[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Rules and Regulations]
[Pages 54384-54402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-21967]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 86

[AMS-FRL-9716-5]


Nonconformance Penalties for On-Highway Heavy-Duty Diesel Engines

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: EPA is taking final action to establish nonconformance 
penalties (NCPs) for manufacturers of heavy heavy-duty diesel engines 
(HHDDE) in model years 2012 and later for emissions of oxides of 
nitrogen (NOX) because we have found the criteria for NCPs 
and the Clean Air Act have been met. The NOX standards to 
which these NCPs apply were established by a rule published on January 
18, 2001. In general, NCPs allow a manufacturer of heavy-duty engines 
(HDEs) whose engines do not conform to applicable emission standards, 
but do not exceed a designated upper limit, to be issued a certificate 
of conformity upon payment of a monetary penalty to the United States 
Government. The upper limit associated with these NCPs is 0.50 grams of 
NOX per brake horsepower-hour (g/bhp-hr).
    This Final Rule specifies certain parameters that are entered into 
the preexisting penalty formulas along with the emissions of the engine 
and the incorporation of other factors to determine the amount a 
manufacturer must pay. Key parameters that determine the NCP a 
manufacturer must pay are EPA's estimated cost of compliance for a near 
worst-case engine and the degree to which the engine exceeds the 
emission standard (as measured from production engines).
    EPA proposed NCPs for medium heavy duty diesel engines. However, 
EPA is not taking final action with regard to NCPs for these engines at 
this time because EPA has not completed its review of the data and 
comments regarding these engines.

DATES: This rule is effective September 5, 2012.

ADDRESSES: EPA has established a docket for this action under Docket ID 
EPA-HQ-OAR-2011-1000. All documents in the docket are listed in the 
http://www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., confidential business 
information or other information whose disclosure is restricted by 
statute. Certain other material, such as copyrighted material, will be 
publicly available only in hard copy in the docket. Publicly available 
docket materials are available either electronically in http://www.regulations.gov or in hard copy at the following location: EPA: EPA 
Docket Center, EPA/DC, EPA West, Room 3334, 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 Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: Chuck Moulis, U.S. EPA, National 
Vehicle and Fuel Emissions Laboratory, 2000 Traverwood, Ann Arbor, MI 
48105; Telephone (734) 214-4826; Email [email protected].

SUPPLEMENTARY INFORMATION:

Regulated Entities

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

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                                              NAICS \a\
                 Category                       Codes            Examples of potentially regulated entities
----------------------------------------------------------------------------------------------------------------
Industry.................................   336112 336120  Engine and truck manufacturers.
----------------------------------------------------------------------------------------------------------------
\a\ North American Industry Classification System (NAICS).

Table of Contents

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Today's Action
    C. Impacts of This Action
II. Overview and Background
    A. Overview
    B. Statutory Authority
    C. Background Regarding Nonconformance Penalty Rules
    D. 2007 and 2010 NOX Standards
III. Previous Interim Final Rule
IV. NCP Eligibility
    A. First Criterion--Whether the MY2010 NOX Standard 
Is More Stringent than the Previous NOX Standard
    B. Second Criterion--Whether Substantial Work Will Be Required 
To Meet the MY2010 NOX Standard
    C. Third Criterion--Whether There Is Likely To Be a 
Technological Laggard
    D. Issues Raised by the D.C. Circuit Court of Appeals
V. Penalty Rates
    A. Upper Limit
    B. Cost Parameter Values
    C. Resulting Penalties
    D. Consideration of Other Methodologies
VI. Economic Impact
VII. Environmental Impact
VIII. Emission Standards for Which We Are Not Establishing NCPs in 
This Final Rule
    A. Medium Heavy Duty Diesel NOX Standards
    B. Light Heavy-Duty Diesel NOX Standards
    C. Heavy-Duty Gasoline Engine Standards
    D. Heavy-duty Diesel Engine NMHC, CO, and PM Standards

[[Page 54385]]

    E. Heavy-duty CO2 Standards
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    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 Risks and Safety Risks
    H. Executive Order 13211 (Energy Effects)
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    K. Congressional Review Act
X. Statutory Provisions and Legal Authority

I. Executive Summary

A. Purpose of This Action

    Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), 
directs EPA to promulgate regulations permitting manufacturers of 
heavy-duty engines or heavy-duty vehicles to receive a certificate of 
conformity for engines or vehicles that exceed an EPA emissions 
standard if the manufacturer pays a nonconformance penalty (NCP). This 
action adopts NCPs for MY2012 and later heavy heavy-duty diesel engines 
(HHDDE) with respect to the NOX emissions standards 
applicable to these engines. Engine manufacturers will be able to 
receive a certificate of conformity based on either demonstrating 
compliance with the 0.20 g/bhp-hr NOX emission standard, or 
paying NCPs under the penalty formula established in this rule. This 
provides an alternative compliance option in situations where, as here, 
EPA has determined that the criteria for establishing NCPs have been 
met.

B. Summary of Today's Action

    EPA proposed that the criteria for setting NCPs had been met for 
the 0.20 g/bhp-hr NOX emission standard for HHDDEs, and we 
are setting NCPs for these diesel engines in this final action.\1\ The 
final NCPs for HHDDE are approximately twice the values proposed. This 
difference is primarily because of new information received during the 
public comment period related to fuel and diesel exhaust fluid (DEF) 
prices. The derivation of the final penalties is described in a support 
document titled ``Nonconformance Penalties for 2012 and later Highway 
Heavy-Duty Diesel Engines: Technical Support Document'' (Technical 
Support Document), which is available in the public docket for this 
rulemaking. Under the final penalty regulations, nonconforming 
manufacturer with engines at the upper NOX limit of 0.50 g/
bhp-hr would pay a penalty of $3,775 for each model year 2012 engine it 
produces. Manufacturers would pay a lesser penalty if the 
NOX emissions of the engine are lower. For example, the 
penalty for a 2012 engine with NOX emissions at 0.30 g/bhp-
hr would be $1,259.
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    \1\ The proposed rule was published at 77 FR 4736 (January 31, 
2012).
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C. Impacts of This Action

    NCPs have a small environmental impact. We expect relatively few 
engine families to be certified under these provisions. Any impacts 
should be short-term in nature because the penalties are structured to 
increase over time to discourage use in later model years and because 
the penalty figures are high enough, such that the increase in the 
maximum penalty in later model years will likely limit the practical 
availability of NCPs in future years. In addition, Navistar, the only 
company that has requested certificates based on the use of NCPs, has 
publicly announced it will introduce new technology engines in 2013 
which will meet the 0.20 g/hp-hr NOX standard without the 
need for NCPs.
    NCPs generally also have minimal adverse economic impacts. Their 
use is optional, and manufacturers have historically chosen to use NCPs 
only when they are otherwise unable to comply with emissions standards. 
Manufacturers that choose to make use of the NCPs will incur those 
costs, which are based on the cost of complying with the emission 
standards.

II. Overview and Background

A. Overview

    Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), 
directs EPA to promulgate regulations permitting manufacturers of 
heavy-duty engines (HDEs) or heavy-duty vehicles (HDVs) to receive a 
certificate of conformity for HDEs or HDVs that exceed a Federal 
emissions standard if the manufacturer pays a nonconformance penalty 
(NCP). Congress adopted section 206(g) in the Clean Air Act Amendments 
of 1977 as a response to a concern about manufacturers unable to comply 
with technology-forcing emissions standards for heavy-duty engines in 
the lead-time provided for the emissions standards. NCPs were intended 
to remedy this concern, while ensuring that conforming manufacturers 
would not suffer a competitive disadvantage compared to nonconforming 
manufacturers.
    The first NCP rule, sometimes referred to as the ``generic'' NCP 
rule, established three basic criteria for determining the emission 
standards for which nonconformance penalties would be established in 
any given model year. 50 FR 35374 (August 30, 1985). The first 
criterion is that the emission standard in question is a new emission 
standard or that the standard is an existing standard and becomes more 
difficult to meet. This can occur in two ways, either by the emission 
standard itself becoming more stringent, or due to its interaction with 
another emission standard that has become more stringent. Second, EPA 
must find that substantial work is required in order to meet the 
emission standard. Third, EPA must find that it is likely that a 
manufacturer will be unable to comply by the end of the lead time 
provided for technological reasons (referred to in earlier rules as a 
``technological laggard''). The first NCP rule also established the 
formula for determining the amount of an NCP. In subsequent NCP rules, 
EPA made determinations about which emissions standards met the 
criteria for establishing NCPs, and specified the values for various 
parameters that are used in the formula to calculate the dollar value 
of a manufacturer's NCP. The regulations addressing these provisions 
are in Subpart L of 40 CFR part 86.
    EPA proposed that these criteria had been met for the 0.20 g/bhp-hr 
NOX emission standard for heavy heavy-duty diesel engines. 
77 FR 4736 (January 31, 2012).\2\ Although we did not identify the 
technological laggard in the NPRM, we have since identified Navistar as 
the manufacturer that needs NCPs. We proposed to establish NCPs because 
Navistar was unable to achieve the 0.20 g/bhp-hr NOX 
standard and did not have sufficient emission credits to cover the 2012 
model year. At the time of the proposal, Navistar was attempting to 
meet the NOX emission standard with a technology that is 
different than the approach used by other engine manufacturers. 
However, Navistar recently announced that it would switch its approach 
to use the same general technology as the other enginemanufacturers--a 
catalytic approach called selective catalytic reduction (SCR). As 
described in Section IV. C., we have determined that

[[Page 54386]]

Navistar will be unable to apply this technology to all of its engine 
families sold in the U.S. to achieve 0.20 g/hp-hr NOX for at 
least several months, and will need NCPs until it completes its 
transition to the new technology.
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    \2\ EPA simultaneously published an Interim Final Rule 
establishing interim NCPs for heavy heavy-duty engines (77 FR 4678, 
January 31, 2012).
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    We proposed to base the calculation of the NCPs on the existing 
regulatory framework, revising only the upper limit and the cost 
parameters. We also proposed to set the upper limit at 0.50 g/bhp-hr, 
which means that no manufacturer paying NCPs would be allowed to 
certify engines with NOX emissions above this limit. The 
proposed penalty for HHDDEs at that limit was $1,919 for model year 
2012. Consistent with the provisions of the existing regulations, this 
value reflected our best estimate of the near-worst case cost 
difference between an engine with NOX emissions at the upper 
limit and a compliant engine. The regulations contain provisions to 
increase the penalties each year for later model years.
    The NCPs being finalized for HHDDE are approximately twice the 
values proposed. This difference is primarily because of new 
information received during the public comment period related to fuel 
and diesel exhaust fluid (DEF) prices. The derivation of the final 
penalties is described in a support document titled ``Nonconformance 
Penalties for 2012 and later Highway Heavy-Duty Diesel Engines: 
Technical Support Document'' (Technical Support Document), which is 
available in the public docket for this rulemaking.
    It is important to note that the NCP parameters being finalized 
were developed using the same basic methodology described in the NPRM. 
As in all NCP rules, the final NCPs are based on the estimated 
difference in compliance costs for engines at the upper limit and 
engines at the standard. Thus, engines with emissions at the upper 
limit can be considered to be baseline engines for the analysis. These 
baseline engines also represent the engines against which complying 
engines could compete in the marketplace.
    As shown in Figure 1, a nonconforming manufacturer with engines at 
the upper NOX limit of 0.50 g/bhp-hr would pay a penalty of 
$3,775 for each model year 2012 engine it produces. For later model 
years, this maximum penalty will increase by several hundred dollars 
per year as specified in 40 CFR 86.1113-87. While the exact rate of 
increase will depend on the number of engines for which NCPs are used, 
the penalty for engines at the upper limit could be more than $5,000 by 
2015. Manufacturers would pay a lesser penalty if the NOX 
emissions of the nonconforming engine are lower. For example, the 
penalty for a 2012 engine with NOX emissions at 0.30 g/bhp-
hr would be $1,259.
[GRAPHIC] [TIFF OMITTED] TR05SE12.024

    We received numerous comments on our proposal to establish NCPs. 
Our detailed analysis of these comments is contained in the Response to 
Comments document for this rulemaking. The major comments are 
summarized briefly below.
     Several commenters questioned whether the regulatory 
criteria for establishing NCPs had been met. These comments are 
addressed in Section IV.
     Several commenters addressed the level of the penalty, 
mostly claiming that the penalty needed to be higher to meet the 
statutory requirement to remove the competitive disadvantage for

[[Page 54387]]

complying manufacturers. These comments are addressed in Section V.
     The few comments we received on the upper limit supported 
setting it at 0.50 g/bhp-hr. These comments are addressed in Section V. 
A.
     Comments on the methodology used to calculate costs 
addressed both our proposed methodology and alternative methodologies. 
Comments on our proposed methodology are discussed in Section V. B. and 
comments on alternative methodologies are discussed in Section V. D.
    NCPs have a small environmental impact. We expect relatively few 
engine families to be certified under these provisions. Any impacts 
should be short-term in nature because the increase in the maximum 
penalty in later model years will likely limit the practical 
availability of NCPs in future years. The structure of the penalties, 
by increasing over time, discourages use in later model years; and 
because the penalty figures are high enough, such that use in later 
model years is unlikely to be a viable option for any manufacturer.
    NCPs generally also have minimal adverse economic impacts. Their 
use is optional, and manufacturers have historically chosen to use NCPs 
only when they are otherwise unable to comply with emissions standards. 
Manufacturers that choose to make use of the NCPs will incur those 
costs, which are based on the cost of complying with the emission 
standards.
    Section 553(d) of the Administrative Procedure Act (APA), 5 U.S.C. 
chapter 5, generally provides that rules may not take effect earlier 
than 30 days after they are published in the Federal Register. APA 
section 553(d) excepts from this provision any action that grants or 
recognizes an exemption or relieves a restriction. Since today's action 
can be considered to relieve a restriction that would otherwise prevent 
a manufacturer from certifying, EPA is making this action effective 
immediately upon publication. This Final Rule does not set new 
requirements, but rather creates an optional path by which a 
manufacturer unable to meet the NOX standard may obtain a 
certificate of conformity that they could not otherwise obtain without 
this Final Rule. Thus, the NCPs promulgated in this Final Rule will 
apply for all engines introduced into commerce on or after September 5, 
2012.

B. Statutory Authority

    Section 206(g) of the Act, 42 U.S.C. 7525(g), directs EPA to 
promulgate regulations permitting manufacturers of heavy-duty engines 
(HDEs) or heavy-duty vehicles (HDVs) to receive a certificate of 
conformity for HDEs or HDVs that exceed a Federal emissions standard, 
but do not exceed an upper limit associated with that standard, if the 
manufacturer pays a nonconformance penalty (NCP) . Congress adopted 
section 206(g) in the Clean Air Act Amendments of 1977 as a response to 
a concern with requiring technology-forcing emissions standards for 
heavy-duty engines. The concern was if strict technology-forcing 
standards were promulgated, then some manufacturers might be unable to 
comply in the lead-time provided for the emissions standards and would 
be forced out of the marketplace. NCPs were intended to remedy this 
concern. The nonconforming manufacturers would have a temporary 
alternative that would permit them to receive a certificate of 
conformity by payment of a penalty, allowing the engines or vehicles to 
be introduced into commerce and sold. At the same time, conforming 
manufacturers would not suffer compared to nonconforming manufacturers, 
because the NCPs would remove the competitive disadvantage to them. 
NCPs would be based, in part, on money saved by the nonconforming 
manufacturer. Providing this relief facilitated EPA's authority to set 
technology forcing standards. Without this relief, EPA may have needed 
to be more cautious in setting standards, given the possibility that a 
lagging manufacturer might not be able to meet the standards in the 
lead-time provided.
    Under section 206(g)(1), NCPs may be offered for HDVs or HDEs. The 
penalty may vary by pollutant and by class or category of vehicle or 
engine. No NCP-based certificate may be issued if the engine or vehicle 
exceeds the degree of reduction determined by the Administrator to be 
practicable. This emission level is identified in the regulations as 
the upper limit. Section 206(g)(3) requires that NCPs:
     Account for the degree of emission nonconformity;
     Increase periodically to provide incentive for 
nonconforming manufacturers to achieve the emission standards; and
     Remove the competitive disadvantage to conforming 
manufacturers.
    Section 206(g) authorizes EPA to require testing of production 
vehicles or engines in order to determine the emission level upon which 
the penalty is based. If the emission level of a vehicle or engine 
exceeds an upper limit of nonconformity established by EPA through 
regulation, the vehicle or engine would not qualify for an NCP under 
section 206(g) and no certificate of conformity could be issued to the 
manufacturer. If the emission level is below the upper limit but above 
the standard, that emission level becomes the ``compliance level,'' 
which is also the benchmark for warranty and recall liability. The 
manufacturer who elects to pay the NCP is liable for vehicles or 
engines that exceed the compliance level in use. The manufacturer does 
not have in-use warranty or recall liability for emissions levels above 
the standard but below the compliance level.

C. Background Regarding Nonconformance Penalty Rules

    Since the promulgation of the first NCP rule in 1985, subsequent 
NCP rules generally have been described as continuing ``phases'' of the 
initial NCP rule. The first NCP rule (Phase I), sometimes referred to 
as the ``generic'' NCP rule, established three basic criteria for 
determining the eligibility of emission standards for nonconformance 
penalties in any given model year. 50 FR 35374 (August 30, 1985). When 
adopted in 1985, EPA intended to use the criteria of 40 CFR 86.1103-87 
in determining whether to establish NCPs. They were included in the 
regulations to clarify that EPA's obligation under the generic rule to 
establish NCPs only applied where these criteria were met. As described 
in Section V. of this Final Rule, we have determined that these 
criteria have been met.\3\
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    \3\ We note that EPA may revise the criteria at any time through 
notice and comment rulemaking. Thus, these criteria do not constrain 
EPA from adopting NCPs in other circumstances, as long as the 
statutory criteria of section 206(g) are met.
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    The first criterion is that the emission standard in question is a 
new emission standard or that the standard is an existing standard and 
becomes more difficult to meet. This can occur in two ways, either by 
the emission standard itself becoming more stringent, or due to its 
interaction with another emission standard that has become more 
stringent. Under the second criterion, EPA must find that substantial 
work is required in order to meet the emission standard. As described 
in Sec.  86.1103-87(b), EPA considers ``substantial work'' to mean the 
application of technology not previously used in that vehicle or engine 
class/subclass, or a significant modification of existing technology, 
in order to bring that vehicle/engine into compliance. EPA does not 
consider minor modifications or calibration changes to be classified as 
substantial work. EPA considers that substantial work is required if 
such work is needed to bring emissions from the level of the

[[Page 54388]]

previous standard to the level of the new or revised standard, even if 
at the time the NCP rulemaking is taking place, some manufacturers have 
already completed that work. Third, EPA must find that a manufacturer 
is likely to be noncomplying for technological reasons (referred to in 
earlier rules as a ``technological laggard''). Prior NCP rules have 
considered such a technological laggard to be a manufacturer who cannot 
meet a particular emission standard due to technological (not economic) 
difficulties and who, in the absence of NCPs, might be forced from the 
marketplace.
    The criteria and methodologies established in the 1985 NCP rule 
have since been used to determine eligibility and to establish NCPs for 
a number of heavy-duty emission standards. Phases II, III, IV, V, and 
VI published in the period from 1985 to 2002, established NCPs that, in 
combination, cover the full range of heavy-duty; from heavy light-duty 
trucks (6,000-8,500 pounds gross vehicle weight) to the largest diesel 
truck and urban bus engines. NCPs have been established for 
hydrocarbons (HC), carbon monoxide (CO), nitrogen oxides 
(NOX), and particulate matter (PM). The most recent NCP rule 
(67 FR 51464, August 8, 2002) established NCPs for the 2004 and later 
model year NOX standard for heavy-duty diesel engines 
(HDDEs). The NCP rulemaking phases are summarized in greater detail in 
the Technical Support Document for this rulemaking.

D. 2007 and 2010 NOX Standards

    The 0.20 g/bhp-hr NOX standard that applies for current 
and future heavy-duty engines was adopted January 18, 2001 (66 FR 
5001), and first applied in the 2007 model year. However, because of 
phase-in provisions adopted in that rule and use of emission credits 
generated by manufacturers for early compliance, manufacturers have 
been able to continue to produce engines with NOX emissions 
greater than 0.20 g/bhp-hr. Most engines during the phase-in had 
NOX emissions near 1.2 g/bhp-hr. The phase-in provisions 
ended after model year 2009 so that the 0.20 g/bhp-hr NOX 
standard was fully phased-in for model year 2010. Equally important, 
the cap applicable to Family Emission Limits (FELs) \4\ for credit-
using engine families was lowered to 0.50 g/bhp-hr beginning in model 
year 2010. Because of these changes that occurred in model year 2010, 
the 0.20 g/bhp-hr NOX emission standard is often referred to 
as the 2010 NOX emission standard, even though it applied to 
engines as early as model year 2007.
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    \4\ FELs are emission levels specified by the manufacturer that 
serve as the applicable emission standard for engines participating 
in the emission averaging program. The FEL cap is the highest FEL to 
which a manufacturer may certify an engine using emission credits.
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III. Previous Interim Final Rule

    On January 31, 2012, EPA simultaneously published an Interim Final 
Rule establishing interim NCPs for heavy heavy-duty engines and a 
parallel Notice of Proposed Rulemaking (NPRM). The NCPs in this Final 
Rule will supersede the NCPs that were promulgated in the Interim Final 
Rule as of September 5, 2012.
    Several engine manufacturers petitioned EPA to rescind that Interim 
Final Rule. These petitions and EPA's responses denying them have been 
placed into the Docket for this rule.
    These engine manufacturers also filed judicial challenges to the 
Interim Final Rule. Mack Trucks, et al. v. EPA, No. 12-1077 (DC Cir). 
They challenged EPA's decision to establish NCPs in an interim final 
rule without going through notice and comment. They also challenged our 
finding that the regulatory criteria had been met to promulgate NCPs 
for the 2010 NOX standard, as well as our conclusion that 
the interim NCP levels removed the competitive disadvantage for 
complying manufacturers. On June 12, 2012, the Court of Appeals for the 
DC Circuit issued an opinion holding that EPA violated the procedural 
requirements for rulemaking because EPA did not have good cause to 
issue the rule without providing notice and opportunity for comment. 
Id., 2012 U.S. App. LEXIS 11851 (June 12, 2012). The Court did not rule 
on the merits of EPA's findings about the regulatory criteria or the 
level of the NCP. Nevertheless, it stated in dicta its concerns about 
these issues, which are discussed below in Sections IV. (NCP 
Eligibility) and V. (Penalty Rates).

IV. NCP Eligibility

    Section II. C. of this Final Rule notes that EPA regulations 
provide for three criteria to be met in order to determine that an NCP 
should be established in any given model year. As is described below, 
these three criteria address different aspects of the appropriateness 
of NCPs, and it is important to consider each criterion separately in 
its own proper context. In general, the first two criteria address 
whether the standard in question created the possibility that a 
technological laggards could develop, while the third criterion 
addresses the likelihood that there will be a technological laggard. 
For the 2010 NOX standard, we find that these criteria have 
been met for heavy heavy-duty diesel engines, and it is therefore 
appropriate to establish NCPs for this standard for the current model 
year and later.

A. First Criterion--Whether the MY2010 and Later NOX 
Standard Is More Stringent Than the Previous NOX Standard

    The first criterion requires that the emission standard in question 
must be more stringent than the previous standard. This is the case 
with the 2010 NOX standard. The previous emission standard 
for this category is a combined NMHC + NOX standard of 2.4 
g/bhp-hr, or optionally a 2.5 g/bhp-hr NMHC + NOX with a 
limit of 0.5 g/bhp-hr NMHC.\5\ The 2010 (i.e., current) standards are 
0.20 g/bhp-hr for NOX and 0.14 g/bhp-hr for NMHC.
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    \5\ NMHC stands for non-methane hydrocarbons, which is a measure 
of total hydrocarbons with the methane emissions subtracted out. For 
typical on-highway diesel fueled heavy-duty engines, methane 
emissions are on the order of 10 percent of the total hydrocarbon 
emissions.
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    Some commenters argued that this standard should no longer be 
considered a new standard because it went into full effect two model 
years ago. We did not promulgate NCPs for the 2010 and 2011 model years 
because we had no basis for concluding it was likely that any 
manufacturer would qualify as a technological laggard, as all 
manufacturers met the standard either directly or through application 
of credits. However, the fact that we did not promulgate NCPs for the 
first year a standard went into effect does not preclude us from 
promulgating NCPs for such standard at a later time, when it is 
determined the regulatory criteria have been met. While it is not a 
path we have generally taken, nothing in the statute or in our 
regulations, which refer to new or revised standards, precludes EPA 
from promulgating NCPs after the first year a new or revised standard 
goes into effect. See 50 FR 35374, 35376 (August 30, 1985), and 50 FR 
9204, 9206 (March 6, 1985).
    The first criterion, as with the other two criteria, reflects the 
key concepts underlying the NCP program--NCPs are designed to address 
situations where technological laggards are likely to develop in 
response to the adoption of technology forcing emission standards for 
this sector under CAA section 202(a)(3)(A). One purpose of section 
206(g) is to avoid, at least temporarily, the problem of technological 
laggards being driven out of the market because of their inability to 
meet technology forcing emission standards in the lead-time provided. 
50 FR 9204, 9205 (March

[[Page 54389]]

6, 1985), 50 FR 35375 (August 30, 1985) (``The possibility of a 
technological laggard is a key concept in the NCP availability 
scheme.''). The first criterion is directly linked to this--``This 
condition creates the possibility for a technological laggard to 
exist.'' 50 FR 9204, 9206 (March 6,1985).
    Given this purpose, the appropriate way to consider whether the new 
or revised standard is more stringent is to consider it from the point 
of adoption of the standard, by comparing it to the prior standard. It 
is at the point that EPA has adopted a standard that may force 
technology changes, and it is the difference in stringency between the 
old and the new or revised standard, that raises the possibility of a 
technological laggard. The passage of time after adoption of the 
standard does not change the analysis of whether the new or revised 
standard is or is not more stringent than the previous standard. 50 FR 
9204, 9206 (March 6, 1985). Even if EPA considers NCPs some model years 
after adoption of the standard the comparison under the first criterion 
is still between the new or revised standard and the prior standard, 
and their relative stringency.
    The first criterion establishes one circumstance that must occur to 
establish NCPs under the generic rule: a new or revised standard must 
be more stringent than the previous standard for the pollutant, or an 
existing standard must become more difficult to achieve. The passage of 
time by itself, from MY2010 to MY2012, does not change the fact that 
the MY2010 NOX standard was and continues to be more 
stringent than the standard applicable to model years before 2010, and 
this increase in stringency created the possibility for a technological 
laggard to exist. The first criterion is thus more in the nature of a 
static or historic fact, a threshold determination typically made based 
on the facts in existence at the time of adoption of the new or revised 
standard, a comparison of the stringency of the previous and the new or 
revised standard.
    Based on this, EPA rejects commenters' arguments. Even though the 
determination on the first criterion is not being made until some model 
years after adoption of the 2010 standard, the 2010 NOX 
standard has always been a new or revised standard compared to the 
prior standard, and the 2010 standard was and continues to be more 
stringent than the preexisting NOX standard. The passage of 
time does not change the fact that adoption of a more stringent 
standard for MY2010 created the possibility for a technological laggard 
to exist. The 2010 standard is certainly a new or revised standard and 
certainly is more stringent than the previous standard for 
NOX. The fact that we are now in MY2012 does not change this 
conclusion.

B. Second Criterion--Whether Substantial Work Will Be Required To Meet 
the MY2010 NOX Standard

    Under the second criterion, substantial work must be required to 
meet the standard. When we first established the 2010 NOX 
standard, we considered it to be a technology-forcing standard and 
subsequent history has shown that substantial work has been required to 
meet this emission standard. More importantly, all heavy heavy-duty 
diesel engines currently certified to the 0.20 g/bhp-hr standard 
without using credits are using new aftertreatment systems (that were 
generally not used in 2009) to meet this standard.\6\ Indeed, even 
Navistar substantially redesigned its emission control system in its 
attempt to achieve lower emissions without NOX 
aftertreatment. This work clearly meets the definition of substantial 
work, as it involves the use of either: New catalytic controls and 
related technology not previously used in these engines, or the 
significant modification of existing EGR and related technology. None 
of the complying manufacturers dispute that they have done substantial 
work to achieve the 0.20 g/bhp-hr NOX standard. In fact, 
they emphasized in their comments how much work they have done to meet 
the standard.
---------------------------------------------------------------------------

    \6\ For this Final Rule, EPA describes those manufacturers that 
have achieved the 0.20 g/hp-hr emission standard as ``conforming'', 
``compliant'' or ``complying'' manufacturers, and those that have 
not as the ``nonconforming'', ``noncompliant'' or ``noncomplying'' 
manufacturers. However, it is important to clarify that 
manufacturers certifying above the 0.20 g/hp-hr NOX 
emission standard using emission credits are in compliance with 
regulations as long as they have enough emission credits to offset 
their total NOX emissions above the standard.
---------------------------------------------------------------------------

    The second criterion builds on the first criterion, as it involves 
an evaluation of the nature and degree of the technological challenge 
of the new or revised standard. If the new or revised standard 
increases the stringency to such a degree that it cannot be met by 
simple modifications to existing technology (i.e., that substantial 
work will be required to comply), then this criterion is satisfied. 
Like the first criterion, the second criterion reflects the key concern 
with the issue of a technological laggard--``When manufacturers must 
perform substantial work, it is possible that at least one will be 
unsuccessful and will become a laggard.'' 50 FR 9204, 9206 (March 
6,1985). Like the first criterion, it is a determination of 
circumstances that establish a threshold or baseline for setting NCPs 
under the generic rule. It identifies circumstances that mean there is 
a possibility that a laggard may exist.
    Given this purpose, the appropriate way to consider the second 
criterion is to evaluate all of the work that must be accomplished to 
move from compliance with the previous standard to compliance with the 
new or revised standard. The possibility of a technological laggard is 
created by this entire amount of work that must be done, not any one 
subset or increment of the work. Thus, if EPA evaluates this criterion 
at some point after adoption of the new or revised standard, EPA still 
considers all of the work to go from the previous to the new or revised 
standard, and not just the work remaining as of the date the 
determinations are made about compliance with the criteria under the 
generic NCP rule.
    While commenters did not dispute that substantial work was required 
to meet the 2010 standard, some commenters claim it is no longer true 
that substantial work is required because some manufacturers have met 
the standard. Some commented that these determinations must be based on 
the factual circumstances at the time of the NCP rulemaking and not the 
time the revised standard was issued. We disagree with these claims for 
two reasons.
    First, this criterion is to be evaluated based on the total amount 
of work needed to go from meeting the previous standard to meeting the 
current standard, regardless of the timing of such changes. Indeed, the 
commenters' approach would seem to be directly contrary to the purpose 
of the statute. The NCP program is designed to allow technological 
laggards to be able to certify engines even if other manufacturers have 
met the standard. There is a clear expectation that some manufacturers 
might be technological laggards. 50 FR 9204, 9206 (March 6,1985) 
(``When manufacturers must perform substantial work, it is possible 
that at least one will be unsuccessful and will become a laggard.'') 
Where there is a technological laggard, it is the typical situation 
that other manufacturers have already complied or will comply on time. 
The fact that some manufacturers have surpassed the technological 
hurdles and achieved compliance with the new or revised standard does 
not in any way show that there is or cannot be a technological laggard 
who at least temporarily has not surpassed the technological hurdles. 
Refusing to establish NCPs solely

[[Page 54390]]

because some manufacturers comply at the time NCPs are established 
would frustrate Congress' purpose by preventing establishment of NCPs 
when there is a technological laggard who temporarily can not comply 
with the standards and cannot certify engines without the NCP program.
    Thus, EPA bases the determination of substantial work on the total 
amount of work to go from compliance with the prior standard to 
compliance with the new standard, even if at the time of the NCP 
rulemaking some manufacturers have already completed some or all of 
such work. Under this criterion, the important question is whether 
manufacturers who were using technology that met the previous standard 
would need to conduct significant work to develop new technology or to 
build upon/change the old technology to meet the revised standard. 
Questions about work that still needs to be done at the point EPA 
begins an NCP rulemaking are relevant only in the context of the third 
criterion, whether there is likely to be a technological laggard. To 
avoid this confusion for future NCPs, we are clarifying in the 
regulatory text that this criterion is to be evaluated based on the 
need for new or modified technology or design to meet the new or 
revised standard regardless of the timing for such changes.
    Second, even under the current circumstances, we find that Navistar 
has needed to do substantial work to meet the standard. This is the 
case whether one considers the total amount of work to go from the 
previous standard to the MY2010 NOX standard, or whether one 
only considers the amount of work to go from the current status of its 
technology to compliance with the MY2010 standard. See the discussion 
below concerning the work conducted by Navistar to date and expected in 
the future.
    We informed engine manufacturers in 2010 that we believed the first 
two criteria had been met.\7\ We note that the commenters now 
questioning whether these criteria have been met did not dispute our 
earlier view that we could have set NCPs at that time had we determined 
that a technological laggard was likely to develop. At that point, EPA 
was clear that the reason we were not establishing NCPs at that time 
was because we had not determined that a technological laggard was 
likely to develop.
---------------------------------------------------------------------------

    \7\ ``Nonconformance Penalties for Heavy-Duty Diesel Engines in 
2010 Model Year'', Letter from Karl J. Simon, Director, EPA 
Compliance and Innovative Strategies Division, February 22, 2010.
---------------------------------------------------------------------------

C. Third Criterion--Whether There Is Likely To Be a Technological 
Laggard

    Under the third criterion, EPA considers all of the circumstances 
to determine whether there is likely to be a technological laggard. In 
the 1985 generic rule EPA indicated that:

    Third, EPA must find that there is likely to be a technological 
laggard. Even when a standard becomes more stringent (or there is an 
adverse effect on a previously attainable standard), and even when 
manufacturers must perform substantial work, all manufacturers may 
still be able to meet the more stringent standard. For instance, 
compliance with a standard may involve merely the transference of 
technology from a similar application. Thus, EPA must make a 
determination whether the circumstances will likely give rise to a 
laggard.50 FR 9204, 9206 (March 6, 1985).

    One of the concepts underlying a technological laggard is that a 
manufacturer faced with a new or revised standard, especially one that 
is technology forcing, will direct substantial resources and effort to 
develop and employ technology aimed at achieving compliance with the 
more stringent standard. Whether the manufacturer develops and employs 
the same or different technology than other manufacturers, there is a 
possibility that such a manufacturer will be temporarily unable to 
achieve the emissions standard in the lead time provided based on 
technological reasons. Instead of refusing to certify the 
manufacturer's engines, and driving them out of the market, the NCP 
program is specifically designed to provide a temporary path for 
certification until the remaining technological issues are resolved and 
the manufacturer achieves the standard. 50 FR 9204 (March 6,1985). The 
third criterion is designed to implement this concept, based on EPA's 
evaluation of all of the circumstances.
    In this case, all of the circumstances indicate that there is more 
than a likelihood that there is an engine manufacturer that has not yet 
achieved the MY2010 NOX standard for technological reasons--
we have determined that Navistar is in fact such a manufacturer. Unlike 
the rest of the industry, Navistar attempted to comply without SCR to 
reduce NOX emissions.\8\ However, to date Navistar has not 
succeeded in reaching the 0.20 g/bhp-hr emission level. At this time, 
the only engine families Navistar has certified since the MY2010 
standard took effect have used advanced EGR technology, and have been 
certified based on either banked emission credits or on Navistar's 
payment of the interim NCPs. Navistar does not have sufficient credits 
to cover its entire model year 2012 production without NCPs. Navistar 
has acknowledged in its public comments on this rule that it is 
effectively a technological laggard. On July 6, 2012, Navistar 
announced that it has begun the process of redesigning its trucks to 
use SCR engines in addition to their in-cylinder emission control 
technology. Navistar expects the SCR engines to be available beginning 
in early 2013. We have determined that Navistar will need access to 
NCPs to lawfully produce engines during this multi-month transition 
process.
---------------------------------------------------------------------------

    \8\ This technology is based on internal engine controls and 
advanced exhaust gas recirculation technology.
---------------------------------------------------------------------------

    Several commenters noted that Navistar cannot be a technological 
laggard as it has applied for certification of an engine family using 
this technology, seeking a certificate for a 0.20 g/bhp-hr engine that 
complies without the use of credits. However, Navistar has withdrawn 
that application based on EPA concerns that the engine design (with its 
current hardware) does not meet the 0.20 g/bhp-hr NOX 
standard.
    While Navistar has announced that it will switch to SCR-based 
emission controls, we have determined that the work needed for Navistar 
to redesign all of its U.S. engines and vehicles for its announced 
alternate compliance path based on SCR cannot be completed immediately. 
Thus, Navistar will need NCPs during this transition period. These 
limitations are technological rather than economic in nature. Among the 
steps Navistar must complete, it must:

 Select an SCR system design
 Make arrangements with component suppliers
 Validate components
 Recalibrate its engine to work with the SCR system
 Redesign it trucks to fit the SCR hardware
 Complete its emission testing and durability testing for 
certification
 Obtain EPA approval for the new engine-SCR system

We do not have a precise estimate of how long this will take for 
Navistar's entire U.S. production of heavy heavy-duty diesel engines 
and associated vehicles. However, based on our experience and knowledge 
of this industry, this type of technology introduction is not finished 
in a one or two month period. Navistar has acknowledged as much in 
their July 6, 2012 announcement, which stated they will begin making 
the new technology products available in early 2013.

[[Page 54391]]

    Several commenters argued Navistar voluntarily chose a different 
technology path than other manufacturers, and could have complied in 
the lead time provided if it had developed and employed SCR technology 
from the beginning. Since Navistar chose what the commenters consider 
to be the wrong technology path, they argue it is a laggard based on 
its own business decision and not technological limitations. They 
stated that NCPs should not be established under these circumstances. 
We generally would agree with commenters' assertions that Navistar 
presumably could have chosen the same SCR technology path as other 
manufacturers some time ago, and presumably could have already achieved 
compliance with the MY2010 standard in the same timeframe they did. If 
that had occurred, there would be no basis for establishing NCPs. 
However, we disagree with commenters' conclusions that NCPs should not 
be established based on this difference in choice of technology 
pathway.
    Navistar made a decision to attempt to meet the emission standard 
using a different technology path, without SCR. As with most of EPA's 
mobile source emissions standards, the MY2010 emission standard is a 
performance standard, and does not specify what technology must be used 
or require that all manufacturers use the same technology. Commenters' 
approach would penalize a manufacturer who attempts to innovate and 
develop a technology pathway different from its competitors. This would 
effectively discourage technological innovation by requiring all 
manufacturers to use the same technology once one manufacturer has met 
the standard using that technology. Otherwise they would risk being 
driven from the market as no NCPs would be established. Such an 
interpretation would undercut the purpose of technology forcing 
standards--to adopt standards where manufacturers may have to develop 
advanced technology or technology that is at the cutting edge of 
emissions control. This interpretation would suppress technological 
innovation out of fear that a wrong technological choice will lead to 
having to leave a market without the temporary benefit of NCPs. This 
approach would also ignore the premise of promulgating NCPs, which is 
that they are appropriate when one or more manufacturers have not met 
the standard, while one or more others have. Whether the laggard is not 
able to achieve compliance because of a technological hurdle in 
developing the same or different technology as their competitors, the 
result is the same--they risk being removed from the market based on 
technological issues, if NCPs are not established. EPA does not see a 
valid basis for drawing such a distinction between technology pathways 
in deciding whether there is likely to be a technological laggard.
    As discussed later, in Section V. on the penalty rate, the 
provision of NCPs is only a temporary solution for the noncomplying 
technological laggard. The first-year penalty rate is designed to 
remove the economic disadvantage for the complying manufacturers, 
preventing harm to the competitors. The NCP rate also increases over 
time, such that in a short period of time the noncomplying manufacturer 
needs to achieve compliance or the increasing penalty rate will in 
effect drive it from the market. Since the NCP protects a complying 
manufacturer from a competitive disadvantage irrespective of the 
technology path chosen by its competitor, it is appropriate that EPA 
not draw a distinction based on whether the technological laggard chose 
the same or a different technology path than the complying 
manufacturers. This helps to preserve the nature of EPA's standards as 
technology forcing performance standards that promote technological 
innovation across this sector of industry.
    Having made its decision to pursue a non-SCR technology to meet the 
standards, Navistar has not been able to produce engines that have been 
certified to meet the 0.020 standard without credits. The evidence is 
clear that Navistar chose to develop a different technological solution 
than other manufacturers, and that technological issues concerning this 
solution have delayed Navistar's ability to meet the standard. It is 
for this technological reason that Navistar cannot meet the standard, 
not for economic reasons.

D. Issues Raised by the DC Circuit Court of Appeals

    As noted above, in Mack Trucks, et al. v. EPA, No. 12-1077 (DC 
Cir), the court included comments in its opinion, in dicta, concerning 
the appropriateness of NCPs under the circumstances presented in the 
Interim Final Rule. The court stated that:

    We do recognize the pending final rule means our vacatur of the 
IFR on these procedural grounds will be of limited practical impact. 
Before the ink is dry on that final rule, we offer two observations 
about the parameters of this rulemaking. First, NCPs are meant to be 
a temporary bridge to compliance for manufacturers that have ``made 
every effort to comply.'' United States v. Caterpillar, Inc., 227 F. 
Supp. 2d 73, 88 (D.D.C. 2002). As EPA itself has explained, NCPs are 
not designed to bail out manufacturers that voluntarily choose, for 
whatever reason, not to adopt an existing, compliant technology. See 
77 Fed. Reg. 4,736, 4,739 (Jan. 31, 2012) (``NCPs have always been 
intended for manufacturers that cannot meet an emission standard for 
technological reasons rather than manufacturers choosing not to 
comply.''); 50 Fed. Reg. 35,402, 35,403 (Aug. 30, 1985) (stating 
that NCPs are inappropriate ``if many manufacturers' vehicles/
engines were already meeting the revised standard or could do so 
with relatively minor calibration changes or modifications''). Based 
solely on what EPA has offered in the IFR, it at least appears to us 
that NCPs are likely inappropriate in this case.\9\
---------------------------------------------------------------------------

    \9\ Id., slip op. at 15.

    The court noted that NCPs are intended to be a temporary bridge to 
compliance for manufacturers who have ``made every effort to comply'' 
and are not designed for manufacturers that voluntarily choose, for 
whatever reason, not to adopt an existing, compliant technology. EPA 
agrees with these general concepts, but they do not apply in this case. 
The court's comments concern the issue of whether substantial work is 
needed to achieve compliance with the MY2010 NOX standard, 
and whether Navistar is properly considered likely to be a 
technological laggard in achieving compliance with this standard in 
light of the technology pathway it chose. Based on all of the 
circumstances before EPA, it is reasonable to determine that Navistar 
has made every effort to comply, for the technology pathway it chose. 
The need for NCPs is based on the failure to achieve the emissions 
standards using this technology. This failure is based on technological 
reasons, and not other reasons.
    The court's statement that NCPs were intended for manufacturers 
that ``made every effort to comply'' (United States v. Caterpillar, 
Inc., 227 F. Supp. 2d 73, 88 (D.D.C. 2002)) was made in a different 
context and does not apply here. This comment was in response to a 
suggestion from Caterpillar in that earlier case that the consent 
decree at issue should have been interpreted in a certain way (or 
modified) as EPA failed to issue an NCP rule with enough lead time. 
Caterpillar argued that it was harmed by this delay because the purpose 
of the NCPs was to allow a manufacturer to weigh the costs of 
compliance against the costs of paying NCPs. The court rejected this 
view, as it would allow ``engine manufacturers * * * to calibrate the 
intensity of their compliance efforts to the NCP for each new standard, 
allowing them to opt for

[[Page 54392]]

noncompliance when compliance becomes more expensive than the NCP. This 
kind of second-guessing, however, was clearly not Congress' intent in 
providing for NCPs.'' 227 F.Supp. at 88. The court noted that 
``[i]nstead, NCPs were intended to give a manufacturer that has made 
every effort to comply, but has been unable to achieve compliance, a 
chance to continue to participate in the market. Thus, NCPs serve their 
purpose even if promulgated after a company has made its engine design 
decisions, since those decisions should be based on whether compliance 
can be achieved, not on whether compliance is less expensive than 
paying NCPs.'' Id. at 88-89.
    In that context, it is clear that the court's prior statement 
addressed the claim that a manufacturer should be able to base their 
engine design decisions on the availability of NCPs, weighing which 
costs more and deciding based on this whether to pursue a technology 
pathway to compliance or pay NCPs. The court made clear that providing 
this kind of economic choice on compliance is not the purpose of an 
NCP. The court specifically noted that NCPs are appropriate in a case 
where the failure to achieve compliance is based on technological 
concerns encountered along the path to achieving compliance--that is, 
in circumstances like those in this current rulemaking.
    The court's statement was not related to whether, evaluating in 
retrospect at the point an NCP is established, a manufacturer had made 
every effort to comply prior to adoption of the NCPs. Navistar chose to 
pursue an engine emissions control design that is non-SCR based several 
years before NCPs were proposed. NCPs would be used by Navistar while 
it addresses the technology-based hurdles it now faces in switching to 
SCR controls. It faces these technology hurdles now as a result of the 
technology pathway it chose years before the NCP was adopted. The NCPs 
would not be used, as Caterpillar asked the court to allow in the 
earlier case, to decide what technology path to follow and how hard to 
pursue it based on the economics of the cost of NCPs. In this case, 
Navistar made considerable efforts to develop and employ the non-SCR 
technology. Its choice of technological pathway to compliance was not 
based on weighing the costs of compliance with the cost of NCPs. The 
court's concerns in Caterpillar are not applicable to the facts in this 
NCP rulemaking.
    The court also quoted from the generic 1985 rulemaking, noting that 
NCPs would not be appropriate if ``many manufacturers were already 
meeting the standard, or could do so with relatively minor calibration 
changes or modifications.'' This language from the 1985 rulemaking 
refers to the second criterion, whether substantial work is required to 
achieve compliance with the more stringent new or revised standard. As 
discussed above, this is based on all of the work that must be done to 
move from the previous standard to the more stringent new or revised 
standard. This criterion is to be evaluated based on actual work needed 
to go from meeting the previous standard to meeting the current 
standard, regardless of the timing of such changes. Based on this, the 
amount of work remaining to be done when the NCP rulemaking occurs is 
not relevant to the second criterion. Likewise, whether some 
manufacturers have already achieved compliance at the time of the NCP 
rulemaking is also not relevant to determining whether the second 
criterion has been met. As noted above, it is not unexpected that at 
the time of this NCP rulemaking that ``many manufacturers' vehicles/
engines were already meeting the revised standard or could do so with 
relatively minor calibration changes or modifications.'' However, 
rejecting NCPs solely because some manufacturers have achieved or are 
on a path to achieve compliance, while one or more other manufacturers 
are not in the same position, would prevent lagging manufacturers from 
certifying in exactly those circumstances Congress contemplated 
providing for NCPs--some manufacturers are able to achieve compliance 
in the lead time provided, but for technological reasons others are 
not. NCPs are designed to address just this situation, to temporarily 
avoid driving these manufactories out of the market. 50 FR 35374 
(August 30,1985).
    Clearly, in this case, substantial work was required to meet the 
0.20 g/bhp-hr standard. Every manufacturer has included (or will soon 
include) for the first time NOX aftertreatment (selective 
catalytic reduction), on their engines to meet the standard. Prior to 
deciding to change its technology approach, Navistar also greatly 
modified its exhaust gas recirculation (EGR) system to reduce 
NOX emissions and would likely have needed to do 
significantly more work to further reduce its NOX emissions 
to meet the standard. These are substantial changes to the emission 
control systems of these engines. While several manufacturers are 
currently using SCR systems, they were not doing so until they were 
required to meet the 2010 NOX standard. Therefore, it is 
clear that substantial work was needed to go from the previous standard 
to achieve compliance with the 2010 NOX standard, and the 
second criterion is satisfied.
    The court also noted that NCPs are not intended in a situation 
where the failure to achieve compliance is not related to technological 
reasons, but to a manufacturer's choosing to not employ an available 
complying technology. As discussed above, EPA agrees that the basis for 
establishing NCPs must be a technological based laggard. The reasons 
for not achieving the emissions standard in the lead time provided must 
be based on a technological failure in developing and employing the 
chosen technology pathway. The court refers to a statement made by EPA 
when discussing the relationship between NCPs for the 2010 
NOX standard and credits for the CO2 emissions 
standards adopted for heavy-duty engines and trucks.\10\ 77 FR 4739 
(January 31, 2012). EPA stated it was not providing NCPs for the new 
CO2 emissions standard as it was not in a position to 
determine that a technological laggard was likely to develop for that 
CO2 standard. In that context, EPA also determined that an 
engine that was certified to the 2010 NOX standard using 
NCPs should not be able to generate credits at the same time under the 
CO2 emissions standards. EPA recognized that there was an 
interplay between NOX control and CO2 control, 
such that higher levels of NOX could lead to lower levels of 
CO2 emissions. Under those circumstances, providing credits 
for the CO2 program could provide an incentive for a 
manufacturer to increase NOX emissions but still certify an 
engine using NCPs, where they could otherwise achieve the 
NOX standard without NCPs. That manufacturer could then 
generate credits under the CO2 program for the decrease in 
CO2 emissions resulting from the increase in NOX 
emissions. Thus, the manufacturer would be choosing to not comply with 
a standard for which it was technologically capable of complying, and 
would be doing so to generate emission credits that would provide it 
some advantage in the future. This would not be consistent with either 
the purpose of the CO2 credit program (to provide an 
incentive for manufacturers to take technological and other efforts to 
over comply with the CO2 standard) or the purpose of the NCP 
program (to provide relief to

[[Page 54393]]

manufacturers that fail to achieve the standard on time for 
technological reasons, not for other reasons such as the economic 
benefit of generating CO2 credits by voluntarily increasing 
emissions of NOX).
---------------------------------------------------------------------------

    \10\ EPA stated ``NCPs have always been intended for 
manufacturers that cannot meet an emission standard for 
technological reasons rather than manufacturers choosing not to 
comply.''
---------------------------------------------------------------------------

    EPA's observation in the proposal confirmed that the basic purpose 
of NCPs is to provide relief where there is a laggard for technological 
reasons, not other reasons. The concerns raised regarding 
CO2 credits and NOX NCPs are not related to our 
finding that Navistar is a technological laggard. No one argues that 
Navistar has failed to achieve a technological solution because of a 
decision to generate credits or reap economic benefits elsewhere. 
Instead Navistar's failure to achieve the standard as of this date is 
based on technological and not other reasons.
    This is similar to the circumstances in 2002 when Caterpillar 
developed its ``ACERT'' technology rather than use cooled EGR 
technology, which it had been developing until 2001. It needed to use 
NCPs because of delays in developing ACERT. In that case, Caterpillar 
did not dispute that cooled-EGR would achieve the necessary emission 
reductions; rather it chose to attempt to meet the standard using what 
it believed to be a superior technology.
    The court also noted its concern with the level of the penalty in 
the Interim Final Rule, and whether it adequately removed the economic 
disadvantage to conforming manufacturers. That issue is addressed in 
Section V. below.

V. Penalty Rates

    This rulemaking is the most recent in a series of NCP rulemakings. 
These are referred to as Phases and are referenced below.\11\ The 
discussions of penalty rates and related reports and analyses in those 
rulemakings are incorporated by reference. This section briefly reviews 
the penalty rate formula originally promulgated in the Phase I rule 
(currently found at 40 CFR 86.1113-87) and discusses how EPA arrived at 
the penalty rates in this Final Rule.
---------------------------------------------------------------------------

    \11\ The previous NCP rules include: the Phase VI rulemaking (67 
FR 51464, August 8, 2002), Phase IV rulemaking (58 FR 68532, 
December 28, 1993), Phase III rulemaking (55 FR 46622, November 5, 
1990), the Phase II rulemaking (50 FR 53454, December 31, 1985) as 
well as the Phase I rulemaking (50 FR 35374, August 30, 1985).
---------------------------------------------------------------------------

    The penalty rates being established in this rule rely on the 
existing NCP regulatory structure. Only a few changes are being made to 
the regulations. As proposed, we are setting of the upper limit at 0.50 
g/hp-hr and are clarifying in Sec.  86.1104-91 that EPA may set the 
upper limit at: (1) a level below the previous standard if we determine 
that the lower level is achievable by all engines, or (2) a level above 
the previous standard if we determine that the standard is not 
achievable by all engines. We also proposed cost parameters to reflect 
the compliance costs for the 2010 standards and are finalizing these 
cost parameters, after revising them based on comments. Finally, in 
response to comments, we are clarifying that the second NCP criterion 
is to be evaluated without regard to the specific timing of the NCP 
rule.
    We received many comments supporting higher or lower penalties for 
a variety of reasons. However, the most important criteria in 
evaluating the penalties are how they conform to the statutory 
requirements and how they conform to the regulatory requirements. With 
respect to the statutory requirements for the penalties in the first 
year, we note that the purpose of adopting NCPs is to allow a 
noncompliant manufacturer to continue selling its engines, provided it 
pays the penalty. However, section 206(g) of the Clean Air Act directs 
EPA to set the NCPs at a level that will ``remove any competitive 
disadvantage'' to complying manufacturers. Contrary, to what some 
commenters suggested, this first year penalty level is not intended to 
punish the noncomplying manufacturer beyond the level needed to remove 
any competitive disadvantage for complying manufacturers.
    EPA has also set regulatory requirements for penalty levels. Most 
significantly, the regulations require that penalties be based on total 
incremental costs of compliance relative to engines at the upper limit, 
which we have done. In the first NCP rule, it was determined that 
compliance cost differences between engines at the upper limit and 
engines at the standard would be appropriate measures of the 
competitive disadvantage for complying manufacturers.\12\ We believe 
that the final NCPs being established conform to both the regulatory 
requirements and the statutory requirements.
---------------------------------------------------------------------------

    \12\ While we have followed the regulatory formula for 
determining penalties for this rule, it should be noted that if we 
were to find that conforming to the regulatory requirements would 
not conform to the statutory requirements, we would need to revise 
the regulatory requirements through rulemaking.
---------------------------------------------------------------------------

    The NCP rates being adopted in this FRM are specified for model 
year 2012. As required by section 206(g) of the Act, the existing 
regulations include a formula that increases (or ``escalates'') the 
penalty rates with each new model year. The purpose of the escalator is 
to provide an incentive for manufacturers who use NCPs for more than 
one model year to achieve compliance quickly rather than continuing to 
use NCPs for multiple model years.
    As proposed, we will apply this annual adjustment formula to the 
NCPs by setting the 2012 model year as year number one. This is 
consistent with the existing regulatory text that states that year one 
is the first year that NCPs are available (see 40 CFR 1113-87(a)(4)). 
Traditionally, when NCPs are adopted, they are available the first 
model year the new or revised emission standard applies and there is no 
question about which model year should be year one for purposes of the 
annual escalator. However, this is less straightforward for this NCP 
rule. First, the 0.20 g/bhp-hr first applied beginning in the 2007 
model year, as part of a phase-in, but did not take full effect until 
MY2010. In addition, we are adopting NCPs more than two model years 
later. While we received comments supporting setting 2010 as the base 
year, we continue to believe the 2012 model year is the correct year 
for the first year of the escalator calculation. As discussed further 
in the Response to Comments document, we are not revising the 
regulatory text that specifies that year one is the first year that 
NCPs are available. Using the first year of NCP availability as the 
first year for the escalator calculation, the initial NCPs (i.e., NCPs 
during the first model year of availability) remove the disadvantage 
for the complying manufacturers, as Congress intended. Under this 
approach, the escalator would apply staring in MY2013, the earliest 
that any manufacturers could be using NCPs for more than one model 
year. This ties the initiation of the escalator, and the start of the 
economic incentive it provides, to the first year in which 
circumstances that call for such an incentive can exist--the second 
year of availability. MY2013 is the first year any manufacturer could 
use this NCP for multiple years. Adding an extra penalty equivalent to 
two years of escalation is contrary to the intent for this escalation. 
No manufacturer had access to NCPs prior to 2012, and requiring an 
escalator based on the two previous years of the standard would treat a 
manufacturer who uses NCPs in either 2012 or 2013 as if they had 
already used NCPs for several more years than the actual usage. The 
additional escalator and related additional incentive is more than is 
needed to meet the objective of the escalator provision, and therefore 
is consistent with the purpose of the escalator provision.
    We are specifying the NCP formula using the normal NCP parameters: 
COC50, COC90, MC50, F, and UL. The

[[Page 54394]]

NCP formula is the same as that promulgated in the Phase I rule. As was 
done in previous NCP rules, we consider incremental manufacturer costs 
and incremental owner costs (for complying engines relative to the 
upper limit), but do not consider certification costs because both 
complying and noncomplying manufacturers must incur certification 
costs. COC50 is an estimate of the industry-wide average 
incremental cost per engine (references to engines are intended to 
include vehicles as well) associated with meeting the standard for 
which an NCP is established, compared with meeting the upper limit. 
COC90 is an estimate of the 90th percentile incremental cost 
per engine associated with meeting the standard for which an NCP is 
established, compared with meeting the associated upper limit. 
Conceptually, COC50 represents costs for a typical or 
average manufacturer, while COC90 represents costs for the 
manufacturers with the highest compliance costs.
    MC50 is an estimate of the industry-wide average 
marginal cost of compliance per unit of reduced pollutant associated 
with the least cost effective emission control technology installed to 
meet the new standard. MC50 is measured in dollars per g/
bhp-hr for heavy-duty engines. F is a factor used to derive 
MC90, the 90th percentile marginal cost of compliance with 
the NCP standard for engines in the NCP category. MC90 
defines the slope of the penalty rate curve near the standard and is 
equal to MC50 multiplied by F. UL is the upper limit above 
which no engine may be certified.
    The derivation of the cost parameters is described in a support 
document titled ``Technical Support Document: Nonconformance Penalties 
for 2012 and later Highway Heavy-Duty Diesel Engines'' (Technical 
Support Document), which is available in the public docket for this 
rulemaking. All costs are presented in 2011 dollars. The Technical 
Support Document also includes alternative cost analyses that were 
considered. These alternative analyses are discussed in Section V.D of 
this preamble.

A. Upper Limit

    The upper limit (UL) is the emission level established by 
regulation above which NCPs are not available. A heavy duty engine 
cannot use NCPs to be certified for a level above the upper limit. CAA 
section 206(g)(2) refers to the upper limit as a percentage above the 
emission standard, set by regulation, that corresponds to an emission 
level EPA determines to be ``practicable.'' The upper limit is an 
important aspect of the NCP regulations not only because it establishes 
an emission level above which no engine may be certified using NCPs, 
but it is also a critical component of the cost analysis used to 
develop the penalty rates. The regulations specify that the relevant 
costs for determining the COC50 and the COC90 
factors are the difference between an engine at the upper limit and one 
that meets the applicable standards (see 40 CFR 86.1113-87).
    The regulatory approach adopted under the prior NCP rules sets the 
upper limit at the prior emission standard when a prior emission 
standard exists and is then changed to become more stringent. EPA 
concluded that this upper limit should be reasonably achievable by all 
manufacturers with engines or vehicles in the relevant class. It should 
be within reach of all manufacturers of HDEs or HDVs that are currently 
allowed so that they can continue to sell their engines and vehicles 
while finishing their development of fully complying engines. A 
manufacturer of a previously certified engine or vehicle should not be 
forced to immediately remove an HDE or HDV from the market when an 
emission standard becomes more stringent. The prior emissions standard 
generally meets these goals because manufactures have already certified 
their vehicles to that standard.
    In the NPRM, we proposed to revise the regulations in Sec.  
86.1104-91 to clarify that EPA may set the upper limit at a level below 
the previous standard if we determine that the lower level is 
achievable by all engines or vehicles in the relevant subclass. That 
provision of the regulations was not opposed by any commenters and is 
included in this final rule. We are also finalizing the upper limit at 
0.50 g/bhp-hr, which was widely supported by commenters. For this rule, 
all manufacturers are currently certifying all of their engines at or 
below the 0.50 g/bhp-hr FEL cap, providing clear evidence that this 
level can be met by all manufacturers. The reason EPA has rejected past 
suggestions that the upper limit should be more stringent than the 
prior emission standard does not apply here, as there is no difficulty 
in this case in identifying a limit that could be met by all 
manufacturers. See 50 FR 35377 (August 30, 1985). Thus, setting the 
upper limit for this NCP rule at 0.50 g/bhp-hr NOX conforms 
to the purpose of the upper limit in setting NCPs.
    As proposed, we are also specifying that EPA could set the upper 
limit at a level above the previous standard in unusual circumstances, 
such as where a new standard for a different pollutant or other 
requirement effectively increases the stringency of the standard for 
which NCPs would apply. This occurred for heavy heavy-duty engines with 
the 2004 standards. While this change would not apply for this current 
NCP rulemaking, we proposed to add this clarification to make the 
regulations consistent with past practices.

B. Cost Parameter Values

    The regulations being adopted specify that the values in Table 1 be 
used in the NCP formula for the 2012 and later model year 
NOX standard of 0.20 g/bhp-hr for heavy heavy-duty diesel 
engines. The basis is summarized here. The complete derivation of these 
parameters and a discussion of other approaches that were considered 
are described in the Technical Support Document for this rulemaking.

                   Table 1--NCP Calculation Parameters
------------------------------------------------------------------------
              Parameter                Heavy heavy-duty  diesel engines
------------------------------------------------------------------------
COC50...............................  3,219
COC90...............................  $3,775
MC50................................  $10,729 per g/bhp-hr
F...................................  1.173
UL..................................  0.50 g/bhp-hr
------------------------------------------------------------------------

    Some commenters argued that EPA should not deviate from prior 
precedents for calculating costs. However, EPA has not used the same 
methodology in calculating costs in each of the previous NCP rules. In 
each of our six previous NCP rulemakings, we estimated costs using a 
methodology appropriate for the specific circumstances that applied at 
the time. None were approached in exactly the same way. In each case we 
considered key factors such as differences in calibration, hardware, 
and operating costs, but there have been some NCP calculations where 
other potential individual cost or cost saving elements have been 
included or excluded for various reasons. In determining how to 
calculate costs of compliance, EPA considers not only what data are 
available, but also the extent to which each cost element may affect 
the competitive balance of the market.
    The NCP parameters being finalized were developed using the same 
basic methodology described in the NPRM. As in all NCP rules, the final 
NCPs are based on the estimated difference in compliance costs for 
engines at the upper limit and engines at the standard. Thus, engines 
with emissions at the upper limit can be considered to be baseline 
engines for the analysis. These baseline engines also represent the

[[Page 54395]]

engines against which complying engines could compete in the 
marketplace. In this analysis, the most important baseline engine is 
the engine used as the baseline for calculating the nominally worst 
case compliance costs (COC90). As is described later, 
because the penalty curve being finalized in this NCP rule is a 
straight line, the value of COC50 does not affect the 
penalty curve.
    The cost parameters being finalized are higher than the values 
proposed. These changes reflect new information received during the 
public comment period, most notably new updated information about fuel 
and DEF prices that was not available at the time we completed the cost 
analysis for the proposal. EPA also received comments suggesting that 
the effectiveness of the heavy heavy-duty NCPs in meeting the statutory 
requirement to remove competitive disadvantage for complying 
manufacturer needs to be evaluated relative to engines that could be 
developed in the near term (such as a reoptimized SCR engine). In 
response to these comments and the new information received, EPA is 
revising the COC90 baseline engine because we believe that 
the revised baseline engine better represents an optimized engine than 
the baseline engine used for the proposal. These changes are discussed 
in more detail below.
    The Clean Air Act's requirements to ``remove any competitive 
disadvantage'' to complying manufacturers effectively requires EPA to 
consider not only existing engines with NOX emissions over 
the standard, but also engines that could reasonably be developed 
during the period in which NCPs are available. Thus, the NCPs must be 
high enough to protect complying manufacturers from a competitive 
disadvantage relative both to SCR engines that are optimized to emit 
NOX at a level of 0.50 g/bhp-hr and to engines without SCR 
that emit at that level. We considered several methodologies for 
estimating the incremental compliance costs between the upper limit and 
the standard and selected the approach that best removes the potential 
competitive disadvantage for complying manufacturers. See Section V. D. 
for additional discussion of these alternate approaches.
    It is important to note that while we received comments stating 
that the level of our proposed NCP was not high enough to remove the 
competitive advantage Navistar has selling non-SCR engines, none of the 
commenters provided evidence that this was the case (such as evidence 
of increased market share or increased profits for Navistar). None of 
the commenters provided any method by which the value of Navistar's 
actual competitive advantage could be calculated. Nevertheless, we have 
determined based on the information available to us that Navistar's 
competitive advantage is not greater than the competitive advantage 
based on compliance costs that we calculated relative to the 
reoptimized SCR baseline engine we have used as the basis of our 
COC90 costs.
(1) General Methodology
    Our approach to estimating compliance costs differs slightly from 
that used in recent NCP rules, where EPA based the NCPs directly on the 
actual compliance cost increases associated with meeting the standard 
for complying manufacturers (borne by the complying manufacturers and 
the operators who purchase their compliant engines), whether provided 
by the manufacturers or estimated by EPA. This was appropriate in those 
prior rules because each of the manufacturers had actually produced 
engines at the upper limit (which was usually the previous emission 
standard) and had reengineered those engines to meet the new or revised 
standard, so the costs associated with that change were straightforward 
to calculate. We determined that the manufacturers' input accurately 
reflected the manufacturers' actual costs because the costs were 
derived directly from actual in-production engine information. In the 
case of this NCP rule, however, compliant manufacturers have generally 
not designed and optimized their in-production engines for the U.S. 
market at 0.50 g/bhp-hr NOX (the upper limit) and then 
reengineered their engines to meet the 0.20 g/bhp-hr standard.\13\ 
Thus, a compliance cost estimate based directly on actual experience 
for the full range of in-production engines was not available for this 
NCP rule.
---------------------------------------------------------------------------

    \13\ Note that Cummins is using emission credits to certify one 
medium heavy-duty engine family with a NOX FEL at 0.50 g/
hp-hr. While costs associated with this medium heavy-duty engine 
cannot be used directly for heavy heavy-duty engines, as described 
in the Final TSD, related confidential cost information provided by 
Cummins was used to significantly inform our cost analysis.
---------------------------------------------------------------------------

    Instead of averaging actual cost increases relative to the upper 
limit (because none were available), the NCP penalty formulas for this 
rule are based primarily on EPA's estimate of the cost difference 
between a hypothetical engine emitting at the upper limit (the 
``baseline engine'') and one emitting at the standard (the ``compliant 
engine''). We received compliance cost information from several engine 
manufacturers, both before the proposal and during the comment period, 
and used that information to inform our own analysis of compliance 
costs, as described in the Technical Support Document.
    It is worth noting that each of the engine manufacturers that 
provided cost information before the proposal considered baseline 
engines with different technology packages. However in their comments 
on the proposal, complying manufacturers based their compliance costs 
on either a baseline engine equipped with similar hardware as EPA's 
revised baseline engine, or based on a pre-2010 non-SCR engine with 
NOX emissions near 1.2 g/bhp-hr. See Section V. D. of this 
notice for a discussion of why using the 1.2 g/bhp-hr baseline engine 
is not appropriate.
    As noted earlier, with NCPs available, a complying manufacturer 
could compete against not only EGR-equipped engines, but also against 
SCR-equipped engines that could be reoptimized to emit at 0.50 g/hr-hr. 
Since engine manufacturers are not currently producing SCR-equipped 
heavy heavy-duty engines at the upper limit, such engines must be 
considered based on our best estimate of how such an engine would be 
manufactured. Based on our review of the various hypothetical baseline 
engine designs, we proposed to use as a baseline engine our best 
estimate of an optimized SCR engine, because we believed it would be 
the most competitive 0.50 g/bhp-hr engine. Information available at 
that time projected little difference when comparing fuel and DEF 
prices, so for the proposal we assumed the baseline engine would have 
been optimized to use less DEF compared to 0.20 g/bhp-hr engines but 
had the same fuel consumption rates.\14\ We did not believe there would 
be a significant difference in costs using a baseline engine optimized 
for better fuel consumption, because we projected that fuel savings 
would have been offset by increased DEF costs. As is described in the 
Technical Support Document, for the proposal we also believed 
estimating costs by this approach was the least speculative method to 
determine compliance costs, and we did not believe there were competing 
designs that were substantially more competitive based on the 
compliance cost inputs we used.
---------------------------------------------------------------------------

    \14\ The proposal was based on the Energy Information 
Administration's 2011 fuel price projections and the retail price of 
DEF in October 2011; this Final Rule is based on the Energy 
Information Administration's 2012 fuel price projections and the DEF 
price projection from Integer Research. See Chapter 3 of the 
Technical Support Document for additional detail.

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

[[Page 54396]]

    Based on new information and comments we received, we are revising 
our baseline engine for the heavy heavy-duty service class. 
Specifically, as is described below, we are revising the 
COC90 baseline engine to be more optimized for low fuel 
consumption at 0.50 g/bhp-hr NOX than was assumed for the 
proposal. For the proposal, we estimated that reducing NOX 
emissions from 0.50 g/bhp-hr to 0.20 g/bhp-hr would require an increase 
in DEF consumption but would not change fuel consumption because we 
projected that there would be little price difference between DEF and 
fuel. However, we now have new information indicating that fuel prices 
will likely be at least one dollar per gallon higher than DEF prices 
for the foreseeable future. We agree with commenters that engine 
manufacturers designing engines for 0.50 g/bhp-hr NOX would 
have responded (and could still respond) to this price difference by 
optimizing their existing 0.20 g/bhp-hr SCR engine designs to have 
slightly higher engine-out NOX, which would reduce fuel 
consumption, and reduce the excess NOX by increasing DEF 
consumption. Thus compared to this revised baseline engine, a compliant 
engine would have higher fuel consumption but lower DEF consumption.
    We are now projecting that DEF prices will be at least one dollar 
less per gallon than diesel fuel prices for the foreseeable future (as 
shown in Figure 2), and the appropriate baseline engine is one that 
would have been designed to take advantage of this price difference. We 
have updated our fuel price projections using the Energy Information 
Administration's (EIA) Annual Energy Outlook 2012 (AEO2012) to project 
fuel prices through 2035. EIA is now projecting diesel fuel prices will 
be about fifty cents more per gallon than was projected in 2011. We 
have also revised our projection of DEF prices based on information 
from Integer Research provide by commenters. While we proposed using a 
constant DEF price through 2042 (because we did not have any 
projections for future DEF prices at the time we developed the 
proposal), we are now projecting that DEF prices will fall for the next 
few years, and then increase as the price of natural gas increases 
(using AEO2012 projections).\15\
---------------------------------------------------------------------------

    \15\ Natural gas is used in the production of urea, a primary 
component of DEF.
[GRAPHIC] [TIFF OMITTED] TR05SE12.025

    The current baseline engine is similar, but not identical, to what 
we proposed with respect to hardware. As proposed, the baseline engine 
technology package would employ the same basic emission controls used 
to meet the 2007 NOX and PM emission standards (e.g. cooled 
exhaust gas recirculation (EGR), optimized turbo-charging, optimized 
fuel injection, diesel particulate filters), plus liquid urea based 
selective catalytic reduction (SCR) NOX emissions control 
technology with an appropriately sized tank for the liquid urea (also 
known as diesel emission fluid or ``DEF''). However, we now believe the 
baseline engine could have used less expensive hardware than we 
proposed. We continue to believe that manufacturers could reduce the 
size of the SCR catalyst if they were allowed to meet a higher 
NOX emission limit. In addition, we now believe that they 
could also reduce the precious metal loading of the diesel oxidation 
catalyst (DOC), and lower the cost of the turbocharger. Thus, the 
hardware component of the compliance costs has gone up from what we 
proposed (i.e., the cost of the hardware on the baseline engine has 
gone down). Further details are provided in this rule's Technical 
Support Document.
(a) Calculated Values
    The most significant of the NCP parameters is the 90th percentile 
costs

[[Page 54397]]

of compliance, COC90, which defines the penalty for engines 
emitting at the upper limit. The value of COC50 is important 
only when EPA estimates that marginal compliance costs change as the 
compliance level approaches the standard. In such cases, 
COC50 defines that point on the curve at which the slope 
changes. However, for this NCP rule we believe that because of the 
narrow emission range between the upper limit and the standard (0.20 to 
0.50 g/bhp-hr), it is appropriate to assume that marginal compliance 
costs are constant. Thus, we are not summarizing our derivation of 
COC50 in this preamble since its value does not affect the 
penalty amounts. See the Technical Support Document for a discussion of 
COC50.
    We estimated COC90 by assuming the baseline engine would 
have been an SCR equipped engine with tailpipe NOX emissions 
at 0.50 g/bhp-hr and that it would have looked very similar to an 
engine with tailpipe NOX emissions at 0.20 g/bhp-hr. 
However, as noted above, the higher NOX emissions of the 
baseline engine would allow the use of less expensive hardware and 
would be calibrated to minimize the combined consumption of fuel and 
DEF. As described in more detail in the Technical Support Document, we 
estimated reasonable 90th percentile (or worst case) costs associated 
with bringing such a baseline engine into full compliance with the 0.20 
g/bhp-hr NOX emission standard.\16\ We note that the average 
costs associated with SCR may well be lower than the 90th percentile 
costs presented here.
---------------------------------------------------------------------------

    \16\ The Act requires that we remove competitive disadvantage 
for complying manufacturers. We recognize that there is uncertainty 
in our estimates. To ensure that we protect the complying 
manufacturer our overall approach is somewhat conservative. See the 
Technical Support Document for additional discussion of how we 
addressed uncertainty in our estimates.
---------------------------------------------------------------------------

    We estimate that the SCR hardware used by a complying manufacturer 
(i.e., an SCR system that would achieve 0.20 g/bhp-hr NOX) 
cost the manufacturer $5,522 per engine for the 90th percentile engine 
compared to an engine emitting at 1.2 g/bhp-hr. We estimate that the 
baseline hardware (i.e., an engine and SCR system that would achieve 
0.50 but not 0.20 g/bhp-hr NOX) for the 90th percentile 
engine would have cost the manufacturers only $4,441 (including R&D, 
warranty, and other overhead costs) after hardware savings associated 
with the DOC and turbocharger are deducted. Therefore, the 
manufacturers would have to spend $1,081 more in hardware, R&D, 
warranty and other overhead costs to produce a 0.20 g/bhp-hr engine 
than it would have cost to produce a 0.50 g/bhp-hr engine. We 
calculated the difference in operating costs the same way.
    These COC90 costs are summarized in the Table 2. The 
values in the tables are the costs that would be incurred by a 
manufacturer or operator for a model year 2012 0.20 g/bhp-hr engine 
relative to a 0.50 g/bhp-hr baseline engine. All operating costs are 
presented as net present value (NPV) relative to 2012 using a 7 percent 
discount rate.\17\ For example, we estimate that the NPV of the 
lifetime fuel cost of a 0.20 g/bhp-hr engine would be $8,833 higher 
than the fuel cost for a baseline engine, but the NPV of DEF costs 
would be $6,191 lower.
---------------------------------------------------------------------------

    \17\ Penalties are calculated based on costs for a model year 
2012 engine. The regulations include separate provisions to increase 
penalties for later model years.

             Table 2--COC90 Dollar-per-Engine [dagger] Costs
                             [2011 dollars]
------------------------------------------------------------------------
                                                 FRM COC90    NPRM COC90
------------------------------------------------------------------------
Lifetime Fuel Costs...........................       $8,833           $0
Lifetime DEF Costs (Savings)..................      (6,191)        1,374
Hardware Costs................................          927          474
Research and Development Cost.................           19            9
Warranty and Other Manufacturer Costs.........          135           62
Operator Repair Costs.........................           52            0
                                               -------------------------
    Total Cost................................        3,775        1,919
------------------------------------------------------------------------
[dagger] Although penalties are accessed per engine, costs include
  vehicle costs.

    We estimated the marginal costs of compliance as being equal to the 
total incremental costs of compliance divided by 0.30 g/bhp-hr (the 
difference between the upper limit and the standard). This assumes that 
the cost to reduce emissions from 0.30 g/bhp-hr to 0.20 g/bhp-hr is not 
significantly different from the cost to reduce emissions from 0.50 g/
bhp-hr to 0.40 g/bhp-hr. This results in a penalty curve that is a 
straight line, which in turn makes our estimate of the average cost of 
compliance irrelevant to the calculation of the penalty. In other 
words, the COC50 point lies directly between zero cost at 
0.20 g/bhp-hr and COC90 at the Upper Limit of 0.50 g/bhp-hr 
NOX. The penalty paid for engines at any compliance level 
between the standard and the upper limit would be equal to EPA's 
estimate of the highest marginal cost paid by a complying manufacturer 
for the same emission range.

C. Resulting Penalties

    The calculation parameters listed in Table 1are used to calculate 
the penalty rate. These parameters are used in the penalty rate 
formulas which are defined in the existing NCP regulations (See 40 CFR 
86.1113(a)(1) and (2)). Using the parameters in Table 1, and the 
equations in the existing NCP regulations, we have plotted penalty 
rates versus compliance levels in Figure 1 above. This penalty curve is 
for the first year of use of the NCPs (i.e., the annual adjustment 
factors specified in the existing NCP regulations have been set equal 
to one). The maximum first year penalty is equal to COC90, 
which is $3,775.
    The Clean Air Act NCP provisions require that the penalty be set at 
such a level that it removes competitive disadvantage for a complying 
manufacturer. For the reasons described in the Technical Support 
Document, we believe that the NCPs being established in this rulemaking 
fulfills this requirement.

D. Consideration of Other Methodologies

    We received comments suggesting how we should revise our estimated 
costs, if we continued to use the proposed methodology. Where 
appropriate, we incorporated these concepts into our final cost

[[Page 54398]]

methodology. We also received comments arguing that we should change 
our methodology. However, as described in the Technical Support 
Document, we determined that the other methodologies were not 
appropriate.
    Our primary methodology estimates the difference in lifetime 
compliance costs between a compliant 0.20 g/bhp-hr engine and a 0.50 g/
bhp-hr engine that we believe would have the greatest competitive 
advantage over the compliant engine. As noted earlier, we believe that 
an SCR engine optimized for 0.50 g/bhp-hr would have the greatest 
competitive advantage over compliant engines. Two of the other 
approaches we considered would have involved using non-SCR engines as 
the baseline engines, as suggested by some commenters. However, as 
described below, we determined that these approaches would not 
sufficiently remove the potential competitive advantage of an optimized 
SCR engine.
    In the first approach we considered using a 0.50 g/bhp-hr EGR 
engine (such as the engines Navistar is currently selling) as the 
baseline engine. This option was supported by one manufacturer during 
preproposal discussion, but was not supported in any comments on the 
NPRM. Nevertheless, we evaluated this approach to ensure that our 
methodology is the most appropriate one. Specifically, we estimated the 
hardware and operating costs associated with adding SCR to a non-SCR 
engine to meet the 0.20 g/bhp-hr standard. As is described in the 
Technical Support Document, we estimated that there would be 
significant hardware costs to add SCR plus significant operating costs 
for DEF consumption. However, these would be mostly offset by the fuel 
savings associated with SCR engines, plus hardware savings from down-
sizing the EGR system. The combined effect would be to make the costs 
of going from the EGR engine to the compliant engine lower than the 
costs of going from the baseline SCR engine to the compliant engine. 
Put another way, this means that the cost savings of changing from a 
compliant engine to an EGR-only engine are smaller than the cost 
savings of changing from a compliant engine to the baseline SCR engine, 
indicating that an EGR engine at 0.50 g/bhp-hr would have a smaller 
competitive advantage than the baseline engine we used to develop the 
final NCPs. Moreover, this means that NCPs based on this approach would 
not remove the competitive disadvantage to complying manufacturers, 
where manufacturers of optimized SCR engines could pay the lower NCP 
and still have a competitive advantage over compliant engines.
    In the second approach, we considered setting an upper limit at 1.2 
g/bhp-hr and including the full cost of SCR as the compliance cost. As 
was true for the previous approach, we estimated that most of the 
hardware and DEF costs would be offset by the fuel savings, making the 
NCP at 0.50 g/bhp-hr lower than our estimate of the competitive 
advantage for SCR engines optimized for 0.50 g/bhp-hr. This means that 
setting the upper limit at 1.2 and calculating costs in this way would 
not remove the competitive disadvantage for complying manufacturers 
compared to a manufacturer who optimized its SCR engine for 0.50 g/bhp-
hr NOX. Note that while we evaluated this approach with 
respect to costs and competitive disadvantage, we think that there are 
other reasons why it would not be appropriate to set the upper limit at 
1.2 g/bhp-hr. In particular, the upper limit may not be set at a level 
that is higher than the level that EPA determines is practicable, which 
would be no higher than 0.50 g/bhp-hr.
    Finally, we considered other scenarios in which the baseline engine 
would have been an SCR engine that was fundamentally redesigned to have 
NOX emissions at 0.50 g/bhp-hr (rather than reoptimizing an 
existing design). For example, some manufacturers have suggested that 
it would be possible to redesign engines to meet 0.50 g/bhp-hr without 
cooled EGR. This could result in significant savings for hardware and 
warranty costs. We determined that, while it may well be 
technologically possible to redesign current SCR engines to meet 0.50 
g/bhp-hr NOX with significantly lower hardware costs, there 
is no business scenario in which such savings would justify paying an 
NCP. Fundamentally redesigning an engine would take a minimum of two 
years and involve substantial capital costs. So a manufacturer that 
began redesigning its engines today could not expect to have the new 
engine ready for production before model year 2015. At that point, the 
annual adjustments to the NCPs would have increased the penalty 
substantially. Moreover, using NCPs in model year 2015 and later would 
result in a rapidly increasing penalty due to the annual adjustment 
factors, so a manufacturer would need to recover all of its investments 
within one or two model years. However, this would require the 
manufacturer to raise its prices so much that it would make its engines 
uncompetitive in the marketplace.

VI. Economic Impact

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

VII. Environmental Impact

    When evaluating the environmental impact of this rule, one must 
keep in mind that, under the Act, NCPs are a consequence of enacting 
new, more stringent emissions requirements for heavy duty engines. 
Emission standards are set at a level that most, but not necessarily 
all, manufacturers can achieve by the model year in which the standard 
becomes effective. Following International Harvester v. Ruckelshaus, 
478 F. 2d 615 (DC Cir. 1973), Congress realized the dilemma that 
technology-forcing standards could potentially cause, and allowed 
manufacturers of heavy-duty engines to certify nonconforming vehicles/
engines upon the payment of an NCP, under certain terms and conditions. 
This mechanism was intended to allow manufacturer(s) who cannot meet 
technology-forcing standards immediately to continue to manufacture 
nonconforming engines while they tackle the technological problems 
associated with meeting new emission standard(s). Thus, as part of the 
statutory structure to force technological improvements without driving 
manufacturers or individual engine models out of the market, NCPs

[[Page 54399]]

provide a flexibility that fosters long-term emissions improvement 
through the setting of lower emission standards at an earlier date than 
could otherwise be feasible. Because NCPs are designed to increase with 
time, manufacturers using NCPs are likely to reduce emission levels to 
meet the standard as quickly as possible, which minimizes the 
environmental impact.
    As is always the case with NCPs, the potential exists for there to 
be more extensive use of NCPs beyond what is projected at this time, 
where we project use by one manufacturers for a limited number of model 
years. For example, depending upon the penalty rate and other factors, 
some otherwise fully compliant manufacturers could elect to pay the NCP 
in order to reconfigure their 0.20 g/bhp-hr NOX compliant 
engines to emit up to 0.50 g/bhp-hr so that they can re-optimize engine 
hardware and vehicle operating costs. This potential action is not 
without R&D and other financial costs to the manufacturer and thus is 
not a decision which would be taken lightly. Furthermore, we believe 
that any such impacts would be short-term and self-limiting in nature 
because the NCP annual adjustment factor, established via prior NCP 
rules, increases the levels of the penalties over time and based on the 
extent of the use of NCPs by all manufacturers. In other words the NCP 
program is structured such that the incentives to produce engines that 
meet the standard increase year-by-year and increase upon NCP use. The 
practical impact of this adjustment factor is that the NCPs will 
rapidly become an undesirable option for all manufacturers that may 
elect to use them. However, while we expect their use to be limited, we 
have no way of predicting at this time exactly how many engines will 
make use of the NCPs. Navistar has indicated that it will use NCPs 
until sometime in 2013, when it begins introducing vehicles with SCR 
technology that meet the 0.20 g/hp-hr standard. Because of these 
uncertainties we are unable to accurately quantify the potential impact 
the NCPs might have on emission inventories, although, as stated above, 
any impacts are expected to be short-term and self-limiting in nature.

VIII. Emission Standards for Which We Are Not Establishing NCPs in This 
Final Rule

    This section identifies the emission standards for which we are not 
establishing NCPs in this Final Rule.

A. Medium Heavy Duty Diesel NOX Standards

    EPA proposed to find that the criteria for providing NCPs had been 
met for medium heavy duty diesel engines, and we proposed NCPs for 
these engines. However, EPA is not taking final action with regard to 
NCPs for these engines at this time because EPA has not completed its 
review of the comments and the technical data regarding establishing 
NCPs for these engines. A full discussion of compliance costs for 
medium heavy-duty engines is contained in Appendix C of the TSD for 
this rule. Parties may provide comments regarding these estimates by 
submitting comments to the docket for this rule.

B. Light Heavy-Duty Diesel NOX Standards

    EPA believes that the first two NCP criteria have been met for the 
2010 NOX standard for light heavy-duty diesel engines. 
However, we have not determined that there is likely to be a 
technological laggard. We are unaware of any manufacturer that will be 
unable to either achieve 0.20 g/bhp-hr for the 2012 and 2013 model year 
or will not have sufficient NOX emission credits to continue 
certifying light heavy-duty engines for the foreseeable future.

C. Heavy-Duty Gasoline Engine Standards

    In a final rule published on January 18, 2001 (66 FR 5001), EPA 
established more stringent emission standards for all heavy-duty 
gasoline (or ``Otto-cycle'') vehicles and engines. These standards took 
two forms: a chassis-based set of standards for complete vehicles under 
14,000 pounds GVWR (the chassis-based program), and an engine-based set 
of standards for all other Otto-cycle heavy-duty engines (the engine-
based program). Each of the two programs has an associated averaging, 
banking, and trading (ABT) program. The new standards generally took 
effect starting with the 2008 model year, and since all manufacturers 
are in compliance with them, the criteria for establishing NCPs has not 
been met and we are not establishing NCPs for gasoline engines or 
vehicles.

D. Heavy-duty Diesel Engine NMHC, CO, and PM Standards

    EPA adopted new NMHC and PM for model year 2007 and later heavy-
duty engines in the same rule that set the 2010 NOX emission 
standard (66 FR 5001, January 18, 2001). The CO standard was not 
changed. We are not establishing NCPs for any of these other standards 
because all manufacturers are already fully compliant with them.

E. Heavy-duty CO2 Standards

    In a final rule published on September 15, 2011 (76 FR 57106), EPA 
established new CO2 emission standards for all heavy-duty 
vehicles and engines. We are not considering NCPs for any of these 
standards at this time because we currently do not have a basis to 
conclude that a technological laggard is likely to develop.
    As proposed, we are adding a new regulatory provision related to 
these CO2 emission standards. The provision prohibits 
generating emission credits for CO2 or any other pollutant 
from engines paying NCPs for NOX. Given the general tradeoff 
between CO2 and NOX emissions, we were concerned 
that a manufacturer capable of meeting the 0.20 g/bhp-hr NOX 
emission standard could choose to pay an NCP in order to generate 
CO2 credits by recalibrating its engines for higher 
NOX emissions and lower CO2. There are two 
reasons this would be inappropriate. It would not be consistent with 
either the purpose of the CO2 credit program (to provide an 
incentive for manufacturers to take technological and other efforts to 
over comply with the CO2 standard) and would not be 
consistent with the purpose of the NCP program (to provide relief to 
manufacturers that fail to achieve the standard on time for 
technological reasons, not for other reasons such as the economic 
benefit of generating CO2 credits by voluntarily increasing 
emissions of NOX).

IX. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is a ``significant regulatory action'' because it raises novel 
legal and policy issues. Accordingly, EPA submitted this action to the 
Office of Management and Budget (OMB) for review under Executive Orders 
12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in 
response to OMB recommendations have been documented in the docket for 
this action.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
It only updates the penalty amounts to correspond to the current 
emission standards. However, the Office of Management and Budget (OMB) 
has previously approved the information collection requirements 
contained in the existing regulations 40 CFR part 86,

[[Page 54400]]

subpart L under the provisions of the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq. and has assigned OMB control number 2060-0132. The 
OMB control numbers for EPA's regulations in 40 CFR are listed in 40 
CFR part 9.

C. Regulatory Flexibility Act

(1) Overview
    The Regulatory Flexibility Act generally requires an agency to 
prepare a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements under the Administrative Procedure 
Act or any other statute, unless the agency certifies that the rule 
will not have a significant economic impact on a substantial number of 
small entities. Small entities include small businesses, small 
organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of these rules on small 
entities, small entity is defined as: (1) a small business as defined 
by SBA regulations at 13 CFR 121.201; (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.
(2) Summary of Potentially Affected Small Entities
    After considering the economic impacts of this rule on small 
entities, I certify that this action will not have a significant impact 
on a substantial number of small entities.
    When these emission standards were established, the final 
rulemaking (66 FR 5001, January 18, 2001) noted that we were not aware 
of ``any manufacturers of heavy-duty engines that meet SBA's definition 
of a small business.'' Based on an updated assessment, EPA has 
identified a total of about 14 manufacturers that produce diesel cycle 
heavy-duty motor vehicle engines. Of these, none of these are small 
businesses that are producing engines with NOX emissions 
above 0.20 g/bhp-hr. Based on this, we are certifying that this rule 
will not have a significant economic impact on a substantial number of 
small entities.
(3) Conclusions
    I therefore certify that this Final Rule will not have a 
significant economic impact on a substantial number of small entities.

D. Unfunded Mandates Reform Act

    This rule does not contain a Federal mandate that may result in 
expenditures of $100 million or more for State, local, and tribal 
governments, in the aggregate, or the private sector in any one year. 
The agency has determined that this action does not contain a Federal 
mandate that may result in expenditures of $100 million or more for the 
private sector in any one year. Because the use of NCPs is optional, 
manufacturers have the flexibility and will likely choose whether or 
not to use NCPs based on their ability to comply with emissions 
standards. The availability of NCPs provides manufacturers with a third 
alternative: to continue production and introduce into commerce upon 
payment of a penalty an engine that exceeds the standard until an 
emission conformance technique is developed. Therefore, NCPs represent 
a regulatory mechanism that allows affected manufacturers to have 
increased flexibility. Thus, this action is not subject to the 
requirements of sections 202 or 205 of the UMRA. This action is also 
not subject to the requirements of section 203 of the UMRA because it 
contains no regulatory requirements that might significantly or 
uniquely affect small governments.

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.''
    This action 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. These rules will apply to 
manufacturers of on-highway engines and not to state or local 
governments. Thus, Executive Order 13132 does not apply to this action.

F. Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments)

    This Final Rule does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). This rule will 
be implemented at the Federal level and impose compliance costs only on 
engine manufacturers who elect to use the NCP regulatory flexibility to 
comply with emissions standards. Tribal governments would be affected 
only to the extent they purchase and use engines and vehicles to which 
an NCP has been applied. Thus, Executive Order 13175 does not apply to 
this rule.

G. Executive Order 13045: Protection of Children From Environmental 
Health Risks 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, the agency must evaluate the environmental health or 
safety effects of the planned rule on children, and explain why the 
planned regulation is preferable to other potentially effective and 
reasonably feasible alternatives considered by the agency.
    EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that are based on health or safety risks, such that 
the analysis required under section 5-501 of the Order has the 
potential to influence the regulation. This rule is not subject to 
Executive Order 13045 because it does not establish an environmental 
standard intended to mitigate health or safety risks.

H. Executive Order 13211 (Energy Effects)

    This action is not a ``significant energy action'' as defined in 
Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy. We have concluded that any energy 
impacts of this rule will be small because:
     The NCPs will be used for a limited duration.
     This rule will affect a small number of heavy duty 
vehicles relative to the total in-use fleet.
     The per-vehicle impact of this rule will be small.

[[Page 54401]]

I. National Technology Transfer Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs the agencies to use voluntary consensus standards in its 
regulatory activities unless to do 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. NTTAA directs EPA to 
provide Congress, through OMB, explanations when the EPA decides not to 
use available and applicable voluntary consensus standards.
    This rule does not involve technical standards. Therefore, EPA is 
not considering the use of any voluntary consensus standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    Executive Order 12898 (59 FR 7629, February 16, 1994) establishes 
federal executive policy on environmental justice. Its main provision 
directs federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States.
    EPA has determined that this action will not have 
disproportionately high and adverse human health or environmental 
effects on minority or low-income populations. The overall 
environmental impacts of this action are expected to be small and of 
limited duration. Moreover, there is no reason to believe that trucks 
using NCP engines will be more likely to operate near any minority or 
low-income populations than other trucks.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register.
Nonconformance Penalties for On-highway Heavy-Duty Diesel Engines
    Major rule cannot take effect until 60 days after it is published 
in the Federal Register. This action is not a ``major rule'' as defined 
by 5 U.S.C. 804(2). This rule will be effective September 5, 2012.

X. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls in these rules is 
found in CAA sections 202 and 206(g), of the CAA, 42 U.S.C. 7521 and 
7525(g).

List of Subjects in 40 CFR Part 86

    Administrative practice and procedure, Confidential business 
information, Motor vehicle pollution, Reporting and recordkeeping 
requirements.

    Dated: August 30, 2012.
Lisa P. Jackson,
Administrator.
    For the reasons set forth in the preamble, the Environmental 
Protection Agency is amending 40 CFR chapter I of the Code of Federal 
Regulations as follows:

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

0
1. The authority citation for part 86 continues to read as follows:

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

Subpart L--[Amended]

0
2. Section 86.1103-87 is revised to read as follows:


Sec.  86.1103-87  Criteria for availability of nonconformance 
penalties.

    (a) EPA shall establish for each subclass of heavy-duty engines and 
heavy-duty vehicles (other than motorcycles), an NCP for a motor 
vehicle pollutant, when any new or revised emission standard is more 
stringent than the previous standard for the pollutant, or when an 
existing standard for that pollutant becomes more difficult to achieve 
because of a new or revised standard, provided that EPA finds:
    (1) That for such subclass of engines or vehicles, substantial work 
is required to meet the standard for which the NCP is offered, and
    (2) That there is likely to be a technological laggard.
    (b) Substantial work, as used in paragraph (a)(1) of this section, 
means the application of technology that was not generally used in an 
engine or vehicle class or subclass to meet standards prior to the 
implementation of the new or revised standard, or the significant 
modification of existing technology or design parameters, needed to 
bring the vehicle or engine into compliance with either the more 
stringent new or revised standard or an existing standard which becomes 
more difficult to achieve because of a new or revised standard. 
Substantial work is determined by the total amount of work required to 
meet the standard for which the NCP is offered, compared to the 
previous standard, irrespective of when EPA establishes the NCP.

0
3. Section 86.1104-91 is revised to read as follows:


Sec.  86.1104-91  Determination of upper limits.

    EPA shall set a separate upper limit for each phase of NCPs and for 
each service class.
    (a) Except as provided in paragraphs (b), (c), and (d) of this 
section, the upper limit shall be set as follows:
    (1) The upper limit applicable to a pollutant emission standard for 
a subclass of heavy-duty engines or heavy-duty vehicles for which an 
NCP is established in accordance with Sec.  86.1103-87, shall be the 
previous pollutant emission standard for that subclass.
    (2) If a manufacturer participates in any of the emissions 
averaging, trading, or banking programs, and carries over certification 
of an engine family from the prior model year, the upper limit for that 
engine family shall be the family emission limit of the prior model 
year, unless the family emission limit is less than the upper limit 
determined in paragraph (a) of this section.
    (b) If no previous standard existed for the pollutant under 
paragraph (a) of this section, the upper limit will be developed by EPA 
during rulemaking.
    (c) EPA may set the upper limit during rulemaking at a level below 
the level specified in paragraph (a) of this section if we determine 
that a lower level is achievable by all engines or vehicles in that 
subclass.
    (d) EPA may set the upper limit at a level above the level 
specified in paragraph (a) of this section if we determine that the 
such level will not be achievable by all engines or vehicles in that 
subclass.

0
4. Section 86.1105-87 is amended by revising paragraph (e) and adding 
paragraph (j) to read as follows:

[[Page 54402]]

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

* * * * *
    (e) The values of COC50, COC90, and 
MC50 in paragraphs (a) and (b) of this section are expressed 
in December 1984 dollars. The values of COC50, 
COC90, and MC50 in paragraphs (c) and (d) of this 
section are expressed in December 1989 dollars. The values of 
COC50, COC90, and MC50 in paragraph 
(f) of this section are expressed in December 1991 dollars. The values 
of COC50, COC90, and MC50 in 
paragraphs (g) and (h) of this section are expressed in December 1994 
dollars. The values of COC50, COC90, and 
MC50 in paragraph (i) of this section are expressed in 
December 2001 dollars. The values of COC50, 
COC90, and MC50 in paragraph (j) of this section 
are expressed in December 2011 dollars. These values shall be adjusted 
for inflation to dollars as of January of the calendar year preceding 
the model year in which the NCP is first available by using the change 
in the overall Consumer Price Index, and rounded to the nearest whole 
dollar in accordance with ASTM E29-67 (reapproved 1980), Standard 
Recommended Practice for Indicating Which Places of Figures Are To Be 
Considered Significant in Specified Limiting Values. This method was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. This document is available from ASTM 
International, 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, 
PA 19428-2959, and is also available for inspection as part of Docket 
A-91-06, located at the U.S. EPA, Air and Radiation Docket and 
Information Center, 1301 Constitution Ave. NW., Room 3334, EPA West 
Building, Washington, DC 20004, (202) 202-1744 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/cfr/ibr-locations.html. This 
incorporation by reference was approved by the Director of the Federal 
Register on January 13, 1992. These materials are incorporated as they 
exist on the date of the approval and a notice of any change in these 
materials will be published in the Federal Register.
* * * * *
    (j) Effective in the 2012 and later model years, NCPs will be 
available for the following emission standard:
    (1) Diesel heavy-duty engine oxides of nitrogen standard of 0.20 
grams per brake horsepower-hour in Sec.  86.007-11(a)(1)(i).
    (i) [Reserved].
    (ii) For heavy heavy-duty diesel engines:
    (A) The following values shall be used to calculate an NCP in 
accordance with Sec.  86.1113-87(a):
    (1) COC50: $3,219.
    (2) COC90: $3,775.
    (3) MC50: $10,729 per gram per brake horsepower-hour 
NOX.
    (4) F: 1.173.
    (5) UL: 0.50 grams per brake horsepower-hour NOX.
    (B) The following factor shall be used to calculate the engineering 
and development component of the NCP for the standard set forth in 
Sec.  86.007-11(a)(1)(i) in accordance with Sec.  86.1113-87(h): 0.005.
    (2) Manufacturers may not generate emission credits for any 
pollutant from engines for which the manufacturer pays an NCP for the 
NOX standard identified in paragraph (j)(1) of this section.
    (3) The penalty shall be adjusted annually as specified in Sec.  
86.1113-87 with 2012 as the first year. Note that this means 
AAF2012 is equal to 1.

0
5. Section 86.1113-87 is amended by revising paragraph (g)(1) to read 
as follows:


Sec.  86.1113-87  Calculation and payment of penalty.

* * * * *
    (g)(1) Except as provided in paragraph (g)(2) of this section, the 
nonconformance penalty or penalties assessed under this subpart must be 
paid as follows:
    (i) By the quarterly due dates, i.e., within 30 days of the end of 
each calendar quarter (March 31, June 30, September 30 and December 
31), or according to such other payment schedule as the Administrator 
may approve pursuant to a manufacturer's request, for all nonconforming 
engines or vehicles produced by a manufacturer in accordance with 
paragraph (b) of this section and distributed into commerce for that 
quarter.
    (ii) The penalty shall be payable to U.S. Environmental Protection 
Agency, NCP Fund, Motor Vehicle and Engine Compliance Program, P.O. Box 
979032St. Louis, MO 63197-9000. Note on the check and supporting 
information that this is an NCP payment.
* * * * *
[FR Doc. 2012-21967 Filed 9-4-12; 8:45 am]
BILLING CODE P