`[Federal Register Volume 62, Number 163 (Friday, August 22, 1997)]
[Proposed Rules]
[Pages 44754-44799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21138]



[[Page 44753]]

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Part II





Environmental Protection Agency





_______________________________________________________________________



40 CFR Part 86



Control of Air Pollution From New Motor Vehicles and New Motor Vehicle 
Engines: State Commitments to National Low Emission Vehicle Program; 
Proposed Rule

  Federal Register / Vol. 62, No. 163 / Friday, August 22, 1997 / 
Proposed Rules  

[[Page 44754]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 86

[AMS-FRL-5872-8]
RIN 2060-AF75


Control of Air Pollution From New Motor Vehicles and New Motor 
Vehicle Engines: State Commitments to National Low Emission Vehicle 
Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Supplemental notice of proposed rulemaking (SNPRM).

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SUMMARY: For several years, EPA, the Ozone Transport Commission (OTC) 
States, the auto manufacturers and other interested parties have been 
developing a voluntary clean car program called the National Low 
Emission Vehicle (``National LEV'') program, which is designed to 
reduce smog and other pollution from new motor vehicles. National LEV 
would be a regulatory program that would be enforceable in the same 
manner as any other federal new motor vehicle program, except that it 
can only come into effect if the OTC States and the auto manufacturers 
agree to it.
    A significant amount of progress has been made in developing this 
program. In October, 1995, EPA proposed the National LEV program. In 
June of this year, EPA issued a final rule setting forth the basic 
framework and regulatory provisions of the National LEV program. EPA 
will resolve the remaining issues in a supplemental final rule it 
intends to issue this fall. This supplemental notice of proposed 
rulemaking (SNPRM) seeks comment on some of the remaining issues to be 
addressed in the supplemental final rule.

DATES: Written comments on this SNPRM must be submitted by September 
22, 1997 to the address specified below. EPA will hold a public hearing 
on this SNPRM on September 8, 1997 if one is requested by August 29, 
1997. This hearing, if requested, would begin at 9:00 a.m. and continue 
until 4:30 p.m. or until all commenters have the opportunity to 
testify.

ADDRESSES: Interested parties may submit written comments (in 
triplicate, if possible) to Public Docket No. A-95-26, at: Air Docket 
Section, U.S. Environmental Protection Agency, 401 M Street SW, 
Washington, DC 20460 (Telephone 202-260-7548; Fax 202-260-4400). 
Materials relevant to this final rule have been placed in Public Docket 
No. A-95-26. The docket is located at the above address, in Room M-
1500, Waterside Mall, and may be inspected weekdays between 8:00 a.m. 
and 5:30 p.m. A reasonable fee may be charged by EPA for copying docket 
materials.
    Members of the public may contact the person indicated below to 
find out whether a hearing will be held and, if so, the exact location. 
Requests for a public hearing should be directed to the contact person 
indicated below. The hearing, if requested, will be held in the Ann 
Arbor, Michigan metropolitan area.
    For further information on electronic availability of this SNPRM, 
see the SUPPLEMENTARY INFORMATION section below.

FOR FURTHER INFORMATION CONTACT: Karl Simon, Office of Mobile Sources, 
U.S. Environmental Protection Agency, 401 M Street SW, Washington, DC 
20460. Telephone (202) 260-3623; Fax (202) 260-6011; e-mail 
[email protected].

SUPPLEMENTARY INFORMATION:

Regulated Entities

    Entities potentially regulated by this action are those that 
manufacture and sell motor vehicles in the United States. Regulated 
categories and entities include:

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                                                Examples of regulated   
                 Category                             entities          
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Industry..................................  New motor vehicle           
                                             manufacturers.             
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This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your activities are regulated by this action, you should carefully 
examine the applicability criteria in Sec. 86.1701-97 of the rule 
published in the June 6, 1997 Federal Register (62 FR 31192). If you 
have questions regarding the applicability of this action to a 
particular entity, consult the person listed in the preceding FOR 
FURTHER INFORMATION CONTACT section.

Obtaining Electronic Copies of the Regulatory Documents

    The preamble, regulatory language, regulatory support document, and 
other related documents are also available electronically from the EPA 
Internet Web site. This service is free of charge, except for any cost 
you already incur for internet connectivity. The electronic version of 
this proposed rule is made available on the day of publication on the 
primary Web site listed below. The EPA Office of Mobile Sources also 
publishes Federal Register notices and related documents on the 
secondary Web site listed below.
    1. http://www.epa.gov/docs/fedrgstr/EPA-AIR/ (either select desired 
date or use Search feature)
    2. http://www.epa.gov/OMSWWW/lev-nlev.htm
    Please note that due to differences between the software used to 
develop the document and the software into which the document may be 
downloaded, changes in format, page length, etc. may occur.

I. Outline

    The preamble is organized into the following sections.

I. Outline
II. Background
III. National LEV Start Date
IV. National LEV Will Produce Larger VOC and NOX Emission 
Reductions in the OTR Compared to OTC State Adopted Section 177 
Programs
V. OTC State Commitments
    A. Duration of OTC State Commitments
    B. Timing of OTC State Commitments, Manufacturer Opt-Ins, and 
EPA Finding National LEV in Effect
    C. OTC State Commitments, Manufacturer Opt-Ins, and EPA Finding 
that National LEV Is in Effect
    1. Initial Opt-In by OTC States
    2. Manufacturer Opt-Ins
    3. EPA Finding That National LEV Is in Effect
    4. SIP Revisions
VI. Incentives for Parties to Keep Commitments to Program
    A. Offramp for Manufacturers for OTC State Violation of 
Commitment
    1. OTC State No Longer Accepts National LEV as a Compliance 
Alternative
    2. OTC State Fails to Submit SIP Revision Committing to National 
LEV
    3. OTC State Submits Inadequate SIP Revision Committing to 
National LEV
    B. OTC State or Manufacturer Legitimately Opts Out of National 
LEV
    C. Offramp for Manufacturers for EPA Failure to Consider In-Use 
Fuel Issues
    D. Offramp for OTC States
    1. OTC State Offramp Based on Manufacturer Opt-Out
    2. OTC State Offramp Based on Change to Stable Standards
    E. Lead Time Under Section 177
VII. National LEV Will Produce Creditable Emissions Reductions
    A. OTC States Will Keep Their Commitments to National LEV
    B. EPA is Unlikely to Change a Stable Standard to Allow OTC 
States to Opt Out of National LEV
    C. EPA is Unlikely to Fail to Consider In-Use Fuels Issues to 
Allow Manufacturers to Opt Out of National LEV
VIII. Additional Provisions

[[Page 44755]]

    A. Early Reduction Credits for Northeast Trading Region
    B. Calculation of Compliance With Fleet Average NMOG Standards
    C. Certification of Tier 1 Vehicles in a Violating State
    D. Provisions Relating to Changes to Stable Standards
    E. Nationwide Trading Region
    F. Elimination of Five-Percent Cap on Sales of Tier 1 Vehicles 
and TLEVs in the OTR
    G. Technical Corrections to Final Framework Rule
IX. Supplemental Federal Test Procedure
    A. Background
    B. Elements of the CARB Proposal and Applicability Under 
National LEV
    1. Test Procedure
    2. Emission Standards
    a. LEVs and ULEVs
    b. Tier 1 Vehicles and TLEVs
    3. Implementation Schedule
    4. Implementation Compliance
X. Administrative Requirements
    A. Administrative Designation
    B. Regulatory Flexibility
    C. Unfunded Mandates Reform Act
    D. Reporting and Recordkeeping Requirements
XI. Statutory Authority

II. Background 1

    This Supplemental Notice of Proposed Rulemaking (SNPRM) is another 
step towards a voluntary clean car program (``National LEV'') that will 
help control emissions nationwide as well as in the northeastern 
states. As discussed in previous Federal Register 
documents,2 there have been a number of regulatory and other 
steps in the development of this program. The process will conclude 
with EPA establishing all the regulations necessary to set up the 
voluntary clean car program, which will then come into effect if the 
auto manufacturers and the OTC States commit to it. In June of this 
year, EPA published a final rule setting forth the framework for the 
program, including the specific standards that would apply to new motor 
vehicles if manufacturers opted in. See 62 FR 31192 (June 6, 1997) 
(``Final Framework Rule''). This SNPRM solicits comments on specified 
program issues that EPA must resolve to finalize the regulations for 
the National LEV program.3 Once EPA issues that supplemental 
final rule, it will be up to the OTC States and the auto manufacturers 
to determine whether the program comes into effect.
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    \1\ Although this section contains a brief summary of the 
National LEV program and the process that led up to it, this SNPRM 
assumes that the reader has an in-depth understanding of the 
National LEV program and is best read as a supplement to the 
October, 1995, NPRM and the June, 1997, Final Framework Rule. 
Readers should review those documents for in-depth discussion of the 
program, the process and other background information.
    \2\ See 60 FR 4712 (Jan. 24, 1995), 60 FR 52734 (Oct. 10, 1995), 
62 FR 31192 (June 6, 1997).
    \3\ This SNPRM supplements EPA's October 10, 1995, proposal for 
the National LEV program (60 FR 52734) (``NPRM'').
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    Under the National LEV program, auto manufacturers would have the 
option of agreeing to comply with tailpipe standards that are more 
stringent than EPA can mandate prior to model year (MY) 2004. Once 
manufacturers commit to the program, the standards will be enforceable 
in the same manner that other federal motor vehicle emissions control 
requirements are enforceable. See the Final Framework Rule at 62 FR 
31201-31223 for a detailed discussion of the program structure, 
tailpipe and related standards, and legal authority for and 
enforceability of National LEV. Manufacturers have indicated their 
willingness to volunteer to meet these tighter emissions standards if 
EPA and the northeastern states (i.e., those in the Ozone Transport 
Commission (OTC) or the ``OTC States'') agree to certain conditions, 
including providing manufacturers with regulatory stability and 
reducing regulatory burdens by harmonizing federal and California motor 
vehicle emissions standards.
    The National LEV program has been developed through an 
unprecedented, cooperative effort by the OTC States, auto 
manufacturers, environmentalists, fuel providers, EPA and other 
interested parties. The OTC States and environmentalists provided the 
opportunity for this cooperative effort by pushing for adoption of the 
California Low Emission Vehicle (CAL LEV) program throughout the 
northeast Ozone Transport Region (OTR). Under EPA's leadership, the 
states, auto manufacturers, environmentalists, and other interested 
parties then embarked on a process to develop a voluntary National LEV 
program, a process marked by extensive public participation and a focus 
on joint problem solving. See the Final Framework Rule at 62 FR 31199 
and the NPRM at 60 FR 52739-52740 for further discussion of public 
participation in the National LEV decisionmaking process.
    National LEV will provide public health and environmental benefits 
by reducing air pollution nationwide. Both inside and outside the OTR, 
National LEV will reduce ground level ozone, the principal harmful 
component in smog, as well as emissions of other pollutants, including 
particulate matter (PM), benzene, and formaldehyde. The Final Framework 
Rule contains a substantive discussion on the health and environmental 
benefits of the National LEV program. See 62 FR 31195. EPA has 
determined that the National LEV program will result in emissions 
reductions in the OTR that are equivalent to or greater than the 
emissions reductions that would be achieved through OTC State Section 
177 Programs. National LEV will also provide manufacturers regulatory 
stability and reduce regulatory burden by harmonizing federal and 
California motor vehicle standards. This will reduce testing and design 
costs for motor vehicles, as well as allow more efficient distribution 
and marketing of vehicles nationwide. See the Final Framework Rule at 
60 FR 31195-31197 and 31224 for further discussion of the benefits of 
the National LEV program.
    In addition to the national public health benefits that would 
result from National LEV, the program has been motivated largely by the 
OTC's efforts to reduce motor vehicle emissions either by adoption of 
the CAL LEV program throughout the OTR or by adoption of the National 
LEV program. One of the OTC States' efforts was a petition the OTC 
filed with EPA. On December 19, 1994, EPA approved this petition, which 
requested that EPA require all OTC States to adopt the CAL LEV program 
(called the Ozone Transport Commission Low Emission Vehicle (OTC LEV) 
program). See 60 FR 4712 (January 24, 1995) (``OTC LEV Decision''). See 
the Final Framework Rule at 60 FR 31195 for a summary of this decision. 
In February of this year, the U.S. Court of Appeals for the District of 
Columbia affirmed states' rights to adopt the CAL LEV program, but 
reversed EPA's decision requiring the OTC States to do so. Some, but 
not all, OTC States have adopted CAL LEV programs to date.
    Given statutory constraints on EPA, National LEV will be 
implemented only if it is agreed to by the OTC States and the auto 
manufacturers. EPA does not have authority to force either the OTC 
States or the manufacturers to sign up to the program. EPA cannot 
require the auto manufacturers to meet the National LEV standards, 
absent the manufacturers' consent, because section 202(b)(1)(C) of the 
Clean Air Act (CAA, or ``the Act'') prevents EPA itself from mandating 
new exhaust standards applicable before model year 2004. The auto 
manufacturers have indicated that they would be willing to opt into 
National LEV only if the OTC States make certain commitments, including 
committing to allow the manufacturers to comply with National LEV in 
lieu of Section 177 Programs. EPA cannot require the OTC States to make 
such commitments (although EPA can issue regulations to help make the 
commitments enforceable). Thus, National LEV cannot come into effect

[[Page 44756]]

absent the agreement of the auto manufacturers and the OTC States.
    Over the past several years, the OTC States and the auto 
manufacturers have conducted negotiations to develop an agreement on 
National LEV to be contained in a Memorandum of Understanding (MOU). 
The parties have reached agreement on most provisions of the National 
LEV program. Each side has sent EPA an MOU that it has initialed, 
indicating its agreement with the National LEV program as contained in 
that Memorandum of Understanding.4 Although there are 
differences in the two Memoranda, they show that agreement has been 
reached between the OTC States and the auto manufacturers on most of 
the provisions of the National LEV program. Based on the MOUs provided 
to the Agency, EPA issued the Final Framework Rule on June 6, 1997, 
setting the framework for and describing most of the elements of the 
National LEV program.
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    \4\ See Docket No. A-95-26, IV-G-31 and IV-G-34.
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    Although the parties had hoped to jointly sign a comprehensive MOU 
affirming their mutual agreement on the National LEV program, the 
parties now agree that further discussions are unlikely to result in 
resolution of the last outstanding issues. Nonetheless, EPA and the 
parties believe that National LEV would provide substantial public 
health and environmental benefits. Failure to come to agreement on a 
National LEV program would be a significant lost opportunity.
    EPA believes that there is sufficient common ground between the 
parties to provide a basis for a National LEV program that all parties 
could agree to opt into, even if the parties do not first come to 
agreement on an MOU laying out the elements of that program. Therefore, 
EPA intends to issue a supplemental final rule that would allow the 
parties to opt into National LEV even without final agreement on an 
MOU. In that final rule, EPA plans to resolve the remaining issues. To 
do so, EPA must first take comment on the issues presented in this 
notice. EPA believes that finalizing a program for the OTC States and 
manufacturers to evaluate as a whole presents the greatest likelihood 
that the country will achieve the benefits of National LEV.
    EPA is proposing to resolve most of the outstanding issues in the 
National LEV program. EPA believes that a targeted proposal will speed 
the rulemaking process, give the parties a better sense of the likely 
parameters of the final program, and help to focus attention on the few 
key critical issues that remain. Nevertheless, in the few areas where 
the OTC States and manufacturers are farther apart in their positions 
and in the areas where EPA needs more factual information to support a 
decision, the Agency is explicitly taking comment on several options.
    In this SNPRM, EPA is making proposals and soliciting public 
comment on issues relating to how the OTC States will voluntarily opt 
into the National LEV program and commit to allow motor vehicle 
manufacturers to comply with the National LEV program in lieu of state 
Section 177 Programs. These issues include the duration of the OTC 
State commitments, the instruments and process through which the OTC 
States will commit to the program, and the substantive details of their 
commitments.
    EPA is also proposing resolutions of several other outstanding 
structural details of the National LEV program. These provisions 
include the timing of OTC State and auto manufacturer opt-ins to the 
National LEV program, incentives for the parties to keep their 
commitments to the National LEV program and conditions under which OTC 
States and manufacturers could exit the program (``offramps''), and the 
start date of the National LEV program.
    In addition, EPA is proposing to address a number of technical 
issues not fully resolved in the Final Framework Rule. These include 
provisions relating to how the off-cycle supplemental federal test 
procedure would apply to National LEV vehicles, provisions to address 
manufacturer concerns regarding the effect of in-use fuels on National 
LEV vehicles, and provisions relating to banking and trading issues. 
EPA is soliciting comment solely on the issues raised in this notice 
and any closely related elements of the final rule that would need to 
be modified in accordance with today's proposals. Except to the extent 
that resolution of an issue raised in this notice would necessitate 
modifications of the Final Framework Rule, EPA is not reopening that 
final rule for further public comment.5
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    \5\ The supplemental final rule will resolve the issues raised 
in this SNPRM, the issues that were raised in the NPRM and not 
resolved in the Final Framework Rule, and any closely related 
elements of the Final Framework Rule that would need to be modified 
in accordance with today's proposal. The reader should be aware 
that, although the CAA does not require publication of proposed 
regulatory text, EPA has included the proposed regulatory text for 
most, but not all, of the proposed program elements. Also, for some 
provisions of the Final Framework Rule where EPA is not proposing a 
change in the language but is merely reordering the provisions, EPA 
has not reproduced those provisions here. In particular, please note 
that EPA is not proposing to modify or drop 40 CFR 86.1705(g)(5) in 
the existing final regulations. While a new provision in today's 
proposed regulations is designated Sec. 86.1705(g)(5), the existing 
provision will be renumbered in the supplemental final rule.
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III. National LEV Start Date

    Although EPA had proposed model year MY1997 as the start date for 
National LEV,6 in the Final Framework Rule EPA used MY1997 
only as a placeholder for the start date of National LEV. EPA noted 
that MY1997 was no longer a reasonable start date due to changes in 
circumstances after the proposal. Today EPA proposes that the National 
LEV program start in MY1999. This would still produce VOC and 
NOX emissions reductions from National LEV that are 
equivalent to or exceed the emissions reductions that would occur in 
the OTR in the absence of National LEV, as discussed below in section 
IV.
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    \6\ 60 FR 52746 (Oct. 10, 1995).
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    As initially proposed by the manufacturers and negotiated with the 
OTC States, National LEV was designed to begin in MY1997. Thus, EPA 
used MY1997 as the program start date in modeling the volatile organic 
compound (VOC) and nitrogen oxide (NOX) emissions reductions 
from National LEV and in finding that those reductions were equivalent 
to or greater than the emissions reductions expected from OTC LEV, 
assuming that OTC LEV was implemented by the OTC States by the date 
required under the OTC LEV state implementation program (SIP) call 
(i.e., all OTC States were to have state LEV programs effective in 
MY1999). In addition, the MOUs initialed by the OTC States and the 
manufacturers assumed a program start date of MY1997. However, as EPA 
noted in the Final Framework Rule, changed circumstances have since 
made a National LEV start date of MY1997 unrealistic. Thus, in the 
Final Framework Rule, EPA used MY1997 as a placeholder for the start 
date for National LEV, but noted that it would take comment on a 
realistic start date at a later time.
    Several factors make a National LEV start date of MY1997 
unrealistic. Given the delays that have occurred in reaching agreement 
between the manufacturers and the OTC States, and the resulting delays 
in the National LEV rulemaking, manufacturers are unlikely to be able 
to opt into National LEV prior to late in calendar year 1997. By then, 
manufacturers will have already completed EPA certification and 
agreements with suppliers for the MY1998 vehicles. A MY1997 start date 
would effectively require manufacturers to begin the program with 
debits for MY1997 and probably for MY1998 as

[[Page 44757]]

well, and then make up those debits over the next few model years. EPA 
does not believe it is reasonable to have the National LEV program 
start with some manufacturers having debits from the beginning, which 
will be difficult to erase as the fleet average NMOG standards become 
more stringent.
    Moreover, the court decision vacating EPA's OTC LEV decision 
removed the legal requirement for National LEV to produce emissions 
reductions at least equivalent to those that would be produced by OTC 
LEV under EPA's SIP call. Nor does EPA believe there is any compelling 
practical need to begin National LEV effective MY1997. Because many of 
the OTC States will not have Section 177 Programs in place effective 
MY1999, and there is no longer a SIP call requiring such programs, a 
MY1997 start date for National LEV is not necessary to produce a 
quantity of emissions reductions equivalent to or greater than those 
that would be produced in the absence of National LEV through the 
alternative approach of individual OTC State adoption of Section 177 
Programs. Even if National LEV begins in MY1999, the program will still 
produce emissions benefits in the OTR at least equivalent to and likely 
significantly greater than the alternative, as well as producing 
substantial additional emissions reductions for the rest of the 
country.
    EPA is proposing that National LEV start with MY1999. All 
requirements set forth in the Final Framework Rule for MY1997 and 
MY1998 would be dropped. National LEV would start in MY1999 with all 
the requirements set forth in the Final Framework Rule for MY1999 
(e.g., non-methane organic gas (NMOG) average of 0.148 grams/mile for 
light-duty vehicles and light light-duty trucks (0-3750 loaded vehicle 
weight (LVW)) in the OTR). In proposing a start date of MY1999, EPA is 
proposing to drop the first two years of the National LEV program set 
forth in the Final Framework Rule--it is not proposing that the entire 
program be delayed two years. Thus, the 2001 nationwide NMOG fleet 
average of 0.075 g/mi for light-duty vehicles and light light-duty 
trucks (0-3750 LVW) would not be changed. EPA has not included in 
today's notice proposed new regulatory language to reflect this 
proposed start date due to the straightforward nature of the necessary 
changes to the regulations.7
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    \7\ The sections in the Final Framework Rule regulations that 
would need to be modified to account for a start date of MY1999 
include 40 CFR 86.097-1, 86.101, 86.1701-97, 86.1705-97, 86.1708-97, 
86.1709-97, and 86.1710-97. In addition, section titles would need 
to be changed in some sections, such as 40 CFR 86.602-97, 86.1003-
97, 86.1012-97, and all subpart R sections. EPA is taking comment on 
other changes to the Final Framework Rule regulations that need to 
be made to account for the change in start dates for the National 
LEV program.
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    EPA is also taking comment on allowing manufacturers to sell 
California-certified vehicles instead of National LEV vehicles 
throughout the Northeast Trading Region (NTR) for MY1999 and MY2000. 
Manufacturers are concerned that they would have insufficient time to 
produce and certify National LEV vehicles for these two model years 
given the likely effective date of the National LEV program and their 
typical production planning cycles, which call for determining models 
to be produced and arranging for parts with suppliers in advance of 
actual vehicle production. Allowing manufacturers to increase their 
production of California-certified vehicles and sell them throughout 
the NTR could help manufacturers meet the National LEV fleet average 
NMOG standards for these two model years. To date, EPA has required 
manufacturers to certify to federal National LEV standards and 
requirements, rather than accepting California-certified-vehicles 
alone, to ensure that all federal certification requirements are met. 
While National LEV harmonizes most of the elements of the federal and 
California motor vehicle programs, certain additional elements of the 
federal program would not necessarily be met by California-certified 
vehicles.

IV. National LEV Will Produce Larger VOC and NOX Emission 
Reductions in the OTR Compared to OTC State Adopted Section 177 
Programs

    In the Final Framework Rule, EPA found that the National LEV 
program would provide greater emission reductions than those from OTC 
LEV (which is equivalent to state-by-state adoption of the CAL LEV 
program throughout the OTR). See 62 FR 31224. EPA assumed a start date 
of MY1997 for the National LEV program and MY1999 for the state Section 
177 Programs. EPA noted at that time that it would update the modeling 
of benefits in the OTR to reflect realistic start date assumptions. 
Since the MY2001 introduction of National LEV vehicles nationwide 
remains unaffected by today's proposal, National LEV will continue to 
provide substantial emission reductions to the 37 states outside the 
OTR (``37 States''). EPA's modeling includes nationwide emissions 
inventories as well (included in Docket A-95-26).
    Using realistic start dates, EPA's modeling shows that National LEV 
would produce larger VOC and NOx emission reductions in the 
OTR than would Section 177 Programs in the OTR. This modeling is based 
on National LEV starting in MY1999, which EPA is proposing today, and 
on state Section 177 Programs going into effect as provided in the 
current state regulations. EPA's modeling includes a sensitivity 
analysis that shows National LEV would produce greater emission 
reductions than state Section 177 Programs even if all OTC States 
adopted Section 177 Programs as quickly as is realistically possible, 
given their current status.
    EPA's updated analysis more accurately reflects expected reductions 
from OTC State Section 177 Programs than did the analysis described in 
the Final Framework Rule. EPA's previous modeling assumed that all of 
the OTC States had Section 177 Programs in effect for MY1999 and later. 
Given the two-year lead time requirement for such adoption, as 
specified in section 177 of the Clean Air Act, it is impossible for all 
OTC States to have a Section 177 Program in place for MY1999. In fact, 
only six states have adopted a Section 177 Program as of July 1, 1997: 
New York, Massachusetts, Rhode Island, Connecticut, New Jersey, and 
Vermont. While other OTC States are contemplating adoption of a Section 
177 Program, the earliest any such adoption could become enforceable is 
MY2000. EPA's analysis does not assume that any other OTC State will 
implement a Section 177 Program. Therefore, for purposes of modeling 
emission benefits, EPA is capturing the current level of CAL LEV 
adoption in the OTR. EPA believes that this realistic assumption is the 
proper comparison to National LEV since legally, individual state 
adoption is the only manner in which California vehicles can be 
required in the Northeast.
    EPA's modeling shows that National LEV would achieve greater 
emission reductions in the OTR than individual OTC State Section 177 
Programs. The emission levels are listed in the table below. The 
modeling is based on National LEV starting in MY1999 in the OTR and 
MY2001 in the rest of the country. For the OTC State Section 177 
Program case, EPA included only those OTC States that have adopted the 
CAL LEV program and will have an enforceable state program as of July 
1, 1997. These states and their program start dates are New York 
(MY1996), Massachusetts (MY1996), Rhode Island (MY1999), Connecticut 
(MY1998), Vermont (MY1999), and New Jersey (MY1999). All other states 
would receive Federal Tier 1 vehicles. EPA did

[[Page 44758]]

not include existing OTC State zero emission vehicle (ZEV) sales 
mandates in either of its modeling runs since these mandates are not 
affected by the National LEV rule. ZEV sales mandates would thus have 
similar effects on emission levels in both modeling cases and would not 
affect the relative emissions benefits of National LEV compared to 
those of OTC State Section 177 Programs.
    EPA believes its current modeling makes the appropriate assumptions 
and correctly estimates a realistic level of OTC State Section 177 
Programs. However, to test its assumptions, EPA also ran a sensitivity 
analysis assuming that the seven OTC States without a Section 177 
Program in place as of July 1, 1997 had adopted the program effective 
in MY2000, the earliest time a state that had not yet adopted a Section 
177 Program could legally enforce such a program, given the two year 
lead time requirement in section 177 of the Act. This analysis showed 
that, even with all 13 OTC States having a Section 177 Program in place 
at the earliest possible times, National LEV still provided greater 
emission reductions in the Northeast.

Table 1.--Ozone Season Weekday Emissions for Highway Vehicles in the OTR
                               [Tons/day]                               
------------------------------------------------------------------------
                                                 OTC state     National 
             Year                  Pollutant      CAL LEV        LEV    
------------------------------------------------------------------------
2005..........................  NMOG                  1,573        1,499
                                NOX                   2,526        2,403
2007..........................  NMOG                  1,480        1,366
                                NOX                   2,427        2,226
2015..........................  NMOG                  1,386        1,148
                                NOX                   2,367        1,899
------------------------------------------------------------------------

V. OTC State Commitments

A. Duration of OTC State Commitments

    EPA is proposing that the OTC States would commit to the National 
LEV program until MY2006. This means that the OTC States would commit 
to accept manufacturers' compliance with National LEV (or equally or 
more stringent mandatory federal standards) as an alternative to 
compliance with a state Section 177 Program through MY2005. The length 
of the auto manufacturers' commitment was set in the Final Framework 
Rule. Under that rule, manufacturers that opt into the program would be 
bound to comply with National LEV until the first model year that 
manufacturers are subject to a mandatory federal tailpipe emissions 
program at least as stringent as the National LEV program with respect 
to NMOG, NOX and carbon monoxide (CO) exhaust emissions 
(``Tier 2 standards''). Under section 202(b)(1)(c) of the Clean Air 
Act, EPA could not mandate such standards prior to MY2004. Thus, the 
manufacturers' commitment to National LEV lasts at least until MY2004 
and could last longer.
    The proposed duration of the OTC State commitments differs slightly 
from the duration specified in the initialed MOUs. The initialed MOUs 
provide that the auto manufacturers' and the states' commitments to the 
program would end at the same time. Under the MOU approach, the auto 
manufacturers' and the states' commitments would last through MY2003 
and possibly through MY2005, depending on whether, by January 1, 2001, 
EPA had promulgated a final rule mandating Tier 2 standards at least as 
stringent as National LEV and effective in MY2004, MY2005, or MY2006. 
If EPA did not issue the specified regulations on time, then National 
LEV would end with MY2003 and, starting in MY2004, in any state where 
California or OTC LEV standards were not in place, the applicable 
standards for manufacturers would revert back to the federal Tier 1 
standards.
    In the Final Framework Rule, EPA did not accept the MOU provisions 
for setting the duration of the National LEV program. As it explained 
fully in that final rule, EPA rejected the MOU provisions because it is 
unacceptable to set up a program that has the country take a step 
backward environmentally if the Agency fails to act by a specified 
deadline. Instead, under the Final Framework Rule, the auto 
manufacturers' commitment to National LEV would continue until a 
mandatory national tailpipe emissions program that is at least 
equivalent in stringency to the National LEV program is in effect. Once 
EPA promulgates such a mandatory tailpipe emissions program, the 
manufacturers' obligation under the National LEV program would end in 
the first model year that the mandatory program is at least as 
stringent on a fleet wide basis as National LEV. Under section 
202(b)(1)(C) of the Clean Air Act, this cannot occur until MY2004.
    Today's proposal attempts to be as faithful to the OTC States' and 
auto manufacturers' intent regarding the duration of state commitments 
to National LEV as is possible, given that EPA did not accept the MOU 
provision that would have put the country back to Tier 1 if EPA failed 
to issue Tier 2 standards by a certain date. The MOU approach to the 
duration of the OTC State commitments indicates that the OTC States are 
willing to commit to National LEV through MY2005, if they are assured 
that they would continue to receive vehicles meeting LEV stringency or 
better standards (on average). The Final Framework Rule provisions for 
the duration of the auto manufacturers' commitment provides such 
assurance. Thus, EPA's proposed approach to duration of the OTC State 
commitments would not bind the states beyond what they have indicated 
is acceptable. Moreover, under the MOU approach to the duration of the 
OTC State commitments, under no circumstances would the states be bound 
beyond MY2005, so the manufacturers could not have expected the OTC 
State commitments to extend further.
    EPA believes this approach is also fair to the manufacturers. It 
gives them the maximum stability (both in terms of state LEV programs 
and nationwide tailpipe standards) that they could have hoped to have 
achieved under the MOU. Admittedly, the manufacturers' commitment to 
National LEV may last longer than the OTC States' commitment (it could 
also end earlier), but only if the National LEV standards remain 
effective longer than currently anticipated. Manufacturers thus would 
get more stability of nationwide tailpipe standards than they had 
bargained for, which does not provide justification for requiring 
states to extend their commitments beyond MY2005.

[[Page 44759]]

B. Timing of OTC State Commitments, Manufacturer Opt-Ins, and EPA 
Finding National LEV in Effect

    EPA is proposing a process for the OTC States and the manufacturers 
to opt into the National LEV program and for EPA to find the program in 
effect that would allow the program to go into effect without requiring 
the parties to sign an MOU. As discussed in the notice of proposed 
rulemaking (NPRM) (60 FR 52742), to implement the program promptly upon 
completion of the National LEV rulemaking, there needs to be a deadline 
for EPA to assess whether the National LEV program is in effect. Also, 
EPA must establish deadlines for the OTC States and manufacturers to 
opt into National LEV in advance of the deadline for EPA's 
determination.
    EPA is proposing the following timing for the OTC States and 
manufacturers to opt into National LEV, and for EPA to find the program 
in effect. Because National LEV needs to be in place as soon as 
possible to ensure that it is available for MY1999, the following 
deadlines are based on the date of signature of the supplemental final 
rule.8 Seventy-five days from signature of the final 
supplemental rule, EPA would be required to determine whether the 
National LEV program was in effect (see section V.C.3 below for the 
criteria for finding National LEV in effect). This finding would be 
based on the OTC States' initial opt-in packages from their Governors 
and state environmental commissioners or secretaries (discussed below 
in section V.C) that were submitted no later than 45 days from the date 
of signature of the final supplemental rule and on the manufacturers' 
opt-ins submitted no later than 60 days from signature of the final 
supplemental rule. If EPA were to find National LEV in effect, all 
parties would be bound by their commitments to the program. While any 
party that missed its deadline for opt-in would not be barred from 
submitting a late opt-in, EPA would only be required to consider timely 
opt-ins in determining whether National LEV is in effect. Moreover, 
given the very short timeframe for the opt-in process and the fact that 
some parties may be reluctant to opt in before they know whether others 
will do so, a late opt-in is likely to jeopardize the start-up of the 
program.
---------------------------------------------------------------------------

    \8\ EPA would provide directly affected parties actual notice 
and make copies of the final rule available within a week of 
signature.
---------------------------------------------------------------------------

    EPA recognizes that the proposed deadlines are quite tight, and 
will require swift action by the parties. Given both the manufacturers' 
production schedules and the earliest plausible signature date for the 
supplemental final rule, any extension of the proposed schedule may 
jeopardize the MY1999 start date and, thus, the entire program. 
Nevertheless, EPA requests comment on the proposed schedule and the 
viable start date for the program.
    EPA is proposing that, after the initial opt-ins and an EPA finding 
that the program is in effect, the OTC States would generally have one 
year from the date of the in-effect finding to submit the final portion 
of their opt-ins, which would be a SIP revision committing the state to 
the National LEV program and allowing manufacturers to comply with 
National LEV as an alternative to a state Section 177 Program, as 
described in more detail in section V.C.4 below. EPA is aware that a 
few states, specifically Delaware, New Hampshire, Virginia and the 
District of Columbia, have particular circumstances related to their 
state rulemaking processes that make a one year deadline unrealistic. 
Thus, EPA proposes that for these states, the deadlines would be 
eighteen months from the date of the in-effect finding. The consequence 
of a state missing its deadline for submission of its SIP revision 
committing to National LEV would be that the manufacturers would have 
the opportunity to opt out of the program. See section VI below for 
further discussion of offramps.

C. OTC State Commitments, Manufacturer Opt-Ins, and EPA's Finding That 
National LEV is in Effect

    This section describes EPA's proposed process for the OTC States 
and the manufacturers to commit to the National LEV program and for EPA 
to find the program in effect. This includes how the OTC States would 
commit to the program, the elements of their commitments, the 
permissible conditions on OTC State and manufacturer opt-ins, and the 
criteria that EPA would use to find the program in effect.
1. Initial Opt-In by OTC States
    EPA proposes that the OTC States would commit to National LEV in 
two steps, the first of which would be an opt-in package from each 
state's Governor and environmental commissioner, indicating the OTC 
State's intent to opt into National LEV. The second step would be a SIP 
revision incorporating the OTC State's commitment to National LEV in 
state regulations, which EPA would approve into the federally 
enforceable SIP.
    EPA proposes that, within 45 days of signature of the supplemental 
final rule, the Governor (or Mayor, in the District of Columbia) would 
submit to EPA an executive order (or, for some states, a letter) 
committing the OTC State to the National LEV program. The executive 
order (or letter) would contain three main elements. First, it would 
state that its purpose is to opt the state into National LEV. Second, 
it would state that the Governor is forwarding a letter signed by the 
head of the state environmental agency (or other appropriate agency or 
department), which specifies the details of the state's commitment to 
the National LEV program. Third, it would state that the Governor has 
directed the head of the state environmental agency to take the 
necessary steps to adopt regulations and submit a SIP revision 
committing the state to National LEV in accordance with the 
requirements of the National LEV regulations. In addition, OTC States 
with existing ZEV mandates 9 may add language confirming 
that the opt-in will not affect the state's requirements pertaining to 
ZEVs.
---------------------------------------------------------------------------

    \9\ ZEV mandates are those state regulations or other laws that 
impose (or purport to impose) obligations on auto manufacturers to 
produce or sell a certain number or percentage of ZEVs. EPA is 
proposing that any OTC State with a ZEV mandate that was adopted 
prior to the OTC State's opt-in to National LEV would be treated as 
a state with an existing ZEV mandate. EPA takes comment on whether 
another cut-off date would be appropriate in place of the date of 
the state's opt-in, including: September 15, 1996; the signature 
date of the Final Framework Rule; the signature date of the final 
supplemental rule; and the date of EPA's finding that National LEV 
is in effect.
---------------------------------------------------------------------------

    The Governor's executive order (or letter) would enclose a letter 
signed by the state environmental commissioner or secretary of the 
appropriate state department (``commissioner's letter''), which would 
specify the details of the state's commitment to National LEV. 
Alternatively, if an OTC State has proposed regulations meeting the 
requirements for a SIP revision specified below, the state may 
substitute the proposed regulations for the portions of the 
commissioner's letter for which they are duplicative. In that case, the 
Governor would send to EPA the Governor's executive order (or letter), 
the proposed regulations, and a letter from the commissioner, which 
would contain the elements specified below that were not included in 
the proposed regulations.
    EPA is proposing that the commissioner's letter would include the 
following elements. First, it would indicate that National LEV would 
achieve reductions of VOC and NOx emissions equivalent to or 
greater than the reductions that would be achieved through state 
adopted Section 177 Programs in the OTR. Second, it would

[[Page 44760]]

indicate that the state intends National LEV to be the state's new 
motor vehicle emissions control program. Third, it would state that for 
the duration of the state's participation in National LEV, the state 
will accept National LEV or mandatory federal standards of at least 
equivalent stringency as a compliance alternative to any state Section 
177 Program. A state Section 177 Program is any regulation or other 
law, except a ZEV mandate, adopted by an OTC State in accordance with 
section 177 and which is applicable to passenger cars, light duty 
trucks up through 6,000 pounds GVWR, and/or medium-duty vehicles from 
6,001 to 14,000 pounds GVWR if designed to operate on gasoline, as 
these vehicle categories are defined under the California regulations. 
(This commitment would not restrict states from adopting and 
implementing requirements under section 177 for heavy-duty trucks and 
engines and diesel-powered vehicles between 6,001 and 14,000 pounds 
GVWR.) The letter would further state that the state's participation in 
National LEV extends until MY2006, except as provided in the National 
LEV regulations' provisions for the duration of the OTC State 
commitments, including provisions for state offramps. The offramps 
would allow the OTC States to exit National LEV if an auto manufacturer 
decided to exit the program. OTC States without existing ZEV mandate 
provisions would add a statement that the state accepts National LEV as 
a compliance alternative to any ZEV mandates. OTC States with existing 
ZEV mandate provisions would add a statement that their acceptance of 
National LEV as a compliance alternative for state Section 177 Programs 
does not include or have any effect on the OTC State's ZEV mandates.
    Fourth, the commissioner's letter would include both an explicit 
recognition that the manufacturers are opting into National LEV in 
reliance on the OTC States' opt-ins, and a recognition that the 
commitments in the initial OTC State opt-in package have not yet gone 
through the state rulemaking process to be incorporated into state 
regulations, so they do not yet have the force of law; in addition, the 
letter would recognize that the state's executive branch must comply 
with any laws passed by the state legislature that might affect the 
state's commitment. Fifth, the commissioner's letter would include an 
acknowledgment that, if a manufacturer were to opt out of National LEV 
pursuant to the opt-out provisions in the National LEV regulations, the 
transition from the National LEV requirements to any state Section 177 
Program or ZEV mandate would be governed by the National LEV 
regulations. Sixth, similar to the manufacturers' opt-in letters, the 
commissioner's letter would state that the state supports the 
legitimacy of the National LEV program and EPA's authority to 
promulgate the National LEV regulations.
    As it stated in the NPRM for National LEV (60 FR 52740), EPA 
believes that the decision regarding adoption of ZEV mandates by OTC 
States must be left up to each individual OTC State, to the extent 
permitted under section 177. The OTC States have indicated that they 
support certain commitments regarding ZEV mandates by including those 
provisions in the MOU voted on by the OTC and initialed by the OTC 
pursuant to the vote. EPA is proposing in the alternative that the OTC 
States without existing ZEV mandate provisions would either have to 
include a statement in the commissioner's letter indicating that the 
state intends to forbear from adopting a ZEV mandate effective before 
MY2006 or would have to include a statement that the state will forbear 
from adopting such a provision. The draft MOU initialed by the OTC 
contains the ``intends to'' language, while the draft MOU initialed by 
the manufacturers uses the ``will'' language.
    EPA is also taking comment on whether those OTC States that have 
not adopted a Section 177 Program at the time of signature of the 
supplemental final rule should include in the commissioner's letter a 
statement that the state intends to or will forbear from adopting a 
Section 177 Program effective before MY2006. The draft MOU initialed by 
the manufacturers included a statement that certain OTC States would 
forbear from adopting such ``backstop'' Section 177 
Programs,10 while the draft MOU initialed by the OTC States 
did not include any statement regarding adoption of such backstop 
programs.
---------------------------------------------------------------------------

    \10\ ``Backstop'' Section 177 Programs are programs that allow 
National LEV as a compliance alternative to the Section 177 Program 
requirements.
---------------------------------------------------------------------------

    Finally, EPA is proposing that the commissioner's letter may 
include a statement that the state's opt-in to National LEV is 
conditioned on all of the motor vehicle manufacturers listed in the 
National LEV regulations opting into National LEV pursuant to the 
National LEV regulations and on EPA finding National LEV to be in 
effect. EPA is further proposing that, as with the manufacturers' opt-
ins, no conditions other than those specified in the regulations may be 
placed on any of the state opt-in instruments (the Governor's executive 
order (or letter), the commissioner's letter, or the SIP revision).
    EPA is taking comment on whether the regulations should allow an 
OTC State to condition its opt-in on signature of an acceptable 
independent agreement with the manufacturers to promote advanced 
technology vehicles (ATVs). Although EPA agrees that advancing 
technology is an important policy goal and EPA believes that the 
National LEV program could be a part of an agreement that would provide 
important opportunities to promote ATVs, as proposed, the regulatory 
portion of the National LEV program does not address ATVs. EPA also 
recognizes that the manufacturers have indicated their belief that any 
agreement on ATVs should only be addressed as part of a larger MOU 
committing to National LEV. Some of the OTC States, however, have 
indicated a continuing interest in an ATV agreement and the desire to 
condition their opt-ins on the signature of an ATV agreement. Such an 
agreement could be comprehensive, as contemplated by the agreement 
contained in the MOU. Or, it could be a smaller agreement between a 
particular state or states and a particular manufacturer or 
manufacturers. EPA believes that if such a condition were allowed, it 
would have to be met prior to EPA finding that National LEV was in 
effect. Under the proposed timetable, this would allow manufacturers 
and states only 30 days to conclude such an agreement after the due 
date for the OTC States' initial opt-in packages. Even if manufacturers 
were amenable to some type of an ATV agreement (or agreements with 
individual states), conditioning an opt-in on an undefined ATV 
agreement might dissuade manufacturers from opting in. Therefore, EPA 
believes that the questions of whether there will be any ATV agreements 
and if so, what they will contain, are best determined between the auto 
manufacturers and the OTC States prior to the deadline for state opt-
ins.
    In the proposed regulations, EPA is proposing specific language for 
each element of the OTC States' opt-ins to be included in the 
Governor's executive order (or letter), the commissioner's letter, and 
the SIP revision. EPA is also taking comment on whether it is necessary 
for EPA to specify language or whether it would be sufficient for the 
National LEV regulations to identify the elements that must be in the 
OTC States' opt-in documents without specifying exact language. 
Although it is somewhat unusual for EPA to identify specific

[[Page 44761]]

language for state submissions, EPA believes this may be an appropriate 
case to do so. Because the OTC States and manufacturers are signing up 
for a voluntary program and are unlikely to sign an MOU, using 
specified language would be useful to ensure that they sign up to the 
same program. Otherwise, the opt-ins might not represent agreement on 
the terms and conditions of the voluntary National LEV program. In 
addition, as discussed further below, EPA proposes to find National LEV 
in effect without providing for additional notice-and-comment on 
whether the conditions are met for finding National LEV in effect. It 
is more appropriate to proceed without additional rulemaking if the 
Agency's in-effect finding is essentially a nondiscretionary action 
based on clear factual determinations. If EPA must use its discretion 
to determine whether a state has adequately committed to National LEV, 
that might require further rulemaking and substantially delay 
implementation of the program. However, if the OTC States use the 
language specified in the regulations, which EPA will have determined 
to be adequate through a notice-and-comment rulemaking, EPA could find 
National LEV in effect on that basis.
    EPA recognizes that some states may need to use language for 
certain elements of the opt-in that deviates in a few respects from the 
language proposed today, due to the requirements of different states' 
individual administrative laws and rulemaking procedures. EPA requests 
that any OTC States that have concerns about using the proposed 
language notify EPA to that effect in comments on this proposal. EPA 
requests that any such comments include alternate suggested language 
for the specified elements of the opt-in, and that a state make the 
minimum adjustments to the language necessary to allow the state to opt 
into National LEV. EPA proposes to provide in the final rule alternate 
approved specific language for specific states, as necessary to account 
for individual states' particular needs. Any such language would still 
need to address each of the opt-in elements and commit the state 
adequately to the National LEV program. EPA also recognizes that a 
state may wish to include background information, especially in the 
Governor's executive order (or letter). This would be permissible under 
EPA's proposed regulations, providing that the additional information 
did not add conditions to the state's opt-in.
2. Manufacturer Opt-Ins
    EPA is proposing that motor vehicle manufacturers' opt-ins to 
National LEV would be due within 60 days from signature of the final 
rule. As provided in the Final Framework Rule, a manufacturer would opt 
into National LEV by submitting a written notification signed by the 
Vice President for Environmental Affairs (or a company official of at 
least equivalent authority who is authorized to bind the company to the 
National LEV program) that unambiguously and unconditionally states 
that the manufacturer is opting into the program, subject only to 
conditions expressly contemplated by the regulations. See 40 CFR 
86.1705(c)(2). EPA is proposing that the only permissible conditions in 
a manufacturer's opt-in notification would be that all of the OTC 
States opt into National LEV pursuant to the National LEV regulations 
and that EPA find the program to be in effect. These conditions 
parallel the proposed permissible conditions described above for the 
OTC States' opt-ins.
3. EPA Finding That National LEV is in Effect
    The OTC States' and the auto manufacturers' opt-ins would become 
effective upon EPA's receipt of the opt-in notification or, if the opt-
in were conditioned, upon the satisfaction of that condition. Under 
today's proposal, EPA would find National LEV in effect if each OTC 
State and each listed manufacturer were to submit an opt-in 
notification that complied with the requirements for opt-ins, and all 
conditions on any of those opt-ins had been satisfied (or would be 
satisfied upon EPA finding National LEV in effect). EPA is also taking 
comment on whether the Agency should be able to find National LEV in 
effect if each of the listed manufacturers were to submit an opt-in 
notification that complied with the requirements for opt-ins, each of 
the opt-in notifications submitted by an OTC State complied with the 
requirements for opt-ins, and any conditions placed upon any of the 
opt-ins were satisfied, even if fewer than all OTC States opted into 
National LEV. EPA believes that National LEV should be a national 
program--effective in all states but California. This would provide the 
OTR with emissions reductions greater than what could be achieved 
without National LEV and would simplify distribution and other aspects 
of the sale of motor vehicles. Moreover, the manufacturers have stated 
that they are not willing to opt into National LEV unless each and 
every OTC State opts into National LEV. However, if the OTC States and 
auto manufacturers are willing to participate in a National LEV program 
even if all OTC States do not opt-in, EPA will not stand in the way of 
National LEV going into effect. Once EPA finds National LEV in effect, 
the manufacturers would be subject to the National LEV requirements for 
new motor vehicles for the duration of the program, and the OTC States 
would be committed to participate in the National LEV program for the 
duration of their commitments, as discussed above in section V.A.
    While the OTC States' SIP revisions are a necessary component of 
their commitments to National LEV, EPA is proposing to make the finding 
as to whether National LEV is in effect before the OTC States' SIP 
revisions are due. Through the executive order (or letter), the 
Governor of each state will have opted into National LEV and started 
the process for submission of an approvable SIP revision. Also, as 
discussed further below, EPA is proposing that an OTC State's failure 
to submit the SIP revision within the time provided for submission 
would give manufacturers an opportunity to opt out of the National LEV 
program. Together, this high level directive for action and the 
consequences of a failure to conclude the action provide substantial 
assurance that the OTC States will submit their SIP revisions within 
the specified time.
    EPA would publish the finding that National LEV is in effect in the 
Federal Register, but the Agency would not need to go through 
additional rulemaking to make this determination. In the Final 
Framework Rule, EPA stated that further Agency rulemaking to find 
National LEV in effect would be unnecessary because EPA would establish 
the criteria for the finding through notice-and-comment rulemaking, and 
EPA's finding that the criteria are satisfied would be an easily 
verified objective determination. See 62 FR 31226 (June 6, 1997). As 
discussed above, to find National LEV in effect, EPA would have to 
determine that the OTC States and the manufacturers had submitted opt-
in notifications that met the requirements specified in the regulations 
and that any conditions on those opt-ins had been satisfied. EPA 
established most of the specifics of the manufacturers' opt-in 
notifications in the Final Framework Rule after taking comment on those 
issues in the NPRM. In today's SNPRM, EPA is taking comment on 
additional details of manufacturer opt-in notifications and the 
specifics of the OTC States' opt-in notifications, which EPA will 
finalize in the supplemental final rule. Thus, the

[[Page 44762]]

public will have had full opportunity to comment on the adequacy of the 
elements of the manufacturers' and OTC States' opt-ins and the language 
provided for those opt-ins. As with the manufacturers' opt-ins, 
determining whether a state has used the specified language without 
adding any conditions is a simple, objective determination, which would 
not require further rulemaking. Similarly, if OTC States or 
manufacturers conditioned their opt-ins on either all manufacturers or 
all OTC States opting into National LEV, determining whether these 
conditions were satisfied would be a simple factual inquiry involving 
no discretion on the part of EPA. Thus, EPA proposes to find that 
National LEV is in effect without conducting further rulemaking if the 
Agency determines that it has received opt-in notifications from each 
OTC State and listed manufacturer that include the specified elements 
in approved language without qualifications and the Agency determines 
that all conditions on those opt-ins have been satisfied.
4. SIP Revisions
    EPA proposes that within one year of the date of EPA's finding that 
National LEV is in effect, the OTC States would complete the second 
phase of their commitments to National LEV by submitting SIP revisions 
to EPA incorporating their commitments (``National LEV SIP 
revisions'').11 EPA proposes that the SIP revisions would 
contain the following elements incorporated in enforceable state 
regulations. The first regulatory provision would commit that, for the 
duration of the state's participation in National LEV, the 
manufacturers may comply with National LEV or mandatory federal 
standards of at least equivalent stringency as a compliance alternative 
to any state Section 177 Program (which is any regulation or other law, 
except a ZEV mandate, adopted by an OTC State in accordance with 
section 177 and which is applicable to passenger cars, light duty 
trucks up through 6,000 pounds GVWR, and medium-duty vehicles from 
6,001 to 14,000 pounds GVWR if designed to operate on gasoline, as 
these vehicle categories are defined under the California 
regulations).12 This provision would not restrict states 
from adopting and implementing requirements under section 177 for 
heavy-duty trucks and engines and diesel-powered vehicles between 6,001 
and 14,000 pounds GVWR. The regulations would also commit the state to 
participate in National LEV until MY2006, except as provided in the 
National LEV regulatory provisions for the duration of the OTC State 
commitments, including provisions for state offramps. States that did 
not have an existing ZEV mandate (see n. 9 above) would additionally 
provide that manufacturers may comply with National LEV as a compliance 
alternative to any ZEV mandates for the duration of the state's 
participation in National LEV. The second element of the state 
regulations would explicitly acknowledge that, if a manufacturer were 
to opt out of National LEV pursuant to the opt-out provisions in the 
National LEV regulations, the transition from the National LEV 
requirements to any state Section 177 Program or ZEV mandate (for 
states without existing ZEV mandates) would be governed by the National 
LEV regulations, thereby incorporating these National LEV provisions by 
reference into state law.
---------------------------------------------------------------------------

    \11\ See section V.B above for discussion of the proposed 
extended deadline for a few specified states.
    \12\ OTC States that had Section 177 Programs at the time of 
opt-in would need to modify their existing regulations in accordance 
with this provision. EPA is also taking comment on whether by some 
earlier date (perhaps June 1, 1998), OTC States with Section 177 
Programs at the time of opt-in would have to take whatever actions 
would be necessary to ensure that manufacturers complying with 
National LEV in MY1999 would not have to comply with the state 
Section 177 Program for MY1999.
---------------------------------------------------------------------------

    The SIP submission to EPA would include state regulations 
containing the elements discussed above, and a transmittal letter or 
similar document from the state commissioner forwarding those 
regulations. EPA proposes that three additional elements of the SIP 
commitment may be included either in the transmittal letter or the 
state regulations. First, the state would commit to support National 
LEV as an acceptable alternative to state Section 177 Programs. Second, 
the state would recognize that its commitment to National LEV is 
necessary to ensure that National LEV remain in effect. Third, the 
state would state that it is submitting the SIP revision to EPA in 
accordance with the National LEV regulations.
    EPA is further proposing that the provisions of the OTC States' 
commitments relating to ZEV mandates should also be included in the SIP 
revision. EPA is proposing in the alternative that in the transmittal 
letter portion of the SIP submission to EPA, each OTC State without an 
existing ZEV mandate (see n. 9 above) would have to state either that, 
for the duration of the state's participation in National LEV, the 
state intends to forbear from adopting any ZEV mandate provisions 
effective before MY2006, or the state will forbear from adopting such 
provisions. EPA is taking comment on whether this commitment instead 
should be incorporated in the state's regulations.
    Finally, EPA is also taking comment on whether those OTC States 
that have not adopted a Section 177 Program at the time of signature of 
the supplemental final rule should include in the transmittal letter 
for the SIP revision or in the state regulations a statement that the 
state intends to or will forbear from adopting a Section 177 Program 
effective before MY2006. As noted above, the draft MOU initialed by the 
manufacturers included a statement that certain OTC States would 
forbear from adopting such backstop Section 177 Programs, while the 
draft MOU initialed by the OTC States did not include any comparable 
statement.
    As with the finding that National LEV is in effect, EPA is 
proposing that the Agency could approve SIP revisions committing to the 
National LEV program without further rulemaking, as long as the 
revisions include the language specified in the regulations without 
adding conditions and meet the CAA requirements for approvable SIP 
submissions. In this notice, EPA is providing full opportunity for 
public comment on the language that the states would use in their SIP 
revisions. Thus, in reviewing a SIP submittal, EPA would only have to 
determine whether the submittal included the specified language without 
additional conditions, and whether it met the statutory criteria for 
approvable SIP submissions, as laid out in sections 110(a)(2) and 
110(l) of the CAA. Section 110(a)(2), in relevant part, specifies that 
the state must have provided public notice and a hearing on the SIP 
provisions and the submission must provide necessary assurances that 
the state will have adequate personnel, funding and authority under 
state law to carry out the provisions. Section 110(l) (discussed in 
more detail below) provides that SIP revisions must not interfere with 
attainment or any other applicable requirement.
    In this case, these requirements for EPA's approval are easily 
verified objective criteria. They would leave EPA little discretion in 
deciding whether to approve the SIP revision, and consequently would 
remove any benefits to be derived from conducting notice-and-comment 
rulemaking on each approval. Determining whether the language of the 
SIP submittal tracks the language provided in the final regulations and 
whether the state has substantively qualified or conditioned that 
language through modifications or additions is a straightforward,

[[Page 44763]]

essentially ministerial task. This is also true for assessing whether 
the state has provided notice and a public hearing on the SIP 
submission. Because National LEV is a federal program, the state needs 
no personnel or funding to carry it out, so there is nothing related to 
the requirement for adequate personnel and funding for EPA to evaluate. 
For a state with existing regulations requiring compliance with a state 
Section 177 Program, EPA would merely have to determine whether the 
state had modified its regulations to include the language in the 
National LEV regulations to accept National LEV as a compliance 
alternative for the specified duration of the state commitment, as well 
as the additional provisions specified above. Again, this is a very 
simple, objective assessment, requiring no exercise of discretion. 
Finally, EPA has determined that National LEV would provide reductions 
in the OTR equivalent to or greater than OTC State Section 177 Programs 
in the OTR (see section IV), so that a state commitment to National LEV 
would not interfere with attainment or any other Act requirement. 
Because the satisfaction of the criteria for approval of the state SIP 
revisions is so clear as to be virtually self-executing, EPA believes 
that conducting further notice-and-comment rulemaking on whether the 
criteria were satisfied for each individual SIP revision would produce 
additional delay while serving no purpose.
    Incorporating the OTC States' commitments to National LEV in state 
regulations approved into the SIPs will substantially enhance the 
stability of the National LEV program and support giving states credit 
for SIP purposes for emissions reductions from National LEV. A SIP 
revision would clearly indicate a state's commitment to National LEV 
and would reiterate the state executive branch's support for the 
National LEV program. More importantly, an approved SIP revision is 
federal law and hence has binding legal effect. Violation of a 
commitment to National LEV contained in a SIP is enforceable as a 
violation of applicable federal law.
    The SIP revision would provide that the state commits to accept 
National LEV or mandatory federal standards of at least equivalent 
stringency as a compliance alternative to a state program under section 
177 for a specified time period. If a state adopted new state law or 
regulations that violated this commitment in the SIP (e.g., by 
requiring compliance only with a state Section 177 Program), this new 
state law would not be valid prior to EPA action on the SIP revision 
incorporating the new law. Prior to such action, the new state law 
would be precluded by the federal law with which it conflicted (i.e., 
the SIP revision EPA had approved). Moreover, pursuant to section 
304(a)(1) and (f), manufacturers could bring suit against the state to 
enforce the initial SIP commitment in court. To revise the SIP, the 
state would have to submit a new SIP revision and EPA would have to 
approve the new revision through notice and comment rulemaking. 
Moreover, if EPA disapproved the newly submitted SIP revision, then the 
new state law would continue to violate the approved SIP revision 
containing the state commitment to National LEV, and manufacturers 
could continue to enforce the initial SIP commitment in court.
    EPA would be obligated under section 110(l) of the CAA to 
disapprove a SIP revision that violated a state's commitment to allow 
National LEV as a compliance alternative if EPA were to find that the 
SIP revision would interfere with other states' ability to attain or 
maintain the national ambient air quality standards (NAAQS). 
Specifically, section 110(l) provides that EPA must disapprove a plan 
revision if it ``interfere[s] with any applicable requirement 
concerning attainment and reasonable further progress * * * or any 
other applicable requirement of this Act.'' By the terms of its 
rulemaking, National LEV comes into and stays in effect only if all 
relevant states commit to allow it as a compliance alternative. If 
National LEV comes into effect, a number of OTC States, as well as 
states outside the OTR, are likely to rely on National LEV as a means 
of attaining and maintaining the ozone NAAQS. These states are likely 
to forego adoption of other control measures because they will count on 
reductions from National LEV to meet their attainment and maintenance 
obligations. In this manner, other states will be relying on each of 
the OTC States' commitments to National LEV. An OTC State breaking its 
commitment to allow National LEV as a compliance alternative could lead 
to the dissolution of the National LEV program, which in turn would 
likely deprive other states of the emission reductions from National 
LEV, and could thereby interfere with other states' ability to attain. 
As discussed above, EPA is proposing that in the SIP revisions 
committing to National LEV, each OTC State would explicitly recognize 
that the state's commitment to National LEV is necessary to ensure that 
the program remain in effect.

VI. Incentives for Parties To Keep Commitments to Program

    Once it comes into effect, National LEV is designed to be a stable 
program that will remain in effect until replaced by mandatory federal 
tailpipe standards of at least equivalent stringency. Manufacturers 
have the option, but not the requirement, to participate in National 
LEV. Manufacturers have indicated a willingness to opt into the 
program, but only if the EPA and the OTC States make certain 
commitments. To give the manufacturers both assurance that the 
commitments will be kept and recourse if they are not, EPA is proposing 
that the program include a few specified conditions (``offramps'') that 
would allow manufacturers to opt out of National LEV if EPA or the OTC 
States did not keep their commitments. In addition, the OTC States also 
need assurance that National LEV will continue to provide the benefits 
they anticipated when they opted into the program, both in terms of the 
number of manufacturers covered by the program and the level of 
emissions reductions that the program was designed to achieve. Thus, 
EPA is proposing that National LEV would also include limited offramps 
for the OTC States to protect against changes in anticipated emission 
benefits or the number of covered manufacturers. Both the 
manufacturers' and the OTC States' proposed offramps are structured to 
maximize all parties' incentives to maintain the agreed-upon program 
provisions and thereby to maximize the stability of National LEV over 
its intended duration.
    In the unlikely event that any of the offramps were triggered and 
manufacturers or states opted out, EPA's proposed regulations set forth 
which requirements would apply, the timing of such requirements, the 
states in which they would apply, and the manufacturers that would have 
to comply with them. The main purpose of these provisions is to enhance 
the stability of the program by minimizing the incentives for EPA or 
the OTC States to act in a manner that would trigger an offramp. 
Additionally, EPA has structured the offramp provisions such that no 
single event automatically would end the National LEV program. EPA will 
continue to make National LEV available as long as one or more 
manufacturers and one or more OTC States wish to remain in the program. 
EPA recognizes, of course, that if a significant number of OTC States 
or manufacturers were to opt out of National LEV, after a certain point 
it is unlikely that the remaining parties

[[Page 44764]]

would choose to continue the program. However, the issue is highly 
unlikely to arise and if it did, it is not clear what would be the 
critical mass of opt-outs sufficient to end the program. Rather than 
deciding now how many OTC State and auto manufacturer opt outs would be 
significant enough to end National LEV, EPA believes it is both more 
appropriate and more efficient to leave that decision to the OTC States 
and manufacturers to decide, in the unlikely event that an offramp is 
triggered and significant opt-outs occur.
    In the NPRM, EPA proposed that manufacturers' right to opt out of 
the National LEV program would be limited to two conditions. These 
offramps were: (1) EPA modification of a Stable Standard, except as 
specifically provided, and (2) an OTC State's failure to meet or keep 
its commitment regarding adoption or retention of a state motor vehicle 
program under section 177. The Final Framework Rule addressed the first 
offramp, which would allow manufacturers to opt out of National LEV if 
EPA modified a Stable Standard except as provided for under the 
National LEV regulations, but did not address the second offramp. This 
second offramp is addressed here. EPA also is proposing to add a third 
type of offramp related to auto manufacturers' concerns regarding the 
effects of using federal fuel (instead of California fuel) on emissions 
control systems. This is discussed in section VI.C below. In addition, 
EPA is proposing a fourth type of offramp based on an OTC State or 
another manufacturer legitimately opting out of National LEV.

A. Offramp for Manufacturers for OTC State Violation of Commitment

    Under today's proposal, there are several ways in which an OTC 
State might break its commitment and thereby allow manufacturers to opt 
out of National LEV. These are: (1) Final action in violation of the 
commitment to continue to allow National LEV as a compliance 
alternative to a Section 177 Program or to a ZEV mandate (in those OTC 
States without existing ZEV mandates); (2) failure to submit a National 
LEV SIP revision within the timeframe set forth in the National LEV 
regulations; and (3) submission of an inadequate National LEV SIP 
revision. 13 In addition, EPA is taking comment on whether 
manufacturers should also be able to opt out of National LEV if an OTC 
State without an existing ZEV mandate adopted a ZEV mandate (even if it 
accepted National LEV as a compliance alternative for that requirement) 
and that state had either stated its intent or committed not to adopt 
such a mandate. 14 The discussion below addresses each of 
these proposed possible types of OTC State violations individually. EPA 
does not believe that any of these scenarios are likely to arise under 
the National LEV program. Nevertheless, spelling out in the regulations 
the consequences under each of these scenarios will provide the parties 
certainty regarding the worst-case outcomes, and more importantly, 
allows EPA to structure the consequences so as to minimize the 
likelihood that any of these scenarios will occur.
---------------------------------------------------------------------------

    \13\ In addition, as discussed in the following section, EPA is 
proposing that manufacturers may opt out if an OTC State takes a 
legitimate offramp.
    \14\ If, as discussed at n. 12 above, EPA were to set a separate 
date by which OTC States with Section 177 Programs had to take 
action to ensure that manufacturers complying with National LEV 
would not have to comply with the state program requirements, 
failure to meet such a deadline would also trigger an offramp. EPA 
is taking comment on what the consequences should be if such an 
offramp were triggered.
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1. OTC State No Longer Accepts National LEV as a Compliance Alternative
    The most significant way in which an OTC State could violate its 
commitment to National LEV would be to attempt to have a Section 177 
Program that was in effect and that did not allow National LEV or 
mandatory federal standards of at least equivalent stringency as a 
compliance alternative \15\ through MY2005.\16\ This could happen if an 
OTC State accepted National LEV as a compliance alternative to a state 
Section 177 Program or a ZEV mandate (in an OTC State without an 
existing ZEV mandate) and then took final action purportedly removing 
those provisions from its regulations, leaving only the state Section 
177 Program or ZEV mandate requirements in place. It would also happen 
if an OTC State took final action purportedly adopting a Section 177 
Program or a ZEV mandate (in an OTC State without an existing ZEV 
mandate) without providing for National LEV as a compliance 
alternative.\17\ This violation of the OTC State's commitment to 
National LEV attempts to directly impose a compliance burden on the 
manufacturers and would abandon the most fundamental element of the 
agreement underlying the voluntary National LEV program.
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    \15\ Throughout this preamble, EPA often uses ``National LEV as 
a compliance alternative'' as shorthand for ``National LEV or 
mandatory federal standards of at least equivalent stringency as a 
compliance alternative.''
    \16\ An OTC State with a Section 177 Program that did not allow 
National LEV as a compliance alternative as of MY2006 or later would 
not be in violation of its commitment under National LEV.
    \17\ In addition, an OTC State with a Section 177 Program in its 
regulations at the time of opt-in that does not already permit 
manufacturers to comply with National LEV as a compliance 
alternative might fail to modify those existing regulations within 
the time-frame provided, which would be the same as the deadline for 
submission of the state's SIP revision. The consequences of this 
type of violation would differ slightly from the consequences of 
other types of violations that attempted to have a Section 177 
Program without allowing National LEV as a compliance alternative, 
as noted below in n.18.
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    The consequences of such a violation, as proposed below, take into 
account the seriousness of the breach of the commitment, even though 
the violation would not necessarily burden the manufacturers. Once a 
state had adequately committed to National LEV through an approved SIP 
revision, even if the state were to change its regulations to disallow 
compliance with National LEV, the requirement would not be enforceable 
until EPA approved a further SIP revision incorporating the change, as 
discussed above in section V.C.4. Yet although the violation might not 
actually impose any burden on the manufacturers because it is not 
enforceable, manufacturers should not be bound to comply with the 
National LEV requirements in the violating state and should not be 
bound to continue in the National LEV program, as even an unenforceable 
Section 177 Program would create risks and uncertainties for 
manufacturers. Manufacturers would be at risk of having to defend 
against a state enforcement action. The question of whether, under any 
circumstances, EPA could approve a proposed state SIP revision deleting 
National LEV as a compliance alternative--if only by virtue of the lack 
of precedence for this issue--would create further uncertainty for 
manufacturers.
    EPA is proposing that manufacturers would be able to opt out at any 
time after an OTC State takes final action that would require 
manufacturers to comply with a Section 177 Program or a ZEV mandate (in 
an OTC State without an existing ZEV mandate) prior to MY2006 without 
allowing them to comply with National LEV or mandatory federal 
standards of at least equivalent stringency as an alternative, even if 
the effective date of the state requirement would be some time in the 
future. The final state action would be the action promulgating the 
state law or regulations at issue, not the act of defending such law or 
regulations in litigation. Thus, a self-effectuating state law 
purporting to impose a Section 177 Program without including National 
LEV as a compliance alternative would

[[Page 44765]]

be final state action, as would final state regulations purporting to 
impose such a program. A state law directing the relevant state agency 
to change its regulations to remove National LEV as a compliance 
alternative would not be a final state action, but the regulations 
promulgated in accordance with that directive would be final state 
action.
    EPA is proposing that, if an OTC State were to violate its 
commitment by purportedly disallowing National LEV as a compliance 
alternative, there would be both automatic consequences in the 
violating state and an opportunity for manufacturers to opt out of 
National LEV.\18\ To determine the consequences in the violating state, 
there are two significant issues. The first issue is what are the 
compliance obligations of the manufacturers in the violating state. The 
second issue is when would the state Section 177 Program or ZEV mandate 
requirements apply to manufacturers. Outside of the violating state, 
manufacturers would continue to be subject to the National LEV 
requirements unless they opted out of the National LEV program.
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    \18\ In an OTC State that had a Section 177 Program in its 
regulations at the time of opt-in and that had never accepted 
National LEV as a compliance alternative to the Section 177 Program 
requirements, the consequences in the violating state discussed in 
this section would not apply, given EPA's interpretation of section 
177. See section VI.D. However, the provisions for a manufacturer's 
offramp would be the same for a state that failed to modify existing 
regulations to accept National LEV as a compliance alternative as 
for any other state action not allowing National LEV as a compliance 
alternative.
---------------------------------------------------------------------------

    Until the violating state's Section 177 Program or ZEV mandate 
requirements apply, the manufacturers' compliance obligations in that 
state would be governed by the terms of the National LEV regulations. 
EPA is proposing that, in a state that has violated its commitment by 
attempting to have a Section 177 Program or ZEV mandate without 
allowing National LEV as a compliance alternative, beginning with the 
next model year,19 National LEV regulations would allow 
manufacturers to sell vehicles complying with Tier 1 tailpipe standards 
in that state and those vehicles would not be counted in determining 
whether the NLEV fleet average NMOG standard was met. Because model 
years generally run somewhat ahead of the calendar years with the same 
numbers, generally this will result in a near-term or immediate change 
in the manufacturers' compliance obligations. Until the violating 
state's Section 177 Program requirements applied (which might not be 
until MY2006), the manufacturers would only have to meet the federal 
Tier 1 tailpipe standards for vehicles sold in the violating state, and 
those vehicles would not be used to calculate the manufacturers' fleet 
NMOG averages.
---------------------------------------------------------------------------

    \19\ The ``next model year'' would be the model year named for 
the calendar year following the calendar year in which the OTC State 
took final state action violating its commitment. For example, if an 
OTC State violated its commitment by taking final state action in 
calendar year 1999, the next model year would be MY2000.
---------------------------------------------------------------------------

    The earliest date on which the violating state's Section 177 
Program or ZEV mandate would apply would be governed by the lead time 
requirements in section 177 and EPA's regulations on model year at 40 
CFR part 85 subpart X and in the National LEV regulations. This date 
would apply only for any auto manufacturer that opted out of National 
LEV as a result of the violating state's action (provided that it is 
later than the effective date of the opt-out), for any auto 
manufacturer that decided to comply with the violating state's 
requirements even though it otherwise chose to stay in National LEV, 
and for all manufacturers if EPA approved the violating state's program 
into the SIP. (As discussed below, EPA believes the violating state's 
refusal to allow National LEV as a compliance alternative would not 
otherwise be effective until MY2006. Thus, if none of these situations 
occurred, National LEV regulations would allow manufacturers to sell in 
the violating state vehicles that meet Tier 1 tailpipe standards and to 
exclude those vehicles from the NMOG fleet average calculation until 
MY2006.)
    After National LEV is in effect, a change to a state regulation 
that deletes National LEV as a compliance alternative attempts to 
change the manufacturers' obligations. In that circumstance, as 
discussed in section VI.D below, EPA interprets section 177 to require 
two years of lead time from the date that the state takes final action 
changing its regulations (or other law) deleting National LEV as a 
compliance alternative regardless of when the state adopted its 
previous Section 177 Program. Thus, pursuant to the model year 
regulations at 40 CFR part 85 subpart X and those proposed here, the 
earliest the state Section 177 Program or ZEV mandate requirements 
could apply would be to engine families for which production begins 
after the date two calendar years from the date of the final state 
action. For example, if the violating state promulgated regulations 
purportedly removing National LEV as a compliance alternative on June 
1, 2000, the earliest the state Section 177 Program or ZEV mandate 
requirements could apply would be to engine families that began 
production on or after June 1, 2002, which likely would apply to some, 
but not all, MY2003 vehicles. EPA is also taking comment on whether 
there is a way to ensure that manufacturers have at least four, rather 
than two, years of lead time from the date that the state takes final 
action changing its regulations deleting National LEV as a compliance 
alternative, and what the legal basis would be for such an approach.
    The combined effect of the National LEV regulations allowing 
manufacturers to comply with Tier 1 tailpipe standards in the violating 
state and the requirement for two years lead time before the state 
Section 177 Program or ZEV mandate requirements could apply means that, 
if an OTC State were to violate its commitment by not allowing National 
LEV as a compliance alternative, manufacturers would be subject to only 
Tier 1 tailpipe standards (and not the NLEV NMOG average) in that state 
for at least two years. As a consequence, the violating state could not 
claim SIP credits for control of emissions from vehicles meeting 
anything more stringent than Tier 1 tailpipe standards during that 
period. EPA believes that this would provide a powerful incentive for 
the OTC States to uphold their commitments to accept National LEV as a 
compliance alternative for the specified duration.
    EPA recognizes that it may take manufacturers some time to take 
advantage of the less stringent Tier 1 tailpipe standards, and that, 
consequently, the hardware of the vehicles supplied to the violating 
state may not change dramatically in the short-term. However, 
manufacturers would be able to revise vehicle compliance levels rapidly 
to provide that, for warranty and recall purposes, the vehicles are 
only complying with Tier 1 tailpipe standards. This means that over the 
life of those vehicles they would only be required to produce emissions 
below the 50,000 mile and 100,000 mile Tier 1 standards and enforcement 
action could not be taken to require those vehicles to meet any more 
stringent standards.\20\ As long as manufacturers are not required to 
sell vehicles meeting standards more stringent than Tier 1 in the 
violating state, it would not be appropriate for EPA to approve SIP 
credits for any emissions reductions beyond the levels provided by Tier 
1 tailpipe standards. Those vehicles would not be included in 
calculating the manufacturers'

[[Page 44766]]

compliance with the National LEV fleet average NMOG standards and the 
SIP would not provide in any way for vehicles sold in that state to 
meet emission standards more stringent than Tier 1 levels. EPA is 
proposing to include in the supplemental final regulations provisions 
for this approach to SIP credits for vehicles sold in a violating 
state.
---------------------------------------------------------------------------

    \20\ See section VIII.C for discussion of how EPA's vehicle 
certification process would allow a manufacturer to provide vehicles 
meeting Tier 1 standards in a violating state.
---------------------------------------------------------------------------

    In addition to the relaxed emissions standards that would apply to 
vehicles sold in the violating state, the other incentive for OTC 
States not to violate their commitments is that manufacturers would 
also be able to opt out of National LEV if an OTC State violated its 
commitment to the program by not allowing National LEV as a compliance 
alternative. EPA is proposing that there would be no time limit for 
manufacturers to exercise their right to opt out as long as the state 
was in violation of its commitment. After a manufacturer opted out, 
there also would be no opportunity for the state to cure the violation 
by changing the state law or regulations to accept National LEV as a 
compliance alternative and thereby negate an opt-out that a 
manufacturer had already submitted, regardless of whether that opt-out 
had become effective already. However, once a violating state took 
final action to cure the violation, manufacturers that had not already 
opted out could not opt out based on the violation that the state had 
cured.
    The Final Framework Rule gives EPA an opportunity to make a finding 
as to the validity of an opt-out based on a change to a Stable 
Standard. See 62 FR 31202-07. This both provides a safe harbor for a 
manufacturer that relies on an EPA determination of validity, and 
provides for rapid resolution in the United States Court of Appeals for 
the District of Columbia if the validity is disputed, thereby avoiding 
protracted litigation in federal district court. In contrast, EPA does 
not believe such a process is necessary here. The validity of an opt-
out based on a state disallowing National LEV as a compliance 
alternative should be a straight-forward factual determination. 
Consequently, EPA believes there is very little benefit to be gained by 
providing for an EPA determination of the validity of such an opt-out, 
and EPA is not proposing such a provision.
    EPA is proposing that a manufacturer that opts out of National LEV 
based on a state violation of its commitment to National LEV must 
continue to comply with National LEV until the opt-out becomes 
effective (although Tier 1 tailpipe standards will apply in the 
violating state, as proposed above). EPA is proposing that each 
manufacturer's opt-out notification would specify the effective date of 
the opt-out, which in no event could be any earlier than the next model 
year (i.e., the model year named for the calendar year following the 
calendar year in which the manufacturer opted out).\21\ After the 
effective date of its opt-out, a manufacturer would have to comply with 
any non-violating state's Section 177 Program (except for ZEV mandates) 
provided that at least two-years lead time (as provided in section 177) 
had passed since the adoption of the state's Section 177 Program. Other 
than those ZEV mandates that would be unaffected by the National LEV 
program (i.e., existing ZEV mandates), if a manufacturer opts out, it 
would not be subject to any other ZEV mandates until two years of lead 
time had passed, which would run from the date the manufacturer opts 
out of National LEV and be measured according to the section 177 
implementing regulations. After the effective date of a manufacturer's 
opt-out, in a non-violating state without a Section 177 Program, the 
manufacturer must meet all applicable federal standards that would 
apply in the absence of National LEV.
---------------------------------------------------------------------------

    \21\ If, however, an OTC State took a legitimate offramp as 
discussed below, a manufacturer could not use a delayed effective 
date of opt out to continue to comply with National LEV in a state 
that had opted out after that state's opt-out became effective. As 
discussed below in section VI.B, an OTC State legitimately opting 
out of National LEV is required to provide manufacturers at least 
two years lead time.
---------------------------------------------------------------------------

    The following summarizes EPA's proposal for the tailpipe standards 
that would apply if an OTC State violated its commitment by not 
allowing National LEV as a compliance alternative. For vehicles sold in 
the violating state, all manufacturers would be allowed to sell 
vehicles meeting Tier 1 standards and to exclude those vehicles from 
the NMOG fleet average beginning in the next model year after the date 
of the state violation for at least the two-year lead time set forth in 
section 177 and the implementing regulations; then manufacturers would 
become subject to the state Section 177 Program only if the 
manufacturer opted out of National LEV and its opt-out had become 
effective, if the manufacturer decided to comply with the violating 
state's new Section 177 Program while remaining in National LEV, or if 
EPA approved the state's requirements into the SIP. If a manufacturer 
opted out, before the opt-out became effective, the manufacturer would 
continue to be subject to all National LEV requirements for vehicles 
sold outside of the violating state. Once a manufacturer's opt-out had 
become effective, for vehicles sold outside of the violating state, the 
manufacturer would have to comply with any backstop state Section 177 
Programs (except ZEV mandates) that a state had adopted at least two 
years before the effective date of opt-out and, in other states, would 
have to comply with all applicable federal standards that would apply 
in the absence of National LEV. Manufacturers would not have to comply 
with any ZEV mandates (except those that were unaffected by National 
LEV) until after two years of lead time had passed as set forth in 
section 177, which would start to run from the date EPA received the 
manufacturer's opt-out. Manufacturers that did not opt out would 
continue to be subject to all National LEV requirements for vehicles 
sold outside of the violating state and, in the violating state, would 
be allowed, under the National LEV regulations, to sell vehicles 
meeting Tier 1 tailpipe standards and to exclude those vehicles from 
the NMOG fleet average. To the extent these proposed regulations would 
provide a manufacturer with less than the two-years lead time set forth 
in section 177, the manufacturer would waive that protection by opting 
into National LEV and then setting an effective date in its opt-out 
notification that was earlier than the two-years leadtime would 
provide.
    2. OTC State Fails to Submit SIP Revision Committing to National 
LEV
    The second way in which an OTC State could violate its commitment 
to National LEV would be to fail to submit a SIP revision to EPA 
containing the state's regulatory commitment to the program. The 
consequences of this violation differ slightly from a situation where a 
state does submit such a SIP revision, receives EPA approval for it, 
but then violates the commitment by attempting to remove National LEV 
as a compliance alternative. Failure to submit a SIP revision would not 
necessarily indicate that the state was attempting to impose a 
compliance obligation on the manufacturers contrary to the terms of the 
fundamental agreement underlying the voluntary National LEV program. 
Consequently, if manufacturers did not choose to opt out of National 
LEV, they would continue to be subject to all the National LEV 
requirements for vehicles sold both within and outside of the violating 
state, and the National LEV program would continue. However, the 
portion of the OTC State commitments contained in the SIP revisions is 
critical to the long-term enforceability of the state commitments, so 
EPA believes it is

[[Page 44767]]

important to allow the manufacturers to opt out of National LEV if a 
state fails to submit a SIP revision. This will maximize the incentives 
for OTC States to submit their National LEV SIP revisions and to 
provide manufacturers recourse in the event of a state failure to do 
so.
    As under the previous scenario, EPA is proposing that there would 
be no time limit for manufacturers to exercise their right to opt out 
of National LEV if an OTC State had missed the deadline for its 
National LEV SIP revision and had not yet submitted such a SIP 
revision. Once the state submitted its SIP revision, even if after the 
deadline, manufacturers would no longer have the opportunity to decide 
to opt out of National LEV. Unlike the previous scenario, EPA is 
proposing that a state that had missed the deadline for its SIP 
submission would have a limited opportunity to cure the violation. For 
the first six months from the deadline for the SIP submission, 
manufacturers would only be able to opt out conditioned on the state 
not submitting a SIP revision within six months of the initial 
deadline. If the state submitted the revision within that six-month 
grace period, any opt-outs based on that violation would be invalidated 
and would not come into effect. EPA believes this limited opportunity 
to cure is appropriate here, given the very tight timeframes provided 
for the OTC States to submit their SIP revisions and the fact that 
failure to submit this SIP revision would not pose the risk of any 
immediate change in the manufacturers' compliance obligations. After 
the six-month grace period, the state's submission of a SIP revision 
would not negate an opt-out that a manufacturer had already submitted 
to EPA, even if the manufacturer's opt-out had not yet become 
effective. However, no manufacturer would be able to opt out after the 
state submitted the SIP revision no matter how late. As under the 
previous scenario, whether or not a state has failed to submit a SIP 
revision by a given date and thereby provided a basis for an opt-out is 
a very clear cut issue. Consequently, EPA is not proposing to provide 
for an EPA determination of the validity of an opt-out based on this 
violation.
    Again consistent with the previous scenario, EPA is proposing that, 
if a manufacturer opts out it may set the effective date of its opt-out 
as early as the next model year after the date of the opt-out or any 
model year thereafter. 22 If a manufacturer opts out of 
National LEV, in the violating state, the National LEV regulations 
would allow the manufacturer to meet Tier 1 tailpipe standards and 
would not require those vehicles to be included in the NMOG fleet 
average calculations. These special provisions for vehicles sold in the 
violating state would start with the next model year after the 
manufacturer opts out (e.g., MY2000 for a manufacturer that opts out in 
calendar year 1999) and continue until the effective date set in the 
opt-out notice. As under the scenario above, the violating state would 
not receive SIP credits for emissions reductions from vehicles meeting 
anything more stringent than the Tier 1 tailpipe standards while those 
standards apply. Once the manufacturer's opt-out had become effective, 
the manufacturer would be subject to a Section 177 Program in the 
violating state if the two-year lead time requirement of section 177 
had been met. EPA is taking comment on whether, regardless of the 
effective date of an opt-out, National LEV regulations should allow 
manufacturers to sell vehicles that meet Tier 1 tailpipe standards for 
four years in the violating state.
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    \22\  If, however, an OTC State took a legitimate offramp as 
discussed below, a manufacturer could not use a delayed effective 
date of opt out to continue to comply with National LEV in a state 
that had opted out after the state opt-out became effective. As 
discussed below in section VI.B an OTC State legitimately opting out 
of National LEV is required to provide manufacturers at least two 
years lead time.
---------------------------------------------------------------------------

    If a manufacturer opted out of National LEV, in non-violating 
states it would continue to meet all National LEV requirements until 
the effective date of its opt out. For vehicles sold in the non-
violating states, once the opt-out became effective.
3. OTC State Submits Inadequate SIP Revision Committing to National LEV
    A third way in which an OTC State could violate its commitment to 
National LEV would be to submit a SIP revision that did not adequately 
commit the state to the National LEV program. Evaluation and approval 
of SIP revisions is an EPA responsibility, as delegated by Congress 
under section 110(k) of the Act. Thus, EPA believes that it is 
appropriate for the Agency to evaluate the adequacy of the submission 
before a manufacturer could opt out on the basis of a claimed 
inadequacy. EPA is proposing that manufacturers would be able to opt 
out if EPA disapproved a National LEV SIP revision, and either the 
state failed to submit a corrected SIP revision within one year of 
EPA's disapproval, or the state submitted a modified SIP revision and 
EPA subsequently disapproved the revision. Under this scenario, the 
date of the violation that would allow a manufacturer to opt out of 
National LEV would be either the state's failure to submit a National 
LEV SIP revision committing to National LEV within one year of EPA's 
disapproval of its initial SIP revision, or publication of EPA's second 
disapproval. EPA also considered and is taking comment on the following 
alternative approaches for when a manufacturer could opt out based on 
an inadequate National LEV SIP revision. One alternative would be to 
allow manufacturers to opt out immediately upon EPA's initial 
disapproval of a state's National LEV SIP revision. Another would be to 
allow manufacturers to opt out if a state's National LEV SIP revision 
was inadequate and EPA failed to approve it within nine months (or one 
year) of the deadline for state submission of the SIP revision, whether 
that failure was through disapproval or inaction. Still another 
alternative would be upon a determination by the manufacturer that the 
SIP revision is inadequate, even if EPA has not yet acted on it.
    As with the other types of state violations, EPA is proposing no 
deadline for manufacturers to opt out based on this offramp. Also, 
there would be no opportunity for the state to cure the violation after 
a manufacturer had opted out, although manufacturers that had not opted 
out could no longer do so once the state had cured a violation and EPA 
had approved the SIP revision committing the state to National LEV. As 
proposed, the action allowing opt out is very clear, and hence EPA is 
not proposing to provide for an EPA determination of the validity of an 
opt-out based on this type of violation.
    Again consistent with the previous scenarios, EPA is proposing that 
if a manufacturer opts out it may set the effective date of its opt-out 
as early as the next model year or any model year 
thereafter.23 EPA is proposing that manufacturers' 
obligations under National LEV and state Section 177 Programs would be 
identical to those described if a state failed to submit a SIP 
revision.
---------------------------------------------------------------------------

    \23\ If, however, an OTC State took a legitimate offramp as 
discussed below, a manufacturer could not use a delayed effective 
date of opt out to continue to comply with National LEV in a state 
that had opted out after the state opt-out became effective. As 
discussed below in section VI.B an OTC State legitimately opting out 
of National LEV is required to provide manufacturers at least two 
years lead time.
---------------------------------------------------------------------------

B. OTC State or Manufacturer Legitimately Opts Out of National LEV

    Following the general principle that parties should be able to exit 
National

[[Page 44768]]

LEV if there is a significant change in the assumptions that underlay 
their decision to opt in initially, a manufacturer also could opt out 
if an OTC State or another manufacturer were to opt out of National LEV 
legitimately.24 This offramp could be used within 30 days of 
EPA's receipt of an OTC State or a manufacturer opt-out. The 
manufacturer could set an effective date for its opt-out beginning the 
next model year after the date of the manufacturer's opt-out, or any 
model year thereafter. EPA would not determine the validity of opt-out 
under this offramp unless EPA is to determine the validity of the 
initial opt-out. EPA is proposing that manufacturers' obligations under 
National LEV and state Section 177 Programs would be identical to those 
described if a state failed to submit a SIP revision, except that no 
state would be a violating state.
---------------------------------------------------------------------------

    \24\ The validity of any opt-out from National LEV would depend 
in part on whether the underlying condition allowing opt-out has 
actually occurred. Where the initial state or manufacturer's opt-out 
was invalid, it would not provide an offramp for another 
manufacturer to opt-out of National LEV. Thus, throughout this 
notice when EPA refers to an initial opt-out as the condition that 
allows another opt-out, it refers only to valid initial opt-outs.
---------------------------------------------------------------------------

C. Offramp for Manufacturers for EPA Failure to Consider In-Use Fuel 
Issues

    EPA is proposing an additional offramp for manufacturers related to 
the potential effects of fuel sulfur levels on emissions performance of 
National LEV vehicles. EPA is proposing that manufacturers could opt 
out of National LEV if EPA failed to consider certain vehicle 
modifications, on-board diagnostic control systems, or preconditioning 
of vehicles when requested to do so by a manufacturer as a result of an 
alleged effect of high-sulfur fuel levels. Manufacturers are concerned 
that the sulfur levels of in-use fuels supplied outside of California 
may affect the on-board diagnostic (OBD) systems and tailpipe emissions 
of National LEV vehicles. However, EPA does not believe that at this 
point it has sufficient data on these potential effects to identify any 
problems conclusively and to fully resolve any such problems in the 
context of the National LEV regulations. EPA recognizes that this 
remains an important issue for the manufacturers, however, and is 
proposing to build into National LEV means to allow problems related to 
fuel sulfur effects on emissions performance of National LEV vehicles 
to be addressed within the context of National LEV as more information 
becomes available. These problems would be addressed on a case-by-case 
basis. EPA would act based on a manufacturer's request, supported by 
data, that a specific engine family or families are adversely affected 
by sulfur in a manner covered by one of the conditions incorporated 
into the National LEV regulations and that appropriate relief is 
warranted for such family or families.
    EPA recognizes that sulfur effects on motor vehicles is also an 
issue outside of the National LEV context and is being addressed in 
numerous other actions. These include testing being done to support 
EPA's Tier 2 Study and the Ozone Transport Assessment Group's 
recommendation to EPA to explore reducing fuel sulfur levels. EPA is 
working with the various stakeholders in developing data to quantify 
any sulfur effects on current and future technology vehicles. EPA has 
said that in appropriate instances, EPA will address sulfur effects on 
specific mobile source programs. In March, 1997, EPA released a paper 
entitled ``OBD & Sulfur White Paper: Sulfur's Effect on the OBD 
Catalyst Monitor on Low Emission Vehicles.'' This paper summarized the 
sulfur concerns and the available data, and outlined EPA's approach to 
resolving OBD/sulfur issues on a case-by-case basis. 25 EPA 
is pursuing additional investigations into sulfur impacts on OBD and 
emission control system performance with the cooperation and 
contribution of other stakeholders. However, as of yet there is little 
additional data, and while the OBD & Sulfur White Paper will likely be 
revised in the near future, its suggested case-by-case approach remains 
EPA's expected approach regarding the OBD/sulfur issue.
---------------------------------------------------------------------------

    \25\ OBD and Sulfur White Paper, March 1997 (Docket A-95-26, IV-
B-06).
---------------------------------------------------------------------------

    Based on their continuing concerns regarding the effects of fuel 
sulfur levels on OBD systems and vehicle emissions, the auto 
manufacturers approached EPA in June, 1997 with a proposed resolution 
for National LEV. Believing that the effects of fuel sulfur were not 
adequately addressed by EPA in the National LEV program, the 
manufacturers proposed that National LEV should include an offramp for 
manufacturers related to in-use fuels issues and that they should be 
allowed to exit the National LEV program if EPA were to act (or fail to 
act) in a specified manner to resolve specific sulfur-related issues. 
The manufacturers outlined six different conditions (set forth below) 
related to EPA actions (or lack of action) on these issues that they 
believe should allow the manufacturers to opt out of National LEV. 
Below, EPA has reproduced each of the conditions for triggering the 
offramp as stated by the manufacturers, followed by a discussion and 
EPA's proposal regarding each of the requested offramp conditions.
    First, the manufacturers suggested that they be allowed to opt out 
if ``EPA declines to allow the use of OBD catalyst monitor systems 
which, if functioning properly on low sulfur gasoline, indicate sulfur-
induced passes when exposed to high sulfur gasoline.''
    Under current regulations, manufacturers are required to install 
OBD systems that monitor emission control components for any 
malfunction or deterioration causing exceedance of certain emission 
thresholds. These systems also must alert the vehicle operator to the 
need for repair by illuminating a dashboard malfunction indicator light 
(MIL) and must store diagnostic information in the vehicle's computer 
to assist the diagnosis and repair of the problem. Before an OBD system 
can appear on new vehicles, EPA must certify that the system meets 
these requirements, and these requirements must continue to be met in 
actual in-use operation. Proper functioning of OBD systems is evaluated 
by simulating various malfunctions of the emission control system 
(e.g., replacing the catalyst or oxygen sensors with ineffective 
components) and determining whether or not the OBD system ``notices'' 
the simulated malfunction and responds appropriately.
    The offramp condition suggested by the manufacturers reflects their 
concern that their OBD systems will be designed to pass a certification 
or recall test properly using the low-sulfur fuel required in 
California, but that high-sulfur fuel supplied outside of California 
may affect the OBD system such that it may be unable to detect catalyst 
degradation at the necessary emission level. In such cases, the MIL 
could fail to illuminate (a ``sulfur-induced pass''), whereas if the 
vehicle was operated on low sulfur fuel the MIL would react 
appropriately. In the unlikely event that EPA concluded that an OBD 
system should not be certified specifically because of this type of 
behavior, manufacturers suggest that they be allowed to opt out of the 
National LEV program.
    EPA acknowledges that some data indicate that some OBD systems may 
behave in the way suggested by this suggested condition for triggering 
an offramp. Thus, an OBD system might be affected by high-sulfur fuel 
and fail to register decreased catalyst performance. However, EPA 
believes that more data is needed to characterize this potential

[[Page 44769]]

concern better. Also, as stated above, considerable efforts involving 
various stakeholders are underway to evaluate this and other related 
concerns further. EPA believes that, in the context of the National LEV 
program, it may be inappropriate to penalize a manufacturer who uses a 
system that performs as required on low-sulfur fuel but has sulfur-
induced passes due to high-sulfur fuel. However, EPA needs to evaluate 
this potential problem properly on a case-by-case basis. To certify 
such a system, EPA would have to conclude that the effect was due 
solely to sulfur and that the OBD system could not otherwise account 
for the effects of high-sulfur fuel. EPA is also concerned that 
providing an offramp if the Agency failed to certify an OBD system upon 
a manufacturer's request puts the Agency in the difficult position of 
having to approve every request or else risk the collapse of the 
National LEV program, even if EPA believes that certification is not 
technically supportable.
    EPA is proposing that manufacturers could opt out of National LEV 
if EPA, upon a written request from a manufacturer in relation to the 
certification of an OBD catalyst monitor system, fails to consider the 
use of the system because it indicates sulfur-induced passes when 
exposed to high-sulfur gasoline, even though it functions properly on 
low-sulfur gasoline. EPA does not intend to preclude the use of such 
systems out-of-hand, but believes it cannot at this time accept the 
offramp language proposed by manufacturers given the current state of 
knowledge and the need for EPA to evaluate requests carefully on a 
case-by-case basis. EPA is taking comment on the manufacturers' 
suggestion. EPA is also taking comment on an alternative that would 
allow manufacturers to opt out if EPA determined that an OBD system 
functioned properly on low-sulfur fuel, had sulfur-induced passes due 
solely to high-sulfur fuel and that the OBD system could not otherwise 
account for the effects of high-sulfur fuel, and EPA then refused to 
certify the OBD system because of the sulfur-induced
    Second, the manufacturers suggested that they be allowed to opt out 
of National LEV if ``EPA declines to approve modifications to, on a 
case-by-case basis, vehicles that exhibit sulfur-induced MIL 
illuminations due to high sulfur gasoline so as to eliminate the 
sulfur-induced MIL.''
    This suggested offramp condition reflects the manufacturers' 
concern that exposure to high-sulfur fuel could cause the performance 
of the catalyst to degrade to the point of OBD detection and the MIL is 
therefore illuminated, even though the same catalyst would not have 
degraded enough to cause the MIL to illuminate if the vehicle had been 
operated on low-sulfur fuel. When such a MIL illumination problem is 
identified, under current regulations modifications to OBD systems to 
resolve the problem could be accomplished via field fixes or running 
changes, which are methods that allow a manufacturer (with EPA 
approval) to make changes to a previously certified emission control 
system configuration. With this offramp proposal, manufacturers are 
essentially requesting that they be allowed to determine when a sulfur-
related MIL illumination is occurring in a given engine family and what 
the appropriate response is, and that if they are not allowed to 
implement their chosen response (e.g., if EPA does not approve a 
particular field fix or running change requested by a manufacturer) 
they are then provided an opportunity to exit the National LEV program.
    EPA pledged to address the issue of sulfur-induced MIL 
illuminations on an in-use, case-by-case basis until future data and 
information enable a long-term resolution of this issue. This remains 
the current policy. EPA currently believes that it would be 
inappropriate to modify OBD systems unless a manufacturer were able to 
supply in-use data, or at least production-ready vehicle data, 
demonstrating that sulfur has an adverse effect on catalyst monitoring 
systems for specific engine families. EPA believes that the offramp 
language suggested by the manufacturers would be inappropriate because 
it would effectively force EPA to accept solutions to this problem that 
may not be technically supportable or else risk the termination of the 
National LEV program.
    EPA is proposing that manufacturers could opt out if, based on a 
written request from a manufacturer, EPA declines to consider, on a 
case-by-case basis, the manufacturer's suggested modifications to 
vehicles that exhibit sulfur-induced MIL illuminations due to high-
sulfur gasoline so as to eliminate the sulfur-induced MIL. As explained 
below, EPA is proposing that the National LEV regulations would define 
a specific process that would allow manufacturers to notify EPA of this 
type of problem and would require EPA to respond to a manufacturer's 
request (e.g., for a running change) within a specified time period. 
EPA is taking comment on the manufacturers' suggestion. EPA is also 
taking comment on an alternative that would allow manufacturers to opt 
out if, on a case-by-case basis, EPA determined that an OBD system 
exhibited sulfur-induced MIL illuminations due solely to high-sulfur 
fuel and failed to allow modifications to the vehicles to eliminate the 
sulfur-induced MIL.
    Third, the manufacturers suggested that they be allowed to opt out 
of National LEV if ``EPA declines to adjust I/M (240/ASM) cut points to 
account for the effect of the high sulfur content of current 
commercially available gasoline.''
    Similar to the previous issue, manufacturers are concerned that 
high-sulfur levels could degrade catalysts to the point where vehicles 
would fail state Inspection/Maintenance (I/M) tests due to the high-
sulfur fuel, and they are requesting that EPA adjust I/M standards 
upwards to account for the impact of sulfur. If EPA does not take such 
action, manufacturers have proposed that they be allowed to opt out of 
the National LEV program. EPA does not believe adjustments to I/M cut 
points to account for the impacts of sulfur are necessary or 
appropriate at this time. While data being collected by the several 
cooperative sulfur test programs may help EPA in assessing this issue, 
there is currently no data to determine whether an adjustment to I/M 
cutpoints is necessary and if so, the appropriate degree of such an 
adjustment. Although EPA is taking comment on the manufacturers' 
suggestion, EPA cannot justify establishing the above condition as a 
trigger for an offramp because the necessity for such an adjustment is 
not clear at this time. EPA is interested in obtaining data, including 
data on Tier 1 vehicles, that might help quantify the effect of sulfur 
on I/M testing and will work with all the stakeholders to develop the 
appropriate response if data indicates there is a problem in this 
instance.
    Fourth, the manufacturers suggested that they be allowed to opt out 
of National LEV if ``EPA declines to allow sufficient pre-conditioning 
procedures (including low sulfur fuel and additional vehicle 
preparation cycles) prior to in-use testing to remove the effects of 
high sulfur from currently available gasoline.''
    Current emission test procedures require specific procedures to 
``precondition'' each test vehicle before the vehicle enters the actual 
emission test portion of the procedure. This ensures that all vehicles 
enter the emission test in a similar condition. Current data suggests 
that the deleterious effect of sulfur on the catalyst is reversible by 
operating the vehicle for some period of time on a low-sulfur fuel. 
This suggested offramp condition is designed to alleviate

[[Page 44770]]

manufacturers concern that in-use vehicles tested by EPA (recall 
testing) might not experience enough preconditioning operation under 
current regulations to eradicate the effect of sulfur, and that this 
could cause vehicles to inappropriately fail in-use emission tests. 
This issue does not apply to preconditioning of vehicles for 
certification or Selective Enforcement Auditing (SEA) testing, since 
these vehicles would not have been exposed to high-sulfur fuel. 
Consequently, manufacturers propose that EPA allow them to expand the 
preconditioning of the vehicle used for in-use testing in order to 
guarantee the maximum reversal of the sulfur impact.
    Current regulations allow the approval of additional 
preconditioning in ``unusual circumstances'' if the need is 
demonstrated (see 40 CFR 86.132-96(d)). EPA stated in the Final 
Framework Rule that ``[d]etrimental effects on National LEV vehicles 
from commercially available fuel sold in the 49 States could likely be 
considered an unusual circumstance'' (62 FR 31230). The specific 
preconditioning offramp language proposed by the auto manufacturers is 
inappropriate because it would remove EPA's ability to determine what 
type and amount of preconditioning is necessary and appropriate, 
particularly given that all stakeholders are continuing to explore the 
exact nature of sulfur's impact on various technologies and the degree 
of reversibility exhibited by different emission control technologies. 
EPA will work with manufacturers in the context of the currently 
applicable regulations to determine an appropriate level of allowable 
preconditioning. Any preconditioning procedure utilized under 40 CFR 
86.132-96(d) to address sulfur effects on National LEV vehicles must be 
directed only at alleviating sulfur effects. EPA also notes that the 
automakers, oil industry, and EPA are currently testing the potential 
effects of various sulfur levels on clean vehicles, and in the context 
of this testing a pre-conditioning cycle to remove sulfur effects on 
catalysts is being analyzed. EPA will look at the results of this 
testing and other appropriate test results presented by interested 
parties and will determine whether any resulting sulfur preconditioning 
cycle is appropriate to apply to specific National LEV vehicles for in-
use testing. Currently it is premature to discuss whether an offramp 
should be triggered by EPA's refusal to allow a specific sulfur 
preconditioning procedure since no such procedure has been developed. 
Sulfur effects seem to vary depending on catalyst type and location, so 
EPA will not automatically apply one procedure to all manufacturers 
unless new information arises from the various test programs that 
causes EPA to determine that to be an appropriate course of action.
    EPA believes that given the current understanding of sulfur effects 
on in-use emission performance (as measured by in-use testing) and the 
case-by-case approach EPA is planning to use to address sulfur effects 
on OBD systems, manufacturers should only be able to opt out of 
National LEV based on preconditioning concerns if EPA fails to consider 
information before the Agency in a specific case showing a need for 
additional preconditioning. Thus, EPA is proposing that manufacturers 
would be able to opt out of National LEV if EPA declines to consider, 
on a case-by-case basis, prior to in-use testing, pre-conditioning 
procedures designed solely to remove the effects of high sulfur from 
currently available gasoline. EPA is taking comment on the 
manufacturers suggestion. EPA is also taking comment on an alternative 
that would allow manufacturers to opt out if EPA determined that there 
are significant effects of high-sulfur fuel on OBD systems, and then 
EPA declined to allow sufficient pre-conditioning procedures prior to 
in-use testing to remove the effects of high sulfur from currently 
available gasoline.
    Fifth, the manufacturers suggested that they be allowed to opt out 
of National LEV if ``EPA declines to ensure that in-use, SEA, and/or 
certification testing of low emission vehicles is conducted using 
California Phase 2 reformulated gasoline (RFG).''
    The regulations promulgated in the Final Framework Rule allow the 
use of California Phase II RFG for in-use, SEA, and certification 
testing. Certification test fuel specifications, which include 
California Phase II RFG, are part of the National LEV Core Stable 
Standards, and thus EPA cannot change these specifications over the 
objection of the manufacturers without providing an offramp for them to 
opt out of National LEV (See 62 FR 31202). Under National LEV, 
manufacturers will be able to choose to use specified Federal or 
California gasoline for exhaust emission testing, except where a 
specific fuel is required, such as Federal fuel for evaporative 
emissions testing. EPA's longstanding policy of conducting SEA and 
recall testing using the fuel on which the manufacturer chose to 
certify its vehicle will continue to apply under the National LEV 
program. EPA does not believe that a specific condition for opt-out 
related to use of California Phase 2 RFG for vehicle testing is 
necessary given the fuel specifications already in the National LEV 
regulations and EPA's policy regarding in-use test fuels. However, EPA 
is taking comment on allowing manufacturers to opt out of National LEV 
if EPA declines to conduct National LEV compliance testing on the fuel 
used by a manufacturer during certification of the vehicle or engine.
    Sixth, the manufacturers suggested that they be allowed to opt out 
of National LEV if ``EPA, after concluding that there are significant 
effects of high sulfur fuel, fails to initiate a multi-party process to 
take appropriate action to ameliorate the effects of high sulfur 
gasoline.''
    EPA has already committed that it will conduct a multi-party 
process to resolve in-use fuel sulfur issues if further testing reveals 
a significant sulfur effect on National LEV vehicles. See 62 FR 31221. 
However, EPA believes that it is unnecessary to make violation of this 
commitment a condition that would allow manufacturers to opt out of 
National LEV.
    EPA is proposing the following process for manufacturers to opt out 
of National LEV if one of the conditions described above occurred. A 
manufacturer would have to send a request to EPA in writing identifying 
the particular problem at issue, demonstrating that it was due to in-
use fuel sulfur levels, and requesting EPA to consider taking a 
specified action in response. EPA proposes that the Agency would have 
60 days to respond to the manufacturer's request in writing, stating 
the Agency's decision and explaining the basis for the decision. If EPA 
fails to respond in this manner in the timeframe allotted, 
manufacturers would have 180 days after the deadline for the EPA 
response to decide to opt out of National LEV. Once EPA responded to 
the manufacturer's request, even if after the 60-day deadline, a 
manufacturer that had not yet opted out based on this offramp would no 
longer be able to do so, although if a manufacturer had already 
submitted an opt-out, that opt-out would be unaffected by EPA's 
subsequent response. Only the manufacturer that sent the initial 
request to EPA would be able to opt out if EPA failed to respond, but 
in section VI, EPA is proposing that if one manufacturer (or OTC State) 
opted out based on any of the identified offramps, other manufacturers 
would be able to opt out as well on the basis that there had been a 
change to the set of parties originally covered by the program.

[[Page 44771]]

    EPA proposes that, consistent with opt-outs based on other 
offramps, a manufacturer that opts out based on this offramp must 
continue to comply with National LEV until the opt-out becomes 
effective. The manufacturer may set the effective date of its opt-out 
as early as the next model year or any model year thereafter. After the 
effective date of its opt-out, the manufacturer would be subject to any 
backstop Section 177 Programs (except for ZEV mandates) provided that 
at least two-years lead time (as provided in section 177) had passed 
since the adoption of the state's Section 177 Program, or would be 
subject to Tier 1 requirements in states without such backstops. Other 
than those ZEV mandates that would be unaffected by the National LEV 
program (i.e., existing ZEV mandates), if a manufacturer opts out, it 
will not be subject to any other ZEV mandates until two years of lead 
time has passed, which would run from the date the manufacturer opts 
out of National LEV and would be measured according to the section 177 
implementing regulations.
    In lieu of providing the offramps described above, EPA is also 
taking comment on an alternative approach that would make the 
provisions for EPA action described above a substantive requirement on 
EPA under the regulations, rather than making EPA's failure to act a 
condition that would allow manufacturers to opt out of National LEV. 
For example, the preconditioning regulations of 40 CFR 86.132-96(d) 
would be modified to include a requirement that EPA respond to any 
manufacturer's request made under that section within 60 days. In the 
event that EPA failed to respond within the specified time period, the 
manufacturer would be able to enforce the regulatory requirement 
against EPA, but would not also be able to opt out of National LEV.

D. Offramp for OTC States

    In light of the proposed practically and legally binding 
commitments that the OTC States would make to the National LEV program, 
it is also appropriate to identify the limited circumstances under 
which the states should no longer be bound by those commitments. EPA is 
proposing two circumstances in which an OTC State could opt out of 
National LEV: (1) If a manufacturer were to opt out of National LEV; or 
(2) if EPA were to change a Stable Standard in a way that would make it 
less stringent and as a consequence, it would have changed EPA's 
initial determination that National LEV would produce emissions 
reductions equivalent to OTC State Section 177 Programs. EPA is 
proposing that if an OTC State were to take an identified legitimate 
offramp from National LEV, it would no longer be bound by any 
commitments that it made to the program in its initial opt-in package, 
other than its commitment to follow the National LEV regulations to 
transition from National LEV to a state Section 177 Program. An OTC 
State that was already in violation of its National LEV commitments 
would not be able legitimately to opt out of National LEV based on a 
manufacturer's opt-out.
    To opt out of National LEV, EPA is proposing that the state 
official that signed the commissioner's letter in that state would send 
EPA an opt-out notification letter. The letter would state that the 
state was opting out of National LEV and specify the condition allowing 
the state to opt out. The date of the state opt-out would be the date 
that EPA received the opt-out letter, but EPA is proposing that there 
would be a two-year transition period before the state opt-out would 
become effective and the state could require compliance with a Section 
177 Program without allowing National LEV as a compliance alternative. 
EPA is taking comment on whether the National LEV regulations should 
require a four-year transition period instead. Whether an opt-out 
letter alone would itself remove National LEV as a compliance 
alternative as of the effective date of the opt-out depends on how the 
state regulations are written. In opting into National LEV the state 
could structure its regulations and SIP to provide that National LEV 
would not be an alternative to the state's Section 177 Program if the 
state had opted out of National LEV pursuant to the National LEV 
regulations and the opt-out had become effective.
1. OTC State Offramp Based on Manufacturer Opt-Out
    EPA is proposing that an OTC State would be able to opt out of 
National LEV without violating its commitment if a manufacturer opted 
out of National LEV under one of the identified offramps for 
manufacturers.26 All parties would have made the choice to 
opt into National LEV with an understanding about the manufacturers and 
states that would be subject to the program. If those fundamental 
assumptions were to change, the parties to the voluntary program should 
have the opportunity to reevaluate their commitments and choose to opt 
out. Some OTC States have indicated, for example, that they believe it 
would not be feasible in their states to have some manufacturers 
subject to National LEV while others that had opted out of National LEV 
were subject to Section 177 Program requirements.
---------------------------------------------------------------------------

    \26\  The condition allowing an OTC State to opt out would only 
arise if the initial manufacturers' opt-out were valid. See n. 27.
---------------------------------------------------------------------------

    If a manufacturer opted out, EPA is proposing that OTC States would 
have a three-month period to submit an opt-out letter. The start of the 
three-month period would depend on the reason the manufacturer opted 
out. If a manufacturer were to opt out because of state action or 
inaction, or because of EPA's failure to consider a manufacturer's 
request related to effects of in-use fuels, the three-month period 
would start on the date EPA received the manufacturer's opt out 
notification.27 For a manufacturer's opt-out based on a 
change to a Stable Standard, the three-month period would start on the 
date of EPA's finding that the opt-out was valid or the date of a final 
judicial ruling that a disputed opt-out was valid. If a state did not 
opt out within that three-month period, the opportunity to opt out 
based on that manufacturer action would no longer be available.
---------------------------------------------------------------------------

    \27\ However, if a manufacturer were to opt out because a state 
failed to submit a SIP revision by the applicable deadline and the 
manufacturer submitted the opt-out notification within six months of 
the applicable deadline for the SIP revision, the manufacturer's 
opt-out would not be final until the end of that six-month period. 
That date (not the date of the manufacturer's opt-out) would start 
the three-month period for state opt out.
---------------------------------------------------------------------------

    The state opt-out could not become effective until the state had 
provided manufacturers with the two-year lead time set forth in section 
177, with the two-year lead time to start on the date that EPA received 
that state's opt-out letter. Until the state's opt-out became 
effective, manufacturers that had not opted out of National LEV or 
whose opt-outs had not yet become effective would continue to be 
subject to all the National LEV requirements for vehicles sold in that 
state. Manufacturers whose opt-outs had already become effective would 
not be affected by the state opt-out. Once the state opt-out became 
effective, all manufacturers would be subject to the state's Section 
177 Program, if it had been adopted at least two years 
previously.28 As the existence of a manufacturer opt-out as 
the basis for the state opt-out is a simple factual determination, EPA 
is not proposing that the Agency should evaluate the

[[Page 44772]]

validity of a state opt-out before it could become effective.
---------------------------------------------------------------------------

    \28\ This is true even for a manufacturer that had opted out and 
set an effective date for its opt-out that was later than the 
effective date of the state's opt-out.
---------------------------------------------------------------------------

2. OTC State Offramp Based on Change to Stable Standards
    The second condition that would allow an OTC State to opt out of 
National LEV would be an EPA change to a Stable Standard that made 
National LEV less stringent and, if the change had been known at the 
start of National LEV, would have changed EPA's initial determination 
that National LEV would produce emissions reductions at least 
equivalent to the adopted OTC State Section 177 Programs. This offramp 
for OTC States is the counterpart to the manufacturers' offramp if EPA 
makes certain types of changes to Stable Standards that make the 
Standards more stringent.
    In section IV above, EPA discussed its determination that National 
LEV would produce equivalent or greater emissions reductions than the 
alternative of adopted OTC State Section 177 Programs. In the modeling, 
EPA assumed that, in the absence of National LEV, programs would be in 
place in those OTC States that currently have Section 177 Programs 
(including backstop programs) and that the federal Tier 1 standards 
would apply in the other OTC States. EPA is proposing that, if EPA were 
to change any of the Stable Standards in a way that made the 
requirements less stringent, an OTC State could request EPA to 
reevaluate whether National LEV is still equivalent to the alternative 
approach of OTC State Section 177 Programs. The National LEV 
regulations would provide that within six months of receiving the 
request EPA would conduct such an evaluation or would determine that 
the revision to the standard or requirement would not make it less 
stringent.
    In reevaluating equivalency, EPA would use the same model and 
inputs as it used in the initial equivalency determination. EPA would 
modify the modeling only to reflect the effect of the modified Stable 
Standard and the effect of having Section 177 Programs (identical in 
stringency to the Section 177 Programs modeled in the initial 
equivalency determination) in any additional OTC States that had 
adopted section 177 backstop programs since the initial equivalency 
determination. In reevaluating equivalency, EPA believes that the focus 
of the evaluation should be the ongoing validity of the initial 
decision to opt into National LEV, not whether the parties would make 
the same decision at the time of the reevaluation based on then-current 
conditions. This is consistent with the approach that the parties took 
to the periodic equivalency evaluation in the initialed MOUs. At the 
time of their opt-ins, the parties should not have anticipated that EPA 
would change one of the Stable Standards, and such a change would 
affect one of the basic assumptions used to calculate the relative 
benefits of National LEV and the alternative of OTC State Section 177 
Programs. Thus, it is appropriate to reevaluate the equivalency of the 
two approaches given such a change, and provide the OTC States an 
opportunity to opt out of National LEV if it is no longer equivalent to 
the alternative.
    EPA is proposing to include in the equivalency reevaluation the 
effect of Section 177 Programs in any additional OTC States that had 
adopted Section 177 Programs since the initial equivalency 
determination. This represents a compromise between OTC States' and 
manufacturers' positions. In making the initial equivalency 
determination, EPA is proposing to compare National LEV to the 
alternative of OTC State Section 177 Programs. See section IV. As 
discussed above, EPA is proposing to assume that Section 177 Program 
requirements would apply in those OTC States that currently have the 
requirements or backstop requirements in their state law or regulations 
and that the federal Tier 1 standards would apply in the other OTC 
States. The OTC States requested that EPA take a somewhat different 
approach to the initial equivalency determination by assuming that 
Section 177 Programs would also apply in particular OTC States that are 
currently in the process of developing such regulations. For the 
initial determination, such a change in the assumptions would have no 
effect on EPA's finding that National LEV would produce emissions 
reductions at least equivalent to those that would be produced by the 
alternative. EPA performed a sensitivity analysis for the initial 
equivalency determination to analyze the effects of the most optimistic 
assumptions regarding adoption of Section 177 Programs by OTC States, 
which indicated that even with those assumptions National LEV would 
still produce emissions reductions equivalent to or greater than that 
alternative. However, given the OTC States' concern, EPA believes it 
would be appropriate to modify the inputs to any reevaluation to 
reflect the then-current reality in terms of which OTC States had 
actually adopted Section 177 Programs. The modeling would continue to 
assume that all states with Section 177 Programs would have the same 
requirements used in the initial equivalency modeling, as discussed 
above. Thus, the reevaluation would not reflect any changes in the 
state's legal authority under the CAA to adopt programs subsequent to 
their decision to opt into National LEV, but it would take into account 
subsequent actions taken by the OTC States based on legal authority 
they had at the time of the decision.
    EPA does not believe it would be appropriate to include in the 
reevaluation of equivalency the effects of other changes in 
circumstances affecting emissions reductions under National LEV or the 
alternative, such as changes to California's LEV program. At the time 
of opt-in, all of the parties will be aware that circumstances might 
change over the period that National LEV is in effect. For example, 
California might modify its requirements during that time. In making 
the decision to opt into National LEV and choose it over the 
alternative for a given period of time, the parties will have to 
evaluate the likelihood that any of the relevant circumstances would 
change sufficiently to reverse their inclination to opt in. Thus, the 
OTC States will have to consider the likelihood that California would 
modify its CAL LEV requirements and the likely effect of such a 
modification, and decide whether to commit to National LEV in lieu of a 
state Section 177 Program that could include any subsequent changes to 
CAL LEV. By opting in, the OTC States will have made the decision that 
the possibility of those benefits is outweighed by the certainty of the 
benefits from National LEV (if it goes into effect). The reevaluation 
of equivalency should not allow parties to reconsider that initial 
choice with the benefit of hindsight. National LEV will only come into 
effect if the parties to the program commit to it for a specified 
duration, and an EPA change to the underlying standards should not 
become an opportunity to undermine that basic commitment.
    If EPA made a change to a Stable Standard that would have changed 
the equivalency determination, EPA is proposing that the OTC States 
would have three months to opt out, running from the date that EPA 
found that National LEV would no longer produce emissions reductions 
equivalent to those that would be produced by OTC State Section 177 
Programs. If a state did not opt out within that three month period, 
the opportunity to opt out based on that finding would no longer be 
available.
    Also consistent with the other state offramp, a state opt-out based 
on a change to a Stable Standard could not become effective until it 
had provided

[[Page 44773]]

manufacturers with the two-year lead time set forth in section 177, 
with the two-year lead time to start on the date that EPA received the 
state's opt-out letter. The manufacturers' obligations if a state took 
this offramp would be determined the same way as described in the 
preceding section (when an OTC State opts out because a manufacturer 
opted out).

E. Lead Time Under Section 177

    The proposed opt-out regulations discussed above incorporate and 
rely on EPA's proposed interpretation of section 177's requirements 
related to state adoption of the CAL LEV program. Section 177 of the 
Act provides the legal authority for states to adopt ``standards 
relating to the control of emissions from new motor vehicles'' and 
governs the timing of implementation of such requirements. It provides 
that a state may adopt new motor vehicle standards only if they are 
identical to California standards for a given model year for which EPA 
has granted a waiver, and the state must ``adopt such standards at 
least two years before commencement of such model year (as determined 
by regulation of the Administrator).'' EPA has previously adopted 
regulations interpreting this provision. See 40 CFR 85.2301 et seq. 
These regulations do not adequately address the issue of when the two-
year lead time starts for backstop Section 177 Programs (i.e., a 
Section 177 Program that allows National LEV as a compliance 
alternative) after National LEV has come into effect.
    It is not clear under section 177 or EPA's current implementing 
regulations when the two-year lead time period would start if, after 
National LEV came into effect, a state with a backstop Section 177 
Program were to delete National LEV as a compliance alternative (either 
in violation of its commitment to National LEV or legitimately by 
taking an offramp) or if a manufacturer legitimately decided to opt out 
of National LEV. Therefore, as part of the National LEV regulations, 
EPA is proposing regulations to determine the date on which the two-
year lead time period starts in the special circumstances that arise 
only when a state has a backstop Section 177 Program that allows 
National LEV as a compliance alternative and National LEV has gone into 
effect.
    The meaning of the two-year lead time provision in section 177 is 
ambiguous in the context of National LEV and backstop Section 177 
Programs. There are at least three possible ways to approach this 
provision in this context. One possible approach is that the two-year 
lead time period starts when the state adopts the backstop Section 177 
Program. Under this interpretation, section 177 would require the state 
to have adopted its backstop Section 177 Program at least two years 
before the model year to which it applies. After the two-year lead time 
had run from the date of adoption, the state could remove National LEV 
as a compliance alternative and require immediate compliance with the 
Section 177 Program at any time. EPA does not believe this is a proper 
application of section 177 in the National LEV context. The two-year 
lead time requirement is intended to give manufacturers time to make 
the changes in product planning, production and distribution that are 
involved in switching from one motor vehicle program to another. It 
recognizes the practical difficulties in making large production shifts 
in very short time-frames. Where manufacturers have had the legal 
authority to comply with National LEV in lieu of the state program, 
allowing states to drop National LEV as a compliance alternative with 
no lead time would allow states to circumvent the protection that 
Congress conferred on manufacturers in section 177.29 Thus, 
EPA is not proposing to adopt this approach.
---------------------------------------------------------------------------

    \29\ EPA is proposing to reject the date of state adoption of 
regulations as the starting date for determining whether the section 
177 lead time requirement has been met only in those situations 
where a state has adopted a backstop Section 177 Program and 
National LEV has come into effect. For those states that already 
have backstop Section 177 Programs, if National LEV does not come 
into effect, the date of adoption of the state regulations is still 
the controlling date for determining when the two-year lead time 
requirement has been met. In those states, the only legal option 
available to manufacturers has been to comply with the state Section 
177 Program. The theoretical possibility that they might not have to 
comply with the state requirements does not mean that they have not 
been given the two-year lead time required by section 177.
---------------------------------------------------------------------------

    Another possible approach to section 177 in these limited 
circumstances, and the one that EPA is proposing to adopt, is that, if 
a manufacturer will need to comply with a state Section 177 Program 
after National LEV has come into effect, the two-year lead time runs 
from the date that the manufacturer knew that it would need to comply 
with the state Section 177 Program rather than with National LEV. EPA 
believes this is the most appropriate way to implement section 177 in 
this special circumstance, as long as manufacturers are able to waive 
the two-year lead time requirement. Given that the failure to provide 
statutory lead time renders noncomplying state programs unenforceable, 
rather than rendering them void,30 there should be little 
question that manufacturers have the ability to waive the lead time 
requirement if they choose. This approach to section 177 (including 
both when lead time starts and that manufacturers can waive the lead 
time) ensures that, in the context of National LEV and state backstop 
Section 177 Programs, two of Congress' purposes in adopting section 177 
are met--it protects manufacturers from having insufficient time to 
switch from one motor vehicle program to another, and it allows states 
to ensure that they can achieve the extra emissions reductions from 
motor vehicles contemplated by section 177.
---------------------------------------------------------------------------

    \30\ See American Automobile Manufacturers Ass'n v. Greenbaum, 
No. 93-10799-MA, slip op. at 23, 1993 WL 442946 (D. Mass. Oct. 27, 
1993), aff'd., 31 F.3d 18 (1st Cir., 1994).
---------------------------------------------------------------------------

    EPA's proposed interpretation of section 177 is reflected in 
today's proposed regulations regarding what requirements would apply in 
the unlikely event that an OTC State were to break its commitment to 
National LEV or that a manufacturer or an OTC State were to opt out of 
National LEV. For example, if a state with a backstop Section 177 
Program were to delete National LEV as a compliance alternative after 
National LEV had come into effect, the state would have changed the 
manufacturers' regulatory obligations and the manufacturers would be 
entitled to two-years lead time running from the date of the state 
action purporting to change the manufacturers' regulatory obligation. 
By opting into National LEV, manufacturers would not be agreeing to 
waive the lead time required under section 177 in a circumstance where 
a state broke its commitment to National LEV and deleted National LEV 
as a compliance alternative, and thus the manufacturer would get the 
full two-years lead time set by section 177.
    Another example demonstrates how the waiver provision modifies the 
two-year lead time. If an offramp were triggered and a manufacturer 
were to decide to opt out of National LEV and then set an effective 
date one year from the time of its opt out, under today's proposed 
regulations, upon the effective date of the opt out, the manufacturer 
would be required to comply with Section 177 Programs (except for 
backstop ZEV mandates) in any state that had not broken its commitment 
to National LEV. To the extent that this provides the manufacturer with 
less than two-years lead time, the manufacturer will have waived the 
lead time provision by opting into National

[[Page 44774]]

LEV combined with setting the effective date for its opt-out. For 
backstop ZEV mandates, however, manufacturers would not have to comply 
with the ZEV mandate until the two-year lead time period had passed 
(which would start running from the date of the manufacturer's opt-out) 
because in opting into National LEV manufacturers are not waiving the 
two-year lead time with respect to ZEV mandates.
    A third possible approach to section 177's two-year lead time 
requirement provides an alternative basis for today's proposal. Under 
this approach, the lead time requirement differs depending upon the 
factual setting. In some instances, measuring lead time from the date 
of state adoption of a backstop Section 177 Program still provides 
manufacturers adequate protection and thereby implements both the clear 
language of the statute and the clear intent of the provision. For 
example, in opting into National LEV, a manufacturer is choosing to 
accept a compliance alternative that involves some risk of a rapid 
change in the manufacturer's regulatory obligations if the manufacturer 
opts out. However, as proposed here, the program that the manufacturer 
is opting into provides substantial protection for manufacturers with 
regard to the applicability of backstop Section 177 Programs upon an 
opt-out. Because the manufacturer controls the effective date of the 
opt-out and the manufacturer would not be subject to a backstop Section 
177 Program until its opt-out became effective, the manufacturer can 
ensure that it does not become subject to a Section 177 Program without 
whatever lead time it views as adequate. In this situation, the 
statutory intent to ensure that manufacturers have lead time is met by 
providing that a state can immediately implement a Section 177 Program 
for any manufacturer whose opt-out from National LEV is effective, if 
the backstop Section 177 Program was adopted at least two years 
previously. Thus, for situations where the manufacturer controls the 
date that it becomes subject to the Section 177 Program, section 177 
would start the two year lead time period from the date of state 
adoption of the backstop Section 177 Program.
    The other type of situation is one where the state takes an action 
imposing requirements on a manufacturer under section 177 and the 
manufacturer has no control over the timing of those requirements. For 
example, a state might remove National LEV as a compliance alternative 
from its state regulations, leaving only the Section 177 Program 
requirements in place, which the state had adopted at least two years 
earlier. In that instance, making the manufacturer immediately subject 
to the section 177 requirements would be contrary both to the purposes 
of the section 177 lead time requirement and to the intended operation 
of National LEV. By opting into National LEV the manufacturer did not 
accept the possibility that a state might commit to National LEV and 
then violate that commitment. Nor is there any way for the manufacturer 
to protect itself against an immediate application of the section 177 
requirements by the violating state, except not to opt into National 
LEV at all. Under the circumstances where the state controls the timing 
of the applicability of the Section 177 Program, the section 177 lead 
time provisions would be implemented by requiring two years of lead 
time from the date that the manufacturer knew it would become subject 
to the state's Section 177 Program without the option of complying with 
National LEV as an alternative.
    The interpretation of section 177 that EPA is proposing would apply 
only in the very unique situation presented by National LEV--where 
states and manufacturers are both voluntarily opting into the national 
program. It does not necessarily provide any guidance for other 
circumstances.

VII. National LEV Will Produce Creditable Emissions Reductions

    In the Final Framework Rule, EPA noted that National LEV must be an 
enforceable program to grant states credits for SIP purposes for 
emission reductions from National LEV vehicles. As discussed in the 
Final Framework Rule, there are two aspects to ensuring that National 
LEV is enforceable. See 62 FR 31225 (June 6, 1997). First, the National 
LEV program emissions standards and requirements must be enforceable 
against those manufacturers that have opted into the program and are 
operating under its provisions. In the Final Framework Rule, EPA found 
that the National LEV program meets this aspect of enforceability. 
Second, the National LEV program itself must be sufficiently stable to 
make it likely to achieve the expected emissions reductions. To achieve 
the expected emissions reductions from National LEV, the offramps must 
not be triggered and the program must remain in effect for its expected 
lifetime. EPA also found in the Final Framework Rule that the program 
elements finalized in that rule would contribute to a stable National 
LEV program. In today's notice, EPA proposes that the complete National 
LEV program as contained in today's proposal and the Final Framework 
Rule would be sufficiently stable to make the program enforceable and 
hence creditable for SIP purposes.
    The only circumstances that would allow the National LEV program to 
terminate prematurely would be an OTC State's failure to meet the 
commitments it makes regarding adoption of motor vehicle programs under 
section 177 of the Act, certain EPA changes to Stable Standards that 
would allow either a manufacturer or an OTC State to opt out of 
National LEV, or certain EPA actions or inactions related to in-use 
fuels. 31 The Final Framework Rule described the basis for 
EPA's belief that the Agency is unlikely to change any of the Stable 
Standards in a manner that would give the auto manufacturers the right 
to opt out of National LEV. Here EPA proposes to find that National LEV 
is stable because EPA believes that an OTC State is unlikely to fail to 
meet its commitments to National LEV, EPA is unlikely to change any of 
the Stable Standards in a manner that would allow the OTC States to opt 
out of National LEV, and EPA is unlikely to act in a manner that would 
allow manufacturers to opt out based on the proposed offramps related 
to in-use fuels.
---------------------------------------------------------------------------

    \31\  EPA is also proposing that OTC States could opt out if a 
manufacturer opted out, and manufacturers could opt out if either 
another manufacturer or an OTC State opted out. Yet for purposes of 
evaluating the stability of the National LEV program, EPA need not 
consider these secondary opt-out opportunities because they would 
only arise if an OTC State or EPA had already triggered another 
offramp.
---------------------------------------------------------------------------

A. OTC States Will Keep Their Commitments to National LEV

    As discussed above, under this proposal there are three ways in 
which an OTC State could violate its commitments to National LEV and 
allow the manufacturers to opt out of the program: (1) Attempt to have 
a state Section 177 Program (including ZEV mandates, except in states 
with existing ZEV mandates) that was in effect and that prior to MY2006 
did not allow National LEV as a compliance alternative; (2) failure to 
submit a National LEV SIP revision to EPA by the specified date; or (3) 
failure to submit an adequate National LEV SIP revision. EPA is 
confident that the OTC States will keep all of their commitments to 
National LEV for the duration of the program. The OTC States' practical 
ability to meet their commitments, the fact that the OTC States would 
have made commitments to the program through both practically binding 
instruments and legally binding instruments, and the effects of a

[[Page 44775]]

violation of their commitments, all combine to support a finding that 
the states are unlikely to trigger an offramp for manufacturers.
    First, the OTC States should have no practical difficulty carrying 
out their commitments. As proposed, after the OTC States have opted 
into National LEV and the program has come into effect, the states 
would need to adopt regulations (or modify existing regulations) to 
commit to accept National LEV as a compliance alternative for the 
specified duration and to submit those regulations to EPA as a SIP 
revision within one year (or for a few states, eighteen months) of the 
date of EPA's finding that National LEV is in effect. Based on 
discussions with each of the OTC States on the time needed to complete 
a rulemaking in that state, EPA believes that these are realistic 
deadlines for state action, which would provide sufficient time for the 
states to complete their regulatory processes and submit their SIP 
revisions. (See docket no. A-95-26 for memo on these discussions.) In 
addition, the SIP submissions follow fairly quickly upon the initial 
OTC State opt-ins, which maintains the political momentum for the 
states to follow through on the second step of their commitments. The 
deadline for SIP submissions would require states to begin developing 
their regulatory commitments almost immediately after their Governors 
issue executive orders (or letters) committing to National LEV and 
directing the state agencies to submit the SIP revisions. EPA believes 
it is highly unlikely that states would go through all the effort to 
sign up to the National LEV program and then almost immediately derail 
the program by failing to submit a SIP revision. There appears to be no 
way in which such an action could benefit a state, and there could be a 
substantial negative public reaction associated with such a reversal. 
Apart from the need to adopt regulations and submit a SIP revision, 
there is no other action states need to take to uphold their 
commitments to National LEV and hence no practical impediment to states 
carrying out their commitments to National LEV.
    In addition, the OTC States would be practically and legally bound 
to uphold their commitments to allow National LEV as a compliance 
alternative to a state Section 177 Program for the duration of their 
commitments. The initial opt-ins from the Governors and state 
commissioners would provide a substantial expression of support for 
National LEV at high state political levels. Through the opt-in 
instruments, the state would have publicly committed to accept National 
LEV as a compliance alternative to a state Section 177 Program for the 
duration of the commitment. The executive order (or letter) would both 
invest the commitments with the full authority of the state Governors 
and initiate the second step of the opt-in. An explicit directive from 
the Governor to submit such a SIP revision should assure that the state 
agency will initiate the ordered action. The only foreseeable cause of 
failure to do so would be if a Governor subsequently countermanded the 
directive. EPA believes this eventuality is highly unlikely, given both 
the short time frame in which such a reversal would have to occur and 
all of the other incentives for the states to meet their commitments, 
such as the environmental costs of allowing the manufacturers to opt 
out once the program has begun. While the outcome of a government 
rulemaking process cannot be predetermined, these same incentives for 
the states to meet their commitments make it highly probable that, once 
proposed, the states will finalize the regulatory changes and SIP 
revisions necessary to complete their commitments to National LEV.
    Once EPA has approved a National LEV SIP revision, the state would 
be legally bound to uphold its commitment. As discussed above in 
section V.C.4, an approved SIP provision committing a state to accept 
National LEV as a compliance alternative to a state Section 177 Program 
or ZEV mandate would preclude a conflicting state law that required 
manufacturers to comply with a state Section 177 Program or ZEV mandate 
without allowing National LEV as a compliance alternative. Until EPA 
approved a subsequent SIP revision, manufacturers could enforce the 
initial SIP commitment in court. Furthermore, EPA would be obligated to 
disapprove a subsequent SIP revision that violated a state's commitment 
to allow National LEV as a compliance alternative for the specified 
period because it would likely interfere with other states' ability to 
attain the NAAQS. Other states would have reasonably relied upon the 
emissions reductions from National LEV for attainment and maintenance, 
and the effect of approving the new SIP revision would almost certainly 
be to deprive the states of those reductions.
    Even if the state were not bound to its commitment legally, the 
practical effects of not meeting its commitment provide an independent 
basis for finding that National LEV is stable. The structure of the 
proposed opt-out provisions would establish substantial disincentives 
for OTC States to violate their commitments, given the requirements 
that would apply to vehicles sold in the violating state, the 
opportunity it would provide for manufacturers to opt out of National 
LEV, and the consequences of such an opt-out. As discussed in detail 
above in section VI.A.1, EPA is proposing that, for an OTC State that 
has violated its commitment by attempting to have a state Section 177 
Program that does not allow National LEV as a compliance alternative, 
the consequences in that violating state would be that under National 
LEV all manufacturers would be able to comply with Tier 1 tailpipe 
standards and not count those vehicles in the fleet NMOG average. Thus, 
the violating state would receive SIP credits based on this reduced 
compliance obligation. Similarly, if a state fails to submit its SIP 
revision committing to National LEV or submits an inadequate SIP 
revision, the same reduced tailpipe standard requirements would apply 
in the violating state for any manufacturer that opted out of National 
LEV until the manufacturer's opt out became effective. Thus, the 
violating state would (or is likely to, depending upon the type of 
violation) receive higher emitting vehicles and commensurately fewer 
SIP credits for a potentially long period of time. (See section VI.A 
above for a discussion of timing of requirements applicable to 
manufacturers under various options.)
    In addition, states would be further discouraged from violating 
their commitments because a state violation would give manufacturers 
the opportunity and reason to opt out of National LEV, and manufacturer 
opt-outs would hurt air quality in all states. If National LEV is in 
effect, a substantial number of the OTC States and probably all of the 
37 States are unlikely to have backstop Section 177 Programs in place. 
States without backstop Section 177 Programs would not be able to 
implement a state Section 177 Program for over two years because of the 
time needed to adopt a program and the two years of lead time required 
under section 177. During this period, manufacturers that had opted out 
of National LEV would have to comply only with federal Tier 1 standards 
for sales of new motor vehicles in those states without backstop 
programs. Also, sales of these Tier 1 vehicles would further increase 
vehicle emissions in both the violating state and states with backstop 
Section 177 Programs as well, through migration of dirtier Tier 1 
vehicles.
    EPA is confident that the combination of the feasibility of 
compliance with the OTC State commitments, the practical

[[Page 44776]]

and legal constraints on a state breaking its commitment, and the 
environmental and SIP-related consequences of a state breaking its 
commitment make it highly unlikely that an OTC State that has opted 
into National LEV will violate any of its commitments to the program.

B. EPA Is Unlikely To Change a Stable Standard To Allow OTC States To 
Opt Out of National LEV

    In the Final Framework Rule, EPA explained why the Agency is 
unlikely to change any of the Stable Standards in a manner that would 
give the auto manufacturers the right to opt out of National LEV. EPA 
also believes it is unlikely to change any of the Stable Standards in a 
manner that would allow the OTC States to opt out of National LEV. As 
proposed above in section VI.B.2, an OTC State would be able to opt out 
of National LEV if EPA changed a Stable Standard in a way that made it 
less stringent and as a consequence would have changed EPA's initial 
determination that National LEV would produce emissions reductions 
equivalent to the OTC State Section 177 Programs that would be in place 
in the absence of National LEV. Given the greater emissions reductions 
that would be produced by National LEV compared to the alternative of 
OTC State Section 177 Programs (discussed above in section IV), only a 
significant weakening of a Stable Standard would be likely to have 
changed EPA's determination that National LEV would produce emissions 
reductions at least equivalent to the alternative. Such a weakening of 
a Stable Standard would be contrary to EPA's mission of environmental 
protection and would jeopardize the National LEV program, which the 
Agency strongly supports and in which EPA has invested significant 
resources.
    EPA's mission is to protect human health and the environment, in 
this case by reducing air pollution from motor vehicles. Absent a 
serious problem of technical feasibility, EPA has no reason to make the 
Stable Standards significantly less stringent over time. EPA has 
evaluated each of the National LEV requirements contained in the Final 
Framework Rule and today's proposal, and the Agency believes that they 
are technically feasible. Almost all of the technical requirements for 
vehicles certified under National LEV are consistent with the 
provisions of the draft MOU initialed by the motor vehicle 
manufacturers' associations as an acceptable approach to the program, 
which strongly indicates that the manufacturers believe the National 
LEV requirements are feasible. While a few requirements, such as the 
Supplemental Federal Test Procedure (SFTP), were not fully developed at 
the time the manufacturers initialed the draft MOU, the manufacturers 
are extremely unlikely to sign up to a voluntary program with 
substantial outstanding technical issues and no identified approach for 
resolution. Moreover, the requirements under National LEV are no more 
stringent than the requirements under the California LEV program. EPA 
has granted a waiver of preemption under section 209 of the Act for the 
California LEV program after finding that the standards were 
technically feasible. See 58 FR 4166 (Jan. 13, 1993).
    In addition, EPA strongly supports National LEV and is extremely 
unlikely to act in a manner that would risk dissolution of the program. 
For many areas of the country National LEV would be a very cost-
effective program to reduce motor vehicle emissions of pollutants that 
harm public health and the environment. EPA has invested significant 
resources in facilitating the negotiations between the parties and 
developing the regulatory framework for the National LEV program, and 
the Agency would not lightly jeopardize the results of this effort.

C. EPA Is Unlikely To Fail To Consider In-Use Fuels Issues To Allow 
Manufacturers To Opt Out of National LEV

    EPA also believes that the Agency is unlikely to act or fail to act 
in a manner that would allow the manufacturers to opt out of National 
LEV based on an offramp related to in-use fuels. As discussed above, 
EPA is proposing an additional offramp for manufacturers to address 
their concerns regarding the potential effects of fuel sulfur levels on 
the emission performance of National LEV vehicles. This offramp could 
be triggered if manufacturers assert that one of the identified 
potential problems related to fuel sulfur levels arises and EPA 
declines to consider allowing manufacturers to take the identified 
actions in response. EPA recognizes that the potential effects of fuel 
sulfur levels are of particular concern to manufacturers. If ongoing 
additional investigations indicate problems that need to be addressed, 
EPA will need to reassess the fuel sulfur issue in both the National 
LEV context and other EPA motor vehicle emission control programs, as 
discussed above in section VII.C. Given EPA's recognition of the 
manufacturers' concerns and the ongoing process for resolving them 
outside of the National LEV context, EPA believes it is highly unlikely 
that the Agency would fail to respond to a manufacturer's request to 
address any problems that are identified or decline to consider any 
reasonable solutions. In addition, EPA would have all the same 
incentives here to avoid taking any action that would jeopardize the 
benefits from the National LEV program, as discussed above for changes 
to Stable Standards.

VIII. Additional Provisions

A. Early Reduction Credits for Northeast Trading Region

    EPA is proposing that manufacturers may generate early reduction 
credits for sales of vehicles in the Northeast Trading Region (NTR) in 
MY1997 and MY1998, prior to the start of National LEV in MY1999. This 
would provide manufacturers added flexibility as well as create an 
incentive for them to introduce cleaner vehicles into this region 
before MY1999, thus providing air quality benefits sooner. EPA proposes 
to take the same approach to these early reduction credits in the NTR 
as the Final Framework Rule took to the early reduction credits earned 
in the 37 States before MY2001. Since the credits cannot be used or 
traded before MY1999, EPA is proposing to treat any credits earned in 
the NTR before MY1999 as if earned in MY1999 for annual discounting 
purposes. This is consistent with EPA's approach to early reduction 
credits in the 37 States and with California's approach to allowing 
early generation of credits. These credits will be subject to the 
normal discount rate starting with MY1999, meaning they will retain 
their full value for MY2000 and will be discounted from then on. In 
addition, EPA is proposing that, consistent with the approach to early 
reduction credits in the 37 States, early reduction credits in the NTR 
will be subject to a one-time ten percent discount applied in MY1999, 
as discussed below.
    Manufacturers would be able to generate early reduction credits in 
the NTR by supplying vehicles with lower emissions than otherwise 
required during this time period in any OTC State that is in National 
LEV for MY1999 and later. Specifically, manufacturers would be able to 
generate credits for sales of TLEVs, LEVs, ULEVs and ZEVs sold in the 
OTR outside New York and Massachusetts in MY1997, and outside of New 
York, Massachusetts and Connecticut in MY1998, to the extent that such 
vehicles can be sold under EPA's cross-border sales 
policy.32

[[Page 44777]]

Additionally, manufacturers could generate credits for sales of 
vehicles achieving a lower fleet average NMOG value than required under 
the state Section 177 Programs in New York and Massachusetts in MY1997, 
and in New York, Massachusetts and Connecticut in MY1998, assuming that 
those states have committed to National LEV for MY1999 and later. 
Manufacturers would not be able to take credit for vehicles sold to 
meet the applicable NMOG averages in New York, Massachusetts and 
Connecticut in MY1997 and MY1998, as that would be using vehicles 
required independent of National LEV to reduce the stringency of the 
National LEV requirements, and hence would be ``double-counting.''
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    \32\ See docket no. A-95-26, IV-A-03 for EPA's cross border 
sales policy. The current cross border sales policy allows sales of 
vehicles certified to California's emission standards in states 
contiguous to, or within 50 miles of, California and states that 
have a Section 177 Program in place. Thus, in the OTR for MY1997 and 
MY1998, manufacturers would be allowed to sell California vehicles 
in Maine, New Hampshire, Vermont, Massachusetts, New York, Rhode 
Island, Pennsylvania, and Connecticut.
---------------------------------------------------------------------------

    EPA believes that there are substantial benefits to encouraging 
early introductions of cleaner vehicles. However, the Final Framework 
Rule included a discount for early reduction credits in the 37 States 
in part to address a concern that giving full, undiscounted credits for 
all early reductions may generate some windfall credits. See 62 FR 
31214-31215. ``Windfall'' credits are credits given for emission 
reductions the manufacturer would have made even in the absence of an 
early credit program. The purpose of giving credits for early 
reductions is to encourage manufacturers to make reductions that they 
would not have made but for the credit program. Because credits can be 
used to offset higher emissions in later years, if manufacturers are 
given credits for early reductions they would have made even without a 
credit program, an early credit provision could decrease the 
environmental benefits of the program.
    EPA is taking comment on the potential for windfall credits in the 
NTR and whether ten percent is an appropriate discount factor. 
Specifically, EPA requests comment on whether a lower number such as 
five percent or no discount factor would be more appropriate in light 
of the probability that manufacturers would introduce cleaner vehicles 
early absent early reduction credits, and the fact that National LEV is 
a voluntary program that will produce cleaner vehicles than EPA has the 
authority to require before MY2004. In addition, EPA requests comment 
on whether it should apply a uniform approach to early reduction 
credits in the 37 States and the NTR, or whether there are reasons to 
take different approaches in the two regions. EPA is also taking 
comment on whether ten percent (or some lower percent or zero) is the 
appropriate discount factor for early credits in the 37 states given 
that National LEV is now proposed to start in MY1999 instead of MY1997.

B. Calculation of Compliance With Fleet Average NMOG Standards

    Various provisions in the Final Framework Rule assume that National 
LEV is a 49-state program. However, it is possible that National LEV 
would continue even if one or more OTC States opt out. Having less than 
49 states in the National LEV program would require changes in the 
Final Framework Rule's provisions for determining compliance with the 
fleet average NMOG standards.33
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    \33\ These changes would also be required if not all OTC States 
opted in. EPA continues to believe that National LEV should be a 49-
state program. EPA notes that the auto manufacturers have repeatedly 
stated that all OTC States must opt into National LEV. However, if 
the auto manufacturers and the relevant OTC States were interested 
in National LEV proceeding even with less than 49 states 
participating, EPA would want National LEV to proceed. The air 
quality benefits of National LEV are too important not to do so.
---------------------------------------------------------------------------

    EPA is proposing to modify the Final Framework Rule so that the 
NMOG fleet average calculation will not include vehicle sales in any 
OTC State that legitimately opts out once that opt-out becomes 
effective.\34\ This would help ensure that states that opt into 
National LEV will receive the anticipated emissions benefits as long as 
they and the auto manufacturers participate in National LEV. The 
opposite approach (i.e., including all vehicle sales in any OTC States 
that are not participating in National LEV) would concentrate cleaner 
cars in those OTC States not in National LEV at the expense 
(environmentally) of OTC States committed to National LEV.
---------------------------------------------------------------------------

    \34\ Similarly, if National LEV came into effect without all OTC 
States opting in, EPA is proposing that vehicle sales in those 
states would not be included in the NMOG average. EPA's proposed 
treatment of vehicle sales in OTC States that break their 
commitments is addressed in the proposed regulatory provisions and 
preamble discussion of manufacturer and OTC State offramps.
---------------------------------------------------------------------------

    EPA is taking comment on whether to count in a manufacturer's fleet 
average NMOG calculation those California-certified vehicles that are 
sold under EPA's Cross Border Sales (CBS) policy in states that are 
participating in National LEV. A National LEV program consisting of 
less than all of the OTC States would necessitate the continuation of 
EPA's CBS policy for those manufacturers producing vehicles certified 
separately to Federal and California standards. This policy allows 
manufacturers to introduce into commerce California-certified vehicles 
in states that are contiguous to California or other states that have 
adopted the Section 177 Program. Thus, if a state were not 
participating in National LEV and instead had a Section 177 Program in 
effect, under the CBS policy, manufacturers would be allowed to sell 
California-certified vehicles in National LEV states bordering the non-
participating state. This raises the issue of how to count such 
California-certified vehicles sold in those contiguous states in 
calculating the manufacturer's compliance with its National LEV fleet 
average NMOG requirement.
    One approach to the fleet average NMOG calculation would be to 
include in the calculation all vehicle sales in the states 
participating in National LEV regardless of whether the vehicles are 
California or federally-certified. EPA is concerned that this might 
encourage manufacturers to sell only (or primarily) California-
certified vehicles in the OTR (at least in MY1999 and MY2000), which 
might not be allowed under the Clean Air Act. It might also raise 
warranty and recall problems if those vehicles were found to violate 
LEV (but not Tier 1) standards in use. Another alternative would be to 
count only vehicles certified to federal standards in the fleet average 
NMOG calculation. EPA is also taking comment on whether it would be 
appropriate to count some (but not all) types of California-certified 
vehicles in the National LEV fleet average NMOG calculation. In any 
event, EPA would want to ensure that manufacturers would not include 
those vehicles sold in National LEV states to consumers residing in a 
state with a Section 177 Program in the manufacturers' compliance 
determinations for both the National LEV NMOG average and the 
applicable Section 177 Program; it would not be equitable to allow 
manufacturers to take credit for such sales for two independent 
programs.

C. Certification of Tier 1 Vehicles in a Violating State

    If an OTC State violated its commitment to National LEV, in some 
instances National LEV would only require manufacturers to supply 
vehicles meeting Tier 1 emission standards in the violating state. EPA 
is proposing that, as one means of implementing this provision, EPA 
would allow a manufacturer to change the compliance levels of its 
vehicles sold in a violating OTC State through the submission of 
running changes to EPA. A running change is a mechanism manufacturers 
use to obtain approval

[[Page 44778]]

from EPA for modifications or additions to vehicles or engines that 
have already been certified by EPA but are still in production. By 
allowing a manufacturer to change the compliance levels of its vehicles 
through a running change only applicable to vehicles sold in a 
violating OTC State, EPA would give a manufacturer a procedure to 
respond to a state violation in a timely fashion and produce a real 
disincentive for an OTC State to violate its commitment.
    Manufacturers currently use running changes in the federal 
certification process to obtain EPA approval of a change in specified 
vehicle configuration or an addition of a vehicle or engine to an 
approved engine family that is still in production.\35\ A manufacturer 
may notify the Administrator in advance of or concurrent with making 
the addition or change. The manufacturer must demonstrate to EPA that 
all vehicles or engines affected by the change will continue to meet 
the applicable emission standards. This demonstration can be based on 
an engineering evaluation and testing if the manufacturer determines 
such testing is necessary. The Administrator may require that 
additional emission testing be performed if the manufacturer's 
determination is not supported by the data included in its running 
change application. EPA may disapprove a running change request, which 
could then require manufacturers to remedy vehicles or engines produced 
under the request.
---------------------------------------------------------------------------

    \35\ See 40 CFR 86.079-32, 86.079-33, and 86.082-34.
---------------------------------------------------------------------------

    EPA is proposing to exercise its current authority to allow 
manufacturers to use a running change to modify quickly the compliance 
level of their National LEV vehicles to Tier 1 tailpipe standards when 
the National LEV regulations allow a manufacturer to sell vehicles 
meeting Tier 1 tailpipe standards in a particular state. Running 
changes submitted under this proposal will reflect only the change in 
emission standards the vehicles are meeting. Vehicles sold in an OTC 
State that had violated its National LEV commitment will be treated as 
Tier 1 vehicles for purposes of federal enforcement requirements and 
warranty limits and would not count in the manufacturers' NMOG fleet 
average. A manufacturer providing vehicles that in a violating OTC 
State were complying at only Tier 1 levels and were meeting more 
stringent standards elsewhere would be required to modify its 
certification application to reflect the change and install a modified 
Vehicle Emission Control Information (VECI) label. The label would 
state that the vehicle complies with TLEV, LEV, or ULEV standards, but 
if such vehicle is sold in the specified violating OTC State, such 
vehicle is certified to Tier 1 tailpipe standards. The modified VECI 
label will highlight the distinction in vehicle compliance levels to 
consumers and the general public. EPA believes that running changes for 
this particular situation may be allowed by applying good engineering 
judgment, rather than additional emission testing, since a vehicle 
certified to National LEV TLEV, LEV, ULEV, or ZEV standards should also 
meet Federal Tier 1 standards. In the instance where an engineering 
evaluation would be insufficient to support a change, EPA would require 
additional data.
    Vehicles complying only with Tier 1 tailpipe standards and sold in 
an OTC State that had violated its National LEV commitment would be 
treated as Tier 1 vehicles in that state for purposes of demonstrating 
compliance with federal requirements and SIP credits. These vehicles 
would be held only to the Tier 1 tailpipe standards for purposes of 
recall liability in that state. For example, a vehicle recall on a 
National LEV vehicle certified to LEV standards might not be subject to 
recall action in the violating state if the problem causing the recall 
did not cause the vehicles to exceed the Tier 1 standards. 
36
---------------------------------------------------------------------------

    \36\ EPA is considering making significant changes to its 
existing federal compliance program, currently targeted to begin 
with MY2000 (these changes are referred to as CAP 2000, or 
Compliance Assurance Program 2000). While CAP 2000 is still pre-
proposal, EPA has established a docket (A-96-50), which contains 
information on the concepts currently being considered. Once 
promulgated, CAP 2000 may have some potential ramifications for 
quickly changing certification designations for National LEV 
vehicles sold in an OTC State that had violated its National LEV 
commitment. In particular, EPA is considering significantly 
streamlining its current certification program and requiring 
manufacturers to perform an in-use verification testing program to 
demonstrate that the streamlined certification procedures are 
capable of predicting in-use compliance. This program would apply to 
all federally certified vehicles, including Tier 1 vehicles. Thus, 
CAP 2000 could also possibly apply to any National LEV vehicles that 
were only required to comply with Tier 1 tailpipe standards under 
the proposal outlined above.
---------------------------------------------------------------------------

D. Provisions Relating to Changes to Stable Standards

    The Final Framework Rule provided that, with certain exceptions, 
manufacturers would be able to opt out of National LEV if EPA changed a 
motor vehicle requirement that it had designated a ``Stable Standard.'' 
The Stable Standards are divided into two categories: Core Stable 
Standards and Non-Core Stable Standards. Core Stable Standards 
generally are the National LEV standards that EPA could not impose 
absent the consent of the manufacturers. Non-Core Stable Standards are 
other federal motor vehicle standards that EPA does not anticipate 
changing for the duration of National LEV. For both Core and Non-Core 
Stable Standards, EPA can make changes to which manufacturers do not 
object. For Non-Core Stable Standards, EPA can also make changes that 
do not increase the stringency of the standard or that harmonize the 
standard with the comparable California standard. EPA can make other 
changes to any of the Stable Standards, but such changes would allow 
the manufacturers to opt out of National LEV. See the Final Framework 
Rule for more detail on the specific Stable Standards and the offramp 
for manufacturers associated with changes to the Stable Standards. 62 
FR 31202-31207.
    EPA is proposing to make a few minor changes to the provisions for 
opt-outs based on a change to a Stable Standard. Under the Final 
Framework Rule, a manufacturer cannot opt out of National LEV based on 
a change to a Stable Standard unless the manufacturer has provided a 
written comment during the rulemaking on that change stating that it is 
sufficient to trigger a National LEV offramp. If EPA went ahead and 
made the change despite the objection, manufacturers generally would 
have to decide whether to exercise their opt-out option within 180 days 
of the occurrence of the condition triggering opt-out. EPA usually 
consults extensively with manufacturers regarding contemplated changes 
to the technical motor vehicle requirements to get information on the 
manufacturers' views regarding the feasibility and effectiveness of 
different requirements. Also, manufacturers have the opportunity during 
the comment period to alert EPA to any changes that manufacturers 
believe may be sufficient to provide an offramp. Thus, EPA is highly 
unlikely to make any change to a Stable Standard that may allow the 
manufacturers to opt-out without being aware of that potential and 
without carefully weighing the emissions benefits of the change 
relative to the emissions benefits of assuring the continuation of 
National LEV.
    Nevertheless, in the final rule, EPA provided an additional 
protection to ensure that a change to a Stable Standard did not 
inadvertently provide an offramp. EPA has an opportunity to prevent an 
opt-out based on a change to a Stable Standard from coming into effect 
by withdrawing the change to the Stable Standard before the effective 
date

[[Page 44779]]

of the opt-out. In addition, to make EPA's ability to cure the offramp 
effective, the final rule delays the earliest possible effective date 
of an opt-out based on a change to a Core Stable Standard. Such an opt-
out could not become effective until the model year named for the 
second calendar year following the calendar year in which the 
manufacturer opted out.
    EPA is proposing to delete the provisions allowing the Agency the 
ability to cure under these circumstances, and is proposing to set the 
earliest effective date of an opt-out based on a change to a Core 
Stable Standard to be the same as the earliest effective date of an 
opt-out based on a violation of an OTC State commitment to National 
LEV. Thus, an opt-out based on an EPA change to a Core Stable Standard 
or an OTC State violation of its commitment to National LEV could 
become effective beginning in the ``next model year.'' \37\ See section 
VI.A above for further discussion of the effective date of opt-outs 
based on an OTC State violation of its commitment to National LEV.
---------------------------------------------------------------------------

    \37\ The ``next model year'' is the model year named for the 
calendar year following the calendar year in which the event 
allowing opt-out occurred.
---------------------------------------------------------------------------

    EPA believes that providing the Agency a formal opportunity to cure 
a change to a Stable Standard adds unnecessary complexity to the 
program. Also, if an offramp were triggered, EPA's ability to cure 
extends the period of uncertainty as to whether National LEV would 
remain in effect, which is a destabilizing influence on the program. 
EPA believes it is highly unlikely that the Agency would change a 
Stable Standard so as to trigger an offramp. Nevertheless, in the 
hypothetical situation where one of those conditions triggering an 
offramp occurred, EPA believes that it would be in all of the parties' 
best interests to know as soon as possible whether any manufacturer 
intended to opt-out, and if so, when that opt-out would become 
effective. Adding yet another layer of complexity to the opt-out 
provisions undermines that goal.
    In the Final Framework Rule, EPA stated that, if a manufacturer 
were to take an offramp because EPA changed a Stable Standard, the 
applicable state or federal standards would apply. At that time, EPA 
did not discuss in detail the timing for when state or federal 
standards would apply. Today EPA is proposing that, if a manufacturer 
validly opted out of National LEV based on an EPA change to a Stable 
Standard, once the manufacturer's opt out was effective, the 
manufacturer's obligations would be determined the same as if the 
manufacturer had opted out because an OTC State failed to submit its 
National LEV SIP revision on time (except that no state could be 
treated as a violating state). The manufacturer would be subject to any 
backstop Section 177 Programs for which the two-year lead time 
requirement of section 177 had been met (running from the date the 
state adopted the backstop program), or would be subject to Tier 1 
requirements in states without such programs. Manufacturers would be 
subject to backstop ZEV mandates once the two-year lead time set forth 
in section 177 had passed (running from the date of the manufacturer's 
opt-out notification). To the extent that these regulations would 
provide a manufacturer with less than the two-year lead time set forth 
in section 177, the manufacturer waives that protection by opting into 
National LEV and then setting an effective date in its opt-out 
notification that provides for less than two-years lead time.

E. Nationwide Trading Region

    The National LEV program, as initially proposed and as set forth in 
the Final Framework Rule, requires manufacturers to determine 
compliance with the fleet average NMOG standards for the two classes of 
National LEV vehicles in two separate trading regions: The OTC States 
and the 37 States making up the rest of the country (except 
California). Credits and debits generated under the program are 
specific to the region of creation.
    Several factors led the parties to support and EPA to establish 
separate trading regions in the Final Framework Rule. In part, the two 
regions were set up because the National LEV program starts in the OTR 
before it applies in the rest of the country. Additionally, at the time 
the two regions were proposed, the separate regions were designed in 
part to meet the OTC States' legal obligations under the OTC LEV SIP 
call. The OTC States were concerned that manufacturers would provide a 
different, higher emitting mix of vehicles in the OTR than they would 
in the 37 States region if they were allowed to average their vehicle 
sales over a nationwide region. Also, to ensure that the OTC States 
would receive the intended benefit of the program's earlier start in 
the OTR, the separate trading regions facilitated the offset of debits 
generated in the OTR through vehicle introductions or credits earned in 
the OTR.
    The elimination of the legal requirement to have National LEV 
provide equivalent emission reductions to the OTC LEV program and the 
change in program start dates for both National LEV and OTC State 
Section 177 Programs allows EPA to reconsider the necessity of 
establishing separate trading regions.38 As a result of the 
court decision, EPA no longer is required to demonstrate that National 
LEV provides emission reductions at least equivalent to those from the 
OTC LEV program. The main purposes in having two separate trading 
regions were to ensure that the manufacturers meet certain fleet 
average NMOG standards in the OTR for purposes of the equivalency 
requirement and to provide the actual emissions reductions in the OTR 
that the OTC States would expect to receive upon opting into National 
LEV. The absence of the legal requirement to find equivalency means 
that separate trading regions are not necessary to demonstrate that 
National LEV will achieve emissions reductions in the OTR at the level 
that would be provided by compliance with the fleet average NMOG 
requirements in the OTR alone. Additionally, in comparison to 
individual OTC State adopted Section 177 Programs, National LEV 
starting in MY1999 provides greater emission reductions in the OTR. 
Thus, EPA does not believe that two trading regions are necessary to 
achieve the actual emissions reductions expected in the OTR under 
National LEV. Finally, EPA believes that even with one trading region, 
manufacturers' fleets in the OTR will comply with the fleet average 
NMOG standards, as discussed below.
---------------------------------------------------------------------------

    \38\ EPA could have reconsidered the need for two separate 
trading regions prior to promulgating the Final Framework Rule, but 
it did not do so. EPA thought it best to take comment on combining 
the two trading regions before doing so.
---------------------------------------------------------------------------

    EPA is proposing to establish a nationwide trading region (not 
including California), starting in MY2001. For MY1999 and MY2000, 
manufacturers will have to demonstrate compliance with National LEV 
standards only in the OTR. For MY2001 and later, when the program is 
introduced nationwide, EPA is proposing that there be one compliance 
region. EPA believes this will not detrimentally affect the 
environmental benefits of National LEV in the OTR and will reduce 
manufacturers' and EPA's administrative burden in demonstrating 
compliance with the National LEV fleet average NMOG standards. A 
discrepancy between the fleet sold in the OTR and outside the OTR would 
only be possible if a manufacturer's fleet was made up of a number of 
engine families certified to Tier 1, TLEV, and LEV standards and 
vehicle buying patterns differed significantly between

[[Page 44780]]

the Northeast states and other regions of the country. EPA does not 
believe that vehicle sales patterns of the relevant vehicles will 
differ dramatically between the two regions. Moreover, for there to be 
even a possibility of introducing a greater percentage of dirtier 
vehicles in the OTR than in the rest of the country, a manufacturer's 
fleet after MY2000 would have to include Tier 1 vehicles and TLEVs, as 
well as LEVs. EPA does not believe significant numbers of Tier 1 
vehicles and TLEVs will be sold in the OTR after MY2000, since other 
provisions of the National LEV program will act to reduce the incentive 
to sell substantial numbers of such vehicles at that time. Beginning in 
MY2001, National LEV regulations prohibit manufacturers from offering 
for sale any Tier 1 vehicles and TLEVs in the NTR unless the same 
engine families are certified and offered for sale in California in the 
same model year. See 62 FR 31218 (June 6, 1997).39 
California's more stringent fleet average NMOG standard and SFTP phase-
in requirements, as described in section IX, will act to limit the 
number of Tier 1 and TLEV engine families certified and sold in 
California, and, therefore, the number sold in the NTR.
---------------------------------------------------------------------------

    \39\ To meet this requirement, manufacturers will not be 
required always to sell exactly the same engine families in both 
California and the NTR because in some instances, that would not be 
possible. In the specific case of Tier 1 engine families, National 
LEV maintains Federal Tier 1 standards while California has its own 
Tier 1 standards, so a manufacturer could not sell an identical 
California Tier 1 vehicle as a Federal Tier 1 vehicle in the NTR 
under the National LEV program. Therefore, for purposes of this 
provision, EPA will consider a National LEV Tier 1 or TLEV engine 
family the same as a California Tier 1 or TLEV engine family if the 
National LEV engine family has the same technology (hardware and 
software) as the comparable California engine family. A manufacturer 
could always certify a Tier 1 or TLEV engine family as a 50-state 
family and avoid this issue.
---------------------------------------------------------------------------

    Additionally, even though the National LEV fleet average NMOG 
standard is not as stringent as California's, the 0.075 g/mi and 0.100 
g/mi standards applicable for MY2001 and later will make it difficult 
for manufacturers to include substantial numbers of Tier 1 vehicles and 
TLEVs in their fleet and still comply with the National LEV NMOG fleet 
average standard. For example, manufacturers would have to build five 
ULEVs for every one Tier 1 vehicle produced, and approximately three 
ULEVs for every two TLEVs produced, to comply with the 0.075 g/mi fleet 
average NMOG standard. Therefore, EPA believes there are strong 
incentives for manufacturers to limit or even eliminate the production 
and sale of Tier 1 vehicles and TLEVs in the NTR in MY2001 and later, 
which would result in a nationwide vehicle fleet of essentially LEVs.
    Compliance under one nationwide trading region versus two separate 
regions for MY2001 and later model years will reduce the manufacturers' 
compliance burden by eliminating the need to specifically track vehicle 
sales to two separate regions and maintain two separate tallies of 
credits and debits specific to the two regions. A single trading region 
will also reduce EPA's administrative burden in determining whether 
manufacturers are complying with the applicable fleet average NMOG 
standards. Given a nationwide fleet that is all or almost all LEVs, a 
separate trading region for the OTR would not have any significant air 
quality benefit and would add additional unnecessary complexity to the 
National LEV program.
    Under today's proposal, National LEV would continue to include the 
NTR, which would apply for MY1999-2000 and cover vehicles sold in the 
OTC States. The second region would be the All States Trading Region 
(ASTR), which would include all states in National LEV except for 
California, and apply for 2001 and later model years. Manufacturers 
would demonstrate compliance with the fleet average NMOG standards in 
these two regions under the provisions set forth in the Final Framework 
Rule. EPA is proposing to delete the 37 State trading region that was 
finalized in the Final Framework Rule.
    The National LEV regulations would still need to address how to 
treat credits and debits generated before MY2001. EPA is proposing that 
manufacturers could continue to generate early reduction credits in the 
states outside the NTR before MY2001 to apply to the ASTR from MY2001 
on. Manufacturers could also use credits generated in the NTR for 
demonstrating compliance in the ASTR from MY2001 on at the same value 
as if the manufacturer had used them in the NTR under the Final 
Framework Rule. However, EPA is proposing that a manufacturer could not 
apply early reduction credits generated outside the NTR to offset any 
debits generated in the NTR before MY2001. Using credits generated 
outside the NTR to offset debits generated in the NTR during MY1999 and 
MY2000 would decrease the environmental benefits that should accrue to 
the NTR. EPA is taking comment on two possible methods to ensure that 
any debits in the NTR from MY1999 or MY2000 are made up in the NTR. One 
possibility is for EPA to require compliance with fleet average NMOG 
standards in the NTR and the 37 States after MY2000 if a manufacturer 
has outstanding debits in the NTR after calculating its compliance with 
the MY2000 fleet average NMOG standards for the Class A and B vehicle 
categories. Such a manufacturer would be required to meet separate 
fleet average NMOG standards in the OTR and 37 States until the model 
year following the model year for which it has eliminated the 
outstanding debits. Another possibility is that an All States Trading 
Region would start for all manufacturers in MY2001. A manufacturer with 
debits in the NTR after MY2000, however, would be required to make up 
those debits in the NTR. Unless a manufacturer bought NTR-specific 
credits, sufficient to offset its NTR debit on a timely basis, the 
manufacturer would need to calculate an NTR NMOG average for MY2001 and 
apply any NTR-specific credits to its NTR debits. Under no circumstance 
could credits outside the NTR be used to offset NTR debits from MY2000 
or MY1999.
    EPA is also taking comment on allowing a manufacturer to 
demonstrate compliance with the fleet average NMOG standards using 
actual production data in lieu of actual sales data if the manufacturer 
is demonstrating compliance with the fleet average NMOG standards in 
the ASTR. In the Final Framework Rule, EPA included regulations 
allowing manufacturers to use production data in lieu of sales data if 
a manufacturer's entire fleet, apart from California, was certified to 
LEV or cleaner standards. EPA was concerned about allowing the use of 
production data without these restrictions because of the need to 
demonstrate compliance in two separate trading regions. However, if EPA 
establishes a nationwide trading region, EPA is taking comment on 
allowing manufacturers to demonstrate compliance using production date 
rather than sales date, even if the manufacturer's fleet is not all LEV 
or cleaner vehicles. A manufacturer would need to petition EPA to allow 
production volume to be used in lieu of actual sales volume and would 
have to submit the petition to EPA within 30 days after the end of the 
model year. EPA would grant such petition if the manufacturer 
establishes, to the satisfaction of the Administrator, that production 
volume is functionally equivalent to sales volume. Manufacturers would 
still have to keep sales data in the NTR to demonstrate compliance with 
the ban on the sale of Tier 1 and TLEV engine families if such engine 
families are not certified for sale

[[Page 44781]]

in California for the same model year. EPA has previously allowed 
manufacturers to use production volume in lieu of sales volume as part 
of the Tier 1 standards phase-in.

F. Elimination of Five-Percent Cap on Sales of Tier 1 Vehicles and 
TLEVs in the OTR

    EPA's Final Framework Rule codified the OTC States' and 
manufacturers' recommendation that National LEV include provisions 
limiting the sale of Tier 1 vehicles and TLEVs in the NTR after MY2000. 
The first provision is that manufacturers may sell in the NTR Tier 1 
vehicles and TLEVs only if the same or similar engine families are 
certified and offered for sale in California as Tier 1 vehicles and 
TLEVs. See section VIII.E above for further discussion on this 
provision. The second provision is a five-percent cap on sales of Tier 
1 vehicles and TLEVs in the NTR starting in MY2001, which allows all 
manufacturers to sell Tier 1 vehicles and TLEVs in the NTR to the 
extent permitted under the first limitation as long as the overall Tier 
1 vehicle and TLEV fleet does not exceed five percent of the National 
LEV vehicles sold in the NTR. EPA is proposing to delete the five-
percent cap provision. The parties originally developed this provision 
to address OTC States' concerns that National LEV could have a 
disproportionate effect on NOX emissions when compared to 
OTC state-by-state adoption of Section 177 Programs. See 62 FR 31217. 
EPA is now proposing to delete this provision because of the change in 
the OTC States' legal obligation since this provision was proposed and 
because of the additional administrative burden it would entail if EPA 
were to adopt today's proposal to have a single trading region starting 
in MY2001. Furthermore, EPA believes the five-percent cap would not 
provide any air quality benefit given the expected fleet make-up after 
MY2000 and the other limitation on sales of these vehicles in the NTR.
    First, the court reversal of the requirement that all OTC States 
adopt Section 177 Programs effective in MY1999, means there is no 
longer a legal requirement that EPA find that National LEV is 
equivalent to state Section 177 Programs throughout the OTR. 
Additionally, as discussed above (see section IV comparing NLEV and OTC 
LEV emissions reductions), the expected benefits in the OTR of National 
LEV as compared to OTC State adopted Section 177 Programs has 
increased. Therefore, there is no legal need and less practical need 
for a five-percent cap to control NOX emissions.
    Second, EPA believes the five percent cap is not necessary because 
it expects manufacturers will not introduce significant numbers of Tier 
1 vehicles and TLEVs after MY2000 in the national, let alone the 
Northeast, market. See section VIII.E above for EPA's rationale for 
this belief. This means that National LEV will not have a 
NOX penalty when compared to OTC State adopted Section 177 
Programs. A National LEV fleet, made up primarily of LEV vehicles, will 
have similar effects on NOX emissions when compared to a CAL 
LEV fleet consisting primarily of LEV and ULEV vehicles since both 
types of vehicles have the same NOX emission standards. EPA 
believes that any sales of Tier 1 vehicles and TLEVs in the NTR after 
MY2000 will make up less than five percent of the fleet in any 
instance, and does not believe having a separate program to ensure such 
sales limits is needed.
    Finally, even if there were some benefit to the NTR from a five-
percent cap, EPA believes the benefit would be so minimal (at best) 
that it would not justify the administrative burden given EPA's 
proposal for one trading region after MY2000. Under EPA's proposal for 
an All State Trading Region for 2001 and later model years and the 
proposal to allow manufacturers to demonstrate compliance through 
production data, manufacturers would not need to report state-specific 
sales data, except to demonstrate compliance with the five-percent cap.

G. Technical Corrections to Final Framework Rule

    The Agency is also proposing today to make several minor technical 
corrections to the National LEV regulations issued in the Final 
Framework Rule. As already noted, a number of changes must be made to 
reflect the proposed start of the program in the 1999 model year, 
rather than the 1997 model year as was used as a placeholder in the 
June 6 Final Framework Rule. In addition, EPA is aware of several other 
errors and omissions that require correction, and is continuing to 
evaluate the regulations to determine the need for additional such 
corrections. Errors and omissions identified to date include a missing 
``0-3750'' in the Loaded Vehicle Weight column of Table R97-8 (62 FR 
31249), and incorrect full useful life in-use formaldehyde (HCHO) 
standards for LEVs and ULEVs for light light-duty trucks of 3751-5750 
lbs loaded vehicle weight in Table R97-13 (62 FR 31250). In the latter 
case, the LEV and ULEV standards were reported as 0.018 and 0.014 grams 
per mile, respectively, when in fact they should have been 0.023 and 
0.013 grams per mile, respectively. EPA is not including proposed 
regulatory text for these changes with today's action, but anticipates 
making these and similar minor corrections with the finalization of 
today's proposal later this year. In addition, a June 24, 1997 letter 
from the American Automobile Manufacturers Association (AAMA) and 
Association of International Automobile Manufacturers (AIAM) (available 
in the public docket for review) suggests numerous other technical 
corrections to the regulations EPA promulgated on June 6, 1997. The 
technical corrections detailed by AAMA/AIAM will be reviewed by EPA, 
and to the extent that they are necessary and appropriate they will be 
implemented when this rulemaking is finalized later this year.
    In the Final Framework Rule, EPA required manufacturers to track 
vehicles to the ``point of first sale'' for purposes of determining 
compliance with fleet average NMOG standards. See 62 FR 31212. EPA 
defined ``point of first sale'' as ``the location where the completed 
LDV or LDT is purchased'' and it ``may be a retail customer, dealer, or 
secondary manufacturer.'' See 40 CFR 86.1702-97(b). EPA recognized that 
requiring manufacturers to always track vehicle sales to the ultimate 
purchaser would add an additional burden on manufacturers without 
having any significant effect on air quality.
    Requiring manufacturers to track vehicles to the point of first 
sale was intended to impose similar requirements on manufacturers as 
those associated with EPA's Tier 1 standard phase-in compliance 
requirements found in 40 CFR 86.094-8 and 86.094-9. In the Tier 1 
program, manufacturers could demonstrate compliance ``based on total 
actual U.S. sales of light-duty vehicles of the applicable model year 
by a manufacturer to a dealer, distributor, fleet operator, broker, or 
any other entity which comprises the point of first sale.'' See 40 CFR 
86.094-8(a)(1)(i)(B)(1)(i). EPA believes the National LEV vehicle sales 
tracking requirements operate in the same manner as those found in the 
Tier 1 regulations, but the auto manufacturers have notified EPA of 
their concern that National LEV imposes different requirements. 
(Document available in docket A-95-26.)
    To eliminate confusion about the required level of vehicle tracking 
necessary to demonstrate compliance with National LEV fleet average 
NMOG standards, EPA is proposing to modify the definition of ``point of 
first sale'' in the National LEV program to include the ``point of 
first sale'' language found in

[[Page 44782]]

the Tier 1 regulations. EPA did not intend to limit ``point of first 
sale'' entities to those specifically listed in the National LEV 
regulations. EPA also does not intend to limit a manufacturer to 
tracking vehicles only to the point of first sale if a manufacturer 
decides further tracking gives it a more accurate account of vehicle 
sales in the different trading regions or its current vehicle tracking 
system is set up to track vehicles beyond the point of first sale. 
However, as noted in the Final Framework Rule, EPA does not believe 
this additional level of tracking vehicles is necessary.

IX. Supplemental Federal Test Procedure

A. Background

    The Federal Test Procedure (FTP) is the vehicle test procedure 
historically used by EPA and the California Air Resources Board (CARB) 
to determine the compliance of light-duty vehicles and light-duty 
trucks with the conventional or ``on-cycle'' exhaust emission 
standards. Using the FTP, emissions performance is tested while the 
vehicle is driven over a ``typical'' driving schedule, using a 
dynamometer to simulate the vehicle-to-road interface. Pursuant to the 
requirements of section 206(h) of the CAA, EPA recently promulgated 
revisions to the Federal Test Procedure to make the test procedure 
better represent the manner in which vehicles are actually driven (61 
FR 54852, October 22, 1996). The primary new element of the revisions 
was the addition of a Supplemental Federal Test Procedure (SFTP) with 
accompanying emission standards designed to address shortcomings of the 
conventional FTP in the representation of aggressive driving behavior, 
rapid speed fluctuations, driving behavior following startup, and use 
of air conditioning. In addition, a new set of requirements designed to 
more accurately reflect real road forces on the test dynamometer 
affects both the SFTP and the preexisting conventional FTP. Absent any 
modifications that might result due to implementation of the National 
LEV Program, these new requirements are to be phased in, applying to 40 
percent of a manufacturer's fleet of light-duty vehicles and light 
light-duty trucks in MY2000, 80 percent in MY2001, and 100 percent in 
MY2002. A similar phase-in schedule for heavy LDTs begins in MY2002. 
The SFTP emission standards promulgated by EPA are appropriate for 
vehicles meeting the so-called ``Tier 1'' on-cycle emission standards; 
EPA did not propose LEV-stringency off-cycle standards as part of its 
FTP revisions or as part of an earlier National LEV rulemaking.
    EPA and CARB coordinated closely their review of the FTP, their 
research efforts, and the development of their respective off-cycle 
policies. On April 23, 1997, CARB published a proposal detailing their 
approach to addressing off-cycle emissions in the State of 
California.40 Following a comment period that remained open 
through May 6, 1997, CARB released a notice of public hearing 
accompanied by a staff report regarding its proposed adoption of SFTP 
test procedures and standards (``Staff Report'').41 The 
proposal has four basic elements to it: test procedures, emission 
standards for LEVs and ULEVs, emission standards for Tier 1 vehicles 
and TLEVs, and a phase-in schedule. CARB adopted SFTP requirements 
largely consistent with their proposal at a public hearing on July 24, 
1997. Any additional minor changes that arise in subsequent stages of 
CARB's regulatory process will be addressed in the National LEV 
supplemental final rule.
---------------------------------------------------------------------------

    \40\ Draft Regulatory Measure to Control Emissions During Non-
Federal Test Procedure Driving Conditions From Passenger Cars, 
Light-Duty Trucks, and Medium-Duty Vehicles Under 8,500 Pounds Gross 
Vehicle Weight Rating, Mail-Out #MSC 97-06, April 23, 1997. 
Available in the public docket for review, and also at http://
arbis.arb.ca.gov/msprog/macmail/macmail.htm.
    \41\ Notice of Public Hearing to Consider Adoption of New 
Certification Tests and Standards to Control Emissions from 
Aggressive Driving and Air-Conditioner Usage for Passenger Cars, 
Light-Duty Trucks, and Medium-Duty Vehicles Under 8,501 Pounds Gross 
Vehicle Weight Rating, Mail Out #97-13, May 27, 1997. Available in 
the public docket for review, and also at http://arbis.arb.ca.gov/
msprog/macmail/macmail.htm#msc9713.
---------------------------------------------------------------------------

    EPA stated in the National LEV Final Framework Rule its intent to 
harmonize the SFTP requirements of the National LEV program with 
California once California completes the adoption of such requirements 
under its LEV program. Given that the finalization of today's proposal 
will occur sometime after the CARB public hearing, EPA is optimistic 
that the timing will allow the CARB and National LEV SFTP programs to 
be largely harmonized with the completion of the supplemental final 
National LEV rulemaking initiated by today's proposal. However, pending 
completion of that harmonization, the federal SFTP requirements that 
have already been promulgated are the default requirements for vehicles 
in the National LEV program. In today's notice, as further described 
below, EPA is proposing to adopt the CARB SFTP substantially as 
outlined by CARB in its June 6, 1997 Staff Report and as adopted at 
their July 24, 1997 public hearing.42
---------------------------------------------------------------------------

    \42\ An additional issue arises if for some reason it becomes 
impossible, impractical, or undesirable for the National LEV program 
to harmonize with the CARB SFTP requirements. As the Agency 
recognized in the October 22, 1996 final rule promulgating the SFTP, 
the phase-in schedule of the new standards and test procedures 
contained in that rule ``could create an additional burden for auto 
manufacturers if the [National LEV] Program goes into effect as 
proposed with a MY2001 implementation nationwide'' (61 FR 54854). As 
noted above, the new SFTP requirements, which are of a Tier 1 level 
of stringency, start phasing in with MY2000. In that model year, if 
the National LEV Program is in effect, vehicles in the OTR will be a 
mixture of TLEVs, LEVs, and ULEVs that is driven by the National LEV 
fleet average NMOG requirements. Outside the OTR, however, many 
MY2000 vehicles are expected to be Tier 1 technology vehicles 
(except for possibly in some of the states bordering OTC States), 
which would be the applicable set of emission standards in that 
model year. A minimum of forty percent of a manufacturer's 
nationwide fleet would be required to meet the SFTP emission 
standards. However, if the National LEV Program continues in effect, 
the program would transition to a nationwide program with MY2001. In 
that model year the fleet average NMOG standard would be 0.075 
grams/mile-equivalent to a fleet of 100 percent LEVs. The effect of 
the nationwide implementation of National LEV at this fleet average 
level would be essentially to make Tier 1 vehicles obsolete. In 
MY2001 a minimum of eighty percent of a manufacturer's fleet must 
meet the new federal SFTP standards. Under such a scenario, the auto 
manufacturers would have to invest in bringing a number of Tier 1 
engine families into compliance with the federal SFTP standards for 
MY2000 only to transition to a fleet of LEVs in the following model 
year. EPA believes that the environmental benefit of this investment 
would be minimal, and the costs to industry would be considerable. 
Consequently, under the scenario where the CARB SFTP does not apply 
to National LEV vehicles and the default federal requirements apply, 
EPA does not believe it is practical or necessary to hold 
manufacturers to the 40 percent phase-in in MY2000 if the affected 
vehicles are essentially phased out in the following model year. 
However, EPA does not view a shifting of the entire phase-in 
schedule forward by a model year (e.g., the 40 percent requirement 
would apply in MY2001) as a necessary or desirable solution to the 
problem. Instead, EPA is proposing to waive the MY2000 requirement, 
but continue the existing phase-in with the existing MY2001 and 
MY2002 requirements. While EPA proposes this as a resolution to an 
issue that arises under a specific scenario, this is not addressed 
in the proposed regulatory text; which assumes successful 
harmonization with the CARB SFTP requirements (making such an 
adjustment to the phase-in of the federal requirements moot, as 
described below). Furthermore, this proposal would only apply if 
National LEV is in effect. If National LEV does not come into 
effect, the current phase-in schedule would continue to apply.
---------------------------------------------------------------------------

B. Elements of the CARB Proposal and Applicability Under National LEV

1. Test Procedure
    CARB adopted high speed, high acceleration, and air conditioner 
supplemental test procedures that are in all respects identical to the 
procedures adopted by EPA. EPA anticipates that the remaining CARB 
rulemaking process is highly unlikely to make any changes to the test 
procedure elements, and that

[[Page 44783]]

their final rule will maintain complete harmonization in this regard. 
The two agencies cooperated closely in the development of the driving 
schedules and testing protocols and placed significant emphasis on 
total alignment throughout the development process. Therefore, EPA 
proposes that the SFTP test procedures for all vehicles covered by 
National LEV would be those currently contained in federal regulations 
(40 CFR 86.158, 86.159, 86.160, 86.161, 86.162, 86. 163, and 86.164).
2. Emission Standards
    California adopted two sets of emission standards, one applicable 
to LEVs, ULEVs, and super ULEVs (SULEVs), and the other applicable to 
Tier 1 vehicles and TLEVs. However, the only SULEVs in CARB's 
regulations are in their Medium-Duty Vehicle category, a class of 
vehicles not covered by the National LEV Program, and consequently not 
covered in the following discussion of emission standards or in today's 
proposed regulations.
    a. LEVs and ULEVs. For each of the affected vehicle weight 
categories, CARB adopted a set of SFTP certification standards that 
applies to LEVs and ULEVs (see Table 1). Due to limited data on 
emissions and appropriate reactivity adjustment factors, CARB exempted 
alternative fuel vehicles from these standards, applying them only to 
gasoline, diesel, and fuel-flexible vehicles while operating on 
gasoline or diesel fuel. These standards would only apply at 4,000 
miles, a significant departure from EPA's traditional method of 
standard setting. These standards have already received the support of 
the auto industry. In conjunction with the low-mileage standards, CARB 
maintains that there be no in-use vehicle compliance requirements 
(recall testing) for SFTP standards, which CARB admits raises the issue 
of the adequacy of controls on in-use emissions. Although CARB believes 
that in-use testing based on the preexisting conventional FTP, combined 
with the efficacy of On-Board Diagnostics II (OBD II) systems, is 
likely to capture emissions increases occurring under off-cycle 
conditions, they recognize the risk that ``in-use vehicles may show 
[off-cycle] emission deterioration not paralleled by deterioration over 
the FTP.'' Because of this, CARB plans to assess in-use off-cycle 
emissions and implement 50,000-mile and 100,000-mile standards if 
necessary, although they have committed to maintaining stability in the 
standards through the phase-in period.

             Table 2.--Proposed US06 and SC03 4,000 Mile Certification Standards for LEVs and ULEVs             
----------------------------------------------------------------------------------------------------------------
                                                                            US06  (g/mi)         SC03  (g/mi)   
          Vehicle type               Loaded vehicle weight  (lbs.)     -----------------------------------------
                                                                          NMHC+NOX     CO      NMHC+NOX     CO  
----------------------------------------------------------------------------------------------------------------
LDV............................  All..................................         0.14     8.0         0.20     2.7
LDT............................  0-3,750..............................         0.14     8.0         0.20     2.7
                                 3,751-5,750..........................         0.25    10.5         0.27     3.5
----------------------------------------------------------------------------------------------------------------

    EPA is proposing today to adopt the standards shown in Table 1 as 
the SFTP standards applicable to LEVs and ULEVs covered under the 
National LEV Program. These standards will be applied to the National 
LEV Program in the same manner as adopted by CARB, in that they apply 
at 4,000 miles and there will be no in-use enforcement to these SFTP 
standards for LEVs and ULEVs.
    Although the low-mileage approach to standard-setting is 
unconventional, EPA believes that the incorporation of the above 
standards into the NLEV program can be justified technically, 
environmentally, and legally. The National LEV provisions are 
structured to ensure that vehicles certified under National LEV will 
continue to meet all of the federal requirements for Tier 1 vehicles 
and hence meet the minimum requirements under the Act, in addition to 
the more stringent National LEV requirements. Section 202(a) of the Act 
requires motor vehicle standards to apply for the full useful life of 
the vehicle, which is 100,000 miles, pursuant to section 202(d). The 
Tier 1 standards, both FTP and SFTP, apply to federal Tier 1 vehicles 
at 50,000 miles and 100,000 miles. Thus, the statute requires that 
National LEV LEVs and ULEVs also meet the Tier 1 SFTP requirements at 
50,000 and 100,000 miles.
    EPA carefully assessed the level of the standards adopted by CARB 
for LEVs and ULEVs, and found that they are of a sufficient stringency 
to provide emission reductions significantly greater than those that 
would be achieved by applying full useful life Tier 1 SFTP standards to 
LEVs and ULEVs. Moreover, for LEVs and ULEVs the full useful life 
National LEV FTP standards should prevent deterioration of the same 
types of systems that control emissions over the SFTP cycles. 
Therefore, the combination of the stringent SFTP 4,000 mile standard 
and the full useful life LEV and ULEV FTP standards provides 
considerable confidence that these vehicles will be certified at a low 
emission level and will not deteriorate during their useful life to a 
point where they may be emitting above the Tier 1 100,000 mile SFTP 
levels.
    While EPA is confident that the combination of requirements 
applicable to LEVs and ULEVs means that they would not emit above the 
Tier 1 100,000 mile SFTP levels, manufacturers are concerned that 
structuring the regulations to apply the Tier 1 100,000 mile SFTP 
standards to LEVs and ULEVs would impose a substantial additional 
burden on the manufacturers for no environmental benefit. If EPA were 
to apply the full useful life Tier 1 100,000 mile SFTP standards to 
LEVs and ULEVs, manufacturers would need to conduct additional testing 
for each manufacturer to ensure compliance with such standards. While 
manufacturers share EPA's confidence that the vehicles will meet the 
full useful life Tier 1 SFTP standards, nonetheless manufacturers have 
stated that they would have to conduct full useful life SFTP tests to 
protect against any possibility of enforcement liability. 
Alternatively, manufacturers might choose not to opt into the National 
LEV program. In either case, manufacturers would incur substantial 
additional burdens.
    In light of these factual determinations, EPA believes that a de 
minimis exemption to the statutory requirements is appropriate here, 
which would allow EPA to set SFTP standards for LEVs and ULEVs at 4,000 
miles only. In a situation such as this where Congress has not drafted 
a statute so rigidly as to preclude a de minimis exemption, the courts 
have held that agencies have implied authority to craft a de minimis 
exemption from a statutory provision ``when the burdens

[[Page 44784]]

of regulation yield a gain of trivial or no value.'' See EDF v. EPA, 82 
F.3d 451 (DC Cir. 1996); Alabama Power v. Costle, 636 F.2d 323 (DC Cir. 
1979). EPA believes that applying the Tier 1 level stringency 50,000 
and 100,000 mile SFTP standards to LEVs and ULEVs would produce no or 
trivial additional environmental benefit because EPA is confident the 
vehicles would meet those emissions levels even in the absence of 
enforceable standards. Such standards would also impose substantial 
additional costs on manufacturers. Consequently, EPA believes a de 
minimis exemption from the statutory requirement to set full useful 
life SFTP standards for LEVs and ULEVs under National LEV is 
appropriate here.
    b. Tier 1 Vehicles and TLEVs. Because the extensive test programs 
culminating in CARB's development of SFTP standards focused on 
developing standards for LEVs and ULEVs, CARB proposed to apply to Tier 
1 vehicles and TLEVs standards identical to those promulgated by EPA 
for Tier 1 vehicles. As under the federal regulations, these standards 
would apply at 50,000 and 100,000 miles, and vehicles certifying to 
these standards would face an in-use compliance requirement. 
Additionally, CARB also proposed to maintain EPA's higher 
NMHC+NOX standard for diesel vehicles, as well as EPA's 
exemption of alternative fuel Tier 1 vehicles and TLEVs from compliance 
with the SFTP standards.
    CARB's treatment of Tier 1 vehicles and TLEVs, however, remains an 
issue of some controversy. Auto manufacturers have approached CARB 
staff and requested consideration of 4,000-mile standards for Tier 1 
vehicles and TLEVs, which would align the certification requirements of 
these vehicles with the requirements that apply to LEVs and ULEVs. The 
methodology suggested by the auto manufacturers for establishing 4,000-
mile standards for Tier 1 vehicles and TLEVs is to increase the 
proposed LEV SFTP emission standards (Table 1) by the ratio of Tier 1 
to LEV emission standards applicable to the conventional FTP. EPA 
supports the current CARB proposal, in that it maintains what EPA 
strongly believes are appropriate standards for Tier 1 vehicles. CARB 
pursued low-mileage standards for LEVs and ULEVs for several reasons, 
but largely because the value of the data they had collected at high 
mileage for standard-setting became questionable. EPA did not face 
similar problems with standard-setting, and was able to establish 
50,000-mile and 100,000-mile standards that are well-justified and 
appropriate for Tier 1 vehicles. It has been EPA's experience with pre-
LEV technologies that full useful life standards with in-use recall 
liability are important for ensuring clean and durable vehicles. In 
addition, part of the justification for providing a de minimis 
exemption for LEVs and ULEVs from the statutory requirement that the 
Tier 1 requirements apply for the full useful life of these vehicles is 
that the LEV and ULEV 4,000 mile standards are significantly more 
stringent than Tier 1 standards, so the vehicles would have to 
deteriorate drastically to exceed the full useful life Tier 1 standards 
in use. This argument would not apply to Tier 1 vehicles with 4,000 
mile standards calculated as the manufacturers have suggested. 
Consequently, today's notice proposes that the NLEV program adopt 
CARB's proposed treatment of Tier 1 vehicles and TLEVs.
3. Implementation Schedule
    As noted earlier, EPA's SFTP requirements applicable to Tier 1 
vehicles would begin to phase in with the 2000 model year, achieving 
100 percent compliance in the 2002 model year. The implementation 
schedule proposed by CARB is somewhat different, in that it starts 
later and extends for four years. CARB initially considered maintaining 
the federal phase-in rate for Tier 1 vehicles and TLEVs, while 
subjecting LEVs and ULEVs to the longer and later schedule, but elected 
instead to propose phasing in all vehicle emission categories at the 
same rate. Although Tier 1 vehicles and TLEVs are certified to 
standards of different stringency than LEVs and ULEVs, CARB proposed to 
allow the number of vehicles from both groups to be combined for the 
purpose of determining compliance with the phase-in schedule. CARB 
proposed this approach because of the concern that, if a separate 
phase-in schedule was maintained for Tier 1 vehicles and TLEVs, 
manufacturers would have to dedicate resources to making Tier 1 
vehicles SFTP-compliant when the rest of the California LEV program is 
causing Tier 1 vehicles to phase out in the fairly short term. In their 
Staff Report, CARB acknowledges that Tier 1 vehicles and TLEVs will be 
phasing out due to the decreasing NMOG fleet average requirements and 
they specifically structure their SFTP program to allow these vehicles 
time to phase out without having to comply with SFTP standards. CARB 
prefers to allow manufacturers to focus efforts on development of LEVs 
and ULEVs that comply with LEV/ULEV SFTP standards, which will be the 
predominant vehicles in California, rather than expend effort on 
vehicles that will be phasing out in California in the time frame of 
their proposed SFTP phase-in. While allowing Tier 1 vehicles an 
adequate opportunity to phase out, CARB also ensures an adequate phase-
in of LEVs and ULEVs complying with the SFTP be ensured. They achieve 
this by requiring that the percentage of LEVs and ULEVs meeting the 
SFTP requirements also meet the required phase-in schedule. This 
implies that meeting the phase-in percentage with the subset of the 
fleet made up of LEVs and ULEVs will also meet the overall phase-in 
requirement if a manufacturer has no Tier 1 vehicles or TLEVs. If a 
manufacturer does have some Tier 1 or TLEV engine families, it would 
have the choice of making some proportion of those vehicles SFTP-
compliant or expending some effort phasing in additional LEV or ULEV 
engine families in order to maintain compliance with the phase-in 
requirements.
    To provide some additional flexibility, CARB proposed a concept of 
equivalent phase-in schedules, which would be allowed in place of the 
required phase-in schedule. This approach allows manufacturers to use 
an alternative phase-in schedule providing that the alternative 
measures up to the required schedule according to a set methodology. 
The equivalent phase-in methodology calculates credits by weighting the 
required phase-in percentages in each model year of the phase-in 
schedule by the number of model years prior to and including the last 
model year of the scheduled phase-in, then summing these credits over 
the phase-in period. These ``credits'' are calculated for the required 
phase-in schedule, and any alternative phase-in that results in an 
equal or larger cumulative total number of credits by the end of the 
last model year of the scheduled phase-in is acceptable. For example, 
in the case of the CARB proposed phase-in, the required ``credits'' 
are: (25% * 4 years)+(50% * 3 years)+(85% * 2 years)+(100% * 1 
year)=520. This allows manufacturers some additional flexibility while 
ensuring no loss in overall emissions over the phase-in schedule. 
Additionally, using this methodology, manufacturers can gain credits 
towards their phase-in through early introductions of vehicles meeting 
the applicable requirement even prior to the beginning of the required 
phase-in (e.g., 10 percent compliance five years before full phase-in 
gains 50 ``points'' towards the total required). Regardless of the 
number of ``points'' earned by a given alternative schedule, phase-in 
of 100% must be achieved in the required final

[[Page 44785]]

year of the phase-in. EPA proposes to adopt this proposal, with the 
additions noted below.
    It is not entirely clear from the CARB Staff Report what 
enforcement mechanism will apply to the proposed allowance for an 
alternative phase-in. However, EPA believes that allowing the 
alternative phase-in approach requires that it be accompanied by an 
appropriate enforcement mechanism. Although it is possible that a 
manufacturer could reach the next-to-last year of the phase-in and 
realize that there is no way to achieve the desired credits, EPA 
believes that manufacturers would not plan this phase-in on a year-by-
year basis, but rather would determine a specific schedule prior to 
implementation that integrates the phase-in with the product planning 
cycle and that would enable manufacturers to achieve the required 
points with an adequate margin of safety. In the event that a 
manufacturer does not attain the required number of phase-in credits, 
EPA proposes that enforcement will be much like the current enforcement 
provisions regarding non-compliance with a phase-in schedule. 
Specifically, failure to attain the required credits will be regarded 
as a failure to satisfy the conditions on which the certificate was 
issued. Vehicles sold in violation of that condition will not be 
covered by the certificate and hence will be subject to the currently 
available penalties. Today's notice proposes appropriate revisions to 
40 CFR 86.096-30 to address this enforcement issue.
    Although EPA is proposing in today's notice largely to adopt these 
phase-in elements of CARB SFTP and apply them on a national basis to 
the National LEV program, doing so raises several issues that EPA must 
consider. Perhaps most important is the implication that the structure 
of the phase-in as proposed by CARB allows Tier 1 vehicles to delay 
meeting SFTP standards beyond when they would have to meet SFTP 
standards under the currently applicable federal program. A couple of 
mitigating factors suggest that harmonizing with CARB in this regard is 
on balance a desirable policy. First, because of the requirement in the 
National LEV Program that Tier 1 vehicles and TLEVs can not be sold in 
the OTR after MY2000 unless those same engine families are certified as 
Tier 1 vehicles and TLEVs in California, it will be the California NMOG 
fleet average that will be driving the number of Tier 1 vehicles and 
TLEVs in the OTR (and in the rest of the country, for all practical 
purposes). It is EPA's expectation that Tier 1 vehicles in particular 
are unlikely to exist beyond the 2002 or 2003 model year, and if they 
exist in those years they will be a very small fraction of the new 
vehicle fleet. The environmental impact of not certifying this very 
small number of vehicles to SFTP standards should be negligible. 
Second, while the structure of the CARB phase-in requirements allows 
manufacturers to put off demonstrating compliance of Tier 1 vehicles 
with SFTP standards, potentially until such vehicles are no longer 
produced, for those years where a manufacturer continues to sell such 
vehicles they must phase some of them into SFTP standards or phase in 
additional LEVs or ULEVs to meet the overall fleet phase-in 
requirements. Given the overall benefits of achieving a fleet of LEVs 
and ULEVs that meet an appropriate SFTP standard, EPA believes that it 
is appropriate to harmonize the NLEV SFTP phase-in with the phase-in 
schedule as proposed by CARB.
4. Implementation Compliance
    EPA must determine manufacturer compliance with the SFTP phase-in 
levels under the National LEV program. EPA is proposing to give the 
manufacturers the option of combining their entire fleet of light-duty 
vehicles and light light-duty trucks and such that this combined fleet 
meets the applicable phase-in requirements. EPA is also proposing to 
have manufacturers demonstrate compliance with the phase-in 
requirements based on vehicles sold outside of California, but is 
taking comment on having compliance determinations based on vehicles 
sold only in California or in all states.
    EPA believes that combining light-duty vehicles and light light-
duty trucks into one fleet and then determining SFTP phase-in 
requirements based on the combined fleet makes sense by giving 
manufacturers some additional flexibility in meeting the requirements 
without having detrimental environmental impacts. Manufacturers will 
have the ability to determine which light-duty vehicles and light 
light-duty trucks to include in their SFTP fleet for a particular model 
year instead of meeting specified phase-in levels for each vehicle 
class. For example, in MY2002, assuming equal numbers of light-duty 
vehicles and light light-duty trucks are produced, a manufacturer could 
certify 45% of its light-duty vehicle fleet and 55% of its light light-
duty truck fleet to SFTP standards as long as 50% of its overall fleet 
met the SFTP standards, provided that all other provisions of the 
phase-in requirements were met. EPA does not believe that this proposal 
would have detrimental environmental effects because EPA does not 
expect actual SFTP phase-ins between vehicle classes to differ 
significantly. This proposal is consistent with CARB's requirements as 
well as the Federal Tier 1 SFTP regulations.
    EPA has concerns about the manufacturers' proposal to show 
compliance with National LEV SFTP requirements based on a 
manufacturer's California fleet mix as opposed to its National LEV 
fleet mix. While EPA anticipates that vehicle product offering between 
California and the rest of the country will be similar, it is not 
certain that sales of such vehicles will be proportionately equivalent 
between the two regions. As California accounts for roughly only 10 
percent of U.S. sales, EPA is concerned about having this small 
fraction dictate phase-in for 90% of the fleet. For example, harsher 
weather patterns elsewhere could cause sales of convertible vehicles in 
California to make up a greater percentage of a manufacturer's 
California fleet than of the manufacturer's federal fleet, while sales 
of four-wheel drive vehicles could be a greater percentage of the 
federal fleet. Sales mix differences between the California and Federal 
fleet can also differ between manufacturers. Thus, EPA is hesitant at 
this time to tie compliance with the National LEV SFTP standards solely 
to the vehicle mix offered in California. EPA does not believe that 
requiring compliance based on Federal, as opposed to California sales, 
is an undue burden on manufacturers. EPA has used a similar approach in 
other programs, such as the Tier 1 standards, on the understanding that 
providing a phase-in to manufacturers provides them with sufficient 
flexibility and burden reduction.
    EPA is taking comment, however, on the manufacturers' proposal to 
base National LEV SFTP compliance on their vehicle sales mixes in 
California. Another option is to have EPA use the California vehicle 
sales mix, but include a maximum percentage by which a manufacturer's 
California SFTP fleet and its National LEV SFTP fleet may vary. A 
variance of five percentage points would still allow manufacturers to 
make their compliance determinations based on their California vehicle 
sales mix, but it would also ensure that the National LEV SFTP fleet 
will be substantially similar to the California fleet. This would mean 
that a manufacturer would certify 25% of its California fleet to SFTP 
standards in MY2002 and would be in compliance with National LEV SFTP 
requirements

[[Page 44786]]

as long as its Federal sales of SFTP-certified vehicles were at least 
20% of the 49-state sales total.
    EPA is also taking comment on a second alternative which would 
combine sales of California, any state with a Section 177 program, and 
Federal vehicles for the purpose of calculating fleet percentages in 
determining phase-in compliance. Compliance would be determined by 
analyzing a manufacturer's entire fleet of vehicles sold in the United 
States for compliance with the applicable SFTP phase-in requirements. A 
manufacturer choosing to overcomply in California would be able to have 
its Federal SFTP fleet levels somewhat below the applicable phase-in 
percentages, but the nationwide averaging requirement would ensure that 
the difference between California and Federal SFTP fleets would be 
minimal. This alternative would also give manufacturers credit for the 
California fleet sales and ensure that they meet the phase-in targets, 
while properly accounting for the bulk of sales which are in the other 
49 states. In addition, this approach is consistent with the original 
Tier 1 final rule in which EPA elected to allow manufacturers to 
include California sales and sales to section 177 states in the phase-
in compliance calculation. See 56 FR 25724 (June 5, 1991).

X. Administrative Requirements

A. Administrative Designation

    Under Executive Order 12866 (58 FR 51735), the Agency must 
determine whether the regulatory action is ``significant'' and 
therefore subject to OMB review and the requirements of the Executive 
Order. The Order defines a ``significant regulatory action'' as one 
that is likely to result in a rule that may:
    (1) 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;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) 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, it has been 
determined that this rule is not a ``significant regulatory action''. 
The Final Framework Rule was determined to be a ``significant 
regulatory action'' because it had an annual effect on the economy of 
more than $100 million. 62 FR 31231. The regulations being proposed in 
this rule will not have an economic impact greater than $100 million. 
EPA has submitted this rule to OMB for review. Changes made in response 
to OMB suggestions or recommendations will be documented in the public 
record. EPA prepared a Regulatory Impact Analysis (RIA) for the Final 
Framework Rule (docket A-95-26, V-A-02). EPA indicated that the RIA 
will need to be modified to reflect the later start date proposed today 
and any new cost information. EPA will issue a final RIA at the time 
the supplemental final rule is issued.

B. Regulatory Flexibility

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities. Small entities include small 
businesses, small not-for-profit enterprises, and small governmental 
jurisdictions. This proposed rule would not have a significant impact 
on a substantial number of small entities. Only manufacturers of motor 
vehicles, a group which does not contain a substantial number of small 
entities, will have to comply with the requirements of this rule. 
Therefore, I certify that this action will not have a significant 
economic impact on a substantial number of small entities.

C. Unfunded Mandates Reform Act

    Under sections 202 and 205 of the Unfunded Mandates Reform Act of 
1995 (UMRA), EPA generally must prepare a written statement to 
accompany any proposed or final rule that includes a federal mandate 
that may result in expenditures by state, local, or tribal governments 
in the aggregate, or by the private sector, of $100 million or more in 
any one year.
    EPA has determined that the written statement requirements of 
sections 202 and 205 of UMRA do not apply to today's rule, and thus do 
not require EPA to conduct further analyses pursuant to those 
requirements. National LEV is not a federal mandate because it does not 
impose any enforceable duties and because it is a voluntary program. 
Because National LEV would not impose a federal mandate on any party, 
section 202 does not apply to this rule. Even if these unfunded 
mandates provisions did apply to this rule, they are met by the 
Regulatory Impact Analysis prepared pursuant to Executive Order 12866 
and contained in the docket.
    Section 203 requires EPA to establish a plan for informing and 
advising any small governments that may be significantly or uniquely 
impacted by the rule. EPA has not prepared such a plan because small 
governments would not be significantly or uniquely impacted by the 
rule.
    Under section 204, an agency must develop an effective process for 
state, local, and tribal officials to provide meaningful input in the 
development of regulatory proposals that contain significant 
intergovernmental mandates. Section 204 does not apply because this 
rule would not impose any mandates. Throughout the National LEV 
process, however, EPA has provided numerous opportunities for states to 
provide meaningful input.

D. Reporting and Recordkeeping Requirements

    Today's rule does not impose any additional reporting or 
recordkeeping burdens on an affected party. The Information Collection 
Request (ICR) for the National LEV program was developed as part of the 
Final Framework Rule and has already been submitted for approval to the 
OMB under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An ICR 
document has been prepared by EPA (ICR No. 1761.02) and a copy may be 
obtained from Sandy Farmer, OPPE Regulatory Information Division, EPA, 
401 M St., SW (Mail Code 2137), Washington, DC 20460 or by calling 
(202) 260-2740. The information requirements are not effective until 
OMB approves them.

XI. Statutory Authority

    The promulgation of these regulations is authorized by sections 
177, 202, 203, 204, 205, 206, 207, 208 and 301 of the Clean Air Act as 
amended by the Clean Air Act Amendments of 1990 (CAAA) (42 U.S.C. 7507, 
7521, 7522, 7523, 7524, 7525, 7541, 7542, and 7601).

List of Subjects in 40 CFR Part 86

    Administrative practice and procedure, Confidential Business 
Information, Labeling, Motor vehicle pollution, Reporting and 
recordkeeping requirements.

    Dated: August 4, 1997.
Carol M. Browner,
Administrator.

    For the reasons set out in the preamble, chapter I, title 40 of the 
Code

[[Page 44787]]

of Federal Regulations is proposed to be amended as follows:

PART 86--CONTROL OF AIR POLLUTION FROM NEW AND IN-USE MOTOR 
VEHICLES AND NEW AND IN-USE MOTOR VEHICLE ENGINES: CERTIFICATION 
AND TEST PROCEDURES

    1. The authority citation for part 86 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671(q).

Subpart A--[Amended]

    2. Section 86.096-30 is amended by adding paragraph (a)(23) to read 
as follows:


Sec. 86.096-30  Certification.

* * * * *
    (a) * * *
    (23) For all light-duty vehicles and light light-duty trucks 
certified to standards under Secs. 86.1710 through 86.1712, the 
provisions of paragraphs (a)(23)(i) through (iv) of this section apply.
    (i) All certificates issued are conditional upon manufacturer 
compliance with all provisions of Secs. 86.1709 through 86.1709 both 
during and after model year production.
    (ii) Failure to meet the required implementation schedule sales 
percentages of the Alternative Phase-In schedule requirements (if 
chosen), in Sec. 86.1708(a)(1)(i) for light-duty vehicles or 
Sec. 86.1708(a)(1)(i) for light light-duty trucks, will be considered 
to be a failure to satisfy the conditions upon which the certificate(s) 
was issued and the individual vehicles sold in violation of the 
implementation schedule shall not be covered by the certificate.
    (iii) The manufacturer shall bear the burden of establishing to the 
satisfaction of the Administrator that the conditions upon which the 
certificate was issued were satisfied.
    (iv) For recall and warranty purposes, vehicles not covered by a 
certificate because of a violation of this condition of the certificate 
will continue to be held to the standards stated in the certificate 
that would have otherwise applied to the vehicles.
* * * * *

Subpart R--[Amended]

    3. Section 86.1702-97 is redesignated as Sec. 86.1702-99 and 
amended in paragraph (b) by revising the definitions for ``Northeast 
Trading Region'' and ``Point of first sale'' and by adding new 
definitions in alphabetical order for ``All States Trading Region,'' 
``Covered State,'' ``Existing ZEV Mandate,'' ``Ozone Transport 
Commission States,'' ``Section 177 Program,'' and ``ZEV Mandate,'' to 
read as follows:


Sec. 86.1702-99  Definitions.

* * * * *
    (b) * * *
* * * * *
    All States Trading Region (ASTR) means the region comprised of all 
states except the OTC States that have not opted into National LEV 
pursuant to the opt-in provisions at Sec. 86.1705 or that have opted 
out of National LEV and whose opt outs have become effective, as 
provided at Sec. 86.1707; and California; and any state outside the OTR 
with a Section 177 Program in effect that does not allow National LEV 
as a compliance alternative.
* * * * *
    Covered State means an OTC State that has opted into National LEV 
and meets the conditions specified under Sec. 86.1705(d).
* * * * *
    Existing ZEV Mandate means any OTC State regulation or other law 
that imposes (or purports to impose) obligations on auto manufacturers 
to produce or sell a certain number or percentage of ZEVs and that was 
adopted prior to the date that the state submitted a National LEV opt-
in notification to EPA.
* * * * *
    Northeast Trading Region (NTR) means the region comprised of the 
OTC States that have opted into National LEV pursuant to the opt-in 
provisions at Sec. 86.1705(e) and have not opted out of National LEV 
pursuant to the opt-out provisions at Sec. 86.1707 or whose opt outs 
have not yet become effective, as provided at Sec. 86.1707.
* * * * *
    Ozone Transport Commission States or OTC States means the States of 
Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, 
New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Virginia, 
and the District of Columbia.
* * * * *
    Point of first sale is the location where the completed LDV or LDT 
is purchased, also known as the final product purchase location. The 
point of first sale may be a retail customer, dealer, distributor, 
fleet operator, broker, secondary manufacturer, or any other entity 
which comprises the point of first sale. In cases where the end user 
purchases the completed vehicle directly from the manufacturer, the end 
user is the point of first sale.
* * * * *
    Section 177 Program means state regulations or other laws, except 
ZEV Mandates, which apply to any of the following categories of motor 
vehicles: Passenger cars, light duty trucks up through 6,000 pounds 
GVWR, and medium duty vehicles from 6,001 to 14,000 pounds GVWR if 
designed to operate on gasoline, as these categories of motor vehicles 
are defined in the California Code of Regulations, Title 13, Division 
3, Chapter 1, Article 1, Section 1900.
* * * * *
    ZEV Mandate means any state regulation or other law that imposes 
(or purports to impose) obligations on auto manufacturers to produce, 
deliver for sale, or sell a certain number or percentage of ZEVs.
    4. Section 86.1705-97 is redesignated as Sec. 86.1705-99 and 
amended by revising the heading of the section, by adding a heading to 
paragraph (a), and by revising paragraphs (a) introductory text, 
(a)(2), (a)(3), and (b) through (g), to read as follows:


Sec. 86.1705-99  General provisions; opt-in.

    (a) Covered manufacturers. Covered manufacturers must comply with 
the provisions in this subpart, and in addition, must comply with the 
requirements of 40 CFR parts 85 and 86. A manufacturer shall be a 
covered manufacturer if:
* * * * *
    (2) Where a manufacturer has included a condition on opt-in 
provided for in paragraph (c)(2) of this section, that condition has 
been satisfied; and
    (3) The manufacturer has not opted out, pursuant to Sec. 86.1707, 
or the manufacturer has opted out but that opt-out has not become 
effective under Sec. 86.1707.
    (b) Covered manufacturers must comply with the standards and 
requirements specified in this subpart beginning in model year 1999. A 
manufacturer not listed in Sec. 86.1706(b) that opts into the program 
after EPA issues a finding pursuant to Sec. 86.1706(a) that the program 
is in effect must comply with the standards and requirements of this 
subpart beginning in the model year that includes January 1 of the 
calendar year after the calendar year in which that manufacturer opts 
in. Light-duty vehicles and light light-duty trucks sold by covered 
manufacturers must comply with the provisions of this subpart.
    (c) Manufacturer opt-ins. (1) To opt into the National LEV program, 
a motor vehicle manufacturer must submit a written opt-in notification 
to the Administrator signed by a person or

[[Page 44788]]

entity within the corporation or business with authority to bind the 
corporation or business to its election and holding the position of 
vice president for environmental affairs or a position of comparable or 
greater authority. The notification must unambiguously and 
unconditionally (apart from the permissible conditions specified in 
paragraph (c)(2) of this section) indicate the manufacturer's agreement 
to opt into the program and be subject to the provisions in this 
subpart, and include the following language:

    XX COMPANY, its subsidiaries, successors and assigns hereby opts 
into the voluntary National LEV program, as defined in 40 CFR part 
86, subpart R, and agrees to be legally bound by all of the 
standards, requirements and other provisions of the National LEV 
program. XX COMPANY commits not to challenge EPA's authority to 
establish or enforce the National LEV program, and commits not to 
seek to certify any vehicle except in compliance with the 
regulations in subpart R.

    (2) The opt-in notification may indicate that the manufacturer opts 
into the program subject to either or both of the following conditions:
    (i) That the Administrator finds under Sec. 86.1706 that the 
National LEV program is in effect, to be indicated with the following 
language:

    This opt-in is subject to the condition that the Administrator 
make a finding pursuant to 40 CFR 86.1706 that the National LEV 
program is in effect.

    (ii) That certain states (limited to the OTC States) opt into 
National LEV pursuant to Sec. 86.1705, to be indicated with the 
following language:

    This opt-in is subject to the condition that each of the states 
of [list state names] opt into National LEV pursuant to 40 CFR 
86.1705.

    (3) A manufacturer shall be considered to have opted in upon the 
Administrator's receipt of the opt-in notification and satisfaction of 
the conditions set forth in paragraph (c)(2) of this section, if 
applicable.
    (d) Covered states. An OTC State shall be a covered state if:
    (1) The state has opted into National LEV pursuant to paragraph (e) 
of this section;
    (2) Where a state has included a condition on opt-in provided for 
in paragraph (e)(3)(viii) of this section, that condition has been 
satisfied; and
    (3) The state has not opted out, pursuant to Sec. 86.1707, or the 
state has opted out but that opt-out has not become effective under 
Sec. 86.1707.
    (e) OTC State opt-ins. To opt into the National LEV program, a 
state must submit the following as an opt-in notification to EPA:
    (1)(i) An Executive Order signed by the governor of the state (or 
the mayor of the District of Columbia) that unambiguously and 
unconditionally (apart from the permissible conditions set forth in 
this section) indicates the state's agreement to opt into the National 
LEV program and includes the following language (language in brackets 
indicates that either formulation is acceptable):

    This instrument [commits STATE to / opts STATE into] the 
National Low Emission Vehicle (National LEV) program, in accordance 
with the EPA National LEV program regulations at 40 CFR part 86, 
subpart R.
    I hereby direct HEAD OF APPROPRIATE STATE AGENCY to forward to 
EPA with my concurrence the [enclosed letter signed / enclosed 
letter and proposed regulations signed and proposed] by the HEAD OF 
APPROPRIATE STATE AGENCY, which [specifies /specify] the details of 
STATE's commitment to the National LEV program.
    I hereby direct APPROPRIATE STATE AGENCY to follow the 
procedures prescribed by the general statutes of STATE to take the 
necessary steps to adopt regulations and submit a state 
implementation plan revision committing STATE to National LEV in 
accordance with the EPA National LEV program regulations on SIP 
revisions at 40 CFR part 86, subpart R, and with section 110 of the 
Clean Air Act and its implementing regulations at 40 CFR parts 51 
and 52.

    (ii) States with Existing ZEV Mandates may add language to the 
Executive Order submitted pursuant to paragraph (e)(1) of this section 
confirming that this opt-in will not affect the state's requirements 
pertaining to ZEVs.
    (2) If a state does not submit an Executive Order pursuant to 
paragraph (e)(1) of this section, a letter signed by the governor of 
the state (or the mayor of the District of Columbia) that unambiguously 
and unconditionally (apart from the permissible conditions set forth in 
this section) indicates the state's agreement to opt into the National 
LEV program and includes the following language (language in brackets 
indicates that either formulation is acceptable):
    (i) ``This submittal is made in accordance with the EPA National 
Low Emission Vehicle (National LEV) regulations at 40 CFR part 86, 
subpart R to [commit STATE to / opt STATE into] the National LEV 
program.''
    (ii)(A) ``I am forwarding to EPA the [enclosed letter which I 
signed / enclosed letter and proposed regulations which were signed and 
proposed] by HEAD OF APPROPRIATE STATE AGENCY at my direction, and 
which [specifies / specify] the details of STATE's commitment to the 
National LEV program.'' or;
    (B) ``I am forwarding to EPA and concur with the [enclosed letter 
signed / enclosed letter and proposed regulations signed and proposed] 
by HEAD OF APPROPRIATE STATE AGENCY, which [specifies / specify] the 
details of STATE's commitment to the National LEV program.''
    (iii) ``I [hereby direct / have directed] APPROPRIATE STATE AGENCY 
to follow the procedures prescribed by the general statutes of STATE to 
take the necessary steps to adopt regulations and submit a state 
implementation plan revision committing STATE to National LEV in 
accordance with the EPA National LEV regulations on SIP revisions at 40 
CFR part 86, subpart R, and with section 110 of the Clean Air Act and 
its implementing regulations at 40 CFR parts 51 and 52.''
    (iv) States with Existing ZEV Mandates may add language to the 
letter submitted pursuant to section (e)(2) of this section confirming 
that this opt-in will not affect the state's requirements pertaining to 
ZEVs.
    (3) A letter signed by the head of the appropriate state agency 
that would unconditionally (except as set forth in this section) 
include the following:
    (i) States without any Section 177 Program or with a Section 177 
Program but not an Existing ZEV Mandate shall include the following 
language:

    National LEV is designed as a compliance alternative for OTC 
State programs adopted pursuant to section 177 of the Clean Air Act 
that apply to passenger cars, light duty trucks up through 6,000 
pounds GVWR, and/or medium duty vehicles from 6,001 to 14,000 pounds 
GVWR if designed to operate on gasoline, as these categories of 
motor vehicles are defined in the California Code of Regulations, 
Title 13, Division 3, Chapter 1, Article 1, Section 1900. For the 
duration of STATE's participation in National LEV, [STATE will allow 
manufacturers to / manufacturers may] comply with National LEV in 
lieu of compliance with any program adopted by STATE pursuant to the 
authority provided in section 177 of the Clean Air Act applicable to 
the vehicle classes specified above, including any ZEV mandates. 
STATE's participation in National LEV extends until model year 2006, 
except as provided in 40 CFR 86.1707.
    For the duration of STATE's participation in National LEV, STATE 
[intends to / will] forbear from adopting and implementing a ZEV 
mandate effective before model year 2006.

    (ii) States with a Section 177 Program and an Existing ZEV Mandate, 
shall include the following language:

    National LEV is designed as a compliance alternative for OTC 
State programs adopted pursuant to section 177 of the Clean Air Act 
that apply to passenger cars, light duty trucks up through 6,000 
pounds GVWR, and medium duty vehicles from 6,001 to 14,000

[[Page 44789]]

pounds GVWR if designed to operate on gasoline, as these categories 
of motor vehicles are defined in the California Code of Regulations, 
Title 13, Division 3, Chapter 1, Article 1, Section 1900. With the 
exception of any requirements pertaining to ZEVs, for the duration 
of STATE's participation in National LEV, [ STATE will allow 
manufacturers to / manufacturers may] comply with National LEV or 
equally stringent mandatory federal standards in lieu of compliance 
with any program adopted by STATE pursuant to the authority provided 
in section 177 of the Clean Air Act applicable to the vehicle 
classes specified above. STATE's participation in National LEV 
extends until model year 2006, except as provided in 40 CFR 86.1707. 
Any existing or future requirement pertaining to ZEVs is not 
affected by STATE's acceptance of National LEV as a compliance 
alternative for other state requirements.

    (iii) All states shall include the following language:

    Based on EPA's determination in the preamble to the final 
supplemental National LEV rule [CITE], STATE believes that National 
LEV will achieve reductions of VOC and NOx emissions that 
are equivalent to or greater than the reductions that would be 
achieved through OTC State adoption of California Low Emission 
Vehicle programs in the Ozone Transport Region.

    (iv) All states shall include the following language:

    STATE intends National LEV to be STATE's new motor vehicle 
emissions control program.

    (v) All states shall include the following language:

    STATE recognizes that motor vehicle manufacturers are committing 
to National LEV with the expectation that, through model year 2006, 
OTC States will allow National LEV as a compliance alternative for 
state Section 177 Programs applying to the vehicle classes specified 
above (except any requirements pertaining to ZEVs in states with 
Existing ZEV Mandates). It is our intent to abide by this 
commitment. However, the provisions of this letter will not have the 
force of law until STATE adopts them as state regulations. Adoption 
of state regulations and the contents of a final SIP revision will 
be determined through a state rulemaking process pursuant to the 
state requirements at [CITE to STATE law] and federal law. Also, 
STATE must comply with any subsequent STATE legislation that might 
affect this commitment.

    (vi) All states shall include the following language:

    If the manufacturers exit the National LEV program pursuant to 
the EPA National LEV regulations at 40 CFR 86.1707, STATE 
acknowledges that the transition from National LEV requirements to 
any STATE Section 177 Program applying to the vehicle classes 
specified above, including any requirements pertaining to ZEVs 
(except any requirements pertaining to ZEVs in states with Existing 
ZEV Mandates), will proceed in accordance with the EPA National LEV 
regulations at 40 CFR 86.1707.

    (vii) All states shall include the following language:

    STATE supports the legitimacy of the National LEV program and 
EPA's authority to promulgate the National LEV regulations.

    (viii) Any state may include the following language:

    This [commitment/opt-in] is conditioned on all motor vehicle 
manufacturers (listed in EPA regulations at 40 CFR 86.1706(b)) 
opting into National LEV and on EPA finding that National LEV is in 
effect pursuant to 40 CFR 86.1706.

    (4) In lieu of statements described in paragraphs (e)(3)(i), 
(e)(3)(ii) and (e)(3)(vi) of this section, states may submit proposed 
regulations containing the provisions required under paragraphs (g)(1), 
(g)(2), (g)(3), and (g)(5) of this section.
    (f) A state shall be considered to have opted in upon the 
Administrator's receipt of the opt-in notification and satisfaction of 
the conditions set forth in paragraph (e)(3)(viii) of this section, if 
applicable.
    (g) Each OTC State that opts into National LEV pursuant to 
paragraph (e) of this section shall submit a SIP revision within one 
year of the date that EPA finds National LEV is in effect (pursuant to 
Sec. 86.1706(a)), except for the District of Columbia, New Hampshire, 
Delaware, and Virginia, for which the deadline is 18 months from the 
date of such finding. The SIP revisions shall include the following:
    (1) Covered States without any Section 177 Program, or with a 
Section 177 Program but not an Existing ZEV Mandate, shall submit 
regulations containing the following language:

    For the duration of STATE's participation in National LEV, 
manufacturers may comply with National LEV or equally stringent 
mandatory federal standards in lieu of compliance with any program, 
including any mandates for sales of zero emission vehicles (ZEVs), 
adopted by STATE pursuant to the authority provided in section 177 
of the Clean Air Act applicable to passenger cars , light duty 
trucks up through 6,000 pounds GVWR, and/or medium duty vehicles 
from 6,001 to 14,000 pounds GVWR if designed to operate on gasoline, 
as these categories of motor vehicles are defined in the California 
Code of Regulations, Title 13, Division 3, Chapter 1, Article 1, 
Section 1900.
    STATE's participation in National LEV extends until model year 
2006, except as provided in 40 CFR 86.1707.

    (2) Covered States with a Section 177 Program and an Existing ZEV 
Mandate shall submit regulations containing the following language:

    With the exception of any STATE requirements pertaining to zero 
emission vehicles (ZEVs), for the duration of STATE's participation 
in National LEV, manufacturers may comply with National LEV or 
equally stringent mandatory federal standards in lieu of compliance 
with any program adopted by STATE pursuant to the authority provided 
in section 177 of the Clean Air Act applicable to passenger cars, 
light duty trucks up through 6,000 pounds GVWR, and/or medium duty 
vehicles from 6,001 to 14,000 pounds GVWR if designed to operate on 
gasoline, as these categories of motor vehicles are defined in the 
California Code of Regulations, Title 13, Division 3, Chapter 1, 
Article 1, Section 1900.
    STATE's participation in National LEV extends until model year 
2006, except as provided in 40 CFR 86.1707.
    Any existing or future STATE requirement pertaining to ZEVs is 
not affected by STATE's acceptance of National LEV as a compliance 
alternative for other state requirements.

    (3) All covered states shall submit regulations containing the 
following language:

    If a covered manufacturer, as defined at 40 CFR 86.1702, opts 
out of the National LEV program pursuant to the EPA National LEV 
regulations at 40 CFR 86.1707, the transition from National LEV 
requirements to any STATE section 177 program applicable to 
passenger cars, light duty trucks up through 6,000 pounds GVWR, and/
or medium duty vehicles from 6,001 to 14,000 pounds GVWR if designed 
to operate on gasoline, as these categories of motor vehicles are 
defined in the California Code of Regulations, Title 13, Division 3, 
Chapter 1, Article 1, Section 1900, will proceed in accordance with 
the EPA National LEV regulations at 40 CFR 86.1707.

    (4) All covered states shall accompany the regulatory language with 
the following language:

    STATE commits to support National LEV as an acceptable 
alternative to state CAL LEV programs.
    STATE recognizes that its commitment to National LEV is 
necessary to ensure that National LEV remain in effect.
    STATE is submitting this SIP revision in accordance with the 
applicable Clean Air Act requirements at section 110 and EPA 
regulations at 40 CFR Part 86 and 40 CFR Parts 51 and 52.

    (5) States without Existing ZEV Mandates shall accompany the 
regulatory language with the following language:

    For the duration of STATE's participation in National LEV, STATE 
[intends to / will] forbear from adopting and implementing a ZEV 
mandate effective prior to model year 2006.

    5. Section 86.1706-97 is revised to read as follows:


Sec. 86.1706-97  National LEV program in effect.

    (a) No later than [date of first business day 75 days after date of 
signature of

[[Page 44790]]

final rule] EPA shall issue a finding as to whether National LEV is in 
effect. EPA shall base this finding on opt-in notifications from OTC 
States submitted pursuant to Sec. 86.1705(e) and received by EPA [date 
45 days after date of signature of final rule], and on opt-in 
notifications from manufacturers submitted pursuant to Sec. 86.1705(c) 
and received by EPA [date 60 days after date of signature of final 
rule].
    (b) EPA shall find that the NLEV program is in effect and shall 
subsequently publish this determination if the following conditions 
have been met:
    (1) All manufacturers listed in paragraph (c) of this section have 
lawfully opted in pursuant to Sec. 86.1705(c) and any conditions placed 
on the opt-ins allowed under Sec. 86.1705(c)(2) have been met (apart 
from a condition that EPA find the National LEV program in effect);
    (2) All OTC States have lawfully opted in pursuant to 
Sec. 86.1705(e) and any conditions placed on the opt-ins allowed under 
Sec. 86.1705(e)(3)(viii) have been met (apart from a condition that EPA 
find the National LEV program in effect); and
    (3) No valid opt out has become effective pursuant to Sec. 86.1707.
    (c) List of manufacturers of light-duty vehicles and light-duty 
trucks:

American Suzuki Motor Corporation
BMW of North America, Inc.
Chrysler Corporation
Fiat Auto U.S.A., Inc.
Ford Motor Company
General Motors Corporation
Hyundai Motor America
Isuzu Motors America, Inc.
Jaguar Motors Ltd.
Kia Motors America, Inc.
Land Rover North America, Inc.
Mazda (North America) Inc.
Mercedes-Benz of North America
Mitsubishi Motor Sales of America, Inc.
Nissan North America, Inc.
Porsche Cars of North America, Inc.
Rolls-Royce Motor Cars Inc.
Saab Cars USA, Inc.
Subaru of America, Inc.
Toyota Motor Sales, U.S.A., Inc.
Volkswagen of America, Inc.
Volvo North America Corporation

    6. Section 86.1707-99 is added to subpart R to read as follows:


Sec. 86.1707-99  General provisions; opt-outs.

    A covered manufacturer or covered state may opt out of the National 
LEV program only according to the provisions of this section. Vehicles 
certified under the National LEV program must continue to meet the 
standards to which they were certified, regardless of whether the 
manufacturer of those vehicles remains a covered manufacturer. A 
manufacturer that has opted out remains responsible for any debits 
outstanding on the effective date of opt-out, pursuant to 
Sec. 86.1710(d)(3).
    (a) Procedures for opt-outs--manufacturers. To opt out of the 
National LEV program, a covered manufacturer must notify the 
Administrator as provided in Sec. 86.1705(c)(1), except that the 
notification shall specify the condition and final action allowing opt-
out, indicate the manufacturer's intent to opt out of the program and 
no longer be subject to the provisions in this subpart, and specify an 
effective date for the opt-out. The effective date shall be specified 
in terms of the first model year for which the opt-out shall be 
effective, but shall be no earlier than the applicable date indicated 
in paragraphs (d) through (i) of this section. For an opt-out pursuant 
to paragraph (d) of this section, the manufacturer shall specify the 
revision triggering the opt-out and shall also provide evidence that 
the triggering revision does not harmonize the standard or requirement 
with a comparable California standard or requirement, if applicable, or 
that the triggering revision has increased the stringency of the 
revised standard or requirement, if applicable. The notification shall 
include the following language:

    XX COMPANY, its subsidiaries, successors and assigns hereby opt 
out of the voluntary National LEV program, as defined in 40 CFR part 
86, subpart R.

    (b) Procedures for opt-outs--OTC states. To opt out of the National 
LEV program, a covered state must notify the Administrator through a 
written statement from the head of the appropriate state agency. The 
notification shall specify the final action allowing opt-out, indicate 
the state's intent to opt out of the program and no longer be subject 
to the provisions in this subpart, and specify an effective date for 
the opt-out. The effective date shall be specified in terms of the 
first model year for which the opt-out shall be effective, but shall be 
no earlier than the applicable date indicated in paragraphs (d) through 
(k) of this section. The notification shall include the following 
language:

    STATE hereby opts out of the voluntary National LEV program, as 
defined in 40 CFR part 86, subpart R.

    (c) Procedures for opt-outs--EPA notification. Upon receipt of an 
opt-out notification under this section, EPA shall promptly notify the 
covered states and covered manufacturers of the opt-out. Publication in 
the Federal Register of notice of receipt of the opt-out notification 
is sufficient but not necessary to meet EPA's obligation to notify 
covered states and covered manufacturers.
    (d) Conditions allowing manufacturer opt-outs--change to Stable 
Standards. A covered manufacturer may opt out if EPA promulgates a 
final rule or other final agency action making a revision not specified 
in paragraph (d)(9)(iii) of this section to a standard or requirement 
listed in paragraph (d)(9)(i) of this section and the covered 
manufacturer objects to the revision.
    (1) A covered manufacturer may opt out within 180 days of the EPA 
action allowing opt-out under this paragraph (d). A valid opt-out based 
on a revision to a Core Stable Standard may be effective no earlier 
than the model year named for the calendar year following the calendar 
year in which the manufacturer sends its opt-out notification to EPA. A 
valid opt-out based on a revision to a Non-Core Stable Standard may 
become effective no earlier than the first model year to which that 
revision applies.
    (i) Only a covered manufacturer that objects to a revision may opt 
out if EPA adopts that revision, except that if such a manufacturer 
opts out, other manufacturers that did not object to the revision may 
also opt out pursuant to Sec. 86.1707(i). An objection shall be 
sufficient for this purpose only if it was filed during the public 
comment period on the proposed revision and the objection states that 
the proposed revision is sufficiently significant to allow opt-out 
under Sec. 86.1707(d).
    (2) Within sixty days of receipt of an opt-out notification, EPA 
shall determine whether the opt-out is valid by determining whether the 
alleged condition allowing opt-out has occurred and whether the opt-out 
complies with the requirements under paragraphs (a) and (d) of this 
section. An EPA determination regarding the validity of an opt-out is 
not a rule, but is a nationally applicable final agency action subject 
to judicial review pursuant to section 307(b) of the Clean Air Act (42 
U.S.C. 7607(b)).
    (3) A manufacturer that has submitted an opt-out notification to 
EPA remains a covered manufacturer until EPA or a reviewing court 
determines that the opt-out is valid and the opt-out has come into 
effect under paragraph (d)(1) of this section.
    (4) In the event that a manufacturer petitions for judicial review 
of an EPA determination that an opt-out is invalid, the manufacturer 
remains a covered manufacturer until final judicial resolution of the 
petition. Pending resolution of the petition, and after the

[[Page 44791]]

date that the opt-out would have come into effect under paragraph 
(d)(1) of this section if EPA had determined the opt-out was valid, the 
manufacturer may certify vehicles to any standards in this part 
applicable to vehicles certified in that model year and sell such 
vehicles without regard to the limitations contained in Sec. 86.1711-
99. However, if the opt-out is finally determined to be invalid, the 
manufacturer will be liable for any failure to comply with 
Secs. 86.1710 through 86.1712, except for failure to comply with the 
limitations contained in Sec. 86.1711(b).
    (5) Upon the effective date of a manufacturer's opt-out based on 
this condition, that manufacturer shall be subject to all provisions 
that would apply to a manufacturer that had not opted into the National 
LEV program, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act (42 U.S.C. 7521 et 
seq.) and any state standards in effect pursuant to section 177 of the 
Clean Air Act (42 U.S.C. 7507). For any state Section 177 Program that 
has been in place at least two years as of the effective date of a 
manufacturer's opt-out, a manufacturer waives its right under section 
177 of the Clean Air Act to two years of lead time to the extent that 
the effective date of its opt-out provides for less than two years of 
lead time and to the extent such a waiver is necessary. With respect to 
ZEV Mandates, the manufacturer will not be deemed to have waived its 
two-year lead time under section 177 of the Clean Air Act, and such 
lead time shall run from the date of EPA's receipt of the 
manufacturer's opt-out notice.
    (6) If a covered manufacturer opts out based on this condition, any 
covered state that is not a violating state under paragraph (e), (f) or 
(g) of this section may opt out within 90 calendar days of the date of 
either an EPA finding that the opt-out is valid, or a judicial ruling 
that a disputed opt-out is valid. The state's opt-out notification 
shall specify an effective date for the state's opt-out that may not 
provide for less than the two-years lead-time required under section 
177 of the Clean Air Act (running from the date of the EPA's receipt of 
the state's opt-out notification).
    (7) In states that do not opt out, obligations under National LEV 
shall be unaffected for covered manufacturers.
    (8) In a state that opts out pursuant to paragraph (d)(6) of this 
section, obligations under National LEV shall be unaffected for covered 
manufacturers until the effective date of the state's opt out. Upon the 
effective date of the state's opt out, in that state covered 
manufacturers shall comply with any state standards in effect pursuant 
to section 177 of the Clean Air Act or, if such state standards are not 
in effect, with all provisions that would apply to a manufacturer that 
had not opted into the National LEV program, including all applicable 
standards and requirements promulgated under title II of the Clean Air 
Act (42 U.S.C. 7521 et seq.).
    (9)(i) The following are the emissions standards and requirements 
that, if revised, may provide covered manufacturers the opportunity to 
opt out pursuant to paragraph (d)(1) of this section:
    (A) The tailpipe emissions standards for NMOG, NOX, CO, 
HCHO, and PM specified in Sec. 86.1708(b) and (c) and Sec. 86.1709(b) 
and (c);
    (B) Fleet average NMOG standards and averaging, banking and trading 
provisions specified in Sec. 86.1710;
    (C) Provisions regarding limitations on sale of Tier 1 vehicles and 
TLEVs contained in Sec. 86.1711;
    (D) The compliance test procedure (Federal Test Procedure) as 
specified in subparts A and B of this part, as used for determining 
compliance with the exhaust emission standards specified in 
Sec. 86.1708(b) and (c) and Sec. 86.1709(b) and (c);
    (E) The compliance test fuel, as specified in Sec. 86.1771;
    (F) The definition of low volume manufacturer specified in 
Sec. 86.1702;
    (G) The on-board diagnostic system requirements specified in 
Sec. 86.1717;
    (H) The light-duty vehicle refueling emissions standards and 
provisions specified in Sec. 86.099-8(d), and the light-duty truck 
refueling emissions standards and provisions specified in Sec. 86.001-
9(d);
    (I) The cold temperature carbon monoxide standards and provisions 
for light-duty vehicles specified in Sec. 86.099-8(k), and for light 
light-duty trucks specified in Sec. 86.099-9(k);
    (J) The evaporative emissions standards and provisions for light-
duty vehicles specified in Sec. 86.099-8(b), and the evaporative 
emissions standards and provisions for light light-duty trucks 
specified in Sec. 86.099-9(b);
    (K) The reactivity adjustment factors and procedures specified in 
Sec. 86.1777(d);
    (L) The Supplemental Federal Test Procedure, standards and phase-in 
schedules specified in Sec. 86.000-8(e), Sec. 86.000-9(e), 
Sec. 86.127(f) and (g), Sec. 86.129(e) and (f), Sec. 86.130(e), 
Sec. 86.131(f), Sec. 86.132(n) and (o), Sec. 86.158, Sec. 86.159, 
Sec. 86.160, Sec. 86.161, Sec. 86.162, Sec. 86.163, Sec. 86.164, and 
Appendix I to this part, paragraphs (g) and (h).
    (ii) The standards and requirements listed in paragraphs 
(d)(9)(i)(A) through (d)(9)(i)(F) of this section are the ``Core Stable 
Standards''; the standards and requirements listed in paragraphs 
(d)(9)(i)(G) through (d)(9)(i)(L) of this section are the ``Non-Core 
Stable Standards.''
    (iii) The following types of revisions to the Stable Standards 
listed in paragraph (d)(9)(i) of this section do not provide covered 
manufacturers the right to opt out of the National LEV program:
    (A) Revisions to which covered manufacturers do not object;
    (B) Revisions to a Non-Core Stable Standard that do not increase 
the overall stringency of the standard or requirement;
    (C) Revisions to a Non-Core Stable Standard that harmonize the 
standard or requirement with the comparable California standard or 
requirement for the same model year (even if the harmonization 
increases the stringency of the standard or requirement), provided that 
EPA can only raise to 1.0 any of the reactivity adjustment factors 
specified in 86.1777 applicable to gasoline meeting the specifications 
of 86.1771(a)(1), even if the California factor is greater than 1.0;
    (D) Revisions to a Non-Core Stable Standard that are effective 
after model year 2006;
    (E) Revisions to cold temperature carbon monoxide standards and 
provisions for light-duty vehicles (as specified in Sec. 86.099-8(k)) 
and for light light-duty trucks (as specified in Sec. 86.099-9(k)) that 
are effective after model year 2000.
    (10) Promulgation of mandatory standards and requirements that end 
the effectiveness of the National LEV program pursuant to 
Sec. 86.1701(c) does not provide an opportunity to opt out of the 
National LEV program.
    (e) Conditions allowing manufacturer opt-outs--state Section 177 
Program that does not allow National LEV as a compliance alternative. A 
covered manufacturer may opt out of National LEV if a covered state 
takes final action such that it has in its regulations a state Section 
177 Program and/or a ZEV Mandate (except in a state with an Existing 
ZEV Mandate at the time of its opt-in), that, prior to the 2006 model 
year, does not allow National LEV as a compliance alternative. A 
manufacturer could opt out based on this condition even if the state 
regulations are contrary to an approved SIP revision committing the 
state to National LEV pursuant to Sec. 86.1705(g). For purposes of this 
paragraph (e), such a state shall be called the ``violating state''.

[[Page 44792]]

    (1) A covered manufacturer may opt out any time after the violating 
state takes such final action, provided that the violating state has 
not withdrawn or otherwise nullified the relevant final action. An opt-
out under this opt-out condition may be effective no earlier than the 
model year named for the calendar year following the calendar year in 
which the manufacturer sends its opt-out notification to EPA.
    (2) As of the model year named for the calendar year following the 
violating state's final action, the violating state shall no longer be 
included in the applicable trading region for purposes of calculating 
covered manufacturers' compliance with the fleet average NMOG standards 
under Sec. 86.1710. Beginning in that model year and until the 
violating state's regulations become effective pursuant to sections 
110(l) and 177 of the Clean Air Act, the National LEV program allows 
covered manufacturers to certify and produce for sale vehicles meeting 
the exhaust emission standards of Sec. 86.096-8(a)(1)(i) and subsequent 
model year provisions or Sec. 86.097-9(a)(1)(i) and subsequent model 
year provisions in the violating state. The two-year lead time required 
by section 177 of the Clean Air Act for the state Section 177 Program 
or ZEV Mandate shall run from the date of the final state action. 
Notwithstanding an earlier effective date of a manufacturer's opt out 
based on this condition, the manufacturer's opt out is not effective in 
the violating state until the two-year lead time for the violating 
state's program has passed (which shall run from the date of the final 
violating state action).
    (3) Upon the effective date of a manufacturer's opt-out based on 
this condition in any covered state that is not a violating state under 
this paragraph (e), that manufacturer shall be subject to all 
provisions that would apply to a manufacturer that had not opted into 
National LEV, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act and any state standards 
in effect pursuant to section 177 of the Clean Air Act (42 U.S.C. 
7507). For any state Section 177 Program that has been in place in a 
non-violating state at least two years as of the effective date of a 
manufacturer's opt-out, a manufacturer waives its right under section 
177 of the Clean Air Act to two years of lead time to the extent that 
the effective date of its opt-out provides for less than two years of 
lead time and to the extent such a waiver is necessary. With respect to 
ZEV Mandates, the manufacturer will not be deemed to have waived its 
two-year lead time under section 177 of the Clean Air Act, which shall 
run from the date of EPA's receipt of the manufacturer's opt-out 
notice.
    (4) If a covered manufacturer opts out based on this opt-out 
condition, any covered state that is not a violating state under 
paragraph (e), (f) or (g) of this section may opt out within 90 
calendar days of EPA's receipt of the manufacturer's opt-out 
notification. The state's opt-out notification shall specify an 
effective date for the state's opt-out that may not provide for less 
than the two-years lead-time required under section 177 of the Clean 
Air Act (running from the date of EPA's receipt of the state's opt-out 
notification).
    (5) In non-violating states that have not opted out, obligations 
under National LEV shall be unaffected for covered manufacturers.
    (6) In a non-violating state that opts out pursuant to paragraph 
(e)(4) of this section, obligations under National LEV shall be 
unaffected for covered manufacturers until the effective date of the 
non-violating state's opt-out. Upon the effective date of the state's 
opt-out, in that state covered manufacturers shall comply with any 
state standards in effect pursuant to section 177 of the Clean Air Act 
or, if such state standards are not in effect, with all provisions that 
would apply to a manufacturer that had not opted into the National LEV 
program, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act (42 U.S.C. 7521 et 
seq.).
    (f) Conditions allowing manufacturer opt-outs--failure to submit 
SIP revision. A covered manufacturer may opt out of National LEV if a 
covered state fails to submit a National LEV SIP revision on the date 
specified in Sec. 86.1705(g). For purposes of this paragraph (f), such 
a state shall be called the ``violating state''.
    (1) A covered manufacturer may opt out any time after the violating 
state misses the deadline for its National LEV SIP revision, provided 
that the violating state has not submitted a National LEV SIP revision 
prior to the manufacturer's submission of its opt-out notification. If 
a manufacturer opts out within 180 days from the deadline for the state 
to submit its National LEV SIP revision, the opt-out must be 
conditioned on the state not submitting a National LEV SIP revision 
within 180 days from the deadline for such SIP revision. If the state 
submits such a SIP revision within the 180-day period, any manufacturer 
opt-outs based on this opt-out condition would be invalidated and would 
not come into effect. An opt-out under this opt-out condition may be 
effective no earlier than the model year named for the calendar year 
following the calendar year in which the manufacturer sends its opt-out 
notification to EPA, or the date 180 days from the deadline for the 
state to submit its National LEV SIP revision, whichever is later.
    (2) For a manufacturer that opts out based on this opt-out 
condition, as of model year 2000 (or model year 2001 if the violating 
state is the District of Columbia, New Hampshire, Delaware, or 
Virginia) or the model year named for the calendar year following EPA's 
receipt of the opt-out notification, whichever is later, the violating 
state shall no longer be included in the applicable trading region for 
purposes of calculating that manufacturer's compliance with the fleet 
average NMOG standards under Sec. 86.1710. Beginning in that model year 
and until the manufacturer's opt-out becomes effective, the National 
LEV program allows a manufacturer that has opted out based on this 
condition to certify and produce for sale vehicles meeting the exhaust 
emission standards of Sec. 86.096-8(a)(1)(i) and subsequent model year 
provisions or Sec. 86.097-9(a)(1)(i) and subsequent model year 
provisions in the violating state. National LEV obligations in the 
violating state remain unchanged for those manufacturers that do not 
opt out based on this condition.
    (3) Upon the effective date of a manufacturer's opt-out based on 
this opt-out condition, in any covered state that is not a violating 
state under this paragraph (f), that manufacturer shall be subject to 
all provisions that would apply to a manufacturer that had not opted 
into National LEV, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act and any state standards 
in effect pursuant to section 177 of the Clean Air Act (42 U.S.C. 
7507). For any state Section 177 Program that has been in place in a 
non-violating state at least two years as of the effective date of a 
manufacturer's opt-out, a manufacturer waives its right under section 
177 of the Clean Air Act to two years of lead time to the extent that 
the effective date of its opt-out provides for less than two years of 
lead time and to the extent such a waiver is necessary. With respect to 
ZEV Mandates, the manufacturer will not be deemed to have waived its 
two-year lead time under section 177 of the Clean Air Act, which shall 
run from the date of EPA's receipt of the manufacturer's opt-out 
notice.
    (4) If a covered manufacturer opts out based on this opt-out 
condition, any covered state that is not a violating state under 
paragraph (e), (f) or (g) of this section may opt out within 90 
calendar

[[Page 44793]]

days of EPA's receipt of the manufacturer's opt-out notification. The 
state's opt-out notification shall specify an effective date for the 
state's opt-out that may not provide for less than the two-years lead-
time required under section 177 of the Clean Air Act (running from the 
date of EPA's receipt of the state's opt-out notification).
    (5) In non-violating states that have not opted out, obligations 
under National LEV shall be unaffected for covered manufacturers.
    (6) In a non-violating state that opts out pursuant to paragraph 
(f)(4) of this section, obligations under National LEV shall be 
unaffected for covered manufacturers until the effective date of the 
non-violating state's opt-out. Upon the effective date of the state's 
opt-out, in that state covered manufacturers shall comply with any 
state standards in effect pursuant to section 177 of the Clean Air Act 
or, if such state standards are not in effect, with all provisions that 
would apply to a manufacturer that had not opted into the National LEV 
program, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act (42 U.S.C. 7521 et 
seq.).
    (g) Conditions allowing manufacturer opt-outs--lack of an 
approvable SIP revision. A covered manufacturer may opt out of National 
LEV if EPA disapproves a National LEV SIP revision submitted by a 
covered state pursuant to Sec. 86.1705(g) and the State fails to 
correct the SIP revision. For purposes of this paragraph (g), such a 
state shall be called the ``violating state.''
    (1) A covered manufacturer may opt out any time after EPA has 
disapproved a state's National LEV SIP revision provided that it is 
more than a year after EPA's disapproval and the state has not yet 
submitted a revised National LEV SIP. If the state has submitted a 
revised National LEV SIP revision, covered manufacturers may not opt 
out unless and until EPA disapproves the state's revised National LEV 
SIP revision. An opt-out under this condition may be effective no 
earlier than the model year named for the calendar year following the 
calendar year in which the EPA receives the manufacturer's opt-out 
notification.
    (2) For a manufacturer that opts out based on this opt-out 
condition, as of the model year named for the calendar year following 
EPA's receipt of the opt-out notification, the violating state shall no 
longer be included in the applicable trading region for purposes of 
calculating that manufacturer's compliance with the fleet average NMOG 
standards under Sec. 86.1710. Beginning in that model year and until 
the manufacturer's opt-out becomes effective, the National LEV program 
allows a manufacturer that has opted out based on this condition to 
certify and produce for sale vehicles meeting the exhaust emission 
standards of Sec. 86.096-8(a)(1)(i) and subsequent model year 
provisions or Sec. 86.097-9(a)(1)(i) and subsequent model year 
provisions in the violating state. National LEV obligations in the 
violating state remain unchanged for those manufacturers that do not 
opt out based on this condition.
    (3) Upon the effective date of a manufacturer's opt-out based on 
this opt-out condition, in any covered state that is not a violating 
state under this paragraph (g), that manufacturer shall be subject to 
all provisions that would apply to a manufacturer that had not opted 
into National LEV, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act and any state standards 
in effect pursuant to section 177 of the Clean Air Act (42 U.S.C. 
7507). For any state Section 177 Program that has been in place at 
least two years as of the effective date of a manufacturer's opt-out, 
in a non-violating state a manufacturer waives its right under section 
177 of the Clean Air Act to two years of lead time to the extent that 
the effective date of its opt-out provides for less than two years of 
lead time and to the extent such a waiver is necessary. With respect to 
ZEV Mandates, the manufacturer will not be deemed to have waived its 
two-year lead time under section 177 of the Clean Air Act, which shall 
run from the date of EPA's receipt of the manufacturer's opt-out 
notice.
    (4) If a covered manufacturer opts out based on this opt-out 
condition, any covered state that is not a violating state under 
paragraph (e), (f) or (g) of this section may opt out within 90 
calendar days of EPA's receipt of the manufacturer's opt-out 
notification. The state's opt-out notification shall specify an 
effective date for the state's opt-out that may not provide for less 
than the two-years lead-time required under section 177 of the Clean 
Air Act (running from the date of EPA's receipt of the state's opt-out 
notification).
    (5) In non-violating states that have not opted out, obligations 
under National LEV shall be unaffected for covered manufacturers.
    (6) In a non-violating state that opts out pursuant to paragraph 
(g)(4) of this section, obligations under National LEV shall be 
unaffected for covered manufacturers until the effective date of the 
non-violating state's opt-out. Upon the effective date of the state's 
opt-out, in that state covered manufacturers shall comply with any 
state standards in effect pursuant to section 177 of the Clean Air Act 
or, if such state standards are not in effect, with all provisions that 
would apply to a manufacturer that had not opted into the National LEV 
program, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act (42 U.S.C. 7521 et 
seq.).
    (h) Conditions allowing manufacturer opt-outs--EPA failure to 
consider in-use fuel issues. A covered manufacturer may opt out of 
National LEV if EPA does not meet its obligations related to fuel 
sulfur effects, as those obligations are set forth in paragraph (h)(7) 
of this section.
    (1) A manufacturer may request in writing that EPA consider taking 
a specific action with regard to a fuel sulfur effect described in 
paragraph (h)(7) of this section. The request must identify the alleged 
fuel sulfur related problem, demonstrate that the problem exists and is 
caused by in-use fuel sulfur levels, and ask EPA to consider taking a 
specific action. Within 60 days of EPA's receipt of the manufacturer's 
request, EPA must respond to the manufacturer's request in writing, 
stating the Agency's decision and explaining the basis for the 
decision.
    (2) If EPA fails to respond to a manufacturer's request within the 
time provided, the covered manufacturer that submitted the request may 
opt out within 180 days of the deadline for the EPA response (if such a 
manufacturer opts out, other manufacturers that did not submit requests 
may also opt out pursuant to Sec. 86.1707(i). Once EPA responds to the 
request, even if after the expiration of the 60-day EPA deadline, a 
manufacturer that had not yet submitted an opt-out notification may no 
longer opt out based on this opt-out condition. An opt-out based on 
this condition may be effective no earlier than the model year named 
for the calendar year following the calendar year in which EPA received 
the manufacturer's opt-out notification.
    (3) Upon the effective date of a manufacturer's opt-out based on 
this opt-out condition, that manufacturer shall be subject to all 
provisions that would apply to a manufacturer that had not opted into 
the National LEV program, including all applicable standards and 
requirements promulgated under title II of the Clean Air Act (42 U.S.C. 
7521 et seq.) and any state standards in effect pursuant to section 177 
of the Clean Air Act (42 U.S.C. 7507). For any state Section 177 
Program that has been in place at least two years as of the effective 
date of a manufacturer's opt-out, a manufacturer

[[Page 44794]]

waives its right under section 177 of the Clean Air Act to two years of 
lead time to the extent that the effective date of its opt-out provides 
for less than two years of lead time and to the extent such a waiver is 
necessary. With respect to ZEV Mandates, the manufacturer will not be 
deemed to have waived its two-year lead time under section 177 of the 
Clean Air Act, and such lead time shall run from the date of EPA's 
receipt of the manufacturer's opt-out notice.
    (4) If a covered manufacturer opts out based on this condition, any 
covered state that is not a violating state under paragraph (e), (f) or 
(g) of this section may opt out within 90 calendar days of EPA's 
receipt of the manufacturer's opt-out notification. The state's opt-out 
notification shall specify an effective date for the state's opt-out 
that may not provide for less than the two-years lead-time required 
under section 177 of the Clean Air Act (running from the date of EPA's 
receipt of the state's opt-out notification).
    (5) In states that do not opt out, obligations under National LEV 
shall not be affected for covered manufacturers.
    (6) In a state that opts out pursuant to paragraph (h)(4) of this 
section, obligations under National LEV shall be unaffected for covered 
manufacturers until the effective date of the state's opt out. Upon the 
effective date of the state's opt out, in that state covered 
manufacturers shall comply with any state standards in effect pursuant 
to section 177 of the Clean Air Act or, if such state standards are not 
in effect, with all provisions that would apply to a manufacturer that 
had not opted into the National LEV program, including all applicable 
standards and requirements promulgated under title II of the Clean Air 
Act (42 U.S.C. 7521 et seq.).
    (7) Following are EPA's obligations related to the potential 
effects of sulfur levels in in-use fuels. If EPA does not meet the 
obligations pursuant to paragraph (h)(1) of this section, it will 
provide covered manufacturers the opportunity to opt out pursuant to 
paragraph (h)(1) of this section:
    (i) During the certification process and upon a manufacturer's 
request, EPA will consider allowing the use of an on-board diagnostic 
system (as required by Sec. 86.1717), that functions properly on low 
sulfur gasoline, but indicates sulfur-induced passes when exposed to 
high sulfur gasoline.
    (ii) Upon a manufacturer's request, if vehicles exhibit sulfur-
induced MIL illuminations due to high sulfur gasoline, EPA will 
consider allowing modifications to such vehicles on a case-by-case 
basis so as to eliminate the sulfur-induced MIL.
    (iii) Upon a manufacturer's request, prior to in-use testing, that 
presents information to EPA regarding pre-conditioning procedures 
designed solely to remove the effects of high sulfur from currently 
available gasoline, EPA will consider allowing such procedures on a 
case-by-case basis.
    (i) Conditions allowing manufacturer opt-outs--OTC state or 
manufacturer opts out. A covered manufacturer may opt out of National 
LEV if a covered state or another covered manufacturer opts out of the 
National LEV program pursuant to this section.
    (1) If a covered manufacturer's opt-out under Sec. 86.1707(i) is 
based on a covered state or covered manufacturer's opt-out under 
paragraph (e), (g), (h), (i), (j) or (k) of this section, the 
manufacturer may opt out within 90 calendar days of EPA's receipt of 
the underlying state or manufacturer's opt-out notification. If a 
manufacturer's opt-out under Sec. 86.1707(i) is based on a 
manufacturer's opt-out under paragraph (d) of this section, the 
manufacturer may opt out within 90 calendar days of the date of either 
an EPA finding or a judicial ruling that the opt-out under paragraph 
(d) of this section is valid. If a manufacturer's opt-out under 
Sec. 86.1707(i) is based on a manufacturer's opt-out under paragraph 
(f) of this section, the manufacturer may opt out within 90 days of the 
expiration of the condition required by paragraph (f) of this section, 
or within 90 calendar days of EPA's receipt of the underlying state or 
manufacturer's opt-out notification, whichever is later. An opt-out 
under Sec. 86.1707(i) may be effective no earlier than the model year 
named for the calendar year following the calendar year in which the 
manufacturer sends its opt-out notification to EPA.
    (2) Upon the effective date of a manufacturer's opt-out based on 
this opt-out condition, in any covered state that manufacturer shall be 
subject to all provisions that would apply to a manufacturer that had 
not opted into National LEV, including all applicable standards and 
requirements promulgated under title II of the Clean Air Act and any 
state standards in effect pursuant to section 177 of the Clean Air Act 
(42 U.S.C. 7507). For any state Section 177 Program that has been in 
place at least two years as of the effective date of a manufacturer's 
opt-out, a manufacturer waives its right under section 177 of the Clean 
Air Act to two years of lead time to the extent that the effective date 
of its opt-out provides for less than two years of lead time and to the 
extent such a waiver is necessary. With respect to ZEV Mandates, the 
manufacturer will not be deemed to have waived its two-year lead time 
under section 177 of the Clean Air Act, which shall run from the date 
of EPA's receipt of the manufacturer's opt-out notice.
    (3) If a covered manufacturer opts out based on this condition, any 
covered state that is not a violating state under paragraph (e), (f) or 
(g) of this section may opt out within 90 calendar days of EPA's 
receipt of the manufacturer's opt-out notification. The state's opt-out 
notification shall specify an effective date for the state's opt-out 
that may not provide for less than the two-years lead-time required 
under section 177 of the Clean Air Act (running from the date of EPA's 
receipt of the state's opt-out notification).
    (4) In non-violating states that have not opted out, obligations 
under National LEV shall be unaffected for covered manufacturers.
    (5) In a non-violating state that opts out pursuant to paragraph 
(i)(3) of this section, obligations under National LEV shall be 
unaffected for covered manufacturers until the effective date of the 
non-violating state's opt-out. Upon the effective date of the state's 
opt-out, in that state covered manufacturers shall comply with any 
state standards in effect pursuant to section 177 of the Clean Air Act 
or, if such state standards are not in effect, with all provisions that 
would apply to a manufacturer that had not opted into the National LEV 
program, including all applicable standards and requirements 
promulgated under title II of the Clean Air Act (42 U.S.C. 7521 et 
seq.).
    (j) Conditions allowing OTC state opt-outs--change to Stable 
Standards. Any covered state may opt out of National LEV if EPA 
promulgates a final rule or other final agency action revising a 
standard or requirement listed in paragraph (d)(9)(i) of this section, 
and, had the revised standard or requirement been included at the time, 
it would have changed EPA's [date of signature of final rule] 
determination (``initial determination'') that National LEV would 
produce emissions reductions at least equivalent to the OTC State 
Section 177 Programs that would apply in the absence of National LEV.
    (1) If EPA promulgates a final rule or other final agency action 
revising a standard or requirement listed in paragraph (d)(9)(i) of 
this section, a covered state may request in writing that EPA 
reevaluate, using the revised standard or requirement, its initial 
determination that National LEV would produce emissions reductions at 
least equivalent to the OTC State Section 177

[[Page 44795]]

Programs that would be operative in the absence of National LEV. Within 
180 days of receipt of the state's request, EPA must take final agency 
action to determine whether the revision would have changed EPA's 
initial determination. These EPA determinations are not rules, but are 
nationally applicable final agency actions subject to judicial review 
pursuant to section 307(b) of the Clean Air Act (42 U.S.C. 7607(b)). In 
reevaluating its determination regarding the relative emission benefits 
of National LEV, EPA shall use the same Mobile emission factor model 
and the same inputs and assumptions as used in the initial 
determination, with the following exceptions:
    (i) In modeling the emission reductions from National LEV, EPA must 
use the revised standard or requirement in place of the standard or 
requirement as it existed when EPA made its initial determination; and
    (ii) In modeling the emissions reductions that would be achieved 
through the OTC State Section 177 Programs that would apply in the 
absence of National LEV, EPA shall take into account all Section 177 
Programs adopted by OTC States (including programs that allow National 
LEV as a compliance alternative) that had been adopted subsequent to 
EPA's initial determination. In accounting for the emissions effect of 
OTC State Section 177 Programs, EPA shall continue to assume that all 
OTC State Section 177 Programs have the same substantive requirements 
used in EPA's initial determination and shall not model any effects of 
state regulation of medium-duty vehicles (as defined in the California 
Code of Regulations, Title 13, Division 3, Chapter 1, Article 1, 
Section 1900).
    (2) A covered state may opt out of National LEV within 90 days of a 
final EPA determination pursuant to paragraph (j)(1) of this section 
that a revision to a standard or requirement listed in paragraph 
(d)(9)(i) of this section, if it had been included at the time, would 
have changed EPA's initial determination that National LEV would 
produce emissions reductions at least equivalent to the OTC State 
Section 177 Programs that would be operative in the absence of National 
LEV. The state's opt-out notification shall specify an effective date 
for the state's opt-out that may not provide for less than the two-
years lead-time required under section 177 of the Clean Air Act 
(running from the date of EPA's receipt of the state's opt-out 
notification).
    (3) If a covered state opts out based on this condition, a covered 
manufacturer may opt out of National LEV pursuant to Sec. 86.1707(i).
    (4) In a state that opts out pursuant to paragraph (j)(1) of this 
section, obligations under National LEV shall be unaffected for covered 
manufacturers until the effective date of that state's opt-out. Upon 
the effective date of the state's opt-out, in that state covered 
manufacturers shall comply with any state standards in effect pursuant 
to section 177 of the Clean Air Act or, if such state standards are not 
in effect, with all provisions that would apply to a manufacturer that 
had not opted into the National LEV program, including all applicable 
standards and requirements promulgated under title II of the Clean Air 
Act (42 U.S.C. 7521 et seq.).
    7. Section 86.1708-97 is redesignated as Sec. 86.1708-99 and 
amended by revising the section heading, by redesignating Tables R97-1 
through R97-7 as Tables R99-1 through R99-7, by revising the references 
``R97-1'', ``R97-2'', ``R97-3'', ``R97-4'', ``R97-5'', ``R97-6'', and 
``R97-7'' to read ``R99-1'', ``R99-2'', ``R99-3'', ``R99-4'', ``R99-
5'', ``R99-6'', and ``R99-7'', respectively, wherever they appear in 
the section, and by adding paragraph (e) to read as follows:


Sec. 86.1708-99  Exhaust emission standards for 1999 and later light-
duty vehicles.

* * * * *
    (e) SFTP Standards. Exhaust emission standards from 2001 and later 
model year light-duty vehicles shall meet the additional SFTP standards 
in this paragraph (e) according to the implementation schedules in this 
paragraph (e). The standards set forth in this paragraph (e) refer to 
exhaust emissions emitted over the Supplemental Federal Test Procedure 
(SFTP) as set forth in subpart B of this part and collected and 
calculated in accordance with those procedures.
    (1) Tier 1 vehicles and TLEVs. The SFTP exhaust emission levels 
from new 2001 and subsequent model year light-duty vehicles certified 
to the exhaust emission standards in Sec. 86.099-8(a)(1)(i) and 
subsequent model year provisions and light-duty vehicles certified as 
TLEVs shall not exceed the standards in Table R99-7.1, according to the 
implementation schedule in paragraph (e)(1)(i) of this section.

               Table R99-7.1--SFTP Exhaust Emission Standards (g/mi) for Tier 1 Vehicles and TLEVs              
----------------------------------------------------------------------------------------------------------------
                                                                                             CO                 
                                                               NMHC + NOX --------------------------------------
             Useful life                     Fuel type         composite                              Composite 
                                                                             A/C test    US06 test      option  
----------------------------------------------------------------------------------------------------------------
Intermediate........................  Gasoline..............         0.65          3.0          9.0          3.4
                                      Diesel................         1.48           NA          9.0          3.4
Full................................  Gasoline..............         0.91          3.7         11.1          4.2
                                      Diesel................         2.07           NA         11.1          4.2
----------------------------------------------------------------------------------------------------------------

    (i) Phase-in requirements. For the purposes of this paragraph 
(e)(1) only, each manufacturer's light-duty vehicle and light light-
duty truck fleet shall be defined as the total projected number of 
light-duty vehicles certified to the exhaust emission standards in 
Sec. 86.099-8(a)(1)(i) and subsequent model year provisions and light 
light-duty trucks certified to the exhaust emission standards in 
Sec. 86.099-9(a)(1)(i) and subsequent model year provisions and 
certified as TLEVs sold in the United States. As an option, a 
manufacturer may elect to have its total light-duty vehicle and light 
light-duty truck fleet defined, for the purposes of this paragraph 
(e)(1) only, as the total projected number of the manufacturer's light-
duty vehicles and light light-duty trucks, other than zero emission 
vehicles, certified and sold in the United States.
    (A) Manufacturers of light-duty vehicles and light light-duty 
trucks, except low volume manufacturers, shall certify a minimum 
percentage of their light-duty vehicle and light light-duty truck fleet 
according to the following phase-in schedule:

------------------------------------------------------------------------
                         Model year                           Percentage
------------------------------------------------------------------------
2001.......................................................           25
2002.......................................................           50
2003.......................................................           85

[[Page 44796]]

                                                                        
2004 and subsequent........................................          100
------------------------------------------------------------------------

    (B) Low volume manufacturers of light-duty vehicles and light 
light-duty trucks shall certify 100 percent of their light-duty vehicle 
and light light-duty truck fleet in the 2004 and subsequent model 
years.
    (ii) [Reserved]
    (2) LEVs and ULEVs. The SFTP standards in this paragraph (e)(2) 
represent the maximum SFTP exhaust emissions at 4,000 miles +/- 250 
miles or at the mileage determined by the manufacturer for emission 
data vehicles in accordance with Sec. 86.1726. The SFTP exhaust 
emission levels from new 2001 and subsequent model year light-duty 
vehicle LEVs and ULEVs shall not exceed the standards in the following 
table, according to the implementation schedule in paragraph (e)(2)(i) 
of this section:

   Table R99-7.2.--SFTP Exhaust Emission Standards (g/mi) for LEVs and  
                                  ULEVs                                 
------------------------------------------------------------------------
    US06 test                             A/C test                      
------------------------------------------------------------------------
    NMHC + NOx             CO            NMHC + NOx            CO       
------------------------------------------------------------------------
0.14.............             8.0              0.20               2.7   
------------------------------------------------------------------------

    (i) Phase-in requirements. For the purposes of this paragraph 
(e)(2) only, each manufacturer's light-duty vehicle and light light-
duty truck fleet shall be defined as the total projected number of 
light-duty vehicles and light light-duty trucks certified as LEVs and 
ULEVs sold in the United States.
    (A) Manufacturers of light-duty vehicles and light light-duty 
trucks, except low volume manufacturers, shall certify a minimum 
percentage of their light-duty vehicle and light light-duty truck fleet 
according to the following phase-in schedule:

------------------------------------------------------------------------
                         Model year                           Percentage
------------------------------------------------------------------------
2001.......................................................           25
2002.......................................................           50
2003.......................................................           85
2004 and subsequent........................................          100
------------------------------------------------------------------------

    (B) Manufacturers may use an ``Alternative or Equivalent Phase-in 
Schedule'' to comply with the phase-in requirements. An ``Alternative 
Phase-in'' is one that achieves at least equivalent emission reductions 
by the end of the last model year of the scheduled phase-in. Model-year 
emission reductions shall be calculated by multiplying the percent of 
vehicles (based on the manufacturer's projected California sales volume 
of the applicable vehicle fleet) meeting the new requirements per model 
year by the number of model years implemented prior to and including 
the last model year of the scheduled phase-in. The ``cumulative total'' 
is the summation of the model-year emission reductions (e.g., a four 
model-year 25/50/85/100 percent phase-in schedule would be calculated 
as: (25%*4 years) + (50%*3 years) + (85%*2 years) + (100%*1 year) = 
520). Any alternative phase-in that results in an equal or larger 
cumulative total than the required cumulative total by the end of the 
last model year of the scheduled phase-in shall be considered 
acceptable by the Administrator under the following conditions: All 
vehicles subject to the phase-in shall comply with the respective 
requirements in the last model year of the required phase-in schedule; 
and if a manufacturer uses the optional phase-in percentage 
determination in paragraph (e)(1)(i) of this section, the cumulative 
total of model-year emission reductions as determined only for light-
duty vehicles and light light-duty trucks certified to this paragraph 
(e)(2) must also be equal to or larger than the required cumulative 
total by end of the 2004 model year. Manufacturers shall be allowed to 
include vehicles introduced before the first model year of the 
scheduled phase-in (e.g., in the previous example, 10 percent 
introduced one year before the scheduled phase-in begins would be 
calculated as: (10%*5 years) and added to the cumulative total).
    (C) Low volume manufacturers of light-duty vehicles and light 
light-duty trucks shall certify 100 percent of their light-duty vehicle 
and light light-duty truck fleet in the 2004 and subsequent model 
years.
    (ii) [Reserved]
    (3) A/C-on specific calibrations. A/C-on specific calibrations 
(e.g. air to fuel ratio, spark timing, and exhaust gas recirculation), 
may be used which differ from A/C-off calibrations for given engine 
operating conditions (e.g., engine speed, manifold pressure, coolant 
temperature, air charge temperature, and any other parameters). Such 
calibrations must not unnecessarily reduce the NMHC+NOX 
emission control effectiveness during A/C-on operation when the vehicle 
is operated under conditions which may reasonably be expected to be 
encountered during normal operation and use. If reductions in control 
system NMHC+NOX effectiveness do occur as a result of such 
calibrations, the manufacturer shall, in the Application for 
Certification, specify the circumstances under which such reductions do 
occur, and the reason for the use of such calibrations resulting in 
such reductions in control system effectiveness. A/C-on specific 
``open-loop'' or ``commanded enrichment'' air-fuel enrichment 
strategies (as defined below), which differ from A/C-off ``open-loop'' 
or ``commanded enrichment'' air-fuel enrichment strategies, may not be 
used, with the following exceptions: Cold-start and warm-up conditions, 
or, subject to Administrator approval, conditions requiring the 
protection of the vehicle, occupants, engine, or emission control 
hardware. With these exceptions, such strategies which are invoked 
based on manifold pressure, engine speed, throttle position, or other 
engine parameters shall use the same engine parameter criteria for the 
invoking of this air-fuel enrichment strategy and the same degree of 
enrichment regardless of whether the A/C is on or off. ``Open-loop'' or 
``commanded'' air-fuel enrichment strategy is defined as enrichment of 
the air to fuel ratio beyond stoichiometry for the purposes of 
increasing engine power output and the protection of engine or 
emissions control hardware. However, ``closed-loop biasing,'' defined 
as small changes in the air-fuel ratio for the purposes of optimizing 
vehicle emissions or driveability, shall not be considered an ``open-
loop'' or ``commanded'' air-fuel enrichment strategy. In addition, 
``transient'' air-fuel enrichment strategy (or ``tip-in'' and ``tip-
out'' enrichment), defined as the temporary use of an air-fuel ratio 
rich of stoichiometry at the beginning or duration of rapid throttle 
motion, shall not be considered an ``open-loop'' or ``commanded'' air-
fuel enrichment strategy.
    (4) ``Lean-on-cruise'' calibration strategies. ``Lean-on-cruise'' 
air-fuel calibration strategies shall not be employed during vehicle 
operation in

[[Page 44797]]

normal driving conditions, unless such strategies are also 
substantially employed during the SFTP. A ``lean-on-cruise'' air-fuel 
calibration strategy is defined as the use of an air-fuel ratio 
significantly greater than stoichiometry, during non-deceleration 
conditions at speeds above 40 mph, for the purposes of improving fuel 
economy or other purposes. A/C-on ``lean-on-cruise'' strategies which 
differ from A/C-off ``lean-on-cruise'' strategies for a given engine 
operating condition (e.g., engine speed, manifold pressure, coolant 
temperature, air charge temperature, and any other parameters) shall 
not be used.
    (5) Applicability to alternative fuel vehicles. These SFTP 
standards do not apply to vehicles certified on fuels other than 
gasoline and diesel fuel, but the standards do apply to the gasoline 
and diesel fuel operation of flexible-fuel vehicles and dual-fuel 
vehicles.
    (6) Single-roll electric dynamometer requirement. For all vehicles 
certified to the SFTP standards, a single-roll electric dynamometer or 
a dynamometer which produces equivalent results, as set forth in 
Sec. 86.108, must be used for all types of emission testing to 
determine compliance with the associated emission standards.
    8. Section 86.1709-97 is redesignated as Sec. 86.1709-99 and 
amended by revising the section heading, by redesignating Tables R97-8 
through R97-14 as Tables R99-8 through R99-14, by revising the 
references ``R97-8'', ``R97-9'', ``R97-10'', ``R97-11'', ``R97-12'', 
``R97-13'', and ``R97-14'' to read ``R99-8'', ``R99-9'', ``R99-10'', 
``R99-11'', ``R99-12'', ``R99-13'', and ``R99-14'', respectively, 
wherever they appear in the section, and by adding paragraph (e) to 
read as follows:


Sec. 86.1709-99  Exhaust emission standards for 1999 and later light 
light-duty trucks.

* * * * *
    (e) SFTP Standards. Exhaust emission standards from 2001 and later 
model year light light-duty trucks shall meet the additional SFTP 
standards in this paragraph (e) according to the implementation 
schedules in this paragraph (e). The standards set forth in this 
paragraph (e) refer to exhaust emissions emitted over the Supplemental 
Federal Test Procedure (SFTP) as set forth in subpart B of this part 
and collected and calculated in accordance with those procedures.
    (1) Tier 1 vehicles and TLEVs. The SFTP exhaust emission levels 
from new 2001 and subsequent model year light light-duty trucks 
certified to the exhaust emission standards in Sec. 86.099-9(a)(1)(i) 
and subsequent model year provisions and light light-duty trucks 
certified as TLEVs shall not exceed the standards in Table R99-14.1, 
according to the implementation schedule in paragraph (e)(1)(i) of this 
section.

             Table R99-14.1.--SFTP Exhaust Emission Standards (g/mil) for Tier 1 Vehicles and TLEVs             
----------------------------------------------------------------------------------------------------------------
                                                                                             CO                 
                                                                NMHC+NOX  --------------------------------------
         Useful life               Fuel type      LVW (lbs)    composite                              Composite 
                                                                             A/C test    US06 test      option  
----------------------------------------------------------------------------------------------------------------
Intermediate.................  Gasoline........       0-3750         0.65          3.0          9.0          3.4
                                                   3751-5750         1.02          3.9         11.6          4.4
                               Diesel..........       0-3750         1.48           NA          9.0          3.4
                                                   3751-5750           NA           NA           NA           NA
Full.........................  Gasoline........       0-3750         0.91          3.7         11.1          4.2
                                                   3751-5750         1.37          4.9         14.6          5.5
                               Diesel..........       0-3750         2.07           NA         11.1          4.2
                                                   3751-5750           NA           NA           NA           NA
----------------------------------------------------------------------------------------------------------------

    (i) Phase-in requirements. For the purposes of paragraph (e)(1) of 
this section only, each manufacturer's light-duty vehicle and light 
light-duty truck fleet shall be defined as the total projected number 
of light-duty vehicles certified to the exhaust emission standards in 
Sec. 86.099-8(a)(1)(i) and subsequent model year provisions and light 
light-duty trucks certified to the exhaust emission standards in 
Sec. 86.099-9(a)(1)(i) and subsequent model year provisions and 
certified as TLEVs sold in the United States. As an option, a 
manufacturer may elect to have its total light-duty vehicle and light 
light-duty truck fleet defined, for the purposes of this paragraph 
(e)(1) only, as the total projected number of the manufacturer's light-
duty vehicles and light light-duty trucks, other than zero emission 
vehicles, certified and sold in the United States.
    (A) Manufacturers of light-duty vehicles and light light-duty 
trucks, except low volume manufacturers, shall certify a minimum 
percentage of their light-duty vehicle and light light-duty truck fleet 
according to the following phase-in schedule:

                                                                        
------------------------------------------------------------------------
                         Model year                           Percentage
------------------------------------------------------------------------
2001.......................................................           25
2002.......................................................           50
2003.......................................................           85
2004 and subsequent........................................          100
------------------------------------------------------------------------

    (B) Low volume manufacturers of light-duty vehicles and light 
light-duty trucks shall certify 100 percent of their light-duty vehicle 
and light light-duty truck fleet in the 2004 and subsequent model 
years.
    (ii) [Reserved]
    (2) LEVs and ULEVs. The SFTP standards in this paragraph (e)(2) 
represent the maximum SFTP exhaust emissions at 4,000 miles +/- 250 
miles or at the mileage determined by the manufacturer for emission 
data vehicles in accordance with Sec. 86.1726. The SFTP exhaust 
emission levels from new 2001 and subsequent model year light light-
duty truck LEVs and ULEVs shall not exceed the standards in the 
following table, according to the implementation schedule in paragraph 
(e)(2)(i) of this section:

[[Page 44798]]



  Table R99-14.2.--SFTP Exhaust Emission Standards (g/mi) for LEVs and  
                                  ULEVs                                 
------------------------------------------------------------------------
              US06 test                            A/C test             
------------------------------------------------------------------------
    NMHC + NOX             CO            NMHC + NOx            CO       
------------------------------------------------------------------------
0.14.............             8.0              0.20               2.7   
------------------------------------------------------------------------

    (i) Phase-in requirements. For the purposes of this paragraph 
(e)(2) only, each manufacturer's light-duty vehicle and light light-
duty truck fleet shall be defined as the total projected number of 
light-duty vehicles and light light-duty trucks certified as LEVs and 
ULEVs sold in the United States.
    (A) Manufacturers of light-duty vehicles and light light-duty 
trucks, except low volume manufacturers, shall certify a minimum 
percentage of their light-duty vehicle and light light-duty truck fleet 
according to the following phase-in schedule:

------------------------------------------------------------------------
                         Model year                           Percentage
------------------------------------------------------------------------
2001.......................................................           25
2002.......................................................           50
2003.......................................................           85
2004 and subsequent........................................          100
------------------------------------------------------------------------

    (B) Manufacturers may use an ``Alternative or Equivalent Phase-in 
Schedule'' to comply with the phase-in requirements. An ``Alternative 
Phase-in'' is one that achieves at least equivalent emission reductions 
by the end of the last model year of the scheduled phase-in. Model-year 
emission reductions shall be calculated by multiplying the percent of 
vehicles (based on the manufacturer's projected California sales volume 
of the applicable vehicle fleet) meeting the new requirements per model 
year by the number of model years implemented prior to and including 
the last model year of the scheduled phase-in. The ``cumulative total'' 
is the summation of the model-year emission reductions (e.g., a four 
model-year 25/50/85/100 percent phase-in schedule would be calculated 
as: (25%*4 years) + (50%*3 years) + (85%*2 years) + (100%*1 year) = 
520). Any alternative phase-in that results in an equal or larger 
cumulative total than the required cumulative total by the end of the 
last model year of the scheduled phase-in shall be considered 
acceptable by the Administrator under the following conditions: All 
vehicles subject to the phase-in shall comply with the respective 
requirements in the last model year of the required phase-in schedule; 
and if a manufacturer uses the optional phase-in percentage 
determination in paragraph (e)(1)(i) of this section, the cumulative 
total of model-year emission reductions as determined only for light-
duty vehicles and light light-duty trucks certified to this paragraph 
(e)(2) must also be equal to or larger than the required cumulative 
total by the end of the 2004 model year. Manufacturers shall be allowed 
to include vehicles introduced before the first model year of the 
scheduled phase-in (e.g., in the previous example, 10 percent 
introduced one year before the scheduled phase-in begins would be 
calculated as: (10%*5 years) and added to the cumulative total).
    (C) Low volume manufacturers of light-duty vehicles and light 
light-duty trucks shall certify 100 percent of their light-duty vehicle 
and light light-duty truck fleet in the 2004 and subsequent model 
years.
    (ii) [Reserved]
    (3) A/C-on specific calibrations. A/C-on specific calibrations 
(e.g. air to fuel ratio, spark timing, and exhaust gas recirculation), 
may be used which differ from A/C-off calibrations for given engine 
operating conditions (e.g., engine speed, manifold pressure, coolant 
temperature, air charge temperature, and any other parameters). Such 
calibrations must not unnecessarily reduce the NMHC+NOX 
emission control effectiveness during A/C-on operation when the vehicle 
is operated under conditions which may reasonably be expected to be 
encountered during normal operation and use. If reductions in control 
system NMHC+NOX effectiveness do occur as a result of such 
calibrations, the manufacturer shall, in the Application for 
Certification, specify the circumstances under which such reductions do 
occur, and the reason for the use of such calibrations resulting in 
such reductions in control system effectiveness. A/C-on specific 
``open-loop'' or ``commanded enrichment'' air-fuel enrichment 
strategies (as defined below), which differ from A/C-off ``open-loop'' 
or ``commanded enrichment'' air-fuel enrichment strategies, may not be 
used, with the following exceptions: Cold-start and warm-up conditions, 
or, subject to Administrator approval, conditions requiring the 
protection of the vehicle, occupants, engine, or emission control 
hardware. With these exceptions, such strategies which are invoked 
based on manifold pressure, engine speed, throttle position, or other 
engine parameters shall use the same engine parameter criteria for the 
invoking of this air-fuel enrichment strategy and the same degree of 
enrichment regardless of whether the A/C is on or off. ``Open-loop'' or 
``commanded'' air-fuel enrichment strategy is defined as enrichment of 
the air to fuel ratio beyond stoichiometry for the purposes of 
increasing engine power output and the protection of engine or 
emissions control hardware. However, ``closed-loop biasing,'' defined 
as small changes in the air-fuel ratio for the purposes of optimizing 
vehicle emissions or driveability, shall not be considered an ``open-
loop'' or ``commanded'' air-fuel enrichment strategy. In addition, 
``transient'' air-fuel enrichment strategy (or ``tip-in'' and ``tip-
out'' enrichment), defined as the temporary use of an air-fuel ratio 
rich of stoichiometry at the beginning or duration of rapid throttle 
motion, shall not be considered an ``open-loop'' or ``commanded'' air-
fuel enrichment strategy.
    (4) ``Lean-on-cruise'' calibration strategies. ``Lean-on-cruise'' 
air-fuel calibration strategies shall not be employed during vehicle 
operation in normal driving conditions, unless such strategies are also 
substantially employed during the SFTP. A ``lean-on-cruise'' air-fuel 
calibration strategy is defined as the use of an air-fuel ratio 
significantly greater than stoichiometry, during non-deceleration 
conditions at speeds above 40 mph, for the purposes of improving fuel 
economy or other purposes. A/C-on ``lean-on-cruise'' strategies which 
differ from A/C-off ``lean-on-cruise'' strategies for a given engine 
operating condition (e.g., engine speed, manifold pressure, coolant 
temperature, air charge temperature, and any other parameters) shall 
not be used.
    (5) Applicability to alternative fuel vehicles. These SFTP 
standards do not apply to vehicles certified on fuels other than 
gasoline and diesel fuel, but the standards do apply to the gasoline 
and diesel fuel operation of flexible-fuel vehicles and dual-fuel 
vehicles.
    (6) Single-roll electric dynamometer requirement. For all vehicles 
certified to the SFTP standards, a single-roll electric dynamometer or 
a dynamometer which produces equivalent results, as set forth in 
Sec. 86.108, must be used for all types

[[Page 44799]]

of emission testing to determine compliance with the associated 
emission standards.
[FR Doc. 97-21138 Filed 8-21-96; 8:45 am]
BILLING CODE 6560-50-U`