UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
NATIONAL VEHICLE AND FUEL EMISSIONS LABORATORY

2565 PLYMOUTH ROAD ANN ARBOR, MICHIGAN 48105

- 2498

MEMORANDUM

SUBJECT: Draft Regulatory Text for Voluntary Offset Program

FROM: Charles Moulis, Senior Environmental Engineer

Assessment and Standards Division

TO: Docket Number EPA

- HQ

- OAR

- 2010

- 0687

DATE: June 9, 2011

This memorandum provides additional information regarding a request for comment in EPA’s “Notice of Proposed Rulemaking (NPRM): Control of Air Pollution From Aircraft and Aircraft Engines; Emission Standards and Test Procedures .” In that NPRM, EPA is requesting comment on establishing a voluntary program by which manufacturers could earn NOx emission credits to offset higher emissions from exempted engines. Sample regulatory text is attached tha t would provide for such a program if adopted in the Final Rule. Commenters are encouraged to address these sample regulations as well as the issues described here.

Purpose of Potential Credit Program

In the preamble to the NPRM, EPA discusse s possi ble uses for emission offsets

– all of which are related to exemptions that would allow the use of engine designs not meeting the revised emission standards on new aircraft after new more stringent standards take effect. 1 Under the proposed regulations, s uch exemptions would have to be requested and justified by the engine manufacturer,

and would likely be subject to a limit on the number of exempted engines a manufacturer would be allowed to produce over a fixed time period . (See §87.50 of the proposed r egulations for more detail about this exemption allowance.) Spec ifically, the preamble text discusse s using credits to justify exemptions from the Tier 6 production cutoff , or b ank ing emission credits for later use against a possible future Tier 8 production cutoff

. 2

From EPA’s perspective, the primary purpose of any such program would be to provide flexibility to allow manufacturers to justify using older non

- complying engine models after the cut

- off date by over

- complying with the standards for other models. Th us exemptions for those engines could be granted without adversely affecting U.S. air quality. Central to this concept is the idea that manufacturers would receive credit only for going beyond what they otherwise would do with respect to emissions reducti on s . Th is issue is discussed further below.

1 Note that this memorandum is not related to exceptions for spare engines to be installed on in

- use aircraft, which generally do not require justification.

2 Th e T ier 6 and Ti er 8 NOx standards are equivalent to the CAEP/6 and CAEP/8 NOx limits adopted by ICAO

. OFFICE OF
AIR AND RADIATION2

Basic Structure

In the credit program being considered, manufacturers could receive credits for having emission rates (more specifically, characteristic levels) below an applicable g/kN/LTO emission threshold. 3
At its simplest, credits would be calculated as the product of the difference between the characteristic level and the threshold, the number of credit

- generating engines produced, and the rated power output. These credits would be expressed in terms o f kg/LTO, as shown in the following equation:

Emission credits (kg/LTO) = (Threshold

– CL) (Number) (Power) 10 - 3

Where: Threshold = the emission standard or threshold, in g/kN rated output per LTO.

C L = the characteristic level, in g/kN rated ou tput per LTO

. Number = the number of engines eligible to generate emission credits

. Power = the rated output of the engine, in kN per engine.

This same equation could also be used to calculate credits needed by engines of the model for which the exemption was being requested. Such credits would be calculated as negative credits

or credit deficits.

Credits would be calculated only for aircraft that are initially registered in the United States.

Manufacturers should be able to determine this since credits would not be calculated until after the end of the production year. Commenters are encouraged to address how much time would be needed after production for the manufacturer to determine how many of the engines were actually installed on U.S. registered ai rcraft.

Credits could be further converted to kg/year by multiplying them by expected LTOs per year for the applicable aircraft type, or total lifetime kg by multiplying them by total LTOs expected for the applicable aircraft in their service lives.

Issu es

EPA sees four program design considerations that would need to be addressed in a credit program. These reflect the tradeoffs related to complexity, equity, and environmental protection. For example, programs designed to ensure that manufacturers alway s receive full credit run the risk of giving too much credit in some cases. On the other hand , very detailed programs designed to fully protect the environment while being fair to all manufacturers may be unworkable due to their complexity. The discussi ons that follow are intended to help commenters submit useful comments that fully consider these tradeoffs.

3 While emission standards are nominally expressed as g/kN, the standards are intended to represent the total amount of emissions that would result from one engine during one landing and take

- off cycle divided by the rated output of the engine. Standards are expressed in this memorandum as g/kN/LTO to be consistent with actual units and allow for

more t ransparent unit conversions.3

Windfall Credits and Triggers

Emission credit programs are based on the premise that higher emissions from some engines can be offset by lower emissions from other engines so that the total combined emissions are the same as (or lower than) would have occurred without the emission cred it program. This requires that credits only be given for emissions where a manufacturer intentionally designs the engines to have

lower emissions ( for the purpose of generating emission credits ) than would otherwise have

occurred . Credits inappropriately given for emission reduction s that would have occurred without any credit program can be described as “windfall credits

. ”

Aircraft engine manufacturers have generally certified their engines with characteristic levels at least ten percent below the applicable standards. In other words, when EPA sets an emiss ion

standard at a certain level , it generally expects manufacturers to design nearly all of their new engine models to have emission rates between 80 and 90 percent of that level . Thus calculati ng credits based on the difference between the characteristic level and the standard would result in the manufacturer receiving credits for reductions that would probably have occurred without a credit program or perhaps even receiving credits for it highe st emitting engines.

The most straightforward way to address this would be to set a trigger value which would have to be met to be eligible to generate credits. Consistent with the discussion above, a program could be based on a trigger emission value 1 0 percent below the most stringent applicable standard in our regulations (i.e., the Tier 8 standards in our proposed regulations). Credits would then be

calculated from the characteristic level relative to a value representing ninety percent of the

stand ard. For example, an engine that was certified to be 15 percent below the Tier 8 NOx standard would generate credits equivalent to 5 percent of the standard. For engines using credits, the

characteristic level concept would also be used. However, in this case c redit s use d or need ed

would be calculated relative to the standard from which exemptions are being sought

. The following fo r m of the earlier equation could be used for these calculations with F equal to 0.9 0 for credit generation and F equal to 1.0 0 for credit use.

Emission credits (kg/LTO) = ([Standard F]

– CL) (Number) (Power) 10 - 3

If F was set to 0.90, then engines with characteristic NOx levels less than 90 percent of the Tier 8

NOx standard would generate positive credits; and engines between 90 and 100 percent of the standard would generate no credits. Credit deficits for exemptions from the Tier 6 production cutoff would be calculated with the Tier 6 NOx standard as the applicable standard and F equal to

one.

Credit Banking and Trading

For engine manufacturers with broad product lines, exchanging credits between their exempt and

non

- exempt engines within a given year could be a workable program. However, such an

intra

- manufacturer averagi ng program would be less valuable for other manufacturers. Two ways to enhance the usefulness of the program would be to allow manufacturers to bank credits in one year for future use or to trade them (perhaps through a broker) to other engine manufacture rs.4

Banking would allow a manufacturer to pull ahead its certification of a cleaner engine design to generate credits before a new standard takes effect and to use the credits later for a design that either is being phased

- out of production or requires a dditional development work to meet the new standards. EPA could also adopt a banking program in this rule that could allow manufacturers to bank credits for use against a possible Tier 8 production cutoff (when compliance with the Tier 8 would be required for all newly manufactured engines). However, in either case, EPA could include a limit on credit life to limit the extent to which any manufacturer could bank large amounts of credits that could later be used to disrupt the market. For example, we limi t the credit life to ten calendar years after generation in the sample regulations of this memorandum. We are asking for comment on this limit.

Trading could be advantageous for manufacturers meeting the standards on time for all of their engines. Since they would not be producing any engines that need credits, such credits may be of limited value to them. A trading allowance would enable them to reap some benefit from any

over

- compliance they achieve beyond the trigger level by allowing them to trade credits to other manufacturers. We are also requesting comment on a trading program structure that would allow credit trades to be brokered by third parties such as airframe manufacturers or end users. More specifically, should manufacturers be allowed to trade excess credits to third parties that are not

certificate holders?

Credit Equivalency

Any credit program would need to ensure that emission benefits from a credit

- generating aircraft model truly offset the higher emissions from the credit

- using model. For example, LTO emissions from regional jet aircraft may not be directly equivalent to LTO emissions from

twin

- a isle aircraft designed for longer cross

- country or international flights because the regional jet would likely h ave more LTOs during its lifetime

. There are two obvious ways to address these concerns: averaging set restrictions and credit conversions.

The simplest way to address this would be to allow credit exchanges only between similar engines

on similar aircraf

t. For example, engines with similar rated outputs on regional aircraft would be expected to have similar emission impacts. More precisely, a one kg/LTO reduction from one regional aircraft engine model could be assumed to be equivalent to a one kg/LTO e xceedance from another similar regional aircraft engine model. While this would address the concerns, it would make the program less useful because of the relative ly small number of engine models in production for each type of aircraft.

A more flexible (b ut also more complicated) approach would be to develop equivalency factors or to calculate credits as lifetime tons of reduction or exceedance. As noted earlier kg/LTO credits could be multiplied by the number of LTOs expected over the service life of the engine to convert

them to total lifetime kg (assuming default LTO times in mode are accurate) . However, the accuracy of the conversion would be limited by the accuracy of the estimation of the number of LTOs expected over the service life.5

The table below gives EPA’s estimates of the number of LTOs that each type of aircraft would perform over a typical lifetime. 4 These factors could be applied to the earlier equation to project kg of emission reductions that would be expected over the life of an air craft. For example, if an engine on a regional jet would generate a NOx credit of one kg/LTO, it would generate 51,000 kg of credit over its lifetime. Commenters are encouraged to address the accuracy of the values in

this table.

Example Calculations of Lifetime LTOs per Aircraft

Aircraft Type LTO/yr Life ( yrs) LTO/Lifetime

Two

- Engine Regional Aircraft 1,700 30 51,000

Two

- Engine Narrow

- Body 1,500 30 45,000

Three

- Engine Narrow

- Body 400 30 12,000

Two

- Engine Wide

- Body 500 30 15,000

Four

- Engine Wide

- Body 900 30 27,000

This approach would have the drawback of not addressing the timing of the emissions f o r a i r c r a f t

w i t h d i f f e r e n t l i f e t i m e s i n y e a r s . For example, a one kg/LTO emission reduction from a 2014 engine projected to have 15,000 LTOs over a 30

- year service life should not necessarily be considered equivalent to a one kg/LTO emission exceedance from a 2014 engine projected to have 15,000 LTOs over a 15

- year service life since half of the reduction would not occur until after the higher emitting engine was out of service.

Given the comp lexity of this issue i t may be appropriate to consider these factors on a case

- by

- case basis when evaluating exemption requests instead of attempting to codify very specific restrictions or conversions in the regulations. Since this equivalency issue is a t its core an analytical issue rather than a policy issue, it might be most appropriate to determine equivalency of the credits consistent with good engineering judgment based on the data and facts available at the time of the request to use the credits. Under this approach, equivalency would not need to be determined when manufacturers generate and bank credits. However, not including details on equivalency at

this time would r educe program “ certainty ” , and this may be important in a manufacturer ’s decision making with regard to credit generation and use.

4 Based on data from: “H istorical Assessment of Aircraft Landing and Take

- off Emissions (1986

- 2008),” Eastern Research Group, May 2011; and "FAA Aerospace Forecast, Fiscal Years 2010

- 2030," U.S. DOT, FAA, March 2010.6

Effects on Competition

In adopting any credit program, EPA would need to consider its effects on the competitive balance in the market. A well designed program should provide incentives for ma nufacturers to produce cleaner engines and flexibility for manufacturers to apply developmental resources effectively, while not significantly disadvantaging any individual manufacturer s. For example, a limit on the life of a credit would prevent a manufa cturer from amassing a n excessively large stockpile of credits over many years that could be used for competitive advantage

. However, it is also possible that the nature of the market itself would limit this potential advantage. Emission caps

on credit u sers could also be applied to ensure that every engine had to achieve at least some emission reductions or be below other specified limits.

As mentioned above, another way to avoid market disruptions would be to develop a program in which end users partici pate in the credit market. For example, in a program where credits are held by end users, an engine manufacturer seeking an exemption but that is unable to produce credit generating engines might be able to obtain credits from the end user that will purch ase the aircraft with the exempted engines.

Summary

EPA is considering adopting regulations to establish a voluntary program that would allow manufacturers to receive emission credits that could be used to justify exemptions from production

cutoff s

. S ince such a program would deal only with offsetting the environmental impacts of exemptions, it would be managed by EPA rather than FAA. The program being considered

would not include a n y change s to the proposed exemption provisions that would requir e credits to obtain exemptions, but would merely provide manufacturers another tool to justify that exempting some of their engines would be in the public interest.

An example of how a credit program might be structured is shown in the attached draft regulatory

text. In the attached regulations (which could be finalized in 40 CFR part 87 ) manufacturers would notify EPA of their intent to generate credits before the first day of the production for th a t

c r e d i t g e n e r a t i n g engine within a given calendar year

. Cre dits would be calculated as the amount that NOx emissions would be reduced over the life of the engines, relative to engine s emitting at 90 percent of the Tier 8 NOx standard. Manufacturers could bank these credits for use in the following ten model ye ars. Manufacturers could include their credit information along with their annual production reports to EPA. Alternatively, a manufacturer could submit a separate report later if more time was needed. If a manufacturer continued to produce the cleaner e ngines in later years, it could bank additio nal credits during those years. As described in paragraph (c) of the sample regulations, credits could be used without adjustment to justify exemptions for similar aircraft types, or with adjustment to justify e xemptions for different aircraft types.

Commenters are encouraged to suggest modifications to the regulations to prevent manufacturers from receiving “ windfall ” credits and/or to make the program more useful. Commenters are also encouraged to address th e issues of credit equivalency for different aircraft types and competitive

issues for different manufacturers.7 Sample Regulations

§87.55 Emission credit provisions.

This section describes how engine manufacturers may generate and use emission credits to be considered as part of a request for exemptions under §87.50 . An engine manufacturer may

use these emission credits between two or more of its own models; credits m ay also be exchanged between manufacturers, with or without the involvement of a third party to broker

the transaction. (a) For purposes of an exemption granted under §87.50(c), you may generate (or otherwise obtain) emission credits as described in this section. Notify EPA of your intent to generate credits from a new engine model prior to the first day of the production of the engine model in
a given calendar year. (b) You may generate or use emission credits only if you are a certifying engine manufacturer.
Calculate positive or negative emission credits relative to the otherwise applicable emission

standard as follows: (1) Use the followi ng equation to calculate positive emission credits for a family that is
generating credits or negative emission credits for a family that is using credits, without
rounding:

Emission credits (kg) = [(STD) (F)

- CL] (Number) (Power) 10 - 3 (LTOs/Engine)

Where: STD = the emission standard, in g/kN rated output per LTO.

F = a dimensionless factor that equal s 1.00 for engines using credits and 0.90 for engines
generating credits.

CL = the characteristic level, in g/kN rated output per LTO.

Number = the number of engines eligible to generate or use emission credits within the given family during the model year, as described in this section.

Power = the rated output (kN) of the tested engine sub

- model (not untested derivative

sub

- models)

.

LTOs/Engine = the total number of LTOs an engine is expected to have over its service

life

.

(2) Sum your previously banked or acquired by trade positive credits and negative credits

for the production year. Round to the nearest 0.01 kg. For purposes of this section, the

p roduction year is January 1 through December 31.8

(3) Include in your calculations only engines that were purchased for aircraft registered in

the United States

. (4) Credits may be generated only from engine models introduced after Januar y 1, 201 2

.

(c) Paragraph (c)(1) of this section specifies restrictions on using emission credits. These restrictions apply, except as specified in paragraph (c)(2) of this section. (1) Emission credits may generally be exchanged only within an averaging set. The default averaging sets are defined by the following restrictions: (i) Engines with pressure ratios above 30 may not be included in the same averaging set
with engines with pressure ratios at or below 30. Engines with pressure ratios below

82.6 m ay not be included in the same averaging set with engines with pressure ratios at

or above 82.6. (ii) Engines with rated output above 89 kN may not be included in the same averaging

set with engines with rated output at or below 89 kN

. (iii) Supersonic eng ines may not be included in the same averaging set with subsonic
engines. (iv) Engines used in regional aircraft may not be included in the same averaging set with
engines used in non

- regional aircraft. For purposes of this section a regional aircraft is a commercial passenger aircraft with no more than 100 seats, or a similar sized aircraft that is not used for commercial passenger service. (2) We may allow exchange of credits across averaging sets if we determine such exchanges

do not result in adverse e nvironmental impacts. This may require adjustment of credit

values. (d) The following provisions apply for averaging in which the credit

- using and credit

- generating engines are not produced by the same engine manufacturer: (1) If you intend to use an engine to generate emission credits that will be transferred to an
airframe manufacturer, engine operator, or consortium partner, you must notify the Designated EPA Program Officer. (2) If you need emission credits for an engine exempted under §87.50(c), you may use
credits generated from engines produced by a different engine manufacturer. Once these credits are transferred, they may no longer be used by the credit

- generating manufacturer. (e) You may bank unused credits at the end of the calendar year. Banked credits may be used
only in the ten calendar years following the calendar year in which they are generated. (f) Include in your annual production report to EPA the amount of credits generated by each
engine sub

- model. Alternatively, you may submit this information in a separate report by the end of the subsequent production year. R e p o r t c r e d i t u s e i n y o u r r e p o r t o f e x e m p t e d

e n g i n e s

.