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EPA Response (2/18/2014):

Comments on U.S. Environmental 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 Forest Service 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 with 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 not 

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 shutdown/turnaround. Any new units to comply with Tier 3 can then be 

constructed and started up whenever they are ready; it does not 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 refineries 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 ppm 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 ppm 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 
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delayed for a number of years. Instead 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 point 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., credits generated against 30 ppm). Please refer to the list 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 The list of commenters below specifically requested that early credits receive a threeyear 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 delay:

 Alliance of Automobile Manufacturers (Alliance) and Association of Global 

Automakers (Global)

 Environmental Justice Leadership Forum on Climate Change

 NESCAUM

 p. 159. Chrysler expressed interest in extending the life of vehicle credits—“the value of the 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 comments 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-in, for the purposes of trading?

 EPA Response: No manufacturer asked for a longer life in their comments. 

The Alliance of Automobile Manufacturers and Global Automakers supported 
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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 proposed limited credit life. Consistency 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 

approach being taken in the light-duty sector and with recent motor vehicle 

rulemakings that have adopted a 5-year credit life, including the HD 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 credits most valuable 

when technology is rapidly changing during the transition years (phase-in) to new 

standards, which 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 with 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 manufacturers 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 

opt-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 preTier 3 (the pre-Tier 3 HDV program was not called “Tier 2”) to Tier 3. In the pre-Tier 3

program, the tailpipe standards for NMHC 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 ample 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 manufacturers can certify a 
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credit-using HDV into whatever bin they choose, with the lowest stringency bin 

serving as the 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 provisions on ensuring that 

vehicles designed to meet the stringent 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 FTP 

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 credits? 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 close 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 Modeling 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, testing, 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 requested 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, comments on the proposed rule from multiple 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 refiners and importers view as a potential 

liability in the event of an enforcement action.)
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 p. 306. Why expire early credits 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 early credits to retire in 2019?

o EPA Response: Early credits expire so 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. Not 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 traded to 

those who may need them. Based on their comments urging compliance with a 10 

ppm average as soon as possible, we expect that vehicle manufacturers and 

states/NGOs would be concerned with a change to this provision. Allowing credits 

earned relative 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 consistency 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 exist, 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 competitors deliberately 

hold on to credits to avoid selling them to small entities. 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 very 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 credits, what is the reasoning for having 

the liability remain with seller rather than 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 reflect 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.”
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 p. 307. Why have a limit of two trades for credits 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 companies. 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 standard, 

why exclude them from being able to generate credits?

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 generation—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 for 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 sulfur 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 generate 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 would 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 compliance 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.
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 Section 4.4.1 (Page 4-28): Could EPA provide further explanation of the industry overcompliance 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, industry 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.