[Federal Register Volume 69, Number 124 (Tuesday, June 29, 2004)]
[Rules and Regulations]
[Pages 38958-39273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11293]
[[Page 38957]]
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Part II
Environmental Protection Agency
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40 CFR Parts 9, 69, et al.
Control of Emissions of Air Pollution From Nonroad Diesel Engines and
Fuel; Final Rule
Federal Register / Vol. 69, No. 124 / Tuesday, June 29, 2004 / Rules
and Regulations
[[Page 38958]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 9, 69, 80, 86, 89, 94, 1039, 1048, 1051, 1065, and
1068
[OAR-2003-0012; FRL-7662-4]
RIN 2060-AK27
Control of Emissions of Air Pollution From Nonroad Diesel Engines
and Fuel
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: Nonroad diesel engines contribute considerably to our nation's
air pollution. These engines, used primarily in construction,
agricultural, and industrial applications, are projected to continue to
contribute large amounts of particulate matter, nitrogen oxides, and
sulfur oxides, all of which contribute to serious public health
problems in the United States. These problems include premature
mortality, aggravation of respiratory and cardiovascular disease,
aggravation of existing asthma, acute respiratory symptoms, chronic
bronchitis, and decreased lung function. We believe that diesel exhaust
is likely to be carcinogenic to humans by inhalation.
Today, EPA is adopting new emission standards for nonroad diesel
engines and sulfur reductions in nonroad diesel fuel that will
dramatically reduce harmful emissions and will directly help States and
local areas recently designated as 8-hour ozone nonattainment areas to
improve their air quality. This comprehensive national program
regulates nonroad diesel engines and diesel fuel as a system. New
engine standards will begin to take effect in the 2008 model year,
phasing in over a number of years. These standards are based on the use
of advanced exhaust emission control devices. We estimate particulate
matter reductions of 95 percent, nitrogen oxides reductions of 90
percent, and the virtual elimination of sulfur oxides from nonroad
engines meeting the new standards. Nonroad diesel fuel sulfur
reductions of more than 99 percent from existing levels will provide
significant health benefits as well as facilitate the introduction of
high-efficiency catalytic exhaust emission control devices as these
devices are damaged by sulfur. These fuel controls will be phased-in
starting in mid-2007. Today's nonroad final rule is largely based on
the Environmental Protection Agency's 2007 highway diesel program.
To better ensure the benefits of the standards are realized in-use
and throughout the useful life of these engines, we are also adopting
new test procedures, including not-to-exceed requirements, and related
certification requirements. The rule also includes provisions to
facilitate the transition to the new engine and fuel standards and to
encourage the early introduction of clean technologies and clean
nonroad diesel fuel. We have also developed provisions for both the
engine and fuel programs designed to address small business
considerations.
The requirements in this rule will result in substantial benefits
to public health and welfare through significant reductions in
emissions of nitrogen oxides and particulate matter, as well as
nonmethane hydrocarbons, carbon monoxide, sulfur oxides, and air
toxics. We are now projecting that by 2030, this program will reduce
annual emissions of nitrogen oxides and particulate matter by 738,000
and 129,000 tons, respectively. These emission reductions will prevent
12,000 premature deaths, over 8,900 hospitalizations, and almost a
million work days lost, and will achieve other quantifiable benefits
every year. The total benefits of this rule will be approximately $80
billion annually by 2030. The substantial health and welfare benefits
we are projecting for this final action exceed those we anticipated at
the time of this proposal. Costs for both the engine and fuel
requirements will be many times less, at approximately $2 billion
annually.
DATES: This final rule is effective on August 30, 2004.
The incorporation by reference of certain publications listed in
this regulation is approved by the Director of the Federal Register as
of August 30, 2004.
ADDRESSES: EPA has established a docket for this action under Docket ID
Nos. OAR-2003-0012 and A-2001-28. All documents in the docket are
listed in the EDOCKET index at http://www.epa.gov/edocket. Although
listed in the index, some information is not publicly available, i.e.,
CBI or other information whose disclosure is restricted by statute.
Certain other material, such as copyrighted material, is not placed on
the Internet and will be publicly available only in hard copy form.
Publicly available docket materials are available either electronically
in EDOCKET or in hard copy at the Air Docket in the EPA Docket Center,
EPA/DC, EPA West, Room B102, 1301 Constitution Ave., NW, Washington,
DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday
through Friday, excluding legal holidays. The telephone number for the
Public Reading Room is (202) 566-1744, and the telephone number for the
Air Docket is (202) 566-1742.
FOR FURTHER INFORMATION CONTACT: Carol Connell, Assessment and
Standards Division, Office of Transportation and Air Quality,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; telephone number: (734) 214-4349; fax number: (734) 214-4050; e-
mail address: [email protected], or Assessment and Standards
Division Hotline; telephone number: (734) 214-4636; e-mail address:
[email protected].
SUPPLEMENTARY INFORMATION:
Does This Action Apply To Me?
This action may affect you if you produce or import new diesel
engines which are intended for use in nonroad vehicles or equipment,
such as agricultural and construction equipment, or if you produce or
import such nonroad vehicles or equipment. It may also affect you if
you convert nonroad vehicles or equipment, or the engines used in them,
to use alternative fuels. It may also affect you if you produce,
import, distribute, or sell nonroad diesel fuel.
The following table gives some examples of entities that may have
to follow the regulations. But because these are only examples, you
should carefully examine the regulations in 40 CFR parts 80, 89, 1039,
1065, and 1068. If you have questions, call the person listed in the
FOR FURTHER INFORMATION CONTACT section of this preamble:
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Examples of
Category NAICS SIC potentially
codes\a\ codes\b\ regulated entities
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Industry.................... 333618 3519 Manufacturers of new
nonroad diesel
engines.
Industry.................... 333111 3523 Manufacturers of
farm machinery and
equipment.
Industry.................... 333112 3524 Manufacturers of
lawn and garden
tractors (home).
Industry.................... 333924 3537 Manufacturers of
industrial trucks.
Industry.................... 333120 3531 Manufacturers of
construction
machinery.
[[Page 38959]]
Industry.................... 333131 3532 Manufacturers of
mining machinery
and equipment.
Industry.................... 333132 3533 Manufacturers of oil
and gas field
machinery and
equipment.
Industry.................... 811112 7533 Commercial importers
of vehicles and
vehicle components.
811198 7549 ....................
Industry.................... 324110 2911 Petroleum refiners.
Industry.................... 422710 5171 Diesel fuel
marketers and
distributors.
422720 5172 ....................
Industry.................... 484220 4212 Diesel fuel
carriers.
484230 4213 ....................
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Notes:
\a\ North American Industry Classification System (NAICS).
\b\ Standard Industrial Classification (SIC) system code.
How Can I Get Copies of This Document and Other Related Information?
Docket. EPA has established an official public docket for this
action under Docket ID No. OAR-2003-0012 at http://www.epa.gov/edocket.
The official public docket consists of the documents specifically
referenced in this action, any public comments received, and other
information related to this action. Although a part of the official
docket, the public docket does not include Confidential Business
Information (CBI) or other information whose disclosure is restricted
by statute. The official public docket is the collection of materials
that is available for public viewing at the Air Docket in the EPA
Docket Center, (EPA/DC) EPA West, Room B102, 1301 Constitution Ave.,
NW, Washington, DC. The EPA Docket Center Public Reading Room is open
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal
holidays. The telephone number for the Reading Room is (202) 566-1742,
and the telephone number for the Air Docket is (202) 566-1742.
Electronic Access. You may access this Federal Register document
electronically through the EPA Internet under the ``Federal Register''
listings at http://www.epa.gov/fedrgstr/.
An electronic version of the public docket is available through
EPA's electronic public docket and comment system, EPA Dockets. You may
use EPA Dockets at http://www.epa.gov/edocket/ to view public comments,
access the index listing of the contents of the official public docket,
and to access those documents in the public docket that are available
electronically. Although not all docket materials may be available
electronically, you may still access any of the publicly available
docket materials through the docket facility identified above. Once in
the system, select ``search,'' then key in the appropriate docket
identification number.
Outline of This Preamble
I. Overview
A. What Is EPA Finalizing?
B. Why Is EPA Taking This Action?
II. Nonroad Engine Standards
A. What Are the New Engine Standards?
B. Are the New Standards Feasible?
C. Why Do We Need 15ppm Sulfur Diesel Fuel?
III. Requirements for Engine and Equipment Manufacturers
A. Averaging, Banking, and Trading
B. Transition Provisions for Equipment Manufacturers
C. Engine and Equipment Small Business Provisions (SBREFA)
D. Certification Fuel
E. Temporary In-Use Compliance Margins
F. Test Cycles
G. Other Test Procedure Issues
H. Engine Power
I. Auxiliary Emission Control Devices and Defeat Devices
J. Not-To-Exceed Requirements
K. Investigating and Reporting Emission-Related Defects
L. Compliance With the Phase-In Provisions
M. Incentive Program for Early or Very Low Emission Engines
N. Labeling and Notification Requirements
O. General Compliance
P. Other Issues
Q. Highway Engines
R. Changes That Affect Other Engine Categories
IV. Our Program for Controlling Nonroad, Locomotive and Marine
Diesel Fuel Sulfur
A. Nonroad, Locomotive and Marine Diesel Fuel Quality Standards
B. Hardship Relief Provisions for Qualifying Refiners
C. Special Provisions for Alaska and the Territories
D. NRLM Diesel Fuel Program Design
E. How Are State Diesel Fuel Programs Affected by the Sulfur
Diesel Program?
F. Technological Feasibility of the 500 and 15 ppm Sulfur Diesel
Fuel Program
G. What Are the Potential Impacts of the 15 ppm Sulfur Diesel
Program on Lubricity and Other Fuel Properties?
H. Refinery Air Permitting
V. Nonroad, Locomotive and Marine Diesel Fuel Program: Details of
the Compliance and Enforcement Provisions
A. Special Fuel Provisions and Exemptions
B. Additional Requirements for Refiners and Importers
C. Requirements for Parties Downstream of the Refinery or Import
Facility
D. Diesel Fuel Sulfur Sampling and Testing Requirements
E. Selection of the Marker for Heating Oil
F. Fuel Marker Test Method
G. Requirements for Record-keeping, Reporting, and PTDs
H. Liability and Penalty Provisions for Noncompliance
I. How Will Compliance With the Sulfur Standards Be Determined?
VI. Program Costs and Benefits
A. Refining and Distribution Costs
B. Cost Savings to the Existing Fleet From the Use of Low Sulfur
Fuel
C. Engine and Equipment Cost Impacts
D. Annual Costs and Cost Per Ton
E. Do the Benefits Outweigh the Costs of the Standards?
F. Economic Impact Analysis
VII. Alternative Program Options Considered
A. Summary of Alternatives
B. Introduction of 15 ppm Nonroad Diesel Sulfur Fuel in One Step
C. Applying the 15 ppm Sulfur Cap to Locomotive and Marine
Diesel Fuel
D. Other Alternatives
VIII. Future Plans
A. Technology Review
B. Test Procedure Issues
C. In-use Testing
D. Engine Diagnostics
E. Future NOX Standards for Engines in Mobile
Machinery Over 750 hp
F. Emission Standards for Locomotive and Marine Diesel Engines
G. Retrofit Programs
H. Reassess the Marker Specified for Heating Oil
IX. Public Participation
X. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5
U.S.C. 601 et. seq
D. Unfunded Mandates Reform Act
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children from
Environmental Health and Safety Risks
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H. Executive Order 13211: Actions That Significantly Affect
Energy Supply, Distribution, or Use
I. National Technology Transfer Advancement Act
J. Congressional Review Act
XI. Statutory Provisions and Legal Authority
I. Overview
EPA today is completing the third recent major program to reduce
emissions from the nation's mobile sources. Today's final rule
establishes standards for nonroad diesel engines and fuel and builds on
the recently adopted Tier 2 program for cars and light trucks and the
2007 highway diesel program for on-highway diesel engines. These three
programs have in common large reductions in sulfur levels in fuel that
will not only achieve public health benefits but also facilitate the
introduction of advanced emissions control technologies. In 1996,
emissions from land-based nonroad, marine, and locomotive diesel
engines were estimated to be about 40 percent of the total mobile
source inventory of PM2.5 (particulate matter less than 2.5
microns in diameter) and 25 percent of the NOX (nitrogen
oxides) inventory. Without today's final rule, these contributions
would be expected to grow to 44 percent and 47 percent by 2030 for
PM2.5 and NOX, respectively. By themselves, land-
based nonroad diesel engines are a very large part of the diesel mobile
source PM2.5 inventory, contributing about 47 percent in
1996, and growing to 70 percent of this inventory by 2020 without
today's final rule. In order to meet the Clean Air Act's goal of
cleaning up the nation's air, emissions reductions from the nonroad
sector are necessary.
This program begins to get important emission reductions in 2008,
and by 2030 we estimate that this program will reduce over 129,000 tons
PM2.5 and 738,000 tons of NOX annually. These
emission reductions will be directly helpful to the 474 counties
nationwide that have been recently designated as nonattainment areas
for the 8-hour ozone standard and for counties that will be designated
as nonattainment for PM2.5 later this year. The resulting
ambient PM2.5 and NOX reductions correspond to
public health improvements in 2030 including approximately 12,000 fewer
premature mortalities, 15,000 fewer heart attacks, 1 million fewer lost
days of work due to adults with respiratory symptoms, 5.9 million fewer
days when adults have to restrict their activities due to respiratory
symptoms, and almost 6,000 emergency room visits for asthma attacks in
children. Our projections in this final rule for public health and
welfare improvements are greater than estimated at proposal.
This final rule sets out emission standards for nonroad diesel
engines--engines used mainly in construction, agricultural, industrial
and mining operations--that will achieve reductions in PM and
NOX emissions levels in excess of 95 percent and 90 percent
respectively. This action also regulates nonroad diesel fuel for the
first time by reducing sulfur levels in this fuel more than 99 percent
to 15 parts per million (ppm). These provisions mirror those already in
place for highway diesel engines, which will lead to the introduction
of 15 ppm sulfur diesel fuel, followed by stringent engine standards in
that sector beginning in 2007 based on advanced aftertreatment
technologies. We believe it is highly appropriate to bring the same
types of expected advanced aftertreatment technologies to the nonroad
market as soon as possible and we believe today's nonroad fuel and
engine program represents the next step in a feasible progression in
the application of clean technologies to nonroad diesel engines and the
associated diesel fuel.
As we did with the proposed nonroad rulemaking, we followed
specific principles when developing this final rule. First, the program
achieves reductions in NOX, sulfur oxides (SOX),
and PM emissions as early as possible. Second, it does so by
implementing the fuel program as soon as possible while at the same
time not interfering with the implementation and expected benefits of
introducing ultra low sulfur fuel (diesel fuel containing no greater
than 15 ppm sulfur) in the highway market as required by the 2007
highway diesel rule. Next, we are generally treating vehicles and fuels
as a system, that is promulgating engine and fuel standards in tandem
in order to cost-effectively achieve the greatest emission reductions.
Lastly, the program provides sufficient lead time to allow the
migration of advanced emissions control technologies from the highway
sector to nonroad diesel engines as well as the expansion of ultra low
sulfur diesel fuel production to the nonroad market.
The May 2003 proposed rulemaking culminated a multi-year effort to
develop control strategies for nonroad engines. EPA worked
collaboratively with stakeholders from industry, state and local
government, and public health organizations in putting together its
comprehensive (and widely praised) new engine standards and sulfur fuel
controls. We received about 150,000 comments on the proposal, almost
all of them in support. We held three public hearings on the proposal
and have participated in scores of meetings with commenters in
developing the provisions of today's final rule. An important aspect of
this collaborative development effort has been EPA's coordination with
other governments in helping to further world harmonization of nonroad
engine controls and fuel sulfur levels. Information gathered in these
comments and discussions, taken in context with the principles
described above, has been the basis for our action today.
In summary, this rule sets out engine standards and emission test
procedures (including not-to-exceed requirements) for new nonroad
diesel engines, and sulfur control requirements for diesel fuel used in
land-based nonroad, locomotive, and marine engines (NRLM fuel).
Beginning in 2008, the new Tier 4 engine standards for five power
categories for engines from under 25 horsepower (hp) to above 750
horsepower will be phased in. New engine emissions test procedures will
be phased in along with these new standards to better ensure emissions
control over real-world engine operation and to help provide for
effective compliance determination. The sulfur reductions to land-based
nonroad diesel fuel will be accomplished in two steps, with an interim
step from currently uncontrolled levels to a 500 ppm cap starting in
June, 2007 and the final step to 15 ppm in June, 2010. This change in
fuel quality will directly lead to important health and welfare
benefits associated with the reduced generation of sulfate PM and
SOX. Even more important, introduction of 15 ppm sulfur
nonroad diesel fuel facilitates the introduction of advanced
aftertreatment devices for nonroad engines.
Although we did not propose to control locomotive and marine diesel
fuel sulfur levels to 15 ppm in the NPRM, recognizing the important
environmental and public welfare benefits that such a program could
enable, we have decided to finalize this second step to 15 ppm sulfur
fuel control program for locomotive and marine diesel fuel beginning in
2012. Locomotive and marine diesel fuel will first be reduced from
current uncontrolled levels to a 500 ppm cap starting in June 2007 and
the second step down to a 15 ppm cap will take place in June, 2012.
While we have chosen to reduce sulfur levels in locomotive and marine
diesel fuel to 15 ppm in this rulemaking without adopting corresponding
engine controls, we note that the Agency has already begun work to
promulgate appropriate
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new standards for these engines.\1\ The monetized health and welfare
benefits associated with further sulfur reduction to 15 ppm outweigh
the costs of the sulfur reductions. Also, doing so now allows for the
promulgation of a single integrated fuel program and provides the
refining industry with long term predictability for sulfur control.
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\1\ EPA is issuing an Advanced Notice of Proposed Rulemaking for
locomotive and marine engine standards as part of this effort.
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The requirements in this rule will result in substantial benefits
to public health and welfare and the environment through significant
reductions in NOX and PM as well as nonmethane hydrocarbons
(NMHC), carbon monoxide (CO), SOX, and air toxics. As noted,
by 2030 this program will reduce annual emissions of NOX and
PM by 738,000 and 129,000 tons, respectively. We estimate these annual
emission reductions will prevent 12,000 premature deaths, over 8,900
hospitalizations, 15,000 nonfatal heart attacks, and approximately 1
million days that people miss work because of respiratory symptoms,
among quantifiable benefits. The overall quantifiable benefits will
total $83 billion annually by 2030 using a 3 percent discount rate and
$78 billion using a 7 percent discount rate at a cost of approximately
$2 billion, with a 30-year net present value for the benefits of $805
billion at 3 percent discounting and $352 billion at 7 percent
discounting at a net present value cost of $27 billion at 3 percent
discounting and $14 billion at 7 percent discounting. Clearly the
benefits of this program dramatically outweigh its cost at a ratio of
approximately 40:1 in 2030.
A. What Is EPA Finalizing?
As part of the proposed rulemaking, we set out very detailed
provisions for new engine exhaust emission controls, sulfur limitations
in nonroad and locomotive/marine diesel fuels, test procedures,
compliance requirements, and other information. We also looked at a
number of alternative program options, such as requiring refiners to
reduce sulfur from uncontrolled levels to 15 ppm in one step in 2008.
We continue to believe that the main program options set out in the
proposal are feasible and the most cost-effective requirements, taking
into account other factors such as lead time and interaction with the
highway diesel program, so we are generally adopting the engine and
fuel provisions which we proposed.
1. Nonroad Diesel Engine Emission Standards
Today's action adopts Tier 4 standards for nonroad diesel engines
of all horsepower ratings. These standards are technology-neutral in
the sense that manufacturers are the responsible party in determining
which emission control technologies will be needed to meet the
requirements. Applicable emissions standards are determined by model
year for each of five engine power band categories. For engines less
than 25 hp, we are adopting a new engine standard for PM of 0.30 g/bhp-
hr (grams per brake-horsepower-hour) beginning in 2008, and leaving the
previously-set 5.6 g/bhp-hr combined standard for NMHC+NOX
in place. For engines of 25 to 75 hp, we are adopting standards
reflecting approximately 50 percent reductions in PM control from
today's engines, again applicable beginning in 2008. Then, starting in
2013, standards of 0.02 g/bhp-hr for PM and 3.5 g/bhp-hr for
NMHC+NOX will apply for this power category. For engines of
75 to 175 hp, the standards will be 0.01 g/bhp-hr for PM, 0.30 g/bhp-hr
for NOX and 0.14 g/bhp-hr for NMHC starting in 2012, with
the NOX and NMHC standards phased in over a period of three
to four years in order to address lead time, workload, and feasibility
considerations. These same standards will apply to engines of 175 to
750 hp as well starting in 2011, with a similar phase-in. These PM,
NOX, and NMHC standards and phase-in schedules are similar
in stringency to the 2007 highway diesel standards and are expected to
require the use of high-efficiency aftertreatment systems to ensure
compliance.
For engines above 750 hp, we are requiring PM and NMHC control to
0.075 g/bhp-hr and 0.30 g/bhp-hr, respectively, starting in 2011. More
stringent standards take effect in 2015 with PM standards of 0.02 g/
bhp-hr (for engines used in generator sets) and 0.03 g/bhp-hr (for non-
generator set engines), and an NMHC standard of 0.14 g/bhp-hr. The
NOX standard in 2011 will be 0.50 g/bhp-hr for generator set
engines above 1200 hp, and 2.6 g/bhp-hr for all other engines in the
above 750 hp category. This application of advanced NOX
emission control technologies to generator set engines above 1200 hp
will provide substantial NOX reductions and will occur
earlier than we had proposed in the NPRM. In 2015, the 750-1200 hp
generator set engines will be added to the stringent 0.50 g/bhp-hr
NOX requirement as well. The long-term NOX
standard for engines not used in generator sets (mobile machinery) will
be addressed in a future action (we are currently considering such an
action in the 2007 time frame).
We are also continuing the averaging, banking, and trading
provisions engine manufacturers can use to demonstrate compliance with
the standards. We also are continuing provisions providing
flexibilities which equipment manufacturers may use to facilitate
transition to compliance with the new standards. In addition, we are
including turbocharged diesels in the existing regulation of crankcase
emissions, effective in the same year that the new standards first
apply in each power category.
As discussed at length in the proposal, new test procedures and
compliance provisions, especially the not-to-exceed and transient
tests, are necessary to ensure the benefits of the standards being
adopted today are achieved when the aftertreatment-based standards go
into place. We are therefore adopting the proposed test procedures and
compliance provisions, with slight modifications designed to better
implement the provisions, in today's rule. We continue to believe the
new transient test, cold start transient test, and not-to-exceed test
procedures and standards will all help achieve our goal of emissions
reductions being achieved in actual engine operation.
As noted, the final rule also continues, and in some cases
modifies, existing provisions that will facilitate the transition to
the new engine and fuel standards. Many of these provisions will help
small business engine and equipment manufacturers meet the
requirements. They will also aid manufacturers in managing their
development of engines and equipment that will meet our new standards.
2. Nonroad, Locomotive, and Marine Diesel Fuel Quality Standards
The fuel program requirements are very similar to those included in
the proposal, with two notable exceptions. The first involves the
standards themselves with the inclusion of locomotive and marine diesel
fuel in the 15 ppm standard. The second addresses the compliance
provisions designed to ensure the effectiveness of the program.
We are adopting the two-step approach to sulfur control, with all
land-based nonroad, locomotive, and marine diesel fuel going from
uncontrolled sulfur levels of approximately 3,000 ppm sulfur to 500 ppm
in June, 2007. The interim step will by itself achieve significant PM
and SOX emission reductions with associated important health
benefits as early as is practicable. Then, in June
[[Page 38962]]
2010, the sulfur cap for land-based nonroad engine diesel fuel will be
reduced to the final standard of 15 ppm. Two years later, in 2012, the
15 ppm cap for locomotive and marine engine diesel fuel will go into
effect. The reduction to 15 ppm sulfur provides additional direct
control of PM and SOX emissions and is an enabling
technology for the application of advanced catalyst-based emission
control technologies.
Although we did not propose to control locomotive and marine diesel
fuel to 15 ppm in the NPRM, after careful consideration and reviewing
substantial comments from stakeholders, we have decided to include fuel
used in locomotive and marine applications in the final step to 15 ppm
beginning in 2012. The incremental PM health and welfare benefits
associated with this standard outweigh the costs. The locomotive and
marine diesel fuel program provides a near-term positive impact on
public health and welfare. Also, the 15 ppm sulfur diesel fuel provides
an opportunity that may enable the application of advanced catalyst-
based emission control technologies to locomotive and marine diesel
engines. We are issuing an Advance Notice of Proposed Rulemaking for
locomotive and marine diesel engines that investigates this potential.
Recognizing the value that a locomotive and marine fuel program could
have for public health and welfare, State and local authorities and
public health advocacy organizations provided a large number of
comments encouraging us to take action in this rulemaking to address
emissions from this category.
Including locomotive and marine fuel in the 15 ppm sulfur diesel
fuel pool also simplifies the overall design of the fuel program and
will simplify the distribution of diesel fuel. At the same time, we
have finalized this standard with flexibilities designed specifically
to address fuel program implementation issues raised in the comments.
Noting that sulfur levels in highway diesel fuel will generally be
at or below 15 ppm starting in 2006 and not wanting to reduce the
benefits of introducing this clean fuel, we spent considerable time
developing a compliance assurance scheme for introducing our nonroad
diesel sulfur program to mesh with the highway program requirements. We
initially thought that a ``baseline'' approach essentially requiring
refiners to maintain a constraint on sulfur levels of various
distillate fuels, based on historical production volumes, was the most
appropriate mechanism. Subsequently we learned that the other mechanism
we discussed in the proposal, a ``designate and track'' type approach,
is better suited to address our priorities and commitments for the
nonroad diesel sulfur control program. This approach allows refiners to
designate volumes of nonroad fuel into various categories and these
designations would follow the fuel throughout the distribution system.
We have successfully worked through our enforceability and other
concerns with this approach and are now including it as our compliance
mechanism for the fuel standards of today's program.
B. Why Is EPA Taking This Action?
As we have discussed extensively in both the proposal and today's
action, EPA strongly believes it is appropriate to take steps now to
reduce future emissions from nonroad, locomotive, and marine diesel
engines. Emissions from these engines contribute greatly to a number of
serious air pollution problems and would continue to do so in the
future absent further reduction measures. Such emissions lead to
adverse health and welfare effects associated with ozone, PM,
NOX, SOX, and volatile organic compounds,
including toxic compounds. In addition, diesel exhaust is of specific
concern because it is likely to be carcinogenic to humans by inhalation
as well as posing a hazard from noncancer respiratory effects. Ozone,
NOX, and PM also cause significant public welfare harm such
as damage to crops, eutrophication, regional haze, and soiling of
building materials.
Millions of Americans continue to live in areas with unhealthy air
quality that may endanger public health and welfare. As discussed in
more detail below, there are approximately 159 million people living in
areas that either do not meet the 8-hour ozone National Ambient Air
Quality Standards (NAAQS) or contribute to violations in other counties
as noted in EPA's recent nonattainment designations for part or all of
474 counties. In addition, approximately 65 million people live in
counties where air quality measurements violate the PM2.5
NAAQS. These numbers do not include the tens of millions of people
living in areas where there is a significant future risk of failing to
maintain or achieve the ozone or PM2.5 NAAQS. Federal,
state, and local governments are working to bring ozone and PM levels
into compliance with the NAAQS attainment and maintenance plans and the
reductions included in today's rule will play a critical part in these
actions. Reducing regional emissions of SOX is critical to
this strategy for attaining the PM NAAQS and meeting regional haze
goals in our treasured national parks. SOX levels can
themselves pose a respiratory hazard.
Although controlling air pollution from nonroad diesel exhaust is
challenging, we strongly believe it can be accomplished through the
application of high-efficiency emissions control technologies. As
discussed in much greater detail in section II, very large emission
reductions (in excess of 90 percent) are possible, especially through
the use of catalytic emission control devices installed in the nonroad
equipment's exhaust system and integrated with the engine controls. To
meet the standards being adopted today, application of such
technologies for both PM and NOX control will be needed for
most engines. High-efficiency PM exhaust emission control technology
has been available for several years, and it is the same technology we
expect to be applied to meet the PM standards for highway diesel
engines in 2007. For NOX, we expect the same high-efficiency
technologies being developed for the 2007 highway diesel engine program
will be used to meet our new nonroad requirements. All of these
technologies are dependent on the 15 ppm maximum sulfur levels for
nonroad diesel fuel being adopted today. The fuel control program being
adopted today also yields significant and important reductions in
SOX from these sources.
1. Basis for Action Under the Clean Air Act
Section 213 of the Clean Air Act (``the Act'' or CAA) gives us the
authority to establish emissions standards for nonroad engines and
vehicles. Section 213(a)(3) authorizes the Administrator to set
standards for NOX, volatile organic compounds (VOCs), and CO
which ``standards shall achieve the greatest degree of emission
reduction achievable through the application of technology which the
Administrator determines will be available for the engines or
vehicles.'' As part of this determination, the Administrator must give
appropriate consideration to cost, lead time, noise, energy, and safety
factors associated with the application of such technology. The
standards adopted today for NOX implement this provision.
Section 213(a)(4) authorizes the Administrator to establish standards
to control emissions of pollutants (other than those covered by section
213(a)(3)) which ``may reasonably be anticipated to endanger public
health and welfare.'' Here, the Administrator may promulgate
regulations that are deemed appropriate for new nonroad vehicles and
engines
[[Page 38963]]
which cause or contribute to such air pollution, taking into account
costs, noise, safety, and energy factors. EPA believes the new controls
for PM in today's rule are an appropriate exercise of EPA's discretion
under the authority of section 213(a)(4).
We believe the evidence provided in section II of this preamble and
in the Regulatory Impact Analysis (RIA) indicates that the stringent
emission standards adopted today are feasible and reflect the greatest
degree of emission reduction achievable in the model years to which
they apply. We have given appropriate consideration to costs in
promulgating these standards. Our review of the costs and cost-
effectiveness of these standards indicate that they will be reasonable
and comparable to the cost-effectiveness of other emission reduction
strategies for the same pollutants that have been required or could be
required in the future. We have also reviewed and given appropriate
consideration to the energy factors of this rule in terms of fuel
efficiency and effects on diesel fuel supply, production, and
distribution, as discussed below, as well as any safety factors
associated with these new standards.
The information in this section and chapters 2 and 3 of the RIA
regarding air quality and the contribution of nonroad, locomotive, and
marine diesel engines to air pollution provides strong evidence that
emissions from such engines significantly and adversely impact public
health or welfare. First, as noted earlier, there is a significant risk
that several areas will fail to attain or maintain compliance with the
NAAQS for 8-hour ozone concentrations or the NAAQS for PM2.5
during the period that these new vehicle and engine standards will be
phased into the vehicle population, and that nonroad, locomotive, and
marine diesel engines contribute to such concentrations, as well as to
concentrations of other criteria pollutants. This risk will be
significantly reduced by the standards adopted today, as also noted
above. However, the evidence indicates that some risk remains even
after the reductions achieved by these new controls on nonroad diesel
engines and nonroad, locomotive, and marine diesel fuel. Second, EPA
believes that diesel exhaust is likely to be carcinogenic to humans.
The risk associated with exposure to diesel exhaust includes the
particulate and gaseous components among which are benzene,
formaldehyde, acetaldehyde, acrolein, and 1,3-butadiene, all of which
are known or suspected human or animal carcinogens, or have noncancer
health effects. Moreover, these compounds have the potential to cause
health effects at environmental levels of exposure. Third, emissions
from nonroad diesel engines (including locomotive and marine diesel
engines) contribute to regional haze and impaired visibility across the
nation, as well as to odor, acid deposition, polycyclic organic matter
(POM) deposition, eutrophication and nitrification, all of which are
serious environmental welfare problems.
EPA has already found in previous rules that emissions from new
nonroad diesel engines contribute to ozone and CO concentrations in
more than one area which has failed to attain the ozone and CO NAAQS
(59 FR 31306, June 17, 1994). EPA has also previously determined that
it is appropriate to establish standards for PM from new nonroad diesel
engines under section 213(a)(4), and the additional information on
diesel exhaust carcinogenicity noted above reinforces this finding. In
addition, we have already found that emissions from nonroad engines
significantly contribute to air pollution that may reasonably be
anticipated to endanger public welfare due to regional haze and
visibility impairment (67 FR 68242-68243, Nov. 8, 2002). We find here,
based on the information in this section of the preamble and chapters 2
and 3 of the RIA, that emissions from the new nonroad diesel engines
covered by this final action likewise contribute to regional haze and
to visibility impairment that may reasonably be anticipated to endanger
public welfare. Taken together, these findings indicate the
appropriateness of the nonroad diesel engine standards adopted today
for purposes of section 213(a)(3) and (4) of the Act. These findings
were unchallenged by commenters.
These standards must take effect at ``the earliest possible date
considering the lead time necessary to permit development and
application of the requisite technology,'' giving ``appropriate
consideration'' to cost, energy, and safety.\2\ The compliance dates we
are adopting reflect careful consideration of these factors. The
averaging, banking, and trading (ABT), equipment manufacturer
flexibilities, and phase-in provisions for NOX are elements
in our determination that we have selected appropriate lead times for
the standards.
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\2\ See Clean Air Act section 213(b).
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Section 211(c) of the CAA allows us to regulate fuels where
emission products of the fuel either: (1) Cause or contribute to air
pollution that reasonably may be anticipated to endanger public health
or welfare, or (2) will impair to a significant degree the performance
of any emission control device or system which is in general use, or
which the Administrator finds has been developed to a point where in a
reasonable time it will be in general use were such a regulation to be
promulgated. This rule meets both of these criteria. Sulfur dioxide
(SO2)and sulfate PM emissions from nonroad, locomotive,
marine and diesel vehicles are due to sulfur in diesel fuel. As
discussed above, emissions of these pollutants cause or contribute to
ambient levels of air pollution that endanger public health and
welfare. Control of sulfur to 15 ppm for this fuel through a two-step
program would lead to significant, cost-effective reductions in
emissions of these pollutants. Control of sulfur to 15 ppm in nonroad
diesel fuel will also enable emissions control technology that will
achieve significant, cost-effective reduction in emissions of these
pollutants, as discussed in section I.B.2 below. The substantial
adverse effect of high sulfur levels on the performance of diesel
emission control devices or systems that would be expected to be used
to meet the nonroad standards is discussed in detail in section II.
Control of sulfur to 15 ppm for locomotive and marine diesel fuel, as
with nonroad diesel fuel, will provide meaningful additional benefits
that outweigh the costs. In addition, our authority under section
211(c) is discussed in more detail in Appendix A to chapter 5 of the
RIA.
2. What Is the Air Quality Impact of This Final Rule?
a. Public Health and Environmental Impacts
With this rulemaking, we are acting to extend advanced emission
controls to another major source of diesel engine emissions: Nonroad
land-based diesel engines. This final rule sets out emission standards
for nonroad land-based diesel engines--engines used mainly in
construction, agricultural, industrial and mining operations--that will
achieve reductions in PM and NOX standards in excess of 95
percent and 90 percent, respectively for this class of vehicles. This
action also regulates nonroad diesel fuel for the first time by
reducing sulfur levels in this fuel more than 99 percent to 15 ppm. The
diesel fuel sulfur requirements will decrease PM and SO2
emissions for land-based diesel engines, as well as for three other
nonroad source categories: Commercial marine diesel vessels,
locomotives, and recreational marine diesel engines.
[[Page 38964]]
These sources are significant contributors to atmospheric pollution
of (among other pollutants) PM, ozone and a variety of toxic air
pollutants. In 1996, emissions from these four source categories were
estimated to be 40 percent of the mobile source inventory for
PM2.5 and 25 percent for NOX, and 10 percent and
13 percent of overall emissions for these potential health hazards,
respectively. Without further controls beyond those we have already
adopted, these sources will emit 44 percent of PM2.5 from
mobile sources and 47 percent of NOX emissions from mobile
sources by the year 2030.
Nonroad engines, and most importantly nonroad diesel engines,
contribute significantly to ambient PM2.5 levels, largely
through direct emissions of carbonaceous and sulfate particles in the
fine (and even ultrafine) size range. Nonroad diesels also currently
emit high levels of NOX which react in the atmosphere to
form secondary PM2.5 (namely ammonium nitrate) as well as
ozone. Nonroad diesels also emit SO2 and hydrocarbons which
react in the atmosphere to form secondary PM2.5 (namely
sulfates and organic carbonaceous PM2.5). This section
summarizes key points regarding the nonroad diesel engine contribution
to these pollutants and their impacts on human health and the
environment. EPA notes that we are relying not only on the information
presented in this preamble, but also on the more detailed information
in chapters 2 and 3 of the RIA and technical support documents, as well
as information in the preamble, RIA, and support documents for the
proposed rule.
When fully implemented, this final rule will reduce nonroad
(equipment such as construction, agricultural, and industrial), diesel
PM2.5 and NOX emissions by 95 percent and 90
percent, respectively. It will also virtually eliminate nonroad diesel
SO2 emissions, which amounted to approximately 234,000 tons
in 1996, and would otherwise grow to approximately 326,000 tons by
2020. These dramatic reductions in nonroad emissions are a critical
part of the effort by federal, state and local governments to reduce
the health related impacts of air pollution and to reach attainment of
the NAAQS for PM and ozone, as well as to improve other environmental
effects such as atmospheric visibility. Based on the most recent data
available for this rule, such problems are widespread in the United
States. There are almost 65 million people living in 120 counties with
monitored PM2.5 levels (2000-2002) exceeding the
PM2.5 NAAQS, and 159 million people living in areas recently
designated as exceeding 8-hour ozone NAAQS. Figure I-1 illustrates the
widespread nature of these problems. Shown in this figure are counties
exceeding the PM2.5 NAAQS or designated for nonattainment
with the 8-hour ozone NAAQS plus mandatory Federal Class I areas, which
have particular needs for reductions in atmospheric haze.
Our air quality modeling also indicates that similar conditions are
likely to continue to persist in the future in the absence of
additional controls and that the emission reductions would assist areas
with attainment and future maintenance of the PM and ozone NAAQS.\3\
For example, in 2020, based on emission controls currently adopted, we
project that 66 million people will live in 79 counties with average
PM2.5 levels above 15 micrograms per cubic meter (ug/m\3\).
In 2030, the number of people projected to live in areas exceeding the
PM2.5 standard is expected to increase to 85 million in 107
counties. An additional 24 million people are projected to live in
counties within 10 percent of the standard in 2020, which will increase
to 64 million people in 2030. Furthermore, for ozone, in 2020, based on
emission controls currently adopted, the number of counties violating
the 8-hour ozone standard is expected to decrease to 30 counties where
43 million people are projected to live. Thereafter, exposure to
unhealthy levels of ozone is expected to begin to increase again. In
2030 the number of counties violating the 8-hour ozone NAAQS is
projected to increase to 32 counties where 47 million people are
projected to live. In addition, in 2030, 82 counties where 44 million
people are projected to live will be within 10 percent of violating the
ozone 8-hour NAAQS.
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\3\ Note this analysis does not include the effects of the
proposed Rule to Reduce Interstate Transport of Fine Particulate
Matter and Ozone (Interstate Air Quality Rule). 69 FR 4566 (January
30, 2004). See http://www.epa.gov/interstateairquality/rule.html.
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BILLING CODE 6560-50-P
[[Page 38965]]
[GRAPHIC] [TIFF OMITTED] TR29JN04.000
EPA is still developing the implementation process for bringing the
nation's air into attainment with the PM2.5 and 8-hour ozone
NAAQS. Based on section 172(a) provisions in the Act, designated areas
will need to attain the PM2.5 NAAQS in the 2010 (based on
2007-2009 air quality data) to 2015 (based on 2012 to 2014 air quality
data) time frame, and then be required to maintain the NAAQS
thereafter. Similarly, we expect that most areas covered under subpart
1 and 2 will attain the ozone standard in the 2007 to 2014 time frame,
depending on an area's classification and other factors, and then be
required to maintain the NAAQS thereafter.
Since the emission reductions expected from this final rule would
begin in this same time frame, the projected reductions in nonroad
emissions would be used by states in meeting the PM2.5 and
ozone NAAQS. In their comments on the proposal, states told EPA that
they need nonroad diesel engine reductions in order to be able to meet
and maintain the PM2.5 and ozone NAAQS as well as to make
progress toward visibility requirements.\4\ Furthermore, this action
would ensure that nonroad diesel emissions will continue to decrease as
the fleet turns over in the years beyond 2014; these reductions will be
important for maintenance of the NAAQS following attainment.
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\4\ The following are sample comments from states and state
associations on the proposed rule, which corroborate that this rule
is a critical element in States' NAAQS attainment efforts. Fuller
information can be found in the Summary and Analysis of Comments.
--``Unless emissions from nonroad diesels are sharply reduced,
it is very likely that many areas of the country will be unable to
attain and maintain health-based NAAQS for ozone and PM.'' (STAPPA/
ALAPCO)
--``Adoption of the proposed regulation * * * is necessary for
the protection of public health in California and to comply with air
quality standards * * * The need for 15 ppm sulfur diesel fuel
cannot be overstated.'' (California Air Resources Board)
--``The EPA's proposed regulation is necessary if the West is to
make reasonable progress towards improving visibility in our
nation's Class I areas.'' (Western Regional Air Partnership (WRAP))
--``Attainment of the NAAQS for ozone and PM2.5 is of
immediate concern to the states in the northeast region.* * * Thus,
programs * * * such as the proposed rule for nonroad diesel engines
are essential.'' (NESCAUM)
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Scientific studies show ambient PM is associated with a series of
adverse health effects. These health effects are discussed in detail in
the EPA Criteria Document for PM as well as the draft updates of this
document released in the
[[Page 38966]]
past year.5, 6 EPA's ``Health Assessment Document for Diesel
Engine Exhaust,'' (the ``Diesel HAD'') also reviews health effects
information related to diesel exhaust as a whole including diesel PM,
which is one component of ambient PM.\7\ In the Diesel HAD, we note
that the particulate characteristics in the zone around nonroad diesel
engines are likely to be substantially the same as published air
quality measurements made along busy roadways. This conclusion supports
the relevance of health effects associated with highway diesel engine-
generated PM to nonroad applications.
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\5\ U.S. EPA (1996.) Air Quality Criteria for Particulate
Matter--Volumes I, II, and III, EPA, Office of Research and
Development. Report No. EPA/600/P-95/001a-cF. This material is
available electronically at http://www.epa.gov/ttn/oarpg/ticd.html.
\6\ U.S. EPA (2003). Air Quality Criteria for Particulate
Matter--Volumes I and II (Fourth External Review Draft) This
material is available electronically at http://cfpub.epa.gov/ncea/cfm/partmatt.cfm.
\7\ U.S. EPA (2002). Health Assessment Document for Diesel
Engine Exhaust. EPA/600/8-90/057F Office of Research and
Development, Washington, DC. This document is available
electronically at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=29060.
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As described in these documents, health effects associated with
short-term variation in ambient PM have been indicated by epidemiologic
studies showing associations between exposure and increased hospital
admissions for ischemic heart disease, heart failure, respiratory
disease, including chronic obstructive pulmonary disease (COPD) and
pneumonia. Short-term elevations in ambient PM have also been
associated with increased cough, lower respiratory symptoms, and
decrements in lung function. Additional studies have associated changes
in heart rate and/or heart rhythm in addition to changes in blood
characteristics with exposure to ambient PM. Short-term variations in
ambient PM have also been associated with increases in total and
cardiorespiratory mortality. Studies examining populations exposed to
different levels of air pollution over a number of years, including the
Harvard Six Cities Study and the American Cancer Society Study, suggest
an association between long-term exposure to ambient PM2.5
and premature mortality, including deaths attributed to lung
cancer.\8\, \9\ Two studies further analyzing the Harvard
Six Cities Study's air quality data have also established a specific
influence of mobile source-related PM2.5 on daily mortality
and a concentration-response function for mobile source-associated
PM2.5 and daily mortality. Another recent study in 14 U.S.
cities examining the effect of PM10 (particulate matter less
than 10 microns in diameter) on daily hospital admissions for
cardiovascular disease found that the effect of PM10 was
significantly greater in areas with a larger proportion of
PM10 coming from motor vehicles, indicating that
PM10 from these sources may have a greater effect on the
toxicity of ambient PM10 when compared with other
sources.\10\
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\8\ Dockery, DW; Pope, CA, III; Xu, X; et al. (1993) An
association between air pollution and mortality in six U.S. cities.
N Engl J Med 329:1753-1759.
\9\ Pope, CA, III; Burnett, RT; Calle, EE; et al. (2002) Lung
cancer, cardiopulmonary mortality, and long-term exposure to fine
particulate air pollution. JAMA 287: 1132-1141.
\10\ Janssen, NA; Schwartz J; Zanobetti A; et al. (2002) Air
conditioning and source-specific particles as modifiers of the
effect of PM10 on hospital admissions for heart and lung
disease. Environ Health Perspect 110(1):43-49.
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Of particular relevance to this rule is a recent cohort study which
examined the association between mortality and residential proximity to
major roads in the Netherlands. Examining a cohort of 55 to 69 year-
olds from 1986 to 1994, the study indicated that long-term residence
near major roads, an index of exposure to primary mobile source
emissions (including diesel exhaust), was significantly associated with
increased cardiopulmonary mortality.\11\ Other studies have shown
children living near roads with high truck traffic density have
decreased lung function and greater prevalence of lower respiratory
symptoms compared to children living on other roads.\12\ A recent
review of epidemiologic studies examining associations between asthma
and roadway proximity concluded that some coherence was evident in the
literature, indicating that asthma, lung function decrement,
respiratory symptoms, and other respiratory problems appear to occur
more frequently in people living near busy roads.\13\ As discussed
later, nonroad diesel engine emissions, especially particulate, are
similar in composition to those from highway diesel vehicles. Although
difficult to associate directly with PM2.5, these studies
indicate that direct emissions from mobile sources, and diesel engines
specifically, may explain a portion of respiratory health effects
observed in larger-scale epidemiologic studies. Recent studies
conducted in Los Angeles have illustrated that a substantial increase
in the concentration of ultrafine particles is evident in locations
near roadways, indicating substantial differences in the nature of PM
immediately near mobile source emissions.\14\ For additional
information on health effects, see the RIA.
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\11\ Hoek, G; Brunekreef, B; Goldbohm, S; et al. (2002)
Association between mortality and indicators of traffic-related air
pollution in the Netherlands: a cohort study. Lancet 360(9341):1203-
1209.
\12\ Brunekreef, B; Janssen NA; de Hartog, J; et al. (1997) Air
pollution from traffic and lung function in children living near
motor ways. Epidemiology (8): 298-303.
\13\ Delfino RJ. (2002) Epidemiologic evidence for asthma and
exposure to air toxics: linkages between occupational, indoor, and
community air pollution research. Env Health Perspect Suppl 110(4):
573-589.
\14\ Yifang Zhu, William C. Hinds, Seongheon Kim, Si Shen and
Constantinos Sioutas Zhu Y; Hinds WC; Kim S; et al. (2002) Study of
ultrafine particles near a major highway with heavy-duty diesel
traffic. Atmos Environ 36(27): 4323-4335.
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In addition to its contribution to ambient PM concentrations,
diesel exhaust is of specific concern because it has been judged to
pose a lung cancer hazard for humans as well as a hazard from noncancer
respiratory effects. In this context, diesel exhaust PM is generally
used as a surrogate measure for diesel exhaust. Further, nonroad diesel
engine emissions also contain several substances known or suspected as
human or animal carcinogens, or that have noncancer health effects as
described in the Diesel HAD. Moreover, these compounds have the
potential to cause health effects at environmental levels of exposure.
These other compounds include benzene, 1,3-butadiene, formaldehyde,
acetaldehyde, acrolein, dioxin, and POM. For some of these pollutants,
nonroad diesel engine emissions are believed to account for a
significant proportion of total nation-wide emissions. All of these
compounds were identified as national or regional ``risk drivers'' in
the 1996 NATA.\15\ That is, these compounds pose a significant portion
of the total inhalation cancer risk to a significant portion of the
population. Mobile sources contribute significantly to total emissions
of these air toxics. As discussed in more detail in the RIA, this final
rulemaking will result in significant reductions of these emissions.
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\15\ U.S. EPA (2002). National-Scale Air Toxics Assessment. This
material is available electronically at http://www.epa.gov/ttn/atw/nata/.
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In EPA's Diesel HAD.\16\ diesel exhaust was classified as likely to
be carcinogenic to humans by inhalation at environmental exposures, in
accordance with the revised draft 1996/1999 EPA cancer guidelines. A
number of other agencies (National Institute for Occupational Safety
and Health, the International Agency for Research on Cancer, the World
Health Organization,
[[Page 38967]]
California EPA, and the U.S. Department of Health and Human Services)
have made similar classifications.
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\16\ U.S. EPA (2002). Health Assessment Document for Diesel
Engine Exhaust. EPA/600/8-90/057F Office of Research and
Development, Washington DC. This document is available
electronically at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=29060.
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EPA generally derives cancer unit risk estimates to calculate
population risk more precisely from exposure to carcinogens. In the
simplest terms, the cancer unit risk is the increased risk associated
with average lifetime exposure of 1 ug/m3. EPA concluded in
the Diesel HAD that it is not possible currently to calculate a cancer
unit risk for diesel exhaust due to a variety of factors that limit the
current studies, such as lack of an adequate dose-response relationship
between exposure and cancer incidence.
However, in the absence of a cancer unit risk, the EPA Diesel HAD
sought to provide additional insight into the significance of the
cancer hazard by estimating possible ranges of risk that might be
present in the population. The possible risk range analysis was
developed by comparing a typical environmental exposure level for
highway diesel sources to a selected range of occupational exposure
levels and then proportionally scaling the occupationally observed
risks according to the exposure ratios to obtain an estimate of the
possible environmental risk. A number of calculations are needed to
accomplish this, and these can be seen in the EPA Diesel HAD. The
outcome was that environmental risks from diesel exhaust exposure could
range from a low of 10-4 to 10-5 or be as high as
10-3 this being a reflection of the range of occupational
exposures that could be associated with the relative and absolute risk
levels observed in the occupational studies. Because of uncertainties,
the analysis acknowledged that the risks could be lower than
10-4 or 10-5 and a zero risk from diesel exhaust
exposure was not ruled out. Although the above risk range is based on
environmental exposure levels for highway mobile sources only, the 1996
NATA estimated exposure for nonroad diesel sources as well. Thus, the
exposure estimates were somewhat higher than those used in the risk
range analysis described above. The EPA Diesel HAD, therefore, stated
that the NATA exposure estimates result in a similar risk perspective.
The ozone precursor reductions expected as a result of this rule
are also important because of health and welfare effects associated
with ozone, as described in the Air Quality Criteria Document for Ozone
and Other Photochemical Oxidants. Ozone can irritate the respiratory
system, causing coughing, throat irritation, and/or uncomfortable
sensation in the chest.17, 18 Ozone can reduce lung function
and make it more difficult to breathe deeply, and breathing may become
more rapid and shallow than normal, thereby limiting a person's normal
activity. Ozone also can aggravate asthma, leading to more asthma
attacks that require a doctor's attention and/or the use of additional
medication. In addition, ozone can inflame and damage the lining of the
lungs, which may lead to permanent changes in lung tissue, irreversible
reductions in lung function, and a lower quality of life if the
inflammation occurs repeatedly over a long time period (months, years,
a lifetime). People who are of particular concern with respect to ozone
exposures include children and adults who are active outdoors. Those
people particularly susceptible to ozone effects are people with
respiratory disease, such as asthma, and people with unusual
sensitivity to ozone, and children. Beyond its human health effects,
ozone has been shown to injure plants, which has the effect of reducing
crop yields and reducing productivity in forest
ecosystems.19, 20
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\17\ U.S. EPA (1996). Air Quality Criteria for Ozone and Related
Photochemical Oxidants, EPA/600/P-93/004aF. Docket No. A-99-06.
Document Nos. II-A-15 to 17.
\18\ U.S. EPA (1996). Review of National Ambient Air Quality
Standards for Ozone, Assessment of Scientific and Technical
Information, OAQPS Staff Paper, EPA-452/R-96-007. Docket No. A-99-
06. Document No. II-A-22.
\19\ U.S. EPA (1996). Air Quality Criteria for Ozone and Related
Photochemical Oxidants, EPA/600/P-93/004aF. Docket No. A-99-06.
Document Nos. II-A-15 to 17.
\20\ U.S. EPA (1996). Review of National Ambient Air Quality
Standards for Ozone, Assessment of Scientific and Technical
Information, OAQPS Staff Paper, EPA-452/R-96-007. Docket No. A-99-
06. Document No. II-A-22.
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New research suggests additional serious health effects beyond
those that were known when the 8-hour ozone health standard was set.
Since 1997, over 1,700 new health and welfare studies relating to ozone
have been published in peer-reviewed journals.\21\ Many of these
studies investigate the impact of ozone exposure on such health effects
as changes in lung structure and biochemistry, inflammation of the
lungs, exacerbation and causation of asthma, respiratory illness-
related school absence, hospital and emergency room visits for asthma
and other respiratory causes, and premature mortality. EPA is currently
evaluating these and other studies as part of the ongoing review of the
air quality criteria and NAAQS for ozone. A revised Air Quality
Criteria Document for Ozone and Other Photochemical Oxidants will be
prepared in consultation with EPA's Clean Air Science Advisory
Committee (CASAC). Key new health information falls into four general
areas: Development of new-onset asthma, hospital admissions for young
children, school absence rate, and premature mortality. In all, the new
studies that have become available since the 8-hour ozone standard was
adopted in 1997 continue to demonstrate the harmful effects of ozone on
public health and the need for areas with high ozone levels to attain
and maintain the NAAQS.
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\21\ New Ozone Health and Environmental Effects References,
Published Since Completion of the Previous Ozone AQCD, National
Center for Environmental Assessment, Office of Research and
Development, U.S. Environmental Protection Agency, Research Triangle
Park, NC 27711 (7/2002) Docket No. A-2001-28, Document II-A-79.
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Finally, nonroad diesel emissions contribute to nine categories of
non-health impacts: visibility impairment, soiling and material damage,
acid deposition, eutrophication of water bodies, plant and ecosystem
damage from ozone, water pollution resulting from deposition of toxic
air pollutants with resulting effects on fish and wildlife, and odor.
In particular, EPA determined that nonroad engines contribute
significantly to unacceptable visibility conditions where people live,
work and recreate, including contributing to visibility impairment in
Federally mandated Class I areas that are given special emphasis in the
Clean Air Act (67 FR 68242, November 8, 2002). Visibility is impaired
by fine PM and precursor emissions from nonroad diesel engines subject
to this final rule. Reductions in emissions from this final rule will
improve visibility as well as other environmental outcomes as described
in the RIA.
As supplementary information, we have made estimates using air
quality modeling to illustrate the types of change in future
PM2.5 and ozone levels that we would expect to result from a
final rule like this as described in chapter 2 of the RIA. That
modeling shows that control of nonroad emissions would produce
nationwide air quality improvements in PM2.5 and ozone
levels as well as visibility improvements. On a population-weighted
basis, the average modeled change in future-year PM2.5
annual averages is projected to decrease by 0.42 [mu]g/m\3\ (3.3%) in
2020, and 0.59 [mu]g/m3 (0.6%) in 2030. In addition, the population-
weighted average modeled change in future year design values for ozone
would decrease by 1.8 parts per billion (ppb) in 2020, and 2.5 ppb in
2030. Within areas predicted to violate the ozone NAAQS in the
projected base case, the average decrease would be somewhat higher: 1.9
ppb in 2020 and 3.0 ppb in 2030.
[[Page 38968]]
The PM air quality improvements expected from this final rule are
anticipated to produce major benefits to human health and welfare, with
a combined value in excess of half a trillion dollars between 2007 and
2030. For example, in 2030, we estimate that this program will reduce
approximately 129,000 tons PM2.5 and 738,000 tons of
NOX. The resulting ambient PM reductions correspond to
public health improvements in 2030, including 12,000 fewer premature
mortalities, 15,000 fewer heart attacks, 200,000 fewer asthma
exacerbations in children, and 1 million fewer days when adults miss
work due to their respiratory symptoms, and 5.9 million fewer days when
adults have to restrict their activities due to respiratory symptoms.
The reductions will also improve visibility and reduce diesel odor. For
further details on the economic benefits of this rule, please refer to
the benefit-cost discussion in section VI of this preamble and chapter
9 of the RIA.
b. Emissions From Nonroad Diesel Engines
The engine and fuel standards in this final rule will affect
emissions of direct PM2.5, SO2, NOX,
VOCs, and air toxics for land-based nonroad diesel engines. \22\ For
locomotive, commercial marine vessel (CMV), and recreational marine
vessel (RMV) engines, the final fuel standards will affect direct
PM2.5 and SO2 emissions. Each sub-section below
discusses one of these pollutants,\23\ including expected emission
reductions associated with the final standards.\24\ Table I.B-1
summarizes the impacts of this rule for 2020 and 2030. Further details
on our inventory estimates, including results for other years, are
available in chapter 3 of the RIA.
---------------------------------------------------------------------------
\22\ We are also adopting a few minor adjustments of a technical
nature to current CO standards. Emissions effects from these
standards are discussed in the RIA.
\23\ The estimates of baseline emissions and emissions
reductions from the final rule reported here for nonroad land-based,
recreational marine, locomotive, and commercial marine vessel diesel
engines are based on 50 state emissions inventory estimates. A 48
state inventory was used for air quality modeling that EPA conducted
for this rule, of which Alaska and Hawaii are not a part. In cases
where land-based nonroad diesel engine emissions are compared with
non-mobile source portions of the inventory, we use a 48 state
emissions inventory, to match the 48 state nature of those other
inventories.
\24\ Please see the Summary and Analyses of Comments document
for discussions of issues raised about the emission inventory
estimates during the comment period for the NPRM.
Table I.B-1.--Estimated National (50 State) Reductions in Emissions From
Nonroad Land-Based, Locomotive, Commercial Marine, and Recreational
Marine Diesel Engines
------------------------------------------------------------------------
Pollutant [short tons] 2020 2030
------------------------------------------------------------------------
Direct PM2.5:
PM2.5 Emissions Without Rule.............. 167,000 181,000
PM2.5 Emissions With 500 ppm Sulfur in 144,000 155,000
2007 and No Other Controls...............
PM2.5 Emissions With 15 ppm Sulfur in 2012 141,000 152,000
and No Other Controls....................
PM2.5 Emissions With Entire Rule.......... 81,000 52,000
PM2.5 Reductions Resulting from this Rule. 86,000 129,000
SO2:
SO2 Emissions Without Rule................ 326,000 379,000
SO2 Emisions With 500 ppm Sulfur in 2007.. 37,000 43,000
SO2 Emissions With Entire Rule (15 ppm 3,000 3,000
Sulfur in 2012)..........................
SO2 Reductions Resulting from this Rule... 323,000 376,000
NOX--Land-Based Nonroad Engines Only\a\:
NOX Emissions Without Rule................ 1,125,000 1,199,000
NOX Emissions With Rule................... 681,000 461,000
NOX Reductions Resulting from this Rule... 444,000 738,000
VOC--Land-Based Nonroad Engines Only\a\:
VOC Emissions Without Rule................ 98,000 97,000
VOC Emissions With Rule................... 75,000 63,000
VOC Reductions Resulting from this Rule... 23,000 34,000
------------------------------------------------------------------------
Notes:
\a\ NOX and VOC numbers only include emissions for land-based nonroad
diesel engines because the Tier 4 controls will not be applied to
locomotive, commercial marine, and recreational marine engines; and no
NOX and VOC emission reductions are generated through the lowering of
fuel sulfur levels.
i. Direct PM2.5
As described earlier, the Agency believes that reductions of diesel
PM2.5 emissions are needed as part of the nation's progress
toward clean air. Direct PM2.5 emissions from land-based
nonroad diesel engines amount to increasingly large percentages of
total man-made diesel PM2.5. Between 1996 and 2030, we
estimate that the percentage of total man-made diesel PM2.5
emissions coming from land-based nonroad diesel engines will increase
from about 46 percent to 72 percent (based on a 48 state inventory).
Emissions of direct PM2.5 from land-based nonroad diesel
engines based on a 50 state inventory are shown in table I.B-1, along
with our estimates of the reductions in 2020 and 2030 we expect would
result from our final rule for a PM2.5 exhaust emission
standard and from changes in the sulfur level in land-based nonroad,
locomotive, and marine diesel fuel. Land-based nonroad, locomotive, and
marine diesel fuel sulfur levels will be lowered to about 340 ppm in-
use (500 ppm maximum) in 2007. Land-based nonroad diesel fuel sulfur
will be lowered further to about 11 ppm in-use (15 ppm maximum) in 2010
and locomotive and marine diesel fuel sulfur will be lowered to the
same level in 2012. In addition to PM2.5 emissions estimates
with the final rule, emissions estimates based on lowering diesel fuel
sulfur without any other controls are shown in table I.B-1 for 2020 and
2030.
Figure I.B-1a shows our estimate of PM2.5 emissions
between 2000 and 2030 both without and with the final standards and
fuel sulfur requirements of this rule. We estimate that
PM2.5 emissions from this source would be reduced by 71
percent in 2030.
ii. SO2
We estimate that land-based nonroad, CMV, RMV, and locomotive
diesel engines emitted about 234,000 tons of
[[Page 38969]]
SO2 in 1996, accounting for about 33 percent of the
SO2 from mobile sources (based on a 48 state inventory).
With no reduction in diesel fuel sulfur levels, we estimate that these
emissions will continue to increase, accounting for about 44 percent of
mobile source SO2 emissions by 2030.
As part of this final rule, sulfur levels in fuel will be
significantly reduced, leading to large reductions in nonroad,
locomotive, and marine diesel SO2 emissions. By 2007, the
sulfur in diesel fuel used by all land-based nonroad, locomotive, and
marine diesel engines will be reduced from the current average in-use
level of between 2,300 to 2,400 ppm \25\ to an average in-use level of
about 340 ppm, with a maximum level of 500 ppm. By 2010, the sulfur in
diesel fuel used by land-based nonroad engines will be reduced to an
average in-use level of 11 ppm with a maximum level of 15 ppm. Sulfur
in diesel fuel used by locomotive and marine engines will be reduced to
the same level by 2012. Table II.B-1 and figure II.B-1b show the
estimated reductions from these sulfur changes.
---------------------------------------------------------------------------
\25\ Highway fuel is currently used in a significant fraction of
land based nonroad equipment, locomotives, and marine vessels,
reducing the in-use average sulfur level from about 3,000 ppm for
uncontrolled high-sulfur fuel to 2,300 or 2,400 ppm.
---------------------------------------------------------------------------
iii. NOX
Table I.B-1 shows the 50 state estimated tonnage of NOX
emissions for 2020 and 2030 without the final rule and the estimated
tonnage of emissions eliminated with the final rule in place. These
results are shown graphically in Figure I.E-1c at the end of this
section. We estimate that NOX emissions from these engines
will be reduced by 62 percent in 2030.
We note that the magnitude of NOX reductions determined
in the final rule analysis is somewhat less than what was reported in
the proposal's preamble and RIA, especially in the later years when the
fleet has mostly turned over to Tier 4 designs. The greater part of
this is due to the fact that we have deferred setting a long-term
NOX standard for mobile machinery over 750 horsepower to a
later action. When this future action is completed, we would expect
roughly equivalent reductions between the proposal and the overall
final program, though there are some other effects reflected in the
differing NOX reductions as well, due to updated modeling
assumptions and the adjusted NOX standards levels for
engines over 750 horsepower. Section II.A.4 of this preamble contains a
detailed discussion of the NOX standards we are adopting for
engines over 750 horsepower as well as the basis for those standards.
iv. VOCs and Air Toxics
Based on a 48 state emissions inventory, we estimate that land-
based nonroad diesel engines emitted over 221 thousand tons of VOC in
1996. Between 1996 and 2030, we estimate that land-based nonroad diesel
engines will contribute about 2 to 3 percent of mobile source VOC
emissions. Without further controls, land-based nonroad diesel engines
will emit about 97 thousand tons/year of VOC in 2020 and 2030
nationally.
Table I.B-1 shows our projection of the reductions in 2020 and 2030
for VOC emissions that we expect from implementing the final NMHC
standards. This estimate is based on a 50 state emissions inventory. By
2030, VOC emissions from this category would be reduced by 35 percent
from baseline levels.
While we are not adopting any specific gaseous air toxics standards
in today's rule, air toxics emissions would nonetheless be
significantly reduced through the NMHC standards included in the final
rule. By 2030, we estimate that emissions of air toxics pollutants,
such as benzene, formaldehyde, acetaldehyde, 1,3-butadiene, and
acrolein, would be reduced by 35 percent from land-based nonroad diesel
engines. Diesel PM reductions were discussed above. For specific air
toxics reduction estimates, see chapter 3 of the RIA.
[[Page 38970]]
[GRAPHIC] [TIFF OMITTED] TR29JN04.001
II. Nonroad Engine Standards
In this section we describe the emission standards for nonroad
diesel engines that we are setting to address the serious air quality
problems discussed in section I. These Tier 4 standards, which take
effect starting in 2008, are very similar to those proposed, and obtain
very similar emissions reductions. The long-term PM filter-based
standards that apply to all engines over 25 hp, combined with the fuel
change and new requirements to ensure robust control in the field, will
yield PM reductions of over 95% from the in-use levels of today's
cleanest Tier 2 engines. Likewise, the long-term NOX
standards we are adopting for nearly all engines above 75 hp will yield
NOX reductions of about 90% from the NOX levels
expected from even the low-emitting Tier 3 engines due to first reach
the market in 2006 or later. The Tier 4 standards will bring about
large
[[Page 38971]]
reductions in toxic hydrocarbon emissions as well.
In this final rule we are largely adopting the standards and timing
we proposed, with the exception of those that apply to engines over 750
hp. We restructured and modified the standards and timing for these
engines to address technical concerns and to focus on achieving
comparable emission reductions through the introduction of advanced
technology as early as feasible from specific applications within this
power category. See section II.A.4 for a detailed discussion. We also
are not adopting the proposed minor adjustments to the CO standard
levels for some engines under 75 hp, as explained in section II.A.6. In
addition, there are minor changes from the proposal in the phase-in
approach we are adopting for NOX and NMHC standards, as
detailed in this section.
In this section we discuss:
The Tier 4 engine standards, and the schedule for
implementing them;
The feasibility of the Tier 4 standards (in conjunction
with the low-sulfur nonroad diesel fuel requirement discussed in
section IV); and
How diesel fuel sulfur affects an engine's ability to meet
the new standards.
Additional provisions for engine and equipment manufacturers are
discussed in detail in section III. These include:
The averaging, banking, and trading (ABT) program.
The transition program for equipment manufacturers.
The addition of a ``not-to-exceed'' program to ensure in-
use emissions control. This program includes new emission standards and
related test procedures to supplement the standards discussed in this
section.
The test procedures and other compliance requirements
associated with the emission standards.
Special provisions to aid small businesses in implementing
our requirements.
An incentive program to encourage innovative technologies
and the early introduction of new technologies.
A. What Are the New Engine Standards?
The Tier 4 exhaust emissions standards for PM, NOX, and
NMHC are summarized in tables II.A-1, 2, and 4.\26\ Crankcase emissions
control requirements are discussed in section II.A.7. Previously
adopted CO emission standards continue to apply as well. All of these
standards apply to covered nonroad engines over the useful life periods
specified in our regulations, except where temporary in-use compliance
margins apply as discussed in section III.E. To help ensure that these
emission reductions will be achieved in use, we have adopted test
procedures for measuring compliance with these standards tailored to
both steady-state and transient nonroad engine operating
characteristics. These test procedures are discussed in several
subsections of section III. Another component of our program to ensure
control of emissions in-use is the new ``not-to-exceed'' (NTE) emission
standards and associated test procedures, discussed in section III.J.
---------------------------------------------------------------------------
\26\ Consistent with past EPA rulemakings for nonroad diesel
engines, our regulations express standards, power ratings, and other
quantities in international SI (metric) units--kilowatts, gram per
kilowatt-hour, etc. This aids in achieving harmonization with
standards-setting bodies outside the U.S., and in laboratory
operations in which these units are the norm. However, in this
preamble and in other rulemaking documents for the general reader,
we have chosen to use terms more common in general usage in the U.S.
Hence standards are expressed in units of grams per brake
horsepower-hour, power ratings in horsepower, etc. In any compliance
questions that might arise from differences in these due to, for
example, rounding conventions, the regulations themselves establish
the applicable requirements.
Table II.A-1.--Tier 4 PM Standards (g/bhp-hr) and Schedule
----------------------------------------------------------------------------------------------------------------
Model year
Engine power -----------------------------------------------------------------
2008 2009 2010 2011 2012 2013
----------------------------------------------------------------------------------------------------------------
hp < 25 (kW < 19)............................. \a\ 0.30 ......... ......... ......... ......... .........
25 <= hp < 75 (19 <= kW < 56)................. \b\ 0.22 ......... ......... ......... ......... 0.02
75 <= hp < 175 (56 <= kW < 130)............... ......... ......... ......... ......... 0.01 .........
175 <= hp <= 750 (130 <= kW <= 560)........... ......... ......... ......... 0.01 ......... .........
------------
hp 750 (kW > 560)............................. See table II.A-4
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ For air-cooled, hand-startable, direct injection engines under 11 hp, a manufacturer may instead delay
implementation until 2010 and demonstrate compliance with a less stringent PM standard of 0.45 g/bhp-hr,
subject also to additional provisions discussed in section II.A.3.a.
\b\ A manufacturer has the option of skipping the 0.22 g/bhp-hr PM standard for all 50-75 hp engines. The 0.02 g/
bhp-hr PM standard would then take effect one year earlier for all 50-75 hp engines, in 2012.
Table II.A-2.--Tier 4 NOX and NMHC Standards and Schedule
----------------------------------------------------------------------------------------------------------------
Standard (g/bhp-hr) Phase-in schedule (model year) (percent)
Engine power -----------------------------------------------------------------
NOX NMHC 2011 2012 2013 2014
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75 (19 <= kW < 56)................. 3.5 NMHC+NOX\a\ ......... ......... 100% .........
75 <= hp < 175 (56 <= kW < 130)............... 0.30 0.14 \b\50 \b\50 \b\100
175 <= hp <= 750 (130 <= kW <= 560)........... 0.30 0.14 50 50 50 100
------------
hp > 750 (kW > 560)........................... See table II.A-4
----------------------------------------------------------------------------------------------------------------
Notes: Percentages indicate production required to comply with the Tier 4 standards in the indicated model year.
\a\ This is the existing Tier 3 combined NMHC+NOX standard level for the 50-75 hp engines in this category. In
2013 it applies to the 25-50 hp engines as well.
\b\ Manufacturers may use banked Tier 2 NMHC+NOX credits from engines at or above 50 hp to demonstrate
compliance with the 75-175 hp engine NOX standard in this model year. Alternatively, manufacturers may forego
this special banked credit option and instead meet an alternative phase-in requirement of 25/25/25% in 2012,
2013, and 2014 through December 30, with 100% compliance required beginning December 31, 2014. See sections
III.A and II.A.2.b.
[[Page 38972]]
The long-term 0.01 and 0.02 g/bhp-hr Tier 4 PM standards for 75-750
hp and 25-75 hp engines, respectively, combined with the fuel change
and new requirements to ensure robust control in the field, represent a
reduction of over 95% from in-use levels expected with Tier 2/Tier 3
engines.\27\ The 0.30 g/bhp-hr Tier 4 NOX standard for 75-
750 hp engines represents a NOX reduction of about 90% from
in-use levels expected with Tier 3 engines. Emissions reductions from
engines over 750 hp are discussed in section II.A.4.
---------------------------------------------------------------------------
\27\ Note that we are grouping all standards in this rule,
including those that take effect in 2008, under the general
designation of ``Tier 4 standards.'' As a result, there are no
``Tier 3'' standards in the multi-tier nonroad program for engines
below 50 hp or above 750 hp.
---------------------------------------------------------------------------
In general, there was widespread support in the comments for the
proposed Tier 4 engine standards and for the timing we proposed for
them. Some commenters raised category-specific concerns, especially for
the smaller and the very large engine categories. These comments are
discussed below.
1. Standards Timing
a. 2008 Standards
The timing of the Tier 4 engine standards is closely tied to the
timing of fuel quality changes discussed in section IV, in keeping with
the systems approach we are taking for this program. The earliest Tier
4 engine standards take effect in model year 2008, in conjunction with
the introduction of 500 ppm maximum sulfur nonroad diesel fuel in mid-
2007. This fuel change serves a dual environmental purpose. First, it
provides a large immediate reduction in PM and SOX emissions
for the existing fleet of engines in the field. Second, its widespread
availability by the end of 2007 aids engine designers in employing
emissions controls capable of achieving the Tier 4 standards for model
year 2008 and later engines; this is because the performance and
durability of such technologies as exhaust gas recirculation (EGR) and
diesel oxidation catalysts is improved by lower sulfur fuel.\28\ The
reduction of sulfur in nonroad diesel fuel will also provide sizeable
economic benefits to machine operators as it will reduce wear and
corrosion and will allow them to extend oil change intervals (see
section VI.B). These economic benefits will occur for all diesel
engines using the new fuel, not just for those built in 2008 or later.
---------------------------------------------------------------------------
\28\ ``Nonroad Diesel Emissions Standards Staff Technical
Paper,'' EPA420-R-01-052, October 2001.
---------------------------------------------------------------------------
As we proposed, these 2008 Tier 4 engine standards apply only to
engines below 75 hp. We are not setting Tier 4 standards taking effect
in 2008 for larger engines. The reasons for this differ depending on
the engines' hp rating. Setting Tier 4 2008 standards for engines at or
above 100 hp would provide an insufficient period of stability (an
element of lead time) between Tier \2/3\ and Tier 4, and so would not
be appropriate. This is because these engines become subject to
existing Tier 2 or 3 NMHC+NOX standards in 2006 or 2007.
Setting new 2008 standards for them thus would provide only one or two
years of Tier 2/Tier 3 stability before another round of design changes
would have to be made in 2008 for Tier 4.
It is also inappropriate to establish 2008 Tier 4 standards for
engines of 75-100 hp. The stability issue just noted for larger engines
is not present for these engines, because these engines are subject to
Tier 3 NMHC+NOX standards starting in 2008, so that our
setting a Tier 4 PM standard for them in the same year would not create
the situation in which engines have to be redesigned twice to comply
with new standards within a space of one or two years. However, EPA
believes the more significant concern for these engines is meeting the
stringent aftertreatment-based standards for PM and NOX in
2012. We are concerned that adopting interim 2008 standards for these
engines would divert resources needed to achieve these 2012 standards
and indeed jeopardize attaining them. Thus, although early emission
reductions from these engines in 2008 would of course be desirable, we
felt that the focus we are putting on obtaining much larger reductions
from them in 2012, together with the fact that we already have a Tier 3
NMHC+NOX standard taking effect for 75-100 hp engines in
2008, warrants our not adding additional control requirements for these
engines during this interim period.
We note that the 50-75 hp engines also have a Tier 3
NMHC+NOX standard taking effect in 2008 and, as noted above,
we are setting a new Tier 4 2008 PM standard for them. Unlike the
larger 75-100 hp engines, however, the 50-75 hp engines have one
additional year, until 2013, before filter-based PM standards take
effect, and also have no additional NOX control requirement
being set beyond the 2008 Tier 3 standard. These differences justify
including the interim Tier 4 PM standard for these engines. We note too
that achieving the 2008 PM standard is enabled in part by the large
reduction in certification fuel sulfur that applies in 2008 (see
section III.D). Fuel sulfur has a known correlation to PM generation,
even for engines without aftertreatment. Moreover, for any
manufacturers who believe that accomplishing this PM pull-ahead will
hamper their Tier 3 compliance efforts for these engines, there is an
alternative Tier 4 compliance option. Instead of meeting new Tier 4 PM
standards in both 2008 and 2013, manufacturers may skip the Tier 4 2008
PM standard, and instead focus design efforts on introducing PM filters
for these engines one year earlier, by complying with the
aftertreatment-based standard for PM in 2012. These options are
discussed in more detail in section II.A.3.b.
We view the 2008 portion of the Tier 4 program as highly important
because it provides substantial PM and SOX emissions
reductions during the several years prior to 2011. Initiating Tier 4 in
2008 also fits well with the lead time (including stability), cost, and
technology availability considerations of the overall program.
Initiating the Tier 4 engine standards in 2008 provides three to four
years of stability after the start of Tier 2 for engines under 50 hp.
As mentioned above, it also coincides with the start date of Tier 3
NMHC+NOX standards for 50-75 hp engines and so introduces no
stability issues for these engines (as redesign for both PM and
NOX occurs at the same time). The 2008 start date provides
almost 4 years of lead time to accomplish redesign and testing. The
evolutionary character of the 2008 standards, based as they are on
proven technologies, and the fact that some certified engines already
meet these standards as discussed in section II.B, leads us to conclude
that the standards are appropriate within the meaning of section
213(a)(4) of the Clean Air Act and that we are providing adequate lead
time to achieve those standards.
Engine and equipment manufacturers argued in their comments that
the PM pull-ahead option for 50-75 hp engines is inappropriate because
it constitutes a re-opening of the Tier 3 rule, involving as it does a
Tier 4 PM standard in 2008, the same year that the Tier 3
NMHC+NOX takes effect. They further argued that the non-
pull-ahead option is not a real option because PM aftertreatment cannot
be implemented for these engines in 2012.
We disagree with both contentions. We determined, as part of our
feasibility analysis for Tier 4, that it is feasible to design engines
to meet the 2008 PM standard in the same year that a Tier 3
NMHC+NOX standard takes effect. See section II.B and RIA
sections 4.1.4 and 4.1.5. One reason is that a substantial
[[Page 38973]]
part of the 2008 PM emission reductions do not result from engine
redesign, but rather are due to the reduction in certification test
fuel maximum sulfur levels from 2000 to 500 ppm that results from the
fuel change in the field. This reduction in sulfur levels also aids
engine designers in employing emission control technologies that are
detrimentally affected by sulfur, not only for PM control, but also for
NMHC and NOX control. Examples of these sulfur-sensitive
technologies are oxidation catalysts, which can substantially reduce PM
and NMHC, and EGR, which is effective at reducing NOX. We
note further that designing engines to meet the 2008 PM standard is
also made less difficult by our not requiring engine designers to
consider the transient test, cold start, and not-to-exceed requirements
that are otherwise part of the Tier 4 program. These requirements do
not take effect for these engines until the 0.02 g/bhp-hr standard is
implemented in 2012 or 2013. See section III.F for details.
We also believe that the second option (compliance with the
aftertreatment-based PM standard in 2012, with no interim 2008
standard) is viable, and may be an attractive choice especially for
engine families on the higher side of the 50-75 hp range that share a
design platform with larger engines being equipped with PM filters to
meet the Tier 4 standard for 75-175 hp engines in 2012. We believe 75
hp is the appropriate cutpoint for setting and timing emissions
standards (see section II.A.5), but it obviously is not a hard-and-fast
separator between engine platforms for all manufacturers in all product
lines. Even for many 50-75 hp engines that do not share a design
platform with larger engines, we believe that a 2012 implementation
date for PM filter technology may be practical, considering the 4-year
lead time it affords after Tier 3 begins for these engines (in 2008),
8-year lead time after the last PM standard change (in 2004), and 5-
year lead time after full-scale PM filter technology implementation on
highway engines (in 2007).
Engine manufacturers also commented that the two-options approach
would cause their customers to switch engine suppliers in 2012 to get
the least expensive engines possible in every year, thus compromising
the environmental objectives and creating market disruptions. We have
addressed these concerns as discussed in section II.A.3.b.
b. 2011 and Later Standards
The second fuel change for nonroad diesel fuel, to 15 ppm maximum
sulfur in mid-2010, and the related engine standards for PM,
NOX, and NMHC that begin to phase-in in the 2011 model year,
provide most of the environmental benefits of the program. Like the
2008 standards, these standards are timed to provide adequate lead time
for engine and equipment manufacturers. They also are phased in over
time to allow for the orderly transfer of technology from the highway
sector, and to spread the overall workload for engine and equipment
manufacturers engaged in redesigning a large number and variety of
products for Tier 4.
As we explained at proposal, we believe that the high-efficiency
exhaust emission control technologies being developed to meet our 2007
emission standards for heavy-duty highway diesel engines can be adapted
to most nonroad diesel applications. The engines for which we believe
this adaptation from highway applications will be most straightforward
are those in the 175-750 hp power range, and thus these engines are
subject to new standards requiring high-efficiency exhaust emission
controls as soon as the 15 ppm sulfur diesel fuel is widely available,
that is, in the 2011 model year. Engines of 75-175 hp are subject to
the new standards in the following model year, 2012, reflecting the
need to spread the redesign workload and, to some extent, the greater
effort that may be involved in adapting highway technologies to these
engines. Engines between 25 and 75 hp are subject to new standards for
PM based on high-efficiency exhaust emission controls in 2013,
reflecting again the need to spread the workload and the challenge of
adapting this technology to these engines which typically do not have
highway counterparts. Engines over 750 hp involve a number of special
considerations, necessitating an implementation approach unique to
these engines as explained in section II.A.4. Lastly , there are
additional provisions discussed in sections III.B.2 and III.M to
encourage early technology introduction and to further draw from the
highway technology experience.
This approach of implementing Tier 4 standards by power category
over 2011-2013 provides for the orderly migration of technology and
distribution of redesign workload over three model years, as EPA
provided in Tier 3. Overall, this approach provides 4 to 6 years of
real world experience with the new technology in the highway sector,
involving millions of engines (in addition to the several additional
years provided by demonstration fleets on the road in earlier years),
before the new standards take effect. We consider the implementation of
Tier 4 standard start dates over 2011-2013 as described above to be
responsive to the technology migration and workload distribution
concerns.
2. Phase-In of NOX and NMHC Standards for 75-750 hp Engines
a. Percent-of-Production Phase-In for NOX and NMHC
We are finalizing the percent-of-production phase-in for
NOX and NMHC that we proposed for 75-750 hp engines. Because
Tier 4 NOX emissions control technology is expected to be
derived from technology first introduced in highway heavy-duty diesels,
we proposed to adopt the implementation pattern for the Tier 4
NOX standard which we adopted for the heavy-duty highway
diesel program. This will help to ensure a focused, orderly development
of robust high-efficiency NOX control in the nonroad sector
and will also help to ensure that manufacturers are able to take
maximum advantage of the highway engine development program, with
resulting cost savings.
The heavy-duty highway rule allows for a gradual phase-in of the
NOX and NMHC requirements over multiple model years: 50% of
each manufacturer's U.S.-directed production volume must meet the new
standard in 2007-2009, and 100% must do so by 2010. Through the use of
emissions averaging, this phase-in approach also provides the
flexibility for highway engine manufacturers to meet that program's
environmental goals by allowing somewhat less-efficient NOX
controls on more than 50% of their production during the 2007-2009
phase-in years.
We follow the same pattern in this rule. As proposed, we are
phasing in the NOX standards for nonroad diesels over 2011-
2013 as indicated in table II.A-2, based on compliance with the Tier 4
standards for 50% of a manufacturer's U.S.-directed production in each
power category between 75 and 750 hp in each phase-in model year. The
phase-in of standards for engines over 750 hp is discussed in section
II.A.4. With a NOX phase-in, all manufacturers are able to
introduce their new technologies on a limited number of engines,
thereby gaining valuable experience with the technology prior to
implementing it on their entire product line. In tandem with the
equipment manufacturer transition program discussed in section III.B,
the phase-in ensures timely progress to the Tier 4 standard levels
while providing a great degree of implementation flexibility for the
industry.
[[Page 38974]]
This ``percent of production phase-in'' is intended to take maximum
advantage of the highway program technology development. It adds a new
dimension of implementation flexibility to the staggered ``phase-in by
power category'' used in the nonroad program for Tiers 1-3 (and also in
this Tier 4) which, though structured to facilitate technology
development and transfer, is more aimed at spreading the redesign
workload. Because the Tier 4 program involves challenges in addressing
both technology development and redesign workload, we believe that
incorporating both of these phase-in mechanisms into the program is
warranted, resulting in the coordinated phase-in plan shown in table
II.A-2, which we are finalizing essentially as proposed. Note that this
results in the new NOX requirements for 75-175 hp engines
taking effect starting in the second year of the 2011-2013 general
phase-in, in effect creating a 50-50% phase-in in 2012-2013 for this
category. This then staggers the Tier 4 start years by power category
as in past tiers: 2011 for engines at or above 175 hp, 2012 for 75-175
hp engines, and 2013 for 25-75 hp engines (for which no NOX
adsorber-based standard and thus no percentage phase-in is being
adopted), while still providing a production-based phase-in for
advanced NOX control technologies.
Comments from the States and environmental organizations argued for
the completion of the phase-in by the end of 2012, contending that
technology progress for NOX control in the highway sector
has been good to date and would support an accelerated phase-in in the
nonroad sector. However, our assessment continues to show unique
(though surmountable) challenges in adapting advanced technologies to
nonroad engines, especially for engines least like highway diesels, and
it is these engines that would be most affected by a truncated phase-in
schedule. Furthermore, even if we were to conclude that advanced
technologies will be ready earlier than expected, we would not be able
to move up the start of phase-in dates because these dates also depend
on low-sulfur fuel availability. Thus an end-of-2012 phase-in
completion date would result in phase-ins as short as one year, thus
degrading the industry's opportunity to distribute the redesign
workload and departing from the pattern set by the highway program.
Both of these are critical factors in our assessment that the proposed
engine standards are feasible, and so a change to shorter phase-ins
would jeopardize achievement of our environmental objectives for
nonroad diesels. Therefore we are not adopting the suggested earlier
completion of the phase-in.
As proposed, we are phasing in the Tier 4 NMHC standard for 75-750
hp engines with the NOX standard, as is being done in the
highway program. Engines certified to the new NOX
requirement would be expected to certify to the NMHC standard as well.
The ``phase-out'' engines (those not certified to the new Tier 4
NOX and NMHC standards) would continue to be certified to
the applicable Tier 3 NMHC+NOX standard. As discussed in
section II.B, we believe that the NMHC standard is readily achievable
through the application of PM traps to meet the PM standard, which does
not involve such a phase-in. However, in the highway program we chose
to phase in the NMHC standard with the NOX standard to
simplify the phase-in under the percent-of-production approach taken
there, thus avoiding subjecting the ``phase-out'' engines to separate
standards for NMHC and NMHC+NOX (which could lead to
increased administrative costs with essentially no different
environmental result). The same reasoning applies here because, as in
the highway program, the previous-tier standards are combined
NMHC+NOX standards. No commenters objected to this approach.
Because of the tremendous variety of engine sizes represented in
the nonroad diesel sector, we are finalizing our proposed requirement
that the phase-in requirement be met separately in both of the power
categories with a phase-in (75-175 hp and 175-750 hp).\29\ For example,
a manufacturer that produces 1000 engines for the 2011 U.S. market in
the 175 to 750 hp range would have to demonstrate compliance with the
NOX and NMHC standards on at least 500 of these engines,
regardless of how many complying engines the manufacturer produces in
the 75-175 hp category. (Note however that we are allowing averaging of
emissions between these engine categories through the use of power-
weighted ABT program credits.) We believe that this restriction
reflects the availability of emissions control technology, and is
needed to avoid erosion of environmental benefits that might occur if a
manufacturer with a diverse product offering were to meet the phase-in
with relatively low cost smaller engines, thereby delaying compliance
on larger engines with much higher lifetime emissions potential. Even
so, the horsepower ranges for these power categories are fairly broad,
so this restriction allows ample freedom to manufacturers to structure
compliance plans in the most cost-effective manner. There were no
adverse comments on this approach.
---------------------------------------------------------------------------
\29\ Note exceptions to the percent phase-in requirements during
the phase-in model years discussed in sections III.L and III.M.
These deal with differences between a manufacturer's actual and
projected production levels, and with incentives for early or very
low emission engine introductions.
---------------------------------------------------------------------------
b. Special Considerations for the 75-175 hp Category
As discussed in the proposal, the 75-175 hp category of engines and
equipment may involve added workload challenges for the industry to
develop and transfer technology. Though spanning only 100 hp, this
category represents a great diversity of applications, and comprises a
disproportionate number of the total nonroad engine and machine models.
Some of these engines, though having characteristics comparable to many
highway engines such as turbocharging and electronic fuel control, are
not directly derived from highway engine platforms and so are likely to
require more development work than larger engines to transfer emission
control technology from the highway sector. Furthermore, the engine and
equipment manufacturers have greatly varying market profiles in this
category, from focused one- or two-product offerings to very diverse
product lines with a great many models.
Therefore, in addition to the flexibility provided through the
phase-in mechanism, we proposed two optional measures to provide added
flexibility in implementing the Tier 4 NOX standards, while
keeping a priority on bringing PM emissions control into this diverse
power category as quickly as possible. First, we proposed to allow
manufacturers to use NMHC+NOX credits generated by any Tier
2 engines over 50 hp (in addition to any other allowable credits) to
demonstrate compliance with the Tier 4 requirement for 75-175 hp
engines in 2012, 2013, and 2014 only. Second, we proposed allowing a
manufacturer to instead demonstrate compliance with a reduced phase-in
requirement of 25% for NOX and NMHC in each of 2012, 2013,
and the first 9 months of 2014. Full compliance (100% phase-in) with
the Tier 4 standards would have needed to be demonstrated beginning
October 1, 2014.
Engine manufacturers reinforced the points we made in the proposal
regarding added workload challenges for this diverse category of
engines and machines. However, they suggested that the first of the
proposed options to address these challenges (allowing use
[[Page 38975]]
of Tier 2 credits) is not likely to be used due to a lack of available
Tier 2 credits, and therefore should be dropped, and that the second
option (allowing a slower phase-in) provided too short a stability
period, and should be modified to delay final compliance by an
additional 3 months, to December 31, 2014 or January 1, 2015. In
addition to describing the very large redesign workload, they pointed
out that engines and machines in this category typically do not have a
model year that differs from the calendar year, and so the substantial
changes required for Tier 4 compliance in October 2014 could force the
need to change the product for all of 2014, effectively shortening the
phase-in to two years. One manufacturer argued that the compliance date
for the 75-100 hp engines in this category should be delayed an
additional year, to 2016, and that the start of the phase-in for these
engines should be likewise delayed from 2012 to 2013.
We do not feel that the first option (allowing use of Tier 2
credits) should be dropped, as it provides an alternative flexibility
mechanism for a power category in which flexibility is clearly
important, and is environmentally helpful as it provides an option for
manufacturers to achieve NOX emission reductions earlier
than under the second option. By providing an opportunity to use Tier 2
credits in the 75-175 hp category, it coordinates well with the Tier 2
credit use opportunity we are providing for the 50-75 hp engines
meeting the 2008 PM standard (see section III.A), and allows for
coordinated redesign and credit use planning by a manufacturer over
this wide power range over many years. Nonetheless, recognizing that
the second option may be more attractive to manufacturers, and
considering the comments they provided on it, we have concluded that a
three month phase-in extension until the end of 2014 is warranted to
address the workload burden and to align product cycle dates. Thus we
are adopting the December 31, 2014 implementation date suggested in
comments for completion of the 75-175 hp engine phase-in.
We do not agree that an additional year of delay is appropriate for
the 75-100 hp engines in this category. The comment expressing interest
in our doing so did not provide any basis for it in technological
feasibility or in workload burden, and we do not see any basis for it
ourselves.
Therefore, we are adopting both of the proposed optional measures
for the 75-175 hp engine phase-in, except that in the second option,
full compliance (100% phase-in) with the Tier 4 standards will need to
be demonstrated beginning December 31, 2014. As proposed, manufacturers
using this reduced phase-in option will not be allowed to generate
NOX credits from engines in this power category in 2012,
2013, and 2014, except for use in averaging within the 75-175 hp
category (that is, no banking or trading, or averaging with engines in
other power categories). We believe that this restriction on credit use
is appropriate, considering that larger engine categories will be
required to demonstrate a substantially greater degree of compliance
with the 0.30 g/bhp-hr NOX standard several years earlier
than engines built under this option. As the purpose of this option is
to aid manufacturers in implementing Tier 4 NOX standards
for this challenging power category, we do not want any manufacturers
who might be capable of building substantially greater numbers of
cleaner engines to use this option as an easy and copious source of
credits (owing to its slower phase-in of stringent standards) that in
turn can be used to delay building clean engines in other categories or
model years.
c. Alternative Phase-In Standards
To ensure that Tier 4 engine development is able to take maximum
advantage of highway diesel technology advances, we proposed to adopt
nonroad diesel provisions in the averaging, banking, and trading
program that would parallel the heavy-duty highway engine program's
``split family provisions'' (see 68 FR 28470, May 23, 2003). In
essence, these allow a manufacturer to declare an engine family during
the phase-in years that is certified at NOX levels roughly
midway between the phase-out standard and phase-in standard, without
the complication of tracking credit generation and use. Because they
constitute a calculational simplification of the emissions averaging
provisions, these split family provisions do not result in a loss in
environmental benefits compared to what the phase-in can achieve.
The nonroad proposal also included specific emission levels for
these split families, rather than just describing how they are
calculated. Commenters suggested that we go one step further still and
express these levels as alternative standards. They argued that this
would facilitate attempts at harmonizing standards globally, especially
for standards-setting bodies such as the European Commission that do
not have emissions averaging programs. We are also aware that most
manufacturers of highway diesel engines are now planning to comply with
our 2007 standards using this emissions averaging approach, increasing
the significance of comments on the topic from nonroad engine
manufacturers, many of whom also make highway engines.\30\
---------------------------------------------------------------------------
\30\ See the recently published ``Highway Diesel Progress Review
Report 2,'' EPA420-R-04-004, available at http://www.epa.gov/otaq/diesel.htm#progreport2.
---------------------------------------------------------------------------
After carefully considering the issues involved, we agree that the
proposed approach lends itself to expression in terms outside of the
averaging, banking, and trading program and that it makes sense to do
so. We are creating such an alternative in the final regulations
accordingly. These alternative standards do not substantively change
our Tier 4 program from what we proposed, but rather respond to
manufacturers' suggestions for administrative simplifications to what
is essentially an averaging-based flexibility option in demonstrating
compliance with the percent-of-production NOX phase-in. The
alternative NOX phase-in standards are shown in table II.A-
3. They apply only during the NOX phase-in years.
Manufacturers may use both approaches within a power category if
desired, certifying some engines to the alternative standards, with the
rest subject to the phase-in percentage requirement. Note that engines
under 75 hp subject to Tier 4 NOX standards do not have an
alternative standard because they do not have a NOX phase-
in, and engines over 750 hp do not have an alternative standard because
of the separate standards we are adopting for these engines (explained
in section II.A.4).
Table II.A-3.--Tier 4 Alternative NOX Phase-in Standards (g/bhp-hr)
------------------------------------------------------------------------
NOX standard
Engine power (g/bhp-hr)
------------------------------------------------------------------------
75 <= hp < 175 (56 <= kW < 130)........................ \a\ 1.7
175 <= hp <= 750 (130 <= kW <= 560).................... 1.5
------------------------------------------------------------------------
Notes: \a\ Under the option identified in footnote b of table II.A-2, by
which manufacturers may meet an alternative phase-in requirement of 25/
25/25% in 2012, 2013, and 2014 through December 30, the corresponding
alternative NOX standard is 2.5 g/bhp-hr.
The engines certified under these standards will of course also
need to meet the Tier 4 PM and crankcase control requirements that take
effect for all engines in the first phase-in year. They will also need
to comply with all Tier 4 provisions that would apply to
[[Page 38976]]
phase-in engines, including the 0.14 g/bhp-hr NMHC standard and the NTE
and transient test requirements for all pollutants. We recognize that
this differs from what is required under the phase-in approach, in
which these requirements would not apply to the 50% of engines
categorized as ``phase-out'' engines. However, under the alternative
standards approach, what would have been two different engine families
(one meeting phase-in requirements and one meeting phase-out
requirements, with NOX and PM emissions averaging allowed
between them under the ABT provisions) are replaced by a single engine
family meeting the one set of alternative standards. Therefore all of
the engines in this family must by default meet the phase-in
requirements for provisions that lack any sort of averaging mechanism
(NMHC standard, NTE, etc). As a result, any manufacturer choosing to
design to the alternative standards rather than using the phase-in
approach provides some additional environmental benefit as an indirect
result of choosing this approach.
We also believe that this alternative standards provision makes
appropriate a further adjustment to the NOX phase-in scheme
to better preserve both the advanced technology phase-in approach, for
those manufacturers choosing that compliance path, and the alternative
standards approach, for those choosing that path. Under the proposal,
the provision for certifying a split engine family at a pre-designated
NOX level would not allow credit generation by or credit use
on engines in the split family (other than for averaging within the
family). This was consistent with our goal of providing a simple,
single average NOX standard level for the family, equivalent
to arbitrarily designating a portion of the engines in the family as
``phase-out'' engines (credit generators) and the rest as ``phase-in''
engines (credit users) with a net credit balance of zero, while
avoiding the burden of actually calculating and tracking credits. This
was also consistent with our approach under the 2007 highway engine
program from which this concept is derived.
However, because this split family provision has evolved into a set
of alternative standards, there is no longer a need to prohibit the
generation and use of ABT credits for these engines to preserve a de
facto net zero credit balance, and so, considering that it is also not
environmentally detrimental, we believe it is appropriate to allow
credit use and generation for these engines as for other engines. A
consequence of doing so, consistent with all of our ABT programs, is
the adoption of NOX FEL caps for these engines. To maintain
the character of this compliance path as producing engines during the
phase-in years that emit at NOX levels which are roughly
averaged between Tier 3 and final Tier 4 levels, we are setting
NOX FEL caps for these engines at levels reasonably close to
the alternative standards. (See section III.A for details.) Because we
are also maintaining the original phase-in/phase-out compliance path, a
manufacturer wishing to build engines with NOX levels higher
than these FEL caps, at or approaching the Tier 3 levels, could still
do so; in fact these would in actuality fit the description of a phase-
out engine. This manufacturer would also, of course, have to produce a
corresponding number of phase-in engines meeting the aftertreatment-
based Tier 4 NOX standards.
We also observe that the creation of alternative standards provides
the opportunity to adjust the phase-in/phase-out provisions so as to
reinforce their focus on introducing high-efficiency NOX
aftertreatment technology during the phase-in years, which is, of
course, their aim. We are doing this by setting NOX family
emission limit (FEL) caps for phase-in engines at the same low levels
as for Tier 4 engines produced in the post-phase-in years. (Again, see
section III.A for details.) Although the engine manufacturers indicated
in their comments that they did not believe it likely that anyone would
choose this phase-in/phase-out compliance path, we believe that
preserving it and focusing it on encouraging very low-NOX
engines as early as possible provides a potentially useful and
environmentally desirable alternative path. Thus these two concepts
have been developed to provide complementary compliance paths obtaining
equivalent overall NOX reductions, one focused on phasing in
high-efficiency NOX aftertreatment and the other on
achieving NOX control for all subject engines during the
phase-in years at an average level between the Tier 3 and final Tier 4
standards levels.
3. Standards for Smaller Engines
a. Engines Under 25 hp
We are finalizing the Tier 4 program we proposed for engines under
25 hp. In the proposal we presented our view that standards based on
the use of PM filters should not be set at this time for the very small
diesel engines below 25 hp. We also discussed our plan to reassess the
appropriate long-term standards in a technology review. However, for
the nearer-term, we concluded that other proven PM-reducing
technologies such as diesel oxidation catalysts and engine optimization
could be applied to engines under 25 hp. Accordingly, we proposed Tier
4 PM standards to take effect beginning in 2008 for these engines based
on use of these technologies.
In contrast to our proposals for other engine categories, the
proposed Tier 4 standards for this category elicited very little
comment from the engine manufacturers other than an expression of
support for deferring consideration of any more stringent standards
pending results of a future technology review. The States and
environmental organizations expressed disappointment that EPA had not
proposed more stringent standards for these engines, given the very
large number of these engines in the field and the significant risk
they pose due to individuals' exposure to diesel PM and air toxics.
They urged more stringent 2008 PM standards and the adoption of
standards obtaining emission reductions of 90% or more by the end of
2012. Emissions control manufacturers argued that more stringent 2008
standards based on the use of more efficient oxidation catalysts are
feasible.
As discussed in section II.B.4, we continue to believe that the
standards we proposed for engines under 25 hp are feasible, and
commenters in the nonroad diesel industry provided no comments to the
contrary. Our reasons for not proposing more stringent Tier 4 standards
for these engines based on the use of PM filters and NOX
aftertreatment were mainly focused on the cost of equipping these
relatively low cost engines with such devices, especially considering
the prerequisite need for electronic fuel control systems to facilitate
regeneration. The comments supporting more stringent standards were not
convincing, as they did not address these cost issues. However, we do
agree that these small engines likely have a large impact on human
health, and, as discussed in section VIII.A, we are reaffirming the
plan we described in the proposal to reassess the appropriate long-term
standards for these engines in a technology review to take place in
2007. We will set more stringent standards for these engines at that
time, if appropriate.
We also disagree with comments supporting more stringent 2008
standards that would require the use of diesel oxidation catalysts on
all small engines. Although we agree that these catalysts can be
applied so as to achieve emission reductions on some small engines, the
emissions performance data
[[Page 38977]]
we have analyzed do not support our setting a more stringent standard.
Section 4.1.5 of the RIA summarizes such data showing a very wide range
of engine-out PM emissions in this power category. Applying oxidation
catalyst technology to these engines, though capable of some PM
reduction if properly designed and matched to the application, is
limited by sulfur in the diesel fuel. Specifically, precious-metal
oxidation catalysts (which have the greatest potential for reducing PM)
can oxidize the sulfur in the fuel and form particulate sulfates. Even
with the 500 ppm maximum sulfur fuel available after 2007, the sulfate
production potential is large enough to limit what can be done to set
more stringent 2008 PM standards through the use of these catalysts.
The 15 ppm maximum sulfur fuel available after 2010 will greatly
improve the potential for use of oxidation catalysts, but as we
discussed above, we believe that the much larger potential reduction
afforded by PM filter technology warrants our waiting until the
technology review in 2007 to evaluate the appropriate long-term
standards for these engines. See section II.B.5 and RIA section 4.1.5
for further discussion.
When implemented, the Tier 4 PM standard and related provisions we
are adopting today for engines under 25 hp will yield an in-use PM
reduction of over 50% for these engines, and large reductions in toxic
hydrocarbons as well. Achieving these emission reductions is very
important, considering the fact that many of these smaller engines
operate in populated areas and in equipment without closed cabs--in
mowers, portable electric power generators, small skid steer loaders,
and the like.
We are also adopting the alternative compliance option that we
proposed for air-cooled, direct injection engines under 11 hp that are
startable by hand, such as with a crank or recoil starter. As we
explained in the proposal, the alternative is justified due (among
other things) to these engines' need for loose design fit tolerances,
their small cylinder displacement and bore sizes, and the difficulty in
obtaining components for them with tight enough tolerances (68 FR
28363, May 23, 2003). This alternative allows manufacturers of these
engines to delay Tier 4 compliance until 2010, and in that year to
certify them to a PM standard of 0.45 g/bhp-hr, rather than to the 0.30
g/bhp-hr PM standard applicable beginning in 2008 to the other engines
in this power category. As proposed, engines certified under this
alternative compliance requirement will not be allowed to generate
credits as part of the ABT program, although credit use by these
engines will still be allowed.
We received no adverse comments on this proposed alternative for
qualifying engines under 11 hp. Euromot commented that there are hand-
startable engines in the 11-25 hp range, and that we should extend the
alternative compliance option to these engines as well. However, hand-
startability is not the sole defining feature of engines for which we
established this alternative. Rather, the alternative is for a class of
engines typified by a combination of characteristics (very small, air-
cooled, direct injection, hand-startable), which give rise to the
potential technical difficulties noted above. To extend the alternative
to other engines simply because they have a hand-start is not
justified, because they do not share these technical difficulties (or
do not share them to the same degree). Such an extension could also
potentially encourage manufacturers of the many models of these larger
engines to market a hand-start option simply to avoid more stringent
standards.
b. Standards for 25-75 hp Engines
We proposed a 0.22 g/bhp-hr PM standard for 25-75 hp engines, to
take effect in 2008. We also proposed a filter-based 0.02 g/bhp-hr PM
standard for these engines, to take effect in 2013, the year in which
filter-based technology for these engines is expected to be applicable
on a widespread basis (see section II.A.1). Also in 2013, the 25-50 hp
engines would be subject to the 3.5 g/bhp-hr NMHC+NOX
standard already adopted for 50-75 hp engines (taking effect in 2008 as
part of Tier 3). We are adopting all of these proposed standards in
this final rule.
The 2008 PM standard for these engines should maximize reduction of
PM emissions using technology available in that year. We believe that
the 2008 PM standard is feasible for these engines, based on the same
engine or oxidation catalyst technologies feasible for engines under 25
hp in 2008, following the introduction of nonroad diesel fuel with
sulfur levels reduced below 500 ppm. We expect in-use PM reductions for
these engines of over 50% (and large reductions in toxic hydrocarbons
as well) over the five model years this standard would be in effect
(2008-2012). These engines will constitute a large portion of the in-
use population of nonroad diesel engines for many years after 2008.
Although we are finalizing the 2013 standards for 25-75 hp engines
today, we are also reaffirming our commitment to conducting a
technology review for these standards in 2007. This planned review is
discussed in section VIII.A. Additional discussion of our feasibility
assessment for the 2008 and 2013 standards can be found in section
II.B.4 and RIA section 4.1.4.
In comments, emissions controls manufacturers argued that more
stringent 2008 standards for PM and NMHC based on the use of more
efficient oxidation catalysts are feasible and should be adopted.
Environmental organizations argued that PM and NOX standards
for 2008 should be set at more stringent levels, based on the use of
oxidation catalysts and improved engine optimization. The California
Air Resources Board argued for more stringent 2008 standards for
HC+NOX, PM and toxics, based on the use of oxidation
catalysts.
We disagree with the comments calling for more stringent 2008
standards than proposed for 25-75 hp engines, based on the use of
diesel oxidation catalysts. The standards we proposed and are adopting
for these engines pull ahead sizeable PM reductions starting three
years ahead of the earliest PM filter-based standards for any engine
size. The pull-ahead standard level balances early reductions with the
need to ensure that the PM filter-based standards and Tier 3
NMHC+NOX standards are not jeopardized by an overemphasis on
early reductions. Although we agree that oxidation catalysts can be
applied to these engines, the emissions performance data we have
analyzed do not support our setting a more stringent standard, for the
same reasons described above in section II.A.3.a for engines under 25
hp. Refer to section II.B.4 and to section 4.1.4 of the RIA for
additional discussion. For a discussion of comments opposed to new
standards in 2008, see sections II.A.1 and II.B of this preamble.
We also do not agree that more stringent NOX
requirements based on improved engine optimization are appropriate for
these engines in 2008. In 2001 we reviewed and confirmed the previously
set NMHC+NOX emission standards that will be in effect for
these engines during the time frame in question.\31\ Because of the
focus we are putting on achieving large PM reductions from these
engines as early as possible, we felt that it was important to strike a
balance between PM and NOX control. As a result, we did not
propose more stringent NOX standards for 50-75 hp engines,
and we proposed to apply
[[Page 38978]]
the 3.5 g/bhp-hr NMHC+NOX standard to 25-50 hp engines in
2013 because this is the year in which the PM filter-based standard is
being implemented. Requiring new NOX controls for these
engines earlier than 2013 would add a third redesign step to those
already called for in 2008 and 2013. This would add a potentially
unacceptable amount of redesign workload, to a point that it could
jeopardize our objective of bringing stringent PM control to these
engines as early as possible.
---------------------------------------------------------------------------
\31\ ``Nonroad Diesel Emissions Standards Staff Technical
Paper,'' EPA420-R-01-052, October 2001.
---------------------------------------------------------------------------
Consistent with the proposal, we are not setting more stringent
NOX standards for engines below 75 hp at this time based on
the use of NOX aftertreatment. As discussed in section
4.1.2.3 of the RIA, a high degree of complexity and engine/
aftertreatment integration will be involved in applying NOX
adsorber technology to nonroad diesel engines. The similarity of larger
nonroad engines (above 75 hp) to highway diesel engines, which will
provide the initial experience base for this integration process, is
key to our assessment that NOX adsorbers are feasible for
these engines. On the other hand, although engines under 75 hp are
gradually increasing in sophistication over time, the accumulation of
experience with designing and operating these engines with more
advanced technology clearly lags significantly behind the sizeable
experience base already developed for larger engines. At this point, we
are unable to forecast how quickly adequate experience may accrue.
Because this experience is crucial to ensuring the successful
integration of the engines with NOX adsorber technology, we
are not adopting NOX adsorber-based standards for engines
under 75 hp in this final rule. Rather, as discussed in section VIII.A,
we plan to undertake a technology assessment in the 2007 time frame
which would evaluate the status of engine and emission control
technologies, including NOX controls, for engines less than
75 hp.
As described in section II.A.1.a, we are providing two PM standard
compliance options to engine manufacturers for 50-75 hp engines. As
part of this, we also proposed a measure to ensure that it would not be
abused by equipment manufacturers who use engines that do not meet the
PM pull-ahead standard in 2008-2011, but who then switch engine
suppliers to avoid PM filter-equipped engines in 2012 as well (68 FR
28360, May 23, 2003). We proposed that an equipment manufacturer making
a product with engines not meeting the pull-ahead standard in any of
the years 2008-2011 must use engines in that product in 2012 meeting
the 0.02 g/bhp-hr PM standard; that is, the equipment manufacturer
would have to use an engine from the same engine manufacturer or from
another engine manufacturer choosing the same compliance option. We
also solicited comment on possible alternative solutions using a
numerical basis, describing an example that would require the
percentage of 50-75 hp machines equipped with PM filters in 2012 to be
no less than the same percentage of 50-75 hp machines produced with
non-pull-ahead engines in 2008-2011.
The Engine Manufacturers Association (EMA) and Deere commented on
the unenforceability of the proposed ``no switch'' measure as part of a
broader objection to our proposal for 50-75 hp engines. They pointed
out that changing equipment model designations could easily allow an
equipment manufacturer seeking to avoid PM filter-equipped engines in
2012 to declare a product in this model year a ``new product,'' not the
same as the 2008-2011 product. We have concluded that there is indeed
potential for this abuse to occur and, although no one commented
specifically on the alternative approach, we believe it clearly
addresses this problem because it does not depend on product
designations.
Therefore, we are adopting a provision to discourage engine
switching based on this alternative approach. An equipment manufacturer
who uses 50-75 hp engines will have three options:
(1) The manufacturer may exclusively use engines certified to
the 0.22 g/bhp-hr PM standard (including through use of ABT credits)
over the 2008-2011 period. This manufacturer is then free to use any
number of 50-75 hp engines not certified to the 0.02 g/bhp-hr
standards in 2012.
(2) The manufacturer may exclusively use engines not certified
to the 0.22 g/bhp-hr PM standard over the 2008-2011 period. This
manufacturer must then use only 50-75 hp engines that are certified
to the 0.02 g/bhp-hr standards in 2012 (including through use of ABT
credits).
(3) The manufacturer may use a mix of engines in 2008-2011. In
this case, the manufacturer must calculate the percentage of 50-75
hp engines used (in U.S.-directed equipment) over the 2008-2010
period that are not certified to the 0.22 g/bhp-hr PM pull-ahead
standard. Then the percentage of 50-75 hp engines this manufacturer
uses in 2012 that are certified to the 0.02 g/bhp-hr PM standard
must be no less than this 2008-2010 non-pull-ahead percentage figure
minus a 5% margin.\32\
\32\ The 2011 production is not included in the percentage
calculation to avoid the need for post-2011 confirmation of
production volumes which, as it would occur in 2012, would be too
late to easily re-focus 2012 production if the confirmed volumes
differ from projections. It is not likely that manufacturers would
abuse the program by switching engine suppliers for this one year of
production.
---------------------------------------------------------------------------
As an example of this third option, consider an equipment
manufacturer who does not use the transition flexibility provisions
(described in section III.B), and over the 2008-2010 period makes 1000
50-75 hp machines for use in the U.S., 200 (20%) of which use engines
not certified to the 0.22 g/bhp-hr standard. In 2012, that manufacturer
must make at least 15% of his 50-75 hp machines for use in the U.S.
using engines certified to the 0.02 g/bhp-hr standard. We feel that the
5% margin is needed to allow for some reasonable sales shifts within
the manufacturer's product offering over time, but is small enough to
ensure that any possible advantage gained from selling higher-emissions
products remains minimal. Equipment manufacturers must keep production
records sufficient to prove compliance. This restriction and the
percentage calculation will not apply to any 2008-2012 engines at issue
that are being produced under the equipment manufacturer transition
flexibility provisions discussed in section III.B. For example, if in
addition to the 200 engines in 2008-2010 not certified to the 0.22 g/
bhp-hr standard in the above example, this manufacturer also used 500
previous-tier engines in 2008-2010 under the flexibility allowance
program, his percentage target for PM filter-equipped engines in 2012
would be 35% of all the engines used in 2012 that are not previous-tier
engines under the flexibility allowance program. \33\
---------------------------------------------------------------------------
\33\ That is: [200/(1000-500)] = 40%; subtracting the 5% margin
then yields 35%.
---------------------------------------------------------------------------
4. Standards for Engines Above 750 hp
We are adopting different Tier 4 standards for over 750 hp engines
from those we proposed, and we are also adopting different
implementation dates for these engine standards, though both the
proposed and final programs have as their primary focus the
implementation of high-efficiency exhaust emission controls as quickly
as possible. The approach being adopted reflects our careful review of
the technical issues presented by these engines. For some of these
engines, we are accelerating standards based on the use of
aftertreatment controls. For others, we are deferring a decision on
such aftertreatment-based standards. This approach represents a
feasible and efficient approach to redesigning
[[Page 38979]]
engines and installing aftertreatment in a coordinated, orderly manner
over a decade or more, and will achieve major reductions in PM and
NOX from these large diesel engines.
Under the proposal, all engines above 750 hp were treated the same,
with a phase-in of PM and NOX aftertreatment technology that
started in 2011 and finished in 2014. The final standards are based on
our evaluation of the differing technical issues presented by the two
primary kinds of equipment in this category, mobile power generation
equipment (generator sets) and mobile machinery. For both generator
sets and mobile machinery, PM aftertreatment-based standards will start
in 2015, with no prior phase-in. EPA is replacing the proposed phase-in
with a PM standard starting in 2011 that is comparable to the overall
level of control that the proposed phase-in would achieve. Differences
within these applications, however, call for different approaches to
the implementation of NOX aftertreatment technology. For
generator sets above 1200 hp, an aftertreatment-based NOX
standard will start in 2011, three years earlier than the date we
proposed for full implementation of such standards. For generator sets
below 1200 hp, the same aftertreatment-based NOX standard
will start in 2015. As with the PM standard, there is no phase-in. For
engines used in mobile machinery, which is assumed to include all
equipment that is not a generator set, EPA is deferring a decision on
setting aftertreatment-based NOX standards to allow
additional time to evaluate the technical issues involved in adapting
NOX adsorber technology to these applications and engines.
However, EPA is adopting a NOX standard for these engines
starting in 2011 that will achieve large NOX reductions by
relying on engine-based emissions control technology. Consistent with
the different approaches we are taking to setting standards for engines
above and below 750 hp, we are also adopting restrictions on ABT credit
use between these power categories, as described in section III.A.
Consistent with the approach we took in previous standard-setting
for these engines, we proposed that nonroad diesels above 750 hp be
given more lead time than engines in other power categories to fully
implement Tier 4 standards, due primarily to the relatively long
product design cycles typical of these high-cost, low-sales volume
engines and machines. Specifically, we proposed that this category of
engines move directly from Tier 2 to Tier 4, and that the Tier 4 PM
standard be phased in for these engines on the same 50-50-50-100%
schedule as the NOX and NMHC phase-in schedule, over the
2011-2014 model years. This would provide engine manufacturers with up
to 8 years of design stability to address concerns specific to this
category. Although we expressed our belief that these proposed
provisions would enable the manufacturers to meet proposed Tier 4
engine standards, we also acknowledged concerns the manufacturers had
expressed to us, and asked for comment on whether this category, or
some subset of it defined by hp or application, should have a later
phase-in start date, a later phase-in end date, adjusted standards,
additional equipment manufacturer transition flexibility provisions, or
some combination of these (68 FR 28364, May 23, 2003).
Comments from manufacturers of engines and equipment in this power
category expressed their widespread view that the proposed standards
were inappropriate in critical respects. In addition to reiterating the
need for extra lead time due to long product design cycles, they
pointed to difficulties with aftertreatment placement, with fabrication
of the large filters that would be needed for these engines, with
potential failures caused by uneven soot loading and regeneration in
large filters, with stresses due to thermal gradients across large
filters, and with mechanical stresses in mining applications with high
shock loads. The manufacturers noted that aftertreatment-based
standards for NOX and PM were feasible for engines used in
large mobile power generators. However, manufacturers did not believe
aftertreatment-based NOX standards could be implemented in
the time frame proposed for engines used in large mobile machinery such
as bulldozers and mine haul trucks. States, environmental
organizations, and manufacturers of emissions controls, on the other
hand, expressed support for the standards we proposed for these
engines.
After evaluating these issues, EPA is adopting an approach that
tailors the standards to the circumstances presented by the different
kinds of engines in this power category. The NOX standards
we are adopting will achieve effective NOX control by
accelerating the proposed schedule for final NOX standards
based on high-efficiency NOX aftertreatment for the largest
generator sets, and by requiring engines in other generator sets to
also meet aftertreatment-based NOX standards, although we
are delaying the implementation date for these standards compared to
the implementation schedule we proposed. We believe that NOX
adsorber technology will be feasible for these generator set engines.
We also believe that they may be an especially attractive application
for Selective Catalytic Reduction (SCR) technology, which relies on the
injection of urea into the exhaust stream. There are many stationary
diesel generator sets using SCR today. Large mobile generator sets,
though moved from location to location, operate much like stationary
units once in place, with fuel (and potentially urea) delivered and
replenished periodically. See section II.B.3 for further discussion.
For equipment other than generator sets, we are deferring a
decision on setting aftertreatment-based NOX standards to
allow additional time to evaluate the technical issues involved in
adapting NOX control technology to these applications and
engines. We are still evaluating the issues involved for these engines
to achieve a more stringent NOX standard, and believe that
these issues are resolvable. We intend to continue evaluating the
appropriate long-term NOX standard for mobile machinery over
750 hp and expect to announce further plans regarding these issues (we
are currently considering such an action in the 2007 time frame). The
basis for the 0.50 g/bhp-hr NOX standard we are adopting for
generator sets over 750 hp is discussed in section II.B.3. We are also
modifying the PM and NMHC standards we proposed (as well as certain
implementation dates for these provisions), and modifying our proposed
approach to ensuring transient emissions control for these engines
(discussed in section III.F). The Tier 4 standards for engines over 750
hp are shown in table II.A-4.
[[Page 38980]]
Table II.A-4.--Tier 4 Standards for Engines Over 750 hp (g/bhp-hr)
----------------------------------------------------------------------------------------------------------------
2011 2015
----------------------------------------------------------------------------------
PM NOX NMHC PM NOX NMHC
----------------------------------------------------------------------------------------------------------------
Engines used in:
generator sets <=1200 hp. 0.075 2.6 0.30 0.02 0.50 0.14
generator sets >1200 hp.. 0.075 0.50 0.30 0.02 No new standard 0.14
all other equipment...... 0.075 2.6 0.30 0.03 No new standard 0.14
----------------------------------------------------------------------------------------------------------------
Unlike NOX control technology, we believe that the more
advanced state of PM filter technology development today makes their
availability for these engines by 2015, with over ten years of
development lead time, more certain, and so we are setting PM standards
for both mobile machinery and generator sets based on use of this
technology. We note in section II.B.3 that achieving durable PM filter
designs for these large applications will likely require the use of
wire mesh filter technology rather than the somewhat more efficient
wall flow ceramic-based technology applicable to smaller engines,
justifying the somewhat higher level for the 2015 PM standards shown in
table II.A-4 (0.03 or 0.02 g/bhp-hr compared to 0.01 g/bhp-hr). Section
II.B.3 also contains discussion of our bases for the other Tier 4
standard levels in this category. We believe that the 2015
implementation year (versus the proposed 2014 date for the fully
phased-in standard) is necessary to allow development of the requisite
technologies for these large engines, and to deal with the redesign
workload Tier 4 will create for the many engine and equipment models in
this category which, as noted, typically have very low production
volumes and long product cycles.
For the purpose of determining which nonroad engines are subject to
the generator set standards, we are defining a generator set engine as:
``An engine used primarily to operate an electrical generator or
alternator to produce electric power for other applications.'' This
definition makes it clear that generator set engines do not include
engines used in machines such as mine trucks that do mechanical work
but that employ engine-powered electric motors to propel the machine,
but they do include engines in nonroad equipment for which the primary
purpose is to generate electric power, even if the machine is also
self-propelled.
Similar to other power categories, we proposed a 50% phase-in to
the final Tier 4 PM, NOX and NMHC standards, with
opportunity to average PM and NOX between phase-in and
phase-out engines in the 2011-2013 phase-in years via the ABT program.
Because in this rule we are no longer phasing in to a final
NOX standard for some engines over 750 hp, it no longer
makes sense to express the 2011 standards for these engines in this
manner. Instead we are setting brake-specific emission standards
effective in 2011. Furthermore, to avoid further complicating an
already complex standards structure, we are adopting this pattern for
the entire category, even with engines such as those used in generator
sets for which the standards could still be expressed as a percent
phase-in to final standards. Except for the pull-ahead of the long-term
NOX standard for large generator sets (which will increase
the environmental benefit compared to the proposal), these 2011 PM and
NOX standards essentially correspond to averaged standards
under a 50% phase-in to aftertreatment-based standards, hence our
conclusion that the Tier 4 program will provide a level of control in
2011 that is substantially equivalent to that of the proposal. In
addition, PM and NOX emissions averaging through the ABT
program will allow a manufacturer to comply by phasing in
aftertreatment technologies as in the proposed program, should they
desire to do so. Although there is no such averaging program for NMHC,
the 2011 NMHC standard can be achieved without the use of advanced
aftertreatment (as explained in section II.B.3), thus helping to enable
a manufacturer to pursue this compliance strategy if desired.
This approach involving separate 2011 and 2015 standards is
comparable to the proposed percent phase-in approach with emissions
averaging. We believe that it enables manufacturers to redesign engines
and equipment in a coordinated, orderly manner over a decade or more,
and effectively gives targeted additional flexibility to the industry.
Given the continuing availability of emissions averaging, we do not
view this change as the creation of an additional, separate tier of
standards compared to the proposal's phase-in of the Tier 4 standards.
5. Establishment of New Power Categories
We are finalizing our proposal to regroup the nine power categories
established for previous tiers into the five Tier 4 power categories
shown in table II.A-1. As we explained in the proposal, this regrouping
will more closely match the degree of challenge involved in
transferring advanced emissions control technology from highway engines
to nonroad engines. The proposed choice of 75 hp as the appropriate
cutpoint for applying aftertreatment-based NOX control drew
particular attention. In the proposal, we recognized that there is not
an abrupt power cutpoint above and below which the highway-derived
nonroad engine families do and do not exist, but noted further that 75
hp is a more appropriate cutpoint to generally identify nonroad engines
in Tier 4 that will most likely be using highway-like engine technology
than either of the closest previously-adopted power category cutpoints
of 50 or 100 hp. Nonroad diesels produced today with rated power above
75 hp (up to several hundred hp) are mostly variants of nonroad engine
platforms with four or more cylinders and per-cylinder displacements of
one liter or more. These in turn are largely derived from or are
similar to heavy-duty highway engine platforms. Even where nonroad
engine models above 75 hp are not so directly derived from highway
models, they typically share many common characteristics such as
displacements of one liter per cylinder or more, direct injection
fueling, turbocharging, and, increasingly, electronic fuel injection.
These common features provide key building blocks in transferring high-
efficiency exhaust emission control technology from highway to similar
nonroad diesel engines. We therefore proposed to regroup power ratings
using the 75 hp cutpoint.
The Engine Manufacturers Association and Euromot, which together
represent the companies that make all but a tiny fraction of nonroad
diesel engines sold in the U.S., expressed their support for the 75 hp
cutpoint, as did every individual engine
[[Page 38981]]
manufacturer who commented on this subject. These companies generally
endorsed EPA's reasoning that the 75 hp level is appropriate to
``delineate those engines (and applications) for which the application
of on-highway like NOX aftertreatment technologies is not
likely to be feasible or practical'' (EMA Comments p.10).
However, the Association of Equipment Manufacturers (AEM) and the
equipment manufacturer Ingersoll-Rand commented that 100 hp is the more
appropriate cutpoint for application of advanced NOX control
technology. They based this view on their observations that 75-100 hp
engines do not share many of the characteristics of highway diesels,
thus making technology transfer from the highway sector very costly,
and customers will be negatively affected due to the relatively large
cost impacts of NOX aftertreatment on these smaller engines.
They also argued that the 75 hp cutpoint would create significant
misalignment in the global marketplace because European regulations do
not use this cutpoint.
We agree with the equipment manufacturers' observation that there
are engines above 75 hp without turbocharging or electronic controls.
However, EPA did not choose the 75 hp cutpoint with the expectation
that all engines above it had the same technology characteristics.
There is a continuum in the degree to which key technology
characteristics exist on engines throughout the power spectrum, and the
75 hp cutpoint was based on information from the current fleet of
engines and on manufacturers' and EPA's expectations for future design
trends, showing there is a marked difference in the prevalence of these
and other key engine design characteristics for engines above and below
75 hp, and that, over time, 75-100 hp engines increasingly share
advanced technology characteristics common in larger engines. Clear
evidence of this trend over recent model years is documented in the
RIA, section 4.1.4. As discussed in section II.B.2, the kind of engine
technology generally employed by engines in the 75-100 hp range,
combined with the lead time and phase-in provided for the Tier 4
NOX standards, leads us to conclude that highway-like
NOX aftertreatment can be transferred to these engines. In
addition, since our proposal, the Council of the European Union (EU)
has issued a revised final version of new nonroad diesel emission
standards that essentially aligns their power cutpoints with our own,
including adoption of the 75 hp cutpoint for advanced technology
NOX control. EPA does not believe that the costs of meeting
the NOX standard for engines in the 75-100 hp range are
unreasonable, and we refer the reader to section VI for a detailed
discussion of our cost analysis for engines and equipment meeting Tier
4 standards in this power range. Moreover, EPA firmly believes such
standards are technologically feasible for 75-100 hp engines. (See
section II.B.2.)
Ingersoll-Rand also expressed concern that the proposed
consolidation of 3 previous power categories into a single 175-750 hp
category creates significant hardship by requiring the introduction of
aftertreatment technologies in a single year, contrasting this with the
Tier 2 standards, which phased in over 2001-2003 for these engines. In
response, we note that the Tier 3 standards, which were set in the same
rule that established the Tier 2 standards, will be introduced in a
single year for these engines (2006), and that the Tier 2 phase-in over
3 years was established in response to particular issues and
opportunities that were identified, specific to that time frame (see 62
FR 50181, September 24, 1997). In addition to the gradual phase-in of
Tier 4 standards over several years, we are adopting significant
flexibility provisions specifically to provide adequate lead time for
equipment manufacturers to make the transition to the new standards,
including some provisions that provide additional flexibility from what
we proposed, as explained in section III.B.
6. CO Standards
We proposed minor changes in CO standards for some engines solely
for the purpose of helping to consolidate power categories. We stated
in the proposal that we were not exercising our authority to revise the
CO standard for the purpose of improving air quality, but rather for
purposes of administrative efficiency. However, manufacturers objected
to these proposed changes, citing technological feasibility concerns,
and a lack of parity with highway diesel and nonroad spark-ignition
engines, given that existing CO standards levels for nonroad engines
are already five times lower than the standard level for highway
engines.
Because we proposed the CO standard changes for the sake of
simplifying and consolidating power categories and not because of any
technical considerations relating to emission reductions, we do not
believe it productive to take issue with the views expressed that these
proposed changes raise serious feasibility concerns. We instead are
withdrawing this aspect of the proposal, the result being that the
existing CO standards remain in place. In doing so, we are not
considering or reexamining (and at proposal did not consider or
reexamine) the substantive basis for those standards. Having multiple
CO standards within a power category will, at worst, create minor
inconveniences in certification and compliance efforts. As a result, in
the less than 25 hp category, Tier 4 engines below 11 hp will continue
to be subject to a different CO standard than 11-25 hp engines,
identical to Tier 2. Likewise, different CO standards will continue to
apply in Tier 4 to engines above and below 50 hp in the 25-75 hp
category.
We do note, however, that we are applying new certification tests
to all pollutants covered by the rule, the result being that Tier 4
engines will have to certify to CO standards measured by the transient
test (NRTC) (which includes a cold start test), and the NTE. Our intent
in adopting these new certification requirements is not to alter the
level of stringency of the standard but rather to ensure robust control
of emissions to this standard in use. The CO standards remain readily
achievable using these tests, and we anticipate that no additional
engine adjustments are necessary for the standards to be achievable (so
there are no significant associated costs). We also explain there that
the CO standards can be achieved without jeopardizing the ability to
achieve all of the other engine standards.
7. Crankcase Emissions Control
We currently require the control of crankcase emissions from
naturally-aspiriated nonroad diesel engines. We proposed to extend this
requirement to turbocharged nonroad diesel engines as well, starting in
the same model year that Tier 4 exhaust emission standards first apply
in each power category.
EMA opposed the proposed extension, reiterating concerns expressed
in comments on a similar proposed provision in the 2007 heavy-duty
highway rule, including concerns over the impact that recirculating
crankcase emissions may have on the feasibility of engine standards
over the full useful life. These concerns are addressed in the Summary
and Analysis of Comments document for that rule, which is included in
the docket for today's rule. Besides the feasibility issues raised by
EMA for nonroad diesels that are addressed in the highway rule, two
nonroad-specific issues were raised as well: (1) The need to design
crankcase emission control systems that operate at the high angularity
experienced by some
[[Page 38982]]
nonroad machines on uneven ground, and (2) the concern that this
requirement adds to the large number of ``first time'' requirements
being adopted for Tier 4. We agree that high angularity operation may
add new design considerations for these controls, but do not see how it
would pose a serious barrier that could not be overcome in time. The
grouping of new EPA requirements in a specific model year is an
important objective of our program aimed at providing stability to the
design process, a goal much supported by the engine manufacturers. We
have accounted for this in assessing feasibility, costs, and
flexibility needs for the program. One flexibility we are providing is
the three-path opportunity to satisfy our crankcase control
requirement, as described below. In fact, in its written comments EMA
recommended that, if EPA were to proceed with crankcase emission
control requirements for Tier 4, it adopt all three options for
demonstrating compliance. This is indeed what we are doing.
Thus, as proposed, in addition to allowing for compliance through
the routing of crankcase emissions to the engine air intake system, we
are also allowing manufacturers to instead meet the requirement by
routing the crankcase gases into the exhaust stream, provided they keep
the combined total of the crankcase emissions and the exhaust emissions
below the applicable exhaust emission standards. Also as proposed, we
are allowing manufacturers to instead meet the requirement by measuring
crankcase emissions instead of completely eliminating them, provided
manufacturers add these measured emissions to exhaust emissions in
assessing compliance with exhaust emissions standards. Manufacturers
using this option must also modify their exhaust deterioration factors
or develop separate deterioration factors to account for increases in
crankcase emissions as the engine ages, and must ensure that crankcase
emissions can be readily measured in use. We see no reason to treat
naturally-aspirated engines differently than turbocharged engines, and
so are allowing these options for all Tier 4 engines subject to the
crankcase control requirement, both turbocharged and naturally-
aspirated. The wording of the proposed regulations limiting the options
to turbocharged engines was inadvertent.
8. Prospects for International Harmonization
We received numerous comments, especially from engine and equipment
manufacturers, stressing the need for EPA to work with other
governmental standards-setting bodies to harmonize standards. We
recognize the importance of harmonization of international standards
and have worked diligently with our colleagues in Europe and Japan to
achieve that objective. Harmonization of these standards will allow
manufacturers continued access to world markets and lower the required
research and development and tooling costs needed to meet different
standards. We will continue to work with standards-setting governmental
entities and with foreign and domestic manufacturers.
In October 2003, the Council and Parliament of the European Union
reached agreement on revisions to a proposal developed by the European
Commission that would amend Directive 97/68/EC to include nonroad
diesel emissions standards similar to those in our Tier 4 program, and,
as in the U.S., coordinated with low sulfur diesel fuel requirements in
Europe. This revised proposal has since been finalized.\34\ This
revised Directive aligns well with our program in the Tier 4 time
frame, even more so than did the original Commission proposal. It also
closely aligns with our Tier 3 standards in the Tier 3 time frame.
---------------------------------------------------------------------------
\34\ Council of the European Union, ``Directive of the European
Parliament and of the Council amending Directive 97/68/EC'', March
15, 2004.
---------------------------------------------------------------------------
For engines of 50-750 hp, the Directive's standards are very
closely aligned with our own Tier 4 standards, including emissions
levels, implementation dates, the defined power categories, and the
lower hp limit of NOX control based on high-efficiency
exhaust emission controls (75 hp). Exceptions are noted below:
The 2008 PM standard level for 50-75 hp engines (the
equivalent of 0.3 g/bhp-hr vs our 0.22 g/bhp-hr level). Note, however,
that we do allow certification to the 0.3 g/bhp-hr level as an option,
provided the manufacturer must then meet our 0.02 g/bhp-hr standard in
2012, one year earlier than otherwise.
The 2013 PM standard level for 50-75 hp engines (the
equivalent of 0.01 g/bhp-hr vs our 0.02 g/bhp-hr level).
An October 1, 2014 start for the final 75-175 hp
NOX standard (the same as our proposed date), compared to
the December 31, 2014 date we are adopting in this final rule.
For constant speed engines: no Tier 4-equivalent
standards. Also, the EU's Tier 3-equivalent standards are not
implemented on these engines until 2011-2012.
As the EU program does not provide for emissions averaging, the
alternative NOX standards we are setting for 75-750 hp
engines are the NOX levels at which the EU standards are
generally aligned during our NOX phase-in years. The EU
Directive also includes transition flexibility provisions for equipment
manufacturers similar to those in our program, discussed in section
III.B.
The EU program for nonroad diesels has not adopted or proposed any
current or future standards for engines above 750 hp or below 25 hp,
and its revised Directive for 25-50 hp engines does not subject them to
any future standards beyond those entering into force in 2007
(equivalent to 0.45 g/bhp-hr PM and 5.6 g/bhp-hr
hydrocarbon+NOX), in contrast to our 2013 standards based
the use of PM filters and more advanced engine-based control
technologies (0.02 g/bhp-hr PM and 3.5 g/bhp-hr NMHC+NOX).
However, as discussed further in section VIII.A, the EU Directive
includes plans to conduct a future technology review of appropriate
standards for engines below 50 hp and above 750 hp. The year that this
is planned for is 2007, the same year in which we are planning a
technology review for engines below 75 hp. Considering progress to
date, and announced plans for reviews in 2007, we believe that
prospects for harmonized standards are excellent.
9. Exclusion of Marine Engines
For reasons outlined in the proposal, we are not applying Tier 4
standards to the marine diesel engines under 50 hp that are covered
under our Tier 1 and 2 standards. We believe it is more appropriate to
consider more stringent standards for a range of marine diesel engines,
including these, in a future action. It should be noted that the
existing Tier 2 standards will continue to apply to marine diesel
engines under 50 hp until that future action is completed. We did not
receive any adverse comments on this proposed approach.
B. Are the New Standards Feasible?
Today we are finalizing a program of stringent new standards for a
broad category of nonroad diesel engines coupled with a new nonroad
diesel fuel standard that dramatically lowers the sulfur level in
nonroad diesel fuel ultimately to 15 ppm. We believe these standards
are technically feasible in the leadtime provided given the
availability of 15 ppm sulfur fuel and the rapid progress to develop
the needed emission control technologies. We acknowledge, as pointed
out by a number of commenters, that these standards will be challenging
for industry to meet, in
[[Page 38983]]
part due to differences in operating conditions and duty cycles for
nonroad equipment and the diesel engines used in that equipment. Also,
we recognize that transferring and effectively applying these
technologies, which have largely been developed for highway engines,
will require additional time after the application of the technology to
on-highway engines. Diesel engine industry commenters and environmental
stakeholder commenters on our proposal consistently agreed with our
position that for most engine horsepower categories the technologies to
meet the standards exist and that the transfer of these technologies to
nonroad is possible. The biggest difference of opinions in the range of
comments received by the Agency concerns the timing of the emission
standards and the flexibility provisions (i.e., the leadtime necessary
to transfer the technology). One of the most important tasks for a
feasibility analysis is to determine the appropriate amount of
development time needed to successfully bring new technologies to
market. We have carefully weighed the desire to have clean engines
sooner, with the challenges yet to be overcome in applying the
technologies to nonroad engines and equipment, in determining the
appropriate timing and emission levels for the standards finalized
today.
The RIA associated with today's action contains a detailed
description and analysis of diesel emission control technologies,
issues specific to applying these technologies to nonroad engines, and
why we believe the new emission standards are feasible. Additional in-
depth discussion of these technologies can be found in the final RIA
for the HD2007 emission standards, the final RIA for the HD2004
emission standards, the 2002 Highway Diesel Progress Review and the
recently released Highway Diesel Progress Review Report
2.\35\ \36\ \37\ \38\ The following
sections summarize the challenges to applying these technologies to
nonroad engines and why we believe the emission standards finalized
today are technically feasible in the leadtime provided.
---------------------------------------------------------------------------
\35\ Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle
Standards and Highway Diesel Fuel Sulfur Control Requirements,
United States Environmental Protection Agency, December 2000,
EPA420-R-00-026. Copy Available in EPA Air Docket A-2001-28 Item II-
A-01.
\36\ Regulatory Impact Analysis: Control of Emissions of Air
Pollution from Highway Heavy-Duty Engines, United States
Environmental Protection Agency, June 2000, EPA420-R-00-010. Copy
available in EPA Air Docket A-2001-28 Item II-A-02.
\37\ Highway Diesel Progress Review, United States Environmental
Protection Agency, June 2002, EPA 420-R-02-016. Copy available in
EPA Air Docket A-2001-28 Item II-A-52.
\38\ Highway Diesel Progress Review Report 2, United States
Environmental Protection Agency, March 2004, EPA420-R-04-004. Copy
available in Docket OAR-2003-0012-0918.
---------------------------------------------------------------------------
1. Can Advanced Diesel Emission Control Technologies Be Applied to
Nonroad Engines and Equipment?
The emission standards and the introduction dates for those
standards, as described earlier in this section, are premised on the
transfer of diesel engine technologies being or already developed to
meet light-duty and heavy-duty vehicle standards that begin in 2007.
The advanced technology standards that we are finalizing today for
engines over 25 horsepower will begin to go into effect four years
later. This time lag between equivalent highway and nonroad diesel
engine standards is necessary in order to allow time for engine and
equipment manufacturers to further develop these highway technologies
for nonroad engines and to align this program with nonroad Tier 3
emission standards that begin to go into effect in 2006.
This section summarizes the engineering challenges to applying
advanced emission control technologies to nonroad engines and
equipment, and why we believe that technologies developed for highway
diesel engines can be further refined to address these issues in a
timely manner for nonroad engines consistent with the emission
standards finalized today.
a. Nonroad Operating Conditions and Exhaust Temperatures
Nonroad equipment is highly diverse in design, application, and
typical operating conditions. This variety of operating conditions
affects emission control systems through the resulting variety in the
torque and speed demands (i.e., power demands). In our proposal, we
highlighted the challenge for design and implementation of advanced
emission control technologies posed by this wide range in what
constitutes typical nonroad operation. Some commenters emphasized their
concerns regarding this issue as well, and their belief that these
issues make the application of the technology to nonroad infeasible.
While we recognize and agree with the commenters regarding the nature
of the challenges, we disagree with their conclusion regarding
feasibility because, as described in the following section, we see a
clear path to overcome the challenges.
The primary concern for catalyst-based emission control
technologies is exhaust temperature. In general, exhaust temperature
increases with engine power and can vary dramatically as engine power
demands vary. For catalyzed diesel particulate filters (CDPFs), exhaust
temperature determines the rate of filter regeneration, and if too low,
causes a need for supplemental means to ensure proper filter
regeneration. In the case of the CDPF, it is the aggregate soot
regeneration rate that is important, not the regeneration rate at any
particular moment in time. A CDPF controls PM emissions under all
conditions and can function properly (i.e., not plug) even when exhaust
temperatures are low for an extended time and the regeneration rate is
lower than the soot accumulation rate, provided that occasionally
exhaust temperatures and thus the soot regeneration rate are increased
enough to regenerate the CDPF. Similarly, there is a minimum
temperature (e.g., 200 [deg]C) for NOX adsorbers below which
NOX regeneration is not readily possible and a maximum
temperature (e.g., 500 [deg]C) above which NOX adsorbers are
unable to effectively store NOX. Therefore, there is a need
to match diesel exhaust temperatures to conditions for effective
catalyst operation under the various operating conditions of nonroad
engines.
Although the range of products for highway vehicles is not as
diverse as for nonroad equipment, the need to match exhaust
temperatures to catalyst characteristics is still present. This is an
important concern for highway engine manufacturers and has been a focus
of our ongoing 2007 diesel engine progress review. There we have
learned that substantial progress is being made to broaden the
operating temperature window of catalyst technologies while at the same
time to design engine systems to better control average exhaust
temperatures (for ongoing catalyst performance) and to attain
periodically higher temperatures (to control PM filter regeneration and
NOX adsorber desulfation). Highway diesel engine
manufacturers are working to address this need through modifications to
engine design, modifications to engine control strategies, and
modifications to exhaust system designs. New engine control strategies
designed to take advantage of engine and exhaust system modifications
can be used to manage exhaust temperatures across a broad range of
engine operation. The technology solutions being developed for highway
engines to better manage exhaust temperature are built upon the same
emission control technologies (i.e., advanced air handling systems and
electronic fuel injection systems) that we expect nonroad engine
[[Page 38984]]
manufacturers to use in order to comply with the existing Tier 3
emission standards.
Matching the emission control technology and the operating
temperature window of the broad range of nonroad equipment may be
somewhat more challenging for nonroad engines than for many highway
diesel engines simply because of the diversity in equipment design and
equipment use. Nonetheless, the problem has been successfully solved in
highway applications facing low exhaust temperature performance
situations as difficult to address as any encountered by nonroad
applications. The most challenging temperature regime for highway
engines are encountered at very light-loads as typified by congested
urban driving with periods of extended idle operation. Under congested
urban driving conditions, exhaust temperatures may be too low for
effective NOX reduction with a NOX adsorber
catalyst. Similarly, exhaust temperatures may be too low to ensure
passive CDPF regeneration. To address these concerns, light-duty diesel
engine manufacturers have developed active temperature management
strategies that provide effective emissions control even under these
difficult light-load conditions. Toyota has shown with their prototype
diesel particulate NOX reduction (DPNR) vehicles that
changes to EGR and fuel injection strategies can realize an increase in
exhaust temperatures of more than 100 [deg]F under even very light-load
conditions allowing the NOX adsorber catalyst to function
under these normally cold exhaust conditions.\39\ Similarly, PSA
Peugeot Citroen (PSA) has demonstrated effective CDPF regeneration
under demanding light-load taxi cab conditions with current production
technologies. \40\ Both of these are examples of technology paths
available to nonroad engine manufacturers to increase temperatures
under light-load conditions.
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\39\ Sasaki, S., Ito, T., and Iguchi, S., ``Smoke-less Rich
Combustion by Low Temperature Oxidation in Diesel Engines,'' 9th
Aachener Kolloquim Fahrzeug--und Motorentechnik 2000. Copy available
in EPA Air Docket A-2001-28 Item II-A-56.
\40\ Jeuland, N., et al., ``Performances and Durability of DPF
(Diesel Particulate Filter) Tested on a Fleet of Peugeot 607 Taxis
First and Second Test Phases Results,'' October 2002, SAE 2002-01-
2790.
---------------------------------------------------------------------------
While a number of commenters expressed concerns about low
temperature operation for nonroad equipment, no commenters provided
data showing that nonroad equipment in-use operating cycles would be
more demanding of low temperature performance than passenger car urban
driving. Both the Toyota and PSA systems are designed to function even
with extended idle operation as would be typified by a taxi waiting to
pick up a fare.
It is our conclusion that by actively managing exhaust
temperatures, for example through engine management to increase exhaust
temperatures, engine manufacturers can ensure highly effective
catalyst-based emission control performance (i.e., compliance with the
emission standards across the applicable tests) and reliable filter
regeneration across a wide range of engine operation as would be
typified by the broad range of in-use nonroad duty cycles. Active
methods of regenerating PM filters have been shown to be reliable under
all operating conditions and can be applied to nonroad diesel engines
in the time frame required by these regulations. The additional cost
for active regeneration, beyond the cost for the PM filter alone, has
been accounted for in the cost analysis summarized in section VI of
this preamble.
We have conducted an analysis of various nonroad equipment
operating cycles and various nonroad engine power density levels to
better understand the matching of nonroad engine exhaust temperatures,
catalyst installation locations and catalyst technologies. This
analysis, documented in the RIA, shows that for many engine power
density levels and equipment operating cycles, exhaust temperatures are
quite well matched to catalyst temperature window characteristics. In
particular, the nonroad transient cycle (NRTC), the cycle we are
finalizing to use for certification for most engines with rated power
less than 750 hp, was shown to be well matched to the NOX
adsorber characteristics with estimated performance in excess of 90
percent for a turbocharged diesel engine tested under a range of power
density levels. The analysis also indicated that the exhaust
temperatures experienced over the NRTC are better matched to the
NOX adsorber catalyst temperature window than the
temperatures that would be expected over the highway FTP test cycle.
This suggests (when coupled with the fact that PM filters function with
equal effectiveness at essentially all conditions) that compliance
based on testing with the nonroad Tier 4 standards on the NRTC will be
somewhat easier, using similar technology, than complying with the
highway 2007 emission standards on the highway transient test cycle.
In sum, we believe based on our analysis of nonroad engines and
equipment operating characteristics, that, in use, some nonroad engines
will experience conditions that require the use of temperature
management strategies (e.g., active regeneration) in order to
effectively use the NOX adsorber and CDPF systems. We have
assumed in our cost analysis that all nonroad engines complying with a
PM standard of 0.03 g/bhp-hr or lower will have an active means to
control temperature (i.e. we have costed a backup regeneration system,
although some applications likely may not need one). We have made this
assumption believing, as indicated by a number of commenters, that
manufacturers will not be able to accurately predict in-use conditions
for every piece of equipment and will thus choose to provide the
technologies on a back-up basis. As explained earlier, the technologies
necessary to accomplish this temperature management are enhancements of
both the Tier 3 emission control technologies that will form the
starting point for Tier 4 engines larger than 50 hp, and the control
strategies being developed for highway diesel engines.\41\ Based on our
analyses, we believe that there are no nonroad engine applications
above 25 horsepower for which these highway engine approaches for
temperature management will not work. However, we agree with commenters
that given the diversity in nonroad equipment design and application,
additional time will be needed in order to match the engine performance
characteristics to the full range of nonroad equipment.
---------------------------------------------------------------------------
\41\ We do not have Tier 3 emission standards for engines in the
horsepower category from 25-50 hp. However, we expect that similar
Tier 3 emission control technologies will form part of the emission
control technology package used for compliance with the Tier 4
standards for these engines in 2013. Our cost analysis reflects the
additional cost to apply these technologies for NOX and
PM control.
---------------------------------------------------------------------------
We have concluded that, given the timing of the emissions standards
finalized today, and the availability and continuing development of
technologies to address temperature management for highway engines
which technologies are transferrable to all nonroad engines with
greater than 25 hp power rating, nonroad engines can be designed to
meet the new standards in the lead time provided, and can be provided
to equipment makers in a timely manner within that lead time.
b. Nonroad Operating Conditions and Durability
Nonroad equipment is designed to be used in a wide range of tasks,
from mining equipment to crop cultivation and harvesting to excavation
and
[[Page 38985]]
loading, and operated in harsh environments. In the normal course of
equipment operation the engine and its associated hardware will
experience levels of vibration, impacts, and dust that may exceed
conditions typical of highway diesel vehicles. For this reason, some
commenters said that the PM filter technology was infeasible for
nonroad equipment. We disagree with this assertion and continue to
believe that PM filter technologies can be applied to a wide range of
nonroad equipment.
Specific efforts to design for the nonroad operating conditions
will be required in order to ensure that the benefits of these new
emission control technologies are realized for the life of nonroad
equipment. Much of the engineering knowledge and experience to address
these issues already exists with the nonroad equipment manufacturers.
Vibration and impact issues are fundamentally mechanical durability
concerns (rather than issues of technical feasibility of achieving
emissions reductions) for any component mounted on a piece of equipment
(e.g., an engine coolant overflow tank). Equipment manufacturers must
design mounting hardware such as flanges, brackets, and bolts to
support the new component without failure. Further, the catalyst
substrate material itself must be able to withstand the conditions
encountered on nonroad equipment without itself cracking or failing.
There is a large body of real world testing with retrofit emission
control technologies on engines up to 750 hp that demonstrate the
durability of the catalyst components themselves even in the harshest
of nonroad equipment applications. The evidence for even larger engines
(i.e., those above 750 hp) is less conclusive because of the limited
number of applications.
Deutz, a nonroad engine manufacturer, sold approximately 2,000
diesel particulate filter systems for nonroad equipment in the period
from 1994 through 2000. The very largest of these systems were limited
to engine sizes below 850 hp. The majority of these systems were sold
into significantly smaller applications. Many of these systems were
sold for use in mining equipment. Mining equipment is exposed to
extraordinarily high levels of vibration, experiences impacts with the
mine walls and face, and encounters high levels of dust. Yet in
meetings with the Agency, Deutz shared their experience that no system
had failed due to mechanical failure of the catalyst or catalyst
housing.\42\ The Deutz system utilized a conventional cordierite PM
filter substrate as is commonly used for heavy-duty highway truck CDPF
systems. The canning and mounting of the system was a Deutz design.
Deutz was able to design the catalyst housing and mounting in such a
way as to protect the catalyst from the harsh environment as evidenced
by its excellent record of reliable function.
---------------------------------------------------------------------------
\42\ ``Summary of Conference Call between U.S. EPA and Deutz
Corporation on September 19, 2002 regarding Deutz Diesel Particulate
Filter System'', EPA Memorandum to Air Docket A-2001-28 Item II-B-
31.
---------------------------------------------------------------------------
A number of commenters asserted that it was not possible to apply
conventional CDPF technologies (i.e., ceramic wall-flow filter media)
to the largest diesel engines with power ratings above 750 hp. In the
draft RIA for the proposal, we described our expectation that these
highway-based systems could be assembled into larger systems to work
well for these largest diesel engines. While we continue to believe
that it may be possible in the time frame of this rulemaking for these
conventional CDPFs to be applied to engines with more than 750 hp,
based on the evidence provided by the commenters, we now agree that too
much uncertainty remains for us to reach that conclusion today. We
cannot clearly today describe a method to monitor the soot loading of
individual filter elements in a parallel system made up of a
significant number of smaller components. This is because for parallel
systems the pressure drop (the best current method to monitor filter
condition) across all of the parallel components is exactly the same.
If a single filter begins to plug and needs to be regenerated it may
not be detected in such a system. Therefore, we believe that instead of
a massively parallel filter system, an alternate PM filtering media may
be more appropriate in order to address issues of scalability,
durability and packaging for these largest engines. Fortunately, there
are other filter media technologies (e.g., wire or fiber mesh depth
filters) that can be successfully scaled to any size and which we have
confidence in projecting today will be a more appropriate solution for
the bulk of the engines in this size category. Because these depth
filtration technologies are not quite as efficient at filtering PM as
the ceramic systems that are the dominant solution for the smaller
highway diesel engines, we are finalizing a set of PM filter-based
standards for engines greater than 750 hp which are slightly higher
than the proposed PM standards for these engines. Those standards are
discussed in sections II.A and II.B.3 below. Our cost estimates
summarized in section VI for engines greater than 750 hp are consistent
with the use of either silicon carbide or wire mesh PM filter
technologies.
Certain nonroad applications, including some forms of harvesting
equipment, consumer lawn and garden equipment, and mining equipment,
may have specific limits on maximum surface temperature for equipment
components in order to ensure that the components do not serve as
ignition sources for flammable dust particles (e.g., coal dust or fine
crop/lawn dust). Some commenters have raised concerns that these design
constraints might limit the equipment manufacturers ability to install
advanced diesel catalyst technologies such as NOX adsorbers
and CDPFs. This concern seems to be largely based upon anecdotal
experience with gasoline catalyst technologies where under certain
circumstances catalyst temperatures can exceed 1,000 [deg]C and without
appropriate design considerations could conceivably serve as an
ignition source. We do not believe that these concerns are justified in
the case of either the NOX adsorber catalyst or the CDPF
technology. Catalyst temperatures for NOX adsorbers and
CDPFs should not exceed the maximum exhaust manifold temperatures
already commonly experienced by diesel engines (i.e., catalyst
temperatures are expected to be below 800 [deg]C).\43\ CDPF
temperatures are not expected to exceed approximately 700 [deg]C in
normal use and are expected to only reach the 650 [deg]C temperature
during periods of active regeneration. Similarly, NOX
adsorber catalyst temperatures are not expected to exceed 700 [deg]C
and again only during periods of active sulfur regeneration as
described in section III.C below. Under conditions where diesel exhaust
temperatures are naturally as high as 650 [deg]C, no supplemental heat
addition from the emission control system will be necessary for
regeneration and therefore exhaust temperatures will not exceed their
natural level. When natural exhaust temperatures are too low for
effective emission system regeneration
[[Page 38986]]
then supplemental heating, as described earlier, may be necessary but
would not be expected to produce temperatures higher than the maximum
levels normally encountered in diesel exhaust. Furthermore, even if it
were necessary to raise exhaust temperatures to a higher level in order
to promote effective emission control, there are technologies available
to isolate the higher exhaust temperatures from flammable materials
such as dust. One approach would be the use of air-gapped exhaust
systems (i.e., an exhaust pipe inside another concentric exhaust pipe
separated by an air-gap) that serve to insulate the inner high
temperature surface from the outer surface which could come into
contact with the dust. The use of such a system also may be desirable
in order to maintain higher exhaust temperatures inside the catalyst in
order to promote better catalyst function. Another technology to
control surface temperature already used by some nonroad equipment
manufacturers is water cooled exhaust systems.\44\ This approach is
similar to the air-gapped system but uses engine coolant water to
actively cool the exhaust system.
---------------------------------------------------------------------------
\43\ The hottest surface on a diesel engine is typically the
exhaust manifold which connects the engines exhaust ports to the
inlet of the turbocharger. The hot exhaust gases leave the engine at
a very high temperature (800 [deg]C at high power conditions) and
then pass through the turbocharger where the gases expand driving
the turbocharger providing work. The process of extracting work from
the hot gases cools the exhaust gases. The exhaust leaving the
turbocharger and entering the catalyst and the remaining pieces of
the exhaust system is cooler (as much as 200 [deg]C at very high
loads) than in the exhaust manifold.
\44\ ``Engine Technology and Application Aspects for Earthmoving
Machines and Mobile Cranes,'' Dr. E. Brucker, Liebherr Machines
Bulle, SA, AVL International Commercial Powertrain Conference,
October 2001. Copy available in EPA Air Docket A-2001-28, Docket
Item II-A-12.
---------------------------------------------------------------------------
We thus do not believe that flammable dust concerns will prevent
the use of either a NOX adsorber or a CDPF because catalyst
temperatures are not expected to be unacceptably high and because
remediation technologies exist to address these concerns. In fact,
exhaust emission control technologies (i.e., aftertreatment) have
already been applied on both an original equipment manufacturer (OEM)
basis and for retrofit to nonroad equipment for use in potentially
explosive environments. Many of these applications must undergo
Underwriters Laboratory (UL) approval before they can be used.\45\
Therefore, while we appreciate the commenters' concerns regarding
safety, we remain convinced that the application of these emission
control technologies will not compromise (or decrease) equipment
safety.
---------------------------------------------------------------------------
\45\ Phone conversation between Byron Bunker, United States
Environmental Protection Agency and Dale McKinnon, Manufacturers of
Emission Control Association (MECA), 9 April, 2003 confirming the
use of emission control technologies on nonroad equipment used in
coal mines, refineries, and other locations where explosion proofing
may be required.
---------------------------------------------------------------------------
We agree that nonroad equipment must be designed to address safety
and durable performance for a wide range of operating conditions and
applications that would not commonly be experienced by highway
vehicles. We believe further as demonstrated by retrofit experiences
around the world that technical solutions exist which allow catalyst-
based emission control technologies to be applied to nonroad equipment.
2. Are the Standards for Engines 75-750 hp Feasible?
There are three primary test provisions and associated standards in
the Tier 4 program we are finalizing today. These are the Nonroad
Transient Cycle (NRTC), the existing International Organization for
Standardization (ISO) C1 steady-state cycle, and the highway-based Not-
To-Exceed (NTE) provisions.\46\ Under today's rules, most nonroad
diesel engines must meet the new standards for each of these three test
cycles (the exceptions are noted below). Compliance on the transient
test cycle includes weighting the results from a cold start and hot
start test with the cold start emissions weighted at 1/20 and hot start
emissions weighted at 19/20. Additionally, we have alternative optional
test cycles including the existing ISO-D2 steady-state cycle and the
Transportation Refrigeration Unit (TRU) cycle which a manufacturer can
choose to use for certification in lieu of the NRTC and the ISO-C1,
provided that the manufacturer can demonstrate to the Agency that the
engine will only be used in a limited range of nonroad equipment with
known operating conditions. A complete discussion of these various test
cycles can be found in chapter 4.2, 4.3, and 4.4 of the RIA.
---------------------------------------------------------------------------
\46\ As an alternative to compliance with the ISO C1 test
procedure, a manufacturer can show compliance with the standards by
testing over the Ramped Modal Cycle (RMC) as described in section
III.F.
---------------------------------------------------------------------------
The standards we are finalizing today for nonroad engines with
rated power from 75 to 750 hp are based upon the performance of
technologies and standards for highway diesel engines which go into
effect in 2007. As explained above, we believe these technologies,
namely NOX adsorbers and catalyzed diesel particulate
filters enabled by 15 ppm sulfur diesel fuel, can be applied to nonroad
diesel engines in a similar manner as for highway diesel engines. The
combustion process and the means to modify that process are
fundamentally the same for highway and nonroad diesel engines
regardless of engine size. The formation mechanism and quantity of
pollutants formed in diesel engines are fundamental characteristics of
engine design and are not inherently different for highway and nonroad
engines regardless of engine size. The effectiveness of NOX
adsorbers to control NOX emissions and CDPFs to control PM,
NMHC, and CO emissions are determined by fundamental catalyst and
filter characteristics. Therefore, we disagree with commenters who
suggest that these highway technology based emission standards are
infeasible for nonroad engines. We acknowledge the comments raised
regarding the unique characteristics nonroad diesel engines which must
be considered in setting these standards, and we have addressed those
issues by allowing (where appropriate) for additional lead time or
slightly less stringent standards for nonroad diesel engines in
comparison to highway diesel engines (and likewise have made
appropriate cost estimates to account for the technology and
engineering needed to address these issues).
PM Standard. We are finalizing a PM standard for engines in this
category of 0.01 g/bhp-hr based upon the emissions reductions possible
through the application of a CDPF and 15 ppm sulfur diesel fuel. This
is the same emissions level as for highway diesel engines in the heavy-
duty 2007 (HD2007) program (66 FR 5001, January 18, 2001). While
emission levels of engine-out soot (the solid carbon fraction of PM)
may be somewhat higher for some nonroad engines when compared to
highway engines, these emissions are virtually eliminated (reduced by
99 percent) by the CDPF technology. With application of the CDPF
technology, the soluble organic fraction (SOF) portion of diesel PM is
predicted to be all but eliminated. The primary emissions from a CDPF
equipped engine are sulfate PM emissions formed from sulfur in diesel
fuel. The emissions rate for sulfate PM is determined primarily by the
sulfur level of the diesel fuel and the rate of fuel consumption. With
the 15 ppm sulfur diesel fuel, the PM emissions level from a CDPF
equipped nonroad diesel engine will be similar to the emissions rate of
a comparable highway diesel engine. Therefore, the 0.01 g/bhp-hr
emission level is feasible for nonroad engines tested on the NRTC cycle
and on the steady-state cycles, ISO-C1 and ISO-D2. Put another way,
control of PM using CDPF technology is essentially independent of duty
cycle given active catalyst technology (for reliable regeneration and
SOF oxidation), adequate control of temperature (for reliable
regeneration) and low sulfur diesel fuel (for reliable regeneration and
low PM emissions). While some commenters argued that PM filters will
[[Page 38987]]
not enable the 0.01 PM emission standard for nonroad engines, we remain
convinced by the demonstration of 0.01 or lower PM emission levels from
a number of diesel engines described in the RIA, that the standard is
feasible given the leadtime provided and the availability of 15 ppm
sulfur diesel fuel. Likewise, the NTE provisions for nonroad engines
are the same as for on-highway engines meeting an equivalent PM control
level. The maximum PM emission level from a CDPF equipped diesel engine
is primarily determined by the maximum fuel sulfur conversion level
experienced at the highest operating conditions. As documented in RIA
chapter 4.1.1.3, testing of diesel engines at conditions representative
of the highest sulfate PM formation rates shows PM levels below the
level required by the NTE provisions when tested on less than 15 ppm
sulfur diesel fuel.
NOX Standard. We are finalizing a NOX
standard of 0.30 g/bhp-hr for engines in this category based upon the
emission reductions possible from the application of NOX
adsorber catalysts and the expected emission levels for Tier 3
compliant engines which form the baseline technology for Tier 4
engines. The Tier 3 emission standards are a combined
NMHC+NOX standard of 3.0 g/bhp-hr for engines greater than
100 hp and less than 750 horsepower. For engines less than 100 hp but
greater than 50 horsepower the Tier 3 NMHC+NOX emission
standard is 3.5 g/bhp-hr. We believe that in the time-frame of the Tier
4 emission standards, all engines from 75 to 750 hp can be developed to
control NOX emissions to engine-out levels of 3.0 g/bhp-hr
or lower.\47\ This means that all engines will need to apply Tier 3
emission control technologies (i.e., turbochargers, charge-air-coolers,
electronic fuel systems, and for some manufacturers EGR systems) to get
to this baseline level. As discussed in more detail in the RIA, our
analysis of the NRTC and the ISO-C1 cycles indicates that the
NOX adsorber catalyst can provide a 90 percent or greater
NOX reduction level on the cycles. The standard of 0.30 g/
bhp-hr reflects a baseline emissions level of 3.0 g/bhp-hr and a
greater than 90 percent reduction of NOX emissions through
the application of the NOX adsorber catalyst. The additional
lead time available to nonroad engine manufacturers and the substantial
learning that will be realized from the introduction of these same
technologies to highway diesel engines, plus the lack of any
fundamental technical impediment, makes us confident that the new
NOX standards can be met.
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\47\ For engines between 75 and 100 horsepower, this may require
re-optimization of the engine to lower NOX emissions if
they are higher than 3.0, but we would not expect any new hardware
beyond the Tier 3 hardware to be required in the Tier 4 timeframe to
accomplish this reduction.
---------------------------------------------------------------------------
Given the fundamental similarities between highway and nonroad
diesel engines, we believe that the NOX adsorber technology
developed for highway engines can be applied with equal effectiveness
to nonroad diesel engines with additional developments in engine
thermal management (as discussed in section II.B.2 above) to address
the more widely varied nonroad operating cycles. In fact, as discussed
previously, the NOX adsorber catalyst temperature window is
particularly well matched to transient operating conditions as typified
by the NRTC.
As pointed out by some commenters, compliance with the NTE
provisions will be challenging for the nonroad engine industry due to
the diversity of nonroad products and operating cycles. However, the
technical challenge is reduced somewhat by the 1.5 multiplier used to
calculate the NTE standard as discussed in section III.J. Controlling
NOX emissions under NTE conditions is fundamentally similar
for both highway and nonroad engines. The range of control is the same
and the amount of reduction required is also the same. We know of no
technical impediment, nor were any raised by commenters, that would
prevent achieving the NTE standard under the zone of operating
conditions required by the NTE.
NMHC Standard. Meeting the NMHC standard under the lean operating
conditions typical of the biggest portion of NOX adsorber
operation should not present any special challenges to nonroad diesel
engine manufacturers. Since CDPFs and NOX adsorbers contain
platinum and other precious metals to oxidize NO to NO2,
they are also very efficient oxidizers of hydrocarbons. NMHC reductions
of greater than 95 percent have been shown over transient and steady-
state test procedures.\48\ Given that typical engine-out NMHC is
expected to be in the 0.40 g/bhp-hr range or lower for engines meeting
the Tier 3 standards, this level of NMHC reduction will mean that under
lean conditions emission levels will be well below the standard. For
the same reasons, there is no obstacle which would prevent achieving
the NTE standard.
---------------------------------------------------------------------------
\48\ ``The Impact of Sulfur in Diesel Fuel on Catalyst Emission
Control Technology,'' report by the Manufacturers of Emission
Controls Association, March 15, 1999, pp. 9 & 11. Copy available in
EPA Air Docket A-2001-28 Item II-A-67.
---------------------------------------------------------------------------
Under the brief episodic periods of rich operation necessary to
regenerate NOX adsorber catalysts, it is possible to briefly
experience higher levels of NMHC emissions. Absent a controlling
standard, it is possible that these NMHC emissions could be high. There
are two possible means to control the NMHC emissions during these
periods in order to meet the NMHC standard finalized today.
Manufacturers can design the regeneration system and the oxygen storage
(oxidation function under rich conditions) of the NOX
adsorber catalyst such that the NMHC emissions are inherently
controlled. This is similar to the control realized on today's three-
way automotive catalysts which also experience operation that toggles
between rich and lean conditions. Secondly, a downstream clean-up
catalyst can be used to oxidize the excess NMHC emissions to a level
below the standard. This approach has been used in the NOX
adsorber demonstration program at EPA described in the RIA. Our cost
analysis for engines in the 75 to 750 hp category includes a cost for a
clean-up catalyst to perform this function.
Cold Start. The standards include a cold start provision for the
NRTC procedure. This means that the results of a cold start transient
test will be weighted with the emissions of a hot start test in order
to calculate the emissions for compliance against the standards. In a
change from the proposed rule, the weightings are 1/20 cold start and
19/20 for the hot start (as opposed to the proposed weightings of 1/10
and 9/10, respectively) as described more fully in chapter 4.2 of the
RIA and section III.F below. Because exhaust temperatures are so
important to catalyst performance, a cold start provision is an
important tool to ensure that the emissions realized in use are
consistent with the expectations of this program. Achieving this
standard represents an additional technical challenge for
NOX control and to a lesser extent CO and NMHC control
(i.e., control of gaseous pollutants). PM control with a CDPF is not
expected to be significantly impacted by cold-start provisions due to
the primary filter mechanism being largely unaffected by temperature.
With respect to achievability of the NOX, CO and NMHC
standards, during the initial start and warmup period for a diesel
engine, the exhaust temperatures are typically below the light-off
temperature of a catalyst. As a result, exhaust stack emissions may
initially be higher during this period of
[[Page 38988]]
operation. The cold start test procedure is designed to quantify these
emissions to ensure that emission control systems are designed
appropriately to minimize the contribution of cold-start emissions.
Cold-start emissions can be minimized by improving catalyst technology
to allow for control at lower exhaust temperatures (i.e., by lowering
the catalyst light-off temperature) and by applying strategies to
quickly raise the exhaust temperature to a level above the catalyst
light-off temperature.
There are a number of technologies available to the engine
manufacturer to promote rapid warmup of the exhaust and emission
control system. These include retarding injection timing, increasing
EGR, and potentially late cycle injection, all of which are
technologies we expect manufacturers to apply as part of the normal
operation of the NOX adsorber catalyst system. These are the
same technologies we expect highway engine manufacturers to use in
order to comply with the highway cold start FTP provision which weights
cold start emissions more heavily with a 1/7 weighting. As a result, we
expect the transfer of highway technology to be well matched to
accomplish this control need for nonroad engines as well. Using these
technologies we expect nonroad engine manufacturers to be able to
comply with the new Tier 4 NOX, CO, and NMHC emission
standards including the cold start provisions of the transient test
procedure.
One commenter has raised the concern that if diesel engines are no
cleaner than 3 g/bhp-hr NOX and if NOX adsorbers
can be no more efficient than 90 percent, then any increase in
NOX emissions above the 0.30 g/bhp-hr level on a cold-start
test will make the emission standards infeasible. We should clarify,
when discussing the emission reduction potential of the NOX
adsorber catalyst generically in the NPRM, we have sometimes simply
stated that it is 90 percent or more effective without plainly saying
that this refers to our expectation for average performance considering
both cold and hot start emissions. More precisely then, we would expect
lower effectiveness over the cold-start test procedure with somewhat
higher effectiveness realized over the hot-start test procedure.
Because of the relative weightings of the two test cycles (i.e., 1/20
for the cold-start and 19/20 for the hot-start), although the
degradation of performance below 90 percent over the cold-start cycle
can be substantially greater than the performance above 90 percent
realized over the hot-start cycle, the standards remain feasible. For
example, even if the average NOX adsorber performance over
the cold-start test cycle was only 70 percent, the average
NOX adsorber performance over the hot-start portion of the
test cycle would only need to be 91 percent in order to realize a
weighted average performance of 90 percent. Similarly, were the cold-
start test cycle performance only 50 percent, the hot-start performance
would only need to be 92 percent in order to realize a weighted average
performance of 90 percent.\49\ We are confident, based on our estimates
of NOX adsorber performance over the nonroad test cycle
summarized in the RIA, that NOX adsorber performance in
excess of 92 percent can be expected in the time frame of the
requirements finalized today.
---------------------------------------------------------------------------
\49\ The combined weighted average performance is calculated as
1/20 (cold-start) + 19/20 (hot-start). Hence it can be seen that 1/
20 (70%) + 19/20 (91%) = 90% and likewise that 1/20 (50%) + 19/20
(92%) = 90%.
---------------------------------------------------------------------------
Complying with the PM standard given consideration of the cold
start test procedure is not expected to be as challenging as compliance
with the NOX standard. The effectiveness for PM filtration
is not significantly effected by exhaust temperatures, as noted
earlier. Thus, PM emission levels are similar over the cold and hot
start tests.
The standards that we are finalizing today for nonroad engines with
rated horsepower levels from 75 to 750 hp are based upon the same
emission control technologies, clean 15 ppm or lower sulfur diesel
fuel, and relative levels of emission control effectiveness as the HD
2007 emission standards. We have given consideration to the diversity
of nonroad equipment for which these technologies must be developed and
the timing of the Tier 3 emissions standards in determining the
appropriate timing for the Tier 4 standards. Based upon the
availability of the emission control technologies, the proven
effectiveness of the technologies to control diesel emissions to these
levels, the technology paths identified here to address constraints
specific to nonroad equipment, and the additional lead time afforded by
the timing of the standards, we have concluded that the standards are
technically feasible in the leadtime provided.
3. Are the Standards for Engines Above 750 hp Feasible?
The preceding discussion of the standards for engines of 75 to 750
hp highlights the main thrust of our new Tier 4 program, a focus on
realizing very low on-highway like emission levels for the vast
majority of nonroad diesel engines. The emission standards and the
combination of technologies that we expect will be used to meet those
standards are virtually identical to the HD2007 program for on-highway
engines. The following three sections (II.B.3, II.B.4, and II.B.5)
describing the feasibility of the standards for engines above 750 hp,
from 25 to 75 hp, and below 25 hp, while following the same pattern and
objective, take additional consideration of the fact that engines and
equipment in these size categories have no direct on-highway equivalent
and differ from highway engines in substantial ways that cause us to
reach differing conclusions regarding the appropriate standards and
timing for those standards. Whether in scale, or use, or operating
conditions, the characteristics of these engines and equipment are such
that we have taken particular consideration of them in setting the
timing and level of the standards. The remainder of this section
(II.B.3) discusses what makes the above 750 hp category unique and why
the standards which we are adopting are technologically feasible.
a. What Makes the Over 750 hp Category Different?
The first and most obvious difference for engines in this
horsepower category is scale. No on-highway engines come close to the
size of the largest engines in this category which can produce in
excess of 3,000 horsepower, consist of 16 or more cylinders and have 12
or more turbochargers. The engines, and the equipment that they power,
are quite simply significantly larger than any on-highway diesel
engine. Many commenters argued that emission technologies from on-
highway vehicles could not be simply scaled up for these larger engines
and that if they were, the consequences of this resizing would include
structural weakness and reduced system robustness. As discussed below,
our review of the information provided with these comments and our
subsequent analysis of the technical characteristics of some emission
control components has led us to conclude that revised emission
standards (based on performance of different technologies that those
whose performance formed the basis for the proposed rule) from those we
proposed for this horsepower category are appropriate and available.
We have concluded that it is appropriate to distinguish between two
broad categories of engines over 750 hp grouped by application: Mobile
machines and generator sets. Mobile machines include the very largest
nonroad equipment used in mining trucks and large excavation equipment.
[[Page 38989]]
The environment and operating conditions (especially for vibration)
represent the harshest application into which nonroad engines are
applied. Design considerations for technologies used to control
emissions from engines in these applications must first consider
robustness to the harsh environments that will be experienced in use.
In contrast, mobile nonroad generator sets operate in relatively good
operating environments. In addition, while mobile nonroad generator
sets can, and are moved between operating locations, they are always
stationary during actual operation. Thus the levels of vibration and
the general environment for engine operation are significantly less
demanding for generator sets than for mobile machines. Also the dynamic
range of operation is significantly narrower and less demanding for
generator sets. Designed to operate at a set engine speed, synchronous
to the frequency cycle desired for electric generation (i.e., 1200 or
1800 RPM for 60 hz), diesel engines designed for generator set
applications can be optimized for operation in this narrow range.
We have given specific consideration to the unique engineering
challenges for engines in this horsepower category in determining the
appropriate emission standards set in today's action. We have also
taken into account the important differences between generator set
applications and other mobile applications in developing standards for
this horsepower category.
b. Are the New Tier 4 Standards for Over 750 hp Engines Technologically
Feasible?
The emission standards described in section II.A above describe a
comprehensive program for engines over 750 hp that give consideration
to both the physical size of these engines and the applications into
which these engines are applied. Engines in this power category must
show compliance with the C1 or D2 steady-state test cycles as
appropriate as well as with the NTE provisions finalized today. As
described in sections III.F and III.G, these engines will not be tested
over the NRTC nor will they be subject to a cold-start test procedure.
The feasibility discussion in this section describes expected
performance of the engines over the required test cycles and the NTE.
This section will briefly summarize the feasibility analysis contained
in the RIA for these engines.
PM Standards. Beginning in 2011 all nonroad diesel engines above
750 hp must meet a PM standard of 0.075 g/bhp-hr. We believe that this
PM standard is feasible based on the substantial reductions in sulfate
PM due to the use of 15 ppm sulfur diesel fuel and the potential to
improve the combustion process to reduce PM emissions formed in the
engine. Specifically, we believe based on the evidence in the RIA that
increasing fuel injection pressure, improving electronic controls and
optimizing the combustion system geometry will allow engine
manufacturers to meet this level of PM control in 2011. Some engine
manufacturers have in fact indicated to the Agency that this level of
control represents an achievable goal by 2011. One commenter argued
however, that a more relaxed standard of 0.1 g/bhp-hr based on today's
on-highway diesel engine performance would be appropriate. We disagree
with this comment, believing that given the substantial leadtime
available and the potential for further improvements in combustion
systems, that it is appropriate to set a forward looking PM standard of
0.075 g/bhp-hr. Conversely, other commenters argued that future on-
highway PM filter technology should be applied to this class of engines
as early as 2011 (i.e., that a standard of 0.01 g/bhp-hr PM is
appropriate). While we agree with the commenters that in the long-term
it will be appropriate to apply filter-based emission control
technologies to these engines, we do not agree that such control is
appropriate as early as 2011. As the following section explains, we
believe that there are remaining technical challenges to be addressed
prior to the application of PM filters to these engines and that it is
necessary to allow additional leadtime for those challenges to be
addressed.
Beginning in 2015 all nonroad engines over 750 hp must meet
stringent PM filter technology-based emission standards of 0.02 g/bhp-
hr for engines used in generator set applications and 0.03 g/bhp-hr for
engines used in mobile machine applications. We are predicating these
emission standards based on the application of a different form of
diesel particulate filter technology, a wire or fiber mesh depth filter
rather than a ceramic wall flow filter. Wire mesh filters are capable
of reducing PM by 70 percent or more. We have not based these standards
upon the more efficient (>90 percent) control possible from ceramic
wall flow style PM filters, because we believe that the application of
the wall flow filter technology on engines of this size has not been
adequately demonstrated at this time. While it would certainly be
possible to apply the ceramic-based technology to these larger engines,
we cannot today conclude with certainty that such systems would be as
robust in-use as needed (see earlier discussion in section II.B.1.b).
Considering the information available to the Agency today, we believe
it appropriate to set the long term PM standard for these very large
engines based on technologies which we can project with confidence will
give high levels of emission reduction, durability, and robustness when
scaled to these very large engine sizes.
The 0.01 g/bhp-hr difference in the PM emission standards between
the standard for generator sets and for other mobile applications in
this category (0.01 g/bhp-hr lower for generator sets) reflects our
expectation that engine-out emissions from generator sets can be
reduced below the level for mobile machines due to generator set
operation at a single engine speed. Without the need to provide full
power and control over the wider range of possible operating conditions
that mobile machines must deliver, we believe that the air handling
systems (especially the turbocharger match to the engine) can be
improved to provide a moderate reduction in engine-out emissions. This,
coupled with the reduction afforded by the PM filter technology, would
allow generator sets to meet a more stringent 0.02 g/bhp-hr standard.
Diesel engines designed for use in generator sets meeting this standard
will need to demonstrate compliance over the appropriate test cycles,
either the ISO C1 or D2 tests. As discussed in RIA chapter 4.3.6.2, PM
emission rates are nearly the same for steady-state testing or for
alternative ramped modal cycle (RMC) testing. These test cycles, like
the engines, are designed to be representative of the range of
operation expected from a generator set.
As discussed previously, PM emission control over the NTE region
for PM filter equipped diesel engines is predominantly a function of
sulfate formation at high exhaust temperatures. Given that fuel
consumption (and thus sulfur) consumption rates on a brake specific
basis tend to be lower for engines above 750 hp, we can conclude that
the increase in PM emissions over the NTE region will likely be lower
for these engines than for engines meeting the 0.01 g/bhp-hr standard.
Thus, we can conclude based on the evidence in the RIA that compliance
with the NTE provisions for PM is feasible for engines over 750 hp.
Although we are projecting that manufacturers will comply with this
standard using a slightly less efficient PM filter technology, we
remain convinced that 15 ppm sulfur diesel fuel
[[Page 38990]]
will still be a necessity for this technology to be applied. Regardless
of the filter media chosen for the PM filter, the filter will still
require catalyst-based systems to ensure robust regeneration and
adequate control of the SOF portion of PM. As these catalyst-based
technologies are adversely impacted by sulfur in diesel fuel as
described in II.C below, 15 ppm sulfur diesel fuel will be required in
order to ensure compliance with the PM standards finalized here for
engines over 750 hp.
NOX Standards. As with the PM standards, we are setting
distinct NOX standards for this category of engines
reflecting particular concerns with the application of technologies to
engines of this size and our desire to realize significant
NOX reductions as soon as possible. There are two sets of
NOX standards that we are finalizing today, a 0.50 g/bhp-hr
NOX standard for engines used in generator set applications
and a 2.6 g/bhp-hr NOX standard for mobile machines.
For engines used in generator set applications we are finalizing a
0.50 g/bhp-hr standard that goes into effect for engines above 1,200 hp
in 2011 and in 2015 for engines above 750 hp. We see two possible
technology options for manufacturers to meet these standards. First,
compliance with this NOX standard will be possible through
the application of a dual bed NOX adsorber system (i.e., a
system that allows regeneration to be controlled external to the
engine). This approach can work well for generator set applications
where packaging constraints and vibration issues are greatly reduced.
Since this approach requires limited engine redesign, it would be an
appealing approach for these large engines sold in very low volumes.
NOX adsorber systems for stationary power generation
(systems that never move) are available today on a retrofit basis, and
we believe with further development to address packaging and durability
concerns that similar systems can be applied to mobile generator
sets.\50\
---------------------------------------------------------------------------
\50\ Emerachem EMx\TM\ Datasheet--Describing the EMx IC
(Internal Combustion) System Air Docket OAR-2003-0012-0948.
---------------------------------------------------------------------------
A second possible technology option for engines in this category is
urea SCR. The challenges for urea SCR in mobile applications are well
known, specifically a lack of urea infrastructure to provide urea
refill at diesel fueling locations and a need to ensure that urea is
added as necessary in use.\51\ These hurdles can be addressed more
easily for generator sets than for virtually any other mobile source
emission category. Although nonroad generator sets are mobile, in
operation they remain at a fixed location where fuel is delivered to
them periodically (i.e., a 1,200 hp generator set does not and cannot
pull into the local truck stop for a fuel fill). Therefore, the same
infrastructure that currently provides urea delivery for stationary
power generation can also be utilized for nonroad generator set
applications.\52\ It would still remain for the manufacturer to develop
a mechanism to ensure urea refill, but we believe it is likely that
solutions to this problem can be addressed through monitoring as for
stationary source emissions or other technology options (e.g., a urea
interlock that precludes engine operation without the presence of
urea).
---------------------------------------------------------------------------
\51\ See for example 68 FR 28375, May 23, 2003.
\52\ Fleetguard StableGuard\TM\ Urea Premix for use with SCR
NOX Reduction Systems, Air Docket A-2001-28 Item IV-A-04.
---------------------------------------------------------------------------
Either of these technology approaches could be applied to realize
an approximately 90 percent reduction from the current Tier 2 emission
levels for these engines in order to comply with an emission standard
of 0.50 g/bhp-hr. The 0.50 g/bhp-hr standard is different from our
proposed level of 0.30 g/bhp-hr reflecting the changes we have made in
this final action to the implementation schedule for this class of
engines and therefore our projections for a technology path. At the
time of the proposal, we projected that this class of engine would
follow an integrated two-step technology path. We are now finalizing a
program that anticipates the application of 90 percent effective
NOX control to diesel engines for use in generator sets
without a reduction in engine-out NOX levels beyond Tier 2.
This reflects our desire to focus on getting the largest emission
reduction possible in the near term (beginning in 2011) from these
engines. Where we believe additional technology development is needed,
as is the case for mobile machines over 750 hp, we are finalizing a
more gradual emission reduction technology pathway anticipating further
reductions in engine-out NOX emissions followed by a
possible future action to reduce emissions further as described in
section II.A. RIA chapter 4.1.2.3.3 describes NOX adsorber
effectiveness to control NOX emissions including
effectiveness over the NTE region. The discussion there is equally
applicable to engines above and below 750 hp regarding NTE performance
because the key attribute of NTE performance (exhaust temperature) is
similar for engines across the horsepower range.
For engines over 750 hp used in mobile machines (and for 750-1200
hp generator sets from 2011 until 2015) we are setting a new
NOX standard of 2.6 g/bhp-hr beginning in 2011. We are
predicating this level of emission control (an approximate 50 percent
reduction from Tier 2) on an improved combustion system and proven
engine-based NOX control technologies. Specifically, we
believe manufacturers can apply either proven cooled EGR technology, or
apply additional levels of engine boost, a limited form of Miller Cycle
operation, and increased intercooling capacity for the two-stage
turbocharging systems that are used on these engines. The second
approach for in-cylinder emissions reductions is similar in description
at least to the Caterpillar ACERT technology which we believe could be
another path for compliance with this standard. We are projecting a
modest increase in heat-rejection to the engine coolant for these in-
cylinder emission control solutions and have accounted for those costs
in our cost analysis. These approaches for NOX reduction
have been proven for on-highway diesel engines since 2003 including
compliance with NTE provisions similar to those for nonroad engines
finalized here. We can conclude based on the on-highway experience that
the NTE provisions can be met for engines in this horsepower category.
One commenter suggested that a standard of 3.5 g/bhp-hr would be
achievable in this time frame. As described here, we believe that
further emission reductions to 2.6 g/bhp-hr are possible in this time
frame. Engine manufacturers have indicated to the Agency that they
believe this level of in-cylinder emission control can be realized for
these very large diesel engines by 2011. We are deferring any decision
on setting aftertreatment based NOX standards for mobile
machinery above 750 hp to allow additional time to evaluate the
technical issues involved, as discussed in section II.A.4.
NMHC Standards. We are setting two different NMHC emission
standards for engines in this category linked to the technologies used
to control PM emissions. We are requiring all engines over 750 hp to
meet an NMHC standard of 0.30 g/bhp-hr starting in 2011. As explained
earlier, in 2011 all engines over 750 hp must meet a PM emission
standard of 0.075 g/bhp-hr. We are projecting that manufacturers will
meet this standard through improvements in in-cylinder emission control
of PM (in conjunction with use of 15 ppm sulfur diesel fuel). These PM
control technologies, increased fuel injection
[[Page 38991]]
pressure, improved electronic controls and enhanced combustion system
designs will concurrently lower NMHC emissions to the NMHC standard of
0.30 g/bhp-hr.
The second step in our NMHC standards is to a level of 0.14 g/bhp-
hr, consistent with the standard for on-highway diesels beginning in
2007 and for other nonroad diesel engines from 75 to 750 hp beginning
in 2011. This change in NMHC standards is timed to coincide with the
requirement that engines over 750 hp meet stringent PM emission
standards that we believe will require the use of catalyst-based diesel
particulate filter systems. These systems are expected to incorporate
oxidation catalyst functions to control the SOF portion of diesel PM
and to promote robust soot regeneration within the filter. This same
oxidation function is highly effective at controlling NMHC emissions
(the RIA documents reductions of more than 80 percent) and will result
in a reduction in NMHC emissions below the 0.14 g/bhp-hr standard for
these engines. As the high level of NMHC control afforded by the
application of this technology is broadly realized across the wide
range of diesel engine operation, it will allow for compliance with the
NTE provisions as well. Although in practice we expect that NMHC
emissions may be lower than the 0.14 g/bhp-hr standard, we have not
finalized a more stringent standard for NMHC in order to maintain
consistency with the NMHC standard we are finalizing for engines from
75 hp to 750 hp, for which the NMHC standard is in part based on
feasibility considerations for NOX adsorber catalyst systems
that use diesel fuel to regenerate themselves (with consequent
increased NMHC emissions during regeneration events). We believe this
is appropriate considering our expectation that NOX adsorber
technology will be found feasible for all nonroad engines over 750 hp.
4. Are the New Tier 4 Standards for Engines 25-75 hp Feasible?
As discussed in section II.B, our standards for 25-75 hp engines
consist of a 2008 transitional standard and long-term 2013 standards.
The transitional standard is a 0.22 g/bhp-hr PM standard. The 2013
standards consist of a 0.02 g/bhp-hr PM standard and a 3.5 g/bhp-hr
NMHC+NOX standard.\53\ As discussed in section II.A, the
transitional standard is optional for 50-75 hp engines, as the 2008
implementation date is the same as the effective date of the Tier 3
standards. Manufacturers may decide, at their option, not to undertake
the 2008 transitional PM standard, in which case their implementation
date for the 0.02 g/bhp-hr PM standard begins in 2012. The remainder of
this section discusses what makes the 25-75 hp category unique and why
the standards are technologically feasible.
---------------------------------------------------------------------------
\53\ The 2013 NOX+NMHC standard is a new standard
only for engines in the 25-50 hp category. For engines in the 50-75
hp category, 3.5 g/bhp-hr NOX+NMHC is the existing Tier 3
emission standard which will now also apply across the new regulated
test cycles (e.g., NRTC).
---------------------------------------------------------------------------
a. What Makes the 25-75 hp Category Unique?
As EPA explained in the proposal, and as discussed in section II.A,
one cannot assume that highway technologies are automatically
transferable to 25-75 hp nonroad engines. In contrast with 75-750 hp
engines, which share similarities in displacement, aspiration, fuel
systems, and electronic controls with highway diesel engines, engines
in the 25-75 hp category have a number of technology differences from
the larger engines. These include a higher percentage of indirect-
injection fuel systems, and a low fraction of turbocharged engines (see
generally RIA chapter 4.1). The distinction in the under 25 hp category
is even more pronounced, with no turbocharged engines, nearly one-fifth
of the engines have two cylinders or less, and a significant majority
of the engines have indirect-injection fuel systems.
The distinction is particularly marked with respect to
electronically controlled fuel systems. These are commonly available in
the power categories greater than or equal to 75 hp, but, based on the
available certification data as well as our discussions with engine
manufacturers, we believe there are very limited numbers, if any, in
the 25-75 hp category (and no electronic fuel systems in the less than
25 hp category). The research and development work being performed
today for the heavy-duty highway market is targeted at engines which
are 4-cylinders or more, direct-injection, electronically controlled,
turbocharged, and with per-cylinder displacements greater than 0.5
liters. As discussed in more detail below, as well as in section II.B.5
(regarding the under 25 hp category), these engine distinctions are
important from a technology perspective and warrant a different set of
standards for the 25-75 hp category (as well as for the under 25 hp
category).
b. Are the New Tier 4 Standards for 25-75 hp Engines Technologically
Feasible?
This section will discuss the technical feasibility of both the
interim 2008 PM standard and the 2013 standards. For an explanation and
discussion of the implementation dates, please refer to section II.A.
i. 2008 PM Standards \54\
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\54\ As discussed in section II.B., manufacturers can choose, at
their option, to pull-ahead the 2013 PM standard for the 50-75 hp
engines to 2012, in which case they do not need to comply with the
transitional 2008 PM standard.
---------------------------------------------------------------------------
We are today finalizing the interim PM control program as proposed
for engines in the power category from 25-75 hp. The new PM standard
for 2008 is 0.22 g/bhp-hr over the appropriate steady-state test cycle
(the NRTC and NTE do not apply, for the reasons explained below).\55\
The standard is premised on the use of 500 ppm sulfur diesel fuel and
the potential for improvements in engine-out emission control where
possible or the application of a diesel oxidation catalyst (DOC). Some
commenters raised concerns that this level of emission control from
diesel engines may not be possible in 2008 without fuel cleaner than
500 ppm or without changes in the Tier 3 NMHC+NOX emission
standards. Other commenters, including some engine manufacturers,
supported this interim program. As explained in the following sections,
we continue to believe that these standards are appropriate and
feasible in the leadtime provided.
---------------------------------------------------------------------------
\55\ However, a manufacturer can choose to comply over the TRU
cycle including the associated NTE provisions. Compliance with the
NTE for engines selecting to certify on the TRU cycle is
straightforward because by the very nature of the products, their
operation is directly limited to a small range of operating modes
over which compliance with the emission standard has already been
shown.
---------------------------------------------------------------------------
Engines in the 25-50 hp category must meet Tier 2
NMHC+NOX and PM standards today. We have examined the model
year 2004 engine certification data for engines in the 25-50 hp
category. These data indicate that over 35 percent of the engine
families meet the 2008 0.22 g/bhp-hr PM standard and 5.6 g/bhp-hr
NMHC+NOX standard (unchanged from Tier 2 in 2008) today
(even without 500 ppm sulfur diesel fuel). At the time of the proposal,
we had analyzed model year 2002 data for this power range, which at
that time indicated approximately 10 percent of the engine families
complied with the 2008 requirements. The most recent data for model
year 2004 indicates substantial progress has already been made in just
the past few year in lowering emissions from these engines. This is
primarily due to the implementation of the Tier 2 standards in model
year 2004. The model year
[[Page 38992]]
2001 certification data also showed the 2008 standard were achievable
using a mix of engine technologies (IDI and DI, turbocharged and
naturally aspirated) tested on a variety of certification test
cycles.\56\ A detailed discussion of these data is contained in the
RIA.
---------------------------------------------------------------------------
\56\ The Tier 1 and Tier 2 standards for this power category
must be demonstrated on one of a variety of different engine test
cycles. The appropriate test cycle is selected by the engine
manufacturer based on the intended in-use application of the engine.
---------------------------------------------------------------------------
At the time of the proposal, no certification data was available
for engines in the 50-75 hp range, because those engines were not
subject to a Tier 1 standard and were not subject to Tier 2 standards
until model year 2004. We have now had an opportunity to analyze the
model year 2004 certification data for engines in the 50-75 hp range.
These data shows that more than 70 percent of the engine families in
this power range are capable of meeting the 2008 PM standards today.
However, most of these engines do not yet meet the 3.5 g/bhp-hr Tier 3
NMHC+NOX standard, which is required in 2008. We expect that
to comply with the Tier 3 standards, these engines will use
technologies such as EGR and electronically controlled fuel injection
systems (and we included the costs of these technologies in assessing
the costs of the Tier 3 standards). These technologies have been shown
to reduce NOX emissions by 50 percent without increasing PM
emissions. The certification data show that for the 70 percent of the
engine families which meet the 2008 Tier 4 PM standard (0.22 g/bhp-hr),
a NOX reduction of less than 50 percent is needed for most
of these engines to meet the 2008 Tier 4 NMHC+NOX standard.
A detailed discussion of these data is contained in the RIA.
In addition to using known engine-out techniques, we also project
that the 2008 standards can be achieved with the use of DOCs. DOCs are
passive flow-through emission control devices which are typically
coated with a precious metal or a base-metal washcoat. DOCs have been
proven to be durable in use on both light-duty and heavy-duty diesel
applications. In addition, DOCs have already been used to control
carbon monoxide on some nonroad applications.\57\ Some commenters
raised concerns that DOCs could actually increase PM emissions when
used on 500 ppm sulfur diesel fuel due to the potential for oxidation
of the sulfur in the fuel to sulfate PM. While we agree with the
commenters that sulfur reductions are important to control PM and in
the long term that a 15 ppm fuel sulfur level will be the best
solution, we disagree with the assertion that the amount of sulfate PM
formed from a DOC will be such that compliance with the 0.22 g/bhp-hr
standard will be infeasible. While commenters shared data showing
increased PM emissions when DOCs are used, we have similarly found data
(included in the RIA) that shows an overall reduction in emissions. To
understand this discrepancy, it is important to realize that DOCs can
be designed for operation on a range of fuel sulfur levels. The lower
the fuel sulfur level, the more effective the PM oxidation function,
but even at 500 ppm sulfur a properly designed DOC will realize a net
reduction in PM emissions. DOCs have been successfully applied to
diesel engines for on-highway applications for PM control on 500 ppm
fuel since 1994 through careful design of the DOC trading-off PM
reduction potential and sulfur oxidation potential. The RIA contains
additional analysis describing DOC function, and its expected
effectiveness when applied to nonroad diesel engines.
---------------------------------------------------------------------------
\57\ EPA Memorandum ``Documentation of the Availability of
Diesel Oxidation Catalysts on Current Production Nonroad Diesel
Equipment,'' William Charmley. Copy available in EPA Air Docket A-
2001-28 Item II-B-15.
---------------------------------------------------------------------------
Other commenters argued that the application of DOC to diesel
engines in this category would lead to an even greater emission
reduction than estimated in our proposal, thus allowing the Agency to
finalize a lower PM standard. While we agree that some engines will
have lower emissions than required to meet the standard and that in the
long term (once 15 ppm fuel is widely available) the PM emissions will
be further reduced, we do not believe that an emission level lower than
0.22 g/bhp-hr will be generally feasible in 2008 due to the sulfur
level of diesel fuel of 500 ppm sulfur and the potential for sulfate PM
formation.
In summary then, there are two likely means by which companies can
comply with the interim 2008 PM standard. First, engine manufacturers
can comply with this standard using known engine-out techniques (e.g.,
optimizing combustion chamber designs, fuel-injection strategies). In
fact, some fraction of engines already would comply with the emission
standard. In addition, some engine manufacturers may choose to use
diesel oxidation catalysts to meet this standard. Our cost analysis
makes the conservative assumption (i.e., the higher cost assumption)
that all manufacturers will use DOC catalysts to comply with these
emission standards.
Based on the existence of a number of engine families which already
comply with the 0.22 g/bhp-hr PM standard (and the 2008
NMHC+NOX standard), and the availability of well known PM
reduction technologies such as engine-out improvements and diesel
oxidation catalysts, we project that the 0.22 g/bhp-hr PM standards is
technologically feasible by model year 2008.
ii. 2013 Standards
For engines in the 25-50 range, we are finalizing standards
commencing in 2013 of 3.5 g/bhp-hr for NMHC+NOX and 0.02 g/
bhp-hr for PM. For the 50-75 hp engines, we are finalizing a 0.02 g/
bhp-hr PM standard which will be implemented in 2013, and for those
manufacturers who choose to pull-ahead the standard one-year, 2012
(manufacturers who choose to pull-ahead the 2013 standard for engines
in the 50-75 range do not need to comply with the transitional 2008 PM
standard). A more complete discussion of the options available to
manufacturers and the nature of the transitional program can be found
in section II.A. These standards are measured using the NRTC and
steady-state tests. These engines also will be subject to the NTE
starting with the 2013 model year.
PM Standard. For engines in the horsepower category from 25-75 hp,
we are finalizing a PM standard of 0.02 g/bhp-hr based on the
application of catalyzed diesel particulate filters to engines in this
category. We received a wide range of comments on our proposal with
some arguing that the emission standard could be met earlier than 2013
and others arguing that while technically possible to apply PM filters
to engines in this category, that it was not economically or otherwise
practical to do so.
The RIA discusses in detail catalyzed diesel particulate filters,
including explanations of how CDPFs reduce PM emissions, and how to
apply CDPFs to nonroad engines. We have concluded, as explained above,
that CDPFs can be used to achieve the 0.01 g/bhp-hr PM standard for 75-
750 hp engines. As also discussed in section II.B.2.a above, PM filters
will require active back-up regeneration systems for many nonroad
applications above and below 75 hp because low temperature operation is
an issue across all power categories. One commenter raised concerns
regarding the low exhaust temperatures possibly experienced by small
nonroad engines and argued that such low temperatures make PM filter
regeneration impossible absent the use of active regeneration
technologies. We agree with the commenter that active regeneration, as
described previously, may be necessary and have included the cost for
such
[[Page 38993]]
systems in our cost estimates. See section II.B.1.a. A number of
secondary technologies are likely required to enable proper
regeneration, including possibly electronic fuel systems such as common
rail systems which are capable of multiple post-injections which can be
used to raise exhaust gas temperatures to aid in filter regeneration.
Particulate filter technology, with the requisite trap regeneration
technology, can also be applied to engines in the 25 to 75 hp range. As
explained earlier, the fundamentals of how a filter is able to reduce
PM emissions are not a function of engine power, so that CDPF's are
just as effective at capturing soot emissions and oxidizing SOF on
smaller engines as on larger engines. The PM filter regeneration
systems described in section II.B.2 are also applicable to engines in
this size range and are likewise feasible. There are specific trap
regeneration technologies which we believe engine manufacturers in the
25-75 hp category may prefer over others. For example, some
manufacturers may choose to apply an electronically-controlled
secondary fuel injection system (i.e., a system which injects fuel into
the exhaust upstream of a PM filter). Such a system has been
commercially used successfully by at least one nonroad engine
manufacturer, and other systems have been tested by technology
companies.\58\ However, we recognize that the application of these
technologies will be challenging and will require additional time to
develop. We therefore disagree with commenters who say that the
standard could be met sooner and have decided to finalize the
implementation schedule as proposed.
---------------------------------------------------------------------------
\58\ ``The Optimized Deutz Service Diesel Particulate Filter
System II,'' H. Houben et. al., SAE Technical Paper 942264, 1994 and
``Development of a Full-Flow Burner DPF System for Heavy Duty Diesel
Engines,'' P. Zelenka et. al., SAE Technical Paper 2002-01-2787,
2002.
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As we proposed, we are finalizing a slightly higher PM standard
(0.02 g/bhp-hr rather than 0.01) for engines in this power category. As
discussed in the preamble to the proposed rule and in some detail in
the RIA, with the use of a CDPF, the PM emissions emitted by the filter
are primarily derived from the fuel sulfur (68 FR 28389-28390, May 23,
2003). The smaller power category engines tend to have higher fuel
consumption per unit of work than larger engines. This occurs for a
number of reasons. First, the lower power categories include a high
fraction of IDI engines which by their nature consume approximately 15
percent more fuel than a DI engine. Second, as engine displacements get
smaller, the engine's combustion chamber surface-to-volume ratio
increases. This leads to higher heat-transfer losses and therefore
lower efficiency and higher fuel consumption. In addition, frictional
losses are a higher percentage of total power for the smaller
displacement engines which also results in higher fuel consumption.
Because of the higher fuel consumption rate, we expect a higher
particulate sulfate level, and therefore we have set a 0.02 g/bhp-hr
standard for engines in this power category. We did not receive any
comments on our proposal arguing that the technical basis for this
higher PM level was inappropriate.
The 0.02 g/bhp-hr standard applies to all of the test cycles
applicable to engines in this power category (i.e., the NRTC including
cold-start, the ISO C1, D2 and G2 cycles and the alternative TRU and
RMC cycles, as appropriate). Our feasibility analysis summarized here
and detailed in the RIA takes into consideration these different test
cycles. The control technologies work in a similar manner and provide
the same high level of emission control across these different
operating regimes including the NTE. The most significant effect on
emission performance is related to sulfate PM formation at high load,
high temperature operating conditions. As the RIA details, this level
of high sulfate formation rate is not high enough to preclude
compliance with the PM emission standard with 15 ppm fuel sulfur on the
regulated test cycles nor is it high enough to preclude compliance with
the NTE provisions. At higher fuel sulfur levels however, compliance
with the PM emission standard would not be feasible.
The majority of negative comments on our proposal to set a PM
standard based on the control possible from PM filter technologies
focused on the economic and technical challenges to apply these
technologies and the major engine technology enabler, electronic fuel
systems, to smaller diesel engines. Some commenters acknowledged that
the technologies were ``technically feasible'' but not economically
feasible or practical for engines in this power category. While we
acknowledge that the application of these technologies to diesel
engines in this horsepower category will be challenging and have given
consideration to this in setting the timing for the new standard, we
believe that the technical path for compliance is clear and that the
cost estimates we have made for these engines accurately represent this
technical path. As discussed in the RIA, at the time of the proposal we
projected no significant penetration of electronic fuel systems for
engines in the 50-100 hp range prior to the Tier 3 standards (2008).
Since the proposal, new information regarding model year 2004 engine
certifications has become available. That data show 18 percent of the
engines in the 75-100 hp category already use electronically controlled
fuel systems. In model year 2001, no engines in this category used
electronic fuel systems. We believe this strong trend toward the
introduction of more advanced electronic fuel system technology will
continue in the future and, importantly for engines in the 25-75 hp
category, will extend to ever smaller engine categories due to the user
benefits provided by the technology and the falling cost for such
systems. However, acknowledging the substantial time between now and
2012, and the potential for technologies to mature faster or slower
than we are estimating here, we have decided to conduct a technology
review of these standards as described in section II.A above. This
review will provide EPA with another opportunity to confirm that the
technical path laid out here is indeed progressing in a manner
consistent with our expectations.
NMHC+NOX Standard. As we proposed, we are finalizing a
3.5 g/bhp-hr NMHC+NOX standard for engines in the 25-50 hp
range for 2013. We received limited comments arguing that the
NMHC+NOX standard should be less stringent. Like the PM
standard, some commenters argued that the NOX standard would
be costly and complicated, although not necessarily infeasible to
apply. Other commenters argued that the NOX standard for
engines in this category like the new standard for larger engines,
should be based upon the application of advanced NOX
catalyst-based technologies. As described previously in section II.A,
we do not believe that the catalyst-based NOX technologies
have matured to a state were we can accurately define a feasible
technical path for compliance for engines in this power category. We
intend to revisit this question in our technology review and if we find
that a viable technical path can be described we will consider the
appropriateness of a more stringent catalyst-based standard.
The new standard aligns the NMHC+NOX standard for
engines in this power range with the Tier 3 standard for engines in the
50-75 hp range which are implemented in 2008. EPA's recent Staff
Technical paper which reviewed the technological feasibility of the
Tier 3 standards contains a detailed discussion of a number of
technologies which are capable of achieving a 3.5 g/bhp-hr standard.
These include cooled EGR, uncooled EGR, as well as advanced in-
[[Page 38994]]
cylinder technologies relying on electronic fuel systems and
turbocharging.\59\ These technologies are capable of reducing
NOX emissions by as much as 50 percent. Given the Tier 2
NMHC+NOX standard of 5.6 g/bhp-hr, a 50 percent reduction
would allow a Tier 2 engine to comply with the 3.5 g/bhp-hr
NMHC+NOX standard set in this action. Therefore, we are
projecting that 3.5 g/bhp-hr NOX+NMHC standard is feasible
with the addition of cooled EGR (the basis for our cost analysis) or
other equally effective in-cylinder NOX control technology
as described in the RIA and our recent Staff Technical Paper. In
addition, because this NMHC+NOX standard is concurrent with
the 0.02 g/bhp-hr PM standards which we project will be achievable with
the use of particulate filters, engine designers will have significant
additional flexibility in reducing NOX because the PM filter
will lessen the traditional concerns with the engine-out NOX
vs. PM trade-off.
---------------------------------------------------------------------------
\59\ See section 2.2 through 2.3 in ``Nonroad Diesel Emission
Standards--Staff Technical Paper,'' EPA Publication EPA420-R-01-052,
October 2001. Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------
Our recent highway 2004 standard review rulemaking (see 65 FR
59896, October 2000) demonstrated that a diesel engine with advanced
electronic fuel injection technology as well as NOX control
technology such as cooled EGR is capable of complying with an NTE
standard set at 1.25 times the laboratory-based FTP standard. We
project that the same technology (electronic fuel systems and cooled
EGR) are also capable for engine in the 25-75 hp range of complying
with the NTE standard of 4.4 g/bhp-hr NMHC+NOX (1.25 x 3.5)
in 2013. This is based on the broad NOX reduction capability
of cooled EGR technology, which is capable of reducing NOX
emissions across the engine operating map (including the NTE region) by
at least 30 percent even under high load conditions.\60\
---------------------------------------------------------------------------
\60\ See section 8 of ``Control of Emissions of Air Pollution
from 2004 and Later Model Year Heavy-Duty Highway Engines and
Vehicles: Response to Comments,'' EPA document EPA420-R-00-011, July
2000, and chapter 3 of ``Regulatory Impact Analysis: Control of
Emissions of Air Pollution from Highway Heavy-duty Engines,'' EPA
document EPA420-R-00-010, July 2000. Copies of both documents
available in EPA docket A-2001-28.
---------------------------------------------------------------------------
Based on the information available to EPA and presented here, and
giving appropriate consideration to the lead time necessary to apply
the technology as well, we have concluded the 0.02 g/bhp-hr PM standard
for engines in the 25-75 hp category and the 3.5 g/bhp-hr
NMHC+NOX standards for the 25-50 hp engines are achievable.
5. Are the Standards for Engines Under 25 hp Feasible?
As we explained at proposal and as discussed in section II.A, the
new PM standard for engines less than 25 hp is 0.30 g/bhp-hr beginning
in 2008. The certification test cycle for this standard is the ISO C1
cycle (or other appropriate steady-state test as defined by the
engine's intended use) from 2008 through 2012. Beginning in 2013, the
NRTC (with cold-start) and the NTE will also apply to engines in this
category. As discussed below, we are not setting a new standard more
stringent than the existing Tier 2 NMHC+NOX standard for
this power category at this time. This section describes what makes the
less than 25 hp category different and why the standards are
technologically feasible.
a. What Makes the Under 25 hp Category Unique?
As we explained at proposal and in the RIA, nonroad engines less
than 25 hp are the least sophisticated nonroad diesel engines from a
technological perspective. All of the engines currently sold in this
power category lack electronic fuel systems and turbochargers. Nearly
20 percent of the products have two-cylinders or less, and 14 percent
of the engines sold in this category are single-cylinder products, a
number of these have no batteries and are crank-start machines, much
like today's simple walk behind lawnmower engines. In addition, given
what we know today and taking into account the Tier 2 standards which
have not yet been implemented, we are not projecting any significant
penetration of advanced engine technology, such as electronically
controlled fuel systems, into this category in the next 5 to 10 years.
b. What Data Indicate That the Standards Are Feasible?
We project the Tier 4 PM standard can be met by 2008 based on: The
existence of a large number of engine families which meet the new
standards today; the use of engine-out reduction techniques; and the
use of diesel oxidation catalysts.
Engines in the less than 25 hp category must meet Tier 1
NMHC+NOX and PM standards today. We have examined the 2004
model year engine certification data for nonroad diesel engines less
than 25 hp. These data indicate that a number of engine families meet
the new Tier 4 PM standard (and the 2008 NMHC+NOX standard,
unchanged from Tier 2) today. The data show that 31 percent of the
engine families are at or below the PM standard today, while meeting
the 2008 NMHC+NOX standard. At the time of the proposal, we
examined the model year 2002 certification, which indicated
approximately 30 percent of the engine families were at or below the
2008 emission standards. This certification data includes both IDI and
DI engines, as well as a range of certification test cycles.\61\ Many
of the engine families are certified well below the Tier 4 standard
while meeting the 2008 NMHC+NOX level. Specifically, for the
model year 2002 data, 15 percent of the engine families are cleaner
than the new Tier 4 PM standard by more than 20 percent. The public
certification data indicate that these engines do not use
turbocharging, electronic fuel systems, exhaust gas recirculation, or
aftertreatment technologies. We saw little change between the model
year 2002 and 2004 data for this power category primarily because both
model years are subject to the Tier 1 standards, and many engine
families are simply carried over from the previous model year. Tier 2
standards for these engines will not be implemented until model year
2005. A detailed discussion of these data is contained in the RIA.
---------------------------------------------------------------------------
\61\ The Tier 1 and Tier 2 standards for this power category
must be demonstrated on one of a variety of different engine test
cycles. The appropriate test cycle is selected by the engine
manufacturer based on the intended in-use application(s) of the
engine.
---------------------------------------------------------------------------
In summary then, there are two likely means by which companies can
comply with the 2008 PM standard for engines under 25 hp. First, engine
manufacturers can comply with this standard using known engine-out
techniques (e.g., optimizing combustion chamber designs, fuel-injection
strategies). In fact, some fraction of engines already would comply
with the emission standard. In addition, some engine manufacturers may
choose to use diesel oxidation catalysts to meet this standard. Our
cost analysis makes the conservative assumption (i.e., the higher cost
assumption) that all manufacturers will use DOCs to comply with these
emission standards.
As discussed in section II.A, we are finalizing supplemental test
procedures and standards (nonroad transient test cycle and not-to-
exceed requirements) for engines in the under 25 hp category beginning
in 2013. The supplemental test procedures and standards will apply not
only to PM, but also to NMHC+NOX. The engine technologies
necessary to comply with the supplemental test procedures and standards
are the same as the technology necessary to comply with the 2008
standard, and we have given
[[Page 38995]]
consideration to these test conditions in setting this standard. The
range of operating conditions covered by the various test cycles and
the mechanism for emission control over those ranges of operation are
substantially similar allowing us to conclude that emission control
will be substantially uniform across these test procedures. However, we
are delaying the implementation of the supplemental test procedures and
standards until 2013, as proposed, in order to implement these
supplemental requirements on the larger powered nonroad engines before
the smallest power category. (There were no adverse comments on this
aspect of the proposed rule.) This will also provide engine
manufacturers with additional time to install any emission testing
equipment upgrades they may need in order to implement the new nonroad
transient test cycle.
Based on the existence of a number of engine families which already
comply with the new Tier 4 PM standard (and the 2008
NMHC+NOX standard), and the availability of PM reduction
technologies such as improved mechanical fuel systems, combustion
chamber improvements, and in particular diesel oxidation catalysts, we
project that the 0.30 g/bhp-hr PM standards is technologically feasible
by model year 2008.
6. Meeting the Crankcase Emissions Requirements
The most common way to eliminate crankcase emissions has been to
vent the blow-by gases into the engine air intake system, so that the
gases can be recombusted. Prior to the HD2007 rulemaking, we have
required that crankcase emissions be controlled only on naturally
aspirated diesel engines. We had made an exception for turbocharged
diesel engines (both highway and nonroad) because of concerns in the
past about fouling that could occur by routing the diesel particulates
(including engine oil) into the turbocharger and aftercooler. However,
this is an environmentally significant exception since most nonroad
equipment over 75 hp use turbocharged engines, and a single engine can
emit over 100 pounds of NOX, NMHC, and PM from the crankcase
over its lifetime.
Given the available means to control crankcase emissions, we
eliminated this exception for highway engines in 2007 and similarly in
today's action are eliminating the exception for nonroad diesel engines
as well. A number of commenters supported this provision noting that
the necessary technologies are already in application in Europe and
will be required for heavy-duty diesel trucks in the United States
beginning in 2007.
We anticipate that the diesel engine manufacturers will be able to
control crankcase emissions through the use of closed crankcase
filtration systems or by routing unfiltered blow-by gases directly into
the exhaust system upstream of the emission control equipment. However,
the provisions have been written such that if adequate control can be
had without ``closing'' the crankcase then the crankcase can remain
``open.'' Compliance would be ensured by adding the emissions from the
crankcase ventilation system to the emissions from the engine control
system downstream of any emission control equipment. We have limited
this provision for controlling emissions from open crankcases to
turbocharged engines, which is the same as for heavy-duty highway
diesel engines.
Some commenters in essence argued that the Agency was obligated to
show that all potential compliance paths were feasible and absent that
showing that the Agency should reconsider this provision. Our
feasibility analysis is based on the use of closed crankcase
technologies designed to filter crankcase gases sending the clean gas
to the engine intake for combustion and returning the oil filtered from
the gases to the engine crankcase. These systems are proven in use and
the use of this technology to eliminate crankcase emissions is
acceptable to demonstrate compliance. The other options, the option to
vent crankcase emissions into the exhaust or to continue to vent
crankcase emissions to the atmosphere provided the total emissions
including tailpipe and crankcase emissions do not exceed the standards
are provided as alternate solutions that are clearly effective to
control emissions (i.e., if the emissions are measured and are below
the standard they are adequately controlled). The commenter suggests
however, that they may not be able to control the emissions to the
required level using these alternate approaches. In this case, a
manufacturer would need to use the primary approach identified by EPA,
closing the crankcase and routing the filtered gases to the engine's
intake (this is the approach we used in the cost analysis summarized in
section VI). We have allowed the alternative approaches at the
recommendation of some in industry, because if they prove to be
effective we accept that resulting total emissions will be acceptably
low.
C. Why Do We Need 15 ppm Sulfur Diesel Fuel?
The new Tier 4 emission standards for most categories of nonroad
diesel engines are predicated on the application of advanced diesel
emission control technologies that are being developed for on-highway
diesel engines to meet the HD2007 emission standards, namely catalyzed
diesel particulate filters and NOX adsorber catalysts.
Sulfur in diesel fuel significantly impacts the durability, efficiency
and cost of applying these technologies. Therefore, we required that
on-highway diesel fuel produced for use in 2007 or newer on-highway
diesel engines have sulfur content no higher than 15 ppm. Based on the
same concerns outlined in the 2007 rulemaking, discussed in the
proposal at 68 FR 28395-28400, set out in the RIA, and briefly
summarized below, we today are finalizing a requirement that diesel
fuel for nonroad engines be reduced to no higher than 15 ppm beginning
in 2010. There was consensus among commenters that such standards were
necessary if the proposed standards based on advanced diesel emission
control technologies were to be achievable.
Sulfur in diesel fuel acts to poison the oxidation function of
platinum-based catalysts including DOCs and CDPFs reducing the
oxidation efficiency substantially, especially at lower temperatures.
This poisoning limits the effectiveness of DOCs and CDPFs to oxidize CO
and HC emissions. Of even greater concern is the reduction in NO
oxidation efficiency of the CDPF due to sulfur poisoning. NO oxidation
to NO2 is a fundamental mechanism for PM filter regeneration
necessary to ensure robust operation of the CDPF (i.e., to prevent
filter plugging). Sulfur poisoning from sulfur in diesel fuel at levels
higher than 15 ppm has been shown to increase the likelihood of PM
filter failure due to a depressed NO to NO2 oxidation
efficiency of the CDPF. The RIA documents substantial field experience
in Europe regarding this phenomenon.
Sulfur in diesel fuel can itself be oxidized to form sulfate PM
emitted into the environment. CDPFs in particular are designed for
robust regeneration and are highly effective at oxidizing sulfur to
sulfate PM (approaching 100 percent conversion under some
circumstances). The sulfate PM emissions from a CDPF when operated on
350 ppm fuel can be so high as to actually increase the PM emission
rate above the baseline level for an engine without a PM filter. In
spite of more than ten years of research,
[[Page 38996]]
no effective means has been found to provide the NO to NO2
oxidation efficiency needed to ensure robust filter regeneration
without similarly increasing efficiency to oxidize sulfur to sulfate
PM. Conversely, technologies developed to suppress sulfate PM formation
(e.g., the addition of vanadium to DOCs designed to operate on 500 ppm
sulfur fuel) also suppress NO to NO2 formation. Therefore,
it is not possible to apply the robust CDPF technology to achieve the
PM standards without first having lower diesel fuel sulfur levels. The
RIA documents substantial test data showing the impact of sulfur in
diesel fuel on total PM emissions due to an increase in sulfate PM
emissions.
Sulfur from diesel fuel likewise poisons the storage function of
the NOX adsorber catalyst. Sulfur in the exhaust in the form
of SOX is stored on the catalyst in the same way as the
NOX emissions are stored. Unfortunately, due to the chemical
properties of the materials, the sulfur is stored preferentially to the
NOX and will actually displace the stored NOX
emissions. The stored sulfur is not easily removed from the catalyst. A
sulfur removal step, called a desulfation, can be accomplished by
raising exhaust temperatures to a very high level while simultaneously
increasing the reductant content of the exhaust above the
stoichiometric level (i.e., more fuel than oxygen in the exhaust). This
process can be effective to remove sulfur from the catalyst but at the
expense of damaging the catalyst slightly. Over the lifetime of a
diesel engine the cumulative damage from repeated desulfation events,
as would be required if operation on higher than 15 ppm sulfur fuels
were attempted, would lead to excessive damage and loss in
NOX control. The RIA contains an extensive description of
this phenomena including the tradeoff between higher fuel sulfur levels
and more frequent desulfation events.
The damage that sulfur inflicts on both the CDPF and NOX
adsorber technologies not only reduces their effectiveness but also
impacts the fuel economy of their application. Reduced soot
regeneration potential due to sulfur poisoning would lead to the need
for more frequent active CDPF regeneration. As each active soot
regeneration event consumes fuel, more frequent regeneration events
with higher fuel sulfur levels leads to an increase in fuel
consumption. Similarly, higher fuel sulfur levels would necessitate
more frequent NOX adsorber desulfation events and thus
higher fuel consumption. An estimate of the impact of higher fuel
sulfur levels on fuel economy due to more frequent desulfation events
can be found in the RIA.
For all of the reasons documented in the RIA and summarized here,
we remain convinced that a cap of 15 ppm fuel sulfur is necessary for
both on-highway and nonroad diesel engines in order to apply the
advanced emission control technologies necessary to meet the emission
standards we are finalizing today.
III. Requirements for Engine and Equipment Manufacturers
This section describes the regulatory changes being made for the
engine and equipment compliance program. A number of specific items are
discussed in this section, including test procedures, certification
fuels, and credit program provisions. These provisions are important in
that they help us ensure the engines and equipment will meet the new
requirements throughout their entire useful life, thus achieving the
expected emission and public health benefits.
One of the most obvious changes from the Tier 2/Tier 3 program is
that the regulations for Tier 4 engines have been written in a plain
language format. They are structured to contain the provisions that are
specific to nonroad compression ignition (CI) engines in a new part
1039, and to apply the general provisions of existing parts 1065 and
1068. The plain language regulations, however, are not intended to
significantly change the compliance program, except as specifically
noted in today's notice and supporting documents. These plain language
regulations will only apply for Tier 4 engines. The changes from the
existing nonroad program are described below along with other notable
aspects of the compliance program.
As described below, we received comments from a broad range of
commenters for some of these issues. For other issues, we received only
manufacturer comments or no comments at all. See Chapter 9 of the
Summary and Analysis of Comments for more information about the
comments received and our responses to them.
A. Averaging, Banking, and Trading
1. Why Are We Adopting an ABT Program for Tier 4 Nonroad Diesel
Engines?
EPA has included averaging, banking, and trading (ABT) programs in
almost all of its recent mobile source emission control programs. Our
existing regulations for nonroad diesel engines include an ABT program
(40 CFR 89.201 through 89.212). With today's action we are retaining
the basic structure of the existing nonroad diesel ABT program, though
we are adopting a number of changes to accommodate implementation of
the newly adopted Tier 4 emission standards. The ABT program is
intended to enhance the ability of engine manufacturers to meet the
stringent standards adopted today. The program is also structured to
limit production of very high-emitting engines and to avoid unnecessary
delay of the transition to the new exhaust emission control
technologies.
We view the ABT program as an important element in setting emission
standards that are appropriate under CAA section 213(a) with regard to
technological feasibility, lead time, and cost, given the wide breadth
and variety of engines covered by the standards. As we noted at
proposal, if there are engine families that will be particularly costly
or have a particularly hard time coming into compliance with the
standard, this flexibility allows the manufacturer to adjust the
compliance schedule accordingly, without special delays or exceptions
having to be written into the rule. Emission-credit programs also
create an incentive for the early introduction of new technology (for
example, to generate credits in early years to create compliance
flexibility for later engines), which allows certain engine families to
act as trailblazers for new technology. This can help provide valuable
information to manufacturers on the technology before they apply the
technology throughout their product line. This early introduction of
clean technology improves the feasibility of achieving the standards
and can provide valuable information for use in other regulatory
programs that may benefit from similar technologies. Early introduction
of such engines also secures earlier emission benefits.
In an effort to make information on the ABT program more available
to the public, we intend to issue an annual report summarizing use of
the ABT program by engine manufacturers. The information contained in
the reports will be based on the information submitted to us by engine
manufacturers in their annual reports, and summarized in a way that
protects the confidentiality of individual engine manufacturers. We
believe this information will also be helpful to engine manufacturers
by giving them a better indication of the availability of credits.
[[Page 38997]]
2. What Are the Provisions of the ABT Program?
The following section describes the ABT provisions being adopted
with today's action. Areas in which we have made changes to the
proposed ABT program are highlighted. A complete summary of comments
received on the proposed ABT program and our response to those comments
are contained in the Summary and Analysis of Comments document for this
rule.
The ABT program has three main components. Averaging means the
exchange of emission credits between engine families within a given
engine manufacturer's product line. Engine manufacturers divide their
product line into ``engine families'' that are comprised of engines
expected to have similar emission characteristics throughout their
useful life. Averaging allows a manufacturer to certify one or more
engine families at levels above the applicable emission standard, but
below a set upper limit. However, the increased emissions must be
offset by one or more engine families within that manufacturer's
product line that are certified below the same emission standard, such
that the average emissions from all the manufacturer's engine families,
weighted by engine power, regulatory useful life, and production
volume, are at or below the level of the emission standard. (The
inclusion of engine power, useful life, and production volume in the
averaging calculations is designed to reflect differences in the in-use
emissions from the engines.) Averaging results are calculated for each
specific model year. The mechanism by which this is accomplished is
certification of the engine family to a ``family emission limit'' (FEL)
set by the manufacturer, which may be above or below the standard. An
FEL that is established above the standard may not exceed an upper
limit specified in the ABT regulations. Once an engine family is
certified to an FEL, that FEL becomes the enforceable emissions limit
for all the engines in that family for purposes of compliance testing.
Averaging is allowed only between engine families in the same averaging
set, as defined in the regulations.
Banking means the retention of emission credits by the engine
manufacturer for use in future model year averaging or trading. Trading
means the exchange of emission credits between nonroad diesel engine
manufacturers which can then be used for averaging purposes, banked for
future use, or traded to another engine manufacturer.
The existing ABT program for nonroad diesel engines covers
NMHC+NOX emissions as well as PM emissions. With today's
action and as proposed, we are making the ABT program available for the
Tier 4 NOX standards (and NMHC+NOX standards,
where applicable) and the Tier 4 PM standards. As proposed, ABT will
not be available for the Tier 4 NMHC standards for engines above 75
horsepower.
Engine manufacturers commented that ABT will most likely be
necessary for the Tier 4 CO standards, given the reductions in PM and
NOX emissions. In the Tier 4 proposal, we proposed minor
changes in CO standards for some engines solely for the purpose of
helping to consolidate power categories and improving administrative
efficiency. However, as noted earlier in section II.A.6, we have
withdrawn this aspect of the proposal. We do note, however, that we are
applying new certification tests to all pollutants covered by the rule,
the result being that Tier 4 engines will have to certify to CO
standards measured by the transient test (including a cold start
component), and the NTE. However, as shown in RIA chapter 4.1.1.2 (see
e.g., note F), we believe that application of Tier 4 technologies will
lead to a reduction in CO emissions over the Tier 3 baseline. We thus
believe the CO standards will be readily achievable under the transient
test and NTE. Moreover, we believe that there will not be any
associated costs: The CO standards can be met without any further
technological improvements (i.e., improvements other than those already
necessary to meet the Tier 4 standards) and these tests will already be
used for certification. Since CO standards measured by the new
certification tests are achievable without cost, there is no basis for
allowing ABT because no additional lead time is needed.
As noted earlier, the existing ABT program for nonroad diesel
engines includes FEL caps--limits on how high the emissions from
credit-using engine families can be. No engine family may be certified
above these FEL caps. These limits provide manufacturers with
compliance flexibility while protecting against the introduction of
unnecessarily high-emitting engines. In the past, we have generally set
the FEL caps at the emission levels allowed by the previous standard,
unless there was some specific reason to do otherwise. With today's
action, we are taking a different approach because the level of the
standards being adopted for most engines are significantly lower than
the current level of the standards. The transfer to new technology is
feasible and appropriate. Thus, as proposed, to ensure that the ABT
provisions are not used to continue unnecessarily to produce old-
technology high-emitting engines under the new program, the FEL caps
are not, in general, set at the previous standards. Exceptions have
been made for the NMHC+NOX standard for engines between 25
and 50 horsepower effective in model year 2013 and the NOX
standards applicable to engines above 750 horsepower in 2011, where we
are using the estimated NOX-only equivalent for the
previously applicable NMHC+NOX standard for the FEL cap
since the gap between the previous and newly adopted standards is
approximately 40 percent (rather than 90 percent for engines between 75
and 750 horsepower), and because the technology basis for these
standards can be a form of engine-out control, like the previous tier
standards. This approach of setting FEL caps at lower levels than the
previously applicable standards is consistent with the level of the FEL
limits set in the 2007 on-highway heavy-duty diesel engine program.
STAPPA/ALAPCO supported the proposed FEL caps. The Engine
Manufacturers Association (EMA) commented that EPA should eliminate the
FEL caps altogether. They believe FEL caps are unnecessary because the
zero-sum requirement of ABT will ensure that there are no adverse
emission impacts. Short of eliminating the FEL caps, they commented
that EPA should set FEL caps at the level of the previous standards,
not the more stringent levels proposed. With today's action, EPA is
adopting the FEL caps as proposed, with some exceptions for engines
above 750 horsepower (where we are adopting different standards than
originally proposed) and for phase-in engines between 75 and 750
horsepower (where we have adopted an option for manufacturers to
certify to alternative NOX standards during the phase-in
period). We continue to believe that it is important to ensure that
technology turns over in a timely manner and that manufacturers do not
continue producing large numbers of high-emitting, old technology
engines once the Tier 4 standards become fully effective. (As noted
below, however, we are adopting provisions that allow manufacturers to
produce a limited number of 75 to 750 horsepower engines for a limited
period that are certified with FELs as high as the previous tier of
standards.) For the Tier 4 standards, where the standards are being
reduced by an order of magnitude, we believe this goal to be
particularly important, and in keeping with the technology-
[[Page 38998]]
forcing provisions of section 213(a). It simply would not be
appropriate to have long-term FEL caps that allowed engines to
indefinitely have emissions as high as ten times the level of the
standard.
For engines between 75 and 750 horsepower certified using the
phase-in/phase-out approach, there will be two separate sets of engines
with different FEL caps. For engines certified to the existing (Tier 3)
NMHC+NOX standards during the NOX phase-in
(referred to generally as ``phase-out'' engines), the FEL cap for these
pollutants will (almost necessarily) be the existing FEL caps adopted
in the October 1998 Tier 3 rule. For engines certified to the newly
adopted Tier 4 NOX standard during the phase-in (referred to
generally as ``phase-in'' engines), we have revised the proposed FEL
cap to be 0.60 g/bhp-hr, consistent with the proposed long-term Tier 4
NOX FEL cap. As described in section II.A.2.c above, we have
used the creation of alternative NOX standards for engines
between 75 and 750 horsepower to restate the phase-in/phase-out concept
as a path truly focused on achieving high-efficiency NOX
aftertreatment during the phase-in years. Setting the NOX
FEL cap at 0.60 g/bhp-hr for phase-in engines will ensure this happens
if a manufacturer chooses to certify to the phase-in provisions. In
contrast, the higher FEL caps which we proposed (see 68 FR 28467-28468)
would not have achieved this objective.
Beginning in model year 2014 when the Tier 4 NOX
standards for engines between 75 and 750 horsepower take full effect,
we are adopting a NOX FEL cap of 0.60 g/bhp-hr for all
engines. We reiterate that given the fact that the Tier 4
NOX standard is approximately a 90 percent reduction from
the existing standards for engines between 75 and 750 horsepower, we do
not believe the previous standard is appropriate as the FEL cap for
engines having to comply with the Tier 4 NOX standard of
0.30 g/bhp-hr. We believe that the NOX FEL caps will ensure
that manufacturers adopt NOX aftertreatment technology
across all of their engine designs.
For the interim PM standards for engines between 25 and 75
horsepower effective in model year 2008 and for the Tier 4 PM standards
for engines below 25 horsepower, we are adopting the previously
applicable Tier 2 PM standards for the FEL caps (which do vary within
the 25 to 75 horsepower category) because the gap between the previous
standards and the newly adopted standards is approximately 50 percent
(rather than in excess of 90 percent for engines between 75 and 750
horsepower), and the technology basis for the 2008 PM standards can be
a form of engine-out control, like the previous tier standard. For the
Tier 4 PM standard effective in model year 2013 for engines between 25
and 75 horsepower, we are adopting a PM FEL cap of 0.04 g/bhp-hr, and
for the Tier 4 PM standard effective in model years 2011 and 2012 for
engines between 75 and 750 horsepower, we are adopting a PM FEL cap of
0.03 g/bhp-hr. As with the Tier 4 NOX standards for these
engines, given the fact that these Tier 4 aftertreatment-based PM
standards for engines between 25 and 750 horsepower are over 90 per
cent more stringent than the previous standards, we do not believe the
previous standards are appropriate as FEL caps once the Tier 4
standards take effect. We believe that the newly adopted PM FEL caps
will ensure that manufacturers adopt PM aftertreatment technology
across all of their engine designs (except for a limited number of
engines), yet will still provide substantial flexibility in meeting the
standards.
The final Tier 4 standards for engines above 750 horsepower have
been revised from the proposal. We similarly revised a number of the
proposed ABT provisions for engines above 750 horsepower. Beginning in
2011, all engines above 750 horsepower will be required to meet a
NOX standard of 2.6 g/bhp-hr, except for those above 1200
horsepower used in generator sets which will be required to meet a
NOX standard of 0.50 g/bhp-hr. The NOX FEL cap
for the 2011 standards will be 4.6 g/bhp-hr, which is an estimate of
the NOX emissions level that is expected under the combined
NMHC+NOX standards that apply with the previously applicable
tier for engines above 750 horsepower. Beginning in 2011, all engines
above 750 horsepower will have to meet a PM standard of 0.075 g/bhp-hr.
The PM FEL cap for the 2011 PM standard will be the previously-
applicable Tier 2 standard of 0.15 g/bhp-hr. As noted above, because
the 2011 NOX and PM standards are approximately 50 percent
lower than the previous standard (rather than in excess of 90 percent
for engines between 75 and 750 horsepower), and for most engines are
based on performance of the same type of technology (engine-out), we
are adopting the previously applicable Tier 2 standards for the FEL
caps.
Beginning in model year 2015, the 0.50 g/bhp-hr NOX
standard will apply to all engines above 750 horsepower used in
generator sets. Beginning in model year 2015, the PM standard drops to
0.02 g/bhp-hr for engines greater than 750 horsepower used in generator
sets and 0.03 g/bhp-hr for engines greater than 750 horsepower used in
other machines. Consistent with the Tier 4 FEL caps for lower
horsepower categories where the new standards are significantly lower
than the previously applicable standards and reflect performance of
aftertreatment technology, we are adopting a NOX FEL cap of
0.80 g/bhp-hr for engines used in generator sets and PM FEL caps of
0.04 g/bhp-hr for engines used in generator sets and 0.05 g/bhp-hr for
engines used in other machines (i.e., mobile machines). We believe that
the FEL caps for engines above 750 horsepower will ensure that
manufacturers adopt PM aftertreament technology across all of their
engine designs and NOX aftertreatment for generator sets
once the 2015 standards are adopted, while allowing for some meaningful
use of averaging beginning in 2015.
Table III.A-1 contains the FEL caps and the effective model year
for the FEL caps (along with the associated standards adopted for Tier
4). It should be noted that for Tier 4, where we are adopting a new
transient test for most engines, as well as retaining the current
steady-state test, the FEL established by the engine manufacturer will
be used as the enforceable limit for the purpose of compliance testing
under both test cycles. In addition, under the NTE requirements, the
FEL times the appropriate multiplier will be used as the enforceable
limit for the purpose of such compliance testing. This is consistent
with how FELs are used for compliance purposes in the 2007 on-highway
heavy-duty diesel engine program.
[[Page 38999]]
Table III.A-1.--FEL Caps for the Tier 4 Standards in the ABT Program (g/bhp-hr)
----------------------------------------------------------------------------------------------------------------
NOX PM PM FEL
Power category Effective model year standard NOX FEL cap standard cap
----------------------------------------------------------------------------------------------------------------
hp <25 (kW <19)................... 2008+................ \a\ 5.6 7.8 \a\ for <11hp... \c\ 0.30 0.60
7.1 \a\ for >11hp...
25 <= hp < 50 (19 <= kW <37)...... 2008-2012............ \a\ 5.6 7.1 \a\............. 0.22 0.45
25 <= hp < 50 (19 <= kW <37)...... 2013+................ \b\3.5 5.6 \b\............. 0.02 f 0.04
50 <= hp < 75 (37 <= kW <56)...... 2008-2012 \d\........ \a\ 3.5 5.6 \a\............. 0.22 0.30
50 <= hp < 75 (37 <= kW <56)...... 2013+ \e\............ \a\ 3.5 5.6 \a\............. 0.02 \f\
0.04
75 <= hp < 175 (56 <= kW <130).... 2012+................ 0.30 0.60 f g h.......... 0.01 \f\
0.03
175 <= hp <= 750 (130 <= kW <= 2011+................ 0.30 0.60 f g h.......... 0.01 \f\
560). 0.03
hp > 750 (kW >560)................ 2011-2014............ 2.6 4.6................. 0.075 0.15
\i\ 0.50 4.6
Generator Sets hp > 750 (kW >560). 2015+................ 0.50 0.80 \f\............ 0.02 \f\
0.04
Other Machines hp > 750 (kW >560). 2015+................ \j\ 2.6 4.6 \j\............. 0.03 \f\
0.05
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ These are the previous tier NMHC+NOX standards and FEL caps. These levels are not being revised with today's
rule and are printed here solely for readers' convenience.
\b\ These are a combined NMHC+NOX standard and FEL cap.
\c\ A manufacturer may delay implementation until 2010 and then comply with a PM standard of 0.45 g/bhp-hr for
air-cooled, hand-startable, direct injection engines under 11 horsepower.
\d\ These FEL caps do not apply if the manufacturer opts out of the 2008 standards. In such cases, the existing
Tier 3 standards and FEL caps continue to apply.
\e\ The FEL caps apply in model year 2012 if the manufacturer opts out of the 2008 standards.
\f\ As described in this section, a small number of engines are allowed to exceed these FEL caps.
\g\ For engines certified as phase-out engines, the NMHC+NOX FEL caps for the Tier 3 standards apply.
\h\ For engines certified to the alternative NOX standards during the phase-in, the NOX FEL caps shown in tables
III.A-3 and III.A-4 apply.
\i\ The 0.50 g/bhp-hr NOX standard applies only to engines above 1200 horsepower used in generator sets.
\j\ The 2011 NOX standard and FEL cap continue to apply unless and until revised by EPA in a future action.
As noted above, we are allowing a limited number of engines to have
a higher FEL than the caps noted in Table III.A-1 in certain instances.
The FEL cap for such engines would be set based on the level of the
standards that applied in the year prior to the new standards and will
allow manufacturers to produce a limited number of engines certified to
these earlier standards in the Tier 4 timeframe. The allowance to
certify up to these higher FEL caps will apply to Tier 4 engines
between 25 and 750 horsepower beginning as early as the 2011 model
year, and will apply to engines above 750 horsepower starting with the
2015 model year. The provisions are intended to provide some limited
flexibility for engine manufacturers as they make the transition to the
aftertreatment-based Tier 4 standards while ensuring that the vast
majority of engines are converted to the advanced low-emission
technologies expected under the Tier 4 program.
Under the proposal, manufacturers would have been allowed to
certify at levels up to these FEL caps for ten percent of its engines
in each of the first four years after the Tier 4 standards took effect
and then five percent for subsequent years. The California Air
Resources Board supported the proposed allowance. The Engine
Manufacturers Association commented that the percentages of engines
allowed to the higher FEL caps may not be sufficient, noting that it is
too early to tell if the proposed amounts provided enough flexibility.
In an effort to provide flexibility to engine manufacturers while
preserving the effective number of engines allowed to certify at levels
up to the higher FEL caps, we are revising the proposed provisions with
today's action. The revised provisions are intended to allow
manufacturers to produce the same number of engines certified to the
higher FEL caps as would have been allowed under the proposal, but
provide added flexibility in how they distribute the allowances over
the first four years of the transition to the new standards. This
additional lead time appears appropriate, given the potential that a
limited set of nonroad engines may face especially challenging
compliance difficulties. Under the provisions adopted today and subject
to the limitations explained below, a manufacturer would be allowed to
certify up to 40 percent of its engines above the FEL caps shown in
Table III.A-1 over the first four years the aftertreatment-based Tier 4
standards take effect (calculated as a cumulative total of the percent
of engines exceeding these FEL caps in each year over the four years),
with a maximum of 20 percent allowed in any given year (provided the
FELs for these engines do not exceed levels specified below). During
this four year period, manufacturers would not be required to perform
transient testing or NTE testing on these engines because we expect
these engines would be carried over directly from the previous tier
without any modification. (NTE testing would apply to engines above 750
horsepower because the previously applicable set of standards required
NTE testing.) Similarly, for engines between 75 and 750 horsepower,
manufacturers would not be required to have closed crankcase controls
on these engines because we also expect that these engines would be
carried over directly from the previous tier without any modification.
(Engines between 25 and 75 horsepower, and engines above 750
horsepower, would be required to have closed crankcase controls because
the previously applicable set of standards require closed crankcase
controls.)
For the purpose of calculating the number of credits such engines
would use, the manufacturer would include an adjustment to the FEL to
be used in the credit calculation equation. The adjustment would be
included by multiplying the steady-state FEL by a Temporary Compliance
Adjustment Factor (TCAF) of 1.5 for PM and 1.1 for NOX. (The
NOX TCAF would not apply to engines that are not subject to
the transient testing requirements for NOX as discussed in
section III.F.) We are adopting TCAFs in part to assure in-use control
of emission from these engines in the absence of transient and NTE
testing, and also to assure that any credits these engines use reflect
the
[[Page 39000]]
level of reductions expected in use. The level of the TCAFs are based
on data from pre-control, Tier 1, and Tier 2 engines which show that
the emissions from such engines tested over transient test cycles which
are more representative of real in-use operation are higher than
emissions from those engines tested over the steady-state certification
test cycle. This is a sales weighted version of the Transient
Adjustment Factor used in the NONROAD model. For compliance purposes, a
manufacturer would be held accountable to the unadjusted steady-state
FEL established for the engine family.
As proposed, after the fourth year the Tier 4 standards apply, the
allowance to certify engines using the higher FEL caps shown in Table
III.A-2 will still be available but for no more than five percent of
the engines a manufacturer produces in each power category in a given
year. When the 5 percent allowance takes effect, these engines will be
considered Tier 4 engines and all other requirements for Tier 4 engines
will also apply, including the Tier 4 NMHC standard, transient testing,
NTE testing, and closed crankcase controls. TCAFs thus do not apply
when calculating the number of credits such engines would use.
In the two power categories where we are adopting phase-in
provisions (i.e., 75 to 175 horsepower engines and 175 to 750
horsepower engines), the allowance to use a higher FEL cap will only
apply to PM from phase-out engines during the phase-in years. We
originally proposed that the allowance to use a higher FEL cap would
apply to PM from either phase-in or phase-out engines during the phase-
in years. On reflection, this is inconsistent with our policy that
phase-in engines truly have low emissions reflecting use of
aftertreatment (see also the discussion above where we explain that,
for the same reason, we are adopting a NOX FEL cap of 0.60
g/bhp-hr for phase-in engines). We consequently are revising the
proposed allowance so that it is available for PM emissions only from
phase-out engines. As proposed, the allowance to use a higher FEL cap
for NOX will apply starting in 2014 when the phase-in period
is complete.
For the power category between 25 and 75 horsepower, this allowance
to certify engines at levels up to the higher FEL caps will apply
beginning with the Tier 4 standards taking effect in the 2013 model
year and will apply to PM only. For manufacturers choosing to opt out
of the 2008 model year Tier 4 standards for engines between 50 and 75
horsepower and instead comply with the Tier 4 standards beginning in
2012, the 40% allowance would apply to model years 2012 through 2015,
and the 5% allowance would apply to model year 2016 and thereafter. The
allowance to use the higher FEL caps is not applicable for the 2008
standards or the 2013 NMHC+NOX standards for these engines
because the FEL caps for those standards already are set at the level
of the standard which previously applied.
For engines above 750 horsepower, the allowance to certify a
limited number of engines at levels up to the higher FEL caps would
apply beginning in model year 2015. (As noted, this is because the FEL
caps being adopted for the 2011 standards for engines above 750
horsepower are the previous tier PM standard and the NOX-
only equivalent of the previous tier standard.) For NOX, the
allowance to certify a limited number of engines above the FEL cap
beginning in model year 2015 will apply only to engines used in
generator sets. Engines used in other machines are still subject to the
model year 2011 NOX standard and FEL caps. For PM, the
allowance to certify a limited number of engines above the FEL caps
beginning in model year 2015 will apply to all engines above 750
horsepower.
Table III.A-2 presents the model years, percent of engines, and
higher FEL caps that will apply under these allowances. As noted above,
engines certified under these higher FEL caps during the first four
years would not be required to perform transient testing or NTE testing
and engines between 75 and 750 horsepower would not be required to have
closed crankcase controls on these engines. However, as also noted
earlier, beginning in the fifth year, when the 5 percent allowance
takes effect, these engines will be considered Tier 4 engines and all
other requirements for Tier 4 engines will also apply, including the
Tier 4 NMHC standard, transient testing, NTE testing, and closed
crankcase controls.
Table III.A-2.--Allowance for Limited Use of an FEL Cap Higher than the Tier 4 FEL Caps
----------------------------------------------------------------------------------------------------------------
Engines
allowed to NOX FEL cap (g/bhp- PM FEL cap (g/bhp-
Power category Model years have higher hr) hr)
FELs (%)
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75................... 2013-2016 \a\........ \b\ 40 Not applicable...... 0.22
(19 <= kW < 56)................. 2017+ \a\............ 5
75 <= hp < 175.................. 2012-2015............ \b\ 40 3.3 \c\ for hp <100. 0.30 \d\ for hp <100
(56 <= kW <130)................. 2016+................ 5 2.8 \c\ for hp >=100 0.22 \d\ for hp
>=100
175 <= hp <= 750................ 2011-2014............ \b\ 40 2.8 \c\............. 0.15 \d\
(130 <= kW <= 560).............. 2015+................ 5
>750 hp......................... 2015-2018............ \b\ \c\ 40 2.6................. 0.075
(>560 kW)....................... 2019+................ \e\ 5 ....................
----------------------------------------------------------------------------------------------------------------
\a\ For manufacturers choosing to opt out of the 2008 model year Tier 4 standards for engines between 50 and 75
horsepower and instead comply with the Tier 4 standards beginning in 2012, the 40% allowance would apply to
model years 2012 through 2015, and the 5% allowance would apply to model year 2016 and thereafter.
\b\ Compliance with the 40% limit is determined by adding the percent of engines that have FELs above the FEL
caps shown in Table III.A.-1 in each of the four years. A manufacturer may not have more than 20% of its
engines exceed the FEL caps shown in Table III.A-1 in any model year in any power category.
\c\ The allowance to certify to these higher NOX FEL caps is not applicable during the phase-in period.
\d\ These higher PM FEL caps are applicable to phase-out engines only during the phase-in period.
\e\ The limits of 40% or 5% allowed to exceed the NOX FEL cap would apply to engines used in generator sets
only. (Engines >750 hp used in other machines are allowed to have an NOX FEL as high as 4.6 g/bhp-hr.) The
limits of 40% or 5% allowed to exceed the PM FEL cap would apply to all engines above 750 hp.
Under the Tier 4 program, there will be two different groups of 75-
750 horsepower engines during the NOX phase-in period. In
one group (``phase-out engines''), engines will certify to the
applicable Tier 3 NMHC+NOX standard
[[Page 39001]]
and will be subject to the NMHC+NOX ABT restrictions and
allowances previously established for Tier 3. In the other group
(``phase-in engines''), engines will certify to the 0.30 g/bhp-hr
NOX standard, and will be subject to the restrictions and
allowances in this program. Although engines in each group are
certified to different standards, we are (as proposed) allowing
manufacturers to transfer credits across these two groups of engines
with the following adjustment to the amount of credits generated.
Manufacturers will be able to use credits generated during the phase-
out of engines subject to the Tier 3 NMHC+NOX standard to
average with engines subject to the 0.30 g/bhp-hr NOX
standard, but these credits will be subject to a 20 percent discount,
the adjustment reflecting the NMHC contribution. Thus, each gram of
NMHC+NOX credits from the phase-out engines will be worth
0.8 grams of NOX credits in the new ABT program. The ability
to average credits between the two groups of engines will give
manufacturers a greater opportunity to gain experience with the low-
NOX technologies before they are required to meet the final
Tier 4 standards across their full production. The 20 percent discount
will also apply, for the same reason, to all NMHC+NOX
credits used for averaging purposes with the NOX standards
for engines greater than 75 horsepower.
The California Air Resources Board supported the proposed discount
of 20 percent on NMHC+NOX credits used for NOX
compliance. The Engine Manufacturer's Association commented that we
should eliminate the 20 percent ``discount'' on NMHC+NOX
credits used for NOX compliance.
We disagree with the Engine Manufacturer's Association comments. As
noted in the proposal, we have two main reasons for adopting this
adjustment. First, the discounting addresses the fact that NMHC
reductions can provide substantial NMHC+NOX credits, which
are then treated as though they were NOX credits. For
example, a 2010 model year 175 horsepower engine emitting at 2.7 g/bhp-
hr NOX and 0.3 g/bhp-hr NMHC meets the 3.0 g/bhp-hr
NMHC+NOX standard in that year, but gains no credits. In
2011, that engine, equipped with a PM trap to meet the new PM standard,
will have very low NMHC emissions because of the trap, an emission
reduction already accounted for in our assessment of the air quality
benefit of this program. As a result, without substantially redesigning
the engine to reduce NOX or NMHC, the manufacturer could
garner nearly 0.3 g/bhp-hr of NMHC+NOX credit for each of
these engines produced. Allowing these NMHC-derived credits to be used
undiscounted to offset NOX emissions on the phase-in engines
in 2011 (for which each 0.1 g/bhp-hr of margin can make a huge
difference in facilitating the design of engines to meet the 0.30 g/
bhp-hr NOX standard) would be inappropriate. Therefore,
while we are reducing the value of credits earned from Tier 2/Tier 3
engines, the adjustment accounts for the NMHC fraction of the credits
which we do not believe should be used to demonstrate compliance with
the NOX-only Tier 4 standards (such credits would be
``windfalls'' because they would necessarily occur by virtue of the
technology needed to meet the PM standard) (68 FR 28469, May 23, 2003).
Second, the discounting will work toward providing a small net
environmental benefit from the ABT program, such that the more
manufacturers use banked and averaged credits, the greater the
potential emission reductions overall. Most basically, it is inherently
reasonable, in using NOX+NMHC reductions to show credit with
a NOX-only standard, to use only that portion which
represents NOX reductions. (Indeed, for this reason, terming
the 20 per cent a ``discount factor'' is a misnomer; it apportions the
NMHC fraction of the reduction.) As noted, this is further supported by
the fact that the NMHC reductions for phase-out engines are not extra
reductions above and beyond what would otherwise occur, and therefore
don't warrant eligibility as credits.
We are adopting one additional restriction on the use of credits
under the ABT program. For the Tier 4 standards, we proposed that
manufacturers could only use credits generated from other Tier 4
engines or from engines certified to the previously applicable tier of
standards (i.e., Tier 2 for engines below 50 horsepower, Tier 3 for
engines between 50 and 750 horsepower, and Tier 2 engines above 750
horsepower). This proposed restriction was similar to a restriction we
currently have that prohibits the use of Tier 1 credits to demonstrate
Tier 3 compliance. STAPPA/ALAPCO and the Natural Resources Defense
Council supported the proposed approach that limited the use of
previous-tier credits for Tier 4. The Engine Manufacturer's Association
commented that by limiting the use of previous-tier credits, we are
engaged in an unconstitutional taking because EPA had guaranteed in the
previous Tier 2/Tier 3 rulemaking that such credits would not expire.
We disagree that adopting a restriction on the use of the previous tier
ABT credits is an unconstitutional taking. EPA did not, and could not,
decide in the Tier 2/3 rulemaking that Tier 2/3 credits could be used
to show compliance with some future standards that had not yet even
been adopted. Thus, EPA in this rulemaking is not taking away something
previously given. We are not revisiting the Tier 2/3 standards but
establishing a new set of engine standards. In doing so, we necessarily
must evaluate the provisions of previous rules and their potential
impact on the future standards being considered. We are reasonably
concerned that credits from engines certified to relatively high
standards could be used to significantly delay the implementation of
the final Tier 4 program and its benefits, resulting in a situation
where the standards would no longer reflect the greatest degree of
emission reduction available as required under section 213(a)(3) of the
Clean Air Act, or would no longer be appropriate under section
213(a)(4) of the Clean Air Act. Therefore, with today's action, we are
adopting the proposed provisions regarding the use of credits from
previous tier engines, with one minor revision.
Under today's action, manufacturers may only use credits generated
from other Tier 4 engines or from engines certified to the previously
applicable tier of standards--except for engines between 50 and 75
horsepower. Because we are adopting Tier 4 standards that take effect
as early as 2008 for those engines, the same year the previously-
adopted Tier 3 standards are scheduled to take effect (see section
II.A.1.a above), there is no possibility to earn credits against the
Tier 3 standards for manufacturers that certify with the pull-ahead
standards in 2008 for engines between 50 and 75 horsepower. Therefore,
we will allow manufacturers to use credits from engines in the Tier 2
power category that includes 50 to 75 horsepower (i.e., the 50 to 100
horsepower category) that are certified to the Tier 2 standards if they
choose to demonstrate compliance with the pull-ahead Tier 4 standards
in 2008 for engines between 50 and 75 horsepower. Manufacturers that do
not choose to comply with the 2008 Tier 4 standards for engines between
50 and 75 horsepower and instead comply with the 2012 Tier 4 standards
for such engines will not be allowed to use Tier 2 credits in Tier 4,
but instead will be allowed to use Tier 3 credits as allowed under the
standard provisions regarding
[[Page 39002]]
use of previous-tier credits only for Tier 4 compliance demonstration.
With regard to other restrictions on the use of ABT credits, we are
adopting one restriction on the use of credits across the 750
horsepower threshold. In previous rulemakings, EPA has defined
``averaging sets'' within which manufacturers may use credits under the
ABT program. Credits may not be used outside of the averaging set in
which they were generated. As described in section II.A.4 of today's
action, we have revised the Tier 4 standards for engines above 750
horsepower. Because the standards for Tier 4 engines greater than 750
horsepower will not be based on the use of PM aftertreatment technology
in 2011 or NOX aftertreatment technology for all mobile
machinery engines in 2015, we are adopting provisions that prevent
manufacturers from using credits from model year 2011 and later model
year engines greater than 750 horsepower to demonstrate compliance with
engines below 750 horsepower. Without such a limit, we are concerned
that manufacturers could use credits from such engines to significantly
delay compliance with the numerically lower standards for engines below
750 horsepower. In addition, without such a limit, we are concerned
that manufacturers could use credits from engines below 750 horsepower
to delay implementation of aftertreatment technology for engines above
750 horsepower.
One engine manufacturer commented that EPA should include a barrier
to trading credits across the 75 horsepower level. They cited concerns
over the ability of manufacturers that produce a large range of engine
sizes to use credits from high horsepower engines to offset emissions
from their small horsepower engines. We are not adopting any averaging
set restrictions for Tier 4 engines below 750 horsepower in today's
action. In the current nonroad diesel ABT program, there are averaging
set restrictions. The current averaging sets consist of engines less
than 25 horsepower and engines greater than or equal to 25 horsepower.
We adopted this restriction because of concerns over the ability of
manufacturers to generate significant credits from the existing engines
and use the credits to delay compliance with the newly adopted
standards (63 FR 56977, October 23, 1998). We believe the Tier 4
standards for engines below 750 horsepower are sufficiently rigorous to
limit the ability of manufacturers to generate significant credits from
their engines. In addition, we believe the FEL caps being adopted today
provide sufficient assurance that low-emissions technologies will be
introduced in a timely manner. Therefore, we believe averaging can be
allowed between all engine power categories below 750 horsepower
without restriction effective with the Tier 4 standards. (It should be
noted that the averaging set restriction placed on credits generated
from Tier 2 and Tier 3 engines will continue to apply if they are used
to demonstrate compliance for Tier 4 engines.)
EPA also proposed to allow engine manufacturers to demonstrate
compliance with the NOX phase-in requirements by certifying
evenly split engine families at, or below, specified NOX
FELs (68 FR 28470, May 23, 2003). As described in section II.A.2.c
above, EPA is revising the evenly split family provisions for the Tier
4 program and is now codifying them as alternative standards. (As
described in section III.L, we also are adopting the proposed
provisions allowing manufacturers to certify ``split'' engine families
during the phase-in years.) Because the evenly split family provision
has evolved into a set of alternative NOX standards, we
believe it is appropriate to allow manufacturers to use ABT for them.
Table III.A-3 presents the FEL caps that will apply to engines
certified to the alternative NOX standards during the phase-
in years. The FEL caps for these alternative standards have been set at
levels reasonably close to the alternative standards and are intended
to ensure sizeable emission reductions from the previously-applicable
Tier 3 standards. (For engines between 75 and 175 horsepower certified
under the reduced phase-in option, the FEL cap is the NOX-
only equivalent of the previously applicable NMHC+NOX
standards because the alternative standard is sufficiently close to the
Tier 3 standard.)
Table III.A-3.--NOX FEL Caps for Engines Certified To the Alternative
NOX Standards
------------------------------------------------------------------------
Alternative
Power category NOX standard NOX FEL cap (g/bhp-hr)
(g/bhp-hr)
------------------------------------------------------------------------
50/50/100 phase-in option 1.7 2.2.
for 75 <= hp < 175 (56 <=
kW <130).
25/25/25/100 phase-in option 2.5 3.3 (for 75-100 hp).
for 75 <= hp < 175 (56 <= 2.8 (for 100-175 hp)
kW <130).
175 <= hp <= 750 (130 <= kW 1.5 2.0.
<= 560).
------------------------------------------------------------------------
Because we are allowing manufacturers to use ABT for demonstrating
compliance with the alternative standards for engines between 75 and
750 horsepower, we are allowing manufacturers to exceed the FEL caps
noted in table III.A-3 and include them in the count of engines allowed
to exceed the FEL caps (i.e., the 40 percent over the first four years
the Tier 4 standards take effect as described earlier). Table III.A-4
presents the NOX FEL caps that would apply to engines
certified under the alternative standards (limited by the 40 percent
cap over the first four years). The higher NOX FEL caps are
set at the estimated NOX-only equivalent of the previous-
tier NMHC+NOX standards. For manufacturers certifying under
the reduced phase-in ( 25 percent) option, because the FEL caps are the
NOX-only equivalent of the Tier 3 NMHC+NOX
standards, they may not exceed the FEL cap during the years the
alternative standard applies.
Table III.A-4.--Limited-Use NOX FEL Caps Under the Alternative NOX
Standards
------------------------------------------------------------------------
Power category Model years NOX FEL cap (g/bhp-hr)
------------------------------------------------------------------------
50/50/100 phase-in option 2012-2013 3.3 for hp <100.
for 75 <= hp < 175\a\.
(56 <= kW <130)............. .............. 2.8 for hp >=100.
175 <= hp <= 750............ 2011-2013 2.8.
[[Page 39003]]
(130 <= kW <= 560).......... .............. ..........................
------------------------------------------------------------------------
For reasons explained in section II.A.1.b.i above, we are also
adopting unique phase-in requirements for NOX standards for
engines between 75 and 175 horsepower in order to ensure appropriate
lead time for these engines. Because of these unique phase-in
provisions, as proposed, we are adopting slightly different provisions
regarding 75 to 175 horsepower engines' use of previous-tier credits.
Under today's action, manufacturers that choose to demonstrate
compliance with these phase-in requirements (i.e., 50 percent in 2012
and 2013 and 100 percent in 2014) or the 1.7 g/bhp-hr alternative
NOX standard (which is based on the 50 percent phase-in
option) will be allowed to use Tier 2 NMHC+NOX credits
generated by engines between 50 and 750 horsepower (even though they
are not generated by previous-tier engines), along with any other
allowable credits, to demonstrate compliance with the Tier 4
NOX standards for engines between 75 and 175 horsepower
during model years 2012, 2013 and 2014 (the years of the phase-in)
only. These Tier 2 credits will be subject to the power rating
conversion already established in our ABT program, and to the 20%
credit adjustment being adopted today for use of NMHC+NOX
credits as NOX credits.
The requirements for manufacturers that choose to demonstrate
compliance with the optional reduced phase-in requirement for engines
between 75 and 175 horsepower (i.e, the 25/25/25 percent phase-in
option; see Table II.A.-2, note b) or the 2.5 g/bhp-hr alternative
NOX standard (which is based on the 25 percent phase-in
option) are different. Under the reduced phase-in requirement, use of
credits will be allowed in accordance with the general ABT program
provisions. In other words, manufacturers will not have the special
allowance to use Tier 2 NMHC+NOX credits generated by
engines between 50 and 750 horsepower noted above to demonstrate
compliance with the Tier 4 standards. In addition, manufacturers
choosing the reduced phase-in option will not be allowed to generate
NOX credits from engines in this power category in 2012,
2013, and most of 2014, except for use in averaging within this power
category (i.e., no banking or trading, or averaging with engines in
other power categories will be permitted). This restriction will apply
throughout this period even if the reduced phase-in option is exercised
during only a portion of this period. We believe that this restriction
is important to avoid potential abuse of the added flexibility
allowance, considering that larger engine categories will be required
to demonstrate substantially greater compliance levels with the 0.30 g/
bhp-hr NOX standard several years earlier than engines built
under the reduced phase-in option.
As described in section II.A.3.a of today's action, and as
proposed, we are adopting an optional PM standard for air-cooled, hand-
startable, direct injection engines under 11 horsepower effective in
2010. In order to avoid potential abuse of this standard, engines
certified under this requirement will not be allowed to generate any
credits as part of the ABT program. Credit use by these engines will be
allowed. The restriction on generating credits should not be a burden
to manufacturers, as it will apply only to those air-cooled, hand-
startable, direct injection engines under 11 horsepower that are
certified under the optional approach, and the production of credit-
generating engines would be contrary to the standard's purpose. No
adverse comments were submitted to EPA on this issue.
The current ABT program contains a restriction on trading credits
generated from indirect injection engines greater than 25 horsepower.
The restriction was originally adopted because of concerns over the
ability of manufacturers to generate significant credits from existing
technology engines (63 FR 56977, October 23, 1998). With today's
action, there will be no restriction prohibiting manufacturers from
trading credits generated on Tier 4 indirect fuel injection engines
greater than 25 horsepower. Based on the certification levels of
indirect injection engines, we do not believe there is the potential
for manufacturers to generate significant credits from their currently
certified engines against the Tier 4 standards. Therefore, as proposed,
we are not adopting any restrictions on the trading of credits
generated on Tier 4 indirect injection engines to other manufacturers.
The restriction placed on the trading of credits generated from Tier 2
and Tier 3 indirect injection engines will continue to apply in the
Tier 4 timeframe. No adverse comments were submitted to EPA on this
issue.
As explained in the proposal, we are not applying a specific
discount to Tier 3 PM credits used to demonstrate compliance with the
Tier 4 standards (68 FR 28471, May 23, 2003). PM credits generated
under the Tier 3 standards are based on testing performed over a
steady-state test cycle. Under the Tier 4 standards, the test cycle is
being supplemented with a transient test (see section III.F.1 below).
Because in-use PM emissions from Tier 3 engines will vary depending on
the type of application in which the engine is used (most applications
having higher in-use PM emissions, some having lower in-use PM
emissions), the relative ``value'' of the Tier 3 PM credits in the Tier
4 timeframe will differ. Instead of requiring manufacturers to gather
information to estimate the level of in-use PM emissions compared to
the PM level of the steady-state test, we believe allowing
manufacturers to bring Tier 3 PM credits directly into the Tier 4 time
frame without any adjustment is appropriate because it discounts their
value for use in the Tier 4 timeframe (since the initial baseline being
reduced is higher than measured in the Tier 2 test procedure for most
applications). No adverse comments were submitted to EPA on this issue.
3. Are We Expanding the Nonroad ABT Program To Include Credits From
Retrofit of Nonroad Engines?
In the proposal, we requested comment on expanding the scope of the
standards by setting voluntary new engine emission standards applicable
to the retrofit of nonroad diesel engines (68 FR 28471, May 23, 2003).
As described in the proposal, retrofit nonroad engines would be able to
generate PM and NOX credits which would be available for use
by new nonroad engines in the certification ABT program. We received a
significant number of comments on a retrofit ABT program. A number of
commenters associated with the agricultural sector were concerned
retrofits would be mandatory. Some commenters were opposed to a
retrofit credit program that would allow use of the credits under the
certification ABT program. However, a number of commenters supported
the concept of a retrofit program, but noted a number of
[[Page 39004]]
concerns regarding the details of such a program, including making sure
that any credits earned would be verifiable and enforceable. Some
commenters suggested that EPA consider the establishment of a retrofit
credit program through a separate rulemaking because there were many
details of the program that needed to be explored more fully before
adopting such a program. In response to the comments, we are not
adopting a retrofit credit program with today's action. Although we
provided a detailed explanation of a potential program at proposal,
\62\ we believe it is important to more fully consider the details of a
nonroad engine retrofit credit program and work with interested parties
in determining whether a viable program can be developed. EPA intends
to explore the possibility of a voluntary, opt-in nonroad retrofit
credit program through a separate action later this year. Such a
program would be based on the generation of credits beyond the scope of
any existing retrofit program. The final rule contains no requirements
for retrofitting existing engines or equipment.
---------------------------------------------------------------------------
\62\ See memorandum referenced at 68 FR 28471 (May 23, 2003),
footnote 299.
---------------------------------------------------------------------------
B. Transition Provisions for Equipment Manufacturers
1. Why Are We Adopting Transition Provisions for Equipment
Manufacturers?
As EPA developed the 1998 Tier 2/3 standards for nonroad diesel
engines, we determined, as an aspect of determining an appropriate lead
time for application of the requisite technology (pursuant to section
213(b) of the Act), that provisions were needed to avoid unnecessary
hardship and to create additional flexibility for equipment
manufacturers. The specific concern is the amount of work required and
the resulting time needed for equipment manufacturers to incorporate
all of the necessary equipment redesigns into their applications in
order to accommodate engines that meet the new emission standards. We
therefore adopted a set of provisions for equipment manufacturers to
provide them with reasonable lead time for the transition process to
the newly adopted standards. The program consisted of four major
elements: (1) A percent-of-production allowance, (2) a small-volume
allowance, (3) availability of hardship relief, and (4) continuance of
the allowance to use up existing inventories of engines (63 FR 56977-
56978, October 23, 1998 and 68 FR 28472-28476, May 23, 2003).
Given the levels of the newly adopted Tier 4 standards, we believe
that there will be engine design and other changes at least comparable
in magnitude to those involved during the transition to Tier 2/3.
Therefore, with a few exceptions described in more detail below, we are
adopting transition provisions for Tier 4 that are similar to those
adopted with the previous Tier 2/3 rulemaking. We also note that
opportunities for greater flexibility arises from the structure of the
Tier 4 rule. For example, Tier 4 consolidates the nine power categories
in Tier 2/3 into five categories, providing opportunities for more
flexibility by allowing more engine families within each power
category, with consequent increased averaging possibilities. The
NOX phase-in also provides increased flexibility
opportunities, as do the longer Tier 4 lead times.
We are adding new notification, reporting, and labeling
requirements to the Tier 4 program. We believe these additional
provisions are necessary for EPA to gain a better understanding of the
extent to which these provisions will be used and to ensure compliance
with the Tier 4 transition provisions. We are also adopting new
provisions dealing specifically with foreign equipment manufacturers
and the special concerns raised by the use of the transition provisions
for equipment imported into the U.S. The following section describes
the Tier 4 transition provisions available to equipment manufacturers.
(Section III.C of this preamble describes all of the provisions that
will be available specifically for small businesses.)
As under the existing Tier 2/Tier 3 provisions, equipment
manufacturers are not obligated to use any of these provisions, but all
equipment manufacturers are eligible to do so. Also, as under the
existing program, all entities under the control of a common entity,
and that meet the regulatory definition of a nonroad vehicle or nonroad
equipment manufacturer, must be considered together for the purpose of
applying exemption allowances. This will not only provide certain
benefits for the purpose of pooling exemptions, but will also preclude
the abuse of the small-volume allowances that would exist if companies
could treat each operating unit as a separate equipment manufacturer.
2. What Transition Provisions Are We Adopting for Equipment
Manufacturers?
The following section describes the transition provisions being
adopted with today's action. Areas in which we have made changes to the
proposed transition program are highlighted. A complete summary of
comments received on the proposed transition program and our response
to those comments are contained in the Summary and Analysis of Comments
document for this rule.
EPA believes that the lead time provided through the equipment
maker transition flexibilities, as adopted in this rule, will be
sufficient, as has proved the case in past tiers. These flexibilities
provide equipment manufacturers with the selective ability to delay use
of the Tier 4 engines in those applications where additional time is
needed to successfully incorporate the redesigned engines into their
equipment.
Ingersoll-Rand, an equipment manufacturer, submitted a number of
comments arguing that significant expansions of the proposed
flexibility program are needed if equipment manufacturers are to
produce compliant applications within the effective dates of the
standards. One suggestion was for EPA to include provisions that
provide a definitive period of lead time for incorporation of Tier 4
engines into nonroad equipment. Ingersoll-Rand would have the rules
specify a ``made available'' date before which each engine supplier
must provide technical and performance specifications, complete
drawings, and a final compliant engine to EPA and the open market.
After the mandated ``made available'' date, equipment manufacturers
should be provided a minimum 18 months of lead time to incorporate the
new engines into nonroad equipment. One form of the suggestion also
entailed a prohibition on design changes once the engine,
specifications, drawings, etc. had been initially provided to EPA and
to the open market. As an alternative, Ingersoll-Rand urged that the
percent of production allowance flexibility be expanded to 150 percent
for the power categories between 75 and 750 horsepower and 120 percent
for the power category between 25 and 75 horsepower. Ingersoll-Rand
believes these levels correspond proportionately to the increased
challenges facing equipment manufacturers during Tier 4 as opposed to
Tier 2 and Tier 3.
As discussed in greater detail in the Summary and Analysis of
Comments, as well as in later parts of this section of this preamble
and elsewhere in the administrative record, we disagree with most of
Ingersoll-Rand's suggestions. Our fundamental disagreement is with
Ingersoll-Rand's premise that Tier 4 will create a situation where need
for
[[Page 39005]]
expanded equipment maker lead time is the norm rather than the
exception so that the rule must provide a drastic, across-the-board
expansion of equipment manufacturer lead time. We believe that the lead
time provided for equipment makers in this rule is adequate, and that
the equipment maker flexibilities we are adopting provide a reasonable
and targeted safety valve to deal with isolated problems. There is no
across-the-board problem necessitating a drastic expansion of equipment
manufacturer lead time, or a drastic expansion of equipment
manufacturer flexibilities. We base these conclusions largely on three
factors: (a) Our investigation and understanding of the engineering
process by which engine makers and equipment manufacturers bring new
products to market; (b) the specific engineering challenges which
equipment manufacturers will address in complying with the Tier 4 rule;
and (c) past practice of equipment manufacturers under previous rules
providing transition flexibilities for nonroad equipment.
Because it is in both parties' interest for new engines and new
equipment applications to reach the market expeditiously, engine makers
and equipment manufacturers usually adopt concurrent engineering
programs whereby the new equipment design process occurs simultaneous
to the new engine development process. We believe that this concurrent
process should work well for Tier 4 because, in many important ways,
the engineering challenges facing equipment manufacturers can be
anticipated and dealt with early in the design process. We expect that
relatively early in the design process, engine manufacturers will be
able to define the size and characteristics of the emission control
technologies (e.g., NOX adsorbers and CDPFs), based on the
same systems that will be in production for on-highway engines. The
equipment manufacturers will concurrently redesign their equipment to
accommodate these new technologies, including designing, mounting and
supporting the catalytic equipment similar to current exhaust muffler
systems.
Moreover, while we expect the redesign challenge for Tier 4
equipment to be similar to that for Tier 2/3, we also expect the
redesign to be better and more clearly defined well in advance of the
Tier 4 introduction dates. This is because we do not expect the
catalyst system size or shape to change significantly during the last
24 months of the engine design and validation process.\63\
---------------------------------------------------------------------------
\63\ ``Tier 4 Nonroad Diesel Equipment Flexibility Provisions,''
memorandum from Byron Bunker, et al., (EPA) to EPA Air Docket OAR-
2003-0012.
---------------------------------------------------------------------------
We also have studied the extent to which equipment manufacturers
have used their flexibilities under the Tier 2/3 program. Although at
an early stage in the Tier 2/3 process, initial indications are that
the flexibility program is being used by many equipment manufacturers,
but in general, manufacturers do not appear to be using the full level
of allowances.\64\ It appears that the flexibilities are being used as
EPA intended, providing manufacturers with flexibility to deal with
specific limited situations, rather than to deal with an across-the-
board problem.
---------------------------------------------------------------------------
\64\ ``Tier 4 Nonroad Diesel Equipment Flexibility Provisions,''
memorandum from Byron Bunker, et al., (EPA) to EPA Air Docket OAR-
2003-0012.
---------------------------------------------------------------------------
The emerging pattern is thus the one on which the flexibility
program is predicated: there is not a need for across-the-board drastic
expansion of equipment manufacturer lead time. Indeed, such an
expansion would be inconsistent with the lead time-forcing nature of
section 213 (b) of the Act. This is not to say that there is no need
for equipment manufacturer flexibilities, or that the Tier 2/3
flexibility format need not be adjusted to accommodate potential
problems to be faced under the Tier 4 regime. Instances where
additional lead time could be justified are where resource constraints
prevent completion of certain applications, or where for business
reasons it makes sense for equipment manufacturers to delay completion
of small volume families in order to complete larger volume equipment
applications. In addition, the Tier 2/3 experience illustrates that
there can be instances where emission control optimization which
necessitates equipment design changes occurs late in the design cycle,
resulting in a need for additional equipment manufacturer lead time.
The equipment manufacturer flexibilities adopted in today's rule
accommodate these possibilities.
We have specific objections to Ingersoll-Rand's preferred approach
of a mandated made available date, followed by 18 months of additional
lead time for equipment manufacturers. Superimposing a government
mandate on the engine maker--equipment manufacturer business
relationship insinuates EPA into the middle of contractual/market
relationships (e.g., when is an objectively reasonable delivery date?),
forcing EPA to prejudge myriad differing business relationships/
engineering situations. Moreover, selection of any single made
available date is bound to be arbitrary in most situations. We also
believe that the 18-month lead time following a made available date
entails a mandated 18-month period (at least) with no return on
investment to engine suppliers (i.e. the period between when the Tier 4
engine would be produced and when it could lawfully be sold), which
would increase the engine cost, and discourage design changes (since
such changes would entail more investment with delayed return on that
investment). The ultimate result would be a costlier rule and less
environmental benefit due to the delay in introducing Tier 4 engines.
Even were EPA to put forth such a regulation, it is not clear that it
could be enforced or that it would help the situation. It would only be
natural for engine manufacturers to continue to improve its products
even after the predefined ``made available date'' and equipment
manufacturers would want to use this improved product even if it meant
they had to make last minute changes to the equipment design. For EPA
to preclude engine manufacturers from changing their product designs
over the period between the certification date and the equipment
manufacturer date would be both unusual and counterproductive to our
goal of seeing the best possible products available in the market.
Moreover, EPA sees no need to interfere with the concurrent design
market mechanism, which allows engine makers and equipment
manufacturers to negotiate optimal solutions. We believe it is better
to leave to the market participants the actual decision for how and
when to conduct concurrent engineering designs.
The California Air Resources Board commented that EPA should
eliminate or reduce the amount of flexibilities provided for less than
25 horsepower engines, because the Tier 4 engine standards are not
aftertreatment-based. The Engine Manufacturers Association commented
that we should expand the amount of flexibilities for engines greater
than 750 horsepower, given the difficulty of complying with the
proposed standards for engines above 750 horsepower. With today's
action, we are applying the same flexibility for all power categories,
including engines below 25 horsepower and engines above 750 horsepower.
While it is true that the Tier 4 standards for engines below 25
horsepower are not aftertreatment-based, we believe there will be
changes in engine design for many of those engines in response to the
Tier 4 standards. As engine designs change, there is the potential for
impacts on
[[Page 39006]]
equipment design as well (as shown in implementing the Tier 2/3 rule).
Therefore, we believe providing equipment manufacturer flexibility for
engines below 25 horsepower is appropriate and we are adopting the same
flexibilities for engines below 25 horsepower as for other power
categories. With regard to engines above 750 horsepower, we are
retaining the same flexibilities for those engines as for other power
categories. As described in section II.A.4, the Tier 4 standards being
adopted today for engines above 750 horsepower have been revised from
the proposal. We believe that these revisions have appropriately
accommodated concerns for the most difficult to design applications
(i.e., NOX adsorbers for engines in mobile applications), so
that additional equipment flexibilities are not warranted for these
engines.
The Engine Manufacturers Association commented that some equipment
manufacturers may be capable of making an on-time transition to the
interim Tier 4 standards (e.g. the 2011 standards applicable for 175-
750 horsepower engines) without the use of flexibilities. Such
equipment manufacturers would like the ability to start the seven-year
period in which they may use flexibilities in the year the final Tier 4
standards (the aftertreatment-based standards for both PM and
NOX) take effect. Put another way, they would not need more
lead time for equipment to meet the interim standards, but could need
more lead time for equipment required to meet the final standards. In
addition, the commenter suggested a modified approach that could lead
to earlier emission reductions than under the proposed rule: Requiring
delayed flexibility engines to meet the interim Tier 4 standards
instead of meeting the Tier 2/3 standards (as would have been allowed
under the proposal if the flexibilities started in the first year of
the interim Tier 4 standards).
EPA wants to encourage the implementation of the Tier 4 standards
as early as possible. Therefore, we believe it makes sense to provide
incentives to equipment manufacturers to use interim Tier 4 compliant
engines in their equipment during the transition to the final Tier 4
standards. Moreover, it is reasonable to expect that more lead time
will be needed for the aftertreatment-based standards than for the
interim standards. Therefore, in response to these comments, we are
revising the proposed flexibility provisions to allow equipment
manufacturers to have the option of starting the seven-year period in
which flexibility engines may be used in either the first year of the
interim Tier 4 standards or the first year of the final Tier 4
standards. For engines between 25 and 75 horsepower, the final Tier 4
standards may begin in 2012 or 2013 depending on whether the
manufacturer chooses to comply with the interim 2008 Tier 4 standards.
An equipment manufacturer who does not use flexibilities in 2008 thus
may need flexibilities as early as 2012. Therefore, the seven-year
period for the final Tier 4 standards for engines between 25 and 75
horsepower will begin in 2012 instead of 2013. Moreover, it is clearly
appropriate that these delayed flexibility engines meet the interim
Tier 4 standards, in order not to backslide from existing levels of
performance.
Table III.B-1 shows the years in which manufacturers could choose
to start the Tier 4 flexibilities given the standards being adopted
today. (The seven-year period for engines below 25 horsepower takes
effect in 2008 as proposed, because there are no interim standards for
such engines.)
Table III.B-1.--Flexibility Periods for the Tier 4 Standards
----------------------------------------------------------------------------------------------------------------
Model year
flexibility Standards to which flexibility engines would have to
Power category period certify
options
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75........................... 2008-2014 Tier 2 standards.
(19 <= kW < 56)......................... 2012-2018 Model Year 2008 Tier 4 standards.
75 <= hp < 175.......................... 2012-2018 Tier 3 standards.
(56 <= kW <130)......................... 2014-2020 Model Year 2012 Tier 4 standards.
175 <= hp <= 750........................ 2011-2017 Tier 3 standards.
(130 <= kW <= 560)...................... 2014-2020 Model Year 2011 Tier 4 standards.
>750 hp................................. 2011-2017 Tier 2 standards.
(>560 kW)............................... 2015-2021 Model Year 2011 Tier 4 standards.
----------------------------------------------------------------------------------------------------------------
Under today's action, and as proposed, only those nonroad equipment
manufacturers that install engines and have primary responsibility for
designing and manufacturing equipment will qualify for the allowances
or other relief provided under the Tier 4 transition provisions. As a
result of this definition, importers that have little involvement in
the manufacturing and assembling of the equipment will be ineligible to
receive any allowances. The Engine Manufacturers Association and one
engine manufacturer commented that the proposed definition of equipment
manufacturer needed to be revised to cover situations in which a
manufacturer contracts out the design and production of equipment to
another manufacturer. While we understand there are many different
types of relationships between equipment manufacturers, we believe it
is important to establish firm criteria for determining eligibility to
use the equipment manufacturer allowances. We are concerned that the
change to the equipment manufacturer definition suggested by the
commenters would allow entities that have little or no involvement in
the actual design, manufacture and assembly of equipment (e.g.,
companies that only import equipment) to claim they contracted with an
equipment manufacturer to produce equipment for them and therefore
claim allowances. This is the exact situation we are attempting to
prevent with the changes to the eligibility requirements for the
allowances. Therefore, we are adopting the proposed requirement that
only those nonroad equipment manufacturers that install engines and
have primary responsibility for designing, and manufacturing equipment
will qualify for the allowances or other relief provided under the Tier
4 transition provisions. However, we are revising the provisions
regarding which engines an equipment manufacturer may include in its
total count of U.S.-directed equipment production, which in turn
affects the number of allowances an equipment manufacturer may claim.
Under today's action, an equipment
[[Page 39007]]
manufacturer may include equipment produced by other manufacturers
under license to them for which they had primary design responsibility
(see section 1039.625(a) of the regulations). This should cover the
type of situation described by the commenters while preventing an
import-only entity from claiming it is an equipment manufacturer and
thereby gaining access to the allowances.
a. Percent-of-Production Allowance
Under the percent-of-production allowance adopted today, each
equipment manufacturer will be allowed to install engines not certified
to the Tier 4 emission standards in a limited percentage of machines
produced for the U.S. market. Equipment manufacturers will need to
provide written assurance to the engine manufacturer that such engines
are being procured for the purpose of the transition provisions for
equipment manufacturers. These engines will instead have to be
certified to the standards that would apply in the absence of the Tier
4 standards (see Table III.B-1 for the applicable standards). As
proposed, this percentage will apply separately to each of the Tier 4
power categories (engines below 25 horsepower, engines between 25 and
75 horsepower, engines between 75 and 175 horsepower, engines between
175 and 750 horsepower, and engines above 750 horsepower) and is
expressed as a cumulative percentage of 80 percent over the seven years
beginning when the Tier 4 standards apply in a category (see Table
III.B-1 for the applicable seven-year periods). No exemptions will be
allowed after the seventh year. For example, an equipment manufacturer
could install engines certified to the Tier 3 standards in 40 percent
of its entire 2011 production of nonroad equipment that use engines
rated between 175 and 750 horsepower, 30 percent of its entire 2012
production in this horsepower category, and 10 percent of its entire
2013 production in this horsepower category. (During the transitional
period for the Tier 4 standards, the fifty percent of engines that are
allowed to certify to the previous tier NOX standard but
meet the Tier 4 PM standard are considered Tier 4-compliant engines for
the purpose of the equipment manufacturer transition provisions.) If
the same manufacturer produces equipment using engines rated above 750
horsepower, a separate cumulative percentage allowance of 80 percent
will apply to those machines during the seven years beginning in 2011
or 2015. This percent-of-production allowance is almost identical to
the percent-of-production allowance adopted in the October 1998 final
rule (63 FR 56967, October 23, 2003), the difference being, as
explained earlier, that there are fewer power categories (and
consequent increased flexibility in spreading the flexibility among
engine families) associated with the Tier 4 standards.
The 80 percent exemption allowance, were it to be used to its
maximum extent by all equipment manufacturers, will bring about the
introduction of cleaner engines several months later than would have
occurred if the new standards were to be implemented on their effective
dates. However, the equipment manufacturer flexibility program has been
integrated with the standard-setting process from the initial
development of this rule, and as such we believe it is a key factor in
assuring that there is sufficient lead time to initiate the Tier 4
standards according to the final implementation schedule.\65\
---------------------------------------------------------------------------
\65\ As explained at proposal, for emissions modeling purposes,
we have assumed that manufacturers take full advantage of the
allowances under the existing transition program for equipment
manufacturers (adopted in the October 1998 rule; see 63 FR 56967
(October 23, 2003) in establishing the baseline emissions inventory.
In modeling the impact of the Tier 4 standards, because the
standards will not take effect for many years and it is not possible
to accurately forecast use of the transition program for equipment
manufacturers, so to assess costs in a conservative manner, we have
assumed that all engines will meet the Tier 4 standards in the
timeframe required by the standards without use of the Tier 4
transition provisions. As discussed in section VI.C, this is
consistent with our cost analysis, which assumes no use of the
transition program for equipment manufacturers.
---------------------------------------------------------------------------
As proposed, machines that use engines built before the effective
date of the Tier 4 standards do not have to be included in an equipment
manufacturer's percent of production calculations under this allowance.
Machines that use engines certified to the previous tier of standards
under our Small Business provisions (as described in section III.C of
this preamble ) do not have to be included in an equipment
manufacturer's percent of production calculations under this allowance.
All engines certified to the Tier 4 standards, including those engines
that produce emissions at higher levels than the standards, but for
which an engine manufacturer uses ABT credits to demonstrate
compliance, will count as Tier 4 complying engines and do not have to
be included in an equipment manufacturer's percent of production
calculations. Engines that meet the Tier 4 PM standards but are allowed
to meet the Tier 3 NMHC+NOX standards during the phase-in
period also count as Tier 4 complying engines and do not have to be
included in an equipment manufacturer's percent of production
calculations.
The choice of a cumulative percent allowance of 80 percent is based
on our best estimate of the degree of reasonable lead time needed by
equipment manufacturers. We believe the 80 percent allowance responds
to the need for flexibility identified by equipment manufacturers,
while ensuring a significant level of emission reductions in the early
years of the program. (As noted in the following section III.B.2.b, we
are adopting a technical hardship provision that allows an equipment
manufacturer to request additional relief under the percent of
production allowance under certain conditions and with EPA approval.)
b. Technical Hardship Flexibility
Ingersoll-Rand commented that the 80% percent of production
allowance level is not sufficient for Tier 4 given the stringency of
the standard and the difficulty engine manufacturers will have
complying with the standards. In further discussions with Ingersoll-
Rand on this issue, they suggested that a percent of production
allowance level of 150% for totally non-integrated equipment
manufacturers (i.e., equipment manufacturers producing no diesel
engines) was appropriate for Tier 4 power categories above 25
horsepower. A fully integrated manufacturer would still receive the 80%
level and partially-integrated companies would receive somewhere
between 80% and 150% depending on the share of self-produced engines in
each specific power category. The basis for this comment is their
belief that non-integrated manufacturers are at a disadvantage to
integrated manufacturers (manufacturers making both the engine and
equipment) when it comes to planning for new Tier 4 engine designs.
Although we do not accept the premise that equipment manufacturer
lead time must be drastically expanded across-the-board for the Tier 4
program, we do agree, as explained earlier, that there may be
situations where additional lead time, in the form of increased
equipment manufacturer transition flexibilities, can be justified.
Therefore, we have added an additional flexibility (which has no direct
analogue in the Tier 2/3 rule) to this rule in order to provide
additional needed lead time in appropriate, individualized
circumstances based on a showing of extreme technical or engineering
hardship. Ingersoll-Rand has agreed, by letter to EPA, that this
provision satisfies all of its concerns regarding
[[Page 39008]]
adequacy of lead time for meeting Tier 4 standards.
This additional flexibility would be available for the three Tier 4
power categories between 25 and 750 horsepower. As noted earlier,
Ingersoll-Rand did not believe additional flexibility was needed for
engines below 25 horsepower. We agree because the Tier 4 standards for
engines below 25 horsepower are not based on the use of advanced
aftertreatment. We also are not including this new provision for
engines above 750 horsepower because nearly all of the equipment
manufacturers utilizing engines above 750 horsepower make small volumes
of equipment. The small-volume allowance (described in the following
section) allows a manufacturer to exempt a specific number of engines
over a seven-year period, which in most cases will be greater than the
increased percentage potentially available under this new provision.
This new provision, found in new Sec. 1039.625(m), is a case-by-
case exemption granted by EPA to an equipment manufacturer. The
equipment manufacturer would have the burden of demonstrating existence
of extreme technical or engineering hardship conditions that are
outside its control. It must also demonstrate that it has exercised
reasonable due diligence to avoid the situation. EPA would treat each
request for technical hardship separately, with no guarantee that it
would grant the exemption. If EPA grants the exemption, the equipment
manufacturer could receive up to an additional 70 percent under the
percent of production allowance for each of the three power categories
noted above (meaning that there is a potential total 150 percent under
the percent of production allowance available, the initial 80 percent
available without application, and an additional potential increment of
up to 70 percent available on a case-by-case basis).
The exemption could only be granted upon written application to EPA
setting forth essentially why the normally successful elements of
engine maker/equipment manufacturer design cycle have not provided
adequate lead time for a particular equipment model. The application
would therefore have to address, with documentation: The engineering or
technical problems that have proved unsolvable within the lead time
provided, the normal design cycle between the engine maker and
equipment manufacturer and why that cycle has not worked in this
instance, all information (such as written specifications, performance
data, prototype engines) the equipment manufacturer has received from
the engine supplier, and a comparison of the design process for the
equipment model for which the exemption is requested with the design
process for other models for which no exemption is needed. The
equipment manufacturer also would have to make and describe all efforts
to find other compliant engines for the model. EPA will then evaluate
and determine whether or not to grant each such request, and what
additional increment under the percent of production allowance (above
the 80 percent normally allowed) is justified (not to exceed an
additional 70 percent as noted above). As part of our evaluation of
requests based on technical hardship, we may contact the engine
supplier(s) listed by the equipment manufacturer to check on the
accuracy of the engine-related information supplied by the equipment
manufacturer. This extension of lead time is premised on the existence
of extreme technical or engineering problems, in contrast to the
economic hardship provision described in section III.B.2.f below, where
consideration of economic impact is critical.
EPA would not grant an application for technical hardship exemption
unless the equipment manufacturer demonstrates that the full 80 percent
allowed under the percent of production allowance is reasonably
expected to be used up in the first two years of the seven-year
flexibility period. The reason is obvious. If that allowance would not
be fully utilized, then no further extension of lead time can be
justified. Furthermore, any technical hardship allowance would have to
be used up within two years after the Tier 4 percent of production
allowances start for any power category. This is because, although we
believe that circumstances of extreme technical or engineering hardship
may arise, we cannot see that these circumstances could not be solved
within the first two years of the transition. Indeed, Ingersoll-Rand
itself clearly indicated that this is a temporary burden which exists
during initial model transition and indicated that only 18 months
(rather than two years) could be needed from receipt of the certified
engine.
This flexibility will be available to all equipment manufacturers,
but may only be requested for equipment in which the equipment
manufacturer is different than the engine manufacturer. We believe that
integrated manufacturers who produce both the equipment and the engine
used in the piece of equipment could have an advantage in the equipment
redesign process (compared to an equipment manufacturer, whether
integrated or not, that uses engines from a different manufacturer)
that makes additional relief under the percent of production allowance
unnecessary. In addition, integrated equipment manufacturers have other
programs available to them (that non-integrated manufacturers do not
have) such as the engine averaging, banking and trading program, which
can provide lead time flexibility during the transition years. Most
basically, integrated manufacturers should be able to design
concurrently in all circumstances, so that extreme technical or
engineering hardships should not arise.
c. Small-Volume Allowance
The percent-of-production approach described above may provide
little benefit to businesses focused on a small number of equipment
models, and hence there could be situations where there is insufficient
lead time for such models. Therefore, with today's action, we are
adopting a small-volume allowance that will allow any equipment
manufacturer to exceed the percent-of-production allowances described
above during the same seven-year period, provided the manufacturer
limits the number of exempted engines to 700 total over the seven
years, and to 200 in any one year. The limit of 700 exempted engines
(and no more than 200 engines per year) applies separately to each of
the Tier 4 power categories (engines below 25 horsepower, engines
between 25 and 75 horsepower, engines between 75 and 175 horsepower,
engines between 175 and 750 horsepower, and engines above 750
horsepower). In addition, manufacturers making use of this provision
must limit exempted engines to a single engine family in each Tier 4
power category.
We are also adopting an alternative small-volume allowance, which
equipment manufacturers have the option of utilizing. In discussions
regarding the current small-volume allowance, some manufacturers
expressed the desire to be able to exempt engines from more than one
engine family, but still fall under the number of exempted engine
limit. For that reason, we solicited comment on a small-volume
allowance program that would allow manufacturers to exempt engines in
more than one family, but have lower numerical limits. Under this
alternative, manufacturers using the small-volume allowance could
exempt 525 machines over seven years (with a maximum of 150 in any
given year) for each of the three power categories below 175
horsepower, and 350 machines over seven years (with a maximum of 100 in
[[Page 39009]]
any given year) for the two power categories above 175 horsepower.
Concurrent with the revised caps of 525 or 350, depending on power
category, manufacturers could exempt engines from more than one engine
family under the small-volume allowance program. Based on sales
information for small businesses, we estimated that the alternative
small-volume allowance program to include lower numbers of eligible
engines and allow manufacturers to exempt more than one engine family
would keep the total number of engines eligible for the allowance at
roughly the same overall level as the 700-unit program.\66\ We also
requested comment on allowing equipment manufacturers to choose between
the two small-volume allowance programs described above (68 FR 28474-
28475, May 23, 2003).
---------------------------------------------------------------------------
\66\ ``Analysis of Small Volume Equipment Manufacturer
Flexibilities,'' memo from Phil Carlson (EPA) to Docket A-2001-28.
---------------------------------------------------------------------------
Both engine and equipment manufacturers supported dropping the one
engine family restriction from the 700 unit small-volume allowance. In
addition, they commented that if the one engine family restriction was
not dropped from the 700 unit option, they supported the option of
allowing equipment manufacturers to choose between the two small-volume
allowance options. With today's action, we are revising the proposed
small-volume allowance to allow equipment manufacturers to choose
between the 700 unit over seven years option, with exempted engines
limited to one engine family, or the proposed alternative which would
allow equipment manufacturers to exempt fewer engines over seven years
(525 or 350 units, depending on the power category), but with no
restriction on the number of engine families that could be included in
the exempted engine count. Based on our analysis of small businesses
noted above, we expect the number of engines that could be exempted
under either option is roughly the same. Giving equipment manufacturers
the ability to choose between the two options should not significantly
impact the number of engines likely to be exempted under the small-
volume allowance. We have not chosen to drop the one engine family
restriction from the 700-unit small-volume allowance because it would
result in a significant increase in the number of engines eligible to
be exempted to levels which we believe are not needed to provide
adequate lead time for the Tier 4 program.\67\
---------------------------------------------------------------------------
\67\ Memorandum, Phil Carlson to Docket A-2001-28, ``Analysis of
Equipment Manufacturer Flexibilities,'' April 15, 2003. Docket A-
2001-28, document no. II-B-24.
---------------------------------------------------------------------------
As with the percent-of-production allowance, machines that use
engines built before the effective date of the Tier 4 standards do not
have to be included in an equipment manufacturer's count of engines
under the small-volume allowance. Similarly, machines that use engines
certified to the previous tier of standards under our Small Business
provisions (as described in section III.C of today's action) do not
have to be included in an equipment manufacturer's count of engines
under the small-volume allowance. All engines certified to the Tier 4
standards, including those that produce emissions at higher levels than
the standards but for which an engine manufacturer uses ABT credits to
demonstrate compliance, will be considered to be Tier 4 complying
engines and do not have to be included in an equipment manufacturer's
count of engines under the small-volume allowance. Engines that meet
the Tier 4 PM standards but are allowed to meet the Tier 3
NMHC+NOX standards during the phase-in period (i.e., phase-
out engines) will also be considered as Tier 4 complying engines and do
not have to be included in an equipment manufacturer's count of engines
under the small-volume allowance. All engines used under the small-
volume allowance must certify to the standards that would be in effect
in the absence of the Tier 4 standards (see Table III.B-1 for the
applicable standards). As noted earlier, equipment manufacturers will
need to provide written assurance to the engine manufacturer when it
purchases engines under the transition provisions for equipment
manufacturers.
The Engine Manufacturers Association commented that the proposed
regulations for the small-volume allowance established a limit on the
total number of engines an equipment manufacturer could use that did
not meet the Tier 4 standards and should be revised to set a limit
based on U.S.-directed production (consistent with the proposed
regulatory language for the percent-of-production allowance). EPA
agrees that the limit under the small-volume allowance should apply to
U.S.-directed production only--as the commenter surmised, this is what
EPA intended--and has revised the final regulations for the small-
volume allowance accordingly.
We are also finalizing a technical hardship provision for small
business equipment manufacturers using 25-50 horsepower engines, as
discussed in III.C.2.b.ii.
d. Early Use of Tier 4 Flexibilities in the Tier 2/3 Timeframe
As proposed, we are also adopting provisions that allow equipment
manufacturers to start using a limited number of the new Tier 4 percent
of production allowances or Tier 4 small-volume allowances once the
seven-year period for the existing Tier 2/Tier 3 program expires (and
so continue using engines meeting Tier 1 or Tier 2 standards). In this
way, a manufacturer can potentially continue exempting the most
difficult applications once the seven-year period of the current Tier
2/3 flexibility provisions is finished. (Under the existing transition
program for equipment manufacturers, any unused Tier 2/3 allowances
expire after the seven-year period.) However, opting to start using
Tier 4 allowances once the seven-year period from the current Tier 2/
Tier 3 program expires will reduce the number of exemptions available
from the Tier 4 standards under either the percent of production
allowance or the small-volume allowance.
With today's action, equipment manufacturers may use up to a total
of 10 percent of their Tier 4 percent of production allowances or up to
100 of their Tier 4 small-volume allowances prior to the effective date
of the Tier 4 standards. (The early use of Tier 4 allowances will be
allowed in each Tier 4 power category.) This amount of equipment
utilizing the early Tier 4 allowances will be subtracted from either
the Tier 4 allowance of 80 percent under the percent of production
allowance or the applicable limit under the small-volume allowance for
the appropriate power category, resulting in fewer allowances once the
Tier 4 standards take effect. For example, if an equipment manufacturer
uses the maximum amount of early Tier 4 percent of production
allowances of 10 percent, then the manufacturer will have a cumulative
total of 70 percent remaining for that power category when the Tier 4
standards take effect (i.e., 80 percent production allowance minus 10
percent).
The California Air Resources Board commented that we should
discount the early use of Tier 4 flexibilities to discourage abuse of
the provisions, by requiring equipment manufacturers to give up more
than one flexibility after Tier 4 begins for every flexibility used
prior to Tier 4. California did not specifically recommend what the
discount level should be. We are not adopting a discount for early use
of the Tier 4 flexibilities. The intent of
[[Page 39010]]
allowing manufacturers to use the Tier 4 flexibilities early was to
allow them to carry over the few remaining equipment models that might
not have been redesigned at the end of the seven-year Tier 2/Tier 3
flexibility period until Tier 4 begins, and not requiring a possible
double redesign in a short period of time. Because we have placed a
relatively low cap (10% under the percent of production allowance or
100 units under the small volume allowance) on the amount an equipment
manufacturer could use early from Tier 4, we do not believe that
manufacturers will be able to abuse the program and therefore should
not have to discount the number of Tier 4 flexibilities used early.
We view this provision on early use of Tier 4 allowances as
providing reasonable lead time for introducing Tier 4 engines, since it
should result in earlier introduction of Tier 4-compliant engines
(assuming that the allowances would otherwise be fully utilized) with
resulting net environmental benefit (notwithstanding longer utilization
of earlier Tier engines, due to the stringency of the Tier 4 standards)
and should do so at net reduction in cost by providing cost savings for
the engines that have used the Tier 4 allowances early. (This is
another reason we see no reason to discount the allowance.)
e. Early Tier 4 Engine Incentive Program for Equipment Manufacturers
Ingersoll-Rand commented that non-integrated equipment
manufacturers who incorporate Tier 4 compliant engines into their
equipment prior to the applicable date for the Tier 4 standards should
be able to earn early compliance credits. These early compliance
credits could allow use of the previous-tier engine (above and beyond
the base percentage granted under the flexibility program) for up to 18
months after the certification date of the engine. Ingersoll-Rand also
commented that such early compliance credits should be able to be
traded across power categories with appropriate weightings applied.
We believe a program that provides an incentive for equipment
manufacturers to use early Tier 4-compliant engines is worthwhile from
both a technology development perspective and an environmental
perspective. As we noted at proposal when we proposed a similar
incentive program for engine makers, early use of Tier 4 compliant
engines will help foster technology development by getting the Tier 4
technologies out in the market early and provide real-world experience
to manufacturers and users (68 FR 28482, May 23, 2003). It will also
lead to additional emission reductions above and beyond those expected
under the existing Tier 2/3 standards in the years prior to Tier 4
taking effect. Moreover, equipment manufacturers (and especially non-
integrated equipment manufacturers) are unlikely to buy early Tier 4
engines without some incentive to do so since these engines are likely
to be more expensive than Tier 2/3 engines. For these reasons, we are
adopting new provisions that will allow any equipment manufacturer to
earn early compliance credits that could be used to increase the number
of equipment flexibilities above and beyond the levels allowed under
the percent of production allowance or small-volume allowance (and for
reasons independent of those allowances: namely, an inducement to make
early use of Tier 4 engines).
The program will be available to all equipment manufacturers
regardless of whether they are integrated or non-integrated. While
Ingersoll-Rand commented that the program should be available to non-
integrated equipment manufacturers only, we believe the program should
provide an incentive for all equipment manufacturers to use early Tier
4 engines (since the benefits accruing from early use of such engines
exist regardless of whether the equipment manufacturer is integrated
with the engine maker).
Before describing this provision further, it is desirable to put it
in context by explaining its relationship to the engine manufacturer
incentive program for early Tier 4 or very low emission engines
(described in section III.M below), as well as to the similar incentive
provisions for engine manufacturers which we proposed (68 FR 28482, May
23, 2003). We are, in essence, redirecting the proposed incentive for
using early Tier 4 compliant engines to equipment manufacturers. Thus,
under today's rule, an engine manufacturer could use the incentive
program (as described in section III.M) only if an equipment
manufacturer uses an early Tier 4 engine but (for whatever reason)
declines to use the early engine flexibility allowance. In such a case,
the engine manufacturer could opt to earn either ``engine offsets''
(which would allow them to make fewer engines certified to the Tier 4
standards once the Tier 4 program takes effect) or ABT credits, but not
both. In the more likely case of an equipment manufacturer using early
Tier 4 engines and using the incentive flexibilities itself, the engine
manufacturer would be eligible to generate ABT credits from such early
Tier 4 compliant engines.
The early Tier 4 engine incentive program for equipment
manufacturers will apply to the four power categories above 25
horsepower where the use of advanced exhaust aftertreatment is expected
under the Tier 4 standards. Because the Tier 4 standards for engines
below 25 horsepower are not expected to result in the use of advanced
aftertreatment technologies, we are not including such engines in the
program.
In order for an engine to be considered an early Tier 4 compliant
engine, it will need to be certified to the final Tier 4 standards for
PM, NOX, and NMHC (i.e., the 2013 standards for engines
between 25 and 75 horsepower, the 2014 standards for engines between 75
and 175 horsepower, the 2014 standards for engines between 175 and 750
horsepower, and the 2015 standards for engines above 750 horsepower) or
to the final PM and NMHC standards and the alternative NOX
standards during the phase-in (as described in section II.A.2.c of
today's rule for engines between 75 and 750 horsepower). In order to be
an early Tier 4 compliant engine, these engines would also have to
certify to the Tier 4 CO standards. Because 15 ppm sulfur diesel fuel
will be available on a widespread basis in time for 2007 (due to the
requirements for on-highway heavy-duty engines), we are allowing engine
manufacturers to begin certifying engines to the Tier 4 standards, and
therefore have engines eligible for the early Tier 4 engine incentive
program, beginning with the 2007 model year.
In order to provide assurance that early Tier 4 compliant engines
are placed into equipment earlier than would otherwise happen under the
Tier 4 program, engine manufacturers will be required to certify and
start producing such engines before September 1 of the year prior to
the post-2011 Tier 4 standards taking effect or before September 1,
2010 for engines in the 175 to 750 horsepower category. Similarly,
equipment manufacturers will be required to install such engines in
equipment before January 1 of the year the post-2011 Tier 4 standards
take effect or before January 1, 2011 for engines in the 175 to 750
horsepower category. In addition, in order to be considered an early
Tier 4 compliant engine, such engines would be required to comply with
all of the requirements associated with the final Tier 4 standards such
as NTE requirements, transient testing (where otherwise required for
certification, i.e. for 25-750 horsepower engines), and closed
crankcase requirements. Finally, for engines certified prior to model
year 2011, the engine manufacturer would be
[[Page 39011]]
allowed to demonstrate early compliance with the Tier 4 standards on a
15 ppm sulfur fuel (as allowed under the certification fuel
requirements specified in section III.D of today's rule) provided the
engine manufacturer demonstrates that the equipment in which the
engines are placed will use fuel meeting this low sulfur specification
and includes appropriate information on the engine label and ensures
that ultimate purchasers of equipment using these engines are informed
that ultra low-sulfur diesel fuel is recommended (see section
1039.104(e) of the regulations). Equipment manufacturers using such
pre-2011 engines in their equipment would likewise need to take steps
to ensure that fuel meeting this low sulfur specification is used in
the equipment once operated in use to earn the additional flexibility
allowances.
Equipment manufacturers installing engines complying with the final
Tier 4 standards (as described above) would earn one flexibility
allowance for each early Tier 4 compliant engine used in its equipment.
Equipment manufacturers installing engines between 75 and 750
horsepower that comply with the final Tier 4 PM standard and the
alternative NOX standard (described in section II.A.2.c)
would earn one-half of a flexibility allowance for each early Tier 4
compliant engine used in its equipment. Table III.B-2 presents the
requirements an engine would need to meet to be considered an early
Tier 4 engine for the purposes of this early Tier 4 engine incentive
program.
Table III.B-2.--Requirements for Engines
[Under the Early Tier 4 Engine Incentive Program]
----------------------------------------------------------------------------------------------------------------
Number of
flexibility
Tier 4 standards the Date before which engines allowances
Power category engines must meet must be installed by the earned for use
equipment manufacturer of early tier
4 engines
----------------------------------------------------------------------------------------------------------------
25 <= hp < 75......................... Model Year 2013............ January 1, 2013\a\......... 1-to-1
(19 <= kW < 56).......................
75 <= hp < 175........................ Model Year 2014............ January 1, 2012............ 1-to-1
(56 <= kW <130)....................... Model Year 2012\b\......... January 1, 2012............ 0.5-to-1
175 <= hp <= 750...................... Model Year 2014............ January 1, 2011............ 1-to-1
(130 <= kW <= 560).................... Model Year 2011\b\......... January 1, 2011............ 0.5-to-1
Generator Sets........................ Model Year 2015............ January 1, 2015............ 1-to-1
>750 hp...............................
(>560 kW).............................
Other Machines........................ Model Year 2015............ January 1, 2015............ 1-to-1
>750 hp...............................
(>560 kW).............................
----------------------------------------------------------------------------------------------------------------
\a\ The installation date for 50 to 75 horsepower engines purchased from manufacturers choosing to opt out of
the 2008 model year Tier 4 standards and instead comply with the Tier 4 standards beginning in 2012 would be
January 1, 2012.
\b\ To be eligible, engines must meet the 0.01g/bhp-hr PM standard and the alternative NOX standards in section
1039.102 (e) described in section II.A.2.c.
As described above, equipment manufacturers using early Tier 4
compliant engines can earn flexibility allowances that can be used to
effectively increase the number of allowances provided under the
percent of production allowance or the small volume allowance in the
same power category. For example, an equipment manufacturer that uses
500 engines in the 175 to 750 horsepower category that met the model
year 2011 PM standards and alternative NOX standards would
earn 250 additional flexibility allowances in that power category. That
manufacturer could then exclude 250 engines from its calculations
before demonstrating compliance with the 80 percent limit under the
percent of production allowance (or the applicable limit under the
small volume allowance if the equipment manufacturer is using that
option) once Tier 4 starts in that power category.
Equipment manufacturers would be required to report certain
information regarding the early Tier 4 compliant engines (such as
engine family name, number of engines used prior to Tier 4 in each
power category, the rated power of the engines, and the type of
application the engines above 750 horsepower were used in) when they
submit their first report under the Tier 4 flexibility program. For
engines above 750 horsepower, equipment manufacturers also would be
required to keep records of how many early Tier 4 compliant engines are
used in generator sets, versus how many are used in other machinery.
This is because the additional flexibility allowances earned from the
use of early Tier 4 compliant engines used in generator sets could only
be used for additional flexibility allowances for generator sets.
Likewise, the additional flexibility allowances earned from the use of
early Tier 4 compliant engines used in mobile machinery (labeled `other
machinery' in the table above) applications could only be used for
additional flexibility allowances for other non-generator set
applications.
Under the early Tier 4 engine incentive program, we will allow
equipment manufacturers to ``trade'' the additional flexibilities
earned in the two power categories between 75 and 750 horsepower, with
the power rating of the engines factored into the ``trade'' to ensure
equivalent emissions for the engines generating the early allowances
and the engines using the allowances. For example, an equipment
manufacturer that earned 100 additional flexibility allowances under
the early Tier 4 engine incentive program from 100 horsepower engines,
could ``trade'' those flexibilities into the next power category up
(175 to 750 horsepower). The equipment manufacturer would generate
10,000 horsepower-allowances from those early engines (i.e., 100
horsepower times 100 allowances). The equipment manufacturer could then
produce, for this example, an additional 25 engines with a power rating
of 400 horsepower above and beyond the normal limit on allowances (or
any other combination of engines such that the sum of the horsepower-
weighted allowances adds up to the 10,000 horsepower-allowances used in
this
[[Page 39012]]
example). We are not allowing trading for engines in the 25 to 75
horsepower category because the Tier 4 standards for these engines are
based on the application of only PM aftertreatment technology.
Similarly, we are not allowing trading for engines in the above 750
horsepower category because the Tier 4 standards are based on the
application of PM aftertreatment to all engines, but NOX
aftertreatment for only some engines.
f. Economic Hardship Relief Provision
With today's action, and as proposed, we are providing an
additional Tier 4 transition flexibility for ``economic hardship
relief'' for equipment manufacturers. Under the economic hardship
relief provisions, an equipment manufacturer that does not make its own
engines could obtain limited additional relief by providing evidence
that, despite its best efforts, it cannot meet the implementation
dates, even with the Tier 4 equipment flexibility program provisions
outlined above. Such a situation could occur if an engine supplier
without a major business interest in the equipment manufacturer were to
change or drop an engine model very late in the implementation process.
The purpose of the provision is to redress individual situations of
extreme economic hardship, not merely to perpetuate existing market
share. That is, if situations arise where one equipment maker cannot
produce equipment using Tier 4-compliant engines by the compliance
date, but another can, ordinarily EPA would not adjust the program to
allow use of the non-compliant application absent extreme, compelling
equitability considerations.
Applications for economic hardship relief will have to be made in
writing, and will need to be submitted before the earliest date of
noncompliance. The application will also have to include evidence that
failure to comply is not the fault of the equipment manufacturer (such
as a supply contract broken by the engine supplier), and include
evidence that serious economic hardship to the company will result if
relief is not granted. (As explained in section III.B.2.b above, this
is a significant difference between this economic hardship provision
and the technical hardship flexibility, where consideration of cost is
generally irrelevant.) We expect to work with the applicant to ensure
that all other remedies available under the flexibility provisions are
exhausted before granting additional relief (if appropriate), and place
a limit on the period of relief to no more than one year. Applications
for economic hardship relief generally will only be accepted during the
first year after the effective date of an applicable new emission
standard.
The Agency expects this provision will be rarely used. This
expectation has been supported by our initial experience with the Tier
2 standards in which only one equipment manufacturer has applied under
the existing hardship relief provisions (and the request was
subsequently denied). Requests for economic hardship relief will be
evaluated by EPA on a case-by-case basis, and may require, as a
condition of granting the applications, that the equipment manufacturer
agree (in writing) to some appropriate measure to recover the lost
environmental benefit.
Ingersoll-Rand commented that the provisions regarding eligibility
for hardship relief should be revised so that they do not require a
demonstration of severe economic hardship, noting that such a showing
would invariably preclude large entities (like Ingersoll-Rand) from
utilizing the provision, even though delays were beyond their control.
As described earlier in this section, we have included an additional
flexibility in the Tier 4 rule in order to provide additional needed
lead time in appropriate, individualized circumstances based on a
showing of extreme technical or engineering hardship. We believe the
provisions of the technical hardship address the concerns noted by
Ingersoll-Rand in their comments, and therefore we are not revising the
existing economic hardship relief provisions (which require a
demonstration of severe economic impact) for the Tier 4 final program.
g. Existing Inventory Allowance
The current program for nonroad diesel engines includes a provision
for equipment manufacturers to continue to use engines built prior to
the effective date of new standards, until the older engine inventories
are depleted. It also prohibits stockpiling of previous tier engines.
As proposed, we are extending these provisions for the transition to
the Tier 4 standards adopted today. We are also extending the existing
provision that provides an exception to the applicable compliance
regulations for the sale of replacement engines. In extending this
provision, we are requiring that engines built to replace certified
engines be identical in all material respects to an engine of a
previously certified configuration that is of the same or later model
year as the engine being replaced. The term ``identical in all material
respects'' allows for minor differences that would not reasonably be
expected to affect emissions such as a change in materials or a change
in the company supplying the components of the engine.
3. What Are the Recordkeeping, Notification, Reporting, and Labeling
Requirements Associated With the Equipment Manufacturer Transition
Provisions?
The following section describes the recordkeeping, notification,
reporting, and labeling requirement being adopted today. As proposed,
failure to comply with these requirements will subject the noncomplying
party to penalties as described in 40 CFR 1068.101.
a. Recordkeeping Requirements for Engine and Equipment Manufacturers
With today's action, we are extending the recordkeeping
requirements from the current equipment manufacturer transition
program. Under the Tier 4 transition program, engine manufacturers will
be allowed to continue to build and sell previous tier engines needed
to meet the market demand created by the equipment manufacturer
flexibility program, provided they receive written assurance from the
engine purchasers that such engines are being procured for this
purpose. Engine manufacturers will be required to keep copies of the
written assurance from the engine purchasers for at least five full
years after the final year in which allowances are available for each
power category.
Equipment manufacturers choosing to take advantage of the Tier 4
allowances will be required to: (1) Keep records of the production of
all pieces of equipment excepted under the allowance provisions for at
least five full years after the final year in which allowances are
available for each power category; (2) include in such records the
serial and model numbers and dates of production of equipment and
installed engines, and the rated power of each engine, (3) calculate
annually the number and percentage of equipment made under these
transition provisions to verify compliance that the allowances have not
been exceeded in each power category; and (4) make these records
available to EPA upon request.
b. Notification Requirements for Equipment Manufacturers
We are adopting new notification requirements for equipment
manufacturers with the Tier 4 program. Under the Tier 4 transition
program, equipment manufacturers wishing to participate in the Tier 4
transition provisions will be required to notify EPA prior to their use
of the Tier 4
[[Page 39013]]
transition provisions. Equipment manufacturers will be required to
submit their notification before the first calendar year in which they
intend to use the transition provisions. We believe that prior
notification will greatly enhance our ability to ensure compliance.
Under the newly adopted notification requirements, each equipment
manufacturer will be required to notify EPA in writing and provide the
following information prior to the start of the first year in which the
manufacturer intends to use the flexibilities:
(1) The nonroad equipment manufacturer's name, address, and contact
person's name, phone number;
(2) The allowance program that the nonroad equipment manufacturer
intends to use by power category;
(3) The calendar years in which the nonroad equipment manufacturer
intends to use the exception;
(4) An estimation of the number of engines to be exempted under the
transition provisions by power category;
(5) The name and address of the engine manufacturer from whom the
equipment manufacturer intends to obtain exempted engines; and
(6) Identification of the equipment manufacturer's prior use of
Tier 2/3 transition provisions.
Engine manufacturers supported the new notification requirements
for equipment manufacturers. One equipment company, however, commented
that the notification requirements are of minimal value and should be
deleted. We disagree and continue to believe the new notification
requirements will greatly enhance our ability to ensure compliance with
the flexibility provisions. Given the limited information that must be
provided by equipment manufacturers, we do not expect that the
notifications will require any significant effort to pull the
information together and submit to EPA.
EPA had requested comment on whether the notification provisions
should also apply to the current Tier 2/Tier 3 transition program, and
if so, how these provisions should be phased in for equipment
manufacturers using the current Tier 2/Tier 3 transition provisions. We
did not receive any comments on this issue. However, consistent with
our approach to several other Tier 4 requirements that we were
considering applying to the Tier 2/Tier 3 transition program, we are
not adopting such notification requirements for equipment manufacturers
for the current Tier 2/Tier 3 program.
c. Reporting Requirements for Engine and Equipment Manufacturers
As with the current program, engine manufacturers who participate
in the Tier 4 program will be required to submit information each year
on the number of such engines produced and to whom the engines are
provided. The purpose of these submittals is to help EPA monitor
compliance with the program and prevent abuse of the program.
We are adopting new reporting requirement for equipment
manufacturers participating in the Tier 4 equipment manufacturer
transition provisions. With today's action, equipment manufacturers
participating in the program will be required to submit an annual
written report to EPA that calculates its annual number of exempted
engines under the transition provisions by power category in the
previous year. Equipment manufacturers using the percent of production
allowance, will also have to calculate the percent of production the
exempted engines represented for the appropriate year. Each report will
include a cumulative calculation (both total number and, if
appropriate, the percent of production) for all years the equipment
manufacturer is using the transition provisions for each of the Tier 4
power categories. In order to ease the reporting burden on equipment
manufacturers, EPA intends to work with the manufacturers to develop an
electronic means for submitting information to EPA.
EPA had requested comment on whether these new reporting
requirements for equipment manufacturers should also apply to the
current Tier 2/Tier 3 transition program, and if so, how these
provisions should be phased in for equipment manufacturers using the
current Tier 2/Tier 3 transition provisions. We did not receive any
comments on this issue. However, consistent with our approach to
several other Tier 4 requirements that we were considering applying to
the Tier 2/Tier 3 transition program, we are not adopting reporting
requirements for equipment manufacturers for the current Tier 2/Tier 3
program.
d. Labeling Requirements for Engine and Equipment Manufacturers
Engine manufacturers are currently required to label their
certified engines with a label that contains a variety of information.
Under today's action, as proposed, we are adopting requirements that
engine manufacturers be required to identify on the engine label if the
engine is exempted under the Tier 4 transition program. In addition,
and also as proposed, equipment manufacturers will be required to apply
a label to the engine or piece of equipment that identifies the
equipment as using an engine produced under the Tier 4 transition
program for equipment manufacturers.
Engine manufacturers were opposed to the new labeling requirements.
We believe these new labeling requirements will allow EPA to easily
identify the exempted engines and equipment, verify which equipment
manufacturers are using these exceptions, and more easily monitor
compliance with the transition provisions. Labeling of the equipment
should also help U.S. Customs to quickly identify equipment being
imported using the exemptions for equipment manufacturers.
4. What Are the Requirements Associated With Use of Transition
Provisions for Equipment Produced by Foreign Manufacturers?
Under the current regulations in 40 CFR 89.2, importers are treated
as equipment manufacturers and are each allowed the full allowance
under the transition provisions in 40 CFR 89.102(d). Therefore, under
the current provisions, importers of equipment from a foreign equipment
manufacturer could as a group import more excepted equipment from that
foreign manufacturer than 80% of that manufacturer's production for the
U.S. market (i.e., more than the percent-of-production), or more than
the small-volume allowance. Therefore, the current regulation creates a
potentially significant adverse environmental impact. EPA did not
intend this outcome, and does not believe it is needed to provide
reasonable lead time to foreign equipment manufacturers. EPA thus
proposed to change the current regulations to eliminate this disparity.
As noted earlier, with today's action, only those nonroad equipment
manufacturers that install engines and have primary responsibility for
designing and manufacturing equipment will qualify for the allowances
or other relief provided under the Tier 4 transition provisions.
Foreign equipment manufacturers who comply with the compliance related
provisions discussed below will receive the same allowances and other
transition provisions as domestic manufacturers. Foreign equipment
manufacturers who do not comply with these compliance related
provisions will not receive allowances. Importers that have little
involvement in the manufacturing and assembling of the equipment will
not
[[Page 39014]]
receive any allowances or other transition relief directly, but can
import exempt equipment if it is covered by an allowance or transition
provision associated with a foreign equipment manufacturer. These
provisions allow the transition allowances and other provisions to be
used by foreign equipment manufacturers in the same way as domestic
equipment manufacturers, while avoiding the potential for importers
using unnecessary allowances.
Under today's action, a foreign equipment manufacturer includes any
equipment manufacturer that produces equipment outside of the United
States that is eventually sold in the United States. All foreign
nonroad equipment manufacturers wishing to use the transition
provisions will have to comply with all requirements of the regulation
discussed above including: Notification, recordkeeping, reporting and
labeling. Along with the equipment manufacturer's notification
described earlier, a foreign nonroad equipment manufacturer will have
to comply with various compliance related provisions similar to those
adopted in several fuel regulations relating to foreign refiners.\68\
As part of the notification, the foreign nonroad equipment manufacturer
will have to:
---------------------------------------------------------------------------
\68\ See, for example, 40 CFR 80.410 concerning provisions for
foreign refiners with individual gasoline sulfur baselines.
(1) Agree to provide EPA with full, complete and immediate
access to conduct inspections and audits;
(2) Name an agent in the District of Columbia for service of
process;
(3) Agree that any enforcement action related to these
provisions will be governed by the Clean Air Act;
(4) Submit to the substantive and procedural laws of the United
States;
(5) Agree to additional jurisdictional provisions;
(6) Agree that the foreign nonroad equipment manufacturer will
not seek to detain or to impose civil or criminal remedies against
EPA inspectors or auditors for actions performed within the scope of
EPA employment related to the provisions of this program;
(7) Agree that the foreign nonroad equipment manufacturer
becomes subject to the full operation of the administrative and
judicial enforcement powers and provisions of the United States
without limitation based on sovereign immunity; and
(8) Submit all reports or other documents in the English
language, or include an English language translation.
In addition to these requirements, we are adopting a new provision
for foreign equipment manufacturers that participate in the transition
program to comply with a bond requirement for engines imported into the
U.S. We believe the bond requirements are an important tool to ensure
that foreign equipment manufacturers are subject to the same level of
enforcement as domestic equipment manufacturers. Furthermore, we
believe that a bonding requirement for the foreign equipment
manufacturer is an important enforcement tool in order to ensure that
EPA has the ability to collect any judgements assessed against a
foreign equipment manufacturer for violations of these transition
provisions.
Under the bond program adopted today, a participating foreign
equipment manufacturer will have to obtain annually a bond in the
proper amount that is payable to satisfy United States judicial
judgments that results from administrative or judicial enforcement
actions for conduct in violation of the Clean Air Act. The foreign
equipment manufacturer will have two options for complying with the
bonding requirement. The foreign equipment manufacturer can:
(1) Obtain a bond in the proper amount from a third-party surety
agent that is cited in the U.S. Department of Treasury Circular 570,
``Companies Holding Certificates of Authority as Acceptable Sureties
on Federal Bonds and as Acceptable Reinsuring Companies''; or
(2) Obtain an EPA waiver from the bonding requirement, if the
foreign equipment manufacturer can show that it has assets of an
appropriate value in the United States.
EPA expects the second bond option to address instances where an
equipment manufacturer produces equipment outside the United States
containing flexibility engines, but also has facilities (and thus
significant assets) inside the United States. Under this second option,
such a manufacturer can apply to the EPA for a waiver of the bonding
requirement.
Because EPA's concerns of compliance will relate to the nature and
tier of engines used in the transition equipment, we believe the bond
value should be related to the value of the engine used. Therefore, we
are adopting requirements that the bond be set at a level designed to
represent approximately 10% of the cost of the engine for each piece of
transition equipment produced for import into the United States under
this program. So that manufacturers have certainty regarding the bond
amounts and so that there isn't a need for extensive data submittals
and evaluation between EPA and the manufacturer, the rule specifies the
bond value for each imported engine based on the estimated average cost
for a Tier 4 engine on which the bond would be based. Based on average
engine cost estimates from table 6.2-5 of the final RIA, equipment
using engines exempted under the transition program will require a bond
in the amount shown in table III.B-3.
Table III.B-3.--Bond Value For Engines Imported
[Under the Tier 4 Transition Program]
------------------------------------------------------------------------
Per
engine
Power range bond
value
(dollars)
------------------------------------------------------------------------
0 < hp < 25.................................................. 150
25 <= hp < 75................................................ 300
75 <= hp < 175............................................... 500
175 <= hp < 300.............................................. 1,000
300 <= hp < 600.............................................. 3,000
hp >= 600 hp................................................. 8,000
------------------------------------------------------------------------
Depending on the number of engines/equipment brought into the U.S.
each year, the value of the bond calculated using the above values
could change from year to year. Under the provisions adopted today, an
importer would calculate the estimated bond amount using the values in
table III.B-3 and be required to obtain a bond equal to the highest
bond value estimated over the seven-year flexibility period. Because we
have the authority to bring enforcement actions against a manufacturer
for five years beyond the end of the program, the manufacturer would be
required to maintain the bond for five years beyond the end of the
flexibility period or five years after using up all of its available
allowances, whichever occurs first. Finally, if a foreign equipment
manufacturer's bond is used to satisfy a judgment within the seven-year
flexibility period, the foreign equipment manufacturer will then be
required to increase the bond to cover the amount used within 90 days
of the date the bond is used.
Most comments received on this issue supported the proposed
provisions. However, Ingersoll-Rand commented that EPA should clarify
whether the special requirements for foreign equipment manufacturers
apply to U.S.-based companies that have foreign manufacturing
facilities. Ingersoll-Rand believes that such requirements should not
apply because EPA appears to be concerned about abuse of the program by
foreign companies that export machines into the U.S. With today's
action, all equipment manufacturers who import equipment into the U.S.
will be required to comply with the provisions for foreign equipment
manufacturers, even if they are U.S.-based companies. Because there is
a wide range of actual presence in this country for ``U.S.-based''
companies,
[[Page 39015]]
EPA believes it is important that all companies importing equipment to
the U.S. comply with the requirements for foreign equipment
manufacturers. Neither the notification requirements described earlier
for foreign equipment manufacturers nor the bonding requirements should
cause any burden for companies with significant presence in this
country. We would expect that only those companies with limited
presence or no presence in this country will be impacted to any
measurable degree because of the requirements placed on foreign
equipment manufacturers.
In addition to the foreign equipment manufacturer requirements
discussed above, EPA is also requiring importers of exempted equipment
from a complying foreign equipment manufacturer to comply with certain
provisions. EPA believes these importer provisions are essential to
EPA's ability to monitor compliance with the transition provisions.
Under today's action, each importer will be required to notify EPA
prior to their initial importation of equipment exempted under the Tier
4 transition provisions. Importers will be required to submit their
notification prior to the first calendar year in which they intend to
import exempted equipment from a complying foreign equipment
manufacturer under the transition provisions. The importer's
notification will need to include the following information:
(1) The name and address of importer (and any parent company);
(2) The name and address of the manufacturers of the exempted
equipment and engines the importer expects to import;
(3) Number of exempted equipment the importer expects to import
for each year broken down by equipment manufacturer and power
category; and
(4) The importer's use of the transition provisions in prior
years (number of flexibility engines imported in a particular year,
under what power category, and the names of the equipment and engine
manufacturers).
In addition, EPA is requiring that any importer electing to import
to the United States exempted equipment from a complying foreign
equipment manufacturer will have to submit annual reports to EPA. The
annual report will have to include the number of exempted equipment the
importer actually imported to the United States in the previous
calendar year; and the identification of the equipment manufacturers
and engine manufacturers whose exempted equipment/engines were
imported.
C. Engine and Equipment Small Business Provisions (SBREFA)
The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute, unless the agency certifies that
the rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions. As EPA
believed that the ultimate rule could have a significant economic
impact on small businesses, we prepared a regulatory flexibility
analysis as part of this rulemaking. We prepared an Initial Regulatory
Flexibility Analysis (IRFA) pursuant to section 603 of the RFA which is
part of the record for the NPRM, and we prepared a Final Regulatory
Flexibility Analysis (FRFA) to support today's action.
Under section 609(b) of the RFA, a Small Business Advocacy Review
Panel (SBAR Panel or Panel) is required to be convened prior to
publication of both an IRFA and a FRFA. Section 609(b) of the RFA
directs the Panel to, through outreach with small entity
representatives (SERs), report on the comments of the SERs and make
findings under section 603 of the RFA on issues related to identified
elements of an IRFA during the proposal stage of a rulemaking. During
the development of the rulemaking, EPA is to analyze the elements of
the IRFA in developing the FRFA for the final rulemaking (see section
X.C of this preamble for more discussion on the elements of a FRFA).
The purpose of the Panel was to gather information to identify impacts
on small businesses and to develop potential regulatory options to
mitigate these concerns. At the completion of the SBAR Panel process,
the Panel prepared a Final Panel Report. This report includes:
Background information on the proposed rule being
developed;
Information on the types of small entities that would be
subject to the proposed rule;
A description of efforts made to obtain the advice and
recommendations of representatives of those small entities; and,
A summary of the comments that had been received to date
from those representatives.
The Panel report was included in the proposal's rulemaking record
(and hence in the rulemaking record for this final rule), and provided
the Panel and the Agency with an opportunity to identify and explore
potential ways of shaping the rule to minimize the burden of the rule
on small entities while achieving the rule's purposes and being
consistent with Clean Air Act statutory requirements.
EPA approached this process with care and diligence. To identify
representatives of small businesses for this process, we used the
definitions provided by the Small Business Administration (SBA) for
manufacturers of nonroad diesel engines and vehicles. The categories of
small entities in the nonroad diesel sector that will potentially be
affected by this rulemaking are defined in the following table:
------------------------------------------------------------------------
Defined as small
Industry entity by SBA if: Major SIC codes
------------------------------------------------------------------------
Engine manufacturers............ Less than 1,000 Major Group 35
employees.
Equipment manufacturers:
--construction equipment...... Less than 750 Major Group 35
employees.
--industrial truck Less than 750 Major Group 35
manufacturers (i.e., employees.
forklifts).
--all other nonroad equipment Less than 500 Major Group 35
manufacturers. employees.
------------------------------------------------------------------------
One small engine manufacturer and 5 small equipment manufacturers
agreed to serve as Small Entity Representatives (SERs) throughout the
SBAR Panel process for this proposal. These companies represented the
nonroad market well, as the group of SERs consisted of businesses that
manufacture various types of nonroad diesel equipment.
The following are the provisions recommended by the SBAR Panel. As
described in section III.B above, there are other provisions that apply
to all equipment manufacturers; however, the discussion in this section
focuses mainly on small entities.
[[Page 39016]]
1. Nonroad Diesel Small Engine Manufacturers
a. Lead Time Transition Provisions for Small Business Engine
Manufacturers
i. Panel Recommendations and Our Proposal
The transition provisions recommended by the SBAR Panel for engines
produced or imported by small entities are listed below. For all of the
provisions, the Panel recommended that small business engine
manufacturers and small importers must have certified engines in model
year 2002 or earlier in order to take advantage of these provisions.
Each manufacturer would be limited to 2,500 units per year as this
number allows for some market growth. The Panel recommended these
stipulations in order to prohibit the misuse of the transition
provisions as a tool to enter the nonroad diesel market or to gain
unfair market position relative to other manufacturers.
Currently, certified nonroad diesel engines produced by small
manufacturers all have a horsepower rating of 80 or less. At proposal,
we considered both a one-step approach, and the two-step approach which
we are finalizing today. Due to the structure of the standards and
their timing, EPA proposed transition provisions for small business
engine manufacturers which encompassed both approaches recommended by
the Panel, with the inclusion of the 2,500 unit limit (as suggested by
the Panel) for each manufacturer. Given the two-step structure of the
final rule, we are only providing those proposed provisions related to
that approach (a complete description of the provisions proposed by the
Panel, and also by specific Panel members, is located in the SBAR Final
Panel Report).
For a two-step approach the Panel recommended that:
An engine manufacturer should be allowed to skip the first
phase and comply on time with the second; or,
A manufacturer could delay compliance with each phase of
standards for up to three years.
We proposed the following provisions in the NPRM (based on
available data, we believe that there are no small manufacturers of
nonroad diesel engines above the 75-175 hp category):
With regard to PM--
Engines under 25 hp and those between 75 and 175 hp have
only one standard so the manufacturer could delay compliance with these
standards for up to three years.
For engines between 50 and 75 hp, we proposed to delay
compliance for one year if the 2008 interim standards are met, with the
stipulation that small business manufacturers cannot use PM credits to
meet the interim standard. However, if a small manufacturer elects the
optional approach to the standard (elects to skip the interim
standard), no further relief will be provided.
With regard to NOX--
There is no change in the level of the NOX
standard for engines under 25 hp and those between 50 and 75 hp, so we
did not propose any special provisions for these categories.
For engines in the 25-50 hp and the 75-175 hp categories
we proposed a three year delay in the program consistent with the one-
phase approach recommendation above.
ii. What We Are Finalizing
We are finalizing all of the provisions set out above for
NOX. For PM, we are finalizing some of the proposed
provisions with certain revisions, as described below. In finalizing
these provisions, we considered not only the recommendations of the
Panel, but also the public comments on the proposed small business
engine manufacturer transition provisions. Extensions of an applicable
standard also apply to all certification requirements associated with
that standards (so that transient and NTE testing would not be required
until expiration of the extension). Based on available data, and
further conversations with manufacturers during the development of this
rulemaking (documented in the administrative record), we have found no
small business manufacturers of nonroad diesel engines above 175 hp.
For engines under 25 hp:
PM--a manufacturer may elect to delay compliance with the
standard for up to three years.
NOX--there is no change in the level of the
existing NOX standard for engines in this category, so no
special provisions are being provided.
For engines in the 25-50 hp category:
PM--manufacturers must comply with the interim standards
(the Tier 4 requirements that begin in model year 2008) on time, and
may elect to delay compliance with the 2013 Tier 4 requirements (0.02
g/bhp-hr PM standard) for up to three years. Due to an oversight at
proposal, we did not include transition provisions for this category in
the NPRM, but there is no reason to exclude them when all other small
business engines are eligible for extensions. We therefore are adopting
a three year extension with today's action. As engines in this category
must meet the 2008 standard, we are not conditioning this three year
extension on meeting this standard. (Please note the distinction
between these engines and engines in the 50-75 hp power band, where we
are conditioning a three-year extension on meeting the 2008 standards.
The difference is that engines in the 50-75 hp category have an option
of whether or not to meet those 2008 standards. We consequently have
structured the small business engine extension to encourage a choice to
comply with those standards.)
NOX--a manufacturer may elect to delay
compliance with the standard for up to three years.
For engines in the 50-75 hp category:
As proposed, EPA is adopting special provisions for these
engines, reflecting the special provisions in the rules which give
engine manufacturers the choice of meeting an interim standard for PM
in 2008 and meeting the aftertreatment-based standard in 2013, or
meeting the aftertreatment-based standard in 2012 without meeting an
interim standard. A small business engine manufacturer may delay
compliance with the 2013 Tier 4 requirement of 0.02 g/bhp-hr PM for up
to three years provided that it complies with the interim Tier 4
requirements that begin in model year 2008 on time, without the use of
credits. We proposed an extension of only one year, but this would be
inconsistent with the extension period we are adopting, and which we
proposed, for all of the other power categories. In addition, this
provision for 50-75 hp engines is structured to encourage small
business engine manufacturers to opt for early PM reductions by meeting
the 2008 interim PM standard, so that an extension of three years is
appropriate as an incentive. We are requiring that these engines
achieve the 2008 standard without use of credits to assure that there
be improvements in actual performance by engines certifying to the
standard. We believe that such assurance is a necessary and reasonable
balance for the three year additional lead time for meeting the
aftertreatment-based standard. There were no adverse comments on
conditioning the extension in this manner.
In the alternative, a manufacturer may elect to skip the interim
standard completely. However, manufacturers choosing this option will
receive only one additional year for compliance with the 0.02 g/bhp-hr
standard (i.e. compliance in 2013, rather than 2012). These engines
would already have had eight years of lead time to prepare for the PM
standard without any diversion of resources to meet an interim PM
standard, so that an extension of longer than one year would not be
appropriate,
[[Page 39017]]
within the meaning of section 213(b) of the Act. In addition,
structuring the extension in this way encourages small engine
manufacturers to choose to meet the 2008 interim standard for PM,
furthering the objective of early PM emission reductions.
NOX--there is no change in the NOX
standard for engines in this category, therefore no special provisions
are being provided.
For engines in the 75 to 175 hp category:
PM--a manufacturer may elect to delay compliance with the
standard for up to three years.
NOX--a manufacturer may elect to delay
compliance with the standard for up to three years.
These provisions are also set out below in the following table (in
all instances, these engines must meet the previously applicable
standards as set out in Sec. 1039.104 (c):
------------------------------------------------------------------------
Horsepower category Provision
------------------------------------------------------------------------
<25 hp.......................... NOX No special provisions are
being provided.
PM Manufacturers may delay
compliance with the standard
for three years.
NOX Manufacturers may delay
compliance with the standard
for three years.
25-50 hp........................ PM Manufacturers must comply with
the interim standards in
2008, and may delay
compliance with the 2013 Tier
4 requirements (0.02 g/bhp-hr
PM standard) for three years.
NOX No special provisions are
being provided.
...... Manufacturers must comply with
the interim Tier 4
requirements in 2008, without
the use of credits, and may
elect to delay compliance
with the 2013 Tier 4
requirements (0.02 g/bhp-hr
PM standard) for three years
50-75 hp........................ PM --OR--
...... Manufacturers may skip the
interim standard completely,
and will receive an
additional year for
compliance with the 0.02 g/
bhp-hr PM Tier 4 standard
(i.e. compliance in 2013,
rather than 2012).
75-175 hp....................... NOX Manufacturers may delay
compliance with the standard
for three years.
PM Manufacturers may delay
compliance with the standard
for three years.
------------------------------------------------------------------------
b. Hardship Provisions for Small Business Engine Manufacturers
i. Panel Recommendations and Our Proposals
The Panel recommended two types of hardship provisions for small
business engine manufacturers. These provisions would allow for relief
in the following cases:
A catastrophic event, or other extreme unforseen
circumstances, beyond the control of the manufacturer that could not
have been avoided with reasonable discretion (i.e., fire, tornado,
supplier not fulfilling contract, etc.); and
The event where a manufacturer has taken all reasonable
business, technical, and economic steps to comply but cannot.
The Panel believed that either hardship relief provision would
provide lead time for up to 2 years, and that a manufacturer should
have to demonstrate to EPA's satisfaction that failure to sell the
noncompliant engines would jeopardize the company's solvency. EPA may
also require that the manufacturer make up the lost environmental
benefit.
We proposed the Panel recommendations for hardship provisions for
small business engine manufacturers. While perhaps ultimately not
necessary given the phase-in schedule discussed above, we stated that
such provisions provide a useful safety valve in the event of
unforeseen extreme hardship.
ii. What We Are Finalizing
We received two comments on the provisions for small business
engine manufacturers. SBA's Office of Advocacy commented that the rule
would impose significant burdens on a substantial number of small
entities with little corresponding environmental benefit; and further,
that we should exclude smaller engines (those under 75 hp) from further
regulation in order to comply with the Regulatory Flexibility Act and
fulfill the requirement of reducing the burden on small engine classes.
As proposed, we are not adopting standards based on performance of
NOX aftertreatment technologies for engines under 75 hp. As
described in more detail in section II of this preamble, the Summary
and Analysis of Comment Document, and the RIA, we have found no factual
basis supporting the assertion that standards for PM for engines
between 25 and 75 hp based on use of advanced aftertreatment impose
costs out of relation to environmental benefit, have a disproportionate
impact on small businesses, or are otherwise inappropriate. In fact, it
is our finding that these standards for PM are ``appropriate'' within
the meaning of section 213(a)(4) of the Clean Air Act, and that PM
standards for these engines not based on performance of advanced
aftertreatment would be inappropriate as failing to reflect standards
based on available treatment for these engines (taking into account
costs, noise, safety, and energy factors). We received no adverse
comments from small business engine manufacturers on the proposed
transition provisions for those manufacturers.\69\ Accordingly, we are
finalizing the small business engine manufacturer hardship provisions
that we proposed in the NPRM (as recommended by the Panel). We believe
that these provisions will provide adequate regulatory flexibility for
these manufacturers, while remaining consistent with the requirements
of section 213(a)(4) and 213(b) of the Clean Air Act.
---------------------------------------------------------------------------
\69\ The one comment that we received supported the provisions
proposed for small business engine manufacturers.
---------------------------------------------------------------------------
c. Other Small Business Engine Manufacturer Issues
i. Panel Recommendations and Our Proposals
The Panel also recommended that an ABT program be included as part
of the overall rulemaking program. In addition, the Panel suggested
that EPA take comment on including specific ABT provisions for small
business engine manufacturers. We proposed an ABT program for all
engine manufacturers, with this program retaining the basic structure
of the current nonroad diesel ABT program.
We did not include small business engine manufacturer-specific ABT
[[Page 39018]]
provisions in the proposal. Discussions during the SBAR process
indicated that small volume manufacturers would need extra time to
comply due to cost and personnel constraints, and there is little
reason to believe that small business manufacturer specific ABT
provisions could create an incentive to accelerate compliance.
ii. What We Are Finalizing
As discussed above in section III.B, we are finalizing an ABT
program in today's action similar to that already in place for nonroad
engine manufacturers. We have also made a number of changes to
accommodate implementation of these new emission standards.
2. Small Nonroad Diesel Equipment Manufacturers
a. Transition Provisions for Small Business Equipment Manufacturers
i. Panel Recommendations and Our Proposals
The Panel recommended that we adopt the transition provisions
described below for small business manufacturers and small business
importers of nonroad diesel equipment. These transition provisions are
similar to those in the Tier 2/3 rule (see 40 CFR 89.102). The
recommended transition provisions were as follows:
Percent-of-Production Allowance: Over a seven model year
period, equipment manufacturers may install engines not certified to
the new emission standards in an amount of equipment equivalent to 80
percent of one year's production. This is to be implemented by power
category with the average determined over the period in which the
flexibility is used.
Small Volume Allowance: A manufacturer may exceed the 80
percent allowance in seven years as described above, provided that the
previous Tier engine use does not exceed 700 total over seven years,
and 200 in any given year. This is limited to one family per power
category. Alternatively, the Panel recommended, at the manufacturer's
choice by hp category, a program that eliminates the ``single family
provision'' restriction with revised total and annual sales limits as
shown below:
--For categories <=175 hp-525 previous Tier engines (over 7 years)
with an annual cap of 150 units (these engine numbers are separate for
each hp category defined in the regulations)
--For categories of > 175 hp-350 previous Tier engines (over 7
years) with an annual cap of 100 units (these engine numbers are
separate for each hp category defined in the regulations).
The Panel recommended that EPA seek comment on the total number of
engines and annual cap values listed above. In contrast to the Tier 2/
Tier3 rule, the SBA Office of Advocacy expected the transition to the
Tier 4 technology will be more costly and technically difficult.
Therefore, the small business equipment manufacturers may need more
liberal flexibility allowances especially for equipment using the lower
hp engines. The Panel's recommended flexibility may not adequately
address the approximately 50 percent of small business equipment models
where the annual sales per model is less than 300 and the fixed costs
are higher. Thus, the SBA Office of Advocacy and the Office of
Management and Budget (OMB) Panel members recommended that comment be
sought on implementing the small volume allowance (700 engine
provision) for small business equipment manufacturers without a limit
on the number of engine families which could be covered in any hp
category.
Due to the changing nature of the technology as the
manufacturers make the transition from Tier 2 to Tier 3 and Tier 4, the
Panel recommended that the equipment manufacturers be permitted to
borrow from the Tier3/Tier 4 flexibilities for use in the Tier 2/Tier 3
time frame.
Lastly, the Panel recommended proposing a continuation of
the current transition provisions, without modifications to the levels
or nature of the provisions, that are available to these manufacturers.
To maximize the likelihood that the application of these provisions
will result in the availability of previous Tier engines for use by the
small business equipment manufacturers, the Panel recommended that--
similar to the application of flexibility options that are currently in
place--these provisions should be provided to all equipment
manufacturers.\70\
---------------------------------------------------------------------------
\70\ The Panel recognized that, similar to the Tier 2/3
standards, it may be necessary to provide transition provisions for
all equipment manufacturers, not just for small entities, and the
Panel recommended that this be taken into account.
---------------------------------------------------------------------------
We did in fact propose the Percent-of-Production and Small Volume
Allowances listed above for all equipment manufacturers, and explicitly
took the Panel report into account in making that proposal. We also
requested comment on a number of additional items, some of which were
proposed by the Panel (see section III.B above).
ii. What We Are Finalizing
We are finalizing the Percent-of-Production and Small Volume
Allowances for all equipment manufacturers, with a few changes. Some
non-small equipment manufacturers commented that the small-volume
provision should enable manufacturers to exempt up to 700 pieces of
equipment over a seven-year period, with no engine family restriction.
As explained earlier in section III.B.2.c, we are finalizing provisions
that allow manufacturers to choose between two options: (a)
Manufacturers would be allowed to exempt 700 pieces of equipment over
seven years, within one engine family; or (b) manufacturers using the
small-volume allowance could exempt 525 machines over seven years (with
a maximum of 150 in any given year) for each of the three power
categories below 175 horsepower, and 350 machines over seven years
(with a maximum of 100 in any given year) for the two power categories
above 175 horsepower. Concurrent with the revised caps, manufacturers
could exempt engines from more than one engine family under the small-
volume allowance program. As explained earlier, based on sales
information for small businesses, we estimated that the alternative
small-volume allowance program to include lower caps and allow
manufacturers to exempt more than one engine family would keep the
total number of engines eligible for the allowance at roughly the same
overall level as the 700-unit program. The Agency believes that these
provisions will afford manufacturers the type of transition leeway
recommended by the Panel. Further, these transition provisions could
allow small business equipment manufacturers to postpone any redesign
needed on low sales volume or difficult equipment packages, thus saving
both money and strain on limited engineering staffs. Within limits,
small equipment manufacturers would be able to continue to use their
current engine/equipment configuration and avoid out-of-cycle equipment
redesign until the allowances are exhausted or the time limit passes.
During the SBREFA Panel process, the Panel discussed the possible
misuse of the transition provisions by using them as a loophole to
enter the nonroad diesel equipment market or to gain unfair market
position relative to other manufacturers. See 68 FR at 28481. EPA was
concerned that importers of equipment from a foreign equipment
manufacturer could, as a group, import more exempted equipment from
that foreign manufacturer than 80 percent of
[[Page 39019]]
that manufacturer's production for the United States market or more
than the small volume allowances identified in the transition
provisions. This would create a potentially significant disparity
between the treatment of foreign and domestic equipment manufacturers.
EPA did not intend this outcome, and did not believe it was needed to
provide reasonable lead time to foreign equipment manufacturers. The
Panel recognized that this was a possible problem, and believed that a
requirement that small equipment manufacturers and importers must have
reported equipment sales using certified engines in model year 2002 or
earlier in order to be eligible to access the transition provisions was
sufficient to alleviate this problem. Upon further analysis during the
development of the proposal, EPA decided to limit the availability of
transition provisions to entities that install engines and have primary
responsibility for designing and manufacturing equipment and included
such a requirement in the proposal. Id. at 28477. Therefore, a company
that only imported equipment, and had no involvement in the actual
manufacturing of the equipment, would be ineligible to access the
transition provisions. As described in section III.B.4, we are
finalizing the proposed requirements associated with the use of
transition provisions by foreign importers. Therefore, we no longer
believe it is necessary to have a separate requirement that small
equipment manufacturers and importers have reported equipment sales
using certified engines in model year 2002 or earlier, and therefore
are not finalizing this redundant provision.
We are also finalizing the Panel's recommendation that equipment
manufacturers be allowed to borrow from Tier 4 flexibilities in the
Tier2/3 time frame. See the more extended discussion on this issue in
section III.B.2.d above.
We are not finalizing the Panel recommendation of a provision
allowing small manufacturers to request limited ``application
specific'' alternative standards for equipment configurations which
present unusually challenging technical issues for compliance. We do
not believe that the need for such a provision has been established,
and further, it could likely provide more lead time than can be
justified, and undermine emission reductions which are achievable.
Moreover, no participant in the SBAR process or during the public
comment period offered any empirical support that such a problem even
exists. Nor have such issues been demonstrated (or raised) by equipment
manufacturers, small or large, in implementing the current nonroad
standards. In addition, we believe that any application-specific
difficulties can be accommodated by the transition provisions the
Agency is proposing including ABT.
We are also finalizing two additional provisions for all equipment
manufacturers that small business equipment manufacturers may take
advantage of. These provisions are the Technical Hardship Provision and
the Early Tier 4 Engine Incentive Program. Both provisions are
discussed in greater detail in sections III.B.2.b and e above.
b. Hardship Provisions for Small Business Equipment Manufacturers
i. Panel Recommendations and Our Proposals
The Panel also recommended that two types of hardship provisions be
extended to small business equipment manufacturers. These provisions
would allow for relief in the following cases:
A catastrophic event, or other extreme unforseen
circumstances, beyond the control of the manufacturer that could not
have been avoided with reasonable discretion (i.e., fire, tornado,
supplier not fulfilling contract, etc.).
The event where a manufacturer has taken all reasonable
business, technical, and economic steps to comply but cannot. In this
case relief would have to be sought before there is imminent jeopardy
that a manufacturer's equipment could not be sold and a manufacturer
would have to demonstrate to the Agency's satisfaction that failure to
get permission to sell equipment with a previous Tier engine would
create a serious economic hardship. Hardship relief of this nature
cannot be sought by an ``integrated'' manufacturer (one which also
manufactures the engines for its equipment).
We proposed that the hardship provisions recommended by the Panel
be extended to small business equipment manufacturers in addition to
the transition provisions described above. We also requested comment on
the stipulation that, to be eligible for these hardship provisions (as
well as the other proposed transition provisions), equipment
manufacturers and importers must have reported equipment sales using
certified engines in model year 2002 or earlier.
ii. What We Are Finalizing
We are finalizing the Panel-recommended hardship provisions for
small business equipment manufacturers (which are the same provisions
that are being adopted for all equipment manufacturers).
EPA also received comment concerning the situation faced by small
business equipment manufacturers using engines in the 25-50 horsepower
range. The concern was raised that small businesses in this power
grouping will face a greater relative burden in designing equipment for
engines with aftertreatment, and that they may need additional lead
time beyond that provided by the small volume allowances. EPA believes
that in general the small volume allowances should provide reasonable
lead time opportunity for these manufacturers, but recognizes that
there may be individual cases where more lead time would be appropriate
for small business manufacturers in this power category. EPA is
therefore adopting a technical hardship provision similar to that
adopted for the percent of production allowance. Small business
manufacturers using engines in the 25-50 hp range could petition EPA to
approve additional needed lead time in appropriate, individualized
circumstances, based on a showing of extreme technical or engineering
hardship as provided in 40 CFR 1039.625(m). EPA could approve
additional small volume allowances, up to a total number of 1100 units.
This total number includes the allowances that are already available
under the rule without request. These additional allowances could only
be used for engines in the 25-50 horsepower range, and could only be
approved for qualifying small business equipment manufacturers. The
limitations on the use of small volume allowances (such as when
allowances may only be used within a single engine family and the
annual limits) continue to apply to the standard allowances (that are
available under the rule without request). Finally, any additional
allowances granted under this provision would have to be used within 36
months after the transition flexibility period commences for these
engines. The additional allowances would not be subject to the annual
limits noted earlier but they could only be used after the maximum
amount of standard allowances are used in a given year (e.g., a
manufacturer using the 700 unit allowance would have to use 200 of
their standard allowances for that year before they could use any of
the additional allowances granted by EPA under this technical hardship
provisions).
EPA recognizes that it is important to facilitate the process for
small business equipment manufacturers to seek such approval, and
intends to work with
[[Page 39020]]
small manufacturers so that any transaction costs for them or for EPA
can be minimized. For example, EPA could consider at one time a common
request from similarly situated small business equipment manufacturers,
as long as all of the necessary individual information for each
applicant were provided. Given that information in such an application
would still be both company- and fact-specific (and likely confidential
as well), and that the criteria for relief as well as the scope of
appropriate relief are case-specific, we would necessarily evaluate and
decide whether or not to approve additional small volume allowances on
a company-by-company, case-by-case basis.
For a detailed description of the comments received on small
business engine and equipment manufacturer issues, please refer to the
Summary and Analysis of comments, which is a part of the rulemaking
record (E-DOCKET number OAR-2003-0012, and legacy docket number A-2001-
28). A summary of the SBREFA process is located in section X.C of this
preamble.
D. Certification Fuel
It is well-established that measured emissions may be affected by
the properties of the fuel used during the test. For this reason, we
have historically specified allowable ranges for test fuel properties
such as cetane number and sulfur content. These specifications are
intended to represent most typical fuels that are commercially
available in use. This helps to ensure that the emissions reductions
expected from the standards occur in use as well as during emissions
testing.
We are establishing all 6 provisions that we proposed related to
the sulfur content of fuel used in conducting nonroad diesel engine
emissions testing:
300-500 ppm for model year 2008 to 2010 engines,
7-15 ppm for 2011 and later model year engines,
Extension through model year 2007 of the maximum 2000 ppm
specification for Agency testing on pre-Tier 4 engines,
7-15 ppm for 2007-2010 model year engines that use sulfur-
sensitive technology,
7-15 ppm for 2008-2010 model year engines under 75 hp,
300-500 ppm for some model year 2006-2007 engines at or
above 100 hp.
The last 3 of these provisions are at the certifying manufacturer's
option, and involve additional measures that the manufacturer must take
to help ensure that the specified fuel is used in the field. The below
discussion provides more detail on each of these provisions.
We received very little comment on our proposed certification fuel
provisions. Detroit Diesel commented that we should set a maximum
sulfur specification of 500 ppm for Tier 3 engines, which we are in
fact doing beginning in model year 2008 after this fuel is introduced
in the nonroad market, and optionally allowing as early as 2006, the
earliest Tier 3 model year, provided manufacturers take steps to
encourage the use of this fuel, as discussed below.
Because we are lowering the upper limit for in-use nonroad diesel
fuel sulfur content to 500 ppm in 2007, and again to 15 ppm in 2010, we
are also establishing new ranges of allowable sulfur content for
testing. These are 300 to 500 ppm (by weight) for model year 2008 to
2010 engines, and 7 to 15 ppm (by weight) for 2011 and later model year
engines. We believe that these ranges best correspond to the fuels that
diesel machines will potentially see in use.\71\ These specifications
will apply to emission testing conducted for certification, selective
enforcement audits, in-use, and NTE testing, as well as any other
laboratory engine testing for compliance purposes for engines in the
designated model years. Any compliance testing of previous model year
engines will be done with the fuels designated in our regulations for
those model years. Note that, as proposed, we are allowing
certification with fuel meeting the 7 to 15 ppm sulfur specification in
2010 for under 11 hp, air-cooled, hand-startable, direct injection (DI)
engines certified under the optional standard provision discussed in
section II.A.3.a.
---------------------------------------------------------------------------
\71\ See 66 FR 5112-5113 (January 18, 2001) where we adopted a
similar approach to certification fuels for highway heavy-duty
diesel engines (HDDEs).
---------------------------------------------------------------------------
It is important to note that while these specifications include the
maximum sulfur level allowed for in-use fuel, we believe that it is
generally appropriate to test using the most typical fuels. As for
highway fuel, we expect that, under the 15 ppm maximum sulfur
requirement, refineries will typically produce diesel fuel with about 7
ppm sulfur, and that the fuel could have slightly higher sulfur levels
after distribution. Thus, we expect that we will use fuel having a
sulfur content between 7 and 10 ppm sulfur for our emission testing.
This is the same as the range we indicated will be used for heavy-duty
diesel engine (HDDE) engine testing in model year 2007 and later (66 FR
5002, January 18, 2001). As with the highway fuel, should we determine
that the typical in-use nonroad diesel fuel has significantly more
sulfur than this, we would adjust this target upward.
We are also adopting two options for early use of the new 7 to 15
ppm sulfur diesel test fuel. The first will be available beginning in
the 2007 model year for engines employing sulfur-sensitive technology.
(Model year 2007 coincides approximately with the introduction of 15
ppm highway fuel.) This allowance to use the new fuel in model years
before 2011 will only be available for engines which the manufacturer
demonstrates will be operated in use on fuel with 15 ppm sulfur or
less. Any testing that we perform on these engines will also use fuel
meeting this lower sulfur specification. This optional certification
fuel provision is intended to encourage the introduction of low-
emission diesel technologies in the nonroad sector. These engines will
be able to use the lower sulfur fuel throughout their operating life,
given the early availability of this fuel under the highway program,
and the assured availability of this fuel for nonroad engines by mid-
2010.
Considering that our Tier 4 program will subject engines under 75
hp to new emission standards in 2008 when 15 ppm maximum sulfur fuel
will be readily available from highway fuel pumps (and will enter the
nonroad fuel market shortly after in 2010), we believe it is
appropriate to provide a second, less proscriptive, option for use of
15 ppm sulfur certification fuel. This option will be available to any
manufacturers willing to take extra steps to encourage the use of this
fuel before it is required in the field. We are allowing the early use
of 15 ppm certification fuel for 2008-2010 engines under 75 hp,
provided the certifying manufacturer ensures that ultimate purchasers
of equipment using these engines are informed that the use of fuel
meeting the 15 ppm specification is recommended, and also recommends to
equipment manufacturers buying these engines that labels be applied at
the fuel inlet to remind users of this recommendation. This option does
not apply to those 50-75 hp engines not being certified to the 0.22 g/
bhp-hr PM standard, under the manufacturers' option discussed in
section II.A.1.a.
We believe that there may be a very small loss of emissions benefit
from any of these engines for which the operator chooses to ignore the
recommendation. This is because the engine manufacturer will be
designing the engine to comply with the emissions standards when tested
using 15 ppm fuel, potentially resulting in slightly higher emissions
when it is not operated on the 15 ppm
[[Page 39021]]
fuel. We also believe, however, that this is more than offset overall
by the encouragement this provision provides for early use of 15 ppm
fuel. We are not making this option available for engine designs
employing oxidation catalysts or other sulfur-sensitive exhaust
emission control devices except under the more restrictive provision
for early use of 15 ppm fuel described above, involving a demonstration
by the manufacturer that the fuel will indeed be used. Because these
devices could potentially have very high sulfur-to-sulfate conversion
rates (see section II.B.4 and 5 above), and because very high-sulfur
fuels will still be available to some extent, we believe that allowing
this provision for these engines would risk very high PM emissions
until the 15 ppm nonroad fuel is introduced. We are not making this
second early 15 ppm test fuel option available for engines not subject
to a new Tier 4 standard in 2008 as these engines should already be
designed to meet applicable standards in earlier years without need for
the 15 ppm fuel.
We are also adopting a similar provision for use of certification
fuel meeting the 300-500 ppm sulfur specification before the 2008 model
year. We believe certification of model year 2006 and 2007 engines
being designed without the use of sulfur-sensitive technologies to meet
new Tier 2 or Tier 3 emission standards taking effect in those years
(2006 for engines at or above 175 hp and 2007 for 100-175 hp engines)
should be able to use this fuel, provided the certifying manufacturer
is willing to take measures equivalent to those discussed above to
encourage the early use of this fuel (a recommendation to the ultimate
purchaser to use fuel with 500 ppm maximum sulfur and a recommendation
to equipment manufacturers to so label their equipment).
The widespread availability of 500 ppm sulfur highway fuel, the
short time that these 2006 and 2007 engines could use higher sulfur
fuels if an operator were to ignore the recommendation, and the
eventual use of 15 ppm sulfur fuel in most of these engines for most of
their operating lives, gives us confidence that this provision to
encourage early use of lower sulfur fuel will be beneficial to the
environment overall. As with the change to 300-500 ppm cert fuel for
model years 2008-2010, engine manufacturers will design their engines
to comply based on the test fuel specifications for certification and
compliance testing. The change from a fuel specification for compliance
testing that ranges up to 2000 ppm sulfur for Tier 2 and 3 engines to a
specification of 500 ppm sulfur maximum could have some limited effect
on the emissions control designs used on these Tier 2 and 3 engines, in
that it will be slightly easier to meet the Tier 2 and 3 standards
using the lower sulfur test fuel. In general, it is reasonable to set
specifications of test fuel reflecting representative in-use fuels, and
here the engines are expected to be using fuel with sulfur levels of
500 ppm or lower until 2010, and 15 ppm or lower after that. In this
case, any impact on expected engine emissions from this change in test
fuel for Tier 2 and 3 is expected to be slight.
We note that under current regulations manufacturers are already
allowed to conduct testing with certification fuel sulfur levels as low
as 300 ppm. The additional provision for early use of 300-500 ppm
sulfur test fuel will, however, result in any compliance testing
conducted by the Agency being done with fuel meeting the 300-500 ppm
specification. Likewise choice of the option for early use of 15 ppm
sulfur test fuel would result in any Agency testing being done using
that fuel. However, under both of these early certification fuel
options involving a recommended fuel use provision, the Agency will not
reject engines from in-use testing for which there is evidence or
suspicion that the engine had been fueled at some time with higher
sulfur fuel.
Finally, we are extending a provision adopted in the 1998 final
rule (63 FR 56967, October 23, 1998). In that rule we set a 2000 ppm
upper limit on the test fuel sulfur concentration for any testing to be
performed by the Agency on Tier 1 engines under 50 hp and Tier 2
engines at or above 50 hp. We did not extend this provision to later
model year engines at that time because we felt that more time was
needed to assess trends in fuel sulfur levels for fuels used in nonroad
diesels. At this time we are not aware of any additional information
that would indicate that a change in this test specification is
warranted. More importantly, because the fuel regulation we are
adopting will make 500 ppm maximum sulfur nonroad diesel fuel available
by mid-2007, Tier 3 engines at or above 50 hp (which phase in beginning
in 2006) will be in the field for only 1\1/2\ years prior to the in-use
introduction of 500 ppm fuel, and Tier 2 engines under 50 hp (which
phase in beginning in 2004) will be in the field for at most 3\1/2\
years prior to this time. We believe it is appropriate to avoid adding
the unnecessary complication of frequent multiple changes to the test
fuel specification. We are therefore extending the 2000 ppm limit to
testing conducted on engines until the 2008 model year when the 500 ppm
maximum test fuel sulfur level takes effect as discussed above.
E. Temporary In-Use Compliance Margins
The Tier 4 standards will be challenging for diesel engine
manufacturers to achieve, and will require manufacturers to develop and
adapt new technologies for a large number and wide variety of engine
platforms. Not only will manufacturers be responsible for ensuring that
these technologies enable compliance with Tier 4 standards at the time
of certification, they will also have to ensure that these technologies
continue to be highly effective in a wide range of in-use environments
so that their engines will comply in use when tested by EPA.
Furthermore, for the first time, these nonroad diesel engines will be
subject to transient emissions control requirements and to NTE
standards.
However, in the early years of a program that introduces new
technology, there are risks of in-use compliance problems that may not
appear in the certification process or during developmental testing.
Thus, we believe that for a limited number of model years after new
standards take effect it is appropriate to adjust the compliance levels
for assessing in-use compliance for diesel engines equipped with high-
efficiency exhaust emissions control devices. This provides assurance
to the manufacturers that they will not face recall if they exceed
standards by a small amount during this transition to clean
technologies. This approach is very similar to that taken in the light-
duty highway Tier 2 final rule (65 FR 6796, February 10, 2000) and the
highway heavy-duty rule (66 FR 5113-5114, January 18, 2001), both of
which involve similar approaches to introducing the new technologies.
In fact, the similarities of nonroad diesel engines and expected Tier 4
control technologies to counterpart engines and technologies for heavy-
duty highway diesel engines led us to model the proposed Tier 4 add-on
provisions after the 2007 heavy-duty highway diesel program, with add-
on levels chosen to be roughly equivalent to the levels adopted in the
highway rule.
Comments on the proposal were received from engine manufacturers,
requesting changes that would make the temporary in-use adjustments
more closely parallel the highway requirements. Specifically, they
requested: (1) Providing two full model years of applicability
following the completion of standards phase-in for the
[[Page 39022]]
75-175 hp category, as was proposed for the other power categories, (2)
adjusting the NOX threshold for applicability of the
provisions to a level 8% above the split family standard, (3) adopting
3 levels of add-ons based on how many hours the test engine had been
used, with cutpoints at 2000 and 3400 hours, and (4) a 25% upward
adjustment to the add-on levels. We agree that these changes would
result in a closer approximation to the highway program. Our goal in
proposing provisions somewhat different from the highway program was to
avoid unnecessary complexity. However, we believe that maintaining
consistency with the highway program is a more important goal and the
manufacturers' suggested changes do not overly complicate the program,
and so we have decided to make these changes.
We note too that changes we are making to the Tier 4 program for
engines over 750 hp necessitate other changes to the in-use add-on
program for these engines as well. Specifically, these are the
extension of model year applicability to 2016, two years after the
final Tier 4 standards take effect, and the clarification of what PM
thresholds apply for engines used in generator sets and for other
engines.
Table III.E-1 shows the in-use adjustments that we will apply.
These in-use add-on levels will be applied only to engines certified in
the indicated model years and having FELs (or certifying to standards
without FELs) at or below the specified threshold levels. These
adjustments are added to the appropriate FELs (see section III.A) or,
for engines certified to the standards without the use of ABT program
credits, to the standards themselves, in determining the in-use
compliance level for a given in-use hours accumulation on the engine
being tested. Note that the PM adjustment is the same for all in-use
hours accumulation. Note also that, because the standards in the
regulations are expressed in g/kW-hr, the adjustments included in the
regulations are set at levels that make the resulting adjusted in-use
standard equivalent in stringency to the standards in this preamble
(expressed in g/bhp-hr) adjusted by the values in Table III.E-1 (also
expressed in g/bhp-hr).
Note too that, as part of the certification demonstration,
manufacturers will still be required to demonstrate compliance with the
unadjusted Tier 4 certification standards using deteriorated emission
rates. Therefore, the manufacturer will not be able to use these in-use
standards as the design targets for the engine. They will need to
project that most engines will meet the standards in-use without
adjustment. The in-use adjustments will merely provide some assurance
that they will not be forced to recall engines because of some small
miscalculation of the expected deterioration rates.
Table III.E-1.--Add-on Levels Used in Determining In-use Standards
----------------------------------------------------------------------------------------------------------------
NOX PM
--------------------------------------------------
Engine power Model years Add-on level For operating Add-On level
\a\ (g/bhp-hr) hours \b\ (g/bhp-hr)
----------------------------------------------------------------------------------------------------------------
25 <= hp <75................................ 2013-2014 none 0.01
(19 <= kW <56)..............................
---------------------------------------------
0.12 <= 2000
75 <= hp <175............................... 2012-2016 0.19 2001-3400 0.01
(56 <= kW <130)............................. 0.25 > 3400
---------------------------------------------
0.12 <= 2000
175 <= hp <=750............................. 2011-2015 0.19 2001-3400 0.01
(130<= kW <=560)............................ 0.25 > 3400
---------------------------------------------
0.12 <= 2000
hp >750..................................... 2011-2016 0.19 2001-3400 0.01
(kW >560)................................... 0.25 > 3400
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Applicable only to those engines certifying to standards or with FELs at or below 1.6 g/bhp-hr NOX.
\b\ Applicable only to those engines certifying to standards or with FELs at or below the filter-based Tier 4 PM
standards (0.01 g/bhp-hr for 75-750 hp engines, 0.02 g/bhp-hr for 25-75 hp engines and for >750 hp engines in
generator sets, and 0.03 g/bhp-hr for all other >750 hp engines).
F. Test Cycles
1. Transient Test
In the 1998 final rule that set new emission standards for nonroad
diesel engines, EPA expressed a concern that the steady-state test
cycles used to demonstrate compliance with emission standards did not
adequately reflect transient operation as many nonroad engines are used
in applications that are largely transient in nature and would not
therefore yield adequate control of emissions in use (63 FR 56984,
October 23, 1998). Although we were not prepared to adopt a transient
test at that time, we announced our intention in that final rule to
move forward with the development of such a test. This development
progressed steadily and has resulted in the creation of the Nonroad
Transient Composite (NRTC) test cycle which we are adopting in our Tier
4 nonroad diesel program. The NRTC cycle supplements the existing
nonroad steady-state test requirements. Thus, most nonroad engines
subject to today's Tier 4 standards will be required to certify using
both of these tests.\72\ The NRTC cycle captures transient emissions
over much of the typical nonroad engine operating range, and thus helps
to ensure effective control of all regulated pollutants. The speed and
load operating schedule for EPA's NRTC test cycle is described in
regulations at 40 CFR 1039.505. A detailed discussion of the transient
test cycle and its derivation is contained in chapter 4.2 of the RIA
for this rule.
---------------------------------------------------------------------------
\72\ See EPA Dear Manufacturer Letter VPCD-98-13, ``Heavy-duty
Diesel Engines Controlled by Onboard Computers: Guidance on
Reporting and Evaluating Auxiliary Emission Control Devices and the
Defeat Device Prohibition of the Clean Air Act,'' October 15, 1998
and EPA Advisory Circular 24-3, ``Implementation of Requirements
Prohibiting Defeat Devices for On-Highway Heavy-Duty Diesel
Engines.'' A copy of both of these documents is available in EPA Air
Docket A-2001-28.
---------------------------------------------------------------------------
We expect that this transient test requirement will significantly
reduce real world emissions from nonroad diesel equipment. Proper
transient
[[Page 39023]]
operation testing captures engine emissions from the broad range of
engine speed and load combinations that the engine may attain in-use,
while the steady-state emission test characterizes emissions at the few
isolated operating points that may be typical for that family of
engines. Testing for transient emissions will likewise identify
emissions which result from the operation of the engine, as with speed
and load changes, turbocharger lag, etc.
In keeping with our goal to maximize the harmonization of emissions
control programs as much as possible, we have developed this cycle in
collaboration with nonroad engine manufacturers and regulatory bodies,
both domestic and foreign, over the last several years.\73\ Further,
the NRTC cycle has been introduced as a work item for possible adoption
as a potential global technical regulation under the 1998 Agreement for
Working Party 29 at the United Nations.\74\
---------------------------------------------------------------------------
\73\ Letter from Jed Mandel of the Engine Manufacturers
Association to Chet France of U.S. EPA, Office of Transportation and
Air Quality, ``Development of appropriate transient test cycle for
variable speed land-based compression ignition non-road engines,''
Air Docket A-2001-28, II-B-33.
\74\ Informal Document No.2, ISO--45th GRPE, ``Proposal for a
Charter for the Working Group on a New Test Protocol for Exhaust
Emissions from Nonroad Mobile Machinery,'' Jan. 13-17, 2003, Air
Docket A-2001-28, document II-A-171.
---------------------------------------------------------------------------
EPA's nonroad transient test will apply (with one exception noted
below) to a nonroad diesel engine when that engine must first show
compliance with EPA's Tier 4 PM and NOX+NMHC emissions
standards which are based on the performance of the advanced post-
combustion emissions control systems (e.g. catalyzed-diesel particulate
filters and NOX adsorbers). This is 2011 for engines at 175
hp-750 hp, 2012 for 75-175 hp engines (2012, as well, for 50-75 hp
engines made by a manufacturer choosing the option to not comply with
the 2008 transitional PM standard.), and 2013 for engines under 75 hp.
The transient test cycle will not apply to engines greater than 750 hp.
Specific provision is made for engines under 25 hp for PM and under 75
hp for NOX (which are not based on performance of advanced
aftertreatment). Constant-speed, variable-load engines of any
horsepower category currently certify to EPA's 5-Mode Steady State duty
cycle and are not subject to transient duty cycle testing. As with
current nonroad diesel standards, today's Tier 4 emission standards
will apply to certification, Selective Enforcement Audits (SEAs) and to
recall testing of equipment in-use for all engines subject to these
standards.
Table III.F-1.--Implementation Model Year for Nonroad Transient Testing
------------------------------------------------------------------------
Transient test
Power category implementation
model years
------------------------------------------------------------------------
< 25 hp............................................... 2013
25 <= hp < 75......................................... 2013
75 <= hp < 175........................................ 2012
175<= hp < 750........................................ 2011
------------------------------------------------------------------------
In addition, any engines for which an engine manufacturer (see
section III.M) or equipment maker (see section III.B.2.c) claims credit
under the incentive program for early-introduction engines will have to
be certified to that program's standards under applicable Tier 4
nonroad transient and steady-state duty cycles, e.g., NRTC, 8-mode and
5-mode steady-state cycles. In turn, any 2011 or later model year
engine that uses these engine count-based credits will not need to
demonstrate compliance under the NRTC cycle. Engines in any power
category certified to an alternate NOX standard are all
subject to the transient test requirement, as they clearly will be
substantially redesigned to achieve Tier 4 compliance, regardless of
whether or not they use high-efficiency exhaust emission controls. See
section II.A.1.c above.
We solicited comment on whether the transient duty cycle should
apply to NOX emissions from phase-out engines (68 FR 28484,
May 23, 2003) and received comment from EMA. EMA prefers that the
transient cycle only be applicable to PM emission testing and not for
NOX, NMHC and CO for phase-out engine families. They believe
that the application of the transient NRTC and standards could result
in the need to redevelop the NOX/NMHC/CO emission control
systems used for their members' compliance with Tier 3 standards.
We essentially agree with this comment to the extent that phase-out
engines do not include improvements in gaseous pollutant emission
control (i.e. they remain essentially Tier 3 engines for emissions
other than PM). Imposing new requirements with respect to these
engines' gaseous pollutant emissions could divert resources
inappropriately. The rule therefore states (in 40 CFR 1039.102 (a)(2))
that gaseous pollutant emissions from these engines are not subject to
transient testing standards. This would not apply if a manufacturer
declares a new NOX+NMHC FEL for the engine family (since the
manufacturer would then already be choosing to alter these engines'
performance with respect to gaseous pollutant emissions).\75\
---------------------------------------------------------------------------
\75\ Please note that this discussion does not apply to engines
certifying to the alternative NOX phase-in standards,
which engines are required to meet transient and NTE requirements
for gaseous pollutants (as well as all other requirements that would
apply to phase-in engines). See discussion at II.A.2.c; also please
note that these engines are expressly not defined as phase-out
engines in the rules; see section 1039.801 and 1039.102 (e).
---------------------------------------------------------------------------
Transient testing standards do apply with respect to PM emissions
from phase-out engines, however. The reason is evident: the PM standard
for phase-out (and phase-in) engines is based on performance of
aftertreatment, so the full complement of test cycles (NTE as well as
transient testing) should apply. A consequence of this is that phase-
out engines will generally be tested over the transient cycle, since
they must do so with respect to PM emissions. We repeat, however, that
although the engines will do transient testing, only PM (and not
gaseous pollutants) is subject to the transient test standard.
In addition, manufacturers choosing to certify engines under 750 hp
using alternative FEL caps during the first four years that the
alternative caps are available (see section III.A.i.2 above) will not
be subject to the transient or NTE standards. However, to properly
account for the transient effects when calculating credits, we are
requiring the FELs of such engines to be adjusted upwards by applying a
Temporary Compliance Adjustment Factor (TCAF) \76\. See 40 CFR 1039.104
(g) (2).
---------------------------------------------------------------------------
\76\ As noted elsewhere, the TCAFs are derived identically to
the Transient Adjustment Factor used in the NONROAD emissions model.
---------------------------------------------------------------------------
Even though we are requiring that NRTC testing start when the PM
aftertreatment-based standards take effect, one should not infer that
the NRTC is directed at solely (or even primarily) at PM control. In
fact, we believe that advanced NOX emission controls may be
even more sensitive to transient operation than PM filters, since the
PM filters ordinarily operate equally effectively in all operating
modes, as noted earlier. It is, however, our intent that the control of
emissions during transient operation be an integral part of Tier 4
engine design considerations. We have therefore chosen to apply the
transient test requirement starting with the PM filter-based Tier 4 PM
standards as these standards precede or accompany the earliest Tier 4
NOX or NMHC standards in all power categories except engines
over 750 hp.
As EPA is not promulgating PM filter-based standards for engines
below 25 hp in today's rulemaking, we are likewise not requiring these
engines to be tested
[[Page 39024]]
over the NRTC test cycle until model year 2013. More broadly, though we
intend for transient emissions control to be an integral part of Tier 4
design considerations, we do not believe it appropriate to mandate
compliance with the transient test for the engines under 50 hp which
are subject to PM standards in 2008. We recognize that transient
emission testing, though routine in highway engine programs, involves a
fair amount of laboratory equipment and new expertise in the nonroad
engine certification process. As with the transfer of advanced emission
control technology itself, we believe that the transient test
requirement should be implemented first for larger displacement
engines. These engines are more likely to be made by manufacturers who
provide engines to the on-highway market and therefore have had prior
on-highway engine development and certification experience. We do not
believe that the smaller engines should be the power categories first
charged with implementing the new transient test, as early as 2008,
especially because manufacturers of these engines do not generally make
highway engines and are neither as experienced nor as well-equipped as
their larger engine manufacturer counterparts at conducting transient
cycle testing. However, to encourage earlier transient emission control
in these engines, EPA will allow manufacturers of engines below 25 hp
to submit data describing emission levels for their engines over the
appropriate certification transient duty cycle beginning in model year
2008. We extend this option as well to manufacturers of 25-50 hp
engines, subject to those engines meeting the Tier 4 transitional PM
standard in 2008. Should a manufacturer choose to submit data in the
2008-2011 time frame, prior to required certification data submissions,
that transient data will not be used for compliance enforcement.
EPA requested comment on whether engines greater than 750 hp should
be subject to the transient cycle, noting concerns of technical
difficulties and cost for these engines (68 FR 28484, May 23, 2003).
STAPPA-ALAPCO and other agencies representing the States' interests
responded to EPA that all nonroad engines should be uniformly required
to test their transient emissions. Likewise, they asked that the Agency
not delay implementation of this particular requirement. However, at
this time, the Agency is not adopting a transient emission testing
requirement for engines 750 hp and over. EPA sees the burden of
transient cycle testing in these very large displacement engines as
being greater than the benefit of gathering transient emission
measurements from them. For example, in many instances, these engines
will have multiple aspiration and exhaust systems requiring a test cell
designed to accommodate multiple large flow volumes in real-time on a
five Hertz, or faster, basis. New transient test requirements could
require manufacturers to create new or expanded testing facilities to
house, prepare and run transient tests on these larger engines. The
space requirements, i.e., ``footprint,'' of such facilities could make
building them cost-prohibitive.
Absent transient testing, these engines will still be required to
certify to both steady-state and NTE test requirements. Moreover, we
are modifying the certification requirements to include additional
information for engines under 750 hp. For more detail on this
submission, see the discussion in section III.I of this preamble and 40
CFR 1039.205(p) of the regulations.
Finally, engines in this power category are found in a relatively
small proportion of the nonroad equipment population and, despite the
potential for large quantities of emissions from this class of engines
during operation, units equipped with these engines have likewise been
noted to contribute a small proportion of total diesel nonroad engine
emissions.\77\ Many of these larger-displacement engines operate
predominately in a constant-speed fashion with few transient
excursions, as with electric power generation sets (gen sets) which
make up a significant percent of these larger engines. Many of these
gen sets, too, operate on an intermittent or stand-by only basis.
Indeed, as explained below, such constant-speed, variable-load engines
(for example, those certifying exclusively to the 5-mode steady-state
cycle) of any horsepower category are not subject to the nonroad
transient test cycle.
---------------------------------------------------------------------------
\77\ Memorandum from Kent Helmer to Cleophas Jackson,
``Applicability EPA's NRTC cycle to Nonroad Diesel Population,'' Air
Docket A-2001-28, document II-B-34.
---------------------------------------------------------------------------
Further, the Agency does not intend at this time to require that
manufacturers use partial-flow sampling systems (PFSS) to determine PM
emissions from their engines for certification. A large engine
manufacturer may, however, choose to submit PM data to the Agency using
PFSS as an alternative test method, if that manufacturer can
demonstrate test equivalency using a paired-T test and F-Test, as
outlined in regulations at 40 CFR 86.1306-07.
Transient testing requires consideration of statistical parameters
for verifying that test engines adequately follow the prescribed
schedule of speed and load values. The regulations in 40 CFR 1065.514,
table 1, detail these statistical parameters, also known as cycle
performance statistics. These values are somewhat different than the
comparable values for highway diesel engines to take into account the
characteristics of nonroad engine operation. The values are an
outgrowth of the long development process for the NRTC test cycle,
itself.
2. Cold Start Transient Testing
Nonroad diesel engines typically operate in the field by starting
and warming to a point of stabilized hot operation at least once in a
workday. Such ``cold-start'' conditions may also occur at other times
over the course of the workday, such as after a lunch break. We have
observed that certain test engines, which generally had emission-
control technologies for meeting Tier 2 or Tier 3 standards, had
elevated emission levels for about 10 minutes after starting from a
cold condition. The extent and duration of increased cold-start
emissions will likely be affected by changing technology for meeting
Tier 4 standards, but there is no reason to believe that this effect
will lessen. In fact, cold-start concerns are especially pronounced for
engines with catalytic devices for controlling exhaust emissions,
because many require heating to a ``light-off'' or peak-efficiency
temperature to begin working. See, for example, RIA section 4.1.2.2 and
following. EPA's highway engine and vehicle programs, which
increasingly involve such catalytic devices, address this by specifying
a test procedure that first measures emissions with a cold engine, then
repeats the test after the engine is warmed up, weighting emission
results from the two tests for a composite emission measurement.
In the proposal, we described an analytical approach that led to a
weighting of 10 percent for the cold-start test and 90 percent for the
hot-start test. Manufacturers pointed out that their analysis of the
same data led to a weighting of about 4 percent for cold-start testing
and that a high cold-start weighting would affect the feasibility of
the proposed emission standards. Manufacturers also expressed a concern
that there would be a significant test burden associated with cold-
start testing.
[[Page 39025]]
Unlike steady-state tests, which always start with hot-stabilized
engine operation, transient tests come closer to simulating actual in-
use operation, in which engines may start operating after only a short
cool-down (hot-start) or after an extended soak (cold-start). The new
transient test and manufacturers' expected use of catalytic devices to
meet Tier 4 emission standards make it imperative to address cold-start
emissions in the measurement procedure.\78\ We are therefore adopting a
test procedure that requires measurement of both cold-start and hot-
start emissions over the transient duty cycle, much like for highway
diesel engines. We acknowledge, however, that limited data are
available to establish an appropriate cold-start weighting. For this
final rule, we are therefore opting to establish a cold-start weighting
of 5 percent. This is based on a typical scenario of engine operation
involving an overnight soak and a total of seven hours of operation
over the course of a workday. Under this scenario, the 20-minute cold-
start portion constitutes 5 percent of total engine operation for the
day. Section II.B above addresses the feasibility of meeting the
emission standards with cold-start testing. Regarding the test burden
associated with cold-start testing, we believe that manufacturers will
be able to take steps to minimize the burden by taking advantage of the
provision that allows for forced cooling to reduce total testing time
(40 CFR 1039.510(c)).
---------------------------------------------------------------------------
\78\ Note that this discussion applies only to engines that are
subject to testing with transient test procedures. For example, this
excludes constant-speed engines and all engines over 750 hp.
---------------------------------------------------------------------------
We believe the 5-percent weighting is based on a reasonable
assessment of typical in-use operation and it addresses the need to
design engines to control emissions under cold-start operation. We
believe cold-start testing with these weighting factors will be
sufficient to require manufacturers to take steps to minimize emission
increases under cold-start conditions. Once manufacturers have applied
technologies and strategies to minimize cold-start emissions, they will
be achieving the greatest degree of emission reductions achievable
under those conditions. A higher weighting factor for cold-start
testing is not likely be more effective in achieving in-use emission
control as new technologies will be expected to have resulted in
significant control of emissions at engine startup.
However, given our interest in controlling emissions under cold-
start conditions and the relatively small amount of information
available in this area at this time, we intend to revisit the cold-
start weighting factor for transient testing in the future as
additional data become available. Since the composite transient test
represents a combination of variable-speed and constant-speed
operation, we would consider operation from both of these types of
engines in evaluating the cold-start weighting. Also, we intend to
apply the same cold-start weighting when we adopt a transient duty
cycle specifically for engines certified only for constant-speed
operation.
The planned data-collection effort will focus on characterizing
cold-start operation for nonroad diesel equipment. The objective will
be to reassess, and if necessary, redevelop a weighting factor that
properly accounts for the degree of cold-start operation so that in-use
engines effectively control emissions during these conditions. As we
move forward with this investigation, other interested parties,
including the State of California, will be invited to participate. We
are interested in pursuing a joint effort, in consultation with other
national government bodies, to ensure a robust and portable data set
that will facilitate common global technical regulations. This effort
will require consideration of at least the following factors:
What types of equipment will we investigate?
How many units of each equipment type will we
instrument?
How do we select individual models that will together
provide an accurate cross-section of the type of equipment they
represent?
When will the program start and how long will it last?
How should we define a cold-start event from the range
of in-use operation?
We expect to complete our further evaluation of the cold-start
weighting in the context of the 2007 Technology Review, if not sooner.
In case changes to the regulation are necessary, this timing will allow
enough time for manufacturers to adjust their designs as needed to meet
the Tier 4 standards.
3. Constant-Speed Tests
The Agency proposed that engine manufacturers could certify
constant-speed engines using EPA's Constant-Speed, Variable-Load (CSVL)
transient duty cycle \79\ as an alternative to certifying these engines
under its NRTC test cycle. The CSVL transient cycle was developed to
approximate the speed and load operating characteristics of many
constant-speed nonroad diesel applications.\80\ It, too, would have
been subject to the cold-start requirement of nonroad transient test
cycles as is the NRTC. However, after considerable discussion with and
comment from engine manufacturers, equipment makers and other
interested parties, the Agency has decided not to promulgate an
alternative nonroad transient test cycle for constant-speed engines at
this time. EMA, in its comments on the CSVL cycle, felt generally that:
(1) The average load factor is much too low; (2) the frequency of the
transient operations was too high; (3) the amplitudes of the transients
were too great; and (4) the rates of transient load increase and
response were too fast.
---------------------------------------------------------------------------
\79\ Two Memoranda from Kent Helmer to Cleophas Jackson, ``Speed
and Load Operating Schedule for the Constant Speed Variable Load
(CSVL) transient test cycle,'' e-Docket OAR-2003-0012-0993, and
``CSVL Cycle Construction,'' A-2001-28, II-B-50.
\80\ Memorandum from Kent Helmer to Cleophas Jackson, ``Brake-
specific Emissions Impact of Nonroad Diesel Engine Testing Over the
NRTC, AWQ, and AW1 duty cycles,'' Docket A-2001-28, .
---------------------------------------------------------------------------
It was further noted that the CSVL test cycle is based solely upon
the operation of a single, relatively small, naturally-aspirated arc
welder engine, which EMA claims is a variable-speed type of engine
certified generally on the 8-mode test cycle. Arc welders, Cummins
noted, are not much like generator sets, which comprise around 50% of
population of constant-speed engines and have a very different
operation and test cycle than the typical portable generator set.
Generator sets, DDC wrote, were built generally for a higher power
capability at a single speed, many having larger, less-responsive
turbochargers to achieve the higher brake mean effective pressure
(BMEP). This made it difficult for these engines to shed load as
quickly as the CSVL test cycle would require them to do. Commenters
likewise wrote that the test cycle was costly and burdensome for
equipment which, like generator sets, was only operated infrequently or
when emergencies occurred. Some wrote that it would compromise
generator set engine performance if manufacturers had to re-engineer
their products to run over the CSVL test cycle, especially for larger
BMEP engines. One commenter noted that these changes to nonroad engines
would carry over to other stationary applications of these generator
sets. A more extensive discussion of comments relating to the CSVL
cycle may be read in the Summary and Analysis of Comment document for
this rule.
Given these potential problems and the strong possibility of fixing
them by 2007, the Agency has decided to defer adopting the CSVL test
cycle here.
[[Page 39026]]
Instead, EPA with all of its stakeholders in this regard will map out a
process of engine testing and analysis to better characterize constant-
speed equipment in-use to design the most appropriate test cycle for
the largest number of constant-speed engines. EPA undertakes this
process with an eye to initiating rulemaking which would lead to
promulgation of a transient cycle for constant-speed engines before the
Agency's 2007 Nonroad Diesel Technical Review.
EPA defines a constant-speed engine in this regard as one which is
certified to constant-speed operation, in other words, an engine which
may not operate at a speed outside a single, fixed reference speed set
by the engine's governor. It should be clear then that any engine for
which the governor doesn't strictly limit the engine speed in-use to
constant-speed operation, that engine will be subject to the NRTC.
Thus, if a manufacturer's engine is certified to EPA's 8-mode steady-
state test, the engine would also need to certify to the NRTC, since
the 8-mode test does not limit the engine's fixed operating speed.
Conversely, those manufacturers who certify their engines to EPA's
constant-speed steady-state test, the 5-mode test cycle, are not
required to have their engines certify to the NRTC.
By utilizing an inclusive, data-driven approach (see Summary and
Analysis document for more detail), the Agency is allowing time to
develop, and if appropriate, finalize and implement a test procedure
that meets the needs of the Agency, manufacturers, and other parties in
advance of the 2007 Technology Review. In fact, the Agency envisions
constant speed variable load cycle generation to be completed by July
2005. This approach should allow the Agency to develop a testing
program which ensures robust control in-use, is data-driven and remains
globally harmonized. We expect to initiate this effort within 3 months
of promulgation of this rule and to conclude the work on the new test
cycle in enough time to promulgate it through rulemaking and to provide
industry adequate lead time to implement it in an orderly manner. If we
encounter unforeseen and unavoidable delays or complications in this
process, we will consider approaches to control based on available data
at the time of the 2007 Technology Review.
The Agency is adopting additional requirements, in conjunction with
existing steady-state test requirements, which will help ensure that
constant-speed nonroad diesel engines are subject to a rigorous program
of in-use control of emissions and that diesel engine emissions will be
controlled over a wide range of speed and load combinations. EPA is
finalizing stringent nonroad NTE limits and related test procedures for
all new nonroad diesel engines subject to the Tier 4 emissions
standards beginning in 2011 which will supplement the existing steady-
state five-mode test cycle for constant-speed application engines. NTE
testing for transient operation will add further assurance that
emissions from constant-speed engines within this class, which have a
limited speed response in-use, are controlled under in-use operation.
Typically, engines which are designed to a particular transient cycle
will control emissions effectively under other types of transient
operation not specifically included in that certification procedure.
Engines that are capable of meeting emission standards on a constant-
speed, variable-load cycle will have the transient-response
characteristics that are appropriate for controlling emissions at
higher engine loads and for less dynamic transient operation. EPA,
engine manufacturers, and interested parties will, in the mean time,
work to develop a more appropriate transient test for constant-speed
engines. A transient test for this broad class of nonroad engines will
ensure a robust level of emissions control in-use within the diverse
population of constant-speed engines and equipment.
4. Steady-State Tests
Recognizing the variety of both power classes and work applications
to be found within the nonroad equipment and engine population, and as
proposed, EPA is retaining current Federal steady-state test procedures
for nonroad engines. (Manufacturers are thus required to meet emission
standards under steady-state conditions, in addition to meeting
emission standards under the transient test cycle, whenever the
transient test cycle applies.) This requirement, like NTE emission
testing, is one of two tests which apply to every Tier 4 engine. Table
III-2 below sets out the particular steady-state duty cycle applicable
to each of the following categories: (1) Nonroad engines 25 hp and
greater; (2) nonroad engines less than 25 hp; and (3) nonroad engines
having constant-speed, variable-load applications, (e.g., gen sets).
The steady-state cycles remain, respectively, the 8-mode cycle, the 6-
mode cycle and the 5-mode cycle.\81\
---------------------------------------------------------------------------
\81\ These three steady-state test cycles are similar to test
cycles found in the International Standard ISO 8178-4:1996 (E) and
remain consistent with the existing 40 CFR part 89 steady-state duty
cycles.
---------------------------------------------------------------------------
Steady-state test cycles are needed so that testing for
certification will reflect the broad range of operating conditions
experienced by these engines. A steady-state test cycle represents an
important type of modern engine operation, in power and speed ranges
that are typical in-use. The mid-to-high speeds and loads represented
by present steady-state testing requirements are the speeds and loads
at which these engines are designed to operate for extended periods for
maximum efficiency and durability. Details concerning the three steady-
state procedures for nonroad engines and equipment are found in
regulations at 40 CFR 1039.505 and in Appendices I-III to 40 CFR part
1039.
Manufacturers will perform each steady-state test following all
applicable test procedures in the regulations at 40 CFR part 1039,
e.g., procedures for engine warm-up and exhaust emissions measurement.
The testing must be conducted with all emission-related engine control
variables in the maximum NOX-producing condition which could
be encountered for a 30 second or longer averaging period at a given
test point. Table III.F-2 below summarizes the steady-state testing
requirements by individual engine power categories.
Table III.F-2.--Summary of Steady-State Test Requirements
----------------------------------------------------------------------------------------------------------------
Steady-state testing requirements
--------------------------------------------------------------------------
Nonroad engine power classes 8-Mode cycle (C1 6-Mode cycle (G3 5-Mode cycle (D2
weighting) weighting) weighting)
----------------------------------------------------------------------------------------------------------------
hp < 25 (kW < 19).................... applies \a\............ applies \a\............ applies \b\
25 <= hp < 75 (19 <= kW < 56)........ applies................ NA \c\................. applies \b\
75 <= hp < 175 (56 <= kW < 130)...... applies................ NA \c\................. applies \c\
[[Page 39027]]
175 <= hp <= 750 (130 <= kW <= 560).. applies................ NA \c\................. applies \b\
hp > 750 (kW > 560).................. applies................ NA \c\................. applies \b\
----------------------------------------------------------------------------------------------------------------
\a\ Manufacturers may use either of these tests for this class of engines.
\b\ For constant, or nearly constant, speed engines and equipment with variable, or intermittent, load.
\c\ Testing procedures not applicable to this class of engines.
Nonroad engine manufacturers \82\, have called for steady-state
testing which would collect emissions continuously ``in a pseudo-
transient manner,'' proposing in effect, one-filter PM collections
during a steady-state duty cycle. In response to these and other
manufacturer concerns for emission variability during certification
testing due to unanticipated emission control system regeneration
between steady-state test modes, the Agency \83\ has adopted, in its 40
CFR 1065.515 regulations, the concept of modifying EPA's 40 CFR part 89
steady-state engine certification duty cycles. The section describes
ramped ``modal'' steady-state certification tests which would link the
modes of a steady-state test together for the purpose of collecting a
continuous stream of engine emissions. These tests provide for
operating an engine at all of the modes specified in the present
steady-state nonroad test cycles but without the breaks in emission
collection required by switching between modes, stabilizing engine
operation, and collecting emissions at that next operating mode. Since
a ramped modal cycle (RMC) test cycle may more reliably and
consistently report engine emissions from particulate trap and other
emission control hardware-equipped nonroad engines than the comparable
steady-state duty cycle from which it was derived, the Agency is
providing the option of using these RMC versions of its steady-state
engine duty cycles for nonroad diesel engine certification testing in
lieu of the otherwise applicable steady-state cycles. Details on the
procedures may be found in chapter 4.2 of the RIA for this rule and at
regulations at 40 CFR 1039.505 and Appendix I of part 1039.
---------------------------------------------------------------------------
\82\ Letter from EMA (Engine Manufacturers Association) to EPA
Air Docket A-2001-28, IV-D-402, pp 64.
\83\ Memorandum and summary of technical discussions (including
Appendix ``A'' text) in the e-Docket submission, OAR-2003-0012-0028,
to EPA's Air Docket.
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The optional RMC duty cycles do not represent a relaxation in
stringency of emission testing nor are they an unreasonable increase in
the emission test burden of diesel engine manufacturers. Rather, the
RMC versions of EPA's steady-state test cycles allow for more
consistent and predictable emission testing of emission control system
hardware-equipped diesel engines. Eliminating the ``downtime'' between
modes for the emission collection equipment allows sampling of
emissions to be done on a composite basis for the whole test as opposed
to sampling emissions mode-by-mode. The RMC versions of these tests
simply create a negligible transition period 20 seconds long connecting
each mode and collects emissions during these brief transitions, as
well as collecting emissions during the running of each test's discrete
operating modes. The continuous emission sampling allows regeneration
events from engine emission control hardware to be captured more
reliably and repeatably. By running emission testing without breaks and
over the same engine duty schedule for each repetition of a RMC test,
regeneration within the engine's emission control hardware should
become almost a predictable event. The longer sampling times of RMCs,
while creating an identical weighting of each mode's emissions, also
help to avoid collecting a minuscule, possibly unreliably measured,
amount of sample over the course of any single operating mode. PM
emissions, for example, can be collected and measured more precisely
under these test conditions as either batch or continuous samples. The
opportunities for loss of emissions during sampling and storage due to
sample retention by equipment at shut-down between modes or by filter
handling and weighing are greatly reduced. As well, running a ``steady-
state'' test on a continuous basis allows cycle performance statistics
to be applied to RMC emission tests (see 40 CFR, part 39).
Manufacturers are familiar with test cycles run with a set of
statistical engine duty cycle performance ``targets''. Further, their
test runs will be subject to less test cell ``tuning'', modifying
control strategies using repeat testing runs to fit the emission test
cycle and the dynamometer to operate a particular engine. Finally,
statistical targets serve to increase repeatability and reduce
variability of engine operating parameters and emission test results on
a test-to-test basis.
Transport refrigeration unit (TRU) engines, a specific application
of a steady-state operation engine (68 FR 28485, May 23, 2003), will be
subject to both steady-state and NTE standards based on any normal
operation that these engines would experience in the field. To that
end, EPA has adopted a four-mode steady-state test cycle designed
specifically for engines used in TRU applications which may be used by
the manufacturer in lieu of normal steady-state testing. Commenters to
the rule agreed that a TRU test cycle would be more representative of
refrigeration unit operation than the nonroad cycles currently
available to manufacturers of TRU engines, but some took issue with
EPA's usage restrictions in paragraphs (d)(2), (e)(2), and (e)(3) of
regulations proposed at 40 CFR part 1039 subpart G. In response, the
final rule allows manufacturers to test their engines under a broad
definition of intermediate test speed. The definition covers the 60-75%
range of engine rpm at the specified test cycle engine load points, as
defined in 40 CFR, 89.2. This will enable an engine manufacturer to
more closely match the TRU cycle to the operation of their engines in-
use. Further, the engine is allowed to exhibit no more than 2%
variation in transient operation (speed or torque change) around the
four operating modes defined under this test cycle. The provisions to
address load set point drift are discussed in detail in the RIA chapter
4.3.2 and in regulations at 40 CFR part 1039 subpart G.
In choosing to certify their engine as a TRU engine, manufacturers
will need to state on the engine emission control label that the engine
will only be used in a TRU application and records must be kept on the
delivery destination(s) for their engines. Manufacturers of these
engines may petition EPA at certification for a waiver of the
requirement to provide smoke emission
[[Page 39028]]
data for their constant-torque engines. A more detailed discussion of
the TRU associated provisions is contained in chapter 4.2 of the RIA.
It should be noted that an RMC version of the steady state TRU duty
cycle is provided in Table 2 of 40 CFR part 1039 subpart G.
G. Other Test Procedure Issues
This section contains further detail and explanation regarding
several related nonroad diesel engine emissions test and measurement
provisions. The test procedures are specified in 40 CFR part 1065 and
part 1039 subpart F. Part 1065 contains general test procedure
requirements and part 1039 contains the provisions that are specific to
CI nonroad engines, such as test cycles. The changes described here
will not significantly affect the stringency of the standards. While
some of the changes being made may appear to increase the stringency of
the standards when considered by themselves, others would appear to
have the opposite effect. When considered together, however, they will
result in more repeatable and less subjective testing that is
equivalent to the existing procedures with respect to stringency.
1. Smoke Testing
To control smoke emissions, we are requiring in this final rule
that the current smoke standards and procedures will continue to apply
to certain engines. We proposed to change these smoke standards and
procedures, based on recent developments toward an established
international protocol that was designed to allow a straightforward
method to test engines in the field (68 FR 28486, May 23, 2003). We
have chosen not to adopt the proposed approach, mainly because it is
becoming increasingly clear that ongoing development of in-use testing
equipment will allow direct measurement of PM emissions in the field.
We believe this will provide the best long-term control of both PM
emissions. Controlling smoke is in some ways independent of PM, but the
interest in developing an in-use smoke test was primarily as a means of
providing a secondary indicator of high in-use PM emissions from these
engines. Direct PM measurement removes much of the advantage of in-use
smoke measurements. Relying on the existing smoke test also addresses
concerns raised by manufacturers that the effort to comply with the new
smoke requirements would be a large testing and development burden with
little air-quality benefit. We believe that aftertreatment-based Tier 4
PM standards will control smoke emissions as well as improved smoke
testing standards and procedures. Engines below 19 kilowatts (kW) will
generally not have particulate filters, but most of these are constant-
speed engines and are therefore not subject to smoke standards, as
described below.
We are continuing the established policy of exempting constant-
speed engines and single-cylinder engines from smoke standards. We do
not believe that constant-speed engines undergo the kind of
acceleration or lugging events that occur during this smoke test
procedure, so it would not be appropriate for these engines to be
subject to smoke standards. We exempt single-cylinder engines for a
different reason. These engines, which very often provide power for
generator sets and other constant-speed applications, but may in some
cases experience accelerations, the nature of single-cylinder engine
operation makes it difficult to get a valid smoke emission measurement.
Single-cylinder engines generally have discrete puffs of smoke, rather
than a stable emission stream for measuring smoke values. We believe it
is not appropriate to use such erratic measurements to evaluate an
engine's emission performance. As a result, we will not require single-
cylinder engines to meet our smoke standards until we find a test
method that takes this into account.
Also, as described in the proposed rule, we are exempting from
smoke emission standards any engines that are certified to PM emission
standards or FELs at or below 0.07 g/kW-hr. We believe any engine that
has such low PM emissions will have inherently low smoke emissions. No
commenters disagreed with this position.
2. Maximum Test Speed
We are changing how test cycles are specified. As proposed, we are
applying the existing definition of maximum test speed in 40 CFR part
1065 to nonroad CI engines. This definition of maximum test speed is
the single point on an engine's normalized maximum power versus speed
curve that lies farthest away from the zero-power, zero-speed point.
This is intended to ensure that the maximum speed of the test is
representative of actual engine operating characteristics and is not
improperly used to influence the parameters under which their engines
are certified. In establishing this definition of maximum test speed,
it was our intent to specify the highest speed at which the engine is
likely to be operated in use. Under normal circumstances this maximum
test speed should be close to the speed at which peak power is
achieved. However, in past discussions, some manufacturers have
indicated that it is possible for the maximum test speed to be
unrepresentative of in-use operation. Since we were aware of this
potential during the original development of this definition, we
included provisions to address issues such as these. Part 1065 allows
EPA to modify test procedures in situations where the specified test
procedures would otherwise be unrepresentative of in-use operation.
Thus, in cases in which the definition of maximum test speed resulted
in an engine speed that was not expected to occur with in-use engines,
we would work with the manufacturers to determine the maximum speed
that would be expected to occur in-use (see regulations at 40 CFR
1065.10 (c)).
3. Improvements to the Test Procedures
As we proposed, we are making changes to the test procedures to
improve the precision of emission measurements. These changes address
the potential effect of measurement precision on the feasibility of the
standards. It is important to note that these changes are not intended
to bias results high or low, but only to improve the precision of the
measurements. Based on our experience with these modified test
procedures, and our discussions with manufacturers about their
experiences, we are confident that these changes will not affect the
stringency of the standards. These changes are summarized briefly here.
The rationale for the changes are discussed in detail elsewhere. The
changes affecting Constant Volume Sampling (CVS) and PM testing are
discussed in a memo to the docket (Air Docket A-99-06, IV-B-11), which
was originally submitted in support of the recent highway heavy-duty
diesel engine rule (66 FR 5001, January 18, 2001).
In general, we are applying the highway heavy-duty engine test
procedures to nonroad CI engines in this rulemaking. Many of the
specific changes being adopted are to the PM sampling procedures. The
PM procedures are the procedures finalized as part of the highway
heavy-duty diesel engine rule (66 FR 5001, January 18, 2001). These
include changes to the type of PM filters that are used and
improvements in how PM filters are weighed before and after emission
measurements, including requirements for more precise microbalances.
It is also worth noting that we intend to make additional
improvements to the test procedures in a separate rulemaking that will
be proposed later this year to incorporate the latest measurement
[[Page 39029]]
technologies. Many of the improvements being considered were discussed
in the previously-mentioned memo to the docket (Air Docket A-99-06, IV-
B-11). We recognize the importance of these improvements for use in
testing by nonroad diesel engine manufacturers and EPA. However, since
we expect that the changes would also apply to many nonroad spark-
ignition engine manufacturers, it is appropriate to conduct a separate
notice and comment rulemaking for all affected parties. We remain
committed to incorporating appropriate additional improvements to the
test procedures. We have placed into the docket a draft revised version
of part 1065 that represents our current thinking on appropriate
testing regulations.
H. Engine Power
Currently, rated power and power rating are undefined, and we are
concerned that this makes the applicability of the standards too
subjective and confusing. One manufacturer may choose to define rated
power as the maximum measured power output, while another may define it
as the maximum measured power at a specific engine speed. Using this
second approach, an engine's rated power may be somewhat less than the
true maximum power output of the engine. Given the importance of engine
power in defining which standards an engine must meet and when, we
believe that it is critical that a singular power value be determined
objectively according to a specific regulatory definition.
To address this, we proposed to add a definition of ``maximum
engine power'' to the regulations. This term was to be used instead of
previously undefined terms such as ``rated power'' or ``power rating''
to specify the applicability of the standards. The addition of this
definition was intended to allow for more objective applicability of
the standards. More specifically, we proposed that:
Maximum engine power means the measured maximum brake power
output of an engine. The maximum engine power of an engine
configuration is the average maximum engine power of the engines
within the configuration. The maximum engine power of an engine
family is the highest maximum engine power of the engines within the
family.
During the comment period, manufacturers opposed the proposed
definition. (We received no other comments on this issue.) The
manufacturers correctly pointed out that they cannot know the average
actual power of production engines when they certify an engine family,
because certification typically occurs before production begins.
Therefore the definition of ``maximum engine power'' being finalized
today relies primarily upon the manufacturer's design specifications
and the maximum torque curve that the manufacturer expects to represent
the actual production engines. This provision is specified in a new
section 40 CFR 1039.140. Under this approach the manufacturer would
take the torque curve that is projected for an engine configuration,
based on the manufacturer's design and production specifications, and
convert it into a ``nominal power curve'' that would relate the maximum
power that would be expected to engine speed when a production engine
is mapped according our specified mapping procedures. The maximum
engine power is being defined as the maximum power point on that
nominal power curve.
Manufacturers will be required to report the maximum engine power
of each configuration in their applications for certification. As with
other engine parameters, manufacturers will be required to ensure that
the engines that they produce under the certificate have maximum engine
power consistent with those described in their applications. However,
since we recognize that variability is a normal part of engine
production, we will not require that all production engines have
exactly the power specified in the application. Instead, we will only
require that the power specified in the application be within the
normal range of powers of the production engines. Typically, we would
expect the specified power to be within one standard deviation of the
mean power of the production engines. If a manufacturer determines that
the specified power is outside of the normal range, we may require the
manufacturer to change the settings of the engines being produced and/
or amend the application for certification. In deciding whether to
require such amendment, we would consider the degree to which the
specified power differed from the production engines, the normal power
variability for those engines, whether the engine used or generated
emission credits, and whether the error affected which standards
applied to the engine.
The preceding discussion presumes that each manufacturer will
develop its production processes to produce the engines described in
the application. If a manufacturer were to intentionally produce
engines different than those described in the application, we would
consider the application to be fraudulent, and could void the
certificate ab initio for those engines. For example, for engines that
use emission credits, this could occur if a manufacturer deliberately
biased its production variability so that the engines have higher
average power than described in the application. If we voided the
certificate for those engines the manufacturer would be subject to
large fines and any other appropriate enforcement provisions for each
engine.
Finally, in light of some of the comments that we received, it is
worth clarifying that the maximum engine power will not be used during
engine testing. It is only used to define power categories and
calculate ABT emission credits.
I. Auxiliary Emission Control Devices and Defeat Devices
Existing nonroad regulations prohibit the use of a defeat device
(see 40 CFR 89.107) in nonroad diesel engines. The defeat device
prohibition is intended to ensure that engine manufacturers do not use
auxiliary emission control devices (AECD) which sense engine operation
in a regulatory test procedure and as a result reduce the emission
control effectiveness of that procedure.\84\ In today's notice we are
supplementing existing nonroad test procedures with a transient engine
test cycle and NTE emission standards with associated test
requirements. As such, the Agency believes that a clarification of the
existing nonroad diesel engine regulations regarding defeat devices is
required in light of these additional emission test requirements. The
defeat device prohibition makes it clear that AECDs which reduce the
effectiveness of the emission control system are defeat devices, unless
one of several conditions is met. One of these conditions is that an
AECD which operates under conditions ``included in the test procedure''
is not a defeat device.\85\ While the existing defeat device definition
does contain the term ``test procedure,'' and therefore should be
interpreted as including the supplemental testing requirements, we want
to make it clear that both the supplemental transient test cycle and
NTE emission test procedures are
[[Page 39030]]
included within the defeat device regulations as conditions under which
an operational AECD will not be considered a defeat device. Therefore,
we are clarifying the defeat device regulations by specifying the
appropriate test procedures (i.e., the existing steady-state procedures
and the supplemental tests). We are clarifying the engine manufacturers
certification reporting requirements with respect to the description of
AECDs. Under the previous nonroad engine regulations, manufacturers are
required to provide a generalized description of how the emissions
control system operates and a ``detailed'' description of each AECD
installed on the engine (see 40 CFR 89.115(d)(2)). This change
clarifies what is meant by ``detailed.''
---------------------------------------------------------------------------
\84\ Auxiliary emission control device is defined at 40 CFR 89.2
as ``any element of design that senses temperature, vehicle speed,
engine RPM, transmission gear, or any other parameter for the
purpose of activating, modulating, delaying or deactivating the
operation of any part of the emission control system.''
\85\ 40 CFR 89.107(b)(1) states ``Defeat device includes any
auxiliary emission control device (AECD) that reduces the
effectiveness of the emission control system under conditions which
may reasonably be expected to be encountered in normal operation and
use unless such conditions are included in the test procedure.''
---------------------------------------------------------------------------
For engines rated above 750 horsepower, the expanded interpretation
of ``included in the test cycle'' extends only to the NTE because we
are not requiring these engine to be tested over the supplemental
transient test cycle. Transient emissions control strategies that are
substantially included in the NTE will be considered to comply with the
defeat device criteria. For instances where transient emissions control
strategies are not well represented over the official test
requirements, we will rely on the defeat device provisions to ensure
appropriate transient off-cycle emissions control. The defeat device
provisions restrict the ability of manufacturers to reduce the level of
emissions control during transient operation compared to that employed
over the steady state cycle. In order to evaluate transient emissions
control strategies for compliance with the defeat device provisions, we
are requiring manufacturers to submit information which indicates how
transient emissions are controlled during normal operation and use.
Information that would adequately fulfill this requirement includes but
is not limited to:
A. Emissions data gathered with portable emissions measurement
systems from in-service engines operating over a broad range of typical
transient conditions;
B. Emissions data generated under laboratory conditions
representing a broad range of typical transient operation;
C. Transient test cycle results from certified engines rated at or
below 750 horsepower which share nearly identical transient emissions
control strategies;
D. Base emissions control maps along with an explanation for
differences in control between portions of the map substantially
included in the steady-state test cycle and that which is predominately
associated with transient operation;\86\
---------------------------------------------------------------------------
\86\ Base emissions control maps describe the modulation of an
emissions control parameter as a function of changing engine speed
and torque.
---------------------------------------------------------------------------
E. A comparative analysis of the base emissions control maps from
certified engines rated at or below 750 horsepower and those rated over
750 horsepower.
We will use this information to determine the degree to which the
design and effectiveness of the transient emissions control system
compares to the control demonstrated over the steady-state cycle as
well as the transient control used for certified engines at or below
750 horsepower where compliance over the transient cycle is required.
A thorough disclosure of the presence and purpose of AECDs is
essential in allowing EPA to evaluate the AECD and determine whether it
represents a defeat device. Clearly, any AECD which is not fully
identified in the manufacturer's application for certification cannot
be appropriately evaluated by EPA and therefore cannot be determined to
be acceptable by EPA. Our clarifications to the certification
application requirements include additional detail specific to those
AECDs which the manufacturer believes are necessary to protect the
engine or the equipment in which it is installed against damage or
accident (``engine protection'' AECDs). While the definition of a
defeat device allows as an exception strategies needed to protect the
engine and equipment against damage or accident, we intend to continue
our policy of closely reviewing the use of this exception. In
evaluating whether a reduction in emissions control effectiveness is
needed for engine protection, EPA will closely evaluate the actual
technology employed on the engine family, as well as the use and
availability of other emission control technologies across the
industry, taking into consideration how widespread the use is,
including its use in similar engines and similar equipment. While we
have specified additional information related to engine protection
AECDs in the regulations, we reserve the right to request additional
information on a case-by-case basis as necessary.
In the last several years, EPA has issued extensive guidance on the
disclosure of AECDs for both highway and nonroad diesel engine
manufactures. These provisions do not impose any new certification
burden on engine manufacturers, rather, it clarifies the existing
certification application regulations by specifying what type of
information manufacturers must submit regarding AECDs.
Finally, we take this opportunity to emphasize that the information
submitted must be specific to each engine family. The practice of
describing AECDs in a ``common'' section, wherein the strategies are
described in general for all the manufacturer's engines, is acceptable
as long as each engine family's application contains specific
references to the AECDs in the common section which clearly indicate
which AECDs are present on that engine family, and the application
contains specific calibration information for that engine family's
AECDs. The regulatory requirements can be found at 40 CFR 89.115(d)(2)
in today's notice.
J. Not-To-Exceed Requirements
In today's action we are finalizing not-to-exceed (NTE) emission
standards for all new nonroad diesel engines subject to the Tier 4
emissions standards beginning in 2011. These NTE standards and
requirements are largely identical to the NTE provisions we proposed,
except as noted below.
The NTE standards and test procedures are being finalized to help
ensure that nonroad diesel emissions are controlled over the wide range
of speed and load combinations commonly experienced in-use. EPA has
similar NTE standards for highway heavy-duty diesel engines,
compression ignition marine engines, and nonroad spark-ignition
engines. The NTE requirements supplement the existing steady-state test
as well as the new transient test which is also being finalized today.
The NTE standards and test procedures which we proposed, and which
we are finalizing, are derived from similar NTE standards and test
procedures which EPA adopted for highway heavy-duty diesel engines. In
the proposal, we requested comment on an alternative NTE test procedure
approach (see 68 FR 28369, May 23, 2003). As discussed in the proposal,
the two NTE approaches would result in the same overall level of
emission control, but the implementation of each approach from an in-
use measurement and data gathering perspective are quite different. We
have decided not to finalize this alternative approach. This decision
is based primarily on our belief that nonroad engine manufacturers will
more easily transfer the knowledge and experience gained from the
highway NTE implementation (which begins in 2007) to the nonroad
program if the two programs have similar requirements. For additional
discussion regarding our
[[Page 39031]]
decision to not finalize the alternative approach, please see the
Summary and Analysis of Comments.
The NTE requirements establish an area (the ``NTE zone'' or ``NTE
control area'') under the torque curve of an engine where emissions
must not exceed a specified value for any of the regulated
pollutants.\87\ An illustrative NTE zone is shown in Figure III.J-1.
---------------------------------------------------------------------------
\87\ Torque is a measure of rotational force. The torque curve
for an engine is determined by an engine ``mapping'' procedure
specified in the Code of Federal Regulations. The intent of the
mapping procedure is to determine the maximum available torque at
all engine speeds. The torque curve is merely a graphical
representation of the maximum torque across all engine speeds.
[GRAPHIC] [TIFF OMITTED] TR29JN04.002
The NTE standard applies during any conditions that could
reasonably be expected to be seen by that engine in normal operation
and use, within certain broad ranges of real ambient conditions. The
NTE requirements will help to ensure emission benefits over the full
range of in-use operating conditions. The NTE being finalized today for
nonroad contains the same basic provisions as the highway NTE. This NTE
control area is defined in the same manner as the highway NTE control
area, and is therefore a subset of the engine's possible speed and load
operating range. The NTE standard applies to emissions sampled during a
time duration as small as 30 seconds. The NTE standard requirements for
nonroad diesel engines are summarized below and specified in the
regulations at 40 CFR 1039.101 and 40 CFR 1039.515. These requirements
will take effect as early as 2011, as shown in table III.J-1. The NTE
standard applies to engines at the time of certification as well as in
use throughout the useful life of the engine.
Table III.J-1.--NTE Standard Implementation Schedule
------------------------------------------------------------------------
NTE
Power category implementation
model year \a\
------------------------------------------------------------------------
<25 hp.................................................. 2013
25-75 hp................................................ 2013 \b\
75-175 hp............................................... 2012
175-750 hp.............................................. 2011
>750 hp................................................. 2011
------------------------------------------------------------------------
Notes:
\a\ The NTE applies for each power category once Tier 4 standards are
implemented, such that all engines in a given power category are
required to meet NTE standards.
\b\ The NTE standard would apply in 2012 for any engines in the 50-75 hp
range which choose not to comply with the proposed 2008 transitional
PM standard.
The NTE test procedure can be run in nonroad equipment during field
operation or in an emissions testing laboratory using an appropriate
dynamometer. The test itself does not involve a specific operating
cycle of any specific length; rather, it involves nonroad equipment
operation of any type which could reasonably be expected to occur in
normal nonroad equipment operation that could occur within the bounds
of the NTE control area. The nonroad engine is operated under
conditions that may reasonably be expected to be encountered in normal
operation and use, including operation under steady-state or transient
conditions and under varying ambient conditions. Emissions are averaged
over a minimum time of thirty seconds and then compared to the
applicable emission standard. The NTE standard applies over a wide
range of ambient conditions, including up to an altitude
[[Page 39032]]
of 5,500 feet above-sea level at ambient temperatures as high as 86
deg. F, and at sea-level up to ambient temperatures as high as 100 deg.
F. The specific temperature and altitude conditions under which the NTE
applies, as well as the methodology for correcting emissions results
for temperature and/or humidity, are specified in the regulations.
For new nonroad diesel engines subject to the NTE standards, we
will require that manufacturers state in their application for
certification that they are able to meet the NTE standards under all
conditions that may reasonably be expected to occur in normal equipment
operation and use. Manufacturers will have to maintain a detailed
description of any testing, engineering analysis, and other information
that forms the basis for their statement. We believe that there is a
variety of information that a manufacturer could use as a reasonable
basis for a statement that engines are expected to meet NTE standards.
For example, a reasonable basis could include data from laboratory
steady-state and transient test cycle operation, a robust engine
emissions map derived from laboratory testing (e.g., an emissions map
of similar resolution to the engine's base fuel injection timing map)
and technical analysis relying on good engineering judgment which are
sufficient, in combination, to project emissions levels under NTE
conditions reasonably expected to be encountered in normal operation
and use. Data generated from in-use nonroad equipment testing to
determine emission levels could, at the manufacturer's option, also be
part of this combination. However, a reasonable basis for the
manufacturer's statement does not require in-use emissions test data.
This statement could reasonably be based solely on laboratory test
data, analysis, and other information reasonably sufficient to support
a conclusion that the engine will meet the NTE under conditions
reasonably expected to be encountered in normal vehicle operation and
use. If a manufacturer has relevant in-use nonroad emissions test data,
it should be taken into consideration by the manufacturer in developing
the basis for its statement.
In addition, as we proposed, we are finalizing a transition period
during which a manufacturer could apply for an NTE deficiency for a
nonroad diesel engine family. The NTE deficiency provisions would allow
the Administrator to accept a nonroad diesel engine as compliant with
the NTE standards even though some specific requirements are not fully
met. We are finalizing these NTE deficiency provisions because we
believe that, despite the best efforts of manufacturers, for the first
few model years it is possible some manufacturers may have technical
problems that are limited in nature but cannot be remedied in time to
meet production schedules. We are not limiting the number of NTE
deficiencies a manufacturer can apply for during the first three model
years for which the NTE applies. For the fourth through the seventh
model year after which the NTE standards are implemented, a
manufacturer could apply for no more than three NTE deficiencies per
engine family. Within an engine family, NTE deficiencies must be
applied for on an engine model or power rating basis; however, the same
deficiency when applied to multiple ratings or models counts as a
single deficiency within an engine family. No deficiency may be applied
for or granted after the seventh model year. The NTE deficiency
provision will only be considered for failures to meet the NTE
requirements. EPA will not consider an application for a deficiency for
failure to meet the FTP or supplemental transient standards.
Similar to the 2007 highway HD rule, we are also finalizing a
provision which would allow a manufacturer to exclude defined regions
of the NTE engine control zone from NTE compliance if the manufacturer
could demonstrate that the engine, when installed in a specified
nonroad equipment application(s), is not capable of operating in such
regions. We have also finalized a provision which would allow a
manufacturer to petition the Agency to limit testing in a defined
region of the NTE engine control zone during NTE testing. This optional
provision would require the manufacturer to provide the Agency with in-
use operation data which the manufacturer could use to define a single,
continuous region of the NTE control zone. This single area of the
control zone must be specified such that operation within the defined
region accounts for 5 percent or less of the total in-use operation of
the engine, based on the supplied data. Further, to protect against
``gaming'' by manufacturers, the defined region must generally be
elliptical or rectangular in shape, and share a boundary with the NTE
control zone. If approved by EPA, the regulations then disallow testing
with sampling periods in which operation within the defined region
constitutes more than 5.0 percent of the time-weighted operation within
the sampling period.
The NTE numerical standard is a function of FTP emission standards
contained in today's final rule, which standards are described in
section II. As with the NTE standards we have established for the 2007
highway rule, the nonroad NTE standard is determined as a multiple of
the engine families' underlying FTP emission standard. In addition, as
with the 2007 highway standard, the multiple is either 1.25 or 1.5,
depending on the emission pollutant type and the value of the FTP
standard (or the engine families' FEL). These multipliers are based on
EPA's assessment of the technological feasibility of the NTE standard,
and our assessment that as the underlying FTP standard becomes more
stringent, the NTE multiplier should increase (from 1.25 to 1.5). The
FTP standard or FEL thresholds for the NTE standard's 1.25x multiplier
and the 1.5x multiplier are specified for each regulated emission in
table III.J-2.
Table III.J-2.--Thresholds for Applying NTE Standard of 1.25x FTP
Standard vs. 1.5x FTP Standard
------------------------------------------------------------------------
Apply 1.25x NTE Apply 1.5x when .
Emission when . . . . .
------------------------------------------------------------------------
NOX............................. NOX std or FEL >= NOX std or FEL <
1.9 g/bhp-hr. 1.9 g/bhp-hr
NMHC............................ NOX std or FEL >= NOX std or FEL <
1.9 g/bhp-hr. 1.9 g/bhp-hr
NOX+NMHC........................ NMHC+NOX std or NMHC+NOX std or
FEL >= 2.0 g/bhp- FEL < 2.0 g/bhp-
hr. hr
PM.............................. PM std or FEL >= PM std or FEL <
0.05 g/bhp-hr. 0.05 g/bhp-hr
CO.............................. All stds or FELs.. No stds or FELs
------------------------------------------------------------------------
For example, beginning in 2011, the NTE standard for engines
meeting a FTP PM standard of 0.01 g/bhp-hr and a FTP NOX
standard of 0.30 g/bhp-hr would be 0.02 g/bhp-hr PM and 0.45 g/bhp-hr
NOX. In the NPRM, we proposed a NOX
[[Page 39033]]
threshold value of 1.5 g/bhp-hr as the value at which the NTE
multiplier would switch from 1.5 to 1.25.
We proposed this NOX emission threshold level (1.5 g/
bhp-hr) primarily because it is the same value as we finalized for the
highway NTE. As shown in table III.J-2, we have finalized a threshold
value of 1.9 g/bhp-hr NOX for nonroad engines. We have
finalized this higher NOX threshold based on the differences
in the emission performance of NOX control technologies
between highway and nonroad diesel engines. Specifically, nonroad
diesel NOX standards have traditionally been higher than the
equivalent highway NOX standard due primarily to the
effectiveness of charge-air-cooling and the lack of ram-air for nonroad
applications. For example, the nonroad Tier 3 NMHC+NOX
standards are higher than the 2004 heavy-duty highway standards (e.g.,
3.0 g/bhp-hr vs. 2.5 g/bhp-hr), and the Tier 4 NOX standard
is higher than the 2007 heavy-duty highway standard (e.g., 0.3 g/bhp-hr
vs. 0.2 g/bhp-hr). We expect that the nonroad Tier 3 standard for
engines above 100 hp will require NOX levels of
approximately 2.5 g/bhp-hr and we expect that for the 2004 highway
heavy-duty standards, NOX levels are approximately 2 g/bhp-
hr. In both cases, these emission levels are the building blocks for
the next set of EPA standards (e.g., Tier 4 for nonroad and 2007 for
highway). Because the nonroad Tier 3 NOX emission levels are
expected to be approximately 25 percent greater than the 2004 highway
level (2.5 vs 2), we believe that the NTE NOX multiplier
threshold for nonroad should be 25 percent greater for nonroad as
compared to highway. For these reasons, we have finalized a
NOX multiplier threshold of 1.9 g/bhp-hr, which is 25
percent greater than the highway multiplier threshold.
In addition, as proposed, we are finalizing a number of specific
engine operating conditions during which the nonroad NTE standard would
not apply. The exact criteria for these conditions are defined in the
regulations, but in summary: the NTE does not apply during engine
start-up conditions; the NTE does not apply during very cold engine
intake air temperatures for EGR-equipped engines during which the
engine may require an engine protection strategy; and, finally, for
engines equipped with NOX and/or NMHC aftertreatment (such
as a NOX adsorber), the NTE does not apply during warm-up
conditions for the exhaust emission control device. Finally, while we
did not propose this, we are finalizing the NTE PM carve-out provisions
for engines which will not require PM filters. The PM only carve-out is
a sub-region of the NTE zone in which the NTE PM standard does not
apply. Figure III.J-1 contains an illustration of the PM carve-out.
This is a region of high engine speed and low engine torque during
which engine-out PM emissions are difficult to control to levels below
the PM NTE standard. The dimensions of the PM carve-out are specified
in the regulations. For engines equipped with a PM filter, compliance
with the PM NTE standard in this region is achievable due to the highly
efficient PM reduction capabilities of the CDPF technology. However,
for engines in the under 25 hp category, for which we have established
Tier 4 emission standards that do not require the use of a PM filter,
PM control in this sub-region of the NTE zone with conventional PM
reduction technologies may not be achievable. Therefore, as we allowed
with highway heavy-duty engines certifying to the 0.1 g/bhp-hr
standard, we have created a PM carve-out for nonroad engines that use
in-cylinder PM control technologies. Specifically, the PM carve-out
applies to engines meeting a PM standard or FEL greater than or equal
to 0.05 g/bhp-hr.
K. Investigating and Reporting Emission-Related Defects
In 40 CFR part 1068, subpart F, we are adopting defect reporting
requirements that obligate manufacturers to tell us when they learn
that emission-control systems are defective and to conduct
investigations under certain circumstances to determine if an emission-
related defect is present. Under these defect-reporting requirements,
manufacturers must track available warranty claims and any other
available information from dealers, hotlines, diagnostic reports, or
field-service personnel to identify possible defects. If the number of
possible defects exceeds certain thresholds, they must investigate
future warranty claims and other information to establish whether these
are actual defects.
We believe the investigation requirement in this rule will allow
both EPA and the engine manufacturers to fully understand the
significance of any unusually high rates of warranty claims for systems
or parts that may have an impact on emissions. In the past, defect
reports were submitted based on a very low threshold with the same
threshold applicable to all size engine families and with little
information about the full extent of the problem. The new approach
should result in fewer overall defect reports being submitted by
manufacturers than would otherwise be required under the old defect-
reporting requirements because the number of defects triggering the
submission requirement rises with the engine family size. The new
approach may trigger some additional reports for small-volume families,
but the percentage-based approach will ensure that investigations and
reports correspond to issues that are likely to be significant.
Part 1068, subpart F, is intended to require manufacturers to use
information we would expect them to keep in the normal course of
business. We believe in most cases manufacturers will not be required
to institute new programs or activities to monitor product quality or
performance. A manufacturer that does not keep warranty or replacement
part information may ask for our approval to use an alternate defect-
reporting methodology that is at least as effective in identifying and
tracking possible emission-related defects as the requirements of 40
CFR 1068.501. Thus manufacturers will have the flexibility to develop
defect tracking and reporting programs that work better for their
standard business practices. However, until we approve such a request,
the thresholds and procedures of subpart F continue to apply.
Manufacturers may also ask for our approval to use an alternate
defect-reporting methodology when the requirements of 40 CFR 1068.501
can be demonstrated to be highly impractical or unduly burdensome. In
such cases, we will generally allow alternate methodologies that are at
least as effective in identifying, correcting, and informing EPA of
possible emission-related defects as the requirements of 40 CFR
1068.501. We expect this flexibility to be useful in special
circumstances such as when new models of very large engines are
introduced for the first time. In this situation, it may be appropriate
to allow an alternate defect reporting method because the high cost of
these engines often makes it impractical to build and test large
numbers of prototype engines. The initial production of these engines
can have similar defect rates to the high levels often associated with
prototype engines. While we are concerned about such defects and want
to be kept informed about them, it is not clear that our basic program
would be the best way to address these defects. In such cases, we
believe it may be more appropriate for manufacturers to propose an
alternative approach that consolidates reports on a regular interval,
such as quarterly, and identifies obvious early-life defects without a
formal tracking process. In general, we would encourage manufacturers
to propose an alternate
[[Page 39034]]
approach to ensure that these defects are properly addressed while
minimizing the associated burden.
Issues related to parts shipments received the most attention from
commenters who pointed out that the proposed requirement to track
shipments of all emission-related components was overly burdensome and
not likely to reveal useful information. We have concluded that it is
not appropriate to use parts shipments as a quantitative indicator to
evaluate whether manufacturers exceed the threshold that would trigger
an investigation. We generally agree with manufacturers concerns that
parts-shipments data would be too difficult to evaluate, for example,
because parts are often shipped for stocking purposes, parts are
installed in compliant and noncompliant products (such as exported
engines), and part shipments are generally not identifiable by model
year. The final rule therefore requires manufacturers to pursue a
defect investigation if the number of shipped parts is higher than the
manufacturer would expect based on historical shipment levels,
specifications for scheduled maintenance, or other factors.
We have modified the proposed thresholds to address concerns that
manufacturers would be required to investigate and report defects too
frequently. For engines under 750 hp, we are adopting investigation
thresholds of 10 percent of total production or 50 engines, whichever
is greater, for any single engine family in one model year. Similarly,
we are adopting defect-reporting thresholds of 2 percent of total
production or 20 engines, whichever is greater. For engines over 750
hp, the same percentage thresholds apply, but we are extending the
percentage values down to smaller engine families to reflect their
disproportionate contribution to total emissions. For these engines,
the absolute thresholds are 25 engines for investigations and 10 or 15
engines for defects (see table III.K-1). We believe these thresholds
adequately balance the desire to document emission-related defects
without imposing an unreasonable reporting burden. Also, we believe
this approach to adopting thresholds adequately addresses reporting
requirements for aftertreatment and non-aftertreatment components.
Table III.K-1.--Investigation and Defect-Reporting Thresholds for
Varying Sizes of Engine Families\1\
------------------------------------------------------------------------
Investigation Defect-reporting
Engine size threshold threshold
------------------------------------------------------------------------
<=750 hp........................ less than 500: 50. less than 1,000:
20
500-50,000: 10%... 1,000-50,000: 2%
50,000+: 5,000.... 50,000+: 1,000
>750 hp......................... .................. less than 150: 10
less than 250: 25. 150-750: 15
250+: 10%......... 750+: 2%
------------------------------------------------------------------------
Notes:
\1\ For varying sizes of engine families, based on sales per family in a
given model year.
EMA also expressed concern about the existing regulatory language
in 40 CFR 1068.501(b)(3), which states that manufacturers must
``consider defects that occur within the useful life period, or within
five years after the end of the model year, whichever is longer.''
However, this provision has no effect on the diesel engines subject to
the Tier 4 standards being adopted today, since they all have useful
lives of at least five years. We recognize that this issue may be
relevant to engine categories that do not have five-year useful lives,
such as small SI engines, and will consider these concerns in our
future regulation of such engines.
When manufacturers start an investigation, they must consider any
available information that would help them evaluate whether any of the
possible defects that contributed to triggering the investigation
threshold would lead them to conclude that these were actual defects.
Otherwise, manufacturers are expected to look prospectively at any
possible defects and attempt to determine whether these are actual
defects. Also, during an investigation, manufacturers should use
appropriate statistical methods to project defect rates if they are
unable to collect information to evaluate possible defects, taking
steps as necessary to prevent bias in sampled data (or making adjusted
calculations to take into account any bias that may remain). For
example, if 75 percent of the components replaced under warranty are
available for evaluation, it would be appropriate to extrapolate known
information on failure rates to the components that are unavailable for
evaluation.
The second threshold in 40 CFR 1068.501 specifies when a
manufacturer must report that there is an emission-related defect. This
threshold involves a smaller number of engines because each possible
occurrence has been screened to confirm that it is in fact an emission-
related defect. In counting engines to compare with the defect-
reporting threshold, the manufacturer generally considers a single
engine family and model year. Where information cannot be
differentiated by engine family and model year, the manufacturer must
use good engineering judgment to evaluate whether the information leads
to a conclusion that the number of defects exceeds the applicable
thresholds. However, when a defect report is required, the manufacturer
must report all occurrences of the same defect in all engine families
and all model years.
If the number of engines with a specific defect is found to be less
than the threshold for submitting a defect report, but information such
as warranty data later indicates that there may be additional defective
engines, all the information must be considered in determining whether
the threshold for submitting a defect report has been met. If a
manufacturer has actual knowledge from any source that the threshold
for submitting a defect report has been met, a defect report must be
submitted even if the trigger for investigating has not yet been met.
For example, if manufacturers receive from their dealers, technical
staff or other field personnel information showing conclusively that
there is a recurring emission-related defect, they must submit a defect
report.
If manufacturers trigger the threshold to start an investigation,
they must promptly and thoroughly investigate whether their parts are
defective, collecting specific information to prepare a report
describing their conclusions. Manufacturers must send the report if an
investigation concludes that the number of actual defects did not
exceed reporting thresholds. Manufacturers must also send these as
status reports twice annually during an investigation. After
investigating for
[[Page 39035]]
several months, or perhaps a couple years, it may become clear that the
problems that triggered the investigation will never show enough actual
defects to trigger a defect report. In this case, the manufacturer
would send us a report justifying this conclusion.
In general, we believe this updated approach to defect reporting
will decrease the number of defect reports submitted by manufacturers
overall while significantly improving their quality and their value to
both EPA and the manufacturer.
Note that misbuilds are a special type of emission-related defect.
An engine that is not built consistent with its application for
certification violates the prohibited act of introducing into commerce
engines that are not covered by a certificate of conformity.
L. Compliance With the Phase-In Provisions
In section II we described the NOX and NMHC standards
phase-in schedule, which is intended to allow engine manufacturers to
phase-in their new advanced technology engines, while they phase-out
existing engines. This phase-in requirement is based on percentages of
a manufacturer's production for the U.S. market. We recognize, however,
that manufacturers need to plan for compliance well in advance of the
start of production, and that actual production volumes for any one
model year may differ from their projections. On the other hand, we
believe that it would be inappropriate and infeasible to base
compliance solely on a manufacturer's projections. That could encourage
manufacturers to overestimate their production of complying phase-in
engines, and could result in significantly lower emission benefits
during the phase-in. In response to these concerns, we proposed to
initially only require nonroad diesel manufacturers to project
compliance with the phase-in based on their projected production
volumes, provided that they made up any deficits (in terms of percent
of production) the following year. We received no comments on this
issue and are finalizing it as proposed.
Because we expect that a manufacturer making a good-faith
projection of sales would not be very far off of the actual production
volumes, we are limiting the size of the deficit that would be allowed,
as in the highway program. In all cases, the manufacturer would be
required to produce at least 25% of its production in each phase-in
power category as ``phase-in'' engines (meeting the NOX and
NMHC standards or demonstrating compliance through use of ABT credits)
in the phase-in years (after factoring in any adjustments for early
introduction engine credits; see section III.M). This minimum required
production level would be 20% for the 75-175 hp category if a
manufacturer exercises the option to comply with a reduced phase-in
schedule in lieu of using banked Tier 2 ABT credits, as discussed in
section III.A.1.b. Another important restriction is that manufacturers
would not be allowed to have a deficit in the year immediately
preceding the completion of the phase-in to 100%. This would help
ensure that manufacturers are able to make up the deficit. Since they
could not produce more than 100% low-NOX engines after the
final phase-in year, it would not be possible to make up a deficit from
this year. These provisions are identical to those adopted in the
highway HDDE program.
We are also finalizing the proposed ``split family'' allowance for
the phase-in years. This provision, which is similar to a provision of
the highway program, allows manufacturers to certify engine families to
both the phase-in and phase-out standards. Manufacturers choosing this
option must assign at the end of the model year specific numbers of
engines to the phase-in and phase-out categories. All engines in the
family must be labeled with the same NOX and PM FELs, which
apply for all compliance testing, and must meet all other requirements
that apply to phase-in engines. Engines assigned to the phase-out
category may generate emission credits relative to the phase-out
standards.
M. Incentive Program for Early or Very Low Emission Engines
We believe that it is appropriate and beneficial to provide
voluntary incentives for manufacturers to introduce engines emitting at
very low levels early. Such inducements may help pave the way for
greater and/or more cost effective emission reductions from future
engines and vehicles. To encourage early introduction of low-emission
engines, the proposal contained provisions to allow engine
manufacturers to benefit from producing engines certified to the final
(aftertreatment-based) Tier 4 standards prior to the 2011 model year,
by being allowed to make fewer engines certified to these standards
once the Tier 4 program takes effect, a concept that we are terming
``engine offsets'' to avoid confusion with ABT program credits. The
number of offsets that could be generated would depend on the degree to
which the engines are able to meet, or perform better than, the final
Tier 4 standards. Commenters generally supported this approach, as long
EPA ensures that compliance requirements for these engines are
enforced.
However, one equipment manufacturer submitted comments suggesting
that we should adopt a program that would provide incentives for
equipment manufacturers to use the early Tier 4 engines in their
equipment. For an early low-emission engine program to be successful,
we agree that it is important to provide incentives to both the engine
manufacturer and the equipment manufacturer, who may incur added cost
to install and market the advanced engine in the equipment. As was
pointed out in comments, the proposed program did not provide clear
incentives to equipment manufacturers to use the (presumably more
expensive) early low-emission engines. Therefore, we are adding such
provisions. Section III.B.2.e describes these early Tier 4 engine
incentive provisions under which equipment manufacturers can earn
increased allowance flexibilities. Under those provisions, the engine
manufacturer's incentive to produce the low-emitting engines will come
from customers' demand for them, and from the fact that the engine
manufacturer can earn ABT program credits for these engines in the same
way as without these incentive provisions. If the equipment
manufacturer does not wish to earn the increased allowance
flexibilities, then the engine manufacturer would be allowed to use the
provisions of the incentive program for early low-emission engines
described below in this subsection, though to do so would require the
forfeiture of any ABT credits earned by the subject engines,
essentially to avoid double counting, as explained below. This engine
manufacturer incentive program is being adopted as proposed, except for
engines above 750 hp, for which the proposed program requires some
adjustment to account for the approach we are taking to final
standards.
As discussed in section II.A.4, the final rule does not phase in
standards for engines above 750 hp as proposed, and instead adopts
application-specific standards in 2011 and 2015. The 2011 standards are
not based on advanced aftertreatment except for NOX on
engines above 1200 hp used in generator sets. To avoid overcomplication
of the incentive program, which might discourage its use, we are not
separating over and under 1200 hp generator set engines into separate
groups for these provisions. Instead, any of these engines that meet
the 2015 standards before 2015 can earn offsets. We are, however,
[[Page 39036]]
separating the generator set engines and non-generator set engines
above 750 hp into separate groups, because we are deferring setting a
NOX standard for the latter that is based on use of advanced
aftertreatment technology.
Table III.M-1 summarizes the requirements and available offsets for
engine manufacturers in this program. As the purpose of the incentive
is to encourage the introduction of clean technology engines earlier
than required, we require that the emission standard levels actually be
met, and met early, by qualifying engines to earn the early
introduction offsets. The regulations specify that the standards must
be met without the use of ABT credits and actual production of the
engines must begin by September 1 preceding the first model year when
the standards would otherwise be applicable. Also, to avoid double-
counting, as explained in the proposal, the early engines can earn
either the engine offsets or the ABT emission credit, but not both.
Note that this is different than the approach taken in the early Tier 4
engine incentive program for equipment manufacturers described in
section III.B.2.e, where incentives for both the engine manufacturer
(ABT credits) and the equipment manufacturer (allowance flexibilities)
are needed to ensure successful early introduction of clean engines.
Because 15 ppm sulfur diesel fuel will be available on a widespread
basis in time for 2007 (due to the requirements for on-highway heavy-
duty engines), we are allowing engine manufacturers to begin certifying
engines to the very low emission levels required to be eligible for
this incentive program, beginning with the 2007 model year.
Table III.M-1.--Program for Early Introduction of Clean Engines
----------------------------------------------------------------------------------------------------------------
Category Engine group Must meet \a\ Per-engine offset
----------------------------------------------------------------------------------------------------------------
Early.............................. 25-75 hp.............. 0.02 g/bhp-hr PM........... 1.5-to-1
PM-only \b\........................ 75-750 hp............. 0.01 g/bhp-hr PM........... PM-only
25-75 hp.............. 0.02/3.5 g/bhp-hr PM/
NMHC+NOX.
75-750 hp............. 0.01/0.30/0.14 g/bhp-hr PM/
NOX/NMHC.
>750 hp generator set. 0.02/0.50/0.14 g/bhp-hr PM/ 1.5-to-1
NOX/NMHC.
Early Engine \b\................... >750 hp non-generator 0.03/2.6/0.14 g/bhp-hr PM/
set. NOX/NMHC.
Low NOX Engine..................... >25 hp................ as above for Early Engine, 2-to-1
except must meet 0.15 g/
bhp-hr NOX standard.
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ All engines must also meet the Tier 4 crankcase emissions requirements. Engines must certify using all test
and other requirements (such as NRTC and NTE) otherwise required for final Tier 4 standards.
\b\ Offsets must be earned prior to the start of phase-in requirements in applicable engine groups (prior to
2013 for 25-75 hp engines, prior to 2012 for 75-175 hp engines, prior to 2011 for 175-750 hp engines, prior to
2015 for >750 hp engines).
For any engines being certified under this program before the 2011
model year using 15 ppm sulfur certification fuel, the manufacturer
would have to meet the requirements described in section III.D,
including demonstrating that the engine would indeed be fueled with 15
ppm sulfur fuel in the field. We expect this would occur through
selling such engines into fleet applications, such as municipal
maintenance fleets, large construction company fleets, or any such
well-managed centrally-fueled fleet. While obtaining a reliable supply
of 15 ppm maximum sulfur diesel fuel prior to the 2011 model year will
be possible, it will require some effort by nonroad diesel machine
operators. We therefore believe it is necessary and appropriate to
provide a greater incentive for early introduction of clean diesel
technology. Thus, as proposed, we would count one early engine (that
is, an engine meeting the final Tier 4 standards) as offsetting 1.5
engines later. This means that fewer clean diesel engines than
otherwise required may enter the market in later years, but, more
importantly, it means that emission reductions would be realized
earlier than under our base program. We believe that providing
incentives for early emission reductions is a worthwhile goal for this
program, because improving air quality is an urgent need in many parts
of the country as explained in section I, and because the early
learning opportunity with new technologies can help to ensure a smooth
transition to Tier 4 standards.
We are providing this early introduction offset for engines over 25
hp that meet all of today's Tier 4 emissions standards (NOX,
PM, and NMHC) in the applicable engine category. We are also providing
this early introduction offset to engines that pull ahead compliance
with only the PM standard. However, a PM-only early engine would offset
only the PM standard for an offset-using engine. For engines in power
categories with a percentage phase-in, this would correspond (during
the phase-in years) to offset use for ``phase-out'' engines (those
required to meet the new Tier 4 standard for PM but not for
NOX or NMHC). Engines using the PM-only offset would be
subject to the other applicable Tier 4 emission standards, including
applicable transient and NTE standards (see Section III.F) and
crankcase requirements. The applicable PM standard and requirements for
these PM-only offset-using engines would be those of Tier 3 (Tier 2 for
25-50 hp engines). PM-only offsets would not offset engines required to
meet other Tier 4 standards such as the phase-in NOX and
NMHC standards (since there is no reason for PM offsets to offset
emissions of other pollutants). Tier 4 engines between 25 and 75 hp
certified to the 2008 PM standard would not participate in this
program, nor would engines below 25 hp, because they do not have
advanced aftertreatment-based standards.
An important aspect of the early incentive provision is that it
must be done on an engine count basis. That is, a diesel engine meeting
new standards early would count as 1.5 such diesel engines later. This
contrasts with a provision done on an engine percentage basis which
would count one percent of diesel engines early as 1.5 percent of
diesel engines later. Basing the incentive on an engine count
alleviates any possible influence of fluctuations in engine sales in
different model years.
Another important aspect of this program is that it is limited to
engines sold prior to the 2013 model year for engines between 25 and 75
hp, prior to the 2012 model year for engines between 75 and 175 hp, and
prior to the 2011 model year for engines between 175 and 750 hp. In
other words, as in the highway program, nonroad diesel engines sold
during the transitional ``phase-in'' model years would not be
considered ``early'' introduction engines and would therefore be
ineligible to
[[Page 39037]]
generate early introduction offsets. However, such engines and vehicles
would still be able to generate ABT credits. Because the engines over
750 hp engines have no percent-of-production phase-in provisions, we
are allowing offsets for early engines in any model year prior to 2015.
For the same reason, there is no PM-only offset for these engines. As
with the phase-in itself, and for the same reasons, an early
introduction engine could only be used to offset requirements for
engines in the same engine group (25-75 hp, 75-175 hp, 175-750 hp, >750
hp generator sets, and >750 hp non-generator sets) as the offset-
generating engine.
As a further incentive to introduce clean engines and vehicles
early, we are also adopting the proposed provision that gives engine
manufacturers an early introduction offset equal to two engines during
or after the phase-in years for engines with NOX levels well
below the final Tier 4 NOX standard. This incentive applies
for diesel engines achieving a 0.15 g/bhp-hr NOX standard
level (one-half of the aftertreatment-based standard for most engines)
while also meeting the NMHC and PM standards. Due to the extremely low
emission levels to which these engines and vehicles would need to
certify, we believe that the double engine count offset is appropriate.
In the NPRM we asked for comment on whether or not we should extend
the existing Blue Sky program that encourages the early introduction of
engines with emission levels (as measured on a transient test) about
40% lower than the Tier 2 standards levels. See 68 FR at 28483. We
received comments both for and against doing so, but no commenter
provided substantive arguments or information. Given the very low
emissions levels being adopted in Tier 4, we have decided not to extend
the existing Blue Sky Series program, because it does not encourage
engines emitting at such low emission levels.
N. Labeling and Notification Requirements
As explained in section II, the emissions standards will make it
necessary for manufacturers to employ exhaust emission control devices
that require very low-sulfur fuel (less than 15 ppm) to ensure proper
operation. This action restricts the sulfur content of diesel fuel used
in these engines. However, the 2008 emissions standards would be
achievable with less sensitive technologies and thus it could be
appropriate for those engines to use diesel fuel with up to 500 ppm
sulfur. There could be situations in which vehicles requiring either 15
ppm fuel or 500 ppm may be accidentally or purposely misfueled with
higher-sulfur fuel. Any of these misfueling events could seriously
degrade the emission performance of sulfur-sensitive exhaust emission
control devices, or perhaps destroy their functionality altogether.
In the highway rule, we adopted a requirement that heavy-duty
vehicle manufacturers notify each purchaser that the vehicle must be
fueled only with the applicable low-sulfur diesel fuel. We also
required that diesel vehicles be equipped by the manufacturer with
labels near the refueling inlet to indicate that low sulfur fuel is
required. We are adopting similar requirements here.\88\ Specifically,
manufacturers will be required to notify each purchaser that the
nonroad engine must be fueled only with the applicable low-sulfur
diesel fuel, and ensure that the equipment is labeled near the
refueling inlet to indicate that low sulfur fuel is required. We
believe that these measures would help owners find and use the correct
fuel and would be sufficient to address misfueling concerns. Thus, more
costly provisions, such as fuel inlet restrictors, should not be
necessary.
---------------------------------------------------------------------------
\88\ We also required that highway vehicles be labeled on the
dashboard. Given the type of equipment using nonroad CI engines, we
are not adopting any dashboard requirement here.
---------------------------------------------------------------------------
In general, beginning in model year 2011, nonroad engines will be
required to use the Ultra Low Sulfur diesel fuel (with less than 15 ppm
sulfur). Thus, the default label will state ``ULTRA LOW SULFUR FUEL
ONLY.'' The labeling requirements for earlier model year Tier 4 engines
are specified in Sec. 1039.104(e). Some new labeling requirements for
earlier model year Tier 3 engines are specified in 40 CFR 89.330(e).
These requirements for earlier years generally require that engines and
equipment be labeled consistent with the sulfur of the test fuel used
for their certification. So where the engine is certified using Low
Sulfur diesel fuel (with less than 500 ppm sulfur), the required label
will state ``LOW SULFUR FUEL ONLY.'' See section III.D and the
regulatory text for the other specific requirements related to labeling
the earlier model years.
O. General Compliance
1. Good Engineering Judgment
The process of testing engines and preparing an application for
certification requires the manufacturer to make a variety of judgments.
This includes, for example, selecting test engines, operating engines
between tests, and developing deterioration factors. EPA has the
authority to evaluate whether a manufacturer's use of engineering
judgment is reasonable. The regulations describe the methodology we use
to address any concerns related to how manufacturers use good
engineering judgment in cases where the manufacturer has such
discretion (see 40 CFR 1068.5). If we find a problem with a
manufacturer's use of engineering judgment, we will take into account
the degree to which any error in judgment was deliberate or in bad
faith. If manufacturers object to a decision we make under this
provisions, they are entitled to a hearing. This subpart is consistent
with provisions already adopted for light-duty highway vehicles, marine
diesel engines, industrial spark-ignition engines, and recreational
vehicles.
2. Replacement Engines
In the proposal we included a provision allowing manufacturers to
sell a new, noncompliant engine intended to replace an engine that
fails in service. The proposed language closely mirrored the existing
provisions in 40 CFR 89.1003(b)(7), except that it specified that
manufacturers could produce new, noncompliant replacement engines if no
engine from any manufacturer were available with the appropriate
physical or performance characteristics. Manufacturers objected to this
provision and requested that the final regulations follow the language
in 40 CFR part 89, in which the manufacturer of the new engine confirm
that no appropriate engine is available from its product line (or that
of the manufacturer of the original engine, if that were a different
company). We agree that the language from 40 CFR part 89 is
appropriate, but we note two things to address remaining concerns that
manufacturers could potentially use the replacement-engine provisions
to produce large numbers of noncompliant products. First, we are
including a specific statement in the regulations that manufacturers
may not use the replacement-engine exemption to circumvent the
regulations. Second, we plan to use the data-collection provision under
40 CFR 1068.205(d) to ask manufacturers to report the number of engines
they sell under the replacement-engine exemption. Rather than adopting
a specific data-reporting requirement, we believe this more flexible
approach is most appropriate to allow us to get information to evaluate
how manufacturers are using the exemption without imposing reporting
requirements that may involve more or less information than is actually
needed.
[[Page 39038]]
3. Warranty
We are modifying 40 CFR 1068.115 regarding engine manufacturers'
warranty obligations by removing paragraph (b). This paragraph
addresses specific circumstances under which manufacturers may not deny
emission-related warranty claims, while paragraph (a) of this section
addresses the circumstances under which manufacturers may deny such
claims. As described in our Summary and Analysis of Comments related to
our November 8, 2002 final rule (67 FR 68242), we intended to adopt 40
CFR1068.115 without this paragraph. We wanted to remove paragraph (b)
because we agreed with a comment pointing out that publishing both
paragraphs leaves ambiguous which provision applies if a situation
applies that is not on either list. Since neither list can be
comprehensive, we believe the provisions in paragraph (a) describing
when manufacturers may deny warranty claims appropriately addresses the
issue. As a result, paragraph (b) was inadvertently adopted as part of
the November 2002 final rule.
4. Separate Catalyst Shipment
We are adopting provisions that will allow engine manufacturers to
ship engines to equipment manufacturers where the engine manufacturer
had not yet installed the aftertreatment or otherwise included it as
part of the engine shipment. This allows the engine manufacturer to
ship the engine without the aftertreatment; for example, in cases where
it would be impractical to install aftertreatment devices on the engine
before shipment or even ship products with the aftertreatment devices
uninstalled along with the engine; or where shipping it already
installed would require it to be disassembled and reinstalled when the
engine was placed in the equipment. Today's final rule requires that
the components be included in the price of the engine and that the
engine manufacturer provide sufficiently detailed and clear
instructions so that the equipment manufacturer can readily install the
engine and its ancillary components in a configuration covered under
the certificate of conformity held by the engine manufacturer. We are
also requiring that the engine manufacturer have a contractual
agreement obligating the equipment manufacturer to complete the final
assembly into a certified configuration. The engine manufacturer must
ship any components directly to the equipment manufacturer or arrange
for their shipment from a component supplier. The engine manufacturer
must tag the engines and keep records. The engine manufacturer must
obtain annual affidavits from each equipment manufacturer as to the
parts and part numbers that the equipment manufacturer installed on
each engine and must conduct a limited number of audits of equipment
manufacturers' facilities, procedures, and production records to
monitor adherence to the instructions it provided. Where an equipment
manufacturer is located outside of the U.S., the audits may be
conducted at U.S. port of distribution facilities.
The rule also contains various provisions establishing
responsibility for proper installation. Where the engines are not in a
certified configuration when installed in nonroad equipment because the
equipment manufacturer used improper emission-control devices or failed
to install the shipped parts or failed to install the devices
correctly, then both the engine manufacturer and the installer have
responsibility. For the engine maker, the exemption is void for those
engines that are not in their certified configuration after
installation. We may also suspend or revoke the exemption for future
engines where appropriate, or void the exemption for the entire engine
family. The installer is also liable. We may find the equipment
manufacturer to be in violation of the tampering prohibitions at 40 CFR
1068.101(b)(1) for the improper installation, which could subject it to
substantial civil penalties. In any event, the engine manufacturer
remains liable for the in-use compliance of the engine as installed.
For example, it has responsibility for the emission-related warranty,
including for the aftertreatment, and is responsible for any potential
recall liability. However, if noncompliance of the in-use engines stems
from improper installation of the aftertreatment, then the tampering
that occurred by the installer may remove recall liability. Where the
engine manufacturer had complied with the regulations and the failure
was solely due to the equipment manufacturer's actions, we would not be
inclined to revoke or suspend the exemption or to void the exemption
for the entire engine family. We may deny the exemption for future
model years if the engine manufacturer does not take action to address
the factors causing the nonconformity. On the other hand, if the
manufacturer failed to comply, had shipped improper parts, had provided
instructions that led to improperly installed parts, or had otherwise
contributed to the installation of engines in an uncertified
configuration, we might suspend, revoke, or void the exemption for the
engine family. In this case, the engine manufacturer would be subject
to substantial civil penalties.
P. Other Issues
We are also making other minor changes to the compliance program.
These changes are summarized in table III.Q-1 below. For more
information about these changes, you should read the NPRM and Summary
and Analysis of Comments for this rulemaking. We believe that these
changes are straightforward and noncontroversial.
Table III.Q-1.--Regulatory Changes
----------------------------------------------------------------------------------------------------------------
Issue Regulatory provision
----------------------------------------------------------------------------------------------------------------
Applicability to alcohol-fueled engines.................. Sec. Sec. 1039.101, 1039.107.
Prohibited controls...................................... Sec. 1039.115.
Emission-related maintenance instructions................ Sec. 1039.125.
Engine installation instructions......................... Sec. 1039.130.
Engines labels........................................... Sec. Sec. 1039.20, 1039.135, 1068.320.
Engine family definition................................. Sec. 1039.230.
Test engine selection.................................... Sec. 1039.235.
Deterioration factors.................................... Sec. 1039.240.
Engines that use noncommercial fuels..................... Sec. 1039.615.
Use of good engineering judgment......................... Sec. 1068.5.
Separate shipment of aftertreatment...................... Sec. 1068.260.
Exemptions............................................... 40 CFR 1068 Subpart C.
Importing engines........................................ 40 CFR 1068 Subpart D.
[[Page 39039]]
Hearings................................................. 40 CFR 1068 Subpart G.
----------------------------------------------------------------------------------------------------------------
Q. Highway Engines
We are changing the diesel engine/vehicle labeling requirements in
40 CFR 86.007-35 to be consistent with the new pump labels. This change
corrects a mistake in the proposal that would have resulted in
confusion for highway vehicle operators. (We received no comment on
this issue.)
R. Changes That Affect Other Engine Categories
We are making some minor changes to the regulations in 40 CFR parts
1048 and 1051 for nonroad spark-ignition engines over 19 kW and
recreational vehicles, respectively. We are also changing several
additional provisions in 40 CFR parts 1065 and 1068, which define test
procedures and compliance provisions for these same categories of
engines. See the regulatory text for the specific changes. The proposed
rule included most of these changes. To the extent there were comments
on any of these changes, those issues are addressed elsewhere in this
document or in the Summary and Analysis of Comments.
In 40 CFR 1048.125 and 40 CFR 1051.125, we are correcting
the provisions related to critical emission-related maintenance to
allow manufacturers to do maintenance during service accumulation for
durability testing, as long as their maintenance steps meet the
specified criteria ensuring that in-use engines will undergo those
maintenance procedures.
In 40 CFR 1068.27, we clarify that manufacturers must make
available a reasonable number of production-line engines so we can test
or inspect them if we make such a request.
We are changing the definition of nonroad engine to
explicitly exclude aircraft engines. This is consistent with our
longstanding interpretation of the Clean Air Act. Clarifying the
definition this way allows us to more clearly specify the applicability
of the fuel requirements to nonroad engines in this final rule.
We are adding a provision directing equipment
manufacturers to request duplicate labels from engine manufacturers and
keep appropriate records if the original label is obscured in the final
installation. The former approach under 40 CFR part 1068 was to require
equipment manufacturers to make their own duplicate labels as needed.
We intend to amend 40 CFR parts 1048 and 1051 to correspond with this
change.
As described above in section III, we are revising the
criteria manufacturers would use to show that they may use the
replacement-engine exemption under 40 CFR 1068.240. We also clarify
that we may require manufacturers to report to us how many engines they
sell in given year under the replacement-engine exemption.
As described above and in the Summary and Analysis of
Comments, we are adding a provision in 40 CFR 1068.260 to allow
manufacturers to ship aftertreatment devices directly from the
component supplier to the equipment manufacturer. This regulatory
section includes several provisions to ensure that the equipment
manufacturer installs the aftertreatment device in a way that brings
the engine to its certified configuration.
As described above, we are modifying the defect-reporting
requirements in 40 CFR 1068.501.
While most of the changes being adopted for part 1065 will
only affect diesel nonroad engines, we are also making minor changes
that will also apply for SI engines. These changes, however, are
generally limited to clarifications, corrections, and options. They
will not affect the stringency of the standards or create new burdens
for manufacturers.
IV. Our Program for Controlling Nonroad, Locomotive and Marine Diesel
Fuel Sulfur
We are finalizing today a two-step sulfur standard for nonroad,
locomotive and marine (NRLM) diesel fuel that will achieve significant,
cost-effective sulfate PM and SO2 emission reductions. These
emission reductions will, by themselves, provide dramatic environmental
and public health benefits which far outweigh the cost of meeting the
standards necessary to achieve them. In addition, the final sulfur
standards for nonroad diesel fuel will enable advanced high efficiency
emission control technology to be applied to nonroad engines. As a
result, these nonroad fuel sulfur standards, coupled with our program
for more stringent emission standards for new nonroad engines and
equipment, will also achieve dramatic NOX and PM emission
reductions. Sulfur significantly inhibits or impairs the function of
the diesel exhaust emission control devices which will generally be
necessary for nonroad diesel engines to meet the emission standards
finalized today. With the 15 ppm sulfur standard for nonroad diesel
fuel, we have concluded that this emission control technology will be
available for model year 2011 and later nonroad diesel engines to
achieve the NOX and PM emission standards adopted today. The
benefits of today's program also include the sulfate PM and
SO2 reductions achieved by establishing the same standard
for the sulfur content of locomotive and marine diesel fuel.
The sulfur requirements established under today's program are
similar to the sulfur limits established for highway diesel fuel in
prior rulemakings --500 ppm in 1993 ( 55 FR 34120, August 21, 1990) and
15 ppm in 2006 (66 FR 5002, January 18, 2001). Beginning June 1, 2007,
refiners will be required to produce NRLM diesel fuel with a maximum
sulfur content of 500 ppm. Then, beginning June 1, 2010, the sulfur
content will be reduced for nonroad diesel fuel to a maximum of 15 ppm.
The sulfur content of locomotive and marine diesel fuel will be reduced
to 15 ppm beginning June 1, 2012. The program contains certain
provisions to ease refiners' transition to the lower sulfur standards
and to enable the efficient distribution of all diesel fuels. These
provisions include the 2012 date for locomotive and marine diesel fuel,
early credits for refiners and importers and special provisions for
small refiners, transmix processors, and entities in the fuel
distribution system.
In general, the comments we received during the public comment
period supported the proposed program. Adjustments we have made to the
proposed program will make the final program even stronger, both in
terms of our ability to enforce it and the environmental and public
health benefits that it will achieve. In particular, today's final
program contains provisions to smooth the refining industry's
transition to the low sulfur fuel requirements, encourage earlier
introduction of cleaner burning fuel, maintain the fuel distribution
system's flexibility to fungibly distribute similar products, and
provide an outlet
[[Page 39040]]
for off-specification distillate product, all while maintaining, and
even enhancing, the health and environmental benefits of today's
program.
The first adjustment that we made to the proposed program was to
move from the ``refiner baseline'' approach discussed in the proposal
to a ``designate and track'' approach. Under the proposed refiner
baseline approach, any refiner or importer could choose to fungibly
distribute its 500 ppm sulfur NRLM and highway diesel fuels without
adding red dye to the NRLM at the refinery gate. However, the refiners'
production would then be subject to a non-highway distillate baseline,
established as a percentage of its total distillate fuel production
volume. While EPA preferred this approach in the proposal, we decided
not to finalize it because we concluded that it would have
unnecessarily constrained refiners' ability to meet market demands. It
would have encouraged them to dye 500 ppm sulfur NRLM at the refinery
gate, resulting in an additional grade of diesel fuel and,
consequently, an added burden to the distribution system. Furthermore,
we were concerned that it would have created a trend that could reduce
the volume of 15 ppm sulfur highway diesel fuel and potential options
to remove the market constraints could have increased the possibility
for reduced volume.
In place of the refiner baseline approach, we are finalizing a
designate and track approach. The final designate and track approach is
a modified version of the designate and track approach discussed in the
proposal. As finalized it now allows us to enforce the program through
the entire distribution system. In essence, the final designate and
track approach requires refiners and importers to designate the volumes
of diesel fuel they produce and/or import. Refiners/importers will
identify whether their diesel fuel is highway or NRLM and the
applicable sulfur level. They may then mix and fungibly ship highway
and NRLM diesel fuels that meet the same sulfur specification without
dyeing their NRLM diesel fuel at the refinery gate. The designations
will follow the fuel through the distribution system with limits placed
on the ability of downstream parties to change the designation. These
limits are designed to restrict the inappropriate sale of 500 ppm
sulfur NRLM diesel fuel into the highway market , the inappropriate
sale of heating oil into the NRLM market, the inappropriate sale of 500
ppm sulfur LM into the nonroad market, and to implement the downgrading
restrictions that apply to 15 ppm sulfur highway diesel fuel. The
designate and track approach includes record keeping and reporting
requirements for all parties in the fuel distribution system,
associated with tracking designated fuel volumes through each custodian
in the distribution chain until the fuel exits the terminal. The
program also includes enforcement and compliance assurance provisions
to enable the Agency to rapidly and accurately review for discrepancies
the large volume of data collected on fuel volume hand-offs. The bulk
of the designate and track provisions end May 31, 2010 when all highway
diesel fuel must meet the 15 ppm sulfur standard. However, as discussed
below, scaled back designate and track provisions continue beyond 2010
for purposes of enforcing against heating oil being used in the NRLM
market and to enforce against 500 ppm LM diesel fuel being used in the
nonroad market.
The second adjustment that we made to the proposed NRLM diesel fuel
program was to establish a 15 ppm sulfur standard at the refinery gate
for locomotive and marine (LM) diesel fuel in addition to nonroad (NR)
diesel fuel.\89\ We are finalizing this standard for several reasons as
discussed below.
---------------------------------------------------------------------------
\89\ While today's program does not establish more stringent
emission standards for locomotive or marine diesel engines, the
Agency intends in the near future to initiate a rulemaking to adopt
new emission standards for locomotive and marine engines based on
the use of high efficiency exhaust emission control technology like
that required for the nonroad standards adopted in today's rule. An
advanced notice of proposed rulemaking (ANPRM) for this rule is
published elsewhere in today's Federal Register, June 29, 2004.
---------------------------------------------------------------------------
While we are finalizing a 15 ppm sulfur standard for locomotive and
marine diesel fuel, we are doing so in a manner that responds to the
primary concerns raised in comments regarding the need for an outlet
for off-specification product. We are setting a refinery gate standard
of 15 ppm sulfur beginning June 1, 2012, two years later than for
nonroad diesel fuel. We are also continuing to provide an outlet for
off-specification product generated in the distribution system, thereby
affording the opportunity to reduce reprocessing and transportation
costs. We are leaving the downstream standard for LM diesel fuel at 500
ppm sulfur. In this way the LM diesel fuel pool may remain an outlet
for off-specification distillate product and interface/transmix
material.
In developing the provisions of the NRLM diesel fuel program
adopted today, we identified several principles that we want the
program to achieve. Specifically, as described in more detail below, we
believe the fuel program--
(1) Achieves the greatest reduction in sulfate PM and
SO2 emissions from nonroad, locomotive, and marine diesel
engines as early as practicable;
(2) Provides for a smooth transition of the NRLM diesel fuel
pool to 15 ppm sulfur;
(3) Ensures that 15 ppm sulfur diesel fuel is produced and
distributed widely for use in all 2011 and later model year nonroad
diesel engines;
(4) Ensures that the fuel program's requirements are enforceable
and verifiable.
(5) Enables the efficient distribution of all diesel fuels; and
(6) Maintains the benefits and program integrity of the highway
diesel fuel program.
The remainder of this section covers several topics. In section
IV.A, we discuss the fuel that is covered by today's program, the
standards that apply for refiners and importers (for both steps of the
program), and the standards that apply for downstream entities. In
section IV.B, we address the various hardship provisions that we are
including in today's program. In section IV.C, we describe the special
provisions that apply in the State of Alaska and the Territories. Next,
in section IV.D, we describe the design of the designate and track
provisions of the NRLM diesel fuel program for compliance purposes and
how it differs from what we proposed. In section IV.E, we discuss the
impact of today's program on state NRLM diesel fuel programs. In
sections IV.F and G, we discuss the technological feasibility of the
NRLM diesel fuel standards adopted today and the impacts of today's
program on lubricity and other fuel properties. Finally, in section
IV.H, we discuss the steps the Agency will take to streamline the
refinery air permitting process for the equipment that refiners may
need to install to meet today's NRLM diesel fuel standards..
Analyses supporting the design and cost of the fuel program are
located in chapters 5, 7, and 8 of the RIA. Section V of this preamble
discusses the details of the additional compliance and enforcement
provisions affecting NRLM diesel fuel and explains various additional
elements of the program.
A. Nonroad, Locomotive and Marine Diesel Fuel Quality Standards
1. What Fuel Is Covered by This Program?
The fuel covered by today's final rule is generally the same as the
fuel that was covered by the proposal. We have not expanded or reduced
the pool of diesel fuel that will be subject to the lower sulfur
standards. However, the second step of the program now includes the
same ultra low sulfur standard for locomotive and marine diesel fuel as
for nonroad diesel fuel.
[[Page 39041]]
Specifically, the sulfur standards finalized under today's program
apply to all the diesel fuel that is used in nonroad, locomotive, and
marine diesel applications--fuel not already covered by the previous
standards for highway diesel fuel. This includes all fuel used in
nonroad, locomotive, and marine diesel engines, except for fuels
heavier than a No. 2 distillate used in Category 2 and 3 marine engines
\90\ and any fuel that is exempted for national security or other
reasons. While we are not adopting sulfur standards for other
distillate fuels (such as jet fuel, heating oil, kerosene, and No. 4
fuel oil) we are adopting provisions to prevent the inappropriate use
of these other fuels. Use of distillate fuels in nonroad, locomotive,
or marine diesel engines will generally be prohibited unless they meet
the fuel sulfur standards finalized today.\91\ The program includes
several provisions, as described below in section IV.D, to ensure that
heating oil and other higher sulfur distillate fuels will not be used
in nonroad, locomotive, or marine applications.
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\90\ Category 3 marine engines frequently are designed to use
residual fuels and include special fuel handling equipment to use
the residual fuel.
\91\ For the purposes of this final rule, the term heating oil
basically refers to any No. 1 or No. 2 distillate other than jet
fuel, kerosene, and diesel fuel used in highway, nonroad,
locomotive, or marine applications. For example, heating oil
includes fuel which is suitable for use in furnaces, boilers,
stationary diesel engines and similar applications and is commonly
or commercially known or sold as heating oil, fuel oil, or other
similar trade names.
---------------------------------------------------------------------------
The regulated fuels under today's program include the following:
(1) Any No. 1 and 2 distillate fuels used, intended for use, or
made available for use in nonroad, locomotive, or marine diesel
engines. Fuels under this category include those meeting the
American Society for Testing and Materials (ASTM) D 975 or D 396
specifications for grades No. 1-D and No. 2-D. Fuels meeting ASTM
DMX and DMA specifications would be covered;
(2) Any No. 1 distillate fuel (e.g., kerosene) added to such No.
2 diesel fuel, e.g., to improve its cold flow properties;
(3) Any other fuel used in nonroad, locomotive, or marine diesel
engines or blended with diesel fuel for use in such engines. Fuels
under this category include non-distillate fuels such as biodiesel
and certain specialty fuel grades such as JP-5, JP-8, and F76 if
used in a nonroad, locomotive, or marine diesel engine, except when
a national security or research and development exemption has been
approved. See V. A.1. and 2.
On the other hand, the sulfur standards do not apply to--
(1) No. 1 distillate fuel used to power aircraft;
(2) No. 1 or No. 2 distillate fuel used for stationary source
purposes, such as to power stationary diesel engines, industrial
boilers, or for heating;
(3) Number 4, 5, and 6 fuels (e.g., residual fuels or residual
fuel blends, IFO Heavy Fuel Oil Grades 30 and higher), used for
stationary source purpose;
(4) Any distillate fuel with a T-90 distillation point greater
than 700 F, when used in Category 2 or 3 marine diesel engines. This
includes Number 4, 5, and 6 fuels (e.g., IFO Heavy Fuel Oil Grades
30 and higher), as well as fuels meeting ASTM specifications DMB,
DMC, and RMA-10 and heavier; and
(5) Any fuel for which a national security or research and
development exemption has been approved or fuel that is exported
from the U.S. (see section V.A.1. and 2).
It is useful to clarify what marine diesel fuels are covered by the
sulfur standards. As with nonroad and locomotive diesel fuel, our basic
approach is that the standards apply to any diesel or distillate fuel
used or intended for use in marine diesel engines. However, the fuel
used by marine diesel engines spans a wide variety of fuels, ranging
from No. 1 and 2 diesel fuel to residual fuel and residual fuel blends
used in the largest engines. It is not EPA's intention to cover all
such fuels, and EPA has adopted an objective criteria to identify those
marine fuels subject to regulation and those that are not. Any
distillate fuel with a T-90 greater than 700 F will not be subject to
the sulfur standards when used in Category 2 or 3 marine engines. This
criteria is designed to exclude fuels heavier than No. 2 distillate,
including blends containing residual fuel. In addition, residual fuel
is not subject to the sulfur standards.
While many marine diesel engines use No. 2 distillate, ASTM
specifications for marine fuels identify four kinds of marine
distillate fuels: DMX, DMA, DMB, and DMC. DMX is a special light
distillate intended mainly for use in emergency engines. DMA (also
called MGO) is a general purpose marine distillate that is to contain
no traces of residual fuel. These fuels can be used in all marine
diesel engines but are primarily used by Category 1 engines. DMX and
DMA fuels intended for use in any marine diesel engine are subject to
the fuel sulfur standards.
DMB, also called marine diesel oil, is not typically used with
Category 1 engines, but is used for Category 2 and 3 engines. DMB is
allowed to have a trace of residual fuel, which can be high in sulfur.
This contamination with residual fuel usually occurs due to the
distribution process, when distillate is brought on board a vessel via
a barge that has previously contained residual fuel, or using the same
supply lines as are used for residual fuel. DMB is produced when fuels
such as DMA are brought on board the vessel in this manner. EPA's
sulfur standards will apply to the distillate that is used to produce
the DMB, for example the DMA distillate, up to the point that it
becomes DMB. DMB itself is not subject to the sulfur standards when it
is used in Category 2 or 3 engines.
DMC is a grade of marine fuel that may contain some residual fuel
and is often a residual fuel blend. This fuel is similar to No. 4
diesel, and can be used in Category 2 and Category 3 marine diesel
engines. DMC is produced by blending a distillate fuel with residual
fuel, for example at a location downstream in the distribution system.
EPA's standards will apply to the distillate that is used to produce
the DMC, up to the point that it is blended with the residual fuel to
produce DMC. DMC itself is not subject to the sulfur standards when it
is used in Category 2 or 3 marine engines.
Residual fuel is typically designated by the prefix RM (e.g., RMA,
RMB, etc.). These fuels are also identified by their nominal viscosity
(e.g., RMA10, RMG35, etc.). Most residual fuels require treatment by a
purifier-clarifier centrifuge system, although RMA and RMB do not
require this. For the purpose of this rule, we consider all RM grade
fuel as residual fuel. Residual fuel is not covered by the sulfur
content standards as it is not a distillate fuel.
The distillation criteria adopted by EPA, T-90 greater than 700F,
is designed to identify those fuels that are not subject to the sulfur
standards when used in Category 2 or 3 marine diesel engines. It is
intended to exclude DMB, DMC, and other heavy distillates or blends,
when used in Category 2 or 3 marine diesel engines.
Hence, the fuel that refiners and importers are required to produce
to the more stringent sulfur standards include those No. 1 and No. 2
diesel fuels as well as similar distillate or non-distillate fuels that
are intended or made available for use in NRLM diesel engines.
Furthermore, the sulfur standard also covers any fuel that is blended
with or substituted for No. 1 or No. 2 diesel fuel for use in nonroad,
locomotive, or marine diesel engines. For instance, as required under
the highway diesel fuel program, in those situations where the same
batch of kerosene is distributed for two purposes (e.g., kerosene to be
used for heating and to improve the cold flow of No. 2 NRLM diesel
fuel), or where a batch distributed just for heating is later
distributed for blending with No. 2 diesel fuel, that batch of kerosene
must meet the standards adopted today for NRLM
[[Page 39042]]
diesel fuel. The purpose of this requirement is to ensure that fuels
like jet fuel, kerosene, and/or military specification fuels meet the
diesel fuel sulfur standards adopted under today's program when they
are used in nonroad, locomotive, or marine diesel engines.
2. Standards and Deadlines for Refiners and Importers
The NRLM diesel fuel program adopted today is a two-step approach
to reduce the sulfur content of NRLM diesel fuel from uncontrolled
levels down to 15 ppm sulfur. While we received several comments
supporting a single step down to 15 ppm sulfur, the vast majority of
commenters, especially most refiners and engine manufacturers,
supported the two-step approach. We are finalizing the two-step
approach primarily because it achieves the greatest reduction in
sulfate PM and SO2 emissions from nonroad, locomotive, and
marine diesel engines as early as practicable. By starting with an
initial step of 500 ppm sulfur we can achieve significant emission
reductions and associated health and welfare benefits from the current
fleet of equipment as soon as possible. As discussed in section VI, the
health-related benefits of the fuel standards finalized today, even
without the engine standards, amount to more than $28 billion in 2030,
while the projected costs, after taking into account engine maintenance
benefits amount to just $0.7 billion.
In addition, the two-step approach encourages a more smooth and
orderly transition by the refining industry to 15 ppm sulfur NRLM
diesel fuel, by providing more time for refiners to develop the most
cost-effective approaches, finance them, and then implement the
necessary refinery modifications.
Finally, by waiting until 2010 to drop to the 15 ppm sulfur
standard for NR diesel fuel, the two-step approach harmonizes with the
highway diesel fuel program by delaying the implementation of the 15
ppm sulfur standard for NR diesel fuel until the end of the phase-in
period for 15 ppm sulfur highway diesel fuel. The 2010 date also
harmonizes with the date 15 ppm nonroad fuel is needed to enable the
nonroad engines standards finalized today. The second step to 15 ppm
sulfur for the LM diesel fuel is set for 2012. On balance we believe
that the advantages of the two-step approach outweigh those of a single
step down to 15 ppm.
As discussed in section IV.C, below, later deadlines for meeting
the 500 and 15 ppm sulfur standards apply to refineries covered by
special hardship provisions as well as transmix processors.
a. The First Step to 500 ppm Sulfur NRLM Diesel Fuel
Under today's program, NRLM diesel fuel produced by refiners or
imported into the U.S. by importers must meet a 500 ppm sulfur standard
beginning June 1, 2007. Refiners and importers may comply by either
producing such fuel at or below 500 ppm sulfur, or they may comply by
obtaining credits as discussed in section IV.D below.
We believe that the adopted level of 500 ppm sulfur is appropriate
for several reasons. First, the reduction to 500 ppm sulfur is
significant environmentally. The 500 ppm sulfur level achieves
approximately 90 percent of the sulfate PM and SO2 benefits
otherwise achievable by going all the way to 15 ppm sulfur. Second,
because this first step is only to 500 ppm sulfur, it also allows for a
short lead time for implementation, enabling the environmental benefits
to begin accruing as soon as possible. Third, it is consistent with the
current specification for highway diesel fuel, a grade which may remain
for highway purposes until 2010. As such, adopting the same 500 ppm
sulfur level for NRLM diesel fuel helps to avoid issues and costs
associated with more grades of fuel in the distribution system during
this initial step of the program.
b. The Second Step to 15 ppm Sulfur NRLM Diesel Fuel
We are finalizing a second step of sulfur control down to 15 ppm
sulfur for all NRLM. This second step provides additional important
direct sulfate PM and SO2 emission reductions and associated
health benefits. As discussed in the RIA, the health related benefits
for this second step of fuel control by itself are greater than the
associated cost. Furthermore, the second step for nonroad diesel fuel
is essential to enable the application of high efficiency exhaust
emission control technologies to nonroad diesel engines beginning with
the 2011 model year as discussed in Section II of this preamble.
In the proposal, the second step of the program only applied to
nonroad diesel fuel, while locomotive and marine diesel fuel could
remain at 500 ppm sulfur. We also sought comment on finalizing the 15
ppm sulfur standard for LM diesel fuel in 2010 along with nonroad
diesel fuel, as well as delaying it until as late as 2012 to allow for
an additional outlet for any off-specification product a refinery might
produce as it shifts all of its distillate production to 15 ppm
sulfur.\92\
---------------------------------------------------------------------------
\92\ Off-specification fuel here refers to 15 ppm diesel fuel
that becomes contaminated such that it no longer meets the 15 ppm
sulfur cap. In most cases, off-specification 15 ppm sulfur diesel
fuel is expected to easily meet a 500 ppm sulfur cap.
---------------------------------------------------------------------------
We are finalizing the 15 ppm sulfur standard for locomotive and
marine diesel fuel, along with nonroad diesel fuel, for several
reasons. First, it will provide important health and welfare benefits
from the additional sulfate PM and SO2 emission reductions
as early as possible. Second, it is technologically feasible, as it is
for nonroad diesel fuel. Third, the benefits outweigh the costs and the
costs do not otherwise warrant delaying this second step for locomotive
and marine. As shown in chapter 8 of the RIA, the costs for the
increment of LM diesel fuel going from 500 to 15 ppm sulfur is just
$0.20 billion in 2030. Fourth, it will simplify the fuel distribution
system and overall design of the fuel program. For example, the
addition of a marker to locomotive and marine diesel fuel after 2012 is
no longer necessary to successfully enforce the program. Finally, it
will allow refiners to coordinate plans to reduce the sulfur content of
all of their off-highway diesel fuel at one time.
Our primary reason in the NPRM for leaving locomotive and marine
diesel fuel at the 500 ppm sulfur specification was to preserve an
outlet for off-specification product that may be created in the
distribution system through contamination of 15 ppm sulfur diesel fuel
with higher sulfur distillates and for off-specification batches of
fuel that are produced by refineries during the first couple years of
the 15 ppm sulfur program (when they are still perfecting their
production processes). However, we have concluded that it is not
necessary to leave the standard for all locomotive and marine diesel
fuel at the 500 ppm sulfur specification to address these concerns.
Setting a 15 ppm sulfur standard for refiners and importers in 2012,
but maintaining a downstream standard for locomotive and marine diesel
fuel at 500 ppm sulfur and allowing off-specification product to
continue to be sold into this market accomplishes the same goal.
In addition, controlling the sulfur content of NRLM diesel fuel
from uncontrolled levels to 15 ppm is clearly a cost-effective fuel
control program. While the incremental cost-effectiveness from 500 ppm
sulfur to 15 ppm sulfur is less cost-effective, the benefits of this
second step outweigh the costs, the concerns about a market for off-
specification product have been addressed, and other factors discussed
[[Page 39043]]
above support the reasonableness of this approach. The body of evidence
strongly supports the view that controlling sulfur in NRLM fuel to 15
ppm, through a two-step process, is quite reasonable in light of the
emissions reductions achieved, taking costs into consideration.
Implementation of today's rule will reduce the sulfur level of
almost all distillate fuel to a 15 ppm maximum sulfur level. In
addition to the small refiner, hardship, and other provisions adopted
in this rule, EPA is adopting several provisions that will help ensure
a smooth transition to the second step of 15 ppm sulfur diesel fuel.
First, refiners and importers of locomotive and marine diesel fuel, a
small segment of the entire distillate pool, will be required to meet a
15 ppm sulfur standard starting June 1, 2012, two years later than for
nonroad diesel fuel. Second, 500 ppm sulfur diesel fuel generated in
the distribution system through contamination of 15 ppm sulfur fuel can
be marketed in the nonroad, locomotive and marine market until June
2014, and in the locomotive and marine market after that date. Third,
500 ppm sulfur diesel fuel produced by transmix processors from
contaminated downstream diesel fuel can also be marketed to the
nonroad, locomotive and marine markets, under the same schedule. While
today's rule does not contain an end date for the downstream
distribution of 500 ppm sulfur locomotive and marine fuel, we will
review the appropriateness of allowing this flexibility based on
experience gained from implementation of the 15 ppm sulfur NRLM diesel
fuel standard. We expect to conduct such an evaluation in 2011.
When EPA adopted a 15 ppm sulfur standard for highway diesel fuel,
we included several provisions to ensure a smooth transition to 15 ppm
sulfur highway fuel. One provision was a temporary compliance option,
with an averaging, banking and trading component. In a similar manner,
the 2012 deadline for 15 ppm sulfur LM fuel, the last, relatively small
segment of diesel fuel, will help ensure that the entire pool of diesel
fuel is smoothly transitioned to the 15 ppm sulfur level over a short
period of time. (See section 8.3 of the summary and analysis of
comments.)
EPA is also adopting two provisions aimed at smoothing the
transition of the distribution system to ultra low sulfur diesel fuel.
These provisions are designed to accommodate off-specification fuel
generated in the distribution system, such as through the mixing that
occurs at product interfaces. This off-specification material generally
cannot be added in any significant quantity to either of the adjoining
products that produced the interface.\93\ Under today's program, as
discussed in more detail in section A.3, below, off-specification
material that is generated in the distribution system may be
distributed as 500 ppm NRLM diesel fuel from June 1, 2010 through May
31, 2014 and as 500 ppm LM from June 1, 2014 and beyond. Furthermore,
as discussed in section IV.C, below, transmix processors, which are
facilities that process transmix by separating it into its components
(e.g., separating gasoline from diesel fuel), are treated as a separate
class of refiners. One hundred percent of the diesel fuel they produce
from transmix may be sold as high sulfur NRLM until June 1, 2010, 500
ppm sulfur NRLM until June 1, 2014, and 500 ppm sulfur LM diesel fuel
after June 1, 2014.
---------------------------------------------------------------------------
\93\ In some cases the off-specification product can not be
added to the adjoining products because of the applicable sulfur
standards. In other cases, the off-specification product, called
transmix, must be re-processed before it can be used.
---------------------------------------------------------------------------
These provisions provide refiners and importers with a similar
degree of flexibility for off-specification product as the proposal
which held the sulfur standard for all locomotive and marine diesel
fuel at 500 ppm indefinitely. If off-specification product is produced,
there is a temporary outlet for it. If providing the off-specification
product to a locomotive and marine market is difficult under this final
rule, such that a refiner will choose to re-process it, then the
refiner would have been in the same position under the proposal.
Furthermore, these provisions provide the refining industry an
alternative to reprocessing the off-specification material created in
the distribution system, which preserves refining capacity for the
production of new fuel volume, helping to maintain overall diesel fuel
supply.
As with the 500 ppm sulfur standard under the first step of today's
program, refiners and importers may comply with the 15 ppm sulfur
standard by either producing NRLM diesel fuel containing no more than
15 ppm sulfur or by obtaining sulfur credits (until June 1, 2014), as
described below.
c. Cetane Index or Aromatics Standard
Currently, in addition to containing no more than 500 ppm sulfur,
highway diesel fuel must meet a minimum cetane index level of 40 or, as
an alternative, contain no more than 35 volume percent aromatics.
Today's program extends this cetane index/aromatics content
specification to NRLM diesel fuel.
One refining company commented that EPA should not implement the
cetane index and aromatic requirements in the proposed rule since the
impacts are weak or nonexistent for engines to be used in the future.
In addition, the commenter stated that the vast majority of diesel fuel
already meets the EPA cetane index/aromatics specification for highway
diesel fuel and that there is nothing in the RIA that either
demonstrates the benefits or supports the need for such a requirement.
The commenter also stated that EPA should not set a requirement simply
because the ASTM standard has a cetane number specification for a
particular fuel.
Low cetane levels are associated with increases in NOX
and PM emissions from current nonroad diesel engines.\94\ Thus, we
expect that extending the cetane index specification to NRLM diesel
fuel will directionally lead to a reduction in these emissions from the
existing fleet. However, because the vast majority of NRLM diesel fuel
already meets the specification, the NOX and PM emission
reductions will be small. At the same time, the refining/production
costs associated with extending the cetane index specification to NRLM
diesel fuel are negligible as current NRLM diesel fuel already meets a
more stringent ASTM specification.
---------------------------------------------------------------------------
\94\ The Effect of Cetane Number Increase Due to Additives on
NOX Emissions From Heavy-Duty Highway Engines, Final
Technical Report, February 2003, EPA420-R-03-002.
---------------------------------------------------------------------------
ASTM already recommends a cetane number specification of 40 for
NRLM diesel fuel, which is, in general, more stringent than the similar
40 cetane index specification. Because of this, the vast majority of
current NRLM diesel fuel already meets the EPA cetane index/aromatics
specification for highway diesel fuel. Thus, the cetane index
specification will impact only a few refiners and there will be little
overall cost associated with producing fuel to meet the cetane/aromatic
requirement. In fact, as discussed in chapter 5.9 of the RIA,
compliance with the sulfur standards adopted today is expected to
result in a small cetane increase as increases in cetane correlate with
decreases in sulfur, leaving little or no further control to meet the
standard.
While the emissions benefits and refining/production costs of
extending the specification to NRLM diesel fuel may be small, the
extension will reduce costs by giving refiners and distributors the
ability to fungibly distribute highway and NRLM diesel fuels of like
sulfur content. For that small fraction of NRLM diesel fuel today that
does not meet the cetane index or aromatics
[[Page 39044]]
specification, the requirement will eliminate the need for refiners and
fuel distributors to separately distribute fuels of different cetane/
aromatics specifications. Requiring NRLM diesel fuel to meet this
cetane index specification thus gives fuel distributors certainty in
being able to combine shipments of highway and NRLM diesel fuels.
Perhaps more importantly, it can also give engine manufacturers and
end-users the confidence they need that their fuel will meet the
minimum cetane or maximum aromatics standard. Given the inherent
difficulty in segregating two otherwise identical fuels, were we not to
carry over these standards to NRLM, lower cetane NRLM could easily find
its way into current highway engines. If not designed for this lower
cetane fuel, these engines could have elevated emission levels and
performance problems.
Overall, we believe that there will be a small reduction in
NOX and PM emissions from current engines and the economic
benefits from more efficient fuel distribution will likely exceed the
cost of raising the cetane level for the small volume of NRLM diesel
fuel that does not already meet the cetane index or aromatics content
specification.
3. Standards, Deadlines, and Flexibilities for Fuel Distributors
The first years of the NRLM diesel fuel program include various
flexibilities to smooth the refining and distribution industry's
transition to 15 ppm sulfur fuel. These flexibilities include a 2012
deadline for production of 15 ppm sulfur locomotive and marine diesel
fuel, credit provisions, small refiner provisions, hardship provisions,
and downstream off-specification fuel provisions. As a result, during
the transition years, we are not able to simply enforce the sulfur
standards downstream based on a single sulfur level of the new
standard. From June 1, 2007 through May 31, 2010, both 500 ppm sulfur
diesel fuel and high sulfur diesel fuel can be produced, distributed,
and sold for use in NRLM diesel engines. From June 1, 2010 through May
31, 2014, both 15 ppm sulfur and 500 ppm sulfur diesel fuel can be
produced, distributed, and sold for use in NRLM diesel engines. Beyond
June 1, 2014, both 15 ppm sulfur and 500 ppm sulfur diesel fuel that is
produced from fuel product downgrade and transmix in the distribution
system can be distributed and sold for use in locomotive and marine
diesel engines. As these transition flexibilities expire, however, we
are able to streamline our downstream enforcement provisions.
a. Standards and Deadlines From June 1, 2007 Through May 31, 2010
As soon as the program begins on June 1, 2007, all NRLM diesel fuel
must be designated or classified and must comply with the designation
or classification stated on its product transfer document (PTD), pump
label, or other documentation. In other words, if the fuel is intended
for sale as NRLM diesel fuel and is labeled as 500 ppm sulfur diesel
fuel, then beginning June 1, 2007, it must comply with the 500 ppm
sulfur standard. Similarly, if fuel is intended for sale as NRLM diesel
fuel and is labeled as 15 ppm sulfur, then beginning June 1, 2010 (or
June 1, 2009 under the early credit provisions), it must comply with
the 15 ppm sulfur standard.
Beginning June 1, 2010, all NRLM diesel fuel produced or imported
is required to meet at least a 500 ppm sulfur limit. In order to allow
for a smooth and orderly transition to 500 ppm sulfur NRLM diesel fuel
in the distribution system, and allow any remaining high sulfur fuel to
be sold, we are providing parties downstream of refineries time to
turnover their NRLM tanks to 500 ppm sulfur diesel fuel. At the
terminal level, all NRLM diesel fuel must meet at least the 500 ppm
sulfur standard beginning August 1, 2010. At any wholesale purchaser-
consumer facilities and any retail stations carrying NRLM diesel fuel,
including bulk plants that serve as retailers, all diesel fuel must
meet the 500 ppm sulfur standard beginning October 1, 2010.\95\ Thus,
beginning October 1, 2010, high sulfur (greater than 500 ppm sulfur)
NRLM diesel fuel may no longer legally exist in the fuel distribution
system.\96\
---------------------------------------------------------------------------
\95\ A bulk plant is a secondary distributor of refined
petroleum products. They typically receive fuel from terminals and
distribute fuel in bulk by truck to end users. Consequently, while
for highway fuel, bulk plants often serve the role of a fuel
distributor, delivering fuel to retail stations, for nonroad fuel,
they often serve the role of the retailer, delivering fuel directly
to the end-user.
\96\ By December 1, 2010, all NRLM diesel fuel, including fuel
in end-user tanks, must comply with at least the 500 ppm sulfur
standard.
---------------------------------------------------------------------------
Although we expect that most NRLM diesel fuel in the distribution
system will be subject to the 500 ppm sulfur standard during the period
from June 1, 2007 through May 31, 2010, based on its designation or
classification, some of the 500 ppm sulfur NRLM diesel fuel may be
mixed with high sulfur NRLM diesel fuel. Since the blended product will
likely no longer meet the 500 ppm sulfur standard, it must be re-
designated and labeled as high sulfur NRLM diesel fuel. Similarly, fuel
that results from blending 500 ppm sulfur NRLM diesel fuel and heating
oil must be re-designated and labeled as heating oil.
b. Standards and Deadlines From June 1, 2010 Through May 31, 2014
Beginning June 1, 2010, most NR diesel fuel will be required to
meet the 15 ppm sulfur standard, and beginning June 1, 2012, most LM
diesel fuel will be required to meet the 15 ppm sulfur standard.
However, some production of 500 ppm sulfur NRLM diesel fuel may
continue through May 31, 2014. As with the delayed downstream
compliance dates for the 500 ppm sulfur standard under the first step
of today's program, parties downstream of refineries will be allowed
additional time to turnover their tanks to 15 ppm sulfur NR diesel
fuel. Specifically, at the terminal level, all NR diesel fuel will be
required to meet the 15 ppm sulfur standard beginning August 1, 2014.
At any wholesale purchaser-consumer facilities and retail stations
carrying all NR diesel fuel, including bulk plants serving as
retailers, NR diesel fuel must meet the 15 ppm sulfur standard
beginning October 1, 2014. Thus, beginning October 1, 2014, 500 ppm
sulfur NR diesel fuel may no longer legally exist in the fuel
distribution system.\97\
---------------------------------------------------------------------------
\97\ By December 1, 2014, all NR diesel fuel, including fuel in
end-user tanks, must comply with at least the 15 ppm sulfur
standard.
---------------------------------------------------------------------------
Like the first step to 500 ppm sulfur, prior to these 2014
downstream deadlines all NRLM diesel fuel would still be designated or
classified with respect to sulfur level and required to meet the
designation or classification stated on its PTD, pump label, or other
documentation.
c. Sulfur Standard for NRLM Diesel Fuel Beginning June 1, 2014
As discussed above, all refiners will be required to produce and
importers will be required to import only 15 ppm sulfur NRLM diesel
fuel by June 1, 2014. However, we will continue to allow 500 ppm sulfur
diesel fuel to be sold into the LM diesel fuel markets beyond 2014. The
LM diesel fuel markets are expected to provide a valuable outlet for
higher sulfur distillate fuel produced in the distribution system, at
least through the early years of the program. Consequently, beyond
2014, both 15 ppm sulfur and 500 ppm sulfur LM diesel fuel may continue
to exist in the distribution system, and each fuel must comply with the
designation stated on its PTD, pump label, or other documentation.
[[Page 39045]]
d. Interface/Transmix Flexibility for Fuel Distributors
As described above, today's program provides flexibility to the
distribution system by allowing interface/transmix material generated
within the distribution system to be sold into the NRLM diesel fuel
markets. Specifically, any fuel interface/transmix generated in the
fuel distribution system may be sold as:
(1) High sulfur NRLM diesel fuel or heating oil from June 1,
2007 through May 31, 2010;
(2) 500 ppm sulfur NRLM diesel fuel or heating oil from June 1,
2010 through May 31, 2014; or
(3) 500 ppm sulfur LM diesel fuel or heating oil after June 1,
2014.
Hence, beginning June 1, 2014, interface/transmix material
exceeding 15 ppm sulfur may only be sold into the LM diesel fuel or
heating oil markets. As discussed above, the downstream standard for LM
diesel fuel will be 500 ppm sulfur. However, heating oil may not be
shifted into the LM markets. Parties in the distribution system
receiving diesel fuel with a sulfur content greater than 15 ppm sulfur
must maintain records and report to EPA information demonstrating that
they did not shift heating oil into the LM markets, as discussed in
section IV.D.
The generation of greater than 15 ppm sulfur distillate fuel from
pipeline interface/transmix cannot be avoided due to the physical
realities of a multi-product fuel distribution system. Such fuel first
appears at the terminus of the pipeline distribution system; at
terminals due to the generation of segregated interface, or at transmix
processing facilities.\98\ In areas where there is a strong demand for
heating oil, much of this pipeline-generated off-specification fuel can
be sold into the heating oil market, just as it is today. However, in
many areas of the country the demand for heating oil would not be
sufficient to accommodate distillate fuel exceeding 15 ppm sulfur that
is generated in the pipeline. Therefore, such fuel would need to be
returned to a refinery for reprocessing to meet a 15 ppm sulfur
standard. In addition, some refiners may be reluctant to accept such
material for reprocessing given the impact this would have on their
refinery operations. More importantly, because such material appears at
the terminus of the pipeline distribution system and often where no
access to pipeline or marine shipment is available, it would have to be
shipped back to a refinery by truck, or rail if available, at
additional cost.
---------------------------------------------------------------------------
\98\ Segregated interface refers to the mixing zone between two
batches of fuel that abut each other in the pipeline, where the
volume in the mixing zone can not be cut into either of the fuel
batches, but can still meet another fuel product specification
without reprocessing, provided that it is drawn off of the pipeline
separately and segregated.
---------------------------------------------------------------------------
As discussed in chapter 7 of the RIA, fuel generated from such
interface/transmix will typically meet a 500 ppm sulfur standard.
Therefore, allowing the continued use of such 500 ppm sulfur diesel
fuel in locomotive and marine engines could reduce the burden on the
fuel distribution industry by lowering costs. Our cost estimates of
marketing such fuel include additional shipping charges for situations
where there is not a local locomotive or marine market (see section VI
of this preamble).\99\ Allowing the continued sale of 500 ppm sulfur
diesel fuel into the locomotive and marine markets without requiring it
to be reprocessed will also help preserve refining capacity for the
overall diesel fuel production. Therefore, this provision also serves
to address lingering concerns expressed by some refiners regarding the
impacts of the 15 ppm sulfur standard for highway and NRLM diesel fuel
on overall diesel fuel supply.
---------------------------------------------------------------------------
\99\ As mentioned above, the Agency intends in the near future
to initiate a rulemaking to adopt new emission standards for
locomotive and marine engines. An advanced notice of proposed
rulemaking (ANPRM) for this rule is published elsewhere in today's
Federal Register, June 29, 2004. While we are not finalizing a
sunset date for this downgrade provision in today's final rule, we
are evaluating the appropriateness of establishing a sunset date on
this provision in the context of the subsequent engine standards
rule. We also intend to review the appropriateness of any sunset
provision in light of experience gained from implementation of the
15 ppm sulfur NRLM diesel fuel standard. We would conduct such an
evaluation in 2011.
---------------------------------------------------------------------------
Downstream-generated 500 ppm sulfur diesel fuel may only be used in
nonroad engines until December 1, 2014, due to concerns regarding
enforceability and the increased potential for misfueling of nonroad
equipment (equipment with advanced emission controls). Beginning with
the 2011 model year, such equipment will require the use of 15 ppm
sulfur diesel fuel to operate properly. The same concerns do not exist
regarding the continued use of such 500 ppm sulfur diesel fuel in
locomotive and marine engines for three reasons. First, locomotive and
marine engines are not currently required to be equipped with the
sulfur sensitive emissions aftertreatment that will start being used on
nonroad equipment in 2011.\100\ Second, locomotive and marine markets
are centrally fueled to a much greater extent than nonroad markets, and
thus enforceability is not as significant of an issue. Finally, we
believe the program's designate and track provisions discussed below
will be sufficient to enforce the limits on production and use of 500
ppm sulfur diesel fuel.
---------------------------------------------------------------------------
\100\ Although, as mentioned above, the Agency intends in the
near future to initiate a rulemaking to adopt new emission standards
for locomotive and marine engines. An advanced notice of proposed
rulemaking (ANPRM) for this rule is published elsewhere in today's
Federal Register, June 29, 2004.
---------------------------------------------------------------------------
It is difficult to project exactly how much of this downstream
generated downgraded fuel could be segregated and shipped to LM
markets. However, it is clear that this provision represents an
important flexibility for the distribution system. In fact, it provides
virtually the same flexibility as provided by the proposal to handle
off-specification product. In both cases, use of the flexibility is
dependent on the ability to segregate the interface and transport it to
available LM markets. While today's rule does not contain an end date
for the downstream distribution of 500 ppm sulfur locomotive and marine
fuel, we will review the appropriateness of allowing this flexibility
based on experience gained from implementation of the 15 ppm sulfur
NRLM diesel fuel standard. We expect to conduct such an evaluation in
2011.
A summary of the NRLM sulfur levels and final deadlines for
refiners, importers, terminals, and other downstream parties is shown
in table IV-1 below.
Table IV-1.--500 ppm Sulfur and 15 ppm Sulfur NRLM Final Compliance Dates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Bulk plants,
Refiners and wholesale purchaser-
importers Credit, small refiner Terminals consumers and retail Other locations
outlets
--------------------------------------------------------------------------------------------------------------------------------------------------------
500 ppm NRLM....................... June 1, 2007.......... June 1, 2010.......... August 1, 2010....... October 1, 2010...... December 1, 2010.
15 ppm NR.......................... June 1, 2010.......... June 1, 2014.......... August 1, 2014....... October 1, 2014...... December 1, 2014.
[[Page 39046]]
15 ppm LM.......................... June 1, 2012.......... June 1, 2014.........
--------------------------------------------------------------------------------------------------------------------------------------------------------
4. Diesel Sulfur Credit Banking and Trading Provisions
Today's final program includes provisions for refiners and
importers to generate early credits for the production of 500 ppm
sulfur NRLM diesel fuel prior to June 1, 2007 and for the production of
15 ppm sulfur NRLM diesel fuel prior to June 1, 2010. These credit
banking and trading provisions will provide implementation flexibility
by facilitating a somewhat smoother transition at the start of the
program in 2007, with some refineries/import facilities complying
early, others on time, and others a little later. These credit banking
and trading provisions may also facilitate some of the environmental
benefits of the program being achieved earlier than otherwise required,
and may increase the overall environmental benefits of the program. As
discussed below, overall benefits will accrue if refiners produce 500
ppm earlier in lieu of high sulfur NRLM and then bank those credits to
continue producing 500 ppm sulfur NR diesel fuel in 2010 or 500 ppm LM
diesel fuel in 2012 in lieu of 15 ppm.\101\
---------------------------------------------------------------------------
\101\ We are not adopting specific provisions to generate
credits for early production of LM diesel fuel prior to June 1,
2012. The difference in start date between 2010 and 2012 already
provides additional flexibility to producers of LM diesel fuel, and
setting separate credit generation periods for NR and LM diesel fuel
would unnecessarily complicate the compliance assurance provisions.
---------------------------------------------------------------------------
Specifically, credits generated under the NRLM diesel fuel program
may be banked and later used to delay compliance with either the 500
ppm sulfur NRLM standard that begins in 2007, the 15 ppm sulfur NR
standard that begins in 2010, or the 15 ppm sulfur LM standard that
begins in 2012. Credits may also be traded within companies such that
credits generated at one refinery/import facility in a given company
may be traded to another refinery/import facility within that same
company. In addition, refiners or importers may purchase credits
generated by other refiners or importers to meet the program
requirements. Finally, and perhaps most importantly, individual
refineries/import facilities may be able to use credits to permit the
continued sale of otherwise off-specification product at the beginning
of the program's second step when they are still adjusting their
operations for consistent production/importation of NRLM diesel fuel
that is subject to the new sulfur standards.
a. Credit Generation From June 1, 2006 Through May 31, 2007
Credits may be generated under today's program to allow for the
production of high sulfur NRLM diesel fuel after June 1, 2007. A
refiner or importer may obtain credit for early production/importation
of fuel meeting the 500 ppm sulfur standard that they designate as NRLM
diesel fuel, from June 1, 2006 through May 31, 2007. In addition, small
refiners may also generate credits for the early production of 500 ppm
sulfur diesel fuel that they designate as NRLM diesel fuel. As
described in section IV.B, below, small refiners are not required to
produce any 500 ppm sulfur NRLM diesel fuel until June 1, 2010. Those
small refiners who choose to comply with the 500 ppm sulfur standard
earlier than required, that is before June 1, 2010, may generate
credits for any volume of diesel fuel they produce from June 1, 2007
through May 31, 2010 and designate as NRLM. Credits for the early
production of 500 ppm sulfur fuel (including by small refineries) are
fungible, may be banked for future use, or traded to any other refiner
or importer nationwide. In order to ensure that these early credits are
real and not merely shifts from the highway market, both early credits
and small refinery credits will be subject to a limit determined by the
following formula:
CreditHS = (Vol15 + Vol500) -
Volhwy
CreditHS Limit = (Vol15 + Vol500) -
Basehwy
Where:
Credit500 Limit = Limit for 500 ppm NRLM credits
CreditHS = High-Sulfur NRLM credits\102\
---------------------------------------------------------------------------
\102\ For the purposes of this rule, credits are labeled on the
basis of their use in order to follow the convention used in the
highway diesel rule. A high-sulfur credit is generated through the
production of one gallon of 500 ppm sulfur NRLM diesel fuel and
allows the production of one gallon of high sulfur NRLM diesel fuel.
---------------------------------------------------------------------------
Vol15 = Volume of 15 ppm sulfur diesel fuel produced and
designated as highway or NRLM
Vol500 = Volume of 500 ppm sulfur diesel fuel produced and
designated as highway or NRLM
Basehwy = 2003-2005 highway diesel fuel baseline volume
Volhwy = Volume of diesel fuel produced and designated as
highway
If the excess production is 15 ppm sulfur diesel fuel instead of
500 ppm sulfur diesel fuel, then the refiner will have the option of
generating 500 ppm sulfur credits under the highway diesel fuel
program. Credit may not be earned under both programs for a given
volume of 500 ppm sulfur or 15 ppm sulfur diesel fuel.
b. Credit Generation From June 1, 2009 Through May 31, 2010
In addition to allowing credit for the early production of 500 ppm
sulfur NRLM diesel fuel, today's program also allows credit for the
early production of 15 ppm sulfur NRLM diesel fuel. Specifically,
refiners and importers may obtain credit for early production/
importation of fuel meeting the 15 ppm sulfur standard and that they
designate as NRLM from June 1, 2009 through May 31, 2010. In addition,
small refiners, which are not required to produce any 15 ppm sulfur
NRLM diesel fuel until June 1, 2014, may also generate credits for the
early production of any volume of 15 ppm sulfur diesel fuel that they
designate as NRLM from June 1, 2010 through December 31, 2013. Again,
these early credits are fungible, may be banked for future use, or
traded to any other refinery or importer nationwide. However, in order
to ensure these credits are real and not merely shifts from the highway
market, credits for the early production or importation of 15 ppm
sulfur fuel will be subject to a limit determined by the following
formula:
Credit500 = Vol15 - Vol15hwy
Credit500 Limit = Vol15 - Base15hwy
Where:
Credit500 Limit = Limit for 500 ppm sulfur NRLM credits
Vol15 = Volume of 15 ppm sulfur diesel fuel produced and
designated as highway or NRLM
Base15hwy = 2006-2008 15 ppm sulfur highway diesel fuel
baseline volume
[[Page 39047]]
Hence, to generate credits, a refiner or importer's highway diesel
fuel volume for the compliance period must be greater than or equal to
the baseline volume. That is, a refiner or importer may only generate
credits for ``new'' volumes of 15 ppm sulfur diesel fuel that it
produces. If their highway diesel fuel volume were to drop below the
baseline volume, that would likely indicate a shift in production from
the highway market to generate 15 ppm sulfur NRLM diesel fuel credits.
c. Credit Use
There are two ways in which refiners or importers may use high-
sulfur NRLM credits under the NRLM diesel fuel program. First, credits
may be used during the period from June 1, 2007 through May 31, 2010 to
continue to produce high sulfur NRLM diesel fuel. Any high sulfur NRLM
diesel fuel that is produced, however, must be designated and labeled
as such for tracking purposes throughout the distribution system and be
dyed red at the refinery gate.
The second way in which refiners and importer could use high-sulfur
NRLM credits is by banking them for use during the June 1, 2010 through
May 31, 2014 period. Credits used in this manner would provide a net
environmental benefit, since they were generated by reducing the sulfur
level from approximately 3000 ppm to less than 500 ppm (a net change of
2500 ppm sulfur), but when used only allow the sulfur level to increase
from 15 ppm to 500 ppm (a net change of less than 500 ppm sulfur). 500
ppm sulfur credits generated from the early production of 15 ppm sulfur
NRLM diesel fuel may also be used from June 1, 2010 through May 31,
2014. Thus, during this period, when the 15 ppm sulfur standard is in
effect for nonroad diesel fuel, refiners/importers may use either high
sulfur credits or 500 ppm sulfur credits to continue producing/
importing 500 ppm sulfur nonroad diesel fuel. Any 500 ppm sulfur diesel
fuel that is produced, however, must be appropriately designated and
labeled for tracking purposes throughout the distribution system, and
cannot be sold for use in 2011 and later model year nonroad engines.
From June 1, 2012, when the 15 ppm sulfur standard for LM diesel fuel
becomes effective, through May 31, 2014, refiners/importers may use
either high sulfur credits or 500 ppm sulfur credits to continue
producing/importing 500 ppm sulfur NRLM diesel fuel. All credits expire
after May 31, 2014. Hence, beginning June 1, 2014, all NRLM diesel fuel
produced by refiners or imported in the U.S. will be subject to the 15
ppm sulfur standard, except LM diesel fuel produced by transmix
processors from transmix can continue to meet the 500 ppm sulfur limit.
We proposed that all credits would expire May 31, 2012, however we
are finalizing an expiration date of May 31, 2014 based on the comments
we received. The additional two years that we are now allowing for
credit use (1) will provide a longer period for refiners to sell off-
specification fuel instead of having to reprocess it, (2) is an
environmentally neutral change to the overall program, and (3) is now
consistent with the end-date for small refiner flexibility.
While credits can be generated and traded nationwide, they are
restricted from use in certain parts of the country under the
provisions of this final rule. As discussed in section IV.D, we are
avoiding the burden to terminals of adding marker to heating oil in
those areas of the country where demand for heating oil is expected to
continue to remain high after today's final rule. The NRLM diesel fuel
sulfur standards will be enforced based on sulfur level in these areas,
not through the refinery designation and marker provisions.
Consequently, in the area defined in section IV.D comprising most of
the Northeast and Mid-Atlantic region of the country, as well as in the
State of Alaska, many of the fuel program's flexibilities, including
refiners' ability to use credits, are not allowed. Refiners and
importers may not use credits to produce or import diesel fuel with a
sulfur content greater than 500 ppm beginning June 1, 2007 or 15 ppm
beginning June 1, 2010, for sale or distribution in this Northeast/Mid-
Atlantic area or the State of Alaska. However, credits generated in
these areas can be sold to other refiners and/or importers for use
outside these areas.
B. Hardship Relief Provisions for Qualifying Refiners
As in our gasoline sulfur and highway diesel fuel sulfur programs,
today's program contains the following hardship relief provisions to
provide regulatory flexibility to challenged refiners:
Small refiner hardship for qualifying small refiners;
General hardship for any refiner experiencing either--
(1) Extreme unforeseen circumstances such as natural disaster or
acts of God; or
(2) Extreme hardship circumstances such as financial or technical
hardship.
Similar provisions have proved invaluable for some refiners in the
recent implementation of the gasoline sulfur standards, as well as for
refiners' planning for the highway diesel standards. The details of
these provisions are discussed below.
1. Hardship Provisions for Qualifying Small Refiners
As in previous fuel rulemakings, our justification for including
provisions specific to small refiners is that, in general, small
refiners generally have a degree of hardship in complying with the
standards compared to other refiners. In the NPRM, we proposed
flexibilities/transition provisions, or ``hardship provisions'' (these
terms are equivalent), for small refiners. We are adopting the
provisions that were proposed for small refiners virtually unchanged,
and including similar provisions for the treatment of locomotive and
marine fuel.
a. Regulatory Process and Justification for Small Refiner Relief
In developing our NRLM diesel fuel sulfur program, we evaluated the
environmental need as well as the technical and financial ability of
refiners to meet the 500 and 15 ppm sulfur standards as expeditiously
as possible. We believe it is feasible and necessary for the vast
majority of the program to be implemented in the established time frame
to achieve the air quality benefits as soon as possible. Based on
information available from small refiners and others, we believe that
refiners classified as small generally face unique circumstances with
regard to compliance with environmental programs, compared to larger
refiners. Consequently, as discussed below, we are finalizing several
special provisions for refiners that qualify as ``small refiners'' to
reduce the disproportionate burden that today's program will have on
them.
Small refiners generally lack the resources that are available to
large refining companies, including those large companies that own
small-capacity refineries, to raise capital for investing in
desulfurization equipment, such as shifting of internal funds, securing
of financing, or selling of assets. Small refiners are also likely to
have more difficulty in competing for engineering and construction
resources needed for the installation of the desulfurization equipment
which will likely be required to meet the standards finalized in this
action.
Because small refiners are more likely to face adverse
circumstances with regard to regulatory compliance than larger
refiners, we are finalizing interim provisions that will provide
additional time for refineries owned by small
[[Page 39048]]
refiners to meet the sulfur standards. This approach will allow the
overall program to begin as early as possible, avoiding the need for
delay in order to address the ability of small refiners to comply.
i. Regulatory Flexibility Process for Small Refiners
As explained in the discussion of our compliance with the
Regulatory Flexibility Act (RFA) in section X.C of this preamble, and
in the Final Regulatory Flexibility Analysis in chapter 11 of the RIA,
we considered the impacts of today's regulations on small businesses.
Most of our analysis of small business impacts was performed as part of
the Small Business Advocacy Review (SBAR) Panel convened by EPA,
pursuant to the RFA as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA). The Panel's final report is
available in the rulemaking public docket (Docket A-2001-28, Document
No. II-A-172).
For the SBREFA process, EPA conducted outreach, fact-finding, and
analysis of the potential impacts of the proposed nonroad regulations
on small businesses. Based on these discussions and analyses by all
panel members, the Panel concluded that small refiners in general would
likely experience a significant and disproportionate financial burden
in reaching the objectives of the proposed nonroad diesel fuel sulfur
program.
One indication of the disproportionate burden on small refiners is
the relatively high cost per gallon projected for producing NRLM diesel
fuel under today's program. Refinery modeling of refineries owned by
refiners likely to qualify as small refiners, and of refineries owned
by other non-small refiners, indicates significantly higher refining
costs for small refiners. Specifically, we project that without special
provisions, refining costs for small refiners on average would be about
two cents per gallon higher than for other refiners in the same PADD to
meet the 15 ppm sulfur standard.
The Panel also noted that the burden imposed on small refiners by
the proposed sulfur standards may vary from refiner to refiner. Thus,
the Panel recommended more than one type of burden mitigation so that
most, if not all, small refiners could benefit. We considered the
issues raised during the SBREFA process, and discussed them in the
NPRM, and have decided to finalize each of the provisions recommended
by the Panel. A discussion of the comments we received regarding small
refiners and terminal operators, and our responses to those comments,
can be found in section X.C of this preamble, and also the Summary and
Analysis of Comments.
ii. Rationale for Small Refiner Regulatory Flexibility Provisions
Generally, we structured the small refiner provisions to reduce the
burden on small refiners while expeditiously achieving air quality
benefits and ensuring that the availability of 15 ppm sulfur NR diesel
fuel will coincide with the introduction of 2011 model year nonroad
diesel engines and equipment. We believe the special provisions for
small refiners are necessary and appropriate for several reasons.
First, the compliance schedule for today's program, combined with
special relief provisions for small refiners, will achieve the air
quality benefits of the program as soon as possible, while helping to
ensure that small refiners will have adequate time to raise capital for
new or upgraded fuel desulfurization equipment. Most small refiners
have limited additional sources of income beyond refinery earnings for
financing and typically do not have the financial backing that larger
and generally more integrated companies have. Therefore, additional
time to accumulate capital internally or to secure capital financing
from lenders can be central to their ability to comply.
Second, we recognize that while the sulfur levels in today's
program can be achieved using conventional refining technologies, new
technologies are also being developed that may reduce the capital and/
or operating costs of sulfur removal. Thus, we believe that providing
small refiners some additional time to allow for new technologies to be
proven out by other refiners will have the added benefit of reducing
the risks faced by small refiners. The added time will likely enable
small refiners to benefit from the lower costs of these improvements in
desulfurization technology (e.g., better catalyst technology or lower-
pressure hydrotreater technology). This will help to offset the
disproportionate financial burden that may be imposed upon small
refiners.
Finally, providing small refiners more time to comply will spread
out the availability of engineering and construction resources. Most
refiners will need to install additional processing equipment to meet
the NRLM diesel fuel sulfur requirements. We anticipate that there may
be significant competition for technology services, engineering
resources, and construction management and labor. In addition, as has
been the experience in gasoline sulfur control, vendors will be more
likely to contract their services with the larger refiners first, as
their projects will offer larger profits for the vendors. Temporarily
delaying compliance for small refiners will spread out the demand for
these resources and may help reduce cost premiums for everyone caused
by limited engineering and construction supply.
We discuss below the provisions that we are finalizing to minimize
the degree of hardship imposed upon small refiners by this program.
With these provisions we are confident in going forward with the 500
ppm sulfur standard for NRLM diesel fuel in 2007 and the 15 ppm sulfur
standard for NR diesel fuel in 2010 and for LM diesel fuel in 2012, for
the rest of the industry. The provisions for small refiners will allow
these refiners to continue to produce higher sulfur NRLM fuel until
June 1, 2010, and similarly, will allow for the production of 500 ppm
nonroad NRLM fuel until June 1, 2014. Without small refiner relief, we
would have to consider delaying the overall program until the burden of
the program on many small refiners was diminished, which would delay
the air quality benefits of the overall program. By providing temporary
relief to small refiners, we are able to adopt a program that
expeditiously reduces NRLM diesel fuel sulfur levels in a feasible
manner for the industry as a whole.
The four-year leadtime from which begins in 2010 for small refiners
for locomotive and marine diesel fuel is identical to the relief that
was supported by small refiners for nonroad diesel fuel. We believe
that this relief is necessary and adequate to reduce the burden on
small entities while still achieving our air quality goals. Small
refineries vary considerably in their markets for NRLM diesel fuels.
Consequently, the proposal to control nonroad diesel fuel to 15 ppm
sulfur impacted small refiners with significant nonroad market shares,
but left those with significant locomotive and marine market shares
relatively untouched. With control of all NRLM diesel fuel to 15 ppm
sulfur in this final rule, all small refiners of NRLM diesel fuel will
face similar challenges, and therefore the same four year lead time
from 2010 proposed for those small refiners impacted by nonroad fuel
control alone is also appropriate when the standards are expanded to
all NRLM. In essence, while more small refiners face the challenge of
desulfurizing all of their diesel fuel to the 15 ppm sulfur standard,
the magnitude of this challenge is not any greater. Furthermore,
providing
[[Page 39049]]
additional relief (beyond 2014) to small refiners would undermine the
program by further delaying air quality benefits. The 2014 deadline for
all small refiner diesel fuel to 15 ppm sulfur will also simplify the
fuel program and it will allow small refiners the ability to coordinate
their plans to reduce the sulfur content of all off-highway diesel fuel
at the same time.
iii. Impact of Small Refiner Options on Program Emissions Benefits
Small refiners that choose to delay the NRLM diesel fuel sulfur
requirements will also delay to some extent the emission reductions
that would otherwise have been achieved. However, for several reasons,
the overall impact of these postponed emission reductions will be
small. First, small refiners represent only a fraction of national non-
highway diesel production. Today, refiners that we expect to qualify as
small refiners represent only about six percent of all high-sulfur
diesel production. Second, the delayed compliance provisions described
below will affect only engines without new emission controls. During
the program's first step to 500 ppm sulfur NRLM diesel fuel, small
refiner NRLM diesel fuel could be well above 500 ppm sulfur, but the
new advanced engine controls will not yet be required. During the
second step to 15 ppm sulfur NRLM diesel fuel, equipment with the new
controls will be entering the market, but use of the 500 ppm small
refiner fuel will be restricted to older engines without the new
controls. There will be some loss of sulfate PM control in the older
engines that operate on higher sulfur small refiner fuel, but no effect
on the major emission reductions that the new engine standards will
achieve starting in 2011. Finally, because small diesel refiners are
generally dispersed geographically across the country, the limited loss
of sulfate PM control will also be dispersed.
One option for small refiner relief will allow a modest 20 percent
relaxation in the gasoline sulfur interim standards for small refiners
that produce all of their NRLM diesel fuel at 15 ppm sulfur by June 1,
2006. To the extent that small refiners elect this option, a small loss
of emission control from Tier 2 gasoline vehicles that use the higher
sulfur gasoline could occur. We believe that such a loss of control
will be very small. Very few small refiners will be in a position to
use this provision. Further, the relatively small production of
gasoline with slightly higher sulfur levels should have no measurable
impact on the emissions of new Tier 2 vehicles, even if the likely
``blending down'' of sulfur levels does not occur as this fuel mixed
with lower sulfur fuel during distribution. This provision will also
maintain the maximum 450 ppm gasoline sulfur per-gallon cap standard in
all cases, providing a reasonable sulfur ceiling for any small refiners
using this provision.
b. Small Refiner Definition for Purposes of the Hardship Provisions
The definition of small refiner under the NRLM diesel program is
similar to the definitions under the Tier 2/Gasoline Sulfur and Highway
Diesel rules. Under the NRLM program, a small refiner must demonstrate
that it meets the following criteria:
Produced NRLM diesel from crude;
No more than 1,500 employees corporate-wide, based on the
average number of employees for all pay periods from January 1, 2002 to
January 1, 2003; and,
A corporate crude oil capacity less than or equal to
155,000 barrels per calendar day (bpcd) for 2002.
As with the earlier fuel sulfur programs, the effective dates for
the determination of employee count and for calculation of the crude
capacity represent the most recent complete year prior to the issuing
of the proposed rulemaking (2002, in this case).
In determining its total number of employees and crude oil
capacity, a refiner must include the number of employees and crude oil
capacity of any subsidiary companies, any parent company and
subsidiaries of the parent company, and any joint venture partners. We
define a subsidiary of a company to mean any subsidiary in which the
company has a 50 percent or greater ownership interest. However,
refiners owned and controlled by an Alaska Regional or Village
Corporation organized under the Alaska Native Claims Settlement Act (43
U.S.C. 1626), are also eligible for small refiner status, based only on
the refiner's employees and crude oil capacity. Such an exclusion is
consistent with our desire to grant regulatory relief to that part of
the industry that is the most challenged with respect to regulatory
compliance. We believe that very few refiners, probably only one, will
qualify under this provision. We are also incorporating this exclusion
into the small refiner provisions of the highway diesel and gasoline
sulfur rules, which did not address this issue.
As under the gasoline sulfur and highway diesel fuel rules,
refiners that either acquire or restart a refinery in the future may be
eligible for small refiner status under the NRLM program. Specifically,
a refiner that either acquires or restarts a refinery that was shut
down or non-operational between January 1, 2002 and January 1, 2003 may
apply for small refiner status. In such cases, we will judge
eligibility under the employment and crude oil capacity criteria based
on the most recent 12 consecutive months of data unless we conclude
from the data provided by the refiner that another period of time is
more appropriate. Companies with refineries built after January 1, 2002
are not eligible for the small refiner provisions. Similarly, entities
that do not own or operate a refinery are not eligible to apply for
small refiner status.
c. Provisions for Small Refiners
We are finalizing several provisions intended to reduce the
regulatory burden of today's program on small refiners as well as to
encourage their early compliance whenever possible. As described below,
these small refiner relief options consist of additional time for
compliance and, for small refiners that choose to comply earlier than
required, the option of either generating diesel fuel sulfur credits or
receiving a limited relaxation of their gasoline sulfur standards.
i. NRLM Delay Option
First, we are finalizing an option that allows small refiners to
postpone their compliance with the NRLM diesel fuel sulfur standards.
The delayed compliance schedule for small refiners is intended to
compensate for the relatively higher compliance burdens on these
refiners. It is not intended as an opportunity for those refiners to
greatly expand their production of uncontrolled diesel fuel (2007-2010)
or 500 ppm sulfur diesel fuel (2010-2014). To help ensure that any
significant expansion of refining capacity that a small refiner might
undertake in the future is accompanied by an expansion of
desulfurization capacity, small refiners producing higher sulfur fuel
must limit their production to baseline volume levels. Specifically,
during the first step of today's diesel fuel program to 500 ppm sulfur,
from June 1, 2007 through May 31, 2010, a small refiner may at any or
all of its refineries produce uncontrolled NRLM diesel fuel up to the
2003 through 2005 non-highway baseline volume for the refinery(s). Any
diesel fuel produced over the baseline volume will be subject to the
500 ppm sulfur standard applying to other refiners. Similarly, from
June 1, 2010 through May 31, 2014, a small refiner may produce at any
or all of its refineries NRLM diesel fuel subject to
[[Page 39050]]
the 500 ppm sulfur standard at a volume equal to or less than the
refineries' 2006-2008 non-highway baseline volumes. LM fuel produced to
the 500 ppm standard during 2010 to 2012 would be counted towards
meeting this baseline volume. NRLM fuel produced in excess of the
baseline volume will be subject to the 15 ppm sulfur NRLM diesel fuel
standard. The baseline for 2003-2005 will be determined by subtracting
the refinery's highway volume from its total highway and heating oil
volume production. The baseline for 2006-2008 will be determined based
upon the volume of the refinery's NRLM fuel designations discussed in
section IV.D.
As discussed in section IV.D, the costs to the distribution system
to mark heating oil in areas of PADD 1 with high heating oil demand to
distinguish it from small refiner or credit-using high sulfur NRLM made
this option undesirable in these areas. Based on our review of
anticipated small refiner situations, this portion of PADD 1 appears
unlikely to provide a meaningful market for small refiners seeking this
option. Therefore, in this part of the country it imposed costs without
providing the intended benefit. Consequently, while this option was
proposed to be available nationwide, we are not finalizing it for a
portion of PADD 1. This change from the proposal should have no
meaningful impact on small refiners' flexibility, but will reduce the
costs for fuel distributors.
Since new engines with sulfur sensitive emission controls will
begin to become widespread beginning in 2011, small refiner fuel can
only be sold for use in pre-2011 nonroad equipment or in locomotives or
marine engines during this time. Section IV.D below discusses the
requirements for designating and tracking the production of 500 ppm
sulfur NRLM diesel fuel produced by small refiners during this period.
The following table illustrates the small refiner NRLM diesel fuel
sulfur standards as compared to the standards for the base NRLM diesel
fuel program. As previously stated, small refiners will receive
additional lead time, compared to non-small refiners for 15 ppm sulfur
locomotive and marine diesel fuel. This lead time is identical to that
which had been proposed for 15 ppm sulfur nonroad diesel fuel. This
will ensure that emission benefits of ultra low sulfur diesel fuel are
achieved as soon as possible, and should not significantly change the
nature or magnitude of the burden on affected small refiners.
Table IV-4.--Small Refiner NRLM Diesel Fuel Sulfur Standards, ppm \a\
----------------------------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015+
----------------------------------------------------------------------------------------------------------------
Non-Small Refiners-NR fuel...... ...... 500 500 500 15 15 15 15 15 15
Non-Small Refiners-LM fuel...... ...... 500 500 500 500 500 15 15 15 15
Small Refiners-NR diesel fuel... ...... ...... ...... ...... 500 500 500 500 15 15
Small Refiners-LM diesel fuel... ...... ...... ...... ...... 500 500 500 500 15 15
----------------------------------------------------------------------------------------------------------------
Notes: \a\ New standards will take effect on June 1 of the applicable year.
ii. NRLM Credit Option
Some small refiners have indicated that, for a variety of reasons,
they might need to produce fuel meeting the NRLM diesel fuel sulfur
standards earlier than required under the small refiner program
described above. For some small refiners, the distribution system might
limit the number of grades of diesel fuel that will be carried. Others
might find it economically advantageous to make 500 ppm or 15 ppm
sulfur NRLM diesel fuel earlier than required to prevent losing market
share. At least one small refiner has indicated that it might decide to
desulfurize its NRLM pool at the same time as it desulfurizes its
highway diesel fuel, in June 2006, due to limitations in its
distribution system and to take advantage of economies of scale.
The NRLM Credit option allows small refiners to participate in the
NRLM diesel fuel sulfur credit banking and trading program discussed
earlier in this section. Under this option, a small refiner may
generate diesel fuel sulfur credits by producing any volume of 500 ppm
sulfur NRLM diesel fuel from crude oil prior to from June 1, 2006
through May 31, 2010, and by producing any volume from crude oil of 15
ppm sulfur NRLM diesel fuel from June 1, 2010 through December 31,
2013. The specifics of the credit program are described in section
IV.A.4, including how the program applies to small refiners. Generating
and selling credits could provide small refiners with funds to help
defray the costs of early NRLM compliance.
iii. NRLM/Gasoline Compliance Option
The NRLM/Gasoline Compliance option is available to small refiners
that produce greater than 95 percent of their NRLM diesel fuel at the
15 ppm sulfur standard by June 1, 2006 and elect not to use the
provision described above to earn NRLM diesel fuel sulfur credits for
this early compliance. Refiners choosing this option will receive a
modest revision in their small refiner interim gasoline sulfur
standards, beginning January 1, 2004. Specifically, the applicable
small refiner annual average and per-gallon cap gasoline sulfur
standards will be increased by 20 percent for the duration of the
interim program. The interim program is through either 2007 or 2010,
depending on whether the refiner extended the duration of its interim
gasoline sulfur standards by producing 15 ppm sulfur highway diesel
fuel by June 1, 2006, as provided under 40 CFR 80.552(c). In no case
may the per-gallon gasoline sulfur cap exceed 450 ppm, the highest
level allowed under the gasoline sulfur program.
We believe it is very important to link any relaxation of a small
refiner's interim gasoline sulfur standards with the environmental
benefit of early desulfurization of a significant volume of NRLM diesel
fuel. As such, a small refiner choosing to use this option must produce
a minimum volume of NRLM diesel fuel at the 15 ppm sulfur standard by
June 1, 2006. Each participating small refiner must produce a volume of
15 ppm sulfur fuel that is at least 85 percent of the annual average
volume of non-highway diesel fuel it produced from 2003-2005. If the
refiner began to produce gasoline in 2004 at the higher interim
standard under this provision but then either fails to meet the 15 ppm
sulfur standard for its NRLM diesel fuel by June 1, 2006 or fails to
meet the 85 percent minimum volume requirement, the original small
refiner interim gasoline sulfur standard applicable to that refiner
will automatically apply retroactively to 2004. In addition, the
refiner must compensate for the higher gasoline sulfur levels by
purchasing gasoline sulfur credits or producing an equivalent volume of
gasoline below the required sulfur levels. Under this option, a small
refiner could in effect shift some funds from its gasoline sulfur
program to accelerate desulfurization of
[[Page 39051]]
NRLM diesel fuel. While there would be a small potential loss of
emission reduction under the gasoline sulfur program from fuel produced
by the very few small refiners that we believe would choose this second
option, there are also environmental benefits gained from the
production of 15 ppm sulfur diesel fuel earlier than otherwise
required.
iv. Relationship of the Options to Each Other
A small refiner may choose to use the NRLM Delay option, the NRLM
Credit option or both in combination, since it has no requirement to
produce 500 ppm sulfur NRLM diesel fuel before June 1, 2010, or 15 ppm
sulfur NRLM diesel fuel before June 1, 2014. Thus any fuel that it
produces from crude at or below the sulfur standards earlier than
required will qualify for generating credits.
On the other hand, the NRLM/Gasoline Compliance option may not be
used in combination with either the NRLM Delay option or the NRLM
Credit option, since a small refiner must produce at least 85 percent
of its NRLM diesel fuel at the 15 ppm sulfur standard under the NRLM/
Gasoline Compliance option.
d. How Do Refiners Apply for Small Refiner Status?
A refiner applying for small refiner status must provide the Agency
with several types of information by December 31, 2004. The detailed
application requirements are summarized in section V.F.2 below. In
general, a potential small refiner must own the refinery/refineries in
question and must provide the following information for the parent
company and all subsidiaries at all locations: (1) The average number
of employees for all pay periods from January 1, 2002 through January
1, 2003; (2) the total corporate crude oil capacity, which must be a
positive number; and (3) an indication of which small refiner option
the refiner intends to use (see section IV.B.1.c above). As with
applications for relief under other fuel programs, applications for
small refiner status under this rule that are later found to contain
false or inaccurate information will be void ab initio.
e. The Effect of Financial and Other Transactions on Small Refiner
Status and Small Refiner Relief Provisions
Since the gasoline sulfur and highway diesel fuel sulfur programs
were finalized, several refiners have raised concerns about how various
financial and other transactions could affect implementation of the
small refiner fuel sulfur provisions. These types of transactions
typically involve refiners with approved small refiner status that are
involved in potential or actual sales of the small refiner's refinery,
or involve the small refiner merging with another refiner or purchasing
another refinery (or other non-refining asset). We believe that these
concerns are also relevant to the small refiner provisions described
below for the NRLM diesel fuel sulfur program.
i. Large Refiner Purchasing a Small Refiner's Refinery
The first type of transaction involves a ``non-small'' refiner that
wishes to purchase a refinery owned by an approved small refiner. In
some cases, the small refiner may not have completed or even begun
refinery upgrades to meet the long-term fuel sulfur standards if it was
using an interim small refiner compliance provision. Under the gasoline
sulfur and highway diesel fuel sulfur programs, once such a purchase
transaction is completed, the ``non-small'' buyer does not have the
benefit of the small refiner relief provisions that had applied to the
previous owner.
The purchasing refiner would have to perform the necessary upgrades
on the acquired refinery for it to meet the ``non-small'' sulfur
standards. As the gasoline sulfur and highway diesel fuel sulfur
provisions existed prior to today's action, such a refiner would be
left with very little or, in the case of the gasoline sulfur program
which has already begun, no lead time to bring the refinery into
compliance. The refiners that have raised this issue have claimed that
refiners in this situation would not be able to immediately comply with
the ``non-small refiner'' standards upon acquisition of the new
refinery. These refiners claim that this could prevent them from
purchasing a refinery from a small refiner and, as a result, this would
severely limit the ability of small refiners to sell such an asset. The
refiners that raised this issue requested additional lead time before
the non-small refiner sulfur standards take effect.
We received comments on this issue from two refiners. Both refiners
commented that lead time for refiners losing their small refiner status
should only be allowed for the case where a small refiner merges with,
or acquires, another small refiner. Neither refiner supports allowing
additional lead time for a large refiner that merges with or acquires a
small refiner. In addition, these refiners also commented that it would
be inappropriate to allow a small refiner that receives this lead time
to be able to generate credits for ``early'' production of lower sulfur
diesels during this two-year period.
Nevertheless, we continue to believe these lead-time concerns are
valid. Failure to address them could lead to unnecessary disruption to
the diesel fuel market. Therefore, we are adopting a provision to
provide an appropriate period of lead time for compliance with the NRLM
diesel fuel sulfur requirements for situations in which a refiner
purchases any refinery owned by a small refiner, whether by purchase of
the refinery or purchase of the small refiner entity. Refiners that
acquire a refinery from an approved small refiner will be provided 30
additional months from the date of the completion of the purchase
transaction (but no later than June 1, 2010 for 500 ppm NRLM fuel and
June 1, 2014 for 15 ppm NRLM fuel). During this interim period,
production at the newly-acquired refinery may remain at the interim
sulfur levels that applied to that refinery for the previous small
refiner owner under the small refiner options discussed below. At the
end of this period, the refiner must comply with the ``non-small
refinery'' sulfur standards.
We received comments suggesting that the proposed 24 months of
additional lead time would not be adequate, and further, discussions
with several refiners indicated that in most cases, 24 months would be
inadequate. As discussed in section IV.F, we project a range of 27-39
months is needed to design and construct a diesel hydrotreater.
Therefore, in order to allow a reasonable opportunity for complying, we
are finalizing the provision that 30 months of additional lead time
will be afforded. Thirty months should in most cases be sufficient for
the new refiner-owner to accomplish the necessary engineering,
permitting, construction, and start-up of the necessary desulfurization
equipment. However, if there are instances where the technical
characteristics of its planned desulfurization project will require
additional lead time, we have included provisions for the refiner to
apply for up to six months of additional time and for EPA to consider
such requests on a case-by-case basis. Such an application must be
based on the technical factors supporting the need for more time and
should include detailed technical information and projected schedules
for engineering, permitting, construction, and startup. Based on
information provided in such an application and other relevant
information, EPA will decide whether additional time is
[[Page 39052]]
technically necessary and, if so, how much additional time is
appropriate. However, we anticipate that in most cases 30 months will
be sufficient, since developing plans for compliance should be expected
to be a part of any purchase decision.
All existing small refiner provisions and restrictions, as
described below, will also remain in place for that refinery during the
30 months of additional lead time and any further lead time approved by
EPA for the purchasing refiner; including the per-refinery volume
limitation on the amount of NRLM diesel that may be produced at the
small refiner standards. Furthermore, since the purpose of this grace
period is solely to provide time to bring the refinery into compliance
with the NRLM standards, refiners will not be allowed to generate
credits for early compliance during this 30 month period. There will be
no adverse environmental impact of this provision, since the small
refiner would have already been provided this same relief prior to the
purchase and this provision is no more generous.
ii. Small Refiner Losing Its Small Refiner Status Due To Merger or
Acquisition
Another type of transaction involves a refiner with approved small
refiner status that later loses its small refiner status because it
exceeds the small refiner criteria. Under the gasoline sulfur and
highway diesel fuel sulfur regulations, an approved small refiner that
exceeds 1,500 employees due to merger or acquisition will lose its
small refiner status. We also intended for refiners that exceeded the
155,000 barrel per calendar day crude capacity limit due to merger or
acquisition to lose its small refiner status and in this rule we are
amending the regulations to reflect that criterion as well. This
includes exceedances of the employee or crude capacity criteria caused
by acquisitions of assets such as plant and equipment, as well as
acquisitions of business entities.
Our intent in the gasoline and highway diesel fuel sulfur programs,
as well as the NRLM diesel fuel sulfur program, has been and continues
to be, limiting the small refiner relief provisions to a small subset
of refiners that are challenged, as discussed above. At the same time,
it is also our intent to avoid stifling normal business growth.
Therefore, the regulations we are adopting today will disqualify a
refiner from small refiner status if it exceeds the small refiner
criteria through its involvement in transactions such as being acquired
by or merging with another entity, through the small refiner itself
purchasing another entity or assets from another entity, or when it
ceases to process crude oil. However, an approved small refiner who
exceeds the employee or crude oil capacity criteria without merger or
acquisition, may retain its small refiner status for the purposes of
the complying with the NRLM diesel fuel standards. Furthermore, in the
sole case of a merger between two approved small refiners we will allow
such refiners to retain their small refiner status for purposes of
complying with the NRLM diesel fuel program. Commenters explained that
additional financial resources would not typically be provided in the
case of a merger between small refiners. In light of these comments, we
believe the justification for continued small refiner relief for the
merged entity is valid. Small refiner status for the two entities of
the merger will not be affected, hence the original compliance plans of
the two refiners should not be impacted. Moreover, no environmental
detriment will result from the two small refiners maintaining their
small refiner status within the merged entity as they would have likely
maintained their small refiner status had the merger not occurred.
Consistent with our intent in the gasoline sulfur and highway
diesel fuel sulfur programs to limit the use of the small refiner
hardship provisions, we also intended in the gasoline sulfur and
highway diesel fuel sulfur programs that an exceedance of corporate
crude oil capacity limit of 155,000 bpcd, due to merger or acquisition,
would be grounds for disqualifying a refiner's small refiner status.
However, we inadvertently failed to include this second criterion as
grounds for disqualification in the regulations. In today's action, we
are resolving this error by including the crude capacity limit, along
with the employee limit for both the gasoline sulfur and highway diesel
fuel sulfur programs, effective January 1, 2004. Thus, a refiner
exceeding either criterion due to merger or acquisition will lose its
small refiner status. The exception to this would be in the case of
merger only between two small refiners. We received comments supporting
the allowance of additional lead time for small refiners that lose
their small refiner status through a merger with, or acquisition of,
another small refiner.
We recognize that a small refiner that loses its small refiner
status because of a merger with, or acquisition of, a non-small refiner
would face the same type of lead time concerns in complying with the
non-small refiner standards as a non-small refiner that acquired a
small refiner's refinery would. Therefore, the additional lead time
described above for non-small refiners purchasing a small refiner's
refinery will also apply to this situation. Thus, this 30 month lead
time will apply to all of the refineries, existing or newly-purchased,
that had previously been subject to the small refiner program, but
would not apply to a newly-purchased refinery that is subject to the
non-small refiner standards. Again, there would be no adverse
environmental impact because of the pre-existing relief provisions that
applied to the newly-purchased small refiner.
The issues discussed in this section apply equally to the gasoline
sulfur and highway diesel fuel sulfur programs. Thus, we are also
adopting the same provisions relating to additional lead time in cases
of certain financial, or other, transactions for the small refiner
programs in the earlier fuel sulfur programs.
In the proposal for today's final rule, we invited comment on
several other related provisions that were considered during the
development of this rulemaking:
(1) Instead of merely allowing small refiners a grace period to
come into compliance if they lose their small refiner status, we also
asked for comment on whether or not such a small refiner should instead
be allowed to ``grandfather'' the small refiner relief provisions for
its existing refinery or refineries. We did not receive any specific
comments on this issue and we are not finalizing this provision in
today's action.
(2) Regarding small refiners that exceed the small refiner criteria
due to the purchase of a non-small refiner's refinery, we requested
comment on whether or not the proposed additional lead time should
apply to the purchased refinery. We also requested comment on whether
or not the refiner should be required to meet the non-small refiner
standards on schedule at the purchased refinery, since the previous
owner could be assumed to have anticipated the new standards and taken
steps to accomplish this prior to the purchase. One refiner commented
that merger acquisition flexibility for refineries that lose their
small refiner status should be limited to instances where a small
refiner merges with another small refiner. They believed that any small
refiner that loses its small refiner status due to an acquisition of a
non-small refiner's refinery should not be eligible for hardship
relief. Similarly, another refiner commented that a refiner should not
retain small refiner status if it has
[[Page 39053]]
the financial resources to acquire additional refineries that increase
corporate-wide crude processing above 155,000 bpd. We are not adopting
any flexibility for the purchased refinery in this situation (except in
the case of a merger between two small refiners, as discussed above).
f. Provisions for Approved Gasoline and Highway Diesel Fuel Small
Refiners That Do Not Qualify for Small Refiner Status Under Today's
Program
Some refiners that have approved small refiner status under the
gasoline sulfur and highway diesel fuel programs may not qualify for
small refiner status under today's program if they have grown through
normal business operations and now exceed the qualification criteria
for NRLM small refiner status. One refiner commented on the lack of a
``grandfather'' provision in the nonroad proposal that would
automatically continue small refiner status to refiners already
approved as small refiners under the gasoline and highway diesel fuel
sulfur programs. Without such a provision some refiners could be
approved small refiners under the gasoline sulfur and highway diesel
fuel sulfur programs (because they grew through normal business
expansions and not through merger or acquisition) but would not qualify
under the NRLM program because they now exceed the criteria. As a
consequence, the commenter argued that in some cases benefits afforded
to such small refiners under the gasoline and highway diesel fuel
sulfur programs could be negated. Specifically, under the highway
diesel rule they were allowed until 2010 before needing to have diesel
fuel hydrotreating capacity. Under the nonroad rule, they would have to
do so in 2007. Since it would only make sense to invest for adequate 15
ppm capacity when they do invest, the nonroad standards essentially
would require them to invest to bring all highway and nonroad diesel to
15 ppm sulfur in 2007, eliminating the flexibility granted them in the
highway rule. Furthermore, the refiners' clean fuel projects for low
sulfur gasoline, highway diesel fuel, and NRLM diesel fuel could no
longer be staggered. In fact, small refiners in such situations would
be required to make investments for compliance with all three fuel
programs in the same three to four year period, if not virtually all at
once.
We believe that a refiner who no longer meets the criteria for
small refiner status, since it has successfully grown through normal
business operations, does not face the same level of hardship described
earlier in this section. We do not intend for the NRLM program to
undermine the benefits afforded to small refiners under the gasoline
and highway diesel fuel sulfur programs, as described in the comments.
At the same time, however, we want to preserve small refiner status
under today's program only for those businesses that meet the criteria
described above. Under the nonroad proposal, a refiner with approved
small refiner status under the highway diesel fuel program but not the
NRLM program would be required to produce 500 ppm sulfur NRLM diesel
fuel in 2007 and both 15 ppm sulfur highway and NR diesel fuel in 2010.
Under today's final program, such a refiner may instead skip the 2007
500 ppm interim sulfur standard for its NRLM diesel fuel, and meet the
15 ppm sulfur standard for both its highway and NR diesel fuel in 2010
and LM diesel fuel in 2012. Such an approach will maintain the
refiner's flexibility under the highway program by allowing it to delay
diesel hydrotreating investment until 2010, while limiting its
flexibility under the nonroad diesel program.
g. Additional Provisions and Program Elements
To reduce the burden on all refiners (including small refiners), we
have chosen to finalize the designate and track approach, rather than
the baseline approach. Discussions with parties in all parts of the
distribution system led us to believe that this is the preferred
approach, as tracking is currently done by parties throughout the
distribution system. We are also finalizing provisions to simplify the
segregation, marking, and dyeing requirements. In addition, we are
finalizing provisions to alleviate the concern raised by small terminal
operators regarding the heating oil marker. Terminals in parts of PADD
1 (Northeast/Mid-Atlantic Area) will not have to add the marker to home
heating oil. Therefore we expect that no terminals inside of the
Northeast/Mid-Atlantic Area will need to install injection equipment.
These provisions are discussed in greater detail in section IV.D,
below.
2. General Hardship Provisions
a. Temporary Waivers From NRLM Diesel Fuel Sulfur Requirements in
Extreme Unforseen Circumstances
We are finalizing a provision which, at our discretion, will permit
any domestic or foreign refiner to seek a temporary relief from the
NRLM diesel fuel sulfur standards under certain rare circumstances.
This waiver provision is similar to provisions in the reformulated
gasoline, low sulfur gasoline, and highway diesel fuel sulfur
regulations. It is intended to provide refiners short-term relief due
to unanticipated circumstances, such as a refinery fire or a natural
disaster, that cannot be reasonably foreseen now or in the near future.
Under this provision, a refiner may seek a waiver to distribute
NRLM diesel fuel that does not meet the applicable 500 ppm or 15 ppm
sulfur standards for a brief time period. An approved waiver of this
type could, for example, allow a refiner to produce and distribute
diesel fuel with higher than allowed sulfur levels, so long as the
other conditions described below were met. Such a request must be based
on the refiner's inability to produce complying NRLM diesel fuel
because of extreme and unusual circumstances outside the refiner's
control that could not have been avoided through the exercise of due
diligence. The request must also show that other avenues for mitigating
the problem, such as the purchase of credits to be used toward
compliance, had been pursued yet were insufficient. As with other types
of regulatory relief established in this rule, this type of temporary
waiver will have to be designed to prevent fuel exceeding the 15 ppm
sulfur standard from being used in 2011 and later model year nonroad
engines.
The conditions for obtaining a NRLM diesel fuel sulfur waiver are
similar to those under the RFG, gasoline sulfur, and highway diesel
fuel sulfur regulations. These conditions are necessary and appropriate
to ensure that any waivers that are granted are limited in scope, and
that refiners do not gain economic benefits from a waiver. Therefore,
refiners seeking a waiver will be required to show that the waiver is
in the best public interest and that they: (1) Were not able to avoid
the nonconformity; (2) will make up the air quality detriment
associated with the waiver; (3) will make up any economic benefit from
the waiver; and (4) will meet the applicable diesel fuel sulfur
standards as expeditiously as possible.
b. Temporary Relief Based on Extreme Hardship Circumstances
In addition to the provision for short-term relief under extreme
unforseen circumstances, we are finalizing a provision for relief based
on extreme hardship circumstances such as circumstances that impose
extreme hardship and significantly affect a refiners ability to comply
with the program requirements by the applicable dates. This provision
is also very similar to those established under the gasoline
[[Page 39054]]
sulfur and highway diesel fuel sulfur programs. Under the gasoline
sulfur program, we have granted relief in the form of individual
compliance plans to five refiners. Under the highway diesel program, we
have approved two. Each plan was designed for the specific situation of
that refiner. In all cases, the companies would have experienced severe
hardship if temporary relief had not been granted. Moreover, some
refineries were at a high risk of shutting down without the relief.
In developing today's program, as under our other fuel programs, we
considered whether any refiners would face particular difficulty in
complying with the standards in the lead time provided. As described
earlier in this section, we concluded that, in general, small refiners
would experience more difficulty in complying with the standards on
time because they have less ability to raise the capital necessary for
refinery investments, face proportionately higher costs because of
poorer economies of scale, and are less able to successfully compete
for limited engineering and construction resources. However, it is
possible that other refiners that are not small refiners may also face
particular difficulty in complying on time with the sulfur standards
required under today's program. Therefore, we are including in this
rulemaking a provision which allows us, at our discretion, to grant
temporary waivers from the NRLM diesel fuel sulfur standards based on a
showing of extreme hardship circumstances.
The extreme hardship provision allows any domestic or foreign
refiner to request relief from the sulfur standards based on a showing
of unusual circumstances that result in extreme hardship and
significantly affect a refiner's ability to comply with either the 500
ppm or 15 ppm sulfur NRLM diesel fuel standards by either June 1, 2007,
June 1, 2010, or June 1, 2012, respectively. The Agency will evaluate
each application on a case-by-case basis, considering the factors
described below. Approved hardship applications may include compliance
plans with relief similar to the provisions for small refiners, which
are described in detail above in section IV.B.1.c. Depending on the
refiner's specific situation, such approved delays in meeting the
sulfur requirements may be more stringent than those allowed for small
refiners, but will not likely be less stringent. Given such an
approval, we expect to impose appropriate conditions to: (1) Assure the
refiner is making its best effort; and (2) minimize any loss of
emissions benefits from the program. As with other relief provisions
established in this rule, any waiver under this provision will be
designed to prevent fuel exceeding the 15 ppm sulfur standard from
being used in 2011 and later model year nonroad engines.
Providing short-term relief to those refiners that need additional
time because they face hardship circumstances facilitates adoption of
an overall program that reduces NRLM diesel fuel sulfur to 500 ppm
beginning in 2007, and NRLM diesel fuel sulfur to 15 ppm in 2010 and
2012, for the majority of the industry. However, we do not intend for
this waiver provision to encourage refiners to delay the planning and
investments they would otherwise make. We do not expect to grant
temporary waivers that apply to more than approximately one percent of
the national NRLM diesel fuel pool in any given year.
The regulatory language for today's action includes a list of the
information that must be included in a refiner's application for an
extreme hardship waiver. If a refiner fails to provide all of the
information specified in the regulations as part of its hardship
application, we will deem the application void. In addition, we may
request additional information as needed. Our experience to date shows
that detailed technical and financial information from the companies
seeking relief has been necessary to fully evaluate whether a hardship
situation exists. The following are some examples of the types of
information that must be contained in an application:
--The crude oil refining capacity and fuel sulfur level(s) of each
diesel fuel product produced at each of the refiner's refineries.
--A technical plan for capital equipment and operating changes to
achieve the NRLM diesel fuel sulfur standards.
--The anticipated timing for the overall project the refiner is
proposing and key milestones to ultimately produce 100 percent of NRLM
diesel fuel at the 15 ppm sulfur cap.
--The refiner's capital requirements for each step of its proposed
projects.
--Detailed plans for financing the project and financial statements
demonstrating the nature of and degree of financial hardship and how
the requested relief would mitigate this hardship. This would include a
description of the overall financial situation of the company and its
plans to secure financing for the desulfurization project (e.g.,
internal cash flow, bank loans, issuing of bonds, sale of assets, or
sale of stock).
--A plan demonstrating how the refiner would achieve the standards as
quickly as possible, including a timetable for obtaining the necessary
capital, contracting for engineering and construction resources,
obtaining any necessary permits, and beginning and completing
construction.
--A description of the market area for the refiner's diesel fuel
products.
--In some cases, it could also include a compliance plan for how the
refiner's diesel fuel will be segregated through to the end-user and
information on each of the end-users to whom its fuel is delivered.
We will consider several factors in our evaluation of any hardship
waiver applications that we receive. Such factors include whether a
refinery's configuration is unique or atypical; the proportion of non-
highway diesel fuel production relative to other refinery products;
whether the refiner, its parent company, and its subsidiaries are faced
with severe economic limitations and steps the refiner has taken to
attempt to comply with the standards, including efforts to obtain
credits towards compliance. In addition, we will consider the total
crude oil capacity of the refinery and its parent or subsidiary
corporations, if any, in assessing the degree of hardship and the
refiner's role in the diesel market. Finally, we will consider where
the diesel fuel is intended to be sold in evaluating the environmental
impacts of granting a waiver. Typically, because of EPA's comprehensive
evaluation of both financial and technical information, action on
hardship applications can take six or more months.
This extreme hardship provision is intended to address unusual
circumstances that should be apparent now or could emerge in the near
future. Thus, refiners seeking additional time under this provision
must apply for relief by June 1, 2005, although we retain the
discretion to consider hardship applications later as well for good
cause.
3. Provisions for Transmix Facilities
In the petroleum products distribution system, certain types of
interface mixtures in product pipelines cannot be added in any
significant quantity to either of the adjoining products that produced
the interface. These mixtures are known as ``transmix.'' The pipeline
and terminal industry's practice is to transport transmix via truck,
pipeline, or barge to a facility with an on-site fractionator that is
designed to separate the products. The owner or operator of such a
facility is called a ``transmix
[[Page 39055]]
processor.'' Such entities are generally considered to be a refiner
under existing EPA fuel regulations.
Transmix processors, like conventional refiners, are also currently
subject to the ``80 percent/20 percent'' production requirement for 15
ppm and 500 ppm sulfur highway diesel fuel. This requirement, however,
is inconsistent with the inherent nature of the transmix processors'
business. Unlike conventional refiners, transmix processors refine
batches of fuel that vary in volume and timing--largely unpredictably.
Complying with set percentages of different highway diesel fuel sulfur
grades would be very difficult, probably resulting in either a need to
purchase credits or to postpone processing of some shipments. Transmix
processors commented that it would not be appropriate to have any
additional restrictions, beyond those based on sulfur content, imposed
on their ability to market the fuel that they produce. They stated that
the implementation of other restrictions, such as those under the
highway diesel program's 80/20 requirement, would force them to ship
large volumes of blendstocks back to refineries by truck, resulting in
tank lock-outs that could cascade upstream though the distribution
system potentially interfering with pipeline operations. \103\
---------------------------------------------------------------------------
\103\ In a tank lock out situation a storage tank can no longer
accept product from upstream in the distribution system because
there is not sufficient outlet for the product it holds. A tank lock
our downstream can quickly propagate upstream.
---------------------------------------------------------------------------
Furthermore, transmix processors do not have the ability to change
the nature of their products, as their processing equipment consists
only of a distillation column to separate the blendstocks. This simple
refinery configuration further limits their ability to install and
operate a distillate hydrotreater. The commenters added that the sulfur
content of the slate of fuel products that they produce is completely
dependant on feed material that they receive, and that it is not
feasible for them to install desulfurization equipment. We agree that
it is not feasible for transmix processors to alter the sulfur content
of the fuels that they produce and that limiting the market for these
fuels could potentially lead to disruptions in the fuel distribution
system.
In light of this disproportionate burden on transmix processors,
today's final rule removes the restriction on the volume of highway or
NRLM diesel fuel they produce, if they produce diesel fuel according to
typical operational practices involving the separation of transmix and
not, for example, by blending of blendstocks or processing crude or
heavy oils. Therefore, under today's final rule, transmix processors
may choose to continue to produce all of their highway diesel fuel to
the 500 ppm sulfur standard until 2010. They may further choose to
continue to produce all of their NRLM diesel fuel as high sulfur diesel
fuel until June 1, 2010, all of their NRLM diesel fuel to the 500 ppm
sulfur standard until June 1, 2014, and all of their LM diesel fuel to
a 500 ppm sulfur limit indefinitely.
Transmix processors will be required to properly designate their
fuel with the proper PTDs. Because the volume of fuel involved will be
small and the fuel processed will already have been off-specification,
we believe that providing this flexibility for transmix processors will
have essentially no environmental impact and will not affect the
efficient functioning of the NRLM diesel fuel program or the existing
highway diesel fuel program. Rather, this approach will allow fuel
volume to remain in the highway, NRLM, or LM (as applicable based on
time frame) markets that might otherwise be forced into the heating oil
market.
C. Special Provisions for Alaska and the Territories
1. Alaska
The nationwide engine emission standards established today apply to
all NR engines throughout Alaska. The nationwide NRLM diesel fuel
sulfur standards and implementation dates apply to NRLM diesel fuel
used in the areas of Alaska served by the federal aid highway system
(FAHS). In this final rule, EPA is not finalizing fuel sulfur standards
and implementation deadlines for NRLM diesel fuel used in the areas of
Alaska not served by the FAHS (i.e., the ``rural'' areas). They will be
addressed in a separate rulemaking to allow EPA to address the
requirements for highway and NRLM diesel fuel in the rural areas in the
same rulemaking. This final rule does, however, adopt the prohibition
in the rural areas on the use of high sulfur (greater than 15 ppm)
diesel fuel in model year 2011 and later nonroad engines, which will be
manufactured to operate on ultra-low sulfur diesel fuel.
a. How Do the Highway Diesel Engine Standards, the Highway Diesel Fuel
Standards, and Implementation Deadlines Apply in Alaska?
Unlike the rest of the nation, Alaska is currently exempt from the
500 ppm sulfur standard for highway diesel fuel and the dye provisions
for diesel fuel not subject to this standard. Since the beginning of
the 500 ppm sulfur highway diesel fuel program, we have granted Alaska
exemptions from both the sulfur standard and dye provisions because of
its unique geographical, meteorological, air quality, and economic
factors. \104\ On December 12, 1995, Alaska submitted a petition for a
permanent exemption for all areas of the state served by the FAHS, that
is, those areas previously covered only by a temporary exemption. While
considering that petition, we started work on a nationwide rule to
consider more stringent highway diesel fuel requirements for sulfur
content.
---------------------------------------------------------------------------
\104\ Copies of information regarding Alaska?s petition for
exemption, subsequent requests by Alaska, public comments received,
and actions by EPA are available in public docket A-96-26.
---------------------------------------------------------------------------
In the January 18, 2001, highway diesel rule EPA fully applied the
2007 motor vehicle engine emission standards in Alaska. Based on
factors unique to Alaska, we provided the state with: (1) An extension
of the exemption from the 500 ppm sulfur fuel standard until the
effective date of the new 15 ppm sulfur standard for highway diesel
fuel in 2006; (2) an opportunity to request an alternative
implementation plan for the 15 ppm sulfur diesel fuel program; and (3)
a permanent exemption from the diesel fuel dye provisions. In response
to these provisions in our January 18, 2001, highway rule, Alaska
informed us that areas served by the FAHS, i.e., communities on the
connected road system or served by the Alaska state ferry system
(``urban'' areas), would follow the nationwide requirements. \105\
Diesel fuel produced for use in areas of Alaska served by the FAHS will
therefore be required to meet the same requirements for highway diesel
fuel as diesel fuel produced for the rest of the nation. For the rural
parts of the state--areas not served by the FAHS--Alaska requested that
highway diesel fuel not be subject to the highway diesel fuel sulfur
standard until June 1, 2010. Between 2006 and 2010, the rural
communities would choose their own fuel management strategy, except
that all 2007 model year and newer diesel vehicles would require ultra-
low sulfur diesel fuel. Beginning June 1, 2010, all highway diesel fuel
in the rural areas would be subject to the 15 ppm sulfur highway diesel
fuel sulfur standard. \106\
[[Page 39056]]
EPA intends to propose and request comment on an amendment to the
highway diesel sulfur rule to incorporate the rural area transition
plan submitted by the state.
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\105\ Letter and attached document to Jeffrey Holmstead of EPA
from Michele Brown of the Alaska Department of Environmental
Conservation, dated April 1, 2002. The communities on the connected
road system or served by the Alaska State ferry system are listed in
the attached document.
\106\ Letter and attached document to Jeffrey Holmstead of EPA
from Ernesta Ballard of the Alaska Department of Environmental
Conservation, dated June 12, 2003.
---------------------------------------------------------------------------
b. What NRLM Diesel Fuel Standards Are We Establishing for Urban Areas
of Alaska?
Since Alaska is currently exempt from the 500 ppm sulfur standard
for highway diesel fuel, we also considered exempting Alaska from the
500 ppm sulfur step of the proposed NRLM standards. However, despite
the exemption, officials from the state of Alaska have informed us that
some 500 ppm sulfur diesel fuel is nevertheless being marketed in many
parts of Alaska. Market forces have brought the prices for 500 ppm
diesel fuel down such that it is now becoming competitive with higher
sulfur, uncontrolled diesel fuel. Assuming this trend continues,
requiring that NRLM diesel fuel be produced to 500 ppm beginning June
1, 2007 would not appear to be unduly burdensome. Even if 500 ppm
diesel fuel were not available in Alaska today, our expectation is that
compliance with the highway program described above will likely result
in the transition of all of the urban area highway diesel fuel
distribution system to 15 ppm sulfur beginning in 2006. It could prove
very challenging for the distribution system in some of the areas to
segregate a 500 ppm sulfur grade of NRLM from a 15 ppm sulfur grade of
highway and an uncontrolled grade for other purposes. We believe
economics would determine whether the distribution system would handle
the new grade of fuel or substitute 15 ppm sulfur highway diesel fuel
for NRLM applications. Thus, in the 2007 to 2010 time frame, the NRLM
market in some urban areas might be supplied with 500 ppm sulfur
diesel, and in other areas might be supplied with 15 ppm sulfur diesel.
For this reason, today's action applies the 500 ppm sulfur standard for
NRLM diesel fuel to Alaska's urban areas.
Regardless of what occurs prior to 2010, we anticipate that 15 ppm
sulfur highway diesel fuel will be made available in urban areas of
Alaska by this time frame. The 2007 and later model year highway fleet
will be growing, demanding more and more supply of 15 ppm sulfur diesel
fuel. Adding nonroad volume to this would not appear to create any
undue burden. Thus, today's action also applies the 15 ppm sulfur
standard for NR and LM diesel fuel in the urban areas of Alaska, along
with the rest of the nation beginning June 1, 2010 and June 1, 2012,
respectively.
The state, in its comments on the proposal, supports today's action
for the urban areas described above. One refiner in Alaska commented
that we should implement a one-step approach requiring 15 ppm sulfur
diesel fuel starting in 2010. The refiner indicated that, due to the
limited NRLM market, the benefits of introducing 500 ppm sulfur diesel
fuel in 2007 would be minimal. Also, the distribution system in Alaska
is not capable of handling the two grades of diesel fuel that would be
required between 2007 and 2010, thus 15 ppm sulfur fuel would be
distributed as NRLM. We agree that the distribution system in Alaska is
limited compared to the rest of the nation, and that consumption of
diesel fuel by NRLM applications in Alaska is small. However, as
previously discussed, we expect that some 500 ppm sulfur diesel fuel
will be available due to market forces, and that 15 ppm sulfur highway
diesel fuel will be available beginning in 2006 in the urban areas.
Thus, requiring 500 ppm sulfur diesel fuel (or 15 ppm sulfur diesel
fuel as a substitute) for the limited NRLM applications beginning in
2007 does not appear to create any undue burden on the fuel supply or
the distribution system in urban Alaska.
During the development of the original 500 ppm sulfur highway
diesel fuel standards in the early 1990's, refiners and distributors in
Alaska expressed concern that if Alaska were required to dye its non-
highway diesel fuel red along with the rest of the country, residual
dye in tanks or other equipment would be enough to contaminate and
disqualify Jet-A kerosene used as aviation fuel. Since much of the
diesel fuel in Alaska is No. 1 and is indistinguishable from Jet-A
kerosene, not only would tanks and transfer equipment have to be
cleaned, but separate tankage would be needed. Consequently, we granted
Alaska temporary exemptions from the dye requirement and in the January
18, 2001, highway diesel rule granted the state a permanent exemption.
The proposed use of a marker for heating oil in the 2007-10 time
period presents similar concerns in Alaska's distribution system. In
response to our request for comments on this issue, the state and
refiners indicated that Alaska's system is not capable of accommodating
dyes or markers and segregation. The priority of the state and fuel
industry is to keep dyes and markers out of the fuel stream to prevent
contamination of Jet-A and facilitate movement of the fuel. The
comments suggested that implementation of refiner product designations,
labeling of fuel pumps, retailer education, and rapid transition to
ULSD would ensure that 500 ppm sulfur diesel fuel is used in NRLM
equipment from 2007-10 and that 15 ppm sulfur diesel fuel is used in
nonroad equipment after 2010.
In section IV.D below, we discuss the provisions that we are
adopting for the State of Alaska that will allow us to enforce the NRLM
diesel fuel program without requiring the fuel marker.
c. Why Are We Deferring Final Action on NRLM Diesel Fuel Standards for
Rural Areas of Alaska?
We are deferring final action on the fuel sulfur standards and
implementation deadlines for the rural areas of Alaska. We proposed to
permanently exempt NRLM diesel fuel used in the rural areas from fuel
content standards, except that diesel fuel used in 2011 and later model
year nonroad engines would have had to meet the sulfur content standard
of 15 ppm sulfur. However, this proposed action is inconsistent with
the action requested by the state in its comments to the proposal. It
is also inconsistent with the state's alternative implementation plan
for highway diesel fuel in rural Alaska, which was submitted after
publication of the proposal.
We intend to issue a supplemental proposal that would address both
highway and NRLM diesel fuel sulfur standards for Alaska's rural areas.
This proposal will address the comments submitted by the state, as well
as the state's alternative implementation plan for highway diesel fuel.
2. American Samoa, Guam, the Commonwealth of Northern Mariana Islands,
and Puerto Rico
a. What Provisions Apply in American Samoa, Guam, and the Commonwealth
of Northern Mariana Islands?
As we proposed, we are excluding American Samoa, Guam and the
Commonwealth of the Northern Mariana Islands (CNMI) from the NRLM
diesel fuel sulfur standards and associated requirements. We also are
excluding these territories from the tier 4 nonroad engine emissions
standards, and other requirements associated with those emission
standards. The territories will continue to have access to new nonroad
diesel engines and equipment using pre-tier 4 technologies, at least as
long as manufacturers choose to market those technologies. In the
future, if manufacturers choose to market nonroad diesel engines and
equipment only with tier 4 emission control
[[Page 39057]]
technologies, we believe the market will determine if and when the
territories will make the investment needed to obtain and distribute
the diesel fuel necessary to support these technologies.
We are also requiring that all nonroad diesel engines and equipment
for these territories be certified and labeled to the applicable
requirements--either to the previous-tier standards and associated
requirements under this exclusion, or to the Tier 4 standards and
associated requirements applicable for the model year of production
under the nationwide requirements of today's action. The engines would
still be emissions warranted, as otherwise required under the CAA and
EPA regulations. Special recall and warranty considerations due to the
use of excluded high sulfur fuel would be the same as those for Alaska
during its exemption and transition periods for highway diesel fuel and
for these territories for highway diesel fuel (see 66 FR 5086, 5088,
January 18, 2001).
To protect against circumvention of the emission requirements
applicable to the rest of the U.S., we are restricting the importation
of nonroad engines and equipment from these territories into the rest
of the U.S. After the 2010 model year, nonroad diesel engines and
equipment certified under this exclusion for sale in American Samoa,
Guam and the Commonwealth of the Northern Mariana Islands will not be
permitted entry into the rest of the U.S.
b. Why Are We Treating These Territories Uniquely?
Like Alaska, these territories are currently exempt from the 500
ppm sulfur standard for highway diesel fuel. Unlike Alaska, they are
also exempt from the new highway diesel fuel sulfur standard effective
in 2006 and the new highway vehicle and engine emission standards
effective beginning in 2007 (see 66 FR 5088, January 18, 2001).
Section 325 of the CAA provides that upon request of Guam, American
Samoa, the Virgin Islands, or the Commonwealth of the Northern Mariana
Islands, we may exempt any person or source, or class of persons or
sources, in that territory from any requirement of the CAA, with some
specific exceptions. The requested exemption could be granted if we
determine that compliance with such requirement is not feasible or is
unreasonable due to unique geographical, meteorological, or economic
factors of the territory, or other local factors as we consider
significant. Prior to the effective date of the current highway diesel
fuel sulfur standard of 500 ppm, the territories of American Samoa,
Guam and the Commonwealth of the Northern Mariana Islands petitioned us
for an exemption under section 325 of the CAA from the sulfur
requirement under section 211(i) of the CAA and associated regulations
at 40 CFR 80.29. We subsequently granted the petitions.\107\ Consistent
with this decision, in our January 18, 2001 highway rule (66 FR 5088),
we determined that the 2007 heavy-duty engine emission standards and
2006 diesel fuel sulfur standard would not apply to these territories.
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\107\ See 57 FR 32010, July 20, 1992 for American Samoa; 57 FR
32010, July 30, 1992 for Guam; and 59 FR 26129, May 19, 1994 for
CNMI.
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Compliance with the NRLM diesel fuel sulfur standards would result
in major economic burden on the territories. All three of these
territories lack internal petroleum supplies and refining capabilities
and rely on long distance imports. Given their remote location from
Hawaii and the U.S. mainland, most petroleum products are imported from
east rim nations, particularly Singapore. Australia, the Philippines,
and certain other Asian countries are beginning to consider and in some
cases implement lower sulfur diesel fuel standards. However, it is not
clear that supply, especially of 15 ppm sulfur diesel fuel, would be
possible to these territories.
Furthermore, compliance with new 15 ppm sulfur requirement for
highway diesel fuel beginning in 2006 and today's 15 ppm sulfur
requirement for NRLM diesel fuel beginning in 2010 (or the 500 ppm
sulfur requirement for NRLM diesel fuel beginning 2007) would require
construction of separate storage and handling facilities for a unique
grade of diesel fuel for highway and nonroad purposes, or use of 15 ppm
sulfur diesel fuel for all diesel applications to avoid segregation.
Either of these alternatives would require importation of 500 and 15
ppm sulfur diesel fuel from Hawaii or the U.S. mainland, and would
significantly add to the already high cost of diesel fuel in these
territories, which rely heavily on U.S. support for their economies. At
the same time, it is not clear that the environmental benefits in these
areas would warrant this cost. Therefore, we are not applying the fuel
and engine standards to these territories.
The Caribbean Petroleum Corporation (CPC) commented that the
proposed nonroad diesel rule would result in a major economic burden
for Puerto Rico, the environmental benefits do not warrant the cost,
and that Puerto Rico should be exempt. However, the CPC did not include
any cost or environmental information to support its claims. We have no
reason to believe that the costs of the NRLM diesel fuel program in
Puerto Rico will be significantly greater than that of the U.S. For
example, Puerto Rico is close to the U.S. mainland, and to South
American and Central American suppliers of fuel to the U.S. mainland,
and therefore has ready access to nearby fuel supplies that meet U.S.
requirements. Similar to the fuel distribution system in the rest of
the country, the fuel distribution system in Puerto Rico is geared to
separate fuel handling and storage facilities for highway and non-
highway diesel fuels. Today's rule will require additional segregation
for the NRLM diesel fuels, but no differently for Puerto Rico than for
the U.S. Nevertheless, to avoid that additional fuel segregation,
Puerto Rico could substitute highway fuel for use in NRLM diesel
engines and equipment. We also believe that the important air quality
benefits to be realized by today's rule for the four million people in
Puerto Rico should not be significantly different than those for the
rest of the country. Consequently, today's rule includes Puerto Rico in
the NRLM diesel fuel program.
D. NRLM Diesel Fuel Program Design
In addition to specifying the sulfur standards and the
implementation dates when the standards take effect, the diesel fuel
program compliance provisions must be designed and structured carefully
to achieve the overall principles of the program. Specifically, the
health and welfare benefits of the NRLM diesel fuel and the highway
diesel programs, and the need for widespread availability of 15 ppm
sulfur highway diesel fuel must be maintained. The program benefits and
fuel availability will only happen if the NRLM diesel fuel program is
designed such that the amount of 15 ppm sulfur fuel expected to be
produced under the highway diesel fuel program is in fact produced and
that 500 ppm highway fuel is not overproduced. Likewise, the benefits
of the NRLM diesel fuel sulfur standards adopted today will only be
achieved if the program is designed to ensure that the volume of diesel
fuel consumed by NRLM diesel engines is matched by the supply of NRLM
diesel fuel produced to the appropriate low sulfur levels. At the same
time, promoting the efficiency of the distribution system calls for
fungible distribution of physically similar products, and minimizing
the need for product segregation.
As discussed below, the situation faced in 1993 when EPA first
regulated the sulfur content of highway diesel fuel parallels some of
the issues that EPA
[[Page 39058]]
needed to address in today's rule. Prior to the implementation of the
500 ppm sulfur standard for highway diesel fuel in 1993, most No. 2
distillate fuel was produced to essentially the same specifications,
shipped fungibly, and used interchangeably by highway diesel engines,
nonroad diesel engines, locomotive and marine diesel engines, and
heating oil applications. Beginning in 1993, highway diesel fuel was
required to meet a 500 ppm sulfur cap and was segregated from other
distillate fuels as it left the refinery by the use of a visible level
of dye solvent red 164 in all non-highway distillate. At about the same
time, the Internal Revenue Service (IRS) similarly required non-highway
diesel fuel to be dyed red to a much higher concentration prior to
retail sale to distinguish it from highway diesel fuel for excise tax
purposes. Dyed non-highway fuel is exempt from this tax. This splitting
of the distillate pool necessitated changes in the distribution system
to ship and store the now distinct products separately. In some parts
of the country where the costs to segregate non-highway diesel fuel
from highway diesel fuel could not be justified, both fuels have been
produced to highway specifications.\108\
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\108\ Diesel fuel produced to highway specifications but used
for non-highway purposes is referred to as ``spill-over.'' It leaves
the refinery gate and is fungibly distributed as if it were highway
diesel fuel, and is typically dyed at a point later in the
distribution system. Once it is dyed it is no longer available for
use in highway vehicles, and is not part of the supply of highway
fuel.
---------------------------------------------------------------------------
1. Requirements During the First Step of the Fuel Program
EPA is adopting specific compliance provisions during the first
step of today's NRLM diesel fuel sulfur control program for three
reasons. The first is to maintain the integrity of the highway diesel
program, while allowing the efficient distribution of highway and NRLM
diesel fuel. Since 500 ppm sulfur highway diesel fuel allowed under the
highway diesel fuel program's Temporary Compliance Option (TCO) and
NRLM diesel fuel meeting today's 500 ppm sulfur standard will be
physically the same, it would be impossible to maintain the benefits
and program integrity of the highway diesel fuel program without some
means of differentiating highway diesel fuel from NRLM diesel fuel.
Continuing the current practice of dyeing NRLM diesel fuel at the
refinery gate and requiring that it be segregated throughout the
distribution system is not a practical way to differentiate NRLM diesel
fuel from highway fuel. At the same time, allowing the unrestricted
fungible distribution of highway and NRLM diesel fuel with the same
sulfur level risks the loss of important benefits of the highway
program. For example, if a refiner produced all 500 ppm sulfur fuel and
designated it as NRLM diesel fuel, that refiner would have no
obligation to produce any 15 ppm sulfur highway diesel fuel. Without an
effective way of limiting the use in the highway market of 500 ppm
sulfur diesel fuel produced as NRLM diesel fuel, much more 500 ppm
sulfur fuel could, and likely would find its way into the highway
market than would otherwise happen under the current highway program.
This would displace 15 ppm sulfur diesel fuel that would have otherwise
been produced. This likely series of events would circumvent the intent
of the highway program's TCO and sacrifice some of the resulting PM and
SO2 emission benefits of the overall highway diesel program.
If this occurred to any significant degree, it could also undermine the
integrity of the highway program by threatening the availability of 15
ppm sulfur diesel fuel nationwide for the vehicles that need it. This
is no longer a concern after 2010, when all highway diesel fuel is
required to meet a 15 ppm sulfur standard.
The second reason is to maintain the integrity of the NRLM diesel
fuel program, while allowing the efficient distribution of NRLM diesel
fuel and heating oil where they have similar sulfur levels. By
establishing new sulfur standards for NRLM diesel fuel but not heating
oil, today's program creates the need to distinguish the fuel used for
these two purposes. Currently, there is no grade of diesel fuel which
is produced and marketed as a distinguishable grade for NRLM diesel
engine uses. It is typically produced and shipped fungibly with other
distillate used for heating oil purposes, and it is all dyed red in
accordance with EPA and IRS regulations. Because today's rule includes
small refiner and credit provisions that allow the limited production
of high sulfur (greater than 500 ppm) NRLM diesel fuel through 2010, it
is not possible to rely on sulfur content alone to differentiate NRLM
diesel fuel from heating oil during the first step of the program.
Without adequate controls, a refiner could choose not to desulfurize
any of its fuel that is destined for the NRLM diesel fuel market,
instead designating that volume as heating oil at the refinery gate.
This fuel, ostensibly manufactured for use as heating oil could be
misdirected for use in NRLM diesel equipment, and would be
indistinguishable from legal high sulfur NRLM diesel fuel produced by
small refiners and/or through the use of credits. This could
substantially reduce the environmental benefits of today's rule.
After 2010, when the 15 ppm sulfur standard for NR diesel fuel goes
into effect, small refiner and credit NR fuel must meet a 500 ppm
standard. Therefore, after 2010 NRLM diesel fuel can be distinguished
from high sulfur (greater than 500 ppm) home heating fuel based on
sulfur content. However, 500 ppm NR (small refiner, credit) produced
from June 1, 2010 through May 31, 2012, and 500 ppm NRLM (small
refiner, credit) diesel fuel produced from June 1, 2012 through May 31,
2014, could not be distinguished from heating oil produced to meet a
similar 500 ppm sulfur limit. Likewise, from June 1, 2010 to June 1,
2012, 500 ppm NR (small refiner, credit) diesel fuel and LM diesel fuel
need to be distinguished from each other, so that diesel fuel produced
as 500 ppm LM is not later misdirected to the NR diesel market. Such
misdirected 500 ppm sulfur LM diesel fuel would be indistinguishable
from legal 500 ppm sulfur NR diesel fuel, reducing the environmental
benefits of today's rule. These various 500 ppm fuels could not be
distinguished based on sulfur level. As previously discussed, the
situation which was faced in 1993 regarding the need to differentiate
500 ppm sulfur highway diesel fuel from other diesel fuel is similar to
the need today to differentiate highway diesel fuel, NRLM diesel fuel,
and heating oil.
The third reason is to maintain the integrity of the anti-
downgrading requirements in the highway diesel program. The highway
diesel program requires that each entity in the distribution system
downgrade no more than 20 percent of the 15 ppm sulfur highway diesel
fuel for which it assumes custody to 500 ppm sulfur highway diesel
fuel. These provisions are necessary to ensure the widespread
availability of 15 ppm sulfur diesel fuel for use in model year 2007
and later highway vehicles, in which the use of 15 ppm sulfur fuel is
essential to facilitate the projected emissions benefits of the highway
program. The highway program placed no restrictions on the volume of
highway diesel fuel that could be downgraded to NRLM diesel fuel. Under
the proposed rule there would be no way to distinguish 500 ppm sulfur
NRLM diesel fuel from 500 ppm sulfur highway diesel fuel downstream of
the refinery. Therefore, to preserve the integrity of the highway
program, the proposal would have made the highway program's anti-
downgrade requirements more stringent by also
[[Page 39059]]
restricting downgrades to 500 ppm sulfur NRLM diesel fuel. We received
several negative comments on this proposed restriction. The compliance
and record keeping requirements finalized to address the two concerns
discussed above, can be utilized to facilitate the implementation of
the highway program's anti-downgrading requirements without the need to
further restrict downgrading. As a result, today's rule also contains
several modifications which clarify the anti-downgrading provisions of
the highway diesel program.
The requirements described below will help ensure that the
projected benefits of the highway diesel program and of today's NRLM
diesel program are achieved.
a. Ensuring Refiner Production Volumes of 15 ppm Sulfur Highway Diesel
Fuel Are Consistent With the Highway Rule's 80/20 Requirement
To avoid adding unnecessary cost to the fuel distribution system,
we proposed that the current requirement of dyeing non-highway
distillate fuels at the refinery gate become voluntary as of June 1,
2006.\109\ As discussed in the proposal, continuing to require that
NRLM diesel fuel and heating oil contain a visible trace of red dye at
the refinery gate would allow for simple enforcement of the highway
standards throughout the duration of the highway program's TCO. Clear,
undyed diesel fuel would have to meet the 80/20 ratio of 15 ppm to 500
ppm sulfur highway diesel fuel, and dyed fuel could only be used in
NRLM diesel equipment or as heating oil. Continuing the current dye
provisions would therefore ensure that the intended benefits of the
highway program are achieved. However, maintaining this dye distinction
would also require segregation of a new grade of dyed 500 ppm sulfur
NRLM diesel fuel throughout the entire distribution system. The costs
of requiring segregation of two otherwise identical fuels throughout
the entire distribution system could be quite substantial.\110\
Comments on the proposed rule confirmed EPA's assessment that the
ability of the fuel distribution system to distribute these fuels
fungibly is essential, since segregating the fuels could result in
substantial additional transportation costs and necessitate additional
storage tanks throughout the system.
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\109\ The IRS requirements concerning dyeing of non-highway fuel
prior to sale to consumers are not changed by this rulemaking.
\110\ Under the highway program the potential exists to add a
third grade of diesel fuel in an estimated 40 percent of the
country, and we projected one-time tankage and distribution system
costs of $1.05 billion to accomplish this. Using similar
assumptions, to add a second 500 ppm grade nationwide would cost in
excess of $2 billion. This assumes that the capability exists to add
such new tankage.
---------------------------------------------------------------------------
The NPRM invited comment on two alternative approaches to ensure
that refiner production of 15 ppm sulfur highway diesel fuel met the
highway rule's 80/20 requirement; the ``refiner baseline'' approach,
and the ``designate and track'' approach. The baseline approach is
essentially a constraint on the sulfur levels of the various distillate
fuel products a refiner produces, based on historical production
volumes. Fuel with similar sulfur levels could then be fungibly
distributed with only limited controls on the downstream distribution
system. The designate and track approach requires that a refiner
designate into which market discrete volumes of the distillate fuels it
produces must be sold, without any consideration of historical
production volumes. The fuel must then be tracked through the
distribution system and sold only for its designated purpose (or a
purpose that requires less control). As with the baseline approach,
diesel fuel with similar sulfur levels could be fungibly shipped up to
the point of distribution from a terminal where off-highway diesel fuel
must be dyed red pursuant to IRS requirements to indicate its tax
exempt status.
We proposed the baseline approach because, in the absence of a red
dye requirement at the refinery-gate for NRLM diesel fuel, we expected
that it would: (1) Allow for the fungible distribution of 500 ppm
sulfur highway and NRLM diesel fuel; (2) ensure the enforceability of
the highway diesel fuel and NRLM diesel fuel standards; (3) maintain
the projected production volume of 15 ppm sulfur highway diesel fuel;
(4) allow refinery production of 500 ppm sulfur NRLM diesel fuel and
heating oil to remain flexible to meet market demand; and (5) enable
the efficient distribution of diesel fuel while imposing the least
burden on the parties in the fuel production and distribution system.
In the proposal, we also discussed how a refiner's baseline would be
set, and invited comment on ways to account for changes refiners might
make from their historical production practices in response to the
highway diesel program.
In the NPRM, we expressed concerns that a designate and track
approach would raise significant workability and enforceability issues
and therefore might not maintain the integrity of highway and NRLM
diesel fuel sulfur programs. Our concerns about the workability and
enforceability of a designate and track approach amplified potential
concerns regarding whether the approach might reduce the volume of 15
ppm sulfur diesel fuel required to be produced under the highway diesel
program, leading to a reduction in the environmental benefits of the
highway diesel program and calling into question the availability of 15
ppm sulfur diesel fuel. We were also concerned about whether this
approach would place too much burden on the numerous entities in the
fuel distribution system, as compliance was focused on downstream
parties. While the designate and track approach provided greater
production flexibility to refiners than the baseline approach, it
appeared to increase the burden and restrictions on downstream parties.
Of the approaches discussed in the NPRM, we expected that the
baseline approach would provide the best mechanism to achieve the fuel
program goals described at the beginning of this section. Since the
proposal, we have comprehensively evaluated the advantages and
disadvantages of both approaches. Based on this review, we now believe
that a baseline approach would produce significant adverse problems
because of its overly restrictive impact on the ability of fuel
producers and distributors to efficiently respond to the myriad and
daily needs of the markets for highway and NRLM diesel fuel.
Implementation of the approach could also produce an unintended bias
that would tend to reduce the benefits of the highway program and
reduce the availability of 15 ppm sulfur highway diesel fuel. At the
same time, our review of the approaches shows that the designate and
track approach can be implemented in an enforceable manner and likely
would not cause a reduction in the environmental benefits of the
highway diesel program or adversely impact the widespread availability
of 15 ppm sulfur highway diesel fuel. Our evaluation of these alternate
approaches is discussed in more detail in the following sections.
i. Proposed Refiner Baseline Approach
Under the refiner baseline approach, we proposed that from June 1,
2007 through May 31, 2010, any refiner or importer could choose to
distribute its 500 ppm sulfur NRLM and highway diesel fuels fungibly
without adding red dye at the refinery gate. Refiners and importers who
elect to distribute these fuels fungibly would need to establish a non-
highway distillate baseline, defined as a percentage of its total
distillate fuel production volume based on historical production data.
For future production
[[Page 39060]]
purposes, this percentage of the volume of diesel fuel produced would
have to either meet the 500 ppm sulfur NRLM diesel fuel sulfur standard
or be marked as heating oil. All the remaining production of diesel
fuel would have to meet the requirements of the highway fuel program
(i.e., 80 percent of this fuel would have to meet a 15 ppm sulfur cap).
Refiners not wishing to participate in the baseline approach would have
to dye all of their 500 ppm sulfur NRLM diesel fuel at the refinery.
However, we anticipated that few refiners would opt to dye 500 ppm
sulfur NRLM diesel fuel, other than the volumes that they dispense from
their own racks, since this would eliminate the ability to fungibly
distribute 500 ppm sulfur highway and NRLM diesel fuels.
Since the publication of the proposed rule, we have developed a
better understanding of refiner concerns about the constraints
associated with the baseline approach. Specifically, it is now clear
that individual refiners would be significantly constrained by the
baseline approach from efficiently responding to changes in contract
arrangements with their clients and changes in market demands. Refiners
commented that they win and lose contracts on a daily basis and that
depending on which contracts they secure, they may not be able to
comply with their baseline. Specific concerns were raised regarding the
ability of refiners to compensate for the loss of export contracts and
to respond to spikes in the demand for heating oil which periodically
result from an unexpectedly cold winter. Refiners also related that the
constraints under the baseline approach could cause an anti-competitive
dynamic between fuel refiners and their customers.
Based on our reevaluation of the baseline approach and the
information gathered from the public comments, it is now clear that the
constraints on the slate of fuels that a refiner produces under the
baseline approach could interfere with a refiner's ability to meet
market demands, which in turn could result in supply shortages and
increased fuel prices. For example, if a refiner were to lose an export
contract for high sulfur diesel fuel, the baseline approach could
prevent that refiner from seeking to market that product domestically.
This could impact the overall supply of diesel fuel since the refiner
may not have sufficient facilities to desulfurize diesel fuel. Also,
knowing that losing such an export contract would leave the refiner
with no ability to market its fuel domestically could give the
refiner's export client an undue advantage during contract
negotiations.
In the case of a spike in heating oil demand due to an unusually
cold winter, the baseline approach would limit a refiner's ability to
produce additional volumes of high sulfur distillate fuel beyond the
volume established under its baseline. Refiners that were limited in
their ability to produce additional high sulfur fuel could choose to
supply low sulfur diesel fuel to the heating oil market. However, they
may not have sufficient hydrotreating capacity to do so. This could
limit their ability to respond to a supply shortage.
The proposed rule suggested various potential modifications to the
baseline approach to address refiner concerns regarding the associated
constraints on the slate of fuels they produce. We received comments on
the potential modifications discussed in the NPRM as well as other
potential changes to the baseline approach. Some commenters suggested
that if EPA were to finalize a baseline approach, refiners should be
able to apply to EPA for a yearly adjustment to their baseline based on
annual demand forecasts. Even with such flexibility, refiners still
concluded that in many cases they would likely be forced to dye their
fuel instead. For fuel distributors, having refiners dye their NRLM
diesel fuel presented an unacceptable situation due to the need to
distribute another grade of fuel. As a result, all comments from the
refining and fuel distribution community were in agreement that the
baseline approach may be unworkable.
Based on our review of the comments and our discussions with fuel
producers and distributors, it has become clear that none of the
potential modifications to the baseline approach would adequately
compensate for the inherent inflexibility of requiring refiners to
comply with set production ratios. Even if EPA were to adjust such
ratios on an annual basis, refiners might need to approach EPA for an
interim adjustment if their contractual agreements changed or if market
demand shifted unexpectedly. The process of evaluating requests for
baseline adjustments could be very burdensome to the industry and to
EPA, and EPA would unlikely be able to respond quickly enough to
changing market conditions.
More importantly, all of the potential alternatives that we might
implement to mitigate the constraints of the baseline approach could
potentially undermine the environmental benefits of the highway
program. Such alternatives all would involve granting allowances to
some refiners to produce additional volumes of non-highway fuels above
the set baseline to facilitate a refiner meeting the market demand for
such fuels. At the same time, it would not be possible for EPA to
reduce the ability of other refiners to produce non-highway fuel who
may have lost these markets. Therefore, for such alternatives to be
effective in responding to changing market conditions, an unintended
downward bias would result regarding the required production of 15 ppm
sulfur highway diesel fuel.
Even without any changes we discovered from the highway diesel
program pre-compliance reports that the proposed baseline approach has
a downward bias that could result in a reduction in the volume of 15
ppm sulfur diesel fuel produced under the highway diesel program.\111\
We proposed that refiners could choose to calculate their off-highway
baseline using either an average of 2003 through 2005 production data
or 2006 production data. Providing the option for a 2006 baseline was
necessary because a number of refiners will be changing the slate of
fuels that they produce in response to the highway diesel rule which
becomes effective in 2006. While the highway diesel pre-compliance
reports indicate an overall increase in production volume, they also
indicate that 40 percent of highway diesel refiners will decrease the
volume of highway diesel fuel they produce. If all of these refiners
were to take a 2006 baseline to determine the volume of 15 ppm sulfur
diesel fuel they would be required to produce, a substantial drop in
the total volume of 15 ppm sulfur diesel fuel produced could result.
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\111\ ``Summary and Analysis of the Highway Diesel Fuel 2003
Pre-compliance Reports,'' EPA 420-R-03-103, October 2003.
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The pre-compliance reports indicate that the other 60 percent of
refiners will be increasing the volume of highway diesel fuel they
produce. We projected that these shifts in the slate of fuel products
that refiners produce would have an overall positive impact on diesel
fuel supply. However, refiners that increase the volume of highway fuel
they produce would likely chose to calculate their baseline using their
lower 2003-2005 production volumes. Doing so would result in a lower
percentage of their distillate fuel that would be required to be
produced for highway diesel use, and subject to a 15 ppm sulfur
standard.
The volume of spillover could also be reduced refiners were to dye
500 ppm sulfur diesel they manufactured to meet anticipated NRLM diesel
fuel demand in order to avoid needing to comply with the baseline
approach. Many refiners commented that they
[[Page 39061]]
considered the baseline approach so unworkable and onerous that they
would choose to dye all of their 500 ppm sulfur NRLM diesel fuel at the
refinery gate. This could force some parts of the distribution systems
which had previously not carried two grades of diesel fuel for highway
and off-highway uses to begin doing so.
In summary, we are not finalizing the proposed baseline system
because we believe--
1. It could unnecessarily constrain refiners ability to meet market
demands, encouraging them to dye 500 ppm sulfur NRLM diesel fuel at the
refinery resulting in an added burden to the distribution system;
2. It could create a bias that could result in a loss in the volume
of 15 ppm sulfur highway diesel fuel produced, and the options to
remove these market constraints would only increase the bias to reduce
the volume of 15 ppm sulfur highway diesel fuel; and
3. The baseline approach would not ensure that the environmental
benefits of the 2007 highway diesel program would be maintained.
ii. Designate and Track Approach
At the time of the NPRM, we invited comment on an alternative to
the baseline approach called the ``designate and track'' approach.
Under the envisioned designate and track approach, refiners and
importers would designate the volumes of 500 ppm sulfur diesel fuel
they produce/import as either highway or NRLM diesel fuel and would
ship them fungibly. These designations would follow the fuel through
the distribution system and be used to restrict the sale of 500 ppm
sulfur NRLM diesel fuel from the highway market. While we sought
comment on various forms of the designate and track approach, we also
expressed serious reservations regarding its workability,
enforceability, impact on the benefits of the highway rule, and
constraints on the distribution system. For example, at the time of the
proposal, refiners supported a designate and track approach where
certain parts of the distribution system (e.g., pipelines) did not have
to report. EPA believed that such an approach was unenforceable.
Refiners were also supporting the designate and track approach as an
option for refiners to choose in addition to the baseline approach.
However, EPA believed that the two approaches were incompatible.
As noted in the proposal, the designate and track approach allows
maximum flexibility for refiners and importers, but EPA had concerns
that the volume reconciliation requirements would inappropriately
restrict the flexibility of downstream parties to respond to market
changes. EPA also had concerns that it would reduce the amount of 15
ppm spillover from the highway market, reducing the environmental
benefits of that rule.
Since the proposal, we received extensive input both in the written
comments and through in-depth meetings with representatives of all
segments of the fuel distribution industry on how the designate and
track system might be structured to provide the needed compliance
oversight without placing an undue burden on industry. Refiners now
agree that the designate and track approach should not be an option for
refiners in addition to the baseline approach, and support it as a
stand alone approach. All parties in the fuel distribution system have
also now expressed support for the record keeping and reporting
requirements associated with tracking designated fuel volumes through
each custodian in the distribution chain until the fuel leaves the
terminal either taxed or dyed. Furthermore, commenters from all
segments of the fuel distribution industry from the refiner through to
the terminal stated that the information needed to support the
designate and track approach is already kept as part of normal business
practices. Commenters stated that only modest upgrades in their record
keeping procedures would be needed to compile the needed information
and that preparing the necessary reports would not represent a
significant burden. Thus, our concerns that a designate and track
approach might represent a large burden to fuel distributors were
unfounded.
In addition, we have developed appropriate solutions to the various
open questions and issues that we had with the designate and track
approach at the time of the proposal. In the proposal it was unclear
how a designate and track approach would be structured to account for
the swell in highway diesel fuel volumes in the winter that results
from downstream kerosene blending to improve cold flow properties.
Without an adequate control mechanism, normal swell in downstream
highway diesel fuel volumes in the North due to kerosene blending
during winter months could mask the inappropriate shifting of NRLM-
designated 500 ppm sulfur fuel to the highway diesel pool. We have
developed an appropriate mechanism to address this situation as
described in section IV.D.3.
In the proposal, we also expressed concerns regarding how normal
volumetric fluctuations in the distribution system such as those caused
by product downgrading in pipelines could be adequately accounted for
under a designate and track system so that such fluctuations would not
mask the inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to
the highway pool. We have subsequently developed a periodic volume
account balance system to account for such fluctuations.
Through discussions with terminal operators, we have also resolved
concerns expressed in the NPRM that a designate and track approach
might limit a terminal operator's ability to respond to shifts in
demand for 500 ppm sulfur highway versus NRLM diesel fuel. To avoid
this potential problem today's rule allows terminal operators and
others to switch the designation of 500 ppm sulfur NRLM diesel fuel to
highway diesel fuel on a temporary basis but not on a cumulative basis
over time. This will allow terminal operators to sell NRLM designated
500 ppm sulfur fuel into the highway market provided that they later
sell the same volume of highway-designated 500 ppm sulfur fuel into the
NRLM market. To ensure that 500 ppm sulfur NRLM diesel fuel is not
inappropriately shifted into the highway diesel pool, terminal
operators will need to demonstrate that the volume of 500 ppm sulfur
highway diesel fuel they delivered is less than or equal to the volume
received.
In the NPRM, we stated that determining the responsible party for a
violation of the restriction against shifting 500 ppm sulfur NRLM
diesel fuel into the highway pool would be difficult under a designate
and track approach because a number of parties in the distribution
chain take custody of the fuel without taking ownership. However, this
concern can be addressed by structuring the provisions to hold the
custodian of the fuel accountable for any such violation that takes
place while the fuel is in their custody. Review of electronic data
submitted from all custodians in the highway and NRLM diesel fuel
distribution chain will reveal the custodian responsible for a
violation. By comparing such data on the hand-offs of designated fuel
volumes between all adjacent pairs of custodians in the distribution
chain for discrepancies, we can identify any party responsible for
inappropriately shifting volumes of 500 ppm sulfur fuel designated for
use in NRLM equipment to the highway market. Many terminals do not take
ownership of the fuel that they handle. Terminals that lease storage
tanks to multiple owners will need to enter into contractual agreements
with their tenants to ensure that they understand their obligations as
[[Page 39062]]
a custodian of designated fuel and do not inappropriately change the
designation of fuels stored in such leased tanks.
An effective enforcement and compliance assurance program must
include the ability to rapidly and accurately review the large amount
of data on the hand-offs of designated fuel volumes for discrepancies.
This can be accomplished if all parties report electronically to a
database which can reconcile hand-off volumes between all parties in
the distribution chain in an automated fashion. All segments in the
fuel distribution system are now in support of providing the necessary
information to such an electronic reporting system. We have conducted a
review of the Agency resources that would be needed to compile the
industry reports on the transfer of designated fuel volumes, perform
quality assurance on these data, and to perform the necessary analysis
of the database to discover potential violations. Our review indicates
that the reporting forms can be standardized and the review process
automated in such a fashion as to minimize the Agency resource
requirements, while at that same time ensuring the quality of the data
and completeness of the review process. In light of the above
discussion, we are now convinced that a designate and track approach
can be designed to meet our enforcement and compliance assurance needs
under today's rule.
In addition to concerns regarding the workability and
enforceability of a designate and track approach, the NPRM expressed
concerns that application of such an approach could reduce the benefits
of the highway diesel program by reducing the amount of highway diesel
fuel that is used in nonroad equipment due to the logistical
constraints in the distribution system (``spillover''). Specifically,
it was thought that the opportunity to fungibly ship batches of 500 ppm
sulfur NRLM diesel fuel and 500 ppm sulfur highway diesel fuel might
allow refiners to supply highway and NRLM diesel fuel to markets where
they would otherwise have supplied just highway fuel for both purposes.
Our reevaluation since the proposal indicates that this is not a
significant concern. As noted earlier, there are currently substantial
regions of the country where only highway diesel fuel is supplied by
bulk shipments to both the highway and NRLM markets due to the high
costs associated with segregating an additional distillate grade in the
distribution system.\112\ These are the same areas where the majority
of spillover occurs today. After the highway diesel program becomes
effective in 2006, we project that only 15 ppm sulfur highway diesel
fuel will be supplied in bulk shipments to both the highway and NRLM
markets in most of these same areas. Although 500 ppm sulfur highway
diesel fuel could be shipped in bulk to these areas through 2010 under
the highway program's TCO, the potential demand for such fuel and for
500 ppm sulfur NRLM diesel fuel would not be sufficient to justify the
cost of segregating an additional grade of 500 ppm sulfur diesel fuel
in these areas for a short period of time. The designate and track
approach does not impact the costs of segregation, and therefore is not
expected to change distribution patterns that are based on these costs.
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\112\ This highway diesel fuel would meet the currently-
applicable 500 ppm sulfur standard for highway diesel fuel.
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After 2010, when 500 ppm sulfur highway fuel no longer exists, the
total volume of 500 ppm sulfur diesel fuel in the distribution system
will be substantially reduced, and there will be even less incentive to
distribute an additional grade of 500 ppm sulfur diesel fuel in bulk.
Therefore, the only areas where substantial flexibility will exist
under today's program to supply either highway or NRLM diesel fuel to
the NRLM market is in areas where this flexibility exists today.
Despite this flexibility in the current regulations, spillover
currently still occurs. Therefore, we project that there will be little
additional potential due to today's rule for refiners to reduce highway
spillover into the NRLM market under a designate and track approach and
that such spillover levels would not be significantly reduced from
historical levels. In contrast, as discussed above, we now believe that
the baseline approach would have resulted in a significant loss of 15
ppm diesel production.
Furthermore, concerns regarding a potential reduction in the
spillover of 15 ppm sulfur highway diesel into the NRLM markets has
been lessened by the information provided in the highway program pre-
compliance reports. These reports suggest that more than 95 percent of
highway diesel fuel will be produced to a 15 ppm sulfur standard
beginning in 2006. In calculating the projected benefits of the highway
diesel program, we assumed that only 80 percent of highway diesel fuel
would meet a 15 ppm sulfur standard. Therefore, the actual benefits of
the highway program will be substantially greater than estimated if the
projections in the pre-compliance reports are realized.
Based on the above discussion, we believe that the concerns
regarding the designate and track approach's workability,
enforceability, and ability to preserve the benefits of the highway
program and today's NRLM diesel fuel program have been satisfactorily
resolved.
b. Ensuring That Heating Oil Is Not Used in NRLM Equipment From June 1,
2007 Through June 1, 2010
i. Use of a Fuel Marker in Heating Oil
To prevent shifting heating oil into the NRLM market, we proposed
that a fuel marker be added to heating oil at the refinery gate. We
proposed that the presence of the marker required in heating oil would
be strictly prohibited in NRLM diesel fuel. As noted earlier, this
approach is similar to red dye requirements for high sulfur diesel fuel
that were implemented in 1993 to prevent its use as highway diesel fuel
subject to the then applicable 500 ppm sulfur standard.
We proposed that the marker be added at the refinery gate rather
than at the terminal for several reasons. First, this seemed to be the
most efficient and lowest cost option for addition of the marker given
that the number of terminals is far greater than the number of
refineries.\113\ Second, requiring that the marker be present in
heating oil when it is introduced into the distribution system would
ensure that we could differentiate high sulfur small refiner and credit
fuel from heating oil at any point in the system. This approach would
provide good assurance that the inability to use fuel sulfur content to
differentiate heating oil from high sulfur NRLM diesel fuel produced
under the small refiner and credit provisions in today's rule
(effective until June 1, 2010) would not provide an opportunity to mask
the potential use of heating oil in NRLM equipment. Providing such
assurance is an essential element to enable the implementation of the
small refiner and credit provisions in today's rule. Lastly, under the
proposed baseline approach, there was no other way to ensure that
heating oil was not shifted into the NRLM diesel fuel pool during
distribution from the refinery/importer to the terminal.
---------------------------------------------------------------------------
\113\ Additional injection equipment will be required to inject
the heating oil marker.
---------------------------------------------------------------------------
We received numerous comments that the upstream addition of the
proposed marker to heating oil would raise significant concerns that
the marker
[[Page 39063]]
might contaminate jet fuel. Commenters stated that this would represent
a substantial safety concern unless the proposed marker was proven not
to adversely impact the quality of jet fuel and the operation of jet
engines.
The designate and track approach described above for 500 ppm sulfur
NRLM diesel fuel, however, also provides an effective means to address
concerns about the use of the fuel marker. By extending the designate
and track approach to high sulfur NRLM diesel fuel and heating oil,
these otherwise identical fuel grades can be tracked down to the
terminal, and the marker then can be added at the terminal instead of
at the refinery gate. Going beyond the terminal with designate and
track is not feasible give the breadth and nature of entities
involved.\114\ As a result, the marker is still required downstream of
the terminal. However, shifting the point of marker addition downstream
to the terminal should eliminate any significant opportunity for jet
fuel contamination. Subsequent comments and discussions appear to have
confirmed this.\115\ EPA will continue to work with other federal
agencies, including FAA and DoD, and to follow ongoing research and
studies regarding the effect of dyes and markers on jet fuel,
particularly potential contamination that could have an adverse impact
on the safe operation of aircraft. We will keep abreast of the ASTM,
CRC, FAA, IRS, and EU activities regarding the evaluation of the use of
SY-124 and commit to a review of our use of SY-124 under today's rule
based on these findings. If alternative markers are identified that do
not raise concerns regarding the potential contamination of jet fuel,
we will initiate a rulemaking to evaluate the use of one of these
markers in place of SY-124.\116\
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\114\ Including every end-user of heating oil.
\115\ Letter to Paul Machiele, EPA, from James Thomas, American
Society for Testing and Materials (ASTM), entitled ``Withdrawal of
ASTM Request,'' January 19, 2004. In this letter ASTM withdraws its
request for a postponement of the finalization of the heating oil
marker requirements in today's rule. See section V.E regarding the
selection of the heating oil marker required in today's rule.
\116\ See section VIII.H. of today's preamble.
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We also received a number of comments expressing concern over the
inability of the proposed marker to be detected using the standard
simple test used today to detect contamination with red dye.\117\ The
marker finalized by today's rule does not provide visual evidence of
its presence. However, if the marker is added at the terminal it will
only be present in heating oil when red dye is also present. The fact
that heating oil will be dyed red pursuant to IRS requirements before
it leaves the terminal will enable jet fuel distributors to continue to
use the ``white bucket test'' to detect heating oil contamination, and
hence marker contamination of jet fuel. Today's rule also includes a
stand-alone requirement that any fuel to which the fuel marker is added
must also contain visible evidence of red dye.\118\
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\117\ To test for contamination, jet fuel marketers typically
fill a white five gallon bucket with jet fuel. The presence of a
pink tinge to the light straw colored jet fuel indicates that the
fuel has been contaminated with fuel that contains red dye.
\118\ If IRS amends its red dye requirements, EPA will also
seriously consider amending the fuel marker and associated red dye
requirements contained in today's rule. See section V.E. of today's
preamble.
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ii. Provisions To Ensure Heating Oil Is Not Used in NRLM Equipment in
the Northeast and Mid-Atlantic
In the Northeast, heating oil will continue to be distributed in
significant quantities after implementation of the NRLM diesel fuel
program. Discussions with terminal operators in the Northeast, and
other representatives of heating oil users and distributors, revealed
concerns that the proposed heating oil marker requirement would
represent a substantial new burden on terminal operators and users of
heating oil. Terminal operators stated that the cost of installing new
injection equipment would be burdensome, and that the cost of the
marker itself would be significant given the large volume of heating
oil used in the Northeast. They also stated that they did not expect
any small refiner or credit fuel to be used in the Northeast, and that
consequently, the marker requirement was not needed in this area. They
suggested that if we prohibited the sale of small refiner and credit
fuel in PADD I, this area could be exempted from the heating oil marker
requirement.
We evaluated the viability of avoiding the heating oil marker
requirement in portions of PADD I and instead enforcing the NRLM diesel
fuel standards on the basis of sulfur content alone. The heating oil
marker is needed to ensure that heating oil is not sold into the NRLM
market as high sulfur NRLM fuel. The marker is needed only if high
sulfur NRLM fuels will otherwise be in the market. High sulfur NRLM
fuel can be produced under the small refiner and credit provisions, and
through the generation of high sulfur NRLM in the distribution system
from the downgrading of 500 ppm sulfur NRLM. In evaluating the
feasibility of avoiding the heating oil marker, EPA therefore focused
on determining the likely production and marketing of these high sulfur
NRLM fuels in portions of PADD I in this time frame.
We held in-depth discussions with organizations representing
refiners, pipelines, and terminal operators to evaluate this issue.
Representatives of non-small refiners including API and NPRA stated
that being precluded from selling sulfur credit fuel in the Northeast
and Mid-Atlantic would not significantly reduce the intended benefits
to refiners of the credit provisions in today's rule. We also spoke
with small refiner representatives of and the specific small refiners
whose marketing area might include the Northeast and Mid-Atlantic and
found that in fact, small refiners were not expected to market fuel in
this area. Finally, we evaluated the current and likely future
practices in the Northeast and Mid-Atlantic areas for the sale of
downgraded fuel generated in the distribution system. We found that
this downgraded diesel fuel could easily continue to be sold in the
very large and ubiquitous heating oil market that is expected to
continue to exist in this region. This avoids any need for additional
storage or tankage for both high sulfur and low sulfur NRLM fuels, and
fits into the pre-existing market structure for heating oil.
Consequently, unlike the rest of the country, there was little
expected need to maintain a high sulfur NRLM market in this part of the
country as an outlet for small refiner, credit, or off-specification,
downgraded diesel fuel. Based on this input, we concluded that
codifying this expected practice and making it enforceable, i.e. not
allowing high sulfur fuel to be marketed as NRLM in this area of the
country, would be consistent with the current distribution practices in
this area of the country and that the potential impact of taking such
an approach on the flexibility offered in the program would be minimal
or nonexistent. If we codified it we would no longer need the marker
requirement, and the resulting benefits and cost savings to terminals
would be substantial. The approach would also simplify and strengthen
the enforcement of today's sulfur requirements in this area by allowing
EPA to enforce the NRLM standards simply based on the measurement of
the sulfur content of the fuel. There would be little expected impact
on the environment as this is not expected to change the amount of high
sulfur fuel produced from small refiners, credit usage, or downgrade in
the distribution system, only the market into which it is sold.
[[Page 39064]]
In deciding which parts of PADD I to use this enforcement
mechanism, we attempted to minimize the number of terminals that would
need to install new injection equipment and the amount of heating oil
that would need to be marked, while preserving the benefits of the
small refiner and credit fuel provisions in today's rule to the maximum
extent possible. To assess the placement of the boundary for the
Northeast/Mid-Atlantic area where the marker requirement was waived, we
evaluated the magnitude of heating oil demand by state (see chapter 5
of the RIA), solicited input from the potentially affected parties,
evaluated the area supplied by the pipeline distribution systems that
are expected to continue to ship heating oil after the implementation
of today's rule, evaluated the locations of terminals that are likely
to receive bulk shipments of heating oil, evaluated the distribution
area of small refiner(s) for high sulfur NRLM diesel fuel, and reviewed
heating oil use levels in areas that will have access to bulk shipments
of heating oil. Based on our assessment we concluded that defining the
Northeast/Mid-Atlantic area as described below would best achieve our
goals.\119\ In most cases, whole states in PADD 1 were assigned to this
``Northeast/Mid-Atlantic'' area. This decision was primarily based on
the continued high level of heating oil use projected in these states
and the lack of significant concern regarding the elimination of the
program's flexibilities to produce high sulfur NRLM diesel fuel in
these states. A few counties in Eastern West Virginia were also
assigned to the Northeast/Mid-Atlantic area based on supply patterns in
the area. On the other hand, a number of counties in Western New York
and Pennsylvania were not assigned to the Northeast/Mid-Atlantic area
due to the need to maintain flexibilities for refiners serving this
area.
---------------------------------------------------------------------------
\119\ See chapter V of the RIA for a detailed discussion of the
analysis which supports our definition of the Northeast/Mid-Atlantic
areas where the marker requirement is waived. See section VI of
today's preamble and chapter VII of the RIA for a discussion of the
costs of the heating oil marker requirements finalized by today's
rule.
---------------------------------------------------------------------------
In summary, the areas excluded from the marker requirement and
where the sale of NRLM diesel fuel produced or imported under the
credit and hardship provisions or from the downstream downgrade
provisions of today's rule is prohibited are: North Carolina, Virginia,
Maryland, Delaware, New Jersey, Connecticut, Rhode Island,
Massachusetts, Vermont, New Hampshire, Maine, Washington DC, New York
(except for the counties of Chautauqua, Cattaraugus, and Allegany),
Pennsylvania (except for the counties of Erie, Warren, Mc Kean, Potter,
Cameron, Elk, Jefferson, Clarion, Forest, Venango, Mercer, Crawford,
Lawrence, Beaver, Washington, and Greene), and the eight eastern-most
counties in West Virginia (namely: Jefferson, Berkeley, Morgan,
Hampshire, Mineral, Hardy, Grant, and Pendleton). The Northeast/Mid-
Atlantic Area is illustrated in the following figure:
[GRAPHIC] [TIFF OMITTED] TR29JN04.003
As discussed in section IV.D.2 below, the marker requirement for
500 ppm sulfur LM diesel fuel that will be effective outside of this
Northeast/Mid-Atlantic area and Alaska from June 1, 2010, through May
31, 2012, was not a significant factor in our evaluation of how to
define the boundary of the Northeast/Mid-Atlantic area. We expect that
locomotive and marine diesel fuel subject to the marker requirements
will primarily be distributed via segregated pathways from a limited
number of refineries. Therefore, a significant number of terminals will
not need to handle LM diesel fuel that is subject to the marker
requirement. Thus, the potential cost of installing injection
[[Page 39065]]
equipment to add the marker to 500 ppm sulfur LM diesel fuel which is
subject to the marker requirement will be limited to only a few
refineries and terminals (i.e. approximately 15, see section VI.A of
today's preamble).
In all areas of the country other than the Northeast/Mid-Atlantic
area shown in figure IV.D-1 (and Alaska as discussed below), heating
oil, and high sulfur NRLM diesel fuel will be designated at the
refinery or importer and tracked through the distribution system to the
terminal. From June 1, 2010, through May 31, 2012, 500 ppm sulfur LM
diesel fuel and 500 ppm nonroad diesel fuel must also be designated at
the refinery or importer and tracked through the distribution system to
the terminal outside of the Northeast/Mid-Atlantic area and Alaska. The
specified fuel marker (see section V.E of this preamble) must be added
to heating oil distributed from all terminals located outside of the
Northeast/Mid-Atlantic area defined above and Alaska. The same fuel
marker must also be added to 500 ppm sulfur LM diesel fuel produced at
a refinery or imported that is distributed from terminals located
outside of the Northeast/Mid-Atlantic area and Alaska from June 1,
2010, through May 31, 2012. This includes all heating oil and the
subject 500 ppm sulfur LM diesel fuel distributed from terminals
outside of the Northeast/Mid-Atlantic area regardless of whether the
fuel is delivered to a retailer, wholesale purchaser-consumer, or end-
user located inside or outside of the Northeast/Mid-Atlantic area.
Terminals inside the Northeast/Mid-Atlantic area are exempted from
the fuel marker requirements in today's rule, but only for the volume
of heating oil and 500 ppm sulfur LM diesel fuel subject to the marker
requirements that is used by wholesale-purchaser-consumers and end-
users that are located inside the Northeast/Mid-Atlantic area. Any
heating oil and subject 500 ppm sulfur LM diesel fuel distributed from
terminals inside the Northeast/Mid-Atlantic area to a retailer,
wholesale-purchaser-consumer, or end-user that is located outside of
the Northeast/Mid-Atlantic area must be marked.
Terminal operators do not often distribute fuel to retailers,
wholesale-purchaser-consumers, and end-users directly. This task is
frequently accomplished by ``jobbers'' who pick up large tank truck
loads of fuel from the terminal for delivery to their retailer and
wholesale-purchaser-consumer customers, ``heating oil dealers'' who
pick up fuel from a terminal using a smaller capacity tank truck (often
referred to as a tank wagon) for direct delivery to heating oil users,
and by bulk plant operators. Bulk plant operators pick up fuel from
terminals as described above. However, since they maintain their own
bulk fuel storage facilities, they have the choice of storing the fuel
at their facility prior to eventual delivery to their customers. Under
the provisions of today's rule, as long as a bulk plant only receives
heating oil to which the marker has already been added, it does not
have to register, keep records, or report. However, if it chooses to
receive any unmarked heating oil, then it will be treated the same as a
large terminal under the provisions of today's final rule. We do not
expect that bulk plants will handle LM diesel fuel to a significant
degree. For bulk plant operators that might handle LM diesel fuel,
today's rule provides that as long as a bulk plant does not receive any
500 ppm sulfur LM diesel fuel which is required to be marked under
today's rule, but which has not yet been marked, it does not have to
register, keep records, or report. However, if it chooses to receive
any unmarked 500 ppm sulfur LM diesel fuel which is subject to the
marker requirements under today's rule, then it will be treated the
same as a large terminal under the provisions of today's final rule.
Any party that transports bulk quantities of heating oil solely to
the Northeast/Mid-Atlantic area or within this area is not subject to
the designate and track requirements for heating oil described below.
Similarly, any party that transports bulk quantities of 500 ppm sulfur
LM diesel fuel solely to the Northeast/Mid-Atlantic area or within this
area is not subject to the designate and track requirements for LM
diesel fuel. However, any high sulfur fuel distributed from inside the
Northeast/Mid-Atlantic area to outside of the Northeast/Mid-Atlantic
area must be designated as heating oil by the party responsible for the
transfer and must be marked. Likewise, any 500 ppm sulfur LM diesel
fuel distributed from inside the Northeast/Mid-Atlantic area from June
1, 2010, through May 31, 2012, must be designated as 500 ppm sulfur LM
diesel fuel by the party responsible for the transfer and must be
marked.
Entities who are required to inject marker into heating oil must
maintain records of the volume of marker used in heating oil, and the
volume of heating oil distributed over the compliance period. Entities
that are required to inject marker into 500 ppm sulfur LM diesel fuel
must maintain records of the volume of marker used in 500 ppm sulfur LM
diesel fuel, and the volume of 500 ppm sulfur LM diesel that is
required to be marked which is distributed over the compliance period.
These records must demonstrate that the prescribed marker concentration
was present in the heating oil and the 500 ppm sulfur LM diesel fuel
subject to the marker requirement that they discharged.
iii. State of Alaska
Although the fuel marker facilitates the enforcement of the NRLM
diesel fuel sulfur standards by distinguishing it from heating oil, as
described above, we are not requiring use in Alaska. Unlike the
situation in the Northeast and Mid-Atlantic area, however, we are not
prohibiting the production of high sulfur NRLM diesel fuel after 2007,
and 500 ppm nonroad diesel fuel from after 2010 by small refiners in
Alaska. While such a prohibition in the Northeast/Mid-Atlantic area
does not impact small refiners, flexibility for small refiners is
expected to be important in Alaska. Thus, we need to preserve the
flexibility for high sulfur NRLM diesel fuel in Alaska for small
refiners along with eliminating the marker. The program must therefore
provide another means of enforcing the NRLM diesel fuel sulfur
standards without eliminating a small refiner's ability to produce and
distribute high sulfur NRLM diesel fuel.
Under today's program we are finalizing a provision that will allow
flexibility for small refiners to delay compliance with the NRLM diesel
fuel sulfur standards as discussed in section IV.B. Small refiners in
Alaska may avail themselves of this option provided that the refiner
first obtains approval from the administrator for a compliance plan.
The plan must at a minimum show the following information:
(1) How they will segregate its fuel through to end-users;
(2) How they will segregate its fuels from other grades and
other refiners' fuels; and
(3) All end-users to whom the fuel is sold as well as the fuel
volumes.
End-users who receive the fuel must retain records of all fuel
shipments to demonstrate that no heating oil was used in NRLM diesel
equipment and that no 500 ppm sulfur LM diesel was used in nonroad
equipment. In order to limit the potential sources of fuel not meeting
the sulfur standard, constrain the number of end-users who may
legitimately have higher sulfur fuel in their NRLM diesel equipment,
and thus maintain the overall program's enforceability, we are not
finalizing the other provisions that allow for higher sulfur fuel to be
produced and/or distributed in Alaska (i.e., credit, transmix
processor, or downstream
[[Page 39066]]
distribution system provisions). In this regard, Alaska is treated in
the same manner as the Northeast/Mid-Atlantic area.
c. Updating the Highway Program's Anti-Downgrade Requirements
Under the highway diesel fuel program, each entity in the
distribution system may downgrade a maximum of 20 percent of the 15 ppm
sulfur highway diesel fuel it receives to 500 ppm sulfur highway diesel
fuel. However, there was no limit on the volume of 15 ppm sulfur
highway diesel fuel that could be downgraded to NRLM diesel fuel. Prior
to today's rule, this was appropriate because the sulfur content of
NRLM diesel fuel was uncontrolled, and hence once 15 ppm sulfur highway
diesel fuel was downgraded to NRLM diesel fuel such fuel could not be
used in the 500 ppm sulfur highway diesel market. The implementation of
today's 500 ppm sulfur standard for NRLM diesel fuel, however, means
that 15 ppm sulfur highway fuel downgraded to 500 ppm sulfur NRLM
diesel fuel potentially could be shifted into the highway market. This
could undermine the benefits of the highway program for the reasons
described previously. To prevent this situation, we proposed that the
anti-downgrading requirements under the highway diesel program would
also apply to the downgrading of 15 ppm sulfur highway diesel fuel to
500 ppm sulfur NRLM diesel fuel. We received comments from refiners and
fuel distributors that such a limitation would restrict their ability
to supply the NRLM diesel market, particularly in areas where refiners
plan to supply only 15 ppm sulfur diesel fuel for both the highway and
NRLM markets.
Putting in place the designate and track provisions allows 500 ppm
sulfur highway and 500 ppm sulfur NRLM diesel fuel to be tracked
separately. This enables the anti-downgrading requirements to only
apply to the downgrading of 15 ppm sulfur highway diesel fuel to 500
ppm sulfur highway fuel as originally required in the 2007 highway
final rule. In the context of the designate and track requirements in
today's rule, the highway program's anti-downgrading provisions are
clarified as described below. Similar to the approach described above
regarding the prevention of the use of 500 ppm sulfur NRLM diesel fuel
in the highway market, each custodian of 15 ppm sulfur No. 2 highway
diesel fuel must maintain records that demonstrate their compliance
with the highway program's anti-downgrade requirements. The anti-
downgrading requirements do not apply to 15 ppm sulfur No 1, diesel
fuel. Such fuel will be manufactured for wintertime blending to improve
diesel cold flow properties. In a number of areas we expect that 15 ppm
sulfur No. 1 fuel will be the only No.1 fuel available for winterizing
highway and NRLM diesel fuel, and heating oil. Therefore, applying the
anti-downgrading requirements to 15 ppm sulfur No. 1 fuel would be
unnecessary to maintain the availability of 15 ppm sulfur highway
diesel fuel, and would interfere with its intended use in the range of
No. 2 fuels.
From October 1, 2006, through May 31, 2010, all fuel distributors
downstream of the refiner or import facility must satisfy one of four
criteria as outlined in 40 CFR 80.598 of today's regulation to
demonstrate compliance with the highway program's anti-downgrading
requirements. These criteria are based on the designate and track
system for different grades of fuel through the distribution system.
The first criteria is the simplest and most straightforward, with the
least record keeping burden. It merely tracks a facility's No. 2 15 ppm
sulfur highway diesel volume receipts and deliveries and requires the
deliveries to be at least 80 percent of the receipts. Since the anti-
downgrading provisions were implemented to protect against intentional
downgrading and not to limit downgrading that would occur in the normal
distribution of 15 ppm sulfur fuel, we anticipate that most facilities
will be able to easily meet this simple criteria.
The second criteria tracks a facility's receipts and distribution
of both No. 2 15 ppm sulfur fuel and No.2 500 ppm sulfur highway diesel
fuel, and limits deliveries of No. 2 500 ppm sulfur highway diesel fuel
to no more than what was received plus 20 percent of the No. 2 15 ppm
sulfur highway diesel fuel volume received. This allows more
flexibility than the first criteria by not constraining downgrades to
NRLM diesel fuel or heating oil, but does so by requiring tracking and
records of volumes of No. 2 15 ppm sulfur highway diesel fuel received
and the products to which it is downgraded.
The third and fourth criteria provide even more flexibility,
especially for wintertime blending of No. 1 15 ppm sulfur highway
diesel fuel, and also for any temporary shifts that might occur between
NRLM diesel fuel and highway diesel fuel markets from 2007-2010.
However, a facility will have to meet more extensive criteria to
demonstrate compliance.
Today's final rule does not change any other aspects of the anti-
downgrading provisions finalized in the 2007 highway diesel final rule,
such as the provisions unique to fuel retailers.
2. Requirements During the Second Step of Today's Sulfur Control
Program
Beginning June 1, 2010, all NR diesel fuel and beginning June 1,
2012 all LM diesel fuel produced or imported must meet a 15 ppm sulfur
standard except for fuel manufactured under the credit and small
refiner provisions in today's rule. This credit and small refiner
diesel fuel must meet a 500 ppm sulfur level. From June 1, 2010 to June
1, 2012, all LM diesel fuel must meet a 500 ppm sulfur standard.
Today's rule also allows 500 ppm sulfur diesel fuel generated in the
pipeline distribution system to be used in NRLM equipment through May
31, 2014 \120\ and in locomotive and marine equipment thereafter. After
May 31, 2014, the credit and small refiner provisions expire.
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\120\ The use of 500 ppm fuel in nonroad equipment is restricted
to 2011 model year and earlier equipment.
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We proposed that once refiners were no longer able to produce 500
ppm sulfur diesel fuel for use in nonroad engines and such fuel had a
few months to work its way through the distribution system, that 500
ppm sulfur diesel fuel could no longer be used in nonroad equipment.
Today's rule adopts this proposed prohibition. Although today's rule
extends the 15 ppm sulfur nonroad diesel standard to locomotive and
marine diesel fuel, we have elected not to extend the prohibition
against the use of 500 ppm sulfur diesel fuel in locomotive and marine
equipment after refiners and importers are no longer allowed to
produce/import such fuel. Diesel fuel with a maximum sulfur
concentration of 500 ppm that is generated in the pipeline distribution
system can continue to be used in locomotive and marine equipment after
June 1, 2014, as discussed in section IV.A above.
Providing for the continued use of 500 ppm sulfur diesel fuel in
NRLM equipment through May 31, 2014, means that without adequate
controls similar to those under the first step of today's program, a
refiner could manufacture 500 ppm sulfur diesel fuel ostensibly for use
as heating oil which could actually be sold downstream into the NRLM
market through May 31, 2014. Similarly, the continued use of 500 ppm
fuel in locomotive and marine engines after May 31, 2014, means that
without adequate controls, a refiner could continue to manufacture 500
ppm sulfur diesel fuel ostensibly for use as heating oil which could
actually be sold
[[Page 39067]]
downstream into the locomotive and marine market indefinitely. To
prevent this possibility, we have elected to continue the designate and
track and marker requirements for heating oil applicable under the
first step of today's program indefinitely with some simplifications.
It is a significantly smaller program during the second step, since
only heating oil needs to be tracked, and we expect that by then very
little heating oil will be produced for sale outside of the Northeast/
Mid-Atlantic area. Consistent with the approach taken during the first
step of today's program, these designate and track provisions would not
be applicable in the Northeast/Mid-Atlantic area or Alaska, since the
flexibility to sell greater than 15 ppm sulfur diesel fuel into the
NRLM market there does not exist under this final rule.\121\ Any diesel
fuel with a sulfur content greater than 500 ppm beginning June 1, 2007,
any NR diesel fuel with greater than 15 ppm sulfur beginning June 1,
2010, and any LM diesel fuel with greater than 15 ppm sulfur beginning
June 1, 2012 in the Northeast/Mid-Atlantic area can only be sold as
heating oil, and if shipped outside of the Northeast/Mid-Atlantic area
must be marked as heating oil.
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\121\ Unless, in the case of Alaska, the refiner segregates its
fuel through to the end user as discussed in section IV.D.1.b.ii.
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While today's rule does not contain an end date for the downstream
distribution of 500 ppm sulfur locomotive and marine fuel, we will
review the appropriateness of allowing this flexibility based on
experience gained from implementation of the 15 ppm sulfur NRLM diesel
fuel standard. We expect to conduct such an evaluation in 2011. Were we
to discontinue the downstream provision for downgraded fuel, we would
also evaluate discontinuing the designate and track and marker
requirements for heating oil, as is the case now for the Northeast/Mid-
Atlantic area.
Providing for the continued production and import of 500 ppm sulfur
LM diesel fuel from June 1, 2010 to June 1, 2012 means that without
adequate controls similar to those under the first step of today's
program, a refiner could manufacture 500 ppm sulfur diesel fuel
ostensibly for use as LM diesel fuel which could actually be sold
downstream into the NR market. To prevent this possibility, we have
adopted designate and track and marker requirements similar to those
applicable to heating oil under the first step of today's program. For
these two years, 500 ppm sulfur NR and LM diesel fuel would be tracked,
and the 500 ppm sulfur LM fuel would be marked in the same manner as
heating oil. The same provisions that apply to marking of heating oil,
such as the Northeast/Mid-Atlantic area, would also apply to the
marking of 500 ppm sulfur LM fuel. The tracking and marking provisions
would not apply to any 15 ppm sulfur LM diesel fuel.
3. Summary of the Designate and Track Requirements
The designate and track program requires refiners and importers to
designate the volumes of diesel fuel they produce and/or import.
Refiners/importers will identify whether their diesel fuel is highway
or NRLM and the applicable sulfur level. They may then mix and fungibly
ship highway and NRLM diesel fuels that meet the same sulfur
specification without dyeing their NRLM diesel fuel at the refinery
gate. The volume designations will follow the fuel through the
distribution system with limits placed on the ability of downstream
parties to change the designation. These limits are designed to
restrict the inappropriate sale of 500 ppm sulfur NRLM diesel fuel into
the highway market; from 2007 to 2010, the inappropriate sale of 500
ppm sulfur LM diesel fuel into the 500 ppm sulfur NR market from 2010
to 2012; and the inappropriate sale of heating oil into the NRLM
market. The designate and track approach includes record keeping and
reporting requirements for all parties in the fuel distribution system,
associated with tracking designated fuel volumes through each custodian
in the distribution chain until the fuel exits the terminal. The
program also includes enforcement and compliance assurance provisions
to enable the Agency to rapidly and accurately review for discrepancies
the large volume of data collected on fuel volume hand-offs.
a. Registration
Each entity in the fuel distribution system, up through and
including the point where fuel is loaded onto trucks for distribution
to retailers or wholesale purchaser-consumers, must register each of
its facilities with EPA no later than December 31, 2005, or six months
prior to commencement of producing, importing, generating, or
distributing any designated diesel fuel.\122\ A facility is defined as
the physical location(s) where a party has custody of designated fuel,
from when it was produced, imported, or received from one party to when
it is delivered to another party. The definition also include mobile
components, such as the vessels in a barge facility. Examples of
facilities include refineries, import terminals, pipelines, terminals,
bulk plants, and barge systems. Where the same entity owns and operates
a series of locations in the distribution system (e.g., refiner to
pipeline to terminal), it may choose to register them as a single
aggregated facility, provided the entity maintains custody of the fuel
throughout the facility. However, if the aggregated facility includes a
refinery, then it may not receive any diesel fuel from another entity
at any place within the aggregated facility. Under this approach, a
pipeline could be treated as one facility from the point where it
receives fuel to the point where it either delivers it to a terminal,
or into a tank truck after passing through their terminal. The choice
made by the entity to treat these places as a single facility or
separate facilities may not change during any applicable compliance
period. These same definitions for facility will apply for both the
designate and track provisions, as well as the anti-downgrading
provisions of the highway rule. Therefore, if a proprietary system
chooses to aggregate into one facility for purposes of the designate
and track provisions, it will also be treated as one facility for
determining compliance with the 20 percent anti-downgrading limit of
the highway rule. EPA will provide a unique registration number to each
custodial facility of designated fuels. In addition, EPA intends to
work with industry subsequent to this final rule to provide guidance
regarding facility boundary and aggregation decisions that will address
the many unique situations.
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\122\ This requirement also applies to parties inside of the
Northeast/Mid-Atlantic area who handle heating oil.
---------------------------------------------------------------------------
The designation provisions described below require refiners and
importers to designate all distillates they produce or import
consistent with the production and end-use requirements in today's
rule. These designations serve as the foundation upon which the fuel
distributors are able to properly track, designate, redesignate, and
label the fuel they receive.
b. Designation by Refiners and Importers
i. Designation of 500 ppm and 15 ppm Sulfur Diesel Fuel
From June 1, 2006, through May 31, 2010, any refiner \123\ or
importer that
[[Page 39068]]
produces or imports 15 ppm sulfur diesel fuel, and/or 500 ppm sulfur
diesel fuel must designate all batches of such fuel as one of the
following. The purpose of this designation requirement is to ensure
that 500 ppm sulfur NRLM diesel fuel is not shifted into the highway
market, and to evaluate compliance with the highway program's anti-
downgrade requirements.
---------------------------------------------------------------------------
\123\ Transmix operators that produce diesel fuel from transmix
and terminal operators that produce from segregated interface will
be treated as a refiner for the purposes of compliance with these
requirements.
---------------------------------------------------------------------------
15 ppm sulfur No. 2 highway diesel fuel;
15 ppm sulfur No. 1 highway diesel fuel;
500 ppm sulfur No. 2 highway diesel fuel;
500 ppm sulfur No. 1 highway diesel fuel;
500 ppm sulfur No. 2 NRLM diesel fuel;
500 ppm sulfur No. 1 NRLM diesel fuel;
500 ppm sulfur jet fuel; or
500 ppm sulfur kerosene.
The start date for these requirements coincides with the start date
for the early credit program under today's final rule, and the start
date for the highway diesel program for the purposes of anti-
downgrading. The end date for these requirements coincides with the end
date for the highway program's Temporary Compliance Option and today's
NRLM diesel fuel early credit program.
Any batch of 15 ppm or 500 ppm No. 1 diesel fuel which is also
suitable for use as kerosene or jet fuel (referred to as dual-purpose
kerosene) may be considered kerosene or jet fuel and need not be
designated as highway or NRLM diesel fuel, even if it may later be
blended into highway or NRLM diesel fuel downstream of the refinery to
improve the cold-flow properties of the fuel. Upon such blending, the
kerosene or jet fuel takes on the designation of the diesel fuel into
which it was blended. We expect refiners and importers will elect to
designate all of their 15 ppm sulfur No. 1 diesel fuel as highway fuel,
since this will aid in their compliance with the highway program's 80/
20 highway fuel production requirement. Designation as highway diesel
fuel by the refiner will also help avoid downstream blending from
causing a violation by the downstream party under the tracking and
compliance calculations finalized today. We also expect that refiners
and importers will elect to designate their 500 ppm sulfur No. 1 fuel
as kerosene or jet fuel since this will be the predominant use for such
fuel, and designating it as highway would hinder their compliance with
the 80/20 highway requirements. As with 15 ppm sulfur kerosene or jet
fuel, downstream parties would later redesignate it as highway or NRLM
diesel fuel if blended in or used for these purposes. Any 500 ppm
sulfur diesel fuel containing visible evidence of red dye must be
designated as NRLM diesel fuel or heating oil unless it is tax exempt
highway diesel fuel (e.g., fuel for use in school buses or certain
municipal fleets).
The reported volumes of designated fuels must be the volumes
delivered to the first downstream party. This is typically a pipeline
facility, a marine barge/tanker loading dock that accepts product from
a refiner/importer, or the refiner's/importer's truck loading rack.
This is consistent with normal business practices. Refiners, importers,
and transmix processors are not required to add red dye to NRLM diesel
fuel unless the fuel is distributed over their truck loading rack such
that the IRS requires the addition of red dye for the assessment of
taxes.
Fuel designated by a refiner or importer as highway diesel fuel
must comply with the highway program's 80/20 requirement for 15 ppm/500
ppm sulfur highway diesel fuel. The volume of fuel designated as NRLM
early credit fuel must be consistent with the credit provisions in
today's rule. Since highway diesel fuel volumes are determined at the
point of delivery from the refiner/importer to another party, the anti-
downgrade requirements do not apply to refiners and importers. Under
the highway diesel fuel program, refiners that are required to produce
100 percent of their highway diesel fuel to a 15 ppm sulfur standard
are provided with an allowance to deliver a small percentage of 500 ppm
sulfur diesel fuel to the pipeline (e.g., small refiners and GPA
refiners who exercise an option under the 2007 highway rule to delay
compliance with gasoline sulfur standards). This allowance is provided
because a small volume of ``line-wash'' is typically generated in the
feed line from the refiner's facility to the pipeline. This line-wash
will often be suitable for use as 500 ppm sulfur highway diesel fuel.
Under the provisions of the highway rule this line-wash could have been
excluded from compliance with the 15 ppm standard if the refiner
accounted for their production volume prior to shipment. However, in
this rule, all volume-related requirements are keyed to the volume
actually delivered. As a result of this change in the point of fuel
volume measurement (delivered versus produced), we are amending the
highway diesel fuel program requirements such that refiner who was
previously required to produce 100 percent of its highway diesel fuel
to the 15 ppm sulfur standard may now produce 95 percent to the 15 ppm
sulfur standard (in order to avail itself of the extended gasoline
sulfur interim standards).
ii. Designation of High Sulfur NRLM Diesel Fuel, Heating Oil, and Jet
Fuel/Kerosene
From June 1, 2007 through May 31, 2010, any refiner, or importer
not located in the Northeast/Mid-Atlantic area or Alaska, that produces
or imports unmarked high sulfur distillate fuel must designate all
batches of such fuel as one of the following: heating oil, high sulfur
NRLM diesel fuel, or jet fuel/kerosene. Any heating oil distributed
from a refiner's or importer's rack not located in the Northeast/Mid-
Atlantic area or Alaska must contain the designated marker and red dye.
Any heating oil distributed from a refiner/importer rack inside of the
Northeast/Mid-Atlantic area or Alaska is exempted from the marker
requirement except any heating oil that is delivered outside the
Northeast/Mid-Atlantic area must be marked.
As discussed previously, 500 ppm sulfur diesel fuel may be used in
NRLM equipment through May 31, 2014 and in locomotive and marine
equipment thereafter. Therefore, designate and track provisions for
heating oil will be needed to ensure that heating oil is not shifted
into the NRLM market from June 1, 2007 through May 31, 2014, and to the
locomotive and marine market thereafter. Consequently, from June 1,
2010 through May 31, 2014, refiners and importers must continue to
designate any heating oil they produce as such as well as any 500 ppm
sulfur NRLM diesel fuel produced under the small refiner, transmix/
segregated interface, and credit provisions.
Beginning June 1, 2014, refiners and importers may no longer
produce or import 500 ppm sulfur diesel fuel for use in NRLM equipment.
Therefore, beginning June 1, 2014, all diesel fuel with a sulfur level
greater than 15 ppm must be designated as heating oil, jet fuel, or
kerosene. The one exception to this is transmix processors and
terminals acting as refiners which will be permitted to produce 500 ppm
sulfur diesel fuel for use in locomotive and marine equipment from
transmix and segregated interface.
iii. Designation of 500 ppm NR and 500 ppm LM Sulfur Diesel Fuel
From June 1, 2010, through May 31, 2012, any refiner or importer
that
[[Page 39069]]
produces or imports 500 ppm sulfur NR diesel fuel (small refiner and
credit) and/or 500 ppm sulfur LM diesel fuel must designate all batches
of such fuel. The purpose of this designation requirement is to ensure
that 500 ppm sulfur LM diesel fuel is not shifted into the NR market.
Any 500 ppm sulfur LM diesel fuel distributed from a refiner's or
importer's rack not located in the Northeast/Mid-Atlantic area or
Alaska must contain the designated marker and red dye, along with
heating oil. Any 500 ppm sulfur LM diesel fuel distributed from a
refiner/importer rack inside of the Northeast/Mid-Atlantic area or
Alaska is exempted from the marker requirement except any 500 ppm
sulfur LM fuel that is delivered outside the Northeast/Mid-Atlantic
area must be marked.
c. Designation and Tracking Requirements Downstream of the Refinery or
Importer
The result of the refiner/importer designation provisions is that
all of the diesel fuel received by distributors will be clearly and
accurately designated. The distributors are then subject to their own
designation and tracking requirements. The downstream provisions are
designed to ensure that certain fuel shifts do not occur, such as the
inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to the
highway market, the inappropriate shifting of 500 ppm sulfur LM diesel
fuel into the nonroad market, the inappropriate downgrading of 15 ppm
sulfur to 500 ppm sulfur highway diesel fuel, and the inappropriate
shifting of heating oil to the NRLM market. The downstream provisions
are designed to ensure these results in a readily enforceable manner
while maximizing downstream flexibility to address changing market
conditions.
In general, each time custody of designated fuel is transferred
from one facility to another facility, the transferor must designate
the fuel and record it's volume. The party who receives custody must
record the same information, to ensure that each party relies on the
same designation and volume for its own compliance purposes. This
process occurs each time custody of diesel fuel is transferred. Each
distributor may redesignate fuel while in its custody or when it is
delivered, subject to certain basic requirements. First, any re-
designation must be accurate. For example, 500 ppm sulfur NRLM diesel
fuel can not be redesignated as 15 ppm unless it in fact meets the 15
ppm standard. The sulfur standard applicable to downstream fuel is
based on the fuel's designation. Second, there are limits on the fuel
volumes that can be redesignated, calculated as a volume balance over a
specified compliance period. Specifically, the volumes of 15 ppm and
500 ppm sulfur highway received must be compared to the volumes of
these fuels delivered, to ensure that the amount of 15 ppm sulfur
highway diesel fuel that is downgraded to 500 ppm sulfur highway diesel
fuel complies with the highway program's anti-downgrading requirements.
The volumes of 500 ppm sulfur highway and NRLM diesel fuel that a
distributor receives must also be compared to the volumes of 500 ppm
sulfur highway and NRLM diesel fuel delivered, to ensure that NRLM
diesel fuel was not inappropriately transferred to the highway market.
The volumes of 500 ppm sulfur NR and LM diesel fuel received must be
compared to the volumes of 500 ppm sulfur NR and LM diesel fuel
delivered, to ensure that the 500 ppm sulfur LM fuel was not
inappropriately transferred to the NR market. In addition, the volumes
of heating oil received must be compared to the volumes distributed to
ensure it was not inappropriately transferred to the NRLM market. These
volume balances are calculated over a compliance period, providing
distributor's the day to day flexibility to redesignate fuel based on
market conditions, as long as the required volume balance is achieved
over the compliance period. Finally, once NRLM diesel fuel is dyed, 500
ppm sulfur LM diesel fuel is marked (2010-2012), or heating oil is
marked, the dye and marker may be used to ensure the fuels are not
inappropriately shifted to other markets, and the designation, tracking
and volume balance requirements are no longer needed; just the PTD,
labeling, and record keeping provisions typical of our other fuel
regulations (e.g., highway diesel) apply.
In large part, the designate and track provisions are structured to
be compatible with the normal business practices currently used by the
industry to record and reconcile volume transactions between parties.
As such, EPA expects that these downstream provisions can be
implemented in a fairly straightforward manner.
i. Designation and Tracking of 500 ppm and 15 ppm Sulfur Diesel Fuel
From June 1, 2006 through May 31, 2010, facilities downstream of
the refiner or importer must designate and maintain records of all
volumes of fuel designated as 15 ppm sulfur highway diesel fuel, 500
ppm sulfur highway diesel fuel, or 500 ppm sulfur NRLM diesel fuel that
they receive and deliver. In many cases, we expect that downstream
facilities will not change the designation of 500 ppm sulfur diesel
fuel from NRLM diesel fuel to highway while the fuel is in their
custody. However, to accommodate fluctuations in the demand for
highway-designated versus NRLM-designated 500 ppm sulfur fuel, today's
rule allows terminals and other distributors to change the designation
of 500 ppm sulfur fuel from NRLM diesel fuel to highway diesel fuel on
a daily basis, as long as the required volume balance is achieved over
the compliance period.\124\ Terminal operators must ensure that the
running balance of total highway-designated fuel that they discharged
from the beginning of today's program does not exceed the volume of
highway fuel that they received since, and had in their possession at
the beginning of today's program (adjusted for changes in inventory).
This simple one-sided test allows 15 ppm sulfur highway diesel fuel to
flow to 500 ppm sulfur highway diesel fuel (subject to anti-downgrading
limits), 500 ppm sulfur NRLM diesel fuel, or heating oil. It also
allows 500 ppm sulfur highway diesel fuel to flow to NRLM diesel fuel
or heating oil. However, the flow of NRLM diesel fuel to highway diesel
fuel must first have been offset by shifts from highway to NRLM diesel
fuel. In this way we can have assurance that the 500 ppm sulfur fuel
sold for highway purposes was in fact produced pursuant to the 80/20
requirements of the highway rule. Since any 500 ppm sulfur diesel fuel
in the possession of parties downstream of the refiner at the beginning
of today's program will be considered as highway diesel fuel, each
custodian will begin today's program with a positive volumetric account
balance regarding their input/output of highway-designated 500 ppm
sulfur. Conformity with this requirement will be evaluated by EPA at
the end of each quarterly compliance period.
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\124\ Any party is free to redesignate highway diesel fuel to
NRLM diesel fuel or heating oil at any time. The required volume
balance does not limit such designations.
---------------------------------------------------------------------------
In order to accommodate volumetric fluctuations due to such factors
as thermal expansion of the fuel, facilities such as pipelines upstream
of the terminal can use the same volumetric balance. However, since
these facilities typically do not, and should not change designations,
the compliance periods can be annual. In addition, to ensure that there
are no significant redesignations, we are also requiring that the
volume of highway-designated 500 ppm sulfur diesel fuel that a facility
[[Page 39070]]
discharges from its custody must be no greater than 102 percent of the
volume of such fuel that it received during each annual compliance
period. All parties downstream of the refiner, importer, or transmix
processor also must demonstrate that over any given compliance period,
they did not downgrade more than 20 percent of the 15 ppm highway
diesel fuel that they received to 500 ppm sulfur highway diesel fuel.
From June 1, 2006 through May 31, 2010, distributors must maintain
records regarding each transfer of a designated fuel into and out of
their facility on a batch-by-batch basis. These records must include
the EPA registration number of the source or recipient facility, and
the volume of each designated fuel transfer. However, for transfers of
dyed NRLM and highway diesel fuel on which taxes have been assessed,
the recipient or source facility need not be specifically identified.
In such cases, records must be kept regarding the total volume of dyed
and tax assessed fuel that is received, discharged, and in inventory
during each compliance period. After May 31, 2010, unique records for
these designate and track provisions are no longer required, but the
normal records and PTDs must still be kept regarding compliance with
the fuel standards.
ii. Designation and Tracking of High Sulfur NRLM Diesel Fuel and
Heating Oil
The requirements regarding the designation and tracking of heating
oil and high sulfur or 500 ppm sulfur NRLM diesel fuel parallel those
regarding the designation and tracking of 500 ppm sulfur highway and
NRLM diesel fuel discussed above. However, the requirements described
below pertain only to facilities not in the Northeast/Mid-Atlantic area
or Alaska, and to facilities inside of the Northeast/Mid-Atlantic area
that transport heating oil outside of the Northeast/Mid-Atlantic area.
From June 1, 2007 through May 31, 2010, facilities downstream of
the refiner or importer must designate all high sulfur diesel fuel they
distribute as NRLM diesel fuel and all heating oil they distribute as
heating oil, and must keep records of all volumes of fuel designated as
high sulfur NRLM diesel fuel or heating oil. In many cases, we expect
that downstream facilities will not change the designation of diesel
fuel from heating oil to high sulfur NRLM diesel fuel while the fuel is
in their custody. However, today's final rule provides the flexibility
to make this change in designation provided that volume balance
requirements for high sulfur NRLM diesel fuel are met.
The volume balance for heating oil requires that the volumes of
high sulfur NRLM diesel fuel and heating oil received must be compared
to the volumes of high sulfur NRLM diesel fuel and heating oil
delivered over a compliance period. The volume of high sulfur NRLM
diesel fuel may not increase by a greater proportion than the volume of
heating oil over a compliance period. There are many reasons why the
combined pool of high sulfur fuel will increase in volume such as the
inevitable downgrades from 15 ppm and 500 ppm when these fuels are
shipped by pipeline. The volume balance allows for this to occur while
keeping fuel produced as heating oil from being shifted to NRLM diesel
fuel. The volume balance calculation allows high sulfur NRLM diesel
fuel and heating oil to increase proportionately, satisfying both
needs. As discussed previously, high sulfur NRLM diesel fuel and
heating oil compliance will be required on a quarterly basis for
terminal facilities that add marker/dye (and are more likely to change
designations on a day to day basis), while compliance for other
entities (e.g., pipelines) will be on an annual basis. Compliance with
the volume balance requirement is determined by comparing volumes
received and delivered during that compliance period. There is no need
to have a running total volume of high sulfur NRLM diesel fuel
delivered from the beginning of the program since we do not expect any
party will need to redesignate heating oil to high sulfur NRLM diesel
fuel, even on a day-to-day basis. Further, we are not providing any
tolerance since sufficient flexibility already exists due to the many
sources of downgrade to heating oil.
Facilities must maintain records regarding each transfer of heating
oil and high sulfur NRLM diesel fuel that they receive and discharge
from June 1, 2007 through May 31, 2010 on a batch-by-batch basis.\125\
These records must include the EPA registration number of the source or
recipient facility, and the volume of each fuel transfer. However, for
transfers of marked heating oil, the recipient or source facility need
not be specifically identified. In such cases, records must be kept
regarding the total volume of marked heating oil that is received,
discharged, and in inventory during each compliance period. For
transfers of dyed high sulfur NRLM diesel fuel from a truck loading
rack, the specific recipients also do not need to be identified. In
such cases, records must be kept regarding the total volume of high
sulfur NRLM diesel fuel that is received, discharged, and in inventory
during each compliance period.
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\125\ As discussed in section V, these records must be kept for
five years.
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From June 1, 2010 through May 31, 2014, facilities downstream of
the refiner or importer must continue to designate heating oil and any
500 ppm sulfur NRLM diesel fuel that they distribute. Beyond June 1
2014, they must designate 500 ppm sulfur LM diesel fuel in addition to
heating oil. Designations for heating oil are subject to the volume
balance requirements and records must be kept on the designations.
Beginning June 1, 2010, the volume balance requirement for heating
oil is simply that the volume of heating oil may not decrease. As
discussed previously, there are many reasons why the volume could
increase. Consequently, if the volume decreases it would mean that
heating oil is being shifted to NRLM or locomotive and marine uses,
thereby allowing refiners to circumvent the NRLM diesel fuel sulfur
standards. Given the likely increase in heating oil volume for other
reasons, there should be ample flexibility provided with this one-sided
test to account for minor variations due to volume swell/shrinkage
related to temperature, meter differences, or other causes, so no
additional tolerance or flexibility is necessary.
iii. Designation and Tracking of 500 ppm Sulfur NR and LM Diesel Fuel
The requirements regarding the designation and tracking of 500 ppm
sulfur NR and LM diesel fuel parallel those regarding the designation
and tracking of 500 ppm sulfur highway and NRLM diesel fuel discussed
above. However, the requirements described below pertain only to
facilities not in the Northeast/Mid-Atlantic area or Alaska, and to
facilities inside of the Northeast/Mid-Atlantic area that transport 500
ppm sulfur NR and LM diesel fuel outside of the Northeast/Mid-Atlantic
area.
From June 1, 2010 through May 31, 2012, facilities downstream of
the refiner or importer must continue to designate 500 ppm sulfur NR
and LM diesel fuel that they distribute, and must keep records of all
volumes of fuel designated as these fuels. In many cases, we expect
that downstream facilities will not change the designation of diesel
fuel from 500 ppm sulfur LM to 500 ppm sulfur NR diesel fuel while the
fuel is in their custody. However, today's final rule provides the
flexibility to make this change in designation provided that volume
balance
[[Page 39071]]
requirements for 500 ppm sulfur NR diesel fuel are met.
The volume balance for 500 ppm sulfur NR and LM diesel fuel
requires that the volumes of 500 ppm sulfur NR and LM diesel fuel
received must be compared to the volumes of 500 ppm sulfur NR and LM
diesel fuel delivered over a compliance period. The volume of 500 ppm
sulfur NR diesel fuel may not increase by a greater proportion than the
volume of 500 ppm sulfur LM diesel fuel over a compliance period. The
combined pool of 500 ppm sulfur diesel fuel may increase in volume such
as the inevitable downgrades from 15 ppm and 500 ppm sulfur diesel fuel
when these fuels are shipped by pipeline. The volume balance allows for
this to occur while keeping fuel produced as 500 ppm sulfur LM diesel
fuel from being shifted to NR fuel. The volume balance calculation
allows 500 ppm sulfur NR and LM diesel fuel to increase
proportionately, satisfying both needs. 500 ppm sulfur NR and LM diesel
fuel compliance will be required on an annual basis, for terminal
facilities as well as other entities. Compliance with the volume
balance requirement is determined by comparing volumes received and
delivered during that compliance period.
Facilities must maintain records regarding each transfer of 500 ppm
sulfur NR and LM diesel fuel that they receive and discharge from June
1, 2010 through May 31, 2012 on a batch-by-batch basis. These records
must include the EPA registration number of the source or recipient
facility, and the volume of each fuel transfer. However, for transfers
of marked 500 ppm sulfur LM diesel fuel, the recipient or source
facility need not be specifically identified. In such cases, records
must be kept regarding the total volume of marked 500 ppm sulfur LM
diesel fuel that is received, discharged, and in inventory during each
compliance period. For transfers of dyed 500 ppm sulfur NR diesel fuel
from a truck loading rack, the specific recipients also do not need to
be identified. In such cases, records must be kept regarding the total
volume of 500 ppm sulfur NR diesel fuel that is received, discharged,
and in inventory during each compliance period.
EPA plans to work closely with members of the diesel fuel refining
and distribution industry, to provide clear and comprehensive guidance
on what is expected of the various parties under the designate and
track and volume balance provisions adopted in this rule. EPA invites
suggestions from these parties on the most useful ways to provide such
guidance.
d. Reporting Requirements
i. Compliance and Reporting Periods
We believe that any regulatory program should promote compliance
and deter non-compliance. Today's program includes compliance and
reporting provisions to deter noncompliance and to detect and correct
instances of noncompliance in a timely fashion. Under today's program
entities must submit to the Agency compliance reports containing
information on the diesel fuel volumes they handle, separately by fuel
designation category. Compliance with these volume designation and
tracking requirements will be determined on an annual basis for
refiners and pipelines and a quarterly basis for terminals during the
first step of today's program. Compliance will be determined on an
annual basis for everyone after 2010. To demonstrate compliance,
refiners, pipelines, and terminals will be required to submit reports
on a quarterly basis during the first step of today's program and then
on an annual basis every year thereafter.
We are requiring the submission of volume reports on a quarterly
basis during the first step of today's program for several reasons.
First, and most importantly, today's program allows entities to change
the designations of 500 ppm sulfur diesel fuel from NRLM diesel fuel to
highway diesel fuel and heating oil to NRLM diesel fuel on a daily
basis (provided that they later redesignate the same volume of 500 ppm
diesel fuel from highway diesel fuel to NRLM diesel fuel and the same
volume of NRLM diesel fuel to heating oil). Second, quarterly reporting
coupled with quarterly compliance by terminals will constrain the
magnitude of any noncompliance. Finally, during the start up of the
designate and track system, there may also be a greater potential for
errors in the transmission of records between custodians of designated
fuels, in the calculations related to compliance with the volume
account balance requirements, and in the materials provided in reports.
Today's program establishes quarterly compliance periods which are
based on standard industry practices. Specifically, the quarterly
compliance periods finalized in today's rule are as follows:
1st quarter: July 1-September 30;
2nd quarter: October 1-December 31;
3rd quarter: January 1-March 31;
4th quarter: April 1-June 30.
Where the start and end dates of the program do not line up with
these dates, the quarters are lengthened or shortened accordingly
(e.g., June 1, 2007-September 30, 2007, and April 1, 2010-May 31,
2010). Quarterly reports are due two months following the end of the
quarterly compliance period (i.e., December 1, March 1, June 1, and
September 1). Annual compliance periods begin on July 1 and end June 30
of the following year. Again, certain annual compliance periods were
lengthened or shortened to match the significant dates of the program
(e.g., June 1, 2007-June 30, 2008). Annual reports are due by August 31
following the annual compliance period. For the sake of simplifying
compliance and record keeping, the compliance periods for the highway
final rule have been adjusted to match these.
Reports must be submitted electronically, or in a form which
facilitates direct entry into an electronic database. Without reliance
on an electronic database and reporting system to cross check and
verify reported information, the designate and track provisions would
become so cumbersome as to be virtually unenforceable by EPA staff
given projected resource availability.
ii. Reporting Requirements During the First Step of Today's Program
During the first step of today's program, from June 1, 2007 through
May 31, 2010, entities must report to EPA for each of their facilities
regarding the total volume of each of the designated fuels that they
receive from, or discharge to, another entity's facility in the fuel
distribution system. If a facility is a refiner as well as a
distributor (e.g., a blender of biodiesel or blendstocks from
unfinished diesel fuel or heating oil or otherwise both accepts
previously designated fuel and also produces fuel), it must also report
both volumes produced and released to other entities in its capacity as
refiner and also report the volumes received and released for each
designation like any other terminal or pipeline.
For example, an entity that operates a pipeline may have multiple
points where it discharges fuel, and at each of these points it may
supply multiple terminals. The pipeline operator must report on the
receipt of designated fuel from each party that transfers fuel to it,
and on the designated fuel transferred by the pipeline at each
discharge point which specifies the fuel transferred, separately for
each of its terminal customers. Entities must report for each of their
facilities the total volumes of the designated fuels that were either
dyed red, marked, or on which taxes were assessed tax while in their
custody. Reports regarding these volumes do not
[[Page 39072]]
need to include details on the recipients of the fuel (but product
transfer documents must be kept to facilitate EPA's ability to compare
the outgoing transfers and to fuel received).
Entities that handle only dyed NRLM diesel fuel, dyed and marked
500 ppm sulfur LM diesel fuel (2010-2012) and heating oil, or highway
diesel fuel on which taxes have been assessed do not need to report to
EPA. Information from such entities is not needed for compliance
purposes, because there is no chance of violating the prohibitions
against the shifting of fuel from one pool to another contained in
today's rule without also violating either the requirement that highway
diesel fuel contain no red dye, or the requirement that NRLM diesel
fuel contain no heating oil marker. Furthermore, consistent with the
highway rule, there are no periodic reporting requirements regarding
the demonstration of compliance with the highway program's anti-
downgrading requirements in today's rule. Maintenance of records should
be sufficient for EPA to adequately monitor compliance with these
requirements, as insufficient 15 ppm sulfur diesel fuel availability in
an area should highlight potential anti-downgrading violations.
Quarterly reports from facilities downstream of the refinery and
importer must also include data on the total volume of the designated
fuels received, discharged, and in inventory during the quarterly
reporting period. Using these data, the reporting party must
demonstrate compliance with the volume account balance requirements
regarding highway diesel fuel and high sulfur NRLM.
iii. Reporting Requirements During the Second Step of Today's Program
We believe that we may safely dispense with quarterly reporting and
compliance evaluations starting June 1, 2010 and instead rely on annual
reports. During the second step of today's rule, the designate and
track requirements will be focused on preventing the use of heating oil
in NRLM equipment, and during 2010-2012 preventing the use of 500 ppm
sulfur LM diesel fuel in nonroad equipment. By 2010, all reporting
parties in the system will have had experience in complying with the
program's designate and track provisions. In addition, the Agency will
have had ample experience in administering the system. Consequently, we
expect that there will be few errors or omissions in reports and that
EPA will have determined how best to detect and remedy instances of
noncompliance. We believe an annual reporting period is therefore
sufficient and appropriate.
Beginning June 1, 2010, entities that produce, import, or take
custody of 500 ppm sulfur NRLM diesel fuel, marked heating oil, or
unmarked heating oil outside of the Northeast/Mid-Atlantic area and
Alaska, must submit an annual report to EPA that provides summary
information regarding the transfer of these fuels.\126\ Entities must
report for each of their facilities the total volume of each of these
fuels that they received from, or discharge to, another entity's
facility in the fuel distribution system during each annual compliance
period. For batches of heating oil that are delivered marked, the
reports do not need to indicate the entities to which the batches were
delivered--only the total volume of marked heating oil delivered during
each compliance period must be reported. If an entity only receives
marked heating oil (i.e., it does not receive any unmarked heating
oil), it does not need to report at all. If a facility received marked
heating oil in addition to unmarked heating oil, it must report the
volume of marked heating oil separately and indicate the facility from
which the marked heating oil was received.
---------------------------------------------------------------------------
\126\ 500 ppm sulfur NR diesel fuel, and starting June 1, 2012,
500 ppm sulfur NRLM diesel fuel, is not permitted in the Northeast/
Mid-Atlantic area and only in the State of Alaska in limited
circumstances.
---------------------------------------------------------------------------
Beginning June 1, 2010 to June 1, 2012, entities that produce,
import, or take custody of 500 ppm sulfur NR and LM diesel fuel outside
of the Northeast/Mid-Atlantic area and Alaska, must submit an annual
report to EPA that provides summary information regarding the transfer
of these fuels.\127\ Entities must report for each of their facilities
the total volume of each of these fuels that they received from, or
discharge to, another entity's facility in the fuel distribution system
during each annual compliance period. For batches of 500 ppm sulfur LM
diesel fuel that are delivered marked, the reports do not need to
indicate the entities to which the batches were delivered--only the
total volume of marked 500 ppm sulfur LM diesel fuel delivered during
each compliance period must be reported. If an entity only receives
marked 500 ppm sulfur LM diesel fuel (i.e., it does not receive any
unmarked 500 ppm sulfur LM diesel fuel), it does not need to report at
all. If a facility received marked in addition to unmarked 500 ppm
sulfur LM diesel fuel, it must report the volume of marked 500 ppm
sulfur LM diesel fuel separately and indicate the facility from which
the marked 500 ppm sulfur LM diesel fuel was received.
---------------------------------------------------------------------------
\127\ During this time period, 500 ppm sulfur NR diesel fuel is
not permitted in the Northeast/Mid-Atlantic area and only in the
State of Alaska in limited circumstances.
---------------------------------------------------------------------------
E. How Are State Diesel Fuel Programs Affected by the Sulfur Diesel
Program?
Section 211(c)(4)(A) of the CAA prohibits states and political
subdivisions of states from prescribing or attempting to enforce, for
purposes of motor vehicle emission control, ``any control or
prohibition respecting any characteristic or component of a fuel or
fuel additive in a motor vehicle or motor vehicle engine,'' if EPA has
prescribed ``a control or prohibition applicable to such characteristic
or component of the fuel or fuel additive'' under section 211(c)(1).
This prohibition applies to all states except California, as explained
in section 211(c)(4)(B). This express preemption provision in section
211(c)(4)(A) applies only to controls or prohibitions respecting any
characteristics or components of fuels or fuel additives for motor
vehicles or motor vehicle engines, that is, highway vehicles. It does
not apply to controls or prohibitions respecting any characteristics or
components of fuels or fuel additives for nonroad engines or nonroad
vehicles.\128\
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\128\ See 66 FR 36543, July 12, 2001 (notice proposing approval
of Houston SIP revisions). See also letter from Carl Edlund,
Director, Multimedia Planning and Permitting Division, U.S.
Environmental Protection Agency, Region VI, to Jeffrey Saitas,
Executive Director, Texas Natural Resources Conservation Commission,
dated September 25, 2000, providing comments on proposed revisions
to the Texas State Implementation Plan for the control of ozone,
specifically the Post 99 Rate of Progress Plan and Attainment
Demonstration for the Houston/Galveston area. This letter noted that
preemption under section 211(c)(4) of the CAA did not apply to
controls on nonroad diesel fuel.
---------------------------------------------------------------------------
Section 211(c)(4)(A) specifically mentions only controls respecting
characteristics or components of fuel or fuel additives in a ``motor
vehicle or motor vehicle engine,'' adopted ``for purposes of motor
vehicle emissions control,'' and the definitions of motor vehicle and
nonroad engines and vehicles in CAA section 216 are mutually exclusive.
This is in contrast to sections 211(a) and (b), which specifically
mention application to fuels or fuel additives used in nonroad engines
or nonroad vehicles, and with section 211(c)(1) which refers to fuel
used in motor vehicles or engines or nonroad engines or vehicles.
Thus, today's action does not preempt state controls or
prohibitions respecting characteristics or components of fuel or fuel
additives used in nonroad, locomotive, or marine engines or
[[Page 39073]]
nonroad, locomotive, or marine vehicles under the provisions of section
211(c)(4)(A). At the same time, a state control that regulates both
highway fuel and nonroad fuel is preempted to the extent that the state
control respects a characteristic or component of highway fuel
regulated by EPA under section 211(c)(1).
A court may consider whether a state control for fuels or fuel
additives used in nonroad engines or nonroad vehicles is implicitly
preempted under the supremacy clause of the U.S. constitution. Courts
have determined that a state law is preempted by federal law where the
state requirement actually conflicts with federal law by preventing
compliance with the federal requirement, or by standing as an obstacle
to accomplishment of congressional objectives. A court could thus
consider whether a given state standard for sulfur in nonroad,
locomotive or marine diesel fuel is preempted if it places such
significant cost and investment burdens on refiners that refiners
cannot meet both state and federal requirements in time, or if the
state control would otherwise meet the criteria for conflict
preemption.
F. Technological Feasibility of the 500 and 15 ppm Sulfur Diesel Fuel
Program
This section summarizes our assessment of the feasibility of
refining and distributing 500 ppm NRLM diesel fuel starting in 2007 and
15 ppm nonroad diesel fuel in 2010 and locomotive and marine diesel
fuel in 2012. Based on this evaluation, we believe it is
technologically feasible for refiners and distributors to meet both
sulfur standards in the lead time provided with the desulfurization
technology available. We begin this section by describing the nonroad,
locomotive and marine diesel fuel market and how these fuels differ
from current highway diesel fuel. We discuss desulfurization
technologies, both conventional and advanced, which are available for
complying with the 500 ppm and 15 ppm NRLM standards. We then present
what mix of technologies we believe will be used. Next we provide our
analysis of the lead time for complying with either standard. Finally,
we analyze the feasibility of distributing low sulfur NRLM diesel fuel.
We refer the reader to the Final RIA for more details regarding these
assessments.
1. What Is the Nonroad, Locomotive and Marine Diesel Fuel Market Today?
Nonroad, locomotive and marine (NRLM) engines almost exclusively
use No. 2 distillate fuel. No. 2 distillate fuel is a class of fuel
defined by its boiling range. It boils at a higher average temperature
than gasoline, No. 1 distillate, jet fuel and kerosene, and at a lower
average temperature than residual fuel (or bunker fuel). ASTM defines
three No. 2 distillate fuels: (1) Low sulfur No. 2 diesel fuel (No. 2-
D); (2) high sulfur No. 2-D; and (3) No. 2 fuel oil.\129\ Low sulfur
No. 2-D fuel must contain 500 ppm sulfur or less, have a minimum cetane
number of 40, and have a minimum cetane index limit of 40 (or a maximum
aromatic content of 35 volume percent) (i.e., meet the EPA standard for
highway diesel fuel).\130\ Both high sulfur No. 2-D and No. 2 fuel oil
must contain no more than 5000 ppm sulfur,\131\ and currently averages
3000 ppm nationwide. The ASTM specification for high sulfur No. 2-D
fuel also includes a minimum cetane number of 40. Practically, since
most No. 2 fuel oil meets this minimum cetane number specification,
pipelines which ship fuel fungibly need only carry one high sulfur No.
2 distillate fuel which meets both sets of specifications. Currently,
nonroad, locomotive and marine engines can be and are fueled with both
low and high sulfur No. 2-D fuels. If No. 1 distillate is blended into
highway diesel fuel, as is sometimes done to prevent gelling in the
winter, the final blend must meet the 500 ppm EPA cap.
---------------------------------------------------------------------------
\129\ ``Standard Specification for Diesel Fuel Oils,'' ASTM D
975-98b and ``Standard Specifications for Fuel Oils,'' ASTM D 396-
98.
\130\ These ASTM requirements were formed after and are
consistent with the EPA regulations for highway diesel fuel.
\131\ Some states, particularly those in the Northeast, limit
the sulfur content of No. 2 fuel oil to 2000-3000 ppm.
---------------------------------------------------------------------------
No. 1 distillate (e.g., jet fuel and kerosene) meets lower boiling
point and viscosity specifications requirements than No. 2 distillate.
No. 1 distillate, or any of these other similar boiling distillates,
added to No. 2 NRLM distillate becomes NRLM diesel fuel and thus, must
meet the applicable specifications for No. 2 distillate.
For the purpose of this rule, we split the No. 2 distillate market
into three pieces, according to the sulfur standard which each must
meet: (1) Highway diesel fuel, (2) NRLM diesel fuel, and heating oil,
which is used in both furnaces and boilers, as well as in stationary
diesel engines to generate power.
In the NPRM, EPA estimated current production and demand for NRLM
fuel from studies conducted by the U.S. Energy Information
Administration (EIA). We projected growth in nonroad fuel demand using
EPA's NONROAD emission model. We based the growth in locomotive and
marine fuel demand from analyses supporting EPA's locomotive and marine
engine rulemaking. These future levels of NRLM fuel demand differed
from those implicit in our projection of the emission reductions
associated with the rule, which were based primarily on EPA's NONROAD
emission model. We pointed out this inconsistency in the rule and
indicated that we would resolve this inconsistency for the final rule.
In their comments on the NPRM, the American Petroleum Institute
(API), the Engine Manufacturers Association (EMA) and others
highlighted this inconsistency and suggested that EPA resolve it by
basing its projection of future NRLM fuel demand using information
developed by EIA and not from the NONROAD emission model. API pointed
to a lower estimate of nonroad fuel demand developed in a contracted
study performed by Baker and O'Brien. A detailed analysis of these
comments and additional technical analyses of distillate fuel demand
are described in Section 4.6.3.1 of the Summary and Analysis document
to this rule. In summary, we decided to continue using the NONROAD
emission model to project the emission benefits of this rule. To
eliminate the inconsistency in the NPRM, we also use the NONROAD model
to determine demand for nonroad fuel and project the economic impacts
of this final rule. However, the analyses presented in Section 4.6.3.1
of the Summary and Analysis document to this rule identified
uncertainties in the current and future level of nonroad fuel demand.
To insure that these uncertainties did not affect the outcome of this
rulemaking process, we evaluate the emissions, costs and cost
effectiveness of the standards contained in this rule using an
alternative estimate of nonroad fuel demand derived from EIA
information. This alternative analysis is presented in Appendix 8A of
the Final RIA. In addition to use of the NONROAD model to project
nonroad fuel demand, we also updated our projections of the production
of and demand for highway fuel and heating oil using more recent
versions of the same EIA reports used in the NPRM analysis.
In 2001, nationwide outside of California, nonroad diesel fuel
comprised about 18 percent of all No. 2 distillate fuel, while
locomotive and marine diesel fuel comprised about eight percent of all
No. 2 distillate fuel. Diesel fuel consumed by highway vehicles/engines
comprised about 56 percent of all No. 2 distillate fuel.
[[Page 39074]]
Heating oil comprised about 19 percent of No. 2 distillate. Because of
limitations in the fuel distribution system and other factors, about 18
percent of all non-highway distillate met the 500 ppm highway diesel
fuel cap. Thus, about 64 percent of No. 2 distillate pool met the 500
ppm sulfur cap, not just the 56 percent used in highway vehicles. We
project that this spillover of highway fuel to the NRLM diesel fuel
market will continue under the highway diesel fuel program. Thus,
today's rule will only materially affect about 19 percent of today's
distillate market. The remaining 17 percent of No. 2 distillate which
is high sulfur heating oil is estimated to remain at higher sulfur
levels.
This rule will also affect any No. 1 distillate which is blended
into wintertime NRLM fuel. Because gelling can also be prevented
through the use of pour point additives, the current and future level
of this of No. 1 distillate blending is uncertain. However, the
feasibility of desulfurizing and distributing this No. 1 distillate
will also be addressed below.
2. What Technology Will Refiners Use To Meet the 500 ppm Sulfur Cap?
Refiners currently hydrotreat most or all of their distillate
blendstocks using what is commonly referred to as ``conventional''
hydrotreating technology to meet the 500 ppm sulfur and cetane limits
applicable to highway diesel fuel. This conventional technology has
been available and in use for many years. U.S. refiners have nearly ten
years of experience with this technology in producing highway diesel
fuel. The distillate blendstocks comprising NRLM fuel do not differ
substantially from those comprising highway diesel fuel. Thus, the
technology to produce 500 ppm sulfur NRLM diesel fuel has clearly been
demonstrated and optimized over the last decade. Additionally, this
technology continues to evolve primarily through the development of
more active catalysts and motivated by the 15 ppm cap applicable to
most highway diesel fuel starting in 2006.
Several advanced desulfurization technologies are being developed
and are discussed in more detail in the next section. However, the fact
that none of these technologies have been demonstrated commercially for
a typical catalyst life (i.e., two years) makes it unlikely that they
would be selected by many refiners for use in mid-2007. Also, these
advanced technologies promise the greatest cost savings in achieving 15
ppm levels, rather than 500 ppm. These advanced technologies can also
be combined with a conventional hydrotreater to meet the 15 ppm
standard in 2010 and 2012. EPA therefore projects that the 500 ppm
sulfur cap NRLM standard will be met using conventional hydrotreating
technology. We made this same projection in the NPRM and no comments to
the contrary were received.
In some cases, refiners will also need to install or expand several
ancillary processes related to sulfur removal (e.g., hydrogen
production and purification, sulfur processing, and sour water
treatment). These technologies are all commercially demonstrated, as
nearly all refineries already have such units.
3. Is the Leadtime Sufficient To Meet the 2007 500 ppm NRLM Sulfur
Standard?
After the highway diesel fuel program is implemented, we project
that 92 refineries in U.S. will be producing high sulfur distillate
fuel. We project that 36 of these refineries will likely produce 500
ppm sulfur NRLM diesel fuel in 2007. Of those 36, 30 will have to build
new hydrotreaters while the other 6 are expected to use existing
hydrotreaters to produce 500 ppm NRLM diesel fuel.\132\ The remaining
56 refineries are projected to continue to produce high sulfur
distillate fuel, with 26 of the 56 refineries producing heating oil.
The other 30 refineries are owned by small refiners and will likely
produce high sulfur NRLM diesel fuel. The 56 refineries continuing to
produce high sulfur distillate will not have to add or modify any
equipment to continue producing this fuel.
---------------------------------------------------------------------------
\132\ These refiners have said that they will leave the highway
market in 2006 in their pre-compliance reports for complying with
the Highway Diesel Rule, thus freeing up their existing
hydrotreaters to produce 500 ppm NRLM diesel fuel.
---------------------------------------------------------------------------
This rule will provide refiners and importers 37 months before they
will have to begin producing 500 ppm NRLM diesel fuel on June 1, 2007.
Our lead time analysis projects that 27-39 months are typically needed
to design and construct a diesel fuel hydrotreater.\133\ As discussed
below, we believe that 37 months will be sufficient for all refiners of
NRLM fuel.
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\133\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002. The leadtime analysis in the RIA can be found in
section 5.3.
---------------------------------------------------------------------------
Easing the task is the fact that we project that essentially all
refiners will use conventional hydrotreating to comply with the 500 ppm
sulfur NRLM diesel fuel cap. This technology has been used extensively
for more than 10 years and its capabilities to process a wide range of
diesel fuel blendstocks are well understood. Thus, the time necessary
to apply this technology for a specific refiner's situation should be
relatively short.
Twenty-six out of the 36 refineries projected to produce 500 ppm
NRLM diesel fuel in 2007 have indicated that they will produce highway
diesel fuel in their highway diesel fuel pre-compliance reports, see
RIA section 7.2.1.3.4.1, Table 7.2.1-38 and following discussion for
description of these refineries. Thus, roughly 70% of the refiners
likely to produce 500 ppm sulfur NRLM diesel fuel in 2007 are already
well into their planning for meeting the 15 ppm highway diesel fuel
standard, effective June 1, 2006. It is likely that these refiners have
already chemically characterized their high sulfur diesel fuel
blendstocks, as well as their highway diesel fuel, in assessing how to
meet produce 15 ppm fuel. They will also have already assessed the
various technologies for producing 15 ppm diesel fuel. This provides an
extensive base of information on how to design a hydrotreater to
produce 500 ppm NRLM fuel, as well as how to revamp this hydrotreater
to produce 15 ppm NRLM diesel fuel in 2010 and 2012. Those refiners
only producing high sulfur distillate fuel today will be able to take
advantage of the significant experience that technology vendors have
obtained in assisting refiners of highway diesel fuel meet the 15 ppm
cap in 2006.
We also expect that roughly 20 percent of the 101 refineries in the
U.S. and its territories will build a new hydrotreater to produce 15
ppm highway fuel. Those which also produce high sulfur distillate will
be able to produce 500 ppm NRLM fuel with their existing highway
hydrotreater. In 2007, we conservatively assumed that 20% of the 500
ppm NRLM production from refineries that produce highway and high
sulfur distillate could be produced with these existing treaters at no
capital costs (existing highway treater capacity available for 500 ppm
NRLM production would be higher if based on highway treater capacity).
Thus, in 2007 we project that four refineries will be able to use their
recently idled highway treater due to building a new highway treater
unit for 2006. Furthermore, the highway diesel program pre-compliance
reports indicate that another 7 refineries currently producing 500 ppm
highway fuel will likely leave the highway fuel market in 2006. We
project that 2 of these would use their existing treater to produce 500
ppm NRLM with no investment costs. Another three of these 101
refineries produce relatively small volumes of high sulfur distillate
compared to highway diesel fuel today. We project that they will be
able to
[[Page 39075]]
produce 500 ppm sulfur NRLM fuel from their high sulfur distillate with
only minor modification to their existing highway diesel fuel
hydrotreater.
Refiners not planning on producing 100 percent highway fuel in 2006
will also need some time to assess which distillate market in which to
participate starting in 2007, NRLM or heating oil. While this is a
decision which requires some amount of time for analysis, refiners also
needed to assess what market they would participate in for the 1993 500
ppm highway diesel fuel sulfur cap. In all, we project that the task of
producing 500 ppm sulfur NRLM fuel in 2007 will be less difficult than
the task refiners faced with the implementation of the 500 ppm highway
diesel fuel cap in 1993. Refiners had just over three years of lead
time for complying with the 1993 500 ppm highway diesel fuel cap, as is
the case here, and this proved sufficient.
No explicit comments were made by refiners on the lead time needed
for complying with the proposed NRLM 500 ppm sulfur standard. However,
their comments supported the two step approach, preferring it over a
one step, 15 ppm NRLM cap starting in 2008.
4. What Technology Will Refiners Use To Meet the 15 ppm Sulfur Cap?
In the highway diesel rule, we projected that refiners producing 15
ppm fuel in 2006 would utilize extensions of conventional hydrotreating
technology. We also projected that refiners first producing 15 ppm fuel
in 2010 would use a mix of extensions of conventional and advanced
technologies. Based on the refiners' highway pre-compliance reports, it
appears that 95% of highway fuel could meet the 15 ppm cap in 2006. We
expect that virtually all of this 15 ppm fuel will be produced with
conventional hydrotreating. Thus, it appears that conventional
hydrotreating will be used to produce the vast majority of 15 ppm
highway diesel fuel.
In the nonroad NPRM, we projected that refiners would use advanced
desulfurization technologies to produce 80 percent of 15 ppm nonroad
diesel fuel in 2010, with the balance using conventional hydrotreating.
At the time of the NPRM, all of the advanced technologies appeared to
be progressing rapidly. Since the proposal, we have learned that a
couple of these technologies, Unipure and S-Zorb, are not going to be
commercially demonstrated as soon as expected. However, one refiner is
already using Process Dynamics' IsoTherming technology to commercially
produce 15 ppm diesel fuel. Thus, we continue to believe that advanced
technologies will be used to produce a large percentage of 15 ppm NRLM
fuel. However, the number of advanced technologies used may be smaller.
Because of the more limited choices, we project that the penetration of
advanced technologies will be only 60 percent. The remainder of this
section discusses the production of 15 ppm diesel fuel using
conventional and advanced technologies.
One approach to produce 15 ppm NRLM fuel would be to revamp the
conventional hydrotreater built to produce 500 ppm NRLM fuel in 2007.
Knowing that the 500 ppm NRLM cap will only be in effect for three
years for nonroad refiners and five years for locomotive and marine
refiners (four years for small refiners), we expect that refiners will
design their 500 ppm hydrotreater to allow the production of 15 ppm
fuel through the addition of reactor volume or a second hydrotreating
stage. Refiners might also shift to a more active catalyst in the
existing reactor, as the life of that catalyst might be nearing its
end. Equipment to further purify its hydrogen supply could also be
added. Producing 15 ppm NRLM fuel via these steps will be feasible as
they are essentially the same steps refiners will be using in 2006 to
produce 15 ppm highway diesel fuel.
EPA recently reviewed the progress being made by refining
technology vendors and refiners in meeting the 2006 highway diesel
sulfur cap.\134\ All evidence available confirms EPA's projection that
conventional hydrotreating will be capable of producing diesel fuel
containing less than 10 ppm sulfur. Furthermore, as part of the highway
program's reporting requirements, refiners are required to report their
progress in complying with the 15 ppm highway diesel fuel standard. In
those reports they indicated that they primarily will be applying
extensions of conventional hydrotreating. NRLM fuel refiners will have
the added advantage of being able to design their 500 ppm hydrotreater
with the production of 15 ppm fuel in mind. Additionally, refiners
producing 15 ppm NRLM fuel will be able to take advantage of the
experience gained from those producing 15 ppm highway fuel.
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\134\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002.
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As mentioned above, several advanced technologies are presently
being developed to produce 15 ppm diesel fuel at lower cost. One of
these advanced technologies, Process Dynamics IsoTherming, improves the
contact between hydrogen, diesel fuel and the desulfurization catalyst.
The IsoTherming process dissolves the hydrogen in the liquid fuel phase
prior to passing the liquid over the catalyst, eliminating the need for
a two-phase (gas and liquid) reactor. The liquid, plug flow reactor
design also avoids the poor liquid distribution over the catalyst bed
often present in a two-phase reactor design. Process Dynamics projects
that their IsoTherming process could reduce the hydrotreater volume
required to achieve sub-15 ppm sulfur levels by roughly a factor of
two.
Process Dynamics has already built a commercial-sized demonstration
unit (5000 barrels per day) at a refinery in New Mexico. They have been
operating the unit since September 2002, and demonstrating the
capability to meet a 15 ppm cap since the spring of 2003. Thus,
refiners will have 4-5 years of operating data on this process before
they would have to select a technology to produce 15 ppm nonroad diesel
fuel in 2010, and 6-7 years before producing 15 ppm locomotive and
marine diesel fuel in 2012. This should be more than sufficient for
essentially all refiners to consider this process for 2010 or 2012.
Based on information received from Process Dynamics, we estimate that
this technology could reduce the cost of meeting the 15 ppm cap for
many refiners by about 30 percent. This savings arises from a smaller
reactor, less catalyst and avoiding the need for a recycle gas
compressor and reactor distributor. Refineries facing poorer economies
of scale, such as small refineries, would particularly benefit from
this desulfurization process.
A second process being developed to produce 15 ppm diesel fuel is
the Unipure oxidation process. This process oxidizes the sulfur in
distillate molecules, facilitating its removal. Unipure Corporation
installed a small (50 barrels per day), continuous flow demonstration
unit at Valero's Krotz Spring refinery in the spring of 2003. It
appears that this technology could reduce the cost of producing 15 ppm
diesel fuel for some refiners compared to conventional hydrotreating.
However, the small size of the demonstration unit may make the risk
associated with a new technology too large. Thus, we believe that this
technology needs be demonstrated further before most refiners will
seriously considered it for commercial application. This technology,
however, may be ideal for use at transmix processing plants or large
terminals to reprocess 15 ppm diesel fuel which have become
contaminated during shipment. We
[[Page 39076]]
discuss this distillate downgrade in greater detail in Section VI.A.2
of this preamble. This oxidation process avoids the need for high
pressure hydrogen, which is usually not economically available at these
smaller facilities.
Finally, Conoco-Phillips has adapted their S-Zorb adsorption
technology which was originally designed for gasoline desulfurization,
for diesel fuel desulfurization. At the time of the NPRM, Conoco-
Phillips had signed 23 licensing agreements with refiners in North
America regarding the use of S-Zorb to comply with the Tier 2 gasoline
sulfur standards. Furthermore, Conoco-Phillips had plans for the quick
installation of an S-Zorb unit to demonstrate the production of 15 ppm
diesel fuel. However, we have since learned that Conoco-Phillips has
dropped its plans to build a commercial demonstration unit for
desulfurizing diesel fuel. Without a commercial unit operating in the
2006 time frame, we do not believe that many refiners will seriously
consider S-Zorb to produce 15 ppm NRLM diesel fuel in 2010 and 2012.
Due to the fact that the Process Dynamics IsoTherming process is
already operating commercially and operational data indicate a 30
percent reduction in the cost of producing 15 ppm fuel relative to
conventional hydrotreating, we project that 60 percent of the new
volume of 15 ppm NRLM diesel fuel will be produced using this
technology. We project that the remaining 40 percent of 15 ppm NRLM
diesel fuel will use extensions of conventional hydrotreating. We
assume this 60/40 mix of Isotherming and extensions of conventional
hydrotreating, respectively, for 2010, 2012 and even for 2014 when the
small refiners exemptions expire.
API commented that the advanced desulfurization technologies have
not been commercially demonstrated and thus should not be used as the
basis for estimating the cost of desulfurizing NRLM diesel fuel to 15
ppm. While this is true for the Unipure oxidation and Conoco-Phillip's
S-Zorb processes, the Process Dynamics IsoTherming process has been
commercially demonstrated. It is therefore appropriate for use as a
partial basis for the refining costs associated with today's final
rule. To indicate the effect that this projection for the use of
IsoTherming has on the rule's cost, in Section 7.2.2 of the Final RIA,
we estimate the cost of producing 15 ppm NRLM fuel with only the use of
conventional hydrotreating technology.
5. Is the Leadtime Sufficient To Meet the 2010 and 2012 15 ppm NRLM
Sulfur Cap?
We project that 32 refineries will produce 15 ppm nonroad diesel
fuel in 2010, with two of these being owned by small refiners. In 2012,
we project that 15 refineries will produce 15 ppm locomotive and marine
diesel fuel. We project that an additional 15 refineries will produce
500 ppm nonroad diesel fuel in 2010 under the small refiner provisions
included in the today's final rule. Then in 2014, we project that the
15 refineries exempted under the small refiner provisions will begin
producing 15 ppm NRLM diesel fuel in 2014.
The timing of this rule provides refiners and importers with more
than six years before they will have to produce 15 ppm nonroad diesel
fuel, and two years more for producing 15 ppm locomotive and marine
diesel fuel. Our leadtime analysis, which is presented in Section 5.4.2
of the Final RIA, projects that 30-39 months are typically needed to
design and construct a diesel fuel hydrotreater, perhaps less if it is
a Process Dynamics unit. Thus, refiners will have about three years
before they would have to begin detailed design and construction for
2010, and five years before 2012. This will allow sufficient time to
consult with vendors, test their diesel fuel in pilot plants to assess
the difficulty of its desulfurization via a variety of technologies,
and to select its technology for 2010 and 2012. In addition, these
refiners will also have the chance to observe the performance of the
hydrotreaters being used to produce 15 ppm highway diesel fuel for at
least one year for those complying in 2010, and two years more for
those complying in 2012. While not a full catalyst cycle, any unusual
degradation in catalyst performance should be apparent within the first
year. Based on the pre-compliance reports, some refineries in the U.S.
will be producing 15 ppm sulfur highway diesel fuel earlier than 2006.
Some refineries are expected to produce complying fuel earlier than the
compliance date in Europe as well. The refineries which are complying
early will accrue experience earlier and longer providing refiners a
better sense of the reliability of producing 15 ppm diesel fuel. Thus,
we project that the 2010 and 2012 start dates will allow refiners to be
quite certain that the designs they select in mid-2007 will perform
adequately in 2010 and 2012.
In addition, refiners will have three to four years or more to
observe the performance of the Process Dynamics IsoTherming process
before having to make their technology selections for 2010 and 2012 .
This should be more than adequate to fully access the costs and
capabilities of this technology for all but the most cautious refiners.
Considering the amount of leadtime available and the
desulfurization technologies which will be available and proven for
complying with a 15 ppm sulfur standard, we do not expect that the
leadtime for complying with the 15 ppm NRLM cap standard in 2010 and
2012 will be an issue for refiners.
6. Feasibility of Distributing 500 and 15 ppm NRLM Fuel
There are two considerations with respect to the feasibility of
distributing non-highway diesel fuels meeting the sulfur standards in
today's rule. The first pertains to whether sulfur contamination can be
adequately managed throughout the distribution system so that fuel
delivered to the end-user does not exceed the specified maximum sulfur
concentration. The second pertains to the physical limitations of the
system to accommodate any additional segregation of product grades.
a. Limiting Sulfur Contamination
With respect to limiting sulfur contamination during distribution,
the physical hardware and distribution practices for non-highway diesel
fuel do not differ significantly from those for highway diesel fuel.
Therefore, we do not anticipate any new issues with respect to limiting
sulfur contamination during the distribution of non-highway fuel that
would not have already been accounted for in distributing highway
diesel fuel. Highway diesel fuel has been required to meet a 500 ppm
sulfur standard since 1993. Thus, we expect that limiting contamination
during the distribution of 500 ppm non-highway diesel engine fuel can
be readily accomplished by the industry. This applies to locomotive and
marine diesel fuel as well as nonroad diesel fuel.
In the highway diesel rule, EPA acknowledged that meeting a 15 ppm
sulfur specification would pose a substantial new challenge to the
distribution system. Refiners, pipelines, and terminals would have to
pay careful attention to and eliminate any potential sources of
contamination in the system (e.g., tank bottoms, deal legs in
pipelines, leaking valves, interface cuts, etc.). In addition, bulk
plant operators and delivery truck operators would have to carefully
observe recommended industry practices to limit contamination,
including practices as simple as cleaning out transfer hoses,
[[Page 39077]]
proper sequencing of fuel deliveries, and parking on a level surface
when draining the storage tank. Due to the need to prepare for
compliance with the highway diesel program, we anticipate that issues
related to limiting sulfur contamination during the distribution of 15
ppm NRLM diesel fuel will be resolved well in advance of the 2010 and
2012 implementation dates . We are not aware of any additional issues
that might arise unique to NRLM diesel fuel. If anything we anticipate
limiting contamination will become easier as batch sizes are allowed to
increase and potential sources of contamination decrease as more and
more of the diesel pool turns over to 500 and 15 ppm sulfur. Industry
representatives acknowledge that the task can be accomplished. However,
they are still in the process of identifying all of the measures that
will need to be taken.
b. Potential Need for Additional Product Segregation
As discussed in section IV.D, we have designed the NRLM diesel fuel
program to minimize the need for additional product segregation and the
feasibility and cost issues associated with it. This final rule allows
for the fungible distribution of 500 ppm highway and 500 ppm sulfur
NRLM diesel fuel in 2007, and 15 ppm highway and 15 ppm NR diesel fuel
in 2010 and 15 ppm NRLM diesel fuel in 2012, up until the point where
NRLM, LM, or nonroad fuel must be dyed for IRS excise tax purposes. We
proposed that heating oil would be required to be segregated throughout
the distribution system by the use of a marker added at the refiners
from 2007 through 2010. We received comments that addition of the
marker at the refinery would cause significant concerns regarding
potential marker contamination in the jet fuel. In responding to these
and other comments, we have chosen to adopt a designate and track
system of ensuring refiner compliance with desulfurization requirements
(see IV.D.). This allows the point of marker addition to be moved
downstream to the terminal where such contamination concerns are
minimal. As a result heating oil and high-sulfur NRLM will also be
fungible in the distribution system up to the point where the fuel
marker must be added at the terminal.\135\
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\135\ The fuel marker requirements only apply outside of the
Northeast/Mid-Atlantic area. Inside the Northeast/Mid-Atlantic area,
high sulfur NRLM cannot be sold to end users. See section IV.D for a
detailed discussion of the fuel marker provisions.
---------------------------------------------------------------------------
The design of today's fuel program eliminates any potential
feasibility issues associated with the need for product segregation.
This is not to say that additional steps will not have to be taken.
However, this program will result in only a limited number of entities
in the distribution system choosing to add new tankage due to new
product segregation. Bulk plants in areas of the country where heating
oil is expected to remain in the market will have to decide whether to
add tankage to distribute both heating oil and 500 ppm sulfur NRLM
fuel. Terminal operators commented that the proposed presence of a fuel
marker in heating oil would make it impossible for them to blend 500
ppm sulfur diesel from 15 ppm sulfur and high sulfur fuels. They
related that this ability would be important to certain terminal
operators who would not have the storage facilities available for three
grades of diesel fuel, but would still not wish to forgo selling 500
ppm diesel fuel.\136\ Today's rule allows the required marker to be
added to heating oil before it leaves the terminal (see section IV.D of
this preamble). Therefore, terminals will be able to blend 500 ppm
diesel from 15 ppm and high sulfur diesel fuels, provided they fulfill
all of the responsibilities associated with acting as a fuel refiner
(see section V of this preamble).\137\ However, because this will be a
relatively costly way of producing 500 ppm diesel fuel, we do not
expect that the practice will be widespread. In all other cases we
anticipate segments of the distribution system will choose to avoid any
fuel segregation costs by limiting the range of sulfur grades they
choose to carry, just as they do today. Regardless, however, the costs
and impacts of these choices are small. A more detailed explanation of
this assessment can be found in chapter 7 of the RIA.
---------------------------------------------------------------------------
\136\ 15 ppm diesel fuel and high sulfur heating oil will be the
largest volume products at such terminals.
\137\ The definition of a refiner includes persons who produce
highway or NRLM diesel fuel by blending.
---------------------------------------------------------------------------
A limited volume of 500 ppm sulfur diesel fuel is projected to be
produced downstream due to interface mixing in the distribution system
(see section IV.A).\138\ Fuel from these sources is currently sold into
the NRLM and heating oil markets. The implementation of the 15 ppm
sulfur standard for NR diesel fuel in 2010 and for LM diesel fuel in
2012 raises the concern that the heating oil market might be
insufficient to absorb all such downstream 500 ppm sulfur diesel fuel
in areas outside of the Northeast (where most heating oil is used). If
the market for this fuel was limited, it would have to be trucked back
to a refinery to be desulfurized which could raise significant
logistical and cost issues. Consequently, today's rule provides that
500 ppm sulfur diesel fuel produced due to interface mixing can
continue to be used in nonroad equipment until 2014 (subject to
specific sulfur requirements for new equipment), and in locomotive and
marine engines indefinitely.\139\ These provisions ensure that there
will be a sufficient market for such 500 ppm sulfur diesel fuel.
---------------------------------------------------------------------------
\138\ This fuel will be produced by transmix processors and at
terminals by segregating the pipeline interface between 15 ppm
diesel fuel and jet fuel.
\139\ While today?s rule does not contain an end date for the
downstream distribution of 500 ppm sulfur locomotive and marine
fuel, we will review the appropriateness of allowing this
flexibility based on experience gained from implementation of the 15
ppm sulfur NRLM diesel fuel standard. We expect to conduct such an
evaluation in 2011.
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G. What Are the Potential Impacts of the 15 ppm Sulfur Diesel Program
on Lubricity and Other Fuel Properties?
1. What Is Lubricity and Why Might It Be a Concern?
Engine manufacturers and owner/operators depend on diesel fuel
lubricity properties to lubricate and protect moving parts within fuel
pumps and injection systems for reliable performance. Unit injector
systems and in-line pumps, commonly used in diesel engines, are
actuated by cams lubricated with crankcase oil, and have minimal
sensitivity to fuel lubricity. However, rotary and distributor type
pumps, commonly used in light and medium-duty diesel engines, are
completely fuel lubricated, resulting in high sensitivity to fuel
lubricity. The types of fuel pumps and injection systems used in
nonroad diesel engines are the same as those used in highway diesel
vehicles. Consequently, nonroad and highway diesel engines share the
same need for adequate fuel lubricity to maintain fuel pump and
injection system durability.
Diesel fuel lubricity concerns were first highlighted for private
and commercial vehicles during the initial implementation of the
federal 500 ppm sulfur highway diesel program and the state of
California's diesel program. The Department of Defense (DoD) also has a
longstanding concern regarding the lubricity of distillate fuels used
in its equipment as evidenced by the implementation of its own fuel
lubricity improver performance specification in 1989.\140\ The diesel
fuel requirements in the state of California differed from the
[[Page 39078]]
federal requirements by substantially restricting the aromatic content
of diesel fuel which requires more severe hydrotreating than reducing
the sulfur content to meet a 500 ppm standard.\141\ Consequently,
concerns regarding diesel fuel lubricity have primarily been associated
with California diesel fuel and some California refiners treat their
diesel fuel with a lubricity additive as needed. Outside of California,
hydrotreating to meet the current 500 ppm sulfur specification does not
typically result in a substantial reduction of lubricity. Diesel fuels
outside of California seldom require the use of a lubricity additive.
Therefore, we anticipate only a marginal increase in the use of
lubricity additives in NRLM diesel fuel meeting the 500 ppm sulfur
standard for 2007.\142\ Today's action requires diesel fuel used in
nonroad, locomotive, and marine diesel engines to meet a 15 ppm sulfur
standard in 2010 and 2012, respectively. Based on the following
discussion, we believe that the increase in the use of lubricity
additives in 15 ppm sulfur NRLM diesel fuel would be the same as that
estimated for 15 ppm highway diesel fuel.
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\140\ DoD Performance Specification, Inhibitor, Corrosion/
Lubricity Improver, Fuel Soluble, MIL-PRF-25017F, 10 November 1997,
Superseding MIL-I-25017E, 15 June 1989.
\141\ Chevron Products Diesel Fuel Technical Review provides a
discussion of the impacts on fuel lubricity of current diesel fuel
compositional requirements in California versus the rest of the
nation; see http://www.chevron.com/prodserv/fuels/bulletin/diesel/l2%5F7%5F2%5Frf.htm.
\142\ The cost from the increased use of lubricity additives in
500 ppm NRLM diesel fuel in 2007 and in 15 ppm nonroad diesel fuel
in 2010 and locomotive and marine diesel fuel in 2012 is discussed
in section VI of this preamble.
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The state of California currently requires the same standards for
diesel fuel used in nonroad equipment as in highway equipment. Outside
of California, highway diesel fuel is often used in nonroad equipment
when logistical constraints or market influences in the fuel
distribution system limit the availability of high sulfur fuel. Thus,
for nearly a decade nonroad equipment has been using federal 500 ppm
sulfur diesel fuel and California diesel fuel, some of which may have
been treated with lubricity additives. During this time, there has been
no indication that the level of diesel lubricity needed for fuel used
in nonroad engines differs substantially from the level needed for fuel
used in highway diesel engines.
Blending small amounts of lubricity-enhancing additives increases
the lubricity of poor-lubricity fuels to acceptable levels. These
additives are available in today's market, are effective, and are in
widespread use around the world. Among the available additives,
biodiesel has been suggested as one potential means for increasing the
lubricity of conventional diesel fuel. Indications are that low
concentrations of biodiesel might be sufficient to raise the lubricity
to acceptable levels. Biodiesel is a renewable fuel made from
agricultural sources such as soybean oil, peanut oil and other
vegetable oils as well as rendered and animal fats and recycled cooking
oils. Biodiesel generally contains very low amounts of sulfur, which is
an attractive characteristic for use in diesel engines using advanced
aftertreatment systems. Additionally, biodiesel, by virtue of its
lubricity properties, may be a good alternative to additives currently
used to ensure adequate fuel lubricity. According to the U.S.
Department of Agriculture, there is a current capacity to produce 100
million gallons annually. Thus, we believe that biodiesel is a feasible
technology that could help support today's clean diesel fuel program.
Research remains to be performed to better understand which fuel
components are most responsible for lubricity. Consequently, it is
unclear whether and to what degree the sulfur standards for NRLM diesel
fuel will impact fuel lubricity. Nevertheless, there is evidence that
the typical process used to remove sulfur from diesel fuel
``hydrotreating'' can impact lubricity depending on the severity of the
treatment process and characteristics of the crude. We expect that
hydrotreating will be the predominant process used to reduce the sulfur
content of NRLM diesel fuel to meet the 500 ppm sulfur standard during
the first step of the program. Similarly, we project that both
conventional hydrotreating and the Linde Isotherming process will be
used to meet the 15 ppm sulfur standard for NRLM diesel fuel.
Based on our comparison of the blendstocks and processes used to
manufacture non-highway diesel fuels, we believe that the potential
decrease in the lubricity of these fuels from hydrotreating that might
result from the sulfur standards should be approximately the same as
that experienced in desulfurizing highway diesel fuel.\143\ To provide
a conservative, high cost estimate, we assumed that the potential
impact on fuel lubricity from the use of the new desulfurization
processes would be the same as that experienced when hydrotreating
diesel fuel to meet a 15 ppm sulfur standard. Given that the
requirements for fuel lubricity in highway and nonroad engines are the
same, and the potential decrease in lubricity from desulfurization of
NRLM diesel fuel would be no greater than that experienced in
desulfurizing highway diesel fuel, we estimate that the potential need
for lubricity additives in NRLM diesel fuel under today's action would
be the same as that for highway diesel fuel meeting the same sulfur
standard.
---------------------------------------------------------------------------
\143\ See chapter 5 of the RIA for a discussion of the potential
impacts on fuel lubricity of this proposal.
---------------------------------------------------------------------------
a. Farm and Mining Equipment
The types of fuel pumps and injection systems used in the nonroad
diesel engines found in farm and mining equipment are similar to those
used in highway diesel vehicles.\144\ The hydrotreating process for
generating 500 ppm diesel fuel will not adversely effect fuel injection
equipment in farm and mining equipment based on the use of comparable
injection systems in highway diesel vehicles. We believe that the use
of lubricity additives in 15 ppm sulfur NRLM diesel fuel will be
required and result in adequate protection of fuel injection equipment
and is similar to that needed for 15 ppm sulfur highway diesel fuel.
---------------------------------------------------------------------------
\144\ Nonroad and highway diesel engines meeting similar
emissions standards use similar fuel systems provided by common
suppliers. For example, a nonroad engine meeting the 2001 Tier 2
nonroad diesel engine emission standards would have the same fuel
system as a highway diesel engine meeting the 1998 highway diesel
engine emissions standards.
---------------------------------------------------------------------------
b. Locomotives
One of the locomotive manufacturers expressed concern in its
comments that low sulfur fuel might damage existing locomotives.
However, the manufacturer provided no evidence to show that such damage
would likely occur. Locomotives already use a significant amount of low
sulfur fuel, especially in California, and we have not seen any
evidence of sulfur-related problems. The railroads expressed a similar
concern, but acknowledged that any potential problems would be
manageable with sufficient lead time. At this time, we see no reason
for any special concern related to locomotives using low sulfur fuel.
2. A Voluntary Approach on Lubricity
In the United States, there is no government or industry standard
for diesel fuel lubricity. Therefore, specifications for lubricity are
determined by the market. Since the beginning of the 500 ppm sulfur
highway diesel program in 1993, refiners, engine manufacturers, engine
component manufacturers, and the military have been working with ASTM
[[Page 39079]]
to develop protocols and standards for diesel fuel lubricity in its D
975 specifications for diesel fuel. ASTM is working towards a single
lubricity specification that is applicable to all diesel fuel used in
any type of engine. Although ASTM has not yet adopted specific
protocols and standards, refiners that supply the U.S. market have been
treating diesel fuel with lubricity additives on a batch by batch
basis, when poor lubricity fuel is produced. ASTM's target
implementation date for this specification is January 1, 2005.
The potential need for lubricity additives in diesel fuel meeting a
15 ppm sulfur specification was evaluated during the development of
EPA's highway diesel rule. In response to the proposed highway diesel
rule, all comments submitted regarding lubricity either stated or
implied that the proposed sulfur standard of 15 ppm would likely cause
the refined fuel to have lubricity characteristics that would be
inadequate to protect fuel injection equipment, and that mitigation
measures such as lubricity additives would be necessary. However, the
commenters suggested varied approaches for addressing lubricity. For
example, some suggested that we need to establish a lubricity
requirement by regulation while others suggested that the current
voluntary, market based system would be adequate. The Department of
Defense recommended that we encourage the industry (ASTM) to adopt
lubricity protocols and standards before the 2006 implementation date
of the 15 ppm sulfur standard for highway diesel fuel.
The final highway diesel rule did not establish a lubricity
standard for highway diesel fuel. We believe the issues related to the
need for diesel lubricity in fuel used in nonroad diesel engines are
substantially the same as those related to the need for diesel
lubricity for highway engines. Consequently, we expect the same
industry-based voluntary approach to ensuring adequate lubricity in
nonroad diesel fuels that we recognized for highway diesel fuel. We
believe the best approach is to allow the market to address the
lubricity issue in the most economical manner, while avoiding an
additional regulatory scheme. A voluntary approach should provide
adequate customer protection from engine failures due to low lubricity,
while providing the maximum flexibility for the industry. This approach
would be a continuation of current industry practices for diesel fuel
produced to meet the current federal and California 500 ppm sulfur
highway diesel fuel specifications, and benefits from the considerable
experience gained since 1993. It would also include any new
specifications and test procedures that we expect would be adopted by
ASTM regarding lubricity of NRLM diesel fuel quality.
In any event, this is an issue that will be resolved to meet the
demands of the highway diesel market, and whatever resolution is
reached for highway diesel fuel could be applied to NRLM diesel fuel
with sufficient advance notice. We are continuing to participate in the
ASTM Diesel Fuel Lubricity Task Force \145\ and will assist their
efforts to finalize a lubricity standard. We are hopeful that ASTM can
reach a consensus this summer at the next meeting of the ASTM's
Lubricity Task Force. If for some reason ASTM does not take action to
set a lubricity specification, EPA will consider taking appropriate
action to ensure 15 ppm sulfur diesel fuel has adequate lubricity.
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\145\ ASTM sub committee D02.E0.
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3. What Other Impact Would Today's Actions Have on the Performance of
Diesel and Other Fuels?
We do not expect that the fuel program finalized today will have
any negative impacts on the performance of diesel engines in the
existing fleet which would use the fuels regulated today.
While the process of lowering sulfur levels to 500 ppm does lower
polynuclear aromatic hydrocarbons (PNAs) and total aromatics in
general, it does not achieve the near-zero levels previously seen in
California. The 15 ppm sulfur standard will further reduce PNAs,
however, in most diesel fuel, there will still be PNAs present.
Furthermore, since the 1990's, diesel engine manufacturers have
switched to alternative materials (such as Viton), which do not
experience leakage when PNAs are reduced. We believe that there will be
no issues with leaking fuel pump O-rings with the changes in diesel
fuel sulfur levels required by this rulemaking.
The moderate reduction in PNAs and total aromatics associated with
the hydrotreating of diesel fuel will tend to increase the cetane index
and number of diesel fuel. This will improve the driveability of
vehicles operating on this higher cetane diesel fuel.
We do not expect any negative impacts on other fuels, such as jet
fuel or heating oil. We do expect that the sulfur levels of heating oil
may decrease because of this rulemaking. Beginning in mid-2007, we
expect that controlling NRLM diesel fuel to 500 ppm sulfur will lead
many pipelines to discontinue carrying high sulfur heating oil as a
separate grade. In areas served by these pipelines, heating oil users
will likely switch to 500 ppm sulfur diesel fuel. This will reduce
emissions of SO2 and sulfate PM from furnaces and boilers
fueled with heating oil. The primary exception to this will likely be
the Northeast, where a distinct higher sulfur heating oil will still be
distributed as a separate fuel. Also, we expect that a small volume of
moderate sulfur distillate fuel will be created during distribution
from the mixing of low sulfur diesel fuels and higher sulfur fuels,
such as jet fuel in the pipeline interface. Such moderate sulfur
distillate will often be sold by the terminal as high sulfur heating
oil, but in fact its sulfur level will be lower than that normally sold
as heating oil.
H. Refinery Air Permitting
Prior to beginning diesel desulfurization projects, some refineries
may be required to obtain a preconstruction permit, under the New
Source Review (NSR) program, from the applicable state/local air
pollution control agency.\146\ We believe that today's program provides
sufficient lead time for refiners to obtain any necessary NSR permits
well in advance of the applicable compliance dates.
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\146\ Hydrotreating diesel fuel involves the use of process
heaters, which have the potential to emit pollutants associated with
combustion, such as NOX, PM, CO and SO2. In
addition, reconfiguring refinery processes to add desulfurization
equipment could increase fugitive VOC emissions. The emissions
increases associated with diesel desulfurization would vary widely
from refinery to refinery, depending on many source-specific
factors, such as crude oil supply, refinery configuration, type of
desulfurization technology, amount of diesel fuel produced, and type
of fuel used to fire the process heaters.
---------------------------------------------------------------------------
Given that today's diesel sulfur program provides roughly three
years of lead time before the 500 ppm standard takes effect, we believe
refiners will have time to obtain any necessary preconstruction
permits. In addition, the experience gained by many refineries to
obtain the preconstruction permits needed to comply with the Tier 2 and
highway diesel fuel programs should benefit them in obtaining the
necessary permits to comply with today's new diesel fuel requirements.
Nevertheless, we believe it is reasonable to continue our efforts under
the Tier 2 and highway diesel fuel programs, to help states in
facilitating the issuance of permits under the NRLM diesel fuel sulfur
program whenever such assistance may be needed and requested. We
anticipate that such assistance may include both technical
[[Page 39080]]
and procedural assistance as would be provided by the appropriate EPA
Regional and Headquarters offices. Finally, to facilitate the
processing of permits, we encourage refineries to begin discussions
with permitting agencies and to submit permit applications as early as
possible.
V. Nonroad, Locomotive and Marine Diesel Fuel Program: Details of the
Compliance and Enforcement Provisions
As with earlier fuel programs, we have developed a comprehensive
set of compliance and enforcement provisions designed to promote
effective and efficient implementation of this fuel program and thus to
achieve the full environmental potential of the program. The compliance
provisions under today's final rule are designed to ensure that
nonroad, locomotive, and marine diesel fuel sulfur content requirements
are met throughout the distribution system, from the refiner or
importer through to the end user, subject to certain provisions
applicable during the early transition years. Section IV above
describes our program for the reduction of sulfur in nonroad,
locomotive and marine (NRLM) diesel fuel including the standards and
basic design of the compliance and enforcement program. This section
contains additional details regarding the compliance and assurance
program. The provisions discussed in this section fall into several
broad categories:
--Special fuel provisions and exemptions;
--Additional provisions applicable to refiners and importers;
--Additional provisions applicable to parties downstream of the
refinery or importer;
--Special provisions regarding additives, kerosene, and the prohibition
against the use of motor oil in fuel;
--Fuel testing and sampling requirements;
--Records required to be kept, including those applying under the
designate and track, credit provisions, small refiner, and refiner
hardship provisions;
--Reporting requirements;
--Exemptions from the program;
--Provisions concerning liability, defenses, and penalties for
noncompliance; and
--The selection of the marker for heating oil and 500 ppm sulfur LM
diesel fuel. (The specific requirements with respect to heating oil and
500 ppm sulfur LM diesel fuel inside and outside of the Northeast/Mid-
Atlantic Area are discussed in section IV.D.)
A. Special Fuel Provisions and Exemptions
As discussed in section IV.A.1 above, the sulfur standards in
today's rule generally cover all the diesel fuel that is intended for
use in or used in nonroad, locomotive, and marine (NRLM) applications
that is not already covered by the standards for highway diesel fuel.
For the purposes of this preamble, this fuel is defined primarily by
the type of engine which it is used to power: Land-based nonroad,
locomotive, and marine diesel engines. Section IV.A.1 above also
describes several types of petroleum distillate that are not covered by
the sulfur standards promulgated today, including jet fuel and heating
oil, provided they are not used in NRLM engines. The following
paragraphs discuss several provisions and exemptions for NRLM diesel
fuel that will apply in special circumstances.
1. Fuel Used in Military Applications
NRLM diesel fuel used in military applications is treated in the
same manner as under the recent highway diesel rule. Refiners are not
required to produce these fuels to the NRLM standards. However, at the
same time, their use is limited only to certain military applications.
NRLM diesel fuel is defined so that JP-5, JP-8, F76, and any other
military fuel that is used or intended for use in NRLM diesel engines
or equipment is initially subject to all of the requirements applicable
to NRLM diesel fuel. However, today's rule also exempts these military
fuels from the diesel fuel sulfur content and other requirements in
certain circumstances. First, these fuels are exempt if they are used
in tactical military motor vehicles or nonroad engines, or equipment
that have a national security exemption from the vehicle or engine
emissions standards. Due to national security considerations, EPA's
existing regulations allow the military to request and receive national
security exemptions (NSE) for their motor vehicles and NRLM diesel
engines and equipment from emissions regulations if the operational
requirements for such vehicles, engines, or equipment warrant such an
exemption. This final rule does not change these provisions. Fuel used
in these applications is exempt. Second, these fuels are also exempt if
they are used in tactical military vehicles, engines, or equipment that
are not covered by a national security exemption but, for national
security reasons (such as the need to be ready for immediate deployment
overseas), these vehicles, engines, and equipment need to be fueled on
the same fuel as vehicles, engines, or equipment with a national
security exemption. Use of JP-5, JP-8, F76, or any other fuel not
meeting NRLM diesel fuel standards in a motor vehicle or NRLM diesel
engine or equipment other than the those described above is prohibited
under today's rule.
EPA and the Department of Defense have developed a process to
address the tactical vehicles, engines, and equipment covered by the
diesel fuel exemption and are discussing whether changes to it might be
appropriate. Based on data provided by the Department of Defense to
date in the context of implementing a similar exemption provision in
the highway program, EPA believes that providing an exemption for
military fuel used in tactical nonroad engines and equipment will not
have any significant environmental impact.
The Department of Defense (DoD) commented that EPA should
reconsider its determination that the definition of diesel fuel
includes JP8 and JP5. DoD cited a 1995 letter from EPA which stated
that there was insufficient reason to conclude that JP-8 is commonly
and commercially known as diesel fuel under the then applicable
definition of motor vehicle diesel fuel. Since the time of this letter,
EPA has become aware of a substantial number of cases of the misuse of
aviation turbine fuel in highway engines. The potential for misuse of
JP-8 or similar fuels in NRLM equipment where no national security
exemption exists would remain. To ensure that NRLM equipment is
properly fueled with low sulfur fuel, the definition of NRLM diesel
fuel has been written to encompass all diesel or other distillate fuels
used or intended for use in NRLM engines, which would include JP-8 and
JP-5. Furthermore, the provisions in today's rule allow vehicles,
engines, and equipment to be fueled with military specification fuels
that are exempt from the sulfur standards when needed for national
security. We believe that this provides DoD with the needed flexibility
to meet its goals of keeping vehicles, engines, and equipment ready for
quick deployment overseas.
2. Fuel Used in Research, Development, and Testing
Today's final rule permits parties to request an exemption from the
sulfur or other standards for NRLM diesel fuel used for research,
development and testing purposes (``R & D exemption''). We recognize
that there may be legitimate research programs that require the use of
diesel fuel with higher sulfur levels than allowed under today's
[[Page 39081]]
rule. As a result, this final rule contains provisions for obtaining an
exemption from the prohibitions for persons, producing, distributing,
transporting, storing, selling, or dispensing NRLM diesel fuel that
exceeds the standards, where such diesel fuel is necessary to conduct a
research, development, or testing program.
Parties seeking an R & D exemption must submit an application for
exemption to EPA that describes the purpose and scope of the program,
and the reasons why higher-sulfur diesel fuel is necessary. Upon
presentation of the required information, an exemption can be granted
at the discretion of the Administrator, with the condition that EPA can
withdraw the exemption in the event the Agency determines the exemption
is not justified. In addition, an exemption based on false or
inaccurate information will be considered void ab initio. Fuel subject
to an exemption is exempt from certain provisions of this rule,
including the sulfur standards, provided certain requirements are met.
These requirements include the segregation of the exempt fuel from non-
exempt NRLM and highway diesel fuel, identification of the exempt fuel
on PTDs, pump labeling, and where appropriate, the replacement, repair,
or removal from service of emission systems damaged by the use of the
high sulfur fuel.
3. Fuel Used in Racing Equipment
There are no provisions for an exemption from the sulfur or other
content standard and other requirements for diesel fuel used in racing
in today's final rule. Under certain conditions, racing vehicles are
not considered nonroad vehicles. See, for example, 40 CFR Sec. 89.2,
definition of ``nonroad vehicle.'' The fuel used by such racing
vehicles would not necessarily be considered nonroad diesel fuel.
However, we believe that there is a realistic chance that such fuel
also could be used in NRLM equipment, and therefore, should be
considered NRLM diesel fuel. We received no comments supporting the
need for an exemption for racing fuel. We are not aware of any
advantage for racing vehicles or racing equipment to use fuel having
higher sulfur levels than are required by this rule, and we are
concerned about the potential for misfueling of nonroad equipment and
motor vehicles that could result from having a high sulfur (e.g., 3,000
ppm) fuel for vehicle or nonroad equipment available in the
marketplace. Consequently, as was the case with the highway diesel
rule, this final rule does not provide an exemption from the nonroad
diesel fuel requirements for fuel used in racing vehicles or equipment.
4. Fuel for Export
Fuel produced for export, and that is actually exported for use in
a foreign country, is exempt from the fuel content standards and other
requirements of this final rule. Such fuel will be considered as
intended for use in the U.S. and subject to the standards in today's
rule unless it is designated by the refiner as for export only and PTDs
state that the fuel is for export only. Fuel intended for export must
be segregated from all fuel intended for use in the U.S., and
distributing or dispensing such fuel for domestic use is illegal.
B. Additional Requirements for Refiners and Importers
The primary requirements for refiners and importers under today's
final rule are discussed in section IV above. In that section, we
discuss the general structure of the compliance and enforcement
provisions applicable to refiners and importers, including fuel content
standards, fuel volume designation and tracking provisions, and credit
provisions. In this subsection, we discuss several additional
requirements for refiners and importers that are not addressed in
section IV. In addition, sections V.G, V.H, and V.I below discuss
several provisions that apply to all parties in the diesel fuel
production and distribution system, including refiners and importers.
1. Transfer of Credits
This final rule includes provisions for NRLM diesel sulfur credit
transfers that are essentially identical to other fuels rules that have
credits provisions. As in other fuels rules, NRLM diesel sulfur credits
can only be transferred between the refiner or importer generating the
credits and the refiner or importer using the credits. If a credit
purchaser can not use all the credits it purchased from the refiner who
generated them, the credits can be transferred one additional time. We
recognize that there is potential for credits to be generated by one
party and subsequently purchased and used in good faith by another
party, where the credits are later found to have been calculated or
created improperly, or otherwise found to be invalid. As with the
reformulated gasoline rule, the Tier 2/Gasoline Sulfur rule, and the
highway diesel sulfur rule, invalid credits purchased in good faith are
not valid for use by the purchaser. To allow such use would not be
consistent with the environmental goals of the regulation. In addition,
both the seller and purchaser of invalid credits must adjust their
credit calculations to reflect the proper credits and either party (or
both) can be deemed in violation if the adjusted calculations
demonstrated noncompliance. We expect that the parties to such a credit
transaction will develop contractual provisions to address these
circumstances.
Nevertheless, in a situation where invalid credits are transferred,
our strong preference will be to hold the credit seller liable for the
violation, rather than the credit purchaser. As a general matter we
expect to enforce a shortfall in credit compliance calculations against
the credit seller, and we expect to enforce a compliance shortfall
(caused by the good faith purchase of invalid credits) against a good
faith purchaser only in cases where we are unable to recover sufficient
valid credits from the seller to cover the shortfall. Moreover, in
settlement of such cases we will strongly encourage the seller to
purchase credits to cover the good faith purchaser's credit shortfall.
EPA will consider the covering of a credit deficit through the purchase
of valid credits a very important factor in mitigation of any case
against a good faith purchaser, whether the purchase of valid credits
is made by the seller or by the purchaser.
2. Additional Provisions for Importers and Foreign Refiners Subject to
the Credit Provisions or Hardship Provisions
Since this final rule includes several compliance options that can
be used by NRLM diesel fuel importers and foreign refiners, we are also
finalizing specific compliance and enforcement provisions to ensure
compliance for imported NRLM diesel fuel. These additional foreign
refiner provisions are similar to those under the gasoline anti-dumping
regulations, the gasoline sulfur regulations and the highway diesel
fuel regulations (see 40 CFR 80.94, 80.410, and 80.620).
Under today's final rule, the per gallon standards for NRLM diesel
fuel produced by refineries owned by foreign refiners must be met by
the importer, unless the foreign refiner has been approved to produce
NRLM diesel fuel under the credit provisions, small refiner provisions
or hardship provisions of this final rule. If the foreign refiner is
approved under any of these provisions, the volume and other
requirements must be met by the foreign refiner for its refinery(s) and
the foreign refiner must be the entity(s) generating, using, banking or
trading any credits for the NRLM diesel fuel produced for and
[[Page 39082]]
imported into the U.S. Importers themselves are not eligible for small
refiner or hardship relief as they do not face the same capital cost
and lead-time issues faced by refiners. Importers may participate in
the credit programs, however, an importer and a foreign refiner may not
generate credits for the same fuel.
Any foreign refiner that produces NRLM diesel fuel subject to the
credit provisions, small refiner provisions or the hardship provisions
will be subject to the same requirements as domestic refiners operating
under the same provisions. Additionally, provisions for foreign
refiners exist that are similar to the provisions at 40 CFR 80.94,
80.410, and 80.620, which include:
--Segregation of NRLM diesel fuel produced at the foreign refinery
until it reaches the U.S. and separate tracking of volumes imported
into each PADD;
--Controls on product designation;
--Load port and port of entry testing; and
--Requirements regarding bonds and sovereign immunity.
These provisions will aid the Agency in tracking NRLM diesel fuel
from the foreign refinery to its point of import into this country. We
believe these provisions are necessary and sufficient to ensure that
foreign refiners' compliance can be monitored and that the diesel fuel
requirements in today's rule can be enforced against foreign refiners.
3. Diesel Fuel Treated as Blendstock (DTAB)
Under today's program, a situation could arise for importers where
fuel that was expected to comply with the 15 ppm sulfur NRLM standard
is found to be slightly higher in sulfur than the standard. Rather than
require that importer to account for, and report, that fuel as 500 ppm
sulfur fuel, an importer will be able to designate the non-complying
fuel as blendstock--``diesel fuel treated as blendstock'' or DTAB--
rather than as NRLM diesel fuel. In its capacity as a refiner, the
party can then blend this DTAB fuel with lower sulfur diesel fuel or
with other blendstocks to cause the sulfur level of the combined
product to meet the 15 ppm sulfur NRLM diesel fuel standard prior to
delivery to another entity. The same situation exists with respect to
compliance with the 15 ppm sulfur highway standard. However, no
provision was made in the 2007 highway final rule for this.
Consequently, we are also finalizing these DTAB provisions in this
final rule for application to 15 ppm sulfur highway diesel fuel.
Where diesel fuel that has been previously designated by a refiner
is used to reduce the sulfur level of the DTAB to 15 ppm or less, the
party, in its refiner capacity, is required to report only the volume
of the imported DTAB as the amount of diesel fuel produced.\147\ This
avoids the double counting that would result if the same diesel fuel is
reported twice (i.e., once by the refiner who originally produced it
and again by the refiner using it to blend with DTAB). If the product
that is blended with the DTAB is not previously designated diesel fuel,
but is also blendstock, the total combined volume of the DTAB and other
blendstock constitutes the batch produced.
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\147\ Volumes of previously designated diesel fuel would be
reported as volumes received under the designate and track
provisions of Section IV.D.
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When an importer classifies diesel fuel as DTAB, that DTAB does not
count toward the importer's calculations under the highway diesel
rule's temporary compliance option, toward credit generation or use, or
for volume account balance compliance calculations (see section
IV).\148\ The same party, however, must include the DTAB in such
calculations in its capacity as a refiner. We believe such an approach
will increase the supply of 15 ppm sulfur fuel by reducing the volume
of near-compliant fuel that is downgraded to higher sulfur
designations. In essence, it allows importers the same flexibility that
refiners have within their refinery gate.
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\148\ Importer/refiners availing themselves of the DTAB
provisions are still subject to the downgrading provisions, and
other provisions applicable to any importer or refiner.
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Similar to the provisions discussed above regarding the manufacture
of 15 ppm sulfur diesel fuel using DTAB, 500 ppm sulfur NRLM and
highway diesel fuel can also be manufactured using DTAB provided that
this is appropriately reflected in the importer's compliance
calculations.
C. Requirements for Parties Downstream of the Refinery or Import
Facility
In order for the environmental benefits of the NRLM diesel program
to be realized, parties in the fuel distribution system downstream of
the refinery (including pipelines, terminals, bulk plants, wholesale
purchaser-consumers, and retailers \149\) must ensure that the sulfur
level of fuels supplied to the various end-users covered by today's
rule complies with the requirements in today's rule. At certain points
in the distribution system, such parties must keep the various grades
of fuel having different sulfur specifications physically
separate,\150\ and ensure that the fuel is properly designated and
labeled. In other words, fuel represented as 15 ppm sulfur must comply
with the 15 ppm sulfur standard, and fuel represented as 500 ppm sulfur
must meet the 500 ppm sulfur standard. At other points in the
distribution system, certain fuels may be commingled provided that the
fuel volumes are appropriately designated and accounted for in the
custody holders volume account balance. Owners and operators of NRLM
diesel equipment must also use fuels meeting specific sulfur content
standards. The following paragraphs discuss several provisions that
apply to these parties: Distribution of various fuel sulfur grades;
diesel fuel pump labeling; use of used motor oil in diesel fuel; use of
kerosene in diesel fuel; use of additives in diesel fuel; requirements
for end users; and provisions covering downgrading of undyed diesel
fuel to different grades of fuel. These provisions are analogous to
similar provisions that apply to highway diesel fuel under the highway
program. Section IV discusses in detail the provisions applicable to
downstream parties under the designate and track program.
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\149\ An owner/operator of a tanker truck that delivers fuel
directly from the tanker truck tank into motor vehicles or nonroad
equipment of another business entity (i.e. a mobile refueler) would
be acting as a retailer, and the truck would be operating as a
retail outlet. In other words, the term retail outlet is not limited
to stationary facilities. EPA proposed specific textual changes to
the definition of retail outlet to clarify this, but has decided
there is no need to change the definition, as it has always had this
plain meaning. The owner/operator of such a tanker truck may also be
subject to distributor requirements and prohibitions, or carrier
responsibilities if the trucker company does not take title to the
fuel. As the definitions in 40 CFR 80.2 make clear, it is the
functions performed by the owner/operator that determine whether
they come within the scope of the applicable definitions, and the
resulting obligations or requirements that apply. Mobile refuelers
are not subject to the labeling requirements applicable to other
retailers but are required to provide PTDs to their customers.
\150\ For example: Once the required marker is added to heating
oil at the terminal, heating oil must be segregated from all other
fuel grades. Once red dye is added to NRLM it must be segregated
from highway diesel fuel.
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1. Product Segregation and End Use Requirements
The main requirements for compliance with the fuel sulfur standards
under today's rule, including the designate and track provisions, are
discussed in section IV of today's preamble. The sulfur content of all
fuels subject to the sulfur requirements in today's rule must be
appropriately
[[Page 39083]]
represented (designated/classified/labeled) at all times through to the
retailer or wholesale purchaser consumer. Furthermore, the designation
and classification information on the label and PTD, and the actual
sulfur content of any subject fuel must be consistent with the
requirements detailed in section IV. Section IV also details how to
accurately redesignate, reclassify, and re-label fuel volumes. This
subsection discusses the various grades and uses of NRLM fuel under the
NRLM diesel program. In later subsections, we discuss related
requirements for PTDs to identify fuels throughout the distribution
system and provisions relating to the liability that all parties in the
distribution face for failing to maintain the standards of these
different fuel sulfur grades.
a. The Period From June 1, 2007 Through May 31, 2010
From June 1, 2007 through May 31, 2010, all fuel used in NRLM
equipment must meet a 500 ppm sulfur standard except for fuel produced
or imported under the hardship, small refiner, and credit
provisions.\151\ Outside of the Northeast/Mid-Atlantic Area and Alaska,
we will not be able to rely upon the measurement of sulfur content
alone to enforce the segregation requirements for heating oil, and are
therefore requiring that heating oil be marked before it leaves the
terminal by the addition of 6 mg/L of SY-124. Fuel containing more than
0.1 mg/L of the marker will be deemed to be heating oil and may not be
used as nonroad, locomotive or marine fuel.
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\151\ Fuel produced in the distribution system that meets a 500
ppm sulfur specification may be used in NRLM equipment through June
1, 2014, and in locomotive and marine equipment thereafter.
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NRLM fuel designated or labeled as 500 ppm sulfur must meet the 500
ppm sulfur standard and any fuel designated or labeled as 15 ppm must
meet the 15 ppm sulfur standard.\152\ If a fuel meeting these standards
is mixed or contaminated with a higher sulfur fuel it must be
downgraded to the higher sulfur product and new documentation (e.g.,
PTD, label) must be created to reflect the downgrade. During this
period there will also be nonroad equipment that is expected to be
equipped with sulfur sensitive emissions control technology that needs
to operate on 500 ppm sulfur or less fuel in order to meet the NRLM
program's emission standards in-use. Fuels sold for use in, or
dispensed into, these engines must be identified as meeting the 15 ppm
sulfur standard or the 500 ppm sulfur standard, as applicable, and if
so identified must meet such standard. Distributors and retailers must
avoid contaminating fuel represented by them on PTDs or pump labels as
15 ppm sulfur fuel or 500 ppm sulfur fuel with higher sulfur fuels. End
users are required to use only the fuel grades identified as
appropriate for use on the label affixed to their NRLM equipment.
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\152\ This requirement becomes effective June 1, 2006 to support
the anti-downgrade requirements in the highway diesel rule.
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b. The Period From June 1, 2010 Through May 31, 2012
Beginning June 1, 2010, all fuel used in nonroad equipment must
meet a 15 ppm sulfur standard except for 500 ppm sulfur fuel produced
or imported under the hardship, small refiner, and credit provisions,
or downstream flexibility provisions which may continue to be used in
nonroad engines produced prior to 2011. Locomotive and marine fuel will
continue to be subject to the sulfur requirements applicable beginning
June 1, 2007, until May 31, 2012.
During this time period, we will not be able to rely upon the
measurement of sulfur content alone to enforce the segregation
requirements for LM fuel and NR 500 ppm sulfur fuel outside of the
Northeast/Mid-Atlantic Area and Alaska, and are therefore requiring
that LM fuel produced or imported for use outside of the Northeast/Mid-
Atlantic Area and Alaska be marked before it leaves the terminal by the
addition of 6 mg/L of SY-124. Fuel containing more than 0.1 mg/L of the
marker will be deemed to be either LM fuel or heating oil and may not
be used as nonroad fuel. Fuel containing the marker that meets a 500
ppm sulfur standard will be deemed to be LM fuel, whereas fuel
containing the marker with a sulfur content above 500 ppm will be
deemed to be heating oil.
As discussed in section IV above, small refiners will be able to
continue to produce 500 ppm sulfur nonroad fuel, through May 31, 2014.
Other refiners may use credits through May 31, 2014 to continue to
produce fuel to the 500 ppm sulfur nonroad diesel fuel standard.
Nonroad diesel fuel meeting a 500 ppm sulfur standard may also be
produced due to interface mixing in the distribution system.\153\ In
any case, 15 ppm sulfur diesel fuel must be segregated from 500 ppm
sulfur NRLM diesel fuel throughout the distribution system including
the end user, such that it maintains its designation, or it must be
redesignated and labeled to its downgraded specification.\154\
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\153\ Such 500 ppm sulfur downstream flexibility nonroad diesel
fuel may be also be used in LM equipment since it complies with the
LM sulfur standard applicable during this time period. Thus, both
marked and unmarked 500 ppm sulfur fuel may be used in LM equipment
during this time period.
\154\ These flexibilities do not exist in the Northeast/Mid-
Atlantic Area, and only the small refiner option exists in Alaska.
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Because of the sulfur sensitivity of the expected engine emission
control systems beginning in model year 2011 for nonroad diesel
engines, it is imperative that the distribution system segregate
nonroad diesel fuel subject to the 15 ppm sulfur standard from higher
sulfur distillate products, such as 500 ppm sulfur LM fuel, 500 ppm
sulfur nonroad diesel fuel produced by small refiners or through the
use of credits, heating oil, and jet fuel. End users are required to
use only the fuel grades identified as appropriate for use on the label
affixed to their NR and LM equipment.
We are also concerned about potential misfueling of engines
requiring 15 ppm sulfur fuel at retail or wholesale purchaser-consumer
facilities (as defined under this program), or other end-user
facilities, even when segregation of 15 ppm sulfur fuel from the
higher-sulfur grades of diesel fuel has been maintained in the
distribution system. Thus, downstream compliance and enforcement
provisions of this rule are aimed at both preventing contamination of
nonroad diesel fuel subject to the 15 ppm sulfur standard (i.e., fuel
represented to meet that standard) and preventing misfueling of new
nonroad equipment.
c. The Period From June 1, 2012 Through May 31, 2014
Beginning June 1, 2012, all fuel used in locomotive and marine
equipment must meet a 15 ppm sulfur standard except for 500 ppm sulfur
fuel produced or imported under the hardship, small refiner, and credit
provisions, or downstream flexibility provisions. As discussed in
section IV above, small refiners will be able to continue to produce
500 ppm sulfur LM fuel, through May 31, 2014. Other refiners may use
credits through May 31, 2014 to continue to produce fuel to the 500 ppm
sulfur LM diesel fuel standard. Locomotive, and marine diesel fuel
meeting a 500 ppm sulfur standard may also be produced due to interface
mixing in the distribution system indefinitely.
The marker requirement for 500 ppm sulfur LM diesel fuel expires on
June 1, 2012. After June 1, 2012, only heating oil must continue to be
marked and any LM diesel fuel distributed from the terminal must not
contain the marker. To allow marked LM diesel fuel
[[Page 39084]]
distributed prior to June 1, 2012 to be consumed by end-users, the
downstream prohibition against LM fuel containing the marker will not
become effective until October 1, 2012. Beginning October 1, 2012, LM
diesel fuel at any location must contain no more than 0.1 mg/L of the
marker.\155\ We believe that allowing four months for downstream
parties to blend down their stocks of marked LM diesel fuel with
receipts of unmarked LM diesel fuel will be sufficient for such parties
to comply with the prohibition against possessing LM fuel with a marker
concentration greater than 0.1 mg/L.
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\155\ Allowing four months for the LM fuel distribution system
to sufficiently purge itself of marked fuel is consistent with the
time allowed for LM diesel fuel to comply with a 500 ppm sulfur
standard after the refinery gate 15 ppm sulfur standard for LM fuel
becomes effective.
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The requirements that became effective for fuel used in nonroad
equipment on June 1, 2010, will remain effective until May 31, 2014.
d. After May 31, 2014
After the small refiner, credit, and off-specification fuel
flexibilites have expired, the remaining sulfur grades of diesel fuel
will be 15 ppm sulfur highway and NRLM fuel, 500 ppm sulfur LM diesel
fuel (produced due to interface mixing in the distribution system
outside of the Northeast/Mid-Atlantic Area and Alaska), and heating
oil, some of which may meet a 500 ppm sulfur standard. Product transfer
documents are required to accompany the batches of such fuels which
must contain the specified identifying information. Highway and NRLM
diesel fuel meeting a 15 ppm sulfur specification must be segregated
from 500 ppm sulfur LM diesel fuel, and heating oil. Today's rule
contains provisions for the fungible shipment of LM diesel fuel with
any heating oil meeting a 500 ppm sulfur cap up to the point where the
fuel leaves the terminal that are similar to the provisions that allow
the fungible shipment of high sulfur NRLM diesel fuel and high sulfur
heating oil discussed in the previous section. Under such circumstances
the designate and track and heating oil account balance requirements
must be satisfied.
2. Diesel Fuel Pump Labeling To Discourage Misfueling
For any multiple-fuel program like the two-step program we are
finalizing today, we believe that the clear labeling of nonroad diesel
fuel pumps is vital so that end users can readily distinguish between
the several grades of fuel that may be available at fueling facilities,
and properly fuel their nonroad equipment. Section III.N above
describes the labels that manufacturers are required to place on
nonroad equipment, and the information that must be provided to nonroad
equipment owners. Section VI discusses the likely benefit for many
nonroad engines to utilize 500 ppm sulfur diesel fuel as soon as it
becomes available in 2007. Today's final rule includes requirements for
labeling fuel pump stands used to fuel NRLM equipment and highway
diesel vehicles.
To help prevent misfueling of nonroad, locomotive and marine
engines, and to thus ensure that the environmental benefits of the
program are realized, we are finalizing pump labeling requirements
similar to those adopted in the highway diesel rule (40 CFR 80.570).
Today's pump dispenser labeling requirements are discussed separately
according to the date they become effective: June 1, 2006, June 1,
2007, June 1, 2010, and June 1, 2014.
Today's final rule also amends the pump dispenser labeling language
in the highway diesel regulations for consistency with the NRLM
program. Because existing highway diesel regulations prohibit highway
diesel fuel with sulfur levels above 500 ppm, the highway diesel final
rule and this program have different meanings for the terms ``low
sulfur'' and ``high sulfur,'' and the highway diesel final rule does
not use the term ``ultra low-sulfur.'' Further, because the highway
diesel final rule did not need to categorize the different uses of non-
highway diesel fuel, the highway diesel final rule and this program
have different meanings for the term ``nonroad.'' \156\ The amendments
to the highway pump dispenser labeling language finalized by today's
rule are meant to avoid confusion at the fuel pumps caused by labels
that would have different meanings depending on whether the pump is
dispensing highway or non-highway diesel fuel. Today's final rule adds
effective dates to each paragraph of the labeling provisions of the
highway diesel rule for consistency with the additional pump labeling
sections of this program, and to distinguish the non-highway labeling
requirement effective June 1, 2006 under the highway diesel rule from
the non-highway labeling requirements of this rule that are effective
in 2007.
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\156\ In the highway diesel rule, the term ``high-sulfur'' means
diesel fuel with a sulfur level greater than 15 ppm, whereas in this
rule it means diesel fuel with a sulfur level greater than 500 ppm.
In the highway diesel rule, the term ``low-sulfur'' means diesel
fuel with a sulfur level less than or equal to 15 ppm, whereas in
this rule it means diesel fuel with a sulfur level less than or
equal to 500 ppm. In addition, the term ``nonroad'' as used in the
highway diesel rule means ``non-highway'' (i.e., all fuel that is
not highway fuel), but the term ``nonroad'' as used in this rule
does not include locomotive diesel, marine diesel and heating oil.
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Alternate labels to those specified in today's rule may be used if
they are approved by the Administrator.
Today's rule also finalizes labeling requirements for pumps in
Alaska that dispense NRLM diesel fuel and heating oil which is exempt
from the red dye and fuel marker requirements which differ from the
labeling requirements discussed in this section. Please refer to Sec.
69.52(e) of the regulatory text to today's rule for these pump labeling
requirements applicable in Alaska.
a. Pump Labeling Requirements that Become Effective June 1, 2006
The pump labeling requirements described in this section become
effective June 1, 2006.
i. Pumps Dispensing Highway Diesel Fuel Subject to the 15 ppm Sulfur
Standard
The label on pumps dispensing highway diesel fuel subject to the 15
ppm sulfur standard must read as follows:
ULTRA LOW-SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all model year 2007 and later highway diesel
vehicles and engines.
Recommended for use in all diesel vehicles and engines.
The above labeling requirement for 15 ppm sulfur highway diesel
fuel continues through May 31, 2010, after which time different pump
label requirements for this fuel become effective as described in
section V.C.2.c.3. of this preamble.
ii. Pumps Dispensing Highway Diesel Fuel Subject to the 500 ppm Sulfur
Standard
The label on pumps dispensing highway diesel fuel subject to the
500 ppm sulfur standard must read as follows:
LOW-SULFUR HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in model year 2007 and later highway
vehicles and engines.
Its use may damage these vehicles and engines.
Dispensing highway diesel fuel that has a sulfur content above 15
ppm is prohibited into any highway vehicle after September 30, 2010.
Hence no pumps may display the above label after September 30, 2010.
[[Page 39085]]
iii. Pumps Dispensing Diesel Fuel for Non-Highway Equipment That Does
Not Meet the Standards for Motor Vehicle Diesel Fuel
The label on pumps dispensing diesel fuel for non-highway equipment
that does not meet the standards for motor vehicle diesel fuel must
read as follows:
NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)
WARNING
Federal law prohibits use in any highway vehicle or engine
Its use may damage these vehicles and engines.
This labeling requirement is effective until May 31, 2007, after
which high sulfur non-highway diesel fuel must be labeled according to
the provisions described in section V.C.2.b.iii and 500 ppm sulfur non-
highway diesel fuel must be labeled according to the provisions
described in section V.C.2.b.1. of today's preamble.
b. Pump Labeling Requirements That Become Effective June 1, 2007
As discussed in section IV, between June 1, 2007 and September 30,
2010, end users are not always required to dispense fuel meeting the
500 ppm sulfur standard into nonroad, equipment, locomotives or marine
vessels. During this time period, small refiner fuel and fuel produced
under the credit provisions with sulfur levels exceeding 500 ppm will
continue to exist in the distribution system. During this time period,
there will also be nonroad equipment with engines certified as meeting
the Tier 4 emission standards (i.e., engines equipped with emission
controls that allow them to meet the Tier 4 standards earlier than
required). Some of this equipment is expected to be equipped with
sulfur sensitive technology that will need to operate on fuel with a
sulfur content of 500 ppm or less to function properly. For this
reason, it is important that NRLM end users be able to know the sulfur
level of the fuel they are purchasing and dispensing. Therefore, fuel
pump dispensers for the various sulfur grades must also be properly
labeled. The following pump labeling requirements become effective from
June 1, 2007:
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 500 ppm Sulfur
Standard
The label on pumps dispensing 500 ppm (maximum) sulfur content
diesel fuel for use in NRLM engines must read as follows:
LOW-SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in any highway vehicle or engine
The above labeling requirement remains effective until May 31,
2010, after which it is superceded by the requirements described below.
ii. Pumps Dispensing NRLM Diesel Fuel Subject to the 15 ppm Sulfur
Standard
It is also likely that prior to June 1, 2010 some 15 ppm sulfur
(maximum) diesel fuel will be introduced into the nonroad market early.
Both the engine and fuel credit provisions envision such early
introduction of 2011-compliant engines and 15 ppm sulfur diesel fuel.
Thus, it is important that nonroad end users be able to know when they
are purchasing diesel fuel with 15 ppm or less sulfur.\157\ The label
on pumps dispensing 15 ppm sulfur diesel fuel for use in NRLM engines
must read as follows:
---------------------------------------------------------------------------
\157\ The IRS requires that 15 ppm sulfur non-highway diesel
fuel must contain red dye after it leaves the terminal.
---------------------------------------------------------------------------
ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all model year 2011 and newer nonroad diesel
engines.
Recommended for use in all nonroad, locomotive and marine diesel
engines.
WARNING
Federal law prohibits use in any highway vehicle or engine.
The above labeling requirement continues until May 31, 2014, after
which it is superceded by the labeling provisions described in section
V.C.2.e.i of today's preamble.
iii. Pumps Dispensing Diesel Fuel With a Sulfur Content Greater Than
500 ppm for Use in Older NRLM Equipment
The label on pumps dispensing diesel fuel having a sulfur content
greater than 500 ppm (for use in older nonroad, locomotive, and marine
diesel engines) must read as follows:
HIGH-SULFUR NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)
WARNING
Federal law prohibits use in highway vehicles or engines
May damage nonroad, diesel engines required to use low-sulfur or
ultra-low sulfur diesel fuel.
The above labeling requirement remains effective until September
30, 2010. After September 30, 2010 no pump may display this label.
iv. Pumps Dispensing Heating Oil
As discussed in section IV.B.2.b, it is necessary to segregate
heating oil from NRLM diesel fuel to ensure that the fuel used in
nonroad, locomotive, and marine equipment is compliant with the sulfur
standards in today's rule. The label on pumps dispensing non-highway
diesel fuel for use other than in nonroad, locomotive or marine
engines, such as for use in stationary diesel engines or as heating
oil, must read as follows:
HEATING OIL (May Exceed 500 ppm Sulfur)
WARNING
Federal law prohibits use in highway vehicles or engines, or in
nonroad, locomotive, or marine engines.
Its use may damage these diesel engines.
The above labeling will remain effective indefinitely.
c. Pump Labeling Requirements That Become Effective June 1, 2010
Beginning October 1, 2010, all diesel fuel introduced into highway
diesel vehicles, regardless of the year of manufacture, must meet the
15 ppm sulfur standard. Furthermore, with certain exceptions, fuel
introduced into any nonroad engine must meet the 15 ppm sulfur
standard. The exceptions are fuel allowed to meet the 500 ppm sulfur
standard for use only in pre-model year 2011 nonroad engines and
locomotive and marine engines, for example, small refiner nonroad
diesel fuel and credit nonroad diesel fuel, as well as downgraded 15
ppm sulfur diesel fuel from the distribution system. This use of 500
ppm sulfur diesel fuel in nonroad engines will continue through
September 30, 2014,\158\ after which all nonroad diesel fuel must meet
the 15 ppm sulfur standard. The following pump labeling requirements
become effective June 1, 2010:
---------------------------------------------------------------------------
\158\ Production of 500 ppm sulfur fuel under the credit
provisions is allowed until June 1, 2012, but small refiner fuel
subject to the 500 ppm sulfur standard can continue to be produced
until June 1, 2014 and will be available to end users until
September 1, 2014.
---------------------------------------------------------------------------
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 500 ppm Sulfur
Standard
The label on pumps dispensing 500 ppm (maximum) nonroad,
locomotive, and marine diesel fuel, as discussed in section IV.B.3.b,
must read as follows:
LOW-SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in all model year 2011 and newer
nonroad engines.
May damage model year 2011 and newer nonroad engines.
[[Page 39086]]
Federal Law Prohibits Use in any Highway Vehicle or Engine.
Recommended for use in all locomotive and marine equipment.
The above labeling requirement remains effective until September
30, 2014. After September 30, 2014, no pump may display this label.
ii. Pumps Dispensing Marked LM Fuel
The label on pumps dispensing 500 ppm sulfur locomotive, and marine
diesel fuel, as discussed in section IV.B.3.b., must read as follows:
LOW-SULFUR LOCOMOTIVE AND MARINE DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in nonroad engines or in highway
vehicles or engines.
The above labeling requirement remains effective until September
30, 2012. After September 30, 2012, no pump may display this label.
iii. Pumps Dispensing Highway Diesel Fuel Subject to the 15 ppm Sulfur
Standard
The label on pumps dispensing highway diesel fuel subject to the 15
ppm sulfur standard of Sec. 80.520(a)(1) must read as follows:
ULTRA LOW-SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all highway diesel vehicles and engines.
Recommended for use in all diesel vehicles and engines.
The above labeling requirement for 15 ppm sulfur highway diesel
fuel continues indefinitely.
d. Pump Labeling Requirements That Become Effective June 1, 2014
Beginning October 1, 2014, all nonroad fuel distributed to end-
users is required to meet the 15 ppm sulfur standard, without
exception. Locomotive and marine fuel downstream of the refinery or
importer is still subject to the 500 ppm sulfur standard. The pump
labels for heating oil will continue to be the same as for the period
2010 through 2014. The following pump labeling requirements become
effective beginning June 1, 2014:
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 15 ppm Sulfur
Standard
For pumps dispensing nonroad diesel fuel the label must read as
follows:
ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all nonroad diesel engines.
Recommended for use in all locomotive and marine diesel engines.
WARNING
Federal law prohibits use in any highway vehicle or engine.
The above labeling requirement continues indefinitely.
ii. Pumps Dispensing Locomotive and Marine Diesel Fuel Subject to the
500 ppm Sulfur Standard
For pumps dispensing locomotive or marine diesel fuel, the label
must read as follows:
LOW-SULFUR LOCOMOTIVE OR MARINE DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in nonroad engines or in highway
vehicles or engines.
Its use may damage these engines.
The above labeling requirement will remain effective indefinitely.
f. Nozzle Size Requirements or other Requirements To Prevent Misfueling
Like the highway diesel fuel program, the NRLM diesel fuel program
does not include a nozzle size requirement. In part this is because we
are not aware of an effective and practicable scheme to prevent
misfueling through the use of different nozzle sizes or shapes, and in
part because we do not believe that improper fueling will be a
significant enough problem to warrant such an action. In the preamble
to the highway diesel fuel rule, we stated our belief that the use of
unique nozzles, color-coded scuff-guards, or dyes to distinguish the
grades of diesel fuel may be useful in preventing accidental use of the
wrong fuel. (See 66 FR 5119, January 18, 2001.) However, we did not
finalize any such requirements, for the reasons described in the RIA
for that final rule (section IV.E).
Similar reasoning applies to the NRLM diesel fuel program. For
example, 15 ppm sulfur diesel fuel will be the dominant fuel in the
market by 2010, likely comprising more than 80 percent of all number 2
distillate. Further, we believe that 500 ppm sulfur diesel fuel will
have limited availability between 2010 and 2014. High-sulfur distillate
for heating oil uses will remain, but will only exist in significant
volumes in certain parts of the country. In addition, as with highway
diesel engines, there is currently no standardization of fuel tank
openings and filler necks that would allow for a simple, inexpensive,
standardization of nozzles. In any event, we believe that most owners
and operators of new nonroad diesel engines and equipment will not risk
voiding the general warranty and the emissions warranty by misfueling.
Although in the highway diesel fuel rule we did not finalize any
provisions beyond fuel pump labeling requirements, we recognized that
some potential for misfueling could still exist. Consequently, we
expressed a desire to continue to explore with industry simple, cost-
effective approaches that could further minimize misfueling potential
such as color-coded nozzles/scuff guards. Since the highway diesel rule
was promulgated, we have had discussions with fuel retailers, wholesale
purchaser-consumers, vehicle manufacturers, and nozzle manufacturers,
and continue to examine different methods for preventing accidental or
intentional misfueling under the highway diesel fuel sulfur program. To
date, the affected stakeholders, including engine and truck
manufacturers, truck operators, fuel retailers, and fuel nozzle
manufacturers have not reached any common view that the concerns over
misfueling warrant any additional prevention measures.
3. Prohibition Against the Use of Used Motor Oil in New Nonroad Diesel
Equipment
We understand that used motor oil is sometimes blended with diesel
fuel today for use as fuel in nonroad diesel equipment. Such practices
include blending used motor oil directly into the equipment fuel tank,
blending it into the fuel storage tanks, and blending small amounts of
motor oil from the engine crank case into the fuel system as the
equipment is operated.
However, motor oil normally contains high levels of sulfur. Thus,
the addition of used motor oil to nonroad diesel fuel could
substantially impair the sulfur-sensitive emissions control equipment
expected to be used by engine manufacturers to meet the emissions
standards in today's final rule. Depending on how the oil is blended,
it could increase the sulfur content of the fuel by as much as 200 ppm
sulfur. As a result, we believe blending used motor oil into nonroad
diesel fuel could render inoperative the expected emission control
technology and potentially cause driveability problems. Consequently,
it would violate the tampering prohibition in the Act. See CAA sections
203(a)(3), and 213(d).
Therefore, like the highway diesel rule, today's rule prohibits any
person from introducing or causing or allowing the introduction of used
motor oil, or diesel fuel containing used motor oil, into the fuel
delivery systems of nonroad equipment engines manufactured in model
year 2011 and later. The only exception to this will be
[[Page 39087]]
where the engine was explicitly certified to the emission standard with
used motor oil added and the oil was added in a manner consistent with
the certification. Furthermore, as discussed in section IV, today's
rule includes certain sunset dates when all NRLM diesel fuel in the
distribution system must meet the applicable sulfur standard, and
before that date any NRLM designated, classified, or labeled as 15 ppm
sulfur fuel must meet that sulfur standard. Blending of used motor oil
into NRLM could cause these standards to be exceeded in violation of
today's rule. Any party who causes the sulfur content of nonroad diesel
fuel subject to the 15 ppm sulfur standard to exceed 15 ppm by blending
motor oil into nonroad diesel fuel, or by using motor oil as nonroad
diesel fuel, is subject to liability for violating the sulfur standard.
Similarly, parties who cause the sulfur level of nonroad diesel fuel
subject to the 500 ppm sulfur nonroad diesel fuel standard to exceed
that standard by blending motor oil into the fuel, are also subject to
liability.
4. Use of Kerosene in Diesel Fuel
As we discussed in the highway diesel final rule, kerosene is
commonly added to diesel fuel to reduce fuel viscosity in cold weather
(see 66 FR 5120, January 18, 2001). This final rule does not limit this
practice with regard to 15 ppm sulfur or 500 ppm sulfur NRLM diesel
fuel. However the resulting blend will still be subject to the 15 ppm
sulfur or 500 ppm sulfur standard. Kerosene that is used, intended for
use, or made available for use as, or for blending with, 15 ppm sulfur
or 500 ppm sulfur diesel fuel is itself required to meet the 15 ppm
sulfur or 500 ppm sulfur standard.
As a general matter, any party who blends kerosene, or any
blendstock, into NRLM diesel fuel, or who produces NRLM diesel fuel by
mixing blendstocks, will be treated as a refiner and will be subject to
the requirements and prohibitions applicable to refiners under today's
rule. For example, the fuel that they manufacture must meet the sulfur
standards established in this rule, and represented on the PTD.
However, in deference to the longstanding and widespread practice of
blending kerosene into diesel fuel at downstream locations, downstream
parties who only blend kerosene into NRLM and highway diesel fuel will
not be subject to the requirements applicable to other refiners,
provided that they do not alter the fuel in any other way, and do not
violate the volume balance requirements discussed in section IV.D. For
example, they will not need to meet the 80/20 requirements under the
highway diesel program. This activity is treated the same way under the
final highway diesel rule. Parties that blend kerosene into diesel fuel
are subject to the downstream designate and track provisions applicable
to other downstream parties.
In order to ensure the continued compliance of 15 ppm sulfur fuel
with the 15 ppm sulfur standard, downstream parties choosing to blend
kerosene into 15 ppm sulfur NRLM diesel fuel are required to either
have a PTD for that kerosene indicating compliance with the 15 ppm
sulfur standard, or to have test results for the kerosene establishing
such compliance. Further, downstream parties choosing to blend kerosene
into 15 ppm sulfur NRLM diesel fuel are entitled to the two ppm
adjustment factor discussed in section V.D.2. for both the kerosene and
the diesel fuel into which it is blended at downstream locations,
provided that the kerosene had been transferred to the party with a PTD
indicating compliance with that standard. Sulfur test results from
downstream locations of parties who do not have such a PTD for their
kerosene will not be subject to this adjustment factor, either for the
kerosene itself, or for the NRLM diesel fuel into which it is blended.
Any party who causes the sulfur content of NRLM diesel fuel
represented as meeting the 15 ppm sulfur standard to exceed 15 ppm
sulfur by blending kerosene into NRLM diesel fuel, or by using greater
than 15 ppm sulfur kerosene as NRLM diesel fuel, is subject to
liability for violating the sulfur standard. Similarly, parties who
cause the sulfur level of NRLM diesel fuel subject to the 500 ppm
sulfur diesel fuel standard to exceed that standard by blending
kerosene into the fuel, are also subject to liability.
Today's rule does not require refiners or importers of kerosene to
produce or import kerosene meeting the 15 ppm sulfur standard. However,
we believe that refiners will produce ultra low sulfur kerosene in the
same refinery processes that they use to produce ultra low sulfur
diesel fuel, and that the market will drive supply of ultra low sulfur
kerosene for those areas where, and during those seasons when, the
product is needed for blending with NRLM, as well a highway, diesel
fuel.
As discussed in section IV.D, kerosene blending also factors into
the designate and track provisions finalized today from June 1, 2006
until June 1, 2010. During this time period it is possible, and in fact
likely, that kerosene meeting the 15 ppm sulfur standard will instead
be designated as No. 1 highway diesel fuel, and will simply need to
meet all of the requirements of highway diesel fuel. It is also
possible, though less likely that kerosene meeting the 500 ppm sulfur
standard will be designated as No. 1 highway diesel fuel. However, if
it is, it would also merely need to comply with all the requirements
applicable to highway diesel fuel.
5. Use of Diesel Fuel Additives
Diesel fuel additives include lubricity improvers, corrosion
inhibitors, cold-operability improvers, and static dissipaters. Use of
such additives is distinguished from the use of kerosene or biodiesel
by the low concentrations at which they are used (defined to be one
percent or less) and their relatively more complex chemistry.\159\ The
suitability of diesel fuel additives for use in diesel fuel meeting a
500 ppm sulfur specification has been well established due to the
existence of 500 ppm sulfur highway diesel fuel in the marketplace
since 1993. The suitability of additives for use in 15 ppm sulfur
diesel fuel was first addressed by EPA in the highway diesel program,
which requires highway diesel fuel to meet a 15 ppm sulfur standard
beginning in 2006. At the time of the finalization of the highway
diesel final rule and during our development of the proposed NRLM
diesel rule, our review of data submitted by additive and fuel
manufacturers to comply with EPA's Fuel and Fuel Additive Registration
requirements indicated that additives to meet every purpose, including
static dissipation, are currently in common use which meet a 15 ppm cap
on sulfur content.\160\
---------------------------------------------------------------------------
\159\ Diesel fuel additives are used at concentrations commonly
expressed in parts per million. Diesel fuel additives can include
specially-formulated polymers and other complex chemical components.
Kerosene is used at much higher concentrations, expressed in volume
percent. Unlike diesel fuel additives, kerosene is a narrow
distillation fraction of the range of hydrocarbons normally
contained in diesel fuel.
\160\ See Chapter IV.D. of the RIA for the highway diesel fuel
rule for more information on diesel fuel additives, EPA Air docket
A-99-06, docket item V-B-01. Also see 40 CFR part 79.
---------------------------------------------------------------------------
a. Additives Used in 15 ppm Sulfur Diesel Fuel
Similar to the highway diesel rule, today's rule allows the bulk
addition of diesel fuel additives with a sulfur content greater than 15
ppm in NRLM diesel fuel under certain circumstances.\161\ However, NRLM
[[Page 39088]]
diesel fuel containing such additives will continue to be subject to
the 15 ppm sulfur cap. We believe that it is most appropriate for the
market to determine how best to accommodate increases in fuel sulfur
content from the refinery gate to the end user, while maintaining the
15 ppm sulfur cap, and whether such increases result from contamination
in the distribution system or bulk diesel additive use. By providing
this flexibility, we anticipate that market forces will encourage an
optimal balance between the competing demands of manufacturing fuel
lower than the 15 ppm sulfur cap, limiting contamination in the
distribution system, and limiting the bulk additive contribution to
fuel sulfur content.
---------------------------------------------------------------------------
\161\ Most diesel fuel additives are added at the terminal to
bulk fuel volumes before sale to the consumer. These additives are
referred to as bulk additives. End users and wholesale purchaser
consumers sometimes also add additives to diesel fuel by hand
blending into the vehicle fuel tank or fleet fuel storage tanks.
Such additives are referred to as aftermarket additives. As
discussed at the end of this section, today's rule contains
different requirements regarding the use of aftermarket additives.
---------------------------------------------------------------------------
Thus, as in the highway diesel program, additive manufacturers that
market bulk diesel additives with a sulfur content higher than 15 ppm
and blenders that use them in nonroad diesel have additional
requirements to ensure that the 15 ppm sulfur cap for NRLM diesel fuel
is not exceeded.
The 15 ppm sulfur cap on highway diesel fuel that becomes effective
in 2006 may encourage the gradual retirement of additives that do not
meet a 15 ppm sulfur cap. The 15 ppm sulfur cap for NR fuel in 2010 and
for LM fuel in 2012 may further this trend. However, we do not
anticipate that this will result in disruption to additive users and
producers or a significant increase in cost. Additive manufacturers
commonly reformulate their additives on a periodic basis as a result of
competitive pressures. We anticipate that any reformulation that might
need to occur to meet a 15 ppm sulfur cap, will be accomplished prior
to the implementation of the 15 ppm sulfur cap on highway diesel fuel
in 2006.
Like the highway diesel fuel rule, this rule will limit the
continued use in 15 ppm sulfur fuel of a bulk additive that exceeds 15
ppm sulfur to a concentration of less than one volume percent. We
believe that this limitation is appropriate and will not cause any
undue burden because the diesel fuel additives for which this
flexibility was included are always used today at concentrations well
below one volume percent. Further, one volume percent is the threshold
above which the blender of an additive becomes subject to all the
requirements applicable to a refiner. See 40 CFR 79.2(d)(1) and 40 CFR
part 80.
The specific requirements regarding the use of bulk diesel fuel
additives in NRLM fuel subject to the 15 ppm sulfur standard are as
follows:
--Bulk additives that have a sulfur content at or below 15 ppm must be
accompanied by a PTD that states: ``The sulfur content of this additive
does not exceed 15 ppm.''
--Bulk additives that exceed 15 ppm sulfur could continue to be used in
diesel fuel subject to the 15 ppm sulfur standard provided that they
are used at a concentration of less than one volume percent and their
transfer is accompanied by a PTD that lists the following:
(1) A warning that the additive's sulfur content may exceed 15 ppm
and that improper use of the additive may result in non-complying fuel,
(2) The additive's maximum sulfur concentration,
(3) The maximum recommended concentration for use of the additive
in diesel fuel, and
(4) The contribution to the sulfur level of the fuel that would
result if the additive is used at the maximum recommended
concentration.
We proposed that the affirmative defenses to presumptive liability
for blenders of bulk additives with a sulfur content greater than 15
ppm must include periodic sulfur tests after the addition of the
additive showing that the finished fuel does not exceed the 15 ppm
sulfur cap. We are adopting this proposed requirement for additives
other than static dissipater additives.
b. Static Dissipater Additives
Comments from diesel fuel distributors and additive manufactures
stated that static dissipater additives are unique among the various
types of diesel fuel additives in that there are currently none
available with a sulfur content below 15 ppm which are fully effective.
Considering the lack of static dissipater additives meeting a 15 ppm
sulfur cap, and the inability to add static dissipater (S-D) additives
prior to shipment by pipeline, commenters stated that the prohibitive
cost of testing fuel batches after the addition of static dissipater
additives could discourage their use. To avoid the potential adverse
impact on the safety of the fuel distribution industry which could
result, commenters requested that we provide an alternative method for
use in demonstrating their affirmative defense to presumptive liability
when they use static dissipater additives with a sulfur content above
15 ppm. Manufacturers of static dissipater additives stated that due to
very low treatment rates that are needed for such additives, their use
will raise the sulfur content of the finished fuel by no more than 0.02
ppm. Commenters stated that because of the extremely low potential
contribution to the sulfur level of the finished diesel fuel which
might result from the use of static dissipater additives, there was
little risk that use of such additives would result in noncompliance
with the 15 ppm sulfur cap.
We contacted all of the additive manufactures that have registered
static dissipater additives in EPA's Fuel and Fuel Additive
Database.\162\ All of these manufactures stated that there are no
fully-effective static dissipater additives available that have a
sulfur content below 15 ppm. They further stated that sulfur is an
essential component in static dissipater additives, and that it is
currently unclear how to formulate a static dissipater additive that
would have a sulfur content below 15 ppm. Because of this input, we now
recognize that static dissipater additives are in a unique category
with respect to the ability to comply with a 15 ppm sulfur cap.
Additive manufactures stated that reformulation of static dissipater
additives to meet a 15 ppm sulfur cap will likely be a lengthy
undertaking.
---------------------------------------------------------------------------
\162\ All additives must be registered with EPA Fuel and Fuel
Additive Database prior to their use in motor vehicle diesel fuel.
---------------------------------------------------------------------------
It is unclear which of the naturally-occurring components in diesel
fuel act to dissipate static electricity. However, certain batches of
fuel are periodically found which do not have adequate static
dissipating qualities. In such cases, static dissipater additives are
necessary to prevent a static discharge from occurring during the
transfer of fuel into a storage tank which might cause an explosion.
Therefore, it is essential that today's rule is structured in such a
way so as to not impede the use static dissipater additives. Because of
the lack of static dissipater additives meeting a 15 ppm sulfur
specification, the unique difficulty in reformulating them to meet a 15
ppm sulfur standard, the fact that they are essential to the safety of
the fuel distribution system, and the impracticability for them to be
added at the refinery, today's rule includes special affirmative
defense provisions to reduce the sulfur testing burden associated with
the use of static dissipater additives that have a sulfur content
greater than 15 ppm.
Commenters suggested an alternative mechanism to demonstrate an
affirmative defense to presumptive liability for blenders of static-
dissipater (S-D) additives which would avoid the need to test every
batch of fuel at the
[[Page 39089]]
terminal after additization. Under this approach, blenders of S-D
additives would be required to provide volume accounting reconciliation
(VAR) records similar to those under EPA's deposit control additive
rule (40 CFR part 80, subpart G) which would show whether the S-D
additive is being added at the appropriate rate on average over a
course of a monthly accounting period. Today's rule finalizes the
approach suggested by commenters with certain modifications. In cases
where a violation of the 15 ppm sulfur cap for diesel fuel is
discovered on a batch of fuel downstream of a blender of S-D additives
that have a sulfur content above 15 ppm, the S-D additive blender must
provide the following information to EPA in order to meet their
affirmative defense to presumptive liability regarding the potential
that the use of S-D additive might have caused or contributed to the
violation:
A sulfur test on the diesel batch prior to the addition of
the S-D additive package that indicates that the additive, when added,
will not cause the fuel to exceed 15 ppm
A product transfer document that accompanied the transfer
of the S-D additive package to the additive blender which contains the
following:
--A statement that the S-D additive package exceeds 15 ppm in sulfur
content and that special requirements apply if it is to be used in
diesel fuel subject to the 15 ppm sulfur cap.
--The maximum sulfur level of the S-D additive package including other
additive components such as diesel detergents and carrier fluid to the
extent that they are part of the package. Each component of the
additive package other than the S-D additive itself must comply with
the 15 ppm sulfur cap.
--The maximum recommended concentration for the S-D additive package.
--The contribution to the final sulfur content of a finished fuel when
the additive is added at the maximum recommended concentration. The
maximum recommended concentration must result in a potential increase
in the sulfur content of the finished fuel of no more than 0.05 ppm.
Monthly volume accounting reconciliation (VAR) records
that include:
--The amount of S-D additive package used during the month
--The volume of the fuel into which the additive was injected during
the month
--The measured sulfur level of each fuel batch prior to injection of
the additive which shows that the contribution to the sulfur level of
the finished diesel fuel from the use of the additive at the treatment
level at which it was injected would not cause any such batch of fuel
to exceed the 15 ppm sulfur specification
Quality assurance records which show that the precision of
the additive injection equipment has been maintained in such a manner
as to prevent malfunctions which could result in the injection of the
S-D additive at a higher concentration than that reported.
The additive blender must also be able to meet its normal diesel
fuel defense elements: That the additive blender-fuel distributor did
not cause the violation; that PTDs account for all the fuel and show
apparent compliance; and that quality assurance sampling and testing
has occurred, as modified by the discussion above.
In addition, the ratio of the amount of additive used to the amount
of fuel into which the additive was injected over any given monthly VAR
period must not exceed the maximum treatment rate which could be added
to any batch of fuel additized during the period. If not, the blender
could be liable for any batch of diesel fuel found that exceeded the 15
ppm sulfur cap which had been in their possession. The above provisions
are only relevant for establishing affirmative defense to presumptive
liability regarding the potential that the use of S-D additives might
have caused a violation. Under no circumstances may an additive blender
cause the sulfur level of any batch of finished fuel to exceed the 15
ppm sulfur cap. Blenders of S-D additives must meet all other
requirements for distributors of 15 ppm sulfur diesel fuel. Regardless
of the cause of a violation of the 15 ppm sulfur standard, any party
that had custody or title of off-specification fuel is potentially
liable and responsible for their affirmative defense elements.
These provisions may only be used for static dissipater additives
which have the potential to raise the sulfur content of the finished
fuel by no more than 0.050 ppm when used at their maximum recommended
treatment level. Based on the input from additive manufacturers noted
above, this will allow the use of S-D additives that are fully
effective for this purpose. The use of S-D additives that might have a
higher contribution to the sulfur content of the finished fuel,
therefore, is unnecessary. To establish affirmative defense to
presumptive liability, blenders that use S-D additives that could
contribute more than 0.050 ppm to the sulfur content of a finished fuel
subject to the 15 ppm sulfur specification when used at the maximum
recommended treatment level are required to conduct a sulfur test on
the fuel batch after the addition of the additive. Blenders of
additives other than S-D additives which have a sulfur content greater
than 15 ppm into diesel fuel subject to the 15 ppm sulfur standard are
also required to conduct a sulfur test on the fuel batch after the
addition of the additive for affirmative defense purposes.
EPA may require additive manufactures to supply samples of the
additive packages (or the components additives in such packages) that
are used in 15 ppm sulfur diesel fuel, or may sample from additive
batches already in the distribution system. In such cases, we may test
the sulfur content of these additives to evaluate whether they are in
compliance with the information provided on the PTDs or other relevant
documentation. In cases where a violation is discovered, any party in
the distribution system that had custody of the additive batch found to
be in violation may be held presumptively liable for the violation.
Today's rule amends the highway diesel regulation so that the
provisions finalized today regarding the use of S-D additives with a
sulfur content above 15 ppm in NRLM diesel fuel also apply to the use
of such additives in highway diesel fuel subject to a 15 ppm sulfur
standard. However, we continue to be concerned about the use of
additives having a sulfur content greater than 15 ppm. We will continue
to monitor this issue and may initiate an additional rulemaking in the
future to consider further limiting or prohibiting the use of greater
than15 ppm sulfur additives in diesel fuel subject to a 15 ppm sulfur
cap.
The special provisions for static-dissipater additives finalized in
today's rule will ensure that the unique challenges regarding the
manufacture and use of such additives do not present a barrier to their
continued use. Additive manufactures have stated that they are working
on reformulation of their S-D additives to meet a 15 ppm sulfur limit.
We recently learned that industry is beginning to develop a
standardized test to quantify the concentration of static-dissipater
additives in finished fuel.\163\ If such a test were available, it
might be useful for establishing an additive blender's affirmative
defense to presumptive liability in place of some of the VAR provisions
described above. If
[[Page 39090]]
a batch of fuel was found to exceed the 15 ppm sulfur cap, the use of
such a test would allow for the measurement of the contribution to the
sulfur level of the finished fuel which resulted from the addition of
the static dissipater additive. If the contribution was below the
permissible level given the sulfur measurements on each batch of fuel
additized with the greater than 15 ppm S-D additive, it might be useful
in association with other blender records to demonstrate that the
additive blender was not at fault for the violation. If such a
standardized test becomes available, EPA will work with the appropriate
industry parties to evaluate its applicability for affirmative defense
purposes, and conduct a rulemaking if appropriate to amend the elements
required to establish affirmative defense to presumptive liability
under the NRLM and highway diesel programs.
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\163\ Phone conversation with Eon McMullen, Octel additives,
February 12, 2004.
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c. Additives Used in 500 ppm Sulfur Diesel Fuel
The 1993 and 2007 highway diesel programs did not contain any
requirements regarding the maximum sulfur content of additives used in
highway diesel fuel subject to a 500 ppm sulfur cap.\164\ Our
experience under the highway program indicates that application of the
500 ppm sulfur cap throughout the distribution system to the end-user
has been sufficient to prevent the use of additives from jeopardizing
compliance with the 500 ppm sulfur standard. The potential increase of
several ppm in the sulfur content of diesel fuel which might result
from the use of some diesel additives raises substantial concerns
regarding the impact on compliance with a 15 ppm sulfur cap. However,
this is not the case with respect to the potential impact on compliance
with a 500 ppm sulfur cap. The current average sulfur content of
highway diesel fuel of 340 ppm provides ample margin for the minimal
increase in the fuel sulfur content which might result from the use of
additives. We expect that this will also be the case for NRLM fuel
subject to the 500 ppm sulfur standard. Therefore, we are not
finalizing any requirements regarding the sulfur content of additives
used in NRLM fuel subject to the 500 ppm sulfur standard. We believe
that the requirement that NRLM fuel comply with a 500 ppm sulfur cap
throughout the distribution system to the end-user will be sufficient
to ensure that entities who introduce additives into such fuel take
into account the potential increase in fuel sulfur content.
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\164\ The 500 ppm sulfur highway diesel final rule contains the
requirement that highway diesel fuel not exceed 500 ppm sulfur at
any point in the fuel distribution system including after the
blending of additives. Fuel Quality Regulations for Highway Diesel
Fuel Sold in 1993 and Later Calendar Years, Final Rule, 55 FR 34120,
August 21, 1990.
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d. Aftermarket Additives
We believe that more stringent requirements are needed for
aftermarket additives than for bulk additives due to the lack of
practical safeguards to ensure that the use of such additives do not
cause a violation of the sulfur standards in today's rule. Also, the
presence of multiple grades of aftermarket additives, some suitable for
use in engines equipped with sulfur sensitive emissions control
equipment as well as pre-control engines, and some suitable for use
only in pre-control engines would raise significant concerns regarding
the misuse. The misuse of a high sulfur additive in an engine with
sulfur sensitive emissions control equipment could damage this
equipment. Therefore, today's rule requires that all aftermarket
additives sold for use in nonroad, locomotive, and marine equipment
must meet a 500 ppm sulfur cap beginning June 1, 2007, and that all
aftermarket additives sold for use in nonroad equipment must meet a 15
ppm sulfur specification beginning June 1, 2010. After June 1, 2010,
aftermarket additives with a sulfur content less than 500 ppm may
continue to be used in locomotive and marine engines. This approach is
consistent with that taken in the highway diesel rule which requires
all aftermarket additives to meet a 15 ppm sulfur specification
beginning June 1, 2006.
6. End User Requirements
In light of the importance of ensuring that the proper fuel is used
in nonroad, locomotive, and marine engines covered by this program, any
person is prohibited from fueling such an engine with fuel not meeting
the applicable sulfur standard.
Specifically:
(1) No person may introduce, or permit the introduction of fuel
containing the heating oil marker into nonroad, locomotive, marine or
highway diesel engines;
(2) No person may introduce, or permit the introduction of, fuel
that exceeds 15 ppm sulfur content into nonroad equipment with a model
year 2011 or later engine;
(3) Beginning December 1, 2010, no person may introduce, or permit
the introduction of any fuel exceeding 500 ppm sulfur content into any
nonroad, locomotive, and marine engine; and
(4) Beginning December 1, 2014, no person may introduce, or permit
the introduction of any fuel exceeding 15 ppm sulfur content into any
nonroad diesel engine regardless of year of manufacture.
D. Diesel Fuel Sulfur Sampling and Testing Requirements
1. Testing Requirements
Today's action provides a new approach for fuel sulfur measurement.
The details of this approach are described below, followed by a
description of who will be required to conduct fuel sulfur testing as
well as what fuel must be tested. The diesel fuel sulfur sampling and
testing provisions described below are similar to those that were
proposed. Adjustments we made to the proposed provisions were in
response to comments we received during the public comment period.
a. Test Method Approval, Record-keeping, and Quality Control
Requirements
Most current and past EPA fuel programs designated specific
analytical methods which refiners, importers, and downstream parties
\165\ use to analyze fuel samples at all points in the fuel
distribution system for regulatory compliance purposes. Some of these
programs have also allowed certain specific alternative methods which
may be used as long as the test results are correlated to the
designated test method. The highway diesel rule (66 FR 5002, January
18, 2001), for example, specifies one designated test method and three
alternative methods for measuring the sulfur content of highway diesel
fuel subject to the 15 ppm sulfur standard. The rule also specifies one
designated method and three alternative methods for measuring the
sulfur content of highway diesel fuel subject to the 500 ppm sulfur
standard.
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\165\ Other EPA fuels regulations have allowed downstream
parties conducting periodic quality assurance testing for defense
purposes to use methods other than the designated method, so long as
the method is an ASTM method appropriate for testing for the
applicable fuel property, and so long as the instrument is
correlated to the designated method.
[[Page 39091]]
Table V.H-1.--Designated and Alternative Sulfur Test Methods Allowed
Under the Highway Diesel Program
------------------------------------------------------------------------
Sulfur Test Method 500 ppm 15 ppm
------------------------------------------------------------------------
ASTM D 2622-03, as modified, Designated........ Alternative.
Standard Test Method for Sulfur
in Petroleum Products by
Wavelength Dispersive X-ray
Fluorescence Spectrometry.
ASTM D 3120-03a, Standard Test .................. Alternative.
Method for Trace Quantities of
Sulfur in Light Liquid
Petroleum Hydrocarbons by
Oxidative Microcoulometry.
ASTM D 4294-03, Standard Test Alternative....... ..................
Method for Sulfur in Petroleum
and Petroleum Products by
Energy-Dispersive X-ray
Fluorescence Spectrometry.
ASTM D 5453-03a, Standard Test Alternative....... Alternative.
Method for Determination of
Total Sulfur in Light
Hydrocarbons, Motor Fuels and
Motor Oils by Ultraviolet
Fluorescence.
ASTM D 6428-99, Test Method for Alternative....... Designated.
Total Sulfur in Liquid Aromatic
Hydrocarbons and Their
Derivatives by Oxidative
Combustion and Electrochemical
Detection.
------------------------------------------------------------------------
The highway diesel fuel rule also announced the Agency's intention
to adopt a performance-based test method approach in the future, as
well as our intention to continue working with the industry to develop
and improve sulfur test methods. Today's action adopts such a
performance-based test method approach for both highway and NRLM diesel
fuel subject to the 15 ppm and 500 ppm sulfur standards. In addition,
the current approach for measuring the sulfur content of diesel fuel
subject to the 500 ppm sulfur standard, i.e., using the designated
sulfur test method or one of the alternative test methods with
correlation will remain applicable.
Under the performance-based approach, a given test method can be
approved for use in a specific laboratory by meeting certain precision
and accuracy criteria specified in the regulations. The method can be
approved for use by that laboratory as long as appropriate quality
control procedures are followed. Properly selected precision and
accuracy values allow multiple methods and multiple commercially
available instruments to be approved, thus providing greater
flexibility in method and instrument selection while also encouraging
the development and use of better methods and instrumentation in the
future. Under today's rule, there is no designated sulfur test method
as specified under previous regulations.
Since any test method that meets the specified performance criteria
may qualify, this type of approach does not conflict with the
``National Technology Transfer and Advancement Act of 1995'' (NTTAA),
section 12(d) of Public Law 104-113, and the Office of Management and
Budget (OMB) Circular A-119. Both of these are designed to encourage
the adoption of standards developed by ``voluntary consensus standards
bodies'' (VCSB) \166\ and to reduce reliance on government-unique
standards where such consensus standards would suffice. Under the
performance criteria approach in today's rule, methods developed by
consensus bodies as well as methods not yet approved by a consensus
body qualify for approval provided they meet the specified performance
criteria as well as the record-keeping and reporting requirements for
quality control purposes.
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\166\ These are standard-setting organizations, like ASTM, and
ISO that have broad representation of all interested stakeholders
and make decisions by consensus.
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i. How Can a Given Method Be Approved?
A given test method can be approved for use under today's program
by meeting certain precision and accuracy criteria. Approval applies on
a laboratory/facility-specific basis. If a company chooses to employ
more than one laboratory for fuel sulfur testing purposes, then each
laboratory must separately seek approval for each method it intends to
use. Likewise, if a laboratory chooses to use more than one sulfur test
method, then each method must be approved separately. Separate approval
is not necessary for individual operators or laboratory instruments
within a given laboratory facility.
The specific precision and accuracy criteria were derived from
existing sulfur test methods that are either required or allowed under
the highway diesel fuel sulfur program. The first criterion, precision,
refers to the consistency of a set of measurements and is used to
determine how closely analytical results can be duplicated based on
repeat measurements of the same material under prescribed conditions.
To demonstrate the precision of a given sulfur test method under the
performance-based approach, a laboratory facility must perform 20
repeat tests over 20 days on samples taken from a homogeneous supply of
a commercially available diesel fuel. Based on the comments we received
on this issue, we are also clarifying that the test results must in
general be a sequential record of the analyses with no omissions. A
laboratory facility may exclude a given sample or test result only if
(1) the exclusion is for a valid reason under good laboratory practices
and (2) it maintains records regarding the sample and test results and
the reason for excluding them. Using the test results\167\ of ASTM D
3120 for diesel fuel subject to the 15 ppm sulfur standard, the
precision must be less than 0.72 ppm.\168\ Similarly, using the test
results of ASTM D 2622 for diesel fuel subject to the 500 ppm sulfur
standard, the precision must be less than 9.68 ppm.
---------------------------------------------------------------------------
\167\ Sulfur Repeatability of Diesel by Method at 15 ppm, ASTM
Report on Low Level Sulfur Determination in Gasoline and Diesel
Interlaboratory Study--A Status Report, June 2002.
\168\ 0.72 ppm is equal to 1.5 times the standard deviation of
ASTM D 3120, where the standard deviation is equal to the
repeatability of ASTM D 3120 (1.33) divided by 2.77. 9.68 ppm is
equal to 1.5 times the standard deviation of ASTM D 2622, where the
standard deviation is equal to the repeatability of ASTM D 2622
(17.88) divided by 2.77. In the proposal, we stated that the
repeatability of ASTM D 2622 was 26.81. While that reported value
was incorrect due to either a typographical or a computational
error, the resulting precision value that we are finalizing today
was correctly calculated and reported as 9.68 ppm. The ``sample
standard deviation'' should be used for this purpose. By its use of
N-1 in the denominator, this measure applies a correction for the
small sample bias and provides an unbiased estimate of the standard
deviation of the larger population from which the sample was drawn.
Since the conditions of the precision qualification test admit more
sources of variability than the conditions under which ASTM
repeatability is determined (longer time span, different operators,
environmental conditions, etc.) the repeatability standard deviation
derived from the round robin was multiplied by what we believe to be
a reasonable adjustment factor, 1.5, to compensate for the
difference in conditions.
---------------------------------------------------------------------------
The second criterion, accuracy, refers to the closeness of
agreement between a measured or calculated value and the actual or
specified value. To demonstrate the accuracy of a given test method
under the performance-based approach, a laboratory facility is required
to perform 10 repeat tests on a
[[Page 39092]]
standard sample, the mean of which for diesel fuel subject to the 15
ppm sulfur standard can not deviate from the Accepted Reference Value
(ARV) of the standard by more than 0.54 ppm and for diesel fuel subject
to the 500 ppm sulfur standard can not deviate from the ARV of the
standard by more than 7.26 ppm \169\. These tests must be performed
using commercially available gravimetric sulfur standards. Ten tests
are required using each of two different sulfur standards. For 15 ppm
fuel, one must be in the range of 1-10 ppm sulfur and the other in the
range of 10-20 ppm sulfur. For 500 ppm fuel, one must be in the range
of 100-200 ppm sulfur and the other in the range of 400-500 ppm sulfur
for 500 ppm sulfur diesel fuel. Therefore, a minimum of 20 total tests
is required for sufficient demonstration of accuracy for a given sulfur
test method at a given laboratory facility. As with the requirement for
precision demonstration described above, the test results must be a
sequential record of the analyses with no omissions. Finally, any known
interferences for a given test method must be mitigated.
---------------------------------------------------------------------------
\169\ 0.54 and 7.26 are equal to 0.75 times the precision values
of 0.72 for 15 ppm sulfur diesel and 9.68 for 500 ppm sulfur diesel,
respectively.
---------------------------------------------------------------------------
Some commenters remarked that the ARV of the standards does not
account for any uncertainty given that all commercially available
standards have an uncertainty associated with the certified value. The
commenters added that EPA should specify what maximum value in the
uncertainty associated with the ARV is allowed.
These requirements are not intended to be overly burdensome.
Indeed, we believe these requirements are equivalent to what a
laboratory would do during the normal start up procedure for a given
test method. In addition, we believe this approach will allow regulated
entities to know that they are measuring diesel fuel sulfur levels
accurately and within reasonable site reproducibility limits.
ii. What Information Must Be Reported to the Agency?
For test methods that have already been approved by a VCSB, such as
ASTM or the International Standards Organization (ISO), each laboratory
facility must report to the Agency the precision and accuracy results
as described above for each method for which it is seeking approval.
Such submissions to EPA, as described elsewhere, are subject to the
Agency's review for 90 days, and the method will be considered approved
in the absence of EPA comment. Laboratory facilities are required to
retain the fuel samples used for precision and accuracy demonstration
for 90 days. While we proposed a 30 day sample retention period,
commenters stated that the sample retention period for fuel samples
that are used for precision and accuracy demonstrations should be
equivalent to the length of EPA's review period (i.e., 90 days). We
agree with the commenters and are thus finalizing a 90 day sample
retention period in today's rule. This sample retention requirement
also applies to non-VCSB methods which are described below.
For test methods that have not been approved by a VCSB, full test
method documentation, including a description of the technology/
instrumentation that makes the method functional, as well as subsequent
EPA approval of the method is also required. These submissions will
also be subject to the Agency's review for 90 days, and the method will
be considered approved in the absence of EPA comment. Submission of
VCSB methods is not required since they are available in the public
domain. In addition, industry and the Agency will likely have had
substantial experience with such methods.
As described above, federal government and EPA policy is to use
standards developed by voluntary consensus bodies when available. The
purpose of the NTTAA, at least in part, is to foster consistency in
regulatory requirements, to take advantage of the collective industry
wisdom and wide-spread technical evaluation required before a test
method is approved by a consensus body, and to take advantage of the
ongoing oversight and evaluation of a test method by the consensus body
that results from wide-spread use of an approved method e.g., the
ongoing round-robin type analysis and typical annual updating of the
method by the consensus body. These goals are not met where the Agency
allows use of a non-consensus body test method in perpetuity. Moreover,
it is not possible to realize many of the advantages that result from
consensus status where a test method is used by only one or a few
companies. It will not have the practical scrutiny that comes from
ongoing wide-spread use, or the independent scrutiny of the consensus
body and periodic updating. In addition, EPA does not have the
resources to conduct the degree of initial scrutiny or ongoing scrutiny
that are practiced by consensus bodies. Nevertheless, EPA believes it
is appropriate to allow limited use of a proprietary test method for a
limited time, even though the significant advantages of consensus test
methods are absent, because EPA can evaluate the initial quality of a
method and a company may have invested significant resources in
developing a method. However, if after a reasonable time a test method
fails to gain consensus body approval, EPA believes approval of the
method should be withdrawn because of the absence of ongoing consensus
oversight. Accordingly, a non-VCSB method will cease to be qualified
five years from the date of its original approval by EPA in the absence
of VCSB approval.
To assist the Agency in determining the performance of a given
sulfur test method, non-VCSB methods, in particular, we reserve the
right to send samples of commercially available fuel to laboratories
for evaluation. Such samples are intended for situations in which the
Agency has concerns regarding a test method and, in particular, its
ability to measure the sulfur content of a random commercially
available diesel fuel. Laboratory facilities are required to report
their results from tests of this material to the Agency.
iii. What Quality Control Provisions Are Required?
We are requiring ongoing Quality Control (QC) procedures for sulfur
measurement instrumentation. These are procedures used by laboratory
facilities to ensure that the test methods they have qualified and the
instruments on which the methods are run are yielding results with
appropriate accuracy and precision, e.g., that the results from a
particular instrument do not ``drift'' over time to yield unacceptable
values. It is our understanding that most laboratories already employ
QC procedures, and that these are commonly viewed as important good
laboratory practices. Laboratories will be required, at a minimum, to
abide by the following QC procedures for each instrument used to test
batches of diesel fuel under these regulations even where a laboratory
elects to use the test method used to establish the precision and
accuracy criteria finalized in today's rule:
(1) Follow the mandatory provisions of ASTM D 6299-02, Standard
Practice for Applying Statistical Quality Assurance Techniques to
Evaluate Analytical Measurement System Performance. Laboratories are
required to construct control charts from the mandatory QC sample
testing prescribed in paragraph 7.1, following the guidelines under A
1.5.1 for individual observation charts and A 1.5.2 for moving range
charts.
(2) Follow ASTM D 6299-02 paragraph 7.3.1 (check standards) using
[[Page 39093]]
a standard reference material. Check standard testing is required to
occur at least monthly and should take place following any major change
to the laboratory equipment or test procedure. Any deviation from the
accepted reference value of the check standard greater than 1.44 ppm
for diesel fuel subject to the 15 ppm sulfur standard and 19.36 ppm for
diesel fuel subject to the 500 ppm sulfur standard\170\ must be
investigated.
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\170\ 1.44 ppm is equal to two times the precision value of 0.72
ppm for 15 ppm diesel and 19.36 is equal to two times the precision
value of 9.68 ppm for 500 ppm diesel.
---------------------------------------------------------------------------
(3) Upon discovery of any QC testing violation of A 1.5.2.1 or A
1.5.3.2 or check standard deviation greater than 1.44 ppm and 19.36 ppm
for 15 ppm sulfur diesel and 500 ppm sulfur diesel, respectively, as
provided in item 2 above, any measurement made while the system was out
of control must be tagged as suspect and an investigation conducted
into the reasons for this anomalous performance. Refiners and importers
are required to retain batch samples for 30 days or the period equal to
the interval between QC sample tests, whichever is longer. If an
instrument is found to be out of control, all of the retained samples
since the last time the instrument was shown to be in control must be
retested.
(4) QC records, including investigations under item 3 above must be
retained for five years and must be provided to the Agency upon
request.
b. Requirements To Conduct Fuel Sulfur Testing
Given the importance of assuring that NRLM diesel fuel designated
to meet the 15 ppm sulfur standard in fact meets that standard, we are
requiring that refiners, importers, and transmix processors test each
batch of NRLM diesel fuel designated to meet the 15 ppm sulfur standard
and maintain records of such testing. Requiring that refiners,
importers, and transmix processors test each batch of fuel subject to
the 15 ppm sulfur NRLM standard assures that compliance can be
confirmed through testing records, and even more importantly, assures
that diesel fuel exceeding the 15 ppm standard is not introduced into
commerce as fuel for use in nonroad equipment having sulfur-sensitive
emission control devices. Batch testing was not required under the
highway diesel fuel rule. Instead, such testing was expected to be
performed to establish a defense to potential liability. However, for
the same reasons discussed above, today's rule extends this batch
testing requirement to15 ppm sulfur highway diesel fuel beginning in
2006.
In order to address situations where refiners produce NRLM diesel
fuel using computer-controlled inline blending equipment and do not
have storage tanks from which to withdraw samples, we are including in
today's final rule a provision to allow refiners to test a composited
sample of a batch of diesel fuel for its sulfur content after the
diesel fuel has been shipped from the refinery. This inline blending
provision is similar to the provision that exists under the
reformulated gasoline and gasoline sulfur programs and applies to both
highway and NRLM diesel fuel under today's action.
Today's rule does not require downstream parties to conduct every-
batch testing. However, we believe that most downstream parties will
voluntarily conduct ``periodic'' sampling and testing for quality
assurance purposes if they want to establish a defense to presumptive
liability, as discussed in section V.H. below.
2. Two Part-Per-Million Downstream Sulfur Measurement Adjustment
We believe that it is appropriate to recognize sulfur test
variability in determining compliance with the 15 ppm sulfur NRLM
diesel fuel standards downstream of a refinery or import facility.
Thus, today's rule provides that for all 15 ppm sulfur NRLM diesel fuel
at locations downstream of a refinery or import facility, sulfur test
results can be adjusted by subtracting two ppm. In the same manner as
finalized for 15 ppm sulfur highway diesel fuel, the sole purpose of
this downstream compliance provision is to address test variability
concerns (see the highway diesel fuel rule). We received comments
suggesting that a higher downstream test tolerance is needed based on
the current values for test method variability. However, we anticipate
that the reproducibility of sulfur test methods is likely to improve to
two ppm or even less by the time the 15 ppm sulfur standard for highway
diesel fuel is implemented--four years before implementation date of
the 15 ppm standard for NRLM diesel fuel. With this provision, we
anticipate that refiners will be able to produce diesel fuel with an
average sulfur level of approximately 7-8 ppm and some contamination
could occur throughout the distribution system, without fear of causing
a downstream violation due solely to test variability. As test methods
improve in the future, we will reevaluate whether two ppm is the
appropriate allowance for purposes of this compliance provision. We
also received comments that a test tolerance should be provided in
determining compliance with the 500 ppm sulfur standards for NRLM fuel.
We believe that such a tolerance is not needed for fuels subject to a
500 ppm sulfur standard because of the flexibility that refiners
possess to produce fuel with a sufficiently low sulfur content to
accommodate test variability.
3. Sampling Requirements
Today's rule adopts the same sampling methods adopted by the
highway diesel rule (66 FR 5002, January 18, 2001). These sampling
methods are American Society for Testing and Materials (ASTM) D 4057-95
(manual sampling) and D 4177-95 (automatic sampling from pipelines/in-
line blending). The requirement to use these methods becomes effective
for NRLM diesel fuel on June 1, 2007. These same methods were also
adopted for use in the Tier 2/Gasoline Sulfur rule.\171\
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\171\ 65 FR 6833-34 (Feb. 10, 2000). Today's rule also provides
that these methods be used under the RFG and CG rules. See 62 FR
37337 et seq. (July 11, 1997).
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4. Alternative Sampling and Testing Requirements for Importers of
Diesel Fuel Who Transport Diesel Fuel by Tanker Truck
We understand that importers who transport diesel fuel into the
U.S. by tanker truck are frequently relatively small businesses that
could be subject to a substantial burden if they were required to
sample and test each batch of NRLM or highway diesel fuel imported by
truck, especially where a trucker imports many small loads of diesel
fuel. Therefore, today's rule provides that truck importers may comply
with an alternative sampling and testing requirement, involving a
sampling and testing program of the foreign truck loading terminal, if
certain conditions are met. For an importer to be eligible for the
alternative sampling and testing requirement, the terminal must conduct
sampling and testing of the NRLM or highway diesel fuel immediately
after each receipt into its terminal storage tank but before loading
product into the importer's tanker truck storage compartments or
immediately prior to loading product into the importer's tanker truck
if it hasn't tested after each receipt. Moreover, the importer will be
required to conduct periodic quality assurance testing of the
terminal's diesel fuel, and the importer will be required to assure EPA
that we will be allowed to make unannounced
[[Page 39094]]
inspections and audits, to sample and test fuel at the foreign terminal
facility, to assure that the terminal maintained sampling and testing
records, and to submit such records to EPA upon request.
E. Selection of the Marker for Heating Oil
As discussed in section IV.D, to ensure that heating oil is not
shifted into the NRLM market, we need a way to distinguish heating oil
from high sulfur or 500 ppm sulfur NRLM diesel fuel produced under the
small refiner and credit provisions in today's rule. Currently, there
is no differentiation today between fuel used for NRLM uses and heating
oil. Both are typically produced to the same sulfur specification, and
both are required to have the same red dye added prior to distribution
from downstream of the terminal. Based on recommendations from
refiners, in the NPRM, we concluded that the best approach to
differentiate heating oil from NRLM diesel fuel would be to require
that a marker be added to heating oil at the refinery gate. Since the
proposal we received additional information which allows us to rely
upon record-keeping and reporting provisions to differentiate heating
oil from NRLM up to the point where it leaves the terminal (see section
IV.D). Therefore, today's rule requires that a marker be added to
heating oil before it leaves the terminal gate rather than the refinery
gate as proposed.\172\
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\172\ Heating oil sold inside the Northeast/Mid-Atlantic Area
adopted under today's rule and Alaska does not need to contain a
marker (see section IV.D.).
---------------------------------------------------------------------------
Section IV.D of today's preamble also discusses the need to
distinguish 500 ppm sulfur locomotive and marine fuel produced by
refiners and imported from 2010-2012 from 500 ppm sulfur nonroad diesel
fuel produced during this time frame under the small refiner, credit,
and downstream flexibility provisions in today's rule. Without this
ability, it would be possible for 500 ppm sulfur LM diesel fuel to be
shifted into the nonroad market during this time period outside of the
Northeast/Mid-Atlantic Area and Alaska. Therefore, today's rule
requires that from June 1, 2010 through May 31, 2012, the same marker
added to heating oil must also be added to 500 ppm sulfur LM diesel
fuel produced by a refiner or imported for use outside of the
Northeast/Mid-Atlantic Area and Alaska before the fuel leaves the
terminal. Nonroad diesel fuel meeting a 500 ppm sulfur standard
produced under the small refiner or credit provisions, and 500 ppm
sulfur NRLM diesel fuel generated under the downstream flexibility
provisions in today's rule could be sold into the LM market outside of
the Northeast/Mid-Atlantic Area and Alaska. Such 500 ppm sulfur NRLM
diesel fuel does not need to be marked. Therefore, both marked and
unmarked 500 ppm sulfur diesel fuel could be used in locomotive and
marine diesel equipment outside of the Northeast/Mid-Atlantic Area and
Alaska from 2010 through 2012.\173\
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\173\ Inside the Northeast/Mid-Atlantic Area, 500 ppm sulfur
fuel produced from transmix or segregated interface could be sold
into the LM or heating oil markets from 2010-2012, and could only be
sold into the heating oil market after 2012. Outside of the
Northeast/Mid-Atlantic Area, such fuel could be sold into the NRLM
market from 2010-2012, and into the LM market thereafter.
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As discussed in section IV.D., use of the same marker in heating
oil and 500 ppm sulfur LM fuel is feasible because the underlying goal
is the same, i.e., keeping 500 ppm sulfur diesel fuel produced as
heating oil or LM fuel from begin shifted into the nonroad diesel
market from 2010 through 2012. We will be able to determine whether
heating oil with a sulfur content greater than 500 ppm has been shifted
into the LM market downstream of the terminal by testing the sulfur
content of LM. 500 ppm fuel initially designated as heating oil can be
later shifted into the LM market, since the sulfur standard for LM
diesel fuel during this period is 500 ppm.
Terminal operators suggested that we might be able to rely on
record-keeping and reporting downstream of the terminal as well as
above the terminal level, thereby eliminating any need for a fuel
marker. However, we believe such record-keeping and reporting
mechanisms would be insufficient to keep heating oil out of the NRLM
market and 500 ppm sulfur LM fuel produced by a refiner or imported out
of the nonroad market downstream of the terminal under typical
circumstances. We can rely on such measures before the fuel leaves the
terminal because it is feasible to require all of the facilities in the
distribution system to report to EPA on their fuel transfers. As
discussed in section IV.D., these electronic reports can be compared by
EPA to identify parties responsible for shifting heating oil into the
NRLM market from 2007-2014, 500 ppm sulfur LM fuel into the nonroad
market from 2010-2012, and heating oil into the LM market beginning
2014. Downstream of the terminal the parties involved in the fuel
distribution system become far too numerous for such a system to be
implemented and enforced (including jobbers, bulk plant operators,
heating oil dealers, retailers, and even end-users with storage tanks
such as farmers. Reporting errors for even a small fraction would
require too many resources to track down and correct and would
eliminate the effectiveness of the system.
Our proposal envisioned that a fuel marker would be required in
heating oil from June 1, 2006 through May 31, 2010, and that the same
marker would be required in locomotive and marine fuel from June 1,
2010 through May 31, 2014. As a consequence of finalizing the 15 ppm
sulfur standard for locomotive and marine fuel in 2012, we no longer
need to require that LM diesel fuel be marked after June 1, 2012. The
2010-2012 marking requirement for 500 ppm sulfur LM diesel fuel does
not apply to 500 ppm sulfur LM fuel produced by a refiner or imported
in the Northeast/Mid-Atlantic Area or in Alaska. There is an ongoing
need to require the continued use of the marker in heating oil
indefinitely (see section IV of today's preamble).
We proposed that beginning June 1, 2007 SY-124 must be added to
heating oil in the U.S. at a concentration of 6 milligrams per liter
(mg/L). Today's rule adopts this requirement except for heating oil
used in the Northeast/Mid-Atlantic Area and Alaska.\174\ The chemical
composition of SY-124 is as follows: N-ethyl-N-[2-[1-(2-
methylpropoxy)ethoxyl]-4-phenylazo]-benzeneamine.\175\ This
concentration is sufficient to ensure detection of SY-124 in the
distribution system, even if diluted by a factor of 50. Any fuel found
with a marker concentration of 0.1 milligrams per liter or more will be
presumed to be heating oil. Below this level, the prohibition on use in
highway, nonroad, locomotive, or marine applications would not apply.
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\174\ See section IV.D of today's preamble for a discussion of
the provisions for the Northeast/Mid-Atlantic Area and Alaska.
\175\ Opinion on Selection of a Community-wide Mineral Oils
Marking System, (``Euromarker''), European Union Scientific
Committee for Toxicity, Ecotoxicity and the Environment plenary
meeting, September 28, 1999.
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There are a number of other types of dyes and markers. Visible dyes
are most common, are inexpensive, and are easily detected. Using a
second dye in addition to the red dye required by IRS in all non-
highway fuel for segregation of heating oil based on visual
identification raises certain challenges. The marker that we require in
heating oil and 500 ppm sulfur LM diesel fuel must be different from
the red dye currently required by IRS and EPA and not interfere with
the identification of red dye in distillate fuels. Invisible
[[Page 39095]]
markers are beginning to see more use in branded fuels and are somewhat
more expensive than visible markers. Such markers are detected either
by the addition of a chemical reagent or by their fluorescence when
subjected to near-infra-red or ultraviolet light. Some chemical-based
detection methods are suitable for use in the field. Others must be
conducted in the laboratory due to the complexity of the detection
process or concerns regarding the toxicity of the reagents used to
reveal the presence of the marker. Near-infra-red and ultra-violet
flourescent markers can be easily detected in the field using a small
device and after brief training of the operator. There are also more
exotic markers available such as those based on immunoassay, and
isotopic or molecular enhancement. Such markers typically need to be
detected by laboratory analysis.
We selected SY-124, however, for a number of reasons:
(1) There is considerable data and experience with it which
indicates there are no significant issues with its use;
(2) It is compatible with the existing red dye;
(3) Test methods exist to quantify its concentration, even if
diluted by a factor of 50 to one;
(4) It is reasonably inexpensive; and
(5) It can be produced and provided by a number of sources.
Effective in August 2002, the European Union (EU) enacted the
requirement that SY-124 be added at 6 mg/L to diesel fuel that is taxed
at a lower rate in all EU member states.\176\ Solvent yellow 124 is
referred to as the ``Euromarker'' in the EU. The EU has found this
treatment rate to be sufficient for their enforcement purposes while
not interfering with the identification of the various different
colored dyes required by different EU member states (including the same
red dye that is required in the U.S.). Despite its name, SY-124 does
not impart a strong color to diesel fuel when used at a concentration
of 6 mg/L. Most often it is reportedly nearly invisible in distillate
fuel given that the slight yellow color imparted is similar to the
natural color of many distillate fuels.\177\ In the presence of red
dye, SY-124 can impart a slight orange tinge to the fuel. However, it
does not interfere with the visual identification of the presence of
red dye or the quantification of the concentration of red dye in
distillate fuel. Thus, the use of SY-124 at 6 mg/L in diesel fuel would
not interfere with the use of the red dye by IRS to identify non-taxed
fuels.
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\176\ The European Union marker legislation, 2001/574/EC,
document C(2001) 1728, was published in the European Council
Official Journal, L203 28.072001.
\177\ The color of distillate fuel can range from near water
white to a dark blackish brown but is most frequently straw colored.
---------------------------------------------------------------------------
Solvent yellow 124 is chemically similar to other additives used in
gasoline and diesel fuel, and has been registered by EPA as a fuel
additive under 40 CFR part 79. Therefore, we expect that its products
of combustion would not have an adverse impact on emission control
devices, such as a catalytic converter. Extensive evaluation and
testing of SY-124 was conducted by the European Commission. This
included combustion testing which showed no detectable difference
between the emissions from marked and unmarked fuel. Norway
specifically evaluated the use of distillate fuel containing SY-124 for
heating purposes and determined that the presence of the Euromarker did
not cause an increase in harmful emissions from heating equipment.
Based on the European experience with SY-124, we do not expect that
there would be concerns regarding the compatibility of SY-124 in the
U.S. fuel distribution system or for use in motor vehicle engines and
other equipment such as in residential furnaces.
Our evaluation of the process conducted by the EU in selecting SY-
124 for use in the EU convinced us that SY-124 was also the most
appropriate marker to propose for use in heating oil under today's
program. We received a number of comments expressing concern about the
use of SY-124 in heating oil. Based on our evaluation of these comments
(summarized below and in the S&A), we continue to believe that SY-124
is the most appropriate marker to specify for use in heating oil and
500 ppm sulfur LM diesel fuel under today's rule. Therefore, today's
rule requires that beginning June 1, 2007, SY-124 be added to heating
oil, and that from June 1, 2010 through May 31, 2012, SY-124 be added
to 500 ppm sulfur LM diesel fuel produced by a refiner or imported at a
concentration of 6 mg/L before such fuel leaves the terminal except in
the Northeast/Mid-Atlantic Area and Alaska.
The concerns regarding the use of SY-124 in heating oil primarily
pertained to: the potential impact on jet engines if jet fuel were
contaminated with SY-124; the potential health effects of SY-124 when
used in fuel for heating purposes, particularly for unvented heaters;
the potential cost impact on fuel distributors and transmix processors;
and the potential conflict with IRS red dye requirements.
The American Society of Testing and Materials (ASTM), the
Coordinating Research Council (CRC), and the Federal Aviation
Administration (FAA) requested that we delay finalizing the selection
of a specific marker for use in heating oil in today's rule. They
requested that selection of a specific marker should be deferred until
testing could be conducted regarding the potential impact of SY-124 on
jet engines. The Air Transport Association stated that EPA should
conduct an extensive study regarding the potential for contamination,
determine the levels at which the marker will not pose a risk to jet
engines, and seek approval of SY-124 as a jet fuel additive. Other
parties including the Department of Defense (DoD) also stated that EPA
should refrain from specifying a heating oil marker under today's rule
until industry and other potentially affected parties can recommend an
appropriate marker. Representatives of the heating oil industry stated
that they were concerned that EPA had not conducted an independent
review regarding the safety/suitability of SY-124 for use in heating
oil.
We met and corresponded with numerous and diverse parties to
evaluate the concerns expressed regarding the use of SY-124, and to
determine whether it might be more appropriate to specify a different
marker for use in heating oil. These parties include IRS, FAA, ASTM,
CRC, various marker/dye manufacturers, European distributors of fuels
containing the Euromarker, marker suppliers, and members of all
segments in the U.S. fuel distribution system.
We believe that concerns related to potential jet fuel
contamination have been sufficiently addressed for us to finalize the
selection of SY-124 as the required heating oil marker in today's
rule.\178\ As discussed in section IV.D of today's preamble, changes in
the structure of the fuel program finalized in today's rule from that
in the proposed program have allowed us to move the point where the
marker must be added from the refinery gate to the terminal. The vast
majority of concerns regarding the potential for contamination of jet
fuel with SY-124 pertained to the shipment of marked fuel by pipeline.
All parties were in agreement that nearly all of the potential for
marker contamination of jet fuel would disappear if the point of marker
addition was moved to the terminal. We
[[Page 39096]]
spoke with terminal operators, both large and small, who confirmed that
they maintain strictly segregated distribution facilities for red dyed
fuel and jet fuel because of jet fuel contamination concerns. The same
type of segregation practices will apply to the handling of marked
heating oil, marked 500 ppm sulfur LM diesel fuel, and jet fuel since
the marker will only be present in heating oil and locomotive and
marine fuel when red dye is also present. Therefore, these practices
will be equally effective in limiting contamination of jet fuel with
SY-124. Downstream of the terminal, the only other chance for marker
contamination of jet fuel pertains to bulk plant operators and jobbers
that handle marked heating oil and jet fuel. For the most part, these
parties also currently maintain strict segregation of the facilities
used to transport jet fuel and heating oil. The one exception is that
small bulk plant operators that supply small airports sometimes use the
same tank truck to alternately transport jet fuel and heating oil. In
such cases, they flush the tank compartment prior to transporting jet
fuel to remove any residual heating oil left behind after the tank is
drained. Since few, if any bulk plants handle LM fuel, it is unlikely
that the same tank trucks will be used to alternately transport LM fuel
and jet fuel. Thus, we expect that there will be even less chance for
LM fuel containing the marker to contaminate jet fuel.
---------------------------------------------------------------------------
\178\ See the Summary and Analysis of Comments for a more
detailed discussion of our response to concerns about the possible
contamination of jet fuel with the marker prescribed for use in
heating oil and 500 ppm sulfur LM fuel under today's rule.
---------------------------------------------------------------------------
Today's rule requires that heating oil and locomotive and marine
fuel which contains the marker must also contain visible evidence of
red dye. Therefore, the ``white bucket'' test that distributors
currently use to detect red dye contamination of jet fuel can also be
relied upon to detect marker contamination of jet fuel. Based on the
above discussion, we concluded that the required addition of the marker
to heating oil and 500 ppm sulfur locomotive and marine fuel from 2010-
2012 would not significantly increase the likelihood of jet fuel
contamination, and that when such contamination might occur, it could
be readily identified without the need for additional testing. Our
finalization of the Northeast/Mid-Atlantic Area in (see section IV.D)
also minimizes potential concerns regarding the potential that jet fuel
may become contaminated with the marker, since no marker is required in
this area. Furthermore, there is expected to be little heating oil used
outside of the Northeast/Mid-Atlantic Area, the locomotive and marine
market outside of the Northeast/Mid-Atlantic Area is limited. We
anticipate that the distribution of marked LM diesel fuel will
primarily be by segregated pathways, and the duration of the marker
requirement for 500 ppm sulfur LM diesel fuel produced by refiners or
imported for use outside of the Northeast/Mid-Atlantic Area and Alaska
is only two years. On the whole, we actually expect that today's rule
will reduce the potential for jet fuel to become contaminated with the
azo dyes such as the IRS-required red dye and SY-124 since visual
evidence will no longer be required leaving the refinery gate in 500
ppm NRLM fuel beginning June 1, 2007, and will no longer be required in
any off-highway diesel fuel beginning June 1, 2010.
This final rule requires addition of the marker at the terminal
rather than the refinery gate as proposed. Based on this change, ASTM
withdrew its request to delay the finalization of the marker
requirements in today's rule. However, ASTM stated that some concern
remains regarding jet fuel contamination downstream of the terminal
(due to the limited use of the same tank wagons to alternately
transport jet fuel and heating oil discussed above). Nevertheless, ASTM
related that these concerns need not delay finalization of the marker
requirements in this rule. ASTM intends to support a CRC program to
evaluate the compatibility of markers with jet fuel. The Federal
Aviation Administration is also undertaking an effort to identify fuel
markers that would be compatible for use in jet fuel. We commit to a
review of the use of SY-124 in the future based on the findings of the
CRC and the FAA, experience with the use of SY-124 in Europe, and
future input from ASTM or other concerned parties. If alternative
markers are identified that do not raise concerns regarding the
potential contamination of jet fuel, we will initiate a rulemaking to
evaluate the use of one of these markers in place of SY-124.
Since the NPRM, no new information has been provided which
indicates that the combustion of SY-124 in heating equipment would
result in more harmful emissions than when combusted in engines, or
would result in more harmful emissions than combustion of unmarked
heating oil. The European experience with the use of SY-124 and the
evaluation process it underwent prior to selection by the EU, provides
strong support regarding the compatibility of SY-124 in the U.S. fuel
distribution system, and for use in motor vehicle engines and other
equipment such as in residential furnaces and nonroad, locomotive, and
marine engines. We believe that concerns regarding the potential health
impacts from the use of SY-124 do not present sufficient cause to delay
finalization of the requirement for it's use that is contained in
today's rule.
The European Union intends to review the use of SY-124 after
December 2005, but may undertake the review earlier if any health and
safety or environmental concerns about its use are raised. We intend to
keep abreast of such activities and may initiate our own review of the
use of SY-124 depending on the European Union's findings, or other
relevant information. There will be nearly four years of accumulated
field experience with the use of SY-124 in Europe at the time of the
review by the EU and nearly 5 years by the implementation of the marker
requirement under today's rule. This will provide ample time for any
potential unidentified issues with SY-124 to be identified, and for us
to choose a different marker if warranted.
Commenters stated that potential health concerns regarding the use
of SY-124 might be exacerbated with respect to its use in unvented
space heaters. Commenters further stated that there are prohibitions
against the dyeing of kerosene (No. 1 diesel) used in such heaters. No
information was provided to support these concerns, however, and we
have no information to suggest any health concerns exist regarding the
use of SY-124 in unvented heaters. Nevertheless, even if there were
such concerns, today's rule will not require SY-124 to be used in the
fuel used in unvented heaters. Furthermore, today's rule, does not
require that SY-124 be added to kerosene. This resolves most of what
concern might remain regarding this issue, since kerosene is the
predominate fuel used in unvented heaters. However, the DoD stated that
No. 2 diesel fuel is sometimes used in its tent heaters and expressed
concern regarding the presence of SY-124 in fuel used for this purpose.
We understand that to simplify the DoD fuel distribution system, it is
DoD policy to use a single fuel called JP-8 for multiple purposes where
practicable, including space heating. JP-8 used for such a purpose
would not be subject to today's fuel marker requirement. In cases where
JP-8 might not be available for space heating, DoD could avoid the use
of SY-124 containing fuel by using kerosene in their space heaters.
We believe that the concerns expressed regarding the potential
impact on distributors and transmix processors from the presence of SY-
124 in heating oil and 500 ppm sulfur LM fuel have been addressed by
moving the point of marker addition to the terminal. Terminal operators
stated that they
[[Page 39097]]
desire the flexibility to blend 500 ppm diesel fuel from 15 ppm diesel
fuel and heating oil. This practice would have been prevented by the
proposed addition of the marker at the refinery gate. Under today's
rule, terminal operators will have access to unmarked high sulfur fuel
with which to manufacture 500 ppm diesel fuel by blending with 15 ppm
diesel fuel.\179\
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\179\ Terminals that manufacture 500 ppm diesel fuel by blending
15 ppm and high sulfur fuel are treated as a refiner under today's
rule. They must also comply with all applicable designate and track
requirements, anti-downgrading provisions, and the other applicable
requirements in today's rule (see section IV.D of today's preamble).
---------------------------------------------------------------------------
Transmix processors stated that the presence of a marker in
transmix would limit the available markets for their reprocessed
distillates. The feed material for transmix processors primarily
consists of the interface mixing zone between batches of fuels that
abut each other during shipment by pipeline where this mixing zone can
not be cut into either of the adjacent products. If marked heating oil
and locomotive and marine fuel was shipped by pipeline, the source
material for transmix processors fed by pipelines that carry marked
fuel could contain SY-124.\180\ Transmix processors stated that it
would be prohibitively expensive to segregate pipeline-generated
transmix containing the marker from that which does not contain the
marker prior to processing, and that they could not economically remove
the marker during reprocessing. Thus, in cases where the marker would
be present in a transmix processor's feed material, they would be
limited to marketing their reprocessed distillate fuels into the
heating oil market. Since today's final rule requires that the marker
be added at the terminal gate (rather than at the refinery gate), the
feed material that transmix processors receive from pipelines will not
contain the marker. Hence, they will not typically need to process
transmix containing the fuel marker prescribed in today's rule, and
today's marker requirement is not expected to significantly alter their
operations. There is little opportunity for marker contamination of
fuels that are not subject to the marker requirements to occur at the
terminal and further downstream. In the rare instances where this might
occur, the fuel contaminated would likely also be a distillate fuel,
and thus could be sold into the heating oil market without need for
reprocessing.
---------------------------------------------------------------------------
\180\ We do not expect that there will be sufficient demand for
500 ppm sulfur LM diesel fuel produced by refiners or importers to
justify its shipment by pipeline after 2010.
---------------------------------------------------------------------------
We do not expect that the fuel marker requirements will result in
the need for additional fuel storage tanks or tank trucks in the
distribution system. As discussed in section VI.A of today's preamble,
the implementation of the NRLM sulfur standards in today's rule is
projected to result in the need for additional storage tanks and tank
truck de-manifolding at a limited number of bulk plant facilities. The
marker requirement does not add another criteria apart from the sulfur
content of the fuel which would force additional product segregation.
As discussed above, industry has expressed concern about the use of the
same tank trucks to alternately transport heating oil and jet fuel. We
do not expect that the addition of marker to heating oil and 500 ppm
sulfur LM diesel fuel will exacerbate these concerns. However,
depending on the outcome of the aforementioned CRC program, the
addition of marker to heating oil may hasten the current trend to avoid
the use of tank trucks to alternately transport jet fuel and heating
oil. To the extent that this does occur, we do not expect that it would
result in substantial additional costs since few tank truck operators
currently use the same tank truck compartments to alternately transport
heating oil and jet fuel.
Through our discussions with the IRS, we have confirmed that the
presence of SY-124 will not interfere with enforcement of their red dye
requirement. \181\ Although, SY-124 may impart a slight orange tint to
red-dyed diesel fuel, this will not complicate the identification of
the presence of the IRS red dye. In fact, IRS has determined that the
presence of SY-124 may even enhance enforcement of their fuel tax
program. \182\ However, as identified in the comments, the
implementation of today's marker requirement for heating oil arguably
may be in conflict with IRS regulations at 26 CFR 48.4082-1(b) which
state that no dye other than the IRS-specified red dye must be present
in untaxed diesel fuel. IRS is evaluating what actions might be
necessary to clarify that the addition of SY-124 to heating oil would
not be in violation of IRS regulations.
---------------------------------------------------------------------------
\181\ Phone conversation between Carl Dalton and Rick Stiff, IRS
and Jeff Herzog and Paul Machiele, EPA, February 19, 2004.
\182\ ibid.
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IRS also related that they are investigating new markers for
potential use either to supplement or to replace red dye under their
diesel tax program which might be compatible with jet fuel. IRS stated
that it might result in a reduced burden on industry if EPA were to
adopt one of the markers from the family of markers that they are
investigating. Given the changes to our program in today's final rule,
the marker provisions will not impose a significant burden. However, if
the IRS program were to develop an alternate marker that would be
compatible with jet we will initiate a rulemaking to evaluate the use
of one of these markers in place of SY-124 (see section VIII.H.).
Commenters also expressed concerns regarding the proprietary rights
related to the manufacture and use of SY-124, and stated that EPA
should adopt a nonproprietary marker if possible. The proprietary
rights related to SY-124 expire several months after the implementation
of the marker requirements finalized in today's rule. Therefore, we do
not expect that the current proprietary rights regarding SY-124 are a
significant concern. Commenters also stated that our estimated cost of
SY-124 in the NPRM (0.2 cents per gallon of treated fuel) was high
compared to other markers that cost hundredths of a cent per gallon.
Since the proposal we have obtained more accurate information which
indicates that the current cost of bulk quantities of SY-124 is
approximately 0.03 cents per gallon of treated fuel (see section
VI.A.). Based on conversations with various marker manufacturers, this
cost is comparable to or less than other fuel markers.
F. Fuel Marker Test Method
As discussed in section V.E above, today's rule requires the use of
SY-124 at a concentration of 6mg/L in heating oil beginning in 2007,
and in 500 ppm sulfur LM diesel fuel produced by a refiner or importer
from 2010 through 2012, except for such fuels that used in the
Northeast/Mid-Atlantic Area and Alaska. There is currently no industry
standard test procedure to quantify the presence of SY-124 in
distillate fuels. The most commonly accepted method is based on the
chemical extraction of the SY-124 using hydrocloric acid solution and
cycloxane, and the subsequent evaluation of the extract using a visual
spectrometer to determine the concentration of the marker.\183\ This
test is inexpensive and easy to use for field inspections. However, the
test involves reagents that require some safety precautions and the
small amount of fuel required in the test must be disposed of as
hazardous waste. Commenters expressed concerns about
[[Page 39098]]
the use of a test procedure which involves a hazardous reagent
(hydrochloric acid) and which generates a waste product that must be
disposed of as hazardous waste. Nevertheless, we continue to believe
that such safety concerns are manageable here in the U.S. just as they
are in Europe and that the small amount of waste generated can be
handled along with other similar waste generated by the company
conducting the test, and that the associated effort and costs will be
negligible.
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\183\ Memorandum to the docket entitled ``Use of a Visible
Spectrometer Based Test Method in Detecting the Presence and
Determining the Concentration of Solvent Yellow 124 in Diesel
Fuel.''
---------------------------------------------------------------------------
Changes made in today's final rule from the proposal will mean that
few parties in industry will need to test for the marker, thereby
minimizing concerns about the burden of such testing. Much of the
testing for the fuel marker that was envisioned by industry was
associated with detecting marker contamination in other fuels. By
moving the required point of marker addition downstream to the
terminal, today's rule virtually eliminates these concerns. Where such
concerns continue to exist, the presence of the red dye will provide a
visual means of detecting marker contamination.\184\ Therefore, we
expect that the instances where parties will need to test for marker
contamination will be rare. Also, the Northeast/Mid-Atlantic Area
provisions finalized in today's rule will exempt the vast majority of
heating oil used in the U.S. from the marker requirement. Based on the
above discussion, we believe that the vast majority of testing for the
presence of the fuel marker that will be conducted will be that by EPA
for enforcement purposes.
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\184\ Today's rule requires that red dye be present in heating
oil which contains the marker.
---------------------------------------------------------------------------
Similar to the approach proposed regarding the measurement of fuel
sulfur content discussed in section V.H above, we are finalizing a
performance-based procedure to measure the concentration of SY-124 in
distillate fuel. Section V.H above describes our rationale for
finalizing performance-based test procedures. Under the performance-
based approach, a given test method can be approved for use in a
specific laboratory or for field testing by meeting certain precision
and accuracy criteria. Properly selected precision and accuracy values
allow multiple methods and multiple commercially available instruments
to be approved, thus providing greater flexibility in method and
instrument selection while also encouraging the development and use of
better methods and instrumentation in the future. For example, we are
hopeful that with more time and effort a simpler test can be developed
for SY-124 that can avoid the use of reagents and the generation of
hazardous waste that is by product of the current commonly accepted
method.
Under the performance criteria approach, methods developed by
consensus bodies as well as methods not yet approved by a consensus
body will qualify for approval provided they meet the specified
performance criteria as well as the record-keeping and reporting
requirements for quality control purposes. There is no designated
marker test method.
1. How Can a Given Marker Test Method Be Approved?
A marker test method can be approved for use under today's program
by meeting certain precision and accuracy criteria. Approval will apply
on a laboratory/facility-specific basis. If a company chooses to employ
more than one laboratory for fuel marker testing purposes, then each
laboratory will have to separately seek approval for each method it
intends to use. Likewise, if a laboratory chooses to use more than one
marker test method, then each method will have to be approved
separately. Separate approval will not be necessary for individual
operators or laboratory instruments within a given laboratory facility.
The method will be approved for use by that laboratory as long as
appropriate quality control procedures were followed.
In developing the precision and accuracy criteria for the sulfur
test method, EPA drew upon the results of an inter-laboratory study
conducted by the American Society for Testing and Materials (ASTM) to
support ASTM's standardization of the sulfur test method.
Unfortunately, there has not been sufficient time for industry to
standardize the test procedure used to measure the concentration of SY-
124 in distillate fuels or to conduct an inter-laboratory study
regarding the variability of the method. Nevertheless, the European
Union has been successful in implementing its marker requirement while
relying on the marker test procedures which are currently available, as
noted above. We used, the most commonly used marker test procedure to
establish the precision and accuracy criteria on which a marker test
procedure would be approved under the today's rule.\185\
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\185\ Memorandum to the docket entitled ``Use of a Visible
Spectrometer Based Test Method in Detecting the Presence and
Determining the Concentration of Solvent Yellow 124 in Diesel
Fuel.''
---------------------------------------------------------------------------
There has been substantial experience in the use of this reference
market test method since the August 2002 effective date of the European
Union's marker requirement. However, EPA is aware of only limited
summary data on the variability of the reference test method from a
manufacturer of the visible spectrometer apparatus used in the
testing.\186\ The stated resolution of the test method from the
materials provided by this equipment manufacturer is 0.1 mg/L, with a
repeatability of plus or minus 0.08 mg/L and a reproducibility of plus
or minus 0.2 mg/L.\187\ Given the lack of more extensive data, we have
decided to use these available data as the basis of the precision and
accuracy criteria for the marker test procedure under today's rule (as
discussed below). EPA may initiate a review of the precision and
accuracy criteria finalized in today's rule should additional test data
become available.
---------------------------------------------------------------------------
\186\ Technical Data on Fuel/Dye/Marker & Color Analyzers, as
downloaded from the Petroleum Analyzer Company L.P. Web site at
http://www.petroleum-analyzer.com/product/PetroSpec/lit_pspec/DTcolor.pdf.
\187\ Repeatability and reproducibility are terms related to
test variability. ASTM defines repeatability as the difference
between successive results obtained by the same operator with the
same apparatus under constant operating conditions on identical test
materials that would, in the long run, in the normal and correct
operation of the test method be exceeded only in one case in 20.
Reproducibility is defined by ASTM as the difference between two
single and independent results obtained by different operators
working in different laboratories on identical material that would,
in the long run, be exceeded only in one case in twenty.
---------------------------------------------------------------------------
Using a similar methodology to that employed in deriving the sulfur
test procedure precision value results in a precision value for the
marker test procedure of 0.043 mg/L (see section V.H).\188\ However, we
are concerned that the use of this precision value, because it is based
on very limited data, might preclude the acceptability of test
procedures that would be adequate for the intended regulatory use. In
addition, the lowest measurement of marker concentration that will have
relevance under the regulations is 0.1 mg per liter. Consequently,
today's rule requires that the precision of a marker test procedure
will need to be less than 0.1 mg/L for it to qualify.
---------------------------------------------------------------------------
\188\ See section V.H of this proposal for a discussion of the
methodology used in deriving the proposed precision and accuracy
values for the sulfur test method.
---------------------------------------------------------------------------
To demonstrate the accuracy of a given test method, a laboratory
facility will be required to perform 10 repeat tests, the mean of which
can not deviate from the Accepted Reference Value (ARV) of the standard
by more than 0.05 mg/L. We believe that this accuracy level is not
overly restrictive, while being sufficiently protective considering
that the lowest marker level of
[[Page 39099]]
regulatory significance would be 0.1 mg/L. Ten tests will be required
using each of two different marker standards, one in the range of 0.1
to 1 mg/L and the other in the range of 4 to 10 mg/L of SY-124.
Therefore, a minimum of 20 total tests will be required for sufficient
demonstration of accuracy for a given marker test method at a given
laboratory facility. Finally, any known interferences for a given test
method will have to be mitigated. These tests must be performed using
commercially available SY-124 standards. Since the European Union's
marker requirement will have been in effect for nearly 5 years by the
implementation date of today's marker, we believe that such standards
will be available by the implementation date for today's rule.
These requirements are not overly burdensome. To the contrary,
these requirements are equivalent to what a laboratory would do during
the normal start up procedure for a given test method. In addition, we
believe the performance based approach finalized in today's rule will
allow regulated entities to know that they are measuring fuel marker
levels accurately and within reasonable site reproducibility limits.
2. What Information Would Have To Be Reported to the Agency?
As noted above, the European Union's (EU) marker requirement will
have been in effect for nearly five years prior to the effective data
for the proposed marker requirements and we expect the EU requirement
to continue indefinitely. Thus, we anticipate that the European
testings standards community will likely have standardized a test
procedure to measure the concentration of SY-124 in distillate fuels
prior to the implementation of the marker requirement in today's final
rule. The United States testing standards community may also enact such
a standardized test procedure. To the extent that marker test methods
that have already been approved by a voluntary consensus standards body
\189\ (VCSB), such as the International Standards Organization (ISO) or
the American Society for Testing and Materials (ASTM), each laboratory
facility would be required to report to the Agency the precision and
accuracy results as described above for each method for which it is
seeking approval. Such submissions to EPA, as described elsewhere, will
be subject to the Agency's review for 30 days, and the method will be
considered approved in the absence of EPA comment. Laboratory
facilities are required to retain the fuel samples used for precision
and accuracy demonstration for 30 days.
---------------------------------------------------------------------------
\189\ These are standard-setting organizations, like ASTM, and
ISO that have broad representation of all interested stakeholders
and make decisions by consensus.
---------------------------------------------------------------------------
For test methods that have not been approved by a VCSB, full test
method documentation, including a description of the technology/
instrumentation that makes the method functional, as well as subsequent
EPA approval of the method is also required. These submissions are
subject to the Agency's review for 90 days, and the method will be
considered approved in the absence of EPA comment. Submission of VCSB
methods is not required since they are available in the public domain.
In addition, industry and the Agency will likely have had substantial
experience with such methods.
To assist the Agency in determining the performance of a given
marker test method (non-VCSB methods, in particular), we reserve the
right to send samples of commercially available fuel to laboratories
for evaluation. Such samples are intended for situations in which the
Agency has concerns regarding a test method and, in particular, its
ability to measure the marker content of a random commercially
available diesel fuel. Laboratory facilities are required to report the
results from tests on this material to the Agency.
G. Requirements for Recordkeeping, Reporting, and PTDs
1. Registration Requirements
As discussed in section IV.D, by December 31, 2005, or six months
prior to handling fuels subject to the designation requirements of
today's rule, each entity in the fuel distribution system, up through
and including the point where fuel is loaded onto trucks for
distribution to retailers or wholesale purchaser-consumers, must
register each of its facilities with EPA.
An entity's registration must include the following information:
Corporate name and address
--Contact name, telephone number, and e-mail address
For each facility operated by the entity:
--Type of facility (e.g. refinery, import facility, pipeline, terminal)
--Facility name
--Physical location
--Contact name, telephone number, and e-mail address
2. Applications for Small Refiner Status
An application of a refiner for small refiner status must be
submitted to EPA by December 31, 2004 and shall include the following
information:
The name and address of each location at which any
employee of the company, including any parent companies, subsidiaries,
or joint venture partners \190\ worked From January 1, 2002 until
January 1, 2003;
---------------------------------------------------------------------------
\190\ ``Subsidiary'' here covers entities of which the parent
company has 50 percent or greater ownership.
---------------------------------------------------------------------------
The average number of employees at each location, based on
the number of employees for each of the company's pay periods from
January 1, 2002 until January 1, 2003;
The type of business activities carried out at each
location; and
The total crude oil refining capacity of the corporation.
We define total capacity as the sum of all individual refinery
capacities for multiple-refinery companies, including any and all
subsidiaries, and joint venture partners as reported to the Energy
Information Administration (EIA) for 2002, or in the case of foreign
refiners, a comparable reputable source, such as professional
publication or trade journal.\191\ Refiners do not need to include
crude oil capacity used in 2002 through a lease agreement with another
refiner in which it has no ownership interest.
---------------------------------------------------------------------------
\191\ We will evaluate each foreign refiner?s documentation of
crude oil capacity on an individual basis.
---------------------------------------------------------------------------
The crude oil capacity information reported to the EIA is presumed
to be correct. However, in cases where a company disputes this
information, we will allow 60 days after the company submits its
application for small refiner status for that company to petition us
with detailed data it believes shows that the EIA's data was in error.
We will consider this data in making a final determination about the
refiner's crude oil capacity.
Finally, applications for small refiner status must also include
information on which small refiner option the refiner expects to use at
each of its refineries.
3. Applications for Refiner Hardship Relief
As discussed above in section IV.C, a refiner seeking general
hardship relief under today's program will apply to EPA and provide
several types of financial and technical information, such as internal
cash flow data and information on bank loans, bonds, and assets as well
as detailed engineering and construction plans and permit status.
Applications for general hardship relief are due June 1, 2005.
[[Page 39100]]
4. Pre-Compliance Reports for Refiners
We believe that an early general understanding of the refining
industry's progress in complying with the requirements in today's rule
will be valuable to both the industry and EPA. As with the highway
diesel program, we are requiring that each refiner and importer provide
annual reports on the progress of compliance and plans for compliance
for each of their refineries or import facilities. These pre-compliance
reports are due June 1 of each year beginning in 2005 and continuing
through 2011, or until the production of 15 ppm sulfur NR and LM diesel
fuel commences, whichever is later.
EPA will maintain the confidentiality of information submitted in
pre-compliance reports to the full extent authorized by law. We will
report generalized summaries of this data following receipt of the pre-
compliance reports. We recognize that plans may change for many
refiners or importers as the compliance dates approach. Thus,
submission of the reports will not impose an obligation to follow
through on plans projected in the reports.
Pre-compliance reports can, at the discretion of the refiner/
importer, be submitted in conjunction with the annual compliance
reports discussed below and/or the pre-compliance and annual compliance
reports required under the highway diesel program, as long as all of
the information that is required in all reports is clearly provided.
Based on experience with the first pre-compliance reports for the
highway diesel program, we are clarifying the information request for
the pre-compliance reports as shown below. This should provide
responses in a more standardized format which will allow for better
aggregation of the data, as well as eliminate reporting of unnecessary
information.
Pre-compliance reports must include the following information:
Any changes in the basic corporate or facility information
since registration;
Estimates of the average daily volumes (in gallons) of
each sulfur grade of highway and NRLM diesel fuel produced (or
imported) at each refinery (or facility). These volume estimates must
be provided both for fuel produced from crude oil, as well as any fuel
produced from other sources, and must be provided for the periods of
June 1, 2010-December 31, 2010, calendar years 2011-13, January 1,
2014-May 31, 2014, and June 1, 2014-December 31, 2014;
For entities expecting to participate in the credit
program, estimates of numbers of credits to be earned and/or used;
Information on project schedule by known or projected
completion date (by quarter) by the stage of the project. For example,
following the five project phases described in EPA's June 2002 Highway
Diesel Progress Review report (EPA420-R-02-016): (1) Strategic
planning, (2) planning and front-end engineering, (3) detailed
engineering and permitting, (4) procurement and construction, and (5)
commissioning and startup.
Basic information regarding the selected technology
pathway for compliance (e.g., conventional hydrotreating vs. other
technologies, revamp vs grassroots, etc.);
Whether capital commitments have been made or are
projected to be made; and
The pre-compliance reports in 2006 and later years must
provide an update of the progress in each of these areas.
5. Compliance Reports for Refiners, Importers, and Distributors of
Designated Diesel Fuel
a. Designate and Track Reporting Requirements
i. Quarterly Reports
From June 1, 2007 and through September 1, 2010, all entities who
are required to maintain records must report the following information
by facility to EPA on a quarterly basis:
The total volume in gallons of each type of designated
diesel fuel for which custody was transferred by the entity to any
other entity, and the EPA entity and facility identification number(s),
as applicable, of the transferee; and
The total volume in gallons of each type of designated
diesel fuel for which custody was received by the entity from any other
entity and the EPA entity and facility identification number(s), as
applicable, of the transferor.
If a facility receives fuel from another facility that does not
have an EPA facility identification number then that batch of fuel must
be designated and reported as (1) heating oil if it is marked, (2)
highway diesel fuel if taxes have been assessed, (3) NRLM diesel fuel
if the fuel is dyed but not marked.
Terminals must also report the results of all compliance
calculations including the following:
The total volumes received of each fuel designation
required to be reported over the quarterly compliance period;
The total volumes transferred of each fuel designation
required to be reported over the quarterly compliance period;
Beginning and ending inventories of each fuel designation
required to be reported over the quarterly compliance period;
Calculations showing that the volume of highway diesel
fuel distributed from the facility relative to the volume received did
not increase since June 1, 2007; and
Calculations showing that the volume of high sulfur NRLM
diesel fuel did not increase by a greater proportion than the volume of
heating oil over the quarterly compliance period (not applicable in the
Northeast/Mid-Atlantic Area or Alaska).
The quarterly compliance periods and dates by which the reports are
due for each period are as follows.
Table V.G-1. Quarterly Compliance Periods and Reporting Dates a
------------------------------------------------------------------------
Quarterly compliance period Report due date
------------------------------------------------------------------------
July 1 through September 30............... November 30.
October 1 though December 31.............. February 28.
January 1 through March 31................ May 31.
April 1 through June 30................... August 31.
------------------------------------------------------------------------
Notes: a The first quarterly reporting period will be from June 1, 2007
though September 30, 2007 and the last quarterly compliance period
will be from April 1, 2010 through May 31, 2010.
ii. Annual Reports
Beginning June 1, 2007, all entities that are required to maintain
records for batches of fuel must report by facility on an annual basis
(due August 31) information on the total volumes received of each fuel
designation as well as the results of all compliance calculations
including the following:
The total volumes transferred of each fuel designation;
Beginning and ending inventories of each fuel designation;
In Alaska, for diesel fuel designated as high sulfur NRLM
delivered from June 1, 2007 through May 31, 2010 and for diesel fuel
designated as 500 ppm sulfur NRLM delivered from June 1, 2010 through
May 31, 2014, refiners must report all information required under their
individual compliance plan, including the end-users to whom each batch
of fuel was delivered and the total delivered to each end-user for the
compliance period;
Ending with the report due August 31, 2010, calculations
showing that the volume of highway diesel fuel distributed from the
facility relative to the volume received did not increase since June 1,
2007;
[[Page 39101]]
Ending with the report due August 31, 2010, calculations
showing that the volume of highway diesel fuel distributed from the
facility relative to new volume received did not increase over the
annual compliance period by more than two percent of the total volume
of highway diesel fuel received;
Ending with the report due August 31, 2010, calculations
showing that the volume of high sulfur NRLM diesel fuel did not
increase by a greater proportion than the volume of heating oil over
the annual compliance period (not applicable in the Northeast/Mid-
Atlantic Area or Alaska);
Calculations showing that the volume of heating oil did
not decrease over the annual compliance period, beginning June 1, 2010
(not applicable in the Northeast/Mid-Atlantic Area or Alaska); and
From June 1, 2010 through August 1, 2012, calculations
showing that the volume of 500 ppm sulfur NR diesel fuel did not
increase by a greater proportion than the volume of 500 ppm sulfur LM
diesel fuel over the annual compliance period (not applicable in the
Northeast/Mid-Atlantic Area and Alaska.
b. Other Reporting Requirements
After the NRLM diesel fuel sulfur requirements begin on June 1,
2007, refiners and importers will be required to submit annual
compliance reports for each refinery or import facility. If a refiner
produces 15 ppm sulfur or 500 ppm sulfur fuel early under the credit
provisions, its annual compliance reporting requirement will begin on
June 1 following the beginning of the early fuel production. These
reporting requirements will sunset after all flexibility provisions end
(i.e., after May 31, 2014). Annual compliance reports will be due on
August 31.
A refiner's or importer's annual compliance report must include the
following information for each of its facilities:
Batch reports for each batch produced or imported
providing information regarding volume, designation (e.g., 500
highway), sulfur level and whether the fuel was dyed and/or marked.
Each batch can only have one designation. Therefore, if a refiner ships
100 gallons of 500 ppm sulfur fuel in 2007 and wants to designate 50
gallons as highway 500 and 50 gallons as NR 500, the refiner must
report two separate batches and there must be two PTDs--one for 50
gallons of highway 500 and one for 50 gallons of NR 500).
Report on the generation, use, transfer and retirement of
diesel sulfur credits. Credit transfer information must include the
identification of the number of credits obtained from, or transferred
to, each entity. Reports must also show the credit balance at the start
of the period, and the balance at the end of the period. NRLM or
nonroad diesel sulfur credit information is required to be stated
separately from highway diesel credit information since the two credit
programs are treated separately.
For a small refiner that elects to produce 15 ppm sulfur
NRLM diesel fuel by June 1, 2006 and therefore is eligible for a
limited relaxation in its interim small refiner gasoline sulfur
standards, the annual reports must also include specific information on
gasoline sulfur levels and progress toward highway and NRLM diesel fuel
desulfurization.
6. PTDs
Refiners, importers, and other parties in the distribution system
must provide information on commercial PTDs that identify diesel fuel
distributed by use designation and sulfur content; i.e., for use in or
motor vehicles, nonroad equipment, locomotive and marine equipment, or
nonroad, locomotive, and marine diesel equipment, as appropriate, and
the sulfur standard to which the fuel is subject. The PTD must indicate
whether the fuel is diesel fuel, heating oil, kerosene, exempt fuel, or
other. It must further state whether it is No. 1 or No. 2, dyed or
undyed, marked heating oil, marked LM fuel, or unmarked. The specific
designations on PTDs will change during the course of the program. For
example, the highway designation for 500 ppm sulfur fuel ends after
2010. Where a party delivers or receives a particular load of fuel that
has a uniform sulfur content but that has two different designations,
the parties must utilize two different PTDs. For example, if, in 2007 a
refiner moves 1,000 gallons of 500 ppm sulfur diesel into a pipeline,
and the refiner's designation is that half of that product is highway
500 and half is nonroad 500, the parties would utilize one PTD for 500
gallons of highway 500 ppm sulfur diesel fuel and another for 500
gallons of nonroad 500 diesel fuel.
As in other fuels programs, PTDs must accompany each transfer of
either title or custody of fuel. However, only custody transfers are
relevant to compliance with the designation and tracking requirements
and the downgrade limitations, and transfers to retail outlets and
wholesale purchaser-consumers of fuel by distributors below the truck
rack are not covered by the designate and track scheme. Therefore, the
PTDs for these non-designate and track transfers are somewhat more
straightforward.
We believe this additional information on commercial PTDs is
necessary to maintain the integrity of the various grades of diesel
fuel in the distribution system. Parties in the system will be better
able to identify which type of fuel they are dealing with and more
effectively ensure that they are meeting the requirements of today's
program. This in turn will help to ensure that misfueling of sulfur
sensitive engines does not occur and that the program results in the
needed emission reductions.
Today's rule allows the use of product codes to convey the required
information, except for transfers to truck carriers, retailers and
wholesale purchaser-consumers. We believe that more explicit language
on PTDs to these parties is necessary since employees of such parties
are less likely to be aware of the meaning of product codes. PTDs will
not be required for transfers of product into nonroad, locomotive, or
marine equipment at retail outlets or wholesale purchaser-consumer
facilities with the exception of mobile refuelers. Mobile refuellers
are required to provide a separate PTD to their customers for each type
of fuel (e.g., 500 ppm sulfur NRLM diesel fuel, 15 ppm sulfur NRLM
diesel fuel, or 15 ppm highway diesel fuel) that they dispense from
tanker trucks or other vessels into motor vehicles, nonroad diesel
engines or nonroad diesel engine equipment, for each instance when they
refuel such equipment at a given location.\192\
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\192\ Only one PTD is required for each fuel designation or
classification regardless of the number of motor vehicles or the
number of diesel-powered NRLM equipment that are fueled.
---------------------------------------------------------------------------
a. Kerosene and Other Distillates To Reduce Viscosity
To ensure that downstream parties can determine the sulfur level of
kerosene or other distillates that may be distributed for use for
blending into 15 ppm sulfur highway or NRLM diesel fuel, for example,
to reduce viscosity in cold weather, we are requiring that PTDs
identify distillates specifically distributed for such use as meeting
the 15 ppm sulfur standard.
b. Exported Fuel
Consistent with other EPA fuel programs, NRLM diesel fuel exported
from the U.S. is not required to meet the sulfur standards of today's
regulations. For example, where a refiner designates a batch of diesel
fuel for export, and can demonstrate through commercial documents that
the fuel was exported, such fuel would not be required to
[[Page 39102]]
comply with the NRLM sulfur standards in today's rule. Product transfer
documents accompanying the transfer of custody of the fuel at each
point in the distribution system are required to state that the fuel is
for export only and may not be used in the United States.
c. Additives
Today's rule requires that PTDs for additives for use in NRLM
diesel fuel state whether the additive complies with the 15 ppm sulfur
standard. Like the highway diesel rule, this program allows the sale of
additives, for use by fuel terminals or other parties in the diesel
fuel distribution system, that have a sulfur content greater than 15
ppm under specified conditions.
For additives that have a sulfur content less than 15 ppm, the PTD
must state: ``The sulfur content of this additive does not exceed 15
ppm.'' For additives that have a sulfur content greater than 15 ppm,
the additive manufacturer's PTD, and PTDs accompanying all subsequent
transfers, must provide a warning that the additive's sulfur content
exceeds 15 ppm; the maximum sulfur content of the additive; the maximum
recommended concentration for use of the additive in diesel fuel
(stated as gallon of additive per gallon of diesel fuel); and the
increase in sulfur concentration of the fuel the additive will cause
when used at the maximum recommended concentration.
Today's rule contains provisions for aftermarket additives sold to
owner/operators for use in diesel powered nonroad equipment. These
provisions are in response to concerns that additives designed for
engines not requiring 15 ppm sulfur fuel, such as locomotive or marine
engines, could accidentally be introduced into nonroad engines if they
had no label stating appropriate use. Beginning June 1, 2010,
aftermarket additives for use in nonroad equipment must be accompanied
by information that states that the additive complies with the 15 ppm
sulfur standard. We believe this information is necessary for end users
to determine if an additive is appropriate for use.
7. Recordkeeping Requirements for Refiners and Importers
Refiners and importers of distillate fuel must maintain the
following designate and track records for the distillate fuel they
produce and/or import. The specific types of distillate fuel that are
subject to these recordkeeping requirements are described below for the
various periods of the program.\193\
---------------------------------------------------------------------------
\193\ Transmix processors and terminal operators acting as
refiners that produce 500 ppm sulfur diesel fuel for sale into the
locomotive and marine markets are also subject to the recordkeeping
requirements.
---------------------------------------------------------------------------
Batch number (including whether it is an incoming or out-
going batch for refineries that also handle previously designated
fuel);
Batch designation;
Volume in gallons;
Date/time of day of custody transfer; and
Name and EPA entity and facility identification number of
the facility to which the batch was transferred.
For highway diesel fuel, the records must also identify whether the
batch was received or delivered with or without taxes assessed. For
NRLM diesel fuel, the records must also identify whether the batch was
received or delivered with or without the IRS red dye. For heating oil,
the records must indicate whether the batch was received or delivered
with or without the fuel marker. From June 1, 2010, through May 31,
2012, the records for LM fuel batches must also indicate whether the
batch was received or delivered with or without the fuel marker.
In addition to the designate and track records, refiners and
importers must maintain the following records on the highway and NRLM
diesel fuel that they produce and/or import:
PTDs;
Sampling and testing results for sulfur content (for
highway and NRLM diesel fuel that is subject to either the 15 ppm or
500 ppm sulfur standards), as well as sampling and testing results that
are part of a quality assurance program;
Sampling and testing results for the cetane index or
aromatics content, as well as sampling and testing results for
additives;
Records on credit generation, use, transfer, purchase, or
termination, maintained separately for the highway and NRLM diesel fuel
credit programs; and
Records related to individual compliance plans, if
applicable, and annual compliance calculations.
a. June 1, 2006 through May 31, 2007
Refiners and importers must maintain the records listed above for
each batch of diesel fuel that they designate and transfer custody of
during the time period from June 1, 2006 through May 31, 2007, with the
following fuel types:
No. 1 15 ppm sulfur highway diesel fuel;
No. 2 15 ppm sulfur highway diesel fuel;
15 ppm sulfur NRLM diesel fuel;
No. 1 500 ppm sulfur highway diesel fuel;
No. 2 500 ppm sulfur highway diesel fuel; or
500 ppm sulfur NRLM diesel fuel.
b. June 1, 2007 Through May 31, 2010
Refiners and importers must maintain the records listed above for
each batch of distillate fuel that they designate and transfer custody
of during the time period from June 1, 2007 through May 31, 2010 with
the following fuel types:
No. 1 15 ppm sulfur highway diesel fuel;
No. 2 15 ppm sulfur highway diesel fuel;
15 ppm sulfur NRLM diesel fuel;
No. 1 500 ppm sulfur highway diesel fuel;
No. 2 500 ppm sulfur highway diesel fuel; or
500 ppm sulfur NRLM diesel fuel;
High sulfur NRLM diesel fuel; or
Heating oil.
c. June 1, 2010 Through May 31, 2012
Refiners and importers must maintain the records listed above for
each batch of diesel fuel that they designate and transfer custody of
during the time period from June 1, 2010 through May 31, 2012, with the
following fuel types:
500 ppm sulfur NR diesel fuel;
500 ppm sulfur LM diesel fuel; or
Heating oil.
d. June 1, 2012 Through May 31, 2014
Refiners and importers must maintain the records listed above for
each batch of distillate fuel that they transfer custody of and
designate during the time period from June 1, 2012 through May 31, 2014
with the following fuel types:
15 ppm sulfur highway or NRLM diesel fuel;
500 ppm sulfur NRLM diesel fuel; or
Heating oil.
d. June 1, 2014 and Beyond
Refiners and importers must maintain the records listed above for
each batch of heating oil that they transfer custody of and designate
during the time period from June 1, 2014 and beyond.
8. Recordkeeping Requirements for Distributors
Distributors of distillate fuel must maintain the following
designate and track records on a facility-specific basis for the
distillate fuel they distribute. The specific distillate fuel
designations that are subject to these recordkeeping requirements are
described below for the various periods of the program.
[[Page 39103]]
Batch number (including whether it is an incoming or out-
going batch);
Batch designation;
Volume in gallons;
Date/time of day of custody transfer;
Name and EPA entity and facility identification number of
the facility from which the fuel batch was received or to which the
fuel batch was delivered;
Beginning and ending inventory volumes on a quarterly
basis; and
Inventory adjustments.
For highway diesel fuel, the records must also identify whether the
batch was received or delivered with or without taxes assessed. For
NRLM diesel fuel, the records must also identify whether the batch was
received or delivered with or without the IRS red dye. For heating oil,
the records must indicate whether the batch was received or delivered
with or without the fuel marker. From June 1, 2010, through October 1,
2012, the records must indicate whether LM fuel was received or
delivered with or without the fuel marker.\194\ In addition to these
designate and track records, distributors will be required to maintain
records related to their quarterly and annual compliance calculations
as well as copies of all PTDs.
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\194\ After August 1, 2012, LM fuel distributed from terminals
must contain a concentration of the marker no greater than 0.1 mg/L.
After October 1, 2012, LM fuel at any location in the fuel
distribution system must contain no more than a trace amount of the
marker (0.1 mg/L).
---------------------------------------------------------------------------
If a facility receives fuel from another facility that does not
have an EPA facility identification number then that batch of fuel must
be designated as (1) heating oil if it is marked, or from 2010 through
2012, LM diesel fuel if the fuel is dyed and marked and is not heating
oil (2) highway diesel fuel if taxes have been assessed, and (3) NRLM
diesel fuel if the fuel is dyed but not marked.
If a facility delivers fuel to other facilities and that fuel is
either 500 ppm sulfur highway diesel fuel on which taxes have been
assessed or 500 ppm sulfur NRLM, or LM diesel fuel into which red dye
has been added pursuant to IRS requirements, then the facility does not
need to maintain separate records for each of the other facilities to
which it delivered fuel. Similarly, if a facility delivers batches of
marked heating oil to other facilities, then it does not need to
maintain separate records for each of the other facilities to which it
delivered the marked heating oil. If a facility only receives marked
heating oil (i.e., it does not receive any unmarked heating oil), then
it does not need to maintain any heating oil records.
Similarly, if a facility only receives highway diesel fuel on which
taxes have been assessed or NRLM diesel fuel which has been dyed
pursuant to IRS regulations (i.e., it does not receive any untaxed
highway diesel fuel or undyed NRLM diesel fuel), then it does not need
to maintain records of the 500 ppm sulfur highway or NRLM diesel fuel
that it receives.
a. June 1, 2006 Through May 31, 2007
Facilities that receive No. 2 15 ppm sulfur highway diesel fuel and
distribute any No. 2 500 ppm sulfur highway diesel fuel, must maintain
records for each batch of diesel fuel with the following designations
that they receive or deliver during the time period from June 1, 2006
through May 31, 2007:
No. 1 15 ppm sulfur highway diesel fuel;
No. 2 15 ppm sulfur highway diesel fuel;
No. 2 500 ppm sulfur highway diesel fuel; and
500 ppm sulfur NRLM diesel fuel.
b. June 1, 2007 Through May 31, 2010
All facilities must maintain records for each batch of diesel fuel
or heating oil with the following designations for which they receive
or transfer custody during the time period from June 1, 2007 through
May 31, 2010:
No. 1 15 ppm sulfur highway diesel fuel;
No. 2 15 ppm sulfur highway diesel fuel;
No. 1 500 ppm sulfur highway diesel fuel;
No. 2 500 ppm sulfur highway diesel fuel;
500 ppm sulfur NRLM diesel fuel;
15 ppm sulfur NRLM diesel fuel;
High sulfur NRLM diesel fuel; and
Heating oil.
c. June 1, 2010 Through May 31, 2012
All facilities must maintain records for each batch of diesel fuel
or heating oil with the following designations for which they receive
or transfer custody during the time period from June 1, 2007 through
May 31, 2012. This requirement does not apply to facilities located in
the Northeast/Mid-Atlantic Area or Alaska.
500 ppm sulfur NR diesel fuel;
500 ppm sulfur LM diesel fuel; or
Heating oil.
d. June 1, 2012 Through May 31, 2014
Facilities that receive unmarked fuel designated as heating oil,
must maintain records for each batch of diesel fuel with the following
designations that they receive or deliver during the time period from
June 1, 2012 through May 31, 2014. This requirement does not apply to
facilities located in Alaska or the Northeast/Mid-Atlantic Area unless
they deliver marked heating oil to facilities outside of these areas.
500 ppm sulfur NRLM diesel fuel; and
Heating oil.
9. Recordkeeping Requirements for End-Users
Today's program also contains certain recordkeeping provisions for
end-users. From June 1, 2007 through October 1, 2010, end-users that
receive any batch of high sulfur NRLM in Alaska must maintain records
of each batch of fuel received for use in NRLM equipment unless
otherwise allowed by EPA. From June 1, 2010 through October 1, 2012,
end-users that receive any batch of 500 ppm sulfur NR in Alaska must
maintain records of each batch of fuel received for use in NR equipment
unless otherwise allowed by EPA. In addition, from June 1, 2012 through
October 1, 2014, end-users that receive any batch of 500 ppm sulfur
NRLM in Alaska must maintain records of each batch of fuel received for
use in NRLM equipment unless otherwise allowed by EPA.
10. Record Retention
We are adopting a retention period of five years for all records
required to be kept under today's rule. This is the same period of time
required in other fuels rules, and it coincides with the applicable
statute of limitations. We believe that most parties in the
distribution system would maintain some or all of these records for
this length of time even without the requirement.
This retention period applies to PTDs, records required under the
designate and track provisions, records of any test results performed
by any regulated party for quality assurance purposes or otherwise
(whether or not such testing was required by this rule), along with
supporting documentation such as date of sampling and testing, batch
number, tank number, and volume of product. Business records regarding
actions taken in response to any violations discovered must also be
maintained for five years.
All records that are required to be maintained by refiners or
importers participating in the generation or use of credits, hardship
options (or by importers of diesel fuel produced by a foreign refiner
approved for the temporary compliance option or a hardship option),
including small refiner options, are also covered by the retention
period.
[[Page 39104]]
H. Liability and Penalty Provisions for Noncompliance
1. General
The liability and penalty provisions of the today's NRLM diesel
sulfur rule are very similar to the liability and penalty provisions
found in the highway diesel sulfur rule, the gasoline sulfur rule, the
reformulated gasoline rule and other EPA fuels regulations.\195\
Regulated parties are subject to prohibitions which are typical in EPA
fuels regulations, such as prohibitions on selling or distributing fuel
that does not comply with the applicable standard, and causing others
to commit prohibited acts. For example, liability will also arise under
the NRLM diesel rule for violating certain prohibited acts and
requirements, such as: Distributing or dispensing NR diesel fuel not
meeting the 15 ppm sulfur standard for use in model year 2011 or later
nonroad equipment (and after Dec 1, 2014 into any nonroad diesel
equipment); distributing or dispensing diesel fuel not meeting the 500
ppm sulfur standard for locomotive and marine engines; distributing
fuel containing the marker for use in engines that require the use of
fuel that does not contain the marker; prohibitions and requirements
under the designate and track provisions in today's rule, including
specific prohibitions and requirements regarding fuel produced or
distributed in the Northeast/Mid-Atlantic Area or in Alaska.\196\
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\195\ See section 80.5 (penalties for fuels violations); section
80.23 (liability for lead violations); section 80.28 (liability for
gasoline volatility violations); section 80.30 (liability for
highway diesel violations); section 80.79 (liability for violation
of RFG prohibited acts); section 80.80 (penalties for RFG/CG
violations); section 80.395 (liability for gasoline sulfur
violations); section 80.405 (penalties for gasoline sulfur
regulations).; and section 80.610-614 (prohibited acts, liability
for violations, and penalties for highway diesel sulfur regulations.
\196\ Today's rule, in 40 CFR 80.610, provides that no person
shall, inter alia, ``dispense, supply, offer for supply, store or
transport * * *'' fuel not in compliance with applicable standards
and requirements starting on a certain date. These prohibitions
apply at downstream locations such as retail outlets, wholesale
purchaser-consumer facilities as well as end-user locations. The act
of storage or transport refers to storage or transport in fuel
storage tanks from which fuel is dispensed into motor vehicles or
NRLM engines or equipment. It does not refer to storing or
transporting the fuel that is in the motor vehicle propulsion tank
or other tank that is incorporated in the NRLM equipment for the
purpose of supplying the engine with fuel. While the prohibition
against dispensing inappropriate fuels does apply as of the
applicable date, the motor vehicle or NRLM engine or equipment may
continue to burn any fuel in the motor vehicle fuel tank or NRLM
equipment fuel tank that was properly dispensed into such tank.
---------------------------------------------------------------------------
Small refiners and refiners using credits can produce high sulfur
NRLM when NRLM would otherwise be required to meet a 500 ppm sulfur
standard, and can produce 500 ppm sulfur NR or LM diesel fuel when
nonroad or LM diesel fuel would otherwise be required to meet a 15 ppm
sulfur standard. A refiner that produces fuel under the small refiner
and credit provisions would be in violation unless they can demonstrate
that they meet the definition of a small refiner or have sufficient
credits for the volume of fuel produced. All regulated parties will be
liable for a failure to meet certain requirements, such as the record-
keeping, reporting, or PTD requirements, or causing others to fail to
meet such requirements.
Under today's rule, the party in the diesel fuel distribution
system that controls the facility where a violation occurred, and other
parties in that fuel distribution system (such as the refiner,
reseller, and distributor), will be presumed to be liable for the
violation.\197\ As in the Tier 2 gasoline sulfur rule and the highway
diesel fuel rule, today's rule explicitly prohibits causing another
person to commit a prohibited act or causing non-conforming diesel fuel
to be in the distribution system. Non-conforming fuels include: (1)
Diesel fuel with sulfur content above 15 ppm incorrectly represented as
appropriate for model year 2011 or later nonroad equipment or other
engines requiring 15 ppm fuel; (2) diesel fuel with sulfur content
above 500 ppm incorrectly represented as appropriate for nonroad
equipment or locomotives or marine engines after the applicable date
for the 500 ppm sulfur standard for these pieces of equipment; (3)
heating oil that is required to contain the marker which does not, LM
fuel which is required to contain the marker which does not, or other
fuels that are required to be free of the marker in which the marker is
present; (4) fuel designated or labeled as 500 ppm sulfur highway
diesel fuel above and beyond the volume balance limitations; (5) fuel
designated or labeled as NRLM above and beyond the volume balance
limitations; or (6) fuels otherwise not complying with the requirements
of this rule. Parties outside the diesel fuel distribution system, such
as diesel additive manufacturers and distributors, are also subject to
liability for those diesel rule violations which could have been caused
by their conduct.
---------------------------------------------------------------------------
\197\ An additional type of liability, vicarious liability, is
also imposed on branded refiners under today's rule.
---------------------------------------------------------------------------
Today's rule also provides affirmative defenses for each party
presumed liable for a violation, and all presumptions of liability are
rebuttable. In general, in order to rebut the presumption of liability,
parties will be required to establish that: (1) The party did not cause
the violation; (2) PTD(s) exist which establish that the fuel or diesel
additive was in compliance while under the party's control; and (3) the
party conducted a quality assurance sampling and testing program. As
part of their affirmative defense diesel fuel refiners or importers,
diesel fuel additive manufacturers, and blenders of high sulfur
additives into diesel fuel, will also be required to provide test
results establishing the conformity of the product prior to leaving
that party's control. Blenders of static dissipater additives have
alternative defense provisions as discussed in section V.C. Branded
refiners have additional affirmative defense elements to establish. The
defenses under the nonroad diesel sulfur rule are similar to those
available to parties for violations of the highway diesel sulfur,
reformulated gasoline, gasoline volatility, and the gasoline sulfur
regulations. Today's rule also clarifies that parent corporations are
liable for violations of subsidiaries, in a manner consistent with the
gasoline sulfur rule and the highway diesel sulfur rule. Finally, the
NRLM diesel sulfur rule mirrors the gasoline sulfur rule and the
highway diesel sulfur rule by clarifying that each partner to a joint
venture will be jointly and severally liable for the violations at the
joint venture facility or by the joint venture operation.
As is the case with the other EPA fuels regulations, today's rule
will apply the provisions of section 211(d)(1) of the Clean Air Act
(Act) for the collection of penalties. These penalty provisions
currently subject any person that violates any requirement or
prohibition of the diesel sulfur rule to a civil penalty of up to
$32,500 for every day of each such violation and the amount of economic
benefit or savings resulting from the violation.\198\ A violation of a
NRLM diesel sulfur standard will constitute a separate day of violation
for each day the diesel fuel giving rise to the violation remains in
the fuel distribution system. Under today's regulation, the length of
time the diesel fuel in question remains in the distribution system is
deemed to be twenty-five days unless there is evidence that the fuel
remained in its distribution system a lesser or greater amount of time.
This is the same time presumption that is incorporated in the
[[Page 39105]]
RFG, gasoline sulfur and highway diesel sulfur rules. The penalty
provisions in today rule are also be similar to the penalty provisions
for violations of these regulations.
---------------------------------------------------------------------------
\198\ This limit is amended periodically pursuant to
Congressional authority to change maximum civil penalties to account
for inflation.
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EPA has included in today's rule two prohibitions for ``causing''
violations: (1) Causing another to commit a violation; and (2) causing
non-complying diesel fuel to be in the distribution system. These
causation prohibitions are like similar prohibitions included in the
gasoline sulfur and the highway diesel sulfur regulations, and, as
discussed in the preamble to those rules, EPA believes they are
consistent with EPA's implementation of prior motor vehicle fuel
regulations. See the liability discussion in the preamble to the
gasoline sulfur final rule, at 65 FR 6812 et seq.
The prohibition against causing another to commit a violation will
apply where one party's violation is caused by the actions of another
party. For example, EPA may conduct an inspection of a terminal and
discover that the terminal is offering for sale nonroad diesel fuel
designated as complying with the 15 ppm sulfur standard, while the
fuel, in fact, had an actual sulfur content greater than the
standard.\199\ In this scenario, parties in the fuel distribution
system, as well as parties in the distribution system of any diesel
additive that had been blended into the fuel, will be presumed liable
for causing the terminal to be in violation. Each party will have the
right to present an affirmative defense to rebut this presumption.
---------------------------------------------------------------------------
\199\ At downstream locations the violation will occur if EPA's
test result show a sulfur content of greater than 17 ppm, which
takes into account the two ppm adjustment factor for testing
reproducibility for downstream parties.
---------------------------------------------------------------------------
The prohibition against causing non-compliant diesel fuel to be in
the distribution system will apply, for example, if a refiner transfers
non-compliant diesel fuel to a pipeline. This prohibition could
encompass situations where evidence shows high sulfur diesel fuel was
transferred from an upstream party in the distribution system, but EPA
may not have test results to establish that parties downstream also
violated a prohibited act with this fuel.
The Agency expects to enforce the liability scheme of the NRLM
diesel sulfur rule in the same manner that we have enforced the similar
liability schemes in our prior fuels regulations. As in other fuels
programs, we will attempt to identify the party most responsible for
causing the violation, recognizing that party should primarily be
liable for penalties for the violation.
2. What are the Liability Provisions for Additive Manufacturers and
Distributors, and Parties That Blend Additives into Diesel Fuel?
a. General
The final highway diesel rule permits the blending of diesel fuel
additives with sulfur content in excess of 15 ppm into 15 ppm highway
diesel fuel under limited circumstances. As more fully discussed
earlier in this preamble, this rule also permits downstream parties to
blend fuel additives having a sulfur content exceeding 15 ppm into 15
ppm nonroad diesel, provided that: (1) The blending of the additive
does not cause the diesel fuel's sulfur content to exceed the 15 ppm
sulfur standard; (2) the additive is added in an amount no greater than
one volume percent of the blended product; and (3) the downstream party
obtained from its additive supplier a product transfer document
(``PTD'') with the additive's sulfur content and the recommended
treatment rate, and that it complied with such treatment rate. As
discussed in section V.C, today's rule includes alternate affirmative
defense requirements for blenders of S-D additives that can contribute
a maximum of 0.050 ppm to the sulfur content of finished fuel subject
to the 15 ppm sulfur standard. Today's rule also implements these same
alternate defense requirements regarding the blending of such additives
into 15 ppm highway diesel fuel.
Since today's rule permits the limited use in nonroad diesel fuel
of additives with high sulfur content, the Agency believes it might be
more likely that a diesel fuel sulfur violation could be caused by the
use of high sulfur additives. This could result from the additive
manufacturer's misrepresentation or inaccurate statement of the
additive's sulfur content or recommended treat rate on the additive's
PTD, or an additive distributor's contamination of low sulfur additives
with high sulfur additives during transportation. The increased
probability that parties in the diesel additive distribution system
could cause a violation of the sulfur standard warrants the imposition
by the Agency of increased liability for such parties. Therefore,
today's rule, like the final highway diesel rule, explicitly makes
parties in the diesel additive distribution system liable for the sale
of nonconforming diesel fuel additives, even if such additives have not
yet been blended into diesel fuel. In addition, today's rule imposes
presumptive liability on parties in the additive distribution system if
diesel fuel into which the additive has been blended is determined to
have a sulfur level in excess of its permitted concentration. This
presumptive liability will differ depending on whether the blended
additive was designated as meeting the 15 ppm sulfur standard (a ``15
ppm additive'') or designated as a greater than 15 ppm sulfur additive
(a ``high sulfur additive''), as discussed below.
b. Liability When the Additive Is Designated as Complying with the 15
ppm Sulfur Standard
Additives blended into diesel fuel downstream of the refinery are
required to have a sulfur content no greater than 15 ppm, and be
accompanied by PTD(s) accurately identifying them as complying with the
15 ppm sulfur standard, with the sole exception of diesel additives
blended into nonroad diesel fuel at a concentration no greater than one
percent by volume of the blended fuel.
All parties in the fuel and additive distribution systems will be
subject to presumptive liability if the blended fuel exceeds the sulfur
standard. The two ppm downstream adjustment will apply when EPA tests
the fuel subject to the 15 ppm sulfur standard. Low sulfur additives
present a less significant threat to diesel fuel sulfur compliance than
would occur with the use of additives designated as possibly exceeding
15 ppm sulfur. Thus, parties in the additive distribution system of the
low sulfur additive could rebut the presumption of liability by showing
the following: (1) Additive distributors will only be required to
produce PTDs stating that the additive complies with the 15 ppm sulfur
standard; (2) additive manufacturers are also be required to produce
PTDs accurately indicating compliance with the regulatory requirements,
as well as producing test results, or retained samples on which tests
could be run, establishing the additive's compliance with the 15 ppm
sulfur standard prior to leaving the manufacturer's control. Once they
meet their defense to presumptive liability, these additive system
parties will only be held responsible for the diesel fuel non-
conformity in situations in which EPA can establish that the party
actually caused the violation.
Under today's rule, parties in the diesel fuel distribution system
will have the typical affirmative defenses of other fuels rules. For
parties blending an additive into their diesel fuel, the requirement to
maintain PTDs showing that the product complied with the
[[Page 39106]]
regulatory standards will necessarily include PTDs for the additive
that was used, affirming the compliance of the additive and the fuel.
c. Liability When the Additive Is Designated as Having a Possible
Sulfur Content Greater than 15 ppm
Under today's rule, a nonroad diesel fuel additive will be
permitted to have a maximum sulfur content above 15 ppm if the blended
fuel continues to meet the 15 ppm standard and the additive is used at
a concentration no greater than one volume percent of the blended fuel.
However, if nonroad diesel fuel containing that additive is found by
EPA to have high sulfur content, then all the parties in both the
additive and the fuel distribution chains will be presumed liable for
causing the nonroad diesel fuel violation.
Since this type of high sulfur additive presents a much greater
probability of causing diesel fuel non-compliance, parties in the
additive's distribution system will have to satisfy an additional
element to establish an affirmative defense. In addition to the
elements of an affirmative defense described above, parties in the
additive distribution system for such a high sulfur additive will also
be required to establish that they did not cause the violation, an
element of an affirmative defense that is typically required in EPA
fuel programs to rebut presumptive liability.
Parties in the diesel fuel distribution system will essentially
have to establish the same affirmative elements as in other fuels
rules, with an addition comparable to the highway diesel rule. Blenders
of high sulfur additives into 15 ppm sulfur nonroad diesel fuel, will
have to establish a more rigorous quality control program than will
exist without the addition of such a high sulfur additive. For
additives other than static dissipater additives, to establish a
defense to presumptive liability, the Agency has adopted the proposal
to require test results establishing that the blended fuel was in
compliance with the 15 ppm sulfur standard after being blended with the
high sulfur additive. This additional defense element will be required
as a safeguard to ensure nonroad diesel fuel compliance, since the
blender has voluntarily chosen to use an additive which increases the
risk of diesel fuel non-compliance.
An exception to this defense element is made for blenders of static
dissipater additives, that are allowed by today's rule to contribute no
more than 0.05 ppm to the sulfur content of a finished fuel subject to
the 15 ppm sulfur standard. As discussed in section V.C.5, blenders of
such additives may rely on volume accounting reconciliation records in
lieu of the requirement to sample and test each batch of fuel subject
to the 15 ppm sulfur standard after the addition of an additive that
exceeds the 15 ppm sulfur standard. Today's rule also implements these
same alternate defense requirements regarding the blending of such
additives into 15 ppm highway diesel fuel.
I. How Will Compliance With the Sulfur Standards Be Determined?
Today's rule provides that compliance with the sulfur standards and
use requirements under today's rule can be determined by evaluating the
designate and track records (discussed in section IV.D.) and other
records, such as PTDs; by evaluating compliance with the fuel marker
requirements discussed in section IV.D and V.E; and by sampling fuel
and testing for sulfur content. Today's rule includes a requirement for
refiners and importers to measure the sulfur content of every batch of
NRLM fuel designated under the rule, using a testing methodology
approved under the provisions discussed in section V.H of this
preamble. In general, downstream parties must conduct only periodic
sampling and testing as an element of a defense to presumptive
liability (retailers are exempt from sampling and testing). Today's
rule further provides that in determining compliance, any evidence from
any source or location can be used to establish the diesel fuel sulfur
level, provided that such evidence is relevant to whether the sulfur
level would have met the applicable standard had compliance been
determined using an approved test methodology. While the use of a non-
approved test method might produce results relevant to determining
sulfur content, this does not remove any liability for failing to
conduct required batch testing using an approved test method. This is
consistent with the approach taken under the gasoline sulfur rule and
the highway diesel sulfur rule.
For example, the Agency might not have sulfur results derived from
an approved test method for diesel fuel sold by a terminal, yet the
terminal's own test results, based on testing using methods other than
those approved under the regulations, could reliably show a violation
of the sulfur standard. Under today's rule, evidence from the non-
approved test method could be used to establish the diesel fuel's
sulfur level that would have resulted if an approved test method had
been conducted. This type of evidence is available for use by either
the EPA or the regulated party, and could be used to show either
compliance or noncompliance. Similarly, absent the existence of sulfur
test results using an approved method, commercial documents asserting
the sulfur level of diesel fuel or additive could be used as some
evidence of what the sulfur level of the fuel would be if the product
would have been tested using an approved method.
The Agency believes that the same statutory authority for EPA to
adopt the gasoline sulfur rule's evidentiary provisions, Clean Air Act
section 211(c), provides appropriate authority for the evidentiary
provisions of today's diesel sulfur rule. For a fuller explanation of
this statutory authority, see the gasoline sulfur final rule preamble,
65 FR 6815, February 10, 2000.
VI. Program Costs and Benefits
In this section, we present the projected cost impacts and cost
effectiveness of the nonroad Tier 4 emission standards and fuel sulfur
requirements. We also present a benefit-cost analysis and an economic
impact analysis. The benefit-cost analysis explores the net yearly
economic benefits to society of the reduction in mobile source
emissions likely to be achieved by this rulemaking. The economic impact
analysis explores how the costs of the rule will likely be shared
across the manufacturers and users of the engines, equipment and fuel
that would be affected by the standards.
We revised our cost and benefit analysis to reflect the comments we
received on our analysis. The fuel-related costs have been updated to
reflect information received from refiners as part of EPA's highway
diesel fuel program, comments received on the nonroad NPRM, as well as
more recent information available on future energy costs and the cost
of advanced desulfurization technologies. The engine and equipment-
related costs were revised to reflect additional R&D costs associated
with tailoring R&D to each particular engine line and to accommodate
changes in the final emission control requirements, particularly with
regard to engines above 750 hp. These costs are also now presented in
2002 instead of 2001 dollars. With regard to the benefits analysis, we
have updated our methods consistent with Science Advisory Board (SAB)
advice as specified in RIA chapter 9. Finally, we adjusted the economic
impact analysis to reflect the revised cost inputs and to explicitly
model the impacts on the locomotive and marine intermediate market
sectors.
The results detailed below show that this rule would be highly
beneficial to
[[Page 39107]]
society, with net present value benefits through 2036 of $805 billion
using a 3 percent discount rate and $352 billion using a 7 percent
discount rate, compared to a net present value of social cost of about
$27 billion using a 3 percent discount rate and $14 billion using a 7
percent discount rate. The impact of these costs on society should be
minimal, with the prices of goods and services produced using equipment
and fuel affected by standards being expected to increase about 0.1
percent.
Further information on these and other aspects of the economic
impacts of this emission control program are summarized in the
following sections and are presented in more detail in the Final RIA
for this rulemaking.
A. Refining and Distribution Costs
Meeting the 500 and 15 ppm sulfur caps will generally require that
refiners add hydrotreating equipment and possibly new or expanded
hydrogen and sulfur plants in their refineries. We have estimated the
cost of building and operating this equipment using the same basic
methodology which was described in the NPRM. We have updated that
analysis with new information obtained from the vendors of advanced
desulfurization technology, to better reflect current crude oil
properties and refinery configurations, as well as future hydrogen
costs. We have also incorporated information received from refiners
regarding their plans to produce 15 ppm highway diesel fuel from 2006-
2010. Finally, we incorporated the 15 ppm cap on locomotive and marine
fuel in 2012, as well as improving our analysis of the impact of this
cap on costs incurred in the distribution system.
The costs to provide NRLM fuel under the two-step fuel program are
summarized in Table VI.A-1 below. All of the following costs estimates
are in 2002 dollars. Capital investments have been amortized at 7
percent per annum before taxes. These estimates do not include costs
associated with fuel sulfur testing, labeling, reporting or record
keeping, which we believe will be small relative to those associated
with refining, distribution and lubricity additives. A more detailed
description of the costs associated with this final rule is presented
in the Final RIA.
Table VI.A-1.--Cost of Providing NRLM Diesel Fuel
(cents per gallon of affected fuel)
----------------------------------------------------------------------------------------------------------------
Affected
fuel volume Distribution
NRLM diesel fuel Years (million Refining (and Total
gallons per lubricity)
year) a
----------------------------------------------------------------------------------------------------------------
500 ppm............................... 2007-2010............... 11,860 1.9 0.2 2.1
2010-2012............... 3,589 2.7 0.6 3.3
2012-2014............... 715 2.9 0.6 3.5
15 ppm................................ 2010-2012............... 8,145 5.0 0.8 5.8
2012-2014............... 12,068 5.6 0.8 6.4
2014 +.................. 13,399 5.8 1.2 7.0
----------------------------------------------------------------------------------------------------------------
Notes: a Volumes shown are for first full year in each period (2008, 2011, 2013, and 2015).
The costs shown (and all of the costs described in the rest of this
section) apply to the 74 percent of current NRLM fuel that currently
contains more than 500 ppm sulfur (hereafter referred to as the
affected volume).
In 2014, the affected volume of NRLM fuel is 14.6 billion gallons
out of total NRLM fuel volume of 19.7 billion gallons. The other 5.1
billion gallons of NRLM fuel is currently spillover from fuel certified
to the highway diesel fuel standards. We expect this to continue under
the 2007 highway diesel fuel program. Thus, 26 percent of NRLM fuel
will already meet at least a 500 ppm sulfur cap by 2007 and a 15 ppm
cap by 2010 and will not be affected by today's rule. The costs and
benefits of desulfurizing this highway fuel which spills over into the
non-highway markets was included in our cost estimates for the 2007
highway diesel fuel rule.
The estimated cost of the first step of the NRLM fuel program is
slightly less than that projected in the NPRM ( cents per gallon).
However, we have increased our estimated cost of the second step
significantly in response to comments. These comments and the changes
to our cost estimates are discussed in more detail in the next two
sections. The combined cost for both steps is therefore somewhat higher
than expected in the NPRM, but nevertheless consistent with projections
for the cost of 15 ppm highway diesel fuel.
We expect that the increased cost of refining and distributing 500
ppm NRLM fuel will be completely offset by reductions in maintenance
costs, while those for 15 ppm NRLM fuel will be significantly offset.
These savings will apply to all diesel engines in the fleet due to the
reduced fuel sulfur content, not just new engines. Refer to section V.B
for a more complete discussion on the projected maintenance savings
associated with lower sulfur fuels.
1. Refining Costs
Methodology: We followed the same process that we used in the NPRM
to project refining costs, though we have broken down the description
into five steps instead of four.
First, we estimate the total volume of NRLM fuel which must be
desulfurized during each step of the program, as well as each
refinery's future total production of distillate fuel. Current and
future demand for all distillate fuels except diesel fuel for land-
based equipment were based on estimates from the Energy Information
Administration's (EIA) Fuel Oil and Kerosene Survey (FOKS) for 2001 and
the 2003 Annual Energy Outlook (AEO). EPA's NONROAD emission model was
used to estimate both current and future fuel consumption by land-based
nonroad equipment to ensure the consistent treatment of both the costs
and benefits associated with this rule. Table VI.A-2 shows our
projections of the volumes of fuel affected by today's rule. These
volumes exclude NRLM fuel expected to be certified to highway diesel
fuel sulfur caps prior to the implementation of this rule. They also
exclude distillate fuel meeting a 500 ppm cap which is produced during
distribution from highway diesel fuel, jet fuel, etc.
[[Page 39108]]
Table VI.A-2.--Volume of NRLM Fuel Affected by Today's Rule
(billion gallons per year)
----------------------------------------------------------------------------------------------------------------
Nonroad Locomotive and Total
------------------ marine -----------------
------------------
500 ppm 15 ppm 500 ppm 15 ppm 500 ppm 15 ppm
----------------------------------------------------------------------------------------------------------------
2008...................................................... 8,406 0 3,454 0 11,860 0
2011...................................................... 614 8,145 2,975 0 3,589 8,145
2013...................................................... 468 8,671 247 3,395 715 12,066
2015...................................................... 0 10,539 ....... 2,860 0 13,399
----------------------------------------------------------------------------------------------------------------
This marks a change from the proposal, where all distillate fuel
volumes were based on EIA FOKS and AEO estimates. Commenters pointed
out that this approach underestimated fuel-related costs relative to
emission reductions and monetized benefits, since the NONROAD fuel
volumes used to estimate the latter were larger. We in fact had
acknowledged this inconsistency in the proposal and had said we would
address it in the final rule. Our approach to address the inconsistency
was to utilize the land-based nonroad fuel volumes estimated by the
NONROAD model for both the costs and monetized benefits. However, we
also conducted a sensitivity analysis whereby both emissions and costs
were estimated using EIA estimates of fuel demand by land-based nonroad
equipment. The results of that analysis are discussed in chapter VII of
the Final RIA.
We made one other revision to the volume of diesel fuel affected by
this rule. In analyzing the impact of the 2007 highway diesel fuel
program for the NPRM analysis, we estimated that 4.4 percent of 15 ppm
highway diesel fuel would be contaminated during shipment and not
available for sale as 15 ppm highway fuel. This increased the volume of
15 ppm highway fuel which had to be produced at refineries before
accounting for the production of additional 500 and 15 ppm NRLM fuel in
response to the NRLM fuel program. Due to comments made on the NRPM
(discussed in section VI.A.3. below), we have improved our analysis to
track the disposition of this contaminated 15 ppm fuel. Much of this
contaminated fuel can be sold as 500 ppm NRLM from 2007-2014 and as L&M
fuel thereafter. Thus, the contaminated 15 ppm fuel reduces the volume
of 500 and 15 ppm NRLM fuel which must be produced at refineries.
Second, total distillate production by individual refineries were
based on their actual production volumes in 2002, as reported to EIA.
This represents a minor revision to the NPRM analysis, which utilized
actual refiner production in 2000. The number of refineries needing to
produce 500 ppm and 15 ppm diesel fuel under today's final rule was
based on the projected diesel fuel and heating oil demand in 2014.\200\
To be consistent, the 2002 distillate production volumes of individual
refiners were increased to 2014 levels using EPA projections of growth
in total distillate production by domestic refiners.
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\200\ The year 2014 represents a mid-point between the initial
year of today's fuel program and the end of the expected life of
desulfurization equipment (roughly 15 years).
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Third, we estimated the cost to desulfurize diesel fuel to both 500
ppm and 15 ppm for each domestic refinery. This considered both the
volume of diesel fuel being produced and its composition (e.g.,
percentage of straight run, light cycle oil, etc.). Estimates of the
volumes of diesel fuel already being desulfurized to meet the highway
diesel fuel standards in 2006-2010 prior to the implementation of this
final rule were based on refiners' pre-compliance reports.\201\ This
marks a change from the NPRM analysis, where we assumed that refiners
would continue to produce their current mix of highway and high sulfur
diesel fuel. While many refiners indicated that their plans were
preliminary and subject to change, we consider these projections to be
more probable than assuming that current producers of diesel fuel will
make no change to their product mix in complying with the highway rule.
Meeting the 15 ppm highway diesel fuel cap will require significant
investment, but some refiners will face more than others. Some refiners
will be able to revamp their current hydrotreater, while others will
need to build an entirely new unit. Some refiners will be able to
expand their production of highway fuel at little incremental cost,
while others will be able to reduce their investment substantially by
reducing their production volume. Use of refiners' own projections, as
opposed to our own cost methodology assumptions, allows us to
incorporate as much refinery-specific information as is currently
possible.
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\201\ Under EPA's 2007 highway diesel program, refiners are
required to submit their production plans for highway diesel fuel
for 2006-2010. The first of these reports were due during the summer
of 2003. EPA published a summary of the results this past fall. We
consider these reports to provide a more accurate projection of
individual refinery plans than our projections made during the
highway fuel FRM. The latter was based on cost minimization using
our refinery-specific desulfurization refinery model.
---------------------------------------------------------------------------
In projecting desulfurization costs, we updated a number of the
inputs to our cost estimation methodology. We increased natural gas and
utility costs to reflect those projected in EIA's 2003 AEO. The NPRM
analysis utilized projections from 2002 AEO. Forecasted natural gas
costs in 2003 AEO are considerable higher than in 2002 AEO, though
still lower than current market prices. In response to comments, we
also increased the factor for off-site capital costs to better reflect
the cost of sulfur plant expansions. The NPRM analysis utilized an off-
site factor developed in support of the Tier 2 gasoline and 2007
highway diesel fuel programs, where the amount of sulfur removed per
gallon was a fraction of that occurring here with NRLM fuel. We also
continued to update our cost estimates for advanced desulfurization
technologies, as these technologies continue their evolution. As
discussed in Section IV, the latest information concerning Process
Dynamics's IsoTherming process indicate somewhat higher costs than
earlier estimates. We also reduced our projection of the penetration of
these advanced technologies in 2010 from 80 to 60 percent.
Fourth, we estimated which refineries will likely find it difficult
to stay in the heating oil market after the implementation of the NRLM
sulfur standards, due to their location relative to major pipelines and
the size of the heating oil market in their area. Those not located in
major heating oil markets and not connected to pipelines serving these
areas were projected to have to
[[Page 39109]]
meet the 500 and 15 ppm caps in 2007 and 2010, respectively.
Fifth, we estimated which of the remaining refineries would likely
produce NLRM fuel under today's program. As was done in the proposal,
we assumed that those refineries with the lowest projected compliance
costs would be the most likely to produce the required fuel until
demand was met. Inter-PADD transfers of fuel between PADD 3 and PADD 1
were not constrained. PADD 3 refineries were also assumed to supply
PADD 2 with 15 ppm NRLM fuel once all PADD 2 refineries were producing
15 ppm distillate fuel. We also assumed that domestic refineries would
preferentially supply the lowest sulfur fuels compared to imports.
Thus, imports of 15 and 500 ppm NRLM fuel were only assumed after all
refineries in a PADD were projected to produce either 15 or 500 ppm
fuel, respectively. The small refiner provisions included in today's
NRLM fuel program were considered, as these provisions temporarily
reduce the volume of 500 and 15 ppm fuel required to be produced in
2007 and 2010, respectively. This portion of the methodology was the
same as that used in the NRPM analysis.
Results: Based on EIA data, in 2002 114 refineries produced highway
diesel fuel and 102 refineries produce high sulfur diesel fuel or
heating oil. Based on refiners' pre-compliance reports, we project that
100 refineries will produce 15 ppm highway diesel fuel; 96 refineries
starting in 2006 and 4 in 2010. Of these 100 refineries, 96 currently
produce some volume of highway diesel fuel, while 4 refineries
currently only produce high sulfur distillate fuel. Also, 18 refineries
will cease to produce highway diesel fuel and shift to producing solely
high sulfur distillate fuel. This will leave a total of 92 refineries
still producing high sulfur distillate after full implementation of the
2007 highway diesel fuel program.
The number of these 92 domestic refineries expected to produce
either 15 or 500 ppm NRLM diesel fuel in response to today's rule is
summarized in Table VI.A-3.
Table VI.A-3.--Refineries Projected To Produce NRLM Diesel Fuel Under This Final Rule
----------------------------------------------------------------------------------------------------------------
500 ppm NRLM diesel fuel 15 ppm NRLM diesel fuel
---------------------------------------------------
Year of program All Small All Small
refineries refineries refineries refineries
----------------------------------------------------------------------------------------------------------------
2007-2010................................................... 36 0 0 0
2010-2012................................................... 26 13 32 2
2012-2014................................................... 15 13 47 2
2014+....................................................... 0 0 63 15
----------------------------------------------------------------------------------------------------------------
During the four periods shown in table VI.A-3, two roughly parallel
sets of standards become effective. For non-small refiners, the 500 ppm
NRLM fuel cap starts in 2007, followed by the 15 ppm nonroad fuel cap
in 2010, in turn followed by the 15 ppm L&M fuel cap in 2012. For small
refiners, the 500 ppm NRLM fuel cap starts in 2010, followed by the 15
ppm nonroad NRLM fuel cap in 2014. As shown, beginning in 2014, 63
refineries are projected to be affected by today's final rule. After
complete implementation of today's rule, 29 refineries are expected to
be able to produce high sulfur heating oil, some as their entire
distillate production, others along with 15 ppm fuel. The number of
refineries estimated to be affected by today's rule is one more than
that projected in the NPRM. There, we estimated that 62 refineries
would have to produce either 15 or 500 ppm NRLM fuel in 2014 and
beyond.
We project that the capital cost involved to meet the 2007 500 ppm
sulfur cap will be $310 million. This represents about $10 million for
each of the 30 refineries building a new hydrotreater. Six refineries
are expected to produce 500 ppm NRLM fuel using existing hydrotreaters
no longer being used to produce 500 ppm highway fuel. The total
investment cost is roughly half that projected in the NPRM ($600
million). The decrease is due to a greater volume of 500 ppm NRLM fuel
coming from existing hydrotreaters. This conclusion is based on the
number of refineries leaving the highway diesel fuel market according
to the refiners' highway program pre-compliance reports. The investment
per refinery that we projected in the NPRM ($9.7 million) was
essentially unchanged. Operating costs will be about $4.9 million per
year for the average refinery, or slightly greater than that projected
in the NPRM (due to higher hydrogen costs and a lower percentage of
hydrocrackate in the NRLM pool). The average cost of producing 500 ppm
NRLM fuel in 2007 will be 1.9 cents per gallon, 0.3 cent per gallon
lower than that projected in the NPRM, due primarily to the reduced
capital expenditure.
In 2010, an additional $1170 million will be invested in revamped
and new desulfurization equipment, $1090 million to meet the 15 ppm
nonroad fuel cap and $80 million to produce 500 ppm NRLM fuel no longer
eligible for a small refiner exemption to sell high sulfur NRLM fuel.
In 2012, an additional $590 million will be invested in revamped and
new desulfurization equipment to meet the 15 ppm L&M cap Finally, in
2014 an additional $210 million will be invested in additional 15 ppm
fuel capacity. Thus, total capital cost of new equipment and revamps
related to the NRLM fuel program will be $2280 million, or $36 million
per refinery, roughly 5 percent greater than that projected in the
NPRM. Total operating costs will be about $8.1 million per year for the
average refinery, slightly lower than that projected in the NPRM ($8.3
million per year). The total refining cost, including the amortized
cost of capital, will be 5.0, 5.6 and 5.8 cents per gallon of new 15
ppm NRLM fuel in 2010, 2012, and 2014, respectively.
The 500 pm NRLM fuel being produced in 2010 is projected to cost
2.7 cents per gallon. The cost of this 500 ppm fuel is higher than that
projected in the NPRM, due primarily to a higher cost for natural gas
in the future. The 500 pm, small refiner fuel being produced in 2012 is
projected to cost 2.9 cents per gallon. All of these costs are relative
to the cost of producing high sulfur fuel today, and includes the cost
of meeting the 500 ppm standard beginning in 2007.
The 15 ppm refining costs are significantly higher than the 4.4
cent per gallon cost projected in the NPRM for the option where L&M
fuel was controlled to 15 ppm in addition to nonroad fuel. The increase
is due to the changes in refining cost methodology described above,
particularly the reduced use of advanced desulfurization technology,
reduced synergies with the highway fuel program and increased natural
gas costs.
[[Page 39110]]
The average refining costs by refining region are shown in table
VI.A-4 below. These costs include consideration of the small refiner
provisions. Combined costs are shown for PADDs 1 and 3 because of the
large volume of diesel fuel which is shipped from PADD 3 to PADD 1.
Table VI.A-4.--Average Refining Costs by Region
[Cents per gallon]
----------------------------------------------------------------------------------------------------------------
500 ppm Cap 15 ppm Cap
-------------------------------------------------------------------------
2007-2010 2010-2012 2012-2014 2010-2012 2012-2014 2014+
----------------------------------------------------------------------------------------------------------------
PADDs 1 & 3........................... 1.6 3.7 2.5 4.6 4.9 5.1
PADD 2................................ 2.8 2.9 3.7 7.1 7.8 7.8
PADD 4................................ 3.3 9.0 9.0 11.6 11.7 11.8
PADD 5................................ 1.2 2.8 3.5 4.3 4.3 5.7
Nationwide............................ 1.8 2.7 2.9 5.0 5.6 5.8
----------------------------------------------------------------------------------------------------------------
Fuel-Only Control Programs: We used the same methodology to
estimate refining costs for stand-alone 500 ppm and 15 ppm NRLM fuel
programs. The fully phased in refining impacts of a 15 ppm NRLM
standard are the same as those described above for the final rule in
2014 and beyond. A fully phased in 500 ppm NRLM fuel program is
projected to affect 63 refineries, cost 2.0 cents per gallon and
require a capital investment of $480 million.
2. Distribution Costs
Today's rule is projected to impact distribution costs in four
ways. First, we project that a slightly greater volume of diesel fuel
will have to be distributed, due to the fact that some of the
desulfurization processes reduce the fuel's volumetric energy density
during processing. Total energy is not lost during processing, as the
total volume of fuel is increased in the hydrotreater. However, a
greater volume of fuel must be consumed in the engine to produce the
same amount of power. We project that desulfurizing diesel fuel to 500
ppm will reduce volumetric energy content by 0.7 percent. The cost of
which is equivalent to 0.08 cent per gallon of affected NRLM fuel.
\202\ We project that desulfurizing diesel fuel to 15 ppm will reduce
volumetric energy content by an additional 0.52 percent. This will
increase the cost of distributing fuel by an additional 0.05 cents per
gallon, for a total cost of 0.13 cents per gallon of affected 15 ppm
NRLM fuel.
---------------------------------------------------------------------------
\202\ See chapter 7 of the RIA for further details regarding our
estimation of distribution costs.
---------------------------------------------------------------------------
The second impact on distribution costs relates to the disposition
of 15 ppm fuel contaminated during pipeline shipment. We received
comments that the control of L&M fuel sulfur content, particularly to
15 ppm, would make it difficult to sell off-specification 15 ppm fuel.
The comments argued that much of this material would have to be shipped
back to refineries and reprocessed to meet the 15 ppm cap. We designed
the program finalized today to allow the continued sale of 500 ppm fuel
into the NRLM market until June 1, 2014, and into the locomotive and
marine market indefinitely. By doing so, we were able to minimize,
though not eliminate, much of the reprocessing and distribution cost
impacts of concern. We have evaluated both the production and potential
sale of distillate interface and estimated the distribution cost
impacts of today's final rule provisions. The details of this analysis
are contained in chapter 7 of the Final RIA.
In our analysis of the 15 ppm highway fuel program, we projected
that the need to protect the quality of 15 ppm highway diesel fuel
would increase the volume of highway diesel fuel downgraded to a lower
value product, such as high sulfur diesel fuel and heating oil, from
its current level of approximately 2.2 percent to 4.4 percent. Under
today's rule, we expect that 15 ppm NRLM fuel will be shipped together
with 15 ppm highway. Thus, the size of each batch of 15 ppm fuel will
increase, but the number of batches will not. As the downgrade occurs
at the interface between batches, the volume being downgraded should
not increase. At the same time, we are not projecting that interface
volume will decrease, as high sulfur fuels, such as jet fuel and, in
some cases heating oil, will still be in the system.
The issue here is the market to which this interface volume can be
sold. When this interface volume meets the specifications of one of the
two fuels being shipped next to each other, the interface is simply
added to the batch of that fuel. For example, the interface between
regular and premium gasoline is added to the regular grade batch. Or,
the interface between jet fuel and heating oil is added to the heating
oil batch. One interface which is never added to either adjacent batch
is a mixture of gasoline and any distillate fuel, such as jet or diesel
fuel. If this interface was added to the distillate batch, the gasoline
content in the interface would result in a violation of the
distillate's flash point specification. If this interface was added to
the gasoline batch, it would cause the gasoline to violate its end
point specification. Therefore, this interface must be shipped to a
transmix processor to separate the mixture into naphtha (a sub-octane
gasoline) and distillate. The 2007 highway diesel fuel program will not
change this practice. The naphtha produced by transmix processors from
gasoline/distillate mixtures is usually blended with premium gasoline
to produce regular grade gasoline. The distillate produced is an
acceptable high sulfur diesel fuel or heating oil, though if the feed
material was primarily low sulfur distillate and gasoline it will
likely also meet the current 500 ppm highway fuel cap.
With the implementation of the highway diesel rule, there is
another incompatible interface, that between jet fuel and 15 ppm diesel
fuel. This interface can not be cut into jet fuel due to end point and
other concerns. However, it can usually be cut into 500 ppm diesel fuel
as long as the sulfur level of the jet fuel is not too high. With the
lowering of the highway standard to 15 ppm, however, this will no
longer be possible. We expect that pipelines minimize this interface by
abutting jet fuel and high sulfur distillate in the pipeline whenever
possible. However, it will be unavoidable under many circumstances. A
substantial part of the pipeline distribution system currently does not
handle high sulfur distillate, and we expect that the highway program
and today's rule will likely cause additional pipeline systems to
discontinue carrying high sulfur distillate. Pipelines that do not
carry high sulfur distillates will generate this
[[Page 39111]]
interface whenever they ship jet fuel.\203\ The highway rule, and
today's rule projects that pipeline operators will segregate this
interface by cutting it into a separate storage tank. Because this
interface can be sold as 500 ppm NRLM fuel or heating oil, and because
these markets exist nationwide, there is little impact beyond the need
for refiners to produce more 15 ppm highway diesel fuel (compared to
the volume of highway diesel fuel produced prior to the implementation
of the 15 ppm standard), which was considered as part of the refining
costs in the highway diesel rule.
---------------------------------------------------------------------------
\203\ We expect that only three types of fuel will be carried by
such pipeline systems: jet fuel, 15 ppm diesel fuel, and gasoline
(premium and regular). Premium and regular gasolines are always
shipped next to each other so the interface between premium and
regular gasoline can be cut into the batch of regular gasoline.
Thus, whenever jet fuel is shipped it will abut 15 ppm diesel fuel
on one end and gasoline on the other.
---------------------------------------------------------------------------
With control of nonroad fuel to 15 ppm sulfur in 2010 and LM fuel
to 15 ppm sulfur in 2012, the opportunities to downgrade interface to
another product become increasing limited. Where limited this will
increase costs due to the need to transport the interface to where it
can be marketed or to a facility for reprocessing. In areas with large
heating oil markets, such as the Northeast and the Gulf Coast, the
control of NRLM sulfur content will still have little impact on the
sale of this interface. However, in areas lacking a large heating oil
market, the sale of this distillate interface will be more restricted.
Because this interface will composed of 15 ppm diesel fuel and jet
fuel, we estimate that the distillate interface created should nearly
always meet a 500 ppm cap.\204\ Thus, this interface can be added to
500 ppm NRLM batches (as well as heating oil, where it is present at
the terminal) through 2014. After 2014, this 500 ppm interface fuel can
only be sold as L&M fuel or heating oil. An exception to this applies
in the Northeast/Mid-Atlantic Area, where this interface cannot be sold
into the nonroad fuel market after 2010, nor into the L&M fuel market
after 2012.
---------------------------------------------------------------------------
\204\ See chapter 7.1.7 of the RIA regarding our analysis of the
sulfur levels of this interface material. This analysis indicated
that although the maximum sulfur specification of jet fuel 3,000
ppm, in-use jet fuel sulfur levels are frequently below 500 ppm.
---------------------------------------------------------------------------
In chapter 7 of the Final RIA, we estimate the costs related to
handling this interface fuel during the four time periods (2007-2010,
2010-2012, 2012-2014, and 2014 and beyond). We project that there will
be no additional costs prior to 2010, as 500 ppm fuel will be the
primary NRLM fuel and be widely distributed. Beyond 2010, we estimate
that terminals will have to add a small storage tank for this fuel, as
500 ppm highway diesel fuel and the majority of 500 ppm NRLM disappears
from the distribution system. In many places, this interface will be
the primary, if not sole source of 500 ppm fuel, so existing tankage to
add this interface to will be limited. We have also added shipping
costs to transport this fuel to NRLM and heating oil users. The volume
of this interface is significant, sometimes a sizeable percentage of
the combined NRLM fuel and heating oil markets. In the post-2014
period, the volume of this interface fuel is larger than the combined
L&M fuel and heating oil markets in certain PADDs. Also, the volume of
interface received at each terminal will vary substantially, depending
on where that terminal is on the pipeline. The advantage of this is
that where the interface accumulates it may be of sufficient volume to
justify marketing as a separate grade of fuel. Conversely, the
potential users of this 500 ppm interface fuel may not be located near
the terminals with the fuel necessitating additional transportation
costs.
Prior to 2014, 500 ppm fuel can be used as NRLM fuel and heating
oil outside of the Northeast/Mid-Atlantic Area. Additional storage
tanks will be needed in some cases, as this will be the only source of
500 ppm fuel in the marketplace. Amortizing the cost of a range of
storage tank sizes over 15 years of weekly shipments at a seven percent
rate of return before taxes costs produced an amortized cost of 0.2-1.6
cents per gallon. These costs include the carrying cost of the fuel
stored in the tank. We estimate that the average storage cost will be
closer to the lower end of this range, or 0.5 cent per gallon. Nonroad
fuel users are fairly ubiquitous. Thus, increased shipping distances
should be fairly short. We estimated 45 miles at a cost of roughly 1.5
cents per gallon. The distance to L&M fuel users will likely be longer,
roughly 100 miles, but cost the same due to greater efficiencies of
rail transport. It will likely cost more to deliver interface fuel to
heating oil users, as many of these users are smaller, not evenly
dispersed geographically, purchase fuel seasonally, and lack rail
connections. We estimate that transport distances will increase an
average of 85 miles and cost an additional 3.0 cents per gallon over
today's costs to deliver this fuel to the end user, in addition to the
0.5 cent per gallon storage cost. When spread over all the 15 and 500
ppm NRLM fuel being produced from 2010-2014 due to today's rule, the
additional distribution cost from 2010-2014 is 0.4 cents per gallon.
Starting in 2014, this interface fuel can no longer be sold to the
nonroad fuel market. Since the interface volume does not change, this
increases the volume of fuel that must be sold to the L&M and heating
oil markets. Thus, overall, transportation distances and costs will
likely increase. We expect that the transportation cost for fuel sold
to the L&M market will increase from 1.5 to 3.0 cents per gallon, while
that for heating oil will increase to 5.0 cents per gallon, both
including fuel storage. However, in PADD 5, the volume of interface
generated exceeds the total fuel demand of these two markets. Thus, we
estimate that some fuel will have to be shipped back to refineries and
reprocessed to meet a 15 ppm cap and shipped out a second time. We
estimate that the cost of this shipping and reprocessing will cost 10
cents per gallon. When spread over all the 15 ppm NRLM fuel being
produced after 2014 due to today's rule, the additional distribution
cost is 0.8 cent per gallon.
The third impact of today's rule on distribution costs is related
to the need for additional storage tanks to market additional product
grades at bulk plants. While this final rule minimizes the segregation
of similar fuels, some additional segregation of products in the
distribution system will still be required. The allowance that highway
and NRLM diesel fuel meeting the same sulfur specification can be
shipped fungibly until it leaves the terminal obviates the need for
additional storage tanks in this segment of the distribution system
except for the limited tankage at terminals necessary to handle 500 ppm
sulfur interface fuel discussed above.\205\ Today's final rule also
allows 500 ppm NRLM diesel fuel to be mixed with high-sulfur NRLM
(though it can no longer be sold as 500 ppm fuel).
---------------------------------------------------------------------------
\205\ Including the refinery, pipeline, terminal, marine tanker,
and barge segments of the distribution system.
---------------------------------------------------------------------------
However, we expect that the implementation of the 500 ppm standard
for NRLM diesel fuel in 2007 will compel some bulk plants in those
parts of the country still distributing heating oil as a separate fuel
grade to install a second diesel storage tank to handle this 500 ppm
NRLM fuel. These bulk plants currently handle only high-sulfur fuel and
hence will need a second tank to continue their current practice of
selling fuel into the heating oil market in the winter and into the
nonroad market in the summer. We believe that
[[Page 39112]]
some of these bulk plants will convert their existing diesel tank to
500 ppm fuel in order to avoid the expense of installing an additional
tank. However, to provide a conservatively high estimate we assumed
that 10 percent of the approximately 10,000 bulk plants in the U.S.
(1,000) will install a second tank in order to handle both 500 ppm NRLM
diesel fuel and heating oil.
The cost of an additional storage tank at a bulk plant is estimated
at $90,000 and the cost of de-manifolding a delivery truck is estimated
at $10,000.\206\ In the NPRM, we estimated that each bulk plant that
needed to install a new storage tank would need to de-manifold a single
tank truck. Thus, the NPRM estimated the cost per bulk plant would be
$100,000. Fuel distributors stated that the assumptions and
calculations made by EPA in characterizing costs for bulk plant
operators seem reasonable. However, they also stated that our estimate
that a single tank truck would service a bulk plant is probably not
accurate. No suggestion was offered regarding what might be a more
appropriate estimate other than the number is likely to be much
greater. Part of the reason why we estimated that only a single tank
truck would need to be de-manifolded, is that we expected that due to
the seasonal nature of the demand for heating oil versus nonroad fuel,
it would primarily only be at the juncture of these two seasons that
both fuels would need to be distributed in substantial quantities. We
also expected that the small demand for heating oil in the summer and
the small demand for nonroad fuel in the winter could be serviced using
a single de-manifolded truck. The primary fuel distributed during a
given season would be distributed by single compartment tank trucks.
During the crossover between seasons, bulk plant operators would switch
the fuel to which such single compartment tank trucks are used from
nonroad to heating oil and back again.\207\ Nevertheless, we agree that
the subject bulk plant operators would likely be compelled to de-
manifold more that a single tank truck. Lacking additional specific
information, we believe that assuming that each bulk plant operator de-
manifolds three tank trucks will provide a conservatively high estimate
of the cost to bulk plant operators due to today's rule.
---------------------------------------------------------------------------
\206\ This estimated cost includes the addition of a separate
delivery system on the tank truck.
\207\ To avoid sulfur contamination of NRLM fuel, the tank
compartment would need to be flushed with some NRLM fuel prior to
switching from carrying heating oil to NRLM fuel.
---------------------------------------------------------------------------
If all 1,000 bulk plants were to install a new tank and de-manifold
three tank trucks, the cost for each bulk plant would be $120,000, and
the total one-time capital cost would be $120,000,000. To provide a
conservatively high estimate of the costs to bulk plant operators, we
are assuming that all 1,000 bulk plants will do so. Amortizing the
capital costs over 20 years, results in a estimated cost for tankage at
such bulk plants of 0.1 cents per gallon of affected NRLM diesel fuel
supplied. Although the impact on the overall cost of the program is
small, the cost to those bulk plant operators who need to put in a
separate storage tank may represent a substantial investment. Thus, we
believe many of these bulk plants will search out other arrangements to
continue servicing both heating oil and NRLM markets such as an
exchange agreement between two bulk plants that serve a common area.
As a consequence of the end of the highway program's temporary
compliance option (TCO) in 2010 and the disappearance of high-sulfur
diesel fuel from much of the fuel distribution system resulting from
the implementation of today's rule, we expect that storage tanks at
many bulk plants that were previously devoted to 500 ppm TCO highway
fuel and high-sulfur fuel will become available for dyed 15 ppm nonroad
fuel service. Based on this assessment, we do not expect that a
significant number of bulk plants will need to install an additional
storage tank in order to provide dyed and undyed 15 ppm diesel fuel to
their customers beginning in 2010 (the implementation date for the 15
ppm nonroad standard).\208\ There could potentially be some additional
costs related to the need for new tankage in some areas not already
carrying 500 ppm fuel under the temporary compliance option of the
highway diesel program and which continue to carry high sulfur fuel.
However, we expect them to be minimal relative to the above 0.1 cent
per gallon cost. Thus, we estimate that the total cost of additional
storage tanks at bulk plants that will result from today's rule will be
0.1 cent per gallon of affected NRLM diesel fuel supplied.
---------------------------------------------------------------------------
\208\ See Section IV of today's preamble for additional
discussion of our rational for this conclusion.
---------------------------------------------------------------------------
The fourth impact on fuel distribution costs is a result of the
requirement that high sulfur heating oil be marked beginning June 1,
2007 and that 500 ppm sulfur LM diesel produced by refiners or imported
be marked from 2010 through 2012 outside of the Northeast/Mid-Atlantic
Area and Alaska. The NPRM projected that there would be no capital
costs associated with the proposed marker requirement. We proposed that
the marker would be added at the refinery gate, and that the current
requirement that non-highway fuel be dyed red at the refinery gate be
made voluntary. Thus, we believed that the refiner's additive injection
equipment that is currently used to inject red dye into off-highway
diesel fuel could instead be used to inject the marker as needed. As a
result of the allowance provided in today's final rule that the marker
be added at the terminal rather than the refinery gate, and our
reevaluation of the conditions for dye injection at the refinery, we
are now assessing capital costs for terminals and refiners related to
compliance with the fuel marker requirements.
Except for fuel that is distributed directly from a refiner's rack,
today's final rule allows the marker to be added at the terminal rather
than at the refinery as we proposed (see section IV.D for a discussion
of the fuel marker requirements).\209\ We expect that except for fuel
dispensed directly from the refinery rack, the fuel marker will be
added to at the terminal to avoid the potential for marked fuel to
contaminate jet fuel during distribution by pipeline. Terminals that
need to inject the fuel marker will need to purchase a new injection
system, including a marker storage tank and a segregated line and
injector for each truck loading station at which fuel that is required
to be marked is dispensed. Terminals will still be subject to IRS red
dye requirements, and thus will not be able to rededicate such
injection equipment to inject the fuel marker. Due to concerns
regarding the need to maintain a visible evidence of the presence of
the fuel marker, today's rule also contains a requirement that nay fuel
which contains the fuel marker also contains visible evidence of red
dye. Furthermore, there is little chance to adapt parts of the red dye
injection system (such as the feed lines and injectors) for the
alternate injection of red dye and the fuel marker due to concerns that
NRLM fuel become contaminated with the marker.
---------------------------------------------------------------------------
\209\ A refinery rack functions similar to a terminal in that it
distributes fuel by truck to wholesale purchaser consumers and
retailers.
---------------------------------------------------------------------------
Terminal operators expressed concern regarding the potential burden
on terminal operators from the capital costs of adding new additive
injection equipment for heating oil. In response to these comments,
today's rule includes provisions that exempt terminal operators from
the fuel marker requirements in a geographic ``Northeast/Mid-Atlantic
Area'' and
[[Page 39113]]
Alaska.\210\ These provisions provide that any heating oil or 500 ppm
sulfur LM diesel fuel that would otherwise be subject to the fuel
marker requirements which is delivered to a retailer or wholesale-
purchaser consumer inside the Northeast/Mid-Atlantic Area or Alaska
does not need to contain the marker. The costs of the marker
requirements for heating oil beginning in 2007 and for 500 ppm sulfur
LM diesel fuel from 2010 through 2012 are discussed separately below.
---------------------------------------------------------------------------
\210\ Small refiner and credit high sulfur NRLM will not be
permitted to be sold in the area where terminals are not required to
add the fuel marker to heating oil (the ``Northeast/Mid-Atlantic
Area''). See section IV.D.
---------------------------------------------------------------------------
The Northeast/Mid-Atlantic Area was defined to include the region
where the majority of heating oil in the country is projected to
continue to be supplied through the bulk distribution system (the
Northeast and Mid-Atlantic). The vast majority of heating oil
consumption in the U.S. will be within the Northeast/Mid-Atlantic Area.
Outside of the Northeast/Mid-Atlantic Area, we expect that only limited
quantities of heating oil will be supplied, primarily from certain
refiner's racks. We estimate that 30 refineries and transmix processor
facilities outside of the Northeast/Mid-Atlantic Area will distribute
heating oil from their racks (in limited volumes) on a sufficiently
frequent basis to warrant the installation of a marker injection system
at a total one time cost of $1,500,000.
Terminals outside of the Northeast/Mid-Atlantic Area will mostly be
located in areas without continued production and/or bulk shipment of
heating oil. Consequently, any high sulfur diesel fuel they sell will
typically be NRLM. Terminals located within the Northeast/Mid-Atlantic
Area will not need to mark their heating oil, except for those few that
choose to ship heating oil outside of the Northeast/Mid-Atlantic Area.
The terminals most likely to install marker injection equipment will
therefore be those in states outside the Northeast/Mid-Atlantic Area
with modest markets for heating oil after the implementation of this
program. As discussed in chapter 7 of the RIA, in analyzing the various
situations, we project that fewer than 60 terminals nationwide will
choose to install marker injection equipment at a total cost of
$4,150,000. \211\ The total capital cost to refiners and terminals to
install marker injection equipment is estimated to be $5,650,000. Thus,
the Northeast/Mid-Atlantic Area provisions in today's rule minimizes
the number of terminals that will need to install additive injection
equipment and its associated cost to comply with the marker requirement
for heating oil.
---------------------------------------------------------------------------
\211\ The estimated marker injection equipment costs include the
cost of marker storage tanks, lines, and injectors.
---------------------------------------------------------------------------
In the NPRM we estimated that the cost to blenders of the fuel
marker in bulk quantities would translate to 0.2 cents per gallon of
fuel treated with the marker. This estimate was based on the fee
charged by a major pipeline to inject red dye at the IRS concentration
into its customers diesel fuel. We used this estimate because we lacked
specific cost information on the proposed marker, and we believed that
it provided a conservatively high estimate of marker cost. Since the
proposal, we received input from a major distributor of fuel markers
and dyes, regarding the cost of bulk deliveries of the specified fuel
marker to terminals which translates to a cost of 0.03 cents per gallon
of fuel treated with the marker. The volume of heating oil that we
expect will need to be marked has also decreased substantially from
that estimated in the NPRM due to the Northeast/Mid-Atlantic Area
provisions. We estimate that 1.4 billion gallons of heating oil will be
marked annually, for an annual marker cost of $425,000. In the NPRM, we
projected that the cost of marking heating oil would continue for three
years (2007-2010). Under today's final rule, heating oil must be marked
indefinitely beginning in 2007, but only outside of the Northeast/Mid-
Atlantic Area and Alaska.
Because heating oil outside of the Northeast/Mid-Atlantic Area is
being marked to prevent its use in NRLM engines, for the purposes of
estimating the impact of the marker requirement on the cost of the NRLM
program we have spread the cost for the marker for heating oil over
NRLM diesel fuel. Amortizing the capital costs of marker injection
equipment over 20 years, results in an estimated cost of 0.006 cents
per gallon of affected NRLM diesel fuel supplied. Spreading the cost of
the marker over the volume of affected NRLM fuel results in an
estimated cost of 0.003 cents per gallon of affected NRLM fuel. Adding
the amortized cost of the injection equipment necessary to add the
marker to heating oil and the cost or the marker results in a total
estimated cost of the marker requirement for heating oil in today's
rule of 0.01 cents per gallon of affected NRLM fuel.
The final NRLM rule also requires that 500 ppm L&M fuel produced at
refineries or imported be marked from mid-2010 through mid-2012 outside
of the Northeast/Mid-Atlantic Area and Alaska. The adoption of a 15 ppm
sulfur standard for LM diesel fuel in 2012 in today's rule allows us to
require that LM fuel be marked from 2010 through 2012 rather than from
2010 through 2014 as proposed (see section IV.A). In addition, the way
in which the program was crafted to avoid requiring the fuel marker be
added to heating oil in the Northeast/Mid-Atlantic Area and Alaska
allows us to also provide that 500 ppm sulfur LM diesel fuel in these
areas is not subject to the marker requirement (see section IV.D). We
project that only a small number of refiners will produce 500 ppm
sulfur diesel fuel subject to the marker requirements fuel and that it
will not be shipped via pipeline. Thus, most of this fuel can be marked
at the refinery, limiting the number of facilities which need to add
marking equipment in response to this requirement. We estimate that 15
facilities will have to do so, at a cost of $60,000 each, for a total
of $900,000. Amortizing this over the total volume of affected NRLM
fuel produced from mid-2010 to mid-2012 at seven percent per year
before taxes yields a cost for the LM marker requirement of 0.004 cent
per gallon. Including the cost of the marker (0.03 cent per gallon of
marked fuel) increases this cost to 0.01 cent per gallon of NRLM fuel.
We summed these various costs incurred to the distribution system
over four different time periods. As shown in table VI.A-5, the total
additional distribution cost will be 0.2 cent per gallon of NRLM fuel
during the first step of the fuel program (from 2007 through 2010), 0.6
cents per gallon of NRLM fuel from 2010 to 2012 and from 2012 to 2014,
and increase to 1.0 cent per gallon thereafter. A more detailed
description of the costs associated with downgraded jet fuel and 15 ppm
diesel fuel is presented in chapter 7 of the Final RIA.
[[Page 39114]]
Table VI.A-5.--Summary of Distribution Costs
[Cents per gallon]
----------------------------------------------------------------------------------------------------------------
Time period over which costs apply
Cause of increase in distribution costs ---------------------------------------------------
2007-2010 2010-2012 2010-2014 2014+
----------------------------------------------------------------------------------------------------------------
Distribution of additional NRLM volume...................... 0.08 0.1 0.1 0.1
Distillate interface handling............................... 0 0.4 0.4 0.8
Bulk plant storage tanks.................................... 0.1 0.1 0.1 0.1
Heating oil and L&M fuel marker............................. 0.01 0.02 0.01 0.01
---------------
Total................................................... 0.2 0.6 0.6 1.0
----------------------------------------------------------------------------------------------------------------
3. Cost of Lubricity Additives
Hydrotreating diesel fuel tends to reduce the natural lubricating
quality of diesel fuel, which is necessary for the proper functioning
of certain fuel system components. There are a variety of fuel
additives which can be used to restore diesel fuel's lubricating
quality. These additives are currently used to some extent in highway
diesel fuel. We expect that the need for lubricity additives that will
result from the proposed 500 ppm sulfur standard for NRLM diesel fuel
will be similar to that for highway diesel fuel meeting the current 500
ppm sulfur cap standard.\212\ Industry experience indicates that the
vast majority of highway diesel fuel meeting the current 500 ppm sulfur
cap does not need lubricity additives. Therefore, we expect that the
great majority of NRLM diesel fuel meeting the proposed 500 ppm sulfur
standard will also not need lubricity additives. In estimating
lubricity additive costs for 500 ppm diesel fuel, we assumed that fuel
suppliers will use the same additives at the same concentration as we
projected will be used in 15 ppm highway diesel fuel. Based on our
analysis of this issue for the 2007 highway diesel fuel program, the
cost per gallon of the lubricity additive is about 0.2 cents. This
level of use is likely conservative, as the amount of lubricity
additive needed increases substantially as diesel fuel is desulfurized
to lower levels. We also project that only five percent of all 500 ppm
NRLM diesel fuel will require the use of a lubricity additive. Thus, we
project that the cost of additional lubricity additives for the
affected 500 ppm NRLM diesel fuel will be 0.01 cent per gallon. See the
Final RIA for more details on the issue of lubricity additives. We have
no reason to expect that the implementation of today's NRLM sulfur
standards will impact diesel properties other than fuel lubricity in
such a way as to require the use of additives.
---------------------------------------------------------------------------
\212\ Please refer to section IV in today's preamble for
additional discussion regarding our projections of the potential
impact on fuel lubricity of this proposed rule.
---------------------------------------------------------------------------
We project that all NRLM fuel meeting a 15 ppm cap will require
treatment with lubricity additives. Thus, the projected cost will be
0.2 cent per affected gallon of 15 ppm NRLM fuel.
4. How EPA's Projected Costs Compare to Other Available Estimates
Historically, the price of highway diesel fuel meeting a 500 ppm
sulfur cap has exceeded that of high sulfur diesel fuel, ranging from
0-5 cents per gallon from 1995-99 and averaging 2.2 cents per gallon
over this time period (see chapter 7 of the Final RIA). Fuel prices are
often a function of market forces which might not reflect the cost of
producing the fuel. Still, given this is a five-year average price
difference, it is likely a reasonable indication of the cost of
reducing highway diesel fuel sulfur to 500 ppm. Once the small refiner
provisions applicable to 500 ppm fuel expire in 2010, we project that
the total cost of the 500 ppm NRLM fuel cap will be 2.4 cents per
gallon, well within the range of the historical highway-high sulfur
fuel price difference. This similarity exists despite changes in a
number of factors. One, our projection of future natural gas costs are
significantly higher than those existing during the above price
comparison. Two, the refineries producing highway diesel fuel
historically likely did so because they faced lower costs than those
refineries continuing to produce high sulfur distillate. Three,
desulfurization catalyst efficiency has improved dramatically since the
highway units were installed and significant operating experience has
been obtained on highway units. Four, inflation since the early 1990's
will have increased the cost of constructing the same hydrotreater.
Five, and perhaps most importantly, the construction of some new
hydrotreaters to produce 15 ppm highway diesel fuel will allow the
existing hydrotreaters to produce 500 ppm NRLM fuel at no capital cost.
Thus, there are at least five significant factors, two of which would
tend to decrease costs and three of which would tend to increase costs.
It is not surprising that these factors could counter-balance each
other, leading to the conclusion that the 500 ppm cap could be extended
to NRLM fuel at roughly the same cost as for highway diesel fuel.
The only existing market for 15 ppm diesel fuel is a niche market
for fleets and the prices for this fuel likely bear little resemblance
to the costs of the 15 ppm highway or NRLM caps. Thus, the only cost
comparisons which can be made are those between engineering studies.
One such study was performed by Mathpro for the Engine Manufactures
Association (EMA). Mathpro estimated the cost of controlling the sulfur
content of highway and NRLM fuel to levels consistent with both 500 ppm
and 15 ppm cap standards.\213\ A detailed evaluation of the Mathpro
costs is presented in the Final RIA. There are a number of aspects of
the study that make direct comparisons between its estimates and our
cost estimates difficult. Nonetheless, a crude comparison of 15 ppm
costs indicates that our average cost range of 5.7-5.9 cent per gallon
is quite similar to the 5.4-6.6 cents per gallon cost range estimated
by Mathpro.
---------------------------------------------------------------------------
\213\ Hirshfeld, David, MathPro, Inc., ``Refining economics of
diesel fuel sulfur standards,'' performed for the Engine
Manufactuers Association, October 5, 1999.
---------------------------------------------------------------------------
The other available study of 15 ppm fuel costs was performed by
Baker and O'Brien for API and submitted in response to the nonroad
NPRM. Baker and O'Brien analyzed two NRLM fuel control scenarios, but
neither one matched today's final NRLM fuel program. The scenario
closest to today's program assumed that a NRLM fuel would be capped at
15 ppm in 2008. In this case, Baker and O'Brien projected that the
refinery-specific cost of 15 ppm NRLM fuel would range from 4-17 cents
per gallon. This is higher than our projected range of 2-14 cents per
gallon. In addition, as described in the next
[[Page 39115]]
section, Baker and O'Brien projected that the volume of NRLM fuel
produced at these costs would not fully satisfy NRLM fuel demand.
Presumably, totally fulfilling NRLM fuel demand with domestic
production would have cost more.
Baker and O'Brien described portions of their cost methodology and
indicated some general assumptions which they made during the study.
However, the absence of detail prevents any detailed comparisons of
their results to ours. It was clear from their report, though, that
Baker and O'Brien made a number of pessimistic assumptions about
refiners' willingness to invest in desulfurization capacity and that
this limited the number of refineries which they assumed would invest
to meet the NRLM sulfur caps. This inevitably led to higher projected
costs (and lower production volumes), than if all refineries had been
considered. Thus, it is not surprising that they would derive slightly
higher costs for a much smaller volume of fuel. A more detailed
evaluation of the Baker and O'Brien cost estimates can be found in the
Final RIA and RTC.
5. Supply of Nonroad, Locomotive and Marine Diesel Fuel
We have developed today's NRLM fuel program to minimize its impact
on the supply of distillate fuel. For example: We have split the
control of NRLM fuel to 15 ppm sulfur into two steps, providing 8 years
of leadtime for the final step. We are proposing to provide flexibility
to refiners through the availability of banking and trading provisions.
We have provided relief for small refiners and hardship relief for any
qualifying refiner. We are also allowing 500 ppm diesel fuel generated
in the distribution system to be sold as L&M fuel indefinitely.
In the NPRM, we evaluated four possible reasons why refiners might
reduce their production of NRLM fuel: (1) Chemical processing losses
during the desulfurization process, (2) refiners might leave the NRLM
fuel market, (3) refiners might stop operations altogether (i.e., shut
down), and (4) refiners might remove certain blendstocks from the fuel
pool to reduce desulfurization costs. In all four cases, we concluded
that the answer was no, that the supply of NRLM fuel would likely
remain adequate after implementation of the proposed fuel program. All
of these findings started from the position that there would be
adequate supply of diesel fuel after implementation of the 2007 highway
diesel fuel program.
Several commenters, namely API and NPRA, took issue with the above
four sets of arguments, as well as with our conclusion that refiners
would not reduce NRLM fuel production. While not requesting any changes
to the 2007 highway diesel fuel program, they reiterated previous
concerns that supply shortages could occur under the highway diesel
fuel program, even without the added challenge of producing low sulfur
NRLM fuel. The primary basis for their comments was a study they had
sponsored by Baker and O'Brien, which evaluated the costs and likely
supply impacts of the proposal.
Baker and O'Brien evaluated two NRLM fuel scenarios: (1) A 15 ppm
NRLM fuel cap starting in 2008, and (2) a 500 ppm NRLM fuel cap
starting in 2008, followed by a 15 ppm cap only for nonroad fuel in
2010. First, Baker and O'Brien projected that 13 refineries with a
total crude oil capacity of 971,000 barrels per day would close in
response to the 2007 highway rule, roughly half in 2006 and half in
2010. (Total U.S. refining capacity is currently 16 million barrels per
day.) Then Baker and O'Brien projected that adding a 15 ppm NRLM cap
would cause all of the refineries shutting down in 2010 to close in
2008, plus one additional refinery (for a total of 14). Delaying the 15
ppm cap until 2010 and leaving L&M fuel at 500 ppm reduced the number
of refineries projected to close in 2008, but did not change Baker and
O'Brien's projection that 14 refineries would close by 2010. Given the
fact that Baker and O'Brien projected the same number of refinery
closures for scenarios 1 and 2, it is reasonable to
assume that they would project similar results for today's final NRLM
fuel program.
---------------------------------------------------------------------------
\214\ Closure would occur at the beginning of the 15 ppm highway
fuel program, or 2006.
Table VI.A-6.--Projected Refinery Closures: API Sponsored Study by Baker
and O'Brien
------------------------------------------------------------------------
No. of refineries Lost crude capacity
---------------------- (1000 bbl/day)
---------------------
2008 2010 2008 2010
------------------------------------------------------------------------
2007 Highway Fuel Program... \214\ 8 13 504 971
Plus One-Step 15 ppm NRLM 14 14 1043 1043
Program....................
Plus Two-Step NRLM Program.. 12 14 924 1043
------------------------------------------------------------------------
As a result of these refinery closures, Baker and O'Brien projected
shortfalls in 15 and 500 ppm supply domestic refiners. The net
shortfalls are shown in table VI.A-7 below. Baker and O'Brien stated
that imports would have to make up the shortfall, with potentially high
price impacts.
Table VI.A-7.--Projected Shortfall in Near-Term Diesel Fuel Supply
[1000 barrels per day]
------------------------------------------------------------------------
15 ppm Fuel 500 ppm Fuel
-------------------------------------------
2008 2010 2008 2010
------------------------------------------------------------------------
2007 Highway Fuel Program... 359 579 308 22
Plus One-Step 15 ppm NRLM 684 930 165 0
Program....................
Plus Two-Step NRLM Program.. 351 639 481 82
------------------------------------------------------------------------
[[Page 39116]]
To put these projected shortfalls in context, Baker and O'Brien
projects total diesel fuel demand to be 3.3 million barrels per day in
this timeframe (slightly lower than our own projection summarized
above). Thus, these projected shortfalls total roughly 10-20 percent of
total diesel fuel demand, which if true, would be very significant.
We evaluated the Baker and O'Brien study and their findings. Baker
and O'Brien made very pessimistic assumptions regarding the likelihood
that refiners would invest in desulfurization capacity. Their judgment
that a refinery would close rather than invest also was apparently
based only on what they perceived to be excessively high
desulfurization costs. Baker and O'Brien presents no information
regarding the location of these refineries, the competition they face,
costs related to closing down, nor the profits that they would forego
by closing. Baker and O'Brien also makes no mention of EPA's special
provisions for refiners facing economic hardship, nor the small refiner
provisions.
We believe that it is not possible to project refinery closures
without considering these factors. This is supported by comments made
in response to our proposal of the 2007 highway diesel fuel program by
Mathpro and the National Economic Research Associates. While we are
aware of a couple of refineries that are being offered for sale and
whose plans for producing low sulfur fuels are uncertain, we have no
indications of as many as eight refineries closing in 2006 in response
to the highway fuel program. In addition, despite uncertainties at a
few refineries, refiners' pre-compliance reports for the highway fuel
program indicate that they are planning to produce a sufficient supply
of 15 and 500 ppm highway diesel fuel from 2006-2010. Therefore, there
is ample evidence that Baker and O'Brien's projections for the highway
diesel fuel program are overly pessimistic. It therefore appears likely
that their projection that the NRLM fuel program will cause an
additional refinery to close is also overly pessimistic. The reader is
referred to the RTC for a summary of these comments and our detailed
response to them.
In their comments, API also challenged our findings that refiners
would maintain sufficient supply under the proposed NRLM fuel program.
After a careful review of their comments and other information newly
available since the NPRM, we do not believe that the arguments
presented by API and NPRA justify changing our position that (1)
chemical processing losses during the desulfurization process will be
very small, (2) refiners will be unlikely to leave the NRLM fuel
market, and (3) refiners are unlikely to shut down due to this rule.
Regarding point 1, the distillate material lost during
desulfurization, our position is that the amount lost is small (two
percent), and most of it is lost in the form of naphtha which can be
blended into gasoline. Refiners can then adjust their mix of gasoline
and distillate production to compensate. API claimed that in the
winter, refiners were already at maximum distillate production and
could not shift any additional heavy gasoline material into the
distillate pool. API did not present any evidence that this is in fact
the case. The fact that some refiners actually crack distillate
material into gasoline makes it difficult to accept their position.
Regarding point 2, refiners leaving the NRLM fuel market,
we argued that the only high sulfur distillate market remaining after
2007 was heating oil. Heating oil demand is flat or declining over
time. We project that over 30 domestic refiners will still be able to
produce heating oil after 2007, while other refiners will be able to
produce sufficient quantities of NRLM fuel. If more refiners choose to
produce heating oil, this market will be oversupplied and prices will
drop significantly. Exporting high sulfur distillate is a possibility
for some refiners, but this entails both transport costs, as well as
relatively low prices overseas. Thus, a decision to not invest in NRLM
fuel desulfurization has to be compared to the losses involved with the
other options. API argued that some refiners face much higher
desulfurization costs than others and this would lead those refiners to
leave the NRLM fuel market. API did not estimate the losses that
refiners would entail when they left the market. Studies performed for
the highway fuel program indicate that these losses can be quite
significant and inappropriate conclusions can be drawn if they are
ignored. The highway program pre-compliance reports also indicate that
some highway fuel refiners are planning on leaving the highway fuel
market in 2006, while others will enter it for the first time.
Decisions to stay in or leave the NRLM fuel market are analogous. We
have no reason to believe refiners would approach this market any
differently than the highway market.
Regarding point 3, refineries shutting down, API again
pointed towards the high costs faced by some refineries and the fact
that a number of refineries have shut down over the past ten years.
There have been a number of refinery closures over the past decade,
though the trend has slowed considerably. API pointed towards two
specific refineries which identified EPA's gasoline and diesel fuel
sulfur controls as prime reasons for their shutting down. A closer look
at these situations showed that the future capital investment related
to the sulfur controls could have been a contributing factor. However,
these refineries faced many other challenges and the timing of their
closure (2000 and 2001, respectively) showed that the EPA rules were
not the direct cause. The refiner involved did not approach EPA
concerning any relief from the rules' requirements due to economic
hardship. Thus, the connection between their closure and our sulfur
controls appears even more tenuous.
Another example of a refinery closure unrelated to desulfurization
costs was Shell's recent decision to close their refinery in
Bakersfield, California. The reason was an insufficient supply of crude
oil being produced locally.
Analogous to a decision to leave the NRLM fuel market, shutting
down completely involves the total loss of any profit being made on the
production of other fuels. API presented no economic calculations or
projections showing that it would be in the best interest of any
refiner to shut down rather than invest in NRLM fuel desulfurization.
This leaves point 4, that refiners might shift NRLM fuel
blendstocks to other markets. This is really only an issue if the
blendstocks are shifted to a non-distillate market.\215\ The most
likely place that NRLM fuel blendstocks might be shifted is to the
residual fuel market. In particular, heavy (material with high
densities and high distillation temperatures) LCO and LCGO could be
shifted to residual fuel using existing refining equipment. The heavy
portions of these two blendstocks contain the greatest concentrations
of sulfur which is the most difficult to remove. Shifting this material
to residual fuel, which currently does not have a sulfur standard,
would reduce the size and cost of desulfurization equipment needed to
meet a 15 ppm cap. Or, it would increase the volume of 15 ppm NRLM fuel
which could be produced in an existing hydrotreater.
---------------------------------------------------------------------------
\215\ Shifting NRLM fuel blendstocks to heating oil is
essentially the same as leaving the NRLM market, which was discussed
under Point 2 above.
---------------------------------------------------------------------------
To evaluate this possibility, we estimated the cost of processing
LCO (the worse of the two blendstocks) into 15 ppm diesel fuel for each
domestic refinery. On average, desulfurizing LCO to 15 ppm sulfur cost
11.4 cents per
[[Page 39117]]
gallon. However, in some cases, this cost reached 15 cents per gallon.
The cost to process heavy LCO could be twice these amounts, since the
concentration of both total sulfur and the most difficult to remove
sulfur are concentrated in the heaviest molecules.
A review of historic fuel prices showed that residual fuel is
usually priced 25-30 cents per gallon less than diesel fuel. The
highest incremental desulfurization costs for heavy LCO could
potentially exceed this loss. Thus, a few refiners could find it
economical to shift a portion of their LCO to the residual fuel market.
The U.S. residual fuel market is small relative to the distillate fuel
market, flat, and already being fulfilled. Worldwide, the residual fuel
market is shrinking. Thus, it is unlikely that large volumes of LCO
could leave the NRLM fuel market. However, we cannot rule out the
possibility that some LCO, particularly that produced by capital-
strapped refiners, could be shifted to residual fuel. To estimate the
upper limit of this shift, we estimated the volume of heavy LCO
produced by refineries whose LCO processing costs exceeded 12 cents per
gallon and which were not owned by large, integrated oil companies or
small refiners. This costly, heavy LCO represents 0.4 percent of total
NRLM fuel demand, a very small volume. In this case, we would expect
that this loss could easily be made up by increased imports of 15 ppm
diesel fuel or domestic refiners facing lower 15 ppm NRLM fuel costs.
Overall, we expect that domestic refiners will continue to produce
sufficient supplies of NRLM fuel. The greatest potential for near term
loss will be due to the possibility that some refiners might decide to
limit their capital investment in desulfurization capacity by shifting
some heavy LCO to the residual fuel market.
Fuel-Only Control Programs: The potential supply impacts of a long-
term 500 ppm NRLM cap would necessarily be less than those of today's
final NRLM fuel program. In particular, desulfurizing ``difficult''
blendstocks, like LCO, to 500 ppm is not technically challenging and
does not have the potential to cost more than would be lost in shifting
LCO or heavy LCO to residual fuel. The capital investment to meet a 500
ppm cap is also half of that needed to meet a 15 ppm cap or less. Thus,
the likelihood that raising this capital would prove difficult is much
less. Given that we expect the final fuel program to have a very
minimal impact on supply, a 500 ppm NRLM cap would be negligible.
The potential impact of a long-term 15 ppm NRLM cap is the same as
that for today's final fuel program.
6. Fuel Prices
It is well known that it is difficult to predict fuel prices in
absolute terms with any accuracy. The price of crude oil dominates the
cost of producing gasoline and diesel fuel. Crude oil prices have
varied by more than a factor of two in the past two years. In addition,
unexpectedly warm or cold winters can significantly affect heating oil
consumption, which affects the amount of gasoline produced and the
amount of distillate material available for diesel fuel production.
Economic growth, or its lack, affects fuel demand, particularly for
diesel fuel. Finally, both planned and unplanned shutdowns of
refineries for maintenance and repairs can significantly affect total
fuel production, inventory levels and resulting fuel prices.
Predicting the impact of any individual factor on fuel price is
also difficult. The overall volatility in fuel prices limits the
ability to determine the effect of a factor which changed at a specific
point in time which might have led to the price change, as other
factors continue to change over time. Occasionally, a fuel quality
change, such as reformulated gasoline or a 500 ppm cap on diesel fuel
sulfur content, only affects a portion of the fuel pool. In this case,
an indication of the impact on price can be inferred by comparing the
prices of the two fuels at the same general location over time.
However, this is still only possible after the fact, and cannot be done
before the fuel quality change takes place.
Because of these difficulties, EPA has generally not attempted to
project the impact of its rules on fuel prices. However, in response to
Executive Order 13211, we are doing so here.\216\ To reflect the
inherent uncertainty in making such projections, we developed three
projections for the potential impact of the proposed fuel program on
fuel prices. The range of potential long-term price increases are shown
in table VI.A-8. (Due to their similarity, we have grouped the
potential price impacts for similar quality fuels in the 2010-2012 and
2012-2014 time periods.) Short-term price impacts are highly volatile,
as are short-term swings in absolute fuel prices, and much too
dependent on individual refiners' decisions, unexpected shutdowns, etc.
to be predicted even with broad ranges.
---------------------------------------------------------------------------
\216\ Executive Order 13211, ``Actions Concerning Regulations
That Significantly Affect Energy Supply, Distribution, or Use'' (66
FR 28355, May 22, 2001).
Table VI.A-8.--Range of Possible Total Diesel Fuel Price Increases
[Cents per gallon] \a\
----------------------------------------------------------------------------------------------------------------
Maximum Average total Maximum total
operating cost cost cost
----------------------------------------------------------------------------------------------------------------
500 ppm Sulfur Cap: Nonroad, Locomotive and Marine Diesel Fuel (2007-2010)
----------------------------------------------------------------------------------------------------------------
PADDs 1 and 3................................................... 2.9 1.8 4.5
PADD 2.......................................................... 3.0 2.5 3.8
PADD 4.......................................................... 3.7 3.5 6.1
PADD 5.......................................................... 1.2 1.5 1.5
-----------------------------------------------------------------
15 ppm Sulfur Cap: NRLM Fuel (2010-2014)
----------------------------------------------------------------------------------------------------------------
PADDs 1 and 3................................................... 5.6 5.7 9.4
PADD 2.......................................................... 7.3 7.4 10.8
PADD 4.......................................................... 7.9 12.6 13.6
PADD 5.......................................................... 4.5 5.1 5.2
-----------------------------------------------------------------
[[Page 39118]]
15 ppm Sulfur Cap: NRLM Fuel (fully implemented program: 2014 +)
----------------------------------------------------------------------------------------------------------------
PADDs 1 and 3................................................... 7.7 6.3 9.8
PADD 2.......................................................... 7.7 7.9 11.2
PADD 4.......................................................... 8.3 13.0 13.9
PADD 5.......................................................... 5.1 6.9 7.3
----------------------------------------------------------------------------------------------------------------
Notes: \a\ At the current wholesale price of approximately $1.00 per gallon, these values also represent the
percentage increase in diesel fuel price.
The lower end of the range assumes that prices within a PADD
increased to reflect the highest operating cost increase faced by any
refiner in that PADD (please see the Final RIA for details on this
methodology). This refiner with the highest operating cost will not
recover any of his invested capital, but all other refiners will
recover some or all of their investment. In this case, the price of
NRLM fuel will increase in 2007 by 1-3 cents per gallon, depending on
the area of the country. In 2010, the price of 15 ppm NRLM fuel will
increase a total of 3-7 cents per gallon. In 2014, under this pricing
scenario, 15 ppm NRLM fuel prices will increase slightly, to 4-7 cents
per gallon. The increase in 2014 is due to the expiration of the small
refiner provisions, as well as the fact that 500 ppm fuel created in
the distribution system can no longer be sold to the land-based nonroad
market.
The mid-range estimate of price impacts assumes that prices within
a PADD increase by the average refining and distribution cost within
that PADD, including full recovery of capital (at seven percent per
annum before taxes). Lower cost refiners will recover more than their
capital investment, while those with higher than average costs recover
less. Under this assumption, the price of NRLM fuel will increase in
2007 by 1-3 cents per gallon, depending on the area of the country. In
2010, the price of 15 ppm NRLM fuel will increase a total of 4-11 cents
per gallon. In 2014, under this pricing scenario, 15 ppm NRLM fuel
prices will increase slightly, to 5-11 cents per gallon.
The upper end estimate of price impacts assumes that prices within
a PADD increase by the maximum total refining and distribution cost of
any refinery within that PADD, including full recovery of capital (at
seven percent per annum before taxes). All other refiners will recover
more than their capital investment. Under this assumption, the price of
NRLM fuel will increase in 2007 by 1-4 cents per gallon, depending on
the area of the country. In 2010, the price of 15 ppm NRLM fuel will
increase a total of 4-13 cents per gallon. In 2014, under this pricing
scenario, 15 ppm NRLM fuel prices will increase further to 6-13 cents
per gallon. All these potential price impacts for 500 and 15 ppm fuel,
relative to those projected in the NPRM, reflect the differences in
cost estimates discussed above.
There are a number of assumptions inherent in all three of the
above price projections. First, both the lower and upper limits of the
projected price impacts described above assume that the refinery facing
the highest compliance costs is currently the price setter in their
market. This is a worse case assumption which is impossible to
validate. Many factors affect a refinery's total costs of fuel
production. Most of these factors, such as crude oil cost, labor costs,
age of equipment, etc., are not considered in projecting the
incremental costs associated with lower NRLM diesel fuel sulfur levels.
Thus, current prices may very well be set in any specific market by a
refinery facing lower incremental compliance costs than other
refineries. This point was highlighted in a study by the National
Economic Research Associates (NERA) for AAM of the potential price
impacts of EPA's 2007 highway diesel fuel program.\217\ In that study,
NERA criticized the above referenced study performed by Charles River
Associates, et al. for API, which projected that prices will increase
nationwide to reflect the total cost faced by the U.S. refinery with
the maximum total compliance cost of all the refineries in the U.S.
producing highway diesel fuel. To reflect the potential that the
refinery with the highest projected compliance costs under the maximum
price scenario is not the current price setter, we included the mid-
point price impacts above. It is possible that even the lower limit
price impacts are too high, if the conditions exist where prices are
set based on operating costs alone. However, these price impacts are
sufficiently low that considering even lower price impacts was not
considered critical to estimating the potential economic impact of this
rule.
---------------------------------------------------------------------------
\217\ ``Potential Impacts of Environmental Regulations on Diesel
Fuel Prices,'' NERA, for AAM, December 2000.
---------------------------------------------------------------------------
Second, we assumed in some cases that a single refinery's costs
could affect fuel prices throughout an entire PADD. While this is a
definite improvement over analyses which assume that a single
refinery's costs could affect fuel prices throughout the entire nation,
it is still conservative. High cost refineries are more likely to have
a more limited geographical impact on market pricing than an entire
PADD. In many cases, high cost refiners continue to operate simply
because they are in a niche location where transportation costs limit
competition.
Third, by focusing solely on the cost of desulfurizing NRLM diesel
fuel, we assume that the production of NRLM diesel fuel is independent
of the production of other refining products, such as gasoline, jet
fuel and highway diesel fuel. However, this is clearly not the case.
Refiners have some flexibility to increase the production of one
product without significantly affecting the others, but this
flexibility is quite limited. It is possible that the relative
economics of producing other products could influence a refiner's
decision to increase or decrease the production of NRLM diesel fuel
under today's fuel program. It is this price response that causes fuel
supply to match fuel demand. And, this response in turn could increase
or decrease the price impact relative to those projected above.
Fourth, all three of the above price projections are based on the
projected cost for U.S. refineries of meeting the NRLM fuel sulfur
caps. Thus, these price projections assume that imports of NRLM fuel,
which are currently significant in the Northeast, are available at
roughly the same cost as those for U.S. refineries in PADDs 1 and
[[Page 39119]]
3. We have not performed any analysis of the cost of lower sulfur caps
on diesel fuel produced by foreign refiners. However, there are reasons
to believe that imports of 500 and 15 ppm NRLM diesel fuel will be
available at prices in the ranges of those projected for U.S. refiners.
One recent study analyzed the relative cost of lower sulfur caps
for Asian refiners relative to those in the U.S., Europe and
Japan.\218\ It concluded that costs for Asian refiners will be
comparatively higher, due to the lack of current hydrotreating capacity
at Asian refineries. This conclusion is certainly valid when evaluating
lower sulfur levels for highway diesel fuels which are already at low
levels in the U.S., Europe and Japan and for which refineries in these
areas have already invested in hydrotreating capacity. It appears to be
less valid when assessing the relative cost of meeting lower sulfur
standards for NRLM fuels and heating oils which are currently at much
higher sulfur levels in the U.S., Europe and Japan. All refineries face
additional investments to remove sulfur from these fuels and so face
roughly comparable control costs on a per gallon basis.
---------------------------------------------------------------------------
\218\ ``Cost of Diesel Fuel Desulfurization In Asian
Refineries,'' Estrada International Ltd., for the Asian Development
Bank, December 17, 2002.
---------------------------------------------------------------------------
One factor arguing for competitively priced imports is the fact
that refinery utilization rates are currently higher in the U.S. and
Europe than in the rest of the world. The primary issue is whether
overseas refiners will invest to meet tight sulfur standards for U.S.,
European and Japanese markets. Many overseas refiners will not invest,
instead focusing on local, higher sulfur markets. However, many
overseas refiners focus on exports. Both Europe and the U.S. are moving
towards highway and nonroad diesel fuel sulfur caps in the 10-15 ppm
range. Europe is currently and projected to continue to need to import
large volumes of highway diesel fuel. Thus, it seems reasonable to
expect that a number of overseas refiners will invest in the capacity
to produce some or all of their diesel fuel at these levels. Many
overseas refiners also have the flexibility to produce 10-15 ppm diesel
fuel from their cleanest blendstocks, as most of their available
markets have less stringent sulfur standards. Thus, there are reasons
to believe that some capacity to produce 10-15 ppm diesel fuel will be
available overseas at competitive prices. If these refineries were
operating well below capacity, they might be willing to supply
complying product at prices which only reflect incremental operating
costs. This could hold prices down in areas where importing fuel is
economical. However, it is unlikely that these refiners could supply
sufficient volumes to hold prices down nationwide. Despite this
expectation, to be conservative, in the refining cost analysis
conducted earlier in this chapter, we assumed no imports of 500 ppm or
15 ppm NRLM diesel fuel. All 500 ppm and 15 ppm NRLM fuel was produced
by domestic refineries. This raised the average and maximum costs of
500 ppm and 15 ppm NRLM diesel fuel and increased the potential price
impacts projected above beyond what would have been projected had we
projected that 5-10 percent of NRLM diesel fuel will be imported at
competitive prices.
Fuel-Only Control Programs: We used the same methodology to
estimate the potential price impacts for stand-alone 500 ppm and 15 ppm
NRLM fuel programs. The potential price impacts of long-term 500 ppm
and 15 ppm NRLM caps would be the same as those shown in table VI.A-8
above for the 500 ppm NRLM cap in 2007 and for the 15 ppm NRLM cap in
2014 and beyond, respectively.
B. Cost Savings to the Existing Fleet From the Use of Low Sulfur Fuel
We estimate that reducing fuel sulfur to 500 ppm would reduce
engine wear and oil degradation to the existing nonroad diesel
equipment fleet and that a further reduction to 15 ppm sulfur would
result in even greater reductions. This reduction in wear and oil
degradation would provide a dollar savings to users of nonroad
equipment. The cost savings would also be realized by the owners of
future nonroad engines that are subject to the standards in this
proposal. As discussed below, these maintenance savings have been
conservatively estimated to be greater than 3 cents per gallon for the
use of 15 ppm sulfur fuel when compared to the use of today's
unregulated nonroad diesel fuel. A summary of the range of benefits
from the use of low-sulfur fuel is presented in Table VI.B-1.\219\
Table VI.B-1.--Engine Components Potentially Affected by Lower Sulfur
Levels in Diesel Fuela
------------------------------------------------------------------------
Effect of lower Potential impact
Affected components sulfur on engine system
------------------------------------------------------------------------
Piston Rings.................... Reduced corrosion Extended engine
wear. life and less
frequent
rebuilds.
Cylinder Liners................. Reduced corrosion Extended engine
wear. life and less
frequent
rebuilds.
Oil Quality..................... Reduced deposits, Reduce wear on
reduced acid piston ring and
build-up, and cylinder liner
less need for and less frequent
alkaline oil changes.
additives.
Exhaust System (tailpipe)....... Reduced corrosion Less frequent part
wear. replacement.
Exhaust Gas Recirculation System Reduced corrosion Less frequent part
wear. replacement
------------------------------------------------------------------------
Notes: \a\ The degree to which all of these benefits may occur for any
specific engine will vary. For example, the impact of high sulfur fuel
on piston rings, cylinder liners and oil quality are somewhat
interdependent. To the extent an end-user lengthens the oil drain
interval, the benefit of the low sulfur fuel on piston ring and
cylinder liner wear will be lessened (though not eliminated). For
users who do not alter oil drain intervals, the benefit of low sulfur
fuel on extending piston ring and cylinder liner wear will be greater.
The benefit of low sulfur fuel on reducing exhaust system and EGR
system corrosion are independent of oil drain intervals.
The monetary value of these benefits over the life of the equipment
will depend upon the length of time that the equipment operates on low-
sulfur diesel fuel and the degree to which engine and equipment
manufacturers specify new maintenance practices and the degree to which
equipment operators change engine maintenance patterns to take
advantage of these benefits. For equipment near the end of its life in
the 2008 time frame, the benefits will be quite small. However, for
equipment produced in the years immediately preceding the introduction
of 500 ppm sulfur fuel, the savings would be substantial. Additional
savings would
[[Page 39120]]
be realized in 2010 when the 15 ppm sulfur fuel would be introduced.
---------------------------------------------------------------------------
\219\ See Heavy-duty 2007 Highway Final RIA, Chapter V.C.5, and
``Study of the Effects of Reduced Diesel Fuel Sulfur Content on
Engine Wear,'' EPA report 460/3-87-002, June 1987.
---------------------------------------------------------------------------
We estimate the single largest savings would be the impact of lower
sulfur fuel on oil change intervals. The RIA presents our analysis for
the oil change interval extension which would be realized by the
introduction of 500 ppm sulfur fuel in 2007, as well as the additional
oil extension which would be realized with the introduction of 15 ppm
sulfur nonroad diesel fuel in 2010. As explained in the RIA, these
estimates are based on our analysis of publically available information
from nonroad engine manufacturers. Due to the wide range of diesel fuel
sulfur which today's nonroad engines may see around the world, engine
manufacturers specify different oil change intervals as a function of
diesel sulfur levels. We have used this data as the basis for our
analysis. Taken together, when compared to today's relatively high
nonroad diesel fuel sulfur levels, we estimate the use of 15 ppm sulfur
fuel will enable an oil change interval extension of 35 percent from
today's products.
We received comments on our estimated maintenance savings primarily
from a number of end-user groups (e.g., equipment dealers, equipment
rental organizations, farming organizations). Several commenters
believed our estimates were too high, and one commenter believed the
estimate was too low. However, all of the commenters who believed our
cost savings estimates were too high provided no data to support their
comments, beyond unsubstantiated opinions, nor did they comment on
EPA's substantial related technical analysis.
The commenter who suggested the estimates were too low provided an
example cost estimate for existing oil change intervals which, if used
in our analysis, would have resulted in an estimated cost savings 4
times EPA's estimate. We have not changed our estimate based on the
comments we received.
We present here a fuel operating cost savings attributed to the oil
change interval extension in terms of a cents per gallon operating
cost. We estimate that an oil change interval extension of 31 percent,
as would be enabled by the use of 500 ppm sulfur fuel in 2007, results
in a fuel operating costs savings of 2.9 cents per gallon for the
nonroad fleet. We estimate an additional cost savings of 0.3 cents per
gallon for the oil change interval extension which would be enabled by
the use of 15 ppm sulfur beginning in 2010. Thus, for the nonroad fleet
as a whole, beginning in 2010 nonroad equipment users can realize an
operating cost savings of 3.2 cents per gallon compared to today's
engine. This means that the end cost to the typical user for 15 ppm
sulfur fuel is approximately 3.8 cents per gallon (7.0 cent per gallon
cost for fuel minus 3.2 cent per gallon maintenance savings). For a
typical 100 horsepower nonroad engine this represents a net present
value lifetime savings, excluding the higher fuel costs, of more than
$500.
These savings will occur without additional new cost to the
equipment owner beyond the incremental cost of the low-sulfur diesel
fuel, although these savings are dependent on changes to existing
maintenance schedules. Such changes seem likely given the magnitude of
the savings. There are many mechanisms by which end-users could become
aware of the opportunity to extend oil drain intervals. First, it is
typical practice for engine and equipment manufacturers to issue
service bulletins regarding lubrication and fueling guidance for end-
users.\220\ Manufacturers provide these service bulletins to equipment
dealerships and large equipment customers (such as rental companies).
In addition, the equipment and end-user industries have a number of
annual conferences which are used to share information, including
information regarding appropriate engine and equipment maintenance
practices. The end-user conferences are also designed to help specific
industries and business reduce operating costs and maximize profits,
which would include information on equipment maintenance practices.
There are trade journals and publications which provide information and
advice to their users regarding proper equipment maintenance. Finally,
some nonroad users perform routine oil sample analysis in order to
determine appropriate oil drain intervals, and in some cases to monitor
overall engine wear rates in order to determine engine rebuild
needs.\221\ We have not estimated the value of the savings from all of
the benefits listed in table VI.B-1, and therefore we believe the 3.2
cents per gallon savings is conservative as it only accounts for the
impact of low sulfur fuel on oil change intervals. While some of these
benefits are impacted by changes in oil change interval, a number are
independent and not included in our cost savings estimate.
---------------------------------------------------------------------------
\220\ For example, Appendix A of EPA Memorandum ``Estimate of
the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad
Diesel Equipment'' contains a service bulletin from a nonroad diesel
engine manufacturer. Copy of memo available in EPA Air Docket A-
2001-28, item II-A-194.
\221\ For example, Appendix C of EPA Memorandum ``Estimate of
the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad
Diesel Equipment'', which indicates Caterpillar recommends owners
use Scheduled Oil Sampling analysis as the best means for users to
determine appropriate oil change intervals. Copy of memo available
in EPA Air Docket A-2001-28, item II-A-194.
---------------------------------------------------------------------------
C. Engine and Equipment Cost Impacts
The following sections briefly discuss the various engine and
equipment cost elements considered for this final rule and present the
total costs we have estimated. The reader is referred to the RIA for a
complete discussion. Estimated engine and equipment costs depend
largely on both the size of the piece of equipment and its engine, and
on the technology package being added to the engine to ensure
compliance with the new Tier 4 standards. The wide size variation
(e.g., engines under 4 horsepower through engines above 2500
horsepower) and the broad application variation (e.g., lawn equipment
through large mining trucks) that exists in the nonroad industry makes
it difficult to present here an estimated cost for every possible
engine and/or piece of equipment. Nonetheless, for illustrative
purposes, we present some examples of engine and equipment cost impacts
throughout this discussion. Note that the costs presented here are for
those nonroad engines and equipment that are mobile nonroad equipment
and are, therefore, subject to nonroad engine standards. These costs
would not apply for that equipment that is stationary--some portion of
some equipment segments such as generator sets, pumps, compressors--and
not subject to nonroad engine standards. The analysis summarized here
is presented in detail in chapter 6 of the RIA.
Note that the costs presented here do not reflect any savings that
are expected to occur because of the engine ABT program and/or the
equipment manufacturer transition program, which are discussed in
sections III.A and B. These optional programs have the potential to
provide significant savings for both engine and equipment
manufacturers. As a result, we consider our cost estimates to be
conservative, in the sense that they likely overstate total engine and
equipment costs.
In general, the final engine and equipment cost analysis is the
same as that done for our proposal. We have made the following changes:
In response to a comment, we have increased our engine
research and development (R&D) costs. In the proposal, we estimated the
R&D expenditure that each engine manufacturer would make to comply with
the Tier 4 standards. In response
[[Page 39121]]
to the comment, we have refined that analysis and increased our
estimate of engine R&D by roughly 50 percent. We did not receive any
other comments with respect to our estimates for engine R&D.
Because the final standards for engines above 750
horsepower have changed from the proposed standards, we have made
changes to the engine R&D expenditures attributed to those engines. For
costing purposes, the NOX portion of the engine R&D
expenditures are no longer shared by engines above 750 horsepower. This
increases NOX R&D attributed to other engines because a
significant portion of engine R&D costs are costs shared across a wide
range of products. We have also reduced the engine variable costs for
engines above 750 horsepower since we are no longer projecting that
NOX adsorbers will be added to them.\222\ This has no impact
on the engine variable costs for other engines. We have also reduced
the equipment redesign costs for engines above 750 horsepower since
less redesign effort is projected to accommodate only a catalyzed
diesel particulate filter (CDPF). This has no impact on the redesign
costs of other equipment. Lastly, we have decreased the equipment
variable costs for engines above 750 horsepower for the same reason as
was done for engine variable costs.
---------------------------------------------------------------------------
\222\ In order to avoid inconsistencies in the way our emission
reductions, and cost-effectiveness estimates are calculated, our
cost methodology for engines and equipment relies on the same
projections of new nonroad engine growth as those used in our
emissions inventory projections. Our NONROAD emission inventory
model includes estimates of future engine populations that are
consistent with the future engine sales used in our cost estimates.
The NONROAD model inputs include an estimate of what percentage of
generator sets sold in the U.S. are ``mobile'' and, thus, subject to
the nonroad standards, and what percentage are ``stationary'' and
not subject to the nonroad standards. These percentages vary by
power category and are documented in ``Nonroad Engine Population
Estimates,'' EPA Report 420-P-02-004, December 2002. For generator
sets above 750 horsepower, NONROAD assumes 100 percent are
stationary and, therefore, not subject to the new nonroad standards.
For generator sets under 750 horsepower, we have assumed other
percentages of mobile versus stationary. During our discussions with
engine manufacturers after the proposal, it became apparent not only
that our estimate for generator sets above 750 horsepower may not be
correct and many are indeed mobile, but also that some of our
estimates for generator sets above 750 horsepower may also not be
correct and many more than we estimate may indeed be mobile. If
true, this increased percentage of mobile generator sets will be
subject to the new nonroad standards. Unfortunately, we have not
received sufficient data to make a conclusive change to the NONROAD
model to include the potentially increased percentages of mobile
generator sets and, therefore, for the above described purpose of
maintaining consistency, we have not included their costs or their
emissions reductions in our official estimates for this final rule
(costs and emissions reductions for the current percentages in the
NONROAD model are included in our estimates for the final rule).
Instead, we present a sensitivity analysis in Chapter 8 of the RIA
that includes both an estimate of the costs and emissions reductions
that would result from including a higher percentage of generator
sets as mobile equipment and subject to the new standards.
---------------------------------------------------------------------------
We have changed the engine operating costs for engines
above 750 horsepower to reflect a different fuel economy impact than
was associated with the proposed standards and to reflect the new
timing for adding the CDPF and therefore incurring the maintenance
costs associated with it.
We have included costs for additional cooling on engines
adding cooled EGR systems (engines of 25 to 50 horsepower and greater
than 750 horsepower). These costs include the larger radiator and/or
engine cooling fan that may be required on engines expected to add
cooled EGR to meet the new standards. In the proposal, we had estimated
the costs for the EGR system but not the costs for additional cooling.
We have expressed all costs in 2002 dollars for the final
rule rather than the proposal's use of 2001 dollars.
We received comments on other aspects of the proposed engine and
equipment cost analysis that are not reflected in the final analysis.
Some of the comments were:
Some commenters claimed that we had underestimated costs
for engines under 75 horsepower, and in the 75 to 100 horsepower range.
For the engines under 75 horsepower, one commenter suggested the costs
were higher than EPA estimated. Please see section 5.4.1 of the Summary
and Analysis of Comments for a detailed discussion of the comments and
our response. In the 75 to 100 horsepower range, one commenter
suggested that we were incorrect in our assumption that those engines
would have electronic fuel systems in the NRT4 baseline case,
maintaining the electronic fuel systems would have to be added to these
engines to comply with the Tier 4 standards and, therefore, are a cost
of the Tier 4 rule. From this premise, the commenter argued that the
costs for 75 to 100 horsepower engines will be disproportionately high.
We disagree. In the proposal, we estimated that by 2012, engines in
this power range would already have electronic fuel injection systems.
This estimate was based on our engineering assessment of what
technologies would be required to comply with the Tier 2 and Tier 3
emission standards, as well as technical discussions we had with engine
manufacturers regarding future product plans. Therefore, the costs of
these electronic fuel injection systems are not attributable to the
Tier 4 rule. Our assessment at proposal is consistent with our
projections in the Tier 2/3 rulemaking where we estimated costs for
electronic fuel injection systems as a cost of complying with those
standards. In the preamble to the proposed Tier 4 rule, we presented
estimates of the penetration of various engine technologies into
several power ranges, including 75 to 100 horsepower, based on engine
manufacturers' 2001 model year certification data. See 68 FR 28386, May
23, 2003. Since then, model year certification data for 2004 are
available, and these data substantiate our earlier prediction. These
model year 2004 data represent implementation of the Tier 2 standards
so these data illustrate the technologies engine manufacturers are
using to comply with those standards. These data show that nearly 20
percent of the engines that will be produced in this power range will
have electronically controlled fuel systems, while the model year 2001
data show no engines in this power range had electronic fuel systems.
This dramatic increase in electronics as a result of the Tier 2
standards, let alone the Tier 3 standards, gives us confidence that our
projections regarding 2012 are reasonable. Section 4.1.4 of the RIA
contains a detailed discussion of this information; see also the
discussions in sections II.B.4.b.i and II.B.5 above. Thus, we continue
to believe that we have properly attributed costs of electronic fuel
systems to the Tier 3 rule, or, put another way, that the cost of an
electronic fuel system is not a cost attributable to this Tier 4 rule
for engines in the 75 to 100 horsepower category. Since the cost of
electronic fuel systems is the essential difference in the costs we
attribute to the Tier 4 rule for these engines versus the costs the
commenter would attribute, we therefore disagree with the comment and
believe our estimates to be reasonable. See also section II.A.5 above.
One commenter took exception to our method of amortizing
fixed costs over a period of years following implementation of the new
standards. The commenter suggested that we used such a method to imply
to the regulated industries that they would not only recover their
investments but would also make a gain on those investments. This is
not the case. We use this method of amortization, briefly described
here and more fully in the RIA, only to reflect the time value of money
so that we can get a more accurate estimate of the cost to the
companies.
The Summary and Analysis of Comments document contains the
[[Page 39122]]
details of all comments and our responses.
1. Engine Cost Impacts
Estimated engine costs are broken into fixed costs (for research
and development, retooling, and certification), variable costs (for new
hardware and assembly time), and life-cycle operating costs. Total
operating costs include the estimated incremental cost for low-sulfur
diesel fuel, any expected increases in maintenance costs associated
with new emission control devices, any costs associated with increased
fuel consumption, and any decreases in operating cost (i.e.,
maintenance savings) expected due to low-sulfur fuel. Cost estimates
presented here represent an expected incremental cost of engines in the
model year of their introduction. Costs in subsequent years will be
reduced by several factors, as described below. All engine and
equipment costs are presented in 2002 dollars since producer price
indexes for 2003 were not available in time for use in this analysis.
a. Engine Fixed Costs
i. Engine and Emission Control Device R&D
The technologies described in Section II represent those
technologies we believe will be used to comply with the Tier 4 emission
standards. For many manufacturers, these technologies are part of an
ongoing research and development effort geared toward compliance with
the 2007 heavy-duty diesel highway emission standards. The engine
manufacturers making R&D expenditures toward compliance with highway
emission standards will have to undergo some additional R&D effort to
transfer emission control technologies to engines they wish to sell
into the nonroad market. These R&D efforts will allow engine
manufacturers to develop and optimize these new technologies for
maximum emission-control effectiveness with minimum negative impacts on
engine performance, durability, and fuel consumption.
Many nonroad engine manufacturers are not part of the ongoing R&D
effort toward compliance with highway emissions standards because they
do not sell engines into the highway market. Nonetheless, these
manufacturers are expected to benefit from the R&D work that has
already occurred and will continue through the coming years through
their contact with highway manufacturers, emission control device
manufacturers, and the independent engine research laboratories
conducting relevant R&D.
We project the use of several technologies for complying with the
Tier 4 emission standards. We are projecting that NOX
adsorbers and catalyzed diesel particulate filters (CDPFs) will be the
most likely technologies applied by industry to meet our new emissions
standards for engines above 75 horsepower. The fact that these
technologies are being developed for implementation in the highway
market before the Tier 4 implementation dates, and the fact that engine
manufacturers will have several years before implementation of the Tier
4 standards, ensures that the technologies used to comply with the
nonroad standards will undergo significant development before reaching
production. This ongoing development could lead to reduced costs in
three ways. First, we expect research will lead to enhanced
effectiveness for individual technologies, allowing manufacturers to
use simpler packages of emission control technologies than we would
predict given the current state of development. Similarly, we
anticipate that the continuing effort to improve the emission control
technologies will include innovations that allow lower-cost production.
Finally, we believe that manufacturers will focus research efforts on
any drawbacks, such as fuel economy impacts or maintenance costs, in an
effort to minimize or overcome any potential negative effects.
We anticipate that, in order to meet the Tier 4 standards, industry
will introduce a combination of primary technology upgrades. Achieving
very low NOX emissions will require basic research on
NOX exhaust emission control technologies and improvements
in engine management to take advantage of the new exhaust emission
control system capabilities. The manufacturers are expected to address
the challenge by optimizing the engine and new exhaust emission control
system to realize the best overall performance. This will entail
optimizing the engine and emission control system for both emissions
and fuel economy performance in light of the presence of the new
exhaust emission control devices and their ability to control
pollutants previously controlled only via in-cylinder means or with
exhaust gas recirculation. Since most research to date with exhaust
emission control technologies for nonroad applications has focused on
retrofit programs which typically add an exhaust emission control
device without making engine control changes, there remains room for
significant improvements by taking such a systems approach. The
NOX adsorber technology in particular is expected to benefit
from re-optimization of the engine management system to better match
the NOX adsorber's performance characteristics. The majority
of the dollars we have estimated for research is expected to be spent
on developing this synergy between the engine and NOX
exhaust emission control systems. Therefore, for engines where we
project use of both a CDPF and a NOX adsorber (i.e., 75 to
750 horsepower), we have attributed two-thirds of the R&D expenditures
to NOX control, and one-third to PM control.
As we mentioned earlier, we have further refined our estimate of
engine R&D costs since our proposal. We have taken these R&D costs and
have broken them into two components. The first of these components
estimates the corporate R&D applicable across all engine lines. The
second of these estimates the engine line by engine line R&D cost. The
estimates of line by line R&D correlate to power range--$1 million for
under 75 horsepower engine lines, $3 million for 75 to 750 horsepower
engine lines, and $6 million for above 750 horsepower engine lines. We
estimated these expenditures based on the confidential information
provided by the commenter and our analysis of that information. The end
result is consistent with the commenter's suggested expenditure levels.
We have applied these engine-line R&D estimates only where CDPFs and/or
CDPF/NOX adsorber systems are expected to be implemented
(i.e., this R&D is not applied for the under 75 horsepower engines in
2008 because the R&D already estimated for complying with those
standards should not require the same effort to tailor it to each
engine). We have also applied these estimates only for those engines
without a highway counterpart (note that only 16 of a total 133 nonroad
engine lines had a highway counterpart).
In the 2007 HD highway rule, we estimated that each engine
manufacturer would expend $36.1 million for R&D to redesign their
engines and apply catalyzed diesel particulate filters (CDPF) and
NOX adsorbers.\223\ For their nonroad R&D efforts on engines
where we project that compliance will require CDPFs and NOX
adsorbers (i.e., 75 to 750 horsepower) and on greater than 750
horsepower engines requiring a CDPF, engine manufacturers that also
sell into the highway market will incur some level of R&D effort but
not at the
[[Page 39123]]
level incurred for the highway rule. In many cases, the engines used by
highway manufacturers in nonroad products are based on the same engine
platform as those used in highway products. However, horsepower and
torque characteristics are often different so some effort will have to
be expended to accommodate those differences. For these manufacturers,
we have estimated that they will incur an average R&D expense of $3.6
million \224\ not including the nonroad engine line R&D noted above.
This $3.6 million R&D expense will allow for the transfer of R&D
knowledge from their highway experience to their nonroad engine product
line. For the reasons stated above, two-thirds of this R&D is
attributed to NOX control and one-third to PM control for 75
to 750 horsepower engines; for engines above 750 horsepower, all of
this R&D is attributed to PM control.
---------------------------------------------------------------------------
\223\ In the 2007 rule, we estimated a value of $35 million in
1999 dollars. Here we have adjusted that value to express it in 2002
dollars.
\224\ In the proposal, we estimated a value of $3.5 million in
1999 dollars. Here we have adjusted that value to express it in 2002
dollars.
---------------------------------------------------------------------------
For those manufacturers that sell larger engines only into the
nonroad market, and where we project those engines will add a CDPF and
a NOX adsorber (75 to 750 horsepower) or a CDPF-only (above
750 horsepower), we believe that they will incur an R&D expense nearing
that incurred by highway manufacturers for the highway rule although
not quite at the same level. Nonroad manufacturers will be able to
learn from the R&D efforts already underway for both the highway rule
and for the Tier 2 light-duty highway rule (65 FR 6698, February 10,
2000). This learning could be done via seminars, conferences, and
contact with highway manufacturers, emission control device
manufacturers, and the independent engine research laboratories
conducting relevant R&D. Therefore, for these manufacturers, we have
estimated an average expenditure of $25.3 million \225\ not including
the nonroad engine line R&D noted above. This lower number--$25.3
million versus $36.1 million in the highway rule--reflects the transfer
of knowledge to nonroad manufacturers that will occur from the many
stakeholders in the diesel industry. Two-thirds of this R&D is
attributed to NOX control and one-third to PM control.
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\225\ In the proposal, we estimated a value of $24.5 million in
1999 dollars. Here we have adjusted that value to express it in 2002
dollars.
---------------------------------------------------------------------------
Note that the $3.6 million and $25.3 million estimates represent
our estimate of the average R&D expected by manufacturers to gain
knowledge about the anticipated emission control devices. These
estimates will be different for each manufacturer--some higher, some
lower--depending on product mix and the number of engine lines in their
product line.
For those engine manufacturers selling smaller engines that we
project will add a CDPF-only (i.e., 25 to 75 horsepower engines in
2013), we have estimated that the average R&D they will incur will be
roughly one-third that incurred by manufacturers conducting CDPF/
NOX adsorber R&D. We believe this is a good estimate because
CDPF technology is further along in its development than is
NOX adsorber technology and, therefore, a 50/50 split is not
appropriate. Using this estimate, the R&D incurred by manufacturers
that already have been selling any engines into both the highway and
the nonroad markets will be $1.2 million not including their nonroad
engine line R&D, and the R&D for manufacturers selling engines into
only the nonroad market will be roughly $8.3 million \226\ not
including their nonroad engine line R&D. All of this R&D is attributed
to PM control.
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\226\ In the proposal, we estimated values of $1.2 million and
$8 million in 1999 dollars. Here we have adjusted those values to
express them in 2002 dollars.
---------------------------------------------------------------------------
For those engine manufacturers selling engines that we project will
add only a DOC or make some engine-out modifications (i.e., engines
under 75 horsepower in 2008), we have estimated that the average R&D
they will incur will be roughly one-half the amount estimated for their
CDPF-only R&D. Using this estimate, the R&D incurred by manufacturers
selling any engines into both the highway and nonroad markets will be
roughly $600,000, and the R&D for manufacturers selling engines into
only the nonroad market will be roughly $4.2 million.\227\ All of this
R&D is attributed to PM control.
---------------------------------------------------------------------------
\227\ In the proposal, we estimated values of $600,000 and $4
million in 1999 dollars. Here we have adjusted those values to
express them in 2002 dollars.
---------------------------------------------------------------------------
We have assumed that all R&D expenditures occur over a five year
span preceding the first year any emission control device is introduced
into the market. There is one exception to this assumption in that the
expenditures for DOC-only R&D are assumed to occur over the four year
span between the final rule and the 2008 standards. Where a phase-in
exists (e.g., for NOX standards on 75 to 750 horsepower
engines), expenditures are assumed to occur over the five year span
preceding the first year NOX adsorbers will be introduced,
and then to continue during the phase-in years. The expenditures will
be incurred in a manner consistent with the phase-in of the standard.
All R&D expenditures are then recovered by the engine manufacturer over
an identical time span following the introduction of the technology,
with the exception that expenditures for DOC-only R&D are recovered
over a five year span rather than a four year span. We assume an
opportunity cost of capital of seven percent for all R&D. We have
apportioned these R&D costs across all engines that are expected to use
these technologies, including those sold in other countries or regions
that are expected to have similar standards. We have estimated the
fraction of the U.S. sales to this total sales at 42 percent.
Therefore, we have attributed this amount to U.S. sales. Note that all
engine R&D costs for engines under 25 horsepower have been attributed
to U.S. sales since other countries are not expected to have similar
standards on these engines.
Using this methodology, we have estimated the total R&D
expenditures attributable to the new standards at $323 million with
$206 million spent on corporate R&D and $118 million spent on engine
line R&D. For comparison, our proposal estimated $199 million for basic
R&D and none for engine line R&D. The amount for corporate R&D is
higher here solely due to the change to 2002 dollars.
ii. Engine-Related Tooling Costs
Once engines are ready for production, new tooling will be required
to accommodate the assembly of the new engines. We have indicated below
where our tooling cost estimates have changed from the proposal. In the
2007 highway rule, we estimated approximately $1.65 million per engine
line for tooling costs associated with CDPF/NOX adsorber
systems.\228\ For the nonroad Tier 4 standards, we have estimated that
nonroad-only manufacturers will incur the same $1.65 million per engine
line requiring a CDPF/NOX adsorber system and that these
costs will be split evenly between NOX control and PM
control. For those systems requiring only a CDPF, we have estimated
one-half that amount, or $825,000 per engine line. For those systems
requiring only a DOC or some engine-out modifications, we have applied
a one-half factor again, or $412,500 per engine line. Tooling costs for
CDPF-only and for DOC engines are attributed solely to PM control. None
of these estimates have changed since our proposal, with the exception
of being
[[Page 39124]]
expressed in 2002 dollars. We received no comments on our tooling cost
estimates.
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\228\ In the 2007 rule, we estimated a value of $1.6 million in
1999 dollars. Here we have adjusted that value to express it in 2002
dollars.
---------------------------------------------------------------------------
For those manufacturers selling into both the highway and nonroad
markets, we have estimated one-half the baseline tooling cost, or
$825,000, for those engine lines requiring a CDPF/NOX
adsorber system. We believe this is reasonable since many nonroad
engines are produced on the same engine line with their highway
counterparts. For such lines, we believe very little to no tooling
costs will be incurred. For engine lines without a highway counterpart,
something approaching the $1.65 million tooling cost is applicable. For
this analysis, we have assumed a 50/50 split of engine product lines
for highway manufacturers and, therefore, a 50 percent factor applied
to the $1.65 million baseline. These tooling costs will be split evenly
between NOX control and PM control. For engine lines under
75 horsepower and above 750 horsepower, we have used the same tooling
costs as the nonroad-only manufacturers because these engines tend not
to have a highway counterpart. Therefore, for those engine lines
requiring only a CDPF (i.e., those between 25 and 75 horsepower and
those above 750 horsepower), we have estimated a tooling cost of
$825,000. Note that this is a change from the proposal for engines
above 750 horsepower; the proposal used the full $1.65 million since
both a CDPF and a NOX adsorber were being projected. The
tooling costs for DOC and/or engine-out engine lines has also been
estimated to be $412,500. Tooling costs for CDPF-only and for DOC
engines are attributed solely to PM control. With the exception of the
greater than 750 horsepower change, none of these tooling estimates
have changed since our proposal, with the exception of being expressed
in 2002 dollars.
We expect engines in the 25 to 50 horsepower range to apply EGR
systems to meet the Tier 4 NOX standards for 2013. For these
engines, we have included an additional tooling cost of $41,300 per
engine line, consistent with the EGR-related tooling cost estimated for
50-100 horsepower engines in our Tier 2/3 rulemaking. The EGR tooling
costs are applied equally to all engine lines in that horsepower range
regardless of the markets into which the manufacturer sells. We have
applied this tooling cost equally because engines in this horsepower
range tend not to have highway counterparts. Tooling costs for EGR
systems are attributed solely to NOX control.
We have also estimated some tooling costs for engines above 750
horsepower to meet the 2011 standards. We have estimated this amount at
ten times the amount for 25 to 50 horsepower engines, or $413,000 per
engine line. This cost was not in the proposal since NOX
adsorbers were being projected for engines above 750 horsepower. We
have applied this tooling to all engine lines above 750 horsepower,
regardless of what markets into which a manufacturer sells, since such
engines clearly have no highway counterpart. For the purpose of
allocating costs, we have attributed this cost entirely to
NOX control. Note that there is a new 2011 PM standard for
engines above 750 horsepower. However, we believe that PM standard
could be met via engine-out control which would result in no new
tooling costs associated with that standard.
We have applied all the above tooling costs to all manufacturers
that appear to actually make engines. We have not eliminated joint
venture manufacturers because these manufacturers will still need to
invest in tooling to make the engines even if they do not conduct any
R&D. We have assumed that all tooling costs are incurred one year in
advance of the new standard and are recovered over a five year period
following implementation of the new standard; all tooling costs include
a capital opportunity cost of seven percent. As done for R&D costs, we
have attributed a portion of the tooling costs to U.S. sales and a
portion to sales in other countries expected to have similar levels of
emission control. Note that all engine tooling costs for under 25
horsepower engines have been attributed to U.S. sales since other
countries are not expected to have similar standards on these engines.
More information is contained in chapter 6 of the RIA.
Using this methodology, we estimate the total tooling expenditures
attributable to the new Tier 4 standards at $74 million. For
comparison, our proposal estimated $67 million. The higher value here
is a result of: Expressing values in 2002 dollars rather than 2001
dollars; attributing all under 25 horsepower tooling costs to U.S.
sales while the proposal attributed 42 percent of those costs to U.S.
sales; and, above 750 horsepower tooling is slightly higher because of
the proposal's phase-in (50/50/50/100) of one set of standards while
the final rule has two sets of standards.
iii. Engine Certification Costs
The comments we received with respect to our estimated
certification costs noted that we had underestimated costs associated
with new test procedures, especially transient testing for engines
above 750 horsepower. For the final rule, we have tripled the costs
associated with new test procedures. Because we are not finalizing
transient test procedures for engines above 750 horsepower, comments
about the cost of these engines certifying using the transient test are
now moot.
Manufacturers will incur more than the normal level of
certification costs during the first few years of implementation
because engines will need to be certified to the new emission standards
using new test procedures (at least in some instances). Consistent with
our recent standard setting regulations, we have estimated engine
certification costs at $60,000 per new engine certification to cover
existing testing and administrative costs.\229\ The $60,000
certification cost per engine family was used for 25 to 75 horsepower
engines certifying to the 2008 standards. For 25 to 75 horsepower
engines certifying to the 2013 standards, and for 75 to 750 horsepower
engines certifying to their new standards, we have added costs to cover
the new test procedures for nonroad diesel engines (e.g., the transient
test, the NTE); \230\ these costs are estimated at $31,500 per engine
family.\231\ For engines under 25 horsepower, we have assumed (for cost
purposes) that all engines will certify to the transient test and the
NTE in 2008. We believe manufacturers may choose to do this rather than
certifying all engines again in 2013 when the transient test and NTE
requirements actually begin for those engines. This assumption results
in higher certification costs in 2008 than if these engines certified
only to the steady-state standard. However, we believe manufacturers
may choose to do this because it would avoid the need to
[[Page 39125]]
recertify all engines under 25 horsepower again in 2013. These
certification costs--whether it be the $60,000 or the $91,500 per
engine family--apply equally to all engine families for all
manufacturers regardless of into what markets the manufacturer sells.
For engines above 750 horsepower, the certification costs used were
$87,000 per family since these engines will not be certifying over the
new transient test procedure. We have applied these certification costs
to all U.S. sold engine families and then spread the total over U.S.
sales. In other words, we have not presumed that certification
conducted for U.S. engines would fulfill the certification requirements
of other countries and have, therefore, not spread total costs over
engine sales outside the U.S.
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\229\ In the proposal we added a certification fee to this cost.
In the final rule we have not included the certification fee because
that cost will be accounted for in the certification fees rulemaking
(see 67 FR 51402 for the proposed rule). Including in the proposal
was essentially double counting that fee. Similarly, if we were to
include it in this final rule, we would be double counting that fee.
\230\ Note that the transport refrigeration unit (TRU) test
cycle is an optional duty cycle for steady-state certification
testing specifically tailored to the operation of TRU engines.
Likewise, the ramped modal cycles are available test cycles that can
be used to replace existing steady-state test requirements for
nonroad constant-speed engines, generally. Manufacturers of these
engines who opt to use one of these test cycles would incur no new
costs above those estimated here and may incur less cost.
\231\ Note that the proposal incorrectly used a value of $10,500
for costs associated with the new test procedures. Here, we have
corrected this error by using a value of $31,500. Note also that the
proposal erroneously did not include certification costs associated
with transient testing and the NTE for engines under 25 horsepower.
We have corrected that error in the final analysis.
---------------------------------------------------------------------------
Applying these costs to each of the 665 engine families as they are
certified to a new emissions standard results in total costs of $91
million expended during implementation of the Tier 4 standards. These
costs are attributed to NOX and PM control consistent with
the phase-in of the new emissions standards--where new NOX
and PM standards are introduced together, the certification costs are
split evenly; where only a new PM standard is introduced, the
certification costs are attributed to PM only; where a NOX
phase-in becomes 100 percent in a year after full implementation of a
PM standard, the certification costs are attributed to NOX
only. All certification costs are assumed to occur one year prior to
the new emission standard and are then recovered over a five year
period following compliance with the new standard; all certification
costs include a capital opportunity cost of seven percent. For
comparison, our proposal estimated certification costs at $72 million.
The increase here is a result of using a higher cost associated with
the new test procedures than was used in the proposal.
We also received comment that we should estimate certification
costs based on use of the ABT program rather than based on the phase-
in. Doing this would result in higher certification costs because all
engine families would be certified in year one of the phase-in and all
families would again be certified in the final year of the phase-in. In
contrast, since we have based certification costs on the phase-in, all
engine families are certified in year one (PM standards have no phase-
in) and only half are again certified in the final year (the 50 percent
not meeting the new NOX standard in year one). We have
chosen not to estimate certification or any costs based on use of the
ABT program (or the TPEM program) since it is so difficult to predict
how this program will be used. Furthermore, we must remain consistent
throughout our cost analysis so that, if we estimated certification
costs based on use of the ABT program, we should also base engine
variable costs and equipment variable costs on use of the ABT program.
Doing so, we believe, would decrease engine variable costs since that
is the primary reason manufacturers choose to make use of the ABT
program. Since engine variable costs, as discussed below, are a much
greater fraction of the overall program costs, we believe that we are
being conservative by generating our costs based on use of the phase-
in. Therefore, we believe that use of the ABT program (and the TPEM
program) will provide substantial net savings to industry even though
widespread use of ABT might cause certification costs to be higher.
b. Engine Variable Costs
This section summarizes the detailed analysis presented in chapter
6 of the RIA. For our analysis, we have used the 2002 annual average
costs for platinum and rhodium (the two platinum group metals (PGMs) we
expect will be used) because we believe they represent a better
estimate of the cost for PGM than other metrics. In the RIA, we present
a cost sensitivity that estimates the recovery value of precious metals
returned to the open market upon retirement of an aftertreatment
device. We present that analysis to gauge the true social cost of these
devices when new.
We have not made any changes to our engine variable costs as a
result of public comments. Some commenters (engine manufacturers)
claimed that we had underestimated these costs but did not provide any
detailed information about where they believed we had erred or what
they believed the costs should be. Other commenters (emission control
device manufacturers) claimed that we had done a fair job with our
estimates. Some commenters (equipment manufacturers) claimed that our
assumptions with respect to baseline engine configurations were not
accurate. However, as discussed earlier, based on our own engineering
judgement and the positive comments of the engine manufacturers--who we
consider a better source for such information than equipment
manufacturers since engine manufacturers are the directly affected
entities--we have maintained our original assumptions for baseline
engine configurations. Further, our assumed Tier 4 baseline engine
configurations are consistent with our assumed compliant technology
packages for T2/3, and those packages included the things equipment
manufacturers are claiming will not be present in the Tier 4 baseline.
As a result, we have already considered the costs associated with
reaching our Tier 4 baseline engine configurations in the context of
the T2/3 rule.
We have made changes to engine variable costs to remain consistent
with the final program--i.e., we have changed our greater than 750
horsepower cost estimates since the final standards differ from those
that were proposed. We have also changed the costs by expressing them
in 2002 dollars rather than 2001 dollars.\232\
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\232\ Note that the change to 2002 dollars had different effects
on different pieces of hardware. We have used two different PPI
adjustments in the analysis: one for motor vehicle catalytic
converters which was used to adjust costs for DOCs, NOX
adsorbers, and CDPFs; and another for motor vehicle parts and
accessories which was used for all other pieces of hardware. The
former of these adjustments actually caused costs to decrease
relative to the proposal while the latter caused costs to increase
slightly.
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i. NOX Adsorber System Costs
The NOX adsorber system that we are anticipating will be
used to comply with Tier 4 engine standards will be the same as that
used for highway applications. In order for the NOX adsorber
to function properly, a systems approach that includes a reductant
metering system and control of engine A/F ratio is also necessary. Many
of the new air handling and electronic system technologies developed in
order to meet the Tier 2/3 nonroad engine standards can be applied to
accomplish the NOX adsorber control functions as well (these
costs were accounted for in our T2/3 rule). Some additional hardware
for exhaust NOX or O2 sensing and for fuel
metering will likely be required. The cost estimates include a DOC for
clean-up of hydrocarbon emissions that occur during NOX
adsorber regeneration events. We have also estimated that warranty
costs will increase due to the application of this new hardware.
Chapter 6 of the RIA contains the details for how we estimated costs
associated with the new NOX control technologies required to
meet the Tier 4 emission standards. These costs are estimated to
increase engine costs by roughly $670 in the near-term for a 150
horsepower engine, and $2,040 in the near-term for a 500 horsepower
engine. In the long-term, we estimate these costs to be $550 and $1,650
for the 150 horsepower and 500 horsepower engines, respectively. These
costs may differ slightly from the proposal due to the adjustments to
2002 dollars. Note that we have estimated costs for all engines in all
horsepower
[[Page 39126]]
ranges, and these estimates are presented in detail in the RIA.
Throughout this discussion of engine and equipment costs, we present
costs for a 150 and a 500 horsepower engine for illustrative purposes.
ii. Catalyzed Diesel Particulate Filter (CDPF) Costs
CDPFs can be made from a wide range of filter materials including
wire mesh, sintered metals, fibrous media, or ceramic extrusions. The
most common material used for CDPFs for heavy-duty diesel engines is
cordierite. Here we have based our cost estimates on the use of silicon
carbide (SiC) even though it is more expensive than other filter
materials.\233\ We estimate that the CDPF systems will add $760 to
engine costs in the near-team for a 150 horsepower engine and $2,710 in
the near-term for a 500 horsepower engine. In the long-term, we
estimate these CDPF system costs to be $580 and $2,070 for the 150
horsepower and the 500 horsepower engines, respectively. These costs
may differ slightly from the proposal due to the adjustments to 2002
dollars.
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\233\ This is particularly true with respect to engines above
750 horsepower where we believe that manufacturers may in fact use a
wire mesh substrate rather than the SiC substrate we have costed
and, indeed, we have based the level of the 2015 PM standard on this
use of wire mesh substrates (see section II.B.3.b). We have chosen
to remain conservative in our cost estimates by assuming use of a
SiC substrate for all engines.
---------------------------------------------------------------------------
iii. CDPF Regeneration System Costs
Application of CDPFs in nonroad applications may present challenges
beyond those of highway applications. For this reason, we anticipate
that some additional hardware beyond the diesel particulate filter
itself may be required to ensure that CDPF regeneration occurs. For
some engines this may be new fuel control strategies that force
regeneration under some circumstances, while in other engines it might
involve an exhaust system fuel injector to inject fuel upstream of the
CDPF to provide necessary heat for regeneration under some operating
conditions. We estimate the near-term costs of a CDPF regeneration
system to be $200 for a 150 horsepower engine and $330 for a 500
horsepower engine. In the long-term, we estimate these costs at $150
and $250, respectively. These costs may differ slightly from the
proposal due to the adjustments to 2002 dollars.
iv. Closed-Crankcase Ventilation System (CCV) Costs
Today's final rule eliminates the exemption that allows turbo-
charged nonroad diesel engines to vent crankcase gases directly to the
environment. Such engines are said to have an open crankcase system. We
project that this requirement to close the crankcase on turbo-charged
engines will force manufacturers to rely on engineered closed crankcase
ventilation systems that filter oil from the blow-by gases prior to
routing them into either the engine intake or the exhaust system
upstream of the CDPF. We have estimated the initial cost of these
systems to be roughly $30 for low horsepower engines and up to $90 for
very high horsepower engines. These costs are incurred only by turbo-
charged engines because today's naturally aspirated engines already
have CCV systems. These costs may differ slightly from the proposal due
to the adjustments to 2002 dollars.
v. Variable Costs for Engines Below 75 Horsepower and Above 750
Horsepower
The Tier 4 program includes standards for engines under 25
horsepower that begin in 2008, and two sets of standards for 25 to 75
horsepower engines--one set that begins in 2008 and another that begins
in 2013.\234\ The 2008 standards for all engines under 75 horsepower
are of similar stringency and are expected to result in use of similar
technologies (i.e., the possible addition of a DOC). The 2013 standards
for 25 to 75 horsepower engines are considerably more stringent than
the 2008 standards and are expected to force the addition of a CDPF
along with some other engine hardware to enable the proper functioning
of that new technology. More detail on the mix of technologies expected
for all engines under 75 horsepower is presented in section II.B.4 and
5. As discussed there, if changes are needed to comply, we expect
manufacturers to comply with the 2008 standards through either engine-
out improvements or through the addition of a DOC. From a cost
perspective, we have projected that engines will add a DOC. Presumably,
the manufacturer will choose the least costly approach that provides
the necessary reduction. If engine-out modifications are less costly
than a DOC, our estimate here is conservative. If the DOC proves to be
less costly, then our estimate is representative of what most
manufacturers will do. Therefore, we have assumed that, beginning in
2008, all engines below 75 horsepower add a DOC. Note that this
estimate is made more conservative since we have assumed this cost for
all engines when, in fact, some engines below 75 horsepower currently
meet the Tier 4 PM standard (for 2008) and will not, therefore, incur
any incremental costs to meet it. We have estimated this added hardware
to result in an increased engine cost of $143 in the near-term and $136
in the long-term for a 30 horsepower engine. These costs may differ
slightly from the proposal due to the adjustments to 2002 dollars.
---------------------------------------------------------------------------
\234\ We refer here to PM standards. There also is a
NOX+NMHC standard for 25-50 horsepower engines that takes
effect in 2013 and is equivalent to the Tier 3 NOX+NMHC
standard for 50-75 horsepower engines (see section II.A).
---------------------------------------------------------------------------
We have also projected that some engines in the 25 to 75 horsepower
range will have to upgrade their fuel systems to accommodate the CDPF.
We have estimated the incremental costs for these fuel systems at
roughly $870 for a three cylinder engine in the 25-50 horsepower range,
and around $450 for a four cylinder engine in the 50-75 horsepower
range. This difference reflects a different base fuel system, with the
smaller engines assumed to have mechanical fuel systems and the larger
engines assumed to already be electronic. The electronic systems will
incur lower costs because they already have the control unit and
electronic fuel pump. Also, we have assumed these fuel changes will
occur for only direct injection (DI) engines; indirect injection
engines (IDI) are assumed to remain IDI but to add more hardware as
part of their CDPF regeneration system to ensure proper regeneration
under all operating conditions. Such a regeneration system, described
above, is expected to cost roughly twice that expected for DI engines,
or around $320 for a 30 horsepower IDI engine versus $160 for a DI
engine. These costs may differ slightly from the proposal due to the
adjustments to 2002 dollars.
We have also projected that engines in the 25-50 horsepower range
will add cooled EGR to comply with their new NOX standard in
2013. Additionally, we have estimated, for cost purposes, that engines
above 750 horsepower will add cooled EGR to comply with their new
NOX standard in 2011. This represents a conservative
estimate since we do not necessarily anticipate that cooled EGR will be
applied to all, if any, engines above 750 horsepower. Nonetheless, we
do expect some changes to be made (most probably some form of engine-
out emission control) and, consistent with our approach to costing DOCs
for engines below 75 horsepower in 2008, we have conservatively costed
cooled EGR for engines above 750 horsepower in 2011. We have estimated
that the EGR system will add $100 in the near-term and $70 in the long-
term to the cost of a 30 horsepower engine, and $550 and $420,
respectively, for engines above 750 horsepower. These costs may differ
slightly from the proposal due to
[[Page 39127]]
the adjustments to 2002 dollars. To these costs, we have added costs
associated with additional cooling that may be needed to reject the
heat generated by the cooled EGR system or other in-cylinder
technologies. These costs were not included in the proposal. Such
additional cooling might take the form of a larger radiator and/or a
larger or more powerful cooling fan. Based on cost estimates from our
Nonconformance Penalty rule (67 FR 51464), we have estimated that the
costs associated with additional cooling will add $40 in the near-term
and $30 in the long-term to the cost of a 30 horsepower engine, and
$710 in the near-term and $560 in the long-term for engine above 750
horsepower. Note that we are also projecting use of a CDPF for engines
above 750 horsepower, as was discussed above.
We believe there are factors that will cause variable hardware
costs to decrease over time, making it appropriate to distinguish
between near-term and long-term costs. Research in the costs of
manufacturing has consistently shown that as manufacturers gain
experience in production, they are able to apply innovations to
simplify machining and assembly operations, use lower cost materials,
and reduce the number or complexity of component parts.\235\ Our
analysis, as described in more detail in the RIA, incorporates the
effects of this learning curve by projecting that the variable costs of
producing the low-emitting engines decreases by 20 percent starting
with the third year of production. For this analysis, we have assumed a
baseline that represents such learning already having occurred once due
to the 2007 highway rule (i.e., a 20 percent reduction in emission
control device costs is reflected in our near-term costs). We have then
applied a single learning step from that point in this analysis.
Additionally, manufacturers are expected to apply ongoing research to
make emission controls more effective and to have lower operating costs
over time. However, because of the uncertainty involved in forecasting
the results of this research, we conservatively have not accounted for
it in this analysis.
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\235\ For example, see, ``Learning Curves in Manufacturing,''
Linda Argote and Dennis Epple, Science, February 23, 1990, Vol. 247,
pp. 920-924.
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c. Engine Operating Costs
We are projecting that a variety of new technologies will be
introduced to enable nonroad engines to meet the new Tier 4 emissions
standards. Primary among these are advanced emission control
technologies and low-sulfur diesel fuel. The technology enabling
benefits of low-sulfur diesel fuel are described in Section II, and the
incremental cost for low-sulfur fuel is described in section VI.A. The
new emission control technologies are themselves expected to introduce
additional operating costs in the form of increased fuel consumption
and increased maintenance demands. Operating costs are estimated in the
RIA over the life of the engine and are expressed in terms of cents/
gallon of fuel consumed. In section VI.C.3, we present these lifetime
operating costs as a net present value (NPV) in 2002 dollars for
several example pieces of equipment.
Total operating cost estimates include the following elements: the
change in maintenance costs associated with applying new emission
controls to the engines; the change in maintenance costs associated
with low sulfur fuel such as extended oil change intervals; the change
in fuel costs associated with the incrementally higher costs for low
sulfur fuel, and the change in fuel costs due to any fuel consumption
impacts associated with applying new emission controls to the engines.
This latter cost is attributed to the CDPF and its need for periodic
regeneration which we estimate may result in a one percent fuel
consumption increase where a NOX adsorber is also applied,
or a two percent fuel consumption increase where no NOX
adsorber is applied (refer to chapter 6, section 6.2.3.3 of the RIA).
Maintenance costs associated with the new emission controls on the
engines are expected to increase since these devices represent new
hardware and, therefore, new maintenance demands. For CDPF maintenance,
we have used a maintenance interval of 3,000 hours for smaller engines
and 4,500 hours for larger engines and a cost of $65 through $260 for
each maintenance event. For closed-crankcase ventilation (CCV) systems,
we have used a maintenance interval of 675 hours for all engines and a
cost per maintenance event of $8 to $48 for small to large engines.
Offsetting these maintenance cost increases will be a savings due to an
expected increase in oil change intervals because low sulfur fuel will
be far less corrosive than is current nonroad diesel fuel. Less
corrosion will mean a slower acidification rate (i.e., less
degradation) of the engine lubricating oil and, therefore, more
operating hours between needed oil changes. As discussed in section
VI.B, the use of 15 ppm sulfur fuel can extend oil change intervals by
as much as 35 percent for both new and existing nonroad engines and
equipment. We have used a 35 percent increase in oil change interval
along with costs per oil change of $70 through $400 to arrive at
estimated savings associated with increased oil change intervals.
These operating costs are expressed as a cent/gallon cost (or
savings). As a result, operating costs are directly proportional to the
amount of fuel consumed by the engine. We have estimated these
operating costs--fuel-related refining and distribution costs,
maintenance related costs, and fuel economy impacts--to be 5.4 cents/
gallon for a 150 horsepower engine and 6.5 cents/gallon for a 500
horsepower engine. More detail on operating costs can be found in
Chapter 6 of the RIA.
The existing fleet will also benefit from lower maintenance costs
due to the use of low sulfur diesel fuel. The operating costs for the
existing fleet are discussed in section VI.B. We did receive comments
with respect to our oil change maintenance savings estimates. These
comments were address in section VI.B. We received no comments on our
CDPF and CCV maintenance costs or our CDPF regeneration costs.
2. Equipment Cost Impacts
In addition to the costs directly associated with engines that
incorporate new emission controls to meet new standards, costs will
increase due to the need to redesign the nonroad equipment in which
these engines are used. Such redesigns will probably be necessary due
to the expected addition of new emission control systems, but could
also occur if the engine has a different shape or heat rejection rate,
or is no longer made available in the configuration previously used. We
have accounted for these potential changes in establishing the lead
time for the Tier 4 emissions standards. The transition flexibility
provisions for equipment manufacturers that are included in this final
rule are an element of that lead time. These flexibility provisions are
described in detail in section III.B.
In assessing the economic impact of the new emission standards, EPA
has made a best estimate of the modifications to equipment that relate
to packaging (installing engines in equipment engine compartments). The
incremental costs for new equipment will be comprised of fixed costs
(for redesign to accommodate new emission control devices) and variable
costs (for new equipment hardware to affix the new emission control
devices and for labor to install those emission control devices). Note
that the fixed costs do not
[[Page 39128]]
include certification costs because the equipment is not certified to
emission standards. The engine is certified by the engine manufacturer;
therefore, the related certification costs are counted as an engine
fixed cost. We have also attributed all changes in operating costs
(e.g., additional maintenance) to the cost estimates for engines.
Included in section VI.C.3 is a discussion of several example pieces of
equipment (e.g., skid/steer loader, dozer, etc.) and the costs we have
estimated for these specific example pieces of equipment. Full details
of our equipment cost analysis can be found in chapter 6 of the RIA.
All costs are presented in 2002 dollars.
We have made only limited changes relative to the proposal with
respect to our estimated equipment costs, as discussed below. We did
receive comment that we underestimated costs for equipment redesign and
for markups on equipment variable costs. The commenters making these
claims relative to equipment redesign costs tended to be those that
have relative high equipment sales volumes. Such manufacturers tend to
expend levels higher than we estimated in our proposal for equipment
redesign because they sell into highly competitive markets and they can
spread costs over many units. However, some equipment manufacturers we
have met with, most notably those with small sales volumes, do not
appear to expend nearly the level we estimated in the proposal. These
manufacturers tend to sell into markets with few competitors, produce
machines by hand, and expend less redesign effort relative to a high
sales volume manufacturer.\236\ Our goal in the proposal was to
estimate the redesign costs spent by industry (i.e., the average cost
per piece of equipment multiplied by all equipment resulting in an
estimated total industry cost), rather than estimating the maximum cost
to be spent by any particular manufacturer. As a result, our equipment
redesign estimates per model may be too low for some manufacturers, but
they are also too high for others. We believe this cost methodology
provides as accurate an estimate as can be made. We have used the same
methodology for the final cost estimates presented here.
---------------------------------------------------------------------------
\236\ ``Meeting between Staff of Eagle Crusher Company, Inc.,
and EPA,'' memorandum from Todd Sherwood to Air Docket A-2001-28,
Docket Item IV-E-40, EDOCKET OAR-2003-0012-0868, March 16, 2004.
---------------------------------------------------------------------------
As for the comments with respect to equipment variable costs, we
did indeed include a markup of 29 percent and disagree with the
commenter that a two-to-one markup would be more appropriate. Such a
high markup on equipment variable costs is not sustainable in a
competitive market, at least on average, and the commenter provided no
data nor study that supported the comment.
We have made minor changes to the proposed numbers to express them
in 2002 dollars and to reflect where the program has changed (i.e.,
greater than 750 horsepower mobile machines). We have also attributed
all under 25 horsepower redesign costs to U.S. sales since we do not
expect other countries to have similar emission standards for these
engines/equipment. Lastly, we have corrected some minor errors made in
the proposal in determining motive versus non-motive models and
determining the number of unique equipment models needing redesign. We
now estimate that a total of over 4,500 equipment models will be
redesigned as compared to the proposal's estimate of just over 4,100
equipment models. Further discussion of these changes can be found in
Chapter 6 of the RIA.
a. Equipment Fixed Costs
As we noted in the proposal, the most significant changes
anticipated for equipment redesign are changes to accommodate the
physical changes to engines, especially for those engines that add PM
traps and NOX adsorbers. The costs for engine development
and the emission control devices are included as costs to the engines,
as described above. Equipment manufacturers must still incur the effort
and expense of integrating the engine and emissions control devices
into the piece of equipment. Therefore, we have allocated extensive
engineering time for this effort.
The costs we have estimated are based on engine power and whether
an application is non-motive (e.g., a generator set) or motive (e.g., a
skid steer loader). The designs we have considered to be non-motive are
those that lack a propulsion system. In addition, the new emission
standards for engines rated under 25 horsepower and the 2008 standards
for 25-75 horsepower engines are projected to require no significant
equipment redesign beyond that done to accommodate the Tier 2
standards. As explained earlier, we expect that these engines will
comply with the new Tier 4 standards through either engine
modifications to reduce engine-out emissions or through the addition of
a DOC. We have projected that engine modifications will not affect the
outer dimensions of the engine and that a DOC will replace the existing
muffler. Therefore, either approach taken by the engine manufacturer
should have limited to no impact on the equipment design. Nonetheless,
we have conservatively estimated their redesign costs at $53,100 per
model.\237\
---------------------------------------------------------------------------
\237\ Note that the equipment redesign estimates, and all other
equipment related costs, have been adjusted from the NPRM to express
them in 2002 dollars.
---------------------------------------------------------------------------
A number of equipment manufacturers have shared detailed
information with us regarding the investments made for Nonroad Tier 2
equipment redesign efforts, as well as redesign estimates for
significant changes such as installing a new engine design. These
estimates range from approximately $53,100 for some lower powered
equipment models to well over $1 million for high horsepower equipment
with very challenging design constraints. We believe that the equipment
redesign efforts undertaken for the T2/3 are representative of the
effort that will be required for Tier 4 because the changes needed are
the same in nature--increasing available space within the machine to
accommodate new hardware. We have based our Tier 4 estimates, in part,
on that industry input and have estimated that equipment redesign costs
will range from $53,100 per model for 25 horsepower equipment up to
$796,500 per model for 300 horsepower equipment and above. For mobile
machines greater than 750 horsepower, we have used a new redesign cost
of $106,000 associated with the 2011 standards which is consistent in
scale with the estimate used for 25 to 50 horsepower equipment that add
both EGR and a CDPF in the 2013 timeframe. This estimate was not in the
proposal. For this larger equipment, we have continued with an estimate
of $796,500 associated with the 2015 standards even though we project
no need to accommodate a NOX adsorber. We have attributed
only a portion of the equipment redesign costs to U.S. sales in a
manner consistent with that taken for engine R&D costs and engine
tooling costs. In addition, we expect manufacturers to incur some fixed
costs to update service and operation manuals to address the
maintenance demands of new emission control technologies and the new
oil service intervals; we estimate these service manual updates to cost
between $2,660 and $10,620 per equipment model.
These equipment fixed costs (redesign and manual updates) were then
allocated appropriately to each new model to arrive at a total
equipment fixed cost of $828 million. We have assumed that these costs
will be
[[Page 39129]]
recovered over a ten year period with a seven percent opportunity cost
of capital. By comparison, our proposal estimated equipment fixed costs
at $698 million. The costs are higher now because of the changes
mentioned above--expressing costs in 2002 dollars; attributing all
under 25 horsepower redesign costs to U.S. sales; and, correcting
upward the number of equipment models to be redesigned.
b. Equipment Variable Costs
Equipment variable cost estimates are based on costs for additional
materials to mount the new hardware (i.e., brackets and bolts required
to secure the aftertreatment devices) and additional sheet metal
assuming that the body cladding of a piece of equipment (i.e., the
hood) might change to accommodate the aftertreatment system. Variable
costs also include the labor required to install these new pieces of
hardware. For engines above 75 horsepower--those expected to
incorporate CDPF and NOX adsorber technology--the amount of
sheet metal is based on the size of the aftertreatment devices.
For equipment of 150 horsepower and 500 horsepower, respectively,
we have estimated the costs to be roughly $60 to $150. Note that we
have estimated costs for equipment in all horsepower ranges, and these
estimates are presented in detail in the RIA. Throughout this
discussion of engine and equipment costs, we present costs for a 150
and a 500 horsepower engine for illustrative purposes.
3. Overall Engine and Equipment Cost Impacts
To illustrate the engine and equipment cost impacts we are
estimating for the Tier 4 standards, we have chosen several example
pieces of equipment and have presented the estimated costs for them.
Using these examples, we can calculate the costs for a specific piece
of equipment in several horsepower ranges and better illustrate the
cost impacts of the new standards. These costs along with information
about each example piece of equipment are shown in table VI.C-1. Costs
presented are near-term and long-term costs for the final standards to
which each piece of equipment will comply. Long-term costs are only
variable costs and, therefore, represent costs after all fixed costs
have been recovered and all projected learning has taken place.
Included in the table are estimated prices for each piece of equipment
to provide some perspective on how our estimated control costs relate
to existing equipment prices.
Table VI.C-1.--Near-Term and Long-Term Costs for Several Example Pieces of Equipment a
($2002, for the final emission standards to which the equipment must comply)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gen-Set Skid/ Backhoe Dozer Ag tractor Dozer Off-highway
------------------------------------------------------------------------------- steer -------------------------------------------------- truck
loader ------------
Horsepower 9 hp ----------- 76 hp 175 hp 250 hp 503 hp
33 hp 1000 hp
--------------------------------------------------------------------------------------------------------------------------------------------------------
Incremental Engine & Equipment Cost................................ $120 $790 $1,200 $2,560 $1,970 $4,140 $4,670
Long-Term........................................................ 180 1,160 1,700 3,770 3,020 6,320 8,610
Near-Term........................................................
Estimated Equipment Price when New b............................... 4,000 20,000 49,000 238,000 135,000 618,000 840,000
Incremental Operating Costs c...................................... -80 70 610 2,480 2,110 7,630 20,670
Baseline Operating Costs (Fuel & Oil only) c....................... 940 2,680 7,960 27,080 23,750 77,850 179,530
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: a Near-term costs include both variable costs and fixed costs; long-term costs include only variable costs and represent those costs that remain
following recovery of all fixed costs. b ``Price Database for New Nonroad Equipment,'' memorandum from Zuimdie Guerra to EDOCKET OAR-2003-0012-0960. c
Present value of lifetime costs.
More detail and discussion regarding what these costs and prices
mean from an economic impact perspective can be found in section VI.E.
D. Annual Costs and Cost Per Ton
One tool that can be used to assess the value of the Tier 4
standards for NRLM fuel and nonroad engines is the costs incurred per
ton of emissions reduced. This analysis involves a comparison of our
new program to other measures that have been or could be implemented.
As summarized in this section and detailed in the RIA, the program
being finalized today represents a highly cost effective mobile source
control program for reducing PM, NOX, and SO2
emissions.
We have calculated the cost per ton of our Tier 4 program based on
the net present value of all costs incurred and all emission reductions
generated over a 30 year time window following implementation of the
program (i.e., calendar years 2007 through 2036). This approach
captures all of the costs and emissions reductions from our new program
including those costs incurred and emissions reductions generated by
the existing fleet. The baseline for this evaluation is the existing
set of fuel and engine standards (i.e., unregulated NRLM fuel and the
Tier 2/Tier 3 program). The 30 year time window chosen is meant to
capture both the early period of the program when very few new engines
that meet the new standards will be in the fleet, and the later period
when essentially all engines will meet the new standards.
We have analyzed the cost per ton reduced of several different
scenarios. The costs and emissions reductions of each of these
scenarios are presented in detail in chapter 8 of the RIA. Here, we
present information of the cost and cost effectiveness for the
following two scenarios: (1) The full NRLM fuel and nonroad engine
program, meaning two steps of fuel control (to 500 ppm and then to 15
ppm) for both NR and L&M fuel and all of the nonroad engine standards;
and, (2) the NRLM fuel-only program, meaning two steps of fuel control
(to 500 ppm and then to 15 ppm) for both NR and L&M fuel but without
any new nonroad engine standards.\238\ For the first of these
scenarios, the discussion illustrates the costs and relative cost
effectiveness of the final NRT4 program to other programs. For the
second of these scenarios, the discussion illustrates the costs and
cost effectiveness associated with the fuel program as if implemented
as a stand alone program without new engine standards.
---------------------------------------------------------------------------
\238\ We are not analyzing a scenario involving just the engine
standards because the nonroad engine standards involving advanced
emissions control technologies require the use of the 15ppm fuel.
---------------------------------------------------------------------------
In sections VI.D.1 and 2, we present the cost of the full NRLM fuel
and nonroad engine program and the cost per ton of PM,
NOX+NMHC, and SO2 reductions that will be
realized. The analysis presented in sections VI.D.1 and 2 represents
the total Tier 4 program for nonroad diesel engines and NRLM fuel being
finalized today. In sections VI.D.3 and 4, we summarize the
[[Page 39130]]
cost for the NRLM fuel-only scenario and the cost per ton of PM and
SO2 reductions that would be realized.
1. Annual Costs for the Full NRLM Fuel and Nonroad Engine Program
The costs of the full NRLM fuel and nonroad engine program include
costs associated with both steps in the NRLM fuel program--the NR fuel
reduction to 500 ppm sulfur in 2007 and to 15 ppm sulfur in 2010 and
the L&M fuel reduction to 500 ppm sulfur in 2007 and to 15 ppm sulfur
in 2012. Also included are costs for the 2008 nonroad engine standards
for engines less than 75 horsepower, the 2013 standards for 25 to 75
horsepower engines, and costs for the nonroad engine standards for
engines above 75 horsepower. All maintenance and operating costs are
included along with maintenance savings realized by both the existing
fleet (nonroad, locomotive, and marine) and the new fleet of engines
complying with the Tier 4 standards.
Figure VI.D-1 presents these results. All capital costs for NRLM
fuel production and nonroad engine and equipment fixed costs have been
amortized at seven percent. The figure shows that total annual costs
are estimated to be $50 million in the first year the new engine
standards apply, increasing to a peak of $2.2 billion in 2036 as
increasing numbers of engines become subject to the new nonroad
standards and an ever increasing amount of NRLM fuel is consumed. The
net present value of the annualized costs over the period from 2007 to
2036 is $27 billion using a 3 percent discount rate and $14 billion
using a 7 percent discount rate.
[GRAPHIC] [TIFF OMITTED] TR29JN04.004
2. Cost per Ton of Emissions Reduced for the Full NRLM Fuel and Nonroad
Engine Program
We have calculated the cost per ton of emissions reduced associated
with the NRT4 engine and NRLM fuel program. The resultant cost per ton
numbers depend on how the costs presented above are allocated to each
pollutant. Therefore, we have carefully allocated costs according to
the pollutants for which they are incurred. Where fuel changes occur in
conjunction with new engine standards (engine standards enabled by
those fuel changes), we allocate one-half of the fuel-related costs to
fuel-derived emissions reductions (PM and SO2, with one-
third of that half allocated to PM and two-thirds to SO2)
and one-half to engine-derived emissions reductions
(NOX+NMHC and PM, with that half split 50/50 between each
pollutant). Where fuel changes occur without new engine standards on
which fuel changes are premised (i.e., 500ppm NRLM fuel and 15ppm L&M
fuel), we have allocated costs associated with fuel-derived emissions
reductions one-third to PM and two-thirds to SO2. We have
allocated costs associated with engine-derived emissions reductions
(i.e., engine/equipment costs) directly to
[[Page 39131]]
the pollutant for which the cost is incurred. These engine and
equipment cost allocations are noted throughout the discussion in
section VI.C, and are detailed in full in chapter 8 of the RIA.
We have calculated the costs per ton using the net present value of
the annualized costs of the program through 2036 and the net present
value of the annual emission reductions through 2036. We have also
calculated the cost per ton of emissions reduced in the year 2030 using
the annual costs and emissions reductions in that year alone. This
number represents the long-term cost per ton of emissions reduced. The
cost per ton numbers include costs and emission reductions that will
occur from the existing fleet (i.e., those pieces of nonroad equipment
that were sold into the market prior to the new emission standards).
These results are shown in Table VI.D-1 using both a three percent and
a seven percent social discount rate.
Table VI.D-1.--Total Fuel and Engine Program 30 Year Aggregate Cost per Ton and Long-Term Annual Cost Per Ton
($2002)
----------------------------------------------------------------------------------------------------------------
30 year discounted 30 year discounted
Pollutant lifetime cost per ton lifetime cost per ton Long-term cost per ton
at 3% at 7% in 2030
----------------------------------------------------------------------------------------------------------------
NOX+NMHC............................. $1,010 $1,160 $680
PM................................... 11,200 11,800 9,300
SOX.................................. 690 620 810
----------------------------------------------------------------------------------------------------------------
3. Annual Costs for the NRLM Fuel-only Scenario
Cent per gallon costs for the new 500 ppm NRLM fuel, the new 500
ppm L&M fuel, the new 15 ppm NR fuel, and the new 15 ppm NRLM fuel were
presented in section IV.A. Having this fuel will result in maintenance
savings associated with increased oil change intervals for both the new
and the existing fleet of nonroad, locomotive, and marine engines.
These maintenance savings were discussed in section VI.B. There are no
engine and equipment costs associated with the NRLM fuel-only scenario
because new engine emissions standards are not included in that
scenario. Figure VI.D-2 shows the annual costs associated with the NRLM
fuel-only program.
As can be seen in figure VI.D-1, the costs for refining and
distributing the fuel range from $250 million in 2008 to nearly $1.3
billion in 2036. The increase in fuel costs in 2010 reflect the change
to higher cost 15 ppm NR fuel. Fuel costs continue to grow as more fuel
is consumed by the increasing number of engines and equipment. The fuel
costs are largely offset by the maintenance savings that range from
$250 million in 2008 to $500 million in 2036. As a whole, the net cost
of the program in each year ranges from a small net savings in 2008 to
around $780 million in 2036. The net present value (i.e., the value in
2004) of the net costs associated with the NRLM fuel-only program
during the 30 year period from 2007 to 2036 is estimated at $9.2
billion using a 3 percent discount rate and $4.6 billion using a 7
percent discount rate.
[[Page 39132]]
[GRAPHIC] [TIFF OMITTED] TR29JN04.005
4. Cost Per Ton of Emissions Reduced for the NRLM Fuel-Only Scenario
The fuel-borne sulfur reduction under the NRLM fuel-only scenario
will result in significant reductions of both SO2 and PM
emissions. Since there are no new engine standards associated with the
NRLM fuel-only scenario, the emissions reductions that result are
entirely fuel-derived. Roughly 98 percent of fuel-borne sulfur is
converted to SO2 in the engine with the remaining two
percent being exhausted as sulfate PM. We have allocated one-third of
the costs of this program to PM control and two-thirds to
SO2 control. This is consistent with the cost accounting we
have used throughout our analysis in that costs associated with fuel-
derived emissions reductions are attributed one-third to PM control and
two-thirds to SO2 control.
As discussed above, the 30 year net present value of costs
associated with the fuel-only program are estimated at $9.2 billion
using 3 percent discounting and $4.6 billion using 7 percent
discounting. We have estimated the 30 year net present value of the
SO2 emission reductions at 5.7 million tons and PM emission
reductions at 462,000 tons using 3 percent discounting, 3.2 million
tons and 255,000 tons, respectively, using 7 percent discounting.
Table VI.D-1 shows the cost per ton of emissions reduced as a
result of the NRLM fuel-only scenario. The cost per ton numbers include
costs and emissions reductions that will occur from both the new and
the existing fleet (i.e., those pieces of nonroad equipment that were
sold into the market prior to the new fuel standards) of nonroad,
locomotive, and marine engines.
Table VI.D-2.--NRLM Fuel-Only Scenario--30-year Aggregate Cost per Ton and Long-term Annual Cost per Ton
[$2002]
----------------------------------------------------------------------------------------------------------------
30 year discounted 30 year discounted
Pollutant lifetime cost per ton lifetime cost per ton Long-term cost per ton
at 3% at 7% in 2030
----------------------------------------------------------------------------------------------------------------
PM................................... $6,600 $6,000 $7,900
SO2.................................. 1,070 970 1,270
----------------------------------------------------------------------------------------------------------------
[[Page 39133]]
We also considered the cost per ton of the NRLM fuel-only scenario
without including the expected maintenance savings associated with low
sulfur fuel. Without the maintenance savings, the 30 year discounted
cost per ton of PM reduced would be $11,800 and of SO2
reduced would be $1,900 using 3 percent discounting and $11,200 and
$1,800, respectively, using 7 percent discounting. More detail on how
the costs and cost per ton numbers associated with the NRLM fuel-only
scenario were calculated can be found in the RIA.
5. Comparison With Other Means of Reducing Emissions
In comparison with other emissions control programs, we believe
that the Tier 4 programs represent a cost effective strategy for
generating substantial NOX+NMHC, PM, and SO2
reductions. This can be seen by comparing the cost per ton of emissions
reduced by the NRLM fuel-only scenario (i.e., reducing fuel sulfur to
500 ppm in 2007 and 15 ppm in 2010 without any new nonroad engine
standards) and the cost per ton of emissions reduced by the full NRLM
fuel and nonroad engine program (i.e., fuel control and new engine
standards) with a number of standards that EPA has adopted in the past.
Tables VI.D-3 and VI.D-4 summarize the cost per ton of several past EPA
actions to reduce emissions of NOX+NMHC and PM from mobile
sources, all of which were considered by EPA to be appropriate.
Table VI.D-3.--NRT4 Cost Per Ton Comparison to Previous Mobile Source
Programs for NOX + NMHC
------------------------------------------------------------------------
Program $/ton
------------------------------------------------------------------------
Tier 4 Nonroad Diesel (full program).................... 1,010
Tier 2 Nonroad Diesel................................... 630
Tier 3 Nonroad Diesel................................... 430
Tier 2 vehicle/gasoline sulfur.......................... 1,400-2,350
2007 Highway HD......................................... 2,240
2004 Highway HD......................................... 220-430
Tier 1 vehicle.......................................... 2,150-2,910
NLEV.................................................... 2,020
Marine SI engines....................................... 1,220-1,930
On-board diagnostics.................................... 2,410
Marine CI engines....................................... 30-190
Large SI Exhaust........................................ 80
Recreational Marine..................................... 670
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
Total Manufacturing Industries.
Table VI.D-4. `` NRT4 Cost Per Ton Comparison to Previous Mobile Source
Programs for PM
------------------------------------------------------------------------
Program $/ton
------------------------------------------------------------------------
Tier 4 Nonroad Diesel (full program).................... 11,200
Tier 4 NRLM fuel-only (fuel-only scenario).............. 6,800
Tier 1/Tier 2 Nonroad Diesel............................ 2,390
2007 Highway HD......................................... 14,180
Marine CI engines....................................... 4,040-5,440
1996 urban bus.......................................... 12,780-20,450
Urban bus retrofit/rebuild.............................. 31,530
1994 highway HD diesel.................................. 21,780-25,500
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
Total Manufacturing Industries.
To compare the cost per ton of SO2 emissions reduced, we
looked at the cost per ton for the Title IV (acid rain) SO2
trading programs. This information is found in EPA report 430/R-02-004,
``Documentation of EPA Modeling Applications (V.2.1) Using the
Integrated Planning Model'', in Figure 9.11 on page 9-14 (www.epa.gov/airmarkets/epa-ipm/index.html#documentation). The SO2 cost
per ton results of the full Tier 4 program presented in table VI.D-2
compare very favorably with the program shown in table VI.D-5.
Table VI.D-5.--NRT4 Cost Per Ton Comparison to SO2 from both the EPA
Base Case 2000 for the Title IV SO2 Trading Programs and the Proposed
Interstate Air Quality Rule
------------------------------------------------------------------------
Program $/ton
------------------------------------------------------------------------
Tier 4 Nonroad Diesel (full program)...... $690
Tier 4 Nonroad Diesel (fuel-only scenario) 1,070
Title IV SO2 Trading Programs............. 490 in 2010 to 610 in 2020
Interstate Air Quality Rule (average cost) 730 in 2010 to 830 in 2015
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
Total Manufacturing Industries.
As the above comparisons show, both the NRLM fuel-only scenario,
when viewed by itself, and the combination of NRLM fuel and nonroad
engine standards, are both cost effective strategies to achieve the
associated emissions reductions.
E. Do the Benefits Outweigh the Costs of the Standards?
Our analysis of the health and environmental benefits to be
expected from this final rule are presented in this section. Briefly,
the analysis projects major benefits throughout the period from initial
implementation of the rule over a 30 year period through 2036. As
described below, thousands of deaths and other serious health effects
would be prevented, yielding a net present value in 2004 of those
benefits we could monetize of approximately $805 billion dollars using
a 3 percent discount rate and $352 billion using a 7 percent discount
rate. These benefits exceed the net present value of the social cost of
the proposal ($27 billion using a 3 percent discount rate and $14
billion using a 7 percent discount rate) by $780 billion using a 3
percent discount rate and $340 billion using a 7 percent discount rate.
1. What Were the Results of the Benefit-Cost Analysis?
Table VI.E-1 presents the primary estimate of reduced incidence of
PM-related health effects for the years 2020 and 2030. In interpreting
the results, it is important to keep in mind the limited set of effects
we are able to monetize. Specifically, the table lists the PM-related
benefits associated with the reduction of several health effects. In
2030, we estimate that there will be 12,000 fewer fatalities in adults
\239\ and 20 fewer fatalities in infants per year associated with fine
PM, and the rule will result in about 5,600 fewer cases of chronic
bronchitis, 8,900 fewer hospitalizations (for respiratory and
cardiovascular disease combined), and result in 1 million days per year
when adults miss work because of their respiratory symptoms and 5.9
million days of when adults must restrict their activity due to
respiratory illness. We also estimate substantial health improvements
for children from reduced upper and lower respiratory illness, acute
bronchitis, and asthma
[[Page 39134]]
attacks.\240\ We were unable to quantify the benefits related to ozone
and other pollutants for the final rule, although we do present some
preliminary ozone modeling in Chapter 9 of the RIA.
---------------------------------------------------------------------------
\239\ While we did not include separate estimates of the number
of premature deaths that would be avoided due to reductions in ozone
levels, recent evidence has been found linking short-term ozone
exposures with premature mortality independent of PM exposures.
Recent reports by Thurston and Ito (2001) and the World Health
Organization (WHO) support an independent ozone mortality impact,
and the EPA Science Advisory Board has recommended that EPA
reevaluate the ozone mortality literature for possible inclusion in
the estimate of total benefits. Based on these new analyses and
recommendations, EPA is sponsoring three independent meta-analyses
of the ozone-mortality epidemiology literature to inform a
determination on inclusion of this important health endpoint. Upon
completion and peer-review of the meta-analyses, EPA will make its
determination on whether and how benefits of reductions in ozone-
related mortality will be included in the benefits analysis for
future rulemakings.
\240\ Our PM-related estimate in 2030 incorporates significant
reductions of 160,000 fewer cases of lower respiratory symptoms in
children ages 7 to 14 each year, 120,000 fewer cases of upper
respiratory symptoms (similar to cold symptoms) in asthmatic
children each year, and 13,000 fewer cases of acute bronchitis in
children ages 8 to 12 each year. In addition, we estimate that this
rule will reduce almost 6,000 emergency room visits for asthma
attacks in children each year from reduced exposure to particles.
Additional incidents would be avoided from reduced ozone exposures.
Asthma is the most prevalent chronic disease among children and
currently affects over seven percent of children under 18 years of
age.
---------------------------------------------------------------------------
Table VI.E-2 presents the total monetized benefits for the years
2020 and 2030. This table also indicates with a ``B'' those additional
health and environmental effects which we were unable to quantify or
monetize. These effects are additive to estimate of total benefits, and
EPA believes there is considerable value to the public of the benefits
that could not be monetized. A full listing of the benefit categories
that could not be quantified or monetized in our estimate are provided
in table VI.E-6.
In summary, EPA's primary estimate of the benefits of the rule are
$83 + B billion in 2030 using a 3 percent discount rate and $78 + B
billion using a 7 percent discount rate. In 2020, total monetized
benefits are $42 + B billion using a 3 percent discount rate and $41 +
B billion using a 7 percent discount rate. These estimates account for
growth in real gross domestic product (GDP) per capita between the
present and the years 2020 and 2030. As the table indicates, total
benefits are driven primarily by the reduction in premature fatalities
each year, which account for over 90 percent of total benefits.
Table VI.E-1.--Reductions in Incidence of PM-Related Adverse Health
Effects Associated With the Final Nonroad Diesel Engine and Fuel
Standards Full Program
------------------------------------------------------------------------
Avoided incidence a (cases/year)
Endpoint -------------------------------------
2020 2030
------------------------------------------------------------------------
Premature mortality b: Long-term 6,500 12,000
exposure (adults, 30 and over)...
Infant mortality (infants under 15 22
one year)........................
Chronic bronchitis (adults, 26 and 3,500 5,600
over)............................
Non-fatal myocardial infarctions 8,700 15,000
(adults, 18 and older)...........
Hospital admissions--Respiratory 2,800 5,100
(adults, 20 and older) c.........
Hospital admissions-- 2,300 3,800
Cardiovascular (adults, 20 and
older) d.........................
Emergency Room Visits for Asthma 3,800 6,000
(18 and younger).................
Acute bronchitis (children, 8-12). 8,400 13,000
Asthma exacerbations (asthmatic 120,000 200,000
children, 6-18)..................
Lower respiratory symptoms 100,000 160,000
(children, 7-14).................
Upper respiratory symptoms 76,000 120,000
(asthmatic children, 9-11).......
Work loss days (adults, 18-65).... 670,000 1,000,000
Minor restricted activity days 4,000,000 5,900,000
(adults, age 18-65)..............
------------------------------------------------------------------------
Notes: a Incidences are rounded to two significant digits. b Premature
mortality associated with ozone is not separately included in this
analysis. c Respiratory hospital admissions for PM includes admissions
for COPD, pneumonia, and asthma. d Cardiovascular hospital admissions
for PM includes total cardiovascular and subcategories for ischemic
heart disease, dysrhythmias, and heart failure.
Table VI.E-2.--EPA Primary Estimate of the Annual Quantified and
Monetized Benefits Associated With Improved PM Air Quality Resulting
From the Final Nonroad Diesel Engine and Fuel Standards Full Program
------------------------------------------------------------------------
Monetary Benefits a, b (millions
2000$, Adjusted for Income Growth)
Endpoint -------------------------------------
2020 2030
------------------------------------------------------------------------
Premature mortality c: (adults, 30
and over)
3% discount rate.............. $41,000 $77,000
7% discount rate.............. 38,000 72,000
Infant mortality (infants under 97 150
one year)........................
Chronic bronchitis (adults, 26 and 1,500 2,400
over)............................
Non-fatal myocardial infarctions d
3% discount rate.............. 750 1,200
7% discount rate.............. 720 1,200
Hospital Admissions from 49 92
Respiratory Causes e.............
Hospital Admissions from 51 83
Cardiovascular Causes f..........
Emergency Room Visits for Asthma.. 1.1 1.7
Acute bronchitis (children, 8-12). 3.2 5.2
Asthma exacerbations (asthmatic 5.7 9.2
children, 6-18)..................
Lower respiratory symptoms 1.7 2.7
(children, 7-14).................
Upper respiratory symptoms 2.0 3.2
(asthmatic children, 9-11).......
Work loss days (adults, 18-65).... 92 130
Minor restricted activity days 210 320
(adults, age 18-65)..............
Recreational visibility (86 Class 1,000 1,700
I Areas).........................
Monetized Total g.............
3% discount rate.......... 44,000+B 83,000+B
[[Page 39135]]
7% discount rate.......... 42,000+B 78,000+B
------------------------------------------------------------------------
Notes: a Monetary benefits are rounded to two significant digits. b
Monetary benefits are adjusted to account for growth in real GDP per
capita between 1990 and the analysis year (2020 or 2030). c Valuation
of base estimate assumes discounting over the lag structure described
in the RIA Chapter 9. d Estimates assume costs of illness and lost
earnings in later life years are discounted using either 3 or 7
percent. e Respiratory hospital admissions for PM includes admissions
for COPD, pneumonia, and asthma. f Cardiovascular hospital admissions
for PM includes total cardiovascular and subcategories for ischemic
heart disease, dysrhythmias, and heart failure. g B represents the
monetary value of the unmonetized health and welfare benefits. A
detailed listing of unquantified PM, ozone, CO, and NMHC related
health effects is provided in Table VI.E-6.
The estimated social cost (measured as changes in consumer and
producer surplus) in 2030 to implement the final rule from table VI.E-3
is $2.0 billion (2000$). Thus, the net benefit (social benefits minus
social costs) of the program at full implementation is approximately
$81 + B billion using a 3 percent discount rate and $78 + B billion
using a 7 percent discount rate. In 2020, partial implementation of the
program yields net benefits of $42 + B billion using a 3 percent
discount rate and $41 + B billion using a 7 percent discount rate.
Therefore, implementation of the final rule is expected to provide
society with a net gain in social welfare based on economic efficiency
criteria. Table VI.E-3 presents a summary of the benefits, costs, and
net benefits of the final rule's full program. Figure VI-E.1 displays
the stream of benefits, costs, and net benefits of the Nonroad Diesel
Vehicle Rule from 2007 to 2036 using two different discount rates. In
addition, table VI.E-4 presents the net present value of the stream of
benefits, costs, and net benefits associated with the rule for this 30
year period. The total net present value in 2004 of the stream of net
benefits (benefits minus costs) is $780 billion using a 3 percent
discount rate and $340 billion using a 7 percent discount rate.
Table VI.E-3.--Summary of Benefits, Costs, and Net Benefits of the Final
Nonroad Diesel Engine and Fuel Standards Full Program
------------------------------------------------------------------------
2020 \a\ (Billions 2030 \a\ (Billions
of 2000 dollars) of 2000 dollars)
------------------------------------------------------------------------
Social Costs \b\................ $1.8.............. $2.0.
Social Benefits: b c d ..................
CO, VOC, Air Toxic-related Not monetized..... Not monetized.
benefits.
Ozone-related benefits...... Not monetized..... Not monetized.
PM-related Welfare benefits. $1.0.............. $1.7.
PM-related Health benefits $43 + B........... $81 + B.
[3% discount].
PM-related Health benefits $41 + B........... $78 + B.
[7% discount].
Net Benefits (Benefits-Costs) $44 + B........... $81 + B.
[3% discount] \c\.
Net Benefits (Benefits-Costs) $42 + B........... $78 + B.
[7% discount] \c\.
------------------------------------------------------------------------
Notes: \a\ All costs and benefits are calculated using 3 and 7 percent
discount rates and are rounded to two significant digits. Numbers may
appear not to sum due to rounding.
\b\ Note that costs are the total costs of reducing all pollutants,
including CO, VOCs and air toxics, as well as NOX and PM. Costs were
converted to 2000$ using the PPI for Total Manufacturing Industries.
Benefits in this table are associated only with PM endpoints related
to direct PM, NOX and SO2 reductions in 48-states.
\c\ Not all possible benefits or disbenefits are quantified and
monetized in this analysis. Potential benefit categories that have not
been quantified and monetized are listed in table VI.E-6. B is the sum
of all unquantified benefits and disbenefits.
[[Page 39136]]
[GRAPHIC] [TIFF OMITTED] TR29JN04.006
Table VI.E-4.--Net Present Value in 2004 of the Stream of 30 Years of
Benefits, Costs, and Net Benefits for the Full Nonroad Diesel Engine and
Fuel Standards
[Billions of 2000$]
------------------------------------------------------------------------
3% 7%
discount discount
rate rate
------------------------------------------------------------------------
Social Costs.................................... $27 $14
Social Benefits................................. 805 352
Net Benefits \a\................................ 780 340
------------------------------------------------------------------------
Notes: \a\ Numbers do not add due to rounding. Benefits represent 48-
state benefits and exclude home heating oil sulfur reduction benefits,
whereas costs include 50-state estimates.
In addition, we analyzed the social benefits and costs of the fuel-
only components of the program, as discussed in the RIA. EPA's primary
estimate of the benefits of the fuel-only component of the final rule
are approximately $28 + B billion in 2030 using a 3 percent discount
rate and $25 + B billion using a 7 percent discount rate. In 2020,
total monetized benefits are approximately $18 + B billion using a 3
percent discount rate and $16 + B billion using a 7 percent discount
rate. These estimates account for growth in real gross domestic product
(GDP) per capita between the present and the years 2020 and 2030. We
present the engineering costs of implementing the fuel-only components
of the rule. Engineering compliance costs are very similar to the total
social costs for the entire program. The net benefit (social benefits
minus engineering costs) of the fuel-only program at full
implementation is approximately $330 + B billion using a 3 percent
discount rate and $160 + B billion using a 7 percent discount rate.
Therefore, implementation of the fuel-only components of the final rule
is expected to provide society with a net gain in social welfare based
on economic efficiency criteria. Table VI.E-5 presents a summary of the
social benefits, engineering costs, and net benefits of the final
rule's fuel-only program for a 30 year period.
Table VI.E-5.--Net Present Value in 2004 of the Stream of Benefits,
Costs, and Net Benefits for the Fuel-Only Standards
[Billions of 2000$]
------------------------------------------------------------------------
3% 7%
Discount Discount
rate rate
------------------------------------------------------------------------
Costs........................................... $9.2 $4.6
Social Benefits................................. 340 160
Net Benefits.................................... 330 160
------------------------------------------------------------------------
Notes:
\A\ Results are rounded to two significant digits. Sums may differ
because of rounding.
\B\ Engineering costs are presented instead of social costs. As
discussed in previous chapters, total engineering costs include fuel
costs (refining, distribution, lubricity) and other operating costs
(oil change maintenance savings).
\C\ Note that costs are the total costs of reducing all pollutants,
including CO, VOCs and air toxics, as well as NOX and PM. Benefits in
this table are associated only with PM, NOX and SO2 reductions. The
estimates do not include the benefits of reduced sulfur in home
heating oil or benefits in Alaska or Hawaii.
2. What Was Our Overall Approach to the Benefit-Cost Analysis?
The basic question we sought to answer in the benefit-cost analysis
was,
[[Page 39137]]
``What are the net yearly economic benefits to society of the reduction
in mobile source emissions likely to be achieved by this proposed
rulemaking?'' In designing an analysis to address this question, we
selected two future years for analysis (2020 and 2030) that are
representative of the stream of benefits and costs at partial and full-
implementation of the program.
To quantify benefits, we evaluated PM-related health effects
(including directly emitted PM and sulfate, as well as SO2
and NOX contributions to fine particulate matter). Our
approach requires the estimation of changes in air quality expected
from the rule and then estimating the resulting impact on health. In
order to characterize the benefits of today's action, given the
constraints on time and resources available for the analysis, we
adopted a benefits transfer technique that relies on air quality and
benefits modeling for a preliminary control option for nonroad diesel
engines and fuels. Results from this modeling conducted for 2020 and
2030 are then scaled and transferred to the emission reductions
expected from the final rule. We also transferred modeled results by
using scaling factors associated with time to examine the stream of
benefits in years other than 2020 and 2030.
More specifically, our health benefits assessment is conducted in
two phases. Due to the time requirements for running the sophisticated
emissions and air quality models, it is often necessary to select an
example set of emission reductions to use for the purposes of emissions
and air quality modeling early in the development of the proposal. In
phase one, we evaluate the PM- and ozone-related health effects
associated with a modeled preliminary control option that was a close
approximation of the standards in the years 2020 and 2030. Using
information from the modeled preliminary control option on the changes
in ambient concentrations of PM and ozone, we then estimate the number
of reduced incidences of illnesses, hospitalizations, and premature
fatalities associated with this scenario and estimate the total
economic value of these health benefits. Based on public comment and
other data described in the RIA, the standards we are finalizing in
this rulemaking are slightly different in the amount of emission
reductions expected to be achieved in 2020 and 2030 relative to the
modeled scenario. Thus, in phase two of the analysis, we apportion the
results of the phase one analysis to the underlying NOX,
SO2, and PM emission reductions and scale the apportioned
benefits to reflect differences in emissions reductions between the
modeled preliminary control option and the proposed standards. The sum
of the scaled benefits for the PM, SO2, and NOX
emission reductions provide us with the total benefits of the rule.
The benefit estimates derived from the modeled preliminary control
option in phase one of our analysis uses an analytical structure and
sequence similar to that used in the benefits analyses for the Heavy
Duty Engine/Diesel Fuel final rule and in the ``section 812 studies''
to estimate the total benefits and costs of the full Clean Air Act.
\241\ We used many of the same models and assumptions used in the Heavy
Duty Engine/Diesel Fuel analysis as well as other Regulatory Impact
Analyses (RIAs) prepared by the Office of Air and Radiation. By
adopting the major design elements, models, and assumptions developed
for the section 812 studies and other RIAs, we have largely relied on
methods which have already received extensive review by the independent
Science Advisory Board (SAB), by the public, and by other federal
agencies. In addition, we will be working through the next section 812
study process to enhance our methods. \242\
---------------------------------------------------------------------------
\241\ The section 812 studies include: (1) U.S. EPA, Report to
Congress: The Benefits and Costs of the Clean Air Act, 1970 to 1990,
October 1997 (also known as the ``Section 812 Retrospective
Report''); and (2) the first in the ongoing series of prospective
studies estimating the total costs and benefits of the Clean Air Act
(see EPA report number: EPA-410-R-99-001, November 1999). See Docket
A-99-06, Document II-A-21.
\242\ Interested parties may want to consult the webpage: http://www.epa.gov/science1 regarding components of our analytical
blueprint.
---------------------------------------------------------------------------
The benefits transfer method used in phase two of the analysis is
similar to that used to estimate benefits in the recent analysis of the
Nonroad Large Spark-Ignition Engines and Recreational Engines standards
(67 FR 68241, November 8, 2002). A similar method has also been used in
recent benefits analyses for the proposed Industrial Boilers and
Process Heaters NESHAP and the Reciprocating Internal Combustion
Engines NESHAP.
On September 26, 2002, the National Academy of Sciences (NAS)
released a report on its review of the Agency's methodology for
analyzing the health benefits of measures taken to reduce air
pollution. The report focused on EPA's approach for estimating the
health benefits of regulations designed to reduce concentrations of
airborne PM.
In its report, the NAS panel said that EPA has generally used a
reasonable framework for analyzing the health benefits of PM-control
measures. It recommended, however, that the Agency take a number of
steps to improve its benefits analysis. In particular, the NAS stated
that the Agency should:
Include benefits estimates for a range of regulatory
options;
Estimate benefits for intervals, such as every five years,
rather than a single year;
Clearly state the projected baseline statistics used in
estimating health benefits, including those for air emissions, air
quality, and health outcomes;
Examine whether implementation of proposed regulations
might cause unintended impacts on human health or the environment;
When appropriate, use data from non-U.S. studies to
broaden age ranges to which current estimates apply and to include more
types of relevant health outcomes; and
Begin to move the assessment of uncertainties from its
ancillary analyses into its Base analyses by conducting probabilistic,
multiple-source uncertainty analyses. This assessment should be based
on available data and expert judgment.
Although the NAS made a number of recommendations for improvement
in EPA's approach, it found that the studies selected by EPA for use in
its benefits analysis were generally reasonable choices. In particular,
the NAS agreed with EPA's decision to use cohort studies to derive
benefits estimates. It also concluded that the Agency's selection of
the American Cancer Society (ACS) study for the evaluation of PM-
related premature mortality was reasonable, although it noted the
publication of new cohort studies that should be evaluated by the
Agency.
EPA has addressed many of the NAS comments in our analysis of the
final rule. We provide benefits estimates for each year over the rule
implementation period for a wide range of regulatory alternatives, in
addition to our final emission control program. We use the estimated
time path of benefits and costs to calculate the net present value of
benefits of the rule. In the RIA, we provide baseline statistics for
air emissions, air quality, population, and health outcomes. We have
examined how our benefits estimates might be impacted by expanding the
age ranges to which epidemiological studies are applied, and we have
added several new health endpoints, including non-fatal heart attacks,
which are supported by both U.S. studies and studies conducted in
Europe. We have also improved the documentation of our methods and
[[Page 39138]]
provided additional details about model assumptions.
Several of the NAS recommendations addressed the issue of
uncertainty and how the Agency can better analyze and communicate the
uncertainties associated with its benefits assessments. In particular,
the Committee expressed concern about the Agency's reliance on a single
value from its analysis and suggested that EPA develop a probabilistic
approach for analyzing the health benefits of proposed regulatory
actions. The Agency agrees with this suggestion and is working to
develop such an approach for use in future rulemakings.
EPA plans to continue to refine its plans for addressing
uncertainty in its analyses. EPA conducted a pilot study to address
uncertainty in important analytical parameters such as the
concentration-response relationship for PM-related premature mortality.
EPA is also conducting longer-term elements intended to provide
scientifically sound, peer-reviewed characterizations of the
uncertainty surrounding a broader set of analytical parameters and
assumptions, including but not limited to emissions and air quality
modeling, demographic projections, population health status,
concentration-response functions, and valuation estimates.
3. What Are the Significant Limitations of the Benefit-Cost Analysis?
Every benefit-cost analysis examining the potential effects of a
change in environmental protection requirements is limited to some
extent by data gaps, limitations in model capabilities (such as
geographic coverage), and uncertainties in the underlying scientific
and economic studies used to configure the benefit and cost models.
Deficiencies in the scientific literature often result in the inability
to estimate quantitative changes in health and environmental effects,
such as potential increases in premature mortality associated with
increased exposure to carbon monoxide. Deficiencies in the economics
literature often result in the inability to assign economic values even
to those health and environmental outcomes which can be quantified.
While these general uncertainties in the underlying scientific and
economics literatures, which can cause the valuations to be higher or
lower, are discussed in detail in the Regulatory Support Document and
its supporting documents and references, the key uncertainties which
have a bearing on the results of the benefit-cost analysis of this
final rule include the following:
The exclusion of potentially significant benefit
categories (such as health, odor, and ecological benefits of reduction
in CO, VOCs, air toxics, and ozone);
Errors in measurement and projection for variables such as
population growth;
Uncertainties in the estimation of future year emissions
inventories and air quality;
Uncertainties associated with the scaling of the results
of the modeled benefits analysis to the proposed standards, especially
regarding the assumption of similarity in geographic distribution
between emissions and human populations and years of analysis;
Variability in the estimated relationships of health and
welfare effects to changes in pollutant concentrations;
Uncertainties in exposure estimation; and
Uncertainties associated with the effect of potential
future actions to limit emissions.
Despite these uncertainties, we believe the benefit-cost analysis
provides a reasonable indication of the expected economic benefits of
the final rulemaking in future years under a set of assumptions.
Accordingly, we present a primary estimate of the total benefits, based
on our interpretation of the best available scientific literature and
methods and supported by the SAB-HES and the NAS.
Some of the key assumptions underlying the primary estimate for the
premature mortality which accounts for 90 percent of the total benefits
we were able to quantify include the following:
(1) Inhalation of fine particles is causally associated with
premature death at concentrations near those experienced by most
Americans on a daily basis. Although biological mechanisms for this
effect have not yet been definitively established, the weight of the
available epidemiological evidence supports an assumption of causality.
(2) All fine particles, regardless of their chemical composition,
are equally potent in causing premature mortality. This is an important
assumption, because PM produced via transported precursors emitted from
EGUs may differ significantly from direct PM released from diesel
engines and other industrial sources, but no clear scientific grounds
exist for supporting differential effects estimates by particle type.
(3) The impact function for fine particles is approximately linear
within the range of ambient concentrations under consideration. Thus,
the estimates include health benefits from reducing fine particles in
areas with varied concentrations of PM, including both regions that are
in attainment with fine particle standard and those that do not meet
the standard.
(4) The forecasts for future emissions and associated air quality
modeling are valid. Although recognizing the difficulties, assumptions,
and inherent uncertainties in the overall enterprise, these analyses
are based on peer-reviewed scientific literature and up-to-date
assessment tools, and we believe the results are highly useful in
assessing this rule.
We provide sensitivity analyses to illustrate the effects of
uncertainty about key analytical assumptions in the RIA.
In addition, one significant limitation to the benefit transfer
method applied in this analysis is the inability to scale ozone-related
benefits. Because ozone is a homogeneous gaseous pollutant, it is not
possible to apportion ozone benefits to the precursor emissions of
NOX and VOC. Coupled with the potential for NOX
reductions to either increase or decrease ambient ozone levels, this
prevents us from scaling the benefits associated with a particular
combination of VOC and NOX emissions reductions to another.
Because of our inability to scale ozone benefits, we do not include
ozone benefits as part of the monetized benefits of the proposed
standards. For the most part, ozone benefits contribute substantially
less to the monetized benefits than do benefits from PM, thus their
omission will not materially affect the conclusions of the benefits
analysis. Although we expect economic benefits to exist, we were unable
to quantify or to value specific changes in ozone, CO or air toxics
because we did not perform additional air quality modeling.
There are also a number of health and environmental effects which
we were unable to quantify or monetize. A full appreciation of the
overall economic consequences of the proposed rule requires
consideration of all benefits and costs expected to result from the new
standards, not just those benefits and costs which could be expressed
here in dollar terms. A complete listing of the benefit categories that
could not be quantified or monetized in our estimate are provided in
Table VI.E-6. These effects are denoted by ``B'' in Table VI.E-3 above,
and are additive to the estimates of benefits.
[[Page 39139]]
Table VI.E-6.--Additional, Non-monetized Benefits of the Nonroad Diesel
Engine and Fuel Standards
------------------------------------------------------------------------
Pollutant Unquantified effects
------------------------------------------------------------------------
Ozone Health................. Premature mortality \a\.
Respiratory hospital admissions.
Minor restricted activity days.
Increased airway responsiveness to
stimuli.
Inflammation in the lung.
Chronic respiratory damage.
Premature aging of the lungs.
Acute inflammation and respiratory cell
damage.
Increased susceptibility to respiratory
infection.
Non-asthma respiratory emergency room
visits.
Increased school absence rates.
------------------------------
Ozone Welfare................ Decreased yields for commercial forests.
Decreased yields for fruits and
vegetables.
Decreased yields for non-commercial
crops.
Damage to urban ornamental plants.
Impacts on recreational demand from
damaged forest aesthetics.
Damage to ecosystem functions.
------------------------------
PM Health.................... Low birth weight.
Changes in pulmonary function.
Chronic respiratory diseases other than
chronic bronchitis.
Morphological changes.
Altered host defense mechanisms.
Cancer.
Non-asthma respiratory emergency room
visits.
------------------------------
PM Welfare................... Visibility in many Class I areas.
Residential and recreational visibility
in non-Class I areas.
Soiling and materials damage.
Damage to ecosystem functions.
------------------------------
Nitrogen and Sulfate Impacts of acidic sulfate and nitrate
Deposition Welfare. deposition on commercial forests.
Impacts of acidic deposition to
commercial freshwater fishing.
Impacts of acidic deposition to
recreation in terrestrial ecosystems.
Reduced existence values for currently
healthy ecosystems.
Impacts of nitrogen deposition on
commercial fishing, agriculture, and
forests.
------------------------------
CO Health.................... Premature mortality \a\.
Behavioral effects.
------------------------------
HC Health \b\................ Cancer (benzene, 1,3-butadiene,
formaldehyde, acetaldehyde).
Anemia (benzene).
Disruption of production of blood
components (benzene).
Reduction in the number of blood
platelets (benzene).
Excessive bone marrow formation
(benzene).
Depression of lymphocyte counts
(benzene).
Reproductive and developmental effects
(1,3-butadiene).
Irritation of eyes and mucus membranes
(formaldehyde).
Respiratory irritation (formaldehyde).
Asthma attacks in asthmatics
(formaldehyde).
Asthma-like symptoms in non-asthmatics
(formaldehyde).
Irritation of the eyes, skin, and
respiratory tract (acetaldehyde).
Upper respiratory tract irritation and
congestion (acrolein).
------------------------------
HC Welfare................... Direct toxic effects to animals.
Bioaccumulation in the food chain.
Damage to ecosystem function.
Odor.
------------------------------------------------------------------------
Notes: \a\ Premature mortality associated with ozone and carbon monoxide
is not separately included in this analysis. In this analysis, we
assume that the Pope, et al. C-R function for premature mortality
captures both PM mortality benefits and any mortality benefits
associated with other air pollutants.
\b\ Many of the key hydrocarbons related to this rule are also hazardous
air pollutants listed in the Clean Air Act.
F. Economic Impact Analysis
We prepared a draft Economic Impact Analysis (EIA) for this rule to
estimate the economic impacts of the proposed control program on
producers and consumers of nonroad engines, equipment, fuel, and
related industries.\243\ We received comments on
[[Page 39140]]
our draft analysis from stakeholders representing agricultural
interests, equipment rental and dealer interests, and equipment
manufacturers. The commenters conveyed their concerns about our general
analytic approach and some of the model assumptions. As explained in
our responses to these comments, which can be found in the Summary and
Analysis of Comments document prepared for this final rule, we do not
believe these comments require us to adjust our EIA methodology. We did
adjust the methodology, however, to estimate the economic impacts of
the fuel sulfur content requirements on the locomotive and marine
sectors. As explained below, this revision was necessary to correct an
oversight in the draft EIA. We also revised the price and quantity data
inputs to the model to make them consistent with the revised engine and
fuel cost analyses described earlier in this section.
---------------------------------------------------------------------------
\243\ This analysis is based on an earlier version of the
engineering costs developed for this rule. The final cost estimates
for the engine program are slightly higher ($142 million) and the
final fuel costs are slightly lower ($246 million), resulting in a
30-year net present value of $27.1 billion (30 year net present
values in the year 2004, using a 3 percent discount rate, $2002) or
$104 million less than the engineering costs used in this analysis.
We do not expect that the revised engineering costs would change the
overall results of this economic impact analysis given the small
portion of engine, equipment, and fuel costs to total production
costs for goods and services using these inputs and given the
inelastic value of the estimated demand elasticities for the
application markets.
---------------------------------------------------------------------------
This section briefly describes the methodology we used to estimate
the economic impacts of this final rule, including the model revisions
for the marine and locomotive fuel sectors, and the results of that
analysis. A detailed description of the Nonroad Diesel Economic Impact
Model (NDEIM) prepared for this analysis, the model inputs, and several
sensitivity analyses can be found in Chapter 10 of Final Regulatory
Impact Analysis prepared for this rule.
1. What Is an Economic Impact Analysis?
An Economic Impact Analysis is prepared to inform decision makers
within the Agency about the potential economic consequences of a
regulatory action. The analysis contains estimates of the social costs
of a regulatory program and explores the distribution of these costs
across stakeholders. These estimated social costs can then be compared
with estimated social benefits (as presented in Section VI.E). As
defined in EPA's Guidelines for Preparing Economic Analyses, social
costs are the value of the goods and services lost by society resulting
from (a) the use of resources to comply with and implement a regulation
and (b) reductions in output. \244\ In this analysis, social costs are
explored in two steps. In the first step, called the market analysis,
we estimate how prices and quantities of good directly and indirectly
affected by the emission control program can be expected to change once
the emission control program goes into effect. The estimated price and
quantity changes for engines, equipment, fuel, and goods produced using
these inputs are examined separately. In the second step, called the
economic welfare analysis, we look at the total social costs associated
with the program and their distribution across stakeholders. The
analysis is based on compliance cost estimates and baseline market
conditions for prices and quantities of engines, equipment, and fuel
produced presented earlier in this section.
---------------------------------------------------------------------------
\244\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p 113.
---------------------------------------------------------------------------
In this EIA, we look at price and quantity impacts for engine,
equipment, diesel fuel, and goods produced with these inputs. With
regard to the goods produced with these inputs, we distinguish between
three application markets: agriculture, construction, and
manufacturing. It should be noted from the outset that diesel engines,
equipment, and fuel represent only a small portion of the total
production costs for each of the three application market sectors (the
final users of the engines, equipment and fuel affected by this rule).
Other more significant production costs include land, labor, other
capital, raw materials, insurance, profits, etc. These other production
costs are not affected by this emission control program. This is
important because it means that this rule directly affects only a small
part of total inputs for the relevant markets. Therefore, the rule is
not expected to have a large adverse impact on output and prices of
goods produced in the three application sectors.
It should also be noted that our analysis of the impacts on the
three application markets is limited to market output. The economic
impacts on particular groups of application market suppliers (e.g., the
profitability of farm production units or manufacturing or construction
firms) or particular groups of consumers (e.g., households and
companies that consume agricultural goods, buildings, or durable or
consumer goods) are not estimated. In other words, while we estimate
that the application markets will bear most of the burden of the
regulatory program and we apportion the decrease in application market
surplus between application market producers and application market
consumers, we do not estimate how those social costs will be shared
among specific application market producers and consumers (e.g.,
farmers and households). In some cases, application market producers
may be able to pass most if not all of their increased costs to the
ultimate consumers of their products; in other cases, they may be
obliged to absorb a portion of these costs. While some commenters
requested that we perform a sector-by-sector analysis of application
market producers and consumers, we do not believe this is appropriate.
The focus on market-level impacts in this analysis is appropriate
because the standards in this emission control program are technical
standards that apply to nonroad engines, equipment, and fuel regardless
of how they are used and the structure of the program does not suggest
that different sectors will be affected differently by the
requirements. In addition, the results of our EIA suggest that the
overall burden on the application market is expected to be small:
approximately 0.1 percent increase in prices, on average, and less than
0.02 percent decrease in production, on average. Estimated economic
impacts of this size do not warrant performing a sector-by-sector
analysis to investigate whether some subsectors may be affected
disproportionately.
Finally, as a market-level model, the NDEIM estimates the economic
impacts of the rule on the engine, equipment, and application markets
and the transportation service sector. It is not a firm-level analysis
and therefore the equipment demand elasticity facing any particular
manufacturer may be greater than the demand elasticity of the market as
a whole. This difference can be important, particularly where the rule
affects different firms' costs over different volumes of production.
However, to the extent there are differential effects, EPA believes
that the wide array of flexibilities provided in this rule are adequate
to address any cost inequities that are likely to arise.
2. What Methodology Did EPA Use in This Economic Impact Analysis?
EPA used the same methodology in this final EIA as was used in the
draft EIA. The model was revised to accommodate analysis of the
locomotive and marine fuel sectors.
a. Conceptual Approach
The Nonroad Diesel Economic Impact Model (NDEIM) uses a multi-
market
[[Page 39141]]
analysis framework that considers interactions between regulated
markets and other markets to estimate how compliance costs can be
expected to ripple through these markets. In the NDEIM, compliance
costs are directly borne by engine manufacturers, equipment
manufacturers, petroleum refiners and fuel distributors. Depending on
market characteristics, some or all of these compliance costs will be
passed on through the supply chain in the form of higher input prices
for the application markets (in this case, construction, agriculture,
and manufacturing) which in turn affect prices and quantities of goods
produced in those application markets. Producers in the application
markets adjust their demand for diesel engines, equipment, and fuel in
response to these input price changes and consumer demand for
application market outputs. This information is passed back to the
suppliers of diesel equipment, engines, and fuel in the form of
purchasing decisions. The NDEIM explicitly models these interactions
and estimates behavioral responses that lead to new equilibrium prices
and output for all sectors and the resulting distribution of social
costs across the modeled sectors.
b. Markets Examined
The NDEIM uses a multi-market partial equilibrium approach to track
changes in price and quantity for 62 integrated product markets, as
follows:
7 diesel engine markets: less than 25 hp, 26 to 50 hp, 51
to 75 hp, 76 to 100 hp, 101 to 175 hp, 176 to 600 hp, and greater than
600 hp. The EIA includes more horsepower categories than the standards
to allow more efficient use of the engine compliance costs estimates.
The additional categories also allow estimating economic impacts for a
more diverse set of markets.
42 diesel equipment markets: 7 horsepower categories
within 7 application categories: agricultural, construction, general
industrial, pumps and compressors, generator and welder sets,
refrigeration and air conditioning, and lawn and garden. There are 7
horsepower/application categories that did not have sales in 2000 and
are not included in the model, so the total number of diesel equipment
markets is 42 rather than 49.
3 application markets: agricultural, construction, and
manufacturing.
8 nonroad diesel fuel markets: 2 sulfur content levels (15
ppm and 500 ppm) for each of 4 PADDs. PADDs 1 and 3 are combined for
the purpose of this analysis. It should be noted that PADD 5 includes
Alaska and Hawaii. Also, California fuel volumes that are not affected
by the program (because they are covered by separate California nonroad
diesel fuel standards) are not included in the analysis.
2 transportation service markets: locomotive and marine.
As noted above, this final EIA also estimates the economic impact
on two additional markets that were not included in the draft analysis:
the locomotive and marine diesel transportation service markets. In the
NPRM, we proposed to set fuel sulfur standards for locomotive and
distillate marine diesel as well as for nonroad diesel fuel. We
developed cost estimates for these two types of fuel as well as for
nonroad diesel fuel. In the draft EIA, however, we did not consider the
economic impacts of these fuel costs on the locomotive and marine
sectors separately. Instead, we applied all of these additional fuel
costs to the manufacturing application market.
In preparing the final RIA for this rule, we determined that it
would be more appropriate to consider the impacts of the fuel program
on the diesel marine and locomotive sectors separately. This is because
the locomotive and marine markets are directly affected by the higher
diesel fuel prices associated with the rule. In addition, production
and consumption decisions of downstream end-use markets that use these
services are influenced by the prices of transportation services. At
the same time, locomotive and marine diesel transportation services are
not used solely in the three application markets modeled in the NDEIM.
These services are also provided to electric utilities (transporting
coal to electric power plants), non-manufacturing service industries
(public transportation) and governments. We take this into account and
report impacts on those sectors separately.
c. Model Methodology
A detailed description of the model methodology, inputs, and
parameters used in this economic impact analysis is provided in Chapter
10 of the Final RIA prepared for this rule. The model methodology is
firmly rooted in applied microeconomic theory and was developed
following the OAQPS Economic Analysis Resource Document.\245\
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\245\ U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards, Innovative Strategies and Economics
Group, OAQPS Economic Analysis Resource Document, April 1999. A copy
of this document can be found in Docket A-2001-28, Document No. II-
A-14.
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The NDEIM is a computer model comprised of a series of spreadsheet
modules that define the baseline characteristics of the supply and
demand for the relevant markets and the relationships between them. The
model is constructed based on the market characteristics and inter-
connections summarized in this section and described in more detail in
Chapter 10 of the RIA. The model is shocked by applying the engineering
compliance cost estimates to the appropriate market suppliers, and then
numerically solved using an iterative auctioneer approach by ``calling
out'' new prices until a new equilibrium is reached in all markets
simultaneously. The output of the model is new equilibrium prices and
quantities for all affected markets. This information is used to
estimate the social costs of the model and how those costs are shared
among affected markets.
The NDEIM uses a multi-market partial equilibrium approach to track
changes in price and quantity for the modeled product markets. As
explained in the EPA Guidelines for Preparing Economic Analyses,
``partial'' equilibrium refers to the fact that the supply and demand
functions are modeled for just one or a few isolated markets and that
conditions in other markets are assumed either to be unaffected by a
policy or unimportant for social cost estimation. Multi-market models
go beyond partial equilibrium analysis by extending the inquiry to more
than just a single market. Multi-market analysis attempts to capture at
least some of the interactions between markets.\246\
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\246\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p. 125-6.
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The NDEIM uses an intermediate run time frame. The use of the
intermediate run means that some factors of production are fixed and
some are variable. This modeling period allows analysis of the economic
effects of the rule's compliance costs on current producers. The short
run, in contrast, imposes all compliance costs on the manufacturers (no
pass-through to consumers), while the long run imposes all costs on
consumers (full cost pass-through to consumers). The use of the
intermediate run time frame is consistent with economic practices for
this type of analysis.
The NDEIM assumes perfect competition in the market sectors. This
assumption was questioned by one commenter, who noted that the 25 to 75
hp engine category does not appear to be competitive based on the
number of firms in that subsector. Specifically, one
[[Page 39142]]
firm has nearly 29 percent of the market and the top nine firms have
about 88 percent. The remaining twelve percent of this market shared
among nineteen other firms. While the commenter is correct in noting
the limited number of firms in this subsector, we believe it is still
appropriate to rely on the perfect competition assumption in this
analysis. The perfect competition assumption relies not only on the
number of firms in a market but also on other market characteristics.
For example, there are no indications of barriers to entry, the firms
in these markets are not price setters, and there is no evidence of
high levels of strategic behavior in the price and quantity decisions
of the firms. In addition, the products produced within each market are
somewhat homogeneous in that engines from one firm can be purchased
instead of engines from another firm. Finally, according to contestable
market theory, oligopolies and even monopolies will behave very much
like firms in a competitive market if it is possible to enter
particular markets costlessly (i.e., there are no sunk costs associated
with market entry or exit). With regard to the nonroad engine market,
production capacity is not fully utilized. This means that
manufacturers could potentially switch their product line to compete in
another segment of the market without a significant investment. For all
these reasons, the number of firms in a particular engine submarket
does not prevent us from relying on the perfect competition assumption
for that submarket. This is true of other engine and equipment
subsectors as well. In addition, changing the assumption of perfect
competition based on the limited evidence raised by the commenter would
break with widely accepted economic practice for this type of
analysis.\247\
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\247\ See, for example, EPA Guidelines for Preparing Economic
Analyses, EPA 240-R-00-003, September 2000, p 126. See also the
Final RIA for this rule, Chapter 10, Section 10.2.3.1.
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d. Model Inputs--Elasticities
The estimated social costs of this emission control program are a
function of the ways in which producers and consumers of the engines,
equipment, and fuels affected by the standards change their behavior in
response to the costs incurred in complying with the standards. As the
compliance costs ripple through the markets, producers and consumers
change their production and purchasing decisions in response to changes
in prices. In the NDEIM, these behavioral changes are modeled by the
demand and supply elasticities (behavioral-response parameters), which
measure the price sensitivity of consumers and producers.
The supply elasticities for the equipment, engine, diesel fuel, and
transportation service markets and the demand and supply elasticities
for the application markets used in the NDEIM were obtained from peer-
reviewed literature sources or were estimated using econometric
methods. These econometric methods are well-documented and are
consistent with generally accepted econometric practice. Appendix 10H
of the RIA contains detailed information on how the elasticities were
estimated.
The equipment and engine supply elasticities are elastic, meaning
that quantities supplied are expected to be fairly sensitive to price
changes. The supply elasticities for the fuel, transportation, and
application markets are inelastic or unit elastic, meaning that the
quantity supplied/demanded is expected to be fairly insensitive to
price changes or will vary one-to-one with price changes. The demand
elasticities for the application markets are also inelastic. This is
consistent with the Hicks-Allen derived demand relationship, according
to which a low cost-share in production combined with limited
substitution yields inelastic demand.\248\ As noted above, diesel
engines, equipment, and fuel represent only a small portion of the
total production costs for each of the three application sectors. The
limited ability to substitute for these inputs is discussed below.
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\248\ If the elasticity of demand for a final product is less
than the elasticity of substitution between an input and other
inputs to the final product, then the demand for the input is less
elastic the smaller its cost share. Hicks, J.R., 1961. Marshall's
Third Rule: A Further Comment. Oxford Economic Papers 13:262-65;
Hicks, J.R., 1963. The Theory of Wages. St. Martins Press, NY, pp.
233-247. See Docket A-2001-28, Document No. IV-B-25 for relevant
excerpts. See Docket A-2001-28, Document No. IV-B-25 for relevant
excerpts.
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In contrast to the above, the demand elasticities for the engine,
equipment, fuel, and transportation markets are internally derived as
part of the process of running the model. This is an important feature
of the NDEIM, which allows it to link the separate market components of
the model and simulate how compliance costs can be expected to ripple
through the affected economic sectors. In the real world, for example,
the quantity of nonroad equipment units produced in a particular period
depends on the price of engines (the engine market) and the demand for
equipment (the application markets). Similarly, the number of engines
produced depends on the demand for engines (the equipment market) which
depends on the demand for equipment (the application markets). Changes
in conditions in one of these markets will affect the others. By
designing the model to derive the engine, equipment, transportation
market, and fuel demand elasticities, the NDEIM simulates these
connections between supply and demand among all the product markets and
replicates the economic interactions between producers and consumers.
e. Model Inputs--Fixed and Variable Costs
The EIA treats the fixed costs expected to be incurred by engine
and equipment manufacturers differently in the market and social costs
analyses. This feature of the model is described in greater detail in
Section 10.2.3.3 of the RIA. In the market analysis, estimated engine
and equipment market impacts (changes in prices and quantities) are
based solely on the expected increase in variable costs associated with
the standards. Fixed costs are not included in the market analysis
reported in Table VI-F-1 because in an analysis of competitive markets
the industry supply curve is based on its marginal cost curve and fixed
costs are not reflected in changes in the marginal cost curve. In
addition, the fixed costs associated with the rule are primarily R&D
costs for design and engineering changes. Firms in the affected
industries currently allocate funds for R&D programs and this rule is
not expected to lead firms to change the size of their R&D budgets.
Therefore, changes in fixed costs for engine and equipment redesign
associated with this rule are not likely to affect the prices of
engines or equipment. Fixed costs are included in the social cost
analysis reported in Table VI-F-2, however, as an additional cost to
producers. This is appropriate because even though firms currently
allocated funds to R&D those resources are intended for other purposes
such as increasing engine power, ease of use, or comfort. These
improvements will therefore be postponed for the length of the rule-
related R&D program. This is a cost to society.
One commenter recommended that EPA include engine and equipment R&D
(fixed) costs in the market analysis. This commenter argued that while
in the long run total costs are not determined by changes in fixed
costs, total costs are determined initially by both fixed and variable
costs. This commenter was concerned that by not including fixed costs,
EPA's analysis underestimates the increase in the average price of
goods and services produced using engines affected by the rule. In
fact, we included
[[Page 39143]]
R&D costs in a sensitivity analysis performed for the draft EIA, which
has been updated and can be found in Appendix I to Chapter 10 of the
Final RIA. Including fixed costs results in a transfer of economic
welfare losses from engine and equipment markets to the application
markets (engine and equipment producer surplus losses decrease;
consumer surplus losses increase), but does not change the overall
economic welfare losses associated with the rule.
Unlike for engines and equipment, most of the petroleum refinery
fixed costs are for production hardware. Refiners are expected to have
to make physical changes to their refineries and purchase additional
equipment to produce 500 ppm and then 15 ppm fuel. Therefore, fixed
costs are included in the market analysis for fuel price and quantity
impacts.
f. Model Inputs--Substitution by Application Suppliers
In modeling the market impacts and social costs of this rule, the
NDEIM considers only diesel equipment and fuel inputs to the production
of goods in the applications markets. It does not explicitly model
alternate production inputs that would serve as substitutes for new
nonroad equipment or nonroad diesel fuel. In the model, market changes
in the final demand for application goods and services directly
correspond to changes in the demand for nonroad equipment and fuel
(i.e., in normalized terms there is a one-to-one correspondence between
the quantity of the final goods produced and the quantity of nonroad
diesel equipment and fuel used as inputs to that production). We
believe modeling the market in this manner is economically sound and
reflects the general experience for the nonroad market.
Some commenters suggested that the NDEIM should consider
substitution to alternate means of production such as pre-buying,
delayed buying, extending the life of a current machine, and
substituting with different (e.g., gasoline-powered) equipment. These
commenters did not provide detailed explanations for their comments or
data in support of their substitution arguments. After considering
these comments, we conclude that revising the NDEIM to include these
effects would be inappropriate.
The term ``pre-buying'' appears to refer to the possibility that
the suppliers in the application market may choose to buy additional
unneeded quantities of nonroad equipment prior to the beginning of the
Tier 4 program, thus avoiding the higher cost for the Tier 4 equipment.
It should be noted that this effect is limited to equipment and does
not extend to nonroad diesel fuel. We believe that equipment pre-buying
will not be economically viable in most cases due to the cost of
holding capital (equipment) idle and of maintaining unused equipment.
Such strategic purchases, if they occur at all, would be limited to a
period of a few months before the effective date of the standards. The
NDEIM models market reactions in the intermediate time frame, beyond
the scope of any potential pre-buy. For these reasons, we do not
believe it is appropriate to revise the model to include pre-buy as a
means of substitution in NDEIM.
``Delayed-buying'' appears to refer to the possibility that
suppliers in the application market would defer purchasing new
equipment initially but would eventually make those purchases.
Similarly to pre-buying, this appears to be a short-term effect and
would therefore be inappropriate to include in an economic model
designed to model the intermediate time frame.
Extending the life of a current machine is suggested as another
alternative to purchasing new equipment. We believe this would also be
a short term phenomena that is not relevant for the intermediate time
frame of the NDEIM. Based on our meetings with equipment users and
suppliers, we do not believe that extending the life of nonroad
equipment will prove to be an economically viable substitute in the
near or long term. Most users of nonroad equipment already extend the
life of their equipment to the maximum extent possible and purchase new
equipment only when the existing equipment can no longer perform its
function, when new demand for production requires additional means for
production, or when new equipment offers a cheaper means of production
than existing equipment. This situation is not expected to change as a
result of this rule. In addition, even if it were possible to extend
equipment life even more, this would lower the cost of nonroad
equipment as an input to production (because it would be less expensive
to maintain old equipment than purchase new equipment) and thus would
reduce the economic impact of the Tier 4 program compared to our
estimate. For all of the reasons stated here, we have decided not to
attempt to model an extended equipment life alternative in the NDEIM.
Finally, some commenters noted that equipment users may chose to
substitute with different equipment, particularly gasoline-powered
equipment. We believe substitution to gasoline-powered equipment is an
alternative only for the smaller power categories (below 75 hp). Based
on discussions with equipment manufacturers and users, the dominant
reasons for choosing diesel engines over the substantially less
expensive gasoline engines include better performance from diesel
engines, lower fuel consumption from diesel engines, and the ability to
use diesel fuel. The use of diesel fuel is preferable for two reasons:
it is safer to store and dispense, and it is compatible with the fuel
needed for larger equipment at the same worksite. Where these issues
are not a concern, gasoline engines already enjoy a substantial
economic advantage over diesel. We do not believe that the incremental
increase in new equipment cost associated with this program would
provide the necessary economic incentives for switching to gasoline
equipment. Equipment users who can use gasoline-fueled equipment
already do so, while those who can't due to the high costs of storing
and dispensing gasoline fuel already use diesel engines. Therefore, we
have not attempted to model the possibility of substitution to gasoline
equipment in NDEIM.
g. Model Inputs--Other
Compliance Costs. The NDEIM uses the estimated engine, equipment,
and fuel compliance costs described in above and presented in Chapters
6 and 7 of the RIA. Engine and equipment costs vary over time because
fixed costs are recovered over five to ten year periods while total
variable costs, despite learning effects that serve to reduce costs on
a per unit basis, continue to increase at a rate consistent with new
sales increases. Similarly, engine operating costs also vary over time
because oil change maintenance savings, PM filter maintenance, and fuel
economy effects, all of which are calculated on the basis of gallons of
fuel consumed, change over time consistent with the growth in
nationwide fuel consumption. Fuel-related compliance costs (costs for
refining and distributing regulated fuels) also change over time. These
changes are more subtle than the engine costs, however, as the fuel
provisions are largely implemented in discrete steps instead of phasing
in over time. Compliance costs were developed on a [cent]/gallon basis;
total compliance costs are determined by multiplying the [cent]/gallon
costs by the relevant fuel volumes. Therefore, total fuel costs
increase as the demand for fuel increases. The variable operating costs
are based on the natural gas cost of producing hydrogen and for heating
diesel fuel for the new desulfurization
[[Page 39144]]
equipment, and thus would fluctuate along with the price of natural
gas.
Operating Savings. Operating savings refers to changes in operating
costs that are expected to be realized by users of both existing and
new nonroad diesel equipment as a result of the reduced sulfur content
of nonroad diesel fuel. These include operating savings (cost
reductions) due to fewer oil changes, which accrue to nonroad, marine
and locomotive engines that are already in use as well as new nonroad
engines that will comply with the standards (see Section VI.B). These
also include any extra operating costs associated with the new PM
emission control technology which may accrue to certain new engines
that use this technology. Operating savings are not included in the
market analysis because some of the savings accrue to existing engines
and because, as explained in Section VI.C.1.c, these savings are not
expected to affect consumer decisions with respect to new engines.
Operating savings are included in the social cost analysis, however,
because they accrue to society. They are added into the estimated
social costs as an additional savings to the application and
transportation service markets, since it is the users of these engines
and fuels who will see these savings. A sensitivity analysis was
performed as part of this EIA that includes the operating savings in
the market analysis. The results of this sensitivity analysis are
presented in Appendix 10.I.
Fuel Marker Costs. Fuel marker costs refers to costs associated
with marking high sulfur heating oil to distinguish it from high sulfur
diesel fuel produced after 2007 through the use of early sulfur credits
or small refiner provisions. Only heating oil sold outside of the
Northeast is affected. The higher sulfur NRLM fuel is not allowed to be
sold in most of the Northeast, so the marker need not be added in this
large heating oil market. These costs are expected to be about $810,000
in 2007, increasing to $1.38 million in 2008, but steadily decreasing
thereafter to about $940,000 in 2040 (see Chapter 10 of the RIA).
Because these costs are relatively small, they are incorporated into
the estimated compliance costs for the fuel program (see discussion of
fuel costs, above). They are therefore not counted separately in this
economic impact analysis. This means that the costs of marking heating
fuel are allocated to all users of the fuel affected by this rule
(nonroad, locomotive, and marine) instead of uniquely to heating oil
users. This is a reasonable approach since it is likely that refiners
will pass the marker costs along their complete nonroad diesel product
line and not just to heating oil.
Fuel Spillover. Spillover fuel is highway grade diesel fuel
consumed by nonroad equipment, stationary diesel engines, boilers, and
furnaces. As described in Section 7.1 of Chapter 7 of the final RIA,
refiners are expected to produce more 15 ppm fuel than is required for
the highway diesel market. This excess 15 ppm fuel will be sold into
markets that allow fuel with a higher sulfur level (i.e., nonroad for a
limited period of time, locomotive, marine diesel and heating oil).
This spillover fuel is affected by the diesel highway rule and is not
affected by this regulation. Therefore, it is important to
differentiate between spillover and nonspillover fuel to ensure that
the compliance costs for that fuel pool are not counted twice. In the
NDEIM, this is done by incorporating the impact of increased fuel costs
associated with the highway rule prior to analysis of the final nonroad
rule (see RIA Section 10.3.8).
Compliance Flexibility Provisions. Consistent with the engine and
equipment cost discussion in Section VI.C, the EIA does not include any
cost savings associated with the equipment transition flexibility
program or the nonroad engine ABT program. As a result, the results of
this EIA can be viewed as somewhat conservative.
Locomotive and Marine Fuel Costs. The locomotive and marine
transportation sectors are affected by this rule through the sulfur
limits on the diesel fuel used by these engines. These sectors provide
transportation to the three application markets as well as to other
markets not considered in the NDEIM (e.g., public utilities,
nonmanufacturing service industries, government). As explained in
Section 10.3.1.5 of the RIA, the NDEIM applies only a portion of the
locomotive and marine fuel costs to the three application markets. The
rest of the locomotive and marine fuel costs are added as a separate
item to the total social cost estimates (as Application Markets Not
Included in NDEIM).
3. What Are the Results of this Analysis?
Using the revised cost data described earlier in this section and
the NDEIM described above and in Chapter 10 of the Final RIA, we
estimated the economic impacts of the nonroad engine, equipment and
fuel control program. Economic impact results for 2013, 2020, 2030, and
2036 are presented in this section. The first of these years, 2013,
corresponds to the first year in which the standards affect all
engines, equipment, and fuels. It should be noted that, as illustrated
in Table VI-F-3, aggregate program costs peak in 2014; increases in
costs after that year are due to increases in the population of engines
over time. The other years, 2020, 2030 and 2036, correspond to years
analyzed in our benefits analysis. Detailed results for all years are
included in the appendices to Chapter 10 of the RIA.
In the following discussion, social costs are computed as the sum
of market surplus offset by operating savings. Market surplus is equal
to the aggregate change in consumer and producer surplus based on the
estimated market impacts associated with the rule. As explained above,
operating savings are not included in the market analysis but instead
are listed as a separate category in the social cost results tables.
In considering the results of this analysis, it should be noted
that the estimated output quantities for diesel engines, equipment, and
fuel are not identical to those estimated in the engineering cost
described in above and presented in Chapters 6 and 7 of the RIA. The
difference is due to the different methodologies used to estimate these
costs. As noted above, social costs are the value of goods and services
lost by society resulting from: (a) the use of resources to comply with
and implement a regulation (i.e., compliance costs); and (b) reductions
in output. Thus, the social cost analysis considers both price and
output (quantity) effects associated with consumer and producer
reaction to increased prices associated with the regulatory compliance
costs. The engineering cost analysis, on the other hand, is based on
applying additional technology to comply with the new regulations. The
engine population in the engineering cost analysis does not reflect
consumer and producer reactions to the compliance costs. Consequently,
the estimated output quantities from the cost analysis are slightly
larger than the estimated output quantities from the social cost
analysis.
The results of this analysis suggest that the economic impacts of
this rule are likely to be small, on average. Price increases in the
application markets are expected to average about 0.1 percent per year.
Output decrease in the application markets are expected to average less
than 0.02 percent for all years. The price increases for engines,
equipment, and fuel are expected to be about 20 percent, 3 percent, and
7 percent, respectively (total impact averaged over the relevant
years). The number of engines and equipment produced is expected to
decrease by less
[[Page 39145]]
than 250 units, and the amount of fuel produced annually is expected to
decrease by less than 4 million gallons. With respect to the economic
welfare analysis, producers and consumers in the application markets
are expected to bear about 83 percent of the burden in 2013; this will
increase to about 96 percent in 2030 and beyond. In other words,
despite the almost total pass-through of costs the average price of
goods and services in the application markets is expected to increase
by only 0.1 percent. This outcome reflects the fact that diesel
engines, equipment, and fuel are only a small part of total costs for
the application markets. These results are described in more detail
below and in Chapter 10 of the Final RIA.
a. Expected Market Impacts
The estimated market impacts for 2013, 2020, and 2030 are presented
in Table VI.F-1. The market-level impacts presented in this table
represent production-weighted averages of the individual market-level
impact estimates generated by the model: the average expected price
increase and quantity decrease across all of the units in each of the
engine, equipment, fuel, and final application markets. For example,
the model includes seven individual engine markets that reflect the
seven different horsepower size categories. The 21.4 percent price
change for engines shown in Table VI.F-1 for 2013 is an average price
change across all engine markets weighted by the number of production
units. Similarly, the equipment impacts presented in Table VI.F-1 are
the weighted averages of 42 equipment-application markets, such as
small (<25hp) agricultural equipment and large (>600hp) industrial
equipment. Note that price increases and quantity decreases for
specific types of engines, equipment, application sectors, or diesel
fuel markets are likely to be different. The aggregated data presented
in this table provide a broad overview of the expected market impacts
that is useful when considering the impacts of the rule on the economy
as a whole. The individual market-level impacts are presented in
Chapter 10 of the Final RIA.\249\
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\249\ The NDEIM distinguishes between ``merchant'' engines and
``captive'' engines. ``Merchant'' engines are produced for sale to
another company and are sold on the open market to anyone who wants
to buy them. ``Captive'' engines are produced by a manufacturer for
use in its own nonroad equipment line (this equipment is said to be
produced by ``integrated'' manufacturers). The market analysis for
engines includes compliance costs for merchant engines only. The
market analysis for equipment includes equipment compliance costs
plus a portion of the engine compliance costs attributable to
captive engines.
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The market impacts of this rule suggest that the overall economic
impact of the emission control program on society is expected to be
small, on average. According to this analysis, the average prices of
goods and services produced using equipment and fuel affected by the
rule are expected to increase by about 0.1 percent (as noted above),
despite the almost total pass-through of compliance costs to those
markets.
Engine Market Results: This analysis suggests that most of the
variable costs associated with the rule will be passed along in the
form of higher prices. The average price increase in 2013 for engines
is estimated to be about 21.4 percent. This percentage is expected to
decrease to about 18.3 percent by 2020. In 2036, the last year
considered, the average price increase is expected to be about 18.2
percent. This expected price increase varies by engine size because
compliance costs are a larger share of total production costs for
smaller engines. In 2013, the largest expected percent price increase
is for engines between 25 and 50 hp: 29 percent or $850; the average
price for an engine in this category is about $2,900. However, this
price increase is expected to drop to 22 percent, or about $645, for
2015 and later. The smallest expected percent price increase in 2013 is
for engines in the greater than 600 hp category. These engines are
expected to see price increases of about 3 percent increase in 2013,
increasing to about 7.6 percent in 2015 and then decreasing to about
6.6 percent in 2017 beyond. The expected price increase for these
engines is about $2,240 in 2013, increasing to about $6,150 in 2015 and
then decreasing to $5,340 in 2017 and later, for engines that cost on
average about $80,500.
The market impact analysis predicts that even with these increased
in engine prices, total demand is not expected to change very much. The
expected average change in quantity is less than 150 engines per year,
out of total sales of more than 500,000 engines. The estimated change
in market quantity is small because as compliance costs are passed
along the supply chain they become a smaller share of total production
costs. In other words, firms that use these engines and equipment will
continue to purchase them even at the higher cost because the increase
in costs will not have a large impact on their total production costs
(diesel equipment is only one factor of production for their output of
construction, agricultural, or manufactured goods).
Equipment Market Results: Estimated price changes for the equipment
markets reflect both the direct costs of the new standards on equipment
production and the indirect cost through increased engine prices. In
general, the estimated percentage price changes for the equipment are
less than that for engines because the engine is only one input in the
production of equipment. In 2013, the average price increase for
nonroad diesel equipment is estimated to be about 2.9 percent.\250\
This percentage is expected to decrease to about 2.5 percent for 2020
and beyond. The range of estimated price increases across equipment
types parallels the share of engine costs relative to total equipment
price, so the estimated percentage price increase among equipment types
also varies. For example, the market price in 2013 for agricultural
equipment between 175 and 600 hp is estimated to increase about 1.2
percent, or $1,740 for equipment with an average cost of $143,700. This
compares with an estimated engine price increase of about $1,700 for
engines of that size. The largest expected price increase in 2013 for
equipment is $2,290, or 2.6 percent, for pumps and compressors over 600
hp. This compares with an estimated engine price increase of about
$2,240 for engines of that size. The smallest expected price increase
in 2013 for equipment is $120, or 0.7 percent, for construction
equipment less than 25 hp. This compares with an estimated engine price
increase of about $120 for engines of that size.
---------------------------------------------------------------------------
\250\ It should be noted that the equipment prices used in this
analysis reflect current market conditions. An increase in equipment
prices associated with the nonroad Tier 3 standards would reduce
size of the percentage increase in price. In this sense, our
Economic Impact Analysis is conservative as it is based on the
impact of the Tier 4 program on Tier 1 and Tier 2 equipment prices
and therefore overestimates the market impacts of the Tier 4
program.
---------------------------------------------------------------------------
Again, the market analysis predicts that even with these increased
equipment prices total demand is not expected to change very much. The
expected average change in quantity is less than 250 pieces of
equipment per year, out of a total sales of more than 500,000 units.
The average decrease in the quantity of nonroad diesel equipment
produced as a result of the regulation is estimated to be about 0.02
percent for all years. The largest expected decrease in quantity in
2013 is 18 units of construction equipment per year for construction
equipment between 100 and 175 hp, out of about 63,000 units. The
smallest expected decrease in quantity in 2013 is less than
[[Page 39146]]
one unit per year in all hp categories of pumps and compressors.
It should be noted that the absolute change in the number of
engines and equipment does not match. This is because the absolute
change in the quantity of engines represents only engines sold on the
market. Reductions in engines consumed internally by integrated engine/
equipment manufacturers are not reflected in this number but are
captured in the cost analysis.
Table VI.F-1.--Summary of Market Impacts ($2002)
----------------------------------------------------------------------------------------------------------------
Engineering Change in price Change in quantity
cost ---------------------------------------------------
Market ------------- Absolute
Per unit ($million) Percent Absolute Percent
----------------------------------------------------------------------------------------------------------------
2013
----------------------------------------------------------------------------------------------------------------
Engines........................................ $1,052 $821 21.4 \a\ -79 -0.014
Equipment...................................... 1,198 975 2.9 -139 -0.017
Loco/Marine Transp \b\......................... ........... ........... 0.009 ........... -0.007
Application Markets \b\........................ ........... ........... 0.097 ........... -0.015
No. 2 Distillate Nonroad....................... 0.06 0.07 6.0 \c\ -2.75 -0.019
------------------------------------------------
2020
----------------------------------------------------------------------------------------------------------------
Engines........................................ 950 761 18.3 \a\ -98 -0.016
Equipment...................................... 1,107 976 2.5 -172 -0.018
Loco/Marine Transp \b\......................... ........... ........... 0.001 ........... -0.008
Application Markets \b\........................ ........... ........... 0.105 ........... -0.017
No. 2 Distillate Nonroad....................... 0.07 0.07 7.0 \c\ -3.00 -0.021
------------------------------------------------
2030
----------------------------------------------------------------------------------------------------------------
Engines........................................ 937 751 18.2 \a\ -114 -0.016
Equipment...................................... 968 963 2.5 -200 -0.018
Loco/Marine Transp \b\......................... ........... ........... 0.010 ........... -0.008
Application Markets \b\........................ ........... ........... 0.102 ........... -0.016
No. 2 Distillate Nonroad....................... 0.07 0.07 7.0 \c\ -3.53 -0.022
------------------------------------------------
2036
----------------------------------------------------------------------------------------------------------------
Engines........................................ 931 746 18.2 \a\ -124 -0.016
Equipment...................................... 962 956 2.5 -216 -0.018
Loco/Marine Transp \b\......................... ........... ........... 0.010 ........... -0.008
Application Markets \b\........................ ........... ........... 0.101 ........... -0.016
No. 2 Distillate Nonroad....................... 0.07 0.07 7.0 \c\ -3.85 -0.022
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ The absolute change in the quantity of engines represents only engines sold on the market. Reductions in
engines consumed internally by integrated engine/equipment manufacturers are not reflected in this number but
are captured in the cost analysis. For this reason, the absolute change in the number of engines and equipment
does not match.
\b\ The model uses normalized commodities in the application markets because of the great heterogeneity of
products. Thus, only percentage changes are presented.
\c\ Units are in million of gallons.
Transportation Market Results: The estimated price increase
associated with the proposed standards in the locomotive and marine
transportation markets is negligible, at 0.01 percent for all years.
This means that these transportation service providers are expected to
pass along nearly all of their increased costs to the agriculture,
construction, and manufacturing application markets, as well as other
application markets not explicitly modeled in the NDEIM. This price
increases represent a small share of total application market
production costs, and therefore are not expected to affect demand for
these services.
Application Market Results: The estimated price increase associated
with the new standards in all three application markets is very small
and averages about 0.1 percent for all years. In other words, on
average, the prices of goods and services produced using the affected
engines, equipment, and fuel are expected to increase negligibly. This
results from the observation that compliance costs passed on through
price increases represent a very small share of total production costs
in all the application markets. For example, the construction industry
realizes an increase in production costs of approximately $580 million
in 2013 because of the price increases for diesel equipment and fuel.
However, this represents less than 0.001 percent of the $820 billion
value of shipments in the construction industry in 2000. The estimated
average commodity price increase in 2013 ranges from 0.08 percent in
the manufacturing application market to about 0.5 percent in the
construction market. The percentage change in output is also estimated
to be very small and averages less than 0.02 percent for all years.
Note that these estimated price increases and quantity decreases are
average for these sectors and may vary for specific subsectors. Also,
note that absolute changes in price and quantity are not provided for
the application markets in Table VI.F-1 because normalized commodity
values are used in the market model. Because of the great heterogeneity
of manufactured or agriculture products, a normalized commodity ($1
unit) is used in the application markets. This has no impact on the
estimated percentage change impacts but makes interpretation of the
absolute changes less informative.
[[Page 39147]]
Fuel Markets Results: The estimated average price increase across
all nonroad diesel fuel is about 7 percent for all years. For 15 ppm
fuel, the estimated price increase for 2013 ranges from 5.6 percent in
the East Coast region (PADD 1&3) to 9.1 percent in the mountain region
(PADD 4). The average national output decrease for all fuel is
estimated to be about 0.02 percent for all years, and is relatively
constant across all four regional fuel markets.
b. Expected Economic Welfare Impacts
Estimated social costs are presented in Table VI.F-2. In 2013, the
total social costs are projected to be about $1,510 million ($2002).
About 83 percent of the total social costs is expected to be borne by
producers and consumers in the application markets in 2013, indicating
that the majority of the compliance costs associated with the rule are
expected to be passed on in the form of higher prices. When these
estimated impacts are broken down, about 58.5 percent of the social
costs are expected to be borne by consumers in the application markets
and about 41.5 percent are expected to be borne by producers in the
application markets. Equipment manufacturers are expected to bear about
9.5 percent of the total social costs. Engine manufacturers and diesel
fuel refineries are expected to bear 2.8 percent and 0.5 percent,
respectively. The remaining 4.2 percent of the social costs is expected
to be borne by the locomotive and marine transportation service sector.
In this last sector, about 97 percent of the gross decrease in market
surplus is expected to be borne by the application markets that are not
included in the NDEIM but that use these services (e.g., public
utilities, nonmanufacturing service industries, government) while about
3 percent is expected to be borne by locomotive and marine service
providers. Because of the way the NDEIM is structured, with the fuel
savings added separately, the results imply that locomotive and marine
service provider would see net benefits from the rule due to the
operating savings associated with low sulfur fuel. In fact, they are
likely to pass along some or all of those operating savings to the
users of their services, reducing the size of the welfare losses for
those users.
Total social costs continue to increase over time and are projected
to be about $2,046 million by 2030 and $2,227 million in 2036 ($2002).
The increase is due to the projected annual growth in the engine and
equipment populations. Producers and consumers in the application
markets are expected to bear an even larger portion of the costs,
approximately 96 percent. This is consistent with economic theory,
which states that, in the long run, all costs are passed on to the
consumers of goods and services.
The present value of total social costs through 2036, contained in
Table VI.F-3, is estimated to be $27.2 billion ($2002). This present
value is calculated using a social discount rate of 3 percent from 2004
through 2036. We also performed an analysis using a 7 percent social
discount rate. Using that discount rate, the present value of the
social costs through 2036 is estimated to be $13.9 billion ($2002). As
shown in Table VI.F-3, these results suggest that total engineering
costs exceed compliance costs by a small amount. This is due primarily
to the fact that the estimated output quantities for diesel engines,
equipment, and fuel are not identical to those estimated in the
engineering cost analysis, which is due to the different methodologies
used to estimate these costs (see previous discussion in this Section
IV.F.3).
Table VI.F-2.--Summary of Social Costs Estimates Associated With Primary Program 2015, 2020, 2030, and 2036
[2002, $Million]a, b
----------------------------------------------------------------------------------------------------------------
Market Operating
surplus savings Total Percent
($10 \6\) ($10 \6\)
----------------------------------------------------------------------------------------------------------------
2013
----------------------------------------------------------------------------------------------------------------
Engine Producers Total...................................... $42.0 ........... $42.0 2.8
Equipment Producers Total................................... 143.1 ........... 143.1 9.5
Construction Equipment.................................. 64.0 ........... 64.0 ...........
Agricultural Equipment.................................. 51.8 ........... 51.8 ...........
Industrial Equipment.................................... 27.2 ........... 27.2 ...........
Application Producers & Consumers Total..................... 1,496.7 ($243.2) 1,253.5 83.0
Total Producer.......................................... 620.9 ........... ........... 41.5
Total Consumer.......................................... 875.7 ........... ........... 58.5
Construction............................................ 584.3 ($115.2) 469.2 ...........
Agriculture............................................. 430.0 ($78.2) 351.8
Manufacturing........................................... 482.4 ($49.8) 432.5 ...........
Fuel Producers Total........................................ 8.0 ........... 8.0 0.5
PADD I&III.............................................. 4.1 ........... 4.1 ...........
PADD II................................................. 3.3 ........... 3.3 ...........
PADD IV................................................. 0.0 ........... 0.0 ...........
PADD V.................................................. 0.6 ........... 6.0 ...........
Transportation Services, Total.............................. 104.9 ($41.5) 63.4 4.2
Locomotive.............................................. 1.6 ($12.4) ($10.8) ...........
Marine.................................................. 0.9 ($9.9) ($9.0) ...........
Application markets not included in NDEIM............... 102.4 ($19.2) $83.2 ...........
--------------
Total............................................... 1,794.7 ($284.7) $1,510.0 100.0%
=============================================================
2020
----------------------------------------------------------------------------------------------------------------
Engine Producers Total...................................... 0.1 ........... 0.1 0.0
Equipment Producers Total................................... 122.7 ........... 122.7 6.7
Construction Equipment.................................. 57.8 ........... 57.8 ...........
Agricultural Equipment.................................. 39.7 ........... 39.7 ...........
[[Page 39148]]
Industrial Equipment.................................... 25.2 ........... 25.2 ...........
Application Producers & Consumers Total..................... 1,826.1 ($192.3) 1,633.8 89.4
Total Producer.......................................... 762.2 ........... ........... 41.7
Total Consumer.......................................... 1,063.8 ........... ........... 58.3
Construction............................................ 744.0 ($91.1) 653.0 ...........
Agriculture............................................. 524.3 ($61.8) 462.5 ...........
Manufacturing........................................... 557.8 ($39.4) 518.3 ...........
Fuel Producers Total........................................ 11.2 ........... 11.2 0.6
PADD I&III.............................................. 5.6 ........... 5.6 ...........
PADD II................................................. 4.6 ........... 4.6 ...........
PADD IV................................................. 0.2 ........... 0.2 ...........
PADD V.................................................. 0.8 ........... 0.8
Transportation Services, Total.............................. 95.7 ($35.1) 60.6 3.3
Locomotive.............................................. 2.0 ($7.2) ($5.2) ...........
Marine.................................................. 1.1 ($11.6) ($10.5) ...........
Application markets not included in NDEIM............... 92.6 ($16.3) 76.3 ...........
--------------
Total............................................... 2,055.7 ($227.4) $1,828.3 100.0%
=============================================================
2030
----------------------------------------------------------------------------------------------------------------
Engine Producers Total...................................... 0.1 ........... 0.1 0.0
Equipment Producers Total................................... 5.9 ........... 5.9 0.3
Construction Equipment.................................. 4.0 ........... 4.0 ...........
Agricultural Equipment.................................. 1.9 ........... 1.9 ...........
Industrial Equipment.................................... 0.1 ........... 0.1 ...........
Application Producers & Consumers Total..................... 2,112.3 ($154.2) 1,958.1 95.7
Total Producer.......................................... 882.2 ........... ........... 41.7
Total Consumer.......................................... 1,230.1 ........... ........... 58.3
Construction............................................ 863.8 ($73.0) 790.8 ...........
Agriculture............................................. 606.8 ($49.6) 557.2 ...........
Manufacturing........................................... 641.6 ($31.6) 610.0 ...........
Fuel Producers Total........................................ 13.2 ........... 13.2 0.6
PADD I&III.............................................. 6.7 ........... 6.7 ...........
PADD II................................................. 5.2 ........... 5.2 ...........
PADD IV................................................. 0.3 ........... 0.3 ...........
PADD V.................................................. 1.0 ........... 1.0 ...........
Transportation Services, Total.............................. 109.1 ($39.9) 69.2 3.4
Locomotive.............................................. 2.5 ($7.8) ($5.3) ...........
Marine.................................................. 1.4 ($13.6) ($12.2) ...........
Application markets not included in NDEIM............... 105.2 ($18.5) 86.7 ...........
--------------
Total............................................... 2,240.6 ($194.1) $2,046.4 100.0%
=============================================================
2036
----------------------------------------------------------------------------------------------------------------
Engine Producers Total...................................... 0.2 ........... 0.2 0.0
Equipment Producers Total................................... 6.4 ........... 6.4 0.3
Construction Equipment.................................. 4.3 ........... 4.3 ...........
Agricultural Equipment.................................. 2.0 ........... 2.0 ...........
Industrial Equipment.................................... 0.1 ........... 0.1 ...........
Application Producers & Consumers Total..................... 2,287.4 ($155.7) 2,131.7 95.7
Total Producer.......................................... 955.5 ........... ........... 41.7
Total Consumer.......................................... 1,331.9 ........... ........... 58.3
Construction............................................ 936.4 ($50.0) 862.7 ...........
Agriculture............................................. 657.8 ($73.7) 607.8 ...........
Manufacturing........................................... 693.2 ($31.9) 661.3 ...........
Fuel Producers Total........................................ 14.5 ........... 14.5 0.7
PADD I&III.............................................. 7.3 ........... 7.3 ...........
PADD II................................................. 5.8 ........... 5.8 ...........
PADD IV................................................. 0.3 ........... 0.3 ...........
PADD V.................................................. 1.0 ........... 1.0 ...........
Transportation Services, Total.............................. 116.9 ($42.6) 74.3 3.3
Locomotive.............................................. 2.8 ($8.2) ($5.4) ...........
Marine.................................................. 1.6 ($14.6) ($13.0) ...........
Application markets not included in NDEIM............... 112.5 ($19.8) 92.7 ...........
--------------
[[Page 39149]]
Total............................................... $2,425.3 ($198.4) $2,227.0 100.0
----------------------------------------------------------------------------------------------------------------
Notes: a Figures are in 2002 dollars.
b Operating savings are shown as negative costs.
Table VI.F-3.--National Engineering Compliance Costs and Social Costs
Estimates for the Rule (2004-2036)
[$2002; $Million]
------------------------------------------------------------------------
Engineering compliance
Year costs Total social costs
------------------------------------------------------------------------
2004 0 0
2005 0 0
2006 0 0
2007 ($17) ($18)
2008 54 54
2009 54 54
2010 328 327
2011 923 922
2012 1,305 1,304
2013 1,511 1,510
2014 1,691 1,690
2015 1,742 1,741
2016 1,743 1,743
2017 1,763 1,762
2018 1,778 1,778
2019 1,795 1,795
2020 1,829 1,828
2021 1,816 1,815
2022 1,819 1,818
2023 1,844 1,843
2024 1,858 1,857
2025 1,888 1,887
2026 1,921 1,920
2027 1,954 1,952
2028 1,985 1,984
2029 2,017 2,016
2030 2,047 2,046
2031 2,078 2,077
2032 2,108 2,107
2033 2,139 2,137
2034 2,169 2,167
2035 2,198 2,197
2036 2,228 2,227
NPV at 3% 27,247 27,232
NPV at 7% 13,876 13,868
------------------------------------------------------------------------
VII. Alternative Program Options Considered
Our final emission control program for nonroad engines and
equipment consists of a two-step program to reduce the sulfur content
of nonroad diesel fuel in conjunction with Tier 4 engine standards. The
rule also contains limits on sulfur levels in locomotive and marine
diesel fuel. As described in the draft Regulatory Impact Analysis for
the proposal, we evaluated a number of alternative options with regard
to the scope, level, and timing of the standards. This section presents
a summary of those alternative program options and our reasons for
either adopting or not adopting these options.
A. Summary of Alternatives
For our Notice of Proposed Rulemaking (NPRM), we developed
emissions, benefits, and cost analyses for a number of alternative
program options involving variations in both the fuel and engine
programs. The alternatives we considered can be categorized according
to the structure of their fuel requirements: whether the 15 ppm fuel
sulfur limit for nonroad diesel fuel is reached in two steps, like the
program we are finalizing today, or in one step. Within each of these
two broad fuel program categories, we considered a number of different
engine programs. This section summarizes the alternatives. A more
detailed description of the alternatives can be found in the NPRM and
the draft RIA.
One-step alternatives were those in which the 15 ppm fuel sulfur
standard for nonroad diesel fuel is applied in a single step. We
evaluated three one-step alternatives, summarized in table VII-1.
Option 1 represented an engine program that was similar to that in our
proposed program, the primary difference being the generally earlier
phase-in dates for the PM standards. We considered the Option 1 engine
program as being the most stringent one-step program that could be
considered even potentially feasible considering cost, lead-time, and
other factors. Option 1 also included a June 2008 start date for the 15
ppm sulfur standard applicable to nonroad diesel fuel and the 500 ppm
sulfur standard applicable to locomotive and marine fuel. We also
considered two other one-step alternatives which differ from Option 1.
As described in table VII-1, Option 1b differed from Option 1 regarding
the timing of the fuel standards, while Option 1a differed from Option
1 in terms of the engine standards. Options 1a and 1b also differed
from Option 1 by extending the 15 ppm fuel sulfur limit to locomotive
and marine diesel fuel.
Two-step alternatives were those in which the nonroad diesel fuel
sulfur standard was set first at 500 ppm and then was reduced to 15
ppm. The two-step alternatives varied from the proposed program in
terms of both the timing and levels of the engine standards and the
timing of the fuel standards. Option 2a was the same as the proposed
program except the 500 ppm fuel standard was introduced a year earlier,
in 2006. Option 2b was the same as the proposed program except the 15
ppm fuel standard was introduced a year earlier (in 2009) and the trap-
based PM standards began earlier for all engines. Option 2c was the
same as the proposed program except the 15 ppm fuel standard was
introduced a year earlier in 2009 and the trap-based PM standards began
earlier for engines 175-750 hp. Option 2d was the same as the proposed
program except the NOX standard was reduced to 0.30 g/bhp-hr
for engines of 25-75 hp, and this standard was phased in. Finally,
Option 2e was the same as the proposed program except there were no new
Tier 4 NOX limits.
In the NPRM, option 3 was identical to the proposed program, except
that it would have exempted mining equipment over 750 hp from the Tier
4 standards. We explained in detail in section 12.6.2.2.7 of the draft
RIA that we had very serious reservations regarding the legality of
this option given these engines' high emission rates of PM,
NOX and NMHC and the availability of further emissions
control at reasonable cost. We adhere to these conclusions here. We do
note, however, that we are adopting somewhat different provisions for
this engine category than we proposed. As explained in sections II.A.
and II.B above, although we have adopted aftertreatment-based PM
standards for these engines, the standards are slightly higher than
those proposed to assure their technical feasibility. We also have
deferred a decision on whether to adopt aftertreatment-based standards
for NOX for mobile machines with engines greater than 750
hp. We also have provided ample lead time for these engines to comply
with the Tier 4 standards, both in terms of the rule's compliance dates
(which include a 2015
[[Page 39150]]
date for the final Tier 4 standards, one year later than we proposed)
and the ABT and equipment manufacturer flexibilities. This lead time
takes into account the long design periods, high cost, and low sales
volumes of these engines. Thus, although we strongly disagree with the
option of not adopting Tier 4 standards for these engines, we do
recognize their need for unique standards and compliance dates.
Option 4 included applying the 15 ppm sulfur limit to both
locomotive and marine diesel fuel in addition to nonroad fuel. On the
basis of comments received and additional analyses, we have determined
that a 15ppm sulfur standard for locomotive and marine fuel is
appropriate, though we have included certain options for utilization of
off-specification fuel and transmix not represented in our original
Option 4. This aspect of our final program is discussed in detail in
section IV.
Options 5a and 5b were identical to the proposed program except
with respect to standards for engines less than 75 hp. Option 5a was
identical to the proposed program except that no new program
requirements would be set in Tier 4 for engines under 75 hp. Instead,
Tier 2 standards and testing requirements for engines under 50 hp, and
Tier 3 standards and testing requirements for 50-75 hp engines, would
continue indefinitely. The Option 5b program was identical to the
proposed program except that for engines under 75 hp only the 2008
engine standards would be set, i.e. there would be no additional PM
filter-based standard in 2013 for 25-75 hp engines, and no additional
NOX + NMHC standard in 2013 for 25-50 hp engines. We are not
adopting Options 5a or 5b in today's action. As explained at 8.2.3 of
the Summary and Analysis of Comments, and in sections 12.6.2.2.9 and
12.6.2.2.10 of chapter 12 of the draft RIA, these options would forego
substantial PM and NOX + NMHC emission reductions (on the
order of hundreds of thousands of tons of each pollutant) which are
feasible at reasonable cost. We note further that many of these smaller
engines operate in populated areas and in equipment without closed
cabs--in mowers, small construction machines, and the like--where
personal exposures to toxic emissions (both PM and air toxics which are
part of the NMHC fraction) may be pronounced well beyond what is
indicated simply by a comparison of nationwide emissions inventory
estimates. We would also emphasize the remarkable growth in recent
sales and usage for these smaller diesel machines, and we expect this
trend to continue, pointing up the need for effective PM emissions
control from these engines. We thus do not see a basis in law or policy
to adopt either of these options.
In response to comments on our NPRM we also investigated a number
of other variations in the engine standards as we developed our final
rule. These variations were generally related to the phase-in of engine
standards in a number of different horsepower categories. A discussion
of these variations is provided in section II as well as in various
background documents.
Table VII-1 contains a summary of a number of these alternatives.
The expected emission reductions, costs, and monetized benefits
associated with them in comparison to the proposed program were
evaluated for the NPRM. Those analyses were not revised for this final
rulemaking to reflect changes in our empirical models or assumptions.
We received no new information that would cause us to believe that the
relative impacts and differences for those alternative program options
relative to our final program would change enough to make an impact on
our assessments of the feasibility or appropriateness of the options.
The remainder of this section will summarize some of the comments we
received on the options and our responses to those comments.
Table VII-1.--Summary of Alternative Program Options
------------------------------------------------------------------------
Option Fuel Standards Engine Standards a
------------------------------------------------------------------------
Final program
-----------------------------------------------
500 PPM in 2007 <75 hp: PM
for NR, loco/marine. standards in 2008
15 ppm in 2010 25-75 hp: PM AT-
for NR. based standards in 2013
15 ppm in 2012 75-175 hp: PM
for loco/marine. AT-based standards in
2012
175-750 hp: PM
AT-based standards in
2011
75-175 hp: NOX
AT-based standards
phase-in 2012-2014
175-750 hp: NOX
AT-based standards
phase-in 2011-2014
>750 hp: PM and
NOX AT phased-in 2011
and 2015
---------------------
1-Step Fuel Options
-----------------------------------------------
1................... 15 ppm in 2008 <50 hp: PM stds
for NR and loco/marine. only in 2009
25-75 hp: PM AT
stds and EGR or
equivalent NOX
technology in 2013; no
NOX AT
>75 hp: PM AT
stds phasing in
beginning in 2009; NOX
AT phasing in beginning
in 2011
1a.................. 15 ppm in 2008 PM AT
for NR, loco/marine. introduced in 2009-10
NOX AT
introduced in 2011-12
1b.................. 15 ppm in 2006 Same as 1a
for NR, loco/marine.
---------------------
2-Step Fuel Options
-----------------------------------------------
2a.................. Same as proposed program Same as proposed program
except--.
500 ppm in 2006
for NR, loco/marine.
2b.................. Same as proposed program Same as proposed program
except--. except--
15 ppm in 2009 Move PM AT up 1
for NR and loco/marine. year for all engines
>25 hp (phase in starts
2010)
2c.................. Same as proposed program Same as proposed program
except--. except--
15 ppm in 2009 Move PM AT up 1
for NR and loco/marine. year for all engines
175-750 hp (phase in
starts 2010)
2d.................. Same as Same as proposed program
proposed program. except--
[[Page 39151]]
Phase-in NOX AT
for 25-75hp beginning
in 2013
---------------------
Other Options
-----------------------------------------------
3................... Same as Same as proposed program
proposed program. except--
Mining
equipment over 750 hp
left at Tier 2
4................... Same as proposed program Same as proposed program
except--.
Downgrade
flexibilities for loco/
marine not included.
5a.................. Same as Same as proposed program
proposed program. except--
No Tier 4
standards <75 hp
5b.................. Same as Same as proposed program
proposed program. except--
No new <75hp
standards after 2008
(i.e., no CDPFs in
2013)
------------------------------------------------------------------------
Notes: a AT = aftertreatment.
B. Introduction of 15 ppm Nonroad Diesel Sulfur Fuel in One Step
EPA carefully evaluated an alternative which would require that the
nonroad diesel sulfur level be reduced to 15ppm in a single step,
beginning June 1, 2008. The one-step fuel options, including the three
variations Option 1, Option 1a, and Option 1b, were presented and
discussed in detail in the NPRM and in the draft RIA.
Many comments were received about a one step diesel fuel sulfur
control approach taking effect in 2008. Refiners commented that they
did not think that they could reduce both the highway and nonroad
diesel fuel pools down to 15 ppm in the same timeframe while
maintaining the supply of these two diesel fuel pools. The refiners
went on to say that having a 500 ppm outlet for off-specification
material in the nonroad diesel fuel pool is critical in the years after
reducing the highway diesel fuel pool to 15 ppm to ensure supply of
highway fuel. The refining industry further commented that the one step
program would provide fewer environmental benefits and also provide the
refining industry less time and flexibility to make the transition to
the 15 ppm sulfur level for nonroad diesel fuel compared to a two step
approach. While many environmental organizations and the Engine
Manufacturers Association (EMA) commented that they preferred a 15 ppm
standard as soon as possible, EMA also pointed out that a quick
transition to 500 ppm would provide important fleet-wide emission
reductions, reduce maintenance costs and enable the use of certain
emission control technology such as exhaust gas recirculation and
oxidation catalysts. Commenters generally said little about the engine
standards associated with the one-step options, other than to point out
that earlier introduction of 15 ppm sulfur fuel means that
aftertreatment-based standards and nonroad engine retrofits can also be
introduced earlier.
The reasons provided in the NPRM for choosing the two step program
over the one-step program still apply and generally address the
comments received (see section 12.6.2 of the draft RIA). Although there
would be greater PM and NOX emission reductions with the
one-step approach due to earlier introduction of aftertreatment
technology enabled by the 15 ppm sulfur diesel fuel, the SO2
emission benefits for the two-step approach are greater due to the
earlier adoption of the 500 ppm sulfur standard. Thus, even assuming
that the one-step approach would not jeopardize implementation of the
highway diesel emission rule, the emission impacts of these two options
are mixed. Moreover, the costs for achieving the second step (15 ppm)
of the two step approach are likely to be lower than under the one step
approach. This is because advanced desulfurization technologies are
much more likely to be used in 2010 after additional testing and
demonstration, while they may hardly be considered at all if they would
have to be installed for 2008. One advanced desulfurization technology,
Process Dynamics Isotherming, is expected to lower the cost of
complying with the 15 ppm step by about one cent per gallon. This cost
discrepancy is expected to persist since it is associated with the
investment of significant capital which cannot be modified or replaced
without significant additional expense. Additionally, under the two
step program, refiners will be able to use their experience in
complying with 15 ppm highway diesel fuel sulfur standard to better
design their nonroad hydrotreaters needed for 2010.
After careful consideration of these matters, we have decided to
finalize the two-step approach in today's action.
C. Applying the 15 ppm Sulfur Cap to Locomotive and Marine Diesel Fuel
In the NPRM, we requested comment on extending the 15 ppm cap to
locomotive and marine diesel fuel in 2010 or some later year as part of
this rule. The costs and inventory impacts of this alternative were
explored in the context of Option 4 in the NPRM. A 15ppm sulfur cap for
locomotive and marine fuel would increase the long-term PM and
SO2 benefits of the rule and would reduce the number of
fuels being carried in the distribution system after 2014, when the
small refiner provisions of this rule expire. It would also allow
refiners to plan to comply with the 15 ppm cap for locomotive and
marine diesel fuel at the same time as they plan to comply with the 500
ppm cap for NRLM fuel and the 15 ppm cap for nonroad fuel.
As a result of comments received and additional analyses performed
since the NPRM, we are finalizing a 15 ppm sulfur cap for locomotive
and marine fuel in today's notice. A full discussion of the feasibility
and benefits of a 15 ppm sulfur cap for locomotive and marine fuel can
be found in section IV, along with a summary of the comments we
received and our responses to those comments. In addition, we are
planning a separate rule to implement new emission standards for
locomotive and marine diesel engines that will build upon the 15 ppm
sulfur standard applicable to fuel used by these engines. We are
publishing an Advanced Notice of Proposed Rulemaking in another section
of today's Federal Register describing our plans in this area.
D. Other Alternatives
We also analyzed a number of other alternatives in the NPRM, as
summarized in table VII-1. Some of these focused on control options
more stringent than our final program while others reflect modified
engine
[[Page 39152]]
requirements that result in less stringent control. In the NPRM we
presented our assessment of these options in terms of the feasibility,
emission reductions, costs, and other relevant factors. Few comments
were received on these other alternatives, and no new information arose
to alter what we believe are significant concerns with respect to these
Options compared to the final program. Hence, with the exception of the
few alternative program elements that we did incorporate into our final
program as described earlier in this section, we did not include these
options into our final program. Our detailed responses to all the
comments received on the other alternatives can be found in section 8
of the Summary and Analysis of Comments document.
VIII. Future Plans
The above discussion describes the contents of this final rule.
This section addresses a variety of areas not addressed by this rule.
In these several areas, we expect to continue our efforts to improve
our compliance programs and achieve further reductions in emissions
from nonroad engines.
A. Technology Review
As we described in sections III.E and G of the proposal, there are
some technology issues that warrant our planning a future review of
emissions control technology for engines under 75 hp. Under our
implementation schedule presented in section II.A, standards based on
the use of PM filter technology will take effect in the 2013 model year
for 25-75 hp engines (or in the 2012 model year for manufacturers
opting to skip the transitional standards for 50-75 hp engines).
However, at this time we have not decided what long-term PM standards
for engines under 25 hp are appropriate. No PM filter-based standards
are being adopted for these under 25 hp engines in this final rule.
Likewise, we have not decided what the long-term NOX
standards for engines under 75 hp should be, and no NOX
adsorber-based standards are being set for these engines in this final
rule. As part of the technology review, we plan to thoroughly evaluate
progress made toward applying advanced PM and NOX control
technologies to these smaller engines.
We plan to conduct the technology review in 2007, and to conclude
it by the end of that year, to give manufacturers lead time should an
adjustment in the program be considered appropriate. We do not intend
to include in the technology review a reassessment of PM filter
technology needed to meet the optional 0.02 g/hp-hr PM standard for 50-
75 hp engines in 2012. We assume that manufacturers would only choose
this option if they had confidence that they could meet the 0.02 g/hp-
hr standard in 2012, a year earlier than otherwise required.
Numerous commenters expressed support for the planned technology
review. MECA and STAPPA/ALAPCO stressed that the review should not be
limited to considering the need to relax PM filter-based standards for
small engines, but should also consider technology innovations that
would justify increasing the stringency of small engine standards that
are not currently aftertreatment-based. This is indeed our intent.
Yanmar suggested that the review be deferred to 2010 or later, because
NOX control experience from highway diesels will not be
sufficient by 2007. On the contrary, based on the rate of technology
development progress to date for highway engines, we believe that there
will be a very large amount of pertinent new information available by
2007, even though widespread field experience may be lacking. Waiting
longer to conduct the technology review would, we believe, provide
insufficient leadtime to the industry should an adjustment to the 2013
standards be found appropriate. Some engine and equipment manufacturers
called for expanding the technology review to other power categories.
As discussed in the proposal, we do not believe that a generalized
technology review of the sort being conducted for the heavy-duty
highway engine program is warranted, primarily due to the very fact
that the nonroad standards are modeled on the highway program, and the
highway program does include this comprehensive review. We also do not
see the specific technical issues for engines above 75 hp that have
been identified for smaller engines, such as might warrant our
expanding the review at this time. Engine manufacturers also expressed
interest in a consultative process in the near future that would
establish the scope, outputs, and criteria for the review, possibly
including assigning responsibility for the review to an independent
entity. Although we plan and hope to have the active participation of
all interested parties in the review process, assigning responsibility
for the review to groups or individuals outside the Agency would be
inappropriate. As the review would be closely tied to potential
subsequent rulemaking action by the Agency, it is essential that it
adequately cover the relevant issues. To ensure this, it is imperative
that we retain overall responsibility for the review. We have not yet
worked out process details for the review, but will do so at some later
date.
Several commenters strongly stressed the need for EPA to work with
governmental standards-setting bodies in other countries to harmonize
future standards. As discussed in section II.A.8, we recognize the
importance of harmonizing nonroad diesel standards and have worked
diligently with our colleagues responsible for setting such standards
outside the U.S., thus far with good success. The March 2004 Directive
that sets future nonroad diesel standards in the European Union (EU)
will very closely align the EU program with our program in the Tier 4
timeframe. \251\ Further enhancing prospects for close harmonization,
the Directive includes plans for a future technical review: ``There are
still some uncertainties regarding the cost effectiveness of using
after-treatment equipment to reduce emissions of particulate matter
(PM) and of oxides of nitrogen (NOX). A technical review
should be carried out before 31 December 2007 and, where appropriate,
exemptions or delayed entry into force dates should be considered.''
---------------------------------------------------------------------------
\251\ Council of the European Union, Directive of the
European Parliament and of the Council amending Directive 97/68/
EC, March 15, 2004.
---------------------------------------------------------------------------
Note that the timing for this review coincides with that of our own
planned review. Among other things, both our review and the EU review
will consider the appropriate long-term standards for engines between
25 and 50 hp, engines for which we have set PM-filter based standards
and for which the EU has not. Furthermore, in addition to re-evaluating
the standards, the EU technical review will consider the need to
introduce standards for engines below 25 hp and above 750 hp, the two
categories for which the EU has not yet set emission standards, and for
which harmonization is thus most lacking. We are greatly encouraged by
the degree of harmonization achieved thus far, and, given our common
interests, issues and planned timing, expect to work closely with
Commission staff in carrying out the 2007 technology review, with an
aim of preserving and enhancing harmonization of standards.
In response to comments received on the proposal, we wish to
clarify that the technology review for engines under 75 hp will be a
comprehensive undertaking that may result in adjustments to standards,
implementation dates, or other provisions (such as flexibilities) in
either direction ( that is, toward more or less stringency), depending
on conclusions reached in the review about
[[Page 39153]]
appropriate standards under the Clean Air Act. All relevant factors
including technical feasibility and commercial viability of engines and
machines designed to meet the standards will be taken into account.
B. Test Procedure Issues
Section III describes two issues related to test procedures that
warrant further attention in the future. First, we are adopting
transient test procedures for engines subject to Tier 4 emission
standards, but we intend to collect data that would help us adopt a
duty cycle that would appropriately test constant-speed engines.
Second, we are adopting cold-start test procedures, but are interested
in collecting additional data that could be used to revise those
procedures if appropriate.
C. In-Use Testing
Although this final rule does not include an in-use testing program
for nonroad diesel engines, we expect to establish such a program for
the future in a separate rulemaking action. The goal of this program
will be to ensure that emissions standards are met throughout the
useful life of the engines, under conditions normally experienced in-
use. The Agency expects to pattern the in-use testing requirements for
nonroad diesel engines after a program that is being developed for
heavy-duty diesel highway vehicles. This program will be funded and
conducted by the manufacturer's of heavy-duty diesel highway engines
with our oversight. We expect it will incorporate a two-year pilot
program. The pilot program will allow the Agency and manufacturers to
gain the necessary experience with the in-use testing protocols and
generation of in-use test data using portable emission measurement
devices prior to fully implementing program. A similar pilot program is
expected to be part of any manufacturer-run, in-use NTE test program
for nonroad engines.
The Agency plans to promulgate the in-use testing requirements for
heavy-duty highway vehicles in the December 2004 time frame. We
anticipate proposing a manufacturer-run, in-use testing program for
nonroad diesel engines by 2005 or earlier. As mentioned above, the
nonroad diesel engine program is expected to be patterned after the
heavy-duty highway program.
D. Engine Diagnostics
We are also in the process of defining diagnostic requirements that
would apply to highway diesel engines. Once we have adopted
requirements for highway engines, we would aim to adapt the
requirements as needed to appropriately address diagnostic needs for
nonroad diesel engines. These programs would likely be very similar,
but the diagnostics for nonroad engines my need to differ in some ways,
depending on the technologies used by different types and sizes of
engines and on an assessment of an appropriate level of information and
control for engines used in nonroad applications.
E. Future NOX Standards for Engines in Mobile Machinery Over
750 hp
In section II.A.4, we explain that we are not, at this time,
setting Tier 4 NOX standards for mobile machinery over 750
hp based on the performance of high-efficiency aftertreatment, although
we note that the 2.6 g/bhp-hr NOX standard taking effect for
these engines in 2011 represents a more than 60% NOX
reduction from the 6.9 g/bhp-hr Tier 1 level in effect today, and a
more than 40% reduction from the 4.8 g/bhp-hr NOX+NMHC Tier
2 standard level that takes effect in 2006. We are still evaluating the
issues involved for these engines to achieve a more stringent
NOX standard, and believe that these issues are resolvable.
We intend to continue evaluating the appropriate long-term
NOX standard for mobile machinery over 750 hp and expect to
announce further plans regarding these issues, perhaps as early as
2007.
F. Emission Standards for Locomotive and Marine Diesel Engines
This final rule adopts limited requirements to limit sulfur levels
in distillate fuels used in locomotive and many marine diesel engines,
which will help reduce PM emissions from these engines. In an upcoming
rulemaking, we will consider an additional tier of NOX and
PM standards for marine diesel engines less than 30 liters per cylinder
and for locomotive engines. These standards would reflect the
application of advanced emission-control technology, including the
potential to use the high-efficiency catalytic emission-control devices
like those described elsewhere in this preamble. In developing these
new standards, we will consider the substantial overlap in engine
technology between the locomotive and marine engines and the nonroad
engines covered by this final rule. We will also take into account the
unique features associated with locomotive and marine engines (and
their respective markets) and the extent to which these differences may
constrain the feasibility of applying advanced emission control
technologies to those engines.
We are concurrently publishing an Advance Notice of Proposed
Rulemaking that describes the emission-control program we are
contemplating for these engines. After consideration of comments
submitted on the Advance Notice, we will publish a Notice of Proposed
Rulemaking. Our proposal will be subject to comment before its expected
completion in the 2006 time frame.
The engine emission control program to be described in the Advance
Notice will cover all locomotive engines subject to 40 CFR part 92 and
all marine diesel engines with displacement below 30 liters per
cylinder. Note that the rule will therefore cover marine diesel engines
below 37 kW, which are currently regulated through Tier 3 with land-
based nonroad engines in 40 CFR part 89. The rule will also address
both recreational and commercial marine diesel engines with
displacement below 30 liters per cylinder. Marine engines at or above
30 liters per cylinder typically use a different kind of fuel, residual
fuel, and will be considered in a separate rulemaking to be finalized
by April 27, 2007, pursuant to a regulatory provision adopted in our
recent rule setting standards for those engines (68 FR 9783, February
28, 2003).
G. Retrofit Programs
In the proposal, we requested comment on setting voluntary new
engine emission standards applicable to the retrofit of nonroad diesel
engines. As described in section III.A, we are not adopting a retrofit
credit program with today's action. We believe it is important to more
fully consider the details of a retrofit credit program and work with
interested parties in determining whether a viable program can be
developed. EPA intends to explore the possibility of a voluntary
nonroad retrofit credit program through future action.
H. Reassess the Marker Specified for Heating Oil
As discussed in sections IV and V, we are requiring that the
chemical marker solvent yellow 124 (SY-124) be added to heating oil
outside of the Northeast/Mid-Atlantic Area. We received comments from
the American Society of Testing and Materials (ASTM), the Coordinating
Research Council (CRC), the Department of Defense (DoD), and the
Federal Aviation Administration (FAA) requesting that we delay
finalizing the selection of a specific marker for use in this final
rule due to concerns for jet fuel contamination. ASTM withdrew its
request for a postponement in the regulation, given
[[Page 39154]]
that this final rule requires addition of the marker at the terminal,
rather than the refinery gate as proposed. This eliminates most of the
concern regarding jet fuel contamination. However, ASTM stated that
some concern remains regarding jet fuel contamination downstream of the
terminal. Nevertheless, ASTM related that these concerns need not delay
finalization of the marker requirements in this rule, since a CRC
program to evaluate these concerns is expected to be completed well
before SY-124 must be added to heating oil. FAA is also undertaking an
effort to identify fuel markers that would be compatible for use in jet
fuel.
We also received comments from the heating oil industry and the
Department of Defense, which expressed concerns regarding the potential
health effects and maintenance impacts on heating oil equipment from
the use of SY-124 in heating oil. As discussed in section V, we believe
these concerns have been adequately addressed for us to specify the use
of SY-124 in this final rule. The EU has required the use of SY-124 in
heating oil since August 2002. The EU intends to re-evaluate the use of
SY-124 after December 2005 or earlier if they learn of any health,
safety, or environmental concerns from their in-use experience with SY-
124.
We will keep abreast of the ASTM, CRC, FAA, IRS, and EU activities
and commit to a review of our use of SY-124 under today's rule based on
these findings. If alternative markers are identified that do not raise
concerns regarding the potential contamination of jet fuel, we will
initiate a rulemaking to evaluate the use of one of these markers in
place of SY-124.
IX. Public Participation
Many interested parties provided their input on the proposed
rulemaking during our public comment period. This comment period, along
with the three public hearings that were held in New York, Chicago, and
Los Angeles, provided ample opportunity for public participation.
Throughout the rulemaking process, EPA met with stakeholders including
representatives from the fuel refining and distribution industry,
engine and equipment manufacturing industries, emission control
manufacturing industry, environmental organizations, states,
agricultural interests, and others.
A detailed Response to Comments document was prepared for this
rulemaking that describes the comments that we received on the proposal
along with our response to each of these comments. The Response to
Comments document is available in the air docket and e-docket for this
rule, as well as on the Office of Transportation and Air Quality
homepage. In addition, comments and responses for many key issues are
included throughout this preamble.
X. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to review by the Office of Management and Budget
(OMB) and the requirements of this Executive Order. The Executive Order
defines a ``significant regulatory action'' as any regulatory action
that is likely to result in a rule that may--
Have an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, Local, or Tribal governments or
communities;
Create a serious inconsistency or otherwise interfere with
an action taken or planned by another agency;
Materially alter the budgetary impact of entitlements,
grants, user fees, or loan programs, or the rights and obligations of
recipients thereof; or
Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
A final Regulatory Impact Analysis has been prepared and is
available in the docket for this rulemaking and at the internet address
listed under ``How Can I Get Copies of This Document and Other Related
Information?'' above. This action was submitted to the Office of
Management and Budget for review under Executive Order 12866. Estimated
annual costs of this rulemaking are estimated to be $2 billion per
year, thus this proposed rule is considered economically significant.
Written comments from OMB and responses from EPA to OMB comments are in
the public docket for this rulemaking.
B. Paperwork Reduction Act
The information collection requirements in this rule have been
submitted for approval to the Office of Management and Budget (OMB)
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The
information collection requirements are not enforceable until OMB
approves them. The OMB control number for engine-related information
collection is 2060-0460 (EPA ICR number 1897.07) and for fuel-related
information collection is 2060-0308 (EPA ICR number 1718.07).
We will use the engine-related information to ensure that new
nonroad diesel engines comply with emission standards through
certification requirements and various subsequent compliance
provisions. This information collection is mandatory under the
provisions of 42 U.S.C. 7401-7671(q). We will use the fuel-related
information to ensure that diesel fuel meets the sulfur limits and
corresponding requirements related to marking and segregating the
different types and grades of diesel fuel. This information collection
is mandatory under the provisions of 42 U.S.C. 7545(c), (g) and (i),
and 7625-1.
In addition, this notice announces OMB's approval of the
information collection requirements for other programs, as summarized
in Table X.B-1.
Table X.B-1--Approved Information Collection Requests From Other Programs
----------------------------------------------------------------------------------------------------------------
OMB control
Program Final rule cite number EPA ICR number OMB approval
----------------------------------------------------------------------------------------------------------------
Nonroad spark-ignition engines November 8, 2002 (67 2060-0460 1897.04 January 31, 2003.
over 19 kW. FR 68242).
Recreational vehicles............. November 8, 2002 (67 2060-0460 1897.04 January 31, 2003.
FR 68242).
Rebuilders of various types of November 8, 2002 (67 2060-0104 0783.46 June 11, 2003.
engines. FR 68242).
Highway motorcycles............... January 15, 2004 (69 2060-0104 0783.46 March 26, 2004.
FR 2398).
----------------------------------------------------------------------------------------------------------------
[[Page 39155]]
The estimated annual public reporting and recordkeeping burden for
collecting information from all these programs is shown in Table X.B-2.
Burden means the total time, effort, or financial resources expended by
persons to generate, maintain, retain, or disclose or provide
information to or for a Federal agency. This includes the time needed
to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information.
Table X.B-2.--Information Collection Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating and
Hours per Hours for all Capital costs maintenance Total costs
Engine type Respondents respondent respondents for all costs for all for all
respondents respondents respondents
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonroad diesel engine manufacturers..................... 75 3,304 247,783 $0 $5,894,802 $18,661,614
Diesel fuel suppliers................................... 2,615 75 196,288 1,800,000 1,800,000 18,371,600
Nonroad spark-ignition engine manufacturers............. 12 1,832 21,986 174,419 2,507,790 3,617,683
Recreational vehicle manufacturers...................... 39 684 26,669 1,627,907 2,137,115 4,869,253
Highway motorcycles..................................... 46 32 1,449 0 23,686 79,428
Importers............................................... 40 13 529 0 150,000 169,223
Rebuilders.............................................. 200 6 1,200 0 0 38,800
--------------------------------------------------------------------------------------------------------------------------------------------------------
An agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9. When this ICR is
approved by OMB, the Agency will publish a technical amendment to 40
CFR part 9 in the Federal Register to display the OMB control number
for the approved information collection requirements contained in this
final rule. EPA received various comments on the rulemaking provisions
covered by the ICRs, but no comments on the paperwork burden or other
information in the ICRs. All comments that were submitted to EPA are
considered in the relevant Summary and Analysis of Comments, which can
be found in the docket. A copy of any of the submitted ICR documents
may be obtained from Susan Auby, Collection Strategies Division, U.S.
Environmental Protection Agency (2822-T), 1200 Pennsylvania Ave., NW.,
Washington, DC 20460 or by e-mail at [email protected].
To comment on the Agency's need for this information, the accuracy
of the provided burden estimates, and any suggested methods for
minimizing respondent burden, including the use of automated collection
techniques, EPA has a public docket for this rule, which includes this
ICR, under Docket ID number OAR-2003-0012. Submit any comments related
to the ICR for this rule to EPA and OMB. Address comments to OMB by e-
mail to [email protected] or fax to (202) 395-7285. Please do not
send comments to OMB via U.S. Mail.
C. Regulatory Flexibility Act (RFA), as Amended by the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et
seq.
EPA has decided to prepare a Regulatory Flexibility Analysis (RFA)
in connection with this final rule. For purposes of assessing the
impacts of today's rule on small entities, a small entity is defined
as: (1) A small business that is primarily engaged in the manufacturing
of nonroad diesel engines and equipment that meets the definitions
based on the Small Business Administration's (SBA) size standards (see
table X.C.-1 below); (2) a small governmental jurisdiction that is a
government of a city, county, town, school district, or special
district with a population of less than 50,000; and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.
Table X.C-1.--Small Business Administration Size Standards for Various
Business Categories
------------------------------------------------------------------------
Defined as small
Industry entity by SBA Major SIC a Codes
if:
------------------------------------------------------------------------
Engine manufacturers.......... Less than 1,000 Major Group 35.
employees.
Equipment manufacturers:
--Construction equipment.. Less than 750 Major Group 35.
employees.
--Industrial truck Less than 750 Major Group 35.
manufacturers (i.e. employees.
forklifts).
--All other nonroad Less than 500 Major Group 35.
equipment manufacturers. employees.
Fuel refiners................. Less than 1500 2911.
employees b.
Fuel distributors............. ........
------------------------------------------------------------------------
Notes:
a Standard Industrial Classification.
b EPA has included in past fuels rulemakings a provision that, in order
to qualify for the small refiner flexibilities, a refiner must also
have a company-wide crude refining capacity of no greater than 155,000
barrels per calendar day. EPA has included this criterion in the small
refiner definition for a nonroad diesel sulfur program as well.
[[Page 39156]]
Pursuant to 5 U.S.C. 603, EPA prepared an Initial Regulatory
Flexibility Analysis (IRFA) for the proposed rule and convened a Small
Business Advocacy Review Panel (SBAR Panel, or ``the Panel'') to obtain
advice and recommendations of representatives of the regulated small
entities pursuant to 5 U.S.C. 609(b) (see 68 FR 28518-28521, May 23,
2003). A detailed discussion of the Panel's advice and recommendations
can be found in the Panel Report (Docket A-2001-28, Document No. II-A-
172). See also section III.C above.
We have also prepared a Regulatory Flexibility Analysis for today's
rule. The Regulatory Flexibility Analysis addresses the issues raised
in public comments on the IRFA, which was part of the proposal of this
rule. The Regulatory Flexibility Analysis is available for review in
the docket and is summarized below. The key elements of a regulatory
flexibility analysis include--
--The need for, and objectives of, the rule;
--The significant issues raised by public comments, a summary of the
Agency's assessment of those issues, and a statement of any changes
made to the proposed rule as a result of those comments;
--The types and number of small entities to which the rule will apply;
--The reporting, recordkeeping and other compliance requirements of the
rule; and
--The steps taken to minimize the impact of the rule on small entities,
consistent with the stated objectives of the applicable statute.
1. Need for and Objectives of the Rule
Controlling emissions from nonroad engines and equipment, in
conjunction with controls on sulfur concentrations in diesel fuel, has
very significant public health and welfare benefits, as explained in
section I of this preamble. We are finalizing new engine standards and
related provisions under sections 213(a)(3) and (4) of the Clean Air
Act which, among other things, direct us to establish (and from time to
time revise) emission standards for new nonroad diesel engines.
Similarly, section 211(c)(1) authorizes EPA to regulate fuels if any
emission product of the fuel causes or contributes to air pollution
that may endanger public health or welfare, or that may impair the
performance of emission control technology on engines and vehicles. We
are finalizing new fuel standards today for both of these reasons.
2. Summary of Significant Public Comments on the IRFA
We received comments from engine and equipment manufacturers, fuel
refiners, fuel distributors and marketers, and consumers during the
public comment period following the proposal of this rulemaking. All of
the following comments were taken into account in developing today's
final rule. Responses to these comments are located in subsection 5
below, along with the description of the provisions that we are
finalizing to reduce the rule's impact on small businesses. More
detailed information in response to these comments can be found in
sections III.C. (Engine and Equipment Small Business Provisions) and
IV.B (Hardship Relief Provisions for Qualifying Refiners) of this
preamble. Additional detail may also be found in the Final Regulatory
Flexibility Analysis, located in the Regulatory Impact Analysis, as
well as in the Summary and Analysis of Comments for this final rule.
a. Public Comments Received on Engine and Equipment Standards
One small engine manufacturer commented that the proposed
provisions for small business engine manufacturers are appropriate and
strongly supported their inclusion in the final rule. The manufacturer
raised many concerns of why it believes that it is necessary to include
provisions, such as: Larger/higher-volume manufacturers will have
priority in supply of new technologies and will have more R&D time to
complete development of these systems before they are available to
smaller manufacturers; smaller manufacturers do not command the same
amount of attention from potential suppliers of critical technologies
for Tier 4 controls, and are thus concerned that they may not be able
to attract a manufacturer to work with them on the development of
compliant technologies. This small manufacturer believes that the
additional three-year time period proposed for small engine
manufacturers in the NPRM is necessary for the company, and is their
estimate of the time that it will take for these technologies to be
available to small engine manufacturers.
The Small Business Administration's Office of Advocacy
(``Advocacy'') raised the concern that the rule would impose
significant burdens on a substantial number of small entities producing
engines of 75 hp or less, with little corresponding environmental
benefit. Advocacy therefore recommended that PM standards for engines
in the 25-75 hp range not be based on performance of aftertreatment
technologies. Advocacy believed that the proposed flexibilities will
not suffice on their own to appropriately minimize the regulatory
burdens on small entities; and Advocacy noted that during the SBREFA
process some small equipment manufacturers stated that although EPA
would allow some equipment to be sold which would not require new
emissions controls, engine manufacturers would not produce or sell such
equipment. Advocacy also commented that we have not shown that
substantial numbers of small businesses have taken advantage of
previous small business flexibilities, or that small businesses would
be able to take advantage of the flexibilities under this rule. Lastly,
Advocacy commented that although full compliance with the more
stringent emissions controls requirements would be delayed for small
manufacturers, small business manufacturers eventually will be required
to produce equipment meeting the new requirements.
b. Public Comments Received on Fuel Standards
i. General Comments on Small Refiner Flexibility
One small refiner commented that it is not feasible at this time to
evaluate the impact of the three fuels regulations on the refining
industry (and small refiners), however it stated that we should
continue to evaluate the impacts and act quickly to avoid shortages and
price spikes and we should be prepared, if necessary, to act quickly in
considering changes in the regulations to avoid these problems. We also
received comment that some small refiners that produce locomotive and
marine fuels fear that future sulfur reductions to these markets could
be very damaging.
ii. Comments on the Small Refiner Definition
A small refiner commented that the proposed redefinition of a small
refiner (to not grandfather as small refiners those that were small for
highway diesel) would both negate the benefits afforded under the small
refiner provisions in the Highway Diesel Sulfur rule and disqualify its
status as a small refiner. The small refiner is, however, in support of
the addition of the capacity limit in the small refiner definition
which will correct the problem of the inadvertent loop-hole in the two
previous fuel rules. Though the refiner is concerned that the wording
of the proposed language may result in small
[[Page 39157]]
refiners such as itself, who grew by normal business practice, being
disqualified as small refiners. The refiner suggested that we clarify
the language and include provisions for continuance of small refiner
flexibility for refiners who qualified under the Highway Diesel Sulfur
rule (and have not been disqualified as the result of a merger or
acquisition).
iii. Comments on the Baseline Approach
A coalition of small refiners provided comments on a few aspects of
concern. The small refiners believe that the fuel segregation, and
ensuing marking and dying, provisions are quite complex. One small
refiner believes that mandating a minimum volume of NRLM production
would conflict with the purpose of maintaining adequate on-highway
volumes of 15 ppm sulfur fuel and unnecessarily restricts small
refiners, and offered suggestions in their comments on how to improve
the language. In addition, the small refiner believes that mandating a
minimum volume of NRLM production would conflict with the purpose of
maintaining adequate on-highway volumes of 15 ppm sulfur fuel and
unnecessarily restricts small refiners, and offered suggestions in
their comments on how to improve the language.
iv. Comments on Small Refiner ``Option 4''
A coalition of small refiners commented that if the final rule is
not issued before January 1, 2004, a provision should be made to
accommodate those small refiners planning to take advantage of the
proposed small refiner ``Option 4'' (the NRLM/Gasoline Compliance
option). A small refiner echoed the concerns of the small refiner
coalition, commenting that delayed finalization of the final rule would
undermine the benefits of small refiner flexibility Option 4. The small
refiner is concerned that a delay in issuing the rule, and subsequent
delay in the opportunity to apply the interim gasoline flexibility,
would negate its opportunity to take full advantage of the credits the
refiner now has, as it would not be able to comply with the 300 ppm
cap. The small refiner suggested that we allow small refiners to apply
for temporary relief and operate under the Option 4 provision. Another
small refiner commented that, in the NPRM, it was unclear if a small
refiner could elect to use any or all of the first three of the small
refiner provisions if it did not elect to use Option 4. Further, the
refiner understood that if Option 4 was chosen, a small refiner could
not use any of the first three options. The refiner believes that it is
important that a small refiner be able to use Options 1, 2, and 3 in
combination with each other, and stated that we need to clarify the
intent in the final rule. The small refiner also commented that the
provisions in 40 CFR 80.553 and 80.554 are not clear and should be
revised to clarify their intent. Specifically, the refiner questioned
whether or not a small refiner who committed to producing ULSD by June
1, 2006 in exchange for an extension of its interim gasoline sulfur
standards (under 40 CFR 80.553) could elect to exercise the options
allowed under 40 CFR 80.554.
A small refiner raised the concern that the small refiner Option 4
only provides an adjustment to those small refiners whose small refiner
gasoline sulfur standards were established through the hardship process
of 40 CFR 80.240. The small refiner suggested that we finalize a
compliance option that allows a 20 percent increase in small refiner
gasoline sulfur standards be extended to all small refiners, not just
those with standards established pursuant to 40 CFR 80.240(a), and
offers suggested language in its comments.
v. Comments on Emission Impacts of the Small Refiner Provisions
A state environmental group commented that the provisions for small
refiners raise substantial environmental concerns. The group is
concerned that these provisions will allow small refiners the ability
to produce gasoline with an unknown sulfur content for an unknown
length of time; this fuel may then be sold at the refiner's retail
outlet, and may become the primary fuel for some vehicles, which alters
vehicle fleet emissions performance. This environmental group also
commented that the absence of any process of notification regarding
small business provisions to notify States of these provisions is
troubling. The concern is that these deviations from fuel content that
affects fuels consumed in states that use emissions inventories for air
quality planning purposes, and can significantly alter inventories. The
group suggested that in the future there should be greater
communication from us regarding decisions that impact the quality of
fuels consumed in a state, and thus impact the quality of that state's
air.
Another state environmental group commented on the flexibility
provisions for small refiners; the group is concerned that the
exemption will not have a minor effect on the nation's fuel supply, as
the state is an intermountain western state. The group comments that
the impact of this exemption is concentrated in these states, namely
Washington and Oregon--states which are served primarily by refineries
that will be allowed to delay compliance with the ULSD standards until
2014. Therefore, the group commented, residents of these areas are
denied air quality benefits equivalent to those promised the rest of
the country. Those seeking to purchase and use equipment in these areas
will be subject to the ULSD standard regardless of fuel supply and
availability in their area, would be faced with misfueling, deferring
purchase of new equipment, or paying a premium for a ``boutique'' fuel.
vi. Comments on Inclusion of a Crude Capacity Limit for Small Refiners
and Leadtime Afforded for Mergers and Acquisitions
A non-small refiner supported the inclusion of the 155,000 bpcd
limit, but suggested that we limit the provision of affording a two-
year leadtime to small refiners who lose their small status due to
merger or acquisition to the case where a small refiner merges with
another small refiner. Further, the refiner commented that it would be
inappropriate to allow such small refiners to be able to generate
credits for ``early'' production of lower sulfur diesels during this
two-year leadtime. Lastly, the refiner commented that a small refiner
which acquires a non-small refiner, and thus loses its small refiner
status, should not be eligible for hardship provisions. Another
commenter stated that if we were to finalize the 155,000 bpcd limit, we
should not apply it in cases of a merger between two small refiners.
The commenter further stated that a merger of two small companies in a
hardship condition does not imply improved financial health in the same
way that an acquisition would. Another non-small refiner commented that
it supports the two-year lead time for refineries that lose their
status as a small refiner; the refiner believes that any refiner with
the financial wherewithal to acquire additional refineries to allow its
crude capacity to exceed 155,000 bpcd should not be able to retain
status as a small refiner.
vii. Necessity of Small Refiner Program
A non-small refiner provided comment on the NPRM stating the belief
that the proposed provisions for small refiners are not practical. The
refiner is concerned that having provisions for small refiners adds a
level of complication, results in emissions losses, increases the
potential for ULSD contamination, and create an unfair situation in the
marketplace. Similarly,
[[Page 39158]]
another non-small refiner and a trade group representing many refiners
and others in the fuels industry commented that they oppose the
extension of compliance deadlines for small refiners, as this can
result in inequitable situations that may affect the refining industry
for some time and can put the distribution system at risk for
contamination of lower sulfur fuels. They further stated that all
refiners will face challenges in complying with the upcoming standards
and would not significantly alter the business decisions that small
refiners would make. They also stated that non-small refiners face
similar issues with their older and/or smaller refineries, but will not
have the benefit of being able to postpone making these decisions as
small refiners will.
viii. Comments on Fuel Marker
We received comments from terminal operators stating that the
proposed heating oil marker requirements would force small terminal
operators to install expensive injection equipment and that they would
not be able to recoup the costs.
3. Types and Number of Small Entities
The small entities directly regulated by this final rule are
nonroad diesel engine and equipment manufacturers, nonroad diesel fuel
refiners, and nonroad diesel fuel distributors and marketers. These
categories are described in more detail below, and the definitions of
small entities in those categories are listed in table X.C-1 above.
a. Nonroad Diesel Engine Manufacturers
Before beginning the SBREFA process, EPA conducted an industry
profile for the nonroad diesel sector. We have not received any new
information since that time and we continue to believe that this is a
valid characterization of the industry. Using information from the
industry profile, EPA identified a total of 61 engine manufacturers.
The top 10 engine manufacturers comprise 80 percent of the total
market, while the other 51 companies make up the remaining 20 percent.
\252\ Of the 61 manufacturers, four fit the SBA definition of a small
entity. These four manufacturers were Anadolu Motors, Farymann Diesel
GMBH, Lister-Petter Group, and V & L Tools (parent company of Wisconsin
Motors LLC, formerly ``Wis-Con Total Power''). These businesses
comprised eight percent of the total nonroad engine sales for the year
2000.
---------------------------------------------------------------------------
\252\ All sales information used for this analysis was 2000
data.
---------------------------------------------------------------------------
b. Nonroad Diesel Equipment Manufacturers
We also used the industry profile to determine the number of
nonroad small business equipment manufacturers. EPA identified over 700
manufacturers with sales and/or employment data that could be included
in the screening analysis. These businesses included manufacturers in
the construction, agricultural, mining, and outdoor power equipment
(mainly, lawn and garden equipment) sectors of the nonroad diesel
market. The equipment produced by these manufacturers ranged from small
walk-behind equipment (sub-25 hp engines) to large mining and
construction equipment (using engines in excess of 750 hp). Of the
manufacturers with available sales and employment data (approximately
500 manufacturers), nonroad small business equipment manufacturers
represent 68 percent of total nonroad equipment manufacturers (and
these manufacturers accounted for 11 percent of nonroad diesel
equipment industry sales in 2000).
c. Nonroad Diesel Fuel Refiners
Our current assessment is that 26 refiners (collectively owning 33
refineries) meet SBA's definition of a small business for the refining
industry. The 33 refineries appear to meet both the employee number and
production volume criteria mentioned above. These small refiners
currently produce approximately 6 percent of the total high-sulfur
diesel fuel. It should be noted that because of the dynamics in the
refining industry (e.g., mergers and acquisitions), the actual number
of refiners that ultimately qualify for small refiner status under the
nonroad diesel sulfur program could be different than this assessment.
d. Nonroad Diesel Fuel Distributors and Marketers
The industry that transports, distributes, and markets nonroad
diesel fuel encompasses a wide range of businesses, including bulk
terminals, bulk plants, fuel oil dealers, and diesel fuel trucking
operations, and totals thousands of entities that have some role in
this activity. Over 90 percent of these entities meet small entity
criteria. Common carrier pipeline companies are also a part of the
distribution system; 10 of them are small businesses.
4. Reporting, Recordkeeping and Other Compliance Requirements
This section describes the expected burden of the compliance
requirements (for all manufacturers and refiners) for the standards
being finalized in today's action.
a. Nonroad Diesel Engine and Equipment Manufacturers
For engine and equipment standards, we must have the assurance that
engines and/or equipment produced by manufacturers meet the applicable
standard, and will continue to meet this standard as the equipment
passes through to the ultimate end user. We are continuing many of the
reporting, recordkeeping, and compliance requirements prescribed for
nonroad engines and equipment, as set out in 40 CFR part 89. These
include, certification requirements and reporting of production,
emissions information, use of transition provisions, etc. The types of
professional skills required to prepare reports and records are also
similar to the types of skills that were needed to meet the regulatory
requirements set out in 40 CFR part 89. Key differences in the
requirements of today's rule as related to 40 CFR part 89 are the
additional testing and defect reporting. We are finalizing an increase
in the number of data points (i.e., transient testing) that will be
required for reporting emissions information. Also, as proposed, we are
requiring additional defect reporting for Tier 4 and later engines. We
are requiring that manufacturers report to us if they learn that a
substantial number of their engines have emission-related defects. This
is generally not a requirement to collect information; however if
manufacturers learn that there are or might be a substantial number of
emission-related defects, then they must send us information describing
the defects.
b. Nonroad Diesel Fuel Refiners, Distributors, and Marketers
For any fuel control program, we must have the assurance that fuel
produced by refiners meets the applicable standard, and that the fuel
continues to meet this standard as it passes downstream through the
distribution system to the ultimate end user. This is particularly
important in the case of diesel fuel, where the aftertreatment
technologies expected to be used to meet the engine standards are
highly sensitive to sulfur. Many of the recordkeeping, reporting and
compliance provisions of the today's action are fairly consistent with
those in place today for other fuel programs,
[[Page 39159]]
including the current 15 ppm highway diesel regulation. For example,
recordkeeping involves the use of product transfer documents, which are
already required under the 15 ppm highway diesel sulfur rule (40 CFR
80.560). Under today's final rule we are adding additional
recordkeeping and reporting requirements for refiners, importers, and
fuel distributors to implement the designate and track provisions.
However, interactions with parties from all segments of the
distribution system indicated that the records necessary were analogous
to records already kept as a normal process of doing business.
Consequently, the only significant additional burden would be
associated with the reporting requirement.
General requirements for reporting for refiners and importers
include: registration (only in the case where a refiner or importer is
not registered under a previous fuel program), pre-compliance reports
(on a refiner or importer's progress towards meeting the nonroad diesel
fuel requirements as specified in this rule), quarterly designation
reports, and annual reports. All parties from the refiner to the
terminal will be required to report volumes of designated fuels
received and distributed, as well as compliance with quarterly and
annual limits. All parties in the distribution system are required to
keep product transfer documents (PTDs), though refiners and importers
are required to initially generate and provide information on
commercial PTDs that identify the diesel fuel with meeting specific
needs (i.e., 15 ppm highway diesel, 500 ppm highway diesel, etc.).
Also, refiners in Alaska and small refiner/credit fuel users must
report end users of their fuel. These end users must also keep records
of these fuel purchases. Lastly, small refiners are required to apply
for small refiner status and small refiner baselines.
In general, we are requiring that all records be kept for at least
five years. This recordkeeping requirement should impose little
additional burden, as five years is the applicable statute of
limitations for current fuel programs.
See section X.B, above, for a discussion of the estimated burden
hours and costs of the recordkeeping and reporting that will be
required by this final rule. Detailed information on the reporting and
recordkeeping measures associated with this rulemaking are described in
the Information Collection Requests (ICRs) for this rulemaking--1897.05
for nonroad diesel engines, and 1718.05 for fuel-related items.
5. Regulatory Alternatives To Minimize Impact on Small Entities
Below we discuss the Panel recommendations, EPA proposals, and
final regulatory alternatives to minimize the rule's impact on small
entities. More detailed information on the provisions for these
entities can be found in sections III.C and IV.B of this preamble (for
small business engine and equipment manufacturers and small entities
throughout the fuel distribution system, respectively).
a. Panel Recommendations
During the SBREFA process, the Panel recommended transition
flexibilities that we considered during the development of the NPRM.
The Panel recommended provisions for both the one-step and two-step
options. Since we are finalizing a two-step approach, only the
recommendations for this approach are being discussed here. (A complete
discussion of all of the Panel recommendations and our proposals for
small entities is located in section X.C. of the NPRM.)
Following the SBREFA process, the Panel (or some Panel members),
recommended the following transition flexibilities and hardship
provisions to help mitigate the impacts of the rulemaking on small
entities. We proposed and requested comment on these recommendations in
the NPRM.
i. Panel Recommendations for Small Business Engine Manufacturers
For nonroad diesel small business engine manufacturers, we proposed
the following provisions:
A manufacturer must have certified in model year 2002 or
earlier and would be limited to 2500 units per year to be eligible for
all provisions set out below;
For PM--
--Small engine manufacturers could delay compliance with the standards
for up to three years for engines under 25 hp, and those between 75 and
175 hp (as these engines only have one standard)
--small engine manufacturers have the option to delay compliance for
one year if interim standards are met for engines between 50 and 75 hp
(for this power category we are treating the PM standard as a two phase
standard with the stipulation that small manufacturers cannot use PM
credits to meet the interim standard; also, if a small manufacturer
elects the optional approach to the standard (elects to skip the
interim standard), no further relief will be provided)
for NOX \253\
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\253\ There is no change in the NOX standard for
engines under 25 hp and those between 50 and 75 hp. For these two
power bands EPA proposed no special provisions.
---------------------------------------------------------------------------
--A three year delay in the program for engines in the 25-50 hp and the
75-175 hp categories, consistent with the one-phase approach
recommendation above;
A small engine manufacturer could be afforded up to two
years of hardship (in addition to the transition flexibilities) upon
demonstrating to EPA a significant hardship situation;
Small engine manufacturers would be able to participate in
an averaging, banking, and trading (ABT) program (which we proposed as
part of the overall rulemaking program for all manufacturers);
Engines under 25 hp would not be subject to standards
based on use of advanced aftertreatment; and,
No NOX aftertreatment-based standards for
engines 75 hp and under.
ii. Panel Recommendations for Small Business Equipment Manufacturers
We proposed the following provisions for nonroad diesel small
business equipment manufacturers:
Small business nonroad diesel equipment manufacturers must
have reported equipment sales using certified engines in model year
2002 or earlier to be eligible for all provisions;
Essential continuance of the transition flexibilities
offered for the Tier 1 and Tier 2 nonroad diesel emission standards (40
CFR 89.102), which are available to all nonroad diesel equipment
manufacturers
--`Percent-of-production allowance'--over seven model-year period
manufacturers may install engines not certified to the new emission
standards in an amount of equipment equivalent to 80 percent of one
year's production, implemented by power category with the average
determined over the period in which the flexibility is used (this
proposal would afford additional flexibility over the comparable
flexibility in Tier 2/3, however, because of the smaller number of
horsepower categories in the Tier 4 rule)
--`Small volume allowance'--a manufacturer may exceed the 80 percent
allowance in seven years as described above, provided that the previous
Tier engine use does not exceed 700 total over seven years, and 200 in
any given year, limited to one family per power category;
alternatively, at the manufacturer's choice by horsepower category, a
[[Page 39160]]
program that eliminates the ``single family provision'' restriction
with revised total and annual sales limits as shown below:
<=175 hp: 525 previous Tier engines (over 7 years) with an annual cap
of 150 units (separate for each hp category)
>175 hp: 350 previous Tier engines (over 7 years) with an annual cap of
100 units (separate for each hp category);
Small business equipment manufacturers would be allowed to
borrow from the Tier 3/Tier 4 flexibilities for use in the Tier 2/Tier
3 time frame; and,
Small business equipment manufacturers could be afforded
up to two years of hardship after other transition allowances are
exhausted, similar to that offered small business engine manufacturers.
In addition, we proposed the Panel's recommendation that the
provisions for small equipment manufacturers be extended to all
equipment manufacturers, regardless of size. We also sought comment on
the total number of engines and annual cap values proposed and on
implementing the small volume allowance provision without a limit on
the number of engine families.
iii. Panel Recommendations for Small Refiners, Distributors, and
Marketers
The following provisions were proposed for nonroad diesel small
refiners:
Small refiners would be required to use 500 ppm sulfur
fuel beginning June 1, 2010 and 15 ppm fuel beginning June 1, 2014;
Small refiners may choose one of the following transition
provisions, which serve to encourage early compliance with the diesel
fuel sulfur standards:
--Credits for Early Desulfurization: would allow small refiners to
generate and sell credits for nonroad diesel fuel that meets the small
refiner standards earlier than required in the regulation; or,
--Limited Relief on Small Refiner Interim Gasoline Sulfur Standards: a
small refiner producing its entire nonroad diesel fuel pool at 15 ppm
sulfur by June 1, 2006, and who chooses not to generate nonroad credits
for early compliance, would receive a 20 percent relaxation in its
assigned small refiner interim gasoline sulfur standards (with the
maximum per-gallon sulfur cap for any small refiner remaining at 450
ppm); and,