## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

1 **EPA Response (2/18/2014): Comments on U.S. Environm**  **ental Protection Agency Draft Final Rule, “Control of Air Pollution from**  **Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards,” RIN 2060 -** **AQ86** General  The F orest S ervice does not see any apparent issues with the vehicles themselves. The concern is the compatibility of the new fuel with older small engines

- portable fire pumps, chainsaws, etc. If this is the only pump gas available and there is a compatibility issue wit h older small engines then this could impact operations. Bottom line, if the new fuel is compatible with older small engines then Forest Service operations should be OK. o **EPA Response: We believe this is a concern about fuel ethanol content. Tier 3 is no** **t changing in**  **- use fuel ethanol**  **or certification test fuel for small engines .**  Preamble – Cost Estimation  Has EPA conducted an assessment of costs associated with any unplanned shutdowns by refiners that may occur due to Tier 3 implementation? If so where ? If not, please discuss why this issue is not significant. o **EPA Response: There will be no cost for unplanned shutdowns to comply with Tier 3.**  **First, the program provides nearly 6 years of lead time through the various flexibilities offered.**  **Thus, all refiners should be able to tie**  **- in any new units to comply with Tier 3**  **during their normal turnaround schedule (typical is every 4 years). Second, and even more importantly, the tie**  **- ins for the new units can be installed easily during any**  **scheduled shutdow n/turnaround. Any new units to comply with Tier 3 can then be**  **constructed and started up whenever they are ready ;**  **i t does**  **n o** **t have to occur during the turnaround. This is discussed**  **in Section V.L of the preamble**  **and Chapter 4 of the RIA**  **.** Preamble

- Trading:  p. 17 and p. 343. “Considering all the flexibilities offered...nearly 6 years of lead time...” Please emphasize why flexibilities afforded by trading will mitigate the need for a 4

-year lead time as reflected in the text on page 343. On page 17, is the 6

- year lead time is due to small refinery relief? o **EPA Response: New (grassroots units) require on average about 3 years,**  **and revamps**  **can be completed in about 2 years –**  **and often less. This becomes more costly and difficult, though, if all refinerie**  **s are trying to comply at the same time using the same vendors, engineering firms, and consultants. As a result, we have designed the**  **program with a flexible phase -**  **in to allow for a smooth transition into Tier 3. Instead of having prescribed the phase**  **- in**  **, however, we have designed it in a way that allows industry themselves to determine the best timing for their individual refining**  **situations, through the use of an early credit program. We are allowing them to generate credits relative to the Tier 2 30 p**  **pm average, even though: 1) a number of refineries are already below 10 ppm, 2) the industry is currently averaging less than 30**  **ppm (26.7 ppm in 2012), and 3) most refineries have a number of options to quickly and easily reduce sulfur levels by several p**  **pm without any capital investments. Given the flexibility of the early ABT program (ease of generating early credits, coupled with**  **the small refiner/small volume refinery delay), it is possible that the phase -**  **in could be**

## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

2 **delayed for a number of years. In stead of trying to reduce the flexibility of the early**  **ABT program, we chose to simply require that they complete their phase -**  **in by January 1, 2020. In total, then, refiners will have nearly 6 years to complete all of their**  **refinery changes (after which p oint they can continue generating and using credits**  **under the ongoing ABT program )**  **.** o **As described above, the 6 years of lead time is not just due to small refinery relief. We made some**  **edits to text on p. 17 to add clarity .**  p. 18. Who are the commenters who suggested full five

- year life for Tier 2 fuel credits? Please share their comments. o EPA Response: **Below is the list of commenters requesting full five -** **year life for Tier 2 fuel credits (i.e., cr**  **edits generated against 30 ppm). P lease refer to the lis** **t of commenters shared**  **with OMB on 2/13/14 for docket numbers:**   **API/AFPM**  **Chevron**  **CHS, Inc (only commented on 2012 & 2013 credits receiving 5 -** **year life)**  **IFTOA**  **Irving Oil (requested that the early credit program be back** **- dated to**  **start 5 years before the implementation date)**   **Marathon**  **Phillips 66**  **Wyoming Refining Company (requested that 2012 -**  **2013 Tier 2 credits have credit life through 2019, but only for use by small refiners or small volume**  **refineries)** o **T he**  **list of commenters**  **below specifically requested that early credits receive a three**  **** **year credit life as proposed ; while others did not specifically request the three**  **- year**  **credit life, they did request that the 10 ppm average sulfur standard begin on January 1, 2017 without de**  **lay :**   **Alliance of Automobile Manufacturers (Alliance) and Association of Global Automakers (Global)**   **Environmental Justice Lead ership Forum on Climate Change**   **NESCAUM**  p. 159. Chrysler expressed interest in extending the life of vehicle credits

— “the value of t he ABT program during the MY 2017

- 2025 phase

- in of the primary program would be improved if credits had a longer credit life.” Please share their comments. Did Chrysler express a preferred life span? o **EPA Response: Chrysler did not provide explicit co**  **mments on credit life in their written comments on the NPRM. It was only in meetings following the close of**  **comments that Chrysler expressed a degree of uncertainty about compliance for larger vehicles in the post 2020 MY time frame and those discussions**  **led to Chrysler indicating that a longer credit life for NMOG+NOx FTP and SFTP credits would address**  **concerns raised by the Tier 3 requirements. (See attached docket memo)** o Also, is there any other rationale for EPA to arrive at 5 year life span for vehicle credits other than consistency with past practices? Why not say 7 years, consistent with the phase

- i n, for the purposes of trading?  **EPA Response: No manufacturer asked for a longer life in the**  **ir comments.**  **The Alliance of Automobile Manufacturers and G lobal Automakers supported** 

## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

3 **5 years in their comments (comment attached) .**  **As a general rule, credits are of the greatest value**  **to OEMs during program phase**  **- in**  **period when technological change is rapid**  **. Credits are normally used within a company to either**  **ease the phase -**  **in of new technologies by allowing certification to a higher bin or to permit a longer phase**  **- out of existing models. Later in the**  **program these needs subside, and thus the industry is not concerned about our propos**  **ed limited credit life. C onsistency with other programs is also**  **valuable. There have been fewer than 10 credit trades in the past 25 + years in**  **this competitive industry.**  p. 175. Why forfeit credits not used within 5 years? Wouldn’t this discourage the generation of credits and early emission reductions? o **EPA Response: EPA proposed a 5**  **- year HDV credit life to ensure consistency with the**  **ap proach being taken in the light**  **- duty sector and with recent motor vehicle**  **rulemakings that have adopted a 5**  **- year credit life**  **, including the H D and LD GHG rules.**  **We do not believe that this discourages the generation of credits and early emission reductions because manufacturers typically**  **find their early**  **credit s**  **most valuable when technology is rapidly changing during the transition years (pha**  **se -**  **in) to new standards** **, whic h for HD is consistent with a 5**  **- year credit life.**  **In fact ,**  **HDV manufacturers did not comment adversely on the proposed 5**  **- year credit life.**   p. 175. Will EPA clarify the discussion on HDV credit provisions and harmonization wit h LEV III? Why would credit generation in MY 2016 and 2017 thwart LEV III harmonization? o **EPA Response: EPA’s Tier 3 program provides for credits in these model years in a way**  **that does not thwart LEV III harmonization. By providing a voluntary opt**  **- in**  **to the Tier**  **3 program**  **in MY2016/2017 , Tier 3 allows**  **HDV man**  **ufacturers to generate**  **early NMOG+NOx**  **credits to the same degree**  **that credit**  **- generating**  **HDVs can under LEVIII ,**  **so the programs are well**  **- harmonized. Manufacturers requested the ability to**  **generate even more credits in Tier 3 by calculating credits relative to the less stringent**  **pre -** **Tier 3 EPA standards , but then capping their use to levels consistent with the LEV**  **III program . This**  **could conceivably achieve the same harmonized result as**  **the early o**  **pt -**  **in, but would**  **add complexity by introducing some type of conversion between NOx and NMHC credits (the pre**  **- Tier 3 program does not have combined**  **NMOG+NOx standards) and some type of tracking system for LEV III credit use**  **.** o Also, like the fuel provisions , would vehicle manufacturers be able to carry over Tier 2 credits to Tier 3? o **EPA Response: No, manufacturers will not be allowed to carry over credits from**  **pre**   ** Tier 3 (the** **pre -** **Tier 3 HDV program**  **was not called “Tier 2”) to Tier 3. In the**  **pre -** **Tier 3**  **prog ram, the tailpipe standards for NM**  **HC and NOx are**  **separate standards. For Tier 3,**  **the standard is in the form of NMOG+NOx. So carryover of credits would**  **require some type of conversion**  **protocol. The voluntary**  **early opt -**  **in provisions of Tier 3 provide amp**  **le opportunity for HDV manufacturers to accumulate early credits for carryover into the mandatory Tier 3 model years.**   p. 176. Will EPA clarify the FEL caps discussion ? o **EPA Response: FEL caps have been used in past EPA programs to set limits on how**  **much pollution a credit**  **- using vehicle can emit. Tier 3, by moving to a HDV bin**  **structure for the first time, makes FEL caps superfluous, as man ufacturers can certify a** 

## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

4 **credit -**  **using HDV into whatever bin they choose, with the lowest stringency bin serving as th**  **e de facto “FEL cap”.** o p. 176. Please explain the substantial complexity with little benefits associated with the averaging program for HDV SFTP.  **EPA Response: EPA**  **has focused the HDV SFTP pro** **visions on**  **ensuring that vehicles**  **designed to meet the stringen**  **t Tier 3 FTP**  **standards (**  **when operated on the FTP**  **) do not have high emissions when driven in ways not typical of the**  **FTP. An SFTP credit program would decouple FTP and SFTP standards,**  **allowing some HDVs to have high SFTP emissions (using credits) and low F TP**  **emissions ,**  **while other HDVs**  **would do the opposite. CARB agreed with**  **EPA’s approach and expressed**  **their intent in written comments to align**  **LEV III with**  **the Tier 3 approach .**   p. 205. Did commenters suggest a longer life span for NMOG+NOx FTP and SFTP cr edits? Please provide any public comments submitted on this topic. **EPA Response: No comments requesting a longer credit life for the vehicle program were**  **received during the comment period. The Chrysler discussions mentioned above occurred after the clo**  **se of comments and are documented in the docket memo. We did receive a late letter from Ferrari**  **that mentioned credit life.**  **It is attached. The longer credit is available to Ferrari**  **if they elect to begin compliance in the 2017 MY , but since they are an**  **SVM, they may elect to delay compliance as permitted in the Tier 3 rule**  **and still get some of the longer credit life provisions for the 2022**  **- 2024MYs**  **.**  p. 290. Please explain the two trade limit for fuels credit. o **EPA Response: Refiner A generates credits**  **and is unable to use some or all of them. Refiner A may then transfer these credits to Refiner B. If Refiner B is unable to use**  **them, Refiner B may then transfer the credits to Refiner C. The transfer to Refiner C is the second, and final, trade.**   p. 301 . Where is the discussion on ABT Modelin g in the preamble or RIA? o **EPA Response: The ABT program discussion, with respect to leadtime, is contained in**  **Section V.L of the preamble. Chapter 4 of the RIA contains our discussion on ABT and modeling.**   p. 302. How much data quality decrement is associated with reduced sampling, etc. such that credit generation is not allowed? o **EPA Response: The credit program is limited to refiners and importers. Anyone who**  **is blending but is using the reduced sampling, testin**  **g, etc. is not considered a refiner —**  **blenders who are complying with all of the compliance requirements (sampling, testing, reporting, etc.) are considered refiners (or refiner**  **- blenders), and thus may**  **generate credits. During the diesel program, industry r equested to have the flexibility**  **to use reduced sampling, etc. in exchange for not participating in the credit market**  **. This flexibility has worked well, so we are**  **also including it in the Tier 3 program.**  **Further, c omments on the proposed rule from multip**  **le parties in the fuels industry**  **support credit generation being restricted to**  **refiners (including refiner -**  **blenders) and importers.**  **(The records of those opting to use the reduced compliance will not be as robust as other refiners/importers, which refiner** **s and importers view as a potential liability in the event of an enforcement action.)** 

## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

5  p. 306. Why expire early credit s in 2019? As long as refiners reduce their sulfur levels below 10 ppm, what would be the advantage of forcing the credits to be retired early? What would be the potential benefits of not requiring the e arly credits to retire in 2019? o **EPA Response: Early credits expire s**  **o that everyone is complying with the 10 ppm**  **annual average sulfur standard (either by producing 10 ppm average or using**  **credits relative to 10 ppm**  **) on January 1, 2020.**  **The early credits are earned relative to 30 ppm sulfur, not 10 ppm sulfur.**  **This makes it relatively easy for refiners to generate a large amount of early credits through a variety of means for use against**  **the 10 ppm**  **standard later. N**  **ot requiring the early credits to retire by December 31,**  **2019 ,**  **would negate the goal of having a date certain for everyone to be in compliance with the 10**  **ppm annual average , and could create the problem of credits not being tr**  **aded to those who may need them**  **. Based on their comments urging compliance with a 10**  **ppm average as soon a**  **s possible, we expect that**  **vehicle manufacturers and states/NGOs would**  **be concerned with a change to this provision. Allowing credits**  **earned relativ e to 30 ppm to be used**  **past January 1, 2020 ,**  **could delay investments to**  **reduce sulfur to meet the Tier 3 standards and would**  **delay the environmental benefits of the program.**   p. 306. What is the basis for the five year credit life other maintaining consist ency with Tier 2? o **EPA Response: First, this**  **has to do with the 5 -** **year statute of limitations for enforcement (and matches our 5**  **- year recordkeeping requirements)**  **; this is also consistent with all of our previous and existing fuel ABT programs**  **. With unlimited credit life, we could have a situation where we discover a violation 7 years later while**  **doing a random audit at Refiner A. If Refiner A says that they bought the credits from Refiner B, then Refiner A would be completely liable for the**  **violation, because the 5 -**  **year statute of limitations means that we can’t access those**  **7 -** **year old records from Refiner B**  **(if Refiner B actually still has them) .**  **With fuel ABT, records are the only mechanism of proving compliance**  **— if those records do not exi**  **st, a party would have no way to prove its innocence.**  **Second , unlimited credit life is a**  **major concern that**  **small entities bring up during SBREFA often —**  **small refiners have**  **already expressed**  **concern that, even with a finite credit life, their non**  **- small com**  **petitors deliberately**  **hold on to credits**  **to avoid sell**  **ing them to small**  **entitie s.**  **This would become an even greater**  **problem with infinite credit life.**  **Finally, we have had years of experience with the Tier 2 program (and other fuel programs) which have v**  **ery active, liquid, credit trading. The programs are working in practice in the real world, not just in theory.**  **This is in part due to the 5 -** **year credit life ,**  **which is encouraging refiners to place them on the market rather than hoard them and keep them**  **from their competitors.**  p. 307. Regarding the liability associated with invalid credit s, what is the reasoning for having the liability remain with sell er rather t han both the seller and buyer? o **EPA Response: Either or both party**  **is liable. The preamble**  **(on p. 307) states “As in the current Tier 2 program as well as other 40 CFR part 80 fuel programs, if this [the**  **discovery of invalid credits] occurs, we are requiring that both the seller and purchaser will have to adjust their sulfur calculations to refl**  **ect the proper credits and either party (or both) could be determined to be in violation of the standards and other**  **requirements if the adjusted calculations demonstrate noncompliance with the 10 ppm standard.”** 

## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

6  p. 307. Why have a limit of two trades for c redits given that compliance is settled on an annual basis? Please explain how this creates an enforceability concern. o **EPA Response: Unlimited inter** **- company trades (especially given the current ‘paper’**  **accounting system) would be very hard to track, and it could be hard for OECA to hunt down who did what in the case of an enforcement action if there are multiple trades**  **to multiple compa nies. Please note that**  **intra -**  **company trades (i.e., trades within the same company) are unlimited.**  o Did EPA model this provision when it estimated compliance costs and market fluidity of the ABT program?  **EPA Response: We did not**  **model it, because**  **we are not aware of it**  **having any**  **practical constraint on refinery trading.**   p. 322. If ethanol producers are required to produce DFE to meet the 10 ppm sulfur standard rather than remain at the 30 ppm standard in order to help refiners meet the 10 ppm sta ndard, why exclude them from being able to generate credit s ? o **EPA Response: The purpose of ABT provisions is to ease the burden of compliance for**  **making capital changes to meet more stringent standards. However, this is not applicable to ethanol producers**  **since capital expenditures for desulfurization equipment or other equipment will not be needed at their facilities to comply with the**  **Tier 3 sulfur standards. Also** **, overcompliance with the per -** **gallon sulfur cap for DFE is not a valid basis for credit gen**  **eration —**  **we expect the DFE sulfur level**  **to be below the**  **cap in all cases**  **. To allow credit generation for these parties, we would need to set an additional annual average sulfur standard for DFE at some level below 10 ppm and**  **allow credits to be generated f or overcompliance with that standard.**  **Expanding the ABT provisions beyond refiners could greatly expand the number of parties**  **participating ,**  **thereby potentially complicating EPA compliance assurance activities while having little overall impact on the sul**  **fur credit pool. The current ABT provisions**  **under Tier 2 ,**  **which are limited to gasoline refiners and importers ,**  **has functioned well**  **with few compliance irregularities. Experience in the unleaded gasoline program**  **suggests widespread abuse and fraud when credits have been allowed to be generated or sold by non**  **- obligated parties.**  **Accordingly, we do not believe it is appropriate to allow ethanol producers or blenders to gen**  **erate sulfur credits under the Tier**  **3 gasoline sulfur program; further,**  **comments from refiners and importers also stated that they agree with this.**  **API commented that allowing ethanol producers and oxygenate blenders to**  **participate in the ABT program woul d add needless complexity to the program**  **without generating any benefits.** RIA  Section 4.3.2 (Page 4

- 27

- 4

- 28): In addition to the volume of sulfur credit transactions discussed in the section and illustrated in Figure 4

- 4, could EPA also present data on the price trend of sulfur credits? This would help the public better understand the cost of comp liance for the Tier 2 standard. o **EPA Response: The pricing and price trend of sulfur credits are determined by the**  **credit trading market, EPA is not involved in sulfur credit pricing in any way.** 

## Summary	of	Interagency	Working	Comments	on	Draft	Language	under

E.O.	13563	and	12866	Interagency	Review.		Subject	to	Further	Policy	Review.

7  Section 4.4.1 (Page 4

- 28): Could EPA provide further explanation of the industry over

compliance with the Tier II 30 ppm average standard, and how that may provide insights regarding compliance with the Tier III standard

. o **EPA Response: The Tier 2 program had an extended phase down from ~300 down to**  **30 ppm. This was extended through 2010 for small refiners by a small refiner regulatory flexibility option under the highway diesel program which provided more**  **time for Tier 2 compliance in exchange for complying with the highway diesel**  **standards on time. Consequently, the sulfur levels continued to decline over time. In 2011, the industry average was just slightly above 30 ppm (excluding the small**  **refiners). In 2012, indus try further reduced sulfur levels to 26.7 ppm on average,**  **below the 30 ppm average required. Compliance is on an annual basis, so we will not have the information from the 2013 annual compliance reports for a few months.**