[Federal Register: April 25, 2000 (Volume 65, Number 80)]
[Rules and Regulations]
[Page 24267-24314]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ap00-9]

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Part III

Environmental Protection Agency

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40 CFR Parts 90 and 91

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

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 90 and 91

[FRL-6548-2]
RIN 2060-AE29


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

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

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

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

SUPPLEMENTARY INFORMATION:

Regulated Entities

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

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

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

Obtaining Electronic Copies of the Regulatory Documents

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

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

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

Table of Contents

I. Introduction
    A. What Is the Background of This Final Rule?
    B. What Are the Basic Provisions of This Final Rule?
II. Detailed Description of This Final Rule
    A. What Are the Emission Standards and Other Related Provisions?
    1. Class Structure
    2. Emission Standards and Implementation Schedule
    3. NMHC+NO<INF>X</INF> Standard for Class I-B Natural Gas-Fueled
Engines
    4. Useful Life Categories
    5. Selection of Useful Life Category
    6. Certification Test Procedure
    B. What Are the Provisions of the Averaging, Banking, and
Trading Program?
    C. What Are the Provisions of the Compliance Program?
    1. Certification
    2. Production Line Testing--Cumulative Summation Procedure
    3. Voluntary In-Use Testing
    4. Selective Enforcement Auditing
    D. What Flexibilities Are Being Adopted for Engine and Equipment
Manufacturers?
    1. Carry-Over Certification
    2. Flexibilities for Small Volume Engine Manufacturers and Small
Volume Engine Families
    3. Small Volume Engine Manufacturer Definition
    4. Small Volume Engine Family Definition
    5. Flexibilities for Equipment Manufacturers and Small Volume
Equipment Models
    6. Small Volume Equipment Manufacturer Definition
    7. Small Volume Equipment Model Definition
    E. Nonregulatory Programs
    F. General Provisions of This Final Rule
    1. Engine Labeling
    2. Emission Warranty
    G. Amendments to the Small Spark-Ignition (SI) Engine and Marine
SI Engines Programs
    1. Definition of Handheld Engine
    2. Engines Used in Recreational Vehicles and Applicability of
the Small SI Regulations to Model Airplanes
    3. Phase-in Flexibility for Small Volume Marine SI Engine
Manufacturers
    4. Replacement Engines
III. What Are the Projected Impacts of This Final Rule?
    A. Environmental Benefit Assessment
    1. Roles of HC and NOx in Ozone Formation
    2. Health and Welfare Effects of Tropospheric Ozone
    3. Estimated Emissions Impact of This Final Rule
    4. Health and Welfare Effects of CO Emissions
    5. Health and Welfare Effects of Hazardous Air Pollutant
Emissions
    B. Cost and Cost-Effectiveness
    1. Class I-A and Class I-B Costs
    2. Handheld Engine Costs
    3. Handheld Equipment Costs
    4. Handheld Operating Costs
    5. Cost Per Engine and Cost-Effectiveness
IV. Public Participation
V. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility
    C. Paperwork Reduction Act
    D. Unfunded Mandates Reform Act
    E. Congressional Review Act
    F. National Technology Transfer and Advancement Act
    G. Executive Order 13045: Protection of Children's Health
    H. Executive Order 13132: Federalism
    I. Executive Order 13084: Consultation and Coordination With
Indian Tribal Governments
VI. Statutory Authority

I. Introduction

A. What Is the Background of This Final Rule?

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

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and after the comment period, we determined that it was desirable to
get further details regarding the technological feasibility, cost and
lead time implications of meeting standards more stringent than those
contained in the January 1998 NPRM. The January 1998 NPRM already
contained estimates of the costs and feasibility of more stringent
standards. Some commenters had charged that, based on these discussions
in the January 1998 NPRM, our proposed standards would not be stringent
enough to satisfy the stringency requirements of Clean Air Act section
213(a)(3). For the purpose of gaining additional information on
feasibility, cost and lead time implications of more stringent
standards, we had several meetings, phone conversations, and written
correspondence with specific engine manufacturers, with industry
associations representing engine and equipment manufacturers, with
developers of emission control technologies and suppliers of emission
control hardware, with representatives of state regulatory
associations, and with members of Congress. We also sought information
relating to the impact on equipment manufacturers, if any, of changes
in technology potentially required to meet more stringent standards
than were proposed in the January 1998 NPRM. We published a Notice of
Availability on December 1, 1998, highlighting the additional
information gathered in response to the January 1998 NPRM (see 63 FR
66081) and continued having discussions with various parties regarding
low emission technologies for the small SI handheld engine market.
    Since the publication of the January 1998 NPRM, there have been
rapid and dramatic advances in emission reduction technologies for
handheld engines. We were not able to fully evaluate these technologies
or discuss their possible availability at the time of the January 1998
NPRM. After having reviewed the most up-to-date information available
on these new technologies, we believed the information supported Phase
2 standards for handheld engines that were significantly more stringent
than those proposed in the January 1998 NPRM and even more stringent
than the second phase of California ARB standards. In light of this new
information, and in the interest of providing an opportunity for public
comment on the stringent levels being considered for the Phase 2
handheld engine emission standards and the potential technologies
available for meeting such standards, we reproposed Phase 2 regulations
for handheld engines in the July 28, 1999, SNPRM (see 64 FR 40940). The
July 1999 SNPRM proposed Phase 2 hydrocarbon plus oxides of nitrogen
(HC+NO<INF>x</INF>) standards of 50 grams per kilowatt-hour (g/kW-hr)
for Class III and Class IV engines and of 72 g/kW-hr for Class V
engines, phased in over several years. The proposal also included an
averaging, banking, and trading program. The July 1999 SNPRM also
proposed revised compliance program requirements for handheld engines.
Most of the proposed compliance program changes were intended to make
the handheld engine compliance program the same as the requirements
finalized for nonhandheld engines in March 1999 and to establish a
consistent approach to compliance for all nonroad small SI engines.
    In addition to the reproposed Phase 2 standards for handheld
engines, we also proposed standards for two new classes of small
displacement nonhandheld engines in the July 1999 SNPRM. We had
requested comment on the need for such standards in the January 1998
NPRM and received comments from a number of engine manufacturers
supporting such standards. Originally, we did not propose different
standards for small displacement nonhandheld engines citing the
availability of the averaging, banking and trading program as a reason
for not proposing separate standards. However, because the Phase 2
standards we finalized for nonhandheld Class I engines are more
stringent than originally proposed in the January 1998 NPRM and because
it is technologically more difficult to meet a given level of emissions
(in g/kW-hr) as the engine displacement is decreased, manufacturers who
would likely produce such small displacement engines would not likely
be able to meet the Phase 2 Class I standards recently finalized and
would not be able to produce such small displacement nonhandheld
engines even if they could take advantage of the averaging, banking and
trading program. Therefore, we proposed standards for two classes of
small displacement nonhandheld engines that would take effect upon the
effective date of today's final rule. The first small displacement
class covered nonhandheld engines with displacements below 66cc and was
referred to as Class I-A engines. The second small displacement class
covered nonhandheld engines at or above 66cc and below 100cc and was
referred to as Class I-B engines.
    In response to a request from manufacturers of small engines, we
also included in the July 1999 SNPRM a proposal to allow manufacturers
the option of certifying engines greater than 19 kW and less than or
equal to one liter in displacement to the small SI engine Phase 2
regulations for nonhandheld engines beginning with the 2001 model year.
Because of their size, these engines are not required to be certified
under the current Phase 1 small SI engine program, and they do not have
to meet any previously existing Federal requirements because we do not
currently regulate spark-ignition engines above 19 kilowatts. However,
because there are a small number of these engines that are primarily
derivatives of other certified small SI engines at or below 19 kW, we
believed it would be appropriate for manufacturers to have the option
to certify these engines to the Phase 2 requirements for small SI
engines. As noted in the July 1999 SNPRM, engines certified under the
proposed option would be required to certify for the longest useful
life period of 1,000 hours. The requirements of this option were
consistent with those that had already been adopted by the California
ARB.
    We solicited comment on all aspects of the July 1999 SNPRM and held
a public hearing on August 17, 1999. The public comment period for the
July 1999 SNPRM closed September 17, 1999.
    In addition to the Phase 2 provisions for small SI nonroad engines
highlighted above, today's action adopts several minor amendments to
the existing regulations for small SI nonroad engines and marine SI
engines. These amendments were included in a separate proposal on
February 3, 1999 (see 64 FR 5251). We originally promulgated final
regulations applicable to small SI engines on July 3, 1995 (see 60 FR
34582, codified at 40 CFR Part 90) and final regulations applicable to
spark-ignition marine outboard and personal watercraft (including
jetboat) engines (marine SI engines) on October 4, 1996 (see 61 FR
52088, codified at 40 CFR Part 91).\1\
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    \1\ The preamble to the final marine SI rule (61 FR 52090)
explains that for purposes of the marine SI rule, jetboats are
considered as personal watercraft, except where their engines are
derived from sterndrive or inboard type marinized automotive blocks.
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    The small SI regulations took effect with model year 1997 for the
majority of covered engines and in the 1998 model year for certain
higher displacement handheld engines. The marine SI rule took effect
with 1998 or 1999 engines, depending upon their usage, and involves a
corporate average standard which tightens each year through 2006. (The
marine SI rule does

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

    The following section provides an overview of the Phase 2
provisions being finalized with today's action as well as the
amendments to the current small SI engine and marine SI engine
programs. Additional detail explaining the program as well as
discussion of information and analyses which led to the selection of
these requirements is contained in subsequent sections. Summaries of
comments we received on the July 1999 SNPRM (for the Phase 2 program)
and the February 1999 NPRM (for the amendments) and detailed responses
to those comments are contained in a separate document included in the
dockets for today's final rule.
    Consistent with the Phase 1 regulations for small SI engines,
today's action and the recently finalized Phase 2 program for
nonhandheld engines distinguish between engines used in handheld
equipment and those used in nonhandheld equipment. In today's action,
we are adopting Phase 2 emission standards for distinct engine size
categories referred to as ``engine classes'' within the handheld engine
equipment designation. Table 1 summarizes the HC+NO<INF>X</INF>
emission standards for Class III, Class IV, and Class V handheld
engines and when these standards are scheduled to take effect under
this final rule. Table 2 summarizes the CO standards and the effective
dates of the CO standards. In response to comments submitted on the
July 1999 SNPRM, the standards and implementation schedule contained in
today's final rule for handheld engines reflect a four year phase in
schedule instead of a five year phase in schedule as proposed in the
SNPRM.

                        Table 1.--Phase 2 HC+NO<INF>X</INF> Emission Standards for Handheld Engines
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                                                            HC+NO<INF>X</INF> Standards (g/kW-hr) by model year
                                               -----------------------------------------------------------------
                 Engine class                                                                           2007 and
                                                   2002       2003       2004       2005       2006      later
----------------------------------------------------------------------------------------------------------------
Class III.....................................        238        175        113         50         50         50
Class IV......................................        196        148         99         50         50         50
Class V.......................................  .........  .........        143        119         96         72
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      Table 2.--Phase 2 CO Emission Standards for Handheld Engines
------------------------------------------------------------------------
                                                CO standard   Effective
                 Engine class                    (g/kW-hr)    model year
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Class III.....................................          805         2002
Class IV......................................          805         2002
Class V.......................................          603         2004
------------------------------------------------------------------------

    When fully phased in, these Phase 2 standards are expected to
result in an estimated 70 percent annual reduction in combined
HC+NO<INF>X</INF> emissions from small SI handheld engines compared to
the Phase 1 emission requirements for such engines. Due to the use of
improved technology, CO emissions are also expected to decrease below
Phase 1 levels.
    To help engine manufacturers meet the HC+NO<INF>X</INF> standards
noted in Table 1, we are adopting provisions to include Phase 2
handheld engines in the certification averaging, banking and trading
(ABT) program. The combination of the declining Phase 2 handheld
standards and the ABT program should allow manufacturers to make an
orderly and efficiently transition from their existing Phase 1 engine
designs and technologies to those necessary to meet the new Phase 2
requirements and should provide an incentive for the early introduction
of clean engines. We believe that the ABT program is an integral part
of the Phase 2 HC+NO<INF>X</INF> standards being adopted for Classes
III, IV, and V. (As noted later, the ABT program does not apply to CO
emissions.)
    As noted earlier, we are adopting provisions that will add two new
classes of small SI nonhandheld engines. Class I-A will cover engines
with displacement less than 66cc that are installed in nonhandheld
equipment. Class I-B will cover engines equal to or greater than 66cc
but less than 100cc that are installed in nonhandheld equipment. Table
3 contains the HC+NO<INF>X</INF> standards and CO standards we are
adopting for Class I-A and Class I-B engines. The standards contained
in today's final rule for Class I-A and Class I-B nonhandheld engines
are the same as we proposed in the July 1999 SNPRM. Implementation of
the standards for the new classes of Class I-A and Class I-B engines
will begin with the 2001 model year. Class I-A and Class I-B engines
will also be allowed to participate in the ABT program for small SI
engines.

[[Page 24272]]

Table 3.--Phase 2 Emission Standards for Class I-A and Class I-B Engines
------------------------------------------------------------------------
                                           HC+NO<INF>X</INF>       CO     Effective
              Engine class                standard   standard    model
                                         (g/kW-hr)  (g/kW-hr)     year
------------------------------------------------------------------------
Class I-A..............................         50        610       2001
Class I-B..............................         40        610       2001
------------------------------------------------------------------------

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

[[Page 24273]]

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

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

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

II. Detailed Description of This Final Rule

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

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

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

[[Page 24274]]

numbers of 2-stroke engines in nonhandheld applications.
    In response to a request from manufacturers, we included in the
July 1999 SNPRM an option for manufacturers to certify engines above 19
kW with displacements less than or equal to one liter to the small SI
standards. As noted earlier, such engines are currently unregulated at
the federal level. We received comments from one trade group and one
manufacturer supporting the proposed provisions. Therefore, we are
adopting the provisions as proposed that allow manufacturers the option
of certifying engines above 19 kW and less than or equal to one liter
in displacement to the small SI engine program beginning with the 2001
model year. It should be noted that if a manufacturer chooses to
certify such engines under the small engine program, the engines will
need to be certified to the Phase 2 requirements for the appropriate
class of nonhandheld engines, which is expected to be the Class II
requirements (i.e., engines above 225cc in displacement), for a useful
life period of 1,000 hours. We recently issued a Notice of Proposed
Finding (see 64 FR 6008) which announced our intent to propose
regulations for ``large nonroad SI engines'' (which include these
greater than 19 kW but less than one liter engines). We expect to issue
a NPRM for large nonroad SI engines in 2000, and to propose that
engines greater than 19 kW and less than one liter in displacement meet
small SI nonroad engine requirements. If, however, we do not propose
and/or adopt such a requirement for these engines as part of the large
SI nonroad program, we would expect to consider reasonable approaches
to minimizing disruption, as appropriate, to the affected industry.
Such approaches would be addressed in the rulemaking process for large
SI nonroad engines.
2. Emission Standards and Implementation Schedule
    In response to comments submitted on the July 1999 SNPRM, with
today's action we are adopting a slightly different schedule of Phase 2
HC+NO<INF>X</INF> standards compared to those proposed in the SNPRM.
(The phase-in standards are changing from the proposal because we are
adopting a four year phase-in schedule with today's action instead of
the proposed five year phase-in schedule.) The CO standards being
adopted with today's action are the same as proposed in the July 1999
SNPRM. The new Phase 2 standards will begin to take effect with the
2002 model year for Classes III and IV and the 2004 model year for
Class V. For HC+NO<INF>X</INF>, engine manufacturers will be required
to meet a declining standard that varies by engine class. As proposed
in the July 1999 SNPRM, engine manufacturers will be required to meet a
HC+NO<INF>X</INF> standard of 50 g/kW-hr for Classes III and IV and 72
g/kW-hr for Class V SNPRM at the end of the phase in. However, the
fleet average standards that a manufacturer is required to meet during
the phase-in period differ from those proposed in response to comments
that have persuaded EPA that a faster phase-in is more appropriate
under the Act. Table 1 and Table 2, presented earlier, contain the full
schedule of Phase 2 HC+NO<INF>X</INF> standards and CO standards,
respectively, being adopted today for handheld engines by model year.
As described in section II.B., engine manufacturers will be able to use
the averaging, banking and trading program to demonstrate compliance
with the Phase 2 HC+NO<INF>X</INF> standards on average. Engine
manufacturers will be required to meet the Class III and Class IV CO
standard beginning with the 2002 model year and the Class V CO standard
beginning with the 2004 model year. Unlike the HC+NOx standards, the CO
standards do not decrease over time, and the averaging, banking and
trading program does not apply to the CO standards.
    The Clean Air Act at section 213(a)(3) requires us to adopt
standards that result in the greatest emission reductions achievable
through the application of technology which the Administrator
determines will be available, giving appropriate consideration to cost,
lead time, noise, energy and safety factors. As a result of information
now available, and due to the rapid technological advances the handheld
engine industry is making in an effort to design engines which are more
environmentally friendly, we have determined that the standards being
adopted today are achievable during the timeframe being adopted today.
Table 4 summarizes the handheld technologies we conclude are capable of
meeting the newly adopted standards by engine class. Note that for the
purpose of generating a cost estimate for this rule, a subset of these
available technologies were evaluated for their cost impact.

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

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

[[Page 24275]]

achieving HC emissions levels below the standards being adopted today
possibly without the use of a catalyst. Another technology is a
redesigned spark plug developed by Pyrotek that has been shown to
achieve incremental emission HC reductions (at low cost) that could be
beneficial for engines which may need slightly more reductions to meet
the emission standards being adopted today. Both of these technologies
are described in further detail in Chapter 3 of the Final RIA. Finally,
we understand that manufacturers are developing electronic fuel
injection systems which if successful, should also allow low emissions.
However, we have insufficient information at this time to consider this
technology in this rulemaking although it may well be available during
the 2002-2007 time period during which these standards will take
effect.
    For 2-stroke engines, John Deere has certified a 25cc trimmer
engine outfitted with the compression wave technology (also referred to
as the John Deere LE engine) under the California ARB's Tier 2 program
for small SI engines. The engine, which would be a Class IV engine
under our classifications, was certified to a HC+NO<INF>X</INF>
emissions level of 61 g/kW-hr at a useful life of 125 hours. In
addition, John Deere adapted two Class V chainsaw engines and achieved
HC+NO<INF>X</INF> emissions below the Class V standard of 72 g/kW-hr.
Both of the chainsaw prototype applications did have significantly
lower power with the compression wave technology retrofitted to the
engine. However, the revised engine designs had been developed in a
very short period of time and the fuel metering system had not been
optimized for either of the engines, which would explain the loss in
power. We believe, however, John Deere's efforts to retrofit the
compression wave technology on these two Class V engines demonstrates
the potential to apply the technology to Class V applications. Other
manufacturers have also certified a number of advanced 2-stroke engine
designs in California to meet the California ARB's Tier 2
HC+NO<INF>X</INF> standard for model year 2000. Among these engines,
Komatsu Zenoah has certified two stratified scavenging with lean
combustion engine designs at 66 g/kW-hr HC+NO<INF>X</INF> at a useful
life of 300 hours with a 25.4cc engine and 53 g/kW-hr HC+NO<INF>X</INF>
at a useful life of 300 hours with a 33.6cc engine. Stihl has certified
an engine at 66 g/kW-hr HC+NO<INF>X</INF> at a useful life of 300 hours
for a 56.5cc engine (i.e., Class V under our classifications).
    While neither John Deere's compression wave technology engine nor
the Komatsu Zenoah stratified scavenging with lean combustion engines
noted above currently meets the newly adopted emission standards alone,
John Deere has informed us that perhaps 50% of their Class IV
applications are expected to comply with the standards while relying on
the compression wave technology only. This may be due to their
expectations for further improvement to that technology and their
ability to take advantage of averaging to reduce costs. Thus, the
addition of a catalyst on at least some applications, along with
further engine improvements should allow them to demonstrate compliance
with the Phase 2 standards. Allowing for a 20% compliance margin to
account for variances within production runs and less precise
manufacturing from prototype models to production runs, the target
certification level in Classes III and IV is estimated to be around 40
g/kW-hr HC+NO<INF>X</INF> for the technology prototypes (i.e.,
certification engines) at the end of their regulatory useful lives. The
required catalyst conversion efficiencies for these engines to meet the
target level noted above have been estimated using information from a
number of sources. Engine-out emissions (without catalyst) at the end
of the useful life are taken from the California ARB's Tier 2
certification data. HC+NO<INF>X</INF> emission deterioration
information for the compression wave technology is also obtained from
the California ARB certification data, which states the deterioration
for the compression wave technology is 1.1. HC+NO<INF>X</INF> emission
deterioration information for the stratified scavenging with lean
combustion is estimated from EPA test data (Docket A-96-55 Item VI-A-
01) and is assumed to be 1.0. Finally, a 30% deterioration in catalyst
efficiency is assumed as the catalyst goes from new to the end of the
certification useful life. Using this information, it is estimated
that, without improvements in engine emission performance, the new
engine catalyst conversion efficiency for the 25cc compression wave
technology engine would need to be approximately 50% (30 g/kW-hr
HC+NO<INF>X</INF>). For the 25.4cc stratified scavenged with lean
combustion engine a 57% (38 g/kW-hr HC+NO<INF>X</INF>) efficiency
catalyst would be needed and for the 33.6cc stratified scavenged with
lean combustion engine a 36% (19 g/kW-hr HC+NO<INF>X</INF>) efficiency
catalyst would be needed, given the current level of engine-out
emissions.
    Concerns regarding catalyst heat management need to be addressed,
especially in cases where high levels of HC+NO<INF>X</INF> need to be
converted in a catalyst. However, given the fact that catalysts used on
currently certified handheld engines have been shown to have conversion
efficiencies in the range cited above, the amount of lead time
available to manufacturers prior to the implementation of the Phase 2
standards will be sufficient for manufacturers to implement additional
engine and equipment improvements such that catalysts may be utilized
on handheld engines without catalyst heat management concerns. Further,
we believe that John Deere's, Ryobi's, and Echo's support of the 50 g/
kW-hr standard supports the conclusion that if catalysts are used then
catalyst heat issues can adequately be addressed. Although the current
California standards are somewhat less stringent than the federal
standards being adopted today, the fact that catalysts are being used
in some of these California certified applications demonstrates that
manufacturers have the ability to design equipment adequately
addressing catalyst temperature issues.
    We believe that the leadtime available before implementation of
this rule and the period during phase-in to the final standards will
allow additional improvements in engine-out emission performance. These
improvements will include refinements of the fuel metering technology,
improvements in combustion chamber and piston head design, and
improvements in spark ignition via such devices as the Pyrotek spark
plug mentioned earlier. Lastly, as the test data from the California
ARB certification list shows, emissions of larger engines (as
illustrated in comparison of the 25.4cc and 34cc stratified scavenged
with lean combustion engines) decrease with increased engine size and
therefore catalyst conversion requirements (and catalyst temperatures)
will not be as high with larger Class IV engine displacements. It
should be noted that for Class V (engines with displacement above
50cc), we do not believe that manufacturers will need to employ
catalysts to meet the standards being adopted today, and therefore
catalyst heat management concerns should not be a concern.
    Although 2-stroke engines currently dominate the handheld engine
market, we have determined that 4-stroke engines have the potential to
achieve a significant share of the handheld market in the future.
Ryobi, one of the biggest manufacturers of handheld equipment, has
commented that it intends to

[[Page 24276]]

expand the number of 4-stroke models available under the Phase 2
program. Three manufacturers have recently certified 4-stroke engines
with the California ARB for the 2000 model year Tier 2 program that are
used in handheld applications. Fuji Heavy Industries has certified a 4-
stroke engine at 17 g/kW-hr HC+NO<INF>X</INF> for a useful life of 125
hours with a 24.5cc engine. Komatsu Zenoah has certified a 4-stroke
engine at 31 g/kW-hr HC+NO<INF>X</INF> for a useful life of 300 hours
with a 26.4cc engine. Ryobi has also certified two different 4-stroke
engine families at 15 g/kW-hr HC+NO<INF>X</INF> for a useful life of 50
hours and at 21 g/kW-hr HC+NO<INF>X</INF> for a useful life of 300
hours. Both of these designs are on a 26.2cc engine. All of the 4-
stroke engines noted above would be expected to meet the standards
adopted today without use of a catalyst.
    In the July 1999 SNPRM, we requested comment on a number of items
related to the standards and the technologies we considered in
developing the reproposed standards. The bulk of the comments received
on the July 1999 SNPRM focused on the technologies, standards and
implementation schedule proposed in the SNPRM. The following paragraphs
summarize the major comments received and our responses. The full set
of comments and more detailed responses related to the technologies,
standards and implementation schedule can be found in the Summary and
Analysis of Comments Document.
    John Deere, Ryobi, and the California ARB supported the reproposed
standards and suggested an additional change in the HC+NO<INF>X</INF>
standard for Class V to 50 g/kW-hr. John Deere asserted that
compression wave technology is available for meeting a 50 g/kW-hr
HC+NO<INF>X</INF> standard in all classes. Ryobi commented that the 4-
stroke engine is capable of meeting a 50 g/kW-hr HC+NO<INF>X</INF>
standard in all classes. One additional engine manufacturer, Echo,
supported the standards as proposed. A number of other engine
manufacturers opposed the HC+NO<INF>X</INF> standards, including
Husqvarna/Frigidaire Home Products (FHP), Stihl, and Tecumseh.
Technical feasibility concerns regarding the technologies noted in the
July 1999 SNPRM were the focus of comments from those in industry who
opposed the reproposed HC+NO<INF>X</INF> emission standards. (The July
1999 SNPRM noted that technologies such as John Deere's LE engine with
a catalyst, Komatsu Zenoah's stratified scavenging with lean combustion
engine with a catalyst, and 4-stroke engines are all technologies which
have shown or have the potential to achieve the proposed standards on
all or a portion of the engines covered in this rulemaking. For Class V
engines, the July 1999 SNPRM noted that catalysts would likely not be
required to meet the standards.) Two handheld industry associations
supported the CO standards as proposed. Several months after the close
of the comment period for the July 1999 SNPRM, we received comments
from the Sierra Club and from the State and Territorial Air Pollution
Program Administrators/Association of Local Air Pollution Control
Officials (STAPPA/ALAPCO) asking us to adopt more stringent standards
for Class V, and to expedite the effective dates for all of the
handheld standards, based on their belief that manufacturers could meet
such standards on a more accelerated schedule. We also received
comments from equipment users and representatives of the forestry
industry expressing concern about the potential impact of these
regulations on safety, in particular a concern that chainsaws could
cause a fire hazard if their exhaust systems became very hot.
    With regard to John Deere's compression wave technology, we
requested comments on the likelihood that cost-effective solutions can
be made available over the next two to three years across the full
range of handheld engines and applications. John Deere, Stihl, and
Husqvarna/FHP commented on this item. While John Deere had nearly
completed a successful prototype on a Class IV trimmer engine prior to
the July 1999 SNPRM, it was constructing a preliminary prototype for a
70cc Class V chainsaw engine during the comment period and was able to
submit a video and emission test results showing successful preliminary
application of the technology to a Class V chainsaw in their comments
on the July 1999 SNPRM. Stihl and Husqvarna/FHP also each submitted
comments stating that they conducted individual short term studies on
their interpretation of the compression wave technology on Class V and
Class IV chainsaw engines, respectively. As detailed in their comments,
the results of their limited studies lead Stihl and Husqvarna/FHP to
believe that the technology is not feasible based on a number of issues
with their chainsaw prototypes. After the close of the comment period,
John Deere submitted additional feedback on the analysis performed by
Stihl and Husqvarna on their respective prototypes. While John Deere
did address the majority of each company's concerns listed in their
reports, John Deere also acknowledged that more development time is
needed in order to optimize the system for Class V applications and to
determine if an additional lubrication system will be necessary on
chainsaw and similar application engines. Nevertheless, based on the
fact that John Deere has been successfully developing the technology
for approximately one year, and has shown us that it can in this
relatively short period of time, address the majority of issues that
have been raised by Stihl and Husqvarna, we have concluded that the
compression wave technology holds a great deal of promise and that
industry will be able to address all issues raised in the lead time
provided under today's rule.
    Under today's action, Class V engines have until 2004 to start
certifying, and this is sufficient time for engine manufacturers to
develop the compression wave technology, or stratified scavenging with
lean combustion, or develop their own technology, for Class V engines.
Therefore, we conclude that the issues raised by Stihl and Husqvarna
regarding technological feasibility do not undermine the achievability
of the Class V standards, since adequate technology will be available.
    With regard to the more stringent Class V standard supported by
John Deere, Ryobi, and the California ARB, we do not believe the
existing information provides us with a high enough degree of certainty
to determine that a tighter standard is feasible for all applications
within the leadtime provided by the rule. As noted earlier, John Deere
has submitted information on two Class V engines equipped with the
compression wave technology. The test results show that emission levels
close to the standard are currently achievable on the larger engines as
well. However, as noted earlier, the redesigned engines were not fully
developed to address all issues, including emissions deterioration over
the longest useful life category to which Class V engines are expected
to certify. Based on John Deere's experience with applying the
compression wave technology to its 25cc engine, at least in the near
term, emissions will likely increase as the system is redesigned to
address issues needed to make the engine production ready and deliver
maximum performance. In addition, while we are optimistic that low
deterioration can be demonstrated, the deterioration characteristics of
the compression wave technology out to 300 hours remain unknown at this
time. Due to these concerns, we cannot be as certain that Class V
engines can achieve a standard of 50 g/kW-hr as is being

[[Page 24277]]

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

[[Page 24278]]

temperature of the exhaust housing, observation of the current muffler/
housing arrangement revealed that the design was not optimized and that
there was room for improvement in its design. While the California ARB
certification emissions data shows that current engines equipped with
stratified scavenging with lean combustion are emitting at levels above
the 50 g/kW-hr HC+NO<INF>X</INF> standard adopted today for Class III
and IV, our emission test data on Komatsu Zenoah's 25cc stratified
scavenging with lean combustion engine with one medium/high and one
medium efficiency catalyst ranged from 28 to 39 g/kW-hr
HC+NO<INF>X</INF>, respectively. Using the data associated with the
catalyst that yielded 28 g/kW-hr, and assuming a 30% deterioration of
the catalyst and 10% deterioration of the engine, the resultant
emission level in-use is estimated to be 48 g/kW-hr. While this result
shows compliance with the standards adopted in this rulemaking can
already be achieved with this technology, it is likely that emissions
will need to be lowered even more either through engine improvements or
better catalyst designs to allow for a compliance margin with
production engines. Compliance with the USFS temperature requirements
may also need to be further addressed. However, several years still
remain before full compliance with these standards is required and we
are confident that further development will bring this technology
within reasonable emissions for use in meeting these standards. In
addition, our testing was conducted on the 25.4cc engine, and
application of this technology to larger displacement engines will
result in lower emissions. This is seen in the California ARB
certification results where emissions on the 33.6cc engine are lower
than the emission on the 25.4cc engine. Therefore, we conclude that
stratified scavenging with lean combustion plus a catalyst will be an
available technology for meeting the Class IV standards.
    In regard to application of the stratified scavenging with lean
combustion technology to Class V engines, we expect that the decrease
in emissions with this technology in larger engines, as was shown in
the comparison of the 25.4cc to the 33.6cc engines, to continue due to
the favorable surface to volume ratios in larger displacement engines.
This will be beneficial because catalysts should not need to be
utilized on Class V engines and the degree of enleanment can be
decreased and therefore provide the amount of lubrication needed in
high speed applications, such as chainsaws. Therefore, we believe the
technology will also be available for Class V engines under the
standards adopted today. We conclude that the stratified scavenging
with lean combustion technology should be available for Class III
engines as well, but manufacturers will need to address the unfavorable
surface to volume ratios in the smallest engines which tend to result
in higher g/kW-hr emission levels, which suggest the need for higher
efficiency catalysts.
    We requested comment on the status of catalyst technology
development for handheld engine applications and the likelihood that
catalysts will be able to be applied to the full range of handheld
engine applications to meet the proposed standards and appropriate
safety requirements. Three engine manufacturers commented on catalysts,
one of which has three catalyst equipped trimmers in the marketplace,
and one catalyst industry trade organization commented. Two
manufacturers commented that heat dissipation is an important issue and
claimed that meeting the USFS and UL-82 requirements will be difficult
on all engine applications. Of particular concern are equipment such as
chainsaws where the ability to redesign the engine housing is limited
due to weight and power issues. A number of parties related to the
timber industry have also submitted comments regarding their concern
over potential forest fires with the use of catalysts on Class V
commercial equipment. In regard to the application of catalysts in
Classes III and IV, a variety of catalyst substrates exist in the
marketplace today, including the traditional honeycomb substrate, a
plate substrate (as currently used in several trimmer applications),
and a circular wire mesh substrate. Some catalyst designs are able to
achieve higher conversion percentage than others based on the available
surface area of the catalyst. Data from our testing of two engines with
low engine-out emissions retrofitted with catalysts (a Komatsu Zenoah
stratified scavenging with lean combustion engine retrofitted with a
flat plat and honeycomb catalyst, and a John Deere compression wave
technology engine retrofitted with a prototype metallic sponge
catalyst) have shown catalyst conversion efficiencies of 45% or higher.
    The main concern raised by manufacturers with the use of catalysts
is safety and compliance with the USFS temperature requirements. Higher
conversion efficiencies of the catalyst and higher exhaust flow rate
(which tends to increase with engine size) both can result in higher
catalyst and exhaust gas temperatures. The needed conversion efficiency
of the catalyst and available cooling are factors that need to be
addressed in order to successfully apply catalysts to small engines.
While catalyst and muffler designs can influence the conversion
efficiency, the ability to cool the muffler is largely dependent on the
application. Leaf blowers can blow air past the muffler, and thereby
can achieve a high degree of cooling. Trimmers typically have ample
available space around the muffler and therefore can be designed to
handle a certain amount of additional cooling by extending the muffler
housing out beyond current equipment designs. (It should be noted that
there are a number of such handheld applications currently certified,
both federally and with the California ARB, that employ catalysts and
also comply with the USFS temperature requirements.) Chainsaws on the
other hand have compact packaging requirements and therefore have less
flexibility in being able to handle increased amounts of cooling.
    The power of an engine will influence the amount of heat that is
generated in a catalyst. The general trend is that while larger engines
produce more power, they also have larger surface to volume ratios
which typically means lower engine out emissions (on a g/kW-hr basis),
therefore decreasing the needed efficiency of a catalyst to obtain a
given emission standard in g/kW-hr. Therefore, in regards to various
engine classes and applications, we conclude that because the large
majority of Class III engines are trimmers, they have the capability to
easily incorporate a low- to medium-efficiency catalyst and that any
additional heat can be managed by muffler and muffler housing redesign.
Class IV incorporates a large range of engine sizes and applications
from trimmers to chainsaws. The low emitting 2-stroke engine
technologies that will be available for these engines reveal that,
except in the case of 4-stroke engines, a catalyst may be needed to
certify to the emission standards being adopted today. The major sales
application in Class IV is trimmers and, as with Class III, this
application will be able to incorporate a fair degree of cooling with
muffler and muffler housing redesign. Blowers will also be able to
incorporate a catalyst with sufficient ability to achieve a high degree
of cooling. Chainsaws using Class IV engines will be limited in the
degree of catalyst conversion based on the tight packaging. However,
such applications should still be able to meet the standards through
controlling

[[Page 24279]]

engine out emissions and the use of a catalyst. Additionally,
averaging, banking and trading gives the manufacturer additional
flexibility. Averaging, banking and trading can assist a manufacturer
who may have Class IV chainsaws, or other more difficult cooling
applications, in need of emission reduction by allowing the
manufacturer to, for example, produce a chainsaw without a catalyst
(thereby forgoing the cost and lead time associated with catalyst and
cooling redesign) and, if emitting above the standard, offset these
excess emissions with credits from lower emitting trimmers and blowers
equipped with catalysts. With regard to Class IV 4-stroke engines,
based on the certification data submitted by manufacturers to the
California ARB, we believe that such engines will not require the use
of a catalyst to meet the standards being adopted today and therefore
will not have any heat issues that need to be addressed. Finally, with
regard to Class V engines, the standards being adopted today have been
set at levels that are not expected to require the use of catalysts.
Therefore, Class V applications should not have any catalyst heat
issues that need to be addressed.
    In the July 1999 SNPRM, we requested comment on the appropriateness
of the proposed two year delay for Class V engines. We received
comments on the phase-in schedule for the Phase 2 standards for all
classes from two manufacturers (with relatively small number of engine
families) recommending a shorter implementation schedule of one year or
three years beginning in 2002 for all classes. The California ARB also
requested a more expeditious timeline, recommending nationwide phase in
of the standards within five years after the implementation of
California's Tier 2 standard which took effect January 1, 2000. Sierra
Club and STAPPA/ALAPCO also asserted that the standards can be met by
all engines earlier than we proposed. One additional manufacturer (with
a relatively large number of engine families) indicated that the
timeline is not long enough to develop new technologies for the 50 g/
kW-hr and 72 g/kW-hr standards.
    As noted earlier, in response to comments submitted on the July
1999 SNPRM, with today's action we are adopting a shorter phase in
schedule than we proposed in the SNPRM. We are finalizing a four year
implementation schedule instead the five year schedule proposed in the
July 1999 SNPRM. Each manufacturer's position with regard to
implementing new technologies is unique. While some manufacturers have
a small number of families, or have sales heavily dominated by one or
two large engine families, other manufacturers have many families and
do not have sales dominated by any specific engine family. Therefore,
in determining the appropriate implementation schedule, we must balance
the need for those manufacturers which have large numbers of families
to have adequate time to address all of their families against the
environmental benefit of achieving emission reductions as soon as
possible. Based on the number of families currently certified by small
SI engine manufacturers, we have determined that a four year
implementation schedule of the Phase 2 standards is feasible,
especially when taking into consideration the benefits of the
averaging, banking, and trading program as well as the flexibilities
provided for small volume engine manufacturers and small volume engine
families. Some commenters requested us to adopt an even more aggressive
schedule than a four year phase-in. However, we believe the leadtime
before the standards are scheduled to take effect is appropriate. The
HC+NO<INF>X</INF> standards being adopted today for Class III and Class
IV are more stringent than the California ARB's HC+NO<INF>X</INF>
standards for these engines (i.e., 72 g/kW-hr for engines 0-65cc with
the exception of exempted applications), on which industry had been
focusing and developing technologies over the past few years, and will
necessitate additional effort and time to assure compliance.
Additionally, these will be the first low emission standards to apply
to many of the Class V engine families which are used in certain farm
and construction equipment applications and are exempted from meeting
the California ARB standards. In addition, we believe that industry
will benefit from additional lead time since in the near term they will
be finishing development of products for the California market that
meet the California ARB Tier 2 emission standards for small SI engines.
Furthermore, we believe the schedule of standards being adopted today
will allow manufacturers to sell their engines designed to meet the
California ARB Tier 2 standards nationwide for a number of years,
recouping the investments made for such designs, while redesigning
their product offerings to meet the proposed HC+NO<INF>X</INF>
standards on average. Finally, because most of the Class V engines are
exempt from the California ARB Tier 2 requirements, and because the
manufacturers of most Class V engines also have significant numbers of
Class IV engines to redesign, we are retaining the delayed
implementation schedule for Class V engines as proposed, as modified to
accommodate a four year phase-in period.
    In addition to the standards contained in the July 1999 SNPRM, we
requested comments on the costs, feasibility, and other effects of
complying nationwide with a 72 g/kW-hr HC+NO<INF>X</INF> standard for
all three classes of handheld engines. Specific areas on which we
requested comment included the engine designs and technologies that
would be used to comply with a 72 g/kW-hr HC+NO<INF>X</INF> standard,
the cost of adopting such technologies (both relative to engines
currently certified under the Phase 1 program and as an extension of
production of California compliant engines), and the potential for such
Class III and Class IV engines to be modified to meet a 50 g/kW-hr
HC+NO<INF>X</INF> standard. We also requested comment on an alternative
set of standards (72 g/kW-hr for Classes III and IV and 87 g/kW-hr for
Class V) supported by a number of engine manufacturers in previous
discussions with us. In response to these requests, Husqvarna/FHP and
Stihl submitted comments supporting the standards of 72 g/kW-hr for
Classes III and IV and 87 g/kW-hr for Class V noting that technologies
they were selecting to meet those levels for purposes of meeting the
California ARB standards would not be able to be modified to meet the
reproposed standards of 50 g/kW-hr for Classes III and IV and 72 g/kW-
hr for Class V. Husqvarna/FHP also submitted a study performed by
National Economic Research Associates (NERA) examining the cost
effectiveness of the standards supported by Husqvarna/FHP (relative to
the Phase 1 standards) and the cost effectiveness of the standards
contained in the July 1999 SNPRM (relative to the standards supported
by Husqvarna/FHP). The results of the NERA study suggested that the
cost effectiveness of the standards supported by Husqvarna/FHP relative
to Phase 1 were significantly lower than the cost effectiveness of the
reproposed standards (relative to the standards supported by Husqvarna/
FHP). For more discussion of this study, including our response, see
section III.B. below.
    We note that in the course of this rulemaking we have proposed and
considered a variety of alternative approaches to the Phase 2 handheld
program, and that our thinking has evolved in parallel with the
industry's

[[Page 24280]]

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

[[Page 24281]]

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

[[Page 24282]]

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

[[Page 24283]]

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

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

    At the time of certification, manufacturers will be required to
supply to us the appropriate information used in the above noted
equation. ``Production'' represents the manufacturer's U.S. production
of engines for the given engine family, excluding exported engines and
engines that are introduced into commerce for use in California.
``Power'' represents the maximum modal power of the certification test
engine over the certification test cycle. ``Useful Life'' is the
regulatory useful life established by the manufacturer for the given
engine family. ``Load Factor'' is a constant that is dependent on the
test cycle over which the engine is certified.
    In order to demonstrate compliance with the applicable
HC+NO<INF>X</INF> emission standard in a given model year, a
manufacturer participating in the ABT program will be required to show
that the number of HC+NO<INF>X</INF> credits available to the
manufacturer are equal to or greater than the number of credits needed
by engines certified with FELs above the applicable standards in that
model year. This will be done by using credits generated in that model
year by engines certified with FELs below the applicable standard,
banked credits, or credits obtained in a trade from another small SI
engine manufacturer.
    With regard to credit life, the final rule differs from the
proposed provisions of the ABT program in order to address comments
received on the SNPRM relating to the stringency of the standards and
the phase in periods. Under the ABT provisions being adopted today for
handheld engines, manufacturers will be able to select from two options
for the purpose of generating credits. These two programs also have
unique credit life opportunities. Under the program referred to as the
``Normal Credit'' program, manufactures certifying engine families with
FELs at or below 72 g/kW-hr will have an unlimited credit life. Such
credits will be available to the manufacturer for the duration of the
Phase 2 program and will not be discounted in any manner under the
Normal Credit program. Credits generated by engines certified with FELs
above 72 g/kW-hr can be used by a manufacturer in the model year in
which they are generated for its own averaging purposes, or traded to
another manufacturer to be used for averaging purposes in that model
year. However, such credits generated by engines may not be carried
over to the next model year, including when traded to another
manufacturer.
    Alternatively a manufacturer may choose to have a family
participate in what is referred to as the ``Optional Transition Year''
credit program. Under

[[Page 24284]]

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

[[Page 24285]]

C. What Are the Provisions of the Compliance Program?

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

[[Page 24286]]

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

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

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

[[Page 24287]]

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

[[Page 24288]]

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

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

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

[[Page 24289]]

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

[[Page 24290]]

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

E. Nonregulatory Programs

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

[[Page 24291]]

F. General Provisions of This Final Rule

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

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

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

[[Page 24292]]

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

[[Page 24293]]

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

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

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

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

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

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

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

[[Page 24294]]

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

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

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

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

A. Environmental Benefit Assessment

    National Ambient Air Quality Standards (NAAQS) have been set for a
number of criteria pollutants, including ozone (O<INF>3</INF>), which
adversely affect human health, vegetation, materials and visibility.
Concentrations of ozone are impacted by HC and NO<INF>X</INF>
emissions. We believe that the Phase 2 standards being adopted today
for handheld engines will reduce emissions of HC and NO<INF>X</INF> and
help most areas of the nation in their progress towards attainment and
maintenance of the NAAQS for ozone. The following section provides a
summary of the roles of HC and NO<INF>X</INF> in ozone formation. The
following section also addresses the estimated emissions impact of this
rule, and the health and

[[Page 24295]]

welfare effects of ozone, CO, and hazardous air pollutants.
1. Roles of HC and NO<INF>X</INF> in Ozone Formation
    Both HC and NO<INF>X</INF> contribute to the formation of
tropospheric ozone through a complex series of reactions. Our primary
reason for controlling emissions from small SI handheld engines is the
role of their HC emissions in forming ozone. Of the major air
pollutants for which NAAQS have been designated under the CAA, the most
widespread problem continues to be ozone, which is the most prevalent
photochemical oxidant and an important component of smog. Ozone is a
product of the atmospheric chemical reactions involving oxides of
nitrogen and volatile organic compounds. These reactions occur as
atmospheric oxygen and sunlight interact with hydrocarbons and oxides
of nitrogen from both mobile and stationary sources.
    A critical part of this problem is the formation of ozone both in
and downwind of large urban areas. Under certain weather conditions,
the combination of NO<INF>X</INF> and HC has resulted in urban and
rural areas exceeding the national ambient ozone standard by as much as
a factor of three. Thus it is important to control HC over wider
regional areas if these areas are to come into and maintain compliance
with the ozone NAAQS.
2. Health and Welfare Effects of Tropospheric Ozone
    Short-term (1-3 hours) and prolonged (6-8 hours) exposures to
ambient ozone at levels common in many cities have been linked to a
number of health effects of concerns. For example, increased hospital
admissions and emergency room visits for respiratory causes have been
associated with ambient ozone exposures at such levels. Repeated
exposures to ozone can make people more susceptible to respiratory
infection, result in lung inflammation, and aggravate pre-existing
respiratory diseases such as asthma. Other health effects attributed to
ozone exposures include significant decreases in lung function and
increased respiratory symptoms such as chest pain and cough. These
effects generally occur while individuals are engaged in moderate or
heavy exertion.
    Children active outdoors during the summer when ozone levels are at
their highest are most at risk of experiencing such effects. Other at-
risk groups include adults who are active outdoors (e.g., outdoor
workers), and individuals with pre-existing respiratory disease such as
asthma and chronic obstructive lung disease. In addition, longer-term
exposures to moderate levels of ozone present the possibility of
irreversible changes in the lungs which could lead to premature aging
of the lungs and/or chronic respiratory illnesses. Ozone also affects
vegetation and ecosystems, leading to reductions in agricultural and
commercial forest yields, reduced growth and survivability of tree
seedlings, and increased plant susceptibility to disease, pests, and
other environmental stresses (e.g., harsh weather). In long-lived
species, these effects may become evident only after several years or
even decades, thus having the potential for long-term effects on forest
ecosystems. Ground-level ozone damage to the foliage of trees and other
plants also can decrease the aesthetic value of ornamental species as
well as the natural beauty of our national parks and recreation areas.
    Ozone chemically attacks elastomers (natural rubber and certain
synthetic polymers), textile fibers and dyes, and, to a lesser extent,
paints. For example, elastomers become brittle and crack, and dyes fade
after exposure to ozone. Finally, by trapping energy radiated from the
earth, tropospheric ozone may contribute to heating of the earth's
surface via the ``greenhouse effect,'' thereby contributing to global
warming.<SUP>1</SUP> Tropospheric ozone is also known to reduce levels
of UVB radiation reaching the earth's surface.<SUP>2</SUP>
3. Estimated Emissions Impact of this Final Rule
    Table 5 presents the emission inventories for the handheld engines
covered by today's action under both the baseline scenario (i.e., with
Phase 1 controls applied) and the controlled scenario (i.e., with the
Phase 2 controls applied). Table 5 also presents the expected emission
reductions due to the Phase 2 HC+NO<INF>X</INF> standards being adopted
today. The emission standards adopted in today's action are expected to
reduce average in-use exhaust HC+NO<INF>X</INF> emissions from small SI
handheld engines by approximately 70 percent beyond Phase 1 standards
for handheld engines by the year 2010, by which time a complete fleet
turnover is expected. This translates into an annual nationwide
reduction of nearly 500,000 tons of exhaust HC+NO<INF>X</INF> in the
year 2025 over that expected from Phase 1.

             Table 5.--Projected Annual Exhaust HC+NO<INF>X</INF> Emissions from Handheld Equipment (tons/year)
----------------------------------------------------------------------------------------------------------------
                                                                                   Tons reduced
                                                   With phase 1    With phase 2     due to the      Percentage
                      Year                         controls only     controls         phase 2        reduction
                                                                                    program \a\
----------------------------------------------------------------------------------------------------------------
2000............................................         421,000         421,000  ..............  ..............
2005............................................         471,000         269,000         202,000            43.0
2010............................................         525,000         155,000         373,000            70.5
2015............................................         579,000         170,000         412,000            70.5
2020............................................         633,000         186,000         450,000            70.6
2025............................................         687,000         202,000         488,000           70.6
----------------------------------------------------------------------------------------------------------------
\a\ Includes a small benefit for California engines that would need to comply with the more stringent EPA
  standards.

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

[[Page 24296]]

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

B. Cost and Cost-Effectiveness

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

[[Page 24297]]

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

[[Page 24298]]

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

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

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

[[Page 24299]]

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

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

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

[[Page 24300]]

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

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

   Table 7.--Cost-Effectiveness of the Phase 2 Handheld Engine Standards (With Fuel Savings) Compared to Other
                                                Nonroad Programs
----------------------------------------------------------------------------------------------------------------
               Non-road program                         Cost-effectiveness                   Pollutants
----------------------------------------------------------------------------------------------------------------
Phase 2 Small SI Handheld Engines.............  $560/ton                           HC+NO<INF>X</INF>
Phase 2 Small SI Nonhandheld Engines..........  -$507/ton                          HC+NO<INF>X</INF>
Phase 1 Small SI Engines......................  $217/ton                           HC+NO<INF>X</INF>
Recreational Marine SI Engines................  $1,000/ton                         HC
Tier 2/3 Standards for Nonroad CI Engines.....  $410 to $650/ton                   HC+NO<INF>X</INF>
----------------------------------------------------------------------------------------------------------------

IV. Public Participation

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

[[Page 24301]]

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

V. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

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

B. Regulatory Flexibility

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

[[Page 24302]]

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

C. Paperwork Reduction Act

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

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

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

D. Unfunded Mandates Reform Act

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

[[Page 24303]]

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

[[Page 24304]]

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

E. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. We will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. This rule is a
``major rule'' as defined by 5 U.S.C. 804(2). This rule will be
effective June 26, 2000.

F. National Technology Transfer and Advancement Act

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

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

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

H. Executive Order 13132: Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August
10, 1999), requires EPA to develop an accountable process to ensure
``meaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.''
``Policies that have federalism implications'' is defined in the
Executive Order to include regulations that have ``substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.''
    Under Section 6 of Executive Order 13132, EPA may not issue a
regulation that has federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute, unless
the Federal government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments, or EPA
consults with State and local officials early in the process of
developing the proposed regulation. EPA also may not issue a regulation
that has federalism implications and that preempts State law, unless
the Agency consults with State and local officials early in the process
of developing the proposed regulation.
    This final rule does not have federalism implications. It will not
have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132. Today's final rule will not
impose any enforceable duties on these entities, because they do not
produce small SI handheld engines or equipment. Thus, the requirements
of section 6 of the Executive Order do not apply to this rule. Although
section 6 of Executive Order 13132 does not apply to this rule, we did
consult with officials from the State of California in developing this
rule. The State of California also regulates small SI engines and the
purpose of the consultations was to develop harmonized requirements, to
the extent possible, between our Phase 2 program for small SI handheld
engines and California's program for the same engines.
    Under section 209(e)(2) of the Clean Air Act, the State of
California may adopt and enforce standards and other requirements
relating to the control of emissions from new nonroad engines or
vehicles if California determines that its standards will be, in the
aggregate, at least as protective of public health and welfare as
applicable federal standards. In such cases, other states may adopt and
enforce standards that are identical to California's. Therefore,
today's final rule does preempt state and local law to the extent
provided by section 209(e)(2). Although this rule was proposed before
the November 2, 1999, effective date of Executive Order 13132, we
provided state and local officials notice and an opportunity for
appropriate participation when we published the January 1998 NPRM and
July 1999 SNPRM. Thus, we have complied with the requirements of
section 4 of the Executive Order.

[[Page 24305]]

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

    Under Executive Order 13084, we may not issue a regulation that is
not required by statute, that significantly or uniquely affects the
communities of Indian tribal governments, and that imposes substantial
direct compliance costs on those communities, unless the Federal
government provides the funds necessary to pay the direct compliance
costs incurred by the tribal governments, or we consult with those
governments. If we comply by consulting, Executive Order 13084 requires
us to provide to the Office of Management and Budget a description of
the extent of our prior consultation with representatives of affected
tribal governments and a statement supporting the need to issue the
regulation. In addition, Executive Order 13084 requires us to develop
an effective process permitting elected officials and other
representatives of Indian tribal governments ``to provide meaningful
and timely input in the development of regulatory policies on matters
that significantly or uniquely affect their communities.''
    Today's final rule will not significantly or uniquely affect the
communities of Indian tribal governments because it will not impose any
enforceable obligations on them. Accordingly, the requirements of
section 3(b) of Executive Order 13084 do not apply to this final rule.

VI. Statutory Authority

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

List of Subjects

40 CFR Part 90

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

40 CFR Part 91

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

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

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

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

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

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

Subpart A--General

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

Sec. 90.1  Applicability.

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

Sec. 90.3  Definitions.

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

Subpart B--Emission Standards and Certification Provisions

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

Sec. 90.103  Exhaust emission standards.

    (a) * * *

[[Page 24306]]

              TABLE 2.--Phase 2 Class I-A, Class I-B, and Class I Engine Exhaust Emission Standards
                                            (grams per kilowatt-hour)
----------------------------------------------------------------------------------------------------------------
             Engine class                   HC+NO<INF>X</INF>         NMHC+NO<INF>X</INF>           CO             Effective date
----------------------------------------------------------------------------------------------------------------
    *                   *                    *                    *                    *                    *
                                                             *
I-A...................................              50                             610  2001 Model Year.
I-B...................................              40              37             610  2001 Model Year.

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

* * * * *

                       TABLE 4.--Phase 2 Handheld Exhaust Emission Standards by Model Year
                                            [grams per kilowatt-hour]
----------------------------------------------------------------------------------------------------------------
                                                                                 Model year
                                                           -----------------------------------------------------
            Engine class              Emission requirement                                                 2007
                                                              2002     2003     2004     2005     2006     and
                                                                                                          later
----------------------------------------------------------------------------------------------------------------
Class III..........................  HC+NO<INF>X</INF>...............      238      175      113       50       50       50
                                     CO...................      805      805      805      805      805      805
Class IV...........................  HC+NO<INF>X</INF>...............      196      148       99       50       50       50
                                     CO...................      805      805      805      805      805      805
Class V............................  HC+NO<INF>X</INF>...............                        143      119       96       72
                                     CO...................                        603      603      603      603
----------------------------------------------------------------------------------------------------------------

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

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

Sec. 90.104  Compliance with emission standards.

* * * * *
    (g)(1) Small volume engine manufacturers and small volume engine
families may, at their option, take deterioration factors for
HC+NO<INF>X</INF> (NMHC+NO<INF>X</INF>) and CO from Table 1 or Table 2
of this paragraph (g), or they may calculate deterioration factors for
HC+NO<INF>X</INF> (NMHC+NO<INF>X</INF>) and CO according to the process
described in paragraph (h) of this section. For technologies that are
not addressed in Table 1 or Table 2 of this paragraph (g), the
manufacturer may ask the Administrator to assign a deterioration factor
prior to the time of certification. The provisions of this paragraph
(g) do not apply to Class I-A and Class I-B engines.
* * * * *
    (3) Table 2 follows:

[[Page 24307]]

 Table 2.--Handheld Engine HC+NO<INF>X</INF> and CO Assigned Deterioration Factors for Small Volume Manufacturers and Small
                                             Volume Engine Families
----------------------------------------------------------------------------------------------------------------
                                         Two-stroke engines<SUP>1</SUP>       Four-stroke engines
            Engine class             ----------------------------------------------------      Engines with
                                         HC+NO<INF>X</INF>         CO         HC+NO<INF>X</INF>         CO          aftertreatment
----------------------------------------------------------------------------------------------------------------
Class III...........................          1.1          1.1          1.5          1.1  Dfs must be calculated
                                                                                           using the formula in
                                                                                           Sec.  90.104(g)(4).
Class IV............................          1.1          1.1          1.5          1.1
Class V.............................          1.1          1.1          1.5         1.1
----------------------------------------------------------------------------------------------------------------
<SUP>1</SUP> Two-stroke technologies to which these assigned deterioration factors apply include conventional two-strokes,
  compression wave designs, and stratified scavenging designs.

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

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

Where:

DF = deterioration factor.
NE = new engine emission levels prior to the catalyst (g/kW-hr)
EDF = deterioration factor for engines without catalyst as shown in
Table 1 or Table 2 of this paragraph (g)
CC = amount converted at 0 hours in g/kW-hr.
F = 0.8 for HC (NMHC), 0.0 for NO<INF>X</INF>, and 0.8 for CO for all
classes of engines.
    (h) * * *
    (2) For engines not using assigned dfs from Table 1 or Table 2 of
paragraph (g) of this section, dfs shall be determined as follows:
* * * * *

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

Sec. 90.105  Useful life periods for Phase 2 engines.

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

         Table 1: Useful Life Categories for Nonhandheld Engines
                                 [hours]
------------------------------------------------------------------------

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

Class I-A....................................       50      125      300
Class I-B....................................      125      250      500

                 *        *         *        *        *
------------------------------------------------------------------------

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

      Table 2: Useful Life Categories for Handheld Engines (Hours)
------------------------------------------------------------------------

------------------------------------------------------------------------
Class III..............................         50        125        300
Class IV...............................         50        125        300
Class V................................         50        125        300
------------------------------------------------------------------------

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

Sec. 90.107  Application for certification.

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

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

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

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

[[Page 24308]]

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

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

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

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

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

Sec. 90.119  Certification procedure--testing.

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

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

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

Sec. 90.203  General provisions.

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

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

Sec. 90.204  Averaging.

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

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

Sec. 90.205  Banking.

    (a) * * *
    (2) Beginning with the 2000 model year, a manufacturer of a Class
I-A or Class I-B engine family with an FEL below the applicable
emission standard for a given model year may bank credits in that model
year for use in averaging and trading.
* * * * *
    (4) For the 2002 through 2004 model years, a manufacturer of a
Class III or Class IV engine family may bank credits for use in future
model year averaging and trading from only those Class III or Class IV
engine families with an FEL at or below 72 g/kW-hr. Beginning with the
2005 model year, a manufacturer of a Class III or Class IV engine
family with an FEL below the applicable emission standard may generate
credits for use in future model year averaging and trading.
    (5) For the 2004 through 2006 model years, a manufacturer of a
Class V engine family may bank credits for use in future model year
averaging and trading from only those Class V engine families with an
FEL at or below 87 g/kW-hr. Beginning with the 2007 model year, a
manufacturer of a Class V engine family with an FEL below the
applicable emission standard may generate credits for use in future
model year averaging and trading.
* * * * *
    (b) * * *
    (3) Beginning with the 2000 model year and prior to the applicable
date listed in paragraph (a) of this section for Class III engines, a
manufacturer may bank early credits for all Class III engines with
HC+NO<INF>X</INF> FELs below 72 g/kW-hr. All early credits for Class
III engines shall be calculated against a HC+NO<INF>X</INF> level of
238 g/kW-hr.
    (4) Beginning with the 2000 model year and prior to the applicable
date

[[Page 24309]]

listed in paragraph (a) of this section for Class IV engines, a
manufacturer may bank early credits for all Class IV engines with
HC+NO<INF>X</INF> FELs below 72 g/kW-hr. All early credits for Class IV
engines shall be calculated against a HC+NO<INF>X</INF> level of 196 g/
kW-hr.
    (5) Beginning with the 2000 model year and prior to the applicable
date listed in paragraph (a) of this section for Class V engines, a
manufacturer may bank early credits for all Class V engines with
HC+NO<INF>X</INF> FELs below 87 g/kW-hr. All early credits for Class V
engines shall be calculated against a HC+NO<INF>X</INF> level of 143 g/
kW-hr.
* * * * *
    14. Section 90.206 is amended by revising paragraph (c) to read as
follows:

Sec. 90.206  Trading.

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

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

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

    (a) * * *

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

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

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

Sec. 90.213  Averaging under the optional program.

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

Sec. 90.214  Banking under the optional program.

    (a)(1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) For the 2002 through 2004 model years, a manufacturer of a
Class III or Class IV engine family may bank credits for use in future
model year averaging and trading from those Class III or Class IV
engine families with an FEL at or below the applicable standard.
    (5) For the 2004 through 2006 model years, a manufacturer of a
Class V engine family may bank credits for use in future model year
averaging and trading from those Class V engine families with an FEL at
or below the applicable standard.
    (6) Negative credits may be banked only according to the
requirements under Sec. 90.216(c).
    (b)(1) [Reserved]
    (2) [Reserved]
    (3) Beginning with the 2000 model year and prior to the applicable
date listed in paragraph (a) of this section for Class III engines, a
manufacturer may bank early credits for all Class III engines with
HC+NO<INF>X</INF> FELs below the applicable standard. All early credits
for Class III engines shall be calculated against a HC+NO<INF>X</INF>
level of 238 g/kW-hr.
    (4) Beginning with the 2000 model year and prior to the applicable
date listed in paragraph (a) of this section for Class IV engines, a
manufacturer may bank early credits for all Class IV engines with
HC+NO<INF>X</INF> FELs below the applicable standard. All early credits
for Class IV engines shall be calculated against a HC+NO<INF>X</INF>
level of 196 g/kW-hr.
    (5) Beginning with the 2000 model year and prior to the applicable
date listed in paragraph (a) of this section for Class V engines, a
manufacturer may bank early credits for all Class V engines with
HC+NO<INF>X</INF> FELs below the applicable standard. All early credits
for Class V engines shall be calculated against a HC+NO<INF>X</INF>
level of 143 g/kW-hr.
    (6) Engines certified under the early banking provisions of this
paragraph are subject to all of the requirements of this part
applicable to Phase 2 engines.
    (c) A manufacturer may bank actual credits only after the end of
the model year and after EPA has reviewed the manufacturer's end-of-
year reports. During the model year and before submittal of the end-of-
year report, credits originally designated in the certification process
for banking will be considered reserved and may be redesignated for
trading or averaging in the end-of-year report and final report.
    (d) Credits declared for banking from the previous model year that
have not been reviewed by EPA may be used in averaging or trading
transactions. However, such credits may be revoked at a later time
following EPA review of

[[Page 24310]]

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

Sec. 90.215  Trading under the optional program.

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

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

    (a)(1) For each engine family, HC+NO<INF>X</INF>
[NMHC+NO<INF>X</INF>] certification emission credits (positive or
negative) are to be calculated according to the following equation and
rounded to the nearest gram. Consistent units are to be used throughout
the following equation:

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

Where:

Production = eligible production as defined in this part. Annual
production projections are used to project credit availability for
initial certification. Eligible production volume is used in
determining actual credits for end-of-year compliance determination.
Standard = the current and applicable Small SI engine HC+NO<INF>X</INF>
(NMHC+NO<INF>X</INF>) emission standard in grams per kilowatt hour as
determined in Sec. 90.103 or, for early credits, the applicable
emission level as specified in Sec. 90.214(b).
FEL = the family emission limit for the engine family in grams per
kilowatt hour.
Power = the maximum modal power of the certification test engine, in
kilowatts, as calculated from the applicable federal test procedure as
described in this part.
Useful Life = the useful life in hours corresponding to the useful life
category for which the engine family was certified.
Load Factor = 85 percent (i.e., 0.85) for Test Cycle C. For approved
alternate test procedures, the load factor must be calculated according
to the formula in paragraph (a)(2) of this section:
Adjustment Factor = 1.0, except for purposes of calculating credits for
banking under the optional transition year program, in which case the
adjustment factor is listed in Table 1, Table 2, or Table 3 of
paragraph (a)(3) of this section, whichever is applicable, based on the
model year of the engine and its certified FEL.

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

Where:

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

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

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

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

[[Page 24311]]

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

Sec. 90.217  Certification under the optional program.

    (a) In the application for certification a manufacturer must:
    (1) Submit a statement that the engines for which certification is
requested will not, to the best of the manufacturer's belief, cause the
manufacturer to be in noncompliance under Sec. 90.216(b) when all
credits are calculated for the manufacturer's engine families.
    (2) Declare an FEL for each engine family for HC+NO<INF>X</INF>
(NMHC+NO<INF>X</INF>). The FEL must have the same number of significant
digits as the emission standard.
    (3) Indicate the projected number of credits generated/needed for
this family; the projected applicable eligible annual production
volume, and the values required to calculate credits as given in
Sec. 90.216.
    (4) Submit calculations in accordance with Sec. 90.216 of projected
emission credits (positive or negative) based on annual production
projections for each family.
    (5)(i) If the engine family is projected to have negative emission
credits, state specifically the source (manufacturer/engine family or
reserved) of the credits necessary to offset the credit deficit
according to projected annual production.
    (ii) If the engine family is projected to generate credits, state
specifically (manufacturer/engine family or reserved) where the
projected annual credits will be applied.
    (iii) The manufacturer may supply the information required by this
section in the form of a spreadsheet detailing the manufacturer's
annual production plans and the credits generated or consumed by each
engine family.
    (b) All certificates issued are conditional upon manufacturer
compliance with the provisions of this subpart both during and after
the model year of production.
    (c) Failure to comply with all provisions of this subpart will be
considered to be a failure to satisfy the conditions upon which the
certificate was issued, and the certificate may be determined to be
void ab initio pursuant to Sec. 90.123.
    (d) The manufacturer bears the burden of establishing to the
satisfaction of the Administrator that the conditions upon which the
certificate was issued were satisfied or waived.
    (e) Projected credits based on information supplied in the
certification application may be used to obtain a certificate of
conformity. However, any such credits may be revoked based on review of
end-of-year reports, follow-up audits, and any other verification steps
considered appropriate by the Administrator.

Sec. 90.218  Maintenance of records under the optional program.

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

[[Page 24312]]

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

    (a) End-of-year and final reports must indicate the engine family,
the engine class, the actual production volume, the values required to
calculate credits as given in Sec. 90.216, and the number of credits
generated/required. Manufacturers must also submit how and where credit
surpluses were dispersed (or are to be banked) and/or how and through
what means credit deficits were met. Copies of contracts related to
credit trading must be included or supplied by the broker, if
applicable. The report must include a calculation of credit balances to
show that the credit summation for all engines is equal to or greater
than zero (or less than zero in cases of negative credit balances as
permitted in Sec. 90.216(c)). For model years 2008 through 2010, the
report must include a calculation of the production weighted average
HC+NO<INF>X</INF> FEL for handheld engine families to show compliance
with the provisions of Sec. 90.212(b).
    (b) The calculation of eligible production for end-of-year and
final reports must be based on engines produced for the United States
market, excluding engines which are subject to state emission standards
pursuant to a waiver granted by EPA under section 209(e) of the Act.
Upon advance written request, the Administrator will consider other
methods to track engines for credit calculation purposes that provide
high levels of confidence that eligible production or sales are
accurately counted.
    (c)(1) End-of-year reports must be submitted within 90 days of the
end of the model year to: Manager, Engine Compliance Programs Group
(6403-J), U.S. Environmental Protection Agency, Washington, DC 20460.
    (2) Unless otherwise approved by the Administrator, final reports
must be submitted within 270 days of the end of the model year to:
Manager, Engine Compliance Programs Group (6403-J), U.S. Environmental
Protection Agency, Washington, DC 20460.
    (d) Failure by a manufacturer to submit any end-of-year or final
reports in the specified time for any engines subject to regulation
under this part is a violation of Sec. 90.1003(a)(2) and section 213(d)
of the Clean Air Act for each engine.
    (e) A manufacturer generating credits for banking only who fails to
submit end-of-year reports in the applicable specified time period (90
days after the end of the model year) may not use the credits until
such reports are received and reviewed by EPA. Use of projected credits
pending EPA review is not permitted in these circumstances.
    (f) Errors discovered by EPA or the manufacturer in the end-of-year
report, including errors in credit calculation, may be corrected in the
final report.
    (g) If EPA or the manufacturer determines that a reporting error
occurred on an end-of-year or final report previously submitted to EPA
under this section, the manufacturer's credits and credit calculations
must be recalculated. Erroneous positive credits will be void except as
provided in paragraph (h) of this section. Erroneous negative credit
balances may be adjusted by EPA.
    (h) If EPA review determines a reporting error in the
manufacturer's favor (that is, resulting in an increased credit
balance) or if the manufacturer discovers such an error within 270 days
of the end of the model year, EPA shall restore the credits for use by
the manufacturer.

Sec. 90.220  Request for hearing.

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

Subpart D--Emission Test Equipment Provisions

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

Sec. 90.301  Applicability.

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

Subpart E--Gaseous Exhaust Test Procedures

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

Sec. 90.401  Applicability.

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

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

Sec. 90.404  Test procedure overview.

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

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

Sec. 90.408  Pre-test procedures.

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

[[Page 24313]]

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

* * * * *

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

Sec. 90.409  Engine dynamometer test run.

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

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

Sec. 90.410  Engine test cycle.

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

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

Apendix A to Subpart E of Part 90 --Tables

* * * * *

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

*                  *                  *                  *                  *                  *
                                                        *
Weighting for Phase 1 Engines......    90%  .....  .....  .....  .....  .....  .....  .....  .....  .....    10%
Weighting for Phase 2 Engines......    85%  .....  .....  .....  .....  .....  .....  .....  .....  .....    15%
----------------------------------------------------------------------------------------------------------------

Subpart H--Manufacturer Production Line Testing Program

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

Subpart K--Prohibited Acts and General Enforcement Provisions

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

Sec. 90.1003  Prohibited acts.

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

[[Page 24314]]

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

Subpart L--Emission Warranty and Maintenance Instructions

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

Sec. 90.1103  Emission warranty, warranty period.

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

Subpart M--Voluntary In-Use Testing

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

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

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

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

Subpart C--Averaging, Banking, and Trading Provisions

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

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

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

Subpart L--Prohibited Acts and General Enforcement Provisions

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

Sec. 91.1103  Prohibited acts.

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

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