[Federal Register: January 18, 2001 (Volume 66, Number 12)]
[Rules and Regulations]
[Page 5001-5050]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja01-16]

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Part V

Environmental Protection Agency

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40 CFR Parts 69, 80, and 86

Control of Air Pollution From New Motor Vehicles: Heavy-Duty Engine and
Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements;
Final Rule

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 69, 80, and 86

[AMS-FRL-6923-7]
RIN 2060-AI69

Control of Air Pollution from New Motor Vehicles: Heavy-Duty
Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control
Requirements

AGENCY: Environmental Protection Agency.

ACTION: Final rule.

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SUMMARY: The pollution emitted by diesel engines contributes greatly to
our nation's continuing air quality problems. Even with more stringent
heavy-duty highway engine standards set to take effect in 2004, these
engines will continue to emit large amounts of nitrogen oxides and
particulate matter, both of which contribute to serious public health
problems in the United States. These problems include premature
mortality, aggravation of respiratory and cardiovascular disease,
aggravation of existing asthma, acute respiratory symptoms, chronic
bronchitis, and decreased lung function. Numerous studies also link
diesel exhaust to increased incidence of lung cancer. We believe that
diesel exhaust is likely to be carcinogenic to humans by inhalation and
that this cancer hazard exists for occupational and environmental
levels of exposure.
    We are establishing a comprehensive national control program that
will regulate the heavy-duty vehicle and its fuel as a single system.
As part of this program, new emission standards will begin to take
effect in model year 2007, and will apply to heavy-duty highway engines
and vehicles. These standards are based on the use of high-efficiency
catalytic exhaust emission control devices or comparably effective
advanced technologies. Because these devices are damaged by sulfur, we
are also reducing the level of sulfur in highway diesel fuel
significantly by mid-2006. The program provides substantial flexibility
for refiners, especially small refiners, and for manufacturers of
engines and vehicles. These options will ensure that there is
widespread availability and supply of the low sulfur diesel fuel from
the very beginning of the program, and will provide engine
manufacturers with the lead time needed to efficiently phase-in the
exhaust emission control technology that will be used to achieve the
emissions benefits of the new standards.
    We estimate that heavy-duty trucks and buses today account for
about one-third of nitrogen oxides emissions and one-quarter of
particulate matter emissions from mobile sources. In some urban areas,
the contribution is even greater. This program will reduce particulate
matter and oxides of nitrogen emissions from heavy duty engines by 90
percent and 95 percent below current standard levels, respectively. In
order to meet these more stringent standards for diesel engines, the
program calls for a 97 percent reduction in the sulfur content of
diesel fuel. As a result, diesel vehicles will achieve gasoline-like
exhaust emission levels. We are also finalizing more stringent
standards for heavy-duty gasoline vehicles, based in part on the use of
the low sulfur gasoline that will be available when the standards go
into effect.
    The clean air impact of this program will be dramatic when fully
implemented. By 2030, this program will reduce annual emissions of
nitrogen oxides, nonmethane hydrocarbons, and particulate matter by a
projected 2.6 million, 115,000 and 109,000 tons, respectively. We
project that these reductions and the resulting significant
environmental benefits of this program will come at an average cost
increase of about $2,000 to $3,200 per new vehicle in the near term and
about $1,200 to $1,900 per new vehicle in the long term, depending on
the vehicle size. In comparison, new vehicle prices today can range
well over $100,000 for larger heavy-duty vehicles. We estimate that
when fully implemented the sulfur reduction requirement will increase
the cost of producing and distributing diesel fuel by about five cents
per gallon.

DATES: This rule will become effective March 19, 2001. The
incorporation by reference of certain publications listed in this rule
is approved by the Director of the Office of Federal Register as of
March 19, 2001.

ADDRESSES: Comments: All comments and materials relevant to today's
action have been placed in Public Docket No. A-99-06 at the following
address: U.S. Environmental Protection Agency (EPA), Air Docket (6102),
Room M-1500, 401 M Street, SW, Washington, DC 20460 (on the ground
floor in Waterside Mall) from 8:00 a.m. to 5:30 p.m., Monday through
Friday, except on government holidays. You can reach the Air Docket by
telephone at (202) 260-7548 and by facsimile at (202) 260-4400. We may
charge a reasonable fee for copying docket materials, as provided in 40
CFR part 2.

FOR FURTHER INFORMATION CONTACT: Margaret Borushko, U.S. EPA, National
Vehicle and Fuel Emissions Laboratory, 2000 Traverwood, Ann Arbor MI
48105; Telephone (734) 214-4334, FAX (734) 214-4816, E-mail
borushko.margaret@epa.gov

SUPPLEMENTARY INFORMATION:

Regulated Entities

    This action will affect you if you produce or import new heavy-duty
engines which are intended for use in highway vehicles such as trucks
and buses, or produce or import such highway vehicles, or convert
heavy-duty vehicles or heavy-duty engines used in highway vehicles to
use alternative fuels, or produce or import light-duty highway diesel
vehicles. It will also affect you if you produce, import, distribute,
or sell highway diesel fuel, or sell nonroad diesel fuel.
    The following table gives some examples of entities that may have
to follow the regulations. But because these are only examples, you
should carefully examine the regulations in 40 CFR parts 69, 80, and
86. If you have questions, call the person listed in the FOR FURTHER
INFORMATION CONTACT section of this preamble:

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                                     NAICS
            Category                Codes a     SIC  Codes       Examples of potentially regulated entities
----------------------------------------------------b-----------------------------------------------------------
Industry........................       336112         3711  Engine and Truck Manufacturers
                                       336120
Industry........................       811112         7533  Commercial Importers of Vehicles and
                                       811198         7549  Vehicle Components
Industry........................       324110         2911  Petroleum Refiners
Industry........................       422710         5171  Diesel Fuel Marketers and Distributors
                                       422720         5172
industry........................       484220         4212  Diesel Fuel Carriers

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                                       484230        4213
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a North American Industry Classifications System (NAICS).
b Standard Industrial Classification (SIC) system code.

Access to Rulemaking Documents Through the Internet

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

Table of Contents

I. Overview
    A. What Requirements Are Being Set?
    1. Heavy-Duty Emission Standards
    2. Fuel Quality Standards
    B. Why is EPA Taking This Action?
    1. Heavy-Duty Vehicles Contribute to Serious Air Pollution
Problems
    2. Technology-Based Solutions
    3. Basis for Action Under the Clean Air Act
    C. Putting This Rule in Perspective
    1. Diesel Popularity
    2. Past Progress and New Developments
    3. Tier 2 Emissions Standards
    4. Mobile Source Air Toxics Rulemaking
    5. Nonroad Engine Standards and Fuel
    6. State Initiatives
    7. Retrofit Programs
    8. Actions in Other Countries
II. The Air Quality Need and Projected Benefits
    A. Overview
    B. Public Health and Welfare Concerns
    1. Health and Welfare Concerns Raised During Public Hearings
    2. Ozone and its Precursors
    a. Health and Welfare Effects From Short-Term Exposures to Ozone
    b. Current and Future Nonattainment Status With the 1-Hour Ozone
NAAQS
    c. Public Health and Welfare Concerns from Prolonged and
Repeated Exposures to Ozone
    3. Particulate Matter
    a. Health and Welfare Effects
    b. Attainment and Maintenance of the PM10 NAAQS
    c. Public Health and Welfare Concerns from Exposure to Fine PM
    d. Other Welfare Effects Associated with PM
    e. Conclusions Regarding PM
    4. Diesel Exhaust
    a. Potential Cancer Effects of Diesel Exhaust
    b. Noncancer Effects of Diesel Exhaust
    5. Other Criteria Pollutants
    6. Other Air Toxics
    a. Benzene
    b. 1,3-Butadiene
    c. Formaldehyde
    d. Acetaldehyde
    e. Acrolein
    f. Dioxins
    7. Other Welfare and Environmental Effects
    a. Acid Deposition
    b. Eutrophication and Nitrification
    c. Polycyclic Organic Matter Deposition
    d. Visibility and Regional Haze
    C. Contribution From Heavy-Duty Vehicles
    1. NOX Emissions
    2. PM Emissions
    3. Environmental Justice
    D. Anticipated Emissions Benefits
    1. NOX Reductions
    2. PM Reductions
    3. NMHC Reductions
    4. Additional Emissions Benefits
    a. CO Reductions
    b. SOX Reductions
    c. Air Toxics Reductions
    E. Clean Heavy-Duty Vehicles and Low-Sulfur Diesel Fuel are
Critically Important for Improving Human Health and Welfare
III. Heavy-Duty Engine and Vehicle Standards
    A. Why Are We Setting New Heavy-Duty Standards?
    B. Emission Control Technologies for Heavy-Duty Vehicles and
Engines
    C. What Engine and Vehicle Standards are We Finalizing?
    1. Heavy-Duty Engine Exhaust Emissions Standards
    a. FTP Standards
    b. Supplemental Provisions for HD Diesel Engines (SET & NTE)
    c. Crankcase Emissions Control
    d. On-Board Diagnostics (OBD)
    2. Heavy-Duty Vehicle Exhaust Emissions Standards
    a. FTP Standards
    b. Supplemental Federal Test Procedure
    c. On-Board Diagnostics (OBD)
    3. Heavy-Duty Evaporative Emission Standards
    D. Incentives for Early Introduction of Clean Engines and
Vehicles
    E. Feasibility of the New Engine and Vehicle Standards
    1. Feasibility of Stringent Standards for Heavy-Duty Diesel
    a. Meeting the PM Standard
    b. Meeting the NOX Standard
    c. Meeting the NMHC Standard
    d. Meeting the Crankcase Emissions Requirements
    e. The Complete System
    2. Feasibility of Stringent Standards for Heavy-Duty Gasoline
    3. Feasibility of the New Evaporative Emission Standards
    F. Need for Low Sulfur Diesel Fuel
    1. Catalyzed Diesel Particulate Filters and the Need for Low
Sulfur Fuel
    a. Inhibition of Trap Regeneration Due to Sulfur
    b. Loss of PM Control Effectiveness
    c. Increased Maintenance Cost for Diesel Particulate Filters Due
to Sulfur
    2. Diesel NOX Catalysts and the Need for Low Sulfur
Fuel
    a. Sulfur Poisoning (Sulfate Storage) on NOX
Adsorbers
    b. Sulfate Particulate Production and Sulfur Impacts on
Effectiveness of NOX Control Technologies
    3. What About Sulfur in Engine Lubricating Oils?
    G. Fuel Economy Impact of High Efficiency Control Technologies
    1. Diesel Particulate Filters and Fuel Economy
    2. NOX Control Technologies and Fuel Economy
    3. Emission Control Systems for 2007 and Net Fuel Economy
Impacts
    H. Review of the Status of Heavy-Duty Diesel NOX
Emission Control Technology
IV. Our Program for Controlling Highway Diesel Sulfur
    A. Highway Diesel Sulfur Standards for Refiners and Importers
    1. Standards and Deadlines that Refiners and Importers Must Meet
    2. Temporary Compliance Option for Refiners and Importers
    a. Generating Credits
    b. Using Credits
    c. How Long Will Credits Last?
    d. Additional Limitations on Credit Trading for Some States
    3. What Information Must Refiners/Importers Submit to Us?
    4. Impacts of the Highway Diesel Fuel Program
    a. Ensures Adequate Supplies of Highway Diesel Fuel
    b. Ensures Widespread Availability of Low Sulfur Diesel Fuel
    c. Provides Lower Costs to Refineries
    d. Misfueling Concerns Should Be Minimized

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    e. Summary
    B. What Provisions Apply in the Geographic Phase-in Area?
    1. What Is the Geographic Phase-in Area and How Was it
Established?
    2. Highway Diesel Provisions for GPA Refiners
    3. How Do Refiners Apply for an Extension of the GPA Gasoline
Program?
    4. Required Reporting for GPA Refiners
    C. Hardship Provisions for Qualifying Refiners
    1. Hardship Provisions for Qualifying Small Refiners
    a. Qualifying Small Refiners
    b. How Do We Define Small Refiners?
    c. What Options Are Available for Small Refiners?
    d. How Do Small Refiners Apply for Small Refiner Status?
    2. Farmer Cooperative Refiners Will Benefit From the Flexible
Provisions Available to Other Refiners
    3. General Hardship Provisions
    a. Temporary Waivers from Low Sulfur Diesel Requirements in
Extreme Unforseen Circumstances
    b. Temporary Waivers Based on Extreme Hardship Circumstances
    D. Technological Feasibility of the Low Sulfur Diesel Fuel
Program
    1. What Technology Will Refiners Use?
    2. Have These Technologies Been Commercially Demonstrated?
    3. Feasibility of Distributing Low Sulfur Highway Diesel Fuel
    E. What Are the Potential Impacts of the Low Sulfur Diesel
Program on Lubricity and Other Fuel Properties?
    1. What Is Lubricity and Why Might It Be a Concern?
    2. Today's Action on Lubricity: a Voluntary Approach
    3. What Are Today's Actions on Fuel Properties Other than
Sulfur?
    F. How Are State Programs Affected by the Low Sulfur Diesel
Program?
    1. State Preemption
    2. What Provisions Apply in Alaska?
    a. Today's Action Regarding the 500 ppm Standard in Alaska
    b. Why Are We Treating Alaska Uniquely?
    3. What Provisions Apply in American Samoa, Guam, and the
Commonwealth of Northern Mariana Islands?
    a. Today's Action Regarding the Highway Diesel Fuel Standard in
the Territories
    b. Why Are We Treating These Territories Uniquely?
    G. Refinery Air Permitting
V. Economic Impact
    A. Cost for Diesel Vehicles to Meet Emissions Standards
    1. Summary of New System and Operating Costs
    2. New System Costs for NOX and PM Emission Control
    3. Operating Costs Associated With NOX and PM Control
    B. Cost for Gasoline Vehicles to Meet the New Emissions
Standards
    1. Summary of New System Costs
    2. Operating Costs Associated With Meeting the Heavy-Duty
Gasoline Standard
    C. Cost of Fuel Change
    1. Refinery Costs
    2. Highway Diesel Fuel Supply
    3. Cost of Lubricity Additives
    4. Distribution Costs
    a. Distribution Costs Under the Fully Implemented Program
    b. Distribution Costs During the Initial Years
    5. Benefits of Low-sulfur Diesel Fuel for the Existing Diesel
Fleet
    D. Aggregate Costs
    E. Cost Effectiveness
    1. What Is the Cost Effectiveness of This Program?
    2. Comparison With Other Means of Reducing Emissions
    F. Does the Value of the Benefits Outweigh the Cost of the
Standards?
    1. What Was Our Overall Approach to the Benefit-Cost Analysis?
    2. What Are the Significant Limitations of the Benefit-Cost
Analysis?
    3. How Has the Benefit-Cost Analysis Changed from Proposal?
    4. What Are the Benefits in the Years Leading up to 2030?
    5. What Were the Results of the Benefit-Cost Analysis?
VI. Requirements for Engine and Vehicle Manufacturers
    A. Compliance with Standards and Enforcement
    1. Allowable Maintenance
    2. Emission Data Waivers
    3. Crankcase Emissions
    4. Non-Conformance Penalties
    5. Idle CO Standards
    B. Compliance With Phase-in Schedules
    C. Averaging, Banking, and Trading
    D. FTP Changes to Accommodate Regeneration of Exhaust Emission
Controls
    E. Improvements to the Test Procedures
    F. Certification Fuel
    G. Misfueling Concerns for Light-and Heavy-duty Diesel Vehicles
    H. In-Use Compliance Levels During the Transition Years to New
Technologies
VII. Highway Diesel Fuel Program: Compliance, Enforcement and
Downstream Provisions
    A. General Provisions
    1. Definition of Diesel Fuel Covered by This Program
    2. Relationship to Highway Diesel Standards
    B. What Are the Requirements for Refiners and Importers?
    1. General Requirements
    2. Refiner and Importer Temporary Compliance Option Provisions
and the Credit Trading Program
    a. Early Credits Program
    b. Credit Use in a Credit Deficit Situation
    c. Resolving Issues of Invalid Credits
    d. Compliance Provisions
    e. Additional Provisions for Importers of Diesel Fuel and for
Foreign Refiners Subject to the Temporary Compliance Option and
Hardship Provisions
    3. Refiner Hardship Provisions
    a. General Refiner Hardship Provisions
    b. Small Refiner Hardship Provisions
    c. Relief for Refiners Supplying Gasoline to the Tier 2
Geographic Phase-In Area (GPA)
    C. What Requirements Apply Downstream of the Refinery or Import
Facility?
    1. Downstream Enforcement of the Standards
    2. Other Provisions
    a. Implementation Dates
    b. Product Segregation and Contamination
    c. Diesel Fuel Pump Labeling
    3. Use of Used Motor Oil in New Diesel Vehicles
    4. Use of Kerosene in Diesel Fuel
    5. Use of Diesel Fuel Additives
    D. What Are the Testing and Sampling Methods and Requirements?
    1. Diesel Fuel Testing Requirements and Test Methods
    2. Diesel Fuel Sampling Methods
    E. What Are the Recordkeeping, Reporting and Product Transfer
Document Requirements?
    1. Registration of Refiners and Importers
    a. All Refiners and Importers
    b. Prospective Small Refiners
    c. Refiners Seeking an Extension of the GPA Gasoline Sulfur
Standards
    2. Pre-Compliance Reports
    a. All Refiners
    b. Small Refiners
    c. GPA Refiners
    3. Annual Compliance Reports
    a. All Refiners
    b. Small Refiners
    4. Initial Confirmation of 15 ppm Fuel Production
    5. Product Transfer Documents (PTDs)
    a. Diesel Fuel
    b. Additives
    6. Recordkeeping Requirements
    7. Record Retention
    F. Are There Any Exemptions From the Highway Diesel Fuel
Requirements?
    1. Research and Development
    2. Racing Vehicles
    3. Military Fuel
    G. Liability and Penalty Provisions for Noncompliance
    1. General
    2. What Is the Liability That Additive Manufacturers and
Distributors, and Parties That Blend Additives into Diesel Fuel, Are
Subject To?
    a. General
    b. Liability When the Additive Is Designated as Complying with
the 15 ppm Sulfur Standard
    c. Liability When the Additive Is Designated as Having a
Possible Sulfur Content Greater than 15 ppm
    H. How Will Compliance With the Sulfur Standards Be Determined?
VIII.Standards and Fuel for Nonroad Diesel Engines
IX. Public Participation
X. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility Analysis
    1. Need for and Objectives of the Rule
    2. Summary of Significant Public Comments on the IRFA
    3. Types and Number of Small Entities
    4. Reporting, Recordkeeping and Other Compliance Requirements
    5. Regulatory Alternatives To Minimize Impact on Small Entities
    C. Paperwork Reduction Act

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    D. Intergovernmental Relations
    1. Unfunded Mandates Reform Act
    2. Executive Order 13084: Consultation and Coordination with
Indian Tribal Governments
    E. National Technology Transfer and Advancement Act
    F. Executive Order 13045: Children's Health Protection
    G. Executive Order 13132: Federalism
    H. Congressional Review Act
XI. Statutory Provisions and Legal Authority

I. Overview

    This rule covers the second of two phases in a comprehensive
nationwide program for controlling emissions from heavy-duty engines
(HDEs) and vehicles. It builds upon the phase 1 program we recently
finalized (65 FR 59896, October 6, 2000). That action affirmed the 50
percent reduction in emissions of oxides of nitrogen ( NOX)
from 2004 model year highway diesel engines, set in 1997 (62 FR 54693,
October 21, 1997), and set new emission standards for heavy-duty
gasoline-fueled engines and vehicles for 2005.
    This second phase of the program looks beyond 2004, based on the
use of high-efficiency exhaust emission control devices and the
consideration of the vehicle and its fuel as a single system. In
developing this rule, we took into consideration comments received in
response to the advance notice of proposed rulemaking (64 FR 26142, May
13, 1999) and the notice of proposed rulemaking (NPRM) (65 FR 35430,
June 2, 2000), including comments provided at five public hearings last
June.
    This program will result in particulate matter (PM) and
NOX emission levels that are 90 percent and 95 percent below
the standard levels in effect today, respectively. In order to meet
these more stringent standards for diesel engines, the rule mandates a
97 percent reduction in the sulfur content of diesel fuel. The heavy-
duty engine standards will be effective starting in the 2007 model year
and the low sulfur diesel fuel needed to facilitate the standards will
be widely available in September 2006. As a result, diesel vehicles
will achieve gasoline-like exhaust emission levels, in addition to
their inherent advantages over gasoline vehicles with respect to fuel
economy, lower greenhouse gas emissions, and lower evaporative
hydrocarbon emissions. The rule also includes more stringent standards
for heavy-duty gasoline vehicles. In addition to its impact on heavy-
duty vehicle emissions, this rule will make clean diesel fuel available
in time for implementation of the light-duty Tier 2 standards.
    The standards will result in substantial benefits to public health
and welfare and the environment through significant reductions in
emissions of NOX, PM, nonmethane hydrocarbons (NMHC), carbon
monoxide (CO), sulfur oxides (SOX), and air toxics. We
project that by 2030, this phase 2 program will reduce annual emissions
of NOX, NMHC, and PM by 2.6 million, 115,000 and 109,000
tons, respectively. These emission reductions will prevent 8,300
premature deaths, over 9,500 hospitalizations, and 1.5 million work
days lost. All told the benefits of this rule equal $70.3 billion. A
sizeable part of the benefits in the early years of this program come
from large reductions in the amount of direct and secondary PM caused
by the existing fleet of heavy-duty vehicles. These reductions are due
to the use of the higher quality diesel fuel in these vehicles.

A. What Requirements Are Being Set?

    There are two basic parts to this program: (1) New exhaust emission
standards for heavy-duty highway engines and vehicles, and (2) new
quality standards for highway diesel fuel. The systems approach of
combining the engine and fuel standards into a single program is
critical to the success of our overall efforts to reduce emissions,
because the emission standards will not be feasible without the fuel
change. The feasibility of the emission standards is based on the use
of high-efficiency exhaust emission control devices that would be
damaged by sulfur in the fuel. This rule, by providing extremely low
sulfur diesel fuel, will also enable cleaner diesel passenger vehicles
and light-duty trucks. This is because the same pool of highway diesel
fuel also services these light-duty diesel vehicles, and these vehicles
can employ technologies similar to the high-efficiency heavy-duty
exhaust emission control technologies that will be enabled by the fuel
change. We believe these technologies are needed for diesel vehicles to
comply with our Tier 2 emissions standards for light-duty highway
vehicles (65 FR 6698, February 10, 2000).
    We believe that this systems approach is a comprehensive way to
enable effective new technologies for clean diesel, affecting all sizes
of highway diesel engines, and may translate to future reductions from
diesel engines used in nonroad applications too. The fuel change, in
addition to enabling new technologies, will also produce emissions and
maintenance benefits in the existing fleet of highway diesel vehicles.
These benefits will include reduced sulfate PM and sulfur oxides
emissions, reduced engine wear and less frequent oil changes, and
longer-lasting exhaust gas recirculation (EGR) components on engines
equipped with EGR. Heavy-duty gasoline vehicles will also be expected
to have much lower emissions due to the transfer of recent technology
developments for light-duty applications, and the recent action taken
to reduce sulfur in gasoline as part of the Tier 2 rule.
    The basic elements of the rule are outlined below. Detailed
provisions and justifications for our rule are discussed in subsequent
sections.
1. Heavy-Duty Emission Standards
    We are finalizing a PM emissions standard for new heavy-duty
engines of 0.01 grams per brake-horsepower-hour (g/bhp-hr), to take
full effect for diesels in the 2007 model year.1 We are also
finalizing standards for NOX and NMHC of 0.20 g/bhp-hr and
0.14 g/bhp-hr, respectively. These NOX and NMHC standards
will be phased in together between 2007 and 2010, for diesel engines.
The phase-in will be on a percent-of-sales basis: 50 percent from 2007
to 2009 and 100 percent in 2010. This phase-in schedule differs
somewhat from the proposed schedule for reasons explained in Section
III. Gasoline engines will be subject to these standards based on a
phase-in requiring 50 percent compliance in the 2008 model year and 100
percent compliance in the 2009 model year. This phase-in schedule also
differs from that proposed for reasons explained in Section III. In
addition, we are finalizing our proposal to include turbocharged
diesels in the existing crankcase emissions prohibition, effective in
2007.
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    \1\ Note that throughout this preamble we refer to diesel and
gasoline vehicles and engines. We tend to use those terms given the
preponderance of vehicles using diesel fuel or gasoline fuel in the
U.S. heavy-duty highway market. However, when we refer to a diesel
engine, we generally mean any engine using the diesel cycle. When we
refer to a gasoline engine or vehicle, we generally mean any Otto-
cycle vehicle or engine. Therefore, the emission standards discussed
throughout this preamble apply equally to engines and vehicles
fueled by alternative fuels, unless otherwise specified in the
regulatory text accompanying today's rule.
---------------------------------------------------------------------------

    Standards for complete HDVs will be implemented on the same
schedule as for gasoline engine standards. For certification of
complete vehicles between 8500 and 10,000 pounds gross vehicle weight
rating (GVWR), the standards are 0.2 grams per mile (g/mi) for
NOX, 0.02 g/mi for PM, 0.195 g/mi for NMHC, and 0.032 g/mi
for formaldehyde.2 For vehicles between

[[Page 5006]]

10,000 and 14,000 pounds, the standards are 0.4 g/mi for
NOX, 0.02 g/mi for PM, 0.230 g/mi for NMHC, and 0.040 g/mi
for formaldehyde. These standards levels are roughly comparable to the
engine-based standards in these size ranges. Note that these standards
will not apply to vehicles above 8500 pounds that we classify as
medium-duty passenger vehicles as part of our Tier 2 program.
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    \2\ Vehicle weight ratings in this rule refer to GVWR (the curb
weight of the vehicle plus its maximum recommended load of
passengers and cargo) unless noted otherwise.
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    Finally, we are adopting new evaporative emissions standards for
heavy-duty engines and vehicles, effective on the same schedule as the
gasoline engine and vehicle exhaust emission standards. The new
standards for 8500 to 14,000 pound vehicles are 1.4 and 1.75 grams per
test for the 3-day diurnal and supplemental 2-day diurnal tests,
respectively. Standards levels of 1.9 and 2.3 grams per test will apply
for vehicles over 14,000 pounds. These standards represent more than a
50 percent reduction in the numerical standards as they exist today.
    The program includes flexibility provisions to facilitate the
transition to the new standards and to encourage the early introduction
of clean technologies, and adjustments to various testing and
compliance requirements to address differences between the new
technologies and existing engine-based technologies. These provisions
are described in Sections III and VI.
2. Fuel Quality Standards
    This rule specifies that, beginning June 1, 2006, refiners must
begin producing highway diesel fuel that meets a maximum sulfur
standard of 15 parts per million (ppm). All 2007 and later model year
diesel-fueled vehicles must be refueled with this new low sulfur diesel
fuel. This sulfur standard is based on our assessment of the impact of
sulfur on advanced exhaust emission control technologies, and a
corresponding assessment of the feasibility of low sulfur fuel
production and distribution.
    Today's program includes a combination of flexibilities available
to refiners to ensure a smooth transition to low sulfur highway diesel
fuel. First, refiners can take advantage of a temporary compliance
option, including an averaging, banking and trading component,
beginning in June 2006 and lasting through 2009, with credit given for
early compliance before June 2006. Under this temporary compliance
option, up to 20 percent of highway diesel fuel may continue to be
produced at the existing 500 ppm sulfur maximum standard. Highway
diesel fuel marketed as complying with the 500 ppm sulfur standard must
be segregated from 15 ppm fuel in the distribution system, and may only
be used in pre-2007 model year heavy-duty vehicles. Second, we are
providing additional hardship provisions for small refiners to minimize
their economic burden in complying with the 15 ppm sulfur standard.
Third, we are providing additional flexibility to refiners subject to
the Geographic Phase-in Area (GPA) provisions of the Tier 2 gasoline
sulfur program, which will allow them the option of staggering their
gasoline and diesel investments. Finally, we are adopting a general
hardship provision for which any refiner may apply on a case-by-case
basis under certain conditions. These hardship provisions, coupled with
the temporary compliance option, will provide a ``safety valve''
allowing up to 25 percent of highway diesel fuel produced to remain at
500 ppm for these transitional years to minimize any potential for
highway diesel fuel supply problems.
    In addition, today's program includes unique provisions for
implementing the low sulfur diesel fuel program in the State of Alaska,
given that it is exempt from the current 500 ppm standard. Certain U.S.
territories are excluded from both the new engine standards and highway
diesel fuel standards.
    The compliance provisions for ensuring diesel fuel quality are
essentially consistent with those that have been in effect since 1993
under the existing 500 ppm sulfur standard (55 FR 34120, August 21,
1990). Additional compliance provisions have been established primarily
during the transition years of the program to verify refiners'
compliance with the temporary compliance option to ensure the two
grades of highway diesel fuel remain segregated, and to discourage
misfueling of model year 2007 and later diesel vehicles.

B. Why is EPA Taking This Action?

1. Heavy-Duty Vehicles Contribute to Serious Air Pollution Problems
    As discussed in detail in Section II, emissions from heavy-duty
vehicles contribute greatly to a number of serious air pollution
problems, and would have continued to do so into the future absent
further controls to reduce these emissions. First, heavy-duty vehicles
contribute to the health and welfare effects of ozone, PM,
NOX, SOX, and volatile organic compounds (VOCs),
including toxic compounds such as formaldehyde. These adverse effects
include premature mortality, aggravation of respiratory and
cardiovascular disease (as indicated by increased hospital admissions
and emergency room visits, school absences, work loss days, and
restricted activity days), changes in lung function and increased
respiratory symptoms, changes to lung tissues and structures, altered
respiratory defense mechanisms, chronic bronchitis, and decreased lung
function. Ozone also causes crop and forestry losses, and PM causes
damage to materials and soiling of commonly used building materials and
culturally important items such as statues and works of art. Second,
NOX, SOX and PM contribute to substantial
visibility impairment in many parts of the U.S. Third, NOX
emissions from heavy-duty trucks contribute to the acidification,
nitrification and eutrophication of water bodies. Fourth, the Agency
has concluded, and the Clean Air Scientific Advisory Committee has
approved in public session, that diesel exhaust is likely to be
carcinogenic to humans.
    Millions of Americans live in areas with unhealthful air quality
that currently endangers public health and welfare. Without emission
reductions from the standards for heavy-duty vehicles, there is a
significant risk that an appreciable number of 45 areas with 128
million people across the country will violate the 1-hour ozone
national ambient air quality standard (NAAQS) during the period when
these standards will take effect. Furthermore, our analysis shows that
PM10 concentrations in 10 areas with a population of 28
million people face a significant risk of exceeding the PM10
NAAQS without significant additional controls between 2007 and 2030.
Under the mandates and authorities in the Clean Air Act, Federal,
state, and local governments are working to bring ozone and particulate
levels into compliance with the 1-hour ozone and PM10 NAAQS
through State Implementation Plan (SIP) attainment and maintenance
plans, and to ensure that future air quality reaches and continues to
achieve these health-based standards. The reductions in this rulemaking
will play a critical part in these important efforts to attain and
maintain the NAAQS. In addition, reductions from this action will also
reduce public health and welfare effects associated with ozone and fine
PM at concentrations that do not constitute a violation of the 1-hour
ozone and PM10 NAAQS.
    Emissions from heavy-duty vehicles account for substantial portions
of the country's ambient PM and NOX levels. ( NOX
is a key precursor to ozone formation). By 2007, we estimate that
heavy-duty vehicles will account for 28 percent of mobile source
NOX emissions and 20 percent of mobile source PM emissions.
These proportions are even

[[Page 5007]]

higher in some urban areas, such as in Sacramento, Atlanta, and
Washington, DC, where HDVs contribute over 34 percent of the mobile
source NOX emissions, and in Santa Fe, Los Angeles, and
Hartford, where heavy-duty vehicle PM emissions account for 38, 25 and
30 percent of the mobile source PM emissions inventory, respectively.
Over time, the relative contribution of diesel engines to air quality
problems will go even higher if diesel-equipped light-duty vehicles
become more popular, as is expected by some automobile manufacturers.
The PM and NOX standards for heavy-duty vehicles in this
rule will have a substantial impact on emissions. By 2030,
NOX emissions from heavy-duty vehicles under today's
standards will be reduced by 2.6 million tons, and PM emissions will
decline by about 109,000 tons, dramatically reducing this source of
NOX and PM emissions. Urban areas, which include many poorer
neighborhoods, can be disproportionately impacted by HDV emissions, and
these neighborhoods will thus receive a relatively larger portion of
the benefits expected from new HDV emissions controls.
    In addition to its contribution to PM inventories, diesel exhaust
PM is of special concern because it has been implicated in an increased
risk of lung cancer and respiratory disease. The EPA draft Health
Assessment Document for Diesel Exhaust (Draft Assessment) was reviewed
in public session by the Clean Air Scientific Advisory Committee
(CASAC) on October 12-13, 2000.3 The Agency has concluded,
and the CASAC approved at this session, that diesel exhaust is likely
to be carcinogenic to humans. State and local governments, in their
efforts to protect the health of their citizens and comply with
requirements of the Clean Air Act (CAA or ``the Act''), have recognized
the need to achieve major reductions in diesel PM emissions, and have
been seeking Agency action in setting stringent new standards to bring
this about.4
---------------------------------------------------------------------------

    \3\ EPA (2000) Review of EPA's Health Assessment Document for
Diesel Exhaust (EPA 600/8-90/057E). Review by the Clean Air
Scientific Advisory Committee (CASAC) December 2000. EPA-SAB-CASAC-
01-003.
    \4\ For example, see letter dated July 13, 1999 from John Elston
and Richard Baldwin on behalf of the State and Territorial Air
Pollution Program Administrators and the Association of Local Air
Pollution Control Officials (docket A-99-06, item II-D-78).
---------------------------------------------------------------------------

2. Technology-Based Solutions
    Although the air quality problems caused by diesel exhaust are
challenging, we believe they can be resolved through the application of
high-efficiency emissions control technologies. As discussed in detail
in Section III, the development of diesel emissions control technology
has advanced in recent years so that very large emission reductions (in
excess of 90 percent) are possible, especially through the use of
catalytic emission control devices installed in the vehicle's exhaust
system and integrated with the engine controls. These devices are often
referred to as ``exhaust emission control'' or ``aftertreatment''
devices. Exhaust emission control devices, in the form of the well-
known catalytic converter, have been used in gasoline-fueled
automobiles for 25 years, but have had only limited application in
diesel vehicles.
    Based on the Clean Air Act requirements discussed in Section I.B.3,
we are setting stringent new emission standards that will result in the
use of these diesel exhaust emission control devices (see Section III).
We are also finalizing changes to diesel fuel quality standards in
order to enable these high-efficiency technologies (Section IV). Heavy-
duty gasoline engines will also be able to reach the significantly
lower emission levels envisioned in this rule by relying on the
transfer of recent technology developments for light-duty applications,
given the recent action taken to reduce sulfur in gasoline (65 FR 6698,
February 10, 2000).
    To meet the new standards, application of high-efficiency exhaust
emission controls for both PM and NOX will be needed. High-
efficiency PM exhaust emission control technology has been available
for several years, although engine manufacturers have generally not
needed this technology in order to meet our PM emission standards. This
technology has continued to improve over the years, especially with
respect to durability and robust operation in use. It has also proven
extremely effective in reducing exhaust hydrocarbon emissions.
Thousands of such systems are now in use in fleet programs, especially
in Europe. However, as discussed in detail in Section III, these
systems are very sensitive to sulfur in the fuel. For the technology to
be viable and capable of meeting the standards, we believe that it will
require diesel fuel with sulfur content capped at the 15 ppm level.
    Similarly, high-efficiency NOX exhaust emission control
technology will be needed if heavy-duty vehicles are to attain the new
standards. We believe this technology, like the PM technology, is
dependent on the 15 ppm maximum diesel fuel sulfur levels being adopted
in this rule to be feasible and capable of achieving the standards.
Similar high-efficiency NOX exhaust emission control
technology has been quite successful in gasoline direct injection
engines that operate with an exhaust composition fairly similar to
diesel exhaust. However, as discussed in Section III, application of
this technology to diesels has some additional engineering challenges.
In that section we discuss the current status of this technology. We
also discuss the major development issues still to be addressed and the
development steps that can be taken to address these issues. With the
lead time available and the certainty of low-sulfur diesel fuel
established by today's action, the evidence leaves us confident that
the application of this technology to diesels will proceed at a
reasonable rate of progress and will result in systems capable of
achieving the standards.
    The need to reduce the sulfur in diesel fuel is driven by the
requirements of the exhaust emission control technology that we project
will be needed to meet the standards. The challenge in accomplishing
the sulfur reduction is driven by the feasibility of needed refinery
modifications, and by the costs of making the modifications and running
the equipment. Today, a number of refiners are acting to provide low
sulfur diesel to some markets. In consideration of the impacts that
sulfur has on the efficiency, reliability, and fuel economy impact of
diesel engine exhaust emission control devices, we believe that
controlling the sulfur content of highway diesel fuel to the 15 ppm
level is necessary and feasible, and, in the context of this rule's
overall program, cost effective.
3. Basis For Action Under the Clean Air Act
    Section 202(a)(1) of the Act directs us to establish standards
regulating the emission of any air pollutant from any class or classes
of new motor vehicles or engines that, in the Administrator's judgment,
cause or contribute to air pollution which may reasonably be
anticipated to endanger public health or welfare. Section 202(a)(3)
requires that EPA set standards for heavy-duty trucks that reflect the
greatest degree of emission reduction achievable through the
application of technology which we determine will be available for the
model year to which the standards apply. We are to give appropriate
consideration to cost, energy, and safety factors associated with the
application of such technology. We may revise such technology-based
standards, taking costs into account, on the basis of information
concerning the effects of air pollution from heavy-duty vehicles or
engines and other sources of mobile source related

[[Page 5008]]

pollutants on the public health and welfare. Section 202(a)(3)(C)
requires that promulgated standards apply for no less than three years
and go into effect no less than 4 years after promulgation. This rule
conforms with these statutory requirements.
    We believe the evidence provided in Section III and the Regulatory
Impact Analysis (RIA) indicates that the stringent emission standards
finalized today are feasible and reflect the greatest degree of
emission reduction achievable in the model years to which they apply.
We have given appropriate consideration to costs in choosing these
standards. Our review of the costs and cost-effectiveness of these
standards indicate that they will be reasonable and comparable to the
cost-effectiveness of other emission reduction strategies that have
been required or could be required in the future. We have also reviewed
and given appropriate consideration to the energy factors of this rule
in terms of fuel efficiency and effects on diesel fuel supply,
production, and distribution, as discussed below, as well as any safety
factors associated with these standards.
    The information regarding air quality and the contribution of
heavy-duty engines to air pollution in Section II and the RIA provides
strong evidence that emissions from such engines significantly and
adversely impact public health or welfare. First, there is a
significant risk that several areas will fail to attain or maintain
compliance with the NAAQS for 1-hour ozone concentrations or
PM10 concentrations during the period that these new vehicle
and engine standards will be phased into the vehicle population, and
that heavy-duty engines contribute to such concentrations, as well as
to concentrations of other NAAQS-related pollutants. This risk will be
significantly reduced by the standards adopted today; however, the
evidence indicates that some risk remains even after the reductions
achieved by these new controls on heavy-duty vehicles and diesel fuel.
Second, EPA believes that diesel exhaust is likely to be carcinogenic
to humans. The risk associated with exposure to diesel exhaust includes
the particulate and gaseous components. Some of the toxic air
pollutants associated with emissions from heavy-duty vehicles and
engines include benzene, formaldehyde, acetaldehyde, dioxin, acrolein,
and 1,3-butadiene. Third, emissions from heavy-duty engines contribute
to regional haze and impaired visibility across the nation, as well as
acid deposition, POM deposition, eutrophication and nitrification, all
of which are serious environmental welfare problems.
    Based on this evidence, EPA believes that, for purposes of section
202(a)(1), emissions of NOX, VOCs, SOx and PM
from heavy-duty trucks can reasonably be anticipated to endanger the
public health or welfare. In addition, this evidence indicates that it
will not be appropriate to modify the technology-based standards
pursuant to section 202(a)(3)(B). EPA believes that it is required
under section 202(a)(3)(A) to set technology-based standards that meet
the criteria of that provision, and is not required to make an
affirmative determination under section 202(a)(1). Instead EPA is
authorized to take air quality into consideration under section
202(a)(3)(B) in deciding whether to modify or not set standard under
section 202(a)(3)(A). In this case, however, EPA believes the evidence
fully supports a determination under section 202(a)(1) to set
standards, and a determination not to modify such standards under
section 202(a)(3)(B).
    In addition, there is significant evidence that emissions from
heavy-duty trucks contribute to levels of ozone such that large
segments of the national population are expected to experience
prolonged exposure over several hours at levels that present serious
concern for the public health and welfare. The same is true for
exposure to fine PM. These public health and welfare problems are
expected to occur in many parts of the country, including areas that
are in compliance with the 1-hour ozone and PM10 NAAQS
(PM10 is particulate matter that is 10 microns or smaller).
This evidence is an additional reason why the controls finalized today
are justified and appropriate under the Act. While EPA sees this as
additional support for this action, EPA also believes that the evidence
of air pollution problems summarized above and described in greater
detail elsewhere is an adequate justification for this rule independent
of concern over prolonged exposure to ozone and fine PM levels.
    Section 211(c) of the CAA allows us to regulate fuels where
emission products of the fuel either: (1) Cause or contribute to air
pollution that reasonably may be anticipated to endanger public health
or welfare, or (2) will impair to a significant degree the performance
of any emission control device or system which is in general use, or
which the Administrator finds has been developed to a point where in a
reasonable time it will be in general use were such a regulation to be
promulgated. This rule meets each of these criteria. The discussion of
the first test is substantially the same as the above discussion for
the heavy-duty engine standards, because SOx and sulfate PM
emissions from heavy-duty diesel vehicles are due to sulfur in diesel
fuel. The substantial adverse effect of high diesel sulfur levels on
diesel control devices or systems expected to be used to meet the
heavy-duty standards is discussed in depth in Section III.F and in the
RIA. In addition, our authority under section 211(c) is discussed in
more detail in Appendix A to the RIA.

C. Putting This Rule In Perspective

    There are several helpful perspectives to establish in
understanding the context for this rule: the growing popularity of
diesel engines, past progress and new developments in diesel emissions
control, Tier 2 light-duty emission standards and other related EPA
initiatives (besides the above-discussed rulemaking for highway heavy-
duty engine emission standards in 2004), and recent actions and plans
to control diesel emissions by the States and in other countries.
1. Diesel Popularity
    The diesel engine is increasingly becoming a vital workhorse in the
United States, moving much of the nation's freight, and carrying out
much of its farm, construction, and other labor. Diesel engine sales
have grown significantly over the last decade, so that now about a
million new diesel engines are put to work in the U.S. every year.
Unfortunately, these diesel engines emit large quantities of harmful
pollutants annually.
    Furthermore, although diesel emissions in this country come mostly
from heavy-duty trucks and nonroad equipment, an additional source may
grow out of auto manufacturers' plans to greatly increase the sales of
diesel-powered light-duty vehicles (LDVs) and especially of light-duty
trucks (LDTs), a category that includes the fast-selling sport-utility
vehicles, minivans, and pickup trucks. These plans reflect the
continuation of an ongoing dieselization trend, a trend recently most
evident in the growing popularity of diesel-powered light heavy-duty
trucks (8500 to 19,500 pounds). Diesel market penetration is working
its way from larger to smaller highway applications and to a broader
array of nonroad equipment applications. Finally, especially in Europe
where diesels have already gained a broad consumer acceptance, the
diesel engine is increasingly viewed as an attractive technology option
for reducing emissions of gases that contribute to

[[Page 5009]]

global warming, because it has greater operating efficiency than a
gasoline engine.
2. Past Progress and New Developments
    Since the 1970's, highway diesel engine designers have employed
numerous strategies to meet our emissions standards, beginning with
smoke controls, and focusing in the 1990's on increasingly stringent
NOX, hydrocarbon, and PM standards. These strategies have
generally focused on reducing engine-out emissions and not on exhaust
emission controls, although relatively low-efficiency oxidation
catalysts have been applied in some designs to reduce PM, with the
recognition that their effectiveness is limited by sulfur in the fuel.
On the fuel side, we set quality standards that provided emissions
benefits by limiting the amount of sulfur and aromatics in highway
diesel fuel beginning in 1993 (55 FR 34120, August 21, 1990). Our most
recent round of standard setting for heavy-duty highway diesels
occurred in 1997 (62 FR 54693, October 21, 1997), effective with the
2004 model year. These standards were recently reviewed in a final
rulemaking (65 FR 59896, October 6, 2000). These actions will result in
engines that emit only a fraction of the NOX, hydrocarbons,
and PM produced by engines manufactured just a decade ago. We consider
this an important first phase of our current initiative to reconcile
the diesel engine with the environment.
    Nevertheless, certain characteristics inherent in the way diesel
fuel combustion occurs have prevented achievement of emission levels
comparable to those of today's gasoline-fueled vehicles. Although
diesel engines provide advantages in terms of fuel economy, durability,
and evaporative emissions, and have inherently low exhaust emissions of
hydrocarbons and carbon monoxide, controlling NOX emissions
is a greater challenge for diesel engines than for gasoline engines,
primarily because of the ineffectiveness of three-way catalysis in the
oxygen-rich and relatively cool diesel exhaust environment. Similarly,
PM emissions, which are inherently low for properly operating gasoline
engines, are more difficult to control in diesel engines, because the
diesel combustion process tends to form soot particles. The challenge
is somewhat complicated by the fact that historical diesel
NOX control approaches tend to increase PM, and vice versa,
but both are harmful pollutants that need to be controlled.
    Considering the air quality impacts of diesel engines and the
potential for growth of diesels in the lighter-duty portion of the
market, it is imperative that progress in diesel emissions control
continue. Significant progress has already been made in the design of
exhaust emission control devices for diesel applications, driven in
part by the challenge presented by the stringent Tier 2 standards for
light-duty vehicles. As discussed in detail in Section III, new exhaust
emission control technologies for NOX, PM, and hydrocarbon
reduction will allow a major advancement in diesel emissions control of
a magnitude comparable to that ushered in by the automotive catalytic
converter in the 1970's. However, changes in diesel fuel quality will
be needed to enable these high-efficiency exhaust emission control
devices.
3. Tier 2 Emissions Standards
    Auto manufacturers' design plans for new light-duty diesel vehicle
models will be greatly affected by our recent adoption of stringent new
emission standards for light-duty highway vehicles (referred to as
``Tier 2'' standards) that will phase in between 2004 and 2009. These
Tier 2 standards will require significant improvements in electronic
engine controls and catalysts on gasoline vehicles. We anticipate that
these advances will be transferred over to heavy-duty gasoline vehicles
in meeting the standards finalized in this rule. The Tier 2
NOX and PM standards, that apply equally to gasoline and
diesel vehicles, will also require the use of high-efficiency emission
control technologies on light-duty diesel vehicles. The low sulfur
highway diesel fuel brought about by this rule will make it possible
for designers to employ these high-efficiency exhaust emission control
technologies in these light-duty applications. The timing of the fuel
change provides for the use of these devices in time to satisfy Tier 2
phase-in requirements.
    The Tier 2 program phases in interim and final standards over a
number of years, providing manufacturers the option of delaying some of
their production of final Tier 2 designs until later in the phase-in.
For vehicles up to 6000 lbs GVWR (LDVs) and light light-duty trucks
(LLDTs)), the interim standards begin in 2004 and phase out by 2007, as
they are replaced by the final Tier 2 standards. For vehicles between
6000 and 8500 lbs ( heavy light-duty trucks (HLDTs)), the interim
standards begin in 2004 and phase out by 2009 as they are replaced by
the final Tier 2 standards. A new category of vehicles between 8,500
and 10,000 lbs, medium-duty passenger vehicles (MDPVs), will follow the
same phase-in schedule as HLDTs.
    Our assessment in the Tier 2 final rule is that the interim
standards are feasible for diesel vehicles without a need for fuel
quality changes. Manufacturers can take advantage of the flexibilities
provided in the Tier 2 program to delay the need for light-duty diesels
to meet the final Tier 2 levels until late in the phase-in period (as
late as 2007 for LDVs and LLDTs, and 2009 for HLDTs and MDPVs).
However, low sulfur fuel is expected to be needed for diesel vehicles
designed to meet the final NOX and PM standards, because
these vehicles are likely to employ light-duty versions of the sulfur-
sensitive exhaust emission control technologies discussed in Section
III. The gasoline quality changes and light-duty gasoline engine
developments that will result from the Tier 2 rule will also help make
it feasible for heavy-duty gasoline engines to meet the standards in
this rule.
4. Mobile Source Air Toxics Rulemaking
    Passenger cars, on-highway trucks, and nonroad equipment emit
hundreds of different compounds and elements. Several of these are
considered to be known, likely, or possible human carcinogens. These
include diesel exhaust, plus several VOCs such as acetaldehyde,
benzene, 1,3-butadiene, formaldehyde, and acrolein. Trace metals may
also be present in heavy-duty diesel engine emissions, resulting from
metals in fuels and lubricating oil, and from engine wear. Several of
these metals have carcinogenic and mutagenic effects.
    Important reductions in these and other mobile source air toxics
have occurred under existing programs established under Clean Air Act
Sections 202(a) (on-highway engine requirements), 211 (the fuel
requirements), and 213 (nonroad engine requirements). Although these
programs are primarily designed for control of criteria pollutants,
especially ozone and PM10, they also achieve important
reductions in diesel PM and gaseous air toxics through VOC and
hydrocarbon controls.
    In addition to these programs, Section 202(l)(2) of the Act directs
us to consider additional controls to reduce emissions of hazardous air
pollutants from motor vehicles, their fuels, or both. Those standards
are to reflect the greatest degree of emission reduction achievable
through the application of technology which will be available, taking
into account existing standards, costs, noise, energy, and safety
factors. We published a proposed rule on mobile source air toxics on
August 4,

[[Page 5010]]

2000 (65 FR 48058). This MSAT final rule was signed on December 20,
2000. Interested parties should refer to the final rule if interested
in the ultimate form of the regulation.
    The mobile source air toxics (MSATs) rule consists of four parts.
First, we identify a list of 21 MSATs that are known to be emitted from
motor vehicles or their fuels and are considered by the Agency to pose
potential adverse human health risks. Diesel exhaust is included on
this MSAT list because, as discussed in Section II, human
epidemiological studies have suggested that diesel exhaust is
associated with increased risk of adverse respiratory effects and lung
cancer. Second, the MSAT rule considers the contribution of mobile
sources to the nation's air toxics inventory and evaluates the toxics
benefits of existing mobile source emission control programs. The
benefits of the program as proposed are included in this analysis.
Third, the MSAT final rule considers whether additional controls are
appropriate at this time, given technological feasibility, cost, and
the other criteria specified in the Act. The final rule includes a
toxics performance standard applicable to reformulated gasoline and
anti-dumping standards that apply to conventional gasoline. With regard
to additional vehicle-based controls, we proposed that it is not
appropriate at this time to set more stringent standards than the
technology forcing standards found in this rule and our recently
adopted Tier 2 rulemaking. Finally, because of our concern about the
potential future health impacts of exposure to the public of air toxics
from the remaining emissions from mobile sources in the future, we
continue our toxics-related research activities and to conduct a future
rulemaking to evaluate whether, based on the additional data,
additional mobile source air toxics controls should be adopted. This
rulemaking would be completed no later than 2004.
    EPA also intends to rely on today's rule to satisfy in part its
obligations under section 202(l) of the Clean Air Act. In the mobile
source air toxics NPRM, the Agency proposed a list of mobile source air
toxics, including diesel exhaust, as well as a number of specific
constituents of heavy-duty vehicle exhaust (gasoline and
diesel).5 The emissions standards established in today's
action result in the greatest achievable reductions of diesel PM and
heavy-duty vehicle NMHC. The Agency is scheduled to finalize the mobile
source air toxics rulemaking on or before December 20, 2000.
---------------------------------------------------------------------------

    \5\ 65 FR 48058, August 4, 2000.
---------------------------------------------------------------------------

5. Nonroad Engine Standards and Fuel
    Although this rule covers only highway diesel engines and fuel, it
is clear that potential requirements for nonroad diesel engines and
fuel are related. It is expected that nonroad diesel fuel quality,
currently unregulated, may need to be controlled in the future in order
to reduce the large contribution of nonroad engines to NOX
and PM inventories. Refiners, fuel distributors, states, environmental
organizations, and others have asked that we provide as much
information as possible about the future specifications for both types
of fuel as early as possible.
    We do plan to give further consideration to additional control of
nonroad engine emissions. As discussed below in Section VIII, an
effective control program for these engines requires the resolution of
several major issues relating to engine emission control technologies
and how they are affected by fuel sulfur content. The many issues
connected with any rulemaking for nonroad engines and fuel warrant
serious attention, and we believe it is premature for us to take any
action on this initiative in this rule. We plan to initiate action in
the future to formulate proposals that would address both nonroad
diesel fuel and engines.
6. State Initiatives
    The California Air Resources Board (ARB) and local air quality
management districts within California are also pursuing measures to
better control diesel emissions. Key among these efforts is work
resulting from the Board's designation of particulate emissions from
diesel-fueled engines as a toxic air contaminant (TAC) on August 27,
1998. TACs are air pollutants that may cause or contribute to an
increase in death or serious illness or may pose a present or future
hazard to human health. The TAC designation was based on research
studies showing that emissions from diesel-fueled engines may cause
cancer in animals and humans, and that workers exposed to higher levels
of emissions from diesel-fueled engines are more likely to develop lung
cancer.
    In September 2000 the ARB approved a Diesel Risk Reduction Plan
developed by its staff following an extensive public
process.6 This plan includes several California measures
related to highway diesel vehicles, including the major elements of the
program we are establishing on a nationwide basis in this final rule.
Because truck travel from other states has a large effect on
California's air quality, the plan and the Board's resolution further
encourages the EPA adopt this nationwide program, as well as other
diesel-related emissions reduction programs.
---------------------------------------------------------------------------

    \6\ State of California Air Resources Board Resolution 00-30,
September 28, 2000.
---------------------------------------------------------------------------

    The ARB has also adopted stringent new emission requirements for
urban transit buses and is considering similar requirements for school
buses.7 This program is aimed at encouraging the use of
clean alternative fuels and high-efficiency diesel emission control
technologies. Their program includes requirements for zero-emissions
buses, fleet average NOX levels, and retrofits for PM
control, as well as model year 2007 NOX and PM standards
levels of 0.2 and 0.01 g/bhp-hr, respectively (equal to the levels
finalized in this rule). It also requires that all diesel fuel used by
transit agencies after July 1, 2002 must meet a cap of 15 ppm sulfur.
This is a much earlier schedule than that finalized in this rule, to
support the ARB's proposed transit bus fleet program.
---------------------------------------------------------------------------

    \7\ ``Notice of Public Hearing To Consider the Adoption of a
Public Transit Bus Fleet Rule and Emission Standards For New Urban
Buses'', California ARB, November 30, 1999, and ARB Resolution 00-2,
dated February 24, 2000.
---------------------------------------------------------------------------

    Other states, most notably Texas, have taken steps toward adopting
programs for cleaner diesel fuel and cleaner diesel engines. On
December 6, 2000, the Texas Natural Resource Conservation Commission
adopted a program that, among other things, would require the capping
of diesel fuel sulfur levels in many counties to 15 ppm by June
2006.8 This proposal exemplifies the importance that states
with air quality problems have attached to clean diesel fuel, and
specifically to the 15 ppm maximum sulfur requirement in 2006 being set
in this rule
---------------------------------------------------------------------------

    \8\ Title 30, Texas Administrative Code, Chapter 114, Subchapter
H, Division 2. Also see Texas Natural Resource Conservation
Commission website www.tnrcc.state.tx.us..
---------------------------------------------------------------------------

7. Retrofit Programs
    Many States facing air quality improvement challenges have
expressed strong interest in programs that will reduce emissions from
existing highway and nonroad diesel engines through the retrofitting of
these engines with improved emission control devices. The urban transit
bus program adopted by the California ARB includes such a retrofit
requirement as one of its major components (see Section I.C.6). In
March 2000 we announced our own Diesel Retrofit Initiative to support
and

[[Page 5011]]

encourage fleet operators, air quality planners, and retrofit
manufacturers in creating effective retrofit programs. These programs
are appealing because the slow turnover of the diesel fleet to the new
low-emitting engines makes it difficult to achieve near-term air
quality goals through new engine programs alone. Some of the exhaust
emission control technologies discussed in this rule are especially
appealing for use in retrofits because they can be fitted to an
existing vehicle as add-on devices without major engine modifications,
although some of the more sophisticated systems that require careful
control of engine parameters may be more challenging.
    Because of the uncertainty at this time in how and when such
programs may be implemented, our analysis for today's rule does not
calculate any benefits from them. Nevertheless, we believe that this
program can enable the viability of these retrofit technologies. We
expect that large emission benefits from the existing fleet could be
realized as a result of the fuel changes we are finalizing here,
combined with retrofit versions of the technologies that will be
developed in response to the finalized engine standards. These benefits
will be especially important in the early years of the program when new
vehicles standards are just beginning to have an impact, and when
States and local areas need to gain large reductions to attain air
quality goals.
8. Actions In Other Countries
    There is substantial activity taking place in many countries
related to the regulation of diesel fuel and engines. The large light-
duty vehicle market share enjoyed by diesels in many European countries
has helped to stir innovation in dealing with diesel emissions
problems. Advanced emissions control technologies are being evaluated
there in the in-use fleet and experience gained from these trials is
helping to inform the diesel emissions control discussion in the U.S.
In addition, several European countries have low sulfur diesel fuel,
with maximum sulfur levels varying from 10 to 50 ppm, and so experience
gained from the use of these fuels, though not completely transferable
to the U.S. situation, also provides valuable experience. European
Union countries will limit sulfur in diesel fuel to 50 ppm by 2005, and
even more aggressive plans are being discussed or implemented. The
United Kingdom made a rapid conversion to 50 ppm maximum sulfur diesel
fuel in 1999 by offering tax incentives. This change occurred with much
smaller refinery investments than had been predicted, and some refinery
production there is actually at levels well below the 50 ppm cap.
Germany is moving forward with plans to introduce a 10 ppm sulfur cap
for diesel fuel by 2003, also via tax incentives, and is attempting to
get the 50 ppm specification that was adopted by the European
Commission revised downward to the 10 ppm cap level. The Commission is
reviewing the implications of moving to this level.
    One European country has had extensive experience with the
transition to low sulfur diesel fuel. In the early 1990's, Sweden
decided to take advantage of the environmental benefits of 10 ppm
sulfur/low aromatics fuel by introducing it with a reduction in the
diesel fuel tax. The program has been quite successful, and in excess
of 90 percent of the highway diesel fuel used there is of this 10 ppm
maximum sulfur class.9
---------------------------------------------------------------------------

    \9\ Memo from Thomas M. Baines to Docket A-99-06, October 29,
1999, Docket #A-99-06, Item II-G-12.
---------------------------------------------------------------------------

    The government of Canada has expressed its intent to harmonize its
fuel regulations with the U.S. fuels standards being adopted
today.10 This would simplify the operation of new-technology
vehicles that cross the U.S-Canada border. However, the success of the
U.S. program does not depend on harmonized diesel fuel standards, and
Section VI.H discusses how differences between the future fuel
specifications in the U.S. and those in Canada and Mexico may be
accommodated.
---------------------------------------------------------------------------

    \10\ ``Process Begins to Develop Long term Agenda to Reduce Air
Pollution from Vehicles and Fuels'', Environment Canada press
release, May 26, 2000.
---------------------------------------------------------------------------

II. The Air Quality Need and Projected Benefits

A. Overview

    Heavy-duty vehicle emissions contribute to air pollution with a
wide range of adverse health and welfare impacts. Emissions of VOC, CO,
NOX, SOx, and PM from HD vehicles contribute a
substantial percentage of the precursors or direct components of
ambient concentrations of ozone, PM, sulfur and nitrogen compounds,
aldehydes, and substances known or considered likely to be carcinogens.
Emissions of VOCs include some specific substances known or suspected
to cause cancer. Of particular concern is human epidemiological
evidence linking diesel exhaust to an increased risk of lung cancer,
and the Agency is also concerned about the noncancer health effects of
diesel exhaust We have finalized on December 20, 2000 a rule which
lists diesel particulate matter and diesel exhaust organic gases as a
mobile source air toxic under section 202(l) of the Clean Air Act, and
the particulate matter standard finalized today reflects the greatest
degree of emissions reductions achievable under section 202(l) for on-
highway heavy-duty vehicle PM emissions. Heavy-duty vehicle emissions
also cause adverse environmental effects including visibility
reductions, acid rain, nitrification and eutrophication of water
bodies.
    Emissions from heavy-duty vehicles, which are predominantly diesel-
powered, account for substantial portions of the country's ambient PM
and ground-level ozone levels. By 2007, we estimate that heavy-duty
vehicles will account for 28 percent of mobile source NOX
emissions (including highway and non-road), and 20 percent of mobile
source PM emissions. These proportions are even higher in some urban
areas, such as Atlanta and Los Angeles. Urban areas, which include many
poorer neighborhoods, can be disproportionately impacted by HDV
emissions because of heavy traffic in and out of densely populated
urban areas.
    The Agency developed new emissions inventories and conducted new
air quality modeling for this rule to determine the risk of exposure to
unhealthy ambient concentrations of ozone and particulate matter in
2007, 2020 and 2030. This analysis, supplemented with local air quality
modeling and other information on emissions and air quality trends,
indicates that an appreciable number of the 45 areas with a total
population of 128 million people face a significant risk of violating
the 1-hour ozone standard between 2007 and 2030. Ten PM10
nonattainment areas with 28 million people face a significant risk of
experiencing particulate matter levels that violate the PM10
standard during the same period.
    Under the mandates and authorities in the Clean Air Act, federal,
state, and local governments are working to bring ozone and particulate
levels into compliance with the 1-hour ozone and PM10 NAAQS
through SIP attainment plans. Areas that reach attainment without
reductions from this rule are likely to need additional reductions to
ensure that future air quality continues to achieve ozone and PM
standards, and areas that seek redesignation to attainment may use the
reductions from this rule in future maintenance plans.
    The heavy-duty vehicle and engine emission standards, along with
the diesel fuel sulfur standard finalized today, will have a dramatic
impact in

[[Page 5012]]

reducing the large contribution of HDVs to air pollution. These
standards will result in substantial benefits to public health and
welfare through significant annual reductions in emissions of
NOX, PM, NMHC, carbon monoxide, sulfur dioxide, and air
toxics. For example, we project a 1.8 million ton reduction in
NOX emissions from HD vehicles in 2020, which will increase
to 2.6 million tons in 2030 when the current HD vehicle fleet is
completely replaced with newer HD vehicles that comply with these
emission standards. When coupled with the emission reductions projected
to result from the Phase 1 (model year 2004) HDV standards, the
emission reductions from heavy-duty vehicles are projected to be as
large as the substantial reductions the Agency expects from light-duty
vehicles as a result of its recently promulgated Tier 2 rulemaking.
    In sum, the Agency's air quality modeling and other evidence
demonstrates that ambient concentrations of ozone, particulate matter,
sulfur and nitrogen compounds, VOCs, air toxics, CO and diesel exhaust
are anticipated to endanger public health, welfare and the environment
in the time period between 2007 and 2030. Emission reductions expected
from today's action are predicted to lessen future ambient
concentrations of ozone and particulate matter and associated adverse
public health and welfare effects.

B. Public Health and Welfare Concerns

1. Health and Welfare Concerns Raised During Public Hearings
    The Agency received a significant number of comments on this
section during the public hearings and in written comments from
interested parties. Comments are addressed in this section as well as
in the Response to Comment document that accompanies this action.
    Throughout the five public hearings held around the country on the
proposed heavy-duty engine and diesel fuel rule, the Agency received
strong public support at each venue for increasing the stringency of
heavy-duty truck and bus emission standards, and for further controls
on sulfur in diesel fuel, in order to enable the necessary exhaust
emission control. In addition to the 55,000 comments received from
citizens in support of the Agency proposal to clean diesel fuel by mid-
2006 and reduce emissions from diesel engines in 2007, we received
8,500 comments from citizens urging the Agency to act prior to 2007.
    Public officials and representatives of environmental, public
health, or community-based organizations testified regularly about the
link between public health ailments, such as asthma and lung cancer,
and air pollution caused by diesel exhaust and particulate matter. In
different ways, many noted that the impact of diesel soot is compounded
by the fact that it is discharged at street level where people live and
breathe. A regular complaint was the close proximity of bus depots,
transfer terminals, and heavily-trafficked roadways to homes and
apartment buildings, and in particular, to hospitals, playgrounds and
schools. A common theme revolved around the notion that since asthma is
an incurable disease, it was of utmost importance to help reduce the
severity and frequency of attacks by reducing environmental triggers
such as ozone, particulate matter and diesel exhaust.
    Major industries represented during these public hearings were the
heavy-duty vehicle engine manufacturers, the oil industry, and the
commercial truckers. While each had a different perspective, most
supported the underlying intent of the proposal to improve public
health and welfare, and some also supported the specific requirements
as proposed. For those who objected to the proposal, the main thrust of
their concerns related to the stringency and public health necessity of
the new standards and the diesel fuel sulfur requirement. Largely in
their written comments, these industries raised questions about the
need for additional reductions in order to meet existing ozone and PM
national ambient air quality standards and took exception with the
Agency's characterization of diesel exhaust as a human carcinogen at
environmental levels of exposure. Some industry commenters also
challenged the Agency's reliance on public welfare and environmental
effects such as visibility impairment and eutrophication of water
bodies because the Agency had insufficiently quantified the benefits
that would result from new standards on heavy-duty vehicles and diesel
fuel.
    The following subsections present the available information on the
air pollution situation that is likely to exist without this rule for
each ambient pollutant. We also present information on the improvement
that is expected to result from this rule.
2. Ozone and Its Precursors
a. Health and Welfare Effects From Short-Term Exposures to Ozone
    NOX and VOC are precursors in the photochemical reaction
which forms tropospheric ozone. A large body of evidence shows that
ozone can cause harmful respiratory effects including chest pain,
coughing, and shortness of breath, which affect people with compromised
respiratory systems most severely. When inhaled, ozone can cause acute
respiratory problems; aggravate asthma; cause significant temporary
decreases in lung function of 15 to over 20 percent in some healthy
adults; cause inflammation of lung tissue; produce changes in lung
tissue and structure; may increase hospital admissions and emergency
room visits; and impair the body's immune system defenses, making
people more susceptible to respiratory illnesses. Children and outdoor
workers are likely to be exposed to elevated ambient levels of ozone
during exercise and, therefore, are at greater risk of experiencing
adverse health effects. Beyond its human health effects, ozone has been
shown to injure plants, which has the effect of reducing crop yields
and reducing productivity in forest ecosystems.
    There is strong and convincing evidence that exposure to ozone is
associated with exacerbation of asthma-related symptoms. Increases in
ozone concentrations in the air have been associated with increases in
hospitalization for respiratory causes for individuals with asthma,
worsening of symptoms, decrements in lung function and increased
medication use. Studies have also indicated that exposure to
particulate matter can be associated with altered lung function and
increased respiratory symptoms, and asthmatic children are considered
to be particularly sensitive to these effects. In addition, exposures
to particulate matter or ozone have been shown to have a priming effect
for responsiveness to allergens, with the pollutant exposure leading to
heightened responses to allergens among allergic asthmatics. It is not
believed, based on the current evidence, that exposure to outdoor
pollutants such as ozone or particulate matter is a cause of asthma.
    Asthma is one of the most common and costly diseases in the United
States. According to the President's Task Force on Environmental Health
Risks and Safety Risks to Children, America is in the midst of an
asthma epidemic.11

[[Page 5013]]

Since 1980, the number of asthma sufferers in the United States has
more than doubled from 6.7 million to 17.3 million in
1998.12 Today, more than 5 percent of the US population has
asthma. On average, 15 people died every day from asthma in 1995, and
the death rate has nearly tripled since 1975. In 1998, the cost of
asthma to the U.S. economy was estimated to be $11.3 billion, with
hospitalizations accounting for the single largest portion of the
cost.13 A recent report by the Pew Environmental Health
Commission at Johns Hopkins School of Public Health estimates that by
2010, 22 million Americans will suffer from asthma, or one in 14
Americans and one in every five families.14 At present,
asthma cannot be cured, only controlled.
---------------------------------------------------------------------------

    \11\ Asthma and the Environment: A Strategy to Protect Children,
President's Task Force on Environmental Health Risks and Safety
Risks to Children, January 28, 1999, Revised May, 2000.
    \12\ Asthma Prevention Program of the National Center for
Environmental Health, Centers for Disease Control and Prevention,
``At-A-Glance, 1999; Centers for Disease Control and Prevention,
CDC, Surveillance for Asthma--United States, 1960-1995,'' MMWR 47
(No. SS-1) (April 1998).
    \13\ Asthma Statistics, National Institutes of Health, National,
Heart, Lung, and Blood Institute, January, 1999.
    \14\ Attack Asthma: Why America Needs A Public Health Defense
System to Battle Environmental Threats, Pew Environmental Health
Commissions at the Johns Hopkins School of Public Health, June,
2000.
---------------------------------------------------------------------------

    To address this growing public health problem, the President's Task
Force on Environmental Health Risks and Safety Risks to Children ranked
asthma as its highest priority. The President's Task Force created and
charged the Asthma Priority Area Workgroup, co-chaired by EPA and the
Department of Health and Human Services, with reviewing current Federal
efforts to address the issue, and to make recommendations. In May,
2000, the Task Force issued a strategy that focused on developing a
greater understanding of the role environmental factors associated with
the onset of asthma; and triggers of asthma. The report found that
``children with asthma have long been recognized as particularly
sensitive to outdoor air pollution,'' The report noted that ``25
percent of children in America live in areas that regularly exceed EPA
limits for ozone.'' The first guiding principle was to focus efforts to
``eliminate the disproportionate impact of asthma in minority
populations and those living in poverty.'' Testimony received during
the Agency's five public hearings on this rule contained numerous
references and detailed personal accounts as to the severe and
sometimes fatal impact of asthma on the lives of American citizens.
b. Current and Future Nonattainment Status With the 1-Hour Ozone NAAQS
    Today, ground level ozone remains a pervasive pollution problem in
the United States. As of July, 2000, 102 million people (1999 census)
lived in 31 metropolitan areas designated nonattainment under the 1-
hour ozone NAAQS.15 This is a sharp decline from the 101
nonattainment areas originally identified under the Clean Air Act
Amendments of 1990, but elevated ozone concentrations remain a serious
public health concern throughout the nation.
---------------------------------------------------------------------------

    \15\ Memorandum to Air Docket, September 18, 2000. Information
on ozone nonattainment areas and populations as of July 31, 2000
from US EPA website www.epa.gov/airs/nonattn.html, USA Air Quality
Nonattainment Areas, Office of Air Quality Planning and Standards.
---------------------------------------------------------------------------

    Over the last decade, declines in ozone levels were found mostly in
urban areas, where emissions are heavily influenced by controls on
mobile sources and their fuels.16 Twenty-three metropolitan
areas have realized a decline in ozone levels since 1989, but at the
same time, ozone levels in 11 metropolitan areas with 7 million people
have increased.17 Regionally, California and the Northeast
have recorded significant reductions in peak ozone levels, while four
other regions (the Mid-Atlantic, the Southeast, the Central and Pacific
Northwest) have seen ozone levels increase.
---------------------------------------------------------------------------

    \16\ National Emissions Trends database.
    \17\ National Air Quality and Emissions Trends Report, 1998,
March, 2000, at 28.
---------------------------------------------------------------------------

    The highest ambient concentrations are currently found in suburban
areas, consistent with downwind transport of emissions from urban
centers. Concentrations in rural areas have risen to the levels
previously found only in cities. Over the last decade, ozone levels at
17 of our National Parks have increased, and in 1998, ozone levels in
two parks were 30 to 40 percent higher than the ozone NAAQS.
i. Results of Photochemical Ozone Modeling and Analysis of Emissions
Inventories
    In conjunction with this rulemaking, the Agency performed ozone air
quality modeling for nearly the entire Eastern U.S covering
metropolitan areas from Texas to the Northeast.18 This ozone
air quality modeling was based upon the same modeling system as was
used in the Tier 2 air quality analysis, with the addition of updated
inventory estimates for 2007 and 2030.19 This modeling
supports the conclusion that there is a broad set of areas with
predicted ozone concentrations in 2007 and 2030 at or above 0.125 ppm,
in the baseline scenarios without additional emission reductions. EPA
established the 1-hour standard at 0.12 parts per million (ppm) daily
maximum 1-hour average concentration not to be exceeded more than once
per year on average. Compliance with the 1-hour standard is judged on
the basis of the most recent three years of ambient air quality
monitoring data.
---------------------------------------------------------------------------

    \18\ EPA also performed ozone air quality modeling for the
western United States but, as described further in the air quality
technical support document, model predictions were well below
corresponding ambient concentrations. Because of poor model
performance for this region of the country, the results of western
ozone modeling were not relied on for this rule.
    \19\ Consistent with a commitment expressed in the proposal, the
Agency released the emissions inventory inputs for, and a
description of, ozone modeling into the public record (docket number
A-99-06), and also onto a website developed expressly for this
purpose, on a continuous basis as they were developed. Further
discussion of this modeling, including evaluations of model
performance relative to predicted future air quality, is provided in
the air quality modeling Technical Support Document (TSD).
---------------------------------------------------------------------------

    We have compared and supplemented our own ozone modeling with other
modeling studies, submitted to us as state implementation plan (SIP)
revisions, or brought to our attention through our consultations with
states on SIP revisions that are in development. The ozone modeling in
the SIP revisions has the advantage of using emission inventories that
are more specific to the area being modeled, and of using
meteorological conditions selected specifically for each area. Also,
the SIP revisions included other evidence and analysis, such as
analysis of air quality and emissions trends, observation-based models
that make use of data on concentrations of ozone precursors,
alternative rollback analyses, and information on the responsiveness of
the air quality model. For some areas, we decided that the predictions
of 1-hour ozone exceedances from our modeling were less reliable than
conclusions that could be drawn from this additional evidence and
analysis. For example, in some areas our episodes did not capture the
meteorological conditions that have caused high ozone, while local
modeling did so. Thus, these local analyses are considered to be more
extensive than our own modeling for estimating whether there would be
NAAQS nonattainment without further emission reductions, when
interpreted by a weight of evidence method which meets our guidance for
such modeling.
    Photochemical ozone modeling conducted for this rulemaking was
based in part on updated national emissions inventories for all
sources. National emission trends for NOX

[[Page 5014]]

predict a significant decline from 1996 to 2007, a leveling off of the
downward trend between 2007 to 2020, and an increase in NOX
inventories from 2020 to 2030. By 2030, national NOX levels
are estimated to reach levels that are within ten percent of 2007
levels. Predictions of national VOC emissions indicate a reduction from
1996 to 2007, followed by an increase between 2007 and 2030 resulting
in 2030 levels that are estimated to be 10 percent greater than VOC
emissions levels in 2007. In metropolitan ozone nonattainment areas,
such as Charleston, Chicago and Houston, NOX or VOC
emissions in 2030 are predicted to reach or exceed 2007 levels. These
estimated national and metropolitan area emissions inventories of ozone
precursors are consistent with the conclusions reached by analysis of
ozone modeling conducted for this rule that additional reductions are
needed in order to enable areas to reach and maintain attainment of the
ozone standard between 2007 and 2030.
    The Agency conducted ozone modeling based on inventories developed
with and without reductions from this rulemaking for three future
years: 2007, 2020 and 2030. The year 2007 was chosen because it is also
the first year of implementation for the new standards adopted in
today's action. It is also the year that nine major urban areas with a
history of persistent and elevated ozone concentrations must
demonstrate attainment, and is also relevant to the South Coast Air
Basin of California (South Coast) with an attainment date of 2010. In
addition, modeling was performed for 2030 when the full benefits of the
rule are expected to be realized and for 2020 which represents an
intermediate year between the start of the program and full turnover of
the affected vehicle fleet. The year 2020 is also representative of the
period when areas that have come into attainment may need additional
reductions in order to maintain the standard.
    Today's rule will provide a substantial reduction in emissions of
ozone precursors, particularly NOX. These emissions
reductions will greatly lower ozone concentrations which will help
federal and State efforts to bring about attainment of the current 1-
hour ozone standard. As described in the Air Quality Modeling Technical
Support Document for this rule, EPA performed regional scale ozone
modeling for the Eastern U.S. to assess the impacts of the controls in
this rule on predicted 1-hour ozone exceedances. The results of this
modeling were examined for those 37 areas in the East for which EPA's
modeling predicted exceedances in 2007, 2020 and/or 2030 and current 1-
hour design values are above the standard or within 10 percent of the
standard. The results for these areas combined indicate that there will
be substantial reductions in the number of exceedances and the
magnitude of high ozone concentrations in both 2020 and 2030 due to
this rule. The modeling also indicates that without the rule,
exceedances would otherwise increase by 37 percent between 2020 and
2030 as growth in emissions offsets the reductions from Tier 2 and
other current control programs.
    For all areas combined, the rule is forecast to provide a 33
percent reduction in exceedances in 2020 and a 38 percent reduction in
2030. The total amount of ozone above the standard is expected to
decline by nearly 37 percent in 2020 and 44 percent in 2030. Also,
daily maximum ozone exceedances are lowered by 5 ppb on average in 2020
and nearly 7 ppb in 2030. The modeling forecasts an overall net
reduction of 39 percent in exceedances from 2007, which is close to the
start of this program, to 2030 when controls will be fully in place. In
addition, the results for each individual area indicates that all areas
are expected to have fewer exceedances in 2030 with the HDV controls
than without this rule.
    During the public comment period on the proposed rule, EPA received
several comments that expressed concern about potential increases in
ozone that might result from this rule. As indicated above, the air
quality modeling results indicate an overall reduction in ozone levels
in 2007 and 2030 during the various episodes modeled. Examining
individual areas, nearly the entire country is projected to benefit
substantially from the reductions in this rule.20 There is a
metropolitan area that EPA modeled as having exceedances with the one-
hour ozone standard under baseline conditions in 2007 through 2030,
which the Agency's modeling for the HDV rule estimated could have less
than a 3 percent increase in its peak ozone levels in 2020 and 2030 and
small net increase (i.e., less than 1 ppb) in levels above the 1-hour
standard in 2030. However, EPA's air quality modeling did not predict
an increase in the number of exceedances in this CMSA/MSA in 2020 and a
decrease in exceedances occurred in 2030. In another CMSA/MSA in
another State, in 2030 there was less than a one percent increase in
the summer peak level. Yet, this area had fewer exceedances and lower
ozone above the 1-hour standard in both 2020 and 2030 under the rule.
EPA expects that the States will have State Implementation Plans that
will consider federal controls and complement them with State actions
to provide attainment and will work with the States to ensure this
occurs.
---------------------------------------------------------------------------

    \20\ The air quality modeling was performed for the Eastern
region of the United States, but EPA also expects the rule to
benefit nonattainment areas throughout the entire nation, including
California.
---------------------------------------------------------------------------

    Considering all of EPA's air quality modeling results, it is clear
that the significant ozone reductions from this rule outweigh the
limited ozone increases that may occur in the future assuming no
additional reductions from federal or local controls. Additional
details on this are provided in the Response to Comments document and
in EPA's Heavy Duty Rule Air Quality Modeling Technical Support
Document. Furthermore, EPA's Regulatory Impact Analysis for this rule
shows significant health and welfare benefits occurring from the ozone
reductions that the rule provides (see details on the benefits in
Section V.F.5 of the preamble and Chapter VII of the RIA).
ii. Areas At Risk of Exceeding the 1-Hour Ozone Standard in the Future
    This section presents the Agency's conclusions about the risk of
future nonattainment for 45 areas listed in Table II.B-1 based on
photochemical ozone modeling conducted for this rule and other evidence
such as local air quality modeling.21 The areas listed in
Table II.B-1 are separated into two broad groups: (1) Those areas with
attainment dates in 2007 or 2010 that will benefit from reductions from
this rule to attain and maintain the standard; and (2) those areas with
attainment dates prior to 2007 that will benefit from reductions from
this rule to maintain the standard after their attainment dates.
Because ozone concentrations causing violations of the 1-hour ozone
standard are well established to endanger public health and welfare,
this indicates that it is appropriate for the Agency to set new
standards for heavy-duty vehicles. The following discussion follows
these groupings from top to bottom. A more detailed discussion is found
in the Regulatory Impact Analysis (RIA).
---------------------------------------------------------------------------

    \21\ In the proposal, we relied on photochemical ozone modeling
performed for recently promulgated standards on light duty vehicles,
or Tier 2. The results presented in this final rulemaking for heavy-
duty vehicles and diesel fuel are largely consistent with the
findings presented in the proposal, with small differences due to
updated emissions inventories. As stated in the proposal, the ozone
modeling methodologies used in the proposal and presented here in
the final rule are identical.
---------------------------------------------------------------------------

    Ten metropolitan areas contained within designated ozone
nonattainment areas have statutorily-defined attainment dates of 2007
or 2010, or

[[Page 5015]]

have requested attainment date extensions to 2007. These 10 areas are
listed at the top of Table II.B-1, and are New York City, Houston,
Hartford, New London, Chicago, Milwaukee, Dallas, Beaumont-Port Arthur,
Los Angeles, and Southeast Desert.
    Each of these areas needs additional emission reductions in order
to reach attainment by 2007, and to maintain the standards in the
future. Some of these areas have emission reduction shortfalls that are
identified in their attainment demonstrations (i.e., South Coast Air
Basin, New York and Houston), and reductions from this rule will assist
State efforts to reach attainment.22 Three other areas--
Southeast Desert, Hartford, New London--are subject to ozone transport
from upwind areas with identified shortfalls (South Coast and New
York), and depend upon attainment from these upwind areas to reach
attainment themselves. We have received attainment plans for two areas
in Texas (Dallas and Beaumont-Port Arthur), and the Agency is likely to
consider the reductions from this rule in its proposed approval of
these attainment plans in Federal Register notices. Finally, there are
two areas in the Midwest--Chicago and Milwaukee--that have incorporated
reductions from this rule into their regional ozone modeling, and plan
to rely on reductions from this rule to support their 2007 attainment
demonstration.23
---------------------------------------------------------------------------

    \22\ The South Coast's ``additional measures'' which rely on new
technologies, are located in its 1994 SIP.
    \23\ Technical Support Document, Midwest Subregional Modeling:
1-Hour Attainment Demonstration for Lake Michigan Area and Emissions
Inventory, Illinois Environmental Protection Agency, Indiana
Department of Environmental Management, Michigan Department of
Environmental Quality, Wisconsin Department of Natural Resources,
September 27, 2000, at 14 and at 8.
---------------------------------------------------------------------------

    For all ten areas, even if all shortfalls were filled by the
States, there is some risk that at least some of the areas will not
attain the standards by their attainment dates of 2007, or 2010 for Los
Angeles. In that event, the reductions associated with this program,
which increase substantially after 2007, will help assure that any
residual failures to attain are remedied. Finally, there is also some
risk that the areas will be unable to maintain attainment after 2007.
Considered collectively, there is a significant risk that some areas
will not be in attainment throughout the period when the new standards
will reduce heavy-duty vehicle emissions.
    The rest of the areas have required attainment dates prior to 2007,
or have no attainment date but are subject to a general obligation to
have a SIP that provides for attainment and maintenance. These 34
areas, according to our modeling, are at risk of exceeding the ozone
NAAQS between 2007 and 2030. These areas will be able to rely on
reductions from this rule to continue to maintain the standard after
attainment is reached, and will be able to take credit for this program
in their maintenance plans when they seek redesignation to attainment
of the ozone standard. If any of these areas reach attainment, and then
fall back into nonattainment, or fail to reach attainment by 2007,
reductions from this rule will assist these areas in achieving the
ozone standard. If an area does not choose to seek redesignation, the
continuing reductions from this rulemaking will help ensure maintenance
(i.e., prevent future exceedances) with the 1-hour standard after
initial attainment is reached.
    Areas with attainment dates prior to 2007 are presented in two
groupings in the table at the end of this section: a group of 20 areas
in the middle of Table II.B-1, and a group of 15 areas at the bottom of
Table II.B-1. For the middle group of 20 areas, EPA and the States are
pursuing the established statutory processes for attaining and
maintaining the ozone standard, or have already redesignated these
areas to attainment with a maintenance plan (e.g., Cincinnati). EPA has
re-instated the 1-hour ozone standard to some of these areas, restoring
the applicability of these processes to them. The Agency believes that
there is a significant risk that future air quality in a number of
these areas will exceed the ozone standard at some time in the 2007 and
later period. This belief is based on three factors: (1) Recent
exceedances in 1997-1999, (2) predicted exceedances in 2007, 2020 or
2030 after accounting for existing mobile source requirements and other
local or regional controls currently in place or required, and (3) our
assessment of the magnitude of recent violations, the year-to-year
variability of meteorological conditions conducive to ozone formation,
transport from areas with later attainment dates, and other variables
inherent in predicting future attainment such as the potential for some
areas to experience unexpectedly high economic growth rates, growth in
vehicle miles traveled, varying population growth from area to area,
and differences in vehicle choice.
    Only a subset of these 20 areas have yet adopted specific control
measures that have allowed the Agency to fully approve an attainment
plan. For some of these areas, we have proposed a finding, based on all
the available evidence, that the area will attain by its applicable
attainment date. We have approved a 10-year maintenance plan for
Cincinnati, OH from 1999 to 2009. However, in many cases, these
proposals depend on the State adopting additional emission reduction
measures. The RIA provides more information on our recent proposals on
attainment demonstrations and maintenance plans.24 Until the
SIPs for these areas are actually submitted, reviewed and approved by
EPA, there is some risk that these areas will not adopt fully
approvable SIPs.
---------------------------------------------------------------------------

    \24\ We have recently proposed favorable action, in some cases
with a condition that more emission reductions be obtained, on
attainment demonstrations in these areas with attainment dates prior
to 2007: Philadelphia, Washington-Baltimore, Atlanta, and St. Louis.
---------------------------------------------------------------------------

    Finally, there are 15 additional metropolitan areas for which the
available ozone modeling and other evidence is less clear regarding the
need for additional reductions (see Table II.B-1). Our ozone modeling
predicted these areas to need further reductions to avoid exceedances
in 2007, 2020 or 2030. The recent air quality monitoring data for these
areas shows ozone levels with less than a 10 percent margin below the
NAAQS. We believe there is a risk that future ozone levels will be
above the NAAQS because of the year-to-year variability of
meteorological conditions conducive to ozone formation, or because
local emissions inventories may increase faster than national
inventories.
iii. Conclusion
    In sum, without these reductions, there is a significant risk that
an appreciable number of the 45 areas, with a population of 128 million
people in 1999, will violate the 1-hour ozone standard during the time
period when these standards will apply to heavy-duty vehicles. The
evidence summarized in this section, and presented in more detail in
the air quality modeling TSD and the RIA, supports the Agency's belief
that emissions of NOX and VOC from heavy-duty vehicles in
2007 and later will contribute to a national ozone air pollution
problem that warrants regulatory action under section 202(a)(3) of the
Act.

[[Page 5016]]

                             Table II.B-1 a
   [Areas and 1999 Populations at Risk of Exceeding the Ozone Standard
                         between 2007 and 2030]
------------------------------------------------------------------------
                                                                 1999
                                                              Population
                       MSA/CMSA/State                            (in
                                                              millions)
------------------------------------------------------------------------
    Areas with 2007/2010 Attainment Dates (Established or Requested)
------------------------------------------------------------------------
Beaumont-Port Arthur, TX...................................          0.4
Chicago-Gary-Kenosha, IL-IN-WI.............................          8.9
Dallas-Fort Worth, TX......................................          4.9
Hartford, CT...............................................          1.1
Houston-Galveston-Brazoria, TX.............................          4.5
Los Angeles-Riverside-Orange County, CA....................         16.0
Milwaukee-Racine, WI.......................................          1.6
New London-Norwich, CT-RI..................................          0.3
New York-Northern New Jersey-Long Island, NY-NJ-CT-PA......         20.2
Southeast Desert, CA.......................................          0.5
10 areas...................................................         58.4
------------------------------------------------------------------------
  Areas with Pre-2007 Attainment Dates or No Specific Attainment Date,
                 with a Recent History of Nonattainment.
------------------------------------------------------------------------
Atlanta, GA................................................          3.9
Baton Rouge, LA............................................          0.6
Birmingham, AL.............................................          0.9
Boston-Worcester-Lawrence, MA-HN-ME-CT.....................          5.7
Charlotte-Gastonia-Rock Hill, NC-SC........................          1.4
Detroit-Ann Arbor-Flint, MI MSA............................          5.5
Huntington-Ashland, WV-KY-OH...............................          0.3
Louisville, KY-IN..........................................          1.0
Macon, GA MSA..............................................          0.3
Memphis, TN-AR-MS..........................................          1.1
Nashville, TN..............................................          1.2
Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD.........            6
Richmond-Petersburg, VA....................................            1
Sacramento-Yolo, CA........................................          1.7
San Diego, CA..............................................          2.8
San Francisco-Oakland-San Jose, CA.........................          6.9
San Joaquin Valley, CA.....................................          3.2
St. Louis, MO-IL...........................................          2.6
Ventura County, CA.........................................          0.7
Washington, DC--Baltimore, DC, MD, VA MSA..................          7.4
20 Areas...................................................         54.2
------------------------------------------------------------------------
Areas with Pre-2007 Attainment Dates and Recent Concentrations within 10
                        percent of an Exceedance.
------------------------------------------------------------------------
Barnstable-Yarmouth, MA....................................          0.2
Benton Harbor, MI..........................................          0.2
Biloxi-Gulfport-Pascagoula, MS MSA.........................          0.4
Charleston, WV MSA.........................................          0.3
Cincinnati-Hamilton, OH-KY-IN..............................          2.0
Cleveland-Akron, OH CMSA...................................          2.9
Grand Rapids-Muskegon-Holland, MI MSA......................          1.1
Houma, LA..................................................          0.2
Lake Charles, LA...........................................          0.2
New Orleans, LA MSA........................................          1.3
Norfolk-Virginia Beach-Newport News, VA-NC MSA.............          1.6
Orlando, FL MSA............................................          1.5
Pensacola, FL MSA..........................................          0.4
Providence-Fall River-Warwick, RI-MA.......................          1.1
Tampa-St. Petersburg-Clearwater, FL MSA....................          2.3
15 areas...................................................         15.7
------------------------------------------------------------------------
    Total Areas: 45........................................  Population:
                                                                    128
------------------------------------------------------------------------
a In order to determine the reliability of model predictions the Agency
  ran the ozone model for current ozone concentrations and compared
  those predictions with actual ozone levels recorded by ozone monitors.
  The results of the model's performance are presented in the RIA for
  this rule.

[[Page 5017]]

c. Public Health and Welfare Concerns from Prolonged and Repeated
Exposures to Ozone
    A large body of scientific literature regarding health and welfare
effects of ozone has associated health effects with certain patterns of
ozone exposures that do not necessarily include any hourly ozone
concentration above the 0.12 parts per million (ppm) level of the 1-
hour NAAQS. The science indicates that there are health effects
attributable to prolonged and repeated exposures to lower ozone
concentrations. Studies of 6 to 8 hour exposures showed health effects
from prolonged and repeated exposures at moderate levels of exertion to
ozone concentrations as low as 0.08 ppm. Prolonged and repeated ozone
concentrations at these levels are common in areas throughout the
country, and are found in areas that are exceeding, and areas that are
not exceeding, the 1-hour ozone standard. For example, 153 million
people, or 87 percent of the total population in counties evaluated
(176 million), lived in areas with 2 or more days with concentrations
of 0.09 ppm or higher in 1998, including areas currently violating the
1-hour NAAQS. In the 2007, before the application of emission
reductions resulting from this rule, we estimated that 116 million, or
93 percent of the total population considered in the analysis, are
predicted to live in areas with at least 2 days with model-adjusted 8-
hour average concentrations of 0.08 ppm or higher. By 2030, the number
of people (139 million) and the relative percentage (91 percent) of the
total population considered in the analysis is projected to grow
significantly without reductions from this rule. Since prolonged
exposures at moderate levels of ozone are more widespread than
exceedances of the 1-hour ozone standard, and given the continuing
nature of the 1-hour ozone problem described above, adverse health
effects from this type of ozone exposure can reasonably be anticipated
to occur in the future in the absence of this rule. Adverse welfare
effects can also be anticipated, primarily from damage to vegetation.
See the RIA for further details.
    Studies of acute health effects have shown transient pulmonary
function responses, transient respiratory symptoms, effects on exercise
performance, increased airway responsiveness, increased susceptibility
to respiratory infection, increased hospital and emergency room visits,
and transient pulmonary respiratory inflammation. Such acute health
effects have been observed following prolonged exposures at moderate
levels of exertion at concentrations of ozone well below the current
standard of 0.12 ppm. The effects are more pronounced at concentrations
above 0.09 ppm, affecting more subjects or having a greater effect on a
given subject in terms of functional changes or symptoms. A more
detailed discussion may be found in the RIA.
    With regard to chronic health effects, the collective data have
many ambiguities, but provide suggestive evidence of chronic effects in
humans. There is a biologically plausible basis for considering the
possibility that repeated inflammation associated with exposure to
ozone over a lifetime, as can occur with prolonged exposure to moderate
ozone levels below peak levels, may result in sufficient damage to
respiratory tissue that individuals later in life may experience a
reduced quality of life, although such relationships remain highly
uncertain.
    Ozone has many welfare effects, with damage to plants being of most
concern. Plant damage affects crop yields, forestry production, and
ornamentals. The adverse effect of ozone on forests and other natural
vegetation can in turn cause damage to associated ecosystems, with
additional resulting economic losses, as well as aesthetic impacts
which may not be fully quantifiable in economic terms. Ozone
concentrations of 0.10 ppm can be phytotoxic to a large number of plant
species, and can produce acute injury and reduced crop yield and
biomass production. Ozone concentrations at or below 0.10 ppm have the
potential over a longer duration of creating chronic stress on
vegetation that can result in reduced plant growth and yield, shifts in
competitive advantages in mixed populations, decreased vigor, and
injury from other environmental stresses.
    Section 202(a) provides EPA with authority to promulgate standards
applicable to motor vehicle emissions that ``in the Administrator's
judgment, cause or contribute to air pollution reasonably anticipated
to endanger public health and welfare.'' The evidence in the RIA
regarding the occurrence of adverse health effects due to prolonged and
repeated exposure to ozone concentrations in the range discussed above,
and regarding the populations that are expected to receive exposures at
these levels, along with the welfare effects described above, supports
a conclusion that emissions of NOX and VOC from heavy-duty
vehicles in 2007 and later will be contributing to a national air
pollution problem that warrants regulatory action under section 202(a)
of the Act.
3. Particulate Matter
a. Health and Welfare Effects
    Particulate matter (PM) represents a broad class of chemically and
physically diverse substances. It can be principally characterized as
discrete particles that exist in the condensed (liquid or solid) phase
spanning several orders of magnitude in size. All particles equal to
and less than 10 microns are called PM10. Fine particles can
be generally defined as those particles with an aerodynamic diameter of
2.5 microns or less (also known as PM2.5), and coarse
fraction particles are those particles with an aerodynamic diameter
greater than 2.5 microns, but equal to or less than a nominal 10
microns. The health and environmental effects of PM are strongly
related to the size of the particles.
    The emission sources, formation processes, chemical composition,
atmospheric residence times, transport distances and other parameters
of fine and coarse particles are distinct. Fine particles are directly
emitted from combustion sources and are formed secondarily from gaseous
precursors such as sulfur dioxide, nitrogen oxides, or organic
compounds. Fine particles are generally composed of sulfate, nitrate,
chloride and ammonium compounds; organic and elemental carbon; and
metals. Combustion of coal, oil, diesel, gasoline, and wood, as well as
high temperature process sources such as smelters and steel mills,
produce emissions that contribute to fine particle formation. In
contrast, coarse particles are typically mechanically generated by
crushing or grinding and are often dominated by resuspended dusts and
crustal material from paved or unpaved roads or from construction,
farming, and mining activities. Fine particles can remain in the
atmosphere for days to weeks and travel through the atmosphere hundreds
to thousands of kilometers, while coarse particles deposit to the earth
within minutes to hours and within tens of kilometers from the emission
source.
    Diesel particles are a component of both coarse and fine PM, but
fall mostly in the fine and ultrafine size range.25 Diesel
PM contains small quantities of numerous mutagenic and carcinogenic
compounds. While representing a very small portion (less than one
percent) of the national emissions of metals, and a small portion of
diesel particulate matter (one to five percent), we note that several
toxic trace metals of potential

[[Page 5018]]

toxicological significance are also emitted by diesel engines including
chromium, manganese, mercury and nickel. In addition, small amounts of
dioxins have been measured in diesel exhaust, some of which may
partition into the particle phase, though the impact of these emissions
on human health is not clear.
---------------------------------------------------------------------------

    \25\ Fine particulate matter includes particles with a diameter
less than 2.5 micrometers. Ultrafine particulate matter include
particles with a diameter less than 100 nanometers.
---------------------------------------------------------------------------

    Particulate matter, like ozone, has been linked to a range of
serious respiratory health problems. Scientific studies suggest a
likely causal role of ambient particulate matter (which is attributable
to a number of sources including diesel) in contributing to a series of
health effects. The key health effects categories associated with
ambient particulate matter include premature mortality, aggravation of
respiratory and cardiovascular disease (as indicated by increased
hospital admissions and emergency room visits, school absences, work
loss days, and restricted activity days), aggravated asthma, acute
respiratory symptoms, including aggravated coughing and difficult or
painful breathing, chronic bronchitis, and decreased lung function that
can be experienced as shortness of breath. Observable human noncancer
health effects associated with exposure to diesel PM include some of
the same health effects reported for ambient PM such as respiratory
symptoms (cough, labored breathing, chest tightness, wheezing), and
chronic respiratory disease (cough, phlegm, chronic bronchitis and
suggestive evidence for decreases in pulmonary function). Symptoms of
immunological effects such as wheezing and increased allergenicity are
also seen. Studies in rodents, especially rats, show the potential for
human inflammatory effects in the lung and consequential lung tissue
damage from chronic diesel exhaust inhalation exposure. Both fine and
coarse particles can accumulate in the respiratory system. Exposure to
fine particles is most closely associated with such health effects as
premature mortality or hospital admissions for cardiopulmonary disease.
For additional information on health effects, see the RIA. PM also
causes damage to materials and soiling of commonly used building
materials and culturally important items such as statutes and works of
art. It is a major cause of substantial visibility impairment in many
parts of the U.S.
    Heavy-duty vehicles contribute to particle formation through a
number of pollutants. The contribution to PM fine varies by region of
the country. Sulfate plays a major role in the composition of fine
particulate across the country, but typically makes up over half the
fine particles found in the Eastern United States. Organic carbon
accounts for a large portion of fine particle mass, with a slightly
higher fraction in the west. Diesel engines are the principal source of
elemental carbon, which makes up about 5-6 percent of particle mass.
Nationally, nitrate plays a relatively small role in the make up of
fine particles, but ammonium nitrate plays a far larger role in
southern California. Ammonium nitrate-formed secondarily from
NOX and ammonia emissions--is one of the most significant
components of particulate matter pollution in California. During some
of the worst episodes of elevated particle levels in the South Coast,
ammonium nitrate can account for about 65-75 percent of the
PM2.5 mass. Reducing ammonium nitrate through controls on
NOX sources is a critical part of California's particulate
matter strategy. Nationally, the standards finalized in this rule will
significantly reduce HDV emissions of SOX, NOX,
VOCs and elemental carbon, and thus contribute to reductions in ambient
concentrations of PM10 and PM2.5.
b. Attainment and Maintenance of the PM10 NAAQS
    Under the CAA, we are to regulate HDV emissions if they contribute
to air pollution that can reasonably be anticipated to endanger public
health and welfare. We have already addressed the question of what
concentration patterns of PM endanger public health, in setting the
NAAQS for PM10 in 1987. The PM NAAQS were revised in 1997,
largely by adding new standards for fine particles (PM2.5)
and modifying the form of the daily PM10 standard. On
judicial review, the revised standards were remanded for further
proceedings, and the revised PM10 standards were vacated.
The Supreme Court is currently reviewing that decision. Oral arguments
were held on November 7, 2000 and a decision by the Court is expected
in 2001. Pending final resolution of the litigation, the 1987
PM10 standard is the applicable NAAQS for PM10.
    Commenters questioned the need for additional PM10
reductions in order to achieve attainment with the PM10
NAAQS, and questioned the Agency's statement that, unlike ozone,
PM10 emissions are projected to increase in the future.
Commenters are correct that significant progress has occurred over the
last decade,26 but the Agency's statement was based on
projected PM10 inventory increases in the future between
1996 and 2030. During this period, inventory trends for current
PM10 nonattainment areas, or those with concentrations
within 10 percent of the standard, are predicted to increase
significantly. For example, from 1996 to 2030, increases are predicted
in Clark County (Las Vegas) of 41 percent, Harris County (Houston) of
37 percent, and Phoenix of 24 percent. A more detailed discussion is
provided in the RIA.
---------------------------------------------------------------------------

    \26\ Ambient concentrations of PM10 and
PM10 emissions have declined over the last ten years by
25 percent and 19 percent, respectively. National Air Quality and
Emissions Trends Report, 1998, US EPA, March, 2000.
---------------------------------------------------------------------------

i. Current PM10 Nonattainment
    The most recent PM10 monitoring data indicates that 14
designated PM10 nonattainment areas with a projected
population of 23 million violated the PM10 NAAQS in the
period 1997-1999. Table II.B-3 lists the 14 areas, and also indicates
the PM10 nonattainment classification and 1999 projected
population for each PM10 nonattainment area. The projected
population in 1999 was based on 1990 population figures which were then
increased by the amount of population growth in the relevant county
from 1990 to 1999.

Table II.B-3.--PM10 Nonattainment Areas Violating the PM10 NAAQS in 1997-
                                   99
------------------------------------------------------------------------
                                                               1999
                                                            Population
               Area                    Classification     (projected, in
                                                             millions)
------------------------------------------------------------------------
Hayden/Miami, AZ..................  Moderate............           0.004
Phoenix, AZ.......................  Serious.............           2.977
Nogales, AZ.......................  Moderate............           0.025
San Joaquin Valley, CA............  Serious.............           3.214
Imperial Valley, CA...............  Moderate............           0.122

[[Page 5019]]

Owens Valley, CA..................  Serious.............           0.018
Searles Valley, CA................  Moderate............           0.029
Coachella Valley, CA..............  Serious.............           0.239
South Coast Air Basin.............  Serious.............          14.352
Las Vegas, NV.....................  Serious.............           1.200
Reno, NV..........................  Moderate............           0.320
Anthony, NM b.....................  Moderate............           0.003
El Paso, TX a.....................  Moderate............           0.611
Wallula, WA b.....................  Moderate............           0.052
      Total Areas: 14.............  ....................         23.167
------------------------------------------------------------------------
a EPA has determined that continuing PM10 nonattainment in El Paso, TX
  is attributable to international transport under section 179(B).
b The violation in this area has been determined to be attributable to
  natural events under section 188(f) of the Act.

    In addition to the 14 PM10 nonattainment areas that are
currently violating the PM10 NAAQS, there are 25
unclassifiable areas that have recently recorded ambient concentrations
of PM10 above the PM10 NAAQS. EPA adopted a
policy in 1996 that allows areas with PM10 exceedances that
are attributable to natural events to retain their designation as
unclassifiable if the State is taking all reasonable measures to
safeguard public health regardless of the sources of PM10
emissions. Areas that remain unclassifiable areas are not required
under the Clean Air Act to submit attainment plans, but we work with
each of these areas to understand the nature of the PM10
problem and to determine what best can be done to reduce it. With
respect to the monitored violations reported in 1997-99 in the 25 areas
designated as unclassifiable, we have not yet excluded the possibility
that factors such as a one-time monitoring upset or natural events,
which ordinarily would not result in an area being designated as
nonattainment for PM10, may be responsible for the problem.
Emission reductions from today's action will assist these currently
unclassifiable areas to achieve ambient PM10 concentrations
below the current PM10 NAAQS.
ii. Risk of Future Exceedances of the PM10 Standard
    The new standards for heavy-duty vehicles will benefit public
health and welfare through reductions in direct diesel particles and
NOX, VOCs, and SOX which contribute to secondary
formation of particulate matter. Because ambient particle
concentrations causing violations of the PM10 standard are
well established to endanger public health and welfare, this
information supports the new standards for heavy-duty vehicles. The
reductions from today's rule will assist States as they work with the
Agency through implementation of local controls including development
and adoption of additional controls as needed to move their areas into
attainment by the applicable deadline, and maintain the standards
thereafter.
    The Agency's PM inventory analysis performed for this rulemaking
predicts that without additional reductions 10 areas face a significant
risk of failing to meet or to maintain the PM10 NAAQS even
with federal, State and local controls currently in place.27
Table II.B-4 presents information about these 10 areas and subdivides
them into two groups. The first group of 6 areas are designated
PM10 nonattainment areas which had recent monitored
violations of the PM10 NAAQS in 1997-1999 and increasing
inventories of PM10 from 2007 to 2030 (see Table II.B-3 for
predicted increases in emissions). These areas have a population of 19
million. Included in the group are the nonattainment areas that are
part of the Los Angeles, Phoenix and Las Vegas (Clark County)
metropolitan areas, where traffic from heavy-duty vehicles is
substantial. These six areas will benefit from the reductions in
emissions that will occur from the new standards for heavy-duty
vehicles, as will other areas impacted by heavy-duty vehicle emissions.
---------------------------------------------------------------------------

    \27\ EPA has evaluated projected emissions for this analysis
rather than future air quality because REMSAD, the model EPA has
used for analyses related to this rule, was designed principally to
estimate long-term average concentrations of fine particulate matter
and its ability to predict short-term PM10 concentrations
has not been satisfactorily demonstrated. In contrast with ozone,
which is the product of complex photochemical reactions and
therefore difficult to directly relate to precursor emissions,
ambient PM10 concentrations are more heavily influenced
by direct emissions of particulate matter and can therefore be
correlated more meaningfully with emissions inventories.
---------------------------------------------------------------------------

    The second group of four counties listed in Table II.B-4 with a
total of nine million people in 1999 also had predicted exceedances of
the PM10 standard. While these four areas registered, in
either 1997 or 1998, single-year annual average monitored
PM10 levels of at least 90 percent of the PM10
NAAQS, these areas did not exceed the formal definition of the
PM10 NAAQS over the three-year period ending in 1999. For
each of these four areas (i.e., Cuyahoga, Harris, New York, and San
Diego), inventories of total PM10 are predicted to increase
between 1996, when these areas recorded values within 10 percent of the
PM10 standard, and 2030 when this rule will take full
effect. Additionally, EPA is in the process of taking final action on a
request by the State of Ohio to redesignate Cuyahoga County as
attainment. This action is based on locally developed information and
is consistent with the requirements of the CAA which include, among
other requirements a 10-year plan for maintenance of the
PM10 standard.
    For some of these areas, total PM10 inventories are
predicted to decline or stay relatively constant from 1996 to 2007, and
then increase after 2007. Based on inventory projections, the small
margin of attainment which the four areas currently enjoy will likely
erode between 1996 and 2030, and for some areas before 2007, if
additional actions to reduce the growth of future emissions are not
taken. We therefore consider these four areas to each individually have
a significant risk of exceeding the PM10 standard between
2007 and 2030 without further emission reductions. The emission
reductions from the new standards for heavy-duty vehicles will help
these areas attain and maintain the PM10 NAAQS in
conjunction with other processes that

[[Page 5020]]

are currently moving these areas towards attainment.

  Table II.B-4--Areas With Significant Risk of Exceeding the PM10 NAAQS
        Without Further Emission Reductions Between 2007 and 2030
------------------------------------------------------------------------
                                              Percent          1999
                                           increases in     Population
                  Area                    PM10 emissions    (projected)
                                            (1996-2030)     (millions)
------------------------------------------------------------------------
Areas currently exceeding the PM10
 standard:
    Clark Co., NV (Las Vegas)...........              41           1.217
    El Paso, TX a.......................              14           0.611
    Hayden/Miami, AZ....................               4           0.004
    Los Angeles South Coast Air Basin,                14          14.352
     CA.................................
    Nogales, AZ.........................               3           0.025
    Phoenix, AZ.........................              24           3.012
                                         -------------------------------
        Subtotal for 6 Areas............  ..............          19.22
                                         ===============================
Areas within 10% of exceeding the PM10
 standard:
    Cuyahoga Co., OH (Cleveland)........              28           1.37
    Harris, Co., TX (Houston)...........              37           3.26
    New York Co., NY....................              14           1.55
    San Diego Co., CA...................              13           2.83
                                         -------------------------------
        Subtotal for 4 Areas............  ..............           9.01
                                         ===============================
        10 Areas........................  ..............          28.23
------------------------------------------------------------------------
a EPA has determined that PM10 nonattainment in this area is
  attributable to international transport. While reductions in heavy-
  duty vehicle emissions cannot be expected to result in attainment,
  they will help reduce the degree of PM10 nonattainment.

    EPA recognizes that the SIP process is ongoing and that
nonattainment areas are in the process of implementing, or will be
adopting and implementing, additional control measures to achieve the
PM10 NAAQS in accordance with their attainment dates under
the Clean Air Act. EPA believes, however, that as in the case of ozone,
there are uncertainties inherent in any demonstration of attainment
that is premised on forecasts of emission levels in future years. Even
if these areas adopt and submit SIPs that EPA is able to approve as
demonstrating attainment of the PM10 standard, and attain
the standard by the appropriate attainment dates, the inventory
analysis conducted for this rule and the history of PM10
levels in these areas indicates that there is still a significant risk
that these areas will need the reductions from the heavy-duty vehicle
standards adopted today to maintain the PM10 standards in
the long term (ie, between 2007 and 2030). In addition, this list does
not fully consider the possibility that there are other areas which are
now meeting the PM10 NAAQS that have at least a significant
probability of requiring further reductions to continue to maintain it.
c. Public Health and Welfare Concerns From Exposure to Fine PM
    Many epidemiologic studies have shown statistically significant
associations of ambient PM levels with a variety of human health
endpoints in sensitive populations, including mortality, hospital
admissions and emergency room visits, respiratory illness and symptoms
measured in community surveys, and physiologic changes in mechanical
pulmonary function. These effects have been observed in many areas with
ambient PM levels at or below the current PM10 NAAQS. The
epidemiologic science points to fine PM as being more strongly
associated with some health effects, such as premature mortality, than
coarse PM.
    Associations of both short-term and long-term PM exposure with most
of the above health endpoints have been consistently observed. The
general internal consistency of the epidemiologic data base and
available findings have led to increasing public health concern, due to
the severity of several studied endpoints and the frequent
demonstration of associations of health and physiologic effects with
ambient PM levels at or below the current PM10 NAAQS. The
weight of epidemiologic evidence suggests that ambient PM exposure has
affected the public health of U.S. populations. Specifically, increased
mortality associated with fine PM was observed in cities with longer-
term average fine PM concentrations in the range of 16 to 21
g/m 3.
    Current 1999 PM2.5 monitored values, which cover about a
third of the nation's counties, indicate that at least 40 million
people live in areas where long term ambient fine particulate matter
levels are at or above 16 g/m 3 (37 percent of the
population in the areas with monitors), which is the low end of the
range of long term average PM2.5 concentrations in cities
where statistically significant associations were found with serious
health effects, including premature mortality (EPA, 1996).28
---------------------------------------------------------------------------

    \28\ EPA (1996) Review of the National Ambient Air Quality
Standards for Particulate Matter: Policy Assessment of Scientific
and Technical Information OAQPS Staff Paper. EPA-452/R-96-013.
---------------------------------------------------------------------------

    The Agency used the Regulatory Model System for Aerosols and
Desposition (REMSAD) to model baseline and post-control ambient PM
concentrations. For a description of the REMSAD model, the reader is
referred to Chapter VII of the RIA.
    Our REMSAD modeled predictions allow us to also estimate the
affected population for the counties which do not currently have
PM2.5 monitors. According to our national modeled
predictions, there were a total of 76

[[Page 5021]]

million people (1996 populations) living in areas with modeled annual
average PM2.5 concentrations at or above 16 g/m
3 (29 percent of the population).29
---------------------------------------------------------------------------

    \29\ REMSAD modeling for PM2.5 annual average
concentrations. Total 1996 population in all REMSAD grid cells is
263 million.
---------------------------------------------------------------------------

    The REMSAD model also allows us to estimate future PM2.5
levels. However, the most appropriate method of making these
projections relies on the model to predict changes between current and
future states. Thus, we have estimated future conditions only for the
areas with current PM2.5 monitored data (which, as just
noted, covers about a third of the nation's counties). For these
counties, REMSAD predicts the current level of 37 percent of the
population living in areas where fine PM levels are at or above 16
g/m 3 to increase to 59 percent in 2030.
    It is reasonable to anticipate that sensitive populations exposed
to similar or higher levels, now and in the 2007 and later time frame,
will also be at increased risk relative to the general population of
premature mortality associated with exposures to fine PM. In addition,
statistically significant relationships have also been observed in U.S.
cities between PM levels and increased respiratory symptoms and
decreased lung functions in children.
    Since EPA's examination in the mid-1990s of the epidemiological and
toxicological evidence of the health effects of PM, many new studies
have been published that reevaluate or extend the initial research. The
Agency is currently reviewing these new studies to stay abreast of the
literature and adjust as necessary its assessment of PM's health
effects. It is worth noting that within this new body of scientific
literature, there are two new studies funded by the Health Effects
Institute, a EPA-industry jointly funded group, that have generally
confirmed the mid-1990s findings of the Agency about the association of
fine particles and premature mortality and various other respiratory
and cardiovascular effects. HEI's National Morbidity, Mortality and Air
Pollution Study (NMMAPS), evaluated associations between air pollutants
and mortality in 90 U.S. cities, and also evaluated associations
between air pollutants and hospital admissions among the elderly in 14
U.S. cities.30 In HEI's Reanalysis of the Harvard Six Cities
Study and the American Cancer Society Study of Particulate Air
Pollution and Mortality, data were obtained from the original
investigators for two previous studies.31 32, The extensive
analyses included replication and validation of the previous findings,
as well as sensitivity analyses using alternative analytic techniques,
including different methods of covariate adjustment, exposure
characterization, and exposure-response modeling.33
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    \30\ Samet JM, Zeger SL, Dominici F, Curriero F, Coursac I,
Dockery DW, Schwartz J, Zanobetti A. 2000. The National Morbidity,
Mortality and Air Pollution Study: Part II: Morbidity, Mortality and
Air Pollution in the United States. Research Report No. 94, Part II.
Health Effects Institute, Cambridge MA, June 2000.
    \31\ Dockery, D.W., Pope, C.A., III, Xu, X., Spengler, J.D.,
Ware, J.H., Fay, M.E., Ferris, B.G., Speizer, F.E. (1993) An
association between air pollution and mortality in six U.S. cities.
N. Engl. J. Med. 329:1753-1759.
    32 Pope, C. A., III, Thun, M. J., Namboodiri, M. M.,
Dockery, D. W., Evans, J. S., Speizer, F. E., Heath, C. W., Jr.
(1995) Particulate air pollution as a predictor of mortality in a
prospective study of U.S. adults. Am. J. Respir. Crit. Care Med.
151: 669-674.
    \33\ Krewski D, Burnett RT, Goldbert MS, Hoover K, Siemiatycki
J, Jarrett M, Abrahamowicz M, White WH. (2000) Reanalysis of the
Harvard Six Cities Study and the American Cancer Society Study of
Particulate Air Pollution and Mortality. Special Report to the
Health Effects Institute, Cambridge MA, July 2000.
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    Section 202(a) provides EPA with independent authority to
promulgate standards applicable to motor vehicle emissions that ``in
the Administrator's judgment, cause or contribute to air pollution
reasonably anticipated to endanger public health and welfare.'' The
body of health evidence is supportive of our view that PM exposures are
a serious public health concern. This concern exists for current
exposures as well as exposures that can reasonably be anticipated to
occur in the future. The risk is significant from an overall public
health perspective because of the large number of individuals in
sensitive populations that we expect to be exposed to ambient fine PM
in the 2007 and later time frame, as well as the importance of the
negative health effects. This information warrants a requirement to
reduce emissions from heavy-duty vehicles, to address elevated levels
of fine PM. This evidence supports EPA's conclusion that emissions from
heavy-duty vehicles that lead to the formation of fine PM in 2007 and
later will be contributing to a national air pollution problem that
warrants action under section 202(a)(3).
d. Other Welfare Effects Associated with PM
    The deposition of airborne particles reduces the aesthetic appeal
of buildings, and promotes and accelerates the corrosion of metals,
degrades paints, and deteriorates building materials such as concrete
and limestone. This materials damage and soiling are related to the
ambient levels of airborne particulates, which are emitted by heavy-
duty vehicles. Although there was insufficient data to relate materials
damage and soiling to specific concentrations, and thereby to allow the
Agency to establish a secondary PM standard for these impacts, we
believe that the welfare effects are real and that heavy-duty vehicle
PM, NOX, SOX, and VOC contribute to materials
damage and soiling.
e. Conclusions Regarding PM
    There is a significant risk that, despite statutory requirements
and EPA and State efforts towards attainment and maintenance, some
areas of the U.S. will violate the PM10 NAAQS in 2007 and
thereafter. Heavy-duty vehicles contribute substantially to
PM10 levels, as shown in Section II.C below.
    It is also reasonable to anticipate that concentrations of fine PM,
as represented for example by PM2.5 concentrations, will
also endanger public health and welfare even if all areas attain and
maintain the PM10 NAAQS. Heavy-duty vehicles contribute to
this air pollution problem.
    There are also important environmental impacts of PM10,
such as regional haze which impairs visibility. Furthermore, while the
evidence on soiling and materials damage is limited and the magnitude
of the impact of heavy-duty vehicles on these welfare effects is
difficult to quantify, these welfare effects support our belief that
this action is necessary and appropriate.
    Finally, in addition to its contribution to PM inventories, diesel
exhaust PM is of special concern because it has been implicated in an
increased risk of lung cancer and respiratory disease in human studies,
and an increased risk of noncancer health effects as well. The
information provided in this section shows that there will be air
pollution that warrants regulatory action under section 202(a)(3) of
the Act.
4. Diesel Exhaust
    Diesel emissions are of concern to the agency beyond their
contribution to ambient PM. As discussed in detail in the draft RIA,
there have been health studies specific to diesel exhaust emissions
which indicate potential hazards to human health that appear to be
specific to this emissions source. For chronic exposure, these hazards
included respiratory system toxicity and carcinogenicity. Acute
exposure also causes transient effects (a wide range of physiological
symptoms stemming from irritation and inflammation mostly in the
respiratory system) in humans though they are highly variable depending
on individual human susceptibility. The chemical

[[Page 5022]]

composition of diesel exhaust includes several hazardous air
pollutants, or air toxics. In our Mobile Source Air Toxic Rulemaking
under section 202(l) of the Act discussed above, EPA determined that
diesel particulate matter and diesel exhaust organic gases be
identified as a Mobile Source Air Toxic (MSAT). The purpose of the MSAT
list is to provide a screening tool that identifies compounds emitted
from motor vehicles or their fuels for which further evaluation of
emissions controls is appropriate. As discussed in chapter 3 on engine
technology, the particulate matter standard finalized today reflects
the greatest degree of emissions reductions achievable under section
202(l) for on-highway heavy-duty vehicle PM emissions.
a. Potential Cancer Effects of Diesel Exhaust
    The EPA has concluded that diesel exhaust is likely to be
carcinogenic to humans by inhalation at occupational and environmental
levels of exposure.34 The draft Health Assessment Document
for Diesel Exhaust (draft Assessment), was reviewed in public session
by the Clean Air Scientific Advisory Committee (CASAC) on October 12-
13, 2000.35 The CASAC found that the Agency's conclusion
that diesel exhaust is likely to be carcinogenic to humans is
scientifically sound. CASAC concurred with the draft Assessment's
findings with the proviso that EPA provide modifications and
clarifications on certain topics. The Agency expects to produce the
finalized Assessment in early 2001. Information presented here is
consistent with that to be provided in the final Assessment.
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    \34\ U.S. EPA (2000) Health Assessment Document for Diesel
Exhaust: SAB Review Draft. EPA/600/8-90/057E Office of Research and
Development, Washington, D.C. The document is available
electronically at www.epa.gov/ncea/dieslexh.htm.
    \35\ EPA (2000) Review of EPA's Health Assessment Document for
Diesel Exhaust (EPA 600/8-90/057E). Review by the Clean Air
Scientific Advisory Committee (CASAC) December 2000. EPA-SAB-CASAC-
01-003.
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    In its review of the published literature, EPA found that about 30
individual epidemiologic studies show increased lung cancer risk
associated with diesel emissions. In the draft Assessment EPA evaluated
22 studies that were most relevant for risk assessment, 16 of which
reported significant increased lung cancer risks, ranging from 20 to
167 percent, associated with diesel exhaust exposure. Published
analytical results of pooling many of the 30 studies showed that on
average, the risks were increased by 33 to 47 percent. Questions remain
about the influence of other factors (e.g., effect of smoking, other
particulate sources), the quality of the individual epidemiologic
studies, exposure levels, and consequently the precise magnitude of the
increased risk of lung cancer. From a weight of evidence perspective,
EPA concludes that the epidemiologic evidence, as well as supporting
data from certain animal and mode of action studies, support the
Agency's conclusion that exposure to diesel exhaust is likely to pose a
human lung cancer hazard to occupationally exposed individuals as well
as to the general public exposed to typically lower environmental
levels of diesel exhaust.
    Risk assessments in the peer-reviewed literature have attempted to
assess the lifetime risk of lung cancer in workers occupationally
exposed to diesel exhaust. These estimates suggest that lung cancer
risk may range from 10-4 to 10-2. 36
37 38 The Agency recognizes the significant
uncertainties in these studies, and has not used these estimates to
assess the possible cancer unit risk associated with ambient exposure
to diesel exhaust.
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    \36\ California Environmental Protection Agency, Office of
Health Hazard Assessment (CAL-EPA, OEHHA) (1998) Proposed
Identification of Diesel Exhaust as a Toxic Air Contaminant.
Appendix III Part B Health Risk Assessment for Diesel Exhaust. April
22, 1998.
    \37\ Harris, J.E. (1983) Diesel emissions and Lung Cancer. Risk
Anal. 3:83-100.
    \38\ Stayner, L.S., Dankovic, D., Smith, R., Steenland, K.
(1998) Predicted Lung Cancer Risk Among Miners Exposed to Diesel
Exhaust Particles. Am. J. of Indus. Medicine 34:207-219.
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    While available evidence supports EPA's conclusion that diesel
exhaust is likely to be a human lung carcinogen, and thus is likely to
pose a cancer hazard to humans, EPA has concluded that the available
data are not sufficient to develop a confident estimate of cancer unit
risk. The absence of a cancer unit risk for diesel exhaust limits our
ability to quantify, with confidence, the potential impact of the
hazard (magnitude of risk) on exposed populations. In the draft
Assessment, EPA acknowledged this limitation and provided a discussion
of the possible environmental cancer risk consistent with the majority
of the occupational epidemiological findings of increased lung cancer
risk and the exposure differences between the occupational and
environmental settings.39 The Agency concluded in developing
its perspective on risk that there is a reasonable potential that
environmental lifetime cancer risks (``environmental risk range'') from
diesel exhaust may exceed 10-5 and could be as high as
10-3.40
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    \39\ See Chapter 8.4 and 9.5.2 of the U.S. EPA (2000) Health
Assessment Document for Diesel Emissions: SAB Review Draft. EPA/600/
8-90/057E Office of Research and Development, Washington, D.C. The
document is available electronically at www.epa.gov/ncea/
dieselexh.htm.
    \40\ As used in this rule, environmental risk is defined as the
risk (i.e. a mathematical probability) that lung cancer would be
observed in the population after a lifetime exposure to diesel
exhaust. Exposure levels may be occupational lifetime or
environmental lifetime exposures. An environmental risk in the
magnitude of 10-5 translates as the probability of lung
cancer being evidenced in one person in a population of one hundred
thousand having a lifetime exposure.
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    The environmental risk estimates included in the Agency's risk
perspective are meant only to gauge the possible magnitude of risk to
provide a means to understand the potential significance of the lung
cancer hazard. The estimates are not to be construed as cancer unit
risk estimates and are not suitable for use in analyses which would
estimate possible lung cancer cases in exposed populations.
    EPA recognizes that, as in all such risk assessments, there are
uncertainties in this assessment of the environmental risk range
including limitations in exposure data, uncertainty with respect to the
most accurate characterization of the risk increases observed in the
epidemiological studies, chemical changes in diesel exhaust over time,
and extrapolation of the risk from occupational to ambient
environmental exposures. As with any such risk assessment for a
carcinogen, despite EPA's thorough examination of the available
epidemiologic evidence and exposure information, at this time EPA can
not rule out the possibility that the lower end of the risk range
includes zero.41 However, it is the Agency's best scientific
judgement that the assumptions and other elements of this analysis are
reasonable and appropriate for identifying the risk potential based on
the scientific information currently available.
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    \41\ EPA's scientific judgment (which CASAC has supported) is
that diesel exhaust is likely to be carcinogenic to humans. Notably,
similar scientific judgements about the carcinogenicity of diesel
exhaust have been recently made by the National Toxicology Program
of the Department of Health and Human Services, NIOSH, WHO, and OEHA
of the State of California. In the risk perspective discussed above,
EPA recognizes the possibility that the lower end of the
environmental risk range includes zero. The risks could be zero
because (1) some individuals within the population may have a high
tolerance level to exposure from diesel exhaust and therefore are
not susceptible to the cancer risks from environmental exposure and
(2) although EPA has not seen evidence of this, there could be a
threshold of exposure below which there is no cancer risk.
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    The Agency believes that the risk estimation techniques that were
used in the draft Assessment to gauge the potential for and possible
magnitude of risk are reasonable and the CASAC

[[Page 5023]]

panel has concurred with the Assessment's discussion of the possible
environmental risk range with an understanding that some clarifications
and caveats would be added to the final version of the Assessment.
Details of the technical approach used in estimating the possible range
of environmental risks and uncertainties are provided in the RIA.
    In the draft Assessment, the Agency also provided a discussion of
the potential overlap and/or relatively small difference between some
occupational settings where increased lung cancer risk is reported and
ambient environmental exposures. The potential for small exposure
differences underscores the concern that some degree of occupational
risk may also be present in the environmental setting and that
extrapolation of occupational risk to ambient environmental exposure
levels should be more confidently judged to be appropriate. The
relevant exposure information is presented in the RIA.
    In the absence of having a unit cancer risk to assess environmental
risk, EPA has considered the relevant epidemiological studies and
principles for their assessment, the relative risk from occupational
exposure as assessed by others, and relative exposure differences
between occupational and ambient environmental levels of diesel exhaust
exposure.
    While uncertainty exists in estimating the possible magnitude of
the environmental risk range, the likely hazard to humans together with
the potential for significant environmental risks leads the Agency to
believe that diesel exhaust emissions should be reduced in order to
protect the public's health. We believe that this is a prudent measure
in light of:
     The designation that diesel exhaust is likely to be
carcinogenic to humans,
     The exposure of the entire population to various levels of
diesel exhaust,
     The consistent observation of significantly increased lung
cancer risk in workers exposed to diesel exhaust, and
     The potential overlap and/or relatively small difference
between some occupational settings where increased lung cancer risk is
reported and ambient exposures.
    In the late 1980s, the International Agency for Research on Cancer
(IARC) determined that diesel exhaust is ``probably carcinogenic to
humans'' and the National Institute for Occupational Safety and Health
classified diesel exhaust a ``potential occupational
carcinogen.''42 43 Based on IARC findings, the
State of California identified diesel exhaust in 1990 as a chemical
known to the State to cause cancer. In 1996, the International
Programme on Chemical Safety of the World Health Organization listed
diesel exhaust as a ``probable'' human carcinogen.44 In
1998, the California Office of Environmental Health Hazard Assessment
(OEHHA, California EPA) identified diesel PM as a toxic air contaminant
due to the noncancer and cancer hazard and because of the potential
magnitude of the cancer risk.45 Most recently, the U.S.
Department of Health and Human Services National Toxicology Program
designated diesel exhaust particles as ``reasonably anticipated to be a
human carcinogen'' in its Ninth Report on Carcinogens.46 The
concern for a carcinogenicity hazard resulting from diesel exhaust
exposures is longstanding and widespread.
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    \42\ National Institute for Occupational Safety and Health
(NIOSH) (1988) Carcinogenic effects of exposure to diesel exhaust.
NIOSH Current Intelligence Bulletin 50. DHHS, Publication No. 88-
116. Centers for Disease Control, Atlanta, GA.
    43 International Agency for Research on Cancer (1989)
Diesel and gasoline engine exhausts and some nitroarenes, Vol. 46.
Monographs on the evaluation of carcinogenic risks to humans. World
Heath Organization, International Agency for Research on Cancer,
Lyon, France.
    \44\ World Health Organization (1996) Diesel fuel and exhaust
emissions: International program on chemical safety. World Health
Organization, Geneva, Switzerland.
    \45\ Office of Environmental Health Hazard Assessment (1998)
Health risk assessment for diesel exhaust, April 1998. California
Environmental Protection Agency, Sacramento, CA.
    \46\ U.S. Department of Health and Human Services (2000) Ninth
report on carcinogens. National Toxicology Program, Research
Triangle Park, NC. ehis.niehs.nih.gov/roc/toc9.html.
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b. Noncancer Effects of Diesel Exhaust
    The acute and chronic exposure-related noncancer effects of diesel
exhaust emissions are also of concern to the Agency. Acute exposure to
diesel exhaust can result in physiologic symptoms consistent with
irritation and inflammation, and evidence of immunological effects
including increased reaction to allergens and some symptoms associated
with asthma. The acute effects data, however, lack sufficient detail to
permit the calculation of protective levels for human exposure.
    For chronic diesel exhaust exposure, EPA is completing the
development of an inhalation reference concentration (RfC). The RfC is
an estimate of the continuous human inhalation exposure (including
sensitive subgroups) that is likely to be without an appreciable risk
of deleterious noncancer effects during a lifetime. While the limited
amount of human data are suggestive of respiratory distress, animal
test data are quite definitive in providing a basis to anticipate a
hazard to the human lung based on the irritant and inflammatory
reactions in test animals. Thus, EPA believes that chronic diesel
exhaust exposure, at sufficient exposure levels, increases the hazard
and risk of an adverse health effect. Based on CASAC advice regarding
the use of the animal data to derive the RfC, the Agency will provide
in the final Assessment in 2001 an RfC based on diesel exhaust effects
in test animals of approximately 5 g/m 3.
    In addition, it is also instructive to recognize that diesel
exhaust particulate matter is part of ambient fine PM. A qualitative
comparison of adverse effects of exposure to ambient fine PM and diesel
exhaust particulate matter shows that the respiratory system is
adversely affected in both cases, though a wider spectrum of adverse
effects has been identified for ambient fine PM. Relative to the diesel
PM database, there is a wealth of human data for fine PM noncancer
effects. Since diesel exhaust PM is a component of ambient fine PM, the
fine PM health effects data base can be informative. The final
Assessment will discuss the fine PM health effects data and its
relation to evaluating health effects associated with diesel exhaust.
5. Other Criteria Pollutants
    The standards being finalized today will help reduce levels of
three other pollutants for which NAAQS have been established: carbon
monoxide (CO), nitrogen dioxide (NO2), and sulfur dioxide
(SO2). As of July, 2000, every area in the United States has
been designated to be in attainment with the NO2 NAAQS.
There were 28 areas designated as nonattainment with the SO2
standard, and 17 areas designated CO nonattainment areas.
    A health threat of carbon monoxide at outdoor levels occurs for
those who suffer from cardiovascular disease, such as angina petoris,
where it can exacerbate the effects. Studies also show that outdoor
levels can lower peak performance from individuals that are exercising
and lower exercise tolerance of sensitive individuals. EPA believes
that epidemiological evidence suggests that there is a risk of
premature mortality and lowered birth weight from CO
exposure.47 The Carbon Monoxide Criteria Document was
finalized in

[[Page 5024]]

August 2000 and made available to the public at that time.
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    \47\ U.S. Environmental Protection Agency, Air Quality Criteria
for Carbon Monoxide, June 2000.
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6. Other Air Toxics
    In addition to NOX and particulates, heavy-duty vehicle
emissions contain several other substances that are known or suspected
human or animal carcinogens, or have serious noncancer health effects.
These include benzene,1,3-butadiene, formaldehyde, acetaldehyde,
acrolein, and dioxin. For some of these pollutants, heavy-duty engine
emissions are believed to account for a significant proportion of total
nation-wide emissions. Although these emissions will decrease in the
short term, they are expected to increase between 2010 and 2020 without
the emission limits, as the number of miles traveled by heavy-duty
trucks increases. In the RIA, we present current and projected
exposures to benzene, 1,3-butadiene, formaldehyde, and acetaldehyde
from all on-highway motor vehicles.
    By reducing hydrocarbon and other organic emissions, both in gas
phase and bound to particles, the emission control program in today's
action will also reduce the direct emissions of air toxics from HDVs.
Today's action will reduce exposure to hydrocarbon and other organic
emissions and therefore help reduce the impact of HDV emissions on
cancer and noncancer health effects.
a. Benzene
    Highway mobile sources account for 42 percent of nationwide
emissions of benzene and HDVs account for 7 percent of all highway
vehicle benzene emissions.48 The EPA has recently
reconfirmed that benzene is a known human carcinogen by all routes of
exposure (including leukemia at high, prolonged air exposures), and is
associated with additional health effects including genetic changes in
humans and animals and increased proliferation of bone marrow cells in
mice.49 50 51 EPA believes that the
data indicate a causal relationship between benzene exposure and acute
lymphocytic leukemia and suggest a relationship between benzene
exposure and chronic non-lymphocytic leukemia and chronic lymphocytic
leukemia. Respiration is the major source of human exposure and at
least half of this exposure is attributable to gasoline vapors and
automotive emissions. A number of adverse noncancer health effects
including blood, disorders, such as preleukemia and aplastic anemia,
have also been associated with low-dose, long-term exposure to benzene.
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    \48\ U.S. EPA (2000) 1996 National Toxics Inventory. http://
www.epa.gov/ttn/uatw/nata. Inventory values for 1,3 butadiene,
formaldehyde, acetaldehyde, and acrolein discussed below also come
from this source.
    \49\ International Agency for Research on Cancer, IARC
monographs on the evaluation of carcinogenic risk of chemicals to
humans, Volume 29, Some industrial chemicals and dyestuffs,
International Agency for Research on Cancer, World Health
Organization, Lyon, France, p. 345-389, 1982.
    50 Irons, R.D., W.S. Stillman, D.B. Colagiovanni, and
V.A. Henry, Synergistic action of the benzene metabolite
hydroquinone on myelopoietic stimulating activity of granulocyte/
macrophage colony-stimulating factor in vitro, Proc. Natl. Acad.
Sci. 89:3691-3695, 1992.
    51 Environmental Protection Agency, Carcinogenic
Effects of Benzene: An Update, National Center for Environmental
Assessment, Washington, DC. 1998.
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b. 1,3-Butadiene
    Highway mobile sources account for 42 percent of the annual
emissions of 1,3-butadiene and HDVs account for 15 percent of the
highway vehicle portion. Today's program will play an important role in
reducing in the mobile contribution of 1,3-butadiene. Reproductive and/
or developmental effects have been observed in mice and rats following
inhalation exposure to 1,3-butadiene.52 No information is
available on developmental/reproductive effects in humans following
exposure to 1,3-butadiene. In the EPA1998 draft Health Risk Assessment
of 1,3-Butadiene, that was reviewed by the SAB, EPA proposed that 1,3-
butadiene is a known human carcinogen based on human epidemiologic,
laboratory animal data, and supporting data such as the genotoxicity of
1,3-butadiene metabolites.53 The Environmental Health
Committee of EPA's Scientific Advisory Board (SAB), reviewed the draft
document in August 1998 and recommended that 1,3-butadiene be
classified as a probable human carcinogen, stating that designation of
1,3-butadiene as a known human carcinogen should be based on
observational studies in humans, without regard to mechanistic or other
information.54 In applying the 1996 proposed Guidelines for
Carcinogen Risk Assessment, the Agency relies on both observational
studies in humans as well as experimental evidence demonstrating
causality and therefore the designation of 1,3-butadiene as a known
human carcinogen remains applicable.55 The Agency has
revised the draft Health Risk Assessment of 1,3-Butadiene based on the
SAB and public comments. The draft Health Risk Assessment of 1,3-
Butadiene will undergo the Agency consensus review, during which time
additional changes may be made prior to its public release and
placement on the Integrated Risk Information System (IRIS).
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    \52\ Environmental Protection Agency. Draft Health Risk
Assessment of 1,3-Butadiene, National Center for Environmental
Assessment, Office of Research and Development, U.S. EPA, EPA/600/P-
98/001A, February 1998.
    \53\ An SAB Report: Review of the Health Risk Assessment of 1,3-
Butadiene. EPA-SAB-EHC-98, August, 1998.
    \54\ Scientific Advisory Board. 1998. An SAB Report: Review of
the Health Risk Assessment of 1,3-Butadiene. EPA-SAB-EHC-98, August,
1998.
    \55\ [55]: EPA 1996. Proposed guidelines for carcinogen risk
assessment. Federal Register 61(79):17960-18011.
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c. Formaldehyde
    Highway mobile sources contribute 24 percent of the national
emissions of formaldehyde, and HDVs account for 36 percent of the
highway portion. EPA has classified formaldehyde as a probable human
carcinogen based on evidence in humans and in rats, mice, hamsters, and
monkeys.56 Epidemiological studies in occupationally exposed
workers suggest that long-term inhalation of formaldehyde may be
associated with tumors of the nasopharyngeal cavity (generally the area
at the back of the mouth near the nose), nasal cavity, and sinus.
Formaldehyde exposure also causes a range of noncancer health effects,
including irritation of the eyes (tearing of the eyes and increased
blinking) and mucous membranes. Sensitive individuals may experience
these adverse effects at lower concentrations than the general
population and in persons with bronchial asthma, the upper respiratory
irritation caused by formaldehyde can precipitate an acute asthmatic
attack. The agency is currently conducting a reassessment of risk from
inhalation exposure to formaldehyde.
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    \56\ Environmental Protection Agency, Assessment of Health Risks
to Garment Workers and Certain Home Residents from Exposure to
Formaldehyde, Office of Pesticides and Toxic Substances, April 1987.
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d. Acetaldehyde
    Highway mobile sources contribute 29 percent of the national
acetaldehyde emissions and HDVs are responsible for approximately 33
percent of these highway mobile source emissions. Acetaldehyde is
classified as a probable human carcinogen and is considered moderately
toxic by the inhalation, oral, and intravenous routes. The primary
acute effect of exposure to acetaldehyde vapors is irritation of the
eyes, skin, and respiratory tract. At high concentrations, irritation
and pulmonary effects can occur, which could facilitate the uptake of
other contaminants. The agency is currently conducting a reassessment
of

[[Page 5025]]

risk from inhalation exposure to acetaldehyde.
e. Acrolein
    Highway mobile sources contribute 16 percent of the national
acrolein emissions and HDVs are responsible for approximately 39
percent of these highway mobile source emissions. Acrolein is extremely
toxic to humans when inhaled, with acute exposure resulting in upper
respiratory tract irritation and congestion. The Agency has developed a
reference concentration for inhalation (RfC) of acrolein of 0.02
micrograms/m3.57 Although no information is
available on its carcinogenic effects in humans, based on laboratory
animal data, EPA considers acrolein a possible human carcinogen.
---------------------------------------------------------------------------

    \57\ U.S. EPA (1993) Environmental Protection Agency, Integrated
Risk Information System (IRIS), National Center for Environmental
Assessment, Cincinnati, OH.
---------------------------------------------------------------------------

f. Dioxins
    Recent studies have confirmed that dioxins are formed by and
emitted from heavy-duty diesel trucks and are estimated to account for
1.2 percent of total dioxin emissions in 1995. In the environment, the
pathway of immediate concern is the food pathway (e.g., human ingestion
of certain foods, e.g. meat and dairy products contaminated by dioxin)
which may be affected by deposition of dioxin from the atmosphere. EPA
classified dioxins as probable human carcinogens in 1985. Recently EPA
has proposed, and the Scientific Advisory Board has concurred, to
classify one dioxin compound, 2,3,7,8-tetrachlorodibenzo-p-dioxin as a
human carcinogen and the complex mixtures of dioxin-like compounds as
likely to be carcinogenic to humans using the draft 1996 carcinogen
risk assessment guidelines.58 Using the 1986 cancer risk
assessment guidelines, the hazard characterization for 2,3,7,8-
tetrachlorodibenzo-p-dioxin is ``known'' human carcinogen and the
hazard characterization for complex mixtures of dioxin-like compounds
is ``probable'' human carcinogens. Acute and chronic noncancer effects
have also been reported for dioxin.
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    \58\ U.S. EPA (2000) Exposure and Human Health Reassessment of
2,3,7,8-Tetrachlorodibenzo-p-Dioxin (TCDD) and Related Compounds.
Part III: Integrated Summary and Risk Characterization for 2,3,7,8-
Tetrachlorodibenzo-p-Dioxin (TCDD) and Related Compounds. External
Review Draft. EPA/600/P-00/001Ag.
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7. Other Welfare and Environmental Effects
    Some commenters challenged the Agency's use of adverse welfare and
environmental effects associated with emissions from heavy-duty
vehicles as a partial basis for this rulemaking. Other commenters went
to great lengths to support the Agency's inclusion of these welfare and
environmental effects. Additional information has been added since the
proposal in order to update and clarify the available information on
welfare and environmental impacts of heavy-duty vehicle emissions. The
following section presents information on four categories of public
welfare and environmental impacts related to heavy-duty vehicle
emissions: acid deposition, eutrophication of water bodies, POM
deposition, and impairment of visibility.
a. Acid Deposition
    Acid deposition, or acid rain as it is commonly known, occurs when
SO2 and NOX react in the atmosphere with water,
oxygen, and oxidants to form various acidic compounds that later fall
to earth in the form of precipitation or dry deposition of acidic
particles.59 It contributes to damage of trees at high
elevations and in extreme cases may cause lakes and streams to become
so acidic that they cannot support aquatic life. In addition, acid
deposition accelerates the decay of building materials and paints,
including irreplaceable buildings, statues, and sculptures that are
part of our nation's cultural heritage. To reduce damage to automotive
paint caused by acid rain and acidic dry deposition, some manufacturers
use acid-resistant paints, at an average cost of $5 per vehicle--a
total of $61 million per year if applied to all new cars and trucks
sold in the U.S.
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    \59\ Much of the information in this subsection was excerpted
from the EPA document, Human Health Benefits from Sulfate Reduction,
written under Title IV of the 1990 Clean Air Act Amendments, U.S.
EPA, Office of Air and Radiation, Acid Rain Division, Washington, DC
20460, November 1995.
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    Acid deposition primarily affects bodies of water that rest atop
soil with a limited ability to neutralize acidic compounds. The
National Surface Water Survey (NSWS) investigated the effects of acidic
deposition in over 1,000 lakes larger than 10 acres and in thousands of
miles of streams. It found that acid deposition was the primary cause
of acidity in 75 percent of the acidic lakes and about 50 percent of
the acidic streams, and that the areas most sensitive to acid rain were
the Adirondacks, the mid-Appalachian highlands, the upper Midwest and
the high elevation West. The NSWS found that approximately 580 streams
in the Mid-Atlantic Coastal Plain are acidic primarily due to acidic
deposition. Hundreds of the lakes in the Adirondacks surveyed in the
NSWS have acidity levels incompatible with the survival of sensitive
fish species. Many of the over 1,350 acidic streams in the Mid-Atlantic
Highlands (mid-Appalachia) region have already experienced trout losses
due to increased stream acidity. Emissions from U.S. sources contribute
to acidic deposition in eastern Canada, where the Canadian government
has estimated that 14,000 lakes are acidic. Acid deposition also has
been implicated in contributing to degradation of high-elevation spruce
forests that populate the ridges of the Appalachian Mountains from
Maine to Georgia. This area includes national parks such as the
Shenandoah and Great Smoky Mountain National Parks.
    A recent study of emissions trends and acidity of waterbodies in
the Eastern United States by the General Accounting Office (GAO) found
that sulfates declined in 92 percent of a representative sample of
lakes from 1992 to 1999, and nitrate levels increased in 48 percent of
the lakes sampled.60 The decrease in sulfates is consistent
with emissions trends, but the increase in nitrates is inconsistent
with the stable levels of nitrogen emissions and deposition. The study
suggests that the vegetation and land surrounding these lakes have lost
some of their previous capacity to use nitrogen, thus allowing more of
the nitrogen to flow into the lakes and increase their acidity.
Recovery of acidified lakes is expected to take a number of years, even
where soil and vegetation have not been ``nitrogen saturated,'' as EPA
called the phenomenon in a 1995 study.61 This situation
places a premium on reductions of SOX and especially
NOX from all sources, including HDVs, in order to reduce the
extent and severity of nitrogen saturation and acidification of lakes
in the Adirondacks and throughout the United States.
---------------------------------------------------------------------------

    \60\ Acid Rain: Emissions Trends and Effects in the Eastern
United States, US General Accounting Office, March, 2000 (GOA/RCED-
00-47).
    \61\ Acid Deposition Standard Feasibility Study: Report to
Congress, EPA 430R-95-001a, October, 1995.
---------------------------------------------------------------------------

    The SOX and NOX reductions from today's
action will help reduce acid rain and acid deposition, thereby helping
to reduce acidity levels in lakes and streams throughout the country
and help accelerate the recovery of acidified lakes and streams and the
revival of ecosystems adversely affected by acid deposition. Reduced
acid deposition levels will also help reduce stress on forests, thereby
accelerating reforestation efforts and improving timber production.
Deterioration of our

[[Page 5026]]

historic buildings and monuments, and of buildings, vehicles, and other
structures exposed to acid rain and dry acid deposition also will be
reduced, and the costs borne to prevent acid-related damage may also
decline. While the reduction in sulfur and nitrogen acid deposition
will be roughly proportional to the reduction in SOX and
NOX emissions, respectively, the precise impact of today's
action will differ across different areas.
b. Eutrophication and Nitrification
    Eutrophication is the accelerated production of organic matter,
particularly algae, in a water body. This increased growth can cause
numerous adverse ecological effects and economic impacts, including
nuisance algal blooms, dieback of underwater plants due to reduced
light penetration, and toxic plankton blooms. Algal and plankton blooms
can also reduce the level of dissolved oxygen, which can also adversely
affect fish and shellfish populations.
    In 1999, NOAA published the results of a five year national
assessment of the severity and extent of estuarine eutrophication. An
estuary is defined as the inland arm of the sea that meets the mouth of
a river. The 138 estuaries characterized in the study represent more
than 90 percent of total estuarine water surface area and the total
number of US estuaries. The study found that estuaries with moderate to
high eutrophication conditions represented 65 percent of the estuarine
surface area. Eutrophication is of particular concern in coastal areas
with poor or stratified circulation patterns, such as the Chesapeake
Bay, Long Island Sound, or the Gulf of Mexico. In such areas, the
``overproduced'' algae tends to sink to the bottom and decay, using all
or most of the available oxygen and thereby reducing or eliminating
populations of bottom-feeder fish and shellfish, distorting the normal
population balance between different aquatic organisms, and in extreme
cases causing dramatic fish kills.
    Severe and persistent eutrophication often directly impacts human
activities. For example, losses in the nation's fishery resources may
be directly caused by fish kills associated with low dissolved oxygen
and toxic blooms. Declines in tourism occur when low dissolved oxygen
causes noxious smalls and floating mats of algal blooms create
unfavorable aesthetic conditions. Risks to human health increase when
the toxins from algal blooms accumulate in edible fish and shellfish,
and when toxins become airborne, causing respiratory problems due to
inhalation. According to the NOAA report, more than half of the
nation's estuaries have moderate to high expressions of at least one of
these symptoms--an indication that eutrophication is well developed in
more than half of U.S. estuaries.
    In recent decades, human activities have greatly accelerated
nutrient inputs, such as nitrogen and phosphorous, causing excessive
growth of algae and leading to degraded water quality and associated
impairments of freshwater and estuarine resources for human
uses.62 Since 1970, eutrophic conditions worsened in 48
estuaries and improved in 14. In 26 systems, there was no trend in
overall eutrophication conditions since 1970.63 On the New
England coast, for example, the number of red and brown tides and
shellfish problems from nuisance and toxic plankton blooms have
increased over the past two decades, a development thought to be linked
to increased nitrogen loadings in coastal waters. Long-term monitoring
in the United States, Europe, and other developed regions of the world
shows a substantial rise of nitrogen levels in surface waters, which
are highly correlated with human-generated inputs of nitrogen to their
watersheds.
---------------------------------------------------------------------------

    \62\ Deposition of Air Pollutants to the Great Waters, Third
Report to Congress, June, 2000.
    \63\ Deposition of Air Pollutants to the Great Waters, Third
Report to Congress, June, 2000. Great Waters are defined as the
Great Lakes, the Chesapeake Bay, Lake Champlain, and coastal waters.
The first report to Congress was delivered in May, 1994; the second
report to Congress in June, 1997.
---------------------------------------------------------------------------

    On a national basis, the most frequently recommended control
strategies by experts surveyed by National Oceanic and Atmospheric
Administration (NOAA) between 1992-1997 were agriculture, wastewater
treatment, urban runoff, and atmospheric deposition.64 In
its Third Report to Congress on the Great Waters, EPA reported that
atmospheric deposition contributes from 2 to 38 percent of the nitrogen
load to certain coastal waters.65 A review of peer reviewed
literature in 1995 on the subject of air deposition suggests a typical
contribution of 20 percent or higher.66 Human-caused
nitrogen loading to the Long Island Sound from the atmosphere was
estimated at 14 percent by a collaboration of federal and state air and
water agencies in 1997.67 The National Exposure Research
Laboratory, US EPA, estimated based on prior studies that 20 to 35
percent of the nitrogen loading to the Chesapeake Bay is attributable
to atmospheric deposition.68 The mobile source portion of
atmospheric NOX contribution to the Chesapeake Bay was
modeled at about 30 percent of total air deposition.69
---------------------------------------------------------------------------

    \64\ Bricker, Suzanne B., et al., National Estuarine
Eutrophication Assessment, Effects of Nutrient Enrichment in the
Nation's Estuaries, National Ocean Service, National Oceanic and
Atmospheric Administration, September, 1999.
    \65\ Deposition of Air Pollutants to the Great Waters, Third
Report to Congress, June, 2000.
    \66\ Valigura, Richard, et al., Airsheds and Watersheds II: A
Shared Resources Workshop, Air Subcommittee of the Chesapeake Bay
Program, March, 1997.
    \67\ The Impact of Atmospheric Nitrogen Deposition on Long
Island Sound, The Long Island Sound Study, September, 1997.
    \68\ Dennis, Robin L., Using the Regional Acid Deposition Model
to Determine the Nitrogen Deposition Airshed of the Chesapeake Bay
Watershed, SETAC Technical Publications Series, 1997.
    \69\ Dennis, Robin L., Using the Regional Acid Deposition Model
to Determine the Nitrogen Deposition Airshed of the Chesapeake Bay
Watershed, SETAC Technical Publications Series, 1997.
---------------------------------------------------------------------------

    Deposition of nitrogen from heavy-duty vehicles contributes to
elevated nitrogen levels in waterbodies. In the Chesapeake Bay region,
modeling shows that mobile source deposition occurs in relatively close
proximity to highways, such as the 1-95 corridor which covers part of
the Bay surface. The new standards for heavy-duty vehicles will reduce
total NOX emissions by 2.6 million tons in 2030. The
NOX reductions will reduce the airborne nitrogen deposition
that contributes to eutrophication of watersheds, particularly in
aquatic systems where atmospheric deposition of nitrogen represents a
significant portion of total nitrogen loadings.
c. Polycyclic Organic Matter Deposition
    EPA's Great Waters Program has identified 15 pollutants whose
deposition to water bodies has contributed to the overall contamination
loadings to the these Great Waters.70 One of these 15
pollutants, a group known as polycyclic organic matter (POM), are
compounds that are mainly adhered to the particles emitted by mobile
sources and later fall to earth in the form of precipitation or dry
deposition of particles. The mobile source contribution of the 7 most
toxic POM is at least 62 tons/year and represents only those POM that
adhere to mobile source particulate emissions.71 The
majority of these emissions are produced by diesel engines.
---------------------------------------------------------------------------

    \70\ Deposition of Air Pollutants to the Great Waters--Third
Report to Congress, June, 2000, Office of Air Quality Planning and
Standards Deposition of Air Pollutants to the Great Waters--Second
Report to Congress, Office of Air Quality Planning and Standards,
June 1997, EPA-453/R-97-011.
    \71\ The 1996 National Toxics Inventory, Office of Air Quality
Planning and Standards, October 1999.

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

[[Page 5027]]

    POM is generally defined as a large class of chemicals consisting
of organic compounds having multiple benzene rings and a boiling point
greater than 100 degrees C. Polycyclic aromatic hydrocarbons are a
chemical class that is a subset of POM. POM are naturally occurring
substances that are byproducts of the incomplete combustion of fossil
fuels and plant and animal biomass (e.g., forest fires). Also, they
occur as byproducts from steel and coke productions and waste
incineration. Evidence for potential human health effects associated
with POM comes from studies in animals (fish, amphibians, rats) and in
human cells culture assays. Reproductive, developmental, immunological,
and endocrine (hormone) effects have been documented in these systems.
Many of the compounds included in the class of compounds known as POM
are classified by EPA as probable human carcinogens based on animal
data.
    Evidence for potential human health effects associated with POM
comes from studies in animals (fish, amphibians, rats) and in human
cells culture assays. Reproductive, developmental, immunological, and
endocrine (hormone) effects have been documented in these systems. Many
of the compounds included in the class of compounds known as POM are
classified by EPA as probable human carcinogens based on animal data.
    The particulate reductions from today's action will help reduce not
only the particulate emissions from highway diesel engines but also the
deposition of the POM adhering to the particles, thereby helping to
reduce health effects of POM in lakes and streams, accelerate the
recovery of affected lakes and streams, and revive the ecosystems
adversely affected.
d. Visibility and Regional Haze
    Visibility impairment, also called regional haze, is a complex
problem caused by a variety of sources, both natural and anthropogenic
(e.g., motor vehicles). Regional haze masks objects on the horizon and
reduces the contrast of nearby objects. The formation, extent, and
intensity of regional haze are functions of meteorological and chemical
processes, which sometimes cause fine particle loadings to remain
suspended in the atmosphere for several days and to be transported
hundreds of kilometers from their sources (NRC, 1993).
    Visibility has been defined as the degree to which the atmosphere
is transparent to visible light (NRC, 1993). Visibility impairment is
caused by the scattering and absorption of light by particles and gases
in the atmosphere. Fine particles (0.1 to 2.5 microns in diameter) are
more effective per unit mass concentration at impairing visibility than
either larger or smaller particles (NAPAP, 1991). Most of the diesel
particle mass emitted by diesel engines falls within this fine particle
size range. Light absorption is often caused by elemental carbon, a
product of incomplete combustion from activities such as burning diesel
fuel or wood. These particles cause light to be scattered or absorbed,
thereby reducing visibility.
    Heavy-duty vehicles contribute a significant portion of the
emissions of direct PM, NOX, and SOX that result
in ambient PM that contributes to regional haze and impaired
visibility. The Grand Canyon Visibility Transport Commission's report
found that heavy-duty diesel vehicles contribute 41 percent of fine
elemental carbon or soot, 20 percent of NOX, 7 percent of
fine organic carbon, and 6 percent of SOX. The report also
found that reducing total mobile source emissions is an essential part
of any program to protect visibility in the Western U.S. The Commission
identified mobile source pollutants of concern as VOC, NOX,
and elemental and organic carbon. The Western Governors Association, in
later commenting on the Regional Haze Rule and on protecting the 16
Class I areas on the Colorado Plateau, stated that the federal
government, and particularly EPA, must do its part in regulating
emissions from mobile sources that contribute to regional haze in these
areas. As described more fully later in this section, today's action
will result in large reductions in these pollutants. These reductions
are expected to provide an important step towards improving visibility
across the nation. Emissions reductions being achieved to attain the 1-
hour ozone and PM10 NAAQS will assist in visibility
improvements. Moreover, the timing of the reductions from the standards
fits very well with the goals of the regional haze program. We will
work with the regional planning bodies to make sure they have the
information to take account of the reductions from this final rule in
their planning efforts.
    The Clean Air Act contains provisions designed to protect national
parks and wilderness areas from visibility impairment. In 1999, EPA
promulgated a rule that will require States to develop plans to
dramatically improve visibility in national parks. Although it is
difficult to determine natural visibility levels, we believe that
average visual range in many Class I areas in the United States is
significantly less (about 50-66 percent of natural visual range in the
West, about 20 percent of natural visual range in the East) than the
visual range that will exist without anthropogenic air pollution. The
final Regional Haze Rule establishes a 60-year time period for planning
purposes, with several near term regulatory requirements, and is
applicable to all 50 states. One of the obligations is for States to
representative conduct visibility monitoring in mandatory Class I
Federal areas and determine baseline conditions using data for year
2000 to 2004. Reductions of particles, NOX, sulfur, and VOCs
from this rulemaking will have a significant impact on moving all
states towards achieving long-term visibility goals, as outlined in the
1999 Regional Haze Rule.

C. Contribution from Heavy-Duty Vehicles

    Nationwide, heavy-duty vehicles are projected to contribute about
15 percent of the total NOX inventory, and 28 percent of the
mobile source inventory in 2007. Heavy-duty NOX emissions
also contribute to fine particulate concentrations in ambient air due
to the transformation in the atmosphere to nitrates. The NOX
reductions resulting from today's standards will therefore have a
considerable impact on the national NOX inventory. All
highway vehicles account for 34 percent and heavy-duty highway vehicles
account for 20 percent of the mobile source portion of national
PM10 emissions in 2007. The heavy-duty portion of the
inventory is often greater in the cities, and the reductions in this
rulemaking will have a relatively greater benefit in those areas.
1. NOX Emissions
    Heavy-duty vehicles are important contributors to the national
inventories of NOX emissions. Without NOX
reductions from this rule, HDVs are expected to contribute
approximately 18 percent of annual NOX emissions in 1996.
The HDV contribution is predicted to fall to 15 percent in 2007 and 14
percent in 2020 due to reductions from the 2004 heavy-duty rulemaking,
and then rise again to 16 percent of total NOX inventory by
2030 (Table II.C-1). Annual NOX reductions from this rule
are expected to total 2.6 million tons in 2030.

[[Page 5028]]

                Table II.C-1--NOX Emissions From HDVs With and Without Reductions From This Rule
----------------------------------------------------------------------------------------------------------------
                                                             Without this rule (base case)       With this rule
----------------------------------------------------------------------------------------------   (control case)
                                                                                              ------------------
                                                           HDV annual NOX     HDV annual NOX     Reductions in
                          Year                                  tons        tons as a percent    annual HDV NOX
                                                                               of total NOX           tons
----------------------------------------------------------------------------------------------------------------
1996...................................................         4,810,000                 18                n/a
2007...................................................         3,040,000                 15             58,000
2020...................................................         2,560,000                 14          1,820,000
2030...................................................         2,960,000                 16          2,570,000
----------------------------------------------------------------------------------------------------------------

    The contribution of heavy-duty vehicles to NOX
inventories in many MSAs is significantly greater than that reflected
in the national average. For example, HDV contributions to total annual
NOX is greater than the national average in the eight
metropolitan statistical areas listed in Table II.C-2. Examples of
major cities with a history of persistent ozone violations that are
heavily impacted by NOX emissions from HDVs include: Los
Angeles, Washington, DC, San Diego, Hartford, Atlanta, Sacramento. As
presented in the table below, HDV's contribute from 22 percent to 33
percent of the total NOX inventories in these selected
cities. NOX emissions also contribute to the formation of
fine particulate matter, especially in the West. In all areas,
NOX also contributes to environmental and welfare effects
such as regional haze, and eutrophication and nitrification of water
bodies.

Table II.C-2--Heavy-Duty Vehicle Percent Contribution to NOX Inventories
                     in Selected Urban Areas in 2007
------------------------------------------------------------------------
                                                             HDV NOX as
                                               HDV NOX as    portion of
              MSA, CMSA / State                portion of      mobile
                                                total NOX    source NOX
                                                   (%)           (%)
------------------------------------------------------------------------
National....................................           15            28
Sacramento, CA..............................           33            37
Hartford, CT................................           28            38
San Diego, CA...............................           25            28
San Francisco, CA...........................           24            29
Atlanta, GA.................................           22            34
Los Angeles.................................           22            26
Dallas......................................           22            28
Washington-Baltimore, MSA...................           22            36
------------------------------------------------------------------------

2. PM Emissions
    Nationally, we estimate that primary emissions of PM10
to be about 33 million tons/year in 2007. Fugitive dust, other
miscellaneous sources and crustal material (wind erosion) constitute
approximately 90 percent of the 2007 PM10 inventory.
However, there is evidence from ambient studies that emissions of these
materials may be overestimated and/or that once emitted they have less
of an influence on monitored PM concentration than this inventory share
would suggest. Mobile sources account for 22 percent of the
PM10 inventory (excluding the contribution of miscellaneous
and natural sources) and highway heavy-duty engines, the subject of
today's action, account for 20 percent of the mobile source portion of
national PM10 emissions in 2007.
    The contribution of heavy-duty vehicle emissions to total PM
emissions in some metropolitan areas is substantially higher than the
national average. This is not surprising, given the high density of
these engines operating in these areas. For example, in Los Angeles,
Atlanta, Hartford, San Diego, Santa Fe, Cincinnati, and Detroit, the
estimated 2007 highway heavy-duty vehicle contribution to mobile source
PM10 ranges from 25 to 38 percent, while the national
percent contribution to mobile sources for 2007 is projected to be
about 20 percent. As illustrated in Table II.C-3, heavy-duty vehicles
operated in El Paso, Indianapolis, San Francisco, and Minneapolis also
account for a higher portion of the mobile source PM inventory than the
national average. These data are based on updated inventories developed
for this rulemaking. Importantly, these estimates do not include the
contribution from secondary PM, which is an important component of
diesel PM.

   Table II.C-3--2007 Heavy-Duty Vehicle Contribution to Urban Mobile
                          Source PM Inventories
------------------------------------------------------------------------
                                                               HDV PM
                                                            Contribution
                        MSA, State                            to mobile
                                                             source PMGa
------------------------------------------------------------------------
National (48 State).......................................           20
Atlanta, GA MSA...........................................           25
Cincinnati-Hamilton, OH-KY-IN CMSA........................           26
Detroit-Ann Arbor-Flint, MI CMSA..........................           25
El Paso, TX MSA...........................................           23
Hartford, CT MSA..........................................           30
Indianapolis, IN MSA......................................           23
Los Angeles-Riverside-Orange County, CA CMSA..............           25
Minneapolis-St. Paul, MN-WI MSA...........................           23
San Diego, CA MSA.........................................           27
San Francisco-Oakland-San Jose, CA CMSA...................           24
Santa Fe, NM MSA..........................................          38
------------------------------------------------------------------------
a Direct exhaust emissions only; excludes secondary PM.

    The city-specific emission inventory analysis and investigations of
ambient PM2.5 summarized in the RIA indicate that the
contribution of diesel engines to PM inventories in several urban areas
around the U.S. is much higher than indicated by the national PM
emission inventories only. One possible explanation for this is the
concentrated use of diesel engines in certain local or regional areas
which is not well represented by the national, yearly average presented
in national PM emission inventories. Another reason may be
underestimation of the in-use diesel PM emission rates. Our current
modeling incorporates deterioration only as would be experienced in
properly maintained, untampered vehicles. We are currently in the
process of reassessing the rate of in-use deterioration of diesel
engines and vehicles which could significantly increase the
contribution of HDVs to diesel PM.

[[Page 5029]]

3. Environmental Justice
    Environmental justice is a priority for EPA. The Federal government
stated its concern, in part, over this issue through issuing Executive
Order 12898, Federal Actions To Address Environmental Justice in
Minority Populations and Low-Income Populations (February 11, 1994).
This Order requires that federal agencies make achieving environmental
justice part of their mission. Similarly, the EPA created an Office of
Environmental Justice (originally the Office of Environmental Equity)
in 1992, commissioned a task force to address environmental justice
issues, oversees a Federal Advisory Committee addressing environmental
justice issues (the National Environmental Justice Advisory Council),
and has developed an implementation strategy as required under
Executive Order 12898.
    Application of environmental justice principles as outlined in the
Executive Order advances the fair treatment of people of all races,
income, and culture with respect to the development, implementation,
and enforcement of environmental laws, regulations, and policies. Fair
treatment implies that no person or group of people should shoulder a
disproportionate share of any negative environmental impacts resulting
from the execution of this country's domestic and foreign policy
programs.
    For the last several years, environmental organizations and
community-based citizens groups have been working together to phase out
diesel buses in urban areas. For example, the Natural Resources Defense
Council initiated a ``Dump Dirty Diesel'' campaign in the 1990s to
press for the phase out of diesel buses in New York City. Other
environmental organizations operating in major cities such as Boston,
Newark, and Los Angeles have joined this campaign. The Coalition for
Clean Air worked with NRDC and other experts to perform exposure
monitoring in communities located near distribution centers where
diesel truck traffic is heavy. These two organizations concluded that
facilities with heavy truck traffic are exposing local communities to
diesel exhaust concentrations far above the average levels in outdoor
air. The report states: ``These affected communities, and the workers
at these distribution facilities with heavy diesel truck traffic, are
bearing a disproportionate burden of the health risks.'' 72
Other diesel ``hot spots'' identified by the groups are bus terminals,
truck and bus maintenance facilities, retail distribution centers, and
busy streets and highways.
---------------------------------------------------------------------------

    \72\ Exhausted by Diesel: How America's Dependence on Diesel
Engines Threatens Our Health, Natural Resources Defense Council,
Coalition for Clean Air, May 1998.
---------------------------------------------------------------------------

    While there is currently a limited understanding of the
relationship of environmental exposures to the onset of asthma, the
environmental triggers of asthma attacks for children with asthma have
become increasingly well characterized.73 Asthma's burden
falls hardest on the poor, inner city residents, and children. Among
children up to 4 years of age, asthma prevalence increased 160 percent
since 1980.74 African-American children have an annual rate
of hospitalization three times that for white children, and are four
times as likely to seek care at an emergency room.75 In
1995, the death rate from asthma in African-American children, 11.5 per
million, was over four times the rate in white American children, 2.6
per million.76
---------------------------------------------------------------------------

    \73\ Asthma and the Environment: A Strategy to Protect Children,
President's Task Force on Environmental Health Risks and Safety
Risks to Children, January 28, 1999, Revised May, 2000.
    \74\ Asthma Statistics, National Institutes of Health, National
Heart, Lung and Blood Institute, January, 1999.
    \75\ Asthma and the Environment: A Strategy to Protect Children,
President's Task Force on Environmental Health Risks and Safety
Risks to Children, January 28, 1999, Revised May, 2000. The Task
Force was formed in conjunction with Executive Order 13045 (April
21, 1997), is co-chaired by Department of Health and Human Services
and EPA, and is charged with recommending strategies for protecting
children's environmental health and safety. In April, 1998, the Task
Force identified childhood asthma as one of its top four priorities
for immediate attention.
    \76\ Id.
---------------------------------------------------------------------------

    Local community groups and private citizens testified at public
hearings held for this rule that the residents of their communities
suffer greatly, and disproportionally, from air pollution in general,
and emissions from heavy-duty vehicles in particular. For example, a
testifier in New York pointed out that ``since Northern Manhattan and
the South Bronx experience asthma mortality and morbidity rates at
three to five times greater than the citywide average, New York City's
problem is Northern Manhattan's crisis.'' 77
---------------------------------------------------------------------------

    \77\ Testimony by Peggy Shepard, Executive Director, West Harlem
Environmental Action, June 19th, 2000.
---------------------------------------------------------------------------

    The new standards established in this rulemaking are expected to
improve air quality across the country and will provide increased
protection to the public against a wide range of health effects,
including chronic bronchitis, respiratory illnesses, and aggravation of
asthma symptoms. These air quality and public health benefits could be
expected to mitigate some of the environmental justice concerns related
to heavy-duty vehicles since the rule will provide relatively larger
benefits to heavily impacted urban areas.

D. Anticipated Emissions Benefits

    This subsection presents the emission benefits we anticipate from
heavy-duty vehicles as a result of our new NOX, PM, and NMHC
emission standards for heavy-duty engines. The graphs and tables that
follow illustrate the Agency's projection of future emissions from
heavy-duty vehicles for each pollutant. The baseline case represents
future emissions from heavy-duty vehicles at present standards
(including the MY2004 standards). The controlled case quantifies the
future emissions of heavy-duty vehicles once the new standards in this
FRM are implemented.
    We use the same baseline inventory as is used in the county-by-
county, hour-by-hour air quality analyses associated with this rule.
However, we made a slight modification to the controlled inventory to
incorporate the changes between the proposed and final standards.
Because the detailed air quality analyses took several months to
perform, we had to use the proposed standards for the air quality
analysis. Since beginning this analysis, we updated the control case
emission inventories to reflect the final phase-in of the
NOX standard, slight changes to the timing of the HDGV
standards, a temporary compliance option for introducing the low sulfur
fuel requirements, and various hardship provisions for refiners in our
emission inventory projections. The emission inventory calculations are
presented in detail in the Regulatory Impact Analysis.
1. NOX Reductions
    The Agency expects substantial NOX reductions on both a
percentage and a tonnage basis from the new standards. The RIA provides
additional projections between 2007 and 2030. As stated previously,
HDVs contribute about 15 percent to the national NOX
inventory for all sources in 2007. Figure II.D-1 shows our national
projections of total NOX emissions with and without the
engine controls finalized today. Table II.D-1 presents the total
reductions.78 This includes both exhaust and crankcase
emissions.79 The standards

[[Page 5030]]

should result in close to a 90 percent reduction in NOX from
new engines.
---------------------------------------------------------------------------

    \78\ The baseline used for this calculation is the 2004 HDV
standards (64 FR 58472). These reductions are in addition to the
NOX emissions reductions projected to result from the
2004 HDV standards.
    79 We include in the NOX projections
excess emissions, developed by the EPA's Office of Enforcement and
Compliance, that were emitted by many model year 1998-98 diesel
engines. This is described in more detail in Chapter 2 of the RIA.

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR18JA01.000

BILLING CODE 6560-50-C

[[Page 5031]]

               Table II.D-1.--Estimated Reductions in NOX
------------------------------------------------------------------------
                                                                 NOX
                                                              reduction
                       Calendar year                          [thousand
                                                             short tons]
------------------------------------------------------------------------
2007.......................................................           58
2010.......................................................          419
2015.......................................................        1,260
2020.......................................................        1,820
2030.......................................................        2,570
------------------------------------------------------------------------

2. PM Reductions
    As stated previously, HDVs will contribute about 20 percent to the
2007 national PM10 inventory for mobile sources. The
majority of the projected PM reductions are directly a result of the
exhaust PM standard. However, a modest amount of PM reductions will
come from reducing sulfur in the fuel. For the existing fleet of heavy-
duty vehicles, a small fraction of the sulfur in diesel fuel is emitted
directly into the atmosphere as direct sulfate, and a portion of the
remaining fuel sulfur is transformed in the atmosphere into sulfate
particles, referred to as indirect sulfate. Reducing sulfur in the fuel
decreases the amount of direct sulfate PM emitted from heavy-duty
diesel engines and the amount of heavy-duty diesel engine SOx emissions
that are transformed into indirect sulfate PM in the
atmosphere.80 For engines meeting the new standards, we
consider low sulfur fuel to be necessary to enable the PM control
technology. In other words, we do not claim an additional benefit
beyond the new exhaust standard for reductions in direct sulfate PM for
new engines. However, once the low sulfur fuel requirements go into
effect, many pre-2007 model year engines would also be using low sulfur
fuel. Because these pre-2007 model year engines are certified with
higher sulfur fuel, they will achieve reductions in PM beyond their
certification levels.
---------------------------------------------------------------------------

    \80\ Sulfate forms a significant portion of total fine
particulate matter in the Northeast Chemical speciation data in the
Northeast collected in 1995 shows that the sulfate fraction of fine
particulate matter ranges from 20 and 27 percent of the total fine
particle mass. Determination of Fine Particle and Concentrations and
Chemical Composition in the Northeastern United States. 1995.
NESCAUM, prepared by Cass, et al., September 1999.
---------------------------------------------------------------------------

    Figure II.D-2 shows our national projections of total HDV PM (TPM)
emissions with and without the new engine controls. This figure
includes brake and tire wear, crankcase emissions and the direct
sulfate PM (DSPM) benefits due to the use of low sulfur fuel by the
existing fleet. These direct sulfate PM benefits from the existing
fleet are also graphed separately. The new standards will result in
about a 90 percent reduction in exhaust PM from new heavy-duty diesel
engines. The low sulfur fuel should result in more than a 95 percent
reduction in direct sulfate PM from pre-2007 heavy-duty diesel engines.
Due to complexities of the conversion and removal processes of sulfur
dioxide, we do not attempt to quantify the indirect sulfate reductions
that would be derived from this rulemaking in the inventory analysis.
Nevertheless, we recognize that these indirect sulfate PM reductions
contribute significant additional benefits to public health and
welfare, and we include this effect in our more detailed air quality
analysis.
[GRAPHIC] [TIFF OMITTED] TR18JA01.001

[[Page 5032]]

                Table II.D-2.--Estimated Reductions in PM
------------------------------------------------------------------------
                                                                  PM
                                                              reduction
                       Calendar year                          [thousand
                                                             short tons]
------------------------------------------------------------------------
2007.......................................................           11
2010.......................................................           36
2015.......................................................           61
2020.......................................................           82
2030.......................................................          109
------------------------------------------------------------------------

3. NMHC Reductions
    The standards described in Section III are designed to be feasible
for both gasoline and diesel heavy-duty vehicles. Although the
standards give manufacturers the same phase-in for NMHC as for
NOX, we model the NMHC reductions for diesel vehicles to be
fully in place in 2007 due to the application of particulate control
technology. We believe the use of aftertreatment for PM control will
cause the NMHC levels to be below the standards as soon as the PM
standard goes into effect in 2007.
    HDVs account for about 3 percent of national VOC and 8 percent from
mobile sources in 2007. Figure II.D-3 shows our national projections of
total NMHC emissions with and without the new engine controls. This
includes both exhaust emissions and evaporative emissions. Table II.D-3
presents the projected reductions of NMHC due to the new standards.

BILLING CODE 6560-50-P

[[Page 5033]]

[GRAPHIC] [TIFF OMITTED] TR18JA01.002

BILLING CODE 6560-50-C

[[Page 5034]]

               Table II.D-3.--Estimated Reductions in NMHC
------------------------------------------------------------------------
                                                                 NMHC
                                                              reduction
                       Calendar year                          [thousand
                                                             short tons]
------------------------------------------------------------------------
2007.......................................................            2
2010.......................................................           21
2015.......................................................           54
2020.......................................................           83
2030.......................................................          115
------------------------------------------------------------------------

4. Additional Emissions Benefits
    This subsection looks at tons/year emission inventories of CO,
SOX, and air toxics from HDEs. Although we are not including
stringent standards for these pollutants in this action, we believe the
standards will result in reductions in CO, SOX, and air
toxics. Here, we present our anticipated benefits.
a. CO Reductions
    In 2007, HDVs are projected to contribute to approximately 5
percent of national CO and 9 percent of CO from mobile sources.
Although it does not include new CO emission standards, today's action
would nevertheless be expected to result in a considerable reduction in
CO emissions from heavy-duty vehicles. CO emissions from heavy-duty
diesel vehicles, although already very low, would likely be reduced by
an additional 90 percent due to the operation of emissions control
systems that will be necessary to achieve today's new standards for
hydrocarbons and particulate matter. CO emissions from heavy-duty
gasoline vehicles would also likely decline as the NMHC emissions are
decreased. Table II.D-4 presents the projected reductions in CO
emissions from HDVs.

                Table II.D-4.--Estimated Reductions in CO
------------------------------------------------------------------------
                                                                  CO
                                                              reduction
                       Calendar year                          [thousand
                                                             short tons]
------------------------------------------------------------------------
2007.......................................................           56
2010.......................................................          317
2015.......................................................          691
2020.......................................................          982
2030.......................................................        1,290
------------------------------------------------------------------------

b. SOX Reductions
    HDVs are projected to emit approximately 0.5 percent of national
SOX and 8 percent of mobile source SOX in 2007.
We are requiring significant reductions in diesel fuel sulfur to enable
certain emission control devices to function properly. We expect
SOX emissions to decline as a direct benefit of low sulfur
diesel fuel. The majority of these benefits will be from heavy-duty
highway diesel vehicles; however, some benefits will also come from
highway fuel burned in other applications such as light-duty diesel
vehicles and nonroad engines. As discussed in greater detail in the
section on PM reductions, the amount of sulfate particles (direct and
indirect) formed as a result of diesel exhaust emissions will decline
for all HD diesel engines operated on low sulfur diesel fuel, including
the current on-highway HD diesel fleet, and those non-road HD diesel
engines that may operate on low sulfur diesel fuel in the future. Table
II.D-5 presents our estimates of SOX reductions resulting
from the low sulfur fuel.

    Table II.D-5.--Estimated Reductions In SOX Due To Low Sulfur Fuel
------------------------------------------------------------------------
                                                                 SOX
                                                              reduction
                       Calendar year                          [thousand
                                                             short tons]
------------------------------------------------------------------------
2007.......................................................           79
2010.......................................................          107
2015.......................................................          117
2020.......................................................          126
2030.......................................................          142
------------------------------------------------------------------------

c. Air Toxics Reductions
    This FRM establishes new non-methane hydrocarbon standards for all
heavy-duty vehicles and a formaldehyde standard for complete heavy-duty
vehicles. Hydrocarbons are a broad class of chemical compounds
containing carbon and hydrogen. Many forms of hydrocarbons, such as
formaldehyde, are directly hazardous and contribute to what are
collectively called ``air toxics.'' Air toxics are pollutants known to
cause or suspected of causing cancer or other serious human health
effects or ecosystem damage. The Agency has identified at least 20
compounds emitted from on-road gasoline vehicles that have
toxicological potential, 19 of which are emitted by diesel vehicles, as
well as an additional 20 compounds which have been listed as toxic air
contaminants by California ARB.81 82 This action
also will reduce emissions of diesel exhaust and diesel particulate
matter (see Section II.B for a discussion of health effects).
---------------------------------------------------------------------------

    \81\ National Air Quality and Emissions Trends Report, 1997,
(EPA 1998), p. 74.
    \82\ California Environmental Protection Agency (1998) Report to
the Air Resources Board on the Proposed Identification of Diesel
Exhaust as a Toxic Air Contaminant. Appendix III, Part A: Exposure
Assessment. April 1998.
---------------------------------------------------------------------------

    Our assessment of heavy-duty vehicle (gasoline and diesel) air
toxics focuses on the following compounds with cancer potency estimates
that have significant emissions from heavy-duty vehicles: benzene,
formaldehyde, acetaldehyde, and 1,3-butadiene. These compounds are an
important, but limited, subset of the total number of air toxics that
exist in exhaust and evaporative emissions from heavy-duty vehicles.
The reductions in air toxics quantified in this section represent only
a fraction of the total number and amount of air toxics reductions
expected from the new hydrocarbon standards.
    For this analysis, we estimate that air toxic emissions are a
constant fraction of hydrocarbon exhaust emissions from future engines.
Because air toxics are a

[[Page 5035]]

subset of hydrocarbons, and new emission controls are not expected to
preferentially control one type of air toxic over another, the selected
air toxics chosen for this analysis are expected to decline by the same
percentage amount as hydrocarbon exhaust emissions. We have not
performed a separate analysis for the new formaldehyde standard since
compliance with the hydrocarbon standard should result in compliance
with the formaldehyde standard for all petroleum-fueled engines. The
RIA provides more detail on this analysis. Table II.D-6 shows the
estimated air toxics reductions associated with the reductions in
hydrocarbons.

                         Table II.D-6.--Estimated Reductions In Air Toxics (short tons)
----------------------------------------------------------------------------------------------------------------
                  Calendar year                       Benzene      Formaldehyde    Acetaldehyde    1,3-Butadiene
----------------------------------------------------------------------------------------------------------------
2007............................................              24             181              67              14
2010............................................             356           1,670             608             135
2015............................................             965           4,720           1,720             384
2020............................................           1,340           7,080           2,600             567
2030............................................           1,960          10,200           3,730             823
----------------------------------------------------------------------------------------------------------------

E. Clean Heavy-Duty Vehicles and Low-Sulfur Diesel Fuel are Critically
Important for Improving Human Health and Welfare

    Despite continuing progress in reducing emissions from heavy-duty
engines, emissions from these engines continue to be a concern for
human health and welfare. Ozone continues to be a significant public
health problem, and affects not only people with impaired respiratory
systems, such as asthmatics, but healthy children and adults as well.
Ozone also causes damage to plants and has an adverse impact on
agricultural yields. Particulate matter, like ozone, has been linked to
a range of serious respiratory health problems, including premature
mortality, aggravation of respiratory and cardiovascular disease,
aggravated asthma, acute respiratory symptoms, and chronic bronchitis.
Importantly, EPA has concluded that diesel exhaust is likely to be
carcinogenic to humans by inhalation at occupational and environmental
levels of exposure.
    Today's action will reduce NOX, VOC, CO, PM, and
SOX emissions from these heavy-duty vehicles substantially.
These reductions will help reduce ozone levels nationwide and reduce
the frequency and magnitude of predicted exceedances of the ozone
standard. These reductions will also help reduce PM levels, both by
reducing direct PM emissions and by reducing emissions that give rise
to secondary PM. The NOX and SOX reductions will
help reduce acidification problems, and the NOX reductions
will help reduce eutrophication problems. The PM and NOX
standard enacted today will help improve visibility. All of these
reductions are expected to have a beneficial impact on human health and
welfare by reducing exposure to ozone, PM, diesel exhaust and other air
toxics and thus reducing the cancer and noncancer effects associated
with exposure to these substances.

III. Heavy-Duty Engine and Vehicle Standards

    In this section, we describe the vehicle and engine standards we
are finalizing today to respond to the serious air quality needs
discussed in Section II. Specifically, we discuss:
     The CAA and why we are finalizing new heavy-duty
standards.
     The technology opportunity for heavy-duty vehicles and
engines.
     Our new HDV and HDE standards, and our phase-in of those
standards.
     Why we believe the stringent standards being finalized
today are feasible in conjunction with the low sulfur gasoline required
under the recent Tier 2 rule and the low sulfur diesel fuel being
finalized today.
     The effects of diesel fuel sulfur on the ability to meet
the new standards, and what happens if high sulfur diesel fuel is used.
     Plans for future review of the status of heavy-duty diesel
NOX emission control technology.

A. Why Are We Setting New Heavy-Duty Standards?

    We are finalizing new heavy-duty vehicle and engine standards and
related provisions under section 202(a)(3) of the CAA, which authorizes
EPA to establish emission standards for new heavy-duty motor vehicles.
(See 42 U.S.C. 7521(a)(3).) Section 202(a)(3)(A) requires that such
standards ``reflect the greatest degree of emission reduction
achievable through the application of technology which the
Administrator determines will be available for the model year to which
such standards apply, giving appropriate consideration to cost, energy,
and safety factors associated with the application of such
technology.'' Section 202(a)(3)(B) allows EPA to take into account air
quality information in revising such standards. Because heavy-duty
engines contribute greatly to a number of serious air pollution
problems, especially the health and welfare effects of ozone, PM, and
air toxics, and because millions of Americans live in areas that exceed
the national air quality standards for ozone or PM, we believe the air
quality need for tighter heavy-duty standards is well founded. This,
and our belief that a significant degree of emission reduction from
heavy-duty vehicles and engines is achievable, giving appropriate
consideration to cost, energy, and safety factors, through the
application of new diesel emission control technology, further
refinement of well established gasoline emission controls, and
reductions of diesel fuel sulfur levels, leads us to believe that new
emission standards are warranted.

B. Emission Control Technologies for Heavy-Duty Vehicles and Engines

    For the past 30 or more years, emission control development for
gasoline vehicles and engines has concentrated most aggressively on
exhaust emission control devices. These devices currently provide as
much as or more than 95 percent of the emission control on a gasoline
vehicle. In contrast, the emission control development work for diesels
has concentrated on improvements to the engine itself to limit the
emissions leaving the combustion chamber.
    However, during the past 15 years, more development effort has been
put into diesel exhaust emission control devices, particularly in the
area of PM control. Those developments, and recent developments in
diesel NOX control devices, make the widespread commercial
use of diesel exhaust emission controls feasible. Through use of these
devices, we believe emissions control similar to that attained by
gasoline applications will be possible with diesel applications.
However, without low sulfur diesel fuel, these technologies cannot be
implemented on heavy-duty diesel applications. Low sulfur diesel fuel
will at the same time

[[Page 5036]]

also allow these technologies to be implemented on light-duty diesel
applications.
    As discussed at length in the preamble to our proposal, several
exhaust emission control devices have been or are being developed to
control harmful diesel exhaust pollutants. Of these, we believe that
the catalyzed diesel particulate trap and the NOX adsorber
are the most likely candidates to be used to meet the very low diesel
exhaust emission standards adopted today on the variety of applications
in the heavy-duty diesel market. While other technologies exist that
have the potential to provide significant emission reductions, such as
selective catalytic reduction systems for NOX control, and
development of these technologies is being pursued to varying degrees,
we believe that the catalyzed diesel particulate trap and the
NOX adsorber will be the only likely broadly applicable
technology choice by the makers of engines and vehicles for the
national fleet in this timeframe. However, as discussed in detail in
the Final RIA, we strongly believe that none of these technologies can
be brought to market on diesel engines and vehicles unless the kind of
low sulfur diesel fuel adopted in this rule is available.
    As for gasoline engines and vehicles, improvement continues to be
made to gasoline emissions control technology. This includes
improvement to catalyst designs in the form of improved washcoats and
improved precious metal dispersion. Much effort has also been put into
improved cold start strategies that allow for more rapid catalyst
light-off. This can be done by retarding the spark timing to increase
the temperature of the exhaust gases, and by using air-gap manifolds,
exhaust pipes, and catalytic converter shells to decrease heat loss
from the system.
    These improvements to gasoline emission controls will be made in
response to the California LEV-II standards and the federal Tier 2
standards.83 These improvements should transfer well to the
heavy-duty gasoline segment of the fleet. With such migration of light-
duty technology to heavy-duty vehicles and engines, we believe that
considerable improvements to heavy-duty gasoline emissions can be
realized, thus allowing vehicles to meet the much more stringent
standards adopted today.
---------------------------------------------------------------------------

    \83\ See Chapter IV.A of the final Tier 2 Regulatory Impact
Analysis, contained in Air Docket A-97-10, and McDonald, Joseph, and
Jones, Lee, ``Demonstration of Tier 2 Emission Levels for Heavy
Light-Duty Trucks,'' SAE 2001-01-1957.
---------------------------------------------------------------------------

    The following discussion provides more detail on the technologies
we believe are most capable of meeting very stringent heavy-duty
emission standards. The goal of this discussion is to describe the
emission reduction capability of these emission control technologies
and their critical need for diesel fuel sulfur levels as low as those
being finalized today. But first, we present the details of the new
emission standards being finalized today.

C. What Engine and Vehicle Standards Are We Finalizing?

1. Heavy-Duty Engine Exhaust Emissions Standards
a. FTP Standards 84
---------------------------------------------------------------------------

    \84\ The Phase 1 heavy-duty rule recently promulgated by EPA
specified two supplemental sets of standards for heavy-duty diesel
engines. (See 65 FR 59896, October 6, 2000.) Manufacturers of heavy-
duty diesel engines must meet these supplemental standards, the
Supplemental Emission Test (SET, formerly referred to as the
Supplemental Steady-State (SSS) test) and the Not-to-Exceed (NTE)
standards, beginning in model year 2007, in addition to meeting the
preexisting standards, which must be met using the preexisting
federal test procedure (FTP). For the purposes of this preamble, we
refer to the standards met using the preexisting FTP as the FTP
standards, though the SET and NTE test procedures have now been
added to the regulations establishing the various federal test
procedures for heavy-duty diesel engines.
---------------------------------------------------------------------------

    The emission standards finalized today for heavy-duty engines are
summarized in Table III.C-1. For reasons explained below, the phase-in
schedule for these standards differs from the proposed schedule. We are
also finalizing an incentive provision to encourage the early
introduction of engines meeting these new standards. This incentive
provision is explained in section III.D. In addition, we have altered
our Averaging, Banking, and Trading (ABT) provisions from what was
proposed. The final ABT provisions are discussed in detail in section
VI.

   Table III.C-1.--Full Useful Life Heavy-Duty Engine Exhaust Emissions Standards and Phase-Ins for Incomplete
                                                    Vehicles
----------------------------------------------------------------------------------------------------------------
                                                                           Phase-In by Model Year a
                                                   Standard  ---------------------------------------------------
                                                  (g/bhp-hr)      2007         2008         2009         2010
----------------------------------------------------------------------------------------------------------------
Diesel............................          NOX         0.20          50%          50%          50%         100%
                                           NMHC         0.14          50%          50%          50%         100%
                                             PM         0.01         100%         100%         100%         100%
Gasoline..........................          NOX         0.20           0%          50%         100%         100%
                                           NMHC         0.14           0%          50%         100%         100%
                                             PM         0.01           0%          50%         100%        100%
----------------------------------------------------------------------------------------------------------------
a Percentages represent percent of sales.

    With respect to PM, this new standard represents a 90 percent
reduction for most heavy-duty diesel engines from the current PM
standard. The current PM standard for most heavy-duty engines, 0.10 g/
bhp-hr, was implemented in the 1994 model year; the PM standard for
urban buses implemented in that same year was 0.05 g/bhp-hr; these
standards are not changing when other standards change in the 2004
model year timeframe. The new PM standard of 0.01 g/bhp-hr being
finalized today is projected to require the addition of highly
efficient PM traps to diesel engines, including those diesel engines
used in urban buses; it is not expected to require the addition of any
new hardware for gasoline engines.
    With respect to NMHC and NOX, these new standards
represent significant reductions from the 2004 diesel engine standard
which is either 2.4 g/bhp-hr NOX+NMHC, or 2.5 g/bhp-hr
NOX+NMHC with a cap on NMHC of 0.5 g/bhp-hr. We generally
expect that 2004 diesel engines will meet those standards with emission
levels around 2.2 g/bhp-hr NOX and 0.2 g/bhp-hr NMHC. Like
the PM standard, the new NOX standard is projected to
require the addition of a highly efficient NOX emission
control system to diesel engines which, with help from the PM trap,
will need to be optimized to control NMHC emissions. For gasoline

[[Page 5037]]

engines, the 2005 model year standard recently finalized in the Phase 1
heavy-duty rule is 1.0 g/bhp-hr NOX+NMHC. (See 65 FR 59896,
October 6, 2000.) There is a direct trade off between NOX
and NMHC emissions with a gasoline engine, but we would generally
expect NOX levels over 0.5 g/bhp-hr and NMHC levels below
that. Regardless of the NOX and NMHC split, today's
standards represent significant reductions for 2008 and later engines
that will require substantial improvement in the effectiveness of
heavy-duty gasoline emission control technology.
    We proposed a new formaldehyde standard of 0.016 g/bhp-hr for both
heavy-duty diesel and gasoline engines. However, we have decided not to
finalize those standards. We proposed the formaldehyde (HCHO) standard
because it is a hazardous air pollutant that is emitted by heavy-duty
engines and other mobile sources. In the proposal, we stated our belief
that formaldehyde emissions from gasoline and diesel engines are and
will remain inherently low, but having the standard would ensure that
excess emissions would not occur. Several commenters took issue with
our proposed standard claiming that the benefits were nonexistent, that
we should address toxic emissions in our toxics rulemaking, and that we
had shown neither its technological feasibility nor its measurability.
After further consideration we do believe that the proposed
formaldehyde standard is not necessary because the NMHC standard we are
promulgating today will almost certainly result in formaldehyde
emissions well below our proposed formaldehyde standard. As a result,
other comments on this issue such as those concerning technological
feasibility and measurability are no longer relevant to this rule. We
will continue to evaluate this issue to ensure that formaldehyde
emissions do not become a problem in the future and may take action to
consider standards if warranted.
    We believe a phase-in of the diesel NOX standard is
appropriate. With a phase-in, manufacturers are able to introduce the
new technology on a portion of their engines, thereby gaining valuable
experience with the technology prior to implementing it on their entire
fleet. Also, we are requiring that the NOX, and NMHC
standards be phased-in together for diesel engines. That is, engines
will be expected to meet both of these new standards, not just one or
the other. We are requiring this because the standard finalized in the
Phase 1 heavy-duty rule is a combined NMHC+NOX standard.
With separate NOX and NMHC phase-ins, say 50/50/50/100 for
NOX and 100 percent in 2007 for NMHC, the 2.5 gram engines
being phased-out would have a 2.5 gram NOX+NMHC standard and
a new 0.14 gram NMHC standard with which to comply. While this could be
done, we believe that it introduces unnecessary compliance complexity
to the program.
    In our NPRM, we requested comment on a range of possible phase-in
schedules for NOX including anything from our primary
proposal of 25/50/75/100 percent phase-in to a possible requirement for
100 percent compliance in the 2007 model year. We have determined that
a 50/50/50/100 percent phase-in schedule is the most appropriate
schedule for several reasons.
    Some commenters argued that we should require 100 percent
compliance in the 2007 model year because of the 0.20 gram standard was
both technologically feasible and critical given the nation's air
quality needs. Other commenters were concerned that 100 percent
compliance to the 0.20 gram NOX standard in the first year
of the program was ill advised as it would provide little opportunity
for industry to ``field test'' new NOX control technologies.
These commenters also expressed concern over workload burdens on
industry members needing to redesign all of their new engines and
vehicles in one year. Some commenters were concerned that a 25/50/75/
100 percent phase-in schedule would introduce competitiveness issues
whereby those vehicles equipped with new NOX control
technology may be less attractive to some buyers than vehicles without
the technology, making them difficult for manufacturers to sell.
    We set standards and implementation schedules based on many factors
including technological feasibility, cost, energy, and safety.
Considering these factors, we believe that industry should be provided
the flexibility of having a phase-in of the new NOX
standard. As discussed in section III.E below, we believe the 0.20 gram
NOX standard is feasible in the 2007 time frame. However, we
believe a phase-in is appropriate for a couple of reasons. First, the
phase-in will provide industry with the flexibility to roll out the
NOX control technology on only a portion of their fleet.
This will allow them to focus their resources on that half of their
fleet being brought into compliance in 2007. This ability to focus
their efforts will increase both the efficiency and the effectiveness
of those efforts. Second, a phase-in allows industry the ability to
introduce the new technology on those engines it believes are best
suited for a successful implementation which, in turn, provides a
valuable opportunity to refine that technology on only a portion of
their product line prior to the next push toward full implementation.
    Another concern with respect to our proposed phase-in schedule was
raised by several commenters and pertains to its interaction with the
final implementation schedule for the new supplemental requirements
(the Supplemental Emission Test, SET, and the Not-to-Exceed, NTE).
These requirements, finalized in the Phase 1 heavy-duty final rule,
will be implemented in the 2007 model year on all heavy-duty diesel
engines. (See 65 FR 59896, October 6, 2000.) Under a 25/50/75/100
percent phase-in schedule of new diesel engine emission requirements,
25 percent of engines in the 2007 model year would meet 0.20 and 0.01
g/bhp-hr NOX and PM, while 75 percent would meet 2.5 and
0.01 g/bhp-hr NOX and PM. Further, all of those engines
would be required, beginning in the 2007 model year, to meet the
supplemental requirements based on the FTP emission standards to which
they were certified. A 25/50/75/100 percent phase-in schedule would
change the supplemental requirements for those 25 percent of engines in
the 2008 model year that would have to change to meet the new 50
percent compliance requirement. This change would be required even
though the supplemental requirements on those 25 percent of engines
were first implemented only one model year earlier, in model year 2007.
Commenters have questioned whether this is consistent with section
202(a)(3)(c) of the Clean Air Act, which requires that standards for
heavy-duty vehicles and engines apply for no less than three model
years without revision. Under this argument, the supplemental
requirements implemented in the 2007 model year must be allowed three
model years of stability, meaning that no changes can be required to
those standards until the 2010 model year.
    The final phase-in schedule, 50/50/50/100 percent, addresses any
concerns about violating the stability requirement of the Act and
addresses the technology and lead time benefits of a phase-in as
discussed above.85 While this phase-in does not provide
certain commenters with their goal of 100 percent implementation of
very low NOX engines in 2007, we believe it is

[[Page 5038]]

appropriate for the technology, cost, and other reasons described
above. This 50/50/50/100 percent phase-in schedule does provide a more
rapid implementation of low NOX engines and, more
importantly, provides more air quality benefits in 2007 than would our
proposed phase-in schedule. We are also finalizing provisions that
would encourage manufacturers to introduce clean technology, both
diesel and gasoline, earlier than required in return for greater
flexibility during the later years of our phase-in. These optional
early incentive provisions are analogous to those included in our
light-duty Tier 2 rule and are discussed in more detail in section
III.D. We have also revised our Averaging, Banking, and Trading program
to increase flexibility as discussed further in section VI.
---------------------------------------------------------------------------

    \85\ EPA need not determine, at this time, whether the 25/50/75/
100 percent phase-in schedule violates section 202(a)(3)(c), as the
50/50/50/100 percent phase-in schedule clearly does not and is
available to all manufacturers.
---------------------------------------------------------------------------

    For gasoline engines, we proposed 100 percent compliance in the
2007 model year. However, since the proposal was published, we have set
new standards for heavy-duty gasoline engines that take effect in the
2005 model year. Therefore, the three year stability requirement of the
CAA requires that today's new standards not apply until the 2008 model
year at the earliest. Further, while we had not proposed a phase-in for
gasoline standards, based on comments received we believe that a phase-
in should be provided. The phase-in will allow manufacturers to
implement improved gasoline control technologies on their heavy-duty
gasoline engines in the same timeframe as they implement those
technologies on their Tier 2 medium-duty passenger vehicles (MDPV).
This consistency with Tier 2 is discussed in more detail below in
section III.C.2 on vehicle standards. Note that the gasoline engine
phase-in schedule is the same as but separate from the gasoline vehicle
phase-in schedule discussed below. As we have done for diesel engines,
we have also revised our Averaging, Banking, and Trading program for
gasoline engines to increase flexibility as discussed further in
section VI.
    For a discussion of why we believe these standards are
technologically feasible in the time frame required, refer to section
III.E below and for a more detailed discussion refer to the RIA
contained in the docket. The averaging, banking, and trading (ABT)
provisions associated with today's standards are discussed in Section
VI of this preamble. The reader should refer to that section for more
details.
b. Supplemental Provisions for HD Diesel Engines (SET & NTE)
    In addition to the new FTP standards for HD diesel engines
contained in today's final action, we are also finalizing the
supplemental emission standards we proposed to apply to the new HDDEs,
with a number of changes as discussed in this section. The supplemental
provisions will help ensure that HD diesel engines achieve the expected
in-use emission reductions over a wide range of vehicle operation and a
wide range of ambient conditions, not only the test cycle and
conditions represented by the traditional FTP. The Agency has
historically relied upon the FTP and the prohibition of defeat devices
to ensure that HDDE emission control technologies which operate during
the laboratory test cycle continue to operate in-use. The supplemental
provisions are a valuable addition to the FTP and the defeat device
prohibition to ensure effective in-use emission control. The
supplemental provisions for HD diesel engines consist of two principal
requirements, the supplemental emission test and associated standards
(SET),86 and the not-to-exceed test and associated standards
(NTE). The supplemental emission standards finalized today for heavy-
duty diesel engines are summarized in Table III.C-2.
---------------------------------------------------------------------------

    \86\ In the Phase 1 rulemaking, the Supplemental Emission Test
was referred to as the supplemental steady state test. As discussed
in the Phase 1 rule, the supplemental steady state test is based on
and is consistent with the European Commissions ``EURO III ESC''
test. (See 65 FR 59915.) In this final rule we have renamed the
supplemental steady state test the Supplemental Emission Test (SET).

 Table III.C-2.--Full Useful Life Heavy-Duty Diesel Engine Supplemental
                       Exhaust Emissions Standards
------------------------------------------------------------------------
                                             Requirements for NOX, NMHC,
             Supplemental test                           PM
------------------------------------------------------------------------
Supplemental emission test................  1.0  x  FTP standard (or
                                             FEL).
Not-to-exceed test........................  1.5  x  FTP standard (or
                                             FEL).
------------------------------------------------------------------------

    The SET and NTE test procedures were recently adopted for 2007 on-
highway HD diesel engines. (See 65 FR 59896, October 6, 2000.) In the
recent HD Phase 1 rulemaking which promulgated the SET and NTE, the
supplemental provisions were finalized in the context of the emission
control technology expected to be used to meet the 2004 FTP standards,
i.e., injection timing strategies and cooled EGR. In this final action,
we are finalizing a number of changes to the supplemental provisions to
address specific technical issues raised by commenters and which result
from the expected application of high efficiency exhaust emission
control devices on HD diesel engines and vehicles to meet today's new
standards. These changes are minor in nature and will not impact the
emission reductions we expect from the Phase 2 standards. These changes
are discussed in the following sections. Additional discussion
regarding the supplemental provisions for HDDEs is contained in the RIA
and the Response to Comments (RTC) for this final rule, as well as in
Section III.E of this preamble (``Feasibility of the New Engine and
Vehicle Standards'').
i. Supplemental Emission Test
    We are finalizing supplemental emission test provisions for HD
diesel engines and vehicles certified to the new FTP standards
contained in this final rule. The SET emission standard is equal to 1.0
times the FTP standard or FEL for HD diesel engines. Emission results
from this test must meet the numerical standards for the FTP. The SET
requirements are phased-in beginning with the 2007 model year,
consistent with the phase-in of the new FTP standards. The supplemental
emission test duty cycle consists of 13 modes of speed and torque,
primarily covering the typical highway cruise operating range of heavy-
duty diesel engines. The emission results from each of the modes are
weighted by defined factors in the regulations, and the final weighted
emission value for each pollutant must meet the SET standard. In
addition, several of the 13 individual modes are in the NTE control
zone, and must meet the applicable NTE requirements. The SET test is a
laboratory test performed using an engine dynamometer under the same
conditions which apply to the FTP, as specified in the regulations.
(See 40 CFR 86.1360.)
    The regulations for the SET in model year 2007 as they apply to the
2004 FTP emission standards contain additional steady-state test point
emission limits. The Phase 1 supplemental requirements define a
``Maximum Allowable Emission Limit'' (MAEL) which the engines must
comply with. The Phase 1 regulations allowed EPA to randomly select up
to three steady-state test points prior to certification which the
manufacturer would test to show compliance with the MAEL. These test
points are referred to as ``mystery points''. In this final rule we
have eliminated the MAEL for engines certified to the Phase 2
standards. The MAEL assures that an engine is calibrated to maintain
emission control similar to the SET test under steady state conditions
across the engine map, not just at the pre-defined 13 test points

[[Page 5039]]

which comprise the SET test. For Phase 1 engines the MAEL was necessary
to ensure this potential for gaming did not occur because the
difference between the FTP standard and the NTE standard could be
large, for example, 0.625 g/bhp-hr for NMHC + NOX. However,
for Phase 2 engines the NTE requirements are a mere 0.10 g/bhp-hr
NOX greater than the FTP standard. Considering this small
increment, we have eliminated the MAEL for Phase 2 engines because it
is redundant with the NTE. For the same reasons, we have eliminated the
certification ``mystery points'' for engines complying with today's
diesel engine standards.
ii. Not-to-Exceed
    We are also finalizing revisions to the not-to-exceed emission
standards for HD diesel engines certified to the Phase 2 FTP standards
contained in this final rule. These NTE procedures apply under engine
operating conditions within the range specified in the NTE test
procedure that could reasonably be expected to be seen in normal
vehicle operation and use. (See 40 CFR 86.1370.) The NTE procedure
defines limited and specific engine operating regions (i.e., speed and
torque conditions) and ambient operating conditions (i.e., altitude,
temperature, and humidity conditions) which are subject to the NTE
emission standards. Emission results from this test procedure must be
less than or equal to 1.5 times the FTP standards (or FEL) for
NOX, NMHC, and PM. The new NTE requirements are phased-in
starting with the 2007 model year, consistent with the new FTP
standards.
    The Not-To-Exceed (NTE) provisions were recently finalized for
HDDEs certified to the 2004 FTP emission standards with implementation
beginning in model year 2007. (See 65 FR 59896, October 6, 2000.) The
NTE approach establishes an area (the ``NTE control area'') under the
torque curve of an engine where emissions must not exceed a specified
value for any of the regulated pollutants.87 The NTE
requirements would apply under engine operating conditions that could
reasonably be expected to be seen in normal vehicle operation and use
which occur during the conditions specified in the NTE test procedure.
(See 40 CFR 86.1370.) This test procedure covers a specific range of
engine operation and ambient operating conditions (i.e., temperature,
altitude, and humidity). The NTE control area, emissions standards,
ambient conditions and test procedures for HDDEs are described in the
regulations.
---------------------------------------------------------------------------

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

    The NTE multiplier promulgated in the previous final rulemaking for
HD diesel engines certified to the 2004 FTP standards is 1.25  x  FTP
standard (e.g., 1.25  x  2.5g/bhp-hr NMHC+NOX and 1.25  x
0.1 g/bhp-hr PM). We believe the NTE cap finalized today (1.5  x  the
Phase 2 FTP standards or FEL) allows sufficient headroom above the FTP
standard to accommodate the technical challenges necessary to meet the
NTE standard which must be met over a broader range of ambient
conditions, a shorter time period, and a wider variety of operating
conditions, than the FTP or the SET. While the 1.5 NTE multiplier we
are finalizing is greater than what we proposed, in absolute terms the
NTE requirement for Phase 2 engines is much smaller than for Phase 1
engines (i.e., the magnitude of the cap in g/bhp-hr emissions), and the
Phase 2 NTE cap will help ensure the emission reductions we expect from
the Phase 2 standards will occur in-use. The NTE requirements have been
modified from what we proposed based on our assessment of the emission
performance of the exhaust emission control devices that will be used
to meet the new FTP standards (e.g., catalyzed particulate traps and
NOX adsorbers). Under the program finalized today, an NTE
limit of 1.5  x  the NOX FEL would apply to 2007 and later
model year engines certified with FELs less than 1.5 g/bhp-hr
NOX. As discussed throughout this notice, the stringent 2007
PM standard, 0.01 g/bhp-hr, can be met with the use of catalyzed
particulate traps. Because of the very low particulate matter emissions
which will be emitted by engines meeting the PM standard, this final
rule also establishes a minimum PM NTE requirement for engines
certified with FELs below 0.01 g/bhp-hr at 1.5  x  the FTP standard,
not the FEL. Based on our assessment of the expected exhaust emission
control devices and their performance, the NTE standard of 1.5  x  FTP
standard is both technologically feasible and appropriate. A detailed
discussion of the feasibility of the NTE requirements is contained in
the RIA for this final rule.
    Today's action allows the NTE deficiency provisions we recently
finalized for 2007 HDDEs meeting the 2004 FTP standards to be used by
HDDEs meeting the standards contained in today's final rule (See 40 CFR
86.007-11(a)(4)(iv) in the regulations, and 65 FR 59914 of the Phase 1
rule for a detailed discussion of the NTE deficiencies.). These
deficiency provisions are similar to the deficiency provisions which
currently apply to LD and HD on-board diagnostic systems. This will
allow the Administrator to accept a HDDE as compliant with the NTE even
though some specific requirements are not fully met. This provision
will be available for manufacturers through 2013, though it will be
more limited after 2009 as described below. In the Phase 1 rule, the
Agency finalized deficiency provisions which were allowed through model
year 2009. In this rule, it is appropriate to extend the availability
of the NTE deficiency provisions beyond 2009. Given the nature of the
phase-in requirements in this rule, manufacturers may be introducing
new engine families certified to the Phase 2 NOX and NMHC
standards as late as model year 2010, and these families may need
limited access to a NTE deficiency for a few years after their
introduction. Therefore, we have extended the availability of
deficiencies through model year 2013, but with one constraint. Given
the considerable lead time available, we have limited the number of
deficiencies to three per engine family for 2010 through 2013.
    In addition, we have made a number of changes to the NTE
requirements to address specific technical issues which arise from the
application of high efficiency exhaust emission control devices to
HDDEs. These provisions will only be summarized here. A detailed
discussion is contained in the RIA and the RTC for this final rule.
These changes include: engine start-up provisions; exhaust emission
control device warm-up provisions; modifications of the NTE control
zone; and adjustments to the NTE minimum emissions sample time.
    Under this final rule, the NTE requirements will not apply during
engine start-up conditions. EPA intended to include the provision
excluding start-up provisions from the NTE requirements under the Phase
1 rulemaking, and it was discussed in the preamble for both the Phase 1
proposal and final rule. However, this provision was inadvertently left
out of the regulations. We have corrected this in today's rule for both
Phase 1 and Phase 2 engines. In addition, with the application of
advanced exhaust emission control devices, an exhaust emission control
device warm-up provision is a necessary criterion for the NTE.
Specifically, until the exhaust gas temperature on the outlet side of
the exhaust emission control device(s)

[[Page 5040]]

achieves 250 degrees Celsius, the engine is not subject to the NTE.
Additional discussion of this provision is contained in the RIA.
    We have made three changes to the NTE engine control zone. First,
we have expanded the NTE engine control zone for engines certified to
the new 0.01 g/bhp-hr PM standard. The NTE requirements as specified in
the regulations for engines certified to the 2004 FTP standards provide
specific ``PM carve-outs'' to the NTE control zone. These carve-outs
define an area of the engine operating regime (speed and torque area)
to which the NTE does not apply for PM emissions. (See 65 FR 59961.)
The PM only carve-outs were specified because, under certain engine
operating regions, the NTE requirements for PM could not be met with
the technology projected to be used to meet the 2004 FTP standards.
However, as discussed in the RIA, the advanced PM trap technology that
will be used to meet the PM standard contained in today's final rule is
very efficient at controlling PM emissions across the entire NTE
control zone. Due to the high PM reduction capabilities of catalyzed PM
traps, there is no need for the PM specific carve-outs. Therefore, we
have eliminated the NTE PM carve-outs for Phase 2 engines. Second, we
have added a provision which would allow a manufacturer to exclude
defined regions of the NTE engine control zone from NTE compliance if
the manufacturer could demonstrate that the engine, when installed in a
specified vehicle(s), is not capable of operating in such regions.
Finally, we have added a provision which would allow a manufacturer to
petition the Agency to limit testing in a defined region of the NTE
engine control zone during NTE testing. This optional provision would
require the manufacturer to provide the Agency with in-use operation
data which the manufacturer could use to define a single, continuous
region of the NTE control zone. This single area of the control zone
must be specified such that operation within the defined region
accounts for 5 percent or less of the total in-use operation of the
engine, based on the supplied data. Further, to protect against gaming
by manufacturers, the defined region must generally be elliptical or
rectangular in shape, and share a boundary with the NTE control zone.
If approved by EPA, the regulations then disallow testing with sampling
periods in which operation within the defined region constitutes more
than 5.0 percent of the time-weighted operation within the sampling
period.
    We have also changed the minimum emissions sample time approach for
NTE testing to address technical issues specific to the advanced
exhaust emission control devices anticipated to be used to meet the NTE
requirements. We proposed that the minimum emission sample time for the
NTE was 30 seconds, which is what we recently finalized for engines
certified to the Phase 1 standards. This short sample time was
sufficient to ensure that momentary spikes in emissions (e.g., such as
could occur in a two or three second time frame) could not be isolated
for determining compliance with the NTE (e.g., an NTE test must be no
shorter than a 30 second average). However, the use of highly efficient
exhaust emission control devices complicates the minimum sample time
requirements because of the potential for short-duration emission
increases during regeneration events. We have adjusted the minimum
sample time requirements to address this issue as follows (a detailed
discussion of the need for this change is contained in the RIA). The
regulations specify that the NTE sample time can be as short as 30
seconds provided no regeneration events occur within the sample period.
However, if a regeneration event is included in the sample time, the
sample time must include the period of time from the start of one
regeneration event to the start of the next regeneration event, for
each regeneration included in the sample. A regeneration event is
determined by the engine manufacturer. This second provision regarding
the minimum NTE sample time also cannot be shorter than 30 seconds.
This sample time provision applies to any HDDE engine equipped with an
exhaust emission control device which requires discreet regeneration
events, regardless of the nature of the regeneration (e.g.,
NOX regeneration, desulfation).
c. Crankcase Emissions Control
    Crankcase emissions are the pollutants that are emitted in the
gases that are vented from an engine's crankcase. These gases are also
referred to as ``blowby gases'' because they result from engine exhaust
from the combustion chamber ``blowing by'' the piston rings into the
crankcase. These gases are vented to prevent high pressures from
occurring in the crankcase. Our emission standards have historically
prohibited crankcase emissions from all highway engines except
turbocharged heavy-duty diesel engines. The most common way to
eliminate crankcase emissions has been to vent the blowby gases into
the engine air intake system, so that the gases can be recombusted. We
made the exception for turbocharged heavy-duty diesel engines in the
past because of concerns about fouling that could occur by routing the
diesel particulates (including engine oil) into the turbocharger and
aftercooler. Our concerns are now alleviated by newly developed closed
crankcase filtration systems, specifically designed for turbocharged
heavy-duty diesel engines. These new systems (discussed more fully in
Section III.E below and in Chapter III of the Final RIA) are already
required for new on-highway diesel engines under the EURO III emission
standards.
    In today's action, we are eliminating the exception for
turbocharged heavy-duty diesel engines starting in the 2007 model year.
Manufacturers will be required to control crankcase emissions from
these engines, preferably by routing them back to the engine intake or
to the exhaust stream upstream of the exhaust emission control devices.
However, in response to the manufacturers' comments, we are finalizing
the crankcase control requirement to allow manufacturers to treat
crankcase emissions from these engines the same as other exhaust
emissions (i.e., we provide a performance requirement and leave the
design to the manufacturer). Under this allowance, manufacturers could
potentially discharge some or all of the crankcase emissions to the
atmosphere, but only if they were able to keep the combined total of
the crankcase emissions and the other exhaust emissions below the
applicable exhaust emission standards. They could do this by routing
the crankcase gases into the exhaust stream downstream of the exhaust
emission control devices, or by continuing the current practice of
venting the gases to the engine compartment. But, they could take
either of these approaches only if they make sure that the combined
total of the crankcase emissions and the other exhaust emissions are
below the applicable exhaust emission standards. Also, the manufacturer
would have to ensure that the crankcase emissions were readily
measurable during laboratory and in-use field testing.88
Despite this allowance made at the request of commenters, given the low
levels of today's final standards we believe that manufacturers will
have to close the crankcases of all of their

[[Page 5041]]

engines by either routing the crankcase emissions into the engine
intake or by routing them into the exhaust upstream of the exhaust
emission control devices.
---------------------------------------------------------------------------

    \88\ During laboratory testing, the crankcase emissions would
need to be vented in a controlled manner so that they could be
routed into the dilution tunnel to ensure their proper measurement
and inclusion in the tested emission level.
---------------------------------------------------------------------------

d. On-Board Diagnostics (OBD)
    The Phase 1 heavy-duty final rule put into place OBD requirements
for heavy-duty diesel and gasoline engines weighing 14,000 pounds or
less. (See 65 FR 59896, October 6, 2000.) In that rule, the OBD
thresholds for malfunction identification are based on multiples of the
applicable FTP emission standards to which the engine is certified.
Given the structure of the 2004 FTP emission standards (2005 FTP
emission standards for gasoline engines), which are combined
NMHC+NOX standards, the OBD thresholds are based on a
multiple of the combined FTP standards. However, the structure of the
2007 FTP standards (2008 for gasoline engines) finalized today is not a
combined NMHC+NOX standard, but is instead a separate
NOX and a separate NMHC standard.
    Therefore, today's final rule is revising the existing section of
the regulations to link OBD thresholds to whatever the appropriate
standards are whether they are the combined FTP standards or the new
separate FTP standards finalized today. This is consistent with the
intent of our OBD requirements since inception--that the OBD thresholds
be based on the FTP standards to which the vehicle or engine has been
certified.
    We are also revising the phase-in for the OBD requirements
finalized in the Phase 1 rule. (See 65 FR 59896.) In that rule, OBD
systems were required to phase-in on a schedule of 60/80/100 percent
beginning in the 2005 model year. At least one commenter claimed that
the OBD phase-in may require multiple changes to OBD systems in
consecutive years, because OBD systems are tied to the FTP standards to
which they are certified.89 We have decided, for diesel
engine OBD systems, to revise the 60/80/100 percent phase-in to 50/50/
100 percent beginning in the 2005 model year. This revised phase-in not
only alleviates the commenter's concerns, but also makes the OBD phase-
in consistent with the implementation of new emission standards.
---------------------------------------------------------------------------

    \89\ EPA does not believe there would be any legal stability
concern even if we had kept the OBD phase-in as finalized in the
Phase 1 rule. However, EPA agrees with the commenter that the phase-
in as finalized in the Phase 1 rule would have complicated
compliance unnecessarily.
---------------------------------------------------------------------------

    In addition, we have decided, for gasoline engine OBD systems, to
revise the 60/80/100 percent phase-in to 60/80/80/100 percent beginning
in the 2005 model year.90 As with the new diesel OBD phase-
in, this gasoline engine OBD phase-in alleviates the commenter's
concerns, and it also makes the gasoline OBD phase-in more consistent
with the implementation of new emission standards while maximizing the
percentage of gasoline engines designed to meet the OBD requirements.
---------------------------------------------------------------------------

    \90\ For those manufacturers choosing compliance Options 1 or 2
as part of the Phase 1 program, the gasoline engine OBD phase-in
will become 40/60/80/80/100 percent beginning in model year 2004.
(See 65 FR 59896, October 6, 2000.)
---------------------------------------------------------------------------

    We also received comments suggesting that we commit to making any
necessary changes to the OBD requirements based on the outcome of
future rulemaking efforts by the California Air Resources Board (ARB).
While we cannot make any such commitment, nor do we believe the
commenter truly would want us to commit to making changes solely
because ARB made changes, we do intend to continue our normal practice
of working closely with ARB and harmonizing our OBD requirements where
appropriate. Of course, any changes to our OBD requirements could only
be done via rulemaking.91
---------------------------------------------------------------------------

    \91\ This comment also pertained to gasoline vehicle-based OBD
systems. Our statements made here pertain to those requirements as
well but are not repeated below in section III.2.c.
---------------------------------------------------------------------------

2. Heavy-Duty Vehicle Exhaust Emissions Standards 92
---------------------------------------------------------------------------

    \92\ As noted above, vehicle and engine standards apply to all
vehicles and engines, even if they are alternative fueled vehicles
and engines.
---------------------------------------------------------------------------

a. FTP Standards
    The emission standards being finalized today for heavy-duty
gasoline vehicles are summarized in Table III.C-3. We have already
required that all complete heavy-duty gasoline vehicles, whether for
transporting passengers or for work, be chassis certified. (See 65 FR
59896, October 6, 2000.) Current federal regulations do not require
that complete diesel vehicles over 8,500 pounds be chassis certified;
instead, our regulations have traditionally required certification of
their engines. Today's final rule allows, as an option, chassis
certification of complete heavy-duty diesel vehicles under 14,000
pounds. This option is discussed in more detail later in this section.
    The Tier 2 final rule created a new vehicle category called
``medium-duty passenger vehicles.'' 93 These vehicles, both
gasoline and diesel, are required to meet requirements of the Tier 2
program, which carries with it a chassis certification requirement. As
a result, diesel medium-duty passenger vehicles must certify using the
chassis certification test procedure.94 Today's heavy-duty
vehicle based standards, or chassis standards, for 2008 and later model
year heavy-duty gasoline vehicles would apply to the remaining complete
gasoline vehicles under 14,000 pounds and those complete diesel
vehicles under 14,000 pounds choosing the chassis certification option;
these complete vehicles are typically used for commercial, non-
passenger applications. The standards shown in Table III.C-3 are, we
believe, comparable in stringency to the diesel and gasoline engine
standards shown in Table III.C-1.
---------------------------------------------------------------------------

    \93\ Medium-duty passenger vehicles are defined as any complete
vehicle between 8,500 and 10,000 pounds GVWR designed primarily for
the transportation of persons. The definition specifically excludes
any vehicle that (1) has a capacity of more than 12 persons total
or, (2) is designed to accommodate more than 9 persons in seating
rearward of the driver's seat or, (3) has a cargo box (e.g., pick-up
box or bed) of six feet or more in interior length. (See the Tier 2
final rulemaking, 65 FR 6698, February 10, 2000.)
    \94\ The Tier 2 final rule did make a limited allowance for
engine certification of diesel MDPVS through the 2007 model year.
The reader should refer to the Tier 2 final rule for details on that
allowance. (See 65 FR 6750, February 10, 2000.)

[[Page 5042]]

   Table III.C-3.--Full Useful Life Heavy-Duty Vehicle Exhaust Emissions Standards and Phase-Ins for Complete
                                                   Vehicles a
                                                  [Grams/mile]
----------------------------------------------------------------------------------------------------------------
                                                                                  Phase-in by model year b
       Weight range (GVWR)                               Standard (g/mi)  --------------------------------------
                                                                                  2008                2009
----------------------------------------------------------------------------------------------------------------
8,500 to 10,000 lbs                NOX                 0.2                 ..................  .................
                                   NMHC                0.195               ..................  .................
                                   HCHO                0.032               ..................  .................
                                   PM                  0.02                ..................  .................
10,001 to 14,000 lbs               NOX                 0.4                 50%                 100%
                                   NMHC                0.230               ..................  .................
                                   HCHO                0.040               ..................  .................
                                   PM                  0.02                ..................  .................
----------------------------------------------------------------------------------------------------------------
a Does not include medium-duty passenger vehicles.
b Percentages represent percent of sales.

    These NOX standards represent a 78 percent reduction and
a 60 percent reduction from the standards for 8,500-10,000 pound and
10,000-14,000 pound vehicles, respectively, finalized for the 2005
model year. The 2005 model year standards are equivalent to the
California LEV-I NOX standards of 0.9 g/mi and 1.0 g/mi,
respectively. The NOX standards shown in Table III.C-3 are
consistent with the CARB LEV-II NOX standards for low
emission vehicles (LEVs) in each respective weight range. The
NOX standard is slightly higher for the 10,000 to 14,000
pound vehicles for several reasons: these vehicles are tested at a
heavier payload; they generally have a larger frontal area which
creates more drag on the engine and requires it to work harder; and
their in-use duty cycle tends to be more severe. The increased weight
results in using more fuel per mile than vehicles tested at lighter
payloads; therefore, they tend to emit slightly more grams of pollutant
per mile than lighter vehicles.95
---------------------------------------------------------------------------

    \95\ Engine standards, in contrast, are stated in terms of grams
per unit of work rather than grams per mile. Therefore, engine
emission standards need not increase with weight because heavier
engines do not necessarily emit more per unit of work produced. In
contrast, heavier vehicles, due to their greater mass, tend to emit
more per mile due to the increased load placed on the engine which
requires the engine to do more work to travel each mile.
---------------------------------------------------------------------------

    The NMHC standards finalized today represent a 30 percent reduction
from the 2005 standards for 8500-10,000 and 10,000-14,000 pound
vehicles. The 2005 model year standards require such vehicles to meet
NMHC standard levels of 0.28 g/mi and 0.33 g/mi, respectively (equal to
the California LEV-I nonmethane organic gases (NMOG) standard levels).
These new NMHC standards are consistent with the CARB LEV-II NMOG
standards for LEVs in each respective weight class. The NMHC standard
for 10,000-14,000 pound vehicles is higher than for 8,500-10,000 pound
vehicles for the same reason as stated above for the higher
NOX standard for such vehicles.
    The formaldehyde (HCHO) standards shown in Table III.C-3 are not
the standards we proposed. The standards we are finalizing are
equivalent to the California LEV-II LEV category standards. This
approach is being taken to maintain consistency with the approach taken
on NOX and NMHC standards. Although we are not finalizing
formaldehyde standards for engine certified systems, because all the
exhaust emission standards for complete vehicles are consistent with
the CARB LEV II standards, we believe it is appropriate to maintain the
formaldehyde standard for gasoline vehicles. Formaldehyde is a
hazardous air pollutant that is emitted by heavy-duty vehicles and
other mobile sources, and we are finalizing these formaldehyde
standards to prevent excessive formaldehyde emissions. These standards
are especially important for any methanol-fueled vehicles because
formaldehyde is chemically similar to methanol and is one of the
primary byproducts of incomplete combustion of methanol. Formaldehyde
is also emitted by vehicles using petroleum fuels (i.e., gasoline or
diesel fuel), but to a lesser degree than is typically emitted by
methanol-fueled vehicles. We expect that petroleum-fueled vehicles able
to meet the NMHC standards should comply with the formaldehyde
standards with large compliance margins. Based upon our analysis of the
similar Tier 2 standards for passenger vehicles, we believe that
formaldehyde emissions from petroleum-fueled vehicles when complying
with the new PM, NMHC and NOX standards should be as much as
90 percent below the standards.96 Thus, to reduce testing
costs, we are finalizing a provision that permits manufacturers of
petroleum-fueled vehicles to demonstrate compliance with the
formaldehyde standards based on engineering analysis. This provision
requires manufacturers to make a demonstration in their certification
application that vehicles having similar size and emission control
technology have been shown to exhibit compliance with the applicable
formaldehyde standard for their full useful life. This demonstration is
expected to be similar to that required to demonstrate compliance with
the Tier 2 formaldehyde standards.
---------------------------------------------------------------------------

    \96\ See the Tier 2 Response to Comments document contained in
Air Docket A-97-10.
---------------------------------------------------------------------------

    The PM standard is 80 percent lower than the CARB LEV-II LEV
category PM standard of 0.12 g/mi, which actually applies only to
diesel vehicles. Note that the PM standard shown in Table III.C-3
represents not only a stringent PM level, but a new standard for
federal HDVs where none existed before. Both the California LEV II
program for heavy-duty diesel vehicles and the federal Tier 2 standards
for over 8,500 pound gasoline and diesel vehicles designed for
transporting passengers contain PM standards. The PM standard finalized
today is consistent with the light-duty Tier 2 bins 7 and 8 level of
0.02 g/mi.
    The timing for our final gasoline vehicle standards differs from
what we had proposed. Our proposal had no phase-in, requiring 100
percent compliance in the 2007 model year. However, since the proposal
was published, we have set new standards for heavy-duty gasoline
complete vehicles that take effect in the 2005 model year. Therefore,
the three year stability requirement of the CAA requires that today's
new standards not apply until the 2008 model year at the earliest.
Further, based on comments

[[Page 5043]]

received, we believe that a phase-in should be provided. The phase-in
will allow manufacturers to implement improved gasoline control
technologies on their heavy-duty gasoline vehicles in the same
timeframe as they implement those technologies on their Tier 2 medium-
duty passenger vehicles (MDPV). The MDPVs generally use the same
engines and emission control systems as do the heavy-duty versions of
those vehicles. MDPVs must comply with our light-duty Tier 2 program at
50 percent beginning in the 2008 model year and then 100 percent in the
2009 model year. As a result of this MDPV phase-in, and the stability
requirements of the CAA, and because we believe it provides the
greatest emission control considering costs, we are finalizing a
gasoline phase-in of 50/100 percent beginning in the 2008 model year.
Commenters suggested a 40/80/100 percent phase-in beginning in the 2008
model year, but we believe that a 50/100 percent phase-in allows
appropriate leadtime and synergy with the MDPV requirements of our Tier
2 program. It is worth clarifying that this phase-in excludes
California complete heavy-duty vehicles, which are already required to
be certified to the California emission standards. It also excludes
vehicles sold in any state that has adopted California emission
standards for complete heavy-duty vehicles. It would be inappropriate
to allow manufacturers to ``double-count'' the vehicles by allowing
them to count those vehicles both as part of their compliance with this
phase-in and for compliance with California requirements. We would
handle heavy-duty engines similarly if California were to adopt
different emission standards than those being established by this rule.
    We are also finalizing provisions that would encourage
manufacturers to introduce clean technology earlier than required in
return for greater flexibility during the later years of our phase-in.
These optional early incentive provisions are analogous to those
included in our light-duty Tier 2 rule and are discussed in more detail
in section III.D.
    As we have done for diesel and gasoline engines, we have revised
our Averaging, Banking, and Trading program for gasoline vehicles and
engines to increase flexibility as discussed further in section VI. The
reader should refer to that section for more details. Note that the
gasoline vehicle phase-in schedule is the same as but separate from the
gasoline engine phase-in schedule discussed above. For a discussion of
why we believe these standards are technologically feasible in the time
frame required, refer to section III.E below, and for a more detailed
discussion refer to the RIA contained in the docket.
    We are also allowing complete heavy-duty diesel vehicles under
14,000 pounds to certify to the heavy-duty vehicle standards. The issue
of chassis certification of diesels was raised as part of the Phase 1
rule. At that time, manufacturers expressed little interest in such a
provision. Because the heavy-duty diesel industry is largely not a
vertically-integrated industry, in that one company makes the engine
and another makes the vehicle, chassis certification is not an
immediately attractive or practical option for diesel engine
manufacturers. Nonetheless, some manufacturers have begun to express
interest in diesel chassis certification.97 Also, the
California Air Resources Board allows complete diesel vehicles to
chassis certify. We like the idea of diesel chassis certification
because it allows us to more easily evaluate such vehicles in-use. A
chassis certified diesel could be acquired easily by EPA and tested in
its vehicle configuration without the need to remove the engine for an
engine test.
---------------------------------------------------------------------------

    \97\ See memorandum from Todd Sherwood to Air Docket A-99-06,
dated December 6, 2000, Item #IV-E-47.
---------------------------------------------------------------------------

    Therefore, while we fully expect that manufacturers will continue
to certify the engines intended for complete diesel vehicles to the
engine standards, we will allow the option to chassis certify such
vehicles. Any chassis-certified complete diesel vehicles must meet the
applicable Phase 2 emission standards for complete vehicles (i.e., this
option is not available to diesels certified to the Phase 1 standards).
In addition, while complete diesel vehicles would count against the
phase-in requirements for diesel engines, they would not be allowed in
the Averaging, Banking, and Trading program. Therefore, a chassis-
certified diesel vehicle can neither use nor earn ABT credits, but
counts as part of the 50 percent phase-in. Further, complete diesels
choosing the chassis certification option would be required to comply
with our federal OBD vehicle-based requirements for monitoring of
exhaust emission control devices, even if choosing the option to
demonstrate OBD compliance using the California OBD II requirements.
Lastly, diesel vehicles choosing this option would be certified under
subpart S which applies to chassis certified complete vehicles, but the
evaporative emissions provisions of that subpart would not apply for
diesel vehicles.
b. Supplemental Federal Test Procedure
    We did not propose new supplemental FTP (SFTP) standards for heavy-
duty vehicles. The SFTP standards control off-cycle emissions in a
manner somewhat analogous to the NTE requirements for engines. We
believe that the SFTP standards are an important part of our light-duty
program just as we believe the NTE requirements will be an important
part of our heavy-duty diesel engine program. Although we did not
propose SFTP standards for heavy-duty vehicles, we stated an intention
to do so via a separate rulemaking. We requested comment on such an
approach, and on appropriate SFTP levels for heavy-duty vehicles along
with supporting data.
    We received unanimous support from industry commenters to address
SFTP standards for heavy-duty vehicles in a separate rulemaking. In our
Tier 2 final rule, we stated that we are currently contemplating a new
SFTP rulemaking that would consider ``Tier 2'' SFTP standards for all
Tier 2 vehicles, including MDPVs. California is also interested in
developing more stringent SFTP standards within the context of their
LEV II program and we are coordinating with California on these new
SFTP standards. Given our concern over ``off cycle'' emissions, we
believe it is appropriate that SFTP standards apply to all chassis
certified vehicles, heavy-duty and light-duty. As part of the SFTP rule
being contemplated, we expect to examine not only those issues stated
in the Tier 2 rule (e.g., the SFTP test cycles and different SFTP
standards for different vehicles sizes) but also the issue of heavy-
duty SFTP standards.
c. On-Board Diagnostics (OBD)
    The Phase 1 heavy-duty rule finalized OBD requirements for heavy-
duty diesel engines, heavy-duty gasoline engines, and heavy-duty
complete vehicles weighing 14,000 pounds or less. (See 65 FR 59896,
October 6, 2000.) In that rulemaking, the final regulatory language
stated the OBD catalyst thresholds for complete vehicles as multiples
of a combined NMHC+NOX emission standard. However, the
emission standards for complete vehicles are not combined, as are the
engine standards in that final rule. Therefore, the OBD catalyst
thresholds for complete vehicles were not stated properly in the
applicable sections of the regulations.
    Today's final rule corrects that regulatory error by revising the
appropriate regulatory language to link the OBD thresholds to a
separate, rather than combined, set of FTP exhaust

[[Page 5044]]

emission standards. This is consistent with the Phase 1 heavy-duty
proposal which correctly linked the proposed OBD thresholds to the
separate FTP exhaust emission standards. (See 64 FR 58472, October 29,
1999.) It is also consistent with the preamble to the Phase 1 final
rule, which stated the catalyst monitor threshold correctly. This
change makes the OBD thresholds for complete vehicle certifications
consistent with the structure used since implementation of the federal
OBD requirements. (See 58 FR 9468, February 19, 1993.)
    Consistent with the changes already discussed in section III.C.1,
we are also revising the phase-in for complete vehicle OBD requirements
finalized in the Phase 1 rule. (See 65 FR 59896.) In that rule, OBD
systems were required to phase-in on a schedule of 60/80/100 percent
beginning in the 2005 model year. At least one commenter pointed out
that the OBD phase-in may require multiple changes to OBD systems in
consecutive years because OBD systems are tied to the FTP standards to
which they are certified. We have decided, for gasoline vehicle OBD
systems, to revise the 60/80/100 percent phase-in to 60/80/80/100
percent beginning in the 2005 model year.98 This revised OBD
phase-in alleviates the commenter's concerns, and it makes the gasoline
OBD phase-in more consistent with the implementation of new emission
standards while maximizing the percentage of gasoline vehicles designed
to meet the OBD requirements.
---------------------------------------------------------------------------

    \98\ For those manufacturers choosing compliance Options 1 or 2
as part of the Phase 1 program, the gasoline vehicle OBD phase-in
will become 40/60/80/80/100 percent beginning in model year 2004.
(See 65 FR 59896.)
---------------------------------------------------------------------------

3. Heavy-Duty Evaporative Emissions Standards
    We are finalizing new evaporative emission standards for heavy-duty
vehicles and engines. The new standards are shown in Table III.C-4.
These standards will apply to heavy-duty gasoline-fueled vehicles and
engines, and methanol-fueled heavy-duty vehicles and engines.
Consistent with existing standards, the standard for the two day
diurnal plus hot soak test sequence would not apply to liquid petroleum
gas (LPG) fueled and natural gas fueled HDVs.

    Table III.C-4.--New Heavy-Duty Evaporative Emissions Standards a
                            [Grams per test]
------------------------------------------------------------------------
                                                            Supplemental
                                                  3 day         2 day
                   Category                     diurnal +     diurnal +
                                                 hot soak    hot soak b
------------------------------------------------------------------------
8,500-14,000 lbs.............................          1.4          1.75
>14,000 lbs..................................          1.9          2.3
------------------------------------------------------------------------
a To be implemented on the same schedule as the gasoline engine and
  vehicle exhaust emission standards shown in Tables III.C-1 and III.C-
  3. These new standards do not apply to medium-duty passenger vehicles,
  and do not apply to diesel fueled vehicles and engines.
b Does not apply to LPG or natural gas fueled HDVs.

    These new standards represent more than a 50 percent reduction in
the numerical standards as they exist today. The Phase 1 heavy-duty
rule made no changes to the numerical value of the standard, but it did
put into place new evaporative emission test procedures for heavy-duty
complete gasoline vehicles.99 (See 65 FR 59896, October 6,
2000.) For establishing evaporative emission levels from complete
heavy-duty vehicles, the standards shown in Table III.C-4 presume the
test procedures required in the Phase 1 heavy-duty rule.
---------------------------------------------------------------------------

    \99\ The test procedure changes codify a commonly approved
waiver allowing heavy-duty gasoline vehicles to use the light-duty
driving cycle for demonstrating evaporative emission compliance. The
urban dynamometer driving schedule (UDDS) used for heavy-duty
vehicles is somewhat shorter than that used for light-duty vehicles,
both in terms of mileage covered and minutes driven. This results in
considerably less time for canister purge under the heavy-duty
procedure than under the light-duty procedure. We recognize this
discrepancy and have routinely provided waivers under the enhanced
evaporative program that allow the use of the light-duty procedures
for heavy-duty certification testing. This is consistent with CARB's
treatment of equivalent vehicles.
---------------------------------------------------------------------------

    The new standards for 8,500 to 14,000 pound vehicles are consistent
with the Tier 2 standards for medium-duty passenger vehicles (MDPV).
MDPVs are of consistent size and have essentially identical evaporative
emission control systems as the remaining work-oriented HDVs in the
8,500 to 10,000 pound weight range. Therefore, the evaporative emission
standards should be equivalent. We are requiring those same standards
for the 10,000 to 14,000 pound HDVs because, historically, the
evaporative emission standards have been consistent throughout the
8,500 to 14,000 pound weight range. We believe that the HDVs in the
10,000 to 14,000 pound range are essentially equivalent in evaporative
emission control system design as the lighter HDVs; therefore,
continuing this historical approach is appropriate.
    We are finalizing slightly higher evaporative emission standards
for the over 14,000 pound HDVs because of their slightly larger fuel
tanks and for non-fuel emissions related to larger vehicle sizes. This
is consistent with past evaporative emission standards. The levels
chosen for the over 14,000 pound HDVs maintains the same ratio relative
to the 8,500 to 14,000 pound HDVs as exists with current evaporative
standards. To clarify, the current standards for the 3 day diurnal test
are 3 and 4 grams/test for the 8,500 to 14,000 and the over 14,000
pound categories, respectively. The ratio of 3:4 is maintained for the
new 2008 standards, 1.4:1.9.
    The new standard levels are slightly higher than the California
LEV-II standard levels. The California standard levels are 1.0 and 1.25
for the 3-day and the 2-day tests, respectively. However, federal
vehicles are certified using the higher-volatility federal test
fuel.100 Arguably, the federal and California evaporative
emission standards are equivalent in stringency despite the difference
in standard levels. We believe that our standards are appropriate for
federal heavy-duty vehicles.
---------------------------------------------------------------------------

    \100\ The federal test fuel specification for fuel volatility,
the Reid Vapor Pressure, is 8.7 to 9.2 psi. The California test fuel
specification is 6.7 to 7.0 psi.
---------------------------------------------------------------------------

    We are requiring that the new evaporative emission standards be
implemented on the same schedule as the gasoline engine and vehicle
exhaust standards shown in Tables III.C-1 and III.C-3. This will allow
manufacturers to plan any needed changes to new vehicles at the same
time, although it is not necessary that the exhaust and evaporative
standards be phased-in on the same vehicles and engines. Also, we are
finalizing the revised durability provisions finalized in the Tier 2
rulemaking, which require durability demonstration using fuel
containing at least 10 percent alcohol. Alcohol can break down the
materials used in evaporative emission control systems. Therefore, a
worst case durability demonstration would include a worst case alcohol
level in the fuel (10 percent) because in some areas of the country
there is widespread use of alcohol fuels.

D. Incentives for Early Introduction of Clean Engines and Vehicles

    In our proposal, we requested comment on alternative phase-in
approaches that could provide attractive implementation options to

[[Page 5045]]

manufacturers without compromising air quality. We requested comment on
a ``declining standard'' approach and a ``cumulative phase-in''
approach. We received only limited comment on those approaches with no
commenters expressing particularly strong support for them. We did
receive numerous comments suggesting that we provide some form of
incentive for manufacturers to introduce clean technology engines
earlier than required by the base program. We are finalizing the
approach discussed here as an incentive for manufacturers to introduce
clean diesel engines earlier than the 2007 model year (or the 2008
model year for gasoline engines and vehicles).
    In our Tier 2 rule, we stated our belief that providing inducements
to manufacturers to certify vehicles early to very low levels is
appropriate. We believe that such inducements may help pave the way for
greater and/or more cost effective emission reductions from future
vehicles. We believe the program discussed here provides a strong
incentive for manufacturers to maximize their development and
introduction of the best available vehicle and engine emission control
technology. This, in turn, provides a stepping stone to the broader
introduction of this technology soon thereafter. Early production of
cleaner vehicles enhances the early benefits of our program. If a
manufacturer can be induced to certify to the new standards by the
promise of reasonable extra credits, the benefits of that decision to
the program may last for many years.
    The incentive program finalized today is analogous to the
provisions set forth in the final Tier 2 rule. We are finalizing
provisions that permit manufacturers to take credit for diesel engines
certified to this rule's final standards prior to the 2007 model year
(prior to the 2008 model year for gasoline engines or vehicles) in
exchange for making fewer diesel engines certified to these standards
in or after the 2007 model year (2008 for gasoline engines or
vehicles). In other words, a clean engine sold earlier than required
displaces the requirement to sell a similar engine later. Note that the
emission standards must be met to earn the early introduction credit.
That is, emission credits earned under averaging, banking, and trading
cannot be used to demonstrate compliance. Therefore, the early
introduction engine credit is an alternative to the ABT program in that
any early engines or vehicles can earn either the engine credit or the
ABT emission credit, but not both. The purpose of the incentive is to
encourage introduction of clean technology engines earlier than
required in exchange for added flexibility during the phase-in years.
    Any early engine credits earned for a diesel-fueled engine would,
of course, be predicated on the assurance by the manufacturer that the
engine would indeed be fueled with low sulfur diesel fuel in the
marketplace. We expect this would occur through selling such engines
into fleet applications, such as city buses, school buses, or any such
well-managed centrally-fueled fleet. For this reason, we believe that
any engines sold within this early incentive program would be sold
primarily in urban areas where more centrally-fueled fleets exist.
Because of the difficulty associated with low sulfur diesel fuel
availability prior to mid-2006, we believe it is necessary and
appropriate to provide a greater incentive for early introduction of
clean diesel technology. Therefore, we will count one early diesel
engine as 1.5 diesel engines later. This extra early credit for diesel
engines means that fewer clean diesel engines than otherwise would be
required may enter the market during the years 2007 and later. But,
more importantly, it means that emission reductions would be realized
earlier than under our base program. We believe that providing
incentives for early emission reductions is a worthwhile goal for this
program. Therefore, we are finalizing these provisions for
manufacturers willing to make the early investment in cleaner engines.
For gasoline engines and vehicles, the early engine credit will be a
one-for-one credit because the gasoline needed by the engine or vehicle
will be readily available.
    We are providing this early introduction credit to diesel engines
that meet all of today's final standards (0.20 g/bhp-hr NOX,
0.14 g/bhp-hr NMHC, and 0.01 g/bhp-hr PM). We are also providing this
early introduction credit to diesel engines that pull-ahead compliance
with only the 0.01 g/bhp-hr PM standard. However, a PM-only early
engine can offset only PM compliant engines during the phase-in years,
not NOX, NMHC, and PM compliant engines.
    An important aspect of the early incentive provision is that it
must be done on an engine or vehicle count basis. That is, a diesel
engine meeting new standards early counts as 1.5 such diesel engines
later and a gasoline engine or vehicle early counts as one gasoline
engine or vehicle later. This contrasts with a provision done on an
engine percentage basis which would count one percent of diesel engines
early as 1.5 percent of diesel engines later. Basing the incentive on
an engine count will alleviate any possible influence of fluctuations
in engine and vehicle sales in different model years.
    Another important aspect of this program is that it is limited to
engines sold prior to the 2007 model year (2008 for gasoline). In other
words, diesel engines sold in the 2007 through 2009 model years that
exceed the required 50 percent phase-in will not be considered
``early'' introduction engines and will, therefore, receive no early
introduction credit. The same is true for gasoline engines and vehicles
sold in the 2008 model year. However, such engines and vehicles will
still be able to generate ABT credits. Note that early gasoline
vehicles can count for later gasoline vehicles, and early gasoline
engines can count for later gasoline engines, but early gasoline
vehicles cannot be traded for later gasoline engines and vice versa.
    Table III.D-1 shows an example for a diesel engine manufacturer and
how it might use this incentive provision on an assumed fleet of 100
engine sales growing at one percent per year beginning in the 2004
model year.

                  Table III.D-1.--Example Engine Introduction Under Our Early Incentive Program
----------------------------------------------------------------------------------------------------------------
                                 2004        2005        2006        2007        2008        2009        2010
----------------------------------------------------------------------------------------------------------------
Total Sales                   100         101         102         103         104         105         106
----------------------------------------------------------------------------------------------------------------
Clean Engines under           0           0           0           52          52          53          106
Base program                  ..........  ..........  ..........  ..........  ..........  ..........  ..........
----------------------------------------------------------------------------------------------------------------
Clean Engines under           4           4           4           46          46          47          106
Incentive Program             ..........  ..........  ..........  ..........  ..........  ..........  ..........
----------------------------------------------------------------------------------------------------------------

[[Page 5046]]

    The four engines sold early in each of model years 2004 through
2006 generate a total credit of 18 engines (4 x 3 x 1.5=18). This
allows the manufacturer to reduce its compliant engine count in each of
model years 2007 through 2009 by six engines (18/3=6). This helps the
manufacturer by reducing total costs through requiring fewer total
engines at the low-emitting, clean engine level. But, more importantly,
it introduces clean technology engines early and, by 2010 in this
example, generates from four to six years of emission reductions that
otherwise would not have occurred.
    As further incentive to introduce clean engines and vehicles early,
we are also finalizing a provision that would give manufacturers an
early introduction credit equal to two engines during the phase-in
years. This ``Blue Sky'' incentive would apply for diesel engines
meeting one-half of today's final NOX standard while also
meeting the NMHC and PM standards. For gasoline engines, the same early
introduction double engine credit would be available to engines sold
prior to 2008 and meeting one-half the NOX standard while
also meeting the NMHC, PM, and evaporative emission standards. For
gasoline vehicles, the double engine credit would be available to those
vehicles certified early to the California SULEV levels and today's PM
and evaporative emission standards.101 Due to the extremely
low emission levels to which these Blue Sky series engines and vehicles
would need to certify, we believe that the double engine count credit
is appropriate. Table III.D-2 shows the emission levels that would be
required prior to the 2007 model year for diesel engines and the 2008
model year for gasoline vehicles and engines to earn any early
introduction engine credits.
---------------------------------------------------------------------------

    \101\ The California SULEV levels are, for 8,500 to 10,000 pound
vehicles, 0.1 g/mi NOX, 0.100 g/mi NMOG, 0.008 g/mi HCMO,
and 0.06 g/mi PM; and for 10,000 to 14,000 pound vehicles, 0.2 g/mi
NOX, 0.117 g/mi NMOG, 0.010 g/mi HCHO, and 0.06 g/mi PM.
With the exception of the PM standards, these emission levels are
half or roughly half of this rule's final gasoline vehicle
standards.

     Table III.D-2.--Emission Levels and Credits Available for Early
                          Introduction Engines
------------------------------------------------------------------------
                                                           Early engine
            Category                   Must meet a           credit b
------------------------------------------------------------------------
Early Diesel PM-only c.........  Phase 2 PM &...........        1.5-to-1
                                 Phase 1 NOX + NMHC.....
Early Diesel Engine c..........  All Phase 2 Standards..        1.5-to-1
Early Gasoline Engine or         Phase 2 Exhaust                  1-to-1
 Vehicle--Exhaust.                Standards.
Early Gasoline Engine or         Phase 2 Evaporative              1-to-1
 Vehicle--Evap.                   Standards.
Blue Sky Series Diesel c or      0.10 g/bhp-hr NOX & All          2-to-1
 Gasoline Engine.                 other Phase 2
                                  Standardsd.
Blue Sky Series Gasoline.......  0.02 g/mi PM &                   2-to-1
                                  California SULEV Level
                                  Standardsd.
Vehicle
------------------------------------------------------------------------
a Phase 1 refers to standards required by 65 FR 59896, October 6, 2000;
  Phase 2 refers to today's final standards.
b  Engine count credits must be earned prior to the phase-in years of
  2007 for diesel and 2008 for gasoline.
c Early diesel engines must also meet the Phase 2 crankcase emissions
  requirements.
d For gasoline engines and vehicles, these must also meet the Phase 2
  evaporative emission standards.

    Alternative fueled vehicles and engines can also play a significant
role in this incentive program. Any alternative fueled diesel-cycle
engine certified to today's final standards prior to the 2007 model
year can generate a 1.5 diesel-cycle engine count credit during the
diesel phase-in years. Likewise, any alternative fueled Otto-cycle
engine certified to today's final standards prior to the 2008 model
year can generate one Otto-cycle engine count credit. Many commenters
suggested that EPA should do more than was put forward in our proposal
to encourage the introduction of alternative fuel technologies. To the
extent that alternative fueled vehicles and engines are cleaner than
diesels and gasolines, they may have an advantage within today's
program. We believe that this program and its structure provides
significant incentives for manufacturers to introduce alternative
fueled vehicles and engines.
    One final aspect of the incentive program is its interaction with
our Tier 2 program. The Tier 2 final rule allows some MDPVs to be
equipped with engine-certified diesel engines through the 2007 model
year. Any such engines are required to comply with the diesel engine
standards that apply during the given model year. Given that they are
certified as heavy-duty diesel engines, any such engines that meet
today's final diesel standards prior to the 2007 model year would be
allowed within today's incentive program provided they in no way
generate any emission or engine count credits within the Tier 2
program. Further, any MDPVs, whether gasoline or diesel, certified on a
chassis dynamometer and being counted in any way as part of the Tier 2
program, cannot be used as part of today's incentive program because
they are not considered heavy-duty vehicles.

E. Feasibility of the New Engine and Vehicle Standards

    For more detail on the information and analyses supporting our
assessment of the technological feasibility of today's standards,
please refer to the Final RIA in the docket for this rule. The
following discussion summarizes the more detailed discussion found in
the Final RIA and in the Summary and Analysis of Comments document.
1. Feasibility of Stringent Standards for Heavy-Duty Diesel
    The designers and manufacturers of diesel engines have made
substantial progress over the last 20 years reducing NOX
emissions by 60 percent and PM emissions by almost 90 percent through
better engine design. We believe that, in response to our Phase 1
heavy-duty rule, industry will have implemented all promising engine-
based emission reduction technologies in order to meet the 2.5 g/bhp-hr
NOX+NMHC standard and the 0.1 g/bhp-hr PM standard. To get
the substantial PM and NOX reductions from diesel engines
needed to solve the air quality problems identified in section II, we
believe a new technology solution will be required. That solution is
the application of high efficiency exhaust emission control
technologies (catalysts) to diesel engines, analogous to the
application of catalyst technologies to passenger cars in the 1970s.
These high efficiency catalyst technologies, enabled by the use of
diesel fuel with sulfur content at or below 15 ppm, can reduce
NOX and PM emissions by more than 90 percent. This dramatic
reduction in emissions will

[[Page 5047]]

enable diesel powered vehicles to reach emission levels well below
today's gasoline emission levels. As detailed in the sections below,
these technologies are rapidly being developed and will be available
for application to diesel powered vehicles by, or even before, the 2007
model year provided the low sulfur diesel fuel required today is widely
available.
a. Meeting the PM Standard
    Diesel PM consists of three primary constituents: Unburned carbon
particles (soot), which make up the largest portion of the total PM;
the soluble organic fraction (SOF), which consists of unburned
hydrocarbons that have condensed into liquid droplets or have condensed
onto unburned carbon particles; and sulfates, which result from
oxidation of fuel and oil derived sulfur in the engine's exhaust.
Several exhaust emission control devices have been developed to control
harmful diesel PM constituents--the diesel oxidation catalyst (DOC),
and the many forms of diesel particulate filters, sometimes called PM
traps. DOCs have been shown to be durable in use, but they effectively
control only the SOF portion of the total PM which, on a modern diesel
engine constitutes only 10 to 30 percent of the total PM. Therefore,
the DOC on its own would only offer a modest reduction in PM emissions,
and would not be able to meet the PM standard set here.
    Diesel particulate filters were first investigated some twenty
years ago as a means to capture solid particles in diesel exhaust. A
variety of approaches to this technology have been developed most of
which provide excellent mechanical filtration of the solid particles
that make up the bulk of diesel PM (60 to 80 percent). The collected
PM, mostly carbon particles, must then be ``burned off'' of the filter
before the filter becomes plugged. This burning off of collected PM
(oxidation of the stored PM, releasing CO2) is referred to
as ``regeneration,'' and can occur either:
     On a periodic basis by using base metal catalysts
(including fuel-borne base metal catalysts) or an active regeneration
system such as an electrical heater, a fuel burner, or a microwave
heater; or,
     On a continuous basis by using precious metal catalysts.
    Diesel particulate traps that regenerate on a periodic basis
(referred to here as either uncatalyzed or base metal catalytic PM
traps) demonstrated high PM trapping efficiencies many years ago, but
the level of the applicable PM standard was such that it could be met
through less costly ``in-cylinder'' control techniques. Un-catalyzed
diesel particulate filters will not be able to meet the 0.01 g/bhp-hr
PM standard finalized today as they are only moderately effective at
controlling the SOF fraction of the particulate. In addition, they
require active regeneration technology which must be engaged frequently
making the systems expensive to operate (increasing fuel consumption)
and less reliable.
    We believe the kind of PM trap that would be able to meet the PM
standard in a reliable, durable, cost effective manner, and the type of
trap that will prove to the be the industry's technology of choice, is
one capable of regenerating on an essentially continuous basis. In
addition these PM traps will be able to achieve very low PM emissions
because:
     They are highly efficient at controlling the solid carbon
portion of PM;
     Unlike uncatalyzed filters, they are highly efficient at
oxidizing the SOF of diesel PM;
     They employ precious metals to produce conditions that
reduce the temperature at which regeneration occurs, thereby allowing
for passive regeneration under normal operating conditions typical of a
diesel engine; 102
---------------------------------------------------------------------------

    \102\ For PM trap regeneration without precious metals, exhaust
metals, exhaust temperatures in excess of 650 deg.C must be
obtained. At such high temperatures, carbon will burn (oxidize to
CO2) provided sufficient oxygen is present. Although the
largest heavy-duty diesels may achieve exhaust temperatures of
650 deg.C under some operating conditions, smaller diesel engines,
particularly light-duty and light heavy-duty diesel engines, will
rarely achieve such high temperatures. For example, exhaust
temperatures on the HDE Federal Test Procedure cycle typically range
from 100 deg.C to 450 deg.C. Precious metal catalyzed traps use
platinum to oxidize NO in the exhaust to No2, which is
capable of oxidizing carbon at temperatures as low as 250 deg.C to
300 deg.C.
---------------------------------------------------------------------------

     Because they regenerate continuously, they have lower
average backpressure thereby reducing potential fuel economy impacts;
and,
     Because of their passive regeneration characteristics,
they need no extra burners or heaters like what would be required by an
active regeneration system, thereby reducing potential failures and
fuel economy impacts.
    These catalyzed PM traps are able to provide in excess of 90
percent control of diesel PM when operated on diesel fuel with sulfur
levels at or below 15 ppm. However, as discussed in detail in the RIA,
the catalyzed PM trap cannot regenerate properly with current fuel
sulfur levels, as such sulfur levels poison the catalytic function of
the PM trap inhibiting the necessary NO to NO2 reaction to
the point of stopping trap regeneration.103 Also, because
SO2 is so readily oxidized to SO3, the 0.01 g/
bhp-hr PM standard cannot be achieved with fuel sulfur levels above 15
ppm because of the resultant increase in sulfate PM emissions
(``sulfate make'').104
---------------------------------------------------------------------------

    \103\ Cooper and Thoss, Johnson Matthey, SAE 890404.
    \104\ See the RIA for more detail on the relationship of fuel
sulfur to sulfate make.
---------------------------------------------------------------------------

    More than one exhaust emission control manufacturer is known to
have or be developing these precious metal catalyzed, passively
regenerating PM traps and to have them in broad field test programs in
areas where low sulfur diesel fuel is currently available. In field
trials since 1994, they have demonstrated highly efficient PM control
and good durability with some units accumulating in excess of 360,000
miles of field use.105 The experience gained in these field
tests also helps to clarify the need for low sulfur diesel fuel. In
Sweden, where below 10 ppm diesel fuel sulfur is readily available,
more than 3,000 catalyzed diesel particulate filters have been
introduced into retrofit applications without a single failure. These
retrofit applications include intercity trains, airport buses, mail
trucks, city buses and garbage trucks.106 The field
experience in areas where sulfur is capped at 50 ppm has been less
definitive. In regions without extended periods of cold ambient
conditions, such as the United Kingdom, field tests on 50 ppm sulfur
cap fuel have been positive, matching the durability at 10 ppm, but
would be unable to meet a 0.01 g/bhp-hr PM standard due to a
substantial increase in sulfate PM. However, field tests on 50 ppm
sulfur fuel in Finland where colder winter conditions are often
encountered (similar to northern parts of the United States) have
experienced a failure rate of 10 percent, due to trap plugging. This 10
percent failure rate has been attributed to insufficient trap
regeneration due to fuel sulfur in combination with low ambient
temperatures.107 Other possible reasons for the high failure
rate in Finland when contrasted with the Swedish experience appear to
be unlikely. The Finnish and Swedish fleets were substantially similar,
with both fleets consisting of transit buses powered by Volvo and
Scania engines in the 10 to 11 liter range. Further, the buses were
operated in city areas and none of the vehicles were operated in
northern extremes such as north of the

[[Page 5048]]

Arctic Circle.108 Given that the fleets in Sweden and
Finland were substantially similar, and given that ambient conditions
in Sweden are expected to be similar to those in Finland, we believe
that the increased failure rates noted here are due to the higher fuel
sulfur level in a 50 ppm cap fuel versus a 10 ppm cap
fuel.109 Testing on an even higher fuel sulfur level of 200
ppm was conducted in Denmark on a fleet of 9 vehicles. In less than six
months all of the vehicles in the Danish fleet had failed due to trap
plugging.110 We believe that this real world testing clearly
indicates that increasing diesel fuel sulfur levels limit trap
regeneration, leading to plugging of the PM trap even at fuel sulfur
levels as low as 50 ppm.
---------------------------------------------------------------------------

    \105\ Allansson, et al. SAE 2000-01-0480.
    \106\ Allansson, et al. SAE 2000-01-0480.
    \107\ Letter from Dr. Barry Cooper to Don Kopinski, US EPA, Air
Docket A-99-06.
    \108\ Telephone conversation between Dr. Barry Cooper, Johnson
Matthey, and Todd Sherwood, EPA, Air Docket A-99-06.
    \109\ The average temperatrue in Helsinki, Finland, for the
month of January is 21 deg.F. The average temperature in Stockholm,
Sweden, for the month of January is 26 deg.F. The average
temperature at the University of Michigan in Ann Arbor, Michigan,
for the month of January is 24 deg.F. The temperature reported here
are from www.worldclimate.com based upon the Global Historical
Climatology Network (GHCN) produced jointly by the National Climatic
Data Center and Carbon Dioxide Information Analysis Center at Oak
Ridge National Laboratory (ORNL).
    \110\ Letter from Dr. Barry Cooper to Don Kopinski US EPA, Air
Docket A-99-06.
---------------------------------------------------------------------------

    From these results, we can further conclude that lighter
applications (such as large pick-up trucks and other light heavy-duty
applications), having lower exhaust temperatures than heavier
applications, may experience similar failure rates even in more
temperate climates and would, therefore, need lower sulfur fuel even in
the United Kingdom. These results are understood to be due to the
effect of sulfur on the trap's ability to create sufficient
NO2 to carry out proper trap regeneration. Without the
NO2, the trap continues to trap the PM at high efficiency,
but it is unable to oxidize, or regenerate, the trapped PM. The
possible result is a plugged trap. This vulnerability of the catalyzed
diesel particulate filter due to sulfur in the fuel and the
consequences of trap plugging are discussed fully in section III.F and
the RIA.
    Several commenters raised concerns with our use of the extensive
fleet experience in Europe, to draw conclusions about the necessary
sulfur reductions required in order to ensure PM trap durability. Their
concerns focused generally around the fact that these fleets were made
up of retrofit applications, and that the nature of the fleet operation
did not represent a controlled experiment (ideally all things would
have been equal except for the fuel sulfur level). While we acknowledge
these limitations in the data, we believe they still provide reasonable
evidence of the need for low sulfur diesel fuel. The diversity of
applications, climates, fuel properties, NOX emission
levels, and sulfur levels help to show the relative robustness of the
technology. Further, we believe the PM trap manufacturer's analysis of
the failure mode (i.e., that cold ambient conditions coupled with
diminished NO to NO2 conversion due to sulfur led to the
failures that were experienced) is the most likely explanation of the
observed phenomena. Sulfur in diesel fuel is known to inhibit the
oxidation of NO to NO2 (as described in section III.F)
leading to reduced ability to regenerate the PM filter, especially
under low ambient conditions. For our detailed response to comments
surrounding catalyzed diesel particulate filter durability refer to the
RTC document.
    Several progressive refineries have begun to produce diesel fuel
with sulfur content less than 15 ppm for limited markets in the United
States. The availability of this low sulfur diesel fuel makes it
possible to introduce diesel particulate filters into these limited
markets today. International Truck and Engine Corporation
(``International'') has announced its intent to commercialize its Green
Diesel Engine TechnologyTM in 2001 coupled with less than 15
ppm sulfur fuel to achieve our proposed MY 2007 NMHC and PM emissions
standards six years in advance of the requirement. International's
ability to bring a catalyzed diesel particulate filter technology to
commercialization in such a short period highlights the advanced state
of this technology.111
---------------------------------------------------------------------------

    \111\ International Truck and Engine Corporation's comments on
the proposed 2007 heavy duty vehicle standards, Air Docket A-99-06,
page 2.
---------------------------------------------------------------------------

    Modern catalyzed PM traps have been shown to be very effective at
reducing PM mass. In addition, recent data show that they are also very
effective at reducing the overall number of emitted particles when
operated on low sulfur fuel. Hawker, et. al., found that a modern
catalyzed PM trap reduced particle count by over 95 percent, including
some of the smallest measurable particles (50 nm), at most of the
tested conditions. The lowest observed efficiency in reducing particle
number was 86 percent. No generation of particles by the PM trap was
observed under any tested conditions.112 Kittelson, et al.,
confirmed that ultrafine particles can be reduced by a factor of ten by
oxidizing volatile organics, and by an additional factor of ten by
reducing sulfur in the fuel. Catalyzed PM traps efficiently oxidize
nearly all of the volatile organic PM precursors, and elimination of as
much fuel sulfur as possible will substantially reduce the number of
ultrafine PM emitted from diesel engines. The combination of catalyzed
PM traps with low sulfur fuel is expected to result in very large
reductions in both PM mass and the number of ultrafine particles.
---------------------------------------------------------------------------

    \112\ Hawker, P., et al., Effect of a Continuously Regenerating
Diesel Particulate Filter on Non-Regulated Emissions and Particle
Size Distribution, SAE 980189.
---------------------------------------------------------------------------

    The data currently available show that catalyzed particulate
filters can provide significant reductions in PM. Catalyzed particulate
filters, in conjunction with low sulfur fuel, have been shown to be
more than 90 percent efficient over the FTP and at most SET
modes.113 Testing completed as part of the Diesel Emission
Control Sulfur Effects (DECSE) program has demonstrated that a heavy
duty diesel engine can achieve less than 0.01 g/bhp-hr PM emissions
over the supplemental emission test when equipped with a catalyzed
diesel particulate filter and operated on diesel fuel with sulfur
content less than 15 ppm.114 Further testing at NVFEL has
demonstrated that FTP PM emissions can likewise be controlled below
0.01 g/bhp-hr provided less than 15 ppm sulfur diesel fuel is used with
a catalyzed PM trap.115 Based upon these test results,
extensive field experience throughout the world and International Truck
and Engine Corporation's commitment to produce vehicles with this
technology in 2001, we conclude that the 0.01 g/bhp-hr FTP PM standard
is feasible and that it represents the lowest emission level possible
having given consideration to cost, energy and safety factors.
---------------------------------------------------------------------------

    \113\ Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-Duty Engines to Achieve Low Emission
Levels, Manufacturers of Emissions Controls Association, June 1999.
    \114\ Testing for the DECSE program was conducted on 3 ppm and
30 ppm diesel fuel. A straight-line fit to the results between 3 ppm
and 30 ppm shows that a 15 ppm cap fuel would have emissions less
than 0.01 g/bhp-hr. Diesel Emission Control Sulfur Effects (DECSE)
Program, Phase I Interim Data Report No. 4: Diesel Particulate
Filters--Final Report, January 2000.
    \115\ Memorandum from Charles Schenk, EPA, to Air Docket A-99-
06, ``Summary of EPA PM Efficiency Data,'' May 8, 2000.
---------------------------------------------------------------------------

    With regard to the NTE PM requirements, there is the potential for
sulfate production during some operating modes covered by the NTE which
would likely exceed the FTP PM standard. However, the NTE PM standard
is equal to 1.5  x  FTP standard. Even though the FTP standard of 0.01
g/bhp-hr PM is very low, the small additional head room provided by a

[[Page 5049]]

NTE multiplier of 1.5 will be sufficient to enable PM trap equipped
HDDEs to meet the NTE provisions, even when operated on 15 ppm sulfur
fuel. This is supported by data generated as part of the DECSE test
program, as well as data generated at our own laboratory, as discussed
in greater detail in the RIA.116 As discussed in the RIA,
the expanded ambient condition requirements of the NTE test procedure
will have little effect on the PM reduction capabilities of a PM trap.
The SET PM requirements have also been demonstrated in our laboratory
and are supported by the DECSE test program. A detailed discussion is
contained in the RIA. Based on this information and assessment, we
conclude that the PM supplemental requirements will be feasible in the
2007 time frame.
---------------------------------------------------------------------------

    \116\ Diesel Emission Control Sulfur Effects (DECSE) Program--
Phase II Interim Data Report No. 4, Diesel Particulate Filters--
Final Report, January 2000, Table C1, www.ott.doe.gov/decse.
---------------------------------------------------------------------------

b. Meeting the NOX Standard
    NOX emissions from gasoline-powered vehicles are
controlled to extremely low levels through the use of the three-way
catalyst technology first introduced in the 1970s. Today, an
advancement upon this well-developed three-way catalyst technology, the
NOX adsorber, has shown that it too can make possible
extremely low NOX emissions from lean-burn engines such as
diesel engines. The potential of the NOX adsorber catalyst
is limited only by its need for careful integration with the total
vehicle system (as was done for three-way catalyst equipped passenger
cars in the 1980s and 1990s) and by poisoning of the catalyst from
sulfur in the fuel. Just as the Tier 2 rulemaking enables advanced
three-way catalyst equipped vehicles to meet ultra low NOX
emission levels through the use of low sulfur gasoline, today's
rulemaking will enable NOX adsorbers through substantial
reductions in diesel fuel sulfur levels. The NOX adsorber
has already been commercially introduced in a number of stationary and
mobile source applications.

NOX Adsorbers in Power Generation

    NOX adsorber catalysts were first introduced in the
power generation market less than five years ago. Since then,
NOX adsorber systems in stationary source applications have
enjoyed considerable success. In 1997, the South Coast Air Quality
Management District of California determined that a NOX
adsorber system provided the ``Best Available Control Technology''
NOX limit for gas turbine power systems.117
Average NOX control for these power generation facilities is
in excess of 92 percent.118 A NOX adsorber
catalyst applied to a natural gas fired powerplant has demonstrated
better than 99 percent reliability for more than 21,000 hours of
operation while controlling NOX by more than 90
percent.119
---------------------------------------------------------------------------

    \117\ Letter from Barry Wallerstein, Acting Executive Officer,
SCAQMD, to Robert Danziger, Goal Line Environmental Technologies,
dated December 8, 1997, www.glet.com.
    \118\ Reyes and Cutshaw, SCONOX Catalytic Absorption
System, December 8, 1998, www.glet.com.
    \119\ Danziger, R. et al. 21,000 Hour Performance Report on
SCONOX, 15 September 2000, Air Docket A-99-06.
---------------------------------------------------------------------------

NOX Adsorbers in Lean-Burn Gasoline Vehicles

    The NOX adsorber's ability to control NOX
under oxygen rich (fuel lean) operating conditions has led the industry
to begin applying NOX adsorber technology to lean-burn
engines in mobile source applications. NOX adsorber
catalysts have been developed and are now in production for lean-burn
gasoline vehicles in Japan, including several vehicle models sold by
Toyota Motor Corporation.120 The 2000 model year saw the
first U.S. application of this technology with the introduction of the
Honda Insight, certified to the California LEV-I ULEV category
standard. These lean burn gasoline applications are of particular
interest because they are similar to diesel vehicle applications in
terms of NOX storage under lean exhaust conditions and the
need for periodic NOX regeneration under transient driving
conditions. The substantial experience already gained and continuing to
be gained from NOX adsorber use in lean-burn gasoline
vehicles provides a firm basis from which diesel NOX
adsorber development is proceeding.
---------------------------------------------------------------------------

    \120\ Toyota requires that their lean burn gasoline engines
equipped with NOX adsorbers are fueled on premium
gasoline in Japan, which has an average sulfur content of 6 ppm.
(See Item IV-E-31 in Air Docket A-99-06.)
---------------------------------------------------------------------------

NOX Adsorbers in Light-Duty Diesel Vehicles

    This rapid development pace of the NOX adsorber
technology is not limited to gasoline applications but includes markets
where low sulfur diesel fuel is already available or has been mandated
to coincide with future emission standards. In Japan, Toyota Motor
Corporation has recently announced that it will begin introducing
vehicles using its Diesel Particulate-- NOX Reduction (DPNR)
system in 2003. This system uses a NOX adsorber catalyst
applied on the surface of a diesel particulate filter, providing
greater than 80 percent reductions in both PM and NOX.
Toyota notes however, that DPNR requires fuel with low sulfur content
in order to maintain high efficiency for a long duration.121
In Europe, both Daimler Chrysler and Volkswagen, driven by a need to
meet stringent Euro IV emission standards, have published results
showing how they would apply the NOX adsorber technology to
their diesel-powered passenger cars. Volkswagen reports that it has
already demonstrated NOX emissions of 0.137 g/km (0.22 g/
mi), a 71 percent reduction, on a diesel powered Passat passenger car
equipped with a NOX adsorber catalyst.122
---------------------------------------------------------------------------

    \121\ Revolutionary Diesel Aftertreatment System Simultaneously
Reduces Diesel Particulate Matter and Nitrogen Oxides, Toyota Motor
Corporation press release, July 25, 2000, contained in Air Docket A-
99-06.
    \122\ Pott, E., et al., ``Potential of NOX-Trap
Catalyst Application for DI-Diesel Engines,'' Air Docket A-99-06.
---------------------------------------------------------------------------

US DOE Research Programs

    The U.S. Department of Energy (DOE) has funded several test
programs at national laboratories and in partnership with industry to
investigate NOX adsorber technology. At Oak Ridge National
Laboratory, DOE researchers have shown that a NOX adsorber
and a laboratory regeneration system can reduce NOX by more
than 90 percent when used on a diesel powered Mercedes A-class
passenger car. Following 600 miles of driving with 150 ppm sulfur fuel,
the system performance degraded considerably.123 While the
system was not production ready, it does demonstrate that very high
efficiencies are achievable with advanced emission control systems
operating on low sulfur fuel.124 With additional system
development over the next several years we are confident that the
remaining design challenges such as long-term durability will be
solved.
---------------------------------------------------------------------------

    \123\ Diesel Vehicle Emission Control Sulfur Effects Project at
Oak Ridge National Laboratory, Phase 1 Overview. Pete Devlin, DOE
Office of Transportation Technologies, March 29, 2000, Air Docket A-
99-06.
    \124\ Diesel Emission Control Sulfur Effects (DECSE) Program
Phase II Summary Report: NOX Adsorber Catalysts, October
2000, Air Docket A-99-06.
---------------------------------------------------------------------------

EPA NVFEL Current Technology Evaluation Program

    As part of an effort to evaluate the rapidly developing state of
this technology, the Manufacturers of Emission Control Association
(MECA) provided four different NOX adsorber catalyst
formulations to EPA for

[[Page 5050]]

evaluation. Testing of these catalysts at NVFEL revealed that all four
formulations were capable of reducing NOX emissions by more
than 90 percent over the broad range of operation in the supplemental
emission test (SET) procedure as summarized in Figure III-1. At
operating conditions representative of ``road-load'' operation for a
heavy duty on-highway truck, the catalysts showed NOX
reductions as high as 99 percent resulting in NOX emissions
well below 0.1 g/bhp-hr from an engine-out level of nearly 5 g/bhp-
hr.125 Testing on the FTP has shown similarly good results,
with hot start FTP NOX emissions reduced by more than 90
percent. These results demonstrate that significant NOX
reductions are possible over a broad range of operating conditions with
current NOX adsorber technology, as typified by the FTP and
the SET.
---------------------------------------------------------------------------

    \125\ For more information on testing conducted at NVFEL, refer
to the in-depth discussion given in the RIA, and to the initial test
report contained in Air Docket A-99-06, Item IV-A-29.
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[[Continued on page 5051]]
[Federal Register: January 18, 2001 (Volume 66, Number 12)]
[Rules and Regulations]
[Page 5051-5100]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja01-17]

[[pp. 5051-5100]] Control of Air Pollution from New Motor Vehicles: Heavy-Duty
Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control
Requirements

[[Continued from page 5050]]

[[Page 5051]]

[GRAPHIC] [TIFF OMITTED] TR18JA01.003

BILLING CODE 6560-50-C

[[Page 5052]]

    This large body of evidence that NOX adsorbers are
highly effective, that they can be applied to diesel engines (as
further described in the RIA), and that there is a clear and strong
prospect for their further development, causes us to conclude that
NOX adsorbers will provide at least one feasible path to the
NOX standards we have set today. Further, we can conclude
from this development experience that the 0.20 g/bhp-hr NOX
standard represents the lowest standard achievable by the year 2007,
having given appropriate consideration to cost, energy, and safety as
described elsewhere in sections III and V of this document and in the
RIA.

Remaining Engineering Development

    The considerable success in demonstrating NOX adsorber
technology in laboratory settings, as outlined above, clearly shows
that the technology is currently capable of achieving the
NOX standard level. There are several engineering challenges
that will be addressed in going from this level of demonstration to
implementation of durable and effective emission control systems on
production vehicles. One of these technical challenges involves changes
to the way diesel engines will need to operate in order to take full
advantage of the NOX adsorber, representing a shift from
current day engine operation. Working within the engine design and
operating principles expected for 2004 model year engines, optimization
of the total system (matching exhaust temperatures to the operating
window of NOX adsorbers and controlling exhaust air to fuel
ratios), will be essential to getting the best performance from the
NOX adsorber. We have estimated in the RIA that diesel
engine manufacturers collectively will need to invest $385 million in
order to implement this change. In addition to the generic need to
optimize operation to match the NOX adsorber performance,
industry will further need to address NOX adsorber
desulfation and its associated issues because some sulfur will still
remain in the fuel and the engine's lubricating oil.
    Clear engineering paths to address these problems can be described
today, several years in advance of when they will need to be applied.
The primary thing that must occur is to eliminate most of the sulfur
from diesel fuel. The fuel sulfur standard set today in this rulemaking
overcomes this obstacle. The second set of system engineering steps
needed to accomplish both NOX regeneration and desulfation
are already being laid out in test programs conducted by DOE in the
DECSE Phase II program and in our own test program at the National
Vehicle and Fuel Emissions Laboratory. The DECSE Phase II program
clearly demonstrates that, through changes in ``in-cylinder''
operation, diesel exhaust conditions can be generated that are
optimized for NOX storage (fuel lean operation),
NOX regeneration (fuel rich operation), or desulfation (hot,
fuel rich operation). This in-cylinder approach, discussed more fully
in the RIA, represents a likely technical solution for light heavy-duty
vehicles which are expected to already have the necessary EGR and
common rail fuel system technologies need for this approach by the 2004
model year. Testing at NVFEL shows yet another engineering path to
optimizing the NOX control system external to the combustion
system. This approach segregates the exhaust into separate streams
external to the engine and manipulates exhaust conditions by changing
exhaust mass flow (through valves) and by adding supplemental fuel with
an electronic fuel injector. This approach means that exhaust
temperatures and air to fuel ratios can be controlled external to the
engine allowing great flexibility to control and optimize
NOX regeneration and sulfur regeneration events. This
approach may prove to be a good solution for heavy heavy-duty vehicles
because of the freedom it allows for optimization of both the engine
operation and the aftertreatment operation with fewer tradeoffs with
regards to fuel consumption and engine durability. A complete
description of this approach and its merits is given in the RIA.
    Each of the engineering paths described here shows a means for
compliance with the NOX standard given further optimization
and development and, given past experiences with the introduction of
new technologies, other approaches are likely to be devised as well.
Given industry's demonstrated ability to develop solutions to similar
issues with gasoline three-way catalysts and gasoline-based
NOX adsorber technologies, we are confident that the
NOX emission control system can be designed for the long
life required for heavy-duty diesel operation. We are not alone in this
evaluation of NOX adsorber development, as evidenced by the
strong endorsement of the technology by many in the
industry.126 For example, one letter we have received
stated, ``We believe all NOX Adsorber development issues
have been identified and the technology is proceeding according to
schedule. We have identified development paths leading toward
production optimization and do not see insurmountable technical
barriers. We are confident in our ability and experience in applying
the science of surface chemistry and catalysis to achieve our
objective.'' 127
---------------------------------------------------------------------------

    \126\ Letter from Steven Suttle, Corning, Inc., to Margo Oge,
EPA, dated October 23, 2000, Item IV-G-59; letter from Martin
Lassen, Johnson Matthey, to Margo Oge, EPA, dated October 19, 2000,
Item IV-G-55; letter from John Mooney, Engelhard Corporation, to
Margo Oge, EPA, dated October 3, 2000, Item IV-G-38; MECA press
release dated October 3, 2000, Item IV-G-53; and Department of
Energy, dated September 6, 2000, Item IV-G-28; all contained in
Docket A-99-06.
    \127\ Letter from John J. Mooney, Director, Technical
Development and Business Groups, Engelhard Corporation, to Margo
Oge, Director, OTAQ, EPA, dated October 3, 2000, Item IV-G-38,
Docket A-99-06.
---------------------------------------------------------------------------

NTE NOX Limits

    The broad NOX reduction capability of the NOX
adsorbers will also enable the NTE NOX requirements to be
met. As discussed previously, we have established an NTE NOX
standard of 1.5  x  FTP standard, or 0.30 g/bhp-hr NOX,
which is 0.10 g/bhp-hr above the FTP standard. The NMHC+NOX
NTE standard for 2004 technology HDDEs is 1.25  x  2.5 g/bhp-hr NMHC +
NOX, or 3.125 g/bhp-hr, which is 0.625 g/bhp-hr above the
2004 FTP standard. As discussed in the RIA for this final rule, we
would expect that the majority of the NTE standard for a 2004
technology engine would be comprised of NOX emissions,
perhaps as much as 3.0 g/bhp-hr (with the remainder, 0.125 g/bhp-hr,
being HC). Based on available data, including data from our NVFEL test
facility, we believe a NOX adsorber system will be capable
of a 90 percent or greater emission reduction across the entire NTE
control zone, for the test conditions covered by the NTE test
procedure, by model year 2007. A 90 percent reduction from the ``base''
NOX NTE level of 3.0 g/bhp-hr would result in a tailpipe
emission rate of 0.30 g/bhp-hr, which is 1.5 times the 2007 FTP
NOX standard. As discussed in the RIA, we have demonstrated
NOX reductions on the order of 90 percent or greater across
the NTE control zone in our test program at NVFEL. A complete
description of the NOX adsorber testing completed at NVFEL
is provided in the final RIA and in the docket associated with this
rule. This testing was performed at standard laboratory conditions;
however, we do not expect the expanded ambient conditions required for
NTE compliance to have a significant impact on the performance of the
exhaust emission control systems. Additional discussion of this issue
is contained in the RTC and the RIA for this rule.

[[Page 5053]]

Sulfur Trap

    The preceding discussion of NOX adsorbers assumes that
SOX (SO2 and SO3) emissions will be
``trapped'' on the surface of the catalyst, effectively poisoning the
device and requiring a ``desulfation'' (sulfur removal event) to
recover catalyst efficiency. We believe that, at the 15 ppm cap fuel
sulfur level, this strategy will allow effective NOX control
with moderately frequent desulfation and with a modest fuel consumption
of one percent. We believe this fuel consumption impact will be more
than offset by reduced reliance on current, more fuel inefficient
NOX control strategies (see discussion in Section III.G for
estimates of overall fuel economy impacts). In the NPRM for this
rulemaking, we sought comment on the potential of a separate
SOX trap catalyst to control sulfur poisoning of the
NOX adsorber catalyst. As detailed further in the final RIA
and RTC documents, we believe that even if a separate SOX
trap system were used, fuel sulfur levels would have to be 15 ppm or
lower in order for the NOX adsorber technology to function
properly over the life of a heavy-duty vehicle.

Urea SCR Technology

    SCR Technology has been put forward by some as another means of
meeting stringent NOX standards. For reasons discussed below
we do not believe that it provides an adequate basis for establishing
the feasibility of today's emission standards. Selective Catalytic
Reduction (SCR), like the NOX adsorber technology, was first
developed for stationary applications and is currently being refined
for the transient operation found in mobile applications. With the SCR
system, a urea solution is injected upstream of the catalyst which
breaks down the urea into ammonia and carbon dioxide. The ammonia is
used as a NOX reductant across the SCR catalyst producing
N2 and water. Catalysts containing precious metals
(platinum) can be used at the inlet and outlet of SCR systems designed
for mobile applications to improve low temperature NOX
reduction performance and to oxidize any ammonia that may pass through
the SCR, respectively. SCR systems using these oxidation catalysts and
being developed for mobile applications are more often called ``compact
SCR'' systems. Generally, reference to SCR throughout this preamble
should be taken to mean compact SCR. The use of these platinum
catalysts enables SCR systems to achieve NOX reductions at
lower temperatures (as required for diesel engine applications), but
introduces sensitivity to sulfur in much the same way as for diesel
particulate filter technologies. Sulfur in diesel fuel inhibits low
temperature performance and results in high sulfate-make, leading
directly to higher particulate emissions. For a further discussion of
SCR system sensitivity to sulfur in diesel fuel, and of its need for
low sulfur diesel fuel, refer to Section III.F.
    Urea SCR catalysts, like NOX adsorbers, need low sulfur
diesel fuel to achieve high NOX conversion efficiencies and
to control sulfate PM emissions. If low sulfur fuel is required, SCR
NOX control may be possible in some applications by 2007.
However we believe there are significant barriers to its general use
for meeting the 2007 standards. SCR systems require vehicles to carry a
supply of urea. The infrastructure for delivering urea at the diesel
fuel pump would need to be in place for these devices to be feasible in
the marketplace; and before development of the infrastructure could
begin, the industry would have to decide upon a standardized method of
delivery for the urea supply.
    In addition to this, there would need to be adequate safeguards in
place to ensure the urea is used throughout the life of the vehicle
since, given the added cost of urea and the fact that urea depletion
would not normally affect driveability, there would be an incentive not
to refill the urea tank. This could lead to considerable uncertainties
regarding the effectiveness of SCR, even if EPA were to promulgate the
regulations that likely would be needed to require the regular
replenishment of urea. Some commenters have suggested that this is the
key issue with regard to urea SCR systems. One commenter further
concludes that this issue could be addressed by designing engines with
on-board diagnostic systems utilizing a NOX sensor that
would observe a loss of NOX control. When observed, the
engine would be designed to reduce power gradually until a 50 percent
loss of power was realized. This power loss would serve to encourage
the user to replenish the urea tank.128 While such an
approach may be possible, it raises concerns for public safety as poor
engine performance could lead to inadequate power for safe merging onto
highways and other related driving situations. We remain hesitant to
base a national program on such technology when important issues such
as driver training on the need to refill the urea tank and the
consequences of failure to do so cannot be appropriately controlled.
This approach would seem to suggest a need for EPA-mandated spot checks
of individual vehicles to ensure compliance with the NOX
standard. How such a program would work and the burden that it might
place on small business entities was not addressed in the comments. In
testimony given at the public hearing held for this rulemaking in Los
Angeles, the California Trucking Association raised concerns about the
appropriateness of putting this regulatory burden on truckers when a
simpler technology such as a diesel NOX adsorber was
available instead.129 Without measures similar to these, we
would expect that a substantial number of users would not remember to
fill their urea tanks. Since failure to provide urea for a vehicle
would lead to a total loss of NOX control for that vehicle,
we would need to model the loss of NOX control to be
expected from an SCR based program. Such a loss in NOX
control most likely would be appreciable and, in effect, the
NOX standard would not be met on a fleetwide basis.
---------------------------------------------------------------------------

    \128\ API Comments on the 2007 Heavy Duty Engine/Diesel Sulfur
Proposed Rule, August 14, 2000, Air Docket A-99-06, IV-D-343.
    \129\ Testimony of Stephanie Williams--Director of Environmental
Affairs, California Trucking Association to EPA public hearing June
27, 2000, Air Docket A-99-06, IV-F-190.
---------------------------------------------------------------------------

    We believe that these significant obstacles would prevent the
widespread or general availability of SCR for use as a NOX
control strategy to meet the 0.20 g/bhp-hr NOX standard.
These problems may, however, be resolved in some niche applications;
for example, certain well-managed centrally-fueled fleets. Because of
the many obstacles to ensure in-use NOX control with the
SCR, we do not believe that feasibility of the 0.20 g/bhp-hr
NOX standard can be based upon SCR technology. For further
discussion of urea SCR's need for low sulfur diesel fuel, refer to
section III.F of this preamble.

Summary

    Based on the discussion above, we believe that NOX
exhaust emission control technology, in combination with low sulfur
diesel fuel of 15 ppm or lower, is capable of meeting the very
stringent NOX standards finalized today. The certainty
provided by this rulemaking that low sulfur diesel fuel will be
available in the future, and the emission standards finalized today
that necessitate advanced NOX controls, should lead to rapid
development of these technologies. The NOX adsorber
technology has shown remarkable advancement in the last five years,
both in stationary source applications and

[[Page 5054]]

lean-burn gasoline applications, and now for heavy-duty diesel engines.
Given this rapid progress, the availability of low sulfur diesel fuel,
the identification of engineering paths to resolving the technological
issues, and the lead time provided by today's rulemaking, we believe
that applying NOX adsorbers to heavy-duty diesel engines
will provide the emission reductions needed to comply with the 2007 HD
NOX standards. This can be done in a cost effective way,
with little or no fuel economy impact, and no special concerns of
safety.
c. Meeting the NMHC Standard
    Historically control of non-methane hydrocarbon (NMHC) emissions on
diesel engines has been relatively simple, when compared to gasoline
engines, due to the net fuel lean (abundant oxygen) operation typical
of diesel engines. In fact, due to this operating characteristic,
diesel engine NMHC levels have often been significantly below the
mandated levels. The introduction of catalytic NOX control
and the subsequent need to operate under alternately net lean and net
rich conditions is likely to make NMHC control more difficult.
    Meeting the NMHC standards under the lean operating conditions
typical of the biggest portion of NOX adsorber operation
should not present any special challenges to diesel manufacturers.
Since the devices discussed above--catalyzed particulate filters and
NOX adsorbers, contain platinum and other precious metals to
oxidize NO to NO2, they are also very efficient oxidizers of
hydrocarbons. NMHC emission reductions of greater than 95 percent have
been shown in these devices over the transient FTP and SET
modes.130 Given that typical engine-out NMHC is expected to
be in the 0.20 g/bhp-hr range for engines meeting the 2004 standards,
this level of NMHC reduction will mean that under lean conditions
emission levels will be well below the standard.
---------------------------------------------------------------------------

    \130\ ``The Impact of Sulfur in Diesel Fuel on Catalyst Emission
Control Technology,'' report by the Manufacturers of Emission
Controls Association, March 15, 1999, pp. 9 & 11.
---------------------------------------------------------------------------

    However, the NOX regeneration strategies for the
NOX adsorber technology may prove difficult to control
precisely, leading to a possible increase in HC emissions under the
rich operating conditions required for NOX regeneration.
Even with precise control of the regeneration cycle, HC slip may prove
to be a difficult problem due to the need to regenerate the
NOX adsorber under net rich conditions (excess fuel) rather
than the stoichiometric (fuel and air precisely balanced) operating
conditions typical of a gasoline three-way catalyst. It seems likely
therefore, that in order to meet the HC standards we have set, an
additional clean up catalyst may be necessary. A diesel oxidation
catalyst, like those applied historically for HC and partial PM
control, can reduce HC reductions (including toxic HCs) by more than 80
percent.131 This amount of additional control along with
optimized NOX regeneration strategies will ensure very low
HC emissions. With such a downstream clean-up device to control HC slip
during the periodic NOX regeneration event, the HC standard
we have set here can be met. For a complete description of how the
clean up catalyst functions in conjunction with the NOX
adsorber technology, please refer to the complete system description
given below in section III.E.1.e and to the final RIA.
---------------------------------------------------------------------------

    \131\ Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-Duty Engines to Achieve Low Emission
Levels, Manufacturers of Emissions Controls Association, June 1999.
---------------------------------------------------------------------------

    Given industry's extensive experience with diesel oxidation
catalysts, the long lead time provided by this rulemaking and the
availability of less than 15 ppm sulfur diesel fuel, we conclude,
having given consideration to cost, energy impacts and safety, that the
NMHC standard is feasible.
d. Meeting the Crankcase Emissions Requirements
    The most common way to eliminate crankcase emissions has been to
vent the blow-by gases into the engine air intake system, so that the
gases can be recombusted. Until today's rulemaking, we have required
that crankcase emissions be controlled only on naturally aspirated
diesel engines. We have made an exception for turbocharged heavy-duty
diesel engines because of concerns in the past about fouling that could
occur by routing the diesel particulates (including engine oil) into
the turbocharger and aftercooler. However, this is an environmentally
significant exception since most heavy-duty diesel trucks use
turbocharged engines, and a single engine can emit over 100 pounds of
NOX, NMHC, and PM from the crankcase over its lifetime.
    Given the available means to control crankcase emissions, we have
eliminated this exception. We anticipate that the heavy-duty diesel
engine manufacturers will be able to control crankcase emissions
through the use of closed crankcase filtration systems or by routing
unfiltered blow-by gases directly into the exhaust system upstream of
the emission control equipment. However, the provision has been written
such that if adequate control can be had without ``closing'' the
crankcase then the crankcase can remain ``open.'' Compliance would be
ensured by adding the emission from the crankcase ventilation system to
the emissions from the engine control system downstream of any emission
control equipment.
    We expect that in order to meet the stringent tailpipe emission
standards set here, that manufacturers will have to utilize closed
crankcase approaches as described here. Closed crankcase filtration
systems work by separating oil and particulate matter from the blow-by
gases through single or dual stage filtration approaches, routing the
blow-by gases into the engine's intake manifold and returning the
filtered oil to the oil sump. These systems are required for new heavy-
duty diesel vehicles in Europe starting in 2000. Oil separation
efficiencies in excess of 90 percent have been demonstrated with
production ready prototypes of two stage filtration
systems.132 By eliminating 90 percent of the oil that would
normally be vented to the atmosphere, the system works to reduce oil
consumption and to eliminate concerns over fouling of the intake system
when the gases are routed through the turbocharger. Mercedes-Benz
currently utilizes this type of system on virtually all of its heavy-
duty diesel engines sold in Europe. An alternative approach would be to
route the blow-by gases into the exhaust system upstream of the
catalyzed diesel particulate filter which would be expected to
effectively trap and oxidize the engine oil and diesel PM. This
approach may require the use of low sulfur engine oil to ensure that
oil carried in the blow-by gases does not compromise the performance of
the sulfur-sensitive emission control equipment.
---------------------------------------------------------------------------

    \132\ Letter from Marty Barris, Donaldson Corporation, to Byron
Bunker US EPA, March 2000. Air Docket A-99-06.
---------------------------------------------------------------------------

e. The Complete System
    We expect that the technologies described above would be integrated
into a complete emission control system as described in the final RIA.
The engine-out emissions will be balanced with the exhaust emission
control package in such a way that the result is the most beneficial
from a cost, fuel economy and emissions standpoint. The engine-out
exhaust characteristics will also have a role in assisting the exhaust
emission control devices used. The NOX

[[Page 5055]]

adsorber, for instance, will require periods of oxygen-depleted exhaust
flow in order to accomplish NOX regeneration and to allow
for sulfur control using desulfation events. This may be most
efficiently done by reducing the air-fuel ratio that the engine is
operating under during the regeneration to reduce the oxygen content of
the exhaust, or alternatively by partitioning the exhaust flow such
that only a small portion of the exhaust flow is used for
NOX regeneration, thereby reducing the amount of oxygen
needing to be depleted through fuel addition. Further, it is envisioned
that the PM device will be integrated into the exhaust system upstream
of the NOX reduction device. This placement would allow the
PM trap to take advantage of the engine-out NOX as an
oxidant for the particulate, while removing the particulate so that the
NOX exhaust emission control device will not have to deal
with large PM deposits which may cause a deterioration in performance.
Further it allows the NOX adsorber to make use of the
upstream PM filter as a pre-catalyst to oxidize some NO to
NO2 and to partially oxidize the reductant (diesel fuel or
exhaust hydrocarbons) to a more desirable reductant form such as CO
before entering the NOX adsorber. Of course, there is also
the possibility of integrating the PM and NOX exhaust
emission control devices into a single unit to replace a muffler and
save space (Toyota's DNPR system being an example of this
approach).133 The final component in any of these system
configurations is likely to be some form of clean up catalyst which can
provide control of HC slip during NOX regeneration as well
as H2S slip during SOx regeneration. Particulate free
exhaust may also allow for new options in EGR system design to optimize
its efficiency.
---------------------------------------------------------------------------

    \133\ Revolutionary Diesel Aftertreatment System Simultaneously
Reduces Diesel Particulate Matter and Nitrogen Oxides, Toyota Motor
Corporation press release, July 25, 2000, Air Docket A-99-06.
---------------------------------------------------------------------------

    We expect that the emission reduction efficiency of the exhaust
emission control system will vary across the NTE zone as a function of
exhaust temperature and space velocity.134 Consequently, to
maintain the NTE emission cap, the engine-out emissions would have to
be calibrated with exhaust emission control system performance
characteristics in mind. This would be accomplished by lowering engine-
out emissions where the exhaust emission control system was less
efficient, for example by retarding fuel injection timing or increasing
the EGR rate. Conversely, where the exhaust emission control system is
very efficient at reducing emissions, the engine-out emissions could be
tuned for higher emissions and better fuel economy. These trade-offs
between engine-out emissions and exhaust emission control system
performance characteristics are similar to those of gasoline engines
with three-way catalysts in today's light-duty vehicles and can be
overcome through similar system based engineering solutions. Managing
and optimizing these trade-offs will be crucial to effective
implementation of exhaust emission control devices on diesel
applications.
---------------------------------------------------------------------------

    \134\ The term, ``space velocity,'' is a measure of the volume
of exhaust gas that flows through a device.
---------------------------------------------------------------------------

2. Feasibility of Stringent Standards for Heavy-Duty Gasoline
    Gasoline emission control technology has evolved rapidly in recent
years. Emission standards applicable to 1990 model year vehicles
required roughly 90 percent reductions in exhaust NMHC and CO emissions
and a 75 percent reduction in NOX emissions compared to
uncontrolled emissions. Today, some vehicles' emissions are well below
those necessary to meet the current federal heavy-duty gasoline
standards, the 2004 heavy-duty gasoline standards, and the California
Low-Emission Vehicle standards for medium-duty vehicles. The continuing
emissions reductions have been brought about by ongoing improvements in
engine air-fuel management hardware and software plus improvements in
exhaust system and catalyst designs.
    We believe that the types of changes being seen on current vehicles
have not yet reached their technological limits and continuing
improvement will allow them to meet today's standards. The RIA
describes a range of specific emission control techniques that we
believe could be used. There is no need to invent new technologies,
although there will be a need to apply existing technology more
effectively and more broadly. The focus of the effort will be in the
application and optimization of these existing technologies.
    In our light-duty Tier 2 rule, we have required that gasoline
sulfur levels be reduced to a 30 ppm average, with an 80 ppm maximum.
This sulfur level reduction is the primary enabler for the Tier 2
standards. Similarly, we believe that the gasoline sulfur reduction,
along with refinements in existing gasoline emission control
technology, will be sufficient to allow heavy-duty gasoline vehicles
and engines to meet the emission standards sought by today's rule.
    However, we recognize that the emission standards are stringent,
and considerable effort will have to be undertaken. For example, we
expect that every engine will have to be recalibrated to improve upon
its cold start emission performance. Manufacturers will have to migrate
their light-duty calibration approaches to their heavy-duty offerings
to provide cold start performance in line with what they will have to
achieve to meet the Tier 2 standards.
    We also project that today's new heavy-duty gasoline standards
would require the application of advanced engine and catalyst systems
similar to those projected for their light-duty counterparts.
Historically, manufacturers have introduced technology on light-duty
gasoline applications and then applied those technologies to their
heavy-duty gasoline applications. Today's standards will allow
manufacturers to take this same approach. In other words, we expect
that manufacturers will meet today's new standards through the
application of technology developed to meet light-duty Tier 2 standards
for 2004.
    Improved calibration and systems management will be critical in
optimizing the performance of the engine with the advanced catalyst
system. Precise air/fuel control must be tailored for emissions
performance and must be optimized for all types of driving. Calibration
refinements may also be needed for EGR system optimization and to
reduce cold start emissions through methods such as spark timing
retard. We also project that electronic control modules with expanded
capabilities will be needed on some vehicles and engines.
    We also expect increased use of other technologies in conjunction
with those described above. We expect some increased use of air
injection to improve upon cold start emissions. We may also see air-gap
manifolds, exhaust pipes, and catalytic converter shells as a means of
improving upon catalyst light-off times thereby reducing cold start
emissions. Other, non-catalyst related improvements to gasoline
emission control technology include higher speed computer processors
which enable more sophisticated engine control algorithms and improved
fuel injectors providing better fuel atomization thereby improving fuel
combustion.
    Catalyst system durability is, and will always be, a serious
concern. Historically, catalysts have deteriorated when exposed to very
high temperatures. This has long been a concern especially for heavy-
duty work

[[Page 5056]]

vehicles. However, catalyst manufacturers continue to make strides in
the area of thermal stability and we expect that improvements in
thermal stability will continue for the next generation of catalysts.
    We believe that, by optimizing all of these technologies,
manufacturers will be able to achieve today's standards. Advanced
catalyst systems have already shown potential to reduce emissions to
close to these levels. Some current California vehicles are certified
to levels below 0.20 g/mi NOX. California tested an advanced
catalyst system on a vehicle loaded to a test weight comparable to a
heavy-duty vehicle test weight and achieved NOX and NMOG
levels of 0.1 g/mi and 0.16 g/mi, respectively. The California vehicle
with the advanced catalyst had not been optimized as a system to take
full advantage of the catalyst's capabilities.
    The compliance flexibility provisions can also be an important tool
for manufacturers in implementing a new standard. The program allows
manufacturers to transition to the more stringent standards by
introducing emissions controls over a longer period of time, as opposed
to a single model year. Manufacturers plan their product introductions
well in advance. With the compliance flexibilities, manufacturers can
better manage their product lines so that the new standards don't
interrupt their product introduction plans. Also, the program allows
manufacturers to focus on higher sales volume vehicles first and use
credits for low sales volume vehicles.
3. Feasibility of the New Evaporative Emission Standards
    The new evaporative emission standards appear to be feasible now.
Many designs have been certified that already meet these standards. A
review of 1998 model year certification data indicates that five of
eight evaporative system families in the 8,500 to 14,000 pound range
comply with the new 1.4 g/test standard, while all evaporative system
families in the over 14,000 pound range comply with the new 1.9 g/test
standard.
    The new evaporative emission standards should not require the
development of new materials but may, in some cases, require new
application of existing materials. Low permeability materials and low
loss connections and seals are already used to varying degrees on
current vehicles, but that practice may become more widespread. Today's
new standards would likely ensure their consistent use and discourage
manufacturers from switching to cheaper materials or designs to take
advantage of the large safety margins they have had under current
standards.
    There are two approaches to reducing evaporative emissions for a
given fuel. One is to minimize the potential for permeation and leakage
by reducing the number of hoses, fittings and connections. The second
is to use less permeable hoses and lower loss fittings and connections.
Manufacturers are already employing both approaches.
    Most manufacturers are moving to ``returnless'' fuel injection
systems. Through more precise fuel pumping and metering, these systems
eliminate the return line in the fuel injection system. The return line
carries unneeded fuel from the fuel injectors back to the fuel tank.
Because the fuel injectors are in such close contact with the hot
engine, the fuel returned from the injectors to the fuel tank has been
heated. This returned fuel is a significant source of fuel tank heat
and vapor generation. The elimination of the return line also reduces
the total length of hose on the vehicle though which vapors can
permeate, and it reduces the number of fittings and connections through
which fuel can leak.
    Low permeability hoses and seals, and low loss fittings are
available and are already used on many vehicles. Fluoropolymer
materials can be added as liners to hose and component materials to
yield large reductions in permeability over such conventional materials
as monowall nylon. In addition, fluoropolymer materials can greatly
reduce the adverse impact of alcohols in gasoline on permeability of
evaporative components, hoses and seals.

F. Need for Low Sulfur Diesel Fuel

    The following discussion will build upon the brief sulfur
sensitivity points made earlier in this section by providing a more in-
depth discussion of sulfur's effect on the diesel exhaust emission
control technologies. In order to evaluate the effect of sulfur on
diesel exhaust control technologies, we used three key factors to
categorize the impact of sulfur in fuel on emission control function.
These factors were efficiency, reliability, and fuel economy. Taken
together these three factors lead us to believe that diesel fuel sulfur
levels of 15 ppm will be required in order to make feasible the heavy-
duty vehicle emission standards. Brief summaries of these factors are
provided below. A more in-depth review is given in the following
subsections and in the final RIA.
    The efficiency of emission control technologies to reduce harmful
pollutants is directly affected by sulfur in diesel fuel. Initial and
long term conversion efficiencies for NOX, NMHC, CO and
diesel PM emissions are significantly reduced by catalyst poisoning and
catalyst inhibition due to sulfur. NOX conversion
efficiencies with the NOX adsorber technology in particular
are dramatically reduced in a very short time due to sulfur poisoning
of the NOX storage bed. In addition, total PM control
efficiency is negatively impacted by the formation of sulfate PM. As
explained in detail in the following sections, all of the advanced
NOX and PM technologies described here have the potential to
make significant amounts of sulfate PM under operating conditions
typical of heavy-duty vehicles. We believe that the formation of
sulfate PM will be in excess of the total PM standard, unless diesel
fuel sulfur levels are at or below 15 ppm. Based on the strong negative
impact of sulfur on emission control efficiencies for all of the
technologies evaluated, we believe that 15 ppm represents an upper
threshold of acceptable diesel fuel sulfur levels.
    Reliability refers to the expectation that emission control
technologies must continue to function as required under all operating
conditions for the life of the vehicle. As discussed in the following
sections, sulfur in diesel fuel can prevent proper operation of both
NOX and PM control technologies. This can lead to permanent
loss in emission control effectiveness and even catastrophic failure of
the systems. Sulfur in diesel fuel impacts reliability by decreasing
catalyst efficiency (poisoning of the catalyst), increasing diesel
particulate filter loading, and negatively impacting system
regeneration functions. Among the most serious reliability concerns
with sulfur levels greater than 15 ppm are those associated with
failure to properly regenerate. In the case of the NOX
adsorber, failure to regenerate will lead to rapid loss of
NOX emission control as a result of sulfur poisoning of the
NOX adsorber bed. In the case of the diesel particulate
filter, sulfur in the fuel reduces the reliability of the regeneration
function. If regeneration does not occur, catastrophic failure of the
filter could occur. It is only by the availability of low sulfur diesel
fuels that these technologies become feasible. The analysis given in
the following section makes clear that diesel fuel sulfur levels will
need to be under 15 ppm in order to ensure robust operation of the
technologies under the variety of operating conditions anticipated to
be experienced in the field.
    Fuel economy impacts due to sulfur in diesel fuel affect both
NOX and PM

[[Page 5057]]

control technologies. The NOX adsorber sulfur regeneration
cycle (desulfation cycle) can consume significant amounts of fuel
unless fuel sulfur levels are very low. The larger the amount of sulfur
in diesel fuel, the greater the adverse effect on fuel economy. As
sulfur levels increase above 15 ppm, the adverse effect on fuel economy
becomes more significant, increasing above one percent and doubling
with each doubling of fuel sulfur level. Likewise, PM trap regeneration
is inhibited by sulfur in diesel fuel. This leads to increased PM
loading in the diesel particulate filter and increased work to pump
exhaust across this restriction. With low sulfur diesel fuel, diesel
particulate filter regeneration can be optimized to give a lower (on
average) exhaust backpressure and thus better fuel economy. Thus, for
both NOX and PM technologies the lower the fuel sulfur level
the lower the operating costs of the vehicle.
1. Catalyzed Diesel Particulate Filters and the Need for Low Sulfur
Fuel
    Diesel particulate filters (PM traps) function to control diesel PM
through mechanical filtration of PM from the diesel exhaust stream and
then oxidation of the stored PM (trap regeneration). Through oxidation
in the catalyzed diesel particulate filter the stored carbonaceous PM
is converted to CO2 and released into the atmosphere.
Failure to oxidize the stored PM leads to accumulation in the trap,
eventually causing the trap to become so full that it severely
restricts exhaust flow through the device, leading to trap or vehicle
failure.
    As discussed earlier in this section, uncatalyzed diesel
particulate filters require exhaust temperatures in excess of 650 deg.
C in order for the collected PM to be oxidized by the oxygen available
in diesel exhaust. That temperature threshold for oxidation of PM by
exhaust oxygen can be decreased to 450 deg. C through the use of base
metal catalytic technologies. For a broad range of operating conditions
typical of in use operation, diesel exhaust is significantly cooler
than 400 deg. C. If oxidation of the trapped PM could be assured to
occur at exhaust temperatures lower than 300 deg. C, then diesel
particulate filters would be expected to be robust for most
applications and operating regimes. Oxidation of PM (regeneration of
the trap) at such low exhaust temperatures can occur by using oxidants
which are more readily reduced than oxygen. One such oxidant is
NO2.
    NO2 can be produced in diesel exhaust through the
oxidation of the nitrogen monoxide (NO), created in the engine
combustion process, across a catalyst. The resulting NO2-
rich exhaust is highly oxidizing in nature and can oxidize trapped
diesel PM at temperatures as cool as 250 deg.C.135 Some
platinum group metals are known to be good catalysts to promote the
oxidation of NO to NO2. Therefore in order to ensure passive
regeneration of the diesel particulate filters, significant amounts of
platinum group metals (primarily platinum) are being used in the wash-
coat formulations of advanced diesel particulate filters. The use of
platinum to promote the oxidation of NO to NO2 introduces
several system vulnerabilities affecting both the durability and the
effectiveness of the catalyzed diesel particulate filter when sulfur is
present in diesel exhaust. The two primary mechanisms by which sulfur
in diesel fuel limits the robustness and effectiveness of diesel
particulate filters are inhibition of trap regeneration, through
inhibition of the oxidation of NO to NO2, and a dramatic
loss in total PM control effectiveness due to the formation of sulfate
PM. Unfortunately, these two mechanisms trade-off against one another
in the design of diesel particulate filters. Changes to improve the
reliability of regeneration by increasing catalyst loadings lead to
increased sulfate emissions and, thus, loss of PM control
effectiveness. Conversely, changes to improve PM control by reducing
the use of platinum group metals and, therefore, limiting ``sulfate
make'' leads to less reliable regeneration. We believe the only means
of achieving good PM emission control and reliable operation is to
reduce sulfur in diesel fuel, as shown in the following subsections.
---------------------------------------------------------------------------

    \135\ Hawker, P. et al., Experience with a New Particualte Trap
Technology in Europe, SAE 970182.
---------------------------------------------------------------------------

a. Inhibition of Trap Regeneration Due to Sulfur
    The passively regenerating diesel particulate filter technologies
rely on the generation of a very strong oxidant, NO2, to
ensure that the carbon captured by the PM trap's filtering media is
oxidized under the exhaust temperature range of normal operating
conditions. This prevents plugging and failure of the PM trap.
NO2 is produced through the oxidation of NO in the exhaust
across a platinum catalyst. This oxidation is inhibited by sulfur
poisoning of the catalyst surface.136 This inhibition limits
the total amount of NO2 available for oxidation of the
trapped diesel PM, thereby raising the minimum exhaust temperature
required to ensure trap regeneration. Without sufficient
NO2, the amount of PM trapped in the diesel particulate
filter will continue to increase and can lead to excessive exhaust back
pressure, low engine power, and even catastrophic failure of the diesel
particulate filter itself.
---------------------------------------------------------------------------

    \136\ Hawker, P. et al, Experience with a New Particulate Trap
Technology in Europe, SAE 970182.
---------------------------------------------------------------------------

    The failure mechanisms experienced by diesel particulate filters
due to low NO2 availability vary significantly in severity
and long term consequences. In the most fundamental sense, the failure
is defined as an inability to oxidize the stored particulate at a rate
fast enough to prevent net particulate accumulation over time. The
excessive accumulation of PM over time blocks the passages through the
filtering media, making it more restrictive to exhaust flow. In order
to continue to force the exhaust through the now more restrictive
filter, the exhaust pressure upstream of the filter must increase. This
increase in exhaust pressure is commonly referred to as increasing
``exhaust backpressure'' on the engine.
    The increase in exhaust backpressure represents increased work
being done by the engine to force the exhaust gas through the
increasingly restrictive particulate filter. Unless the filter is
frequently cleansed of the trapped PM, this increased work can lead to
reductions in engine performance and increases in fuel consumption.
This loss in performance may be noted by the vehicle operator in terms
of poor acceleration and generally poor driveability of the vehicle. In
some cases, engine performance can be so restricted that the engine
stalls, stranding the vehicle. This progressive deterioration of engine
performance as more and more PM is accumulated in the filter media is
often referred to as ``trap plugging.'' Trap plugging also has the
potential to cause engine damage. If the exhaust backpressure gets high
enough to open the exhaust valves prematurely, the exhaust valves can
then strike the piston causing catastrophic engine failure. Whether
trap plugging occurs, and the speed at which it occurs, will be a
function of many variables in addition to the fuel sulfur level; these
variables include the vehicle application, its duty cycle, and ambient
conditions. However, if the fuel sulfur level is sufficiently high to
prevent trap regeneration in any real world conditions experienced,
trap plugging can occur. This is not to imply that any time a vehicle
is refueled once with high sulfur fuel trap plugging will occur.
Rather, it is important to know that the use of fuel with sulfur levels
higher than 15 ppm significantly

[[Page 5058]]

increases the chances of particulate filter failure.
    Catastrophic failure of the filter can occur when excessive amounts
of PM are trapped in the filter due to a lack of NO2 for
oxidation. This failure occurs when excessive amounts of trapped PM
begin to oxidize at high temperatures (combustion-like temperatures of
over 1000 deg. C) leading to a ``run-away'' combustion of the PM. This
can cause temperatures in the filter media to increase in excess of
that which can be tolerated by the particulate filter itself. For the
cordierite material commonly used as the trapping media for diesel
particulate filters, the high thermal stresses caused by the high
temperatures can cause the material to crack or melt. This can allow
significant amounts of the diesel particulate to pass through the
filter without being captured during the remainder of the vehicle's
life. That is, the trap is destroyed and PM emission control is lost.
Further the high temperatures generated during this event can destroy
the downstream catalyst components, such as the NOX
adsorber, rendering them ineffective as well.
    Full field test evaluations and retrofit applications of these
catalytic trap technologies are occurring in parts of Europe where low
sulfur diesel fuel is already available.137 The experience
gained in these field tests helps to clarify the need for low sulfur
diesel fuel. In Sweden and some European city centers where below 10
ppm diesel fuel sulfur is readily available, more than 3,000 catalyzed
diesel particulate filters have been introduced into retrofit
applications without a single failure. Given the large number of
vehicles participating in these test programs, the diversity of the
vehicle applications which included intercity trains, airport buses,
mail trucks, city buses and garbage trucks, and the extended time
periods of operation (some vehicles have been operating with traps for
more than 5 years and in excess of 300,000 miles138), there
is a strong indication of the robustness of this technology on 10 ppm
low sulfur diesel fuel. The field experience in areas where sulfur is
capped at 50 ppm has been less definitive. In regions without extended
periods of cold ambient conditions, such as the United Kingdom, field
tests on 50 ppm cap low sulfur fuel have also been positive, matching
the durability at 10 ppm, although sulfate PM emissions are much
higher. However, field tests on 50 ppm fuel in Finland, where colder
winter conditions are sometimes encountered (similar to many parts of
the United States), showed a significant number of failures (~10
percent) due to trap plugging. This 10 percent failure rate has been
attributed to insufficient trap regeneration due to fuel sulfur in
combination with low ambient temperatures.139 Other possible
reasons for the high failure rate in Finland when contrasted with the
Swedish experience appear to be unlikely. The Finnish and Swedish
fleets were substantially similar, with both fleets consisting of
transit buses powered by Volvo and Scania engines in the 10 to 11 liter
range. Further, the buses were operated in city areas and none of the
vehicles were operated in northern extremes such as north of the Arctic
Circle.140 Given that the fleets in Sweden and Finland were
substantially similar, and given that ambient conditions in Sweden are
expected to be similar to those in Finland, we believe that the
increased failure rates noted here are due to the higher fuel sulfur
level in a 50 ppm cap fuel versus a 10 ppm cap fuel.141
Testing on an even higher fuel sulfur level of 200 ppm was conducted in
Denmark on a fleet of 9 vehicles. In less than six months all of the
vehicles in the Danish fleet had failed due to trap
plugging.142 The failure of some fraction of the traps to
regenerate when operated on fuel with sulfur caps of 50 ppm and 200 ppm
is believed to be primarily due to inhibition of the NO to
NO2 conversion as described here. Similarly the increasing
frequency of failure with higher fuel sulfur levels is believed to be
due to the further suppression of NO2 formation when higher
sulfur level diesel fuel is used.
---------------------------------------------------------------------------

    \137\ Through tax incentives 50 ppm cap sulfur fuel is widely
available in the United Kingdom and 10 ppm sulfur is available in
Sweden and in certain European city centers.
    \138\ Allansson, et al. SAE 2000-01-0480
    \139\ Letter from Dr. Barry Cooper, Johnson Matthey, to don
Kopinski, US EPA, Air Docket A-99-06.
    \140\ Telephone conversation between Dr. Barry Cooper, Johnson
Matthey, and Todd Sherwood, EPA, Air Docket A-99-06.
    \141\ The average temperature in Helsinki, Finland, for the
month of January is 21 deg. F. The average temperature in Stockholm,
Sweden, for the month of Juanuary is 21 deg. F. The average
temperature at the University of Michigan in Ann Arbor, Michigan,
for the month of January is 24 deg. F. The temperatures reported
here are from www.worldclimate.com based upon the Global Historical
Climatology Network (GHCN) produced jointly by the National Climatic
Data Center and Carbon Dioxide Information Analysis Center at Oak
Ridge National Laboratory (ORNL).
    \12\ Letter from Dr. Barry Cooper to Don Kopinski US EPA, Air
Docket A-99-06.
---------------------------------------------------------------------------

    As shown above, sulfur in diesel fuel inhibits NO oxidation leading
to increased exhaust backpressure, reduced fuel economy, compromised
reliability, and potentially engine damage. Therefore, we believe that,
in order to ensure reliable and economical operation over a wide range
of expected operating conditions, diesel fuel sulfur levels should be
at or below 15 ppm. With these low sulfur levels we believe, as
demonstrated by experience in Europe, that catalyzed diesel particulate
filters will prove to be both durable and effective at controlling
diesel particulate emissions. We did receive comments from the refining
industry suggesting that PM filters could work on fuel sulfur levels as
high as 50 ppm. The commenters pointed to some specific test programs
where fuel with an approximate average sulfur level of 30 ppm was used
as evidence of the robustness of the technology on higher sulfur fuels.
While we do not deny that it is possible to operate some vehicles in
limited applications over defined driving cycles on fuel as high as 30
ppm, we do not believe that this limited data should be the basis for a
national program. The reality that some vehicles do fail on 50 ppm cap
fuel, as demonstrated by the Finish fleet results mentioned above,
shows that durability is not assured with the use of higher sulfur
diesel fuel. We believe that the evidence, as a whole, shows that
oxidation of NO to NO2 will be poisoned due to these higher
fuel sulfur levels with a resulting significant possibility of PM trap
failures that is too great a concern for us to feel confident about a
fuel sulfur level higher than 15 ppm.
b. Loss of PM Control Effectiveness
    In addition to inhibiting the oxidation of NO to NO2,
the sulfur dioxide (SO2) in the exhaust stream is itself
oxidized to sulfur trioxide (SO3) at very high conversion
efficiencies by the precious metals in the catalyzed particulate
filters. The SO3 serves as a precursor to the formation of
hydrated sulfuric acid (H2SO4+H2O), or
sulfate PM, as the exhaust leaves the vehicle tailpipe. Virtually all
of the SO3 is converted to sulfate under dilute exhaust
conditions in the atmosphere as well in the dilution tunnel used in
heavy-duty engine testing. Since virtually all sulfur present in diesel
fuel is converted to SO2, the precursor to SO3,
as part of the combustion process, the total sulfate PM is directly
proportional to the amount of sulfur present in diesel fuel. Therefore,
even though diesel particulate filters are very effective at trapping
the carbon and the SOF portions of the total PM, the overall PM
reduction efficiency of catalyzed diesel particulate filters drops off
rapidly with increasing sulfur levels due to the formation of sulfate
PM downstream of the trap.

[[Page 5059]]

    SO2 oxidation is promoted across a catalyst in a manner
very similar to the oxidation of NO, except it is converted at higher
rates, with peak conversion rates in excess of 50 percent. The
SO2 oxidation rate for a platinum based oxidation catalyst
typical of the type which might be used in conjunction with, or as a
washcoat on, a catalyzed diesel particulate filter can vary
significantly with exhaust temperature. At the low temperatures typical
of some urban driving and the heavy-duty federal test procedure (HD-
FTP), the oxidation rate is relatively low, perhaps no higher than ten
percent. However at the higher temperatures that might be more typical
of highway driving conditions and the Supplemental Emission Test (also
called the EURO III or 13 mode test), the oxidation rate may increase
to 50 percent or more. These high levels of sulfate make across the
catalyst are in contrast to the very low SO2 oxidation rate
typical of diesel exhaust (typically less than 2 percent). This
variation in expected diesel exhaust temperatures means that there will
be a corresponding range of sulfate production expected across a
catalyzed diesel particulate filter.
    The US Department of Energy in cooperation with industry conducted
a study entitled DECSE to provide insight into the relationship between
advanced emission control technologies and diesel fuel sulfur levels.
Interim report number four of this program gives the total particulate
matter emissions from a heavy-duty diesel engine operated with a diesel
particulate filter on several different fuel sulfur levels. A straight
line fit through this data is presented in Table III.F-1 below showing
the expected total direct PM emissions from a heavy-duty diesel engine
on the supplemental emission test cycle.143 The data can be
used to estimate the PM emissions from heavy-duty diesel engines
operated on fuels with average fuel sulfur levels in this range.
---------------------------------------------------------------------------

    \143\ Note that direct emisisons are those pollutants emitted
directly from the engine or from the tailpipe depending on the
context in which the term is used, and indirect emissions are those
pollutants formed in the atmosphere through chemical reactions
between direct emissions and other atmospheric constituents.

 Table III.F-1.--Estimated PM Emissions From a Heavy-Duty Diesel Engine
                   at the Indicated Fuel Sulfur Levels
------------------------------------------------------------------------
                                            Supplemental emission test
-----------------------------------------           performance
                                         -------------------------------
                                                            PM increase
           Fuel sulfur  [ppmm]             Tailpipe PM b   relative to 3
                                            [g/bhp-hr]       to 3 ppm
                                                              sulfur
------------------------------------------------------------------------
3.......................................           0.003  ..............
7 a.....................................           0.006            100%
15a.....................................           0.009            200%
30......................................           0.017            470%
150.....................................           0.071          2300%
------------------------------------------------------------------------
a The PM emissions at these sulfur levels are based on a straight-line
  fit to the DECSE data; PM emissions at other sulfur levels are actual
  DECSE data. (Diesel Emission Control Sulfur Effects (DECSE) Program--
  Phase II Interim Data Report No. 4, Diesel Particulate Filters-Final
  Report, January 2000. Table C1.) Although DECSE tested diesel
  particulate filters at these fuel sulfur levels, they do not conclude
  that the technology is feasible at all levels, but they do note that
  testing at 150 ppm is a moot point as the emission levels exceed the
  engine's baseline emission level.
b b Total exhaust PM (soot, SOF, sulfate).

    Table III.F-1 makes it clear that there are significant PM emission
reductions possible with the application of catalyzed diesel
particulate filters and low sulfur diesel fuel. At the observed sulfate
PM conversion rates, the DECSE program results show that the 0.01 g/
bhp-hr total PM standard is feasible for diesel particulate filter
equipped engines operated on fuel with a sulfur level at or below 15
ppm. The results also show that diesel particulate filter control
effectiveness is rapidly degraded at higher diesel fuel sulfur levels
due to the high sulfate PM make observed with this technology. It is
clear that PM reduction efficiencies are limited by sulfur in diesel
fuel and that, in order to realize the PM emissions benefits sought in
this rule, diesel fuel sulfur levels must be at or below 15 ppm. The
data further indicates that were the fuel sulfur level set at a 30 ppm
average, as some commenters suggested, the PM emissions from the
controlled vehicles would be nearly three times the emissions from a
vehicle operating on fuel with a 7 ppm average.
c. Increased Maintenance Cost for Diesel Particulate Filters Due to
Sulfur
    In addition to the direct performance and durability concerns
caused by sulfur in diesel fuel, it is also known that sulfur can lead
to increased maintenance costs, shortened maintenance intervals, and
poorer fuel economy for particulate filters. Diesel particulate filters
are highly effective at capturing the inorganic ash produced from
metallic additives in engine oil. This ash is accumulated in the filter
and is not removed through oxidation, unlike the trapped carbonaceous
PM. Periodically the ash must be removed by mechanical cleaning of the
filter with compressed air or water. This maintenance step is
anticipated to occur on intervals of well over one hundred thousand
miles. However, sulfur in diesel fuel increases this ash accumulation
rate through the formation of metallic sulfates in the filter, which
increases both the size and mass of the trapped ash. By increasing the
ash accumulation rate, the sulfur shortens the time interval between
the required maintenance of the filter and negatively impacts fuel
economy.
2. Diesel NOX Catalysts and the Need for Low Sulfur Fuel
    All of the NOX exhaust emission control technologies
discussed previously in Section III are expected to utilize platinum to
oxidize NO to NO2 to improve the NOX reduction
efficiency of the catalysts at low temperatures or as in the case of
the NOX adsorber, as an essential part of the process of
NOX storage. This reliance on NO2 as an integral
part of the reduction process means that the NOX exhaust
emission control technologies, like the PM exhaust emission control
technologies, will have problems with sulfur in diesel fuel. In
addition, NOX adsorbers have the added problem that the
adsorption function itself is poisoned by the presence of sulfur. The
resulting need to remove the stored sulfur (desulfate) leads to a need
for extended high temperature operation which can deteriorate the
NOX adsorber. These limitations due to sulfur in the fuel
affect the overall performance and feasibility of the technologies.
a. Sulfur Poisoning (Sulfate Storage) on NOX Adsorbers
    The NOX adsorber technology relies on the ability of the
catalyst to store NOX as a nitrate (MNO3) on the
surface of the catalyst, or adsorber (storage) bed, during lean
operation. Because of the similarities in chemical properties of
SOX and NOX, the SO2 present in the
exhaust is also stored by the catalyst surface as a sulfate
(MSO4). The sulfate compound that is formed is significantly
more stable than the nitrate compound and is not released and reduced
during the NOX release and reduction step (NOX
regeneration step). Since the NOX adsorber is essentially
100 percent effective at capturing SO2 in the adsorber bed,
the sulfur build up on the adsorber bed occurs rapidly. As a result,
sulfate compounds quickly occupy all of the NOX storage
sites on the catalyst

[[Page 5060]]

thereby rendering the catalyst ineffective for NOX storage
and subsequent NOX reduction (poisoning the catalyst).
    The stored sulfur compounds can be removed by exposing the catalyst
to hot (over 650 deg.C) and rich (air-fuel ratio below the
stoichiometric ratio of 14.5 to 1) conditions for a brief
period.144 Under these conditions, the stored sulfate is
released and reduced in the catalyst.145 While research to
date on this procedure has been very favorable with regards to sulfur
removal from the catalyst, it has revealed a related vulnerability of
the NOX adsorber catalyst. Under the high temperatures used
for desulfation, the metals that make up the storage bed can change in
physical structure. This leads to lower precious metal dispersion, or
``metal sintering,'' (a less even distribution of the catalyst sites)
reducing the effectiveness of the catalyst.146 This
degradation of catalyst efficiency due to high temperatures is often
referred to as thermal degradation. Thermal degradation is known to be
a cumulative effect. That is, with each excursion to high temperature
operation, some additional degradation of the catalyst occurs.
---------------------------------------------------------------------------

    \144\ Dou, Danan and Bailey, Owen, ``Investigation of
NOX Adsorber Catalyst Deactivation,'' SAE 982594.
    \145\ Guyon M. et al, ``Impact of Sulfur on NOX Trap
Catalyst Activity--Study of the Regeneration Conditions'', SAE
982607.
    \146\ though it was favroable to decompose sulfate at 800 deg.C,
performance of the NSR (NOX Storage Reduction catalyst,
i.e. NOX Adsorber) catalyst decreased due to sintering of
precious metal.--Asanuma, T. et al, ``Influence of Sulfur
Concentration in Gasoline on NOX Storage--Reduction
Catalyst'', SAE 1999-01-3501.
---------------------------------------------------------------------------

    One of the best ways to limit thermal degradation is by limiting
the accumulated number of desulfation events over the life of the
vehicle. Since the period of time between desulfation events is
expected to be determined by the amount of sulfur accumulated on the
catalyst (the higher the sulfur accumulation rate, the shorter the
period between desulfation events) the desulfation frequency is
expected to be proportional to the fuel sulfur level. In other words
for each doubling in the average fuel sulfur level, the frequency and
accumulated number of desulfation events are expected to double. We
believe, therefore, that the diesel fuel sulfur level must be set as
low as possible in order to limit the frequency and duration of
desulfation events. Without control of fuel sulfur levels below 15 ppm,
we can no longer conclude with any confidence that sulfur poisoning can
be controlled without unrecoverable thermal degradation. Some
commenters have suggested that the NOX adsorber technology
could meet the NOX standard using diesel fuel with a 30 ppm
average sulfur level. This would imply that the NOX adsorber
could tolerate as much as a four fold increase in desulfation frequency
(when compared to an expected seven to 10 ppm average) without any
increase in thermal degradation. This conclusion is inconsistent with
our understanding of the technology that, with each desulfation event,
some thermal degradation occurs. Therefore, we believe that diesel fuel
sulfur levels must be at or below 15 ppm in order to limit the number
and frequency of desulfation events. Limiting the number and frequency
of desulfation events will limit thermal degradation and, thus, enable
the NOX adsorber technology to meet the NOX
standard.
    Sulfur in diesel fuel for NOX adsorber equipped engines
will also have an adverse effect on fuel economy. The desulfation event
requires controlled operation under hot and net fuel rich exhaust
conditions. These conditions, which are not part of a normal diesel
engine operating cycle, can be created through the addition of excess
fuel to the exhaust. This addition of excess fuel causes an increase in
fuel consumption. We have developed a spreadsheet model that estimates
the frequency of desulfation cycles from published data and then
estimates the fuel economy impact from this event.147 Table
III-F.2 shows the estimated fuel economy impact for desulfation of a
NOX adsorber at different fuel sulfur levels assuming a
desired 90 percent NOX conversion efficiency. The estimates
in the table are based on assumed average fuel sulfur levels associated
with different sulfur level caps. Note that, although we can estimate
the fuel consumption penalty of operation on diesel fuel sulfur levels
higher than 15 ppm, this analysis does not consider the higher degree
of thermal degradation due to the more frequent desulfation events
which are required for operation on these higher sulfur levels.
---------------------------------------------------------------------------

    \147\ Memo from Byron Bunker, to docket A-99-06, ``Estimating
Fuel Economy Impacts of NOX Adsorber De-Sulfurization.''

 Table III.F-2.--Estimated Fuel Economy Impact From Desulfation of a 90%
                         Efficient NOX Adsorber
------------------------------------------------------------------------
                                                                 Fuel
                                                  Average      economy
            Fuel sulfur cap  (ppm)              fuel sulfur    penalty
                                                    (ppm)        (in
                                                               percent)
------------------------------------------------------------------------
500...........................................          350           27
50............................................           30            2
25............................................           15            1
15............................................            7            1
5.............................................            2            1
------------------------------------------------------------------------

    The table highlights that the fuel economy penalty associated with
sulfur in diesel fuel is noticeable even at average sulfur levels as
low as 15 ppm and increases rapidly with higher sulfur levels. It also
shows that the use of a NOX adsorber with a 15 ppm sulfur
cap fuel would be expected to result in a fuel economy impact due to
the need for desulfation of the catalyst of less than one percent,
absent other changes in engine design. However, as discussed in Section
G below, we anticipate that other engine modifications could be made to
offset this fuel economy impact. For example, a NOX control
device in the exhaust system could allow use of fuel saving engine
strategies, such as advanced fuel injection timing, that could be used
to offset the increased fuel consumption associated with the
NOX adsorber. The result is that low sulfur fuel enables the
NOX adsorber which, in turn, enables fuel saving engine
modifications. The total emission control system fuel economy impact,
which we estimate to be zero under a 15 ppm cap program, is discussed
below in Section III.G.
    Future improvements in the NOX adsorber technology are
expected and needed if the technology is to provide the environmental
benefits we have projected today. Some of these improvements are likely
to include improvements in the means and ease of removing stored sulfur
from the catalyst bed. However because the stored sulfate species are
inherently more stable than the stored nitrate compounds (from stored
NOX emissions), we expect that a separate release and
reduction cycle (desulfation cycle) will always be needed in order to
remove the stored sulfur. Therefore, we believe that fuel with a sulfur
level at or below 15 ppm sulfur will be necessary in order to control
thermal degradation of the NOX adsorber catalyst and to
limit the fuel economy impact of sulfur in diesel fuel.
b. Sulfate Particulate Production and Sulfur Impacts on Effectiveness
of NOX Control Technologies
    The NOX adsorber technology relies on a platinum based
oxidation function

[[Page 5061]]

in order to ensure high NOX control efficiencies. As
discussed more fully in section III.F.1, platinum based oxidation
catalysts form sulfate PM from sulfur in the exhaust gases
significantly increasing PM emissions when sulfur is present in the
exhaust stream. The NOX adsorber technology relies on the
oxidation function to convert NO to NO2 over the catalyst
bed. For the NOX adsorber this is a fundamental step prior
to the storage of NO2 in the catalyst bed as a nitrate.
Without this oxidation function the catalyst will only trap that small
portion of NOX emissions from a diesel engine which is
NO2. This would reduce the NOX adsorber
effectiveness for NOX reduction from in excess of 90 percent
to something well below 20 percent. The NOX adsorber relies
on platinum to provide this oxidation function due to the need for high
NO oxidation rates under the relatively cool exhaust temperatures
typical of diesel engines. Because of this fundamental need for a
catalytic oxidation function, the NOX adsorber inherently
forms sulfate PM when sulfur is present in diesel fuel, since sulfur in
fuel invariably leads to sulfur in the exhaust stream.
    The Compact-SCR technology, like the NOX adsorber
technology, uses an oxidation catalyst to promote the oxidation of NO
to NO2 at the low temperatures typical of much of diesel
engine operation. As discussed above, there are substantial questions
regarding the ability of SCR systems to be implemented successfully to
meet the requirements finalized today. By converting a portion of the
NOX emissions to NO2 upstream of the ammonia SCR
reduction catalyst, the overall NOX reductions are improved
significantly at low temperatures. Without this oxidation function, low
temperature SCR NOX effectiveness is dramatically reduced
making compliance with the NOX standard impossible. As
discussed previously in Section III, platinum group metals are known to
be good catalysts to promote NO oxidation, even at low
temperatures.148 Therefore, future Compact-SCR systems would
need to rely on a platinum oxidation catalyst in order to provide the
required NOX emission control. This use of an oxidation
catalyst in order to enable good NOX control means that
Compact SCR systems will produce significant amounts of sulfate PM when
operated on anything but the lowest fuel sulfur levels due to the
oxidation of SO2 to sulfate PM promoted by the oxidation
catalyst.
---------------------------------------------------------------------------

    \148\ Platinum group metals include platinum, palladium,
rhodium, and other precious metals.
---------------------------------------------------------------------------

    Without the oxidation catalyst promoted conversion of NO to
NO2, neither of these NOX control technologies
can meet the NOX standard set here. Therefore each of these
technologies will require low sulfur diesel fuel to control the sulfate
PM emissions inherent in the use of oxidation catalysts. The
NOX adsorber technology may be able to limit its impact on
sulfate PM emissions by releasing stored sulfur as SO2 under
rich operating conditions. The Compact-SCR technology, on the other
hand, has no means to limit sulfate emissions other than through lower
catalytic function or lowering sulfur in diesel fuel. The degree to
which the NOX emission control technologies increase the
production of sulfate PM through oxidation of SO2 to
SO3 varies somewhat from technology to technology, but it is
expected to be similar in magnitude and environmental impact to that
for the PM control technologies discussed previously in section
III.F.1, since both the NOX and the PM control catalysts
rely on precious metals to achieve the required NO to NO2
oxidation reaction.
    Thus, we believe that diesel fuel sulfur levels will need to be at
or below 15 ppm in order to apply any of these NOX control
technologies. Without this low sulfur fuel, the NOX control
technologies are expected to create PM emissions well in excess of the
PM standard regardless of the engine-out PM levels. Again, as noted
with the PM control technologies, test results to date on catalysts
with high oxidation potential indicate that were the fuel sulfur level
set with a 30 ppm average, as some commenters suggested, the PM
emissions from the controlled vehicles would increase nearly three fold
over the level expected from fuel with a 7 ppm average, the average
fuel sulfur level we would expect from a 15 ppm cap fuel (see Table
III.F.1).
3. What About Sulfur in Engine Lubricating Oils?
    Current engine lubricating oils have sulfur contents which can
range from 2,500 ppm to as high as 8,000 ppm by weight. Since engine
oil is consumed by heavy-duty diesel engines in normal operation, it is
important that we account for the contribution of oil derived sulfur in
our analysis of the need for low sulfur diesel fuel. One way to give a
straightforward comparison of this effect is to express the sulfur
consumed by the engine as an equivalent fuel sulfur level. This
approach requires that we assume specific fuel and oil consumption
rates for the engine. Using this approach, estimates ranging from two
to seven ppm diesel fuel sulfur equivalence have been made for the
sulfur contribution from engine oil.149 150 If values at the
upper end of this range accurately reflect the contribution of sulfur
from engine oil to the exhaust this would be a concern as it would
represent 50 percent of the total sulfur in the exhaust under a 15 ppm
diesel fuel sulfur cap (with an average sulfur level assumed to be
approximately seven ppm). However, we believe that this simplified
analysis, while valuable in demonstrating the need to investigate this
issue further, overstates the likely sulfur contribution from engine
oil by a significant amount due to its inclusion of engine oil lost
through the open crankcase system in the estimate of oil consumption to
the exhaust.
---------------------------------------------------------------------------

    \149\ Whitacre, Shawn. ``Catalyst Compatible'' Diesel Engine
Oils, DECSE Phase II, Presentation at DOE/NREL Workshop ``Exploring
Low Emission Diesel Engine Oils.'' January 31, 2000.
    \150\ This estimate assumes that a heavy-duty diesel engine
consumes 1 quart of engine oil in 2,000 miles of operation, consumes
fuel at a rate of 1 gallon per 6 miles of operation and that engine
oil sulfur levels range from 2,000 to 8,000 ppm.
---------------------------------------------------------------------------

    Current heavy-duty diesel engines operate with open crankcase
ventilation systems which ``consume'' oil by carrying oil from the
engine crankcase into the environment. This consumed oil is correctly
included in the total oil consumption estimates, but should not be
included in estimates of oil entering the exhaust system for this
analysis, since as currently applied this oil is not introduced into
the exhaust. At present we estimate that the majority of lube oil
consumed by an engine meeting the 0.1 g/bhp-hr PM standard is lost
through crankcase ventilation, rather than through the exhaust. Based
on assumed engine oil to PM conversion rates and historic soluble
organic fraction breakdowns we have estimated the contribution of
sulfur from engine oil to be less than two ppm fuel equivalency. With
our action to close the crankcase, coupled with the use of closed
crankcase ventilation systems that separate in excess of 90 percent of
the oil from the blow-by gases, we believe that this very low
contribution of lube oil to sulfur in the exhaust can be maintained.
For a further discussion of our estimates of the sulfur contribution
from engine oil refer to the final RIA in the docket.

G. Fuel Economy Impact of High Efficiency Control Technologies

    The high efficiency emission control technologies expected to be
applied in order to meet the NOX and PM standards involve
wholly new system components integrated into engine designs and
calibrations, and as such

[[Page 5062]]

may be expected to change the fuel consumption characteristics of the
overall engine design. After reviewing the likely technology options
available to the engine manufacturers, we believe that the integration
of the engine and exhaust emission control systems into a single
synergistic emission control system will lead to heavy-duty vehicles
which can meet demanding emission control targets without increasing
fuel consumption beyond today's levels.
1. Diesel Particulate Filters and Fuel Economy
    Diesel particulate filters are anticipated to provide a step-wise
decrease in diesel particulate (PM) emissions by trapping and oxidizing
the diesel PM. The trapping of the very fine diesel PM is accomplished
by forcing the exhaust through a porous filtering media with extremely
small openings and long path lengths.151 This approach
results in filtering efficiencies for diesel PM greater than 90 percent
but requires additional pumping work to force the exhaust through these
small openings. The additional pumping work is anticipated to increase
fuel consumption by approximately one percent.152 However,
we believe this fuel economy impact can be regained through
optimization of the engine--PM trap--NOX adsorber system, as
discussed below.
---------------------------------------------------------------------------

    \151\ Typically, the filtering media is a porous ceramic
monolith or a metallic fiber mesh.
    \152\ Engine, Fuel, and Emissions Engineering, Incorporated,
``Economic Analysis of Diesel Aftertreatment System Changes Made
Possible by Reduction of Diesel Fuel Sulfur Content,'' December 14,
1999, Air Docket A-99-06.
---------------------------------------------------------------------------

2. NOX Control Technologies and Fuel Economy
    NOX adsorbers are expected to be the primary
NOX control technology introduced in order to provide the
reduction in NOX emissions envisioned in this rulemaking.
NOX adsorbers work by storing NOX emissions under
fuel lean operating conditions (normal diesel engine operating
conditions) and then by releasing and reducing the stored
NOX emissions over a brief period of fuel rich engine
operation. This brief periodic NOX release and reduction
step is directly analogous to the catalytic reduction of NOX
over a gasoline three-way catalyst. In order for this catalyst function
to occur the engine exhaust constituents and conditions must be similar
to normal gasoline exhaust constituents. That is, the exhaust must be
fuel rich (devoid of excess oxygen) and hot (over 250 deg.C). Although
it is anticipated that diesel engines can be made to operate in this
way, it is assumed that fuel economy while operating under these
conditions will be worse than normal. We have estimated that the fuel
economy impact of the NOX release and reduction cycle would,
all other things being equal, increase fuel consumption by
approximately one percent. Again, we believe this fuel economy impact
can be regained through optimization of the engine--PM trap--
NOX adsorber system, as discussed below.
    In addition to the NOX release and regeneration event,
another step in NOX adsorber operation may affect fuel
economy. As discussed earlier, NOX adsorbers are poisoned by
sulfur in the fuel even at the low sulfur levels mandated here. As
discussed in the RIA, we anticipate that the sulfur poisoning of the
NOX adsorber can be reversed through a periodic
``desulfation'' event. The desulfation of the NOX adsorber
is accomplished in a similar manner to the NOX release and
regeneration cycle described above. However it is anticipated that the
desulfation event will require extended operation of the diesel engine
at rich conditions.153 This rich operation will, like the
NOX regeneration event, require an increase in the fuel
consumption rate and will cause an associated decrease in fuel economy.
With a 15 ppm fuel sulfur cap, we are projecting that fuel consumption
for desulfation would increase by one percent or less, which we believe
can be regained through optimization of the engine-PM trap-
NOX adsorber system as discussed below.
---------------------------------------------------------------------------

    \153\ Dou, D. and Bailey, O., ``Investigation of NOX
Adsorber Catalyst Deactivation'' SAE982594.
---------------------------------------------------------------------------

    While NOX adsorbers require non-power producing
consumption of diesel fuel in order to function properly and,
therefore, have an impact on fuel economy, they are not unique among
NOX control technologies in this way. In fact NOX
adsorbers are likely to have a very favorable NOX to fuel
economy trade-off when compared to other NOX control
technologies like cooled EGR and injection timing retard that have
historically been used to control NOX emissions. Today, most
diesel engines rely on injection timing control (retarding injection
timing) in order to meet the 4.0 g/bhp-hr NOX emission
standard. For 2004 model year compliance, we expect that engine
manufacturers will use a combination of cooled EGR and injection timing
control to meet the 2.0 g/bhp-hr NOX standard. Because of
the more favorable fuel economy trade-off for NOX control
with EGR when compared to timing control, we have forecast that less
reliance on timing control will be needed in 2004. Therefore, fuel
economy will not be changed even at this lower NOX level.
    NOX adsorbers have a significantly more favorable
NOX to fuel economy trade-off when compared to cooled EGR or
timing retard alone, or even when compared to cooled EGR and timing
retard together.154 Current NOX adsorber data
show greater than 90 percent reduction in NOX emissions over
the SET, while only increasing fuel consumption by a very reasonable
two percent. Further the data show that, for significant portions of
the engine's typical operating range, NOX control in excess
of 98 percent is possible even with engine-out emissions as high as 5
g/bhp-hr.155 Therefore, we expect manufacturers to take full
advantage of the NOX control capabilities of the
NOX adsorber and project that they will decrease reliance on
technologies with a less favorable emissions to fuel economy trade-off,
especially injection timing retard, when operating at conditions where
the NOX adsorber performance is significantly greater than
90 percent. We would therefore predict that the fuel economy impact
currently associated with NOX control from timing retard
would be decreased by at least three percent. In other words, through
the application of advanced NOX emission control
technologies, which are enabled by the use of low sulfur diesel fuel,
we expect the NOX trade-off with fuel economy to continue to
improve significantly when compared to today's technologies. This will
result in both much lower NOX emissions, and potentially
overall improvements in fuel economy. Improvements could easily offset
the fuel consumption of the NOX adsorber itself and, in
addition, the one percent fuel economy loss projected to result from
the application of PM filters. Consequently, we are projecting no fuel
economy penalty to result from this rule.
---------------------------------------------------------------------------

    \154\ Zelenka, P. et al, Cooled EGR--A Key Technology for Future
Efficient HD Diesels, SAE 980190, Society of Automotive Engineers
1998. Figure 2 from this paper gives a graphical representation of
how new technologies (including exhaust emission control
technologies) can shift the trade-off between NOX
emissions and fuel economy.
    \155\ ``2007 Diesel Emission Test Program, Initial Test
Report,'' December 11, 2000, Air Docket A-99-06, Item IV-A-29.
---------------------------------------------------------------------------

3. Emission Control Systems for 2007 and Net Fuel Economy Impacts
    We anticipate that, in order to meet the stringent NOX
and PM emission standards set today, the engine manufacturers will
integrate engine-based emission control technologies and

[[Page 5063]]

post-combustion emission control technologies into a single systems-
based approach that will fundamentally shift historic trade-offs
between emissions control and fuel economy. As outlined in the
preceding two sections, individual components in this system will
introduce new constraints and opportunities for improvements in fuel
efficient control of emissions. Having considered the many
opportunities to fundamentally improve these relationships, we believe
that it is unlikely that fuel economy will be lower than today's levels
and, in fact, may improve through the application of these new
technologies and this new systems approach. Therefore, for our analysis
of economic impacts in Section V, no penalty or benefit for changes to
fuel economy are considered.

H. Review of the Status of Heavy-Duty Diesel NOX Emission
Control Technology

    In the NPRM, we provided a detailed technical evaluation of test
data and other information that concluded that the proposed program
would be technologically feasible for all heavy-duty engines. During
the public comment period, we received many comments as well as
additional information about the likely status and capability of
emission control technology development in the 2007 time frame. To this
information we have added our own updated evaluation of test data as
well as technical information developed by ourselves and others.
    Based on this information, and as discussed in Sections III.E and
III.F above, we now have an even higher degree of confidence that
manufacturers will be able to meet the new heavy-duty standards.
Manufacturers of heavy-duty gasoline engines will apply essentially the
same technology that is being developed for light-duty trucks under the
Tier 2 program and should not have major problems doing so, especially
given the significant available lead time. Regarding diesels, although
the technological challenges are somewhat greater than for gasoline
engines, we believe that manufacturers will achieve the engine
standards adopted today for 2007 and later years, in conjunction with
the low sulfur diesel fuel we are also requiring.
    As we discussed earlier, there are two primary technologies that
diesel engine manufacturers expect to use to meet the standards adopted
in today's rule, and they are at different stages of commercial
development. Catalyzed diesel PM trap technologies are in widespread
fleet testing today, we have shown that there are no serious
impediments to the widespread application of this technology to heavy-
duty diesel engines that can meet our new standards by 2007, if not
earlier. Diesel NOX adsorber technology, the emission
control technology we believe will be used for heavy-duty diesel
engines to meet the very low NOX emission standards adopted
today, is less developed relative to PM control technology. Still, as
we discussed earlier, we have identified a clear technological pathway
to compliance with the NOX standards using NOX
adsorber technology. While we do not anticipate major obstacles in
commercializing these systems by 2007, it is important that the various
parties in the industry continue to make good progress in their
development of NOX adsorber technology for heavy-duty diesel
engines.
    As a mechanism for monitoring and evaluating this technological
progress, we believe it will be important to publicly reassess the
status of heavy-duty diesel NOX adsorber systems on an
ongoing basis. To accomplish this, we will conduct regular biennial
reviews of the status of heavy-duty NOX adsorber technology.
For each review, we will collect and analyze information from engine
manufacturers, NOX adsorber manufacturers, our own testing,
and other sources. At the end of each review cycle, we will release
(and post on the Web) a report discussing the status of the technology
and any implications for the heavy-duty engine emission control
program. We will release the first report by December 31, 2002 and
subsequent reports at the end of each second year through December 31,
2008. This biennial process is similar to that used by the State of
California to monitor and evaluate their emission control programs.

IV. Our Program for Controlling Highway Diesel Sulfur

    With today's action, we are requiring substantial reductions in
highway diesel fuel sulfur levels nationwide, because sulfur
significantly inhibits the ability of the diesel emission control
devices to function which are necessary to meet the emission standards
finalized today. With the highway diesel fuel sulfur standard we are
finalizing today, we have concluded that there will be technology
available to achieve the reductions required by the stringent emission
standards we are implementing for model year 2007 and later heavy-duty
engines.
    In developing the provisions of the fuel program being adopted
today, we identified several goals that we want the program to achieve.
First, we must ensure that there will be an adequate supply of highway
diesel fuel for all vehicles. Second, we must ensure that low sulfur
diesel fuel will be readily available nationwide for the 2007 and later
model year heavy-duty vehicles that need it. Finally, we want to ensure
a smooth transition to low sulfur fuel.
    In the NPRM, we proposed that refiners be required to start
producing all of their highway diesel fuel at the 15 ppm sulfur level
beginning in 2006. We also requested comment on a range of options for
transitioning to the low sulfur diesel fuel over time. With regard to
the programmatic goals noted above, the proposed approach, which would
have required all highway diesel fuel to meet the 15 ppm sulfur
standard in 2006, guaranteed availability of the low sulfur diesel fuel
throughout the nation. However, many commenters stated concerns that
the proposed program would not ensure adequate overall supplies of
highway diesel fuel, especially if some refiners chose not to continue
producing highway diesel fuel to avoid the changes needed to meet the
low sulfur levels.
    The final diesel fuel program we are adopting today includes
flexibilities for the refining industry as a whole, as well as
additional flexibilities for refiners experiencing hardship
circumstances. First, the program gives refiners a temporary compliance
option for low sulfur diesel fuel beginning in mid-2006. The final
program also includes additional flexibilities for refineries located
in certain western states (the Geographic Phase-In Area (GPA)
156), provisions for qualifying small refiners, and a
general hardship provision for which any refiner may apply under
certain conditions. These flexibilities ensure that the vast majority
of refiners nationwide can fully comply at the earliest possible date
while avoiding an excessive burden on a subset of refiners. The
following section details each of the requirements of the highway
diesel fuel program for refiners and importers, summarizes the analyses
we have performed on the impacts of the temporary compliance option
being adopted today, and describes additional information we have
received that supports the changes made to the proposed program.
Section VII provides additional information about the

[[Page 5064]]

compliance and enforcement provisions that will accompany these
requirements.
---------------------------------------------------------------------------

    \156\ As defined in the Tier 2 final rulemaking (see 65 FR 6698,
February 10, 2000), the GPA encompasses the states of Alaska,
Colorado, Idaho, Montana, New Mexico, North Dakota, Utah and
Wyoming. Note that minor changes to this area are currently under
consideration. Any such changes subsequent to today's rule are
intended to be carried over into today's rule as well.
---------------------------------------------------------------------------

    We believe the highway diesel fuel program we are adopting today
meets all of the programmatic goals noted above. We believe that the
final program will ensure that the overall supply of highway diesel
fuel will be sufficient for all vehicles. To the extent there may have
been supply concerns with a complete fuel turnover to low sulfur diesel
in 2006 as some commenters have suggested, the flexibilities for
refiners contained in the final program will serve as a ``safety
valve'' by allowing up to 25 percent of the highway diesel fuel to
remain at the current 500 ppm sulfur standard and providing additional
time, if needed, for some refiners to fully convert over to low sulfur
fuel. The combination of flexibilities provided to refiners in today's
final rule should eliminate any concerns about the potential for supply
shortfalls of highway diesel fuel. The final diesel fuel program is
carefully structured so that we are confident there will be widespread
availability of low sulfur fuel across the nation for 2007 and later
model heavy-duty vehicles. In this way, the important health benefits
of this program to people throughout the country can be achieved
expeditiously, at a reasonable cost, while minimizing the burden on the
affected industries.
    This section also summarizes our technical feasibility analysis of
the low sulfur highway diesel fuel program, and the impact of the
program on other fuel properties and specialty fuels. Finally, the
following section describes how state programs will be affected by
today's action including a provision that allows the State of Alaska
the option of developing an alternative transition plan for
implementing low sulfur fuel.

A. Highway Diesel Sulfur Standards for Refiners and Importers

    The requirements of the highway diesel fuel sulfur control program
will become effective in time to be available with the introduction of
the first heavy-duty engines meeting the model year 2007 and later
engine standards we are adopting today. The following paragraphs
describe the requirements, standards, and deadlines that apply to
refiners and importers of highway diesel fuel and the options available
to all refiners.
1. Standards and Deadlines That Refiners and Importers Must Meet
    As described earlier in Section III.H. above, the new standards
being adopted today for heavy-duty engines will begin with the 2007
model year. With today's action, we are adopting specific dates when
fuel intended to be marketed as low sulfur diesel fuel must be produced
at the refinery, distributed at the terminal level, and marketed at the
retail level. Refiners and importers are required to produce highway
diesel fuel meeting the 15 ppm sulfur standard beginning June 1,
2006.157 At the terminal level, highway diesel fuel sold as
low sulfur fuel is required to meet the 15 ppm sulfur standard
beginning July 15, 2006. For retail stations and wholesale purchaser-
consumers, highway diesel fuel sold as low sulfur fuel must meet the 15
ppm sulfur standard by September 1, 2006.
---------------------------------------------------------------------------

    \157\ Highway diesel fuel (referred to as motor vehicle diesel
fuel in the regulatory language to be consistent with language in
existing laws and regulations) includes any diesel fuel or any
distillate product that is used, intended for use, or made available
for use as a fuel in highway diesel vehicles or engines that are
subject to the standards finalized today. However, kerosene or other
distillates such as JP-8 are only considered to be highway diesel
fuel and thus subject to our program at the point in the production
or distribution system that they are either designated as such, or
otherwise used, intended for use, or made available for use in
highway diesel vehicles. Thus, if refiners do not designate these
other distillates as highway diesel fuel, they are not subject to
the 15 ppm sulfur standard.
---------------------------------------------------------------------------

    In the NPRM, we proposed a set of compliance dates slightly earlier
than the dates contained in today's final rule. Under the proposal,
refiners, terminals and retailers would have had to begin producing low
sulfur diesel fuel by April 1, 2006, May 1, 2006 and June 1, 2006,
respectively. Several commenters pointed out that the April
introduction date for refiners occurred at the same time refiners would
be changing over from winter to summer gasoline to comply with Reid
Vapor Pressure (RVP) requirements. They recommended that the
introduction of low sulfur diesel fuel be delayed for a couple of
months to provide refiners and the distribution system the opportunity
to focus on the two conversions separately and ensure that each occurs
as designed. Commenters also suggested that we extend the time period
between the refinery and downstream deadlines to better allow for the
time it may take the distribution system to make a complete transition
to the 15 ppm sulfur level.
    In response to these concerns, today's action provides a few
additional months for introduction of the low sulfur diesel fuel
compared to the NPRM and provides an additional month between the
refinery and retail compliance dates, to provide a smoother transition
through the distribution system. We believe the additional time
provides appropriate relief for the refiners, while still assuring that
low sulfur diesel fuel will be available at the retail level no later
than September 1, 2006. This schedule will allow manufacturers to
introduce 2007 and later model year diesel engines and vehicles as
early as September 1, 2006. While a slight delay from the dates of the
proposal, the Agency does not believe this delay will place any undue
burden on the engine manufacturers. Historically, new heavy-duty
vehicle models were introduced on or around January 1 (of the same
calendar year as the model year). Only recently, manufacturers have
begun introducing some model lines earlier, particularly light heavy-
duty vehicles.
    In the NPRM, we proposed that all highway diesel fuel be required
to comply with the 15 ppm sulfur standard starting in 2006. Today's
program includes a combination of flexibilities available to refiners
to ensure a smooth transition to low sulfur highway diesel fuel.
Refiners can take advantage of a temporary compliance option, including
an averaging, banking and trading component, beginning in June 2006 and
lasting through 2009, with credit given for early compliance before
June 2006. Under this option, up to 20 percent of highway diesel fuel
may continue to be produced at the existing 500 ppm sulfur maximum
standard, though it must be segregated from 15 ppm fuel in the
distribution system, and may only be used in pre-2007 model year heavy-
duty vehicles. We are providing additional hardship provisions for
small refiners to minimize their economic burden in complying with the
15 ppm sulfur standard and giving additional flexibility to refiners
subject to the Geographic Phase-in Area (GPA) provisions of the Tier 2
gasoline sulfur program, which will allow them the option of staggering
their gasoline and diesel investments. Finally, we are adopting a
general hardship provision for which any refiner may apply on a case-
by-case basis under certain conditions. These hardship provisions,
coupled with the temporary compliance option, will provide a ``safety
valve'' allowing up to 25 percent of highway diesel fuel produced to
remain at 500 ppm for these transitional years to effectively address
the concerns over highway diesel fuel supply.
    It should be noted that the requirements of the fuel program
described below apply to refiners and importers only.158 We
are not adopting any retailer availability requirements

[[Page 5065]]

with these provisions. In other words, we are not requiring that diesel
retailers sell the 15 ppm fuel. Rather, retailers may sell 15 ppm
sulfur diesel fuel, 500 ppm sulfur diesel fuel, or both. We believe the
program being adopted today for refiners and importers will ensure that
adequate supplies of low sulfur diesel fuel are available throughout
the nation. The voluntary compliance and hardship provisions have been
designed with a required level of production that we believe will
ensure that 15 ppm fuel is distributed widely through pipelines and at
terminals throughout the country without the need for a retailer
availability requirement. Our analysis supporting the design of these
provisions can be found in Chapter IV of the RIA for today's action.
---------------------------------------------------------------------------

    \158\ As described above, distributors and retailers marketing
low sulfur diesel fuel have deadlines for compliance with the sulfur
standards, as well as other requirements such as pump labeling.
Section VII of today's action provides further details on the
downstream requirements for distributors and retailers.
---------------------------------------------------------------------------

2. Temporary Compliance Option for Refiners and Importers
    We believe there are several advantages to allowing some
flexibility in the early years of the program such that not all of the
highway diesel fuel pool must be converted to low sulfur diesel fuel at
one time. First, some commenters expressed concerns over adequate
supplies of highway diesel fuel if the entire pool converted to low
sulfur diesel fuel in 2006, because they believe some refiners might
produce less total highway diesel fuel volume or choose to leave the
highway diesel fuel market altogether. Allowing the temporary
compliance option lowers this concern because a portion of the highway
diesel pool can remain at the current 500 ppm sulfur standard, if
necessary, providing additional time for the market to adjust. This
portion of the highway diesel pool that refiners choose to delay will
likely be the portion that is more costly for them to desulfurize and,
thus, most likely to raise concerns with respect to shortfalls. Second,
a temporary compliance option can benefit refiners by reducing the fuel
production costs in the early years of the program, because refiners
are able to spread out their capital investments. The option also
benefits refiners by spreading out the industry-wide demand for
engineering and construction resources over several years, and also by
allowing more time between the gasoline sulfur and diesel sulfur
compliance dates. Third, refiners that are able to delay investment
could attain lower costs for such equipment as technology improvements
are realized during that time and as refiners see how well the
desulfurization technologies achieve the 15 ppm sulfur standard.
    The primary emissions benefits of low sulfur highway diesel fuel
are the emissions reductions that will occur over time as new vehicles
designed to meet the emission standards adopted today are introduced
into the vehicle fleet. Consequently, in the NPRM we requested comment
on several options that would allow refiners and importers to phase in
the production of low sulfur highway diesel fuel. With today's action,
we are adopting a temporary compliance option for refiners and
importers that will allow them to produce less than 100 percent of
their highway diesel fuel at the 15 ppm sulfur level. Refiners and
importers may choose to participate in the compliance option on a
refinery-by-refinery basis. A refiner must demonstrate compliance with
the compliance option on an annual basis. Refiners with special
financial hardships have additional flexibility provisions, which are
described further in Section IV.C.
    We believe today's temporary compliance option in combination with
the hardship provisions discussed in Section IV.C. has the potential to
provide flexibility to more than half of all U.S. refineries by
allowing up to 25 percent159 of the highway diesel fuel
volume in the country to continue to be produced at the current sulfur
level of 500 ppm. We estimate that refiners will be able to save as
much as $1.7 billion over the duration of the optional compliance
program compared to the proposed requirement that all highway diesel
fuel comply with 15 ppm sulfur in 2006. Much, but not all, of this
potential savings will be offset by increased costs in the distribution
system. We project that in total a small overall savings should result
from refiners taking advantage of the temporary compliance option.
---------------------------------------------------------------------------

    \159\ Up to 5 percent of which is small refiner production.
---------------------------------------------------------------------------

    Under the temporary compliance option finalized today, a refinery
may produce up to 20 percent of its total highway diesel fuel at the
existing highway diesel fuel sulfur standard of 500 ppm, determined on
an annual basis. The remaining 80 percent of the highway diesel fuel
produced at that refinery during the year must meet a sulfur standard
of 15 ppm.160 As part of this temporary compliance option, a
PADD-based averaging, banking, and trading (ABT) program will be
available. Figure IV-1 presents the five PADDs into which the United
States is divided.161 For example, a refinery could produce
more than 80 percent of its highway diesel fuel as low sulfur diesel
fuel and generate credits based on the volume of highway diesel fuel
produced at 15 ppm that exceeded the 80 percent requirement. Within
that same PADD (within the limits noted below for California, Alaska,
Hawaii, and any state with an EPA-approved waiver from the federal
program), these credits may be averaged with another refinery owned by
that refiner, banked for use in future years, or sold to another
refinery.
---------------------------------------------------------------------------

    \160\ We are aware that today there are refiners that produce
one grade of diesel fuel for both highway and off-highway purposes,
where dye is added by parties downstream if it is to be sold as off-
highway diesel fuel. To the extent possible, we do not want to
interfere with this practice. Consequently, for purposes of
determining compliance with these optional requirements, a refiner
producing all 15 ppm fuel may include the entire volume it produces
in the calculation. Furthermore, a refiner producing all 500 ppm
fuel must count any diesel fuel produced with a sulfur content of
500 ppm or less unless it has been dyed by the refiner to be used as
nonroad diesel fuel. A refiner would only include kerosene in its
volume calculation if the kerosene is less than 500 ppm sulfur
content and the kerosene is blended at the refinery into non-dyed
fuel with a sulfur content of less than 500 ppm.
    \161\ The Department of Energy divides the United States into
five Petroleum Administrative Districts for Defense, or PADDs. The
states encompassed by each of the five PADDs are defined in the Code
of Federal Regulations at Title 40, Sec. 80.41.
---------------------------------------------------------------------------

BILLING CODE 6560-50-P

[[Page 5066]]

[GRAPHIC] [TIFF OMITTED] TR18JA01.004

BILLING CODE 6560-50-C
    Also, a refinery may produce less than 80 percent of its highway
diesel fuel at the 15 ppm sulfur level, as long as it obtains enough
credits from another refinery within the PADD to offset the volume of
500 ppm sulfur fuel produced that exceeded the 20 percent of highway
diesel fuel allowed to be produced at the 500 ppm sulfur level. As
noted above, any credit trading will be limited to those refineries
within the same PADD (within the limits noted below for California,
Alaska, Hawaii, and any state with an EPA-approved waiver from the
federal program). This restriction is necessary to limit the
possibility that any area of the country is dominated by refineries
complying via purchases of credits and, thus, producing a small volume
of low sulfur diesel fuel, which could lead to concerns that the low
sulfur diesel fuel would not be sufficiently available throughout the
country.
    Based on an extensive analysis which incorporates the hardship
provisions and GPA refiner provisions discussed in Section IV.B. and
C., we have chosen a level of 80 percent to have confidence that there
will be widespread availability of 15 ppm fuel throughout the United
States. Given the requirements of today's program, we believe that all
pipelines are likely to carry the 15 ppm fuel. Pipelines that may be
able to carry only one grade of highway diesel fuel are likely to carry
15 ppm as the majority diesel fuel in the market.162 Those
that are able to carry more than one grade of highway diesel fuel will
facilitate the distribution of the remaining 500 ppm fuel. In addition,
to ensure widespread availability of low sulfur diesel fuel throughout
the nation, we have found it necessary to set the 15 ppm production
threshold high enough so that there is a sufficient geographic
scattering of refineries producing low sulfur diesel fuel around the
country. At a lower threshold, there could be isolated regions of the
country where 15 ppm fuel would not be available in sufficient
quantities.
---------------------------------------------------------------------------

    \162\ Today, many pipelines carry only one grade of distillate
(e.g., only 500 ppm sulfur high diesel fuel) rather than both 500
ppm sulfur highway fuel and off-highway fuel which has even higher
levels of sulfur (e.g., on the order of 3,000 ppm).
---------------------------------------------------------------------------

    We have analyzed the refinery/pipeline distribution system in the
United States in the context of the small refiner hardship and other
provisions of the rule and believe a 80 percent temporary compliance
option level for 15 ppm is necessary to achieve widespread availability
and avoid shortages in specific areas. At levels below an 80 percent
level, we would have concerns over whether 15 ppm sulfur diesel fuel
would be the primary highway diesel fuel distributed through pipelines
and whether the low sulfur diesel fuel would be available to all areas
of the country in sufficient quantities. The reader is directed to
Chapter IV of the RIA for today's action for our complete analysis
supporting the development of the temporary compliance option.
    While we have set the minimum requirement under the compliance
option at 80 percent, we believe most refineries will focus on
production of one grade or the other. We expect that certain refineries
will find it more economically advantageous to install the necessary
equipment to produce all of their highway diesel fuel at the 15 ppm
sulfur level and generate credits. Conversely, other refineries may
find it advantageous to continue producing all of their highway diesel
fuel at the 500 ppm sulfur fuel through the period of the compliance
option, by obtaining credits to demonstrate compliance. This will
provide additional time for those refiners that have not converted to
low sulfur fuel. This will allow refiners to spread out their capital
investments and provide more time to arrange for engineering and
construction resources. In addition, the refiners that are able to
delay investment could attain lower costs for such equipment as
technology improvements are realized during that time and as refiners
see how well the range of desulfurization technologies works to achieve
the 15 ppm sulfur standard.
    Foreign refiners may choose to participate in the temporary
compliance option. For purposes of determining compliance with the low
sulfur diesel requirements, foreign refiners must demonstrate
compliance based on the amount of highway diesel fuel they import into
the United States. Therefore, a given foreign refiner must demonstrate
that at least 80 percent of the highway diesel fuel it imported into
each PADD

[[Page 5067]]

meets a 15 ppm sulfur level, or show that it has enough credits from
other refiners in the PADD into which it imported the fuel to cover the
volume of fuel below the 80 percent requirement. Foreign refineries may
also generate credits if they exceed the 80 percent requirement in a
given PADD, and may sell those credits within the same PADD. A foreign
refiner may also choose to not participate in the temporary compliance
option and, as described below, let the fuel importer be the party
which demonstrates compliance.
    Importers of highway diesel fuel (i.e., companies that import fuel
but are not solely refiners) may also participate in the temporary
compliance option. Importers must demonstrate that at least 80 percent
of the highway diesel fuel imported into each PADD (within the limits
noted below for California, Alaska, Hawaii, and any state with an EPA-
approved waiver from the federal program) meets a 15 ppm sulfur level,
or show that they have enough credits from other refiners in the PADD
into which the fuel is imported to cover the volume of fuel below the
80 percent requirement. Importers may also generate credits if they
exceed the 80 percent requirement in a given PADD. Importers that
import highway diesel fuel from foreign refiners that are participating
in the temporary compliance option must exclude the volume of fuel
purchased from those refiners in their compliance calculations or
credit generation calculations.
    Because we expect most refineries to choose to produce fuel either
all at the 15 ppm sulfur level or all at the 500 ppm sulfur level,
credits will be generated by some refiners and desired by others. Thus,
the ABT program will play an important part in achieving overall
compliance. The details of the ABT program are described below.
a. Generating Credits
    Beginning on June 1, 2006 and continuing through December 31, 2009,
refineries and importers may generate credits based on the volume of
low sulfur diesel fuel produced above the required percentage (i.e., 80
percent). One credit will be generated for every gallon of highway
diesel fuel produced at 15 ppm sulfur that exceeds the 80 percent
requirement. Credits will be calculated on a calendar-year basis. For
example, if a refinery produces 10 million gallons of highway diesel
fuel in 2007, it must produce 80 percent of its highway diesel volume
(8 million gallons) as low sulfur during 2007. If the refinery actually
produces 100 percent of its highway diesel fuel as low sulfur during
2007, it can generate credits based on the volume of the ``extra'' 20
percent of low sulfur fuel it produced above the required minimal
percentage--that is, two million gallons of credits. Because the
requirements for low sulfur fuel begin in the middle of 2006, a
refinery will generate credits in 2006 based on the volume of low
sulfur fuel produced beginning June 1, 2006 that exceeds 80 percent of
the highway diesel fuel produced at its facility between June 1, 2006
and December 31, 2006. Once credits are generated by a refinery, they
may be used by the refinery for averaging purposes with other
refineries owned by the same refiner, traded to another refinery, or
banked for use in future calendar year averaging or trading. Credits
may only be used in the PADD in which they are generated, with the
further limitations on credit generation and use in PADD V noted below
for California, Alaska, and Hawaii.
    Refineries may no longer generate credits after December 31, 2009.
Beginning January 1, 2010, every refinery must either comply with the
low sulfur diesel fuel requirements by (1) producing 100 percent of its
highway diesel fuel at the 15 ppm sulfur level or (2) by using credits
through May 31, 2010 to demonstrate compliance with the 100 percent
requirement, provided that banked credits are available to the refinery
(described in more detail below). Starting June 1, 2010, all refineries
must produce 100 percent of their highway diesel fuel as low sulfur
fuel (without the use of credits).
    Finally, early credits, or credits from low sulfur fuel produced at
a refinery prior to June 1, 2006, may be generated, but only under
limited circumstances. Unlike in the Tier 2 program, where significant
emission benefits accrued with the early introduction of low sulfur
gasoline, very little emission benefit (only a small reduction in
sulfate PM emissions from the in-use fleet) will result from the early
introduction of 15 ppm diesel fuel. Consequently, the main purpose in
allowing early credits under the diesel program is to smooth program
implementation beginning June 1, 2006, by allowing a pool of credits to
be available upon program startup. By allowing the generation of early
credits, both purchasers and sellers of credits can have confidence in
the legitimacy of the credits traded, which, in turn, allows for the
purchaser to have increased confidence in their ability to rely on the
ABT program for compliance. Consequently, beginning June 1, 2005 we
will allow refineries to generate credits for any volume of highway
diesel fuel produced which meets the 15 ppm cap. Any refiner that
chooses to do so may bank these credits for later use during the
compliance option years, or may trade them to other refineries within
the same PADD for use during the compliance option years. The one
restriction placed on the generation of these credits is that refiners
will have to demonstrate that the 15 ppm fuel produced early is
segregated in the distribution system and not commingled with current
500 ppm sulfur fuel. Only that volume that the refiner verifies was
actually sold as 15 ppm fuel at retail or into centrally-fueled fleets
will be eligible for early credits.
    Providing refiners with an incentive to produce diesel fuel
complying with the 15 ppm cap earlier than required will not only
instill confidence in the ABT program under the temporary compliance
option, but will also provide both refiners and the distribution system
the opportunity to gain valuable experience prior to the start of the
program with producing and distributing fuel meeting the 15 ppm cap. We
believe that allowing early credit generation for one year prior to the
start of the program will provide the opportunity for the generation of
sufficient early credits to provide refiners with the program
implementation flexibility they will need. If we allowed early credits
to be generated in this manner for a longer time period, we are
concerned that the significant amounts of early credits that could be
generated could compromise availability of 15 ppm fuel at the startup
of the program. Use of these credits after June 1, 2006 could affect
the availability of low sulfur highway diesel fuel across the country
when the 2007 model year heavy-duty engines are introduced in the
market, because the amount of 500 ppm fuel could significantly exceed
the 20 percent threshold allowed under our temporary compliance option.
    The only situation in which we will allow for the generation of
credits prior to June 1, 2005 is if a refiner demonstrates that the
fuel will be used in vehicles certified to meet the 2007 particulate
matter standard being adopted today for heavy-duty engines (0.01 g/bhp-
hr) or in vehicles with retrofit technologies that achieve emission
levels equivalent to the 2007 NOX or PM standard verified as
part of a retrofit program administered by EPA or a state. (Refer to
section I.C.7 for more discussion on retrofit programs.) Under this
situation, we will have confidence that emission benefits are in fact
accruing early, along with the fuel sulfur credits. The early credit
provision of this fuel program will complement the provisions that
encourage the

[[Page 5068]]

introduction of cleaner vehicles earlier than the 2007 model year, as
discussed in Section III.D.
b. Using Credits
    If a refinery does not meet the 80 percent minimum requirement for
low sulfur highway diesel fuel with actual production at that refinery,
the refinery will be able to use credits to demonstrate compliance with
the 80 percent requirement. The use of credits is limited to credits
generated by refineries within the same PADD (within the limits noted
below for California, Alaska, Hawaii, and any state with an EPA-
approved waiver from the federal program). Under the temporary
compliance option, for every gallon of 500 ppm sulfur fuel produced by
a refinery that exceeds the maximum allowed limit of 20 percent, the
refinery must obtain one credit from another refinery within the same
PADD or use banked credits (that were generated within the same PADD).
    Although credits will not officially exist until the end of the
calendar year (based on the generating refinery's actual low sulfur
fuel production for that calendar year), refineries may contract with
each other for credit sales prior to the end of the year, based on
anticipated production. The actual trading of credits will not take
place until the end of the year. All credit transfer transactions will
have to be concluded by the last day of February after the close of the
annual compliance period and each refinery must submit documentation
(as described in Section VII.E.) demonstrating compliance with the
appropriate volume of low sulfur highway diesel fuel. For example, a
refinery that wishes to purchase credits from another refinery to
comply with the 2007 required percentage of low sulfur fuel can do so
based on the generating refinery's projections of low sulfur fuel
production. By the end of February 2008, both the credit-purchasing
refinery and the credit-selling refinery must reconcile the validity of
the credits, and demonstrate compliance with the 80 percent
requirement. As noted earlier, at the beginning of the program, the
initial compliance period will begin on June 1, 2006 and end on
December 31, 2006. For this initial period, refineries must submit
documentation, by February 28, 2007, demonstrating compliance with the
appropriate levels of low sulfur highway diesel fuel for the period
between June 1, 2006 and December 31, 2006.
    Because there could be situations where a refinery planning to use
credits to comply with the minimum percentage of fuel required comes up
short at the end of the year, we are adopting provisions that allow a
limited amount of carryover, or ``credit deficits.'' A refinery that
does not meet the required percentage of low sulfur fuel production in
a given year will be allowed to carry forward a credit deficit for one
year, as long as the deficit does not exceed five percent of its annual
highway diesel fuel production. However, the refinery will have to make
up the credit deficit and come into compliance with the required low
sulfur production percentage in the next calendar year, or the refinery
will be in violation of the program requirements. This provision is
intended to give some relief to refineries faced with an unexpected
shutdown or that otherwise are unable to obtain sufficient credits to
meet the required percentage of low sulfur fuel production.
    With regard to credit trading, any person can act as a broker in
facilitating credit transactions, whether or not such person is a
refiner and/or importer, so long as the title to the credits are
transferred directly from the refinery generating the credits to the
refinery purchasing the credits. Whether credits are transferred
directly from the generating refinery to the purchasing refinery, or
through a broker, the refinery purchasing the credits should have
sufficient information to fully assess the likelihood that credits are
valid. Any credits that are traded to another refinery may, in turn, be
traded to another refinery; however, the credits cannot be traded more
than twice. We believe this provision is necessary because repeated
transfers of credits would significantly reduce our ability to verify
the validity of credits.
c. How Long Will Credits Last?
    The goal of the ABT provisions is to provide additional flexibility
to refiners in the early years of the low sulfur diesel fuel program.
After the first few years of the program, there will be a significantly
greater proportion of after-treatment-equipped vehicles in the fleet.
It will be important to ensure a full transition to the new low sulfur
fuel to prevent misfueling of those vehicles and preserve the
environmental benefits of the program. Therefore, the ability of
refineries to generate credits will end on December 31, 2009.
Refineries will be allowed to use any available banked credits,
including early credits, for fuel produced through May 31, 2010. Any
remaining credits not used for the compliance period until May 31, 2010
will expire. Beginning June 1, 2010, all refineries must produce 100
percent of their highway diesel fuel at the 15 ppm sulfur level without
the use of credits, and the ABT program will end.
d. Additional Limitations on Credit Trading for Some States
    At this time we are adopting a low sulfur highway diesel fuel
program that will apply throughout the United States, with trading of
credits limited to those refineries located within the same PADD.
Although we are adopting a diesel fuel program that currently will
apply nationwide, it is possible that the State of California, or some
other state, may adopt in the future a different highway diesel fuel
program than that adopted today.163 To assure that adequate
supplies of low sulfur diesel fuel will be available throughout all
regions of the country, we are adopting provisions that do not allow
refineries located in states with a state-approved 15 ppm highway
diesel sulfur program to participate in the credit program. In other
words, credit trading is limited only to those refineries complying
with the federal program. For example, without such provisions, if
California were to adopt its own state program requiring the production
of 15 ppm diesel fuel, we are concerned that it might be possible for
California refineries to generate enough credits such that areas
outside of California in PADD V are dominated by the production of 500
ppm sulfur diesel fuel, with little or no 15 ppm fuel available. This
would be problematic for the model year 2007 and later heavy-duty
engines designed to be operated on low sulfur fuel. The reader is
directed to Chapter IV of the RIA for today's action for our complete
analysis supporting the development of the temporary compliance option.
---------------------------------------------------------------------------

    \163\ See Section IV.F. for a discussion of preemption of state
diesel sulfur requirements.
---------------------------------------------------------------------------

    As discussed in Section IV.F. of this preamble, the State of
Alaska, which is a part of PADD V, will have the opportunity to
develop, and submit to us for approval, an alternative transition plan
for implementing the low sulfur highway diesel fuel program. Such a
plan will allow Alaska to develop a transition program tailored to its
isolated market. If, for some reason, Alaska does not submit an
alternative plan, or we do not approve the plan submitted by Alaska,
then the federal program described in today's action will apply. In the
event we do not approve an alternative plan for Alaska, based on our
analysis of the likely response of refineries in Alaska to the
temporary compliance option and because its fuel distribution system is
essentially isolated from the rest of PADD V, we are

[[Page 5069]]

concerned that all of the fuel offered for sale in Alaska could be 500
ppm sulfur fuel if refineries in Alaska were allowed to purchase
credits from other PADD V refineries. For this reason, under today's
program, refineries in Alaska will be allowed to generate credits as
described earlier. However, they may only sell credits to, or purchase
credits from, other refineries in or importers of fuel to Alaska. We
believe this will provide assurance that low sulfur highway diesel fuel
will be sufficiently available in Alaska and will also reduce the
chance that credits from Alaska will result in significantly less low
sulfur diesel fuel in PADD V areas outside of Alaska. Again, these
default provisions of the national program will only be effective in
the event that we do not approve an alternate transition plan for
Alaska.
    Hawaii is in a similar situation to Alaska with regard to fuel
distribution. Hawaii, which is part of PADD V, is an isolated market
and we have similar concerns with regard to whether low sulfur diesel
fuel would be available in Hawaii if the two refineries currently
operating were able to purchase credits from other PADD V refineries
and produce all 500 ppm sulfur fuel. For this reason, under today's
program, the refineries in Hawaii will be allowed to generate credits
as described earlier. However, they may only sell credits to, or
purchase credits from, other refineries in or importers of fuel to
Hawaii. We believe this will ensure that low sulfur highway diesel fuel
will be available in Hawaii.
3. What Information Must Refiners/Importers Submit to Us?
    To ensure a smooth transition to the program and to evaluate
compliance once the program has begun, we are requiring refiners and
importers to submit a variety of information to us. Section VII.E of
this document and the regulatory language for today's action provide
detailed description of the information that must be submitted and the
dates when such submittals are due.164
---------------------------------------------------------------------------

    \164\ As described in Sections IV.B., IV.C. and VII.E., small
refiners and GPA refiners have special supplementary reporting
requirements relating to the optional program they are participating
in.
---------------------------------------------------------------------------

    First, refiners and importers that currently or in 2006 expect to
produce or supply highway diesel fuel are required to register with us
by December 31, 2001. This will inform us on the universe of refiners
that we expect to participate in the highway diesel market once the
program begins.
    Second, to help facilitate the market for credit trading under the
temporary compliance option, any refiner or importer planning to
produce or import highway diesel in 2006, is required to submit to us
an annual pre-compliance report. Refiners and importers are required to
submit these annual pre-compliance reports from 2003 through 2005.
These reports must contain estimates of the volumes of 15 ppm sulfur
fuel and 500 ppm sulfur fuel that will be produced at each refinery,
and, for those refineries planning to participate in the trading
program, a projection of how many credits will be generated or must be
used by each refinery. These pre-compliance reports must also contain
information outlining each refinery's timeline for compliance and
provide information regarding engineering plans (e.g., design and
construction), the status of obtaining any necessary permits, and
capital commitments for making the necessary modifications to produce
low sulfur highway diesel fuel. Based on the information submitted by
refiners and importers, we plan to issue an annual report that
summarizes, in a way that protects the confidentiality of individual
refiners and importers, the information contained in the pre-compliance
reports. Our annual report will provide information, summarized and
aggregated on a PADD basis, describing the volumes of 15 ppm and 500
ppm highway diesel planned to be produced, and estimates of the number
of credits that refineries expect to generate or use. We believe this
information will be important to refiners as they make plans for
complying with the temporary compliance option. For example, this
information will be useful in giving refiners a better indication of
the potential market for credits and availability of credits in their
PADD. To prevent the release of confidential information, our annual
report will not contain any information on individual refinery
compliance plans.
    Third, refiners and importers are required to submit annual
compliance reports that demonstrate compliance with the requirements of
this final rule. The first annual compliance report is due by the end
of February 2007 (for the period of June 1, 2006 through December 31,
2006) and is required annually through February 2011. The reports must
show, on a refinery basis, the volumes of 15 ppm and 500 ppm sulfur
highway diesel fuel produced at each refinery during the compliance
period, the number of credits used (or generated) at each refinery to
demonstrate compliance with the 80 percent requirement for low sulfur
diesel fuel, and the sources of the credits used. The information
submitted in the annual compliance reports must be segregated by PADD.
4. Impacts of the Highway Diesel Fuel Program
    Based on analyses we have performed, as described in more detail
below, we believe the temporary compliance provisions contained in
today's final rule will assure adequate supplies of highway diesel
fuel, will provide flexibility for refiners, and should result in lower
costs for both refiners and consumers. In addition, we believe the
temporary compliance provisions as adopted today will ensure sufficient
availability of low sulfur highway diesel fuel to new vehicle owners
who need it without the need for a retailer availability requirement,
and should not lead to significant levels of misfueling and the
associated loss of emission benefits. We have analyzed each of these
issues in developing the final fuel program. A summary of our analyses
and the conclusions we have drawn are discussed below. A detailed
description of these analyses are contained in the RIA for today's
action. In addition, a complete list of the comments related to a
possible phase-in program and our response to those comments is
included in the Response to Comments document for this final rule.
a. Ensures Adequate Supplies of Highway Diesel Fuel
    We received several comments on the NPRM fuel program that
suggested there would be a shortfall in the amount of highway diesel
supply if all of the highway diesel fuel were required to meet a 15 ppm
sulfur limit beginning in 2006. As described later in Section V.C., in
response to these comments we analyzed the capability of the entire
diesel fuel refining industry in the U.S. to adjust to the low sulfur
fuel requirements. Based on this analysis, we believe that supplies of
highway diesel fuel will be sufficient even if all highway diesel fuel
were required to comply with the 15 ppm standard in 2006. The temporary
compliance option included in today's rule is intended as a ``safety
valve'' that, along with the hardship provisions discussed in Section
IV.C.,will further help to ensure adequate supplies of highway diesel
fuel beginning in 2006.
    In performing the analysis of diesel fuel supply, we examined all
diesel fuel refiners (including those that currently make only off-
highway diesel fuel but not highway diesel fuel) to assess the
likelihood of their investing in the production of 15 ppm highway
diesel

[[Page 5070]]

fuel. Using a refinery cost model, we made projections of the likely
response by refineries to today's low sulfur requirements by estimating
the cost for each refinery to produce low sulfur diesel fuel. The
results of our analysis show that the overall supply of highway diesel
fuel will continue to be adequate to meet market demands as refiners
are required to start producing low sulfur highway diesel fuel. Most
refineries that currently produce highway diesel fuel will produce
about the same volume of low sulfur diesel fuel once the program takes
effect. However, several refineries could economically expand their
current highway diesel fuel production by shifting some of their off-
highway production today, and a few others currently producing only
off-highway diesel fuel could economically shift to some highway diesel
production. Consequently, our analysis indicates that there is ample
capability in the refining industry to continue to economically supply
sufficient quantities of highway diesel fuel when today's program goes
into effect. For a fuller discussion of this analysis, see Section V of
this preamble and Chapter IV of the RIA.
    If any potential for highway diesel fuel shortfalls exists by
requiring all fuel to meet 15 ppm sulfur in 2006, as CRA's analysis
suggests, we believe that allowing some continued supply of 500 ppm, as
we are doing under the temporary compliance option and hardship
provisions contained in today's action, addresses this concern. Since
the final rule allows some transition period before the entire highway
diesel pool is required to meet the 15 ppm sulfur standard, some
refiners will not need to change their current operations and will be
able to continue producing 500 ppm fuel during these years. Those
refiners that delay production of low sulfur diesel fuel until the
later years of the program will tend to be the refiners with the
highest cost to comply and, thus, refiners that would otherwise have
the greatest tendency not to invest and thereby impact supply. Refiners
that begin producing low sulfur diesel fuel in the later years of the
program will also be able to take advantage of ongoing improvements in
desulfurization technology. Together, these factors will help avoid or
reduce any potential losses in highway diesel fuel production when the
program requires full compliance with low sulfur diesel fuel.
b. Ensures Widespread Availability of Low Sulfur Diesel Fuel
    A major concern we noted in the NPRM regarding a fuel phase-in
program was ensuring the widespread availability of low sulfur diesel
fuel. Without an assurance of widespread availability, there would be
concerns whether the 2007 and later model year heavy-duty vehicles that
were designed to operate on low sulfur fuel would be able to purchase
it in all parts of the country. If such vehicles were fueled with 500
ppm diesel fuel, the emission control systems could be irreversibly
damaged and any benefit of the new emission standards could be
eliminated (see Section III.F. above). Therefore, in setting the
requirements for the temporary compliance option, we have analyzed the
likelihood that fuel will be widely available so that 2007 and later
model year heavy-duty vehicles will be able to find low sulfur fuel in
all local markets across the country. To achieve this goal, we believe
there need to be assurances that refineries producing 15 ppm fuel are
sufficiently scattered throughout each of the PADDs and that most
pipelines will carry 15 ppm fuel (either as the only highway diesel
fuel or in addition to 500 ppm highway fuel).
    In determining what fraction of highway diesel fuel would need to
be low sulfur under the temporary compliance option provision, taking
into account the potential impact of the hardship provisions, we used a
refinery cost model to estimate the costs of producing 15 ppm fuel for
all refineries. We then assumed that the refineries with the lowest
costs would convert to 15 ppm fuel and assumed the other refineries
would purchase credits and continue producing 500 ppm fuel through the
compliance option period. We then overlaid the information on which
refineries were estimated to be producing 15 ppm fuel with the highway
diesel fuel distribution system in the United States. We examined
different levels for the temporary compliance option beginning as low
as 20 percent and ranging as high as 90 percent. The results of the
analysis show that at temporary compliance option levels for 15 ppm
below 80 percent, there are local regions of the country where we
believe there would likely be shortages of low sulfur diesel fuel. The
areas where we believe there would be shortages are either (1) served
by pipelines that we believe would not carry 15 ppm fuel, because the
refineries serving those pipelines are projected to produce primarily
500 ppm; or (2) dominated by refineries we believe would continue
producing 500 ppm fuel under the temporary compliance option and are
not currently capable of receiving significant supplies of a second
grade of diesel fuel through other reasonable means. At the 80 percent
level, we believe that all pipelines will carry low sulfur diesel fuel,
since there are a sufficient number of refineries scattered across the
country producing low sulfur diesel fuel and at sufficient volumes for
pipelines to choose to carry it. We also believe that the program
ensures that low sulfur diesel fuel will be sufficiently available to
retail outlets at a reasonable cost either at a local terminal or by
trucking the fuel a limited distance.
    As noted earlier, we are not adopting any retailer availability
requirements with today's fuel program. Given the amount of low sulfur
diesel fuel required under today's temporary compliance option, we
believe the distribution system will make low sulfur diesel fuel widely
available without any requirements on retail outlets to supply low
sulfur diesel fuel.
c. Provides Lower Costs to Refineries
    One benefit of the temporary compliance option being adopted today
is that a significant number of refiners will have the ability to delay
the date when they convert their highway diesel fuel production to 15
ppm, allowing the refining industry to stretch out its engineering and
construction resources. Given the flexibilities being adopted today, we
believe that many large refineries, and other refineries for which
diesel desulfurization is least expensive, will make the commitment to
convert their entire highway diesel pool to 15 ppm sulfur in 2006 and
sell credits to other refineries that will continue to produce all of
their fuel at the 500 ppm sulfur level. Using a refinery cost model to
estimate how refineries will respond to the temporary compliance option
requirements, we believe that more than half of the refineries will
delay capital investment by buying credits and continue producing 500
ppm sulfur diesel fuel under the temporary compliance option and small
refiner hardship provisions. We estimate that refiners will be able to
save as much as $1.7 billion over the transition period compared to a
requirement that all highway diesel fuel comply with 15 ppm sulfur in
2006. As noted earlier, much of this potential savings will be offset
by increased costs in the distribution system. Nevertheless, we project
that in total, an overall savings of approximately $0.65 billion could
result.
d. Misfueling Concerns Should Be Minimized
    By allowing a 500 ppm and 15 ppm sulfur highway diesel fuels to be
in the

[[Page 5071]]

market at the same time, there is the possibility that model year 2007
and later heavy-duty vehicles will be misfueled with 500 ppm sulfur
fuel, either accidentally or intentionally. As discussed above, if such
vehicles are fueled with 500 ppm diesel fuel, the emission control
systems could be irreversibly damaged and any benefit of the new
emission standards could be eliminated. To minimize the possibility of
misfueling, we are adopting labeling requirements that apply to both
retail stations and vehicle manufacturers. Under these provisions,
labels will be applied at the diesel fuel pumps at retail stations and
at the fuel tank inlet on the vehicle. The labels must indicate that
only 15 ppm sulfur highway diesel fuel may be used in 2007 and later
model year heavy-duty vehicles. The labeling requirements for fuel
pumps and vehicles are described in detail in Sections VII.C. and
VI.G., respectively.
    Given the program being adopted today, we believe that intentional
misfueling will not be a serious problem. The main incentive vehicle
owners may have for using 500 ppm sulfur fuel would likely be cost
savings. In general, producing 500 ppm sulfur should be cheaper than
producing 15 ppm fuel. However, given the requirements adopted today,
we believe there should not be a large cost differential between the 15
ppm sulfur fuel and the 500 ppm sulfur fuel at retail outlets. Under
the credit trading program, to produce 500 ppm fuel, most refiners will
have to purchase credits from other refiners producing 15 ppm fuel,
increasing the cost of the 500 ppm fuel, while decreasing the cost of
the 15 ppm fuel. At the refinery gate, the cost of both fuels should be
approximately the same. In addition, given the amount of 15 ppm fuel
required under the temporary compliance option, 15 ppm fuel will be
distributed through essentially the entire pipeline system. The
distribution of 500 ppm fuel, on the other hand, will be more limited,
due to its much lower volume. We expect that the 500 ppm fuel will be
distributed by truck in the areas nearby refineries producing this fuel
and through a few major pipelines to a limited number of major fuel
consuming areas. Overall, the better economies of scale of transporting
15 ppm fuel should compensate for any additional handling cost due to
the need to more carefully avoid contamination with higher sulfur
fuels. For these reasons, we expect the price to consumers of 500 ppm
sulfur fuel to be generally close to that of 15 ppm sulfur fuel and,
therefore, there should not be a significant economic incentive to
misfuel with 500 ppm sulfur fuel. Finally, because vehicle owners will
likely void the manufacturer's warranty if they misfuel with 500 ppm
sulfur fuel, they will have an additional incentive not to misfuel.
Owners of heavy-duty vehicles make significant investments in these
vehicles and will not want to take the chance of voiding their warranty
for a relatively small savings in fuel cost.
    In addition to our concern about intentional misfueling, we also
have some concerns about accidental misfueling during the optional
compliance program years. This concern is lessened to some extent
because of the limited amount of 500 ppm sulfur fuel that will be
available, the short duration of the optional compliance program, the
knowledgeable owners and operators of trucks and most importantly, the
labels that will be required on both the vehicle and the fuel pumps.
Thus, we do not expect either type of misfueling to be a significant
problem.
e. Summary
    In summary, today's program has been structured to ensure a smooth
transition to low sulfur highway diesel fuel. We believe this will
allow the refining industry the ability to spread out capital
investments and provide more time for the market to transition to the
low sulfur diesel fuel. This, in turn, will help to mitigate any
potential for concerns about highway diesel fuel supply shortfalls. We
also believe the provisions included in the program will continue to
provide assurance that adequate supplies of low sulfur highway diesel
fuel will be available throughout the nation for the 2007 and later
model year heavy-duty vehicles that will require the fuel to comply
with the emission standards. Moreover, because the flexibilities
included in the program should reduce the economic impact on refiners,
we will also expect there to be a reduction in the costs to highway
diesel fuel users.

B. What Provisions Apply in the Geographic Phase-in Area?

1. What Is the Geographic Phase-in Area and How Was it Established?
    In the low sulfur gasoline rule, we established the GPA provision
which provides temporarily less stringent standards for gasoline sold
in certain parts of the West and Alaska (40 CFR 80.215). A map of the
area is shown in Figure IV-2, below.165 As described in the
preamble to the low sulfur gasoline final rule, we used two criteria to
develop and evaluate the GPA approach: (1) Relative environmental need
and (2) the ability of U.S. refiners and the distribution system to
provide compliant gasoline.
---------------------------------------------------------------------------

    \165\ Alaska, Colorado, Idaho, Montana, New Mexico, North
Dakota, Utah, and Wyoming. Note that minor changes to this area are
currently under consideration. Any such changes subsequent to
today's rule are intended to be carried over into today's rule as
well.
---------------------------------------------------------------------------

BILLING CODE 6560-50-P

[[Page 5072]]

[GRAPHIC] [TIFF OMITTED] TR18JA01.005

BILLING CODE 6560-50-C

    In part, we defined the GPA based on the relative difficulty of
producing or obtaining complying low sulfur gasoline (see preamble to
the low sulfur gasoline rule at 65 FR 6698, February 10, 2000). The
refining industry in the GPA is dominated by small capacity,
geographically-isolated refineries located within that area. As a
general rule, refineries in this area will (because of their crude oil
capacity, corporate size, and location) have the most difficult time of
all refineries nationwide in competing for the engineering and
construction resources needed to modify their refineries to comply with
the low sulfur gasoline standards.
    Furthermore, an assessment of gasoline production and use data and
information on the products pipeline system shows that states and
counties in the GPA are solely or predominantly dependent on gasoline
produced by these refineries and have limited or no access to gasoline
from other parts of the country. Specifically, Department of Energy
data for 1998 indicate that over 80 percent of the gasoline sold in
this area is produced by the relatively small refineries located within
the region. Much of this gasoline is produced by small volume
refineries that are not owned by small businesses, and are therefore
not afforded the flexibility of the small refiner provisions described
in Section IV.C. Providing low sulfur gasoline to these states and
counties is expected to be more difficult and costly in the near term.
    The temporary gasoline provisions for the GPA apply for three
years, 2004 through 2006. Since the low sulfur gasoline standards for
the rest of the country require compliance in January 2006 with a 30
ppm refinery average standard and an 80 ppm gallon cap, the geographic
phase-in provides an additional year for refiners to reach those
standards. This extra year and the somewhat less stringent standards
during the gasoline phase-in will provide the refining industry the
opportunity for a more orderly transition to the 30/80 ppm gasoline
sulfur standards by January 2007.
    The gasoline GPA provision covers all gasoline produced (or
imported) for use in the GPA166, whether refined within the
area or distributed within the area via pipeline, barge, truck, or
rail. Foreign refiners are involved in this program through importers,
which are the regulated entities.
---------------------------------------------------------------------------

    \166\ As stated in the Tier 2/Gasoline Sulfur final rule (See
Sec. 80.215(a)(2)), we plan to expand the GPA to include counties
and tribal lands in states adjacent to the eight core GPA states.
---------------------------------------------------------------------------

2. Highway Diesel Provisions for GPA Refiners
    In response to our proposal, we received many comments from the
refining industry and others regarding the timing of our proposed
highway diesel fuel sulfur program. Commenters argued that the proposed
schedule for diesel sulfur compliance, beginning in mid-2006, would be
a problem since it directly coincides with the December 2006 gasoline
sulfur compliance date for the GPA. Some said that the timing of the
diesel program could effectively negate the benefit to refiners of the
GPA program since desulfurization investments would need to take place
during essentially the same time period. This could thus increase the
difficulty of refiners in this region to raise capital and to engage
engineering and construction resources. Some also said that an
extension of the GPA gasoline program would allow more rational
planning without unduly reducing the air quality benefits of the
program.
    We agree with many of the commenters in this regard--refineries
supplying the GPA tend to be disproportionately challenged compared to
other refiners with respect to capital formation, the availability of
engineering and construction resources, and the isolated nature of many
of the markets. Moreover, the introduction of low sulfur highway diesel
fuel in June 2006 indeed overlaps with the conclusion of the interim
low sulfur gasoline standards for GPA refiners.
    In consideration of these comments, we believe that it is
appropriate to grant additional flexibility to refiners that supply
gasoline to the GPA while also meeting the low sulfur diesel standards.
Additional flexibility for GPA refiners will allow them to spread out
their capital investments for producing low sulfur gasoline and highway
diesel fuel. In light of the above, we are modifying

[[Page 5073]]

the GPA gasoline program while still achieving significant
environmental benefits. We expect this provision will have little long-
term impact on the environmental benefits of the Tier 2/Gasoline Sulfur
program, while providing for considerable near-term implementation
flexibility and improved feasibility of the highway diesel fuel
program.
    Refiners that produce both gasoline and highway diesel fuel and are
subject to the GPA gasoline sulfur program may choose to stagger their
desulfurization investments for the two fuels. Refiners that comply
with the low sulfur diesel fuel standard by June 1, 2006 for all of
their highway diesel fuel production may receive a two-year extension
of their interim GPA gasoline standards for 2006, that is through
December 31, 2008. In addition to allowing refiners the opportunity to
spread out their desulfurization investments, we believe this provision
will encourage the production of 15 ppm diesel fuel by some refiners
producing fuel for the GPA, which will further help to ensure the new
fuel is widely available for new vehicles throughout the area. Although
the GPA gasoline program applies to both refiners and importers, the
extension of the GPA gasoline program under today's program applies
only to refiners. This reflects the fact that only refiners have to
make capital investments to comply with the diesel sulfur standard.
    To receive the two-year extension of the GPA standards, a U.S.
refinery must by June 1, 2006 produce 100 percent of its highway diesel
fuel at 15 ppm sulfur (including refineries that supply only a fraction
of their gasoline production to the GPA). In addition, the refinery
must maintain a production volume of 15 ppm highway diesel fuel that is
at least 85 percent of the baseline highway diesel volume that was
produced at that refinery on average during calendar years 1998 and
1999. We believe that it is very important that the extension of a GPA
refinery's interim gasoline sulfur standard be linked to a substantial
environmental benefit from the production of 15 ppm diesel fuel in
2006. We have established a minimum volume requirement to prevent the
extension of the GPA gasoline program from applying in situations where
a refinery changes its refinery product slate to produce very little
highway diesel fuel--even though this production is at 15 ppm sulfur.
We believe the 85 percent level is sufficient to reflect a substantial
investment in desulfurization technology. At the same time the 85
percent level should allow for any reasonable variation in production
of highway diesel fuel that would be expected to occur in typical
situations between now and 2006, particularly given the continued
growth of the highway diesel market.
    Similarly, a foreign refinery that meets the same conditions as a
domestic GPA refiner may also sell gasoline into the GPA that meets a
less stringent sulfur standard during 2007 and 2008.167 That
is, a foreign refinery that by June 1, 2006 sells 100 percent of the
highway diesel fuel it imports into the U.S. as 15 ppm fuel (and that
maintains the 85 percent of baseline volume requirement) may sell
somewhat higher-sulfur gasoline into the GPA in 2007 and 2008. The
actual gasoline sulfur standard during this period, as with domestic
refiners, would be based on the foreign refinery's gasoline sulfur
baseline.
---------------------------------------------------------------------------

    \167\ Prior to 2007, foreign refiners can participate in the GPA
program through importers. Under today's provisions for 2007 and
2008, importers are not eligible and foreign refiners can
participate directly as refiners.
---------------------------------------------------------------------------

    If a situation arises where a GPA refinery did not produce highway
diesel fuel in 1998 or 1999 but later begins to produce 15 ppm diesel
fuel, use of the GPA gasoline phase-in extension will require case-by-
case EPA approval. In its application for such approval, a refinery
must show us that the loss of emission reductions will not be
significant and must propose an appropriate minimum production volume.
In evaluating such a proposed minimum volume, we may consider, among
other factors, the typical ratio between highway diesel and gasoline
production for other refineries in the industry. Again, the reason for
the two-year extension of the gasoline interim program is to allow the
GPA refinery to spread out its capital investments while increasing the
quantity of 15 ppm fuel being produced. We expect that GPA refineries
using this option will make a substantive capital investment in diesel
desulfurization and have thus set this minimum 15 ppm diesel production
volume limit.
    Since refiners participating in this program are required to
produce 100 percent of their highway diesel at 15 ppm, those that
choose this option cannot participate in the highway diesel temporary
compliance option, and, therefore, are not permitted to generate
credits on the low sulfur diesel fuel that they produce. If, after June
1, 2006, a foreign refinery is not producing 100 percent of its highway
diesel fuel imported into the U.S. at 15 ppm sulfur in the required
volume, it forfeits the two-year extension or any remaining portion of
the extension of its interim gasoline program.
3. How Do Refiners Apply for an Extension of the GPA Gasoline Program?
    Any refinery that seeks an extension of its GPA gasoline standards
must apply to us as a part of its registration, due by December 31,
2001. In this application, the refinery must indicate its intention to
produce 100 percent of its highway diesel fuel at 15 ppm (and at a
volume at least 85 percent of the highway diesel fuel volume it
produced on average during calendar years 1998 and 1999) by June 1,
2006.
4. Required Reporting for GPA Refiners
    As described in Section VII.E below, refiners that plan to use the
extension of the GPA gasoline standard must report their plans and
progress several times over the course of the program. In addition to
their initial registration and application discussed above, a refinery
must submit pre-compliance reports in 2003, 2004, and 2005, describing
its progress toward the capacity to produce 100 percent of its highway
diesel fuel at 15 ppm sulfur (at a volume at least 85 percent of its
baseline volume). Then, by July 1, 2006, such a refinery must confirm
to us that by June 1, 2006 it was producing 100 percent of its highway
diesel fuel at 15 ppm, at the appropriate volume.168 After
the diesel sulfur program is underway in 2006, the refinery must
provide us with annual compliance reports by the end of February of
2007, 2008, and 2009 (i.e., until after the end of the extended interim
gasoline sulfur program for GPA refiners on December 31, 2008).
---------------------------------------------------------------------------

    \168\ If the refiner was not producing 15 ppm fuel for all its
highway diesel production at that refinery by June 1, 2006, the July
1, 2006 letter must confirm that the refiner is forfeiting the
``automatic'' two-year extension of that refinery's interim gasoline
program.
---------------------------------------------------------------------------

C. Hardship Provisions for Qualifying Refiners

    This section describes various provisions for certain qualifying
refiners, both domestic and foreign, that may face hardship
circumstances.
1. Hardship Provisions for Qualifying Small Refiners
    In developing our diesel sulfur program, we evaluated the need and
the ability of refiners to meet the 15 ppm standard as expeditiously as
possible. This analysis is described in detail in Chapter IV of the
RIA. As a part of this analysis, we found that while the majority of
refiners would be able to meet the needed air quality goals in the

[[Page 5074]]

2006 time frame, there would be some refiners that would face
particularly challenging circumstances which would cause them to have
more difficulty, in comparison to the industry as a whole, in meeting
the standards.
    We believe it is feasible and necessary for the vast majority of
the program to be implemented reasonably quickly to achieve the air
quality benefits as soon as possible. To do otherwise would be to base
the time frame of the entire program on the lowest common denominator.
Thus, we have provided special flexibility provisions for a subset of
refiners that qualify as ``small refiners,'' which represent about five
percent of the overall highway diesel volume. As described in more
detail below, and in the Regulatory Impact Analysis (Chapter VIII of
the RIA), we concluded that refineries owned by small businesses face
unique hardship circumstances, compared to larger companies.
a. Qualifying Small Refiners
    The primary reason for special small refiner provisions is that
small businesses generally lack the resources available to large
companies which enable the large companies (including those large
companies that own small volume refineries) to raise capital for
investing in desulfurization equipment. The small businesses are also
likely to have more difficulty in securing loans, competing for
engineering resources, and completing construction of the needed
desulfurization equipment in time to meet the standards adopted today
which begin in 2006. In addition, the implementation of the low sulfur
diesel program will occur in the same general time frame as the
implementation of the low sulfur gasoline program, since most of those
small refiners that are covered by the interim standards under the Tier
2/Gasoline Sulfur program (40 CFR Part 80, Subpart H) are also covered
by today's diesel fuel sulfur program.
    The emissions benefits of the low sulfur diesel program are needed
as soon as possible--to allow the implementation of new emission
reduction requirements on heavy-duty engines and vehicles and, thus, to
reduce ozone, particulate matter, and other harmful air pollutants.
Since our analysis showed that small businesses in particular face
hardship circumstances, we are adopting temporary provisions that will
provide refineries owned by small businesses additional time to meet
the ultimate 15 ppm sulfur cap or balance investments of this program
with those related to the Tier 2/Gasoline Sulfur program. This approach
allows us to achieve the earliest implementation date for advanced
technology diesel vehicles (i.e., the 2007 model year) and the needed
emission reductions they will bring.
    We believe that the temporary flexibilities described below are an
effective way to begin the broad implementation of the standards as
expeditiously as is feasible and thereby achieve significant air
quality benefits in an expeditious manner. This section describes the
special provisions we are offering small businesses to mitigate the
impacts of our program on them and generally explains the analysis we
undertook of those impacts. Please refer to the Response to Comments
document for a detailed discussion of comments we received on these
provisions, and to the RIA for a more detailed discussion of our
analysis of small refiner circumstances.
    As explained in the discussion of our compliance with the
Regulatory Flexibility Act in Section X.B. and in the Regulatory
Flexibility Analysis in Chapter VIII of the RIA, we considered the
impacts of our proposed regulations on small businesses. We have
historically, as a matter of practice, considered the potential impacts
of our regulations on small businesses. We believe that the temporary
flexibilities we are adopting for small refiners contributed to our
development of a framework to achieve significant environmental
benefits from lower sulfur diesel in the most expeditious manner that
is reasonably practicable.
    A large part of the analysis of small business impacts conducted
for this rulemaking was performed in conjunction with a Small Business
Advocacy Review (SBAR) Panel we convened, pursuant to the Regulatory
Flexibility Act as amended by the Small Business Regulatory Enforcement
Fairness Act of 1996 (SBREFA). In the SBREFA amendments, Congress
stated that ``uniform Federal regulatory requirements have in numerous
instances imposed unnecessary and disproportionately burdensome demands
including legal, accounting, and consulting costs upon small businesses
. . . with limited resources[,]'' and directed agencies to consider the
impacts of certain actions on small entities. The final report of the
Panel is available in the docket. Through the SBREFA process, the Panel
provided information and recommendations regarding:
     The significant economic impact of the proposed rule on
small entities;
     Any significant alternatives to the proposed rule which
would ensure that the objectives of the proposal were accomplished
while minimizing the economic impact of the proposed rule on small
entities;
     The projected reporting, recordkeeping, and other
compliance requirements of the proposed rule; and,
     Other relevant federal rules that may duplicate, overlap,
or conflict with the proposed rule.
    In addition to our participation in the SBREFA process, we
conducted our own outreach, fact-finding, and analysis of the potential
impacts of our regulations on small businesses. Some of the small
refiners with whom we and the Panel met indicated their belief that
their businesses may close due to the substantial costs, capital and
other impacts of meeting the 15 ppm diesel fuel standard without either
additional time or flexibility with respect to gasoline sulfur
compliance. Based on these discussions and analyses, the Panel and we
agree that small refiners would likely experience a significant and
disproportionate financial hardship in reaching the objectives of our
diesel fuel sulfur program. However, the Panel also noted that the
burden imposed upon the small refiners by our sulfur requirements
varied from refiner to refiner and could not be alleviated with a
single provision. We agree with the Panel and are offering qualifying
small refiners three options to choose from in moving toward compliance
with the low sulfur diesel fuel requirements.
    For today's action, we have structured a selection of temporary
flexibilities for qualifying small refiners, both domestic and foreign,
based on the factors described below. Generally, we structured these
provisions to address small refiner hardship while expeditiously
achieving air quality benefits and ensuring that the low sulfur diesel
fuel coincides with the introduction of 2007 model year diesel
vehicles.
    First, the compliance deadlines in the program, combined with
flexibility for small refiners, will quickly achieve the air quality
benefits of the program, while helping to ensure that small refiners
will have adequate time to raise capital for new or revamped equipment.
Most small refiners have limited additional sources of income beyond
refinery earnings for financing the equipment necessary to produce low
sulfur diesel. Because these small refiners typically do not have the
financial backing that larger and generally more integrated companies
have, they can benefit from additional time to secure capital financing
from their lenders.

[[Page 5075]]

    Second, we believe that allowing time for refinery sulfur-reduction
technologies to be proven out by larger refiners before small refiners
have to put them in place will reduce the risks incurred by small
refiners that utilize these technologies to meet the standards. The
added time will likely allow for lower costs of these improvements in
desulfurization technology (e.g., better catalyst technology or lower-
pressure hydrotreater technology). Because of the poorer economies of
scale and the higher relative capital and operating costs faced by
small refiners, more time for technology development and
commercialization will limit the economic consequences for small
refiners. Small refiners are disadvantaged by the economies of scale
that exist for the larger refining companies-capital costs and per-
barrel fixed operating costs are generally higher for small refiners.
    Third, providing small refiners more time to comply will increase
the availability of engineering and construction resources. Since most
large and small refiners must install additional processing equipment
to meet the sulfur requirements, there will be a tremendous amount of
competition for technology services, engineering manpower, and
construction management and labor. Our analysis shows that there are
limits to the price elasticity of these resources. In addition, vendors
will be more likely to contract their services with the major companies
first, as their projects will offer larger profits for the vendors.
    Finally, because the gasoline and diesel sulfur requirements will
occur in approximately the same time frame, small refiners that produce
both fuels will have a greater difficulty than most other refiners in
securing the necessary financing. Hence, any effort that increases
small refiners' ability to stagger investments for low sulfur gasoline
and diesel will facilitate compliance with the two programs.
    Providing these options to assist small refiners experiencing
hardship circumstances enables us to go forward with the 15 ppm sulfur
standard beginning in 2006. Without this flexibility, the benefits of
the 15 ppm standard would possibly not be achieved as quickly. By
providing temporary relief to those refiners that need additional time,
we are able to adopt a program that expeditiously reduces diesel sulfur
levels in feasible manner for the industry as a whole. In addition, we
believe the volume of diesel that will be affected by this hardship
provision is marginal. We estimate that small refiners contribute
approximately five percent of all domestic diesel fuel production.
b. How Do We Define Small Refiners?
    The following definition of small refiner is based closely on our
small refiner definition in the Tier 2/Gasoline Sulfur rule. We define
a refiner that meets both of the following criteria as a ``small
refiner'' for purposes of this rule:
     No more than 1,500 employees corporate-wide, based on the
average number of employees for all pay periods from January 1, 1999 to
January 1, 2000.
     A corporate crude oil capacity less than or equal to
155,000 barrels per calendar day (bpcd) for 1999.
    In determining the total number of employees and crude oil
capacity, a refiner must include the number of employees and crude oil
capacity of any subsidiary companies, any parent company and
subsidiaries of the parent company, and any joint venture partners. We
define a subsidiary of a company to mean any subsidiary in which the
company has a 50 percent or greater ownership interest. This definition
of small refiner is the same definition used under the recently
promulgated Tier 2/Gasoline Sulfur program (40 CFR 80.225), except that
we have included additional regulatory language to clarify our
interpretation of the term ``subsidiary'' and we have updated the time
period used to determine the employee number and crude oil capacity
criteria to reflect data for the most recent calendar years. This
approach is consistent with the Small Business Administration's
regulations, which specify that, where the number of employees is used
as a size standard, the size determination is to be based on the
average number of employees for all pay periods during the preceding 12
months (13 CFR 121.106).
    The gasoline sulfur standards and the diesel sulfur standards will
impact small refiners in approximately the same time frame. For this
reason, we will consider any refiner that we approve as meeting the
small refiner definition under the gasoline sulfur program (40 CFR
80.235) to be a small refiner under the highway diesel sulfur rule as
well without further demonstration.
    In addition, a company that after January 1, 2000 either acquires
or reactivates a refinery that was shutdown or non-operational between
January 1, 1999 and January 1, 2000 may also apply for small refiner
status. Such an application needs to be submitted to us no later than
June 1, 2003. In this case, we will judge eligibility under the
employment and crude oil capacity criteria based on the most recent 12
consecutive months unless data provided by the refiner indicates that
another period of time is more appropriate. Companies with refineries
built after January 1, 2000 are not eligible for the small refiner
hardship provisions.
    If a refiner with approved small refiner status later exceeds the
1,500 employee threshold or the corporate crude oil capacity of 155,000
bpcd without merger or acquisition, it may keep its small refiner
status. This is to avoid stifling normal company growth and is subject
to our finding that the company did not apply for and receive the small
refiner status in bad faith. On the other hand, if a refiner with
approved small refiner status later exceeds the small refiner criteria
through merger or acquisition, its refineries must forfeit their small
refiner status and begin complying with the national standards by
January 1 of the next calendar year. For example, if a small refiner
with two refineries purchases a third refinery in 2007 and that
purchase causes the refiner to exceed the employee or corporate crude
oil capacity thresholds for small refiner status, then that refiner
must forgo its small refiner status and begin complying with the
national standards by January 1, 2008 at all its refineries.
c. What Options Are Available for Small Refiners?
    All refiners producing highway diesel fuel are able to take
advantage of the temporary compliance option discussed in Section IV.A.
Diesel producers that also market gasoline in the GPA may receive
additional flexibility under today's rule (Section IV.B.). As an
alternative, refiners that seek and are granted small refiner status
may choose from the following three options under the diesel sulfur
program. These three options have evolved from concepts on which we
requested and received comment in the proposal. In most cases, we
believe that small refiners will find these options preferable to
either the broader diesel fuel temporary compliance option or the GPA
provision discussed above.
    500 ppm Option. A small refiner may continue to produce and sell
diesel fuel meeting the current 500 ppm sulfur standard for four
additional years, until May 31, 2010, provided that it reasonably
ensures the existence of sufficient volumes of 15 ppm fuel in the
marketing area(s) that it serves.
    Small Refiner Credit Option. A small refiner that chooses to
produce 15 ppm fuel prior to June 1, 2010 may generate and sell credits
under the broader

[[Page 5076]]

temporary compliance option. Since a small refiner has no requirement
to produce 15 ppm fuel under this option, any fuel it produces at or
below 15 ppm sulfur will qualify for generating credits.
    Diesel/Gasoline Compliance Date Option. For small refiners that are
also subject to the Tier 2/Gasoline sulfur program (40 CFR Part 80,
Subpart H), the refiner may choose to extend by three years the
duration of its applicable interim gasoline standards, provided that it
also produces all its highway diesel fuel at 15 ppm sulfur beginning
June 1, 2006.
    All refiners producing diesel fuel are required to provide us with
basic data on their progress toward compliance in 2003-2005 under the
pre-compliance reporting requirements described above in Section IV.A.
As a part of their pre-compliance reports, small refiners must provide
a limited amount of additional information specific to the option they
choose. We discuss each option, and the special pre-compliance
reporting requirements for each option, in the next paragraphs and in
Section VII.E below.
i. 500 ppm Option
    The 500 ppm option is available for any refiner that qualifies as a
small refiner. Under this option, small refiners may continue selling
highway diesel fuel with sulfur levels meeting the current 500 ppm
standard for four additional years, provided that they supply
information showing that sufficient alternate sources of 15 ppm diesel
fuel in their market area will exist for fueling new heavy-duty highway
vehicles. Under this option, small refiners may supply current 500 ppm
highway diesel fuel to any markets for use only in vehicles with older
(pre-2007) technology until May 31, 2010. In other words, small
refiners that choose this option may delay production of highway diesel
fuel meeting the 15 ppm standard for four years.
    This 500 ppm option for small refiners is similar to the option
provided to all refiners under the temporary compliance option
described in Section IV.A above in that it allows a refiner to continue
producing and selling the current 500 ppm fuel for a period of time.
However, this option differs from the broader compliance option in that
small refiners may produce and sell 100 percent of their highway fuel
at 500 ppm without needing to buy credits. In contrast, under the
broader temporary compliance option, refiners must buy credits to
produce any volume of 500 ppm fuel over 20 percent of their total
highway diesel production.
    At the retail level, retailers will not be subject to any
availability requirements and thus may sell 500 ppm fuel, 15 ppm
highway fuel, or both (as is the case under the broader diesel
temporary compliance option described in Section IV.A). All parties in
the diesel fuel distribution system will have to maintain the
segregation of 15 ppm fuel and 500 ppm fuel and only 15 ppm fuel may be
sold for use in model year 2007 and later heavy-duty diesel vehicles.
    As a part of their pre-compliance reporting due June 1, 2003 (see
Section IV.A. above), any small refiners taking advantage of this 500
ppm option must show that sufficient sources of 15 ppm fuel will likely
exist in the area served by the small refiner in the absence of
production of 15 ppm fuel by that refiner.169 A small
refiner could approach this showing in different ways. For example,
depending on the circumstances, the refiner might point to the presence
of other refiners in the area that are expected to produce 15 ppm fuel,
or to the refiner's proximity to a major pipeline that will be carrying
15 ppm fuel. Similarly, the refiner might show that its market share in
the area's highway diesel market will be too small to significantly
affect the volume of 15 ppm fuel regardless of the small refiner's
actions.
---------------------------------------------------------------------------

    \169\ If circumstances arise that cause the availability of 15
ppm fuel in the refiner's market area to decline, the refiner must
provide a supplemental showing in its pre-compliance reports due in
June 1, 2004 and/or June 1, 2005. As with the 2003 report, we will
either approve or disapprove these additional showings within four
months or, if we take no action, the showing will be deemed
approved.
---------------------------------------------------------------------------

    Another approach could be to indicate practical steps that the
refiner itself is prepared to take to help ensure that 15 ppm diesel
fuel will be available. One commenter suggested a plan to add a
separate tank and expand its fuel loading rack for handling 15 ppm
diesel fuel that would be supplied by a different refiner--thus making
low sulfur fuel available, at least at the wholesale level, at its
refinery gate even though it produced no 15 ppm fuel.
    Because of the wide distribution of 15 ppm fuel that we believe
will occur under the industry-wide optional compliance program
discussed in Section IV.A. above, we expect that few if any small
refiners wishing to use the 500 ppm option will find it difficult to
make the showing that 15 ppm fuel will exist in the area. If we do not
take action on this showing within four months of receiving a refiner's
2003 pre-compliance report (i.e., by October 1, 2003 at the latest),
the refiner's showing will be considered approved.
    Finally, we are providing this option so that small refiners may
use the temporary flexibility provided by the 500 ppm option as a
pathway toward compliance with the 15 ppm standard and not as an
opportunity for those refiners to greatly expand their production of
fuel meeting the 500 ppm sulfur standard. To help ensure that any
significant expansion of refining capacity that a small refiner
undertakes in the future will be accompanied by an expansion of
desulfurization capacity, we are limiting the volume of 500 ppm sulfur
fuel that a small refiner may produce under this option to a baseline
level. Specifically, small refiners selecting this 500 ppm option must
limit the volume they produce of highway diesel fuel meeting the 500
ppm sulfur standard to the lesser of the following values: (1) 105
percent of the average highway diesel volume it produced from crude oil
in calendar years 1998 and 1999 or (2) the average highway diesel
volume it produced from crude oil in calendar years 2004 and 2005. Any
volume of 500 ppm highway diesel fuel (averaged over the previous 12
consecutive months) that exceeds this limitation after 2006 must comply
with the diesel sulfur standards that apply to other refiners under the
broader program (i.e., the standards described in Section IV.A. above,
including the 80% requirement of the temporary compliance option).
ii. Small Refiner Credit Option
    We believe that the relative difficulty for small refiners to
comply with today's program warrants compliance flexibility for these
refiners. At the same time, we want to encourage all refiners to
produce low sulfur diesel fuel as early and in as many geographic areas
as possible. As an incentive for small refiners to invest in
desulfurization capacity, those that choose to produce 15 ppm fuel
earlier than required under the 500 ppm option may generate credits for
each gallon of diesel fuel produced that meets the 15 ppm standard.
This includes the ability to generate credits prior to the start of the
program on June 1, 2006 under the provisions described in Section
IV.A.1.a. They could then sell these credits to other refiners for use
in the broader optional diesel fuel compliance program described above
in Section IV.A, helping to offset some low sulfur diesel fuel
production costs.
    Under this option, credits may be generated based on the volume of
any diesel fuel that meets the 15 ppm standard. Refiners may then sell
their remaining highway diesel fuel under the 500 ppm option above.

[[Page 5077]]

    Pre-compliance reporting for small refiners choosing this Small
Refiner Credit option is identical to that for the 500 ppm option (that
is, if the small refiner is also producing 500 ppm highway diesel
fuel), with the additional requirement that the refiner also report on
any credits it expects to generate and sell. If the quantity of 15 ppm
fuel that the refiner is preparing to produce is significant, this
factor may be useful in making the necessary showing that 15 ppm fuel
will be available in the refiner's market area.
iii. Diesel/Gasoline Compliance Date Option
    The Tier 2/Gasoline Sulfur program included a special provision
that applies for refiners that qualify as small refiners (40 CFR Part
80, Subpart H). Under that program, each small refiner is assigned an
interim gasoline sulfur standard for each of its refineries. This
interim standard for each refinery is established based on the baseline
sulfur level of that refinery. The standards are designed to require
each small refiner to either make a partial reduction in their gasoline
sulfur levels or, if they already produce low sulfur fuel, to maintain
their current levels. The interim program lasts for four years, 2004
through 2007, and the refiner can apply for an extension of up to three
years. After the interim program expires, small refiners must produce
the same low sulfur gasoline as other refiners.
    Today's diesel sulfur program takes effect in the same time frame
as the small refiner interim program for low sulfur gasoline. To avoid
the need for simultaneous investments in both gasoline and diesel fuel
desulfurization, several small refiners subject to both programs raised
the concept of allowing those investments to be staggered in time.
Because of the relative difficulty small refiners will face in
financing desulfurization projects, especially for both diesel and
gasoline desulfurization in the same time frame, we agree that this
concept has merit and have adopted it for this rule. Under this
concept, small refiners may extend the duration of their gasoline
sulfur interim standards and, thus, potentially postpone some or all of
their gasoline desulfurization investments while they work to achieve
the low sulfur diesel standard ``on time'' in 2006. To the extent that
small refiners choose this Diesel/Gasoline Compliance Date option, this
provision will benefit the overall diesel program by increasing the
availability of 15 ppm diesel fuel in the small refiners' market areas.
    Specifically, this option provides that a small refiner can receive
a three-year extension of a refinery's interim gasoline standard, until
January 1, 2011, if it meets two criteria: (1) It produces both
gasoline and diesel fuel at a refinery and chooses to comply with the
15 ppm diesel fuel sulfur standard by June 1, 2006 for all its highway
diesel production at that same refinery, and (2) it produces a minimum
volume of 15 ppm fuel at that refinery that is at least 85 percent of
the average volume of highway diesel fuel that it produced at that
refinery during calendar years 1998 and 1999. We believe that it is
very important that the extension of a small refiner's interim low
sulfur gasoline standard be linked to a substantial environmental
benefit from the production of low sulfur diesel fuel in 2006. We have
established a minimum volume requirement to prevent the Diesel/Gasoline
Compliance Date option from applying in situations where a refiner
changes its refinery product slate to produce very little highway
diesel fuel--even though this production is at a 15 ppm sulfur level--
and yet receives an extension of its interim gasoline sulfur
standard.170 We believe the 85 percent level is sufficient
to reflect a substantial investment in desulfurization technology. At
the same time the 85 percent level should allow for any reasonable
variation in production of highway diesel fuel that would be expected
to occur in typical situations between now and 2006, particularly given
the continued growth of the highway diesel market. Again, the three-
year extension of the gasoline interim program is to allow small
refiners to stretch out their capital investments while increasing the
quantity of 15 ppm fuel being produced. We expect that small refiners
using this option will make a substantive capital investment in diesel
desulfurization and have thus set this minimum 15 ppm diesel volume
limit.
---------------------------------------------------------------------------

    \170\ If a situation arises where a small refiner did not
produce highway diesel fuel in 1998 or 1999 but later begins to
produce 15 ppm diesel fuel, use of the Diesel/Gasoline Compliance
Date option will require case-by-case EPA approval. In its
application for such approval, a refiner must show us that the net
loss of emission reductions will not be significant and must propose
an appropriate minimum production volume. In evaluating such a
proposed minimum volume, we may consider, among other factors, the
typical ratio between highway diesel and gasoline production for
small-to-medium sized refineries in the industry.
---------------------------------------------------------------------------

    We believe that the additional three-year extension of the interim
gasoline sulfur standards provided today is warranted without any
further action by small refiners, provided that they assume the
financial burden of full low sulfur diesel compliance in 2006 (i.e.,
instead of choosing the flexibility of the broader temporary compliance
program). The diesel and gasoline desulfurization investments for those
refiners can thus be staggered in time. We believe a three-year
extension is appropriate due to the substantial investment in highway
diesel fuel that these small refiners will be undertaking.
    By July 1, 2006, small refiners that plan to use the Diesel/
Gasoline Compliance Date option for one or more refineries must send a
letter to us confirming that by June 1, 2006 they were producing 100
percent of their highway diesel fuel in compliance with the 15 ppm
sulfur standard at their refinery(ies). These refiners must make
similar confirmations each year through 2011 in their annual compliance
reports (due by the end of February of each year)--until after the end
of the extended interim low sulfur gasoline program for small refiners
on December 31, 2010.
    If a given small refiner was not producing 15 ppm fuel for all its
highway diesel production at that refinery by June 1, 2006, the July 1,
2006 letter must confirm that the refiner is forfeiting the
``automatic'' three-year extension of that refinery's interim gasoline
program (although the refiner may still apply for a case-by-case
extension through the Tier 2/Gasoline Sulfur program under 40 CFR
80.260). In this case, we will consider a request that the refiner be
allowed to use either the 500 ppm option or the Small Refiner Credit
option, or both, provided that information addressing the conditions of
these options as described above are included in the July 1, 2006
letter. If the refiner does not request the use of the 500 ppm option
or the Small Refiner Credit option, the letter must confirm that the
refiner is complying with the diesel sulfur requirements applicable to
refiners that are not small refiners.
    The Tier 2/Gasoline Sulfur program includes a general hardship
provision for which refiners may apply. (Today's program also includes
a similar provision). Depending on the nature of its hardship, a small
refiner that applies for this general hardship provision under the
gasoline program may be granted a ``tailor-made'' interim gasoline
sulfur program different from the ``default'' program established in
the rule. If such a small refiner were then to be covered by today's
diesel fuel requirements and chose this Diesel/Gasoline Compliance Date
option, we will allow it an extension of its special interim program
for gasoline (as established under the general hardship provision) for
three years beyond the scheduled end date (although no later than
December 31, 2010) so long as it

[[Page 5078]]

met the 15 ppm diesel fuel standard and production volume requirements
in 2006.
    As with the other two options, refiners expecting to use the
Diesel/Gasoline Compliance Date option and thus to produce their
highway diesel fuel exclusively at 15 ppm fuel will have to report
certain information beginning in 2003. As a part of their pre-
compliance reporting due June 1, 2003 (see Section IV.A. above), any
small refiners taking advantage of this option must provide information
showing that diesel desulfurization plans are on track. The information
supplied under this requirement must include, but will not be limited
to, the following: (1) Status of applying for and receiving any
necessary air pollution control permits, (2) financing that is in place
or being sought, and (3) the status of engineering or construction
contracts. As a part of the pre-compliance reporting due in 2004 and
2005, the refiner must provide more complete information as it becomes
available to update its earlier report (e.g., the status of beginning
or completing construction of desulfurization equipment).
iv. Relationship of the Options to Each Other
    By definition, since a small refiner must produce 100 percent of
its highway diesel as 15 ppm under the Diesel/Gasoline Compliance Date
option, that option is not compatible with either the 500 ppm option or
the Small Refiner Credit option. Thus a refiner choosing the Diesel/
Gasoline Compliance Date option may not choose either of the other two
options. However, the 500 ppm option and the Small Refiner Credit
option are compatible with each other, and so a refiner may choose
either or both of these options.
d. How Do Small Refiners Apply for Small Refiner Status?
    Refiners that are not small refiners under the gasoline sulfur
program but that are seeking small refiner status under the diesel
sulfur program must apply to us as a part of their registration for the
general diesel sulfur program, due no later than December 31, 2001. The
application must include the following information: 171
---------------------------------------------------------------------------

    \171\ See the Section VII.E below and regulatory language
associated with this rule for detailed requirements for registration
and application for small refiner status.
---------------------------------------------------------------------------

     The name and address of each location at which any
employee of the company, including any parent companies or
subsidiaries,172 worked during the 12 months preceding
January 1, 2000;
---------------------------------------------------------------------------

    \172\ ``Subsidiary'' here covers entities of which the parent
company has 50 percent or greater ownership.
---------------------------------------------------------------------------

     The average number of employees at each location, based on
the number of employees for each of the company's pay periods for the
12 months preceding January 1, 2000;
     The type of business activities carried out at each
location; and
     The total crude oil refining capacity of its corporation.
We define total capacity as the sum of all individual refinery
capacities for multiple-refinery companies, including any and all
subsidiaries, as reported to the Energy Information Administration
(EIA) for 1999, or in the case of a foreign refiner, a comparable
reputable source, such as professional publication or trade
journal.173 Refiners do not need to include crude oil
capacity used in 1999 through a lease agreement with another refiner in
which it has no ownership interest.
---------------------------------------------------------------------------

    \173\ We will evaluate each foreign refiner's documentation of
crude oil capacity on an individual basis.
---------------------------------------------------------------------------

    The crude oil capacity information reported to the EIA or
comparable reputable source is presumed to be correct. However, in
cases where a company disputes this information, we will allow 60 days
after the company submits its application for small refiner status for
that company to petition us with detailed data it believes shows that
the EIA or other source's data was in error. We will consider this data
in making a final determination about the refiner's crude oil capacity.
    We will consider any refiner that was granted small refiner status
under the Tier 2/Gasoline Sulfur program to also qualify as a small
refiner under today's program, provided that it also produced highway
diesel fuel in 1999. Such a refiner only needs to indicate as a part of
its registration for this program that it is covered by the gasoline
sulfur small refiner program and that it expects to be eligible for any
small refiner optioins available in today's diesel program.
2. Farmer Cooperative Refiners Will Benefit From the Flexible
Provisions Available to Other Refiners
    Some refineries in the U.S. are owned by farmer cooperatives. In
the NPRM, we asked for comment on whether it would be appropriate to
extend hardship relief to farmer cooperatives, similar to the
flexibility options for small refiners. Representatives of farmer
cooperative refiners have commented to us that as refiners they face
unique challenges under a diesel fuel sulfur program. As described in
more detail below and in the Response to Comments document, we have
carefully considered the situation of farmer cooperative refiners. We
have concluded that while there are clearly differences in how farmer
cooperative refiners are organized and are financed compared to other
refiners, we are not able to make a determination that farmer
cooperative refiners, as a class, face unique economic hardship. As
discussed further below, we believe that the combination of
flexibilities built into today's diesel program will be valuable to
farmer cooperative refiners. To the extent any of the farmer
cooperative refiners face economic hardship in complying with the
diesel sulfur program, this determination can best be made on a case-
by-case basis for each farmer cooperative refiner, as discussed further
below.
    As is the case for all refiners, we believe that farmer cooperative
refiners will be able to benefit significantly from the several
flexibility provisions discussed elsewhere in Section IV of this
preamble. As we mentioned above, the farmer cooperative refiner with
the smallest refinery appears to meet the criteria for status as a
``small refiner,'' and thus will likely be eligible for the special
provisions discussed earlier (Section IV.C.1. above). The second
smallest refinery owned by a farmer cooperative is located and markets
all or most of its gasoline within the geographic GPA and, as such, is
eligible for GPA low sulfur gasoline extension described in Section
IV.B. above (if it meets the production and volume requirements for 15
ppm fuel). Alternatively, this refinery could participate in the
temporary compliance option for diesel fuel described in Section IV.A.
above.
    The two other farmer cooperative refiners (as well as any other
refiner) may participate in the temporary compliance option for diesel
fuel and the averaging, banking, and trading provisions described above
(Section IV.A.), potentially allowing them to postpone diesel
desulfurization investments. If needed, any of the farmer cooperative
refiners may also apply for case-by-case hardship relief (Section
IV.C.3. below). Through such a case-by-case review, we will be in a
better position to make a determination of whether a particular farmer
cooperative refiner faced an economic hardship situation, as we would
then have available to us specific financial information about each
cooperative owner. If we determine that a cooperative refiner faced an
economic

[[Page 5079]]

hardship situation, we could then tailor any temporary hardship
provisions to best suit the needs of that refiner. Given this
combination of options and ``safety valves'' built into the diesel
sulfur program, and the factors discussed below, we do not believe it
is necessary to provide special provisions specifically for farmer
cooperative refiners as a class.
    Farmer cooperatives that own refineries, like all farmer
cooperatives, are organized as a means for individual farmers (or local
cooperatives owned by individual farmers) to collectively gain benefits
in important aspects of their farming businesses--in this case, the
production and distribution of the fuel needed for their operation. It
should also be noted that the diesel fuel produced by farmer
cooperative refiners is sold not only to farmers, but also to the
wholesale petroleum market, for sale at service stations, truck stops,
or fleets. Individual farmers and others become members of local
cooperatives that provide a range of products and services to their
members. These local cooperatives in turn often form the membership of
larger, regional cooperatives, including those that own three of the
four farmer cooperative refineries in the U.S.
    Refiners that are also cooperative businesses are significantly
different from other refiners in several respects. The key aspect is
that several avenues for accessing capital used by many other refiners
(in this case, the capital needed to carry out diesel fuel
desulfurization projects in their refineries) are not available to, or
are not practical for, cooperative refiners. In particular, farmer
cooperatives, unlike publicly-held corporations, are generally not
permitted to raise equity capital in the securities markets (that is,
by selling stock). At the same time, the equity financing provided by
the membership, usually a modest amount assessed from each member as a
condition of membership, provides a return for the members only to the
extent that the members purchase the products or services of the
cooperative. Conventional investors that do not regularly patronize the
cooperative have little incentive to provide investment from the
outside, since their investment will not appreciate in value.
    For farmer cooperatives, money for capital projects is generally
raised internally as equity from members and as loans from banks or
other financial institutions. In this sense, farmer cooperative
refiners are similar to privately-held refining companies, which are
also unable to raise capital by selling public stock. In the case of
farmer cooperatives, equity capital is raised either by assessment of
the members or, more often, by retaining a portion of the cooperative's
earnings that would otherwise be distributed to the members (on the
basis of how much business they have done with the cooperative). The
amount of equity available to the cooperative, as well as the earning
prospects of the cooperative, usually determine whether financial
institutions will lend additional capital, how much money will be lent,
and what terms the cooperative will have to agree to. For example, when
a cooperative's equity is low and/or the farm economy is stressed (and
thus the prospects for strong earnings performance by the cooperative
are diminished) cooperatives can have difficulty competing among other
potential borrowers for loans for large capital projects.
    While the unique structural and financial characteristics of farmer
cooperative refiners can present special challenges to these refiners,
their status as cooperatives can also provide advantages not shared by
other refiners. The same federal and state laws and regulations that
place limitations on the financial avenues available to cooperatives
also tend to include special provisions only available to cooperatives.
These include special treatment for cooperatives under securities laws,
antitrust laws, contractual marketing laws, and restrictive corporate
entity laws, some or all of which may come into play in efforts to
capitalize refinery desulfurization projects.
    Also, the relatively large regionally-based cooperatives that own
refineries have a variety of other business interests as well. This
broader business base, which involves not only the refining and
distribution of fuels but also a variety of other agricultural supply,
processing, and related operations, may often provide an advantage to
these larger cooperative refiners as compared to competing refiners
that have little or no business beyond refining and fuel marketing.
Finally, the three larger farmer cooperative refiners have developed
several economic relationships among one another--including joint
refinery ownership, a joint refinery operating agreement, and a joint
fuel distribution and marketing organization--that together create
greater options for financing than are available to many other
refiners.
    Based on the compliance option provisions in this action we do not
believe that farmer cooperative refiners as a class face a
disproportionate economic burden in complying with the diesel sulfur
program. However, certain cooperative refiners may face additional
economic obstacles, therefore the potential need exists for some
financial assistance to farmer cooperative refiners from U.S.
government programs. During interagency review, concerns were discussed
relating to the uniqueness of the structure of farmer cooperative
refineries and the key issue of accessing capital was identified. The
U.S. Department of Agriculture (USDA) has indicated an interest and
willingness to review its existing authorities for the potential
mechanisms to provide financial assistance to refiner cooperatives who
do invest in desulfurization programs. Congress and USDA have long
recognized the unique circumstances of farmers and rural communities by
establishing programs to provide assistance. This assistance would be
primarily in the form of guaranteed loans, which could provide a
significant source of funding for cooperative refiners to make capital
investment in desulfurization. However, USDA's loan program is subject
to limitations, including a $25 million annual cap on individual loans,
so the cooperative refiners may have to acquire additional financing.
EPA understands that USDA supports efforts, where appropriate, to
provide assistance to farmer-owned cooperatives from other sources.
    In conclusion, after reviewing this information, we have not been
able to clearly distinguish a unique economic burden that today's
program will place on farmer cooperative refiners, as a class, apart
from other refiners, especially other refiners of similar size and/or
those that are privately-held companies. However, as described above,
several of the flexible provisions we have incorporated into the
overall diesel sulfur program will be valuable to farmer cooperative
refiners.
3. General Hardship Provisions
a. Temporary Waivers from Low Sulfur Diesel Requirements in Extreme
Unforseen Circumstances
    In this final rule, we are adopting a provision which, at our
discretion, will permit domestic or foreign refiners to seek a
temporary waiver from the highway diesel sulfur standards under certain
rare circumstances. This waiver provision is similar to provisions in
the reformulated gasoline (RFG) and low sulfur gasoline regulations. It
is intended to provide refiners short-term relief in unanticipated
circumstances--such as a refinery fire or a natural disaster--that
cannot be reasonably foreseen now or in the near future.

[[Page 5080]]

    Under this provision, a refiner may seek permission to distribute
highway diesel fuel that does not meet the applicable low sulfur
standards for a brief time period. An approved waiver of this type
could, for example, allow a refiner that has reached its maximum
allowable production volume of 500 ppm sulfur fuel under the temporary
compliance option to temporarily and modestly exceed that volume, so
long as the other conditions described below were met. Such a request
will be based on the refiner's inability to produce complying highway
diesel fuel because of extreme and unusual circumstances outside the
refiner's control that could not have been avoided through the exercise
of due diligence. The request will also need to show that other avenues
for mitigating the problem, such as purchase of credits toward
compliance under the temporary compliance option, had been pursued and
yet were insufficient.
    As with other types of relief established in this rule, this type
of temporary waiver will have to be designed to prevent fuel exceeding
the 15 ppm standard from being used in 2007 and later vehicles. As with
the small refiner hardship provisions described above, any such waiver
must show that other sources of 15 ppm fuel exist in the refiner's
market area to help reduce the risk that owners of 2007 and later
diesel vehicles will have difficulty finding the 15 ppm fuel they need
during the period of the waiver.
    The conditions for obtaining a low sulfur diesel waiver are similar
to those in the RFG and low sulfur gasoline regulations. These
conditions are necessary and appropriate to ensure that any waivers
that are granted are limited in scope, and that refiners do not gain
economic benefits from a waiver. Therefore, refiners seeking a waiver
must show that the waiver is in the public interest, that the refiner
was not able to avoid the nonconformity, that it will make up the air
quality detriment associated with the waiver, that it will make up any
economic benefit from the waiver, and that it will meet the applicable
diesel sulfur standards as expeditiously as possible.
b. Temporary Waivers Based on Extreme Hardship Circumstances
    In addition to the provision for short-term relief in extreme
unforseen circumstances, we are adopting a provision for relief based
on extreme hardship circumstances. In developing our diesel sulfur
program, we considered whether any refiners would face particular
difficulty in complying with the standards in the lead time provided.
As described earlier in this section, we concluded that refineries
owned by small businesses will experience more difficulty in complying
with the standards on time because they have less ability to raise the
capital necessary for refinery investments, face proportionately higher
costs because of poorer economies of scale, and are less able to
successfully compete for limited engineering and construction
resources. However, it is possible that other refiners that are not
small refiners will also face particular difficulty in complying with
the sulfur standards on time. Therefore, we are including in this final
rule a provision which allows us, at our discretion, to grant temporary
waivers from the diesel sulfur standards based on a showing of extreme
hardship circumstances.
    The extreme hardship provision allows any domestic or foreign
refiner to request a waiver from the sulfur standards based on a
showing of unusual circumstances that result in extreme hardship and
significantly affect a refiner's ability to comply with the low sulfur
diesel standards by June 1, 2006. An approved extreme hardship waiver
may provide refiners with provisions similar to those for small
refiners, or as with the waiver for extreme unforseen circumstances,
may provide a greater allowance for producing 500 ppm (for sale only
for use in pre-2007 vehicles) during the period the temporary
compliance option is in effect. As with other relief provisions
established in this rule, any waiver under this provision must be
designed to prevent fuel exceeding the 15 ppm standard from being used
in 2007 and later vehicles.
    By providing short-term relief to those refiners that need
additional time because they face hardship circumstances, we can adopt
an overall program that reduces diesel fuel sulfur beginning in 2006
for the majority of the industry. However, we do not intend for this
waiver provision to encourage refiners to delay planning and
investments they would otherwise make. We do not expect to grant
temporary waivers that apply to more than approximately one percent of
the national highway diesel fuel pool in any given year.
    The regulatory language for today's action includes a complete list
of the information that must be included in a refiner's application for
an extreme hardship waiver. If a refiner fails to provide all the
information, as specified in the regulations, as part of its hardship
application, we can deem the application void. The following are some
examples of the types of information that must be contained in an
application:

    --The crude oil refining capacity and diesel fuel sulfur level at
each of the refiner's refineries.
    --Details on how the refiner plans to modify its current operation
to achieve future diesel fuel sulfur levels.
    --The anticipated timing for the overall project the refiner is
proposing and key milestones to ultimately produce 100 percent of
highway diesel fuel at the 15 ppm sulfur standard.
    --The refiner's capital requirements for the proposed project
    --Plans for financing the project and financial statements
    --List of the areas where the refiner's diesel fuel will be sold.

    We will consider several factors in our evaluation of the hardship
waiver applications. Such factors will include whether a refinery's
configuration is unique or atypical; the proportion of diesel fuel
production relative to other refinery products; whether the refiner,
its parent company, and its subsidiaries are faced with severe economic
limitations (for example, a demonstrated inability to raise necessary
capital or an unfavorable bond rating); steps the refiner has taken to
attempt to comply with the standards, including efforts to obtain
credits towards compliance. In addition, we will consider the total
crude oil capacity of the refinery and its parent or subsidiary
corporations, if any, in assessing the degree of hardship and the
refiner's role in the diesel market. Finally, we will consider where
the diesel fuel will be sold in evaluating the environmental impacts of
granting a waiver.
    This extreme hardship provision is intended to address unusual
circumstances that should be apparent now or will emerge in the near
future. Thus, refiners seeking additional time under this provision
must apply for relief by June 1, 2002. Applicants for a hardship waiver
must also submit a plan demonstrating how they will achieve the
standards as quickly as possible. In submitting the plan, applicants
must include a timetable for obtaining the necessary capital,
contracting for engineering and construction resources, obtaining any
necessary permits, and beginning and completing construction.
    We will review and act on applications and, if a waiver is granted,
will specify a time period, not to extend beyond May 31, 2010, for the
waiver.

D. Technological Feasibility of the Low Sulfur Diesel Fuel Program

    This section summarizes our assessment of the feasibility of
refining

[[Page 5081]]

and distributing diesel fuel with a sulfur content of no more than 15
ppm. Based on this evaluation, we believe it is technologically
feasible for refiners to meet the 15 ppm sulfur standard in the lead
time provided. We are summarizing our analysis here and we refer the
reader to the RIA for more details.
1. What Technology Will Refiners Use?
    Conventional diesel desulfurization technologies have been
available and in use for many years. Conventional hydrotreating
technology involves combining hydrogen with the distillate (material
falling into the boiling range of diesel fuel) at moderate pressures
and temperatures and flowing the mixture through a fixed bed of
catalyst.
    We project that all refiners will be technically capable of meeting
the 15 ppm sulfur cap with extensions of the same conventional
hydrotreating which they are using to meet the current highway diesel
fuel standard of 500 ppm sulfur. This extension will likely mean adding
a second stage of conventional hydrotreating. Converting an existing
one-stage hydrotreater into a two-stage hydrotreater will involve
adding an additional reactor as well as other, more minor units to
support the new desulfurization unit. These units could include
hydrogen plants, sulfur recovery plants, amine plants and sour water
scrubbing facilities. All of these units are already operating in
refineries, but may have to be expanded or enlarged. We also project
that all refiners will utilize recently developed, high activity
catalysts, which increase the amount of sulfur that can be removed
relative to the catalysts which were available when the current
desulfurization units were designed and built.
    While still utilizing this conventional hydrotreating technology,
we expect that some refiners (roughly 20 percent of current production
volume) will decide to invest in a completely new two-stage
hydrotreater rather than revamp their current unit. This could occur
because the current hydrotreater is too old or designed to operate at
too low a pressure, or because the refiner desires to expand production
of highway diesel fuel.
    The sufficiency of conventional hydrotreating to meet a 15 ppm
sulfur cap with current diesel fuel blendstocks is based primarily on
information provided by several refining technology
vendors.174 The vendors all projected that two-stage
hydrotreating would be sufficient to meet a 15 ppm sulfur cap. However,
their projections of hydrogen consumption and requisite reactor volume
varied widely. Our projections for hydrogen consumption and reactor
volume are near the lower end of the range and are essentially the same
projections as were made in support of the proposed rule.
---------------------------------------------------------------------------

    \174\ Technology vendors were invited to submit projections of
technology and cost to two studies of the cost of diesel fuel
desulfurization by Mathpro, Inc. One study was performed for EMA,
and the other for the National Petroleum Council.
---------------------------------------------------------------------------

    Many refiners commented that we had underestimated the cost of
meeting the 15 ppm sulfur cap. They argued that higher pressure, thick
walled reactors of greater volume would be needed and that hydrogen
consumption would be much higher than we projected. With one exception,
neither the refiners, nor the technology vendors provided any
underlying catalyst performance data with which we could use to
arbitrate between the varying projections. One vendor did submit
catalyst performance data from a commercial unit processing a diesel
fuel like that produced in the U.S. Such commercial data is very
limited, as refiners are generally not currently producing diesel fuel
at sulfur levels below 10 ppm with this technology from diesel fuel
feedstocks typical of U.S. refiners. Some refiners are currently
producing diesel fuel at sulfur levels below either 10 or 50 ppm.
However, their diesel fuel blendstocks differ substantially in quality
from those available in the U.S., so their experience cannot be
extrapolated easily to producing sub-15 ppm sulfur diesel fuel in the
U.S.
    Based on our review of the limited catalyst performance data in the
published literature and the one set of confidential data submitted, we
believe that the projections of the more optimistic vendors are the
most accurate for the 2006 timeframe. For example, the confidential
commercial data indicated that five ppm sulfur levels could be achieved
with two-stage hydrotreating a moderate hydrogen pressures despite the
presence of a significant amount of light cycle oil (LCO). The key
factor was the inclusion of a hydrogenation catalyst in the second
stage, which saturated many of the poly-nuclear, aromatic rings in the
diesel fuel, allowing the removal of sulfur from the most sterically
hindered compounds. In addition, refiners that are able to defer
production of 15 ppm diesel fuel through the purchase of credits will
have the added benefit of being able to observe the operation of those
hydrotreating units starting up in 2006. This should allow these
refiners to be able to select from the best technologies which are
employed in the first phase of the program.
    In addition, alternative technologies are presently being developed
which could produce additional savings for refiners that are able to
delay production of 15 ppm fuel until 2010. Phillips 66 Company, for
example, just announced that they are developing a version of their S-
Zorb technology for diesel fuel desulfurization. This technology has
been selected by at least one major refiner (Marathon-Ashland) to meet
the Tier 2/low sulfur gasoline requirements. In conjunction with a DOE
research program, Phillips is designing and constructing a commercially
sized S-Zorb diesel fuel unit at their Borger refinery. This unit is
currently scheduled for start-up in 2004. We believe that this
technology could reduce the cost of meeting the 15 ppm cap by roughly
25 percent.
2. Have These Technologies Been Commercially Demonstrated?
    As mentioned above, conventional diesel desulfurization
technologies have been available and in use for many years. U.S.
refiners have roughly seven years of experience with this technology in
producing highway diesel fuel with less than 500 ppm sulfur. Refiners
in California also have the same length of experience with meeting the
California 500 ppm cap on sulfur and an additional aromatics
standard.175 To meet both sulfur and aromatics standards,
refineries in California are producing highway and nonroad diesel fuel
with an average sulfur level of 150 ppm.
---------------------------------------------------------------------------

    \175\ California allows refiners to use an engine test to
certify an alternative fuel mixture which meets or exceeds the
NOX reducing performance of a 10 volume percent maximum
aromatics and a 500 ppm maximum sulfur diesel fuel.
---------------------------------------------------------------------------

    Some refiners in Europe are producing a very low-sulfur, low
aromatics diesel fuel for use in the cities in Sweden (Class I Swedish
Diesel) using two-stage hydrotreating. This ``Swedish city diesel'' is
averaging under 10 ppm sulfur and under 10 volume percent aromatics.
While clearly demonstrating the feasibility of consistently producing
diesel fuel with less than 10 ppm sulfur from selected feedstocks,
there are a few differences between the Swedish fuel and typical U.S.
diesel fuel. First, the tight aromatics specification applicable to
Swedish City diesel fuel usually requires the use of ring-opening or
dearomatization catalysts in the second stage of the two-stage
hydrotreating unit. Second, Swedish Class I diesel fuel also must meet
a tight density specification. Third, it is not clear

[[Page 5082]]

whether any refiner is producing a large fraction of their distillate
production to this specification. Thus, the European experience
demonstrates the efficacy of the two-stage process and its ability to
produce very low sulfur diesel fuel. However, doing so without
saturating most of the aromatics present and with heavier feedstock has
only been demonstrated in pilot plants and not commercially. Even this
pilot plant data has not been available for us to evaluate directly,
due to vendors' competitiveness concerns.
    Europe has adopted a 50 ppm cap sulfur standard for all diesel fuel
which takes effect in 2005. Some countries, including England, have
implemented tax incentives for refiners to produce this fuel sooner.
The majority of diesel fuel in England already meets the 50 ppm
specification. Refiners have reported no troubles with this technology.
This diesel fuel is being produced in one-stage hydrotreaters. However,
as mentioned above, European diesel fuel contains less heavier
compounds than diesel fuel in the U.S., so the use of one-stage
conventional hydrotreating to meet very low sulfur levels is
applicable, but not sufficient to demonstrate feasibility in the U.S.
Germany has also established a tax incentive, but for diesel fuel
containing 10 ppm or less sulfur. One European technology vendor
indicated that they have already licensed two desulfurization units to
German refiners planning to produce diesel fuel to obtain this tax
credit. Europe also is considering a 10 ppm sulfur cap to take effect
later in the decade. However, no refiner is currently producing number
two diesel fuel to this specification.
    Phillips Petroleum is currently in the process of designing and
constructing a commercial sized S-Zorb unit to produce sub-15 ppm
diesel fuel at their Borger, Texas refinery. This plant is scheduled to
begin commercial operation in 2004. This may not be in time to give
refiners sufficient confidence in this novel process to rely on it to
meet the 2006 deadline. However, this process, with its attendant
hydrogen, cost, and global emission savings should be available for
those refiners that are able to defer investment under the temporary
compliance option and hardship provisions of today's rule. While we are
confident that this and other technology will be available to meet the
requirements of today's rule, EPA will work with the Department of
Energy, refiners and technology providers to continue to monitor and
analyze the progress in further developing and implementing this new
diesel desulfurization technology. This will allow us to improve our
understanding of how this new technology can be employed to enhance the
implementation of this program.
3. Feasibility of Distributing Low Sulfur Highway Diesel Fuel
    We believe that with relatively minor changes and associated costs,
the existing distribution system will be capable of adequately managing
sulfur contamination during the transportation of 15 ppm highway diesel
fuel from the refinery through to the end-user. Further, we believe
that the existing system is capable of handling two grades of highway
diesel fuel (500 ppm and 15 ppm sulfur cap) in a limited fashion during
the transition period of the sulfur program at acceptable cost with the
addition of storage tanks at a fraction of distributor facilities.
    The following minor changes in distribution practices will be
needed as a result of today's rule during the transition years of the
fuel program when various hardship and optional compliance provisions
are in effect and thereafter:
    --To adequately separate shipments of highway diesel fuel from
shipments of higher sulfur products, pipeline operators will need to
increase the amount of highway diesel fuel that they downgrade to a
lower value product.
    --Instead of cutting the mixture of jet fuel and highway diesel
fuel that results during pipeline shipments of these products into the
highway diesel pool, pipeline operators will need to segregate this
mixture and sell it into the nonroad diesel pool. This change will
necessitate the addition at some terminals of small tanks to handle the
mixture of jet fuel and highway diesel fuel.
    --Terminal operators will need to perform additional quality
control testing to ensure compliance with the 15 ppm sulfur cap.
    We also recognize that tank truck operators will need to more
carefully and consistently observe current industry practices to limit
contamination during the transport of 15 ppm sulfur highway diesel
fuel. However, because these practices already exist and need only to
be better enforced by distributors, we continue to believe that this
can be accomplished at insignificant cost. We believe that there will
not be a significant increase in the volume of highway diesel fuel
discovered to exceed the sulfur standard downstream of the refinery as
a result of today's rule. Distributors will quickly optimize the
distribution system using the means described above to avoid creating
additional volumes of out of specification product.
    To accommodate two grades of highway diesel fuel during the
transition period, additional storage tanks will need to be added at
some refineries, terminals, bulk plants, and truck stops. There are
significant costs associated with the addition of tanks which are fully
accounted for during the transition period (see Section V). Commenters
on the NPRM stated that in addition to the substantial economic burden
that adding additional storage tanks would represent for some
distributors, limitations in available space and permitting
restrictions could preclude some distributors from installing
additional tanks. This transition is also an added concern for those
users of specialty fuels (i.e., military fuels, etc.) who currently
compete for the limited storage tanks because these fuels must be
segregated. We believe that the burden of adding new storage tanks to
the system is made manageable by the fact that not all distributors
will need to handle 500 ppm as well as 15 ppm sulfur highway diesel
fuel during this time period. Marketplace forces will determine which
facilities assume the additional burden of handling both grades of
highway diesel fuel. Those facilities for which the addition of a
storage tank would represent an unacceptable burden would opt not to
serve the 500 ppm sulfur highway diesel market during the transition
years.
    We received several comments on the proposed rule that substantial
uncertainties exist regarding the ability of the distribution system to
adapt to the added hardship of limiting sulfur contamination of highway
diesel fuel meeting a 15 ppm sulfur cap. These commenters noted that
under today's rule other products in the distribution system would have
a sulfur content of over 300 times the 15 ppm highway diesel fuel
sulfur cap, and that unavoidable mixing of small quantities of these
high sulfur products into highway diesel fuel could easily cause the 15
ppm sulfur cap to be exceeded. To illustrate the magnitude of the
challenge, these commenters noted that currently the maximum sulfur
content of any product that shares the distribution system with highway
diesel fuel is no more than 10 times the current 500 ppm sulfur cap for
highway diesel fuel.176 Some commenters stated that the only
way to adequately limit sulfur contamination in the distribution

[[Page 5083]]

of diesel fuel with a 15 ppm sulfur cap may be to create a completely
segregated system (at an unacceptably high cost). These commenters
stated that unavoidable contamination could cause many batches of
highway diesel fuel to be noncompliant with the 15 ppm cap resulting in
shortages and high costs. Some commenters stated that additional
evaluation is needed to determine the capability of the distribution
system to limit contamination to the very low levels necessitated by
today's rule.
---------------------------------------------------------------------------

    \176\ Nonroad diesel fuel has a sulfur cap of 5,000 ppm versus a
500 ppm for current highway diesel fuel.
---------------------------------------------------------------------------

    While we acknowledge that today's rule will pose a substantial new
challenge to the distribution system, we believe that the additional
measures outlined in this section will substantially address issues
associated with adequately limiting sulfur contamination during the
distribution of 15 ppm sulfur highway diesel fuel.177 Its
true that not all of the potential minute sources of sulfur
contamination in the distribution sources have been identified and that
the cumulative magnitude from these sources is uncertain. However, we
believe that the contamination from such sources, while made more
significant by the implementation of the 15 ppm sulfur cap, is not of a
sufficient magnitude to jeopardize the feasibility of distributing low
sulfur highway diesel fuel. We will work with the Department of Energy,
refiners and others involved in diesel fuel distribution to analyze,
compile data, and conduct additional research, where appropriate, to
not only more fully understand all sources of contamination and
deliverability in the distribution of diesel fuel below the 15ppm cap,
but also their impact on the deliverability of other fuels, including
specialty military fuels. This information will be used, in conjunction
with information being developed on the operation of emission control
devices (which are affected by exposure to sulfur), to monitor progress
on the successful implementation of this final rule which depends on an
integrated vehicle/fuel systems approach. Please refer to Section V.D.
on the costs of today's rule to the distribution system, and to the
Regulatory Impact Analysis and Response to Comments documents for
additional discussion regarding the feasibility of distributing highway
diesel fuel with a 15 ppm sulfur cap.
---------------------------------------------------------------------------

    \177\ See the Response to Comments document for this rule.
---------------------------------------------------------------------------

E. What Are the Potential Impacts of the Low Sulfur Diesel Program on
Lubricity and Other Fuel Properties?

1. What Is Lubricity and Why Might It Be a Concern?
    Engine manufacturers depend on diesel fuel lubricity properties to
lubricate and protect moving parts within fuel pumps and injection
systems for reliable performance. Unit injector systems and in-line
pumps, commonly used in heavy-duty engines, are actuated by cams
lubricated with crankcase oil, and have minimal sensitivity to fuel
lubricity. However, rotary and distributor type pumps, commonly used in
light and medium-duty diesel engines, are completely fuel lubricated,
resulting in high sensitivity to fuel lubricity.
    In the United States, there is no government or industry standard
for diesel fuel lubricity. Thus, specifications for lubricity are
determined by the market. Since the beginning of the 500 ppm sulfur
highway diesel program in 1993, fuel system producers, engine and
vehicle manufacturers, and the military have been working with the
American Society for Testing and Materials (ASTM) to develop protocols
and standards for diesel fuel lubricity in its D-975 specifications for
diesel fuel. Although the ASTM has not yet adopted specific protocols
and standards, we understand that refiners have been treating diesel
fuel with lubricity additives on a batch to batch basis, when poor
lubricity fuel is expected. In addition, the military has found that
traditional corrosion inhibitor additives that it uses in its fuels
have been highly effective in reducing fuel system component wear. Some
commenters expressed concern about the impacts of a 15 ppm standard on
fuel lubricity.
    Experience has shown that it is very rare for a naturally high-
sulfur fuel to have poor lubricity, although, most studies show
relatively poor overall correlation between sulfur content and
lubricity. Considerable research remains to be performed for a better
understanding of the fuel components most responsible for lubricity.
Consequently, we are uncertain about the potential impacts of the 15
ppm sulfur standard on fuel lubricity. There is evidence that the
typical process used to remove sulfur from diesel fuel--hydrotreating--
can impact lubricity depending on the severity of the treatment process
and characteristics of the crude. Because refiners will likely rely on
hydrotreating to achieve the proposed sulfur limit, there may be
reductions in the concentration of those components of diesel fuel
which contribute to adequate lubricity. As a result, the lubricity of
some batches of fuel may be reduced compared to today's levels,
resulting in an increased need for the use of lubricity additives in
highway diesel fuel. In response to the proposal, all comments
submitted regarding lubricity either stated or implied that the
proposed sulfur standard of 15 ppm would likely cause the refined fuel
to have lubricity characteristics that would be inadequate to protect
fuel injection equipment, and that mitigation measures such as
lubricity additives would be necessary. However, the commenters
suggested varied approaches for addressing lubricity. For example, some
suggested that we need to establish a lubricity requirement by
regulation, but others suggested that the current voluntary (market)
system would be adequate. The Department of Defense recommended that we
encourage the industry (ASTM) to adopt lubricity protocols and
standards before the implementation date of the low sulfur fuel
established by today's action. Other suggested approaches included
incorporation of biodiesel as a solution to the lubricity issue, and
the need to further examine the issues.
    Blending small amounts of lubricity-enhancing additives increases
the lubricity of poor-lubricity fuels to acceptable levels. These
additives are available in today's market, are effective, and are in
widespread use around the world. For example, in the U.S., we
understand that refiners are treating diesel fuel with lubricity
additives on a batch to batch basis, when poor lubricity fuel is
expected. Other examples include Sweden, Canada, and the U.S. military.
Since 1991, the use of lubricity additives in Sweden's 10 ppm sulfur
Class I fuel and 50 ppm sulfur Class II fuel has resulted in acceptable
equipment durability.178 Since 1997, Canada has required
that its 500 ppm sulfur diesel fuel not meeting a minimum lubricity be
treated with lubricity additives. The U.S. military has found that the
traditional corrosion inhibitor additives that it uses in its fuels
have been highly effective in reducing fuel system component wear.
---------------------------------------------------------------------------

    \178\ See letter from MTC to Michael P. Walsh, dated October 16,
2000. In public docket, document IV-G-42.
---------------------------------------------------------------------------

2. Today's Action on Lubricity: A Voluntary Approach
    We have decided to not establish a lubricity standard in today's
action, but have included a 0.2 cents per gallon cost in our
calculations for the economic

[[Page 5084]]

impact to account for the potential increased use of lubricity
additives (see section V.D.2). We believe the best approach is to allow
the industry and the market to address the lubricity issue in the most
economical manner, while avoiding an additional regulatory scheme. A
voluntary approach should provide adequate customer protection from
engine failures due to low lubricity, while providing the maximum
flexibility for the industry. This approach will be a continuation of
current industry practices for diesel fuel produced to meet the current
federal and California 500 ppm sulfur diesel fuel specifications, and
benefits from the considerable experience gained since 1993. It will
also include any new specifications and test procedures that we expect
will be adopted by the American Society for Testing and Materials
(ASTM) regarding lubricity of highway diesel fuel quality.
    We do not believe that an EPA regulation for lubricity is
appropriate for several reasons. First, the expertise and mechanism for
a lubricity standard already exist in the industry. According to the
comments, the industry has been working on a lubricity specification
for ASTM D-975, and low cost remedies for poor lubricity have already
been proven and are already being used around the world. Although some
commenters expressed concerns that the ASTM process might move too
slowly to establish a lubricity specification by 2006, we fully expect
the refining industry, engine manufacturers and end users to work
together to resolve any issues as part of their normal process in
dealing with customer and supplier fuel quality issues. Today's action
will increase the urgency of those working to establish an ASTM D-975
lubricity specification, and we believe they will do so in time for the
production and distribution of the low sulfur highway diesel fuel. We
will do our part to encourage the ASTM process be brought to a
successful conclusion.
    Second, we have no firm basis to justify a lubricity specification
in today's action. One such basis might be adequate demonstration that
a lubricity level below or above a certain specification would either
cause emissions to increase, or hinder the operation of emission
control equipment. However, we have no evidence that lubricity impacts
emissions, or emission control equipment. This issue is primarily a
concern about equipment performance. Equipment performance is more
appropriately addressed by the industry rather than government
regulation by this Agency.
    Third, even if we had a statutory basis to justify a lubricity
standard, we are concerned that establishing an EPA lubricity
regulation would provoke the same disagreements that the industry is
now engaged in its efforts to establish an ASTM D-975 specification. We
are in no better position to judge those issues than the industry
experts who are already involved. Further, once a specification is put
into the regulations and the industry subsequently determines that the
specification should be changed, based on new information or
circumstances, the burden would be on us to amend the mandated
specification by rulemaking. This is a significant burden to put on the
Agency for an engine performance issue that can and should be resolved
by the industry without government intervention.
    Subsequent to the close of the comment period another issue related
to lubricity concerns was raised to the Agency. These concerns related
to potential incompatibilities in old vehicles of the new engine oils
the industry hopes to develop for use in the new 2007 and later model
year vehicles. Much of the ash in today's motor oil results from the
need to control acidification of the engine oil (maintain total base
number, or TBN control), which is in large part a function of the
sulfur content of the fuel and the sulfuric acid that it forms. Without
the ability to control acidification of the engine oil, engine wear
increases significantly. The ash in the oil, however, will tend to
shorten the maintenance intervals for particulate filters to remove
built up ash on new 2007 and later model year vehicles. At the same
time, engines operated on low sulfur fuel have much less need for TBN
control and the high ash levels that result. Consequently,
manufacturers are investigating with the lubricant industry the
potential of lower ash oils for use in engines operated on low sulfur
diesel fuel and equipped with particulate traps. If the new oil
developed is not ``backwards compatible'' to sufficiently control
acidification and wear in the pre-existing fleet of vehicles on the
road that may still be operated on high sulfur diesel fuel for the
first few years of the program, then two grades of motor oil would have
to be on the market simultaneously. This has caused some stakeholders
to raise vehicle performance and durability concerns that might result
from using the new oil in the old vehicles--namely ``mis-oiling.''
    Since the engine and lubricant industries still have a number of
years to develop these new oil formulations, it is still premature to
determine whether or not the new oils will be backwards compatible and
whether mis-oiling would raise any serious concerns. While this would
not appear to be an air quality concern and as such something the
Agency generally leaves up to the industry to resolve, we will
nevertheless offer to work with the industry and industry associations
on this issue over the coming years.'' EPA anticipates that engine
manufacturers would likely provide engine labels to distinguish low ash
oil from high ash oil because misoiling could result in engine damage.
3. What Are Today's Actions on Fuel Properties Other Than Sulfur?
    We are not taking action today on any fuel properties other than
sulfur. We have examined the impact of fuel properties other than
sulfur, such as aromatics, on the materials used in engines and fuel
supply systems. We do not believe there will be impacts on materials
from such other fuel properties.
    While there were some problems with leaks from fuel pump O-ring
seals made of a certain material (Nitrile) after the introduction of
500 ppm sulfur diesel fuel in the United States in 1993, these issues
have since been addressed by equipment manufacturers who switched to
materials that are compatible with low aromatic fuels. The leakage from
the Nitrile seals was determined to be due to low aromatics levels in
some 500 ppm sulfur fuel, not the low sulfur levels. In the process of
lowering the sulfur content of some fuel, some of the aromatics had
also been removed. Normally, the aromatics in the fuel penetrate the
Nitrile material and cause it to swell, thereby providing a seal with
the throttle shaft. When low-aromatics fuel is used after conventional
fuel has been used, the aromatics already in the swelled O-ring will
leach out into the low-aromatics fuel. Subsequently, the Nitrile O-ring
will shrink and pull away, thus causing leaks, or the stress on the O-
ring during the leaching process will cause it to crack and leak. Not
all 500 ppm sulfur fuels caused this problem, because the amount and
type of aromatics varied. Fuel pumps using a different material (Viton)
for the seals did not experience leakage. We believe that no additional
problems will occur with a change of fuel from 500 to 15 ppm sulfur.

F. How Are State Programs Affected by the Low Sulfur Diesel Program?

1. State Preemption
    Section 211(c)(4)(A) of the CAA prohibits states (and political

[[Page 5085]]

subdivisions of states) from prescribing or attempting to enforce
controls or prohibitions respecting any fuel characteristic or
component if EPA has prescribed a control or prohibition applicable to
such fuel characteristic or component under section 211(c)(1). This
preemption applies to all states except California, as explained in
section 211(c)(4)(B). For states other than California, the Act
provides two mechanisms for avoiding preemption. First, section
211(c)(4)(A)(ii) creates an exception to preemption for state
prohibitions or controls that are identical 179 to the
prohibition or control adopted by EPA. Second, states may seek EPA
approval of SIP revisions containing fuel control measures, as
described in section 211(c)(4)(C). We may approve such SIP revisions,
and thereby ``waive'' preemption, only if it finds the state control or
prohibition ``is necessary to achieve the national primary or secondary
ambient air quality standard which the plan implements.''
---------------------------------------------------------------------------

    \179\ In evaluating whether a state fuel prohibition or control
is ``identical'' to a prohibition or control adopted by us, we might
consider but is not limited to the following factors in comparing
the measures: (1) The level of an emission reduction or pollution
control standard for any particular batch of diesel fuel; (2) the
use of ``per gallon'' or ``averaged'' amounts in setting that level;
(3) the lead time allowed to the affected industry for compliance;
(4) the test method(s) and sampling requirements used in determining
compliance; and (5) reporting and recordkeeping requirements.
---------------------------------------------------------------------------

    When we adopted the current highway diesel fuel sulfur standard of
500 ppm pursuant to our authority under section 211(c)(1) of the CAA in
1990, States were preempted from also doing so under the provisions of
section 211(c)(4)(A). The 15 ppm highway diesel fuel sulfur standard
promulgated today modifies the existing standard and, as a result, do
not initiate any new preemption of state authority. Today's action
continues the explicit preemption under section 211(c)(4)(A) of state
actions to prescribe or enforce highway diesel fuel sulfur controls.
States other than California with highway diesel fuel sulfur control
programs not already approved into their SIPs are preempted under
Section 211(c)(4)(A) and will therefore need to obtain a waiver from us
under the provisions described in section 211(c)(4)(C) for all state
fuel sulfur control measures, unless the state control or prohibition
is identical to ours.
    Aside from the explicit preemption in Section 211(c)(4)(A), a court
could also consider whether a state sulfur control is implicitly
preempted under the Supremacy Clause of the U.S. Constitution. Courts
have determined that a state law is preempted by federal law where the
state requirement actually conflicts with federal law by preventing
compliance with both federal and state requirements, or by standing as
an obstacle to accomplishment of Congressional objectives. A court
could thus consider whether a given state sulfur control is preempted,
notwithstanding waiver of preemption under 211(c)(4)(C), if it places
such significant cost and investment burdens on refiners that refiners
cannot meet both state and federal requirements in time, or if the
state control would otherwise meet the criteria for conflict
preemption.
2. What Provisions Apply in Alaska?
    There are important nationwide environmental and public health
benefits that will be achieved with cleaner diesel engines and fuel,
particularly from reduced particulate emissions, nitrogen oxides, and
air toxics (as further discussed in section II). Therefore, it is also
important to implement this program in Alaska. Any 2007 and later model
year diesel vehicles in Alaska, or driven to Alaska, must be fueled
with low sulfur highway diesel, or risk potential damage to the
aftertreatment technologies or even the engines themselves. Although
the engine standards established today are not based upon different
technology and cost implications for Alaska as compared to the rest of
the country, the low sulfur fuel program has different implications.
    Unlike the rest of the nation, Alaska is currently exempt from the
500 ppm sulfur standard for highway diesel fuel and dye requirements.
Since the beginning of the 500 ppm highway diesel fuel program, we have
granted Alaska exemptions from meeting the sulfur standard and dye
requirements, because of its unique geographical, meteorological, air
quality, and economic factors. (These unique factors are discussed
generally in this section, and in more detail in the RIA.) Because of
these unique factors, we are establishing in today's action an
alternative option for implementing the low sulfur fuel program in
Alaska.
    We are providing the State of Alaska an opportunity to develop an
alternative low sulfur transition plan. We intend to facilitate the
development of this plan by working in close cooperation with the state
and key stakeholders. This plan must ensure that sufficient supplies of
low sulfur diesel fuel are available in Alaska to meet the demand of
any new 2007 and later model year diesel vehicles. Given that Alaska's
demand for highway diesel fuel is very low and only a small number of
new diesel vehicles are introduced in Alaska each year, it may be
possible to develop an alternative implementation plan for Alaska in
the early years of the program that provides low sulfur diesel only in
sufficient quantities to meet the demand from the small number of new
diesel vehicles. This would give Alaska refiners more flexibility
during the transition period because they would not have to desulfurize
the entire highway diesel volume. Our goal in offering this additional
flexibility is to transition Alaska into the low sulfur fuel program in
a manner that minimizes costs, while still ensuring that the new
vehicles receive the low sulfur fuel they need. We expect that the
transition plan will begin to be implemented at the same time as the
national program, but the state will have an opportunity to determine
what volumes of low sulfur fuel must be supplied, and in what
timeframes, in different areas of the state.
    At a minimum, this transition plan must: (1) Ensure an adequate
supply (either through production or imports) of 15 ppm fuel to meet
the demand of any 2007 or later model year vehicles, (2) ensure
sufficient retail availability of low sulfur fuel for new vehicles in
Alaska, (3) address the growth of supply and availability over time as
more new vehicles enter the fleet, (4) include measures to ensure
segregation of the 15 ppm fuel and avoid contamination and misfueling,
and (5) ensure enforceability. We anticipate that, to develop a
workable transition plan, the state will likely work in close
cooperation with refiners and other key stakeholders, including
retailers, distributors, truckers, engine manufacturers, environmental
groups, and other interested groups. For example, the state will likely
rely on input from the trucking industry in determining the expected
low sulfur fuel volume needed in Alaska, based on the anticipated
number of new vehicles, and how this volume is expected to grow during
the first few years of the program. Similarly, the state will likely
rely on the Alaska refiners' input regarding plans for supplying
(either through production or imports) low sulfur fuel to meet the
expected demand. Further, the state will likely rely on input and
cooperation from retailers and distributors to determine at which
locations the low sulfur fuel should be made available. Retailers
offering low sulfur fuel will have to take measures to prevent
misfueling, such as pump labeling, which must include

[[Page 5086]]

provisions that are at least as stringent as those required of
retailers nationally by the regulations and as described in section
VII. Similarly, all parties in the distribution system must ensure the
low sulfur fuel remains segregated and must take measures to prevent
sulfur contamination, in a manner that is at least as stringent as that
required nationally by the regulations and as described in section VII.
    If the state anticipates that the primary demand for low sulfur
fuel will be along the highway system (e.g., to address truck traffic
from the lower-48 states) in the early years of the program, then the
initial stages of the transition plan could be focused in these areas.
We believe it would be appropriate for the state to consider an
extended transition schedule for implementing the low sulfur program in
rural Alaska, as part of the state's overall plan, based on when they
anticipate the introduction of a significant number of 2007 and later
model year vehicles in the remote areas.
    Under this approach, the state will be given the opportunity to
develop such a transition plan, as an alternative to the national
program, and submit it to us for approval. We intend to help facilitate
the development of the plan, by working closely with the state and the
relevant stakeholders so they will have an opportunity to address our
concerns in their submittal. It is our intent that any flexibility that
is available to small refiners nationwide (as described in Section IV)
will also be available to small refiners in Alaska under an approved
alternative transition plan. To ensure that refineries and other
affected parties will have certainty regarding their regulatory
requirements with adequate lead time, Alaska must submit this plan by
April 1, 2002 (approximately one year after the effective date of
today's rule). If Alaska submits such a plan to us within one year, and
if it provides a reasonable alternative as described above, we will
conduct a rulemaking with notice for public comment and then publish a
final rule promulgating the new regulatory scheme for Alaska. Our
intent is to issue such a final rule within one year of Alaska's
submittal of the plan. However, if the state chooses not to submit an
alternative plan, or if the plan it submits does not provide a
reasonable alternative for Alaska as described above, then refiners and
other regulated parties in Alaska will be subject to the national
program, including the implementation schedule established in today's
action, without further regulatory action.
a. Today's Action Regarding the 500 ppm Standard in Alaska
    We are extending the existing temporary exemption from the current
diesel fuel sulfur standard of 500 ppm for the areas of Alaska served
by the Federal Aid Highway System (FAHS) to the effective date for the
new standard (i.e., June 1, 2006 at the refinery level; July 15, 2006
at the terminal level; and September 1, 2006 at all downstream
locations). While Alaska submitted a petition for a permanent exemption
from the 500 ppm standard for these areas, we are not taking further
action on that petition. Our goal is to take action on that petition in
a way that minimizes costs through Alaska's transition to the new low
sulfur program. The cost of compliance could be reduced if Alaska
refiners were given the flexibility to meet the low sulfur standard in
one step, rather than two steps (i.e., once for the current 500 ppm
sulfur standard in 2004 when the temporary exemption expires, and again
for the new 15 ppm standard in 2006).
    As already discussed, we are allowing Alaska to develop an
alternative transition plan for implementing the low sulfur diesel fuel
program. During such a transition period, it is possible that both low
sulfur diesel fuel (for 2007 and later model year vehicles) and higher
sulfur (for older vehicles) highway fuels might be available in Alaska.
To avoid the two-step sulfur program described above during an
alternative transition period, we will consider additional extensions
to the temporary exemption of the 500 ppm standard beyond 2006 (e.g.,
for that portion of the highway diesel pool that is available for the
pre-2007 vehicles) during Alaska's transition period. We will make a
decision on any additional temporary extensions, if appropriate, in the
context of the separate rulemaking taking action on the alternative
transition plan submitted by Alaska.
    As in previous actions to grant Alaska sulfur exemptions, we will
not base any vehicle or engine recall on emissions exceedences caused
by the use of high-sulfur (>500 ppm) fuel in Alaska during the period
of the temporary sulfur exemption. Our in-use testing goals are to
establish whether representative engines, when properly maintained and
used, will meet emission standards for their useful lives. These goals
are consistent with the requirements for recall outlined in Section
207(c)(1) of the CAA. Further, manufacturers may have a reasonable
basis for denying emission related warranties where damage or failures
are caused by the use of high sulfur fuel in Alaska.
    The Engine Manufacturers Association commented that the level of
protection provided to engine manufacturers under the current exemption
for Alaska and the proposal, as described above, falls short of what is
reasonable and necessary. It asserted that the use of high sulfur
diesel fuel by an engine should raise a ``rebuttable presumption'' that
the fuel has caused the engine failure, and that EPA should have the
burden of rebutting that presumption. It also asserted that the
emissions warranty is a regulatory requirement under Section 207, that
only EPA has the authority to exclude claims based on the use of high
sulfur diesel fuel. We understand and concur with the manufacturers'
concerns about in-use testing of engines operated in an area exempt
from fuel sulfur requirements. Consequently, we affirm that, for recall
purposes, we will not seek to conduct or cause the in-use testing of
engines we know have been exposed to high sulfur fuels. We will likely
screen any engines used in our testing program to see if they have been
operated in the exempt area. We believe we can readily obtain
sufficient samples of engines without testing engines from exempt
areas. Also, in any recall that we order, manufacturers have the option
of requesting a public hearing. The use of engines that have seen high
sulfur fuel will increase the likelihood of a recall hearing. We expect
manufacturers to scrutinize any test engines for sulfur usage that were
used to justify an ordered recall. In reviewing the warranty concerns
of the Engine Manufacturers Association, we have determined that our
position regarding warranties, as previously stated and described
above, is consistent with section 207(a) and (b) of the CAA and does
not require any new or amended regulatory language to implement.
    Today's action also grants Alaska's request for a permanent
exemption from the dye requirement of 40 CFR 80.29 and 40 CFR 80.446
for the entire state. The costs of complying with the low sulfur (both
the current 500 ppm sulfur and new 15 ppm sulfur) diesel fuel
requirements could be reduced significantly if Alaska were not required
to dye the non-highway fuel. Dye contamination of other fuels,
particularly jet fuel, is a serious potential problem. This is a
serious issue in Alaska since the same transport and storage tanks used
for jet fuel (which is more than half of Alaska's distillate market)
are generally also used for other diesel products, including off-
highway diesel products which are required to be dyed under the current

[[Page 5087]]

national program. This issue is discussed further in the RIA (Chapter
VIII).
b. Why Are We Treating Alaska Uniquely?
    Section 211(i)(4) of the Clean Air Act (CAA) provides that the
states of Alaska and Hawaii may seek an exemption from the diesel fuel
sulfur standard (500 ppm as specified in section 211(i)) in the same
manner as provided in section 325 of the CAA. The requested exemption
could be granted if EPA determines that compliance with such
requirement is not feasible or is unreasonable due to unique
geographical, meteorological, or economic factors of the territory, or
other local factors as EPA considers significant.
    On February 12, 1993, Alaska submitted a petition under section 325
of the CAA to exempt highway vehicle diesel fuel in Alaska from
paragraphs (1) and (2) of section 211(i) of the CAA, except for the
minimum cetane index requirement.180 The petition requested
that we temporarily exempt highway vehicle diesel fuel in communities
served by the FAHS from meeting the sulfur content (500 ppm) specified
in section 211(i) of the CAA and the dye requirement for non-highway
diesel fuel of 40 CFR 80.29, until October 1, 1996. The petition also
requested a permanent exemption from those requirements for areas of
Alaska not reachable by the FAHS'the remote areas. On March 22, 1994,
(59 FR 13610), we granted the petition based on geographical,
meteorological, air quality, and economic factors unique to Alaska.
---------------------------------------------------------------------------

    \180\ Copies of information regarding Alaska's petition for
exemption, subsequent requests by Alaska, public comments received,
and actions by EPA area available in public docket A-96-26.
---------------------------------------------------------------------------

    On December 12, 1995, Alaska submitted a petition for a permanent
exemption for all areas of the state served by the FAHS, that is, those
areas covered only by the temporary exemption. On August 19, 1996, we
extended the temporary exemption until October 1, 1998 (61 FR 42812),
to give us time to consider comments to that petition that were
subsequently submitted by stakeholders. On April 28, 1998 (63 FR 23241)
we proposed to grant the petition for permanent exemption. Substantial
public comments and substantive new information were submitted in
response to the proposal. To give us time to consider those comments
and new information, we extended the temporary exemption for another
nine months until July 1, 1999 (September 16, 1998, 63 FR 49459).
During this time period, we started work on a nationwide rule to
consider more stringent diesel fuel requirements, particularly for the
sulfur content (today's action). To coordinate the decision on Alaska's
request for a permanent exemption with the new nationwide rule on
diesel fuel quality, we extended the temporary exemption until January
1, 2004 (June 25, 1999, 64 FR 34126).
    As discussed in the previous section, in today's action we are
extending the temporary exemption from the 500 ppm diesel fuel sulfur
standard to the effective date for the new nationwide 15 ppm diesel
fuel sulfur standard in 2006. While it is important to implement in
Alaska the cleaner diesel engines and fuel of today's action, our goal
is to take action on the petition in a way that minimizes costs through
Alaska's transition to the new low sulfur program. The cost of
compliance could be reduced if Alaska refiners were given the
flexibility to meet the low sulfur standard in one step (i.e., going
straight from uncontrolled levels to the 15 ppm sulfur standard),
rather than in two steps. We considered the prior public comments we
received as a result of our previous notices and actions regarding
exemptions from the 500 ppm sulfur standard for highway diesel fuel in
Alaska (see RIA).
    Unlike in the rest of the country, diesel fuel consumption for
highway use in Alaska represents only five percent of the State's total
distillate fuel consumption. Aviation and marine applications, power
generation and heating consume most of the distillate, while Alaska's
highway diesel vehicle fleet is relatively small, particularly outside
the FAHS. The state estimates that there are less than 9000 diesel
vehicles in the entire state, with less than 600 of these vehicles in
all of rural Alaska. The state also indicates that new model vehicles
are introduced into the Alaska market at a slower rate than elsewhere,
thus Alaska does not need to transition its highway fuel to low sulfur
as quickly as the rest of the nation.
    Most of the fuel consumed in Alaska is produced by refineries
located in Alaska. This is primarily because of the more severe cloud
point specification needed for the extremely low temperatures
experienced in much of Alaska during the winter and the high cost to
import fuel that is produced elsewhere. There are four commercial
refineries in Alaska. Only one of these refineries currently has any
desulfurization capacity, which is relatively small. Consequently,
because these refineries will have to reduce sulfur from uncontrolled
levels to meet the new 15 ppm standard established by today's action,
these refineries could incur substantially higher costs than those in
the rest of the nation. Given the very small highway diesel demand,
however, it is doubtful that more than one or two Alaska refineries
will choose to produce low sulfur highway fuel, and these refiners
could even decide to import it from refineries outside of Alaska.
    Further, Alaska's fuel distribution system faces many unique
challenges. Unlike the rest of the country, because of its current
exemption from the 500 ppm sulfur standard and dye requirements, Alaska
does not currently segregate highway diesel fuel from that used for
off-road, marine, heating oil, and other distillate uses. Therefore,
the distribution system costs for segregating a low sulfur grade of
diesel for highway uses will be significant. The existing fuel storage
facilities limit the number of fuel types that can be stored. In
addition to significant obstacles to expanding tankage in Alaska, the
cost of constructing separate storage facilities, and providing
separate tanks for transporting low sulfur diesel fuel (e.g., by barge
or truck), could be significant. Most of Alaska's communities rely on
barge deliveries, and ice formation on the navigable waters during the
winter months restricts fuel delivery to these areas. Construction
costs are 30 percent higher in Alaska than in the lower-48 states, due
to higher costs for freight deliveries, materials, electrical,
mechanical, and labor. There is also a shorter period of time during
which construction can occur, because of seasonal extremes in
temperature and the amount of daily sunlight.
    The severe impacts to Alaska's fuel distribution system of
implementing a low sulfur requirement for highway diesel fuel would
likely occur whether we require the current 500 ppm standard or the new
15 ppm standard. The impacts to Alaska's refineries and fuel importers
are greater at 15 ppm than at 500 ppm. It is likely that the refiners
and fuel importers would have a significant incremental impact if we
required Alaska to implement the 500 ppm diesel fuel sulfur standard in
2004 when the current exemption expires, and the 15 ppm diesel fuel
sulfur standard in 2006 when the new national requirement becomes
effective, rather than only once for the 15 ppm diesel fuel sulfur
standard in 2006.

[[Page 5088]]

3. What Provisions Apply in American Samoa, Guam, and the Commonwealth
of Northern Mariana Islands?
a. Today's Action Regarding the Highway Diesel Fuel Standard in the
Territories
    As we proposed, today's action excludes American Samoa, Guam and
the Commonwealth of Northern Mariana Islands from the new diesel fuel
sulfur requirement of 15 ppm and the 2007 heavy-duty diesel vehicle and
engine emissions standards, and other requirements associated with
those emission standards. The territories will continue to have access
to 2006 heavy-duty diesel vehicle and engine technologies, at least as
long as manufacturers choose to market those technologies. We will not,
however, allow the emissions control technology in the territories to
backslide from those available in 2006. If, in the future,
manufacturers choose to market only heavy-duty diesel vehicles and
engines with 2007 and later emission control technologies, we believe
the market will determine when and if the territories will make the
investment needed to obtain and distribute the low sulfur diesel fuel
necessary to support these technologies.
    This exclusion from emission standards does not apply to the new
heavy-duty gasoline engine and vehicle emission standards, because low
sulfur gasoline that complies with our regulations will be available,
and so concerns about damage to engines and emissions control systems
will not exist. This exclusion from emission standards also does not
apply to light-duty diesel vehicles and trucks because gasoline
vehicles and trucks meeting the emission standards and capable of
fulfilling the same functions will be available. We believe that the
market will determine when and if having access to new light-duty
diesel technologies in the territories, in place of or in addition to
gasoline technologies, is important enough to obtain and distribute the
low sulfur diesel fuel needed to support those technologies.
    As we also proposed, we are requiring all heavy-duty diesel motor
vehicles and engines for these territories to be certified and labeled
to the applicable requirements (either to the 2006 model year standards
and associated requirements under the exclusion, or to the standards
and associated requirements applicable for the model year of production
under the nationwide requirements) and warranted, as otherwise required
under the Clean Air Act and EPA regulations. Special recall and
warranty considerations due to the use of excluded high sulfur fuel are
the same as those for Alaska during its exemption and transition
periods (see the discussion in previous section). To protect against
this exclusion being used to circumvent the emission requirements
applicable to the rest of the United States (i.e., continental United
States, Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands) after
2006 by routing exempted (pre-2007 technology) vehicles and engines
through one of these territories, we are restricting the importation of
vehicles and engines from these territories into the rest of the United
States. After the 2006 model year, diesel vehicles and engines
certified under this exclusion to meet the 2006 model year emission
standards for sale in American Samoa, Guam and the Commonwealth of the
Northern Mariana Islands will not be permitted entry into the rest of
the United States.
b. Why Are We Treating These Territories Uniquely?
    Unlike the rest of the nation (except Alaska), these territories
are currently exempt from the 500 ppm sulfur standard for highway
diesel fuel. Section 325 of the CAA provides that upon request of Guam,
American Samoa, the Virgin Islands, or the Commonwealth of the Northern
Mariana Islands, we may exempt any person or source, or class of
persons or sources, in that territory from any requirement of the CAA,
with some specific exceptions. The requested exemption could be granted
if we determine that compliance with such requirement is not feasible
or is unreasonable due to unique geographical, meteorological, or
economic factors of the territory, or other local factors as we
consider significant.
    Prior to the effective date of the current highway diesel sulfur
standard of 500 ppm, the territories of American Samoa, Guam and the
Commonwealth of Northern Mariana Islands petitioned us for an exemption
under section 325 of the CAA from the sulfur requirement under section
211(i) of the CAA and associated regulations at 40 CFR 80.29. The
petitions were based on geographical, meteorological, air quality, and
economic factors unique to those territories. We subsequently granted
the petitions.181
---------------------------------------------------------------------------

    \181\ See 57 FR 32010, July 20, 1992 for American Samoa; 57 FR
32010, July 30, 1992 for Guam; and 59 FR 26129, May 19, 1994 for
CNMI.
---------------------------------------------------------------------------

    These U.S. territories are islands with limited transportation
networks. Combined, these three territories have only approximately
1300 registered diesel vehicles. Diesel fuel consumption in these
vehicles represents just a tiny fraction of the total diesel fuel
volume consumed on these islands; the bulk of diesel fuel is burned in
marine, nonroad, and stationary applications. Consequently highway
diesel vehicles are believed to have a negligible impact on the air
quality in these territories, which, with minor exceptions, is very
good.
    All three of these territories lack internal petroleum supplies and
refining capabilities and rely on long distance imports. Given their
remote location from Hawaii and the U.S. mainland, most petroleum
products are imported from East rim nations, particularly Singapore.
Although Australia, the Philippines, and certain other Asian countries
have or will soon require low sulfur diesel fuel, their sulfur limit is
500 ppm, not the new 15 ppm sulfur limit established by today's action
for the United States. Compliance with low sulfur (15 ppm) requirements
for highway fuel would require construction of separate storage and
handling facilities for small quantities of a unique grade of diesel
fuel for highway purposes, or use of low sulfur (15 ppm) diesel fuel
for all purposes to avoid segregation. Either of these alternatives
would require importation of the low sulfur fuel from Hawaii or the
U.S. mainland, and would significantly add to the already high cost of
diesel fuel in these territories, which rely heavily on United States
support for their economies.

G. Refinery Air Permitting

    Prior to making diesel desulfurization changes, some refineries may
be required to obtain a preconstruction permit, under the New Source
Review (NSR) program, from the applicable state/local air pollution
control agency.182 We believe that today's program provides
sufficient lead time for refiners to obtain any necessary NSR permits
well in advance of the compliance date. Further, refiners will be able
to stagger their construction of desulfurization projects, since many

[[Page 5089]]

refineries could take advantage of the temporary compliance option for
low sulfur diesel fuel from 2006-2009, as described in Section IV.A.
Although some refiners commented that obtaining air permits would be a
factor in their ability to comply in the 2006 time frame, state/local
agencies commented that they will make the issuance of permits a top
priority, because they strongly support achieving the environmental
objectives of the low sulfur highway diesel program. State/local
agencies further commented that they are committed to working with all
affected parties to expedite the processing and issuance of any
necessary permits.
---------------------------------------------------------------------------

    \182\ Hydrotreating diesel fuel involves the use of process
heaters, which have the potential to emit pollutants associated with
combustion, such as NOX, PM, CO and SO2. In
addition, reconfiguring refinery processes to add desulfurization
equipment could increase fugitive VOC emissions. The emissions
increases associated with diesel desulfurization will vary widely
from refinery to refinery, depending on many source-specific
factors, such as crude oil supply, refinery configuration, type of
desulfurization technology, amount of diesel fuel produced, and type
of fuel used to fire the process heaters.
---------------------------------------------------------------------------

    For the Tier 2/gasoline sulfur control program promulgated in
December 1999, refiners had expressed concerns that permit delays might
impede their ability to meet compliance dates. Although we believed
that the Tier 2 program provided sufficient lead time for refiners to
obtain permits, we committed to undertake several actions to minimize
the possibility of any delays for refineries obtaining major NSR
permits for gasoline desulfurization projects. These actions include
providing federal guidance on emission control
technologies183 and the appropriate use of motor vehicle
emission reductions (resulting from the use of low sulfur gasoline),
where available, as emission offsets, as well as forming EPA permit
teams to assist states in quickly resolving issues, where needed. These
three items are discussed in more detail in the Tier 2 final rule (see
65 FR 6773, Feb. 10, 2000).
---------------------------------------------------------------------------

    \183\ Best Available Control Technology (BACT) and Lowest
Achievable Emission Rate (LAER) technology.
---------------------------------------------------------------------------

    Given that today's diesel sulfur program provides more than five
years of lead time, as well as an additional transitional period, we
believe refiners will have ample time to obtain any necessary
preconstruction permits. Nevertheless, we believe it is reasonable to
continue our efforts under the Tier 2 program, as described above, to
help states in facilitating the issuance of permits under the highway
diesel sulfur program. For example, the guidance on BACT and LAER
control technology that is currently under development for the gasoline
sulfur program should have application for diesel desulfurization
projects as well. We will plan to reevaluate this guidance to the
extent that it may need to be revised or updated for application to
highway diesel desulfurization projects. Similarly, we believe the
concept of EPA permit teams for gasoline sulfur projects could readily
be extended to permits related to diesel projects as well. These teams
will track the overall progress of permit issuance and will be
available to assist state/local permitting authorities, refineries and
the public upon request to resolve site-specific permitting questions.
Further, in Tier 2, we announced our plan to issue guidance to help
states determine whether and to what extent they may wish to use
vehicle emissions reductions as offsets for refineries implementing
gasoline desulfurization projects. We are currently in the process of
evaluating public comments received on the draft guidance relating to
the use of Tier 2 reductions as refinery offsets. Whatever resolution
we determine is appropriate for this guidance in the Tier 2 context, we
plan to apply a similar approach for diesel desulfurization projects as
well. Finally, to facilitate the processing of permits, we encourage
refineries to begin discussions with permitting agencies and to submit
permit applications as early as possible.

V. Economic Impact

    This Section discusses the projected economic impact and cost
effectiveness of the emission standards and low-sulfur fuel
requirement. Full details of our cost and cost effectiveness analyses
can be found in the RIA.

A. Cost for Diesel Vehicles to Meet Emissions Standards

1. Summary of New System and Operating Costs
    The technologies described in Section III represent significant
technological advancements for controlling emissions, but also make
clear that much effort remains to develop and optimize these new
technologies for maximum emission-control effectiveness with minimum
negative impacts on engine performance, durability, and fuel
consumption. On the other hand, it has become clear that manufacturers
have a great potential to advance beyond the current state of
understanding by identifying aspects of the key technologies that
contribute most to hardware or operational costs or other drawbacks and
pursuing improvements, simplifications, or alternatives to limit those
burdens. To reflect this investment in long-term cost savings
potential, the cost analysis includes an estimated $385 million in R&D
outlays for heavy-duty engine designs and $220 million in R&D for
catalysts systems giving a total R&D outlay for improved emission
control of more than $600 million. The cost and technical feasibility
analyses accordingly reflect substantial improvements on the current
state of technology due to these future developments.
    Estimated costs are broken into additional hardware costs and life-
cycle operating costs. The incremental hardware costs for new engines
are comprised of variable costs (for hardware and assembly time) and
fixed costs (for R&D, retooling, and certification). Total operating
costs include the estimated incremental cost for low-sulfur diesel
fuel, any expected increases in maintenance cost or fuel consumption
costs along with any decreases in operating cost expected due to low-
sulfur fuel. Cost estimates based on these projected technology
packages represent an expected incremental cost of engines in the 2007
model year. Costs in subsequent years will be reduced by several
factors, as described below. Separate projected costs were derived for
engines used in three service classes of heavy-duty diesel engines. All
costs are presented in 1999 dollars.
    The costs of these new technologies for meeting the 2007 model year
standards are itemized in the RIA and summarized in Table V.A-1. For
light heavy-duty vehicles, the cost of an engine is estimated to
increase by $1,990 in the early years of the program reducing to $1,170
in later years and operating costs over a full life-cycle to increase
by approximately $500 in the near term. For medium heavy-duty vehicles
the cost of a new engine is estimated to increase by $2,560 initially
decreasing to $1,410 in later years with life-cycle operating costs
increasing by approximately $900 in the near term. Similarly, for heavy
heavy-duty engines, the vehicle cost in the first year is expected to
increase by $3,230 decreasing to $1,870 in later years. Estimated
additional life-cycle operating costs for heavy heavy-duty engines in
the near term are approximately $3,800. The higher incremental increase
in operating costs for the heavy heavy-duty vehicles is due to the
larger number of miles driven over their lifetime (714,000 miles on
average) and their correspondingly high lifetime fuel usage. Emission
reductions are also proportional to VMT and so are significantly higher
for heavy heavy-duty vehicles.
    We also believe there are factors that will cause cost impacts to
decrease over time, making it appropriate to distinguish between near-
term and long term costs. Research in the costs of manufacturing has
consistently shown that as manufacturers gain experience in production,
they are able to apply innovations to simplify machining and

[[Page 5090]]

assembly operations, use lower cost materials, and reduce the number or
complexity of component parts.184 Our analysis, as described
in more detail in the RIA, incorporates the effects of this learning
curve by projecting that the variable costs of producing the low-
emitting engines decreases by 20 percent starting with the third year
of production (2009 model year) and by reducing variable costs again by
20 percent starting with the fifth year of production. Additionally,
since fixed costs are assumed to be recovered over a five-year period,
these costs are not included in the analysis after the first five model
years. Finally, manufacturers are expected to apply ongoing research to
make emission controls more effective and to have lower operating cost
over time. However, because of the uncertainty involved in forecasting
the results of this research, we have conservatively not accounted for
it in this analysis. Table V.A-1 lists the projected costs for each
category of vehicle in the near-and long-term. For the purposes of this
analysis, ``near-term'' costs are those calculated for the 2007 model
year and ``long term'' costs are those calculated for 2012 and later
model years.
---------------------------------------------------------------------------

    \184\ See Chapter V of the final Tier 2 Regulatory Impact
Analysis, contained in Air Docket A-97-10.

  Table V.A-1.--Projected Incremental System Cost and Life Cycle Operating Cost for Heavy-Duty Diesel Vehicles
                             [net present values in the year of sale, 1999 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                      Life-cycle
             Vehicle class                                Model year                      Hardware    operating
                                                                                            cost       cost a b
----------------------------------------------------------------------------------------------------------------
Light.................................                                      near term         1,990          509
Heavy-duty............................                                      long term         1,170          537
Medium................................                                      near term         2,560          943
Heavy-duty............................                                      long term         1,410          996
Heavy.................................                                      near term         3,230        3,785
Heavy-duty............................                                      long term         1,870       3,979
----------------------------------------------------------------------------------------------------------------
a Incremental life-cycle operating costs include the incremental costs to refine and distribute low sulfur
  diesel fuel, the service cost of closed crankcase filtration systems, the maintenance cost for PM filters and
  the lower maintenance costs realized through the use of low sulfur diesel fuel (see discussion in Section
  V.C).
b These costs are for new vehicles only and do not reflect any costs or savings for the existing fleet.

2. New System Costs for NOX and PM Emission Control
    Several new technologies are projected for complying with the 2007
model year emission standards. We are projecting that NOX
adsorbers and catalyzed diesel particulate filters will be the most
likely technologies applied by the industry in order to meet the
emissions standards. The fact that manufacturers will have several
years before implementation of the new standards ensures that the
technologies used to comply with the standards will develop
significantly before reaching production. This ongoing development
could lead to reduced costs in three ways. First, we expect research
will lead to enhanced effectiveness for individual technologies,
allowing manufacturers to use simpler packages of emission control
technologies than we would predict given the current state of
development. Similarly, we anticipate that the continuing effort to
improve the emission control technologies will include innovations that
allow lower-cost production. Finally, we believe that manufacturers
will focus research efforts on any drawbacks, such as fuel economy
impacts or maintenance costs, in an effort to minimize or overcome any
potential negative effects.
    We anticipate that in order to meet the standards, industry will
introduce a combination of primary technology upgrades for the 2007
model year. Achieving very low NOX emissions will require
continued development of NOX emission control technologies
and improvements in engine management to take advantage of the exhaust
emission control system capabilities. The manufacturers are expected to
take a systems approach to the problem of optimizing the engine and
exhaust emission control system to realize the best overall performance
possible. Since most research to date with exhaust emission control
technologies has focused on retrofit programs, there remains room for
significant improvements by taking such a systems approach. The
NOX adsorber technology in particular is expected to benefit
from re-optimization of the engine management system to better match
the NOX adsorbers performance characteristics. The majority
of the $600 million dollars we have estimated for research is expected
to be spent on developing this synergy between the engine and
NOX exhaust emission control systems. PM control
technologies are expected to be less sensitive to engine operating
conditions as they have already shown good robustness in retrofit
applications with low-sulfur diesel fuel.
    The NOX adsorber system that we are anticipating will be
applied in 2007 consists of a catalyst which combines traditional
gasoline three-way conversion technology with a newly developed
NOX storage function, a reductant metering system and a
means to control exhaust air fuel (A/F) ratio. The NOX
adsorber catalyst itself is a relatively new device, but is benefitting
in its development from over 20 years of gasoline three-way catalyst
development. In order for it to function properly, a systems approach
that includes a reductant metering system and control of exhaust A/F
ratio is also necessary. Many of the new air handling and electronic
system technologies developed in order to meet the 2004 heavy-duty
engine standards can be applied to accomplish the NOX
adsorber control functions as well. Some additional hardware for
exhaust NOX or O2 sensing, for exhaust
partitioning and for fuel metering will likely be required. The RIA
also calculates an increase in warranty costs for this additional
hardware. In total the new NOX control technologies required
in order to meet the 2007 emission standards are estimated to increase
light heavy-duty engine costs by $1,000, medium heavy-duty engine costs
by $1,310 and heavy heavy-duty engine costs by $1,650 in the year 2007.
In the year 2012 and

[[Page 5091]]

beyond the incremental costs are expected to decrease to $590 for a
light heavy-duty engine, $690 for a medium heavy-duty engine and to
$930 for a heavy heavy-duty engine.
    Catalyzed diesel particulate filters are experiencing widespread
retrofit use in much of Europe as low-sulfur diesel fuel becomes
readily available. These technologies are proving to be robust in their
non-optimized retrofit applications requiring no modification to engine
or vehicle control functions. We therefore anticipate that catalyzed
diesel particulate filters can be integrated with new diesel engines
with only a minimal amount of engine development. We do not anticipate
that additional hardware beyond the diesel particulate filter itself
and an exhaust pressure sensor for OBD will be required in order to
meet the PM standard. However, in order to ensure trap durability under
all possible operating conditions, some engine manufacturers may choose
to provide backup regeneration technologies for their PM filter based
systems. As detailed further in the RIA and the RTC documents, we do
not anticipate that these redundant systems will add to variable costs.
We estimate in 2007 that diesel particulate filter systems will add
$730 to the cost of a light heavy-duty vehicle, $950 to the cost of a
medium heavy-duty vehicle and $1,190 to the cost of a heavy heavy-duty
vehicle. By 2012 these costs are expected to decrease to $425, $530,
and $690 respectively. These cost estimates are comparable to estimates
made by the Manufacturers of Emission Controls Association for these
technologies.185
---------------------------------------------------------------------------

    \185\ Letter from Bruce Bertelsen, Manufacturers of Emission
Controls Association (MECA) to William Charmley, US EPA, December
17, 1998. The letter documents a MECA member survey of expected
diesel particulate filter costs. Air Docket A-98-32 Item II-D-09.
---------------------------------------------------------------------------

    The hydrocarbon (HC) exhaust standards set in this rulemaking will
be challenging for both diesel and gasoline engine technologies. For
diesel engines utilizing the NOX adsorber based technology
solution to control NOX emissions, HC control due to
imprecise NOX regeneration control may be difficult. One way
to ensure HC compliance will be to apply a separate diesel oxidation
catalyst which can control HC emissions to the limits set here. These
diesel oxidation catalysts are expected to add an additional cost to
the system of $206 for light heavy-duty vehicles, $261 for medium
heavy-duty vehicles, and $338 for heavy heavy-duty vehicles.
    We have eliminated the exemption that allowed turbo-charged heavy-
duty diesel engines to vent crankcase gases directly to the
environment, so called open crankcase systems, and have projected that
manufacturers will rely on engineered closed crankcase ventilation
systems which filter oil from the blow-by gases. We estimate that the
initial cost of these systems in 2007 will be $37, $42, and $49 for
light, medium and heavy heavy-duty diesel engines respectively.
Additionally we expect a portion of the oil filtration system to be a
service replacement oil filter which will be replaced on a 30,000 mile
service interval with a service cost of $10, $12, and $15 for light,
medium, and heavy heavy-duty diesel engines respectively. These cost
are summarized with the other cost for emission controls in Table V.A-1
and are included in the aggregate cost reported in Section V.D.
3. Operating Costs Associated With NOX and PM Control
    The RIA assumes that a variety of new technologies will be
introduced to enable heavy-duty vehicles to meet the new emissions
standards. Primary among these are advanced emission control
technologies and low-sulfur diesel fuel. The many benefits of low-
sulfur diesel fuel are described in Section III, and the incremental
cost for low-sulfur fuel is described in Section V.C. The new emission
control technologies are themselves not expected to introduce
additional operating costs in the form of increased fuel consumption.
Operating costs are estimated in the RIA over the life of the vehicle
and are expressed as a net present value (NPV) in 1999 dollars for
comparison purposes.
    Total operating cost estimates include both the expected increases
in maintenance and fuel costs (both the incremental cost for low-sulfur
fuel and any fuel consumption penalty) due to the emission control
systems application and the predicted decreases in maintenance cost due
to the use of low-sulfur fuel. Our analysis projects some increase in
operating costs due to the incremental cost of low-sulfur diesel fuel
but no net increase in fuel consumption with the application of the new
emission control technologies (see discussion in Section III.G). The
net increase in operating costs are summarized in Table V.A-1. While we
are using these incremental operating cost estimates for our cost
effectiveness calculations, it is almost certain that the manufacturers
will improve existing technologies or introduce new technologies in
order to offset at least some of the increased operating costs.
    We estimate that the low-sulfur diesel fuel required in order to
enable these technologies will have an incremental cost of
approximately $0.045/gallon in the near term increasing to $0.050/
gallon in the long term as discussed in Section V.C. The low-sulfur
diesel fuel may also provide additional benefits by reducing the engine
maintenance costs associated with corrosion due to sulfur in the
current diesel fuel. These benefits, which are discussed further in
Section V.C.5 and in the RIA, include extended oil change intervals due
to the slower acidification rate of the engine oil with low-sulfur
diesel fuel. Service intervals for the EGR system are also expected to
increase due to lower-sulfur induced corrosion than will occur with
today's higher-sulfur fuel. This lengthening of service intervals
provides a significant savings to the end user. As described in more
detail in the RIA we anticipate that low-sulfur diesel fuel will
provide additional cost savings to the consumer of $153 for light
heavy-duty vehicles, $249 for medium heavy-duty vehicles and $610
dollars for heavy heavy-duty vehicles.
    The operating costs for replacement filters in the closed crankcase
filtration systems expressed as a net present value in the year of sale
are estimated to be $31 for light heavy-duty vehicles, $59 for medium
heavy-duty vehicles and $218 for heavy heavy-duty vehicles for vehicles
sold in 2007.
    PM filter based technologies capture all forms of particulate in
the exhaust including inorganic solid particles which can come from the
engine oil or wear products of the engine. These inorganic particles
(often call ash) must be periodically cleaned from the particulate
filter. We have estimated the additional maintenance cost to clean the
PM filter expressed as a net present value in the year of sale of $55
for light heavy-duty vehicles, $56 for medium heavy-duty vehicles and
$208 dollars for heavy heavy-duty vehicles, as detailed in the RIA.
    Factoring the cost savings due to low sulfur diesel fuel into the
additional cost for low-sulfur diesel fuel and the service cost of the
closed crankcase ventilation system and the PM filter system yields an
increase in vehicle operating costs expressed as a net present value in
the year of sale of $509 for a light heavy-duty vehicle, $943 for a
medium heavy-duty vehicle and $3,785 for a heavy heavy-duty vehicle.
These life cycle operating costs are also summarized in Table V.A-1.
The net increase in operating cost can also be expressed as an average
annual operating cost for each class of heavy-duty vehicle by dividing
the total undiscounted operating costs by the average vehicle life
assumed to be 9 years for light heavy-duty vehicles, and

[[Page 5092]]

11 years for medium and heavy heavy-duty engines. Expressed as an
approximate annual per vehicle cost, the additional operating cost is
estimated as $80 for a light heavy-duty vehicle, $130 for a medium
heavy-duty vehicle, and $510 for a heavy heavy-duty vehicle.

B. Cost for Gasoline Vehicles to Meet the New Emissions Standards

1. Summary of New System Costs
    To perform a cost analysis for the final gasoline standards, we
first determined a package of likely technologies that manufacturers
could use to meet the standards and then determined the costs of those
technologies. In making our estimates, we have relied on our own
technology assessment which included publicly available information
such as that developed by California, confidential information supplied
by individual manufacturers, and the results of our own in-house
testing.
    In general, we expect that heavy-duty gasoline vehicles would (like
Tier 2 light duty vehicles) be able to meet these standards through
refinements of current emissions control components and systems rather
than through the widespread use of new technology. More specifically,
we anticipate a combination of technology upgrades such as the
following:
     Improvements to the catalyst system design, structure, and
formulation, plus an increase in average catalyst size and loading.
     Air and fuel system modifications including changes such
as improved oxygen sensors, and calibration changes including improved
precision fuel control and individual cylinder fuel control.
     Exhaust system modifications, possibly including air
gapped components, insulation, leak free exhaust systems, and thin wall
exhaust pipes.
     Increased use of fully electronic exhaust gas
recirculation (EGR).
     Increased use of secondary air injection.
     Use of ignition spark retard on engine start-up to improve
upon cold start emission control.
     Use of low permeability materials and minor improvements
to designs, such as the use of low-loss connectors, in evaporative
emission control systems.
    We expect that the technologies needed to meet the heavy-duty
gasoline standards will be very similar to those required to meet the
Tier 2 standards for vehicles over 8,500 pounds GVWR. Few heavy-duty
gasoline vehicles currently rely on technologies such as close coupled
catalysts and secondary air injection, but we expect they would to meet
the new standards.
    For each group we developed estimates of both variable costs (for
hardware and assembly time) and fixed costs (for R&D, retooling, and
certification). Cost estimates based on the current projected costs for
our estimated technology packages represent an expected incremental
cost of vehicles in the near-term. For the longer term, we have
identified factors that would cause cost impacts to decrease over time.
First, since fixed costs are assumed to be recovered over a five-year
period, these costs disappear from the analysis after the fifth model
year of production. Second, the analysis incorporates the expectation
that manufacturers and suppliers would apply ongoing research and
manufacturing innovation to making emission controls more effective and
less costly over time. Research in the costs of manufacturing has
consistently shown that as manufacturers gain experience in production
and use, they are able to apply innovations to simplify machining and
assembly operations, use lower cost materials, and reduce the number or
complexity of component parts.186 These reductions in
production costs are typically associated with every doubling of
production volume. Our analysis incorporates the effects of this
``learning curve'' by projecting that a portion of the variable costs
of producing the new vehicles decreases by 20 percent starting with the
third year of production. We applied the learning curve reduction only
once since, with existing technologies, there would be less opportunity
for lowering production costs than would be the case with the adoption
of new technology. We did not apply the learning curve reduction to
precious metal costs, nor did we apply it for the evaporative
standards.
---------------------------------------------------------------------------

    \186\ See Chapter V of the final Tier 2 Regulatory Impact
Analysis, contained in Air Docket A-97-10.
---------------------------------------------------------------------------

    We have prepared our cost estimates for meeting the new heavy-duty
gasoline standards using a baseline of current technologies for heavy-
duty gasoline vehicles and engines. Finally, we have incorporated what
we believe to be a conservatively high level of R&D spending at
$2,500,000 per engine family where no California counterpart exists. We
have included this large R&D effort because calibration and system
optimization is likely to be a critical part of the effort to meet the
standards. However, we believe that the R&D costs may be generous
because the projection probably underestimates the carryover of
knowledge from the development required to meet the light-duty Tier 2
and CARB LEV-II standards.
    Table V.B-1 provides our estimates of the per vehicle cost for
heavy-duty gasoline vehicles and engines. The near-term cost estimates
in Table V.B-1 are for the first years that vehicles meeting the
standards are sold, prior to cost reductions due to lower productions
costs and the retirement of fixed costs. The long-term projections take
these cost reductions into account.

Table V.B-1.--Projected Incremental System Cost and Life Cycle Operating
                  Cost for Heavy-Duty Gasoline Vehicles
         [Net Present Values in the year of sale, 1999 dollars]
------------------------------------------------------------------------
                                                              Life-cycle
        Vehicle class             Model year    Incremental   operating
                                                system cost      cost
------------------------------------------------------------------------
Heavy-Duty...................  near term......         $198           $0
Gasoline.....................  long term......          167            0
------------------------------------------------------------------------

[[Page 5093]]

2. Operating Costs Associated With Meeting the Heavy-Duty Gasoline
Standard
    Low sulfur gasoline is a fundamental enabling technology which will
allow heavy-duty gasoline vehicles to meet the very low emission
standards being finalized today. The low sulfur gasoline required under
the Tier 2 proposal will enable advanced exhaust emission control for
heavy-duty vehicles as well. Today's final rule puts no additional
requirements on gasoline sulfur levels and as such should not increase
gasoline fuel costs. Additionally, the new technologies being employed
in order to meet the new standards are not expected to increase fuel
consumption for heavy-duty gasoline vehicles. In fact, there may be
some small improvement in fuel economy from the application of improved
fuel and air control systems on these engines. Therefore, in the
absence of changes to gasoline specifications and with no decrease in
fuel economy, we do not expect any increase in vehicle operating costs.

C. Cost of Fuel Change

    We estimate that the overall net cost associated with producing and
distributing 15 ppm diesel fuel, when those costs are allocated to all
gallons of highway diesel fuel, will be approximately 5.0 cents per
gallon in the long term, or an annual cost of roughly $2.2 billion per
year once the program is fully effective starting June 1, 2010. During
the initial years under temporary compliance option, the overall net
cost is projected to be 4.5 cents per gallon, or an annual cost of
roughly $1.7 billion per year.
    This cost consists of a number of components associated with
refining and distributing the new fuel. The majority of the cost is
related to refining. From 2006-2010, refining costs are estimated to be
approximately 3.3 cents per gallon of highway diesel fuel (4.1 cents
per gallon for that portion produced to the 15 ppm standard),
increasing to 4.3 cents per gallon once the program is fully in place.
In annual terms, the 2006-2010 refining costs are expected to be about
$1.4 billion per year, increasing to about $1.8 billion in 2011. These
figures include the cost of producing slightly more volume of diesel
fuel because: (1) Desulfurization decreases the energy density of the
fuel and (2) slightly more highway diesel fuel is expected to be
downgraded to nonroad diesel fuel in the distribution system.
    A small cost of 0.2 cents per gallon is associated with an
anticipated increase in the use of additives to maintain fuel
lubricity. Also, distribution costs are projected to increase by 1.0
cents per gallon during the initial years under the temporary
compliance option, including the cost of distributing slightly greater
volumes of fuel. Together, these two cost components only amount to
about $0.5 billion per year beginning in 2006. These costs drop to only
about $0.3 billion in 2011.
    As discussed in Sections V.A. and V.C.5, operation with 15 ppm
sulfur diesel fuel is expected to reduce average vehicle maintenance
costs by approximately 1 cent on a per gallon basis. Beginning in 2011,
this reduction in maintenance costs will total roughly $400 million per
year. All of these cost estimates are discussed in more detail below
and in the RIA.
 1. Refinery Costs
    As explained in Section IV, EPA believes that refiners will meet
the 15 ppm sulfur standard through an extension of the same
hydrotreating technology which is used today to meet the current 500
ppm sulfur standard. Meeting the new standard will generally require
refiners to install additional hydrotreating equipment. Most refiners
are expected to add another hydrotreating reactor and other related
equipment to their existing desulfurization unit. However, we project
that some refiners, roughly 20 percent, will conclude that it is not
economical to add onto their existing unit and will instead build an
entirely new hydrotreater.
    Consistent with our analysis for the NPRM, we estimate that a
refinery's diesel fuel will have to average 7 ppm in order to
consistently meet the 15 ppm standard. For the NPRM, we estimated the
cost of producing highway diesel fuel with a 7 ppm average sulfur level
for the average U.S. refinery. We received a number of comments on the
NPRM which indicated that the cost for various refiners would differ
dramatically, as would the cost of treating the various blendstocks
which comprise highway diesel fuel. In response, we extended our
refining cost model to be specific to each refinery in the U.S., based
on a refinery's production volume and estimated composition of its
highway diesel fuel. Using this model, we estimated each refinery's
cost of producing 7 ppm sulfur highway diesel fuel and then aggregated
these results to estimate a national average cost.
    This analysis considers the fact that some diesel fuel blendstocks
are more difficult to desulfurize than others. As indicated in some
comments on the NPRM, this could lead refiners to shift their
blendstocks between highway diesel fuel and other distillate products
in order to minimize costs. For example, our analysis found that the
incremental cost of desulfurizing current highway diesel fuel can be
more expensive for some refiners than the cost to other refiners of
desulfurizing nonroad diesel fuel to meet the 15 ppm standard, despite
the fact that the current sulfur level of nonroad diesel fuel is
roughly 2500-3000 ppm.
    We evaluated costs under two scenarios: (1) all current producers
of highway diesel fuel continued to do so, and (2) some refiners
increase production of highway diesel fuel and some refiners facing
higher desulfurization costs leave the highway diesel fuel market. Our
cost projections presented below are based on the first scenario. This
is conservative, because in this scenario, some refineries currently
produce relatively low volumes of highway diesel fuel and would face
relatively high costs per gallon to desulfurize this same volume of
fuel.
    We project that the average refining cost to meet the 15 ppm cap
standard will be 4.3 cents per gallon, including capital costs
amortized at 7 percent per year before taxes, once the standard is
fully in place in June, 2010. Refining costs will be lower, 4.1 cents
per gallon of 15 ppm fuel (or 3.3 cents per gallon of all highway
diesel fuel), during optional compliance provisions (2006-2010),
because we expect that those refiners facing the lowest cost of meeting
the standard in each PADD will invest to produce the new fuel. We
project that refiners will invest $3.8 billion in new equipment in
order for about 80 percent of highway diesel fuel to meet the 15 ppm
standard in 2006. An additional $1.4 billion will be invested for the
rest of the highway diesel fuel market to meet the new standard in
2010, for a total capital cost of $5.2 billion. The average refinery is
projected to spend about $43 million in capital costs, and $7 million
per year in operating costs.
    Table V.C-1 shows the range of average costs per refinery by PADD.
Despite the varying size of refineries and differences in their
available distillate blendstocks, the variations in the average cost
between PADDs in either 2006 or 2010 are small, with the exception of
PADD 4. PADD 4 average costs are 30-40 percent higher than the costs in
the other PADDs.

[[Page 5094]]

Table V.C-1.--Average Refining Costs by PADD (cents per gallon of 15 ppm
                                  fuel)
------------------------------------------------------------------------
                                                    2006         2010
------------------------------------------------------------------------
PADD 1........................................          4.4          4.7
PADD 2........................................          4.3          4.5
PADD 3........................................          3.8          3.9
PADD 4........................................          5.1          5.3
PADD 5........................................          4.2          4.5
U.S. Average..................................          4.1          4.3
------------------------------------------------------------------------

    A number of other estimates of the cost of the 15 ppm sulfur
standard were submitted as part of the comments. Mathpro used a
notional refinery model to estimate the national average costs of the
proposed standard for EMA. Charles River Associates (CRA), along with
Baker and O'Brien, used the Prism refinery model to estimate the cost
for each refinery in the U.S. for API. Finally, EnSys used the Oak
Ridge National Laboratory PADD 3 refinery model to estimate costs for
DOE. Table V.C-2 summarizes these estimates after adjusting the
projected costs to represent a 7 percent rate of return on investment
before taxes (except for the CRA cost, which could not be adjusted).

  Table V.C-2.--Comparison of National Average Refining Cost Estimates
          [7 percent rate of return on investment before taxes]
------------------------------------------------------------------------
                                           Average cost
                                            (cents per     Capital cost
                                           gallon of 15     ($ billion)
                                             ppm fuel)
------------------------------------------------------------------------
EPA (Full program)......................             4.4             5.3
Methpro for EMA*........................         4.2-6.1         3.4-6.1
CRA for API (10% after tax rate of                   6.2              --
 return)................................
EnSys for DOE (conservative technology)*         5.1-6.0         3.9-6.5
 ...............................
EnSys for DOE (optimistic technology)*           4.2-4.4        2.7-4.5
 ...............................
------------------------------------------------------------------------
* Lower end of range assumes 100 percent revamped equipment; upper end
  assumes all new equipment.
 Costs are only for the Gulf Coast refining region, which have
  slightly lower per-gallon costs than the entire U.S., and about half
  the capital costs.

    The costs estimated by Mathpro are the most similar to those
estimated by EPA. This is primarily because the desulfurization
technology projected to be used were similar in the two studies.
    CRA projected the use of similar technology, but estimated that 40
percent of refiners would build new desulfurization units, versus our
estimate of 20 percent. CRA also assumed that technology vendors are
inherently optimistic in their projections and increased their
projected costs by roughly 20 percent. CRA also projected that nonroad
diesel fuel sulfur levels would be capped at 500 ppm. How this affected
the projected cost of producing 15 ppm fuel is not clear. CRA assumed
that this 500 ppm fuel would be produced by blending 8 ppm sulfur
highway diesel fuel and 3000 ppm heating oil. Much of this production
was assumed to occur due to mixing in the distribution system. An
unknown amount of 500 ppm fuel was produced at refineries.
Desulfurization costs are not linear, as shown by CRA's own study.
Thus, any blending of 15 ppm sulfur highway diesel fuel with non-
desulfurized heating oil at refineries was much more costly than simply
hydrotreating nonroad diesel fuel to 500 ppm. It also required refiners
to hydrotreat the most difficult blendstocks at a much higher cost.
Because of these significant differences in both methodology and
assumptions, it is not surprising that CRA's costs would be higher than
those estimated by Mathpro or ourselves.
    EnSys's cost estimates require some explanation due to the number
of scenarios they analyzed. EnSys did not estimate how many refiners
would build new desulfurization units and how many would modify their
current hydrotreaters, but simply presented costs if refiners took one
approach or the other. Thus, the lower limits of the ranges shown in
Table V.C-2 assume refiners modify their current hydrotreaters, while
the upper limits assume that refiners would build new units. EnSys also
projected costs for two separate sets of technologies. One set was
considered conservative and relied on technologies that are already in
commercial use. The other was considered to be optimistic and was
similar to that projected to be used by EPA, Mathpro and CRA. EnSys'
costs using the conservative technology are higher than our estimates.
This is due to the fact that this technology involves greater capital
investment and greater consumption of hydrogen. These greater costs are
due to the fact that this technology is not just designed to reduce
sulfur, but to reduce aromatic content, increase cetane levels and
perform some cracking. EnSys' costs using the optimistic technology are
much more similar to those of EPA and Mathpro, considering that EnSys'
range of costs reflects both revamped and new desulfurization units and
that EPA's costs are dominated (80 percent) by revamped units.
    Some of the variation in the costs projected by the various studies
involves uncertainty in exactly what degree of hydrotreating will be
necessary to meet the 15 ppm sulfur standard day in and day out with a
variety of distillate feedstocks. As discussed in Section IV above,
there is currently no commercial experience in the U.S. and only a
limited amount of information in the public literature on the costs
associated with reducing the sulfur level in diesel fuel to very low
levels on an ongoing operational basis. Thus, any cost projections
involve a significant amount of uncertainty.
2. Highway Diesel Fuel Supply
    While API and many refiners did not question the feasibility of the
15 ppm standard, they did indicate that the cost would be higher than
that projected by EPA. API believes that those refiners facing higher
than average costs may decide to leave the highway diesel fuel market.
They argue this is especially a possibility if they are faced with a
sulfur standard below a 30 ppm average (or 50 ppm cap), which they
believe will require very large investments for high pressure
hydrotreating to maintain current highway diesel production volumes.
API also believes that many refiners may reduce their production of
highway diesel fuel, by switching the feedstocks (i.e., LCO) which are
most difficult to desulfurize to other markets,

[[Page 5095]]

thus avoiding the higher investments associated with high pressure
hydrotreating. If some refiners reduce highway diesel fuel production,
that could present an opportunity for other refiners, who choose to
make the investment, of higher prices for the new 15 ppm sulfur
product.
    This view is embodied by a study by Charles River Associates (CRA)
and Baker and O'Brien which was commissioned by API. CRA polled
refiners concerning their plans under a 15 ppm sulfur cap. Using the
results of this survey, as well as other information, CRA projected
refiners' costs of meeting the 15 ppm standard, as well as their likely
production volumes. CRA concluded that U.S. refiners would likely
reduce their highway diesel fuel production by an average of 12
percent, creating significant shortages and price spikes.
    CRA's conclusions appear to have been strongly affected by their
assumptions, as well as the refiner survey they conducted. For example,
CRA assumed that the new sulfur standard would cause 10 percent more
highway diesel fuel to be ``lost'' in the distribution system compared
to today (i.e., downgraded to off-highway diesel fuel). We believe
based on the analysis outlined in the RIA that 2.2 percent is a more
accurate estimate, resulting in 9 percent more 15 ppm fuel being
available than CRA estimated. This difference alone accounts for 75
percent of the potential national supply shortfall projected by CRA.
    CRA also concluded, with little explanation, that 20 refineries
producing highway diesel fuel today would not produce highway diesel
fuel under the 15 ppm standard and that many more would reduce
production. Given the lack of information provided in the study, it was
not possible to evaluate CRA's criteria in selecting these 20
refineries, nor was it possible to determine how much of the shortfall
was attributable to this conclusion. While CRA evaluated whether
refiners currently producing highway diesel fuel would be likely to
leave the market, they did not assess whether any refineries currently
not producing highway diesel fuel might enter the market. EPA did
conduct such an assessment. We found 2 refineries that produce
essentially no highway diesel fuel today which could meet the new
standard for less than 5 cents per gallon. Production from these
refineries would increase highway diesel fuel production by 9 percent.
We also found based on our assessment that 4 other refineries could
produce highway diesel fuel from their off-highway diesel fuel
blendstocks for less than 5 cents per gallon. Production from these 6
refineries would increase highway diesel fuel production by 7 percent.
Together with a more reasonable estimate of downgrades in the
distribution system, this would more than compensate for any potential
lost production, even as estimated by CRA.
    CRA also implicitly assumed that the material it projected could be
removed from the highway diesel market could be sold at a reasonable
price. However, CRA did not analyze the impact of this additional
supply on the prices which could be obtained in these markets, or even
if these alternative markets could physically absorb all of this
material. Much of this material is not diesel fuel, but poor quality
blendstock. It is not clear that such material could be blended into
non-highway diesel fuel and CRA did not analyze this likely problem.
Our analyses, supported by a study by Muse, Stancil and Co., indicate
that any substantial quantities of highway diesel fuel diverted to
other markets will depress prices in those markets
substantially.187 Hydrotreating diesel fuel to meet the 15
ppm standard avoids these depressed prices, reducing the net cost of
meeting the new standard. Since CRA only considered the cost to
desulfurize highway diesel fuel, and ignored the added cost of dumping
this fuel into markets with depressed prices, CRA's conclusions must be
considered to be seriously flawed in this regard.
---------------------------------------------------------------------------

    \187\ ``Alternate Markets for Highway Diesel Fuel Components,''
Muse, Stancil & Co., for Southwest Research Institute, for U.S. EPA,
September, 2000.
---------------------------------------------------------------------------

    Furthermore, CRA ignored the fact that roughly 15 percent of
today's highway diesel fuel is consumed in engines and furnaces not
requiring this fuel. Any shortage of highway diesel fuel would lead
many of these non-essential users to switch to nonroad diesel fuel or
heating oil. Only limitations in the fuel distribution system would
cause these users to continue to burn highway diesel fuel.
    These problems with CRA's analysis, plus the lack of detail
available concerning the specifics of the study, lead us to reject the
study's conclusions that there will be significant supply shortfalls
under a 15 ppm sulfur standard.
    Finally, if any potential for highway diesel fuel shortfalls exists
by requiring all fuel to meet 15 ppm sulfur in 2006, as CRA's analysis
suggests, we believe that allowing some continued supply of 500 ppm, as
we are doing under the temporary compliance option and hardship
provisions contained in today's action, addresses this concern. Since
the final rule allows some transition period before the entire highway
diesel pool is required to meet the 15 ppm sulfur standard, some
refiners will not need to change their current operations and will be
able to continue producing 500 ppm fuel during these years. Those
refiners that delay production of low sulfur diesel fuel until the
later years of the program will tend to be the refiners with the
highest cost to comply and, thus, refiners that would otherwise have
the greatest tendency not to invest and thereby impact supply. Refiners
that begin producing low sulfur diesel fuel in the later years of the
program will also be able to take advantage of ongoing improvements in
desulfurization technology. Together, these factors will help avoid or
reduce any potential losses in highway diesel fuel production when the
program requires full compliance with low sulfur diesel fuel.
    As mentioned above, EPA agrees that some refiners will face higher
desulfurization costs than others. This is generally the case with any
fuel quality regulation, since the crude oils processed by, as well as
the configurations and product slates of individual refineries vary
dramatically. As mentioned above and summarized in the RIA, we used our
refining cost model to assess the likelihood that refiners would leave
the highway diesel fuel market or reduce their production of highway
diesel fuel. We also assessed the likelihood of other refiners entering
this market. We found that a number of refiners appear to be in a
position to expand their highway diesel fuel production capacity very
economically relative to other refiners facing higher desulfurization
costs. We also found that up to 2 refineries not now producing highway
diesel fuel could easily enter the highway diesel fuel market at very
competitive costs.
    Some refiners may have an alternative market for their diesel fuel.
In the extreme, a refiner would likely prefer to only shift his light
cycle oil to other distillate products, like nonroad diesel fuel and
No. 2 heating oil, retaining his other blendstocks in the higher value
highway diesel fuel market. However, in many cases, a refiner cannot
shift light cycle oil directly to a distillate product, because the
resulting non-highway fuel would no longer meet applicable
specifications, such as sulfur or cetane. In most cases, we expect that
the refiner must shift highway diesel fuel to alternative markets in
order to be able to obtain a reasonable price.
    As mentioned above, Muse, Stancil, & Co. analyzed the ability of
refiners to

[[Page 5096]]

divert highway diesel fuel or its blendstocks to other distillate
markets. Muse, Stancil found that this ability varied significantly by
PADD. In PADDs II and IV, it would be difficult for refiners to move
any appreciable quantity of highway diesel fuel to other markets. For
example, compared to the value of highway diesel fuel today, the
achievable value for the diverted material would decrease by 14 to 20
cents per gallon if refiners tried to move more than 5 percent of their
highway diesel fuel to other markets. The loss in value was highest in
these two PADDs, because growth in nonroad diesel fuel consumption is
small or negative, the ability to reduce the consumption of highway
diesel fuel by users other than highway vehicles was limited, and
exports are only available through the Gulf or West Coasts with a large
transportation cost of getting the material there.
    In PADDs III and V, the loss of value was lower, at 4.5-5 cents per
gallon and was the lowest in PADD I, 2 cents per gallon. This was
primarily because of the ability to export high sulfur diesel fuel
overseas. Generally, these losses in value apply if diesel fuel was
being diverted to other distillate markets. If light cycle oil was
being diverted, the value would drop an additional 3-3.5 cents per
gallon.
    At lower levels of diversion (e.g., 5 percent or less), the loss in
value was much less, ranging from 1.6-5 cents per gallon across the
five PADDs. However, the primary reason for this was the reduced use of
highway diesel fuel by users other than highway vehicles, who do not
require this fuel. Muse believed that such conversions were limited,
but real and could represent roughly a third of the current use of
highway diesel fuel in other than highway vehicles. If this occurs,
then demand for highway diesel fuel drops at the same time. Thus, in
this case, the total refining costs associated with the new sulfur
standard will decline because the total amount of fuel; needing to be
desulfurized will decrease.
    The only area where refiners could easily divert substantial
amounts of highway diesel fuel is PADD I. PADD I refiners currently
produce a relatively low amount of highway diesel fuel and substantial
amounts of high sulfur diesel fuel/heating oil are imported. Thus,
refiners in PADD I facing relatively high costs of meeting the 15 ppm
standard could shift some or all of their highway diesel fuel to other
markets, reducing imports and not substantially affecting prices in
this market.
    In the end, refiners will make their decisions regarding investment
based on their projections of demand of 15 and 500 ppm diesel fuel, the
prices of these fuels and the prices available in alternative markets.
At this time, we do not project that the specifics involved in this
case (technology, cost, alternative markets) are significantly
different from those which have existed in the past. The last time EPA
regulated diesel fuel, the refining industry actually overbuilt
desulfurization capacity for the current 500 ppm standard, as evidenced
by the significant use in the nonroad market of diesel fuel produced to
the current highway diesel sulfur standard of 500 ppm and the
relatively low price of highway diesel fuel relative to nonroad diesel
fuel. Some of this overproduction may have been due to limitations in
the distribution system to distribute both highway and nonroad grades
of diesel fuel. However, the refinery system as a whole was able to
supply both highway diesel vehicles, plus the use of highway diesel
fuel by other users. This was accomplished despite the fact that a
number of small refiners did decide to switch from the highway diesel
fuel market to the nonroad diesel fuel market, presumably for economic
reasons.
3. Cost of Lubricity Additives
    As discussed in Section IV, the refinery processes needed to
achieve the sulfur standard have some potential to degrade the natural
lubricity characteristics of the fuel. Consequently, an increase in the
use of lubricity additives for diesel fuel may be anticipated over the
amounts used today. As described in more detail in the Regulatory
Impact Analysis in the Public Docket, we include in our fuel cost
estimate an average cost of 0.2 cents per gallon for lubricity
additives over the entire pool of low sulfur highway diesel fuel (the
same cost estimate as used in the proposal). This estimate is
comparable to an estimate made by Mathpro in a study sponsored by the
Engine Manufacturers Association, and is consistent with the cost
estimate submitted by Cummins in its comments.
    Prior to the proposal, we contacted various producers of lubricity
additives to get their estimates of what costs might be incurred for
this increase in the use of lubricity additives. The cost estimates
varied from 0.1 to 0.5 cents per gallon. The cost is likely to be a
strong function of not only the additive type, but also the assumed
treatment rate and the volume of fuel that needs to be treated, both of
which will be, to some extent, a function of the sulfur cap. We
requested comment on our cost estimate, including whether there may be
unique costs for the military to maintain the lubricity of their
distillate fuels. We requested that comments addressing this issue
include a detailed discussion of the volumes of fuel affected, current
lubricity additive use, and the additional measures that might be
needed (and associated costs) to maintain the appropriate level of fuel
lubricity. In response to the proposal, we received few comments on the
cost of lubricity additives, and none on the volumes of fuel affected,
current lubricity additive use, or additional measures that might be
needed to maintain the appropriate level of lubricity. In considering
the comments, we have found no basis in today's action to use a
different average cost estimate to treat low sulfur diesel for
lubricity than that which was used in the proposal (0.2 cents per
gallon). See more discussion in the Response to Comments Document in
the Public Docket.
4. Distribution Costs
    We estimate that as a result of today's rule, distribution costs
will increase by 0.5 cents per gallon of highway diesel fuel supplied
when the sulfur requirements are fully implemented beginning in the
year 2010. During the initial years (2006 through May 31, 2010) we
estimate that the increase in distribution costs will be 0.4 cents per
gallon of highway diesel fuel supplied, with an additional 0.7 cents
per gallon equivalent related to capital costs for additional storage
tanks to handle two grades of highway diesel fuel.188
---------------------------------------------------------------------------

    \188\ This cost is expressed in terms of the total volume of
highway diesel fuel supplied, including the fuel which meets the 15
ppm sulfur cap and that which meets the 500 ppm sulfur cap.
---------------------------------------------------------------------------

    In the proposal, we estimated that distribution costs would
increase by 0.2 cents per gallon if the proposed requirement that the
entire highway diesel fuel pool meet a 15 ppm sulfur cap beginning in
2006 be adopted. This cost was comprised of roughly 0.1 cents per
gallon due to an increase in pipeline interface and testing costs, and
0.1 cents per gallon for distributing the additional volume of highway
diesel fuel needed due to an anticipated decrease in fuel energy
density as a side effect of reducing the sulfur content to the proposed
15 ppm cap. The case evaluated in the NPRM is most similar to that for
the fully implemented sulfur program in this final rule.
    We took advantage of additional information contained in the
comments to the NPRM in formulating a more comprehensive estimate of
the

[[Page 5097]]

distribution costs under today's rule. In some cases this involved
adjusting an estimate for a parameter that factored into our
calculation of costs in the NPRM. One important example is that we
increased our estimate of the additional volume of highway diesel
shipped by pipeline that would need to be downgraded to a lower-value
product. This product downgrade is necessitated by mixing that takes
place between products that abut each other while in the pipeline. The
mixture is referred to as interface when it can be blended into another
product and transmix when it must be returned to the refinery for
reprocessing. In other cases, our reevaluation of distribution costs
included the consideration of parameters that did not factor into the
estimation of distribution costs in the proposed rule. For example,
commenters to the NPRM brought to our attention that there would be
additional costs associated with needed changes in the handling
practices for interface volumes which result from shipments of jet fuel
and highway diesel fuel that abut each other in the pipeline.
    There are a number of common factors in the estimation of
distribution costs during the initial period and after the sulfur
requirements are fully implemented, such as the increase in interface
volumes for pipeline shipments of highway diesel fuel. However, there
are other factors that are unique to the estimation of costs during the
initial years as well. For example, with two grades of highway diesel
fuel in the distribution system at the same time there are costs
associated with the need for additional storage tanks at some petroleum
terminals and refineries. Our estimation of distribution costs under
these two periods is discussed separately in the following sections.
Where there is a commonality, the issue is discussed under the section
on distribution costs for the fully implemented program.
a. Distribution Costs Under the Fully Implemented Program
    Based on the considerations discussed below, we estimate that the
increase in distribution costs under the fully implemented sulfur
program will be 0.5 cents per gallon of highway diesel fuel supplied.
    The cost of distributing the additional volume of highway diesel
fuel needed to compensate for the lower energy density of highway
diesel fuel that meets a 15 ppm sulfur cap is estimated at 0.17 cents
per gallon of highway diesel fuel supplied. As in the NPRM, the cost of
producing this additional volume was included in the calculation of
refinery costs (see Section V.C.1.). In the NPRM, we estimated that the
cost of distributing highway diesel fuel was equal to the difference in
price at the refinery rack and the retail price. For today's final
rule, we based our estimate of distribution cost on a PADD by PADD
evaluation of the difference in the price of highway diesel fuel at the
refiner rack versus the retail price. The price differential for each
PADD was weighted by the additional volume of fuel we anticipate will
need to be produced in each PADD to arrive at an estimate of
distributing the additional volume needed for the nation as a whole. We
believe this approach provides a more accurate estimate of costs.
    Based on additional information provided in the comments on the
changes in pipeline interface practices that would result from today's
rule, we adjusted our estimate of the increased volume of highway
diesel fuel that would be downgraded to a lower-value product from 1.5
percent to 2.2 percent of highway diesel fuel supplied (see the RIA to
this rule). As in the NPRM, the cost of producing this additional
volume was included in the calculation of refinery costs (see Section
V.C.1.). The cost of downgrading the increased volume of highway diesel
fuel to a lower-value product is based on the difference in the cost of
15 ppm sulfur diesel fuel and the product to which the interface is
downgraded. Under the fully imlemented program, this downgrade would be
made into the nonroad diesel pool. The cost of this increased volume of
downgrade is estimated at approximately 0.14 cents per gallon of
highway diesel supplied.
    We identified that there would also be an increase in the economic
impact for the existing volume of interface currently associated with
pipeline shipments of highway diesel fuel. This is because the cost of
downgrading the existing interface volume would be determined by the
difference between the cost of 15 ppm sulfur fuel and nonroad diesel
fuel rather than the difference in cost between current 500 ppm diesel
fuel and nonroad diesel fuel as it is today. We estimate that the
increase in the cost of downgrading the existing highway diesel
interface would be 0.09 cents per gallon of highway diesel fuel
supplied.
    We anticipate that there may be minor costs in addition to those
discussed above associated with optimizing the distribution system to
adequately limit sulfur contamination. These costs could result from
various minor changes to distribution practices and or hardware
discovered to be needed by industry while preparing to comply with
today's rule. While it is not possible to specifically identify the
nature of these changes, they could include the occasional replacement
of a leaking valve or improvements in communication practices to
facilitate batch changes in the pipeline system. There may also be some
cost associated with the process that we anticipate the distribution
industry will undertake to evaluate its readiness to comply with the
requirements in today's rule. Such costs might result from testing to
determine the level of contamination introduced through the use of
various distribution hardware or practices. It is not possible to
specifically identify the costs that might be associated with this
optimization process. However, given the limited nature of the changes
that might be needed and that the need for such changes would not be
widespread, we believe that the associated costs would not pose a
substantial burden. We estimate that the miscellaneous costs associated
with optimizing the distribution system to limit sulfur contamination
would be 0.025 cents per gallon of highway diesel fuel supplied (on
average) during the period from when the sulfur program is fully
implemented (2010) through the year 2020. These costs were amortized at
a rate of 7% over the period of 2006 through 2020. The per gallon cost
is somewhat higher during the initial years.
    Commenters to the proposed rule stated that it is current practice
for all of the interface generated when highway diesel fuel abuts jet
fuel in the pipeline to be cut into highway diesel fuel. They pointed
out that this practice would no longer be possible when all highway
diesel fuel is required to meet a 15 ppm sulfur cap because of the
relatively high sulfur content of jet fuel (as high as 3000
ppm).189 They stated that the mixture of highway diesel fuel
meeting a 15 ppm sulfur cap and jet fuel would need to be returned from
the terminal to the refinery for reprocessing, at high cost (i.e. would
need to be treated as transmix). While we agree that handling
procedures for this mixture will need to change, we believe that it
will not be necessary to treat it as transmix. We believe that there
will be opportunity for the mixture to be sold from the terminal into
the nonroad diesel pool. This will increase the cost associated with
downgrading this mixture.

[[Page 5098]]

Expressed in terms of the volume of highway diesel fuel supplied, we
estimate this cost at 0.07 cents per gallon. Additional storage tanks
will be needed to handle the mixture at those terminals that currently
do not handle nonroad diesel fuel. The cost of these tanks has been
fully accounted for in the calculation of costs during the initial
years of the program.
---------------------------------------------------------------------------

    \189\ During the initial years of the sulfur program, the
current practice used to handle the interface between shipments of
jet fuel and highway diesel fuel can be used for that portion of the
highway diesel fuel that continues to meet a 500 ppm sulfur cap.
---------------------------------------------------------------------------

    The additional quality control testing at the terminal level needed
to ensure compliance with the 15 ppm sulfur cap would be the same
during the initial years as after the requirements are fully
implemented. We estimate that the cost of this additional testing would
be as we projected in the proposal, 0.002 cent per gallon of highway
diesel supplied (see the RIA to this rule).
    We believe that there will not be a significant increase in the
volume of highway diesel fuel discovered to exceed the sulfur standard
downstream of the refinery as a result of today's rule. We believe this
will be the case both during the initial years and after the sulfur
requirements are fully implemented. We anticipate that distributors
will quickly optimize their practices to avoid sulfur contamination. We
also anticipate that distributors will gain some experience in reducing
sulfur contamination in the distribution system through complying with
the recently finalized Tier 2 low sulfur gasoline requirements (65 FR
6698, February 10, 2000). While outside the scope of this final rule,
it is worth pointing out that potential difficulties in distributing 15
ppm diesel fuel would be lessened if the sulfur content of nonroad
diesel fuel is reduced by a future rulemaking (as discussed in Section
8). We anticipate that the batches of highway diesel fuel that are
discovered to exceed the 15 ppm sulfur cap will be coped with as
follows:
--When possible, by blending highway diesel fuel that is below the 15
ppm cap with the out-of-specification batch to bring the resulting
mixture into compliance. This practice will be more difficult than it
is currently because the amount of fuel needed to blend the out-of-
specification batch into compliance may increase. However, we expect it
to continue to be the method of choice for handling out-of-
specification highway diesel whenever possible.
--By downgrading the batch either to nonroad diesel fuel or to 500 ppm
highway diesel during the initial years.
--By reprocessing the batch to meet the 15 ppm cap, but only in those
infrequent instances where the previous options do not exist.
    We do not believe that the cost of handling out-of specification
highway diesel batches will increase significantly as a result of
today's action.
    Tank truck, tank wagon, and barge operators may need to more
carefully and consistently observe current industry practices to limit
contamination in some situations. However, these situations are more
the exception than the rule and are of a limited nature. Consequently,
we believe that this can be accomplished at an insignificant cost.
Additional considerations exist for distributors during the initial
years as discussed in the following section.
    Please refer to the Response to Comments Document for an evaluation
of the comments received on the increase in fuel distribution costs
associated with today's rule, and to the RIA for a detailed discussion
of the way in which we derived the our cost estimates.
b. Distribution Costs During the Initial Years
    The factors that cause distribution costs to differ during the
initial years include:

--Having a lesser volume of 15 ppm diesel fuel in the system reduces
the costs associated with distributing 15 ppm fuel.
--Having an additional grade of highway diesel fuel in the system (500
ppm) creates additional pipeline interface volumes, and additional
product downgrade costs.
--The need for additional equipment to handle an additional grade leads
to additional costs that must be accounted for during the initial
years.
--Having 500 ppm highway diesel fuel in the system allows some
opportunity for the pipeline interface volumes associated with the
shipment of 15 ppm fuel and jet fuel to be downgraded to 500 ppm diesel
fuel rather than nonroad diesel fuel. This will reduce the cost
associated with downgrading the subject interface volumes.

    In calculating the distribution costs for the initial years of the
program, we estimated that 60 percent of the 15 ppm highway diesel fuel
shipped by pipeline will be carried in pipelines that choose not to
carry 500 ppm diesel fuel. We estimated that the remaining 40 percent
of 15 ppm highway diesel fuel shipped by pipeline would be carried in
pipelines that carry 500 ppm as well as nonroad diesel fuel. For the
sake of simplicity and to allow a comparison with distribution costs
when the program is fully implemented, the distribution costs during
the initial years as discussed below are expressed in terms of the
total volume of highway diesel fuel supplied. This includes 500 ppm as
well as 15 ppm highway diesel fuel.
    For the reasons outlined above, the following costs, which are also
present under the fully implemented sulfur program, were adjusted to
reflect the unique conditions during the initial years. During the
initial years, the cost of distributing the additional volume of
highway diesel fuel needed to compensate for lower energy density of 15
ppm sulfur fuel is estimated at 0.14 cents per gallon of highway diesel
fuel supplied. The cost of the increased volume of highway diesel fuel
that must be downgraded to a lower-value product is estimated at 0.1
cents per gallon of highway diesel supplied. We estimate that during
the initial years of the program the increase in the cost of
downgrading the existing highway diesel interface would be 0.08 cents
per gallon of highway diesel fuel supplied. During the initial years,
the cost of downgrading the interface between pipeline shipments of jet
fuel and highway diesel fuel is estimated to increase by 0.03 cents per
gallon of highway diesel fuel supplied. The cost of the additional
tanks required at terminals to handle this interface is estimated at
0.009 cents per gallon of highway diesel fuel supplied. This tank cost
was amortized over the period of the four-year transition period. We
estimate that the miscellaneous costs associated with optimizing the
distribution system to limit sulfur contamination would be 0.027 cents
per gallon of highway diesel fuel supplied (on average) during the
initial period (2006--2010).
    As noted in the previous section, the additional quality control
testing at the terminal level needed to ensure compliance with the 15
ppm sulfur cap would be the same during the initial years and after the
requirements are fully implemented. We estimate that the cost of this
additional testing would be as we projected in the proposal, 0.002 cent
per gallon of highway diesel supplied.
    The cost during the initial years of downgrading the additional
interface volumes associated with having two grades of highway diesel
fuel in part of the pipeline system is estimated at 0.004 cents per
gallon of highway diesel full supplied
    The most substantial costs associated with the provisions during
the initial years of the program are due to the need to handle an
additional grade of highway diesel fuel in the distribution

[[Page 5099]]

system. Under the final program, the production of 500 ppm sulfur fuel
will be much less than that of 15 ppm fuel. At the same time, most of
the diesel vehicle fleet can burn 500 ppm fuel during the initial
period. Because of its greater volume and the need to distribute it
everywhere in the country, we expect that essentially all pipelines and
terminals will handle 15 ppm fuel. In contrast, distribution of 500 ppm
fuel will concentrate on those areas nearest the refineries producing
that fuel, plus a few major pipelines serving major refining areas.
    Regarding distribution to the final user, we expect that nearly all
truck stops in areas where 500 ppm fuel is available will invest in
piping and tankage to handle a second fuel. Because of the significant
expense involved in adding a second tank, in these areas, we expect
service stations will only carry one fuel or the other, as market
demands dictate. Likewise, we expect that centrally fueled fleets and
card locks will only handle 15 ppm fuel. Under this scenario, sales of
500 ppm fuel are limited to only those vehicles which refuel at truck
stops and service stations. This is somewhat conservative since some
centrally fueled fleets may have the flexibility to inexpensively
handle two fuels. Likewise, some card locks in a given area may be able
to carry 15 ppm fuel and others 500 ppm fuel and still serve their
clients at little extra cost. Still, given the above assumptions, we
project that the 500 ppm fuel will have to be distributed to areas
representing about 50 percent of the national diesel fuel demand. Also,
as the fleet turns over to 2007 and later vehicles during the initial
years, the amount of 500 ppm fuel produced will gradually decrease from
just over 20 percent in 2007 to about 16 percent in 2010.
    The tankage cost at refineries, terminals, pipelines and bulk
plants handling both fuels is estimated to be $0.81 billion. The cost
for truck stops to handle two fuels is roughly $0.24 billion, for a
total cost of $1.05 billion. Amortized over all of the highway diesel
fuel supplied during the initial four-years (15 ppm and 500 ppm) at 7
percent per annum, the cost per gallon is 0.7 cents.
5. Benefits of Low-Sulfur Diesel Fuel for the Existing Diesel Fleet
    We estimate that the low-sulfur diesel fuel will provide additional
benefits to the existing heavy-duty vehicle fleet as soon as the fuel
is introduced. We believe these benefits will offer significant cost
savings to the vehicle owner without the need for purchasing any new
technologies. The RIA has catalogued a variety of benefits from the
low-sulfur diesel fuel. These benefits are summarized in Table V.C-3.

 Table V.C-3.--Components Potentially Affected by Lower Sulfur Levels in
                               Diesel Fuel
------------------------------------------------------------------------
                                 Effect of lower     Potential impact on
     Affected components             sulfur             engine system
------------------------------------------------------------------------
Piston Rings................  Reduce corrosion      Extended engine life
                               wear.                 and less frequent
                                                     rebuilds.
Cylinder Liners.............  Reduce corrosion      Extended engine life
                               wear.                 and less frequent
                                                     rebuilds.
Oil Quality.................  Reduce deposits and   Reduce wear on
                               less need for         piston ring and
                               alkaline additives.   cylinder liner and
                                                     less frequent oil
                                                     changes.
Exhaust System (tailpipe)...  Reduces corrosion     Less frequent part
                               wear.                 replacement.
EGR.........................  Reduces corrosion     Less frequent part
                               wear.                 replacement.
------------------------------------------------------------------------

    The actual value of these benefits over the life of the vehicle
will depend upon the length of time that the vehicle operates on low-
sulfur diesel fuel and the degree to which vehicle operators change
engine maintenance patterns to take advantage of these benefits. For a
vehicle near the end of its life in 2007 the benefits will be quite
small. However for vehicles produced in the years immediately preceding
the introduction of low-sulfur fuel the savings will be substantial.
The RIA estimates that a heavy heavy-duty vehicle introduced into the
fleet in 2006 will realize savings of $610 over its life. This savings
could alternatively be expressed in terms of fuel costs as
approximately 1 cent per gallon as discussed in the RIA. These savings
will occur without additional new cost to the vehicle owner beyond the
incremental cost of the low-sulfur diesel fuel, although these savings
will require changes to existing maintenance schedules. Such changes
seem likely given the magnitude of the savings and the nature of the
regulated industry.

D. Aggregate Costs

    Using current data for the size and characteristics of the heavy-
duty vehicle fleet and making projections for the future, the diesel
per-engine, gasoline per-vehicle, and per-gallon fuel costs described
above can be used to estimate the total cost to the nation for the
emission standards in any year. Figure V.D-1 portrays the results of
these projections.190 All capital costs have been amortized.
---------------------------------------------------------------------------

    \190\ Figure V.E-1 is based on the amortized engine, vehicle and
fuel costs as described in the RIA. Actual capital investments,
particularly important for fuels, would occur prior to and during
the initial years of the program.
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BILLING CODE 6560-50-P

[[Page 5100]]

[GRAPHIC] [TIFF OMITTED] TR18JA01.006

BILLING CODE 6560-50-C

[[Continued on page 5101]]

[Federal Register: January 18, 2001 (Volume 66, Number 12)]
[Rules and Regulations]
[Page 5101-5150]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja01-18]

[[pp. 5101-5150]] Control of Air Pollution from New Motor Vehicles: Heavy-Duty
Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control
Requirements

[[Continued from page 5100]]

[[Page 5101]]

    As can be seen from the figure, the annual costs start out at less
than 1.0 billion dollars in year 2006 and increase during the initial
years to about $3.6 billion in 2010. Thereafter, total annualized costs
are projected to continue increasing due to the effects of projected
growth in engine sales and fuel consumption. The RIA provides further
detail regarding these cost projections.
    Future consumption of 15 ppm diesel fuel may be influenced by a
potential influx of diesel-powered cars and light trucks into the
light-duty fleet. At the present time, virtually all cars and light
trucks being sold are gasoline fueled. However, the possibility exists
that diesels will become more prevalent in the car and light-duty truck
fleet, since automotive companies have announced their desire to
increase their sales of diesel cars and light trucks. For the Tier 2
rulemaking, the Agency performed a sensitivity analysis using
A.D.Little's ``most likely'' increased growth scenario of diesel
penetration into the light-duty vehicle fleet which culminated in a 9
percent and 24 percent penetration of diesel vehicles in the LDV and
LDT markets, respectively, in 2015 (see Tier 2 RIA, Table III.A.-13).
Were this scenario to play out, the increased number of diesel-powered
cars and light-duty trucks would increase the societal costs (those
costs, in total, paid by consumers) for the higher priced diesel fuel
because more diesel fuel would be consumed. However, were more diesel
vehicles to penetrate the light-duty fleet, less gasoline would be
consumed than was estimated in our Tier 2 cost analysis. Also, diesel
vehicles tend to get higher fuel economy. As a result, the effect of
increased dieselization of the light-duty fleet will likely have little
or no impact on the aggregate costs estimated for the standards being
finalized in today's action.

E. Cost Effectiveness

    One tool that can be used to assess the value of new standards for
heavy-duty vehicles and engines is cost effectiveness, in which the
costs incurred to reach the standards are compared to the mass of
emission reductions. This analysis results in the calculation of a $/
ton value, the purpose of which is to show that the reductions from the
engine and fuel controls being finalized today are cost effective, in
comparison to alternative means of control. This analysis involves a
comparison of our program not only to past measures, but also to other
potential future measures that could be implemented. Both EPA and
States have already adopted numerous control measures, and remaining
measures tend to be more expensive than those previously employed. As
we and States tend to employ the most cost effective available measures
first, more expensive ones must be adopted to achieve further emission
reductions.
    Comments we received in response to our Notice of Proposed
Rulemaking on the subject of our cost effectiveness analysis are
addressed in the Response to Comments Document.
1. What Is the Cost Effectiveness of This Program?
    We have calculated the cost-effectiveness of our diesel engine/
gasoline vehicle/diesel sulfur standards based on two different
approaches. The first considers the net present value of all costs
incurred and emission reductions generated over the life of a single
vehicle meeting our standards. This per-vehicle approach focuses on the
cost-effectiveness of the program from the point of view of the
vehicles and engines which will be used to meet the new requirements.
However, the per-vehicle approach does not capture all of the costs or
emission reductions from our diesel engine/gasoline vehicle/diesel
sulfur program since it does not account for the use of 15 ppm diesel
fuel in current diesel engines. Therefore, we have also calculated a
30-year net present value cost-effectiveness using the net present
value of costs and emission reductions for all in-use vehicles over a
30-year time frame. The baseline or point of comparison for this
evaluation is the previous set of engine, vehicle, and diesel sulfur
standards (in other words, the applicable 2006 model year standards).
    As described earlier in the discussion of the cost of this program,
the cost of complying with the new standards will decline over time as
manufacturing costs are reduced and amortized capital investments are
recovered. To show the effect of declining cost in the per-vehicle
cost-effectiveness analysis, we have developed both near term and long
term cost-effectiveness values. More specifically, these correspond to
vehicles sold in years one and six of the vehicle and fuel programs.
Chapter VI of the RIA contains a full description of this analysis, and
you should look in that document for more details of the results
summarized here.
    The 30-year net present value approach to calculating the cost-
effectiveness of our program involves the net present value of all
nationwide emission reductions and costs for a 30 year period beginning
with the start of the diesel fuel sulfur program and introduction of
model year 2007 vehicles and engines in year 2006. This 30-year
timeframe captures both the early period of the program when very few
vehicles that meet our standards will be in the fleet, and the later
period when essentially all vehicles in the fleet will meet the new
standards. We have calculated the 30-year net present value cost-
effectiveness using the net present value of the nationwide emission
reductions and costs for each calender year. These emission reductions
and costs are given for every calendar year in the RIA, in addition to
details of the methodology we used to calculated the 30-year net
present value cost-effectiveness.
    Our per-vehicle and 30-year net present value cost-effectiveness
values are given in Tables V.E-1 and V.E-2. Table V.E-1 summarizes the
per-vehicle, net present value cost-effectiveness results for our
diesel engine/gasoline vehicle/diesel sulfur standards using sales
weighted averages of the costs (both near term and long term) and
emission reductions of the various vehicle and engine classes affected.
Table V.E-2 provides the same information from the program 30-year net
present value perspective. It is based on the net present value of the
30 year stream of vehicle and fuel costs and NMHC+ NOX and
PM emission reductions, resulting in the 30-year net present value
cost-effectiveness. Diesel fuel costs applicable to diesel engines have
been divided equally between the adsorber and trap, since 15 ppm diesel
fuel is intended to enable all technologies to meet our standards. In
addition, since the trap produces reductions in PM and also operates as
an enabling device for the NOX adsorber, we have divided the
total trap costs equally between compliance with the PM standard and
compliance with the NOX and NMHC standards.
    Tables V.E-1 and V.E-2 also display cost-effectiveness values based
on two approaches to account for the reductions in SO2
emissions associated with the reduction in diesel fuel sulfur. While
these reductions are not central to the program and are therefore not
displayed with their own cost-effectiveness, they do represent real
emission reductions due to our program. The first set of cost-
effectiveness numbers in the tables simply ignores these reductions and
bases the cost-effectiveness on only the NOX, NMHC, and PM
emission reductions from our program. The second set accounts for these
ancillary reductions by crediting some of the cost of the program to
SO2. The amount of cost allocated to SO2 is based
on the cost-effectiveness of SO2

[[Page 5102]]

emission reductions that could be obtained from alternative, potential
future EPA programs. The SO2 credit was applied only to the
PM calculation, since SO2 reductions are primarily a means
to reduce ambient PM concentrations.

 Table V.E-1.--Per-Engine a Cost Effectiveness of the Standards for 2007
                          and Later MY Vehicles
------------------------------------------------------------------------
                                                             Discounted
                                              Discounted   lifetime cost
                Pollutants                  lifetime cost  effectiveness
                                            effectiveness   per ton with
                                               per ton      SO2 credit b
------------------------------------------------------------------------
Near-term costs:
  NOX+NMHC................................        $2,125         $2,125
  PM......................................        14,237          7,599
Long-term costs:
  NOX+NMHC................................         1,621          1,621
  PM......................................        11,340         4,701
------------------------------------------------------------------------
a As described above, per-engine cost effectiveness does not include any
  costs or benefits from the existing, pre-control, fleet of vehicles
  that would use the 15 ppm diesel fuel.
b $446 credited to SO2 (at $4800/ton) for PM cost effectiveness.

   Table V.E-2.--30-Year Net Present Value a Cost Effectiveness of the
                                Standards
------------------------------------------------------------------------
                                                              30-year
                                               30-year      n.p.v. cost
                                             n.p.v. cost   effectiveness
                                            effectiveness   per ton with
                                               per ton      SO2 credit b
------------------------------------------------------------------------
NOX+NMHC..................................        $2,149         $2,149
PM........................................        13,607         4,195
------------------------------------------------------------------------
a This cost effectiveness methodology reflects the total fuel costs
  incurred in the early years of the program when the fleet is
  transitioning from pre-control to post-control diesel vehicles. In
  2007 10% of highway diesel fuel is anticipated to be consumed by 2007
  MY vehicles. By 2012 this increases to >50% for 2007 and later MY
  vehicles.
b $7.1 billion credited to SO2 (at $4800/ton).

2. Comparison With Other Means of Reducing Emissions
    In comparison with other mobile source control programs, we believe
that our program represents a cost effective strategy for generating
substantial NOX, NMHC, and PM reductions. This can be seen
by comparing the cost effectiveness of today's program with a number of
mobile source standards that EPA has adopted in the past. Table V.E-3
summarizes the cost effectiveness of several past EPA actions for
NOX+ NMHC. Table V.E-4 summarizes the cost effectiveness of
several past EPA actions for PM.

 Table V.E-3.--Cost Effectiveness of Previous Mobile Source Programs for
                                NOX+NMHC
------------------------------------------------------------------------
                        Program                               $/ton
------------------------------------------------------------------------
Tier 2 vehicle/gasoline sulfur.........................      1,340-2,260
2004 Highway HD diesel.................................          212-414
Off-highway diesel engine..............................          425-675
Tier 1 vehicle.........................................      2,054-2,792
NLEV...................................................            1,930
Marine SI engines......................................      1,171-1,846
On-board diagnostics...................................            2,313
Marine CI engines......................................          24-176
------------------------------------------------------------------------
Note: Costs adjusted to 1999 dollars.

 Table V.E-4.--Cost Effectiveness of Previous Mobile Source Programs for
                                   PM
------------------------------------------------------------------------
                       Program                               $/ton
------------------------------------------------------------------------
Marine CI engines....................................          5222-3881
1996 urban bus.......................................      12,264-19,622
Urban bus retrofit/rebuild...........................             30,251
1994 highway HD diesel...............................     20,900-24,467
------------------------------------------------------------------------
Note: Costs adjusted to 1999 dollars.

    We can see from these tables that the cost effectiveness of our
diesel engine/gasoline vehicle/diesel sulfur standards falls within the
range of these other programs for both NOX+NMHC and PM. Our
program overlaps the range of the recently promulgated standards for
Tier 2 light-duty vehicles and gasoline sulfur shown in Table V.E-3.
Our program also overlaps the cost-effectiveness of past programs for
PM. It is true that some previous programs have been more cost
efficient than the program we are finalizing today. However, it should
be expected that the next generation of standards will be more
expensive than the last, since the least costly means for reducing
emissions is generally pursued first.
    In evaluating the cost effectiveness of our diesel engine/gasoline
vehicle/diesel sulfur program, we also considered whether the new
standards are cost effective in comparison with possible stationary
source controls. In the context of the Agency's rulemaking which would
have revised the ozone and PM NAAQS,191 the Agency compiled
a list of additional known technologies that could be considered in
devising new emission reductions strategies.192 Through this
broad review, over 50 technologies were identified that could reduce
NOX, VOC, or PM. The cost effectiveness of these
technologies averaged approximately $5,000/ton for VOC, $13,000/ton for
NOX, and $40,000/ton for PM. Although a $10,000/ton limit
was actually used in the air quality analysis presented in the NAAQS
revisions rule, these values clearly indicate that, not only are future
emission control strategies likely to be more expensive (less cost
effective) than past strategies, but the cost effectiveness of our
program falls well below the average of those choices, and is near the
lower end of the range of potential future strategies.
---------------------------------------------------------------------------

    \191\ This rulemaking was remanded to EPA by the D.C. Circuit
Court on May 14, 1999. However, the analyses completed in support of
that rulemaking are still relevant, since they were designed to
investigate the cost effectiveness of a wide variety of potential
future emission control strategies. An appeal is currently pending
before the U.S. Supreme Court.
    \192\ Regulatory Impact Analyses for the Particulate Matter and
Ozone National Ambient Air Quality Standards and Proposed Regional
Haze Rule,'' Appendix B, ``Summary of control measures in the PM,
regional haze, and ozone partial attainment analyses,'' Innovative
Strategies and Economics Group, Office of Air Quality Planning and
Standards, U.S. Environmental Protection Agency, Research Triangle
Park, NC, July 17, 1997.
---------------------------------------------------------------------------

    In summary, we believe that the weight of the evidence from
alternative means of providing substantial NOX + NMHC and PM
emission reductions indicates that our diesel engine/gasoline vehicle/
diesel sulfur program is cost effective relative to other means of
achieving air quality improvements. We believe this is true from the
perspective of other mobile source control programs and from the
perspective of other stationary source technologies that might be
considered.

F. Does the Value of the Benefits Outweigh the Cost of the Standards?

    While EPA uses relative cost-effectiveness as the principal
economic policy criterion for these standards, further insight
regarding the merits of the standards can be provided by benefit-cost
analysis. The purpose of this section is to summarize the methods we
used and results we obtained in conducting an analysis of the economic
benefits of the HD Engine/Diesel Fuel program, and to compare these
economic benefits with the estimated costs of the rule. In summary, the
results of our analysis indicate that the economic benefits of the HD
Engine/Diesel Fuel standards will exceed the costs of meeting the
standards. The annual estimated benefits we were able to quantify were
$70.4 billion (1999$).
1. What Was Our Overall Approach to the Benefit-Cost Analysis?
    The basic question we sought to answer in the benefit-cost analysis
was, ``What are the net yearly economic benefits to society of the
reduction in mobile source emissions likely to be

[[Page 5103]]

achieved by the final HD Engine/Diesel Fuel program?'' In designing an
analysis to address this question, we selected a future year for
analysis (2030) that is representative of full-implementation of the
program (i.e., when the US heavy-duty truck fleet is composed of
virtually only compliant heavy-duty vehicles). We also adopted an
analytical structure and sequence similar to that used in the ``section
812 studies'' to estimate the total benefits and costs of the full
Clean Air Act.193 Moreover, we used many of the same models
and assumptions used in the section 812 studies as well as other
Regulatory Impact Analyses (RIAs) prepared by the Office of Air and
Radiation. One difference from previous RIAs, however, is that for
particulate matter air quality modeling we used the Regulatory Modeling
System for Aerosols and Deposition (REMSAD) model. This model was used
in the most recent section 812 study to model air quality in the West.
By adopting the major design elements, models, and assumptions
developed for the section 812 studies and other RIAs, we have largely
relied on methods which have already received extensive review by the
independent Science Advisory Board (SAB), by the public, and by other
federal agencies.
---------------------------------------------------------------------------

    \193\ The section 812 studies include: (1) US EPA, Report to
Congress: The Benefits and Costs of the Clean Air Act, 1970 to 1990,
October 1997 (also known as the ``Section 812 Retrospective
Report''); and (2) the first in the ongoing series of prospective
studies estimating the total costs and benefits of the Clean Air Act
(see EPA report number: EPA-410-R-99-001, November 1999).
---------------------------------------------------------------------------

2. What Are the Significant Limitations of the Benefit-Cost Analysis?
    Every benefit-cost analysis examining the potential effects of a
change in environmental protection requirements is limited to some
extent by data gaps, limitations in model capabilities (such as
geographic coverage), and uncertainties in the underlying scientific
and economic studies used to configure the benefit and cost models.
Deficiencies in the scientific literature often result in the inability
to estimate changes in health and environmental effects, such as
potential increases in premature mortality associated with increased
exposure to carbon monoxide. Deficiencies in the economics literature
often result in the inability to assign economic values even to those
health and environmental outcomes which can be quantified. While these
general uncertainties in the underlying scientific and economics
literatures are discussed in detail in the RIA and its supporting
documents and references, the key uncertainties which have a bearing on
the results of the benefit-cost analysis of today's action are the
following:
     The exclusion of potentially significant benefit
categories (e.g., health and ecological benefits of reduction in
hazardous air pollutants emissions);
     Errors in measurement and projection for variables such as
population growth;
     Uncertainties in the estimation of future year emissions
inventories and air quality;
     Uncertainties associated with the extrapolation of air
quality monitoring data to some unmonitored areas required to better
capture the effects of the standards on the affected population;
     Variability in the estimated relationships of health and
welfare effects to changes in pollutant concentrations; and
     Uncertainties associated with the effect of potential
future actions to limit emissions.
    Despite these uncertainties, we believe the benefit-cost analysis
provides a reasonable indication of the expected economic benefits of
the HD Engine/Diesel Fuel program in 2030 under a set of assumptions.
For the final HD Engine/Diesel Fuel benefit analysis, we adopt an
approach similar to the Tier 2/Gasoline Sulfur RIA and the section 812
study. We first present an estimate for a primary set of benefit
endpoints followed by a presentation of alternative calculations of key
health and welfare endpoints to characterize uncertainty in this
primary set.
    One key area of uncertainty is the value of a statistical life
(VSL) for risk reductions in mortality. The adoption of a value for the
projected reduction in the risk of premature mortality is the subject
of continuing discussion within the economic and public policy analysis
community. There is general agreement that the value to an individual
of a reduction in mortality risk tends to vary based on several
factors, including the age of the individual, the type of risk, the
level of control the individual has over the risk, the individual's
attitude toward risk, and the health status of the individual. Age in
particular may be an important difference between populations affected
by air pollution mortality risks and populations affected by workplace
risks. Premature mortality risks from air pollution tend to affect the
very old more than the working age population. As such, any adjustments
to VSL for age differences may have a large impact on total benefits.
However, EPA prefers not to draw distinctions in the monetary value
assigned to the lives saved even if they differ in age, health status,
socioeconomic status, gender or other characteristic of the adult
population.
    In the recent Tier 2/Gasoline Sulfur benefits analysis, we employed
a value of statistical life years (VSLY) approach developed for the
Section 812 studies in exploring the impact of age on VSL. However,
since these earlier analyses were completed, the SAB Environmental
Economics Advisory Committee (EEAC) issued a new advisory report which
identifies significant additional limitations in this method.
Specifically, the SAB EEAC notes that ``inferring the value of a
statistical life year, however, requires assumptions about the discount
rate and about the time path of expected utility of consumption'' (EPA-
SAB-EEAC-00-013). They also note that ``the theoretically appropriate
method is to calculate [willingness to pay (WTP)] for individuals whose
ages correspond to those of the affected population, and that it is
preferable to base these calculations on empirical estimates of WTP by
age.''
    SAB advised that the EPA ``continue to use a wage-risk-based VSL as
its primary estimate, including appropriate sensitivity analyses to
reflect the uncertainty of these estimates,'' and that ``the only risk
characteristic for which adjustments to the VSL can be made is the
timing of the risk'' (EPA-SAB-EEAC-00-013). In developing our primary
estimate of the benefits of premature mortality reductions, we have
appropriately discounted over the lag period between exposure and
premature mortality. However, an empirical basis that meets the SAB's
standards of reliability for adjusting the current $6 million VSL for
many of these factors does not yet exist. A discussion of these factors
is contained in the RIA and supporting documents. EPA recognizes the
need for additional research by the scientific community to develop
additional empirical support for adjustments to VSL for the factors
mentioned above.
    In accordance with the SAB advice, we use the VSL in our primary
estimate and present alternative calculations of adjustment for age and
other factors. Specifically, several studies conducted by Jones-Lee, et
al. (1985, 1989, 1993) found a significant effect of age on the value
of mortality risk reductions expressed by citizens in the United
Kingdom. The results are supported by a recent analysis which asked
samples of Canadian residents their values for reductions in mortality
risk (Krupnick et al., 2000). As alternative calculations, we apply the
ratios based on the Jones-

[[Page 5104]]

Lee, et al. (1989, 1993) studies to the estimated premature mortalities
within the appropriate age groups to provide alternative age-adjusted
estimates of the value of avoided premature mortalities.
    In the same way, the presentation of the other alternative
calculations for certain endpoints seeks to demonstrate how much the
overall benefit estimate might vary based on the value EPA has given to
a parameter (which has uncertainty associated with it) underlying the
estimates for human health and environmental effect incidence and the
economic valuation of those effects. These alternative calculations
represent conditions that might occur; however, EPA has selected the
best values supported by current scientific literature for use in the
primary estimate. The alternate calculations include the following:
     Estimating PM-related premature mortality benefits based
on different concentration-response (C-R) function estimates;
     Value of avoided premature mortality incidences based on
VSLY;
     Consideration of reversals in chronic bronchitis treated
as lowest severity cases;
     Estimate of ozone-related chronic asthma;194
---------------------------------------------------------------------------

    \194\ McDonnell, W.F., D.E. Abbey, N.Nishino, M.D. Lebowitz.
Long-term Ambient Ozone Concentration and the Incidence of Asthma in
Nonsmoking Adults: The Ahsmog Study. Environmental Research. A:80,
110-121. 1999.
---------------------------------------------------------------------------

     Value of visibility changes in all Federal Class I areas;
     Value of visibility changes in US residential areas;
     Value of reduced household soiling damage;
     Alternative sensitivities of crops to ozone exposure from
National Crop Loss Assessment Network estimates; and
     Avoided costs of reducing nitrogen loadings in three case
study eastern estuaries and nine other eastern estuaries.
    Unfortunately, it is not possible to combine all of the assumptions
used in the alternate calculations to arrive at different total benefit
estimates because, it is highly unlikely that the selected combination
of alternative values would all occur simultaneously. Therefore, it is
better to consider each alternative calculation individually to assess
the sensitivity of total benefits to individual assumptions. For
instance, estimating PM-related premature mortality benefits based on
different concentration-response functions may be an important
uncertainty. Specifically, the Harvard Six Cities study by Dockery et
al. (1993) of the relationship between PM concentration and premature
mortality is a plausible alternative to the American Cancer Society
(ACS)/Krewski et al. (2000) study used for the primary estimate of
benefits. The SAB has noted that ``the study had better monitoring with
less measurement error than did most other studies'' (EPA-SAB-COUNCIL-
ADV-99-012, 1999). However, the Dockery et al. study had a more limited
geographic scope (and a smaller study population) than the ACS/Krewski
et al. study and the ACS/Krewski et al. study appears more likely to
mitigate a key source of potential confounding. The Dockery et al.
study did cover a broader age category (25 and older compared to 30 and
older in the ACS study) and followed the cohort for a longer period (15
years compared to 8 years in the ACS study). For these reasons, the
Dockery et al. study is considered to be a plausible alternative
estimate of the avoided premature mortality incidences associated with
this final rule. The alternative estimate for mortality can be
substituted for the valuation component in our primary estimate of
mortality benefits to observe how the net benefits of the program may
be influenced by this assumption.
    In addition to the estimate for the primary set of endpoints and
alternative calculations of benefits, our RIA also presents an appendix
with supplemental benefit estimates and sensitivity analyses of other
key parameters in the benefits analysis that have greater uncertainty
surrounding them due to limitations in the scientific literature. The
following sensitivity analyses include alternative income elasticities
of willingness to pay;195 alternative discount
rates;196 alternative PM exposure lags preceding mortality;
threshold analysis for PM mortality;197 and other analyses.
---------------------------------------------------------------------------

    \195\ Income elasticity of WTP characterizes the relationship
between changes in real income and changes in the WTP for a
particular commodity. Income elasticity of WTP is measured as the
percentage change in WTP for a one percent change in real income.
For example, an income elasticity of 0.5 implies that a 10 percent
increase in real income would lead to a 5 percent increase in WTP.
    \196\ The choice of a discount rate, and its associated
conceptual basis, is a topic of ongoing discussion within the
federal government. EPA adopted a 3 percent discount rate for its
primary analysis in this case to reflect reliance on a ``social rate
of time preference'' discounting concept. We have also calculated
benefits and costs using a 7 percent rate consistent with an
``opportunity cost of capital'' concept to reflect the time value of
resources directed to meet regulatory requirements. In this case,
the benefit and cost estimates were not significantly affected by
the choice of discount rate. Further discussion of this topic
appears in EPA's Guidelines for Preparing Economic Analyses (in
press).
    \197\ The SAB has advised EPA that there is no current
scientific basis for selecting a threshold for PM-related health
effects considered in this analysis (EPA-SAB-Council-ADV-99-012,
1999).
---------------------------------------------------------------------------

    Even with our efforts to fully disclose the uncertainty in our
estimate, this uncertainty presentation method does not provide a
definitive or complete picture of the true range of monetized benefits
estimates. The set of alternative calculations is only representative
of those benefits that we were able to quantify and monetize.
3. How Has the Benefit-Cost Analysis Changed From Proposal?
    No quantitative benefits analysis was conducted for the proposal,
although we outlined the methodology to be used for the final rule
analysis. We summarized and responded to public comment regarding the
methods in the Summary and Analysis of Comment document. Moreover, we
have improved the methods that were presented at proposal. For the
benefits assessment for the final rule, EPA updated the C-R functions
for health endpoints (e.g., Krewski et al., 2000), updated the
emissions inventory, and presented air quality information regarding
urban and residential visibility. For the air quality inputs to the
benefits analysis, we used the REMSAD model which offers improved
chemistry, resolution, and other capabilities over the Source-Receptor
Matrix discussed in the proposal. The model's performance, including
uncertainties, are discussed elsewhere in the RIA and technical support
documents. In addition, we also updated our presentations of monetary
benefits of the reduced premature mortality based on advice from the
SAB.198 All of the changes made since the proposal serve to
improve the analysis.
---------------------------------------------------------------------------

    \198\ Full documentation of the SAB advice can be found at their
website (www.epa.gov/sab) or in the docket under the following
reference: EPA-SAB-EEAC-00-013, July 27, 2000. An SAB Report on
EPA's White Paper Valuing the Benefits of Fatal Cancer Risk
Reduction.
---------------------------------------------------------------------------

4. What Are the Benefits in the Years Leading up to 2030?
    The HD Engine/Diesel Fuel program has various cost and emission
related components, as described earlier in this section. These
components would begin at various times and in some cases would phase
in over time. This means that during the early years of the program
there would not be a consistent match between cost and benefits. This
is especially true for the vehicle control portions of the program,
where the full vehicle cost would be incurred at the time of vehicle
purchase, while the fuel cost along with the emission reductions and
benefits resulting from all these costs would occur throughout the
lifetime of the vehicle. Because of this

[[Page 5105]]

inconsistency and our desire to more appropriately match the costs and
emission reductions of our program, our analysis uses a future year
when the fleet is nearly fully turned over (2030).
    In the years before 2030, the benefits from the HD Engine/Diesel
Fuel program will be less than those estimated here, because the
compliant heavy-duty fleet will not be fully phased in. Annualized
costs, on the other hand, reach nearly their full value within a few
years of program initiation (once all phase-ins are completed). This
can be seen by comparing the anticipated emission reductions described
earlier in section II.D with the aggregate costs of section V.E. Thus,
a benefit-cost ratio computed for the earlier years of the program
would be expected to be lower than a ratio based on our 2030 analysis.
On the other hand, since the estimated benefits are more than ten times
the costs in 2030, the emission reduction and cost trends suggest that
it is likely that annual benefits would exceed costs from a time early
in the life of the program.199
---------------------------------------------------------------------------

    \199\ While emission reduction trends give a general indication
of the likely trends in the benefits, there are sufficient non-
linearities and interactions among pollutants in the atmospheric
chemistry used in our modeling that it is not possible to attempt a
quantitative estimate of the benefits simply from changes in the
inventories in years that were not fully modeled.
---------------------------------------------------------------------------

    Furthermore, to the extent that a lower ratio of benefits to costs
early in the program is the result of the mismatch of costs and
benefits in time, a simple analysis of an individual year would be
misleading. A more appropriate means of capturing the impacts of timing
differences in benefits and costs would be to produce a net present
value comparison of the costs and benefits over some period of years
(an approach analogous to the aggregate cost effectiveness presented in
section V.F). Unfortunately, while this is relatively straight-forward
for the costs, it is currently not feasible to do a multi-year analysis
of the benefits as this would require a significant amount of air
quality modeling to capture each year.
5. What Were the Results of the Benefit-Cost Analysis?
    The benefit-cost analysis for the HD Engine/Diesel Fuel program
reflects a single year ``snapshot'' of the yearly benefits and costs
expected to be realized once the standards have been fully implemented
and non-compliant vehicles have all been retired. As discussed in
section V.F-4, the benefit-cost ratio would be expected to be lower
than the results calculated here in the early years of the program.
    Table V.F-1 presents EPA's primary estimate of the benefits of the
rule, both the estimated reductions in incidences and the estimated
economic value of those incidence reductions. In interpreting the
results, it is important to keep in mind the limited set of effects we
are able to monetize. Specifically, the table lists the avoided
incidences of individual health and environmental effects, the
pollutant associated with each of these endpoints, and the estimated
economic value of those avoided incidences. For several environmental
effects such as visibility, the concept of incidences or cases does not
apply as it does for health effects; thus, for these categories
economic values are applied directly to air quality conditions. As the
table indicates, we estimate that the HD Engine/Diesel Fuel program
will produce about 5,500 fewer cases of chronic bronchitis, and we also
see significant improvements in minor restricted activity days (with an
estimated 9,838,500 fewer cases). Our estimate also incorporates
significant reductions in impacts on children's health, showing
reductions of 17,600 cases of acute bronchitis, 192,900 fewer cases of
lower respiratory symptoms, and 193,400 fewer cases of upper
respiratory symptoms in asthmatic children each year. In addition,
today's rule is estimated to reduce 361,400 incidents of asthma attacks
each year in asthmatics of all ages from reduced exposure to ozone and
particles. Asthma is the most prevalent chronic disease among children
and currently affects over seven percent of children under 18 years of
age.
    Total monetized benefits, however, are driven primarily by the
estimated 8,300 fewer premature fatalities each year, which account for
almost 89 percent of total benefits. We assume for this analysis that
some of the incidences of premature mortality related to PM exposures
occur in a distributed fashion over the five years following exposure.
To take this into account in the valuation of reductions in premature
mortality, we apply an annual three percent discount rate to the value
of premature mortality occurring in years after our analysis year.

 Table V.F-1.--EPA Primary Estimate of the Annual Quantified and Monetized Benefits Associated With Improved Air
                         Quality Resulting From the HD Engine/Diesel Fuel Rule in 2030 A
----------------------------------------------------------------------------------------------------------------
                                                                           Avoided incidence  Monetary  benefits
                  Endpoint                            Pollutant            A C  (cases/year)    A D  (millions
                                                                                                    1999$)
----------------------------------------------------------------------------------------------------------------
Premature mortality B (adults, ages 30 and   PM B.......................               8,300             $62,580
 over).
Chronic bronchitis.........................  PM.........................               5,500              $2,430
Hospital Admissions from Respiratory Causes  Ozone and PM...............               4,100                 $60
Hospital Admissions from Cardiovascular      Ozone and PM...............               3,000                 $50
 Causes.
Emergency Room Visits for Asthma...........  Ozone and PM...............               2,400                  $5
Acute bronchitis (children, ages 8-12).....  PM.........................              17,600                  $5
Upper respiratory symptoms (asthmatic        PM.........................             193,400                 $10
 children, ages 9-11).
Lower respiratory symptoms (children, ages   PM.........................             192,900                  $5
 7-14).
Asthma attacks (asthmatics, all ages) E....  Ozone and PM...............             361,400                  Ba
Work loss days (adults, ages 18-65)........  PM.........................           1,539,400                $160
Minor restricted activity days (adults,      Ozone and PM...............           9,838,500                $530
 ages 18-65).
(adjusted to exclude asthma attacks).......
Other health effects E.....................  Ozone, PM, CO, NMHC........         U1+U2+U3+U4         B1+B2+B3+B4
Decreased worker productivity..............  Ozone......................  ..................                $140
Recreational visibility (86 Class I Areas).  PM.........................  ..................              $3,260
Residential visibility.....................  PM.........................  ..................                  B5
Household soiling damage...................  PM.........................  ..................                  B6
Materials damage...........................  PM.........................  ..................                  B7
Nitrogen Deposition to Estuaries...........  Nitrogen...................  ..................                  B8
Premature mortality B (adults, ages 30 and   PM B.......................               8,300             $62,580
 over).

[[Page 5106]]

Chronic bronchitis.........................  PM.........................               5,500              $2,430
Hospital Admissions from Respiratory Causes  Ozone and PM...............               4,100                 $60
Hospital Admissions from Cardiovascular      Ozone and PM...............               3,000                 $50
 Causes.
Emergency Room Visits for Asthma...........  Ozone and PM...............               2,400                  $5
Acute bronchitis (children, ages 8-12).....  PM.........................              17,600                  $5
Upper respiratory symptoms (asthmatic        PM.........................             193,400                 $10
 children, ages 9-11).
Lower respiratory symptoms (children, ages   PM.........................             192,900                  $5
 7-14).
Asthma attacks (asthmatics, all ages) E....  Ozone and PM...............             361,400                  Ba
Work loss days (adults, ages 18-65)........  PM.........................           1,539,400                $160
Minor restricted activity days (adults,      Ozone and PM...............           9,838,500                $530
 ages 18-65).
(adjusted to exclude asthma attacks).......  ...........................  ..................  ..................
Other health effects E.....................  Ozone and PM...............         U1+U2+U3+U4         B1+B2+B3+B4
                                             CO, NMHC...................  ..................  ..................
Decreased worker productivity..............  Ozone......................  ..................                $140
Agricultural crop damage (6 crops).........  Ozone......................  ..................              $1,120
Commercial forest damage, (6 species in      Ozone......................  ..................                  B9
 Eastern US).
Commercial forest damage, other............  Ozone......................  ..................                 B10
Other welfare effects E....................  Ozone, PM..................  ..................    B11+B12+B 13+B14
                                             CO, NMHC...................  ..................  ..................
                                            --------------------------------------------------------------------
    Monetized Total F......................  ...........................  ..................          $70,360+B
----------------------------------------------------------------------------------------------------------------
Notes:
A Ozone-related benefits are only calculated for the Eastern US due to unavailability of reliable modeled ozone
  concentrations in the Western US, thus underestimating national ozone-related benefits. See RIA and technical
  support documents for details.
B Premature mortality associated with ozone is not separately included in this analysis. It is assumed that the
  ACS/Krewski, et al. (2000) C-R function for premature mortality captures both PM mortality benefits and any
  mortality benefits associated with other air pollutants. Also note that the valuation assumes the 5 year
  distributed lag structure described earlier and a 3 percent discount rate over that lag period.
C Incidences are rounded to the nearest 100.
D Dollar values are rounded to the nearest 10 million. Monetary benefits account for growth in real GDP per
  capita between 1990 and 2030.
E The Ui are the incidences and the Bi are the values for the unquantified category i. For some categories such
  as asthma attacks, we were able to quantify the reduction in incidence, but we present the monetization as an
  alternative calculation. A detailed listing of unquantified PM, ozone, CO, and NMHC related health and welfare
  effects is provided in Table V.F-2. NMHC shown here are also hazardous air pollutants listed in the Clean Air
  Act.
F B is equal to the sum of all unmonetized categories, i.e. Ba+B1+B2+...+Bn.

    This table also indicates with a ``B'' those additional health and
environmental benefits which could not be expressed in quantitative
incidence and/or economic value terms. A full listing of the benefit
categories that could not be quantified or monetized in our estimate
are provided in Table V.F-2. For instance, visibility is expected to
improve in all areas of the country, with the largest improvements
occurring in heavily populated residential areas (e.g., half of the
urban areas show an improvement of 0.5 deciviews or more). However, due
to limitations on sources to value these effects, we include a ``B'' in
the primary estimate table for this category. Likewise, the HD Engine/
Diesel Fuel rule will also provide progress for some estuaries to meet
their goals for reducing nitrogen deposition (e.g., nitrogen loadings
for the Albemarle/Pamlico Sound are reduced by 24 percent of their
reductions goal), however, this endpoint is also displayed with a ``B''
in the table. A full appreciation of the overall economic consequences
of the HD Engine/Diesel Fuel standards requires consideration of all
benefits and costs expected to result from the new standards, not just
those benefits and costs which could be expressed here in dollar terms.
    In summary, EPA's primary estimate of the benefits of the HD
Engine/Diesel Fuel rule is $70.4 billion in 2030. This estimate
accounts for growth in real gross domestic product (GDP) per capita
between 1990 and 2030.

             Table V.F-2.--Additional, Non-monetized Benefits of the HD Engine/Diesel Fuel Standards
----------------------------------------------------------------------------------------------------------------
                      Pollutant                                          Unquantified effects
----------------------------------------------------------------------------------------------------------------
Ozone Health........................................  Premature mortality; A Increased airway responsiveness to
                                                       stimuli; Inflammation in the lung; Chronic respiratory
                                                       damage; Premature aging of the lungs; Acute inflammation
                                                       and respiratory cell damage; Increased susceptibility to
                                                       respiratory infection; and Non-asthma respiratory
                                                       emergency room visits.
Ozone Welfare.......................................  Decreased yields for commercial forests; Decreased yields
                                                       for fruits and vegetables; Decreased yields for non-
                                                       commercial crops; Damage to urban ornamental plants;
                                                       Impacts on recreational demand from damaged forest
                                                       aesthetics; and Damage to ecosystem functions.
PM Health...........................................  Infant mortality; Low birth weight; Changes in pulmonary
                                                       function; Chronic respiratory diseases other than chronic
                                                       bronchitis; and Morphological changes.
PM Welfare..........................................  Visibility in non-class I areas; Soiling and materials
                                                       damage; and Damage to ecosystem functions.
Nitrogen and Sulfate Deposition Welfare.............  Impacts of acidic sulfate and nitrate deposition on
                                                       commercial forests; Impacts of acidic deposition to
                                                       commercial freshwater fishing; Impacts of acidic
                                                       deposition to recreation in terrestrial ecosystems;
                                                       Reduced existence values for currently healthy
                                                       ecosystems; Impacts of nitrogen deposition on commercial
                                                       fishing, agriculture, and forests; Impacts of nitrogen
                                                       deposition on recreation in estuarine ecosystems; and
                                                       Damage to ecosystem functions.

[[Page 5107]]

CO Health...........................................  Premature mortality; A Behavioral effects; Hospital
                                                       admissions--respiratory, cardiovascular, and other; Other
                                                       cardiovascular effects; Developmental effects; Decreased
                                                       time to onset of angina; and Non-asthma respiratory ER
                                                       visits.
NMHC Health.........................................  Cancer (benzene, 1,3-butadiene, formaldehyde,
                                                       acetaldehyde); B Anemia (benzene); Disruption of
                                                       production of blood components (benzene); Reduction in
                                                       the number of blood platelets (benzene); Excessive bone
                                                       marrow formation (benzene); Depression of lymphocyte
                                                       counts (benzene); Reproductive and developmental effects
                                                       (1,3-butadiene); Irritation of eyes and mucus membranes
                                                       (formaldehyde); Respiratory irritation (formaldehyde);
                                                       Asthma attacks in asthmatics (formaldehyde); Asthma-like
                                                       symptoms in non-asthmatics (formaldehyde); Irritation of
                                                       the eyes, skin, and respiratory tract (acetaldehyde); and
                                                       Upper respiratory tract irritation and congestion
                                                       (acrolein).
NMHC Welfare........................................  Direct toxic effects to animals; Bioaccumlation in the
                                                       food chain; and Damage to ecosystem function.
----------------------------------------------------------------------------------------------------------------
A Premature mortality associated with ozone and carbon monoxide is not separately included in this analysis. In
  this analysis, we assume that the ACS/Krewski, et al. C-R function for premature mortality captures both PM
  mortality benefits and any mortality benefits associated with other air pollutants.
B Non-methane hydrocarbons related to this rule are also hazardous air pollutants listed in the Clean Air Act.

    In addition, in analyzing the present rule, we recognized that the
benefits estimates were subject to a number of uncertainties with other
parameters. In Table V.F-3 we present key alternatives to assumptions
regarding individual elements of the benefits analysis and their effect
on the primary estimate of benefits. This table also displays some
assumptions that can be made to value some of the categories that are
indicated with a ``B'' in the primary estimate. For example, this table
can be used to answer questions like, ``What would total benefits be if
we were to use the ACS/Krewski, et al. regionally adjusted
PM2.5 C-R function to estimate avoided premature
mortality?'' This table is not meant to be comprehensive but to
identify the impact of key issues identified by EPA or in public
comment as affecting the total benefits estimation.

         Table V.F--3. Key Alternative Benefits Calculations for the HD Engine/Diesel Fuel Rule in 2030A
----------------------------------------------------------------------------------------------------------------
                                                                                           Impact on primary
                                                                                           benefits estimate
               Description of alternative                                   Avoided      adjusted for growth in
                                                                           incidences    real income  (million
                                                                                                 1999$)
----------------------------------------------------------------------------------------------------------------
                 Alternative Concentration-Response Functions for PM-related Premature Mortality
----------------------------------------------------------------------------------------------------------------
1. Krewski/ACS Study Regional Adjustment Model B........  ..............        9,400           +$7,370 (+10.5%)
2. Pope/ACS Study C.....................................  ..............        9,900           +12,780 (+18.2%)
3. Krewski/Harvard Six-city Study D.....................  ..............       24,200        +$118,500 (+168.4%)
----------------------------------------------------------------------------------------------------------------
           Alternative Methods for Valuing Reductions in Incidences of PM-related Premature Mortality
----------------------------------------------------------------------------------------------------------------
Value of avoided premature mortality incidences based on      Jones-Lee         8,300          -$28,510 (-40.5%)
 age-specific VSL.......................................       (1989) E
                                                              Jones-Lee         8,300          -$6,820 (-10.0%)
                                                               (1993) F
----------------------------------------------------------------------------------------------------------------
A Section VII-.F of the RIA provides complete information about the estimates in this table.
B This C-R function is included as a reasonable specification to explore the impact of adjustments for broad
  regional correlations, which have been identified as important factors in correctly specifying the PM
  mortality C-R function.
C The Pope et al. C-R function was used to estimate reductions in premature mortality for the Tier 2/Gasoline
  Sulfur benefits analysis. It is included here to provide a comparable estimate for the HD Engine/Diesel Fuel
  rule.
D The Krewski et al. ``Harvard Six-cities Study'' estimate is included because the Harvard Six-cities Study
  featured improved exposure estimates, a slightly broader study population (adults aged 25 and older), and a
  follow-up period nearly twice as long as that of Pope, et al. and as such provides a reasonable alternative to
  the primary estimate.
E Jones-Lee (1989) provides an estimate of age-adjusted VSL based on a finding that older people place a much
  lower value on mortality risk reductions than middle-age or younger people.
F Jones-Lee (1993) provides an estimate of age-adjusted VSL based on a finding that older people value mortality
  risk reductions only somewhat less than middle-aged or younger people.

    The estimated annualized 2030 cost for businesses to implement the
final HD Engine/Diesel Fuel program from Table V.D-1 of the RIA is $4.3
billion (1999$). When considered in a broader social cost context of
the cost to society of the resources used, which is the right metric
for cost-benefit analysis, the annualized cost is $4.2 billion. The
monetized benefits are approximately $70.4 billion and EPA believes
there is considerable value to the public of the benefits it could not
monetize. The net benefit that can be monetized is $66.2 billion.
Therefore, implementation of the HD Engine/Diesel Fuel program is
expected to provide society with a net gain in social welfare based on
economic efficiency criteria. Tables V.F-4 summarizes the costs,
benefits, and net benefits.

[[Page 5108]]

  Table V.F-4.--2030 Annual Monetized Costs, Benefits, and Net Benefits
               for the Final HD Engine/Diesel Fuel Rule a
------------------------------------------------------------------------
                                                       Billions of 1999$
------------------------------------------------------------------------
Annual compliance costs.............................               $4.2
    Monetized PM-related benefits b.................        $69.0 + BPM
    Monetized Ozone-related benefitsb, c............     $1.4 + B Ozone
    NMHC-related benefits...........................      not monetized
                                                                  (BNMHC)
    CO-related benefits.............................      not monetized
                                                                     (BCO)
Total annual benefits...............................     $70.4 +BPM + B
                                                           Ozone + BNMHC +
                                                                      BCO
Monetized net benefitsd.............................         $66.2 + B
------------------------------------------------------------------------
\a\ For this section, all costs and benefits are rounded to the nearest
  100 million. Thus, figures presented in this chapter may not exactly
  equal benefit and cost numbers presented in earlier sections of the
  chapter.
\b\ Not all possible benefits or disbenefits are quantified and
  monetized in this analysis. Potential benefit categories that have not
  been quantified and monetized are listed in Table VII-1. Unmonetized
  PM- and ozone-related benefits are indicated by BPM and BOzone,
  respectively.
\c\ Ozone-related benefits are only calculated for the Eastern U.S. due
  to unavailability of reliable modeled ozone concentrations in the
  Western U.S. This results in an underestimate of national ozone-
  related benefits. See US EPA (2000a) for a detailed discussion of the
  UAM-V ozone model and model performance issues.
\d\ B is equal to the sum of all unmonetized benefits, including those
  associated with PM, ozone, CO, and NMHC.

VI. Requirements for Engine and Vehicle Manufacturers

A. Compliance with Standards and Enforcement

    We are making some changes to the compliance-related requirements
that will apply to vehicles and engines certified to the new standards.
These changes are described below. Changes related to the supplemental
emission requirements are discussed in Section III.C, along with the
discussion of revised standards for those requirements. In general,
however, existing compliance provisions will continue to apply to the
vehicles and engines subject to today's standards.
1. Allowable Maintenance
    Our existing regulations contain provisions (40 CFR Sec. 86.004-25)
that would affect scheduled maintenance of NOX adsorbers, PM
traps, and other devices that may be used to comply with the new
standards. These provisions limit the amount of maintenance to
emission-related components that the manufacturer is allowed to conduct
during durability testing (or specify in the maintenance instructions
that it gives to operators). We believe that the continuation of these
requirements is appropriate because we expect that, with very low fuel
sulfur levels, these technologies will be very durable in use and will
last the full useful life with little or no scheduled maintenance other
than cleaning. However, we are modifying these provisions slightly. The
existing regulations would have allowed a manufacturer to specify
something as drastic as replacement of the adsorber catalyst bed or the
trap filter after as little as 100,000-150,000 miles if there was a
``reasonable likelihood'' that the maintenance would get done. To
ensure that no manufacturer underdesigns their adsorbers or traps
(compared to the level of durability that is achievable), we are
requiring that these technologies be designed to last for the full
useful life of the engine. More specifically, the final regulations
state that scheduled replacement of the PM filter element,
NOX adsorber, or other catalyst module bed is not allowed
during the useful life, unless the manufacturer can show that the
replacement will in fact occur and pays for the replacement. Otherwise,
only cleaning and adjustment will be allowed as scheduled maintenance.
It is important to note that this restriction only applies to the
manufacturer's specified maintenance. Owners and operators are, of
course, allowed to perform additional maintenance.
2. Emission Data Waivers
    Today's action includes PM standards for all heavy-duty engines.
However, because gasoline engines have inherently low PM emissions, it
will be appropriate in some cases to waive the requirement to measure
PM emissions for certification. Therefore, the final regulations give
us the flexibility to allow manufacturers to certify gasoline engines
and vehicles without measuring PM emissions, provided they can
demonstrate compliance in some other way such as with previous data,
analyses, or other information. The flexibility is the same as that
allowed for PM emissions from light-duty gasoline vehicles and for CO
emissions from heavy-duty diesel engines. We are also allowing the same
type of analysis to be used with respect to formaldehyde emissions from
all petroleum-fueled heavy-duty vehicles.
3. Crankcase Emissions
    Section III describes a new requirement for manufacturers to
control crankcase emissions from turbocharged diesel engines.
Historically, control of crankcase emissions has meant sealing the
crankcase and routing the crankcase gases into the air intake system so
they can be combusted. However, some manufacturers have expressed a
reasonable concern that this would be unnecessarily restrictive, and
suggested that we should allow for alternative controls. Therefore, we
are making some revisions from the proposed regulations. First, we are
clarifying that this closed crankcase provision does not require that
crankcase gases be routed into the engine intake. We will also allow
manufacturers to route crankcase gases into the exhaust system,
including upstream of the exhaust emission controls. Furthermore, we
are also changing the regulations to allow manufacturers to instead
measure crankcase emissions and add them to the measured exhaust
emissions (or to measure them together). Manufacturers choosing to use
this allowance rather than to seal the crankcase will need to modify
their exhaust deterioration factors or to develop separate
deterioration factors to account for increases in crankcase emissions
as the engine ages. Manufacturers would also be responsible for
ensuring that crankcase emissions would be readily measurable in use.

[[Page 5109]]

4. Non-Conformance Penalties
    We are not establishing non-conformance penalties (NCPs) for the
new standards at this time. NCPs are monetary penalties that
manufacturers can pay instead of complying with an emission standard.
In order for us to establish NCPs for a specific standard, we would
have to find that: (1) Substantial work will be required to meet the
standard for which the NCP is offered; and (2) there is likely to be a
``technological laggard'' (i.e., a manufacturer that cannot meet the
standard because of technological (not economic) difficulties and,
without NCPs, might be forced from the marketplace). According to the
CAA (Section 206(g)), such NCPs ``shall remove any competitive
disadvantage to manufacturers whose engines or vehicles achieve the
required degree of emission reduction.'' We also must determine
compliance costs so that appropriate penalties can be established.
While we have established NCPs in past rulemakings, their use has been
rare since the implementation of our averaging, banking and trading
program.
    We requested comment on the need for NCPs in this rulemaking.
However, after reviewing the comments, we cannot conclude that NCPs
will be needed. While we believe that substantial work will be required
to meet the 2007 standards, we currently have no information indicating
that a technological laggard is likely to exist. Recognizing that it
may have been difficult for manufacturers to comment on these criteria
at this early stage of development, when implementation of these
standards is still more than six years away, it may be appropriate to
reconsider NCPs in a future action.
5. Idle CO Standards
    We are also eliminating the idle CO emission standards for heavy-
duty vehicles and engines below 14,000 pounds beginning in the 2004
model year, provided they are certified to the OBD requirements of our
Phase 1 rule. (See 65 FR 59896, October 6, 2000.) The certified OBD
systems on those vehicles will likely serve as the basis for future
inspection and maintenance tests in areas testing vehicles in that
weight class. Certification data show that heavy-duty engines and
vehicles are certifying with idle CO levels well below the standard. We
believe that the existing standard is not the forcing function for
these low idle CO levels, but instead it is the electronic computer-
controlled engines of today. In effect, we believe that the idle CO
standard places an unnecessary testing burden on manufacturers whose
vehicles are certified to the OBD requirements. We also eliminated the
idle CO standard for light-duty trucks in our Tier 2 rule. (See 65 FR
6698, February 10, 2000.) Note that we are considering a future rule
that would implement OBD on engines over 14,000 pounds. We would
consider eliminating the idle CO requirement for those engines in the
event that OBD requirements are put into place.

B. Compliance With Phase-in Schedules

    In Section III we described the phase-in options for diesel engine
manufacturers. These options are based on percentages of a
manufacturer's production. We recognize, however, that manufacturers
need to plan for compliance well in advance of the start of production,
and that actual production volumes for any one model year may differ
from their projections. This is a bigger concern for the diesel engines
than for gasoline engines because of the three-year phase-in of the new
diesel NOX standards. On the other hand, we believe that it
would be inappropriate to base compliance solely on a manufacturer's
projections. That could encourage manufacturers to overestimate their
production of the low-emission engines, and could result in
significantly lower emission benefits during the phase-in. Given these
conflicting factors, we are finalizing a compromise approach. We will
initially only require diesel manufacturers to project compliance with
the phase-in based on their projected production volumes, provided that
they made up any deficits (in terms of percent of production) the
following year. Thus, a manufacturer that projected 50 percent of its
production in 2007 would be low-NOX (i.e., meet the 0.20 g/
bhp-hr NOX standard), but that was only able to actually
produce 45 percent of its production as low-NOX, could
achieve compliance by producing at least 55 percent of its production
as low-NOX in 2008. However,since production volumes differ
from year to year, deficits would be calculated and made up based on
numbers of engines or vehicles, rather than percent of production. This
is similar to the approach that we used in phasing-in the Tier 2
emission standards.
    Since we expect that a manufacturer making a good-faith projection
of sales would not be very far off of the actual production volumes, we
are limiting the size of the deficit that could be excused. In all
cases, the manufacturer will be required to produce at least 25 percent
of its production as low-NOX engines in model years 2007,
2008, and 2009. Another important restriction is that manufacturers
will not be allowed to have a deficit in the third year of the phase-in
(2009). This restriction is being finalized to ensure that
manufacturers are able to make up the deficit. Since they could not
produce more than 100 percent low-NOX engines in 2010, it
would not be possible to make up a deficit from 2009.

C. Averaging, Banking, and Trading

    We are continuing the basic structure of the existing ABT program
for heavy-duty engines. This program allows manufacturers to certify
their engine families at various specified emissions levels above or
below the standard, as long as they comply with the applicable
standards when averaged across their various engine families. More
specifically, manufacturers are allowed to certify their engine
families with various family emission limits (FELs), provided that in
each model year the average of the FELs does not exceed the standard
when weighted by the numbers of engines produced in each family for
that model year. To do this, they generate certification emission
credits by producing engine families that are certified below the
applicable standard. These credits can then be used to offset the
production of engine families that are certified to have emissions in
excess of the applicable standards. Manufacturers are also allowed to
bank these credits for later use or trade them to other manufacturers.
We are adopting some restrictions to ensure that the environmental
benefits of the program are not jeopardized as described in the
Response to Comments document. These restrictions are described below
along with other changes made in response to comments. We are
continuing this ABT program because we believe that it will provide the
manufacturers significant compliance flexibility. This compliance
flexibility could be a significant factor in the manufacturers' ability
to comply with the standards in 2007 and will help to allow
implementation of the new, more stringent standards as soon as
permissible under the CAA.
    We proposed two separate averaging sets during the diesel phase-in
period. In one set, engines would be certified to the 2.4 g/bhp-hr
NOX+NMHC standard (which applies for model years 2004-2006),
and would be subject to the restrictions and allowances established for
those model years. In the other set, engines would be certified to the
0.20 g/bhp-hr NOX standard, and would be subject to the
restrictions and allowances in the proposed program.

[[Page 5110]]

While we proposed to not allow averaging between these two sets, based
on the comments we received, the final regulations allow manufacturers
to transfer credits across these averaging sets, with some
restrictions. Manufacturers could use credits generated during the
phase-out of engines subject to the 2.4 g/bhp-hr NOX+NMHC
standard to comply with the 0.20 g/bhp-hr NOX standard, but
these credits will be subject to a 20 percent discount. (Each gram of
NOX+NMHC credits from the phase-out engines would be worth
0.8 grams of NOX credits in the new ABT program.) This
discount reflects the fact that the change from our proposed ABT
program provides manufacturers with substantial flexibility in meeting
the final standards and also accounts for the NMHC component of the
credit. In the first year of the phase-in, this flexibility will allow
manufacturers to reduce fleetwide emissions more than would have been
possible with the proposed program. Manufacturers will be able to
reduce emissions for a substantial percentage of their production,
reflecting the use of low-NOX technologies, without being
required to produce a full 50 percent of their production with
NOX emissions near or below 0.20 g/bhp-hr in the initial
year of the phase-in. This generation and use of credits will give
manufacturers a greater opportunity to gain experience with the low-
NOX technologies before they are required to meet the final
standards across their full production. As part of the averaging
program during the phase-in period (model years 2007-2009), we will
allow diesel engine credits to be averaged across service class using a
modified form of the ABT program. These credit exchanges would occur in
the same manner as other credit exchanges, except that the credits
generated from one service class would need to be calculated using the
useful life and horsepower values of the engine family using credits.
This would make the credit exchanges equivalent to the vehicle count
phase-in provisions. This allowance is restricted to averaging. Banked
or traded credits cannot be used across service class.
    We are also adopting a restriction on the use of banked
NOX+NMHC credits generated from diesel engines certified to
the 2.4 g/bhp-hr NOX+NMHC standard. While we proposed to
prohibit any such use, the final regulations will allow manufacturers
to use banked credits to show compliance with the 0.20 g/bhp-hr
standard, but the credits will be discounted by 20 percent when they
are used for this purpose.200 This is consistent with the
cross-averaging set discount described above. In addition, we are
setting an upper bound on the number of engines for which a
manufacturer could use such banked credits during any one model year.
The upper limit is ten percent of the manufacturer's annual U.S.-
directed production of heavy-duty highway diesel engines, and would
apply only for engines certified to FELs higher than 0.50 g/bhp-hr. We
believe that this limit is necessary to prevent manufacturers from
delaying the introduction of the low-NOX technologies by
using a large number of banked credits. This kind of delay would be
contrary to the goals of the phase-in, which in large part is intended
for manufacturers to gain some initial experience with the low-
NOX technologies for a limited portion of their production.
Although it does not appear likely (based on manufacturer expectations)
that such credits will exist in large numbers, this limit appears
prudent to ensure that such a problem does not occur.
---------------------------------------------------------------------------

    \200\ It should be noted that the existing regulations already
contain provisions that would discount diesel NOX+NMHC
credits in some cases when they are banked or traded. The reason for
this discount is an interest in encouraging engine designs that are
significantly cleaner than the 2.4 g/bhp-hr standard while that
standard is in effect. There are also similar provisions for
gasoline engines and vehicles. While the new regulations do not
change these existing provisions, they do account for the previous
discount by capping the total discount at 20 percent.
---------------------------------------------------------------------------

    We are making similar changes to the ABT programs for heavy-duty
gasoline engines and vehicles. We will allow exchange of credits from
the chassis-certified vehicles to engines (and vice versa) on a credit
for credit face-value basis, subject to a 20 percent
discount.201 The discount is necessary to account for the
uncertainty in converting between g/mi standards and g/bhp-hr
standards. We will also allow NOX+NMHC credits from gasoline
engines certified to the combined standards (including banked credits)
to be used in the new NOX-only ABT program, also subject to
the 20 percent discount, for reasons discussed above and in the
Response to Comments document. This discount would not apply for banked
or averaged gasoline vehicle credits used within the vehicle ABT
program, since the existing program is already a NOX-only
program. In connection to this option, we believe that it would be
appropriate to allow gasoline engine manufacturers to voluntarily
participate in an NMHC ABT program, instead of forcing them to convert
their NOX+NMHC credits into NOX credits when the
new standards take effect. While we believe that manufacturers will
generally prefer to use these credits as NOX credits, NMHC
credits may be of some value to manufacturers since gasoline engine
emission controls often have a NOX-NMHC emission tradeoff
much like the NOX-PM tradeoff for diesel engines. Therefore,
we are extending the ABT programs for gasoline engines and vehicles to
include NMHC, beginning with the 2007 model year. These NOX
and NMHC ABT programs parallel the NOX and PM ABT programs
for diesels. In the NMHC ABT programs, the NMHC credits would be
subject to the same allowances, restrictions, and discounts as the
NOX credits. In addition, we are adopting a provision to
allow vehicle manufacturers to bank NMHC credits before 2008 for
complete vehicles that are certified to the 2008 standards early.
(Engine manufacturers are already allowed to bank NOX+NMHC
credits for model year 2004 and later engines.)
---------------------------------------------------------------------------

    \201\ See preceding footnote.
---------------------------------------------------------------------------

    It is worth noting three other aspects of this new banking program.
First we recognize that NOX+NMHC credits are not the same as
NOX-only credits. However, both NMHC reductions and
NOX reductions have environmental value, although they are
not necessarily equivalent. Thus, given the 20 percent discount that
would be applied to the NOX+NMHC credits if they are
transferred into the new NOX ABT program, we believe that it
is appropriate to allow those credits to be used in the new
NOX program. This is especially true for diesels, which are
expected to have low NMHC levels for model years 2004-2006 (probably
about one-tenth of the expected NOX levels). Second, the
final program does not include the proposed provisions for banking
undiscounted credits by meeting all of the new diesel standards early,
because we believe that the early compliance option described in
Section III would accomplish essentially the same flexibility. Finally,
we are not finalizing any new discounts or restrictions for banked PM
credits. Considering the simple 100 percent phase-in of the PM
standards in 2007, we believe that such restrictions are not necessary
to achieve the goals of this program for PM, especially given the 0.02
g/bhp-hr PM FEL cap, which is described below.
    The existing ABT program includes limits on how high the emissions
from credit-using engines can be. These limits are referred to as FEL
caps. No engine family may be certified above these caps using credits.
These limits provide the manufacturers compliance flexibility while
protecting against the

[[Page 5111]]

introduction of unnecessarily high-emitting engines. In the past, we
have generally set the FEL caps at the emission levels allowed by the
previous standard, unless there was some specific reason to do
otherwise. However, we proposed much lower FEL caps, because the
proposed standard levels were so much lower than the previous levels
and because we wanted to ensure that manufacturers did not continue to
produce old-technology high-emitting engines under the new program. In
today's FRM, for model year 2007 and later diesel engines, we are
adopting a more flexible cap for NOX emissions during the
first three years of the program than was proposed, but are adopting
the proposed FEL cap for PM emissions. We believe that this approach
for NOX is more consistent with the rest of the ABT program
(as is described above) than applying the proposed FEL cap during this
interim period. Specifically, model year 2007 through 2009 diesel
engines subject to the 0.20 g/bhp-hr standard will not be allowed to
have NOX emissions higher than 2.0 g/bhp-hr, or PM emissions
higher than 0.02 g/bhp-hr. The NOX level represents a
conservative estimate of the emission level that is expected under the
combined NOX+NMHC standards that will apply beginning in
model year 2004. The proposed NOX FEL cap of 0.50 g/bhp-hr
would not apply until model year 2010. We believe that the higher FEL
cap is appropriate during the transition to the much lower standards,
to allow some meaningful use of averaging. However, since the 2.0 g/
bhp-hr cap is ten times the level of the new standard, it would not be
appropriate as a long-term cap.
    The PM cap is also lower than the previous standard of 0.10 g/bhp-
hr. As noted above, this is being done in connection with the absence
of the kind of restrictions on the use of PM credits that are being set
for NOX credits. The NOX credits restrictions are
designed to better coordinate the NOX ABT program with the
NOX standard phase-in; and the PM standard is not phased-in.
Without those types of restrictions, we believe that it is appropriate
to adopt the proposed lower FEL cap to prevent the possibility of PM
credits being used to delay the implementation of the program and its
benefits.
    The FEL caps for gasoline vehicles and engines are being set at the
previous standards, and the approximate NOX and NMHC levels
inherent in the NOX+NMHC standards that will apply for model
year 2004-2007 engines. Since engine manufacturers will have the option
of certifying their engines to a 1.5 g/bhp-hr NOX+NMHC
standard for model years 2004-2007 (instead of the 2005 standard of 1.0
g/bhp-hr), those manufacturers choosing that option, will also be
allowed higher FEL caps for model years 2008-2010. All of these FEL
caps are shown in Table VI.D-1 and are discussed in more detail in the
Response to Comments document. These new FEL caps do not apply for the
phase-out engines and vehicles.

      Table VI.D-1.--New FEL Caps for Averaging Banking and Trading
------------------------------------------------------------------------
                                   NOX FEL cap         PM/NMHC FEL cap
------------------------------------------------------------------------
HDDE........................  0.50 g/bhp-hr a.....  0.02 g/bhp-hr PM.
HDGE........................  0.50 g/bhp-hr b.....  0.30 g/bhp-hr b
                                                     NMHC.
Complete HDGV less than or    0.9 gpm.............  0.28 gpm NMHC.
 equal to 10,000 pounds GVWR.
Complete HDGV over 10,000     1.0 gpm.............  0.33 gpm NMHC.
 pounds GVWR.
------------------------------------------------------------------------
a The NOX FEL cap is 2.0 for model years 2007-2009 diesel engines.
b The NOX and NMHC FEL caps are 0.80 and 0.40 g/bhp-hr, respectively,
  for model years 2008-2010 gasoline engines for manufacturers choosing
  to certify to the 1.5 g/bhp-hr NOX+NMHC level in 2004.

D. FTP Changes to Accommodate Regeneration of Exhaust Emission Controls

    It is expected that some of the exhaust emission control devices
used to meet today's standards will have discrete regeneration events
that could affect emission characteristics. For example, NOX
adsorbers incorporate discrete regenerations. The NOX
adsorber stores NOX under normal conditions until the
NOX storage capacity is nearly full, at which point the
regeneration event is triggered to purge the stored NOX and
reduce it across a catalyst. We expect that these regeneration events
would be controlled by the engine computer, and would thus be generally
predictable. Even passively regenerating catalytic PM trap designs can
have discrete regeneration events that can be predictable.
    Discrete regeneration events can be important because it is
possible for exhaust emissions to increase during the regeneration
process. The regeneration of a NOX adsorber for instance,
could result in increased particulates, NMHC and NOX due to
the rich exhaust gas required to purge and reduce the NOX.
We expect that in most cases, the regeneration events will be
sufficiently frequent to be included in the measured emissions. Our
feasibility analysis projects very frequent regeneration of the
NOX adsorbers, and continuously regenerating PM traps.
Nevertheless, this issue becomes a regulatory concern because it is
also conceivable that these emission storage devices could be designed
in such a way that a regeneration event would not necessarily occur
over the course of a single heavy-duty FTP cycle, and thus be
unmeasured by the current test procedure. In addition, desulfation of
NOX adsorbers is clearly not likely to occur frequently
enough to reliably be caught in the FTP. Since these regeneration
events could produce increased emissions during the regeneration
process, it will be important to make sure that regeneration is
captured or accounted for as part of the certification testing.
    In order to ensure control of emissions during regeneration
(including desulfation), we will require manufacturers to determine and
use a mathematical adjustment of measured emissions to account for
increased emissions during infrequent regeneration events that do not
occur during the testing. Conversely, we will also require
manufacturers to provide us with a consistent reverse adjustment factor
for tests in which the regeneration does occur. For example, if a
system requires a desulfation after every 20 FTP transient cycles, and
PM emissions increase by 0.01 g/bhp-hr during an FTP transient cycle
with a desulfation, we

[[Page 5112]]

will require measured emissions to be adjusted upward by 0.0005 g/bhp-
hr (0.01 g/bhp-hr divided by 20 cycles) for all tests in which that
regeneration does not occur. The equivalent reverse adjustment
(downward) for tests in which the regeneration does occur would be
0.0095 g/bhp-hr (0.01 g/bhp-hr multiplied by 19/20). The reason that
the adjustment downward would be so much larger than the adjustment
upward is that it is correcting for a significant emission increase
over a single emission test, while the adjustment downward would be
correcting for that same emission increase over the other 19 tests. No
adjustment will be made for events that are so frequent that they
always occur during FTP testing. In designs for which these activities
are not commanded at regular intervals, such as those based on changes
in backpressure or NOX levels, the manufacturer would be
required to determine an average frequency of the regeneration (during
repeat FTP transient tests). In all cases, manufacturers would need to
provide information to allow testers to know when an infrequent
regeneration has occurred during the test, such as by identifying the
controller command signal for this event. If this information is not
available, manufacturers would be required to meet the standards during
all tests, without regard to whether a regeneration occurs.

E. Improvements to the Test Procedures

    In response to manufacturer comments, we are finalizing changes to
the test procedures to improve the precision of emission measurements.
The changes fully address the manufacturers concerns about the
potential effect of measurement precision on the feasibility of the
standards. It is important to note that these changes are not intended
to make measurements higher or lower, but only to improve the
repeatability of the measurements. Based on our experience with these
modified test procedures, and our discussions with manufacturers about
their experiences, we are confident that these changes will not affect
the stringency of the standards. These changes are summarized briefly
here. A more complete description can be found in a memorandum to the
docket.202
---------------------------------------------------------------------------

    \202\ Memorandum from Matthew Spears to Docket A-99-06, dated
December 6, 2000.
---------------------------------------------------------------------------

    Most of the changes being finalized are in three general areas.
Many of the changes are to the PM sampling procedure. These include
changes to the type of PM filters that are used, and improvements in
how PM filters are weighed before and after emission measurements,
including requirements for more precise microbalances. Another area
includes changes to the dilution air specifications to allow for lower
dilution ratios. The final area of change is the NOX
calibration procedure. The new calibration procedures will result in
more precise continuous measurement of very low concentrations of
NOX.
    Other changes are being made to the regulations to allow for other
measurement options. In some cases, manufacturers will be allowed to
use their current procedures, even though EPA will adopt the changes
for our own testing. The reason for this is that some of these changes
may not be convenient or cost-effective in the short term, and
manufacturers may be willing to live with some slightly higher
measurement variability in order to lower testing costs. We believe
that manufacturers should be able to individually optimize their test
facilities in this manner. However, it is important for manufacturers
to understand that we will conduct our confirmatory testing in the
accurate and precise manner specified in these regulations.
    We are including a new regulatory provision that specifies the
steps that someone needs to go through to demonstrate that their own
alternate measurement procedure is as good as or better than the
procedure specified by our regulations. This provision is found in 40
CFR Sec. 86.1306-07. It is also worth noting that, although we
requested comment on changes to the NOX humidity correction
factors used for FTP testing, we did not receive any such comments.
Thus we will continue to use the existing NOX humidity
correction factors for FTP testing.

F. Certification Fuel

    It is well established that measured emissions are affected by the
properties of the fuel used during the test. For this reason, we have
historically specified allowable ranges for test fuel properties such
as cetane and sulfur content. These specifications are intended to
represent most typical fuels that are commercially available in use.
Because today's action is lowering the upper limit for sulfur content
in the field, we are also establishing a new range of allowable sulfur
content for testing that is 7 to 15 ppm (by weight). We believe that
this range best represents the fuel that diesel vehicles will
potentially see in use. Beginning in the 2007 model year, these
specifications will apply to emission testing conducted for
Certification and Selective Enforcement Audits, as well as any other
laboratory engine testing for compliance purposes. Because the same in-
use fuel is used for light- and heavy-duty highway diesel vehicles, we
are also changing the specifications for light-duty diesel vehicle
testing.
    It is important to note that while these specifications include the
maximum sulfur level allowed for in-use fuel, we believe that it is
generally appropriate to test using the most typical fuels. We expect
that refineries will typically produce diesel fuel with about 7 ppm
sulfur, and that the fuel could have slightly higher sulfur levels
after distribution. Thus, we expect that we would use fuel having a
sulfur content between 7 and 10 ppm sulfur for our emission testing.
Should we determine that the typical in-use fuel has significantly more
sulfur than this, we would adjust this target upward.
    We are including a regulatory change to the heavy-duty gasoline
test fuel specifications to make them the same as the recently
established Tier 2 fuel specifications for light-duty vehicles. We are
also extending to heavy-duty engines and vehicles the Tier 2 allowance
for manufacturers to use California test gasoline for certification. As
is the case with Tier 2, this allowance does not affect our authority
to conduct our own testing using federal fuel. Also consistent with our
approach under Tier 2, we will consider requests, prior to manufacturer
or EPA in-use testing, to permit preconditioning procedures designed
solely to remove the effects of high sulfur gasoline on vehicles
produced through the 2007 model year.
    We are also allowing as an option the use of the new diesel test
fuel beginning in the 2004 model year for vehicles employing sulfur-
sensitive technology that are certifying to the Tier 2 standards. This
allowance to use the new fuel in model years 2004-2006 will only be
available for vehicles for which the manufacturer recommends to the
owner that the vehicle be operated on fuel with 15 ppm sulfur or less,
where available. Any testing that we perform on these vehicles would
also use fuel meeting this lower sulfur specification. This optional
certification fuel provision is targeted at encouraging the
introduction of low-emission light-duty diesel technologies under the
new Tier 2 standards that will be taking effect at that time. The
provision accounts for the fact that these vehicles will use the lower
sulfur fuel during most, perhaps all, of their operating life, given
the clear manufacturer recommendation for use of low-sulfur fuel in
these vehicles, combined with prospects for early availability of this
fuel under the

[[Page 5113]]

incentive provisions discussed in Section IV, and the assured
availability of this fuel by mid-2006. Furthermore, we will allow
manufacturers choosing to exercise this option in certifying vehicles
for sale in both California and the other 49 states to use a fuel that,
on a specification by specification basis, meets the requirements of
either the federal or the California fuel specifications. This option
is appropriate for light-duty vehicles and trucks since they would
otherwise face a very complicated transition period, in which they
would need to retest and potentially recalibrate vehicles for as many
as four different test fuels during a three-year period.

G. Misfueling Concerns for Light- and Heavy-Duty Diesel Vehicles

    As explained in Section III, the emissions standards contained in
these regulations will make it necessary for manufacturers to employ
exhaust emission control devices that require low-sulfur fuel to ensure
proper operation. This action therefore restricts the sulfur content of
highway diesel fuel sold in the U.S. There are, however, some
situations in which vehicles requiring low-sulfur fuel may be
accidentally or purposely misfueled with higher-sulfur fuel. Vehicles
operated within the continental U.S. may cross into Canada and Mexico,
countries that may not adopt the same low sulfur requirements on the
same schedule. High-sulfur nonroad fuel may illegally be used by some
operators to fuel highway vehicles. Any of these misfueling events
could seriously degrade the emission performance of sulfur-sensitive
exhaust emission control devices, or perhaps destroy their
functionality altogether.
    There are, however, some factors that help to mitigate concerns
about misfueling. Most operators are very conscious of the need to
ensure proper fueling and maintenance of their vehicles. The fear of
large repair and downtime costs may often outweigh the temptation to
save money through misfueling. The likelihood of misfueling in Canada
and Mexico is lessened by current cross-border shipment practices and
prospects for eventual harmonization of standards. Canada has recently
expressed its intent to harmonize its fuel regulations with U.S. fuels
standards.\203\ This would offer vehicle owners the option of refueling
with low-sulfur fuel there. Even if Canada were to lag behind the U.S.
in mandating low-sulfur fuels, these fuels would likely become
available along major through routes to serve the needs of U.S.
commercial traffic that have the need to purchase it. In addition,
there is less potential for U.S. commercial vehicles needing low-sulfur
fuel to refuel in Canada because Canadian fuel is currently more costly
than U.S. fuel. As a result, most vehicle owners will prefer to
purchase fuel in the U.S., prior to entering Canada, whenever possible.
This is facilitated by large tractor-trailer trucks that can have long
driving ranges--up to 2,000 miles per tankful or so--and the fact that
most of the Canadian population lives within 100 miles of the United
States/Canada border.
---------------------------------------------------------------------------

    \203\ ``Process Begins to Develop Long Term Agenda to Reduce Air
Pollution from Vehicles and Fuels'', Environment Canada press
release, May 26, 2000.
---------------------------------------------------------------------------

    In Mexico, the entrance of trucks beyond the border commercial zone
has been prohibited since before the conclusion of the North American
Free Trade Agreement in 1994. This prohibition applies in the U.S. as
well, as entrance of trucks into the U.S. beyond the border commerce
zone is also not allowed. Since these prohibitions are contrary to the
intent of the Free Trade Agreement, a timetable was established to
eliminate them.\204\ However, these prohibitions remain in force at
this time.
---------------------------------------------------------------------------

    \204\ See NAFTA, Volume II, Annex I, Reservations for Existing
Measures and Liberalization Commitments, Pages I-M-69 and 70, and
Pages I-U-19 and 20.
---------------------------------------------------------------------------

    The NAFTA negotiations included creation of a ``corridor'' where
commercial truck travel occurs, and where Mexico is obligated to
provide ``low-sulfur'' fuel. At the time of the NAFTA negotiations,
``low-sulfur'' fuel was considered 500 ppm, which was the level needed
to address the needs of engines meeting the 1994 emission standards.
The travel prohibition currently in place may be lifted at some point.
At that time, the issue of assuring, for U.S. vehicles, the
availability of fuel with a sulfur level needed by the new technology
may need to be addressed.
    Even considering these mitigating factors, we believe it is
reasonable to adopt additional measures with very minor costs to
manufacturers, fuel distributors, and consumers. First, we are
requiring that highway diesel fuel pumps and co-located nonroad diesel
fuel pumps be prominently labeled, as described in Section VII.
    We are also adopting a requirement that heavy-duty vehicle
manufacturers notify each purchaser of a model year 2007 or later
diesel-fueled vehicle that the vehicle must be fueled only with the
low-sulfur diesel fuel meeting the regulations being adopted in this
FRM. We believe this requirement is necessary to alert vehicle owners
to avoid higher sulfur fuel in the U.S. and to seek out low-sulfur fuel
when operating in areas such as Canada and Mexico where it may not be
widely available. We are also requiring that model year 2007 and later
heavy-duty diesel vehicles must be equipped by the manufacturer with
labels on the dashboard and near the refueling inlet that say: ``Use
Low Sulfur Diesel Fuel Only'' or ``Low Sulfur Diesel Fuel Only''. For
non-integrated manufacturers, the engine manufacturer will be required
to provide such a label to the vehicle manufacturer, which the vehicle
manufacturer will be required to install. Optionally, if a vehicle
manufacturer chooses to install its own label, the engine manufacturer
will not be required to provide the label.
    We believe that these measures will help vehicle owners find and
use the correct fuel and will be sufficient to address misfueling
concerns. Thus, more costly provisions, such as vehicles fuel inlet
restrictors, will not be necessary.
    We are also requiring that the labeling and purchaser notification
requirements described above for heavy-duty vehicles also be applied to
the light-duty diesel vehicles certified to the final Tier 2 standards
using certification test fuel with 15 ppm or less sulfur. These
vehicles are expected to also need the low-sulfur fuel and be equally
susceptible to misfueling damage.

H. In-Use Compliance Levels During the Transition Years to New
Technologies

    The Phase 2 standards will be challenging for diesel and gasoline
engine manufacturers to achieve, and will require manufacturers to
develop new technologies for their engines. Not only will manufacturers
be responsible for ensuring that these technologies will allow engines
to meet the standards at the time of certification, they will also have
to ensure that these technologies continue to be highly effective in a
wide range of in-use environments so that their engines would comply
in-use when tested by EPA. However, in the early years of a program
that introduces new technology, there are risks of in-use compliance
problems that may not appear in the certification process or during
developmental testing. Thus, we believe that it is appropriate to
adjust the compliance levels for assessing in-use compliance for low
emission engines (i.e., diesel engines equipped with the new exhaust
emission control devices expected for Phase 2 diesel engines, and
gasoline engines

[[Page 5114]]

employing Tier 2/Phase 2 level technology). This will provide assurance
to the manufacturers that they will not face recall if they exceed
standards by a small amount during this transition to clean
technologies. This approach is very similar to that taken in the Tier 2
final rule, which involves a similar introduction of new technologies
(65 FR 6796, February 10, 2000).
    Table VI.H-1 shows the in-use adjustments that we will apply to
diesel and gasoline engines. These adjustments will be added to the
appropriate FELs (or for engines certified to the standards without the
use of credits, to the standards themselves) in determining the in-use
compliance level for a given in-use mileage. For example, a light HD
diesel engine with a useful life of 110,000 miles and a NOX
FEL of 0.20 g/bhp-hr would have an in-use compliance level of 0.30 g/
bhp-hr (0.20 + 0.10) throughout its useful life. A heavy HD diesel
engine, having a useful life of 435,000 miles and a NOX FEL
of 0.20 g/bhp would have an in-use compliance level of 0.30 g/bhp-hr
through 110,000 miles, 0.35 g/bhp-hr from there through 185,000 miles,
and 0.40 g/bhp-hr through the remainder of its useful life. The
adjustment levels were chosen to be roughly equivalent to the temporary
in-use standard adjustments adopted for low-emitting vehicles in the
Tier 2 program, accounting for the higher mileage requirements
reflected in the useful lives of the larger heavy-duty engines. Note
too in the table footnotes the limiting of these adjustments to engine
certified to levels below certain threshold levels. This is similar to
the approach taken in the Tier 2 rule which applied the in-use
standards only to vehicles in certain low-emitting bins.

  Table VI.H-1.--Add-on Levels used in Determining In-use Standards for
                        Diesel & Gasoline Engines
------------------------------------------------------------------------
                                    Diesel \a\
                                       and       Diesel PM   Gasoline\c\
                                     gasoline      Add-on    NMHC Add-on
      Engine mileage (miles)       \b\ NOX Add-   level to     level to
                                   on level to  FEL (g/bhp-  FEL (g/bhp-
                                   FEL (g/bhp-      hr)          hr)
                                       hr)
------------------------------------------------------------------------
110,000..........................         0.10         0.01         0.10
110,000 to 185,000...............         0.15         0.01      \d\ N/A
185,000 to 435,000...............         0.20         0.01     \d\ N/A
------------------------------------------------------------------------
\a\ Applicable to those diesel engines with FELs at or below 1.3 g/bhp-
  hr NOX through 2011.
\b\ Applicable to those gasoline engines with NOX FELs at or below 0.5 g/
  bhp-hr through 2011.
\c\ Applicable to those gasoline engines with NMHC FELs at or below 0.3
  g/bhp-hr through 2011.
\d\ Note that the useful life for gasoline engines is 110,000 miles, so
  these add-on levels have significance only to that mileage for
  gasoline engines.

    Similar examples apply for diesel engine PM, with the exception
that the PM in-use add-on level is a constant 0.01 regardless of
mileage. Likewise for gasoline NMHC where the add-on level is a
constant 0.10 g/bhp-hr through the 110,000 mile useful life.
    These same in-use add-on levels will be applied to the
certification SET and NTE levels after applying the SET and NTE
multipliers for the purpose of determining the corresponding in-use
standards. In other words, for heavy HD diesel engine with a
NOX FEL of 0.20 g/bhp-hr, the in-use SET standard would be
0.30, 0.35, and 0.40 g/bhp-hr in each respective mileage range
(remember that the SET multiplier is 1.0  x  the FTP standard or FEL).
The in-use NTE standard, with a multiplier of 1.5  x  the FTP standard
or FEL, would be 0.40, 0.45, and 0.50 g/bhp-hr in each of the
respective mileage ranges (0.20  x  1.5 = 0.30; + 0.1 = 0.40; + 0.15 =
0.45; + 0.20 = 0.50).
    Note that these in-use add-on levels apply only to engines
certified through the 2011 model year and having FELs below the
specified levels. These levels are very low and represent levels we
believe will require significant effort by manufacturers to reach. The
in-use add-ons are available through 2011 because some diesel engine
models may not incorporate the emission control technology until 2010
as a result of the final phase-in schedule. Engine models incorporating
these technologies for the first time in 2010 may account for as many
as 50 percent of all diesel engines sold in that year. We believe these
engine models should be provided the in-use adjustment for at least the
first two years of their market introduction. In the case of gasoline
engines, the phase-in ends in the 2009 model year. However, we have
decided to allow the in-use adjustments through model year 2011,
consistent with the diesel provision.
    For HD complete gasoline vehicles, and any complete diesel vehicles
choosing the chassis certification option, we will have a flat in-use
adjustment of 0.1 g/mile NOX, 0.100 g/mile NMHC (gasoline
vehicles only), and 0.01 PM for all weight classes. These in-use
adjustments will apply only to those vehicles certified with FELs at or
below the applicable Phase 2 standards. Further, they will apply for
vehicles certified through 2010 so that those vehicle models newly
certified to the Phase 2 standards in 2009 are given two years of
certification experience prior to elimination of the in-use
adjustments. Table VI.H-2 shows the adjustments that will apply to HD
chassis certified vehicles.

                        Table VI.H-2.--In-Use Adjustments for Chassis Certified Vehicles
----------------------------------------------------------------------------------------------------------------
                                                    Durability
               Weight range (GVWR)                period (miles)  NOX \a\ (g/mi)   NMHC \a\ (g/      PM (g/mi)
----------------------------------------------------------------------------------------mi)---------------------
8,500 to 10,000 lbs.............................         120,000             0.1           0.100            0.01
10,000 to 14,000 lbs............................         120,000             0.1           0.100           0.01
----------------------------------------------------------------------------------------------------------------
\a\ Applicable to those vehicles with NOX and/or NMHC FELs at or below the appropriate Phase 2 standards through
  2010.

    During the certification demonstration, manufacturers will still be
required to demonstrate compliance with the unadjusted Phase 2
certification standards using deteriorated emission rates. Therefore,

[[Page 5115]]

the manufacturer will not be able to use these in-use standards as the
design targets for the engine or vehicle. They will need to project
that most engines would meet the standards in-use without adjustment.
The in-use adjustments will merely provide some assurance that they
would not be forced to recall engines or vehicles because of some small
miscalculation of the expected deterioration rates. Furthermore, given
that a new diesel fuel will be in place and it will be sold alongside
higher sulfur diesel fuel being marketed to the existing fleet, there
is a small likelihood of accidental misfueling during the phase-in
years as users become familiar with the importance of using the lower
sulfur fuel. As discussed in detail in sections III.E and III.F, sulfur
has adverse impacts on exhaust emission control devices.

VII. Highway Diesel Fuel Program: Compliance, Enforcement and
Downstream Provisions

    For the highway diesel fuel sulfur program that we are adopting
today to be successful in achieving its large emission reduction goals,
it is vital for all parties that are affected by the program to
thoroughly understand what is expected of them to comply, what
compliance options may apply to them, and how their compliance will be
assessed and enforced. If you believe that you are or may be subject to
the program, the most important information is found in the regulatory
language following this preamble. There, readers will find the detailed
legal requirements of the program for each party and how we will assess
and enforce compliance with the program requirements.
    A key purpose of this preamble is to supplement the regulatory
language by providing a context for and an explanation of the
requirements of the program. Section IV above discusses in some detail
most of the requirements under the highway diesel fuel sulfur program
adopted today. In addition, this section (Section VII) builds on the
Section IV discussions by addressing specific compliance and
enforcement provisions we have adopted in today's rule to ensure that
highway diesel fuel standards are met at all points in the distribution
system--from the refiner or importer that introduces the fuel into the
distribution system, through all the parties that may distribute the
fuel, to the retailers and other parties that provide the fuel to its
ultimate user. This section also explains certain requirements of the
program in more detail.
    After touching on a few general aspects of the highway diesel fuel
program, this section discusses the compliance and enforcement
provisions that apply to refiners and importers and those that apply to
the downstream parties that handle diesel fuel. This section also
discusses diesel fuel sampling and testing for sulfur, reporting and
recordkeeping requirements, limited exemptions from the program, and
how liability for any noncompliance would be handled.

A. General Provisions

1. Definition of Diesel Fuel Covered by This Program
    In this preamble, we refer to the fuel covered by the program
adopted today as ``highway diesel fuel.'' For technical and legal
consistency with the Clean Air Act and existing fuels regulations, the
regulatory language associated with today's rule uses the term ``motor
vehicle diesel fuel'' in order to assure consistency with the language
in existing laws and regulations. ``Nonroad diesel fuel'' refers to
diesel fuel intended for use in nonroad vehicles or equipment, and is
not covered by the highway diesel fuel sulfur requirements of the
program. However, any fuel that is available for highway vehicles and
engines, whether or not it is also available for nonroad vehicles and
engines or for other purposes, is treated as highway diesel fuel under
today's program.
2. Relationship to Highway Diesel Standards
    As discussed in Section IV above, today's final rule reduces the
sulfur cap standard for highway diesel fuel from 500 ppm to 15 ppm
nationally \205\ effective in 2006. (Implementation dates are discussed
further in Section VII.C.2. below.) The existing standards for cetane
and aromatics will remain in effect and are not being changed by
today's action (40 CFR Sec. 80.29(a)). The highway diesel fuel sulfur,
cetane, and aromatics standards will be enforced through sampling and
testing at all points in the distribution system, combined with
inspection of fuel delivery records and other commercial documents. The
general compliance requirements of this rule are very similar to those
in the current diesel fuel rule, except that the sulfur standard is
substantially more stringent (see 40 CFR 80.29 and 80.30). Prior to the
implementation dates for today's rule, all the requirements and
prohibitions of the current diesel fuel rule will remain in effect,
with limited modifications concerning sulfur sampling methods.
---------------------------------------------------------------------------

    \205\ Except as noted elsewhere in the preamble and final rule,
today's rule applies to all states, including the State of
California. See Section IV.F for unique implementation provisions
for Alaska and exemptions for diesel fuel in certain U.S.
territories.
---------------------------------------------------------------------------

B. What Are the Requirements for Refiners and Importers?

1. General Requirements
    As discussed earlier in this preamble, the sulfur sensitivity of
emission controls that will be used on model year 2007 and later motor
vehicles requires that the sulfur content of highway diesel fuel
dispensed into 2007 and later heavy-duty vehicles not exceed 15 ppm. To
ensure that highway diesel fuel meets this standard as it leaves the
refinery or import facility, today's final rule adopts the proposed
approach that if the sulfur content of highway diesel fuel at a
refinery or import facility exceeds 15 ppm by any amount, the fuel is
in violation of the sulfur standard. The determination of compliance
with the sulfur standard for highway diesel fuel at the refinery level
is not subject to a test tolerance.\206\
---------------------------------------------------------------------------

    \206\ However, test variability is taken into account in
determination of compliance for diesel fuel at locations downstream
of the refinery or import facility. See Section VII.C.1.
---------------------------------------------------------------------------

    Consistent with the proposal, today's final rule does not require
that refiners or importers engage in mandatory sampling and testing of
every batch of highway diesel fuel they produce or import.\207\ This is
because the highway diesel fuel sulfur standard is a national cap
standard and compliance can be monitored at any point in the
distribution system by taking samples of fuel for testing. However,
under the presumptive liability scheme, any refiner producing
noncomplying product would face liability for fuel in violation of the
standard, regardless where the violation is discovered. (See Sections
VII.G. and VII.H. for a discussion of liability and penalties.)
Consequently, we expect that refiners and importers will voluntarily
test every batch of highway diesel fuel produced or imported for their
own purposes, including the need to demonstrate compliance with
pipeline specifications.
---------------------------------------------------------------------------

    \207\ However, any refiner producing highway diesel fuel
complying with the 500 ppm standard for use in pre-model year 2007
motor vehicles, under any of the several refiner flexibility
options, would have to maintain records designating each batch as
complying with the 15 ppm standard or the 500 ppm standard.
---------------------------------------------------------------------------

    Today's program requires all refiners that on January 1, 2000
produced--or by June 1, 2006 expect to produce--highway diesel fuel for
U.S. sale to

[[Page 5116]]

register with EPA. Similarly, all importers that on January 1, 2000
imported--or by June 1, 2006 expect to import--highway diesel fuel into
the U.S. also need to register with EPA. This registration process will
provide an essentially complete and up-to-date picture of the universe
of highway diesel suppliers that exist at the beginning of this
program. Refiners and importer must register by December 31, 2001. See
Section VII.E. below for more details about registration requirements.
2. Refiner and Importer Temporary Compliance Option Provisions and the
Credit Trading Program
    As described in Section IV.A.2 above, today's final rule adopts a
program that allows refiners and importers to transition in the
production and importation of 15 ppm sulfur content diesel fuel. The
temporary compliance option is available to all refiners and importers
and includes a credit averaging, banking, and trading program. This
temporary compliance option allows a refiner or importer to designate
and sell a certain percentage of its highway diesel fuel as fuel
subject to a 500 ppm sulfur standard, for use in pre-2007 model year
heavy-duty vehicles.
    Section IV.A.2 above describes most of the compliance requirements
associated with the temporary compliance option. The paragraphs below
supplement the earlier information.
a. Early Credits Program
    As discussed in Section IV.A.2.a, today's regulation allows
refiners and importers to generate early credits (prior to June 1,
2006) under limited circumstances. Most of the compliance requirements
associated with the early credits program are described in that
section. The following paragraphs add certain supplemental information.
    The early credits program has two sets of provisions: (1) credits
generated after May 31, 2005 but before June 1, 2006, and (2) credits
generated after June 1, 2001 but before May 31, 2005. For a refiner or
importer to generate early credits after May 31, 2005, it must
demonstrate that the 15 ppm fuel produced early was segregated in the
distribution system and not commingled with current 500 ppm sulfur
fuel. Only that volume the refiner could verify was actually sold as 15
ppm fuel at retail or to centrally-fueled fleets would be eligible for
early credits. Prior to generating credits, the refiner or importer
must submit a notification to EPA and demonstrate how it will ensure
segregation of the fuel from other highway diesel fuel and that the
fuel will be sold as 15 ppm fuel (e.g., through voluntary pump labeling
and/or through information provided in PTDs).
    The program also specifies that early credits can be generated
prior to June 1, 2005. In this case, however, the refiner or importer
must demonstrate that the 15 ppm fuel will be used in vehicles
certified to meet the 2007 particulate matter standard being adopted
today for heavy-duty engines (0.01 g/bhp-hr) or in vehicles with
retrofit technologies that achieve emission levels equivalent to the
2007 NOX or PM standard verified as part of a retrofit
program administered by EPA or a state. (See Section VIII for further
discussion of the credit program for heavy-duty engines.) To meet this
condition, the refiner or importer must notify EPA, and in its
notification it must demonstrate that any early credits that it claims
are only for the volume of 15 ppm fuel that is dispensed into vehicles
meeting the emission standards as described above (e.g., into
designated fleet vehicles).
    All early credits generated, banked, transferred, obtained or used
must be identified as early credits in records and in reports. The
refiner's annual pre-compliance reports must provide the volume of
early credit fuel produced, credits generated, credits transferred, and
continued demonstration that the early credit fuel is sold
appropriately (i.e., as 15 ppm fuel after May 31, 2005, or into
vehicles meeting the 2007 standards up to May 31, 2005).
b. Credit Use in a Credit Deficit Situation
    Today's rule allows a refinery or importer to have a credit deficit
in any given year (as long as the deficit does not exceed five percent
of its annual highway diesel fuel production) so long as the refinery
or importer makes up for that credit deficit the next year. In other
words, the year following the deficit the refiner or importer must have
enough credits (or actual production volume of 15 ppm fuel) to cover
the previous year's deficit and to cover the current year's compliance.
A refinery or importer (by PADD) must use credits to cover its own
compliance before it can transfer credits to another refinery or
importer, and although a refinery is allowed to be in deficit for a
given year, it cannot lawfully transfer credits in the deficit year.
c. Resolving Issues of Invalid Credits
    We recognize that there is potential for credits to be generated by
one party and subsequently purchased and used in good faith by another
party, yet the credits are later found to have been calculated or
created improperly, or otherwise found to be invalid. As with the RFG
rule and the Tier 2/Gasoline Sulfur rule, invalid credits purchased in
good faith cannot be legally used. To allow such use would not be
consistent with the environmental goals of the regulation. Further,
both the seller and purchaser of invalid credits would have to adjust
their credit calculations to reflect the proper credits and either
party (or both) could be deemed in violation if the adjusted
calculations demonstrated noncompliance.
    Nevertheless, our strong preference is to hold the credit seller
liable for the violation, rather than the credit purchaser. As a
general matter we would expect to enforce a shortfall in credit
compliance calculations against the credit seller, and we would expect
to enforce a compliance shortfall (caused by the good faith purchase of
invalid credits) against a good faith purchaser only in cases where we
are unable to recover sufficient valid credits from the seller to cover
the shortfall. Moreover, in settlement of such cases we would strongly
encourage the seller to purchase credits to cover the good faith
purchaser's credit shortfall. EPA will consider the covering of a
credit deficit through the purchase of valid credits a very important
factor in mitigation of any case against a good faith purchaser,
whether the purchase of valid credits is made by the seller or by the
purchaser.
d. Compliance Provisions
    Today's rule includes compliance provisions under the temporary
compliance option to allow the determination of the volumes of each of
the two grades of highway diesel fuel produced or imported by each
participating refinery or importer. For parties participating in the
credit program, the rule includes provisions to ensure compliance with
the credit generation, banking and trading provisions. The requirements
include the designation of each batch of highway diesel fuel as meeting
either the 500 ppm sulfur standard or the 15 ppm highway diesel sulfur
standard; maintenance of records concerning the volumes of each grade
of highway diesel fuel produced (and for foreign refiners and
importers, volumes by PADD of import); and maintenance of records
concerning the generation, use, transfer and purchase of credits, if
applicable (by PADD in the case of foreign refiners and importers).
Beginning in 2007, annual compliance reports demonstrating compliance
with the applicable provisions are required. These recordkeeping and
reporting

[[Page 5117]]

requirements are discussed more fully in Section VII.E below.
    The rule also includes enforcement and compliance provisions to
assure that highway diesel fuel subject to the 15 ppm sulfur standard
is not caused to exceed the standard by being contaminated with highway
diesel fuel subject to the 500 ppm sulfur standard (or other high
sulfur products such as nonroad diesel fuel), and to assure that 500
ppm diesel fuel is not introduced into model year 2007 and later motor
vehicles. Participating refiners and importers are required to provide
identifying information on product transfer documents for highway
diesel fuel subject to the 500 ppm standard to help prevent
contamination of 15 ppm product. (As discussed more fully below,
transfers of 15 ppm highway diesel fuel must also be accompanied by
product transfer documents identifying such fuel.)
e. Additional Provisions for Importers of Diesel Fuel and for Foreign
Refiners Subject to the Temporary Compliance Option and Hardship
Provisions
    Since today's final rule includes several compliance options that
can be used by diesel fuel importers and foreign refiners, we are also
including specific compliance and enforcement provisions to ensure
compliance for imported highway diesel fuel. These special foreign
refiner provisions are similar to those under the conventional gasoline
regulations and the gasoline sulfur regulations (see 40 CFR 80.94 and
80.410).
    Under today's rule, standards for highway diesel fuel produced by
foreign refineries must be met by the importer, unless the foreign
refiner has been approved to produce highway diesel fuel under the
temporary compliance option or hardship provisions of today's rule. If
the foreign refiner is so approved, the volume requirements are to be
met by the foreign refinery and the foreign refinery would be the
entity generating, using, banking or trading credits for the highway
diesel fuel produced and imported into the U.S.
    Any foreign refiner that applies for and obtains approval to
produce highway diesel fuel subject to the temporary compliance option
or hardship provisions will be subject to the same requirements as
domestic refiners operating under the same provisions. Additionally,
foreign refiners are subject to provisions similar to the provisions at
40 CFR 80.94 and 80.410, which include:

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

    These provisions aid the Agency in tracking highway diesel fuel
from the foreign refinery to its point of import into this country. We
believe these provisions are necessary and sufficient to ensure that
foreign refiners' compliance can be monitored and that the requirements
of today's rule can be enforced against foreign refiners. (For more
discussion of the rationale for these enforcement provisions, see
preamble to the final RFG/CG foreign refineries rule (see 62 FR 45533
(August 28, 1997) and the gasoline sulfur rule, 40 CFR 80.410).)
3. Refiner Hardship Provisions
a. General Refiner Hardship Provisions
    Section IV.C. above describes two types of hardship provisions for
which any refiner may petition. We will consider such petitions in
cases of extreme unforseen circumstances and of extreme hardship
circumstances. Petitions for extreme unforseen circumstances may be
submitted at any time; petitions for extreme hardship circumstances
must be submitted to EPA by June 1, 2002. If any relief granted
includes allowing the refiner to produce 500 ppm highway diesel fuel
(or additional 500 ppm highway diesel fuel beyond that allowed under
the temporary compliance option) for use in pre-2007 heavy-duty
vehicles and engines, we would apply enforcement provisions at least as
stringent as those that apply for the temporary compliance option.
    Any application for hardship relief later found to be based on
false or inaccurate information will be void ab initio.
b. Small Refiner Hardship Provisions
    Section IV.C.1 above describes three small refiner relief
provisions. Section IV.C.1.b defines ``small refiner,'' Section
IV.C.1.c describes the special provisions that approved small refiners
are eligible for, and Section IV.C.1.d describes how a refiner applies
for status as a small refiner. Section VII.E below describes the
additional information that small refiners need to include in their
application for small refiner status, in their pre-compliance reports,
and in their annual compliance reports (these requirements vary
depending on which small refiner provision they choose). Any
application for small refiner status will be void ab initio if approval
is based on false or inaccurate information.
    For an approved small refiner to use the Diesel/Gasoline Compliance
Date Option (described in Section IV.C. above) at one or more
refineries, it must fulfill two main conditions: (1) 100 percent of the
highway diesel volume it produces during each annual compliance period
starting June 1, 2006 must meet the 15 ppm standard, and (2) the actual
volume of highway diesel fuel it produces during each annual compliance
period through 2010 must be at least 85 percent of its 1998-1999
baseline highway diesel fuel volume (i.e., through the end date of the
extended small refiner interim gasoline program). If a refiner at some
point did not fulfill one or both of these conditions, it would forfeit
the entire three year extension (or any remaining portion of the
extension) of its Tier 2/Gasoline Sulfur small refiner standards and
would thus need to comply with the 30/80 ppm sulfur standards by
January 1, 2008. During the period when the national gasoline sulfur
standard would otherwise be in effect for a small refiner (2008-2010),
if the refiner fails to meet the two conditions above, it would be
subject to the 30/80 gasoline sulfur standard for that year and future
years.
    However, a small refiner may elect to petition EPA to permanently
opt out of this Diesel/Gasoline Compliance Date Option and opt into
another small refiner option or into the temporary compliance option,
so long as it does so for the full year that the change in program
options takes place. Once it makes that election, it must thereafter
meet the 30/80 gasoline sulfur standard.
c. Relief for Refiners Supplying Gasoline to the Tier 2 Geographic
Phase-In Area (GPA)
    As discussed in Section IV.B, refiners or importers supplying
gasoline to the Geographic Phase-In Area (GPA) established in the Tier
2/Gasoline Sulfur program may apply for an additional two years to meet
interim Tier 2 GPA gasoline sulfur standards (through December 31,
2008). Similar to the criteria for small refiners under the Diesel/
Gasoline Compliance Date Option above, a refiner wishing to receive
this extension of the Tier 2 GPA standards must meet two main
conditions: (1) 100 percent of the highway diesel volume it produces
during each annual compliance period starting June 1, 2006 must meet
the 15 ppm standard, and (2) the actual volume of highway diesel fuel
it produces during each annual compliance period through 2008 must be
at least 85 percent

[[Page 5118]]

of its 1998-1999 baseline highway diesel fuel volume (i.e., through the
end date of the extended GPA gasoline program). Refiners may not
participate both in this option and the temporary compliance option.
    To be eligible for this option, a refiner must apply to EPA in
writing by December 31, 2001, at the same time that it registers as a
highway diesel fuel producer with EPA. As with applications by refiners
for ``small refiner'' status, a refiner's application must submit its
average annual highway diesel volume baseline for 1998 and 1999 for
each of its refineries it expects to be covered by the GPA provisions
under today's program.
    If a refiner did not fulfill one or both of the conditions above,
it would forfeit the entire two-year extension of the GPA standards, or
any remaining extension, and would thus need to comply with the 30/80
ppm sulfur standards by January 1 of the following year.
    However, a refiner may elect to petition EPA to permanently opt out
of this GPA program and opt into the temporary compliance option, so
long as it does so for the full year that the change in program options
takes place. Once it makes that election, it must thereafter meet the
30/80 gasoline sulfur standard.

C. What Requirements Apply Downstream of the Refinery or Import
Facility?

1. Downstream Enforcement of the Standards
    In the NPRM, we proposed an industry-wide 15 ppm cap on sulfur
content for highway diesel fuel. In the proposal we stated our belief
that refiners would likely have to produce diesel fuel meeting a 7-8
ppm average sulfur content in order to ensure compliance downstream. We
received comments to the NPRM indicating that enforcing the 15 ppm
sulfur cap at all levels of the distribution system downstream of the
refinery or import facility would effectively require refiners to
produce diesel fuel having a maximum sulfur content of 7 ppm due to
variability in sulfur content test results that may occur between
laboratories when testing the same sample of diesel fuel for sulfur
content. Commenters stated that at test reproducibility level of +/-4
ppm,\208\ refiners would have no assurance of downstream compliance
with the 15 ppm cap if they produced any fuel with a sulfur content
greater than 7 ppm. Consequently, commenters suggested either that we
adopt a less stringent downstream sulfur standard, based on test
variability, as was done in the Tier 2/Gasoline Sulfur rule (40 CFR
80.210), or that we state a downstream test tolerance, based on test
variability.
---------------------------------------------------------------------------

    \208\ The NPRM preamble suggested a possible reproducibility
level of 4 ppm.
---------------------------------------------------------------------------

    After considering the comments, we agree that it is appropriate to
recognize test variability in determination of compliance with the
sulfur standard downstream of the refinery or import facility. However,
we anticipate that the reproducibility of sulfur test methods is likely
to improve to two ppm or even less by the time the rule goes into
effect. Thus, today's rule provides that for all 15 ppm sulfur highway
diesel fuel at locations downstream of the refinery or import facility,
sulfur test results can be adjusted by subtracting 2 ppm to account for
the expected reproducibility of sulfur test methods. The sole purpose
of this downstream compliance provision is to address test variability
concerns. With this change, we anticipate that refiners will be able to
produce diesel fuel at an average level of approximately 7-8 ppm, as
was intended by the proposal, without fear of causing a downstream
violation due solely to test variability. As test methods improve in
the future, we may reevaluate whether two ppm is the appropriate
allowance for purposes of this compliance provision.
    This change is not expected to undermine the environmental goals of
the regulation since it should not result in diesel fuel exceeding the
15 ppm sulfur standard at any point in the distribution system. All
highway diesel fuel subject to the 15 ppm standard is still required to
meet the 15 ppm standard at the refinery gate, without allowance for
test variability.\209\ The purpose of taking testing variability into
account in compliance determinations for fuel sampled downstream of the
refinery or import facility is merely to ensure that fuel actually
meeting the 15 ppm cap is not rejected by pipelines or otherwise
treated as noncompliant due to concerns about testing variability. It
is not expected to result in any increase in the actual sulfur content
of highway diesel fuel above 15 ppm at any point in the distribution
system.
---------------------------------------------------------------------------

    \209\ Once motor vehicle diesel fuel is moved from the tank in
which it was blended at the refinery (and which the refiner's
designation of the fuel as meeting the 15 ppm standard was based),
the two ppm adjustment applies.
---------------------------------------------------------------------------

2. Other Provisions
a. Implementation Dates
    As discussed in Section IV.A, today's rule staggers the
implementation dates for highway diesel fuel for use in 2007 and later
vehicles to comply with the 15 ppm sulfur standard, based on a
facility's position in the distribution system. Refiners and importers
must meet the 15 ppm sulfur standard by June 1, 2006. Fuel in the
distribution system downstream of the refinery or import facility,
including fuel at truck loading terminals,but not including fuel at
retail outlets or wholesale purchaser-consumers, must be in compliance
by July 15, 2006. Highway diesel fuel at retailers' and wholesale
purchaser-consumers' storage tanks must be in compliance by September
1, 2006, and pump labeling requirements (see Section VII.C.2.c below)
also must be in place by that date. We believe the dates finalized in
today's rule will allow sufficient time for downstream parties to
transition tanks from 500 ppm sulfur levels to 15 ppm sulfur levels.
    The date by which all highway diesel fuel produced by refiners must
meet the 15 ppm sulfur standard is June 1, 2010.\210\ The final
compliance date for all highway diesel fuel in the distribution system
to meet the 15 ppm standard, other than at retail outlets and wholesale
purchaser-consumer facilities, is October 1, 2010. The final compliance
date for all highway diesel fuel at retail and wholesale purchaser-
consumer facilities to meet the 15 ppm sulfur standard is December 1,
2010.
---------------------------------------------------------------------------

    \24\ Under the temporary compliance option, for the period from
January 1, 2010 through May 31, 2010, refiners can produce 500 ppm
fuel only through the use of credits.
---------------------------------------------------------------------------

b. Product Segregation and Contamination
    Under today's diesel sulfur program, it is imperative that
distribution systems segregate highway diesel fuel from high sulfur
distillate products such as home heating oil and nonroad diesel fuel.
The sulfur content of those products is frequently as high as 3,000
ppm. We are also concerned about potential misfueling at retail outlets
and wholesale purchaser-consumer facilities, even if segregation of the
different grades of diesel fuel has been maintained in the distribution
system. Thus, certain downstream compliance and enforcement provisions
of the rule are aimed at both preventing contamination of highway
diesel fuels with fuels containing higher levels of sulfur, and
preventing misfueling of motor vehicles with high sulfur fuels.
    Similarly, it is imperative that all parties in the distribution
system avoid contamination of 15 ppm highway diesel fuel with 500 ppm
highway diesel fuel. Thus, the final rule has adopted a requirement for
product

[[Page 5119]]

transfer documents accompanying deliveries of motor vehicle diesel fuel
diesel fuel to identify the sulfur standard it meets and its allowed
use. All parties in the distribution system face liability if highway
diesel fuel is contaminated such that it fails to meet the applicable
standard.
    We are also adopting provisions designed to discourage the
downgrading of 15 ppm diesel to 500 ppm diesel in the distribution
system during the initial years of the program when the optional
compliance provision is in effect. Our concern is that if 15 ppm diesel
is routinely downgraded and sold as 500 ppm fuel, this practice could
lead to availability problems (i.e., risk of 15 ppm not being widely
available across the country). We fully recognize that some amount of
15 ppm downgrading will be necessary where the 15 ppm fuel becomes
contaminated in the distribution system (e.g., pipeline interfaces). In
fact, one advantage of the temporary compliance option is that if 15
ppm fuel becomes contaminated, it can still be sold as highway fuel
(downgraded to 500 ppm fuel), rather than downgrading it to off-highway
fuel. However, we also recognize that there is the potential for
parties in the distribution system to intentionally mix 15 ppm product
with 500 ppm fuel, and still sell the product as 500 ppm fuel. While we
don't expect this practice to be widespread, it could occur, especially
where there is only a small price differential between the two fuels.
    Therefore, we are restricting the volume of 15 ppm fuel that can be
downgraded to 500 ppm highway diesel fuel at each point in the
distribution system (downstream of the refinery gate) to not more than
20 percent on an annual basis. Each party in the distribution system
subject to this provision will be required to meet this requirement
separately, based on the amount of 15 ppm fuel it receives and
transfers/sells to the next party (or end user, in the case of
retailers and wholesale purchaser-consumers) on an annual basis. We
believe that this limit will be more than sufficient to allow for some
downgrading for any contamination that may occur, while still being
restrictive enough to discourage downgrading and commingling of 15 ppm
fuel with 500 ppm fuel. These provisions will be in effect through May
31, 2010.
    We recognize that, in some parts of the country, highway-grade
diesel fuel is commonly sold into off-highway markets, due to
limitations in the distribution system for carrying one grade of
diesel. We do not want to preclude this practice in the future; thus,
we are not preventing 15 ppm diesel from being downgraded to off-
highway fuel. The downgrading restriction applies only to 15 ppm
downgraded to 500 ppm highway diesel fuel. We do not anticipate
increased instances of downgrading to off-highway diesel fuel relative
to today, given the increase in the price differential between highway
diesel and off-highway diesel fuel that will likely result from this
program. Therefore, we do not believe it is necessary to impose a
regulatory restriction on downgrading of 15 ppm highway diesel to off-
highway diesel.
    All parties in the distribution system downstream of the refinery
gate are subject to this provision, except for those retailers that
offer for sale and wholesale purchaser-consumers that use 15 ppm fuel
(either as the only grade of diesel or in addition to 500 ppm diesel).
In other words, the only retailers and wholesale purchaser-consumers
that are subject to this requirement are those that offer for sale or
use only 500 ppm diesel (but not 15 ppm diesel).
    Since all parties in the distribution system are required by other
provisions in this final rule to maintain product transfer documents,
which will indicate whether the diesel fuel meets the 15 ppm or 500 ppm
standard as well as the volume of such fuel, we are not requiring new
recordkeeping requirements beyond these to demonstrate compliance with
these provisions. The parties will merely have to ensure that at the
end of each year during the period the temporary compliance option is
in effect that they comply with the 20 percent requirement based on the
incoming and outgoing PTD records described in Section VII.E.5 below.
c. Diesel Fuel Pump Labeling
    As discussed in Section IV.A.2 above and in the Chapter IV of the
RIA, we believe that clear information about the proper fuel to use and
the consequences of misfueling will minimize the potential for
misfueling of new-technology vehicles. Under our final fuel program
approximately 75% of the fuel in each PADD will meet the 15 ppm
standard during the first few years. We believe that this will ensure
that the fuel will be widely available in every part of the United
States. Moreover, within four years all highway diesel fuel will meet
this standard. Under these circumstances we believe the potential for
misfueling will be limited. Nevertheless, we did receive considerable
comment expressing concerns over the potential for misfueling.
    In addition to the required labels on diesel fuel pumps described
below, we believe that the use of unique nozzles, color-coded
scuffguards, or dyes to distinguish the grades of diesel fuel may be
useful in preventing accidental misfueling. While we are not finalizing
any requirements today, we will plan to work with the vehicle
manufacturers and representatives of the fuel industry and other
interested stakeholders over the next several years to develop workable
solutions that are consistent with current industry practices and other
regulatory requirements.
    For any multiple-fuel program like the temporary compliance option
adopted today, clearly labeling diesel fuel pumps is vital for end
users to distinguish between the two grades of fuel. We received
comments on the NPRM that concurred with our assessment in the proposal
that pump labels, in conjunction with vehicle labels, would also have
the effect of helping to help prevent misfueling of motor vehicles with
high sulfur diesel fuel. Section VI.G. above describes the labels that
manufactures will place on vehicle and information that will be
provided to vehicle owners. Today's rule also adopts pump labeling
requirements for retailers and wholesale purchaser-consumers similar to
those we proposed, but with modifications to account for the
availability of diesel fuel subject to the 500 ppm sulfur standard for
use in pre-2007 motor vehicles. The text of the labels appears below;
the specific requirements for label size and appearance are found in
the regulatory language for this rule.
    For pumps dispensing 15 ppm diesel fuel, the label will read as
follows:

LOW-SULFUR DIESEL FUEL

    Recommended for use in all diesel highway vehicles.
    Required for model year 2007 and later highway vehicles.
    For pumps dispensing 500 ppm diesel fuel the label will reads as
follows:

HIGH-SULFUR DIESEL FUEL--WARNING

    May damage model year 2007 and later highway vehicles.
    Federal Law prohibits use in these vehicles.
    Finally, for pumps dispensing nonroad diesel fuel that are located
at the same retail outlet as highway diesel fuel pumps, the label will
read as follows:

NONROAD DIESEL FUEL--WARNING

    May damage highway vehicles.
    Federal Law prohibits use in any highway vehicle.

[[Page 5120]]

3. Use of Used Motor Oil in New Diesel Vehicles
    We understand that used motor oil is sometimes disposed of by
blending it with diesel fuel for use as fuel in diesel vehicles. Such
practices range from blending used motor oil directly into the vehicle
fuel tank, to blending it into the fuel storage tanks, to blending
small amounts of motor oil from the vehicle crank case into the fuel
system as the vehicle is being operated. To the extent such practices
could cause vehicles to exceed their emissions standards, the person
blending the oil, or causing or permitting such blending, could be
considered to be rendering emission controls inoperative in violation
of Section 203 of the CAA and potentially liable for a civil penalty
(Section 203(a)(3) of the Act, 42 U.S.C. 7522(a)(3)).
    Since current formulations of motor oil contain very high levels of
sulfur, the addition of used oil to highway diesel fuel could
substantially impair the sulfur-sensitive emissions control equipment
expected to be used by engine manufacturers to meet the emissions
standards in today's rule. Depending on how the oil is blended, it
could increase the sulfur content of the fuel burned in the vehicle by
as much as 200 ppm. As a result, we believe blending used oil into
highway diesel fuel could render inoperative the emission control
technology on the vehicle and potentially cause driveability problems.
    Therefore, today's rule prohibits any person from introducing or
causing or allowing the introduction of used motor oil, or diesel fuel
containing used motor oil, into the fuel delivery systems of vehicles
manufactured in model year 2007 and later. The only exception to this
is where the engine is explicitly certified to the emission standard
with oil added and the oil is added in a manner consistent with the
certification. Please refer to the Response to Comments document for a
discussion of concerns raised by commenters on this issue.
4. Use of Kerosene in Diesel Fuel
    As we discussed in the NPRM, kerosene is commonly added to highway
diesel fuel to reduce fuel viscosity in cold weather. Today's rule will
not limit this practice. Consistent with the proposal, under today's
rule, kerosene that is used, intended for use, or made available for
use as or for blending with 15 ppm sulfur highway diesel fuel is itself
required to be classified as ``motor vehicle diesel fuel'' and meet the
15 ppm standard, as well as the standards for aromatics and cetane (see
Section 80.2(y) of the regulatory language following this preamble).
This classification for highway fuel use may be made by the fuel's
refiner or may be made by a downstream party at the point when that
party chooses to use the kerosene in its possession for highway fuel
use.
    To help ensure that only distillates that comply with the 15 ppm
highway diesel fuel standard are blended into 15 ppm highway diesel
fuel, today's rule has adopted the proposed requirement that kerosene
meeting the 15 ppm standard and distributed by the transferring party
for use in motor vehicles, must be accompanied by PTDs accurately
stating that the product meets the 15 ppm sulfur standard (See Section
VII.E.5. below).
    As a general matter, any party who blends kerosene, or any
blendstock, into motor vehicle diesel fuel, or who produces motor
vehicle diesel fuel by mixing blendstocks, is a refiner and would be
subject the requirements and prohibitions applicable to refiners under
the rule. However, under today's rule, in deference to the longstanding
and widespread practice of blending kerosene into diesel fuel at
downstream locations, downstream parties who only blend kerosene into
motor vehicle diesel fuel will not be subject to the requirements
applicable to refiners, provided that they do not alter the fuel in any
other way. Further, downstream parties choosing to blend kerosene into
15 ppm highway diesel fuel will be entitled to the 2 ppm adjustment
factor for both the kerosene and the diesel fuel into which it is
blended at downstream locations, provided that the kerosene had been
transferred to the party with a PTD indicating compliance with that
standard. Sulfur test results from downstream locations of parties who
do not have such a PTD for their kerosene will not be subject to this
adjustment factor, either for the kerosene itself, or for the highway
diesel fuel into which it is blended.
    In order to ensure the continued compliance of 15 ppm fuel with the
15 ppm standard, downstream parties choosing to blend kerosene into 15
ppm highway diesel fuel are required by the final rule to either have a
PTD for that kerosene indicating compliance with the 15 ppm standard,
or to have test results for the kerosene establishing such compliance.
    Any party who causes the sulfur level of 15 ppm highway diesel fuel
to exceed 15 ppm by blending kerosene into highway diesel fuel, or by
using high sulfur kerosene as highway diesel fuel, would be subject to
liability for violating the sulfur standard. Similarly, parties who
cause the sulfur level of 500 ppm highway diesel fuel to exceed that
standard by blending kerosene into the fuel, would also be subject to
liability.
    The rule does not require refiners or importers of kerosene to
produce or import kerosene meeting the 15 ppm sulfur standard. However,
we believe that refiners will produce low sulfur kerosene in the same
refinery processes that they use to produce low sulfur highway diesel
fuel, and that the market will drive supply of low sulfur kerosene for
those areas where, and during those seasons when, the product is needed
for blending with highway diesel fuel. Comments to the NPRM regarding
this provision generally supported this approach.
5. Use of Diesel Fuel Additives
    Diesel fuel additives include corrosion inhibitors, cold-
operability improvers, and static dissipaters. Use of such additives is
distinguished from the use of kerosene by the low concentrations at
which they are used and their relatively more complex chemistry.\211\
We proposed that diesel fuel additives used in highway diesel fuel meet
the same cap on sulfur content required for the fuel itself. Additive
manufacturers commented \212\ that there was no need to impose a 15 ppm
sulfur cap on such additives in order to effectively limit the sulfur
content of finished diesel fuel. They asserted that imposing such a cap
would result in unjustified costs and disruptions to the producers and
users of diesel additives. Additive manufacturers also stated that for
certain additives, such as static dissipaters needed to prevent
explosion hazards at terminal facilities, there are currently no
effective alternatives that comply with a 15 ppm cap on sulfur content.
---------------------------------------------------------------------------

    \211\ Diesel fuel additives are used at concentrations commonly
expressed in parts per million. Diesel fuel additives can include
specially-formulated polymers and other complex chemical components.
Kerosene is used at much higher concentrations, expressed in volume
percent. Unlike diesel fuel additives, kerosene is a narrow
distillation fraction of the range of hydrocarbons normally
contained in diesel fuel. See Section VII.C.4 above regarding the
requirements associated with the addition of kerosene to diesel
fuel.
    \212\ See comments of the American Chemistry Council, Docket
Item IV-D-183 in Docket A-99-06 associated with this rule.
---------------------------------------------------------------------------

    Additive manufacturers suggested an approach whereby shipments of
additives that have a sulfur content above 15 ppm would be accompanied
by a product transfer document (PTD) that includes information on
additive sulfur content, maximum recommended treatment rate, and the
potential impact

[[Page 5121]]

on the sulfur content of the fuel when the additive is used at the
maximum recommended treatment rate. Under such an approach, they
suggested that the use of diesel additives should be permitted to
result in an increase in the sulfur content of the finished fuel of
less than 0.5 ppm, such that fuel would effectively be required to meet
a sulfur cap of 15.5 ppm.
    In response to these comments, we are allowing the use of diesel
fuel additives with a sulfur content greater than 15 ppm. However, we
believe that this can be accomplished without allowing the 15 ppm cap
on fuel sulfur content to be exceeded. The 15 ppm cap is based on our
understanding of the level that is necessary to ensure the durability
and proper operation of the emissions control hardware that will be
used to comply with the emissions standards in today's rule. We believe
that it is most appropriate for the market to determine how best to
accommodate increases in the fuel sulfur content from the refinery gate
to the end user, while maintaining the 15 ppm cap, and whether such
increases result from contamination in the distribution system or
diesel additive use. By providing this flexibility, we anticipate that
market forces will encourage an optimal balance between the competing
demands of manufacturing fuel lower than the 15 ppm sulfur cap,
limiting contamination in the distribution system, and limiting the
additive contribution to fuel sulfur content.
    Our review of data submitted by additive and fuel manufacturers to
comply with EPA's Fuel and Fuel Additive Registration requirements (40
CFR Part 79) indicates that additives to meet every purpose (including
static dissipation) are currently in common use which meet a 15 ppm cap
on sulfur content (see Chapter IV.D. of the RIA for more information on
additives). Since such low-sulfur additives are currently in use side-
by-side with high-sulfur additives, it is reasonable to conclude that
there is not a significant difference in their cost. Even if not yet
available for certain purposes, we believe that it is reasonable to
assume that low-sulfur additives will become available before this rule
is implemented in 2006. The ability of industry to provide low-sulfur
additives is supported by the fact that diesel fuel meeting a 10 ppm
cap on sulfur content has been marketed in Sweden for some time, and
ARCO Petroleum recently began marketing fuel meeting a 15 ppm sulfur
cap in California.
    The unusually high sulfur content of a few additives may discourage
their use in diesel fuel that meets a 15 ppm sulfur cap. However, it
will generally continue to be possible for additive manufacturers to
market additives that contain greater than 15 ppm sulfur for use in
highway diesel fuel. Such additives can also continue to be used in
nonroad diesel fuel. Additive manufacturers that market such additives
and blenders that use them in highway diesel fuel will have additional
requirements to ensure that the 15 ppm sulfur cap on highway diesel
fuel is not exceeded. Although today's rule may encourage the gradual
retirement of additives that do not meet a 15 ppm sulfur cap for use in
highway diesel fuel, we do not anticipate that this will result in
disruption to additive users and producers or a significant increase in
cost. Additive manufactures commonly reformulate their additives on a
periodic basis as a result of competitive pressures. We anticipate that
any reformulation that might need to occur to meet a 15 ppm sulfur cap
will be substantially accommodated within this normal cycle.
    Today's rule limits the continued use in highway diesel fuel of
diesel fuel additives that exceed 15 ppm sulfur to additives that are
used at concentrations of less than one volume percent. We believe that
this limitation is appropriate and will not cause any undue burden
because the diesel fuel additives for which this flexibility was
included are always used today at concentrations well below one volume
percent. Further, one volume percent is the threshold above which the
blender of an additive becomes subject to all the requirements
applicable to a refiner (40 CFR 79.2(d)(1).
    The specific requirements in today's rule regarding the use of
diesel fuel additives are as follows:

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

    (1) The additive's maximum sulfur concentration
    (2) The maximum recommended concentration for use of the additive
in diesel fuel, and
    (3) The contribution to the sulfur level of the fuel that would
result if the additive is used at the maximum recommended
concentration.
    Blenders of additives that exceed 15 ppm in sulfur content will be
held liable if their actions cause the sulfur content of the finished
fuel to exceed 15 ppm. In some cases, blenders may not find it feasible
to conduct testing, or otherwise obtain information on the sulfur
content of the fuel either before or after additive blending, without
incurring substantial cost. We anticipate that blenders will manage the
risk associated with the use of additives above 15 ppm in sulfur
content under such circumstances with actions such as the following:

--Selecting an additive with minimal sulfur content above 15 ppm that
is used at a low concentration, and
--Working with their upstream suppliers to provide fuel of sufficiently
low sulfur content to accommodate the small increase in sulfur content
which results from the use of the additive.

    This is similar to the way distributors will manage contamination
from their distribution hardware (tank trucks, etc.). Distributors will
not necessarily test for fuel sulfur content after each opportunity for
contamination, but rather will rely on mechanisms set up to minimize
the contamination, and to obtain fuel sufficiently below the standard
to accommodate the increase in sulfur content from the contamination.
    The recordkeeping, reporting, and PTD provisions associated with
these requirements are discussed in Section VII.E below. The liability
provisions are discussed in Section VII.G below.

D. What Are the Testing and Sampling Methods and Requirements?

1. Diesel Fuel Testing Requirements and Test Methods
    As part of the diesel fuel sulfur program adopted today, EPA is
designating the test method that we will use in determining compliance
for samples collected at all points in the distribution system. This
designated method is called ``Test Method for Total Sulfur in Liquid
Aromatic Hydrocarbons and Their Derivatives by Oxidative Combustion and
Electrochemical Detection,'' or ASTM D 6428-99.
    In the notice of proposed rulemaking, we proposed to designate ASTM
D 2622-98 with minor modifications as the designated test method for
quantifying the sulfur content of diesel fuel. This designated test
method would be the one that EPA would utilize in its own laboratory in
order to determine whether a given sample taken at any point in the
distribution system is in compliance with the appropriate diesel sulfur
standard or not. We proposed to apply this designated test method not

[[Page 5122]]

just to this final rule, which will be effective in 2006, but also to
the existing diesel sulfur requirements, which are currently in effect.
The modifications were designed to ensure appropriate precision at low
sulfur levels below 15 ppm. Specifically, the modifications consisted
of substitution of a measurement blank that more closely resembles the
boiling point range and density of diesel fuel and a change to the
calibration line to ensure that it goes through zero.\213\
---------------------------------------------------------------------------

    \213\ For a detailed description of the proposed modifications
to ASTM D 2622-98, see 65 FR 35530-35531 (June 2, 2000).
---------------------------------------------------------------------------

    We received several comments related to the proposed test method.
Some parties suggested further modifications to ASTM D 2622-98 and
others recommended that we select ASTM D 5453-00 entitled, ``Standard
Test Method for Determination of Total Sulfur in Light Hydrocarbons,
Motor Fuels and Oils by Ultraviolet Fluorescence'' as the designated
test method in the regulation. We have considered the comments
carefully and agree that it is desirable to choose an accepted ASTM
method as our designated test method. However, we do not believe that
ASTM D 5453 is capable of measuring all sulfur containing compounds.
Specifically, we do not believe that it will measure sulfonates, which
are found in certain diesel additives typically added at terminals.
Because of the stringent 15 ppm sulfur standard adopted today, the
sulfonate compounds in these additives may become significant
contributors to the overall sulfur level of the fuel.
    Under this final rule, there is no requirement for every-batch
testing for refiners or importers. However, because the diesel sulfur
standard will be enforced at all points in the fuel distribution
system, we believe that refiners and importers will engage in such
testing, because satisfactory test results may be used to form the
basis for an affirmative defense in the event of a violation.
Downstream fuel suppliers such as truck loading terminals that blend
additives to highway diesel fuel may not find it practical to engage in
testing every time they blend additives into diesel fuel. As described
in the previous section, manufacturers of fuel additives will be
required to provide appropriate information about how to blend the
additive properly (the treatment rate) and will be required to retain
samples of additive batches for the prescribed time period in order to
demonstrate compliance with this regulation, as discussed in the
previous section.
    We believe that there is more than one test method that may be used
to determine the sulfur content of diesel fuel at low levels and
believe that it is appropriate to allow alternative analytical test
methods as long as they are correlated to the designated test method to
be used by EPA. The ASTM methods that are allowed as alternative test
methods under this rule are ASTM D 3120-96, ``Standard Test Method for
Trace Quantities of Sulfur in Light Liquid Petroleum Hydrocarbons by
Oxidative Microcoulometry.'' and ASTM D 4045-99, ``Standard Test Method
for Sulfur in Petroleum Products by Hydrogenolysis and Rateometric
Colorimetry.'' Furthermore, we will allow the use of the modified form
of ASTM D 2622, which was proposed to be the designated test method, as
an alternative test method. As stated above, results from the use of
all alternative analytical test methods must be correlated to the
designated test method.
    We believe that choosing an appropriate ASTM method as our
designated test method for enforcement testing purposes and allowing
the use of these alternative test methods furthers the purposes of the
``National Technology Transfer and Advancement Act of 1995'' (NTTAA),
section 12(d) of Public Law 104-113, and Office of Management and
Budget (OMB) Circular A-119. Both of these documents are designed to
encourage the adoption of standards developed by ``voluntary consensus
bodies'' and to reduce reliance on government-unique standards where
such consensus standards would suffice. In the future, we plan to adopt
a performance based test method approach that would address the use of
these alternative methods, including ``in-house'' test methods
developed by individual refiners and importers. We also intend to
continue working with the industry and ASTM in the future to develop
and improve sulfur test methods, and will consider modifications to
today's rule as developments warrant.
    We also received comments indicating that there would not be any
field test equipment for 15 ppm diesel fuel available by 2006. With
regard to field testing, we believe that the technology that will
enable the development of appropriate equipment or modifications to
existing equipment exists or will be developed in response to the
requirements of this rule.
    In the NPRM, we discussed a comment received in response to the
ANPRM that ASTM D 2622-98 may not be suitable for determining the
sulfur content of biodiesel fuel, or mixtures of biodiesel and
conventional diesel fuel. In response to the NPRM, we received comment
indicating that significant modifications would be required to ASTM D
2622-98 in order to adapt it for use with biodiesel and biodiesel
blends. We believe the selected method, ASTM D 6428-99, is appropriate
for use with biodiesel and biodiesel blends. However, depending on the
product, any of the test methods allowed by this rule may require some
adaptation by the operator.
    The test method for determination of sulfur in motor oil is ASTM D
4297-96, entitled, ``Standard Test Methods for Elemental Analysis of
Lubricant and Additive Components--Barium, Calcium, Phosphorus, Sulfur,
and Zinc by Wavelength-Dispersive Fluorescence Spectroscopy.'' This
method uses the same apparatus as ASTM D 2622-98, but includes specific
methodology to compensate for interferences caused by additives present
in motor oil. Consistent with the goals of the NTTAA and OMB Circular
A-119, and in order to provide greater flexibility for regulated
parties, we recognize that ASTM D 5453-00 may be selected by regulated
parties as an appropriate alternative analytical test method for the
purpose of measuring sulfur in motor oil.
2. Diesel Fuel Sampling Methods
    The final rule adopts the proposed sampling methods. There were no
negative comments regarding these technical changes. The requirement to
use these methods is effective June 1, 2001. These same methods were
adopted for use in the Tier 2/Gasoline Sulfur rule.31\214\ These
sampling methods are ASTM D 4057-95 (manual sampling) and D 4177-95
(automatic sampling from pipelines/in-line blending). We are requiring
the use of these ASTM methods instead of the methods currently provided
in 40 CFR part 80, Appendix G, for determining compliance under both
the new 15 ppm sulfur standard, and the 500 ppm standard currently in
place. That is because these methods have been updated by ASTM, and the
updates have provided clarification and have eliminated certain
requirements that are not necessary for sampling petroleum products
such as diesel fuel.
---------------------------------------------------------------------------

    \214\ 65 FR 6833-34 (Feb. 10, 2000). These methods are also
proposed for use under the RFG and CG rules. See 62 FR 37337 et seq.
(July 11, 1997).

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[[Page 5123]]

E. What Are the Recordkeeping, Reporting and Product Transfer Document
Requirements?

1. Registration of Refiners and Importers
a. All Refiners and Importers
    By December 31, 2001, refiners and importers that may produce or
supply highway diesel fuel by 2006 must register with EPA.
Specifically, refiners and importers that are either currently
producing or supplying highway diesel fuel, or that expect to do so by
June 1, 2006, must register. The registration must include the
following information:

--Corporate name and address of the refiner or importer and any parent
companies and a contact person
--Name and address of all refineries or import facilities (including,
for importers, the port of entry and PADD)
--A contact person.
--Location of records
--Business activity (refiner or importer)
--Capacity of each refinery in barrels of crude oil per calendar day

b. Prospective Small Refiners
    In addition to the basic registration requirements above, a refiner
seeking status as a small refiner needs to apply for this status as a
part of their registration and provide the average number of employees
for all pay periods from January 1, 1999 to January 1, 2000, for the
company, all parent companies, and all subsidiaries or joint ventures.
The application also must include which small refiner option the
refiner expects to use at each of its refineries.
c. Refiners Seeking an Extension of the GPA Gasoline Sulfur Standards
    In addition to the basic registration requirements above, a refiner
or importer seeking an extension of the special GPA gasoline sulfur
standards (see Section IV.B above) must apply for such an extension in
their registration.
2. Pre-Compliance Reports
a. All Refiners
    As discussed in Section IV above, by June 1, 2003, all refiners and
importers must report to EPA on their progress toward compliance with
the highway diesel fuel sulfur standards adopted today. Subsequently,
these pre-compliance reports are also due on June 1 of 2004 and 2005.
EPA will maintain the confidentiality of information submitted in pre-
compliance reports. We will present generalized data from the reports
on a PADD basis in annual reports following the receipt of each year's
pre-compliance reports. These reports are for information purposes only
and, while refiners must truthfully report on their projected plans in
order for this provision to have any value, we will not hold refiners
liable if their actual actions deviate from these reports. We fully
expect that refiners' plans may change, which is why we are requiring
these reports to be updated annually through 2005.
    In their pre-compliance reports, refiners and importers need to
include the following information:

--Any changes in their basic corporate or facility information since
registration.
--Estimates of the volumes (in gallons) of 15 ppm fuel and, if
applicable, 500 ppm fuel to be produced from crude oil in each
refinery, as well as the volumes of each grade of highway diesel fuel
produced from other sources.
--For entities expecting to participate in the credit program,
estimates of numbers of credits to be earned and/or used.
--Information regarding engineering plans (e.g., design and
construction), the status of obtaining any necessary permits, and
capital commitments for making the necessary modifications to produce
low sulfur highway diesel fuel, and actual construction progress. The
pre-compliance reports due in 2004 an 2005 must provide an update of
the progress in each of these areas.
b. Small Refiners
    In addition to the information required for all refiners above,
small refiners must provide additional information in their pre-
compliance reports. The information required varies according to which
small refiner option the refiner plans to use, as discussed in Section
IV.C above. The following paragraphs summarize the supplementary
information required for each small refiner option.

500 ppm Option

    The pre-compliance report for a refiner planning use the 500 ppm
Option must make a showing that sufficient sources of 15 ppm fuel will
likely exist in the area. If after 2003 the sources of 15 ppm fuel
decrease, the pre-compliance reports for 2004 and/or 2005 must identify
this change and must include a supplementary showing that the sources
of 15 ppm fuel are still sufficient.

Small Refiner Credit Option

    Pre-compliance reporting for small refiners choosing this Small
Refiner Credit option is identical to that for the 500 ppm option (that
is, if the small refiner is also producing 500 ppm highway diesel
fuel), with the additional requirement that the refiner also report on
any credits it expects to generate and sell.

Diesel/Gasoline Compliance Date Option

    Pre-compliance reports from any small refiners expecting to use the
Diesel/Gasoline Compliance Date Option must provide information showing
that diesel desulfurization plans are on track. In addition to the
information about the expansion of desulfurization capacity required
above for all refiners, the pre-compliance reports for small refiners
expecting to use this option need to reasonably show that the refiner
will be in a position by June 1, 2006 to produce of 100 percent of the
refiners highway diesel fuel at 15 ppm sulfur at a volume at least 85
percent of its baseline highway diesel volume.
c. GPA Refiners
    As with small refiners expecting to use the Diesel/Gasoline
Compliance Option above, pre-compliance report from any refiners or
importers expecting to use the extension of the GPA gasoline sulfur
standards must provide information showing that diesel desulfurization
plans are on track. In addition to the information about the expansion
of desulfurization capacity required above for all refiners, the pre-
compliance reports for prospective GPA refiners need to reasonably show
that the refiner will be in a position by June 1, 2006 to produce of
100 percent of the refiners highway diesel fuel at 15 ppm sulfur at a
volume at least 85 percent of its baseline highway diesel volume.
3. Annual Compliance Reports
a. All Refiners
    After the highway diesel sulfur requirements begin June 1, 2006,
refiners and importers will be required to submit annual compliance
reports that demonstrate compliance with the requirements of this final
rule. The first annual compliance report will be due by the end of
February 2007 (for the period of June 1, 2006 through December 31,
2006) and would be required annually through February 2011. A refiner's
annual compliance reports must include the following information, for
each refinery:

--The volumes of 15 ppm and 500 ppm sulfur highway diesel fuel produced
from crude oil during the compliance period, as well as the volumes of
each grade of highway diesel fuel produced from other sources.

[[Page 5124]]

--The number of credits, if any, used to demonstrate compliance with
the 80 percent requirement for 15 ppm sulfur fuel, and their source(s).
--The number of credits, if any generated.
b. Small Refiners
    As with pre-compliance reports, small refiners must supply
additional information related to the small refiner option they are
using in their annual compliance reports.

500 ppm Option and Small Refiner Credit Option

    In their annual compliance reports, small refiners choosing the 500
ppm Option or the Small Refiner Credit Option need to show that the
volume they produce of highway diesel fuel meeting the 500 ppm sulfur
standard meets the lesser of the following values: (1) 105 percent of
the average highway diesel volume it produced in calendar years 1998
and 1999 or (2) the average highway diesel volume it produced from
crude oil in calendar years 2004 and 2005.

Diesel/Gasoline Compliance Date Option

    A small refiner using this option needs to confirm in each annual
compliance report that it continues to produce 100 percent of its
highway diesel fuel at 15 ppm sulfur and that its highway diesel volume
continues to be at least 85 percent of its baseline volume.
4. Initial Confirmation of 15 ppm Fuel Production
    Small refiners using the Diesel/Gasoline Compliance Date Option and
refiners using the extension of the GPA gasoline sulfur standard must
confirm to EPA by July 1, 2006 that they began on June 1, 2006
producing 100 percent of their highway diesel fuel at 15 ppm sulfur.
5. Product Transfer Documents (PTDs)
a. Diesel Fuel
    We are adopting the proposed requirements that refiners and
importers provide information on commercial PTDs that identifies diesel
fuel distributed for use in motor vehicles and that states the fuel
complies with the 15 ppm sulfur standard. Since today's rule adopts
provisions for production and sale of diesel fuel having a sulfur
content of 500 ppm for use in pre-2007 model year vehicles, the rule
also adopts provisions requiring PTDs to identify such fuel and state
that its use in motor vehicles is limited to pre-2007 motor
vehicles.\215\ We believe this additional information on commercial
PTDs is necessary because of the importance of preventing commingling
of highway diesel fuel with high sulfur distillate products, avoiding
contamination of 15 ppm highway diesel fuel with 500 ppm highway diesel
fuel, and preventing misfueling of model year 2007 and later vehicles
with any fuel having a sulfur content greater than 15 ppm. In addition,
we are requiring that each PTD include the volume of fuel delivered
(for each grade, 15 ppm and 500 ppm), that is necessary to demonstrate
compliance with the fuel downgrading restrictions discussed in Section
VII.C.2.b above.
---------------------------------------------------------------------------

    \215\ Such fuel can also be used in nonroad vehicles, whose fuel
is currently unregulated.
---------------------------------------------------------------------------

    Except for transfers to truck carriers, retailers and wholesale
purchaser-consumers, product codes may be used to convey the
information. More explicit language on PTDs to these parties is
necessary since employees of such parties are less likely to be aware
of the meaning of product codes. PTDs are not required for transfers of
product into motor vehicles at retail outlets or wholesale purchaser-
consumer facilities.
    To assure that downstream parties can determine whether kerosene,
or other distillates, distributed for use for blending into highway
diesel fuel to reduce viscosity in cold weather meets the 15 ppm sulfur
standard, today's rule adopts the proposed requirement for PTD
identification of distillates distributed for such use as meeting the
15 ppm standard.
    Today's rule adopts the proposal to retain the current diesel
rule's PTD requirement regarding the identification of dyed, tax-exempt
highway diesel fuel. This provision is useful for wholesale purchaser-
consumers that need to know that the diesel fuel they purchase is
appropriate for tax exempt motor vehicle use despite the presence of
red dye.\216\
---------------------------------------------------------------------------

    \216\ The federal tax code requires the use of red dye in both
off-highway distillate fuels and in highway diesel fuel sold for tax
exempt use.
---------------------------------------------------------------------------

b. Additives
    The NPRM proposed that PTDs for additives for use in highway diesel
fuel would be required to state that the additive complies with the 15
ppm sulfur standard. Today's rule has been modified to allow the sale
of additives, for use by fuel terminals or other parties in the diesel
fuel distribution system, that have a sulfur content greater than 15
ppm under specified conditions. As a result, under today's rule the PTD
provisions for such additives are modified as follows:
    For additives that have a sulfur content not exceeding 15 ppm, the
PTD must state: ``The sulfur content of this additive does not exceed
15 ppm.''
    For additives that may have a sulfur content exceeding 15 ppm, the
additive manufacturer's PTD, and PTDs accompanying all subsequent
transfers, must provide: a warning that the additive's sulfur content
exceeds 15 ppm; the maximum sulfur content of the additive; the
appropriate amount of additive to blend to highway diesel fuel, stated
as gallon of additive per gallon of diesel fuel; and the increase in
sulfur concentration of the fuel the additive will cause when used at
the specified concentration.
    The proposed provisions for consumer additives for use in diesel
motor vehicles are slightly modified in the final rule due to concerns
that additives designed for nonroad engines could accidentally be
introduced into motor vehicle engines if they have no label stating
appropriate use. Under today's rule consumer additives for use in any
diesel engines must be accompanied by information that states that the
additive either: complies with the sulfur content requirements for
diesel motor vehicles; or that it has a sulfur content exceeding 15 ppm
and is not for use in model year 2007 or later motor vehicles. This
information is necessary for consumers to determine if an additive is
appropriate for diesel motor vehicle use.
6. Recordkeeping Requirements
    Refiners that produce (or importers that import) both 500 ppm
highway diesel fuel and 15 ppm highway diesel fuel under the temporary
compliance option or any hardship program, or that produce only 15 ppm
sulfur content diesel fuel and that wish to generate credits (including
early credits), must maintain records for each batch of highway diesel
fuel produced, of the batch designations and the batch volumes. The
refiner must maintain records regarding credit generation, use,
transfer, purchase, or termination.
    In general, refiners and importers participating in the temporary
compliance option or any hardship program must keep records of the
following information, as applicable for each refinery (and in the case
of foreign refiners, separately by refinery and by PADD of import), or
for importers, for each PADD:

--The total volume of highway diesel fuel produced or imported;

[[Page 5125]]

--The total volume of highway diesel fuel produced or imported meeting
the 500 ppm; sulfur standard;
--The total volume of highway diesel fuel produced or imported meeting
the 15 ppm sulfur standard;
--For small refiners or GPA refiners using the gasoline sulfur program
extensions, a statement of the baseline volume and whether the volume
of 15 ppm produced or imported fuel is at least equal to 85 percent of
the baseline volume;
--The percentage of highway diesel fuel produced or imported meeting
the 15 ppm sulfur standard before inclusion of credits;
--The volume of 15 ppm highway diesel fuel represented by credits;
--The percentage of 15 ppm highway diesel fuel produced or imported
that is represented by credits;
--The number of credits in the refinery's or importer's possession at
the beginning of the compliance period, separately by early credits and
all other credits;
--The number of credits generated during the compliance period;
--The number of credits used, separately by early credits and all other
credits;
--If any credits were obtained from or transferred to other parties,
for each other party, its name, its EPA refiner or importer
registration number, and the number of credits obtained from or
transferred to the other party, provided separately for early credits
and all other credits;
--The percentage of compliance with the 15 ppm motor vehicle diesel 80
percent volume requirement by use of credits (provided separately for
early credits and all other credits);
--The number of credits that will carry over to the next averaging
period, provided separately for early credits and all other credits;
--Records regarding test results, including mandatory quality assurance
tests; and
--Contracts or other commercial documents that establish each transfer
of credits.

    Refiners approved for temporary hardship relief due to extreme
unforseen circumstances or extreme financial hardship must include
certain information in their application for relief. The required
information, and the factors we will consider in determining what
relief, if any, is appropriate, are discussed in Section IV.B.3. Such
refiners will also have reasonable recordkeeping and reporting
requirements, which will be fashioned on a case-by-case basis depending
on the nature of any temporary waiver approved.
7. Record Retention
    Today's rule adopts the NPRM proposal that the retention period for
all records required to be kept by the rule is 5 years. This is the
same period of time required in other fuels rules, and it coincides
with the applicable statute of limitations. We believe that for other
reasons, most parties in the distribution system would maintain some or
all of these records for this length of time even without the
requirement.
    This retention period applies to PTDs, records of any test results
performed by any regulated party for quality assurance purposes or
otherwise, along with supporting documentation such as date of sampling
and testing, batch number, tank number, and volume of product. Business
records regarding actions taken in response to any violations
discovered are also required to be maintained for 5 years.
    All records required to be maintained by refiners participating in
the temporary compliance option or hardship options (or by importers of
diesel fuel produced by a foreign refiner approved for the temporary
compliance option or a hardship option), including small refiner and
farmer cooperative and GPA options, are also covered by the retention
requirement.

F. Are There Any Exemptions From the Highway Diesel Fuel Requirements?

1. Research and Development
    Today's rule exempts from the sulfur standards diesel fuel used for
research, development and testing purposes (R & D), as was proposed in
the NPRM. We recognize that there may be legitimate research programs
that require the use of highway diesel fuel with higher sulfur levels
than allowed under today's proposed rule. As a result, today's rule
contains provisions for obtaining an exemption from the prohibitions
for persons distributing, transporting, storing, selling, or dispensing
highway diesel fuel that exceeds the standards, where such diesel fuel
is necessary to conduct a research, development, or testing program.
    Under the rule, parties seeking an R&D exemption are required to
submit to EPA an application for exemption that describes the purpose
and scope of the program and the reasons that the use of the higher-
sulfur diesel fuel is necessary. Upon presentation of the required
information, an exemption may be granted at the discretion of the
Administrator, with the condition that EPA may withdraw the exemption
ab initio in the event the Agency determines the exemption is not
justified. Fuel subject to this exemption is exempt from the other
provisions of today's rule, provided certain requirements are met.
These requirements include the segregation of the exempt fuel from non-
exempt highway diesel fuel, identification of the exempt fuel on
product transfer documents, pump labeling, and where appropriate, the
replacement, repair, or removal from service of emission systems
damaged by the use of the high sulfur fuel.
2. Racing Vehicles
    Today's rule adopts the NPRM proposal to provide no exemption from
the sulfur content standard and other requirements of today's rule for
diesel fuel used in racing vehicles. In the NPRM, we requested comment
on whether such an exemption is needed and we received no comments
supporting the need for such exemption. As we stated in the NPRM, we
see no advantage for racing vehicles to use fuel having higher sulfur
levels (or lower cetane or higher aromatic levels) than are required by
today's rule, and we are concerned about the potential for misfueling
of motor vehicles that could result from having a high sulfur (e.g.,
3,000 ppm) automotive fuel available in the marketplace. Consequently,
the rule does not provide an exemption from the highway diesel fuel
requirements for vehicles used in racing.
3. Military Fuel
    Based on EPA's existing definition of diesel fuel, we previously
concluded that JP-8 military fuel is not subject to EPA's existing
requirements for diesel fuel. Today's rule revises the definition of
diesel fuel so that JP-5 and JP-8 military fuel that is used or
intended for use in highway diesel motor vehicles will be subject to
all of the requirements applicable to diesel fuel under today's
rule.\217\ However, today's rule also exempts JP-5 and JP-8 fuels from
EPA's diesel fuel requirements if it is used in tactical military
vehicles that have a national security exemption or if it is used in
tactical military vehicles that are not covered by a national security
exemption but for national security reasons, such as the need to be
ready for immediate deployment overseas, need to be fueled on the same
fuel as motor

[[Page 5126]]

vehicles with a national security exemption. Use of JP-5 and JP-8 fuel
not meeting the highway diesel fuel standards in a motor vehicle other
than the tactical military vehicles described above is prohibited under
today's rule.
---------------------------------------------------------------------------

    \217\ Any JP-5, JP-8, or other distillate product that is not
designated by the refiner or importer as motor vehicle diesel fuel,
and that does not otherwise meet the definition of motor vehicle
diesel fuel, would not be included by the refiner or importer in any
computation of motor vehicle diesel fuel volume for baseline or
other purposes.
---------------------------------------------------------------------------

    Due to national security considerations, EPA's existing regulations
allow the military to request and receive national security exemptions
(NSE) for their motor vehicles from emissions regulations if the
operational requirements for such vehicles warrant such an exemption.
These provisions have worked successfully in the past to enable us to
meet both our national air quality and security goals simultaneously.
Today's rule does not change these provisions.
    In discussions with the Department of Defense (DOD), DOD stated
that certain tactical military vehicles must be ready to be shipped
overseas quickly in response to an emergency and must be ready to be
fueled on whatever fuel is available under tactical conditions
(typically JP-8). To avoid problems experienced in the past when
switching between fuel types in tactical vehicles, JP-8 has been
selected as the common tactical fuel for use by the military in the
U.S. and overseas. Thus, the use of the high sulfur fuel, which is
normally supplied overseas under tactical situations, is expected to
continue after the implementation of this rule. However, use of the
high sulfur fuel in these engines equipped with the aftertreatment
technology, necessary to meet the emissions requirements of today's
rule could result in engine failure, driveability problems, and
permanently destroy the emission control system.
    Therefore, it appears that requiring tactical military vehicles
that may be used outside of the U.S. to comply with the emissions
requirements in today's rule is not compatible with the operational
requirements for such vehicles. In their comments on the proposed rule,
DOD stated that it would be appropriate for EPA to cover the tactical
military vehicles that would otherwise be subject to the emissions
regulations in today's rule under a national security exemption. We
recognize the national security concerns raised by DOD, and will
address this issue using the Agency procedures established for this
purpose.\218\ These guidelines are contained in EPA's ``Guidelines for
National Security Exemptions of Motor Vehicles and Motor Vehicle
Engines--Guidelines for Tactical Vehicles/Engines.''
---------------------------------------------------------------------------

    \218\ These guidelines are contained in EPA's ``Guidelines for
National Security Exemptions of Motor Vehicles and Motor Vehicle
Engines--Guidelines for Tactical Vehicles/Engines''
---------------------------------------------------------------------------

    We also recognize that there are tactical military vehicles
manufactured before the requirements of today's rule become effective
that for national security purposes need to continue to be operated on
JP-5 or JP-8 fuel while in the U.S. to facilitate their readiness to be
fueled on whatever fuel is available overseas. Consistent with an
exemption for certain military vehicles, EPA is also exempting diesel
fuel from the sulfur standard in this rule, where the fuel is used in
vehicles exempted from the emissions standards in this rule (pursuant
to 40 CFR 85.1708) or in tactical motor vehicles that are not covered
by a national security exemption but for national security reasons need
to be fueled on the same fuel as motor vehicles with a national
security exemption. To more clearly identify the tactical motor
vehicles to be covered by the diesel fuel exemption the Department of
Defense will submit a notification to EPA describing the rationale and
supporting data for the request and a description of the covered
tactical motor vehicles. The one-time notification should be sent to
EPA by December 15, 2003 in order to provide sufficient time for EPA to
review the information as well as lead time to the Department of
Defense for logistics planning purposes. EPA will then respond to DOD
identifying all vehicles that are covered by the fuel exemption. Based
on data provided by the Department of Defense to date, EPA believes
that providing an exemption for JP-5 and JP-8 fuel used in tactical
motor vehicles does not have any significant environmental impact.

G. Liability and Penalty Provisions for Noncompliance

1. General
    The liability and penalty provisions of the diesel sulfur rule are
similar to the liability and penalty provisions found in the gasoline
sulfur rule, RFG rule and other EPA fuels regulations.\219\ Regulated
parties are subject to prohibitions which are typical in EPA fuels
regulations, such as selling or distributing fuel that does not comply
with the standard, and causing others to commit prohibited acts.
Liability also arises under the diesel rule for prohibited acts
specific to the diesel sulfur control program, such as introducing
diesel fuel not meeting the 15 ppm sulfur standard into diesel motor
vehicles of model year 2007 and later. In addition, parties will be
liable for a failure to meet certain requirements, such as the
recordkeeping, reporting, or PTD requirements, or causing others to
fail to meet such requirements.
---------------------------------------------------------------------------

    \219\ See section 80.5 (penalties for fuels violations); section
80.23 (liability for lead violations); section 80.28 (liability for
volatility violations); section 80.30 (liability for diesel
violations); section 80.79 (liability for violation of RFG
prohibited acts); section 80.80 (penalties for RFG/CG violations);
section 80.395 (liability for gasoline sulfur violations); section
80.405 (penalties for gasoline sulfur regulations).
---------------------------------------------------------------------------

    Under today's rule, the party in the diesel fuel's distribution
system that controls the facility where the violation occurred, and
other parties in that fuel's distribution system (such as the refiner,
reseller, and distributor), are presumed to be liable for the
violation.\220\ As in the Tier 2 gasoline sulfur rule (``Tier 2 sulfur
rule''), today's diesel sulfur rule explicitly prohibits causing
another person to commit a prohibited act or causing non-conforming
diesel fuel to be in the distribution system. Non-conforming means: (1)
Diesel fuel with sulfur content above 15 ppm incorrectly designated as
appropriate for model year 2007 and above motor vehicles or (2) diesel
fuel with sulfur content above 500 ppm incorrectly designated as
appropriate for any model year motor vehicle. Parties outside the
diesel fuel distribution system, such as diesel additive manufacturers
and distributors, would also be subject to liability for those diesel
rule violations which could have been caused by their conduct.
---------------------------------------------------------------------------

    \220\ An additional type of liability, vicarious liability, is
also imposed on branded refiners under these fuels programs.
---------------------------------------------------------------------------

    Affirmative defenses are provided for each party deemed
presumptively liable for a violation, and all presumptions of liability
are rebuttable. In general, in order to rebut the presumption of
liability, parties are required to establish that: (1) The party did
not cause the violation; (2) PTD(s) exist which establish that the fuel
or diesel additive was in compliance while under the party's control;
and (3) the party conducted a quality assurance sampling and testing
program. Diesel fuel refiners, diesel fuel additive manufacturers, and
blenders of high sulfur additives into diesel fuel, would also be
required to provide test results establishing the conformity of the
product prior to leaving that party's control.\221\ Branded

[[Page 5127]]

refiners have additional affirmative defense elements to establish. The
defenses under the diesel sulfur rule are similar to those available to
parties for violations of the RFG, volatility, and the Tier 2 sulfur
regulations. Today's final rule also clarifies that parent corporations
are liable for violations of subsidiaries, in a manner consistent with
the Tier 2 sulfur rule. Finally, the final diesel sulfur rule mirrors
the Tier 2 sulfur rule by clarifying that each partner to a joint
venture will be jointly and severally liable for the violations at the
joint venture facility or by the joint venture operation.
---------------------------------------------------------------------------

    \221\ The requirement of conforming test results was not
included in the NPRM as an affirmative defense element for the fuel
refiner. However, under both the NPRM and today's final rule,
refiners need to establish that they didn't cause the violation. As
a practical matter, refiners generally establish their lack of
causation using such test results. The Agency believes that it is
nonetheless important to require these test results as an
affirmative defense element for refiners because under today's final
rule, refiners are given the ability to produce high sulfur highway
diesel fuel as well as low sulfur product. This makes the
possibility of refiner causation of violations much more likely, and
the production of conforming test results--the one most convincing
piece of evidence which would establish the refiner's lack of
causation--much more essential. Further, conducting such testing
should not be a significant burden for refiners to comply with.
Refiners typically already test their batches to assure component
quality for commercial reasons, and refiners are usually the party
in the distribution system with the most resources--both financial
and analytical--to conduct quality testing. In any case, refiners
may choose not to conduct this testing, since it is merely an
affirmative defense element, and the tests would only become
relevant once a violation is discovered.
---------------------------------------------------------------------------

    As is the case with the other EPA fuels regulations, today's final
diesel sulfur rule applies the provisions of section 211(d)(1) of the
Clean Air Act (Act) for the collection of penalties. These penalty
provisions subject any person that violates any requirement or
prohibition of the diesel sulfur rule to a civil penalty of up to
$27,500 for every day of each such violation and the amount of economic
benefit or savings resulting from the violation. A violation of a
diesel sulfur cap standard constitutes a separate day of violation for
each day the diesel fuel giving rise to the violation remains in the
fuel's distribution system. Under the regulation, the length of time
the diesel fuel in question remains in the distribution system is
deemed to be twenty-five days unless there is evidence that the fuel
remained in its distribution system a lesser or greater amount of
time--the same time presumption that is incorporated in the RFG and
Tier 2 sulfur rules. The penalty provisions are similar to the penalty
provisions for violations of the RFG and the Tier 2 sulfur regulations.
    EPA has included in today's rule two prohibitions for ``causing''
violations: (1) Causing another to commit a violation; and (2) causing
non-complying diesel fuel to be in the distribution system. These
causation prohibitions are like similar prohibitions included in the
Tier 2 gasoline sulfur regulations, and, as discussed in the preamble
to that rule, EPA believes they are consistent with EPA's
implementation of prior motor vehicle fuel regulations. See the
liability discussion in the preamble to the Tier 2 final rule, at 65 FR
6812 et seq.
    The prohibition against causing another to commit a violation would
apply where one party's violation is caused by the actions of another
party. For example, EPA may conduct an inspection of a terminal and
discover that the terminal is offering for sale highway diesel fuel
designated as complying with the 15 ppm sulfur standard, while it, in
fact, had an actual sulfur content greater than the standard.\222\ In
this scenario, parties in the fuel's distribution system, as well as
parties in the distribution system of any diesel additive that had been
blended into the fuel, would be presumed liable for causing the
terminal to be in violation. Each party, of course, would have the
right to present an affirmative defense to rebut this presumption.
---------------------------------------------------------------------------

    \222\ The violation would occur if EPA's test result showed a
sulfur content of greater than 17 ppm, which takes into account the
two ppm adjustment factor for testing reproducibility for downstream
parties.
---------------------------------------------------------------------------

    The prohibition against causing non-complying diesel fuel to be in
the distribution system would apply, for example, if a refiner
transfers non-complying diesel fuel to a pipeline. This prohibition
could encompass situations where evidence shows high sulfur diesel fuel
was transferred from an upstream party in the distribution system, but
EPA may not have test results to establish that parties downstream also
committed violations with this fuel.
    The Agency intends to enforce the liability scheme of the diesel
sulfur rule in the same manner that we have enforced the similar
liability schemes in our prior fuels regulations. As in other fuels
programs, we will attempt to identify the party most responsible for
causing the violation in determining that party that should primarily
be liable for penalties for the violation.
2. What Is the Liability That Additive Manufacturers and Distributors,
and Parties That Blend Additives Into Diesel Fuel, Are Subject To?
a. General
    In the NPRM, the Agency did not propose that additive manufacturers
or distributors would be presumed liable for any violations of the
diesel regulation. Only parties that were in the diesel fuel
distribution system were to be presumed liable for diesel fuel
violations. Parties in the additive distribution system would only be
subject to liability for fuels violations where the Agency established
that they caused others (such as fuel distributors or retailers) to be
in violation. This approach was followed because the NPRM prohibited
the downstream blending into highway diesel fuel of any additive whose
sulfur content exceeded the 15 ppm standard. This limitation reduced
the potential that the additive could be the cause of sulfur non-
compliance in fuel within the diesel distribution system.
    Various additive manufacturers provided comments regarding the need
for certain diesel fuel additives that may exceed the 15 ppm sulfur
standard. Today's final rule, therefore, permits the blending of diesel
additives with sulfur content in excess of 15 ppm into 15 ppm highway
diesel fuel under limited circumstances, in response to those comments.
As more fully discussed in section VII(C)(5) of this preamble, today's
rule permits downstream parties to blend into 15 ppm highway diesel
fuel additives having a sulfur content exceeding 15 ppm, provided that:
(1) The blending of the additive does not cause the diesel fuel's
sulfur content to exceed the 15 ppm sulfur standard; (2) the additive
is added in an amount no greater than one volume percent of the blended
product; and (3) the downstream party obtained from its additive
supplier a product transfer document (``PTD'') with the additive's
sulfur content and the recommended treatment rate, and that it complied
with such treatment rate, as appropriate.
    Since the final rule permits the limited use in highway diesel fuel
of additives with high sulfur content, the Agency believes it is now
more likely that a diesel fuel sulfur violation could be caused by the
use of high sulfur additives. This could result from the additive
manufacturer's misrepresentation or inaccurate statement of the
additive's sulfur content or recommended treat rate on the additive's
PTD, or an additive distributor's contamination of low sulfur additives
with high sulfur additives during transportation. The increased
probability that parties in the additive distribution system could
cause a violation of the sulfur standard warrants the imposition by the
Agency of increased liability for such parties under the final rule. As
one example of this, the final rule explicitly makes parties in the
additive distribution system liable for the sale of nonconforming
diesel fuel additives, even if such additives have not yet been blended
into diesel fuel. In addition, the

[[Page 5128]]

final rule imposes presumptive liability on parties in the additive
distribution system if diesel fuel into which the additive has been
blended is determined to have a sulfur level in excess of its permitted
concentration. This presumptive liability differs depending on whether
the blended additive was designated as meeting the 15 ppm sulfur
standard (a ``15 ppm additive'') or designated as a greater than 15 ppm
sulfur additive (a ``high sulfur additive''), as discussed below.
b. Liability When the Additive Is Designated as Complying With the 15
ppm Sulfur Standard
    With the sole exception of diesel additives blended into highway
diesel fuel at a concentration no greater than one percent by volume of
the blended fuel, any additive blended into diesel fuel downstream of
the refinery must have a sulfur content no greater than 15 ppm, and
must be accompanied by PTD(s) accurately identifying them as complying
with the 15 ppm sulfur standard.
    All parties in the fuel and additive distribution systems are
subject to presumptive liability if the blended fuel exceeds the sulfur
standard (with the two ppm downstream adjustment applied when EPA tests
the fuel subject to the 15 ppm sulfur standard). Low sulfur additives
present a less significant threat to diesel fuel sulfur compliance than
would occur with the use of additives designated as possibly exceeding
15 ppm sulfur. Thus, parties in the additive distribution system of the
low sulfur additive will be permitted to rebut the presumption of
liability by showing the following: (1) Additive distributors will only
be required to produce PTDs asserting that the additive complies with
the 15 ppm sulfur standard (2) additive manufacturers will also be
required to produce PTDs complying in an accurate manner with the
regulatory requirements, as well as producing test results (or retained
samples on which tests could be run) establishing the additive's
compliance with the 15 ppm sulfur standard prior to leaving the
manufacturer's control. Once their presumptive liability would be
refuted by producing such documentation in a convincing manner, these
additive system parties would only be held responsible for the diesel
fuel non-conformity in situations in which EPA can establish that the
party actually caused the violation.
    Under today's final rule, parties in the diesel fuel distribution
system will have the typical presumptive liability defenses as
proposed. For parties blending an additive into their diesel fuel, the
requirement of producing PTDs showing that the product complied with
the regulatory standards will necessarily include PTDs for the additive
that was used, affirming the additive's compliance as well as the
fuel's.
c. Liability When the Additive Is Designated as Having a Possible
Sulfur Content Greater Than 15 ppm
    Under today's rule, if an additive manufacturer produces an
additive for use in 15 ppm highway diesel fuel at a concentration no
greater than one volume percent of the blended fuel, then the additive
is permitted to have a maximum sulfur content above 15 ppm. However, if
highway diesel fuel containing that additive is found by EPA to have
high sulfur content, then all the parties in both the additive's and
the fuel's distribution chain will be presumed liable for causing the
diesel fuel violation. Since this type of high sulfur additive presents
a much greater probability of causing diesel fuel non-compliance,
parties in the additive's distribution system will have to satisfy an
additional element to establish an affirmative defense. In addition to
the elements of an affirmative defense described above, parties in the
distribution system for such a high sulfur additive must also establish
that they did not cause the violation, an element of an affirmative
defense that is typically required in EPA fuel programs to rebut
presumptive liability.
    Parties in the diesel fuel's distribution system will essentially
have to establish the same affirmative elements as proposed, with one
addition. Blenders of high sulfur additives into 15 ppm sulfur diesel
fuel, by the act of blending such an additive into that fuel, subject
themselves to the need for establishing a more rigorous quality control
program than would exist without the addition of such a high sulfur
addition. The Agency believes that parties blending high sulfur
additives into their 15 ppm sulfur diesel fuel should be required to
produce test results establishing that the blended fuel was in
compliance with the 15 ppm sulfur standards after being blended with
the high sulfur additive. This additional defense element is required
as an added safeguard to ensure diesel fuel compliance, since the
blender has voluntarily chosen to use an additive which increases the
risk of diesel fuel non-compliance.

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

    In the NPRM, EPA proposed that compliance with the diesel sulfur
standards would be determined based on the sulfur level of the diesel
fuel, as measured using the regulatory testing methodology. We further
proposed that any evidence from any source or location could be used to
establish the diesel fuel sulfur level, provided that such evidence is
relevant to whether the level would have been in compliance if the
regulatory sampling and testing methodology had been correctly
performed. In today's action, consistent with the approach taken under
the Tier 2 sulfur rule, EPA is adopting the proposed regulatory
provisions.
    The final regulations provide that the primary determinant of
compliance with the standards will be the specified regulatory test
method.\223\ Additionally, other information may be used under the
rule, including test results using non-designated test methods, if the
evidence is relevant to determining whether the sulfur level would meet
applicable standards had compliance been determined using the specified
test methodology. Moreover, since evidence other than regulatory test
results must be relevant to compliance using the regulation test
method, EPA believes that the rule enables parties to rely with
confidence on the proper use of the regulatory method.
---------------------------------------------------------------------------

    \223\ Under today's final rule, several specified alternative
test methods are also permitted, provided they have been properly
correlated with the regulatory method.
---------------------------------------------------------------------------

    For example, the Agency might not have sulfur results derived from
the regulatory test method for diesel fuel sold by a terminal, yet the
terminal's own test results, based on testing using methods other than
those specified and approved in the regulations, could reliably show an
exceedence of the sulfur standard. Under today's rule, evidence from
the non-regulatory test method could be used to establish the diesel
fuel's sulfur level that would have resulted if the regulatory test
method had been conducted. This type of evidence is available for use
by either the EPA or the regulated party, and could be used to show
either compliance or noncompliance. Similarly, absent the existence of
sulfur test results using the regulation method, commercial documents
asserting the sulfur level of diesel fuel or additive could be used as
some evidence of that sulfur level if the product would have been
tested using the regulatory method.\224\
---------------------------------------------------------------------------

    \224\ The ability to use such evidence is in addition to the
presumption established under the final rule, that when a mandated
product transfer document asserts that diesel fuel complies with the
500 ppm sulfur standard, the fuel accompanied by that transfer
document will be presumed to comply with the 500 standard and not to
comply with the 15 ppm standard, unless the party can establish
otherwise.

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

[[Page 5129]]

    The Agency believes that the same statutory authority for EPA to
adopt the Tier 2 sulfur rule's evidentiary provisions (Clean Air Act
section 211(c)), provides appropriate authority for our adoption of the
evidentiary provisions of today's diesel rule. For a fuller explanation
of this statutory authority, see Section VI(I) of the Tier 2 final rule
preamble, 65 FR 6815, February 10, 2000.

VIII. Standards and Fuel For Nonroad Diesel Engines

    Although this program covers only highway diesel engines and
highway diesel fuel, our potential plans for nonroad diesel engines,
and especially the sulfur content of nonroad diesel, fuel are clearly
related. For example, depending on whether and how nonroad diesel fuel
is regulated, factors including the costs, leadtime, environmental
impacts, and impacts on competitive relationships in the marketplace
associated with this program could be affected. We would need to
address these factors in any future regulatory action on nonroad diesel
fuel.
    Because of these factors, various stakeholders inquired during the
public comment period about the potential requirements that could apply
to nonroad diesel fuel. Several states, environmental organizations,
and other commenters urged us to take action on nonroad because of the
nonroad contribution to air quality problems. The remainder of this
section summarizes the background behind this issue and our current
thinking about the future regulation of nonroad diesel engines and
fuel.
    After establishing an initial set of emission standards for nonroad
diesel engines in 1994, we proposed in 1997, and finalized in 1998, a
comprehensive program of emission standards for most diesel engines
designed for nonroad use.\225\ This program established NMHC +
NOX and PM standards that are phasing in over the 1999-2006
time frame, with engines of different horsepower ranges coming into the
program in different years. At the same time, we set long-term (``Tier
3'') NMHC + NOX standards, but not PM standards, for medium
and high horsepower engines, to begin in 2006. This rule also included
a plan to reassess the Tier 3 NMHC + NOX standards and to
establish a PM test cycle and associated standards in the 2001 time
frame. In addition, the 1998 rule anticipated an EPA reassessment of
the NMHC + NOX standards for the smaller engines (less than
50 horsepower), which are to be phased in beginning in 2004 (referred
to as nonroad ``Tier 2'' standards).
---------------------------------------------------------------------------

    \225\ See the final rule, 63 FR 56968, October 23, 1998 for more
about the history of these regulations.
---------------------------------------------------------------------------

    We did not include regulations on nonroad diesel fuel in the first
diesel fuel sulfur control program which was established in 1993 for
highway diesel fuel. We estimate that the average sulfur content for
nonroad diesel fuel is currently around 3000 ppm, \226\ as compared to
the cap for highway diesel fuel of 500 ppm.\227\
---------------------------------------------------------------------------

    \226\ National Institute for Petroleum and Energy Research
(NIPER) report, Diesel Fuel Oils, 1996.
    \227\ Information from recent national fuel surveys by NIPER and
the Alliance of Automobile Manufacturers.
---------------------------------------------------------------------------

    We believe that any specific new requirements for nonroad diesel
fuel would need to be carefully considered in the context of a proposal
for further nonroad diesel engine emission standards. For the nonroad
program, we expect to use the same systems-based approach as we used
for the Tier 2/Gasoline Sulfur program and today's highway diesel fuel
and heavy-duty engine standards program. This is because of the close
interrelationship between fuels and engines--the best emission control
solutions may not come through either fuel changes or engine
improvements alone, but perhaps through an appropriate balance between
the two. This is especially significant given that engine manufacturers
and diesel fuel refiners would need to address potential challenges
such as capital cost, leadtime, and engineering and construction
resources, of simultaneously meeting the highway standards under this
program with the nonroad standards that may be implemented. Thus we
need to address issues in both the fuel and engine arenas together.
    The many issues connected with any rulemaking for nonroad engines
and fuel warrant serious attention, and we believe it would be
premature today for us to attempt to raise potential resolutions to
them. We plan to initiate action in the future to formulate thoughtful
proposals covering both nonroad diesel fuel and engines.

IX. Public Participation

    A wide variety of interested parties participated in the rulemaking
process that culminates with this final rule. The formal comment period
and five public hearings associated with the NPRM provided additional
opportunities for public input. EPA also met with a variety of
stakeholders, including environmental and public health organizations,
oil company representatives, auto company representatives, emission
control equipment manufacturers, and states at various points in the
process.
    We prepared a detailed Response to Comments document that describes
the comments received on the NPRM and presents our response to each of
these comments. The Response to Comments document is available in the
docket for this rule and on the Office of Transportation and Air
Quality internet home page. Comments and our responses are also
included throughout this preamble for several key issues.

X. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency is required to determine whether this regulatory action will be
``significant'' and therefore subject to review by the Office of
Management and Budget (OMB) and the requirements of the Executive
Order. The order defines a ``significant regulatory action'' as any
regulatory action that is likely to result in a rule that may:
     Have an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
     Create a serious inconsistency or otherwise interfere with
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements,
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or,
     Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
    Pursuant to the terms of Executive Order 12866, EPA has determined
that this rule is a ``significant regulatory action'' because the
engine standards, diesel fuel sulfur standards, and other regulatory
provisions will have an annual effect on the economy in excess of $100
million. Accordingly, we have prepared a Final Regulatory Impact
Analysis (RIA) which is available in the docket for this rulemaking and
at the internet address listed under ADDRESSES above. This action was
submitted to the Office of Management and Budget (OMB) for review as
required by Executive Order 12866. Written comments from OMB on today's
action

[[Page 5130]]

and responses from EPA to OMB comments are in the public docket for
this rulemaking.

B. Regulatory Flexibility Analysis

    EPA has decided to prepare a Final Regulatory Flexibility Analysis
in connection with this final rule. For purposes of assessing the
impact of today's rule on small entities, small entities are defined as
described under section X.B.3 below.
    In accordance with section 603 of the RFA, EPA prepared an initial
regulatory flexibility analysis (IRFA) for the proposed rule and
convened a Small Business Advocacy Review Panel to obtain advice and
recommendations of representatives of the regulated small entities in
accordance with section 609(b) of the RFA (see 65 FR 35541, June 2,
2000). A detailed discussion of the Panel's advice and recommendations
is found in the Panel Report contained in the docket for this
rulemaking. A summary of the Panel's recommendations is presented at 65
FR 35541.
    We have also prepared a final regulatory flexibility analysis
(FRFA) for today's final rule. The FRFA addresses the issues raised by
public comments on the IRFA, which was part of the proposal of this
rule. The FRFA is available for review in the docket and is summarized
below.\228\ The key elements of the FRFA include:
---------------------------------------------------------------------------

    \228\ The Final RFA is contained in Chapter VIII of the RIA.

--The need for, and objectives of, the rule;
--The significant issues raised by public comments on the Initial RFA,
a summary of the Agency's assessment of those issues, and a statement
of any changes made to the proposed rule as a result of those comments;
--The types and number of small entities to which the rule will apply;
--The reporting, recordkeeping, and other compliance requirements of
the rule, including the classes of small entities that will be affected
and the type of professional skills necessary to prepare the report or
record;
--The steps taken to minimize the significant impact on small entities
consistent with the stated objectives of the applicable statute,
including a statement of the factual, policy and legal reasons why the
Agency selected the alternatives we did, and why other significant
alternatives to the rule which affect the impact on small entities were
rejected.

    We summarize the key elements of the FRFA below. A fuller
discussion of each of these elements can be found in the FRFA (Chapter
VIII of the RIA).
1. Need for and Objectives of the Rule
    Section I of this preamble provides a summary of the need for and
objectives of this rule. As discussed in detail in Section II of this
preamble, emissions from heavy-duty vehicles contribute greatly to a
number of serious air pollution problems, and would have continued to
do so into the future absent further controls to reduce these
emissions. Although the air quality problems caused by diesel heavy-
duty vehicles are challenging, we believe they can be resolved through
the application of high-efficiency emissions control technologies.
Based on the Clean Air Act requirements discussed in Section I.B.3, we
are setting stringent new emission standards that will result in the
use of these diesel exhaust emission control devices (see Section III).
We are also finalizing changes to diesel fuel sulfur standards in order
to enable these high-efficiency technologies (Section IV). In
consideration of the impacts that sulfur has on the efficiency,
reliability, and fuel economy impact of diesel engine exhaust emission
control devices, we believe that controlling the sulfur content of
highway diesel fuel to the 15 ppm level is necessary, feasible and cost
effective. The standards will result in substantial benefits to public
health and welfare and the environment through significant reductions
in emissions of nitrogen oxides, particulate matter, nonmethane
hydrocarbons, carbon monoxide, sulfur oxides, and air toxics.
2. Summary of Significant Public Comments on the IRFA
    EPA received many comments from small refiners and others
pertaining to the options for hardship relief described in the NPRM. In
general, many small refiners commented on the financial difficulty
their refinery would face in complying with the proposed diesel sulfur
program, and encouraged EPA to provide hardship relief. Many small
refiners acknowledged that there was not one single hardship relief
option to best suit the needs of all small refiners, and thus supported
a menu of options. Section IV.C of the preamble discusses the three
hardship relief options available to small refiners under today's
program. These three options are based on concepts which were
considered by the SBAR Panel and on which we requested and received
comment in the proposal. A summary of the comments pertaining to
regulatory alternatives for small refiners, and our response to them,
is contained in the Response to Comments document contained in the
docket.
3. Types and Number of Small Entities
    Today's program, which establishes new emission standards for
heavy-duty engines and new standards for the sulfur content of highway
diesel fuel, will directly affect manufacturers of heavy-duty engines
and petroleum refiners that produce highway diesel fuel, respectively.
In addition, but to a lesser extent, the program will directly affect
diesel distributors and marketers.
    We have not identified any manufacturers of heavy-duty engines that
meet SBA's definition of a small business. However, we have identified
several petroleum refiners that produce highway diesel fuel and meet
the SBA's definitions for a small business for the industry category.
According to the SBA's definition of a small business for a petroleum
refining company (Standard Industrial Classification (SIC) 2911), which
we have used for purposes of assessing the impact of today's rule on
small entities, a company must have 1500 or fewer employees to qualify
as an SBA small business. Of the approximately 158 refineries in the
U.S. today, we estimate that approximately 24 refiners (owning 27
refineries) would meet the SBA definition and produce highway diesel
fuel. We estimate that these 24 refiners produce approximately five
percent of highway diesel fuel nationwide.
    EPA also has identified several thousand businesses in the diesel
distribution and marketing industry that meet SBA's definitions of
small business. More information about these industries is contained in
the Final RFA. The low sulfur diesel fuel rule contains certain
downstream compliance and enforcement provisions, for all parties in
the diesel fuel distribution system downstream of the refinery gate, to
prevent (1) contamination of highway diesel fuels with fuels containing
higher levels of sulfur and (2) misfueling of motor vehicles with high
sulfur fuels.
    Under this rule, distributors and retailers may choose to handle
500 ppm diesel fuel, 15 ppm diesel fuel, or both (as permitted under
the temporary compliance option and small refiner hardship provisions
described in the preamble). However, distributors and marketers will
have to segregate low sulfur diesel fuel from other distillates just as
they do today with 500 ppm diesel fuel. Retailers and wholesale
purchaser-consumers will be responsible for ensuring that only low
sulfur diesel fuel is sold for use in model year 2007 and later heavy-
duty

[[Page 5131]]

vehicles. Under the temporary compliance option for refiners and small
refiner hardship provisions (described in Section IV), where two grades
of highway diesel fuel are allowed for the initial years of the
program, some distributors and marketers may voluntarily decide
(presumably based on economics) to add tankage or make additional
modifications to accommodate two grades of highway diesel fuel. We have
taken such costs into account in our diesel fuel cost analysis
(described in more detail in Chapter V of the RIA).
    The low sulfur diesel fuel rule also includes a product downgrading
restriction that is designed to discourage the intentional downgrading
of 15 ppm diesel fuel to 500 ppm diesel fuel in the distribution system
during the initial years of the program when the optional compliance
provision is in effect. This provision and its impacts on affected
entities is discussed more in Section VII of this preamble and in the
FRFA. This provision does not require any new recordkeeping or
reporting requirements beyond those required of the rest of the
program.
4. Reporting, Recordkeeping and Other Compliance Requirements
    As with all refiners complying with the highway diesel fuel
program, small refiners will be subject to registration, pre-compliance
reporting, annual compliance reporting, and product transfer document
requirements. In addition, the low sulfur diesel fuel program contains
several hardship options to assist small refiners in producing low
sulfur diesel fuel. Under these options, small refiners may be subject
to additional reporting and recordkeeping requirements to help ensure
compliance with the options and the integrity of the low sulfur diesel
fuel as it moves from the refinery gate to the retail outlet. For
example, all refiners producing diesel fuel are required to provide us
with basic data on their progress toward compliance in 2003-2005 under
the pre-compliance reporting requirements described in Section IV.A. As
a part of their pre-compliance reports, small refiners must provide a
limited amount of additional information specific to the option they
choose. However, we believe the benefits of these hardship options will
far outweigh any burdens imposed by their associated recordkeeping and
reporting requirements.
    The low sulfur diesel fuel program does not impose any new
reporting requirements for small diesel marketers or distributors.
However, this program does impose new record keeping requirements for
such parties, specifically product transfer documents that track
transfers of diesel fuel. Such transfer records are currently
maintained by most parties for business and/or tax reasons. In
addition, the record keeping requirements for downstream parties are
fairly consistent with those in place today under other EPA fuel
programs, including the current highway diesel fuel program. Therefore,
we expect that the new record keeping requirements for downstream
parties will not impose a significant burden.
    These recordkeeping, reporting and compliance requirements are
discussed in more detail in Sections IV and VII of this preamble and in
the FRFA.
5. Regulatory Alternatives To Minimize Impact on Small Entities
    The Small Business Advocacy Review Panel was convened by EPA on
November 12, 1999. The Panel consisted of representatives of the Small
Business Administration (SBA), the Office of Management and Budget
(OMB) and EPA. During the development of the proposal to this rule, EPA
and the Panel were in contact with representatives from the small
businesses that will be subject to the provisions in today's rule. In
addition to verbal comments from industry noted by the Panel at
meetings and teleconferences, written comments were received from each
of the affected industry segments or their representatives. The Panel
report contains a summary of these comments and the Panel's
recommendations on options that could mitigate the adverse impacts on
small businesses.
    The Panel considered a range of options and regulatory alternatives
for providing small businesses with flexibility in complying with new
sulfur standards for highway diesel fuel. As part of the process, the
Panel requested and received comment on several ideas for flexibility
that were suggested by small entity representatives (SERs) and Panel
members. The Panel's recommendations are discussed in detail in the
Panel Report, contained in the docket. In the NPRM, EPA sought public
comment on several ideas that stemmed from the Panel's recommendations,
as well as on the Panel's recommendations. Taking into consideration
the comments received on these ideas, as well as additional business
and technical information gathered about potentially affected small
entities, we are finalizing certain of those options today, as
discussed in detail in Section IV above.
    In addition to our participation in the SBREFA process, we
conducted our own outreach, fact-finding, and analysis of the potential
impacts of our regulations on small businesses. Some of the small
refiners with whom we and the Panel met indicated their belief that
their businesses may close due to the substantial costs, capital and
other impacts of meeting the 15 ppm diesel fuel standard without either
additional time or flexibility with respect to gasoline sulfur
compliance. Based on these discussions and analyses, the Panel and we
agree that small refiners would likely experience a significant and
disproportionate financial hardship in reaching the objectives of our
diesel fuel sulfur program. However, the Panel also noted that the
burden imposed upon the small refiners by our sulfur requirements
varied from refiner to refiner and could not be alleviated with a
single provision. We agree with the Panel and are offering qualifying
small refiners three options to choose from in moving toward compliance
with the low sulfur diesel fuel requirements.
    For today's action, we have structured a selection of temporary
flexibilities for qualifying small refiners, both domestic and foreign,
based on the factors described below. Generally, we structured these
provisions to address small refiner hardship while expeditiously
achieving air quality benefits and ensuring that the low sulfur diesel
fuel coincides with the introduction of 2007 model year diesel
vehicles. First, the compliance deadlines in the program, combined with
flexibility for small refiners, will quickly achieve the air quality
benefits of the program, while helping to ensure that small refiners
will have adequate time to raise capital for new or revamped equipment.
Second, we believe that allowing time for refinery sulfur-reduction
technologies to be proven out by larger refiners before small refiners
have to put them in place will likely allow for lower costs of these
improvements in desulfurization technology (e.g., better catalyst
technology or lower-pressure hydrotreater technology). Third, providing
small refiners more time to comply will increase the availability of
engineering and construction resources. Since most large and small
refiners must install additional processing equipment to meet the
sulfur requirements, there will be a tremendous amount of competition
for technology services, engineering manpower, and construction
management and labor. Finally, because the gasoline and diesel sulfur
requirements will occur in approximately the same time frame, small
refiners that produce both fuels

[[Page 5132]]

will have a greater difficulty than most other refiners in securing the
necessary financing. Hence, any effort that increases small refiners'
ability to stagger investments for low sulfur gasoline and diesel will
facilitate compliance with the two programs. These factors are
discussed further in Section IV.C.
    Providing these options to assist small refiners experiencing
hardship circumstances enables us to go forward with the 15 ppm sulfur
standard beginning in 2006. Without this flexibility, the benefits of
the 15 ppm standard would possibly not be achieved as quickly. By
providing temporary relief to those refiners that need additional time,
we are able to adopt a program that expeditiously reduces diesel sulfur
levels in feasible manner for the industry as a whole. In addition, we
believe the volume of diesel that will be affected by this hardship
provision is marginal. We estimate that small refiners contribute
approximately five percent of all domestic highway diesel fuel
production.
    The Final RFA evaluates the financial impacts of today's program on
small entities. EPA believes that the regulatory alternatives finalized
in this rule will provide substantial relief to qualifying small
businesses from the potential adverse economic impacts of complying
with today's rule. The three hardship options available to small
refiners under today's rule are summarized below, and are discussed in
more detail in Section IV.C and the FRFA.

500 ppm Option. A small refiner may continue to produce and sell diesel
fuel meeting the current 500 ppm sulfur standard for four additional
years, until May 31, 2010, provided that it reasonably ensures the
existence of sufficient volumes of 15 ppm fuel in the marketing area(s)
that it serves.
Small Refiner Credit Option. A small refiner that chooses to produce 15
ppm fuel prior to June 1, 2010 may generate and sell credits under the
broader temporary compliance option. Since a small refiner has no
requirement to produce 15 ppm fuel under this option, any fuel it
produces at or below 15 ppm sulfur will qualify for generating credits.
Diesel/Gasoline Compliance Date Option. For small refiners that are
also subject to the Tier 2/Gasoline sulfur program (40 CFR Part 80),
the refiner may choose to extend by three years the duration of its
applicable interim gasoline standards, provided that it also produces
all its highway diesel fuel at 15 ppm sulfur beginning June 1, 2006.

    One alternative for which we sought public comment, but are not
finalizing today, is an option of allowing small refiners to produce
highway diesel fuel meeting a less stringent sulfur standard (e.g., 50
ppm). Some small refiners, and other refiners, commented that the costs
of meeting a 50 ppm sulfur cap would be significantly less than those
to meet a 15 ppm cap. However, we are not adopting less stringent
sulfur standards for small refiners today, because the new diesel
exhaust emissions control devices require diesel fuel with a sulfur
content capped at 15 ppm in order to be viable and capable to meeting
the 2007 emission standards. The need for 15 ppm sulfur diesel fuel is
discussed in detail in Section III. Additional discussion of this issue
can be found in the Response to Comments document. Additional
information on the factual, policy, and legal reasons for the selection
of alternatives considered for small refiners, and on any rejected
alternatives, can be found in the FRFA, as well as in appropriate
sections of the Preamble, RIA, and RTC.
    As required by Section 212 of SBREFA, EPA also is preparing a small
entity compliance guide to help small entities comply with this rule.
Once available, small businesses will be able to obtain a copy through
our web site at http://www.epa.gov/otaq.

C. Paperwork Reduction Act

    This action establishes a standard for low sulfur diesel fuel that
will become effective in 2006 and that involves the collection of
information under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
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.
    For 500 ppm diesel fuel standards currently in effect, the existing
ICR is ``Regulations of Fuel and Fuel Additives; Fuel Quality
Regulations for Highway Diesel Sold in 1993 and Later Calendar Years;
Recordkeeping Requirements,'' OMB Control Number 2060-0308, EPA ICR
Number 1718.12 (expires July 31, 2001). Copies of this ICR may be
obtained from Delores Evans, Office of Policy, Regulatory Information
Division, U.S. Environmental Protection Agency (Mail Code 2137), 1200
Pennsylvania Avenue, NW., Washington, DC 20460. Please mark requests,
``Attention: Desk Officer for EPA'' and include the ICR in any
correspondence.
    The Paperwork Reduction Act stipulates that ICR documents estimate
the burden of activities that will be required of regulated parties
within a three year time period. 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.
    The information collection requirements (ICR) for this rule as it
relates to low sulfur (15 ppm) diesel fuel will undergo any required
public notice and comment and be submitted for approval to OMB under
the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. prior to any
required information collection.

D. Intergovernmental Relations

1. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for federal agencies to assess the
effects of their regulatory actions on state, local, and tribal
governments, and the private sector. Under Section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``federal mandates'' that
may result in expenditures to state, local, and tribal governments, in
the aggregate, or to the private sector, of $100 million or more for
any single year. Before promulgating a rule, for which a written
statement is needed, Section 205 of the UMRA generally requires EPA to
identify and consider a reasonable number of regulatory alternatives
and adopt the least costly, most cost effective, or least burdensome
alternative that achieves the objectives of the rule. The provisions of
Section 205 do not apply when they are inconsistent with applicable
law. Moreover, Section 205 allows EPA to adopt an alternative that is
not the least costly, most cost effective, or least burdensome

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alternative if EPA provides an explanation in the final rule of why
such an alternative was adopted.
    Before we establish any regulatory requirement that may
significantly or uniquely affect small governments, including tribal
governments, we must develop a small government plan pursuant to
Section 203 of the UMRA. Such a plan must provide for notifying
potentially affected small governments, and enabling officials of
affected small governments to have meaningful and timely input in the
development of our regulations with significant federal
intergovernmental mandates. The plan must also provide for informing,
educating, and advising small governments on compliance with the
regulatory requirements.
    This rule contains no federal mandates for state, local, or tribal
governments as defined by the provisions of Title II of the UMRA. The
rule imposes no enforceable duties on any of these governmental
entities. Nothing in this rule will significantly or uniquely affect
small governments.
    EPA has determined that this rule contains federal mandates that
may result in expenditures of more than $100 million to the private
sector in any single year. EPA considered and evaluated a wide range of
regulatory alternatives before arriving at the program finalized today.
EPA believes that today's final rule represents the least costly, most
cost effective approach to achieve the air quality goals of the rule.
The cost-benefit analysis required by the UMRA is discussed in Section
V above and in the RIA. See the ``Administrative Designation and
Regulatory Analysis'' Section (XI.A.) in today's preamble for further
information regarding these analyses.
2. Executive Order 13084: Consultation and Coordination With Indian
Tribal Governments
    Under Executive Order 13084, EPA 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 EPA consults with those
governments. If EPA complies by consulting, Executive Order 13084
requires EPA to provide to the OMB, in a separately identified section
of the preamble to the rule, a description of the extent of EPA's prior
consultation with representatives of affected tribal governments, a
summary of the nature of their concerns, and a statement supporting the
need to issue the regulation. In addition, Executive Order 13084
requires EPA 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 rule does not significantly or uniquely affect the
communities of Indian Tribal governments. The engine emissions, diesel
fuel, and other related requirements for private businesses in today's
rule will have national applicability, and thus will not uniquely
affect the communities of Indian Tribal Governments. Further, no
circumstances specific to such communities exist that will cause an
impact on these communities beyond those discussed in the other
sections of this rule. Thus, EPA's conclusions regarding the impacts
from the implementation of today's rule discussed in the other sections
of this preamble are equally applicable to the communities of Indian
Tribal governments. Accordingly, the requirements of Section 3(b) of
Executive Order 13084 do not apply to this rule.

E. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (NTTAA), Section 12(d) of Public Law 104-113, directs EPA
to use voluntary consensus standards in its regulatory activities
unless it would be inconsistent with applicable law or otherwise
impractical. Voluntary consensus standards are technical standards
(e.g., materials specifications, test methods, sampling procedures, and
business practices) developed or adopted by voluntary consensus
standards bodies. The NTTAA directs EPA to provide Congress, through
OMB, explanations when the Agency decides not to use available and
applicable voluntary consensus standards.
    This rule references technical standards adopted by the Agency
through previous rulemakings. No new technical standards are
established in today's rule. The standards referenced in today's rule
involve the measurement of diesel fuel parameters and engine emissions.
The measurement standards for diesel fuel parameters referenced in
today's rule are all voluntary consensus standards. The engine
emissions measurement standards referenced in today's rule are
government-unique standards that were developed by the Agency through
previous rulemakings. These standards have served the Agency's
emissions control goals well since their implementation and have been
well accepted by industry. EPA is not aware of any voluntary consensus
standards for the measurement of engine emissions. Therefore, the
Agency is using the existing EPA-developed standards found in 40 CFR
Part 86 for the measurement of engine emissions.

F. Executive Order 13045: Children's Health Protection

    Executive Order 13045, ``Protection of Children from Environmental
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies
to any rule that (1) is determined to be ``economically significant''
as defined under Executive Order 12866, and (2) concerns an
environmental health or safety risk that EPA has reason to believe may
have a disproportionate effect on children. If the regulatory action
meets both criteria, Section 5-501 of the Order directs the Agency to
evaluate the environmental health or safety effects of the planned rule
on children, and explain why the planned regulation is preferable to
other potentially effective and reasonably feasible alternatives
considered by the Agency.
    This rule is subject to the Executive Order because it is an
economically significant regulatory action as defined by Executive
Order 12866 and it concerns in part an environmental health or safety
risk that EPA has reason to believe may have a disproportionate effect
on children.
    This rulemaking will achieve significant reductions of various
emissions from heavy-duty engines, including NOX, PM, VOCs
and air toxics. These pollutants raise concerns regarding environmental
health or safety risks that EPA has reason to believe may have a
disproportionate effect on children, such as impacts from ozone, PM and
certain toxic air pollutants. See Section II and the RIA for a further
discussion of these issues.
    The effects of ozone and PM on children's health were addressed in
detail in EPA's rulemaking to establish the NAAQS for these pollutants,
and EPA is not revisiting those issues here. The emission reductions
from the strategies in this rulemaking will further reduce air toxics
and the related adverse impacts on children's health. In a separate
rulemaking under Section 202(l) of the Act, EPA addresses the emissions
of hazardous air pollutants from motor vehicles and fuels, and the
appropriate level of control of HAPs from these sources. It is
important to note that the air toxics reductions that the Agency
expects to achieve based on

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today's action are an integral part of the Agency's comprehensive
strategy to address air toxics from motor vehicles under section
202(l).
    In this rule, EPA has evaluated several regulatory strategies for
reductions in emissions from heavy-duty engines. (See Section III of
this rule as well as the RIA.) For the reasons described there, EPA
believes that the strategies are preferable under the CAA to other
potentially effective and reasonably feasible alternatives considered
by the Agency, for purposes of reducing emissions from these sources as
a way of helping areas achieve and maintain the NAAQS for ozone and PM.
Moreover, EPA believes that it has selected for this rule the most
stringent and effective control reasonably feasible at this time, in
light of the technology and cost requirements of the Act.

G. 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 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 regulation.
    Section 4 of the Executive Order contains additional requirements
for rules that preempt State or local law, even if those rules do not
have federalism implications (i.e., the rules will not have substantial
direct effects on the States, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government). Those
requirements include providing all affected State and local officials
notice and an opportunity for appropriate participation in the
development of the regulation. If the preemption is not based on
express or implied statutory authority, EPA also must consult, to the
extent practicable, with appropriate State and local officials
regarding the conflict between State law and Federally protected
interests within the agency's area of regulatory responsibility.
    This 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. Section 211(d)(4)(A) of the CAA
prohibits states from prescribing or attempting to enforce controls or
prohibitions respecting any fuel characteristic or component if EPA has
prescribed a control or prohibition applicable to such fuel
characteristic or component under Section 211(c)(1) of the Act. This
rule merely modifies existing EPA diesel fuel and heavy-duty vehicle
standards and therefore will merely continue an existing preemption of
State and local law as discussed in Section VI. Thus, Executive Order
13132 does not apply to this rule.
    Although Section 6 of Executive Order 13132 does not apply to this
rule, EPA did consult with representatives of various State and local
governments in developing this rule. In particular EPA consulted with
the State of Alaska in the design of the program as it applies to them,
as discussed in Section IV. EPA also talked to representatives from the
State of California as well as representatives from STAPPA/ALAPCO,
which represents state and local air pollution officials.

H. Congressional Review Act

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

XI. Statutory Provisions and Legal Authority

    Statutory authority for the engine controls finalized in this
document can be found in Sections 202, 203, 206, 207, 208, and 301 of
the CAA, as amended, 42 U.S.C. 7521, 7522, 7525, 7541, 7542, and 7601.
    Statutory authority for the fuel controls finalized in this notice
comes from Section 211(c) and 211(i) of the CAA, which allows EPA to
regulate fuels that either contribute to air pollution which endangers
public health or welfare or which impair emission control equipment
which is in general use or has been in general use. Additional support
for the procedural and enforcement-related aspects of the fuel's
controls in today's rule, including the record keeping requirements,
comes from Sections 114(a) and 301(a) of the CAA.

List of Subjects

40 CFR Part 69

    Environmental protection, Air pollution control.

40 CFR Part 80

    Environmental protection, Fuel additives, Gasoline, Imports,
Incorporation by reference, Labeling, Motor vehicle pollution,
Penalties, Reporting and recordkeeping requirements.

40 CFR Part 86

    Environmental protection, Administrative practice and procedure,
Confidential business information, Incorporation by reference,
Labeling, Motor vehicle pollution, Reporting and recordkeeping
requirements.

    Dated: December 21, 2000.
Carol M. Browner,
Administrator.