur beginning 
June 1, 2012 in the Northeast/Mid-Atlantic area can only be sold as 
heating oil, and if shipped outside of the Northeast/Mid-Atlantic area 
must be marked as heating oil.
---------------------------------------------------------------------------

    \121\ Unless, in the case of Alaska, the refiner segregates its 
fuel through to the end user as discussed in section IV.D.1.b.ii.
---------------------------------------------------------------------------

    While today's rule does not contain an end date for the downstream 
distribution of 500 ppm sulfur locomotive and marine fuel, we will 
review the appropriateness of allowing this flexibility based on 
experience gained from implementation of the 15 ppm sulfur NRLM diesel 
fuel standard. We expect to conduct such an evaluation in 2011. Were we 
to discontinue the downstream provision for downgraded fuel, we would 
also evaluate discontinuing the designate and track and marker 
requirements for heating oil, as is the case now for the Northeast/Mid-
Atlantic area.
    Providing for the continued production and import of 500 ppm sulfur 
LM diesel fuel from June 1, 2010 to June 1, 2012 means that without 
adequate controls similar to those under the first step of today's 
program, a refiner could manufacture 500 ppm sulfur diesel fuel 
ostensibly for use as LM diesel fuel which could actually be sold 
downstream into the NR market. To prevent this possibility, we have 
adopted designate and track and marker requirements similar to those 
applicable to heating oil under the first step of today's program. For 
these two years, 500 ppm sulfur NR and LM diesel fuel would be tracked, 
and the 500 ppm sulfur LM fuel would be marked in the same manner as 
heating oil. The same provisions that apply to marking of heating oil, 
such as the Northeast/Mid-Atlantic area, would also apply to the 
marking of 500 ppm sulfur LM fuel. The tracking and marking provisions 
would not apply to any 15 ppm sulfur LM diesel fuel.
3. Summary of the Designate and Track Requirements
    The designate and track program requires refiners and importers to 
designate the volumes of diesel fuel they produce and/or import. 
Refiners/importers will identify whether their diesel fuel is highway 
or NRLM and the applicable sulfur level. They may then mix and fungibly 
ship highway and NRLM diesel fuels that meet the same sulfur 
specification without dyeing their NRLM diesel fuel at the refinery 
gate. The volume designations will follow the fuel through the 
distribution system with limits placed on the ability of downstream 
parties to change the designation. These limits are designed to 
restrict the inappropriate sale of 500 ppm sulfur NRLM diesel fuel into 
the highway market; from 2007 to 2010, the inappropriate sale of 500 
ppm sulfur LM diesel fuel into the 500 ppm sulfur NR market from 2010 
to 2012; and the inappropriate sale of heating oil into the NRLM 
market. The designate and track approach includes record keeping and 
reporting requirements for all parties in the fuel distribution system, 
associated with tracking designated fuel volumes through each custodian 
in the distribution chain until the fuel exits the terminal. The 
program also includes enforcement and compliance assurance provisions 
to enable the Agency to rapidly and accurately review for discrepancies 
the large volume of data collected on fuel volume hand-offs.
a. Registration
    Each entity in the fuel distribution system, up through and 
including the point where fuel is loaded onto trucks for distribution 
to retailers or wholesale purchaser-consumers, must register each of 
its facilities with EPA no later than December 31, 2005, or six months 
prior to commencement of producing, importing, generating, or 
distributing any designated diesel fuel.\122\ A facility is defined as 
the physical location(s) where a party has custody of designated fuel, 
from when it was produced, imported, or received from one party to when 
it is delivered to another party. The definition also include mobile 
components, such as the vessels in a barge facility. Examples of 
facilities include refineries, import terminals, pipelines, terminals, 
bulk plants, and barge systems. Where the same entity owns and operates 
a series of locations in the distribution system (e.g., refiner to 
pipeline to terminal), it may choose to register them as a single 
aggregated facility, provided the entity maintains custody of the fuel 
throughout the facility. However, if the aggregated facility includes a 
refinery, then it may not receive any diesel fuel from another entity 
at any place within the aggregated facility. Under this approach, a 
pipeline could be treated as one facility from the point where it 
receives fuel to the point where it either delivers it to a terminal, 
or into a tank truck after passing through their terminal. The choice 
made by the entity to treat these places as a single facility or 
separate facilities may not change during any applicable compliance 
period. These same definitions for facility will apply for both the 
designate and track provisions, as well as the anti-downgrading 
provisions of the highway rule. Therefore, if a proprietary system 
chooses to aggregate into one facility for purposes of the designate 
and track provisions, it will also be treated as one facility for 
determining compliance with the 20 percent anti-downgrading limit of 
the highway rule. EPA will provide a unique registration number to each 
custodial facility of designated fuels. In addition, EPA intends to 
work with industry subsequent to this final rule to provide guidance 
regarding facility boundary and aggregation decisions that will address 
the many unique situations.
---------------------------------------------------------------------------

    \122\ This requirement also applies to parties inside of the 
Northeast/Mid-Atlantic area who handle heating oil.
---------------------------------------------------------------------------

    The designation provisions described below require refiners and 
importers to designate all distillates they produce or import 
consistent with the production and end-use requirements in today's 
rule. These designations serve as the foundation upon which the fuel 
distributors are able to properly track, designate, redesignate, and 
label the fuel they receive.
b. Designation by Refiners and Importers
i. Designation of 500 ppm and 15 ppm Sulfur Diesel Fuel
    From June 1, 2006, through May 31, 2010, any refiner \123\ or 
importer that

[[Page 39068]]

produces or imports 15 ppm sulfur diesel fuel, and/or 500 ppm sulfur 
diesel fuel must designate all batches of such fuel as one of the 
following. The purpose of this designation requirement is to ensure 
that 500 ppm sulfur NRLM diesel fuel is not shifted into the highway 
market, and to evaluate compliance with the highway program's anti-
downgrade requirements.
---------------------------------------------------------------------------

    \123\ Transmix operators that produce diesel fuel from transmix 
and terminal operators that produce from segregated interface will 
be treated as a refiner for the purposes of compliance with these 
requirements.
---------------------------------------------------------------------------

     15 ppm sulfur No. 2 highway diesel fuel;
     15 ppm sulfur No. 1 highway diesel fuel;
     500 ppm sulfur No. 2 highway diesel fuel;
     500 ppm sulfur No. 1 highway diesel fuel;
     500 ppm sulfur No. 2 NRLM diesel fuel;
     500 ppm sulfur No. 1 NRLM diesel fuel;
     500 ppm sulfur jet fuel; or
     500 ppm sulfur kerosene.
    The start date for these requirements coincides with the start date 
for the early credit program under today's final rule, and the start 
date for the highway diesel program for the purposes of anti-
downgrading. The end date for these requirements coincides with the end 
date for the highway program's Temporary Compliance Option and today's 
NRLM diesel fuel early credit program.
    Any batch of 15 ppm or 500 ppm No. 1 diesel fuel which is also 
suitable for use as kerosene or jet fuel (referred to as dual-purpose 
kerosene) may be considered kerosene or jet fuel and need not be 
designated as highway or NRLM diesel fuel, even if it may later be 
blended into highway or NRLM diesel fuel downstream of the refinery to 
improve the cold-flow properties of the fuel. Upon such blending, the 
kerosene or jet fuel takes on the designation of the diesel fuel into 
which it was blended. We expect refiners and importers will elect to 
designate all of their 15 ppm sulfur No. 1 diesel fuel as highway fuel, 
since this will aid in their compliance with the highway program's 80/
20 highway fuel production requirement. Designation as highway diesel 
fuel by the refiner will also help avoid downstream blending from 
causing a violation by the downstream party under the tracking and 
compliance calculations finalized today. We also expect that refiners 
and importers will elect to designate their 500 ppm sulfur No. 1 fuel 
as kerosene or jet fuel since this will be the predominant use for such 
fuel, and designating it as highway would hinder their compliance with 
the 80/20 highway requirements. As with 15 ppm sulfur kerosene or jet 
fuel, downstream parties would later redesignate it as highway or NRLM 
diesel fuel if blended in or used for these purposes. Any 500 ppm 
sulfur diesel fuel containing visible evidence of red dye must be 
designated as NRLM diesel fuel or heating oil unless it is tax exempt 
highway diesel fuel (e.g., fuel for use in school buses or certain 
municipal fleets).
    The reported volumes of designated fuels must be the volumes 
delivered to the first downstream party. This is typically a pipeline 
facility, a marine barge/tanker loading dock that accepts product from 
a refiner/importer, or the refiner's/importer's truck loading rack. 
This is consistent with normal business practices. Refiners, importers, 
and transmix processors are not required to add red dye to NRLM diesel 
fuel unless the fuel is distributed over their truck loading rack such 
that the IRS requires the addition of red dye for the assessment of 
taxes.
    Fuel designated by a refiner or importer as highway diesel fuel 
must comply with the highway program's 80/20 requirement for 15 ppm/500 
ppm sulfur highway diesel fuel. The volume of fuel designated as NRLM 
early credit fuel must be consistent with the credit provisions in 
today's rule. Since highway diesel fuel volumes are determined at the 
point of delivery from the refiner/importer to another party, the anti-
downgrade requirements do not apply to refiners and importers. Under 
the highway diesel fuel program, refiners that are required to produce 
100 percent of their highway diesel fuel to a 15 ppm sulfur standard 
are provided with an allowance to deliver a small percentage of 500 ppm 
sulfur diesel fuel to the pipeline (e.g., small refiners and GPA 
refiners who exercise an option under the 2007 highway rule to delay 
compliance with gasoline sulfur standards). This allowance is provided 
because a small volume of ``line-wash'' is typically generated in the 
feed line from the refiner's facility to the pipeline. This line-wash 
will often be suitable for use as 500 ppm sulfur highway diesel fuel. 
Under the provisions of the highway rule this line-wash could have been 
excluded from compliance with the 15 ppm standard if the refiner 
accounted for their production volume prior to shipment. However, in 
this rule, all volume-related requirements are keyed to the volume 
actually delivered. As a result of this change in the point of fuel 
volume measurement (delivered versus produced), we are amending the 
highway diesel fuel program requirements such that refiner who was 
previously required to produce 100 percent of its highway diesel fuel 
to the 15 ppm sulfur standard may now produce 95 percent to the 15 ppm 
sulfur standard (in order to avail itself of the extended gasoline 
sulfur interim standards).
ii. Designation of High Sulfur NRLM Diesel Fuel, Heating Oil, and Jet 
Fuel/Kerosene
    From June 1, 2007 through May 31, 2010, any refiner, or importer 
not located in the Northeast/Mid-Atlantic area or Alaska, that produces 
or imports unmarked high sulfur distillate fuel must designate all 
batches of such fuel as one of the following: heating oil, high sulfur 
NRLM diesel fuel, or jet fuel/kerosene. Any heating oil distributed 
from a refiner's or importer's rack not located in the Northeast/Mid-
Atlantic area or Alaska must contain the designated marker and red dye. 
Any heating oil distributed from a refiner/importer rack inside of the 
Northeast/Mid-Atlantic area or Alaska is exempted from the marker 
requirement except any heating oil that is delivered outside the 
Northeast/Mid-Atlantic area must be marked.
    As discussed previously, 500 ppm sulfur diesel fuel may be used in 
NRLM equipment through May 31, 2014 and in locomotive and marine 
equipment thereafter. Therefore, designate and track provisions for 
heating oil will be needed to ensure that heating oil is not shifted 
into the NRLM market from June 1, 2007 through May 31, 2014, and to the 
locomotive and marine market thereafter. Consequently, from June 1, 
2010 through May 31, 2014, refiners and importers must continue to 
designate any heating oil they produce as such as well as any 500 ppm 
sulfur NRLM diesel fuel produced under the small refiner, transmix/
segregated interface, and credit provisions.
    Beginning June 1, 2014, refiners and importers may no longer 
produce or import 500 ppm sulfur diesel fuel for use in NRLM equipment. 
Therefore, beginning June 1, 2014, all diesel fuel with a sulfur level 
greater than 15 ppm must be designated as heating oil, jet fuel, or 
kerosene. The one exception to this is transmix processors and 
terminals acting as refiners which will be permitted to produce 500 ppm 
sulfur diesel fuel for use in locomotive and marine equipment from 
transmix and segregated interface.
iii. Designation of 500 ppm NR and 500 ppm LM Sulfur Diesel Fuel
    From June 1, 2010, through May 31, 2012, any refiner or importer 
that

[[Page 39069]]

produces or imports 500 ppm sulfur NR diesel fuel (small refiner and 
credit) and/or 500 ppm sulfur LM diesel fuel must designate all batches 
of such fuel. The purpose of this designation requirement is to ensure 
that 500 ppm sulfur LM diesel fuel is not shifted into the NR market. 
Any 500 ppm sulfur LM diesel fuel distributed from a refiner's or 
importer's rack not located in the Northeast/Mid-Atlantic area or 
Alaska must contain the designated marker and red dye, along with 
heating oil. Any 500 ppm sulfur LM diesel fuel distributed from a 
refiner/importer rack inside of the Northeast/Mid-Atlantic area or 
Alaska is exempted from the marker requirement except any 500 ppm 
sulfur LM fuel that is delivered outside the Northeast/Mid-Atlantic 
area must be marked.
c. Designation and Tracking Requirements Downstream of the Refinery or 
Importer
    The result of the refiner/importer designation provisions is that 
all of the diesel fuel received by distributors will be clearly and 
accurately designated. The distributors are then subject to their own 
designation and tracking requirements. The downstream provisions are 
designed to ensure that certain fuel shifts do not occur, such as the 
inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to the 
highway market, the inappropriate shifting of 500 ppm sulfur LM diesel 
fuel into the nonroad market, the inappropriate downgrading of 15 ppm 
sulfur to 500 ppm sulfur highway diesel fuel, and the inappropriate 
shifting of heating oil to the NRLM market. The downstream provisions 
are designed to ensure these results in a readily enforceable manner 
while maximizing downstream flexibility to address changing market 
conditions.
    In general, each time custody of designated fuel is transferred 
from one facility to another facility, the transferor must designate 
the fuel and record it's volume. The party who receives custody must 
record the same information, to ensure that each party relies on the 
same designation and volume for its own compliance purposes. This 
process occurs each time custody of diesel fuel is transferred. Each 
distributor may redesignate fuel while in its custody or when it is 
delivered, subject to certain basic requirements. First, any re-
designation must be accurate. For example, 500 ppm sulfur NRLM diesel 
fuel can not be redesignated as 15 ppm unless it in fact meets the 15 
ppm standard. The sulfur standard applicable to downstream fuel is 
based on the fuel's designation. Second, there are limits on the fuel 
volumes that can be redesignated, calculated as a volume balance over a 
specified compliance period. Specifically, the volumes of 15 ppm and 
500 ppm sulfur highway received must be compared to the volumes of 
these fuels delivered, to ensure that the amount of 15 ppm sulfur 
highway diesel fuel that is downgraded to 500 ppm sulfur highway diesel 
fuel complies with the highway program's anti-downgrading requirements. 
The volumes of 500 ppm sulfur highway and NRLM diesel fuel that a 
distributor receives must also be compared to the volumes of 500 ppm 
sulfur highway and NRLM diesel fuel delivered, to ensure that NRLM 
diesel fuel was not inappropriately transferred to the highway market. 
The volumes of 500 ppm sulfur NR and LM diesel fuel received must be 
compared to the volumes of 500 ppm sulfur NR and LM diesel fuel 
delivered, to ensure that the 500 ppm sulfur LM fuel was not 
inappropriately transferred to the NR market. In addition, the volumes 
of heating oil received must be compared to the volumes distributed to 
ensure it was not inappropriately transferred to the NRLM market. These 
volume balances are calculated over a compliance period, providing 
distributor's the day to day flexibility to redesignate fuel based on 
market conditions, as long as the required volume balance is achieved 
over the compliance period. Finally, once NRLM diesel fuel is dyed, 500 
ppm sulfur LM diesel fuel is marked (2010-2012), or heating oil is 
marked, the dye and marker may be used to ensure the fuels are not 
inappropriately shifted to other markets, and the designation, tracking 
and volume balance requirements are no longer needed; just the PTD, 
labeling, and record keeping provisions typical of our other fuel 
regulations (e.g., highway diesel) apply.
    In large part, the designate and track provisions are structured to 
be compatible with the normal business practices currently used by the 
industry to record and reconcile volume transactions between parties. 
As such, EPA expects that these downstream provisions can be 
implemented in a fairly straightforward manner.
i. Designation and Tracking of 500 ppm and 15 ppm Sulfur Diesel Fuel
    From June 1, 2006 through May 31, 2010, facilities downstream of 
the refiner or importer must designate and maintain records of all 
volumes of fuel designated as 15 ppm sulfur highway diesel fuel, 500 
ppm sulfur highway diesel fuel, or 500 ppm sulfur NRLM diesel fuel that 
they receive and deliver. In many cases, we expect that downstream 
facilities will not change the designation of 500 ppm sulfur diesel 
fuel from NRLM diesel fuel to highway while the fuel is in their 
custody. However, to accommodate fluctuations in the demand for 
highway-designated versus NRLM-designated 500 ppm sulfur fuel, today's 
rule allows terminals and other distributors to change the designation 
of 500 ppm sulfur fuel from NRLM diesel fuel to highway diesel fuel on 
a daily basis, as long as the required volume balance is achieved over 
the compliance period.\124\ Terminal operators must ensure that the 
running balance of total highway-designated fuel that they discharged 
from the beginning of today's program does not exceed the volume of 
highway fuel that they received since, and had in their possession at 
the beginning of today's program (adjusted for changes in inventory). 
This simple one-sided test allows 15 ppm sulfur highway diesel fuel to 
flow to 500 ppm sulfur highway diesel fuel (subject to anti-downgrading 
limits), 500 ppm sulfur NRLM diesel fuel, or heating oil. It also 
allows 500 ppm sulfur highway diesel fuel to flow to NRLM diesel fuel 
or heating oil. However, the flow of NRLM diesel fuel to highway diesel 
fuel must first have been offset by shifts from highway to NRLM diesel 
fuel. In this way we can have assurance that the 500 ppm sulfur fuel 
sold for highway purposes was in fact produced pursuant to the 80/20 
requirements of the highway rule. Since any 500 ppm sulfur diesel fuel 
in the possession of parties downstream of the refiner at the beginning 
of today's program will be considered as highway diesel fuel, each 
custodian will begin today's program with a positive volumetric account 
balance regarding their input/output of highway-designated 500 ppm 
sulfur. Conformity with this requirement will be evaluated by EPA at 
the end of each quarterly compliance period.
---------------------------------------------------------------------------

    \124\ Any party is free to redesignate highway diesel fuel to 
NRLM diesel fuel or heating oil at any time. The required volume 
balance does not limit such designations.
---------------------------------------------------------------------------

    In order to accommodate volumetric fluctuations due to such factors 
as thermal expansion of the fuel, facilities such as pipelines upstream 
of the terminal can use the same volumetric balance. However, since 
these facilities typically do not, and should not change designations, 
the compliance periods can be annual. In addition, to ensure that there 
are no significant redesignations, we are also requiring that the 
volume of highway-designated 500 ppm sulfur diesel fuel that a facility

[[Page 39070]]

discharges from its custody must be no greater than 102 percent of the 
volume of such fuel that it received during each annual compliance 
period. All parties downstream of the refiner, importer, or transmix 
processor also must demonstrate that over any given compliance period, 
they did not downgrade more than 20 percent of the 15 ppm highway 
diesel fuel that they received to 500 ppm sulfur highway diesel fuel.
    From June 1, 2006 through May 31, 2010, distributors must maintain 
records regarding each transfer of a designated fuel into and out of 
their facility on a batch-by-batch basis. These records must include 
the EPA registration number of the source or recipient facility, and 
the volume of each designated fuel transfer. However, for transfers of 
dyed NRLM and highway diesel fuel on which taxes have been assessed, 
the recipient or source facility need not be specifically identified. 
In such cases, records must be kept regarding the total volume of dyed 
and tax assessed fuel that is received, discharged, and in inventory 
during each compliance period. After May 31, 2010, unique records for 
these designate and track provisions are no longer required, but the 
normal records and PTDs must still be kept regarding compliance with 
the fuel standards.
ii. Designation and Tracking of High Sulfur NRLM Diesel Fuel and 
Heating Oil
    The requirements regarding the designation and tracking of heating 
oil and high sulfur or 500 ppm sulfur NRLM diesel fuel parallel those 
regarding the designation and tracking of 500 ppm sulfur highway and 
NRLM diesel fuel discussed above. However, the requirements described 
below pertain only to facilities not in the Northeast/Mid-Atlantic area 
or Alaska, and to facilities inside of the Northeast/Mid-Atlantic area 
that transport heating oil outside of the Northeast/Mid-Atlantic area.
    From June 1, 2007 through May 31, 2010, facilities downstream of 
the refiner or importer must designate all high sulfur diesel fuel they 
distribute as NRLM diesel fuel and all heating oil they distribute as 
heating oil, and must keep records of all volumes of fuel designated as 
high sulfur NRLM diesel fuel or heating oil. In many cases, we expect 
that downstream facilities will not change the designation of diesel 
fuel from heating oil to high sulfur NRLM diesel fuel while the fuel is 
in their custody. However, today's final rule provides the flexibility 
to make this change in designation provided that volume balance 
requirements for high sulfur NRLM diesel fuel are met.
    The volume balance for heating oil requires that the volumes of 
high sulfur NRLM diesel fuel and heating oil received must be compared 
to the volumes of high sulfur NRLM diesel fuel and heating oil 
delivered over a compliance period. The volume of high sulfur NRLM 
diesel fuel may not increase by a greater proportion than the volume of 
heating oil over a compliance period. There are many reasons why the 
combined pool of high sulfur fuel will increase in volume such as the 
inevitable downgrades from 15 ppm and 500 ppm when these fuels are 
shipped by pipeline. The volume balance allows for this to occur while 
keeping fuel produced as heating oil from being shifted to NRLM diesel 
fuel. The volume balance calculation allows high sulfur NRLM diesel 
fuel and heating oil to increase proportionately, satisfying both 
needs. As discussed previously, high sulfur NRLM diesel fuel and 
heating oil compliance will be required on a quarterly basis for 
terminal facilities that add marker/dye (and are more likely to change 
designations on a day to day basis), while compliance for other 
entities (e.g., pipelines) will be on an annual basis. Compliance with 
the volume balance requirement is determined by comparing volumes 
received and delivered during that compliance period. There is no need 
to have a running total volume of high sulfur NRLM diesel fuel 
delivered from the beginning of the program since we do not expect any 
party will need to redesignate heating oil to high sulfur NRLM diesel 
fuel, even on a day-to-day basis. Further, we are not providing any 
tolerance since sufficient flexibility already exists due to the many 
sources of downgrade to heating oil.
    Facilities must maintain records regarding each transfer of heating 
oil and high sulfur NRLM diesel fuel that they receive and discharge 
from June 1, 2007 through May 31, 2010 on a batch-by-batch basis.\125\ 
These records must include the EPA registration number of the source or 
recipient facility, and the volume of each fuel transfer. However, for 
transfers of marked heating oil, the recipient or source facility need 
not be specifically identified. In such cases, records must be kept 
regarding the total volume of marked heating oil that is received, 
discharged, and in inventory during each compliance period. For 
transfers of dyed high sulfur NRLM diesel fuel from a truck loading 
rack, the specific recipients also do not need to be identified. In 
such cases, records must be kept regarding the total volume of high 
sulfur NRLM diesel fuel that is received, discharged, and in inventory 
during each compliance period.
---------------------------------------------------------------------------

    \125\ As discussed in section V, these records must be kept for 
five years.
---------------------------------------------------------------------------

    From June 1, 2010 through May 31, 2014, facilities downstream of 
the refiner or importer must continue to designate heating oil and any 
500 ppm sulfur NRLM diesel fuel that they distribute. Beyond June 1 
2014, they must designate 500 ppm sulfur LM diesel fuel in addition to 
heating oil. Designations for heating oil are subject to the volume 
balance requirements and records must be kept on the designations.
    Beginning June 1, 2010, the volume balance requirement for heating 
oil is simply that the volume of heating oil may not decrease. As 
discussed previously, there are many reasons why the volume could 
increase. Consequently, if the volume decreases it would mean that 
heating oil is being shifted to NRLM or locomotive and marine uses, 
thereby allowing refiners to circumvent the NRLM diesel fuel sulfur 
standards. Given the likely increase in heating oil volume for other 
reasons, there should be ample flexibility provided with this one-sided 
test to account for minor variations due to volume swell/shrinkage 
related to temperature, meter differences, or other causes, so no 
additional tolerance or flexibility is necessary.
iii. Designation and Tracking of 500 ppm Sulfur NR and LM Diesel Fuel
    The requirements regarding the designation and tracking of 500 ppm 
sulfur NR and LM diesel fuel parallel those regarding the designation 
and tracking of 500 ppm sulfur highway and NRLM diesel fuel discussed 
above. However, the requirements described below pertain only to 
facilities not in the Northeast/Mid-Atlantic area or Alaska, and to 
facilities inside of the Northeast/Mid-Atlantic area that transport 500 
ppm sulfur NR and LM diesel fuel outside of the Northeast/Mid-Atlantic 
area.
    From June 1, 2010 through May 31, 2012, facilities downstream of 
the refiner or importer must continue to designate 500 ppm sulfur NR 
and LM diesel fuel that they distribute, and must keep records of all 
volumes of fuel designated as these fuels. In many cases, we expect 
that downstream facilities will not change the designation of diesel 
fuel from 500 ppm sulfur LM to 500 ppm sulfur NR diesel fuel while the 
fuel is in their custody. However, today's final rule provides the 
flexibility to make this change in designation provided that volume 
balance

[[Page 39071]]

requirements for 500 ppm sulfur NR diesel fuel are met.
    The volume balance for 500 ppm sulfur NR and LM diesel fuel 
requires that the volumes of 500 ppm sulfur NR and LM diesel fuel 
received must be compared to the volumes of 500 ppm sulfur NR and LM 
diesel fuel delivered over a compliance period. The volume of 500 ppm 
sulfur NR diesel fuel may not increase by a greater proportion than the 
volume of 500 ppm sulfur LM diesel fuel over a compliance period. The 
combined pool of 500 ppm sulfur diesel fuel may increase in volume such 
as the inevitable downgrades from 15 ppm and 500 ppm sulfur diesel fuel 
when these fuels are shipped by pipeline. The volume balance allows for 
this to occur while keeping fuel produced as 500 ppm sulfur LM diesel 
fuel from being shifted to NR fuel. The volume balance calculation 
allows 500 ppm sulfur NR and LM diesel fuel to increase 
proportionately, satisfying both needs. 500 ppm sulfur NR and LM diesel 
fuel compliance will be required on an annual basis, for terminal 
facilities as well as other entities. Compliance with the volume 
balance requirement is determined by comparing volumes received and 
delivered during that compliance period.
    Facilities must maintain records regarding each transfer of 500 ppm 
sulfur NR and LM diesel fuel that they receive and discharge from June 
1, 2010 through May 31, 2012 on a batch-by-batch basis. These records 
must include the EPA registration number of the source or recipient 
facility, and the volume of each fuel transfer. However, for transfers 
of marked 500 ppm sulfur LM diesel fuel, the recipient or source 
facility need not be specifically identified. In such cases, records 
must be kept regarding the total volume of marked 500 ppm sulfur LM 
diesel fuel that is received, discharged, and in inventory during each 
compliance period. For transfers of dyed 500 ppm sulfur NR diesel fuel 
from a truck loading rack, the specific recipients also do not need to 
be identified. In such cases, records must be kept regarding the total 
volume of 500 ppm sulfur NR diesel fuel that is received, discharged, 
and in inventory during each compliance period.
    EPA plans to work closely with members of the diesel fuel refining 
and distribution industry, to provide clear and comprehensive guidance 
on what is expected of the various parties under the designate and 
track and volume balance provisions adopted in this rule. EPA invites 
suggestions from these parties on the most useful ways to provide such 
guidance.
d. Reporting Requirements
i. Compliance and Reporting Periods
    We believe that any regulatory program should promote compliance 
and deter non-compliance. Today's program includes compliance and 
reporting provisions to deter noncompliance and to detect and correct 
instances of noncompliance in a timely fashion. Under today's program 
entities must submit to the Agency compliance reports containing 
information on the diesel fuel volumes they handle, separately by fuel 
designation category. Compliance with these volume designation and 
tracking requirements will be determined on an annual basis for 
refiners and pipelines and a quarterly basis for terminals during the 
first step of today's program. Compliance will be determined on an 
annual basis for everyone after 2010. To demonstrate compliance, 
refiners, pipelines, and terminals will be required to submit reports 
on a quarterly basis during the first step of today's program and then 
on an annual basis every year thereafter.
    We are requiring the submission of volume reports on a quarterly 
basis during the first step of today's program for several reasons. 
First, and most importantly, today's program allows entities to change 
the designations of 500 ppm sulfur diesel fuel from NRLM diesel fuel to 
highway diesel fuel and heating oil to NRLM diesel fuel on a daily 
basis (provided that they later redesignate the same volume of 500 ppm 
diesel fuel from highway diesel fuel to NRLM diesel fuel and the same 
volume of NRLM diesel fuel to heating oil). Second, quarterly reporting 
coupled with quarterly compliance by terminals will constrain the 
magnitude of any noncompliance. Finally, during the start up of the 
designate and track system, there may also be a greater potential for 
errors in the transmission of records between custodians of designated 
fuels, in the calculations related to compliance with the volume 
account balance requirements, and in the materials provided in reports.
    Today's program establishes quarterly compliance periods which are 
based on standard industry practices. Specifically, the quarterly 
compliance periods finalized in today's rule are as follows:
     1st quarter: July 1-September 30;
     2nd quarter: October 1-December 31;
     3rd quarter: January 1-March 31;
     4th quarter: April 1-June 30.
    Where the start and end dates of the program do not line up with 
these dates, the quarters are lengthened or shortened accordingly 
(e.g., June 1, 2007-September 30, 2007, and April 1, 2010-May 31, 
2010). Quarterly reports are due two months following the end of the 
quarterly compliance period (i.e., December 1, March 1, June 1, and 
September 1). Annual compliance periods begin on July 1 and end June 30 
of the following year. Again, certain annual compliance periods were 
lengthened or shortened to match the significant dates of the program 
(e.g., June 1, 2007-June 30, 2008). Annual reports are due by August 31 
following the annual compliance period. For the sake of simplifying 
compliance and record keeping, the compliance periods for the highway 
final rule have been adjusted to match these.
    Reports must be submitted electronically, or in a form which 
facilitates direct entry into an electronic database. Without reliance 
on an electronic database and reporting system to cross check and 
verify reported information, the designate and track provisions would 
become so cumbersome as to be virtually unenforceable by EPA staff 
given projected resource availability.
ii. Reporting Requirements During the First Step of Today's Program
    During the first step of today's program, from June 1, 2007 through 
May 31, 2010, entities must report to EPA for each of their facilities 
regarding the total volume of each of the designated fuels that they 
receive from, or discharge to, another entity's facility in the fuel 
distribution system. If a facility is a refiner as well as a 
distributor (e.g., a blender of biodiesel or blendstocks from 
unfinished diesel fuel or heating oil or otherwise both accepts 
previously designated fuel and also produces fuel), it must also report 
both volumes produced and released to other entities in its capacity as 
refiner and also report the volumes received and released for each 
designation like any other terminal or pipeline.
    For example, an entity that operates a pipeline may have multiple 
points where it discharges fuel, and at each of these points it may 
supply multiple terminals. The pipeline operator must report on the 
receipt of designated fuel from each party that transfers fuel to it, 
and on the designated fuel transferred by the pipeline at each 
discharge point which specifies the fuel transferred, separately for 
each of its terminal customers. Entities must report for each of their 
facilities the total volumes of the designated fuels that were either 
dyed red, marked, or on which taxes were assessed tax while in their 
custody. Reports regarding these volumes do not

[[Page 39072]]

need to include details on the recipients of the fuel (but product 
transfer documents must be kept to facilitate EPA's ability to compare 
the outgoing transfers and to fuel received).
    Entities that handle only dyed NRLM diesel fuel, dyed and marked 
500 ppm sulfur LM diesel fuel (2010-2012) and heating oil, or highway 
diesel fuel on which taxes have been assessed do not need to report to 
EPA. Information from such entities is not needed for compliance 
purposes, because there is no chance of violating the prohibitions 
against the shifting of fuel from one pool to another contained in 
today's rule without also violating either the requirement that highway 
diesel fuel contain no red dye, or the requirement that NRLM diesel 
fuel contain no heating oil marker. Furthermore, consistent with the 
highway rule, there are no periodic reporting requirements regarding 
the demonstration of compliance with the highway program's anti-
downgrading requirements in today's rule. Maintenance of records should 
be sufficient for EPA to adequately monitor compliance with these 
requirements, as insufficient 15 ppm sulfur diesel fuel availability in 
an area should highlight potential anti-downgrading violations.
    Quarterly reports from facilities downstream of the refinery and 
importer must also include data on the total volume of the designated 
fuels received, discharged, and in inventory during the quarterly 
reporting period. Using these data, the reporting party must 
demonstrate compliance with the volume account balance requirements 
regarding highway diesel fuel and high sulfur NRLM.
iii. Reporting Requirements During the Second Step of Today's Program
    We believe that we may safely dispense with quarterly reporting and 
compliance evaluations starting June 1, 2010 and instead rely on annual 
reports. During the second step of today's rule, the designate and 
track requirements will be focused on preventing the use of heating oil 
in NRLM equipment, and during 2010-2012 preventing the use of 500 ppm 
sulfur LM diesel fuel in nonroad equipment. By 2010, all reporting 
parties in the system will have had experience in complying with the 
program's designate and track provisions. In addition, the Agency will 
have had ample experience in administering the system. Consequently, we 
expect that there will be few errors or omissions in reports and that 
EPA will have determined how best to detect and remedy instances of 
noncompliance. We believe an annual reporting period is therefore 
sufficient and appropriate.
    Beginning June 1, 2010, entities that produce, import, or take 
custody of 500 ppm sulfur NRLM diesel fuel, marked heating oil, or 
unmarked heating oil outside of the Northeast/Mid-Atlantic area and 
Alaska, must submit an annual report to EPA that provides summary 
information regarding the transfer of these fuels.\126\ Entities must 
report for each of their facilities the total volume of each of these 
fuels that they received from, or discharge to, another entity's 
facility in the fuel distribution system during each annual compliance 
period. For batches of heating oil that are delivered marked, the 
reports do not need to indicate the entities to which the batches were 
delivered--only the total volume of marked heating oil delivered during 
each compliance period must be reported. If an entity only receives 
marked heating oil (i.e., it does not receive any unmarked heating 
oil), it does not need to report at all. If a facility received marked 
heating oil in addition to unmarked heating oil, it must report the 
volume of marked heating oil separately and indicate the facility from 
which the marked heating oil was received.
---------------------------------------------------------------------------

    \126\ 500 ppm sulfur NR diesel fuel, and starting June 1, 2012, 
500 ppm sulfur NRLM diesel fuel, is not permitted in the Northeast/
Mid-Atlantic area and only in the State of Alaska in limited 
circumstances.
---------------------------------------------------------------------------

    Beginning June 1, 2010 to June 1, 2012, entities that produce, 
import, or take custody of 500 ppm sulfur NR and LM diesel fuel outside 
of the Northeast/Mid-Atlantic area and Alaska, must submit an annual 
report to EPA that provides summary information regarding the transfer 
of these fuels.\127\ Entities must report for each of their facilities 
the total volume of each of these fuels that they received from, or 
discharge to, another entity's facility in the fuel distribution system 
during each annual compliance period. For batches of 500 ppm sulfur LM 
diesel fuel that are delivered marked, the reports do not need to 
indicate the entities to which the batches were delivered--only the 
total volume of marked 500 ppm sulfur LM diesel fuel delivered during 
each compliance period must be reported. If an entity only receives 
marked 500 ppm sulfur LM diesel fuel (i.e., it does not receive any 
unmarked 500 ppm sulfur LM diesel fuel), it does not need to report at 
all. If a facility received marked in addition to unmarked 500 ppm 
sulfur LM diesel fuel, it must report the volume of marked 500 ppm 
sulfur LM diesel fuel separately and indicate the facility from which 
the marked 500 ppm sulfur LM diesel fuel was received.
---------------------------------------------------------------------------

    \127\ During this time period, 500 ppm sulfur NR diesel fuel is 
not permitted in the Northeast/Mid-Atlantic area and only in the 
State of Alaska in limited circumstances.
---------------------------------------------------------------------------

E. How Are State Diesel Fuel Programs Affected by the Sulfur Diesel 
Program?

    Section 211(c)(4)(A) of the CAA prohibits states and political 
subdivisions of states from prescribing or attempting to enforce, for 
purposes of motor vehicle emission control, ``any control or 
prohibition respecting any characteristic or component of a fuel or 
fuel additive in a motor vehicle or motor vehicle engine,'' if EPA has 
prescribed ``a control or prohibition applicable to such characteristic 
or component of the fuel or fuel additive'' under section 211(c)(1). 
This prohibition applies to all states except California, as explained 
in section 211(c)(4)(B). This express preemption provision in section 
211(c)(4)(A) applies only to controls or prohibitions respecting any 
characteristics or components of fuels or fuel additives for motor 
vehicles or motor vehicle engines, that is, highway vehicles. It does 
not apply to controls or prohibitions respecting any characteristics or 
components of fuels or fuel additives for nonroad engines or nonroad 
vehicles.\128\
---------------------------------------------------------------------------

    \128\ See 66 FR 36543, July 12, 2001 (notice proposing approval 
of Houston SIP revisions). See also letter from Carl Edlund, 
Director, Multimedia Planning and Permitting Division, U.S. 
Environmental Protection Agency, Region VI, to Jeffrey Saitas, 
Executive Director, Texas Natural Resources Conservation Commission, 
dated September 25, 2000, providing comments on proposed revisions 
to the Texas State Implementation Plan for the control of ozone, 
specifically the Post 99 Rate of Progress Plan and Attainment 
Demonstration for the Houston/Galveston area. This letter noted that 
preemption under section 211(c)(4) of the CAA did not apply to 
controls on nonroad diesel fuel.
---------------------------------------------------------------------------

    Section 211(c)(4)(A) specifically mentions only controls respecting 
characteristics or components of fuel or fuel additives in a ``motor 
vehicle or motor vehicle engine,'' adopted ``for purposes of motor 
vehicle emissions control,'' and the definitions of motor vehicle and 
nonroad engines and vehicles in CAA section 216 are mutually exclusive. 
This is in contrast to sections 211(a) and (b), which specifically 
mention application to fuels or fuel additives used in nonroad engines 
or nonroad vehicles, and with section 211(c)(1) which refers to fuel 
used in motor vehicles or engines or nonroad engines or vehicles.
    Thus, today's action does not preempt state controls or 
prohibitions respecting characteristics or components of fuel or fuel 
additives used in nonroad, locomotive, or marine engines or

[[Page 39073]]

nonroad, locomotive, or marine vehicles under the provisions of section 
211(c)(4)(A). At the same time, a state control that regulates both 
highway fuel and nonroad fuel is preempted to the extent that the state 
control respects a characteristic or component of highway fuel 
regulated by EPA under section 211(c)(1).
    A court may consider whether a state control for fuels or fuel 
additives used in nonroad engines or nonroad vehicles is implicitly 
preempted under the supremacy clause of the U.S. constitution. Courts 
have determined that a state law is preempted by federal law where the 
state requirement actually conflicts with federal law by preventing 
compliance with the federal requirement, or by standing as an obstacle 
to accomplishment of congressional objectives. A court could thus 
consider whether a given state standard for sulfur in nonroad, 
locomotive or marine diesel fuel is preempted if it places such 
significant cost and investment burdens on refiners that refiners 
cannot meet both state and federal requirements in time, or if the 
state control would otherwise meet the criteria for conflict 
preemption.

F. Technological Feasibility of the 500 and 15 ppm Sulfur Diesel Fuel 
Program

    This section summarizes our assessment of the feasibility of 
refining and distributing 500 ppm NRLM diesel fuel starting in 2007 and 
15 ppm nonroad diesel fuel in 2010 and locomotive and marine diesel 
fuel in 2012. Based on this evaluation, we believe it is 
technologically feasible for refiners and distributors to meet both 
sulfur standards in the lead time provided with the desulfurization 
technology available. We begin this section by describing the nonroad, 
locomotive and marine diesel fuel market and how these fuels differ 
from current highway diesel fuel. We discuss desulfurization 
technologies, both conventional and advanced, which are available for 
complying with the 500 ppm and 15 ppm NRLM standards. We then present 
what mix of technologies we believe will be used. Next we provide our 
analysis of the lead time for complying with either standard. Finally, 
we analyze the feasibility of distributing low sulfur NRLM diesel fuel. 
We refer the reader to the Final RIA for more details regarding these 
assessments.
1. What Is the Nonroad, Locomotive and Marine Diesel Fuel Market Today?
    Nonroad, locomotive and marine (NRLM) engines almost exclusively 
use No. 2 distillate fuel. No. 2 distillate fuel is a class of fuel 
defined by its boiling range. It boils at a higher average temperature 
than gasoline, No. 1 distillate, jet fuel and kerosene, and at a lower 
average temperature than residual fuel (or bunker fuel). ASTM defines 
three No. 2 distillate fuels: (1) Low sulfur No. 2 diesel fuel (No. 2-
D); (2) high sulfur No. 2-D; and (3) No. 2 fuel oil.\129\ Low sulfur 
No. 2-D fuel must contain 500 ppm sulfur or less, have a minimum cetane 
number of 40, and have a minimum cetane index limit of 40 (or a maximum 
aromatic content of 35 volume percent) (i.e., meet the EPA standard for 
highway diesel fuel).\130\ Both high sulfur No. 2-D and No. 2 fuel oil 
must contain no more than 5000 ppm sulfur,\131\ and currently averages 
3000 ppm nationwide. The ASTM specification for high sulfur No. 2-D 
fuel also includes a minimum cetane number of 40. Practically, since 
most No. 2 fuel oil meets this minimum cetane number specification, 
pipelines which ship fuel fungibly need only carry one high sulfur No. 
2 distillate fuel which meets both sets of specifications. Currently, 
nonroad, locomotive and marine engines can be and are fueled with both 
low and high sulfur No. 2-D fuels. If No. 1 distillate is blended into 
highway diesel fuel, as is sometimes done to prevent gelling in the 
winter, the final blend must meet the 500 ppm EPA cap.
---------------------------------------------------------------------------

    \129\ ``Standard Specification for Diesel Fuel Oils,'' ASTM D 
975-98b and ``Standard Specifications for Fuel Oils,'' ASTM D 396-
98.
    \130\ These ASTM requirements were formed after and are 
consistent with the EPA regulations for highway diesel fuel.
    \131\ Some states, particularly those in the Northeast, limit 
the sulfur content of No. 2 fuel oil to 2000-3000 ppm.
---------------------------------------------------------------------------

    No. 1 distillate (e.g., jet fuel and kerosene) meets lower boiling 
point and viscosity specifications requirements than No. 2 distillate. 
No. 1 distillate, or any of these other similar boiling distillates, 
added to No. 2 NRLM distillate becomes NRLM diesel fuel and thus, must 
meet the applicable specifications for No. 2 distillate.
    For the purpose of this rule, we split the No. 2 distillate market 
into three pieces, according to the sulfur standard which each must 
meet: (1) Highway diesel fuel, (2) NRLM diesel fuel, and heating oil, 
which is used in both furnaces and boilers, as well as in stationary 
diesel engines to generate power.
    In the NPRM, EPA estimated current production and demand for NRLM 
fuel from studies conducted by the U.S. Energy Information 
Administration (EIA). We projected growth in nonroad fuel demand using 
EPA's NONROAD emission model. We based the growth in locomotive and 
marine fuel demand from analyses supporting EPA's locomotive and marine 
engine rulemaking. These future levels of NRLM fuel demand differed 
from those implicit in our projection of the emission reductions 
associated with the rule, which were based primarily on EPA's NONROAD 
emission model. We pointed out this inconsistency in the rule and 
indicated that we would resolve this inconsistency for the final rule.
    In their comments on the NPRM, the American Petroleum Institute 
(API), the Engine Manufacturers Association (EMA) and others 
highlighted this inconsistency and suggested that EPA resolve it by 
basing its projection of future NRLM fuel demand using information 
developed by EIA and not from the NONROAD emission model. API pointed 
to a lower estimate of nonroad fuel demand developed in a contracted 
study performed by Baker and O'Brien. A detailed analysis of these 
comments and additional technical analyses of distillate fuel demand 
are described in Section 4.6.3.1 of the Summary and Analysis document 
to this rule. In summary, we decided to continue using the NONROAD 
emission model to project the emission benefits of this rule. To 
eliminate the inconsistency in the NPRM, we also use the NONROAD model 
to determine demand for nonroad fuel and project the economic impacts 
of this final rule. However, the analyses presented in Section 4.6.3.1 
of the Summary and Analysis document to this rule identified 
uncertainties in the current and future level of nonroad fuel demand. 
To insure that these uncertainties did not affect the outcome of this 
rulemaking process, we evaluate the emissions, costs and cost 
effectiveness of the standards contained in this rule using an 
alternative estimate of nonroad fuel demand derived from EIA 
information. This alternative analysis is presented in Appendix 8A of 
the Final RIA. In addition to use of the NONROAD model to project 
nonroad fuel demand, we also updated our projections of the production 
of and demand for highway fuel and heating oil using more recent 
versions of the same EIA reports used in the NPRM analysis.
    In 2001, nationwide outside of California, nonroad diesel fuel 
comprised about 18 percent of all No. 2 distillate fuel, while 
locomotive and marine diesel fuel comprised about eight percent of all 
No. 2 distillate fuel. Diesel fuel consumed by highway vehicles/engines 
comprised about 56 percent of all No. 2 distillate fuel.

[[Page 39074]]

Heating oil comprised about 19 percent of No. 2 distillate. Because of 
limitations in the fuel distribution system and other factors, about 18 
percent of all non-highway distillate met the 500 ppm highway diesel 
fuel cap. Thus, about 64 percent of No. 2 distillate pool met the 500 
ppm sulfur cap, not just the 56 percent used in highway vehicles. We 
project that this spillover of highway fuel to the NRLM diesel fuel 
market will continue under the highway diesel fuel program. Thus, 
today's rule will only materially affect about 19 percent of today's 
distillate market. The remaining 17 percent of No. 2 distillate which 
is high sulfur heating oil is estimated to remain at higher sulfur 
levels.
    This rule will also affect any No. 1 distillate which is blended 
into wintertime NRLM fuel. Because gelling can also be prevented 
through the use of pour point additives, the current and future level 
of this of No. 1 distillate blending is uncertain. However, the 
feasibility of desulfurizing and distributing this No. 1 distillate 
will also be addressed below.
2. What Technology Will Refiners Use To Meet the 500 ppm Sulfur Cap?
    Refiners currently hydrotreat most or all of their distillate 
blendstocks using what is commonly referred to as ``conventional'' 
hydrotreating technology to meet the 500 ppm sulfur and cetane limits 
applicable to highway diesel fuel. This conventional technology has 
been available and in use for many years. U.S. refiners have nearly ten 
years of experience with this technology in producing highway diesel 
fuel. The distillate blendstocks comprising NRLM fuel do not differ 
substantially from those comprising highway diesel fuel. Thus, the 
technology to produce 500 ppm sulfur NRLM diesel fuel has clearly been 
demonstrated and optimized over the last decade. Additionally, this 
technology continues to evolve primarily through the development of 
more active catalysts and motivated by the 15 ppm cap applicable to 
most highway diesel fuel starting in 2006.
    Several advanced desulfurization technologies are being developed 
and are discussed in more detail in the next section. However, the fact 
that none of these technologies have been demonstrated commercially for 
a typical catalyst life (i.e., two years) makes it unlikely that they 
would be selected by many refiners for use in mid-2007. Also, these 
advanced technologies promise the greatest cost savings in achieving 15 
ppm levels, rather than 500 ppm. These advanced technologies can also 
be combined with a conventional hydrotreater to meet the 15 ppm 
standard in 2010 and 2012. EPA therefore projects that the 500 ppm 
sulfur cap NRLM standard will be met using conventional hydrotreating 
technology. We made this same projection in the NPRM and no comments to 
the contrary were received.
    In some cases, refiners will also need to install or expand several 
ancillary processes related to sulfur removal (e.g., hydrogen 
production and purification, sulfur processing, and sour water 
treatment). These technologies are all commercially demonstrated, as 
nearly all refineries already have such units.
3. Is the Leadtime Sufficient To Meet the 2007 500 ppm NRLM Sulfur 
Standard?
    After the highway diesel fuel program is implemented, we project 
that 92 refineries in U.S. will be producing high sulfur distillate 
fuel. We project that 36 of these refineries will likely produce 500 
ppm sulfur NRLM diesel fuel in 2007. Of those 36, 30 will have to build 
new hydrotreaters while the other 6 are expected to use existing 
hydrotreaters to produce 500 ppm NRLM diesel fuel.\132\ The remaining 
56 refineries are projected to continue to produce high sulfur 
distillate fuel, with 26 of the 56 refineries producing heating oil. 
The other 30 refineries are owned by small refiners and will likely 
produce high sulfur NRLM diesel fuel. The 56 refineries continuing to 
produce high sulfur distillate will not have to add or modify any 
equipment to continue producing this fuel.
---------------------------------------------------------------------------

    \132\ These refiners have said that they will leave the highway 
market in 2006 in their pre-compliance reports for complying with 
the Highway Diesel Rule, thus freeing up their existing 
hydrotreaters to produce 500 ppm NRLM diesel fuel.
---------------------------------------------------------------------------

    This rule will provide refiners and importers 37 months before they 
will have to begin producing 500 ppm NRLM diesel fuel on June 1, 2007. 
Our lead time analysis projects that 27-39 months are typically needed 
to design and construct a diesel fuel hydrotreater.\133\ As discussed 
below, we believe that 37 months will be sufficient for all refiners of 
NRLM fuel.
---------------------------------------------------------------------------

    \133\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002. The leadtime analysis in the RIA can be found in 
section 5.3.
---------------------------------------------------------------------------

    Easing the task is the fact that we project that essentially all 
refiners will use conventional hydrotreating to comply with the 500 ppm 
sulfur NRLM diesel fuel cap. This technology has been used extensively 
for more than 10 years and its capabilities to process a wide range of 
diesel fuel blendstocks are well understood. Thus, the time necessary 
to apply this technology for a specific refiner's situation should be 
relatively short.
    Twenty-six out of the 36 refineries projected to produce 500 ppm 
NRLM diesel fuel in 2007 have indicated that they will produce highway 
diesel fuel in their highway diesel fuel pre-compliance reports, see 
RIA section 7.2.1.3.4.1, Table 7.2.1-38 and following discussion for 
description of these refineries. Thus, roughly 70% of the refiners 
likely to produce 500 ppm sulfur NRLM diesel fuel in 2007 are already 
well into their planning for meeting the 15 ppm highway diesel fuel 
standard, effective June 1, 2006. It is likely that these refiners have 
already chemically characterized their high sulfur diesel fuel 
blendstocks, as well as their highway diesel fuel, in assessing how to 
meet produce 15 ppm fuel. They will also have already assessed the 
various technologies for producing 15 ppm diesel fuel. This provides an 
extensive base of information on how to design a hydrotreater to 
produce 500 ppm NRLM fuel, as well as how to revamp this hydrotreater 
to produce 15 ppm NRLM diesel fuel in 2010 and 2012. Those refiners 
only producing high sulfur distillate fuel today will be able to take 
advantage of the significant experience that technology vendors have 
obtained in assisting refiners of highway diesel fuel meet the 15 ppm 
cap in 2006.
    We also expect that roughly 20 percent of the 101 refineries in the 
U.S. and its territories will build a new hydrotreater to produce 15 
ppm highway fuel. Those which also produce high sulfur distillate will 
be able to produce 500 ppm NRLM fuel with their existing highway 
hydrotreater. In 2007, we conservatively assumed that 20% of the 500 
ppm NRLM production from refineries that produce highway and high 
sulfur distillate could be produced with these existing treaters at no 
capital costs (existing highway treater capacity available for 500 ppm 
NRLM production would be higher if based on highway treater capacity). 
Thus, in 2007 we project that four refineries will be able to use their 
recently idled highway treater due to building a new highway treater 
unit for 2006. Furthermore, the highway diesel program pre-compliance 
reports indicate that another 7 refineries currently producing 500 ppm 
highway fuel will likely leave the highway fuel market in 2006. We 
project that 2 of these would use their existing treater to produce 500 
ppm NRLM with no investment costs. Another three of these 101 
refineries produce relatively small volumes of high sulfur distillate 
compared to highway diesel fuel today. We project that they will be 
able to

[[Page 39075]]

produce 500 ppm sulfur NRLM fuel from their high sulfur distillate with 
only minor modification to their existing highway diesel fuel 
hydrotreater.
    Refiners not planning on producing 100 percent highway fuel in 2006 
will also need some time to assess which distillate market in which to 
participate starting in 2007, NRLM or heating oil. While this is a 
decision which requires some amount of time for analysis, refiners also 
needed to assess what market they would participate in for the 1993 500 
ppm highway diesel fuel sulfur cap. In all, we project that the task of 
producing 500 ppm sulfur NRLM fuel in 2007 will be less difficult than 
the task refiners faced with the implementation of the 500 ppm highway 
diesel fuel cap in 1993. Refiners had just over three years of lead 
time for complying with the 1993 500 ppm highway diesel fuel cap, as is 
the case here, and this proved sufficient.
    No explicit comments were made by refiners on the lead time needed 
for complying with the proposed NRLM 500 ppm sulfur standard. However, 
their comments supported the two step approach, preferring it over a 
one step, 15 ppm NRLM cap starting in 2008.
4. What Technology Will Refiners Use To Meet the 15 ppm Sulfur Cap?
    In the highway diesel rule, we projected that refiners producing 15 
ppm fuel in 2006 would utilize extensions of conventional hydrotreating 
technology. We also projected that refiners first producing 15 ppm fuel 
in 2010 would use a mix of extensions of conventional and advanced 
technologies. Based on the refiners' highway pre-compliance reports, it 
appears that 95% of highway fuel could meet the 15 ppm cap in 2006. We 
expect that virtually all of this 15 ppm fuel will be produced with 
conventional hydrotreating. Thus, it appears that conventional 
hydrotreating will be used to produce the vast majority of 15 ppm 
highway diesel fuel.
    In the nonroad NPRM, we projected that refiners would use advanced 
desulfurization technologies to produce 80 percent of 15 ppm nonroad 
diesel fuel in 2010, with the balance using conventional hydrotreating. 
At the time of the NPRM, all of the advanced technologies appeared to 
be progressing rapidly. Since the proposal, we have learned that a 
couple of these technologies, Unipure and S-Zorb, are not going to be 
commercially demonstrated as soon as expected. However, one refiner is 
already using Process Dynamics' IsoTherming technology to commercially 
produce 15 ppm diesel fuel. Thus, we continue to believe that advanced 
technologies will be used to produce a large percentage of 15 ppm NRLM 
fuel. However, the number of advanced technologies used may be smaller. 
Because of the more limited choices, we project that the penetration of 
advanced technologies will be only 60 percent. The remainder of this 
section discusses the production of 15 ppm diesel fuel using 
conventional and advanced technologies.
    One approach to produce 15 ppm NRLM fuel would be to revamp the 
conventional hydrotreater built to produce 500 ppm NRLM fuel in 2007. 
Knowing that the 500 ppm NRLM cap will only be in effect for three 
years for nonroad refiners and five years for locomotive and marine 
refiners (four years for small refiners), we expect that refiners will 
design their 500 ppm hydrotreater to allow the production of 15 ppm 
fuel through the addition of reactor volume or a second hydrotreating 
stage. Refiners might also shift to a more active catalyst in the 
existing reactor, as the life of that catalyst might be nearing its 
end. Equipment to further purify its hydrogen supply could also be 
added. Producing 15 ppm NRLM fuel via these steps will be feasible as 
they are essentially the same steps refiners will be using in 2006 to 
produce 15 ppm highway diesel fuel.
    EPA recently reviewed the progress being made by refining 
technology vendors and refiners in meeting the 2006 highway diesel 
sulfur cap.\134\ All evidence available confirms EPA's projection that 
conventional hydrotreating will be capable of producing diesel fuel 
containing less than 10 ppm sulfur. Furthermore, as part of the highway 
program's reporting requirements, refiners are required to report their 
progress in complying with the 15 ppm highway diesel fuel standard. In 
those reports they indicated that they primarily will be applying 
extensions of conventional hydrotreating. NRLM fuel refiners will have 
the added advantage of being able to design their 500 ppm hydrotreater 
with the production of 15 ppm fuel in mind. Additionally, refiners 
producing 15 ppm NRLM fuel will be able to take advantage of the 
experience gained from those producing 15 ppm highway fuel.
---------------------------------------------------------------------------

    \134\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002.
---------------------------------------------------------------------------

    As mentioned above, several advanced technologies are presently 
being developed to produce 15 ppm diesel fuel at lower cost. One of 
these advanced technologies, Process Dynamics IsoTherming, improves the 
contact between hydrogen, diesel fuel and the desulfurization catalyst. 
The IsoTherming process dissolves the hydrogen in the liquid fuel phase 
prior to passing the liquid over the catalyst, eliminating the need for 
a two-phase (gas and liquid) reactor. The liquid, plug flow reactor 
design also avoids the poor liquid distribution over the catalyst bed 
often present in a two-phase reactor design. Process Dynamics projects 
that their IsoTherming process could reduce the hydrotreater volume 
required to achieve sub-15 ppm sulfur levels by roughly a factor of 
two.
    Process Dynamics has already built a commercial-sized demonstration 
unit (5000 barrels per day) at a refinery in New Mexico. They have been 
operating the unit since September 2002, and demonstrating the 
capability to meet a 15 ppm cap since the spring of 2003. Thus, 
refiners will have 4-5 years of operating data on this process before 
they would have to select a technology to produce 15 ppm nonroad diesel 
fuel in 2010, and 6-7 years before producing 15 ppm locomotive and 
marine diesel fuel in 2012. This should be more than sufficient for 
essentially all refiners to consider this process for 2010 or 2012. 
Based on information received from Process Dynamics, we estimate that 
this technology could reduce the cost of meeting the 15 ppm cap for 
many refiners by about 30 percent. This savings arises from a smaller 
reactor, less catalyst and avoiding the need for a recycle gas 
compressor and reactor distributor. Refineries facing poorer economies 
of scale, such as small refineries, would particularly benefit from 
this desulfurization process.
    A second process being developed to produce 15 ppm diesel fuel is 
the Unipure oxidation process. This process oxidizes the sulfur in 
distillate molecules, facilitating its removal. Unipure Corporation 
installed a small (50 barrels per day), continuous flow demonstration 
unit at Valero's Krotz Spring refinery in the spring of 2003. It 
appears that this technology could reduce the cost of producing 15 ppm 
diesel fuel for some refiners compared to conventional hydrotreating. 
However, the small size of the demonstration unit may make the risk 
associated with a new technology too large. Thus, we believe that this 
technology needs be demonstrated further before most refiners will 
seriously considered it for commercial application. This technology, 
however, may be ideal for use at transmix processing plants or large 
terminals to reprocess 15 ppm diesel fuel which have become 
contaminated during shipment. We

[[Page 39076]]

discuss this distillate downgrade in greater detail in Section VI.A.2 
of this preamble. This oxidation process avoids the need for high 
pressure hydrogen, which is usually not economically available at these 
smaller facilities.
    Finally, Conoco-Phillips has adapted their S-Zorb adsorption 
technology which was originally designed for gasoline desulfurization, 
for diesel fuel desulfurization. At the time of the NPRM, Conoco-
Phillips had signed 23 licensing agreements with refiners in North 
America regarding the use of S-Zorb to comply with the Tier 2 gasoline 
sulfur standards. Furthermore, Conoco-Phillips had plans for the quick 
installation of an S-Zorb unit to demonstrate the production of 15 ppm 
diesel fuel. However, we have since learned that Conoco-Phillips has 
dropped its plans to build a commercial demonstration unit for 
desulfurizing diesel fuel. Without a commercial unit operating in the 
2006 time frame, we do not believe that many refiners will seriously 
consider S-Zorb to produce 15 ppm NRLM diesel fuel in 2010 and 2012.
    Due to the fact that the Process Dynamics IsoTherming process is 
already operating commercially and operational data indicate a 30 
percent reduction in the cost of producing 15 ppm fuel relative to 
conventional hydrotreating, we project that 60 percent of the new 
volume of 15 ppm NRLM diesel fuel will be produced using this 
technology. We project that the remaining 40 percent of 15 ppm NRLM 
diesel fuel will use extensions of conventional hydrotreating. We 
assume this 60/40 mix of Isotherming and extensions of conventional 
hydrotreating, respectively, for 2010, 2012 and even for 2014 when the 
small refiners exemptions expire.
    API commented that the advanced desulfurization technologies have 
not been commercially demonstrated and thus should not be used as the 
basis for estimating the cost of desulfurizing NRLM diesel fuel to 15 
ppm. While this is true for the Unipure oxidation and Conoco-Phillip's 
S-Zorb processes, the Process Dynamics IsoTherming process has been 
commercially demonstrated. It is therefore appropriate for use as a 
partial basis for the refining costs associated with today's final 
rule. To indicate the effect that this projection for the use of 
IsoTherming has on the rule's cost, in Section 7.2.2 of the Final RIA, 
we estimate the cost of producing 15 ppm NRLM fuel with only the use of 
conventional hydrotreating technology.
5. Is the Leadtime Sufficient To Meet the 2010 and 2012 15 ppm NRLM 
Sulfur Cap?
    We project that 32 refineries will produce 15 ppm nonroad diesel 
fuel in 2010, with two of these being owned by small refiners. In 2012, 
we project that 15 refineries will produce 15 ppm locomotive and marine 
diesel fuel. We project that an additional 15 refineries will produce 
500 ppm nonroad diesel fuel in 2010 under the small refiner provisions 
included in the today's final rule. Then in 2014, we project that the 
15 refineries exempted under the small refiner provisions will begin 
producing 15 ppm NRLM diesel fuel in 2014.
    The timing of this rule provides refiners and importers with more 
than six years before they will have to produce 15 ppm nonroad diesel 
fuel, and two years more for producing 15 ppm locomotive and marine 
diesel fuel. Our leadtime analysis, which is presented in Section 5.4.2 
of the Final RIA, projects that 30-39 months are typically needed to 
design and construct a diesel fuel hydrotreater, perhaps less if it is 
a Process Dynamics unit. Thus, refiners will have about three years 
before they would have to begin detailed design and construction for 
2010, and five years before 2012. This will allow sufficient time to 
consult with vendors, test their diesel fuel in pilot plants to assess 
the difficulty of its desulfurization via a variety of technologies, 
and to select its technology for 2010 and 2012. In addition, these 
refiners will also have the chance to observe the performance of the 
hydrotreaters being used to produce 15 ppm highway diesel fuel for at 
least one year for those complying in 2010, and two years more for 
those complying in 2012. While not a full catalyst cycle, any unusual 
degradation in catalyst performance should be apparent within the first 
year. Based on the pre-compliance reports, some refineries in the U.S. 
will be producing 15 ppm sulfur highway diesel fuel earlier than 2006. 
Some refineries are expected to produce complying fuel earlier than the 
compliance date in Europe as well. The refineries which are complying 
early will accrue experience earlier and longer providing refiners a 
better sense of the reliability of producing 15 ppm diesel fuel. Thus, 
we project that the 2010 and 2012 start dates will allow refiners to be 
quite certain that the designs they select in mid-2007 will perform 
adequately in 2010 and 2012.
    In addition, refiners will have three to four years or more to 
observe the performance of the Process Dynamics IsoTherming process 
before having to make their technology selections for 2010 and 2012 . 
This should be more than adequate to fully access the costs and 
capabilities of this technology for all but the most cautious refiners.
    Considering the amount of leadtime available and the 
desulfurization technologies which will be available and proven for 
complying with a 15 ppm sulfur standard, we do not expect that the 
leadtime for complying with the 15 ppm NRLM cap standard in 2010 and 
2012 will be an issue for refiners.
6. Feasibility of Distributing 500 and 15 ppm NRLM Fuel
    There are two considerations with respect to the feasibility of 
distributing non-highway diesel fuels meeting the sulfur standards in 
today's rule. The first pertains to whether sulfur contamination can be 
adequately managed throughout the distribution system so that fuel 
delivered to the end-user does not exceed the specified maximum sulfur 
concentration. The second pertains to the physical limitations of the 
system to accommodate any additional segregation of product grades.
a. Limiting Sulfur Contamination
    With respect to limiting sulfur contamination during distribution, 
the physical hardware and distribution practices for non-highway diesel 
fuel do not differ significantly from those for highway diesel fuel. 
Therefore, we do not anticipate any new issues with respect to limiting 
sulfur contamination during the distribution of non-highway fuel that 
would not have already been accounted for in distributing highway 
diesel fuel. Highway diesel fuel has been required to meet a 500 ppm 
sulfur standard since 1993. Thus, we expect that limiting contamination 
during the distribution of 500 ppm non-highway diesel engine fuel can 
be readily accomplished by the industry. This applies to locomotive and 
marine diesel fuel as well as nonroad diesel fuel.
    In the highway diesel rule, EPA acknowledged that meeting a 15 ppm 
sulfur specification would pose a substantial new challenge to the 
distribution system. Refiners, pipelines, and terminals would have to 
pay careful attention to and eliminate any potential sources of 
contamination in the system (e.g., tank bottoms, deal legs in 
pipelines, leaking valves, interface cuts, etc.). In addition, bulk 
plant operators and delivery truck operators would have to carefully 
observe recommended industry practices to limit contamination, 
including practices as simple as cleaning out transfer hoses,

[[Page 39077]]

proper sequencing of fuel deliveries, and parking on a level surface 
when draining the storage tank. Due to the need to prepare for 
compliance with the highway diesel program, we anticipate that issues 
related to limiting sulfur contamination during the distribution of 15 
ppm NRLM diesel fuel will be resolved well in advance of the 2010 and 
2012 implementation dates . We are not aware of any additional issues 
that might arise unique to NRLM diesel fuel. If anything we anticipate 
limiting contamination will become easier as batch sizes are allowed to 
increase and potential sources of contamination decrease as more and 
more of the diesel pool turns over to 500 and 15 ppm sulfur. Industry 
representatives acknowledge that the task can be accomplished. However, 
they are still in the process of identifying all of the measures that 
will need to be taken.
b. Potential Need for Additional Product Segregation
    As discussed in section IV.D, we have designed the NRLM diesel fuel 
program to minimize the need for additional product segregation and the 
feasibility and cost issues associated with it. This final rule allows 
for the fungible distribution of 500 ppm highway and 500 ppm sulfur 
NRLM diesel fuel in 2007, and 15 ppm highway and 15 ppm NR diesel fuel 
in 2010 and 15 ppm NRLM diesel fuel in 2012, up until the point where 
NRLM, LM, or nonroad fuel must be dyed for IRS excise tax purposes. We 
proposed that heating oil would be required to be segregated throughout 
the distribution system by the use of a marker added at the refiners 
from 2007 through 2010. We received comments that addition of the 
marker at the refinery would cause significant concerns regarding 
potential marker contamination in the jet fuel. In responding to these 
and other comments, we have chosen to adopt a designate and track 
system of ensuring refiner compliance with desulfurization requirements 
(see IV.D.). This allows the point of marker addition to be moved 
downstream to the terminal where such contamination concerns are 
minimal. As a result heating oil and high-sulfur NRLM will also be 
fungible in the distribution system up to the point where the fuel 
marker must be added at the terminal.\135\
---------------------------------------------------------------------------

    \135\ The fuel marker requirements only apply outside of the 
Northeast/Mid-Atlantic area. Inside the Northeast/Mid-Atlantic area, 
high sulfur NRLM cannot be sold to end users. See section IV.D for a 
detailed discussion of the fuel marker provisions.
---------------------------------------------------------------------------

    The design of today's fuel program eliminates any potential 
feasibility issues associated with the need for product segregation. 
This is not to say that additional steps will not have to be taken. 
However, this program will result in only a limited number of entities 
in the distribution system choosing to add new tankage due to new 
product segregation. Bulk plants in areas of the country where heating 
oil is expected to remain in the market will have to decide whether to 
add tankage to distribute both heating oil and 500 ppm sulfur NRLM 
fuel. Terminal operators commented that the proposed presence of a fuel 
marker in heating oil would make it impossible for them to blend 500 
ppm sulfur diesel from 15 ppm sulfur and high sulfur fuels. They 
related that this ability would be important to certain terminal 
operators who would not have the storage facilities available for three 
grades of diesel fuel, but would still not wish to forgo selling 500 
ppm diesel fuel.\136\ Today's rule allows the required marker to be 
added to heating oil before it leaves the terminal (see section IV.D of 
this preamble). Therefore, terminals will be able to blend 500 ppm 
diesel from 15 ppm and high sulfur diesel fuels, provided they fulfill 
all of the responsibilities associated with acting as a fuel refiner 
(see section V of this preamble).\137\ However, because this will be a 
relatively costly way of producing 500 ppm diesel fuel, we do not 
expect that the practice will be widespread. In all other cases we 
anticipate segments of the distribution system will choose to avoid any 
fuel segregation costs by limiting the range of sulfur grades they 
choose to carry, just as they do today. Regardless, however, the costs 
and impacts of these choices are small. A more detailed explanation of 
this assessment can be found in chapter 7 of the RIA.
---------------------------------------------------------------------------

    \136\ 15 ppm diesel fuel and high sulfur heating oil will be the 
largest volume products at such terminals.
    \137\ The definition of a refiner includes persons who produce 
highway or NRLM diesel fuel by blending.
---------------------------------------------------------------------------

    A limited volume of 500 ppm sulfur diesel fuel is projected to be 
produced downstream due to interface mixing in the distribution system 
(see section IV.A).\138\ Fuel from these sources is currently sold into 
the NRLM and heating oil markets. The implementation of the 15 ppm 
sulfur standard for NR diesel fuel in 2010 and for LM diesel fuel in 
2012 raises the concern that the heating oil market might be 
insufficient to absorb all such downstream 500 ppm sulfur diesel fuel 
in areas outside of the Northeast (where most heating oil is used). If 
the market for this fuel was limited, it would have to be trucked back 
to a refinery to be desulfurized which could raise significant 
logistical and cost issues. Consequently, today's rule provides that 
500 ppm sulfur diesel fuel produced due to interface mixing can 
continue to be used in nonroad equipment until 2014 (subject to 
specific sulfur requirements for new equipment), and in locomotive and 
marine engines indefinitely.\139\ These provisions ensure that there 
will be a sufficient market for such 500 ppm sulfur diesel fuel.
---------------------------------------------------------------------------

    \138\ This fuel will be produced by transmix processors and at 
terminals by segregating the pipeline interface between 15 ppm 
diesel fuel and jet fuel.
    \139\ While today?s rule does not contain an end date for the 
downstream distribution of 500 ppm sulfur locomotive and marine 
fuel, we will review the appropriateness of allowing this 
flexibility based on experience gained from implementation of the 15 
ppm sulfur NRLM diesel fuel standard. We expect to conduct such an 
evaluation in 2011.
---------------------------------------------------------------------------

G. What Are the Potential Impacts of the 15 ppm Sulfur Diesel Program 
on Lubricity and Other Fuel Properties?

1. What Is Lubricity and Why Might It Be a Concern?
    Engine manufacturers and owner/operators depend on diesel fuel 
lubricity properties to lubricate and protect moving parts within fuel 
pumps and injection systems for reliable performance. Unit injector 
systems and in-line pumps, commonly used in diesel engines, are 
actuated by cams lubricated with crankcase oil, and have minimal 
sensitivity to fuel lubricity. However, rotary and distributor type 
pumps, commonly used in light and medium-duty diesel engines, are 
completely fuel lubricated, resulting in high sensitivity to fuel 
lubricity. The types of fuel pumps and injection systems used in 
nonroad diesel engines are the same as those used in highway diesel 
vehicles. Consequently, nonroad and highway diesel engines share the 
same need for adequate fuel lubricity to maintain fuel pump and 
injection system durability.
    Diesel fuel lubricity concerns were first highlighted for private 
and commercial vehicles during the initial implementation of the 
federal 500 ppm sulfur highway diesel program and the state of 
California's diesel program. The Department of Defense (DoD) also has a 
longstanding concern regarding the lubricity of distillate fuels used 
in its equipment as evidenced by the implementation of its own fuel 
lubricity improver performance specification in 1989.\140\ The diesel 
fuel requirements in the state of California differed from the

[[Page 39078]]

federal requirements by substantially restricting the aromatic content 
of diesel fuel which requires more severe hydrotreating than reducing 
the sulfur content to meet a 500 ppm standard.\141\ Consequently, 
concerns regarding diesel fuel lubricity have primarily been associated 
with California diesel fuel and some California refiners treat their 
diesel fuel with a lubricity additive as needed. Outside of California, 
hydrotreating to meet the current 500 ppm sulfur specification does not 
typically result in a substantial reduction of lubricity. Diesel fuels 
outside of California seldom require the use of a lubricity additive. 
Therefore, we anticipate only a marginal increase in the use of 
lubricity additives in NRLM diesel fuel meeting the 500 ppm sulfur 
standard for 2007.\142\ Today's action requires diesel fuel used in 
nonroad, locomotive, and marine diesel engines to meet a 15 ppm sulfur 
standard in 2010 and 2012, respectively. Based on the following 
discussion, we believe that the increase in the use of lubricity 
additives in 15 ppm sulfur NRLM diesel fuel would be the same as that 
estimated for 15 ppm highway diesel fuel.
---------------------------------------------------------------------------

    \140\ DoD Performance Specification, Inhibitor, Corrosion/
Lubricity Improver, Fuel Soluble, MIL-PRF-25017F, 10 November 1997, 
Superseding MIL-I-25017E, 15 June 1989.
    \141\ Chevron Products Diesel Fuel Technical Review provides a 
discussion of the impacts on fuel lubricity of current diesel fuel 
compositional requirements in California versus the rest of the 
nation; see http://www.chevron.com/prodserv/fuels/bulletin/diesel/l2%5F7%5F2%5Frf.htm.
    \142\ The cost from the increased use of lubricity additives in 
500 ppm NRLM diesel fuel in 2007 and in 15 ppm nonroad diesel fuel 
in 2010 and locomotive and marine diesel fuel in 2012 is discussed 
in section VI of this preamble.
---------------------------------------------------------------------------

    The state of California currently requires the same standards for 
diesel fuel used in nonroad equipment as in highway equipment. Outside 
of California, highway diesel fuel is often used in nonroad equipment 
when logistical constraints or market influences in the fuel 
distribution system limit the availability of high sulfur fuel. Thus, 
for nearly a decade nonroad equipment has been using federal 500 ppm 
sulfur diesel fuel and California diesel fuel, some of which may have 
been treated with lubricity additives. During this time, there has been 
no indication that the level of diesel lubricity needed for fuel used 
in nonroad engines differs substantially from the level needed for fuel 
used in highway diesel engines.
    Blending small amounts of lubricity-enhancing additives increases 
the lubricity of poor-lubricity fuels to acceptable levels. These 
additives are available in today's market, are effective, and are in 
widespread use around the world. Among the available additives, 
biodiesel has been suggested as one potential means for increasing the 
lubricity of conventional diesel fuel. Indications are that low 
concentrations of biodiesel might be sufficient to raise the lubricity 
to acceptable levels. Biodiesel is a renewable fuel made from 
agricultural sources such as soybean oil, peanut oil and other 
vegetable oils as well as rendered and animal fats and recycled cooking 
oils. Biodiesel generally contains very low amounts of sulfur, which is 
an attractive characteristic for use in diesel engines using advanced 
aftertreatment systems. Additionally, biodiesel, by virtue of its 
lubricity properties, may be a good alternative to additives currently 
used to ensure adequate fuel lubricity. According to the U.S. 
Department of Agriculture, there is a current capacity to produce 100 
million gallons annually. Thus, we believe that biodiesel is a feasible 
technology that could help support today's clean diesel fuel program.
    Research remains to be performed to better understand which fuel 
components are most responsible for lubricity. Consequently, it is 
unclear whether and to what degree the sulfur standards for NRLM diesel 
fuel will impact fuel lubricity. Nevertheless, there is evidence that 
the typical process used to remove sulfur from diesel fuel 
``hydrotreating'' can impact lubricity depending on the severity of the 
treatment process and characteristics of the crude. We expect that 
hydrotreating will be the predominant process used to reduce the sulfur 
content of NRLM diesel fuel to meet the 500 ppm sulfur standard during 
the first step of the program. Similarly, we project that both 
conventional hydrotreating and the Linde Isotherming process will be 
used to meet the 15 ppm sulfur standard for NRLM diesel fuel.
    Based on our comparison of the blendstocks and processes used to 
manufacture non-highway diesel fuels, we believe that the potential 
decrease in the lubricity of these fuels from hydrotreating that might 
result from the sulfur standards should be approximately the same as 
that experienced in desulfurizing highway diesel fuel.\143\ To provide 
a conservative, high cost estimate, we assumed that the potential 
impact on fuel lubricity from the use of the new desulfurization 
processes would be the same as that experienced when hydrotreating 
diesel fuel to meet a 15 ppm sulfur standard. Given that the 
requirements for fuel lubricity in highway and nonroad engines are the 
same, and the potential decrease in lubricity from desulfurization of 
NRLM diesel fuel would be no greater than that experienced in 
desulfurizing highway diesel fuel, we estimate that the potential need 
for lubricity additives in NRLM diesel fuel under today's action would 
be the same as that for highway diesel fuel meeting the same sulfur 
standard.
---------------------------------------------------------------------------

    \143\ See chapter 5 of the RIA for a discussion of the potential 
impacts on fuel lubricity of this proposal.
---------------------------------------------------------------------------

a. Farm and Mining Equipment
    The types of fuel pumps and injection systems used in the nonroad 
diesel engines found in farm and mining equipment are similar to those 
used in highway diesel vehicles.\144\ The hydrotreating process for 
generating 500 ppm diesel fuel will not adversely effect fuel injection 
equipment in farm and mining equipment based on the use of comparable 
injection systems in highway diesel vehicles. We believe that the use 
of lubricity additives in 15 ppm sulfur NRLM diesel fuel will be 
required and result in adequate protection of fuel injection equipment 
and is similar to that needed for 15 ppm sulfur highway diesel fuel.
---------------------------------------------------------------------------

    \144\ Nonroad and highway diesel engines meeting similar 
emissions standards use similar fuel systems provided by common 
suppliers. For example, a nonroad engine meeting the 2001 Tier 2 
nonroad diesel engine emission standards would have the same fuel 
system as a highway diesel engine meeting the 1998 highway diesel 
engine emissions standards.
---------------------------------------------------------------------------

b. Locomotives
    One of the locomotive manufacturers expressed concern in its 
comments that low sulfur fuel might damage existing locomotives. 
However, the manufacturer provided no evidence to show that such damage 
would likely occur. Locomotives already use a significant amount of low 
sulfur fuel, especially in California, and we have not seen any 
evidence of sulfur-related problems. The railroads expressed a similar 
concern, but acknowledged that any potential problems would be 
manageable with sufficient lead time. At this time, we see no reason 
for any special concern related to locomotives using low sulfur fuel.
2. A Voluntary Approach on Lubricity
    In the United States, there is no government or industry standard 
for diesel fuel lubricity. Therefore, specifications for lubricity are 
determined by the market. Since the beginning of the 500 ppm sulfur 
highway diesel program in 1993, refiners, engine manufacturers, engine 
component manufacturers, and the military have been working with ASTM

[[Page 39079]]

to develop protocols and standards for diesel fuel lubricity in its D 
975 specifications for diesel fuel. ASTM is working towards a single 
lubricity specification that is applicable to all diesel fuel used in 
any type of engine. Although ASTM has not yet adopted specific 
protocols and standards, refiners that supply the U.S. market have been 
treating diesel fuel with lubricity additives on a batch by batch 
basis, when poor lubricity fuel is produced. ASTM's target 
implementation date for this specification is January 1, 2005.
    The potential need for lubricity additives in diesel fuel meeting a 
15 ppm sulfur specification was evaluated during the development of 
EPA's highway diesel rule. In response to the proposed highway diesel 
rule, all comments submitted regarding lubricity either stated or 
implied that the proposed sulfur standard of 15 ppm would likely cause 
the refined fuel to have lubricity characteristics that would be 
inadequate to protect fuel injection equipment, and that mitigation 
measures such as lubricity additives would be necessary. However, the 
commenters suggested varied approaches for addressing lubricity. For 
example, some suggested that we need to establish a lubricity 
requirement by regulation while others suggested that the current 
voluntary, market based system would be adequate. The Department of 
Defense recommended that we encourage the industry (ASTM) to adopt 
lubricity protocols and standards before the 2006 implementation date 
of the 15 ppm sulfur standard for highway diesel fuel.
    The final highway diesel rule did not establish a lubricity 
standard for highway diesel fuel. We believe the issues related to the 
need for diesel lubricity in fuel used in nonroad diesel engines are 
substantially the same as those related to the need for diesel 
lubricity for highway engines. Consequently, we expect the same 
industry-based voluntary approach to ensuring adequate lubricity in 
nonroad diesel fuels that we recognized for highway diesel fuel. We 
believe the best approach is to allow the market to address the 
lubricity issue in the most economical manner, while avoiding an 
additional regulatory scheme. A voluntary approach should provide 
adequate customer protection from engine failures due to low lubricity, 
while providing the maximum flexibility for the industry. This approach 
would be a continuation of current industry practices for diesel fuel 
produced to meet the current federal and California 500 ppm sulfur 
highway diesel fuel specifications, and benefits from the considerable 
experience gained since 1993. It would also include any new 
specifications and test procedures that we expect would be adopted by 
ASTM regarding lubricity of NRLM diesel fuel quality.
    In any event, this is an issue that will be resolved to meet the 
demands of the highway diesel market, and whatever resolution is 
reached for highway diesel fuel could be applied to NRLM diesel fuel 
with sufficient advance notice. We are continuing to participate in the 
ASTM Diesel Fuel Lubricity Task Force \145\ and will assist their 
efforts to finalize a lubricity standard. We are hopeful that ASTM can 
reach a consensus this summer at the next meeting of the ASTM's 
Lubricity Task Force. If for some reason ASTM does not take action to 
set a lubricity specification, EPA will consider taking appropriate 
action to ensure 15 ppm sulfur diesel fuel has adequate lubricity.
---------------------------------------------------------------------------

    \145\ ASTM sub committee D02.E0.
---------------------------------------------------------------------------

3. What Other Impact Would Today's Actions Have on the Performance of 
Diesel and Other Fuels?
    We do not expect that the fuel program finalized today will have 
any negative impacts on the performance of diesel engines in the 
existing fleet which would use the fuels regulated today.
    While the process of lowering sulfur levels to 500 ppm does lower 
polynuclear aromatic hydrocarbons (PNAs) and total aromatics in 
general, it does not achieve the near-zero levels previously seen in 
California. The 15 ppm sulfur standard will further reduce PNAs, 
however, in most diesel fuel, there will still be PNAs present. 
Furthermore, since the 1990's, diesel engine manufacturers have 
switched to alternative materials (such as Viton), which do not 
experience leakage when PNAs are reduced. We believe that there will be 
no issues with leaking fuel pump O-rings with the changes in diesel 
fuel sulfur levels required by this rulemaking.
    The moderate reduction in PNAs and total aromatics associated with 
the hydrotreating of diesel fuel will tend to increase the cetane index 
and number of diesel fuel. This will improve the driveability of 
vehicles operating on this higher cetane diesel fuel.
    We do not expect any negative impacts on other fuels, such as jet 
fuel or heating oil. We do expect that the sulfur levels of heating oil 
may decrease because of this rulemaking. Beginning in mid-2007, we 
expect that controlling NRLM diesel fuel to 500 ppm sulfur will lead 
many pipelines to discontinue carrying high sulfur heating oil as a 
separate grade. In areas served by these pipelines, heating oil users 
will likely switch to 500 ppm sulfur diesel fuel. This will reduce 
emissions of SO2 and sulfate PM from furnaces and boilers 
fueled with heating oil. The primary exception to this will likely be 
the Northeast, where a distinct higher sulfur heating oil will still be 
distributed as a separate fuel. Also, we expect that a small volume of 
moderate sulfur distillate fuel will be created during distribution 
from the mixing of low sulfur diesel fuels and higher sulfur fuels, 
such as jet fuel in the pipeline interface. Such moderate sulfur 
distillate will often be sold by the terminal as high sulfur heating 
oil, but in fact its sulfur level will be lower than that normally sold 
as heating oil.

H. Refinery Air Permitting

    Prior to beginning diesel desulfurization projects, some refineries 
may be required to obtain a preconstruction permit, under the New 
Source Review (NSR) program, from the applicable state/local air 
pollution control agency.\146\ We believe that today's program provides 
sufficient lead time for refiners to obtain any necessary NSR permits 
well in advance of the applicable compliance dates.
---------------------------------------------------------------------------

    \146\ Hydrotreating diesel fuel involves the use of process 
heaters, which have the potential to emit pollutants associated with 
combustion, such as NOX, PM, CO and SO2. In 
addition, reconfiguring refinery processes to add desulfurization 
equipment could increase fugitive VOC emissions. The emissions 
increases associated with diesel desulfurization would vary widely 
from refinery to refinery, depending on many source-specific 
factors, such as crude oil supply, refinery configuration, type of 
desulfurization technology, amount of diesel fuel produced, and type 
of fuel used to fire the process heaters.
---------------------------------------------------------------------------

    Given that today's diesel sulfur program provides roughly three 
years of lead time before the 500 ppm standard takes effect, we believe 
refiners will have time to obtain any necessary preconstruction 
permits. In addition, the experience gained by many refineries to 
obtain the preconstruction permits needed to comply with the Tier 2 and 
highway diesel fuel programs should benefit them in obtaining the 
necessary permits to comply with today's new diesel fuel requirements. 
Nevertheless, we believe it is reasonable to continue our efforts under 
the Tier 2 and highway diesel fuel programs, to help states in 
facilitating the issuance of permits under the NRLM diesel fuel sulfur 
program whenever such assistance may be needed and requested. We 
anticipate that such assistance may include both technical

[[Page 39080]]

and procedural assistance as would be provided by the appropriate EPA 
Regional and Headquarters offices. Finally, to facilitate the 
processing of permits, we encourage refineries to begin discussions 
with permitting agencies and to submit permit applications as early as 
possible.

V. Nonroad, Locomotive and Marine Diesel Fuel Program: Details of the 
Compliance and Enforcement Provisions

    As with earlier fuel programs, we have developed a comprehensive 
set of compliance and enforcement provisions designed to promote 
effective and efficient implementation of this fuel program and thus to 
achieve the full environmental potential of the program. The compliance 
provisions under today's final rule are designed to ensure that 
nonroad, locomotive, and marine diesel fuel sulfur content requirements 
are met throughout the distribution system, from the refiner or 
importer through to the end user, subject to certain provisions 
applicable during the early transition years. Section IV above 
describes our program for the reduction of sulfur in nonroad, 
locomotive and marine (NRLM) diesel fuel including the standards and 
basic design of the compliance and enforcement program. This section 
contains additional details regarding the compliance and assurance 
program. The provisions discussed in this section fall into several 
broad categories:

--Special fuel provisions and exemptions;
--Additional provisions applicable to refiners and importers;
--Additional provisions applicable to parties downstream of the 
refinery or importer;
--Special provisions regarding additives, kerosene, and the prohibition 
against the use of motor oil in fuel;
--Fuel testing and sampling requirements;
--Records required to be kept, including those applying under the 
designate and track, credit provisions, small refiner, and refiner 
hardship provisions;
--Reporting requirements;
--Exemptions from the program;
--Provisions concerning liability, defenses, and penalties for 
noncompliance; and
--The selection of the marker for heating oil and 500 ppm sulfur LM 
diesel fuel. (The specific requirements with respect to heating oil and 
500 ppm sulfur LM diesel fuel inside and outside of the Northeast/Mid-
Atlantic Area are discussed in section IV.D.)

A. Special Fuel Provisions and Exemptions

    As discussed in section IV.A.1 above, the sulfur standards in 
today's rule generally cover all the diesel fuel that is intended for 
use in or used in nonroad, locomotive, and marine (NRLM) applications 
that is not already covered by the standards for highway diesel fuel. 
For the purposes of this preamble, this fuel is defined primarily by 
the type of engine which it is used to power: Land-based nonroad, 
locomotive, and marine diesel engines. Section IV.A.1 above also 
describes several types of petroleum distillate that are not covered by 
the sulfur standards promulgated today, including jet fuel and heating 
oil, provided they are not used in NRLM engines. The following 
paragraphs discuss several provisions and exemptions for NRLM diesel 
fuel that will apply in special circumstances.
1. Fuel Used in Military Applications
    NRLM diesel fuel used in military applications is treated in the 
same manner as under the recent highway diesel rule. Refiners are not 
required to produce these fuels to the NRLM standards. However, at the 
same time, their use is limited only to certain military applications. 
NRLM diesel fuel is defined so that JP-5, JP-8, F76, and any other 
military fuel that is used or intended for use in NRLM diesel engines 
or equipment is initially subject to all of the requirements applicable 
to NRLM diesel fuel. However, today's rule also exempts these military 
fuels from the diesel fuel sulfur content and other requirements in 
certain circumstances. First, these fuels are exempt if they are used 
in tactical military motor vehicles or nonroad engines, or equipment 
that have a national security exemption from the vehicle or engine 
emissions standards. Due to national security considerations, EPA's 
existing regulations allow the military to request and receive national 
security exemptions (NSE) for their motor vehicles and NRLM diesel 
engines and equipment from emissions regulations if the operational 
requirements for such vehicles, engines, or equipment warrant such an 
exemption. This final rule does not change these provisions. Fuel used 
in these applications is exempt. Second, these fuels are also exempt if 
they are used in tactical military vehicles, engines, or equipment that 
are not covered by a national security exemption but, for national 
security reasons (such as the need to be ready for immediate deployment 
overseas), these vehicles, engines, and equipment need to be fueled on 
the same fuel as vehicles, engines, or equipment with a national 
security exemption. Use of JP-5, JP-8, F76, or any other fuel not 
meeting NRLM diesel fuel standards in a motor vehicle or NRLM diesel 
engine or equipment other than the those described above is prohibited 
under today's rule.
    EPA and the Department of Defense have developed a process to 
address the tactical vehicles, engines, and equipment covered by the 
diesel fuel exemption and are discussing whether changes to it might be 
appropriate. Based on data provided by the Department of Defense to 
date in the context of implementing a similar exemption provision in 
the highway program, EPA believes that providing an exemption for 
military fuel used in tactical nonroad engines and equipment will not 
have any significant environmental impact.
    The Department of Defense (DoD) commented that EPA should 
reconsider its determination that the definition of diesel fuel 
includes JP8 and JP5. DoD cited a 1995 letter from EPA which stated 
that there was insufficient reason to conclude that JP-8 is commonly 
and commercially known as diesel fuel under the then applicable 
definition of motor vehicle diesel fuel. Since the time of this letter, 
EPA has become aware of a substantial number of cases of the misuse of 
aviation turbine fuel in highway engines. The potential for misuse of 
JP-8 or similar fuels in NRLM equipment where no national security 
exemption exists would remain. To ensure that NRLM equipment is 
properly fueled with low sulfur fuel, the definition of NRLM diesel 
fuel has been written to encompass all diesel or other distillate fuels 
used or intended for use in NRLM engines, which would include JP-8 and 
JP-5. Furthermore, the provisions in today's rule allow vehicles, 
engines, and equipment to be fueled with military specification fuels 
that are exempt from the sulfur standards when needed for national 
security. We believe that this provides DoD with the needed flexibility 
to meet its goals of keeping vehicles, engines, and equipment ready for 
quick deployment overseas.
2. Fuel Used in Research, Development, and Testing
    Today's final rule permits parties to request an exemption from the 
sulfur or other standards for NRLM diesel fuel used for research, 
development and testing purposes (``R & D exemption''). We recognize 
that there may be legitimate research programs that require the use of 
diesel fuel with higher sulfur levels than allowed under today's

[[Page 39081]]

rule. As a result, this final rule contains provisions for obtaining an 
exemption from the prohibitions for persons, producing, distributing, 
transporting, storing, selling, or dispensing NRLM diesel fuel that 
exceeds the standards, where such diesel fuel is necessary to conduct a 
research, development, or testing program.
    Parties seeking an R & D exemption must submit an application for 
exemption to EPA that describes the purpose and scope of the program, 
and the reasons why higher-sulfur diesel fuel is necessary. Upon 
presentation of the required information, an exemption can be granted 
at the discretion of the Administrator, with the condition that EPA can 
withdraw the exemption in the event the Agency determines the exemption 
is not justified. In addition, an exemption based on false or 
inaccurate information will be considered void ab initio. Fuel subject 
to an exemption is exempt from certain provisions of this rule, 
including the sulfur standards, provided certain requirements are met. 
These requirements include the segregation of the exempt fuel from non-
exempt NRLM and highway diesel fuel, identification of the exempt fuel 
on PTDs, pump labeling, and where appropriate, the replacement, repair, 
or removal from service of emission systems damaged by the use of the 
high sulfur fuel.
3. Fuel Used in Racing Equipment
    There are no provisions for an exemption from the sulfur or other 
content standard and other requirements for diesel fuel used in racing 
in today's final rule. Under certain conditions, racing vehicles are 
not considered nonroad vehicles. See, for example, 40 CFR Sec.  89.2, 
definition of ``nonroad vehicle.'' The fuel used by such racing 
vehicles would not necessarily be considered nonroad diesel fuel. 
However, we believe that there is a realistic chance that such fuel 
also could be used in NRLM equipment, and therefore, should be 
considered NRLM diesel fuel. We received no comments supporting the 
need for an exemption for racing fuel. We are not aware of any 
advantage for racing vehicles or racing equipment to use fuel having 
higher sulfur levels than are required by this rule, and we are 
concerned about the potential for misfueling of nonroad equipment and 
motor vehicles that could result from having a high sulfur (e.g., 3,000 
ppm) fuel for vehicle or nonroad equipment available in the 
marketplace. Consequently, as was the case with the highway diesel 
rule, this final rule does not provide an exemption from the nonroad 
diesel fuel requirements for fuel used in racing vehicles or equipment.
4. Fuel for Export
    Fuel produced for export, and that is actually exported for use in 
a foreign country, is exempt from the fuel content standards and other 
requirements of this final rule. Such fuel will be considered as 
intended for use in the U.S. and subject to the standards in today's 
rule unless it is designated by the refiner as for export only and PTDs 
state that the fuel is for export only. Fuel intended for export must 
be segregated from all fuel intended for use in the U.S., and 
distributing or dispensing such fuel for domestic use is illegal.

B. Additional Requirements for Refiners and Importers

    The primary requirements for refiners and importers under today's 
final rule are discussed in section IV above. In that section, we 
discuss the general structure of the compliance and enforcement 
provisions applicable to refiners and importers, including fuel content 
standards, fuel volume designation and tracking provisions, and credit 
provisions. In this subsection, we discuss several additional 
requirements for refiners and importers that are not addressed in 
section IV. In addition, sections V.G, V.H, and V.I below discuss 
several provisions that apply to all parties in the diesel fuel 
production and distribution system, including refiners and importers.
1. Transfer of Credits
    This final rule includes provisions for NRLM diesel sulfur credit 
transfers that are essentially identical to other fuels rules that have 
credits provisions. As in other fuels rules, NRLM diesel sulfur credits 
can only be transferred between the refiner or importer generating the 
credits and the refiner or importer using the credits. If a credit 
purchaser can not use all the credits it purchased from the refiner who 
generated them, the credits can be transferred one additional time. We 
recognize that there is potential for credits to be generated by one 
party and subsequently purchased and used in good faith by another 
party, where the credits are later found to have been calculated or 
created improperly, or otherwise found to be invalid. As with the 
reformulated gasoline rule, the Tier 2/Gasoline Sulfur rule, and the 
highway diesel sulfur rule, invalid credits purchased in good faith are 
not valid for use by the purchaser. To allow such use would not be 
consistent with the environmental goals of the regulation. In addition, 
both the seller and purchaser of invalid credits must adjust their 
credit calculations to reflect the proper credits and either party (or 
both) can be deemed in violation if the adjusted calculations 
demonstrated noncompliance. We expect that the parties to such a credit 
transaction will develop contractual provisions to address these 
circumstances.
    Nevertheless, in a situation where invalid credits are transferred, 
our strong preference will be to hold the credit seller liable for the 
violation, rather than the credit purchaser. As a general matter we 
expect to enforce a shortfall in credit compliance calculations against 
the credit seller, and we expect to enforce a compliance shortfall 
(caused by the good faith purchase of invalid credits) against a good 
faith purchaser only in cases where we are unable to recover sufficient 
valid credits from the seller to cover the shortfall. Moreover, in 
settlement of such cases we will strongly encourage the seller to 
purchase credits to cover the good faith purchaser's credit shortfall. 
EPA will consider the covering of a credit deficit through the purchase 
of valid credits a very important factor in mitigation of any case 
against a good faith purchaser, whether the purchase of valid credits 
is made by the seller or by the purchaser.
2. Additional Provisions for Importers and Foreign Refiners Subject to 
the Credit Provisions or Hardship Provisions
    Since this final rule includes several compliance options that can 
be used by NRLM diesel fuel importers and foreign refiners, we are also 
finalizing specific compliance and enforcement provisions to ensure 
compliance for imported NRLM diesel fuel. These additional foreign 
refiner provisions are similar to those under the gasoline anti-dumping 
regulations, the gasoline sulfur regulations and the highway diesel 
fuel regulations (see 40 CFR 80.94, 80.410, and 80.620).
    Under today's final rule, the per gallon standards for NRLM diesel 
fuel produced by refineries owned by foreign refiners must be met by 
the importer, unless the foreign refiner has been approved to produce 
NRLM diesel fuel under the credit provisions, small refiner provisions 
or hardship provisions of this final rule. If the foreign refiner is 
approved under any of these provisions, the volume and other 
requirements must be met by the foreign refiner for its refinery(s) and 
the foreign refiner must be the entity(s) generating, using, banking or 
trading any credits for the NRLM diesel fuel produced for and

[[Page 39082]]

imported into the U.S. Importers themselves are not eligible for small 
refiner or hardship relief as they do not face the same capital cost 
and lead-time issues faced by refiners. Importers may participate in 
the credit programs, however, an importer and a foreign refiner may not 
generate credits for the same fuel.
    Any foreign refiner that produces NRLM diesel fuel subject to the 
credit provisions, small refiner provisions or the hardship provisions 
will be subject to the same requirements as domestic refiners operating 
under the same provisions. Additionally, provisions for foreign 
refiners exist that are similar to the provisions at 40 CFR 80.94, 
80.410, and 80.620, which include:

--Segregation of NRLM diesel fuel produced at the foreign refinery 
until it reaches the U.S. and separate tracking of volumes imported 
into each PADD;
--Controls on product designation;
--Load port and port of entry testing; and
--Requirements regarding bonds and sovereign immunity.

    These provisions will aid the Agency in tracking NRLM diesel fuel 
from the foreign refinery to its point of import into this country. We 
believe these provisions are necessary and sufficient to ensure that 
foreign refiners' compliance can be monitored and that the diesel fuel 
requirements in today's rule can be enforced against foreign refiners.
3. Diesel Fuel Treated as Blendstock (DTAB)
    Under today's program, a situation could arise for importers where 
fuel that was expected to comply with the 15 ppm sulfur NRLM standard 
is found to be slightly higher in sulfur than the standard. Rather than 
require that importer to account for, and report, that fuel as 500 ppm 
sulfur fuel, an importer will be able to designate the non-complying 
fuel as blendstock--``diesel fuel treated as blendstock'' or DTAB--
rather than as NRLM diesel fuel. In its capacity as a refiner, the 
party can then blend this DTAB fuel with lower sulfur diesel fuel or 
with other blendstocks to cause the sulfur level of the combined 
product to meet the 15 ppm sulfur NRLM diesel fuel standard prior to 
delivery to another entity. The same situation exists with respect to 
compliance with the 15 ppm sulfur highway standard. However, no 
provision was made in the 2007 highway final rule for this. 
Consequently, we are also finalizing these DTAB provisions in this 
final rule for application to 15 ppm sulfur highway diesel fuel.
    Where diesel fuel that has been previously designated by a refiner 
is used to reduce the sulfur level of the DTAB to 15 ppm or less, the 
party, in its refiner capacity, is required to report only the volume 
of the imported DTAB as the amount of diesel fuel produced.\147\ This 
avoids the double counting that would result if the same diesel fuel is 
reported twice (i.e., once by the refiner who originally produced it 
and again by the refiner using it to blend with DTAB). If the product 
that is blended with the DTAB is not previously designated diesel fuel, 
but is also blendstock, the total combined volume of the DTAB and other 
blendstock constitutes the batch produced.
---------------------------------------------------------------------------

    \147\ Volumes of previously designated diesel fuel would be 
reported as volumes received under the designate and track 
provisions of Section IV.D.
---------------------------------------------------------------------------

    When an importer classifies diesel fuel as DTAB, that DTAB does not 
count toward the importer's calculations under the highway diesel 
rule's temporary compliance option, toward credit generation or use, or 
for volume account balance compliance calculations (see section 
IV).\148\ The same party, however, must include the DTAB in such 
calculations in its capacity as a refiner. We believe such an approach 
will increase the supply of 15 ppm sulfur fuel by reducing the volume 
of near-compliant fuel that is downgraded to higher sulfur 
designations. In essence, it allows importers the same flexibility that 
refiners have within their refinery gate.
---------------------------------------------------------------------------

    \148\ Importer/refiners availing themselves of the DTAB 
provisions are still subject to the downgrading provisions, and 
other provisions applicable to any importer or refiner.
---------------------------------------------------------------------------

    Similar to the provisions discussed above regarding the manufacture 
of 15 ppm sulfur diesel fuel using DTAB, 500 ppm sulfur NRLM and 
highway diesel fuel can also be manufactured using DTAB provided that 
this is appropriately reflected in the importer's compliance 
calculations.

C. Requirements for Parties Downstream of the Refinery or Import 
Facility

    In order for the environmental benefits of the NRLM diesel program 
to be realized, parties in the fuel distribution system downstream of 
the refinery (including pipelines, terminals, bulk plants, wholesale 
purchaser-consumers, and retailers \149\) must ensure that the sulfur 
level of fuels supplied to the various end-users covered by today's 
rule complies with the requirements in today's rule. At certain points 
in the distribution system, such parties must keep the various grades 
of fuel having different sulfur specifications physically 
separate,\150\ and ensure that the fuel is properly designated and 
labeled. In other words, fuel represented as 15 ppm sulfur must comply 
with the 15 ppm sulfur standard, and fuel represented as 500 ppm sulfur 
must meet the 500 ppm sulfur standard. At other points in the 
distribution system, certain fuels may be commingled provided that the 
fuel volumes are appropriately designated and accounted for in the 
custody holders volume account balance. Owners and operators of NRLM 
diesel equipment must also use fuels meeting specific sulfur content 
standards. The following paragraphs discuss several provisions that 
apply to these parties: Distribution of various fuel sulfur grades; 
diesel fuel pump labeling; use of used motor oil in diesel fuel; use of 
kerosene in diesel fuel; use of additives in diesel fuel; requirements 
for end users; and provisions covering downgrading of undyed diesel 
fuel to different grades of fuel. These provisions are analogous to 
similar provisions that apply to highway diesel fuel under the highway 
program. Section IV discusses in detail the provisions applicable to 
downstream parties under the designate and track program.
---------------------------------------------------------------------------

    \149\ An owner/operator of a tanker truck that delivers fuel 
directly from the tanker truck tank into motor vehicles or nonroad 
equipment of another business entity (i.e. a mobile refueler) would 
be acting as a retailer, and the truck would be operating as a 
retail outlet. In other words, the term retail outlet is not limited 
to stationary facilities. EPA proposed specific textual changes to 
the definition of retail outlet to clarify this, but has decided 
there is no need to change the definition, as it has always had this 
plain meaning. The owner/operator of such a tanker truck may also be 
subject to distributor requirements and prohibitions, or carrier 
responsibilities if the trucker company does not take title to the 
fuel. As the definitions in 40 CFR 80.2 make clear, it is the 
functions performed by the owner/operator that determine whether 
they come within the scope of the applicable definitions, and the 
resulting obligations or requirements that apply. Mobile refuelers 
are not subject to the labeling requirements applicable to other 
retailers but are required to provide PTDs to their customers.
    \150\ For example: Once the required marker is added to heating 
oil at the terminal, heating oil must be segregated from all other 
fuel grades. Once red dye is added to NRLM it must be segregated 
from highway diesel fuel.
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1. Product Segregation and End Use Requirements
    The main requirements for compliance with the fuel sulfur standards 
under today's rule, including the designate and track provisions, are 
discussed in section IV of today's preamble. The sulfur content of all 
fuels subject to the sulfur requirements in today's rule must be 
appropriately

[[Page 39083]]

represented (designated/classified/labeled) at all times through to the 
retailer or wholesale purchaser consumer. Furthermore, the designation 
and classification information on the label and PTD, and the actual 
sulfur content of any subject fuel must be consistent with the 
requirements detailed in section IV. Section IV also details how to 
accurately redesignate, reclassify, and re-label fuel volumes. This 
subsection discusses the various grades and uses of NRLM fuel under the 
NRLM diesel program. In later subsections, we discuss related 
requirements for PTDs to identify fuels throughout the distribution 
system and provisions relating to the liability that all parties in the 
distribution face for failing to maintain the standards of these 
different fuel sulfur grades.
a. The Period From June 1, 2007 Through May 31, 2010
    From June 1, 2007 through May 31, 2010, all fuel used in NRLM 
equipment must meet a 500 ppm sulfur standard except for fuel produced 
or imported under the hardship, small refiner, and credit 
provisions.\151\ Outside of the Northeast/Mid-Atlantic Area and Alaska, 
we will not be able to rely upon the measurement of sulfur content 
alone to enforce the segregation requirements for heating oil, and are 
therefore requiring that heating oil be marked before it leaves the 
terminal by the addition of 6 mg/L of SY-124. Fuel containing more than 
0.1 mg/L of the marker will be deemed to be heating oil and may not be 
used as nonroad, locomotive or marine fuel.
---------------------------------------------------------------------------

    \151\ Fuel produced in the distribution system that meets a 500 
ppm sulfur specification may be used in NRLM equipment through June 
1, 2014, and in locomotive and marine equipment thereafter.
---------------------------------------------------------------------------

    NRLM fuel designated or labeled as 500 ppm sulfur must meet the 500 
ppm sulfur standard and any fuel designated or labeled as 15 ppm must 
meet the 15 ppm sulfur standard.\152\ If a fuel meeting these standards 
is mixed or contaminated with a higher sulfur fuel it must be 
downgraded to the higher sulfur product and new documentation (e.g., 
PTD, label) must be created to reflect the downgrade. During this 
period there will also be nonroad equipment that is expected to be 
equipped with sulfur sensitive emissions control technology that needs 
to operate on 500 ppm sulfur or less fuel in order to meet the NRLM 
program's emission standards in-use. Fuels sold for use in, or 
dispensed into, these engines must be identified as meeting the 15 ppm 
sulfur standard or the 500 ppm sulfur standard, as applicable, and if 
so identified must meet such standard. Distributors and retailers must 
avoid contaminating fuel represented by them on PTDs or pump labels as 
15 ppm sulfur fuel or 500 ppm sulfur fuel with higher sulfur fuels. End 
users are required to use only the fuel grades identified as 
appropriate for use on the label affixed to their NRLM equipment.
---------------------------------------------------------------------------

    \152\ This requirement becomes effective June 1, 2006 to support 
the anti-downgrade requirements in the highway diesel rule.
---------------------------------------------------------------------------

b. The Period From June 1, 2010 Through May 31, 2012
    Beginning June 1, 2010, all fuel used in nonroad equipment must 
meet a 15 ppm sulfur standard except for 500 ppm sulfur fuel produced 
or imported under the hardship, small refiner, and credit provisions, 
or downstream flexibility provisions which may continue to be used in 
nonroad engines produced prior to 2011. Locomotive and marine fuel will 
continue to be subject to the sulfur requirements applicable beginning 
June 1, 2007, until May 31, 2012.
    During this time period, we will not be able to rely upon the 
measurement of sulfur content alone to enforce the segregation 
requirements for LM fuel and NR 500 ppm sulfur fuel outside of the 
Northeast/Mid-Atlantic Area and Alaska, and are therefore requiring 
that LM fuel produced or imported for use outside of the Northeast/Mid-
Atlantic Area and Alaska be marked before it leaves the terminal by the 
addition of 6 mg/L of SY-124. Fuel containing more than 0.1 mg/L of the 
marker will be deemed to be either LM fuel or heating oil and may not 
be used as nonroad fuel. Fuel containing the marker that meets a 500 
ppm sulfur standard will be deemed to be LM fuel, whereas fuel 
containing the marker with a sulfur content above 500 ppm will be 
deemed to be heating oil.
    As discussed in section IV above, small refiners will be able to 
continue to produce 500 ppm sulfur nonroad fuel, through May 31, 2014. 
Other refiners may use credits through May 31, 2014 to continue to 
produce fuel to the 500 ppm sulfur nonroad diesel fuel standard. 
Nonroad diesel fuel meeting a 500 ppm sulfur standard may also be 
produced due to interface mixing in the distribution system.\153\ In 
any case, 15 ppm sulfur diesel fuel must be segregated from 500 ppm 
sulfur NRLM diesel fuel throughout the distribution system including 
the end user, such that it maintains its designation, or it must be 
redesignated and labeled to its downgraded specification.\154\
---------------------------------------------------------------------------

    \153\ Such 500 ppm sulfur downstream flexibility nonroad diesel 
fuel may be also be used in LM equipment since it complies with the 
LM sulfur standard applicable during this time period. Thus, both 
marked and unmarked 500 ppm sulfur fuel may be used in LM equipment 
during this time period.
    \154\ These flexibilities do not exist in the Northeast/Mid-
Atlantic Area, and only the small refiner option exists in Alaska.
---------------------------------------------------------------------------

    Because of the sulfur sensitivity of the expected engine emission 
control systems beginning in model year 2011 for nonroad diesel 
engines, it is imperative that the distribution system segregate 
nonroad diesel fuel subject to the 15 ppm sulfur standard from higher 
sulfur distillate products, such as 500 ppm sulfur LM fuel, 500 ppm 
sulfur nonroad diesel fuel produced by small refiners or through the 
use of credits, heating oil, and jet fuel. End users are required to 
use only the fuel grades identified as appropriate for use on the label 
affixed to their NR and LM equipment.
    We are also concerned about potential misfueling of engines 
requiring 15 ppm sulfur fuel at retail or wholesale purchaser-consumer 
facilities (as defined under this program), or other end-user 
facilities, even when segregation of 15 ppm sulfur fuel from the 
higher-sulfur grades of diesel fuel has been maintained in the 
distribution system. Thus, downstream compliance and enforcement 
provisions of this rule are aimed at both preventing contamination of 
nonroad diesel fuel subject to the 15 ppm sulfur standard (i.e., fuel 
represented to meet that standard) and preventing misfueling of new 
nonroad equipment.
c. The Period From June 1, 2012 Through May 31, 2014
    Beginning June 1, 2012, all fuel used in locomotive and marine 
equipment must meet a 15 ppm sulfur standard except for 500 ppm sulfur 
fuel produced or imported under the hardship, small refiner, and credit 
provisions, or downstream flexibility provisions. As discussed in 
section IV above, small refiners will be able to continue to produce 
500 ppm sulfur LM fuel, through May 31, 2014. Other refiners may use 
credits through May 31, 2014 to continue to produce fuel to the 500 ppm 
sulfur LM diesel fuel standard. Locomotive, and marine diesel fuel 
meeting a 500 ppm sulfur standard may also be produced due to interface 
mixing in the distribution system indefinitely.
    The marker requirement for 500 ppm sulfur LM diesel fuel expires on 
June 1, 2012. After June 1, 2012, only heating oil must continue to be 
marked and any LM diesel fuel distributed from the terminal must not 
contain the marker. To allow marked LM diesel fuel

[[Page 39084]]

distributed prior to June 1, 2012 to be consumed by end-users, the 
downstream prohibition against LM fuel containing the marker will not 
become effective until October 1, 2012. Beginning October 1, 2012, LM 
diesel fuel at any location must contain no more than 0.1 mg/L of the 
marker.\155\ We believe that allowing four months for downstream 
parties to blend down their stocks of marked LM diesel fuel with 
receipts of unmarked LM diesel fuel will be sufficient for such parties 
to comply with the prohibition against possessing LM fuel with a marker 
concentration greater than 0.1 mg/L.
---------------------------------------------------------------------------

    \155\ Allowing four months for the LM fuel distribution system 
to sufficiently purge itself of marked fuel is consistent with the 
time allowed for LM diesel fuel to comply with a 500 ppm sulfur 
standard after the refinery gate 15 ppm sulfur standard for LM fuel 
becomes effective.
---------------------------------------------------------------------------

    The requirements that became effective for fuel used in nonroad 
equipment on June 1, 2010, will remain effective until May 31, 2014.
d. After May 31, 2014
    After the small refiner, credit, and off-specification fuel 
flexibilites have expired, the remaining sulfur grades of diesel fuel 
will be 15 ppm sulfur highway and NRLM fuel, 500 ppm sulfur LM diesel 
fuel (produced due to interface mixing in the distribution system 
outside of the Northeast/Mid-Atlantic Area and Alaska), and heating 
oil, some of which may meet a 500 ppm sulfur standard. Product transfer 
documents are required to accompany the batches of such fuels which 
must contain the specified identifying information. Highway and NRLM 
diesel fuel meeting a 15 ppm sulfur specification must be segregated 
from 500 ppm sulfur LM diesel fuel, and heating oil. Today's rule 
contains provisions for the fungible shipment of LM diesel fuel with 
any heating oil meeting a 500 ppm sulfur cap up to the point where the 
fuel leaves the terminal that are similar to the provisions that allow 
the fungible shipment of high sulfur NRLM diesel fuel and high sulfur 
heating oil discussed in the previous section. Under such circumstances 
the designate and track and heating oil account balance requirements 
must be satisfied.
2. Diesel Fuel Pump Labeling To Discourage Misfueling
    For any multiple-fuel program like the two-step program we are 
finalizing today, we believe that the clear labeling of nonroad diesel 
fuel pumps is vital so that end users can readily distinguish between 
the several grades of fuel that may be available at fueling facilities, 
and properly fuel their nonroad equipment. Section III.N above 
describes the labels that manufacturers are required to place on 
nonroad equipment, and the information that must be provided to nonroad 
equipment owners. Section VI discusses the likely benefit for many 
nonroad engines to utilize 500 ppm sulfur diesel fuel as soon as it 
becomes available in 2007. Today's final rule includes requirements for 
labeling fuel pump stands used to fuel NRLM equipment and highway 
diesel vehicles.
    To help prevent misfueling of nonroad, locomotive and marine 
engines, and to thus ensure that the environmental benefits of the 
program are realized, we are finalizing pump labeling requirements 
similar to those adopted in the highway diesel rule (40 CFR 80.570). 
Today's pump dispenser labeling requirements are discussed separately 
according to the date they become effective: June 1, 2006, June 1, 
2007, June 1, 2010, and June 1, 2014.
    Today's final rule also amends the pump dispenser labeling language 
in the highway diesel regulations for consistency with the NRLM 
program. Because existing highway diesel regulations prohibit highway 
diesel fuel with sulfur levels above 500 ppm, the highway diesel final 
rule and this program have different meanings for the terms ``low 
sulfur'' and ``high sulfur,'' and the highway diesel final rule does 
not use the term ``ultra low-sulfur.'' Further, because the highway 
diesel final rule did not need to categorize the different uses of non-
highway diesel fuel, the highway diesel final rule and this program 
have different meanings for the term ``nonroad.'' \156\ The amendments 
to the highway pump dispenser labeling language finalized by today's 
rule are meant to avoid confusion at the fuel pumps caused by labels 
that would have different meanings depending on whether the pump is 
dispensing highway or non-highway diesel fuel. Today's final rule adds 
effective dates to each paragraph of the labeling provisions of the 
highway diesel rule for consistency with the additional pump labeling 
sections of this program, and to distinguish the non-highway labeling 
requirement effective June 1, 2006 under the highway diesel rule from 
the non-highway labeling requirements of this rule that are effective 
in 2007.
---------------------------------------------------------------------------

    \156\ In the highway diesel rule, the term ``high-sulfur'' means 
diesel fuel with a sulfur level greater than 15 ppm, whereas in this 
rule it means diesel fuel with a sulfur level greater than 500 ppm. 
In the highway diesel rule, the term ``low-sulfur'' means diesel 
fuel with a sulfur level less than or equal to 15 ppm, whereas in 
this rule it means diesel fuel with a sulfur level less than or 
equal to 500 ppm. In addition, the term ``nonroad'' as used in the 
highway diesel rule means ``non-highway'' (i.e., all fuel that is 
not highway fuel), but the term ``nonroad'' as used in this rule 
does not include locomotive diesel, marine diesel and heating oil.
---------------------------------------------------------------------------

    Alternate labels to those specified in today's rule may be used if 
they are approved by the Administrator.
    Today's rule also finalizes labeling requirements for pumps in 
Alaska that dispense NRLM diesel fuel and heating oil which is exempt 
from the red dye and fuel marker requirements which differ from the 
labeling requirements discussed in this section. Please refer to Sec.  
69.52(e) of the regulatory text to today's rule for these pump labeling 
requirements applicable in Alaska.
a. Pump Labeling Requirements that Become Effective June 1, 2006
    The pump labeling requirements described in this section become 
effective June 1, 2006.
i. Pumps Dispensing Highway Diesel Fuel Subject to the 15 ppm Sulfur 
Standard
    The label on pumps dispensing highway diesel fuel subject to the 15 
ppm sulfur standard must read as follows:

ULTRA LOW-SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all model year 2007 and later highway diesel 
vehicles and engines.
    Recommended for use in all diesel vehicles and engines.

    The above labeling requirement for 15 ppm sulfur highway diesel 
fuel continues through May 31, 2010, after which time different pump 
label requirements for this fuel become effective as described in 
section V.C.2.c.3. of this preamble.
ii. Pumps Dispensing Highway Diesel Fuel Subject to the 500 ppm Sulfur 
Standard
    The label on pumps dispensing highway diesel fuel subject to the 
500 ppm sulfur standard must read as follows:

LOW-SULFUR HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in model year 2007 and later highway 
vehicles and engines.
    Its use may damage these vehicles and engines.

    Dispensing highway diesel fuel that has a sulfur content above 15 
ppm is prohibited into any highway vehicle after September 30, 2010. 
Hence no pumps may display the above label after September 30, 2010.

[[Page 39085]]

iii. Pumps Dispensing Diesel Fuel for Non-Highway Equipment That Does 
Not Meet the Standards for Motor Vehicle Diesel Fuel
    The label on pumps dispensing diesel fuel for non-highway equipment 
that does not meet the standards for motor vehicle diesel fuel must 
read as follows:

NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)

WARNING

    Federal law prohibits use in any highway vehicle or engine
    Its use may damage these vehicles and engines.

    This labeling requirement is effective until May 31, 2007, after 
which high sulfur non-highway diesel fuel must be labeled according to 
the provisions described in section V.C.2.b.iii and 500 ppm sulfur non-
highway diesel fuel must be labeled according to the provisions 
described in section V.C.2.b.1. of today's preamble.
b. Pump Labeling Requirements That Become Effective June 1, 2007
    As discussed in section IV, between June 1, 2007 and September 30, 
2010, end users are not always required to dispense fuel meeting the 
500 ppm sulfur standard into nonroad, equipment, locomotives or marine 
vessels. During this time period, small refiner fuel and fuel produced 
under the credit provisions with sulfur levels exceeding 500 ppm will 
continue to exist in the distribution system. During this time period, 
there will also be nonroad equipment with engines certified as meeting 
the Tier 4 emission standards (i.e., engines equipped with emission 
controls that allow them to meet the Tier 4 standards earlier than 
required). Some of this equipment is expected to be equipped with 
sulfur sensitive technology that will need to operate on fuel with a 
sulfur content of 500 ppm or less to function properly. For this 
reason, it is important that NRLM end users be able to know the sulfur 
level of the fuel they are purchasing and dispensing. Therefore, fuel 
pump dispensers for the various sulfur grades must also be properly 
labeled. The following pump labeling requirements become effective from 
June 1, 2007:
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 500 ppm Sulfur 
Standard
    The label on pumps dispensing 500 ppm (maximum) sulfur content 
diesel fuel for use in NRLM engines must read as follows:

LOW-SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in any highway vehicle or engine

    The above labeling requirement remains effective until May 31, 
2010, after which it is superceded by the requirements described below.
ii. Pumps Dispensing NRLM Diesel Fuel Subject to the 15 ppm Sulfur 
Standard
    It is also likely that prior to June 1, 2010 some 15 ppm sulfur 
(maximum) diesel fuel will be introduced into the nonroad market early. 
Both the engine and fuel credit provisions envision such early 
introduction of 2011-compliant engines and 15 ppm sulfur diesel fuel. 
Thus, it is important that nonroad end users be able to know when they 
are purchasing diesel fuel with 15 ppm or less sulfur.\157\ The label 
on pumps dispensing 15 ppm sulfur diesel fuel for use in NRLM engines 
must read as follows:
---------------------------------------------------------------------------

    \157\ The IRS requires that 15 ppm sulfur non-highway diesel 
fuel must contain red dye after it leaves the terminal.
---------------------------------------------------------------------------

ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all model year 2011 and newer nonroad diesel 
engines.
    Recommended for use in all nonroad, locomotive and marine diesel 
engines.

WARNING

    Federal law prohibits use in any highway vehicle or engine.

    The above labeling requirement continues until May 31, 2014, after 
which it is superceded by the labeling provisions described in section 
V.C.2.e.i of today's preamble.
iii. Pumps Dispensing Diesel Fuel With a Sulfur Content Greater Than 
500 ppm for Use in Older NRLM Equipment
    The label on pumps dispensing diesel fuel having a sulfur content 
greater than 500 ppm (for use in older nonroad, locomotive, and marine 
diesel engines) must read as follows:

HIGH-SULFUR NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)

WARNING

    Federal law prohibits use in highway vehicles or engines
    May damage nonroad, diesel engines required to use low-sulfur or 
ultra-low sulfur diesel fuel.

    The above labeling requirement remains effective until September 
30, 2010. After September 30, 2010 no pump may display this label.
iv. Pumps Dispensing Heating Oil
    As discussed in section IV.B.2.b, it is necessary to segregate 
heating oil from NRLM diesel fuel to ensure that the fuel used in 
nonroad, locomotive, and marine equipment is compliant with the sulfur 
standards in today's rule. The label on pumps dispensing non-highway 
diesel fuel for use other than in nonroad, locomotive or marine 
engines, such as for use in stationary diesel engines or as heating 
oil, must read as follows:

HEATING OIL (May Exceed 500 ppm Sulfur)

WARNING

    Federal law prohibits use in highway vehicles or engines, or in 
nonroad, locomotive, or marine engines.
    Its use may damage these diesel engines.

    The above labeling will remain effective indefinitely.
c. Pump Labeling Requirements That Become Effective June 1, 2010
    Beginning October 1, 2010, all diesel fuel introduced into highway 
diesel vehicles, regardless of the year of manufacture, must meet the 
15 ppm sulfur standard. Furthermore, with certain exceptions, fuel 
introduced into any nonroad engine must meet the 15 ppm sulfur 
standard. The exceptions are fuel allowed to meet the 500 ppm sulfur 
standard for use only in pre-model year 2011 nonroad engines and 
locomotive and marine engines, for example, small refiner nonroad 
diesel fuel and credit nonroad diesel fuel, as well as downgraded 15 
ppm sulfur diesel fuel from the distribution system. This use of 500 
ppm sulfur diesel fuel in nonroad engines will continue through 
September 30, 2014,\158\ after which all nonroad diesel fuel must meet 
the 15 ppm sulfur standard. The following pump labeling requirements 
become effective June 1, 2010:
---------------------------------------------------------------------------

    \158\ Production of 500 ppm sulfur fuel under the credit 
provisions is allowed until June 1, 2012, but small refiner fuel 
subject to the 500 ppm sulfur standard can continue to be produced 
until June 1, 2014 and will be available to end users until 
September 1, 2014.
---------------------------------------------------------------------------

i. Pumps Dispensing NRLM Diesel Fuel Subject to the 500 ppm Sulfur 
Standard
    The label on pumps dispensing 500 ppm (maximum) nonroad, 
locomotive, and marine diesel fuel, as discussed in section IV.B.3.b, 
must read as follows:

LOW-SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in all model year 2011 and newer 
nonroad engines.
    May damage model year 2011 and newer nonroad engines.

[[Page 39086]]

    Federal Law Prohibits Use in any Highway Vehicle or Engine.
    Recommended for use in all locomotive and marine equipment.

    The above labeling requirement remains effective until September 
30, 2014. After September 30, 2014, no pump may display this label.
ii. Pumps Dispensing Marked LM Fuel
    The label on pumps dispensing 500 ppm sulfur locomotive, and marine 
diesel fuel, as discussed in section IV.B.3.b., must read as follows:

LOW-SULFUR LOCOMOTIVE AND MARINE DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in nonroad engines or in highway 
vehicles or engines.

    The above labeling requirement remains effective until September 
30, 2012. After September 30, 2012, no pump may display this label.
iii. Pumps Dispensing Highway Diesel Fuel Subject to the 15 ppm Sulfur 
Standard
    The label on pumps dispensing highway diesel fuel subject to the 15 
ppm sulfur standard of Sec.  80.520(a)(1) must read as follows:

ULTRA LOW-SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all highway diesel vehicles and engines.
    Recommended for use in all diesel vehicles and engines.

    The above labeling requirement for 15 ppm sulfur highway diesel 
fuel continues indefinitely.
d. Pump Labeling Requirements That Become Effective June 1, 2014
    Beginning October 1, 2014, all nonroad fuel distributed to end-
users is required to meet the 15 ppm sulfur standard, without 
exception. Locomotive and marine fuel downstream of the refinery or 
importer is still subject to the 500 ppm sulfur standard. The pump 
labels for heating oil will continue to be the same as for the period 
2010 through 2014. The following pump labeling requirements become 
effective beginning June 1, 2014:
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 15 ppm Sulfur 
Standard
    For pumps dispensing nonroad diesel fuel the label must read as 
follows:

ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all nonroad diesel engines.
    Recommended for use in all locomotive and marine diesel engines.

WARNING

    Federal law prohibits use in any highway vehicle or engine.

    The above labeling requirement continues indefinitely.
ii. Pumps Dispensing Locomotive and Marine Diesel Fuel Subject to the 
500 ppm Sulfur Standard
    For pumps dispensing locomotive or marine diesel fuel, the label 
must read as follows:

LOW-SULFUR LOCOMOTIVE OR MARINE DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in nonroad engines or in highway 
vehicles or engines.
    Its use may damage these engines.

    The above labeling requirement will remain effective indefinitely.
f. Nozzle Size Requirements or other Requirements To Prevent Misfueling
    Like the highway diesel fuel program, the NRLM diesel fuel program 
does not include a nozzle size requirement. In part this is because we 
are not aware of an effective and practicable scheme to prevent 
misfueling through the use of different nozzle sizes or shapes, and in 
part because we do not believe that improper fueling will be a 
significant enough problem to warrant such an action. In the preamble 
to the highway diesel fuel rule, we stated our belief that the use of 
unique nozzles, color-coded scuff-guards, or dyes to distinguish the 
grades of diesel fuel may be useful in preventing accidental use of the 
wrong fuel. (See 66 FR 5119, January 18, 2001.) However, we did not 
finalize any such requirements, for the reasons described in the RIA 
for that final rule (section IV.E).
    Similar reasoning applies to the NRLM diesel fuel program. For 
example, 15 ppm sulfur diesel fuel will be the dominant fuel in the 
market by 2010, likely comprising more than 80 percent of all number 2 
distillate. Further, we believe that 500 ppm sulfur diesel fuel will 
have limited availability between 2010 and 2014. High-sulfur distillate 
for heating oil uses will remain, but will only exist in significant 
volumes in certain parts of the country. In addition, as with highway 
diesel engines, there is currently no standardization of fuel tank 
openings and filler necks that would allow for a simple, inexpensive, 
standardization of nozzles. In any event, we believe that most owners 
and operators of new nonroad diesel engines and equipment will not risk 
voiding the general warranty and the emissions warranty by misfueling.
    Although in the highway diesel fuel rule we did not finalize any 
provisions beyond fuel pump labeling requirements, we recognized that 
some potential for misfueling could still exist. Consequently, we 
expressed a desire to continue to explore with industry simple, cost-
effective approaches that could further minimize misfueling potential 
such as color-coded nozzles/scuff guards. Since the highway diesel rule 
was promulgated, we have had discussions with fuel retailers, wholesale 
purchaser-consumers, vehicle manufacturers, and nozzle manufacturers, 
and continue to examine different methods for preventing accidental or 
intentional misfueling under the highway diesel fuel sulfur program. To 
date, the affected stakeholders, including engine and truck 
manufacturers, truck operators, fuel retailers, and fuel nozzle 
manufacturers have not reached any common view that the concerns over 
misfueling warrant any additional prevention measures.
3. Prohibition Against the Use of Used Motor Oil in New Nonroad Diesel 
Equipment
    We understand that used motor oil is sometimes blended with diesel 
fuel today for use as fuel in nonroad diesel equipment. Such practices 
include blending used motor oil directly into the equipment fuel tank, 
blending it into the fuel storage tanks, and blending small amounts of 
motor oil from the engine crank case into the fuel system as the 
equipment is operated.
    However, motor oil normally contains high levels of sulfur. Thus, 
the addition of used motor oil to nonroad diesel fuel could 
substantially impair the sulfur-sensitive emissions control equipment 
expected to be used by engine manufacturers to meet the emissions 
standards in today's final rule. Depending on how the oil is blended, 
it could increase the sulfur content of the fuel by as much as 200 ppm 
sulfur. As a result, we believe blending used motor oil into nonroad 
diesel fuel could render inoperative the expected emission control 
technology and potentially cause driveability problems. Consequently, 
it would violate the tampering prohibition in the Act. See CAA sections 
203(a)(3), and 213(d).
    Therefore, like the highway diesel rule, today's rule prohibits any 
person from introducing or causing or allowing the introduction of used 
motor oil, or diesel fuel containing used motor oil, into the fuel 
delivery systems of nonroad equipment engines manufactured in model 
year 2011 and later. The only exception to this will be

[[Page 39087]]

where the engine was explicitly certified to the emission standard with 
used motor oil added and the oil was added in a manner consistent with 
the certification. Furthermore, as discussed in section IV, today's 
rule includes certain sunset dates when all NRLM diesel fuel in the 
distribution system must meet the applicable sulfur standard, and 
before that date any NRLM designated, classified, or labeled as 15 ppm 
sulfur fuel must meet that sulfur standard. Blending of used motor oil 
into NRLM could cause these standards to be exceeded in violation of 
today's rule. Any party who causes the sulfur content of nonroad diesel 
fuel subject to the 15 ppm sulfur standard to exceed 15 ppm by blending 
motor oil into nonroad diesel fuel, or by using motor oil as nonroad 
diesel fuel, is subject to liability for violating the sulfur standard. 
Similarly, parties who cause the sulfur level of nonroad diesel fuel 
subject to the 500 ppm sulfur nonroad diesel fuel standard to exceed 
that standard by blending motor oil into the fuel, are also subject to 
liability.
4. Use of Kerosene in Diesel Fuel
    As we discussed in the highway diesel final rule, kerosene is 
commonly added to diesel fuel to reduce fuel viscosity in cold weather 
(see 66 FR 5120, January 18, 2001). This final rule does not limit this 
practice with regard to 15 ppm sulfur or 500 ppm sulfur NRLM diesel 
fuel. However the resulting blend will still be subject to the 15 ppm 
sulfur or 500 ppm sulfur standard. Kerosene that is used, intended for 
use, or made available for use as, or for blending with, 15 ppm sulfur 
or 500 ppm sulfur diesel fuel is itself required to meet the 15 ppm 
sulfur or 500 ppm sulfur standard.
    As a general matter, any party who blends kerosene, or any 
blendstock, into NRLM diesel fuel, or who produces NRLM diesel fuel by 
mixing blendstocks, will be treated as a refiner and will be subject to 
the requirements and prohibitions applicable to refiners under today's 
rule. For example, the fuel that they manufacture must meet the sulfur 
standards established in this rule, and represented on the PTD. 
However, in deference to the longstanding and widespread practice of 
blending kerosene into diesel fuel at downstream locations, downstream 
parties who only blend kerosene into NRLM and highway diesel fuel will 
not be subject to the requirements applicable to other refiners, 
provided that they do not alter the fuel in any other way, and do not 
violate the volume balance requirements discussed in section IV.D. For 
example, they will not need to meet the 80/20 requirements under the 
highway diesel program. This activity is treated the same way under the 
final highway diesel rule. Parties that blend kerosene into diesel fuel 
are subject to the downstream designate and track provisions applicable 
to other downstream parties.
    In order to ensure the continued compliance of 15 ppm sulfur fuel 
with the 15 ppm sulfur standard, downstream parties choosing to blend 
kerosene into 15 ppm sulfur NRLM diesel fuel are required to either 
have a PTD for that kerosene indicating compliance with the 15 ppm 
sulfur standard, or to have test results for the kerosene establishing 
such compliance. Further, downstream parties choosing to blend kerosene 
into 15 ppm sulfur NRLM diesel fuel are entitled to the two ppm 
adjustment factor discussed in section V.D.2. for both the kerosene and 
the diesel fuel into which it is blended at downstream locations, 
provided that the kerosene had been transferred to the party with a PTD 
indicating compliance with that standard. Sulfur test results from 
downstream locations of parties who do not have such a PTD for their 
kerosene will not be subject to this adjustment factor, either for the 
kerosene itself, or for the NRLM diesel fuel into which it is blended.
    Any party who causes the sulfur content of NRLM diesel fuel 
represented as meeting the 15 ppm sulfur standard to exceed 15 ppm 
sulfur by blending kerosene into NRLM diesel fuel, or by using greater 
than 15 ppm sulfur kerosene as NRLM diesel fuel, is subject to 
liability for violating the sulfur standard. Similarly, parties who 
cause the sulfur level of NRLM diesel fuel subject to the 500 ppm 
sulfur diesel fuel standard to exceed that standard by blending 
kerosene into the fuel, are also subject to liability.
    Today's rule does not require refiners or importers of kerosene to 
produce or import kerosene meeting the 15 ppm sulfur standard. However, 
we believe that refiners will produce ultra low sulfur kerosene in the 
same refinery processes that they use to produce ultra low sulfur 
diesel fuel, and that the market will drive supply of ultra low sulfur 
kerosene for those areas where, and during those seasons when, the 
product is needed for blending with NRLM, as well a highway, diesel 
fuel.
    As discussed in section IV.D, kerosene blending also factors into 
the designate and track provisions finalized today from June 1, 2006 
until June 1, 2010. During this time period it is possible, and in fact 
likely, that kerosene meeting the 15 ppm sulfur standard will instead 
be designated as No. 1 highway diesel fuel, and will simply need to 
meet all of the requirements of highway diesel fuel. It is also 
possible, though less likely that kerosene meeting the 500 ppm sulfur 
standard will be designated as No. 1 highway diesel fuel. However, if 
it is, it would also merely need to comply with all the requirements 
applicable to highway diesel fuel.
5. Use of Diesel Fuel Additives
    Diesel fuel additives include lubricity improvers, corrosion 
inhibitors, cold-operability improvers, and static dissipaters. Use of 
such additives is distinguished from the use of kerosene or biodiesel 
by the low concentrations at which they are used (defined to be one 
percent or less) and their relatively more complex chemistry.\159\ The 
suitability of diesel fuel additives for use in diesel fuel meeting a 
500 ppm sulfur specification has been well established due to the 
existence of 500 ppm sulfur highway diesel fuel in the marketplace 
since 1993. The suitability of additives for use in 15 ppm sulfur 
diesel fuel was first addressed by EPA in the highway diesel program, 
which requires highway diesel fuel to meet a 15 ppm sulfur standard 
beginning in 2006. At the time of the finalization of the highway 
diesel final rule and during our development of the proposed NRLM 
diesel rule, our review of data submitted by additive and fuel 
manufacturers to comply with EPA's Fuel and Fuel Additive Registration 
requirements indicated that additives to meet every purpose, including 
static dissipation, are currently in common use which meet a 15 ppm cap 
on sulfur content.\160\
---------------------------------------------------------------------------

    \159\ Diesel fuel additives are used at concentrations commonly 
expressed in parts per million. Diesel fuel additives can include 
specially-formulated polymers and other complex chemical components. 
Kerosene is used at much higher concentrations, expressed in volume 
percent. Unlike diesel fuel additives, kerosene is a narrow 
distillation fraction of the range of hydrocarbons normally 
contained in diesel fuel.
    \160\ See Chapter IV.D. of the RIA for the highway diesel fuel 
rule for more information on diesel fuel additives, EPA Air docket 
A-99-06, docket item V-B-01. Also see 40 CFR part 79.
---------------------------------------------------------------------------

a. Additives Used in 15 ppm Sulfur Diesel Fuel
    Similar to the highway diesel rule, today's rule allows the bulk 
addition of diesel fuel additives with a sulfur content greater than 15 
ppm in NRLM diesel fuel under certain circumstances.\161\ However, NRLM

[[Page 39088]]

diesel fuel containing such additives will continue to be subject to 
the 15 ppm sulfur cap. We believe that it is most appropriate for the 
market to determine how best to accommodate increases in fuel sulfur 
content from the refinery gate to the end user, while maintaining the 
15 ppm sulfur cap, and whether such increases result from contamination 
in the distribution system or bulk diesel additive use. By providing 
this flexibility, we anticipate that market forces will encourage an 
optimal balance between the competing demands of manufacturing fuel 
lower than the 15 ppm sulfur cap, limiting contamination in the 
distribution system, and limiting the bulk additive contribution to 
fuel sulfur content.
---------------------------------------------------------------------------

    \161\ Most diesel fuel additives are added at the terminal to 
bulk fuel volumes before sale to the consumer. These additives are 
referred to as bulk additives. End users and wholesale purchaser 
consumers sometimes also add additives to diesel fuel by hand 
blending into the vehicle fuel tank or fleet fuel storage tanks. 
Such additives are referred to as aftermarket additives. As 
discussed at the end of this section, today's rule contains 
different requirements regarding the use of aftermarket additives.
---------------------------------------------------------------------------

    Thus, as in the highway diesel program, additive manufacturers that 
market bulk diesel additives with a sulfur content higher than 15 ppm 
and blenders that use them in nonroad diesel have additional 
requirements to ensure that the 15 ppm sulfur cap for NRLM diesel fuel 
is not exceeded.
    The 15 ppm sulfur cap on highway diesel fuel that becomes effective 
in 2006 may encourage the gradual retirement of additives that do not 
meet a 15 ppm sulfur cap. The 15 ppm sulfur cap for NR fuel in 2010 and 
for LM fuel in 2012 may further this trend. However, we do not 
anticipate that this will result in disruption to additive users and 
producers or a significant increase in cost. Additive manufacturers 
commonly reformulate their additives on a periodic basis as a result of 
competitive pressures. We anticipate that any reformulation that might 
need to occur to meet a 15 ppm sulfur cap, will be accomplished prior 
to the implementation of the 15 ppm sulfur cap on highway diesel fuel 
in 2006.
    Like the highway diesel fuel rule, this rule will limit the 
continued use in 15 ppm sulfur fuel of a bulk additive that exceeds 15 
ppm sulfur to a concentration of less than one volume percent. We 
believe that this limitation is appropriate and will not cause any 
undue burden because the diesel fuel additives for which this 
flexibility was included are always used today at concentrations well 
below one volume percent. Further, one volume percent is the threshold 
above which the blender of an additive becomes subject to all the 
requirements applicable to a refiner. See 40 CFR 79.2(d)(1) and 40 CFR 
part 80.
    The specific requirements regarding the use of bulk diesel fuel 
additives in NRLM fuel subject to the 15 ppm sulfur standard are as 
follows:

--Bulk additives that have a sulfur content at or below 15 ppm must be 
accompanied by a PTD that states: ``The sulfur content of this additive 
does not exceed 15 ppm.''
--Bulk additives that exceed 15 ppm sulfur could continue to be used in 
diesel fuel subject to the 15 ppm sulfur standard provided that they 
are used at a concentration of less than one volume percent and their 
transfer is accompanied by a PTD that lists the following:

    (1) A warning that the additive's sulfur content may exceed 15 ppm 
and that improper use of the additive may result in non-complying fuel,
    (2) The additive's maximum sulfur concentration,
    (3) The maximum recommended concentration for use of the additive 
in diesel fuel, and
    (4) The contribution to the sulfur level of the fuel that would 
result if the additive is used at the maximum recommended 
concentration.
    We proposed that the affirmative defenses to presumptive liability 
for blenders of bulk additives with a sulfur content greater than 15 
ppm must include periodic sulfur tests after the addition of the 
additive showing that the finished fuel does not exceed the 15 ppm 
sulfur cap. We are adopting this proposed requirement for additives 
other than static dissipater additives.
b. Static Dissipater Additives
    Comments from diesel fuel distributors and additive manufactures 
stated that static dissipater additives are unique among the various 
types of diesel fuel additives in that there are currently none 
available with a sulfur content below 15 ppm which are fully effective. 
Considering the lack of static dissipater additives meeting a 15 ppm 
sulfur cap, and the inability to add static dissipater (S-D) additives 
prior to shipment by pipeline, commenters stated that the prohibitive 
cost of testing fuel batches after the addition of static dissipater 
additives could discourage their use. To avoid the potential adverse 
impact on the safety of the fuel distribution industry which could 
result, commenters requested that we provide an alternative method for 
use in demonstrating their affirmative defense to presumptive liability 
when they use static dissipater additives with a sulfur content above 
15 ppm. Manufacturers of static dissipater additives stated that due to 
very low treatment rates that are needed for such additives, their use 
will raise the sulfur content of the finished fuel by no more than 0.02 
ppm. Commenters stated that because of the extremely low potential 
contribution to the sulfur level of the finished diesel fuel which 
might result from the use of static dissipater additives, there was 
little risk that use of such additives would result in noncompliance 
with the 15 ppm sulfur cap.
    We contacted all of the additive manufactures that have registered 
static dissipater additives in EPA's Fuel and Fuel Additive 
Database.\162\ All of these manufactures stated that there are no 
fully-effective static dissipater additives available that have a 
sulfur content below 15 ppm. They further stated that sulfur is an 
essential component in static dissipater additives, and that it is 
currently unclear how to formulate a static dissipater additive that 
would have a sulfur content below 15 ppm. Because of this input, we now 
recognize that static dissipater additives are in a unique category 
with respect to the ability to comply with a 15 ppm sulfur cap. 
Additive manufactures stated that reformulation of static dissipater 
additives to meet a 15 ppm sulfur cap will likely be a lengthy 
undertaking.
---------------------------------------------------------------------------

    \162\ All additives must be registered with EPA Fuel and Fuel 
Additive Database prior to their use in motor vehicle diesel fuel.
---------------------------------------------------------------------------

    It is unclear which of the naturally-occurring components in diesel 
fuel act to dissipate static electricity. However, certain batches of 
fuel are periodically found which do not have adequate static 
dissipating qualities. In such cases, static dissipater additives are 
necessary to prevent a static discharge from occurring during the 
transfer of fuel into a storage tank which might cause an explosion. 
Therefore, it is essential that today's rule is structured in such a 
way so as to not impede the use static dissipater additives. Because of 
the lack of static dissipater additives meeting a 15 ppm sulfur 
specification, the unique difficulty in reformulating them to meet a 15 
ppm sulfur standard, the fact that they are essential to the safety of 
the fuel distribution system, and the impracticability for them to be 
added at the refinery, today's rule includes special affirmative 
defense provisions to reduce the sulfur testing burden associated with 
the use of static dissipater additives that have a sulfur content 
greater than 15 ppm.
    Commenters suggested an alternative mechanism to demonstrate an 
affirmative defense to presumptive liability for blenders of static-
dissipater (S-D) additives which would avoid the need to test every 
batch of fuel at the

[[Page 39089]]

terminal after additization. Under this approach, blenders of S-D 
additives would be required to provide volume accounting reconciliation 
(VAR) records similar to those under EPA's deposit control additive 
rule (40 CFR part 80, subpart G) which would show whether the S-D 
additive is being added at the appropriate rate on average over a 
course of a monthly accounting period. Today's rule finalizes the 
approach suggested by commenters with certain modifications. In cases 
where a violation of the 15 ppm sulfur cap for diesel fuel is 
discovered on a batch of fuel downstream of a blender of S-D additives 
that have a sulfur content above 15 ppm, the S-D additive blender must 
provide the following information to EPA in order to meet their 
affirmative defense to presumptive liability regarding the potential 
that the use of S-D additive might have caused or contributed to the 
violation:
     A sulfur test on the diesel batch prior to the addition of 
the S-D additive package that indicates that the additive, when added, 
will not cause the fuel to exceed 15 ppm
     A product transfer document that accompanied the transfer 
of the S-D additive package to the additive blender which contains the 
following:
--A statement that the S-D additive package exceeds 15 ppm in sulfur 
content and that special requirements apply if it is to be used in 
diesel fuel subject to the 15 ppm sulfur cap.
--The maximum sulfur level of the S-D additive package including other 
additive components such as diesel detergents and carrier fluid to the 
extent that they are part of the package. Each component of the 
additive package other than the S-D additive itself must comply with 
the 15 ppm sulfur cap.
--The maximum recommended concentration for the S-D additive package.
--The contribution to the final sulfur content of a finished fuel when 
the additive is added at the maximum recommended concentration. The 
maximum recommended concentration must result in a potential increase 
in the sulfur content of the finished fuel of no more than 0.05 ppm.

     Monthly volume accounting reconciliation (VAR) records 
that include:
--The amount of S-D additive package used during the month
--The volume of the fuel into which the additive was injected during 
the month
--The measured sulfur level of each fuel batch prior to injection of 
the additive which shows that the contribution to the sulfur level of 
the finished diesel fuel from the use of the additive at the treatment 
level at which it was injected would not cause any such batch of fuel 
to exceed the 15 ppm sulfur specification
     Quality assurance records which show that the precision of 
the additive injection equipment has been maintained in such a manner 
as to prevent malfunctions which could result in the injection of the 
S-D additive at a higher concentration than that reported.
    The additive blender must also be able to meet its normal diesel 
fuel defense elements: That the additive blender-fuel distributor did 
not cause the violation; that PTDs account for all the fuel and show 
apparent compliance; and that quality assurance sampling and testing 
has occurred, as modified by the discussion above.
    In addition, the ratio of the amount of additive used to the amount 
of fuel into which the additive was injected over any given monthly VAR 
period must not exceed the maximum treatment rate which could be added 
to any batch of fuel additized during the period. If not, the blender 
could be liable for any batch of diesel fuel found that exceeded the 15 
ppm sulfur cap which had been in their possession. The above provisions 
are only relevant for establishing affirmative defense to presumptive 
liability regarding the potential that the use of S-D additives might 
have caused a violation. Under no circumstances may an additive blender 
cause the sulfur level of any batch of finished fuel to exceed the 15 
ppm sulfur cap. Blenders of S-D additives must meet all other 
requirements for distributors of 15 ppm sulfur diesel fuel. Regardless 
of the cause of a violation of the 15 ppm sulfur standard, any party 
that had custody or title of off-specification fuel is potentially 
liable and responsible for their affirmative defense elements.
    These provisions may only be used for static dissipater additives 
which have the potential to raise the sulfur content of the finished 
fuel by no more than 0.050 ppm when used at their maximum recommended 
treatment level. Based on the input from additive manufacturers noted 
above, this will allow the use of S-D additives that are fully 
effective for this purpose. The use of S-D additives that might have a 
higher contribution to the sulfur content of the finished fuel, 
therefore, is unnecessary. To establish affirmative defense to 
presumptive liability, blenders that use S-D additives that could 
contribute more than 0.050 ppm to the sulfur content of a finished fuel 
subject to the 15 ppm sulfur specification when used at the maximum 
recommended treatment level are required to conduct a sulfur test on 
the fuel batch after the addition of the additive. Blenders of 
additives other than S-D additives which have a sulfur content greater 
than 15 ppm into diesel fuel subject to the 15 ppm sulfur standard are 
also required to conduct a sulfur test on the fuel batch after the 
addition of the additive for affirmative defense purposes.
    EPA may require additive manufactures to supply samples of the 
additive packages (or the components additives in such packages) that 
are used in 15 ppm sulfur diesel fuel, or may sample from additive 
batches already in the distribution system. In such cases, we may test 
the sulfur content of these additives to evaluate whether they are in 
compliance with the information provided on the PTDs or other relevant 
documentation. In cases where a violation is discovered, any party in 
the distribution system that had custody of the additive batch found to 
be in violation may be held presumptively liable for the violation.
    Today's rule amends the highway diesel regulation so that the 
provisions finalized today regarding the use of S-D additives with a 
sulfur content above 15 ppm in NRLM diesel fuel also apply to the use 
of such additives in highway diesel fuel subject to a 15 ppm sulfur 
standard. However, we continue to be concerned about the use of 
additives having a sulfur content greater than 15 ppm. We will continue 
to monitor this issue and may initiate an additional rulemaking in the 
future to consider further limiting or prohibiting the use of greater 
than15 ppm sulfur additives in diesel fuel subject to a 15 ppm sulfur 
cap.
    The special provisions for static-dissipater additives finalized in 
today's rule will ensure that the unique challenges regarding the 
manufacture and use of such additives do not present a barrier to their 
continued use. Additive manufactures have stated that they are working 
on reformulation of their S-D additives to meet a 15 ppm sulfur limit.
    We recently learned that industry is beginning to develop a 
standardized test to quantify the concentration of static-dissipater 
additives in finished fuel.\163\ If such a test were available, it 
might be useful for establishing an additive blender's affirmative 
defense to presumptive liability in place of some of the VAR provisions 
described above. If

[[Page 39090]]

a batch of fuel was found to exceed the 15 ppm sulfur cap, the use of 
such a test would allow for the measurement of the contribution to the 
sulfur level of the finished fuel which resulted from the addition of 
the static dissipater additive. If the contribution was below the 
permissible level given the sulfur measurements on each batch of fuel 
additized with the greater than 15 ppm S-D additive, it might be useful 
in association with other blender records to demonstrate that the 
additive blender was not at fault for the violation. If such a 
standardized test becomes available, EPA will work with the appropriate 
industry parties to evaluate its applicability for affirmative defense 
purposes, and conduct a rulemaking if appropriate to amend the elements 
required to establish affirmative defense to presumptive liability 
under the NRLM and highway diesel programs.
---------------------------------------------------------------------------

    \163\ Phone conversation with Eon McMullen, Octel additives, 
February 12, 2004.
---------------------------------------------------------------------------

c. Additives Used in 500 ppm Sulfur Diesel Fuel
    The 1993 and 2007 highway diesel programs did not contain any 
requirements regarding the maximum sulfur content of additives used in 
highway diesel fuel subject to a 500 ppm sulfur cap.\164\ Our 
experience under the highway program indicates that application of the 
500 ppm sulfur cap throughout the distribution system to the end-user 
has been sufficient to prevent the use of additives from jeopardizing 
compliance with the 500 ppm sulfur standard. The potential increase of 
several ppm in the sulfur content of diesel fuel which might result 
from the use of some diesel additives raises substantial concerns 
regarding the impact on compliance with a 15 ppm sulfur cap. However, 
this is not the case with respect to the potential impact on compliance 
with a 500 ppm sulfur cap. The current average sulfur content of 
highway diesel fuel of 340 ppm provides ample margin for the minimal 
increase in the fuel sulfur content which might result from the use of 
additives. We expect that this will also be the case for NRLM fuel 
subject to the 500 ppm sulfur standard. Therefore, we are not 
finalizing any requirements regarding the sulfur content of additives 
used in NRLM fuel subject to the 500 ppm sulfur standard. We believe 
that the requirement that NRLM fuel comply with a 500 ppm sulfur cap 
throughout the distribution system to the end-user will be sufficient 
to ensure that entities who introduce additives into such fuel take 
into account the potential increase in fuel sulfur content.
---------------------------------------------------------------------------

    \164\ The 500 ppm sulfur highway diesel final rule contains the 
requirement that highway diesel fuel not exceed 500 ppm sulfur at 
any point in the fuel distribution system including after the 
blending of additives. Fuel Quality Regulations for Highway Diesel 
Fuel Sold in 1993 and Later Calendar Years, Final Rule, 55 FR 34120, 
August 21, 1990.
---------------------------------------------------------------------------

d. Aftermarket Additives
    We believe that more stringent requirements are needed for 
aftermarket additives than for bulk additives due to the lack of 
practical safeguards to ensure that the use of such additives do not 
cause a violation of the sulfur standards in today's rule. Also, the 
presence of multiple grades of aftermarket additives, some suitable for 
use in engines equipped with sulfur sensitive emissions control 
equipment as well as pre-control engines, and some suitable for use 
only in pre-control engines would raise significant concerns regarding 
the misuse. The misuse of a high sulfur additive in an engine with 
sulfur sensitive emissions control equipment could damage this 
equipment. Therefore, today's rule requires that all aftermarket 
additives sold for use in nonroad, locomotive, and marine equipment 
must meet a 500 ppm sulfur cap beginning June 1, 2007, and that all 
aftermarket additives sold for use in nonroad equipment must meet a 15 
ppm sulfur specification beginning June 1, 2010. After June 1, 2010, 
aftermarket additives with a sulfur content less than 500 ppm may 
continue to be used in locomotive and marine engines. This approach is 
consistent with that taken in the highway diesel rule which requires 
all aftermarket additives to meet a 15 ppm sulfur specification 
beginning June 1, 2006.
6. End User Requirements
    In light of the importance of ensuring that the proper fuel is used 
in nonroad, locomotive, and marine engines covered by this program, any 
person is prohibited from fueling such an engine with fuel not meeting 
the applicable sulfur standard.
    Specifically:
    (1) No person may introduce, or permit the introduction of fuel 
containing the heating oil marker into nonroad, locomotive, marine or 
highway diesel engines;
    (2) No person may introduce, or permit the introduction of, fuel 
that exceeds 15 ppm sulfur content into nonroad equipment with a model 
year 2011 or later engine;
    (3) Beginning December 1, 2010, no person may introduce, or permit 
the introduction of any fuel exceeding 500 ppm sulfur content into any 
nonroad, locomotive, and marine engine; and
    (4) Beginning December 1, 2014, no person may introduce, or permit 
the introduction of any fuel exceeding 15 ppm sulfur content into any 
nonroad diesel engine regardless of year of manufacture.

D. Diesel Fuel Sulfur Sampling and Testing Requirements

1. Testing Requirements
    Today's action provides a new approach for fuel sulfur measurement. 
The details of this approach are described below, followed by a 
description of who will be required to conduct fuel sulfur testing as 
well as what fuel must be tested. The diesel fuel sulfur sampling and 
testing provisions described below are similar to those that were 
proposed. Adjustments we made to the proposed provisions were in 
response to comments we received during the public comment period.
a. Test Method Approval, Record-keeping, and Quality Control 
Requirements
    Most current and past EPA fuel programs designated specific 
analytical methods which refiners, importers, and downstream parties 
\165\ use to analyze fuel samples at all points in the fuel 
distribution system for regulatory compliance purposes. Some of these 
programs have also allowed certain specific alternative methods which 
may be used as long as the test results are correlated to the 
designated test method. The highway diesel rule (66 FR 5002, January 
18, 2001), for example, specifies one designated test method and three 
alternative methods for measuring the sulfur content of highway diesel 
fuel subject to the 15 ppm sulfur standard. The rule also specifies one 
designated method and three alternative methods for measuring the 
sulfur content of highway diesel fuel subject to the 500 ppm sulfur 
standard.
---------------------------------------------------------------------------

    \165\ Other EPA fuels regulations have allowed downstream 
parties conducting periodic quality assurance testing for defense 
purposes to use methods other than the designated method, so long as 
the method is an ASTM method appropriate for testing for the 
applicable fuel property, and so long as the instrument is 
correlated to the designated method.

[[Page 39091]]



  Table V.H-1.--Designated and Alternative Sulfur Test Methods Allowed
                    Under the Highway Diesel Program
------------------------------------------------------------------------
       Sulfur Test Method               500 ppm             15 ppm
------------------------------------------------------------------------
ASTM D 2622-03, as modified,      Designated........  Alternative.
 Standard Test Method for Sulfur
 in Petroleum Products by
 Wavelength Dispersive X-ray
 Fluorescence Spectrometry.
ASTM D 3120-03a, Standard Test    ..................  Alternative.
 Method for Trace Quantities of
 Sulfur in Light Liquid
 Petroleum Hydrocarbons by
 Oxidative Microcoulometry.
ASTM D 4294-03, Standard Test     Alternative.......  ..................
 Method for Sulfur in Petroleum
 and Petroleum Products by
 Energy-Dispersive X-ray
 Fluorescence Spectrometry.
ASTM D 5453-03a, Standard Test    Alternative.......  Alternative.
 Method for Determination of
 Total Sulfur in Light
 Hydrocarbons, Motor Fuels and
 Motor Oils by Ultraviolet
 Fluorescence.
ASTM D 6428-99, Test Method for   Alternative.......  Designated.
 Total Sulfur in Liquid Aromatic
 Hydrocarbons and Their
 Derivatives by Oxidative
 Combustion and Electrochemical
 Detection.
------------------------------------------------------------------------

    The highway diesel fuel rule also announced the Agency's intention 
to adopt a performance-based test method approach in the future, as 
well as our intention to continue working with the industry to develop 
and improve sulfur test methods. Today's action adopts such a 
performance-based test method approach for both highway and NRLM diesel 
fuel subject to the 15 ppm and 500 ppm sulfur standards. In addition, 
the current approach for measuring the sulfur content of diesel fuel 
subject to the 500 ppm sulfur standard, i.e., using the designated 
sulfur test method or one of the alternative test methods with 
correlation will remain applicable.
    Under the performance-based approach, a given test method can be 
approved for use in a specific laboratory by meeting certain precision 
and accuracy criteria specified in the regulations. The method can be 
approved for use by that laboratory as long as appropriate quality 
control procedures are followed. Properly selected precision and 
accuracy values allow multiple methods and multiple commercially 
available instruments to be approved, thus providing greater 
flexibility in method and instrument selection while also encouraging 
the development and use of better methods and instrumentation in the 
future. Under today's rule, there is no designated sulfur test method 
as specified under previous regulations.
    Since any test method that meets the specified performance criteria 
may qualify, this type of approach does not conflict with the 
``National Technology Transfer and Advancement Act of 1995'' (NTTAA), 
section 12(d) of Public Law 104-113, and the Office of Management and 
Budget (OMB) Circular A-119. Both of these are designed to encourage 
the adoption of standards developed by ``voluntary consensus standards 
bodies'' (VCSB) \166\ and to reduce reliance on government-unique 
standards where such consensus standards would suffice. Under the 
performance criteria approach in today's rule, methods developed by 
consensus bodies as well as methods not yet approved by a consensus 
body qualify for approval provided they meet the specified performance 
criteria as well as the record-keeping and reporting requirements for 
quality control purposes.
---------------------------------------------------------------------------

    \166\ These are standard-setting organizations, like ASTM, and 
ISO that have broad representation of all interested stakeholders 
and make decisions by consensus.
---------------------------------------------------------------------------

i. How Can a Given Method Be Approved?
    A given test method can be approved for use under today's program 
by meeting certain precision and accuracy criteria. Approval applies on 
a laboratory/facility-specific basis. If a company chooses to employ 
more than one laboratory for fuel sulfur testing purposes, then each 
laboratory must separately seek approval for each method it intends to 
use. Likewise, if a laboratory chooses to use more than one sulfur test 
method, then each method must be approved separately. Separate approval 
is not necessary for individual operators or laboratory instruments 
within a given laboratory facility.
    The specific precision and accuracy criteria were derived from 
existing sulfur test methods that are either required or allowed under 
the highway diesel fuel sulfur program. The first criterion, precision, 
refers to the consistency of a set of measurements and is used to 
determine how closely analytical results can be duplicated based on 
repeat measurements of the same material under prescribed conditions. 
To demonstrate the precision of a given sulfur test method under the 
performance-based approach, a laboratory facility must perform 20 
repeat tests over 20 days on samples taken from a homogeneous supply of 
a commercially available diesel fuel. Based on the comments we received 
on this issue, we are also clarifying that the test results must in 
general be a sequential record of the analyses with no omissions. A 
laboratory facility may exclude a given sample or test result only if 
(1) the exclusion is for a valid reason under good laboratory practices 
and (2) it maintains records regarding the sample and test results and 
the reason for excluding them. Using the test results\167\ of ASTM D 
3120 for diesel fuel subject to the 15 ppm sulfur standard, the 
precision must be less than 0.72 ppm.\168\ Similarly, using the test 
results of ASTM D 2622 for diesel fuel subject to the 500 ppm sulfur 
standard, the precision must be less than 9.68 ppm.
---------------------------------------------------------------------------

    \167\ Sulfur Repeatability of Diesel by Method at 15 ppm, ASTM 
Report on Low Level Sulfur Determination in Gasoline and Diesel 
Interlaboratory Study--A Status Report, June 2002.
    \168\ 0.72 ppm is equal to 1.5 times the standard deviation of 
ASTM D 3120, where the standard deviation is equal to the 
repeatability of ASTM D 3120 (1.33) divided by 2.77. 9.68 ppm is 
equal to 1.5 times the standard deviation of ASTM D 2622, where the 
standard deviation is equal to the repeatability of ASTM D 2622 
(17.88) divided by 2.77. In the proposal, we stated that the 
repeatability of ASTM D 2622 was 26.81. While that reported value 
was incorrect due to either a typographical or a computational 
error, the resulting precision value that we are finalizing today 
was correctly calculated and reported as 9.68 ppm. The ``sample 
standard deviation'' should be used for this purpose. By its use of 
N-1 in the denominator, this measure applies a correction for the 
small sample bias and provides an unbiased estimate of the standard 
deviation of the larger population from which the sample was drawn. 
Since the conditions of the precision qualification test admit more 
sources of variability than the conditions under which ASTM 
repeatability is determined (longer time span, different operators, 
environmental conditions, etc.) the repeatability standard deviation 
derived from the round robin was multiplied by what we believe to be 
a reasonable adjustment factor, 1.5, to compensate for the 
difference in conditions.
---------------------------------------------------------------------------

    The second criterion, accuracy, refers to the closeness of 
agreement between a measured or calculated value and the actual or 
specified value. To demonstrate the accuracy of a given test method 
under the performance-based approach, a laboratory facility is required 
to perform 10 repeat tests on a

[[Page 39092]]

standard sample, the mean of which for diesel fuel subject to the 15 
ppm sulfur standard can not deviate from the Accepted Reference Value 
(ARV) of the standard by more than 0.54 ppm and for diesel fuel subject 
to the 500 ppm sulfur standard can not deviate from the ARV of the 
standard by more than 7.26 ppm \169\. These tests must be performed 
using commercially available gravimetric sulfur standards. Ten tests 
are required using each of two different sulfur standards. For 15 ppm 
fuel, one must be in the range of 1-10 ppm sulfur and the other in the 
range of 10-20 ppm sulfur. For 500 ppm fuel, one must be in the range 
of 100-200 ppm sulfur and the other in the range of 400-500 ppm sulfur 
for 500 ppm sulfur diesel fuel. Therefore, a minimum of 20 total tests 
is required for sufficient demonstration of accuracy for a given sulfur 
test method at a given laboratory facility. As with the requirement for 
precision demonstration described above, the test results must be a 
sequential record of the analyses with no omissions. Finally, any known 
interferences for a given test method must be mitigated.
---------------------------------------------------------------------------

    \169\ 0.54 and 7.26 are equal to 0.75 times the precision values 
of 0.72 for 15 ppm sulfur diesel and 9.68 for 500 ppm sulfur diesel, 
respectively.
---------------------------------------------------------------------------

    Some commenters remarked that the ARV of the standards does not 
account for any uncertainty given that all commercially available 
standards have an uncertainty associated with the certified value. The 
commenters added that EPA should specify what maximum value in the 
uncertainty associated with the ARV is allowed.
    These requirements are not intended to be overly burdensome. 
Indeed, we believe these requirements are equivalent to what a 
laboratory would do during the normal start up procedure for a given 
test method. In addition, we believe this approach will allow regulated 
entities to know that they are measuring diesel fuel sulfur levels 
accurately and within reasonable site reproducibility limits.
ii. What Information Must Be Reported to the Agency?
    For test methods that have already been approved by a VCSB, such as 
ASTM or the International Standards Organization (ISO), each laboratory 
facility must report to the Agency the precision and accuracy results 
as described above for each method for which it is seeking approval. 
Such submissions to EPA, as described elsewhere, are subject to the 
Agency's review for 90 days, and the method will be considered approved 
in the absence of EPA comment. Laboratory facilities are required to 
retain the fuel samples used for precision and accuracy demonstration 
for 90 days. While we proposed a 30 day sample retention period, 
commenters stated that the sample retention period for fuel samples 
that are used for precision and accuracy demonstrations should be 
equivalent to the length of EPA's review period (i.e., 90 days). We 
agree with the commenters and are thus finalizing a 90 day sample 
retention period in today's rule. This sample retention requirement 
also applies to non-VCSB methods which are described below.
    For test methods that have not been approved by a VCSB, full test 
method documentation, including a description of the technology/
instrumentation that makes the method functional, as well as subsequent 
EPA approval of the method is also required. These submissions will 
also be subject to the Agency's review for 90 days, and the method will 
be considered approved in the absence of EPA comment. Submission of 
VCSB methods is not required since they are available in the public 
domain. In addition, industry and the Agency will likely have had 
substantial experience with such methods.
    As described above, federal government and EPA policy is to use 
standards developed by voluntary consensus bodies when available. The 
purpose of the NTTAA, at least in part, is to foster consistency in 
regulatory requirements, to take advantage of the collective industry 
wisdom and wide-spread technical evaluation required before a test 
method is approved by a consensus body, and to take advantage of the 
ongoing oversight and evaluation of a test method by the consensus body 
that results from wide-spread use of an approved method e.g., the 
ongoing round-robin type analysis and typical annual updating of the 
method by the consensus body. These goals are not met where the Agency 
allows use of a non-consensus body test method in perpetuity. Moreover, 
it is not possible to realize many of the advantages that result from 
consensus status where a test method is used by only one or a few 
companies. It will not have the practical scrutiny that comes from 
ongoing wide-spread use, or the independent scrutiny of the consensus 
body and periodic updating. In addition, EPA does not have the 
resources to conduct the degree of initial scrutiny or ongoing scrutiny 
that are practiced by consensus bodies. Nevertheless, EPA believes it 
is appropriate to allow limited use of a proprietary test method for a 
limited time, even though the significant advantages of consensus test 
methods are absent, because EPA can evaluate the initial quality of a 
method and a company may have invested significant resources in 
developing a method. However, if after a reasonable time a test method 
fails to gain consensus body approval, EPA believes approval of the 
method should be withdrawn because of the absence of ongoing consensus 
oversight. Accordingly, a non-VCSB method will cease to be qualified 
five years from the date of its original approval by EPA in the absence 
of VCSB approval.
    To assist the Agency in determining the performance of a given 
sulfur test method, non-VCSB methods, in particular, we reserve the 
right to send samples of commercially available fuel to laboratories 
for evaluation. Such samples are intended for situations in which the 
Agency has concerns regarding a test method and, in particular, its 
ability to measure the sulfur content of a random commercially 
available diesel fuel. Laboratory facilities are required to report 
their results from tests of this material to the Agency.
iii. What Quality Control Provisions Are Required?
    We are requiring ongoing Quality Control (QC) procedures for sulfur 
measurement instrumentation. These are procedures used by laboratory 
facilities to ensure that the test methods they have qualified and the 
instruments on which the methods are run are yielding results with 
appropriate accuracy and precision, e.g., that the results from a 
particular instrument do not ``drift'' over time to yield unacceptable 
values. It is our understanding that most laboratories already employ 
QC procedures, and that these are commonly viewed as important good 
laboratory practices. Laboratories will be required, at a minimum, to 
abide by the following QC procedures for each instrument used to test 
batches of diesel fuel under these regulations even where a laboratory 
elects to use the test method used to establish the precision and 
accuracy criteria finalized in today's rule:
    (1) Follow the mandatory provisions of ASTM D 6299-02, Standard 
Practice for Applying Statistical Quality Assurance Techniques to 
Evaluate Analytical Measurement System Performance. Laboratories are 
required to construct control charts from the mandatory QC sample 
testing prescribed in paragraph 7.1, following the guidelines under A 
1.5.1 for individual observation charts and A 1.5.2 for moving range 
charts.
    (2) Follow ASTM D 6299-02 paragraph 7.3.1 (check standards) using

[[Page 39093]]

a standard reference material. Check standard testing is required to 
occur at least monthly and should take place following any major change 
to the laboratory equipment or test procedure. Any deviation from the 
accepted reference value of the check standard greater than 1.44 ppm 
for diesel fuel subject to the 15 ppm sulfur standard and 19.36 ppm for 
diesel fuel subject to the 500 ppm sulfur standard\170\ must be 
investigated.
---------------------------------------------------------------------------

    \170\ 1.44 ppm is equal to two times the precision value of 0.72 
ppm for 15 ppm diesel and 19.36 is equal to two times the precision 
value of 9.68 ppm for 500 ppm diesel.
---------------------------------------------------------------------------

    (3) Upon discovery of any QC testing violation of A 1.5.2.1 or A 
1.5.3.2 or check standard deviation greater than 1.44 ppm and 19.36 ppm 
for 15 ppm sulfur diesel and 500 ppm sulfur diesel, respectively, as 
provided in item 2 above, any measurement made while the system was out 
of control must be tagged as suspect and an investigation conducted 
into the reasons for this anomalous performance. Refiners and importers 
are required to retain batch samples for 30 days or the period equal to 
the interval between QC sample tests, whichever is longer. If an 
instrument is found to be out of control, all of the retained samples 
since the last time the instrument was shown to be in control must be 
retested.
    (4) QC records, including investigations under item 3 above must be 
retained for five years and must be provided to the Agency upon 
request.
b. Requirements To Conduct Fuel Sulfur Testing
    Given the importance of assuring that NRLM diesel fuel designated 
to meet the 15 ppm sulfur standard in fact meets that standard, we are 
requiring that refiners, importers, and transmix processors test each 
batch of NRLM diesel fuel designated to meet the 15 ppm sulfur standard 
and maintain records of such testing. Requiring that refiners, 
importers, and transmix processors test each batch of fuel subject to 
the 15 ppm sulfur NRLM standard assures that compliance can be 
confirmed through testing records, and even more importantly, assures 
that diesel fuel exceeding the 15 ppm standard is not introduced into 
commerce as fuel for use in nonroad equipment having sulfur-sensitive 
emission control devices. Batch testing was not required under the 
highway diesel fuel rule. Instead, such testing was expected to be 
performed to establish a defense to potential liability. However, for 
the same reasons discussed above, today's rule extends this batch 
testing requirement to15 ppm sulfur highway diesel fuel beginning in 
2006.
    In order to address situations where refiners produce NRLM diesel 
fuel using computer-controlled inline blending equipment and do not 
have storage tanks from which to withdraw samples, we are including in 
today's final rule a provision to allow refiners to test a composited 
sample of a batch of diesel fuel for its sulfur content after the 
diesel fuel has been shipped from the refinery. This inline blending 
provision is similar to the provision that exists under the 
reformulated gasoline and gasoline sulfur programs and applies to both 
highway and NRLM diesel fuel under today's action.
    Today's rule does not require downstream parties to conduct every-
batch testing. However, we believe that most downstream parties will 
voluntarily conduct ``periodic'' sampling and testing for quality 
assurance purposes if they want to establish a defense to presumptive 
liability, as discussed in section V.H. below.
2. Two Part-Per-Million Downstream Sulfur Measurement Adjustment
    We believe that it is appropriate to recognize sulfur test 
variability in determining compliance with the 15 ppm sulfur NRLM 
diesel fuel standards downstream of a refinery or import facility. 
Thus, today's rule provides that for all 15 ppm sulfur NRLM diesel fuel 
at locations downstream of a refinery or import facility, sulfur test 
results can be adjusted by subtracting two ppm. In the same manner as 
finalized for 15 ppm sulfur highway diesel fuel, the sole purpose of 
this downstream compliance provision is to address test variability 
concerns (see the highway diesel fuel rule). We received comments 
suggesting that a higher downstream test tolerance is needed based on 
the current values for test method variability. However, we anticipate 
that the reproducibility of sulfur test methods is likely to improve to 
two ppm or even less by the time the 15 ppm sulfur standard for highway 
diesel fuel is implemented--four years before implementation date of 
the 15 ppm standard for NRLM diesel fuel. With this provision, we 
anticipate that refiners will be able to produce diesel fuel with an 
average sulfur level of approximately 7-8 ppm and some contamination 
could occur throughout the distribution system, without fear of causing 
a downstream violation due solely to test variability. As test methods 
improve in the future, we will reevaluate whether two ppm is the 
appropriate allowance for purposes of this compliance provision. We 
also received comments that a test tolerance should be provided in 
determining compliance with the 500 ppm sulfur standards for NRLM fuel. 
We believe that such a tolerance is not needed for fuels subject to a 
500 ppm sulfur standard because of the flexibility that refiners 
possess to produce fuel with a sufficiently low sulfur content to 
accommodate test variability.
3. Sampling Requirements
    Today's rule adopts the same sampling methods adopted by the 
highway diesel rule (66 FR 5002, January 18, 2001). These sampling 
methods are American Society for Testing and Materials (ASTM) D 4057-95 
(manual sampling) and D 4177-95 (automatic sampling from pipelines/in-
line blending). The requirement to use these methods becomes effective 
for NRLM diesel fuel on June 1, 2007. These same methods were also 
adopted for use in the Tier 2/Gasoline Sulfur rule.\171\
---------------------------------------------------------------------------

    \171\ 65 FR 6833-34 (Feb. 10, 2000). Today's rule also provides 
that these methods be used under the RFG and CG rules. See 62 FR 
37337 et seq. (July 11, 1997).
---------------------------------------------------------------------------

4. Alternative Sampling and Testing Requirements for Importers of 
Diesel Fuel Who Transport Diesel Fuel by Tanker Truck
    We understand that importers who transport diesel fuel into the 
U.S. by tanker truck are frequently relatively small businesses that 
could be subject to a substantial burden if they were required to 
sample and test each batch of NRLM or highway diesel fuel imported by 
truck, especially where a trucker imports many small loads of diesel 
fuel. Therefore, today's rule provides that truck importers may comply 
with an alternative sampling and testing requirement, involving a 
sampling and testing program of the foreign truck loading terminal, if 
certain conditions are met. For an importer to be eligible for the 
alternative sampling and testing requirement, the terminal must conduct 
sampling and testing of the NRLM or highway diesel fuel immediately 
after each receipt into its terminal storage tank but before loading 
product into the importer's tanker truck storage compartments or 
immediately prior to loading product into the importer's tanker truck 
if it hasn't tested after each receipt. Moreover, the importer will be 
required to conduct periodic quality assurance testing of the 
terminal's diesel fuel, and the importer will be required to assure EPA 
that we will be allowed to make unannounced

[[Page 39094]]

inspections and audits, to sample and test fuel at the foreign terminal 
facility, to assure that the terminal maintained sampling and testing 
records, and to submit such records to EPA upon request.

E. Selection of the Marker for Heating Oil

    As discussed in section IV.D, to ensure that heating oil is not 
shifted into the NRLM market, we need a way to distinguish heating oil 
from high sulfur or 500 ppm sulfur NRLM diesel fuel produced under the 
small refiner and credit provisions in today's rule. Currently, there 
is no differentiation today between fuel used for NRLM uses and heating 
oil. Both are typically produced to the same sulfur specification, and 
both are required to have the same red dye added prior to distribution 
from downstream of the terminal. Based on recommendations from 
refiners, in the NPRM, we concluded that the best approach to 
differentiate heating oil from NRLM diesel fuel would be to require 
that a marker be added to heating oil at the refinery gate. Since the 
proposal we received additional information which allows us to rely 
upon record-keeping and reporting provisions to differentiate heating 
oil from NRLM up to the point where it leaves the terminal (see section 
IV.D). Therefore, today's rule requires that a marker be added to 
heating oil before it leaves the terminal gate rather than the refinery 
gate as proposed.\172\
---------------------------------------------------------------------------

    \172\ Heating oil sold inside the Northeast/Mid-Atlantic Area 
adopted under today's rule and Alaska does not need to contain a 
marker (see section IV.D.).
---------------------------------------------------------------------------

    Section IV.D of today's preamble also discusses the need to 
distinguish 500 ppm sulfur locomotive and marine fuel produced by 
refiners and imported from 2010-2012 from 500 ppm sulfur nonroad diesel 
fuel produced during this time frame under the small refiner, credit, 
and downstream flexibility provisions in today's rule. Without this 
ability, it would be possible for 500 ppm sulfur LM diesel fuel to be 
shifted into the nonroad market during this time period outside of the 
Northeast/Mid-Atlantic Area and Alaska. Therefore, today's rule 
requires that from June 1, 2010 through May 31, 2012, the same marker 
added to heating oil must also be added to 500 ppm sulfur LM diesel 
fuel produced by a refiner or imported for use outside of the 
Northeast/Mid-Atlantic Area and Alaska before the fuel leaves the 
terminal. Nonroad diesel fuel meeting a 500 ppm sulfur standard 
produced under the small refiner or credit provisions, and 500 ppm 
sulfur NRLM diesel fuel generated under the downstream flexibility 
provisions in today's rule could be sold into the LM market outside of 
the Northeast/Mid-Atlantic Area and Alaska. Such 500 ppm sulfur NRLM 
diesel fuel does not need to be marked. Therefore, both marked and 
unmarked 500 ppm sulfur diesel fuel could be used in locomotive and 
marine diesel equipment outside of the Northeast/Mid-Atlantic Area and 
Alaska from 2010 through 2012.\173\
---------------------------------------------------------------------------

    \173\ Inside the Northeast/Mid-Atlantic Area, 500 ppm sulfur 
fuel produced from transmix or segregated interface could be sold 
into the LM or heating oil markets from 2010-2012, and could only be 
sold into the heating oil market after 2012. Outside of the 
Northeast/Mid-Atlantic Area, such fuel could be sold into the NRLM 
market from 2010-2012, and into the LM market thereafter.
---------------------------------------------------------------------------

    As discussed in section IV.D., use of the same marker in heating 
oil and 500 ppm sulfur LM fuel is feasible because the underlying goal 
is the same, i.e., keeping 500 ppm sulfur diesel fuel produced as 
heating oil or LM fuel from begin shifted into the nonroad diesel 
market from 2010 through 2012. We will be able to determine whether 
heating oil with a sulfur content greater than 500 ppm has been shifted 
into the LM market downstream of the terminal by testing the sulfur 
content of LM. 500 ppm fuel initially designated as heating oil can be 
later shifted into the LM market, since the sulfur standard for LM 
diesel fuel during this period is 500 ppm.
    Terminal operators suggested that we might be able to rely on 
record-keeping and reporting downstream of the terminal as well as 
above the terminal level, thereby eliminating any need for a fuel 
marker. However, we believe such record-keeping and reporting 
mechanisms would be insufficient to keep heating oil out of the NRLM 
market and 500 ppm sulfur LM fuel produced by a refiner or imported out 
of the nonroad market downstream of the terminal under typical 
circumstances. We can rely on such measures before the fuel leaves the 
terminal because it is feasible to require all of the facilities in the 
distribution system to report to EPA on their fuel transfers. As 
discussed in section IV.D., these electronic reports can be compared by 
EPA to identify parties responsible for shifting heating oil into the 
NRLM market from 2007-2014, 500 ppm sulfur LM fuel into the nonroad 
market from 2010-2012, and heating oil into the LM market beginning 
2014. Downstream of the terminal the parties involved in the fuel 
distribution system become far too numerous for such a system to be 
implemented and enforced (including jobbers, bulk plant operators, 
heating oil dealers, retailers, and even end-users with storage tanks 
such as farmers. Reporting errors for even a small fraction would 
require too many resources to track down and correct and would 
eliminate the effectiveness of the system.
    Our proposal envisioned that a fuel marker would be required in 
heating oil from June 1, 2006 through May 31, 2010, and that the same 
marker would be required in locomotive and marine fuel from June 1, 
2010 through May 31, 2014. As a consequence of finalizing the 15 ppm 
sulfur standard for locomotive and marine fuel in 2012, we no longer 
need to require that LM diesel fuel be marked after June 1, 2012. The 
2010-2012 marking requirement for 500 ppm sulfur LM diesel fuel does 
not apply to 500 ppm sulfur LM fuel produced by a refiner or imported 
in the Northeast/Mid-Atlantic Area or in Alaska. There is an ongoing 
need to require the continued use of the marker in heating oil 
indefinitely (see section IV of today's preamble).
    We proposed that beginning June 1, 2007 SY-124 must be added to 
heating oil in the U.S. at a concentration of 6 milligrams per liter 
(mg/L). Today's rule adopts this requirement except for heating oil 
used in the Northeast/Mid-Atlantic Area and Alaska.\174\ The chemical 
composition of SY-124 is as follows: N-ethyl-N-[2-[1-(2-
methylpropoxy)ethoxyl]-4-phenylazo]-benzeneamine.\175\ This 
concentration is sufficient to ensure detection of SY-124 in the 
distribution system, even if diluted by a factor of 50. Any fuel found 
with a marker concentration of 0.1 milligrams per liter or more will be 
presumed to be heating oil. Below this level, the prohibition on use in 
highway, nonroad, locomotive, or marine applications would not apply.
---------------------------------------------------------------------------

    \174\ See section IV.D of today's preamble for a discussion of 
the provisions for the Northeast/Mid-Atlantic Area and Alaska.
    \175\ Opinion on Selection of a Community-wide Mineral Oils 
Marking System, (``Euromarker''), European Union Scientific 
Committee for Toxicity, Ecotoxicity and the Environment plenary 
meeting, September 28, 1999.
---------------------------------------------------------------------------

    There are a number of other types of dyes and markers. Visible dyes 
are most common, are inexpensive, and are easily detected. Using a 
second dye in addition to the red dye required by IRS in all non-
highway fuel for segregation of heating oil based on visual 
identification raises certain challenges. The marker that we require in 
heating oil and 500 ppm sulfur LM diesel fuel must be different from 
the red dye currently required by IRS and EPA and not interfere with 
the identification of red dye in distillate fuels. Invisible

[[Page 39095]]

markers are beginning to see more use in branded fuels and are somewhat 
more expensive than visible markers. Such markers are detected either 
by the addition of a chemical reagent or by their fluorescence when 
subjected to near-infra-red or ultraviolet light. Some chemical-based 
detection methods are suitable for use in the field. Others must be 
conducted in the laboratory due to the complexity of the detection 
process or concerns regarding the toxicity of the reagents used to 
reveal the presence of the marker. Near-infra-red and ultra-violet 
flourescent markers can be easily detected in the field using a small 
device and after brief training of the operator. There are also more 
exotic markers available such as those based on immunoassay, and 
isotopic or molecular enhancement. Such markers typically need to be 
detected by laboratory analysis.
    We selected SY-124, however, for a number of reasons:
    (1) There is considerable data and experience with it which 
indicates there are no significant issues with its use;
    (2) It is compatible with the existing red dye;
    (3) Test methods exist to quantify its concentration, even if 
diluted by a factor of 50 to one;
    (4) It is reasonably inexpensive; and
    (5) It can be produced and provided by a number of sources.
    Effective in August 2002, the European Union (EU) enacted the 
requirement that SY-124 be added at 6 mg/L to diesel fuel that is taxed 
at a lower rate in all EU member states.\176\ Solvent yellow 124 is 
referred to as the ``Euromarker'' in the EU. The EU has found this 
treatment rate to be sufficient for their enforcement purposes while 
not interfering with the identification of the various different 
colored dyes required by different EU member states (including the same 
red dye that is required in the U.S.). Despite its name, SY-124 does 
not impart a strong color to diesel fuel when used at a concentration 
of 6 mg/L. Most often it is reportedly nearly invisible in distillate 
fuel given that the slight yellow color imparted is similar to the 
natural color of many distillate fuels.\177\ In the presence of red 
dye, SY-124 can impart a slight orange tinge to the fuel. However, it 
does not interfere with the visual identification of the presence of 
red dye or the quantification of the concentration of red dye in 
distillate fuel. Thus, the use of SY-124 at 6 mg/L in diesel fuel would 
not interfere with the use of the red dye by IRS to identify non-taxed 
fuels.
---------------------------------------------------------------------------

    \176\ The European Union marker legislation, 2001/574/EC, 
document C(2001) 1728, was published in the European Council 
Official Journal, L203 28.072001.
    \177\ The color of distillate fuel can range from near water 
white to a dark blackish brown but is most frequently straw colored.
---------------------------------------------------------------------------

    Solvent yellow 124 is chemically similar to other additives used in 
gasoline and diesel fuel, and has been registered by EPA as a fuel 
additive under 40 CFR part 79. Therefore, we expect that its products 
of combustion would not have an adverse impact on emission control 
devices, such as a catalytic converter. Extensive evaluation and 
testing of SY-124 was conducted by the European Commission. This 
included combustion testing which showed no detectable difference 
between the emissions from marked and unmarked fuel. Norway 
specifically evaluated the use of distillate fuel containing SY-124 for 
heating purposes and determined that the presence of the Euromarker did 
not cause an increase in harmful emissions from heating equipment. 
Based on the European experience with SY-124, we do not expect that 
there would be concerns regarding the compatibility of SY-124 in the 
U.S. fuel distribution system or for use in motor vehicle engines and 
other equipment such as in residential furnaces.
    Our evaluation of the process conducted by the EU in selecting SY-
124 for use in the EU convinced us that SY-124 was also the most 
appropriate marker to propose for use in heating oil under today's 
program. We received a number of comments expressing concern about the 
use of SY-124 in heating oil. Based on our evaluation of these comments 
(summarized below and in the S&A), we continue to believe that SY-124 
is the most appropriate marker to specify for use in heating oil and 
500 ppm sulfur LM diesel fuel under today's rule. Therefore, today's 
rule requires that beginning June 1, 2007, SY-124 be added to heating 
oil, and that from June 1, 2010 through May 31, 2012, SY-124 be added 
to 500 ppm sulfur LM diesel fuel produced by a refiner or imported at a 
concentration of 6 mg/L before such fuel leaves the terminal except in 
the Northeast/Mid-Atlantic Area and Alaska.
    The concerns regarding the use of SY-124 in heating oil primarily 
pertained to: the potential impact on jet engines if jet fuel were 
contaminated with SY-124; the potential health effects of SY-124 when 
used in fuel for heating purposes, particularly for unvented heaters; 
the potential cost impact on fuel distributors and transmix processors; 
and the potential conflict with IRS red dye requirements.
    The American Society of Testing and Materials (ASTM), the 
Coordinating Research Council (CRC), and the Federal Aviation 
Administration (FAA) requested that we delay finalizing the selection 
of a specific marker for use in heating oil in today's rule. They 
requested that selection of a specific marker should be deferred until 
testing could be conducted regarding the potential impact of SY-124 on 
jet engines. The Air Transport Association stated that EPA should 
conduct an extensive study regarding the potential for contamination, 
determine the levels at which the marker will not pose a risk to jet 
engines, and seek approval of SY-124 as a jet fuel additive. Other 
parties including the Department of Defense (DoD) also stated that EPA 
should refrain from specifying a heating oil marker under today's rule 
until industry and other potentially affected parties can recommend an 
appropriate marker. Representatives of the heating oil industry stated 
that they were concerned that EPA had not conducted an independent 
review regarding the safety/suitability of SY-124 for use in heating 
oil.
    We met and corresponded with numerous and diverse parties to 
evaluate the concerns expressed regarding the use of SY-124, and to 
determine whether it might be more appropriate to specify a different 
marker for use in heating oil. These parties include IRS, FAA, ASTM, 
CRC, various marker/dye manufacturers, European distributors of fuels 
containing the Euromarker, marker suppliers, and members of all 
segments in the U.S. fuel distribution system.
    We believe that concerns related to potential jet fuel 
contamination have been sufficiently addressed for us to finalize the 
selection of SY-124 as the required heating oil marker in today's 
rule.\178\ As discussed in section IV.D of today's preamble, changes in 
the structure of the fuel program finalized in today's rule from that 
in the proposed program have allowed us to move the point where the 
marker must be added from the refinery gate to the terminal. The vast 
majority of concerns regarding the potential for contamination of jet 
fuel with SY-124 pertained to the shipment of marked fuel by pipeline. 
All parties were in agreement that nearly all of the potential for 
marker contamination of jet fuel would disappear if the point of marker 
addition was moved to the terminal. We

[[Page 39096]]

spoke with terminal operators, both large and small, who confirmed that 
they maintain strictly segregated distribution facilities for red dyed 
fuel and jet fuel because of jet fuel contamination concerns. The same 
type of segregation practices will apply to the handling of marked 
heating oil, marked 500 ppm sulfur LM diesel fuel, and jet fuel since 
the marker will only be present in heating oil and locomotive and 
marine fuel when red dye is also present. Therefore, these practices 
will be equally effective in limiting contamination of jet fuel with 
SY-124. Downstream of the terminal, the only other chance for marker 
contamination of jet fuel pertains to bulk plant operators and jobbers 
that handle marked heating oil and jet fuel. For the most part, these 
parties also currently maintain strict segregation of the facilities 
used to transport jet fuel and heating oil. The one exception is that 
small bulk plant operators that supply small airports sometimes use the 
same tank truck to alternately transport jet fuel and heating oil. In 
such cases, they flush the tank compartment prior to transporting jet 
fuel to remove any residual heating oil left behind after the tank is 
drained. Since few, if any bulk plants handle LM fuel, it is unlikely 
that the same tank trucks will be used to alternately transport LM fuel 
and jet fuel. Thus, we expect that there will be even less chance for 
LM fuel containing the marker to contaminate jet fuel.
---------------------------------------------------------------------------

    \178\ See the Summary and Analysis of Comments for a more 
detailed discussion of our response to concerns about the possible 
contamination of jet fuel with the marker prescribed for use in 
heating oil and 500 ppm sulfur LM fuel under today's rule.
---------------------------------------------------------------------------

    Today's rule requires that heating oil and locomotive and marine 
fuel which contains the marker must also contain visible evidence of 
red dye. Therefore, the ``white bucket'' test that distributors 
currently use to detect red dye contamination of jet fuel can also be 
relied upon to detect marker contamination of jet fuel. Based on the 
above discussion, we concluded that the required addition of the marker 
to heating oil and 500 ppm sulfur locomotive and marine fuel from 2010-
2012 would not significantly increase the likelihood of jet fuel 
contamination, and that when such contamination might occur, it could 
be readily identified without the need for additional testing. Our 
finalization of the Northeast/Mid-Atlantic Area in (see section IV.D) 
also minimizes potential concerns regarding the potential that jet fuel 
may become contaminated with the marker, since no marker is required in 
this area. Furthermore, there is expected to be little heating oil used 
outside of the Northeast/Mid-Atlantic Area, the locomotive and marine 
market outside of the Northeast/Mid-Atlantic Area is limited. We 
anticipate that the distribution of marked LM diesel fuel will 
primarily be by segregated pathways, and the duration of the marker 
requirement for 500 ppm sulfur LM diesel fuel produced by refiners or 
imported for use outside of the Northeast/Mid-Atlantic Area and Alaska 
is only two years. On the whole, we actually expect that today's rule 
will reduce the potential for jet fuel to become contaminated with the 
azo dyes such as the IRS-required red dye and SY-124 since visual 
evidence will no longer be required leaving the refinery gate in 500 
ppm NRLM fuel beginning June 1, 2007, and will no longer be required in 
any off-highway diesel fuel beginning June 1, 2010.
    This final rule requires addition of the marker at the terminal 
rather than the refinery gate as proposed. Based on this change, ASTM 
withdrew its request to delay the finalization of the marker 
requirements in today's rule. However, ASTM stated that some concern 
remains regarding jet fuel contamination downstream of the terminal 
(due to the limited use of the same tank wagons to alternately 
transport jet fuel and heating oil discussed above). Nevertheless, ASTM 
related that these concerns need not delay finalization of the marker 
requirements in this rule. ASTM intends to support a CRC program to 
evaluate the compatibility of markers with jet fuel. The Federal 
Aviation Administration is also undertaking an effort to identify fuel 
markers that would be compatible for use in jet fuel. We commit to a 
review of the use of SY-124 in the future based on the findings of the 
CRC and the FAA, experience with the use of SY-124 in Europe, and 
future input from ASTM or other concerned parties. If alternative 
markers are identified that do not raise concerns regarding the 
potential contamination of jet fuel, we will initiate a rulemaking to 
evaluate the use of one of these markers in place of SY-124.
    Since the NPRM, no new information has been provided which 
indicates that the combustion of SY-124 in heating equipment would 
result in more harmful emissions than when combusted in engines, or 
would result in more harmful emissions than combustion of unmarked 
heating oil. The European experience with the use of SY-124 and the 
evaluation process it underwent prior to selection by the EU, provides 
strong support regarding the compatibility of SY-124 in the U.S. fuel 
distribution system, and for use in motor vehicle engines and other 
equipment such as in residential furnaces and nonroad, locomotive, and 
marine engines. We believe that concerns regarding the potential health 
impacts from the use of SY-124 do not present sufficient cause to delay 
finalization of the requirement for it's use that is contained in 
today's rule.
    The European Union intends to review the use of SY-124 after 
December 2005, but may undertake the review earlier if any health and 
safety or environmental concerns about its use are raised. We intend to 
keep abreast of such activities and may initiate our own review of the 
use of SY-124 depending on the European Union's findings, or other 
relevant information. There will be nearly four years of accumulated 
field experience with the use of SY-124 in Europe at the time of the 
review by the EU and nearly 5 years by the implementation of the marker 
requirement under today's rule. This will provide ample time for any 
potential unidentified issues with SY-124 to be identified, and for us 
to choose a different marker if warranted.
    Commenters stated that potential health concerns regarding the use 
of SY-124 might be exacerbated with respect to its use in unvented 
space heaters. Commenters further stated that there are prohibitions 
against the dyeing of kerosene (No. 1 diesel) used in such heaters. No 
information was provided to support these concerns, however, and we 
have no information to suggest any health concerns exist regarding the 
use of SY-124 in unvented heaters. Nevertheless, even if there were 
such concerns, today's rule will not require SY-124 to be used in the 
fuel used in unvented heaters. Furthermore, today's rule, does not 
require that SY-124 be added to kerosene. This resolves most of what 
concern might remain regarding this issue, since kerosene is the 
predominate fuel used in unvented heaters. However, the DoD stated that 
No. 2 diesel fuel is sometimes used in its tent heaters and expressed 
concern regarding the presence of SY-124 in fuel used for this purpose. 
We understand that to simplify the DoD fuel distribution system, it is 
DoD policy to use a single fuel called JP-8 for multiple purposes where 
practicable, including space heating. JP-8 used for such a purpose 
would not be subject to today's fuel marker requirement. In cases where 
JP-8 might not be available for space heating, DoD could avoid the use 
of SY-124 containing fuel by using kerosene in their space heaters.
    We believe that the concerns expressed regarding the potential 
impact on distributors and transmix processors from the presence of SY-
124 in heating oil and 500 ppm sulfur LM fuel have been addressed by 
moving the point of marker addition to the terminal. Terminal operators 
stated that they

[[Page 39097]]

desire the flexibility to blend 500 ppm diesel fuel from 15 ppm diesel 
fuel and heating oil. This practice would have been prevented by the 
proposed addition of the marker at the refinery gate. Under today's 
rule, terminal operators will have access to unmarked high sulfur fuel 
with which to manufacture 500 ppm diesel fuel by blending with 15 ppm 
diesel fuel.\179\
---------------------------------------------------------------------------

    \179\ Terminals that manufacture 500 ppm diesel fuel by blending 
15 ppm and high sulfur fuel are treated as a refiner under today's 
rule. They must also comply with all applicable designate and track 
requirements, anti-downgrading provisions, and the other applicable 
requirements in today's rule (see section IV.D of today's preamble).
---------------------------------------------------------------------------

    Transmix processors stated that the presence of a marker in 
transmix would limit the available markets for their reprocessed 
distillates. The feed material for transmix processors primarily 
consists of the interface mixing zone between batches of fuels that 
abut each other during shipment by pipeline where this mixing zone can 
not be cut into either of the adjacent products. If marked heating oil 
and locomotive and marine fuel was shipped by pipeline, the source 
material for transmix processors fed by pipelines that carry marked 
fuel could contain SY-124.\180\ Transmix processors stated that it 
would be prohibitively expensive to segregate pipeline-generated 
transmix containing the marker from that which does not contain the 
marker prior to processing, and that they could not economically remove 
the marker during reprocessing. Thus, in cases where the marker would 
be present in a transmix processor's feed material, they would be 
limited to marketing their reprocessed distillate fuels into the 
heating oil market. Since today's final rule requires that the marker 
be added at the terminal gate (rather than at the refinery gate), the 
feed material that transmix processors receive from pipelines will not 
contain the marker. Hence, they will not typically need to process 
transmix containing the fuel marker prescribed in today's rule, and 
today's marker requirement is not expected to significantly alter their 
operations. There is little opportunity for marker contamination of 
fuels that are not subject to the marker requirements to occur at the 
terminal and further downstream. In the rare instances where this might 
occur, the fuel contaminated would likely also be a distillate fuel, 
and thus could be sold into the heating oil market without need for 
reprocessing.
---------------------------------------------------------------------------

    \180\ We do not expect that there will be sufficient demand for 
500 ppm sulfur LM diesel fuel produced by refiners or importers to 
justify its shipment by pipeline after 2010.
---------------------------------------------------------------------------

    We do not expect that the fuel marker requirements will result in 
the need for additional fuel storage tanks or tank trucks in the 
distribution system. As discussed in section VI.A of today's preamble, 
the implementation of the NRLM sulfur standards in today's rule is 
projected to result in the need for additional storage tanks and tank 
truck de-manifolding at a limited number of bulk plant facilities. The 
marker requirement does not add another criteria apart from the sulfur 
content of the fuel which would force additional product segregation. 
As discussed above, industry has expressed concern about the use of the 
same tank trucks to alternately transport heating oil and jet fuel. We 
do not expect that the addition of marker to heating oil and 500 ppm 
sulfur LM diesel fuel will exacerbate these concerns. However, 
depending on the outcome of the aforementioned CRC program, the 
addition of marker to heating oil may hasten the current trend to avoid 
the use of tank trucks to alternately transport jet fuel and heating 
oil. To the extent that this does occur, we do not expect that it would 
result in substantial additional costs since few tank truck operators 
currently use the same tank truck compartments to alternately transport 
heating oil and jet fuel.
    Through our discussions with the IRS, we have confirmed that the 
presence of SY-124 will not interfere with enforcement of their red dye 
requirement. \181\ Although, SY-124 may impart a slight orange tint to 
red-dyed diesel fuel, this will not complicate the identification of 
the presence of the IRS red dye. In fact, IRS has determined that the 
presence of SY-124 may even enhance enforcement of their fuel tax 
program. \182\ However, as identified in the comments, the 
implementation of today's marker requirement for heating oil arguably 
may be in conflict with IRS regulations at 26 CFR 48.4082-1(b) which 
state that no dye other than the IRS-specified red dye must be present 
in untaxed diesel fuel. IRS is evaluating what actions might be 
necessary to clarify that the addition of SY-124 to heating oil would 
not be in violation of IRS regulations.
---------------------------------------------------------------------------

    \181\ Phone conversation between Carl Dalton and Rick Stiff, IRS 
and Jeff Herzog and Paul Machiele, EPA, February 19, 2004.
    \182\ ibid.
---------------------------------------------------------------------------

    IRS also related that they are investigating new markers for 
potential use either to supplement or to replace red dye under their 
diesel tax program which might be compatible with jet fuel. IRS stated 
that it might result in a reduced burden on industry if EPA were to 
adopt one of the markers from the family of markers that they are 
investigating. Given the changes to our program in today's final rule, 
the marker provisions will not impose a significant burden. However, if 
the IRS program were to develop an alternate marker that would be 
compatible with jet we will initiate a rulemaking to evaluate the use 
of one of these markers in place of SY-124 (see section VIII.H.).
    Commenters also expressed concerns regarding the proprietary rights 
related to the manufacture and use of SY-124, and stated that EPA 
should adopt a nonproprietary marker if possible. The proprietary 
rights related to SY-124 expire several months after the implementation 
of the marker requirements finalized in today's rule. Therefore, we do 
not expect that the current proprietary rights regarding SY-124 are a 
significant concern. Commenters also stated that our estimated cost of 
SY-124 in the NPRM (0.2 cents per gallon of treated fuel) was high 
compared to other markers that cost hundredths of a cent per gallon. 
Since the proposal we have obtained more accurate information which 
indicates that the current cost of bulk quantities of SY-124 is 
approximately 0.03 cents per gallon of treated fuel (see section 
VI.A.). Based on conversations with various marker manufacturers, this 
cost is comparable to or less than other fuel markers.

F. Fuel Marker Test Method

    As discussed in section V.E above, today's rule requires the use of 
SY-124 at a concentration of 6mg/L in heating oil beginning in 2007, 
and in 500 ppm sulfur LM diesel fuel produced by a refiner or importer 
from 2010 through 2012, except for such fuels that used in the 
Northeast/Mid-Atlantic Area and Alaska. There is currently no industry 
standard test procedure to quantify the presence of SY-124 in 
distillate fuels. The most commonly accepted method is based on the 
chemical extraction of the SY-124 using hydrocloric acid solution and 
cycloxane, and the subsequent evaluation of the extract using a visual 
spectrometer to determine the concentration of the marker.\183\ This 
test is inexpensive and easy to use for field inspections. However, the 
test involves reagents that require some safety precautions and the 
small amount of fuel required in the test must be disposed of as 
hazardous waste. Commenters expressed concerns about

[[Page 39098]]

the use of a test procedure which involves a hazardous reagent 
(hydrochloric acid) and which generates a waste product that must be 
disposed of as hazardous waste. Nevertheless, we continue to believe 
that such safety concerns are manageable here in the U.S. just as they 
are in Europe and that the small amount of waste generated can be 
handled along with other similar waste generated by the company 
conducting the test, and that the associated effort and costs will be 
negligible.
---------------------------------------------------------------------------

    \183\ Memorandum to the docket entitled ``Use of a Visible 
Spectrometer Based Test Method in Detecting the Presence and 
Determining the Concentration of Solvent Yellow 124 in Diesel 
Fuel.''
---------------------------------------------------------------------------

    Changes made in today's final rule from the proposal will mean that 
few parties in industry will need to test for the marker, thereby 
minimizing concerns about the burden of such testing. Much of the 
testing for the fuel marker that was envisioned by industry was 
associated with detecting marker contamination in other fuels. By 
moving the required point of marker addition downstream to the 
terminal, today's rule virtually eliminates these concerns. Where such 
concerns continue to exist, the presence of the red dye will provide a 
visual means of detecting marker contamination.\184\ Therefore, we 
expect that the instances where parties will need to test for marker 
contamination will be rare. Also, the Northeast/Mid-Atlantic Area 
provisions finalized in today's rule will exempt the vast majority of 
heating oil used in the U.S. from the marker requirement. Based on the 
above discussion, we believe that the vast majority of testing for the 
presence of the fuel marker that will be conducted will be that by EPA 
for enforcement purposes.
---------------------------------------------------------------------------

    \184\ Today's rule requires that red dye be present in heating 
oil which contains the marker.
---------------------------------------------------------------------------

    Similar to the approach proposed regarding the measurement of fuel 
sulfur content discussed in section V.H above, we are finalizing a 
performance-based procedure to measure the concentration of SY-124 in 
distillate fuel. Section V.H above describes our rationale for 
finalizing performance-based test procedures. Under the performance-
based approach, a given test method can be approved for use in a 
specific laboratory or for field testing by meeting certain precision 
and accuracy criteria. Properly selected precision and accuracy values 
allow multiple methods and multiple commercially available instruments 
to be approved, thus providing greater flexibility in method and 
instrument selection while also encouraging the development and use of 
better methods and instrumentation in the future. For example, we are 
hopeful that with more time and effort a simpler test can be developed 
for SY-124 that can avoid the use of reagents and the generation of 
hazardous waste that is by product of the current commonly accepted 
method.
    Under the performance criteria approach, methods developed by 
consensus bodies as well as methods not yet approved by a consensus 
body will qualify for approval provided they meet the specified 
performance criteria as well as the record-keeping and reporting 
requirements for quality control purposes. There is no designated 
marker test method.
1. How Can a Given Marker Test Method Be Approved?
    A marker test method can be approved for use under today's program 
by meeting certain precision and accuracy criteria. Approval will apply 
on a laboratory/facility-specific basis. If a company chooses to employ 
more than one laboratory for fuel marker testing purposes, then each 
laboratory will have to separately seek approval for each method it 
intends to use. Likewise, if a laboratory chooses to use more than one 
marker test method, then each method will have to be approved 
separately. Separate approval will not be necessary for individual 
operators or laboratory instruments within a given laboratory facility. 
The method will be approved for use by that laboratory as long as 
appropriate quality control procedures were followed.
    In developing the precision and accuracy criteria for the sulfur 
test method, EPA drew upon the results of an inter-laboratory study 
conducted by the American Society for Testing and Materials (ASTM) to 
support ASTM's standardization of the sulfur test method. 
Unfortunately, there has not been sufficient time for industry to 
standardize the test procedure used to measure the concentration of SY-
124 in distillate fuels or to conduct an inter-laboratory study 
regarding the variability of the method. Nevertheless, the European 
Union has been successful in implementing its marker requirement while 
relying on the marker test procedures which are currently available, as 
noted above. We used, the most commonly used marker test procedure to 
establish the precision and accuracy criteria on which a marker test 
procedure would be approved under the today's rule.\185\
---------------------------------------------------------------------------

    \185\ Memorandum to the docket entitled ``Use of a Visible 
Spectrometer Based Test Method in Detecting the Presence and 
Determining the Concentration of Solvent Yellow 124 in Diesel 
Fuel.''
---------------------------------------------------------------------------

    There has been substantial experience in the use of this reference 
market test method since the August 2002 effective date of the European 
Union's marker requirement. However, EPA is aware of only limited 
summary data on the variability of the reference test method from a 
manufacturer of the visible spectrometer apparatus used in the 
testing.\186\ The stated resolution of the test method from the 
materials provided by this equipment manufacturer is 0.1 mg/L, with a 
repeatability of plus or minus 0.08 mg/L and a reproducibility of plus 
or minus 0.2 mg/L.\187\ Given the lack of more extensive data, we have 
decided to use these available data as the basis of the precision and 
accuracy criteria for the marker test procedure under today's rule (as 
discussed below). EPA may initiate a review of the precision and 
accuracy criteria finalized in today's rule should additional test data 
become available.
---------------------------------------------------------------------------

    \186\ Technical Data on Fuel/Dye/Marker & Color Analyzers, as 
downloaded from the Petroleum Analyzer Company L.P. Web site at 
http://www.petroleum-analyzer.com/product/PetroSpec/lit_pspec/DTcolor.pdf.
    \187\ Repeatability and reproducibility are terms related to 
test variability. ASTM defines repeatability as the difference 
between successive results obtained by the same operator with the 
same apparatus under constant operating conditions on identical test 
materials that would, in the long run, in the normal and correct 
operation of the test method be exceeded only in one case in 20. 
Reproducibility is defined by ASTM as the difference between two 
single and independent results obtained by different operators 
working in different laboratories on identical material that would, 
in the long run, be exceeded only in one case in twenty.
---------------------------------------------------------------------------

    Using a similar methodology to that employed in deriving the sulfur 
test procedure precision value results in a precision value for the 
marker test procedure of 0.043 mg/L (see section V.H).\188\ However, we 
are concerned that the use of this precision value, because it is based 
on very limited data, might preclude the acceptability of test 
procedures that would be adequate for the intended regulatory use. In 
addition, the lowest measurement of marker concentration that will have 
relevance under the regulations is 0.1 mg per liter. Consequently, 
today's rule requires that the precision of a marker test procedure 
will need to be less than 0.1 mg/L for it to qualify.
---------------------------------------------------------------------------

    \188\ See section V.H of this proposal for a discussion of the 
methodology used in deriving the proposed precision and accuracy 
values for the sulfur test method.
---------------------------------------------------------------------------

    To demonstrate the accuracy of a given test method, a laboratory 
facility will be required to perform 10 repeat tests, the mean of which 
can not deviate from the Accepted Reference Value (ARV) of the standard 
by more than 0.05 mg/L. We believe that this accuracy level is not 
overly restrictive, while being sufficiently protective considering 
that the lowest marker level of

[[Page 39099]]

regulatory significance would be 0.1 mg/L. Ten tests will be required 
using each of two different marker standards, one in the range of 0.1 
to 1 mg/L and the other in the range of 4 to 10 mg/L of SY-124. 
Therefore, a minimum of 20 total tests will be required for sufficient 
demonstration of accuracy for a given marker test method at a given 
laboratory facility. Finally, any known interferences for a given test 
method will have to be mitigated. These tests must be performed using 
commercially available SY-124 standards. Since the European Union's 
marker requirement will have been in effect for nearly 5 years by the 
implementation date of today's marker, we believe that such standards 
will be available by the implementation date for today's rule.
    These requirements are not overly burdensome. To the contrary, 
these requirements are equivalent to what a laboratory would do during 
the normal start up procedure for a given test method. In addition, we 
believe the performance based approach finalized in today's rule will 
allow regulated entities to know that they are measuring fuel marker 
levels accurately and within reasonable site reproducibility limits.
2. What Information Would Have To Be Reported to the Agency?
    As noted above, the European Union's (EU) marker requirement will 
have been in effect for nearly five years prior to the effective data 
for the proposed marker requirements and we expect the EU requirement 
to continue indefinitely. Thus, we anticipate that the European 
testings standards community will likely have standardized a test 
procedure to measure the concentration of SY-124 in distillate fuels 
prior to the implementation of the marker requirement in today's final 
rule. The United States testing standards community may also enact such 
a standardized test procedure. To the extent that marker test methods 
that have already been approved by a voluntary consensus standards body 
\189\ (VCSB), such as the International Standards Organization (ISO) or 
the American Society for Testing and Materials (ASTM), each laboratory 
facility would be required to report to the Agency the precision and 
accuracy results as described above for each method for which it is 
seeking approval. Such submissions to EPA, as described elsewhere, will 
be subject to the Agency's review for 30 days, and the method will be 
considered approved in the absence of EPA comment. Laboratory 
facilities are required to retain the fuel samples used for precision 
and accuracy demonstration for 30 days.
---------------------------------------------------------------------------

    \189\ These are standard-setting organizations, like ASTM, and 
ISO that have broad representation of all interested stakeholders 
and make decisions by consensus.
---------------------------------------------------------------------------

    For test methods that have not been approved by a VCSB, full test 
method documentation, including a description of the technology/
instrumentation that makes the method functional, as well as subsequent 
EPA approval of the method is also required. These submissions are 
subject to the Agency's review for 90 days, and the method will be 
considered approved in the absence of EPA comment. Submission of VCSB 
methods is not required since they are available in the public domain. 
In addition, industry and the Agency will likely have had substantial 
experience with such methods.
    To assist the Agency in determining the performance of a given 
marker test method (non-VCSB methods, in particular), we reserve the 
right to send samples of commercially available fuel to laboratories 
for evaluation. Such samples are intended for situations in which the 
Agency has concerns regarding a test method and, in particular, its 
ability to measure the marker content of a random commercially 
available diesel fuel. Laboratory facilities are required to report the 
results from tests on this material to the Agency.

G. Requirements for Recordkeeping, Reporting, and PTDs

1. Registration Requirements
    As discussed in section IV.D, by December 31, 2005, or six months 
prior to handling fuels subject to the designation requirements of 
today's rule, each entity in the fuel distribution system, up through 
and including the point where fuel is loaded onto trucks for 
distribution to retailers or wholesale purchaser-consumers, must 
register each of its facilities with EPA.
    An entity's registration must include the following information:
     Corporate name and address

--Contact name, telephone number, and e-mail address

     For each facility operated by the entity:

--Type of facility (e.g. refinery, import facility, pipeline, terminal)
--Facility name
--Physical location
--Contact name, telephone number, and e-mail address
2. Applications for Small Refiner Status
    An application of a refiner for small refiner status must be 
submitted to EPA by December 31, 2004 and shall include the following 
information:
     The name and address of each location at which any 
employee of the company, including any parent companies, subsidiaries, 
or joint venture partners \190\ worked From January 1, 2002 until 
January 1, 2003;
---------------------------------------------------------------------------

    \190\ ``Subsidiary'' here covers entities of which the parent 
company has 50 percent or greater ownership.
---------------------------------------------------------------------------

     The average number of employees at each location, based on 
the number of employees for each of the company's pay periods from 
January 1, 2002 until January 1, 2003;
     The type of business activities carried out at each 
location; and
     The total crude oil refining capacity of the corporation. 
We define total capacity as the sum of all individual refinery 
capacities for multiple-refinery companies, including any and all 
subsidiaries, and joint venture partners as reported to the Energy 
Information Administration (EIA) for 2002, or in the case of foreign 
refiners, a comparable reputable source, such as professional 
publication or trade journal.\191\ Refiners do not need to include 
crude oil capacity used in 2002 through a lease agreement with another 
refiner in which it has no ownership interest.
---------------------------------------------------------------------------

    \191\ We will evaluate each foreign refiner?s documentation of 
crude oil capacity on an individual basis.
---------------------------------------------------------------------------

    The crude oil capacity information reported to the EIA is presumed 
to be correct. However, in cases where a company disputes this 
information, we will allow 60 days after the company submits its 
application for small refiner status for that company to petition us 
with detailed data it believes shows that the EIA's data was in error. 
We will consider this data in making a final determination about the 
refiner's crude oil capacity.
    Finally, applications for small refiner status must also include 
information on which small refiner option the refiner expects to use at 
each of its refineries.
3. Applications for Refiner Hardship Relief
    As discussed above in section IV.C, a refiner seeking general 
hardship relief under today's program will apply to EPA and provide 
several types of financial and technical information, such as internal 
cash flow data and information on bank loans, bonds, and assets as well 
as detailed engineering and construction plans and permit status. 
Applications for general hardship relief are due June 1, 2005.

[[Page 39100]]

4. Pre-Compliance Reports for Refiners
    We believe that an early general understanding of the refining 
industry's progress in complying with the requirements in today's rule 
will be valuable to both the industry and EPA. As with the highway 
diesel program, we are requiring that each refiner and importer provide 
annual reports on the progress of compliance and plans for compliance 
for each of their refineries or import facilities. These pre-compliance 
reports are due June 1 of each year beginning in 2005 and continuing 
through 2011, or until the production of 15 ppm sulfur NR and LM diesel 
fuel commences, whichever is later.
    EPA will maintain the confidentiality of information submitted in 
pre-compliance reports to the full extent authorized by law. We will 
report generalized summaries of this data following receipt of the pre-
compliance reports. We recognize that plans may change for many 
refiners or importers as the compliance dates approach. Thus, 
submission of the reports will not impose an obligation to follow 
through on plans projected in the reports.
    Pre-compliance reports can, at the discretion of the refiner/
importer, be submitted in conjunction with the annual compliance 
reports discussed below and/or the pre-compliance and annual compliance 
reports required under the highway diesel program, as long as all of 
the information that is required in all reports is clearly provided. 
Based on experience with the first pre-compliance reports for the 
highway diesel program, we are clarifying the information request for 
the pre-compliance reports as shown below. This should provide 
responses in a more standardized format which will allow for better 
aggregation of the data, as well as eliminate reporting of unnecessary 
information.
    Pre-compliance reports must include the following information:
     Any changes in the basic corporate or facility information 
since registration;
     Estimates of the average daily volumes (in gallons) of 
each sulfur grade of highway and NRLM diesel fuel produced (or 
imported) at each refinery (or facility). These volume estimates must 
be provided both for fuel produced from crude oil, as well as any fuel 
produced from other sources, and must be provided for the periods of 
June 1, 2010-December 31, 2010, calendar years 2011-13, January 1, 
2014-May 31, 2014, and June 1, 2014-December 31, 2014;
     For entities expecting to participate in the credit 
program, estimates of numbers of credits to be earned and/or used;
     Information on project schedule by known or projected 
completion date (by quarter) by the stage of the project. For example, 
following the five project phases described in EPA's June 2002 Highway 
Diesel Progress Review report (EPA420-R-02-016): (1) Strategic 
planning, (2) planning and front-end engineering, (3) detailed 
engineering and permitting, (4) procurement and construction, and (5) 
commissioning and startup.
     Basic information regarding the selected technology 
pathway for compliance (e.g., conventional hydrotreating vs. other 
technologies, revamp vs grassroots, etc.);
     Whether capital commitments have been made or are 
projected to be made; and
     The pre-compliance reports in 2006 and later years must 
provide an update of the progress in each of these areas.
5. Compliance Reports for Refiners, Importers, and Distributors of 
Designated Diesel Fuel
a. Designate and Track Reporting Requirements
i. Quarterly Reports
    From June 1, 2007 and through September 1, 2010, all entities who 
are required to maintain records must report the following information 
by facility to EPA on a quarterly basis:
     The total volume in gallons of each type of designated 
diesel fuel for which custody was transferred by the entity to any 
other entity, and the EPA entity and facility identification number(s), 
as applicable, of the transferee; and
     The total volume in gallons of each type of designated 
diesel fuel for which custody was received by the entity from any other 
entity and the EPA entity and facility identification number(s), as 
applicable, of the transferor.
    If a facility receives fuel from another facility that does not 
have an EPA facility identification number then that batch of fuel must 
be designated and reported as (1) heating oil if it is marked, (2) 
highway diesel fuel if taxes have been assessed, (3) NRLM diesel fuel 
if the fuel is dyed but not marked.
    Terminals must also report the results of all compliance 
calculations including the following:
     The total volumes received of each fuel designation 
required to be reported over the quarterly compliance period;
     The total volumes transferred of each fuel designation 
required to be reported over the quarterly compliance period;
     Beginning and ending inventories of each fuel designation 
required to be reported over the quarterly compliance period;
     Calculations showing that the volume of highway diesel 
fuel distributed from the facility relative to the volume received did 
not increase since June 1, 2007; and
     Calculations showing that the volume of high sulfur NRLM 
diesel fuel did not increase by a greater proportion than the volume of 
heating oil over the quarterly compliance period (not applicable in the 
Northeast/Mid-Atlantic Area or Alaska).
    The quarterly compliance periods and dates by which the reports are 
due for each period are as follows.

     Table V.G-1. Quarterly Compliance Periods and Reporting Dates a
------------------------------------------------------------------------
        Quarterly compliance period                Report due date
------------------------------------------------------------------------
July 1 through September 30...............  November 30.
October 1 though December 31..............  February 28.
January 1 through March 31................  May 31.
April 1 through June 30...................  August 31.
------------------------------------------------------------------------
Notes: a The first quarterly reporting period will be from June 1, 2007
  though September 30, 2007 and the last quarterly compliance period
  will be from April 1, 2010 through May 31, 2010.

ii. Annual Reports
    Beginning June 1, 2007, all entities that are required to maintain 
records for batches of fuel must report by facility on an annual basis 
(due August 31) information on the total volumes received of each fuel 
designation as well as the results of all compliance calculations 
including the following:
     The total volumes transferred of each fuel designation;
     Beginning and ending inventories of each fuel designation;
     In Alaska, for diesel fuel designated as high sulfur NRLM 
delivered from June 1, 2007 through May 31, 2010 and for diesel fuel 
designated as 500 ppm sulfur NRLM delivered from June 1, 2010 through 
May 31, 2014, refiners must report all information required under their 
individual compliance plan, including the end-users to whom each batch 
of fuel was delivered and the total delivered to each end-user for the 
compliance period;
     Ending with the report due August 31, 2010, calculations 
showing that the volume of highway diesel fuel distributed from the 
facility relative to the volume received did not increase since June 1, 
2007;

[[Page 39101]]

     Ending with the report due August 31, 2010, calculations 
showing that the volume of highway diesel fuel distributed from the 
facility relative to new volume received did not increase over the 
annual compliance period by more than two percent of the total volume 
of highway diesel fuel received;
     Ending with the report due August 31, 2010, calculations 
showing that the volume of high sulfur NRLM diesel fuel did not 
increase by a greater proportion than the volume of heating oil over 
the annual compliance period (not applicable in the Northeast/Mid-
Atlantic Area or Alaska);
     Calculations showing that the volume of heating oil did 
not decrease over the annual compliance period, beginning June 1, 2010 
(not applicable in the Northeast/Mid-Atlantic Area or Alaska); and
     From June 1, 2010 through August 1, 2012, calculations 
showing that the volume of 500 ppm sulfur NR diesel fuel did not 
increase by a greater proportion than the volume of 500 ppm sulfur LM 
diesel fuel over the annual compliance period (not applicable in the 
Northeast/Mid-Atlantic Area and Alaska.
b. Other Reporting Requirements
    After the NRLM diesel fuel sulfur requirements begin on June 1, 
2007, refiners and importers will be required to submit annual 
compliance reports for each refinery or import facility. If a refiner 
produces 15 ppm sulfur or 500 ppm sulfur fuel early under the credit 
provisions, its annual compliance reporting requirement will begin on 
June 1 following the beginning of the early fuel production. These 
reporting requirements will sunset after all flexibility provisions end 
(i.e., after May 31, 2014). Annual compliance reports will be due on 
August 31.
    A refiner's or importer's annual compliance report must include the 
following information for each of its facilities:
     Batch reports for each batch produced or imported 
providing information regarding volume, designation (e.g., 500 
highway), sulfur level and whether the fuel was dyed and/or marked. 
Each batch can only have one designation. Therefore, if a refiner ships 
100 gallons of 500 ppm sulfur fuel in 2007 and wants to designate 50 
gallons as highway 500 and 50 gallons as NR 500, the refiner must 
report two separate batches and there must be two PTDs--one for 50 
gallons of highway 500 and one for 50 gallons of NR 500).
     Report on the generation, use, transfer and retirement of 
diesel sulfur credits. Credit transfer information must include the 
identification of the number of credits obtained from, or transferred 
to, each entity. Reports must also show the credit balance at the start 
of the period, and the balance at the end of the period. NRLM or 
nonroad diesel sulfur credit information is required to be stated 
separately from highway diesel credit information since the two credit 
programs are treated separately.
     For a small refiner that elects to produce 15 ppm sulfur 
NRLM diesel fuel by June 1, 2006 and therefore is eligible for a 
limited relaxation in its interim small refiner gasoline sulfur 
standards, the annual reports must also include specific information on 
gasoline sulfur levels and progress toward highway and NRLM diesel fuel 
desulfurization.
6. PTDs
    Refiners, importers, and other parties in the distribution system 
must provide information on commercial PTDs that identify diesel fuel 
distributed by use designation and sulfur content; i.e., for use in or 
motor vehicles, nonroad equipment, locomotive and marine equipment, or 
nonroad, locomotive, and marine diesel equipment, as appropriate, and 
the sulfur standard to which the fuel is subject. The PTD must indicate 
whether the fuel is diesel fuel, heating oil, kerosene, exempt fuel, or 
other. It must further state whether it is No. 1 or No. 2, dyed or 
undyed, marked heating oil, marked LM fuel, or unmarked. The specific 
designations on PTDs will change during the course of the program. For 
example, the highway designation for 500 ppm sulfur fuel ends after 
2010. Where a party delivers or receives a particular load of fuel that 
has a uniform sulfur content but that has two different designations, 
the parties must utilize two different PTDs. For example, if, in 2007 a 
refiner moves 1,000 gallons of 500 ppm sulfur diesel into a pipeline, 
and the refiner's designation is that half of that product is highway 
500 and half is nonroad 500, the parties would utilize one PTD for 500 
gallons of highway 500 ppm sulfur diesel fuel and another for 500 
gallons of nonroad 500 diesel fuel.
    As in other fuels programs, PTDs must accompany each transfer of 
either title or custody of fuel. However, only custody transfers are 
relevant to compliance with the designation and tracking requirements 
and the downgrade limitations, and transfers to retail outlets and 
wholesale purchaser-consumers of fuel by distributors below the truck 
rack are not covered by the designate and track scheme. Therefore, the 
PTDs for these non-designate and track transfers are somewhat more 
straightforward.
    We believe this additional information on commercial PTDs is 
necessary to maintain the integrity of the various grades of diesel 
fuel in the distribution system. Parties in the system will be better 
able to identify which type of fuel they are dealing with and more 
effectively ensure that they are meeting the requirements of today's 
program. This in turn will help to ensure that misfueling of sulfur 
sensitive engines does not occur and that the program results in the 
needed emission reductions.
    Today's rule allows the use of product codes to convey the required 
information, except for transfers to truck carriers, retailers and 
wholesale purchaser-consumers. We believe that more explicit language 
on PTDs to these parties is necessary since employees of such parties 
are less likely to be aware of the meaning of product codes. PTDs will 
not be required for transfers of product into nonroad, locomotive, or 
marine equipment at retail outlets or wholesale purchaser-consumer 
facilities with the exception of mobile refuelers. Mobile refuellers 
are required to provide a separate PTD to their customers for each type 
of fuel (e.g., 500 ppm sulfur NRLM diesel fuel, 15 ppm sulfur NRLM 
diesel fuel, or 15 ppm highway diesel fuel) that they dispense from 
tanker trucks or other vessels into motor vehicles, nonroad diesel 
engines or nonroad diesel engine equipment, for each instance when they 
refuel such equipment at a given location.\192\
---------------------------------------------------------------------------

    \192\ Only one PTD is required for each fuel designation or 
classification regardless of the number of motor vehicles or the 
number of diesel-powered NRLM equipment that are fueled.
---------------------------------------------------------------------------

a. Kerosene and Other Distillates To Reduce Viscosity
    To ensure that downstream parties can determine the sulfur level of 
kerosene or other distillates that may be distributed for use for 
blending into 15 ppm sulfur highway or NRLM diesel fuel, for example, 
to reduce viscosity in cold weather, we are requiring that PTDs 
identify distillates specifically distributed for such use as meeting 
the 15 ppm sulfur standard.
b. Exported Fuel
    Consistent with other EPA fuel programs, NRLM diesel fuel exported 
from the U.S. is not required to meet the sulfur standards of today's 
regulations. For example, where a refiner designates a batch of diesel 
fuel for export, and can demonstrate through commercial documents that 
the fuel was exported, such fuel would not be required to

[[Page 39102]]

comply with the NRLM sulfur standards in today's rule. Product transfer 
documents accompanying the transfer of custody of the fuel at each 
point in the distribution system are required to state that the fuel is 
for export only and may not be used in the United States.
c. Additives
    Today's rule requires that PTDs for additives for use in NRLM 
diesel fuel state whether the additive complies with the 15 ppm sulfur 
standard. Like the highway diesel rule, this program allows the sale of 
additives, for use by fuel terminals or other parties in the diesel 
fuel distribution system, that have a sulfur content greater than 15 
ppm under specified conditions.
    For additives that have a sulfur content less than 15 ppm, the PTD 
must state: ``The sulfur content of this additive does not exceed 15 
ppm.'' For additives that have a sulfur content greater than 15 ppm, 
the additive manufacturer's PTD, and PTDs accompanying all subsequent 
transfers, must provide a warning that the additive's sulfur content 
exceeds 15 ppm; the maximum sulfur content of the additive; the maximum 
recommended concentration for use of the additive in diesel fuel 
(stated as gallon of additive per gallon of diesel fuel); and the 
increase in sulfur concentration of the fuel the additive will cause 
when used at the maximum recommended concentration.
    Today's rule contains provisions for aftermarket additives sold to 
owner/operators for use in diesel powered nonroad equipment. These 
provisions are in response to concerns that additives designed for 
engines not requiring 15 ppm sulfur fuel, such as locomotive or marine 
engines, could accidentally be introduced into nonroad engines if they 
had no label stating appropriate use. Beginning June 1, 2010, 
aftermarket additives for use in nonroad equipment must be accompanied 
by information that states that the additive complies with the 15 ppm 
sulfur standard. We believe this information is necessary for end users 
to determine if an additive is appropriate for use.
7. Recordkeeping Requirements for Refiners and Importers
    Refiners and importers of distillate fuel must maintain the 
following designate and track records for the distillate fuel they 
produce and/or import. The specific types of distillate fuel that are 
subject to these recordkeeping requirements are described below for the 
various periods of the program.\193\
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    \193\ Transmix processors and terminal operators acting as 
refiners that produce 500 ppm sulfur diesel fuel for sale into the 
locomotive and marine markets are also subject to the recordkeeping 
requirements.
---------------------------------------------------------------------------

     Batch number (including whether it is an incoming or out-
going batch for refineries that also handle previously designated 
fuel);
     Batch designation;
     Volume in gallons;
     Date/time of day of custody transfer; and
     Name and EPA entity and facility identification number of 
the facility to which the batch was transferred.
    For highway diesel fuel, the records must also identify whether the 
batch was received or delivered with or without taxes assessed. For 
NRLM diesel fuel, the records must also identify whether the batch was 
received or delivered with or without the IRS red dye. For heating oil, 
the records must indicate whether the batch was received or delivered 
with or without the fuel marker. From June 1, 2010, through May 31, 
2012, the records for LM fuel batches must also indicate whether the 
batch was received or delivered with or without the fuel marker.
    In addition to the designate and track records, refiners and 
importers must maintain the following records on the highway and NRLM 
diesel fuel that they produce and/or import:
     PTDs;
     Sampling and testing results for sulfur content (for 
highway and NRLM diesel fuel that is subject to either the 15 ppm or 
500 ppm sulfur standards), as well as sampling and testing results that 
are part of a quality assurance program;
     Sampling and testing results for the cetane index or 
aromatics content, as well as sampling and testing results for 
additives;
     Records on credit generation, use, transfer, purchase, or 
termination, maintained separately for the highway and NRLM diesel fuel 
credit programs; and
     Records related to individual compliance plans, if 
applicable, and annual compliance calculations.
a. June 1, 2006 through May 31, 2007
    Refiners and importers must maintain the records listed above for 
each batch of diesel fuel that they designate and transfer custody of 
during the time period from June 1, 2006 through May 31, 2007, with the 
following fuel types:
     No. 1 15 ppm sulfur highway diesel fuel;
     No. 2 15 ppm sulfur highway diesel fuel;
     15 ppm sulfur NRLM diesel fuel;
     No. 1 500 ppm sulfur highway diesel fuel;
     No. 2 500 ppm sulfur highway diesel fuel; or
     500 ppm sulfur NRLM diesel fuel.
b. June 1, 2007 Through May 31, 2010
    Refiners and importers must maintain the records listed above for 
each batch of distillate fuel that they designate and transfer custody 
of during the time period from June 1, 2007 through May 31, 2010 with 
the following fuel types:
     No. 1 15 ppm sulfur highway diesel fuel;
     No. 2 15 ppm sulfur highway diesel fuel;
     15 ppm sulfur NRLM diesel fuel;
     No. 1 500 ppm sulfur highway diesel fuel;
     No. 2 500 ppm sulfur highway diesel fuel; or
     500 ppm sulfur NRLM diesel fuel;
     High sulfur NRLM diesel fuel; or
     Heating oil.
c. June 1, 2010 Through May 31, 2012
    Refiners and importers must maintain the records listed above for 
each batch of diesel fuel that they designate and transfer custody of 
during the time period from June 1, 2010 through May 31, 2012, with the 
following fuel types:
     500 ppm sulfur NR diesel fuel;
     500 ppm sulfur LM diesel fuel; or
     Heating oil.
d. June 1, 2012 Through May 31, 2014
    Refiners and importers must maintain the records listed above for 
each batch of distillate fuel that they transfer custody of and 
designate during the time period from June 1, 2012 through May 31, 2014 
with the following fuel types:
     15 ppm sulfur highway or NRLM diesel fuel;
     500 ppm sulfur NRLM diesel fuel; or
     Heating oil.
d. June 1, 2014 and Beyond
    Refiners and importers must maintain the records listed above for 
each batch of heating oil that they transfer custody of and designate 
during the time period from June 1, 2014 and beyond.
8. Recordkeeping Requirements for Distributors
    Distributors of distillate fuel must maintain the following 
designate and track records on a facility-specific basis for the 
distillate fuel they distribute. The specific distillate fuel 
designations that are subject to these recordkeeping requirements are 
described below for the various periods of the program.

[[Page 39103]]

     Batch number (including whether it is an incoming or out-
going batch);
     Batch designation;
     Volume in gallons;
     Date/time of day of custody transfer;
     Name and EPA entity and facility identification number of 
the facility from which the fuel batch was received or to which the 
fuel batch was delivered;
     Beginning and ending inventory volumes on a quarterly 
basis; and
     Inventory adjustments.
    For highway diesel fuel, the records must also identify whether the 
batch was received or delivered with or without taxes assessed. For 
NRLM diesel fuel, the records must also identify whether the batch was 
received or delivered with or without the IRS red dye. For heating oil, 
the records must indicate whether the batch was received or delivered 
with or without the fuel marker. From June 1, 2010, through October 1, 
2012, the records must indicate whether LM fuel was received or 
delivered with or without the fuel marker.\194\ In addition to these 
designate and track records, distributors will be required to maintain 
records related to their quarterly and annual compliance calculations 
as well as copies of all PTDs.
---------------------------------------------------------------------------

    \194\ After August 1, 2012, LM fuel distributed from terminals 
must contain a concentration of the marker no greater than 0.1 mg/L. 
After October 1, 2012, LM fuel at any location in the fuel 
distribution system must contain no more than a trace amount of the 
marker (0.1 mg/L).
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    If a facility receives fuel from another facility that does not 
have an EPA facility identification number then that batch of fuel must 
be designated as (1) heating oil if it is marked, or from 2010 through 
2012, LM diesel fuel if the fuel is dyed and marked and is not heating 
oil (2) highway diesel fuel if taxes have been assessed, and (3) NRLM 
diesel fuel if the fuel is dyed but not marked.
    If a facility delivers fuel to other facilities and that fuel is 
either 500 ppm sulfur highway diesel fuel on which taxes have been 
assessed or 500 ppm sulfur NRLM, or LM diesel fuel into which red dye 
has been added pursuant to IRS requirements, then the facility does not 
need to maintain separate records for each of the other facilities to 
which it delivered fuel. Similarly, if a facility delivers batches of 
marked heating oil to other facilities, then it does not need to 
maintain separate records for each of the other facilities to which it 
delivered the marked heating oil. If a facility only receives marked 
heating oil (i.e., it does not receive any unmarked heating oil), then 
it does not need to maintain any heating oil records. 
Similarly, if a facility only receives highway diesel fuel on which 
taxes have been assessed or NRLM diesel fuel which has been dyed 
pursuant to IRS regulations (i.e., it does not receive any untaxed 
highway diesel fuel or undyed NRLM diesel fuel), then it does not need 
to maintain records of the 500 ppm sulfur highway or NRLM diesel fuel 
that it receives.
a. June 1, 2006 Through May 31, 2007
    Facilities that receive No. 2 15 ppm sulfur highway diesel fuel and 
distribute any No. 2 500 ppm sulfur highway diesel fuel, must maintain 
records for each batch of diesel fuel with the following designations 
that they receive or deliver during the time period from June 1, 2006 
through May 31, 2007:
     No. 1 15 ppm sulfur highway diesel fuel;
     No. 2 15 ppm sulfur highway diesel fuel;
     No. 2 500 ppm sulfur highway diesel fuel; and
     500 ppm sulfur NRLM diesel fuel.
b. June 1, 2007 Through May 31, 2010
    All facilities must maintain records for each batch of diesel fuel 
or heating oil with the following designations for which they receive 
or transfer custody during the time period from June 1, 2007 through 
May 31, 2010:
     No. 1 15 ppm sulfur highway diesel fuel;
     No. 2 15 ppm sulfur highway diesel fuel;
     No. 1 500 ppm sulfur highway diesel fuel;
     No. 2 500 ppm sulfur highway diesel fuel;
     500 ppm sulfur NRLM diesel fuel;
     15 ppm sulfur NRLM diesel fuel;
     High sulfur NRLM diesel fuel; and
     Heating oil.
c. June 1, 2010 Through May 31, 2012
    All facilities must maintain records for each batch of diesel fuel 
or heating oil with the following designations for which they receive 
or transfer custody during the time period from June 1, 2007 through 
May 31, 2012. This requirement does not apply to facilities located in 
the Northeast/Mid-Atlantic Area or Alaska.
     500 ppm sulfur NR diesel fuel;
     500 ppm sulfur LM diesel fuel; or
     Heating oil.
d. June 1, 2012 Through May 31, 2014
    Facilities that receive unmarked fuel designated as heating oil, 
must maintain records for each batch of diesel fuel with the following 
designations that they receive or deliver during the time period from 
June 1, 2012 through May 31, 2014. This requirement does not apply to 
facilities located in Alaska or the Northeast/Mid-Atlantic Area unless 
they deliver marked heating oil to facilities outside of these areas.
     500 ppm sulfur NRLM diesel fuel; and
     Heating oil.
9. Recordkeeping Requirements for End-Users
    Today's program also contains certain recordkeeping provisions for 
end-users. From June 1, 2007 through October 1, 2010, end-users that 
receive any batch of high sulfur NRLM in Alaska must maintain records 
of each batch of fuel received for use in NRLM equipment unless 
otherwise allowed by EPA. From June 1, 2010 through October 1, 2012, 
end-users that receive any batch of 500 ppm sulfur NR in Alaska must 
maintain records of each batch of fuel received for use in NR equipment 
unless otherwise allowed by EPA. In addition, from June 1, 2012 through 
October 1, 2014, end-users that receive any batch of 500 ppm sulfur 
NRLM in Alaska must maintain records of each batch of fuel received for 
use in NRLM equipment unless otherwise allowed by EPA.
10. Record Retention
    We are adopting a retention period of five years for all records 
required to be kept under today's rule. This is the same period of time 
required in other fuels rules, and it coincides with the applicable 
statute of limitations. We believe that most parties in the 
distribution system would maintain some or all of these records for 
this length of time even without the requirement.
    This retention period applies to PTDs, records required under the 
designate and track provisions, records of any test results performed 
by any regulated party for quality assurance purposes or otherwise 
(whether or not such testing was required by this rule), along with 
supporting documentation such as date of sampling and testing, batch 
number, tank number, and volume of product. Business records regarding 
actions taken in response to any violations discovered must also be 
maintained for five years.
    All records that are required to be maintained by refiners or 
importers participating in the generation or use of credits, hardship 
options (or by importers of diesel fuel produced by a foreign refiner 
approved for the temporary compliance option or a hardship option), 
including small refiner options, are also covered by the retention 
period.

[[Page 39104]]

H. Liability and Penalty Provisions for Noncompliance

1. General
    The liability and penalty provisions of the today's NRLM diesel 
sulfur rule are very similar to the liability and penalty provisions 
found in the highway diesel sulfur rule, the gasoline sulfur rule, the 
reformulated gasoline rule and other EPA fuels regulations.\195\ 
Regulated parties are subject to prohibitions which are typical in EPA 
fuels regulations, such as prohibitions on selling or distributing fuel 
that does not comply with the applicable standard, and causing others 
to commit prohibited acts. For example, liability will also arise under 
the NRLM diesel rule for violating certain prohibited acts and 
requirements, such as: Distributing or dispensing NR diesel fuel not 
meeting the 15 ppm sulfur standard for use in model year 2011 or later 
nonroad equipment (and after Dec 1, 2014 into any nonroad diesel 
equipment); distributing or dispensing diesel fuel not meeting the 500 
ppm sulfur standard for locomotive and marine engines; distributing 
fuel containing the marker for use in engines that require the use of 
fuel that does not contain the marker; prohibitions and requirements 
under the designate and track provisions in today's rule, including 
specific prohibitions and requirements regarding fuel produced or 
distributed in the Northeast/Mid-Atlantic Area or in Alaska.\196\
---------------------------------------------------------------------------

    \195\ See section 80.5 (penalties for fuels violations); section 
80.23 (liability for lead violations); section 80.28 (liability for 
gasoline volatility violations); section 80.30 (liability for 
highway diesel violations); section 80.79 (liability for violation 
of RFG prohibited acts); section 80.80 (penalties for RFG/CG 
violations); section 80.395 (liability for gasoline sulfur 
violations); section 80.405 (penalties for gasoline sulfur 
regulations).; and section 80.610-614 (prohibited acts, liability 
for violations, and penalties for highway diesel sulfur regulations.
    \196\ Today's rule, in 40 CFR 80.610, provides that no person 
shall, inter alia, ``dispense, supply, offer for supply, store or 
transport * * *'' fuel not in compliance with applicable standards 
and requirements starting on a certain date. These prohibitions 
apply at downstream locations such as retail outlets, wholesale 
purchaser-consumer facilities as well as end-user locations. The act 
of storage or transport refers to storage or transport in fuel 
storage tanks from which fuel is dispensed into motor vehicles or 
NRLM engines or equipment. It does not refer to storing or 
transporting the fuel that is in the motor vehicle propulsion tank 
or other tank that is incorporated in the NRLM equipment for the 
purpose of supplying the engine with fuel. While the prohibition 
against dispensing inappropriate fuels does apply as of the 
applicable date, the motor vehicle or NRLM engine or equipment may 
continue to burn any fuel in the motor vehicle fuel tank or NRLM 
equipment fuel tank that was properly dispensed into such tank.
---------------------------------------------------------------------------

    Small refiners and refiners using credits can produce high sulfur 
NRLM when NRLM would otherwise be required to meet a 500 ppm sulfur 
standard, and can produce 500 ppm sulfur NR or LM diesel fuel when 
nonroad or LM diesel fuel would otherwise be required to meet a 15 ppm 
sulfur standard. A refiner that produces fuel under the small refiner 
and credit provisions would be in violation unless they can demonstrate 
that they meet the definition of a small refiner or have sufficient 
credits for the volume of fuel produced. All regulated parties will be 
liable for a failure to meet certain requirements, such as the record-
keeping, reporting, or PTD requirements, or causing others to fail to 
meet such requirements.
    Under today's rule, the party in the diesel fuel distribution 
system that controls the facility where a violation occurred, and other 
parties in that fuel distribution system (such as the refiner, 
reseller, and distributor), will be presumed to be liable for the 
violation.\197\ As in the Tier 2 gasoline sulfur rule and the highway 
diesel fuel rule, today's rule explicitly prohibits causing another 
person to commit a prohibited act or causing non-conforming diesel fuel 
to be in the distribution system. Non-conforming fuels include: (1) 
Diesel fuel with sulfur content above 15 ppm incorrectly represented as 
appropriate for model year 2011 or later nonroad equipment or other 
engines requiring 15 ppm fuel; (2) diesel fuel with sulfur content 
above 500 ppm incorrectly represented as appropriate for nonroad 
equipment or locomotives or marine engines after the applicable date 
for the 500 ppm sulfur standard for these pieces of equipment; (3) 
heating oil that is required to contain the marker which does not, LM 
fuel which is required to contain the marker which does not, or other 
fuels that are required to be free of the marker in which the marker is 
present; (4) fuel designated or labeled as 500 ppm sulfur highway 
diesel fuel above and beyond the volume balance limitations; (5) fuel 
designated or labeled as NRLM above and beyond the volume balance 
limitations; or (6) fuels otherwise not complying with the requirements 
of this rule. Parties outside the diesel fuel distribution system, such 
as diesel additive manufacturers and distributors, are also subject to 
liability for those diesel rule violations which could have been caused 
by their conduct.
---------------------------------------------------------------------------

    \197\ An additional type of liability, vicarious liability, is 
also imposed on branded refiners under today's rule.
---------------------------------------------------------------------------

    Today's rule also provides affirmative defenses for each party 
presumed liable for a violation, and all presumptions of liability are 
rebuttable. In general, in order to rebut the presumption of liability, 
parties will be required to establish that: (1) The party did not cause 
the violation; (2) PTD(s) exist which establish that the fuel or diesel 
additive was in compliance while under the party's control; and (3) the 
party conducted a quality assurance sampling and testing program. As 
part of their affirmative defense diesel fuel refiners or importers, 
diesel fuel additive manufacturers, and blenders of high sulfur 
additives into diesel fuel, will also be required to provide test 
results establishing the conformity of the product prior to leaving 
that party's control. Blenders of static dissipater additives have 
alternative defense provisions as discussed in section V.C. Branded 
refiners have additional affirmative defense elements to establish. The 
defenses under the nonroad diesel sulfur rule are similar to those 
available to parties for violations of the highway diesel sulfur, 
reformulated gasoline, gasoline volatility, and the gasoline sulfur 
regulations. Today's rule also clarifies that parent corporations are 
liable for violations of subsidiaries, in a manner consistent with the 
gasoline sulfur rule and the highway diesel sulfur rule. Finally, the 
NRLM diesel sulfur rule mirrors the gasoline sulfur rule and the 
highway diesel sulfur rule by clarifying that each partner to a joint 
venture will be jointly and severally liable for the violations at the 
joint venture facility or by the joint venture operation.
    As is the case with the other EPA fuels regulations, today's rule 
will apply the provisions of section 211(d)(1) of the Clean Air Act 
(Act) for the collection of penalties. These penalty provisions 
currently subject any person that violates any requirement or 
prohibition of the diesel sulfur rule to a civil penalty of up to 
$32,500 for every day of each such violation and the amount of economic 
benefit or savings resulting from the violation.\198\ A violation of a 
NRLM diesel sulfur standard will constitute a separate day of violation 
for each day the diesel fuel giving rise to the violation remains in 
the fuel distribution system. Under today's regulation, the length of 
time the diesel fuel in question remains in the distribution system is 
deemed to be twenty-five days unless there is evidence that the fuel 
remained in its distribution system a lesser or greater amount of time. 
This is the same time presumption that is incorporated in the

[[Page 39105]]

RFG, gasoline sulfur and highway diesel sulfur rules. The penalty 
provisions in today rule are also be similar to the penalty provisions 
for violations of these regulations.
---------------------------------------------------------------------------

    \198\ This limit is amended periodically pursuant to 
Congressional authority to change maximum civil penalties to account 
for inflation.
---------------------------------------------------------------------------

    EPA has included in today's rule two prohibitions for ``causing'' 
violations: (1) Causing another to commit a violation; and (2) causing 
non-complying diesel fuel to be in the distribution system. These 
causation prohibitions are like similar prohibitions included in the 
gasoline sulfur and the highway diesel sulfur regulations, and, as 
discussed in the preamble to those rules, EPA believes they are 
consistent with EPA's implementation of prior motor vehicle fuel 
regulations. See the liability discussion in the preamble to the 
gasoline sulfur final rule, at 65 FR 6812 et seq.
    The prohibition against causing another to commit a violation will 
apply where one party's violation is caused by the actions of another 
party. For example, EPA may conduct an inspection of a terminal and 
discover that the terminal is offering for sale nonroad diesel fuel 
designated as complying with the 15 ppm sulfur standard, while the 
fuel, in fact, had an actual sulfur content greater than the 
standard.\199\ In this scenario, parties in the fuel distribution 
system, as well as parties in the distribution system of any diesel 
additive that had been blended into the fuel, will be presumed liable 
for causing the terminal to be in violation. Each party will have the 
right to present an affirmative defense to rebut this presumption.
---------------------------------------------------------------------------

    \199\ At downstream locations the violation will occur if EPA's 
test result show a sulfur content of greater than 17 ppm, which 
takes into account the two ppm adjustment factor for testing 
reproducibility for downstream parties.
---------------------------------------------------------------------------

    The prohibition against causing non-compliant diesel fuel to be in 
the distribution system will apply, for example, if a refiner transfers 
non-compliant diesel fuel to a pipeline. This prohibition could 
encompass situations where evidence shows high sulfur diesel fuel was 
transferred from an upstream party in the distribution system, but EPA 
may not have test results to establish that parties downstream also 
violated a prohibited act with this fuel.
    The Agency expects to enforce the liability scheme of the NRLM 
diesel sulfur rule in the same manner that we have enforced the similar 
liability schemes in our prior fuels regulations. As in other fuels 
programs, we will attempt to identify the party most responsible for 
causing the violation, recognizing that party should primarily be 
liable for penalties for the violation.
2. What are the Liability Provisions for Additive Manufacturers and 
Distributors, and Parties That Blend Additives into Diesel Fuel?
a. General
    The final highway diesel rule permits the blending of diesel fuel 
additives with sulfur content in excess of 15 ppm into 15 ppm highway 
diesel fuel under limited circumstances. As more fully discussed 
earlier in this preamble, this rule also permits downstream parties to 
blend fuel additives having a sulfur content exceeding 15 ppm into 15 
ppm nonroad diesel, provided that: (1) The blending of the additive 
does not cause the diesel fuel's sulfur content to exceed the 15 ppm 
sulfur standard; (2) the additive is added in an amount no greater than 
one volume percent of the blended product; and (3) the downstream party 
obtained from its additive supplier a product transfer document 
(``PTD'') with the additive's sulfur content and the recommended 
treatment rate, and that it complied with such treatment rate. As 
discussed in section V.C, today's rule includes alternate affirmative 
defense requirements for blenders of S-D additives that can contribute 
a maximum of 0.050 ppm to the sulfur content of finished fuel subject 
to the 15 ppm sulfur standard. Today's rule also implements these same 
alternate defense requirements regarding the blending of such additives 
into 15 ppm highway diesel fuel.
    Since today's rule permits the limited use in nonroad diesel fuel 
of additives with high sulfur content, the Agency believes it might be 
more likely that a diesel fuel sulfur violation could be caused by the 
use of high sulfur additives. This could result from the additive 
manufacturer's misrepresentation or inaccurate statement of the 
additive's sulfur content or recommended treat rate on the additive's 
PTD, or an additive distributor's contamination of low sulfur additives 
with high sulfur additives during transportation. The increased 
probability that parties in the diesel additive distribution system 
could cause a violation of the sulfur standard warrants the imposition 
by the Agency of increased liability for such parties. Therefore, 
today's rule, like the final highway diesel rule, explicitly makes 
parties in the diesel additive distribution system liable for the sale 
of nonconforming diesel fuel additives, even if such additives have not 
yet been blended into diesel fuel. In addition, today's rule imposes 
presumptive liability on parties in the additive distribution system if 
diesel fuel into which the additive has been blended is determined to 
have a sulfur level in excess of its permitted concentration. This 
presumptive liability will differ depending on whether the blended 
additive was designated as meeting the 15 ppm sulfur standard (a ``15 
ppm additive'') or designated as a greater than 15 ppm sulfur additive 
(a ``high sulfur additive''), as discussed below.
b. Liability When the Additive Is Designated as Complying with the 15 
ppm Sulfur Standard
    Additives blended into diesel fuel downstream of the refinery are 
required to have a sulfur content no greater than 15 ppm, and be 
accompanied by PTD(s) accurately identifying them as complying with the 
15 ppm sulfur standard, with the sole exception of diesel additives 
blended into nonroad diesel fuel at a concentration no greater than one 
percent by volume of the blended fuel.
    All parties in the fuel and additive distribution systems will be 
subject to presumptive liability if the blended fuel exceeds the sulfur 
standard. The two ppm downstream adjustment will apply when EPA tests 
the fuel subject to the 15 ppm sulfur standard. Low sulfur additives 
present a less significant threat to diesel fuel sulfur compliance than 
would occur with the use of additives designated as possibly exceeding 
15 ppm sulfur. Thus, parties in the additive distribution system of the 
low sulfur additive could rebut the presumption of liability by showing 
the following: (1) Additive distributors will only be required to 
produce PTDs stating that the additive complies with the 15 ppm sulfur 
standard; (2) additive manufacturers are also be required to produce 
PTDs accurately indicating compliance with the regulatory requirements, 
as well as producing test results, or retained samples on which tests 
could be run, establishing the additive's compliance with the 15 ppm 
sulfur standard prior to leaving the manufacturer's control. Once they 
meet their defense to presumptive liability, these additive system 
parties will only be held responsible for the diesel fuel non-
conformity in situations in which EPA can establish that the party 
actually caused the violation.
    Under today's rule, parties in the diesel fuel distribution system 
will have the typical affirmative defenses of other fuels rules. For 
parties blending an additive into their diesel fuel, the requirement to 
maintain PTDs showing that the product complied with the

[[Page 39106]]

regulatory standards will necessarily include PTDs for the additive 
that was used, affirming the compliance of the additive and the fuel.
c. Liability When the Additive Is Designated as Having a Possible 
Sulfur Content Greater than 15 ppm
    Under today's rule, a nonroad diesel fuel additive will be 
permitted to have a maximum sulfur content above 15 ppm if the blended 
fuel continues to meet the 15 ppm standard and the additive is used at 
a concentration no greater than one volume percent of the blended fuel. 
However, if nonroad diesel fuel containing that additive is found by 
EPA to have high sulfur content, then all the parties in both the 
additive and the fuel distribution chains will be presumed liable for 
causing the nonroad diesel fuel violation.
    Since this type of high sulfur additive presents a much greater 
probability of causing diesel fuel non-compliance, parties in the 
additive's distribution system will have to satisfy an additional 
element to establish an affirmative defense. In addition to the 
elements of an affirmative defense described above, parties in the 
additive distribution system for such a high sulfur additive will also 
be required to establish that they did not cause the violation, an 
element of an affirmative defense that is typically required in EPA 
fuel programs to rebut presumptive liability.
    Parties in the diesel fuel distribution system will essentially 
have to establish the same affirmative elements as in other fuels 
rules, with an addition comparable to the highway diesel rule. Blenders 
of high sulfur additives into 15 ppm sulfur nonroad diesel fuel, will 
have to establish a more rigorous quality control program than will 
exist without the addition of such a high sulfur additive. For 
additives other than static dissipater additives, to establish a 
defense to presumptive liability, the Agency has adopted the proposal 
to require test results establishing that the blended fuel was in 
compliance with the 15 ppm sulfur standard after being blended with the 
high sulfur additive. This additional defense element will be required 
as a safeguard to ensure nonroad diesel fuel compliance, since the 
blender has voluntarily chosen to use an additive which increases the 
risk of diesel fuel non-compliance.
    An exception to this defense element is made for blenders of static 
dissipater additives, that are allowed by today's rule to contribute no 
more than 0.05 ppm to the sulfur content of a finished fuel subject to 
the 15 ppm sulfur standard. As discussed in section V.C.5, blenders of 
such additives may rely on volume accounting reconciliation records in 
lieu of the requirement to sample and test each batch of fuel subject 
to the 15 ppm sulfur standard after the addition of an additive that 
exceeds the 15 ppm sulfur standard. Today's rule also implements these 
same alternate defense requirements regarding the blending of such 
additives into 15 ppm highway diesel fuel.

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

    Today's rule provides that compliance with the sulfur standards and 
use requirements under today's rule can be determined by evaluating the 
designate and track records (discussed in section IV.D.) and other 
records, such as PTDs; by evaluating compliance with the fuel marker 
requirements discussed in section IV.D and V.E; and by sampling fuel 
and testing for sulfur content. Today's rule includes a requirement for 
refiners and importers to measure the sulfur content of every batch of 
NRLM fuel designated under the rule, using a testing methodology 
approved under the provisions discussed in section V.H of this 
preamble. In general, downstream parties must conduct only periodic 
sampling and testing as an element of a defense to presumptive 
liability (retailers are exempt from sampling and testing). Today's 
rule further provides that in determining compliance, any evidence from 
any source or location can be used to establish the diesel fuel sulfur 
level, provided that such evidence is relevant to whether the sulfur 
level would have met the applicable standard had compliance been 
determined using an approved test methodology. While the use of a non-
approved test method might produce results relevant to determining 
sulfur content, this does not remove any liability for failing to 
conduct required batch testing using an approved test method. This is 
consistent with the approach taken under the gasoline sulfur rule and 
the highway diesel sulfur rule.
    For example, the Agency might not have sulfur results derived from 
an approved test method for diesel fuel sold by a terminal, yet the 
terminal's own test results, based on testing using methods other than 
those approved under the regulations, could reliably show a violation 
of the sulfur standard. Under today's rule, evidence from the non-
approved test method could be used to establish the diesel fuel's 
sulfur level that would have resulted if an approved test method had 
been conducted. This type of evidence is available for use by either 
the EPA or the regulated party, and could be used to show either 
compliance or noncompliance. Similarly, absent the existence of sulfur 
test results using an approved method, commercial documents asserting 
the sulfur level of diesel fuel or additive could be used as some 
evidence of what the sulfur level of the fuel would be if the product 
would have been tested using an approved method.
    The Agency believes that the same statutory authority for EPA to 
adopt the gasoline sulfur rule's evidentiary provisions, Clean Air Act 
section 211(c), provides appropriate authority for the evidentiary 
provisions of today's diesel sulfur rule. For a fuller explanation of 
this statutory authority, see the gasoline sulfur final rule preamble, 
65 FR 6815, February 10, 2000.

VI. Program Costs and Benefits

    In this section, we present the projected cost impacts and cost 
effectiveness of the nonroad Tier 4 emission standards and fuel sulfur 
requirements. We also present a benefit-cost analysis and an economic 
impact analysis. The benefit-cost analysis explores the net yearly 
economic benefits to society of the reduction in mobile source 
emissions likely to be achieved by this rulemaking. The economic impact 
analysis explores how the costs of the rule will likely be shared 
across the manufacturers and users of the engines, equipment and fuel 
that would be affected by the standards.
    We revised our cost and benefit analysis to reflect the comments we 
received on our analysis. The fuel-related costs have been updated to 
reflect information received from refiners as part of EPA's highway 
diesel fuel program, comments received on the nonroad NPRM, as well as 
more recent information available on future energy costs and the cost 
of advanced desulfurization technologies. The engine and equipment-
related costs were revised to reflect additional R&D costs associated 
with tailoring R&D to each particular engine line and to accommodate 
changes in the final emission control requirements, particularly with 
regard to engines above 750 hp. These costs are also now presented in 
2002 instead of 2001 dollars. With regard to the benefits analysis, we 
have updated our methods consistent with Science Advisory Board (SAB) 
advice as specified in RIA chapter 9. Finally, we adjusted the economic 
impact analysis to reflect the revised cost inputs and to explicitly 
model the impacts on the locomotive and marine intermediate market 
sectors.
    The results detailed below show that this rule would be highly 
beneficial to

[[Page 39107]]

society, with net present value benefits through 2036 of $805 billion 
using a 3 percent discount rate and $352 billion using a 7 percent 
discount rate, compared to a net present value of social cost of about 
$27 billion using a 3 percent discount rate and $14 billion using a 7 
percent discount rate. The impact of these costs on society should be 
minimal, with the prices of goods and services produced using equipment 
and fuel affected by standards being expected to increase about 0.1 
percent.
    Further information on these and other aspects of the economic 
impacts of this emission control program are summarized in the 
following sections and are presented in more detail in the Final RIA 
for this rulemaking.

A. Refining and Distribution Costs

    Meeting the 500 and 15 ppm sulfur caps will generally require that 
refiners add hydrotreating equipment and possibly new or expanded 
hydrogen and sulfur plants in their refineries. We have estimated the 
cost of building and operating this equipment using the same basic 
methodology which was described in the NPRM. We have updated that 
analysis with new information obtained from the vendors of advanced 
desulfurization technology, to better reflect current crude oil 
properties and refinery configurations, as well as future hydrogen 
costs. We have also incorporated information received from refiners 
regarding their plans to produce 15 ppm highway diesel fuel from 2006-
2010. Finally, we incorporated the 15 ppm cap on locomotive and marine 
fuel in 2012, as well as improving our analysis of the impact of this 
cap on costs incurred in the distribution system.
    The costs to provide NRLM fuel under the two-step fuel program are 
summarized in Table VI.A-1 below. All of the following costs estimates 
are in 2002 dollars. Capital investments have been amortized at 7 
percent per annum before taxes. These estimates do not include costs 
associated with fuel sulfur testing, labeling, reporting or record 
keeping, which we believe will be small relative to those associated 
with refining, distribution and lubricity additives. A more detailed 
description of the costs associated with this final rule is presented 
in the Final RIA.

                                Table VI.A-1.--Cost of Providing NRLM Diesel Fuel
                                       (cents per gallon of affected fuel)
----------------------------------------------------------------------------------------------------------------
                                                                    Affected
                                                                  fuel volume              Distribution
           NRLM diesel fuel                       Years             (million    Refining       (and        Total
                                                                  gallons per               lubricity)
                                                                    year) a
----------------------------------------------------------------------------------------------------------------
500 ppm...............................  2007-2010...............       11,860        1.9             0.2     2.1
                                        2010-2012...............        3,589        2.7             0.6     3.3
                                        2012-2014...............          715        2.9             0.6     3.5
15 ppm................................  2010-2012...............        8,145        5.0             0.8     5.8
                                        2012-2014...............       12,068        5.6             0.8     6.4
                                        2014 +..................       13,399        5.8             1.2    7.0
----------------------------------------------------------------------------------------------------------------
Notes: a Volumes shown are for first full year in each period (2008, 2011, 2013, and 2015).

    The costs shown (and all of the costs described in the rest of this 
section) apply to the 74 percent of current NRLM fuel that currently 
contains more than 500 ppm sulfur (hereafter referred to as the 
affected volume).
    In 2014, the affected volume of NRLM fuel is 14.6 billion gallons 
out of total NRLM fuel volume of 19.7 billion gallons. The other 5.1 
billion gallons of NRLM fuel is currently spillover from fuel certified 
to the highway diesel fuel standards. We expect this to continue under 
the 2007 highway diesel fuel program. Thus, 26 percent of NRLM fuel 
will already meet at least a 500 ppm sulfur cap by 2007 and a 15 ppm 
cap by 2010 and will not be affected by today's rule. The costs and 
benefits of desulfurizing this highway fuel which spills over into the 
non-highway markets was included in our cost estimates for the 2007 
highway diesel fuel rule.
    The estimated cost of the first step of the NRLM fuel program is 
slightly less than that projected in the NPRM ( cents per gallon). 
However, we have increased our estimated cost of the second step 
significantly in response to comments. These comments and the changes 
to our cost estimates are discussed in more detail in the next two 
sections. The combined cost for both steps is therefore somewhat higher 
than expected in the NPRM, but nevertheless consistent with projections 
for the cost of 15 ppm highway diesel fuel.
    We expect that the increased cost of refining and distributing 500 
ppm NRLM fuel will be completely offset by reductions in maintenance 
costs, while those for 15 ppm NRLM fuel will be significantly offset. 
These savings will apply to all diesel engines in the fleet due to the 
reduced fuel sulfur content, not just new engines. Refer to section V.B 
for a more complete discussion on the projected maintenance savings 
associated with lower sulfur fuels.
1. Refining Costs
    Methodology: We followed the same process that we used in the NPRM 
to project refining costs, though we have broken down the description 
into five steps instead of four.
    First, we estimate the total volume of NRLM fuel which must be 
desulfurized during each step of the program, as well as each 
refinery's future total production of distillate fuel. Current and 
future demand for all distillate fuels except diesel fuel for land-
based equipment were based on estimates from the Energy Information 
Administration's (EIA) Fuel Oil and Kerosene Survey (FOKS) for 2001 and 
the 2003 Annual Energy Outlook (AEO). EPA's NONROAD emission model was 
used to estimate both current and future fuel consumption by land-based 
nonroad equipment to ensure the consistent treatment of both the costs 
and benefits associated with this rule. Table VI.A-2 shows our 
projections of the volumes of fuel affected by today's rule. These 
volumes exclude NRLM fuel expected to be certified to highway diesel 
fuel sulfur caps prior to the implementation of this rule. They also 
exclude distillate fuel meeting a 500 ppm cap which is produced during 
distribution from highway diesel fuel, jet fuel, etc.

[[Page 39108]]



                           Table VI.A-2.--Volume of NRLM Fuel Affected by Today's Rule
                                           (billion gallons per year)
----------------------------------------------------------------------------------------------------------------
                                                                 Nonroad       Locomotive and         Total
                                                           ------------------      marine      -----------------
                                                                             ------------------
                                                            500 ppm   15 ppm  500 ppm   15 ppm  500 ppm   15 ppm
----------------------------------------------------------------------------------------------------------------
2008......................................................    8,406        0    3,454        0   11,860        0
2011......................................................      614    8,145    2,975        0    3,589    8,145
2013......................................................      468    8,671      247    3,395      715   12,066
2015......................................................        0   10,539  .......    2,860        0   13,399
----------------------------------------------------------------------------------------------------------------

    This marks a change from the proposal, where all distillate fuel 
volumes were based on EIA FOKS and AEO estimates. Commenters pointed 
out that this approach underestimated fuel-related costs relative to 
emission reductions and monetized benefits, since the NONROAD fuel 
volumes used to estimate the latter were larger. We in fact had 
acknowledged this inconsistency in the proposal and had said we would 
address it in the final rule. Our approach to address the inconsistency 
was to utilize the land-based nonroad fuel volumes estimated by the 
NONROAD model for both the costs and monetized benefits. However, we 
also conducted a sensitivity analysis whereby both emissions and costs 
were estimated using EIA estimates of fuel demand by land-based nonroad 
equipment. The results of that analysis are discussed in chapter VII of 
the Final RIA.
    We made one other revision to the volume of diesel fuel affected by 
this rule. In analyzing the impact of the 2007 highway diesel fuel 
program for the NPRM analysis, we estimated that 4.4 percent of 15 ppm 
highway diesel fuel would be contaminated during shipment and not 
available for sale as 15 ppm highway fuel. This increased the volume of 
15 ppm highway fuel which had to be produced at refineries before 
accounting for the production of additional 500 and 15 ppm NRLM fuel in 
response to the NRLM fuel program. Due to comments made on the NRPM 
(discussed in section VI.A.3. below), we have improved our analysis to 
track the disposition of this contaminated 15 ppm fuel. Much of this 
contaminated fuel can be sold as 500 ppm NRLM from 2007-2014 and as L&M 
fuel thereafter. Thus, the contaminated 15 ppm fuel reduces the volume 
of 500 and 15 ppm NRLM fuel which must be produced at refineries.
    Second, total distillate production by individual refineries were 
based on their actual production volumes in 2002, as reported to EIA. 
This represents a minor revision to the NPRM analysis, which utilized 
actual refiner production in 2000. The number of refineries needing to 
produce 500 ppm and 15 ppm diesel fuel under today's final rule was 
based on the projected diesel fuel and heating oil demand in 2014.\200\ 
To be consistent, the 2002 distillate production volumes of individual 
refiners were increased to 2014 levels using EPA projections of growth 
in total distillate production by domestic refiners.
---------------------------------------------------------------------------

    \200\ The year 2014 represents a mid-point between the initial 
year of today's fuel program and the end of the expected life of 
desulfurization equipment (roughly 15 years).
---------------------------------------------------------------------------

    Third, we estimated the cost to desulfurize diesel fuel to both 500 
ppm and 15 ppm for each domestic refinery. This considered both the 
volume of diesel fuel being produced and its composition (e.g., 
percentage of straight run, light cycle oil, etc.). Estimates of the 
volumes of diesel fuel already being desulfurized to meet the highway 
diesel fuel standards in 2006-2010 prior to the implementation of this 
final rule were based on refiners' pre-compliance reports.\201\ This 
marks a change from the NPRM analysis, where we assumed that refiners 
would continue to produce their current mix of highway and high sulfur 
diesel fuel. While many refiners indicated that their plans were 
preliminary and subject to change, we consider these projections to be 
more probable than assuming that current producers of diesel fuel will 
make no change to their product mix in complying with the highway rule. 
Meeting the 15 ppm highway diesel fuel cap will require significant 
investment, but some refiners will face more than others. Some refiners 
will be able to revamp their current hydrotreater, while others will 
need to build an entirely new unit. Some refiners will be able to 
expand their production of highway fuel at little incremental cost, 
while others will be able to reduce their investment substantially by 
reducing their production volume. Use of refiners' own projections, as 
opposed to our own cost methodology assumptions, allows us to 
incorporate as much refinery-specific information as is currently 
possible.
---------------------------------------------------------------------------

    \201\ Under EPA's 2007 highway diesel program, refiners are 
required to submit their production plans for highway diesel fuel 
for 2006-2010. The first of these reports were due during the summer 
of 2003. EPA published a summary of the results this past fall. We 
consider these reports to provide a more accurate projection of 
individual refinery plans than our projections made during the 
highway fuel FRM. The latter was based on cost minimization using 
our refinery-specific desulfurization refinery model.
---------------------------------------------------------------------------

    In projecting desulfurization costs, we updated a number of the 
inputs to our cost estimation methodology. We increased natural gas and 
utility costs to reflect those projected in EIA's 2003 AEO. The NPRM 
analysis utilized projections from 2002 AEO. Forecasted natural gas 
costs in 2003 AEO are considerable higher than in 2002 AEO, though 
still lower than current market prices. In response to comments, we 
also increased the factor for off-site capital costs to better reflect 
the cost of sulfur plant expansions. The NPRM analysis utilized an off-
site factor developed in support of the Tier 2 gasoline and 2007 
highway diesel fuel programs, where the amount of sulfur removed per 
gallon was a fraction of that occurring here with NRLM fuel. We also 
continued to update our cost estimates for advanced desulfurization 
technologies, as these technologies continue their evolution. As 
discussed in Section IV, the latest information concerning Process 
Dynamics's IsoTherming process indicate somewhat higher costs than 
earlier estimates. We also reduced our projection of the penetration of 
these advanced technologies in 2010 from 80 to 60 percent.
    Fourth, we estimated which refineries will likely find it difficult 
to stay in the heating oil market after the implementation of the NRLM 
sulfur standards, due to their location relative to major pipelines and 
the size of the heating oil market in their area. Those not located in 
major heating oil markets and not connected to pipelines serving these 
areas were projected to have to

[[Page 39109]]

meet the 500 and 15 ppm caps in 2007 and 2010, respectively.
    Fifth, we estimated which of the remaining refineries would likely 
produce NLRM fuel under today's program. As was done in the proposal, 
we assumed that those refineries with the lowest projected compliance 
costs would be the most likely to produce the required fuel until 
demand was met. Inter-PADD transfers of fuel between PADD 3 and PADD 1 
were not constrained. PADD 3 refineries were also assumed to supply 
PADD 2 with 15 ppm NRLM fuel once all PADD 2 refineries were producing 
15 ppm distillate fuel. We also assumed that domestic refineries would 
preferentially supply the lowest sulfur fuels compared to imports. 
Thus, imports of 15 and 500 ppm NRLM fuel were only assumed after all 
refineries in a PADD were projected to produce either 15 or 500 ppm 
fuel, respectively. The small refiner provisions included in today's 
NRLM fuel program were considered, as these provisions temporarily 
reduce the volume of 500 and 15 ppm fuel required to be produced in 
2007 and 2010, respectively. This portion of the methodology was the 
same as that used in the NRPM analysis.
    Results: Based on EIA data, in 2002 114 refineries produced highway 
diesel fuel and 102 refineries produce high sulfur diesel fuel or 
heating oil. Based on refiners' pre-compliance reports, we project that 
100 refineries will produce 15 ppm highway diesel fuel; 96 refineries 
starting in 2006 and 4 in 2010. Of these 100 refineries, 96 currently 
produce some volume of highway diesel fuel, while 4 refineries 
currently only produce high sulfur distillate fuel. Also, 18 refineries 
will cease to produce highway diesel fuel and shift to producing solely 
high sulfur distillate fuel. This will leave a total of 92 refineries 
still producing high sulfur distillate after full implementation of the 
2007 highway diesel fuel program.
    The number of these 92 domestic refineries expected to produce 
either 15 or 500 ppm NRLM diesel fuel in response to today's rule is 
summarized in Table VI.A-3.

              Table VI.A-3.--Refineries Projected To Produce NRLM Diesel Fuel Under This Final Rule
----------------------------------------------------------------------------------------------------------------
                                                              500 ppm NRLM diesel fuel   15 ppm NRLM diesel fuel
                                                             ---------------------------------------------------
                      Year of  program                            All         Small         All         Small
                                                               refineries   refineries   refineries   refineries
----------------------------------------------------------------------------------------------------------------
2007-2010...................................................           36            0            0            0
2010-2012...................................................           26           13           32            2
2012-2014...................................................           15           13           47            2
2014+.......................................................            0            0           63           15
----------------------------------------------------------------------------------------------------------------

    During the four periods shown in table VI.A-3, two roughly parallel 
sets of standards become effective. For non-small refiners, the 500 ppm 
NRLM fuel cap starts in 2007, followed by the 15 ppm nonroad fuel cap 
in 2010, in turn followed by the 15 ppm L&M fuel cap in 2012. For small 
refiners, the 500 ppm NRLM fuel cap starts in 2010, followed by the 15 
ppm nonroad NRLM fuel cap in 2014. As shown, beginning in 2014, 63 
refineries are projected to be affected by today's final rule. After 
complete implementation of today's rule, 29 refineries are expected to 
be able to produce high sulfur heating oil, some as their entire 
distillate production, others along with 15 ppm fuel. The number of 
refineries estimated to be affected by today's rule is one more than 
that projected in the NPRM. There, we estimated that 62 refineries 
would have to produce either 15 or 500 ppm NRLM fuel in 2014 and 
beyond.
    We project that the capital cost involved to meet the 2007 500 ppm 
sulfur cap will be $310 million. This represents about $10 million for 
each of the 30 refineries building a new hydrotreater. Six refineries 
are expected to produce 500 ppm NRLM fuel using existing hydrotreaters 
no longer being used to produce 500 ppm highway fuel. The total 
investment cost is roughly half that projected in the NPRM ($600 
million). The decrease is due to a greater volume of 500 ppm NRLM fuel 
coming from existing hydrotreaters. This conclusion is based on the 
number of refineries leaving the highway diesel fuel market according 
to the refiners' highway program pre-compliance reports. The investment 
per refinery that we projected in the NPRM ($9.7 million) was 
essentially unchanged. Operating costs will be about $4.9 million per 
year for the average refinery, or slightly greater than that projected 
in the NPRM (due to higher hydrogen costs and a lower percentage of 
hydrocrackate in the NRLM pool). The average cost of producing 500 ppm 
NRLM fuel in 2007 will be 1.9 cents per gallon, 0.3 cent per gallon 
lower than that projected in the NPRM, due primarily to the reduced 
capital expenditure.
    In 2010, an additional $1170 million will be invested in revamped 
and new desulfurization equipment, $1090 million to meet the 15 ppm 
nonroad fuel cap and $80 million to produce 500 ppm NRLM fuel no longer 
eligible for a small refiner exemption to sell high sulfur NRLM fuel. 
In 2012, an additional $590 million will be invested in revamped and 
new desulfurization equipment to meet the 15 ppm L&M cap Finally, in 
2014 an additional $210 million will be invested in additional 15 ppm 
fuel capacity. Thus, total capital cost of new equipment and revamps 
related to the NRLM fuel program will be $2280 million, or $36 million 
per refinery, roughly 5 percent greater than that projected in the 
NPRM. Total operating costs will be about $8.1 million per year for the 
average refinery, slightly lower than that projected in the NPRM ($8.3 
million per year). The total refining cost, including the amortized 
cost of capital, will be 5.0, 5.6 and 5.8 cents per gallon of new 15 
ppm NRLM fuel in 2010, 2012, and 2014, respectively.
    The 500 pm NRLM fuel being produced in 2010 is projected to cost 
2.7 cents per gallon. The cost of this 500 ppm fuel is higher than that 
projected in the NPRM, due primarily to a higher cost for natural gas 
in the future. The 500 pm, small refiner fuel being produced in 2012 is 
projected to cost 2.9 cents per gallon. All of these costs are relative 
to the cost of producing high sulfur fuel today, and includes the cost 
of meeting the 500 ppm standard beginning in 2007.
    The 15 ppm refining costs are significantly higher than the 4.4 
cent per gallon cost projected in the NPRM for the option where L&M 
fuel was controlled to 15 ppm in addition to nonroad fuel. The increase 
is due to the changes in refining cost methodology described above, 
particularly the reduced use of advanced desulfurization technology, 
reduced synergies with the highway fuel program and increased natural 
gas costs.

[[Page 39110]]

    The average refining costs by refining region are shown in table 
VI.A-4 below. These costs include consideration of the small refiner 
provisions. Combined costs are shown for PADDs 1 and 3 because of the 
large volume of diesel fuel which is shipped from PADD 3 to PADD 1.

                                 Table VI.A-4.--Average Refining Costs by Region
                                               [Cents per gallon]
----------------------------------------------------------------------------------------------------------------
                                                     500 ppm Cap                           15 ppm Cap
                                       -------------------------------------------------------------------------
                                         2007-2010    2010-2012    2012-2014    2010-2012    2012-2014    2014+
----------------------------------------------------------------------------------------------------------------
PADDs 1 & 3...........................          1.6          3.7          2.5          4.6          4.9      5.1
PADD 2................................          2.8          2.9          3.7          7.1          7.8      7.8
PADD 4................................          3.3          9.0          9.0         11.6         11.7     11.8
PADD 5................................          1.2          2.8          3.5          4.3          4.3      5.7
Nationwide............................          1.8          2.7          2.9          5.0          5.6      5.8
----------------------------------------------------------------------------------------------------------------

    Fuel-Only Control Programs: We used the same methodology to 
estimate refining costs for stand-alone 500 ppm and 15 ppm NRLM fuel 
programs. The fully phased in refining impacts of a 15 ppm NRLM 
standard are the same as those described above for the final rule in 
2014 and beyond. A fully phased in 500 ppm NRLM fuel program is 
projected to affect 63 refineries, cost 2.0 cents per gallon and 
require a capital investment of $480 million.
2. Distribution Costs
    Today's rule is projected to impact distribution costs in four 
ways. First, we project that a slightly greater volume of diesel fuel 
will have to be distributed, due to the fact that some of the 
desulfurization processes reduce the fuel's volumetric energy density 
during processing. Total energy is not lost during processing, as the 
total volume of fuel is increased in the hydrotreater. However, a 
greater volume of fuel must be consumed in the engine to produce the 
same amount of power. We project that desulfurizing diesel fuel to 500 
ppm will reduce volumetric energy content by 0.7 percent. The cost of 
which is equivalent to 0.08 cent per gallon of affected NRLM fuel. 
\202\ We project that desulfurizing diesel fuel to 15 ppm will reduce 
volumetric energy content by an additional 0.52 percent. This will 
increase the cost of distributing fuel by an additional 0.05 cents per 
gallon, for a total cost of 0.13 cents per gallon of affected 15 ppm 
NRLM fuel.
---------------------------------------------------------------------------

    \202\ See chapter 7 of the RIA for further details regarding our 
estimation of distribution costs.
---------------------------------------------------------------------------

    The second impact on distribution costs relates to the disposition 
of 15 ppm fuel contaminated during pipeline shipment. We received 
comments that the control of L&M fuel sulfur content, particularly to 
15 ppm, would make it difficult to sell off-specification 15 ppm fuel. 
The comments argued that much of this material would have to be shipped 
back to refineries and reprocessed to meet the 15 ppm cap. We designed 
the program finalized today to allow the continued sale of 500 ppm fuel 
into the NRLM market until June 1, 2014, and into the locomotive and 
marine market indefinitely. By doing so, we were able to minimize, 
though not eliminate, much of the reprocessing and distribution cost 
impacts of concern. We have evaluated both the production and potential 
sale of distillate interface and estimated the distribution cost 
impacts of today's final rule provisions. The details of this analysis 
are contained in chapter 7 of the Final RIA.
    In our analysis of the 15 ppm highway fuel program, we projected 
that the need to protect the quality of 15 ppm highway diesel fuel 
would increase the volume of highway diesel fuel downgraded to a lower 
value product, such as high sulfur diesel fuel and heating oil, from 
its current level of approximately 2.2 percent to 4.4 percent. Under 
today's rule, we expect that 15 ppm NRLM fuel will be shipped together 
with 15 ppm highway. Thus, the size of each batch of 15 ppm fuel will 
increase, but the number of batches will not. As the downgrade occurs 
at the interface between batches, the volume being downgraded should 
not increase. At the same time, we are not projecting that interface 
volume will decrease, as high sulfur fuels, such as jet fuel and, in 
some cases heating oil, will still be in the system.
    The issue here is the market to which this interface volume can be 
sold. When this interface volume meets the specifications of one of the 
two fuels being shipped next to each other, the interface is simply 
added to the batch of that fuel. For example, the interface between 
regular and premium gasoline is added to the regular grade batch. Or, 
the interface between jet fuel and heating oil is added to the heating 
oil batch. One interface which is never added to either adjacent batch 
is a mixture of gasoline and any distillate fuel, such as jet or diesel 
fuel. If this interface was added to the distillate batch, the gasoline 
content in the interface would result in a violation of the 
distillate's flash point specification. If this interface was added to 
the gasoline batch, it would cause the gasoline to violate its end 
point specification. Therefore, this interface must be shipped to a 
transmix processor to separate the mixture into naphtha (a sub-octane 
gasoline) and distillate. The 2007 highway diesel fuel program will not 
change this practice. The naphtha produced by transmix processors from 
gasoline/distillate mixtures is usually blended with premium gasoline 
to produce regular grade gasoline. The distillate produced is an 
acceptable high sulfur diesel fuel or heating oil, though if the feed 
material was primarily low sulfur distillate and gasoline it will 
likely also meet the current 500 ppm highway fuel cap.
    With the implementation of the highway diesel rule, there is 
another incompatible interface, that between jet fuel and 15 ppm diesel 
fuel. This interface can not be cut into jet fuel due to end point and 
other concerns. However, it can usually be cut into 500 ppm diesel fuel 
as long as the sulfur level of the jet fuel is not too high. With the 
lowering of the highway standard to 15 ppm, however, this will no 
longer be possible. We expect that pipelines minimize this interface by 
abutting jet fuel and high sulfur distillate in the pipeline whenever 
possible. However, it will be unavoidable under many circumstances. A 
substantial part of the pipeline distribution system currently does not 
handle high sulfur distillate, and we expect that the highway program 
and today's rule will likely cause additional pipeline systems to 
discontinue carrying high sulfur distillate. Pipelines that do not 
carry high sulfur distillates will generate this

[[Page 39111]]

interface whenever they ship jet fuel.\203\ The highway rule, and 
today's rule projects that pipeline operators will segregate this 
interface by cutting it into a separate storage tank. Because this 
interface can be sold as 500 ppm NRLM fuel or heating oil, and because 
these markets exist nationwide, there is little impact beyond the need 
for refiners to produce more 15 ppm highway diesel fuel (compared to 
the volume of highway diesel fuel produced prior to the implementation 
of the 15 ppm standard), which was considered as part of the refining 
costs in the highway diesel rule.
---------------------------------------------------------------------------

    \203\ We expect that only three types of fuel will be carried by 
such pipeline systems: jet fuel, 15 ppm diesel fuel, and gasoline 
(premium and regular). Premium and regular gasolines are always 
shipped next to each other so the interface between premium and 
regular gasoline can be cut into the batch of regular gasoline. 
Thus, whenever jet fuel is shipped it will abut 15 ppm diesel fuel 
on one end and gasoline on the other.
---------------------------------------------------------------------------

    With control of nonroad fuel to 15 ppm sulfur in 2010 and LM fuel 
to 15 ppm sulfur in 2012, the opportunities to downgrade interface to 
another product become increasing limited. Where limited this will 
increase costs due to the need to transport the interface to where it 
can be marketed or to a facility for reprocessing. In areas with large 
heating oil markets, such as the Northeast and the Gulf Coast, the 
control of NRLM sulfur content will still have little impact on the 
sale of this interface. However, in areas lacking a large heating oil 
market, the sale of this distillate interface will be more restricted. 
Because this interface will composed of 15 ppm diesel fuel and jet 
fuel, we estimate that the distillate interface created should nearly 
always meet a 500 ppm cap.\204\ Thus, this interface can be added to 
500 ppm NRLM batches (as well as heating oil, where it is present at 
the terminal) through 2014. After 2014, this 500 ppm interface fuel can 
only be sold as L&M fuel or heating oil. An exception to this applies 
in the Northeast/Mid-Atlantic Area, where this interface cannot be sold 
into the nonroad fuel market after 2010, nor into the L&M fuel market 
after 2012.
---------------------------------------------------------------------------

    \204\ See chapter 7.1.7 of the RIA regarding our analysis of the 
sulfur levels of this interface material. This analysis indicated 
that although the maximum sulfur specification of jet fuel 3,000 
ppm, in-use jet fuel sulfur levels are frequently below 500 ppm.
---------------------------------------------------------------------------

    In chapter 7 of the Final RIA, we estimate the costs related to 
handling this interface fuel during the four time periods (2007-2010, 
2010-2012, 2012-2014, and 2014 and beyond). We project that there will 
be no additional costs prior to 2010, as 500 ppm fuel will be the 
primary NRLM fuel and be widely distributed. Beyond 2010, we estimate 
that terminals will have to add a small storage tank for this fuel, as 
500 ppm highway diesel fuel and the majority of 500 ppm NRLM disappears 
from the distribution system. In many places, this interface will be 
the primary, if not sole source of 500 ppm fuel, so existing tankage to 
add this interface to will be limited. We have also added shipping 
costs to transport this fuel to NRLM and heating oil users. The volume 
of this interface is significant, sometimes a sizeable percentage of 
the combined NRLM fuel and heating oil markets. In the post-2014 
period, the volume of this interface fuel is larger than the combined 
L&M fuel and heating oil markets in certain PADDs. Also, the volume of 
interface received at each terminal will vary substantially, depending 
on where that terminal is on the pipeline. The advantage of this is 
that where the interface accumulates it may be of sufficient volume to 
justify marketing as a separate grade of fuel. Conversely, the 
potential users of this 500 ppm interface fuel may not be located near 
the terminals with the fuel necessitating additional transportation 
costs.
    Prior to 2014, 500 ppm fuel can be used as NRLM fuel and heating 
oil outside of the Northeast/Mid-Atlantic Area. Additional storage 
tanks will be needed in some cases, as this will be the only source of 
500 ppm fuel in the marketplace. Amortizing the cost of a range of 
storage tank sizes over 15 years of weekly shipments at a seven percent 
rate of return before taxes costs produced an amortized cost of 0.2-1.6 
cents per gallon. These costs include the carrying cost of the fuel 
stored in the tank. We estimate that the average storage cost will be 
closer to the lower end of this range, or 0.5 cent per gallon. Nonroad 
fuel users are fairly ubiquitous. Thus, increased shipping distances 
should be fairly short. We estimated 45 miles at a cost of roughly 1.5 
cents per gallon. The distance to L&M fuel users will likely be longer, 
roughly 100 miles, but cost the same due to greater efficiencies of 
rail transport. It will likely cost more to deliver interface fuel to 
heating oil users, as many of these users are smaller, not evenly 
dispersed geographically, purchase fuel seasonally, and lack rail 
connections. We estimate that transport distances will increase an 
average of 85 miles and cost an additional 3.0 cents per gallon over 
today's costs to deliver this fuel to the end user, in addition to the 
0.5 cent per gallon storage cost. When spread over all the 15 and 500 
ppm NRLM fuel being produced from 2010-2014 due to today's rule, the 
additional distribution cost from 2010-2014 is 0.4 cents per gallon.
    Starting in 2014, this interface fuel can no longer be sold to the 
nonroad fuel market. Since the interface volume does not change, this 
increases the volume of fuel that must be sold to the L&M and heating 
oil markets. Thus, overall, transportation distances and costs will 
likely increase. We expect that the transportation cost for fuel sold 
to the L&M market will increase from 1.5 to 3.0 cents per gallon, while 
that for heating oil will increase to 5.0 cents per gallon, both 
including fuel storage. However, in PADD 5, the volume of interface 
generated exceeds the total fuel demand of these two markets. Thus, we 
estimate that some fuel will have to be shipped back to refineries and 
reprocessed to meet a 15 ppm cap and shipped out a second time. We 
estimate that the cost of this shipping and reprocessing will cost 10 
cents per gallon. When spread over all the 15 ppm NRLM fuel being 
produced after 2014 due to today's rule, the additional distribution 
cost is 0.8 cent per gallon.
    The third impact of today's rule on distribution costs is related 
to the need for additional storage tanks to market additional product 
grades at bulk plants. While this final rule minimizes the segregation 
of similar fuels, some additional segregation of products in the 
distribution system will still be required. The allowance that highway 
and NRLM diesel fuel meeting the same sulfur specification can be 
shipped fungibly until it leaves the terminal obviates the need for 
additional storage tanks in this segment of the distribution system 
except for the limited tankage at terminals necessary to handle 500 ppm 
sulfur interface fuel discussed above.\205\ Today's final rule also 
allows 500 ppm NRLM diesel fuel to be mixed with high-sulfur NRLM 
(though it can no longer be sold as 500 ppm fuel).
---------------------------------------------------------------------------

    \205\ Including the refinery, pipeline, terminal, marine tanker, 
and barge segments of the distribution system.
---------------------------------------------------------------------------

    However, we expect that the implementation of the 500 ppm standard 
for NRLM diesel fuel in 2007 will compel some bulk plants in those 
parts of the country still distributing heating oil as a separate fuel 
grade to install a second diesel storage tank to handle this 500 ppm 
NRLM fuel. These bulk plants currently handle only high-sulfur fuel and 
hence will need a second tank to continue their current practice of 
selling fuel into the heating oil market in the winter and into the 
nonroad market in the summer. We believe that

[[Page 39112]]

some of these bulk plants will convert their existing diesel tank to 
500 ppm fuel in order to avoid the expense of installing an additional 
tank. However, to provide a conservatively high estimate we assumed 
that 10 percent of the approximately 10,000 bulk plants in the U.S. 
(1,000) will install a second tank in order to handle both 500 ppm NRLM 
diesel fuel and heating oil.
    The cost of an additional storage tank at a bulk plant is estimated 
at $90,000 and the cost of de-manifolding a delivery truck is estimated 
at $10,000.\206\ In the NPRM, we estimated that each bulk plant that 
needed to install a new storage tank would need to de-manifold a single 
tank truck. Thus, the NPRM estimated the cost per bulk plant would be 
$100,000. Fuel distributors stated that the assumptions and 
calculations made by EPA in characterizing costs for bulk plant 
operators seem reasonable. However, they also stated that our estimate 
that a single tank truck would service a bulk plant is probably not 
accurate. No suggestion was offered regarding what might be a more 
appropriate estimate other than the number is likely to be much 
greater. Part of the reason why we estimated that only a single tank 
truck would need to be de-manifolded, is that we expected that due to 
the seasonal nature of the demand for heating oil versus nonroad fuel, 
it would primarily only be at the juncture of these two seasons that 
both fuels would need to be distributed in substantial quantities. We 
also expected that the small demand for heating oil in the summer and 
the small demand for nonroad fuel in the winter could be serviced using 
a single de-manifolded truck. The primary fuel distributed during a 
given season would be distributed by single compartment tank trucks. 
During the crossover between seasons, bulk plant operators would switch 
the fuel to which such single compartment tank trucks are used from 
nonroad to heating oil and back again.\207\ Nevertheless, we agree that 
the subject bulk plant operators would likely be compelled to de-
manifold more that a single tank truck. Lacking additional specific 
information, we believe that assuming that each bulk plant operator de-
manifolds three tank trucks will provide a conservatively high estimate 
of the cost to bulk plant operators due to today's rule.
---------------------------------------------------------------------------

    \206\ This estimated cost includes the addition of a separate 
delivery system on the tank truck.
    \207\ To avoid sulfur contamination of NRLM fuel, the tank 
compartment would need to be flushed with some NRLM fuel prior to 
switching from carrying heating oil to NRLM fuel.
---------------------------------------------------------------------------

    If all 1,000 bulk plants were to install a new tank and de-manifold 
three tank trucks, the cost for each bulk plant would be $120,000, and 
the total one-time capital cost would be $120,000,000. To provide a 
conservatively high estimate of the costs to bulk plant operators, we 
are assuming that all 1,000 bulk plants will do so. Amortizing the 
capital costs over 20 years, results in a estimated cost for tankage at 
such bulk plants of 0.1 cents per gallon of affected NRLM diesel fuel 
supplied. Although the impact on the overall cost of the program is 
small, the cost to those bulk plant operators who need to put in a 
separate storage tank may represent a substantial investment. Thus, we 
believe many of these bulk plants will search out other arrangements to 
continue servicing both heating oil and NRLM markets such as an 
exchange agreement between two bulk plants that serve a common area.
    As a consequence of the end of the highway program's temporary 
compliance option (TCO) in 2010 and the disappearance of high-sulfur 
diesel fuel from much of the fuel distribution system resulting from 
the implementation of today's rule, we expect that storage tanks at 
many bulk plants that were previously devoted to 500 ppm TCO highway 
fuel and high-sulfur fuel will become available for dyed 15 ppm nonroad 
fuel service. Based on this assessment, we do not expect that a 
significant number of bulk plants will need to install an additional 
storage tank in order to provide dyed and undyed 15 ppm diesel fuel to 
their customers beginning in 2010 (the implementation date for the 15 
ppm nonroad standard).\208\ There could potentially be some additional 
costs related to the need for new tankage in some areas not already 
carrying 500 ppm fuel under the temporary compliance option of the 
highway diesel program and which continue to carry high sulfur fuel. 
However, we expect them to be minimal relative to the above 0.1 cent 
per gallon cost. Thus, we estimate that the total cost of additional 
storage tanks at bulk plants that will result from today's rule will be 
0.1 cent per gallon of affected NRLM diesel fuel supplied.
---------------------------------------------------------------------------

    \208\ See Section IV of today's preamble for additional 
discussion of our rational for this conclusion.
---------------------------------------------------------------------------

    The fourth impact on fuel distribution costs is a result of the 
requirement that high sulfur heating oil be marked beginning June 1, 
2007 and that 500 ppm sulfur LM diesel produced by refiners or imported 
be marked from 2010 through 2012 outside of the Northeast/Mid-Atlantic 
Area and Alaska. The NPRM projected that there would be no capital 
costs associated with the proposed marker requirement. We proposed that 
the marker would be added at the refinery gate, and that the current 
requirement that non-highway fuel be dyed red at the refinery gate be 
made voluntary. Thus, we believed that the refiner's additive injection 
equipment that is currently used to inject red dye into off-highway 
diesel fuel could instead be used to inject the marker as needed. As a 
result of the allowance provided in today's final rule that the marker 
be added at the terminal rather than the refinery gate, and our 
reevaluation of the conditions for dye injection at the refinery, we 
are now assessing capital costs for terminals and refiners related to 
compliance with the fuel marker requirements.
    Except for fuel that is distributed directly from a refiner's rack, 
today's final rule allows the marker to be added at the terminal rather 
than at the refinery as we proposed (see section IV.D for a discussion 
of the fuel marker requirements).\209\ We expect that except for fuel 
dispensed directly from the refinery rack, the fuel marker will be 
added to at the terminal to avoid the potential for marked fuel to 
contaminate jet fuel during distribution by pipeline. Terminals that 
need to inject the fuel marker will need to purchase a new injection 
system, including a marker storage tank and a segregated line and 
injector for each truck loading station at which fuel that is required 
to be marked is dispensed. Terminals will still be subject to IRS red 
dye requirements, and thus will not be able to rededicate such 
injection equipment to inject the fuel marker. Due to concerns 
regarding the need to maintain a visible evidence of the presence of 
the fuel marker, today's rule also contains a requirement that nay fuel 
which contains the fuel marker also contains visible evidence of red 
dye. Furthermore, there is little chance to adapt parts of the red dye 
injection system (such as the feed lines and injectors) for the 
alternate injection of red dye and the fuel marker due to concerns that 
NRLM fuel become contaminated with the marker.
---------------------------------------------------------------------------

    \209\ A refinery rack functions similar to a terminal in that it 
distributes fuel by truck to wholesale purchaser consumers and 
retailers.
---------------------------------------------------------------------------

    Terminal operators expressed concern regarding the potential burden 
on terminal operators from the capital costs of adding new additive 
injection equipment for heating oil. In response to these comments, 
today's rule includes provisions that exempt terminal operators from 
the fuel marker requirements in a geographic ``Northeast/Mid-Atlantic 
Area'' and

[[Page 39113]]

Alaska.\210\ These provisions provide that any heating oil or 500 ppm 
sulfur LM diesel fuel that would otherwise be subject to the fuel 
marker requirements which is delivered to a retailer or wholesale-
purchaser consumer inside the Northeast/Mid-Atlantic Area or Alaska 
does not need to contain the marker. The costs of the marker 
requirements for heating oil beginning in 2007 and for 500 ppm sulfur 
LM diesel fuel from 2010 through 2012 are discussed separately below.
---------------------------------------------------------------------------

    \210\ Small refiner and credit high sulfur NRLM will not be 
permitted to be sold in the area where terminals are not required to 
add the fuel marker to heating oil (the ``Northeast/Mid-Atlantic 
Area''). See section IV.D.
---------------------------------------------------------------------------

    The Northeast/Mid-Atlantic Area was defined to include the region 
where the majority of heating oil in the country is projected to 
continue to be supplied through the bulk distribution system (the 
Northeast and Mid-Atlantic). The vast majority of heating oil 
consumption in the U.S. will be within the Northeast/Mid-Atlantic Area. 
Outside of the Northeast/Mid-Atlantic Area, we expect that only limited 
quantities of heating oil will be supplied, primarily from certain 
refiner's racks. We estimate that 30 refineries and transmix processor 
facilities outside of the Northeast/Mid-Atlantic Area will distribute 
heating oil from their racks (in limited volumes) on a sufficiently 
frequent basis to warrant the installation of a marker injection system 
at a total one time cost of $1,500,000.
    Terminals outside of the Northeast/Mid-Atlantic Area will mostly be 
located in areas without continued production and/or bulk shipment of 
heating oil. Consequently, any high sulfur diesel fuel they sell will 
typically be NRLM. Terminals located within the Northeast/Mid-Atlantic 
Area will not need to mark their heating oil, except for those few that 
choose to ship heating oil outside of the Northeast/Mid-Atlantic Area. 
The terminals most likely to install marker injection equipment will 
therefore be those in states outside the Northeast/Mid-Atlantic Area 
with modest markets for heating oil after the implementation of this 
program. As discussed in chapter 7 of the RIA, in analyzing the various 
situations, we project that fewer than 60 terminals nationwide will 
choose to install marker injection equipment at a total cost of 
$4,150,000. \211\ The total capital cost to refiners and terminals to 
install marker injection equipment is estimated to be $5,650,000. Thus, 
the Northeast/Mid-Atlantic Area provisions in today's rule minimizes 
the number of terminals that will need to install additive injection 
equipment and its associated cost to comply with the marker requirement 
for heating oil.
---------------------------------------------------------------------------

    \211\ The estimated marker injection equipment costs include the 
cost of marker storage tanks, lines, and injectors.
---------------------------------------------------------------------------

    In the NPRM we estimated that the cost to blenders of the fuel 
marker in bulk quantities would translate to 0.2 cents per gallon of 
fuel treated with the marker. This estimate was based on the fee 
charged by a major pipeline to inject red dye at the IRS concentration 
into its customers diesel fuel. We used this estimate because we lacked 
specific cost information on the proposed marker, and we believed that 
it provided a conservatively high estimate of marker cost. Since the 
proposal, we received input from a major distributor of fuel markers 
and dyes, regarding the cost of bulk deliveries of the specified fuel 
marker to terminals which translates to a cost of 0.03 cents per gallon 
of fuel treated with the marker. The volume of heating oil that we 
expect will need to be marked has also decreased substantially from 
that estimated in the NPRM due to the Northeast/Mid-Atlantic Area 
provisions. We estimate that 1.4 billion gallons of heating oil will be 
marked annually, for an annual marker cost of $425,000. In the NPRM, we 
projected that the cost of marking heating oil would continue for three 
years (2007-2010). Under today's final rule, heating oil must be marked 
indefinitely beginning in 2007, but only outside of the Northeast/Mid-
Atlantic Area and Alaska.
    Because heating oil outside of the Northeast/Mid-Atlantic Area is 
being marked to prevent its use in NRLM engines, for the purposes of 
estimating the impact of the marker requirement on the cost of the NRLM 
program we have spread the cost for the marker for heating oil over 
NRLM diesel fuel. Amortizing the capital costs of marker injection 
equipment over 20 years, results in an estimated cost of 0.006 cents 
per gallon of affected NRLM diesel fuel supplied. Spreading the cost of 
the marker over the volume of affected NRLM fuel results in an 
estimated cost of 0.003 cents per gallon of affected NRLM fuel. Adding 
the amortized cost of the injection equipment necessary to add the 
marker to heating oil and the cost or the marker results in a total 
estimated cost of the marker requirement for heating oil in today's 
rule of 0.01 cents per gallon of affected NRLM fuel.
    The final NRLM rule also requires that 500 ppm L&M fuel produced at 
refineries or imported be marked from mid-2010 through mid-2012 outside 
of the Northeast/Mid-Atlantic Area and Alaska. The adoption of a 15 ppm 
sulfur standard for LM diesel fuel in 2012 in today's rule allows us to 
require that LM fuel be marked from 2010 through 2012 rather than from 
2010 through 2014 as proposed (see section IV.A). In addition, the way 
in which the program was crafted to avoid requiring the fuel marker be 
added to heating oil in the Northeast/Mid-Atlantic Area and Alaska 
allows us to also provide that 500 ppm sulfur LM diesel fuel in these 
areas is not subject to the marker requirement (see section IV.D). We 
project that only a small number of refiners will produce 500 ppm 
sulfur diesel fuel subject to the marker requirements fuel and that it 
will not be shipped via pipeline. Thus, most of this fuel can be marked 
at the refinery, limiting the number of facilities which need to add 
marking equipment in response to this requirement. We estimate that 15 
facilities will have to do so, at a cost of $60,000 each, for a total 
of $900,000. Amortizing this over the total volume of affected NRLM 
fuel produced from mid-2010 to mid-2012 at seven percent per year 
before taxes yields a cost for the LM marker requirement of 0.004 cent 
per gallon. Including the cost of the marker (0.03 cent per gallon of 
marked fuel) increases this cost to 0.01 cent per gallon of NRLM fuel.
    We summed these various costs incurred to the distribution system 
over four different time periods. As shown in table VI.A-5, the total 
additional distribution cost will be 0.2 cent per gallon of NRLM fuel 
during the first step of the fuel program (from 2007 through 2010), 0.6 
cents per gallon of NRLM fuel from 2010 to 2012 and from 2012 to 2014, 
and increase to 1.0 cent per gallon thereafter. A more detailed 
description of the costs associated with downgraded jet fuel and 15 ppm 
diesel fuel is presented in chapter 7 of the Final RIA.

[[Page 39114]]



                                  Table VI.A-5.--Summary of Distribution Costs
                                               [Cents per gallon]
----------------------------------------------------------------------------------------------------------------
                                                                      Time period over which costs apply
           Cause of increase in distribution costs           ---------------------------------------------------
                                                                2007-2010     2010-2012     2010-2014     2014+
----------------------------------------------------------------------------------------------------------------
Distribution of additional NRLM volume......................          0.08          0.1           0.1       0.1
Distillate interface handling...............................          0             0.4           0.4       0.8
Bulk plant storage tanks....................................          0.1           0.1           0.1       0.1
Heating oil and L&M fuel marker.............................          0.01          0.02          0.01      0.01
                                                             ---------------
    Total...................................................          0.2           0.6           0.6       1.0
----------------------------------------------------------------------------------------------------------------

3. Cost of Lubricity Additives
    Hydrotreating diesel fuel tends to reduce the natural lubricating 
quality of diesel fuel, which is necessary for the proper functioning 
of certain fuel system components. There are a variety of fuel 
additives which can be used to restore diesel fuel's lubricating 
quality. These additives are currently used to some extent in highway 
diesel fuel. We expect that the need for lubricity additives that will 
result from the proposed 500 ppm sulfur standard for NRLM diesel fuel 
will be similar to that for highway diesel fuel meeting the current 500 
ppm sulfur cap standard.\212\ Industry experience indicates that the 
vast majority of highway diesel fuel meeting the current 500 ppm sulfur 
cap does not need lubricity additives. Therefore, we expect that the 
great majority of NRLM diesel fuel meeting the proposed 500 ppm sulfur 
standard will also not need lubricity additives. In estimating 
lubricity additive costs for 500 ppm diesel fuel, we assumed that fuel 
suppliers will use the same additives at the same concentration as we 
projected will be used in 15 ppm highway diesel fuel. Based on our 
analysis of this issue for the 2007 highway diesel fuel program, the 
cost per gallon of the lubricity additive is about 0.2 cents. This 
level of use is likely conservative, as the amount of lubricity 
additive needed increases substantially as diesel fuel is desulfurized 
to lower levels. We also project that only five percent of all 500 ppm 
NRLM diesel fuel will require the use of a lubricity additive. Thus, we 
project that the cost of additional lubricity additives for the 
affected 500 ppm NRLM diesel fuel will be 0.01 cent per gallon. See the 
Final RIA for more details on the issue of lubricity additives. We have 
no reason to expect that the implementation of today's NRLM sulfur 
standards will impact diesel properties other than fuel lubricity in 
such a way as to require the use of additives.
---------------------------------------------------------------------------

    \212\ Please refer to section IV in today's preamble for 
additional discussion regarding our projections of the potential 
impact on fuel lubricity of this proposed rule.
---------------------------------------------------------------------------

    We project that all NRLM fuel meeting a 15 ppm cap will require 
treatment with lubricity additives. Thus, the projected cost will be 
0.2 cent per affected gallon of 15 ppm NRLM fuel.
4. How EPA's Projected Costs Compare to Other Available Estimates
    Historically, the price of highway diesel fuel meeting a 500 ppm 
sulfur cap has exceeded that of high sulfur diesel fuel, ranging from 
0-5 cents per gallon from 1995-99 and averaging 2.2 cents per gallon 
over this time period (see chapter 7 of the Final RIA). Fuel prices are 
often a function of market forces which might not reflect the cost of 
producing the fuel. Still, given this is a five-year average price 
difference, it is likely a reasonable indication of the cost of 
reducing highway diesel fuel sulfur to 500 ppm. Once the small refiner 
provisions applicable to 500 ppm fuel expire in 2010, we project that 
the total cost of the 500 ppm NRLM fuel cap will be 2.4 cents per 
gallon, well within the range of the historical highway-high sulfur 
fuel price difference. This similarity exists despite changes in a 
number of factors. One, our projection of future natural gas costs are 
significantly higher than those existing during the above price 
comparison. Two, the refineries producing highway diesel fuel 
historically likely did so because they faced lower costs than those 
refineries continuing to produce high sulfur distillate. Three, 
desulfurization catalyst efficiency has improved dramatically since the 
highway units were installed and significant operating experience has 
been obtained on highway units. Four, inflation since the early 1990's 
will have increased the cost of constructing the same hydrotreater. 
Five, and perhaps most importantly, the construction of some new 
hydrotreaters to produce 15 ppm highway diesel fuel will allow the 
existing hydrotreaters to produce 500 ppm NRLM fuel at no capital cost. 
Thus, there are at least five significant factors, two of which would 
tend to decrease costs and three of which would tend to increase costs. 
It is not surprising that these factors could counter-balance each 
other, leading to the conclusion that the 500 ppm cap could be extended 
to NRLM fuel at roughly the same cost as for highway diesel fuel.
    The only existing market for 15 ppm diesel fuel is a niche market 
for fleets and the prices for this fuel likely bear little resemblance 
to the costs of the 15 ppm highway or NRLM caps. Thus, the only cost 
comparisons which can be made are those between engineering studies. 
One such study was performed by Mathpro for the Engine Manufactures 
Association (EMA). Mathpro estimated the cost of controlling the sulfur 
content of highway and NRLM fuel to levels consistent with both 500 ppm 
and 15 ppm cap standards.\213\ A detailed evaluation of the Mathpro 
costs is presented in the Final RIA. There are a number of aspects of 
the study that make direct comparisons between its estimates and our 
cost estimates difficult. Nonetheless, a crude comparison of 15 ppm 
costs indicates that our average cost range of 5.7-5.9 cent per gallon 
is quite similar to the 5.4-6.6 cents per gallon cost range estimated 
by Mathpro.
---------------------------------------------------------------------------

    \213\ Hirshfeld, David, MathPro, Inc., ``Refining economics of 
diesel fuel sulfur standards,'' performed for the Engine 
Manufactuers Association, October 5, 1999.
---------------------------------------------------------------------------

    The other available study of 15 ppm fuel costs was performed by 
Baker and O'Brien for API and submitted in response to the nonroad 
NPRM. Baker and O'Brien analyzed two NRLM fuel control scenarios, but 
neither one matched today's final NRLM fuel program. The scenario 
closest to today's program assumed that a NRLM fuel would be capped at 
15 ppm in 2008. In this case, Baker and O'Brien projected that the 
refinery-specific cost of 15 ppm NRLM fuel would range from 4-17 cents 
per gallon. This is higher than our projected range of 2-14 cents per 
gallon. In addition, as described in the next

[[Page 39115]]

section, Baker and O'Brien projected that the volume of NRLM fuel 
produced at these costs would not fully satisfy NRLM fuel demand. 
Presumably, totally fulfilling NRLM fuel demand with domestic 
production would have cost more.
    Baker and O'Brien described portions of their cost methodology and 
indicated some general assumptions which they made during the study. 
However, the absence of detail prevents any detailed comparisons of 
their results to ours. It was clear from their report, though, that 
Baker and O'Brien made a number of pessimistic assumptions about 
refiners' willingness to invest in desulfurization capacity and that 
this limited the number of refineries which they assumed would invest 
to meet the NRLM sulfur caps. This inevitably led to higher projected 
costs (and lower production volumes), than if all refineries had been 
considered. Thus, it is not surprising that they would derive slightly 
higher costs for a much smaller volume of fuel. A more detailed 
evaluation of the Baker and O'Brien cost estimates can be found in the 
Final RIA and RTC.
5. Supply of Nonroad, Locomotive and Marine Diesel Fuel
    We have developed today's NRLM fuel program to minimize its impact 
on the supply of distillate fuel. For example: We have split the 
control of NRLM fuel to 15 ppm sulfur into two steps, providing 8 years 
of leadtime for the final step. We are proposing to provide flexibility 
to refiners through the availability of banking and trading provisions. 
We have provided relief for small refiners and hardship relief for any 
qualifying refiner. We are also allowing 500 ppm diesel fuel generated 
in the distribution system to be sold as L&M fuel indefinitely.
    In the NPRM, we evaluated four possible reasons why refiners might 
reduce their production of NRLM fuel: (1) Chemical processing losses 
during the desulfurization process, (2) refiners might leave the NRLM 
fuel market, (3) refiners might stop operations altogether (i.e., shut 
down), and (4) refiners might remove certain blendstocks from the fuel 
pool to reduce desulfurization costs. In all four cases, we concluded 
that the answer was no, that the supply of NRLM fuel would likely 
remain adequate after implementation of the proposed fuel program. All 
of these findings started from the position that there would be 
adequate supply of diesel fuel after implementation of the 2007 highway 
diesel fuel program.
    Several commenters, namely API and NPRA, took issue with the above 
four sets of arguments, as well as with our conclusion that refiners 
would not reduce NRLM fuel production. While not requesting any changes 
to the 2007 highway diesel fuel program, they reiterated previous 
concerns that supply shortages could occur under the highway diesel 
fuel program, even without the added challenge of producing low sulfur 
NRLM fuel. The primary basis for their comments was a study they had 
sponsored by Baker and O'Brien, which evaluated the costs and likely 
supply impacts of the proposal.
    Baker and O'Brien evaluated two NRLM fuel scenarios: (1) A 15 ppm 
NRLM fuel cap starting in 2008, and (2) a 500 ppm NRLM fuel cap 
starting in 2008, followed by a 15 ppm cap only for nonroad fuel in 
2010. First, Baker and O'Brien projected that 13 refineries with a 
total crude oil capacity of 971,000 barrels per day would close in 
response to the 2007 highway rule, roughly half in 2006 and half in 
2010. (Total U.S. refining capacity is currently 16 million barrels per 
day.) Then Baker and O'Brien projected that adding a 15 ppm NRLM cap 
would cause all of the refineries shutting down in 2010 to close in 
2008, plus one additional refinery (for a total of 14). Delaying the 15 
ppm cap until 2010 and leaving L&M fuel at 500 ppm reduced the number 
of refineries projected to close in 2008, but did not change Baker and 
O'Brien's projection that 14 refineries would close by 2010. Given the 
fact that Baker and O'Brien projected the same number of refinery 
closures for scenarios 1 and 2, it is reasonable to 
assume that they would project similar results for today's final NRLM 
fuel program.
---------------------------------------------------------------------------

    \214\ Closure would occur at the beginning of the 15 ppm highway 
fuel program, or 2006.

Table VI.A-6.--Projected Refinery Closures: API Sponsored Study by Baker
                               and O'Brien
------------------------------------------------------------------------
                                No. of refineries    Lost crude capacity
                             ----------------------    (1000 bbl/day)
                                                   ---------------------
                                 2008       2010       2008       2010
------------------------------------------------------------------------
2007 Highway Fuel Program...    \214\ 8         13        504        971
Plus One-Step 15 ppm NRLM            14         14       1043       1043
 Program....................
Plus Two-Step NRLM Program..         12         14        924       1043
------------------------------------------------------------------------

    As a result of these refinery closures, Baker and O'Brien projected 
shortfalls in 15 and 500 ppm supply domestic refiners. The net 
shortfalls are shown in table VI.A-7 below. Baker and O'Brien stated 
that imports would have to make up the shortfall, with potentially high 
price impacts.

   Table VI.A-7.--Projected Shortfall in Near-Term Diesel Fuel Supply
                         [1000 barrels per day]
------------------------------------------------------------------------
                                   15 ppm Fuel          500 ppm Fuel
                             -------------------------------------------
                                 2008       2010       2008       2010
------------------------------------------------------------------------
2007 Highway Fuel Program...        359        579        308         22
Plus One-Step 15 ppm NRLM           684        930        165          0
 Program....................
Plus Two-Step NRLM Program..        351        639        481         82
------------------------------------------------------------------------


[[Page 39116]]

To put these projected shortfalls in context, Baker and O'Brien 
projects total diesel fuel demand to be 3.3 million barrels per day in 
this timeframe (slightly lower than our own projection summarized 
above). Thus, these projected shortfalls total roughly 10-20 percent of 
total diesel fuel demand, which if true, would be very significant.
    We evaluated the Baker and O'Brien study and their findings. Baker 
and O'Brien made very pessimistic assumptions regarding the likelihood 
that refiners would invest in desulfurization capacity. Their judgment 
that a refinery would close rather than invest also was apparently 
based only on what they perceived to be excessively high 
desulfurization costs. Baker and O'Brien presents no information 
regarding the location of these refineries, the competition they face, 
costs related to closing down, nor the profits that they would forego 
by closing. Baker and O'Brien also makes no mention of EPA's special 
provisions for refiners facing economic hardship, nor the small refiner 
provisions.
    We believe that it is not possible to project refinery closures 
without considering these factors. This is supported by comments made 
in response to our proposal of the 2007 highway diesel fuel program by 
Mathpro and the National Economic Research Associates. While we are 
aware of a couple of refineries that are being offered for sale and 
whose plans for producing low sulfur fuels are uncertain, we have no 
indications of as many as eight refineries closing in 2006 in response 
to the highway fuel program. In addition, despite uncertainties at a 
few refineries, refiners' pre-compliance reports for the highway fuel 
program indicate that they are planning to produce a sufficient supply 
of 15 and 500 ppm highway diesel fuel from 2006-2010. Therefore, there 
is ample evidence that Baker and O'Brien's projections for the highway 
diesel fuel program are overly pessimistic. It therefore appears likely 
that their projection that the NRLM fuel program will cause an 
additional refinery to close is also overly pessimistic. The reader is 
referred to the RTC for a summary of these comments and our detailed 
response to them.
    In their comments, API also challenged our findings that refiners 
would maintain sufficient supply under the proposed NRLM fuel program. 
After a careful review of their comments and other information newly 
available since the NPRM, we do not believe that the arguments 
presented by API and NPRA justify changing our position that (1) 
chemical processing losses during the desulfurization process will be 
very small, (2) refiners will be unlikely to leave the NRLM fuel 
market, and (3) refiners are unlikely to shut down due to this rule.
    Regarding point 1, the distillate material lost during 
desulfurization, our position is that the amount lost is small (two 
percent), and most of it is lost in the form of naphtha which can be 
blended into gasoline. Refiners can then adjust their mix of gasoline 
and distillate production to compensate. API claimed that in the 
winter, refiners were already at maximum distillate production and 
could not shift any additional heavy gasoline material into the 
distillate pool. API did not present any evidence that this is in fact 
the case. The fact that some refiners actually crack distillate 
material into gasoline makes it difficult to accept their position.
    Regarding point 2, refiners leaving the NRLM fuel market, 
we argued that the only high sulfur distillate market remaining after 
2007 was heating oil. Heating oil demand is flat or declining over 
time. We project that over 30 domestic refiners will still be able to 
produce heating oil after 2007, while other refiners will be able to 
produce sufficient quantities of NRLM fuel. If more refiners choose to 
produce heating oil, this market will be oversupplied and prices will 
drop significantly. Exporting high sulfur distillate is a possibility 
for some refiners, but this entails both transport costs, as well as 
relatively low prices overseas. Thus, a decision to not invest in NRLM 
fuel desulfurization has to be compared to the losses involved with the 
other options. API argued that some refiners face much higher 
desulfurization costs than others and this would lead those refiners to 
leave the NRLM fuel market. API did not estimate the losses that 
refiners would entail when they left the market. Studies performed for 
the highway fuel program indicate that these losses can be quite 
significant and inappropriate conclusions can be drawn if they are 
ignored. The highway program pre-compliance reports also indicate that 
some highway fuel refiners are planning on leaving the highway fuel 
market in 2006, while others will enter it for the first time. 
Decisions to stay in or leave the NRLM fuel market are analogous. We 
have no reason to believe refiners would approach this market any 
differently than the highway market.
    Regarding point 3, refineries shutting down, API again 
pointed towards the high costs faced by some refineries and the fact 
that a number of refineries have shut down over the past ten years. 
There have been a number of refinery closures over the past decade, 
though the trend has slowed considerably. API pointed towards two 
specific refineries which identified EPA's gasoline and diesel fuel 
sulfur controls as prime reasons for their shutting down. A closer look 
at these situations showed that the future capital investment related 
to the sulfur controls could have been a contributing factor. However, 
these refineries faced many other challenges and the timing of their 
closure (2000 and 2001, respectively) showed that the EPA rules were 
not the direct cause. The refiner involved did not approach EPA 
concerning any relief from the rules' requirements due to economic 
hardship. Thus, the connection between their closure and our sulfur 
controls appears even more tenuous.
    Another example of a refinery closure unrelated to desulfurization 
costs was Shell's recent decision to close their refinery in 
Bakersfield, California. The reason was an insufficient supply of crude 
oil being produced locally.
    Analogous to a decision to leave the NRLM fuel market, shutting 
down completely involves the total loss of any profit being made on the 
production of other fuels. API presented no economic calculations or 
projections showing that it would be in the best interest of any 
refiner to shut down rather than invest in NRLM fuel desulfurization.
    This leaves point 4, that refiners might shift NRLM fuel 
blendstocks to other markets. This is really only an issue if the 
blendstocks are shifted to a non-distillate market.\215\ The most 
likely place that NRLM fuel blendstocks might be shifted is to the 
residual fuel market. In particular, heavy (material with high 
densities and high distillation temperatures) LCO and LCGO could be 
shifted to residual fuel using existing refining equipment. The heavy 
portions of these two blendstocks contain the greatest concentrations 
of sulfur which is the most difficult to remove. Shifting this material 
to residual fuel, which currently does not have a sulfur standard, 
would reduce the size and cost of desulfurization equipment needed to 
meet a 15 ppm cap. Or, it would increase the volume of 15 ppm NRLM fuel 
which could be produced in an existing hydrotreater.
---------------------------------------------------------------------------

    \215\ Shifting NRLM fuel blendstocks to heating oil is 
essentially the same as leaving the NRLM market, which was discussed 
under Point 2 above.
---------------------------------------------------------------------------

    To evaluate this possibility, we estimated the cost of processing 
LCO (the worse of the two blendstocks) into 15 ppm diesel fuel for each 
domestic refinery. On average, desulfurizing LCO to 15 ppm sulfur cost 
11.4 cents per

[[Page 39117]]

gallon. However, in some cases, this cost reached 15 cents per gallon. 
The cost to process heavy LCO could be twice these amounts, since the 
concentration of both total sulfur and the most difficult to remove 
sulfur are concentrated in the heaviest molecules.
    A review of historic fuel prices showed that residual fuel is 
usually priced 25-30 cents per gallon less than diesel fuel. The 
highest incremental desulfurization costs for heavy LCO could 
potentially exceed this loss. Thus, a few refiners could find it 
economical to shift a portion of their LCO to the residual fuel market. 
The U.S. residual fuel market is small relative to the distillate fuel 
market, flat, and already being fulfilled. Worldwide, the residual fuel 
market is shrinking. Thus, it is unlikely that large volumes of LCO 
could leave the NRLM fuel market. However, we cannot rule out the 
possibility that some LCO, particularly that produced by capital-
strapped refiners, could be shifted to residual fuel. To estimate the 
upper limit of this shift, we estimated the volume of heavy LCO 
produced by refineries whose LCO processing costs exceeded 12 cents per 
gallon and which were not owned by large, integrated oil companies or 
small refiners. This costly, heavy LCO represents 0.4 percent of total 
NRLM fuel demand, a very small volume. In this case, we would expect 
that this loss could easily be made up by increased imports of 15 ppm 
diesel fuel or domestic refiners facing lower 15 ppm NRLM fuel costs.
    Overall, we expect that domestic refiners will continue to produce 
sufficient supplies of NRLM fuel. The greatest potential for near term 
loss will be due to the possibility that some refiners might decide to 
limit their capital investment in desulfurization capacity by shifting 
some heavy LCO to the residual fuel market.
    Fuel-Only Control Programs: The potential supply impacts of a long-
term 500 ppm NRLM cap would necessarily be less than those of today's 
final NRLM fuel program. In particular, desulfurizing ``difficult'' 
blendstocks, like LCO, to 500 ppm is not technically challenging and 
does not have the potential to cost more than would be lost in shifting 
LCO or heavy LCO to residual fuel. The capital investment to meet a 500 
ppm cap is also half of that needed to meet a 15 ppm cap or less. Thus, 
the likelihood that raising this capital would prove difficult is much 
less. Given that we expect the final fuel program to have a very 
minimal impact on supply, a 500 ppm NRLM cap would be negligible.
    The potential impact of a long-term 15 ppm NRLM cap is the same as 
that for today's final fuel program.
6. Fuel Prices
    It is well known that it is difficult to predict fuel prices in 
absolute terms with any accuracy. The price of crude oil dominates the 
cost of producing gasoline and diesel fuel. Crude oil prices have 
varied by more than a factor of two in the past two years. In addition, 
unexpectedly warm or cold winters can significantly affect heating oil 
consumption, which affects the amount of gasoline produced and the 
amount of distillate material available for diesel fuel production. 
Economic growth, or its lack, affects fuel demand, particularly for 
diesel fuel. Finally, both planned and unplanned shutdowns of 
refineries for maintenance and repairs can significantly affect total 
fuel production, inventory levels and resulting fuel prices.
    Predicting the impact of any individual factor on fuel price is 
also difficult. The overall volatility in fuel prices limits the 
ability to determine the effect of a factor which changed at a specific 
point in time which might have led to the price change, as other 
factors continue to change over time. Occasionally, a fuel quality 
change, such as reformulated gasoline or a 500 ppm cap on diesel fuel 
sulfur content, only affects a portion of the fuel pool. In this case, 
an indication of the impact on price can be inferred by comparing the 
prices of the two fuels at the same general location over time. 
However, this is still only possible after the fact, and cannot be done 
before the fuel quality change takes place.
    Because of these difficulties, EPA has generally not attempted to 
project the impact of its rules on fuel prices. However, in response to 
Executive Order 13211, we are doing so here.\216\ To reflect the 
inherent uncertainty in making such projections, we developed three 
projections for the potential impact of the proposed fuel program on 
fuel prices. The range of potential long-term price increases are shown 
in table VI.A-8. (Due to their similarity, we have grouped the 
potential price impacts for similar quality fuels in the 2010-2012 and 
2012-2014 time periods.) Short-term price impacts are highly volatile, 
as are short-term swings in absolute fuel prices, and much too 
dependent on individual refiners' decisions, unexpected shutdowns, etc. 
to be predicted even with broad ranges.
---------------------------------------------------------------------------

    \216\ Executive Order 13211, ``Actions Concerning Regulations 
That Significantly Affect Energy Supply, Distribution, or Use'' (66 
FR 28355, May 22, 2001).

                       Table VI.A-8.--Range of Possible Total Diesel Fuel Price Increases
                                             [Cents per gallon] \a\
----------------------------------------------------------------------------------------------------------------
                                                                      Maximum      Average total   Maximum total
                                                                  operating cost       cost            cost
----------------------------------------------------------------------------------------------------------------
                   500 ppm Sulfur Cap: Nonroad, Locomotive and Marine Diesel Fuel (2007-2010)
----------------------------------------------------------------------------------------------------------------
PADDs 1 and 3...................................................             2.9             1.8             4.5
PADD 2..........................................................             3.0             2.5             3.8
PADD 4..........................................................             3.7             3.5             6.1
PADD 5..........................................................             1.2             1.5             1.5
-----------------------------------------------------------------
                                    15 ppm Sulfur Cap: NRLM Fuel (2010-2014)
----------------------------------------------------------------------------------------------------------------
PADDs 1 and 3...................................................             5.6             5.7             9.4
PADD 2..........................................................             7.3             7.4            10.8
PADD 4..........................................................             7.9            12.6            13.6
PADD 5..........................................................             4.5             5.1             5.2
-----------------------------------------------------------------

[[Page 39118]]

 
                        15 ppm Sulfur Cap: NRLM Fuel (fully implemented program: 2014 +)
----------------------------------------------------------------------------------------------------------------
PADDs 1 and 3...................................................             7.7             6.3             9.8
PADD 2..........................................................             7.7             7.9            11.2
PADD 4..........................................................             8.3            13.0            13.9
PADD 5..........................................................             5.1             6.9            7.3
----------------------------------------------------------------------------------------------------------------
Notes: \a\ At the current wholesale price of approximately $1.00 per gallon, these values also represent the
  percentage increase in diesel fuel price.

    The lower end of the range assumes that prices within a PADD 
increased to reflect the highest operating cost increase faced by any 
refiner in that PADD (please see the Final RIA for details on this 
methodology). This refiner with the highest operating cost will not 
recover any of his invested capital, but all other refiners will 
recover some or all of their investment. In this case, the price of 
NRLM fuel will increase in 2007 by 1-3 cents per gallon, depending on 
the area of the country. In 2010, the price of 15 ppm NRLM fuel will 
increase a total of 3-7 cents per gallon. In 2014, under this pricing 
scenario, 15 ppm NRLM fuel prices will increase slightly, to 4-7 cents 
per gallon. The increase in 2014 is due to the expiration of the small 
refiner provisions, as well as the fact that 500 ppm fuel created in 
the distribution system can no longer be sold to the land-based nonroad 
market.
    The mid-range estimate of price impacts assumes that prices within 
a PADD increase by the average refining and distribution cost within 
that PADD, including full recovery of capital (at seven percent per 
annum before taxes). Lower cost refiners will recover more than their 
capital investment, while those with higher than average costs recover 
less. Under this assumption, the price of NRLM fuel will increase in 
2007 by 1-3 cents per gallon, depending on the area of the country. In 
2010, the price of 15 ppm NRLM fuel will increase a total of 4-11 cents 
per gallon. In 2014, under this pricing scenario, 15 ppm NRLM fuel 
prices will increase slightly, to 5-11 cents per gallon.
    The upper end estimate of price impacts assumes that prices within 
a PADD increase by the maximum total refining and distribution cost of 
any refinery within that PADD, including full recovery of capital (at 
seven percent per annum before taxes). All other refiners will recover 
more than their capital investment. Under this assumption, the price of 
NRLM fuel will increase in 2007 by 1-4 cents per gallon, depending on 
the area of the country. In 2010, the price of 15 ppm NRLM fuel will 
increase a total of 4-13 cents per gallon. In 2014, under this pricing 
scenario, 15 ppm NRLM fuel prices will increase further to 6-13 cents 
per gallon. All these potential price impacts for 500 and 15 ppm fuel, 
relative to those projected in the NPRM, reflect the differences in 
cost estimates discussed above.
    There are a number of assumptions inherent in all three of the 
above price projections. First, both the lower and upper limits of the 
projected price impacts described above assume that the refinery facing 
the highest compliance costs is currently the price setter in their 
market. This is a worse case assumption which is impossible to 
validate. Many factors affect a refinery's total costs of fuel 
production. Most of these factors, such as crude oil cost, labor costs, 
age of equipment, etc., are not considered in projecting the 
incremental costs associated with lower NRLM diesel fuel sulfur levels. 
Thus, current prices may very well be set in any specific market by a 
refinery facing lower incremental compliance costs than other 
refineries. This point was highlighted in a study by the National 
Economic Research Associates (NERA) for AAM of the potential price 
impacts of EPA's 2007 highway diesel fuel program.\217\ In that study, 
NERA criticized the above referenced study performed by Charles River 
Associates, et al. for API, which projected that prices will increase 
nationwide to reflect the total cost faced by the U.S. refinery with 
the maximum total compliance cost of all the refineries in the U.S. 
producing highway diesel fuel. To reflect the potential that the 
refinery with the highest projected compliance costs under the maximum 
price scenario is not the current price setter, we included the mid-
point price impacts above. It is possible that even the lower limit 
price impacts are too high, if the conditions exist where prices are 
set based on operating costs alone. However, these price impacts are 
sufficiently low that considering even lower price impacts was not 
considered critical to estimating the potential economic impact of this 
rule.
---------------------------------------------------------------------------

    \217\ ``Potential Impacts of Environmental Regulations on Diesel 
Fuel Prices,'' NERA, for AAM, December 2000.
---------------------------------------------------------------------------

    Second, we assumed in some cases that a single refinery's costs 
could affect fuel prices throughout an entire PADD. While this is a 
definite improvement over analyses which assume that a single 
refinery's costs could affect fuel prices throughout the entire nation, 
it is still conservative. High cost refineries are more likely to have 
a more limited geographical impact on market pricing than an entire 
PADD. In many cases, high cost refiners continue to operate simply 
because they are in a niche location where transportation costs limit 
competition.
    Third, by focusing solely on the cost of desulfurizing NRLM diesel 
fuel, we assume that the production of NRLM diesel fuel is independent 
of the production of other refining products, such as gasoline, jet 
fuel and highway diesel fuel. However, this is clearly not the case. 
Refiners have some flexibility to increase the production of one 
product without significantly affecting the others, but this 
flexibility is quite limited. It is possible that the relative 
economics of producing other products could influence a refiner's 
decision to increase or decrease the production of NRLM diesel fuel 
under today's fuel program. It is this price response that causes fuel 
supply to match fuel demand. And, this response in turn could increase 
or decrease the price impact relative to those projected above.
    Fourth, all three of the above price projections are based on the 
projected cost for U.S. refineries of meeting the NRLM fuel sulfur 
caps. Thus, these price projections assume that imports of NRLM fuel, 
which are currently significant in the Northeast, are available at 
roughly the same cost as those for U.S. refineries in PADDs 1 and

[[Page 39119]]

3. We have not performed any analysis of the cost of lower sulfur caps 
on diesel fuel produced by foreign refiners. However, there are reasons 
to believe that imports of 500 and 15 ppm NRLM diesel fuel will be 
available at prices in the ranges of those projected for U.S. refiners.
    One recent study analyzed the relative cost of lower sulfur caps 
for Asian refiners relative to those in the U.S., Europe and 
Japan.\218\ It concluded that costs for Asian refiners will be 
comparatively higher, due to the lack of current hydrotreating capacity 
at Asian refineries. This conclusion is certainly valid when evaluating 
lower sulfur levels for highway diesel fuels which are already at low 
levels in the U.S., Europe and Japan and for which refineries in these 
areas have already invested in hydrotreating capacity. It appears to be 
less valid when assessing the relative cost of meeting lower sulfur 
standards for NRLM fuels and heating oils which are currently at much 
higher sulfur levels in the U.S., Europe and Japan. All refineries face 
additional investments to remove sulfur from these fuels and so face 
roughly comparable control costs on a per gallon basis.
---------------------------------------------------------------------------

    \218\ ``Cost of Diesel Fuel Desulfurization In Asian 
Refineries,'' Estrada International Ltd., for the Asian Development 
Bank, December 17, 2002.
---------------------------------------------------------------------------

    One factor arguing for competitively priced imports is the fact 
that refinery utilization rates are currently higher in the U.S. and 
Europe than in the rest of the world. The primary issue is whether 
overseas refiners will invest to meet tight sulfur standards for U.S., 
European and Japanese markets. Many overseas refiners will not invest, 
instead focusing on local, higher sulfur markets. However, many 
overseas refiners focus on exports. Both Europe and the U.S. are moving 
towards highway and nonroad diesel fuel sulfur caps in the 10-15 ppm 
range. Europe is currently and projected to continue to need to import 
large volumes of highway diesel fuel. Thus, it seems reasonable to 
expect that a number of overseas refiners will invest in the capacity 
to produce some or all of their diesel fuel at these levels. Many 
overseas refiners also have the flexibility to produce 10-15 ppm diesel 
fuel from their cleanest blendstocks, as most of their available 
markets have less stringent sulfur standards. Thus, there are reasons 
to believe that some capacity to produce 10-15 ppm diesel fuel will be 
available overseas at competitive prices. If these refineries were 
operating well below capacity, they might be willing to supply 
complying product at prices which only reflect incremental operating 
costs. This could hold prices down in areas where importing fuel is 
economical. However, it is unlikely that these refiners could supply 
sufficient volumes to hold prices down nationwide. Despite this 
expectation, to be conservative, in the refining cost analysis 
conducted earlier in this chapter, we assumed no imports of 500 ppm or 
15 ppm NRLM diesel fuel. All 500 ppm and 15 ppm NRLM fuel was produced 
by domestic refineries. This raised the average and maximum costs of 
500 ppm and 15 ppm NRLM diesel fuel and increased the potential price 
impacts projected above beyond what would have been projected had we 
projected that 5-10 percent of NRLM diesel fuel will be imported at 
competitive prices.
    Fuel-Only Control Programs: We used the same methodology to 
estimate the potential price impacts for stand-alone 500 ppm and 15 ppm 
NRLM fuel programs. The potential price impacts of long-term 500 ppm 
and 15 ppm NRLM caps would be the same as those shown in table VI.A-8 
above for the 500 ppm NRLM cap in 2007 and for the 15 ppm NRLM cap in 
2014 and beyond, respectively.

B. Cost Savings to the Existing Fleet From the Use of Low Sulfur Fuel

    We estimate that reducing fuel sulfur to 500 ppm would reduce 
engine wear and oil degradation to the existing nonroad diesel 
equipment fleet and that a further reduction to 15 ppm sulfur would 
result in even greater reductions. This reduction in wear and oil 
degradation would provide a dollar savings to users of nonroad 
equipment. The cost savings would also be realized by the owners of 
future nonroad engines that are subject to the standards in this 
proposal. As discussed below, these maintenance savings have been 
conservatively estimated to be greater than 3 cents per gallon for the 
use of 15 ppm sulfur fuel when compared to the use of today's 
unregulated nonroad diesel fuel. A summary of the range of benefits 
from the use of low-sulfur fuel is presented in Table VI.B-1.\219\

  Table VI.B-1.--Engine Components Potentially Affected by Lower Sulfur
                         Levels in Diesel Fuela
------------------------------------------------------------------------
                                    Effect of lower    Potential impact
       Affected components              sulfur         on engine system
------------------------------------------------------------------------
Piston Rings....................  Reduced corrosion   Extended engine
                                   wear.               life and less
                                                       frequent
                                                       rebuilds.
Cylinder Liners.................  Reduced corrosion   Extended engine
                                   wear.               life and less
                                                       frequent
                                                       rebuilds.
Oil Quality.....................  Reduced deposits,   Reduce wear on
                                   reduced acid        piston ring and
                                   build-up, and       cylinder liner
                                   less need for       and less frequent
                                   alkaline            oil changes.
                                   additives.
Exhaust System (tailpipe).......  Reduced corrosion   Less frequent part
                                   wear.               replacement.
Exhaust Gas Recirculation System  Reduced corrosion   Less frequent part
                                   wear.               replacement
------------------------------------------------------------------------
Notes: \a\ The degree to which all of these benefits may occur for any
  specific engine will vary. For example, the impact of high sulfur fuel
  on piston rings, cylinder liners and oil quality are somewhat
  interdependent. To the extent an end-user lengthens the oil drain
  interval, the benefit of the low sulfur fuel on piston ring and
  cylinder liner wear will be lessened (though not eliminated). For
  users who do not alter oil drain intervals, the benefit of low sulfur
  fuel on extending piston ring and cylinder liner wear will be greater.
  The benefit of low sulfur fuel on reducing exhaust system and EGR
  system corrosion are independent of oil drain intervals.

    The monetary value of these benefits over the life of the equipment 
will depend upon the length of time that the equipment operates on low-
sulfur diesel fuel and the degree to which engine and equipment 
manufacturers specify new maintenance practices and the degree to which 
equipment operators change engine maintenance patterns to take 
advantage of these benefits. For equipment near the end of its life in 
the 2008 time frame, the benefits will be quite small. However, for 
equipment produced in the years immediately preceding the introduction 
of 500 ppm sulfur fuel, the savings would be substantial. Additional 
savings would

[[Page 39120]]

be realized in 2010 when the 15 ppm sulfur fuel would be introduced.
---------------------------------------------------------------------------

    \219\ See Heavy-duty 2007 Highway Final RIA, Chapter V.C.5, and 
``Study of the Effects of Reduced Diesel Fuel Sulfur Content on 
Engine Wear,'' EPA report  460/3-87-002, June 1987.
---------------------------------------------------------------------------

    We estimate the single largest savings would be the impact of lower 
sulfur fuel on oil change intervals. The RIA presents our analysis for 
the oil change interval extension which would be realized by the 
introduction of 500 ppm sulfur fuel in 2007, as well as the additional 
oil extension which would be realized with the introduction of 15 ppm 
sulfur nonroad diesel fuel in 2010. As explained in the RIA, these 
estimates are based on our analysis of publically available information 
from nonroad engine manufacturers. Due to the wide range of diesel fuel 
sulfur which today's nonroad engines may see around the world, engine 
manufacturers specify different oil change intervals as a function of 
diesel sulfur levels. We have used this data as the basis for our 
analysis. Taken together, when compared to today's relatively high 
nonroad diesel fuel sulfur levels, we estimate the use of 15 ppm sulfur 
fuel will enable an oil change interval extension of 35 percent from 
today's products.
    We received comments on our estimated maintenance savings primarily 
from a number of end-user groups (e.g., equipment dealers, equipment 
rental organizations, farming organizations). Several commenters 
believed our estimates were too high, and one commenter believed the 
estimate was too low. However, all of the commenters who believed our 
cost savings estimates were too high provided no data to support their 
comments, beyond unsubstantiated opinions, nor did they comment on 
EPA's substantial related technical analysis.
    The commenter who suggested the estimates were too low provided an 
example cost estimate for existing oil change intervals which, if used 
in our analysis, would have resulted in an estimated cost savings 4 
times EPA's estimate. We have not changed our estimate based on the 
comments we received.
    We present here a fuel operating cost savings attributed to the oil 
change interval extension in terms of a cents per gallon operating 
cost. We estimate that an oil change interval extension of 31 percent, 
as would be enabled by the use of 500 ppm sulfur fuel in 2007, results 
in a fuel operating costs savings of 2.9 cents per gallon for the 
nonroad fleet. We estimate an additional cost savings of 0.3 cents per 
gallon for the oil change interval extension which would be enabled by 
the use of 15 ppm sulfur beginning in 2010. Thus, for the nonroad fleet 
as a whole, beginning in 2010 nonroad equipment users can realize an 
operating cost savings of 3.2 cents per gallon compared to today's 
engine. This means that the end cost to the typical user for 15 ppm 
sulfur fuel is approximately 3.8 cents per gallon (7.0 cent per gallon 
cost for fuel minus 3.2 cent per gallon maintenance savings). For a 
typical 100 horsepower nonroad engine this represents a net present 
value lifetime savings, excluding the higher fuel costs, of more than 
$500.
    These savings will occur without additional new cost to the 
equipment owner beyond the incremental cost of the low-sulfur diesel 
fuel, although these savings are dependent on changes to existing 
maintenance schedules. Such changes seem likely given the magnitude of 
the savings. There are many mechanisms by which end-users could become 
aware of the opportunity to extend oil drain intervals. First, it is 
typical practice for engine and equipment manufacturers to issue 
service bulletins regarding lubrication and fueling guidance for end-
users.\220\ Manufacturers provide these service bulletins to equipment 
dealerships and large equipment customers (such as rental companies). 
In addition, the equipment and end-user industries have a number of 
annual conferences which are used to share information, including 
information regarding appropriate engine and equipment maintenance 
practices. The end-user conferences are also designed to help specific 
industries and business reduce operating costs and maximize profits, 
which would include information on equipment maintenance practices. 
There are trade journals and publications which provide information and 
advice to their users regarding proper equipment maintenance. Finally, 
some nonroad users perform routine oil sample analysis in order to 
determine appropriate oil drain intervals, and in some cases to monitor 
overall engine wear rates in order to determine engine rebuild 
needs.\221\ We have not estimated the value of the savings from all of 
the benefits listed in table VI.B-1, and therefore we believe the 3.2 
cents per gallon savings is conservative as it only accounts for the 
impact of low sulfur fuel on oil change intervals. While some of these 
benefits are impacted by changes in oil change interval, a number are 
independent and not included in our cost savings estimate.
---------------------------------------------------------------------------

    \220\ For example, Appendix A of EPA Memorandum ``Estimate of 
the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad 
Diesel Equipment'' contains a service bulletin from a nonroad diesel 
engine manufacturer. Copy of memo available in EPA Air Docket A-
2001-28, item II-A-194.
    \221\ For example, Appendix C of EPA Memorandum ``Estimate of 
the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad 
Diesel Equipment'', which indicates Caterpillar recommends owners 
use Scheduled Oil Sampling analysis as the best means for users to 
determine appropriate oil change intervals. Copy of memo available 
in EPA Air Docket A-2001-28, item II-A-194.
---------------------------------------------------------------------------

C. Engine and Equipment Cost Impacts

    The following sections briefly discuss the various engine and 
equipment cost elements considered for this final rule and present the 
total costs we have estimated. The reader is referred to the RIA for a 
complete discussion. Estimated engine and equipment costs depend 
largely on both the size of the piece of equipment and its engine, and 
on the technology package being added to the engine to ensure 
compliance with the new Tier 4 standards. The wide size variation 
(e.g., engines under 4 horsepower through engines above 2500 
horsepower) and the broad application variation (e.g., lawn equipment 
through large mining trucks) that exists in the nonroad industry makes 
it difficult to present here an estimated cost for every possible 
engine and/or piece of equipment. Nonetheless, for illustrative 
purposes, we present some examples of engine and equipment cost impacts 
throughout this discussion. Note that the costs presented here are for 
those nonroad engines and equipment that are mobile nonroad equipment 
and are, therefore, subject to nonroad engine standards. These costs 
would not apply for that equipment that is stationary--some portion of 
some equipment segments such as generator sets, pumps, compressors--and 
not subject to nonroad engine standards. The analysis summarized here 
is presented in detail in chapter 6 of the RIA.
    Note that the costs presented here do not reflect any savings that 
are expected to occur because of the engine ABT program and/or the 
equipment manufacturer transition program, which are discussed in 
sections III.A and B. These optional programs have the potential to 
provide significant savings for both engine and equipment 
manufacturers. As a result, we consider our cost estimates to be 
conservative, in the sense that they likely overstate total engine and 
equipment costs.
    In general, the final engine and equipment cost analysis is the 
same as that done for our proposal. We have made the following changes:
     In response to a comment, we have increased our engine 
research and development (R&D) costs. In the proposal, we estimated the 
R&D expenditure that each engine manufacturer would make to comply with 
the Tier 4 standards. In response

[[Page 39121]]

to the comment, we have refined that analysis and increased our 
estimate of engine R&D by roughly 50 percent. We did not receive any 
other comments with respect to our estimates for engine R&D.
     Because the final standards for engines above 750 
horsepower have changed from the proposed standards, we have made 
changes to the engine R&D expenditures attributed to those engines. For 
costing purposes, the NOX portion of the engine R&D 
expenditures are no longer shared by engines above 750 horsepower. This 
increases NOX R&D attributed to other engines because a 
significant portion of engine R&D costs are costs shared across a wide 
range of products. We have also reduced the engine variable costs for 
engines above 750 horsepower since we are no longer projecting that 
NOX adsorbers will be added to them.\222\ This has no impact 
on the engine variable costs for other engines. We have also reduced 
the equipment redesign costs for engines above 750 horsepower since 
less redesign effort is projected to accommodate only a catalyzed 
diesel particulate filter (CDPF). This has no impact on the redesign 
costs of other equipment. Lastly, we have decreased the equipment 
variable costs for engines above 750 horsepower for the same reason as 
was done for engine variable costs.
---------------------------------------------------------------------------

    \222\ In order to avoid inconsistencies in the way our emission 
reductions, and cost-effectiveness estimates are calculated, our 
cost methodology for engines and equipment relies on the same 
projections of new nonroad engine growth as those used in our 
emissions inventory projections. Our NONROAD emission inventory 
model includes estimates of future engine populations that are 
consistent with the future engine sales used in our cost estimates. 
The NONROAD model inputs include an estimate of what percentage of 
generator sets sold in the U.S. are ``mobile'' and, thus, subject to 
the nonroad standards, and what percentage are ``stationary'' and 
not subject to the nonroad standards. These percentages vary by 
power category and are documented in ``Nonroad Engine Population 
Estimates,'' EPA Report 420-P-02-004, December 2002. For generator 
sets above 750 horsepower, NONROAD assumes 100 percent are 
stationary and, therefore, not subject to the new nonroad standards. 
For generator sets under 750 horsepower, we have assumed other 
percentages of mobile versus stationary. During our discussions with 
engine manufacturers after the proposal, it became apparent not only 
that our estimate for generator sets above 750 horsepower may not be 
correct and many are indeed mobile, but also that some of our 
estimates for generator sets above 750 horsepower may also not be 
correct and many more than we estimate may indeed be mobile. If 
true, this increased percentage of mobile generator sets will be 
subject to the new nonroad standards. Unfortunately, we have not 
received sufficient data to make a conclusive change to the NONROAD 
model to include the potentially increased percentages of mobile 
generator sets and, therefore, for the above described purpose of 
maintaining consistency, we have not included their costs or their 
emissions reductions in our official estimates for this final rule 
(costs and emissions reductions for the current percentages in the 
NONROAD model are included in our estimates for the final rule). 
Instead, we present a sensitivity analysis in Chapter 8 of the RIA 
that includes both an estimate of the costs and emissions reductions 
that would result from including a higher percentage of generator 
sets as mobile equipment and subject to the new standards.
---------------------------------------------------------------------------

     We have changed the engine operating costs for engines 
above 750 horsepower to reflect a different fuel economy impact than 
was associated with the proposed standards and to reflect the new 
timing for adding the CDPF and therefore incurring the maintenance 
costs associated with it.
     We have included costs for additional cooling on engines 
adding cooled EGR systems (engines of 25 to 50 horsepower and greater 
than 750 horsepower). These costs include the larger radiator and/or 
engine cooling fan that may be required on engines expected to add 
cooled EGR to meet the new standards. In the proposal, we had estimated 
the costs for the EGR system but not the costs for additional cooling.
     We have expressed all costs in 2002 dollars for the final 
rule rather than the proposal's use of 2001 dollars.
    We received comments on other aspects of the proposed engine and 
equipment cost analysis that are not reflected in the final analysis. 
Some of the comments were:
     Some commenters claimed that we had underestimated costs 
for engines under 75 horsepower, and in the 75 to 100 horsepower range. 
For the engines under 75 horsepower, one commenter suggested the costs 
were higher than EPA estimated. Please see section 5.4.1 of the Summary 
and Analysis of Comments for a detailed discussion of the comments and 
our response. In the 75 to 100 horsepower range, one commenter 
suggested that we were incorrect in our assumption that those engines 
would have electronic fuel systems in the NRT4 baseline case, 
maintaining the electronic fuel systems would have to be added to these 
engines to comply with the Tier 4 standards and, therefore, are a cost 
of the Tier 4 rule. From this premise, the commenter argued that the 
costs for 75 to 100 horsepower engines will be disproportionately high.
    We disagree. In the proposal, we estimated that by 2012, engines in 
this power range would already have electronic fuel injection systems. 
This estimate was based on our engineering assessment of what 
technologies would be required to comply with the Tier 2 and Tier 3 
emission standards, as well as technical discussions we had with engine 
manufacturers regarding future product plans. Therefore, the costs of 
these electronic fuel injection systems are not attributable to the 
Tier 4 rule. Our assessment at proposal is consistent with our 
projections in the Tier 2/3 rulemaking where we estimated costs for 
electronic fuel injection systems as a cost of complying with those 
standards. In the preamble to the proposed Tier 4 rule, we presented 
estimates of the penetration of various engine technologies into 
several power ranges, including 75 to 100 horsepower, based on engine 
manufacturers' 2001 model year certification data. See 68 FR 28386, May 
23, 2003. Since then, model year certification data for 2004 are 
available, and these data substantiate our earlier prediction. These 
model year 2004 data represent implementation of the Tier 2 standards 
so these data illustrate the technologies engine manufacturers are 
using to comply with those standards. These data show that nearly 20 
percent of the engines that will be produced in this power range will 
have electronically controlled fuel systems, while the model year 2001 
data show no engines in this power range had electronic fuel systems. 
This dramatic increase in electronics as a result of the Tier 2 
standards, let alone the Tier 3 standards, gives us confidence that our 
projections regarding 2012 are reasonable. Section 4.1.4 of the RIA 
contains a detailed discussion of this information; see also the 
discussions in sections II.B.4.b.i and II.B.5 above. Thus, we continue 
to believe that we have properly attributed costs of electronic fuel 
systems to the Tier 3 rule, or, put another way, that the cost of an 
electronic fuel system is not a cost attributable to this Tier 4 rule 
for engines in the 75 to 100 horsepower category. Since the cost of 
electronic fuel systems is the essential difference in the costs we 
attribute to the Tier 4 rule for these engines versus the costs the 
commenter would attribute, we therefore disagree with the comment and 
believe our estimates to be reasonable. See also section II.A.5 above.
     One commenter took exception to our method of amortizing 
fixed costs over a period of years following implementation of the new 
standards. The commenter suggested that we used such a method to imply 
to the regulated industries that they would not only recover their 
investments but would also make a gain on those investments. This is 
not the case. We use this method of amortization, briefly described 
here and more fully in the RIA, only to reflect the time value of money 
so that we can get a more accurate estimate of the cost to the 
companies.
    The Summary and Analysis of Comments document contains the

[[Page 39122]]

details of all comments and our responses.
1. Engine Cost Impacts
    Estimated engine costs are broken into fixed costs (for research 
and development, retooling, and certification), variable costs (for new 
hardware and assembly time), and life-cycle operating costs. Total 
operating costs include the estimated incremental cost for low-sulfur 
diesel fuel, any expected increases in maintenance costs associated 
with new emission control devices, any costs associated with increased 
fuel consumption, and any decreases in operating cost (i.e., 
maintenance savings) expected due to low-sulfur fuel. Cost estimates 
presented here represent an expected incremental cost of engines in the 
model year of their introduction. Costs in subsequent years will be 
reduced by several factors, as described below. All engine and 
equipment costs are presented in 2002 dollars since producer price 
indexes for 2003 were not available in time for use in this analysis.
a. Engine Fixed Costs
i. Engine and Emission Control Device R&D
    The technologies described in Section II represent those 
technologies we believe will be used to comply with the Tier 4 emission 
standards. For many manufacturers, these technologies are part of an 
ongoing research and development effort geared toward compliance with 
the 2007 heavy-duty diesel highway emission standards. The engine 
manufacturers making R&D expenditures toward compliance with highway 
emission standards will have to undergo some additional R&D effort to 
transfer emission control technologies to engines they wish to sell 
into the nonroad market. These R&D efforts will allow engine 
manufacturers to develop and optimize these new technologies for 
maximum emission-control effectiveness with minimum negative impacts on 
engine performance, durability, and fuel consumption.
    Many nonroad engine manufacturers are not part of the ongoing R&D 
effort toward compliance with highway emissions standards because they 
do not sell engines into the highway market. Nonetheless, these 
manufacturers are expected to benefit from the R&D work that has 
already occurred and will continue through the coming years through 
their contact with highway manufacturers, emission control device 
manufacturers, and the independent engine research laboratories 
conducting relevant R&D.
    We project the use of several technologies for complying with the 
Tier 4 emission standards. We are projecting that NOX 
adsorbers and catalyzed diesel particulate filters (CDPFs) will be the 
most likely technologies applied by industry to meet our new emissions 
standards for engines above 75 horsepower. The fact that these 
technologies are being developed for implementation in the highway 
market before the Tier 4 implementation dates, and the fact that engine 
manufacturers will have several years before implementation of the Tier 
4 standards, ensures that the technologies used to comply with the 
nonroad standards will undergo significant development before reaching 
production. This ongoing development could lead to reduced costs in 
three ways. First, we expect research will lead to enhanced 
effectiveness for individual technologies, allowing manufacturers to 
use simpler packages of emission control technologies than we would 
predict given the current state of development. Similarly, we 
anticipate that the continuing effort to improve the emission control 
technologies will include innovations that allow lower-cost production. 
Finally, we believe that manufacturers will focus research efforts on 
any drawbacks, such as fuel economy impacts or maintenance costs, in an 
effort to minimize or overcome any potential negative effects.
    We anticipate that, in order to meet the Tier 4 standards, industry 
will introduce a combination of primary technology upgrades. Achieving 
very low NOX emissions will require basic research on 
NOX exhaust emission control technologies and improvements 
in engine management to take advantage of the new exhaust emission 
control system capabilities. The manufacturers are expected to address 
the challenge by optimizing the engine and new exhaust emission control 
system to realize the best overall performance. This will entail 
optimizing the engine and emission control system for both emissions 
and fuel economy performance in light of the presence of the new 
exhaust emission control devices and their ability to control 
pollutants previously controlled only via in-cylinder means or with 
exhaust gas recirculation. Since most research to date with exhaust 
emission control technologies for nonroad applications has focused on 
retrofit programs which typically add an exhaust emission control 
device without making engine control changes, there remains room for 
significant improvements by taking such a systems approach. The 
NOX adsorber technology in particular is expected to benefit 
from re-optimization of the engine management system to better match 
the NOX adsorber's performance characteristics. The majority 
of the dollars we have estimated for research is expected to be spent 
on developing this synergy between the engine and NOX 
exhaust emission control systems. Therefore, for engines where we 
project use of both a CDPF and a NOX adsorber (i.e., 75 to 
750 horsepower), we have attributed two-thirds of the R&D expenditures 
to NOX control, and one-third to PM control.
    As we mentioned earlier, we have further refined our estimate of 
engine R&D costs since our proposal. We have taken these R&D costs and 
have broken them into two components. The first of these components 
estimates the corporate R&D applicable across all engine lines. The 
second of these estimates the engine line by engine line R&D cost. The 
estimates of line by line R&D correlate to power range--$1 million for 
under 75 horsepower engine lines, $3 million for 75 to 750 horsepower 
engine lines, and $6 million for above 750 horsepower engine lines. We 
estimated these expenditures based on the confidential information 
provided by the commenter and our analysis of that information. The end 
result is consistent with the commenter's suggested expenditure levels. 
We have applied these engine-line R&D estimates only where CDPFs and/or 
CDPF/NOX adsorber systems are expected to be implemented 
(i.e., this R&D is not applied for the under 75 horsepower engines in 
2008 because the R&D already estimated for complying with those 
standards should not require the same effort to tailor it to each 
engine). We have also applied these estimates only for those engines 
without a highway counterpart (note that only 16 of a total 133 nonroad 
engine lines had a highway counterpart).
    In the 2007 HD highway rule, we estimated that each engine 
manufacturer would expend $36.1 million for R&D to redesign their 
engines and apply catalyzed diesel particulate filters (CDPF) and 
NOX adsorbers.\223\ For their nonroad R&D efforts on engines 
where we project that compliance will require CDPFs and NOX 
adsorbers (i.e., 75 to 750 horsepower) and on greater than 750 
horsepower engines requiring a CDPF, engine manufacturers that also 
sell into the highway market will incur some level of R&D effort but 
not at the

[[Page 39123]]

level incurred for the highway rule. In many cases, the engines used by 
highway manufacturers in nonroad products are based on the same engine 
platform as those used in highway products. However, horsepower and 
torque characteristics are often different so some effort will have to 
be expended to accommodate those differences. For these manufacturers, 
we have estimated that they will incur an average R&D expense of $3.6 
million \224\ not including the nonroad engine line R&D noted above. 
This $3.6 million R&D expense will allow for the transfer of R&D 
knowledge from their highway experience to their nonroad engine product 
line. For the reasons stated above, two-thirds of this R&D is 
attributed to NOX control and one-third to PM control for 75 
to 750 horsepower engines; for engines above 750 horsepower, all of 
this R&D is attributed to PM control.
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    \223\ In the 2007 rule, we estimated a value of $35 million in 
1999 dollars. Here we have adjusted that value to express it in 2002 
dollars.
    \224\ In the proposal, we estimated a value of $3.5 million in 
1999 dollars. Here we have adjusted that value to express it in 2002 
dollars.
---------------------------------------------------------------------------

    For those manufacturers that sell larger engines only into the 
nonroad market, and where we project those engines will add a CDPF and 
a NOX adsorber (75 to 750 horsepower) or a CDPF-only (above 
750 horsepower), we believe that they will incur an R&D expense nearing 
that incurred by highway manufacturers for the highway rule although 
not quite at the same level. Nonroad manufacturers will be able to 
learn from the R&D efforts already underway for both the highway rule 
and for the Tier 2 light-duty highway rule (65 FR 6698, February 10, 
2000). This learning could be done via seminars, conferences, and 
contact with highway manufacturers, emission control device 
manufacturers, and the independent engine research laboratories 
conducting relevant R&D. Therefore, for these manufacturers, we have 
estimated an average expenditure of $25.3 million \225\ not including 
the nonroad engine line R&D noted above. This lower number--$25.3 
million versus $36.1 million in the highway rule--reflects the transfer 
of knowledge to nonroad manufacturers that will occur from the many 
stakeholders in the diesel industry. Two-thirds of this R&D is 
attributed to NOX control and one-third to PM control.
---------------------------------------------------------------------------

    \225\ In the proposal, we estimated a value of $24.5 million in 
1999 dollars. Here we have adjusted that value to express it in 2002 
dollars.
---------------------------------------------------------------------------

    Note that the $3.6 million and $25.3 million estimates represent 
our estimate of the average R&D expected by manufacturers to gain 
knowledge about the anticipated emission control devices. These 
estimates will be different for each manufacturer--some higher, some 
lower--depending on product mix and the number of engine lines in their 
product line.
    For those engine manufacturers selling smaller engines that we 
project will add a CDPF-only (i.e., 25 to 75 horsepower engines in 
2013), we have estimated that the average R&D they will incur will be 
roughly one-third that incurred by manufacturers conducting CDPF/
NOX adsorber R&D. We believe this is a good estimate because 
CDPF technology is further along in its development than is 
NOX adsorber technology and, therefore, a 50/50 split is not 
appropriate. Using this estimate, the R&D incurred by manufacturers 
that already have been selling any engines into both the highway and 
the nonroad markets will be $1.2 million not including their nonroad 
engine line R&D, and the R&D for manufacturers selling engines into 
only the nonroad market will be roughly $8.3 million \226\ not 
including their nonroad engine line R&D. All of this R&D is attributed 
to PM control.
---------------------------------------------------------------------------

    \226\ In the proposal, we estimated values of $1.2 million and 
$8 million in 1999 dollars. Here we have adjusted those values to 
express them in 2002 dollars.
---------------------------------------------------------------------------

    For those engine manufacturers selling engines that we project will 
add only a DOC or make some engine-out modifications (i.e., engines 
under 75 horsepower in 2008), we have estimated that the average R&D 
they will incur will be roughly one-half the amount estimated for their 
CDPF-only R&D. Using this estimate, the R&D incurred by manufacturers 
selling any engines into both the highway and nonroad markets will be 
roughly $600,000, and the R&D for manufacturers selling engines into 
only the nonroad market will be roughly $4.2 million.\227\ All of this 
R&D is attributed to PM control.
---------------------------------------------------------------------------

    \227\ In the proposal, we estimated values of $600,000 and $4 
million in 1999 dollars. Here we have adjusted those values to 
express them in 2002 dollars.
---------------------------------------------------------------------------

    We have assumed that all R&D expenditures occur over a five year 
span preceding the first year any emission control device is introduced 
into the market. There is one exception to this assumption in that the 
expenditures for DOC-only R&D are assumed to occur over the four year 
span between the final rule and the 2008 standards. Where a phase-in 
exists (e.g., for NOX standards on 75 to 750 horsepower 
engines), expenditures are assumed to occur over the five year span 
preceding the first year NOX adsorbers will be introduced, 
and then to continue during the phase-in years. The expenditures will 
be incurred in a manner consistent with the phase-in of the standard. 
All R&D expenditures are then recovered by the engine manufacturer over 
an identical time span following the introduction of the technology, 
with the exception that expenditures for DOC-only R&D are recovered 
over a five year span rather than a four year span. We assume an 
opportunity cost of capital of seven percent for all R&D. We have 
apportioned these R&D costs across all engines that are expected to use 
these technologies, including those sold in other countries or regions 
that are expected to have similar standards. We have estimated the 
fraction of the U.S. sales to this total sales at 42 percent. 
Therefore, we have attributed this amount to U.S. sales. Note that all 
engine R&D costs for engines under 25 horsepower have been attributed 
to U.S. sales since other countries are not expected to have similar 
standards on these engines.
    Using this methodology, we have estimated the total R&D 
expenditures attributable to the new standards at $323 million with 
$206 million spent on corporate R&D and $118 million spent on engine 
line R&D. For comparison, our proposal estimated $199 million for basic 
R&D and none for engine line R&D. The amount for corporate R&D is 
higher here solely due to the change to 2002 dollars.
ii. Engine-Related Tooling Costs
    Once engines are ready for production, new tooling will be required 
to accommodate the assembly of the new engines. We have indicated below 
where our tooling cost estimates have changed from the proposal. In the 
2007 highway rule, we estimated approximately $1.65 million per engine 
line for tooling costs associated with CDPF/NOX adsorber 
systems.\228\ For the nonroad Tier 4 standards, we have estimated that 
nonroad-only manufacturers will incur the same $1.65 million per engine 
line requiring a CDPF/NOX adsorber system and that these 
costs will be split evenly between NOX control and PM 
control. For those systems requiring only a CDPF, we have estimated 
one-half that amount, or $825,000 per engine line. For those systems 
requiring only a DOC or some engine-out modifications, we have applied 
a one-half factor again, or $412,500 per engine line. Tooling costs for 
CDPF-only and for DOC engines are attributed solely to PM control. None 
of these estimates have changed since our proposal, with the exception 
of being

[[Page 39124]]

expressed in 2002 dollars. We received no comments on our tooling cost 
estimates.
---------------------------------------------------------------------------

    \228\ In the 2007 rule, we estimated a value of $1.6 million in 
1999 dollars. Here we have adjusted that value to express it in 2002 
dollars.
---------------------------------------------------------------------------

    For those manufacturers selling into both the highway and nonroad 
markets, we have estimated one-half the baseline tooling cost, or 
$825,000, for those engine lines requiring a CDPF/NOX 
adsorber system. We believe this is reasonable since many nonroad 
engines are produced on the same engine line with their highway 
counterparts. For such lines, we believe very little to no tooling 
costs will be incurred. For engine lines without a highway counterpart, 
something approaching the $1.65 million tooling cost is applicable. For 
this analysis, we have assumed a 50/50 split of engine product lines 
for highway manufacturers and, therefore, a 50 percent factor applied 
to the $1.65 million baseline. These tooling costs will be split evenly 
between NOX control and PM control. For engine lines under 
75 horsepower and above 750 horsepower, we have used the same tooling 
costs as the nonroad-only manufacturers because these engines tend not 
to have a highway counterpart. Therefore, for those engine lines 
requiring only a CDPF (i.e., those between 25 and 75 horsepower and 
those above 750 horsepower), we have estimated a tooling cost of 
$825,000. Note that this is a change from the proposal for engines 
above 750 horsepower; the proposal used the full $1.65 million since 
both a CDPF and a NOX adsorber were being projected. The 
tooling costs for DOC and/or engine-out engine lines has also been 
estimated to be $412,500. Tooling costs for CDPF-only and for DOC 
engines are attributed solely to PM control. With the exception of the 
greater than 750 horsepower change, none of these tooling estimates 
have changed since our proposal, with the exception of being expressed 
in 2002 dollars.
    We expect engines in the 25 to 50 horsepower range to apply EGR 
systems to meet the Tier 4 NOX standards for 2013. For these 
engines, we have included an additional tooling cost of $41,300 per 
engine line, consistent with the EGR-related tooling cost estimated for 
50-100 horsepower engines in our Tier 2/3 rulemaking. The EGR tooling 
costs are applied equally to all engine lines in that horsepower range 
regardless of the markets into which the manufacturer sells. We have 
applied this tooling cost equally because engines in this horsepower 
range tend not to have highway counterparts. Tooling costs for EGR 
systems are attributed solely to NOX control.
    We have also estimated some tooling costs for engines above 750 
horsepower to meet the 2011 standards. We have estimated this amount at 
ten times the amount for 25 to 50 horsepower engines, or $413,000 per 
engine line. This cost was not in the proposal since NOX 
adsorbers were being projected for engines above 750 horsepower. We 
have applied this tooling to all engine lines above 750 horsepower, 
regardless of what markets into which a manufacturer sells, since such 
engines clearly have no highway counterpart. For the purpose of 
allocating costs, we have attributed this cost entirely to 
NOX control. Note that there is a new 2011 PM standard for 
engines above 750 horsepower. However, we believe that PM standard 
could be met via engine-out control which would result in no new 
tooling costs associated with that standard.
    We have applied all the above tooling costs to all manufacturers 
that appear to actually make engines. We have not eliminated joint 
venture manufacturers because these manufacturers will still need to 
invest in tooling to make the engines even if they do not conduct any 
R&D. We have assumed that all tooling costs are incurred one year in 
advance of the new standard and are recovered over a five year period 
following implementation of the new standard; all tooling costs include 
a capital opportunity cost of seven percent. As done for R&D costs, we 
have attributed a portion of the tooling costs to U.S. sales and a 
portion to sales in other countries expected to have similar levels of 
emission control. Note that all engine tooling costs for under 25 
horsepower engines have been attributed to U.S. sales since other 
countries are not expected to have similar standards on these engines. 
More information is contained in chapter 6 of the RIA.
    Using this methodology, we estimate the total tooling expenditures 
attributable to the new Tier 4 standards at $74 million. For 
comparison, our proposal estimated $67 million. The higher value here 
is a result of: Expressing values in 2002 dollars rather than 2001 
dollars; attributing all under 25 horsepower tooling costs to U.S. 
sales while the proposal attributed 42 percent of those costs to U.S. 
sales; and, above 750 horsepower tooling is slightly higher because of 
the proposal's phase-in (50/50/50/100) of one set of standards while 
the final rule has two sets of standards.
iii. Engine Certification Costs
    The comments we received with respect to our estimated 
certification costs noted that we had underestimated costs associated 
with new test procedures, especially transient testing for engines 
above 750 horsepower. For the final rule, we have tripled the costs 
associated with new test procedures. Because we are not finalizing 
transient test procedures for engines above 750 horsepower, comments 
about the cost of these engines certifying using the transient test are 
now moot.
    Manufacturers will incur more than the normal level of 
certification costs during the first few years of implementation 
because engines will need to be certified to the new emission standards 
using new test procedures (at least in some instances). Consistent with 
our recent standard setting regulations, we have estimated engine 
certification costs at $60,000 per new engine certification to cover 
existing testing and administrative costs.\229\ The $60,000 
certification cost per engine family was used for 25 to 75 horsepower 
engines certifying to the 2008 standards. For 25 to 75 horsepower 
engines certifying to the 2013 standards, and for 75 to 750 horsepower 
engines certifying to their new standards, we have added costs to cover 
the new test procedures for nonroad diesel engines (e.g., the transient 
test, the NTE); \230\ these costs are estimated at $31,500 per engine 
family.\231\ For engines under 25 horsepower, we have assumed (for cost 
purposes) that all engines will certify to the transient test and the 
NTE in 2008. We believe manufacturers may choose to do this rather than 
certifying all engines again in 2013 when the transient test and NTE 
requirements actually begin for those engines. This assumption results 
in higher certification costs in 2008 than if these engines certified 
only to the steady-state standard. However, we believe manufacturers 
may choose to do this because it would avoid the need to

[[Page 39125]]

recertify all engines under 25 horsepower again in 2013. These 
certification costs--whether it be the $60,000 or the $91,500 per 
engine family--apply equally to all engine families for all 
manufacturers regardless of into what markets the manufacturer sells. 
For engines above 750 horsepower, the certification costs used were 
$87,000 per family since these engines will not be certifying over the 
new transient test procedure. We have applied these certification costs 
to all U.S. sold engine families and then spread the total over U.S. 
sales. In other words, we have not presumed that certification 
conducted for U.S. engines would fulfill the certification requirements 
of other countries and have, therefore, not spread total costs over 
engine sales outside the U.S.
---------------------------------------------------------------------------

    \229\ In the proposal we added a certification fee to this cost. 
In the final rule we have not included the certification fee because 
that cost will be accounted for in the certification fees rulemaking 
(see 67 FR 51402 for the proposed rule). Including in the proposal 
was essentially double counting that fee. Similarly, if we were to 
include it in this final rule, we would be double counting that fee.
    \230\ Note that the transport refrigeration unit (TRU) test 
cycle is an optional duty cycle for steady-state certification 
testing specifically tailored to the operation of TRU engines. 
Likewise, the ramped modal cycles are available test cycles that can 
be used to replace existing steady-state test requirements for 
nonroad constant-speed engines, generally. Manufacturers of these 
engines who opt to use one of these test cycles would incur no new 
costs above those estimated here and may incur less cost.
    \231\ Note that the proposal incorrectly used a value of $10,500 
for costs associated with the new test procedures. Here, we have 
corrected this error by using a value of $31,500. Note also that the 
proposal erroneously did not include certification costs associated 
with transient testing and the NTE for engines under 25 horsepower. 
We have corrected that error in the final analysis.
---------------------------------------------------------------------------

    Applying these costs to each of the 665 engine families as they are 
certified to a new emissions standard results in total costs of $91 
million expended during implementation of the Tier 4 standards. These 
costs are attributed to NOX and PM control consistent with 
the phase-in of the new emissions standards--where new NOX 
and PM standards are introduced together, the certification costs are 
split evenly; where only a new PM standard is introduced, the 
certification costs are attributed to PM only; where a NOX 
phase-in becomes 100 percent in a year after full implementation of a 
PM standard, the certification costs are attributed to NOX 
only. All certification costs are assumed to occur one year prior to 
the new emission standard and are then recovered over a five year 
period following compliance with the new standard; all certification 
costs include a capital opportunity cost of seven percent. For 
comparison, our proposal estimated certification costs at $72 million. 
The increase here is a result of using a higher cost associated with 
the new test procedures than was used in the proposal.
    We also received comment that we should estimate certification 
costs based on use of the ABT program rather than based on the phase-
in. Doing this would result in higher certification costs because all 
engine families would be certified in year one of the phase-in and all 
families would again be certified in the final year of the phase-in. In 
contrast, since we have based certification costs on the phase-in, all 
engine families are certified in year one (PM standards have no phase-
in) and only half are again certified in the final year (the 50 percent 
not meeting the new NOX standard in year one). We have 
chosen not to estimate certification or any costs based on use of the 
ABT program (or the TPEM program) since it is so difficult to predict 
how this program will be used. Furthermore, we must remain consistent 
throughout our cost analysis so that, if we estimated certification 
costs based on use of the ABT program, we should also base engine 
variable costs and equipment variable costs on use of the ABT program. 
Doing so, we believe, would decrease engine variable costs since that 
is the primary reason manufacturers choose to make use of the ABT 
program. Since engine variable costs, as discussed below, are a much 
greater fraction of the overall program costs, we believe that we are 
being conservative by generating our costs based on use of the phase-
in. Therefore, we believe that use of the ABT program (and the TPEM 
program) will provide substantial net savings to industry even though 
widespread use of ABT might cause certification costs to be higher.
b. Engine Variable Costs
    This section summarizes the detailed analysis presented in chapter 
6 of the RIA. For our analysis, we have used the 2002 annual average 
costs for platinum and rhodium (the two platinum group metals (PGMs) we 
expect will be used) because we believe they represent a better 
estimate of the cost for PGM than other metrics. In the RIA, we present 
a cost sensitivity that estimates the recovery value of precious metals 
returned to the open market upon retirement of an aftertreatment 
device. We present that analysis to gauge the true social cost of these 
devices when new.
    We have not made any changes to our engine variable costs as a 
result of public comments. Some commenters (engine manufacturers) 
claimed that we had underestimated these costs but did not provide any 
detailed information about where they believed we had erred or what 
they believed the costs should be. Other commenters (emission control 
device manufacturers) claimed that we had done a fair job with our 
estimates. Some commenters (equipment manufacturers) claimed that our 
assumptions with respect to baseline engine configurations were not 
accurate. However, as discussed earlier, based on our own engineering 
judgement and the positive comments of the engine manufacturers--who we 
consider a better source for such information than equipment 
manufacturers since engine manufacturers are the directly affected 
entities--we have maintained our original assumptions for baseline 
engine configurations. Further, our assumed Tier 4 baseline engine 
configurations are consistent with our assumed compliant technology 
packages for T2/3, and those packages included the things equipment 
manufacturers are claiming will not be present in the Tier 4 baseline. 
As a result, we have already considered the costs associated with 
reaching our Tier 4 baseline engine configurations in the context of 
the T2/3 rule.
    We have made changes to engine variable costs to remain consistent 
with the final program--i.e., we have changed our greater than 750 
horsepower cost estimates since the final standards differ from those 
that were proposed. We have also changed the costs by expressing them 
in 2002 dollars rather than 2001 dollars.\232\
---------------------------------------------------------------------------

    \232\ Note that the change to 2002 dollars had different effects 
on different pieces of hardware. We have used two different PPI 
adjustments in the analysis: one for motor vehicle catalytic 
converters which was used to adjust costs for DOCs, NOX 
adsorbers, and CDPFs; and another for motor vehicle parts and 
accessories which was used for all other pieces of hardware. The 
former of these adjustments actually caused costs to decrease 
relative to the proposal while the latter caused costs to increase 
slightly.
---------------------------------------------------------------------------

i. NOX Adsorber System Costs
    The NOX adsorber system that we are anticipating will be 
used to comply with Tier 4 engine standards will be the same as that 
used for highway applications. In order for the NOX adsorber 
to function properly, a systems approach that includes a reductant 
metering system and control of engine A/F ratio is also necessary. Many 
of the new air handling and electronic system technologies developed in 
order to meet the Tier 2/3 nonroad engine standards can be applied to 
accomplish the NOX adsorber control functions as well (these 
costs were accounted for in our T2/3 rule). Some additional hardware 
for exhaust NOX or O2 sensing and for fuel 
metering will likely be required. The cost estimates include a DOC for 
clean-up of hydrocarbon emissions that occur during NOX 
adsorber regeneration events. We have also estimated that warranty 
costs will increase due to the application of this new hardware. 
Chapter 6 of the RIA contains the details for how we estimated costs 
associated with the new NOX control technologies required to 
meet the Tier 4 emission standards. These costs are estimated to 
increase engine costs by roughly $670 in the near-term for a 150 
horsepower engine, and $2,040 in the near-term for a 500 horsepower 
engine. In the long-term, we estimate these costs to be $550 and $1,650 
for the 150 horsepower and 500 horsepower engines, respectively. These 
costs may differ slightly from the proposal due to the adjustments to 
2002 dollars. Note that we have estimated costs for all engines in all 
horsepower

[[Page 39126]]

ranges, and these estimates are presented in detail in the RIA. 
Throughout this discussion of engine and equipment costs, we present 
costs for a 150 and a 500 horsepower engine for illustrative purposes.
ii. Catalyzed Diesel Particulate Filter (CDPF) Costs
    CDPFs can be made from a wide range of filter materials including 
wire mesh, sintered metals, fibrous media, or ceramic extrusions. The 
most common material used for CDPFs for heavy-duty diesel engines is 
cordierite. Here we have based our cost estimates on the use of silicon 
carbide (SiC) even though it is more expensive than other filter 
materials.\233\ We estimate that the CDPF systems will add $760 to 
engine costs in the near-team for a 150 horsepower engine and $2,710 in 
the near-term for a 500 horsepower engine. In the long-term, we 
estimate these CDPF system costs to be $580 and $2,070 for the 150 
horsepower and the 500 horsepower engines, respectively. These costs 
may differ slightly from the proposal due to the adjustments to 2002 
dollars.
---------------------------------------------------------------------------

    \233\ This is particularly true with respect to engines above 
750 horsepower where we believe that manufacturers may in fact use a 
wire mesh substrate rather than the SiC substrate we have costed 
and, indeed, we have based the level of the 2015 PM standard on this 
use of wire mesh substrates (see section II.B.3.b). We have chosen 
to remain conservative in our cost estimates by assuming use of a 
SiC substrate for all engines.
---------------------------------------------------------------------------

iii. CDPF Regeneration System Costs
    Application of CDPFs in nonroad applications may present challenges 
beyond those of highway applications. For this reason, we anticipate 
that some additional hardware beyond the diesel particulate filter 
itself may be required to ensure that CDPF regeneration occurs. For 
some engines this may be new fuel control strategies that force 
regeneration under some circumstances, while in other engines it might 
involve an exhaust system fuel injector to inject fuel upstream of the 
CDPF to provide necessary heat for regeneration under some operating 
conditions. We estimate the near-term costs of a CDPF regeneration 
system to be $200 for a 150 horsepower engine and $330 for a 500 
horsepower engine. In the long-term, we estimate these costs at $150 
and $250, respectively. These costs may differ slightly from the 
proposal due to the adjustments to 2002 dollars.
iv. Closed-Crankcase Ventilation System (CCV) Costs
    Today's final rule eliminates the exemption that allows turbo-
charged nonroad diesel engines to vent crankcase gases directly to the 
environment. Such engines are said to have an open crankcase system. We 
project that this requirement to close the crankcase on turbo-charged 
engines will force manufacturers to rely on engineered closed crankcase 
ventilation systems that filter oil from the blow-by gases prior to 
routing them into either the engine intake or the exhaust system 
upstream of the CDPF. We have estimated the initial cost of these 
systems to be roughly $30 for low horsepower engines and up to $90 for 
very high horsepower engines. These costs are incurred only by turbo-
charged engines because today's naturally aspirated engines already 
have CCV systems. These costs may differ slightly from the proposal due 
to the adjustments to 2002 dollars.
v. Variable Costs for Engines Below 75 Horsepower and Above 750 
Horsepower
    The Tier 4 program includes standards for engines under 25 
horsepower that begin in 2008, and two sets of standards for 25 to 75 
horsepower engines--one set that begins in 2008 and another that begins 
in 2013.\234\ The 2008 standards for all engines under 75 horsepower 
are of similar stringency and are expected to result in use of similar 
technologies (i.e., the possible addition of a DOC). The 2013 standards 
for 25 to 75 horsepower engines are considerably more stringent than 
the 2008 standards and are expected to force the addition of a CDPF 
along with some other engine hardware to enable the proper functioning 
of that new technology. More detail on the mix of technologies expected 
for all engines under 75 horsepower is presented in section II.B.4 and 
5. As discussed there, if changes are needed to comply, we expect 
manufacturers to comply with the 2008 standards through either engine-
out improvements or through the addition of a DOC. From a cost 
perspective, we have projected that engines will add a DOC. Presumably, 
the manufacturer will choose the least costly approach that provides 
the necessary reduction. If engine-out modifications are less costly 
than a DOC, our estimate here is conservative. If the DOC proves to be 
less costly, then our estimate is representative of what most 
manufacturers will do. Therefore, we have assumed that, beginning in 
2008, all engines below 75 horsepower add a DOC. Note that this 
estimate is made more conservative since we have assumed this cost for 
all engines when, in fact, some engines below 75 horsepower currently 
meet the Tier 4 PM standard (for 2008) and will not, therefore, incur 
any incremental costs to meet it. We have estimated this added hardware 
to result in an increased engine cost of $143 in the near-term and $136 
in the long-term for a 30 horsepower engine. These costs may differ 
slightly from the proposal due to the adjustments to 2002 dollars.
---------------------------------------------------------------------------

    \234\ We refer here to PM standards. There also is a 
NOX+NMHC standard for 25-50 horsepower engines that takes 
effect in 2013 and is equivalent to the Tier 3 NOX+NMHC 
standard for 50-75 horsepower engines (see section II.A).
---------------------------------------------------------------------------

    We have also projected that some engines in the 25 to 75 horsepower 
range will have to upgrade their fuel systems to accommodate the CDPF. 
We have estimated the incremental costs for these fuel systems at 
roughly $870 for a three cylinder engine in the 25-50 horsepower range, 
and around $450 for a four cylinder engine in the 50-75 horsepower 
range. This difference reflects a different base fuel system, with the 
smaller engines assumed to have mechanical fuel systems and the larger 
engines assumed to already be electronic. The electronic systems will 
incur lower costs because they already have the control unit and 
electronic fuel pump. Also, we have assumed these fuel changes will 
occur for only direct injection (DI) engines; indirect injection 
engines (IDI) are assumed to remain IDI but to add more hardware as 
part of their CDPF regeneration system to ensure proper regeneration 
under all operating conditions. Such a regeneration system, described 
above, is expected to cost roughly twice that expected for DI engines, 
or around $320 for a 30 horsepower IDI engine versus $160 for a DI 
engine. These costs may differ slightly from the proposal due to the 
adjustments to 2002 dollars.
    We have also projected that engines in the 25-50 horsepower range 
will add cooled EGR to comply with their new NOX standard in 
2013. Additionally, we have estimated, for cost purposes, that engines 
above 750 horsepower will add cooled EGR to comply with their new 
NOX standard in 2011. This represents a conservative 
estimate since we do not necessarily anticipate that cooled EGR will be 
applied to all, if any, engines above 750 horsepower. Nonetheless, we 
do expect some changes to be made (most probably some form of engine-
out emission control) and, consistent with our approach to costing DOCs 
for engines below 75 horsepower in 2008, we have conservatively costed 
cooled EGR for engines above 750 horsepower in 2011. We have estimated 
that the EGR system will add $100 in the near-term and $70 in the long-
term to the cost of a 30 horsepower engine, and $550 and $420, 
respectively, for engines above 750 horsepower. These costs may differ 
slightly from the proposal due to

[[Page 39127]]

the adjustments to 2002 dollars. To these costs, we have added costs 
associated with additional cooling that may be needed to reject the 
heat generated by the cooled EGR system or other in-cylinder 
technologies. These costs were not included in the proposal. Such 
additional cooling might take the form of a larger radiator and/or a 
larger or more powerful cooling fan. Based on cost estimates from our 
Nonconformance Penalty rule (67 FR 51464), we have estimated that the 
costs associated with additional cooling will add $40 in the near-term 
and $30 in the long-term to the cost of a 30 horsepower engine, and 
$710 in the near-term and $560 in the long-term for engine above 750 
horsepower. Note that we are also projecting use of a CDPF for engines 
above 750 horsepower, as was discussed above.
    We believe there are factors that will cause variable hardware 
costs to decrease over time, making it appropriate to distinguish 
between near-term and long-term costs. Research in the costs of 
manufacturing has consistently shown that as manufacturers gain 
experience in production, they are able to apply innovations to 
simplify machining and assembly operations, use lower cost materials, 
and reduce the number or complexity of component parts.\235\ Our 
analysis, as described in more detail in the RIA, incorporates the 
effects of this learning curve by projecting that the variable costs of 
producing the low-emitting engines decreases by 20 percent starting 
with the third year of production. For this analysis, we have assumed a 
baseline that represents such learning already having occurred once due 
to the 2007 highway rule (i.e., a 20 percent reduction in emission 
control device costs is reflected in our near-term costs). We have then 
applied a single learning step from that point in this analysis. 
Additionally, manufacturers are expected to apply ongoing research to 
make emission controls more effective and to have lower operating costs 
over time. However, because of the uncertainty involved in forecasting 
the results of this research, we conservatively have not accounted for 
it in this analysis.
---------------------------------------------------------------------------

    \235\ For example, see, ``Learning Curves in Manufacturing,'' 
Linda Argote and Dennis Epple, Science, February 23, 1990, Vol. 247, 
pp. 920-924.
---------------------------------------------------------------------------

c. Engine Operating Costs
    We are projecting that a variety of new technologies will be 
introduced to enable nonroad engines to meet the new Tier 4 emissions 
standards. Primary among these are advanced emission control 
technologies and low-sulfur diesel fuel. The technology enabling 
benefits of low-sulfur diesel fuel are described in Section II, and the 
incremental cost for low-sulfur fuel is described in section VI.A. The 
new emission control technologies are themselves expected to introduce 
additional operating costs in the form of increased fuel consumption 
and increased maintenance demands. Operating costs are estimated in the 
RIA over the life of the engine and are expressed in terms of cents/
gallon of fuel consumed. In section VI.C.3, we present these lifetime 
operating costs as a net present value (NPV) in 2002 dollars for 
several example pieces of equipment.
    Total operating cost estimates include the following elements: the 
change in maintenance costs associated with applying new emission 
controls to the engines; the change in maintenance costs associated 
with low sulfur fuel such as extended oil change intervals; the change 
in fuel costs associated with the incrementally higher costs for low 
sulfur fuel, and the change in fuel costs due to any fuel consumption 
impacts associated with applying new emission controls to the engines. 
This latter cost is attributed to the CDPF and its need for periodic 
regeneration which we estimate may result in a one percent fuel 
consumption increase where a NOX adsorber is also applied, 
or a two percent fuel consumption increase where no NOX 
adsorber is applied (refer to chapter 6, section 6.2.3.3 of the RIA). 
Maintenance costs associated with the new emission controls on the 
engines are expected to increase since these devices represent new 
hardware and, therefore, new maintenance demands. For CDPF maintenance, 
we have used a maintenance interval of 3,000 hours for smaller engines 
and 4,500 hours for larger engines and a cost of $65 through $260 for 
each maintenance event. For closed-crankcase ventilation (CCV) systems, 
we have used a maintenance interval of 675 hours for all engines and a 
cost per maintenance event of $8 to $48 for small to large engines. 
Offsetting these maintenance cost increases will be a savings due to an 
expected increase in oil change intervals because low sulfur fuel will 
be far less corrosive than is current nonroad diesel fuel. Less 
corrosion will mean a slower acidification rate (i.e., less 
degradation) of the engine lubricating oil and, therefore, more 
operating hours between needed oil changes. As discussed in section 
VI.B, the use of 15 ppm sulfur fuel can extend oil change intervals by 
as much as 35 percent for both new and existing nonroad engines and 
equipment. We have used a 35 percent increase in oil change interval 
along with costs per oil change of $70 through $400 to arrive at 
estimated savings associated with increased oil change intervals.
    These operating costs are expressed as a cent/gallon cost (or 
savings). As a result, operating costs are directly proportional to the 
amount of fuel consumed by the engine. We have estimated these 
operating costs--fuel-related refining and distribution costs, 
maintenance related costs, and fuel economy impacts--to be 5.4 cents/
gallon for a 150 horsepower engine and 6.5 cents/gallon for a 500 
horsepower engine. More detail on operating costs can be found in 
Chapter 6 of the RIA.
    The existing fleet will also benefit from lower maintenance costs 
due to the use of low sulfur diesel fuel. The operating costs for the 
existing fleet are discussed in section VI.B. We did receive comments 
with respect to our oil change maintenance savings estimates. These 
comments were address in section VI.B. We received no comments on our 
CDPF and CCV maintenance costs or our CDPF regeneration costs.
2. Equipment Cost Impacts
    In addition to the costs directly associated with engines that 
incorporate new emission controls to meet new standards, costs will 
increase due to the need to redesign the nonroad equipment in which 
these engines are used. Such redesigns will probably be necessary due 
to the expected addition of new emission control systems, but could 
also occur if the engine has a different shape or heat rejection rate, 
or is no longer made available in the configuration previously used. We 
have accounted for these potential changes in establishing the lead 
time for the Tier 4 emissions standards. The transition flexibility 
provisions for equipment manufacturers that are included in this final 
rule are an element of that lead time. These flexibility provisions are 
described in detail in section III.B.
    In assessing the economic impact of the new emission standards, EPA 
has made a best estimate of the modifications to equipment that relate 
to packaging (installing engines in equipment engine compartments). The 
incremental costs for new equipment will be comprised of fixed costs 
(for redesign to accommodate new emission control devices) and variable 
costs (for new equipment hardware to affix the new emission control 
devices and for labor to install those emission control devices). Note 
that the fixed costs do not

[[Page 39128]]

include certification costs because the equipment is not certified to 
emission standards. The engine is certified by the engine manufacturer; 
therefore, the related certification costs are counted as an engine 
fixed cost. We have also attributed all changes in operating costs 
(e.g., additional maintenance) to the cost estimates for engines. 
Included in section VI.C.3 is a discussion of several example pieces of 
equipment (e.g., skid/steer loader, dozer, etc.) and the costs we have 
estimated for these specific example pieces of equipment. Full details 
of our equipment cost analysis can be found in chapter 6 of the RIA. 
All costs are presented in 2002 dollars.
    We have made only limited changes relative to the proposal with 
respect to our estimated equipment costs, as discussed below. We did 
receive comment that we underestimated costs for equipment redesign and 
for markups on equipment variable costs. The commenters making these 
claims relative to equipment redesign costs tended to be those that 
have relative high equipment sales volumes. Such manufacturers tend to 
expend levels higher than we estimated in our proposal for equipment 
redesign because they sell into highly competitive markets and they can 
spread costs over many units. However, some equipment manufacturers we 
have met with, most notably those with small sales volumes, do not 
appear to expend nearly the level we estimated in the proposal. These 
manufacturers tend to sell into markets with few competitors, produce 
machines by hand, and expend less redesign effort relative to a high 
sales volume manufacturer.\236\ Our goal in the proposal was to 
estimate the redesign costs spent by industry (i.e., the average cost 
per piece of equipment multiplied by all equipment resulting in an 
estimated total industry cost), rather than estimating the maximum cost 
to be spent by any particular manufacturer. As a result, our equipment 
redesign estimates per model may be too low for some manufacturers, but 
they are also too high for others. We believe this cost methodology 
provides as accurate an estimate as can be made. We have used the same 
methodology for the final cost estimates presented here.
---------------------------------------------------------------------------

    \236\ ``Meeting between Staff of Eagle Crusher Company, Inc., 
and EPA,'' memorandum from Todd Sherwood to Air Docket A-2001-28, 
Docket Item IV-E-40, EDOCKET OAR-2003-0012-0868, March 16, 2004.
---------------------------------------------------------------------------

    As for the comments with respect to equipment variable costs, we 
did indeed include a markup of 29 percent and disagree with the 
commenter that a two-to-one markup would be more appropriate. Such a 
high markup on equipment variable costs is not sustainable in a 
competitive market, at least on average, and the commenter provided no 
data nor study that supported the comment.
    We have made minor changes to the proposed numbers to express them 
in 2002 dollars and to reflect where the program has changed (i.e., 
greater than 750 horsepower mobile machines). We have also attributed 
all under 25 horsepower redesign costs to U.S. sales since we do not 
expect other countries to have similar emission standards for these 
engines/equipment. Lastly, we have corrected some minor errors made in 
the proposal in determining motive versus non-motive models and 
determining the number of unique equipment models needing redesign. We 
now estimate that a total of over 4,500 equipment models will be 
redesigned as compared to the proposal's estimate of just over 4,100 
equipment models. Further discussion of these changes can be found in 
Chapter 6 of the RIA.
a. Equipment Fixed Costs
    As we noted in the proposal, the most significant changes 
anticipated for equipment redesign are changes to accommodate the 
physical changes to engines, especially for those engines that add PM 
traps and NOX adsorbers. The costs for engine development 
and the emission control devices are included as costs to the engines, 
as described above. Equipment manufacturers must still incur the effort 
and expense of integrating the engine and emissions control devices 
into the piece of equipment. Therefore, we have allocated extensive 
engineering time for this effort.
    The costs we have estimated are based on engine power and whether 
an application is non-motive (e.g., a generator set) or motive (e.g., a 
skid steer loader). The designs we have considered to be non-motive are 
those that lack a propulsion system. In addition, the new emission 
standards for engines rated under 25 horsepower and the 2008 standards 
for 25-75 horsepower engines are projected to require no significant 
equipment redesign beyond that done to accommodate the Tier 2 
standards. As explained earlier, we expect that these engines will 
comply with the new Tier 4 standards through either engine 
modifications to reduce engine-out emissions or through the addition of 
a DOC. We have projected that engine modifications will not affect the 
outer dimensions of the engine and that a DOC will replace the existing 
muffler. Therefore, either approach taken by the engine manufacturer 
should have limited to no impact on the equipment design. Nonetheless, 
we have conservatively estimated their redesign costs at $53,100 per 
model.\237\
---------------------------------------------------------------------------

    \237\ Note that the equipment redesign estimates, and all other 
equipment related costs, have been adjusted from the NPRM to express 
them in 2002 dollars.
---------------------------------------------------------------------------

    A number of equipment manufacturers have shared detailed 
information with us regarding the investments made for Nonroad Tier 2 
equipment redesign efforts, as well as redesign estimates for 
significant changes such as installing a new engine design. These 
estimates range from approximately $53,100 for some lower powered 
equipment models to well over $1 million for high horsepower equipment 
with very challenging design constraints. We believe that the equipment 
redesign efforts undertaken for the T2/3 are representative of the 
effort that will be required for Tier 4 because the changes needed are 
the same in nature--increasing available space within the machine to 
accommodate new hardware. We have based our Tier 4 estimates, in part, 
on that industry input and have estimated that equipment redesign costs 
will range from $53,100 per model for 25 horsepower equipment up to 
$796,500 per model for 300 horsepower equipment and above. For mobile 
machines greater than 750 horsepower, we have used a new redesign cost 
of $106,000 associated with the 2011 standards which is consistent in 
scale with the estimate used for 25 to 50 horsepower equipment that add 
both EGR and a CDPF in the 2013 timeframe. This estimate was not in the 
proposal. For this larger equipment, we have continued with an estimate 
of $796,500 associated with the 2015 standards even though we project 
no need to accommodate a NOX adsorber. We have attributed 
only a portion of the equipment redesign costs to U.S. sales in a 
manner consistent with that taken for engine R&D costs and engine 
tooling costs. In addition, we expect manufacturers to incur some fixed 
costs to update service and operation manuals to address the 
maintenance demands of new emission control technologies and the new 
oil service intervals; we estimate these service manual updates to cost 
between $2,660 and $10,620 per equipment model.
    These equipment fixed costs (redesign and manual updates) were then 
allocated appropriately to each new model to arrive at a total 
equipment fixed cost of $828 million. We have assumed that these costs 
will be

[[Page 39129]]

recovered over a ten year period with a seven percent opportunity cost 
of capital. By comparison, our proposal estimated equipment fixed costs 
at $698 million. The costs are higher now because of the changes 
mentioned above--expressing costs in 2002 dollars; attributing all 
under 25 horsepower redesign costs to U.S. sales; and, correcting 
upward the number of equipment models to be redesigned.
b. Equipment Variable Costs
    Equipment variable cost estimates are based on costs for additional 
materials to mount the new hardware (i.e., brackets and bolts required 
to secure the aftertreatment devices) and additional sheet metal 
assuming that the body cladding of a piece of equipment (i.e., the 
hood) might change to accommodate the aftertreatment system. Variable 
costs also include the labor required to install these new pieces of 
hardware. For engines above 75 horsepower--those expected to 
incorporate CDPF and NOX adsorber technology--the amount of 
sheet metal is based on the size of the aftertreatment devices.
    For equipment of 150 horsepower and 500 horsepower, respectively, 
we have estimated the costs to be roughly $60 to $150. Note that we 
have estimated costs for equipment in all horsepower ranges, and these 
estimates are presented in detail in the RIA. Throughout this 
discussion of engine and equipment costs, we present costs for a 150 
and a 500 horsepower engine for illustrative purposes.
3. Overall Engine and Equipment Cost Impacts
    To illustrate the engine and equipment cost impacts we are 
estimating for the Tier 4 standards, we have chosen several example 
pieces of equipment and have presented the estimated costs for them. 
Using these examples, we can calculate the costs for a specific piece 
of equipment in several horsepower ranges and better illustrate the 
cost impacts of the new standards. These costs along with information 
about each example piece of equipment are shown in table VI.C-1. Costs 
presented are near-term and long-term costs for the final standards to 
which each piece of equipment will comply. Long-term costs are only 
variable costs and, therefore, represent costs after all fixed costs 
have been recovered and all projected learning has taken place. 
Included in the table are estimated prices for each piece of equipment 
to provide some perspective on how our estimated control costs relate 
to existing equipment prices.

                                 Table VI.C-1.--Near-Term and Long-Term Costs for Several Example Pieces of Equipment a
                                      ($2002, for the final emission standards to which the equipment must comply)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Gen-Set     Skid/     Backhoe      Dozer      Ag tractor     Dozer     Off-highway
-------------------------------------------------------------------------------   steer   --------------------------------------------------    truck
                                                                                  loader                                                    ------------
                             Horsepower                                 9 hp   -----------   76 hp       175 hp       250 hp       503 hp
                                                                                  33 hp                                                        1000 hp
--------------------------------------------------------------------------------------------------------------------------------------------------------
Incremental Engine & Equipment Cost................................       $120       $790     $1,200       $2,560       $1,970       $4,140       $4,670
  Long-Term........................................................        180      1,160      1,700        3,770        3,020        6,320        8,610
  Near-Term........................................................
Estimated Equipment Price when New b...............................      4,000     20,000     49,000      238,000      135,000      618,000      840,000
Incremental Operating Costs c......................................        -80         70        610        2,480        2,110        7,630       20,670
Baseline Operating Costs (Fuel & Oil only) c.......................        940      2,680      7,960       27,080       23,750       77,850     179,530
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: a Near-term costs include both variable costs and fixed costs; long-term costs include only variable costs and represent those costs that remain
  following recovery of all fixed costs. b ``Price Database for New Nonroad Equipment,'' memorandum from Zuimdie Guerra to EDOCKET OAR-2003-0012-0960. c
  Present value of lifetime costs.

    More detail and discussion regarding what these costs and prices 
mean from an economic impact perspective can be found in section VI.E.

D. Annual Costs and Cost Per Ton

    One tool that can be used to assess the value of the Tier 4 
standards for NRLM fuel and nonroad engines is the costs incurred per 
ton of emissions reduced. This analysis involves a comparison of our 
new program to other measures that have been or could be implemented. 
As summarized in this section and detailed in the RIA, the program 
being finalized today represents a highly cost effective mobile source 
control program for reducing PM, NOX, and SO2 
emissions.
    We have calculated the cost per ton of our Tier 4 program based on 
the net present value of all costs incurred and all emission reductions 
generated over a 30 year time window following implementation of the 
program (i.e., calendar years 2007 through 2036). This approach 
captures all of the costs and emissions reductions from our new program 
including those costs incurred and emissions reductions generated by 
the existing fleet. The baseline for this evaluation is the existing 
set of fuel and engine standards (i.e., unregulated NRLM fuel and the 
Tier 2/Tier 3 program). The 30 year time window chosen is meant to 
capture both the early period of the program when very few new engines 
that meet the new standards will be in the fleet, and the later period 
when essentially all engines will meet the new standards.
    We have analyzed the cost per ton reduced of several different 
scenarios. The costs and emissions reductions of each of these 
scenarios are presented in detail in chapter 8 of the RIA. Here, we 
present information of the cost and cost effectiveness for the 
following two scenarios: (1) The full NRLM fuel and nonroad engine 
program, meaning two steps of fuel control (to 500 ppm and then to 15 
ppm) for both NR and L&M fuel and all of the nonroad engine standards; 
and, (2) the NRLM fuel-only program, meaning two steps of fuel control 
(to 500 ppm and then to 15 ppm) for both NR and L&M fuel but without 
any new nonroad engine standards.\238\ For the first of these 
scenarios, the discussion illustrates the costs and relative cost 
effectiveness of the final NRT4 program to other programs. For the 
second of these scenarios, the discussion illustrates the costs and 
cost effectiveness associated with the fuel program as if implemented 
as a stand alone program without new engine standards.
---------------------------------------------------------------------------

    \238\ We are not analyzing a scenario involving just the engine 
standards because the nonroad engine standards involving advanced 
emissions control technologies require the use of the 15ppm fuel.
---------------------------------------------------------------------------

    In sections VI.D.1 and 2, we present the cost of the full NRLM fuel 
and nonroad engine program and the cost per ton of PM, 
NOX+NMHC, and SO2 reductions that will be 
realized. The analysis presented in sections VI.D.1 and 2 represents 
the total Tier 4 program for nonroad diesel engines and NRLM fuel being 
finalized today. In sections VI.D.3 and 4, we summarize the

[[Page 39130]]

cost for the NRLM fuel-only scenario and the cost per ton of PM and 
SO2 reductions that would be realized.
1. Annual Costs for the Full NRLM Fuel and Nonroad Engine Program
    The costs of the full NRLM fuel and nonroad engine program include 
costs associated with both steps in the NRLM fuel program--the NR fuel 
reduction to 500 ppm sulfur in 2007 and to 15 ppm sulfur in 2010 and 
the L&M fuel reduction to 500 ppm sulfur in 2007 and to 15 ppm sulfur 
in 2012. Also included are costs for the 2008 nonroad engine standards 
for engines less than 75 horsepower, the 2013 standards for 25 to 75 
horsepower engines, and costs for the nonroad engine standards for 
engines above 75 horsepower. All maintenance and operating costs are 
included along with maintenance savings realized by both the existing 
fleet (nonroad, locomotive, and marine) and the new fleet of engines 
complying with the Tier 4 standards.
    Figure VI.D-1 presents these results. All capital costs for NRLM 
fuel production and nonroad engine and equipment fixed costs have been 
amortized at seven percent. The figure shows that total annual costs 
are estimated to be $50 million in the first year the new engine 
standards apply, increasing to a peak of $2.2 billion in 2036 as 
increasing numbers of engines become subject to the new nonroad 
standards and an ever increasing amount of NRLM fuel is consumed. The 
net present value of the annualized costs over the period from 2007 to 
2036 is $27 billion using a 3 percent discount rate and $14 billion 
using a 7 percent discount rate.
[GRAPHIC] [TIFF OMITTED] TR29JN04.004

2. Cost per Ton of Emissions Reduced for the Full NRLM Fuel and Nonroad 
Engine Program
    We have calculated the cost per ton of emissions reduced associated 
with the NRT4 engine and NRLM fuel program. The resultant cost per ton 
numbers depend on how the costs presented above are allocated to each 
pollutant. Therefore, we have carefully allocated costs according to 
the pollutants for which they are incurred. Where fuel changes occur in 
conjunction with new engine standards (engine standards enabled by 
those fuel changes), we allocate one-half of the fuel-related costs to 
fuel-derived emissions reductions (PM and SO2, with one-
third of that half allocated to PM and two-thirds to SO2) 
and one-half to engine-derived emissions reductions 
(NOX+NMHC and PM, with that half split 50/50 between each 
pollutant). Where fuel changes occur without new engine standards on 
which fuel changes are premised (i.e., 500ppm NRLM fuel and 15ppm L&M 
fuel), we have allocated costs associated with fuel-derived emissions 
reductions one-third to PM and two-thirds to SO2. We have 
allocated costs associated with engine-derived emissions reductions 
(i.e., engine/equipment costs) directly to

[[Page 39131]]

the pollutant for which the cost is incurred. These engine and 
equipment cost allocations are noted throughout the discussion in 
section VI.C, and are detailed in full in chapter 8 of the RIA.
    We have calculated the costs per ton using the net present value of 
the annualized costs of the program through 2036 and the net present 
value of the annual emission reductions through 2036. We have also 
calculated the cost per ton of emissions reduced in the year 2030 using 
the annual costs and emissions reductions in that year alone. This 
number represents the long-term cost per ton of emissions reduced. The 
cost per ton numbers include costs and emission reductions that will 
occur from the existing fleet (i.e., those pieces of nonroad equipment 
that were sold into the market prior to the new emission standards). 
These results are shown in Table VI.D-1 using both a three percent and 
a seven percent social discount rate.

  Table VI.D-1.--Total Fuel and Engine Program 30 Year Aggregate Cost per Ton and Long-Term Annual Cost Per Ton
                                                     ($2002)
----------------------------------------------------------------------------------------------------------------
                                          30 year discounted       30 year discounted
              Pollutant                 lifetime cost per ton    lifetime cost per ton    Long-term cost per ton
                                                at 3%                    at 7%                   in 2030
----------------------------------------------------------------------------------------------------------------
NOX+NMHC.............................                   $1,010                   $1,160                     $680
PM...................................                   11,200                   11,800                    9,300
SOX..................................                      690                      620                      810
----------------------------------------------------------------------------------------------------------------

3. Annual Costs for the NRLM Fuel-only Scenario
    Cent per gallon costs for the new 500 ppm NRLM fuel, the new 500 
ppm L&M fuel, the new 15 ppm NR fuel, and the new 15 ppm NRLM fuel were 
presented in section IV.A. Having this fuel will result in maintenance 
savings associated with increased oil change intervals for both the new 
and the existing fleet of nonroad, locomotive, and marine engines. 
These maintenance savings were discussed in section VI.B. There are no 
engine and equipment costs associated with the NRLM fuel-only scenario 
because new engine emissions standards are not included in that 
scenario. Figure VI.D-2 shows the annual costs associated with the NRLM 
fuel-only program.
    As can be seen in figure VI.D-1, the costs for refining and 
distributing the fuel range from $250 million in 2008 to nearly $1.3 
billion in 2036. The increase in fuel costs in 2010 reflect the change 
to higher cost 15 ppm NR fuel. Fuel costs continue to grow as more fuel 
is consumed by the increasing number of engines and equipment. The fuel 
costs are largely offset by the maintenance savings that range from 
$250 million in 2008 to $500 million in 2036. As a whole, the net cost 
of the program in each year ranges from a small net savings in 2008 to 
around $780 million in 2036. The net present value (i.e., the value in 
2004) of the net costs associated with the NRLM fuel-only program 
during the 30 year period from 2007 to 2036 is estimated at $9.2 
billion using a 3 percent discount rate and $4.6 billion using a 7 
percent discount rate.

[[Page 39132]]

[GRAPHIC] [TIFF OMITTED] TR29JN04.005

4. Cost Per Ton of Emissions Reduced for the NRLM Fuel-Only Scenario
    The fuel-borne sulfur reduction under the NRLM fuel-only scenario 
will result in significant reductions of both SO2 and PM 
emissions. Since there are no new engine standards associated with the 
NRLM fuel-only scenario, the emissions reductions that result are 
entirely fuel-derived. Roughly 98 percent of fuel-borne sulfur is 
converted to SO2 in the engine with the remaining two 
percent being exhausted as sulfate PM. We have allocated one-third of 
the costs of this program to PM control and two-thirds to 
SO2 control. This is consistent with the cost accounting we 
have used throughout our analysis in that costs associated with fuel-
derived emissions reductions are attributed one-third to PM control and 
two-thirds to SO2 control.
    As discussed above, the 30 year net present value of costs 
associated with the fuel-only program are estimated at $9.2 billion 
using 3 percent discounting and $4.6 billion using 7 percent 
discounting. We have estimated the 30 year net present value of the 
SO2 emission reductions at 5.7 million tons and PM emission 
reductions at 462,000 tons using 3 percent discounting, 3.2 million 
tons and 255,000 tons, respectively, using 7 percent discounting.
    Table VI.D-1 shows the cost per ton of emissions reduced as a 
result of the NRLM fuel-only scenario. The cost per ton numbers include 
costs and emissions reductions that will occur from both the new and 
the existing fleet (i.e., those pieces of nonroad equipment that were 
sold into the market prior to the new fuel standards) of nonroad, 
locomotive, and marine engines.

    Table VI.D-2.--NRLM Fuel-Only Scenario--30-year Aggregate Cost per Ton and Long-term Annual Cost per Ton
                                                     [$2002]
----------------------------------------------------------------------------------------------------------------
                                          30 year discounted       30 year discounted
              Pollutant                 lifetime cost per ton    lifetime cost per ton    Long-term cost per ton
                                                at 3%                    at 7%                   in 2030
----------------------------------------------------------------------------------------------------------------
PM...................................                   $6,600                   $6,000                   $7,900
SO2..................................                    1,070                      970                    1,270
----------------------------------------------------------------------------------------------------------------


[[Page 39133]]

    We also considered the cost per ton of the NRLM fuel-only scenario 
without including the expected maintenance savings associated with low 
sulfur fuel. Without the maintenance savings, the 30 year discounted 
cost per ton of PM reduced would be $11,800 and of SO2 
reduced would be $1,900 using 3 percent discounting and $11,200 and 
$1,800, respectively, using 7 percent discounting. More detail on how 
the costs and cost per ton numbers associated with the NRLM fuel-only 
scenario were calculated can be found in the RIA.
5. Comparison With Other Means of Reducing Emissions
    In comparison with other emissions control programs, we believe 
that the Tier 4 programs represent a cost effective strategy for 
generating substantial NOX+NMHC, PM, and SO2 
reductions. This can be seen by comparing the cost per ton of emissions 
reduced by the NRLM fuel-only scenario (i.e., reducing fuel sulfur to 
500 ppm in 2007 and 15 ppm in 2010 without any new nonroad engine 
standards) and the cost per ton of emissions reduced by the full NRLM 
fuel and nonroad engine program (i.e., fuel control and new engine 
standards) with a number of standards that EPA has adopted in the past. 
Tables VI.D-3 and VI.D-4 summarize the cost per ton of several past EPA 
actions to reduce emissions of NOX+NMHC and PM from mobile 
sources, all of which were considered by EPA to be appropriate.

  Table VI.D-3.--NRT4 Cost Per Ton Comparison to Previous Mobile Source
                         Programs for NOX + NMHC
------------------------------------------------------------------------
                         Program                               $/ton
------------------------------------------------------------------------
Tier 4 Nonroad Diesel (full program)....................           1,010
Tier 2 Nonroad Diesel...................................             630
Tier 3 Nonroad Diesel...................................             430
Tier 2 vehicle/gasoline sulfur..........................     1,400-2,350
2007 Highway HD.........................................           2,240
2004 Highway HD.........................................         220-430
Tier 1 vehicle..........................................     2,150-2,910
NLEV....................................................           2,020
Marine SI engines.......................................     1,220-1,930
On-board diagnostics....................................           2,410
Marine CI engines.......................................          30-190
Large SI Exhaust........................................              80
Recreational Marine.....................................            670
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
  Total Manufacturing Industries.


 Table VI.D-4. `` NRT4 Cost Per Ton Comparison to Previous Mobile Source
                             Programs for PM
------------------------------------------------------------------------
                         Program                               $/ton
------------------------------------------------------------------------
Tier 4 Nonroad Diesel (full program)....................          11,200
Tier 4 NRLM fuel-only (fuel-only scenario)..............           6,800
Tier 1/Tier 2 Nonroad Diesel............................           2,390
2007 Highway HD.........................................          14,180
Marine CI engines.......................................     4,040-5,440
1996 urban bus..........................................   12,780-20,450
Urban bus retrofit/rebuild..............................          31,530
1994 highway HD diesel..................................  21,780-25,500
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
  Total Manufacturing Industries.

    To compare the cost per ton of SO2 emissions reduced, we 
looked at the cost per ton for the Title IV (acid rain) SO2 
trading programs. This information is found in EPA report 430/R-02-004, 
``Documentation of EPA Modeling Applications (V.2.1) Using the 
Integrated Planning Model'', in Figure 9.11 on page 9-14 (www.epa.gov/airmarkets/epa-ipm/index.html#documentation). The SO2 cost 
per ton results of the full Tier 4 program presented in table VI.D-2 
compare very favorably with the program shown in table VI.D-5.

  Table VI.D-5.--NRT4 Cost Per Ton Comparison to SO2 from both the EPA
  Base Case 2000 for the Title IV SO2 Trading Programs and the Proposed
                       Interstate Air Quality Rule
------------------------------------------------------------------------
                  Program                               $/ton
------------------------------------------------------------------------
Tier 4 Nonroad Diesel (full program)......  $690
Tier 4 Nonroad Diesel (fuel-only scenario)  1,070
Title IV SO2 Trading Programs.............  490 in 2010 to 610 in 2020
Interstate Air Quality Rule (average cost)  730 in 2010 to 830 in 2015
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
  Total Manufacturing Industries.

    As the above comparisons show, both the NRLM fuel-only scenario, 
when viewed by itself, and the combination of NRLM fuel and nonroad 
engine standards, are both cost effective strategies to achieve the 
associated emissions reductions.
E. Do the Benefits Outweigh the Costs of the Standards?
    Our analysis of the health and environmental benefits to be 
expected from this final rule are presented in this section. Briefly, 
the analysis projects major benefits throughout the period from initial 
implementation of the rule over a 30 year period through 2036. As 
described below, thousands of deaths and other serious health effects 
would be prevented, yielding a net present value in 2004 of those 
benefits we could monetize of approximately $805 billion dollars using 
a 3 percent discount rate and $352 billion using a 7 percent discount 
rate. These benefits exceed the net present value of the social cost of 
the proposal ($27 billion using a 3 percent discount rate and $14 
billion using a 7 percent discount rate) by $780 billion using a 3 
percent discount rate and $340 billion using a 7 percent discount rate.
1. What Were the Results of the Benefit-Cost Analysis?
    Table VI.E-1 presents the primary estimate of reduced incidence of 
PM-related health effects for the years 2020 and 2030. In interpreting 
the results, it is important to keep in mind the limited set of effects 
we are able to monetize. Specifically, the table lists the PM-related 
benefits associated with the reduction of several health effects. In 
2030, we estimate that there will be 12,000 fewer fatalities in adults 
\239\ and 20 fewer fatalities in infants per year associated with fine 
PM, and the rule will result in about 5,600 fewer cases of chronic 
bronchitis, 8,900 fewer hospitalizations (for respiratory and 
cardiovascular disease combined), and result in 1 million days per year 
when adults miss work because of their respiratory symptoms and 5.9 
million days of when adults must restrict their activity due to 
respiratory illness. We also estimate substantial health improvements 
for children from reduced upper and lower respiratory illness, acute 
bronchitis, and asthma

[[Page 39134]]

attacks.\240\ We were unable to quantify the benefits related to ozone 
and other pollutants for the final rule, although we do present some 
preliminary ozone modeling in Chapter 9 of the RIA.
---------------------------------------------------------------------------

    \239\ While we did not include separate estimates of the number 
of premature deaths that would be avoided due to reductions in ozone 
levels, recent evidence has been found linking short-term ozone 
exposures with premature mortality independent of PM exposures. 
Recent reports by Thurston and Ito (2001) and the World Health 
Organization (WHO) support an independent ozone mortality impact, 
and the EPA Science Advisory Board has recommended that EPA 
reevaluate the ozone mortality literature for possible inclusion in 
the estimate of total benefits. Based on these new analyses and 
recommendations, EPA is sponsoring three independent meta-analyses 
of the ozone-mortality epidemiology literature to inform a 
determination on inclusion of this important health endpoint. Upon 
completion and peer-review of the meta-analyses, EPA will make its 
determination on whether and how benefits of reductions in ozone-
related mortality will be included in the benefits analysis for 
future rulemakings.
    \240\ Our PM-related estimate in 2030 incorporates significant 
reductions of 160,000 fewer cases of lower respiratory symptoms in 
children ages 7 to 14 each year, 120,000 fewer cases of upper 
respiratory symptoms (similar to cold symptoms) in asthmatic 
children each year, and 13,000 fewer cases of acute bronchitis in 
children ages 8 to 12 each year. In addition, we estimate that this 
rule will reduce almost 6,000 emergency room visits for asthma 
attacks in children each year from reduced exposure to particles. 
Additional incidents would be avoided from reduced ozone exposures. 
Asthma is the most prevalent chronic disease among children and 
currently affects over seven percent of children under 18 years of 
age.
---------------------------------------------------------------------------

    Table VI.E-2 presents the total monetized benefits for the years 
2020 and 2030. This table also indicates with a ``B'' those additional 
health and environmental effects which we were unable to quantify or 
monetize. These effects are additive to estimate of total benefits, and 
EPA believes there is considerable value to the public of the benefits 
that could not be monetized. A full listing of the benefit categories 
that could not be quantified or monetized in our estimate are provided 
in table VI.E-6.
    In summary, EPA's primary estimate of the benefits of the rule are 
$83 + B billion in 2030 using a 3 percent discount rate and $78 + B 
billion using a 7 percent discount rate. In 2020, total monetized 
benefits are $42 + B billion using a 3 percent discount rate and $41 + 
B billion using a 7 percent discount rate. These estimates account for 
growth in real gross domestic product (GDP) per capita between the 
present and the years 2020 and 2030. As the table indicates, total 
benefits are driven primarily by the reduction in premature fatalities 
each year, which account for over 90 percent of total benefits.

   Table VI.E-1.--Reductions in Incidence of PM-Related Adverse Health
    Effects Associated With the Final Nonroad Diesel Engine and Fuel
                         Standards Full Program
------------------------------------------------------------------------
                                      Avoided incidence a (cases/year)
             Endpoint              -------------------------------------
                                           2020               2030
------------------------------------------------------------------------
Premature mortality b: Long-term                6,500             12,000
 exposure (adults, 30 and over)...
Infant mortality (infants under                    15                 22
 one year)........................
Chronic bronchitis (adults, 26 and              3,500              5,600
 over)............................
Non-fatal myocardial infarctions                8,700             15,000
 (adults, 18 and older)...........
Hospital admissions--Respiratory                2,800              5,100
 (adults, 20 and older) c.........
Hospital admissions--                           2,300              3,800
 Cardiovascular (adults, 20 and
 older) d.........................
Emergency Room Visits for Asthma                3,800              6,000
 (18 and younger).................
Acute bronchitis (children, 8-12).              8,400             13,000
Asthma exacerbations (asthmatic               120,000            200,000
 children, 6-18)..................
Lower respiratory symptoms                    100,000            160,000
 (children, 7-14).................
Upper respiratory symptoms                     76,000            120,000
 (asthmatic children, 9-11).......
Work loss days (adults, 18-65)....            670,000          1,000,000
Minor restricted activity days              4,000,000         5,900,000
 (adults, age 18-65)..............
------------------------------------------------------------------------
Notes: a Incidences are rounded to two significant digits. b Premature
  mortality associated with ozone is not separately included in this
  analysis. c Respiratory hospital admissions for PM includes admissions
  for COPD, pneumonia, and asthma. d Cardiovascular hospital admissions
  for PM includes total cardiovascular and subcategories for ischemic
  heart disease, dysrhythmias, and heart failure.


    Table VI.E-2.--EPA Primary Estimate of the Annual Quantified and
  Monetized Benefits Associated With Improved PM Air Quality Resulting
  From the Final Nonroad Diesel Engine and Fuel Standards Full Program
------------------------------------------------------------------------
                                      Monetary Benefits a, b (millions
                                     2000$, Adjusted for Income Growth)
             Endpoint              -------------------------------------
                                           2020               2030
------------------------------------------------------------------------
Premature mortality c: (adults, 30
 and over)
    3% discount rate..............            $41,000            $77,000
    7% discount rate..............             38,000             72,000
Infant mortality (infants under                    97                150
 one year)........................
Chronic bronchitis (adults, 26 and              1,500              2,400
 over)............................
Non-fatal myocardial infarctions d
    3% discount rate..............                750              1,200
    7% discount rate..............                720              1,200
Hospital Admissions from                           49                 92
 Respiratory Causes e.............
Hospital Admissions from                           51                 83
 Cardiovascular Causes f..........
Emergency Room Visits for Asthma..                1.1                1.7
Acute bronchitis (children, 8-12).                3.2                5.2
Asthma exacerbations (asthmatic                   5.7                9.2
 children, 6-18)..................
Lower respiratory symptoms                        1.7                2.7
 (children, 7-14).................
Upper respiratory symptoms                        2.0                3.2
 (asthmatic children, 9-11).......
Work loss days (adults, 18-65)....                 92                130
Minor restricted activity days                    210                320
 (adults, age 18-65)..............
Recreational visibility (86 Class               1,000              1,700
 I Areas).........................
    Monetized Total g.............
        3% discount rate..........           44,000+B           83,000+B

[[Page 39135]]

 
        7% discount rate..........           42,000+B          78,000+B
------------------------------------------------------------------------
Notes: a Monetary benefits are rounded to two significant digits. b
  Monetary benefits are adjusted to account for growth in real GDP per
  capita between 1990 and the analysis year (2020 or 2030). c Valuation
  of base estimate assumes discounting over the lag structure described
  in the RIA Chapter 9. d Estimates assume costs of illness and lost
  earnings in later life years are discounted using either 3 or 7
  percent. e Respiratory hospital admissions for PM includes admissions
  for COPD, pneumonia, and asthma. f Cardiovascular hospital admissions
  for PM includes total cardiovascular and subcategories for ischemic
  heart disease, dysrhythmias, and heart failure. g B represents the
  monetary value of the unmonetized health and welfare benefits. A
  detailed listing of unquantified PM, ozone, CO, and NMHC related
  health effects is provided in Table VI.E-6.

    The estimated social cost (measured as changes in consumer and 
producer surplus) in 2030 to implement the final rule from table VI.E-3 
is $2.0 billion (2000$). Thus, the net benefit (social benefits minus 
social costs) of the program at full implementation is approximately 
$81 + B billion using a 3 percent discount rate and $78 + B billion 
using a 7 percent discount rate. In 2020, partial implementation of the 
program yields net benefits of $42 + B billion using a 3 percent 
discount rate and $41 + B billion using a 7 percent discount rate. 
Therefore, implementation of the final rule is expected to provide 
society with a net gain in social welfare based on economic efficiency 
criteria. Table VI.E-3 presents a summary of the benefits, costs, and 
net benefits of the final rule's full program. Figure VI-E.1 displays 
the stream of benefits, costs, and net benefits of the Nonroad Diesel 
Vehicle Rule from 2007 to 2036 using two different discount rates. In 
addition, table VI.E-4 presents the net present value of the stream of 
benefits, costs, and net benefits associated with the rule for this 30 
year period. The total net present value in 2004 of the stream of net 
benefits (benefits minus costs) is $780 billion using a 3 percent 
discount rate and $340 billion using a 7 percent discount rate.

Table VI.E-3.--Summary of Benefits, Costs, and Net Benefits of the Final
          Nonroad Diesel Engine and Fuel Standards Full Program
------------------------------------------------------------------------
                                  2020 \a\ (Billions  2030 \a\ (Billions
                                   of 2000 dollars)    of 2000 dollars)
------------------------------------------------------------------------
Social Costs \b\................  $1.8..............  $2.0.
Social Benefits: b c d                                ..................
    CO, VOC, Air Toxic-related    Not monetized.....  Not monetized.
     benefits.
    Ozone-related benefits......  Not monetized.....  Not monetized.
    PM-related Welfare benefits.  $1.0..............  $1.7.
    PM-related Health benefits    $43 + B...........  $81 + B.
     [3% discount].
    PM-related Health benefits    $41 + B...........  $78 + B.
     [7% discount].
Net Benefits (Benefits-Costs)     $44 + B...........  $81 + B.
 [3% discount] \c\.
Net Benefits (Benefits-Costs)     $42 + B...........  $78 + B.
 [7% discount] \c\.
------------------------------------------------------------------------
Notes: \a\ All costs and benefits are calculated using 3 and 7 percent
  discount rates and are rounded to two significant digits. Numbers may
  appear not to sum due to rounding.
\b\ Note that costs are the total costs of reducing all pollutants,
  including CO, VOCs and air toxics, as well as NOX and PM. Costs were
  converted to 2000$ using the PPI for Total Manufacturing Industries.
  Benefits in this table are associated only with PM endpoints related
  to direct PM, NOX and SO2 reductions in 48-states.
\c\ Not all possible benefits or disbenefits are quantified and
  monetized in this analysis. Potential benefit categories that have not
  been quantified and monetized are listed in table VI.E-6. B is the sum
  of all unquantified benefits and disbenefits.


[[Page 39136]]

[GRAPHIC] [TIFF OMITTED] TR29JN04.006


  Table VI.E-4.--Net Present Value in 2004 of the Stream of 30 Years of
Benefits, Costs, and Net Benefits for the Full Nonroad Diesel Engine and
                             Fuel Standards
                           [Billions of 2000$]
------------------------------------------------------------------------
                                                      3%          7%
                                                   discount    discount
                                                     rate        rate
------------------------------------------------------------------------
Social Costs....................................         $27         $14
Social Benefits.................................         805         352
Net Benefits \a\................................         780        340
------------------------------------------------------------------------
Notes: \a\ Numbers do not add due to rounding. Benefits represent 48-
  state benefits and exclude home heating oil sulfur reduction benefits,
  whereas costs include 50-state estimates.

    In addition, we analyzed the social benefits and costs of the fuel-
only components of the program, as discussed in the RIA. EPA's primary 
estimate of the benefits of the fuel-only component of the final rule 
are approximately $28 + B billion in 2030 using a 3 percent discount 
rate and $25 + B billion using a 7 percent discount rate. In 2020, 
total monetized benefits are approximately $18 + B billion using a 3 
percent discount rate and $16 + B billion using a 7 percent discount 
rate. These estimates account for growth in real gross domestic product 
(GDP) per capita between the present and the years 2020 and 2030. We 
present the engineering costs of implementing the fuel-only components 
of the rule. Engineering compliance costs are very similar to the total 
social costs for the entire program. The net benefit (social benefits 
minus engineering costs) of the fuel-only program at full 
implementation is approximately $330 + B billion using a 3 percent 
discount rate and $160 + B billion using a 7 percent discount rate. 
Therefore, implementation of the fuel-only components of the final rule 
is expected to provide society with a net gain in social welfare based 
on economic efficiency criteria. Table VI.E-5 presents a summary of the 
social benefits, engineering costs, and net benefits of the final 
rule's fuel-only program for a 30 year period.

   Table VI.E-5.--Net Present Value in 2004 of the Stream of Benefits,
           Costs, and Net Benefits for the Fuel-Only Standards
                           [Billions of 2000$]
------------------------------------------------------------------------
                                                      3%          7%
                                                   Discount    Discount
                                                     rate        rate
------------------------------------------------------------------------
Costs...........................................        $9.2        $4.6
Social Benefits.................................         340         160
Net Benefits....................................         330        160
------------------------------------------------------------------------
Notes:
\A\ Results are rounded to two significant digits. Sums may differ
  because of rounding.
\B\ Engineering costs are presented instead of social costs. As
  discussed in previous chapters, total engineering costs include fuel
  costs (refining, distribution, lubricity) and other operating costs
  (oil change maintenance savings).
\C\ Note that costs are the total costs of reducing all pollutants,
  including CO, VOCs and air toxics, as well as NOX and PM. Benefits in
  this table are associated only with PM, NOX and SO2 reductions. The
  estimates do not include the benefits of reduced sulfur in home
  heating oil or benefits in Alaska or Hawaii.

2. What Was Our Overall Approach to the Benefit-Cost Analysis?
    The basic question we sought to answer in the benefit-cost analysis 
was,

[[Page 39137]]

``What are the net yearly economic benefits to society of the reduction 
in mobile source emissions likely to be achieved by this proposed 
rulemaking?'' In designing an analysis to address this question, we 
selected two future years for analysis (2020 and 2030) that are 
representative of the stream of benefits and costs at partial and full-
implementation of the program.
    To quantify benefits, we evaluated PM-related health effects 
(including directly emitted PM and sulfate, as well as SO2 
and NOX contributions to fine particulate matter). Our 
approach requires the estimation of changes in air quality expected 
from the rule and then estimating the resulting impact on health. In 
order to characterize the benefits of today's action, given the 
constraints on time and resources available for the analysis, we 
adopted a benefits transfer technique that relies on air quality and 
benefits modeling for a preliminary control option for nonroad diesel 
engines and fuels. Results from this modeling conducted for 2020 and 
2030 are then scaled and transferred to the emission reductions 
expected from the final rule. We also transferred modeled results by 
using scaling factors associated with time to examine the stream of 
benefits in years other than 2020 and 2030.
    More specifically, our health benefits assessment is conducted in 
two phases. Due to the time requirements for running the sophisticated 
emissions and air quality models, it is often necessary to select an 
example set of emission reductions to use for the purposes of emissions 
and air quality modeling early in the development of the proposal. In 
phase one, we evaluate the PM- and ozone-related health effects 
associated with a modeled preliminary control option that was a close 
approximation of the standards in the years 2020 and 2030. Using 
information from the modeled preliminary control option on the changes 
in ambient concentrations of PM and ozone, we then estimate the number 
of reduced incidences of illnesses, hospitalizations, and premature 
fatalities associated with this scenario and estimate the total 
economic value of these health benefits. Based on public comment and 
other data described in the RIA, the standards we are finalizing in 
this rulemaking are slightly different in the amount of emission 
reductions expected to be achieved in 2020 and 2030 relative to the 
modeled scenario. Thus, in phase two of the analysis, we apportion the 
results of the phase one analysis to the underlying NOX, 
SO2, and PM emission reductions and scale the apportioned 
benefits to reflect differences in emissions reductions between the 
modeled preliminary control option and the proposed standards. The sum 
of the scaled benefits for the PM, SO2, and NOX 
emission reductions provide us with the total benefits of the rule.
    The benefit estimates derived from the modeled preliminary control 
option in phase one of our analysis uses an analytical structure and 
sequence similar to that used in the benefits analyses for the Heavy 
Duty Engine/Diesel Fuel final rule and in the ``section 812 studies'' 
to estimate the total benefits and costs of the full Clean Air Act. 
\241\ We used many of the same models and assumptions used in the Heavy 
Duty Engine/Diesel Fuel analysis as well as other Regulatory Impact 
Analyses (RIAs) prepared by the Office of Air and Radiation. By 
adopting the major design elements, models, and assumptions developed 
for the section 812 studies and other RIAs, we have largely relied on 
methods which have already received extensive review by the independent 
Science Advisory Board (SAB), by the public, and by other federal 
agencies. In addition, we will be working through the next section 812 
study process to enhance our methods. \242\
---------------------------------------------------------------------------

    \241\ The section 812 studies include: (1) U.S. EPA, Report to 
Congress: The Benefits and Costs of the Clean Air Act, 1970 to 1990, 
October 1997 (also known as the ``Section 812 Retrospective 
Report''); and (2) the first in the ongoing series of prospective 
studies estimating the total costs and benefits of the Clean Air Act 
(see EPA report number: EPA-410-R-99-001, November 1999). See Docket 
A-99-06, Document II-A-21.
    \242\ Interested parties may want to consult the webpage: http://www.epa.gov/science1 regarding components of our analytical 
blueprint.
---------------------------------------------------------------------------

    The benefits transfer method used in phase two of the analysis is 
similar to that used to estimate benefits in the recent analysis of the 
Nonroad Large Spark-Ignition Engines and Recreational Engines standards 
(67 FR 68241, November 8, 2002). A similar method has also been used in 
recent benefits analyses for the proposed Industrial Boilers and 
Process Heaters NESHAP and the Reciprocating Internal Combustion 
Engines NESHAP.
    On September 26, 2002, the National Academy of Sciences (NAS) 
released a report on its review of the Agency's methodology for 
analyzing the health benefits of measures taken to reduce air 
pollution. The report focused on EPA's approach for estimating the 
health benefits of regulations designed to reduce concentrations of 
airborne PM.
    In its report, the NAS panel said that EPA has generally used a 
reasonable framework for analyzing the health benefits of PM-control 
measures. It recommended, however, that the Agency take a number of 
steps to improve its benefits analysis. In particular, the NAS stated 
that the Agency should:
     Include benefits estimates for a range of regulatory 
options;
     Estimate benefits for intervals, such as every five years, 
rather than a single year;
     Clearly state the projected baseline statistics used in 
estimating health benefits, including those for air emissions, air 
quality, and health outcomes;
     Examine whether implementation of proposed regulations 
might cause unintended impacts on human health or the environment;
     When appropriate, use data from non-U.S. studies to 
broaden age ranges to which current estimates apply and to include more 
types of relevant health outcomes; and
     Begin to move the assessment of uncertainties from its 
ancillary analyses into its Base analyses by conducting probabilistic, 
multiple-source uncertainty analyses. This assessment should be based 
on available data and expert judgment.
    Although the NAS made a number of recommendations for improvement 
in EPA's approach, it found that the studies selected by EPA for use in 
its benefits analysis were generally reasonable choices. In particular, 
the NAS agreed with EPA's decision to use cohort studies to derive 
benefits estimates. It also concluded that the Agency's selection of 
the American Cancer Society (ACS) study for the evaluation of PM-
related premature mortality was reasonable, although it noted the 
publication of new cohort studies that should be evaluated by the 
Agency.
    EPA has addressed many of the NAS comments in our analysis of the 
final rule. We provide benefits estimates for each year over the rule 
implementation period for a wide range of regulatory alternatives, in 
addition to our final emission control program. We use the estimated 
time path of benefits and costs to calculate the net present value of 
benefits of the rule. In the RIA, we provide baseline statistics for 
air emissions, air quality, population, and health outcomes. We have 
examined how our benefits estimates might be impacted by expanding the 
age ranges to which epidemiological studies are applied, and we have 
added several new health endpoints, including non-fatal heart attacks, 
which are supported by both U.S. studies and studies conducted in 
Europe. We have also improved the documentation of our methods and

[[Page 39138]]

provided additional details about model assumptions.
    Several of the NAS recommendations addressed the issue of 
uncertainty and how the Agency can better analyze and communicate the 
uncertainties associated with its benefits assessments. In particular, 
the Committee expressed concern about the Agency's reliance on a single 
value from its analysis and suggested that EPA develop a probabilistic 
approach for analyzing the health benefits of proposed regulatory 
actions. The Agency agrees with this suggestion and is working to 
develop such an approach for use in future rulemakings.
    EPA plans to continue to refine its plans for addressing 
uncertainty in its analyses. EPA conducted a pilot study to address 
uncertainty in important analytical parameters such as the 
concentration-response relationship for PM-related premature mortality. 
EPA is also conducting longer-term elements intended to provide 
scientifically sound, peer-reviewed characterizations of the 
uncertainty surrounding a broader set of analytical parameters and 
assumptions, including but not limited to emissions and air quality 
modeling, demographic projections, population health status, 
concentration-response functions, and valuation estimates.
3. What Are the Significant Limitations of the Benefit-Cost Analysis?
    Every benefit-cost analysis examining the potential effects of a 
change in environmental protection requirements is limited to some 
extent by data gaps, limitations in model capabilities (such as 
geographic coverage), and uncertainties in the underlying scientific 
and economic studies used to configure the benefit and cost models. 
Deficiencies in the scientific literature often result in the inability 
to estimate quantitative changes in health and environmental effects, 
such as potential increases in premature mortality associated with 
increased exposure to carbon monoxide. Deficiencies in the economics 
literature often result in the inability to assign economic values even 
to those health and environmental outcomes which can be quantified. 
While these general uncertainties in the underlying scientific and 
economics literatures, which can cause the valuations to be higher or 
lower, are discussed in detail in the Regulatory Support Document and 
its supporting documents and references, the key uncertainties which 
have a bearing on the results of the benefit-cost analysis of this 
final rule include the following:
     The exclusion of potentially significant benefit 
categories (such as health, odor, and ecological benefits of reduction 
in CO, VOCs, air toxics, and ozone);
     Errors in measurement and projection for variables such as 
population growth;
     Uncertainties in the estimation of future year emissions 
inventories and air quality;
     Uncertainties associated with the scaling of the results 
of the modeled benefits analysis to the proposed standards, especially 
regarding the assumption of similarity in geographic distribution 
between emissions and human populations and years of analysis;
     Variability in the estimated relationships of health and 
welfare effects to changes in pollutant concentrations;
     Uncertainties in exposure estimation; and
     Uncertainties associated with the effect of potential 
future actions to limit emissions.
    Despite these uncertainties, we believe the benefit-cost analysis 
provides a reasonable indication of the expected economic benefits of 
the final rulemaking in future years under a set of assumptions. 
Accordingly, we present a primary estimate of the total benefits, based 
on our interpretation of the best available scientific literature and 
methods and supported by the SAB-HES and the NAS.
    Some of the key assumptions underlying the primary estimate for the 
premature mortality which accounts for 90 percent of the total benefits 
we were able to quantify include the following:
    (1) Inhalation of fine particles is causally associated with 
premature death at concentrations near those experienced by most 
Americans on a daily basis. Although biological mechanisms for this 
effect have not yet been definitively established, the weight of the 
available epidemiological evidence supports an assumption of causality.
    (2) All fine particles, regardless of their chemical composition, 
are equally potent in causing premature mortality. This is an important 
assumption, because PM produced via transported precursors emitted from 
EGUs may differ significantly from direct PM released from diesel 
engines and other industrial sources, but no clear scientific grounds 
exist for supporting differential effects estimates by particle type.
    (3) The impact function for fine particles is approximately linear 
within the range of ambient concentrations under consideration. Thus, 
the estimates include health benefits from reducing fine particles in 
areas with varied concentrations of PM, including both regions that are 
in attainment with fine particle standard and those that do not meet 
the standard.
    (4) The forecasts for future emissions and associated air quality 
modeling are valid. Although recognizing the difficulties, assumptions, 
and inherent uncertainties in the overall enterprise, these analyses 
are based on peer-reviewed scientific literature and up-to-date 
assessment tools, and we believe the results are highly useful in 
assessing this rule.
    We provide sensitivity analyses to illustrate the effects of 
uncertainty about key analytical assumptions in the RIA.
    In addition, one significant limitation to the benefit transfer 
method applied in this analysis is the inability to scale ozone-related 
benefits. Because ozone is a homogeneous gaseous pollutant, it is not 
possible to apportion ozone benefits to the precursor emissions of 
NOX and VOC. Coupled with the potential for NOX 
reductions to either increase or decrease ambient ozone levels, this 
prevents us from scaling the benefits associated with a particular 
combination of VOC and NOX emissions reductions to another. 
Because of our inability to scale ozone benefits, we do not include 
ozone benefits as part of the monetized benefits of the proposed 
standards. For the most part, ozone benefits contribute substantially 
less to the monetized benefits than do benefits from PM, thus their 
omission will not materially affect the conclusions of the benefits 
analysis. Although we expect economic benefits to exist, we were unable 
to quantify or to value specific changes in ozone, CO or air toxics 
because we did not perform additional air quality modeling.
    There are also a number of health and environmental effects which 
we were unable to quantify or monetize. A full appreciation of the 
overall economic consequences of the proposed rule requires 
consideration of all benefits and costs expected to result from the new 
standards, not just those benefits and costs which could be expressed 
here in dollar terms. A complete listing of the benefit categories that 
could not be quantified or monetized in our estimate are provided in 
Table VI.E-6. These effects are denoted by ``B'' in Table VI.E-3 above, 
and are additive to the estimates of benefits.

[[Page 39139]]



 Table VI.E-6.--Additional, Non-monetized Benefits of the Nonroad Diesel
                        Engine and Fuel Standards
------------------------------------------------------------------------
          Pollutant                       Unquantified effects
------------------------------------------------------------------------
Ozone Health.................  Premature mortality \a\.
                               Respiratory hospital admissions.
                               Minor restricted activity days.
                               Increased airway responsiveness to
                                stimuli.
                               Inflammation in the lung.
                               Chronic respiratory damage.
                               Premature aging of the lungs.
                               Acute inflammation and respiratory cell
                                damage.
                               Increased susceptibility to respiratory
                                infection.
                               Non-asthma respiratory emergency room
                                visits.
                               Increased school absence rates.
------------------------------
Ozone Welfare................  Decreased yields for commercial forests.
                               Decreased yields for fruits and
                                vegetables.
                               Decreased yields for non-commercial
                                crops.
                               Damage to urban ornamental plants.
                               Impacts on recreational demand from
                                damaged forest aesthetics.
                               Damage to ecosystem functions.
------------------------------
PM Health....................  Low birth weight.
                               Changes in pulmonary function.
                               Chronic respiratory diseases other than
                                chronic bronchitis.
                               Morphological changes.
                               Altered host defense mechanisms.
                               Cancer.
                               Non-asthma respiratory emergency room
                                visits.
------------------------------
PM Welfare...................  Visibility in many Class I areas.
                               Residential and recreational visibility
                                in non-Class I areas.
                               Soiling and materials damage.
                               Damage to ecosystem functions.
------------------------------
Nitrogen and Sulfate           Impacts of acidic sulfate and nitrate
 Deposition Welfare.            deposition on commercial forests.
                               Impacts of acidic deposition to
                                commercial freshwater fishing.
                               Impacts of acidic deposition to
                                recreation in terrestrial ecosystems.
                               Reduced existence values for currently
                                healthy ecosystems.
                               Impacts of nitrogen deposition on
                                commercial fishing, agriculture, and
                                forests.
------------------------------
CO Health....................  Premature mortality \a\.
                               Behavioral effects.
------------------------------
HC Health \b\................  Cancer (benzene, 1,3-butadiene,
                                formaldehyde, acetaldehyde).
                               Anemia (benzene).
                               Disruption of production of blood
                                components (benzene).
                               Reduction in the number of blood
                                platelets (benzene).
                               Excessive bone marrow formation
                                (benzene).
                               Depression of lymphocyte counts
                                (benzene).
                               Reproductive and developmental effects
                                (1,3-butadiene).
                               Irritation of eyes and mucus membranes
                                (formaldehyde).
                               Respiratory irritation (formaldehyde).
                               Asthma attacks in asthmatics
                                (formaldehyde).
                               Asthma-like symptoms in non-asthmatics
                                (formaldehyde).
                               Irritation of the eyes, skin, and
                                respiratory tract (acetaldehyde).
                               Upper respiratory tract irritation and
                                congestion (acrolein).
------------------------------
HC Welfare...................  Direct toxic effects to animals.
                               Bioaccumulation in the food chain.
                               Damage to ecosystem function.
                               Odor.
------------------------------------------------------------------------
Notes: \a\ Premature mortality associated with ozone and carbon monoxide
  is not separately included in this analysis. In this analysis, we
  assume that the Pope, et al. C-R function for premature mortality
  captures both PM mortality benefits and any mortality benefits
  associated with other air pollutants.
\b\ Many of the key hydrocarbons related to this rule are also hazardous
  air pollutants listed in the Clean Air Act.

F. Economic Impact Analysis

    We prepared a draft Economic Impact Analysis (EIA) for this rule to 
estimate the economic impacts of the proposed control program on 
producers and consumers of nonroad engines, equipment, fuel, and 
related industries.\243\ We received comments on

[[Page 39140]]

our draft analysis from stakeholders representing agricultural 
interests, equipment rental and dealer interests, and equipment 
manufacturers. The commenters conveyed their concerns about our general 
analytic approach and some of the model assumptions. As explained in 
our responses to these comments, which can be found in the Summary and 
Analysis of Comments document prepared for this final rule, we do not 
believe these comments require us to adjust our EIA methodology. We did 
adjust the methodology, however, to estimate the economic impacts of 
the fuel sulfur content requirements on the locomotive and marine 
sectors. As explained below, this revision was necessary to correct an 
oversight in the draft EIA. We also revised the price and quantity data 
inputs to the model to make them consistent with the revised engine and 
fuel cost analyses described earlier in this section.
---------------------------------------------------------------------------

    \243\ This analysis is based on an earlier version of the 
engineering costs developed for this rule. The final cost estimates 
for the engine program are slightly higher ($142 million) and the 
final fuel costs are slightly lower ($246 million), resulting in a 
30-year net present value of $27.1 billion (30 year net present 
values in the year 2004, using a 3 percent discount rate, $2002) or 
$104 million less than the engineering costs used in this analysis. 
We do not expect that the revised engineering costs would change the 
overall results of this economic impact analysis given the small 
portion of engine, equipment, and fuel costs to total production 
costs for goods and services using these inputs and given the 
inelastic value of the estimated demand elasticities for the 
application markets.
---------------------------------------------------------------------------

    This section briefly describes the methodology we used to estimate 
the economic impacts of this final rule, including the model revisions 
for the marine and locomotive fuel sectors, and the results of that 
analysis. A detailed description of the Nonroad Diesel Economic Impact 
Model (NDEIM) prepared for this analysis, the model inputs, and several 
sensitivity analyses can be found in Chapter 10 of Final Regulatory 
Impact Analysis prepared for this rule.
1. What Is an Economic Impact Analysis?
    An Economic Impact Analysis is prepared to inform decision makers 
within the Agency about the potential economic consequences of a 
regulatory action. The analysis contains estimates of the social costs 
of a regulatory program and explores the distribution of these costs 
across stakeholders. These estimated social costs can then be compared 
with estimated social benefits (as presented in Section VI.E). As 
defined in EPA's Guidelines for Preparing Economic Analyses, social 
costs are the value of the goods and services lost by society resulting 
from (a) the use of resources to comply with and implement a regulation 
and (b) reductions in output. \244\ In this analysis, social costs are 
explored in two steps. In the first step, called the market analysis, 
we estimate how prices and quantities of good directly and indirectly 
affected by the emission control program can be expected to change once 
the emission control program goes into effect. The estimated price and 
quantity changes for engines, equipment, fuel, and goods produced using 
these inputs are examined separately. In the second step, called the 
economic welfare analysis, we look at the total social costs associated 
with the program and their distribution across stakeholders. The 
analysis is based on compliance cost estimates and baseline market 
conditions for prices and quantities of engines, equipment, and fuel 
produced presented earlier in this section.
---------------------------------------------------------------------------

    \244\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p 113.
---------------------------------------------------------------------------

    In this EIA, we look at price and quantity impacts for engine, 
equipment, diesel fuel, and goods produced with these inputs. With 
regard to the goods produced with these inputs, we distinguish between 
three application markets: agriculture, construction, and 
manufacturing. It should be noted from the outset that diesel engines, 
equipment, and fuel represent only a small portion of the total 
production costs for each of the three application market sectors (the 
final users of the engines, equipment and fuel affected by this rule). 
Other more significant production costs include land, labor, other 
capital, raw materials, insurance, profits, etc. These other production 
costs are not affected by this emission control program. This is 
important because it means that this rule directly affects only a small 
part of total inputs for the relevant markets. Therefore, the rule is 
not expected to have a large adverse impact on output and prices of 
goods produced in the three application sectors.
    It should also be noted that our analysis of the impacts on the 
three application markets is limited to market output. The economic 
impacts on particular groups of application market suppliers (e.g., the 
profitability of farm production units or manufacturing or construction 
firms) or particular groups of consumers (e.g., households and 
companies that consume agricultural goods, buildings, or durable or 
consumer goods) are not estimated. In other words, while we estimate 
that the application markets will bear most of the burden of the 
regulatory program and we apportion the decrease in application market 
surplus between application market producers and application market 
consumers, we do not estimate how those social costs will be shared 
among specific application market producers and consumers (e.g., 
farmers and households). In some cases, application market producers 
may be able to pass most if not all of their increased costs to the 
ultimate consumers of their products; in other cases, they may be 
obliged to absorb a portion of these costs. While some commenters 
requested that we perform a sector-by-sector analysis of application 
market producers and consumers, we do not believe this is appropriate. 
The focus on market-level impacts in this analysis is appropriate 
because the standards in this emission control program are technical 
standards that apply to nonroad engines, equipment, and fuel regardless 
of how they are used and the structure of the program does not suggest 
that different sectors will be affected differently by the 
requirements. In addition, the results of our EIA suggest that the 
overall burden on the application market is expected to be small: 
approximately 0.1 percent increase in prices, on average, and less than 
0.02 percent decrease in production, on average. Estimated economic 
impacts of this size do not warrant performing a sector-by-sector 
analysis to investigate whether some subsectors may be affected 
disproportionately.
    Finally, as a market-level model, the NDEIM estimates the economic 
impacts of the rule on the engine, equipment, and application markets 
and the transportation service sector. It is not a firm-level analysis 
and therefore the equipment demand elasticity facing any particular 
manufacturer may be greater than the demand elasticity of the market as 
a whole. This difference can be important, particularly where the rule 
affects different firms' costs over different volumes of production. 
However, to the extent there are differential effects, EPA believes 
that the wide array of flexibilities provided in this rule are adequate 
to address any cost inequities that are likely to arise.
2. What Methodology Did EPA Use in This Economic Impact Analysis?
    EPA used the same methodology in this final EIA as was used in the 
draft EIA. The model was revised to accommodate analysis of the 
locomotive and marine fuel sectors.
a. Conceptual Approach
    The Nonroad Diesel Economic Impact Model (NDEIM) uses a multi-
market

[[Page 39141]]

analysis framework that considers interactions between regulated 
markets and other markets to estimate how compliance costs can be 
expected to ripple through these markets. In the NDEIM, compliance 
costs are directly borne by engine manufacturers, equipment 
manufacturers, petroleum refiners and fuel distributors. Depending on 
market characteristics, some or all of these compliance costs will be 
passed on through the supply chain in the form of higher input prices 
for the application markets (in this case, construction, agriculture, 
and manufacturing) which in turn affect prices and quantities of goods 
produced in those application markets. Producers in the application 
markets adjust their demand for diesel engines, equipment, and fuel in 
response to these input price changes and consumer demand for 
application market outputs. This information is passed back to the 
suppliers of diesel equipment, engines, and fuel in the form of 
purchasing decisions. The NDEIM explicitly models these interactions 
and estimates behavioral responses that lead to new equilibrium prices 
and output for all sectors and the resulting distribution of social 
costs across the modeled sectors.
b. Markets Examined
    The NDEIM uses a multi-market partial equilibrium approach to track 
changes in price and quantity for 62 integrated product markets, as 
follows:
     7 diesel engine markets: less than 25 hp, 26 to 50 hp, 51 
to 75 hp, 76 to 100 hp, 101 to 175 hp, 176 to 600 hp, and greater than 
600 hp. The EIA includes more horsepower categories than the standards 
to allow more efficient use of the engine compliance costs estimates. 
The additional categories also allow estimating economic impacts for a 
more diverse set of markets.
     42 diesel equipment markets: 7 horsepower categories 
within 7 application categories: agricultural, construction, general 
industrial, pumps and compressors, generator and welder sets, 
refrigeration and air conditioning, and lawn and garden. There are 7 
horsepower/application categories that did not have sales in 2000 and 
are not included in the model, so the total number of diesel equipment 
markets is 42 rather than 49.
     3 application markets: agricultural, construction, and 
manufacturing.
     8 nonroad diesel fuel markets: 2 sulfur content levels (15 
ppm and 500 ppm) for each of 4 PADDs. PADDs 1 and 3 are combined for 
the purpose of this analysis. It should be noted that PADD 5 includes 
Alaska and Hawaii. Also, California fuel volumes that are not affected 
by the program (because they are covered by separate California nonroad 
diesel fuel standards) are not included in the analysis.
     2 transportation service markets: locomotive and marine.
    As noted above, this final EIA also estimates the economic impact 
on two additional markets that were not included in the draft analysis: 
the locomotive and marine diesel transportation service markets. In the 
NPRM, we proposed to set fuel sulfur standards for locomotive and 
distillate marine diesel as well as for nonroad diesel fuel. We 
developed cost estimates for these two types of fuel as well as for 
nonroad diesel fuel. In the draft EIA, however, we did not consider the 
economic impacts of these fuel costs on the locomotive and marine 
sectors separately. Instead, we applied all of these additional fuel 
costs to the manufacturing application market.
    In preparing the final RIA for this rule, we determined that it 
would be more appropriate to consider the impacts of the fuel program 
on the diesel marine and locomotive sectors separately. This is because 
the locomotive and marine markets are directly affected by the higher 
diesel fuel prices associated with the rule. In addition, production 
and consumption decisions of downstream end-use markets that use these 
services are influenced by the prices of transportation services. At 
the same time, locomotive and marine diesel transportation services are 
not used solely in the three application markets modeled in the NDEIM. 
These services are also provided to electric utilities (transporting 
coal to electric power plants), non-manufacturing service industries 
(public transportation) and governments. We take this into account and 
report impacts on those sectors separately.
c. Model Methodology
    A detailed description of the model methodology, inputs, and 
parameters used in this economic impact analysis is provided in Chapter 
10 of the Final RIA prepared for this rule. The model methodology is 
firmly rooted in applied microeconomic theory and was developed 
following the OAQPS Economic Analysis Resource Document.\245\
---------------------------------------------------------------------------

    \245\ U.S. Environmental Protection Agency, Office of Air 
Quality Planning and Standards, Innovative Strategies and Economics 
Group, OAQPS Economic Analysis Resource Document, April 1999. A copy 
of this document can be found in Docket A-2001-28, Document No. II-
A-14.
---------------------------------------------------------------------------

    The NDEIM is a computer model comprised of a series of spreadsheet 
modules that define the baseline characteristics of the supply and 
demand for the relevant markets and the relationships between them. The 
model is constructed based on the market characteristics and inter-
connections summarized in this section and described in more detail in 
Chapter 10 of the RIA. The model is shocked by applying the engineering 
compliance cost estimates to the appropriate market suppliers, and then 
numerically solved using an iterative auctioneer approach by ``calling 
out'' new prices until a new equilibrium is reached in all markets 
simultaneously. The output of the model is new equilibrium prices and 
quantities for all affected markets. This information is used to 
estimate the social costs of the model and how those costs are shared 
among affected markets.
    The NDEIM uses a multi-market partial equilibrium approach to track 
changes in price and quantity for the modeled product markets. As 
explained in the EPA Guidelines for Preparing Economic Analyses, 
``partial'' equilibrium refers to the fact that the supply and demand 
functions are modeled for just one or a few isolated markets and that 
conditions in other markets are assumed either to be unaffected by a 
policy or unimportant for social cost estimation. Multi-market models 
go beyond partial equilibrium analysis by extending the inquiry to more 
than just a single market. Multi-market analysis attempts to capture at 
least some of the interactions between markets.\246\
---------------------------------------------------------------------------

    \246\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p. 125-6.
---------------------------------------------------------------------------

    The NDEIM uses an intermediate run time frame. The use of the 
intermediate run means that some factors of production are fixed and 
some are variable. This modeling period allows analysis of the economic 
effects of the rule's compliance costs on current producers. The short 
run, in contrast, imposes all compliance costs on the manufacturers (no 
pass-through to consumers), while the long run imposes all costs on 
consumers (full cost pass-through to consumers). The use of the 
intermediate run time frame is consistent with economic practices for 
this type of analysis.
    The NDEIM assumes perfect competition in the market sectors. This 
assumption was questioned by one commenter, who noted that the 25 to 75 
hp engine category does not appear to be competitive based on the 
number of firms in that subsector. Specifically, one

[[Page 39142]]

firm has nearly 29 percent of the market and the top nine firms have 
about 88 percent. The remaining twelve percent of this market shared 
among nineteen other firms. While the commenter is correct in noting 
the limited number of firms in this subsector, we believe it is still 
appropriate to rely on the perfect competition assumption in this 
analysis. The perfect competition assumption relies not only on the 
number of firms in a market but also on other market characteristics. 
For example, there are no indications of barriers to entry, the firms 
in these markets are not price setters, and there is no evidence of 
high levels of strategic behavior in the price and quantity decisions 
of the firms. In addition, the products produced within each market are 
somewhat homogeneous in that engines from one firm can be purchased 
instead of engines from another firm. Finally, according to contestable 
market theory, oligopolies and even monopolies will behave very much 
like firms in a competitive market if it is possible to enter 
particular markets costlessly (i.e., there are no sunk costs associated 
with market entry or exit). With regard to the nonroad engine market, 
production capacity is not fully utilized. This means that 
manufacturers could potentially switch their product line to compete in 
another segment of the market without a significant investment. For all 
these reasons, the number of firms in a particular engine submarket 
does not prevent us from relying on the perfect competition assumption 
for that submarket. This is true of other engine and equipment 
subsectors as well. In addition, changing the assumption of perfect 
competition based on the limited evidence raised by the commenter would 
break with widely accepted economic practice for this type of 
analysis.\247\
---------------------------------------------------------------------------

    \247\ See, for example, EPA Guidelines for Preparing Economic 
Analyses, EPA 240-R-00-003, September 2000, p 126. See also the 
Final RIA for this rule, Chapter 10, Section 10.2.3.1.
---------------------------------------------------------------------------

d. Model Inputs--Elasticities
    The estimated social costs of this emission control program are a 
function of the ways in which producers and consumers of the engines, 
equipment, and fuels affected by the standards change their behavior in 
response to the costs incurred in complying with the standards. As the 
compliance costs ripple through the markets, producers and consumers 
change their production and purchasing decisions in response to changes 
in prices. In the NDEIM, these behavioral changes are modeled by the 
demand and supply elasticities (behavioral-response parameters), which 
measure the price sensitivity of consumers and producers.
    The supply elasticities for the equipment, engine, diesel fuel, and 
transportation service markets and the demand and supply elasticities 
for the application markets used in the NDEIM were obtained from peer-
reviewed literature sources or were estimated using econometric 
methods. These econometric methods are well-documented and are 
consistent with generally accepted econometric practice. Appendix 10H 
of the RIA contains detailed information on how the elasticities were 
estimated.
    The equipment and engine supply elasticities are elastic, meaning 
that quantities supplied are expected to be fairly sensitive to price 
changes. The supply elasticities for the fuel, transportation, and 
application markets are inelastic or unit elastic, meaning that the 
quantity supplied/demanded is expected to be fairly insensitive to 
price changes or will vary one-to-one with price changes. The demand 
elasticities for the application markets are also inelastic. This is 
consistent with the Hicks-Allen derived demand relationship, according 
to which a low cost-share in production combined with limited 
substitution yields inelastic demand.\248\ As noted above, diesel 
engines, equipment, and fuel represent only a small portion of the 
total production costs for each of the three application sectors. The 
limited ability to substitute for these inputs is discussed below.
---------------------------------------------------------------------------

    \248\ If the elasticity of demand for a final product is less 
than the elasticity of substitution between an input and other 
inputs to the final product, then the demand for the input is less 
elastic the smaller its cost share. Hicks, J.R., 1961. Marshall's 
Third Rule: A Further Comment. Oxford Economic Papers 13:262-65; 
Hicks, J.R., 1963. The Theory of Wages. St. Martins Press, NY, pp. 
233-247. See Docket A-2001-28, Document No. IV-B-25 for relevant 
excerpts. See Docket A-2001-28, Document No. IV-B-25 for relevant 
excerpts.
---------------------------------------------------------------------------

    In contrast to the above, the demand elasticities for the engine, 
equipment, fuel, and transportation markets are internally derived as 
part of the process of running the model. This is an important feature 
of the NDEIM, which allows it to link the separate market components of 
the model and simulate how compliance costs can be expected to ripple 
through the affected economic sectors. In the real world, for example, 
the quantity of nonroad equipment units produced in a particular period 
depends on the price of engines (the engine market) and the demand for 
equipment (the application markets). Similarly, the number of engines 
produced depends on the demand for engines (the equipment market) which 
depends on the demand for equipment (the application markets). Changes 
in conditions in one of these markets will affect the others. By 
designing the model to derive the engine, equipment, transportation 
market, and fuel demand elasticities, the NDEIM simulates these 
connections between supply and demand among all the product markets and 
replicates the economic interactions between producers and consumers.
e. Model Inputs--Fixed and Variable Costs
    The EIA treats the fixed costs expected to be incurred by engine 
and equipment manufacturers differently in the market and social costs 
analyses. This feature of the model is described in greater detail in 
Section 10.2.3.3 of the RIA. In the market analysis, estimated engine 
and equipment market impacts (changes in prices and quantities) are 
based solely on the expected increase in variable costs associated with 
the standards. Fixed costs are not included in the market analysis 
reported in Table VI-F-1 because in an analysis of competitive markets 
the industry supply curve is based on its marginal cost curve and fixed 
costs are not reflected in changes in the marginal cost curve. In 
addition, the fixed costs associated with the rule are primarily R&D 
costs for design and engineering changes. Firms in the affected 
industries currently allocate funds for R&D programs and this rule is 
not expected to lead firms to change the size of their R&D budgets. 
Therefore, changes in fixed costs for engine and equipment redesign 
associated with this rule are not likely to affect the prices of 
engines or equipment. Fixed costs are included in the social cost 
analysis reported in Table VI-F-2, however, as an additional cost to 
producers. This is appropriate because even though firms currently 
allocated funds to R&D those resources are intended for other purposes 
such as increasing engine power, ease of use, or comfort. These 
improvements will therefore be postponed for the length of the rule-
related R&D program. This is a cost to society.
    One commenter recommended that EPA include engine and equipment R&D 
(fixed) costs in the market analysis. This commenter argued that while 
in the long run total costs are not determined by changes in fixed 
costs, total costs are determined initially by both fixed and variable 
costs. This commenter was concerned that by not including fixed costs, 
EPA's analysis underestimates the increase in the average price of 
goods and services produced using engines affected by the rule. In 
fact, we included

[[Page 39143]]

R&D costs in a sensitivity analysis performed for the draft EIA, which 
has been updated and can be found in Appendix I to Chapter 10 of the 
Final RIA. Including fixed costs results in a transfer of economic 
welfare losses from engine and equipment markets to the application 
markets (engine and equipment producer surplus losses decrease; 
consumer surplus losses increase), but does not change the overall 
economic welfare losses associated with the rule.
    Unlike for engines and equipment, most of the petroleum refinery 
fixed costs are for production hardware. Refiners are expected to have 
to make physical changes to their refineries and purchase additional 
equipment to produce 500 ppm and then 15 ppm fuel. Therefore, fixed 
costs are included in the market analysis for fuel price and quantity 
impacts.
f. Model Inputs--Substitution by Application Suppliers
    In modeling the market impacts and social costs of this rule, the 
NDEIM considers only diesel equipment and fuel inputs to the production 
of goods in the applications markets. It does not explicitly model 
alternate production inputs that would serve as substitutes for new 
nonroad equipment or nonroad diesel fuel. In the model, market changes 
in the final demand for application goods and services directly 
correspond to changes in the demand for nonroad equipment and fuel 
(i.e., in normalized terms there is a one-to-one correspondence between 
the quantity of the final goods produced and the quantity of nonroad 
diesel equipment and fuel used as inputs to that production). We 
believe modeling the market in this manner is economically sound and 
reflects the general experience for the nonroad market.
    Some commenters suggested that the NDEIM should consider 
substitution to alternate means of production such as pre-buying, 
delayed buying, extending the life of a current machine, and 
substituting with different (e.g., gasoline-powered) equipment. These 
commenters did not provide detailed explanations for their comments or 
data in support of their substitution arguments. After considering 
these comments, we conclude that revising the NDEIM to include these 
effects would be inappropriate.
    The term ``pre-buying'' appears to refer to the possibility that 
the suppliers in the application market may choose to buy additional 
unneeded quantities of nonroad equipment prior to the beginning of the 
Tier 4 program, thus avoiding the higher cost for the Tier 4 equipment. 
It should be noted that this effect is limited to equipment and does 
not extend to nonroad diesel fuel. We believe that equipment pre-buying 
will not be economically viable in most cases due to the cost of 
holding capital (equipment) idle and of maintaining unused equipment. 
Such strategic purchases, if they occur at all, would be limited to a 
period of a few months before the effective date of the standards. The 
NDEIM models market reactions in the intermediate time frame, beyond 
the scope of any potential pre-buy. For these reasons, we do not 
believe it is appropriate to revise the model to include pre-buy as a 
means of substitution in NDEIM.
    ``Delayed-buying'' appears to refer to the possibility that 
suppliers in the application market would defer purchasing new 
equipment initially but would eventually make those purchases. 
Similarly to pre-buying, this appears to be a short-term effect and 
would therefore be inappropriate to include in an economic model 
designed to model the intermediate time frame.
    Extending the life of a current machine is suggested as another 
alternative to purchasing new equipment. We believe this would also be 
a short term phenomena that is not relevant for the intermediate time 
frame of the NDEIM. Based on our meetings with equipment users and 
suppliers, we do not believe that extending the life of nonroad 
equipment will prove to be an economically viable substitute in the 
near or long term. Most users of nonroad equipment already extend the 
life of their equipment to the maximum extent possible and purchase new 
equipment only when the existing equipment can no longer perform its 
function, when new demand for production requires additional means for 
production, or when new equipment offers a cheaper means of production 
than existing equipment. This situation is not expected to change as a 
result of this rule. In addition, even if it were possible to extend 
equipment life even more, this would lower the cost of nonroad 
equipment as an input to production (because it would be less expensive 
to maintain old equipment than purchase new equipment) and thus would 
reduce the economic impact of the Tier 4 program compared to our 
estimate. For all of the reasons stated here, we have decided not to 
attempt to model an extended equipment life alternative in the NDEIM.
    Finally, some commenters noted that equipment users may chose to 
substitute with different equipment, particularly gasoline-powered 
equipment. We believe substitution to gasoline-powered equipment is an 
alternative only for the smaller power categories (below 75 hp). Based 
on discussions with equipment manufacturers and users, the dominant 
reasons for choosing diesel engines over the substantially less 
expensive gasoline engines include better performance from diesel 
engines, lower fuel consumption from diesel engines, and the ability to 
use diesel fuel. The use of diesel fuel is preferable for two reasons: 
it is safer to store and dispense, and it is compatible with the fuel 
needed for larger equipment at the same worksite. Where these issues 
are not a concern, gasoline engines already enjoy a substantial 
economic advantage over diesel. We do not believe that the incremental 
increase in new equipment cost associated with this program would 
provide the necessary economic incentives for switching to gasoline 
equipment. Equipment users who can use gasoline-fueled equipment 
already do so, while those who can't due to the high costs of storing 
and dispensing gasoline fuel already use diesel engines. Therefore, we 
have not attempted to model the possibility of substitution to gasoline 
equipment in NDEIM.
g. Model Inputs--Other
    Compliance Costs. The NDEIM uses the estimated engine, equipment, 
and fuel compliance costs described in above and presented in Chapters 
6 and 7 of the RIA. Engine and equipment costs vary over time because 
fixed costs are recovered over five to ten year periods while total 
variable costs, despite learning effects that serve to reduce costs on 
a per unit basis, continue to increase at a rate consistent with new 
sales increases. Similarly, engine operating costs also vary over time 
because oil change maintenance savings, PM filter maintenance, and fuel 
economy effects, all of which are calculated on the basis of gallons of 
fuel consumed, change over time consistent with the growth in 
nationwide fuel consumption. Fuel-related compliance costs (costs for 
refining and distributing regulated fuels) also change over time. These 
changes are more subtle than the engine costs, however, as the fuel 
provisions are largely implemented in discrete steps instead of phasing 
in over time. Compliance costs were developed on a [cent]/gallon basis; 
total compliance costs are determined by multiplying the [cent]/gallon 
costs by the relevant fuel volumes. Therefore, total fuel costs 
increase as the demand for fuel increases. The variable operating costs 
are based on the natural gas cost of producing hydrogen and for heating 
diesel fuel for the new desulfurization

[[Page 39144]]

equipment, and thus would fluctuate along with the price of natural 
gas.
    Operating Savings. Operating savings refers to changes in operating 
costs that are expected to be realized by users of both existing and 
new nonroad diesel equipment as a result of the reduced sulfur content 
of nonroad diesel fuel. These include operating savings (cost 
reductions) due to fewer oil changes, which accrue to nonroad, marine 
and locomotive engines that are already in use as well as new nonroad 
engines that will comply with the standards (see Section VI.B). These 
also include any extra operating costs associated with the new PM 
emission control technology which may accrue to certain new engines 
that use this technology. Operating savings are not included in the 
market analysis because some of the savings accrue to existing engines 
and because, as explained in Section VI.C.1.c, these savings are not 
expected to affect consumer decisions with respect to new engines. 
Operating savings are included in the social cost analysis, however, 
because they accrue to society. They are added into the estimated 
social costs as an additional savings to the application and 
transportation service markets, since it is the users of these engines 
and fuels who will see these savings. A sensitivity analysis was 
performed as part of this EIA that includes the operating savings in 
the market analysis. The results of this sensitivity analysis are 
presented in Appendix 10.I.
    Fuel Marker Costs. Fuel marker costs refers to costs associated 
with marking high sulfur heating oil to distinguish it from high sulfur 
diesel fuel produced after 2007 through the use of early sulfur credits 
or small refiner provisions. Only heating oil sold outside of the 
Northeast is affected. The higher sulfur NRLM fuel is not allowed to be 
sold in most of the Northeast, so the marker need not be added in this 
large heating oil market. These costs are expected to be about $810,000 
in 2007, increasing to $1.38 million in 2008, but steadily decreasing 
thereafter to about $940,000 in 2040 (see Chapter 10 of the RIA). 
Because these costs are relatively small, they are incorporated into 
the estimated compliance costs for the fuel program (see discussion of 
fuel costs, above). They are therefore not counted separately in this 
economic impact analysis. This means that the costs of marking heating 
fuel are allocated to all users of the fuel affected by this rule 
(nonroad, locomotive, and marine) instead of uniquely to heating oil 
users. This is a reasonable approach since it is likely that refiners 
will pass the marker costs along their complete nonroad diesel product 
line and not just to heating oil.
    Fuel Spillover. Spillover fuel is highway grade diesel fuel 
consumed by nonroad equipment, stationary diesel engines, boilers, and 
furnaces. As described in Section 7.1 of Chapter 7 of the final RIA, 
refiners are expected to produce more 15 ppm fuel than is required for 
the highway diesel market. This excess 15 ppm fuel will be sold into 
markets that allow fuel with a higher sulfur level (i.e., nonroad for a 
limited period of time, locomotive, marine diesel and heating oil). 
This spillover fuel is affected by the diesel highway rule and is not 
affected by this regulation. Therefore, it is important to 
differentiate between spillover and nonspillover fuel to ensure that 
the compliance costs for that fuel pool are not counted twice. In the 
NDEIM, this is done by incorporating the impact of increased fuel costs 
associated with the highway rule prior to analysis of the final nonroad 
rule (see RIA Section 10.3.8).
    Compliance Flexibility Provisions. Consistent with the engine and 
equipment cost discussion in Section VI.C, the EIA does not include any 
cost savings associated with the equipment transition flexibility 
program or the nonroad engine ABT program. As a result, the results of 
this EIA can be viewed as somewhat conservative.
    Locomotive and Marine Fuel Costs. The locomotive and marine 
transportation sectors are affected by this rule through the sulfur 
limits on the diesel fuel used by these engines. These sectors provide 
transportation to the three application markets as well as to other 
markets not considered in the NDEIM (e.g., public utilities, 
nonmanufacturing service industries, government). As explained in 
Section 10.3.1.5 of the RIA, the NDEIM applies only a portion of the 
locomotive and marine fuel costs to the three application markets. The 
rest of the locomotive and marine fuel costs are added as a separate 
item to the total social cost estimates (as Application Markets Not 
Included in NDEIM).
3. What Are the Results of this Analysis?
    Using the revised cost data described earlier in this section and 
the NDEIM described above and in Chapter 10 of the Final RIA, we 
estimated the economic impacts of the nonroad engine, equipment and 
fuel control program. Economic impact results for 2013, 2020, 2030, and 
2036 are presented in this section. The first of these years, 2013, 
corresponds to the first year in which the standards affect all 
engines, equipment, and fuels. It should be noted that, as illustrated 
in Table VI-F-3, aggregate program costs peak in 2014; increases in 
costs after that year are due to increases in the population of engines 
over time. The other years, 2020, 2030 and 2036, correspond to years 
analyzed in our benefits analysis. Detailed results for all years are 
included in the appendices to Chapter 10 of the RIA.
    In the following discussion, social costs are computed as the sum 
of market surplus offset by operating savings. Market surplus is equal 
to the aggregate change in consumer and producer surplus based on the 
estimated market impacts associated with the rule. As explained above, 
operating savings are not included in the market analysis but instead 
are listed as a separate category in the social cost results tables.
    In considering the results of this analysis, it should be noted 
that the estimated output quantities for diesel engines, equipment, and 
fuel are not identical to those estimated in the engineering cost 
described in above and presented in Chapters 6 and 7 of the RIA. The 
difference is due to the different methodologies used to estimate these 
costs. As noted above, social costs are the value of goods and services 
lost by society resulting from: (a) the use of resources to comply with 
and implement a regulation (i.e., compliance costs); and (b) reductions 
in output. Thus, the social cost analysis considers both price and 
output (quantity) effects associated with consumer and producer 
reaction to increased prices associated with the regulatory compliance 
costs. The engineering cost analysis, on the other hand, is based on 
applying additional technology to comply with the new regulations. The 
engine population in the engineering cost analysis does not reflect 
consumer and producer reactions to the compliance costs. Consequently, 
the estimated output quantities from the cost analysis are slightly 
larger than the estimated output quantities from the social cost 
analysis.
    The results of this analysis suggest that the economic impacts of 
this rule are likely to be small, on average. Price increases in the 
application markets are expected to average about 0.1 percent per year. 
Output decrease in the application markets are expected to average less 
than 0.02 percent for all years. The price increases for engines, 
equipment, and fuel are expected to be about 20 percent, 3 percent, and 
7 percent, respectively (total impact averaged over the relevant 
years). The number of engines and equipment produced is expected to 
decrease by less

[[Page 39145]]

than 250 units, and the amount of fuel produced annually is expected to 
decrease by less than 4 million gallons. With respect to the economic 
welfare analysis, producers and consumers in the application markets 
are expected to bear about 83 percent of the burden in 2013; this will 
increase to about 96 percent in 2030 and beyond. In other words, 
despite the almost total pass-through of costs the average price of 
goods and services in the application markets is expected to increase 
by only 0.1 percent. This outcome reflects the fact that diesel 
engines, equipment, and fuel are only a small part of total costs for 
the application markets. These results are described in more detail 
below and in Chapter 10 of the Final RIA.
a. Expected Market Impacts
    The estimated market impacts for 2013, 2020, and 2030 are presented 
in Table VI.F-1. The market-level impacts presented in this table 
represent production-weighted averages of the individual market-level 
impact estimates generated by the model: the average expected price 
increase and quantity decrease across all of the units in each of the 
engine, equipment, fuel, and final application markets. For example, 
the model includes seven individual engine markets that reflect the 
seven different horsepower size categories. The 21.4 percent price 
change for engines shown in Table VI.F-1 for 2013 is an average price 
change across all engine markets weighted by the number of production 
units. Similarly, the equipment impacts presented in Table VI.F-1 are 
the weighted averages of 42 equipment-application markets, such as 
small (<25hp) agricultural equipment and large (>600hp) industrial 
equipment. Note that price increases and quantity decreases for 
specific types of engines, equipment, application sectors, or diesel 
fuel markets are likely to be different. The aggregated data presented 
in this table provide a broad overview of the expected market impacts 
that is useful when considering the impacts of the rule on the economy 
as a whole. The individual market-level impacts are presented in 
Chapter 10 of the Final RIA.\249\
---------------------------------------------------------------------------

    \249\ The NDEIM distinguishes between ``merchant'' engines and 
``captive'' engines. ``Merchant'' engines are produced for sale to 
another company and are sold on the open market to anyone who wants 
to buy them. ``Captive'' engines are produced by a manufacturer for 
use in its own nonroad equipment line (this equipment is said to be 
produced by ``integrated'' manufacturers). The market analysis for 
engines includes compliance costs for merchant engines only. The 
market analysis for equipment includes equipment compliance costs 
plus a portion of the engine compliance costs attributable to 
captive engines.
---------------------------------------------------------------------------

    The market impacts of this rule suggest that the overall economic 
impact of the emission control program on society is expected to be 
small, on average. According to this analysis, the average prices of 
goods and services produced using equipment and fuel affected by the 
rule are expected to increase by about 0.1 percent (as noted above), 
despite the almost total pass-through of compliance costs to those 
markets.
    Engine Market Results: This analysis suggests that most of the 
variable costs associated with the rule will be passed along in the 
form of higher prices. The average price increase in 2013 for engines 
is estimated to be about 21.4 percent. This percentage is expected to 
decrease to about 18.3 percent by 2020. In 2036, the last year 
considered, the average price increase is expected to be about 18.2 
percent. This expected price increase varies by engine size because 
compliance costs are a larger share of total production costs for 
smaller engines. In 2013, the largest expected percent price increase 
is for engines between 25 and 50 hp: 29 percent or $850; the average 
price for an engine in this category is about $2,900. However, this 
price increase is expected to drop to 22 percent, or about $645, for 
2015 and later. The smallest expected percent price increase in 2013 is 
for engines in the greater than 600 hp category. These engines are 
expected to see price increases of about 3 percent increase in 2013, 
increasing to about 7.6 percent in 2015 and then decreasing to about 
6.6 percent in 2017 beyond. The expected price increase for these 
engines is about $2,240 in 2013, increasing to about $6,150 in 2015 and 
then decreasing to $5,340 in 2017 and later, for engines that cost on 
average about $80,500.
    The market impact analysis predicts that even with these increased 
in engine prices, total demand is not expected to change very much. The 
expected average change in quantity is less than 150 engines per year, 
out of total sales of more than 500,000 engines. The estimated change 
in market quantity is small because as compliance costs are passed 
along the supply chain they become a smaller share of total production 
costs. In other words, firms that use these engines and equipment will 
continue to purchase them even at the higher cost because the increase 
in costs will not have a large impact on their total production costs 
(diesel equipment is only one factor of production for their output of 
construction, agricultural, or manufactured goods).
    Equipment Market Results: Estimated price changes for the equipment 
markets reflect both the direct costs of the new standards on equipment 
production and the indirect cost through increased engine prices. In 
general, the estimated percentage price changes for the equipment are 
less than that for engines because the engine is only one input in the 
production of equipment. In 2013, the average price increase for 
nonroad diesel equipment is estimated to be about 2.9 percent.\250\ 
This percentage is expected to decrease to about 2.5 percent for 2020 
and beyond. The range of estimated price increases across equipment 
types parallels the share of engine costs relative to total equipment 
price, so the estimated percentage price increase among equipment types 
also varies. For example, the market price in 2013 for agricultural 
equipment between 175 and 600 hp is estimated to increase about 1.2 
percent, or $1,740 for equipment with an average cost of $143,700. This 
compares with an estimated engine price increase of about $1,700 for 
engines of that size. The largest expected price increase in 2013 for 
equipment is $2,290, or 2.6 percent, for pumps and compressors over 600 
hp. This compares with an estimated engine price increase of about 
$2,240 for engines of that size. The smallest expected price increase 
in 2013 for equipment is $120, or 0.7 percent, for construction 
equipment less than 25 hp. This compares with an estimated engine price 
increase of about $120 for engines of that size.
---------------------------------------------------------------------------

    \250\ It should be noted that the equipment prices used in this 
analysis reflect current market conditions. An increase in equipment 
prices associated with the nonroad Tier 3 standards would reduce 
size of the percentage increase in price. In this sense, our 
Economic Impact Analysis is conservative as it is based on the 
impact of the Tier 4 program on Tier 1 and Tier 2 equipment prices 
and therefore overestimates the market impacts of the Tier 4 
program.
---------------------------------------------------------------------------

    Again, the market analysis predicts that even with these increased 
equipment prices total demand is not expected to change very much. The 
expected average change in quantity is less than 250 pieces of 
equipment per year, out of a total sales of more than 500,000 units. 
The average decrease in the quantity of nonroad diesel equipment 
produced as a result of the regulation is estimated to be about 0.02 
percent for all years. The largest expected decrease in quantity in 
2013 is 18 units of construction equipment per year for construction 
equipment between 100 and 175 hp, out of about 63,000 units. The 
smallest expected decrease in quantity in 2013 is less than

[[Page 39146]]

one unit per year in all hp categories of pumps and compressors.
    It should be noted that the absolute change in the number of 
engines and equipment does not match. This is because the absolute 
change in the quantity of engines represents only engines sold on the 
market. Reductions in engines consumed internally by integrated engine/
equipment manufacturers are not reflected in this number but are 
captured in the cost analysis.

                                Table VI.F-1.--Summary of Market Impacts ($2002)
----------------------------------------------------------------------------------------------------------------
                                                 Engineering       Change in price         Change in quantity
                                                     cost    ---------------------------------------------------
                     Market                     -------------   Absolute
                                                   Per unit    ($million)    Percent      Absolute     Percent
----------------------------------------------------------------------------------------------------------------
                                                      2013
----------------------------------------------------------------------------------------------------------------
Engines........................................       $1,052         $821         21.4      \a\ -79       -0.014
Equipment......................................        1,198          975          2.9         -139       -0.017
Loco/Marine Transp \b\.........................  ...........  ...........        0.009  ...........       -0.007
Application Markets \b\........................  ...........  ...........        0.097  ...........       -0.015
No. 2 Distillate Nonroad.......................         0.06         0.07          6.0    \c\ -2.75       -0.019
------------------------------------------------
                                                      2020
----------------------------------------------------------------------------------------------------------------
Engines........................................          950          761         18.3      \a\ -98       -0.016
Equipment......................................        1,107          976          2.5         -172       -0.018
Loco/Marine Transp \b\.........................  ...........  ...........        0.001  ...........       -0.008
Application Markets \b\........................  ...........  ...........        0.105  ...........       -0.017
No. 2 Distillate Nonroad.......................         0.07         0.07          7.0    \c\ -3.00       -0.021
------------------------------------------------
                                                      2030
----------------------------------------------------------------------------------------------------------------
Engines........................................          937          751         18.2     \a\ -114       -0.016
Equipment......................................          968          963          2.5         -200       -0.018
Loco/Marine Transp \b\.........................  ...........  ...........        0.010  ...........       -0.008
Application Markets \b\........................  ...........  ...........        0.102  ...........       -0.016
No. 2 Distillate Nonroad.......................         0.07         0.07          7.0    \c\ -3.53       -0.022
------------------------------------------------
                                                      2036
----------------------------------------------------------------------------------------------------------------
Engines........................................          931          746         18.2     \a\ -124       -0.016
Equipment......................................          962          956          2.5         -216       -0.018
Loco/Marine Transp \b\.........................  ...........  ...........        0.010  ...........       -0.008
Application Markets \b\........................  ...........  ...........        0.101  ...........       -0.016
No. 2 Distillate Nonroad.......................         0.07         0.07          7.0    \c\ -3.85      -0.022
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ The absolute change in the quantity of engines represents only engines sold on the market. Reductions in
  engines consumed internally by integrated engine/equipment manufacturers are not reflected in this number but
  are captured in the cost analysis. For this reason, the absolute change in the number of engines and equipment
  does not match.
\b\ The model uses normalized commodities in the application markets because of the great heterogeneity of
  products. Thus, only percentage changes are presented.
\c\ Units are in million of gallons.

    Transportation Market Results: The estimated price increase 
associated with the proposed standards in the locomotive and marine 
transportation markets is negligible, at 0.01 percent for all years. 
This means that these transportation service providers are expected to 
pass along nearly all of their increased costs to the agriculture, 
construction, and manufacturing application markets, as well as other 
application markets not explicitly modeled in the NDEIM. This price 
increases represent a small share of total application market 
production costs, and therefore are not expected to affect demand for 
these services.
    Application Market Results: The estimated price increase associated 
with the new standards in all three application markets is very small 
and averages about 0.1 percent for all years. In other words, on 
average, the prices of goods and services produced using the affected 
engines, equipment, and fuel are expected to increase negligibly. This 
results from the observation that compliance costs passed on through 
price increases represent a very small share of total production costs 
in all the application markets. For example, the construction industry 
realizes an increase in production costs of approximately $580 million 
in 2013 because of the price increases for diesel equipment and fuel. 
However, this represents less than 0.001 percent of the $820 billion 
value of shipments in the construction industry in 2000. The estimated 
average commodity price increase in 2013 ranges from 0.08 percent in 
the manufacturing application market to about 0.5 percent in the 
construction market. The percentage change in output is also estimated 
to be very small and averages less than 0.02 percent for all years. 
Note that these estimated price increases and quantity decreases are 
average for these sectors and may vary for specific subsectors. Also, 
note that absolute changes in price and quantity are not provided for 
the application markets in Table VI.F-1 because normalized commodity 
values are used in the market model. Because of the great heterogeneity 
of manufactured or agriculture products, a normalized commodity ($1 
unit) is used in the application markets. This has no impact on the 
estimated percentage change impacts but makes interpretation of the 
absolute changes less informative.

[[Page 39147]]

    Fuel Markets Results: The estimated average price increase across 
all nonroad diesel fuel is about 7 percent for all years. For 15 ppm 
fuel, the estimated price increase for 2013 ranges from 5.6 percent in 
the East Coast region (PADD 1&3) to 9.1 percent in the mountain region 
(PADD 4). The average national output decrease for all fuel is 
estimated to be about 0.02 percent for all years, and is relatively 
constant across all four regional fuel markets.
b. Expected Economic Welfare Impacts
    Estimated social costs are presented in Table VI.F-2. In 2013, the 
total social costs are projected to be about $1,510 million ($2002). 
About 83 percent of the total social costs is expected to be borne by 
producers and consumers in the application markets in 2013, indicating 
that the majority of the compliance costs associated with the rule are 
expected to be passed on in the form of higher prices. When these 
estimated impacts are broken down, about 58.5 percent of the social 
costs are expected to be borne by consumers in the application markets 
and about 41.5 percent are expected to be borne by producers in the 
application markets. Equipment manufacturers are expected to bear about 
9.5 percent of the total social costs. Engine manufacturers and diesel 
fuel refineries are expected to bear 2.8 percent and 0.5 percent, 
respectively. The remaining 4.2 percent of the social costs is expected 
to be borne by the locomotive and marine transportation service sector. 
In this last sector, about 97 percent of the gross decrease in market 
surplus is expected to be borne by the application markets that are not 
included in the NDEIM but that use these services (e.g., public 
utilities, nonmanufacturing service industries, government) while about 
3 percent is expected to be borne by locomotive and marine service 
providers. Because of the way the NDEIM is structured, with the fuel 
savings added separately, the results imply that locomotive and marine 
service provider would see net benefits from the rule due to the 
operating savings associated with low sulfur fuel. In fact, they are 
likely to pass along some or all of those operating savings to the 
users of their services, reducing the size of the welfare losses for 
those users.
    Total social costs continue to increase over time and are projected 
to be about $2,046 million by 2030 and $2,227 million in 2036 ($2002). 
The increase is due to the projected annual growth in the engine and 
equipment populations. Producers and consumers in the application 
markets are expected to bear an even larger portion of the costs, 
approximately 96 percent. This is consistent with economic theory, 
which states that, in the long run, all costs are passed on to the 
consumers of goods and services.
    The present value of total social costs through 2036, contained in 
Table VI.F-3, is estimated to be $27.2 billion ($2002). This present 
value is calculated using a social discount rate of 3 percent from 2004 
through 2036. We also performed an analysis using a 7 percent social 
discount rate. Using that discount rate, the present value of the 
social costs through 2036 is estimated to be $13.9 billion ($2002). As 
shown in Table VI.F-3, these results suggest that total engineering 
costs exceed compliance costs by a small amount. This is due primarily 
to the fact that the estimated output quantities for diesel engines, 
equipment, and fuel are not identical to those estimated in the 
engineering cost analysis, which is due to the different methodologies 
used to estimate these costs (see previous discussion in this Section 
IV.F.3).

   Table VI.F-2.--Summary of Social Costs Estimates Associated With Primary Program 2015, 2020, 2030, and 2036
                                              [2002, $Million]a, b
----------------------------------------------------------------------------------------------------------------
                                                                 Market     Operating
                                                                surplus      savings       Total       Percent
                                                               ($10 \6\)    ($10 \6\)
----------------------------------------------------------------------------------------------------------------
                                                      2013
----------------------------------------------------------------------------------------------------------------
Engine Producers Total......................................        $42.0  ...........        $42.0          2.8
Equipment Producers Total...................................        143.1  ...........        143.1          9.5
    Construction Equipment..................................         64.0  ...........         64.0  ...........
    Agricultural Equipment..................................         51.8  ...........         51.8  ...........
    Industrial Equipment....................................         27.2  ...........         27.2  ...........
Application Producers & Consumers Total.....................      1,496.7     ($243.2)      1,253.5         83.0
    Total Producer..........................................        620.9  ...........  ...........         41.5
    Total Consumer..........................................        875.7  ...........  ...........         58.5
    Construction............................................        584.3     ($115.2)        469.2  ...........
    Agriculture.............................................        430.0      ($78.2)        351.8
    Manufacturing...........................................        482.4      ($49.8)        432.5  ...........
Fuel Producers Total........................................          8.0  ...........          8.0          0.5
    PADD I&III..............................................          4.1  ...........          4.1  ...........
    PADD II.................................................          3.3  ...........          3.3  ...........
    PADD IV.................................................          0.0  ...........          0.0  ...........
    PADD V..................................................          0.6  ...........          6.0  ...........
Transportation Services, Total..............................        104.9      ($41.5)         63.4          4.2
    Locomotive..............................................          1.6      ($12.4)      ($10.8)  ...........
    Marine..................................................          0.9       ($9.9)       ($9.0)  ...........
    Application markets not included in NDEIM...............        102.4      ($19.2)        $83.2  ...........
                                                             --------------
        Total...............................................      1,794.7     ($284.7)     $1,510.0       100.0%
=============================================================
                                                      2020
----------------------------------------------------------------------------------------------------------------
 
Engine Producers Total......................................          0.1  ...........          0.1          0.0
Equipment Producers Total...................................        122.7  ...........        122.7          6.7
    Construction Equipment..................................         57.8  ...........         57.8  ...........
    Agricultural Equipment..................................         39.7  ...........         39.7  ...........

[[Page 39148]]

 
    Industrial Equipment....................................         25.2  ...........         25.2  ...........
Application Producers & Consumers Total.....................      1,826.1     ($192.3)      1,633.8         89.4
    Total Producer..........................................        762.2  ...........  ...........         41.7
    Total Consumer..........................................      1,063.8  ...........  ...........         58.3
    Construction............................................        744.0      ($91.1)        653.0  ...........
    Agriculture.............................................        524.3      ($61.8)        462.5  ...........
    Manufacturing...........................................        557.8      ($39.4)        518.3  ...........
Fuel Producers Total........................................         11.2  ...........         11.2          0.6
    PADD I&III..............................................          5.6  ...........          5.6  ...........
    PADD II.................................................          4.6  ...........          4.6  ...........
    PADD IV.................................................          0.2  ...........          0.2  ...........
    PADD V..................................................          0.8  ...........          0.8
Transportation Services, Total..............................         95.7      ($35.1)         60.6          3.3
    Locomotive..............................................          2.0       ($7.2)       ($5.2)  ...........
    Marine..................................................          1.1      ($11.6)      ($10.5)  ...........
    Application markets not included in NDEIM...............         92.6      ($16.3)         76.3  ...........
                                                             --------------
        Total...............................................      2,055.7     ($227.4)     $1,828.3       100.0%
=============================================================
                                                      2030
----------------------------------------------------------------------------------------------------------------
Engine Producers Total......................................          0.1  ...........          0.1          0.0
Equipment Producers Total...................................          5.9  ...........          5.9          0.3
    Construction Equipment..................................          4.0  ...........          4.0  ...........
    Agricultural Equipment..................................          1.9  ...........          1.9  ...........
    Industrial Equipment....................................          0.1  ...........          0.1  ...........
Application Producers & Consumers Total.....................      2,112.3     ($154.2)      1,958.1         95.7
    Total Producer..........................................        882.2  ...........  ...........         41.7
    Total Consumer..........................................      1,230.1  ...........  ...........         58.3
    Construction............................................        863.8      ($73.0)        790.8  ...........
    Agriculture.............................................        606.8      ($49.6)        557.2  ...........
    Manufacturing...........................................        641.6      ($31.6)        610.0  ...........
Fuel Producers Total........................................         13.2  ...........         13.2          0.6
    PADD I&III..............................................          6.7  ...........          6.7  ...........
    PADD II.................................................          5.2  ...........          5.2  ...........
    PADD IV.................................................          0.3  ...........          0.3  ...........
    PADD V..................................................          1.0  ...........          1.0  ...........
Transportation Services, Total..............................        109.1      ($39.9)         69.2          3.4
    Locomotive..............................................          2.5       ($7.8)       ($5.3)  ...........
    Marine..................................................          1.4      ($13.6)      ($12.2)  ...........
    Application markets not included in NDEIM...............        105.2      ($18.5)         86.7  ...........
                                                             --------------
        Total...............................................      2,240.6     ($194.1)     $2,046.4       100.0%
=============================================================
                                                      2036
----------------------------------------------------------------------------------------------------------------
Engine Producers Total......................................          0.2  ...........          0.2          0.0
Equipment Producers Total...................................          6.4  ...........          6.4          0.3
    Construction Equipment..................................          4.3  ...........          4.3  ...........
    Agricultural Equipment..................................          2.0  ...........          2.0  ...........
    Industrial Equipment....................................          0.1  ...........          0.1  ...........
Application Producers & Consumers Total.....................      2,287.4     ($155.7)      2,131.7         95.7
    Total Producer..........................................        955.5  ...........  ...........         41.7
    Total Consumer..........................................      1,331.9  ...........  ...........         58.3
    Construction............................................        936.4      ($50.0)        862.7  ...........
    Agriculture.............................................        657.8      ($73.7)        607.8  ...........
    Manufacturing...........................................        693.2      ($31.9)        661.3  ...........
Fuel Producers Total........................................         14.5  ...........         14.5          0.7
    PADD I&III..............................................          7.3  ...........          7.3  ...........
    PADD II.................................................          5.8  ...........          5.8  ...........
    PADD IV.................................................          0.3  ...........          0.3  ...........
    PADD V..................................................          1.0  ...........          1.0  ...........
Transportation Services, Total..............................        116.9      ($42.6)         74.3          3.3
    Locomotive..............................................          2.8       ($8.2)       ($5.4)  ...........
    Marine..................................................          1.6      ($14.6)      ($13.0)  ...........
    Application markets not included in NDEIM...............        112.5      ($19.8)         92.7  ...........
                                                             --------------

[[Page 39149]]

 
        Total...............................................     $2,425.3     ($198.4)     $2,227.0       100.0
----------------------------------------------------------------------------------------------------------------
Notes: a Figures are in 2002 dollars.
b Operating savings are shown as negative costs.


  Table VI.F-3.--National Engineering Compliance Costs and Social Costs
                   Estimates for the Rule (2004-2036)
                            [$2002; $Million]
------------------------------------------------------------------------
                          Engineering compliance
          Year                    costs             Total social costs
------------------------------------------------------------------------
              2004                        0                       0
              2005                        0                       0
              2006                        0                       0
              2007                    ($17)                   ($18)
              2008                       54                      54
              2009                       54                      54
              2010                      328                     327
              2011                      923                     922
              2012                    1,305                   1,304
              2013                    1,511                   1,510
              2014                    1,691                   1,690
              2015                    1,742                   1,741
              2016                    1,743                   1,743
              2017                    1,763                   1,762
              2018                    1,778                   1,778
              2019                    1,795                   1,795
              2020                    1,829                   1,828
              2021                    1,816                   1,815
              2022                    1,819                   1,818
              2023                    1,844                   1,843
              2024                    1,858                   1,857
              2025                    1,888                   1,887
              2026                    1,921                   1,920
              2027                    1,954                   1,952
              2028                    1,985                   1,984
              2029                    2,017                   2,016
              2030                    2,047                   2,046
              2031                    2,078                   2,077
              2032                    2,108                   2,107
              2033                    2,139                   2,137
              2034                    2,169                   2,167
              2035                    2,198                   2,197
              2036                    2,228                   2,227
         NPV at 3%                   27,247                  27,232
         NPV at 7%                   13,876                  13,868
------------------------------------------------------------------------

VII. Alternative Program Options Considered

    Our final emission control program for nonroad engines and 
equipment consists of a two-step program to reduce the sulfur content 
of nonroad diesel fuel in conjunction with Tier 4 engine standards. The 
rule also contains limits on sulfur levels in locomotive and marine 
diesel fuel. As described in the draft Regulatory Impact Analysis for 
the proposal, we evaluated a number of alternative options with regard 
to the scope, level, and timing of the standards. This section presents 
a summary of those alternative program options and our reasons for 
either adopting or not adopting these options.

A. Summary of Alternatives

    For our Notice of Proposed Rulemaking (NPRM), we developed 
emissions, benefits, and cost analyses for a number of alternative 
program options involving variations in both the fuel and engine 
programs. The alternatives we considered can be categorized according 
to the structure of their fuel requirements: whether the 15 ppm fuel 
sulfur limit for nonroad diesel fuel is reached in two steps, like the 
program we are finalizing today, or in one step. Within each of these 
two broad fuel program categories, we considered a number of different 
engine programs. This section summarizes the alternatives. A more 
detailed description of the alternatives can be found in the NPRM and 
the draft RIA.
    One-step alternatives were those in which the 15 ppm fuel sulfur 
standard for nonroad diesel fuel is applied in a single step. We 
evaluated three one-step alternatives, summarized in table VII-1. 
Option 1 represented an engine program that was similar to that in our 
proposed program, the primary difference being the generally earlier 
phase-in dates for the PM standards. We considered the Option 1 engine 
program as being the most stringent one-step program that could be 
considered even potentially feasible considering cost, lead-time, and 
other factors. Option 1 also included a June 2008 start date for the 15 
ppm sulfur standard applicable to nonroad diesel fuel and the 500 ppm 
sulfur standard applicable to locomotive and marine fuel. We also 
considered two other one-step alternatives which differ from Option 1. 
As described in table VII-1, Option 1b differed from Option 1 regarding 
the timing of the fuel standards, while Option 1a differed from Option 
1 in terms of the engine standards. Options 1a and 1b also differed 
from Option 1 by extending the 15 ppm fuel sulfur limit to locomotive 
and marine diesel fuel.
    Two-step alternatives were those in which the nonroad diesel fuel 
sulfur standard was set first at 500 ppm and then was reduced to 15 
ppm. The two-step alternatives varied from the proposed program in 
terms of both the timing and levels of the engine standards and the 
timing of the fuel standards. Option 2a was the same as the proposed 
program except the 500 ppm fuel standard was introduced a year earlier, 
in 2006. Option 2b was the same as the proposed program except the 15 
ppm fuel standard was introduced a year earlier (in 2009) and the trap-
based PM standards began earlier for all engines. Option 2c was the 
same as the proposed program except the 15 ppm fuel standard was 
introduced a year earlier in 2009 and the trap-based PM standards began 
earlier for engines 175-750 hp. Option 2d was the same as the proposed 
program except the NOX standard was reduced to 0.30 g/bhp-hr 
for engines of 25-75 hp, and this standard was phased in. Finally, 
Option 2e was the same as the proposed program except there were no new 
Tier 4 NOX limits.
    In the NPRM, option 3 was identical to the proposed program, except 
that it would have exempted mining equipment over 750 hp from the Tier 
4 standards. We explained in detail in section 12.6.2.2.7 of the draft 
RIA that we had very serious reservations regarding the legality of 
this option given these engines' high emission rates of PM, 
NOX and NMHC and the availability of further emissions 
control at reasonable cost. We adhere to these conclusions here. We do 
note, however, that we are adopting somewhat different provisions for 
this engine category than we proposed. As explained in sections II.A. 
and II.B above, although we have adopted aftertreatment-based PM 
standards for these engines, the standards are slightly higher than 
those proposed to assure their technical feasibility. We also have 
deferred a decision on whether to adopt aftertreatment-based standards 
for NOX for mobile machines with engines greater than 750 
hp. We also have provided ample lead time for these engines to comply 
with the Tier 4 standards, both in terms of the rule's compliance dates 
(which include a 2015

[[Page 39150]]

date for the final Tier 4 standards, one year later than we proposed) 
and the ABT and equipment manufacturer flexibilities. This lead time 
takes into account the long design periods, high cost, and low sales 
volumes of these engines. Thus, although we strongly disagree with the 
option of not adopting Tier 4 standards for these engines, we do 
recognize their need for unique standards and compliance dates.
    Option 4 included applying the 15 ppm sulfur limit to both 
locomotive and marine diesel fuel in addition to nonroad fuel. On the 
basis of comments received and additional analyses, we have determined 
that a 15ppm sulfur standard for locomotive and marine fuel is 
appropriate, though we have included certain options for utilization of 
off-specification fuel and transmix not represented in our original 
Option 4. This aspect of our final program is discussed in detail in 
section IV.
    Options 5a and 5b were identical to the proposed program except 
with respect to standards for engines less than 75 hp. Option 5a was 
identical to the proposed program except that no new program 
requirements would be set in Tier 4 for engines under 75 hp. Instead, 
Tier 2 standards and testing requirements for engines under 50 hp, and 
Tier 3 standards and testing requirements for 50-75 hp engines, would 
continue indefinitely. The Option 5b program was identical to the 
proposed program except that for engines under 75 hp only the 2008 
engine standards would be set, i.e. there would be no additional PM 
filter-based standard in 2013 for 25-75 hp engines, and no additional 
NOX + NMHC standard in 2013 for 25-50 hp engines. We are not 
adopting Options 5a or 5b in today's action. As explained at 8.2.3 of 
the Summary and Analysis of Comments, and in sections 12.6.2.2.9 and 
12.6.2.2.10 of chapter 12 of the draft RIA, these options would forego 
substantial PM and NOX + NMHC emission reductions (on the 
order of hundreds of thousands of tons of each pollutant) which are 
feasible at reasonable cost. We note further that many of these smaller 
engines operate in populated areas and in equipment without closed 
cabs--in mowers, small construction machines, and the like--where 
personal exposures to toxic emissions (both PM and air toxics which are 
part of the NMHC fraction) may be pronounced well beyond what is 
indicated simply by a comparison of nationwide emissions inventory 
estimates. We would also emphasize the remarkable growth in recent 
sales and usage for these smaller diesel machines, and we expect this 
trend to continue, pointing up the need for effective PM emissions 
control from these engines. We thus do not see a basis in law or policy 
to adopt either of these options.
    In response to comments on our NPRM we also investigated a number 
of other variations in the engine standards as we developed our final 
rule. These variations were generally related to the phase-in of engine 
standards in a number of different horsepower categories. A discussion 
of these variations is provided in section II as well as in various 
background documents.
    Table VII-1 contains a summary of a number of these alternatives. 
The expected emission reductions, costs, and monetized benefits 
associated with them in comparison to the proposed program were 
evaluated for the NPRM. Those analyses were not revised for this final 
rulemaking to reflect changes in our empirical models or assumptions. 
We received no new information that would cause us to believe that the 
relative impacts and differences for those alternative program options 
relative to our final program would change enough to make an impact on 
our assessments of the feasibility or appropriateness of the options. 
The remainder of this section will summarize some of the comments we 
received on the options and our responses to those comments.

          Table VII-1.--Summary of Alternative Program Options
------------------------------------------------------------------------
       Option              Fuel Standards          Engine Standards a
------------------------------------------------------------------------
                 Final program
-----------------------------------------------
                       500 PPM in 2007   <75 hp: PM
                       for NR, loco/marine.      standards in 2008
                       15 ppm in 2010    25-75 hp: PM AT-
                       for NR.                   based standards in 2013
                       15 ppm in 2012    75-175 hp: PM
                       for loco/marine.          AT-based standards in
                                                 2012
                                                 175-750 hp: PM
                                                 AT-based standards in
                                                 2011
                                                 75-175 hp: NOX
                                                 AT-based standards
                                                 phase-in 2012-2014
                                                 175-750 hp: NOX
                                                 AT-based standards
                                                 phase-in 2011-2014
                                                 >750 hp: PM and
                                                 NOX AT phased-in 2011
                                                 and 2015
---------------------
              1-Step Fuel Options
-----------------------------------------------
1...................   15 ppm in 2008    <50 hp: PM stds
                       for NR and loco/marine.   only in 2009
                                                 25-75 hp: PM AT
                                                 stds and EGR or
                                                 equivalent NOX
                                                 technology in 2013; no
                                                 NOX AT
                                                 >75 hp: PM AT
                                                 stds phasing in
                                                 beginning in 2009; NOX
                                                 AT phasing in beginning
                                                 in 2011
1a..................   15 ppm in 2008    PM AT
                       for NR, loco/marine.      introduced in 2009-10
                                                 NOX AT
                                                 introduced in 2011-12
1b..................   15 ppm in 2006   Same as 1a
                       for NR, loco/marine.
---------------------
              2-Step Fuel Options
-----------------------------------------------
2a..................  Same as proposed program  Same as proposed program
                       except--.
                       500 ppm in 2006
                       for NR, loco/marine.
2b..................  Same as proposed program  Same as proposed program
                       except--.                 except--
                       15 ppm in 2009    Move PM AT up 1
                       for NR and loco/marine.   year for all engines
                                                 >25 hp (phase in starts
                                                 2010)
2c..................  Same as proposed program  Same as proposed program
                       except--.                 except--
                       15 ppm in 2009    Move PM AT up 1
                       for NR and loco/marine.   year for all engines
                                                 175-750 hp (phase in
                                                 starts 2010)
2d..................   Same as          Same as proposed program
                       proposed program.         except--

[[Page 39151]]

 
                                                 Phase-in NOX AT
                                                 for 25-75hp beginning
                                                 in 2013
---------------------
                 Other Options
-----------------------------------------------
3...................   Same as          Same as proposed program
                       proposed program.         except--
                                                 Mining
                                                 equipment over 750 hp
                                                 left at Tier 2
4...................  Same as proposed program  Same as proposed program
                       except--.
                       Downgrade
                       flexibilities for loco/
                       marine not included.
5a..................   Same as          Same as proposed program
                       proposed program.         except--
                                                 No Tier 4
                                                 standards <75 hp
5b..................   Same as          Same as proposed program
                       proposed program.         except--
                                                 No new <75hp
                                                 standards after 2008
                                                 (i.e., no CDPFs in
                                                 2013)
------------------------------------------------------------------------
Notes: a AT = aftertreatment.

B. Introduction of 15 ppm Nonroad Diesel Sulfur Fuel in One Step

    EPA carefully evaluated an alternative which would require that the 
nonroad diesel sulfur level be reduced to 15ppm in a single step, 
beginning June 1, 2008. The one-step fuel options, including the three 
variations Option 1, Option 1a, and Option 1b, were presented and 
discussed in detail in the NPRM and in the draft RIA.
    Many comments were received about a one step diesel fuel sulfur 
control approach taking effect in 2008. Refiners commented that they 
did not think that they could reduce both the highway and nonroad 
diesel fuel pools down to 15 ppm in the same timeframe while 
maintaining the supply of these two diesel fuel pools. The refiners 
went on to say that having a 500 ppm outlet for off-specification 
material in the nonroad diesel fuel pool is critical in the years after 
reducing the highway diesel fuel pool to 15 ppm to ensure supply of 
highway fuel. The refining industry further commented that the one step 
program would provide fewer environmental benefits and also provide the 
refining industry less time and flexibility to make the transition to 
the 15 ppm sulfur level for nonroad diesel fuel compared to a two step 
approach. While many environmental organizations and the Engine 
Manufacturers Association (EMA) commented that they preferred a 15 ppm 
standard as soon as possible, EMA also pointed out that a quick 
transition to 500 ppm would provide important fleet-wide emission 
reductions, reduce maintenance costs and enable the use of certain 
emission control technology such as exhaust gas recirculation and 
oxidation catalysts. Commenters generally said little about the engine 
standards associated with the one-step options, other than to point out 
that earlier introduction of 15 ppm sulfur fuel means that 
aftertreatment-based standards and nonroad engine retrofits can also be 
introduced earlier.
    The reasons provided in the NPRM for choosing the two step program 
over the one-step program still apply and generally address the 
comments received (see section 12.6.2 of the draft RIA). Although there 
would be greater PM and NOX emission reductions with the 
one-step approach due to earlier introduction of aftertreatment 
technology enabled by the 15 ppm sulfur diesel fuel, the SO2 
emission benefits for the two-step approach are greater due to the 
earlier adoption of the 500 ppm sulfur standard. Thus, even assuming 
that the one-step approach would not jeopardize implementation of the 
highway diesel emission rule, the emission impacts of these two options 
are mixed. Moreover, the costs for achieving the second step (15 ppm) 
of the two step approach are likely to be lower than under the one step 
approach. This is because advanced desulfurization technologies are 
much more likely to be used in 2010 after additional testing and 
demonstration, while they may hardly be considered at all if they would 
have to be installed for 2008. One advanced desulfurization technology, 
Process Dynamics Isotherming, is expected to lower the cost of 
complying with the 15 ppm step by about one cent per gallon. This cost 
discrepancy is expected to persist since it is associated with the 
investment of significant capital which cannot be modified or replaced 
without significant additional expense. Additionally, under the two 
step program, refiners will be able to use their experience in 
complying with 15 ppm highway diesel fuel sulfur standard to better 
design their nonroad hydrotreaters needed for 2010.
    After careful consideration of these matters, we have decided to 
finalize the two-step approach in today's action.

C. Applying the 15 ppm Sulfur Cap to Locomotive and Marine Diesel Fuel

    In the NPRM, we requested comment on extending the 15 ppm cap to 
locomotive and marine diesel fuel in 2010 or some later year as part of 
this rule. The costs and inventory impacts of this alternative were 
explored in the context of Option 4 in the NPRM. A 15ppm sulfur cap for 
locomotive and marine fuel would increase the long-term PM and 
SO2 benefits of the rule and would reduce the number of 
fuels being carried in the distribution system after 2014, when the 
small refiner provisions of this rule expire. It would also allow 
refiners to plan to comply with the 15 ppm cap for locomotive and 
marine diesel fuel at the same time as they plan to comply with the 500 
ppm cap for NRLM fuel and the 15 ppm cap for nonroad fuel.
    As a result of comments received and additional analyses performed 
since the NPRM, we are finalizing a 15 ppm sulfur cap for locomotive 
and marine fuel in today's notice. A full discussion of the feasibility 
and benefits of a 15 ppm sulfur cap for locomotive and marine fuel can 
be found in section IV, along with a summary of the comments we 
received and our responses to those comments. In addition, we are 
planning a separate rule to implement new emission standards for 
locomotive and marine diesel engines that will build upon the 15 ppm 
sulfur standard applicable to fuel used by these engines. We are 
publishing an Advanced Notice of Proposed Rulemaking in another section 
of today's Federal Register describing our plans in this area.

D. Other Alternatives

    We also analyzed a number of other alternatives in the NPRM, as 
summarized in table VII-1. Some of these focused on control options 
more stringent than our final program while others reflect modified 
engine

[[Page 39152]]

requirements that result in less stringent control. In the NPRM we 
presented our assessment of these options in terms of the feasibility, 
emission reductions, costs, and other relevant factors. Few comments 
were received on these other alternatives, and no new information arose 
to alter what we believe are significant concerns with respect to these 
Options compared to the final program. Hence, with the exception of the 
few alternative program elements that we did incorporate into our final 
program as described earlier in this section, we did not include these 
options into our final program. Our detailed responses to all the 
comments received on the other alternatives can be found in section 8 
of the Summary and Analysis of Comments document.

VIII. Future Plans

    The above discussion describes the contents of this final rule. 
This section addresses a variety of areas not addressed by this rule. 
In these several areas, we expect to continue our efforts to improve 
our compliance programs and achieve further reductions in emissions 
from nonroad engines.

A. Technology Review

    As we described in sections III.E and G of the proposal, there are 
some technology issues that warrant our planning a future review of 
emissions control technology for engines under 75 hp. Under our 
implementation schedule presented in section II.A, standards based on 
the use of PM filter technology will take effect in the 2013 model year 
for 25-75 hp engines (or in the 2012 model year for manufacturers 
opting to skip the transitional standards for 50-75 hp engines). 
However, at this time we have not decided what long-term PM standards 
for engines under 25 hp are appropriate. No PM filter-based standards 
are being adopted for these under 25 hp engines in this final rule. 
Likewise, we have not decided what the long-term NOX 
standards for engines under 75 hp should be, and no NOX 
adsorber-based standards are being set for these engines in this final 
rule. As part of the technology review, we plan to thoroughly evaluate 
progress made toward applying advanced PM and NOX control 
technologies to these smaller engines.
    We plan to conduct the technology review in 2007, and to conclude 
it by the end of that year, to give manufacturers lead time should an 
adjustment in the program be considered appropriate. We do not intend 
to include in the technology review a reassessment of PM filter 
technology needed to meet the optional 0.02 g/hp-hr PM standard for 50-
75 hp engines in 2012. We assume that manufacturers would only choose 
this option if they had confidence that they could meet the 0.02 g/hp-
hr standard in 2012, a year earlier than otherwise required.
    Numerous commenters expressed support for the planned technology 
review. MECA and STAPPA/ALAPCO stressed that the review should not be 
limited to considering the need to relax PM filter-based standards for 
small engines, but should also consider technology innovations that 
would justify increasing the stringency of small engine standards that 
are not currently aftertreatment-based. This is indeed our intent. 
Yanmar suggested that the review be deferred to 2010 or later, because 
NOX control experience from highway diesels will not be 
sufficient by 2007. On the contrary, based on the rate of technology 
development progress to date for highway engines, we believe that there 
will be a very large amount of pertinent new information available by 
2007, even though widespread field experience may be lacking. Waiting 
longer to conduct the technology review would, we believe, provide 
insufficient leadtime to the industry should an adjustment to the 2013 
standards be found appropriate. Some engine and equipment manufacturers 
called for expanding the technology review to other power categories. 
As discussed in the proposal, we do not believe that a generalized 
technology review of the sort being conducted for the heavy-duty 
highway engine program is warranted, primarily due to the very fact 
that the nonroad standards are modeled on the highway program, and the 
highway program does include this comprehensive review. We also do not 
see the specific technical issues for engines above 75 hp that have 
been identified for smaller engines, such as might warrant our 
expanding the review at this time. Engine manufacturers also expressed 
interest in a consultative process in the near future that would 
establish the scope, outputs, and criteria for the review, possibly 
including assigning responsibility for the review to an independent 
entity. Although we plan and hope to have the active participation of 
all interested parties in the review process, assigning responsibility 
for the review to groups or individuals outside the Agency would be 
inappropriate. As the review would be closely tied to potential 
subsequent rulemaking action by the Agency, it is essential that it 
adequately cover the relevant issues. To ensure this, it is imperative 
that we retain overall responsibility for the review. We have not yet 
worked out process details for the review, but will do so at some later 
date.
    Several commenters strongly stressed the need for EPA to work with 
governmental standards-setting bodies in other countries to harmonize 
future standards. As discussed in section II.A.8, we recognize the 
importance of harmonizing nonroad diesel standards and have worked 
diligently with our colleagues responsible for setting such standards 
outside the U.S., thus far with good success. The March 2004 Directive 
that sets future nonroad diesel standards in the European Union (EU) 
will very closely align the EU program with our program in the Tier 4 
timeframe. \251\ Further enhancing prospects for close harmonization, 
the Directive includes plans for a future technical review: ``There are 
still some uncertainties regarding the cost effectiveness of using 
after-treatment equipment to reduce emissions of particulate matter 
(PM) and of oxides of nitrogen (NOX). A technical review 
should be carried out before 31 December 2007 and, where appropriate, 
exemptions or delayed entry into force dates should be considered.''
---------------------------------------------------------------------------

    \251\ Council of the European Union, Directive of the 
European Parliament and of the Council amending Directive 97/68/
EC, March 15, 2004.
---------------------------------------------------------------------------

    Note that the timing for this review coincides with that of our own 
planned review. Among other things, both our review and the EU review 
will consider the appropriate long-term standards for engines between 
25 and 50 hp, engines for which we have set PM-filter based standards 
and for which the EU has not. Furthermore, in addition to re-evaluating 
the standards, the EU technical review will consider the need to 
introduce standards for engines below 25 hp and above 750 hp, the two 
categories for which the EU has not yet set emission standards, and for 
which harmonization is thus most lacking. We are greatly encouraged by 
the degree of harmonization achieved thus far, and, given our common 
interests, issues and planned timing, expect to work closely with 
Commission staff in carrying out the 2007 technology review, with an 
aim of preserving and enhancing harmonization of standards.
    In response to comments received on the proposal, we wish to 
clarify that the technology review for engines under 75 hp will be a 
comprehensive undertaking that may result in adjustments to standards, 
implementation dates, or other provisions (such as flexibilities) in 
either direction ( that is, toward more or less stringency), depending 
on conclusions reached in the review about

[[Page 39153]]

appropriate standards under the Clean Air Act. All relevant factors 
including technical feasibility and commercial viability of engines and 
machines designed to meet the standards will be taken into account.

B. Test Procedure Issues

    Section III describes two issues related to test procedures that 
warrant further attention in the future. First, we are adopting 
transient test procedures for engines subject to Tier 4 emission 
standards, but we intend to collect data that would help us adopt a 
duty cycle that would appropriately test constant-speed engines. 
Second, we are adopting cold-start test procedures, but are interested 
in collecting additional data that could be used to revise those 
procedures if appropriate.

C. In-Use Testing

    Although this final rule does not include an in-use testing program 
for nonroad diesel engines, we expect to establish such a program for 
the future in a separate rulemaking action. The goal of this program 
will be to ensure that emissions standards are met throughout the 
useful life of the engines, under conditions normally experienced in-
use. The Agency expects to pattern the in-use testing requirements for 
nonroad diesel engines after a program that is being developed for 
heavy-duty diesel highway vehicles. This program will be funded and 
conducted by the manufacturer's of heavy-duty diesel highway engines 
with our oversight. We expect it will incorporate a two-year pilot 
program. The pilot program will allow the Agency and manufacturers to 
gain the necessary experience with the in-use testing protocols and 
generation of in-use test data using portable emission measurement 
devices prior to fully implementing program. A similar pilot program is 
expected to be part of any manufacturer-run, in-use NTE test program 
for nonroad engines.
    The Agency plans to promulgate the in-use testing requirements for 
heavy-duty highway vehicles in the December 2004 time frame. We 
anticipate proposing a manufacturer-run, in-use testing program for 
nonroad diesel engines by 2005 or earlier. As mentioned above, the 
nonroad diesel engine program is expected to be patterned after the 
heavy-duty highway program.

D. Engine Diagnostics

    We are also in the process of defining diagnostic requirements that 
would apply to highway diesel engines. Once we have adopted 
requirements for highway engines, we would aim to adapt the 
requirements as needed to appropriately address diagnostic needs for 
nonroad diesel engines. These programs would likely be very similar, 
but the diagnostics for nonroad engines my need to differ in some ways, 
depending on the technologies used by different types and sizes of 
engines and on an assessment of an appropriate level of information and 
control for engines used in nonroad applications.

E. Future NOX Standards for Engines in Mobile Machinery Over 
750 hp

    In section II.A.4, we explain that we are not, at this time, 
setting Tier 4 NOX standards for mobile machinery over 750 
hp based on the performance of high-efficiency aftertreatment, although 
we note that the 2.6 g/bhp-hr NOX standard taking effect for 
these engines in 2011 represents a more than 60% NOX 
reduction from the 6.9 g/bhp-hr Tier 1 level in effect today, and a 
more than 40% reduction from the 4.8 g/bhp-hr NOX+NMHC Tier 
2 standard level that takes effect in 2006. We are still evaluating the 
issues involved for these engines to achieve a more stringent 
NOX standard, and believe that these issues are resolvable. 
We intend to continue evaluating the appropriate long-term 
NOX standard for mobile machinery over 750 hp and expect to 
announce further plans regarding these issues, perhaps as early as 
2007.

F. Emission Standards for Locomotive and Marine Diesel Engines

    This final rule adopts limited requirements to limit sulfur levels 
in distillate fuels used in locomotive and many marine diesel engines, 
which will help reduce PM emissions from these engines. In an upcoming 
rulemaking, we will consider an additional tier of NOX and 
PM standards for marine diesel engines less than 30 liters per cylinder 
and for locomotive engines. These standards would reflect the 
application of advanced emission-control technology, including the 
potential to use the high-efficiency catalytic emission-control devices 
like those described elsewhere in this preamble. In developing these 
new standards, we will consider the substantial overlap in engine 
technology between the locomotive and marine engines and the nonroad 
engines covered by this final rule. We will also take into account the 
unique features associated with locomotive and marine engines (and 
their respective markets) and the extent to which these differences may 
constrain the feasibility of applying advanced emission control 
technologies to those engines.
    We are concurrently publishing an Advance Notice of Proposed 
Rulemaking that describes the emission-control program we are 
contemplating for these engines. After consideration of comments 
submitted on the Advance Notice, we will publish a Notice of Proposed 
Rulemaking. Our proposal will be subject to comment before its expected 
completion in the 2006 time frame.
    The engine emission control program to be described in the Advance 
Notice will cover all locomotive engines subject to 40 CFR part 92 and 
all marine diesel engines with displacement below 30 liters per 
cylinder. Note that the rule will therefore cover marine diesel engines 
below 37 kW, which are currently regulated through Tier 3 with land-
based nonroad engines in 40 CFR part 89. The rule will also address 
both recreational and commercial marine diesel engines with 
displacement below 30 liters per cylinder. Marine engines at or above 
30 liters per cylinder typically use a different kind of fuel, residual 
fuel, and will be considered in a separate rulemaking to be finalized 
by April 27, 2007, pursuant to a regulatory provision adopted in our 
recent rule setting standards for those engines (68 FR 9783, February 
28, 2003).

G. Retrofit Programs

    In the proposal, we requested comment on setting voluntary new 
engine emission standards applicable to the retrofit of nonroad diesel 
engines. As described in section III.A, we are not adopting a retrofit 
credit program with today's action. We believe it is important to more 
fully consider the details of a retrofit credit program and work with 
interested parties in determining whether a viable program can be 
developed. EPA intends to explore the possibility of a voluntary 
nonroad retrofit credit program through future action.

H. Reassess the Marker Specified for Heating Oil

    As discussed in sections IV and V, we are requiring that the 
chemical marker solvent yellow 124 (SY-124) be added to heating oil 
outside of the Northeast/Mid-Atlantic Area. We received comments from 
the American Society of Testing and Materials (ASTM), the Coordinating 
Research Council (CRC), the Department of Defense (DoD), and the 
Federal Aviation Administration (FAA) requesting that we delay 
finalizing the selection of a specific marker for use in this final 
rule due to concerns for jet fuel contamination. ASTM withdrew its 
request for a postponement in the regulation, given

[[Page 39154]]

that this final rule requires addition of the marker at the terminal, 
rather than the refinery gate as proposed. This eliminates most of the 
concern regarding jet fuel contamination. However, ASTM stated that 
some concern remains regarding jet fuel contamination downstream of the 
terminal. Nevertheless, ASTM related that these concerns need not delay 
finalization of the marker requirements in this rule, since a CRC 
program to evaluate these concerns is expected to be completed well 
before SY-124 must be added to heating oil. FAA is also undertaking an 
effort to identify fuel markers that would be compatible for use in jet 
fuel.
    We also received comments from the heating oil industry and the 
Department of Defense, which expressed concerns regarding the potential 
health effects and maintenance impacts on heating oil equipment from 
the use of SY-124 in heating oil. As discussed in section V, we believe 
these concerns have been adequately addressed for us to specify the use 
of SY-124 in this final rule. The EU has required the use of SY-124 in 
heating oil since August 2002. The EU intends to re-evaluate the use of 
SY-124 after December 2005 or earlier if they learn of any health, 
safety, or environmental concerns from their in-use experience with SY-
124.
    We will keep abreast of the ASTM, CRC, FAA, IRS, and EU activities 
and commit to a review of our use of SY-124 under today's rule based on 
these findings. If alternative markers are identified that do not raise 
concerns regarding the potential contamination of jet fuel, we will 
initiate a rulemaking to evaluate the use of one of these markers in 
place of SY-124.

IX. Public Participation

    Many interested parties provided their input on the proposed 
rulemaking during our public comment period. This comment period, along 
with the three public hearings that were held in New York, Chicago, and 
Los Angeles, provided ample opportunity for public participation. 
Throughout the rulemaking process, EPA met with stakeholders including 
representatives from the fuel refining and distribution industry, 
engine and equipment manufacturing industries, emission control 
manufacturing industry, environmental organizations, states, 
agricultural interests, and others.
    A detailed Response to Comments document was prepared for this 
rulemaking that describes the comments that we received on the proposal 
along with our response to each of these comments. The Response to 
Comments document is available in the air docket and e-docket for this 
rule, as well as on the Office of Transportation and Air Quality 
homepage. In addition, comments and responses for many key issues are 
included throughout this preamble.

X. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to review by the Office of Management and Budget 
(OMB) and the requirements of this Executive Order. The Executive 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.
    A final Regulatory Impact Analysis has been prepared and is 
available in the docket for this rulemaking and at the internet address 
listed under ``How Can I Get Copies of This Document and Other Related 
Information?'' above. This action was submitted to the Office of 
Management and Budget for review under Executive Order 12866. Estimated 
annual costs of this rulemaking are estimated to be $2 billion per 
year, thus this proposed rule is considered economically significant. 
Written comments from OMB and responses from EPA to OMB comments are in 
the public docket for this rulemaking.

B. Paperwork Reduction Act

    The information collection requirements in this rule have been 
submitted for approval to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The 
information collection requirements are not enforceable until OMB 
approves them. The OMB control number for engine-related information 
collection is 2060-0460 (EPA ICR number 1897.07) and for fuel-related 
information collection is 2060-0308 (EPA ICR number 1718.07).
    We will use the engine-related information to ensure that new 
nonroad diesel engines comply with emission standards through 
certification requirements and various subsequent compliance 
provisions. This information collection is mandatory under the 
provisions of 42 U.S.C. 7401-7671(q). We will use the fuel-related 
information to ensure that diesel fuel meets the sulfur limits and 
corresponding requirements related to marking and segregating the 
different types and grades of diesel fuel. This information collection 
is mandatory under the provisions of 42 U.S.C. 7545(c), (g) and (i), 
and 7625-1.
    In addition, this notice announces OMB's approval of the 
information collection requirements for other programs, as summarized 
in Table X.B-1.

                    Table X.B-1--Approved Information Collection Requests From Other Programs
----------------------------------------------------------------------------------------------------------------
                                                             OMB control
              Program                  Final rule cite         number      EPA ICR number       OMB approval
----------------------------------------------------------------------------------------------------------------
Nonroad spark-ignition engines      November 8, 2002 (67        2060-0460         1897.04  January 31, 2003.
 over 19 kW.                         FR 68242).
Recreational vehicles.............  November 8, 2002 (67        2060-0460         1897.04  January 31, 2003.
                                     FR 68242).
Rebuilders of various types of      November 8, 2002 (67        2060-0104         0783.46  June 11, 2003.
 engines.                            FR 68242).
Highway motorcycles...............  January 15, 2004 (69        2060-0104         0783.46  March 26, 2004.
                                     FR 2398).
----------------------------------------------------------------------------------------------------------------


[[Page 39155]]

    The estimated annual public reporting and recordkeeping burden for 
collecting information from all these programs is shown in Table X.B-2. 
Burden means the total time, effort, or financial resources expended by 
persons to generate, maintain, retain, or disclose or provide 
information to or for a Federal agency. This includes the time needed 
to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.

                                                      Table X.B-2.--Information Collection Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Operating and
                                                                             Hours per     Hours for all   Capital costs    maintenance     Total costs
                       Engine type                          Respondents     respondent      respondents       for all      costs for all      for all
                                                                                                            respondents     respondents     respondents
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonroad diesel engine manufacturers.....................              75           3,304         247,783              $0      $5,894,802     $18,661,614
Diesel fuel suppliers...................................           2,615              75         196,288       1,800,000       1,800,000      18,371,600
Nonroad spark-ignition engine manufacturers.............              12           1,832          21,986         174,419       2,507,790       3,617,683
Recreational vehicle manufacturers......................              39             684          26,669       1,627,907       2,137,115       4,869,253
Highway motorcycles.....................................              46              32           1,449               0          23,686          79,428
Importers...............................................              40              13             529               0         150,000         169,223
Rebuilders..............................................             200               6           1,200               0               0          38,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 in 40 CFR are listed in 40 CFR part 9. When this ICR is 
approved by OMB, the Agency will publish a technical amendment to 40 
CFR part 9 in the Federal Register to display the OMB control number 
for the approved information collection requirements contained in this 
final rule. EPA received various comments on the rulemaking provisions 
covered by the ICRs, but no comments on the paperwork burden or other 
information in the ICRs. All comments that were submitted to EPA are 
considered in the relevant Summary and Analysis of Comments, which can 
be found in the docket. A copy of any of the submitted ICR documents 
may be obtained from Susan Auby, Collection Strategies Division, U.S. 
Environmental Protection Agency (2822-T), 1200 Pennsylvania Ave., NW., 
Washington, DC 20460 or by e-mail at [email protected].
    To comment on the Agency's need for this information, the accuracy 
of the provided burden estimates, and any suggested methods for 
minimizing respondent burden, including the use of automated collection 
techniques, EPA has a public docket for this rule, which includes this 
ICR, under Docket ID number OAR-2003-0012. Submit any comments related 
to the ICR for this rule to EPA and OMB. Address comments to OMB by e-
mail to [email protected] or fax to (202) 395-7285. Please do not 
send comments to OMB via U.S. Mail.

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

    EPA has decided to prepare a Regulatory Flexibility Analysis (RFA) 
in connection with this final rule. For purposes of assessing the 
impacts of today's rule on small entities, a small entity is defined 
as: (1) A small business that is primarily engaged in the manufacturing 
of nonroad diesel engines and equipment that meets the definitions 
based on the Small Business Administration's (SBA) size standards (see 
table X.C.-1 below); (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.

 Table X.C-1.--Small Business Administration Size Standards for Various
                           Business Categories
------------------------------------------------------------------------
                                Defined as small
           Industry               entity by SBA      Major SIC a Codes
                                       if:
------------------------------------------------------------------------
Engine manufacturers..........  Less than 1,000   Major Group 35.
                                 employees.
Equipment manufacturers:
    --Construction equipment..  Less than 750     Major Group 35.
                                 employees.
    --Industrial truck          Less than 750     Major Group 35.
     manufacturers (i.e.         employees.
     forklifts).
    --All other nonroad         Less than 500     Major Group 35.
     equipment manufacturers.    employees.
Fuel refiners.................  Less than 1500    2911.
                                 employees b.
Fuel distributors.............  ........  
------------------------------------------------------------------------
Notes:
a Standard Industrial Classification.
b EPA has included in past fuels rulemakings a provision that, in order
  to qualify for the small refiner flexibilities, a refiner must also
  have a company-wide crude refining capacity of no greater than 155,000
  barrels per calendar day. EPA has included this criterion in the small
  refiner definition for a nonroad diesel sulfur program as well.


[[Page 39156]]

    Pursuant to 5 U.S.C. 603, EPA prepared an Initial Regulatory 
Flexibility Analysis (IRFA) for the proposed rule and convened a Small 
Business Advocacy Review Panel (SBAR Panel, or ``the Panel'') to obtain 
advice and recommendations of representatives of the regulated small 
entities pursuant to 5 U.S.C. 609(b) (see 68 FR 28518-28521, May 23, 
2003). A detailed discussion of the Panel's advice and recommendations 
can be found in the Panel Report (Docket A-2001-28, Document No. II-A-
172). See also section III.C above.
    We have also prepared a Regulatory Flexibility Analysis for today's 
rule. The Regulatory Flexibility Analysis addresses the issues raised 
in public comments on the IRFA, which was part of the proposal of this 
rule. The Regulatory Flexibility Analysis is available for review in 
the docket and is summarized below. The key elements of a regulatory 
flexibility analysis include--

--The need for, and objectives of, the rule;
--The significant issues raised by public comments, a summary of the 
Agency's assessment of those issues, and a statement of any changes 
made to the proposed rule as a result of those comments;
--The types and number of small entities to which the rule will apply;
--The reporting, recordkeeping and other compliance requirements of the 
rule; and
--The steps taken to minimize the impact of the rule on small entities, 
consistent with the stated objectives of the applicable statute.
1. Need for and Objectives of the Rule
    Controlling emissions from nonroad engines and equipment, in 
conjunction with controls on sulfur concentrations in diesel fuel, has 
very significant public health and welfare benefits, as explained in 
section I of this preamble. We are finalizing new engine standards and 
related provisions under sections 213(a)(3) and (4) of the Clean Air 
Act which, among other things, direct us to establish (and from time to 
time revise) emission standards for new nonroad diesel engines. 
Similarly, section 211(c)(1) authorizes EPA to regulate fuels if any 
emission product of the fuel causes or contributes to air pollution 
that may endanger public health or welfare, or that may impair the 
performance of emission control technology on engines and vehicles. We 
are finalizing new fuel standards today for both of these reasons.
2. Summary of Significant Public Comments on the IRFA
    We received comments from engine and equipment manufacturers, fuel 
refiners, fuel distributors and marketers, and consumers during the 
public comment period following the proposal of this rulemaking. All of 
the following comments were taken into account in developing today's 
final rule. Responses to these comments are located in subsection 5 
below, along with the description of the provisions that we are 
finalizing to reduce the rule's impact on small businesses. More 
detailed information in response to these comments can be found in 
sections III.C. (Engine and Equipment Small Business Provisions) and 
IV.B (Hardship Relief Provisions for Qualifying Refiners) of this 
preamble. Additional detail may also be found in the Final Regulatory 
Flexibility Analysis, located in the Regulatory Impact Analysis, as 
well as in the Summary and Analysis of Comments for this final rule.
a. Public Comments Received on Engine and Equipment Standards
    One small engine manufacturer commented that the proposed 
provisions for small business engine manufacturers are appropriate and 
strongly supported their inclusion in the final rule. The manufacturer 
raised many concerns of why it believes that it is necessary to include 
provisions, such as: Larger/higher-volume manufacturers will have 
priority in supply of new technologies and will have more R&D time to 
complete development of these systems before they are available to 
smaller manufacturers; smaller manufacturers do not command the same 
amount of attention from potential suppliers of critical technologies 
for Tier 4 controls, and are thus concerned that they may not be able 
to attract a manufacturer to work with them on the development of 
compliant technologies. This small manufacturer believes that the 
additional three-year time period proposed for small engine 
manufacturers in the NPRM is necessary for the company, and is their 
estimate of the time that it will take for these technologies to be 
available to small engine manufacturers.
    The Small Business Administration's Office of Advocacy 
(``Advocacy'') raised the concern that the rule would impose 
significant burdens on a substantial number of small entities producing 
engines of 75 hp or less, with little corresponding environmental 
benefit. Advocacy therefore recommended that PM standards for engines 
in the 25-75 hp range not be based on performance of aftertreatment 
technologies. Advocacy believed that the proposed flexibilities will 
not suffice on their own to appropriately minimize the regulatory 
burdens on small entities; and Advocacy noted that during the SBREFA 
process some small equipment manufacturers stated that although EPA 
would allow some equipment to be sold which would not require new 
emissions controls, engine manufacturers would not produce or sell such 
equipment. Advocacy also commented that we have not shown that 
substantial numbers of small businesses have taken advantage of 
previous small business flexibilities, or that small businesses would 
be able to take advantage of the flexibilities under this rule. Lastly, 
Advocacy commented that although full compliance with the more 
stringent emissions controls requirements would be delayed for small 
manufacturers, small business manufacturers eventually will be required 
to produce equipment meeting the new requirements.
b. Public Comments Received on Fuel Standards
i. General Comments on Small Refiner Flexibility
    One small refiner commented that it is not feasible at this time to 
evaluate the impact of the three fuels regulations on the refining 
industry (and small refiners), however it stated that we should 
continue to evaluate the impacts and act quickly to avoid shortages and 
price spikes and we should be prepared, if necessary, to act quickly in 
considering changes in the regulations to avoid these problems. We also 
received comment that some small refiners that produce locomotive and 
marine fuels fear that future sulfur reductions to these markets could 
be very damaging.
ii. Comments on the Small Refiner Definition
    A small refiner commented that the proposed redefinition of a small 
refiner (to not grandfather as small refiners those that were small for 
highway diesel) would both negate the benefits afforded under the small 
refiner provisions in the Highway Diesel Sulfur rule and disqualify its 
status as a small refiner. The small refiner is, however, in support of 
the addition of the capacity limit in the small refiner definition 
which will correct the problem of the inadvertent loop-hole in the two 
previous fuel rules. Though the refiner is concerned that the wording 
of the proposed language may result in small

[[Page 39157]]

refiners such as itself, who grew by normal business practice, being 
disqualified as small refiners. The refiner suggested that we clarify 
the language and include provisions for continuance of small refiner 
flexibility for refiners who qualified under the Highway Diesel Sulfur 
rule (and have not been disqualified as the result of a merger or 
acquisition).
iii. Comments on the Baseline Approach
    A coalition of small refiners provided comments on a few aspects of 
concern. The small refiners believe that the fuel segregation, and 
ensuing marking and dying, provisions are quite complex. One small 
refiner believes that mandating a minimum volume of NRLM production 
would conflict with the purpose of maintaining adequate on-highway 
volumes of 15 ppm sulfur fuel and unnecessarily restricts small 
refiners, and offered suggestions in their comments on how to improve 
the language. In addition, the small refiner believes that mandating a 
minimum volume of NRLM production would conflict with the purpose of 
maintaining adequate on-highway volumes of 15 ppm sulfur fuel and 
unnecessarily restricts small refiners, and offered suggestions in 
their comments on how to improve the language.
iv. Comments on Small Refiner ``Option 4''
    A coalition of small refiners commented that if the final rule is 
not issued before January 1, 2004, a provision should be made to 
accommodate those small refiners planning to take advantage of the 
proposed small refiner ``Option 4'' (the NRLM/Gasoline Compliance 
option). A small refiner echoed the concerns of the small refiner 
coalition, commenting that delayed finalization of the final rule would 
undermine the benefits of small refiner flexibility Option 4. The small 
refiner is concerned that a delay in issuing the rule, and subsequent 
delay in the opportunity to apply the interim gasoline flexibility, 
would negate its opportunity to take full advantage of the credits the 
refiner now has, as it would not be able to comply with the 300 ppm 
cap. The small refiner suggested that we allow small refiners to apply 
for temporary relief and operate under the Option 4 provision. Another 
small refiner commented that, in the NPRM, it was unclear if a small 
refiner could elect to use any or all of the first three of the small 
refiner provisions if it did not elect to use Option 4. Further, the 
refiner understood that if Option 4 was chosen, a small refiner could 
not use any of the first three options. The refiner believes that it is 
important that a small refiner be able to use Options 1, 2, and 3 in 
combination with each other, and stated that we need to clarify the 
intent in the final rule. The small refiner also commented that the 
provisions in 40 CFR 80.553 and 80.554 are not clear and should be 
revised to clarify their intent. Specifically, the refiner questioned 
whether or not a small refiner who committed to producing ULSD by June 
1, 2006 in exchange for an extension of its interim gasoline sulfur 
standards (under 40 CFR 80.553) could elect to exercise the options 
allowed under 40 CFR 80.554.
    A small refiner raised the concern that the small refiner Option 4 
only provides an adjustment to those small refiners whose small refiner 
gasoline sulfur standards were established through the hardship process 
of 40 CFR 80.240. The small refiner suggested that we finalize a 
compliance option that allows a 20 percent increase in small refiner 
gasoline sulfur standards be extended to all small refiners, not just 
those with standards established pursuant to 40 CFR 80.240(a), and 
offers suggested language in its comments.
v. Comments on Emission Impacts of the Small Refiner Provisions
    A state environmental group commented that the provisions for small 
refiners raise substantial environmental concerns. The group is 
concerned that these provisions will allow small refiners the ability 
to produce gasoline with an unknown sulfur content for an unknown 
length of time; this fuel may then be sold at the refiner's retail 
outlet, and may become the primary fuel for some vehicles, which alters 
vehicle fleet emissions performance. This environmental group also 
commented that the absence of any process of notification regarding 
small business provisions to notify States of these provisions is 
troubling. The concern is that these deviations from fuel content that 
affects fuels consumed in states that use emissions inventories for air 
quality planning purposes, and can significantly alter inventories. The 
group suggested that in the future there should be greater 
communication from us regarding decisions that impact the quality of 
fuels consumed in a state, and thus impact the quality of that state's 
air.
    Another state environmental group commented on the flexibility 
provisions for small refiners; the group is concerned that the 
exemption will not have a minor effect on the nation's fuel supply, as 
the state is an intermountain western state. The group comments that 
the impact of this exemption is concentrated in these states, namely 
Washington and Oregon--states which are served primarily by refineries 
that will be allowed to delay compliance with the ULSD standards until 
2014. Therefore, the group commented, residents of these areas are 
denied air quality benefits equivalent to those promised the rest of 
the country. Those seeking to purchase and use equipment in these areas 
will be subject to the ULSD standard regardless of fuel supply and 
availability in their area, would be faced with misfueling, deferring 
purchase of new equipment, or paying a premium for a ``boutique'' fuel.
vi. Comments on Inclusion of a Crude Capacity Limit for Small Refiners 
and Leadtime Afforded for Mergers and Acquisitions
    A non-small refiner supported the inclusion of the 155,000 bpcd 
limit, but suggested that we limit the provision of affording a two-
year leadtime to small refiners who lose their small status due to 
merger or acquisition to the case where a small refiner merges with 
another small refiner. Further, the refiner commented that it would be 
inappropriate to allow such small refiners to be able to generate 
credits for ``early'' production of lower sulfur diesels during this 
two-year leadtime. Lastly, the refiner commented that a small refiner 
which acquires a non-small refiner, and thus loses its small refiner 
status, should not be eligible for hardship provisions. Another 
commenter stated that if we were to finalize the 155,000 bpcd limit, we 
should not apply it in cases of a merger between two small refiners. 
The commenter further stated that a merger of two small companies in a 
hardship condition does not imply improved financial health in the same 
way that an acquisition would. Another non-small refiner commented that 
it supports the two-year lead time for refineries that lose their 
status as a small refiner; the refiner believes that any refiner with 
the financial wherewithal to acquire additional refineries to allow its 
crude capacity to exceed 155,000 bpcd should not be able to retain 
status as a small refiner.
vii. Necessity of Small Refiner Program
    A non-small refiner provided comment on the NPRM stating the belief 
that the proposed provisions for small refiners are not practical. The 
refiner is concerned that having provisions for small refiners adds a 
level of complication, results in emissions losses, increases the 
potential for ULSD contamination, and create an unfair situation in the 
marketplace. Similarly,

[[Page 39158]]

another non-small refiner and a trade group representing many refiners 
and others in the fuels industry commented that they oppose the 
extension of compliance deadlines for small refiners, as this can 
result in inequitable situations that may affect the refining industry 
for some time and can put the distribution system at risk for 
contamination of lower sulfur fuels. They further stated that all 
refiners will face challenges in complying with the upcoming standards 
and would not significantly alter the business decisions that small 
refiners would make. They also stated that non-small refiners face 
similar issues with their older and/or smaller refineries, but will not 
have the benefit of being able to postpone making these decisions as 
small refiners will.
viii. Comments on Fuel Marker
    We received comments from terminal operators stating that the 
proposed heating oil marker requirements would force small terminal 
operators to install expensive injection equipment and that they would 
not be able to recoup the costs.
3. Types and Number of Small Entities
    The small entities directly regulated by this final rule are 
nonroad diesel engine and equipment manufacturers, nonroad diesel fuel 
refiners, and nonroad diesel fuel distributors and marketers. These 
categories are described in more detail below, and the definitions of 
small entities in those categories are listed in table X.C-1 above.
a. Nonroad Diesel Engine Manufacturers
    Before beginning the SBREFA process, EPA conducted an industry 
profile for the nonroad diesel sector. We have not received any new 
information since that time and we continue to believe that this is a 
valid characterization of the industry. Using information from the 
industry profile, EPA identified a total of 61 engine manufacturers. 
The top 10 engine manufacturers comprise 80 percent of the total 
market, while the other 51 companies make up the remaining 20 percent. 
\252\ Of the 61 manufacturers, four fit the SBA definition of a small 
entity. These four manufacturers were Anadolu Motors, Farymann Diesel 
GMBH, Lister-Petter Group, and V & L Tools (parent company of Wisconsin 
Motors LLC, formerly ``Wis-Con Total Power''). These businesses 
comprised eight percent of the total nonroad engine sales for the year 
2000.
---------------------------------------------------------------------------

    \252\ All sales information used for this analysis was 2000 
data.
---------------------------------------------------------------------------

b. Nonroad Diesel Equipment Manufacturers
    We also used the industry profile to determine the number of 
nonroad small business equipment manufacturers. EPA identified over 700 
manufacturers with sales and/or employment data that could be included 
in the screening analysis. These businesses included manufacturers in 
the construction, agricultural, mining, and outdoor power equipment 
(mainly, lawn and garden equipment) sectors of the nonroad diesel 
market. The equipment produced by these manufacturers ranged from small 
walk-behind equipment (sub-25 hp engines) to large mining and 
construction equipment (using engines in excess of 750 hp). Of the 
manufacturers with available sales and employment data (approximately 
500 manufacturers), nonroad small business equipment manufacturers 
represent 68 percent of total nonroad equipment manufacturers (and 
these manufacturers accounted for 11 percent of nonroad diesel 
equipment industry sales in 2000).
c. Nonroad Diesel Fuel Refiners
    Our current assessment is that 26 refiners (collectively owning 33 
refineries) meet SBA's definition of a small business for the refining 
industry. The 33 refineries appear to meet both the employee number and 
production volume criteria mentioned above. These small refiners 
currently produce approximately 6 percent of the total high-sulfur 
diesel fuel. It should be noted that because of the dynamics in the 
refining industry (e.g., mergers and acquisitions), the actual number 
of refiners that ultimately qualify for small refiner status under the 
nonroad diesel sulfur program could be different than this assessment.
d. Nonroad Diesel Fuel Distributors and Marketers
    The industry that transports, distributes, and markets nonroad 
diesel fuel encompasses a wide range of businesses, including bulk 
terminals, bulk plants, fuel oil dealers, and diesel fuel trucking 
operations, and totals thousands of entities that have some role in 
this activity. Over 90 percent of these entities meet small entity 
criteria. Common carrier pipeline companies are also a part of the 
distribution system; 10 of them are small businesses.
4. Reporting, Recordkeeping and Other Compliance Requirements
    This section describes the expected burden of the compliance 
requirements (for all manufacturers and refiners) for the standards 
being finalized in today's action.
a. Nonroad Diesel Engine and Equipment Manufacturers
    For engine and equipment standards, we must have the assurance that 
engines and/or equipment produced by manufacturers meet the applicable 
standard, and will continue to meet this standard as the equipment 
passes through to the ultimate end user. We are continuing many of the 
reporting, recordkeeping, and compliance requirements prescribed for 
nonroad engines and equipment, as set out in 40 CFR part 89. These 
include, certification requirements and reporting of production, 
emissions information, use of transition provisions, etc. The types of 
professional skills required to prepare reports and records are also 
similar to the types of skills that were needed to meet the regulatory 
requirements set out in 40 CFR part 89. Key differences in the 
requirements of today's rule as related to 40 CFR part 89 are the 
additional testing and defect reporting. We are finalizing an increase 
in the number of data points (i.e., transient testing) that will be 
required for reporting emissions information. Also, as proposed, we are 
requiring additional defect reporting for Tier 4 and later engines. We 
are requiring that manufacturers report to us if they learn that a 
substantial number of their engines have emission-related defects. This 
is generally not a requirement to collect information; however if 
manufacturers learn that there are or might be a substantial number of 
emission-related defects, then they must send us information describing 
the defects.
b. Nonroad Diesel Fuel Refiners, Distributors, and Marketers
    For any fuel control program, we must have the assurance that fuel 
produced by refiners meets the applicable standard, and that the fuel 
continues to meet this standard as it passes downstream through the 
distribution system to the ultimate end user. This is particularly 
important in the case of diesel fuel, where the aftertreatment 
technologies expected to be used to meet the engine standards are 
highly sensitive to sulfur. Many of the recordkeeping, reporting and 
compliance provisions of the today's action are fairly consistent with 
those in place today for other fuel programs,

[[Page 39159]]

including the current 15 ppm highway diesel regulation. For example, 
recordkeeping involves the use of product transfer documents, which are 
already required under the 15 ppm highway diesel sulfur rule (40 CFR 
80.560). Under today's final rule we are adding additional 
recordkeeping and reporting requirements for refiners, importers, and 
fuel distributors to implement the designate and track provisions. 
However, interactions with parties from all segments of the 
distribution system indicated that the records necessary were analogous 
to records already kept as a normal process of doing business. 
Consequently, the only significant additional burden would be 
associated with the reporting requirement.
    General requirements for reporting for refiners and importers 
include: registration (only in the case where a refiner or importer is 
not registered under a previous fuel program), pre-compliance reports 
(on a refiner or importer's progress towards meeting the nonroad diesel 
fuel requirements as specified in this rule), quarterly designation 
reports, and annual reports. All parties from the refiner to the 
terminal will be required to report volumes of designated fuels 
received and distributed, as well as compliance with quarterly and 
annual limits. All parties in the distribution system are required to 
keep product transfer documents (PTDs), though refiners and importers 
are required to initially generate and provide information on 
commercial PTDs that identify the diesel fuel with meeting specific 
needs (i.e., 15 ppm highway diesel, 500 ppm highway diesel, etc.). 
Also, refiners in Alaska and small refiner/credit fuel users must 
report end users of their fuel. These end users must also keep records 
of these fuel purchases. Lastly, small refiners are required to apply 
for small refiner status and small refiner baselines.
    In general, we are requiring that all records be kept for at least 
five years. This recordkeeping requirement should impose little 
additional burden, as five years is the applicable statute of 
limitations for current fuel programs.
    See section X.B, above, for a discussion of the estimated burden 
hours and costs of the recordkeeping and reporting that will be 
required by this final rule. Detailed information on the reporting and 
recordkeeping measures associated with this rulemaking are described in 
the Information Collection Requests (ICRs) for this rulemaking--1897.05 
for nonroad diesel engines, and 1718.05 for fuel-related items.
5. Regulatory Alternatives To Minimize Impact on Small Entities
    Below we discuss the Panel recommendations, EPA proposals, and 
final regulatory alternatives to minimize the rule's impact on small 
entities. More detailed information on the provisions for these 
entities can be found in sections III.C and IV.B of this preamble (for 
small business engine and equipment manufacturers and small entities 
throughout the fuel distribution system, respectively).
a. Panel Recommendations
    During the SBREFA process, the Panel recommended transition 
flexibilities that we considered during the development of the NPRM. 
The Panel recommended provisions for both the one-step and two-step 
options. Since we are finalizing a two-step approach, only the 
recommendations for this approach are being discussed here. (A complete 
discussion of all of the Panel recommendations and our proposals for 
small entities is located in section X.C. of the NPRM.)
    Following the SBREFA process, the Panel (or some Panel members), 
recommended the following transition flexibilities and hardship 
provisions to help mitigate the impacts of the rulemaking on small 
entities. We proposed and requested comment on these recommendations in 
the NPRM.
i. Panel Recommendations for Small Business Engine Manufacturers
    For nonroad diesel small business engine manufacturers, we proposed 
the following provisions:
     A manufacturer must have certified in model year 2002 or 
earlier and would be limited to 2500 units per year to be eligible for 
all provisions set out below;
     For PM--

--Small engine manufacturers could delay compliance with the standards 
for up to three years for engines under 25 hp, and those between 75 and 
175 hp (as these engines only have one standard)
--small engine manufacturers have the option to delay compliance for 
one year if interim standards are met for engines between 50 and 75 hp 
(for this power category we are treating the PM standard as a two phase 
standard with the stipulation that small manufacturers cannot use PM 
credits to meet the interim standard; also, if a small manufacturer 
elects the optional approach to the standard (elects to skip the 
interim standard), no further relief will be provided)

     for NOX \253\
---------------------------------------------------------------------------

    \253\ There is no change in the NOX standard for 
engines under 25 hp and those between 50 and 75 hp. For these two 
power bands EPA proposed no special provisions.
---------------------------------------------------------------------------

--A three year delay in the program for engines in the 25-50 hp and the 
75-175 hp categories, consistent with the one-phase approach 
recommendation above;

     A small engine manufacturer could be afforded up to two 
years of hardship (in addition to the transition flexibilities) upon 
demonstrating to EPA a significant hardship situation;
     Small engine manufacturers would be able to participate in 
an averaging, banking, and trading (ABT) program (which we proposed as 
part of the overall rulemaking program for all manufacturers);
     Engines under 25 hp would not be subject to standards 
based on use of advanced aftertreatment; and,
     No NOX aftertreatment-based standards for 
engines 75 hp and under.
ii. Panel Recommendations for Small Business Equipment Manufacturers
    We proposed the following provisions for nonroad diesel small 
business equipment manufacturers:
     Small business nonroad diesel equipment manufacturers must 
have reported equipment sales using certified engines in model year 
2002 or earlier to be eligible for all provisions;
     Essential continuance of the transition flexibilities 
offered for the Tier 1 and Tier 2 nonroad diesel emission standards (40 
CFR 89.102), which are available to all nonroad diesel equipment 
manufacturers

--`Percent-of-production allowance'--over seven model-year period 
manufacturers may install engines not certified to the new emission 
standards in an amount of equipment equivalent to 80 percent of one 
year's production, implemented by power category with the average 
determined over the period in which the flexibility is used (this 
proposal would afford additional flexibility over the comparable 
flexibility in Tier 2/3, however, because of the smaller number of 
horsepower categories in the Tier 4 rule)
--`Small volume allowance'--a manufacturer may exceed the 80 percent 
allowance in seven years as described above, provided that the previous 
Tier engine use does not exceed 700 total over seven years, and 200 in 
any given year, limited to one family per power category; 
alternatively, at the manufacturer's choice by horsepower category, a

[[Page 39160]]

program that eliminates the ``single family provision'' restriction 
with revised total and annual sales limits as shown below:

<=175 hp: 525 previous Tier engines (over 7 years) with an annual cap 
of 150 units (separate for each hp category)
>175 hp: 350 previous Tier engines (over 7 years) with an annual cap of 
100 units (separate for each hp category);

     Small business equipment manufacturers would be allowed to 
borrow from the Tier 3/Tier 4 flexibilities for use in the Tier 2/Tier 
3 time frame; and,
     Small business equipment manufacturers could be afforded 
up to two years of hardship after other transition allowances are 
exhausted, similar to that offered small business engine manufacturers.
    In addition, we proposed the Panel's recommendation that the 
provisions for small equipment manufacturers be extended to all 
equipment manufacturers, regardless of size. We also sought comment on 
the total number of engines and annual cap values proposed and on 
implementing the small volume allowance provision without a limit on 
the number of engine families.
iii. Panel Recommendations for Small Refiners, Distributors, and 
Marketers
    The following provisions were proposed for nonroad diesel small 
refiners:
     Small refiners would be required to use 500 ppm sulfur 
fuel beginning June 1, 2010 and 15 ppm fuel beginning June 1, 2014;
     Small refiners may choose one of the following transition 
provisions, which serve to encourage early compliance with the diesel 
fuel sulfur standards:

--Credits for Early Desulfurization: would allow small refiners to 
generate and sell credits for nonroad diesel fuel that meets the small 
refiner standards earlier than required in the regulation; or,
--Limited Relief on Small Refiner Interim Gasoline Sulfur Standards: a 
small refiner producing its entire nonroad diesel fuel pool at 15 ppm 
sulfur by June 1, 2006, and who chooses not to generate nonroad credits 
for early compliance, would receive a 20 percent relaxation in its 
assigned small refiner interim gasoline sulfur standards (with the 
maximum per-gallon sulfur cap for any small refiner remaining at 450 
ppm); and,
     A small refiner would be afforded hardship similar to the 
provisions established under 40 CFR 80.270 and 80.560 (the gasoline 
sulfur and highway diesel fuel sulfur programs, respectively), case-by-
case approval of hardship applications must be sought based on 
demonstration of extreme hardship circumstances.
    We did not propose specific provisions for nonroad diesel fuel 
distributors and marketers in the NPRM. During the SBREFA process, 
distributors commented that they would support a one-step approach to 
eliminate the possibility of having multiple grades of fuel in the 
distribution system and the Panel recommended that we further study 
this issue during the development of the rule.
iv. Additional Panel Recommendations
    Some, but not all, Panel members recommended that the following 
provisions be included in the NPRM; we requested comment on these items 
but did not propose them:
     The inclusion of a technological review of the standards 
in the 2008 time frame
     No PM aftertreatment-based standards for engines between 
25 and 75 hp
b. Discussion of Items Being Finalized in Today's Action
i. Provisions for Small Business Engine Manufacturers
    For nonroad diesel small business engine manufacturers, we are 
finalizing many of the provisions set out above with some significant 
revisions, as described below. We are finalizing all of the hardship 
provisions that we proposed. We believe these provisions are an element 
of providing appropriate lead time for this class of engines.
    For engines under 25 hp:
     PM--a manufacturer may elect to delay compliance with the 
standard for up to three years.
     NOX--there is no change in the existing 
NOX standard for engines in this category, so no special 
provisions are being provided.
    For engines in the 25 to 50 hp category:
     PM--manufacturers must comply with the interim standards 
(the Tier 4 requirements that begin in model year 2008) on time, and 
may elect to delay compliance with the 2013 Tier 4 requirements (0.02 
g/bhp-hr PM standard) for up to three years.
     NOX--a manufacturer may elect to delay 
compliance with the standard for up to three years.
    For engines in the 50 to 75 hp category:
     PM--A small business engine manufacturer may delay 
compliance with the 2013 Tier 4 requirement of 0.02 g/bhp-hr PM for up 
to three years provided that it complies with the interim Tier 4 
requirements that begin in model year 2008 on time, without the use of 
credits (as manufacturers of engines in this category still have the 
option to comply with the Tier 3 standard). Alternatively, a 
manufacturer may elect to skip the interim standard completely. 
Manufacturers choosing this option will receive only one additional 
year for compliance with the 0.02 g/bhp-hr standard (i.e. compliance in 
2013, rather than 2012).
     NOX--there is no change in the NOX 
standard for engines in this category, therefore no special provisions 
are being provided.
    For engines in the 75 to 175 hp category:
     PM--a manufacturer may elect to delay compliance with the 
standard for up to three years.
     NOX--a manufacturer may elect to delay 
compliance with the standard for up to three years.
    In regard to the Office of Advocacy's concern regarding the 
technical feasibility of PM and NOX aftertreatment devices, 
as proposed in the NPRM, we are not adopting standards based on 
performance of NOX aftertreatment technologies for engines 
under 75 hp. We believe the factual record--as documented in the RIA, 
the Summary and Analysis of Comments, and this preamble--does not 
support the claim that the PM standards will not be technically 
feasible in 2013 for the 25-75 hp engines. As set out at length in 
section 4.1.3 of the RIA, among other places, performance of PM traps 
is not dependent on engine size.
    We disagree with the statement made by the Office of Advocacy that, 
based on available information, we do not have a sufficient basis for 
engines between 25 and 75 hp to be subject to PM standards based on use 
of advanced aftertreatment. As we have documented earlier and in the 
RIA, we believe that such standards are feasible for these engines at 
reasonable cost,\254\ and will help to improve very important air 
quality problems, especially by reducing exposure to diesel PM and by 
aiding in attainment of the PM 2.5 National

[[Page 39161]]

Ambient Air Quality Standard. See generally, comment response 8.2.3 of 
the Summary and Analysis of Comments, and sections 12.6.2.2.9 and 
12.6.2.2.10 of chapter 12 of the Draft RIA. These standards will also 
result in significant reductions of NMHC, which includes many 
carcinogenic air toxics. Indeed, given these facts, we are skeptical 
that an alternative of no aftertreatment-based PM standards for these 
engines would be appropriate under section 213(a)(4) of the Clean Air 
Act (see section VII.A above, where we found that ``[w]e * * * do not 
see a basis in law or policy to adopt either of these options''). We 
believe that the transition and hardship provisions being finalized for 
small business engine manufacturers in today's action are reasonable 
and are a factor in our ultimate finding that the PM standards for 
engines in the 25-75 hp range are appropriate.
---------------------------------------------------------------------------

    \254\ As the cost issues raised in SBA's comments relate to all 
manufactures (not just small business manufacturers), further 
information on the costs of this technology as well as the benefits 
analysis, can be found in section VI of this preamble (and also 
chapters 6 and 9, respectively, of the Regulatory Impact Analysis).
---------------------------------------------------------------------------

ii. Provisions for Small Business Equipment Manufacturers
    The transition and hardship provisions that were proposed for small 
business nonroad equipment manufacturers are being finalized today, 
with some modifications.
    Adopting an alternative on which we solicited comment, the final 
rule allows all equipment manufacturers the opportunity to choose 
between two options: (a) Manufacturers would be allowed to exempt 700 
pieces of equipment over seven years, with one engine family; or (b) 
manufacturers using the small-volume allowance could exempt 525 
machines over seven years (with a maximum of 150 in any given year) for 
each of the three power categories below 175 horsepower, and 350 
machines over seven years (with a maximum of 100 in any given year) for 
the two power categories above 175 horsepower. Concurrent with the 
revised caps, manufacturers could exempt engines from more than one 
engine family under the small-volume allowance program. Based on sales 
information for small businesses, we estimated that the alternative 
small-volume allowance program to include lower caps and allow 
manufacturers to exempt more than one engine family would keep the 
total number of engines eligible for the allowance at roughly the same 
overall level as the 700-unit program. We believe that these provisions 
will afford small manufacturers the type of transition leeway 
recommended by the Panel. Further, these transition provisions could 
allow small business equipment manufacturers to postpone any redesign 
needed on low sales volume or difficult equipment packages, thus saving 
both money and strain on limited engineering staffs. Within limits, 
small business equipment manufacturers would be able to continue to use 
their current engine/equipment configuration and avoid out-of-cycle 
equipment redesign until the allowances are exhausted or the time limit 
passes.
    We are not finalizing the requirement that small equipment 
manufacturers and importers have reported equipment sales using 
certified engines in model year 2002 or earlier. Please see section 
III.C.2.a.ii above for a detailed discussion on our decision to 
eliminate this requirement from today's rule.
    We are also finalizing three additional provisions today. Two of 
these provisions are being finalized for all equipment manufacturers, 
and therefore small business equipment manufacturers may also take 
advantage of them. These are the Technical Hardship Provision and the 
Early Tier 4 Engine Incentive Program, and are discussed in greater 
detail in sections III.B.2.b and e above. The third provision is being 
finalized for small business equipment manufacturers only, for the 20-
50 hp category. This provision is discussed in greater detail in 
section III.C.2.b.ii above.
iii. Provisions for Small Refiners
    As previously discussed, we are finalizing standards for locomotive 
and marine diesel fuel today. Below are the regulatory transition and 
hardship provisions that we are finalizing to minimize the degree of 
hardship imposed upon small refiners by this program. With these 
provisions we are confident about going forward with the 500 ppm sulfur 
standard for NRLM diesel fuel in 2007, and the 15 ppm sulfur standard 
for nonroad diesel fuel in 2010 and locomotive and marine diesel fuel 
in 2012, for the rest of the industry. Given the small refiner relief 
provisions that are being finalized today, small refiners will be the 
only refiners permitted to continue selling 500 ppm fuel to nonroad, 
locomotive, and marine markets from 2010 until 2014 without the use of 
credits.
    We are finalizing delayed compliance for small refiners today 
(``NRLM Delay'' option). We are confident with going forward with these 
sulfur standards given the regulatory transition provisions being 
offered for small refiners. These delayed standards would allow for the 
continued production of higher sulfur NRLM fuel until June 1, 2010, and 
similarly, for the production of 500 ppm NRLM fuel until June 1, 
2014.\255\ This is identical to the relief proposed in the NPRM (which 
small refiners considered sufficient and supported) with the exception 
that it applies not only to nonroad fuel, but also to locomotive and 
marine fuel given the decision to finalize 15 ppm sulfur standards for 
locomotive and marine diesel fuel. Table X.C-2 below illustrates the 
delayed standards in relation to the general program. This delay option 
is not being finalized for the Northeast and mid-Atlantic areas due to 
the removal of the heating oil marker in these areas. However this is 
not expected to impact small refiners, and this will provide 
significant relief for small terminal operators. Further, this 
provision will be finalized in Alaska only if a refiner gets an 
approved compliance plan for segregating their fuel to the end user.
---------------------------------------------------------------------------

    \255\ Since new engines with sulfur sensitive emission controls 
will begin to become widespread during this time, small refiner fuel 
will need to be segregated and only supplied for use in pre-2011 
nonroad equipment or in locomotives or marine engines.
---------------------------------------------------------------------------

    We also are finalizing transition provisions to encourage early 
compliance with the standards being finalized today. These provisions 
are:
     The NRLM credit option--Some small refiners have indicated 
that they might need to produce fuel meeting the NRLM diesel fuel 
sulfur standards earlier than required under the small refiner program 
described above (distribution systems might limit the number of grades 
of diesel fuel that will be carried, it may be economically 
advantageous to make compliant NRLM diesel fuel earlier to prevent 
losing market share, etc.) This option allows small refiners to 
participate in the NRLM diesel fuel sulfur credit banking and trading 
program discussed in section IV. Generating and selling credits could 
provide small refiners with funds to help defray the costs of early 
NRLM compliance.
     The NRLM/Gasoline Compliance Option--This option is 
available to small refiners that produce greater than 95 percent of 
their NRLM diesel fuel at the 15 ppm sulfur standard by June 1, 2006 
and elect not to use the provision described above to earn NRLM diesel 
fuel sulfur credits for this early compliance.\256\ For small refiners

[[Page 39162]]

choosing this option the applicable small refiner annual average and 
per-gallon cap gasoline sulfur standards will be increased by 20 
percent for the duration of the interim program; however, in no case 
may the per-gallon gasoline sulfur cap exceed 450 ppm.
---------------------------------------------------------------------------

    \256\ This is down from the 100 percent requirement proposed to 
allow for some contamination losses in the process of delivering 
fuel from the refinery. As discussed earlier in this section, 
production volumes in the final rule are based upon actual delivered 
volumes. The 5 percent allowance for greater than 15 ppm fuel should 
provide adequate flexibility for any refiner's contamination issues, 
while not providing any opportunity to significantly alter their 
compliance plans.
---------------------------------------------------------------------------

    A small refiner may choose to use the relaxed standards (the NRLM 
Delay option), the NRLM Credit option, or both in combination. Thus any 
fuel that it produces from crude at or below the sulfur standards 
earlier than required will qualify for generating credits. However, the 
NRLM/Gasoline Compliance option may not be used in combination with 
either the NRLM Delay option or the NRLM Credit option, since a small 
refiner must produce at least 85 percent of its NRLM diesel fuel at the 
15 ppm sulfur standard under the NRLM/Gasoline Compliance option.
    Small refiners that choose to make use of the delayed nonroad 
diesel sulfur requirements would also delay to some extent the emission 
reductions that would otherwise have been achieved. However, the 
overall impact of these postponed emission reductions would be small in 
comparison to the overall program benefits, as small refiners represent 
only a fraction of national non-highway diesel production. Further, we 
are aware of some small refiners that plan to take advantage of one of 
the flexibility provisions that encourages early compliance with the 
standards. Absent specific provisions for small refiners, we would have 
to consider delaying the overall program until the burden of the 
program on many small refiners was diminished, which would delay the 
air quality benefits of the overall program. By providing temporary 
relief to small refiners, we are able to adopt a program that 
expeditiously reduces NRLM diesel fuel sulfur levels in a feasible 
manner for the industry as a whole.

                                    Table X.C-2.--Sulfur Standards for the Nonroad Diesel Fuel Small Refiner Program
                                                            (in parts per million (ppm)) \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  2006     2007     2008     2009     2010     2011     2012     2013     2014    2015+
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Small--NR.................................................  .......      500      500      500       15       15       15       15       15       15
Non-Small--LM.................................................  .......      500      500      500      500      500       15       15       15       15
Small--all fuel...............................................  .......  .......  .......  .......      500      500      500      500       15      15
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: \a\ New standards are assumed to take effect June 1 of the applicable year.

iv. Provisions for Small Distributors and Fuel Marketers
    Though we did not propose any specific regulatory relief for small 
distributors and marketers of nonroad fuel, we are finalizing 
provisions to avoid the negative impact to small terminal operators 
raised in the public comments on our NPRM (that heating oil marker 
requirements would force small terminal operators to install expensive 
injection equipment and that they would not be able to recoup the 
costs). To mitigate the burden on these operators, terminals in much of 
PADD 1 will not have to add the fuel marker to home heating oil. No 
small refiner or credit fuel could be sold in this exclusion area. The 
exclusion area covers the vast majority of heating oil that will be 
marketed. Further, very little fuel above 500 ppm will be marketed 
outside of the exclusion area except directly from the refinery gate. 
Therefore, we expect that few terminals outside of the exclusion area 
would need to put in injection equipment.
6. Conclusion
    A cost-to-sales ratio test, a ratio of the estimated annualized 
compliance costs to the value of sales per company, was performed for 
these entities during the proposal stage of the rulemaking. \257\ From 
this cost-to-sales test, we found that approximately four percent (13 
companies) of small entities in the engine and equipment manufacturing 
industry would be affected by between one and three percent of sales 
(i.e., the estimated costs of compliance with the rule would be greater 
than one percent, but less than three percent, of their sales). One 
percent (four companies) of small entities would be affected by greater 
than three percent. In all, 17 of the 518 potentially affected small 
engine and equipment manufacturers are estimated to have compliance 
costs that could exceed one percent of their sales. (A complete 
discussion of the costs to engine and equipment manufacturers as a 
result of this final rule is located in Chapter 6 of the Final 
Regulatory Impact Analysis.)
---------------------------------------------------------------------------

    \257\ The cost-to-sales ratio test assumes that control costs 
are completely absorbed by each entity and does not account for or 
consider interaction between manufacturers/producers and consumers 
in a market context.
---------------------------------------------------------------------------

    Based on our outreach, fact-finding, and analysis of the potential 
impacts of our regulations on small businesses, it was determined that 
small refiners in general would likely experience a significant and 
disproportionate financial hardship in reaching the objectives of the 
nonroad diesel fuel sulfur program. One indication of this 
disproportionate hardship for small refiners is the relatively high 
cost per gallon projected for producing nonroad diesel fuel under the 
proposed program. Refinery modeling (of all refineries), indicates 
significantly higher refining costs for small refiners. Specifically, 
without special provisions, refining costs (for full compliance with 
the 15 ppm sulfur standards) for small refiners on average would be 
about 7 cents per gallon compared to about 5.7 cents per gallon for 
non-small refiners. (A complete discussion of the fuel-related costs as 
a result of this final rule is located in Chapter 7 of the Final 
Regulatory Impact Analysis.) However, we believe that the regulatory 
transition provisions that we are affording to small entities will 
significantly minimize this impact on these entities.
    In addition, as contemplated by section 212 of SBREFA, EPA is also 
preparing a compliance guide to help small entities comply with this 
rule. This guide will be available within 60 days of the effective 
publication date of this rulemaking, and will be available on the 
Office of Transportation and Air Quality Web site. Small entities may 
also contact our office to obtain copies of the compliance guide.

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

[[Page 39163]]

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 of 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 rule contains no federal mandates for state, local, or tribal 
governments as defined by the provisions of Title II of the UMRA. The 
rule imposes no enforceable duties on any of these governmental 
entities. Nothing in the rule would significantly or uniquely affect 
small governments.
    EPA has determined that this rule contains federal mandates that 
may result in expenditures of more than $100 million to the private 
sector in any single year. EPA believes that the final rule represents 
the least costly, most cost-effective approach to achieve the air 
quality goals of the rule. The costs and benefits associated with the 
final rule are discussed above and in the Regulatory Impact Analysis, 
as required by the UMRA.

E. Executive Order 13132: Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.''
    Under section 6 of Executive Order 13132, EPA may not issue a 
regulation that has federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the Federal government provides the funds necessary to pay the direct 
compliance costs incurred by State and local governments, or EPA 
consults with State and local officials early in the process of 
developing the proposed regulation. EPA also may not issue a regulation 
that has federalism implications and that preempts State law, unless 
the Agency consults with State and local officials early in the process 
of developing the proposed regulation.
    Section 4 of the Executive Order contains additional requirements 
for rules that preempt State or local law, even if those rules do not 
have federalism implications (i.e., the rules will not have substantial 
direct effects on the States, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government). Those 
requirements include providing all affected State and local officials 
notice and an opportunity for appropriate participation in the 
development of the regulation. If the preemption is not based on 
express or implied statutory authority, EPA also must consult, to the 
extent practicable, with appropriate State and local officials 
regarding the conflict between State law and Federally protected 
interests within the agency's area of regulatory responsibility.
    This final rule does not have federalism implications. It will not 
have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in Executive Order 13132.
    Although section 6 of Executive Order 13132 does not apply to this 
rule, EPA did consult with representatives of various State and local 
governments in developing this rule. EPA has also consulted 
representatives from STAPPA/ALAPCO, which represents state and local 
air pollution officials.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicited comment on the proposed rule 
from State and local officials, including from the State of Alaska.

F. 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.''
    This final rule does not have tribal implications as specified in 
Executive Order 13175. This rule will be implemented at the Federal 
level and impose compliance costs only on engine manufacturers and 
diesel fuel producers and distributors. Tribal governments will be 
affected only to the extent they purchase and use equipment with 
regulated engines. Thus, Executive Order 13175 does not apply to this 
rule.

G. Executive Order 13045: Protection of Children From Environmental 
Health and Safety Risks

    Executive Order 13045, ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that (1) is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, Section 5-501 of the Order directs the Agency to 
evaluate the environmental health or safety effects of the planned rule 
on children, and explain why the planned regulation is preferable to 
other potentially effective and reasonably feasible alternatives 
considered by the Agency.
    This rule is not subject to the Executive Order because it does not 
involve decisions on environmental health or safety risks that may 
disproportionately affect children. The EPA believes that the emissions 
reductions from the strategies proposed in this rulemaking will further 
improve air quality and will further improve children's health.

H. Executive Order 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    Executive Order 13211, ``Actions Concerning Regulations That

[[Page 39164]]

Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355 
(May 22, 2001)), requires EPA to prepare and submit a Statement of 
Energy Effects to the Administrator of the Office of Information and 
Regulatory Affairs, Office of Management and Budget, for certain 
actions identified as ``significant energy actions.'' Section 4(b) of 
Executive Order 13211 defines ``significant energy actions'' as ``any 
action by an agency (normally published in the Federal Register) that 
promulgates or is expected to lead to the promulgation of a final rule 
or regulation, including notices of inquiry, advance notices of 
proposed rulemaking, and notices of proposed rulemaking: (1)(i) That is 
a significant regulatory action under Executive Order 12866 or any 
successor order, and (ii) is likely to have a significant adverse 
effect on the supply, distribution, or use of energy; or (2) that is 
designated by the Administrator of the Office of Information and 
Regulatory Affairs as a significant energy action.'' We have prepared a 
Statement of Energy Effects for this action as follows:
    We have prepared a Statement of Energy Effects for this action as 
follows.
    This rule's potential adverse effects on energy supply, 
distribution, or use have been analyzed, and are discussed in detail 
within the following documents:
    1. Fuel provisions of the rule and flexibilities, including 
hardship provisions, are described in this Preamble, section IV.B. The 
provision of sufficient lead time for refiners is discussed in section 
IV.F.
    2. Potential impacts on fuel supplies are summarized in Preamble 
section VI.A.5, RIA section VI.A.5, and within the Summary and Analysis 
of Comments document, section 4.6.3.
    3. Costs of low-sulfur fuel are discussed in Preamble section VI.F, 
and RIA Chapter 7 (demand and production in 7.1, and refining costs in 
7.2).
    4. Price impacts are summarized in Preamble section VI.A, and RIA 
section 7.6, with distribution costs in section 7.4, alternative 
estimates of costs in 7.2, and effects of alternative demand 
projections in 7.2 as well. Uncertainty in fuel demand is also 
discussed in the Summary and Analysis of Comments section 2.3.2.2.
    5. The need for adequate short-term investment in low sulfur 
refining capacity is addressed in RIA section 5.9.
    6. The impacts of regulatory alternatives that were considered are 
discussed in Preamble section VII.
    In summary, the cost of No. 2 distillate nonroad fuel is projected 
to increase overall by approximately 7 cents per gallon (in 2002 dollar 
terms) as a result of this rule. This would have a very small effect on 
production (projected reduction of approximately 0.02 %, or less than 4 
million gallons per year by 2036).
    The analysis also concludes that we do not expect this rule to have 
any adverse effect on the supply or distribution of NRLM fuel, nor to 
result in a significant increase in imports of NRLM fuel. Refiners will 
be unlikely to leave the NRLM fuel market and are unlikely to shut down 
due to this rule.
    Price impacts will vary regionally in the U.S., and are difficult 
to project precisely. Analysis of various scenarios in RIA section 7.6 
suggests that in PADDs 1 and 3 as well as 2, which account for the bulk 
of demand, prices could increase by almost 11 cents per gallon in the 
unlikely ``maximum total cost'' scenario of constrained capacity. In 
contrast, the ``average total cost'' scenario predicts a 5 cent per 
gallon increase in PADDs 1 and 3.
    We do not believe there are any reasonable alternatives to the 
control of sulfur in nonroad fuel which would allow the reduction in 
NOX and PM emissions from nonroad equipment required by 
today's rule. There are also no reasonable alternatives to the control 
of sulfur in locomotive and marine fuel which would provide the 
associated reductions in sulfur dioxide and sulfate PM emissions 
provided by the 500 and 15 ppm caps on the sulfur content of this fuel.

I. National Technology Transfer Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, section 12(d) (15 U.S.C. 
272 note) directs EPA to use voluntary consensus standards in its 
regulatory activities unless doing so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (e.g., materials specifications, test methods, 
sampling procedures, and business practices) that are developed or 
adopted by voluntary consensus standards bodies. The NTTAA directs EPA 
to provide Congress, through OMB, explanations when the Agency decides 
not to use available and applicable voluntary consensus standards.
    This rule involves technical standards. The following paragraph 
describes how we specify testing procedures for engines subject to this 
proposal.
    The International Organization for Standardization (ISO) has a 
voluntary consensus standard that can be used to test nonroad diesel 
engines. However, the current version of that standard (ISO 8178) is 
applicable only for steady-state testing, not for transient testing. As 
described in the Regulatory Impact Analysis, transient testing is an 
important part of the new emission-control program for these engines. 
We are therefore not adopting the ISO procedures in this rulemaking.

J. Congressional Review Act

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

XI. Statutory Provisions and Legal Authority

    Statutory authority for the engine controls adopted today can be 
found in sections 213 (which specifically authorizes controls on 
emissions from nonroad engines and vehicles), 203-209, 216 and 301 of 
the Clean Air Act, 42 U.S.C. 7547, 7522, 7523, 7424, 7525, 7541, 7542, 
7543, 7550 and 7601.
    Statutory authority for the new fuel controls is found in sections 
211(c) and 211(i) of the Clean Air Act, which allow EPA to regulate 
fuels that either contribute to air pollution which endangers public 
health or welfare or which impair emission control equipment which is 
in general use or has been in general use. 42 U.S.C. 7545(c) and (i). 
Additional support for the procedural and enforcement-related aspects 
of the fuel controls in the final rule, including the record keeping 
requirements, comes from sections 114(a) and 301(a) of the CAA. 42 
U.S.C. 7414(a) and 7601(a).

List of Subjects

40 CFR Part 9

    Reporting and recordkeeping requirements.

40 CFR Part 69

    Environmental protection, Air pollution controls.

40 CFR Part 80

    Fuel additives, Gasoline, Imports, Incorporation by reference, 
Labeling,

[[Page 39165]]

Motor vehicle pollution, Penalties, Reporting and recordkeeping 
requirements.

40 CFR Part 86

    Environmental protection, Labeling, Motor vehicle pollution, 
Reporting and recordkeeping requirements.

40 CFR Part 89

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

40 CFR Part 94

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

40 CFR Parts 1039, 1048, and 1051

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

40 CFR Part 1065

    Environmental protection, Administrative practice and procedure, 
Incorporation by reference, Reporting and recordkeeping requirements, 
Research.

40 CFR Part 1068

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

    Dated: May 11, 2004.
Michael O. Leavitt,
Administrator.

0
For the reasons set out in the preamble, title 40, chapter I, of the 
Code of Federal Regulations is amended as set forth below.

PART 9--OMB APPROVALS UNDER THE PAPERWORK REDUCTION ACT

0
1. The authority citation for part 9 continues to read as follows:

    Authority: 7 U.S.C. 135 et seq., 136-136y; 15 U.S.C. 2001, 2003, 
2005, 2006, 2601-2671; 21 U.S.C. 331j, 346a, 348; 31 U.S.C. 9701; 33 
U.S.C. 1251 et seq., 1311, 1313d, 1314, 1318 1321, 1326, 1330, 1342 
1344, 1345(d) and (e), 1361; E.O. 11735, 38 FR 21243, 3 CFR, 1971-
1975 Comp. p. 973; 42 U.S.C. 241, 242b, 243, 246, 300f, 300g, 300g-
1, 300g-2, 300g-3, 300g-4, 300g-5, 300g-6, 300j-1, 300j-2, 300j-3, 
300j-4, 300j-9, 1857 et seq., 6901-6992k, 7401-7671q, 7542, 9601-
9657, 11023, 11048.


Sec.  9.1  [Amended]

0
2. Section 9.1 is amended in the table by adding the center headings 
and the entries under those center headings in numerical order to read 
as follows:
* * * * *
Control of Emissions From New, Large Nonroad Spark-Ignition Engines
1048.20 2040-0460
1048.201-250 2040-0460
1048.345 2040-0460
1048.350 2040-0460
1048.420 2040-0460
1048.425 2040-0460
* * * * *
Control of Emissions from Recreational Engines and Vehicles
1051.201-255 2060-0104
1051.345 2060-0104
1051.350 2060-0104
1051.725 2060-0104
1051.730 2060-0104
* * * * *
    General Compliance Provisions for Nonroad Programs
1068.5 2040-0460
1068.25 2040-0460
1068.27 2040-0460
1068.120 2040-0460
1068.201-260 2040-0460
1068.301-355 2040-0460
1068.450 2040-0460
1068.455 2040-0460
1068.501 2040-0460
1068.525 2040-0460
1068.530 2040-0460
* * * * *

PART 69--SPECIAL EXEMPTIONS FROM THE REQUIREMENTS OF THE CLEAN AIR 
ACT

0
3. The authority citation for part 69 continues to read as follows:

    Authority: 42 U.S.C. 7545(c), (g), and (i), and 7625-1.


0
4. Section 69.51 is revised to read as follows:


Sec.  69.51  Motor vehicle diesel fuel.

    (a) Diesel fuel that is designated for use only in Alaska and is 
used only in Alaska, is exempt from the sulfur standard of 40 CFR 
80.29(a)(1) and the dye provisions of 40 CFR 80.29(a)(3) and 40 CFR 
80.29(b) until the implementation dates of 40 CFR 80.500, provided 
that:
    (1) The fuel is segregated from nonexempt diesel fuel from the 
point of such designation; and
    (2) On each occasion that any person transfers custody or title to 
the fuel, except when it is dispensed at a retail outlet or wholesale 
purchaser-consumer facility, the transferor must provide to the 
transferee a product transfer document stating:

    This diesel fuel is for use only in Alaska. It is exempt from 
the federal low sulfur standards applicable to highway diesel fuel 
and red dye requirements applicable to non-highway diesel fuel only 
if it is used in Alaska.

    (b) Beginning on the implementation dates under 40 CFR 80.500, 
motor vehicle diesel fuel that is designated for use in Alaska or is 
used in Alaska, is subject to the applicable provisions of 40 CFR part 
80, subpart I, except as provided under 40 CFR 69.52(c), (d), and (e) 
for commingled motor vehicle and non-motor vehicle diesel fuel.
    (c) The Governor of Alaska may submit for EPA approval, by April 1, 
2002, a plan for implementing the motor vehicle diesel fuel sulfur 
standard in Alaska as an alternative to the temporary compliance option 
provided under 40 CFR 80.530 through 80.532. If EPA approves an 
alternative plan, the provisions as approved by EPA under that plan 
shall apply to the diesel fuel subject to paragraph (b) of this 
section.

0
5. A new Sec.  69.52 is added to read as follows:


Sec.  69.52  Non-motor vehicle diesel fuel.

    (a) Definitions. (1) Areas accessible by the Federal Aid Highway 
System are the geographical areas of Alaska designated by the State of 
Alaska as being accessible by the Federal Aid Highway System.
    (2) Areas not accessible by the Federal Aid Highway System are all 
other geographical areas of Alaska.
    (3) Nonroad, locomotive, or marine diesel fuel (NRLM) has the 
meaning given in 40 CFR 80.2.
    (b) Applicability. NRLM diesel fuel and heating oil that are used 
or intended for use in areas of Alaska accessible by the Federal Aid 
Highway System are subject to the provisions of 40 CFR part 80, subpart 
I, except as provided in paragraphs (c), (d) and (e) of this section.
    (c) Dye and marker. (1) NRLM diesel fuel and heating oil referred 
to in paragraph (b) of this section are exempt from the red dye 
requirements, and the presumptions associated with the red dye 
requirements, under 40 CFR 80.520(b)(2) and 80.510(d)(5), (e)(5), and 
(f)(5).
    (2) NRLM diesel fuel and heating oil referred to in paragraph (b) 
of this section are exempt from the marker solvent yellow 124 
requirements, and

[[Page 39166]]

the presumptions associated with the marker solvent yellow 124 
requirements, under 40 CFR 80.510(d) through (f).
    (3) Exempt NRLM diesel fuel and heating oil must be segregated from 
all non-exempt NRLM diesel fuel and heating oil.
    (4) Exempt heating oil must be segregated from exempt NRLM diesel 
fuel unless it also meets the standards of 40 CFR 80.510 applicable to 
the NRLM diesel fuel.
    (5) Exempt NRLM diesel fuel and heating oil must be segregated from 
motor vehicle diesel fuel, unless it also meets the standards of 40 CFR 
80.520 applicable to the motor vehicle diesel fuel.
    (d) Product transfer documents. Product Transfer Documents for 
exempt NRLM diesel fuel and heating oil shall include the language 
specified in 40 CFR 80.590(a) applicable to undyed diesel fuel for the 
appropriate sulfur level, and the following additional language as 
applicable:
    (1) For exempt NRLM diesel fuel and heating oil, including 
commingled fuel under paragraph (c)(4) or (c)(5) of this section: 
``Exempt from red dye requirement applicable to diesel fuel for non-
highway purposes if it is used only in Alaska.''
    (2) For exempt heating oil, including commingled fuel under 
paragraph (c)(4) or (c)(5) of this section: ``Exempt from marker 
solvent yellow 124 requirement applicable to heating oil if it is used 
only in Alaska.''
    (3) For exempt 500 ppm sulfur LM diesel fuel, including commingled 
fuel under paragraph (c)(4) or (c)(5) of this section: ``Exempt from 
marker solvent yellow 124 requirement applicable to 500 ppm sulfur LM 
diesel fuel if it is used only in Alaska.''
    (e) Pump labels. (1) Pump labels for exempt NRLM diesel fuel and 
heating oil shall contain the language specified in 40 CFR 80.570 
through 80.574 for the applicable fuel type and time frame, unless the 
fuel is commingled under paragraph (c)(4) or (c)(5) of this section.
    (2) Pump labels for exempt NRLM diesel fuel and heating oil that 
are commingled shall contain the language specified in 40 CFR 80.570 
through 80.574 for NRLM diesel fuel and the applicable time frame.
    (3) Pump labels for exempt NRLM diesel fuel and heating oil that 
are commingled with motor vehicle diesel fuel shall contain the 
following language for the applicable sulfur level and time frame:
    (i) 500 ppm sulfur diesel fuel. From June 1, 2006 through September 
30, 2010.

LOW SULFUR DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal Law prohibits use in model year 2007 and later highway 
diesel vehicles and engines
    Its use may damage these vehicles and engines.
    For use in all other diesel vehicles and engines.

    (ii) 15 ppm sulfur diesel fuel. From June 1, 2006 through May 31, 
2010.

ULTRA-LOW SULFUR DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for model year 2007 and later highway diesel vehicles 
and engines.
    Recommended for use in all diesel vehicles and engines.

    (iii) 15 ppm sulfur diesel fuel. From June 1, 2010, and beyond,

ULTRA-LOW SULFUR DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all highway and nonroad diesel engines
    Recommended for use in all diesel vehicles and engines.

    (f) Non-motor vehicle diesel fuel and heating oil that is used or 
intended for use only in areas of Alaska not accessible by the Federal 
Aid Highway System, are excluded from the applicable provisions of 40 
CFR part 80, subpart I, except that--
    (1) All model year 2011 and later nonroad diesel engines and 
equipment must be fueled only with diesel fuel that meets the 
specifications of 40 CFR 80.510(b) or (c);
    (2) The following language shall be added to any product transfer 
document: ``This fuel is for use only in those areas of Alaska not 
accessible by the FAHS''; and
    (3) Pump labels for such fuel that does not meet the specifications 
of 40 CFR 80.510(b) or (c) shall contain the following language:

HIGH SULFUR DIESEL FUEL (may be greater than 15 Sulfur ppm)

WARNING

    Federal Law prohibits use in model year 2007 and later highway 
diesel vehicles and engines, or in model year 2011 and later nonroad 
diesel engines and equipment.
    Its use may damage these vehicles and engines.

    (g) Alternative labels to those specified in paragraphs (e)(3) and 
(f)(3) of this section may be used as approved by the Administrator.

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

0
6. The authority citation for part 80 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7545, and 7601(a).


0
7. Section 80.2 is amended by adding paragraph (f) and revising 
paragraphs (j), (o), (x), (y), and (xx), removing and reserving 
paragraph (nn), adding and reserving paragraphs (yy), and (zz), and 
adding and reserving paragraphs (aaa) through (rrr) to read as follows:


Sec.  80.2  Definitions.

* * * * *
    (f) Previously designated diesel fuel or PDD means diesel fuel that 
has been previously designated and included by a refiner or importer in 
a batch for purposes of complying with the standards and requirements 
of subpart I of this part.
* * * * *
    (j) Retail outlet means any establishment at which gasoline, diesel 
fuel, methanol, natural gas or liquified petroleum gas is sold or 
offered for sale for use in motor vehicles or nonroad engines, 
including locomotive engines or marine engines.
* * * * *
    (o) Wholesale purchaser-consumer means any person that is an 
ultimate consumer of gasoline, diesel fuel, methanol, natural gas, or 
liquified petroleum gas and which purchases or obtains gasoline, diesel 
fuel, natural gas or liquified petroleum gas from a supplier for use in 
motor vehicles or nonroad engines, including locomotive engines or 
marine engines and, in the case of gasoline, diesel fuel, methanol or 
liquified petroleum gas, receives delivery of that product into a 
storage tank of at least 550-gallon capacity substantially under the 
control of that person.
* * * * *
    (x) Diesel fuel means any fuel sold in any State or Territory of 
the United States and suitable for use in diesel engines, and that is--
    (1) A distillate fuel commonly or commercially known or sold as No. 
1 diesel fuel or No. 2 diesel fuel;
    (2) A non-distillate fuel other than residual fuel with comparable 
physical and chemical properties (e.g., biodiesel fuel); or
    (3) A mixture of fuels meeting the criteria of paragraphs (1) and 
(2) of this definition.
    (y) Motor vehicle diesel fuel means any diesel fuel or other 
distillate fuel that is used, intended for use, or made available for 
use in motor vehicles or motor vehicle engines.
* * * * *
    (xx) Diesel fuel additive means any substance not composed solely 
of carbon and/or hydrogen, or of diesel blendstocks, that is added to, 
intended to be added to, used in, or offered for

[[Page 39167]]

use in motor vehicle diesel fuel or NRLM diesel fuel or in diesel motor 
vehicle or diesel NRLM engine fuel systems subsequent to the production 
of diesel fuel by processing crude oil from refinery processing units.
    (yy)-(zz) [Reserved]
    (aaa) Distillate fuel means diesel fuel and other petroleum fuels 
that can be used in engines that are designed for diesel fuel. For 
example, jet fuel, heating oil, kerosene, No. 4 fuel, DMX, DMA, DMB, 
and DMC are distillate fuels; and natural gas, LPG, gasoline, and 
residual fuel are not distillate fuels. Blends containing residual fuel 
may be distillate fuels.
    (bbb) Residual fuel means a petroleum fuel that can only be used in 
diesel engines if it is preheated before injection. For example, No. 5 
fuels, No. 6 fuels, and RM grade marine fuels are residual fuels. Note: 
Residual fuels do not necessarily require heating for storage or 
pumping.
    (ccc) Heating oil means any No. 1 or No. 2 distillate fuel that is 
sold for use in furnaces, boilers, stationary diesel engines, and 
similar applications and which is commonly or commercially known or 
sold as heating oil, fuel oil, and similar trade names, and that is not 
jet fuel, kerosene, or MVNRLM diesel fuel.
    (ddd) Jet fuel means any distillate fuel used, intended for use, or 
made available for use in aircraft.
    (eee) Kerosene means any No.1 distillate fuel commonly or 
commercially sold as kerosene.
    (fff) #1D means the distillate fuel classification relating to 
``No. 1-D'' diesel fuels as described in ASTM D 975-04. The Director of 
the Federal Register approved the incorporation by reference of ASTM D 
975-04, Standard Specification for Diesel Fuel Oils, as prescribed in 5 
U.S.C. 552(a) and 1 CFR part 51. Anyone may purchase copies of this 
standard from the American Society for Testing and Materials, 100 Barr 
Harbor Dr., West Conshohocken, PA 19428. Anyone may inspect copies at 
the U.S. EPA, Air and Radiation Docket and Information Center, 1301 
Constitution Ave., NW., Room B102, EPA West Building, Washington, DC 
20460 or at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (ggg) #2D means the distillate fuel classification relating to 
``No. 2-D'' diesel fuels as described in ASTM D 975-04.
    (hhh)-(jjj) [Reserved]
    (kkk) Nonroad diesel engine means an engine that is designed to 
operate with diesel fuel that meets the definition of nonroad engine in 
40 CFR 1068.30, including locomotive and marine diesel engines.
    (lll) Locomotive engine means an engine used in a locomotive as 
defined under 40 CFR 92.2.
    (mmm) Marine engine and Category 3 have the meanings given under 40 
CFR 94.2.
    (nnn) Nonroad, locomotive, or marine (NRLM) diesel fuel means any 
diesel fuel or other distillate fuel that is used, intended for use, or 
made available for use, as a fuel in any nonroad diesel engines, 
including locomotive and marine diesel engines, except the following: 
Distillate fuel with a T90 greater than 700 [deg]F that is used only in 
Category 2 and 3 marine engines is not NRLM diesel fuel. Use the 
distillation test method specified in 40 CFR 1065.1010 to determine the 
T90 of the fuel. NR diesel fuel and LM diesel fuel are subcategories of 
NRLM diesel fuel.
    (ooo) Nonroad (NR) diesel fuel means any NRLM diesel fuel that is 
not ``locomotive or marine (LM) diesel fuel.''
    (ppp) Locomotive or marine (LM) diesel fuel means any diesel fuel 
or other distillate fuel that is used, intended for use, or made 
available for use, as a fuel in locomotive or marine diesel engines, 
except for the following fuels:
    (1) Fuel that is also used, intended for use, or made available for 
use in motor vehicle engines or nonroad engines other than locomotive 
and marine diesel engines is not LM diesel fuel.
    (2) Distillate fuel with a T90 greater than 700 [deg]F that is used 
only in Category 2 and 3 marine engines is not LM diesel fuel. Use the 
distillation test method specified in 40 CFR 1065.1010 to determine the 
T90 of the fuel.
    (qqq) MVNRLM diesel fuel means any diesel fuel or other distillate 
fuel that meets the definition of motor vehicle (MV) or nonroad, 
locomotive, or marine (NRLM) diesel fuel. Motor vehicle diesel fuel, 
NRLM diesel fuel, NR diesel fuel, and LM diesel fuel are subcategories 
of MVNRLM diesel fuel.
    (rrr) Solvent yellow 124 means N-ethyl-N-[2-[1-(2-
methylpropoxy)ethoxyl]-4-phenylazo]-benzeneamine.

0
8. Section 80.230 is amended by revising paragraph (b) to read as 
follows:


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

* * * * *
    (b)(1)(i) Refiners who qualify as small under Sec.  80.225 and 
subsequently cease production of diesel fuel from processing crude oil 
through refinery processing units, or employ more than 1,500 people or 
exceed the 155,000 bpcd crude oil capacity limit after January 1, 2004 
as a result of merger with or acquisition of or by another entity, are 
disqualified as small refiners, except this shall not apply in the case 
of a merger between two previously approved small refiners. If 
disqualification occurs, the refiner shall notify EPA in writing no 
later than 20 days following this disqualifying event.
    (ii) Except as provided under paragraph (b)(1)(iii) of this 
section, any refiner whose status changes under this paragraph shall 
meet the applicable standards of Sec.  80.195 within a period of up to 
30 months of the disqualifying event for any of its refineries that 
were previously subject to the small refiner standards of Sec.  
80.240(a). However, such period shall not extend beyond December 31, 
2007, or, for refineries for which the Administrator has approved an 
extension of the small refiner gasoline sulfur standards under Sec.  
80.553(c), December 31, 2010.
    (iii) A refiner may apply to EPA for an additional six months to 
comply with the standards of Sec.  80.195 if more than 30 months will 
be required for the necessary engineering, permitting, construction, 
and start-up work to be completed. Such applications must include 
detailed technical information supporting the need for additional time. 
EPA will base its decision to approve additional time on the 
information provided by the refiner and on other relevant information. 
In no case will EPA extend the compliance date beyond December 31, 
2007, or, for refineries for which the Administrator has approved an 
extension of the small refiner gasoline sulfur standards under Sec.  
80.553(c), December 31, 2010.
    (iv) During the period of time up to 30 months provided under 
paragraph (b)(1)(ii) of this section, and any extension provided under 
paragraph (b)(1)(iii) of this section, the refiner may not generate 
gasoline sulfur credits under Sec.  80.310.
    (2) Any refiner who qualifies as a small refiner under Sec.  80.225 
may elect to meet the standards under Sec.  80.195 by notifying EPA in 
writing no later than November 15 prior to the year that the change 
will occur. Any refiner whose status changes under this paragraph 
(b)(2) shall meet the standards under Sec.  80.195 beginning with the 
first averaging period subsequent to the status change.

0
9. Section 80.240 is amended by adding paragraph (f) to read as 
follows:

[[Page 39168]]

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

* * * * *
    (f)(1) In the case of a refiner without approved small refiner 
status who acquires a refinery from a refiner with approved small 
refiner status under Sec.  80.235, the applicable small refiner 
standards under paragraph (a) of this section will apply to the 
acquired small refinery for a period up to 30 months from the date of 
acquisition of the refinery, but no later than December 31, 2007, or, 
for a refinery for which the Administrator has approved an extension of 
the small refiner gasoline sulfur standards under Sec.  80.553(c), 
December 31, 2010, after which time the standards of Sec.  80.195 shall 
apply to the acquired refinery.
    (2) A refiner may apply to EPA for an additional six months to 
comply with the standards of Sec.  80.195 for the acquired refinery if 
more than 30 months will be required for the necessary engineering, 
permitting, construction, and start-up work to be completed. Such 
applications must include detailed technical information supporting the 
need for additional time. EPA will base its decision to approve 
additional time on information provided by the refiner and on other 
relevant information. In no case will EPA extend the compliance date 
beyond December 31, 2007, or, for a refinery for which the 
Administrator has approved an extension of the small refiner gasoline 
sulfur standards under Sec.  80.553(c), December 31, 2010.

0
10. Section 80.500 is amended by removing paragraph (f) and revising 
the section heading to read as follows:


80.500  What are the implementation dates for the motor vehicle diesel 
fuel sulfur control program?

0
11. Section 80.501 is revised to read as follows:


Sec.  80.501  What fuel is subject to the provisions of this subpart?

    (a) Included fuel and additives. The provisions of this subpart 
apply to the following fuels and additives except as specified in 
paragraph (b) of this section:
    (1) Motor vehicle diesel fuel.
    (2) Nonroad, locomotive, or marine diesel fuel.
    (3) Diesel fuel additives.
    (4) Heating oil.
    (5) Other distillate fuels.
    (6) Motor oil that is used as or intended for use as fuel in diesel 
motor vehicles or nonroad diesel engines or is blended with diesel fuel 
for use in diesel motor vehicles or nonroad diesel engines, including 
locomotive and marine diesel engines, at any downstream location.
    (b) Excluded fuel. The provisions of this subpart do not apply to 
distillate fuel that is designated for export outside the United States 
in accordance with Sec.  80.598, identified for export by a transfer 
document as required under Sec.  80.590, and that is exported.

0
12. A new Sec.  80.502 is added to read as follows:


Sec.  80.502  What definitions apply for purposes of this subpart?

    The definitions of Sec.  80.2 and the following additional 
definitions apply to this subpart I:
    (a) Entity means any refiner, importer, distributor, retailer or 
wholesale-purchaser consumer of any distillate fuel.
    (b) Facility means any place, or series of places, where an entity 
produces, imports, or maintains custody of any distillate fuel from the 
time it is received to the time custody is transferred to another 
entity, except as described in paragraphs (b)(1) through (b)(4) of this 
section:
    (1) Where an entity maintains custody of a batch of diesel fuel 
from one place in the distribution system to another place (e.g., from 
a pipeline to a terminal), all owned by the same entity, both places 
combined are considered to be one single aggregated facility, except 
where an entity chooses to treat components of such an aggregated 
facility as separate facilities. The choice made to treat these places 
as separate facilities may not be changed by the entity during any 
applicable compliance period. Except as specified in paragraph (b)(2) 
of this section, where compliance requirements depend upon facility-
type, the entire facility must comply with the requirements that apply 
to its components as follows:
    (i) If an aggregated facility includes a refinery, the entire 
facility must comply with the requirements applicable to refineries.
    (ii) If an aggregated facility includes a truck loading terminal 
but not a refinery, the entire facility must comply with the 
requirements applicable to truck loading terminals.
    (2) A refinery or import facility may not be aggregated with 
facilities that receive fuel from other refineries or import 
facilities, either directly or indirectly. For example, a refinery may 
not be aggregated with a terminal that receives any fuel from a common 
carrier pipeline. However, a refinery may be aggregated with a pipeline 
and terminal that are owned by the same entity and which receive no 
fuel from any source other than the refinery. If a refinery or import 
facility is aggregated with other facilities, then the aggregated 
facility is treated as a refinery or import facility.
    (3) Retail outlets or wholesale purchaser consumers may not be 
aggregated with any other facility.
    (4) Where an entity maintains custody of diesel fuel in one or more 
mobile components (e.g., rail, barge, or trucking operations) the 
mobile components may be aggregated as a single facility. Mobile 
components may also be aggregated with a facility from which they 
receive fuel or a facility to which they deliver fuel. However, mobile 
components may not be aggregated with both a facility from which they 
receive fuel and a facility to which they deliver fuel.
    (5) An individual refinery or contiguous pipeline may not be 
subdivided into more than one facility. An individual terminal may not 
be subdivided into more than one facility unless approved by the 
Administrator.
    (c) Truck loading terminal means any facility that dyes NRLM diesel 
fuel, pays taxes on motor vehicle diesel fuel per IRS code (26 CFR part 
48), or adds a fuel marker pursuant to Sec.  80.510 to heating oil and 
delivers diesel fuel or heating oil into trucks for delivery to retail 
or ultimate consumer locations.
    (d) Batch means a quantity of diesel fuel or distillate which is 
homogeneous with regard to those properties that are specified for 
MVNRLM diesel fuel under this subpart I of this part, has the same 
designation under this subpart I (if applicable), and whose custody is 
transferred from one facility to another facility.
    (e) Downstream location means any point in the diesel fuel 
distribution system that is downstream of refineries and import 
facilities, for example, diesel fuel at facilities of distributors, 
carriers, retailers, kerosene blenders, and wholesale purchaser-
consumers.

0
13. A new Sec.  80.510 is added to read as follows:


Sec.  80.510  What are the standards and marker requirements for NRLM 
diesel fuel?

    (a) Beginning June 1, 2007. Except as otherwise specifically 
provided in this subpart, all NRLM diesel fuel is subject to the 
following per-gallon standards:
    (1) Sulfur content. 500 parts per million (ppm) maximum.
    (2) Cetane index or aromatic content, as follows:
    (i) A minimum cetane index of 40; or
    (ii) A maximum aromatic content of 35 volume percent.
    (b) Beginning June 1, 2010. Except as otherwise specifically 
provided in this subpart, all NR and LM diesel fuel is subject to the 
following per-gallon standards:

[[Page 39169]]

    (1) Sulfur content.
    (i) 15 ppm maximum for NR diesel fuel.
    (ii) 500 ppm maximum for LM diesel fuel.
    (2) Cetane index or aromatic content, as follows:
    (i) A minimum cetane index of 40; or
    (ii) A maximum aromatic content of 35 volume percent.
    (c) Beginning June 1, 2012. Except as otherwise specifically 
provided in this subpart, all NRLM diesel fuel is subject to the 
following per-gallon standards:
    (1) Sulfur content. 15 ppm maximum.
    (2) Cetane index or aromatic content, as follows:
    (i) A minimum cetane index of 40; or
    (ii) A maximum aromatic content of 35 volume percent.
    (d) Marking provisions. From June 1, 2007 through May 31, 2010:
    (1) Except as provided for in paragraph (i) of this section, prior 
to distribution from a truck loading terminal, all heating oil shall 
contain six milligrams per liter of marker solvent yellow 124.
    (2) All motor vehicle and NRLM diesel fuel shall be free of solvent 
yellow 124.
    (3) Any diesel fuel that contains greater than or equal to 0.10 
milligrams per liter of marker solvent yellow 124 shall be deemed to be 
heating oil and shall be prohibited from use in any motor vehicle or 
nonroad diesel engine (including locomotive, or marine diesel engines).
    (4) Except as provided for in paragraph (i) of this section, any 
diesel fuel, other than jet fuel or kerosene that is downstream of a 
truck loading terminal, that contains less than 0.10 milligrams per 
liter of marker solvent yellow 124 shall be considered motor vehicle 
diesel fuel or NRLM diesel fuel, as appropriate.
    (5) Any heating oil that is required to contain marker solvent 
yellow 124 pursuant to the requirements of this paragraph (d) must also 
contain visible evidence of dye solvent red 164.
    (e) Marking provisions. From June 1, 2010 through May 31, 2012:
    (1) Except as provided for in paragraph (i) of this section, prior 
to distribution from a truck loading terminal, all heating oil and 
diesel fuel designated as 500 ppm sulfur LM diesel fuel shall contain 
six milligrams per liter of solvent yellow 124.
    (2) All motor vehicle and NR diesel fuel shall be free of marker 
solvent yellow 124.
    (3) Any diesel fuel that contains greater than or equal to 0.10 
milligrams per liter of marker solvent yellow 124 shall be deemed to be 
LM diesel fuel or heating oil, as appropriate, and shall be prohibited 
from use in any motor vehicle or nonroad diesel engine (except for 
locomotive or marine diesel engines).
    (4) Except as provided for in paragraph (i) of this section, any 
diesel fuel, other than jet fuel or kerosene that is downstream of a 
truck loading terminal, that contains less than 0.10 milligrams per 
liter of marker solvent yellow 124 shall be considered motor vehicle 
diesel fuel or NR diesel fuel, as appropriate.
    (5) Any LM diesel fuel or heating oil that is required to contain 
marker solvent yellow 124 pursuant to the requirements of this 
paragraph (e) must also contain visible evidence of dye solvent red 
164.
    (f) Marking provisions. Beginning June 1, 2012:
    (1) Except as provided for in paragraph (i) of this section, prior 
to distribution from a truck loading terminal, all heating oil shall 
contain six milligrams per liter of marker solvent yellow 124.
    (2) All motor vehicle and NRLM diesel fuel shall be free of marker 
solvent yellow 124.
    (3) Any diesel fuel that contains greater than or equal to 0.10 
milligrams per liter of marker solvent yellow 124 shall be deemed to be 
heating oil and shall be prohibited from use in any motor vehicle or 
nonroad diesel engine (including locomotive, or marine diesel engines).
    (4) Except as provided for in paragraph (i) of this section, any 
diesel fuel, other than jet fuel or kerosene that is downstream of a 
truck loading terminal, that contains less than 0.10 milligrams per 
liter of marker solvent yellow 124 shall be considered motor vehicle 
diesel fuel or NRLM diesel fuel, as appropriate.
    (5) Any heating oil that is required to contain marker solvent 
yellow 124 pursuant to the requirements of this paragraph (f) must also 
contain visible evidence of dye solvent red 164.
    (g) Special provisions in this part apply to the following areas:
    (1) Northeast/Mid-Atlantic Area which includes the following states 
and counties: North Carolina, Virginia, Maryland, Delaware, New Jersey, 
Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, 
Maine, Washington D.C., New York (except for the counties of 
Chautauqua, Cattaraugus, and Allegany), Pennsylvania (except for the 
counties of Erie, Warren, Mc Kean, Potter, Cameron, Elk, Jefferson, 
Clarion, Forest, Venango, Mercer, Crawford, Lawrence, Beaver, 
Washington, and Greene), and the eight eastern-most counties of West 
Virginia (Jefferson, Berkeley, Morgan, Hampshire, Mineral, Hardy, 
Grant, and Pendleton).
    (2) Alaska.
    (h) Pursuant and subject to the provisions of Sec. Sec.  80.536, 
80.554, 80.560, and 80.561:
    (1) Except as provided in paragraph (j) of this section, from June 
1, 2007 through May 31, 2010, NRLM diesel fuel produced or imported in 
full compliance with the requirements of Sec. Sec.  80.536, 80.554, 
80.560, and 80.561 is exempt from the per-gallon sulfur content 
standard and cetane or aromatics standard of paragraph (a) of this 
section.
    (2) Except as provided in paragraph (j) of this section, from June 
1, 2010 through May 31, 2012 for NR diesel fuel and from June 1, 2012 
through May 31, 2014 for NRLM diesel fuel produced or imported in full 
compliance with the requirements of Sec. Sec.  80.536, 80.554, 80.560, 
and 80.561 is exempt from the per-gallon standards of paragraphs (b) 
and (c) of this section, but is subject to the per-gallon standards of 
paragraph (a) of this section.
    (i) The marking requirements of paragraphs (d)(1), (d)(4), (e)(1), 
(e)(4), (f)(1), and (f)(4) of this section do not apply to heating oil, 
or, for paragraphs (e)(1) and (e)(4) of this section, diesel fuel 
designated as LM diesel fuel that is distributed from a truck loading 
terminal located within the areas listed in paragraphs (g)(1) and 
(g)(2) of this section and is for sale or intended for sale within 
these areas, or that is distributed from any other truck loading 
terminal and is for sale or intended for sale within the area listed in 
(g)(2) of this section.
    (j) The provisions of paragraphs (h)(1) and (h)(2) of this section 
do not apply to diesel fuel sold or intended for sale in the areas 
listed in paragraph (g)(1) of this section that is produced or imported 
in full compliance with the requirements of Sec. Sec.  80.536 and 
80.554 or to diesel fuel sold or intended for sale in the area listed 
in paragraph (g)(2) of this section that is produced or imported in 
full compliance with the requirements of Sec.  80.536.

0
14. A new Sec.  80.511 is added to read as follows:


Sec.  80.511  What are the per-gallon and marker requirements that 
apply to NRLM diesel fuel and heating oil downstream of the refiner or 
importer?

    (a) Applicable dates for marker requirements. Beginning June 1, 
2006, all NRLM diesel fuel shall contain less than 0.10 milligrams per 
liter of the marker solvent yellow 124, except for

[[Page 39170]]

LM diesel fuel subject to the marking requirements of Sec.  80.510(e).
    (b) Applicable dates for per-gallon standards. (1) Beginning June 
1, 2006, all NRLM diesel fuel must comply with the per-gallon sulfur 
standard for the designation or classification stated on its PTD, pump 
label, or other documentation. Based on the provisions of Sec.  
80.510(h) and (j), there is no uniform downstream sulfur standard until 
the downstream dates identified in paragraphs (b)(3) through (b)(8) of 
this section.
    (2) Except as provided in paragraphs (b)(5) and (b)(8) of this 
section, beginning December 1, 2010, all NRLM diesel fuel must comply 
with the cetane index or aromatics standard of Sec.  80.510.
    (3) Except as provided in paragraphs (b)(5) through (b)(8) of this 
section, the per-gallon sulfur standard of Sec.  80.510(a) shall apply 
to all NRLM diesel fuel beginning August 1, 2010 for all downstream 
locations other than retail outlets or wholesale purchaser-consumer 
facilities, shall apply to all NRLM diesel fuel beginning October 1, 
2010 for retail outlets and wholesale purchaser-consumer facilities, 
and shall apply to all NRLM diesel fuel beginning December 1, 2010 for 
all locations.
    (4) Except as provided in paragraphs (b)(5) through (b)(8) of this 
section, the per-gallon sulfur standard of Sec.  80.510(c) shall apply 
to all NRLM diesel fuel beginning August 1, 2014 for all downstream 
locations other than retail outlets or wholesale purchaser-consumer 
facilities, shall apply to all NRLM diesel fuel beginning October 1, 
2014 for retail outlets and wholesale purchaser-consumer facilities, 
and shall apply to all NRLM diesel fuel beginning December 1, 2014 for 
all locations. This paragraph (b)(4) does not apply to LM diesel fuel 
that is sold or intended for sale in areas other than those listed in 
Sec.  80.510(g)(1) or (g)(2).
    (5) For all NRLM diesel fuel that is sold or intended for sale in 
the areas listed in Sec.  80.510(g)(1), the per-gallon sulfur standard 
and the cetane index or aromatics standard of 80.510(a) shall apply to 
all NRLM diesel fuel beginning August 1, 2007 for all downstream 
locations other than retail outlets or wholesale purchaser-consumer 
facilities, shall apply to all NRLM diesel fuel beginning October 1, 
2007 for retail outlets and wholesale purchaser-consumer facilities, 
and shall apply to all NRLM diesel fuel beginning December 1, 2007 for 
all locations.
    (6) For all NR diesel fuel that is sold or intended for sale in the 
areas listed in Sec.  80.510(g)(1), the per-gallon sulfur standard of 
Sec.  80.510(b) shall apply to all NR diesel fuel beginning August 1, 
2010 for all downstream locations other than retail outlets or 
wholesale purchaser-consumer facilities, shall apply to all NR diesel 
fuel beginning October 1, 2010 for retail outlets and wholesale 
purchaser-consumer facilities, and shall apply to all NR diesel fuel 
beginning December 1, 2010 for all locations.
    (7) For all NRLM diesel fuel that is sold or intended for sale in 
the areas listed in Sec.  80.510(g)(1), the per-gallon sulfur standard 
of Sec.  80.510(c) shall apply to all NRLM diesel fuel beginning August 
1, 2012 for all downstream locations other than retail outlets or 
wholesale purchaser-consumer facilities, shall apply to all NRLM diesel 
fuel beginning October 1, 2012 for retail outlets and wholesale 
purchaser-consumer facilities, and shall apply to all NRLM diesel fuel 
beginning December 1, 2012 for all locations.
    (8) The provisions of paragraphs (b)(5) through (b)(7) of this 
section shall apply for all NRLM or NR diesel fuel that is sold or 
intended for sale in the area listed in Sec.  80.510(g)(2), except for 
NRLM or NR diesel fuel that is produced in accordance with a compliance 
plan approved under Sec.  80.554.
    (9) For the purposes of this section, distributors that have their 
own fuel storage tanks and deliver only to ultimate consumers shall be 
treated the same as retailers and their facilities treated the same as 
retail outlets.

0
15. A new Sec.  80.512 is added to read as follows:


Sec.  80.512  May an importer treat diesel fuel as blendstock?

    An importer may exclude diesel fuel that it imports from the 
requirements under this subpart, and instead may designate such diesel 
fuel as diesel fuel treated as blendstock (DTAB), if all the following 
conditions are met:
    (a) The DTAB must be included in all applicable designation, credit 
and compliance calculations for diesel fuel for a refinery operated by 
the same entity that is the importer . That entity must meet all 
refiner standards and requirements.
    (b) The importer entity may not transfer title of the DTAB to 
another entity until the DTAB has been used to produce diesel fuel and 
all refiner standards and requirements have been met for the diesel 
fuel produced.
    (c) The refinery at which the DTAB is used to produce diesel fuel 
must be physically located at either the same terminal at which the 
DTAB first arrives in the U.S., the import facility, or at a facility 
to which the DTAB is directly transported from the import facility.
    (d) The DTAB must be completely segregated from any other diesel 
fuel, including any diesel fuel tank bottoms, prior to the point of 
blending, sampling and testing in the importer entity's refinery 
operation. The DTAB may, however, be added to a diesel fuel blending 
tank where the diesel fuel tank bottom is not included as part of the 
batch volume for a prior batch. In addition, the DTAB may be placed 
into a storage tank that contains other DTAB imported by that importer. 
The DTAB also may be discharged into a tank containing finished diesel 
fuel of the same category as the diesel fuel which will be produced 
using the DTAB (for example, 15 ppm sulfur undyed or 15 ppm sulfur dyed 
diesel fuel) provided the blending process is performed in that same 
tank.
    (e) The entity must account for the volume of diesel fuel produced 
using DTAB in a manner that excludes the volume of any previously 
designated diesel fuel. The diesel fuel tank bottom may not be included 
in the company's refinery compliance calculations for that batch of 
diesel fuel if the fuel in that tank bottom has been previously 
designated by a refiner or importer. This exclusion of previously 
designated diesel fuel must be accomplished using the following 
approach:
    (1) Determine the volume of any tank bottom that is previously 
designated diesel fuel before any diesel fuel production begins.
    (2) Add the DTAB plus any blendstock to the storage tank, and 
completely mix the tank.
    (3) Determine the volume and sulfur content of the diesel fuel 
contained in the storage tank after blending is complete. 
Mathematically subtract the volume of the tank bottom to determine the 
volume of the DTAB plus blendstock added, and subsequently transferred 
to another facility. Such fuel is reported to EPA as a batch of diesel 
fuel under Sec. Sec.  80.593, 80.601, and 80.604.
    (4) If previously designated motor vehicle diesel fuel having a 
sulfur content of 15 ppm or less is blended with DTAB, and the combined 
product after blending has a sulfur content that exceeds 15 ppm, the 
importer entity, in its capacity as a refiner, must redesignate all the 
diesel fuel as 500 ppm sulfur motor vehicle diesel fuel for purposes of 
the temporary compliance option under Sec.  80.530, or other 
permissible redesignation under Sec.  80.598. If 2D 15 ppm 
sulfur motor vehicle diesel fuel is redesignated as 2D 500 ppm 
sulfur motor vehicle diesel fuel, such entity must apply the volume of 
previously designated 15 ppm sulfur diesel fuel, for purposes of its 
operations as a distributor, to its

[[Page 39171]]

downgrading limitation under Sec.  80.527, if applicable, and for 
volume balancing purposes under Sec.  80.599.
    (5) As an alternative to paragraphs (e)(1) through (e)(4) of this 
section, where an importer has a blending tank that is used only to 
combine DTAB and blending components, and no previously designated 
diesel fuel is added to the tank, the importer entity, in its capacity 
as a refiner, may account for the diesel fuel produced in such a 
blending tank by sampling and testing for the sulfur content of the 
batch after DTAB and blendstock are added and mixed, and reporting the 
volume of diesel fuel transferred from that tank to a different 
facility, up to the point where a new blend is produced by adding new 
DTAB and blendstock.
    (f) The importer must include the volume and sulfur content of each 
batch of DTAB in the annual importer reports to EPA, as prescribed 
under Sec. Sec.  80.593, 80.601, and 80.604, but with a notation that 
the batch is not included in the importer compliance calculations 
because the product is DTAB. Any DTAB that ultimately is not used in 
the importer's refinery operation (for example, a tank bottom of DTAB 
at the conclusion of the refinery operation), must be treated as newly 
imported diesel fuel, for which all required sampling and testing, and 
recordkeeping must be accomplished, and included in the importer's 
compliance calculations for the averaging period when this sampling and 
testing occurs.
    (g) The importer must retain records that reflect the importation, 
sampling and testing, and physical movement of any DTAB, and must make 
these records available to EPA on request.

0
16. A new Sec.  80.513 is added to read as follows:


Sec.  80.513  What provisions apply to transmix processing facilities?

    For purposes of this section, transmix means a mixture of finished 
fuels that no longer meets the specifications for a fuel that can be 
used or sold without further processing. This section applies to 
refineries that produce diesel fuel from transmix by distillation or 
other refining processes but do not produce diesel fuel by processing 
crude oil. This section only applies to the volume of diesel fuel 
produced by such a transmix processor using these processes, and does 
not apply to any diesel fuel produced by the blending of blendstocks.
    (a) From June 1, 2006 through May 31, 2010, motor vehicle diesel 
fuel produced by a transmix processor is subject to the 500 ppm sulfur 
standard under Sec.  80.520(c).
    (b) Beginning June 1, 2010, motor vehicle diesel fuel produced by a 
transmix processor is subject to the sulfur standard under Sec.  
80.520(a)(1).
    (c) From June 1, 2007 through May 31, 2010, NRLM diesel fuel 
produced by a transmix processor is exempt from the standards of Sec.  
80.510(a). This paragraph (c) does not apply to NRLM diesel fuel that 
is sold or intended for sale in the areas listed in Sec.  80.510(g)(1) 
or (g)(2).
    (d) From June 1, 2010 through May 31, 2014, NRLM diesel fuel 
produced by a transmix processor is subject to the standards under 
Sec.  80.510(a). This paragraph (d) does not apply to NRLM diesel fuel 
that is sold or intended for sale in the areas listed in Sec.  
80.510(g)(1) or (g)(2).
    (e) From June 1, 2014 and beyond, NRLM diesel fuel produced by a 
transmix processor is subject to the standards of Sec.  80.510(c), 
except that LM diesel fuel is subject to the sulfur standard of Sec.  
80.510(a). This paragraph (e) does not apply to NRLM or LM diesel fuel 
that is sold or intended for sale in the areas listed in Sec.  
80.510(g)(1) or (g)(2).

0
17. Section 80.520 is amended by revising paragraph (b) and removing 
paragraph (d) to read as follows:


Sec.  80.520  What are the standards and dye requirements for motor 
vehicle diesel fuel?

* * * * *
    (b) Dye requirements. (1) All motor vehicle diesel fuel shall be 
free of visible evidence of dye solvent red 164 (which has a 
characteristic red color in diesel fuel), except for motor vehicle 
diesel fuel that is used in a manner that is tax exempt under section 
4082 of the Internal Revenue Code. All motor vehicle diesel fuel shall 
be free of yellow solvent 124.
    (2) Until June 1, 2010, any 1D or 2D distillate 
fuel that does not show visible evidence of dye solvent red 164 shall 
be considered to be motor vehicle diesel fuel and subject to all the 
requirements of this subpart for motor vehicle diesel fuel, except for 
distillate fuel designated or classified as any of the following:
    (i) For use only in the State of Alaska, as provided under 40 CFR 
69.51.
    (ii) For use under a national security exemption under Sec.  80.606 
or for use only in a research and development testing program exempted 
under Sec.  80.607.
    (iii) For use in the U.S. Territories as provided under Sec.  
80.608.
    (iv) Jet fuel meeting the definition under Sec.  80.2.
    (v) Kerosene meeting the definition under Sec.  80.2.
    (vi) Diesel fuel that is produced beginning June 1, 2006, with a 
sulfur level less than or equal to 500 ppm, and designated as NRLM or 
LM that has not yet been distributed from a truck loading terminal or 
bulk terminal to a retail outlet, wholesale purchaser-consumer or 
ultimate consumer.
* * * * *

0
18. Section 80.521 is revised to read as follows:


Sec.  80.521  What are the standards and identification requirements 
for diesel fuel additives?

    (a) Except as provided in paragraph (b) of this section, any diesel 
fuel additive that is added to, intended for adding to, used in, or 
offered for use in any MVNRLM diesel fuel subject to the 15 ppm sulfur 
content standards of Sec.  80.510(b), Sec.  80.510(c), or Sec.  
80.520(a) at any downstream location must--
    (1) Have a sulfur content less than or equal to 15 ppm.
    (2) Be accompanied by a product transfer document pursuant to Sec.  
80.591 indicating that the additive complies with the 15 ppm sulfur 
standard for diesel fuel, except for those diesel fuel additives which 
are only sold in containers for use by the ultimate consumer of diesel 
fuel and which are subject to the requirements of Sec.  80.591(d).
    (b) Any diesel fuel additive that is added to, intended for adding 
to, used in, or offered for use in diesel fuel subject to the 15 ppm 
sulfur content standards of Sec.  80.510(b) or (c) or Sec.  80.520(a) 
may have a sulfur content exceeding 15 ppm provided that each of the 
following conditions are met:
    (1) The additive is added to or used in the diesel fuel in a 
quantity less than one percent by volume of the resultant additive/
diesel fuel mixture;
    (2) The product transfer document complies with the informational 
requirements of Sec.  80.591; and
    (3) The additive is not used or intended for use by an ultimate 
consumer in diesel motor vehicles or nonroad diesel engines.

0
19. Section 80.522 is revised to read as follows:


Sec.  80.522  May used motor oil be dispensed into diesel motor 
vehicles or nonroad diesel engines?

    No person may introduce used motor oil, or used motor oil blended 
with diesel fuel, into the fuel system of model year 2007 or later 
diesel motor vehicles or model year 2011 or later nonroad diesel 
engines (not including locomotive or marine diesel engines), unless 
both of the following requirements have been met:
    (a) The vehicle or engine manufacturer has received a Certificate

[[Page 39172]]

of Conformity under 40 CFR part 86, 40 CFR part 89, or 40 CFR part 1039 
and the certification of the vehicle or engine configuration is 
explicitly based on emissions data with the addition of motor oil; and
    (b) The oil is added in a manner and rate consistent with the 
conditions of the Certificate of Conformity.

0
20. Section 80.523 is removed and reserved.


Sec.  80.523  [Removed and Reserved]

0
21. Section 80.527 is revised to read as follows:


Sec.  80.527  Under what conditions may motor vehicle diesel fuel 
subject to the 15 ppm sulfur standard be downgraded to motor vehicle 
diesel fuel subject to the 500 ppm sulfur standard?

    (a) Definitions. As used in this section, downgrade means changing 
the designation or classification of motor vehicle diesel fuel subject 
to the 15 ppm sulfur standard under Sec.  80.520(a)(1) to motor vehicle 
diesel fuel subject to the 500 ppm sulfur standard under Sec.  
80.520(c). A downgrade occurs when the change in designation or 
classification takes place. Changing the designation or classification 
of motor vehicle diesel fuel subject to the 15 ppm sulfur standard 
under Sec.  80.520(a)(1) to any designation or classification that is 
not a motor vehicle diesel fuel is not a downgrade for purposes of this 
section.
    (b) Who is subject to the downgrade limitation: Any distributor, 
retailer, or wholesale purchaser consumer that takes custody of any 
diesel fuel designated or classified as 2D 15 ppm sulfur motor 
vehicle diesel fuel and delivers any diesel fuel designated or 
classified as 2D 500 ppm motor vehicle diesel fuel.
    (c) Downgrading limitation. (1) Except as provided in paragraphs 
(d) and (e) of this section, a person described in paragraph (b) of 
this section may not downgrade a total of more than 20 percent of the 
2D motor vehicle diesel fuel (by volume) that is subject to 
the 15 ppm sulfur standard of Sec.  80.520(a)(1) to 2D motor 
vehicle diesel fuel subject to the sulfur standard of Sec.  80.520(c) 
while such person has custody of such fuel.
    (2) The limitation of paragraph (c)(1) of this section applies 
separately to each facility as defined under Sec.  80.502 where there 
is custody of the fuel when it is downgraded.
    (3) Compliance with the limitation of paragraph (c)(1) of this 
section applies separately for the compliance periods of October 1, 
2006 through May 31, 2007; June 1, 2007 through June 30, 2008; July 1, 
2008 through June 30, 2009; July 1, 2009 through May 31, 2010.
    (4) Compliance with the limitation of paragraph (c)(1) of this 
section shall be as calculated under Sec.  80.599(e).
    (d) Diesel fuel in violation of the 15 ppm standard. Where motor 
vehicle diesel fuel subject to the 15 ppm sulfur standard of Sec.  
80.520(a)(1) is found to be in violation of any standard under Sec.  
80.520(a) and is consequently downgraded to 500 ppm sulfur motor 
vehicle diesel fuel, the person having custody of the fuel at the time 
it is found to be in violation must include the volume of such 
downgraded fuel toward its 20 percent volume limitation under paragraph 
(c)(1) of this section, unless the person demonstrates that it did not 
cause the violation.
    (e) Special provisions for retail outlets and wholesale purchaser-
consumer facilities. Notwithstanding the provisions of paragraph (c)(1) 
of this section, retailers and wholesale purchaser-consumers shall 
comply with the downgrading limitation as follows:
    (1) Retailers and wholesale purchaser-consumers who sell, offer for 
sale, or dispense motor vehicle diesel fuel that is subject to the 15 
ppm sulfur standard under Sec.  80.520(a)(1) are exempt from the volume 
limitations of paragraph (c)(1) of this section.
    (2) A retailer or wholesale purchaser-consumer who does not sell, 
offer for sale, or dispense motor vehicle diesel fuel subject to the 15 
ppm sulfur standard under Sec.  80.520(a)(1) must comply with the 
downgrading limitations of paragraph (c) of this section, and 
compliance shall be calculated as specified in Sec.  80.599(e)(2).
    (f) Termination of downgrading limitations. The provisions of this 
section shall not apply after May 31, 2010.

0
22. Section 80.530 is revised to read as follows:


Sec.  80.530  Under what conditions can 500 ppm motor vehicle diesel 
fuel be produced or imported after May 31, 2006?

    (a) Beginning June 1, 2006, a refiner or importer may produce or 
import motor vehicle diesel fuel subject to the 500 ppm sulfur content 
standard of Sec.  80.520(c) if all of the following requirements are 
met:
    (1) Each batch of motor vehicle diesel fuel subject to the 500 ppm 
sulfur content standard must be designated by the refiner or importer 
as subject to such standard, pursuant to Sec.  80.598(a).
    (2) The refiner or importer must meet the requirements for product 
transfer documents in Sec.  80.590 for each batch subject to the 500 
ppm sulfur content standard.
    (3)(i) The volume of motor vehicle diesel fuel that is produced or 
imported during a compliance period (V500, as provided in 
paragraph (a)(5) of this section, may not exceed the following volume 
limit:
    (A) For the compliance periods prior to the period from July 1, 
2009 through May 31, 2010, 20 percent of the volume of motor vehicle 
diesel fuel that is produced or imported during a compliance period 
(Vt) plus an additional volume of motor vehicle diesel fuel 
represented by credits properly generated and used pursuant to the 
requirements of Sec. Sec.  80.531 and 80.532.
    (B) For the compliance period from July 1, 2009 through May 31, 
2010, 20 percent of the volume of motor vehicle diesel fuel that is 
produced or imported prior to January 1, 2010 during the compliance 
period (Vt), plus an additional volume of motor vehicle 
diesel fuel represented by credits properly generated and used pursuant 
to the requirements of Sec. Sec.  80.531 and 80.532. From January 1, 
2010 through May 31, 2010, the volume of motor vehicle diesel fuel that 
is produced or imported shall not exceed the volume represented by 
credits used pursuant to Sec.  80.532.
    (ii) The terms V500 and Vt have the meaning 
specified in Sec.  80.531(a)(2).
    (4) Compliance with the volume limit in paragraph (a)(3) of this 
section must be determined separately for each refinery. For an 
importer, such compliance must be determined separately for each Credit 
Trading Area (as defined in Sec.  80.531) into which motor vehicle 
diesel fuel is imported. If a party is both a refiner and an importer, 
such compliance shall be determined separately for the refining and 
importation activities.
    (5) Compliance with the volume limit in paragraph (a)(3) of this 
section shall be determined on an annual basis, where the annual 
compliance period is from July 1 through June 30. For the year 2006, 
compliance shall be determined for the period June 1, 2006 through June 
30, 2007. For the year 2010, compliance shall be determined for the 
period of July 1, 2009 through May 31, 2010.
    (6) Any motor vehicle diesel fuel produced or imported above the 
volume limit in paragraph (a)(3) of this section shall be subject to 
the 15 ppm sulfur content standard. However, for any compliance period 
prior to the compliance period July 1, 2009 through May 31, 2010, a 
refiner or importer may exceed the volume limit in paragraph (a)(3) of 
this section by no more than 5 percent of the volume of diesel fuel 
produced or imported during the compliance period (Vt), 
provided that

[[Page 39173]]

for the immediately following compliance period:
    (i) The refiner or importer complies with the volume limit in 
paragraph (a)(3) of this section; and
    (ii) The refiner or importer produces or imports a volume of motor 
vehicle diesel fuel subject to the 15 ppm sulfur standard, or obtains 
credits properly generated and used pursuant to the requirements of 
Sec. Sec.  80.531 and 80.532 that represent a volume of motor vehicle 
diesel fuel, equal to the volume of the exceedance for the prior 
compliance period.
    (b) After May 31, 2010, no refiner or importer may produce or 
import motor vehicle diesel fuel subject to the 500 ppm sulfur content 
standard pursuant to this section.

0
23. Section 80.531 is amended by revising paragraphs (a)(1), (a)(2), 
(d)(1) (d)(5), (e)(1), and (e)(2)(i) to read as follows:


Sec.  80.531  How are motor vehicle diesel fuel credits generated?

    (a) * * *
    (1) A refiner or importer may generate credits during the period 
June 1, 2006 through December 31, 2009, for motor vehicle diesel fuel 
produced or imported that is designated as subject to the 15 ppm sulfur 
content standard under Sec.  80.520(a)(1). Credits may be generated 
only if the volume of motor vehicle diesel fuel designated under Sec.  
80.598(a) as subject to the 15 ppm sulfur standard of Sec.  80.520(a) 
exceeds 80 percent of the total volume of motor vehicle diesel fuel 
produced or imported as described in paragraph (a)(2) of this section.
    (2) The number of motor vehicle diesel fuel credits generated shall 
be calculated for each compliance period (as specified in Sec.  
80.530(a)(5)) as follows:

C = V1515-(0.80 x Vt)
Where:
C = the positive number of motor vehicle diesel fuel credits 
generated, in gallons.
V15 = the total volume in gallons of diesel fuel produced 
or imported that is designated under Sec.  80.598 as motor vehicle 
diesel fuel and subject to the standards of Sec.  80.520(a) during 
the compliance period.
Vt n =15 + V500.
V500 = the total volume in gallons of diesel fuel 
produced or imported that is designated under Sec.  80.598(a) as 
motor vehicle diesel fuel and subject to the 500 ppm sulfur standard 
under Sec.  80.520(c) plus the total volume of any other diesel fuel 
(not including V15, diesel fuel that is dyed in 
accordance with Sec.  80.520(b) at the refinery or import facility 
where the diesel fuel is produced or imported, or diesel fuel that 
is designated as NRLM under Sec.  80.598(a)) represented as having a 
sulfur content less than or equal to 500 ppm.
* * * * *
    (d) * * *
    (1) The designation requirements of Sec.  80.598, and all 
recordkeeping and reporting requirements of Sec. Sec.  80.592, 80.593, 
80.594, 80.600, and 80.601.
* * * * *
    (5) In addition to the reporting requirements under paragraph 
(d)(1) of this section, the refiner or importer must submit a report to 
the Administrator no later than August 31, 2005 for the period from 
June 1, 2004 through May 31, 2005, or August 31, 2006 for the period 
from June 1, 2005 through May 31, 2006, demonstrating that all the 
motor vehicle diesel fuel produced or imported for which credits were 
generated met the applicable requirements of paragraph (b), (c), or 
(d)(4) of this section. If the Administrator finds that such credits 
did not in fact meet the requirements of paragraphs (b)(1) and (c)(1) 
of this section, as applicable, or if the Administrator determines that 
there is insufficient information to determine the validity of such 
credits, the Administrator may deny the credits submitted in whole or 
in part.
    (e) * * *
    (1) Notwithstanding the provisions of paragraph (a) of this 
section, a small refiner that is approved by the EPA as a small refiner 
under Sec.  80.551(g) may generate credits under Sec.  80.552(b). Such 
a small refiner may generate one credit for each gallon of motor 
vehicle diesel fuel produced that is designated under Sec.  80.598 as 
motor vehicle diesel fuel subject to the 15 ppm sulfur standard under 
Sec.  80.520(a)(1).
    (2) * * *
    (i) Credits may be generated under this paragraph (e) and Sec.  
80.552(b) only during the compliance periods beginning June 1, 2006 and 
ending on May 31, 2010, however diesel fuel produced after December 31, 
2009 shall not generate credits. Credits shall be designated separately 
by refinery, separately by CTA of generation, and separately by annual 
compliance period. The annual compliance period for 2006 shall be June 
1, 2006 through June 30, 2007. The annual compliance period for 2010 
shall be July 1, 2009 through May 31, 2010.
* * * * *

0
24. Section 80.532 is revised to read as follows:


Sec.  80.532  How are motor vehicle diesel fuel credits used and 
transferred?

    (a) Credit use stipulations. Motor vehicle diesel fuel credits 
generated under Sec.  80.531 may be used to meet the volume limit of 
Sec.  80.530(a)(3) provided that:
    (1) The motor vehicle diesel fuel credits were generated and 
reported according to the requirements of this subpart; and
    (2) The conditions of this section are met.
    (b) Use of credits generated under Sec.  80.531. Motor vehicle 
diesel fuel credits generated under Sec.  80.531 may be used by a 
refiner or by an importer to comply with Sec.  80.530 by applying one 
credit for every gallon of motor vehicle diesel fuel needed to meet 
compliance with the volume limit of Sec.  80.530(a)(3).
    (c) Credit banking. Motor vehicle diesel fuel credits generated may 
be banked for use or transfer in a later compliance period or may be 
transferred to another refiner or importer for use as provided in 
paragraph (d) of this section.
    (d) Credit transfers. (1) Motor vehicle diesel fuel credits 
obtained from another refiner or from another importer, including early 
motor vehicle diesel fuel credits and small refiner motor vehicle 
diesel fuel credits as described in Sec.  80.531(b) through (e), may be 
used to satisfy the volume limit of Sec.  80.530(a)(3) if all the 
following conditions are met:
    (i) The motor vehicle diesel fuel credits were generated in the 
same CTA as the CTA in which motor vehicle diesel fuel credits are used 
to achieve compliance;
    (ii) The motor vehicle diesel fuel credits are used in compliance 
with the time period limitations for credit use in this subpart;
    (iii) Any credit transfer takes place no later than the August 31 
following the compliance period when the motor vehicle diesel fuel 
credits are used;
    (iv) No credit may be transferred more than twice, as follows: The 
first transfer by the refiner or importer who generated the credit may 
only be made to a refiner or importer who intends to use the credit; if 
the transferee cannot use the credit, it may make a second and final 
transfer only to a refiner or importer who intends to use the credit. 
In no case may a credit be transferred more than twice before being 
used or terminated;
    (v) The credit transferor must apply any motor vehicle diesel fuel 
credits necessary to meet the transferor's annual compliance 
requirements before transferring motor vehicle diesel fuel credits to 
any other refinery or importer;
    (vi) No motor vehicle diesel fuel credits may be transferred that 
would result in the transferor having a negative credit balance; and
    (vii) Each transferor must supply to the transferee records 
indicating the year the motor vehicle diesel fuel

[[Page 39174]]

credits were generated, the identity of the refiner (and refinery) or 
importer who generated the motor vehicle diesel fuel credits, the CTA 
of credit generation, and the identity of the transferring entity, if 
it is not the same entity who generated the motor vehicle diesel fuel 
credits.
    (2) In the case of motor vehicle diesel fuel credits that have been 
calculated or created improperly, or are otherwise determined to be 
invalid, the following provisions apply:
    (i) Invalid motor vehicle diesel fuel credits cannot be used to 
achieve compliance with the transferee's volume requirements regardless 
of the transferee's good faith belief that the motor vehicle diesel 
fuel credits were valid.
    (ii) The refiner or importer who used the motor vehicle diesel fuel 
credits, and any transferor of the motor vehicle diesel fuel credits, 
must adjust their credit records, reports and compliance calculations 
as necessary to reflect the proper motor vehicle diesel fuel credits.
    (iii) Any properly created motor vehicle diesel fuel credits 
existing in the transferor's credit balance after correcting the credit 
balance, and after the transferor applies motor vehicle diesel fuel 
credits as needed to meet the compliance requirements at the end of the 
compliance period, must first be applied to correct the invalid 
transfers before the transferor trades or banks the motor vehicle 
diesel fuel credits.
    (e) Limitations on credit use. (1) Motor vehicle diesel fuel 
credits may not be used to achieve compliance with any requirements of 
this subpart other than the volume limit of Sec.  80.530(a)(3), unless 
specifically approved by the Administrator pursuant to a hardship 
relief petition under Sec.  80.560 or 80.561.
    (2) A refiner or importer possessing motor vehicle diesel fuel 
credits must use all motor vehicle diesel fuel credits in its 
possession prior to applying the credit deficit provisions of Sec.  
80.530(a)(6).
    (3) No motor vehicle diesel fuel credits may be used to meet 
compliance with this subpart subsequent to the compliance period ending 
May 31, 2010.

0
25. A new Sec.  80.533 is added to read as follows:


Sec.  80.533  How does a refiner or importer apply for a motor vehicle 
or non-highway baseline?

    (a) A refiner or importer wishing to generate credits under Sec.  
80.535 or use the small refiner provisions under Sec.  80.554 must 
submit an application to EPA that includes the information required 
under paragraph (c) of this section by the dates specified in paragraph 
(f) of this section. A refiner must apply for a motor vehicle baseline 
for each refinery in order to generate credits under Sec.  80.535 and 
apply for a non-highway baseline for each refinery to use the 
provisions of Sec.  80.554 (a), (b), or (d).
    (b) The baseline must be sent to the following address: U.S. EPA--
Attn: Nonroad Rule Diesel Fuel Baseline, Transportation and Regional 
Programs Division (6406J), 1200 Pennsylvania Avenue, NW., Washington, 
DC 20460 (regular mail) or U.S. EPA, Attn: Nonroad Rule Diesel Fuel 
Baseline, Transportation and Regional Programs Division (6406J), 1310 L 
Street, NW., 6th floor, Washington, DC 20005 (express mail).
    (c) A baseline application must be submitted for each refinery or 
import facility and include the following information:
    (1) A listing of the names and addresses of all refineries or 
import facilities owned by the company for which the refiner or 
importer is applying for a motor vehicle or non-highway baseline.
    (2)(i) For purposes of a motor vehicle baseline volume for use in 
determining early credits per Sec.  80.535(a) and (b) and for purposes 
of a non-highway baseline volume used in determining compliance with 
the provisions of Sec.  80.554(a) or (d), the baseline volume produced 
during the three calendar years beginning January 1, 2003, 2004, and 
2005, as calculated under paragraph (e)(1) of this section.
    (ii) For purposes of a motor vehicle baseline volume for use in 
determining early credits per Sec.  80.535(c) and for purposes of a 
non-highway baseline volume used in determining compliance with the 
provisions of Sec.  80.554(b), the baseline volumes produced during the 
three calendar years beginning January 1, 2006, 2007, and 2008, as 
calculated under paragraph (e)(2) of this section.
    (3) A letter signed by the president, chief operating officer of 
the company, or his/her delegate, stating that the information 
contained in the motor vehicle or non-highway baseline application is 
true to the best of his/her knowledge.
    (4) Name, address, phone number, facsimile number and e-mail 
address of a corporate contact person.
    (5) For each batch of diesel fuel produced or imported during each 
calendar year:
    (i) The date that production was completed or importation occurred 
for the batch and the batch designation or classification.
    (ii) The batch volume.
    (6) Other appropriate information as requested by EPA.
    (d) Calculation of the Motor vehicle Baseline, BMV. (1) 
Under paragraph (c)(2)(i) of this section, BMV equals the 
average annual volume of motor vehicle diesel fuel produced or imported 
from January 1, 2003 through December 31, 2005.
    (2) Under paragraph (c)(2)(ii) of this section, BMV 
equals the average annual volume of motor vehicle diesel fuel produced 
during the period from January 1, 2006 through December 31, 2008.
    (3) For purposes of this paragraph, fuel produced for export, jet 
fuel (kerosene), and fuel specifically produced to meet military 
specifications (such as JP-4, JP-8, and F-76), shall not be included in 
baseline calculations.
    (e) Calculation of the Non-highway Baseline, BNRLM. (1) 
Under paragraph (c)(2)(i) of this section, BNRLM equals the 
average annual volume of all 2D distillate produced or 
imported from January 1, 2003 through December 31, 2005, less 
BMV as determined in paragraph (d)(1) of this section.
    (2) Under paragraph (c)(2)(ii) of this section, NRLM 
equals the average annual volume of MVNRLM produced or imported from 
January 1, 2006 through December 31, 2008, less BMV as 
determined in paragraph (d)(2) of this section.
    (3) For purposes of this paragraph (e), fuel produced for export, 
jet fuel, kerosene, and fuel specifically produced to meet military 
specification (such as JP-4, JP-8, and F-76), shall not be included in 
baseline calculations.
    (f)(1) Applications submitted under paragraph (c)(2)(i) of this 
section must be postmarked by February 28, 2006.
    (2) Applications submitted under paragraph (c)(2)(ii) of this 
section must be postmarked by February 28, 2009.
    (g)(1) For applications submitted under paragraph (c)(2)(i) of this 
section, EPA will notify refiners or importers by June 1, 2006 of 
approval of the baselines for each of the refiner's refineries or 
importer's import facilities or of any deficiencies in the refiner's or 
importer's application.
    (2) For applications submitted under paragraph (c)(2)(ii) of this 
section, EPA will notify refiners or importers by June 1, 2009 
regarding approval of the baselines for each of the refiner's 
refineries or importer's import facilities of any deficiencies in the 
refiner's or importer's application.
    (h) If at any time the motor vehicle baseline or non-highway 
baseline submitted in accordance with the requirements of this section 
is determined to be incorrect, EPA will

[[Page 39175]]

notify the refiner or importer of the corrected baseline and any 
compliance calculations made on the basis of that baseline will have to 
be adjusted retroactively.

0
26. A new Sec.  80.535 is added to read as follows.


Sec.  80.535  How are NRLM diesel fuel credits generated?

    (a) Generation of high sulfur NRLM credits from June 1, 2006 
through May 31, 2007. (1) During the period June 1, 2006 through May 
31, 2007, a refiner or importer may generate credits pursuant to the 
provisions of this section if all of the following conditions are met:
    (i) The refiner or importer notifies EPA of its intention to 
generate credits and the period during which it will generate credits. 
This notification must be received by EPA at least 120 calendar days 
prior to the date it begins generating credits under this section.
    (ii) Each batch or partial batch of NRLM diesel fuel for which 
credits are claimed shall be subject to all of the provisions of this 
subpart for NRLM diesel fuel as if it had been produced after June 1, 
2007 and before June 1, 2010.
    (iii) The number of high-sulfur NRLM credits (HSC) that are 
generated shall be a positive number.
    (2) The refiner or importer shall choose one of the following 
methods for calculating credits for each calculation period.
    (i) For fuel that is dyed under the provisions of Sec.  80.520, HSC 
equals the volume of fuel in gallons produced or imported during the 
period identified in paragraph (a)(1) of this section that is 
designated as NRLM diesel fuel and that is subject to and complies with 
the provisions of Sec.  80.510(a); or
    (ii) For dyed or undyed fuel that complies with the provisions of 
Sec.  80.598 for a calculation period of June 1, 2006 through May 31, 
2007, determine HSC as follows:

HSC = V510 + V520 - BMV

Where:

V510 = The total volume of NRLM diesel fuel produced or 
imported during the annual calculation period that complies with the 
standards of Sec.  80.510(a) or (b).
V520 = The total volume of motor vehicle diesel fuel 
produced or imported during the annual calculation period that 
complies with the standards of Sec.  80.520(a) or (c).
BMV = As calculated in Sec.  80.533(d)(1).

    (3) High-sulfur NRLM credits shall be generated and designated as 
follows:
    (i) Credits shall be generated separately for each refiner or 
importer.
    (ii) Credits may not be generated by both a foreign refiner and by 
an importer for the same motor vehicle diesel fuel.
    (iii) Credits shall not be generated under both Sec.  80.531 and 
this section for the same diesel fuel.
    (iv) Any credits generated by a foreign refiner shall be generated 
as provided in Sec.  80.620(c) and this section.
    (4) No credits may be generated under this paragraph (a) after May 
31, 2007.
    (5) Any fuel for which a refiner or importer wishes to generate 
credits must be designated as 500 ppm sulfur NRLM diesel fuel when 
delivered to the next entity. The refiner may not designate the fuel as 
500 ppm sulfur with the intent that it be mixed by the next entity with 
a batch of distillate with a higher sulfur level to create a fuel with 
a classification other than 500 ppm sulfur or the classification of the 
fuel it is mixed with (e.g., it cannot mix fuel designated as 500 ppm 
sulfur with fuel classified as high sulfur to produce a fuel classified 
as 2000 ppm sulfur to meet state or local sulfur limits).
    (6) The refiner or importer must submit a report to the 
Administrator no later than July 31, 2007. The report must demonstrate 
that all the NRLM diesel fuel produced or imported which generated 
credits met the applicable requirements of paragraphs (a)(1) through 
(a)(5) of this section. If the Administrator finds that such credits 
did not in fact meet the requirements of paragraphs (a)(1) through 
(a)(5) of this section, as applicable, or if the Administrator 
determines that there is insufficient information to determine the 
validity of such credits, the Administrator may deny the credits 
submitted in whole or in part.
    (b) Generation of high-sulfur NRLM credits by small refiners from 
June 1, 2006 through May 31, 2010. (1) Notwithstanding the dates 
specified in paragraph (a) of this section, during the period from June 
1, 2006 through May 31, 2010, a refiner that is approved by the EPA as 
a small refiner under Sec.  80.551 may generate credits under paragraph 
(a) of this section during any compliance period as specified under 
Sec.  80.599(a)(2) for diesel fuel produced or imported that is 
designated as NRLM diesel fuel and complies with the provisions of 
Sec.  80.510(a).
    (2) The small refiner must submit a report to the Administrator no 
later than August 31 after the end of each calculation period during 
which credits were generated. The report must demonstrate that all the 
NRLM diesel fuel produced or imported which generated credits met the 
applicable requirements of paragraphs (a)(1) through (a)(5) of this 
section. If the Administrator finds that such credits did not in fact 
meet the requirements of paragraphs (a)(1) through (a)(5) of this 
section, as applicable, or if the Administrator determines that there 
is insufficient information to determine the validity of such credits, 
the Administrator may deny the credits submitted in whole or in part.
    (3) In addition, a foreign refiner that is approved by the 
Administrator to generate credits under Sec.  80.554 shall comply with 
the requirements of Sec.  80.620.
    (c) Generation of 500 ppm sulfur NRLM credits from June 1, 2009 
through May 31, 2010. (1) During the period of June 1, 2009 through May 
31, 2010, a refiner or importer may generate credits pursuant to the 
provisions of this section if all of the following conditions are met:
    (i) The refiner or importer notifies EPA of its intention to 
generate credits and the period during which it will generate credits. 
This notification must be received by EPA at least 120 calendar days 
prior to the date it begins generating credits under this section.
    (ii) Each batch or partial batch of NRLM diesel fuel for which 
credits are claimed shall be subject to all of the provisions of this 
subpart for NRLM diesel fuel as if it had been produced after June 1, 
2010.
    (iii) The number of 500 ppm sulfur NRLM credits in gallons that are 
generated, C500, shall be a positive number calculated as 
follows:

C500 = V15-BMV
Where:
V15 = The total volume in gallons of 15 ppm diesel fuel 
produced or imported during the period stated under paragraph 
(c)(1)(i) of this section that is designated as either motor vehicle 
diesel fuel or NRLM diesel fuel.
BMV = As determined in Sec.  80.533(d)(2).

    (2) 500 ppm sulfur NRLM credits shall be generated and designated 
as follows:
    (i) Credits shall be generated separately for each refiner or 
importer.
    (ii) Credits may not be generated by both a foreign refiner and by 
an importer for the same diesel fuel.
    (iii) Credits shall not be generated under both Sec.  80.531 and 
this section for the same diesel fuel.
    (iv) Any credits generated by a foreign refiner shall be generated 
as provided in Sec.  80.620(c) and this section.
    (3) No credits may be generated under this paragraph (c) after May 
31, 2010.
    (4) The refiner or importer must submit a report to the 
Administrator no later than August 31, 2010. The report must 
demonstrate that all the 15 ppm sulfur NRLM diesel fuel produced or 
imported which generated credits met

[[Page 39176]]

the applicable requirements of paragraphs (c)(1) through (c)(3) of this 
section. If the Administrator finds that such credits did not in fact 
meet the requirements of paragraphs (c)(1) through (c)(3) of this 
section, as applicable, or if the Administrator determines that there 
is insufficient information to determine the validity of such credits, 
the Administrator may deny the credits submitted in whole or in part.
    (d) Generation of 500 ppm sulfur NRLM credits by small refiners 
from June 1, 2009 through December 31, 2013. (1) Notwithstanding the 
dates specified in paragraph (c) of this section, during the period 
from June 1, 2009 through December 31, 2013, a refiner that is approved 
by the EPA as a small refiner under Sec.  80.551 may generate credits 
under paragraph (c) of this section during any compliance period as 
specified under Sec.  80.599(a)(2) for diesel fuel produced or imported 
that is designated as NR or NRLM diesel fuel and complies with the 
provisions of Sec.  80.510(b) or (c).
    (2) The small refiner must submit a report to the Administrator no 
later than August 31 after the end of each calculation period during 
which credits were generated. The report must demonstrate that all the 
15 ppm sulfur NR or NRLM diesel fuel produced or imported for which 
credits were generated met the applicable requirements of paragraphs 
(c)(1) through (c)(3) of this section. If the Administrator finds that 
such credits did not in fact meet the requirements of paragraphs (c)(1) 
through (c)(3) of this section, as applicable, or if the Administrator 
determines that there is insufficient information to determine the 
validity of such credits, the Administrator may deny the credits 
submitted in whole or in part.
    (3) In addition, a foreign refiner that is approved by the 
Administrator to generate credits under Sec.  80.554 shall comply with 
the requirements of Sec.  80.620.

0
27. A new Sec.  80.536 is added to read as follows:


Sec.  80.536  How are NRLM diesel fuel credits used and transferred?

    (a) Credit use stipulations. Credits generated under Sec.  
80.535(a) and (b) may be used to meet the NRLM diesel fuel sulfur 
standard of Sec.  80.510(a), and credits generated under 80.535(c) and 
(d) may be used to meet the NR and NRLM diesel fuel sulfur standard of 
80.510(b) and (c), respectively, provided that:
    (1) The credits were generated and reported according to the 
requirements of this subpart; and
    (2) The conditions of this section are met.
    (b) Using credits generated under Sec.  80.535. Credits generated 
under Sec.  80.535 may be used by a refiner or an importer to comply 
with the diesel fuel standards of Sec.  80.510 (a), (b), and (c) by 
applying one credit for every gallon of diesel fuel that does not 
comply with the applicable standard.
    (c) Credit banking. Credits generated may be banked for use at a 
later time or may be transferred to any other refiner or importer 
nationwide for use as provided in paragraph (d) of this section.
    (d) Credit transfers. (1) Credits generated under Sec.  80.535 that 
are obtained from another refiner or importer may be used to comply 
with the diesel fuel sulfur standards of Sec.  80.510(a), (b), and (c) 
if all the following conditions are met:
    (i) The credits are used in compliance with the time period 
limitations for credit use in this subpart;
    (ii) Any credit transfer is completed no later than August 31 
following the compliance period when the credits are used to comply 
with a standard under paragraph (a) of this section;
    (iii) No credit is transferred more than twice, as follows:
    (A) The first transfer by the refiner or importer who generated the 
credit may only be made to a refiner or importer that intends to use 
the credit; if the transferee cannot use the credit, it may make a 
second and final transfer only to a refiner or importer who intends to 
use the credit; and
    (B) In no case may a credit be transferred more than twice before 
it is used or it expires;
    (iv) The credit transferor applies any credits necessary to meet 
the transferor's annual compliance requirements before transferring 
credits to any other refinery or importer;
    (v) No credits are transferred that would result in the transferor 
having a negative credit balance; and
    (vi) Each transferor supplies to the transferee records indicating 
the year the credits were generated, the identity of the refiner (and 
refinery) or importer that generated the credits, and the identity of 
the transferor, if it is not the same party that generated the credits.
    (2) In the case of credits that have been calculated or created 
improperly, or are otherwise determined to be invalid, the following 
provisions apply:
    (i) Invalid credits cannot be used to achieve compliance with the 
transferee's volume requirements regardless of the transferee's good 
faith belief that the credits were valid.
    (ii) The refiner or importer that used the credits, and any 
transferor of the credits, must adjust its credit records, reports and 
compliance calculations as necessary to reflect the proper credits.
    (iii) Any properly created credits existing in the transferor's 
credit balance after correcting the credit balance, and after the 
transferor applies credits as needed to meet the compliance 
requirements at the end of the calendar year, must first be applied to 
correct the invalid transfers before the transferor trades or banks the 
credits.
    (e) General limitation on credit use. Credits may not be used to 
achieve compliance with any requirements of this subpart other than the 
standards of Sec.  80.510(a), (b), and (c), unless specifically 
approved by the Administrator pursuant to a hardship relief petition 
under Sec.  80.560 or Sec.  80.561.
    (f) Use of high sulfur NRLM credits. (1) High sulfur NRLM credits 
generated under Sec.  80.535(a) or (b) may be used on a one-for-one 
basis to meet the NRLM diesel fuel sulfur standard of Sec.  80.510(a) 
from June 1, 2007 through May 31, 2010. For example, one credit 
generated by the production or importation of one gallon of NRLM diesel 
fuel subject to the NRLM diesel fuel sulfur standard of Sec.  80.510 
(a) may be used to produce or import one gallon of NRLM diesel fuel 
that is exempt from the sulfur standard of Sec.  80.510(a) during the 
period from June 1, 2007 through May 31, 2010.
    (2) Any high sulfur NRLM diesel fuel produced after June 1, 2007 
through the use of credits must--
    (i) Be dyed red under the provisions of Sec.  80.520 at the point 
of production or importation;
    (ii) Be associated with a product transfer document that bears a 
unique product code as specified in Sec.  80.590; and
    (iii) Not be used to sell or deliver diesel fuel into areas 
specified in Sec.  80.510(g)(1) or (g)(2).
    (3) No high sulfur NRLM credits may be used subsequent to the 
compliance period ending May 31, 2010.
    (4) Any high sulfur NRLM credits not used under the provisions of 
paragraph (f)(1) of this section may be converted into 500 ppm sulfur 
NRLM credits on a one-for-one basis for use under paragraph (g) of this 
section.
    (g) Use of 500 ppm sulfur NRLM credits. (1) 500 ppm sulfur NRLM 
credits generated under Sec.  80.535(c) or (d) or converted from high 
sulfur NRLM credits under paragraph (f)(3) of this section may be used 
on a one-for-one basis to meet the NR or NRLM diesel

[[Page 39177]]

fuel sulfur standards of Sec.  80.510(b) or (c) from June 1, 2010 
through May 31, 2014. For example, one credit generated by the 
production or importation of one gallon of NRLM diesel fuel subject to 
the NRLM diesel fuel sulfur standard of Sec.  80.510 (c) may be used to 
produce or import one gallon of NR diesel fuel that is subject to the 
sulfur standard of Sec.  80.510(a) during the period from June 1, 2010 
through May 31, 2014.
    (2) Any 500 ppm sulfur NR or NRLM diesel fuel produced or imported 
after June 1, 2010 through the use of these credits must--
    (i) Bear a unique product code as specified in Sec.  80.590; and
    (ii) Not be used to sell or deliver diesel fuel into areas 
specified in Sec.  80.510(g)(1) or (g)(2).
    (3) No 500 ppm sulfur NRLM credits may be used after May 31, 2014.

0
28. Section 80.540 is amended by revising paragraphs (b), (d), (e), and 
(f) to read as follows:


Sec.  80.540  How may a refiner be approved to produce gasoline under 
the GPA gasoline sulfur standards in 2007 and 2008?

* * * * *
    (b) The refiner must submit an application in accordance with the 
provisions of Sec. Sec.  80.595 and 80.596. The application must also 
include information, as provided in Sec.  80.594(c), demonstrating that 
starting no later than June 1, 2006, 95 percent of the motor vehicle 
diesel fuel produced by the refinery for United States use will comply 
with the 15 ppm sulfur standard under Sec.  80.520(a)(1), and that the 
volume of motor vehicle diesel fuel produced will comply with the 
volume requirements of paragraph (e) of this section.
* * * * *
    (d) From June 1, 2006 through December 31, 2008, 95 percent of the 
motor vehicle diesel fuel produced by a refiner that has been approved 
under paragraph (c) of this section to produce gasoline subject to the 
GPA gasoline sulfur standards in 2007 and 2008, must be accurately 
designated under Sec.  80.598 as meeting the 15 ppm sulfur standard of 
Sec.  80.520(a)(1).
    (e) The total volume of motor vehicle diesel fuel produced for use 
in the United States and designated as meeting the 15 ppm sulfur 
standard under paragraph (d) of this section must meet or exceed 85 
percent of the baseline volume established under paragraph (c) of this 
section, except that for the first compliance period from June 1, 2006 
through June 30, 2007, the total volume must meet or exceed 92 percent 
of the baseline volume.
    (f) Compliance with the volume requirements in paragraph (e) of 
this section shall be determined each compliance period. Annual 
compliance periods shall be from July 1 through June 30. For the year 
2006, the compliance period shall be from June 1, 2006 through June 30, 
2007.
* * * * *

0
29. Section 80.550 is amended by revising the section heading and 
paragraphs (a), (b), (c), (d), (e) and (f) to read as follows:


Sec.  80.550  What is the definition of a motor vehicle diesel fuel 
small refiner or a NRLM diesel fuel small refiner under this subpart?

    (a) A motor vehicle diesel fuel small refiner is defined as any 
person, as defined by 42 U.S.C. 7602(e), who--
    (1) Produces diesel fuel at a refinery by processing crude oil 
through refinery processing units; and
    (2) Employed an average of no more than 1,500 people, based on the 
average number of employees for all pay periods from January 1, 1999, 
to January 1, 2000; and
    (3) Had an average crude oil capacity less than or equal to 155,000 
barrels per calendar day (bpcd) for 1999; or
    (4) Has been approved by EPA as a small refiner under Sec.  80.235 
and continues to meet the criteria of a small refiner under Sec.  
80.225.
    (b) A NRLM diesel fuel small refiner is defined as any person, as 
defined by 42 U.S.C. 7602(e), who--
    (1) Produces diesel fuel at a refinery by processing crude oil 
through refinery processing units;
    (2) Employed an average of no more than 1,500 people, based on the 
average number of employees for all pay periods from January 1, 2002, 
to January 1, 2003; and
    (3) Had an average crude oil capacity less than or equal to 155,000 
barrels per calendar day (bpcd) for 2003.
    (c) Determine the number of employees and crude oil capacity under 
paragraphs (a) or (b) of this section, as follows:
    (1) The refiner shall include the employees and crude oil capacity 
of any subsidiary companies, any parent company and subsidiaries of the 
parent company in which the parent has 50 percent or greater ownership, 
and any joint venture partners.
    (2) For any refiner owned by a governmental entity, the number of 
employees and total crude oil capacity as specified in paragraph (a) of 
this section shall include all employees and crude oil production of 
the government to which the governmental entity is a part.
    (3) Any refiner owned and controlled by an Alaska Regional or 
Village Corporation organized pursuant to the Alaska Native Claims 
Settlement Act (43 U.S.C. 1601) is not considered an affiliate of such 
entity, or with other concerns owned by such entity solely because of 
their common ownership.
    (d)(1) Notwithstanding the provisions of paragraph (a) of this 
section, a refiner that acquires or reactivates a refinery that was 
shut down or non-operational between January 1, 1999, and January 1, 
2000, may apply for motor vehicle diesel fuel small refiner status in 
accordance with the provisions of Sec.  80.551(c)(1)(ii).
    (2) Notwithstanding the provisions of paragraph (b) of this 
section, a refiner that acquires or reactivates a refinery that was 
shutdown or non-operational between January 1, 2002, and January 1, 
2003, may apply for NRLM diesel fuel small refiner status in accordance 
with the provisions of Sec.  80.551(c)(2)(ii).
    (e) The following are ineligible for the small refiner provisions:
    (1)(i) For motor vehicle diesel fuel, refiners with refineries 
built or started up after January 1, 2000.
    (ii) For NRLM diesel fuel, refiners with refineries built or 
started up after January 1, 2003.
    (2)(i) For motor vehicle diesel fuel, persons who exceed the 
employee or crude oil capacity criteria under this section on January 
1, 2000, but who meet these criteria after that date, regardless of 
whether the reduction in employees or crude oil capacity is due to 
operational changes at the refinery or a company sale or 
reorganization.
    (ii) For NRLM diesel fuel, persons who exceed the employee or crude 
oil capacity criteria under this section on January 1, 2003, but who 
meet these criteria after that date, regardless of whether the 
reduction in employees or crude oil capacity is due to operational 
changes at the refinery or a company sale or reorganization.
    (3) Importers.
    (4) Refiners who produce motor vehicle diesel fuel or NRLM diesel 
fuel other than by processing crude oil through refinery processing 
units.
    (f)(1)(i) Refiners who qualify as motor vehicle diesel fuel small 
refiners under this section and subsequently cease production of diesel 
fuel from processing crude oil through refinery processing units, or 
employ more than 1,500 people or exceed the 155,000 bpcd crude oil 
capacity limit after January 1, 2004 as a result of merger with or 
acquisition of or by another entity, are disqualified as small 
refiners, except as provided for under paragraph (f)(4) of this 
section. If disqualification occurs, the refiner shall notify EPA in

[[Page 39178]]

writing no later than 20 days following this disqualifying event.
    (ii) Except as provided under paragraph (f)(3) of this section, any 
refiner whose status changes under this paragraph shall meet the 
applicable standards of Sec.  80.520 within a period of up to 30 months 
from the disqualifying event for any of its refineries that were 
previously subject to the small refiner standards of Sec.  80.552, but 
no later than the May 31, 2010.
    (2)(i) Refiners who qualify as NRLM diesel fuel small refiners 
under this section and subsequently cease production of diesel fuel 
from crude oil, or employ more than 1,500 people or exceed the 155,000 
bpcd crude oil capacity limit after January 1, 2004 as a result of 
merger with or acquisition of or by another entity, are disqualified as 
small refiners, except as provided for under paragraph (f)(4) of this 
section. If disqualification occurs, the refiner shall notify EPA in 
writing no later than 20 days following this disqualifying event.
    (ii) Except as provided under paragraph (f)(3) of this section, any 
refiner whose status changes under this paragraph shall meet the 
applicable standards of Sec.  80.510 within a period of up to 30 months 
of the disqualifying event for any of its refineries that were 
previously subject to the small refiner standards of Sec.  80.552, but 
no later than the dates specified in Sec.  80.554(a) or (b), as 
applicable.
    (3) A refiner may apply to EPA for up to an additional six months 
to comply with the standards of Sec.  80.510 or Sec.  80.520 if more 
than 30 months would be required for the necessary engineering, 
permitting, construction, and start-up work to be completed. Such 
applications must include detailed technical information supporting the 
need for additional time. EPA will base a decision to approve 
additional time on information provided by the refiner and on other 
relevant information. In no case will EPA extend the compliance date 
beyond May 31, 2010 for a motor vehicle diesel fuel small refiner or 
beyond the dates specified in Sec.  80.554(a) or (b), as applicable, 
for a NRLM diesel fuel small refiner.
    (4) Disqualification under paragraphs (f)(1) or (f)(2) of this 
section shall not apply in the case of a merger between two previously 
approved small refiners.
    (5) During the period of time up to 30 months provided under 
paragraph (f)(1)(ii) of this section, and any extension provided under 
paragraph (f)(3) of this section, the refiner may not generate motor 
vehicle diesel fuel sulfur credits under Sec.  80.531(e). During the 
period of time up to 30 months provided under paragraph (f)(2)(ii) of 
this section, and any extension provided under paragraph (f)(3) of this 
section, the refiner may not generate NRLM diesel fuel sulfur credits 
under Sec.  80.535(b) or (d).
* * * * *

0
30. Section 80.551 is revised to read as follows:


Sec.  80.551  How does a refiner obtain approval as a small refiner 
under this subpart?

    (a)(1)(i) Applications for motor vehicle diesel fuel small refiner 
status must be submitted to EPA by December 31, 2001.
    (ii) Applications for NRLM diesel fuel small refiner status must be 
submitted to EPA by December 31, 2004.
    (2)(i) In the case of a refiner who acquires or reactivates a 
refinery that was shutdown or non-operational between January 1, 1999, 
and January 1, 2000, the application for motor vehicle diesel fuel 
small refiner status must be submitted to EPA by June 1, 2003.
    (ii) In the case of a refiner who acquires or reactivates a 
refinery that was shutdown or non-operational between January 1, 2002, 
and January 1, 2003, the application for NRLM diesel fuel small refiner 
status must be submitted to EPA by June 1, 2006.
    (b) Applications for small refiner status must be sent via 
certified mail with return receipt or express mail with return receipt 
to: U.S. EPA--Attn: Diesel Small Refiner Status (6406J), 1200 
Pennsylvania Avenue, NW., Washington, DC 20460 (certified mail/return 
receipt) or Attn: Diesel Small Refiner Status, Transportation and 
Regional Programs Division, 1310 L Street, NW., 6th floor, Washington, 
DC 20005 (express mail/return receipt).
    (c) The small refiner status application must contain the following 
information for the company seeking small refiner status, plus any 
subsidiary companies, any parent company and subsidiaries of the parent 
company in which the parent has 50 percent or greater ownership, and 
any joint venture partners:
    (1) For motor vehicle diesel fuel small refiners--
    (i) A listing of the name and address of each location where any 
employee worked during the 12 months preceding January 1, 2000; the 
average number of employees at each location based upon the number of 
employees for each pay period for the 12 months preceding January 1, 
2000; and the type of business activities carried out at each location; 
or
    (ii) In the case of a refiner who acquires or reactivates a 
refinery that was shutdown or non-operational between January 1, 1999, 
and January 1, 2000, a listing of the name and address of each location 
where any employee of the refiner worked since the refiner acquired or 
reactivated the refinery; the average number of employees at any such 
acquired or reactivated refinery during each calendar year since the 
refiner acquired or reactivated the refinery; and the type of business 
activities carried out at each location.
    (2) For NRLM diesel fuel small refiners--
    (i) A listing of the name and address of each location where any 
employee worked during the 12 months preceding January 1, 2003; the 
average number of employees at each location based upon the number of 
employees for each pay period for the 12 months preceding January 1, 
2003; and the type of business activities carried out at each location; 
or
    (ii) In the case of a refiner who acquires or reactivates a 
refinery that was shutdown or non-operational between January 1, 2002, 
and January 1, 2003, a listing of the name and address of each location 
where any employee of the refiner worked since the refiner acquired or 
reactivated the refinery; the average number of employees at any such 
acquired or reactivated refinery during each calendar year since the 
refiner acquired or reactivated the refinery; and the type of business 
activities carried out at each location.
    (3) The total corporate crude oil capacity of each refinery as 
reported to the Energy Information Administration (EIA) of the U.S. 
Department of Energy (DOE) for the most recent 12 months of operation. 
The information submitted to EIA is presumed to be correct. In cases 
where a company disagrees with this information, the company may 
petition EPA with appropriate data to correct the record when the 
company submits its application for small refiner status. EPA may 
accept such alternate data at its discretion.
    (4) For motor vehicle diesel fuel, an indication of whether the 
refiner, for each refinery, is applying for--
    (i) The ability to produce motor vehicle diesel fuel subject to the 
500 ppm sulfur standard under Sec.  80.520(c) or generate credits under 
Sec.  80.531, pursuant to the provisions of Sec.  80.552(a) or (b); or
    (ii) An extension of the duration of its small refiner gasoline 
sulfur standard under Sec.  80.553, pursuant to the provisions of Sec.  
80.552(c).
    (5) For NRLM diesel fuel, an indication of whether the refiner, for 
each refinery, is applying for--
    (i) The ability to delay compliance under Sec.  80.554(a) or (b), 
or to generate

[[Page 39179]]

NRLM diesel sulfur credits under Sec.  80.535(b) or (d), pursuant to 
the provisions of Sec.  80.554(c); or
    (ii) An adjustment to its small refiner gasoline sulfur standards 
under Sec.  80.240(a), pursuant to the provisions of Sec.  80.554(d).
    (6) A letter signed by the president, chief operating or chief 
executive officer of the company, or his/her designee, stating that the 
information contained in the application is true to the best of his/her 
knowledge.
    (7) Name, address, phone number, facsimile number and e-mail 
address (if available) of a corporate contact person.
    (d) For joint ventures, the total number of employees includes the 
combined employee count of all corporate entities in the venture.
    (e) For government-owned refiners, the total employee count 
includes all government employees.
    (f) Approval of small refiner status for refiners who apply under 
Sec.  80.550(e) will be based on all information submitted under 
paragraph (c) of this section, except as provided in Sec.  80.550(e).
    (g) EPA will notify a refiner of approval or disapproval of small 
refiner status by letter. If disapproved, the refiner must comply with 
the sulfur standards in Sec.  80.510 or 80.520, as appropriate, except 
as otherwise provided in this subpart.
    (h) If EPA finds that a refiner provided false or inaccurate 
information on its application for small refiner status, upon notice 
from EPA the refiner's small refiner status will be void ab initio.
    (i) Upon notification to EPA, an approved small refiner may 
withdraw its status as a small refiner. Effective on January 1 of the 
year following such notification, the small refiner will become subject 
to the sulfur standards in Sec.  80.510 or 80.520, as appropriate, 
unless one of the other hardship provisions of this subpart apply.

0
31. Section 80.552 is amended by revising the section heading and 
paragraphs (a), (b), (c), and (e) to read as follows:


Sec.  80.552  What compliance options are available to motor vehicle 
diesel fuel small refiners?

    (a) A refiner that has been approved by EPA as a motor vehicle 
diesel fuel small refiner under Sec.  80.551(g) may produce motor 
vehicle diesel fuel subject to the 500 ppm sulfur standard pursuant to 
the provisions of Sec.  80.530, except that the volume limits of Sec.  
80.530(a)(3) shall only apply to that volume of diesel fuel that is 
produced or imported during an annual compliance period that exceeds 
105 percent of the baseline volume established under Sec.  80.595 
(V500). The annual compliance period shall be from July 1 
through June 30. For the year 2006, the compliance period shall be from 
June 1, 2006 through June 30, 2007, and the volume limits shall only 
apply to that volume V500 that exceeds 113 percent of the 
baseline volume.
    (b) A refiner that has been approved by EPA as a motor vehicle 
diesel fuel small refiner under Sec.  80.551(g) may generate motor 
vehicle diesel fuel credits pursuant to the provisions of Sec.  80.531, 
except that for purposes of Sec.  80.531(a), the term ``Credit'' shall 
equal V15, without further adjustment.
    (c) A refiner that has been approved by EPA as a motor vehicle 
diesel fuel small refiner under Sec.  80.551(g) may apply for an 
extension of the duration of its small refiner gasoline sulfur 
standards pursuant to Sec.  80.553.
* * * * *
    (e) The provisions of this section shall apply separately for each 
refinery owned or operated by a motor vehicle diesel fuel small 
refiner.

0
32. Section 80.553 is amended by revising paragraphs (d), (e), (f), and 
(k) to read as follows:


Sec.  80.553  Under what conditions may the small refiner gasoline 
sulfur standards be extended for a small refiner of motor vehicle 
diesel fuel?

* * * * *
    (d) Beginning June 1, 2006, and continuing through December 31, 
2010, all motor vehicle diesel fuel produced by a refiner that has 
received an extension of its small refiner gasoline sulfur standards 
under this section must be accurately designated under Sec.  80.598 as 
meeting the 15 ppm sulfur content standard under Sec.  80.520(a)(1).
    (e) The total volume of motor vehicle diesel fuel produced for use 
in the United States and designated as meeting the 15 ppm sulfur 
content standard under paragraph (d) of this section must meet or 
exceed 85 percent of the baseline volume established under paragraph 
(c) of this section, except that for the first compliance period from 
June 1, 2006 through June 30, 2007, the total volume must meet or 
exceed 92 percent of the baseline volume.
    (f) Compliance with the volume requirements in paragraph (e) of 
this section shall be determined each compliance period. Annual 
compliance periods shall be from July 1 through June 30. For the year 
2006, the compliance period shall be from June 1, 2006 through June 30, 
2007 and for the year 2009 the compliance period shall be from July 1, 
2009 through May 31, 2010.
* * * * *
    (k) A refiner may petition the Administrator to vacate an extension 
of the small refiner gasoline sulfur content standards. EPA may grant 
such a petition, effective July 1 of the compliance period following 
receipt of such petition (or effective June 1, 2006, if applicable). 
Upon such effective date, all gasoline produced by the refiner must 
meet the gasoline sulfur content standards under subpart H of this part 
as if there had been no extension of the small refiner gasoline sulfur 
content standards under this section. Upon such effective date, the 
refiner shall not be subject to the requirements of this section.
* * * * *

0
33. A new Sec.  80.554 is added to read as follows:


Sec.  80.554  What compliance options are available to NRLM diesel fuel 
small refiners?

    (a) Option 1: A refiner that has been approved by EPA as a NRLM 
diesel fuel small refiner under Sec.  80.551(g) may produce NRLM diesel 
fuel from crude oil from June 1, 2007 through May 31, 2010, that is 
exempt from the standards under Sec.  80.510(a), but only for a 
refinery located outside the areas specified under Sec.  80.510(g)(1).
    (1) The volume of NRLM diesel fuel that is exempt from Sec.  
80.510(a) must be less than or equal to 105 percent of BNRLM 
as defined under Sec.  80.533, less any volume of heating oil produced.
    (2) Any volume of NRLM diesel fuel in excess of the volume allowed 
under (a)(1) of this section will be subject to the 500 ppm sulfur 
standard under Sec.  80.510(a).
    (3) High-sulfur NRLM produced under this paragraph must--
    (i) Be dyed red pursuant to the provisions of Sec.  80.520 at the 
point of production or importation;
    (ii) Be associated with a product transfer document that bears a 
unique product code as specified under Sec.  80.590; and
    (iii) Not be delivered into areas specified under Sec.  
80.510(g)(1).
    (4) From June 1, 2007 through May 31, 2010, a refiner that has been 
approved by EPA as a NRLM diesel fuel small refiner under Sec.  
80.551(g) may produce at a refinery located in 80.510(g)(2) NRLM diesel 
fuel that is exempt from the standards under Sec.  80.510(a) only if 
the refiner first obtains approval from the Administrator for a 
compliance plan. The compliance plan must detail how the refiner will 
segregate any fuel produced that does

[[Page 39180]]

not meet the standards under Sec.  80.510(a) from the refinery through 
to the ultimate consumer from fuel having any other designations and 
from fuel produced by any other refiner. The compliance plan must also 
identify all ultimate consumers to whom the refiner supplies the fuel 
that does not meet the standards under Sec.  80.510(a).
    (b) Option 2: A refiner that has been approved by EPA as a NRLM 
diesel fuel small refiner under Sec.  80.551(g) may produce NR diesel 
fuel from crude oil from June 1, 2010, through May 31, 2014, and NRLM 
diesel fuel from crude oil from June 1, 2012 through May 31, 2014 that 
is subject to the standards under Sec.  80.510(a), but only for a 
refinery located outside the areas specified under Sec.  80.510(g)(1).
    (1) The volume of NR diesel fuel that may be subject to the 500 ppm 
sulfur standard from June 1, 2010 through June 30, 2011 must be less 
than or equal to 113 percent of BNRLM, and from July 1, 2011 
through May 31, 2012 must be less than or equal to 96 percent of 
BNRLM, as defined under Sec.  80.533, less any volume of 
locomotive and marine diesel fuel produced.
    (2) The volume of NRLM diesel fuel that may be subject to the 500 
ppm sulfur standard from June 1, 2012 through June 30, 2013 must be 
less than or equal to 113 percent of BNRLM, and from July 1, 
2013 through May 31, 2014 must be less than or equal to 96 percent of 
BNRLM, as defined under Sec.  80.533.
    (3) NRLM diesel fuel produced in excess of the volume allowed under 
paragraph (b)(1) of this section will be subject to the standards under 
Sec.  80.510(b) and (c).
    (4) 500 ppm sulfur NRLM diesel fuel produced under this paragraph 
must--
    (i) Bear a unique product code as specified under Sec.  80.590; and
    (ii) Not be sold or delivered into areas specified under Sec.  
80.510(g)(1).
    (5) From June 1, 2010 through May 31, 2012, for NR diesel fuel, and 
from June 1, 2012 through May 31, 2014 for NRLM diesel fuel, a refiner 
that has been approved by EPA as a NRLM diesel fuel small refiner under 
Sec.  80.551(g) may produce, at a refinery located in Alaska, NR and 
NRLM diesel fuel, as applicable, from crude oil that is subject to the 
standards of Sec.  80.510(a), only if the refiner first obtains 
approval from the Administrator for a compliance plan. The compliance 
plan must detail how the refiner will segregate any fuel produced 
subject to the standards under Sec.  80.510(a) from the refinery 
through to the ultimate consumer from fuel having any other 
designations and from fuel produced by any other refiner. The 
compliance plan must also identify all ultimate consumers to whom the 
refiner supplies the fuel that does not meet the standards under Sec.  
80.510(a).
    (c) Option 3: A refiner that has been approved by EPA as a NRLM 
diesel fuel small refiner under Sec.  80.551(g) may generate diesel 
fuel credits under the provisions of Sec.  80.535(b) and (d), except as 
provided in paragraph (d)(1) of this section.
    (d) Option 4: (1) In lieu of Options 1, 2, and 3 of this section, a 
refiner that has been approved by EPA as a NRLM diesel fuel small 
refiner under Sec.  80.551(g) may choose to adjust its small refiner 
gasoline sulfur standards, subject to the following conditions:
    (i) From June 1, 2006 until the expiration of the refiner's small 
refiner gasoline sulfur standards (through December 31, 2007 or 2010) 
95 percent of the NRLM diesel fuel produced by the refiner must be 
accurately designated under Sec.  80.598(a) as meeting the 15 ppm 
sulfur standard of Sec.  80.510(b).
    (ii) The refiner must produce NRLM diesel fuel each year or partial 
year under paragraph (d)(1)(i) of this section at a volume that is 
equal to or greater than 85 percent of BNRLM , as defined in 
Sec.  80.533, calculated on an annual basis.
    (2)(i) For a refiner meeting the conditions of paragraph (d)(1) of 
this section, beginning January 1, 2004, the applicable small refiner's 
annual average and per-gallon cap gasoline sulfur standards will be the 
standards of Sec.  80.240(a) increased by a factor of 1.20 for the 
duration of the refiner's small refiner gasoline sulfur standards under 
Sec.  80.240(a) or Sec.  80.553 (i.e., through calendar years 2007 or 
2010).
    (ii) In no case may the per-gallon cap exceed 450 ppm.
    (3)(i) If the refiner fails to produce the necessary volume of 15 
ppm sulfur NRLM diesel fuel by June 1, 2006 and every year thereafter 
through the deadlines specified under paragraph (d)(1)(i) of this 
section, the refiner must report this in its annual report under Sec.  
80.604, and the adjustment of gasoline sulfur standards under paragraph 
(d)(2)(i) of this section will be considered void as of January 1, 
2004.
    (ii) If such a refiner had produced gasoline above its interim 
gasoline sulfur standard of Sec.  80.240(a) prior to June 1, 2006, such 
fuel will not be considered in violation of the small refiner standards 
under Sec.  80.240(a), provided the refiner obtains and uses a quantity 
of gasoline sulfur credits equal to the volume of gasoline exceeding 
the small refiner standards multiplied by the number of parts per 
million by which the gasoline exceeded the small refiner standards.
    (e) Multiple refineries. The provisions of this section shall apply 
separately for each refinery owned or operated by a NRLM diesel fuel 
small refiner.
    (f) Other provisions. From June 1, 2007 through May 31, 2010, a 
refiner who is an approved motor vehicle diesel fuel small refiner 
under Sec.  80.550(a) but does not qualify as a NRLM diesel fuel small 
refiner under Sec.  80.550(b) may produce NRLM diesel fuel that is 
exempt from the per-gallon sulfur standard and the cetane or aromatics 
standard of Sec.  80.510(a). This exemption does not apply to diesel 
fuel sold or intended for sale in the areas listed in Sec.  
80.510(g)(1) or (g)(2). From June 1, 2010 through May 31, 2012, NR and 
LM diesel fuel produced by such refiners is subject to the standards 
under Sec.  80.510(b) and beginning June 1, 2012, all NRLM diesel fuel 
is subject to the standards under Sec.  80.510(c).

0
34. A new Sec.  80.555 is added to read as follows:


Sec.  80.555  What provisions are available to a large refiner that 
acquires a small refiner or one or more of its refineries?

    (a) In the case of a refiner without approved small refiner status 
who acquires a refinery from a refiner with approved status as a motor 
vehicle diesel fuel small refiner or a NRLM diesel fuel small refiner 
under Sec.  80.551(g), the applicable small refiner provisions of 
Sec. Sec.  80.552 and 80.554 may apply to the acquired refinery for a 
period of up to 30 months from the date of acquisition of the refinery. 
In no case shall this period extend beyond May 31, 2010 for a refinery 
acquired from a motor vehicle diesel fuel small refiner or beyond the 
dates specified in Sec.  80.554(a) or (b), as applicable, for a 
refinery acquired from a NRLM diesel fuel small refiner.
    (b) A refiner may apply to EPA for up to an additional six months 
to comply with the standards of Sec.  80.510 or 80.520 for the acquired 
refinery if more than 30 months would be required for the necessary 
engineering, permitting, construction, and start-up work to be 
completed. Such applications must include detailed technical 
information supporting the need for additional time. EPA will base a 
decision to approve additional time on information provided by the 
refiner and on other relevant information. In no case will EPA extend 
the compliance date beyond May 31, 2010 for a refinery acquired from a 
motor vehicle diesel fuel small refiner or beyond the dates specified 
in Sec.  80.554(a) or (b), as applicable, for a refinery acquired from 
a NRLM diesel fuel small refiner.

[[Page 39181]]

    (c) Refiners who acquire a refinery from a refiner with approved 
status as a motor vehicle diesel fuel small refiner or a NRLM diesel 
fuel small refiner under Sec.  80.551(g), shall notify EPA in writing 
no later than 20 days following the acquisition.

0
35. Section 80.560 is amended by revising paragraphs (a), (b), (d), 
(e), (h), (i), (k), and (l) to read as follows:


Sec.  80.560  How can a refiner seek temporary relief from the 
requirements of this subpart in case of extreme hardship circumstances?

    (a) EPA may, at its discretion, grant a refiner of crude oil that 
processes crude oil through refinery processing units, for one or more 
of its refineries, temporary relief from some or all of the provisions 
of this subpart. Such relief shall be no less stringent than the small 
refiner compliance options specified in Sec.  80.552 for motor vehicle 
diesel fuel and Sec.  80.554 for NRLM diesel fuel. EPA may grant such 
relief provided that the refiner demonstrates that--
    (1) Unusual circumstances exist that impose extreme hardship and 
significantly affect the refiner's ability to comply by the applicable 
date; and
    (2) It has made best efforts to comply with the requirements of 
this subpart.
    (b)(1) For motor vehicle diesel fuel, applications must be 
submitted to EPA by June 1, 2002 to the following address: U.S. EPA--
Attn: Diesel Hardship, Transportation and Regional Programs Division 
(6406J), 1200 Pennsylvania Avenue, NW., Washington, DC 20460 (certified 
mail/return receipt) or Attn: Diesel Hardship, Transportation and 
Regional Programs Division, 1310 L Street, NW., 6th floor, Washington, 
DC 20005 (express mail/return receipt). EPA reserves the right to deny 
applications for appropriate reasons, including unacceptable 
environmental impact. Approval to distribute motor vehicle diesel fuel 
not subject to the 15 ppm sulfur standard may be granted for such time 
period as EPA determines is appropriate, but shall not extend beyond 
May 31, 2010.
    (2) For NRLM diesel fuel, applications must be submitted to EPA by 
June 1, 2005 to the following address: U.S. EPA--Attn: Diesel Hardship, 
Transportation and Regional Programs Division (6406J), 1200 
Pennsylvania Avenue, NW., Washington, DC 20460 (certified mail/return 
receipt) or Attn: Diesel Hardship, Transportation and Regional Programs 
Division, 1310 L Street, NW., 6th floor, Washington, DC 20005 (express 
mail/return receipt). EPA reserves the right to deny applications for 
appropriate reasons, including unacceptable environmental impact. 
Approval to distribute NRLM diesel fuel not subject to the 500 ppm 
sulfur standard may be granted for such time period as EPA determines 
is appropriate, but shall not extend beyond May 31, 2010 for NR diesel 
fuel and May 31, 2012 for NRLM diesel fuel. Approval to distribute NRLM 
diesel fuel not subject to the 15 ppm sulfur standard may be granted 
for such time period as EPA determines is appropriate, but shall not 
extend beyond May 31, 2014.
* * * * *
    (d) Applicants must provide, at a minimum, the following 
information:
    (1) Detailed description of efforts to obtain capital for refinery 
investments and efforts made to obtain credits for compliance under 
Sec.  80.531 for motor vehicle diesel fuel or Sec. Sec.  80.535 through 
80.536 for NRLM diesel fuel;
    (2) Bond rating of entity that owns the refinery (in the case of 
joint ventures, include the bond rating of the joint venture entity and 
the bond ratings of all partners; in the case of corporations, include 
the bond ratings of any parent or subsidiary corporations); and
    (3) Estimated capital investment needed to comply with the 
requirements of this subpart by the applicable date.
    (e) In addition to the application requirements of paragraph (b) 
through (d) of this section, a refiner's application for temporary 
relief under this paragraph (e) must also include a compliance plan. 
Such compliance plan shall demonstrate how the refiner will engage in a 
quality assurance testing program, where appropriate, to ensure that 
the following conditions are met:
    (1)(i) Its motor vehicle diesel fuel subject solely to the sulfur 
standards under Sec.  80.520(c) has not caused motor vehicle diesel 
fuel subject to the 15 ppm sulfur standard Sec.  80.520(a)(1) to fail 
to comply with that standard; or
    (ii) Its NRLM diesel fuel subject solely to the 500 ppm sulfur 
standard under Sec.  80.510(a) has not caused NRLM diesel fuel subject 
to the 15 ppm sulfur standard under Sec.  80.510(b) or (c) to fail to 
comply with that standard.
    (2) The quality assurance program must at least include periodic 
sampling and testing at the party's own facilities and at downstream 
facilities in the refiner's or importer's diesel fuel distribution 
system, to determine compliance with the applicable sulfur standards 
for both categories of motor vehicle diesel fuel; examination at the 
party's own facilities and at applicable downstream facilities, of 
product transfer documents to confirm appropriate transfers and 
deliveries of both products; and inspection of retailer and wholesale 
purchaser-consumer pump stands for the presence of the labels and 
warning signs required under this section. Any violations that are 
discovered shall be reported to EPA within 48 hours of discovery.
* * * * *
    (h) Refiners who are granted a hardship relief standard for any 
refinery and importers of fuel subject to temporary foreign refiner 
relief standards, must comply with the requirements of Sec.  80.561(f).
    (i) EPA may impose any reasonable conditions on waivers under this 
section, including limitations on the refinery's volume of motor 
vehicle diesel fuel and NRLM diesel fuel subject to temporary refiner 
relief standards.
* * * * *
    (k) The individual refinery sulfur standard and the compliance plan 
will be approved or disapproved by the Administrator, and approval will 
be effective when the refiner receives an approval letter from EPA. 
Unless approved, the refiner or, where applicable, the importer must 
comply with the motor vehicle diesel fuel standard under Sec.  
80.520(a)(1) by the appropriate compliance date specified in Sec.  
80.500 or the NRLM diesel fuel standards and compliance dates under 
Sec.  80.510(a), (b), and (c) as applicable.
    (l) If EPA finds that a refiner provided false or inaccurate 
information on its application for hardship relief, EPA's approval of 
the refiners application will be void ab initio.

0
36. Section 80.561 is amended by revising the introductory text and 
paragraphs (c), (d), and (f) to read as follows:


Sec.  80.561  How can a refiner or importer seek temporary relief from 
the requirements of this subpart in case of extreme unforseen 
circumstances?

    In appropriate extreme, unusual, and unforseen circumstances (for 
example, natural disaster or refinery fire) which are clearly outside 
the control of the refiner or importer and which could not have been 
avoided by the exercise of prudence, diligence, and due care, EPA may 
permit a refiner or importer, for a brief period, to distribute motor 
vehicle diesel fuel or NRLM diesel fuel which does not meet the 
requirements of this subpart if:
* * * * *
    (c) The refiner or importer can show how the requirements for motor 
vehicle diesel fuel or NRLM diesel fuel will be expeditiously achieved;
    (d) The refiner or importer agrees to make up any air quality 
detriment associated with the nonconforming

[[Page 39182]]

motor vehicle diesel fuel or NRLM diesel fuel, where practicable;
* * * * *
    (f)(1) In the case of motor vehicle diesel fuel distributed under 
this section that does not meet the 15 ppm sulfur standard under Sec.  
80.520(a)(1), such diesel fuel shall not be distributed for use in 
model year 2007 or later motor vehicles, and must meet all the 
requirements and prohibitions of this subpart applicable to diesel fuel 
meeting the sulfur standard under Sec.  80.520(c), or to diesel fuel 
that is not motor vehicle diesel fuel, as applicable.
    (2) In the case of NRLM diesel fuel distributed under this section 
from June 1, 2007 through May 31, 2010 that does not meet the 500 ppm 
sulfur standard under Sec.  80.510(a), such diesel fuel must meet the 
requirements and prohibitions applicable to high sulfur NRLM credit 
fuel under Sec.  80.536(f)(1)(i) and (ii).
    (3) In the case of NR diesel fuel distributed under this section 
after May 31, 2010 that does not meet the 15 ppm sulfur standard under 
Sec.  80.510(b), such diesel fuel shall not be distributed for use in 
model year 2011 or later nonroad engines, and must meet all the 
requirements and prohibitions of this subpart applicable to diesel fuel 
meeting the sulfur standard under Sec.  80.510(a) for NRLM diesel fuel.
    (4) In the case of NRLM diesel fuel distributed under this section 
after May 31, 2012 that does not meet the 15 ppm sulfur standard under 
Sec.  80.510(c), such diesel fuel shall not be distributed for use in 
model year 2011 or later nonroad engines, and must meet all the 
requirements and prohibitions of this subpart applicable to diesel fuel 
meeting the sulfur standard under Sec.  80.510(a) for NRLM diesel fuel.

0
37. Section 80.570 is revised to read as follows:


Sec.  80.570  What labeling requirements apply to retailers and 
wholesale purchaser-consumers of diesel fuel beginning June 1, 2006?

    (a) From June 1, 2006 through May 31, 2010, any retailer or 
wholesale purchaser-consumer who sells, dispenses, or offers for sale 
or dispensing, motor vehicle diesel fuel subject to the 15 ppm sulfur 
standard of Sec.  80.520(a)(1), must affix the following conspicuous 
and legible label, in block letters of no less than 24-point bold type, 
and printed in a color contrasting with the background, to each pump 
stand:

ULTRA-LOW SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all model year 2007 and later highway diesel 
vehicles and engines.
    Recommended for use in all diesel vehicles and engines.

    (b) From June 1, 2006 through September 30, 2010, any retailer or 
wholesale purchaser-consumer who sells, dispenses, or offers for sale 
or dispensing, motor vehicle diesel fuel subject to the 500 ppm sulfur 
standard of Sec.  80.520(c), must prominently and conspicuously display 
in the immediate area of each pump stand from which motor vehicle fuel 
subject to the 500 ppm sulfur standard is offered for sale or 
dispensing, the following legible label, in block letters of no less 
than 24-point bold type, printed in a color contrasting with the 
background:

LOW SULFUR HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in model year 2007 and later highway 
vehicles and engines.
    Its use may damage these vehicles and engines.

    (c) From June 1, 2006 through May 31, 2007, any retailer or 
wholesale purchaser-consumer who sells, dispenses, or offers for sale 
or dispensing, diesel fuel for non-motor vehicle equipment that does 
not meet the standards for motor vehicle diesel fuel, must affix the 
following conspicuous and legible label, in block letters of no less 
than 24-point bold type, and printed in a color contrasting with the 
background, to each pump stand:

NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)

WARNING

    Federal law prohibits use in highway vehicles or engines.
    Its use may damage these vehicles and engines.

    (d) The labels required by paragraphs (a) through (c) of this 
section must be placed on the vertical surface of each pump housing and 
on each side that has gallon and price meters. The labels shall be on 
the upper two-thirds of the pump, in a location where they are clearly 
visible.
    (e) Alternative labels to those specified in paragraphs (a) through 
(c) of this section may be used as approved by the Administrator.

0
38. A new Sec.  80.571 is added to read as follows:


Sec.  80.571  What labeling requirements apply to retailers and 
wholesale purchaser-consumers of NRLM diesel fuel or heating oil 
beginning June 1, 2007?

    Any retailer or wholesale purchaser-consumer who sells, dispenses, 
or offers for sale or dispensing nonroad, locomotive or marine (NRLM) 
diesel fuel (including nonroad (NR) and locomotive or marine (LM)), or 
heating oil, must prominently and conspicuously display in the 
immediate area of each pump stand from which non-highway diesel fuel is 
offered for sale or dispensing, one of the following legible labels, as 
applicable, in block letters of no less than 24-point bold type, 
printed in a color contrasting with the background:
    (a) From June 1, 2007 through May 31, 2010, for pumps dispensing 
NRLM diesel fuel meeting the 15 ppm sulfur standard of Sec.  80.510(b):

ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all model year 2011 and newer nonroad diesel 
engines.
    Recommended for use in all nonroad, locomotive, and marine 
diesel engines.

WARNING

    Federal Law prohibits use in highway vehicles or engines.

    (b) From June 1, 2007 through May 31, 2010, for pumps dispensing 
NRLM diesel fuel meeting the 500 ppm sulfur standard of Sec.  
80.510(a):

LOW SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal Law prohibits use in highway vehicles or engines.

    (c) From June 1, 2007 through September 30, 2010, for pumps 
dispensing NRLM diesel fuel not meeting, or not offered as meeting, the 
500 ppm sulfur standard of Sec.  80.510(a) or the 15 ppm sulfur 
standard of Sec.  80.510(b):

HIGH SULFUR NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)

WARNING

    Federal law prohibits use in highway vehicles or engines.
    May damage nonroad diesel engines required to use low-sulfur or 
ultra-low sulfur diesel fuel.

    (d) From June 1, 2007 and beyond, for pumps dispensing non-motor 
vehicle diesel fuel for use other than in nonroad, locomotive or marine 
engines, such as for use in stationary diesel engines or as heating 
oil:

HEATING OIL (May Exceed 500 ppm Sulfur)

WARNING

    Federal law prohibits use in highway vehicles or engines, or in 
nonroad, locomotive, or marine diesel engines.
    Its use may damage these diesel engines.

    (e) The labels required by paragraphs (a) through (d) of this 
section must be placed on the vertical surface of each pump housing and 
on each side that has

[[Page 39183]]

gallon and price meters. The labels shall be on the upper two-thirds of 
the pump, in a location where they are clearly visible.
    (f) Alternative labels to those specified in paragraphs (a) through 
(d) of this section may be used as approved by the Administrator.

0
39. A new Sec.  80.572 is added to read as follows:


Sec.  80.572  What labeling requirements apply to retailers and 
wholesale purchaser-consumers of NR and NRLM diesel fuel and heating 
oil beginning June 1, 2010?

    Any retailer or wholesale purchaser-consumer who sells, dispenses, 
or offers for sale or dispensing nonroad, locomotive or marine (NRLM) 
diesel fuel (including nonroad (NR) and locomotive or marine (LM)), or 
heating oil, must prominently and conspicuously display in the 
immediate area of each pump stand from which non-highway diesel fuel is 
offered for sale or dispensing, one of the following legible labels, as 
applicable, in block letters of no less than 24-point bold type, 
printed in a color contrasting with the background:
    (a) From June 1, 2010 and beyond, any retailer or wholesale 
purchaser-consumer who sells, dispenses, or offers for sale or 
dispensing, motor vehicle diesel fuel subject to the 15 ppm sulfur 
standard of Sec.  80.520(a)(1), must affix the following conspicuous 
and legible label, in block letters of no less than 24-point bold type, 
and printed in a color contrasting with the background, to each pump 
stand:

ULTRA-LOW SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all highway diesel vehicles and engines.
    Recommended for use in all diesel vehicles and engines.

    (b) From June 1, 2010 through May 31, 2012, for pumps dispensing NR 
diesel fuel subject to the 15 ppm sulfur standard of Sec.  80.510(b):

ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all model year 2011 and later nonroad diesel 
engines.
    Recommended for use in all other non-highway diesel engines.

WARNING

    Federal law prohibits use in highway vehicles or engines.

    (c) From June 1, 2010 through September 30, 2014, for pumps 
dispensing NRLM diesel fuel subject to the 500 ppm sulfur standard of 
Sec.  80.510(a):

LOW SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in all model year 2011 and newer 
nonroad engines.
    May damage model year 2011 and newer nonroad engines.
    Federal law prohibits use in highway vehicles or engines.

    (d) From June 1, 2010 through September 30, 2012, for pumps 
dispensing LM diesel fuel subject to the 500 ppm sulfur standard of 
Sec.  80.510(a):

LOW SULFUR LOCOMOTIVE AND MARINE DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in nonroad engines or in highway 
vehicles or engines.

    (e) The labels required by paragraphs (a) through (d) of this 
section must be placed on the vertical surface of each pump housing and 
on each side that has gallon and price meters. The labels shall be on 
the upper two-thirds of the pump, in a location where they are clearly 
visible.
    (f) Alternative labels to those specified in paragraphs (a) through 
(d) of this section may be used as approved by the Administrator.

0
40. A new Sec.  80.573 is added to read as follows:


Sec.  80.573  What labeling requirements apply to retailers and 
wholesale purchaser-consumers of NRLM diesel fuel and heating oil 
beginning June 1, 2012?

    Any retailer or wholesale purchaser-consumer who sells, dispenses, 
or offers for sale or dispensing nonroad, locomotive or marine (NRLM) 
diesel fuel (including nonroad (NR) and locomotive or marine (LM)), or 
heating oil, must prominently and conspicuously display in the 
immediate area of each pump stand from which non-highway diesel fuel is 
offered for sale or dispensing, one of the following legible labels, as 
applicable, in block letters of no less than 24-point bold type, 
printed in a color contrasting with the background:
    (a) From June 1, 2012 through May 31, 2014, for pumps dispensing 
NRLM diesel fuel subject to the 15 ppm sulfur standard of Sec.  
80.510(c):

ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all model year 2011 and later nonroad diesel 
engines.
    Recommended for use in all other non-highway diesel engines.

WARNING

    Federal law prohibits use in highway vehicles or engines.

    (b) The labels required by paragraph (a) of this section must be 
placed on the vertical surface of each pump housing and on each side 
that has gallon and price meters. The labels shall be on the upper two-
thirds of the pump, in a location where they are clearly visible.
    (c) Alternative labels to those specified in paragraph (a) of this 
section may be used as approved by the Administrator.

0
41. A new Sec.  80.574 is added to read as follows:


Sec.  80.574  What labeling requirements apply to retailers and 
wholesale purchaser-consumers of NRLM diesel fuel, or heating oil 
beginning June 1, 2014?

    Any retailer or wholesale purchaser-consumer who sells, dispenses, 
or offers for sale or dispensing nonroad, locomotive or marine (NRLM) 
diesel fuel (including nonroad (NR) and locomotive or marine (LM)), or 
heating oil, must prominently and conspicuously display in the 
immediate area of each pump stand from which non-highway diesel fuel is 
offered for sale or dispensing, one of the following legible labels, as 
applicable, in block letters of no less than 24-point bold type, 
printed in a color contrasting with the background:
    (a) From June 1, 2014 and beyond, for pumps dispensing NRLM diesel 
fuel subject to the 15 ppm sulfur standard of Sec.  80.510(c):

ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)

    Required for use in all nonroad diesel engines.
    Recommended for use in all locomotive and marine diesel engines.

WARNING

    Federal law prohibits use in highway vehicles or engines.

    (b) From June 1, 2014 and beyond, for pumps dispensing LM diesel 
fuel subject to the 500 ppm sulfur standard of Sec.  80.510(a):

LOW SULFUR LOCOMOTIVE OR MARINE DIESEL FUEL (500 ppm Sulfur Maximum)

WARNING

    Federal law prohibits use in nonroad engines or in highway 
vehicles or engines.
    Its use may damage these engines.

    (c) The labels required by paragraphs (a) and (b) of this section 
must be placed on the vertical surface of each pump housing and on each 
side that has gallon and price meters. The labels shall be on the upper 
two-thirds of the pump, in a location where they are clearly visible.
    (d) Alternative labels to those specified in paragraphs (a) and (b) 
of this section may be used as approved by the Administrator.

[[Page 39184]]


0
42. Section 80.580 is revised to read as follows:


Sec.  80.580  What are the sampling and testing methods for sulfur?

    The sulfur content of diesel fuel and diesel fuel additives is to 
be determined in accordance with this section.
    (a) Sampling method. The applicable sampling methodology is 
provided in Sec.  80.330(b).
    (b) Test method for sulfur. (1) Until December 27, 2004, for motor 
vehicle diesel fuel and diesel fuel additives subject to the 15 ppm 
sulfur standard of Sec.  80.520(a)(1), sulfur content may be determined 
using ASTM D 6428-99.
    (2) For motor vehicle diesel fuel and diesel fuel additives subject 
to the 500 ppm sulfur standard of Sec.  80.520(c), and NRLM diesel fuel 
subject to the 500 ppm sulfur standard of Sec.  80.510(a)(1), sulfur 
content may be determined using ASTM D 2622-03.
    (3) Beginning August 30, 2004, for motor vehicle diesel fuel and 
diesel fuel additives subject to the 15 ppm sulfur standard of Sec.  
80.520(a)(1), sulfur content may be determined using any test method 
approved under Sec.  80.585.
    (4) Beginning August 30, 2004, for NRLM diesel fuel and diesel fuel 
additives subject to the 15 ppm standard of Sec.  80.510(b), sulfur 
content may be determined using any test method approved under Sec.  
80.585.
    (c) Alternative test methods for sulfur. (1) Until December 27, 
2004, for motor vehicle diesel fuel and diesel fuel additives subject 
to the 15 ppm standard of Sec.  80.520(a)(1), sulfur content may be 
determined using ASTM D 5453-03a or ASTM D 3120-03a, provided that the 
refiner or importer test result is correlated with the appropriate 
method specified in paragraph (a)(2) of this section.
    (2) Options for testing sulfur content of 500 ppm diesel fuel. (i) 
For motor vehicle diesel fuel and diesel fuel additives subject to the 
500 ppm sulfur standard of Sec.  80.520(c), and for NRLM diesel fuel 
subject to the 500 ppm sulfur standard of Sec.  80.510(a), sulfur 
content may be determined using ASTM D 4294-03, ASTM D 5453-03a, or 
ASTM D 6428-99, provided that the refiner or importer test result is 
correlated with the appropriate method specified in paragraph 
(a)(2)(ii) of this section; or
    (ii) For motor vehicle diesel fuel and diesel fuel additives 
subject to the 500 ppm sulfur standard of Sec.  80.520(c), and for NRLM 
diesel fuel subject to the 500 ppm sulfur standard of Sec.  80.510(a), 
sulfur content may be determined using any test method approved under 
Sec.  80.585.
    (d) Adjustment Factor for downstream test results. An adjustment 
factor of negative two ppm sulfur shall be applied to the test results, 
to account for test variability, but only for testing of motor vehicle 
diesel fuel or NRLM diesel fuel identified as subject to the 15 ppm 
sulfur standard of Sec.  80.510(b) or Sec.  80.520(a)(1).
    (e) Materials incorporated by reference. The Director of the 
Federal Register approved the incorporation by reference of the 
documents listed in this section as prescribed in 5 U.S.C. 552(a) and 1 
CFR part 51. Anyone may inspect copies at the U.S. EPA, Air and 
Radiation Docket and Information Center, 1301 Constitution Ave., NW., 
Room B102, EPA West Building, Washington, DC 20460 or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (1) ASTM material. Anyone may purchase copies of these materials 
from the American Society for Testing and Materials, 100 Barr Harbor 
Dr., West Conshohocken, PA 19428.
    (i) ASTM D 2622-03, Standard Test Method for Sulfur in Petroleum 
Products by Wavelength Dispersive X-ray Fluorescence Spectrometry.
    (ii) ASTM D 3120-03a, Standard Test Method for Trace Quantities of 
Sulfur in Light Liquid Petroleum Hydrocarbons by Oxidative 
Microcoulometry.
    (iii) ASTM D 4294-03, Standard Test Method for Sulfur in Petroleum 
and Petroleum Products by Energy-Dispersive X-ray Fluorescence 
Spectrometry.
    (iv) ASTM D 5453-03a, Standard Test Method for Determination of 
Total Sulfur in Light Hydrocarbons, Motor Fuels and Motor Oils by 
Ultraviolet Fluorescence.
    (v) ASTM D 6428-99, Test Method for Total Sulfur in Liquid Aromatic 
Hydrocarbons and Their Derivatives by Oxidative Combustion and 
Electrochemical Detection.
    (2) [Reserved]

0
43. A new Sec.  80.581 is added to read as follows:


Sec.  80.581  What are the batch testing and sample retention 
requirements for motor vehicle and NRLM diesel fuel?

    (a) Beginning on June 1, 2006 or earlier pursuant to Sec.  80.531 
for motor vehicle diesel fuel, and beginning June 1, 2010 or earlier 
pursuant to Sec.  80.535 for NRLM diesel fuel, each refiner and 
importer shall collect a representative sample from each batch of motor 
vehicle or NRLM diesel fuel produced or imported and subject to the 15 
ppm sulfur content standard. Batch, for the purposes of this section, 
means batch as defined under Sec.  80.2 but without the reference to 
transfer of custody from one facility to another facility.
    (b) Except as provided in paragraph (c) of this section, the 
refiner or importer shall test each sample collected pursuant to 
paragraph (a) of this section to determine its sulfur content for 
compliance with the requirements of this subpart prior to the diesel 
fuel leaving the refinery or import facility, using an appropriate 
sampling and testing method as specified in Sec.  80.580.
    (c)(1) Any refiner who produces motor vehicle or NRLM diesel fuel 
using computer-controlled in-line blending equipment, including the use 
of an on-line analyzer test method that is approved under the 
provisions of Sec.  80.580, and who, subsequent to production of the 
diesel fuel batch tests a composited sample of the batch under the 
provisions of Sec.  80.580 for purposes of designation and reporting, 
is exempt from the requirement of paragraph (b) of this section to 
obtain the test result required under this section prior to the diesel 
fuel leaving the refinery, provided that the refiner obtains approval 
from EPA.
    (2) To obtain an exemption from paragraph (b) of this section, the 
refiner must submit to EPA all the information required under Sec.  
80.65(f)(4)(i)(A). A letter signed by the president, chief operating or 
chief executive officer of the company, or his/her designee, stating 
that the information contained in the submission is true to the best of 
his/her belief must accompany any submission under this paragraph 
(c)(2).
    (3) Refiners who seek an exemption under paragraph (c)(2) of this 
section must comply with any request by EPA for additional information 
or any other requirements that EPA includes as part of the exemption.
    (4) Within 60 days of EPA's receipt of a submission under paragraph 
(c)(2) of this section, EPA will notify the refiner if the exemption is 
not approved or of any deficiencies in the refiner's submission, or if 
any additional information is required or other requirements are 
included in the exemption pursuant to paragraph (c)(3) of this section. 
In the absence of such notification from EPA, the effective date of an 
exemption under this paragraph (c) is 60 days from EPA's receipt of the 
refiner's submission.
    (5) EPA reserves the right to modify the requirements of an 
exemption under

[[Page 39185]]

this paragraph (c), in whole or in part, at any time, if EPA determines 
that the refiner's operation does not effectively or adequately 
control, monitor or document the sulfur content of the refinery's 
diesel fuel production, or if EPA determines that any other 
circumstances exist which merit modification of the requirements of an 
exemption, such as advancements in the state of the art for in-line 
blending measurement which allow for additional control or more 
accurate monitoring or documentation of sulfur content. If EPA finds 
that a refiner provided false or inaccurate information in any 
submission required for an exemption under this section, upon 
notification from EPA, the refiner's exemption will be void ab initio.
    (d) All test results under this section shall be retained for five 
years and must be provided to EPA upon request.
    (e) Samples collected under this section must be retained for at 
least 30 days and provided to EPA upon request.

0
44. A new Sec.  80.582 is added to read as follows:


Sec.  80.582  What are the sampling and testing methods for the fuel 
marker?

    For heating oil and NRLM diesel fuel subject to the fuel marker 
requirement in Sec.  80.510(d), (e), or (f), the identification of the 
presence and concentration of the fuel marker in diesel fuel may be 
determined using the test procedures qualified in accordance with the 
requirements in this section.
    (a) Sampling and testing for methods for the fuel marker. The 
sampling, sample preparation, and testing methods qualified for use in 
accordance with the requirements of this section may involve the use of 
hazardous materials, operations and equipment. This section does not 
address the associated safety problems which may exist. It is the 
responsibility of the user of the procedures specified in this section 
to establish appropriate safety and health practices prior to their 
use. It is also the responsibility of the user to dispose of any 
byproducts which might result from conducting these procedures in a 
manner consistent with applicable safety and health requirements.
    (b) What are the precision and accuracy criteria for qualification 
of fuel marker test methods? (1) Precision. A standard deviation of 
less than 0.10 milligrams per liter is required, computed from the 
results of a minimum of 20 repeat tests made over 20 days on samples 
taken from a homogeneous commercially available diesel fuel which meets 
the applicable industry consensus and federal regulatory specifications 
and which contains the fuel marker at a concentration in the range of 
0.10 to 8 milligrams per liter. In order to qualify, the 20 results 
must be a series of tests on the same material and there must be a 
sequential record of the analysis with no omissions. A laboratory 
facility may exclude a given sample or test result only if the 
exclusion is for a valid reason under good laboratory practices and it 
maintains records regarding the sample and test results and the reason 
for excluding them.
    (2) Accuracy. (i) The arithmetic average of a continuous series of 
at least 10 tests performed on a commercially available marker solvent 
yellow 124 standard in the range of 0.10 to 1 milligrams per liter 
shall not differ from the ARV of that standard by more than 0.05 
milligrams per liter.
    (ii) The arithmetic average of a continuous series of at least 10 
tests performed on a commercially available marker solvent yellow 124 
standard in the range of 4 to 10 milligrams per liter shall not differ 
from the ARV of that standard by more than 0.05 milligrams per liter.
    (iii) In applying the tests of paragraphs (b)(2)(i) and (ii) of 
this section, individual test results shall be compensated for any 
known chemical interferences.
    (c) What process must a test facility follow in order to qualify a 
test method for determining the fuel marker content of distillate fuels 
and how will EPA qualify or decline to qualify a test method? (1) 
Qualification of test methods approved by voluntary consensus-based 
standards bodies. Any standard test method developed by a Voluntary 
Consensus-Based Standards Body, such as the American Society for 
Testing and Materials (ASTM) or International Standards Organization 
(ISO), shall be considered a qualified test method for determining the 
fuel marker content of distillate fuel provided that it meets the 
precision and accuracy criteria under paragraph (b) of this section. 
The qualification of a test method is limited to the single test 
facility that performed the testing for accuracy and precision. The 
individual facility must submit the accuracy and precision results for 
each method, including information on the date and time of each test 
measurement used to demonstrate precision, following procedures 
established by the Administrator.
    (2) Qualification of test methods that have not been approved by a 
voluntary consensus-based standards body. A test method that has not 
been approved by a voluntary consensus-based standards body may be 
qualified upon approval by the Administrator. The following information 
must be submitted in the application for approval by each test 
facility, for each test method that it wishes to have approved:
    (i) Full test method documentation, including a description of the 
technology and/or instrumentation that makes the method functional.
    (ii) Information demonstrating that the test method meets the 
accuracy and precision criteria under paragraph (b) of this section, 
including information on the date and time of each test measurement 
used to demonstrate precision.
    (iii) Samples used for precision and accuracy determination must be 
retained for 90 days.
    (iv) If requested by the Administrator, test results utilizing the 
method and performed on a sample of commercially available distillate 
fuel which meets the applicable industry consensus and federal 
regulatory specifications and which contains the fuel marker.
    (v) Any additional information requested by the Administrator and 
necessary to render a decision as to qualification of the test method.
    (vi) The qualification of a test method is limited to the single 
test facility that performed the testing for accuracy and precision and 
any other required testing.
    (3)(i) Within 90 days of receipt of all materials required to be 
submitted under paragraph (c)(1) or (c)(2) of this section, the 
Administrator shall determine whether to qualify the test method under 
this section. The Administrator shall qualify the test method if all 
materials required under this section are received and the test method 
meets the accuracy and precision criteria of paragraph (b) of this 
section.
    (ii) If the Administrator denies approval of the test method, 
within 90 days of receipt of all materials required to be submitted 
under this section, the Administrator will notify the applicant of the 
reasons for not approving the method. If the Administrator does not 
notify the applicant within 90 days of receipt of the application, that 
the test method is not approved, then the test method shall be deemed 
approved.
    (iii) If the Administrator finds that an individual test facility 
has provided false or inaccurate information under this section, upon 
notice from the Administrator, the qualification shall be void ab 
initio.
    (iv) The qualification of any test method under this paragraph (c) 
shall be valid for the duration of the period during which the fuel 
marker

[[Page 39186]]

requirements remain applicable under this subpart.
    (d) Quality control procedures for fuel marker measurement 
instrumentation. A test shall not be considered a test using a 
qualified test method unless the following quality control procedures 
are performed separately for each instrument used to make measurements:
    (1) Follow all mandatory provisions of ASTM D 6299-02 and construct 
control charts from the mandatory quality control testing prescribed in 
paragraph 7.1 of the reference method, following guidelines under A 
1.5.1 for individual observation charts and A 1.5.2 for moving range 
charts. The Director of the Federal Register approved the incorporation 
by reference of ASTM D 6299-02, Standard Practice for Applying 
Statistical Quality Assurance Techniques to Evaluate Analytical 
Measurement System Performance, as prescribed in 5 U.S.C. 552(a) and 1 
CFR part 51. Anyone may purchase copies of this standard from the 
American Society for Testing and Materials, 100 Barr Harbor Dr., West 
Conshohocken, PA 19428. Anyone may inspect copies at the U.S. EPA, Air 
and Radiation Docket and Information Center, 1301 Constitution Ave., 
NW., Room B102, EPA West Building, Washington, DC 20460 or at the 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (2) Follow paragraph 7.3.1 of ASTM D 6299-02 to check standards 
using a reference material at least monthly or following any major 
change to the laboratory equipment or test procedure. Any deviation 
from the accepted reference value of a check standard greater than 0.10 
milligrams per liter must be investigated.
    (3) Samples of tested batches must be retained for 30 days or the 
period equal to the interval between quality control sample tests, 
whichever is longer.
    (4) Upon discovery of any quality control testing violation of 
paragraph A 1.5.1.3 or A 1.5.2.1 of ASTM D 6299-02, or any check 
standard deviation greater than 0.10 milligrams per liter, conduct an 
investigation into the cause of such violation or deviation and, after 
restoring method performance to statistical control, retest retained 
samples from batches originally tested since the last satisfactory 
quality control material or check standard testing occasion.
    (5) Retain results of quality control testing and retesting of 
retained samples under paragraph (d)(3) of this section for five years.

0
45. A new Sec.  80.583 is added to read as follows:


Sec.  80.583  What alternative sampling and testing requirements apply 
to importers who transport motor vehicle diesel fuel or NRLM diesel 
fuel by truck or rail car?

    Importers who import diesel fuel subject to the 15 ppm sulfur 
standard under Sec.  80.510(b) or (c) or 80.520(a) into the United 
States by truck or by rail car may comply with the following 
requirements instead of the requirements to sample and test each batch 
of fuel designated as subject to the 15 ppm sulfur standard under Sec.  
80.581 otherwise applicable to importers:
    (a) Terminal testing. For purposes of determining compliance with 
the 15 ppm sulfur standard, the importer may use test results for 
sulfur content testing conducted by the foreign truck-loading or rail 
car-loading terminal operator for diesel fuel contained in the storage 
tank from which trucks or rail cars used to transport diesel fuel 
designated as subject to the 15 ppm sulfur content standard into the 
United States are loaded, provided the following conditions are met:
    (1) The sampling and testing shall be performed after each receipt 
of diesel fuel into the storage tank, or immediately before each 
transfer of diesel fuel to the importer's truck or rail car.
    (2) The sampling and testing shall be performed according to Sec.  
80.580.
    (3) At the time of each transfer of diesel fuel to the importer's 
truck or rail car for import to the U.S., the importer must obtain a 
copy of the terminal test result that indicates the sulfur content of 
the truck or rail car load, or truck or rail car compartment load, as 
applicable.
    (b) Quality assurance program. The importer must conduct a quality 
assurance program, as specified in this paragraph (b), for each truck 
or rail car loading terminal.
    (1) Quality assurance samples must be obtained from the truck-
loading or rail car loading terminal and tested by the importer, or by 
an independent laboratory, and the terminal operator must not know in 
advance when samples are to be collected.
    (2) The sampling and testing must be performed using the methods 
specified in Sec.  80.580.
    (3) The frequency of the quality assurance sampling and testing 
must be at least one sample for each 50 of an importer's trucks or rail 
cars that are loaded at a terminal, or one sample per month, whichever 
is more frequent.
    (c) Party required to conduct quality assurance testing. The 
quality assurance program under paragraph (b) of this section shall be 
conducted by the importer. In the alternative, this testing may be 
conducted by an independent laboratory that meets the criteria under 
Sec.  80.65(f)(2)(iii), provided the importer receives copies of all 
results of tests conducted no later than 21 days after the sample was 
taken.
    (d) Alternative batch designations. For purposes of maintaining 
batch records under Sec. Sec.  80.592, 80.600, and 80.602, designation 
of batches under Sec.  80.598, and reporting under Sec. Sec.  80.593, 
80.601, and 80.604:
    (1) In lieu of treating each portion of a tank truck compartment 
delivered to a different facility as a different batch, a truck 
importer may treat each compartment as a batch, if all the fuel in the 
compartment is delivered only to retail outlets, wholesale purchaser-
consumers or other end users. Where different compartments contain 
homogeneous product of identical designations, the total volume of 
those compartments may be treated as a single batch, if the entire 
volume is delivered only to retail outlets, wholesale purchaser-
consumers or other ultimate consumers.
    (2) Each portion of a rail car (or rail cars) delivery of a 
different designation or each delivery to a different facility is 
considered to be a separate batch.
    (e) EPA inspections of terminals. EPA inspectors or auditors must 
be given full and immediate access to the truck or rail car-loading 
terminal and any laboratory at which samples of diesel fuel collected 
at the terminal are analyzed, and must be allowed to conduct 
inspections, review records, collect diesel fuel samples and perform 
audits. These inspections or audits may be either announced or 
unannounced.
    (f) Certified DFR-Diesel. This section does not apply to Certified 
DFR-Diesel as defined in Sec.  80.620.
    (g) Effect of noncompliance. If any of the requirements of this 
section are not met, all motor vehicle diesel fuel and NRLM diesel fuel 
imported by the truck or rail car importer during the time the 
requirements are not met is deemed in violation of the 15 ppm sulfur 
diesel fuel standards in Sec.  80.510(b) or (c) or Sec.  80.520(a), as 
applicable. Additionally, if any requirement is not met, EPA may notify 
the importer of the violation, and, if the requirement is not fulfilled 
within 10 days of notification, the truck importer may not in the 
future use the sampling and testing provisions in this section in lieu 
of the provisions in Sec.  80.581.

[[Page 39187]]


0
46. A new Sec.  80.584 is added to read as follows:


Sec.  80.584  What are the precision and accuracy criteria for approval 
of test methods for determining the sulfur content of motor vehicle and 
NRLM diesel fuel?

    (a) Precision. (1) For motor vehicle diesel fuel and diesel fuel 
additives subject to the 15 ppm sulfur standard of Sec.  80.520(a)(1) 
and NRLM diesel fuel and diesel fuel additives subject to the 15 ppm 
sulfur standard of Sec.  80.510(b) and (c), a standard deviation less 
than 0.72 ppm, computed from the results of a minimum of 20 repeat 
tests made over 20 days on samples taken from a single homogeneous 
commercially available diesel fuel with a sulfur content in the range 
of 5-15 ppm. The 20 results must be a series of tests with a sequential 
record of the analyses and no omissions. A laboratory facility may 
exclude a given sample or test result only if the exclusion is for a 
valid reason under good laboratory practices and it maintains records 
regarding the sample and test results and the reason for excluding 
them.
    (2) For motor vehicle diesel fuel subject to the 500 ppm sulfur 
standard of Sec.  80.520(c), and for NRLM diesel fuel subject to the 
500 ppm sulfur standard of Sec.  80.510(a), of a standard deviation 
less than 9.68 ppm, computed from the results of a minimum of 20 repeat 
tests made over 20 days on samples taken from a single homogeneous 
commercially available diesel fuel with a sulfur content in the range 
of 200-500 ppm. The 20 results must be a series of tests with a 
sequential record of the analyses and no omissions. A laboratory 
facility may exclude a given sample or test result only if the 
exclusion is for a valid reason under good laboratory practices and it 
maintains records regarding the sample and test results and the reason 
for excluding them.
    (b) Accuracy. (1) For motor vehicle diesel fuel and diesel fuel 
additives subject to the 15 ppm sulfur standard of Sec.  80.520(a)(1) 
and NRLM diesel fuel and diesel fuel additives subject to the 15 ppm 
sulfur standard of Sec.  80.510(b) and (c):
    (i) The arithmetic average of a continuous series of at least 10 
tests performed on a commercially available gravimetric sulfur standard 
in the range of 1-10 ppm sulfur shall not differ from the accepted 
reference value (ARV) of that standard by more than 0.54 ppm sulfur;
    (ii) The arithmetic average of a continuous series of at least 10 
tests performed on a commercially available gravimetric sulfur standard 
in the range of 10-20 ppm sulfur shall not differ from the ARV of that 
standard by more than 0.54 ppm sulfur; and
    (iii) In applying the tests of paragraphs (b)(1)(i) and (ii) of 
this section, individual test results shall be compensated for any 
known chemical interferences.
    (2) For motor vehicle diesel fuel subject to the 500 ppm sulfur 
standard of Sec.  80.520(c), and for NRLM diesel fuel subject to the 
500 ppm sulfur standard of Sec.  80.510(a):
    (i) The arithmetic average of a continuous series of at least 10 
tests performed on a commercially available gravimetric sulfur standard 
in the range of 100-200 ppm sulfur shall not differ from the ARV of 
that standard by more than 7.26 ppm sulfur;
    (ii) The arithmetic average of a continuous series of at least 10 
tests performed on a commercially available gravimetric sulfur standard 
in the range of 400-500 ppm sulfur shall not differ from the ARV of 
that standard by more than 7.26 ppm sulfur; and
    (iii) In applying the tests of paragraphs (b)(2)(i) and (ii) of 
this section, individual test results shall be compensated for any 
known chemical interferences.

0
47. A new Sec.  80.585 is added to read as follows:


Sec.  80.585  What is the process for approval of a test method for 
determining the sulfur content of diesel?

    (a) Approval of test methods approved by voluntary consensus-based 
standards bodies. For such a method to be approved, the following 
information must be submitted to the Administrator by each test 
facility for each test method that it wishes to have approved: Any test 
method approved by a voluntary consensus-based standards body, such as 
the American Society for Testing and Materials (ASTM) or International 
Standards Organization (ISO), shall be approved as a test method for 
determining the sulfur content of diesel fuel if it meets the 
applicable accuracy and precision criteria under Sec.  80.584. The 
approval of a test method is limited to the single test facility that 
performed the testing for accuracy and precision. The individual 
facility must submit the accuracy and precision results for each 
method, including information on the date and time of each test 
measurement used to demonstrate precision, following procedures 
established by the Administrator.
    (b) Approval of test methods not approved by a voluntary consensus-
based standards body. For such a method to be approved, the following 
information must be submitted to the Administrator by each test 
facility for each test method that it wishes to have approved:
    (1) Full test method documentation, including a description of the 
technology and/or instrumentation that makes the method functional.
    (2) Information demonstrating that the test method meets the 
applicable accuracy and precision criteria of Sec.  80.584, including 
information on the date and time of each test measurement used to 
demonstrate precision.
    (3) If requested by the Administrator, test results from use of the 
method to analyze samples of commercially available fuel provided by 
EPA.
    (4) Any additional information requested by the Administrator and 
necessary to render a decision as to approval of the test method.
    (c) Sample retention. Samples used for precision and accuracy 
determination must be retained for 90 days.
    (d) EPA approval. (1) Within 90 days of receipt of all materials 
required to be submitted under paragraph (a) or (b) of this section, 
the Administrator shall determine whether the test method is approved 
under this section.
    (2) If the Administrator denies approval of the test method, within 
90 days of receipt of all materials required to be submitted under 
paragraph (a) or (b) of this section, the Administrator will notify the 
applicant of the reasons for not approving the method. If the 
Administrator does not notify the applicant within 90 days of receipt 
of the application, that the test method is not approved, then the test 
method shall be deemed approved.
    (3) If the Administrator finds that an individual test facility has 
provided false or inaccurate information under this section, upon 
notice from the Administrator the approval shall be void ab initio.
    (4) The approval of any test method under paragraph (b) of this 
section shall be valid for five years from the date of approval by the 
Administrator and shall not be extended. If the method is later 
approved by a voluntary consensus-based standards body, the approval 
shall remain valid as long as the conditions of paragraph (a) of this 
section are met.
    (e) Quality assurance procedures for sulfur measurement 
instrumentation. A test shall not be considered a test using an 
approved test method unless the following quality control procedures 
are performed separately for each instrument used to make measurements:
    (1) Follow all mandatory provisions of ASTM D 6299-02 and construct 
control charts from the mandatory quality control testing prescribed in 
paragraph

[[Page 39188]]

7.1 of the reference method, following guidelines under A 1.5.1 for 
individual observation charts and A 1.5.2 for moving range charts. The 
Director of the Federal Register approved the incorporation by 
reference of ASTM D 6299-02, Standard Practice for Applying Statistical 
Quality Assurance Techniques to Evaluate Analytical Measurement System 
Performance, as prescribed in 5 U.S.C. 552(a) and 1 CFR part 51. Anyone 
may purchase copies of this standard from the American Society for 
Testing and Materials, 100 Barr Harbor Dr., West Conshohocken, PA 
19428. Anyone may inspect copies at the U.S. EPA, Air and Radiation 
Docket and Information Center, 1301 Constitution Ave., NW., Room B102, 
EPA West Building, Washington, DC 20460 or at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (2) Follow paragraph 7.3.1 of ASTM D 6299-02 to check standards 
using a reference material at least monthly or following any major 
change to the laboratory equipment or test procedure. Any deviation 
from the accepted reference value of a check standard greater than 1.44 
ppm (for diesel fuel subject to the 15 ppm sulfur standard) or 19.36 
ppm (for diesel fuel subject to the 500 ppm sulfur standard) must be 
investigated.
    (3) Samples of tested batches must be retained for 30 days or the 
period equal to the interval between quality control sample tests, 
whichever is longer.
    (4) Upon discovery of any quality control testing violation of 
paragraph A 1.5.1.3 or A 1.5.2.1 of ASTM D 6299-02, or any check 
standard deviation greater than 1.44 ppm (for diesel fuel subject to 
the 15 ppm sulfur standard) or 19.36 ppm (for diesel fuel subject to 
the 500 ppm sulfur standard), conduct an investigation into the cause 
of such violation or deviation and, after restoring method performance 
to statistical control, retest retained samples from batches originally 
tested since the last satisfactory quality control material or check 
standard testing occasion.

0
48. A new Sec.  80.586 is added to read as follows:


Sec.  80.586  What are record retention requirements for test methods 
approved under this subpart?

    Each individual test facility must retain records related to the 
establishment of accuracy and precision values, all test method 
documentation, and any quality control testing and analysis under 
Sec. Sec.  80.582, 80.584 and 80.585, for five years.

0
49. Section 80.590 is revised to read as follows:


Sec.  80.590  What are the product transfer document requirements for 
motor vehicle diesel fuel, NRLM diesel fuel, heating oil and other 
distillates?

    (a) On each occasion that any person transfers custody or title to 
MVNRLM diesel fuel or heating oil, including distillates used or 
intended to be used as MVNRLM diesel fuel or heating oil, except when 
such fuel is dispensed into motor vehicles or nonroad, locomotive, or 
marine equipment, the transferor must provide to the transferee 
documents which include the following information:
    (1) The names and addresses of the transferor and transferee.
    (2) The volume of diesel fuel or distillate which is being 
transferred.
    (3) The location of the diesel fuel or distillate at the time of 
the transfer.
    (4) The date of the transfer.
    (5) For transfers of MVNRLM diesel fuel, the sulfur content 
standard the transferor represents the fuel to meet.
    (6) Beginning June 1, 2006, when an entity transfers custody of a 
distillate fuel designated under Sec.  80.598, the following 
information must also be included:
    (i) The facility registration number of the transferor issued under 
Sec.  80.597, if any.
    (ii) An accurate and clear statement of the applicable designation 
and/or classification under Sec.  80.598, for example, 500 ppm sulfur 
NRLM diesel fuel; and whether the fuel is dyed or undyed, and for 
heating oil, whether marked or unmarked.
    (7) For transfers of title or custody from one facility to another 
in the distribution system where diesel fuel or distillates are taxed, 
dyed or marked, and for any subsequent transfers (except when such fuel 
is dispensed into motor vehicles or nonroad, locomotive or marine 
equipment), an accurate statement on the product transfer document of 
the applicable fuel uses and classifications, as follows:
    (i) Undyed 15 ppm sulfur diesel fuel. For the period from June 1, 
2006 and beyond, ``15 ppm sulfur (maximum) Undyed Ultra-Low Sulfur 
Diesel Fuel For use in all diesel vehicles and engines.'' From June 1, 
2006 through May 31, 2010, the product transfer document must also 
state whether the diesel fuel is 1D or 2D.
    (ii) Dyed 15 ppm sulfur diesel fuel. From June 1, 2006 and beyond, 
``15 ppm sulfur (maximum) Dyed Ultra-Low Sulfur Diesel Fuel. For use in 
all nonroad diesel engines. Not for use in highway vehicles or engines 
except for tax-exempt use in accordance with section 4082 of the 
Internal Revenue Code.''
    (iii) Undyed 500 ppm sulfur diesel fuel. From June 1, 2006 through 
September 30, 2010, ``500 ppm sulfur (maximum) Undyed Low Sulfur Diesel 
Fuel. For use in Model Year 2006 and older diesel highway vehicles and 
engines. Also for use in nonroad, locomotive, and marine diesel 
engines. Not for use in model year 2007 and newer highway vehicles or 
engines.''
    (iv) Dyed 500 ppm sulfur diesel fuel. (A) For the period of June 1, 
2006 through September 30, 2010, ``500 ppm sulfur (maximum) Dyed Low 
Sulfur Nonroad, Locomotive or Marine Diesel Fuel. Not for use in 
highway vehicles or engines except for use in Model Year 2006 and older 
highway diesel vehicles or engines for tax-exempt use in accordance 
with section 4082 of the Internal Revenue Code.''
    (B) From June 1, 2010 through September 30, 2014, ``500 ppm sulfur 
(maximum) Dyed Low Sulfur Nonroad Diesel Fuel. For use in model year 
2010 and older nonroad diesel engines. May be used in locomotive and 
marine diesel engines. Not for use in highway vehicles and engines or 
model year 2011 or later nonroad engines other than locomotive or 
marine diesel engines. Not for use in the Northeast/Mid-Atlantic 
Area.''
    (C) For dyed locomotive and marine diesel fuel beginning June 1, 
2010, ``500 ppm sulfur (maximum) Dyed Low Sulfur Locomotive and Marine 
diesel fuel. Not for use in highway or other nonroad vehicles and 
engines.''
    (v) Dyed High Sulfur NRLM Fuel. From June 1, 2007 through September 
30, 2010, ``High Sulfur Dyed Nonroad, Locomotive, or Marine Engine 
Diesel fuel--sulfur content may exceed 500 ppm sulfur. Not for use in 
highway vehicles or engines. Not for use in any nonroad engines 
requiring Ultra-Low Sulfur Diesel Fuel. Not for use in the Northeast/
Mid-Atlantic Area.''
    (vi) Heating oil. For heating oil produced or imported beginning 
June 1, 2007, ``Heating Oil. Not for use in highway vehicles or engines 
or nonroad, locomotive, or marine engines.''
    (b) The following may be substituted for the descriptions in 
paragraph (a) of this section, as appropriate:
    (1) ``This is high sulfur diesel fuel for use only in Guam, 
American Samoa, or the Northern Mariana Islands.'';
    (2) ``This diesel fuel is for export use only.'';

[[Page 39189]]

    (3) ``This diesel fuel is for research, development, or testing 
purposes only.''; or
    (4) ``This diesel fuel is for use in diesel highway vehicles or 
nonroad equipment under an EPA-approved national security exemption 
only.''
    (c) If undyed and/or unmarked distillate fuel is dyed and/or marked 
subsequent to the issuance of a product transfer document, at the time 
the distillate fuel is dyed and/or marked, a new product transfer 
document must be prepared with the language under paragraph (a)(7) of 
this section applicable to the changed fuel and provided to subsequent 
transferees.
    (d) Except for transfers to truck carriers, retailers or wholesale 
purchaser-consumers, product codes may be used to convey the 
information required under this section if such codes are clearly 
understood by each transferee. Codes used to convey the statement in 
paragraphs (a)(7)(i) and (ii) of this section must contain the number 
``15'', and codes used to convey the statement in paragraphs 
(a)(7)(iii) and (iv) of this section must contain the number ``500''. 
Codes used to convey the statement in paragraph (a)(7)(v) of this 
section must contain the statement ``greater than 500'' or ``>500''.
    (e) From June 1, 2001 through May 31, 2005, any transfer subject to 
this section, which is also subject to the early credit provisions of 
Sec.  80.531(b), must comply with all applicable requirements of this 
section.
    (f) From June 1, 2005 through May 31, 2006, any transfer subject to 
this section, which is also subject to the early credit requirements of 
Sec.  80.531(c), must comply with all applicable requirements of this 
section.
    (g) Mobile refuelers. The provisions of this section shall also 
apply to a mobile refueler that dispenses fuel from tanker trucks or 
other vessels into motor vehicles, nonroad diesel engines or nonroad 
diesel engine equipment. Each visit by the mobile refueler to a 
location shall be considered a separate occasion for purposes of 
paragraph (a) of this section. The tank trucks used by mobile refuelers 
are not subject to the labeling requirements in Sec. Sec.  80.570 
through 80.574.
    (h) Identifications of fuel designations can be limited to a sub-
designation that accurately identifies the fuel and do not need to also 
include the broader designation. For example, NR diesel fuel does not 
also need to be designated as NRLM or MVNRLM diesel fuel.

0
50. Section 80.591 is revised to read as follows:


Sec.  80.591  What are the product transfer document requirements for 
additives to be used in diesel fuel?

    (a) Except as provided in paragraphs (b) and (d) of this section, 
on each occasion that any person transfers custody or title to a diesel 
fuel additive that is subject to the provisions of Sec.  80.521 to a 
party in the additive distribution system or in the diesel fuel 
distribution system for use downstream of the diesel fuel refiner, the 
transferor must provide to the transferee documents which identify the 
additive, and--
    (1) Identify the name and address of the transferor and transferee; 
the date of transfer; the location at which the transfer took place; 
the volume of additive transferred; and
    (2) Indicate compliance with the 15 ppm sulfur standard by 
inclusion of the following statement: ``The sulfur content of this 
diesel fuel additive does not exceed 15 ppm.''
    (b) On each occasion that any person transfers custody or title to 
a diesel fuel additive subject to the requirements of Sec.  80.521(b), 
to a party in the additive distribution system or in the diesel fuel 
distribution system for use in diesel fuel downstream of the diesel 
fuel refiner, the transferor must provide to the transferee documents 
which identify the additive, and do each of the following:
    (1) Identify the name and address of the transferor and transferee; 
the date of transfer; the location at which the transfer took place; 
the volume of additive transferred.
    (2) Indicate the high sulfur potential of the additive by inclusion 
of the following statement:

    This diesel fuel additive may exceed the federal 15 ppm sulfur 
standard. Improper use of this additive may result in non-complying 
diesel fuel.

    (3) If the additive contains a static dissipater additive having a 
sulfur content greater than 15 ppm, include the following statement:

    This diesel fuel contains a static dissipater additive having a 
sulfur content greater than 15 ppm.

    (4) Include the following information:
    (i) The additive's maximum sulfur concentration.
    (ii) The maximum recommended concentration in volume percent for 
use of the additive in diesel fuel.
    (iii) The contribution to the sulfur level of the fuel, in ppm, 
that would result if the additive is used at the maximum recommended 
concentration.
    (c) Except for transfers of diesel fuel additives to truck 
carriers, retailers or wholesale purchaser-consumers, product codes may 
be used to convey the information required under paragraphs (a) and (b) 
of this section, if such codes are clearly understood by each 
transferee. Codes used to convey the statement in paragraph (a)(2) of 
this section must contain the number ``15'' and codes used to convey 
the statement in paragraph (b)(2) of this section must not contain such 
number.
    (d) For those diesel fuel additives which are sold in containers 
for use by the ultimate consumer of diesel fuel, each transferor must 
have displayed on the additive container, in a legible and conspicuous 
manner, either of the following statements, as applicable:
    (1) ``This diesel fuel additive complies with the federal low 
sulfur content requirements for use in diesel motor vehicles and 
nonroad engines.''; or
    (2) For those additives sold in containers for use by the ultimate 
consumer, with a sulfur content in excess of 15 ppm the following 
statement: ``This diesel fuel additive does not comply with federal 
ultra-low sulfur content requirements for use in model year 2007 and 
newer diesel motor vehicles or model year 2011 and newer diesel nonroad 
equipment engines.''

0
51. Section 80.592 is amended by revising the heading and paragraphs 
(a), (b) introductory text, (b)(4), (b)(7) introductory text, (c), (d), 
and (e) to read as follows:


Sec.  80.592  What records must be kept by entities in the motor 
vehicle diesel fuel and diesel fuel additive distribution systems?

    (a) Records that must be kept by entities in the motor vehicle 
diesel fuel and diesel fuel additive distribution systems. Beginning 
June 1, 2006, or for a refiner or importer, the first compliance period 
in which the refiner or importer is generating early credits under 
Sec.  80.531(b) or (c), whichever is earlier, any person who produces, 
imports, sells, offers for sale, dispenses, distributes, supplies, 
offers for supply, stores, or transports motor vehicle diesel fuel 
subject to the provisions of this subpart, must keep all the following 
records:
    (1) The applicable product transfer documents required under 
Sec. Sec.  80.590 and 80.591.
    (2) For any sampling and testing for sulfur content for a batch of 
motor vehicle diesel fuel produced or imported and subject to the 15 
ppm sulfur standard or any sampling and testing for sulfur content as 
part of a quality assurance testing program, and any sampling and 
testing for cetane index, aromatics content, solvent yellow 124 content 
or dye solvent red 164

[[Page 39190]]

content of motor vehicle diesel fuel or motor vehicle diesel fuel 
additives:
    (i) The location, date, time and storage tank or truck 
identification for each sample collected;
    (ii) The name and title of the person who collected the sample and 
the person who performed the testing; and
    (iii) The results of the tests for sulfur content (including where 
applicable the test results with and without application of the 
adjustment factor under Sec.  80.580(a)(4)) and for cetane index or 
aromatics content (as applicable), and the volume of product in the 
storage tank or container from which the sample was taken.
    (3) The actions the party has taken, if any, to stop the sale or 
distribution of any motor vehicle diesel fuel found not to be in 
compliance with the sulfur standards specified in this subpart, and the 
actions the party has taken, if any, to identify the cause of any 
noncompliance and prevent future instances of noncompliance.
    (b) Additional records to be kept by refiners and importers of 
motor vehicle diesel fuel subject to hardship standards, small refiner 
standards and early credit provisions. Beginning June 1, 2006, or for a 
refiner or importer, the first compliance period in which the refiner 
or importer is generating early credits under Sec.  80.531(b) or (c), 
any refiner producing motor vehicle diesel fuel subject to the sulfur 
standard under Sec.  80.520(a)(1), for each of its refineries, and any 
importer importing such motor vehicle diesel fuel, shall keep records 
that include the following information for each batch of motor vehicle 
diesel fuel produced or imported: * * *
    (4) A record designating the batch as motor vehicle diesel fuel 
meeting the 500 ppm sulfur standard or as motor vehicle diesel fuel 
meeting the 15 ppm sulfur standard.
* * * * *
    (7) Information regarding credits, kept separately for each 
calendar year compliance period, kept separately for each refinery and 
in the case of importers, kept separately for imports into each CTA, 
and designated as motor vehicle diesel fuel credits and kept separately 
from NRLM credits, as follows:
* * * * *
    (c) Additional records importers must keep. Any importer shall keep 
records that identify and verify the source of each batch of certified 
diesel fuel program foreign refiner DFR-Diesel and non-certified DFR-
Diesel imported and demonstrate compliance with the requirements under 
Sec.  80.620.
    (d) Length of time records must be kept. The records required in 
this section shall be kept for five years from the date they were 
created, except that records relating to credit transfers shall be kept 
by the transferor for 5 years from the date the credits were 
transferred, and shall be kept by the transferee for 5 years from the 
date the credits were transferred, used or terminated, whichever is 
later.
    (e) Make records available to EPA. On request by EPA, the records 
required in this section must be made available to the Administrator or 
the Administrator's representative. For records that are electronically 
generated or maintained, the equipment and software necessary to read 
the records shall be made available, or if requested by EPA, electronic 
records shall be converted to paper documents which shall be provided 
to the Administrator's authorized representative.

0
52. Section 80.593 is amended by revising the section heading and 
paragraphs (a)(3) and (c)(2) to read as follows:


Sec.  80.593  What are the reporting requirements for refiners and 
importers of motor vehicle diesel fuel subject to temporary refiner 
relief standards?

* * * * *
    (a) * * *
    (3) The percentage of the volume of motor vehicle diesel fuel 
produced during the compliance period that met the 15 ppm sulfur 
standard and the percentage that met the 500 ppm sulfur standard prior 
to the application of any volume credits.
* * * * *
    (c) * * *
    (2) Submitted to EPA no later than August 31 for the prior annual 
compliance period.

0
53. Section 80.594 is amended by revising the section heading and 
paragraphs (a)(3), (a)(5), (b) introductory text, (b)(2), and (c), and 
adding paragraphs (a)(6), (a)(7), (a)(8), and (e) to read as follows:


Sec.  80.594  What are the pre-compliance reporting requirements for 
motor vehicle diesel fuel?

    (a) Except as provided in paragraph (d) of this section, beginning 
on June 1, 2003, and on June 1, 2004 and June 1, 2005, all refiners and 
importers planning to produce or import motor vehicle diesel fuel 
subject to the provisions of this subpart, shall submit the following 
information to EPA:
* * * * *
    (3) An estimate of the average daily volumes (in gallons) of each 
sulfur grade of motor vehicle diesel fuel produced (or imported) at 
each refinery (or import facility). These volume estimates must be 
provided both for fuel produced from crude oil, as well as any fuel 
produced from other sources, and must be provided for the periods of 
June 1, 2006 through December 31, 2006, January 1, 2007 through 
December 31, 2007, January 1, 2008 through December 31, 2008, January 
1, 2009 through December 31, 2009, and January 1, 2010 through May 31, 
2010, for each refinery and import facility;
* * * * *
    (5) Information on project schedule by quarter of known or 
projected completion date by the stage of the project, for example, 
following the five project phases described in EPA's June 2002 Highway 
Diesel Progress Review report (EPA420-R-02-016, http://www.epa.gov/otaq/regs/hd2007/420r02016.pdf): Strategic planning, Planning and 
front-end engineering, Detailed engineering and permitting, Procurement 
and construction, and Commissioning and startup;
    (6) Basic information regarding the selected technology pathway for 
compliance (e.g., conventional hydrotreating vs. other technologies, 
revamp vs. grassroots, etc.);
    (7) Whether capital commitments have been made or are projected to 
be made; and
    (8) The pre-compliance reports due 2004 and 2005 must provide an 
update of the progress in each of these areas.
    (b) Beginning on June 1, 2003, all approved motor vehicle diesel 
fuel small refiners shall submit the following additional information 
to EPA, as applicable:
* * * * *
    (2) In case of a refinery with an approved application under Sec.  
80.552(c), a demonstration that by June 1, 2006 its motor vehicle 
diesel fuel will be at 15 ppm sulfur at a volume meeting the 
requirements of Sec.  80.553(e).
    (c) For each refiner and importer approved under Sec.  80.540, a 
demonstration that by June 1, 2006, 95 percent of its motor vehicle 
diesel fuel will be at 15 ppm sulfur at a volume of meeting the 
requirements of Sec.  80.540(e).
* * * * *
    (e) The pre-compliance reporting requirements of this section do 
not apply to refineries subject to the provisions of Sec.  80.513.

0
54. Section 80.597 is revised to read as follows:


Sec.  80.597  What are the registration requirements?

    The following registration requirements apply under this subpart:
    (a) Registration for motor vehicle diesel fuel. Refiners having any 
refinery

[[Page 39191]]

that is subject to a sulfur standard under Sec.  80.520(a), and 
importers importing such diesel fuel, must provide EPA the information 
under Sec.  80.76, if such information has not been provided under the 
provisions of this part. In addition, for each import facility, the 
same identifying information as required for each refinery under Sec.  
80.76(c) must be provided.
    (b) Registration for NRLM diesel. Refiners and importers that 
intend to produce or supply NRLM diesel fuel by June 1, 2007, must 
provide EPA the information under Sec.  80.76 no later than December 
31, 2005, if such information has not been provided under the 
provisions of this part. In addition, for each import facility, the 
same identifying information as required for each refinery under Sec.  
80.76(c) must be provided.
    (c) Entity registration. (1) Each entity as defined in Sec.  80.502 
that intends to deliver or receive custody of any of the following 
fuels from June 1, 2007 through May 31, 2014 must register with EPA by 
December 31, 2005 or six months prior to commencement of producing, 
importing, or distributing any distillate subject to designation under 
Sec.  80.598:
    (i) Fuel designated as 500 ppm sulfur MVNRLM diesel fuel under 
Sec.  80.598 on which taxes have not been assessed pursuant to IRS code 
(26 CFR part 48).
    (ii) Fuel designated as NRLM diesel fuel under Sec.  80.598 that is 
undyed pursuant to Sec.  80.520.
    (iii) Fuel designated as heating oil under Sec.  80.598 that is 
unmarked pursuant to Sec.  80.510(d) through (f).
    (iv) Fuel designated as LM diesel fuel under Sec.  
80.598(a)(2)(iii) that is unmarked pursuant to Sec.  80.510(e).
    (2) Registration shall be on forms prescribed by the Administrator, 
and shall include the name, business address, contact name, telephone 
number, e-mail address, and type of production, importation, or 
distribution activity or activities engaged in by the entity.
    (3) Registration shall include the information required under 
paragraph (d) of this section for each facility owned or operated by 
the entity that delivers or receives custody of a fuel described in 
paragraph (c)(1) of this section.
    (d) Facility registration. (1) List for each separate facility of 
an entity required to register under paragraph (c) of this section, the 
facility name, physical location, contact name, telephone number, e-
mail address and type of facility. For facilities that are aggregated 
under Sec.  80.502, provide information regarding the nature and 
location of each of the components. If aggregation is changed for any 
subsequent compliance period, the entity must provide notice to EPA 
prior to the beginning of such compliance period.
    (2) If facility records are kept off-site, list the off-site 
storage facility name, physical location, contact name, and telephone 
number.
    (e) Changes to registration information. Any company or entity 
shall submit updated registration information to the Administrator 
within 30 days of any occasion when the registration information 
previously supplied for an entity, or any of its registered facilities, 
becomes incomplete or inaccurate.
    (f) Issuance of registration numbers. EPA will supply a 
registration number to each entity and a facility registration number 
to each of an entity's facilities that is identified, which shall be 
used in all reports to the Administrator.

0
55. A new Sec.  80.598 is added to read as follows:


Sec.  80.598  What are the designation requirements for refiners, 
importers, and distributors?

    (a) Designation requirements for refiners and importers. (1) Any 
refiner or importer shall accurately and clearly designate all fuel it 
produces or imports for use in diesel motor vehicles as either motor 
vehicle diesel fuel meeting the 15 ppm sulfur standard under Sec.  
80.520(a)(1) or as motor vehicle diesel fuel meeting the 500 ppm sulfur 
standard under Sec.  80.520(c).
    (2) Subject to the restrictions in paragraph (a)(3) of this 
section, beginning June 1, 2006, any refiner or importer shall 
accurately and clearly designate each batch of diesel fuel or 
distillate fuel for which they transfer custody to another entity, 
according to the following categories, including specifying its volume:
    (i) Designate the fuel as one of the following fuel types:
    (A) Motor vehicle, nonroad, locomotive or marine (MVNRLM) diesel 
fuel;
    (B) Heating oil;
    (C) Jet fuel;
    (D) Kerosene;
    (E) No. 4 fuel;
    (F) Distillate fuel for export only; or
    (G) Exempt distillate fuels such as fuels that are covered by a 
national security exemption under Sec.  80.606, fuels that are used for 
purposes of research and development pursuant to Sec.  80.607, and 
fuels used in the U.S. Territories pursuant to Sec.  80.608 (including 
additional identifying information).
    (ii) From June 1, 2006 through May 31, 2014 any batch designated as 
MVNRLM diesel fuel must also be designated as one of the following:
    (A) Motor vehicle diesel fuel; or
    (B) NRLM diesel fuel.
    (iii) From June 1, 2010 through May 31, 2012 any batch designated 
as NRLM must also be designated as one of the following:
    (A) NR diesel fuel; or
    (B) LM diesel fuel.
    (iv) Until June 1, 2014, any batch designated as MVNRLM diesel fuel 
must also be designated according to one of the following three sulfur 
level specifications:
    (A) 15 ppm if its sulfur content is less than or equal to 15 ppm.
    (B) 500 ppm if its sulfur content is less than or equal to 500 ppm.
    (C) High Sulfur if its sulfur content is greater than 500 ppm.
    (v) From June 1, 2006 through May 31, 2010, any batch designated as 
motor vehicle diesel fuel must also be designated according to one of 
the following two distillation classifications that most accurately 
represents the fuel:
    (A) 1D.
    (B) 2D.
    (3) The following restrictions and clarifications apply:
    (i) Prior to June 1, 2006, any batch of MVNRLM not containing 
visible evidence of red dye under Sec.  80.520(b) must be designated as 
motor vehicle diesel fuel.
    (ii) Any distillate fuel containing visible evidence of dye may not 
be designated as motor vehicle diesel fuel unless it is further 
designated as tax exempt motor vehicle diesel fuel.
    (iii) Any distillate containing the marker required pursuant to the 
provisions of Sec.  80.510(d) through (f) must be designated as heating 
oil, except that from June 1, 2010 through May 31, 2012 it may also be 
designated as LM diesel fuel, pursuant to Sec.  80.510(e).
    (iv) Prior to June 1, 2009 all 15 ppm sulfur MVNRLM diesel fuel 
must be designated as motor vehicle diesel fuel.
    (v) Beginning June 1, 2010 any distillate fuel having a sulfur 
content greater than 15 ppm may not be designated as motor vehicle 
diesel fuel.
    (vi) Beginning June 1, 2014, any distillate fuel having a sulfur 
content greater than to 15 ppm may not be designated as MVNRLM diesel 
fuel.
    (vii) Any batch of 1D fuel which is suitable for use as 
MVNRLM and which is also suitable for use as kerosene or jet fuel 
(i.e., commonly referred to as dual use kerosene) may be designated as 
MVNRLM, kerosene, or jet fuel (as applicable).
    (viii) Beginning June 1, 2007, any distillate fuel with a sulfur 
content

[[Page 39192]]

greater than 500 ppm distributed or intended for distribution in the 
area specified in Sec.  80.510(g)(1), may not be designated as MVNRLM 
diesel fuel.
    (ix) From June 1, 2010 through May 31, 2012, any distillate fuel 
with a sulfur content greater than 15 ppm distributed or intended for 
distribution in the area specified in Sec.  80.510(g)(1), may not be 
designated as NR diesel fuel.
    (x) From June 1, 2012 through May 31, 2014, any distillate fuel 
with a sulfur content greater than 15 ppm distributed or intended for 
distribution in the area specified in Sec.  80.510(g)(1), may not be 
designated as NRLM diesel fuel.
    (xi) Beginning June 1, 2007, any distillate fuel with a sulfur 
content greater than 500 ppm distributed or intended for distribution 
in the area specified in Sec.  80.510(g)(2) may not be designated as 
NRLM diesel fuel unless EPA has first approved a compliance plan for 
the refiner for segregating the fuel from all other types of NRLM 
diesel fuel from the refinery gate to the ultimate consumer, as 
specified under Sec.  80.554(a)(4).
    (xii) From June 1, 2010 through May 31, 2012, any distillate fuel 
with a sulfur content greater than 15 ppm distributed or intended for 
distribution in the area specified in Sec.  80.510(g)(2) may not be 
designated as NR diesel fuel unless EPA has first approved a compliance 
plan for the refiner for segregating the fuel from all other types of 
NRLM diesel fuel from the refinery gate to the ultimate consumer, as 
specified under Sec.  80.554(b)(4).
    (xiii) From June 1, 2012 through May 31, 2014, any distillate fuel 
with a sulfur content greater than 15 ppm distributed or intended for 
distribution in the area specified in Sec.  80.510(g)(2) may not be 
designated as NRLM diesel fuel unless, EPA has first approved a 
compliance plan for the refiner for segregating the fuel from all other 
types of NRLM diesel fuel from the refinery gate to the ultimate 
consumer, as specified under Sec.  80.554(b)(4).
    (xiv) Beginning June 1, 2014, any distillate fuel with a sulfur 
content greater than 15 ppm may not be designated as MVNRLM diesel 
fuel.
    (b) Designation requirements for fuel distributors. (1) Pursuant to 
the provisions of paragraphs (b)(2) through (b)(9) of this section, 
beginning June 1, 2006, any distributor shall accurately and clearly 
designate each batch of diesel fuel or distillate fuel for which they 
transfer custody to another facility, including specifying its volume, 
as specified in this paragraph (b). Distributors must also accurately 
and clearly classify such diesel fuel and distillate fuel by sulfur 
content, while it is in their custody between receipt and delivery.
    (2) From June 1, 2006 through May 31, 2009, whenever custody of a 
batch of 15 ppm sulfur motor vehicle diesel fuel is transferred to 
another facility, the entity transferring custody must accurately and 
clearly designate the batch as one of the following and specify its 
volume:
    (i) 1D 15 ppm sulfur motor vehicle diesel fuel.
    (ii) 2D 15 ppm sulfur motor vehicle diesel fuel.
    (3) From June 1, 2009 through May 31, 2010, whenever custody of a 
batch of 15 ppm sulfur MVNRLM diesel fuel is transferred to another 
facility, the entity transferring custody must accurately and clearly 
designate the batch as one of the following and specify its volume:
    (i) 1D 15 ppm sulfur motor vehicle diesel fuel.
    (ii) 2D 15 ppm sulfur motor vehicle diesel fuel.
    (iii) 15 ppm sulfur NRLM diesel fuel.
    (4) From June 1, 2006 through May 31, 2010, whenever custody of a 
batch of undyed, 500 ppm sulfur MVNRLM is transferred to another 
facility, the entity transferring custody must accurately and clearly 
designate the batch as one of the following and specify its volume:
    (i) 1D 500 ppm sulfur motor vehicle diesel fuel;
    (ii) 2D 500 ppm sulfur motor vehicle diesel fuel; or
    (iii) 500 ppm sulfur NRLM diesel fuel.
    (5) From June 1, 2007 through May 31, 2010, whenever custody of a 
batch of distillate fuel (other than jet fuel, kerosene, No. 4 fuel, or 
fuel for export) having a sulfur content greater than 500 ppm is 
transferred to another facility, the entity transferring custody must 
accurately and clearly designate the batch as one of the following and 
specify its volume:
    (i) High sulfur NRLM diesel fuel (HSNRLM);
    (ii) Heating oil; or
    (iii) Exempt distillate fuels such as fuels that are covered by a 
national security exemption under Sec.  80.606, fuels that are used for 
purposes of research and development pursuant to Sec.  80.607, and 
fuels used in the U.S. Territories pursuant to Sec.  80.608 (including 
additional identifying information).
    (6) From June 1, 2010 through May 31, 2012, whenever custody of a 
batch of distillate fuel (other than jet fuel, kerosene, No. 4 fuel, or 
fuel for export) having a sulfur content greater than 15 ppm is 
transferred to another facility, the entity transferring custody must 
accurately and clearly designate the batch as one of the following and 
specify its volume:
    (i) 500 ppm sulfur NR diesel fuel;
    (ii) 500 ppm sulfur LM diesel fuel;
    (iii) Heating oil; or
    (iv) Exempt distillate fuels such as fuels that are covered by a 
national security exemption under Sec.  80.606, fuels that are used for 
purposes of research and development pursuant to Sec.  80.607, and 
fuels used in the U.S. Territories pursuant to Sec.  80.608 (including 
additional identifying information).
    (7) From June 1, 2012 through May 31, 2014, whenever custody of a 
batch of distillate fuel (other than jet fuel, kerosene, No. 4 fuel, or 
fuel for export) having a sulfur content greater than 15 ppm is 
transferred to another facility, the entity transferring custody must 
accurately and clearly designate the batch as one of the following and 
specify its volume:
    (i) 500 ppm sulfur NRLM diesel fuel;
    (ii) Heating oil; or
    (iii) Exempt distillate fuels such as fuels that are covered by a 
national security exemption under Sec.  80.606, fuels that are used for 
purposes of research and development pursuant to Sec.  80.607, and 
fuels used in the U.S. Territories pursuant to Sec.  80.608 (including 
additional identifying information).
    (8) Beginning June 1, 2014, whenever custody of a batch of 
distillate fuel (other than jet fuel, kerosene, No. 4 fuel, or fuel for 
export) having a sulfur content greater than 15 ppm is transferred to 
another facility, the entity transferring custody must accurately and 
clearly designate the batch as one of the following and specify its 
volume:
    (i) 500 ppm sulfur LM diesel fuel;
    (ii) Heating oil; or
    (iii) Exempt distillate fuels such as fuels that are covered by a 
national security exemption under Sec.  80.606, fuels that are used for 
purposes of research and development pursuant to Sec.  80.607, and 
fuels used in the U.S. Territories pursuant to Sec.  80.608 (including 
additional identifying information).
    (9) The following restrictions and clarifications apply. Subject to 
the provisions of this paragraph (b)(9) and subject to the dye and 
marker provisions of Sec.  80.520(b) and Sec.  80.510(d) through (f), 
when custody of a batch of distillate fuel is transferred, the 
designation provided by the entity transferring custody pursuant to 
paragraphs (b)(1) through (b)(8) of this section may be different from 
the designation of the fuel when that same entity received custody.
    (i) Any 500 ppm sulfur diesel fuel designated under this paragraph 
(b) and containing visible evidence of red dye may not be designated as 
motor vehicle diesel fuel.
    (ii) Any distillate fuel containing greater than or equal to 0.10 
milligrams

[[Page 39193]]

per liter of marker solvent yellow 124 required under Sec.  80.510(d), 
(e), or (f) must be designated as heating oil except that from June 1, 
2010 through October 1, 2012 it may also be designated as LM diesel 
fuel as specified under Sec.  80.510(e).
    (iii) Any batch of 1D fuel which is suitable for use as 
MVNRLM diesel fuel and which is also suitable for use as kerosene or 
jet fuel (i.e., commonly referred to as dual use kerosene) may be 
designated as either MVNRLM diesel fuel, kerosene, or jet fuel (as 
applicable).
    (iv) Any MVNRLM diesel fuel with a sulfur content of 500 ppm or 
less in inventory as of June 1, 2007 may be designated as motor vehicle 
diesel fuel.
    (v) Batches or portions of batches of fuel received designated as 
15 ppm sulfur 2D motor vehicle diesel fuel may be re-
designated as 500 ppm sulfur motor vehicle diesel fuel, but only in 
accordance with the limitations of Sec.  80.527(c).
    (vi) Batches or portions of batches received designated as 500 ppm 
sulfur NRLM diesel fuel may be re-designated as 500 ppm sulfur motor 
vehicle diesel fuel by a truck loading terminal only if the terminal 
maintains a neutral or positive balance at the end of each quarterly 
compliance period on their motor vehicle diesel fuel volume from June 
1, 2007 as calculated in Sec.  80.599(b)(4).
    (vii) Batches or portions of batches received designated as 500 ppm 
sulfur NRLM diesel fuel may be re-designated as 500 ppm sulfur motor 
vehicle diesel fuel by a facility other than a truck loading terminal 
only if the following restrictions are met:
    (A) At the end of each annual compliance period, the facility has a 
neutral or positive balance on its motor vehicle diesel fuel volume 
from June 1, 2007 as calculated in Sec.  80.599(b)(4); and
    (B) At the end of each annual compliance period, the facility's 
balance for motor vehicle diesel fuel volume, from the beginning of the 
compliance period must be less than two percent of the total volume of 
motor vehicle diesel fuel received during the compliance period, as 
calculated in Sec.  80.599(b)(5).
    (viii) For facilities in areas other than those specified in Sec.  
80.510(g)(1) and (g)(2), batches or portions of batches of unmarked 
distillate received designated as heating oil may be re-designated as 
NRLM or LM diesel fuel only if the following restrictions are met:
    (A) From June 1, 2007 through May 31, 2010, for any compliance 
period, the volume of high sulfur NRLM diesel fuel delivered from a 
facility cannot be greater than the volume received, unless the volume 
of heating oil delivered from the facility is also greater than the 
volume it received by an equal or greater proportion, as calculated in 
Sec.  80.599(c)(2); and
    (B) Beginning June 1, 2010, for any compliance period, the volume 
of fuel designated as heating oil delivered from a facility cannot be 
less than the volume of fuel designated as heating oil received, as 
calculated in Sec.  80.599(c)(4).
    (ix) For facilities in areas other than those specified in Sec.  
80.510(g)(1) and (g)(2), from June 1, 2010 through May 31, 2012, 
batches or portions of batches received designated as 500 ppm LM diesel 
fuel may be redesignated as 500 ppm NR diesel fuel only if for any 
compliance period the following restrictions are met:
    (A) The volume of fuel designated as 500 ppm sulfur NR diesel fuel 
delivered from the facility cannot be greater than the volume received 
as calculated in Sec.  80.599(d)(2)(i); or
    (B) The volume of fuel designated as 500 ppm sulfur NR diesel fuel 
delivered from the facility in relation to the volume received is not a 
greater proportion than the volume of fuel designated as 500 ppm sulfur 
LM diesel fuel delivered from the facility in relation to the volume 
received, as calculated in Sec.  80.599(d)(2)(ii).
    (x) Notwithstanding the provisions of paragraph (b)(5) of this 
section, beginning October 1, 2007,
    (A) No distillate fuel with a sulfur content greater than 500 ppm 
distributed or intended for distribution in the areas specified in 
Sec.  80.510(g)(1) and (g)(2), may be designated as NRLM diesel fuel, 
including LM diesel fuel except as provided in paragraph (b)(9)(xiii) 
of this section; and
    (B) Distillate fuel with a sulfur content greater than 500 ppm 
distributed from within the areas specified in Sec.  80.510(g)(1) and 
(g)(2) to areas outside these areas is subject to the provisions of 
paragraph (b)(5) of this section.
    (xi) Notwithstanding the provisions of paragraphs (b)(6) through 
(b)(8) of this section, beginning October 1, 2010--
    (A) No distillate fuel with a sulfur content greater than 15 ppm 
distributed or intended for distribution in the areas specified in 
Sec.  80.510(g)(1) and (g)(2), may be designated as NR diesel fuel, 
except as provided in paragraph (b)(9)(xiv) of this section; and
    (B) Distillate fuel with a sulfur content greater than 15 ppm 
distributed from within the areas specified in Sec.  80.510(g)(1) and 
(g)(2) to areas outside these areas is subject to the provisions of 
paragraphs (b)(6) through (b)(7) of this section.
    (xii) Notwithstanding the provisions of paragraphs (b)(7) and (8) 
of this section, beginning October 1, 2012--
    (A) No distillate fuel with a sulfur content greater than 15 ppm 
distributed or intended for distribution in the areas specified in 
Sec.  80.510(g)(1) and (g)(2), may be designated as NRLM diesel fuel, 
including LM diesel fuel, except as provided in paragraph (b)(9)(xv) of 
this section; and
    (B) Distillate fuel with a sulfur content greater than 15 ppm 
distributed from within the areas specified in Sec.  80.510(g)(1) and 
(g)(2) to areas outside these areas is subject to the provisions of 
paragraphs (b)(7) and (8) of this section.
    (xiii) From June 1, 2007 through September 30, 2010, in the area 
specified in Sec.  80.510(g)(2) only segregated batches of distillate 
fuel received designated as HSNRLM diesel fuel may be distributed 
designated as HSNRLM diesel fuel and must remain segregated from fuel 
with any other designations unless otherwise approved by EPA in a 
refiner compliance plan under Sec.  80.554(a)(4).
    (xiv) From June 1, 2010 through September 30, 2012, in the area 
specified in Sec.  80.510(g)(2) only segregated batches of distillate 
fuel received designated as 500 ppm sulfur NR diesel fuel may be 
distributed designated as 500 ppm sulfur NR diesel fuel and must remain 
segregated from fuel with any other designations and from any other 500 
ppm sulfur NRLM diesel fuel from any other sources, except as approved 
by EPA in a refiner compliance plan under Sec.  80.554(a)(4).
    (xv) From June 1, 2012 through September 30, 2014, in the area 
specified in Sec.  80.510(g)(2) only segregated batches of distillate 
fuel received designated as 500 ppm sulfur NRLM diesel fuel may be 
distributed designated as 500 ppm sulfur NRLM diesel fuel and must 
remain segregated from fuel with any other designations and from any 
other 500 ppm sulfur NRLM diesel fuel from any other sources, except as 
approved by EPA in a refiner compliance plan under Sec.  80.554(a)(4).
    (c) Notwithstanding the provisions of paragraph (b) of this 
section, an entity is not required to designate heating oil that is 
delivered from a facility that only receives heating oil which is 
marked pursuant to Sec.  80.510(d) through (f).
    (d) Notwithstanding the provisions of paragraph (b)(4) of this 
section, an entity is not required to designate 500 ppm sulfur MVNRLM 
diesel fuel that is delivered from a facility that only receives 500 
ppm sulfur MVNRLM diesel fuel on which taxes have been

[[Page 39194]]

paid or into which red dye has been added pursuant to Sec.  80.520(b).
    (e) Notwithstanding the provisions of paragraph (b)(6) of this 
section, an entity is not required to designate 500 ppm sulfur LM 
diesel fuel that is delivered from a facility that only receives 500 
ppm sulfur LM diesel fuel which is marked pursuant to Sec.  80.510(e).
    (f) Any entity that is both a distributor and a refiner or importer 
must comply with the provisions of paragraph (a) of this section for 
all distillate fuel produced or imported, and the provisions of 
paragraph (b) of this section for all distillate fuel for which it 
acted as distributor but not refiner or importer.
    (g) No refiner, importer, or distributor may use the designation 
provisions of this section to circumvent the standards or requirements 
of Sec.  80.510, 80.511, or 80.520.

0
56. A new Sec.  80.599 is added to read as follows:


Sec.  80.599  How do I calculate volume balances for designation 
purposes?

    (a) Quarterly compliance periods. The quarterly compliance periods 
are shown in the following table:

------------------------------------------------------------------------
  Beginning date of  quarterly compliance     Ending date of  quarterly
                  period                         compliance  period
------------------------------------------------------------------------
June 1, 2007..............................  September 30, 2007.
October 1, 2007...........................  December 31, 2007.
January 1, 2008...........................  March 31, 2008.
April 1, 2008.............................  June 30, 2008.
July 1, 2008..............................  September 30, 2008.
October 1, 2008...........................  December 31, 2008.
January 1, 2009...........................  March 31, 2009.
April 1, 2009.............................  June 30, 2009.
July 1, 2009..............................  September 30, 2009.
October 1, 2009...........................  December 31, 2009.
January 1, 2010...........................  March 31, 2010.
April 1, 2010.............................  May 31, 2010.
June 1, 2010..............................  September 30, 2010.
------------------------------------------------------------------------

    (1) Annual compliance periods. The annual compliance periods before 
the period beginning July 1, 2015 are shown in the following table:

------------------------------------------------------------------------
   Beginning date of  annual compliance        Ending date of  annual
                  period                         compliance  period
------------------------------------------------------------------------
June 1, 2007..............................  June 30, 2008.
July 1, 2008..............................  June 30, 2009.
July 1, 2009..............................  May 31, 2010.
June 1, 2010..............................  June 30, 2011.
July 1, 2011..............................  May 31, 2012.
June 1, 2012..............................  June 30, 2013.
July 1, 2013..............................  May 31, 2014.
June 1, 2014..............................  June 30, 2015.
------------------------------------------------------------------------

    (2) The annual compliance periods for the period beginning July 1, 
2015 shall be from July 1, through June 30.
    (b) Volume balance for motor vehicle diesel fuel. (1) A facility's 
motor vehicle diesel fuel volume balance is calculated as follows:

MVB = MVI-MVO-MVINVCHG

Where:

MVB = the volume balance for motor vehicle diesel fuel for the 
compliance period.
MVI = the total volume of all batches of fuel designated 
as motor vehicle diesel fuel received for the compliance period.
MVO = the total volume of all batches of fuel designated 
as motor vehicle diesel fuel delivered for the compliance period.
MVINVCHG = the total volume of 15 ppm sulfur and 500 ppm 
sulfur motor vehicle diesel fuel in inventory at the end of the 
compliance period minus the total volume of 15 ppm sulfur and 500 
ppm sulfur motor vehicle diesel fuel in inventory at the beginning 
of the compliance period, including accounting for any corrections 
in inventory due to volume swell or shrinkage, difference in 
measurement calibration between receiving and delivering meters, and 
similar matters, where corrections that increase inventory are 
defined as positive.

    (2) Calculate the motor vehicle diesel fuel received, as follows:

MVI = MV15I + MV500I

Where:

MV15I = the total volume of all batches of fuel 
designated as 15 ppm sulfur motor vehicle diesel fuel received for 
the compliance period.
MV500I = the total volume of all batches of fuel 
designated as 500 ppm sulfur motor vehicle diesel fuel received for 
the compliance period.

    (3) Calculate the motor vehicle diesel fuel delivered, as follows:

MVO = MV15O + MV500O

Where:

MV15O = the total volume of all batches of fuel 
designated as 15 ppm sulfur motor vehicle diesel fuel and delivered 
during the compliance period.
MV500O = the total volume of all batches of fuel 
designated as 500 ppm sulfur motor vehicle diesel fuel and delivered 
during the compliance period.

    (4) The neutral or positive volume balance required for purposes of 
compliance with Sec.  80.598(b)(9)(vi) and (b)(9)(vii)(A) means that 
the net balance of motor vehicle diesel fuel in inventory as of the end 
of the last day of the compliance period (MVNBE) must be 
greater than or equal to zero. MVNBE is defined by the 
following equation:

MVNBE = MV15BINV + MV500BINV 
[sigma]MVB

Where:

MV15BINV = the total volume of fuel designated as 15 ppm 
sulfur motor vehicle diesel fuel in inventory at the beginning of 
the program on June 1, 2007.
MV500BINV = the total volume of fuel designated as 500 
ppm sulfur motor vehicle diesel fuel in inventory at the beginning 
of the program on June 1, 2007. Any 2D 500 ppm sulfur 
MVNRLM in inventory at the beginning of the program on June 1, 2007 
may be designated as motor vehicle diesel fuel.
[sigma]MVB = the sum of the balances for motor vehicle diesel fuel 
for the current compliance period and previous compliance periods.

    (5) The volume balance required for purposes of compliance with 
Sec.  80.598(b)(9)(vii)(B) means:

-MVB <= 0.02 x MVI

    (6) Calculations in paragraphs (b)(4) and (b)(5) of this section 
may be combined for all facilities wholly owned by an entity.
    (7) For purposes of calculations in paragraphs (b)(1) through 
(b)(5) of this section, for batches of fuel received from facilities 
without an EPA facility ID, any batches of fuel received on 
which taxes have been paid pursuant to IRS code (26 CFR part 48) shall 
be deemed to be MV15I or MV500I as appropriate 
for purposes of this paragraph.
    (c) Volume balance for high sulfur NRLM diesel fuel and heating 
oil. (1) A facility's high sulfur NRLM balance is calculated as 
follows:

HSNRLMB = HSNRLMII - HSNRLMO - 
HSNRLMINVCHG

Where:

HSNRLMB = the balance for high sulfur NRLM diesel fuel for the 
compliance period.
HSNRLMI = the total volume of all batches of fuel 
designated as high sulfur NRLM received diesel fuel for the 
compliance period.
HSNRLMO = the total volume of all batches of fuel 
designated as high sulfur NRLM diesel fuel delivered for the 
compliance period.
HSNRLMINVCHG = the volume of high sulfur NRLM diesel fuel 
in inventory at the end of the compliance period minus the volume of 
high sulfur NRLM diesel fuel in inventory at the beginning of the 
compliance period, including accounting for any corrections in 
inventory due to volume swell or shrinkage, difference in 
measurement calibration between receiving and delivering meters, and 
similar matters, where corrections that increase inventory are 
defined as positive.

    (2) The volume balance required for purposes of compliance with 
Sec.  80.598(b)(9)(viii)(A) means one of the following:

(i) HSNRLMB >= 0
(ii) (HSNRLMO + HSNRLMINVCHG) / 
HSNRLMI <= (HOO + HOINVCHG) / 
HOI

    (3) A facility's heating oil volume balance is calculated as 
follows:

HOB = HOI - HOO - HOINVCHG
Where:

HOB = the balance for heating oil for the compliance period.

[[Page 39195]]

HOI = the total volume of all batches of fuel designated 
as heating oil received for the compliance period.
HOO = the total volume of all batches of fuel designated 
as heating oil delivered to all downstream entities for the 
compliance period.
HOINVCHG = the volume of heating oil in inventory at the 
end of the compliance period minus the volume of heating oil in 
inventory at the beginning of the compliance period, including 
accounting for any corrections in inventory due to volume swell or 
shrinkage, difference in measurement calibration between receiving 
and delivering meters, and similar matters, where corrections that 
increase inventory are defined as positive.

(4) The volume balance required for purposes of compliance with Sec.  
80.598(b)(9)(viii)(B) means:

HOB <= 0

    (5) Calculations in paragraphs (c)(3) and (c)(4) of this section 
may be combined for all facilities wholly owned by an entity.
    (6) For purposes of calculations in paragraphs (c)(1) through 
(c)(4) of this section, for batches of fuel received from facilities 
without an EPA facility ID, any batches of fuel received 
marked pursuant to Sec.  80.510(d) or (f) shall be deemed to be 
HOI, any batches of fuel received marked pursuant to Sec.  
80.510(e) shall be deemed to be HOI or LM500I, 
any diesel fuel with less than or equal to 500 ppm sulfur that is dyed 
pursuant to Sec.  80.520(b) and not marked pursuant to Sec.  80.510(d) 
or (f) shall be deemed to be NRLM diesel fuel, and any diesel fuel with 
less than or equal to 500 ppm sulfur which is dyed pursuant to Sec.  
80.520(b) and not marked pursuant to Sec.  80.510(e) shall be deemed to 
be NR diesel fuel.
    (d) Volume balance for NR diesel fuel. (1) A facility's 500 ppm 
nonroad diesel fuel balance is calculated as follows:

NR500B = NR500I - NR500O - 
NR500INVCHG

Where:

NR500B = the balance for 500 ppm sulfur NR diesel fuel for the 
compliance period.
NR500I = the total volume of all batches of fuel 
designated as 500 ppm sulfur NR diesel fuel received for the 
compliance period.
NR500O = the total volume of all batches of fuel 
designated as 500 ppm sulfur NR diesel fuel delivered for the 
compliance period.
NR500INVCHG = the volume of 500 ppm sulfur NR diesel fuel 
in inventory at the end of the compliance period minus the volume of 
500 ppm sulfur NR diesel fuel in inventory at the beginning of the 
compliance period, and accounting for any corrections in inventory 
due to volume swell or shrinkage, difference in measurement 
calibration between receiving and delivering meters, and similar 
matters, where corrections that increase inventory are defined as 
positive.

(2) The volume balance required for purposes of compliance with Sec.  
80.598(b)(9)(ix) means one of the following:

(i) NR500B >= 0
(ii) (NR500O + NR500INVCHG) / 
NR500I <= (LM500O + LM500INVCHG) / 
LM500I.

Where:

LM500I = the total volume of all batches of fuel 
designated as 500 ppm sulfur LM diesel fuel received for the 
compliance period.
LM500O = the total volume of all batches of fuel 
designated as 500 ppm sulfur LM diesel fuel delivered for the 
compliance period.
LM500INVCHG = the volume of 500 ppm sulfur LM diesel fuel 
in inventory at the end of the compliance period minus the volume of 
500 ppm sulfur LM diesel fuel in inventory at the beginning of the 
compliance period, and accounting for any corrections in inventory 
due to volume swell or shrinkage, difference in measurement 
calibration between receiving and delivering meters, and similar 
matters, where corrections that increase inventory are defined as 
positive.

    (e) Anti-downgrading for motor vehicle diesel fuel. (1) A facility 
must satisfy the provisions in either paragraphs (e)(2), (e)(3), 
(e)(4), or (e)(5) of this section to comply with the anti-downgrading 
limitation of paragraph Sec.  80.527(c)(1), for the annual compliance 
periods defined in Sec.  80.527(c)(3).
    (2) The volume of 2D 15 ppm sulfur motor vehicle delivered 
must meet the following requirement:

(2MV15O + 2MV15INVCHG) >= 
0.8 x 2MV15I

Where:

2MV15O = the total volume of fuel delivered 
during the compliance period that is designated as 2D 15 
ppm sulfur motor vehicle diesel fuel.
2MV15INVCHG = the total volume of diesel fuel 
designated as 2D 15 ppm sulfur motor vehicle diesel fuel in 
inventory at the end of the compliance period minus the total volume 
of 2D 15 ppm sulfur motor vehicle diesel fuel in inventory 
at the beginning of the compliance period, and accounting for any 
corrections in inventory due to volume swell or shrinkage, 
difference in measurement calibration between receiving and 
delivering meters, and similar matters, where corrections that 
increase inventory are defined as positive.
2MV15I = the total volume of fuel received 
during the compliance period that is designated as 2D 15 
ppm sulfur motor vehicle diesel fuel.

    (3) The volume of 2D 500 ppm sulfur motor vehicle diesel 
fuel delivered must meet the following requirement:


2MV500O <= 2MV500I - 
2MV500INVCHG + 0.2 x 2MV15I
Where:

2MV500O = the total volume of fuel delivered 
during the compliance period that is designated as 2D 500 
ppm sulfur motor vehicle diesel fuel.
2MV500I = the total volume of fuel received 
during the compliance period that is designated as 2D 500 
ppm sulfur motor vehicle diesel fuel.
2MV500INVCHG = the total volume of diesel fuel 
designated as 2D 500 ppm sulfur motor vehicle diesel fuel 
in inventory at the end of the compliance period minus the total 
volume of 2D 500 ppm sulfur motor vehicle diesel fuel in 
inventory at the beginning of the compliance period, and accounting 
for any corrections in inventory due to volume swell or shrinkage, 
difference in measurement calibration between receiving and 
delivering meters, and similar matters, where corrections that 
increase inventory are defined as positive.

    (4) The following calculation may be used to account for wintertime 
blending of kerosene:

2MV500O <= 2MV500I - 
2MV500INVCHG + 0.2 * (1MV15I 
+ 2MV15I)
Where:

1MV15I = the total volume of fuel received 
during the compliance period that is designated as 1D 15 
ppm sulfur motor vehicle diesel fuel.

    (5) The following calculation may be used to account for wintertime 
blending of kerosene and/or changes in the facility's volume balance of 
motor vehicle diesel fuel resulting from a temporary shift of 500 ppm 
sulfur NRLM diesel fuel to 500 ppm sulfur motor vehicle diesel fuel 
during the compliance period:

2MV500O < 2MV500I - 
2MV500INVCHG + 0.2 * 2MV15I 
+ 1MV15B + 2NRLM500S
Where:

1MV15B = the total volume of fuel received 
during the compliance period that is designated as 1D 15 
ppm sulfur motor vehicle diesel fuel and that the facility can 
demonstrate they blended into 2D 500 ppm sulfur motor 
vehicle diesel fuel.
2NRLM500S = the total volume of 2D 500 
ppm sulfur NRLM diesel fuel that the facility can demonstrate they 
redesignated as 2D 500 ppm sulfur motor vehicle diesel fuel 
during the compliance period.

    (f) Inventory adjustments. Adjustments to inventory under this 
section must be based on normal business practices for the industry, 
appropriate physical plant operations and use of good engineering 
judgments.
    (g) Unique circumstances. EPA may, at its discretion, grant a fuel 
distributor's application to modify its inventory of motor vehicle 
diesel fuel, NRLM diesel fuel, or heating oil for a

[[Page 39196]]

given compliance period. EPA may grant an application to address unique 
circumstances, where appropriate, such as the start up of a new 
pipeline or pipeline segment.

0
57. The center header ``EXEMPTIONS'' before Sec.  80.600 is removed.

0
58. Section 80.600 is revised to read as follows:


Sec.  80.600  What records must be kept for purposes of the designate 
and track provisions?

    (a) In addition to the requirements of Sec.  80.592 and Sec.  
80.602, the following recordkeeping requirements shall apply to 
refiners and importers:
    (1) Any refiner or importer shall maintain the records specified in 
paragraphs (a)(6) through (a)(10) of this section for each batch of 
distillate fuel that it transfers custody of and designates during the 
time period from June 1, 2006 through May 31, 2010, with the following 
categories:
    (i) 1D 15 ppm sulfur motor vehicle diesel fuel;
    (ii) 2D 15 ppm sulfur motor vehicle diesel fuel;
    (iii) 15 ppm sulfur NRLM diesel fuel;
    (iv) 1D 500 ppm sulfur motor vehicle diesel fuel;
    (v) 2D 500 ppm sulfur motor vehicle diesel fuel; or
    (vi) 500 ppm sulfur NRLM diesel fuel.
    (2) Any refiner or importer shall maintain the records specified in 
paragraphs (a)(6) through (a)(10) of this section for each batch of 
distillate fuel that it transfers custody of and designates during the 
time period from June 1, 2007 through May 31, 2010 with the following 
categories:
    (i) High sulfur NRLM diesel fuel; or
    (ii) Heating oil.
    (3) Any refiner or importer shall maintain the records specified in 
paragraphs (a)(6) through (a)(10) of this section for each batch of 
distillate fuel that it transfers custody of and designates during the 
time period from June 1, 2010 through May 31, 2012 with the following 
categories:
    (i) 500 ppm sulfur NR diesel fuel;
    (ii) 500 ppm sulfur LM diesel fuel; or
    (iii) Heating oil.
    (4) Any refiner or importer shall maintain the records specified in 
paragraphs (a)(6) through (a)(10) of this section for each batch of 
distillate fuel that it transfers custody of and designates during the 
time period from June 1, 2012 through May 31, 2014 with the following 
categories:
    (i) 500 ppm sulfur NRLM diesel fuel; or
    (ii) Heating oil.
    (5) Any refiner or importer shall maintain the records specified in 
paragraphs (a)(6) through (a)(10) of this section for each batch of 
heating oil that it transfers custody of and designates during the time 
period from June 1, 2014 and later as belonging to the heating oil 
category.
    (6) The records for each batch with designations identified in 
paragraphs (a)(1) through (a)(5) of this section must clearly and 
accurately identify the batch number (including an indication as to 
whether the batch was received into the facility or delivered from the 
facility), date and time of day (if multiple batches are delivered per 
day) that custody was transferred, the designation, the volume in 
gallons of the batch, and the name and the EPA entity and facility 
registration number of the facility to whom such batch was transferred.
    (i) For motor vehicle diesel fuel, the records must also identify 
whether the batch was received or delivered with or without taxes paid 
pursuant to Section 4082 of the Internal Revenue Code (26 U.S.C. 4082).
    (ii) For NRLM diesel fuel, the records must also identify whether 
the batch was received or delivered with or without dye added pursuant 
to Section 4082 of the Internal Revenue Code (26 U.S.C. 4082).
    (iii) For heating oil, the records must also identify whether the 
batch was received or delivered with or without the marker added 
pursuant to Sec.  80.510(d) through (f).
    (iv) For LM diesel, the records must also identify whether the 
batch was received or delivered with or without the marker added 
pursuant to Sec.  80.510(e).
    (7) Any refiner or importer shall, for each of its facilities, 
maintain records that clearly and accurately identify the total volume 
in gallons of designated fuel identified in paragraphs (a)(1) through 
(a)(5) of this section transferred over each compliance period. The 
records shall be maintained separately for each fuel designated in 
paragraphs (a)(1) through (a)(5) of this section, and for each EPA 
entity and facility registration number to whom custody of the fuel was 
transferred.
    (8) Notwithstanding the provisions of paragraphs (a)(6) and (a)(7) 
of this section, records of batches delivered of 500 ppm sulfur motor 
vehicle diesel fuel on which taxes have been paid per Section 4082 of 
the Internal Revenue Code (26 U.S.C. 4082) and of 500 ppm sulfur NRLM 
diesel fuel into which dye has been added per Section 4082 of the 
Internal Revenue Code (26 U.S.C. 4082), and of 500 ppm sulfur LM diesel 
fuel which has been properly marked pursuant to Sec.  80.510(e) are not 
required to be maintained separately for each entity and facility to 
which the fuel was delivered.
    (9) Notwithstanding the provisions of paragraphs (a)(6) and (a)(7) 
of this section, records of heating oil batches delivered that have 
been properly marked pursuant to Sec.  80.510(d) through (f) and 
records of LM diesel fuel batches delivered that have been properly 
marked pursuant to Sec.  80.510(e) are not required to be maintained 
separately for each entity and facility to which the fuel was 
delivered.
    (10) Any refiner or importer shall maintain copies of all product 
transfer documents required under Sec.  80.590. If all information 
required in paragraph (a)(6) of this section is on the product transfer 
document for a batch, then the provisions of this paragraph (a)(10) 
shall satisfy the requirements of paragraph (a)(6) of this section for 
that batch.
    (11) Any refiner or importer shall maintain records related to 
annual compliance calculations performed under Sec.  80.599 and to 
information required to be reported to the Administrator under Sec.  
80.601.
    (12) Records must be maintained that demonstrate compliance with a 
refiner's compliance plan required under Sec.  80.554, for distillate 
fuel designated as high sulfur NRLM diesel fuel and delivered from June 
1, 2007 through May 31, 2010, for distillate fuel designated as 500 ppm 
sulfur NR diesel fuel and delivered from June 1, 2010 through May 31, 
2012, and for distillate fuel designated as 500 ppm sulfur NRLM diesel 
fuel and delivered from June 1, 2012 through June 1, 2014 in the areas 
specified in Sec.  80.510(g)(2).
    (b) In addition to the requirements of Sec.  80.592 and Sec.  
80.602, the following recordkeeping requirements shall apply to 
distributors:
    (1) Any distributor shall maintain the records specified in 
paragraphs (b)(2) through (b)(10) of this section for each batch of 
distillate fuel with the following designations for which custody is 
received or delivered. Records shall be kept separately for each of its 
facilities.
    (i) For each facility that receives 2D 15 ppm sulfur motor 
vehicle diesel fuel and distributes any 2D 500 ppm sulfur 
motor vehicle diesel fuel, records for each batch of diesel fuel with 
the following designations for which custody is received or delivered 
during the time period from June 1, 2006 through May 31, 2007:
    (A) 1D 15 ppm sulfur motor vehicle diesel fuel;
    (B) 2D 15 ppm sulfur motor vehicle diesel fuel;
    (C) 2D 500 ppm sulfur motor vehicle diesel fuel; or

[[Page 39197]]

    (D) 500 ppm sulfur NRLM diesel fuel.
    (ii) For each facility, records for each batch of diesel fuel with 
the following designations for which custody is received or delivered 
during the time period from June 1, 2007 through May 31, 2010:
    (A) 1D 15 ppm sulfur motor vehicle diesel fuel;
    (B) 2D 15 ppm sulfur motor vehicle diesel fuel;
    (C) 1D 500 ppm sulfur motor vehicle diesel fuel;
    (D) 2D 500 ppm sulfur motor vehicle diesel fuel;
    (E) 500 ppm sulfur NRLM diesel fuel;
    (F) 15 ppm sulfur NRLM diesel fuel;
    (G) High sulfur NRLM diesel fuel; or
    (H) Heating oil.
    (iii) For each facility that receives unmarked fuel designated as 
NR diesel fuel, LM diesel fuel or heating oil, records for each batch 
of diesel fuel with the following designations for which custody is 
received or delivered during the time period from June 1, 2010 through 
May 31, 2012:
    (A) 500 ppm sulfur NR diesel fuel;
    (B) 500 ppm sulfur LM diesel fuel; or
    (C) Heating oil.
    (iv) For each facility that receives unmarked fuel designated as 
heating oil, records for each batch of diesel fuel with the following 
designations for which custody is received or delivered during the time 
period from June 1, 2012 through May 31, 2014:
    (A) 500 ppm sulfur NRLM diesel fuel; or
    (B) Heating oil.
    (v) For each facility that receives unmarked fuel designated as 
heating oil, records for each batch of diesel fuel with the following 
designations for which custody is received or delivered during the time 
period beginning June 1, 2014:
    (A) 500 ppm sulfur LM diesel fuel; or
    (B) Heating oil.
    (vi) From June 1, 2007 through May 31, 2010, for those facilities 
in the areas specified in Sec.  80.510(g)(2) that receive unmarked fuel 
designated as high sulfur NRLM diesel fuel:
    (A) High sulfur NRLM diesel fuel; or
    (B) Heating oil.
    (vii) From June 1, 2010 through May 31, 2012, for those facilities 
in the areas specified in Sec.  80.510(g)(2) that receive unmarked fuel 
designated as 500 ppm sulfur NR diesel fuel, 500 ppm sulfur LM diesel 
fuel, or heating oil:
    (A) 500 ppm sulfur NR diesel fuel;
    (B) 500 ppm sulfur LM diesel fuel; or
    (C) Heating oil.
    (viii) From June 1, 2012 through May 31, 2014, for those facilities 
in the areas specified in Sec.  80.510(g)(2) that receive unmarked fuel 
designated as 500 ppm sulfur NRLM diesel fuel or heating oil.
    (A) 500 ppm sulfur NRLM diesel fuel; or
    (B) Heating oil.
    (2) Records that for each batch clearly and accurately identify the 
batch number (including an indication as to whether the batch was 
received into the facility or delivered from the facility), date and 
time of day (if multiple batches are delivered per day) that custody 
was transferred, the designation, the volume in gallons of each batch 
of each fuel, and the name and the EPA entity and facility registration 
number of the facility to whom or from whom such batch was transferred.
    (i) For motor vehicle diesel fuel the records must also identify 
whether the batch was received or delivered with or without taxes paid 
pursuant to section 4082 of the Internal Revenue Code (26 U.S.C. 4082).
    (ii) For NRLM diesel fuel, the records must also identify whether 
it was received or delivered with or without dye added pursuant to 
Section 4082 of the Internal Revenue Code (26 U.S.C. 4082).
    (iii) For heating oil, the records must also identify whether it 
was received or delivered with or without the marker added pursuant to 
Sec.  80.510(d) through (f).
    (iv) For LM diesel fuel, the records must also identify whether it 
was received or delivered with or without the marker added pursuant to 
Sec.  80.510(e).
    (v) For batches of fuel received from facilities without an EPA 
facility registration number, any batches of fuel received marked 
pursuant to Sec.  80.510(d) or (f) shall be deemed designated as 
heating oil, any batches of fuel received marked pursuant to Sec.  
80.510(e) shall be deemed designated as heating oil or LM diesel fuel, 
any batches of fuel received on which taxes have been paid pursuant to 
Section 4082 of the Internal Revenue Code (26 U.S.C. 4082) shall be 
deemed designated as motor vehicle diesel fuel, any 500 ppm sulfur 
diesel fuel dyed pursuant to Sec.  80.520(b) and not marked pursuant to 
Sec.  80.510(d) or (f) shall be deemed designated as NRLM diesel fuel, 
and any diesel fuel with less than or equal to 500 ppm sulfur which is 
dyed pursuant to Sec.  80.520(b) and not marked pursuant to Sec.  
80.510(e) shall be deemed to be NR diesel fuel.
    (3) Records that clearly and accurately identify the total volume 
in gallons of each designated fuel identified under paragraph (b)(1) of 
this section transferred over each of the compliance periods, and over 
the periods from June 1, 2007 to the end of each compliance period. The 
records shall be maintained separately for each fuel designated under 
paragraph (b)(1) of this section, and for each EPA entity and facility 
registration number from whom the fuel was received or to whom it was 
delivered. For batches of fuel received from facilities without an EPA 
facility registration number, any batches of fuel received marked 
pursuant to Sec.  80.510(d) or (f) shall be deemed designated as 
heating oil, any batches of fuel received marked pursuant to Sec.  
80.510(e) shall be deemed designated as heating oil or LM diesel fuel, 
any batches of fuel received on which taxes have been paid pursuant to 
Section 4082 of the Internal Revenue Code (26 U.S.C. 4082) shall be 
deemed designated as motor vehicle diesel fuel, any 500 ppm sulfur 
diesel fuel dyed pursuant to Sec.  80.520(b) and not marked pursuant to 
Sec.  80.510(d) or (f) shall be deemed designated as NRLM diesel fuel, 
and any diesel fuel with less than or equal to 500 ppm sulfur which is 
dyed pursuant to Sec.  80.520(b) and not marked pursuant to Sec.  
80.510(e) shall be deemed to be NR diesel fuel.
    (4) Notwithstanding the provisions of paragraphs (b)(2) and (b)(3) 
of this section, for batches of 500 ppm sulfur motor vehicle diesel 
fuel delivered on which taxes have been paid per Section 4082 of the 
Internal Revenue Code (26 U.S.C. 4082) and 500 ppm sulfur NRLM diesel 
fuel into which red dye has been added per Section 4082 of the Internal 
Revenue Code (26 U.S.C. 4082), records are not required to be 
maintained separately for each entity or facility to whom fuel was 
delivered.
    (5) Notwithstanding the provisions of paragraphs (b)(2) and (b)(3) 
of this section, for batches of heating oil delivered that are marked 
pursuant to Sec.  80.510(d) through (f), records do not need to 
identify the EPA entity or facility registration number to which fuel 
was delivered.
    (6) Notwithstanding the provisions of paragraphs (b)(2) and (b)(3) 
of this section, for batches of LM diesel fuel delivered that are 
marked pursuant to Sec.  80.510(e), records do not need to identify the 
EPA entity or facility registration number to which fuel was delivered.
    (7) Records that clearly and accurately reflect the beginning and 
ending inventory volume for each of the fuels for which records must be 
kept under paragraph (b)(1) of this section. Such records shall be 
maintained separately by each entity and facility consistent with the 
compliance periods defined in Sec. Sec.  80.598 and 80.599.
    (8) (i) If adjustments are made to inventory, the records must 
include detailed information related to the amount, type of, and reason 
for such adjustment.

[[Page 39198]]

    (ii) If adjustments are made because of measurement error or 
variation, the records must include the adjustment made, the meter or 
gauge or other reading(s), and the name of the person who took such 
reading(s) and or applied the adjustment.
    (9) For distributors that are required to keep records under 
paragraphs (b)(1) through (b)(8) of this section for truck loading 
terminals, records related to quarterly or annual compliance 
calculations, as applicable, performed under Sec.  80.599 and to 
information required to be reported to the Administrator under Sec.  
80.601.
    (10) For distributors that are required to keep records under 
paragraphs (b)(1) through (b)(8) of this section for facilities other 
than truck loading terminals, records related to annual compliance 
calculations performed under Sec.  80.599 and to information required 
to be reported to the Administrator under Sec.  80.601.
    (c) Notwithstanding the provisions of paragraph (b) of this 
section, records of heating oil received are not required to be 
maintained for facilities that do not receive any heating oil which is 
unmarked pursuant to Sec.  80.510(d) through (f), or LM diesel fuel 
which is unmarked pursuant to Sec.  80.510(e).
    (d) Notwithstanding the provisions of paragraph (b) of this 
section, records of 500 ppm sulfur MVNRLM diesel fuel received are not 
required to be maintained for facilities that do not receive any motor 
vehicle diesel fuel for which taxes have not already been paid pursuant 
to Section 4082 of the Internal Revenue Code (26 U.S.C. 4082) or NRLM 
diesel fuel which is undyed pursuant to Sec.  80.520(b).
    (e) The provisions of paragraphs (b)(1)(iii) and (iv) of this 
section do not apply to facilities located in the areas specified in 
Sec.  80.510(g)(1) and (g)(2) unless they deliver marked heating oil or 
LM diesel fuel to areas outside the areas specified in Sec.  
80.510(g)(1) and (g)(2).
    (f) Ultimate consumers that receive any batch of high sulfur NRLM 
diesel fuel beginning June 1, 2007 in areas listed in Sec.  
80.510(g)(2) must maintain records of each batch of fuel received for 
use in NRLM equipment pursuant to the compliance plan provisions of 
Sec.  80.554, unless otherwise allowed by EPA.
    (g) Ultimate consumers that receive any batch of 500 ppm sulfur NR 
diesel fuel beginning June 1, 2010 or NRLM diesel fuel beginning June 
1, 2012 in the areas listed in Sec.  80.510(g)(2) must maintain records 
of each batch of fuel received for use in NR or NRLM equipment, as 
appropriate, pursuant to the compliance plan provisions of Sec.  
80.554, unless otherwise allowed by EPA.
    (h) For purposes of this section, each portion of a shipment of 
designated distillate fuel under this section that is differently 
designated from any other portion, even if shipped as fungible product 
having the same sulfur content, shall be a separate batch.
    (i) The records required in this section must be made available to 
the Administrator or the Administrator's designated representative upon 
request.
    (j) Notwithstanding the provisions of this section, product 
transfer documents must be maintained under the provisions of 
Sec. Sec.  80.590, 80.592, and 80.602.
    (k) The records required in this section must be kept for five 
years after they are required to be collected.
    (l) Identifications of fuel designations can be limited to a sub-
designation that accurately identifies the fuel and do not need to also 
include the broader designation. For example, NR diesel fuel does not 
also need to be designated as NRLM or MVNRLM diesel fuel.

0
59. Section 80.601 is revised to read as follows:


Sec.  80.601  What are the reporting requirements for purposes of the 
designate and track provisions?

    (a) Quarterly reporting. Beginning November 30, 2007 and continuing 
through August 31, 2010, each entity required to maintain records under 
Sec.  80.600 must report the following information separately for each 
of its facilities to the Administrator on a quarterly basis, as 
specified in paragraph (e)(1) of this section:
    (1) Separately for each designation category and separately for 
each transferee facility, the total volume in gallons of distillate 
fuel designated under Sec.  80.598 for which custody was delivered by 
the reporting facility to any other entity or facility, and the EPA 
entity and facility registration number(s), as applicable, of the 
transferee.
    (2) Separately for each designation category and separately for 
each transferor facility, the total volume in gallons of distillate 
fuel designated under Sec.  80.598 for which custody was received by 
the reporting facility, and the EPA entity and facility registration 
number(s), as applicable, of the transferor.
    (3) Any entity that receives custody of distillate fuel from 
another entity or facility that does not have an EPA facility 
identification number must report such batches as follows:
    (i) Any batch of distillate fuel for which custody is received and 
which is marked pursuant to Sec.  80.510(d) or (f) shall be deemed 
designated as heating oil, any batch of distillate fuel for which 
custody is received and which is marked pursuant to Sec.  80.510(e) 
shall be deemed designated as heating oil or LM diesel fuel as 
applicable, and the report shall include that information under that 
designation.
    (ii) Any batch of distillate fuel for which custody is received and 
for which taxes have been paid pursuant to Section 4082 of the Internal 
Revenue Code (26 U.S.C. 4082) shall be deemed designated as motor 
vehicle diesel fuel and the report shall include it under that 
designation.
    (iii) Any batch of 500 ppm sulfur diesel fuel dyed pursuant to 
Sec.  80.520(b) and not marked pursuant to Sec.  80.510(d) and (f), and 
for which custody is received, shall be deemed designated as NRLM 
diesel fuel and the report shall include it under that designation.
    (iv) Any batch of 500 ppm sulfur diesel fuel dyed pursuant to Sec.  
80.520(b) and not marked pursuant to Sec.  80.510(e), and for which 
custody is received, shall be deemed designated as NR diesel fuel and 
the report shall include it under that designation.
    (4) In the case of truck loading terminals, the results of all 
compliance calculations required under Sec.  80.599, and including:
    (i) The total volumes received of each fuel designation required to 
be reported in paragraphs (a)(1) through (a)(3) of this section over 
the quarterly compliance period.
    (ii) The total volumes delivered of each fuel designation required 
to be reported in paragraphs (a)(1) through (a)(3) of this section over 
the quarterly compliance period.
    (iii) Beginning and ending inventories of each fuel designation 
required to be reported in paragraphs (a)(1) through(a)(3) of this 
section over the quarterly compliance period.
    (iv) The volume balance under Sec.  80.599(b)(4) and Sec.  
80.598(b)(9)(vi).
    (v) The volume balance under Sec.  80.599(c)(2) and Sec.  
80.598(b)(9)(viii)(A).
    (b) Annual reports. Beginning August 31, 2007, all entities 
required to maintain records for batches of fuel under Sec.  80.600 
must report the following information separately for each of its 
facilities to the Administrator on an annual basis, as specified in 
paragraph (e)(2) of this section:
    (1) Separately for each designation category for which records are 
required to be kept under Sec.  80.600 and separately for each 
transferor facility, the total volume in gallons of distillate fuel 
designated under Sec.  80.598 for which custody was received by the 
reporting

[[Page 39199]]

facility, and the EPA entity and facility registration number(s), as 
applicable, of the transferor.
    (2) Separately for each designation category for which records are 
required to be kept under Sec.  80.600 and separately for each 
transferee facility, the total volume in gallons of distillate fuel 
designated under Sec.  80.598 for which custody was delivered by the 
reporting facility to any other entity or facility, and the EPA entity 
and facility registration number(s), as applicable, of the transferee 
except as provided under Sec.  80.600(a)(7), (a)(8), (b)(4), and 
(b)(5).
    (3) The results of all compliance calculations required under Sec.  
80.599, and including:
    (i) The total volumes in gallons received of each fuel designation 
required to be reported in paragraph (b)(1) of this section over the 
applicable annual compliance period.
    (ii) The total volumes in gallons delivered of each fuel 
designation required to be reported in paragraph (b)(2) of this section 
over the applicable annual compliance period.
    (iii) Beginning and ending inventories of each fuel designation 
required to be reported in paragraphs (b)(1) and (b)(2) of this section 
for the annual compliance period.
    (iv) In the areas specified in Sec.  80.510(g)(2), for fuel 
designated as high sulfur NRLM diesel fuel delivered from June 1, 2007 
through May 31, 2010, for fuel designated as 500 ppm NR diesel fuel 
delivered from June 1, 2010 through May 31, 2012, and for fuel 
designated as 500 ppm sulfur NRLM diesel fuel from June 1, 2012 through 
May 31, 2014, the refiner must report all information required under 
its compliance plan approved pursuant to Sec.  80.554(a)(4) and (b)(4) 
and including the ultimate consumers to whom each batch of fuel was 
delivered and the total delivered to each ultimate consumer for the 
compliance period.
    (v) Ending with the report due August 31, 2010, the volume balance 
under Sec.  80.598(b)(9)(vi) and Sec.  80.599(b)(4).
    (vi) Ending with the report due August 31, 2010, the volume balance 
under Sec.  80.598(b)(9)(vii) and Sec.  80.599(b)(5), if applicable.
    (vii) Ending with the report due August 31, 2010, the volume 
balance under Sec.  80.598(b)(9)(viii)(A) and Sec.  80.599(c)(2).
    (viii) Beginning with the report due August 31, 2010, the volume 
balance under Sec.  80.598(b)(8)(viii)(B) and Sec.  80.599(c)(4).
    (ix) Beginning with the report due August 1, 2011 and ending with 
the report due August 1, 2012, the volume balance under Sec.  
80.598(b)(9)(ix) and Sec.  80.599(d)(2).
    (c) Additional information. The Administrator may request any 
additional information necessary to determine compliance with the 
requirements of Sec. Sec.  80.598 and 80.599.
    (d) Submission of quarterly and annual reports. (1) All quarterly 
reports shall be submitted to the Administrator for the compliance 
periods defined in Sec.  80.599(a)(1) as follows:
    (i) The first quarter report shall be submitted by the following 
November 30.
    (ii) The second quarter report shall be submitted by the following 
February 28.
    (iii) The third quarter report shall be submitted by the following 
May 31.
    (iv) The fourth quarter report shall be submitted by the following 
August 31.
    (2) All annual reports shall be submitted to the Administrator for 
the compliance periods defined in Sec.  80.599(a)(2) by August 31.
    (3) All reports shall be submitted on forms and following 
procedures specified by the Administrator, shall include a statement 
that volumes reported to the Administrator under this section are 
identical to volumes reported to the Internal Revenue Service and shall 
be signed and certified by a responsible corporate officer of the 
reporting entity.
    (e) Exclusions. Notwithstanding the provisions of this section, an 
entity is not required to report under paragraphs (a) or (b) of this 
section for facilities whose only recordkeeping requirements under 
Sec.  80.600 are under Sec.  80.600 (f) or (g) or to maintain records 
solely related to calculating compliance with the downgrading 
limitation under Sec.  80.527, Sec.  80.599(e) and Sec.  
80.600(b)(1)(i) and (ii).

0
60. Section 80.602 is revised to read as follows:


Sec.  80.602  What records must be kept by entities in the NRLM diesel 
fuel and diesel fuel additive production, importation, and distribution 
systems?

    (a) Records that must be kept by parties in the NRLM diesel fuel 
and diesel fuel additive production, importation, and distribution 
systems. Beginning June 1, 2007, or June 1, 2006, if that is the first 
period credits are generated under Sec.  80.535, any person who 
produces, imports, sells, offers for sale, dispenses, distributes, 
supplies, offers for supply, stores, or transports nonroad, locomotive 
or marine diesel fuel subject to the provisions of this subpart, must 
keep the following records:
    (1) The applicable product transfer documents required under 
Sec. Sec.  80.590 and 80.591.
    (2) For any sampling and testing for sulfur content for a batch of 
NRLM diesel fuel produced or imported and subject to the 15 ppm sulfur 
standard or any sampling and testing for sulfur content as part of a 
quality assurance testing program, and any sampling and testing for 
cetane index, aromatics content, marker solvent yellow 124 content or 
dye solvent red 164 content of NRLM diesel fuel, NRLM diesel fuel 
additives or heating oil:
    (i) The location, date, time and storage tank or truck 
identification for each sample collected;
    (ii) The name and title of the person who collected the sample and 
the person who performed the testing; and
    (iii) The results of the tests for sulfur content (including where 
applicable the test results with and without application of the 
adjustment factor under Sec.  80.580(a)(4)), for cetane index or 
aromatics content, dye solvent red 164, marker solvent yellow 124 (as 
applicable), and the volume of product in the storage tank or container 
from which the sample was taken.
    (3) The actions the party has taken, if any, to stop the sale or 
distribution of any NRLM diesel fuel found not to be in compliance with 
the sulfur standards specified in this subpart, and the actions the 
party has taken, if any, to identify the cause of any noncompliance and 
prevent future instances of noncompliance.
    (b) Additional records to be kept by refiners and importers of NRLM 
diesel fuel. Beginning June 1, 2007, or June 1, 2006, pursuant to the 
provisions of Sec.  80.535 or Sec.  80.554(d), any refiner producing 
diesel fuel subject to a sulfur standard under Sec.  80.510, Sec.  
80.513, Sec.  80.536, Sec.  80.554, Sec.  80.660, or Sec.  80.561, for 
each of its refineries, and any importer importing such diesel fuel 
separately for each facility, shall keep records that include the 
following information for each batch of NRLM diesel fuel or heating oil 
produced or imported:
    (1) The batch volume.
    (2) The batch number, assigned under the batch numbering procedures 
under Sec.  80.65(d)(3).
    (3) The date of production or import.
    (4) A record designating the batch as one of the following:
    (i) NRLM diesel fuel, NR diesel fuel, LM diesel fuel, or heating 
oil, as applicable.
    (ii) Meeting the 500 ppm sulfur standard of Sec.  80.510(a) or the 
15 ppm sulfur standard of Sec.  80.510(b) and (c) or other applicable 
standard.
    (iii) Dyed or undyed with visible evidence of solvent red 164.

[[Page 39200]]

    (iv) Marked or unmarked with solvent yellow 124.
    (5) For foreign refiners and importers of their fuel, the 
designations and other records required to be kept under Sec.  80.620.
    (6) All of the following information regarding credits, kept 
separately for each compliance period, kept separately for each 
refinery and for each importer facility, kept separately if converted 
under Sec.  80.535(a) and (b) or Sec.  80.535(c) and (d), and kept 
separately from motor vehicle diesel fuel credits:
    (i) The number of credits in the refiner's or importer's possession 
at the beginning of the calendar year.
    (ii) The number of credits generated.
    (iii) The number of credits used.
    (iv) If any were obtained from or transferred to other parties, for 
each other party, its name, its EPA refiner or importer registration 
number consistent with Sec.  80.597, and the number obtained from, or 
transferred to, the other party.
    (v) The number in the refiner's or importer's possession that will 
carry over into the subsequent calendar year compliance period.
    (vi) Commercial documents that establish each transfer of credits 
from the transferor to the transferee.
    (7) The calculations used to determine baselines or compliance with 
the volume requirements and volume percentages, as applicable, under 
this subpart.
    (8) The calculations used to determine the number of credits 
generated.
    (9) A copy of reports submitted to EPA under Sec.  80.604.
    (c) Additional records importers must keep. Any importer shall keep 
records that identify and verify the source of each batch of certified 
DFR-Diesel and non-certified DFR-Diesel imported and demonstrate 
compliance with the requirements under Sec.  80.620.
    (d) Length of time records must be kept. The records required in 
this section shall be kept for five years from the date they were 
created, except that records relating to credit transfers shall be kept 
by the transferor for five years from the date the credits were 
transferred, and shall be kept by the transferee for five years from 
the date the credits were transferred, used or terminated, whichever is 
later.
    (e) Make records available to EPA. On request by EPA, the records 
required in this section must be made available to the Administrator or 
the Administrator's representative. For records that are electronically 
generated or maintained, the equipment and software necessary to read 
the records shall be made available, or if requested by EPA, electronic 
records shall be converted to paper documents which shall be provided 
to the Administrator's authorized representative.

0
61. A new Sec.  80.603 is added to read as follows:


Sec.  80.603  What are the pre-compliance reporting requirements for 
NRLM diesel fuel?

    (a) Except as provided in paragraph (c) of this section, beginning 
on June 1, 2005, and for each year until June 1, 2011, or until the 
entity produces or imports NR or NRLM diesel fuel meeting the 15 ppm 
sulfur standard of Sec.  80.510(b) or (c), all refiners and importers 
planning to produce or import NR or NRLM diesel fuel, shall submit the 
following information to EPA:
    (1) Any changes to the information submitted for the company 
registration;
    (2) Any changes to the information submitted for any refinery or 
import facility registration;
    (3) Any estimate of the average daily volumes (in gallons) of each 
sulfur grade of motor vehicle and NRLM diesel fuel produced (or 
imported) at each refinery (or import facility). These volume estimates 
must be provided both for fuel produced from crude oil, as well as any 
fuel produced from other sources, and must be provided for the periods 
of June 1, 2010 through December 31, 2010, calendar years 2011 through 
2013, January 1, 2014 through May 31, 2014, and June 1, 2014 through 
December 31, 2014;
    (4) If expecting to participate in the credit trading program, 
estimates of the number of credits to be generated and/or used each 
year the program;
    (5) Information on project schedule by quarter of known or 
projected completion date by the stage of the project, for example, 
following the five project phases described in EPA's June 2002 Highway 
Diesel Progress Review report (EPA420-R-02-016, http://www.epa.gov/otaq/regs/hd2007/420r02016.pdf): Strategic planning, Planning and 
front-end engineering, Detailed engineering and permitting, Procurement 
and construction, and Commissioning and startup;
    (6) Basic information regarding the selected technology pathway for 
compliance (e.g., conventional hydrotreating vs. other technologies, 
revamp vs. grassroots, etc.);
    (7) Whether capital commitments have been made or are projected to 
be made; and
    (8) The pre-compliance reports due in 2006 and later years must 
provide an update of the progress in each of these areas.
    (b) Reports under this section may be submitted in conjunction with 
reports submitted under Sec.  80.594.
    (c) The pre-compliance reporting requirements of this section do 
not apply to refineries subject to the provisions of Sec.  80.513.

0
62. A new Sec.  80.604 is added to read as follows:


Sec.  80.604  What are the annual reporting requirements for refiners 
and importers of NRLM diesel fuel?

    Beginning with the annual compliance period that begins June 1, 
2007, or the first period during which credits are generated, 
transferred or used, or the first period during which NRLM diesel fuel 
or heating oil is produced under a small refiner compliance option 
under this subpart, whichever is earlier, any refiner or importer who 
produces or imports NRLM diesel fuel must submit annual compliance 
reports for each refinery and importer facility that contain the 
following information required, and such other information as EPA may 
require.
    (a) All refiners and importers. (1) The refiner or importer's 
company name and the EPA company and facility identification number.
    (2) If the refiner is a small refiner, a statement regarding to 
which small refiner option it is subject.
    (b) Small refiners. (1) For each refinery of small refiners subject 
to the provisions of Sec.  80.551(g) and Sec.  80.554(a) for each 
compliance period from June 1, 2007 through May 31, 2010, report the 
following:
    (i) The total volume of diesel fuel produced and designated as NRLM 
diesel fuel.
    (ii) The volume of diesel fuel produced and designated as NRLM 
diesel fuel having a sulfur content less than or equal to the 500 ppm 
sulfur standard under Sec.  80.510(a).
    (iii) The total volume of diesel fuel produced and designated as 
NRLM diesel fuel having a sulfur content greater than the 500 ppm 
sulfur standard under Sec.  80.510(a).
    (iv) The total volume of heating oil produced.
    (v) The baseline under Sec.  80.554(a)(1).
    (vi) The total volume of diesel fuel produced and designated as 
NRLM diesel fuel that is exempt from the 500 ppm sulfur standard of 
Sec.  80.510(a).
    (vii) The total volume, if any, of NRLM diesel fuel subject to the 
500 ppm sulfur standard Sec.  80.510(a) that had a sulfur content 
exceeding 500 ppm.
    (2) For each refinery of small refiners subject to the provisions 
of Sec.  80.551(g) and Sec.  80.554(b), for each compliance period 
between June 1, 2010 and May 31, 2012, report the following:

[[Page 39201]]

    (i) The total volume of diesel fuel produced and designated as NR 
diesel fuel.
    (ii) The total volume of diesel fuel produced and designated as LM 
diesel fuel.
    (iii) The total volume of diesel fuel produced and designated as NR 
diesel fuel subject to the 500 ppm sulfur standard under Sec.  
80.510(a).
    (iv) The total volume of diesel fuel produced and designated as LM 
diesel fuel subject to the 500 ppm sulfur standard under Sec.  
80.510(a).
    (v) The volume of diesel fuel produced and designated as NR diesel 
fuel having a sulfur content of 15 ppm or less.
    (vi) The baseline under Sec.  80.554(b)(1).
    (vii) The total volume of NRLM diesel fuel produced that is 
eligible for the sulfur standard under Sec.  80.510(a). (viii) The 
total volume, if any, of NRLM diesel fuel subject to the 15 ppm sulfur 
standard that had a sulfur content in excess of 15 ppm.
    (3) For each refinery of small refiners subject to the provisions 
of Sec.  80.551(g) and Sec.  80.554(b), for each compliance period 
between June 1, 2012 and May 31, 2014, report the following:
    (i) The total volume of diesel fuel produced and designated as NRLM 
diesel fuel.
    (ii) The total volume diesel fuel produced and designated as NRLM 
diesel fuel subject to the 500 ppm sulfur standard under Sec.  
80.510(a).
    (iii) The total volume of diesel fuel produced and designated as 
NRLM diesel fuel having a sulfur content less than or equal to the 15 
ppm sulfur standard under Sec.  80.510(c).
    (iv) The baseline under Sec.  80.554(b)(1).
    (v) The total volume of NRLM diesel fuel produced that is eligible 
for the 500 ppm sulfur standard under Sec.  80.510(a).
    (vi) The total volume, if any, of NRLM diesel fuel subject to the 
15 ppm sulfur standard that had a sulfur content in excess of 15 ppm.
    (4) For each refinery of a small refiner that elects to produce 
NRLM diesel fuel subject to the 15 ppm sulfur standard of Sec.  
80.510(c) beginning June 1, 2006 under Sec.  80.551(g) and Sec.  
80.554(d), for each compliance period report the following:
    (i) The total volume of diesel fuel produced and designated as NRLM 
diesel fuel.
    (ii) The total volume of diesel fuel produced and designated as 
NRLM diesel fuel having a sulfur content less than or equal to 15 ppm.
    (iii) The percentages of NRLM diesel fuel produced and designated 
having a sulfur content less than or equal to 15 ppm under Sec.  
80.554(d)(1)(i) and (ii).
    (iv) The deficit, if any, and the number of credits purchased, if 
any, to cover any deficit as provided in Sec.  80.554(d)(3).
    (v) A report of the small refiner's progress toward compliance with 
the gasoline standards under Sec. Sec.  80.240 and 80.255.
    (c) Credit generation and use. Information regarding the 
generation, use, transfer and retirement of credits, separately by 
refinery and import facility, including the following:
    (1) The number of credits at the beginning of the compliance 
period.
    (2) The number of credits generated.
    (3) The number of credits used.
    (4) If any credits were obtained from or transferred to other 
refineries or importers, for each other refinery or importer, the name, 
address, the EPA company identification number, and the number of 
credits obtained from or transferred to the other party.
    (5) The number of credits retired.
    (6) The credit balance at the beginning and end of the compliance 
period.
    (d) Batch reports. For each batch of NRLM diesel fuel and heating 
oil (if applicable) produced or imported and delivered during the 
compliance periods under paragraph (b) of this section, include the 
following:
    (1) The batch volume.
    (2) The batch number assigned using the batch numbering conventions 
under Sec.  80.65(d)(3) and the appropriate designation under Sec.  
80.598.
    (3) The date of production or import.
    (4) For each batch provide the information specified in paragraph 
(a)(1) of this section.
    (5) The sulfur content and cetane and aromatics content of the 
fuel.
    (6) Whether the batch was dyed with visible evidence of dye solvent 
red 164 before leaving the refinery or import facility or was undyed.
    (7) Whether the batch was marked with marker solvent yellow 124 
before leaving the refinery or import facility or was unmarked.
    (e) Additional reporting requirements for importers. Importers of 
NRLM diesel fuel are subject to the following additional requirements:
    (1) The reporting requirements under Sec.  80.620, if applicable.
    (2) Importers must exclude certified DFR-Diesel from calculations 
under this section.
    (f) Report submission. Any report required by this section must 
be--
    (1) On forms and following procedures specified by the 
Administrator of EPA;
    (2) Signed and certified as meeting all the applicable requirements 
of this subpart by the owner or a responsible corporate officer of the 
refiner or importer; and
    (3) Except for small refiners subject to Sec.  80.554(d), submitted 
to EPA no later than August 31 each year for the prior annual 
compliance period. Small refiners subject to the provisions of Sec.  
80.554(d), reports must be submitted August 31 for the previous 
reporting period.
    (4) With the exception of reports required under paragraph (b)(3) 
of this section, no reports will be required under this section after 
August 31, 2014.

0
63. A center heading is added after Sec.  80.604 to read as follows:

Exemptions

0
64. A new Sec.  80.606 is added to read as follows:


Sec.  80.606  What national security exemption applies to distillate 
fuel?

    (a) The motor vehicle diesel fuel standards of Sec.  80.520(a)(1), 
(a)(2), and (c) and the nonroad, locomotive or marine diesel fuel 
standards of Sec.  80.510(a), (b), and (c) do not apply to distillate 
fuel that is produced, imported, sold, offered for sale, supplied, 
offered for supply, stored, dispensed, or transported for use in--
    (1) Tactical military motor vehicles or tactical military nonroad 
engines, vehicles or equipment, including locomotive and marine, having 
an EPA national security exemption from the motor vehicle emissions 
standards under 40 CFR 85.1708, or from the nonroad engine emission 
standards under 40 CFR part 89, 40 CFR part 92, 40 CFR part 94, or 40 
CFR part 1068; and
    (2) Tactical military motor vehicles or tactical military nonroad 
engines, vehicles or equipment, including locomotive and marine, that 
are not subject to a national security exemption from vehicle or engine 
emissions standards as described in paragraph (a)(1) of this section 
but, for national security purposes (for purposes of readiness for 
deployment oversees), need to be fueled on the same fuel as the 
vehicles, engines, or equipment for which EPA has granted such a 
national security exemption.
    (b) The exempt fuel must meet the following conditions:
    (1) It must be accompanied by product transfer documents as 
required under Sec.  80.590;
    (2) It must be segregated from non-exempt MVNRLM diesel fuel at all 
points in the distribution system;
    (3) It must be dispensed from a fuel pump stand, fueling truck or 
tank that is labeled with the appropriate designation of the fuel, such 
as ``JP-5'' or ``JP-8''; and

[[Page 39202]]

    (4) It may not be used in any motor vehicles or nonroad engines, 
equipment or vehicles, including locomotive and marine, other than the 
vehicles, engines, and equipment referred to in paragraph (a) of this 
section.

0
65. A new Sec.  80.607 is added to read as follows:


Sec.  80.607  What are the requirements for obtaining an exemption for 
diesel fuel used for research, development or testing purposes?

    (a) Written request for a research and development exemption. Any 
person may receive an exemption from the provisions of this subpart for 
diesel fuel used for research, development, or testing purposes by 
submitting the information listed in paragraph (c) of this section to:

    Director, Transportation and Regional Programs Division (6406J), 
U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue, NW., 
Washington, DC 20460 (postal mail); or

    Director, Transportation and Regional Programs Division, U.S. 
Environmental Protection Agency, 1310 L Street, NW., 6th floor, 
Washington, DC 20005 (express mail/courier); and

    Director, Air Enforcement Division (2242A), U.S. Environmental 
Protection Agency, Ariel Rios Building, 1200 Pennsylvania Avenue, 
NW., Washington, DC 20460.

    (b) Criteria for a research and development exemption. For a 
research and development exemption to be granted, the person requesting 
an exemption must--
    (1) Demonstrate a purpose that constitutes an appropriate basis for 
exemption;
    (2) Demonstrate that an exemption is necessary;
    (3) Design a research and development program to be reasonable in 
scope; and
    (4) Exercise a degree of control consistent with the purpose of the 
program and EPA's monitoring requirements.
    (c) Information required to be submitted. To demonstrate each of 
the elements in paragraphs (b)(1) through (4) of this section, the 
person requesting an exemption must include the following information 
in the written request required under paragraph (a) of this section:
    (1) A concise statement of the purpose of the program demonstrating 
that the program has an appropriate research and development purpose.
    (2) An explanation of why the stated purpose of the program cannot 
be achieved in a practicable manner without performing one or more of 
the prohibited acts under this subpart.
    (3) To demonstrate the reasonableness of the scope of the program:
    (i) An estimate of the program's duration in time and, if 
appropriate, mileage;
    (ii) An estimate of the maximum number of vehicles or engines 
involved in the program;
    (iii) The manner in which the information on vehicles and engines 
used in the program will be recorded and made available to the 
Administrator upon request; and
    (iv) The quantity of diesel fuel which does not comply with the 
requirements of Sec. Sec.  80.520 and 80.521 for motor vehicle diesel 
fuel or Sec.  80.510 for NRLM diesel fuel.
    (4) With regard to control, a demonstration that the program 
affords EPA a monitoring capability, including the following:
    (i) The site(s) of the program (including facility name, street 
address, city, county, state, and zip code);
    (ii) The manner in which information on vehicles and engines used 
in the program will be recorded and made available to the Administrator 
upon request;
    (iii) The manner in which information on the diesel fuel used in 
the program (including quantity, fuel properties, name, address, 
telephone number and contact person of the supplier, and the date 
received from the supplier), will be recorded and made available to the 
Administrator upon request;
    (iv) The manner in which the party will ensure that the research 
and development fuel will be segregated from motor vehicle diesel fuel 
or NRLM diesel fuel, as applicable, and how fuel pumps will be labeled 
to ensure proper use of the research and development diesel fuel;
    (v) The name, address, telephone number and title of the person(s) 
in the organization requesting an exemption from whom further 
information on the application may be obtained; and
    (vi) The name, address, telephone number and title of the person(s) 
in the organization requesting an exemption who is responsible for 
recording and making available the information specified in this 
paragraph (c), and the location where such information will be 
maintained.
    (d) Additional requirements. (1) The product transfer documents 
associated with research and development motor vehicle diesel fuel must 
comply with requirements of Sec.  80.590(b)(3).
    (2) The research and development diesel fuel must be designated by 
the refiner or supplier, as applicable, as research and development 
diesel fuel.
    (3) The research and development diesel fuel must be kept 
segregated from non-exempt MVNRLM diesel fuel at all points in the 
distribution system.
    (4) The research and development diesel fuel must not be sold, 
distributed, offered for sale or distribution, dispensed, supplied, 
offered for supply, transported to or from, or stored by a diesel fuel 
retail outlet, or by a wholesale purchaser-consumer facility, unless 
the wholesale purchaser-consumer facility is associated with the 
research and development program that uses the diesel fuel.
    (5) At the completion of the program, any emission control systems 
or elements of design which are damaged or rendered inoperative shall 
be replaced on vehicles remaining in service, or the responsible person 
will be liable for a violation of the Clean Air Act section 203(a)(3) 
(42 U.S.C. 7522 (a)(3)) unless sufficient evidence is supplied that the 
emission controls or elements of design were not damaged.
    (e) Mechanism for granting of an exemption. A request for a 
research and development exemption will be deemed approved by the 
earlier of 60 days from the date on which EPA receives the request for 
exemption, (provided that EPA has not notified the applicant of 
potential disapproval by that time), or the date on which the applicant 
receives a written approval letter from EPA.
    (1) The volume of diesel fuel subject to the approval shall not 
exceed the estimated amount under paragraph (c)(3)(iv) of this section, 
unless EPA grants a greater amount in writing.
    (2) Any exemption granted under this section will expire at the 
completion of the test program or three years from the date of 
approval, whichever occurs first, and may only be extended upon re-
application consistent will all requirements of this section.
    (3) The passage of 60 days will not signify the acceptance by EPA 
of the validity of the information in the request for an exemption. EPA 
may elect at any time to review the information contained in the 
request, and where appropriate may notify the responsible person of 
disapproval of the exemption.
    (4) In granting an exemption the Administrator may include terms 
and conditions, including replacement of emission control devices or 
elements of design, that the Administrator determines are necessary for 
monitoring the exemption and for assuring that the purposes of this 
subpart are met.
    (5) Any violation of a term or condition of the exemption, or of 
any requirement of this section, will cause the exemption to be void ab 
initio.

[[Page 39203]]

    (6) If any information required under paragraph (c) of this section 
should change after approval of the exemption, the responsible person 
must notify EPA in writing immediately. Failure to do so may result in 
disapproval of the exemption or may make it void ab initio, and may 
make the party liable for a violation of this subpart.
    (f) Effects of exemption. Motor vehicle diesel fuel or NRLM diesel 
fuel that is subject to a research and development exemption under this 
section is exempt from other provisions of this subpart provided that 
the fuel is used in a manner that complies with the purpose of the 
program under paragraph (c) of this section and the requirements of 
this section.
    (g) Notification of completion. The party shall notify EPA in 
writing within 30 days after completion of the research and development 
program.

0
66. A new Sec.  80.608 is added to read as follows:


Sec.  80.608  What requirements apply to diesel fuel for use in the 
Territories?

    The sulfur standards of Sec.  80.520(a)(1) and (c) related to motor 
vehicle diesel fuel, and of Sec.  80.510(a), (b), and (c) related to 
NRLM diesel fuel, do not apply to diesel fuel that is produced, 
imported, sold, offered for sale, supplied, offered for supply, stored, 
dispensed, or transported for use in the Territories of Guam, American 
Samoa or the Commonwealth of the Northern Mariana Islands, provided 
that such diesel fuel is--
    (a) Designated by the refiner or importer as high sulfur diesel 
fuel only for use in Guam, American Samoa, or the Commonwealth of the 
Northern Mariana Islands;
    (b) Used only in Guam, American Samoa, or the Commonwealth of the 
Northern Mariana Islands;
    (c) Accompanied by documentation that complies with the product 
transfer document requirements of Sec.  80.590(b)(1); and
    (d) Segregated from non-exempt MVNRLM diesel fuel at all points in 
the distribution system from the point the diesel fuel is designated as 
exempt fuel only for use in Guam, American Samoa, or the Commonwealth 
of the Northern Mariana Islands, while the exempt fuel is in the United 
States but outside these Territories.
0
67. Section 80.610 is revised to read as follows:


Sec.  80.610  What acts are prohibited under the diesel fuel sulfur 
program?

    No person shall--
    (a) Standard, dye, marker or product violation. (1) Produce, 
import, sell, offer for sale, dispense, supply, offer for supply, store 
or transport motor vehicle diesel fuel, NRLM diesel fuel, or heating 
oil that does not comply with the applicable standards, dye, marking or 
any other product requirements under this subpart I and 40 CFR part 69.
    (2) Beginning June 1, 2007, produce, import, sell, offer for sale, 
dispense, supply, offer for supply, store or transport any diesel fuel 
for use in motor vehicle or nonroad engines that contains greater than 
0.10 milligrams per liter of solvent yellow 124, except for 500 ppm 
sulfur diesel fuel produced or imported from June 1, 2010 through 
September 30, 2012 for use only in locomotive or marine diesel engines 
that is marked under the provisions of Sec.  80.510(e).
    (3) Beginning June 1, 2007, produce, import, sell, offer for sale, 
dispense, supply, offer for supply, store or transport heating oil for 
use in any nonroad diesel engine, including any locomotive or marine 
diesel engine.
    (b) Designation and volume balance violation. Produce, import, 
sell, offer for sale, dispense, supply, offer for supply, store or 
transport motor vehicle diesel, NRLM diesel fuel, heating oil or other 
distillate that does not comply with the applicable designation or 
volume balance requirements under Sec. Sec.  80.598 and 80.599.
    (c) Additive violation. (1) Produce, import, sell, offer for sale, 
dispense, supply, offer for supply, store or transport any motor 
vehicle diesel fuel additive or NRLM diesel fuel additive for use at a 
downstream location that does not comply with the applicable 
requirements of Sec.  80.521.
    (2) Blend or permit the blending into motor vehicle diesel fuel or 
NRLM diesel fuel at a downstream location, or use, or permit the use, 
in motor vehicle diesel fuel or NRLM diesel fuel, of any additive that 
does not comply with the applicable requirements of Sec.  80.521.
    (d) Used motor oil violation. Introduce into the fuel system of a 
model year 2007 or later diesel motor vehicle or model year 2011 or 
later nonroad diesel engine (except for locomotive or marine engines) 
or other nonroad diesel engine certified for the use of 15 ppm sulfur 
content fuel, or permit the introduction into the fuel system of such 
vehicle or nonroad engine of used motor oil, or used motor oil blended 
with diesel fuel, that does not comply with the requirements of Sec.  
80.522.
    (e) Improper fuel usage violation. (1) Introduce, or permit the 
introduction of, fuel into model year 2007 or later diesel motor 
vehicles, and beginning December 1, 2010 into any diesel motor vehicle, 
that does not comply with the standards and dye requirements of Sec.  
80.520(a) and (b);
    (2) Introduce, or permit the introduction of, fuel into any nonroad 
diesel engine (including any locomotive or marine diesel engine) that 
does not comply with the applicable standards, dye and marking 
requirements of Sec.  80.510(a), (d), and (e) and Sec.  80.520(b) 
beginning on the following dates:
    (i) This prohibition begins December 1, 2007 in the areas specified 
in Sec.  80.510(g)(1) and (g)(2), except as specified in paragraph 
(e)(2)(ii) of this section.
    (ii) This prohibition begins December 1, 2010 in the area specified 
in Sec.  80.510(g)(2) for NRLM diesel fuel that is produced in 
accordance with a compliance plan approved under Sec.  80.554.
    (iii) This prohibition begins December 1, 2010 in all other areas.
    (3) Introduce, or permit the introduction of, fuel into any nonroad 
diesel engine (other than locomotive and marine diesel engines) that 
does not comply with the applicable standards, dye and marking 
requirements of Sec.  80.510(b) and (e) beginning on the following 
dates:
    (i) This prohibition begins December 1, 2010 in the areas specified 
in Sec.  80.510(g)(1) and (g)(2), except as specified paragraph 
(e)(3)(ii) of this section.
    (ii) This prohibition begins December 1, 2014 in the area specified 
in Sec.  80.510(g)(2) for NRLM diesel fuel that is produced in 
accordance with a compliance plan approved under Sec.  80.554.
    (iii) This prohibition begins beginning December 1, 2014 in all 
other areas.
    (4) Introduce, or permit the introduction of, fuel into any 
locomotive and marine diesel engine which does not comply with the 
applicable standards, dye and marking requirements of Sec.  80.510(c) 
and Sec.  80.510(f) in the following areas beginning on the following 
dates:
    (i) This prohibition begins December 1, 2012 in the areas specified 
in Sec.  80.510(g)(1) and (g)(2), except as specified in paragraph 
(e)(4)(ii) of this section.
    (ii) This prohibition does not apply in the area specified in Sec.  
80.510(g)(2) for NRLM diesel fuel that is produced in accordance with a 
compliance plan approved under Sec.  80.554.
    (iii) This prohibition does not apply in any other areas.
    (5) Introduce, or permit the introduction of, fuel into any model 
year 2011 or later nonroad diesel engine certified for use on 15 ppm 
sulfur

[[Page 39204]]

content fuel, diesel fuel which does not comply with the applicable 
standards, dye and marking requirements of Sec.  80.510(b) through (f).
    (f) Cause another party to violate. Cause another person to commit 
an act in violation of paragraphs (a) through (e) of this section.
    (g) Cause violating fuel or additive to be in the distribution 
system. Cause motor vehicle diesel fuel, or NRLM diesel fuel, to be in 
the diesel fuel distribution system which does not comply with the 
applicable standard, dye or marker requirements or the product 
segregation requirements of this Subpart I, or cause any diesel fuel 
additive to be in the diesel fuel additive distribution system which 
does not comply with the applicable sulfur standards under Sec.  
80.521.

0
68. Section 80.611 is revised to read as follows:


Sec.  80.611  What evidence may be used to determine compliance with 
the prohibitions and requirements of this subpart and liability for 
violations of this subpart?

    (a) Compliance with sulfur, cetane, and aromatics standards, dye 
and marker requirements. Compliance with the standards, dye, and marker 
requirements in Sec. Sec.  80.510, 80.511, 80.520, and 80.521 shall be 
determined based on the level of the applicable component or parameter, 
using the sampling methodologies specified in Sec.  80.330(b), as 
applicable, and an approved testing methodology under the provisions of 
Sec. Sec.  80.580 through 80.586 for sulfur; Sec.  80.2(w) for cetane 
index; Sec.  80.2(z) for aromatic content; and Sec.  80.582 for fuel 
marker. Any evidence or information, including the exclusive use of 
such evidence or information, may be used to establish the level of the 
applicable component or parameter in the diesel fuel or additive, or 
motor oil to be used in diesel fuel, if the evidence or information is 
relevant to whether that level would have been in compliance with the 
standard if the regulatory sampling and testing methodology had been 
correctly performed. Such evidence may be obtained from any source or 
location and may include, but is not limited to, test results using 
methods other than the compliance methods in this paragraph (a), 
business records, and commercial documents.
    (b) Compliance with other requirements. Determination of compliance 
with the requirements and prohibitions of this subpart other than the 
standards described in paragraph (a) of this section and in Sec. Sec.  
80.510, 80.511, 80.520, and 80.521, and determination of liability for 
any violation of this subpart, may be based on information obtained 
from any source or location. Such information may include, but is not 
limited to, business records and commercial documents.

0
69. Section 80.612 is amended by revising paragraph (a) to read as 
follows:


Sec.  80.612  Who is liable for violations of this subpart?

    (a) Persons liable for violations of prohibited acts. (1) Standard, 
dye, marker, additives, used motor oil, heating oil, fuel introduction, 
and other product requirement violations. (i) Any refiner, importer, 
distributor, reseller, carrier, retailer, wholesale purchaser-consumer 
who owned, leased, operated, controlled or supervised a facility where 
a violation of any provision of Sec.  80.610(a) through (e) occurred, 
or any other person who violates any provision of Sec.  80.610(a) 
through (e), is deemed liable for the applicable violation, except that 
distributors who receive diesel fuel or distillate from the point where 
it is taxed, dyed or marked, and retailers and wholesale purchaser-
consumers are not deemed liable for any violation of Sec.  80.610(b).
    (ii) Any person who causes another person to violate Sec.  
80.610(a) through (e) is liable for a violation of Sec.  80.610(f).
    (iii) Any refiner, importer, distributor, reseller, carrier, 
retailer, or wholesale purchaser-consumer who produced, imported, sold, 
offered for sale, dispensed, supplied, offered to supply, stored, 
transported, or caused the transportation or storage of, diesel fuel or 
distillate that violates Sec.  80.610(a), is deemed in violation of 
Sec.  80.610(f).
    (iv) Any person who produced, imported, sold, offered for sale, 
dispensed, supplied, offered to supply, stored, transported, or caused 
the transportation or storage of a diesel fuel additive which is used 
in motor vehicle diesel fuel or NRLM diesel fuel that is found to 
violate Sec.  80.610(a), is deemed in violation of Sec.  80.610(f).
    (2) Cause violating diesel fuel or additive to be in the 
distribution system. Any refiner, importer, distributor, reseller, 
carrier, retailer, or wholesale purchaser-consumer or any other person 
who owned, leased, operated, controlled or supervised a facility from 
which distillate fuel or additive was released into the distribution 
system which does not comply with the applicable standards, marking or 
dye requirements of this Subpart I is deemed in violation of Sec.  
80.610(g).
    (3) Branded refiner/importer liability. Any refiner or importer 
whose corporate, trade, or brand name, or whose marketing subsidiary's 
corporate, trade, or brand name appeared at a facility where a 
violation of Sec.  80.610(a) or (b) occurred, is deemed in violation of 
Sec.  80.610(a) or (b), as applicable.
    (4) Carrier causation. In order for a distillate fuel or diesel 
fuel additive carrier to be liable under paragraph (a)(1)(ii), 
(a)(1)(iii), or (a)(1)(iv) of this section, as applicable, EPA must 
demonstrate, by reasonably specific showing by direct or circumstantial 
evidence, that the carrier caused the violation.
    (5) Parent corporation. Any parent corporation is liable for any 
violations of this subpart that are committed by any subsidiary.
    (6) Joint venture. Each partner to a joint venture is jointly and 
severally liable for any violation of this subpart that occurs at the 
joint venture facility or is committed by the joint venture operation.
* * * * *

0
70. Section 80.613 is amended by revising the section heading and 
paragraphs (a) and (d) to read as follows:


Sec.  80.613  What defenses apply to persons deemed liable for a 
violation of a prohibited act under this subpart?

    (a) Presumptive liability defenses. (1) Any person deemed liable 
for a violation of a prohibition under Sec.  80.612(a)(1)(i), 
(a)(1)(iii), (a)(2), or (a)(3), will not be deemed in violation if the 
person demonstrates the following:
    (i) The violation was not caused by the person or the person's 
employee or agent;
    (ii) Product transfer documents account for fuel or additive found 
to be in violation and indicate that the violating product was in 
compliance with the applicable requirements when it was under the 
person's control;
    (iii) The person conducted a quality assurance sampling and testing 
program, as described in paragraph (d) of this section, except for 
those persons subject to the provisions of paragraph (a)(1)(iv), 
(a)(1)(v), or (a)(1)(vi) of this section or Sec.  80.614. A carrier may 
rely on the quality assurance program carried out by another party, 
including the party who owns the diesel fuel in question, provided that 
the quality assurance program is carried out properly. Retailers, 
wholesale purchaser-consumers, and ultimate consumers of diesel fuel 
are not required to conduct quality assurance programs;
    (iv) For refiners and importers of diesel fuel subject to the 15 
ppm sulfur standard under Sec.  80.510(b) or (c), or Sec.  
80.520(a)(1), or the 500 ppm sulfur standard under Sec.  80.510(a) or 
80.520(c), test results that--

[[Page 39205]]

    (A) Were conducted according to an appropriate test methodology 
approved or designated under Sec. Sec.  80.580 through 80.586, 80.2(w), 
or 80.2(z), as appropriate; and
    (B) Establish that, when it left the party's control, the fuel did 
not violate the sulfur, cetane or aromatics standard, or the dye or 
marking provisions of Sec. Sec.  80.510 or 80.511, as applicable;
    (v) For any truck loading terminal or any other person who delivers 
heating oil for delivery to the ultimate consumer and is subject to the 
requirement to mark heating oil or LM diesel fuel under Sec.  80.510(d) 
through (f), data which demonstrates that when it left the truck 
loading terminal or other facility, the concentration of marker solvent 
yellow 124 was equal to or greater than six milligrams per liter. In 
lieu of testing for marker solvent yellow 124 concentration, evidence 
may be presented of an oversight program, including records of marker 
inventory, purchase and additization, and records of periodic 
inspection and calibration of additization equipment that ensures that 
marker is added to heating oil or LM diesel fuel, as applicable, under 
Sec.  80.510(d) through (f) in the required concentration;
    (vi) Except as provided in Sec.  80.614, for any person who, at a 
downstream location, blends a diesel fuel additive subject to the 
requirements of Sec.  80.521(b) into motor vehicle diesel fuel or NRLM 
diesel fuel subject to the 15 ppm sulfur standard under Sec.  80.520(a) 
or Sec.  80.510(b) or (c), except a person who blends additives into 
fuel tanker trucks at a truck loading rack subject to the provisions of 
paragraph (d)(2) of this section, test results which are conducted 
subsequent to the blending of the additive into the fuel, and which 
comply with the requirements of paragraphs (a)(1)(iv)(A) and (B) of 
this section; and
    (vii) Any person deemed liable for a designation or volume balance 
provisions violation under Sec.  80.610(b) and 80.612(a) will not be 
deemed in violation if the person demonstrates, through product 
transfer documents, records, reports and other evidence that the diesel 
fuel or distillate was properly designated and volume balance 
requirements were met.
    (2) Any person deemed liable for a violation under Sec.  
80.612(a)(1)(iv), in regard to a diesel fuel additive subject to the 
requirements of Sec.  80.521(a), will not be deemed in violation if the 
person demonstrates that--
    (i) Product transfer document(s) account for the additive in the 
fuel found to be in violation, which comply with the requirements under 
Sec.  80.591(a), and indicate that the additive was in compliance with 
the applicable requirements while it was under the party's control; and
    (ii) For the additive's manufacturer or importer, test results 
which accurately establish that, when it left the party's control, the 
additive in the diesel fuel determined to be in violation did not have 
a sulfur content greater than or equal to 15 ppm.
    (A) Analysis of the additive sulfur content pursuant to this 
paragraph (a)(2) may be conducted at the time the batch was 
manufactured or imported, or on a sample of that batch which the 
manufacturer or importer retains for such purpose for a minimum of two 
years from the date the batch was manufactured or imported.
    (B) After two years from the date the additive batch was 
manufactured or imported, the additive manufacturer or importer is no 
longer required to retain samples for the purpose of complying with the 
testing requirements of this paragraph (a)(2).
    (C) The analysis of the sulfur content of the additive must be 
conducted pursuant to the requirements of Sec.  80.580.
    (3) Any person who is deemed liable for a violation under Sec.  
80.612(a)(1)(iv) with regard to a diesel fuel additive subject to the 
requirements of Sec.  80.521(b), will not be deemed in violation if the 
person demonstrates that--
    (i) The violation was not caused by the party or the party's 
employee or agent;
    (ii) Product transfer document(s) which comply with the additive 
information requirements under Sec.  80.591(b), account for the 
additive in the fuel found to be in violation, and indicate that the 
additive was in compliance with the applicable requirements while it 
was under the party's control; and
    (iii) For the additive's manufacturer or importer, test results 
which accurately establish that, when it left the party's control, the 
additive in the diesel fuel determined to be in violation was in 
conformity with the information on the additive product transfer 
document pursuant to the requirements of Sec.  80.591(b). The testing 
procedures applicable under paragraph (a)(2) of this section, also 
apply under this paragraph (a)(3).
* * * * *
    (d) Quality assurance and testing program. To demonstrate an 
acceptable quality assurance program under paragraph (a)(1)(iii) of 
this section, a person must present evidence of the following:
    (1) A periodic sampling and testing program to ensure the diesel 
fuel or additive the person sold, dispensed, supplied, stored, or 
transported, meets the applicable standards and requirements, including 
the requirements relating to the presence of marker solvent yellow 124.
    (2) For those parties who, at a downstream location, blend diesel 
fuel additives subject to the requirements of Sec.  80.521(b) into fuel 
trucks at a truck loading rack, the periodic sampling and testing 
program required under this paragraph (d) must ensure, by taking into 
account the greater risk of noncompliance created through use of a high 
sulfur additive, that the diesel fuel into which the additive was 
blended meets the applicable standards subsequent to the blending.
    (3) On each occasion when diesel fuel or additive is found not in 
compliance with the applicable standard:
    (i) The person immediately ceases selling, offering for sale, 
dispensing, supplying, offering for supply, storing or transporting the 
non-complying product.
    (ii) The person promptly remedies the violation and the factors 
that caused the violation (for example, by removing the non-complying 
product from the distribution system until the applicable standard is 
achieved and taking steps to prevent future violations of a similar 
nature from occurring).
    (4) For any carrier who transports diesel fuel or additive in a 
tank truck, the quality assurance program required under this paragraph 
(d) need not include its own periodic sampling and testing of the 
diesel fuel or additive in the tank truck, but in lieu of such tank 
truck sampling and testing, the carrier shall demonstrate evidence of 
an oversight program for monitoring compliance with the requirements of 
this subpart relating to the transport or storage of such product by 
tank truck, such as appropriate guidance to drivers regarding 
compliance with the applicable sulfur standard, product segregation and 
product transfer document requirements, and the periodic review of 
records received in the ordinary course of business concerning diesel 
fuel or additive quality and delivery.

0
71. Section 80.614 is revised to read as follows:


Sec.  80.614  What are the alternative defense requirements in lieu of 
Sec.  80.613(a)(1)(vi) for static dissipater additives exceeding the 15 
ppm sulfur standard but that contribute less than 0.05 ppm sulfur when 
added to MVNRLM diesel fuel?

    Any person who blends a MVNRLM diesel fuel additive package into

[[Page 39206]]

MVNRLM diesel fuel subject to the 15 ppm sulfur standards of Sec.  
80.510(b) or (c) or Sec.  80.520(a) which contains a static dissipater 
additive that has a sulfur content greater than 15 ppm but whose 
contribution to the sulfur content of the MVNRLM diesel fuel is less 
than 0.05 ppm at its maximum recommended concentration, and which 
contains no other additives with a sulfur content greater than 15 ppm 
must establish all the following in order to use this section as an 
alternative to the defense element under Sec.  80.613(a)(1)(vi):
    (a)(1) The blender of the static dissipater additive package has a 
sulfur content test result for the MVNRLM diesel fuel prior to blending 
of the additive that indicates that the additive package, when added, 
will not cause the MVNRLM diesel fuel sulfur content to exceed 15 ppm 
sulfur.
    (2) In cases where the storage tank that contains MVNRLM diesel 
fuel prior to additization contains multiple fuel batches, the blender 
of the static dissipater additive package must have sulfur test results 
on each batch of MVNRLM diesel fuel that was added to the storage tank 
during the current and previous VAR periods, which indicates that the 
additive package, when added to the component MVNRLM diesel fuel batch 
in the storage tank with the highest sulfur level would not cause that 
component batch to exceed 15 ppm sulfur.
    (b) The volumetric additive reconciliation (VAR) standard is 
attained as determined under the provisions of this section. The VAR 
reconciliation standard is attained when the actual concentration of a 
static dissipater additive package used per the VAR formula record 
under paragraph (f) of this section is less than the concentration that 
would have caused any batch of MVNRLM diesel fuel to exceed a sulfur 
content of 15 ppm given the maximum sulfur test result on any MVNRLM 
diesel fuel batch described in paragraph (a) of this section that is 
additized with the static dissipater additive package during the VAR 
period.
    (c) The product transfer document complies with the applicable 
sulfur information requirements of Sec.  80.591.
    (d) If more than one static dissipater additive package is used 
during a VAR period, then a separate VAR formula record must be created 
for MVNRLM diesel fuel additized for each of the static dissipater 
additive packages used. In such cases, the amount of the each static 
dissipater additive package used must be accurately and separately 
measured, either through the use of a separate storage tank, a separate 
meter, or some other measurement system that is able to accurately 
distinguish its use.
    (e) Recorded volumes of MVNRLM diesel fuel and static dissipater 
additive package must be expressed to the nearest gallon (or smaller 
units), except that static dissipater additive package volumes of five 
gallons or less must be expressed to the nearest tenth of a gallon (or 
smaller units). However, if the blender's equipment cannot accurately 
measure to the nearest tenth of a gallon, then such volumes must be 
rounded upward to the next higher gallon for purposes of determining 
compliance with this section.
    (f) Each VAR formula record must also contain the following 
information:
    (1) Automated blending facilities. In the case of an automated 
static dissipater additive package blending facility, for each VAR 
period, for each static dissipater additive package storage system, and 
each static dissipater additive package in that storage system, the 
following must be recorded:
    (i)(A) The manufacturer and commercial identifying name of the 
static dissipater additive package being reconciled, the maximum 
recommended treatment level, the potential contribution to the sulfur 
content of the finished fuel that might result when the additive 
package is used at its maximum recommended treatment level, the 
intended treatment level, and the contribution to the sulfur content of 
the finished fuel that would result when the additive package is used 
at its intended treatment level. The intended treatment level is the 
treatment level that the additive injection equipment is set to.
    (B) The maximum recommended treatment level and the intended 
treatment level must be expressed in terms of gallons of static 
dissipater additive package per thousand gallons of MVNRLM diesel fuel, 
and expressed to four significant figures. If the static dissipater 
additive package storage system which is the subject of the VAR formula 
record is a proprietary system under the control of a customer, this 
fact must be indicated on the record.
    (ii) The total volume of static dissipater additive package blended 
into MVNRLM diesel fuel, in accordance with one of the following 
methods, as applicable.
    (A) For a facility which uses in-line meters to measure static 
dissipater additive package usage, the total volume of static 
dissipater additive package measured, together with supporting data 
which includes one of the following: the beginning and ending meter 
readings for each meter being measured, the metered batch volume 
measurements for each meter being measured, or other comparable metered 
measurements. The supporting data may be supplied on the VAR formula 
record or in the form of computer printouts or other comparable VAR 
supporting documentation.
    (B) For a facility which uses a gauge to measure the inventory of 
the static dissipater additive package storage tank, the total volume 
of static dissipater additive package shall be calculated from the 
following equation:

Static dissipater additive package Volume = (A)-(B)+(C) - (D)

Where:
A = Initial static dissipater additive package inventory of the tank
B = Final static dissipater additive package inventory of the tank
C = Sum of any additions to static dissipater additive package 
inventory
D = Sum of any withdrawals from static dissipater additive package 
inventory for purposes other than the additization of MVNRLM diesel 
fuel.

    (C) The value of each variable in the equation in paragraph 
(f)(1)(ii)(B) of this section must be separately recorded on the VAR 
formula record. In addition, a list of each static dissipater additive 
package addition included in variable C and a list of each static 
dissipater additive package withdrawal included in variable D must be 
provided, either on the formula record or as VAR supporting 
documentation.
    (iii) The total volume of MVNRLM diesel fuel to which static 
dissipater additive package has been added, together with supporting 
data which includes one of the following: the beginning and ending 
meter measurements for each meter being measured, the metered batch 
volume measurements for each meter being measured, or other comparable 
metered measurements. The supporting data may be supplied on the VAR 
formula record or in the form of computer printouts or other comparable 
VAR supporting documentation.
    (iv) The actual static dissipater additive package concentration, 
calculated as the total volume of static dissipater additive package 
added (pursuant to paragraph (f)(1)(ii) of this section), divided by 
the total volume of MVNRLM diesel fuel (pursuant to paragraph 
(f)(1)(iii) of this section). The concentration must be calculated and 
recorded to 4 significant figures.
    (v) A list of each static dissipater additive package concentration 
rate set for the static dissipater additive package that is the subject 
of the VAR record, together with the date and description of each 
adjustment to any initially set concentration. The concentration 
adjustment information may be

[[Page 39207]]

supplied on the VAR formula record or in the form of computer printouts 
or other comparable VAR supporting documentation. No concentration 
setting is permitted above the maximum recommended concentration 
supplied by the additive manufacturer, except as described in paragraph 
(f)(1)(vii) of this section.
    (vi) The dates of the VAR period, which shall be no longer than 
thirty-one days. If the VAR period is contemporaneous with a calendar 
month, then specifying the month will fulfill this requirement; if not, 
then the beginning and ending dates and times of the VAR period must be 
listed. The times may be supplied on the VAR formula record or in 
supporting documentation. Any adjustment to any static dissipater 
additive package concentration rate initially set in the VAR period 
shall terminate that VAR period and initiate a new VAR period, except 
as provided in paragraph (f)(1)(vii) of this section.
    (vii) The concentration setting for a static dissipater additive 
package injector may be changed from the concentration initially set in 
the VAR period without terminating that VAR period, provided that:
    (A) The purpose of the change is to correct a batch under-
additization prior to the end of the VAR period and prior to the 
transfer of the batch to another party, or to correct an equipment 
malfunction where there has been no over-additization of the additive;
    (B) The concentration is immediately returned after the correction 
to a concentration that fulfills the requirements of this paragraph 
(f);
    (C) The blender creates and maintains documentation establishing 
the date and adjustments of the correction; and
    (D) If the correction is initiated only to rectify an equipment 
malfunction, and the amount of static dissipater additive package used 
in this procedure is not added to MVNRLM diesel fuel within the 
compliance period, then this amount is subtracted from the static 
dissipater additive package volume listed on the VAR formula record. In 
such a case, the addition of this amount of static dissipater additive 
must be reflected in the following VAR period.
    (viii) The measured sulfur level for each batch of MVNRLM diesel 
fuel to which a static dissipater additive package is added during each 
VAR period. In cases where the storage tank that contains MVNRLM diesel 
fuel prior to additization contains multiple fuel batches, a measured 
sulfur level on each batch added to the storage tank during the current 
and previous VAR periods must be recorded.
    (2) Non-automated facilities. In the case of a facility in which 
hand blending or any other non-automated method is used to blend static 
dissipater additive packages, for each static dissipater additive 
package and for each batch of MVNRLM diesel fuel to which the static 
dissipater additive package is being added, the following shall be 
recorded:
    (i) The manufacturer and commercial identifying name of the static 
dissipater additive package being reconciled, the maximum recommended 
treatment level, the potential contribution to the sulfur content of 
the finished fuel that might result when the fuel is used at its 
maximum recommended treatment level, the intended treatment level, and 
the contribution to the sulfur content of the finished fuel that would 
result when the additive package is used at its intended treatment 
level.
    (A) The maximum recommended treatment level and the intended 
treatment level must be expressed in terms of gallons of static 
dissipater additive package per thousand gallons of MVNRLM diesel fuel, 
and expressed to four significant figures.
    (B) If the static dissipater additive package storage system which 
is the subject of the VAR formula record is a proprietary system under 
the control of a customer, this fact must be indicated on the record.
    (ii) The date of the additization that is the subject of the VAR 
formula record.
    (iii) The volume of added static dissipater additive package.
    (iv) The volume of the MVNRLM diesel fuel to which the static 
dissipater additive package has been added.
    (v) The brand (if known) of MVNRLM diesel fuel.
    (vi) The actual static dissipater additive package concentration, 
calculated as the volume of added static dissipater additive package 
(pursuant to paragraph (f)(1)(ii)(B) of this section), divided by the 
volume of MVNRLM diesel fuel (pursuant to paragraph (f)(1)(iii) of this 
section). The concentration must be calculated and recorded to four 
significant figures.
    (vii) The measured sulfur level for each batch of MVNRLM diesel 
fuel to which a static dissipater additive package is added during each 
VAR period. In cases where the storage tanks that contains MVNRLM 
diesel fuel prior to additization contains multiple fuel batches, a 
measured sulfur level on each batch added to the storage tank during 
the current and previous VAR periods must be recorded.
    (3) VAR formula records. Every VAR formula record created pursuant 
to paragraphs (f)(1) and (f)(2) of this section shall contain the 
following:
    (i) The signature of the creator of the VAR record;
    (ii) The date of the creation of the VAR record; and
    (iii) A certification of correctness by the creator of the VAR 
record.
    (4) Electronically-generated VAR formula and supporting records. 
(i) Electronically-generated records are acceptable for VAR formula 
records and supporting documentation (including PTDs), provided that 
they are complete, accessible, and easily readable. VAR formula records 
must also be stored with access and audit security, which must restrict 
to a limited number of specified people those who have the ability to 
alter or delete the records. In addition, parties maintaining records 
electronically must make available to EPA the hardware and software 
necessary to review the records.
    (ii) Electronically-generated VAR formula records may use an 
electronic user identification code to satisfy the signature 
requirements of paragraph (f)(3)(i) of this section, provided that:
    (A) The use of the identification is limited to the record creator; 
and
    (B) A paper record is maintained, which is signed and dated by the 
VAR formula record creator, acknowledging that the use of that 
particular user ID on a VAR formula record is equivalent to his/her 
signature on the document.
    (5) Calibration requirements for automated blending facilities. 
Automated static dissipater additive package blenders must calibrate 
their static dissipater additive package equipment at least once in 
each calendar half year, with the acceptable calibrations being no less 
than one hundred twenty days apart, except that calibrations may be 
closer in time so long as at least two calibrations meet the 
requirements to be in separate halves of the calendar year and no less 
than 120 days apart. Equipment recalibration is also required each time 
the static dissipater additive package is changed, unless written 
documentation indicates that the new static dissipater additive package 
has the same viscosity as the previous static dissipater additive 
package. Static dissipater package change calibrations may be used to 
satisfy the semiannual requirement provided that the calibrations occur 
in the appropriate half calendar year and are no less than one hundred 
twenty days apart.
    (6) Additional VAR documentation. The following VAR supporting 
documentation must also be created and maintained:

[[Page 39208]]

    (i) For all automated static dissipater additive package blending 
facilities, documentation reflecting performance of the calibrations 
required by paragraph (f)(5) of this section, and any associated 
adjustments of the automated static dissipater additive package 
injection equipment;
    (ii) For all static dissipater additive package blending 
facilities, product transfer documents for all static dissipater 
additive packages, and static dissipater-additized MVNRLM diesel fuel 
transferred into or out of the facility;
    (iii) For all automated static dissipater additive package blending 
facilities, documentation establishing the brands (if known) of the 
MVNRLM diesel fuel which is the subject of the VAR formula record; and
    (iv) For all hand blending static dissipater additive package 
blenders, the documentation, if in the party's possession, supporting 
the volumes of MVNRLM diesel fuel and static dissipater additive 
package reported on the VAR formula record.
    (7) Document retention and availability. All static dissipater 
additive package blenders shall retain the documents required under 
this section for a period of five years from the date the VAR formula 
records and supporting documentation are created, and shall deliver 
them upon request to the EPA Administrator or the Administrator's 
authorized representative.
    (i) Except as provided in paragraph (f)(7)(iii) of this section, 
automated static dissipater additive package blender facilities and 
hand-blender facilities which are terminals, which physically blend 
static dissipater additive packages into MVNRLM diesel fuel, must make 
immediately available to EPA, upon request, the preceding twelve months 
of VAR formula records plus the preceding two months of VAR supporting 
documentation.
    (ii) Except as provided in paragraph (f)(7)(iii) of this section, 
other hand-blending static dissipater additive package facilities which 
physically blend static dissipater additive package into MVNRLM diesel 
fuel must make immediately available to EPA, upon request, the 
preceding two months of VAR formula records and VAR supporting 
documentation.
    (iii) Facilities which have centrally maintained records at other 
locations, or have customers who maintain their own records at other 
locations for their proprietary static dissipater additive package 
injection systems, and which can document this fact to the Agency, may 
have until the start of the next business day after the EPA request to 
supply VAR supporting documentation, or longer if approved by the 
Agency.
    (iv) In this paragraph (f)(7), the term ``immediately available'' 
means that the records must be provided, electronically or otherwise, 
within approximately one hour of EPA's request, or within a longer time 
frame as approved by EPA.

0
72. A new Sec.  80.615 is added to read as follows:


Sec.  80.615  What penalties apply under this subpart?

    (a) Any person liable for a violation under Sec.  80.612 is subject 
to civil penalties as specified in section 205 of the Clean Air Act (42 
U.S.C. 7524) for every day of each such violation and the amount of 
economic benefit or savings resulting from each violation.
    (b)(1) Any person liable under Sec.  80.612(a)(1) for a violation 
of an applicable standard or requirement under this Subpart I or for 
causing another party to violate such standard or requirement, is 
subject to a separate day of violation for each and every day the non-
complying diesel fuel remains any place in the distribution system.
    (2) Any person liable under Sec.  80.612(a)(2) for causing motor 
vehicle diesel fuel, NRLM diesel fuel, heating oil, or other distillate 
fuel to be in the distribution system which does not comply with an 
applicable standard or requirement of this Subpart I is subject to a 
separate day of violation for each and every day that the non-complying 
diesel fuel remains any place in the diesel fuel distribution system.
    (3) Any person liable under Sec.  80.612(a)(1) for blending into 
diesel fuel an additive violating the applicable sulfur standard 
pursuant to the requirements of Sec.  80.521(a) or (b), as applicable, 
or of causing another party to so blend such an additive, is subject to 
a separate day of violation for each and every day the motor vehicle 
diesel fuel or NRLM diesel fuel into which the noncomplying additive 
was blended, remains any place in the fuel distribution system.
    (4) For purposes of this paragraph (b) of this section, the length 
of time the motor vehicle diesel fuel, NRLM diesel fuel, heating oil or 
other distillate fuel in question remained in the diesel fuel 
distribution system is deemed to be 25 days, unless a person subject to 
liability or EPA demonstrates by reasonably specific showings, by 
direct or circumstantial evidence, that the non-complying motor 
vehicle, NR or NRLM diesel fuel, heating oil or distillate fuel 
remained in the distribution system for fewer than or more than 25 
days.
    (c) Any person liable under Sec.  80.612(b) for failure to meet, or 
causing a failure to meet, a provision of this subpart is liable for a 
separate day of violation for each and every day such provision remains 
unfulfilled.

0
73. Section 80.620 is amended by revising the section heading and 
paragraphs (a), (b), (c), (d)(2), (d)(3)(i)(D), (e)(1), (f)(2)(ii) 
introductory text, (f)(3)(ii), (g), (h) introductory text, (h)(2), 
(i)(1)(v), (i)(1)(vi), (i)(5), (j), (k)(1), (k)(3), (n), (o), (p), (q), 
(r), and (s) to read as follows:


Sec.  80.620  What are the additional requirements for diesel fuel or 
distillates produced by foreign refineries subject to a temporary 
refiner compliance option, hardship provisions, or motor vehicle or 
NRLM diesel fuel credit provisions?

    (a) Definitions. (1) A foreign refinery is a refinery that is 
located outside the United States, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands (collectively referred to in this section as 
``the United States'').
    (2) A foreign refiner is a person who meets the definition of 
refiner under Sec.  80.2(i) for a foreign refinery.
    (3) A diesel fuel program foreign refiner (``DFR'') is a foreign 
refiner that has been approved by EPA for participation in any motor 
vehicle diesel fuel or NRLM diesel fuel provision of Sec.  80.530 
through 80.533, or Sec. Sec.  80.535, 80.536, 80.540, 80.552, 80.553, 
80.554, 80.560 or 80.561 (collectively referred to as ``diesel foreign 
refiner program'').
    (4) ``DFR-Diesel'' means diesel fuel or distillate fuel as 
applicable under subpart I of this part produced at a DFR refinery that 
is imported into the United States.
    (5) ``Non-DFR-Diesel'' means diesel fuel or distillate fuel that is 
produced at a foreign refinery that has not been approved as a DFR 
foreign refiner, diesel fuel produced at a DFR foreign refinery that is 
not imported into the United States, and diesel fuel produced at a DFR 
foreign refinery during a period when the foreign refiner has opted to 
not participate in the DFR-Diesel foreign refiner program under 
paragraph (c)(3) of this section.
    (6) ``Certified DFR-Diesel'' means DFR-Diesel the foreign refiner 
intends to include in the foreign refinery's compliance calculations 
under any provisions of Sec.  80.530 through 80.533, or Sec. Sec.  
80.535, 80.536, 80.540, 80.552, 80.553, 80.554, 80.560 or 80.561 and 
does include in these compliance calculations when reported to EPA.
    (7) ``Non-Certified DFR-Diesel'' means DFR-Diesel fuel that a DFR 
foreign

[[Page 39209]]

refiner imports to the United States that is not Certified DFR-Diesel.
    (b) Baseline. For any foreign refiner to obtain approval under the 
diesel foreign refiner program of this subpart for any refinery, it 
must apply for approval under the applicable provisions of this 
subpart. To obtain approval the refiner is required, as applicable, to 
demonstrate a volume baseline under subpart I of this part.
    (1) The refiner shall follow the procedures, applicable to volume 
baselines and using diesel fuel, or if applicable, heating oil, instead 
of gasoline, in Sec. Sec.  80.91 through 80.93 to establish the volume 
of motor vehicle diesel fuel that was produced at the refinery and 
imported into the United States during the applicable years for 
purposes of establishing a baseline under Subpart I for applicable 
fuels produced for use in the United States.
    (2) In making determinations for foreign refinery baselines EPA 
will consider all information supplied by a foreign refiner, and in 
addition may rely on any and all appropriate assumptions necessary to 
make such determinations.
    (3) Where a foreign refiner submits a petition that is incomplete 
or inadequate to establish an accurate baseline, and the refiner fails 
to correct this deficiency after a request for more information, EPA 
will not assign an individual refinery baseline.
    (c) General requirements for DFR foreign refiners. A foreign 
refiner of a refinery that is approved under the diesel foreign refiner 
program of this subpart must designate each batch of diesel fuel 
produced at the foreign refinery that is exported to the United States 
as either Certified DFR-Diesel or as Non-Certified DFR-Diesel, except 
as provided in paragraph (c)(3) of this section. It must further 
designate all Certified DFR-Diesel as provided in Sec.  80.598, and 
designate whether the diesel fuel is dyed or undyed, and for heating 
oil and/or locomotive or marine diesel fuel whether it is marked or 
unmarked under Sec.  80.510(d) through (f). It must further designate 
any credits earned as either nonroad diesel credits or motor vehicle 
diesel credits.
    (1) In the case of Certified DFR-Diesel, the foreign refiner must 
meet all requirements that apply to refiners under this subpart, except 
that:
    (i) For purposes of complying with the compliance option 
requirements of Sec.  80.530, motor vehicle diesel fuel produced by a 
foreign refinery must comply separately for each Credit Trading Area of 
import, as defined in Sec.  80.531(a)(5).
    (ii) For purposes of complying with the compliance option 
requirements of Sec.  80.530, credits obtained from any other refinery 
or from any importer must have been generated in the same Credit 
Trading Area as the Credit Trading Area of import of the fuel for which 
credits are needed to achieve compliance.
    (iii) For purposes of generating credits under Sec.  80.531, 
credits shall be generated separately by Credit Trading Area of import 
and shall be designated by Credit Trading Area of importation and by 
port of importation.
    (2) In the case of Non-Certified DFR-Diesel, the foreign refiner 
shall meet all the following requirements:
    (i) The designation requirements in this section.
    (ii) The reporting requirements in this section and in Sec. Sec.  
80.593, 80.594, 80.601, and 80.604.
    (iii) The product transfer document requirements in this section 
and in Sec. Sec.  80.590 and 80.591.
    (iv) The prohibitions in this section and in Sec.  80.610.
    (3)(i) Any foreign refiner that has been approved to produce diesel 
fuel subject to the diesel foreign refiner program for a foreign 
refinery under this subpart may elect to classify no diesel fuel 
imported into the United States as DFR-Diesel provided the foreign 
refiner notifies EPA of the election no later than 60 calendar days 
prior to the beginning of the compliance period.
    (ii) An election under paragraph (c)(3)(i) of this section shall be 
for a 12 month compliance period and apply to all diesel fuel that is 
produced by the foreign refinery that is imported into the United 
States, and shall remain in effect for each succeeding year unless and 
until the foreign refiner notifies EPA of the termination of the 
election. The change in election shall take effect at the beginning of 
the next annual compliance period.
* * * * *
    (d) * * *
    (2) On each occasion when any person transfers custody or title to 
any DFR-Diesel prior to its being imported into the United States, it 
must include the following information as part of the product transfer 
document information in this section:
    (i) Designation of the diesel fuel or distillate as Certified DFR-
Diesel or as Non-Certified DFR-Diesel, and if it is Certified DFR-
Diesel, further designate the fuel pursuant to Sec.  80.598, and 
whether the diesel fuel or distillate is dyed or undyed, and for 
heating oil whether it is marked or unmarked under Sec.  80.510(d) 
through (f), and all other applicable product transfer document 
information required under Sec.  80.590; and
    (ii) The name and EPA refinery registration number (under Sec.  
80.597) of the refinery where the DFR-Diesel was produced.
    (3) * * *
    (i) * * *
    (D) In the case of Certified DFR-Diesel:
    (1) The sulfur content as determined under paragraph (f) of this 
section, and the applicable designations stated in paragraph (d)(2)(i) 
of this section; and
    (2) A declaration that the DFR-Diesel is being included in the 
applicable compliance calculations required by EPA under this subpart.
* * * * *
    (e) * * *
    (1)(i) The foreign refiner excludes:
    (A) The volume of diesel from the refinery's compliance report 
under Sec.  80.593, Sec.  80.601, or Sec.  80.604; and
    (B) In the case of Certified DFR-Diesel, the volume of the diesel 
fuel from the compliance report under Sec.  80.593, Sec.  80.601, or 
Sec.  80.604.
    (ii) The exclusions under paragraph (e)(1)(i) of this section shall 
be on the basis of the designations under Sec.  80.598 and this 
section, and volumes determined under paragraph (f) of this section.
* * * * *
    (f) * * *
    (2) * * *
    (ii) Determine the sulfur content value for each compartment, and 
if applicable, the marker content under Sec.  80.510(d) through (f) 
using an approved methodology as specified in Sec. Sec.  80.580 through 
80.586 by one of the following:
* * * * *
    (3) * * *
    (ii) To the Administrator containing the information required under 
paragraphs (f)(1) and (f)(2) of this section, within thirty days 
following the date of the independent third party's inspection. This 
report shall include a description of the method used to determine the 
identity of the refinery at which the diesel fuel or distillate was 
produced, assurance that the diesel fuel or distillate remained 
segregated as specified in paragraph (n)(1) of this section, and a 
description of the diesel fuel's movement and storage between 
production at the source refinery and vessel loading.
* * * * *
    (g) Comparison of load port and port of entry testing. (1)(i) Any 
foreign refiner and any United States importer of Certified DFR-Diesel 
shall compare the results from the load port testing under paragraph 
(f) of this section, with the port of entry testing as reported under 
paragraph (o) of this section, for the

[[Page 39210]]

volume of diesel fuel and the sulfur content value; except as specified 
in paragraph (g)(1)(ii) of this section.
    (ii) Where a vessel transporting Certified DFR-Diesel off loads 
this diesel fuel at more than one United States port of entry, and the 
conditions of paragraph (g)(2)(i) of this section are met at the first 
United States port of entry, the requirements of paragraph (g)(2) of 
this section do not apply at subsequent ports of entry if the United 
States importer obtains a certification from the vessel owner that 
meets the requirements of paragraph (s) of this section, that the 
vessel has not loaded any diesel fuel or blendstock between the first 
United States port of entry and the subsequent port of entry.
    (2)(i) The requirements of this paragraph (g)(2) apply if--
    (A) The temperature-corrected volumes determined at the port of 
entry and at the load port differ by more than one percent; or
    (B) The sulfur content value determined at the port of entry is 
higher than the sulfur content value determined at the load port, and 
the amount of this difference is greater than the reproducibility 
amount specified for the port of entry test result by the American 
Society of Testing and Materials (ASTM) for a test method used for 
testing the port of entry sample under the provisions Sec. Sec.  80.580 
through 80.586.
    (ii) The United States importer and the foreign refiner shall treat 
the diesel fuel as Non-Certified DFR-Diesel, and the foreign refiner 
shall exclude the diesel fuel volume from its diesel fuel volumes 
calculations and sulfur standard designations under Sec.  80.598.
    (h) Attest requirements. Refiners, for each annual compliance 
period, must arrange to have an attest engagement performed of the 
underlying documentation that forms the basis of any report required 
under this subpart. The attest engagement must comply with the 
procedures and requirements that apply to refiners under Sec. Sec.  
80.125 through 80.130, or other applicable attest engagement 
provisions, and must be submitted to the Administrator of EPA by August 
31 of each year for the prior annual compliance period. The following 
additional procedures shall be carried out for any foreign refiner of 
DFR-Diesel.
* * * * *
    (2) Obtain separate listings of all tenders of Certified DFR-Diesel 
and of Non-Certified DFR-Diesel, and obtain separate listings of 
Certified DFR-Diesel based on whether it is 15 ppm sulfur content 
diesel fuel, 500 ppm sulfur content diesel fuel or high sulfur fuel 
having a sulfur content greater than 500 ppm (and if so, whether the 
fuel is heating oil, small refiner diesel fuel, diesel fuel produced 
through the use of credits, or other applicable designation under Sec.  
80.598). Agree the total volume of tenders from the listings to the 
diesel fuel inventory reconciliation analysis in Sec.  80.128(b), and 
to the volumes determined by the third party under paragraph (f)(1) of 
this section.
* * * * *
    (i) * * *
    (1) * * *
    (v) Inspections and audits by EPA may include review and copying of 
any documents related to:
    (A) Refinery baseline establishment, if applicable, including the 
volume, sulfur content and dye and marker status of diesel fuel, 
heating oil and other distillates; transfers of title or custody of any 
diesel fuel, heating oil or blendstocks whether DFR-Diesel or Non-DFR-
Diesel, produced at the foreign refinery during the period January 1, 
1998 through the date of the refinery baseline petition or through the 
date of the inspection or audit if a baseline petition has not been 
approved, and any work papers related to refinery baseline 
establishment;
    (B) The volume and sulfur content of DFR-Diesel;
    (C) The proper classification of diesel fuel as being DFR-Diesel or 
as not being DFR-Diesel, or as Certified DFR-Diesel or as Non-Certified 
DFR-Diesel, and all other relevant designations under this subpart, 
including Sec.  80.598 and this section;
    (D) Transfers of title or custody to DFR-Diesel;
    (E) Sampling and testing of DFR-Diesel;
    (F) Work performed and reports prepared by independent third 
parties and by independent auditors under the requirements of this 
section, including work papers; and
    (G) Reports prepared for submission to EPA, and any work papers 
related to such reports.
    (vi) Inspections and audits by EPA may include taking samples of 
diesel fuel, heating oil, other distillates, diesel fuel additives or 
blendstock, dyes and chemical markers and interviewing employees.
* * * * *
    (5) Submitting a petition for participation in the diesel foreign 
refiner program or producing and exporting diesel fuel or heating oil 
under any such program, and all other actions to comply with the 
requirements of this subpart relating to participation in any diesel 
foreign refiner program, or to establish an individual refinery motor 
vehicle diesel fuel volume baseline or other baseline under subpart I 
of this part (if applicable) constitute actions or activities that 
satisfy the provisions of 28 U.S.C. 1605(a)(2), but solely with respect 
to actions instituted against the foreign refiner, its agents and 
employees in any court or other tribunal in the United States for 
conduct that violates the requirements applicable to the foreign 
refiner under this subpart, including conduct that violates the False 
Statements Accountability Act of 1996 (18 U.S.C. 1001) and section 
113(c)(2) of the Clean Air Act (42 U.S.C. 7413).
* * * * *
    (j) Sovereign immunity. By submitting a petition for participation 
in any diesel foreign refiner program under this subpart (and baseline, 
if applicable) under this section, or by producing and exporting diesel 
fuel to the United States under any such program, the foreign refiner, 
and its agents and employees, without exception, become subject to the 
full operation of the administrative and judicial enforcement powers 
and provisions of the United States without limitation based on 
sovereign immunity, with respect to actions instituted against the 
foreign refiner, its agents and employees in any court or other 
tribunal in the United States for conduct that violates the 
requirements applicable to the foreign refiner under this subpart 
including conduct that violates the False Statements Accountability Act 
of 1996 (18 U.S.C. 1001) and section 113(c)(2) of the Clean Air Act (42 
U.S.C. 7413).
    (k) * * *
    (1) The foreign refiner shall post a bond of the amount calculated 
using the following equation:

Bond = G x $ 0.01

Where:

Bond = amount of the bond in U.S. dollars
G = the applicable volume baseline under Subpart I for diesel fuel 
or distillate produced at the foreign refinery and exported to the 
United States, in gallons.
* * * * *
    (3) Bonds posted under this paragraph (k) shall--
    (i) Be used to satisfy any judicial judgment that results from an 
administrative or judicial enforcement action for conduct in violation 
of this subpart, including where such conduct violates the False 
Statements Accountability Act of 1996 (18 U.S.C. 1001) and section 
113(c)(2) of the Clean Air Act (42 U.S.C. 7413);
    (ii) Be provided by a corporate surety that is listed in the United 
States

[[Page 39211]]

Department of Treasury Circular 570 ``Companies Holding Certificates of 
Authority as Acceptable Sureties on Federal Bonds;'' and
    (iii) Include a commitment that the bond will remain in effect for 
at least five years following the end of latest annual reporting period 
that the foreign refiner produces diesel fuel pursuant to the 
requirements of this subpart.
* * * * *
    (n) Prohibitions. (1) No person may combine Certified DFR-Diesel 
with any Non-Certified DFR-Diesel or Non-DFR-Diesel, and no person may 
combine Certified DFR-Diesel with any Certified DFR-Diesel produced at 
a different refinery, until the importer has met all the requirements 
of paragraph (o) of this section, except as provided in paragraph (e) 
of this section. No person may violate the product segregation 
requirements of Sec.  80.511.
    (2) No foreign refiner or other person may cause another person to 
commit an action prohibited in paragraph (n)(1) of this section, or 
that otherwise violates the requirements of this section.
    (o) United States importer requirements. Any United States importer 
shall meet the following requirements:
    (1) Each batch of imported diesel fuel and heating oil shall be 
classified by the importer as being DFR-Diesel or as Non-DFR-Diesel, 
and each batch classified as DFR-Diesel shall be further classified as 
Certified DFR-Diesel or as Non-Certified DFR-Diesel, and each batch of 
Certified DFR-Diesel shall be further designated pursuant to the 
designation requirements of Sec.  80.598 and this section.
    (2) Diesel fuel shall be classified as Certified DFR-Diesel or as 
Non-Certified DFR-Diesel according to the designation by the foreign 
refiner if this designation is supported by product transfer documents 
prepared by the foreign refiner as required in paragraph (d) of this 
section, unless the diesel fuel is classified as Non-Certified DFR-
Diesel under paragraph (g) of this section. Additionally, the importer 
shall comply with all requirements of this subpart applicable to 
importers.
    (3) For each diesel fuel batch classified as DFR-Diesel, any United 
States importer shall perform the following procedures.
    (i) In the case of both Certified and Non-Certified DFR-Diesel, 
have an independent third party:
    (A) Determine the volume of diesel fuel in the vessel;
    (B) Use the foreign refiner's DFR-Diesel certification to determine 
the name and EPA-assigned registration number of the foreign refinery 
that produced the DFR-Diesel;
    (C) Determine the name and country of registration of the vessel 
used to transport the DFR-Diesel to the United States; and
    (D) Determine the date and time the vessel arrives at the United 
States port of entry.
    (ii) In the case of Certified DFR-Diesel, have an independent third 
party:
    (A) Collect a representative sample from each vessel compartment 
subsequent to the vessel's arrival at the United States port of entry 
and prior to off loading any diesel fuel from the vessel;
    (B) Obtain the compartment samples; and
    (C) Determine the sulfur content value, and if applicable, the 
marker content, of each compartment sample using an appropriate 
methodology as specified in Sec. Sec.  80.580 through 80.586 by the 
third party analyzing the sample or by the third party observing the 
importer analyze the sample.
    (4) Any importer shall submit reports within 30 days following the 
date any vessel transporting DFR-Diesel arrives at the United States 
port of entry:
    (i) To the Administrator containing the information determined 
under paragraph (o)(3) of this section; and
    (ii) To the foreign refiner containing the information determined 
under paragraph (o)(3)(ii) of this section, and including 
identification of the port and Credit Trading Area at which the product 
was offloaded.
    (5) Any United States importer shall meet the requirements 
specified in Sec. Sec.  80.510 and 80.520 and all other requirements of 
this subpart, for any imported diesel fuel or heating oil that is not 
classified as Certified DFR-Diesel under paragraph (o)(2) of this 
section.
    (p) Truck imports of Certified DFR-Diesel produced at a foreign 
refinery. (1) Any refiner whose Certified DFR-Diesel is transported 
into the United States by truck may petition EPA to use alternative 
procedures to meet the following requirements:
    (i) Certification under paragraph (d)(5) of this section;
    (ii) Load port and port of entry sampling and testing under 
paragraphs (f) and (g) of this section;
    (iii) Attest under paragraph (h) of this section; and
    (iv) Importer testing under paragraph (o)(3) of this section.
    (2) These alternative procedures must ensure Certified DFR-Diesel 
remains segregated from Non-Certified DFR-Diesel and from Non-DFR-
Diesel until it is imported into the United States. The petition will 
be evaluated based on whether it adequately addresses the following:
    (i) Provisions for monitoring pipeline shipments, if applicable, 
from the refinery, that ensure segregation of Certified DFR-Diesel from 
that refinery from all other diesel fuel;
    (ii) Contracts with any terminals and/or pipelines that receive 
and/or transport Certified DFR-Diesel, that prohibit the commingling of 
Certified DFR-Diesel with any of the following:
    (A) Other Certified DFR-Diesel from other refineries.
    (B) All Non-Certified DFR-Diesel.
    (C) All Non-DFR-Diesel.
    (D) All diesel fuel or heating oil products required to be 
segregated under this subpart;
    (iii) Procedures for obtaining and reviewing truck loading records 
and United States import documents for Certified DFR-Diesel to ensure 
that such diesel fuel is only loaded into trucks making deliveries to 
the United States;
    (iv) Attest procedures to be conducted annually by an independent 
third party that review loading records and import documents based on 
volume reconciliation, or other criteria, to confirm that all Certified 
DFR-Diesel remains segregated throughout the distribution system and is 
only loaded into trucks for import into the United States.
    (3) The petition required by this section must be submitted to EPA 
along with the application for temporary refiner relief individual 
refinery diesel sulfur standard under this subpart.
    (q) Withdrawal or suspension of a foreign refinery's temporary 
refinery flexibility program approval. EPA may withdraw or suspend a 
diesel refiner baseline or standard approval for a foreign refinery 
where--
    (1) A foreign refiner fails to meet any requirement of this 
section;
    (2) A foreign government fails to allow EPA inspections as provided 
in paragraph (i)(1) of this section;
    (3) A foreign refiner asserts a claim of, or a right to claim, 
sovereign immunity in an action to enforce the requirements in this 
subpart; or
    (4) A foreign refiner fails to pay a civil or criminal penalty that 
is not satisfied using the foreign refiner bond specified in paragraph 
(k) of this section.
    (r) Early use of a foreign refiner motor vehicle diesel fuel 
baseline. (1) A foreign refiner may begin using an individual refinery 
baseline under subpart I of this part before EPA has approved the 
baseline, provided that:
    (i) A baseline petition has been submitted as required in paragraph 
(b) of this section;

[[Page 39212]]

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

    I hereby certify: (1) That I have actual authority to sign on 
behalf of and to bind [insert name of foreign refiner] with regard 
to all statements contained herein; (2) that I am aware that the 
information contained herein is being certified, or submitted to the 
United States Environmental Protection Agency, under the 
requirements of 40 CFR part 80, subpart I, and that the information 
is material for determining compliance under these regulations; and 
(3) that I have read and understand the information being certified 
or submitted, and this information is true, complete and correct to 
the best of my knowledge and belief after I have taken reasonable 
and appropriate steps to verify the accuracy thereof.
    I affirm that I have read and understand the provisions of 40 
CFR part 80, subpart I, including 40 CFR 80.620 apply to [insert 
name of foreign refiner]. Pursuant to Clean Air Act section 113(c) 
and 18 U.S.C. 1001, the penalty for furnishing false, incomplete or 
misleading information in this certification or submission is a fine 
of up to $10,000 U.S., and/or imprisonment for up to five years.

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

0
74. The authority citation for part 86 continues to read as follows:

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


0
75. Section 86.007-35 is amended by revising paragraph (c) to read as 
follows:


Sec.  86.007-35  Labeling.

* * * * *
    (c) Model year 2007 and later diesel-fueled vehicles must include 
permanent readily visible labels on the dashboard (or instrument panel) 
and near all fuel inlets that state ``Use Ultra Low Sulfur Diesel Fuel 
Only'' or ``Ultra Low Sulfur Diesel Fuel Only''.
* * * * *

0
76. Section 86.007-38 is amended by revising paragraph (i) to read as 
follows:


Sec.  86.007-38  Maintenance instructions.

* * * * *
    (i) For each new diesel-fueled engine subject to the standards 
prescribed in Sec.  86.007-11, as applicable, the manufacturer shall 
furnish or cause to be furnished to the ultimate purchaser a statement 
that ``This engine must be operated only with ultra low-sulfur diesel 
fuel (meeting EPA specifications for highway diesel fuel, including a 
15 ppm sulfur cap).''

PART 89--CONTROL OF EMISSIONS FROM NEW AND IN-USE NONROAD 
COMPRESSION-IGNITION ENGINES

0
77. The authority citation for part 89 continues to read as follows:

    Authority: 42 U.S.C. 7521, 7522, 7523, 7524, 7525, 7541, 7542, 
7543, 7545, 7547, 7549, 7550, and 7601(a).

0
78. Section 89.1 is amended by adding paragraph (b)(6) to read as 
follows:


Sec.  89.1  Applicability.

* * * * *
    (b) * * *
    (6) Tier 4 engines. This part does not apply to engines that are 
subject to emission standards under 40 CFR part 1039. See 40 CFR 1039.1 
to determine when that part 1039 applies. Note that certain 
requirements and prohibitions apply to engines built on or after 
January 1, 2006 if they are installed in stationary applications or in 
equipment that will be used solely for competition, as described in 40 
CFR 1039.1 and 40 CFR 1068.1; those provisions apply instead of the 
provisions of this part 89.

0
79. Section 89.2 is amended by adding a definition for ``Sulfur-
sensitive technology'' in alphabetical order to read as follows:


Sec.  89.2  Definitions.

* * * * *
    Sulfur-sensitive technology means an emission-control technology 
that experiences a significant drop in emission-control performance or 
emission-system durability when an engine is operated on low-sulfur 
fuel (i.e., fuel with a sulfur concentration up to 500 ppm) as compared 
to when it is operated on ultra low-sulfur fuel (i.e., fuel with a 
sulfur concentration less than 15 ppm). Exhaust-gas recirculation is 
not a sulfur-sensitive technology.
* * * * *

0
80. Section 89.112 is amended by revising the introductory text of 
paragraph (f)(1) and adding paragraph (g) to read as follows:


Sec.  89.112  Oxides of nitrogen, carbon monoxide, hydrocarbon, and 
particulate matter exhaust emission standards.

* * * * *
    (f) * * *
    (1) Voluntary standards. Engines may be designated ``Blue Sky 
Series'' engines by meeting the voluntary standards listed in Table 3, 
which apply to all certification and in-use testing, as follows:
* * * * *
    (g) Manufacturers of engines at or above 37 kW and below 56 kW from 
model years 2008 through 2012 that are subject to the standards of this 
section under 40 CFR 1039.102 must take the following additional steps:
    (1) State the applicable PM standard on the emission control 
information label.
    (2) Add information to the emission-related installation 
instructions to clarify the equipment manufacturer's obligations under 
40 CFR 1039.104(f).

0
81. Section 89.114 is amended by adding a new paragraph (b)(3) to read 
as follows:


Sec.  89.114  Special and alternate test procedures.

* * * * *
    (b) * * *
    (3) A manufacturer may elect to use the test procedures in 40 CFR 
part 1065 as an alternate test procedure without advance approval by 
the Administrator. The manufacturer must identify in its application 
for certification that the engines were tested using the procedures in 
40 CFR part 1065.

[[Page 39213]]


0
82. Section 89.203 is amended by adding a new paragraph (c)(6) to read 
as follows:


Sec.  89.203  General provisions.

* * * * *
    (c) * * *
    (6) Model year 2008 and 2009 engines rated under 8 kW that are 
allowed to certify under this part because they meet the criteria in 40 
CFR 1039.101(c) may not generate emission credits.

0
83. Section 89.330 is amended by revising paragraph (b)(3) and adding 
paragraph (e) to read as follows:


Sec.  89.330  Lubricating oil and test fuels.

* * * * *
    (b) * * *
    (3) Testing of Tier 1 and Tier 2 engines rated under 37 kW and Tier 
2 and Tier 3 engines rated at or above 37 kW that is conducted by the 
Administrator shall be performed using test fuels that meet the 
specifications in Table 4 in Appendix A of this subpart and that have a 
sulfur content no higher than 0.20 weight percent.
* * * * *
    (e) Low-sulfur test fuel. (1) Upon request, for engines rated at or 
above 75 kW in model years 2006 or 2007, the diesel test fuel may be 
the low-sulfur diesel test fuel specified in 40 CFR part 1065, subject 
to the provisions of this paragraph (e)(1).
    (i) To use this option, the manufacturer must--
    (A) Ensure that ultimate purchasers of equipment using these 
engines are informed that the use of fuel meeting the 500 ppm 
specification is recommended.
    (B) Recommend to equipment manufacturers that a label be applied at 
the fuel inlet recommending 500 ppm fuel.
    (ii) None of the engines in the engine family may employ sulfur-
sensitive technologies.
    (iii) For engines rated at or above 130 kW, this option may be used 
in 2006 and 2007. For engines rated at or above 75 kW and under 130 kW, 
this option may be used only in 2007.
    (2) For model years 2008 through 2010, except as otherwise 
provided, the diesel test fuel shall be the low-sulfur diesel test fuel 
specified in 40 CFR part 1065.
    (3) The diesel test fuel shall be the ultra low-sulfur diesel test 
fuel specified in 40 CFR part 1065 for model years 2011 and later.
    (4) For model years 2007 through 2010 engines that use sulfur-
sensitive emission-control technology, the diesel test fuel is the 
ultra low-sulfur fuel specified in 40 CFR part 1065 if the manufacturer 
demonstrates that the in-use engines will use only fuel with 15 ppm or 
less of sulfur.
    (5) Instead of the test fuels described in paragraphs (e)(2) 
through (4) of this section, for model years 2008 and later, 
manufacturers may use the test fuel described in appendix A of this 
subpart. In such cases, the test fuel described in appendix A of this 
subpart shall be the test fuel for all manufacturer and EPA testing.

0
84. Section 89.908 is amended by adding paragraph (c) to read as 
follows:


Sec.  89.908  National security exemption.

* * * * *
    (c) Manufacturers must add a legible label, written in block 
letters in English, to each engine exempted under this section. The 
label must be permanently secured to a readily visible part of the 
engine needed for normal operation and not normally requiring 
replacement, such as the engine block. This label must include at least 
the following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) Engine displacement, engine family identification (as 
applicable), and model year of the engine or whom to contact for 
further information.
    (4) The statement ``THIS ENGINE HAS AN EXEMPTION FOR NATIONAL 
SECURITY UNDER 40 CFR 89.908.''.

0
85. Section 89.910 is amended by adding paragraph (c) to read as 
follows:


Sec.  89.910  Granting of exemptions.

* * * * *
    (c) Manufacturers may ask EPA to apply the provisions of 40 CFR 
1068.201(i) to engines exempted or excluded under this subpart.

PART 94--CONTROL OF AIR POLLUTION FROM MARINE COMPRESSION-IGNITION 
ENGINES

0
86. The authority citation for part 94 continues to read as follows:

    Authority: 42 U.S.C. 7522, 7523, 7524, 7525, 7541, 7542, 7543, 
7545, 7547, 7549, 7550, and 7601(a).


0
87. Section 94.908 is amended by adding paragraph (c) to read as 
follows:


Sec.  94.908  National security exemption.

* * * * *
    (c) Manufacturers must add a legible label, written in block 
letters in English, to each engine exempted under this section. The 
label must be permanently secured to a readily visible part of the 
engine needed for normal operation and not normally requiring 
replacement, such as the engine block. This label must include at least 
the following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) Engine displacement, engine family identification (as 
applicable), and model year of the engine or whom to contact for 
further information.
    (4) The statement ``THIS ENGINE HAS AN EXEMPTION FOR NATIONAL 
SECURITY UNDER 40 CFR 94.908.''.

0
88. A new part 1039 is added to subchapter U of chapter I, to read as 
follows:

SUBCHAPTER U--AIR POLLUTION CONTROLS

PART 1039--CONTROL OF EMISSIONS FROM NEW AND IN-USE NONROAD 
COMPRESSION-IGNITION ENGINES

Subpart A--Overview and Applicability
Sec.
1039.1 Does this part apply for my engines?
1039.5 Which engines are excluded from this part's requirements?
1039.10 How is this part organized?
1039.15 Do any other regulation parts apply to me?
1039.20 What requirements from this part apply to excluded 
stationary engines?
Subpart B--Emission Standards and Related Requirements
1039.101 What exhaust emission standards must my engines meet after 
the 2014 model year?
1039.102 What exhaust emission standards and phase-in allowances 
apply for my engines in model year 2014 and earlier?
1039.104 Are there interim provisions that apply only for a limited 
time?
1039.105 What smoke standards must my engines meet?
1039.107 What evaporative emission standards and requirements apply?
1039.110 [Reserved]
1039.115 What other requirements must my engines meet?
1039.120 What emission-related warranty requirements apply to me?
1039.125 What maintenance instructions must I give to buyers?
1039.130 What installation instructions must I give to equipment 
manufacturers?
1039.135 How must I label and identify the engines I produce?
1039.140 What is my engine's maximum engine power?
Subpart C--Certifying Engine Families
1039.201 What are the general requirements for obtaining a 
certificate of conformity?
1039.205 What must I include in my application?
1039.210 May I get preliminary approval before I complete my 
application?
1039.220 How do I amend the maintenance instructions in my 
application?

[[Page 39214]]

1039.225 How do I amend my application for certification to include 
new or modified engines?
1039.230 How do I select engine families?
1039.235 What emission testing must I perform for my application for 
a certificate of conformity?
1039.240 How do I demonstrate that my engine family complies with 
exhaust emission standards?
1039.245 How do I determine deterioration factors from exhaust 
durability testing?
1039.250 What records must I keep and what reports must I send to 
EPA?
1039.255 What decisions may EPA make regarding my certificate of 
conformity?
1039.260 What provisions apply to engines that are conditionally 
exempted from certification?
Subpart D--[Reserved]
Subpart E--In-use Testing
1039.401 General provisions.
Subpart F--Test Procedures
1039.501 How do I run a valid emission test?
1039.505 How do I test engines using steady-state duty cycles, 
including ramped-modal testing?
1039.510 Which duty cycles do I use for transient testing?
1039.515 What are the test procedures related to not-to-exceed 
standards?
1039.520 What testing must I perform to establish deterioration 
factors?
1039.525 How do I adjust emission levels to account for infrequently 
regenerating aftertreatment devices?
Subpart G--Special Compliance Provisions
1039.601 What compliance provisions apply to these engines?
1039.605 What provisions apply to engines already certified under 
the motor-vehicle program?
1039.610 What provisions apply to vehicles already certified under 
the motor-vehicle program?
1039.615 What special provisions apply to engines using 
noncommercial fuels?
1039.620 What are the provisions for exempting engines used solely 
for competition?
1039.625 What requirements apply under the program for equipment-
manufacturer flexibility?
1039.626 What special provisions apply to equipment imported under 
the equipment-manufacturer flexibility program?
1039.627 What are the incentives for equipment manufacturers to use 
cleaner engines?
1039.630 What are the economic hardship provisions for equipment 
manufacturers?
1039.635 What are the hardship provisions for engine manufacturers?
1039.640 What special provisions apply to branded engines?
1039.645 What special provisions apply to engines used for 
transportation refrigeration units?
1039.650 [Reserved]
1039.655 What special provisions apply to engines sold in Guam, 
American Samoa, or the Commonwealth of the Northern Mariana Islands?
1039.660 What special provisions apply to Independent Commercial 
Importers?
Subpart H--Averaging, Banking, and Trading for Certification
1039.701 General provisions.
1039.705 How do I generate and calculate emission credits?
1039.710 How do I average emission credits?
1039.715 How do I bank emission credits?
1039.720 How do I trade emission credits?
1039.725 What must I include in my application for certification?
1039.730 What ABT reports must I send to EPA?
1039.735 What records must I keep?
1039.740 What restrictions apply for using emission credits?
1039.745 What can happen if I do not comply with the provisions of 
this subpart?
Subpart I--Definitions and Other Reference Information
1039.801 What definitions apply to this part?
1039.805 What symbols, acronyms, and abbreviations does this part 
use?
1039.810 What materials does this part reference?
1039.815 What provisions apply to confidential information?
1039.820 How do I request a hearing?
Appendix I to Part 1039--[Reserved]
Appendix II to Part 1039--Steady-state Duty Cycles for Constant-
Speed Engines
Appendix III to Part 1039--Steady-state Duty Cycles for Variable-
Speed Engines with Maximum Power below 19 kW
Appendix IV to Part 1039--Steady-state Duty Cycles for Variable-
Speed Engines with Maximum Power at or above 19 kW
Appendix V to Part 1039--[Reserved]
Appendix VI to Part 1039--Nonroad Compression-ignition Composite 
Transient Cycle

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

Subpart A--Overview and Applicability


Sec.  1039.1  Does this part apply for my engines?

    (a) The regulations in this part 1039 apply for all new, 
compression-ignition nonroad engines (defined in Sec.  1039.801), 
except as provided in Sec.  1039.5.
    (b) This part 1039 applies as follows:
    (1) This part 1039 applies for all engines subject to the emission 
standards specified in subpart B of this part starting with the model 
years noted in the following table:

    Table 1 of Sec.   1039.1.--Part 1039 Applicability by Model Year
------------------------------------------------------------------------
                       Power category                         Model year
------------------------------------------------------------------------
kW < 19....................................................     \1\ 2008
 19 <= kW < 56.............................................     \2\ 2008
56 <= kW < 130.............................................         2012
130 <= kW <= 560...........................................         2011
kW > 560...................................................        2011
------------------------------------------------------------------------
\1\ As described in Sec.   1039.102, some engines below 19 kW may not be
  subject to the emission standards in this part until the 2010 model
  year.
\2\ As described in Sec.   1039.102, some engines in the 19-56 kW power
  category may not be subject to the emission standards in this part
  until the 2012 model year.

    (2) If you use the provisions of Sec.  1039.104(a) to certify an 
engine to the emission standards of this part before the model years 
shown in Table 1 of this section, all the requirements of this part 
apply for those engines.
    (3) See 40 CFR part 89 for requirements that apply to engines not 
yet subject to the requirements of this part 1039.
    (4) This part 1039 applies for other compression-ignition engines 
as follows:
    (i) The provisions of paragraph (c) of this section and Sec.  
1039.801 apply for stationary engines beginning January 1, 2006.
    (ii) The provisions of Sec.  1039.620 and Sec.  1039.801 apply for 
engines used solely for competition beginning January 1, 2006.
    (c) The definition of nonroad engine in 40 CFR 1068.30 excludes 
certain engines used in stationary applications. These engines are not 
required to comply with this part, except for the requirements in Sec.  
1039.20. In addition, the prohibitions in 40 CFR 1068.101 restrict the 
use of stationary engines for nonstationary purposes.
    (d) In certain cases, the regulations in this part 1039 apply to 
engines at or above 250 kW that would otherwise be covered by 40 CFR 
part 1048. See 40 CFR 1048.620 for provisions related to this 
allowance.


Sec.  1039.5  Which engines are excluded from this part's requirements?

    This part does not apply to the following nonroad engines:
    (a) Locomotive engines. (1) The following locomotive engines are 
not subject to the provisions of this part 1039:
    (i) Engines in locomotives subject to the standards of 40 CFR part 
92.
    (ii) Engines in locomotives that are exempt from the standards of 
40 CFR part 92 pursuant to the provisions of 40 CFR part 92 (except for 
the provisions of 40 CFR 92.907). For example, an engine that is exempt 
under 40 CFR

[[Page 39215]]

92.906 because it is in a manufacturer-owned locomotive is not subject 
to the provisions of this part 1039.
    (2) The following locomotive engines are subject to the provisions 
of this part 1039:
    (i) Engines in locomotives exempt from 40 CFR part 92 pursuant to 
the provisions of 40 CFR 92.907.
    (ii) Locomotive engines excluded from the definition of locomotive 
in 40 CFR 92.2.
    (b) Marine engines. (1) The following marine engines are not 
subject to the provisions of this part 1039:
    (i) Engines subject to the standards of 40 CFR part 94.
    (ii) Engines not subject to the standards of 40 CFR part 94 only 
because they were produced before the standards of 40 CFR part 94 
started to apply.
    (iii) Engines that are exempt from the standards of 40 CFR part 94 
pursuant to the provisions of 40 CFR part 94 (except for the provisions 
of 40 CFR 94.907). For example, an engine that is exempt under 40 CFR 
94.906 because it is a manufacturer-owned engine is not subject to the 
provisions of this part 1039.
    (iv) Engines with rated power below 37 kW.
    (v) Engines on foreign vessels.
    (2) Marine engines are subject to the provisions of this part 1039 
if they are exempt from 40 CFR part 94 based on the engine-dressing 
provisions of 40 CFR 94.907.
    (c) Mining engines. Engines used in underground mining or in 
underground mining equipment and regulated by the Mining Safety and 
Health Administration in 30 CFR parts 7, 31, 32, 36, 56, 57, 70, and 75 
are not subject to the provisions of this part 1039.
    (d) Hobby engines. Engines with per-cylinder displacement below 50 
cubic centimeters are not subject to the provisions of this part 1039.


Sec.  1039.10  How is this part organized?

    The regulations in this part 1039 contain provisions that affect 
both engine manufacturers and others. However, the requirements of this 
part are generally addressed to the engine manufacturer. Unless we 
specifically state otherwise, the term ``you'' means the engine 
manufacturer, as defined in Sec.  1039.801. This part 1039 is divided 
into the following subparts:
    (a) Subpart A of this part defines the applicability of part 1039 
and gives an overview of regulatory requirements.
    (b) Subpart B of this part describes the emission standards and 
other requirements that must be met to certify engines under this part. 
Note that Sec.  1039.102 and Sec.  1039.104 discuss certain interim 
requirements and compliance provisions that apply only for a limited 
time.
    (c) Subpart C of this part describes how to apply for a certificate 
of conformity.
    (d) [Reserved]
    (e) Subpart E of this part describes general provisions for testing 
in-use engines.
    (f) Subpart F of this part describes how to test your engines 
(including references to other parts of the Code of Federal 
Regulations).
    (g) Subpart G of this part and 40 CFR part 1068 describe 
requirements, prohibitions, and other provisions that apply to engine 
manufacturers, equipment manufacturers, owners, operators, rebuilders, 
and all others.
    (h) Subpart H of this part describes how you may generate and use 
emission credits to certify your engines.
    (i) Subpart I of this part contains definitions and other reference 
information.


Sec.  1039.15  Do any other regulation parts apply to me?

    (a) Part 1065 of this chapter describes procedures and equipment 
specifications for testing engines. Subpart F of this part 1039 
describes how to apply the provisions of part 1065 of this chapter to 
determine whether engines meet the emission standards in this part.
    (b) The requirements and prohibitions of part 1068 of this chapter 
apply to everyone, including anyone who manufactures, imports, 
installs, owns, operates, or rebuilds any of the engines subject to 
this part 1039, or equipment containing these engines. Part 1068 of 
this chapter describes general provisions, including these seven areas:
    (1) Prohibited acts and penalties for engine manufacturers, 
equipment manufacturers, and others.
    (2) Rebuilding and other aftermarket changes.
    (3) Exclusions and exemptions for certain engines.
    (4) Importing engines.
    (5) Selective enforcement audits of your production.
    (6) Defect reporting and recall.
    (7) Procedures for hearings.
    (c) Other parts of this chapter apply if referenced in this part.


Sec.  1039.20  What requirements from this part apply to excluded 
stationary engines?

    The provisions of this section apply for engines built on or after 
January 1, 2006.
    (a) You must add a permanent label or tag to each new engine you 
produce or import that is excluded under Sec.  1039.1(c) as a 
stationary engine. To meet labeling requirements, you must do the 
following things:
    (1) Attach the label or tag in one piece so no one can remove it 
without destroying or defacing it.
    (2) Secure it to a part of the engine needed for normal operation 
and not normally requiring replacement.
    (3) Make sure it is durable and readable for the engine's entire 
life.
    (4) Write it in English.
    (5) Follow the requirements in Sec.  1039.135(g) regarding 
duplicate labels if the engine label is obscured in the final 
installation.
    (b) Engine labels or tags required under this section must have the 
following information:
    (1) Include the heading ``EMISSION CONTROL INFORMATION''.
    (2) Include your full corporate name and trademark. You may instead 
include the full corporate name and trademark of another company you 
choose to designate.
    (3) State the engine displacement (in liters) and maximum engine 
power.
    (4) State: ``THIS ENGINE IS EXCLUDED FROM THE REQUIREMENTS OF 40 
CFR PART 1039 AS A ``STATIONARY ENGINE.'' INSTALLING OR USING THIS 
ENGINE IN ANY OTHER APPLICATION MAY BE A VIOLATION OF FEDERAL LAW 
SUBJECT TO CIVIL PENALTY.''.

Subpart B--Emission Standards and Related Requirements


Sec.  1039.101  What exhaust emission standards must my engines meet 
after the 2014 model year?

    The exhaust emission standards of this section apply after the 2014 
model year. Certain of these standards also apply for model year 2014 
and earlier. This section presents the full set of emission standards 
that apply after all the transition and phase-in provisions of Sec.  
1039.102 and Sec.  1039.104 expire. See Sec.  1039.102 and 40 CFR 
89.112 for exhaust emission standards that apply to 2014 and earlier 
model years. Section 1039.105 specifies smoke standards.
    (a) Emission standards for transient testing. Transient exhaust 
emissions from your engines may not exceed the applicable emission 
standards in Table 1 of this section. Measure emissions using the 
applicable transient test procedures described in subpart F of this 
part. The following engines are not subject to the transient standards 
in this paragraph (a):
    (1) Engines above 560 kW.
    (2) Constant-speed engines.
    (b) Emission standards for steady-state testing. Steady-state 
exhaust

[[Page 39216]]

emissions from your engines may not exceed the applicable emission 
standards in Table 1 of this section. Measure emissions using the 
applicable steady-state test procedures described in subpart F of this 
part.

      Table 1 of Sec.   1039.101.--Tier 4 Exhaust Emission Standards After the 2014 Model Year, g/kW-hr \1\
----------------------------------------------------------------------------------------------------------------
     Maximum engine power        Application         PM           NOX          NMHC       NOX+NMHC        CO
----------------------------------------------------------------------------------------------------------------
kW < 19......................  All............     \2\ 0.40  ............  ...........          7.5      \3\ 6.6
19 <= kW < 56................  All............         0.03  ............  ...........          4.7      \4\ 5.0
56 <= kW < 130...............  All............         0.02          0.40         0.19  ...........          5.0
130 <= kW <= 560.............  All............         0.02          0.40         0.19  ...........          3.5
                               Generator sets.         0.03          0.67         0.19  ...........          3.5
kW > 560.....................  All except              0.04          3.5          0.19  ...........          3.5
                                generator sets.
----------------------------------------------------------------------------------------------------------------
\1\ Note that some of these standards also apply for 2014 and earlier model years. This table presents the full
  set of emission standards that apply after all the transition and phase-in provisions of Sec.   1039.102
  expire.
\2\ See paragraph (c) of this section for provisions related to an optional PM standard for certain engines
  below 8 kW.
\3\ The CO standard is 8.0 g/kW-hr for engines below 8 kW.
\4\ The CO standard is 5.5 g/kW-hr for engines below 37 kW.

    (c) Optional PM standard for engines below 8 kW. You may certify 
hand-startable, air-cooled, direct injection engines below 8 kW to an 
optional Tier 4 PM standard of 0.60 g/kW-hr. The term hand-startable 
generally refers to engines that are started using a hand crank or pull 
cord. This PM standard applies to both steady-state and transient 
testing, as described in paragraphs (a) and (b) of this section. 
Engines certified under this paragraph (c) may not be used to generate 
PM or NOX+NMHC emission credits under the provisions of 
subpart H of this part. These engines may use PM or NOX+NMHC 
emission credits, subject to the FEL caps in paragraph (d)(1) of this 
section.
    (d) Averaging, banking, and trading. You may generate or use 
emission credits under the averaging, banking, and trading (ABT) 
program, as described in subpart H of this part. This requires that you 
specify a family emission limit (FEL) for each pollutant you include in 
the ABT program for each engine family. These FELs serve as the 
emission standards for the engine family with respect to all required 
testing instead of the standards specified in paragraphs (a) and (b) of 
this section. The FELs determine the not-to-exceed standards for your 
engine family, as specified in paragraph (e) of this section.
    (1) Primary FEL caps. The FEL may not be higher than the limits in 
Table 2 of this section, except as allowed by paragraph (d)(2) of this 
section or by Sec.  1039.102:

                 Table 2 of Sec.   1039.101.--Tier 4 FEL Caps After the 2014 Model Year, g/kW-hr
----------------------------------------------------------------------------------------------------------------
           Maximum engine power                      Application                PM          NOX        NOX+NMHC
----------------------------------------------------------------------------------------------------------------
kW < 19...................................  All..........................         0.80  ...........      \1\ 9.5
19 <= kW < 56.............................  All..........................         0.05  ...........          7.5
56 <= kW < 130............................  All..........................         0.04         0.80  ...........
130 <= kW <= 560..........................  All..........................         0.04         0.80  ...........
kW > 560..................................  Generator sets...............         0.05         1.07  ...........
                                            All except generator sets....         0.07          6.2  ...........
----------------------------------------------------------------------------------------------------------------
\1\ For engines below 8 kW, the FEL cap is 10.5 g/kW-hr for NOX+NMHC emissions.

    (2) Alternate FEL caps. For a given power category, you may use the 
alternate FEL caps shown in Table 3 of this section instead of the FEL 
caps identified in paragraph (d)(1) of this section for up to 5 percent 
of your U.S.-directed production volume in a given model year.

------------------------------------------------------------------------
                                     Starting
       Maximum engine power         model year  PM FEL  cap  NOX FEL cap
                                       \1\
------------------------------------------------------------------------
19 <= kW < 56....................     \2\ 2016         0.30  ...........
56 <= kW < 130...................         2016     \3\ 0.30      \3\ 3.8
130 <= kW <= 560.................         2015         0.20          3.8
kW > 560.........................         2019         0.10      \4\ 3.5
------------------------------------------------------------------------
\1\ See Sec.   1039.104(g) for alternate FEL caps that apply in earlier
  model years.
\2\ For manufacturers certifying engines under Option 1 of
  Table 3 of Sec.   1039.102, these alternate FEL caps apply starting
  with the 2017 model year.
\3\ For engines below 75 kW, the FEL caps are 0.40 g/kW-hr for PM
  emissions and 4.4 g/kW-hr for NOX emissions.
\4\ For engines above 560 kW, the provision for alternate NOX FEL caps
  is limited to generator-set engines. For example, if you produce 1,000
  generator-set engines above 560 kW in a given model year, up to 50 of
  them may be certified to the alternate NOX FEL caps.

    (e) Not-to-exceed standards. Exhaust emissions from your engines 
may not exceed the applicable not-to-exceed (NTE) standards in this 
paragraph (e).
    (1) Measure emissions using the procedures described in subpart F 
of this part.
    (2) Except as noted in paragraph (e)(7) of this section, the NTE 
standard, rounded to the same number of decimal places as the 
applicable standard in Table 1 of this section, is determined from the 
following equation:


[[Page 39217]]


NTE standard for each pollutant = (STD) x (M)

Where:

STD = The standard specified for that pollutant in Table 1 of this 
section (or paragraph (c) of this section) if you certify without 
using ABT for that pollutant; or the FEL for that pollutant if you 
certify using ABT.
M = The NTE multiplier for that pollutant, as defined in paragraph 
(e)(3) of this section.

    (3) The NTE multiplier for each pollutant is 1.25, except in the 
following cases:

------------------------------------------------------------------------
            If . . .                   Or . . .           Then . . .
------------------------------------------------------------------------
(i) The engine family is         The engine family    The multiplier for
 certified to a NOX standard      is certified to a    NOX, NMHC, and
 less than 2.50 g/kW-hr without   NOX FEL less than    NOX+NMHC is 1.50.
 using ABT.                       2.50 g/kW-hr or a
                                  NOX+NMHC FEL less
                                  than 2.70 g/kW-hr.
(ii) The engine family is        The engine family    The multiplier for
 certified to a PM standard       is certified to a    PM is 1.50.
 less than 0.07 g/kW-hr without   PM FEL less than
 using ABT.                       0.07 g/kW-hr.
------------------------------------------------------------------------

    (4) There are two sets of specifications of ambient operating 
regions that will apply for all NTE testing of engines in an engine 
family. You must choose one set for each engine family and must 
identify your choice of ambient operating regions in each application 
for certification for an engine family. You may choose separately for 
each engine family. Choose one of the following ambient operating 
regions:
    (i) All altitudes less than or equal to 5,500 feet above sea level 
during all ambient temperature and humidity conditions.
    (ii) All altitudes less than or equal to 5,500 feet above sea 
level, for temperatures less than or equal to the temperature 
determined by the following equation at the specified altitude:

T = -0.00254 x A + 100

Where:

T = ambient air temperature in degrees Fahrenheit.
A = altitude in feet above sea level (A is negative for altitudes 
below sea level).

    (5) Temperature and humidity ranges for which correction factors 
are allowed are specified in 40 CFR 86.1370-2007(e).
    (i) If you choose the ambient operating region specified in 
paragraph (e)(4)(i) of this section, the temperature and humidity 
ranges for which correction factors are allowed are defined in 40 CFR 
86.1370-2007(e)(1).
    (ii) If you choose the ambient operating region specified in 
paragraph (e)(4)(ii) of this section, the temperature and humidity 
ranges for which correction factors are allowed are defined in 40 CFR 
86.1370-2007(e)(2).
    (6) For engines equipped with exhaust-gas recirculation, the NTE 
standards of this section do not apply during the cold operating 
conditions specified in 40 CFR 86.1370-2007(f).
    (7) For engines certified to a PM FEL less than or equal to 0.01 g/
kW-hr, the PM NTE standard is 0.02 g/kW-hr.
    (f) Fuel types. The exhaust emission standards in this section 
apply for engines using the fuel type on which the engines in the 
engine family are designed to operate, except for engines certified 
under Sec.  1039.615. For engines certified under Sec.  1039.615, the 
standards of this section apply to emissions measured using the 
specified test fuel. You must meet the numerical emission standards for 
NMHC in this section based on the following types of hydrocarbon 
emissions for engines powered by the following fuels:
    (1) Alcohol-fueled engines: THCE emissions.
    (2) Other engines: NMHC emissions.
    (g) Useful life. Your engines must meet the exhaust emission 
standards in paragraphs (a) through (e) of this section over their full 
useful life.
    (1) The useful life values are shown in the following table, except 
as allowed by paragraph (g)(2) of this section:

                                 Table 4 of Sec.   1039.101--Useful Life Values
----------------------------------------------------------------------------------------------------------------
                                        And its maximum power    And its rated speed is  Then its useful life is
 If your engine is certified as . . .          is . . .                  . . .                    . . .
----------------------------------------------------------------------------------------------------------------
(i) Variable speed or constant speed.  kW <19.................  Any Speed..............  3,000 hours or five
                                                                                          years, whichever comes
                                                                                          first.
(ii) Constant speed..................  19 <= kW <37...........  3,000 rpm or higher....  3,000 hours or five
                                                                                          years, whichever comes
                                                                                          first.
(iii) Constant speed.................  19 <= kW <37...........  Less than 3,000 rpm....  5,000 hours or seven
                                                                                          years, whichever comes
                                                                                          first.
(iv) Variable........................  19 <= kW <37...........  Any Speed..............  5,000 hours or seven
                                                                                          years, whichever comes
                                                                                          first.
(v) Variable speed or constant speed.  kW >=37................  Any speed..............  8,000 hours or ten
                                                                                          years, whichever comes
                                                                                          first.
----------------------------------------------------------------------------------------------------------------

    (2) You may request in your application for certification that we 
approve a shorter useful life for an engine family. We may approve a 
shorter useful life if we determine that these engines will rarely 
operate longer than the alternate useful life. Your demonstration must 
include documentation from in-use engines. Your demonstration must also 
include any overhaul interval that you recommend and any mechanical 
warranty that you offer for the engine.
    (h) Applicability for testing. The emission standards in this 
subpart apply to all testing, including certification, selective 
enforcement audits, and in-use testing. For selective enforcement 
audits, we will require you to perform duty-cycle testing as specified 
in Sec. Sec.  1039.505 and 1039.510. The NTE standards of this section 
apply for those tests. We will not direct you to do additional testing 
under a selective enforcement audit to show that your engines meet the 
NTE standards.

[[Page 39218]]

Sec.  1039.102  What exhaust emission standards and phase-in allowances 
apply for my engines in model year 2014 and earlier?

    The exhaust emission standards of this section apply for 2014 and 
earlier model years. See Sec.  1039.101 for exhaust emission standards 
that apply to later model years. See 40 CFR 89.112 for exhaust emission 
standards that apply to model years before the standards of this part 
1039 take effect.
    (a) Emission standards for transient testing. Transient exhaust 
emissions from your engines may not exceed the applicable emission 
standards in Tables 1 through 6 of this section. Measure emissions 
using the applicable transient test procedures described in subpart F 
of this part. See paragraph (c) of this section for a description of 
provisions related to the phase-in and phase-out standards shown in 
Tables 4 through 6 of this section. The emission standards for 
transient testing are limited for certain engines, as follows:
    (1) The transient standards in this section do not apply for the 
following engines:
    (i) Engines below 37 kW for model years before 2013.
    (ii) Engines certified under Option 1 of Table 3 of this 
section. These are the small-volume manufacturer engines certified to 
the Option 1 standards for model years 2008 through 2015 under 
Sec.  1039.104(c), and other engines certified to the Option 1 
standards for model years 2008 through 2012.
    (iii) Engines certified to an alternate FEL during the first four 
years of the Tier 4 standards for the applicable power category, as 
allowed in Sec.  1039.104(g). However, you may certify these engines to 
the transient standards in this section to avoid using temporary 
compliance adjustment factors, as described in Sec.  1039.104(g)(2). 
Note that in some cases this four-year period extends into the time 
covered by the standards in Sec.  1039.101.
    (iv) Constant-speed engines.
    (v) Engines above 560 kW.
    (2) The transient standards in this section for gaseous pollutants 
do not apply to phase-out engines that you certify to the same 
numerical standards (and FELs if the engines are certified using ABT) 
for gaseous pollutants as you certified under the Tier 3 requirements 
of 40 CFR part 89. However, except as specified by paragraph (a)(1) of 
this section, the transient PM emission standards apply to these 
engines.
    (b) Emission standards for steady-state testing. Steady-state 
exhaust emissions from your engines may not exceed the applicable 
emission standards in Tables 1 through 7 of this section. Measure 
emissions using the applicable steady-state test procedures described 
in subpart F of this part. See paragraph (c) of this section for a 
description of provisions related to the phase-in and phase-out 
standards shown in Tables 4 through 6 of this section.

                Table 1 of Sec.   1039.102.--Tier 4 Exhaust Emission Standards (g/kW-hr): kW < 19
----------------------------------------------------------------------------------------------------------------
                    Maximum engine power                      Model years       PM       NOX + NMHC       CO
----------------------------------------------------------------------------------------------------------------
kW < 8......................................................    2008-2014     \1\ 0.40          7.5          8.0
8 <= kW < 19................................................    2008-2014         0.40          7.5         6.6
----------------------------------------------------------------------------------------------------------------
\1\ For engines that qualify for the special provisions in Sec.   1039.101(c), you may delay certifying to the
  standards in this part 1039 until 2010. In 2009 and earlier model years, these engines must instead meet the
  applicable Tier 2 standards and other requirements from 40 CFR part 89. Starting in 2010, these engines must
  meet a PM standard of 0.60 g/kW-hr, as described in Sec.   1039.101(c). Engines certified to the 0.60 g/kWhr
  PM standard may not generate ABT credits.


 Table 2 of Sec.   1039.102.--Interim Tier 4 Exhaust Emission Standards
                        (g/kW-hr): 19 <= kW < 37
------------------------------------------------------------------------
           Model years                  PM       NOX + NMHC       CO
------------------------------------------------------------------------
2008-2012........................         0.30          7.5          5.5
2013-2014........................         0.03          4.7          5.5
------------------------------------------------------------------------


         Table 3 of Sec.   1039.102.--Interim Tier 4 Exhaust Emission Standards (g/kW-hr): 37 <= kW < 56
----------------------------------------------------------------------------------------------------------------
                         Option \1\                           Model years       PM       NOX + NMHC       CO
----------------------------------------------------------------------------------------------------------------
1..................................................    2008-2012         0.30          4.7          5.0
2..................................................         2012         0.03          4.7          5.0
All.........................................................    2013-2014         0.03          4.7         5.0
----------------------------------------------------------------------------------------------------------------
\1\You may certify engines to the Option 1 or Option 2 standards starting in the listed model
  year. Under Option 1, all engines at or above 37 kW and below 56 kW produced before the 2013 model
  year must meet the applicable Option 1 standards in this table. These engines are considered to be
  ``Option 1 engines.'' Under Option 2, all these engines produced before the 2012 model year
  must meet the applicable standards under 40 CFR part 89. Engines certified to the Option 2 standards
  in model year 2012 are considered to be ``Option 2 engines.''


         Table 4 of Sec.   1039.102.--Interim Tier 4 Exhaust Emission Standards (g/kW-hr): 56 <= kW < 75
----------------------------------------------------------------------------------------------------------------
       Model years \1\          Phase-in option       PM          NOX          NMHC      NOX + NMHC       CO
----------------------------------------------------------------------------------------------------------------
                               Phase-in........         0.02         0.40         0.19  ...........          5.0
2012-2013....................  Phase-out.......         0.02  ...........  ...........          4.7          5.0
2014.........................  All engines.....         0.02         0.40         0.19  ...........         5.0
----------------------------------------------------------------------------------------------------------------
\1\ See paragraph (d)(2) of this section for provisions that allow for a different phase-in schedule than that
  specified in paragraph (c)(1) of this section.


[[Page 39219]]


        Table 5 of Sec.   1039.102.--Interim Tier 4 Exhaust Emission Standards (g/kW-hr): 75 <= kW < 130
----------------------------------------------------------------------------------------------------------------
       Model years \1\          Phase-in option       PM          NOX          NMHC      NOX + NMHC       CO
----------------------------------------------------------------------------------------------------------------
                               Phase-in........         0.02         0.40         0.19  ...........          5.0
2012-2013....................  Phase-out.......         0.02  ...........  ...........          4.0          5.0
2014.........................  All engines.....         0.02         0.40         0.19  ...........         5.0
----------------------------------------------------------------------------------------------------------------
\1\ See paragraph (d)(2) of this section for provisions that allow for a different phase-in schedule than that
  specified in paragraph (c)(1) of this section.


        Table 6 of Sec.   1039.102.--Interim Tier 4 Exhaust Emission Standards (g/kW-hr): 130 <= kW < 560
----------------------------------------------------------------------------------------------------------------
       Model years \1\          Phase-in option       PM          NOX          NMHC      NOX + NMHC       CO
----------------------------------------------------------------------------------------------------------------
                               Phase-in........         0.02         0.40         0.19  ...........          3.5
2011-2013....................  Phase-out.......         0.02  ...........  ...........          4.0          3.5
2014.........................  All engines.....         0.02         0.40         0.19  ...........          3.5
----------------------------------------------------------------------------------------------------------------


                               Table 7 of Sec.   1039.102.--Interim Tier 4 Exhaust Emission Standards (g/kW-hr): kW > 560
--------------------------------------------------------------------------------------------------------------------------------------------------------
               Model years                     Maximum engine power              Application               PM          NOX          NMHC          CO
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           560 < kW <= 900.............  All........................         0.10          3.5         0.40          3.5
                                                                         Generator sets.............         0.10         0.67         0.40          3.5
2011-2014................................  kW > 900....................  All except generator sets..         0.10          3.5         0.40          3.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (c) Phase-in requirements. The following phase-in provisions apply 
for engines in 56-560 kW power categories meeting the interim Tier 4 
standards in paragraphs (a) and (b) of this section:
    (1) For each model year before 2014 noted in Tables 4 through 6 of 
this section, you must certify engine families representing at least 50 
percent of your U.S.-directed production volume for each power category 
to the applicable phase-in standards, except as allowed by paragraph 
(c)(3), (d)(2), or (e) of this section. Any engines not certified to 
the phase-in standards must be certified to the corresponding phase-out 
standards.
    (2) Engines certified to the phase-out standards in Tables 4 
through 6 of this section must comply with all other requirements that 
apply to Tier 4 engines, except as otherwise specified in this section.
    (3) At the time of certification, show how you intend to meet the 
phase-in requirements of this paragraph (c) based on projected U.S.-
directed production volumes. If your actual U.S.-directed production 
volume fails to meet the phase-in requirements for a given model year, 
you must make up the shortfall (in terms of number of engines) by the 
end of the model year representing the final year of the phase-in 
period. For example, if you plan in good faith to produce 50 percent of 
a projected 10,000 engines in the 56-130 kW power category (i.e., 5,000 
engines) in 2012 in compliance with the Tier 4 phase-in standards for 
NOX and NMHC in Table 4 of this section, but produce 4,500 
such engines of an actual 10,000 engines, you must produce 500 engines 
in model year 2013 (i.e., the final year of the phase-in for this power 
category) that meet the Tier 4 phase-in standards above and beyond the 
production otherwise needed to meet the 50-percent phase-in requirement 
for model year 2013. If any shortfall exceeds the applicable limit of 
paragraph (c)(3)(i) or (ii) of this section, that number of phase-out 
engines will be considered not covered by a certificate of conformity 
and in violation of Sec.  1068.101(a)(1). The shortfall allowed by this 
paragraph (c)(3) may not exceed a certain number of engines, as 
follows:
    (i) For engine families certified according to the alternate phase-
in schedule described in paragraph (d)(2) of this section, for model 
years prior to the final year of the phase-in, 5 percent of your actual 
U.S.-directed production volume for that power category in that model 
year.
    (ii) For all other engine families, for model years prior to the 
final year of the phase-in, 25 percent of your actual U.S.-directed 
production volume for that power category in that model year.
    (iii) No shortfall is allowed in the final year of the phase-in.
    (4) Engines you introduce into commerce beyond the limits described 
in paragraphs (c)(3) of this section will be considered not covered by 
a certificate of conformity and in violation of Sec.  1068.101(a)(1).
    (5) For the purposes of this part, the term ``phase-in'' means 
relating to a standard that is identified in this section as a phase-in 
standard and the term ``phase-out'' means relating to a standard that 
is identified in this section as a phase-out standard. For example, a 
200-kW engine from the 2012 model year that is certified to the 4.0 g/
kW-hr NOX+NMHC standard in Table 6 of Sec.  1039.102 is a 
phase-out engine.
    (d) Banked credits and alternate phase-in for 56-130 kW engines. 
For engines in the 56-130 kW power category, you may use only one of 
the following additional provisions:
    (1) For model years 2012 through 2014, you may use banked 
NOX+NMHC credits from any Tier 2 engine at or above 37 kW 
certified under 40 CFR part 89 to meet the NOX phase-in 
standards or the NOX+NMHC phase-out standards under 
paragraphs (b) and (c) of this section, subject to the additional ABT 
provisions in Sec.  1039.740.
    (2) Instead of meeting the phase-in requirements of paragraph 
(c)(1) of this section, you may certify engine families representing at 
least 25 percent of your U.S.-directed production volume for each model 
year from 2012 through 2014 to the applicable phase-in standards in 
Tables 4 and 5 of this section, except as allowed by paragraph (c)(3) 
or (e) of this section. Any engines not certified to the phase-in 
standards must be certified to the corresponding phase-out standards. 
Engines certified under this paragraph (d)(2) may generate 
NOX emission credits only for averaging within the same 
power category during the same model year.

[[Page 39220]]

For engines certified under this paragraph (d)(2), the 2014 model year 
may not extend beyond December 30, 2014.
    (e) Alternate NOX standards. For engines in 56-560 kW 
power categories during the phase-in of Tier 4 standards, you may 
certify engine families to the alternate NOX standards in 
this paragraph (e) instead of the phase-in and phase-out NOX 
and NOX+NMHC standards described in Tables 4 through 6 of 
this section. Engines certified under this section must be certified to 
an NMHC standard of 0.19 g/kW-hr. Do not include engine families 
certified under this paragraph (e) in determining whether you comply 
with the percentage phase-in requirements of paragraphs (c) and (d)(2) 
of this section. Except for the provisions for alternate FEL caps in 
Sec.  1039.104(g), the NOX standards and FEL caps under this 
paragraph (e) are as follows:
    (1) For engines in the 56-130 kW power category, apply the 
following alternate NOX standards and FEL caps:
    (i) If you use the provisions of paragraph (d)(1) of this section, 
your alternate NOX standard for any engine family in the 56-
130 kW power category is 2.3 g/kW-hr for model years 2012 and 2013. 
Engines certified to this standard may not exceed a NOX FEL 
cap of 3.0 g/kW-hr.
    (ii) If you use the provisions of paragraph (d)(2) of this section, 
your alternate NOX standard for any engine family in the 56-
130 kW power category is 3.4 g/kW-hr for model years 2012 through 2014. 
Engines below 75 kW certified to this standard may not exceed a 
NOX FEL cap of 4.4 g/kW-hr; engines at or above 75 kW 
certified to this standard may not exceed a NOX FEL cap of 
3.8 g/kW-hr.
    (iii) If you do not use the provisions of paragraph (d) of this 
section, you may apply the alternate NOX standard and the 
appropriate FEL cap from either paragraph (e)(1)(i) or (ii) of this 
section.
    (2) For engines in the 130-560 kW power category, the alternate 
NOX standard is 2.0 g/kW-hr for model years 2011 through 
2013. Engines certified to this standard may not exceed a 
NOX FEL cap of 2.7 g/kW-hr.
    (f) Split families. For generating or using credits for engines in 
56-560 kW power categories during the phase-in of Tier 4 standards, you 
may split an engine family into two subfamilies (for example, one that 
uses credits and one that generates credits for the same pollutant).
    (1) Identify any split engine families in your application for 
certification. Your engines must comply with all the standards and 
requirements applicable to Tier 4 engines, except as noted in this 
paragraph (f). You may calculate emission credits relative to different 
emission standards (i.e., phase-in and phase-out standards) for 
different sets of engines within the engine family, but the engine 
family must be certified to a single set of standards and FELs. To 
calculate NOX+NMHC emission credits, add the NOX 
FEL to the NMHC phase-in standard for comparison with the applicable 
NOX+NMHC phase-out standard. Any engine family certified 
under this paragraph (f) must meet the applicable phase-in standard for 
NMHC. You may assign the number and configurations of engines within 
the respective subfamilies any time before the due date for the final 
report required in Sec.  1039.730. Apply the same label to each engine 
in the family, including the NOX FEL to which it is 
certified.
    (2) For example, a 10,000-unit engine family in the 75-130 kW power 
category may be certified to meet the standards for PM, NMHC, and CO 
that apply to phase-in engines, with a 0.8 g/kW-hr FEL for 
NOX. When compared to the phase-out NOX+NMHC 
standard, this engine family would generate positive 
NOX+NMHC emission credits. When compared to the phase-in 
NOX standard, this engine family would generate negative 
NOX emission credits. You could create a subfamily with 
2,500 engines (one-quarter of the 10,000 engines) and identify them as 
phase-in engines. You would count these 2,500, with their negative 
NOX credits, in determining compliance with the 50-percent 
phase-in requirement in paragraph (c)(1) of this section. You would 
calculate negative credits relative to the 0.40 g/kW-hr NOX 
standard for these 2,500 engines. You would identify the other 7,500 
engines in the family as phase-out engines and calculate positive 
credits relative to the 4.0 g/kW-hr NOX+NMHC standard.
    (g) Other provisions. The provisions of Sec.  1039.101(d) through 
(h) apply with respect to the standards of this section, with the 
following exceptions and special provisions:
    (1) NTE standards. Use the provisions of Sec.  1039.101(e)(3) to 
calculate and apply the NTE standards, but base these calculated values 
on the applicable standards in this section or the applicable FEL, 
instead of the standards in Table 1 of Sec.  1039.101. All other 
provisions of Sec.  1039.101(e) apply under this paragraph (g)(1). The 
NTE standards do not apply for certain engines and certain pollutants, 
as follows:
    (i) All engines below 37 kW for model years before 2013.
    (ii) All engines certified under Option 1 of Table 3 of 
this section. These are small-volume manufacturer engines certified to 
the Option 1 standards for model years 2008 through 2015 under 
Sec.  1039.104(c), and other engines certified to the Option 1 
standards for model years 2008 through 2012.
    (iii) All engines less than or equal to 560 kW that are certified 
to an FEL under the alternate FEL program during the first four years 
of the Tier 4 standards for the applicable power category, as described 
in Sec.  1039.104(g). However, if you apply to meet transient emission 
standards for these engines under Sec.  1039.102(a)(1)(iii), you must 
also meet the NTE standards in this paragraph (g)(1).
    (iv) Gaseous pollutants for phase-out engines that you certify to 
the same numerical standards and FELs for gaseous pollutants to which 
you certified under the Tier 3 requirements of 40 CFR part 89. However, 
the NTE standards for PM apply to these engines.
    (2) Interim FEL caps. As described in 1039.101(d), you may 
participate in the ABT program in subpart H of this part by certifying 
engines to FELs for PM, NOX, or NOX+NMHC instead 
of the standards in Tables 1 through 7 of this section for the model 
years shown. The FEL caps listed in the following table apply instead 
of the FEL caps inSec.  1039.101(d)(1), except as allowed by Sec.  
1039.104(g):

                          Table 8 of Sec.   1039.102.--Interim Tier 4 FEL Caps, g/kW-hr
----------------------------------------------------------------------------------------------------------------
                                                             Model years
       Maximum  engine power           Phase-in  option          \1\            PM          NOX        NOX+NMHC
----------------------------------------------------------------------------------------------------------------
kW < 19...........................  .....................       2008-2014         0.80  ...........       \2\9.5
19 <= kW < 37.....................  .....................       2008-2012         0.60  ...........          9.5
37 <= kW < 56.....................  .....................    \3\2008-2012         0.40  ...........          7.5
56 <= kW < 130....................  Phase-in.............       2012-2013         0.04         0.80  ...........
56 <= kW < 130....................  Phase-out............       2012-2013         0.04  ...........      \4\ 6.6

[[Page 39221]]

 
130 <= kW <= 560..................  Phase-in.............       2011-2013         0.04         0.80  ...........
130 <= kW <= 560..................  Phase-out............       2011-2013         0.04  ...........      \5\ 6.4
kW > 560..........................  .....................       2011-2014         0.20          6.2  ...........
----------------------------------------------------------------------------------------------------------------
\1\ For model years before 2015 where this table does not specify FEL caps, apply the FEL caps shown in Sec.
  1039.101.
\2\ For engines below 8 kW, the FEL cap is 10.5 g/kW-hr for NOX+NMHC emissions.
\3\ For manufacturers certifying engines to the standards of this part 1039 in 2012 under Option 2 of
  Table 3 of Sec.   1039.102, the FEL caps of Sec.   1039.101 apply for model year 2012 and later; see 40 CFR
  part 89 for provisions that apply to earlier model years.
\4\ For engines below 75 kW, the FEL cap is 7.5 g/kW-hr for NOX+NMHC emissions.
\5\ For engines below 225 kW, the FEL cap is 6.6 g/kW-hr for NOX+NMHC emissions.

    (3) Crankcase emissions. The crankcase emission requirements of 
Sec.  1039.115(a) do not apply to engines using charge-air compression 
that are certified to an FEL under the alternate FEL program in Sec.  
1039.104(g) during the first four years of the Tier 4 standards for the 
applicable power category.
    (4) Special provisions for 37-56 kW engines. For engines at or 
above 37 kW and below 56 kW from model years 2008 through 2012, you 
must take the following additional steps:
    (i) State the applicable PM standard on the emission control 
information label.
    (ii) Add information to the emission-related installation 
instructions to clarify the equipment manufacturer's obligations under 
Sec.  1039.104(f).


Sec.  1039.104  Are there interim provisions that apply only for a 
limited time?

    The provisions in this section apply instead of other provisions in 
this part. This section describes when these interim provisions apply.
    (a) Incentives for early introduction. This paragraph (a) allows 
you to reduce the number of engines subject to the applicable standards 
in Sec.  1039.101 or Sec.  1039.102, when some of your engines are 
certified to the specified levels earlier than otherwise required. The 
engines that are certified early are considered offset-generating 
engines. The provisions of this paragraph (a), which describe the 
requirements applicable to offset-generating engines, apply beginning 
in model year 2007. These offset generating engines may generate 
additional allowances for equipment manufacturers under the incentive 
program described in Sec.  1039.627; you may instead use these offsets 
under paragraph (a)(2) of this section in some cases.
    (1) For early-compliant engines to generate offsets for use either 
under this paragraph (a) or under Sec.  1039.627, you must meet the 
following general provisions:
    (i) You may not generate offsets from engines below 19 kW.
    (ii) You must begin actual production of engines covered by the 
corresponding certificate by the following dates:
    (A) For engines at or above 19 kW and below 37 kW: September 1, 
2012.
    (B) For engines at or above 37 kW and below 56 kW: September 1, 
2012 if you choose Option 1 in Table 3 of Sec.  1039.102, or 
September 1, 2011 if you do not choose Option 1 in Table 3 of 
Sec.  1039.102.
    (C) For engines in the 56-130 kW power category: September 1, 2011.
    (D) For engines in the 130-560 kW power category: September 1, 
2010.
    (E) For engines above 560 kW: September 1, 2014.
    (iii) Engines you produce after December 31 of the year shown in 
paragraph (a)(1)(ii) of this section may not generate offsets.
    (iv) You may not use ABT credits to certify offset-generating 
engines.
    (v) Offset-generating engines must be certified to the Tier 4 
standards and requirements under this part 1039.
    (2) If equipment manufacturers decline offsets for your offset-
generating engines under Sec.  1039.627, you may not generate ABT 
credits with these engines, but you may reduce the number of engines 
that are required to meet the standards in Sec.  1039.101 or 1039.102 
as follows:

----------------------------------------------------------------------------------------------------------------
                                                                      You may reduce the
                                                        That are       number of engines
                                   With maximum     certified to the   in the same power
        For every . . .          engine power . .      applicable      category that are   In later model years
                                        .           standards in . .   required to meet          by . . .
                                                           .               the . . .
 
----------------------------------------------------------------------------------------------------------------
(i) 2 engines.................  19 <= kW < 37....  Table 2 of Sec.    PM standard in      3 engines.
                                                    1039.102 \1\.      Table 2 of Sec.
                                                                       1039.102
                                                                       applicable to
                                                                       model year 2013
                                                                       or 2014 engines
                                                                       or the PM
                                                                       standard in Table
                                                                       1 of Sec.
                                                                       1039.101.
(ii) 2 engines................  56 <= kW <= 560..  Table 4, 5, or 6   Phase-out           3 engines.
                                                    of Sec.            standards in
                                                    1039.102 for       Tables 4 through
                                                    Phase-out          6 of Sec.
                                                    engines.           1039.102.
(iii) 2 engines...............  kW >= 19.........  Table 1 of Sec.    Standards in        3 engines.\2\
                                                    1039.101.          Tables 2 through
                                                                       7 of Sec.
                                                                       1039.102 or
                                                                       standards in
                                                                       Table 1 of Sec.
                                                                       1039.101.
(iv) 1 engine.................  kW >= 19.........  Table 1 of Sec.    Standards in        2 engines.\2\
                                                    1039.101 + 0.20    Tables 2 through
                                                    g/kW-hr NOX        7 of Sec.
                                                    standard.          1039.102 or
                                                                       standards in
                                                                       Table 1 of Sec.
                                                                       1039.101.
----------------------------------------------------------------------------------------------------------------
\1\ The engine must be certified to the PM standard applicable to model year 2013 engines, and to the NOX+NMHC
  and CO standards applicable to model year 2012 engines.
\2\ For engines above 560 kW, offsets from generator-set engines may be used only for generator-set engines.
  Offsets from engines for other applications may be used only for other applications besides generator sets.

    (3) Example: If you produce 100 engines in the 56-130 kW power 
category in model year 2008 that are certified to the 56-130 kW 
standards listed in Sec.  1039.101, and you produced 10,000 engines in 
this power category in

[[Page 39222]]

model year 2015, then only 9,850 of these model year 2015 engines would 
need to comply with the standards listed in Sec.  1039.101. The 100 
offset-generating engines in model year 2008 could not use or generate 
ABT credits.
    (4) Offset-using engines (that is, those not required to certify to 
the standards of Sec.  1039.101 or Sec.  1039.102 under paragraph 
(a)(2) of this section) are subject to the following provisions:
    (i) If the offset is being used under paragraph (a)(2)(i) of this 
section for an engine that would otherwise be certified to the model 
year 2013 or 2014 standards in Table 2 of Sec.  1039.102 or the 
standards in Table 1 of Sec.  1039.101, this engine must be certified 
to the standards and requirements of this part 1039, except that the 
only PM standard that applies is the steady-state PM standard that 
applies for model year 2012. Such an engine may not generate ABT 
credits.
    (ii) If the offset is being used under paragraph (a)(2)(ii) of this 
section for an engine that would otherwise be certified to the phase-
out standards in Tables 4 through 6 of Sec.  1039.102, this engine must 
be certified to the standards and requirements of this part 1039, 
except that the PM standard is the Tier 3 PM standard that applies for 
this engine's maximum power. Such an engine will be treated as a phase-
out engine for purposes of determining compliance with percentage 
phase-in requirements. Such an engine may not generate ABT credits.
    (iii) All other offset-using engines must meet the standards and 
other provisions that apply in model year 2011 for engines in the 19-
130 kW power categories, in model year 2010 for engines in the 130-560 
kW power category, or in model year 2014 for engines above 560 kW. Show 
that engines meet these emission standards by meeting all the 
requirements of Sec.  1039.260. You must meet the labeling requirements 
in Sec.  1039.135, but add the following statement instead of the 
compliance statement in Sec.  1039.135(c)(12): ``THIS ENGINE MEETS U.S. 
EPA EMISSION STANDARDS UNDER 40 CFR 1039.104(a).'' For power categories 
with a percentage phase-in, these engines should be treated as phase-in 
engines for purposes of determining compliance with phase-in 
requirements.
    (5) If an equipment manufacturer claims offsets from your engine 
for use under Sec.  1039.627, the engine generating the offset must 
comply with the requirements of paragraph (a)(1) of this section. You 
may not generate offsets for use under paragraphs (a)(2) and (5) of 
this section for these engines. You may generate ABT credits from these 
engines as follows:
    (i) To generate emission credits for NOX, 
NOX+NMHC, and PM, the engine must be certified to FELs at or 
below the standards in paragraph (a)(2) of this section.
    (ii) Calculate credits according to Sec.  1039.705 but use as the 
applicable standard the numerical value of the standard to which the 
engine would have otherwise been subject if it had not been certified 
under this paragraph (a).
    (iii) For the production volume, use the number of engines 
certified under this paragraph (a) for which you do not claim offsets 
under paragraph (a)(2) of this section.
    (6) You may include engines used to generate offsets under this 
paragraph (a) and engines used to generate offsets under Sec.  1039.627 
in the same engine family, subject to the provisions of Sec.  1039.230. 
The engine must be certified to FELs, as specified in paragraph 
(a)(5)(i) of this section. The FELs must be below the standard levels 
specified in paragraph (a)(2) of this section and those specified in 
Sec.  1039.627. In the reports required in Sec.  1039.730, include the 
following information for each model year:
    (i) The total number of engines that generate offsets under this 
paragraph (a).
    (ii) The number of engines used to generate offsets under paragraph 
(a)(2) of this section.
    (iii) The names of equipment manufacturers that intend to use your 
offsets under Sec.  1039.627 and the number of offsets involved for 
each equipment manufacturer.
    (b) In-use compliance limits. For purposes of determining 
compliance after title or custody has transferred to the ultimate 
purchaser, calculate the applicable in-use compliance limits by 
adjusting the applicable standards or FELs. This applies only for 
engines at or above 19 kW. The NOX adjustment applies only 
for engines with a NOX FEL no higher than 2.1 g/kW-hr The PM 
adjustment applies only for engines with a PM FEL no higher than the PM 
standard in Sec.  1039.101 for the appropriate power category. Add the 
following adjustments to the otherwise applicable standards or FELs 
(steady-state, transient, and NTE) for NOX and PM:

----------------------------------------------------------------------------------------------------------------
                                                                                                      The PM
                                         If your engine's maximum    The NOX adjustment in g/kW-   adjustment in
         In model years . . .                 power is . . .                 hr is . . .          g/kW-hr is . .
                                                                                                         .
----------------------------------------------------------------------------------------------------------------
2013-2014............................  19 <= kW < 56..............  not allowed.................            0.01
2012-2016............................  56 <= kW < 130.............  0.16 for operating hours <=             0.01
                                                                     2000.
                                                                    0.25 for operating hours
                                                                     2001 to 3400.
                                                                    0.34 for operating hours >
                                                                     3400.
2011-2015............................  130 <= kW < 560............  0.16 for operating hours <=             0.01
                                                                     2000.
                                                                    0.25 for operating hours
                                                                     2001 to 3400.
                                                                    0.34 for operating hours >
                                                                     3400.
2011-2016............................  kW > 560...................  0.16 for operating hours <=             0.01
                                                                     2000.
                                                                    0.25 for operating hours
                                                                     2001 to 3400.
                                                                    0.34 for operating hours >
                                                                     3400.
----------------------------------------------------------------------------------------------------------------

    (c) Provisions for small-volume manufacturers. Special provisions 
apply if you are a small-volume engine manufacturer subject to the 
requirements of this part. You must notify us in writing before January 
1, 2008 if you intend to use these provisions.
    (1) You may delay complying with certain otherwise applicable Tier 
4 emission standards and requirements as described in the following 
table:

[[Page 39223]]



----------------------------------------------------------------------------------------------------------------
                                                                        Until model   Before that model year the
 If your engine's maximum power is . . .   You may delay meeting . . .   year . . .  engine must comply with . .
                                                                                                  .
----------------------------------------------------------------------------------------------------------------
kW < 19..................................  The standards and                   2011  The standards and
                                            requirements of this part.                requirements in 40 CFR
                                                                                      part 89.
19 <= kW < 37............................  The Tier 4 standards and            2016  The Tier 4 standards and
                                            requirements of this part                 requirements that apply
                                            that would otherwise be                   for model year 2008.
                                            applicable in model year
                                            2013.
37 <= kW < 56............................     See paragraph (c)(2) of this section for special provisions that
                                                          apply for engines in this power category.
56 <= kW < 130...........................  The standards and                   2015  The standards and
                                            requirements of this part.                requirements in 40 CFR
                                                                                      part 89.
----------------------------------------------------------------------------------------------------------------

    (2) To use the provisions of this paragraph (c) for engines at or 
above 37 kW and below 56 kW, choose one of the following:
    (i) If you comply with the 0.30 g/kW-hr PM standard in Sec.  
1039.102 in all model years from 2008 through 2012 without using PM 
credits, you may continue meeting that standard through 2015.
    (ii) If you do not choose to comply with paragraph (c)(2)(i) of 
this section, you may continue to comply with the standards and 
requirements in 40 CFR part 89 for model years through 2012, but you 
must begin complying in 2013 with Tier 4 standards and requirements 
specified in Table 3 of Sec.  1039.102 for model years 2013 and later.
    (3) After the delays indicated in paragraph (c)(1) and (2) of this 
section, you must comply with the same Tier 4 standards and 
requirements as all other manufacturers.
    (4) For engines not in the 19-56 kW power category, if you delay 
compliance with any standards under this paragraph (c), you must do all 
the following things for the model years when you are delaying 
compliance with the otherwise applicable standards:
    (i) Produce engines that meet all the emission standards and other 
requirements under 40 CFR part 89 applicable for that model year, 
except as noted in this paragraph (c).
    (ii) Meet the labeling requirements in 40 CFR 89.110, but use the 
following compliance statement instead of the compliance statement in 
40 CFR 89.110(b)(10): ``THIS ENGINE COMPLIES WITH U.S. EPA REGULATIONS 
FOR [CURRENT MODEL YEAR] NONROAD COMPRESSION-IGNITION ENGINES UNDER 40 
CFR 1039.104(c).''.
    (iii) Notify the equipment manufacturer that the engines you 
produce under this section are excluded from the production volumes 
associated with the equipment-manufacturer allowance program in Sec.  
1039.625.
    (5) For engines in the 19-56 kW power category, if you delay 
compliance with any standards under this paragraph (c), you must do all 
the following things for the model years when you are delaying 
compliance with the otherwise applicable standards:
    (i) Produce engines in those model years that meet all the emission 
standards and other requirements that applied for your model year 2008 
engines in the same power category.
    (ii) Meet the labeling requirements in Sec.  1039.135, but use the 
following compliance statement instead of the compliance statement in 
Sec.  1039.135: ``THIS ENGINE COMPLIES WITH U.S. EPA REGULATIONS FOR 
[CURRENT MODEL YEAR] NONROAD COMPRESSION-IGNITION ENGINES UNDER 40 CFR 
1039.104(c).''.
    (iii) Notify the equipment manufacturer that the engines you 
produce under this section are excluded from the production volumes 
associated with the equipment-manufacturer allowance program in Sec.  
1039.625.
    (6) The provisions of this paragraph (c) may not be used to 
circumvent the requirements of this part.
    (d) Deficiencies for NTE standards. You may ask us to accept as 
compliant an engine that does not fully meet specific requirements 
under the applicable NTE standards. Such deficiencies are intended to 
allow for minor deviations from the NTE standards under limited 
conditions. We expect your engines to have functioning emission-control 
hardware that allows you to comply with the NTE standards.
    (1) Request our approval for specific deficiencies in your 
application for certification, or before you submit your application. 
We will not approve deficiencies retroactively to cover engines already 
certified. In your request, identify the scope of each deficiency and 
describe any auxiliary emission-control devices you will use to control 
emissions to the lowest practical level, considering the deficiency you 
are requesting.
    (2) We will approve a deficiency only if compliance would be 
infeasible or unreasonable considering such factors as the technical 
feasibility of the given hardware and the applicable lead time and 
production cycles--including schedules related to phase-in or phase-out 
of engines. We may consider other relevant factors.
    (3) Our approval applies only for a single model year and may be 
limited to specific engine configurations. We may approve your request 
for the same deficiency in the following model year if correcting the 
deficiency would require unreasonable hardware or software 
modifications and we determine that you have demonstrated an acceptable 
level of effort toward complying.
    (4) You may ask for any number of deficiencies in the first three 
model years during which NTE standards apply for your engines. For the 
next four model years, we may approve up to three deficiencies per 
engine family. Deficiencies of the same type that apply similarly to 
different power ratings within a family count as one deficiency per 
family. We may condition approval of any such additional deficiencies 
during these four years on any additional conditions we determine to be 
appropriate. We will not approve deficiencies after the seven-year 
period specified in this paragraph (d)(4).
    (e) Diesel test fuels and corresponding labeling requirements. For 
diesel-fueled engines in 2011 and later model years, the diesel test 
fuel is ultra low-sulfur diesel fuel specified in 40 CFR part 1065. For 
diesel-fueled engines in 2010 and earlier model years, use test fuels 
and meet labeling requirements as follows:
    (1) Use the following test fuels in 2010 and earlier model years:
    (i) Unless otherwise specified, the diesel test fuel is low-sulfur 
diesel fuel specified in 40 CFR part 1065.
    (ii) In model years 2007 through 2010, you may use ultra low-sulfur 
diesel fuel as the test fuel for any engine family that employs sulfur-
sensitive technology if you can demonstrate that in-use engines in the 
family will use diesel fuel with a sulfur concentration no greater than 
15 ppm.
    (iii) You may use ultra low-sulfur diesel fuel as the test fuel for 
engine families in any power category below 56 kW, as long as none of 
the engines in your engine family employ sulfur-

[[Page 39224]]

sensitive technologies, you ensure that ultimate purchasers of 
equipment using these engines are informed that ultra low-sulfur diesel 
fuel is recommended, and you recommend to equipment manufacturers that 
a label be applied at the fuel inlet recommending 15 ppm fuel.
    (iv) For the engines described in Sec.  1039.101(c) that are 
certified to the 0.60 g/kW-hr PM standard in Table 1 of Sec.  1039.102 
in the 2010 model year, you may test with the ultra low-sulfur fuel 
specified in 40 CFR part 1065.
    (2) Meet the labeling requirements of this paragraph (e)(2) (or 
other labeling requirements we approve) to identify the applicable test 
fuels specified in paragraph (e)(1) of this section. Provide 
instructions to equipment manufacturers to ensure that they are aware 
of these labeling requirements.
    (i) For engines certified under the provisions of paragraph 
(e)(1)(i) of this section, include the following statement on the 
emission control information label and the fuel-inlet label specified 
in Sec.  1039.135: ``LOW SULFUR FUEL OR ULTRA LOW SULFUR FUEL ONLY''.
    (ii) For engines certified under the provisions of paragraph 
(e)(1)(ii) of this section, include the following statement on the 
emission control information label and the fuel-inlet label specified 
in Sec.  1039.135: ``ULTRA LOW SULFUR FUEL ONLY''.
    (iii) For engines certified under the provisions of paragraph 
(e)(1)(iii) of this section, include the following statement on the 
emission control information label specified in Sec.  1039.135: ``ULTRA 
LOW SULFUR FUEL RECOMMENDED''.
    (3) For model years 2010 and earlier, we will use the test fuel 
that you use under paragraph (e)(1) of this section, subject to the 
conditions of paragraph (e)(1) of this section.
    (f) Requirements for equipment manufacturers. If you produce 
equipment with engines certified to Tier 3 standards under Option 
2 of Table 3 of Sec.  1039.102 during model years from 2008 
through 2011, then a minimum number of pieces of equipment you produce 
using 2012 model year engines must have engines certified to the Option 
2 standards, as follows:
    (1) For equipment you produce with 2012 model year engines at or 
above 37 kW and below 56 kW, determine the minimum number of these 
engines that must be certified to the Option 2 standards in 
Table 3 of Sec.  1039.102 as follows:
    (i) If all the equipment you produce using 2008 through 2011 model 
year engines use engines certified to Tier 3 standards under Option 
2 of Table 3 of Sec.  1039.102, then all the 2012 model year 
engines you install must be certified to the Option 2 
standards of Table 3 of Sec.  1039.102.
    (ii) If you produce equipment using 2008 through 2011 model year 
engines with some engines certified to Option 1 standards of 
Table 3 of Sec.  1039.102 and some engines certified to Tier 3 
standards under Option 2 standards of Table 3 of Sec.  
1039.102, calculate the minimum number of 2012 model year engines you 
must install that are certified to the Option 2 standards of 
Table 3 of Sec.  1039.102 from the following equation:

Minimum number = [(T-O1-F)/(T-F)-0.05] x P

Where:
T = The total number of 2008-2010 model year engines at or above 37 
kW and below 56 kW that you use in equipment you produce.
O1 = The number of engines from the 2008-2010 model years 
certified under Option 1 of Table 3 of Sec.  1039.102 that 
you use in equipment you produce.
F = The number of 2008-2010 model year engines at or above 37 kW and 
below 56 kW that you use in equipment you produce under the 
flexibility provisions of Sec.  1039.625.
P = The total number of 2012 model year engines at or above 37 kW 
and below 56 kW that you use in equipment you produce.

    (2) As needed for the calculation required by this paragraph (f), 
keep records of all equipment you produce using 2008-2012 model year 
engines at or above 37 kW and below 56 kW. If you fail to keep these 
records, you may not use any 2012 model year engines certified to 
Option 1 standards in your equipment.
    (3) If you fail to comply with the provisions of this paragraph 
(f), then using 2012 model year engines certified under Option 
1 of Table 3 of Sec.  1039.102 (or certified to less stringent 
standards) in such equipment violates the prohibitions in Sec.  
1068.101(a)(1).
    (g) Alternate FEL caps. You may certify a limited number of engines 
from your U.S.-directed production volume to the FEL caps in Table 1 of 
this section instead of the otherwise applicable FEL caps in Sec.  
1039.101(d)(1), Sec.  1039.102(e), or Sec.  1039.102(g)(2), subject to 
the following provisions:
    (1) The provisions of this paragraph (g) apply during the model 
years shown in Table 1 of this section. During this period, the number 
of engines certified to the FEL caps in Table 1 of this section must 
not exceed 20 percent in any single model year in each power category. 
The sum of percentages over the four-year period must not exceed a 
total of 40 percent in each power category. If you certify an engine 
under an alternate FEL cap in this paragraph (g) for any pollutant, 
count it toward the allowed percentage of engines certified to the 
alternate FEL caps.
    (2) If your engine is not certified to transient emission standards 
under the provisions of Sec.  1039.102(a)(1)(iii), you must adjust your 
FEL upward by a temporary compliance adjustment factor (TCAF) before 
calculating your negative emission credits under Sec.  1039.705, as 
follows:
    (i) The temporary compliance adjustment factor for NOX 
is 1.1.
    (ii) The temporary compliance adjustment factor for PM is 1.5.
    (iii) The adjusted FEL (FELadj) for calculating emission 
credits is determined from the steady-state FEL (FELss) 
using the following equation:

FELadj = (FELss) x (TCAF)

    (iv) The unadjusted FEL (FELss) applies for all purposes 
other than credit calculation.
    (3) These alternate FEL caps may not be used for phase-in engines.
    (4) Do not apply TCAFs to gaseous emissions for phase-out engines 
that you certify to the same numerical standards (and FELs if the 
engines are certified using ABT) for gaseous pollutants as you 
certified under the Tier 3 requirements of 40 CFR part 89.

                                 Table 1 of Sec.   1039.104.--Alternate FEL Caps
----------------------------------------------------------------------------------------------------------------
                                                                    Model years                     Model years
                                                  PM FEL cap, g/      for the     NOX FEL cap, g/     for the
              Maximum engine power                     kW-hr       alternate PM        kW-hr       alternate NOX
                                                                      FEL cap                         FEL cap
----------------------------------------------------------------------------------------------------------------
19 <= kW < 56...................................            0.30   \1\ 2012-2015  ..............  ..............
56 <= kW < 130 \2\..............................            0.30   \3\ 2012-2015             3.8   \3\ 2014-2015
130 <= kW <= 560................................            0.20       2011-2014             3.8            2014

[[Page 39225]]

 
kW > 560 \4\....................................            0.10       2015-2018             3.5      2015-2018
----------------------------------------------------------------------------------------------------------------
\1\ For manufacturers certifying engines under Option 1 of Table 3 of Sec.   1039.102, these alternate
  FEL caps apply for model years from 2013 through 2016.
\2\ For engines below 75 kW, the FEL caps are 0.40 g/kW-hr for PM emissions and 4.4 g/kW-hr for NOX emissions.
\3\ For engines certified under the provisions of Sec.   1039.102(d)(2) or (e)(1)(ii), the alternate NOX FEL cap
  in the table applies only for the 2015 model year.
\4\ For engines above 560 kW, the provision for alternate NOX FEL caps is limited to generator-set engines. For
  example, if you produce 1,000 generator-set engines above 560 kW in 2015, up to 200 of them may be certified
  to the alternate NOX FEL caps.

Sec.  1039.105  What smoke standards must my engines meet?

    (a) The smoke standards in this section apply to all engines 
subject to emission standards under this part, except for the following 
engines:
    (1) Single-cylinder engines.
    (2) Constant-speed engines.
    (3) Engines certified to a PM emission standard or FEL of 0.07 g/
kW-hr or lower.
    (b) Measure smoke as specified in Sec.  1039.501(c). Smoke from 
your engines may not exceed the following standards:
    (1) 20 percent during the acceleration mode.
    (2) 15 percent during the lugging mode.
    (3) 50 percent during the peaks in either the acceleration or 
lugging modes.


Sec.  1039.107  What evaporative emission standards and requirements 
apply?

    There are no evaporative emission standards for diesel-fueled 
engines, or engines using other nonvolatile or nonliquid fuels (for 
example, natural gas). If your engine uses a volatile liquid fuel, such 
as methanol, you must meet the evaporative emission requirements of 40 
CFR part 1048 that apply to spark-ignition engines, as follows:
    (a) Follow the steps in 40 CFR 1048.245 to show that you meet the 
requirements of 40 CFR 1048.105.
    (b) Do the following things in your application for certification:
    (1) Describe how your engines control evaporative emissions.
    (2) Present test data to show that equipment using your engines 
meets the evaporative emission standards we specify in this section if 
you do not use design-based certification under 40 CFR 1048.245. Show 
these figures before and after applying deterioration factors, where 
applicable.


Sec.  1039.110  [Reserved]


Sec.  1039.115  What other requirements must my engines meet?

    Engines subject to this part must meet the following requirements, 
except as noted elsewhere in this part:
    (a) Crankcase emissions. Crankcase emissions may not be discharged 
directly into the ambient atmosphere from any engine, except as 
follows:
    (1) Engines may discharge crankcase emissions to the ambient 
atmosphere if the emissions are added to the exhaust emissions (either 
physically or mathematically) during all emission testing.
    (2) If you take advantage of this exception, you must do the 
following things:
    (i) Manufacture the engines so that all crankcase emissions can be 
routed into the applicable sampling systems specified in 40 CFR part 
1065.
    (ii) Account for deterioration in crankcase emissions when 
determining exhaust deterioration factors.
    (3) For purposes of this paragraph (a), crankcase emissions that 
are routed to the exhaust upstream of exhaust aftertreatment during all 
operation are not considered to be discharged directly into the ambient 
atmosphere.
    (b)-(d) [Reserved]
    (e) Adjustable parameters. Engines that have adjustable parameters 
must meet all the requirements of this part for any adjustment in the 
physically adjustable range. An operating parameter is not considered 
adjustable if you permanently seal it or if it is not normally 
accessible using ordinary tools. We may require that you set adjustable 
parameters to any specification within the adjustable range during any 
testing, including certification testing, selective enforcement 
auditing, or in-use testing.
    (f) Prohibited controls. You may not design your engines with 
emission-control devices, systems, or elements of design that cause or 
contribute to an unreasonable risk to public health, welfare, or safety 
while operating. For example, this would apply if the engine emits a 
noxious or toxic substance it would otherwise not emit that contributes 
to such an unreasonable risk.
    (g) Defeat devices. You may not equip your engines with a defeat 
device. A defeat device is an auxiliary emission-control device that 
reduces the effectiveness of emission controls under conditions that 
the engine may reasonably be expected to encounter during normal 
operation and use. This does not apply to auxiliary-emission control 
devices you identify in your certification application if any of the 
following is true:
    (1) The conditions of concern were substantially included in the 
applicable test procedures described in subpart F of this part.
    (2) You show your design is necessary to prevent engine (or 
equipment) damage or accidents.
    (3) The reduced effectiveness applies only to starting the engine.


Sec.  1039.120  What emission-related warranty requirements apply to 
me?

    (a) General requirements. You must warrant to the ultimate 
purchaser and each subsequent purchaser that the new nonroad engine, 
including all parts of its emission-control system, meets two 
conditions:
    (1) It is designed, built, and equipped so it conforms at the time 
of sale to the ultimate purchaser with the requirements of this part.
    (2) It is free from defects in materials and workmanship that may 
keep it from meeting these requirements.
    (b) Warranty period. Your emission-related warranty must be valid 
for at least as long as the minimum warranty periods listed in this 
paragraph (b) in hours of operation and years, whichever comes first. 
You may offer an emission-related warranty more generous than we 
require. The emission-related warranty for the engine may not be 
shorter than any published warranty you offer without charge for the 
engine. Similarly, the emission-related warranty for any component may 
not be shorter than any published warranty you offer without charge for 
that component. If you provide an extended warranty to individual 
owners for any components covered in paragraph (c) of this section

[[Page 39226]]

for an additional charge, your emission-related warranty must cover 
those components for those owners to the same degree. If an engine has 
no hour meter, we base the warranty periods in this paragraph (b) only 
on the engine's age (in years). The warranty period begins when the 
engine is placed into service. The minimum warranty periods are shown 
in the following table:

----------------------------------------------------------------------------------------------------------------
                                        And its maximum power    And its rated speed is     Then its warranty
 If your engine is certified as . . .          is . . .                  . . .               period is . . .
----------------------------------------------------------------------------------------------------------------
Variable speed or constant speed.....  kW < 19................  Any speed..............  1,500 hours or two
                                                                                          years, whichever comes
                                                                                          first.
Constant speed.......................  19 <= kW < 37..........  3,000 rpm or higher....  1,500 hours or two
                                                                                          years, whichever comes
                                                                                          first.
Constant speed.......................  19 <= kW < 37..........  Less than 3,000 rpm....  3,000 hours or five
                                                                                          years, whichever comes
                                                                                          first.
Variable speed.......................  19 <= kW < 37..........  Any speed..............  3,000 hours or five
                                                                                          years, whichever comes
                                                                                          first.
Variable speed or constant speed.....  kW >= 37...............  Any speed..............  3,000 hours or five
                                                                                          years, whichever comes
                                                                                          first.
----------------------------------------------------------------------------------------------------------------

    (c) Components covered. The emission-related warranty covers all 
components whose failure would increase an engine's emissions of any 
pollutant. This includes components listed in 40 CFR part 1068, 
Appendix I, and components from any other system you develop to control 
emissions. The emission-related warranty covers these components even 
if another company produces the component. Your emission-related 
warranty does not cover components whose failure would not increase an 
engine's emissions of any pollutant.
    (d) Limited applicability. You may deny warranty claims under this 
section if the operator caused the problem through improper maintenance 
or use, as described in 40 CFR 1068.115.
    (e) Owners manual. Describe in the owners manual the emission-
related warranty provisions from this section that apply to the engine.


Sec.  1039.125  What maintenance instructions must I give to buyers?

    Give the ultimate purchaser of each new nonroad engine written 
instructions for properly maintaining and using the engine, including 
the emission-control system. The maintenance instructions also apply to 
service accumulation on your emission-data engines, as described in 
Sec.  1039.245 and in 40 CFR part 1065.
    (a) Critical emission-related maintenance. Critical emission-
related maintenance includes any adjustment, cleaning, repair, or 
replacement of critical emission-related components. This may also 
include additional emission-related maintenance that you determine is 
critical if we approve it in advance. You may schedule critical 
emission-related maintenance on these components if you meet the 
following conditions:
    (1) You demonstrate that the maintenance is reasonably likely to be 
done at the recommended intervals on in-use engines. We will accept 
scheduled maintenance as reasonably likely to occur if you satisfy any 
of the following conditions:
    (i) You present data showing that, if a lack of maintenance 
increases emissions, it also unacceptably degrades the engine's 
performance.
    (ii) You present survey data showing that at least 80 percent of 
engines in the field get the maintenance you specify at the recommended 
intervals.
    (iii) You provide the maintenance free of charge and clearly say so 
in maintenance instructions for the customer.
    (iv) You otherwise show us that the maintenance is reasonably 
likely to be done at the recommended intervals.
    (2) For engines below 130 kW, you may not schedule critical 
emission-related maintenance more frequently than the following minimum 
intervals, except as specified in paragraphs (a)(4), (b), and (c) of 
this section:
    (i) For EGR-related filters and coolers, PCV valves, and fuel 
injector tips (cleaning only), the minimum interval is 1,500 hours.
    (ii) For the following components, including associated sensors and 
actuators, the minimum interval is 3000 hours: fuel injectors, 
turbochargers, catalytic converters, electronic control units, 
particulate traps, trap oxidizers, components related to particulate 
traps and trap oxidizers, EGR systems (including related components, 
but excluding filters and coolers), and other add-on components. For 
particulate traps, trap oxidizers, and components related to either of 
these, maintenance is limited to cleaning and repair only.
    (3) For engines at or above 130 kW, you may not schedule critical 
emission-related maintenance more frequently than the following minimum 
intervals, except as specified in paragraphs (a)(4), (b), and (c) of 
this section:
    (i) For EGR-related filters and coolers, PCV valves, and fuel 
injector tips (cleaning only), the minimum interval is 1,500 hours.
    (ii) For the following components, including associated sensors and 
actuators, the minimum interval is 4500 hours: fuel injectors, 
turbochargers, catalytic converters, electronic control units, 
particulate traps, trap oxidizers, components related to particulate 
traps and trap oxidizers, EGR systems (including related components, 
but excluding filters and coolers), and other add-on components. For 
particulate traps, trap oxidizers, and components related to either of 
these, maintenance is limited to cleaning and repair only.
    (4) If your engine family has an alternate useful life under Sec.  
1039.101(g) that is shorter than the period specified in paragraph 
(a)(2) or (a)(3) of this section, you may not schedule critical 
emission-related maintenance more frequently than the alternate useful 
life, except as specified in paragraph (c) of this section.
    (b) Recommended additional maintenance. You may recommend any 
additional amount of maintenance on the components listed in paragraph 
(a) of this section, as long as you state clearly that these 
maintenance steps are not necessary to keep the emission-related 
warranty valid. If operators do the maintenance specified in paragraph 
(a) of this section, but not the recommended additional maintenance, 
this does not allow you to disqualify those engines from in-use testing 
or deny a warranty claim. Do not take these maintenance steps during 
service accumulation on your emission-data engines.
    (c) Special maintenance. You may specify more frequent maintenance 
to address problems related to special situations, such as atypical 
engine operation. You must clearly state that this additional 
maintenance is

[[Page 39227]]

associated with the special situation you are addressing.
    (d) Noncritical emission-related maintenance. You may schedule any 
amount of emission-related inspection or maintenance that is not 
covered by paragraph (a) of this section, as long as you state in the 
owners manual that these steps are not necessary to keep the emission-
related warranty valid. If operators fail to do this maintenance, this 
does not allow you to disqualify those engines from in-use testing or 
deny a warranty claim. Do not take these inspection or maintenance 
steps during service accumulation on your emission-data engines.
    (e) Maintenance that is not emission-related. For maintenance 
unrelated to emission controls, you may schedule any amount of 
inspection or maintenance. You may also take these inspection or 
maintenance steps during service accumulation on your emission-data 
engines, as long as they are reasonable and technologically necessary. 
This might include adding engine oil, changing air, fuel, or oil 
filters, servicing engine-cooling systems, and adjusting idle speed, 
governor, engine bolt torque, valve lash, or injector lash. You may 
perform this nonemission-related maintenance on emission-data engines 
at the least frequent intervals that you recommend to the ultimate 
purchaser (but not the intervals recommended for severe service).
    (f) Source of parts and repairs. State clearly on the first page of 
your written maintenance instructions that a repair shop or person of 
the owner's choosing may maintain, replace, or repair emission-control 
devices and systems. Your instructions may not require components or 
service identified by brand, trade, or corporate name. Also, do not 
directly or indirectly condition your warranty on a requirement that 
the equipment be serviced by your franchised dealers or any other 
service establishments with which you have a commercial relationship. 
You may disregard the requirements in this paragraph (f) if you do one 
of two things:
    (1) Provide a component or service without charge under the 
purchase agreement.
    (2) Get us to waive this prohibition in the public's interest by 
convincing us the engine will work properly only with the identified 
component or service.
    (g) Payment for scheduled maintenance. Owners are responsible for 
properly maintaining their engines. This generally includes paying for 
scheduled maintenance. However, manufacturers must pay for scheduled 
maintenance if it meets all the following criteria:
    (1) Each affected component was not in general use on similar 
engines before the applicable dates shown in paragraph (6) of the 
definition of new nonroad engine in Sec.  1039.801.
    (2) The primary function of each affected component is to reduce 
emissions.
    (3) The cost of the scheduled maintenance is more than 2 percent of 
the price of the engine.
    (4) Failure to perform the maintenance would not cause clear 
problems that would significantly degrade the engine's performance.
    (h) Owners manual. Explain the owner's responsibility for proper 
maintenance in the owners manual.


Sec.  1039.130  What installation instructions must I give to equipment 
manufacturers?

    (a) If you sell an engine for someone else to install in a piece of 
nonroad equipment, give the engine installer instructions for 
installing it consistent with the requirements of this part. Include 
all information necessary to ensure that an engine will be installed in 
its certified configuration.
    (b) Make sure these instructions have the following information:
    (1) Include the heading: ``Emission-related installation 
instructions''.
    (2) State: ``Failing to follow these instructions when installing a 
certified engine in a piece of nonroad equipment violates federal law 
(40 CFR 1068.105(b)), subject to fines or other penalties as described 
in the Clean Air Act.''.
    (3) Describe the instructions needed to properly install the 
exhaust system and any other components consistent with the 
requirements of Sec.  1039.205(u).
    (4) [Reserved]
    (5) Describe any limits on the range of applications needed to 
ensure that the engine operates consistently with your application for 
certification. For example, if your engines are certified only for 
constant-speed operation, tell equipment manufacturers not to install 
the engines in variable-speed applications.
    (6) Describe any other instructions to make sure the installed 
engine will operate according to design specifications in your 
application for certification. This may include, for example, 
instructions for installing aftertreatment devices when installing the 
engines.
    (7) State: ``If you install the engine in a way that makes the 
engine's emission control information label hard to read during normal 
engine maintenance, you must place a duplicate label on the equipment, 
as described in 40 CFR 1068.105.''.
    (8) Describe equipment-labeling requirements consistent with Sec.  
1039.135. State whether you are providing the label for the fuel inlet 
or the equipment manufacturer must provide the label.
    (c) You do not need installation instructions for engines you 
install in your own equipment.
    (d) Provide instructions in writing or in an equivalent format. For 
example, you may post instructions on a publicly available website for 
downloading or printing. If you do not provide the instructions in 
writing, explain in your application for certification how you will 
ensure that each installer is informed of the installation 
requirements.


Sec.  1039.135  How must I label and identify the engines I produce?

    (a) Assign each engine a unique identification number and 
permanently affix, engrave, or stamp it on the engine in a legible way.
    (b) At the time of manufacture, affix a permanent and legible label 
identifying each engine. The label must be--
    (1) Attached in one piece so it is not removable without being 
destroyed or defaced. However, you may use two-piece labels for engines 
below 19 kW if there is not enough space on the engine to apply a one-
piece label.
    (2) Secured to a part of the engine needed for normal operation and 
not normally requiring replacement.
    (3) Durable and readable for the engine's entire life.
    (4) Written in English.
    (c) The label must--
    (1) Include the heading ``EMISSION CONTROL INFORMATION''.
    (2) Include your full corporate name and trademark. You may 
identify another company and use its trademark instead of yours if you 
comply with the provisions of Sec.  1039.640.
    (3) Include EPA's standardized designation for the engine family 
(and subfamily, where applicable).
    (4) State the power category or subcategory from Sec.  1039.101 or 
Sec.  1039.102 that determines the applicable emission standards for 
the engine family.
    (5) State the engine's displacement (in liters); however, you may 
omit this from the label if all the engines in the engine family have 
the same per-cylinder displacement and total displacement.
    (6) State the date of manufacture [MONTH and YEAR]. You may omit 
this from the label if you keep a record of the engine-manufacture 
dates and provide it to us upon request.

[[Page 39228]]

    (7) State the FELs to which the engines are certified if 
certification depends on the ABT provisions of subpart H of this part.
    (8) Identify the emission-control system. Use terms and 
abbreviations consistent with SAE J1930 (incorporated by reference in 
Sec.  1039.810). You may omit this information from the label if there 
is not enough room for it and you put it in the owners manual instead.
    (9) For diesel-fueled engines, unless otherwise specified in Sec.  
1039.104(e)(2), state: ``ULTRA LOW SULFUR FUEL ONLY'.
    (10) Identify any additional requirements for fuel and lubricants 
that do not involve fuel-sulfur levels. You may omit this information 
from the label if there is not enough room for it and you put it in the 
owners manual instead.
    (11) State the useful life for your engine family if we approve a 
shortened useful life under Sec.  1039.101(g)(2).
    (12) State: ``THIS ENGINE COMPLIES WITH U.S. EPA REGULATIONS FOR 
[MODEL YEAR] NONROAD DIESEL ENGINES.''.
    (13) For engines above 560 kW, include the following things:
    (i) For engines certified to the emission standards for generator-
set engines, add the phrase ``FOR GENERATOR SETS AND OTHER 
APPLICATIONS''.
    (ii) For all other engines, add the phrase ``NOT FOR USE IN A 
GENERATOR SET''.
    (14) If your engines are certified only for constant-speed 
operation, state ``USE IN CONSTANT-SPEED APPLICATIONS ONLY''.
    (d) You may add information to the emission control information 
label to identify other emission standards that the engine meets or 
does not meet (such as European standards). You may also add other 
information to ensure that the engine will be properly maintained and 
used.
    (e) Except as specified in Sec.  1039.104(e)(2), create a separate 
label with the statement: ``ULTRA LOW SULFUR FUEL ONLY''. Permanently 
attach this label to the equipment near the fuel inlet or, if you do 
not manufacture the equipment, take one of the following steps to 
ensure that the equipment will be properly labeled:
    (1) Provide the label to the equipment manufacturer and include the 
appropriate information in the emission-related installation 
instructions.
    (2) Confirm that the equipment manufacturers install their own 
complying labels.
    (f) You may ask us to approve modified labeling requirements in 
this part 1039 if you show that it is necessary or appropriate. We will 
approve your request if your alternate label is consistent with the 
requirements of this part.
    (g) If you obscure the engine label while installing the engine in 
the equipment, you must place a duplicate label on the equipment. If 
others install your engine in their equipment in a way that obscures 
the engine label, we require them to add a duplicate label on the 
equipment (see 40 CFR 1068.105); in that case, give them the number of 
duplicate labels they request and keep the following records for at 
least five years:
    (1) Written documentation of the request from the equipment 
manufacturer.
    (2) The number of duplicate labels you send and the date you sent 
them.


Sec.  1039.140  What is my engine's maximum engine power?

    (a) An engine configuration's maximum engine power is the maximum 
brake power point on the nominal power curve for the engine 
configuration, as defined in this section. Round the power value to the 
nearest whole kilowatt.
    (b) The nominal power curve of an engine configuration is the 
relationship between maximum available engine brake power and engine 
speed for an engine, using the mapping procedures of 40 CFR part 1065, 
based on the manufacturer's design and production specifications for 
the engine. This information may also be expressed by a torque curve 
that relates maximum available engine torque with engine speed.
    (c) The nominal power curve must be within the range of the actual 
power curves of production engines considering normal production 
variability. If after production begins it is determined that your 
nominal power curve does not represent production engines, we may 
require you to amend your application for certification under Sec.  
1039.225.
    (d) Throughout this part, references to a specific power value or a 
range of power values for an engine are based on maximum engine power. 
For example, the group of engines with maximum engine power above 560 
kW may be referred to as engines above 560 kW.

Subpart C--Certifying Engine Families


Sec.  1039.201  What are the general requirements for obtaining a 
certificate of conformity?

    (a) You must send us a separate application for a certificate of 
conformity for each engine family. A certificate of conformity is valid 
from the indicated effective date until December 31 of the model year 
for which it is issued.
    (b) The application must contain all the information required by 
this part and must not include false or incomplete statements or 
information (see Sec.  1039.255).
    (c) We may ask you to include less information than we specify in 
this subpart, as long as you maintain all the information required by 
Sec.  1039.250.
    (d) You must use good engineering judgment for all decisions 
related to your application (see 40 CFR 1068.5).
    (e) An authorized representative of your company must approve and 
sign the application.
    (f) See Sec.  1039.255 for provisions describing how we will 
process your application.
    (g) We may require you to deliver your test engines to a facility 
we designate for our testing (see Sec.  1039.235(c)).


Sec.  1039.205  What must I include in my application?

    This section specifies the information that must be in your 
application, unless we ask you to include less information under Sec.  
1039.201(c). We may require you to provide additional information to 
evaluate your application.
    (a) Describe the engine family's specifications and other basic 
parameters of the engine's design and emission controls. List the fuel 
type on which your engines are designed to operate (for example, ultra 
low-sulfur diesel fuel). List each distinguishable engine configuration 
in the engine family. For each engine configuration, list the maximum 
engine power and the range of values for maximum engine power resulting 
from production tolerances, as described in Sec.  1039.140.
    (b) Explain how the emission-control system operates. Describe in 
detail all system components for controlling exhaust emissions, 
including all auxiliary-emission control devices (AECDs) and all fuel-
system components you will install on any production or test engine. 
Identify the part number of each component you describe. For this 
paragraph (b), treat as separate AECDs any devices that modulate or 
activate differently from each other. Include all the following:

[[Page 39229]]

    (1) Give a general overview of the engine, the emission-control 
strategies, and all AECDs.
    (2) Describe each AECD's general purpose and function.
    (3) Identify the parameters that each AECD senses (including 
measuring, estimating, calculating, or empirically deriving the 
values). Include equipment-based parameters and state whether you 
simulate them during testing with the applicable procedures.
    (4) Describe the purpose for sensing each parameter.
    (5) Identify the location of each sensor the AECD uses.
    (6) Identify the threshold values for the sensed parameters that 
activate the AECD.
    (7) Describe the parameters that the AECD modulates (controls) in 
response to any sensed parameters, including the range of modulation 
for each parameter, the relationship between the sensed parameters and 
the controlled parameters and how the modulation achieves the AECD's 
stated purpose. Use graphs and tables, as necessary.
    (8) Describe each AECD's specific calibration details. This may be 
in the form of data tables, graphical representations, or some other 
description.
    (9) Describe the hierarchy among the AECDs when multiple AECDs 
sense or modulate the same parameter. Describe whether the strategies 
interact in a comparative or additive manner and identify which AECD 
takes precedence in responding, if applicable.
    (10) Explain the extent to which the AECD is included in the 
applicable test procedures specified in subpart F of this part.
    (11) Do the following additional things for AECDs designed to 
protect engines or equipment:
    (i) Identify the engine and/or equipment design limits that make 
protection necessary and describe any damage that would occur without 
the AECD.
    (ii) Describe how each sensed parameter relates to the protected 
components' design limits or those operating conditions that cause the 
need for protection.
    (iii) Describe the relationship between the design limits/
parameters being protected and the parameters sensed or calculated as 
surrogates for those design limits/parameters, if applicable.
    (iv) Describe how the modulation by the AECD prevents engines and/
or equipment from exceeding design limits.
    (v) Explain why it is necessary to estimate any parameters instead 
of measuring them directly and describe how the AECD calculates the 
estimated value, if applicable.
    (vi) Describe how you calibrate the AECD modulation to activate 
only during conditions related to the stated need to protect components 
and only as needed to sufficiently protect those components in a way 
that minimizes the emission impact.
    (c) [Reserved]
    (d) Describe the engines you selected for testing and the reasons 
for selecting them.
    (e) Describe the test equipment and procedures that you used, 
including any special or alternate test procedures you used (see Sec.  
1039.501).
    (f) Describe how you operated the emission-data engine before 
testing, including the duty cycle and the number of engine operating 
hours used to stabilize emission levels. Explain why you selected the 
method of service accumulation. Describe any scheduled maintenance you 
did.
    (g) List the specifications of the test fuel to show that it falls 
within the required ranges we specify in 40 CFR part 1065.
    (h) Identify the engine family's useful life.
    (i) Include the maintenance instructions you will give to the 
ultimate purchaser of each new nonroad engine (see Sec.  1039.125).
    (j) Include the emission-related installation instructions you will 
provide if someone else installs your engines in a piece of nonroad 
equipment (see Sec.  1039.130).
    (k) Describe your emission control information label (see Sec.  
1039.135).
    (l) Identify the emission standards or FELs to which you are 
certifying engines in the engine family. Identify the ambient operating 
regions that will apply for NTE testing under Sec.  1039.101(e)(4).
    (m) Identify the engine family's deterioration factors and describe 
how you developed them (see Sec.  1039.245). Present any emission test 
data you used for this.
    (n) State that you operated your emission-data engines as described 
in the application (including the test procedures, test parameters, and 
test fuels) to show you meet the requirements of this part.
    (o) Present emission data for hydrocarbons (such as NMHC or THCE, 
as applicable), NOX, PM, and CO on an emission-
data engine to show your engines meet the applicable duty-cycle 
emission standards we specify in Sec.  1039.101. Show emission data 
figures before and after applying adjustment factors for regeneration 
and deterioration factors for each engine. Present emission data to 
show that you meet any applicable smoke standards we specify in Sec.  
1039.105. If we specify more than one grade of any fuel type (for 
example, high-sulfur and low-sulfur diesel fuel), you need to submit 
test data only for one grade, unless the regulations of this part 
specify otherwise for your engine. Note that Sec.  1039.235 allows you 
to submit an application in certain cases without new emission data.
    (p) State that all the engines in the engine family comply with the 
not-to-exceed emission standards we specify in subpart B of this part 
for all normal operation and use when tested as specified in Sec.  
1039.515. Describe any relevant testing, engineering analysis, or other 
information in sufficient detail to support your statement.
    (q) For engines above 560 kW, include information showing how your 
emission controls will function during normal in-use transient 
operation. For example, this might include the following:
    (1) Emission data from transient testing of engines using 
measurement systems designed for measuring in-use emissions.
    (2) Comparison of the engine design for controlling transient 
emissions with that from engines for which you have emission data over 
the transient duty cycle for certification.
    (3) Detailed descriptions of control algorithms and other design 
parameters for controlling transient emissions.
    (r) Report all test results, including those from invalid tests or 
from any other tests, whether or not they were conducted according to 
the test procedures of subpart F of this part. If you measure 
CO2, report those emission levels. We may ask you to send 
other information to confirm that your tests were valid under the 
requirements of this part and 40 CFR part 1065.
    (s) Describe all adjustable operating parameters (see Sec.  
1039.115(e)), including production tolerances. Include the following in 
your description of each parameter:
    (1) The nominal or recommended setting.
    (2) The intended physically adjustable range.
    (3) The limits or stops used to establish adjustable ranges.
    (4) Information showing why the limits, stops, or other means of 
inhibiting adjustment are effective in preventing adjustment of 
parameters on in-use engines to settings outside your intended 
physically adjustable ranges.
    (t) Provide the information to read, record, and interpret all the 
information broadcast by an engine's onboard computers and electronic 
control units.

[[Page 39230]]

State that, upon request, you will give us any hardware, software, or 
tools we would need to do this. If you broadcast a surrogate parameter 
for torque values, you must provide us what we need to convert these 
into torque units. You may reference any appropriate publicly released 
standards that define conventions for these messages and parameters. 
Format your information consistent with publicly released standards.
    (u) Confirm that your emission-related installation instructions 
specify how to ensure that sampling of exhaust emissions will be 
possible after engines are installed in equipment and placed in 
service. If this cannot be done by simply adding a 20-centimeter 
extension to the exhaust pipe, show how to sample exhaust emissions in 
a way that prevents diluting the exhaust sample with ambient air.
    (v) State whether your certification is limited for certain 
engines. If this is the case, describe how you will prevent use of 
these engines in applications for which they are not certified. This 
applies for engines such as the following:
    (1) Constant-speed engines.
    (2) Engines used for transportation refrigeration units that you 
certify under the provisions of Sec.  1039.645.
    (3) Hand-startable engines certified under the provisions of Sec.  
1039.101(c).
    (4) Engines above 560 kW that are not certified to emission 
standards for generator-set engines.
    (w) Unconditionally certify that all the engines in the engine 
family comply with the requirements of this part, other referenced 
parts of the CFR, and the Clean Air Act.
    (x) Include estimates of U.S.-directed production volumes.
    (y) Include the information required by other subparts of this 
part. For example, include the information required by Sec.  1039.725 
if you participate in the ABT program.
    (z) Include other applicable information, such as information 
specified in this part or 40 CFR part 1068 related to requests for 
exemptions.


Sec.  1039.210  May I get preliminary approval before I complete my 
application?

    If you send us information before you finish the application, we 
will review it and make any appropriate determinations, especially for 
questions related to engine family definitions, auxiliary emission-
control devices, deterioration factors, testing for service 
accumulation, maintenance, and NTE deficiencies and carve-outs. 
Decisions made under this section are considered to be preliminary 
approval, subject to final review and approval. If you request 
preliminary approval related to the upcoming model year or the model 
year after that, we will make best-efforts to make the appropriate 
determinations as soon as practicable. We will generally not provide 
preliminary approval related to a future model year more than two years 
ahead of time.


Sec.  1039.220  How do I amend the maintenance instructions in my 
application?

    You may amend your emission-related maintenance instructions after 
you submit your application for certification, as long as the amended 
instructions remain consistent with the provisions of Sec.  1039.125. 
You must send the Designated Compliance Officer a request to amend your 
application for certification for an engine family if you want to 
change the emission-related maintenance instructions in a way that 
could affect emissions. In your request, describe the proposed changes 
to the maintenance instructions. We will disapprove your request if we 
determine that the amended instructions are inconsistent with 
maintenance you performed on emission-data engines.
    (a) If you are decreasing the specified maintenance, you may 
distribute the new maintenance instructions to your customers 30 days 
after we receive your request, unless we disapprove your request. We 
may approve a shorter time or waive this requirement.
    (b) If your requested change would not decrease the specified 
maintenance, you may distribute the new maintenance instructions 
anytime after you send your request. For example, this paragraph (b) 
would cover adding instructions to increase the frequency of a 
maintenance step for engines in severe-duty applications.
    (c) You need not request approval if you are making only minor 
corrections (such as correcting typographical mistakes), clarifying 
your maintenance instructions, or changing instructions for maintenance 
unrelated to emission control.


Sec.  1039.225  How do I amend my application for certification to 
include new or modified engines?

    Before we issue you a certificate of conformity, you may amend your 
application to include new or modified engine configurations, subject 
to the provisions of this section. After we have issued your 
certificate of conformity, you may send us an amended application 
requesting that we include new or modified engine configurations within 
the scope of the certificate, subject to the provisions of this 
section. You must amend your application if any changes occur with 
respect to any information included in your application.
    (a) You must amend your application before you take either of the 
following actions:
    (1) Add an engine (that is, an additional engine configuration) to 
an engine family. In this case, the engine added must be consistent 
with other engines in the engine family with respect to the criteria 
listed in Sec.  1039.230.
    (2) Change an engine already included in an engine family in a way 
that may affect emissions, or change any of the components you 
described in your application for certification. This includes 
production and design changes that may affect emissions any time during 
the engine's lifetime.
    (b) To amend your application for certification, send the 
Designated Compliance Officer the following information:
    (1) Describe in detail the addition or change in the engine model 
or configuration you intend to make.
    (2) Include engineering evaluations or data showing that the 
amended engine family complies with all applicable requirements. You 
may do this by showing that the original emission-data engine is still 
appropriate with respect to showing compliance of the amended family 
with all applicable requirements.
    (3) If the original emission-data engine for the engine family is 
not appropriate to show compliance for the new or modified nonroad 
engine, include new test data showing that the new or modified nonroad 
engine meets the requirements of this part.
    (c) We may ask for more test data or engineering evaluations. You 
must give us these within 30 days after we request them.
    (d) For engine families already covered by a certificate of 
conformity, we will determine whether the existing certificate of 
conformity covers your new or modified nonroad engine. You may ask for 
a hearing if we deny your request (see Sec.  1039.820).
    (e) For engine families already covered by a certificate of 
conformity, you may start producing the new or modified nonroad engine 
anytime after you send us your amended application, before we make a 
decision under paragraph (d) of this section. However, if we determine 
that the affected engines do not meet applicable requirements, we will 
notify you to cease production of the engines and may require you to 
recall the engines at no expense to the owner. Choosing to produce 
engines under this paragraph (e) is deemed to be

[[Page 39231]]

consent to recall all engines that we determine do not meet applicable 
emission standards or other requirements and to remedy the 
nonconformity at no expense to the owner. If you do not provide 
information required under paragraph (c) of this section within 30 
days, you must stop producing the new or modified nonroad engines.


Sec.  1039.230  How do I select engine families?

    (a) Divide your product line into families of engines that are 
expected to have similar emission characteristics throughout the useful 
life. Your engine family is limited to a single model year.
    (b) Group engines in the same engine family if they are the same in 
all the following aspects:
    (1) The combustion cycle and fuel.
    (2) The cooling system (water-cooled vs. air-cooled).
    (3) Method of air aspiration.
    (4) Method of exhaust aftertreatment (for example, catalytic 
converter or particulate trap).
    (5) Combustion chamber design.
    (6) Bore and stroke.
    (7) Number of cylinders (for engines with aftertreatment devices 
only).
    (8) Cylinder arrangement (for engines with aftertreatment devices 
only).
    (9) Method of control for engine operation other than governing 
(i.e., mechanical or electronic).
    (10) Power category.
    (11) Numerical level of the emission standards that apply to the 
engine.
    (c) You may subdivide a group of engines that is identical under 
paragraph (b) of this section into different engine families if you 
show the expected emission characteristics are different during the 
useful life.
    (d) You may group engines that are not identical with respect to 
the things listed in paragraph (b) of this section in the same engine 
family if you show that their emission characteristics during the 
useful life will be similar.
    (e) If you combine engines from different power categories into a 
single engine family under paragraph (d) of this section, you must 
certify the engine family to the more stringent set of standards from 
the two power categories in that model year.


Sec.  1039.235  What emission testing must I perform for my application 
for a certificate of conformity?

    This section describes the emission testing you must perform to 
show compliance with the emission standards in Sec.  1039.101(a) and 
(b) or Sec.  1039.102(a) and (b). See Sec.  1039.205(p) regarding 
emission testing related to the NTE standards. See Sec.  1039.240, 
Sec.  1039.245, and 40 CFR part 1065, subpart E, regarding service 
accumulation before emission testing.
    (a) Test your emission-data engines using the procedures and 
equipment specified in subpart F of this part.
    (b) Select an emission-data engine from each engine family for 
testing. Select the engine configuration with the highest volume of 
fuel injected per cylinder per combustion cycle at the point of maximum 
torque--unless good engineering judgment indicates that a different 
engine configuration is more likely to exceed (or have emissions nearer 
to) an applicable emission standard or FEL. If two or more engines have 
the same fueling rate at maximum torque, select the one with the 
highest fueling rate at rated speed. In making this selection, consider 
all factors expected to affect emission-control performance and 
compliance with the standards, including emission levels of all exhaust 
constituents, especially NOX and PM.
    (c) We may measure emissions from any of your test engines or other 
engines from the engine family, as follows:
    (1) We may decide to do the testing at your plant or any other 
facility. If we do this, you must deliver the test engine to a test 
facility we designate. The test engine you provide must include 
appropriate manifolds, aftertreatment devices, electronic control 
units, and other emission-related components not normally attached 
directly to the engine block. If we do the testing at your plant, you 
must schedule it as soon as possible and make available the 
instruments, personnel, and equipment we need.
    (2) If we measure emissions on one of your test engines, the 
results of that testing become the official emission results for the 
engine. Unless we later invalidate these data, we may decide not to 
consider your data in determining if your engine family meets 
applicable requirements.
    (3) Before we test one of your engines, we may set its adjustable 
parameters to any point within the physically adjustable ranges (see 
Sec.  1039.115(e)).
    (4) Before we test one of your engines, we may calibrate it within 
normal production tolerances for anything we do not consider an 
adjustable parameter.
    (d) You may ask to use emission data from a previous model year 
instead of doing new tests, but only if all the following are true:
    (1) The engine family from the previous model year differs from the 
current engine family only with respect to model year.
    (2) The emission-data engine from the previous model year remains 
the appropriate emission-data engine under paragraph (b) of this 
section.
    (3) The data show that the emission-data engine would meet all the 
requirements that apply to the engine family covered by the application 
for certification.
    (e) We may require you to test a second engine of the same or 
different configuration in addition to the engine tested under 
paragraph (b) of this section.
    (f) If you use an alternate test procedure under 40 CFR 1065.10 and 
later testing shows that such testing does not produce results that are 
equivalent to the procedures specified in subpart F of this part, we 
may reject data you generated using the alternate procedure.


Sec.  1039.240  How do I demonstrate that my engine family complies 
with exhaust emission standards?

    (a) For purposes of certification, your engine family is considered 
in compliance with the applicable numerical emission standards in Sec.  
1039.101(a) and (b) or in Sec.  1039.102(a) and (b) if all emission-
data engines representing that family have test results showing 
deteriorated emission levels at or below these standards. (Note: if you 
participate in the ABT program in subpart H of this part, your FELs are 
considered to be the applicable emission standards with which you must 
comply.)
    (b) Your engine family is deemed not to comply if any emission-data 
engine representing that family has test results showing a deteriorated 
emission level above an applicable FEL or emission standard from Sec.  
1039.101 for any pollutant.
    (c) To compare emission levels from the emission-data engine with 
the applicable emission standards, apply deterioration factors to the 
measured emission levels for each pollutant. Section 1039.245 specifies 
how to test your engine to develop deterioration factors that represent 
the deterioration expected in emissions over your engines' full useful 
life. Your deterioration factors must take into account any available 
data from in-use testing with similar engines. Small-volume engine 
manufacturers may use assigned deterioration factors that we establish. 
Apply deterioration factors as follows:
    (1) Additive deterioration factor for exhaust emissions. Except as 
specified in paragraph (c)(2) of this section, use an additive 
deterioration factor for exhaust emissions. An additive deterioration 
factor for a pollutant is the difference between exhaust emissions at

[[Page 39232]]

the end of the useful life and exhaust emissions at the low-hour test 
point. In these cases, adjust the official emission results for each 
tested engine at the selected test point by adding the factor to the 
measured emissions. If the factor is less than zero, use zero. Additive 
deterioration factors must be specified to one more decimal place than 
the applicable standard.
    (2) Multiplicative deterioration factor for exhaust emissions. Use 
a multiplicative deterioration factor if good engineering judgment 
calls for the deterioration factor for a pollutant to be the ratio of 
exhaust emissions at the end of the useful life to exhaust emissions at 
the low-hour test point. For example, if you use aftertreatment 
technology that controls emissions of a pollutant proportionally to 
engine-out emissions, it is often appropriate to use a multiplicative 
deterioration factor. Adjust the official emission results for each 
tested engine at the selected test point by multiplying the measured 
emissions by the deterioration factor. If the factor is less than one, 
use one. A multiplicative deterioration factor may not be appropriate 
in cases where testing variability is significantly greater than 
engine-to-engine variability. Multiplicative deterioration factors must 
be specified to one more significant figure than the applicable 
standard.
    (3) Deterioration factor for smoke. Deterioration factors for smoke 
are always additive, as described in paragraph (c)(1) of this section.
    (4) Deterioration factor for crankcase emissions. If your engine 
vents crankcase emissions to the exhaust or to the atmosphere, you must 
account for crankcase emission deterioration, using good engineering 
judgment. You may use separate deterioration factors for crankcase 
emissions of each pollutant (either multiplicative or additive) or 
include the effects in combined deterioration factors that include 
exhaust and crankcase emissions together for each pollutant.
    (d) Collect emission data using measurements to one more decimal 
place than the applicable standard. Apply the deterioration factor to 
the official emission result, as described in paragraph (c) of this 
section, then round the adjusted figure to the same number of decimal 
places as the emission standard. Compare the rounded emission levels to 
the emission standard for each emission-data engine. In the case of 
NOX+NMHC standards, apply the deterioration factor to each 
pollutant and then add the results before rounding.
    (e) For engines subject to NMHC standards, you may base compliance 
on total hydrocarbon (THC) emissions. Indicate in your application for 
certification if you are using this option. If you do, measure THC 
emissions and calculate NMHC emissions as 98 percent of THC emissions, 
as shown in the following equation:

NMHC = (0.98) x (THC).


Sec.  1039.245  How do I determine deterioration factors from exhaust 
durability testing?

    Establish deterioration factors to determine whether your engines 
will meet emission standards for each pollutant throughout the useful 
life, as described in Sec. Sec.  1039.101 and 1039.240. This section 
describes how to determine deterioration factors, either with an 
engineering analysis, with pre-existing test data, or with new emission 
measurements. If you are required to perform durability testing, see 
Sec.  1039.125 for limitations on the maintenance that you may perform 
on your emission-data engine.
    (a) You may ask us to approve deterioration factors for an engine 
family with established technology based on engineering analysis 
instead of testing. Engines certified to a NOX+NMHC standard 
or FEL greater than the Tier 3 NOX+NMHC standard described 
in 40 CFR 89.112 are considered to rely on established technology for 
gaseous emission control, except that this does not include any engines 
that use exhaust-gas recirculation or aftertreatment. In most cases, 
technologies used to meet the Tier 1 and Tier 2 emission standards 
would be considered to be established technology.
    (b) You may ask us to approve deterioration factors for an engine 
family based on emission measurements from similar highway or nonroad 
engines if you have already given us these data for certifying the 
other engines in the same or earlier model years. Use good engineering 
judgment to decide whether the two engines are similar. We will approve 
your request if you show us that the emission measurements from other 
engines reasonably represent in-use deterioration for the engine family 
for which you have not yet determined deterioration factors.
    (c) If you are unable to determine deterioration factors for an 
engine family under paragraph (a) or (b) of this section, select 
engines, subsystems, or components for testing. Determine deterioration 
factors based on service accumulation and related testing to represent 
the deterioration expected from in-use engines over the full useful 
life. You must measure emissions from the emission-data engine at least 
three times with evenly spaced intervals of service accumulation. You 
may use extrapolation to determine deterioration factors once you have 
established a trend of changing emissions with age for each pollutant. 
You may use an engine installed in nonroad equipment to accumulate 
service hours instead of running the engine only in the laboratory. You 
may perform maintenance on emission-data engines as described in Sec.  
1039.125 and 40 CFR part 1065, subpart E. Use good engineering judgment 
for all aspects of the effort to establish deterioration factors under 
this paragraph (c).
    (d) Include the following information in your application for 
certification:
    (1) If you use test data from a different engine family, explain 
why this is appropriate and include all the emission measurements on 
which you base the deterioration factor.
    (2) If you determine your deterioration factors based on 
engineering analysis, explain why this is appropriate and include a 
statement that all data, analyses, evaluations, and other information 
you used are available for our review upon request.
    (3) If you do testing to determine deterioration factors, describe 
the form and extent of service accumulation, including a rationale for 
selecting the service-accumulation period and the method you use to 
accumulate hours.


Sec.  1039.250  What records must I keep and what reports must I send 
to EPA?

    (a) Within 30 days after the end of the model year, send the 
Designated Compliance Officer a report describing the following 
information about engines you produced during the model year:
    (1) Report the total number of engines you produced in each engine 
family by maximum engine power, total displacement, and the type of 
fuel system.
    (2) If you produced exempted engines under the provisions of Sec.  
1039.625, report the number of exempted engines you produced for each 
engine model and identify the buyer or shipping destination for each 
exempted engine.
    (b) Organize and maintain the following records:
    (1) A copy of all applications and any summary information you send 
us.
    (2) Any of the information we specify in Sec.  1039.205 that you 
were not required to include in your application.
    (3) A detailed history of each emission-data engine. For each 
engine, describe all of the following:
    (i) The emission-data engine's construction, including its origin 
and buildup, steps you took to ensure that

[[Page 39233]]

it represents production engines, any components you built specially 
for it, and all the components you include in your application for 
certification.
    (ii) How you accumulated engine operating hours (service 
accumulation), including the dates and the number of hours accumulated.
    (iii) All maintenance, including modifications, parts changes, and 
other service, and the dates and reasons for the maintenance.
    (iv) All your emission tests, including documentation on routine 
and standard tests, as specified in part 40 CFR part 1065, and the date 
and purpose of each test.
    (v) All tests to diagnose engine or emission-control performance, 
giving the date and time of each and the reasons for the test.
    (vi) Any other significant events.
    (4) Production figures for each engine family divided by assembly 
plant.
    (5) Keep a list of engine identification numbers for all the 
engines you produce under each certificate of conformity.
    (c) Keep data from routine emission tests (such as test cell 
temperatures and relative humidity readings) for one year after we 
issue the associated certificate of conformity. Keep all other 
information specified in paragraph (a) of this section for eight years 
after we issue your certificate.
    (d) Store these records in any format and on any media, as long as 
you can promptly send us organized, written records in English if we 
ask for them. You must keep these records readily available. We may 
review them at any time.
    (e) Send us copies of any engine maintenance instructions or 
explanations if we ask for them.


Sec.  1039.255  What decisions may EPA make regarding my certificate of 
conformity?

    (a) If we determine your application is complete and shows that the 
engine family meets all the requirements of this part and the Act, we 
will issue a certificate of conformity for your engine family for that 
model year. We may make the approval subject to additional conditions.
    (b) We may deny your application for certification if we determine 
that your engine family fails to comply with emission standards or 
other requirements of this part or the Act. Our decision may be based 
on a review of all information available to us. If we deny your 
application, we will explain why in writing.
    (c) In addition, we may deny your application or suspend or revoke 
your certificate if you do any of the following:
    (1) Refuse to comply with any testing or reporting requirements.
    (2) Submit false or incomplete information (paragraph (e) of this 
section applies if this is fraudulent).
    (3) Render inaccurate any test data.
    (4) Deny us from completing authorized activities despite our 
presenting a warrant or court order (see 40 CFR 1068.20). This includes 
a failure to provide reasonable assistance.
    (5) Produce engines for importation into the United States at a 
location where local law prohibits us from carrying out authorized 
activities.
    (6) Fail to supply requested information or amend your application 
to include all engines being produced.
    (7) Take any action that otherwise circumvents the intent of the 
Act or this part.
    (d) We may void your certificate if you do not keep the records we 
require or do not give us information when we ask for it.
    (e) We may void your certificate if we find that you intentionally 
submitted false or incomplete information.
    (f) If we deny your application or suspend, revoke, or void your 
certificate, you may ask for a hearing (see Sec.  1039.820).


Sec.  1039.260  What provisions apply to engines that are conditionally 
exempted from certification?

    As specified elsewhere in this part or in 40 CFR part 1068, you may 
in some cases introduce engines into commerce that are exempt from the 
requirement to certify engines to the otherwise applicable standards. 
If we specify alternate standards as a condition of the exemption, all 
the following provisions apply:
    (a) Your engines must meet the alternate standards we specify in 
the exemption section, and all other requirements applicable to engines 
that are subject to such standards.
    (b) You need not apply for and receive a certificate for the exempt 
engines. However, you must comply with all the requirements and 
obligations that would apply to the engines if you had received a 
certificate of conformity for them, unless we specifically waive 
certain requirements.
    (c) You must have emission data from testing engines using the 
appropriate procedures that demonstrate compliance with the alternate 
standards, unless the engines are identical in all material respects to 
engines that you have previously certified to standards that are the 
same as, or more stringent than, the alternate standards.
    (d) Unless we specify otherwise elsewhere in this part or in 40 CFR 
part 1068, you must meet the labeling requirements in Sec.  1039.135, 
with the following exceptions:
    (1) Instead of the engine family designation specified in Sec.  
1039.135(c)(3), use a modified designation to identify the group of 
engines that would otherwise be included in the same engine family.
    (2) Instead of the compliance statement in Sec.  1039.135(c)(12), 
add the following statement: ``THIS ENGINE MEETS U.S. EPA EMISSION 
STANDARDS UNDER 40 CFR 1039.260.''.
    (e) You may not generate ABT credits with engines meeting 
requirements under the provisions of this section.
    (f) Keep records to show that you meet the alternate standards, as 
follows:
    (1) If your exempted engines are identical to previously certified 
engines, keep your most recent application for certification for the 
certified engine family.
    (2) If you previously certified a similar engine family, but have 
modified the exempted engine in a way that changes it from its 
previously certified configuration, keep your most recent application 
for certification for the certified engine family, a description of the 
relevant changes, and any test data or engineering evaluations that 
support your conclusions.
    (3) If you have not previously certified a similar engine family, 
keep all the records we specify for the application for certification 
and the additional records we specify in Sec.  1039.250(b)(3).
    (g) We may require you to send us an annual report of the engines 
you produce under this section.

Subpart D--[Reserved]

Subpart E--In-Use Testing


Sec.  1039.401  General provisions.

    We may perform in-use testing of any engine subject to the 
standards of this part. However, we will limit recall testing to the 
first 75 percent of each engine's useful life as specified in Sec.  
1039.101(g).

Subpart F--Test Procedures


Sec.  1039.501  How do I run a valid emission test?

    (a) Use the equipment and procedures for compression-ignition 
engines in 40 CFR part 1065 to determine whether engines meet the duty-
cycle emission standards in Sec.  1039.101(a) and (b). Measure the 
emissions of all the pollutants we regulate in Sec.  1039.101 as 
specified in 40 CFR part 1065. Note that we do not allow partial-flow 
sampling for measuring PM emissions on a

[[Page 39234]]

laboratory dynamometer for transient testing. Use the applicable duty 
cycles specified in Sec. Sec.  1039.505 and 1039.510.
    (b) Section 1039.515 describes the supplemental procedures for 
evaluating whether engines meet the not-to-exceed emission standards in 
Sec.  1039.101(e).
    (c) Measure smoke using the procedures in 40 CFR part 86, subpart 
I, for evaluating whether engines meet the smoke standards in Sec.  
1039.105, except that you may test two-cylinder engines with an exhaust 
muffler like those installed on in-use engines.
    (d) Use the fuels specified in Sec.  1039.104(e) and 40 CFR part 
1065 to perform valid tests.
    (1) For service accumulation, use the test fuel or any commercially 
available fuel that is representative of the fuel that in-use engines 
will use.
    (2) For diesel-fueled engines, use the appropriate diesel fuel 
specified in 40 CFR part 1065 for emission testing. Unless we specify 
otherwise, the appropriate diesel test fuel is the ultra low-sulfur 
diesel fuel. If we allow you to use a test fuel with higher sulfur 
levels, identify the test fuel in your application for certification 
and ensure that the emission control information label is consistent 
with your selection of the test fuel (see Sec.  1039.135(c)(9)). For 
example, do not test with ultra low-sulfur diesel fuel if you intend to 
label your engines to allow use of diesel fuel with sulfur 
concentrations up to 500 ppm.
    (e) You may use special or alternate procedures to the extent we 
allow them under 40 CFR 1065.10.
    (f) This subpart is addressed to you as a manufacturer, but it 
applies equally to anyone who does testing for you, and to us when we 
perform testing to determine if your engines meet emission standards.


Sec.  1039.505  How do I test engines using steady-state duty cycles, 
including ramped-modal testing?

    This section describes how to test engines under steady-state 
conditions. In some cases, we allow you to choose the appropriate 
steady-state duty cycle for an engine. In these cases, you must use the 
duty cycle you select in your application for certification for all 
testing you perform for that engine family. If we test your engines to 
confirm that they meet emission standards, we will use the duty cycles 
you select for your own testing. We may also perform other testing as 
allowed by the Clean Air Act.
    (a) You may perform steady-state testing with either discrete-mode 
or ramped-modal cycles, as follows:
    (1) For discrete-mode testing, sample emissions separately for each 
mode, then calculate an average emission level for the whole cycle 
using the weighting factors specified for each mode. Calculate cycle 
statistics for the sequence of modes and compare with the specified 
values in 40 CFR part 1065 to confirm that the test is valid. Operate 
the engine and sampling system as follows:
    (i) Engines with NOX aftertreatment. For engines that depend on 
aftertreatment to meet the NOX emission standard, operate 
the engine for 5-6 minutes, then sample emissions for 1-3 minutes in 
each mode. You may extend the sampling time to improve measurement 
accuracy of PM emissions, using good engineering judgment. If you have 
a longer sampling time for PM emissions, calculate and validate cycle 
statistics separately for the gaseous and PM sampling periods.
    (ii) Engines without NOX aftertreatment. For other engines, operate 
the engine for at least 5 minutes, then sample emissions for at least 1 
minute in each mode. Calculate cycle statistics for the sequence of 
modes and compare with the specified values in 40 CFR part 1065 to 
confirm that the test is valid.
    (2) For ramped-modal testing, start sampling at the beginning of 
the first mode and continue sampling until the end of the last mode. 
Calculate emissions and cycle statistics the same as for transient 
testing.
    (b) Measure emissions by testing the engine on a dynamometer with 
one of the following duty cycles to determine whether it meets the 
steady-state emission standards in Sec.  1039.101(b):
    (1) Use the 5-mode duty cycle or the corresponding ramped-modal 
cycle described in Appendix II of this part for constant-speed engines. 
Note that these cycles do not apply to all engines used in constant-
speed applications, as described in Sec.  1039.801.
    (2) Use the 6-mode duty cycle or the corresponding ramped-modal 
cycle described in Appendix III of this part for variable-speed engines 
below 19 kW. You may instead use the 8-mode duty cycle or the 
corresponding ramped-modal cycle described in Appendix IV of this part 
if some engines from your engine family will be used in applications 
that do not involve governing to maintain engine operation around rated 
speed.
    (3) Use the 8-mode duty cycle or the corresponding ramped-modal 
cycle described in Appendix IV of this part for variable-speed engines 
at or above 19 kW.
    (c) During idle mode, operate the engine with the following 
parameters:
    (1) Hold the speed within your specifications.
    (2) Set the engine to operate at its minimum fueling rate.
    (3) Keep engine torque under 5 percent of maximum test torque.
    (d) For full-load operating modes, operate the engine at its 
maximum fueling rate. However, for constant-speed engines whose design 
prevents full-load operation for extended periods, you may ask for 
approval under 40 CFR 1065.10(c) to replace full-load operation with 
the maximum load for which the engine is designed to operate for 
extended periods.
    (e) See 40 CFR part 1065 for detailed specifications of tolerances 
and calculations.
    (f) For those cases where transient testing is not necessary, 
perform the steady-state test according to this section after an 
appropriate warm-up period, consistent with 40 CFR part 1065, subpart 
F.


Sec.  1039.510  Which duty cycles do I use for transient testing?

    (a) Measure emissions by testing the engine on a dynamometer with 
one of the following transient duty cycles to determine whether it 
meets the transient emission standards in Sec.  1039.101(a):
    (1) For variable-speed engines, use the transient duty cycle 
described in Appendix VI of this part.
    (2) [Reserved]
    (b) The transient test sequence consists of an initial run through 
the transient duty cycle from a cold start, 20 minutes with no engine 
operation, then a final run through the same transient duty cycle. 
Start sampling emissions immediately after you start the engine. 
Calculate the official transient emission result from the following 
equation:

Official transient emission result = 0.05 x cold-start emission rate 
+ 0.95 x hot-start emission rate.

    (c) Cool the engine down between tests as described in 40 CFR 
86.1335-90.
    (d) For validating cycle statistics, you may delete from your 
regression analysis speed, torque, and power points for the first 23 
seconds and the last 25 seconds of the transient duty cycle.


Sec.  1039.515  What are the test procedures related to not-to-exceed 
standards?

    (a) General provisions. The provisions in 40 CFR 86.1370-2007 apply 
for determining whether an engine meets the not-to-exceed emission 
standards in Sec.  1039.101(e). Interpret references to vehicles and 
vehicle operation to mean equipment and equipment operation.

[[Page 39235]]

    (b) Special PM zone. For engines certified to a PM standard or FEL 
above 0.07 g/kW-hr, a modified NTE control area applies for PM 
emissions only. The speeds and loads to be excluded are determined 
based on speeds B and C, determined according to the provisions of 40 
CFR 86.1360-2007(c). One of the following provisions applies:
    (1) If the C speed is below 2400 rpm, exclude the speed and load 
points to the right of or below the line formed by connecting the 
following two points on a plot of speed-vs.-power:
    (i) 30% of maximum power at the B speed; however, use the power 
value corresponding to the engine operation at 30% of maximum torque at 
the B speed if this is greater than 30% of maximum power at the B 
speed.
    (ii) 70% of maximum power at 100% speed.
    (2) If the C speed is at or above 2400 rpm, exclude the speed and 
load points to the right of the line formed by connecting the two 
points in paragraphs (b)(2)(i) and (ii) of this section (the 30% and 
50% torque/power points) and below the line formed by connecting the 
two points in paragraphs (b)(2)(ii) and (iii) of this section (the 50% 
and 70% torque/power points). The 30%, 50%, and 70% torque/power points 
are defined as follows:
    (i) 30% of maximum power at the B speed; however, use the power 
value corresponding to the engine operation at 30% of maximum torque at 
the B speed if this is greater than 30% of maximum power at the B 
speed.
    (ii) 50% of maximum power at 2400 rpm.
    (iii) 70% of maximum power at 100% speed.


Sec.  1039.520  What testing must I perform to establish deterioration 
factors?

    Sections 1039.240 and 1039.245 describe the method for testing that 
must be performed to establish deterioration factors for an engine 
family.


Sec.  1039.525  How do I adjust emission levels to account for 
infrequently regenerating aftertreatment devices?

    This section describes how to adjust emission results from engines 
using aftertreatment technology with infrequent regeneration events. 
For this section, ``regeneration'' means an intended event during which 
emission levels change while the system restores aftertreatment 
performance. For example, exhaust gas temperatures may increase 
temporarily to remove sulfur from adsorbers or to oxidize accumulated 
particulate matter in a trap. For this section, ``infrequent'' refers 
to regeneration events that are expected to occur on average less than 
once over the applicable transient duty cycle or ramped-modal cycle, or 
on average less than once per typical mode in a discrete-mode test.
    (a) Developing adjustment factors. Develop an upward adjustment 
factor and a downward adjustment factor for each pollutant based on 
measured emission data and observed regeneration frequency. Adjustment 
factors should generally apply to an entire engine family, but you may 
develop separate adjustment factors for different engine configurations 
within an engine family. If you use adjustment factors for 
certification, you must identify the frequency factor, F, from 
paragraph (b) of this section in your application for certification and 
use the adjustment factors in all testing for that engine family. You 
may use carryover or carry-across data to establish adjustment factors 
for an engine family, as described in Sec.  1039.235(d), consistent 
with good engineering judgment. All adjustment factors for regeneration 
are additive. Determine adjustment factors separately for different 
test segments. For example, determine separate adjustment factors for 
hot-start and cold-start test segments and for different modes of a 
discrete-mode steady-state test. You may use either of the following 
different approaches for engines that use aftertreatment with 
infrequent regeneration events:
    (1) You may disregard this section if regeneration does not 
significantly affect emission levels for an engine family (or 
configuration) or if it is not practical to identify when regeneration 
occurs. If you do not use adjustment factors under this section, your 
engines must meet emission standards for all testing, without regard to 
regeneration.
    (2) If your engines use aftertreatment technology with extremely 
infrequent regeneration and you are unable to apply the provisions of 
this section, you may ask us to approve an alternate methodology to 
account for regeneration events.
    (b) Calculating average adjustment factors. Calculate the average 
adjustment factor (EFA) based on the following equation:

EFA = (F)(EFH) + (1-F)(EFL)

Where:
F = the frequency of the regeneration event in terms of the fraction 
of tests during which the regeneration occurs.
EFH = measured emissions from a test segment in which the 
regeneration occurs.
EFL = measured emissions from a test segment in which the 
regeneration does not occur.

    (c) Applying adjustment factors. Apply adjustment factors based on 
whether regeneration occurs during the test run. You must be able to 
identify regeneration in a way that is readily apparent during all 
testing.
    (1) If regeneration does not occur during a test segment, add an 
upward adjustment factor to the measured emission rate. Determine the 
upward adjustment factor (UAF) using the following equation:

UAF = EFA - EFL

    (2) If regeneration occurs or starts to occur during a test 
segment, subtract a downward adjustment factor from the measured 
emission rate. Determine the downward adjustment factor (DAF) using the 
following equation:

DAF = EFH - EFA

    (d) Sample calculation. If EFL is 0.10 g/kW-hr, 
EFH is 0.50 g/kW-hr, and F is 0.1 (the regeneration occurs 
once for each ten tests), then:

EFA = (0.1)(0.5 g/kW-hr) + (1.0 - 0.1)(0.1 g/kW-hr) = 
0.14 g/kW-hr.
UAF = 0.14 g/kW-hr - 0.10 g/kW-hr = 0.04 g/kW-hr.
DAF = 0.50 g/kW-hr - 0.14 g/kW-hr = 0.36 g/kW-hr.

Subpart G--Special Compliance Provisions


Sec.  1039.601  What compliance provisions apply to these engines?

    Engine and equipment manufacturers, as well as owners, operators, 
and rebuilders of engines subject to the requirements of this part, and 
all other persons, must observe the provisions of this part, the 
requirements and prohibitions in 40 CFR part 1068, and the provisions 
of the Act.


Sec.  1039.605  What provisions apply to engines already certified 
under the motor-vehicle program?

    (a) General provisions. If you are an engine manufacturer, this 
section allows you to introduce new nonroad engines into commerce if 
they are already certified to the requirements that apply to 
compression-ignition engines under 40 CFR parts 85 and 86. If you 
comply with all the provisions of this section, we consider the 
certificate issued under 40 CFR part 86 for each engine to also be a 
valid certificate of conformity under this part 1039 for its model 
year, without a separate application for certification under the 
requirements of this part 1039. See Sec.  1039.610 for similar 
provisions that apply to engines certified to chassis-based standards 
for motor vehicles.
    (b) Equipment-manufacturer provisions. If you are not an engine

[[Page 39236]]

manufacturer, you may produce nonroad equipment using motor-vehicle 
engines under this section as long as the engine has been properly 
labeled as specified in paragraph (d)(5) of this section and you do not 
make any of the changes described in paragraph (d)(2) of this section. 
You must also add the fuel-inlet label we specify in Sec.  1039.135(e). 
If you modify the motor-vehicle engine in any of the ways described in 
paragraph (d)(2) of this section, we will consider you a manufacturer 
of a new nonroad engine. Such engine modifications prevent you from 
using the provisions of this section.
    (c) Liability. Engines for which you meet the requirements of this 
section are exempt from all the requirements and prohibitions of this 
part, except for those specified in this section. Engines exempted 
under this section must meet all the applicable requirements from 40 
CFR parts 85 and 86. This paragraph (c) applies to engine 
manufacturers, equipment manufacturers who use these engines, and all 
other persons as if these engines were used in a motor vehicle. The 
prohibited acts of Sec.  1068.101(a)(1) apply to these new engines and 
equipment; however, we consider the certificate issued under 40 CFR 
part 86 for each engine to also be a valid certificate of conformity 
under this part 1039 for its model year. If we make a determination 
that these engines do not conform to the regulations during their 
useful life, we may require you to recall them under 40 CFR part 85 or 
40 CFR 1068.505.
    (d) Specific requirements. If you are an engine manufacturer and 
meet all the following criteria and requirements regarding your new 
nonroad engine, the engine is eligible for an exemption under this 
section:
    (1) Your engine must be covered by a valid certificate of 
conformity issued under 40 CFR part 86.
    (2) You must not make any changes to the certified engine that 
could reasonably be expected to increase its exhaust emissions for any 
pollutant, or its evaporative emissions if it is subject to 
evaporative-emission standards. For example, if you make any of the 
following changes to one of these engines, you do not qualify for this 
exemption:
    (i) Change any fuel system parameters from the certified 
configuration.
    (ii) Change, remove, or fail to properly install any other 
component, element of design, or calibration specified in the engine 
manufacturer's application for certification. This includes 
aftertreatment devices and all related components.
    (iii) Modify or design the engine cooling system so that 
temperatures or heat rejection rates are outside the original engine 
manufacturer's specified ranges.
    (3) You must show that fewer than 50 percent of the engine model's 
total sales for the model year, from all companies, are used in nonroad 
applications, as follows:
    (i) If you are the original manufacturer of the engine, base this 
showing on your sales information.
    (ii) In all other cases, you must get the original manufacturer of 
the engine to confirm this based on its sales information.
    (4) You must ensure that the engine has the label we require under 
40 CFR part 86.
    (5) You must add a permanent supplemental label to the engine in a 
position where it will remain clearly visible after installation in the 
equipment. In the supplemental label, do the following:
    (i) Include the heading: ``NONROAD ENGINE EMISSION CONTROL 
INFORMATION''.
    (ii) Include your full corporate name and trademark. You may 
instead include the full corporate name and trademark of another 
company you choose to designate.
    (iii) State: ``THIS ENGINE WAS ADAPTED FOR NONROAD USE WITHOUT 
AFFECTING ITS EMISSION CONTROLS. THE EMISSION-CONTROL SYSTEM DEPENDS ON 
THE USE OF FUEL MEETING SPECIFICATIONS THAT APPLY FOR MOTOR-VEHICLE 
APPLICATIONS. OPERATING THE ENGINE ON OTHER FUELS MAY BE A VIOLATION OF 
FEDERAL LAW.''.
    (iv) State the date you finished modifying the engine (month and 
year), if applicable.
    (6) The original and supplemental labels must be readily visible 
after the engine is installed in the equipment or, if the equipment 
obscures the engine's emission control information label, the equipment 
manufacturer must attach duplicate labels, as described in 40 CFR 
1068.105.
    (7) You must make sure that nonroad equipment produced under this 
section will have the fueling label we specify in Sec.  
1039.135(c)(9)(i).
    (8) Send the Designated Compliance Officer a signed letter by the 
end of each calendar year (or less often if we tell you) with all the 
following information:
    (i) Identify your full corporate name, address, and telephone 
number.
    (ii) List the engine models you expect to produce under this 
exemption in the coming year.
    (iii) State: ``We produce each listed engine model for nonroad 
application without making any changes that could increase its 
certified emission levels, as described in 40 CFR 1039.605.''.
    (e) Failure to comply. If your engines do not meet the criteria 
listed in paragraph (d) of this section, they will be subject to the 
standards, requirements, and prohibitions of this part 1039 and the 
certificate issued under 40 CFR part 86 will not be deemed to also be a 
certificate issued under this part 1039. Introducing these engines into 
commerce without a valid exemption or certificate of conformity under 
this part violates the prohibitions in 40 CFR 1068.101(a)(1).
    (f) Data submission. We may require you to send us emission test 
data on any applicable nonroad duty cycles.


Sec.  1039.610  What provisions apply to vehicles already certified 
under the motor-vehicle program?

    (a) General provisions. If you are a motor-vehicle manufacturer, 
this section allows you to introduce new nonroad engines or equipment 
into commerce if the vehicle is already certified to the requirements 
that apply under 40 CFR parts 85 and 86. If you comply with all of the 
provisions of this section, we consider the certificate issued under 40 
CFR part 86 for each motor vehicle to also be a valid certificate of 
conformity for the engine under this part 1039 for its model year, 
without a separate application for certification under the requirements 
of this part 1039. See Sec.  1039.605 for similar provisions that apply 
to motor-vehicle engines produced for nonroad equipment.
    (b) Equipment-manufacturer provisions. If you are not an engine 
manufacturer, you may produce nonroad equipment from motor vehicles 
under this section as long as the equipment has the labels specified in 
paragraph (d)(5) of this section and you do not make any of the changes 
described in paragraph (d)(2) of this section. You must also add the 
fuel-inlet label we specify in Sec.  1039.135(e). If you modify the 
motor vehicle or its engine in any of the ways described in paragraph 
(d)(2) of this section, we will consider you a manufacturer of a new 
nonroad engine. Such modifications prevent you from using the 
provisions of this section.
    (c) Liability. Engines, vehicles, and equipment for which you meet 
the requirements of this section are exempt from all the requirements 
and prohibitions of this part, except for those specified in this 
section. Engines exempted under this section must meet all the 
applicable requirements from 40

[[Page 39237]]

CFR parts 85 and 86. This applies to engine manufacturers, equipment 
manufacturers, and all other persons as if the nonroad equipment were 
motor vehicles. The prohibited acts of Sec.  1068.101(a)(1) apply to 
these new pieces of equipment; however, we consider the certificate 
issued under 40 CFR part 86 for each motor vehicle to also be a valid 
certificate of conformity for the engine under this part 1039 for its 
model year. If we make a determination that these engines, vehicles, or 
equipment do not conform to the regulations during their useful life, 
we may require you to recall them under 40 CFR part 86 or 40 CFR 
1068.505.
    (d) Specific requirements. If you are a motor-vehicle manufacturer 
and meet all the following criteria and requirements regarding your new 
nonroad equipment and its engine, the engine is eligible for an 
exemption under this section:
    (1) Your equipment must be covered by a valid certificate of 
conformity as a motor vehicle issued under 40 CFR part 86.
    (2) You must not make any changes to the certified vehicle that we 
could reasonably expect to increase its exhaust emissions for any 
pollutant, or its evaporative emissions if it is subject to 
evaporative-emission standards. For example, if you make any of the 
following changes, you do not qualify for this exemption:
    (i) Change any fuel system parameters from the certified 
configuration.
    (ii) Change, remove, or fail to properly install any other 
component, element of design, or calibration specified in the vehicle 
manufacturer's application for certification. This includes 
aftertreatment devices and all related components.
    (iii) Modify or design the engine cooling system so that 
temperatures or heat rejection rates are outside the original vehicle 
manufacturer's specified ranges.
    (iv) Add more than 500 pounds to the curb weight of the originally 
certified motor vehicle.
    (3) You must show that fewer than 50 percent of the total sales as 
a motor vehicle or a piece of nonroad equipment, from all companies, 
are used in nonroad applications, as follows:
    (i) If you are the original manufacturer of the vehicle, base this 
showing on your sales information.
    (ii) In all other cases, you must get the original manufacturer of 
the vehicle to confirm this based on their sales information.
    (4) The equipment must have the vehicle emission control 
information and fuel labels we require under 40 CFR 86.007-35.
    (5) You must add a permanent supplemental label to the equipment in 
a position where it will remain clearly visible. In the supplemental 
label, do the following:
    (i) Include the heading: ``NONROAD ENGINE EMISSION CONTROL 
INFORMATION''.
    (ii) Include your full corporate name and trademark. You may 
instead include the full corporate name and trademark of another 
company you choose to designate.
    (iii) State: ``THIS VEHICLE WAS ADAPTED FOR NONROAD USE WITHOUT 
AFFECTING ITS EMISSION CONTROLS. THE EMISSION-CONTROL SYSTEM DEPENDS ON 
THE USE OF FUEL MEETING SPECIFICATIONS THAT APPLY FOR MOTOR-VEHICLE 
APPLICATIONS. OPERATING THE ENGINE ON OTHER FUELS MAY BE A VIOLATION OF 
FEDERAL LAW.''.
    (iv) State the date you finished modifying the vehicle (month and 
year), if applicable.
    (6) The original and supplemental labels must be readily visible in 
the fully assembled equipment.
    (7) Send the Designated Compliance Officer a signed letter by the 
end of each calendar year (or less often if we tell you) with all the 
following information:
    (i) Identify your full corporate name, address, and telephone 
number.
    (ii) List the equipment models you expect to produce under this 
exemption in the coming year.
    (iii) State: ``We produce each listed engine or equipment model for 
nonroad application without making any changes that could increase its 
certified emission levels, as described in 40 CFR 1039.610.''.
    (e) Failure to comply. If your engines, vehicles, or equipment do 
not meet the criteria listed in paragraph (d) of this section, the 
engines will be subject to the standards, requirements, and 
prohibitions of this part 1039, and the certificate issued under 40 CFR 
part 86 will not be deemed to also be a certificate issued under this 
part 1039. Introducing these engines into commerce without a valid 
exemption or certificate of conformity under this part violates the 
prohibitions in 40 CFR 1068.101(a)(1).
    (f) Data submission. We may require you to send us emission test 
data on any applicable nonroad duty cycles.


Sec.  1039.615  What special provisions apply to engines using 
noncommercial fuels?

    In Sec.  1039.115(e), we generally require that engines meet 
emission standards for any adjustment within the full range of any 
adjustable parameters. For engines that use noncommercial fuels 
significantly different than the specified test fuel of the same type, 
you may ask to use the parameter-adjustment provisions of this section 
instead of those in Sec.  1039.115(e). Engines certified under this 
section must be in a separate engine family.
    (a) If we approve your request, the following provisions apply:
    (1) You must certify the engine using the test fuel specified in 
Sec.  1039.501.
    (2) You may produce the engine without limits or stops that keep 
the engine adjusted within the certified range.
    (3) You must specify in-use adjustments different than the 
adjustable settings appropriate for the specified test fuel, consistent 
with the provisions of paragraph (b)(1) of this section.
    (b) To produce engines under this section, you must do the 
following:
    (1) Specify in-use adjustments needed so the engine's level of 
emission control for each regulated pollutant is equivalent to that 
from the certified configuration.
    (2) Add the following information to the emission control 
information label specified in Sec.  1039.135:
    (i) Include instructions describing how to adjust the engine to 
operate in a way that maintains the effectiveness of the emission-
control system.
    (ii) State: ``THIS ENGINE IS CERTIFIED TO OPERATE IN APPLICATIONS 
USING NONCOMMERCIAL FUEL. MALADJUSTMENT OF THE ENGINE IS A VIOLATION OF 
FEDERAL LAW SUBJECT TO CIVIL PENALTY.''.
    (3) Keep records to document the destinations and quantities of 
engines produced under this section.


Sec.  1039.620  What are the provisions for exempting engines used 
solely for competition?

    The provisions of this section apply for new engines built on or 
after January 1, 2006.
    (a) Equipment manufacturers may use uncertified engines if the 
vehicles or equipment in which they are installed will be used solely 
for competition.
    (b) The definition of nonroad engine in 40 CFR 1068.30 excludes 
engines used solely for competition. These engines are not required to 
comply with this part 1039 or 40 CFR part 89, but 40 CFR 1068.101 
prohibits the use of

[[Page 39238]]

competition engines for noncompetition purposes.
    (c) We consider a vehicle or piece of equipment to be one that will 
be used solely for competition if it has features that are not easily 
removed that would make its use other than in competition unsafe, 
impractical, or highly unlikely.
    (d) As an engine manufacturer, your engine is exempt without our 
prior approval if you have a written request for an exempted engine 
from the equipment manufacturer showing the basis for believing that 
the equipment will be used solely for competition. You must permanently 
label engines exempted under this section to clearly indicate that they 
are to be used solely for competition. Failure to properly label an 
engine will void the exemption.
    (e) We may discontinue an exemption under this section if we find 
that engines are not used solely for competition.


Sec.  1039.625  What requirements apply under the program for 
equipment-manufacturer flexibility?

    The provisions of this section allow equipment manufacturers to 
produce equipment with engines that are subject to less stringent 
emission standards after the Tier 4 emission standards begin to apply. 
To be eligible to use these provisions, you must follow all the 
instructions in this section. See 40 CFR 89.102(d) and (e) for 
provisions that apply to equipment produced while Tier 1, Tier 2, or 
Tier 3 standards apply. See Sec.  1039.626 for requirements that apply 
specifically to companies that manufacture equipment outside the United 
States and to companies that import such equipment without 
manufacturing it. Engines and equipment you produce under this section 
are exempt from the prohibitions in 40 CFR 1068.101(a)(1), subject to 
the provisions of this section.
    (a) General. If you are an equipment manufacturer, you may 
introduce into commerce in the United States limited numbers of nonroad 
equipment with engines exempted under this section. You may use the 
exemptions in this section only if you have primary responsibility for 
designing and manufacturing equipment and your manufacturing procedures 
include installing some engines in this equipment. Consider all U.S.-
directed equipment sales in showing that you meet the requirements of 
this section, including those from any parent or subsidiary companies 
and those from any other companies you license to produce equipment for 
you. If you produce a type of equipment that has more than one engine, 
count each engine separately. These provisions are available over the 
following periods:
    (1) These provisions are available for the years shown in the 
following table, except as provided in paragraph (a)(2) of this 
section:

     Table 1 of Sec.   1039.625.--General Availability of Allowances
------------------------------------------------------------------------
                    Power category                       Calendar years
------------------------------------------------------------------------
kW < 19...............................................         2008-2014
19 <= kW < 56.........................................         2008-2014
56 <= kW < 130........................................         2012-2018
130 <= kW <= 560......................................         2011-2017
kW < 560..............................................         2011-2017
------------------------------------------------------------------------

    (2) If you do not use any allowances in a power category before the 
earliest dates shown in the following table, you may delay the start of 
the seven-year period for using allowances under this section as 
follows:

     Table 2 of Sec.   1039.625.--Availability of Delayed Allowances
------------------------------------------------------------------------
                    Power category                       Calendar years
------------------------------------------------------------------------
kW < 19...............................................  ................
19 <= kW < 56.........................................         2012-2018
56 <= kW < 130........................................         2014-2020
130 <= kW <= 560......................................         2014-2020
kW > 560..............................................         2015-2021
------------------------------------------------------------------------

    (b) Allowances. You may choose one of the following options for 
each power category to produce equipment with exempted engines under 
this section, except as allowed under Sec.  1039.627:
    (1) Percent-of-production allowances. You may produce a certain 
number of units with exempted engines calculated using a percentage of 
your total sales within a power category relative to your total U.S.-
directed production volume. The sum of these percentages within a power 
category during the seven-year period specified in paragraph (a) of 
this section may not exceed 80 percent, except as allowed under 
paragraph (b)(2) or (m) of this section.
    (2) Small-volume allowances. You may determine an alternate 
allowance for a specific number of exempted engines under this section 
using one of the following approaches for your U.S.-directed production 
volumes:
    (i) You may produce up to 700 units with exempted engines within a 
power category during the seven-year period specified in paragraph (a) 
of this section, with no more than 200 units in any single year within 
a power category, except as provided in paragraph (m) of this section. 
Engines within a power category that are exempted under this section 
must be from a single engine family within a given year.
    (ii) For engines below 130 kW, you may produce up to 525 units with 
exempted engines within a power category during the seven-year period 
specified in paragraph (a) of this section, with no more than 150 units 
in any single year within a power category, except as provided in 
paragraph (m) of this section. For engines at or above 130 kW, you may 
produce up to 350 units with exempted engines within a power category 
during the seven-year period, with no more than 100 units in any single 
year within a power category. Exemptions under this paragraph 
(b)(2)(ii) may apply to engines from multiple engine families in a 
given year.
    (c) Percentage calculation. Calculate for each calendar year the 
percentage of equipment with exempted engines from your total U.S.-
directed production within a power category if you need to show that 
you meet the percent-of-production allowances in paragraph (b)(1) of 
this section.
    (d) Inclusion of engines not subject to Tier 4 standards. The 
following provisions apply to engines that are not subject to Tier 4 
standards:
    (1) If you use the provisions of Sec.  1068.105(a) to use up your 
inventories of engines not certified to new emission standards, do not 
include these units in your count of equipment with exempted engines 
under paragraph (b) of this section. However, you may include these 
units in your count of total equipment you produce for the given year 
for the percentage calculation in paragraph (b)(1) of this section.
    (2) If you install engines that are exempted from the Tier 4 
standards for any reason, other than for equipment-manufacturer 
allowances under this section, do not include these units in your count 
of exempted engines under paragraph (b) of this section. However, you 
may include these units in your count of total equipment you produce 
for the given year for the percentage calculation in paragraph (b)(1) 
of this section. For example, if we grant a hardship exemption for the 
engine manufacturer, you may count these as compliant engines under 
this section. This paragraph (d)(2) applies only if the engine has a 
permanent label describing why it is exempted from the Tier 4 
standards.
    (3) Do not include equipment using model year 2008 or 2009 engines 
certified under the provisions of Sec.  1039.101(c) in your count of 
equipment using exempted engines. However, you may include these units 
in your count of total equipment you produce for the given year for the 
percentage calculation in paragraph (b)(1) of this section.

[[Page 39239]]

    (4) You may start using the allowances under this section for 
engines that are not yet subject to Tier 4 standards, as long as the 
seven-year period for using allowances under the Tier 2 or Tier 3 
program has expired (see 40 CFR 89.102(d)). Table 3 of this section 
shows the years for which this applies. To use these early allowances, 
you must use engines that meet the emission standards described in 
paragraph (e) of this section. You must also count these units or 
calculate these percentages as described in paragraph (c) of this 
section and apply them toward the total number or percentage of 
equipment with exempted engines we allow for the Tier 4 standards as 
described in paragraph (b) of this section. The maximum number of 
cumulative early allowances under this paragraph (d)(4) is 10 percent 
under the percent-of-production allowance or 100 units under the small-
volume allowance. For example, if you produce 5 percent of your 
equipment with engines between 130 and 560 kW that use allowances under 
this paragraph (d)(4) in 2009, you may use up to an additional 5 
percent of your allowances in 2010. If you use allowances for 5 percent 
of your equipment in both 2009 and 2010, your 80 percent allowance for 
2011-2017 in the 130-560 kW power category decreases to 70 percent. 
Manufacturers using allowances under this paragraph (d)(4) must comply 
with the notification and reporting requirements specified in paragraph 
(g) of this section.

         Table 3 of Sec.   1039.625.--Years for Early Allowances
------------------------------------------------------------------------
                 Maximum engine power                    Calendar years
------------------------------------------------------------------------
kW < 19...............................................              2007
19 <= kW < 37.........................................         2006-2011
37 <= kW < 56.........................................              2011
56 <= kW < 75.........................................              2011
75 <= kW < 130........................................         2010-2011
130 <= kW < 225.......................................              2010
225 <= kW < 450.......................................         2008-2010
450 <= kW <= 560......................................         2009-2010
KW > 560..............................................  ................
------------------------------------------------------------------------

    (e) Standards. If you produce equipment with exempted engines under 
this section, the engines must meet emission standards at least as 
stringent as the following:
    (1) If you are using the provisions of paragraph (d)(4) of this 
section, engines must meet the applicable Tier 1 emission standards 
described in Sec.  89.112.
    (2) If you are using the provisions of paragraph (a)(2) of this 
section, engines must be certified under this part 1039 as follows:

------------------------------------------------------------------------
                                                          Must meet all
                                                          standards and
                                                          requirements
     Engines in the following power category . . .       that applied in
                                                          the following
                                                        model year . . .
------------------------------------------------------------------------
(i) 19 <= kW < 56.....................................              2008
(ii) 56 <= kW < 130...................................              2012
(iii) 130 <= kW <= 560................................              2011
(iv) kW > 560.........................................              2011
------------------------------------------------------------------------

    (3) In all other cases, engines at or above 37 kW and at or below 
560 kW must meet the appropriate Tier 3 standards described in Sec.  
89.112. Engines below 37 kW and engines above 560 kW must meet the 
appropriate Tier 2 standards described in Sec.  89.112.
    (f) Equipment labeling. You must add a permanent label, written 
legibly in English, to the engine or another readily visible part of 
each piece of equipment you produce with exempted engines under this 
section. This label, which supplements the engine manufacturer's 
emission control information label, must include at least the following 
items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) The calendar year in which the equipment is manufactured.
    (4) The name, e-mail address, and phone number of a person to 
contact for further information.
    (5) The following statement:

THIS EQUIPMENT [or identify the type of equipment] HAS AN ENGINE 
THAT MEETS U.S. EPA EMISSION STANDARDS UNDER 40 CFR 1039.625.

    (g) Notification and reporting. You must notify us of your intent 
to use the provisions of this section and send us an annual report to 
verify that you are not exceeding the allowances, as follows:
    (1) Before January 1 of the first year you intend to use the 
provisions of this section, send the Designated Compliance Officer and 
the Designated Enforcement Officer a written notice of your intent, 
including:
    (i) Your company's name and address, and your parent company's name 
and address, if applicable.
    (ii) Whom to contact for more information.
    (iii) The calendar years in which you expect to use the exemption 
provisions of this section.
    (iv) The name and address of the company that produces the engines 
you will be using for the equipment exempted under this section.
    (v) Your best estimate of the number of units in each power 
category you will produce under this section and whether you intend to 
comply under paragraph (b)(1) or (b)(2) of this section.
    (vi) The number of units in each power category you have sold in 
previous calendar years under 40 CFR 89.102(d).
    (2) For each year that you use the provisions of this section, send 
the Designated Compliance Officer and the Designated Enforcement 
Officer a written report by March 31 of the following year. Include in 
your report the total number of engines you sold in the preceding year 
for each power category, based on actual U.S.-directed production 
information. Also identify the percentages of U.S.-directed production 
that correspond to the number of units in each power category and the 
cumulative numbers and percentages of units for all the units you have 
sold under this section for each power category. You may omit the 
percentage figures if you include in the report a statement that you 
will not be using the percent-of-production allowances in paragraph 
(b)(1) of this section.
    (h) Recordkeeping. Keep the following records of all equipment with 
exempted engines you produce under this section for at least five full 
years after the final year in which allowances are available for each 
power category:
    (1) The model number, serial number, and the date of manufacture 
for each engine and piece of equipment.
    (2) The maximum power of each engine.
    (3) The total number or percentage of equipment with exempted 
engines, as described in paragraph (b) of this section and all 
documentation supporting your calculation.
    (4) The notifications and reports we require under paragraph (g) of 
this section.
    (i) Enforcement. Producing more exempted engines or equipment than 
we allow under this section or installing engines that do not meet the 
emission standards of paragraph (e) of this section violates the 
prohibitions in 40 CFR 1068.101(a)(1). You must give us the records we 
require under this section if we ask for them (see 40 CFR 
1068.101(a)(2)).
    (j) Provisions for engine manufacturers. As an engine manufacturer, 
you may produce exempted engines as needed under this section. You do 
not have to request this exemption for your engines, but you must have 
written assurance from equipment manufacturers that they need a certain 
number of exempted engines under this section. Send us an annual report 
of the engines you produce under this section, as described in

[[Page 39240]]

Sec.  1039.250(a). For engines produced under the provisions of 
paragraph (a)(2) of this section, you must certify the engines under 
this part 1039. For all other exempt engines, the engines must meet the 
emission standards in paragraph (e) of this section and you must meet 
all the requirements of Sec.  1039.260. If you show under Sec.  
1039.260(c) that the engines are identical in all material respects to 
engines that you have previously certified to one or more FELs above 
the standards specified in paragraph (e) of this section, you must 
supply sufficient credits for these engines. Calculate these credits 
under subpart H of this part using the previously certified FELs and 
the alternate standards. You must meet the labeling requirements in 40 
CFR 89.110, but add the following statement instead of the compliance 
statement in 40 CFR 89.110(b)(10):

THIS ENGINE MEETS U.S. EPA EMISSION STANDARDS UNDER 40 CFR 1039.625. 
SELLING OR INSTALLING THIS ENGINE FOR ANY PURPOSE OTHER THAN FOR THE 
EQUIPMENT FLEXIBILITY PROVISIONS OF 40 CFR 1039.625 MAY BE A 
VIOLATION OF FEDERAL LAW SUBJECT TO CIVIL PENALTY.

    (k) Other exemptions. See 40 CFR 1068.255 for exemptions based on 
hardship for equipment manufacturers and secondary engine 
manufacturers.
    (l) [Reserved]
    (m) Additional exemptions for technical or engineering hardship. 
You may request additional engine allowances under paragraph (b)(1) of 
this section for 19-560 kW power categories or, if you are a small 
equipment manufacturer, under paragraph (b)(2) of this section for 
engines at or above 19 and below 37 kW. However, you may use these 
extra allowances only for those equipment models for which you, or an 
affiliated company, do not also produce the engine. After considering 
the circumstances, we may permit you to introduce into commerce 
equipment with such engines that do not comply with Tier 4 emission 
standards, as follows:
    (1) We may approve additional exemptions if extreme and unusual 
circumstances that are clearly outside your control and that could not 
have been avoided with reasonable discretion have resulted in technical 
or engineering problems that prevent you from meeting the requirements 
of this part. You must show that you exercised prudent planning and 
have taken all reasonable steps to minimize the scope of your request 
for additional allowances.
    (2) To apply for exemptions under this paragraph (m), send the 
Designated Compliance Officer and the Designated Enforcement Officer a 
written request as soon as possible before you are in violation. In 
your request, include the following information:
    (i) Describe your process for designing equipment.
    (ii) Describe how you normally work cooperatively or concurrently 
with your engine supplier to design products.
    (iii) Describe the engineering or technical problems causing you to 
request the exemption and explain why you have not been able to solve 
them. Describe the extreme and unusual circumstances that led to these 
problems and explain how they were unavoidable.
    (iv) Describe any information or products you received from your 
engine supplier related to equipment design--such as written 
specifications, performance data, or prototype engines--and when you 
received it.
    (v) Compare the design processes of the equipment model for which 
you need additional exemptions and that for other models for which you 
do not need additional exemptions. Explain the technical differences 
that justify your request.
    (vi) Describe your efforts to find and use other compliant engines, 
or otherwise explain why none is available.
    (vii) Describe the steps you have taken to minimize the scope of 
your request.
    (viii) Include other relevant information. You must give us other 
relevant information if we ask for it.
    (ix) Estimate the increased percent of production you need for each 
equipment model covered by your request, as described in paragraph 
(m)(3) of this section. Estimate the increased number of allowances you 
need for each equipment model covered by your request, as described in 
paragraph (m)(4) of this section.
    (3) We may approve your request to increase the allowances under 
paragraph (b)(1) of this section, subject to the following limitations:
    (i) The additional allowances will not exceed 70 percent for each 
power category.
    (ii) You must use up the allowances under paragraph (b)(1) of this 
section before using any additional allowance under this paragraph (m).
    (iii) Any allowances we approve under this paragraph (m)(3) expire 
24 months after the provisions of this section start for a given power 
category, as described in paragraph (a) of this section. You may use 
these allowances only for the specific equipment models covered by your 
request.
    (4) We may approve your request to increase the allowances for the 
19-56 kW power category under paragraph (b)(2) of this section, subject 
to the following limitations:
    (i) You are eligible for additional allowances under this paragraph 
(m)(4) only if you are a small equipment manufacturer and you do not 
use the provisions of paragraph (m)(3) of this section to obtain 
additional allowances for the 19-56 kW power category.
    (ii) You must use up all the available allowances for the 19-56 kW 
power category under paragraph (b)(2) of this section in a given year 
before using any additional allowances under this paragraph (m)(4).
    (iii) Base your request only on equipment you produce with engines 
at or above 19 kW and below 37 kW. You may use any additional 
allowances only for equipment you produce with engines at or above 19 
kW and below 37 kW.
    (iv) The total allowances under either paragraph (b)(2)(i) or (ii) 
of this section for the 19-56 kW power category will not exceed 1,100 
units.
    (v) Any allowances we approve under this paragraph (m)(4) expire 36 
months after the provisions of this section start for this power 
category, as described in paragraph (a) of this section. These 
additional allowances are not subject to the annual limits specified in 
paragraph (b)(2) of this section. You may use these allowances only for 
the specific equipment models covered by your request.
    (5) For purposes of this paragraph (m), small equipment 
manufacturer means a small-business equipment manufacturer that had 
annual U.S.-directed production volume of equipment using nonroad 
diesel engines between 19 and 56 kW of no more than 3,000 units in 2002 
and all earlier calendar years, and has 750 or fewer employees (500 or 
fewer employees for nonroad equipment manufacturers that produce no 
construction equipment or industrial trucks). For manufacturers owned 
by a parent company, the production limit applies to the production of 
the parent company and all its subsidiaries and the employee limit 
applies to the total number of employees of the parent company and all 
its subsidiaries.


Sec.  1039.626  What special provisions apply to equipment imported 
under the equipment-manufacturer flexibility program?

    This section describes requirements that apply to equipment 
manufacturers using the provisions of Sec.  1039.625 for

[[Page 39241]]

equipment produced outside the United States. Note that Sec.  1039.625 
limits these provisions to equipment manufacturers that install some 
engines and have primary responsibility for designing and manufacturing 
equipment. Companies that import equipment into the United States 
without meeting these criteria are not eligible for these allowances. 
Such importers may import equipment with exempted engines only as 
described in paragraph (b) of this section.
    (a) As a foreign equipment manufacturer, you or someone else may 
import equipment with exempted engines under this section if you comply 
with the provisions in Sec.  1039.625 and commit to the following:
    (1) Give any EPA inspector or auditor complete and immediate access 
to inspect and audit, as follows:
    (i) Inspections and audits may be announced or unannounced.
    (ii) Inspections and audits may be by EPA employees or EPA 
contractors.
    (iii) You must provide access to any location where--
    (A) Any nonroad engine, equipment, or vehicle is produced or 
stored.
    (B) Documents related to manufacturer operations are kept.
    (C) Equipment, engines, or vehicles are tested or stored for 
testing.
    (iv) You must provide any documents requested by an EPA inspector 
or auditor that are related to matters covered by the inspections or 
audit.
    (v) EPA inspections and audits may include review and copying of 
any documents related to demonstrating compliance with the exemptions 
in Sec.  1039.625.
    (vi) EPA inspections and audits may include inspection and 
evaluation of complete or incomplete equipment, engines, or vehicles, 
and interviewing employees.
    (vii) You must make any of your employees available for interview 
by the EPA inspector or auditor, on request, within a reasonable time 
period.
    (viii) You must provide English language translations of any 
documents to an EPA inspector or auditor, on request, within 10 working 
days.
    (ix) You must provide English-language interpreters to accompany 
EPA inspectors and auditors, on request.
    (2) Name an agent for service of process located in the District of 
Columbia. Service on this agent constitutes service on you or any of 
your officers or employees for any action by EPA or otherwise by the 
United States related to the requirements of this part.
    (3) The forum for any civil or criminal enforcement action related 
to the provisions of this section for violations of the Clean Air Act 
or regulations promulgated thereunder shall be governed by the Clean 
Air Act.
    (4) The substantive and procedural laws of the United States shall 
apply to any civil or criminal enforcement action against you or any of 
your officers or employees related to the provisions of this section.
    (5) Provide the notification required by Sec.  1039.625(g). Include 
in the notice of intent in Sec.  1039.625(g)(1) a commitment to comply 
with the requirements and obligations of Sec.  1039.625 and this 
section. This commitment must be signed by the owner or president.
    (6) You, your agents, officers, and employees must not seek to 
detain or to impose civil or criminal remedies against EPA inspectors 
or auditors, whether EPA employees or EPA contractors, for actions 
performed within the scope of EPA employment related to the provisions 
of this section.
    (7) By submitting notification of your intent to use the provisions 
of Sec.  1039.625, producing and exporting for resale to the United 
States nonroad equipment under this section, or taking other actions to 
comply with the requirements of this part, you, your agents, officers, 
and employees, without exception, become subject to the full operation 
of the administrative and judicial enforcement powers and provisions of 
the United States as described in 28 U.S.C. 1605(a)(2), without 
limitation based on sovereign immunity, for conduct that violates the 
requirements applicable to you under this part 1039--including such 
conduct that violates 18 U.S.C. 1001, 42 U.S.C. 7413(c)(2), or other 
applicable provisions of the Clean Air Act'with respect to actions 
instituted against you and your agents, officers, and employees in any 
court or other tribunal in the United States.
    (8) Any report or other document you submit to us must be in the 
English language, or include a complete translation in English.
    (9) You must post a bond to cover any potential enforcement actions 
under the Clean Air Act before you or anyone else imports your 
equipment under this section, as follows:
    (i) The value of the bond is based on the per-engine bond values 
shown in Table 1 of this section and on the highest number of engines 
in each power category you produce in any single calendar year under 
the provisions of Sec.  1039.625. For example, if you have projected 
U.S.-directed production volumes of 100 exempt engines in the 19-56 kW 
power category and 300 exempt engines in the 56-130 kW power category 
in 2013, the appropriate bond amount is $180,000. If your estimated or 
actual engine imports increase beyond the level appropriate for your 
current bond payment, you must post additional bond to reflect the 
increased sales within 90 days after you change your estimate or 
determine the actual sales. You may not decrease your bond.
    (ii) You may meet the bond requirements of this section with any of 
the following methods:
    (A) Get a bond from a third-party surety that is cited in the U.S. 
Department of Treasury Circular 570, ``Companies Holding Certificates 
of Authority as Acceptable Sureties on Federal Bonds and as Acceptable 
Reinsuring Companies.'' Maintain this bond for five years after the 
applicable allowance period expires, or five years after you use up all 
the available allowances under Sec.  1039.625, whichever comes first.
    (B) Get the Designated Enforcement Officer to approve a waiver from 
the bonding requirement, as long as you can show that you have assets 
of an appropriate liquidity and value readily available in the United 
States.
    (iii) If you forfeit some or all of your bond in an enforcement 
action, you must post any appropriate bond for continuing importation 
within 90 days after you forfeit the bond amount.

           Table 1 of Sec.   1039.626.--Per-Engine Bond Values
------------------------------------------------------------------------
                                                          The per-engine
  For engines with maximum engine power falling in the     bond value is
                 following ranges . . .                        . . .
------------------------------------------------------------------------
kW < 19.................................................            $150
19 <= kW < 56...........................................             300
56 <= kW < 130..........................................             500
130 <= kW < 225.........................................           1,000
225 <= kW < 450.........................................           3,000
kW >= 450...............................................           8,000
------------------------------------------------------------------------

    (iv) You will forfeit the proceeds of the bond posted under this 
paragraph (a)(9) if you need to satisfy any United States 
administrative final order or judicial judgment against you arising 
from your conduct in violation of this part 1039, including such 
conduct that violates 18 U.S.C. 1001, 42 U.S.C. 7413(c)(2), or other 
applicable provisions of the Clean Air Act.
    (b) The provisions of this paragraph (b) apply to importers that do 
not install engines into equipment and do not have primary 
responsibility for designing and manufacturing equipment. Such 
importers may import equipment with engines exempted under Sec.  
1039.625 only if each engine is exempted under an allowance provided to 
an equipment manufacturer meeting the requirements

[[Page 39242]]

of Sec.  1039.625 and this section. You must notify us of your intent 
to use the provisions of this section and send us an annual report, as 
follows:
    (1) Before January 1 of the first year you intend to use the 
provisions of this section, send the Designated Compliance Officer and 
the Designated Enforcement Officer a written notice of your intent, 
including:
    (i) Your company's name and address, and your parent company's name 
and address, if applicable.
    (ii) The name and address of the companies that produce the 
equipment and engines you will be importing under this section.
    (iii) Your best estimate of the number of units in each power 
category you will import under this section in the upcoming calendar 
year, broken down by equipment manufacturer and power category.
    (iv) The number of units in each power category you have imported 
in previous calendar years under 40 CFR 89.102(d).
    (2) For each year that you use the provisions of this section, send 
the Designated Compliance Officer and the Designated Enforcement 
Officer a written report by March 31 of the following year. Include in 
your report the total number of engines you imported under this section 
in the preceding calendar year, broken down by engine manufacturer and 
by equipment manufacturer.


Sec.  1039.627  What are the incentives for equipment manufacturers to 
use cleaner engines?

    This section allows equipment manufacturers to generate additional 
allowances under the provisions of Sec.  1039.625 by producing 
equipment using engines at or above 19 kW certified to specified levels 
earlier than otherwise required.
    (a) For early-compliant engines to generate offsets for use under 
this section, the following general provisions apply:
    (1) The engine manufacturer must comply with the provisions of 
Sec.  1039.104(a)(1) for the offset-generating engines.
    (2) Engines you install in your equipment after December 31 of the 
years specified in Sec.  1039.104(a)(1) do not generate allowances 
under this section, even if the engine manufacturer generated offsets 
for that engine under Sec.  1039.104(a).
    (3) Offset-generating engines must be certified to the following 
standards under this part 1039:

----------------------------------------------------------------------------------------------------------------
                                                                            You may reduce
                                                                            the number of
                                                          Certified early   engines in the
  If the engine's maximum       And you install . . .       to the . . .      same power       In later model
       power is . . .                                                       category that      years by . . .
                                                                           are required to
                                                                            meet the . . .
----------------------------------------------------------------------------------------------------------------
(i) kW >= 19...............  One engine.................  Emissions        Standards in     One engine.
                                                           standards in     Tables 2
                                                           Sec.             through 7 of
                                                           1039.101.        Sec.
                                                                            1039.102 or in
                                                                            Sec.
                                                                            1039.101.
(ii) 56 <= kW < 130........  Two engines................  NOX standards    Standards in     One engine.
                                                           in Sec.          Tables 2
                                                           1039.102(d)(1)   through 7 of
                                                           , and NMHC       Sec.
                                                           standard of      1039.102 or in
                                                           0.19 g/kW-hr,    Sec.
                                                           a PM standard    1039.101.
                                                           of 0.02 g/kW-
                                                           hr, and a CO
                                                           standard of
                                                           5.0 g/kW-hr.
(iii) 130 <= kW < 560......  Two engines................  NOX standards    Standards in     One engine.
                                                           in Sec.          Tables 2
                                                           1039.102(d)(2)   through 7 of
                                                           , an NMHC        Sec.
                                                           standard of      1039.102 or in
                                                           0.19 g/kW-hr,    Sec.
                                                           a PM standard    1039.101.
                                                           of 0.02 g/kW-
                                                           hr, and a CO
                                                           standard of
                                                           3.5 g/kW-hr.
----------------------------------------------------------------------------------------------------------------

    (b) Using engine offsets. (1) You may use engine offsets generated 
under paragraph (a) of this section to generate additional allowances 
under Sec.  1039.625, as follows:
    (i) For each engine offset, you may increase the number of 
available allowances under Sec.  1039.625(b) for that power category by 
one engine for the years indicated.
    (ii) For engines in 56-560 kW power categories, you may transfer 
engine offsets across power categories within this power range. 
Calculate the number of additional allowances by scaling the number of 
generated engine offsets according to the ratio of engine power for 
offset and allowance engines. Make this calculation for all your offset 
engines for which you will transfer offsets under this paragraph 
(b)(1)(ii), then round the result to determine the total number of 
available power-weighted allowances. For example, if you generate 
engine offsets for 75 500-kW engines, you may generate up to 37,500 kW-
engines of power-weighted allowances. You may apply this to 375 100-kW 
engines or any other combination that totals 37,500 kW-engines.
    (2) You may decline to use the offsets. If you decline, the engine 
manufacturer may use the provisions of Sec.  1039.104(a)(1).
    (c) Limitation on offsets for engines above 560 kW. For engines 
above 560 kW, you must track how many engines you install in generator 
sets and how many you install in other applications under the 
provisions of this section. Offsets from generator-set engines may be 
used only for generator-set engines. Offsets from engines for other 
applications may be used only for other applications besides generator 
sets.
    (d) Reporting. When you submit your first annual report under Sec.  
1039.625(g), include the following additional information related to 
the engines you use to generate offsets under this section:
    (1) The name of each engine family involved.
    (2) The number of engines from each power category.
    (3) The maximum engine power of each engine.
    (4) For engines above 560 kW, whether you use engines certified to 
the standards for generator-set engines.
    (e) In-use fuel. If the engine manufacturer certifies using ultra 
low-sulfur diesel fuel, you must take steps to ensure that the in-use 
engines in the family will use diesel fuel with a sulfur concentration 
no greater than 15 ppm. For example, selling equipment only into 
applications where the operator commits to a central-fueling facility 
with ultra low-sulfur diesel fuel throughout its lifetime would meet 
this requirement.


Sec.  1039.630  What are the economic hardship provisions for equipment 
manufacturers?

    If you qualify for the economic hardship provisions specified in 40 
CFR 1068.255, we may approve your hardship application subject to the 
following additional conditions:
    (a) You must show that you have used up the allowances to produce 
equipment with exempted engines under Sec.  1039.625.
    (b) You may produce equipment under this section for up to 12 
months

[[Page 39243]]

total (or 24 months total for small-volume manufacturers).


Sec.  1039.635  What are the hardship provisions for engine 
manufacturers?

    If you qualify for the hardship provisions specified in 40 CFR 
1068.245, we may approve a period of delayed compliance for up to one 
model year total (or two model years total for small-volume 
manufacturers). If you qualify for the hardship provisions specified in 
40 CFR 1068.250 for small-volume manufacturers, we may approve a period 
of delayed compliance for up to two model years total.


Sec.  1039.640  What special provisions apply to branded engines?

    The following provisions apply if you identify the name and 
trademark of another company instead of your own on your emission 
control information label, as provided by Sec.  1039.135(c)(2):
    (a) You must have a contractual agreement with the other company 
that obligates that company to take the following steps:
    (1) Meet the emission warranty requirements that apply under Sec.  
1039.120. This may involve a separate agreement involving reimbursement 
of warranty-related expenses.
    (2) Report all warranty-related information to the certificate 
holder.
    (b) In your application for certification, identify the company 
whose trademark you will use and describe the arrangements you have 
made to meet your requirements under this section.
    (c) You remain responsible for meeting all the requirements of this 
chapter, including warranty and defect-reporting provisions.


Sec.  1039.645  What special provisions apply to engines used for 
transportation refrigeration units?

    Manufacturers may choose to use the provisions of this section for 
engines used in transportation refrigeration units (TRUs). The 
operating restrictions and characteristics in paragraph (f) of this 
section define engines that are not used in TRUs. All provisions of 
this part apply for TRU engines, except as specified in this section.
    (a) You may certify engines under this section with the following 
special provisions:
    (1) The engines are not subject to the transient emission standards 
of subpart B of this part.
    (2) The steady-state emission standards in subpart B of this part 
apply for emissions measured over the steady-state test cycle described 
in paragraph (b) of this section instead of the otherwise applicable 
duty cycle described in Sec.  1039.505.
    (b) Measure steady-state emissions using the procedures specified 
in Sec.  1039.505, except for the duty cycles, as follows:
    (1) The following duty cycle applies for discrete-mode testing:

    Table 1 of Sec.   1039.645.--Discrete-Mode Cycle for TRU Engines
------------------------------------------------------------------------
                                                  Observed    Weighting
      Mode number          Engine speed \1\      torque \2\    factors
------------------------------------------------------------------------
1.....................  Maximum test speed....           75         0.25
2.....................  Maximum test speed....           50         0.25
3.....................  Intermediate test                75         0.25
                         speed.
4.....................  Intermediate test                50        0.25
                         speed.
------------------------------------------------------------------------
\1\ Speed terms are defined in 40 CFR part 1065.
\2\ The percent torque is relative to the maximum torque at the given
  engine speed.

    (2) The following duty cycle applies for ramped-modal testing:

                         Table 2 of Sec.   1039.645.--Ramped-Modal Cycle for TRU Engines
----------------------------------------------------------------------------------------------------------------
                                       Time in mode
              RMC  mode                  (seconds)        Engine speed \1\           Torque  (percent) 2 3
----------------------------------------------------------------------------------------------------------------
1a Steady-state.....................             290  Intermediate Speed.....  75.
1b Transition.......................              20  Intermediate Speed.....  Linear Transition.
2a Steady-state.....................             280  Intermediate Speed.....  50.
2b Transition.......................              20  Linear Transition......  Linear Transition.
3a Steady-state.....................             280  Maximum Test Speed.....  75.
3b Transition.......................              20  Maximum Test Speed.....  Linear Transition.
4 Steady-state......................             290  Maximum Test Speed.....  50
----------------------------------------------------------------------------------------------------------------
\1\ Speed terms are defined in 40 CFR part 1065.
\2\ The percent torque is relative to the maximum torque at the commanded engine speed.
\3\ Advance from one mode to the next within a 20-second transition phase. During the transition phase, command
  a linear progression from the torque setting of the current mode to the torque setting of the next mode, and
  simultaneously command a similar linear progression for engine speed if there is a change in speed setting.

    (c) Engines certified under this section must be certified in a 
separate engine family that contains only TRU engines.
    (d) You must do the following for each engine certified under this 
section:
    (1) State on the emission control information label: ``THIS ENGINE 
IS CERTIFIED TO OPERATE ONLY IN TRANSPORTATION REFRIGERATION UNITS. 
INSTALLING OR USING THIS ENGINE IN ANY OTHER APPLICATION MAY BE A 
VIOLATION OF FEDERAL LAW SUBJECT TO CIVIL PENALTY.''.
    (2) State in the emission-related installation instructions all 
steps necessary to ensure that the engine will operate only in the 
modes covered by the test cycle described in this section.
    (3) Keep records to document the destinations and quantities of 
engines produced under this section.
    (e) All engines certified under this section must comply with NTE 
standards, as described in Sec.  1039.101 or Sec.  1039.102 for the 
applicable model year, except that the NTE standards are not limited 
with respect to operating speeds and loads. In your application

[[Page 39244]]

for certification, certify that all the engines in the engine family 
comply with the not-to-exceed emission standards for all normal 
operation and use. The deficiency provisions of Sec.  1039.104(d) do 
not apply to these engines. This paragraph (e) applies whether or not 
the engine would otherwise be subject to NTE standards.
    (f) An engine is not considered to be used in a TRU if any of the 
following is true:
    (1) The engine is installed in any equipment other than 
refrigeration units for railcars, truck trailers, or other freight 
vehicles.
    (2) The engine operates in any mode not covered by the test cycle 
described in this section, except as follows:
    (i) The engine may operate briefly at idle. Note, however, that TRU 
engines must meet NTE emission standards under any type of operation, 
including idle, as described in paragraph (e) of this section.
    (ii) The engine may have a minimal amount of transitional operation 
between two allowable modes. As an example, a thirty-second transition 
period would clearly not be considered minimal.
    (iii) The engine as installed may experience up to a 2-percent 
decrease in load at a given setpoint over any 10-minute period, and up 
to a 15-percent decrease in load at a given setpoint over any 60-minute 
period.
    (3) The engine is sold in a configuration that allows the engine to 
operate in any mode not covered by the test cycle described in this 
section. For example, this section does not apply to an engine sold 
without a governor limiting operation only to those modes covered by 
the test cycle described in this section.
    (4) The engine is subject to Tier 3 or earlier standards, or phase-
out Tier 4 standards.


Sec.  1039.650  [Reserved]


Sec.  1039.655  What special provisions apply to engines sold in Guam, 
American Samoa, or the Commonwealth of the Northern Mariana Islands?

    (a) The prohibitions in Sec.  1068.101(a)(1) do not apply to an 
engine if the following conditions are met:
    (1) The engine is intended for use and will be used in Guam, 
American Samoa, or the Commonwealth of the Northern Mariana Islands.
    (2) The engine meets the latest applicable emission standards in 40 
CFR 89.112.
    (3) You meet all the requirements of Sec.  1039.260.
    (b) If you introduce an engine into commerce in the United States 
under this section, you must meet the labeling requirements in 40 CFR 
89.110, but add the following statement instead of the compliance 
statement in 40 CFR 89.110(b)(10):

THIS ENGINE DOES NOT COMPLY WITH U.S. EPA TIER 4 EMISSION 
REQUIREMENTS. IMPORTING THIS ENGINE INTO THE UNITED STATES OR ANY 
TERRITORY OF THE UNITED STATES EXCEPT GUAM, AMERICAN SAMOA, OR THE 
COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS MAY BE A VIOLATION OF 
FEDERAL LAW SUBJECT TO CIVIL PENALTY.

    (c) Introducing into commerce an engine exempted under this section 
in any state or territory of the United States other than Guam, 
American Samoa, or the Commonwealth of the Northern Mariana Islands, 
throughout its lifetime, violates the prohibitions in 40 CFR 
1068.101(a)(1), unless it is exempt under a different provision.


Sec.  1039.660  What special provisions apply to Independent Commercial 
Importers?

    Under Sec.  1039.801, certain engines are considered to be new 
engines when they are imported into the United States, even if they 
have previously been used outside the country. Independent Commercial 
Importers may use the provisions of 40 CFR part 89, subpart G, and 40 
CFR 89.906(b) to receive a certificate of conformity for engines 
meeting all the requirements of this part 1039.

Subpart H--Averaging, Banking, and Trading for Certification


Sec.  1039.701  General provisions.

    (a) You may average, bank, and trade (ABT) emission credits for 
purposes of certification as described in this subpart to show 
compliance with the standards of this part. Participation in this 
program is voluntary.
    (b) Section 1039.740 restricts the use of emission credits to 
certain averaging sets.
    (c) The definitions of Subpart I of this part apply to this 
subpart. The following definitions also apply:
    (1) Actual emission credits means emission credits you have 
generated that we have verified by reviewing your final report.
    (2) Averaging set means a set of engines in which emission credits 
may be exchanged only with other engines in the same averaging set.
    (3) Broker means any entity that facilitates a trade of emission 
credits between a buyer and seller.
    (4) Buyer means the entity that receives emission credits as a 
result of a trade.
    (5) Reserved emission credits means emission credits you have 
generated that we have not yet verified by reviewing your final report.
    (6) Seller means the entity that provides emission credits during a 
trade.
    (7) Standard means the emission standard that applies under subpart 
B of this part for engines not participating in the ABT program of this 
subpart.
    (8) Trade means to exchange emission credits, either as a buyer or 
seller.
    (d) You may not use emission credits generated under this subpart 
to offset any emissions that exceed an FEL or standard. This applies 
for all testing, including certification testing, in-use testing, 
selective enforcement audits, and other production-line testing. 
However, if emissions from an engine exceed an FEL or standard (for 
example, during a selective enforcement audit), you may use emission 
credits to recertify the engine family with a higher FEL that applies 
only to future production.
    (e) Engine families that use emission credits for one or more 
pollutants may not generate positive emission credits for another 
pollutant.
    (f) Emission credits may be used in the model year they are 
generated or in future model years. Emission credits may not be used 
for past model years.
    (g) You may increase or decrease an FEL during the model year by 
amending your application for certification under Sec.  1039.225. The 
new FEL may apply only to engines you have not already introduced into 
commerce. Each engine's emission control information label must include 
the applicable FELs.


Sec.  1039.705  How do I generate and calculate emission credits?

    The provisions of this section apply separately for calculating 
emission credits for NOX, NOX+NMHC, or PM.
    (a) Calculate positive emission credits for an engine family that 
has an FEL below the otherwise applicable standard. Calculate negative 
emission credits for an engine family that has an FEL above the 
otherwise applicable standard.
    (b) For each participating engine family, calculate positive or 
negative emission credits relative to the otherwise applicable emission 
standard. Round calculated emission credits to the nearest kilogram 
(kg), using consistent units throughout the following equation:

Emission credits (kg) = (Std - FEL) x (Volume) x (AvgPR) x (UL) x 
(10-3)


[[Page 39245]]


Where:

Std = the emission standard, in grams per kilowatt-hour, that 
applies under subpart B of this part for engines not participating 
in the ABT program of this subpart (the ``otherwise applicable 
standard'').
FEL = the family emission limit for the engine family, in grams per 
kilowatt-hour.
Volume = the number of engines eligible to participate in the 
averaging, banking, and trading program within the given engine 
family during the model year, as described in paragraph (c) of this 
section.
AvgPR = the average maximum engine power of all the engine 
configurations within an engine family, calculated on a sales-
weighted basis, in kilowatts.
UL = the useful life for the given engine family, in hours.

    (c) In your application for certification, base your showing of 
compliance on projected production volumes for engines whose point of 
first retail sale is in the United States. As described in Sec.  
1039.730, compliance with the requirements of this subpart is 
determined at the end of the model year based on actual production 
volumes for engines whose point of first retail sale is in the United 
States. Do not include any of the following engines to calculate 
emission credits:
    (1) Engines exempted under subpart G of this part or under 40 CFR 
part 1068.
    (2) Exported engines.
    (3) Engines not subject to the requirements of this part, such as 
those excluded under Sec.  1039.5.
    (4) [Reserved]
    (5) Any other engines, where we indicate elsewhere in this part 
1039 that they are not to be included in the calculations of this 
subpart.


Sec.  1039.710  How do I average emission credits?

    (a) Averaging is the exchange of emission credits among your engine 
families. You may average emission credits only within the same 
averaging set.
    (b) You may certify one or more engine families to an FEL above the 
applicable standard, subject to the FEL caps and other provisions in 
subpart B of this part, if you show in your application for 
certification that your projected balance of all emission-credit 
transactions in that model year is greater than or equal to zero.
    (c) If you certify an engine family to an FEL that exceeds the 
otherwise applicable standard, you must obtain enough emission credits 
to offset the engine family's deficit by the due date for the final 
report required in Sec.  1039.730. The emission credits used to address 
the deficit may come from your other engine families that generate 
emission credits in the same model year, from emission credits you have 
banked, or from emission credits you obtain through trading.


Sec.  1039.715  How do I bank emission credits?

    (a) Banking is the retention of emission credits by the 
manufacturer generating the emission credits for use in averaging or 
trading in future model years. You may use banked emission credits only 
within the averaging set in which they were generated.
    (b) In your application for certification, designate any emission 
credits you intend to bank. These emission credits will be considered 
reserved credits. During the model year and before the due date for the 
final report, you may redesignate these emission credits for averaging 
or trading.
    (c) You may use banked emission credits from the previous model 
year for averaging or trading before we verify them, but we may revoke 
these emission credits if we are unable to verify them after reviewing 
your reports or auditing your records.
    (d) Reserved credits become actual emission credits only when we 
verify them in reviewing your final report.


Sec.  1039.720  How do I trade emission credits?

    (a) Trading is the exchange of emission credits between 
manufacturers. You may use traded emission credits for averaging, 
banking, or further trading transactions. Traded emission credits may 
be used only within the averaging set in which they were generated.
    (b) You may trade actual emission credits as described in this 
subpart. You may also trade reserved emission credits, but we may 
revoke these emission credits based on our review of your records or 
reports or those of the company with which you traded emission credits.
    (c) If a negative emission credit balance results from a 
transaction, both the buyer and seller are liable, except in cases we 
deem to involve fraud. See Sec.  1039.255(e) for cases involving fraud. 
We may void the certificates of all engine families participating in a 
trade that results in a manufacturer having a negative balance of 
emission credits. See Sec.  1039.745.


Sec.  1039.725  What must I include in my application for 
certification?

    (a) You must declare in your application for certification your 
intent to use the provisions of this subpart for each engine family 
that will be certified using the ABT program. You must also declare the 
FELs you select for the engine family for each pollutant for which you 
are using the ABT program. Your FELs must comply with the 
specifications of subpart B of this part, including the FEL caps. FELs 
must be expressed to the same number of decimal places as the 
applicable standards.
    (b) Include the following in your application for certification:
    (1) A statement that, to the best of your belief, you will not have 
a negative balance of emission credits for any averaging set when all 
emission credits are calculated at the end of the year.
    (2) Detailed calculations of projected emission credits (positive 
or negative) based on projected production volumes. If your engine 
family will generate positive emission credits, state specifically 
where the emission credits will be applied (for example, to which 
engine family they will be applied in averaging, whether they will be 
traded, or whether they will be reserved for banking). If you have 
projected negative emission credits for an engine family, state the 
source of positive emission credits to offset the negative emission 
credits. Describe whether the emission credits are actual or reserved 
and whether they will come from averaging, banking, trading, or a 
combination of these. Identify from which of your engine families or 
from which manufacturer the emission credits will come.


Sec.  1039.730  What ABT reports must I send to EPA?

    (a) If any of your engine families are certified using the ABT 
provisions of this subpart, you must send an end-of-year report within 
90 days after the end of the model year and a final report within 270 
days after the end of the model year. We may waive the requirement to 
send the end-of year report, as long as you send the final report on 
time.
    (b) Your end-of-year and final reports must include the following 
information for each engine family participating in the ABT program:
    (1) Engine-family designation.
    (2) The emission standards that would otherwise apply to the engine 
family.
    (3) The FEL for each pollutant. If you changed an FEL during the 
model year, identify each FEL you used and calculate the positive or 
negative emission credits under each FEL. Also, describe how the 
applicable FEL can be identified for each engine you produced. For 
example, you might keep a list of engine identification numbers that 
correspond with certain FEL values.

[[Page 39246]]

    (4) The projected and actual production volumes for the model year 
with a point of retail sale in the United States. If you changed an FEL 
during the model year, identify the actual production volume associated 
with each FEL.
    (5) Maximum engine power for each engine configuration, and the 
sales-weighted average engine power for the engine family.
    (6) Useful life.
    (7) Calculated positive or negative emission credits for the whole 
engine family. Identify any emission credits that you traded, as 
described in paragraph (d)(1) of this section.
    (c) Your end-of-year and final reports must include the following 
additional information:
    (1) Show that your net balance of emission credits from all your 
engine families in each averaging set in the applicable model year is 
not negative.
    (2) State whether you will reserve any emission credits for 
banking.
    (3) State that the report's contents are accurate.
    (d) If you trade emission credits, you must send us a report within 
90 days after the transaction, as follows:
    (1) As the seller, you must include the following information in 
your report:
    (i) The corporate names of the buyer and any brokers.
    (ii) A copy of any contracts related to the trade.
    (iii) The engine families that generated emission credits for the 
trade, including the number of emission credits from each family.
    (2) As the buyer, you must include the following information in 
your report:
    (i) The corporate names of the seller and any brokers.
    (ii) A copy of any contracts related to the trade.
    (iii) How you intend to use the emission credits, including the 
number of emission credits you intend to apply to each engine family 
(if known).
    (e) Send your reports electronically to the Designated Compliance 
Officer using an approved information format. If you want to use a 
different format, send us a written request with justification for a 
waiver.
    (f) Correct errors in your end-of-year report or final report as 
follows:
    (1) You may correct any errors in your end-of-year report when you 
prepare the final report, as long as you send us the final report by 
the time it is due.
    (2) If you or we determine within 270 days after the end of the 
model year that errors mistakenly decrease your balance of emission 
credits, you may correct the errors and recalculate the balance of 
emission credits. You may not make these corrections for errors that 
are determined more than 270 days after the end of the model year. If 
you report a negative balance of emission credits, we may disallow 
corrections under this paragraph (f)(2).
    (3) If you or we determine anytime that errors mistakenly increase 
your balance of emission credits, you must correct the errors and 
recalculate the balance of emission credits.


Sec.  1039.735  What records must I keep?

    (a) You must organize and maintain your records as described in 
this section. We may review your records at any time.
    (b) Keep the records required by this section for eight years after 
the due date for the end-of-year report. You may use any appropriate 
storage formats or media, including paper, microfilm, or computer 
diskettes.
    (c) Keep a copy of the reports we require in Sec.  1039.725 and 
Sec.  1039.730.
    (d) Keep the following additional records for each engine you 
produce that generates or uses emission credits under the ABT program:
    (1) Engine family designation.
    (2) Engine identification number.
    (3) FEL and useful life.
    (4) Maximum engine power.
    (5) Build date and assembly plant.
    (6) Purchaser and destination.
    (e) We may require you to keep additional records or to send us 
relevant information not required by this section.


Sec.  1039.740  What restrictions apply for using emission credits?

    The following restrictions apply for using emission credits:
    (a) Averaging sets. Emission credits may be exchanged only within 
an averaging set. For Tier 4 engines, there are two averaging sets--one 
for engines at or below 560 kW and another for engines above 560 kW.
    (b) Emission credits from earlier tiers of standards. (1) For 
purposes of ABT under this subpart, you may not use emission credits 
generated from engines subject to emission standards under 40 CFR part 
89, except as specified in Sec.  1039.102(d)(1) or the following table:

------------------------------------------------------------------------
                                     And it was        Then you may use
  If the maximum power of the     certified to the       those banked
credit-generating engine is . .       following        credits for the
               .                 standards under 40    following Tier 4
                                  CFR part 89 . . .     engines . . .
------------------------------------------------------------------------
(i) kW < 19....................  Tier 2............  kW < 19
(ii) 19 <= kW < 37.............  Tier 2............  kW >= 19
(iii) 37 <= kW <= 560..........  Tier 3............  kW >= 19
(iv) kW > 560..................  Tier 2............  kW >= 19
------------------------------------------------------------------------

    (2) Emission credits generated from marine engines certified under 
the provisions of 40 CFR part 89 may not be used under this part.
    (3) See 40 CFR part 89 for other restrictions that may apply for 
using emission credits generated under that part.
    (c) NOX and NOX+NMHC emission credits. You may use NOX 
emission credits without adjustment to show compliance with 
NOX+NMHC standards. You may use NOX+NMHC emission 
credits to show compliance with NOX standards, but you must 
adjust the NOX+NMHC emission credits downward by twenty 
percent when you use them, as shown in the following equation:

NOX emission credits = (0.8) x (NOX+NMHC 
emission credits).

    (d) Other restrictions. Other sections of this part specify 
additional restrictions for using emission credits under certain 
special provisions.


Sec.  1039.745  What can happen if I do not comply with the provisions 
of this subpart?

    (a) For each engine family participating in the ABT program, the 
certificate of conformity is conditional upon full compliance with the 
provisions of this subpart during and after the model year. You are 
responsible to establish to our satisfaction that you fully comply with 
applicable requirements. We may void the certificate of conformity for 
an

[[Page 39247]]

engine family if you fail to comply with any provisions of this 
subpart.
    (b) You may certify your engine family to an FEL above an 
applicable standard based on a projection that you will have enough 
emission credits to offset the deficit for the engine family. However, 
we may void the certificate of conformity if you cannot show in your 
final report that you have enough actual emission credits to offset a 
deficit for any pollutant in an engine family.
    (c) We may void the certificate of conformity for an engine family 
if you fail to keep records, send reports, or give us information we 
request.
    (d) You may ask for a hearing if we void your certificate under 
this section (see Sec.  1039.820).

Subpart I--Definitions and Other Reference Information


Sec.  1039.801  What definitions apply to this part?

    The following definitions apply to this part. The definitions apply 
to all subparts unless we note otherwise. All undefined terms have the 
meaning the Act gives to them. The definitions follow:
    Act means the Clean Air Act, as amended, 42 U.S.C. 7401-7671q.
    Adjustable parameter means any device, system, or element of design 
that someone can adjust (including those which are difficult to access) 
and that, if adjusted, may affect emissions or engine performance 
during emission testing or normal in-use operation. This includes, but 
is not limited to, parameters related to injection timing and fueling 
rate. You may ask us to exclude a parameter that is difficult to access 
if it cannot be adjusted to affect emissions without significantly 
degrading engine performance, or if you otherwise show us that it will 
not be adjusted in a way that affects emissions during in-use 
operation.
    Aftertreatment means relating to a catalytic converter, particulate 
filter, or any other system, component, or technology mounted 
downstream of the exhaust valve (or exhaust port) whose design function 
is to reduce emissions in the engine exhaust before it is exhausted to 
the environment. Exhaust-gas recirculation (EGR) is not aftertreatment.
    Aircraft means any vehicle capable of sustained air travel above 
treetop heights.
    Auxiliary emission-control device means any element of design that 
senses temperature, motive speed, engine RPM, transmission gear, or any 
other parameter for the purpose of activating, modulating, delaying, or 
deactivating the operation of any part of the emission-control system.
    Brake power means the usable power output of the engine, not 
including power required to fuel, lubricate, heat, or cool the engine 
or to operate aftertreatment devices.
    Calibration means the set of specifications and tolerances specific 
to a particular design, version, or application of a component or 
assembly capable of functionally describing its operation over its 
working range.
    Certification means obtaining a certificate of conformity for an 
engine family that complies with the emission standards and 
requirements in this part.
    Certified emission level means the highest deteriorated emission 
level in an engine family for a given pollutant from either transient 
or steady-state testing.
    Compression-ignition means relating to a type of reciprocating, 
internal-combustion engine that is not a spark-ignition engine.
    Constant-speed engine means an engine whose certification is 
limited to constant-speed operation. Engines whose constant-speed 
governor function is removed or disabled are no longer constant-speed 
engines.
    Constant-speed operation means engine operation with a governor 
that controls engine speed to a reference speed. There are two kinds of 
constant-speed governors. An isochronous governor changes reference 
speed temporarily during a load change, then returns it to the original 
reference speed after the engine stabilizes. Isochronous governors 
typically allow speed changes up to 1.0 percent. A speed-droop governor 
has a fixed reference speed at zero load and allows the reference speed 
to decrease as load increases. With speed-droop governors, speed 
typically decreases 3 to 10 percent below the reference speed at zero 
load, such that the minimum reference speed occurs near the engine's 
point of maximum power.
    Crankcase emissions means airborne substances emitted to the 
atmosphere from any part of the engine crankcase's ventilation or 
lubrication systems. The crankcase is the housing for the crankshaft 
and other related internal parts.
    Critical emission-related component means any of the following 
components:
    (1) Electronic control units, aftertreatment devices, fuel-metering 
components, EGR-system components, crankcase-ventilation valves, all 
components related to charge-air compression and cooling, and all 
sensors and actuators associated with any of these components.
    (2) Any other component whose primary purpose is to reduce 
emissions.
    Designated Compliance Officer means the Manager, Engine Programs 
Group (6405-J), U.S. Environmental Protection Agency, 1200 Pennsylvania 
Ave., NW., Washington, DC 20460.
    Designated Enforcement Officer means the Director, Air Enforcement 
Division (2242A), U.S. Environmental Protection Agency, 1200 
Pennsylvania Ave., NW.,Washington, DC 20460.
    Deteriorated emission level means the emission level that results 
from applying the appropriate deterioration factor to the official 
emission result of the emission-data engine.
    Deterioration factor means the relationship between emissions at 
the end of useful life and emissions at the low-hour test point, 
expressed in one of the following ways:
    (1) For multiplicative deterioration factors, the ratio of 
emissions at the end of useful life to emissions at the low-hour test 
point.
    (2) For additive deterioration factors, the difference between 
emissions at the end of useful life and emissions at the low-hour test 
point.
    Discrete-mode means relating to the discrete-mode type of steady-
state test described in Sec.  1039.505.
    Emission-control system means any device, system, or element of 
design that controls or reduces the regulated emissions from an engine.
    Emission-data engine means an engine that is tested for 
certification. This includes engines tested to establish deterioration 
factors.
    Emission-related maintenance means maintenance that substantially 
affects emissions or is likely to substantially affect emission 
deterioration.
    Engine configuration means a unique combination of engine hardware 
and calibration within an engine family. Engines within a single engine 
configuration differ only with respect to normal production 
variability.
    Engine family has the meaning given in Sec.  1039.230.
    Engine manufacturer means the manufacturer of the engine. See the 
definition of ``manufacturer'' in this section.
    Engine used in a locomotive means either an engine placed in the 
locomotive to move other equipment, freight, or passenger traffic; or 
an engine mounted on the locomotive to provide auxiliary power.
    Equipment manufacturer means a manufacturer of nonroad equipment. 
All nonroad equipment manufacturing entities under the control of the 
same person are considered to be a single nonroad equipment 
manufacturer.

[[Page 39248]]

(Note: In Sec.  1039.626, the term ``equipment manufacturer'' has a 
narrower meaning, which applies only to that section.)
    Excluded means relating to an engine that either:
    (1) Has been determined not to be a nonroad engine, as specified in 
40 CFR 1068.30; or
    (2) Is a nonroad engine that, according to Sec.  1039.5, is not 
subject to this part 1039.
    Exempted means relating to an engine that is not required to meet 
otherwise applicable standards. Exempted engines must conform to 
regulatory conditions specified for an exemption in this part 1039 or 
in 40 CFR part 1068. Exempted engines are deemed to be ``subject to'' 
the standards of this part, even though they are not required to comply 
with the otherwise applicable requirements. Engines exempted with 
respect to a certain tier of standards may be required to comply with 
an earlier tier of standards as a condition of the exemption; for 
example, engines exempted with respect to Tier 4 standards may be 
required to comply with Tier 3 standards.
    Exhaust-gas recirculation means a technology that reduces emissions 
by routing exhaust gases that had been exhausted from the combustion 
chamber(s) back into the engine to be mixed with incoming air before or 
during combustion. The use of valve timing to increase the amount of 
residual exhaust gas in the combustion chamber(s) that is mixed with 
incoming air before or during combustion is not considered exhaust-gas 
recirculation for the purposes of this part.
    Family emission limit (FEL) means an emission level declared by the 
manufacturer to serve in place of an otherwise applicable emission 
standard under the ABT program in subpart H of this part. The family 
emission limit must be expressed to the same number of decimal places 
as the emission standard it replaces. The family emission limit serves 
as the emission standard for the engine family with respect to all 
required testing.
    Fuel system means all components involved in transporting, 
metering, and mixing the fuel from the fuel tank to the combustion 
chamber(s), including the fuel tank, fuel tank cap, fuel pump, fuel 
filters, fuel lines, carburetor or fuel-injection components, and all 
fuel-system vents.
    Fuel type means a general category of fuels such as diesel fuel or 
natural gas. There can be multiple grades within a single fuel type, 
such as high-sulfur or low-sulfur diesel fuel.
    Generator-set engine means an engine used primarily to operate an 
electrical generator or alternator to produce electric power for other 
applications.
    Good engineering judgment means judgments made consistent with 
generally accepted scientific and engineering principles and all 
available relevant information. See 40 CFR 1068.5 for the 
administrative process we use to evaluate good engineering judgment.
    High-sulfur diesel fuel means one of the following:
    (1) For in-use fuels, high-sulfur diesel fuel means a diesel fuel 
with a maximum sulfur concentration greater than 500 parts per million.
    (2) For testing, high-sulfur diesel fuel has the meaning we give in 
40 CFR part 1065.
    Hydrocarbon (HC) means the hydrocarbon group on which the emission 
standards are based for each fuel type. For alcohol-fueled engines, HC 
means total hydrocarbon equivalent (THCE). For all other engines, HC 
means nonmethane hydrocarbon (NMHC).
    Identification number means a unique specification (for example, a 
model number/serial number combination) that allows someone to 
distinguish a particular engine from other similar engines.
    Intermediate test speed has the meaning we give in 40 CFR 1065.515.
    Low-hour means relating to an engine with stabilized emissions and 
represents the undeteriorated emission level. This would generally 
involve less than 300 hours of operation.
    Low-sulfur diesel fuel means one of the following:
    (1) For in-use fuels, low-sulfur diesel fuel means a diesel fuel 
with a maximum sulfur concentration of 500 parts per million.
    (2) For testing, low-sulfur diesel fuel has the meaning we give in 
40 CFR part 1065.
    Manufacture means the physical and engineering process of 
designing, constructing, and assembling a nonroad engine or a piece of 
nonroad equipment.
    Manufacturer has the meaning given in section 216(1) of the Act. In 
general, this term includes any person who manufactures an engine, 
vehicle, or piece of equipment for sale in the United States or 
otherwise introduces a new nonroad engine into commerce in the United 
States. This includes importers who import engines, equipment, or 
vehicles for resale. (Note: In Sec.  1039.626, the term ``equipment 
manufacturer'' has a narrower meaning, which applies only to that 
section.)
    Marine engine means a nonroad engine that someone installs or 
intends to install on a marine vessel. This does not include portable 
auxiliary engines for which the fueling, cooling and exhaust systems 
are not integral parts of the vessel. There are two kinds of marine 
engines:
    (1) Propulsion marine engine means a marine engine that moves a 
vessel through the water or directs the vessel's movement.
    (2) Auxiliary marine engine means a marine engine not used for 
propulsion.
    Marine vessel has the meaning given in 1 U.S.C. 3, which generally 
includes all nonroad equipment used as a means of transportation on 
water.
    Maximum engine power has the meaning given in Sec.  1039.140. Note 
that Sec.  1039.230 generally disallows grouping engines from different 
power categories in the same engine family.
    Maximum test speed has the meaning we give in 40 CFR 1065.515.
    Maximum test torque has the meaning we give in 40 CFR 1065.1001.
    Model year means one of the following things:
    (1) For freshly manufactured equipment and engines (see definition 
of ``new nonroad engine,'' paragraph (1)), model year means one of the 
following:
    (i) Calendar year.
    (ii) Your annual new model production period if it is different 
than the calendar year. This must include January 1 of the calendar 
year for which the model year is named. It may not begin before January 
2 of the previous calendar year and it must end by December 31 of the 
named calendar year.
    (2) For an engine that is converted to a nonroad engine after being 
placed into service as a motor-vehicle engine or a stationary engine, 
model year means the calendar year in which the engine was originally 
produced (see definition of ``new nonroad engine,'' paragraph (2)).
    (3) For a nonroad engine excluded under Sec.  1039.5 that is later 
converted to operate in an application that is not excluded, model year 
means the calendar year in which the engine was originally produced 
(see definition of ``new nonroad engine,'' paragraph (3)).
    (4) For engines that are not freshly manufactured but are installed 
in new nonroad equipment, model year means the calendar year in which 
the engine is installed in the new nonroad equipment (see definition of 
``new nonroad engine,'' paragraph (4)).
    (5) For imported engines:
    (i) For imported engines described in paragraph (5)(i) of the 
definition of ``new nonroad engine,'' model year has the meaning given 
in paragraphs (1) through (4) of this definition.
    (ii) For imported engines described in paragraph (5)(ii) of the 
definition of

[[Page 39249]]

``new nonroad engine,'' model year has the meaning given in 40 CFR 
89.602 for independent commercial importers.
    Motor vehicle has the meaning we give in 40 CFR 85.1703(a). In 
general, motor vehicle means any vehicle that EPA deems to be capable 
of safe and practical use on streets or highways.
    New nonroad engine means any of the following things:
    (1) A freshly manufactured nonroad engine for which the ultimate 
purchaser has never received the equitable or legal title. This kind of 
engine might commonly be thought of as ``brand new.'' In the case of 
this paragraph (1), the engine becomes new when it is fully assembled 
for the first time. The engine is no longer new when the ultimate 
purchaser receives the title or the product is placed into service, 
whichever comes first.
    (2) An engine originally manufactured as a motor-vehicle engine or 
a stationary engine that is later intended to be used in a piece of 
nonroad equipment. In this case, the engine is no longer a motor-
vehicle or stationary engine and becomes a ``new nonroad engine''. The 
engine is no longer new when it is placed into nonroad service.
    (3) A nonroad engine that has been previously placed into service 
in an application we exclude under Sec.  1039.5, where that engine is 
installed in a piece of equipment that is covered by this part 1039. 
The engine is no longer new when it is placed into nonroad service 
covered by this part 1039. For example, this would apply to a marine 
diesel engine that is no longer used in a marine vessel.
    (4) An engine not covered by paragraphs (1) through (3) of this 
definition that is intended to be installed in new nonroad equipment. 
The engine is no longer new when the ultimate purchaser receives a 
title for the equipment or the product is placed into service, 
whichever comes first. This generally includes installation of used 
engines in new equipment.
    (5) An imported nonroad engine, subject to the following 
provisions:
    (i) An imported nonroad engine covered by a certificate of 
conformity issued under this part that meets the criteria of one or 
more of paragraphs (1) through (4) of this definition, where the 
original engine manufacturer holds the certificate, is new as defined 
by those applicable paragraphs.
    (ii) An imported nonroad engine covered by a certificate of 
conformity issued under this part, where someone other than the 
original engine manufacturer holds the certificate (such as when the 
engine is modified after its initial assembly), becomes new when it is 
imported. It is no longer new when the ultimate purchaser receives a 
title for the engine or it is placed into service, whichever comes 
first.
    (iii) An imported nonroad engine that is not covered by a 
certificate of conformity issued under this part at the time of 
importation is new, but only if it was produced on or after the dates 
shown in the following table. This addresses uncertified engines and 
equipment initially placed into service that someone seeks to import 
into the United States. Importation of this kind of new nonroad engine 
(or equipment containing such an engine) is generally prohibited by 40 
CFR part 1068.

     Applicability of Emission Standards for Nonroad Diesel Engines
------------------------------------------------------------------------
                                            Initial date of emission
         Maximum engine power                       standards
------------------------------------------------------------------------
kW < 19...............................  January 1, 2000.
19 <= kW < 37.........................  January 1, 1999.
37 <= kW < 75.........................  January 1, 1998.
75 <= kW < 130........................  January 1, 1997.
130 <= kW <= 560......................  January 1, 1996.
kW > 560..............................  January 1, 2000.
------------------------------------------------------------------------

    New nonroad equipment means either of the following things:
    (1) A nonroad piece of equipment for which the ultimate purchaser 
has never received the equitable or legal title. The product is no 
longer new when the ultimate purchaser receives this title or the 
product is placed into service, whichever comes first.
    (2) An imported nonroad piece of equipment with an engine not 
covered by a certificate of conformity issued under this part at the 
time of importation and manufactured after the requirements of this 
part start to apply (see Sec.  1039.1).
    Noncommercial fuel means a combustible product that is not marketed 
as a commercial fuel, but is used as a fuel for nonroad engines. For 
example, this includes methane that is produced and released from 
landfills or oil wells, or similar unprocessed fuels that are not 
intended to meet any otherwise applicable fuel specifications. See 
Sec.  1039.615 for provisions related to engines designed to burn 
noncommercial fuels.
    Noncompliant engine means an engine that was originally covered by 
a certificate of conformity, but is not in the certified configuration 
or otherwise does not comply with the conditions of the certificate.
    Nonconforming engine means an engine not covered by a certificate 
of conformity that would otherwise be subject to emission standards.
    Nonmethane hydrocarbon means the difference between the emitted 
mass of total hydrocarbons and the emitted mass of methane.
    Nonroad means relating to nonroad engines or equipment that 
includes nonroad engines.
    Nonroad engine has the meaning we give in 40 CFR 1068.30. In 
general this means all internal-combustion engines except motor vehicle 
engines, stationary engines, engines used solely for competition, or 
engines used in aircraft. This part does not apply to all nonroad 
engines (see Sec.  1039.5).
    Nonroad equipment means a piece of equipment that is powered by one 
or more nonroad engines.
    Official emission result means the measured emission rate for an 
emission-data engine on a given duty cycle before the application of 
any deterioration factor, but after the applicability of regeneration 
adjustment factors.
    Opacity means the fraction of a beam of light, expressed in 
percent, which fails to penetrate a plume of smoke, as measured by the 
procedure specified in Sec.  1039.501.
    Oxides of nitrogen has the meaning we give in 40 CFR part 1065.
    Particulate trap means a filtering device that is designed to 
physically trap all particulate matter above a certain size.
    Piece of equipment means any vehicle, vessel, or other type of 
equipment using engines to which this part applies.
    Placed into service means put into initial use for its intended 
purpose.
    Point of first retail sale means the location at which the initial 
retail sale occurs. This generally means an equipment dealership, but 
may also include an engine seller or distributor in cases where loose 
engines are sold to the general public for uses such as replacement 
engines.
    Power category means a specific range of maximum engine power that 
defines the applicability of standards. For example, references to the 
56-130 kW power category and 56 <= kW < 130 include all engines with 
maximum engine power at or above 56 kW but below 130 kW. Also 
references to 56-560 kW power categories or 56 <= kW <= 560 include all 
engines with maximum engine power at or above 56 kW but at or below 560 
kW, even though these engines span multiple power categories. Note that 
in some cases, FEL caps are based on a subset of a power category. The 
power categories are defined as follows:
    (1) Engines with maximum power below 19 kW.

[[Page 39250]]

    (2) Engines with maximum power at or above 19 kW but below 56 kW.
    (3) Engines with maximum power at or above 56 kW but below 130 kW.
    (4) Engines with maximum power at or above 130 kW but at or below 
560 kW.
    (5) Engines with maximum power above 560 kW.
    Ramped-modal means relating to the ramped-modal type of steady-
state test described in Sec.  1039.505.
    Rated speed means the maximum full-load governed speed for governed 
engines and the speed of maximum power for ungoverned engines.
    Revoke means to terminate the certificate or an exemption for an 
engine family. If we revoke a certificate or exemption, you must apply 
for a new certificate or exemption before continuing to introduce the 
affected engines into commerce. This does not apply to engines you no 
longer possess.
    Round means to round numbers according to NIST Special Publication 
811(incorporated by reference in Sec.  1039.810), unless otherwise 
specified.
    Scheduled maintenance means adjusting, repairing, removing, 
disassembling, cleaning, or replacing components or systems 
periodically to keep a part or system from failing, malfunctioning, or 
wearing prematurely. It also may mean actions you expect are necessary 
to correct an overt indication of failure or malfunction for which 
periodic maintenance is not appropriate.
    Small-volume engine manufacturer means a small business engine 
manufacturer that had engine families certified to meet the 
requirements of 40 CFR part 89 before 2003 (40 CFR part 89, revised as 
of July 1, 2002), had annual U.S.-directed production of no more than 
2,500 units in 2002 and all earlier calendar years, and has 1000 or 
fewer employees. For manufacturers owned by a parent company, the 
production limit applies to the production of the parent company and 
all its subsidiaries and the employee limit applies to the total number 
of employees of the parent company and all its subsidiaries.
    Spark-ignition means relating to a gasoline-fueled engine or any 
other type of engine with a spark plug (or other sparking device) and 
with operating characteristics significantly similar to the theoretical 
Otto combustion cycle. Spark-ignition engines usually use a throttle to 
regulate intake air flow to control power during normal operation.
    Steady-state means relating to emission tests in which engine speed 
and load are held at a finite set of essentially constant values. 
Steady-state tests are either discrete-mode tests or ramped-modal 
tests.
    Sulfur-sensitive technology means an emission-control technology 
that experiences a significant drop in emission-control performance or 
emission-system durability when an engine is operated on low-sulfur 
fuel (i.e., fuel with a sulfur concentration of 300 to 500 ppm) as 
compared to when it is operated on ultra low-sulfur fuel (i.e., fuel 
with a sulfur concentration less than 15 ppm). Exhaust-gas 
recirculation is not a sulfur-sensitive technology.
    Suspend means to temporarily discontinue the certificate or an 
exemption for an engine family. If we suspend a certificate, you may 
not introduce into commerce engines from that engine family unless we 
reinstate the certificate or approve a new one. If we suspend an 
exemption, you may not introduce into commerce engines that were 
previously covered by the exemption unless we reinstate the exemption.
    Test engine means an engine in a test sample.
    Test sample means the collection of engines selected from the 
population of an engine family for emission testing. This may include 
testing for certification, production-line testing, or in-use testing.
    Tier 1 means relating to the Tier 1 emission standards, as shown in 
40 CFR 89.112.
    Tier 2 means relating to the Tier 2 emission standards, as shown in 
40 CFR 89.112.
    Tier 3 means relating to the Tier 3 emission standards, as shown in 
40 CFR 89.112.
    Tier 4 means relating to the Tier 4 emission standards, as shown in 
Sec.  1039.101 and Sec.  1039.102. This includes the emission standards 
that are shown in Sec.  1039.101 and Sec.  1039.102 that are unchanged 
from Tier 2 or Tier 3 emission standards.
    Total hydrocarbon means the combined mass of organic compounds 
measured by the specified procedure for measuring total hydrocarbon, 
expressed as a hydrocarbon with a hydrogen-to-carbon mass ratio of 
1.85:1.
    Total hydrocarbon equivalent means the sum of the carbon mass 
contributions of non-oxygenated hydrocarbons, alcohols and aldehydes, 
or other organic compounds that are measured separately as contained in 
a gas sample, expressed as exhaust hydrocarbon from petroleum-fueled 
engines. The hydrogen-to-carbon ratio of the equivalent hydrocarbon is 
1.85:1.
    Ultimate purchaser means, with respect to any new nonroad equipment 
or new nonroad engine, the first person who in good faith purchases 
such new nonroad equipment or new nonroad engine for purposes other 
than resale.
    Ultra low-sulfur diesel fuel means one of the following:
    (1) For in-use fuels, ultra low-sulfur diesel fuel means a diesel 
fuel with a maximum sulfur concentration of 15 parts per million.
    (2) For testing, ultra low-sulfur diesel fuel has the meaning we 
give in 40 CFR part 1065.
    United States means the States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, Guam, American Samoa, and the U.S. Virgin Islands.
    Upcoming model year means for an engine family the model year after 
the one currently in production.
    U.S.-directed production volume means the number of engine units, 
subject to the requirements of this part, produced by a manufacturer 
for which the manufacturer has a reasonable assurance that sale was or 
will be made to ultimate purchasers in the United States.
    Useful life means the period during which the engine is designed to 
properly function in terms of reliability and fuel consumption, without 
being remanufactured, specified as a number of hours of operation or 
calendar years, whichever comes first. It is the period during which a 
new nonroad engine is required to comply with all applicable emission 
standards. See Sec.  1039.101(g).
    Variable-speed engine means an engine that is not a constant-speed 
engine.
    Void means to invalidate a certificate or an exemption ab initio. 
If we void a certificate, all the engines introduced into commerce 
under that engine family for that model year are considered 
noncompliant, and you are liable for each engine introduced into 
commerce under the certificate and may face civil or criminal penalties 
or both. This applies equally to all engines in the engine family, 
including engines introduced into commerce before we voided the 
certificate. If we void an exemption, all the engines introduced into 
commerce under that exemption are considered uncertified (or 
nonconforming), and you are liable for each engine introduced into 
commerce under the exemption and may face civil or criminal penalties 
or both. You may not introduce into commerce any additional engines 
using the voided exemption.
    Volatile liquid fuel means any fuel other than diesel or biodiesel 
that is a liquid at atmospheric pressure and has

[[Page 39251]]

a Reid Vapor Pressure higher than 2.0 pounds per square inch.
    We (us, our) means the Administrator of the Environmental 
Protection Agency and any authorized representatives.


Sec.  1039.805  What symbols, acronyms, and abbreviations does this 
part use?

    The following symbols, acronyms, and abbreviations apply to this 
part:

CFR Code of Federal Regulations.
CO carbon monoxide.
CO2 carbon dioxide.
EPA Environmental Protection Agency.
FEL Family Emission Limit.
g/kW-hr grams per kilowatt-hour.
HC hydrocarbon.
kW kilowatts.
NIST National Institute of Standards and Technology.
NMHC nonmethane hydrocarbons.
NOX oxides of nitrogen (NO and NO2).
NTE not-to-exceed
PM particulate matter.
rpm revolutions per minute.
SAE Society of Automotive Engineers.
SEA Selective enforcement audit.
THC total hydrocarbon.
THCE total hydrocarbon equivalent.
TRU transportation refrigeration unit.
U.S.C. United States Code.


Sec.  1039.810  What materials does this part reference?

    Documents listed in this section have been incorporated by 
reference into this part. The Director of the Federal Register approved 
the incorporation by reference as prescribed in 5 U.S.C. 552(a) and 1 
CFR part 51. Anyone may inspect copies at the U.S. EPA, Air and 
Radiation Docket and Information Center, 1301 Constitution Ave., NW., 
Room B102, EPA West Building, Washington, DC 20460 or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (a) NIST material. Table 1 of this section lists material from the 
National Institute of Standards and Technology that we have 
incorporated by reference. The first column lists the number and name 
of the material. The second column lists the sections of this part 
where we reference it. Anyone may purchase copies of these materials 
from the Government Printing Office, Washington, DC 20402 or download 
them from the Internet at http://physics.nist.gov/Pubs/SP811/. Table 1 
follows:

               Table 1 of Sec.   1039.810.--NIST Materials
------------------------------------------------------------------------
                                                             Part 1039
                Document number and name                     reference
------------------------------------------------------------------------
NIST Special Publication 811, Guide for the Use of the          1039.801
 International System of Units (SI), 1995 Edition.......
------------------------------------------------------------------------

    (b) SAE material. Table 2 of this section lists material from the 
Society of Automotive Engineering that we have incorporated by 
reference. The first column lists the number and name of the material. 
The second column lists the sections of this part where we reference 
it. Anyone may purchase copies of these materials from the Society of 
Automotive Engineers, 400 Commonwealth Drive, Warrendale, PA 15096. 
Table 2 follows:

               Table 2 of Sec.   1039.810.--SAE Materials
------------------------------------------------------------------------
                                                             Part 1039
                Document number and name                     reference
------------------------------------------------------------------------
SAE J1930, Electrical/Electronic Systems Diagnostic             1039.135
 Terms, Definitions, Abbreviations, and Acronyms,
 revised May 1998.......................................
------------------------------------------------------------------------

Sec.  1039.815  What provisions apply to confidential information?

    (a) Clearly show what you consider confidential by marking, 
circling, bracketing, stamping, or some other method.
    (b) We will store your confidential information as described in 40 
CFR part 2. Also, we will disclose it only as specified in 40 CFR part 
2. This applies both to any information you send us and to any 
information we collect from inspections, audits, or other site visits.
    (c) If you send us a second copy without the confidential 
information, we will assume it contains nothing confidential whenever 
we need to release information from it.
    (d) If you send us information without claiming it is confidential, 
we may make it available to the public without further notice to you, 
as described in 40 CFR 2.204.


Sec.  1039.820  How do I request a hearing?

    (a) You may request a hearing under certain circumstances, as 
described elsewhere in this part. To do this, you must file a written 
request, including a description of your objection and any supporting 
data, within 30 days after we make a decision.
    (b) For a hearing you request under the provisions of this part, we 
will approve your request if we find that your request raises a 
substantial factual issue.
    (c) If we agree to hold a hearing, we will use the procedures 
specified in 40 CFR part 1068, subpart G.

Appendix I to Part 1039--[Reserved]

Appendix II to Part 1039--Steady-State Duty Cycles for Constant-Speed 
Engines

    (a) The following duty cycle applies for discrete-mode testing 
of constant-speed engines:

------------------------------------------------------------------------
                                              Torque         Weighting
    D2 mode  number     Engine speed \1\   (percent) \2\      factors
------------------------------------------------------------------------
1.....................  Maximum test                 100            0.05
                         speed.
2.....................  Maximum test                  75            0.25
                         speed.
3.....................  Maximum test                  50            0.30
                         speed.
4.....................  Maximum test                  25            0.30
                         speed.
5.....................  Maximum test                  10           0.10
                         speed.
------------------------------------------------------------------------
\1\ Maximum test speed is defined in 40 CFR part 1065.
\2\ Except as noted in Sec.   1039.505, the percent torque is relative
  to maximum test torque.

    (b) The following duty cycle applies for ramped-modal testing of 
constant-speed engines:

[[Page 39252]]



----------------------------------------------------------------------------------------------------------------
                                        Time in
              RMC mode                    mode           Engine speed               Torque  (percent) 1 2
                                       (seconds)
----------------------------------------------------------------------------------------------------------------
1a Steady-state.....................           53  Engine Governed........  100.
1b Transition.......................           20  Engine Governed........  Linear transition.
2a Steady-state.....................          101  Engine Governed........  10.
2b Transition.......................           20  Engine Governed........  Linear transition.
3a Steady-state.....................          277  Engine Governed........  75.
3b Transition.......................           20  Engine Governed........  Linear transition.
4a Steady-state.....................          339  Engine Governed........  25.
4b Transition.......................           20  Engine Governed........  Linear transition.
5 Steady-state......................          350  Engine Governed........  50.
----------------------------------------------------------------------------------------------------------------
\1\ The percent torque is relative to maximum test torque.
\2\ Advance from one mode to the next within a 20-second transition phase. During the transition phase, command
  a linear progression from the torque setting of the current mode to the torque setting of the next mode.

Appendix III to Part 1039--Steady-State Duty Cycles for Variable-Speed 
Engines With Maximum Power Below 19 kW

    (a) The following duty cycle applies for discrete-mode testing 
of variable-speed engines with maximum power below 19 kW:

------------------------------------------------------------------------
                                             Observed
    G2 mode  number     Engine speed \1\      torque         Weighting
                                           (percent) \2\      factors
------------------------------------------------------------------------
1.....................  Maximum test                 100            0.09
                         speed.
2.....................  Maximum test                  75            0.20
                         speed.
3.....................  Maximum test                  50            0.29
                         speed.
4.....................  Maximum test                  25            0.30
                         speed.
5.....................  Maximum test                  10            0.07
                         speed.
6.....................  Idle............               0            0.05
------------------------------------------------------------------------
\1\ Speed terms are defined in 40 CFR part 1065.
\2\ The percent torque is relative to the maximum torque at the
  commanded test speed.

    (b) The following duty cycle applies for ramped-modal testing of 
variable-speed engines with maximum power below 19 kW:

----------------------------------------------------------------------------------------------------------------
                                        Time in
              RMC  mode                   mode         Engine speed 1 3             Torque  (percent) 2 3
                                       (seconds)
----------------------------------------------------------------------------------------------------------------
1a Steady-state.....................           41  Warm Idle..............  0.
1b Transition.......................           20  Linear transition......  Linear transition.
2a Steady-state.....................          135  Maximum Test Speed.....  100.
2b Transition.......................           20  Maximum Test Speed.....  Linear transition.
3a Steady-state.....................          112  Maximum Test Speed.....  10.
3b Transition.......................           20  Maximum Test Speed.....  Linear transition.
4a Steady-state.....................          337  Maximum Test Speed.....  75.
4b Transition.......................           20  Maximum Test Speed.....  Linear transition.
5a Steady-state.....................          518  Maximum Test Speed.....  25.
5b Transition.......................           20  Maximum Test Speed.....  Linear transition.
6a Steady-state.....................          494  Maximum Test Speed.....  50.
6b Transition.......................           20  Linear transition......  Linear transition.
7 Steady-state......................           43  Warm Idle..............  0.
----------------------------------------------------------------------------------------------------------------
\1\ Speed terms are defined in 40 CFR part 1065.
\2\ The percent torque is relative to the maximum torque at the commanded engine speed.
\3\ Advance from one mode to the next within a 20-second transition phase. During the transition phase, command
  a linear progression from the torque setting of the current mode to the torque setting of the next mode, and
  simultaneously command a similar linear progression for engine speed if there is a change in speed setting.

Appendix IV to Part 1039--Steady-State Duty Cycles for Variable-Speed 
Engines With Maximum Power at or Above 19 kW

    (a) The following duty cycle applies for discrete-mode testing 
of variable-speed engines with maximum power at or above 19 kW:

[[Page 39253]]



------------------------------------------------------------------------
                                             Observed
    C1 mode  number     Engine speed \1\      torque         Weighting
                                           (percent) \2\      factors
------------------------------------------------------------------------
1.....................  Maximum test                 100            0.15
                         speed.
2.....................  Maximum test                  75            0.15
                         speed.
3.....................  Maximum test                  50            0.15
                         speed.
4.....................  Maximum test                  10            0.10
                         speed.
5.....................  Intermediate                 100            0.10
                         test speed.
6.....................  Intermediate                  75            0.10
                         test speed.
7.....................  Intermediate                  50            0.10
                         test speed.
8.....................  Idle............               0            0.15
------------------------------------------------------------------------
\1\ Speed terms are defined in 40 CFR part 1065.
\2\ The percent torque is relative to the maximum torque at the
  commanded test speed.

    (b) The following duty cycle applies for ramped-modal testing of 
variable-speed engines with maximum power at or above 19 kW:

----------------------------------------------------------------------------------------------------------------
                                        Time in
              RMC Mode                    mode        Engine  speed 1 3             Torque  (percent) 2 3
                                       (seconds)
----------------------------------------------------------------------------------------------------------------
1a Steady-state.....................          126  Warm Idle..............  0.
1b Transition.......................           20  Linear Transition \2\..  Linear Transition.
2a Steady-state.....................          159  Intermediate Speed.....  100.
2b Transition.......................           20  Intermediate Speed.....  Linear Transition.
3a Steady-state.....................          160  Intermediate Speed.....  50.
3b Transition.......................           20  Intermediate Speed.....  Linear Transition.
4a Steady-state.....................          162  Intermediate Speed.....  75.
4b Transition.......................           20  Linear Transition......  Linear Transition.
5a Steady-state.....................          246  Maximum Test Speed.....  100.
5b Transition.......................           20  Maximum Test Speed.....  Linear Transition.
6a Steady-state.....................          164  Maximum Test Speed.....  10.
6b Transition.......................           20  Maximum Test Speed.....  Linear Transition.
7a Steady-state.....................          248  Maximum Test Speed.....  75.
7b Transition.......................           20  Maximum Test Speed.....  Linear Transition.
8a Steady-state.....................          247  Maximum Test Speed.....  50.
8b Transition.......................           20  Linear Transition......  Linear Transition.
9 Steady-state......................          128  Warm Idle..............  0.
----------------------------------------------------------------------------------------------------------------
\1\ Speed terms are defined in 40 CFR part 1065.
\2\ The percent torque is relative to the maximum torque at the commanded engine speed.
\3\ Advance from one mode to the next within a 20-second transition phase. During the transition phase, command
  a linear progression from the torque setting of the current mode to the torque setting of the next mode, and
  simultaneously command a similar linear progression for engine speed if there is a change in speed setting.

Appendix V to Part 1039 [Reserved]

Appendix VI to Part 1039--Nonroad Compression-ignition Composite 
Transient Cycle

------------------------------------------------------------------------
                                                 Normalized   Normalized
                    Time(s)                        speed        torque
                                                 (percent)    (percent)
------------------------------------------------------------------------
1.............................................            0            0
2.............................................            0            0
3.............................................            0            0
4.............................................            0            0
5.............................................            0            0
6.............................................            0            0
7.............................................            0            0
8.............................................            0            0
9.............................................            0            0
10............................................            0            0
11............................................            0            0
12............................................            0            0
13............................................            0            0
14............................................            0            0
15............................................            0            0
16............................................            0            0
17............................................            0            0
18............................................            0            0
19............................................            0            0
20............................................            0            0
21............................................            0            0
22............................................            0            0
23............................................            0            0
24............................................            1            3
25............................................            1            3
26............................................            1            3
27............................................            1            3
28............................................            1            3
29............................................            1            3
30............................................            1            6
31............................................            1            6
32............................................            2            1
33............................................            4           13
34............................................            7           18
35............................................            9           21
36............................................           17           20
37............................................           33           42
38............................................           57           46
39............................................           44           33
40............................................           31            0
41............................................           22           27
42............................................           33           43
43............................................           80           49
44............................................          105           47
45............................................           98           70
46............................................          104           36
47............................................          104           65
48............................................           96           71
49............................................          101           62
50............................................          102           51
51............................................          102           50
52............................................          102           46
53............................................          102           41
54............................................          102           31
55............................................           89            2
56............................................           82            0
57............................................           47            1
58............................................           23            1
59............................................            1            3
60............................................            1            8
61............................................            1            3
62............................................            1            5
63............................................            1            6
64............................................            1            4
65............................................            1            4
66............................................            0            6
67............................................            1            4

[[Page 39254]]

 
68............................................            9           21
69............................................           25           56
70............................................           64           26
71............................................           60           31
72............................................           63           20
73............................................           62           24
74............................................           64            8
75............................................           58           44
76............................................           65           10
77............................................           65           12
78............................................           68           23
79............................................           69           30
80............................................           71           30
81............................................           74           15
82............................................           71           23
83............................................           73           20
84............................................           73           21
85............................................           73           19
86............................................           70           33
87............................................           70           34
88............................................           65           47
89............................................           66           47
90............................................           64           53
91............................................           65           45
92............................................           66           38
93............................................           67           49
94............................................           69           39
95............................................           69           39
96............................................           66           42
97............................................           71           29
98............................................           75           29
99............................................           72           23
100...........................................           74           22
101...........................................           75           24
102...........................................           73           30
103...........................................           74           24
104...........................................           77            6
105...........................................           76           12
106...........................................           74           39
107...........................................           72           30
108...........................................           75           22
109...........................................           78           64
110...........................................          102           34
111...........................................          103           28
112...........................................          103           28
113...........................................          103           19
114...........................................          103           32
115...........................................          104           25
116...........................................          103           38
117...........................................          103           39
118...........................................          103           34
119...........................................          102           44
120...........................................          103           38
121...........................................          102           43
122...........................................          103           34
123...........................................          102           41
124...........................................          103           44
125...........................................          103           37
126...........................................          103           27
127...........................................          104           13
128...........................................          104           30
129...........................................          104           19
130...........................................          103           28
131...........................................          104           40
132...........................................          104           32
133...........................................          101           63
134...........................................          102           54
135...........................................          102           52
136...........................................          102           51
137...........................................          103           40
138...........................................          104           34
139...........................................          102           36
140...........................................          104           44
141...........................................          103           44
142...........................................          104           33
143...........................................          102           27
144...........................................          103           26
145...........................................           79           53
146...........................................           51           37
147...........................................           24           23
148...........................................           13           33
149...........................................           19           55
150...........................................           45           30
151...........................................           34            7
152...........................................           14            4
153...........................................            8           16
154...........................................           15            6
155...........................................           39           47
156...........................................           39            4
157...........................................           35           26
158...........................................           27           38
159...........................................           43           40
160...........................................           14           23
161...........................................           10           10
162...........................................           15           33
163...........................................           35           72
164...........................................           60           39
165...........................................           55           31
166...........................................           47           30
167...........................................           16            7
168...........................................            0            6
169...........................................            0            8
170...........................................            0            8
171...........................................            0            2
172...........................................            2           17
173...........................................           10           28
174...........................................           28           31
175...........................................           33           30
176...........................................           36            0
177...........................................           19           10
178...........................................            1           18
179...........................................            0           16
180...........................................            1            3
181...........................................            1            4
182...........................................            1            5
183...........................................            1            6
184...........................................            1            5
185...........................................            1            3
186...........................................            1            4
187...........................................            1            4
188...........................................            1            6
189...........................................            8           18
190...........................................           20           51
191...........................................           49           19
192...........................................           41           13
193...........................................           31           16
194...........................................           28           21
195...........................................           21           17
196...........................................           31           21
197...........................................           21            8
198...........................................            0           14
199...........................................            0           12
200...........................................            3            8
201...........................................            3           22
202...........................................           12           20
203...........................................           14           20
204...........................................           16           17
205...........................................           20           18
206...........................................           27           34
207...........................................           32           33
208...........................................           41           31
209...........................................           43           31
210...........................................           37           33
211...........................................           26           18
212...........................................           18           29
213...........................................           14           51
214...........................................           13           11
215...........................................           12            9
216...........................................           15           33
217...........................................           20           25
218...........................................           25           17
219...........................................           31           29
220...........................................           36           66
221...........................................           66           40
222...........................................           50           13
223...........................................           16           24
224...........................................           26           50
225...........................................           64           23
226...........................................           81           20
227...........................................           83           11
228...........................................           79           23
229...........................................           76           31
230...........................................           68           24
231...........................................           59           33
232...........................................           59            3
233...........................................           25            7
234...........................................           21           10
235...........................................           20           19
236...........................................            4           10
237...........................................            5            7
238...........................................            4            5
239...........................................            4            6
240...........................................            4            6
241...........................................            4            5
242...........................................            7            5
243...........................................           16           28
244...........................................           28           25
245...........................................           52           53
246...........................................           50            8
247...........................................           26           40
248...........................................           48           29
249...........................................           54           39
250...........................................           60           42
251...........................................           48           18
252...........................................           54           51
253...........................................           88           90
254...........................................          103           84
255...........................................          103           85
256...........................................          102           84
257...........................................           58           66
258...........................................           64           97
259...........................................           56           80
260...........................................           51           67
261...........................................           52           96
262...........................................           63           62
263...........................................           71            6
264...........................................           33           16
265...........................................           47           45
266...........................................           43           56
267...........................................           42           27
268...........................................           42           64
269...........................................           75           74
270...........................................           68           96
271...........................................           86           61
272...........................................           66            0
273...........................................           37            0
274...........................................           45           37
275...........................................           68           96
276...........................................           80           97
277...........................................           92           96
278...........................................           90           97
279...........................................           82           96
280...........................................           94           81
281...........................................           90           85
282...........................................           96           65
283...........................................           70           96

[[Page 39255]]

 
284...........................................           55           95
285...........................................           70           96
286...........................................           79           96
287...........................................           81           71
288...........................................           71           60
289...........................................           92           65
290...........................................           82           63
291...........................................           61           47
292...........................................           52           37
293...........................................           24            0
294...........................................           20            7
295...........................................           39           48
296...........................................           39           54
297...........................................           63           58
298...........................................           53           31
299...........................................           51           24
300...........................................           48           40
301...........................................           39            0
302...........................................           35           18
303...........................................           36           16
304...........................................           29           17
305...........................................           28           21
306...........................................           31           15
307...........................................           31           10
308...........................................           43           19
309...........................................           49           63
310...........................................           78           61
311...........................................           78           46
312...........................................           66           65
313...........................................           78           97
314...........................................           84           63
315...........................................           57           26
316...........................................           36           22
317...........................................           20           34
318...........................................           19            8
319...........................................            9           10
320...........................................            5            5
321...........................................            7           11
322...........................................           15           15
323...........................................           12            9
324...........................................           13           27
325...........................................           15           28
326...........................................           16           28
327...........................................           16           31
328...........................................           15           20
329...........................................           17            0
330...........................................           20           34
331...........................................           21           25
332...........................................           20            0
333...........................................           23           25
334...........................................           30           58
335...........................................           63           96
336...........................................           83           60
337...........................................           61            0
338...........................................           26            0
339...........................................           29           44
340...........................................           68           97
341...........................................           80           97
342...........................................           88           97
343...........................................           99           88
344...........................................          102           86
345...........................................          100           82
346...........................................           74           79
347...........................................           57           79
348...........................................           76           97
349...........................................           84           97
350...........................................           86           97
351...........................................           81           98
352...........................................           83           83
353...........................................           65           96
354...........................................           93           72
355...........................................           63           60
356...........................................           72           49
357...........................................           56           27
358...........................................           29            0
359...........................................           18           13
360...........................................           25           11
361...........................................           28           24
362...........................................           34           53
363...........................................           65           83
364...........................................           80           44
365...........................................           77           46
366...........................................           76           50
367...........................................           45           52
368...........................................           61           98
369...........................................           61           69
370...........................................           63           49
371...........................................           32            0
372...........................................           10            8
373...........................................           17            7
374...........................................           16           13
375...........................................           11            6
376...........................................            9            5
377...........................................            9           12
378...........................................           12           46
379...........................................           15           30
380...........................................           26           28
381...........................................           13            9
382...........................................           16           21
383...........................................           24            4
384...........................................           36           43
385...........................................           65           85
386...........................................           78           66
387...........................................           63           39
388...........................................           32           34
389...........................................           46           55
390...........................................           47           42
391...........................................           42           39
392...........................................           27            0
393...........................................           14            5
394...........................................           14           14
395...........................................           24           54
396...........................................           60           90
397...........................................           53           66
398...........................................           70           48
399...........................................           77           93
400...........................................           79           67
401...........................................           46           65
402...........................................           69           98
403...........................................           80           97
404...........................................           74           97
405...........................................           75           98
406...........................................           56           61
407...........................................           42            0
408...........................................           36           32
409...........................................           34           43
410...........................................           68           83
411...........................................          102           48
412...........................................           62            0
413...........................................           41           39
414...........................................           71           86
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1200..........................................           66           47
1201..........................................           76           14
1202..........................................           74           18
1203..........................................           69           46
1204..........................................           68           62
1205..........................................           68           62
1206..........................................           68           62
1207..........................................           68           62
1208..........................................           68           62
1209..........................................           68           62
1210..........................................           54           50
1211..........................................           41           37
1212..........................................           27           25
1213..........................................           14           12
1214..........................................            0            0
1215..........................................            0            0
1216..........................................            0            0
1217..........................................            0            0
1218..........................................            0            0
1219..........................................            0            0
1220..........................................            0            0
1221..........................................            0            0
1222..........................................            0            0
1223..........................................            0            0
1224..........................................            0            0
1225..........................................            0            0
1226..........................................            0            0
1227..........................................            0            0
1228..........................................            0            0
1229..........................................            0            0
1230..........................................            0            0
1231..........................................            0            0
1232..........................................            0            0
1233..........................................            0            0
1234..........................................            0            0
1235..........................................            0            0
1236..........................................            0            0
1237..........................................            0            0
1238..........................................            0            0
------------------------------------------------------------------------

PART 1048--CONTROL OF EMISSIONS FROM NEW, LARGE NONROAD SPARK-
IGNITION ENGINES

0
89. The authority citation for part 1048 continues to read as follows:

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


0
90. Section 1048.125 is amended by revising paragraph (a) introductory 
text and paragraph (d) to read as follows:


Sec.  1048.125  What maintenance instructions must I give to buyers?

    (a) Critical emission-related maintenance. Critical emission-
related maintenance includes any adjustment, cleaning, repair, or 
replacement of critical emission-related components. This may also 
include additional emission-related maintenance that you determine is 
critical if we approve it in advance. You may schedule critical 
emission-related maintenance on these components if you meet the 
following conditions:
* * * * *
    (d) Noncritical emission-related maintenance. You may schedule any 
amount of emission-related inspection or maintenance that is not 
covered by paragraph (a) of this section, as long as you state in the 
owners manual that these steps are not necessary to keep the emission-
related warranty valid. If operators fail to do this maintenance, this 
does not allow you to disqualify those engines from in-use testing or 
deny a warranty claim. Do not take these inspection or maintenance 
steps during service accumulation on your emission-data engines.
* * * * *

0
91. Section 1048.801 is amended by adding a definition for ``Critical 
emission-related component'' in alphabetical order to read as follows:


Sec.  1048.801  What definitions apply to this part?

* * * * *
    Critical emission-related component means any of the following 
components: (1) Electronic control units, aftertreatment devices, fuel-
metering components, EGR-system components, crankcase-ventilation 
valves, all components related to charge-air compression and cooling, 
and all sensors and actuators associated with any of these components.
    (2) Any other component whose primary purpose is to reduce 
emissions.
* * * * *

PART 1051--CONTROL OF EMISSIONS FROM RECREATIONAL ENGINES AND 
VEHICLES

0
92. The authority citation for part 1051 continues to read as follows:

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


0
93. Section 1051.125 is amended by revising paragraph (a) introductory 
text and paragraph (d) to read as follows:


Sec.  1051.125  What maintenance instructions must I give to buyers?

    (a) Critical emission-related maintenance. Critical emission-
related maintenance includes any adjustment, cleaning, repair, or 
replacement of critical emission-related components. This may also 
include additional emission-related maintenance that you determine is 
critical if we approve it in advance. You may schedule critical 
emission-related maintenance on these components if you meet the 
following conditions:
* * * * *
    (d) Noncritical emission-related maintenance. You may schedule any 
amount of emission-related inspection or maintenance that is not 
covered by paragraph (a) of this section, as long as you state in the 
owners manual that these steps are not necessary to keep the emission-
related warranty valid. If operators fail to do this maintenance, this 
does not allow you to disqualify those engines from in-use testing or 
deny a warranty claim. Do not take these inspection or maintenance 
steps during service accumulation on your emission-data engines.
* * * * *

0
94. Section 1051.801 is amended by adding a definition for ``Critical 
emission-related component'' in alphabetical order to read as follows:


Sec.  1051.801  What definitions apply to this part?

* * * * *
    Critical emission-related component means any of the following 
components:

[[Page 39260]]

(1) Electronic control units, aftertreatment devices, fuel-metering 
components, EGR-system components, crankcase-ventilation valves, all 
components related to charge-air compression and cooling, and all 
sensors and actuators associated with any of these components.
    (2) Any other component whose primary purpose is to reduce 
emissions.
* * * * *

PART 1065--TEST PROCEDURES AND EQUIPMENT

0
95. The authority citation for part 1065 continues to read as follows:

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


0
96. Section 1065.1 is amended by revising paragraph (a) and removing 
and reserving paragraph (b)(6) to read as follows:


Sec.  1065.1  Applicability.

    (a) This part describes the procedures that apply to testing that 
we require for the following engines or for equipment using the 
following engines:
    (1) Large nonroad spark-ignition engines we regulate under 40 CFR 
part 1048.
    (2) Vehicles that we regulate under 40 CFR part 1051 (i.e., 
recreational SI vehicles) that are regulated based on engine testing. 
See 40 CFR part 1051 to determine which vehicles may be certified based 
on engine test data.
    (3) Land-based nonroad compression-ignition engines we regulate 
under 40 CFR part 1039.
* * * * *

0
97. Section 1065.10 is amended by revising paragraph (c)(3) to read as 
follows:


Sec.  1065.10  Other test procedures.

* * * * *
    (c) * * *
    (3) You may ask to use alternate procedures that produce 
measurements equivalent to those from the specified procedures. If you 
send us a written request showing your procedures are equivalent, and 
we agree that they are equivalent, we will allow you to use them. You 
may not use an alternate procedure until we approve them, either by: 
telling you directly that you may use this procedure; or issuing 
guidance to all manufacturers, which allows you to use the alternate 
procedure without additional approval. You may use the statistical 
procedures specified in 40 CFR 86.1306-07(d) to demonstrate 
equivalence, except that you test for equal variances by performing the 
F-test as follows, instead of the method specified in Sec.  86.1306-
07(d)(5)(iv)(C):

(i) Form the F ratio: F = (Asd/Rsd) 2.

Where:

Asd = the standard deviation of measurements with the alternate 
system.
Rsd = the standard deviation of measurements with the reference 
system.
(ii) F must be less than the critical t value, Fcrit, at a 90% 
confidence interval for ``n-1'' degrees of freedom.
(iii) The following table lists 90% confidence-interval Fcrit values 
for n-1 degrees of freedom. Note that nA represents the number of 
alternate system samples, while nR represents the number of 
reference system samples:

--------------------------------------------------------------------------------------------------------------------------------------------------------
       nR-1              nA-1          6       7       8       9      10      11      12      13      14      15      16      17      18      19     20
--------------------------------------------------------------------------------------------------------------------------------------------------------
6................  ...............   3.055   3.014   2.983   2.958   2.937    2.92   2.905   2.892   2.881   2.871   2.863   2.855   2.848  2.842  2.836
7................  ...............   2.827   2.785   2.752   2.725   2.703   2.684   2.668   2.654   2.643   2.632   2.623   2.615   2.607  2.601  2.595
8................  ...............   2.668   2.624   2.589   2.561   2.538   2.519   2.502   2.488   2.475   2.464   2.455   2.446   2.438  2.431  2.425
9................  ...............   2.551   2.505   2.469   2.440   2.416   2.396   2.379   2.364   2.351   2.340   2.329   2.320   2.312  2.305  2.298
10...............  ...............   2.461   2.414   2.377   2.347   2.323   2.302   2.284   2.269   2.255   2.244   2.233   2.224   2.215  2.208  2.201
11...............  ...............   2.389   2.342   2.304   2.274   2.248   2.227   2.209   2.193   2.179   2.167   2.156   2.147   2.138  2.13   2.123
12...............  ...............   2.331   2.283   2.245   2.214   2.188   2.166   2.147   2.131   2.117   2.105   2.094   2.084   2.075  2.067  2.06
13...............  ...............   2.283   2.234   2.195   2.164   2.138   2.116   2.097   2.080   2.066   2.053   2.042   2.032   2.023  2.014  2.007
14...............  ...............   2.243   2.193   2.154   2.122   2.095   2.073   2.054   2.037   2.022   2.010   1.998   1.988   1.978  1.97   1.962
15...............  ...............   2.208   2.158   2.119   2.086   2.059   2.037   2.017   2.000   1.985   1.972   1.961   1.950   1.941  1.932  1.924
16...............  ...............   2.178   2.128   2.088   2.055   2.028   2.005   1.985   1.968   1.953   1.940   1.928   1.917   1.908  1.899  1.891
17...............  ...............   2.152   2.102   2.061   2.028   2.001   1.978   1.958   1.940   1.925   1.912   1.900   1.889   1.879  1.87   1.862
18...............  ...............   2.130   2.079   2.038   2.005   1.977   1.954   1.933   1.916   1.900   1.887   1.875   1.864   1.854  1.845  1.837
19...............  ...............   2.109   2.058   2.017   1.984   1.956   1.932   1.912   1.894   1.878   1.865   1.852   1.841   1.831  1.822  1.814
20...............  ...............   2.091   2.040   1.999   1.965   1.937   1.913   1.892   1.875   1.859   1.845   1.833   1.821   1.811  1.802  1.794
--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * *

0
98. In Sec.  1065.115, text is added to read as follows:


Sec.  1065.115  Exhaust gas sampling system; compression-ignition 
engines.

    Use one of the following systems and procedures to measure 
emissions from compression-ignition engines:
    (a) Full-flow dilution sampling as specified in 40 CFR 86.1310.
    (b) Raw-gas sampling during steady-state tests as specified in 40 
CFR 89.412 through 89.418.
    (c) Partial-flow sampling for measuring gaseous emission 
constituents during steady-state tests as specified in 40 CFR 
89.112(c).

0
99. In Sec.  1065.205, text is added to read as follows:


Sec.  1065.205  Test fuel specifications for distillate diesel fuel.

    (a)(1) There are three grades of 2 diesel fuel specified 
for use as a test fuel. See the standard-setting part to determine 
which grade to use. If the standard-setting part does not specify which 
grade to use, use good engineering judgment to select the grade that 
represents the fuel on which the engines will operate in use. The three 
grades are specified as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             ASTM test       Ultra low
                      Item                                                                 method No.\1\      sulfur        Low sulfur      High sulfur
--------------------------------------------------------------------------------------------------------------------------------------------------------
(i) Cetane Number..............................  .......................................           D 613           40-50           40-50           40-50
(ii) Cetane Index..............................  .......................................           D 976           40-50           40-50           40-50
(iii) Distillation range:
    (A) IBP....................................  [deg]C.................................            D 86         171-204         171-204         171-204
    (B) 10 pct. point..........................  [deg]C.................................            D 86         204-238         204-238         204-238
    (C) 50 pct. point..........................  [deg]C.................................            D 86         243-282         243-282         243-282
     (D) 90 pct. point.........................  [deg]C.................................            D 86         293-332         293-332         293-332

[[Page 39261]]

 
    (E) EP.....................................  [deg]C.................................            D 86         321-366         321-366         321-366
(iv) Gravity...................................  [deg]API...............................           D 287           32-37           32-37           32-37
(v) Total sulfur...............................  ppm....................................          D 2622            7-15         300-500       2000-4000
(vi) Hydrocarbon composition:
    Aromatics, minimum. (Remainder shall be      pct....................................          D 5186              10              10              10
     paraffins, naphthenes, and olefins).
(vii) Flashpoint, min..........................  [deg]C.................................            D 93              54              54              54
(viii) Viscosity...............................  centistokes............................           D 445         2.0-3.2         2.0-3.2        2.0-3.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ All ASTM standards are incorporated by reference in Sec.   1065.1010.

    (2) [Reserved]
    (b) There are no specifications for 1 diesel fuel. See 
Sec.  1065.201(d) if your engines are designed to operate only on 
1 diesel fuel.

0
100. In Sec.  1065.310, text is added to read as follows:


Sec.  1065.310  CVS calibration.

    Use the procedures of 40 CFR 86.1319-90 to calibrate the CVS.
0
101. Section 1065.405 is amended by revising paragraph (b) to read as 
follows:


Sec.  1065.405  Preparing and servicing a test engine.

* * * * *
    (b) Run the test engine, with all emission-control systems 
operating, long enough to stabilize emission levels.
    (1) For SI engines, if you accumulate 50 hours of operation, you 
may consider emission levels stable without measurement.
    (2) For CI engines, if you accumulate 125 hours of operation, you 
may consider emission levels stable without measurement.
* * * * *

0
102. Section 1065.530 is amended by revising paragraph (b)(3)(iii) and 
adding paragraphs (d) and (e) to read as follows:


Sec.  1065.530  Test cycle validation criteria.

* * * * *
    (b) * * *
    (3) * * *
    (iii) For a valid test, make sure the feedback cycle's integrated 
brake kilowatt-hour is within 5 percent of the reference cycle's 
integrated brake kilowatt-hour. Also, ensure that the slope, intercept, 
standard error, and coefficient of determination meet the criteria in 
the following tables (you may delete individual points from the 
regression analyses, consistent with paragraph (e) of this section and 
good engineering judgment):

     Table 1 of Sec.   1065.530.--Statistical Criteria for Validating Test Cycles for Spark-Ignition Engines
----------------------------------------------------------------------------------------------------------------
                                                Speed                    Torque                   Power
----------------------------------------------------------------------------------------------------------------
1. Slope of the regression line (m)..  0.950 to 1.030.........  0.830 to 1.030.........  0.880 to 1.030.
2. Y intercept of the regression line  [verbar]b[verbar] <= 50  [verbar]b[verbar] <=     [verbar]b[verbar] <=
 (b).                                   rpm.                     5.0 percent of maximum   3.0 percent of maximum
                                                                 torque from power map.   torque from power map.
3. Standard error of the estimate of   100 rpm................  15 percent of maximum    10 percent of maximum
 Y on X (SE).                                                    torque from power map.   power from power map.
4. Coefficient of determination (r     r \2\ >= 0.970.........  r \2\ >= 0.880.........  r \2\ >= 0.900.
 \2\).
----------------------------------------------------------------------------------------------------------------


  Table 2 of Sec.   1065.530.--Statistical Criteria for Validating Test Cycles for Compression-Ignition Engines
----------------------------------------------------------------------------------------------------------------
                                                Speed                    Torque                   Power
----------------------------------------------------------------------------------------------------------------
1. Slope of the regression line (m)..  0.950 to 1.030.........  0.830 to 1.030 (hot);    0.890 to 1.030 (hot);
                                                                 0.77 to 1.03 (cold).     0.870 to 1.030 (cold).
2. Y intercept of the regression line  [verbar]b[verbar] <= 50  [verbar]b[verbar] <= 20  [verbar]b[verbar] <=
 (b).                                   rpm.                     Nm or                    4.0 kW or
                                                                 [verbar]b[verbar] <=     [verbar]b[verbar] <=
                                                                 2.0 percent of maximum   3.0 percent of maximum
                                                                 torque from power map,   torque from power map,
                                                                 whichever is greater.    whichever is greater.
3. Standard error of the estimate of   100 rpm................  13 percent of maximum    8 percent of maximum
 Y on X (SE).                                                    torque from power map.   power from power map.
4. Coefficient of determination (r     r \2\ >= 0.970.........  r \2\ >= 0.880 (hot); r  r \2\ >= 0.910 (hot); r
 \2\).                                                           \2\ >= 0.850 (cold);.    \2\ >= 0.850 (cold).
----------------------------------------------------------------------------------------------------------------

* * * * *
    (d) Transient testing with constant-speed engines. For constant-
speed engines with installed governor operating over a transient duty 
cycle, the test cycle validation criteria in this section apply to 
engine-torque values but not engine-speed values.
    (e) Omissions. You may omit the following points from duty cycle 
statistics calculations:
    (1) Feedback torque and power during motoring reference commands 
when operator demand is at its minimum.
    (2) Feedback speed and power during idle-speed oscillations, if all 
the following are true:
    (i) Reference command is 0% speed and 0% torque.
    (ii) Operator demand (i.e., throttle) is at its minimum.
    (iii) Absolute value of feedback torque is less than the sum of the 
reference torque plus 2% of the maximum mapped torque.
    (3) Feedback power and either speed or torque for a given point 
when approaching maximum demand, if all the following are true:
    (i) Operator demand (i.e., throttle) is at its maximum.
    (ii) Either feedback speed is less than reference speed or feedback 
torque is less than reference torque, but both are not less than their 
respective reference values.
    (4) Feedback power and either speed or torque for a given point, 
when approaching minimum demand, if all the following are true:

[[Page 39262]]

    (i) Operator demand (i.e., throttle) is at its minimum.
    (ii) Either feedback speed is greater than 105% of reference speed 
or feedback torque is greater than 105% of reference torque, but both 
are not greater than these values.

0
103. Section 1065.615 is amended by revising paragraphs (c), (d), and 
(e) to read as follows:


Sec.  1065.615  Bag sample calculations.

* * * * *
    (c) Calculate total brake work (kW-hr) done during the emissions 
sampling period of each segment or mode and then weight it by the 
applicable test cycle weighting factors.
    (d) Calculate emissions in g/kW-hr by dividing the total weighted 
mass emission rate (g/test) by the total cycle-weighted brake work for 
the test.
    (e) Apply deterioration factors or other adjustment factors to the 
brake-specific emission rate in paragraph (d) of this section, as 
specified in the standard-setting part.

0
104. Section 1065.620 is added to subpart G to read as follows:


Sec.  1065.620  Continuous sample analysis and calculations.

    Use the sample analysis procedures and calculations of 40 CFR part 
86, subpart N, for continuous samples.

0
105. Section 1065.701 is added to subpart H to read as follows:


Sec.  1065.701  Particulate measurements.

    Use the particulate sampling system and procedures specified in 40 
CFR part 86, subpart N, to measure particulate emissions from 
compression-ignition nonroad engines.

0
106. Section 1065.910 is revised to read as follows:


Sec.  1065.910  Measurement accuracy and precision.

    Measurement systems used for field testing have accuracy and 
precision comparable to those of dynamometer testing. Measurement 
systems that conform to the provisions of Sec. Sec.  1065.915 through 
1065.950 are deemed to be in compliance with the accuracy and precision 
requirements of paragraph of this section. If you use other field 
testing measurement systems you need to have documentation indicating 
that it is comparable to a dynamometer system.
    (a) The two systems must be calibrated independently to NIST 
traceable standards or equivalent national standards for this 
comparison. We may approve the use of other standards. Calculations of 
emissions results for this test should be consistent with the field 
testing data reduction scheme for both the in-use equipment and the 
dynamometer equipment, and each complete test cycle will be considered 
one ``summing interval'', Si as defined in the field-testing data 
reduction scheme.
    (b) While other statistical analyses may be acceptable, we 
recommend that the comparison be based on a minimum of seven (7) 
repeats of colocated and simultaneous tests. Perform this comparison 
over the applicable steady-state and transient test cycles using an 
engine that is fully warmed up such that its coolant temperature is 
thermostatically controlled. If there is no applicable transient test 
cycle, use the applicable steady-state cycle. Anyone who intends to 
submit an alternative comparison is encouraged to first contact EPA 
Office of Transportation and Air Quality, Assessment and Standards 
Division to discuss the applicant's intended statistical analysis. The 
Division may provide further guidance specific to the appropriate 
statistical analysis for the respective application.
    (c) The following statistical tests are suggested. If the 
comparison is paired, it must demonstrate that the alternate system 
passes a two-sided, paired t-test. If the test is unpaired, it must 
demonstrate that the alternate system passes a two-sided, unpaired t-
test. The average of these tests for the reference system must return 
results less than or equal to the applicable emissions standard. The t-
test is performed as follows, where ``n'' equals the number of tests:
    (1) Calculate the average of the in-use system results; this is 
Iavg.
    (2) Calculate the average of the results of the system to which the 
in-use system was Referenced; this is Ravg.
    (3) Calculate the ``n-1'' standard deviations for the in-use and 
reference averages; these are Isd and Rsd respectively. Form the F 
ratio: F = (Isd/Rsd) 2. F must be less than the critical F value, Fcrit 
at a 95% confidence interval for ``n-1'' degrees of freedom. Table 1 of 
this section lists 95% confidence interval Fcrit values for n-1 degrees 
of freedom. Note that nA represents the number of alternate 
system samples, while nR represents the number of reference 
system samples.
    (4) For an unpaired comparison, calculate the t-value:

tunpaired = (Iavg - Ravg)/
((Isd2 +Rsd2)/
n)\1/2\

    (5) For a paired comparison, calculate the ``n-1'' standard 
deviation (squared) of the differences, di, between the 
paired results, where ``i'' represents the ith test of n 
number of tests:

SD2 = (Sdi2 - 
((Sdi)2/n))/(n-1)

    (6) For a paired comparison, calculate the t-value:

tpaired = (Iavg - Ravg)/
(SD2/n)\1/2\

    (d) The absolute value of t must be less than the critical t value, 
tcrit at a 95% confidence interval for ``n-1'' degrees of 
freedom.

                                    Table 1 of Sec.   1065.910--95% Confidence Interval Critical F Values for F-Test
--------------------------------------------------------------------------------------------------------------------------------------------------------
       nR-1              nI-1          6       7       8       9      10      11      12      13      14      15      16      17      18      19     20
--------------------------------------------------------------------------------------------------------------------------------------------------------
6................  ...............   4.284   4.207   4.147   4.099    4.06   4.027       4   3.976   3.956   3.938   3.922   3.908   3.896  3.884  3.874
7................  ...............   3.866   3.787   3.726   3.677   3.637   3.603   3.575    3.55   3.529   3.511   3.494    3.48   3.467  3.455  3.445
8................  ...............   3.581     3.5   3.438   3.388   3.347   3.313   3.284   3.259   3.237   3.218   3.202   3.187   3.173  3.161  3.15
9................  ...............   3.374   3.293    3.23   3.179   3.137   3.102   3.073   3.048   3.025   3.006   2.989   2.974    2.96  2.948  2.936
10...............  ...............   3.217   3.135   3.072    3.02   2.978   2.943   2.913   2.887   2.865   2.845   2.828   2.812   2.798  2.785  2.774
11...............  ...............   3.095   3.012   2.948   2.896   2.854   2.818   2.788   2.761   2.739   2.719   2.701   2.685   2.671  2.658  2.646
12...............  ...............   2.996   2.913   2.849   2.796   2.753   2.717   2.687    2.66   2.637   2.617   2.599   2.583   2.568  2.555  2.544
13...............  ...............   2.915   2.832   2.767   2.714   2.671   2.635   2.604   2.577   2.554   2.533   2.515   2.499   2.484  2.471  2.459
14...............  ...............   2.848   2.764   2.699   2.646   2.602   2.565   2.534   2.507   2.484   2.463   2.445   2.428   2.413  2.4    2.388
15...............  ...............    2.79   2.707   2.641   2.588   2.544   2.507   2.475   2.448   2.424   2.403   2.385   2.368   2.353  2.34   2.328
16...............  ...............   2.741   2.657   2.591   2.538   2.494   2.456   2.425   2.397   2.373   2.352   2.333   2.317   2.302  2.288  2.276
17...............  ...............   2.699   2.614   2.548   2.494    2.45   2.413   2.381   2.353   2.329   2.308   2.289   2.272   2.257  2.243  2.23
18...............  ...............   2.661   2.577    2.51   2.456   2.412   2.374   2.342   2.314    2.29   2.269    2.25   2.233   2.217  2.203  2.191
19...............  ...............   2.628   2.544   2.477   2.423   2.378    2.34   2.308    2.28   2.256   2.234   2.215   2.198   2.182  2.168  2.155
20...............  ...............   2.599   2.514   2.447   2.393   2.348    2.31   2.278    2.25   2.225   2.203   2.184   2.167   2.151  2.137  2.124
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 39263]]


 Table 2 of Sec.   1065.910.--95% Confidence Interval Critical t Values
                               for t-test
------------------------------------------------------------------------
                            n-1                                 tcrit
------------------------------------------------------------------------
6..........................................................         2.45
7..........................................................         2.36
8..........................................................         2.31
9..........................................................         2.26
10.........................................................         2.23
11.........................................................         2.20
12.........................................................         2.18
13.........................................................         2.16
14.........................................................         2.14
15.........................................................         2.13
16.........................................................         2.12
17.........................................................         2.11
18.........................................................         2.10
19.........................................................         2.09
20.........................................................         2.09
------------------------------------------------------------------------


0
107. Section 1065.1001 is amended by adding the definition for 
``Operator demand'' in alphabetical order to read as follows:


Sec.  1065.1001  Definitions.

* * * * *
    Operator demand means an engine operator's input to control engine 
output. The operator may be a person, a governor, or other controller 
that mechanically or electronically signals an input that demands 
engine output. Input may be an accelerator pedal or signal, a throttle-
control lever or signal, a fuel lever or signal, a speed lever or 
signal, or a governor setpoint or signal. Output means engine power, P, 
which is the product of engine speed, '', and engine torque, T.
* * * * *

0
108. Section 1065.1010 is amended by revising the entry for ASTM D 86-
01 and by adding the following entries to Table 1 in alphanumeric order 
to read as follows:


Sec.  1065.1010  Reference materials.

    (a) * * *

              Table 1 of Sec.   1065.1010.--ASTM Materials
------------------------------------------------------------------------
             Document number and name               Part 1065  reference
------------------------------------------------------------------------
ASTM D 86-01, Standard Test Method for                1065.205, 1065.210
 Distillation of Petroleum Products at Atmospheric
 Pressure.........................................
 
                              * * * * * * *
ASTM D 93-02a, Standard Test Methods for Flash                  1065.205
 Point by Pensky-Martens Closed Cup Tester........
ASTM D 287-92, (Reapproved 2000), Standard Test                 1065.205
 Method for API Gravity of Crude Petroleum and
 Petroleum Products (Hydrometer Method)...........
 
                              * * * * * * *
ASTM D 445-03, Standard Test Method for Kinematic               1065.205
 Viscosity of Transparent and Opaque Liquids (and
 the Calculation of Dynamic Viscosity)............
ASTM D 613-03b, Standard Test Method for Cetane                 1065.205
 Number of Diesel Fuel Oil........................
ASTM D 976-91 (Reapproved 2000), Standard Test                  1065.205
 Methods for Calculated Cetane Index of Distillate
 Fuels............................................
 
                              * * * * * * *
ASTM D 2622-03, Standard Test Method for Sulfur in              1065.205
 Petroleum Products by Wavelength Dispersive X-ray
 Fluorescence Spectrometry........................
 
                              * * * * * * *
ASTM D 5186-03, Standard Test Method for                        1065.205
 Determination of the Aromatic Content and
 Polynuclear Aromatic Content of Diesel Fuels and
 Aviation Turbine Fuels By Supercritical Fluid
 Chromatography...................................
------------------------------------------------------------------------

* * * * *

PART 1068--GENERAL COMPLIANCE PROVISIONS FOR NONROAD PROGRAMS

0
109. The authority citation for part 86 continues to read as follows:

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


0
110. Section 1068.1 is amended by revising paragraphs (a), (b)(5), and 
(d) and adding paragraph (e) to read as follows:


Sec.  1068.1  Does this part apply to me?

    (a) The provisions of this part apply to everyone with respect to 
the following engines and to equipment using the following engines 
(including owners, operators, parts manufacturers, and persons 
performing maintenance).
    (1) Large nonroad spark-ignition engines we regulate under 40 CFR 
part 1048.
    (2) Recreational SI engines and vehicles that we regulate under 40 
CFR part 1051 (such as snowmobiles and off-highway motorcycles).
    (3) Land-based nonroad diesel engines that we regulate under 40 CFR 
part 1039.
    (b) * * *
    (5) Land-based nonroad diesel engines that we regulate under 40 CFR 
part 89.
* * * * *
    (d) Paragraph (a)(1) of this section identifies the parts of the 
CFR that define emission standards and other requirements for 
particular types of engines and vehicles. This part 1068 refers to each 
of these other parts generically as the ``standard-setting part.'' For 
example, 40 CFR part 1051 is always the standard-setting part for 
snowmobiles. Follow the provisions of the standard-setting part if they 
are different than any of the provisions in this part.
    (e)(1) The provisions of Sec. Sec.  1068.30, 1068.310, and 1068.320 
apply for stationary spark-ignition engines built on or after January 
1, 2004, and for stationary compression-ignition engines built on or 
after January 1, 2006.
    (2) The provisions of Sec. Sec.  1068.30 and 1068.235 apply for the 
types of engines listed in paragraph (a) of this section beginning 
January 1, 2004, where they are used solely for competition.

0
111. Section 1068.5 is amended by revising paragraphs (a) and (e) to 
read as follows:


Sec.  1068.5  How must manufacturers apply good engineering judgment?

    (a) You must use good engineering judgment for decisions related to 
any requirements under this chapter. This includes your applications 
for certification, any testing you do to show that your certification, 
production-line, and in-use engines comply with

[[Page 39264]]

requirements that apply to them, and how you select, categorize, 
determine, and apply these requirements.
* * * * *
    (e) If you disagree with our conclusions, you may file a request 
for a hearing with the Designated Officer as described in subpart G of 
this part. In your request, specify your objections, include data or 
supporting analysis, and get your authorized representative's 
signature. If we agree that your request raises a substantial factual 
issue, we will hold the hearing according to subpart F of this part.

0
112. Section 1068.10 is amended by revising the section heading to read 
as follows:


Sec.  1068.10  What provisions apply to confidential information?

0
113. Section 1068.25 is amended by revising paragraph (b) to read as 
follows:


Sec.  1068.25  What information must I give to EPA?

* * * * *
    (b) You must establish and maintain records, perform tests, make 
reports and provide additional information that we may reasonably 
require under section 208 of the Act (42 U.S.C. 7542). This also 
applies to engines we exempt from emission standards or prohibited 
acts.

0
114. A new Sec.  1068.27 is added to read as follows:


Sec.  1068.27  May EPA conduct testing with my production engines?

    If we request it, you must make a reasonable number of production-
line engines available for a reasonable time so we can test or inspect 
them for compliance with the requirements of this chapter.

0
115. Section 1068.30 is amended by revising the definitions for 
``Act'', ``Certificate holder'', ``Emission-related defect'', ``Engine-
based'', ``Engine manufacturer'', ``Equipment-based'', ``Equipment 
manufacturer'', ``Manufacturer'', ``Nonroad engine'', ``Operating 
hours'', and ``Ultimate purchaser'', and ``U.S.-directed production 
volume'' and adding definitions for ``Aftertreatment'' and in 
alphabetical order to read as follows:


Sec.  1068.30  What definitions apply to this part?

* * * * *
    Act means the Clean Air Act, as amended, 42 U.S.C. 7401-7671q.
    Aftertreatment means relating to a catalytic converter, particulate 
filter, or any other system, component, or technology mounted 
downstream of the exhaust valve (or exhaust port) whose design function 
is to reduce emissions in the engine exhaust before it is exhausted to 
the environment. Exhaust-gas recirculation (EGR) is not aftertreatment.
* * * * *
    Certificate holder means a manufacturer (including importers) with 
a currently valid certificate of conformity for at least one engine 
family in a given model year.
* * * * *
    Emission-related defect means a defect in design, materials, or 
workmanship (in an emission-control device or vehicle component or 
system) that affects an emission-related component, parameter, or 
specification that is identified in Appendix I or Appendix II of this 
part. Using an incorrect emission-related component is an emission-
related defect.
* * * * *
    Engine-based means having emission standards in units of grams of 
pollutant per kilowatt-hour, and which apply to the engine. Emission 
standards are either engine-based or equipment-based.
    Engine manufacturer means the manufacturer that is subject to the 
certification requirements of the standard-setting part. For vehicles 
and equipment subject to this part and regulated under vehicle-based or 
equipment-based standards, the term engine manufacturer in this part 
includes vehicle and equipment manufacturers.
    Equipment-based means having emission standards that apply to the 
equipment in which an engine is used, without regard to how the 
emissions are measured. Where equipment-based standards apply, we 
require that the equipment be certified, rather than just the engine. 
Emission standards are either engine-based or equipment-based.
    Equipment manufacturer means any company manufacturing a piece of 
equipment (such as a vehicle).
    Manufacturer has the meaning given in section 216(1) of the Act (42 
U.S.C. 7550(1)). In general, this term includes any person who 
manufactures an engine or vehicle for sale in the United States or 
otherwise introduces a new engine or vehicle into commerce in the 
United States. This includes importers that import new engines or new 
equipment into the United States for resale. It also includes secondary 
engine manufacturers, as described in Sec.  1068.255.
* * * * *
    Nonroad engine means:
    (1) Except as discussed in paragraph (2) of this definition, a 
nonroad engine is any internal combustion engine:
    (i) In or on a piece of equipment that is self-propelled or serves 
a dual purpose by both propelling itself and performing another 
function (such as garden tractors, off-highway mobile cranes and 
bulldozers); or
    (ii) In or on a piece of equipment that is intended to be propelled 
while performing its function (such as lawnmowers and string trimmers); 
or
    (iii) That, by itself or in or on a piece of equipment, is portable 
or transportable, meaning designed to be and capable of being carried 
or moved from one location to another. Indicia of transportability 
include, but are not limited to, wheels, skids, carrying handles, 
dolly, trailer, or platform.
    (2) An internal combustion engine is not a nonroad engine if:
    (i) The engine is used to propel a motor vehicle, an aircraft, or 
equipment used solely for competition, or is subject to standards 
promulgated under section 202 of the Act (42 U.S.C. 7521); or
    (ii) The engine is regulated by a federal New Source Performance 
Standard promulgated under section 111 of the Act (42 U.S.C. 7411); or
    (iii) The engine otherwise included in paragraph (1)(iii) of this 
definition remains or will remain at a location for more than 12 
consecutive months or a shorter period of time for an engine located at 
a seasonal source. A location is any single site at a building, 
structure, facility, or installation. Any engine (or engines) that 
replaces an engine at a location and that is intended to perform the 
same or similar function as the engine replaced will be included in 
calculating the consecutive time period. An engine located at a 
seasonal source is an engine that remains at a seasonal source during 
the full annual operating period of the seasonal source. A seasonal 
source is a stationary source that remains in a single location on a 
permanent basis (i.e., at least two years) and that operates at that 
single location approximately three months (or more) each year. This 
paragraph (2)(iii) does not apply to an engine after the engine is 
removed from the location.
    Operating hours means:
    (1) For engine storage areas or facilities, times during which 
people other than custodians and security personnel are at work near, 
and can access, a storage area or facility.
    (2) For other areas or facilities, times during which an assembly 
line operates or any of the following activities occurs:
    (i) Testing, maintenance, or service accumulation.
    (ii) Production or compilation of records.
    (iii) Certification testing.
    (iv) Translation of designs from the test stage to the production 
stage.

[[Page 39265]]

    (v) Engine manufacture or assembly.
* * * * *
    Ultimate purchaser means the first person who in good faith 
purchases a new nonroad engine or new piece of equipment for purposes 
other than resale.
* * * * *
    U.S.-directed production volume means the number of engine units, 
subject to the requirements of this part, produced by a manufacturer 
for which the manufacturer has a reasonable assurance that sale was or 
will be made to ultimate purchasers in the United States.
* * * * *

0
116. Section 1068.101 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  1068.101  What general actions does this regulation prohibit?

* * * * *
    (a) The following prohibitions and requirements apply to 
manufacturers of new engines and manufacturers of equipment containing 
these engines, except as described in subparts C and D of this part:
    (1) Introduction into commerce. You may not sell, offer for sale, 
or introduce or deliver into commerce in the United States or import 
into the United States any new engine or equipment after emission 
standards take effect for that engine or equipment, unless it has a 
valid certificate of conformity for its model year and the required 
label or tag. You also may not take any of the actions listed in the 
previous sentence with respect to any equipment containing an engine 
subject to this part's provisions, unless the engine has a valid and 
appropriate certificate of conformity and the required engine label or 
tag. For purposes of this paragraph (a)(1), an appropriate certificate 
of conformity is one that applies for the same model year as the model 
year of the equipment (except as allowed by Sec.  1068.105(a)), covers 
the appropriate category of engines (such as locomotive or CI marine), 
and conforms to all requirements specified for equipment in the 
standard-setting part. The requirements of this paragraph (a)(1) also 
cover new engines you produce to replace an older engine in a piece of 
equipment, unless the engine qualifies for the replacement-engine 
exemption in Sec.  1068.240. We may assess a civil penalty up to 
$31,500 for each engine in violation.
    (2) Reporting and recordkeeping. This chapter requires you to 
record certain types of information to show that you meet our 
standards. You must comply with these requirements to make and maintain 
required records (including those described in Sec.  1068.501). You may 
not deny us access to your records or the ability to copy your records 
if we have the authority to see or copy them. Also, you must give us 
the required reports or information without delay. Failure to comply 
with the requirements of this paragraph is prohibited. We may assess a 
civil penalty up to $31,500 for each day you are in violation.
    (3) Testing and access to facilities. You may not keep us from 
entering your facility to test engines or inspect if we are authorized 
to do so. Also, you must perform the tests we require (or have the 
tests done for you). Failure to perform this testing is prohibited. We 
may assess a civil penalty up to $31,500 for each day you are in 
violation.
    (b) The following prohibitions apply to everyone with respect to 
the engines to which this part applies:
    (1) Tampering. You may not remove or disable a device or element of 
design that may affect an engine's emission levels. This restriction 
applies before and after the engine is placed in service. Section 
1068.120 describes how this applies to rebuilding engines. For a 
manufacturer or dealer, we may assess a civil penalty up to $31,500 for 
each engine in violation. For anyone else, we may assess a civil 
penalty up to $3,150 for each engine in violation. This prohibition 
does not apply in any of the following situations:
    (i) You need to repair an engine and you restore it to proper 
functioning when the repair is complete.
    (ii) You need to modify an engine to respond to a temporary 
emergency and you restore it to proper functioning as soon as possible.
    (iii) You modify a new engine that another manufacturer has already 
certified to meet emission standards and recertify it under your own 
engine family. In this case you must tell the original manufacturer not 
to include the modified engines in the original engine family.
    (2) Defeat devices. You may not knowingly manufacture, sell, offer 
to sell, or install, an engine part if it bypasses, impairs, defeats, 
or disables the engine's control the emissions of any pollutant. We may 
assess a civil penalty up to $3,150 for each part in violation.
    (3) Stationary engines. For an engine that is excluded from any 
requirements of this chapter because it is a stationary engine, you may 
not move it or install it in any mobile equipment, except as allowed by 
the provisions of this chapter. You may not circumvent or attempt to 
circumvent the residence-time requirements of paragraph (2)(iii) of the 
nonroad engine definition in Sec.  1068.30. We may assess a civil 
penalty up to $31,500 for each day you are in violation.
    (4) Competition engines. For an uncertified engine or piece of 
equipment that is excluded or exempted from any requirements of this 
chapter because it is to be used solely for competition, you may not 
use it in a manner that is inconsistent with use solely for 
competition. We may assess a civil penalty up to $31,500 for each day 
you are in violation.
    (5) Importation. You may not import an uncertified engine or piece 
of equipment if it is defined to be new in the standard-setting part 
and it is built after emission standards start to apply in the United 
States. We may assess a civil penalty up to $31,500 for each day you 
are in violation. Note the following:
    (i) The definition of new is broad for imported engines; 
uncertified engines and equipment (including used engines and 
equipment) are generally considered to be new when imported.
    (ii) Engines that were originally manufactured before applicable 
EPA standards were in effect are generally not subject to emission 
standards.
    (6) Warranty. You must meet your obligation to honor your emission-
related warranty under Sec.  1068.115 and to fulfill any applicable 
responsibilities to recall engines under Sec.  1068.505. Failure to 
meet these obligations is prohibited. We may assess a civil penalty up 
to $31,500 for each engine in violation.
* * * * *

0
117. Section 1068.105 is amended by revising paragraph (c) and adding 
introductory text to read as follows:


Sec.  1068.105  What other provisions apply to me specifically if I 
manufacture equipment needing certified engines?

    This section describes general provisions that apply to equipment 
manufacturers. See the standard-setting part for any requirements that 
apply for certain applications.
* * * * *
    (c) Attaching a duplicate label. If you obscure the engine's label, 
you must do four things to avoid violating Sec.  1068.101(a)(1):
    (1) Send a request for duplicate labels in writing with your 
company's letterhead to the engine manufacturer. Include the following 
information in your request:
    (i) Identify the type of equipment and the specific engine and 
equipment models needing duplicate labels.
    (ii) Identify the engine family (from the original engine label).

[[Page 39266]]

    (iii) State the reason that you need a duplicate label for each 
equipment model.
    (iii) Identify the number of duplicate labels you will need.
    (2) Permanently attach the duplicate label to your equipment by 
securing it to a part needed for normal operation and not normally 
requiring replacement. Make sure an average person can easily read it.
    (3) Destroy any unused duplicate labels if you find that you will 
not need them.
    (4) Keep the following records for at least eight years after the 
end of the model year identified on the engine label:
    (i) Keep a copy of your written request.
    (ii) Keep drawings or descriptions that show how you apply the 
duplicate labels to your equipment.
    (iii) Maintain a count of those duplicate labels you use and those 
you destroy.
* * * * *

0
118. Section 1068.110 is amended by revising paragraphs (b), (c), (d), 
and (e) to read as follows:


Sec.  1068.110  What other provisions apply to engines in service?

* * * * *
    (b) Certifying aftermarket parts. As the manufacturer or rebuilder 
of an aftermarket engine part, you may--but are not required to--
certify according to Sec.  85.2114 of this chapter that using the part 
will not cause engines to fail to meet emission standards. Whether you 
certify or not, you must keep any information showing how your parts or 
service affect emissions.
    (c) Compliance with standards. We may test engines and equipment to 
investigate compliance with emission standards and other requirements. 
We may also require the manufacturer to do this testing.
    (d) Defeat devices. We may test engines and equipment to 
investigate potential defeat devices. We may also require the 
manufacturer to do this testing. If we choose to investigate one of 
your designs, we may require you to show us that it does not have a 
defeat device. To do this, you may have to share with us information 
regarding test programs, engineering evaluations, design 
specifications, calibrations, on-board computer algorithms, and design 
strategies. It is a violation of the Act for anyone to make, install or 
use defeat devices. See Sec.  1068.101(b)(2) and the standard-setting 
part.
    (e) Warranty and maintenance. Owners are responsible for properly 
maintaining their engines; however, owners may make warranty claims 
against the manufacturer for emission-related parts, as described in 
Sec.  1068.115. The warranty period begins when the engine is first 
placed into service. See the standard-setting part for specific 
requirements. It is a violation of the Act for anyone to disable 
emission controls; see Sec.  1068.101(b)(1) and the standard-setting 
part.

0
119. Section 1068.120 is amended by revising paragraphs (b)(2), (c), 
(d), (f), and (h) to read as follows:


Sec.  1068.120  What requirements must I follow to rebuild engines?

* * * * *
    (b) * * *
    (2) Unscheduled maintenance that occurs commonly within the useful 
life period. For example, replacing a water pump is not rebuilding an 
engine.
    (c) For maintenance or service that is not rebuilding, you may not 
make changes that might increase emissions of any pollutant, but you do 
not need to keep any records.
    (d) If you rebuild an engine or engine system, you must have a 
reasonable technical basis for knowing that the rebuilt engine's 
emission-control system performs as well as, or better than, it 
performs in its certified configuration. Identify the model year of the 
resulting engine configuration. You have a reasonable basis if you meet 
two main conditions:
    (1) Install parts--new, used, or rebuilt--so a person familiar with 
engine design and function would reasonably believe that the engine 
with those parts will control emissions of all pollutants at least to 
the same degree as with the original parts. For example, it would be 
reasonable to believe that parts performing the same function as the 
original parts (and to the same degree) would control emissions to the 
same degree as the original parts.
    (2) Adjust parameters or change design elements only according to 
the original engine manufacturer's instructions. Or, if you differ from 
these instructions, you must have data or some other technical basis to 
show you should not expect in-use emissions to increase.
* * * * *
    (f) If the rebuilt engine replaces another certified engine in a 
piece of equipment, you must rebuild it to a certified configuration of 
the same model year as, or a later model year than, the engine you are 
replacing.
* * * * *
    (h) When you rebuild an engine, check, clean, adjust, repair, or 
replace all emission-related components (listed in Appendix I of this 
part) as needed according to the original manufacturer's recommended 
practice. In particular, replace oxygen sensors, replace the catalyst 
if there is evidence of malfunction, clean gaseous fuel system 
components, and replace fuel injectors (if applicable), unless you have 
a reasonable technical basis for believing any of these components do 
not need replacement.
* * * * *

0
120. Section 1068.125 is amended by revising paragraphs (a)(1)(iv), 
(b)(3), and (e)(2) to read as follows:


Sec.  1068.125  What happens if I violate the regulations?

    (a) * * *
    (1) * * *
    (iv) Your history of compliance with Title II of the Act (42 U.S.C. 
7401-7590).
* * * * *
    (b) * * *
    (3) We will not pursue an administrative penalty for a particular 
violation if either of the following two conditions is true:
    (i) We are separately prosecuting the violation under this subpart.
    (ii) We have issued a final order for a violation, no longer 
subject to judicial review, for which you have already paid a penalty.
* * * * *
    (e) * * *
    (2) In addition, if you do not pay the full amount of a penalty on 
time, you must then pay more to cover interest, enforcement expenses 
(including attorney's fees and costs for collection), and a quarterly 
nonpayment penalty for each quarter you do not pay. The quarterly 
nonpayment penalty is 10 percent of your total penalties plus any 
unpaid nonpayment penalties from previous quarters.

0
121. Section 1068.201 is amended by revising the introductory text and 
paragraph (i) to read as follows:


Sec.  1068.201  Does EPA exempt or exclude any engines from the 
prohibited acts?

    We may exempt new engines from some or all of the prohibited acts 
or requirements of this part under provisions described in this 
subpart. We may exempt an engine already placed in service in the 
United States from the prohibition in Sec.  1068.101(b)(1) if the 
exemption for engines used solely for competition applies (see Sec.  
1068.235). In addition, see Sec.  1068.1 and the standard-setting parts 
to determine if other engines are excluded from some or all of the 
regulations in this chapter.
* * * * *
    (i) If you want to take an action with respect to an exempted or 
excluded

[[Page 39267]]

engine that is prohibited by the exemption or exclusion, such as 
selling it, you need to certify the engine. We will issue a certificate 
of conformity if you send us an application for certification showing 
that you meet all the applicable requirements from the standard-setting 
part. Also, in some cases, we may allow manufacturers to modify the 
engine as needed to make it identical to engines already covered by a 
certificate. We would base such an approval on our review of any 
appropriate documentation. These engines must have emission control 
information labels that accurately describe their status.

0
122. Section 1068.210 is amended by revising paragraphs (d)(5)(iv) and 
(e)(3)(iv) to read as follows:


Sec.  1068.210  What are the provisions for exempting test engines?

* * * * *
    (d) * * *
    (5) * * *
    (iv) Ownership and control of the engines involved in the test.
    (e) * * *
    (3) * * *
    (iv) The statement ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.210 OR 
1068.215 FROM EMISSION STANDARDS AND RELATED REQUIREMENTS.''.
* * * * *

0
123. Section 1068.215 is amended by revising paragraphs (b), 
(c)(3)(iii), and (c)(3)(iv) to read as follows:


Sec.  1068.215  What are the provisions for exempting manufacturer-
owned engines?

* * * * *
    (b) An engine may be exempt without a request if it is a 
nonconforming engine under your ownership and control and you operate 
it to develop products, assess production methods, or promote your 
engines in the marketplace. You may not loan, lease, sell, or use the 
engine to generate revenue, either by itself or in a piece of 
equipment.
    (c) * * *
    (3) * * *
    (iii) Engine displacement, engine family identification (as 
applicable), and model year of the engine or whom to contact for 
further information.
    (iv) The statement ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.210 OR 
1068.215 FROM EMISSION STANDARDS AND RELATED REQUIREMENTS.''.

0
124. Section 1068.220 is amended by revising paragraphs (b) and (e)(3) 
to read as follows:


Sec.  1068.220  What are the provisions for exempting display engines?

* * * * *
    (b) A nonconforming display engine will be exempted if it is used 
only for displays in the interest of a business or the general public. 
This exemption does not apply to engines displayed for private use, 
private collections, or any other purpose we determine is inappropriate 
for a display exemption.
* * * * *
    (e) * * *
    (3) Engine displacement, engine family identification (as 
applicable), and model year of the engine or whom to contact for 
further information.
* * * * *

0
125. Section 1068.225 is amended by adding paragraph (d) to read as 
follows:


Sec.  1068.225  What are the provisions for exempting engines for 
national security?

* * * * *
    (d) Add a legible label, written in block letters in English, to 
each engine exempted under this section. The label must be permanently 
secured to a readily visible part of the engine needed for normal 
operation and not normally requiring replacement, such as the engine 
block. This label must include at least the following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) Engine displacement, engine family identification (as 
applicable), and model year of the engine or whom to contact for 
further information.
    (4) The statement ``THIS ENGINE HAS AN EXEMPTION FOR NATIONAL 
SECURITY UNDER 40 CFR 1068.225.''.

0
126. Section 1068.230 is amended by revising paragraph (c) to read as 
follows:


Sec.  1068.230  What are the provisions for exempting engines for 
export?

* * * * *
    (c) Label each exempted engine and shipping container with a label 
or tag showing the engine is not certified for sale or use in the 
United States. These labels need not be permanently attached to the 
engines. The label must include at least the statement ``THIS ENGINE IS 
SOLELY FOR EXPORT AND IS THEREFORE EXEMPT UNDER 40 CFR 1068.230 FROM 
U.S. EMISSION STANDARDS AND RELATED REQUIREMENTS.''.

0
127. Section 1068.235 is amended by revising paragraph (c) to read as 
follows:


Sec.  1068.235  What are the provisions for exempting engines used 
solely for competition?

* * * * *
    (c) If you modify an engine under paragraph (b) of this section, 
you must destroy the original emission label. If you loan, lease, sell, 
or give one of these engines to someone else, you must tell the new 
owner (or operator, if applicable) in writing that it may be used only 
for competition.

0
128. Section 1068.240 is revised to read as follows:


Sec.  1068.240  What are the provisions for exempting new replacement 
engines?

    (a) You are eligible for the exemption for new replacement engines 
only if you are a certificate holder.
    (b) The prohibitions in Sec.  1068.101(a)(1) do not apply to an 
engine if all the following conditions apply:
    (1) You produce a new engine to replace an engine already placed in 
service in a piece of equipment.
    (2) The engine being replaced was manufactured before the emission 
standards that would otherwise apply to the new engine took effect.
    (3) You determine that you do not produce an engine certified to 
meet current requirements that has the appropriate physical or 
performance characteristics to repower the equipment. If the engine 
being replaced was made by a different company, you must make this 
determination also for engines produced by this other company.
    (4) You or your agent takes possession of the old engine or 
confirms that the engine has been destroyed.
    (5) You make the replacement engine in a configuration identical in 
all material respects to the engine being replaced (or that of another 
certified engine of the same or later model year). This requirement 
applies only if the old engine was certified to emission standards less 
stringent than those in effect when you produce the replacement engine.
    (c) If the engine being replaced was not certified to any emission 
standards under this chapter, add a permanent label with your corporate 
name and trademark and the following language:

THIS ENGINE DOES NOT COMPLY WITH U.S. EPA NONROAD EMISSION 
REQUIREMENTS. SELLING OR INSTALLING THIS ENGINE FOR ANY PURPOSE 
OTHER THAN TO REPLACE A NONROAD ENGINE BUILT BEFORE JANUARY 1, 
[Insert appropriate year reflecting when the earliest tier of 
standards began to apply to engines of that size and type] MAY BE A 
VIOLATION OF FEDERAL LAW SUBJECT TO CIVIL PENALTY.

    (d) If the engine being replaced was certified to emission 
standards less stringent than those in effect when you produce the 
replacement engine, add a permanent label with your corporate name and 
trademark and the following language:


[[Page 39268]]


THIS ENGINE DOES NOT COMPLY WITH U.S. EPA NONROAD EMISSION 
REQUIREMENTS. SELLING OR INSTALLING THIS ENGINE FOR ANY PURPOSE 
OTHER THAN TO REPLACE A NONROAD ENGINE BUILT BEFORE JANUARY 1, 
[Insert appropriate year reflecting when the next tier of emission 
standards began to apply] MAY BE A VIOLATION OF FEDERAL LAW SUBJECT 
TO CIVIL PENALTY.

    (e) The provisions of this section may not be used to circumvent 
emission standards that apply to new engines under the standard-setting 
part.

0
129. Section 1068.245 is amended by revising paragraphs (a) 
introductory text and (e) to read as follows:


Sec.  1068.245  What temporary provisions address hardship due to 
unusual circumstances?

    (a) After considering the circumstances, we may permit you to 
introduce into commerce engines or equipment that do not comply with 
emission-related requirements for a limited time if all the following 
conditions apply:
* * * * *
    (e) We may include reasonable additional conditions on an approval 
granted under this section, including provisions to recover or 
otherwise address the lost environmental benefit or paying fees to 
offset any economic gain resulting from the exemption. For example, in 
the case of multiple tiers of emission standards, we may require that 
you meet the standards from the previous tier.
* * * * *

0
130. Section 1068.250 is amended by revising paragraphs (d)(2), (d)(4), 
and (j) to read as follows:


Sec.  1068.250  What are the provisions for extending compliance 
deadlines for small-volume manufacturers under hardship?

* * * * *
    (d) * * *
    (2) Describe your current and projected financial status, with and 
without the burden of complying fully with the applicable regulations 
in this chapter.
* * * * *
    (4) Identify the engineering and technical steps you have taken or 
those you plan to take to comply with regulations in this chapter.
* * * * *
    (j) We will approve extensions of up to one model year. We may 
review and revise an extension as reasonable under the circumstances.
* * * * *

0
131. Section 1068.255 is amended by revising paragraph (c) introductory 
text to read as follows:


Sec.  1068.255  What are the provisions for exempting engines for 
hardship for equipment manufacturers and secondary engine 
manufacturers?

* * * * *
    (c) Secondary engine manufacturers. As a secondary engine 
manufacturer, you may ask for approval to produce exempted engines 
under this section for up to 12 months. We may require you to certify 
your engines to compliance levels above the emission standards that 
apply. For example, the in the case of multiple tiers of emission 
standards, we may require you to meet the standards from the previous 
tier.
* * * * *

0
132. A new Sec.  1068.260 is added to subpart C to read as follows:


Sec.  1068.260  What are the provisions for temporarily exempting 
engines for delegated final assembly?

    (a) Shipping an engine separately from an aftertreatment component 
that you have specified as part of its certified configuration will not 
be a violation of the prohibitions in Sec.  1068.101(a)(1), if you do 
all the following:
    (1) Apply for and receive a certificate of conformity for the 
engine and its emission-control system before shipment.
    (2) Provide installation instructions in enough detail to ensure 
that the engine will be in its certified configuration if someone 
follows these instructions.
    (3) Have a contractual agreement with an equipment manufacturer 
obligating the equipment manufacturer to complete the final assembly of 
the engine so it is in its certified configuration when installed in 
the equipment. This agreement must also obligate the equipment 
manufacturer to provide the affidavits and cooperate with the audits 
required under paragraph (a)(6) of this section.
    (4) Include the cost of all aftertreatment components in the cost 
of the engine.
    (5) Ship the aftertreatment components directly to the equipment 
manufacturer, or arrange for separate shipment by the component 
manufacturer directly to the equipment manufacturer.
    (6) Take appropriate additional steps to ensure that all engines 
will be in their certified configuration when installed by the 
equipment manufacturer. At a minimum do the following:
    (i) Obtain annual affidavits from every equipment manufacturer to 
whom you, your distributors, or your dealers sell engines under this 
section. The affidavits must list the part numbers of the 
aftertreatment devices that equipment manufacturers install on each 
engine they purchase from you, your distributors, or your dealers under 
this section.
    (ii) If you sell more than 50 engines per model year under this 
section, you must annually audit four equipment manufacturers to whom 
you sell engines under this section. To select individual equipment 
manufacturers, divide all the affected equipment manufacturers into 
quartiles based on the number of engines they buy from you; select a 
single equipment manufacturer from each quartile each model year. Vary 
the equipment manufacturers you audit from year to year, though you may 
repeat an audit in a later model year if you find or suspect that a 
particular equipment manufacturer is not properly installing 
aftertreatment devices. If you sell engines to fewer than 16 equipment 
manufacturers under the provisions of this section, you may instead set 
up a plan to audit each equipment manufacturer on average once every 
four model years. Audits must involve the assembling companies' 
facilities, procedures, and production records to monitor their 
compliance with your instructions, must include investigation of some 
assembled engines, and must confirm that the number of aftertreatment 
devices shipped were sufficient for the number of engines produced. 
Where an equipment manufacturer is not located in the United States, 
you may conduct the audit at a distribution or port facility in the 
United States. You must keep records of these audits and provide a 
report describing any uninstalled or improperly installed 
aftertreatment components to us within 90 days of the audit.
    (iii) If you sell up to 50 engines per model year under this 
section, you must conduct audits as described in paragraph (a)(6)(ii) 
of this section or propose an alternative plan for ensuring that 
equipment manufacturers properly install aftertreatment devices.
    (7) Describe the following things in your application for 
certification:
    (i) How you plan to use the provisions of this section.
    (ii) A detailed plan for auditing equipment manufacturers, as 
described in paragraph (a)(6) of this section.
    (iii) All other steps you plan to take under paragraph (a)(6) of 
this section.
    (8) Keep records to document how many engines you produce under 
this exemption. Also, keep records to document your contractual 
agreements under paragraph (a)(3) of this section. Keep all these 
records for five years after the end of the model year and make them 
available to us upon request.

[[Page 39269]]

    (9) Make sure the engine has the emission control information label 
we require under the standard-setting part. Apply an additional 
temporary label or tag in a way that makes it unlikely that the engine 
will be installed in equipment other than in its certified 
configuration. The label or tag must identify the engine as incomplete 
and include a clear statement that failing to install the 
aftertreatment device, or otherwise bring the engine into its certified 
configuration, is a violation of federal law subject to civil penalty.
    (b) An engine you produce under this section becomes new when it is 
fully assembled, except for aftertreatment devices, for the first time. 
Use this date to determine the engine's model year.
    (c) Once the equipment manufacturer takes possession of an engine 
exempted under this section, the exemption expires and the engine is 
subject to all the prohibitions in 40 CFR 1068.101.
    (d) You must notify us within 15 days if you find from an audit or 
another source that an equipment manufacturer has failed to meet its 
obligations under this section.
    (e) We may suspend, revoke, or void an exemption under this 
section, as follows:
    (1) We may suspend or revoke your exemption for the entire engine 
family if we determine that any of the engines are not in their 
certified configuration after installation in the equipment, or if you 
fail to comply with the requirements of this section. If we suspend or 
revoke the exemption for any of your engine families under this 
paragraph (d), this exemption will not apply for future certificates 
unless you demonstrate that the factors causing the nonconformity do 
not apply to the other engine families. We may suspend or revoke the 
exemption for shipments to a single facility where final assembly 
occurs.
    (2) We may void your exemption for the entire engine family if you 
intentionally submit false or incomplete information or fail to keep 
and provide to EPA the records required by this section.
    (f) You are liable for the in-use compliance of any engine that is 
exempt under this section. It is also a violation of Sec.  
1068.101(b)(1) for any person to complete assembly of the exempted 
engine without complying fully with the installation instructions.

0
133. Section 1068.305 is amended by revising paragraphs (a) and (e) to 
read as follows:


Sec.  1068.305  How do I get an exemption or exclusion for imported 
engines?

    (a) Complete the appropriate EPA declaration form before importing 
any nonconforming engine. These forms are available on the Internet at 
http://www.epa.gov/OTAQ/imports/ or by phone at 202-564-9660.
* * * * *
    (e) Meet the requirements specified for the appropriate exemption 
in this part or the standard-setting part, including any labeling 
requirements that apply.

0
134. Section 1068.310 is revised to read as follows:


Sec.  1068.310  What are the exclusions for imported engines?

    If you show us that your engines qualify under one of the 
paragraphs of this section, we will approve your request to import such 
excluded engines. You must have our approval to import an engine under 
paragraph (a) of this section. You may, but are not required to request 
our approval to import the engines under paragraph (b) or (c) of this 
section. The following engines are excluded:
    (a) Engines used solely for competition. Engines that you 
demonstrate will be used solely for competition are excluded from the 
restrictions on imports in Sec.  1068.301(b), but only if they are 
properly labeled. See the standard-setting part for provisions related 
to this demonstration. Section 1068.101(b)(4) prohibits anyone from 
using these excluded engines for purposes other than competition.
    (b) Stationary engines. The definition of nonroad engine in 40 CFR 
1068.30 does not include certain engines used in stationary 
applications. Such engines are not subject to the restrictions on 
imports in Sec.  1068.301(b), but only if they are properly labeled. 
Section 1068.101 restricts the use of stationary engines for non-
stationary purposes.
    (c) Other engines. The standard-setting parts may exclude engines 
used in certain applications. For example, engines used in aircraft and 
very small engines used in hobby vehicles are generally excluded. 
Engines used in underground mining are excluded if they are regulated 
by the Mine Safety and Health Administration.

0
135. Section 1068.315 is amended by revising the introductory text and 
paragraph (a) and adding paragraph (f)(1)(iii) to read as follows:


Sec.  1068.315  What are the permanent exemptions for imported engines?

    We may approve a permanent exemption from the restrictions on 
imports under Sec.  1039.301(b) under the following conditions:
    (a) National security exemption. You may import an engine under the 
national security exemption in Sec.  1068.225, but only if it is 
properly labeled.
* * * * *
    (f) * * *
    (1) * * *
    (iii) Land-based nonroad diesel engines (see part 1039 of this 
chapter).
* * * * *

0
136. Section 1068.320 is amended by revising the section heading and 
paragraphs (a) introductory text and (b) to read as follows:


Sec.  1068.320  How must I label an imported engine with an exclusion 
or a permanent exemption?

    (a) For engines imported under Sec.  1068.310(a) or (b), you must 
place a permanent label or tag on each engine. If no specific label 
requirements in the standard-setting part apply for these engines, you 
must meet the following requirements:
* * * * *
    (b) On the engine label or tag, do the following:
    (1) Include the heading ``EMISSION CONTROL INFORMATION''.
    (2) Include your full corporate name and trademark.
    (3) State the engine displacement (in liters) and rated power. If 
the engine's rated power is not established, state the approximate 
power rating accurately enough to allow a determination of which 
standards would otherwise apply.
    (4) State: ``THIS ENGINE IS EXEMPT FROM THE REQUIREMENTS OF 
[identify the part referenced in 40 CFR 1068.1(a) that would otherwise 
apply], AS PROVIDED IN [identify the paragraph authorizing the 
exemption (for example, ``40 CFR 1068.315(a)'')]. INSTALLING THIS 
ENGINE IN ANY DIFFERENT APPLICATION MAY BE A VIOLATION OF FEDERAL LAW 
SUBJECT TO CIVIL PENALTY.''.
* * * * *

0
137. Section 1068.325 is amended by revising the introductory text and 
paragraphs (a) and (b) and adding paragraph (f) to read as follows:


Sec.  1068.325  What are the temporary exemptions for imported engines?

    If we approve a temporary exemption from the restrictions on 
importing an engine under Sec.  1039.301(b), you may import it under 
the conditions in this section. We may ask the U.S. Customs Service to 
require a specific bond amount to make sure you comply with the 
requirements of this subpart. You

[[Page 39270]]

may not sell or lease one of these engines while it is in the United 
States. You must eventually export the engine as we describe in this 
section unless you get a certificate of conformity for it or it 
qualifies for one of the permanent exemptions in Sec.  1068.315. 
Section 1068.330 specifies an additional temporary exemption allowing 
you to import certain engines you intend to sell or lease.
    (a) Exemption for repairs or alterations. You may temporarily 
import a nonconforming engine under bond solely to repair or alter it 
or the equipment in which it is installed. You may operate the engine 
and equipment in the United States only as necessary to repair it, 
alter it, or ship it to or from the service location. Export the engine 
directly after servicing is complete.
    (b) Testing exemption. You may temporarily import a nonconforming 
engine under bond for testing if you follow the requirements of Sec.  
1068.210. You may operate the engine in the United States only to allow 
testing. This exemption expires one year after you import the engine, 
unless we approve an extension. The engine must be exported before the 
exemption expires.
* * * * *
    (f) Delegated assembly exemption. You may import a nonconforming 
engine for final assembly, as described in Sec.  1068.260.

0
138. Section 1068.335 is amended by revising paragraph (a) to read as 
follows:


Sec.  1068.335  What are the penalties for violations?

    (a) All imported engines. Unless you comply with the provisions of 
this subpart, importation of nonconforming engines violates sections 
203 and 213(d) of the Act (42 U.S.C. 7522 and 7547(d)). You may then 
have to export the engines, or pay civil penalties, or both. The U.S. 
Customs Service may seize unlawfully imported engines.
* * * * *

0
139. Section 1068.401 is revised to read as follows:


Sec.  1068.401  What is a selective enforcement audit?

    (a) We may conduct or require you to conduct emission tests on your 
production engines in a selective enforcement audit. This requirement 
is independent of any requirement for you to routinely test production-
line engines.
    (b) If we send you a signed test order, you must follow its 
directions and the provisions of this subpart. We may tell you where to 
test the engines. This may be where you produce the engines or any 
other emission testing facility.
    (c) If we select one or more of your engine families for a 
selective enforcement audit, we will send the test order to the person 
who signed the application for certification or we will deliver it in 
person.
    (d) If we do not select a testing facility, notify the Designated 
Officer within one working day of receiving the test order where you 
will test your engines.
    (e) You must do everything we require in the audit without delay.

0
140. Section 1068.410 is amended by revising paragraphs (e)(1), (g), 
and (i) to read as follows:


Sec.  1068.410  How must I select and prepare my engines?

* * * * *
    (e) * * *
    (1) We may adjust or require you to adjust idle speed outside the 
physically adjustable range as needed until the engine has stabilized 
emission levels (see paragraph (f) of this section). We may ask you for 
information needed to establish an alternate minimum idle speed.
* * * * *
    (g) Damage during shipment. If shipping an engine to a remote 
facility for testing under a selective enforcement audit makes 
necessary an adjustment or repair, you must wait until after the 
initial emission test to do this work. We may waive this requirement if 
the test would be impossible or unsafe, or if it would permanently 
damage the engine. Report to us, in your written report under Sec.  
1068.450, all adjustments or repairs you make on test engines before 
each test.
* * * * *
    (i) Retesting after invalid tests. You may retest an engine if you 
determine an emission test is invalid under the standard-setting part. 
Explain in your written report reasons for invalidating any test and 
the emission results from all tests. If you retest an engine and, 
within ten days after testing, ask to substitute results of the new 
tests for the original ones, we will answer within ten days after we 
receive your information.

0
141. Section 1068.415 is amended by revising paragraphs (d) and (e) to 
read as follows:


Sec.  1068.415  How do I test my engines?

* * * * *
    (d) Accumulate service on test engines at a minimum rate of 6 hours 
per engine during each 24-hour period. The first 24-hour period for 
service accumulation begins when you finish preparing an engine for 
testing. The minimum service accumulation rate does not apply on 
weekends or holidays. You may ask us to approve a lower service 
accumulation rate. Plan your service accumulation to allow testing at 
the rate specified in paragraph (c) of this section. Select engine 
operation for accumulating operating hours on your test engines to 
represent normal in-use engine operation for the engine family.
    (e) Test engines in the same order you select them.

0
142. Section 1068.445 is amended by revising paragraph (a)(1) to read 
as follows:


Sec.  1068.445  When may EPA revoke my certificate under this subpart 
and how may I sell these engines again?

    (a) * * *
    (1) You do not meet the reporting requirements under this subpart.
* * * * *

0
143. Section 1068.450 is amended by revising paragraph (e) to read as 
follows:


Sec.  1068.450  What records must I send to EPA?

* * * * *
    (e) We may post test results on publicly accessible databases and 
we will send copies of your reports to anyone from the public who asks 
for them. We will not release information about your sales or 
production volumes, which is all we will consider confidential.

0
144. Section 1068.501 is revised to read as follows:


Sec.  1068.501  How do I report engine defects?

    This section addresses your responsibility to investigate and 
report emission-related defects in design, materials, or workmanship. 
The provisions of this section do not limit your liability under this 
part or the Clean Air Act. For example, selling an engine that does not 
conform to your application for certification is a violation of Sec.  
1068.101(a)(1), independent of the requirements of this section.
    (a) General provisions. As an engine manufacturer, you must 
investigate in certain circumstances whether engines that have been 
introduced into commerce in the United States have incorrect, 
improperly installed, or otherwise defective emission-related 
components or systems. You must also send us reports as specified by 
this section.
    (1) This section addresses defects for any of the following 
emission-related components, or systems containing the following 
components:
    (i) Electronic control units, aftertreatment devices, fuel-metering

[[Page 39271]]

components, EGR-system components, crankcase-ventilation valves, all 
components related to charge-air compression and cooling, and all 
sensors associated with any of these components.
    (ii) Any other component whose primary purpose is to reduce 
emissions.
    (iii) Any other component whose failure might increase emissions of 
any pollutant without significantly degrading engine performance.
    (2) The requirements of this section relate to defects in any of 
the components or systems identified in paragraph (a)(1) of this 
section if the defects might affect any of the parameters or 
specifications in Appendix II of this part or might otherwise affect an 
engine's emissions of any pollutant.
    (3) For the purposes of this section, defects do not include damage 
to emission-related components or systems (or maladjustment of 
parameters) caused by owners improperly maintaining or abusing their 
engines.
    (4) The requirements of this section do not apply to emission 
control information labels. Note however, that Sec.  1068.101(a)(1) 
prohibits the sale of engines without proper labels, which also applies 
to misprinted labels.
    (5) You must track the information specified in paragraph (b)(1) of 
this section. You must assess this data at least every three months to 
evaluate whether you exceed the thresholds specified in paragraphs (e) 
and (f) of this section. Where thresholds are based on a percentage of 
engines in the engine family, use actual sales figures for the whole 
model year when they become available. Use projected sales figures 
until the actual sales figures become available. You are not required 
to collect additional information other than that specified in 
paragraph (b)(1) of this section before reaching a threshold for an 
investigation specified in paragraph (e) of this section.
    (6) You may ask us to allow you to use alternate methods for 
tracking, investigating, reporting, and correcting emission-related 
defects. In your request, explain and demonstrate why you believe your 
alternate system will be at least as effective in the aggregate in 
tracking, identifying, investigating, evaluating, reporting, and 
correcting potential and actual emissions-related defects as the 
requirements in this section. In this case, provide all available data 
necessary to demonstrate why an alternate system is appropriate for 
your engines and how it will result in a system at least as effective 
as that required under this section.
    (7) If we determine that emission-related defects result in a 
substantial number of properly maintained and used engines not 
conforming to the regulations of this chapter during their useful life, 
we may order you to conduct a recall of your engines (see Sec.  
1068.505).
    (8) Send all reports required by this section to the Designated 
Officer.
    (9) This section distinguishes between defects and possible 
defects. A possible defect exists anytime there is an indication that 
an emission-related component or system might have a defect, as 
described in paragraph (b)(1) of this section.
    (b) Investigation of possible defects. Investigate possible defects 
as follows:
    (1) If the number of engines that have a possible defect, as 
defined by this paragraph (b)(1), exceeds a threshold specified in 
paragraph (e) of this section, you must conduct an investigation to 
determine if an emission-related component or system is actually 
defective. You must classify an engine component or system as having a 
possible defect if any of the following sources of information shows 
there is a significant possibility that a defect exists:
    (i) A warranty claim is submitted for the component, whether this 
is under your emission-related warranty or any other warranty.
    (ii) Your quality-assurance procedures suggest that a defect may 
exist.
    (iii) You receive any other information for which good engineering 
judgment would indicate the component or system may be defective, such 
as information from dealers, field-service personnel, hotline 
complaints, or engine diagnostic systems.
    (2) If the number of shipped replacement parts for any individual 
component is high enough that good engineering judgment would indicate 
a significant possibility that a defect exists, you must conduct an 
investigation to determine if it is actually defective. Note that this 
paragraph (b)(2) does not require data-tracking or recording provisions 
related to shipment of replacement parts.
    (3) Your investigation must be prompt, thorough, consider all 
relevant information, follow accepted scientific and engineering 
principles, and be designed to obtain all the information specified in 
paragraph (d) of this section.
    (4) Your investigation needs to consider possible defects that 
occur only within the useful life period, or within five years after 
the end of the model year, whichever is longer.
    (5) You must continue your investigation until you are able to show 
that there is no emission-related defect or you obtain all the 
information specified for a defect report in paragraph (d) of this 
section. Send us an updated defect report anytime you have significant 
additional information.
    (6) If a component with a possible defect is used in additional 
engine families or model years, you must investigate whether the 
component may be defective when used in these additional engine 
families or model years, and include these results in any defect report 
you send under paragraph (c) of this section.
    (7) If your initial investigation concludes that the number of 
engines with a defect is fewer than any of the thresholds specified in 
paragraph (f) of this section, but other information later becomes 
available that may show that the number of engines with a defect 
exceeds a threshold, then you must resume your investigation. If you 
resume an investigation, you must include the information from the 
earlier investigation to determine whether to send a defect report.
    (c) Reporting defects. You must send us a defect report in either 
of the following cases:
    (1) Your investigation shows that the number of engines with a 
defect exceeds a threshold specified in paragraph (f) of this section. 
Send the defect report within 21 days after the date you identify this 
number of defective engines. See paragraph (h) of this section for 
reporting requirements that apply if the number of engines with a 
defect does not exceed any of the thresholds in paragraph (f) of this 
section.
    (2) You know there are emission-related defects for a component or 
system in a number of engines that exceeds a threshold specified in 
paragraph (f) of this section, regardless of how you obtain this 
information. Send the defect report within 21 days after you learn that 
the number of defects exceeds a threshold.
    (d) Contents of a defect report. Include the following information 
in a defect report:
    (1) Your corporate name and a person to contact regarding this 
defect.
    (2) A description of the defect, including a summary of any 
engineering analyses and associated data, if available.
    (3) A description of the engines that have the defect, including 
engine families, models, and range of production dates.
    (4) An estimate of the number and percentage of each class or 
category of affected engines that have the defect, and an explanation 
of how you

[[Page 39272]]

determined this number. Describe any statistical methods you used under 
paragraph (g)(6) of this section.
    (5) An estimate of the defect's impact on emissions, with an 
explanation of how you calculated this estimate and a summary of any 
emission data demonstrating the impact of the defect, if available.
    (6) A description of your plan for addressing the defect or an 
explanation of your reasons for not believing the defects must be 
addressed.
    (e) Thresholds for conducting a defect investigation. You must 
begin a defect investigation based on the following number of engines 
that may have the defect:
    (1) For engines with maximum engine power at or below 560 kW:
    (i) For engine families with annual sales below 500 units: 50 or 
more engines.
    (ii) For engine families with annual sales from 500 to 50,000 
units: more than 10.0 percent of the total number of engines in the 
engine family.
    (iii) For engine families with annual sales above 50,000 units: 
5,000 or more engines.
    (2) For engines with maximum engine power greater than 560 kW:
    (i) For engine families with annual sales below 250 units: 25 or 
more engines.
    (ii) For engine families with annual sales at or above 250 units: 
more than 10.0 percent of the total number of engines in the engine 
family.
    (f) Thresholds for filing a defect report. You must send a defect 
report based on the following number of engines that have the defect:
    (1) For engines with maximum engine power at or below 560 kW:
    (i) For engine families with annual sales below 1,000 units: 20 or 
more engines.
    (ii) For engine families with annual sales from 1,000 to 50,000 
units: more than 2.0 percent of the total number of engines in the 
engine family.
    (iii) For engine families with annual sales above 50,000 units: 
1,000 or more engines.
    (2) For engines with maximum engine power greater than 560 kW:
    (i) For engine families with annual sales below 150 units: 10 or 
more engines.
    (ii) For engine families with annual sales from 150 to 750 units: 
15 or more engines.
    (iii) For engine families with annual sales above 750 units: more 
than 2.0 percent of the total number of engines in the engine family.
    (g) How to count defects. (1) Track defects separately for each 
model year and engine family as much as possible. If information is not 
identifiable by model year or engine family, use good engineering 
judgment to evaluate whether you exceed a threshold in paragraph (e) or 
(f) of this section. Consider only your U.S.-directed production 
volume.
    (2) Within an engine family, track defects together for all 
components or systems that are the same in all material respects. If 
multiple companies separately supply a particular component or system, 
treat each company's component or system as unique.
    (3) If a possible defect is not attributed to any specific part of 
the engine, consider the complete engine a distinct component for 
evaluating whether you exceed a threshold in paragraph (e) of this 
section.
    (4) If you correct defects before they reach the ultimate purchaser 
as a result of your quality-assurance procedures, count these against 
the investigation thresholds in paragraph (e) of this section unless 
you routinely check every engine in the engine family. Do not count any 
corrected defects as actual defects under paragraph (f) of this 
section.
    (5) Use aggregated data from all the different sources identified 
in paragraph (b)(1) of this section to determine whether you exceed a 
threshold in paragraphs (e) and (f) of this section.
    (6) If information is readily available to conclude that the 
possible defects identified in paragraph (b)(1) of this section are 
actual defects, count these toward the reporting thresholds in 
paragraph (f) of this section.
    (7) During an investigation, use appropriate statistical methods to 
project defect rates for engines that you are not otherwise able to 
evaluate. For example, if 75 percent of the components replaced under 
warranty are available for evaluation, it would be appropriate to 
extrapolate known information on failure rates to the components that 
are unavailable for evaluation. Take steps as necessary to prevent bias 
in sampled data. Make adjusted calculations to take into account any 
bias that may remain.
    (h) Investigation reports. Once you trigger an investigation 
threshold under paragraph (e) of this section, you must report your 
progress and conclusions. In your reports, include the information 
specified in paragraph (d) of this section, or explain why the 
information is not relevant. Send us the following reports:
    (1) While you are investigating, send us mid-year and end-of-year 
reports to describe the methods you are using and the status of the 
investigation. Send these status reports no later than June 30 and 
December 31 of each year.
    (2) If you find that the number of components or systems with an 
emission-related defect exceeds a threshold specified in paragraph (f) 
of this section, send us a report describing your findings within 21 
days after the date you reach this conclusion.
    (3) If you find that the number of components or systems with an 
emission-related defect does not exceed any of the thresholds specified 
in paragraph (f) of this section, send us a final report supporting 
this conclusion. For example, you may exclude warranty claims that 
resulted from misdiagnosis and you may exclude defects caused by 
improper maintenance, improper use, or misfueling. Send this report 
within 21 days after the date you reach this conclusion.
    (i) Future production. If you identify a design or manufacturing 
defect that prevents engines from meeting the requirements of this 
part, you must correct the defect as soon as possible for future 
production of engines in every family affected by the defect. This 
applies without regard to whether you are required to conduct a defect 
investigation or submit a defect report under this section.

0
145. Section 1068.505 is amended by revising paragraphs (a) and (e) and 
adding paragraph (f) to read as follows:


Sec.  1068.505  How does the recall program work?

    (a) If we make a determination that a substantial number of 
properly maintained and used engines do not conform to the regulations 
of this chapter during their useful life, you must submit a plan to 
remedy the nonconformity of your engines. We will notify you of our 
determination in writing. Our notice will identify the class or 
category of engines affected and describe how we reached our 
conclusion. If this happens, you must meet the requirements and follow 
the instructions in this subpart. You must remedy at your expense 
noncompliant engines that have been properly maintained and used, as 
described in Sec.  1068.510(a)(7). You may not transfer this expense to 
a dealer or equipment manufacturer through a franchise or other 
agreement.
* * * * *
    (e) You may ask us to allow you to conduct your recall differently 
than specified in this subpart, consistent with section 207(c) of the 
Act (42 U.S.C. 7541(c)).
    (f) You may do a voluntary recall under Sec.  1068.535, unless we 
have made

[[Page 39273]]

the determination described in Sec.  1068.535(a).

0
146. Section 1068.510 is amended by revising paragraph (a)(7) to read 
as follows:


Sec.  1068.510  How do I prepare and apply my remedial plan?

    (a) * * *
    (7) The proper maintenance or use you will specify, if any, as a 
condition to be eligible for repair under the remedial plan. Describe 
how these specifications meet the provisions of paragraph (e) of this 
section. Describe how the owners should show they meet your conditions.
* * * * *

0
147. Section 1068.530 is amended by revising the introductory text to 
read as follows:


Sec.  1068.530  What records must I keep?

    We may review your records at any time, so it is important that you 
keep required information readily available. Keep records associated 
with your recall campaign for three years after you send the last 
report we require under Sec.  1068.525(b). Organize and maintain your 
records as described in this section.
* * * * *

0
148. Appendix I to part 1068 is amended by removing paragraph IV and 
revising the introductory text to read as follows:

Appendix I to Part 1068--Emission-Related Components

    This appendix specifies emission-related components that we refer 
to for describing such things as emission-related warranty or 
requirements related to rebuilding engines.

[FR Doc. 04-11293 Filed 6-28-04; 8:45 am]
BILLING CODE 6560-50-P