### Results of **EPA’s Section 610 Review of Emission Standards**  **for Heavy**  ****

**Duty Engine s**  **and Vehicle s**  **and Highway Diesel Fuel Sulfur Control**

**EPA Office of Transportation and Air Quality**

**November , 2013**  On January

18, 200 1 (66 FR 5002 ), EPA published emission standards for heav y duty highway engines and vehicles and engine manufacturers to reduce tailpipe emission s. Specifically , EPA implemented this rule to significantl y reduce emissions of diesel particulate matter (PM) emissions and of nitrogen ox ides , a contributor to ozone formation. The rulemaking also required oil refiners to very significantl y reduce the sulfur content of the diesel fuel they produce , to minimize the damaging effects of diesel sulfur content on the new catal yt ic s ys tems manuf acturers would be using to meet the stringent emission standards. Pursuant to Section 610 of the Regulatory Flexibility

Act, EPA has completed a review of this rule to determine whether the provisions that could affect small entities should be continued without change, or should be rescinded or amended to minimize adverse economic impacts on small entities. As discussed below, we have concluded that no changes in the rule are warranted. Background Earl y in the development of the ru le, EPA formally evaluated the potential impacts of the program on small businesses according to the requirements of the Small Business Regulatory

Enforcement Fairness Act (SBREFA) , which is part of the Regulatory

Flexibility

Act. During this process, we assessed the companies comprising the two industries that would be directl y affected by the rule being considered

– the heav y - dut y highway engine manufacturing industry and the oil refining industry

. In our assessment of the pote ntially

- affected engine manufacturing industry , EPA determined that none of the engine manufacturers that would be directl y affected b y the prospective engine emission standards met the criteria for small entities established by the Small Business Administration ( SBA) (i.e., less than 1000 employees). As a result, EPA did not propose or finalize any special small

- business provisions for the engine

manufacturing industry , although the final rule did include numerous provisions to ease the compliance burden on all manufacturers. At the same time, EPA determined that several refining companies subject to the prospective diesel fuel sulfur requirements did meet the SBA criteria for refiners ( less than 1500 employees ) . Therefore, we took the additional steps specified b y SBREFA to identify and address concerns of small refiners. As was the case with the Tier 2 gasoline sulfur program established one year earlier, an informal coalition of small refining companies formed to participate as “Smal l Entity Representatives” (SERs) in the rulemaking and to advise the federal interagency SB REFA panel. In the final rule , EPA adopted the recommendations of the panel , providing a temporary extension ofcompliance dates for small refiners and an opportuni ty for small refiners to stagger their investments in gasoline sulfur control ( as required under the earlier Tier 2 program) and the new diesel sulfur requirements. Discussion of the Five Statutory Factors As discussed below, EPA has reviewed the Heavy

- D uty Engine and Diesel Sulfur rule with respect to the five factors set forth in Section 610 of the RFA. 1. Continued Need for the R ule One of the factors that must be considered in a Section 610 review is the continued need for the rule under review. Emissions from heav y dut y vehicles and their fuels contribute to ambient levels of ozone and particulate matter (PM), pollutants for which EPA has established health

- based National Ambient Air Quality Standards (NAAQS). These pollutants are linked with r espiratory and/or cardiovascular problems and other adverse health impacts leading to increased medication use, hospital admissions, emergency

department visits, and premature mortality . Over 158 million people currentl y live in areas designated nonattainment for one or more of the current NAAQS. 1 Pollutant reductions from this rule are very large and continue to protect public health, improve air quality , and help states meet national air quality standards. Specificall y, we projected that by 2030, when the fleet will have largel y turned over, the rule will reduce NOx annually by over 2.6 million tons, NMHC by 115,000 tons, and PM by 109,00 tons. The provisions of the rule appl yi ng to all engine manufacturers and oil refiners have proven to be feasible and effective. Most small refiners took advantage of the special provisions, and we are not aware of an y that wished to use these provisions (or separate hardship relief provisions available to all refiners) and yet were unable to. EPA concludes that the rule continues to be necessary , feasible, and effective

. 2. Nature of Complaints or C omments Received Concerning the R ule EPA received three sets of comments durin g the public comment period for this Section 610 review

. None of these comments appear to be from or on behalf of small entities that are directly

affected by

this rule, as discussed above. However, to the extent that an assessment of these comments may be valuable, w e will summarize and discuss the merits of e ach of the comments here. National Automobile Dealers Association The National Automobile Dealers Association (NADA ) commented on behalf of its American Truck Dealer Division (ATD). NADA submitted a previously

- published February 2012 study , “A Look Ba ck at EPA’s Cost and Other Impact Projections for MY

1 Summary Nonattainment Area Population Exposure Report, current as of December 14 , 2012 at: http://www.epa.gov/oar/oaqps/greenbk/popexp.html and contained in Docket EPA

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- OAR
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- 0135.2004
- 2010 Heav y - Dut y Truck Emissions Standards , ” along with comments based on that

study . The comments argue that two EPA rulemakings setting new emissions standards for heav y - dut y (HD) trucks, includin g the rule that is the subject of this Section 610 evaluation, “have had a dramatic negative impact on thousands of small entities, including small business truck dealerships and their employees.” NADA submitted this study to EPA previousl y, as a basis for NADA comments on EPA’s rulemaking for greenhouse gas (GHG) emissions from 2017 and later light

duty vehicles. (See letter from Douglas I. Greenhaus, NADA, to EPA and NHTSA public dockets, February

13, 2012). EPA responded to the NADA study in the Re sponse to Comments document for that rule. 2 Inaddition to laying out points specific to the light

- duty GHG rule, that response essentially concludes that the NADA study does little to inform the HD rule cost discussion . This is because the study takes at face value the manufacturer

- provided emissions surcharges to customers, with no attempt to determine or evaluate how these costs were calculated or even whether or not the manufacturers claim them to be the actual cost of emissions controls. A br eakout of such surcharges is not something the Agency requires or provides guidance on, and manufacturers that use them are free to set them at whatever level they feel best serves their marketing goals. 3 Recreation Vehicle Industry Association Co mments submitted by

the Recreation Vehicle Industry Association (RVIA) argued that the rule incorrectl y concluded that the only small entities affected by the heav y - dut y engine and fuels standards were small refiners. In EPA’s extensive assessment of the industry , we did not find any manufacturers of the affected vehicles or engines that met the SBA definition of small entities ( 1 ,000 or fewer employees). EPA deemed that e ntities not directly regulated but indirectly

affected in some way

by the rule

-- s uch as RV dealers , RV manufacturers (none of whom currently apply for emissions certification), and their customers

– do not to fit this criterion and so were not included in the SBREFA process. This conclusion has not changed

. RVIA also commented that EPA greatl y underestimated the cost of diesel emissions controls required to meet the new standards, claiming that the rule typically adds at least $23,000 to the cost of a motorhome, and that manufacturer and dealer markups could add an additional $23,0 00 for the purchaser. A s discussed above, RV manufacturers do not need an EPA certificate of compliance with the vehicle/engine s tandards and thus are not directly affected by

this rule . However, even if it were appropriate for us to assess indirect impa cts as a part of this Section 610 review , including costs, w e believe that we would conclude that RVIA ’s estimated costs are much too high

.
2 U.S. Environmental Protection Agency. 2017 and Later Model Year Light

-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards: EPA Response to Comments (EPA

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- 01 ). August 2012 . Page 18
- 91. Available at http://www.epa.gov/otaq/climate/documents/420r12017.pdf

. 3 U.S. Environmental Protection Agency. Nonconformance Penalties for On

-Highway Heavy

-Duty Diesel Engines Technical Support Document (EPA

- 420
- R
- 12
- 014). September 2012. Page 51. Available at http://www.regulations.gov/#!documentDetail;D=EPA

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.Based on the discussion in the RVIA comments, it appears that the $23,000

additional cost is comprised of $6 , 000 for medium

- duty diesel engine/aftertreatment hardware, $12,000 for addition of a third axle to accommodate the added weight of emissions controls, and $5 , 000 or more to lengthen the coach. The $6000 engine/aftertreatment hardware cost appears in turn to be derived from engine manufacturer statements about the surcharges they assess their customers in response to emission control costs. As discussed above, EPA does not evaluate OEM

- applied surcharges in its program cost anal ys es . EPA has not performe d a comprehensive reanal ys is of the cost of this rule

. However, it may

be of interest that EPA made a limited cost determination for a different purpose
– that is, for setting nonconformance penalties (NCPs) . This analysis led to cost estimates that , although not exactly comparable to the timeframe of this rule, would indicate that the RVIA estimate for engine/aftertreatment hardware is likel y somewhat high for a medium

- dut y truck. 4 Also, RVIA provided no details on the $17,000 additional coach and axle costs

. EPA has not performed its own anal ys is of these costs, but we do note that new two

- axle diesel motorhomes are still widely available. We also question the $23,000 combined manufacturer/dealer markups for emissions controls, noting that most o f the indirect costs of the new emissions controls would be borne b y the engine manufacturers , which are responsible for such items as added engine warranty claims. These indirect costs would already be included in the RVIA’s estimated $6000 addition to the purchase price of the engine. We further note that such large dealer markups seem inconsistent with RVIA’s claim of dealer hardship. Apart from the accuracy

of RVIA’s cost estimates, the key points of the RVIA comments appear to be that the cost increase, whatever its true magnitude, drove some potential buyers away , thus contributing to the demise of small business RV dealers, and that it continues to restrict sales growth today . RVIA concludes that, given that application of the HD standards to mot orhomes involves high costs and low benefits (they operate an average of only 27 day s per year), EPA should consider whether or not continuation of these standards can be justified for motorhomes. We do not agree that exempting engines used in motorhomes from the 2007/2010 HD standards (or subjecting them to modified standards) would lower their cost. To substitute for the cleaner engines, e ngine manufacturers would presumably have to re

- establish certification and production of pre

- 2007 engine designs or their equivalent for the U.S. market . T his wo uld involve considerable costs and could greatly narrow the range of available options for the motorhome manufacturers , since it is by no means clear that the limited sales volumes involved would justify

this investment for current engine suppliers. Finally , the Agency

appreciates RVIA comments directed at future EPA

4 U.S. Environmental Protection Agency. Nonconformance Penalties for On

-Highway Heavy

-Duty Diesel Engines Technical Support Document (EPA

- 420
- R
- 12
- 014) . September 2012. Page 70. Available at http://www.regulations.gov/#!documentDetail;D=EPA

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- OAR
- 2011
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.standards

- setting efforts, and we expect to full y consider an y concerns about the impacts

on motorhome manufacturers they arise in the context of such future rulemakings. Northeast States for Coordinated Air Use Management ( NESCAUM

) The Northeast States for Coordinated Air Use Management (NESCAUM) provided comments that were supportive of a continuation of the rule as finalized. NESCAUM present ed estimates of the benefits of the rule consistent with EPA’s. NESCAUM’s comments focus ed on “ how the regulations have accommodated small refiners over the course of their implementation to ensure a continued, adequate supply of diesel fuel to the on - highway market. ” NESCAUM conclude d that the environment al need for the program continues and that the measures EPA included to minimize potential burdens on small refiners were successful

. 3. Complexity

of the R ule The Agency

must also consider th e complexity of the rule under review. Although cost

- effectively achieving the air pollution improvements of the program required us to establish a number of regulatory provisions, we carefully

coordinated the various requirements and worked with industry participants, large and small, to facilitate implementation. T he rule also included a number of provisions aimed at easing the burden of compliance for all affected engine manufacturers and refiners, including small refiners. By providing additional l ead time and greater flexibility for small refiners, these companies were able to minimize or postpone actions that they would have otherwise been required to take. For example, the rule allowed small refiners to choose their preferred sequencing of the o verlapping gasoline and diesel sulfur programs

. These transitional provisions thus mitigat ed the implementation complexity of the rule , allowing for more “organic” compliance b y small refiners while the program met its statutory objectives. 4. Extent to which the rule overlaps, duplicates, or conflicts with other Federal, State, or local government rules The Agency

must also consider the extent to which the rule overlaps, duplicates, or conflicts with other Federal, State, or local government rules. We specifically designed the requirements and phase

- in schedule for the heav y - duty diesel engine and vehicle program to build on the existing Federal programs and to mesh with and complement diesel engine related programs in California and other states. Sim ilarly , we designed the phase

- in for the diesel fuel sulfur requirements and the small refiner provisions to transition smoothly and to coexist with the earlier Tier 2 gasoline sulfur requirements , so that refiners could integrate the implementation of both programs. We are not aware of an y overlap, duplication, or conflict with other similar programs administered b y EPA or other agencies.5
. Relevant Changes to Technology , Economic Conditions, or Other F actors Finally , the Agency must consider the degree to which technology , economic conditions, or other factors have changed in the area affected by the rule under review. R efinery diesel sulfur reduction technology has continued to evolve over the past decade. In addition, heav y - dut y engine manufacturers have continuously improved their engine technologies, including emission

- related technologies, over the ye ars. EPA does not believe that these changes , or the general economic fluctuations that the refining and engine/vehicle manufacturing industries have faced, have introduced an y s ignificant additional burdens on sm all entit ies subject to this rule. Conclusion Based on EPA’s Section 610 review of the 200 1 Heavy
- Duty Engine and Vehicle and Diesel Fuel Sulfur final rule and the comments we received, as discussed in this document, EPA is not making an y amendments to the rule. As part of an y future rulemakings in related to these industries, EPA will continue to work with small

- entity represe ntatives to minimize any potential unfavorable impacts on these companies while meeting the need for emission reductions.