54384 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

paragraphs (r)(5), (z)(5), (aa)(5), (dd)(5), 

and (gg)(5) to read as follows: 

APPENDIX A TO PART 70— 

APPROVAL STATUS OF STATE AND 

LOCAL OPERATING PERMITS 

PROGRAMS 

* * * * * 

California 

* * * * * 

(r) * * * 

(5) Revisions were submitted on November 

7, 2011. Approval became effective on 

October 5, 2012. 

* * * * * 

(z) * * * 

(5) Revisions were submitted on August 19, 

2011. Approval became effective on October 

5, 2012. 

* * * * * 

(aa) * * * 

(5) Revisions were submitted on April 21, 

2011. Approval became effective on October 

5, 2012. 

* * * * * 

(dd) * * * 

(5) Revisions were submitted on November 

5, 2010. Approval became effective on 

October 5, 2012. 

* * * * * 

(gg) * * * 

(5) Revisions were submitted on August 19, 

2011. Approval became effective on October 

5, 2012. 

* * * * * 

[FR Doc. 2012–21683 Filed 9–4–12; 8:45 am] 

BILLING CODE 6560–50–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 86 

[AMS–FRL–9716–5] 

Nonconformance Penalties for OnHighway Heavy-Duty Diesel Engines 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: EPA is taking final action to 

establish nonconformance penalties 

(NCPs) for manufacturers of heavy 

heavy-duty diesel engines (HHDDE) in 

model years 2012 and later for 

emissions of oxides of nitrogen (NOX) 

because we have found the criteria for 

NCPs and the Clean Air Act have been 

met. The NOX standards to which these 

NCPs apply were established by a rule 

published on January 18, 2001. In 

general, NCPs allow a manufacturer of 

heavy-duty engines (HDEs) whose 

engines do not conform to applicable 

emission standards, but do not exceed a 

designated upper limit, to be issued a 

certificate of conformity upon payment 

of a monetary penalty to the United 

States Government. The upper limit 

associated with these NCPs is 0.50 

grams of NOX per brake horsepowerhour (g/bhp-hr). 

This Final Rule specifies certain 

parameters that are entered into the 

preexisting penalty formulas along with 

the emissions of the engine and the 

incorporation of other factors to 

determine the amount a manufacturer 

must pay. Key parameters that 

determine the NCP a manufacturer must 

pay are EPA’s estimated cost of 

compliance for a near worst-case engine 

and the degree to which the engine 

exceeds the emission standard (as 

measured from production engines). 

EPA proposed NCPs for medium 

heavy duty diesel engines. However, 

EPA is not taking final action with 

regard to NCPs for these engines at this 

time because EPA has not completed its 

review of the data and comments 

regarding these engines. 

DATES: This rule is effective September 

5, 2012. 

ADDRESSES: EPA has established a 

docket for this action under Docket ID 

EPA–HQ–OAR–2011–1000. All 

documents in the docket are listed in 

the http://www.regulations.gov index. 

Although listed in the index, some 

information is not publicly available, 

e.g., confidential business information 

or other information whose disclosure is 

restricted by statute. Certain other 

material, such as copyrighted material, 

will be publicly available only in hard 

copy in the docket. Publicly available 

docket materials are available either 

electronically in http:// 

www.regulations.gov or in hard copy at 

the following location: EPA: EPA Docket 

Center, EPA/DC, EPA West, Room 3334, 

1301 Constitution Ave. NW., 

Washington, DC. The Public Reading 

Room is open from 8:30 a.m. to 4:30 

p.m., Monday through Friday, excluding 

legal holidays. The telephone number 

for the Air Docket is (202) 566–1742. 

FOR FURTHER INFORMATION CONTACT: 

Chuck Moulis, U.S. EPA, National 

Vehicle and Fuel Emissions Laboratory, 

2000 Traverwood, Ann Arbor, MI 

48105; Telephone (734) 214–4826; 

Email moulis.charles@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Regulated Entities 

This action could affect you if you 

produce or import new heavy-duty 

diesel engines which are intended for 

use in highway vehicles such as trucks 

and buses or heavy-duty highway 

vehicles. The table below gives some 

examples of entities that may be affected 

by these regulations. However, because 

these are only examples, you should 

carefully examine the regulations in 40 

CFR part 86. If you have questions, call 

the person listed in the FOR FURTHER

INFORMATION CONTACT section above. 

Category NAICSa

Codes 

Examples of potentially regulated 

entities 

Industry .................................................................................................................................... 336112 

336120 

Engine and truck manufacturers. 

a North American Industry Classification System (NAICS). 

Table of Contents 

I. Executive Summary 

A. Purpose of This Action 

B. Summary of Today’s Action 

C. Impacts of This Action 

II. Overview and Background 

A. Overview 

B. Statutory Authority 

C. Background Regarding Nonconformance 

Penalty Rules 

D. 2007 and 2010 NOX Standards 

III. Previous Interim Final Rule 

IV. NCP Eligibility 

A. First Criterion—Whether the MY2010 

NOX Standard Is More Stringent than the 

Previous NOX Standard 

B. Second Criterion—Whether Substantial 

Work Will Be Required To Meet the 

MY2010 NOX Standard 

C. Third Criterion—Whether There Is 

Likely To Be a Technological Laggard 

D. Issues Raised by the D.C. Circuit Court 

of Appeals 

V. Penalty Rates 

A. Upper Limit 

B. Cost Parameter Values 

C. Resulting Penalties 

D. Consideration of Other Methodologies 

VI. Economic Impact 

VII. Environmental Impact 

VIII. Emission Standards for Which We Are 

Not Establishing NCPs in This Final Rule 

A. Medium Heavy Duty Diesel NOX

Standards 

B. Light Heavy-Duty Diesel NOX Standards 

C. Heavy-Duty Gasoline Engine Standards 

D. Heavy-duty Diesel Engine NMHC, CO, 

and PM Standards 

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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54385 

1The proposed rule was published at 77 FR 4736 

(January 31, 2012). 

2EPA simultaneously published an Interim Final 

Rule establishing interim NCPs for heavy heavyduty engines (77 FR 4678, January 31, 2012). 

E. Heavy-duty CO2 Standards 

IX. Statutory and Executive Order Reviews 

A. Executive Order 12866: Regulatory 

Planning and Review and Executive 

Order 13563: Improving Regulation and 

Regulatory Review 

B. Paperwork Reduction Act 

C. Regulatory Flexibility Act 

D. Unfunded Mandates Reform Act 

E. Executive Order 13132 (Federalism) 

F. Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) 

G. Executive Order 13045: Protection of 

Children From Environmental Health 

Risks and Safety Risks 

H. Executive Order 13211 (Energy Effects) 

I. National Technology Transfer 

Advancement Act 

J. Executive Order 12898: Federal Actions 

To Address Environmental Justice in 

Minority Populations and Low-Income 

Populations 

K. Congressional Review Act 

X. Statutory Provisions and Legal Authority 

I. Executive Summary 

A. Purpose of This Action 

Section 206(g) of the Clean Air Act 

(the Act), 42 U.S.C. 7525(g), directs EPA 

to promulgate regulations permitting 

manufacturers of heavy-duty engines or 

heavy-duty vehicles to receive a 

certificate of conformity for engines or 

vehicles that exceed an EPA emissions 

standard if the manufacturer pays a 

nonconformance penalty (NCP). This 

action adopts NCPs for MY2012 and 

later heavy heavy-duty diesel engines 

(HHDDE) with respect to the NOX

emissions standards applicable to these 

engines. Engine manufacturers will be 

able to receive a certificate of 

conformity based on either 

demonstrating compliance with the 0.20 

g/bhp-hr NOX emission standard, or 

paying NCPs under the penalty formula 

established in this rule. This provides 

an alternative compliance option in 

situations where, as here, EPA has 

determined that the criteria for 

establishing NCPs have been met. 

B. Summary of Today’s Action 

EPA proposed that the criteria for 

setting NCPs had been met for the 0.20 

g/bhp-hr NOX emission standard for 

HHDDEs, and we are setting NCPs for 

these diesel engines in this final action.1

The final NCPs for HHDDE are 

approximately twice the values 

proposed. This difference is primarily 

because of new information received 

during the public comment period 

related to fuel and diesel exhaust fluid 

(DEF) prices. The derivation of the final 

penalties is described in a support 

document titled ‘‘Nonconformance 

Penalties for 2012 and later Highway 

Heavy-Duty Diesel Engines: Technical 

Support Document’’ (Technical Support 

Document), which is available in the 

public docket for this rulemaking. 

Under the final penalty regulations, 

nonconforming manufacturer with 

engines at the upper NOX limit of 0.50 

g/bhp-hr would pay a penalty of $3,775 

for each model year 2012 engine it 

produces. Manufacturers would pay a 

lesser penalty if the NOX emissions of 

the engine are lower. For example, the 

penalty for a 2012 engine with NOX

emissions at 0.30 g/bhp-hr would be 

$1,259. 

C. Impacts of This Action 

NCPs have a small environmental 

impact. We expect relatively few engine 

families to be certified under these 

provisions. Any impacts should be 

short-term in nature because the 

penalties are structured to increase over 

time to discourage use in later model 

years and because the penalty figures 

are high enough, such that the increase 

in the maximum penalty in later model 

years will likely limit the practical 

availability of NCPs in future years. In 

addition, Navistar, the only company 

that has requested certificates based on 

the use of NCPs, has publicly 

announced it will introduce new 

technology engines in 2013 which will 

meet the 0.20 g/hp-hr NOX standard 

without the need for NCPs. 

NCPs generally also have minimal 

adverse economic impacts. Their use is 

optional, and manufacturers have 

historically chosen to use NCPs only 

when they are otherwise unable to 

comply with emissions standards. 

Manufacturers that choose to make use 

of the NCPs will incur those costs, 

which are based on the cost of 

complying with the emission standards. 

II. Overview and Background 

A. Overview 

Section 206(g) of the Clean Air Act 

(the Act), 42 U.S.C. 7525(g), directs EPA 

to promulgate regulations permitting 

manufacturers of heavy-duty engines 

(HDEs) or heavy-duty vehicles (HDVs) 

to receive a certificate of conformity for 

HDEs or HDVs that exceed a Federal 

emissions standard if the manufacturer 

pays a nonconformance penalty (NCP). 

Congress adopted section 206(g) in the 

Clean Air Act Amendments of 1977 as 

a response to a concern about 

manufacturers unable to comply with 

technology-forcing emissions standards 

for heavy-duty engines in the lead-time 

provided for the emissions standards. 

NCPs were intended to remedy this 

concern, while ensuring that 

conforming manufacturers would not 

suffer a competitive disadvantage 

compared to nonconforming 

manufacturers. 

The first NCP rule, sometimes referred 

to as the ‘‘generic’’ NCP rule, 

established three basic criteria for 

determining the emission standards for 

which nonconformance penalties would 

be established in any given model year. 

50 FR 35374 (August 30, 1985). The first 

criterion is that the emission standard in 

question is a new emission standard or 

that the standard is an existing standard 

and becomes more difficult to meet. 

This can occur in two ways, either by 

the emission standard itself becoming 

more stringent, or due to its interaction 

with another emission standard that has 

become more stringent. Second, EPA 

must find that substantial work is 

required in order to meet the emission 

standard. Third, EPA must find that it 

is likely that a manufacturer will be 

unable to comply by the end of the lead 

time provided for technological reasons 

(referred to in earlier rules as a 

‘‘technological laggard’’). The first NCP 

rule also established the formula for 

determining the amount of an NCP. In 

subsequent NCP rules, EPA made 

determinations about which emissions 

standards met the criteria for 

establishing NCPs, and specified the 

values for various parameters that are 

used in the formula to calculate the 

dollar value of a manufacturer’s NCP. 

The regulations addressing these 

provisions are in Subpart L of 40 CFR 

part 86. 

EPA proposed that these criteria had 

been met for the 0.20 g/bhp-hr NOX

emission standard for heavy heavy-duty 

diesel engines. 77 FR 4736 (January 31, 

2012).2 Although we did not identify 

the technological laggard in the NPRM, 

we have since identified Navistar as the 

manufacturer that needs NCPs. We 

proposed to establish NCPs because 

Navistar was unable to achieve the 0.20 

g/bhp-hr NOX standard and did not 

have sufficient emission credits to cover 

the 2012 model year. At the time of the 

proposal, Navistar was attempting to 

meet the NOX emission standard with a 

technology that is different than the 

approach used by other engine 

manufacturers. However, Navistar 

recently announced that it would switch 

its approach to use the same general 

technology as the other 

enginemanufacturers—a catalytic 

approach called selective catalytic 

reduction (SCR). As described in 

Section IV. C., we have determined that 

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54386 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

Navistar will be unable to apply this 

technology to all of its engine families 

sold in the U.S. to achieve 0.20 g/hp-hr 

NOX for at least several months, and 

will need NCPs until it completes its 

transition to the new technology. 

We proposed to base the calculation 

of the NCPs on the existing regulatory 

framework, revising only the upper 

limit and the cost parameters. We also 

proposed to set the upper limit at 0.50 

g/bhp-hr, which means that no 

manufacturer paying NCPs would be 

allowed to certify engines with NOX

emissions above this limit. The 

proposed penalty for HHDDEs at that 

limit was $1,919 for model year 2012. 

Consistent with the provisions of the 

existing regulations, this value reflected 

our best estimate of the near-worst case 

cost difference between an engine with 

NOX emissions at the upper limit and a 

compliant engine. The regulations 

contain provisions to increase the 

penalties each year for later model 

years. 

The NCPs being finalized for HHDDE 

are approximately twice the values 

proposed. This difference is primarily 

because of new information received 

during the public comment period 

related to fuel and diesel exhaust fluid 

(DEF) prices. The derivation of the final 

penalties is described in a support 

document titled ‘‘Nonconformance 

Penalties for 2012 and later Highway 

Heavy-Duty Diesel Engines: Technical 

Support Document’’ (Technical Support 

Document), which is available in the 

public docket for this rulemaking. 

It is important to note that the NCP 

parameters being finalized were 

developed using the same basic 

methodology described in the NPRM. 

As in all NCP rules, the final NCPs are 

based on the estimated difference in 

compliance costs for engines at the 

upper limit and engines at the standard. 

Thus, engines with emissions at the 

upper limit can be considered to be 

baseline engines for the analysis. These 

baseline engines also represent the 

engines against which complying 

engines could compete in the 

marketplace. 

As shown in Figure 1, a 

nonconforming manufacturer with 

engines at the upper NOX limit of 0.50 

g/bhp-hr would pay a penalty of $3,775 

for each model year 2012 engine it 

produces. For later model years, this 

maximum penalty will increase by 

several hundred dollars per year as 

specified in 40 CFR 86.1113–87. While 

the exact rate of increase will depend on 

the number of engines for which NCPs 

are used, the penalty for engines at the 

upper limit could be more than $5,000 

by 2015. Manufacturers would pay a 

lesser penalty if the NOX emissions of 

the nonconforming engine are lower. 

For example, the penalty for a 2012 

engine with NOX emissions at 0.30 g/ 

bhp-hr would be $1,259. 

We received numerous comments on 

our proposal to establish NCPs. Our 

detailed analysis of these comments is 

contained in the Response to Comments 

document for this rulemaking. The 

major comments are summarized briefly 

below. 

• Several commenters questioned 

whether the regulatory criteria for 

establishing NCPs had been met. These 

comments are addressed in Section IV. 

• Several commenters addressed the 

level of the penalty, mostly claiming 

that the penalty needed to be higher to 

meet the statutory requirement to 

remove the competitive disadvantage for 


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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54387 

3We note that EPA may revise the criteria at any 

time through notice and comment rulemaking. 

Thus, these criteria do not constrain EPA from 

adopting NCPs in other circumstances, as long as 

the statutory criteria of section 206(g) are met. 

complying manufacturers. These 

comments are addressed in Section V. 

• The few comments we received on 

the upper limit supported setting it at 

0.50 g/bhp-hr. These comments are 

addressed in Section V. A. 

• Comments on the methodology 

used to calculate costs addressed both 

our proposed methodology and 

alternative methodologies. Comments 

on our proposed methodology are 

discussed in Section V. B. and 

comments on alternative methodologies 

are discussed in Section V. D. 

NCPs have a small environmental 

impact. We expect relatively few engine 

families to be certified under these 

provisions. Any impacts should be 

short-term in nature because the 

increase in the maximum penalty in 

later model years will likely limit the 

practical availability of NCPs in future 

years. The structure of the penalties, by 

increasing over time, discourages use in 

later model years; and because the 

penalty figures are high enough, such 

that use in later model years is unlikely 

to be a viable option for any 

manufacturer. 

NCPs generally also have minimal 

adverse economic impacts. Their use is 

optional, and manufacturers have 

historically chosen to use NCPs only 

when they are otherwise unable to 

comply with emissions standards. 

Manufacturers that choose to make use 

of the NCPs will incur those costs, 

which are based on the cost of 

complying with the emission standards. 

Section 553(d) of the Administrative 

Procedure Act (APA), 5 U.S.C. chapter 

5, generally provides that rules may not 

take effect earlier than 30 days after they 

are published in the Federal Register. 

APA section 553(d) excepts from this 

provision any action that grants or 

recognizes an exemption or relieves a 

restriction. Since today’s action can be 

considered to relieve a restriction that 

would otherwise prevent a 

manufacturer from certifying, EPA is 

making this action effective 

immediately upon publication. This 

Final Rule does not set new 

requirements, but rather creates an 

optional path by which a manufacturer 

unable to meet the NOX standard may 

obtain a certificate of conformity that 

they could not otherwise obtain without 

this Final Rule. Thus, the NCPs 

promulgated in this Final Rule will 

apply for all engines introduced into 

commerce on or after September 5, 

2012. 

B. Statutory Authority 

Section 206(g) of the Act, 42 U.S.C. 

7525(g), directs EPA to promulgate 

regulations permitting manufacturers of 

heavy-duty engines (HDEs) or heavyduty vehicles (HDVs) to receive a 

certificate of conformity for HDEs or 

HDVs that exceed a Federal emissions 

standard, but do not exceed an upper 

limit associated with that standard, if 

the manufacturer pays a 

nonconformance penalty (NCP) . 

Congress adopted section 206(g) in the 

Clean Air Act Amendments of 1977 as 

a response to a concern with requiring 

technology-forcing emissions standards 

for heavy-duty engines. The concern 

was if strict technology-forcing 

standards were promulgated, then some 

manufacturers might be unable to 

comply in the lead-time provided for 

the emissions standards and would be 

forced out of the marketplace. NCPs 

were intended to remedy this concern. 

The nonconforming manufacturers 

would have a temporary alternative that 

would permit them to receive a 

certificate of conformity by payment of 

a penalty, allowing the engines or 

vehicles to be introduced into 

commerce and sold. At the same time, 

conforming manufacturers would not 

suffer compared to nonconforming 

manufacturers, because the NCPs would 

remove the competitive disadvantage to 

them. NCPs would be based, in part, on 

money saved by the nonconforming 

manufacturer. Providing this relief 

facilitated EPA’s authority to set 

technology forcing standards. Without 

this relief, EPA may have needed to be 

more cautious in setting standards, 

given the possibility that a lagging 

manufacturer might not be able to meet 

the standards in the lead-time provided. 

Under section 206(g)(1), NCPs may be 

offered for HDVs or HDEs. The penalty 

may vary by pollutant and by class or 

category of vehicle or engine. No NCPbased certificate may be issued if the 

engine or vehicle exceeds the degree of 

reduction determined by the 

Administrator to be practicable. This 

emission level is identified in the 

regulations as the upper limit. Section 

206(g)(3) requires that NCPs: 

• Account for the degree of emission 

nonconformity; 

• Increase periodically to provide 

incentive for nonconforming 

manufacturers to achieve the emission 

standards; and 

• Remove the competitive 

disadvantage to conforming 

manufacturers. 

Section 206(g) authorizes EPA to 

require testing of production vehicles or 

engines in order to determine the 

emission level upon which the penalty 

is based. If the emission level of a 

vehicle or engine exceeds an upper limit 

of nonconformity established by EPA 

through regulation, the vehicle or 

engine would not qualify for an NCP 

under section 206(g) and no certificate 

of conformity could be issued to the 

manufacturer. If the emission level is 

below the upper limit but above the 

standard, that emission level becomes 

the ‘‘compliance level,’’ which is also 

the benchmark for warranty and recall 

liability. The manufacturer who elects 

to pay the NCP is liable for vehicles or 

engines that exceed the compliance 

level in use. The manufacturer does not 

have in-use warranty or recall liability 

for emissions levels above the standard 

but below the compliance level. 

C. Background Regarding 

Nonconformance Penalty Rules 

Since the promulgation of the first 

NCP rule in 1985, subsequent NCP rules 

generally have been described as 

continuing ‘‘phases’’ of the initial NCP 

rule. The first NCP rule (Phase I), 

sometimes referred to as the ‘‘generic’’ 

NCP rule, established three basic criteria 

for determining the eligibility of 

emission standards for nonconformance 

penalties in any given model year. 50 

FR 35374 (August 30, 1985). When 

adopted in 1985, EPA intended to use 

the criteria of 40 CFR 86.1103–87 in 

determining whether to establish NCPs. 

They were included in the regulations 

to clarify that EPA’s obligation under 

the generic rule to establish NCPs only 

applied where these criteria were met. 

As described in Section V. of this Final 

Rule, we have determined that these 

criteria have been met.3

The first criterion is that the emission 

standard in question is a new emission 

standard or that the standard is an 

existing standard and becomes more 

difficult to meet. This can occur in two 

ways, either by the emission standard 

itself becoming more stringent, or due to 

its interaction with another emission 

standard that has become more 

stringent. Under the second criterion, 

EPA must find that substantial work is 

required in order to meet the emission 

standard. As described in § 86.1103– 

87(b), EPA considers ‘‘substantial work’’ 

to mean the application of technology 

not previously used in that vehicle or 

engine class/subclass, or a significant 

modification of existing technology, in 

order to bring that vehicle/engine into 

compliance. EPA does not consider 

minor modifications or calibration 

changes to be classified as substantial 

work. EPA considers that substantial 

work is required if such work is needed 

to bring emissions from the level of the 

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54388 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

4FELs are emission levels specified by the 

manufacturer that serve as the applicable emission 

standard for engines participating in the emission 

averaging program. The FEL cap is the highest FEL 

to which a manufacturer may certify an engine 

using emission credits. 

5NMHC stands for non-methane hydrocarbons, 

which is a measure of total hydrocarbons with the 

methane emissions subtracted out. For typical onhighway diesel fueled heavy-duty engines, methane 

emissions are on the order of 10 percent of the total 

hydrocarbon emissions. 

previous standard to the level of the 

new or revised standard, even if at the 

time the NCP rulemaking is taking 

place, some manufacturers have already 

completed that work. Third, EPA must 

find that a manufacturer is likely to be 

noncomplying for technological reasons 

(referred to in earlier rules as a 

‘‘technological laggard’’). Prior NCP 

rules have considered such a 

technological laggard to be a 

manufacturer who cannot meet a 

particular emission standard due to 

technological (not economic) difficulties 

and who, in the absence of NCPs, might 

be forced from the marketplace. 

The criteria and methodologies 

established in the 1985 NCP rule have 

since been used to determine eligibility 

and to establish NCPs for a number of 

heavy-duty emission standards. Phases 

II, III, IV, V, and VI published in the 

period from 1985 to 2002, established 

NCPs that, in combination, cover the 

full range of heavy-duty; from heavy 

light-duty trucks (6,000–8,500 pounds 

gross vehicle weight) to the largest 

diesel truck and urban bus engines. 

NCPs have been established for 

hydrocarbons (HC), carbon monoxide 

(CO), nitrogen oxides (NOX), and 

particulate matter (PM). The most recent 

NCP rule (67 FR 51464, August 8, 2002) 

established NCPs for the 2004 and later 

model year NOX standard for heavyduty diesel engines (HDDEs). The NCP 

rulemaking phases are summarized in 

greater detail in the Technical Support 

Document for this rulemaking. 

D. 2007 and 2010 NOX Standards 

The 0.20 g/bhp-hr NOX standard that 

applies for current and future heavyduty engines was adopted January 18, 

2001 (66 FR 5001), and first applied in 

the 2007 model year. However, because 

of phase-in provisions adopted in that 

rule and use of emission credits 

generated by manufacturers for early 

compliance, manufacturers have been 

able to continue to produce engines 

with NOX emissions greater than 0.20 g/ 

bhp-hr. Most engines during the phasein had NOX emissions near 1.2 g/bhphr. The phase-in provisions ended after 

model year 2009 so that the 0.20 g/bhphr NOX standard was fully phased-in for 

model year 2010. Equally important, the 

cap applicable to Family Emission 

Limits (FELs) 4 for credit-using engine 

families was lowered to 0.50 g/bhp-hr 

beginning in model year 2010. Because 

of these changes that occurred in model 

year 2010, the 0.20 g/bhp-hr NOX

emission standard is often referred to as 

the 2010 NOX emission standard, even 

though it applied to engines as early as 

model year 2007. 

III. Previous Interim Final Rule 

On January 31, 2012, EPA 

simultaneously published an Interim 

Final Rule establishing interim NCPs for 

heavy heavy-duty engines and a parallel 

Notice of Proposed Rulemaking 

(NPRM). The NCPs in this Final Rule 

will supersede the NCPs that were 

promulgated in the Interim Final Rule 

as of September 5, 2012. 

Several engine manufacturers 

petitioned EPA to rescind that Interim 

Final Rule. These petitions and EPA’s 

responses denying them have been 

placed into the Docket for this rule. 

These engine manufacturers also filed 

judicial challenges to the Interim Final 

Rule. Mack Trucks, et al. v. EPA, No. 

12–1077 (DC Cir). They challenged 

EPA’s decision to establish NCPs in an 

interim final rule without going through 

notice and comment. They also 

challenged our finding that the 

regulatory criteria had been met to 

promulgate NCPs for the 2010 NOX

standard, as well as our conclusion that 

the interim NCP levels removed the 

competitive disadvantage for complying 

manufacturers. On June 12, 2012, the 

Court of Appeals for the DC Circuit 

issued an opinion holding that EPA 

violated the procedural requirements for 

rulemaking because EPA did not have 

good cause to issue the rule without 

providing notice and opportunity for 

comment. Id., 2012 U.S. App. LEXIS 

11851 (June 12, 2012). The Court did 

not rule on the merits of EPA’s findings 

about the regulatory criteria or the level 

of the NCP. Nevertheless, it stated in 

dicta its concerns about these issues, 

which are discussed below in Sections 

IV. (NCP Eligibility) and V. (Penalty 

Rates). 

IV. NCP Eligibility 

Section II. C. of this Final Rule notes 

that EPA regulations provide for three 

criteria to be met in order to determine 

that an NCP should be established in 

any given model year. As is described 

below, these three criteria address 

different aspects of the appropriateness 

of NCPs, and it is important to consider 

each criterion separately in its own 

proper context. In general, the first two 

criteria address whether the standard in 

question created the possibility that a 

technological laggards could develop, 

while the third criterion addresses the 

likelihood that there will be a 

technological laggard. For the 2010 NOX

standard, we find that these criteria 

have been met for heavy heavy-duty 

diesel engines, and it is therefore 

appropriate to establish NCPs for this 

standard for the current model year and 

later. 

A. First Criterion—Whether the MY2010 

and Later NOX Standard Is More 

Stringent Than the Previous NOX

Standard 

The first criterion requires that the 

emission standard in question must be 

more stringent than the previous 

standard. This is the case with the 2010 

NOX standard. The previous emission 

standard for this category is a combined 

NMHC + NOX standard of 2.4 g/bhp-hr, 

or optionally a 2.5 g/bhp-hr NMHC + 

NOX with a limit of 0.5 g/bhp-hr 

NMHC.5 The 2010 (i.e., current) 

standards are 0.20 g/bhp-hr for NOX and 

0.14 g/bhp-hr for NMHC. 

Some commenters argued that this 

standard should no longer be 

considered a new standard because it 

went into full effect two model years 

ago. We did not promulgate NCPs for 

the 2010 and 2011 model years because 

we had no basis for concluding it was 

likely that any manufacturer would 

qualify as a technological laggard, as all 

manufacturers met the standard either 

directly or through application of 

credits. However, the fact that we did 

not promulgate NCPs for the first year 

a standard went into effect does not 

preclude us from promulgating NCPs for 

such standard at a later time, when it is 

determined the regulatory criteria have 

been met. While it is not a path we have 

generally taken, nothing in the statute or 

in our regulations, which refer to new 

or revised standards, precludes EPA 

from promulgating NCPs after the first 

year a new or revised standard goes into 

effect. See 50 FR 35374, 35376 (August 

30, 1985), and 50 FR 9204, 9206 (March 

6, 1985). 

The first criterion, as with the other 

two criteria, reflects the key concepts 

underlying the NCP program—NCPs are 

designed to address situations where 

technological laggards are likely to 

develop in response to the adoption of 

technology forcing emission standards 

for this sector under CAA section 

202(a)(3)(A). One purpose of section 

206(g) is to avoid, at least temporarily, 

the problem of technological laggards 

being driven out of the market because 

of their inability to meet technology 

forcing emission standards in the leadtime provided. 50 FR 9204, 9205 (March 

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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54389 

6For this Final Rule, EPA describes those 

manufacturers that have achieved the 0.20 g/hp-hr 

emission standard as ‘‘conforming’’, ‘‘compliant’’ or 

‘‘complying’’ manufacturers, and those that have 

not as the ‘‘nonconforming’’, ‘‘noncompliant’’ or 

‘‘noncomplying’’ manufacturers. However, it is 

important to clarify that manufacturers certifying 

above the 0.20 g/hp-hr NOX emission standard 

using emission credits are in compliance with 

regulations as long as they have enough emission 

credits to offset their total NOX emissions above the 

standard. 

6, 1985), 50 FR 35375 (August 30, 1985) 

(‘‘The possibility of a technological 

laggard is a key concept in the NCP 

availability scheme.’’). The first 

criterion is directly linked to this— 

‘‘This condition creates the possibility 

for a technological laggard to exist.’’ 50 

FR 9204, 9206 (March 6,1985). 

Given this purpose, the appropriate 

way to consider whether the new or 

revised standard is more stringent is to 

consider it from the point of adoption of 

the standard, by comparing it to the 

prior standard. It is at the point that 

EPA has adopted a standard that may 

force technology changes, and it is the 

difference in stringency between the old 

and the new or revised standard, that 

raises the possibility of a technological 

laggard. The passage of time after 

adoption of the standard does not 

change the analysis of whether the new 

or revised standard is or is not more 

stringent than the previous standard. 50 

FR 9204, 9206 (March 6, 1985). Even if 

EPA considers NCPs some model years 

after adoption of the standard the 

comparison under the first criterion is 

still between the new or revised 

standard and the prior standard, and 

their relative stringency. 

The first criterion establishes one 

circumstance that must occur to 

establish NCPs under the generic rule: a 

new or revised standard must be more 

stringent than the previous standard for 

the pollutant, or an existing standard 

must become more difficult to achieve. 

The passage of time by itself, from 

MY2010 to MY2012, does not change 

the fact that the MY2010 NOX standard 

was and continues to be more stringent 

than the standard applicable to model 

years before 2010, and this increase in 

stringency created the possibility for a 

technological laggard to exist. The first 

criterion is thus more in the nature of 

a static or historic fact, a threshold 

determination typically made based on 

the facts in existence at the time of 

adoption of the new or revised standard, 

a comparison of the stringency of the 

previous and the new or revised 

standard. 

Based on this, EPA rejects 

commenters’ arguments. Even though 

the determination on the first criterion 

is not being made until some model 

years after adoption of the 2010 

standard, the 2010 NOX standard has 

always been a new or revised standard 

compared to the prior standard, and the 

2010 standard was and continues to be 

more stringent than the preexisting NOX

standard. The passage of time does not 

change the fact that adoption of a more 

stringent standard for MY2010 created 

the possibility for a technological 

laggard to exist. The 2010 standard is 

certainly a new or revised standard and 

certainly is more stringent than the 

previous standard for NOX. The fact that 

we are now in MY2012 does not change 

this conclusion. 

B. Second Criterion—Whether 

Substantial Work Will Be Required To 

Meet the MY2010 NOX Standard 

Under the second criterion, 

substantial work must be required to 

meet the standard. When we first 

established the 2010 NOX standard, we 

considered it to be a technology-forcing 

standard and subsequent history has 

shown that substantial work has been 

required to meet this emission standard. 

More importantly, all heavy heavy-duty 

diesel engines currently certified to the 

0.20 g/bhp-hr standard without using 

credits are using new aftertreatment 

systems (that were generally not used in 

2009) to meet this standard.6 Indeed, 

even Navistar substantially redesigned 

its emission control system in its 

attempt to achieve lower emissions 

without NOX aftertreatment. This work 

clearly meets the definition of 

substantial work, as it involves the use 

of either: New catalytic controls and 

related technology not previously used 

in these engines, or the significant 

modification of existing EGR and related 

technology. None of the complying 

manufacturers dispute that they have 

done substantial work to achieve the 

0.20 g/bhp-hr NOX standard. In fact, 

they emphasized in their comments 

how much work they have done to meet 

the standard. 

The second criterion builds on the 

first criterion, as it involves an 

evaluation of the nature and degree of 

the technological challenge of the new 

or revised standard. If the new or 

revised standard increases the 

stringency to such a degree that it 

cannot be met by simple modifications 

to existing technology (i.e., that 

substantial work will be required to 

comply), then this criterion is satisfied. 

Like the first criterion, the second 

criterion reflects the key concern with 

the issue of a technological laggard— 

‘‘When manufacturers must perform 

substantial work, it is possible that at 

least one will be unsuccessful and will 

become a laggard.’’ 50 FR 9204, 9206 

(March 6,1985). Like the first criterion, 

it is a determination of circumstances 

that establish a threshold or baseline for 

setting NCPs under the generic rule. It 

identifies circumstances that mean there 

is a possibility that a laggard may exist. 

Given this purpose, the appropriate 

way to consider the second criterion is 

to evaluate all of the work that must be 

accomplished to move from compliance 

with the previous standard to 

compliance with the new or revised 

standard. The possibility of a 

technological laggard is created by this 

entire amount of work that must be 

done, not any one subset or increment 

of the work. Thus, if EPA evaluates this 

criterion at some point after adoption of 

the new or revised standard, EPA still 

considers all of the work to go from the 

previous to the new or revised standard, 

and not just the work remaining as of 

the date the determinations are made 

about compliance with the criteria 

under the generic NCP rule. 

While commenters did not dispute 

that substantial work was required to 

meet the 2010 standard, some 

commenters claim it is no longer true 

that substantial work is required 

because some manufacturers have met 

the standard. Some commented that 

these determinations must be based on 

the factual circumstances at the time of 

the NCP rulemaking and not the time 

the revised standard was issued. We 

disagree with these claims for two 

reasons. 

First, this criterion is to be evaluated 

based on the total amount of work 

needed to go from meeting the previous 

standard to meeting the current 

standard, regardless of the timing of 

such changes. Indeed, the commenters’ 

approach would seem to be directly 

contrary to the purpose of the statute. 

The NCP program is designed to allow 

technological laggards to be able to 

certify engines even if other 

manufacturers have met the standard. 

There is a clear expectation that some 

manufacturers might be technological 

laggards. 50 FR 9204, 9206 (March 

6,1985) (‘‘When manufacturers must 

perform substantial work, it is possible 

that at least one will be unsuccessful 

and will become a laggard.’’) Where 

there is a technological laggard, it is the 

typical situation that other 

manufacturers have already complied or 

will comply on time. The fact that some 

manufacturers have surpassed the 

technological hurdles and achieved 

compliance with the new or revised 

standard does not in any way show that 

there is or cannot be a technological 

laggard who at least temporarily has not 

surpassed the technological hurdles. 

Refusing to establish NCPs solely 

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54390 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

7 ‘‘Nonconformance Penalties for Heavy-Duty 

Diesel Engines in 2010 Model Year’’, Letter from 

Karl J. Simon, Director, EPA Compliance and 

Innovative Strategies Division, February 22, 2010. 

8This technology is based on internal engine 

controls and advanced exhaust gas recirculation 

technology. 

because some manufacturers comply at 

the time NCPs are established would 

frustrate Congress’ purpose by 

preventing establishment of NCPs when 

there is a technological laggard who 

temporarily can not comply with the 

standards and cannot certify engines 

without the NCP program. 

Thus, EPA bases the determination of 

substantial work on the total amount of 

work to go from compliance with the 

prior standard to compliance with the 

new standard, even if at the time of the 

NCP rulemaking some manufacturers 

have already completed some or all of 

such work. Under this criterion, the 

important question is whether 

manufacturers who were using 

technology that met the previous 

standard would need to conduct 

significant work to develop new 

technology or to build upon/change the 

old technology to meet the revised 

standard. Questions about work that 

still needs to be done at the point EPA 

begins an NCP rulemaking are relevant 

only in the context of the third criterion, 

whether there is likely to be a 

technological laggard. To avoid this 

confusion for future NCPs, we are 

clarifying in the regulatory text that this 

criterion is to be evaluated based on the 

need for new or modified technology or 

design to meet the new or revised 

standard regardless of the timing for 

such changes. 

Second, even under the current 

circumstances, we find that Navistar has 

needed to do substantial work to meet 

the standard. This is the case whether 

one considers the total amount of work 

to go from the previous standard to the 

MY2010 NOX standard, or whether one 

only considers the amount of work to go 

from the current status of its technology 

to compliance with the MY2010 

standard. See the discussion below 

concerning the work conducted by 

Navistar to date and expected in the 

future. 

We informed engine manufacturers in 

2010 that we believed the first two 

criteria had been met.7 We note that the 

commenters now questioning whether 

these criteria have been met did not 

dispute our earlier view that we could 

have set NCPs at that time had we 

determined that a technological laggard 

was likely to develop. At that point, 

EPA was clear that the reason we were 

not establishing NCPs at that time was 

because we had not determined that a 

technological laggard was likely to 

develop. 

C. Third Criterion—Whether There Is 

Likely To Be a Technological Laggard 

Under the third criterion, EPA 

considers all of the circumstances to 

determine whether there is likely to be 

a technological laggard. In the 1985 

generic rule EPA indicated that: 

Third, EPA must find that there is likely 

to be a technological laggard. Even when a 

standard becomes more stringent (or there is 

an adverse effect on a previously attainable 

standard), and even when manufacturers 

must perform substantial work, all 

manufacturers may still be able to meet the 

more stringent standard. For instance, 

compliance with a standard may involve 

merely the transference of technology from a 

similar application. Thus, EPA must make a 

determination whether the circumstances 

will likely give rise to a laggard.50 FR 9204, 

9206 (March 6, 1985). 

One of the concepts underlying a 

technological laggard is that a 

manufacturer faced with a new or 

revised standard, especially one that is 

technology forcing, will direct 

substantial resources and effort to 

develop and employ technology aimed 

at achieving compliance with the more 

stringent standard. Whether the 

manufacturer develops and employs the 

same or different technology than other 

manufacturers, there is a possibility that 

such a manufacturer will be temporarily 

unable to achieve the emissions 

standard in the lead time provided 

based on technological reasons. Instead 

of refusing to certify the manufacturer’s 

engines, and driving them out of the 

market, the NCP program is specifically 

designed to provide a temporary path 

for certification until the remaining 

technological issues are resolved and 

the manufacturer achieves the standard. 

50 FR 9204 (March 6,1985). The third 

criterion is designed to implement this 

concept, based on EPA’s evaluation of 

all of the circumstances. 

In this case, all of the circumstances 

indicate that there is more than a 

likelihood that there is an engine 

manufacturer that has not yet achieved 

the MY2010 NOX standard for 

technological reasons—we have 

determined that Navistar is in fact such 

a manufacturer. Unlike the rest of the 

industry, Navistar attempted to comply 

without SCR to reduce NOX emissions.8

However, to date Navistar has not 

succeeded in reaching the 0.20 g/bhp-hr 

emission level. At this time, the only 

engine families Navistar has certified 

since the MY2010 standard took effect 

have used advanced EGR technology, 

and have been certified based on either 

banked emission credits or on Navistar’s 

payment of the interim NCPs. Navistar 

does not have sufficient credits to cover 

its entire model year 2012 production 

without NCPs. Navistar has 

acknowledged in its public comments 

on this rule that it is effectively a 

technological laggard. On July 6, 2012, 

Navistar announced that it has begun 

the process of redesigning its trucks to 

use SCR engines in addition to their incylinder emission control technology. 

Navistar expects the SCR engines to be 

available beginning in early 2013. We 

have determined that Navistar will need 

access to NCPs to lawfully produce 

engines during this multi-month 

transition process. 

Several commenters noted that 

Navistar cannot be a technological 

laggard as it has applied for certification 

of an engine family using this 

technology, seeking a certificate for a 

0.20 g/bhp-hr engine that complies 

without the use of credits. However, 

Navistar has withdrawn that application 

based on EPA concerns that the engine 

design (with its current hardware) does 

not meet the 0.20 g/bhp-hr NOX

standard. 

While Navistar has announced that it 

will switch to SCR-based emission 

controls, we have determined that the 

work needed for Navistar to redesign all 

of its U.S. engines and vehicles for its 

announced alternate compliance path 

based on SCR cannot be completed 

immediately. Thus, Navistar will need 

NCPs during this transition period. 

These limitations are technological 

rather than economic in nature. Among 

the steps Navistar must complete, it 

must: 

• Select an SCR system design 

• Make arrangements with component 

suppliers 

• Validate components 

• Recalibrate its engine to work with the SCR 

system 

• Redesign it trucks to fit the SCR hardware 

• Complete its emission testing and 

durability testing for certification 

• Obtain EPA approval for the new engineSCR system 

We do not have a precise estimate of 

how long this will take for Navistar’s 

entire U.S. production of heavy heavyduty diesel engines and associated 

vehicles. However, based on our 

experience and knowledge of this 

industry, this type of technology 

introduction is not finished in a one or 

two month period. Navistar has 

acknowledged as much in their July 6, 

2012 announcement, which stated they 

will begin making the new technology 

products available in early 2013. 

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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54391 

9 Id., slip op. at 15. 

Several commenters argued Navistar 

voluntarily chose a different technology 

path than other manufacturers, and 

could have complied in the lead time 

provided if it had developed and 

employed SCR technology from the 

beginning. Since Navistar chose what 

the commenters consider to be the 

wrong technology path, they argue it is 

a laggard based on its own business 

decision and not technological 

limitations. They stated that NCPs 

should not be established under these 

circumstances. We generally would 

agree with commenters’ assertions that 

Navistar presumably could have chosen 

the same SCR technology path as other 

manufacturers some time ago, and 

presumably could have already 

achieved compliance with the MY2010 

standard in the same timeframe they 

did. If that had occurred, there would be 

no basis for establishing NCPs. 

However, we disagree with commenters’ 

conclusions that NCPs should not be 

established based on this difference in 

choice of technology pathway. 

Navistar made a decision to attempt to 

meet the emission standard using a 

different technology path, without SCR. 

As with most of EPA’s mobile source 

emissions standards, the MY2010 

emission standard is a performance 

standard, and does not specify what 

technology must be used or require that 

all manufacturers use the same 

technology. Commenters’ approach 

would penalize a manufacturer who 

attempts to innovate and develop a 

technology pathway different from its 

competitors. This would effectively 

discourage technological innovation by 

requiring all manufacturers to use the 

same technology once one manufacturer 

has met the standard using that 

technology. Otherwise they would risk 

being driven from the market as no 

NCPs would be established. Such an 

interpretation would undercut the 

purpose of technology forcing 

standards—to adopt standards where 

manufacturers may have to develop 

advanced technology or technology that 

is at the cutting edge of emissions 

control. This interpretation would 

suppress technological innovation out 

of fear that a wrong technological choice 

will lead to having to leave a market 

without the temporary benefit of NCPs. 

This approach would also ignore the 

premise of promulgating NCPs, which is 

that they are appropriate when one or 

more manufacturers have not met the 

standard, while one or more others 

have. Whether the laggard is not able to 

achieve compliance because of a 

technological hurdle in developing the 

same or different technology as their 

competitors, the result is the same— 

they risk being removed from the market 

based on technological issues, if NCPs 

are not established. EPA does not see a 

valid basis for drawing such a 

distinction between technology 

pathways in deciding whether there is 

likely to be a technological laggard. 

As discussed later, in Section V. on 

the penalty rate, the provision of NCPs 

is only a temporary solution for the 

noncomplying technological laggard. 

The first-year penalty rate is designed to 

remove the economic disadvantage for 

the complying manufacturers, 

preventing harm to the competitors. The 

NCP rate also increases over time, such 

that in a short period of time the 

noncomplying manufacturer needs to 

achieve compliance or the increasing 

penalty rate will in effect drive it from 

the market. Since the NCP protects a 

complying manufacturer from a 

competitive disadvantage irrespective of 

the technology path chosen by its 

competitor, it is appropriate that EPA 

not draw a distinction based on whether 

the technological laggard chose the 

same or a different technology path than 

the complying manufacturers. This 

helps to preserve the nature of EPA’s 

standards as technology forcing 

performance standards that promote 

technological innovation across this 

sector of industry. 

Having made its decision to pursue a 

non-SCR technology to meet the 

standards, Navistar has not been able to 

produce engines that have been certified 

to meet the 0.020 standard without 

credits. The evidence is clear that 

Navistar chose to develop a different 

technological solution than other 

manufacturers, and that technological 

issues concerning this solution have 

delayed Navistar’s ability to meet the 

standard. It is for this technological 

reason that Navistar cannot meet the 

standard, not for economic reasons. 

D. Issues Raised by the DC Circuit Court 

of Appeals 

As noted above, in Mack Trucks, et al. 

v. EPA, No. 12–1077 (DC Cir), the court 

included comments in its opinion, in 

dicta, concerning the appropriateness of 

NCPs under the circumstances 

presented in the Interim Final Rule. The 

court stated that: 

We do recognize the pending final rule 

means our vacatur of the IFR on these 

procedural grounds will be of limited 

practical impact. Before the ink is dry on that 

final rule, we offer two observations about 

the parameters of this rulemaking. First, 

NCPs are meant to be a temporary bridge to 

compliance for manufacturers that have 

‘‘made every effort to comply.’’ United States 

v. Caterpillar, Inc., 227 F. Supp. 2d 73, 88 

(D.D.C. 2002). As EPA itself has explained, 

NCPs are not designed to bail out 

manufacturers that voluntarily choose, for 

whatever reason, not to adopt an existing, 

compliant technology. See 77 Fed. Reg. 

4,736, 4,739 (Jan. 31, 2012) (‘‘NCPs have 

always been intended for manufacturers that 

cannot meet an emission standard for 

technological reasons rather than 

manufacturers choosing not to comply.’’); 50 

Fed. Reg. 35,402, 35,403 (Aug. 30, 1985) 

(stating that NCPs are inappropriate ‘‘if many 

manufacturers’ vehicles/engines were already 

meeting the revised standard or could do so 

with relatively minor calibration changes or 

modifications’’). Based solely on what EPA 

has offered in the IFR, it at least appears to 

us that NCPs are likely inappropriate in this 

case.9

The court noted that NCPs are 

intended to be a temporary bridge to 

compliance for manufacturers who have 

‘‘made every effort to comply’’ and are 

not designed for manufacturers that 

voluntarily choose, for whatever reason, 

not to adopt an existing, compliant 

technology. EPA agrees with these 

general concepts, but they do not apply 

in this case. The court’s comments 

concern the issue of whether substantial 

work is needed to achieve compliance 

with the MY2010 NOX standard, and 

whether Navistar is properly considered 

likely to be a technological laggard in 

achieving compliance with this 

standard in light of the technology 

pathway it chose. Based on all of the 

circumstances before EPA, it is 

reasonable to determine that Navistar 

has made every effort to comply, for the 

technology pathway it chose. The need 

for NCPs is based on the failure to 

achieve the emissions standards using 

this technology. This failure is based on 

technological reasons, and not other 

reasons. 

The court’s statement that NCPs were 

intended for manufacturers that ‘‘made 

every effort to comply’’ (United States v. 

Caterpillar, Inc., 227 F. Supp. 2d 73, 88 

(D.D.C. 2002)) was made in a different 

context and does not apply here. This 

comment was in response to a 

suggestion from Caterpillar in that 

earlier case that the consent decree at 

issue should have been interpreted in a 

certain way (or modified) as EPA failed 

to issue an NCP rule with enough lead 

time. Caterpillar argued that it was 

harmed by this delay because the 

purpose of the NCPs was to allow a 

manufacturer to weigh the costs of 

compliance against the costs of paying 

NCPs. The court rejected this view, as 

it would allow ‘‘engine manufacturers 

* * * to calibrate the intensity of their 

compliance efforts to the NCP for each 

new standard, allowing them to opt for 

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54392 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

10EPA stated ‘‘NCPs have always been intended 

for manufacturers that cannot meet an emission 

standard for technological reasons rather than 

manufacturers choosing not to comply.’’ 

noncompliance when compliance 

becomes more expensive than the NCP. 

This kind of second-guessing, however, 

was clearly not Congress’ intent in 

providing for NCPs.’’ 227 F.Supp. at 88. 

The court noted that ‘‘[i]nstead, NCPs 

were intended to give a manufacturer 

that has made every effort to comply, 

but has been unable to achieve 

compliance, a chance to continue to 

participate in the market. Thus, NCPs 

serve their purpose even if promulgated 

after a company has made its engine 

design decisions, since those decisions 

should be based on whether compliance 

can be achieved, not on whether 

compliance is less expensive than 

paying NCPs.’’ Id. at 88–89. 

In that context, it is clear that the 

court’s prior statement addressed the 

claim that a manufacturer should be 

able to base their engine design 

decisions on the availability of NCPs, 

weighing which costs more and 

deciding based on this whether to 

pursue a technology pathway to 

compliance or pay NCPs. The court 

made clear that providing this kind of 

economic choice on compliance is not 

the purpose of an NCP. The court 

specifically noted that NCPs are 

appropriate in a case where the failure 

to achieve compliance is based on 

technological concerns encountered 

along the path to achieving 

compliance—that is, in circumstances 

like those in this current rulemaking. 

The court’s statement was not related 

to whether, evaluating in retrospect at 

the point an NCP is established, a 

manufacturer had made every effort to 

comply prior to adoption of the NCPs. 

Navistar chose to pursue an engine 

emissions control design that is nonSCR based several years before NCPs 

were proposed. NCPs would be used by 

Navistar while it addresses the 

technology-based hurdles it now faces 

in switching to SCR controls. It faces 

these technology hurdles now as a result 

of the technology pathway it chose years 

before the NCP was adopted. The NCPs 

would not be used, as Caterpillar asked 

the court to allow in the earlier case, to 

decide what technology path to follow 

and how hard to pursue it based on the 

economics of the cost of NCPs. In this 

case, Navistar made considerable efforts 

to develop and employ the non-SCR 

technology. Its choice of technological 

pathway to compliance was not based 

on weighing the costs of compliance 

with the cost of NCPs. The court’s 

concerns in Caterpillar are not 

applicable to the facts in this NCP 

rulemaking. 

The court also quoted from the 

generic 1985 rulemaking, noting that 

NCPs would not be appropriate if 

‘‘many manufacturers were already 

meeting the standard, or could do so 

with relatively minor calibration 

changes or modifications.’’ This 

language from the 1985 rulemaking 

refers to the second criterion, whether 

substantial work is required to achieve 

compliance with the more stringent new 

or revised standard. As discussed above, 

this is based on all of the work that must 

be done to move from the previous 

standard to the more stringent new or 

revised standard. This criterion is to be 

evaluated based on actual work needed 

to go from meeting the previous 

standard to meeting the current 

standard, regardless of the timing of 

such changes. Based on this, the amount 

of work remaining to be done when the 

NCP rulemaking occurs is not relevant 

to the second criterion. Likewise, 

whether some manufacturers have 

already achieved compliance at the time 

of the NCP rulemaking is also not 

relevant to determining whether the 

second criterion has been met. As noted 

above, it is not unexpected that at the 

time of this NCP rulemaking that ‘‘many 

manufacturers’ vehicles/engines were 

already meeting the revised standard or 

could do so with relatively minor 

calibration changes or modifications.’’ 

However, rejecting NCPs solely because 

some manufacturers have achieved or 

are on a path to achieve compliance, 

while one or more other manufacturers 

are not in the same position, would 

prevent lagging manufacturers from 

certifying in exactly those 

circumstances Congress contemplated 

providing for NCPs—some 

manufacturers are able to achieve 

compliance in the lead time provided, 

but for technological reasons others are 

not. NCPs are designed to address just 

this situation, to temporarily avoid 

driving these manufactories out of the 

market. 50 FR 35374 (August 30,1985). 

Clearly, in this case, substantial work 

was required to meet the 0.20 g/bhp-hr 

standard. Every manufacturer has 

included (or will soon include) for the 

first time NOX aftertreatment (selective 

catalytic reduction), on their engines to 

meet the standard. Prior to deciding to 

change its technology approach, 

Navistar also greatly modified its 

exhaust gas recirculation (EGR) system 

to reduce NOX emissions and would 

likely have needed to do significantly 

more work to further reduce its NOX

emissions to meet the standard. These 

are substantial changes to the emission 

control systems of these engines. While 

several manufacturers are currently 

using SCR systems, they were not doing 

so until they were required to meet the 

2010 NOX standard. Therefore, it is clear 

that substantial work was needed to go 

from the previous standard to achieve 

compliance with the 2010 NOX

standard, and the second criterion is 

satisfied. 

The court also noted that NCPs are 

not intended in a situation where the 

failure to achieve compliance is not 

related to technological reasons, but to 

a manufacturer’s choosing to not 

employ an available complying 

technology. As discussed above, EPA 

agrees that the basis for establishing 

NCPs must be a technological based 

laggard. The reasons for not achieving 

the emissions standard in the lead time 

provided must be based on a 

technological failure in developing and 

employing the chosen technology 

pathway. The court refers to a statement 

made by EPA when discussing the 

relationship between NCPs for the 2010 

NOX standard and credits for the CO2

emissions standards adopted for heavyduty engines and trucks.10 77 FR 4739 

(January 31, 2012). EPA stated it was not 

providing NCPs for the new CO2

emissions standard as it was not in a 

position to determine that a 

technological laggard was likely to 

develop for that CO2 standard. In that 

context, EPA also determined that an 

engine that was certified to the 2010 

NOX standard using NCPs should not be 

able to generate credits at the same time 

under the CO2 emissions standards. EPA 

recognized that there was an interplay 

between NOX control and CO2 control, 

such that higher levels of NOX could 

lead to lower levels of CO2 emissions. 

Under those circumstances, providing 

credits for the CO2 program could 

provide an incentive for a manufacturer 

to increase NOX emissions but still 

certify an engine using NCPs, where 

they could otherwise achieve the NOX

standard without NCPs. That 

manufacturer could then generate 

credits under the CO2 program for the 

decrease in CO2 emissions resulting 

from the increase in NOX emissions. 

Thus, the manufacturer would be 

choosing to not comply with a standard 

for which it was technologically capable 

of complying, and would be doing so to 

generate emission credits that would 

provide it some advantage in the future. 

This would not be consistent with either 

the purpose of the CO2 credit program 

(to provide an incentive for 

manufacturers to take technological and 

other efforts to over comply with the 

CO2 standard) or the purpose of the NCP 

program (to provide relief to 

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11The previous NCP rules include: the Phase VI 

rulemaking (67 FR 51464, August 8, 2002), Phase 

IV rulemaking (58 FR 68532, December 28, 1993), 

Phase III rulemaking (55 FR 46622, November 5, 

1990), the Phase II rulemaking (50 FR 53454, 

December 31, 1985) as well as the Phase I 

rulemaking (50 FR 35374, August 30, 1985). 

12While we have followed the regulatory formula 

for determining penalties for this rule, it should be 

noted that if we were to find that conforming to the 

regulatory requirements would not conform to the 

statutory requirements, we would need to revise the 

regulatory requirements through rulemaking. 

manufacturers that fail to achieve the 

standard on time for technological 

reasons, not for other reasons such as 

the economic benefit of generating CO2

credits by voluntarily increasing 

emissions of NOX). 

EPA’s observation in the proposal 

confirmed that the basic purpose of 

NCPs is to provide relief where there is 

a laggard for technological reasons, not 

other reasons. The concerns raised 

regarding CO2 credits and NOX NCPs are 

not related to our finding that Navistar 

is a technological laggard. No one argues 

that Navistar has failed to achieve a 

technological solution because of a 

decision to generate credits or reap 

economic benefits elsewhere. Instead 

Navistar’s failure to achieve the 

standard as of this date is based on 

technological and not other reasons. 

This is similar to the circumstances in 

2002 when Caterpillar developed its 

‘‘ACERT’’ technology rather than use 

cooled EGR technology, which it had 

been developing until 2001. It needed to 

use NCPs because of delays in 

developing ACERT. In that case, 

Caterpillar did not dispute that cooledEGR would achieve the necessary 

emission reductions; rather it chose to 

attempt to meet the standard using what 

it believed to be a superior technology. 

The court also noted its concern with 

the level of the penalty in the Interim 

Final Rule, and whether it adequately 

removed the economic disadvantage to 

conforming manufacturers. That issue is 

addressed in Section V. below. 

V. Penalty Rates 

This rulemaking is the most recent in 

a series of NCP rulemakings. These are 

referred to as Phases and are referenced 

below.11 The discussions of penalty 

rates and related reports and analyses in 

those rulemakings are incorporated by 

reference. This section briefly reviews 

the penalty rate formula originally 

promulgated in the Phase I rule 

(currently found at 40 CFR 86.1113–87) 

and discusses how EPA arrived at the 

penalty rates in this Final Rule. 

The penalty rates being established in 

this rule rely on the existing NCP 

regulatory structure. Only a few changes 

are being made to the regulations. As 

proposed, we are setting of the upper 

limit at 0.50 g/hp-hr and are clarifying 

in § 86.1104–91 that EPA may set the 

upper limit at: (1) a level below the 

previous standard if we determine that 

the lower level is achievable by all 

engines, or (2) a level above the 

previous standard if we determine that 

the standard is not achievable by all 

engines. We also proposed cost 

parameters to reflect the compliance 

costs for the 2010 standards and are 

finalizing these cost parameters, after 

revising them based on comments. 

Finally, in response to comments, we 

are clarifying that the second NCP 

criterion is to be evaluated without 

regard to the specific timing of the NCP 

rule. 

We received many comments 

supporting higher or lower penalties for 

a variety of reasons. However, the most 

important criteria in evaluating the 

penalties are how they conform to the 

statutory requirements and how they 

conform to the regulatory requirements. 

With respect to the statutory 

requirements for the penalties in the 

first year, we note that the purpose of 

adopting NCPs is to allow a 

noncompliant manufacturer to continue 

selling its engines, provided it pays the 

penalty. However, section 206(g) of the 

Clean Air Act directs EPA to set the 

NCPs at a level that will ‘‘remove any 

competitive disadvantage’’ to complying 

manufacturers. Contrary, to what some 

commenters suggested, this first year 

penalty level is not intended to punish 

the noncomplying manufacturer beyond 

the level needed to remove any 

competitive disadvantage for complying 

manufacturers. 

EPA has also set regulatory 

requirements for penalty levels. Most 

significantly, the regulations require 

that penalties be based on total 

incremental costs of compliance relative 

to engines at the upper limit, which we 

have done. In the first NCP rule, it was 

determined that compliance cost 

differences between engines at the 

upper limit and engines at the standard 

would be appropriate measures of the 

competitive disadvantage for complying 

manufacturers.12 We believe that the 

final NCPs being established conform to 

both the regulatory requirements and 

the statutory requirements. 

The NCP rates being adopted in this 

FRM are specified for model year 2012. 

As required by section 206(g) of the Act, 

the existing regulations include a 

formula that increases (or ‘‘escalates’’) 

the penalty rates with each new model 

year. The purpose of the escalator is to 

provide an incentive for manufacturers 

who use NCPs for more than one model 

year to achieve compliance quickly 

rather than continuing to use NCPs for 

multiple model years. 

As proposed, we will apply this 

annual adjustment formula to the NCPs 

by setting the 2012 model year as year 

number one. This is consistent with the 

existing regulatory text that states that 

year one is the first year that NCPs are 

available (see 40 CFR 1113–87(a)(4)). 

Traditionally, when NCPs are adopted, 

they are available the first model year 

the new or revised emission standard 

applies and there is no question about 

which model year should be year one 

for purposes of the annual escalator. 

However, this is less straightforward for 

this NCP rule. First, the 0.20 g/bhp-hr 

first applied beginning in the 2007 

model year, as part of a phase-in, but 

did not take full effect until MY2010. In 

addition, we are adopting NCPs more 

than two model years later. While we 

received comments supporting setting 

2010 as the base year, we continue to 

believe the 2012 model year is the 

correct year for the first year of the 

escalator calculation. As discussed 

further in the Response to Comments 

document, we are not revising the 

regulatory text that specifies that year 

one is the first year that NCPs are 

available. Using the first year of NCP 

availability as the first year for the 

escalator calculation, the initial NCPs 

(i.e., NCPs during the first model year of 

availability) remove the disadvantage 

for the complying manufacturers, as 

Congress intended. Under this 

approach, the escalator would apply 

staring in MY2013, the earliest that any 

manufacturers could be using NCPs for 

more than one model year. This ties the 

initiation of the escalator, and the start 

of the economic incentive it provides, to 

the first year in which circumstances 

that call for such an incentive can 

exist—the second year of availability. 

MY2013 is the first year any 

manufacturer could use this NCP for 

multiple years. Adding an extra penalty 

equivalent to two years of escalation is 

contrary to the intent for this escalation. 

No manufacturer had access to NCPs 

prior to 2012, and requiring an escalator 

based on the two previous years of the 

standard would treat a manufacturer 

who uses NCPs in either 2012 or 2013 

as if they had already used NCPs for 

several more years than the actual 

usage. The additional escalator and 

related additional incentive is more 

than is needed to meet the objective of 

the escalator provision, and therefore is 

consistent with the purpose of the 

escalator provision. 

We are specifying the NCP formula 

using the normal NCP parameters: 

COC50, COC90, MC50, F, and UL. The 

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54394 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

NCP formula is the same as that 

promulgated in the Phase I rule. As was 

done in previous NCP rules, we 

consider incremental manufacturer 

costs and incremental owner costs (for 

complying engines relative to the upper 

limit), but do not consider certification 

costs because both complying and 

noncomplying manufacturers must 

incur certification costs. COC50 is an 

estimate of the industry-wide average 

incremental cost per engine (references 

to engines are intended to include 

vehicles as well) associated with 

meeting the standard for which an NCP 

is established, compared with meeting 

the upper limit. COC90 is an estimate of 

the 90th percentile incremental cost per 

engine associated with meeting the 

standard for which an NCP is 

established, compared with meeting the 

associated upper limit. Conceptually, 

COC50 represents costs for a typical or 

average manufacturer, while COC90

represents costs for the manufacturers 

with the highest compliance costs. 

MC50 is an estimate of the industrywide average marginal cost of 

compliance per unit of reduced 

pollutant associated with the least cost 

effective emission control technology 

installed to meet the new standard. 

MC50 is measured in dollars per g/bhphr for heavy-duty engines. F is a factor 

used to derive MC90, the 90th percentile 

marginal cost of compliance with the 

NCP standard for engines in the NCP 

category. MC90 defines the slope of the 

penalty rate curve near the standard and 

is equal to MC50 multiplied by F. UL is 

the upper limit above which no engine 

may be certified. 

The derivation of the cost parameters 

is described in a support document 

titled ‘‘Technical Support Document: 

Nonconformance Penalties for 2012 and 

later Highway Heavy-Duty Diesel 

Engines’’ (Technical Support 

Document), which is available in the 

public docket for this rulemaking. All 

costs are presented in 2011 dollars. The 

Technical Support Document also 

includes alternative cost analyses that 

were considered. These alternative 

analyses are discussed in Section V.D of 

this preamble. 

A. Upper Limit 

The upper limit (UL) is the emission 

level established by regulation above 

which NCPs are not available. A heavy 

duty engine cannot use NCPs to be 

certified for a level above the upper 

limit. CAA section 206(g)(2) refers to the 

upper limit as a percentage above the 

emission standard, set by regulation, 

that corresponds to an emission level 

EPA determines to be ‘‘practicable.’’ The 

upper limit is an important aspect of the 

NCP regulations not only because it 

establishes an emission level above 

which no engine may be certified using 

NCPs, but it is also a critical component 

of the cost analysis used to develop the 

penalty rates. The regulations specify 

that the relevant costs for determining 

the COC50 and the COC90 factors are the 

difference between an engine at the 

upper limit and one that meets the 

applicable standards (see 40 CFR 

86.1113–87). 

The regulatory approach adopted 

under the prior NCP rules sets the upper 

limit at the prior emission standard 

when a prior emission standard exists 

and is then changed to become more 

stringent. EPA concluded that this 

upper limit should be reasonably 

achievable by all manufacturers with 

engines or vehicles in the relevant class. 

It should be within reach of all 

manufacturers of HDEs or HDVs that are 

currently allowed so that they can 

continue to sell their engines and 

vehicles while finishing their 

development of fully complying 

engines. A manufacturer of a previously 

certified engine or vehicle should not be 

forced to immediately remove an HDE 

or HDV from the market when an 

emission standard becomes more 

stringent. The prior emissions standard 

generally meets these goals because 

manufactures have already certified 

their vehicles to that standard. 

In the NPRM, we proposed to revise 

the regulations in § 86.1104–91 to 

clarify that EPA may set the upper limit 

at a level below the previous standard 

if we determine that the lower level is 

achievable by all engines or vehicles in 

the relevant subclass. That provision of 

the regulations was not opposed by any 

commenters and is included in this final 

rule. We are also finalizing the upper 

limit at 0.50 g/bhp-hr, which was 

widely supported by commenters. For 

this rule, all manufacturers are currently 

certifying all of their engines at or below 

the 0.50 g/bhp-hr FEL cap, providing 

clear evidence that this level can be met 

by all manufacturers. The reason EPA 

has rejected past suggestions that the 

upper limit should be more stringent 

than the prior emission standard does 

not apply here, as there is no difficulty 

in this case in identifying a limit that 

could be met by all manufacturers. See 

50 FR 35377 (August 30, 1985). Thus, 

setting the upper limit for this NCP rule 

at 0.50 g/bhp-hr NOX conforms to the 

purpose of the upper limit in setting 

NCPs. 

As proposed, we are also specifying 

that EPA could set the upper limit at a 

level above the previous standard in 

unusual circumstances, such as where a 

new standard for a different pollutant or 

other requirement effectively increases 

the stringency of the standard for which 

NCPs would apply. This occurred for 

heavy heavy-duty engines with the 2004 

standards. While this change would not 

apply for this current NCP rulemaking, 

we proposed to add this clarification to 

make the regulations consistent with 

past practices. 

B. Cost Parameter Values 

The regulations being adopted specify 

that the values in Table 1 be used in the 

NCP formula for the 2012 and later 

model year NOX standard of 0.20 g/bhphr for heavy heavy-duty diesel engines. 

The basis is summarized here. The 

complete derivation of these parameters 

and a discussion of other approaches 

that were considered are described in 

the Technical Support Document for 

this rulemaking. 

TABLE 1—NCP CALCULATION

PARAMETERS

Parameter Heavy heavy-duty 

diesel engines 

COC50 ....................... 3,219 

COC90 ....................... $3,775 

MC50 ......................... $10,729 per g/bhp-hr 

F ................................ 1.173 

UL ............................. 0.50 g/bhp-hr 

Some commenters argued that EPA 

should not deviate from prior 

precedents for calculating costs. 

However, EPA has not used the same 

methodology in calculating costs in 

each of the previous NCP rules. In each 

of our six previous NCP rulemakings, 

we estimated costs using a methodology 

appropriate for the specific 

circumstances that applied at the time. 

None were approached in exactly the 

same way. In each case we considered 

key factors such as differences in 

calibration, hardware, and operating 

costs, but there have been some NCP 

calculations where other potential 

individual cost or cost saving elements 

have been included or excluded for 

various reasons. In determining how to 

calculate costs of compliance, EPA 

considers not only what data are 

available, but also the extent to which 

each cost element may affect the 

competitive balance of the market. 

The NCP parameters being finalized 

were developed using the same basic 

methodology described in the NPRM. 

As in all NCP rules, the final NCPs are 

based on the estimated difference in 

compliance costs for engines at the 

upper limit and engines at the standard. 

Thus, engines with emissions at the 

upper limit can be considered to be 

baseline engines for the analysis. These 

baseline engines also represent the 

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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54395 

13Note that Cummins is using emission credits to 

certify one medium heavy-duty engine family with 

a NOX FEL at 0.50 g/hp-hr. While costs associated 

with this medium heavy-duty engine cannot be 

used directly for heavy heavy-duty engines, as 

described in the Final TSD, related confidential cost 

information provided by Cummins was used to 

significantly inform our cost analysis. 

14The proposal was based on the Energy 

Information Administration’s 2011 fuel price 

projections and the retail price of DEF in October 

2011; this Final Rule is based on the Energy 

Information Administration’s 2012 fuel price 

projections and the DEF price projection from 

Integer Research. See Chapter 3 of the Technical 

Support Document for additional detail. 

engines against which complying 

engines could compete in the 

marketplace. In this analysis, the most 

important baseline engine is the engine 

used as the baseline for calculating the 

nominally worst case compliance costs 

(COC90). As is described later, because 

the penalty curve being finalized in this 

NCP rule is a straight line, the value of 

COC50 does not affect the penalty curve. 

The cost parameters being finalized 

are higher than the values proposed. 

These changes reflect new information 

received during the public comment 

period, most notably new updated 

information about fuel and DEF prices 

that was not available at the time we 

completed the cost analysis for the 

proposal. EPA also received comments 

suggesting that the effectiveness of the 

heavy heavy-duty NCPs in meeting the 

statutory requirement to remove 

competitive disadvantage for complying 

manufacturer needs to be evaluated 

relative to engines that could be 

developed in the near term (such as a 

reoptimized SCR engine). In response to 

these comments and the new 

information received, EPA is revising 

the COC90 baseline engine because we 

believe that the revised baseline engine 

better represents an optimized engine 

than the baseline engine used for the 

proposal. These changes are discussed 

in more detail below. 

The Clean Air Act’s requirements to 

‘‘remove any competitive disadvantage’’ 

to complying manufacturers effectively 

requires EPA to consider not only 

existing engines with NOX emissions 

over the standard, but also engines that 

could reasonably be developed during 

the period in which NCPs are available. 

Thus, the NCPs must be high enough to 

protect complying manufacturers from a 

competitive disadvantage relative both 

to SCR engines that are optimized to 

emit NOX at a level of 0.50 g/bhp-hr and 

to engines without SCR that emit at that 

level. We considered several 

methodologies for estimating the 

incremental compliance costs between 

the upper limit and the standard and 

selected the approach that best removes 

the potential competitive disadvantage 

for complying manufacturers. See 

Section V. D. for additional discussion 

of these alternate approaches. 

It is important to note that while we 

received comments stating that the level 

of our proposed NCP was not high 

enough to remove the competitive 

advantage Navistar has selling non-SCR 

engines, none of the commenters 

provided evidence that this was the case 

(such as evidence of increased market 

share or increased profits for Navistar). 

None of the commenters provided any 

method by which the value of Navistar’s 

actual competitive advantage could be 

calculated. Nevertheless, we have 

determined based on the information 

available to us that Navistar’s 

competitive advantage is not greater 

than the competitive advantage based 

on compliance costs that we calculated 

relative to the reoptimized SCR baseline 

engine we have used as the basis of our 

COC90 costs. 

(1) General Methodology 

Our approach to estimating 

compliance costs differs slightly from 

that used in recent NCP rules, where 

EPA based the NCPs directly on the 

actual compliance cost increases 

associated with meeting the standard for 

complying manufacturers (borne by the 

complying manufacturers and the 

operators who purchase their compliant 

engines), whether provided by the 

manufacturers or estimated by EPA. 

This was appropriate in those prior 

rules because each of the manufacturers 

had actually produced engines at the 

upper limit (which was usually the 

previous emission standard) and had 

reengineered those engines to meet the 

new or revised standard, so the costs 

associated with that change were 

straightforward to calculate. We 

determined that the manufacturers’ 

input accurately reflected the 

manufacturers’ actual costs because the 

costs were derived directly from actual 

in-production engine information. In the 

case of this NCP rule, however, 

compliant manufacturers have generally 

not designed and optimized their inproduction engines for the U.S. market 

at 0.50 g/bhp-hr NOX (the upper limit) 

and then reengineered their engines to 

meet the 0.20 g/bhp-hr standard.13

Thus, a compliance cost estimate based 

directly on actual experience for the full 

range of in-production engines was not 

available for this NCP rule. 

Instead of averaging actual cost 

increases relative to the upper limit 

(because none were available), the NCP 

penalty formulas for this rule are based 

primarily on EPA’s estimate of the cost 

difference between a hypothetical 

engine emitting at the upper limit (the 

‘‘baseline engine’’) and one emitting at 

the standard (the ‘‘compliant engine’’). 

We received compliance cost 

information from several engine 

manufacturers, both before the proposal 

and during the comment period, and 

used that information to inform our own 

analysis of compliance costs, as 

described in the Technical Support 

Document. 

It is worth noting that each of the 

engine manufacturers that provided cost 

information before the proposal 

considered baseline engines with 

different technology packages. However 

in their comments on the proposal, 

complying manufacturers based their 

compliance costs on either a baseline 

engine equipped with similar hardware 

as EPA’s revised baseline engine, or 

based on a pre-2010 non-SCR engine 

with NOX emissions near 1.2 g/bhp-hr. 

See Section V. D. of this notice for a 

discussion of why using the 1.2 g/bhphr baseline engine is not appropriate. 

As noted earlier, with NCPs available, 

a complying manufacturer could 

compete against not only EGR-equipped 

engines, but also against SCR-equipped 

engines that could be reoptimized to 

emit at 0.50 g/hr-hr. Since engine 

manufacturers are not currently 

producing SCR-equipped heavy heavyduty engines at the upper limit, such 

engines must be considered based on 

our best estimate of how such an engine 

would be manufactured. Based on our 

review of the various hypothetical 

baseline engine designs, we proposed to 

use as a baseline engine our best 

estimate of an optimized SCR engine, 

because we believed it would be the 

most competitive 0.50 g/bhp-hr engine. 

Information available at that time 

projected little difference when 

comparing fuel and DEF prices, so for 

the proposal we assumed the baseline 

engine would have been optimized to 

use less DEF compared to 0.20 g/bhp-hr 

engines but had the same fuel 

consumption rates.14 We did not believe 

there would be a significant difference 

in costs using a baseline engine 

optimized for better fuel consumption, 

because we projected that fuel savings 

would have been offset by increased 

DEF costs. As is described in the 

Technical Support Document, for the 

proposal we also believed estimating 

costs by this approach was the least 

speculative method to determine 

compliance costs, and we did not 

believe there were competing designs 

that were substantially more 

competitive based on the compliance 

cost inputs we used. 

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54396 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

15Natural gas is used in the production of urea, 

a primary component of DEF. 

Based on new information and 

comments we received, we are revising 

our baseline engine for the heavy heavyduty service class. Specifically, as is 

described below, we are revising the 

COC90 baseline engine to be more 

optimized for low fuel consumption at 

0.50 g/bhp-hr NOX than was assumed 

for the proposal. For the proposal, we 

estimated that reducing NOX emissions 

from 0.50 g/bhp-hr to 0.20 g/bhp-hr 

would require an increase in DEF 

consumption but would not change fuel 

consumption because we projected that 

there would be little price difference 

between DEF and fuel. However, we 

now have new information indicating 

that fuel prices will likely be at least one 

dollar per gallon higher than DEF prices 

for the foreseeable future. We agree with 

commenters that engine manufacturers 

designing engines for 0.50 g/bhp-hr NOX

would have responded (and could still 

respond) to this price difference by 

optimizing their existing 0.20 g/bhp-hr 

SCR engine designs to have slightly 

higher engine-out NOX, which would 

reduce fuel consumption, and reduce 

the excess NOX by increasing DEF 

consumption. Thus compared to this 

revised baseline engine, a compliant 

engine would have higher fuel 

consumption but lower DEF 

consumption. 

We are now projecting that DEF prices 

will be at least one dollar less per gallon 

than diesel fuel prices for the 

foreseeable future (as shown in Figure 

2), and the appropriate baseline engine 

is one that would have been designed to 

take advantage of this price difference. 

We have updated our fuel price 

projections using the Energy 

Information Administration’s (EIA) 

Annual Energy Outlook 2012 

(AEO2012) to project fuel prices through 

2035. EIA is now projecting diesel fuel 

prices will be about fifty cents more per 

gallon than was projected in 2011. We 

have also revised our projection of DEF 

prices based on information from 

Integer Research provide by 

commenters. While we proposed using 

a constant DEF price through 2042 

(because we did not have any 

projections for future DEF prices at the 

time we developed the proposal), we are 

now projecting that DEF prices will fall 

for the next few years, and then increase 

as the price of natural gas increases 

(using AEO2012 projections).15

The current baseline engine is similar, 

but not identical, to what we proposed 

with respect to hardware. As proposed, 

the baseline engine technology package 

would employ the same basic emission 

controls used to meet the 2007 NOX and 

PM emission standards (e.g. cooled 

exhaust gas recirculation (EGR), 

optimized turbo-charging, optimized 

fuel injection, diesel particulate filters), 

plus liquid urea based selective catalytic 

reduction (SCR) NOX emissions control 

technology with an appropriately sized 

tank for the liquid urea (also known as 

diesel emission fluid or ‘‘DEF’’). 

However, we now believe the baseline 

engine could have used less expensive 

hardware than we proposed. We 

continue to believe that manufacturers 

could reduce the size of the SCR catalyst 

if they were allowed to meet a higher 

NOX emission limit. In addition, we 

now believe that they could also reduce 

the precious metal loading of the diesel 

oxidation catalyst (DOC), and lower the 

cost of the turbocharger. Thus, the 

hardware component of the compliance 

costs has gone up from what we 

proposed (i.e., the cost of the hardware 

on the baseline engine has gone down). 

Further details are provided in this 

rule’s Technical Support Document. 

(a) Calculated Values 

The most significant of the NCP 

parameters is the 90th percentile costs 


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16The Act requires that we remove competitive 

disadvantage for complying manufacturers. We 

recognize that there is uncertainty in our estimates. 

To ensure that we protect the complying 

manufacturer our overall approach is somewhat 

conservative. See the Technical Support Document 

for additional discussion of how we addressed 

uncertainty in our estimates. 

17Penalties are calculated based on costs for a 

model year 2012 engine. The regulations include 

separate provisions to increase penalties for later 

model years. 

of compliance, COC90, which defines 

the penalty for engines emitting at the 

upper limit. The value of COC50 is 

important only when EPA estimates that 

marginal compliance costs change as the 

compliance level approaches the 

standard. In such cases, COC50 defines 

that point on the curve at which the 

slope changes. However, for this NCP 

rule we believe that because of the 

narrow emission range between the 

upper limit and the standard (0.20 to 

0.50 g/bhp-hr), it is appropriate to 

assume that marginal compliance costs 

are constant. Thus, we are not 

summarizing our derivation of COC50 in 

this preamble since its value does not 

affect the penalty amounts. See the 

Technical Support Document for a 

discussion of COC50. 

We estimated COC90 by assuming the 

baseline engine would have been an 

SCR equipped engine with tailpipe NOX

emissions at 0.50 g/bhp-hr and that it 

would have looked very similar to an 

engine with tailpipe NOX emissions at 

0.20 g/bhp-hr. However, as noted above, 

the higher NOX emissions of the 

baseline engine would allow the use of 

less expensive hardware and would be 

calibrated to minimize the combined 

consumption of fuel and DEF. As 

described in more detail in the 

Technical Support Document, we 

estimated reasonable 90th percentile (or 

worst case) costs associated with 

bringing such a baseline engine into full 

compliance with the 0.20 g/bhp-hr NOX

emission standard.16 We note that the 

average costs associated with SCR may 

well be lower than the 90th percentile 

costs presented here. 

We estimate that the SCR hardware 

used by a complying manufacturer (i.e., 

an SCR system that would achieve 0.20 

g/bhp-hr NOX) cost the manufacturer 

$5,522 per engine for the 90th percentile 

engine compared to an engine emitting 

at 1.2 g/bhp-hr. We estimate that the 

baseline hardware (i.e., an engine and 

SCR system that would achieve 0.50 but 

not 0.20 g/bhp-hr NOX) for the 90th 

percentile engine would have cost the 

manufacturers only $4,441 (including 

R&D, warranty, and other overhead 

costs) after hardware savings associated 

with the DOC and turbocharger are 

deducted. Therefore, the manufacturers 

would have to spend $1,081 more in 

hardware, R&D, warranty and other 

overhead costs to produce a 0.20 g/bhphr engine than it would have cost to 

produce a 0.50 g/bhp-hr engine. We 

calculated the difference in operating 

costs the same way. 

These COC90 costs are summarized in 

the Table 2. The values in the tables are 

the costs that would be incurred by a 

manufacturer or operator for a model 

year 2012 0.20 g/bhp-hr engine relative 

to a 0.50 g/bhp-hr baseline engine. All 

operating costs are presented as net 

present value (NPV) relative to 2012 

using a 7 percent discount rate.17 For 

example, we estimate that the NPV of 

the lifetime fuel cost of a 0.20 g/bhp-hr 

engine would be $8,833 higher than the 

fuel cost for a baseline engine, but the 

NPV of DEF costs would be $6,191 

lower. 

TABLE 2—COC90 DOLLAR-PER-ENGINE † COSTS

[2011 dollars] 

FRM COC90 NPRM 

COC90

Lifetime Fuel Costs .......................................................................................................................................................... $8,833 $0 

Lifetime DEF Costs (Savings) ......................................................................................................................................... (6,191) 1,374 

Hardware Costs ............................................................................................................................................................... 927 474 

Research and Development Cost ................................................................................................................................... 19 9 

Warranty and Other Manufacturer Costs ........................................................................................................................ 135 62 

Operator Repair Costs ..................................................................................................................................................... 52 0 

Total Cost ................................................................................................................................................................. 3,775 1,919 

†Although penalties are accessed per engine, costs include vehicle costs. 

We estimated the marginal costs of 

compliance as being equal to the total 

incremental costs of compliance divided 

by 0.30 g/bhp-hr (the difference between 

the upper limit and the standard). This 

assumes that the cost to reduce 

emissions from 0.30 g/bhp-hr to 0.20 g/ 

bhp-hr is not significantly different from 

the cost to reduce emissions from 0.50 

g/bhp-hr to 0.40 g/bhp-hr. This results 

in a penalty curve that is a straight line, 

which in turn makes our estimate of the 

average cost of compliance irrelevant to 

the calculation of the penalty. In other 

words, the COC50 point lies directly 

between zero cost at 0.20 g/bhp-hr and 

COC90 at the Upper Limit of 0.50 g/bhphr NOX. The penalty paid for engines at 

any compliance level between the 

standard and the upper limit would be 

equal to EPA’s estimate of the highest 

marginal cost paid by a complying 

manufacturer for the same emission 

range. 

C. Resulting Penalties 

The calculation parameters listed in 

Table 1are used to calculate the penalty 

rate. These parameters are used in the 

penalty rate formulas which are defined 

in the existing NCP regulations (See 40 

CFR 86.1113(a)(1) and (2)). Using the 

parameters in Table 1, and the equations 

in the existing NCP regulations, we have 

plotted penalty rates versus compliance 

levels in Figure 1 above. This penalty 

curve is for the first year of use of the 

NCPs (i.e., the annual adjustment factors 

specified in the existing NCP 

regulations have been set equal to one). 

The maximum first year penalty is equal 

to COC90, which is $3,775. 

The Clean Air Act NCP provisions 

require that the penalty be set at such 

a level that it removes competitive 

disadvantage for a complying 

manufacturer. For the reasons described 

in the Technical Support Document, we 

believe that the NCPs being established 

in this rulemaking fulfills this 

requirement. 

D. Consideration of Other 

Methodologies 

We received comments suggesting 

how we should revise our estimated 

costs, if we continued to use the 

proposed methodology. Where 

appropriate, we incorporated these 

concepts into our final cost 

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54398 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

methodology. We also received 

comments arguing that we should 

change our methodology. However, as 

described in the Technical Support 

Document, we determined that the other 

methodologies were not appropriate. 

Our primary methodology estimates 

the difference in lifetime compliance 

costs between a compliant 0.20 g/bhphr engine and a 0.50 g/bhp-hr engine 

that we believe would have the greatest 

competitive advantage over the 

compliant engine. As noted earlier, we 

believe that an SCR engine optimized 

for 0.50 g/bhp-hr would have the 

greatest competitive advantage over 

compliant engines. Two of the other 

approaches we considered would have 

involved using non-SCR engines as the 

baseline engines, as suggested by some 

commenters. However, as described 

below, we determined that these 

approaches would not sufficiently 

remove the potential competitive 

advantage of an optimized SCR engine. 

In the first approach we considered 

using a 0.50 g/bhp-hr EGR engine (such 

as the engines Navistar is currently 

selling) as the baseline engine. This 

option was supported by one 

manufacturer during preproposal 

discussion, but was not supported in 

any comments on the NPRM. 

Nevertheless, we evaluated this 

approach to ensure that our 

methodology is the most appropriate 

one. Specifically, we estimated the 

hardware and operating costs associated 

with adding SCR to a non-SCR engine 

to meet the 0.20 g/bhp-hr standard. As 

is described in the Technical Support 

Document, we estimated that there 

would be significant hardware costs to 

add SCR plus significant operating costs 

for DEF consumption. However, these 

would be mostly offset by the fuel 

savings associated with SCR engines, 

plus hardware savings from down-sizing 

the EGR system. The combined effect 

would be to make the costs of going 

from the EGR engine to the compliant 

engine lower than the costs of going 

from the baseline SCR engine to the 

compliant engine. Put another way, this 

means that the cost savings of changing 

from a compliant engine to an EGR-only 

engine are smaller than the cost savings 

of changing from a compliant engine to 

the baseline SCR engine, indicating that 

an EGR engine at 0.50 g/bhp-hr would 

have a smaller competitive advantage 

than the baseline engine we used to 

develop the final NCPs. Moreover, this 

means that NCPs based on this approach 

would not remove the competitive 

disadvantage to complying 

manufacturers, where manufacturers of 

optimized SCR engines could pay the 

lower NCP and still have a competitive 

advantage over compliant engines. 

In the second approach, we 

considered setting an upper limit at 1.2 

g/bhp-hr and including the full cost of 

SCR as the compliance cost. As was true 

for the previous approach, we estimated 

that most of the hardware and DEF costs 

would be offset by the fuel savings, 

making the NCP at 0.50 g/bhp-hr lower 

than our estimate of the competitive 

advantage for SCR engines optimized for 

0.50 g/bhp-hr. This means that setting 

the upper limit at 1.2 and calculating 

costs in this way would not remove the 

competitive disadvantage for complying 

manufacturers compared to a 

manufacturer who optimized its SCR 

engine for 0.50 g/bhp-hr NOX. Note that 

while we evaluated this approach with 

respect to costs and competitive 

disadvantage, we think that there are 

other reasons why it would not be 

appropriate to set the upper limit at 1.2 

g/bhp-hr. In particular, the upper limit 

may not be set at a level that is higher 

than the level that EPA determines is 

practicable, which would be no higher 

than 0.50 g/bhp-hr. 

Finally, we considered other 

scenarios in which the baseline engine 

would have been an SCR engine that 

was fundamentally redesigned to have 

NOX emissions at 0.50 g/bhp-hr (rather 

than reoptimizing an existing design). 

For example, some manufacturers have 

suggested that it would be possible to 

redesign engines to meet 0.50 g/bhp-hr 

without cooled EGR. This could result 

in significant savings for hardware and 

warranty costs. We determined that, 

while it may well be technologically 

possible to redesign current SCR 

engines to meet 0.50 g/bhp-hr NOX with 

significantly lower hardware costs, there 

is no business scenario in which such 

savings would justify paying an NCP. 

Fundamentally redesigning an engine 

would take a minimum of two years and 

involve substantial capital costs. So a 

manufacturer that began redesigning its 

engines today could not expect to have 

the new engine ready for production 

before model year 2015. At that point, 

the annual adjustments to the NCPs 

would have increased the penalty 

substantially. Moreover, using NCPs in 

model year 2015 and later would result 

in a rapidly increasing penalty due to 

the annual adjustment factors, so a 

manufacturer would need to recover all 

of its investments within one or two 

model years. However, this would 

require the manufacturer to raise its 

prices so much that it would make its 

engines uncompetitive in the 

marketplace. 

VI. Economic Impact 

Because the use of NCPs is optional, 

manufacturers have the flexibility and 

will likely choose whether or not to use 

NCPs based on their ability to comply 

with emissions standards. If no 

manufacturer elects to use NCPs, these 

manufacturers and the users of their 

products will not incur any additional 

costs related to NCPs. NCPs remedy the 

potential problem of having a 

manufacturer forced out of the 

marketplace due to that manufacturer’s 

inability to conform to new, strict 

emission standards in a timely manner. 

Without NCPs, a manufacturer which 

has difficulty certifying HDEs in 

conformance with emission standards or 

whose engines fail a Selective 

Enforcement Audit (SEA) has only two 

alternatives: fix the nonconforming 

engines, perhaps at a prohibitive cost, or 

prevent their introduction into 

commerce. The availability of NCPs 

provides manufacturers with a third 

alternative: continue production and 

introduce into commerce upon payment 

of a penalty an engine that exceeds the 

standard until an emission conformance 

technique is developed. Therefore, 

NCPs represent a regulatory mechanism 

that allows affected manufacturers to 

have increased flexibility. A decision to 

use NCPs may be a manufacturer’s only 

way to continue to introduce its 

products into commerce. 

VII. Environmental Impact 

When evaluating the environmental 

impact of this rule, one must keep in 

mind that, under the Act, NCPs are a 

consequence of enacting new, more 

stringent emissions requirements for 

heavy duty engines. Emission standards 

are set at a level that most, but not 

necessarily all, manufacturers can 

achieve by the model year in which the 

standard becomes effective. Following 

International Harvester v. Ruckelshaus, 

478 F. 2d 615 (DC Cir. 1973), Congress 

realized the dilemma that technologyforcing standards could potentially 

cause, and allowed manufacturers of 

heavy-duty engines to certify 

nonconforming vehicles/engines upon 

the payment of an NCP, under certain 

terms and conditions. This mechanism 

was intended to allow manufacturer(s) 

who cannot meet technology-forcing 

standards immediately to continue to 

manufacture nonconforming engines 

while they tackle the technological 

problems associated with meeting new 

emission standard(s). Thus, as part of 

the statutory structure to force 

technological improvements without 

driving manufacturers or individual 

engine models out of the market, NCPs 

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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54399 

provide a flexibility that fosters longterm emissions improvement through 

the setting of lower emission standards 

at an earlier date than could otherwise 

be feasible. Because NCPs are designed 

to increase with time, manufacturers 

using NCPs are likely to reduce 

emission levels to meet the standard as 

quickly as possible, which minimizes 

the environmental impact. 

As is always the case with NCPs, the 

potential exists for there to be more 

extensive use of NCPs beyond what is 

projected at this time, where we project 

use by one manufacturers for a limited 

number of model years. For example, 

depending upon the penalty rate and 

other factors, some otherwise fully 

compliant manufacturers could elect to 

pay the NCP in order to reconfigure 

their 0.20 g/bhp-hr NOX compliant 

engines to emit up to 0.50 g/bhp-hr so 

that they can re-optimize engine 

hardware and vehicle operating costs. 

This potential action is not without R&D 

and other financial costs to the 

manufacturer and thus is not a decision 

which would be taken lightly. 

Furthermore, we believe that any such 

impacts would be short-term and selflimiting in nature because the NCP 

annual adjustment factor, established 

via prior NCP rules, increases the levels 

of the penalties over time and based on 

the extent of the use of NCPs by all 

manufacturers. In other words the NCP 

program is structured such that the 

incentives to produce engines that meet 

the standard increase year-by-year and 

increase upon NCP use. The practical 

impact of this adjustment factor is that 

the NCPs will rapidly become an 

undesirable option for all manufacturers 

that may elect to use them. However, 

while we expect their use to be limited, 

we have no way of predicting at this 

time exactly how many engines will 

make use of the NCPs. Navistar has 

indicated that it will use NCPs until 

sometime in 2013, when it begins 

introducing vehicles with SCR 

technology that meet the 0.20 g/hp-hr 

standard. Because of these uncertainties 

we are unable to accurately quantify the 

potential impact the NCPs might have 

on emission inventories, although, as 

stated above, any impacts are expected 

to be short-term and self-limiting in 

nature. 

VIII. Emission Standards for Which We 

Are Not Establishing NCPs in This Final 

Rule 

This section identifies the emission 

standards for which we are not 

establishing NCPs in this Final Rule. 

A. Medium Heavy Duty Diesel NOX

Standards 

EPA proposed to find that the criteria 

for providing NCPs had been met for 

medium heavy duty diesel engines, and 

we proposed NCPs for these engines. 

However, EPA is not taking final action 

with regard to NCPs for these engines at 

this time because EPA has not 

completed its review of the comments 

and the technical data regarding 

establishing NCPs for these engines. A 

full discussion of compliance costs for 

medium heavy-duty engines is 

contained in Appendix C of the TSD for 

this rule. Parties may provide comments 

regarding these estimates by submitting 

comments to the docket for this rule. 

B. Light Heavy-Duty Diesel NOX

Standards 

EPA believes that the first two NCP 

criteria have been met for the 2010 NOX

standard for light heavy-duty diesel 

engines. However, we have not 

determined that there is likely to be a 

technological laggard. We are unaware 

of any manufacturer that will be unable 

to either achieve 0.20 g/bhp-hr for the 

2012 and 2013 model year or will not 

have sufficient NOX emission credits to 

continue certifying light heavy-duty 

engines for the foreseeable future. 

C. Heavy-Duty Gasoline Engine 

Standards 

In a final rule published on January 

18, 2001 (66 FR 5001), EPA established 

more stringent emission standards for 

all heavy-duty gasoline (or ‘‘Otto-cycle’’) 

vehicles and engines. These standards 

took two forms: a chassis-based set of 

standards for complete vehicles under 

14,000 pounds GVWR (the chassisbased program), and an engine-based set 

of standards for all other Otto-cycle 

heavy-duty engines (the engine-based 

program). Each of the two programs has 

an associated averaging, banking, and 

trading (ABT) program. The new 

standards generally took effect starting 

with the 2008 model year, and since all 

manufacturers are in compliance with 

them, the criteria for establishing NCPs 

has not been met and we are not 

establishing NCPs for gasoline engines 

or vehicles. 

D. Heavy-duty Diesel Engine NMHC, 

CO, and PM Standards 

EPA adopted new NMHC and PM for 

model year 2007 and later heavy-duty 

engines in the same rule that set the 

2010 NOX emission standard (66 FR 

5001, January 18, 2001). The CO 

standard was not changed. We are not 

establishing NCPs for any of these other 

standards because all manufacturers are 

already fully compliant with them. 

E. Heavy-duty CO2 Standards 

In a final rule published on 

September 15, 2011 (76 FR 57106), EPA 

established new CO2 emission standards 

for all heavy-duty vehicles and engines. 

We are not considering NCPs for any of 

these standards at this time because we 

currently do not have a basis to 

conclude that a technological laggard is 

likely to develop. 

As proposed, we are adding a new 

regulatory provision related to these 

CO2 emission standards. The provision 

prohibits generating emission credits for 

CO2 or any other pollutant from engines 

paying NCPs for NOX. Given the general 

tradeoff between CO2 and NOX

emissions, we were concerned that a 

manufacturer capable of meeting the 

0.20 g/bhp-hr NOX emission standard 

could choose to pay an NCP in order to 

generate CO2 credits by recalibrating its 

engines for higher NOX emissions and 

lower CO2. There are two reasons this 

would be inappropriate. It would not be 

consistent with either the purpose of the 

CO2 credit program (to provide an 

incentive for manufacturers to take 

technological and other efforts to over 

comply with the CO2 standard) and 

would not be consistent with the 

purpose of the NCP program (to provide 

relief to manufacturers that fail to 

achieve the standard on time for 

technological reasons, not for other 

reasons such as the economic benefit of 

generating CO2 credits by voluntarily 

increasing emissions of NOX). 

IX. Statutory and Executive Order 

Reviews 

A. Executive Order 12866: Regulatory 

Planning and Review and Executive 

Order 13563: Improving Regulation and 

Regulatory Review 

Under Executive Order 12866 (58 FR 

51735, October 4, 1993), this action is a 

‘‘significant regulatory action’’ because 

it raises novel legal and policy issues. 

Accordingly, EPA submitted this action 

to the Office of Management and Budget 

(OMB) for review under Executive 

Orders 12866 and 13563 (76 FR 3821, 

January 21, 2011) and any changes made 

in response to OMB recommendations 

have been documented in the docket for 

this action. 

B. Paperwork Reduction Act 

This action does not impose any new 

information collection burden. It only 

updates the penalty amounts to 

correspond to the current emission 

standards. However, the Office of 

Management and Budget (OMB) has 

previously approved the information 

collection requirements contained in the 

existing regulations 40 CFR part 86, 

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54400 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

subpart L under the provisions of the 

Paperwork Reduction Act, 44 U.S.C. 

3501 et seq. and has assigned OMB 

control number 2060–0132. The OMB 

control numbers for EPA’s regulations 

in 40 CFR are listed in 40 CFR part 9. 

C. Regulatory Flexibility Act 

(1) Overview 

The Regulatory Flexibility Act 

generally requires an agency to prepare 

a regulatory flexibility analysis of any 

rule subject to notice and comment 

rulemaking requirements under the 

Administrative Procedure Act or any 

other statute, 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 

organizations, and small governmental 

jurisdictions. 

For purposes of assessing the impacts 

of these rules on small entities, small 

entity is defined as: (1) a small business 

as defined by SBA regulations at 13 CFR 

121.201; (2) a small governmental 

jurisdiction that is a government of a 

city, county, town, school district or 

special district with a population of less 

than 50,000; and (3) a small 

organization that is any not-for-profit 

enterprise which is independently 

owned and operated and is not 

dominant in its field. 

(2) Summary of Potentially Affected 

Small Entities 

After considering the economic 

impacts of this rule on small entities, I 

certify that this action will not have a 

significant impact on a substantial 

number of small entities. 

When these emission standards were 

established, the final rulemaking (66 FR 

5001, January 18, 2001) noted that we 

were not aware of ‘‘any manufacturers 

of heavy-duty engines that meet SBA’s 

definition of a small business.’’ Based 

on an updated assessment, EPA has 

identified a total of about 14 

manufacturers that produce diesel cycle 

heavy-duty motor vehicle engines. Of 

these, none of these are small businesses 

that are producing engines with NOX

emissions above 0.20 g/bhp-hr. Based 

on this, we are certifying that this rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

(3) Conclusions 

I therefore certify that this Final Rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

D. Unfunded Mandates Reform Act 

This rule does not contain a Federal 

mandate that may result in expenditures 

of $100 million or more for State, local, 

and tribal governments, in the aggregate, 

or the private sector in any one year. 

The agency has determined that this 

action does not contain a Federal 

mandate that may result in expenditures 

of $100 million or more for the private 

sector in any one year. Because the use 

of NCPs is optional, manufacturers have 

the flexibility and will likely choose 

whether or not to use NCPs based on 

their ability to comply with emissions 

standards. The availability of NCPs 

provides manufacturers with a third 

alternative: to continue production and 

introduce into commerce upon payment 

of a penalty an engine that exceeds the 

standard until an emission conformance 

technique is developed. Therefore, 

NCPs represent a regulatory mechanism 

that allows affected manufacturers to 

have increased flexibility. Thus, this 

action is not subject to the requirements 

of sections 202 or 205 of the UMRA. 

This action is also not subject to the 

requirements of section 203 of the 

UMRA because it contains no regulatory 

requirements that might significantly or 

uniquely affect small governments. 

E. Executive Order 13132 (Federalism) 

Executive Order 13132, entitled 

‘‘Federalism’’ (64 FR 43255, August 10, 

1999), requires EPA to develop an 

accountable process to ensure 

‘‘meaningful and timely input by State 

and local officials in the development of 

regulatory policies that have federalism 

implications.’’ ‘‘Policies that have 

federalism implications’’ is defined in 

the Executive Order to include 

regulations that have ‘‘substantial direct 

effects on the States, on the relationship 

between the national government and 

the States, or on the distribution of 

power and responsibilities among the 

various levels of government.’’ 

This action does not have federalism 

implications. It will not have substantial 

direct effects on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government, as specified in 

Executive Order 13132. These rules will 

apply to manufacturers of on-highway 

engines and not to state or local 

governments. Thus, Executive Order 

13132 does not apply to this action. 

F. Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) 

This Final Rule does not have tribal 

implications, as specified in Executive 

Order 13175 (65 FR 67249, November 9, 

2000). This rule will be implemented at 

the Federal level and impose 

compliance costs only on engine 

manufacturers who elect to use the NCP 

regulatory flexibility to comply with 

emissions standards. Tribal 

governments would be affected only to 

the extent they purchase and use 

engines and vehicles to which an NCP 

has been applied. Thus, Executive Order 

13175 does not apply to this rule. 

G. Executive Order 13045: Protection of 

Children From Environmental Health 

Risks and Safety Risks 

Executive Order 13045: Protection of 

Children from Environmental Health 

Risks and Safety Risks (62 FR 19885, 

April 23, 1997) applies to any rule that: 

(1) is determined to be ‘‘economically 

significant’’ as defined under Executive 

Order 12866, and (2) concerns an 

environmental health or safety risk that 

EPA has reason to believe may have a 

disproportionate effect on children. If 

the regulatory action meets both criteria, 

the agency must evaluate the 

environmental health or safety effects of 

the planned rule on children, and 

explain why the planned regulation is 

preferable to other potentially effective 

and reasonably feasible alternatives 

considered by the agency. 

EPA interprets Executive Order 13045 

as applying only to those regulatory 

actions that are based on health or safety 

risks, such that the analysis required 

under section 5–501 of the Order has 

the potential to influence the regulation. 

This rule is not subject to Executive 

Order 13045 because it does not 

establish an environmental standard 

intended to mitigate health or safety 

risks. 

H. Executive Order 13211 (Energy 

Effects) 

This action is not a ‘‘significant 

energy action’’ as defined in Executive 

Order 13211 (66 FR 28355 (May 22, 

2001)), because it is not likely to have 

a significant adverse effect on the 

supply, distribution, or use of energy. 

We have concluded that any energy 

impacts of this rule will be small 

because: 

• The NCPs will be used for a limited 

duration. 

• This rule will affect a small number 

of heavy duty vehicles relative to the 

total in-use fleet. 

• The per-vehicle impact of this rule 

will be small. 

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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 54401 

I. National Technology Transfer 

Advancement Act 

Section 12(d) of the National 

Technology Transfer and Advancement 

Act of 1995 (‘‘NTTAA’’), Public Law 

104–113, 12(d) (15 U.S.C. 272 note) 

directs the agencies to use voluntary 

consensus standards in its regulatory 

activities unless to do so would be 

inconsistent with applicable law or 

otherwise impractical. Voluntary 

consensus standards are technical 

standards (e.g., materials, specifications, 

test methods, sampling procedures, and 

business practices) that are developed or 

adopted by voluntary consensus 

standards bodies. NTTAA directs EPA 

to provide Congress, through OMB, 

explanations when the EPA decides not 

to use available and applicable 

voluntary consensus standards. 

This rule does not involve technical 

standards. Therefore, EPA is not 

considering the use of any voluntary 

consensus standards. 

J. Executive Order 12898: Federal 

Actions To Address Environmental 

Justice in Minority Populations and 

Low-Income Populations 

Executive Order 12898 (59 FR 7629, 

February 16, 1994) establishes federal 

executive policy on environmental 

justice. Its main provision directs 

federal agencies, to the greatest extent 

practicable and permitted by law, to 

make environmental justice part of their 

mission by identifying and addressing, 

as appropriate, disproportionately high 

and adverse human health or 

environmental effects of their programs, 

policies, and activities on minority 

populations and low-income 

populations in the United States. 

EPA has determined that this action 

will not have disproportionately high 

and adverse human health or 

environmental effects on minority or 

low-income populations. The overall 

environmental impacts of this action are 

expected to be small and of limited 

duration. Moreover, there is no reason 

to believe that trucks using NCP engines 

will be more likely to operate near any 

minority or low-income populations 

than other trucks. 

K. Congressional Review Act 

The Congressional Review Act, 5 

U.S.C. 801 et seq., as added by the Small 

Business Regulatory Enforcement 

Fairness Act of 1996, generally provides 

that before a rule may take effect, the 

agency promulgating the rule must 

submit a rule report, which includes a 

copy of the rule, to each House of the 

Congress and to the Comptroller General 

of the United States. EPA will submit a 

report containing this rule and other 

required information to the U.S. Senate, 

the U.S. House of Representatives, and 

the Comptroller General of the United 

States prior to publication of the rule in 

the Federal Register. 

Nonconformance Penalties for Onhighway Heavy-Duty Diesel Engines 

Major rule cannot take effect until 60 

days after it is published in the Federal 

Register. This action is not a ‘‘major 

rule’’ as defined by 5 U.S.C. 804(2). This 

rule will be effective September 5, 2012. 

X. Statutory Provisions and Legal 

Authority 

Statutory authority for the vehicle 

controls in these rules is found in CAA 

sections 202 and 206(g), of the CAA, 42 

U.S.C. 7521 and 7525(g). 

List of Subjects in 40 CFR Part 86 

Administrative practice and 

procedure, Confidential business 

information, Motor vehicle pollution, 

Reporting and recordkeeping 

requirements. 

Dated: August 30, 2012. 

Lisa P. Jackson, 

Administrator. 

For the reasons set forth in the 

preamble, the Environmental Protection 

Agency is amending 40 CFR chapter I of 

the Code of Federal Regulations as 

follows: 

PART 86—CONTROL OF EMISSIONS 

FROM NEW AND IN–USE HIGHWAY 

VEHICLES AND ENGINES 

■ 1. The authority citation for part 86 

continues to read as follows: 

Authority: 42 U.S.C. 7401–7671q. 

Subpart L—[Amended] 

■ 2. Section 86.1103–87 is revised to 

read as follows: 

§ 86.1103–87 Criteria for availability of 

nonconformance penalties. 

(a) EPA shall establish for each 

subclass of heavy-duty engines and 

heavy-duty vehicles (other than 

motorcycles), an NCP for a motor 

vehicle pollutant, when any new or 

revised emission standard is more 

stringent than the previous standard for 

the pollutant, or when an existing 

standard for that pollutant becomes 

more difficult to achieve because of a 

new or revised standard, provided that 

EPA finds: 

(1) That for such subclass of engines 

or vehicles, substantial work is required 

to meet the standard for which the NCP 

is offered, and 

(2) That there is likely to be a 

technological laggard. 

(b) Substantial work, as used in 

paragraph (a)(1) of this section, means 

the application of technology that was 

not generally used in an engine or 

vehicle class or subclass to meet 

standards prior to the implementation of 

the new or revised standard, or the 

significant modification of existing 

technology or design parameters, 

needed to bring the vehicle or engine 

into compliance with either the more 

stringent new or revised standard or an 

existing standard which becomes more 

difficult to achieve because of a new or 

revised standard. Substantial work is 

determined by the total amount of work 

required to meet the standard for which 

the NCP is offered, compared to the 

previous standard, irrespective of when 

EPA establishes the NCP. 

■ 3. Section 86.1104–91 is revised to 

read as follows: 

§ 86.1104–91 Determination of upper 

limits. 

EPA shall set a separate upper limit 

for each phase of NCPs and for each 

service class. 

(a) Except as provided in paragraphs 

(b), (c), and (d) of this section, the upper 

limit shall be set as follows: 

(1) The upper limit applicable to a 

pollutant emission standard for a 

subclass of heavy-duty engines or 

heavy-duty vehicles for which an NCP 

is established in accordance with 

§ 86.1103–87, shall be the previous 

pollutant emission standard for that 

subclass. 

(2) If a manufacturer participates in 

any of the emissions averaging, trading, 

or banking programs, and carries over 

certification of an engine family from 

the prior model year, the upper limit for 

that engine family shall be the family 

emission limit of the prior model year, 

unless the family emission limit is less 

than the upper limit determined in 

paragraph (a) of this section. 

(b) If no previous standard existed for 

the pollutant under paragraph (a) of this 

section, the upper limit will be 

developed by EPA during rulemaking. 

(c) EPA may set the upper limit 

during rulemaking at a level below the 

level specified in paragraph (a) of this 

section if we determine that a lower 

level is achievable by all engines or 

vehicles in that subclass. 

(d) EPA may set the upper limit at a 

level above the level specified in 

paragraph (a) of this section if we 

determine that the such level will not be 

achievable by all engines or vehicles in 

that subclass. 

■ 4. Section 86.1105–87 is amended by 

revising paragraph (e) and adding 

paragraph (j) to read as follows: 

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54402 Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations 

§ 86.1105–87 Emission standards for 

which nonconformance penalties are 

available. 

* * * * * 

(e) The values of COC50, COC90, and 

MC50 in paragraphs (a) and (b) of this 

section are expressed in December 1984 

dollars. The values of COC50, COC90, 

and MC50 in paragraphs (c) and (d) of 

this section are expressed in December 

1989 dollars. The values of COC50, 

COC90, and MC50 in paragraph (f) of this 

section are expressed in December 1991 

dollars. The values of COC50, COC90, 

and MC50 in paragraphs (g) and (h) of 

this section are expressed in December 

1994 dollars. The values of COC50, 

COC90, and MC50 in paragraph (i) of this 

section are expressed in December 2001 

dollars. The values of COC50, COC90, 

and MC50 in paragraph (j) of this section 

are expressed in December 2011 dollars. 

These values shall be adjusted for 

inflation to dollars as of January of the 

calendar year preceding the model year 

in which the NCP is first available by 

using the change in the overall 

Consumer Price Index, and rounded to 

the nearest whole dollar in accordance 

with ASTM E29–67 (reapproved 1980), 

Standard Recommended Practice for 

Indicating Which Places of Figures Are 

To Be Considered Significant in 

Specified Limiting Values. This method 

was approved by the Director of the 

Federal Register in accordance with 5 

U.S.C. 552(a) and 1 CFR part 51. This 

document is available from ASTM 

International, 100 Barr Harbor Drive, 

P.O. Box C700, West Conshohocken, PA 

19428–2959, and is also available for 

inspection as part of Docket A–91–06, 

located at the U.S. EPA, Air and 

Radiation Docket and Information 

Center, 1301 Constitution Ave. NW., 

Room 3334, EPA West Building, 

Washington, DC 20004, (202) 202–1744 

or at the National Archives and Records 

Administration (NARA). For 

information on the availability of this 

material at NARA, call 202–741–6030, 

or go to: http://www.archives.gov/ 

federal-register/cfr/ibr-locations.html. 

This incorporation by reference was 

approved by the Director of the Federal 

Register on January 13, 1992. These 

materials are incorporated as they exist 

on the date of the approval and a notice 

of any change in these materials will be 

published in the Federal Register. 

* * * * * 

(j) Effective in the 2012 and later 

model years, NCPs will be available for 

the following emission standard: 

(1) Diesel heavy-duty engine oxides of 

nitrogen standard of 0.20 grams per 

brake horsepower-hour in § 86.007– 

11(a)(1)(i). 

(i) [Reserved]. 

(ii) For heavy heavy-duty diesel 

engines: 

(A) The following values shall be used 

to calculate an NCP in accordance with 

§ 86.1113–87(a): 

(1) COC50: $3,219. 

(2) COC90: $3,775. 

(3) MC50: $10,729 per gram per brake 

horsepower-hour NOX. 

(4) F: 1.173. 

(5) UL: 0.50 grams per brake 

horsepower-hour NOX. 

(B) The following factor shall be used 

to calculate the engineering and 

development component of the NCP for 

the standard set forth in § 86.007– 

11(a)(1)(i) in accordance with 

§ 86.1113–87(h): 0.005. 

(2) Manufacturers may not generate 

emission credits for any pollutant from 

engines for which the manufacturer 

pays an NCP for the NOX standard 

identified in paragraph (j)(1) of this 

section. 

(3) The penalty shall be adjusted 

annually as specified in § 86.1113–87 

with 2012 as the first year. Note that this 

means AAF2012 is equal to 1. 

■ 5. Section 86.1113–87 is amended by 

revising paragraph (g)(1) to read as 

follows: 

§ 86.1113–87 Calculation and payment of 

penalty. 

* * * * * 

(g)(1) Except as provided in paragraph 

(g)(2) of this section, the 

nonconformance penalty or penalties 

assessed under this subpart must be 

paid as follows: 

(i) By the quarterly due dates, i.e., 

within 30 days of the end of each 

calendar quarter (March 31, June 30, 

September 30 and December 31), or 

according to such other payment 

schedule as the Administrator may 

approve pursuant to a manufacturer’s 

request, for all nonconforming engines 

or vehicles produced by a manufacturer 

in accordance with paragraph (b) of this 

section and distributed into commerce 

for that quarter. 

(ii) The penalty shall be payable to 

U.S. Environmental Protection Agency, 

NCP Fund, Motor Vehicle and Engine 

Compliance Program, P.O. Box 

979032St. Louis, MO 63197–9000. Note 

on the check and supporting 

information that this is an NCP 

payment. 

* * * * * 

[FR Doc. 2012–21967 Filed 9–4–12; 8:45 am] 

BILLING CODE P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 180 

[EPA–HQ–OPP–2002–0302; FRL–9359–9] 

Dichlorvos (DDVP); Order Denying 

NRDC’s Objections on Remand 

AGENCY: Environmental Protection 

Agency (EPA) 

ACTION: Final Order. 

SUMMARY: In this order, EPA denies an 

objection to a prior order denying a 

petition requesting that EPA revoke all 

pesticide tolerances for dichlorvos 

under section 408(d) of the Federal 

Food, Drug, and Cosmetic Act. The 

objection was filed on February 1, 2008, 

by the Natural Resources Defense 

Council (NRDC). The original petition 

was also filed by NRDC. Previously, in 

July 2008, EPA denied this same 

objection but the United States Court of 

Appeals for the Second Circuit vacated 

that decision, in part, and remanded the 

matter to EPA. This order is being 

issued in response to the court’s 

remand. 

DATES: This order is effective September 

5, 2012. 

ADDRESSES: The docket for this action, 

identified by docket identification (ID) 

number EPA–HQ–OPP–2002–0302, is 

available either electronically through 

http://www.regulations.gov or in hard 

copy at the OPP Docket in the 

Environmental Protection Agency 

Docket Center (EPA/DC), located in EPA 

West, Rm. 3334, 1301 Constitution Ave. 

NW., Washington, DC 20460–0001. The 

Public Reading Room is open from 8:30 

a.m. to 4:30 p.m., Monday through 

Friday, excluding legal holidays. The 

telephone number for the Public 

Reading Room is (202) 566–1744, and 

the telephone number for the OPP 

Docket is (703) 305–5805. Please review 

the visitor instructions and additional 

information about the docket available 

at http://www.epa.gov/dockets. 

FOR FURTHER INFORMATION CONTACT: 

Melanie Biscoe, Pesticide Re-evaluation 

Division (7508P), Office of Pesticide 

Programs, Environmental Protection 

Agency, 1200 Pennsylvania Ave. NW., 

Washington, DC 20460–0001; telephone 

number: (703) 305–7106; email address: 

biscoe.melanie@epa.gov. 

SUPPLEMENTARY INFORMATION: 

I. General Information 

A. Does this action apply to me? 

In this document EPA denies an 

objection by the Natural Resources 

Defense Council (NRDC) concerning 

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