# Final Report

of the Small Business Advocacy Review Panel on EPA’s Planned Proposed Rule

Control of Air Pollution from New Motor Vehicles: Tier 3

Emission and Fuel Standards

October 14, 2011

### Table of Contents

1. Introduction

2. Background 2.1 Background and Regulatory History 2.2 Description of Rule and its Scope

2.3 Related Federal Rules

3. Overview of Proposal Under Consideration

4. Applicable Small Entity Definitions

5. Small Entities That May Be S ubject to the Proposed Regulation

6. Summary of Small Entity Outreach 6.1 Small Entity Outreach 6.2 Summary of EPA’s Outreach Meeting with Potential Small Entity Representatives

7. List of Small Entity Representatives

8. Summary of Comments from Small Entity Representatives 8.1 Summary of June 28, 2011 Pr e-Panel Outreach Meeting 8.2 Summary of Written Comments from Potential SERs Submitted After June 28, 2011 Pre-Panel Outreach Meeting 8.3 Summary of August 18, 2011 Panel Outreach Meeting 8.4 Summary of Written Comments from SE Rs Submitted After August 18, 2011 Panel Outreach Meeting

9. Panel Findings and Discussions 9.1 Number and Types of Entities Affected 9.2 Potential Reporting, Record Keeping, and Compliance

9.3 Related Federal Rules 9.4 Regulatory Flexibility Alternatives

9.4.1 Tier 3 Fuels

9.4.2 Tier 3 Vehicles

9.4.3 Certification Test Fuels

Appendix A: List of Materials EPA Shared with Small Entity Representatives

Appendix B: Written Comments Submitted by Small Entity Representatives1 1. INTRODUCTION

This report is presented by the Small Busi ness Advocacy Review Panel (SBAR Panel or Panel) convened for the proposed rulemaki ng “Control of Air Pollution from New Motor Vehicles: Tier 3 Emission and Fuel Standards” (o r “Tier 3”) that is curr ently being developed by the U.S. Environmental Protection Agency (EPA ). Under section 609(b) of the Regulatory Flexibility Act (RFA) as amended by the Sma ll Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), a Panel is required to be co nvened prior to publication of the initial regulatory flexibility analysis (IR FA) that an agency may be requi red to prepare under the RFA. In addition to EPA’s Small Business Advocacy Chairp erson, the Panel consists of the Director of

the Assessment and Standards Division of the EP A Office of Transportati on and Air Quality, the

Administrator of the Office of Information and Regulatory Affairs within the Office of Management and Budget, and the Chief Counsel for Advocacy of the Small Business

Administration.

This report includes the following:

• Background information on the proposed rule being developed;

• Information on the types of small entities th at would be subject to the proposed rule;

• A description of efforts made to obt ain the advice and recommendations of representatives of those small entities; and

• A summary of the comments that have been re ceived to date from those representatives.

Section 609(b) of the RFA directs the Panel to report on the comments of small entity representatives and make findings on issues rela ted to elements of an IRFA under section 603 of

the RFA. Those elements of an IRFA are:

• A description of, and where feas ible, an estimate of the number of small entities to which the proposed rule will apply;

• A description of projected reporting, record keeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities which will be subject to the requirement and th e type of professiona l skills necessary for preparation of the report or record;

• An identification, to the exte nt practicable, of all releva nt Federal rules which may duplicate, overlap, or conflic t with the proposed rule;

• A description of any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities. This analysis shall di scuss any significant

alternatives such as:

o the establishment of differing compliance or reporting require ments or timetables

that take into account the resour ces available to small entities;

o the clarification, consolidation, or simp lification of compliance and reporting requirements under the rule for such small entities;

o the use of performance rather than design standards; and

o an exemption from coverage of the rule, or any part thereof, for such small

entities.2 Once completed, the Panel Report is provided to the agency i ssuing the proposed rule and is included in the rulemaking record. The agen cy is to consider the Panel’s findings when completing the draft of the proposed rule. In lig ht of the Panel Report, and where appropriate, the agency is also to consider whether changes are needed to the IRFA for the proposed rule or

the decision on whether an IRFA is required.

The Panel’s findings and discus sion are based on the information available at the time the final Panel Report is drafted. EPA will continue to conduct analyses relevant to the proposed rule, and additional information may be developed or obtained during the remainder of the rule development process.

Any options identified by the Panel for reduc ing the rule’s regulatory impact on small entities may require further analysis and/or da ta collection to ensure that the options are practicable, enforceable, environmentally sound, a nd consistent with the Clean Air Act (CAA)

and its amendments.

2. BACKGROUND

2.1 Background and Regulatory History

EPA’s Tier 2 Vehicle and Gasoline Sulfur Program, which was finalized in February 2000, took a systems-based approach to motor ve hicle pollution by setti ng standards for both passenger vehicles and their fuel (gasoline). Th e program set stricter tailpipe and evaporative emissions standards for criteria pollutants from vehicles beginning with model year (MY) 2004 and phasing in through 2009. The program also lowe red the sulfur content of gasoline, to a 30 parts per million (ppm) refinery average, 80 ppm per-gallon cap, and 95 ppm downstream cap; beginning in 2004 and phasing in through 2008. The potential to extend the phase-in for small refiners and approved Gasoline Phase-In Ar ea (GPA) refiners thr ough the end of 2010 was provided in the Highway Diesel Rule ( 66 FR 5136, January 18, 2001 ) in exchange for early compliance with the diesel program.

2.2 Description of Rule and its Scope

Similar to the Tier 2 rule, the proposed rule “Control of Air Pollution from New Motor Vehicles:

Tier 3 Emission and Fuel Standards” (Tier 3) is a comprehensive, systems

‐ based approach to address the
impact of light

‐ duty vehicles on air quality and health. The Tier 3 rule will establish new standards for
light

‐ duty vehicles and new fuel standards for gasoline. Such standards were assumed in the 2008

NAAQS as part of the strategy for reaching attainment with the NAAQS. Subsequently, a May 21, 2010

Presidential Memorandum directed EPA to “review for adequacy” the current non

‐ greenhouse gas (GHG) emissions regulations for new motor vehicles and fuels, including tailpipe emissions standards for

NOx and air toxics, and sulfur standards for gasoline. The memo further directed EPA to “promulgate

such regulations as part of a comprehensive approach toward regulating motor vehicles” if EPA

determines new regulations are required. 2.3 Related Federal Rules

The primary federal rules that are related to the proposed Tier 3 rule under consideration

are: the Tier 2 Vehicle/Ga soline Sulfur rulemaking ( 65 FR 6698, February 10, 2000 ), Light-duty3 Greenhouse Gas (GHG) proposed rule, and the Petr oleum Refinery Sector Risk and Technology

Review and New Source Performance St andards proposed rule (RTR/NSPS).

The Light-duty GHG proposed rule is a coor dinated effort by EPA and the National Highway Traffic Safety Administ ration (NHTSA) taking steps to en able the production of a new generation of clean vehicles, though reduced GHG emissions and im proved fuel efficiency from on-road vehicles and engines.

The upcoming proposed rules to address Petr oleum Refinery Sector Risk and Technology Review (RTR) and New Source Performance Standards (NSPS) will focus on developing updated emissions standards for petroleum refine ries for multiple pollutants, including GHGs. The proposed rules are based on results of th e RTR analyses for both Maximum Achievable Control Technology standards (MACT 1 and 2). The technology review will be conducted to identify any new practices, processes, or contro l technologies for the industry and cost-effective emission control options. EPA is developing unif orm standards for some emission sources in the petroleum refining sector that may serve as the basis for these technology reviews. The proposed rules will also review the standards and rule pr ovisions to determine whether other changes may be needed during periods of start-up, shutdow n, and malfunction to ensu re the standards are consistent with recent court opinions and othe r CAA programs. With regard to NSPS, the proposed rules will address remaining NSPS issues under reconsideration from the promulgation of existing NSPS and other NSPS rules affectin g the refining sector, and will include the regulation of GHGs and the development of emission guidelines for existing sources.

3. OVERVIEW OF PROPOSAL UNDER CONSIDERATION

Gasoline Fuel

Section 211(c) of the CAA allows EPA to regulate fuels where emission products of the

fuel “...cause or contribute to ai r pollution that reasonably may be anticipated to endanger public health or welfare.” In the Tier 3 program EP A is considering provisions to lower the sulfur content of gasoline, address ga soline volatility (RVP), and st reamline certain existing gasoline regulations (e.g., repor ting requirements).

Lowering the sulfur content in gasoline would improve vehicle catalyst efficiency, thereby both enabling new vehicles to comply with lower standards and also immediately reducing emissions from the existin g fleet of vehicles. EPA is considering proposing an average sulfur standard of 10 ppm for refiners and importers to take effect beginning 2017, with a refinery gate cap of 20 ppm and a downstream cap of 25 ppm to take e ffect beginning 2020. To ensure that finished fuel meets the required sulf ur standard, a standard of 10 ppm is also being considered for ethanol, with similar provisions for other gasoline additives.

Controlling RVP would result in immediate emission reductions from the existing vehicle fleet and would respond to the fact that widespread use of ethanol has resulted in higher RVP in conventional gasoline across the country. The proposal may include new conventional gasoline 9-psi and 7.8-psi RVP caps, beginning as early as summer 2016, to which the 1-psi E10 waiver4 does not apply. The 7.8-psi standard would only a pply to those ozone nonattainment areas that are currently required to have 7.8 psi RVP.

The proposal could also take action on a re quirement from the Energy Policy Act of 2005

to consolidate northern and southern reformulat ed gasoline (RFG) specifications into a single spec which will slightly lower the volat ility of RFG in Chicago/Milwaukee.

The proposal may also include additiona l provisions to streamline existing fuel regulations.

On-highway Vehicles

Section 202(a) of the CAA provides EPA with general authority to prescribe standards for new motor vehicles. The proposal is expect ed to include revised exhaust and evaporative emission requirements for light-duty vehicles an d trucks, as well as pickups and vans up to 14,000 pounds gross vehicle weight ra ting (GVWR). The proposal is expected to consider more stringent exhaust standards fo r NOx, non-methane organic gases (NMOG), and fine particulate matter (PM2.5), on both the Federal Test Pro cedure (FTP) and Supplem ental Federal Test Procedure (SFTP). The proposal is also expected to consider more stringent evaporative

emission standards. The Tier 3 standards woul d be similar to the LEV III standards under consideration by the California Air Resources Board, allowing manufacturer s to certify one set of vehicles nationwide. The proposal is expected to take effect with the 2017 model year and phase in through 2022.

The proposal is also expected to revise the specifications for gasolin e used as certification test fuel, to better reflect in-u se fuel beginning with the 2017 mode l year. For example, despite the widespread use of ethanol in gasoline, cer tification test fuel does not currently contain ethanol. The proposal is expected to include use of a 15 percen t blend of ethanol in gasoline (i.e., E15) for certificatio n to the Tier 3 standards for light- duty vehicles and trucks, as well as pickups and vans up to 14,000 pounds GVWR. EPA is also considering applying the certification fuel change to other categories of on-highway vehicles, including heavy-duty engines and vehicles, and on-highway motorcycles. While EPA is considering a change to the certification fuel for these sectors, EPA would no t plan to change the numerical level of the currently applicable emission standards.

Nonroad Engines and Equipment

Section 213 of the CAA provides EPA author ity to regulate emissions from new nonroad engines and vehicles. In respons e to the widespread use of etha nol in gasoline and the impact such use can have on emissions, EPA believes it may be appropriate to propose requirements for manufacturers to certify their new nonroad engine s and equipment using an E15 ethanol-gasoline blend. (In general, manufacturers currently ce rtify using gasoline that does not contain any ethanol for exhaust emissions and generally a 10 percent ethanol in gasoline blend for evaporative emissions.) The categories of nonroa d engines and equipment affected include four specific nonroad categories: small spark-igni tion (SI) engines (SI e ngines at or below 19 kilowatts), large SI engines (SI engines above 19 kilowatts), marine SI e ngines, and recreational5 engines and equipment. The change in certificat ion fuel would apply to both the exhaust and evaporative emission standards that apply to th ese categories of nonroad engines and equipment but would not change the numerical level of the currently appli cable emission standards. The requirement to use the new certification fuel w ould likely start in 2015 and allow a several year period for a phase in.

4. APPLICABLE SMALL ENTITY DEFINITIONS

The Regulatory Flexibility Act (RFA) defi nes small entities as including “small businesses,” “small governments,” and “small or ganizations” (5 USC 601). The regulatory revisions being considered by EPA for this rulemakings are expected to affect a variety of small businesses, but would not affect any small governments or small or ganizations. The RFA

references the definition of “small business” fo und in the Small Business Act, which authorizes

the Small Business Administration to further de fine “small business” by regulation. The SBA definitions of small business by size standards using the North American Industry Classification System (NAICS) can be found at 13 CFR 121.201.

The detailed listing of SBA definitions of small business for affected industries or sectors, by NAICS code, is included in Table 1 in Section 5, below.

5. SMALL ENTITIES THAT MAY BE SUBJECT TO THE PROPOSED

REGULATION

Table 1, below, lists industries/sectors pot entially affected by the regulation. The

estimated number of small firms within each NAI CS code and the number of employees in those

small firms is shown.

EPA used a variety of sources to identify which entities are appropriately considered “small.” EPA used the criteria for small entities developed by the Small Business Administration under the North American Industry Classification System (NAICS) as a guide.

Information about these entities comes from sources including the Energy Information Administration (EIA) within the U.S. Departme nt of Energy, oil indus try literature, EPA’s certification data, and previous ru lemakings that have affected th ese industries. EPA then found employment information for these companies us ing the business information database Hoover’s Online (a subsidiary of Dun and Bradstreet). These entities fall under the categories listed in Table 1, below.6 Table 1: Industry Sectors, Definiti ons & Number of Small Entities Potentially Affected by EPA’s Planned Action

Name of Industry/Sector 2007 NAICS

Code SBA Size Standard for Small Business (less than or equal to):

Gasoline fuel refiners and importers 324110 1,500 employees

Ethanol producers 325193 1,000 employees

Gasoline additive manufacturers 325199, 325998,

424690 1,000 employees 500 employees 100 employees

Transmix processors Varied 1,500 employees

Petroleum bulk stations & terminals 424710 100 employees Other warehousing and storage- bulk petroleum storage 493190 $25.5 million (annual receipts)
Light-duty vehicle and light-duty

truck manufacturers 336111, 336112 1,000 employees

Independent commercial importers 811111, 811112, 811198 $7 million (annual receipts)

Alternative fuel converters 335312, 336312, 336322, 336399,

811198 1,000 employees 750 employees

”

” $7 million (annual receipts)

On-highway heavy-duty engine & vehicle (>8,500 pounds GVWR)

manufacturers 333618, 336120, 336211,

336312 1,000 employees

”

” 750 employees On-highway motorcycle manufacturers 336991 500 employees Small spark-ignition (SI) engine ( ≤ 19 kilowatts) manufacturers 333618 1,000 employees Large SI engine (>19 kW) manufacturers 333618 1,000 employees Marine SI engine (including outboard and personal watercraft) manufacturers 333618 1,000 employees Off-highway motorcycle & motorcycle parts manufacturers 336991 500 employees

Snowmobile & all-terrain vehicle (ATV) manufacturers 336999 500 employees Manufacturers of evaporative emission components (i.e., fuel tanks and fuel hose) for nonroad SI engines and equipment 326199, 326220 500 employees

Gas can manufacturers 326199, 332420 500 employees7 6. SUMMARY OF SMALL ENTITY OUTREACH

6.1 Small Entity Outreach

Before beginning the formal SBREFA proce ss, EPA actively engaged in outreach with entities that would pot entially be affected by the upcoming rulemaking. EPA held phone conferences and face-to-face meeting with many of these companies to discuss the upcoming proposed rulemaking and to provide these contacts with an early opportun ity to ask questions and discuss their concerns with the upcoming rulemaking.

EPA provided each business with general information on the SBREFA process and background information on the rulemaking proces s. Once the SBREFA process began and potential SERs were identified, EPA held an out reach meeting with the potential SERs on June 28, 2011. After the Panel convened on August 4, 2011, the Panel then held an outreach meeting with the SERs on August 18, 2011.

6.2 Summary of EPA’s Outreach Meet ing with Potential Small Entity Representatives

EPA conducted a meeting and teleconference with potential small entity representatives (SERs) on June 28, 2011

. To help them prepare for the meeting and teleconference, on June 14, 2011, EPA sent materials to each of the potential SE Rs via email. A list of the materials shared with the potential SERs during the pre-Panel outr each meeting is contained in Appendix A. For the June 28, 2011 pre-Panel outreach meeting wi th the potential SERs, EPA also invited representatives from the Office of Advocacy of the Small Business Administration and the Office of Information and Regulatory Affairs with in the Office of Management and Budget. A total of 25 potential SERs participated in th e meeting. EPA presented an overview of the SBREFA process, an explanation of the planned rulemaking, and technical background.

This outreach meeting was held to solicit f eedback from the potential SERs on their suggestions for the upcoming rulemaking. EPA as ked the potential SERs to provide written comments by July 12, 2011. Comments raised duri ng the June 28 outreach meeting and written comments submitted by the potential SERS are summ arized in Section 8 of this document.

6.3 SBAR Panel’s Outreach to Small Entity Representatives

On August 18, 2011 the SBAR Panel held an outreach meeting/tel econference with the

SERs. In addition to the materials that the SE Rs received for the pre-Panel outreach, the SERs were provided with background information (SERs were sent an outreach packet, which can be found in Appendix A) to help them prepare for the teleconference and pr epare their comments on the planned proposed rulemaking.8 During the Panel Outreach Meeting, 16 repres entatives that were selected for this SBREFA process participated in the confer ence call. The meeting opened with a short introduction for SERs on the purpose of the S BREFA Panel process and the Panel Outreach Meeting, and a brief description of the Panel pr ocess. The remainder of the Outreach Meeting

itself focused on the Outreach Packet that was sent to SERs and potential regulatory flexibilities.

Lastly, EPA asked that the SERs provide f eedback on the Outreach Packet materials as well as the outreach meeting itself, and SERs were asked to send any written comments by September 1, 2011. The outreach meetings with SERs were held to solicit feedback on the information provided and their suggestions for the upcoming rulemaking. At the meetings, the SERs were asked to also provide written feedback on ideas unde r consideration for the proposed rulemaking and responses to questions in the Outreach Packet. Comments made during the outreach meetings and written comments submitted by the SERS are summarized in section 8 of

this document. Written comments r eceived are included in Appendix B.

7. LIST OF SMALL ENTITY REPRESENTATIVES

Table 2 lists all Small Entity Representative s (SERs) for the Tier 3 rulemaking. Three additional SERs were added to include represen tatives of new industry sectors that may be potentially affected by the proposed rule.

Table 2: List of Sma ll Entity Representatives

Name Industry/ Sector Company
Sally Allen Refiner Gary-Williams Energy Corporation

Bob Neufeld Refiner Hermes Consolidated Inc. dba Wyoming Refining Company
Ron Hurst Refiner Placid Refining Company LLC

Dexter Busby Refiner Montana Refining Company, Inc.

Matthew Smorch Refiner Countrymark Cooperative Stephen L. Sherk Refiner American Refining Group, Inc.

Steve Uebelhoer Transmix

Processor Gladieux Trading and Marketing

R. Peter Weaver Terminal Operator Intern ational Liquid Terminals Association (ILTA) Andrea Grant Terminal Operator/ Importer Trade Group Independent Fuel Terminal Operators Association (IFTOA)

Sean Moore Fuel Additive

Manufacturer Trade Group Automotive Specialty Products Alliance (ASPA)

Clayton Parks

Jim Moffitt Fuel Additive

Manufacturer Bar’s Products

Larry G. Beaver Fuel Additive

Manufacturer Radiator Specialty Company

Dan Nowlan Fuel Additive

Manufacturer Berryman Products, Inc.9 Name Industry/ Sector Company

James Heidel Fuel Additive

Manufacturer Marvel Oil Company/Turtle Wax Inc.

Kristy Moore Ethanol Producer Trade Group Renewable Fuels Association (RFA)

Chuck Woodside Ethanol Producer KAAPA Ethanol Jim Leiting

Brian Schasel Ethanol Producer Big River Resources

Mark Morgan Petroleum Marketer Trade Group Petroleum Marketers Association of America (PMAA)
Mark Handley Automobile Manufacturer Vehicle Production Group

Paul Boskovitch Automobile Manufacturer Fisker Automotive Miles George Alternative Fuel Vehicle

Converter Altech-Eco Corporation

Roger Galloway Alternative Fuel Vehicle

Converter BAF Technologies

Les Weaver Independent Commercial Importer Wallace Environmental Testing Laboratories

Lance Tunick Vehicles Vehicle Services Consulting, Inc. Greg

Haidemenos

Glenn Amber Engine Manufacturer Westerbeke

Rich Costa Engine Manufacturer Solo USA

Paul Lee Tom Wooding Engine Manufacturer Wisconsin Motors

Rich Waggoner Engine Manufacturer Indmar George Roykouff Engine Manufacturer Sterling Performance Harry Roberts Snowmobile

Manufacturer H.J. Roberts Associates

Tom Blais Off-highway Motorcycle

Manufacturer Rokon

Haim Yanai ATV Manufacturer Tomcar USA Joe Berk On-highway Motorcycle

Manufacturer California Scooter Company

Mr. Jan Smith On-highway Motorcycle

Manufacturer S&S Cycle

Geoff Ward Blow-molded Fuel Tank

Manufacturer Agri-Industrial Plastics

Steve Slicker Roto-molded Fuel Tank

Manufacturer Kracor

Bruce Sumpter Ray Podesta Primer Bulb

Manufacturer RL Hudson & Company

Magnus

Lindback Hybrid Bus Manufacturer Bluways USA Incorporated

John McKnight Marine Industry Trade Group National Marine Manufacturers Association (NMMA)

Dan Weibel Portable Gas Can

Manufacturer Blitz USA10 8. SUMMARY OF COMMENTS FROM POTENTIAL SMALL ENTITY

REPRESENTATIVES

8.1 Summary of June 28, 2011 Pre-Panel Outreach Meeting

The Pre-Panel Outreach Meet ing was conducted as follows:

• 8:30am: Introductions and opening presentation by EPA-OP (on behalf of the SBAC) regarding the SBREFA Pane l process and more information about being a SER

• 9:00am: Petroleum Refinery Sector Risk and Technology Review and New Source Performance Standards (RTR/NSPS) rule (A SBREFA for a separate rulemaking carried out in parallel with the Tier 3 meetings to minimize burden on refinery sector SERs.)

• 10:30am: Tier 3 rule- Fuels

• 1:00pm: Tier 3 rule- Vehicles

• 2:30pm: Tier rule- Certification Fuel

Tier 3 Rule Fuels Pre-Panel Outreach Meeting Summary

• EPA-OTAQ walked through the presentation “P re-Panel Small Entity Outreach Meeting on EPA’s Proposed Tier 3 Rulemaking”

o The presentation discussed the background on the current Tier 2 program, drivers for going further and doing a Tier 3 program (need for additional air quality improvements, 2007 Energy Independence and Security Act anti-backsliding mandate, 5/21/10 Presidential memorandum)

• EPA-OTAQ walked through “Tier 3 Fuel Program Summary” document

o Described provisions that EPA is consid ering proposing for fuels-related sectors

 Gasoline sulfur standards: 10 ppm re finery average beginning Oct 1, 2016; 20 ppm refinery gate cap beginning Oct 1, 2019; 25 ppm downstream cap beginning Jan 1, 2020 (plan to also request comment on appropriate cap levels)

 10 ppm sulfur standard for ethanol added to gasoline

 Gasoline additives, beginning in 2016

• Aftermarket consumer additives would be required to meet a 10 ppm sulfur cap

• Other additives would be split into two categories (>10 ppm and

≤ 10 ppm)

• Product transfer document a nd/or labeling requirements

 Performance-based sulfur test met hods (similar to the diesel program requirements)

 Bring gasoline volatility (RVP) standard s from 10 psi to 9 psi and 8.8 psi to 7.8 psi, beginning Summer 2017

 Consolidation of Northern and Sout hern reformulated gasoline (RFG)

areas

 Regulatory streamlining of existing fuels provisions

o Described potential flexibilities

 Delay in refiner sulfur standards for small refiners, until Oct 1, 201911  Current downstream 80 ppm and 95 ppm cap s would remain in effect until Oct 1, 2019 and Jan 1, 2020 respectively

 Averaging, banking, and trading program to begin Jan 1, 2014

 RVP phase-in (2016 to 2019)

 Provisions for Alaska (retain Tier 2 sulfur caps, continued RVP exemptions) and Hawaii (c ontinued RVP exemptions)

• Questions/comments/discussion:

o A potential SER asked how anti-backsliding related to a 10 ppm sulfur standard, or if it was just related to RVP

 EPA response: Sulfur is driven by NAAQS attainment and RVP is more driven by anti-backsliding, how ever neither are exclusive

o A potential SER asked if there will be labeling requirements

 EPA response: If the cap is reduced, there could be a need for labeling requirements; labeling requirements for additives could also be required

o One potential SER commented that those SERs that are also affected by the RTR/NSPS rule might have trouble mee ting the 2-week comment deadline due to the RTR/NSPS information collection request (ICR)

o A potential SER commented that going from 8.8 to 7.8 psi is a li ttle harder to do than going from 10 psi down to 9 psi

o The SBA Panel member asked if EPA would share the list of regulatory streamlining items with the Panel and pot ential SERs, and also noted to the potential SERs that the pre-rulemaking time is the SERs opportunity to provide preliminary feedback to EPA and also to ask questions of EPA to gain a better understanding of the rule

 The Panel member also encouraged po tential SERs to think about possible regulatory alternatives, and to really consider how they could work in a regulatory program (i.e., enforcement, etc.)

o One potential SER commented that EPA s hould consider including fuel importers in the credit trading program to provide incentive for importers to import more 10 ppm gasoline; the SBA Panel member also asked if this would be possible for

additives as well

 EPA committed to looking into thes e options in developing the rule

o The SBA Panel member asked if there is an ything that is attr active about an RVP phase in (versus one standard)

 EPA noted that since RVP control can be costlya phase-down concept was an idea for a way to help the market handle the transition

o A Panel member also questioned if a longer RVP phase-in would make more sense considering the economic impacts of sulfur control, or if sulfur and RVP controls are independent

 EPA noted that RVP flexibility would have to be done i ndustry-wide (not for a subset of industry), and EPA is looking to implement a program in a way that minimizes market disruption

 EPA also noted that some refiners may need more help on RVP than on sulfur (many refineries are already at 10 ppm sulfur), however a phase-in past two or three years may be a stretch12 o A potential SER commented that downstr eam parties such as terminals are impacted by the decisions that refiners/f uel owners make in complying with the regulations—the degree to which the refiners stick closely to the specs will impact

the terminals

 The potential SER also noted that the largest players may drive what the terminals and other downstream parties will need to do to comply; it was further noted that they are cautious ly optimistic on sulfur, and more

concerned about RVP controls

o A potential SER commented that the Depart ment of Homeland Security may have concerns regarding butane

 The SBA Panel member asked if th e potential SER could provide any

related cost information

Tier 3 Rule Vehicles Pre-P anel Outreach Meeting Summary

• EPA-OTAQ walked through the presentation “P re-Panel Small Entity Outreach Meeting on EPA’s Proposed Tier 3 Rulemaking”

o The presentation discussed the background on the current Tier 2 program, drivers for going further and doing a Tier 3 program (need for additional air quality improvements, 2007 Energy Independence and Security Act anti-backsliding mandate, 5/21/10 Presidential memorandum)

• EPA-OTAQ walked through “Expected Tier 3 Light-Duty Tailpipe Program Summary”

document

o Described provisions that EPA is consid ering proposing for the light-duty-vehicle

and truck sectors

 Federal Test Procedure (FTP) sta ndards – NMOG and NOx: Corporate average standard of 30 mg/mi NMOG+NOx

 The fleet-average standards would begi n in model year 2017 at a higher level and reach the 30 mg/mi level in model year 2022 and would be identical to those being proposed by the California Air Resources Board for the LEVIII program

 Manufacturers would average their pa ssenger cars and light trucks in separately during the phase in

 A bin structure for the emission stan dards to which manufacturers may certify their vehicles

• The bin structure would include se ven specified levels from 160 mg/mi to 0 mg/mi from which to choose

 FTP standards – PM: 3 mg/mi stan dard starting in model year 2017

• The FTP PM standards would be phased in (25% in 2017, 50% in 2018, 75% in 2019, and 100% in 2020 and later)

 Supplemental Federal Test Procedure (SFTP) standards – NMOG and NOx with a declining fleet averag e NMOG+NOx standard during a phasein period

• The phase-in would start in model year 2017 and run through model year 202213 • The standards would match the CARB LEVIII SFTP standards and would be 50 mg/mi for model year 2022 and later

 SFTP standards – PM: A PM standard for the first time

• 10 mg/mi for passenger cars and lig ht-duty trucks (LDT1/LDT2)

• 20 mg/mi for larger light- duty trucks (LDT3/LDT4)

 EPA directed potential SERs to the document titled, “Expected Tier 3 Emission Control Technologies” for our description of technologies and

cost associated with the Tier 3 exhaust standards under consideration

o Described exhaust provisions that EP A expects to propose for heavy-duty complete vehicles between 8,500 a nd 14,000 pounds Gross Vehicle Weight Rating (GVWR)

 Fleet average NMOG+NOx standards built around a bin structure

 Bin-specific PM and CO standards

 Add SFTP standards

 Phase-in between model y ear 2018 and model year 2022

• EPA-OTAQ walked through “Evaporativ e Emission Standards” document

o Described evaporative emi ssion provisions that EPA e xpects to propose for lightduty vehicles, light-duty trucks, a nd heavy-duty vehicles up to 14,000 pounds

GVWR

 EPA expects to propose new diurnal + hot-soak emission standards that align with CARB’s LEVIII Option 2 standards

• Includes a new canister test (i.e ., a “bleed emission test”)

 Averaging and banking would be ava ilable to comply with the new

diurnal+hot-soak standards

 A phase-in would start in model year 2016 at 40% (or th e manufacturer’s CARB PZEV fraction), increase to 60% in model year 2018, 80% in model year 2020, and 100% in model year 2022 and later

 EPA expects to propose a new leak te st for the fuel tank/evap system

• This would apply for both certification and in-use testing

• Would be based on a maximum allowable pressure loss in the fuel

tank over time

 EPA expects to propose a new onboard refueling vapor recovery (ORVR) requirement for heavy-duty ve hicles between 10,000 and 14,000 pounds

GVWR

 EPA directed potential SERs to the document titled, “Assessment of Technology Development and Estimate Costs for Meeting Light-Duty Vehicle Tier 3 Evaporative Emission Standards” for our description of technologies and cost associated w ith the standards under consideration

• Questions/comments/discussion:

o Two of the potential SERs asked if the EPA Tier 3 and CARB LEVIII program, including onboard diagnostic (OBD) requi rements be consistent and allow one

certification for 50-states

 EPA response: EPA noted that this is the goal to have consistent programs

o A potential SER asked what the declini ng average FTP standards would be and asked if the “bags” collected during emissions testing w ould still be weighted the same as today.14  EPA response: EPA shared the levels of the declining averages and noted that the weighting of the “bags” would remain the same

o The SBA Panel member questioned if EP A would consider a fleet average PM standard versus a percent phase-in

o One potential SER asked if the PM standa rds were deteriorated standards at the

end of the useful life

 EPA response: EPA noted that the PM standards were at the end of useful

life

o The SBA Panel member questioned the abil ity of manufacturers to average to a 30 mg/mi exhaust NMOG+NOx standard when there are so few bins below the 30 mg/mi level and suggested potential SERs think about that as they prepare

comments

o A potential SER asked about the GHG rules for their vehicles

 EPA response: EPA noted that it be lieved small manufacturers were exempt from the existing GHG rule

o A potential SER noted concerns about switc hing to a certification fuel with 15 percent ethanol for the Tier 3 program a nd suggested a technical review in the future to determine if such a fuel was appropriate based on the marketplace

 The SBA Panel member suggested th at potential SERs think about how often EPA should change certification fuel

o The SBA Panel member asked why EPA wa s proposing a separate canister test (i.e., the “bleed emission test”)

 EPA response: EPA noted that the new test was meant to ensure the evaporative emission canister is trapping essentially all of the evaporative

emissions

o A potential SER commented that EPA shoul d consider making adjustments to the temperature and RVP requirement for high-altitude testing

o A potential SER asked whether emission trading (i.e., between manufacturers) would be allowed in the Tier 3 program and noted their interest in allowing trading

 EPA response: EPA noted that it may not have trading in the Tier 3

program

Tier 3 Rule Certification Fuel Pr e-Panel Outreach Meeting Summary

• EPA-OTAQ walked through the presentation “P re-Panel Small Entity Outreach Meeting on EPA’s Proposed Tier 3 Rulemaking”

o The presentation discussed the background on the current Tier 2 program, drivers for going further and doing a Tier 3 program (need for additional air quality improvements, 2007 Energy Independence and Security Act anti-backsliding mandate, 5/21/10 Presidential memorandum)

• EPA-OTAQ walked through “Certification Fuel Change: Nonroad Gasoline Engines, Heavy Duty Gasoline Engines and On-Highway Motorcycles” document

o EPA described why it is planning to pr opose a new certification fuel for all categories of engines and ve hicles that use gasoline

 EPA would maintain the current emission standards15 o EPA presented the specifications it expect s to propose for the certification fuel

 Includes 15% ethanol, a nd lower sulfur levels

o EPA noted its assumption that manufact urers design their equipment to be compatible with in-use fuels and noted th at the goal of the proposed certification fuel change is to ensure pr oducts are tested and operated on fuels representative of the potential future in-use fuels

o EPA presented data showing the impacts of ethanol blends on exhaust emissions if no adjustments are made to the engines

 EPA noted that it believes manufact urers would need to readjust their engines/vehicles to certify on the ne w fuel while emission levels would

remain similar to current certification levels

o EPA discussed the impacts of ethanol blends on evaporative emissions

 EPA expects permeation levels should be comparable on the new certification fuel (since the evap test fuel already cont ains 10% ethanol)

 EPA expects diurnal levels should re main the same (assuming the RVP of the test fuel would stay at 9.0 psi)

o EPA noted several options for implementing the new certification fuel requirements

 Specify a start date if 2017

 Specify an end date of 2022

 Require recertification only when a manufacturer “redesigns” its products

• Questions/comments/discussion:

o One potential SER noted its concerns a bout the impact of a 15% ethanol blend on fuel economy

o One potential SER raised the question of wh at Canada is going to do with in-use fuel requirements and noted their concer ns with operating equipment certified on a 15% ethanol blend on gasoline with no ethanol in it

o A potential SER asked if evaporative emission components (e.g., fuel tanks) would be required to recertify on the 15% ethanol blend since those products currently certify on a 10% ethanol blend

o Two potential SERs noted that sma ll manufacturers often out-source their emission testing so their cost s to recertify will be high

 One suggested that EPA consider hard ship provisions like it has done in previous programs

 One suggested that EPA consider de sign-based certification (i.e. allow manufacturer to rely on emissions data from other programs) so that new testing would not be required

o The SBA Panel member suggested that EPA might want to consider a small volume grandfather provision in which a ma nufacturer would not have to recertify a specific number of its produc ts even if the product ha d been redesigned for the

new certification fuel

o The SBA Panel member suggested that EPA might want to consider allowing

manufacturers to choose a 10% ethanol blend for certification now and require certification by 2017 plus EPA could perform a market review to see where in-use

fuels are and determine if the certifi cation fuel should be revised again16 8.2 Summary of Written Comments from Po tential SERs Submitted After June 28, 2011 Pre-Panel Outreach Meeting

8.2.1 Summary of Comments on Tier 3 Fuels

8.2.1.1 Costs of Compliance and Lead Time

CountryMark commented that they installe d a low sulfur gasolin e unit in 2010 to meet the Tier 2 gasoline 30 ppm refinery average standard ; in order to further go to a 10 ppm refinery average, the commenter believes it would requir e additional energy input which would increase GHG emissions and cost over $100,000 per year, and would shorten catalyst life by 25% (requiring more shutdowns to replace catalyst). Th e commenter believes that there would not be any lead time for implementation. CountryMark al so commented that sulfur would need to be removed from its alkylation unit, estimated at a capital cost of over $5 million dollars and potentially two to three years for start-up.

Gary-Williams Energy Corporation (GWEC) commented that to meet the potential proposed sulfur and RVP standards, the company’s compliance costs would be $10-15 million dollars a year (0.02 cents per gallon). The comment er further stated that the reduction of sulfur only will cost $5-7.5 million per year (primarily op erating costs, but there will be some capital expenditure due to the need for more frequent catalyst change). The commenter stated that, based on 2010 data, going from 8.8 psi to 7.8 ps i fuel could cost GWEC approximately $6.5 million per year.

The Small Refiner SERs suggested that EPA extend the current 80 ppm refinery gate cap until October 2021 for product shipped in pipelines , and that the current 95 ppm downstream cap should be extended until a 25 ppm ca p is required January 1, 2021.

Marvel Oil Company commented that the high su lfur content in its ad ditive is due to the base oil used in the manufacturing, any change in the base oil that w ould meet the 10 ppm of sulfur limit would void the product’ s grandfathered status and requi re extremely cost-prohibitive testing that could exceed $1.5 million. The commen ter stated that total timing for this testing could encompass two years, and would include the capital cost expense of acquiring a sufficiently new automobile that meaningful tests c ould be run for the life of the vehicle. Marvel Oil Company stated that it believes that with suffi cient lead time, re-labeling of this additive, similar to that required by the diesel fuel re gulations, could be accomplished rather quickly and smoothly, but the formula cannot be brought into compliance with the 10 ppm sulfur level with current technology.

Marvel Oil Company commented that ther e currently are no suitable naphthenic, low sulfur base oils available for reformulation; if low sulfur naphthenic base oils do become available, the company would consider reform ulation as long as the CAS number does not change (as any change in the CAS number would be viewed as a deviation from the formula by EPA and require full testing). The commenter stated that if EPA was able to relax the requirements for testing and allow us to substitute either a paraffini c base oil or poly alfa olefin17 synthetic oil for the naphthenic base oil withou t requiring testing, we could comply with this regulation. Lastly, Marvel Oil Company commented th at if low sulfur base oils are available and can be used successfully, confirma tory lubrication tests would need to be run to confirm that no adverse effects are present by the removal of the sulfur, and such tests could run several hundred

thousand dollars.

8.2.1.2 Level of the Standard

Gasoline Sulfur

Big River Resources commented that the curr ent make-up of ethanol in the marketplace is well below the potential 10 ppm standard. The commenter further noted that ethanol is currently meeting fuel specifications for some pipeline operators as well as the state of California, so this standard would not present a problem for the commenter, or likely others in the ethanol industry.

GWEC commented that a 10 ppm sulfur st andard would require a 5-6 ppm refinery production for product shipped via pi peline, as the pipeline woul d probably require 7-8 ppm in order to comply with 10 ppm. W ith regard to the refinery gate cap, the commenter further stated that it believes a 20 ppm cap would be burdensom e because it could require costly reprocessing of any off-spec batches. The commenter advoc ates retaining the 80 ppm cap until October 2021 for product shipped in pipelines and then im posing a cap no lower than 60 ppm. GWEC

commented that it also believes a 25 ppm downstream cap is too low. The commenter suggested that the 95 ppm cap be retained until a 25 ppm ca p is required (January 2021). The commenter noted that product shipped via pipeline is fungible, so when the small amounts of small refiner gas is shipped via pipe line with other 10 ppm fuel, the fina l pipeline product would likely meet the reduced sulfur ppm requirements.

Marvel Oil Company commented that it ca nnot support any changes that would require gasoline additives to meet a 10 ppm sulfur cap, and noted that the maximum contribution of its additive to gasoline sulfur levels is 2.0 ppm. The commenter stated that it could support a provision that is similar to the one for diesel fuel additives at 40 CFR 80.59(d) that requires labeling to show that the product does not meet the 10 ppm sulfur content for gasoline. The

commenter further stated that if a higher level of sulfur is allowed from the pump, it would support the same level from the additives as for the fuel itself.

Gasoline Volatility (RVP)

Big River Resources also not ed that EPA indicated a conc ern regarding an end-use air quality issue related to the higher RVP allowance for E10, and that EPA has also stated in the recently released E15 misfueling mitigation rule that the higher RVP allowance would not be granted for E15. The commenter be lieves that this issue is hi ghly technical and will likely require more examination. The commenter noted that on one hand, identical RVP requirements (and therefore petroleum blendstock) for E10 and E15 will allow retailers to offer both products and provide customer choice base d on fuel economics. The commenter believes that this is challenging under the existing E10 and proposed E15 rules given th at E15 requires a different18 (lower RVP) petroleum blendstock that may not be available. In contrast, the commenter stated, eliminating the higher RVP allowance would ha ve significant impact on the refiners and blenders and may not provide flex ibility to the obligated parties to meet the requirements of the

Renewable Fuels Standard. Bi g River Resources recommended that before EPA proposes to make this blanket change, they encourage the ag ency to get significant input from the ethanol producers, blenders, refiners and marketers concerning this item.

CountryMark commented that the 1 psi waiver is critical to them in meeting their RFS2 obligation—the commenter would ne ed to spend capital and sell bu tane at a significant economic penalty. The commenter further stated that RVP would need to be reduced with the installation

of either a new distillation to wer or replacement of an exis ting tower; and lowering the RVP would require additional energy, thus increasi ng GHG emissions, and the modifications would take two to three years to implement at an estimated cost of $10-15 million. Lastly, CountryMark commented that meeting the lower RVP requirement would increase their butane production, but the capability to blend it into gasoline would be significantly reduced—the

commenter believes that it would either need to build additional storage capacity at significant capital cost or sell butane at depressed prices in the summer months; the commenter stated that selling the butane rather than blending it would result in a penalty of over $3 million per year and would require upgrades to their existing rail load ing facilities.

GWEC commented that bringing 8.8 psi fuel to 7.8 psi will re duce available gasoline volume through back-out of butane blending and w ill hurt its refinery economics through loss of butane margin and will further reduce gasoline available to sell through required makeup of lost butane octane at the refinery which will make benzene that must be converted or removed.

8.2.1.3 ABT Program

GWEC commented that they have not particip ated in or benefited from previous fuels rulemaking credit programs to any significant de gree. The commenter stated that, from its perspective, credit programs i nvolve great risk and administra tive hassle that is difficult to manage for a small company with limited staff and tight credit restrictions. The commenter does, however, endorse options to utilize banked Tier 2 credits fo r compliance with the Tier 3

program.

8.2.1.4 Related Federal Rules

CountryMark commented that taken together, the Tier 3 rule and the RTR/NSPS rule will have significant financial impact on the compa ny; the capital expense of the rules on top of existing requirements would stress the company’s financial stability and put the farmer owners’

investment at risk.

GWEC commented that they are facing a compliance deadline in 2015 for the MSAT2 rule. The commenter noted that adding the $20- 30 million capital costs of a benzene reduction unit (plus any associated operati ng costs) to Tier 3 costs woul d be challenging. The commenter

further noted that it believes that if the costs of the Tier 3 rule ar e incurred at the same time that19 they are expected to comply with the MSAT2 requirements will impose overwhelming disproportionate economic hardship for the company.

8.2.1.5 Regulatory Flexibility Alternatives

CountryMark commented that, based on the de minimis environmental impacts that small facilities have compared to larger refineries and foreign competition, and capital spending at such a small refinery would have negligible effects and diminishing returns, the commenter believes that small refiners should be exempt from additional requirements. However, the commenter requested that if an exemption is no t possible, small refine rs should at a minimum have extended compliance deadlines (consis tent with previous EPA fuels programs).

GWEC suggested the following flexibilities for small refiners:

▪ Allowance to delay gasoline benzene (MSAT2) compliance from 2015 to 2019 (an additional four years) in exchange fo r compliance with Tier 3 standards.

▪ Endorsement of the SER proposal to allow th e use of any existing Ti er 2 gasoline sulfur credits (banked and registered) for the 10 ppm gasoline sulfur limit when it becomes

effective for small refiners.

▪ Allowance to either receive an additional five or more years to comply with RVP restriction (until 2022, at the ea rliest) instead of instituting phase-down options, or add three years to RFS2 complia nce (January 1, 2016 instead of January 1, 2013 for those companies with an extension of the RFS sma ll refinery/small refiner exemption). (The

commenter noted that some small refiners ma y face RVP market constraints, e.g., sales in non-attainment areas with local RVP limits).

The Small Refiner SERs commented that th ey believe EPA should include the following

small refiner flexibilities for th e 10 ppm gasoline sulfur standard:

▪ Small refiner delay of at least five year s, until October 1, 2021 (instead of October 1, 2019).

▪ Extend the life, and allow the use, of existi ng Tier 2 gasoline sulfur credits (banked and registered) for the 10 ppm gasoline sulfur limit when it becomes effective for small refiners (and small refiners would still be requ ired to meet small refiner refinery gate and downstream caps).

▪ Option to delay MSAT2 compliance from 2015 to 2019 in exchange for compliance

with the Tier 3 sulfur standards on time.

▪ Allow refinery gate and downstream caps in Alaska to remain at the current 80 ppm and 95 ppm caps, respectively.

The Small Refiner SERs commented that th ey believe EPA should include the following

small refiner flexibilities for the proposed RVP standards:

▪ Allow small refiners an additional five years for compliance with the RVP standards (until 2022 at the earliest) rath er than phase-down options, or an additional three years to20 comply with RFS2 for those refiners that received an RFS2 small refinery/refiner exemption extension.

▪ Allow the 1 psi waiver to stay in effect for any ethanol blended gasoline up to 15% for

small refiners that did not receive the RFS2 extension.

▪ Continued exemptions for Alaska and Hawaii as governed by ASTM.

8.2.1.6 Other

Big River Resources commented that they we re disappointed to hear that EPA would be unlikely to propose an aromatics standard as pa rt of the Tier 3 rulemaking. The commenter strongly encouraged EPA to closely examine th e components of today’s gasoline and determine whether these compounds are ind eed harming the environment a nd endangering public health, the commenter further stated that they believe that any close examination of the data will show that these compounds are very ha rmful. Lastly, Big River Res ources commented that if EPA

chooses to move forward without a 1.0 lb RVP waiver for E10, the commenter has concerns that aromatics present in consumer-intent fuels will become increasingly used in gasoline formulations detrimental to public health issues.

8.2.2 Summary of Comments on Tier 3 Vehicle Emission Standards

8.2.2.1 Exhaust Emission Standards and Test Procedures

Given the limited resources that small manuf acturers have, Vehicle Services Consulting (a company that represents several small manuf acturers) commented that EPA should consider separate passenger car fleet average exhaust emission requirements over the Federal Test Procedure (FTP) for small-volum e manufacturers. The fleet average standards suggested by Vehicle Service Consulting for passenger cars w ould not start until model year (MY) 2018. The

FTP NMOG+NOx standard for MY2018 thr ough MY2021 would be 125 mg/mi (i.e., the ULEV125 level) and for MY2022 and later the NMOG+NOx standard would drop to 70 mg/mi (i.e., the ULEV70 level).

Vehicle Services Consulting also comment ed that EPA should consider separate passenger car standards over th e Supplemental FTP (SFTP) fo r small-volume manufacturers. The passenger car SFTP requirements for sma ll-volume manufacturers would not start until MY2018 and would be based on the corresponding SFTPII LEV levels. Starting in MY2022 and later, the SFTP standards would be based on the same mix of bins chosen by the manufacturer for FTP compliance (e.g., the corresponding SFT P standards for LEV, ULEV70, ULEV50 bins).

The Vehicle Production Group (VPG) whic h manufactures wheelchair accessible vehicles in both a gasoline fueled and natural gas fueled version, expre ssed concerns about the

cold start standards for natural gas vehicles. Given the cooler exhaust operating temperatures with natural gas, VPG is concerned that developing technology to meet the emission requirements will impose a significant burden. VPG commented that EPA should establish the feasibility of the Tier 3 cold start standard s for natural gas fueled vehicles prior to implementation of the new standards.21 VPG commented that EPA should publish, especi ally for CNG, multiplicative factors to

allow use of NMHC or other reliable measuremen ts to be used to accurately estimate NMOG. Also, if a reactivity adjustment factor (RAF) is to be used for any particular fuels, VPG suggested that these be published for relevant fuels and available in a timely fashion in order to help small manufacturers avoid unnece ssary testing costs when possible.

8.2.2.2 Evaporative Emission St andards and Test Procedures

Vehicle Services Consulting commented that EPA should adopt a procedure to allow small-volume manufacturers to deduct backgrou nd evaporative emissions during full vehicle testing. For example, the requirement could be the whole vehicle standard minus background (background = non engine/fuel system test results obtained by using a procedure that would be the mirror of the rig test used to certify under CARB’s Option 1).

VPG commented that EPA should review test data to see if certain evaporative procedures could be eliminated or streamlin ed. They cited the following examples for

consideration:

▪ Is a 3-day diurnal test worthwhile, since the ORVR requirement has become the limiting factor for sizing the ca rbon canister? The 2-day test may be more than adequate to demonstrate compliance, would be more co st-effective for testing facilities and would allow more throughput for both manufacturers and EPA.

▪ Since purge rates (determined by calibration an d hardware) have to be set aggressively enough to pass the 2-day test, is there any reas on to run a running loss test anymore? It seems very unlikely that a properly functioni ng vehicle that passes a 2-day (or 3-day) evaporative test with diurnals could ever co me close to failing or building vapor during the running loss portion.

▪ If the running loss test could be eliminated or replaced with something more realistic and efficient, the fuel tank temperature prof ile (FTTP) might be eliminated. If so, this would remove a costly burden, especially for small manufacturers that do not own their

own wind tunnels.

▪ Should the canister filling procedure be review ed to be more realistic? Currently, there seems to be no real advantage to adding more canister volume (other than a bleed canister) in order to provide added complia nce assurance and better control emissions during extremely harsh real-world conditions. This is because the only working canister space is that which is created by purging from the butane filled canister during the test. Larger canisters are simply loaded with more butane. It might be more realistic to only fill canisters for testing with an amount that is representative of some typical or worst case mass of vapors. This amount might be specif ic to that particular vehicle or perhaps standardized and based on a study of real da ta from typical vehicles, perhaps based on vehicle type (truck or car), fu el tank volume, fuel system type (return or returnless), etc. In any case, some realistic canister loading requirement that would give flexibility to manufacturers (especially smaller manufacturer s) to be able to improve purge system testing results with more or better hardware to avoid development and testing costs, and vice versa, is suggested here.22 ▪ For sealed evaporative and/or fuel system s (such as CNG), VPG suggests that it might

be feasible in the future to allow a “certification by design” a pproach if best practice joint types and practices could be established be tween the agencies and industry. With this approach, a manufacturer coul d potentially avoid certification testing in some cases by showing that they used “certification st andard” parts and meet particular design requirements (such as torque specifications a nd control procedures) for their fuel system such that no properly built and functioning vehicle should have any emissions issue.

8.2.2.3 Phase-In Schedule

Because small-volume manufacturer have few emission families, Vehicle Services Consulting commented that EPA should allo w small-volume manufacturers to wait until MY2022, the final year of the phase-in, to require compliance with the new evaporative emission

standards.

VPG commented that it supports a phase-in plan that would exempt small businesses from the early years of the Tier 3 regulations.

8.2.2.4 Assigned Deterioration Factors

Vehicle Services Consulting commented that it supports the use of a ssigned deterioration

factors for small-volume manufacturers for both exhaust and evaporativ e emission standards.

VPG supports the use of assigned deteriorati on factors. However, VPG commented that the current multiplicative assigned deterioration f actors are not realistic enough to make their use worthwhile except in unlikely cases. VPG suggested that a more realistic additive DF value

could be calculated based on a model of curre nt industry performance at various tailpipe emission levels or perhaps determined for each Tire 3 exhaust “bin”.

8.2.2.5 High-Altitude Evaporative Emission Requirements

VPG commented that EPA should review the hi gh-altitude test methods to be sure that altitude test conditions (e.g., fuel specifications and fuel tank temperature profile) are representative. Altern atively, VPG commented that the fuel tank temperature profile procedure could be adjusted to reflect th e typical temperatures observed at altitude. Finally, VPG also

commented that if a small manufacturer wishes to avoid the cost of creating a new altitude FTTP or running additional tests, the manufacturer could perhaps have the option to only test the worst

case with the hotter fuel tank temperature profile.

8.2.3 Summary of Comments on Certification Test Fuel

8.2.3.1 Certification Fu el Specifications

Big River Resources, an ethanol produ cer, supported a 15% ethanol blend for certification fuel because they believe that fu el blend will permeate th e market by 2017. They also commented that EPA should align the other fu el properties with gasoline in the marketplace,23 specifically citing the octane rating of the fu el. Big River Resources commented that EPA should adopt an octane value to between 87 and 89 (R+M)/2 unless the en gine is specifically designed for prem ium fuels.

8.2.3.2 Implementation for Ligh t-duty Vehicles and Trucks

Vehicle Services Consulting commented that small-volume manufacturers of light-duty

vehicles should be allowed to wait until MY2022 to use the new certification fuel for demonstration of compliance with the Tier 3 exhaust and eva porative emission standards.

8.2.3.3 Implementation for Nonroad Engines and Equipment

The National Marine Manufact urers Association (NMMA), a trade organization that represents many marine engine and boat manufacturers, commented that they are opposed to increased ethanol in gasoline. They noted th at most nonroad engines do not have combustion feedback sensors capable of adjusting the air/fuel ratio of the engine to match the properties of the fuel. As a result, when the ethanol level of the fuel is increase, engines will run hotter causing durability issues and increased emissions . Additionally, NMMA noted that ethanol is hygroscopic (i.e., it has an affinity for water) which poses serious problems as a marine fuel. NMMA noted that it is not impo ssible for manufacturers to certi fy and design their engines and fuel system components to operate on 15% (a nd higher) ethanol blends , but it will result in significant costs to the manufacturers and there will be an increase in NOx emissions and a reduction in fuel efficiency a ssociated with such a change.

NMMA suggested that EPA consider a small volume exemption from the new certification fuel requirements fo r marine engines. Due to th e resources required to certify marine engines and since many small businesses outsource testing at a significant expense, NMMA recommended allowing a volume exemp tion of 15,000 engines per year that allows manufacturers the option to cont inue certifying on current cer tification fuel. Alternatively, NMMA recommended that EPA allow for a five-y ear phase-in starting in 2017 and that existing marine engine families that are carryover families be grandfathered.

With regard to evaporative emissions, NMMA commented that the effect of a shift to a

15% ethanol blend is minor. This is because permeation testing is performed on a 10% ethanol blend and diurnal testing, which is sensitive primar ily to the volatility of the fuel would remain the same. Therefore, NMMA commented that no changes are required to the current evaporative emission regulations if a 15% etha nol blend is adopted for certificat ion fuel. Current test data and certificates should be appropriate and allowed to be carried over if a 15% ethanol blend is adopted as the certification fuel. NMMA commente d that they would be willing to work with EPA to conduct testing to establis h if there is a meaningful pe rmeation difference between a 10%

and 15% ethanol blend.

Westerbeke, a nonroad engine manufacturer, commented that small businesses should be allowed to certify on a 10% etha nol blend during the period in which a 15% blend is mandated and until such time that the 15% blend is the only fuel in the marketplace and not prohibited for use in nonroad and marine engines. Westerbe ke commented that carryover engine families24 should be grandfathered and not n eed to be recertified with a 15% ethanol blend. Westerbeke noted that harmonization with CARB is importa nt in order to keep compliance costs to a

minimum.

H.J. Roberts, a company that certifies s nowmobiles, commented that the small business provisions adopted in the snow mobile program should be extended and perhaps even expanded for the Tier 3 rulemaking. They specifically not ed the following flexibilities: design based certification, assigned deteriorati on factors, using certification a nd emission standards from other EPA programs, and hardship provisions. One expa nsion of flexibilities they supported in their comments was allowing snowmobiles to use en gines certified under standards in another jurisdiction (e.g., engines certified to Euro 4 standards for cars) that through good engineering judgment could be extrapolated to demonstrat e that the engine woul d meet or exceed the applicable EPA standards for snowmobiles.

H.J. Roberts commented that EPA should tailor its standards to be consistent with other North American jurisdictions, citing California and Canada sp ecifically. They noted their concerns on certifying snowmobile engines on a 15% or 20% ethanol bl end and then operating the engine in an area where gaso line with no ethanol in it is pr esent. They believe EPA should

consider the ramifications of such a scenario in deciding whether to re quire certification on a

15% ethanol blend.

With regard to permeation standards, H. J. Roberts commented that EPA should not require recertification with the ne w certification test fuel. In support of their comments, they cited EPA’s presentation on the Certification Fuel change wh ich noted that EPA expected comparable results with the use of a 15% or 20% ethanol blend. They noted the costs of retesting are significant for small businesses th at sell limited numbers of products like they do,

with total North American sales of around 20 units.

Agri-Industrial Plastics, a manu facturer of non-automotive fuel tanks, noted that they are not aware of any public data on th e effect of ethanol c ontent on the various technologies used for permeation control on nonroad fuel tanks. They noted that generally reported data suggests permeation rates will increase as the ethanol c ontent rises to around 50%, at which point the permeation rates level off or begin to decrease . Based on this, Agri-Industrial commented that permeation rates will increase if the ethanol content of the certification fuel is raised from 10% to 15%. However, the level of the increase and the effect on curr ent permeation control technologies is not known. Agri-Industrial Plastic s commented that the most important part of

the transition to a new certification fuel will be early generation of data to quantify the effect of the change in ethanol content. They recomm ended a phased-in approach where new models starting at some point before 2017 would be tested with a 15% etha nol blend certification fuel. If that data shows no changes are required to the existing technologies to meet the permeation standards, then that data could be used to just ify extending the certificatio n of existing tanks. If it is determined that process ch anges are required to the control technologies, the data could be used to justify similar changes to existing tanks and moving them into new emission families.

8.2.3.4 Market Review25 VPG commented that it supports the use of representative fuels in emission testing. However, they recommend a review of the perfor mance of ethanol containing fuels, especially street fuels, be done and incorpor ated in the new standards prior to the release of the standards.

EPA should consider the realistic worst-case to avoid situations in which designing and calibrating for an unrealistic certification cond ition might compromise real-world operation for

end users.

NMMA recommended that EPA perform a ma rket review in 2017 to determine what parts of the country, if any, have moved from a 10% ethanol blend to a 15 % ethanol blend as the primary in-use fuel. NMMA believes it is premature to assume that a 15% ethanol blend will be the primary fuel in 2017 and a review in 2017 woul d allow the natural pro cess of the market to take place before EPA decides if a 15% ethano l blend is the appropriate certification fuel.

8.2.3.5 Hardship Relief

NMMA commented that hardship relief for small businesses that are unable to meet testing burdens and deadlines due to economic reason is a viable form of relief. NMMA supported such relief but strongl y urged EPA to include language that requires EPA to conduct not only a thorough investigation of the company requesting the relief, but also a thorough investigation to determine whether allowing reli ef for one small business will negatively impact the market share of competing small businesses.

8.2.3.6 Service Tanks

Agri-Industrial Plastics commented that se rvice tanks (i.e., replacement parts that are produced for previous model year vehicles/equip ment) should be grandfathered and not required to be recertified on any new certification fuel. Agri-Industrial Plastics commented that this would allow production for replacem ent purposes of any fuel tanks that were certified with the existing certification fuel with 10% ethanol that are no longer pr oduction models after 2017.

8.2.3.7 Emission Impact

Big River Resources noted that there was some discussion about increased NOx emissions with higher blends of ethanol. They commented that EPA should closely examine this issue and look at on-highway vehi cles and nonroad engines separately. They believe the data will show that the bulk of passenger vehicles will not show significant increases in NOx

emissions.

8.3 Summary of August 18, 2011 Panel Outreach Meeting

The Panel Outreach Meeting was conducted as follows:

• 9:00am: Introductions and opening presentation by EPA-OP (on behalf of the SBAC) regarding the SBREFA Pane l process and more information about being a SER; additional questions and disc ussion on rulemaking processes26 • 9:30am: Petroleum Refinery Sector Risk and Technology Review and New Source Performance Standards (RTR/NSPS) rule

• 11:15am: Tier 3 Rule- Fuels

• 1:00pm: Tier 3 Rule- Vehicles

• 2:20pm: Tier Rule- Certification Fuel

Tier 3 Rule Fuels Panel Outreach Meeting Summary

• EPA-OTAQ highlighted possible changes in EPA’s thinking since the June Pre-Panel Outreach Meeting:

o Potential for proposing small volume refine ry provisions (in addition to small refiner provisions)

o Looking at other options for the refinery gate and downstream caps—leaving caps as-is or lower caps (above 20/25 ppm but lower than 80/95 ppm)

o Only lowering RVP from 10 psi to 9 psi (not 8.8 to 7.8 psi)

• Questions and further discussion with SERs

o Q: Why did EPA choose 10 ppm versus a nother standard, and what benefits do we gain from going to 10 ppm?

 EPA Response: From an emissions and technology standpoint, we need to bring sulfur down as low as possible, keeping feasibility and distribution impacts in mind; lower sulfur standard may be requested, but we believe this is the lowest that we could go (considering feasibility and impacts to the distribution system)

o Q: What are the drivers for the Ti er 3 rule—Clean Air Act provisions?

 Response: The SBA Panel member explained that auto companies requested that the President look at lowering emissions from vehicles;

EPA further noted that this has also been part of the ozone NAAQS, as well as a CAA 211(c) and 211(v) (anti-backsliding and vehicles, respectively) rule

o Q: What would the timing for the RVP standards be?

 EPA Response: EPA is currently consid ering a start date of 2017 for the RVP program, or a phase-in that would begin in 2016

o Q: Is EPA aware of the winter RVP standards?

 EPA Response: The winter RVP sta ndards are industry standards that existed before EPA began regula ting RVP—EPA does not have any winter RVP requirements; we are no t changing those standards in this action, and we have not heard any indication of ASTM changing the

standards either

 SERs raised concern about butane, and noted that they will include

information in their comments on whet her or not they can use winter gasoline for excess butanes

o Q: What is the summer ozone season?

 EPA Response: May 1 to September 15

o Q: Will small refiners be able to continue to use Tier 2 credits during the Tier 3 delay period (when they’re still meeting the Tier 2 standards)?

 EPA Response: Yes, this is perfectly reasonable (however, Tier 2 credits cannot be used for compliance with Tier 3)27 o Q: Can EPA explain why Tier 2 credits cannot apply for Tier 3 and/or why EPA

believes it would not work?

 EPA Response: Environmentally, this would create a glut of credits; further, the two programs are very di fferent—Tier 2 used a baseline, Tier 3 will not, so the credits will not be equal or interchangeable

o Q: With respect to ethanol, can it add up to 1 ppm sulfur to fuel?

 EPA Response: Ethanol should not change things very much, and the Tier 3 program will be based on a “finished fuel” standpoint

o Q: One SER noted that its company will n eed to triple the investment from the Tier 2 investment (which was half the cost of the refinery), and asked what EPA’s thoughts were on five years versus three for leadtime?

 EPA Response: EPA would need to be able to justify such a delay; EPA requested that SERs need to explain in detail what the reasoning is for requesting five years (rather than si mply stating that five years is preferred), as EPA will need compelling reasons to put such a delay in the

rule

 Another SER mentioned economic depreciation, and will send EPA (confidential) cost data

o Q: Can EPA explain the concerns over an MSAT-for-gas option?

 EPA Response: Some of the reasoning is political (as ther e were concerns during the MSAT2 rule from Western states about benzene), however if this is something that EPA were to propose, EPA would need help from SERs to explain why a relaxation of the benzene standards is needed

 SERs were also asked to comment on this from an environmental, investment, and engineering front; since this could also be a local issue, SERs should provide comment on any positive or negative effects this could have on their respective areas

o Question to SERs: Please comment on th e notion of annual credit accounting versus use of credits immediately

o Terminal operator SERs commented that th e terminal requirements will be largely dependent on what refiners do—if everyt hing is done upstream, there will not be a problem; if anything will need to be added downstream, terminals would potentially need to put in some investme nts and could potentially be subject to other Federal requirements (i .e., Homeland Security, etc.)

o Q: How likely is the option of EPA to retain the 80 and 95 ppm caps?

 EPA Response: EPA is still briefing ma nagement on this issue, especially on making the case for going below 80 ppm

 EPA is aware that lowering the cap s could have impacts on transmix processors, pipelines, terminals, additive manufacturers, and refiners during turnarounds; thus, EPA requested that SERs provide feedback on why the caps need to remain the same, or if there is an intermediate level that EPA could go down to (is there a specific threshold that would be problematic or not?)

o Q: What is EPA’s response to the anti-backsliding study?

 EPA Response: The study will be rel eased with the proposed rule, so it will be done before EPA makes any final decisions28 Tier 3 Rule Vehicles Pane l Outreach Meeting Summary

Exhaust

o EPA walked through background and indica ted that no changes had been made since June Pre-Panel Outreach Meeting

 Along with a review of the program, EPA noted that there is a strong effort on EPA’s to have a program co mpliant/compatible with California’s

program

o Q: A SER noted that his company has been working as an informal group with California and stated that it would be help ful sooner rather than later on exhaust, evap, and SFTP to know where EPA is thinking differently that CA LEVIII (e.g., EPA is considering E15 while Ca lifornia is considering E10)?

 EPA Response: EPA is working very closely with California; the main

difference is that their standards would start earlier (2015 vs. 2017), EPA expects to be harmonized with Califor nia or to accept California’s test data (and vice versa)

o It was noted that EPA is also consideri ng small volume manufacturer provisions

 The SBA Panel member requested that these be kept in consideration as they could also help small busine sses; and small businesses may have feedback on an appropriate threshold

o One SER noted that a small business can turn into a small volume manufacturer

 The SBA Panel member asked if SERs could provide information on past few years on the growth of small manufacturers

o Another vehicle SER noted that they were “flirting with the line of small business

vs. small volume manufacturer

 The Panel agreed that this is a good i llustration of someone that we would

like to hear from

o A Panel short discussion on flexibilities suggested by the SERs then took place

 EPA noted that we believe that the delay and hardship provisions seem most like provisions that coul d be proposed in the rule

 The SBA Panel member also prompted SERs to comment on the usefulness and ease (or lack ther eof) of hardship provisions

 One SER commented that Tier 2 ha d a hardship provision for small businesses and small volume manufacturers and it worked out well;

another SER seconded that comment

o A SER commented that EPA should update the deterioration factors (DFs)—as they get better and lower (EPA should) update them so small businesses are not put at a disadvantage, and also on th e notion of reduced testing burden and speciation issues

 SERs were asked to provide more information on this and to provide any data that they may have to support this Evap

o Discussion on the SER-recommended flexibi lity of reduced test ing requirements

 EPA commented that if this change is appropriate here, then it seems that it should be appropriate ev erywhere, and this would be hard to justify29  EPA also noted that the biggest constr aint is how to stay harmonized with California if the three-day test was eliminated

 It was suggested that EPA look into letting a company “sign off” after meeting one standard

o A SER commented that with California, as the standard goes down, “background” emissions start to go up/become more prominent

 EPA noted that California’s standa rd is intended to take background

emissions into account

 EPA requested that manufacturers provi de information on vehicle baking

in their comments

o EPA noted that the agency is explor ing the concept of reduced testing requirements

 The SBA Panel member requested th at SERs provide comment on these provisions

 EPA also noted that for many of th e SER-suggested flexibilities, EPA needs more feedback from industry to justify the provisi ons and that the agency may also need to seek comm ent on whether or not some provisions

should be extended to non-sm all manufacturers as well

 Vehicle SERs commented that th ey believe EPA understands the comments and thoughts put fort h by SERs at the meeting

Tier 3 Rule Certification Fuel Panel Outreach Meeting Summary

o EPA walked through background and be gan discussion with the SERs on certification fuel changes

o SER– Want one North American/World ce rtification fuel – for engines sold worldwide – products cross natio ns and states all the time

 ARB is bringing E10 to board in December ’11 – with 2019 implementation date

 E0 still in the marketplace

 Canada – what is their stance? (do they have other fuel sources other than ethanol?)

 What will future fuels be like?

 Ethanol SER– state E15 is indicative of what will be in marketplace

 A SER commented that Dupont and ot hers at a conference state that

ethanol may not be the future fuel

 Another SER commented that the engi ne industry doesn’t see E15 being

widely accepted

 The SBA Panel member asked the SERS – if doE10 today and E15 later – then
higher impact on cert costs?

 SER Response: $200,000 cert costs pe r engine (not engine family)

 Panel asked SERs how the proposal would affect a company’s bottom

line?

 If lifetime of product is 10 year s then 5 year recert not useful

o E10 v E15 engine operation issues mentioned by SERs:30  If cert on E15 and E0 still out there – then engine will not run very well –
if cert on E10 then may be ok, a SER co mmented that marine can cert to
E10, but have to redesign for E15 use – wants E10 cert

 Marine – would not warranty thei r engines for anything over E10 –

ethanol and fuel dist ributors on the line

o A SER commented that if EPA requires E15 a nd CA requires E10 and there’s reciprocity

– if manufacturer wants to cert to E10 then can’t cert in California and sell nationwide –

ARB won’t allow it

 California is a big market – when SERS were asked if anyone didn’t have a CA
certification – no one responded

 What if ARB doesn’t move to E15?

 Snowmobiles - no cert/standards in CA – inte rested in ethanol in their engines –
would have to certify to EPA

o Emission durability on E15?

o Pump label revisit – newly certified engine can allow use of E15 fuel

 Consumer confusion—they will not know year of engine manufacturer for
nonroad – Fuel cap: Black cap/green cap? Need something more permanent that

can’t be removed?

o EVAP: A SER mentioned EPA/ARB – E10 for permeation of fuel tanks – Fuel tanks 1.5
g/m2/day on E10 – marginally meeting – E15 not pass, E15 permeates at a higher rate,
E15 is in effect lowering the rates or standards need to be adjusted

 EPA asked for any data that supports the thought that E15 more permeable than

E10

o Tanks/fuel lines – already E10 compliant – do they have to do E15 if supposedly no

difference?

o SBA outlined options and requested info from SERS:

 E10 (quicker timeframe)

 E10 market review before E15

 E10 with definite transition to E15 in future

 Definite E15

o Market Review –

 Some SERs suggested market review, but unsure on year and what such a

review would look like

o Grandfathering – implies no change in fundamentals but E15 may result in change in
durability

 Grandfather – cert by design – small volume

 Question to SERs on suggested timing

o Small Volume Exemption – not much discussion – John McKnight asked about it

o Grandfathering for evap families

 Grandfather – cert by design – small volume31  Question to SERs on suggested timing

o Discussion and request for SERs to provi de more feedback on extending existing flexibilities and replacement fuel tanks

8.4 Summary of Written Comments from SERs Submitted After August 18, 2011 Panel Outreach Meeting

8.4.1 Summary of Comments on Tier 3 Fuels

8.4.1.1 Costs of Compliance and Lead Time

Costs

A transmix processor commented that the 1 psi waiver reduction will force transmix processors to make up the loss of octane, resulti ng in higher blending costs with toluene to make up for the octane loss.

CountryMark commented that the FCC gaso line desulfurization pr ocess unit that was installed and commissioned in 2010 (for Tier 2 comp liance) will need to be modified, and sulfur would need to be removed from the alkylation unit gasoline, to meet a 10 pp m sulfur standard at an estimated total cost of $15 million; with additional operational costs of $200,000 annually (in increased natural gas and catalyst costs). Th e commenter further estimated that resultant modifications could reduce approx imately 12.7 tons of sulfur per year at a cost of nearly $150,000 per ton.

CountryMark commented that potential capital costs for RVP could be $10-15 million for a new distillation tower/repla cement of an existing tower an d fired heater, and an annual economic penalty of $3 million annually due to bu tane sales versus blending. The commenter also noted that butane sales would also require an expansion of its existin g rail facilities to

handle the increased traffic.

Gary-Williams Energy Corporation (GWEC) co mmented that costs to meet the Tier 3 requirements could be $5-7.5 million annually for sulfur control (operating costs, and capital costs to account for the need for more frequent catalyst change) and $6.5 million annually for

RVP control. The commenter noted that it is also facing a compliance deadline for benzene reduction (MSAT2) in 2015, and initial estimates for the cost of a benzene reduction unit are $20-30 million.

Lead Time

CountryMark commented that in total, modificati ons to its facility coul d take three to five years for implementation.

RFA commented that it believes EPA should strongly considerbifurcating the rule so that the cert fuel changes and RVP standard are on on e track, and sulfur change s on a separate track;32 the commenter believes that sulfur requirements ar e likely to require more lead time and a more gradual phase-in.

The small refiner SERs commented that they believe that a five-year delay for small refiners is warranted, and can be justified, b ecause: individual SERs have estimated sulfur reduction costs of $5-$15 million dollars annually ( operating costs for some small refiners due to more frequent catalyst changes, capital costs fo r those who need to install or modify current systems optimized for 30 ppm); small refiners ar e facing significant financ ing and credit issues due to the costs of compliance of RFS2, MSAT2 and other rules; and many small refiners have just recently turned on Tier 2 projects and need time to recoup costs.

The small refiner SERs specifically noted that the Internal Revenue Service (IRS) regulations recognize a depreciabl e life of ten years for tax pu rposes. The commenters suggest that this standard for cost recoupment should be c onsistent from one agency to another, and thus that Tier 3 compliance should be delayed until tax depreciation for Tier 2 investments is complete.

8.4.1.2 Level of the Standard

Gasoline Sulfur

A transmix processor commented that they ar e concerned that a porti on of the jet fuel in

transmix will distill into the na phtha (CBOB) cut, and jet fuel c ould have up to 2,000 ppm sulfur.

The commenter further noted that they could receive older transmix at some point in the future with have a higher CBOB sulfur content than is allowed to be used and would be a problem for transmix processors. The commenter further stated that some of the ultra low sulfur diesel fuel (ULSD, diesel fuel with 15 ppm sulfur or less) will end up in the naphtha yield stream, thus raising the CBOB sulfur. The commenter suggested that EPA let transmix processors sell what transmix they process in the future and look at how transmix processors have done in the previous years (e.g., the past two years) as a reference with th e rules that are in place for naphtha; transmix processors could then report th e future sulfur results on CBOB in order for EPA to monitor transmix processors ’ future sulfur reduction progress.

CountryMark commented that a 20 ppm refi nery gate cap coul d have significant economic impact since any gallon above that limit would not be salable; unlike diesel fuel, gasoline production is more complex and off-spec product (due to a refine ry upset or operating problem) would leave little to no opportunity to retreat the fini shed product. The commenter believes that maintaining the 80 ppm refinery ga te cap would provide operating flexibility to account for upset conditions. The commenter fu rther noted that a 10 ppm sulfur limit will require more frequent catalyst change-outs, the refiner would not be able to blend any FCC gasoline during desulfurization un it shutdowns and would be less likely to be able to produce salable gasoline. The small refiner SERs further stat ed that if the refinery gate cap is reduced to 20 ppm, during a 5-10 day catalyst change-out the lost revenue fr om not being able to produce & sell gasoline during this time period could be th e difference between positive or negative annual

income for a small refiner.33 RFA commented that most ethanol produ cers are currently pr oducing 10 ppm sulfur

ethanol. The commenter noted that since the primary source of sulf ur in denatured ethanol is the hydrocarbon denaturant itself, the main concern for ethanol producers is continued access to low sulfur hydrocarbon denaturants. RFA stated th at they believe that to ensure maximum flexibility, EPA should consider allowing “corp orate average” sulfur levels for ethanol manufacturers (similar to what it being proposed for refiners), or setting a sulfur maximum for denaturant similar to California’s regulations.

The small refiner SERs commented that th ey strongly support allo wing the 80 ppm sulfur gate cap to remain unchanged. The commenters not ed that this higher cap would provide needed flexibility in the event that a facility experienced operation upse ts and/or an occasional off-spec batch. The commenters further stated that a high er cap would allow a facility to continue to produce and sell gasoline rather than needing to build additional storage tanks for slightly offspec product, and would be particul arly essential during turnarounds.

The small refiner SERs also recommended that EPA allow small refiners the option of complying with a refinery gate standard of 25 ppm and be exempt from the 10 ppm average standard, to allow some small refiners to cont inue using their existing sulfur removal capital investment for compliance.

The small refiner SERs commented that the downstream cap must remain at 95 ppm for as long as the refinery gate cap remains at 80 ppm. The commenters also stated that they believe that the 80 ppm and 95 ppm caps should remain in place in Alaska.

The Independent Liquid Terminals Associ ation (ILTA) commented that it does not foresee problems meeting a 25 ppm downstream cap, provided that refiner are successful in delivering compliant fuel to terminals and te rminals are not asked to blend higher sulfur

additives into the fuels.

Gasoline Volatility (RVP)

CountryMark commented that eliminating th e 1 psi ethanol waiver would make their RFS2 compliance more complex and more expensive.

RFA commented that it is not opposed to the proposed RVP sta ndard; however, the

commenter believes that EPA should be consistent in its treatment of RVP requirements for all ethanol blends up to 15%. The commenter further stated that if the 1 psi waiver continues to apply to E10, there is no logical reason th at it should not also be applied to E15.

The small refiner SERs commented that RV P exemptions for Alaska and Hawaii should be continued (as governed by ASTM).

ILTA commented that there is significant uncertainty regarding the potential impact of lower RVP on terminal operations, because this is largely contingent on actions by refiners. The commenter stated that a better understanding of how refiners plan to comply with the new34 requirements, and how they intent to rely on th e terminal industry to achieve compliance, is needed before the terminal industry can really comment on the likely impact of the rulemaking.

8.4.1.3 ABT Program

CountryMark commented that it believes that sulfur credit generation and sales have done little to offset the high cost of comp liance of previous fuels regulations.

The small refiner SERs recommended that sma ll refiners be allowed to use existing Tier 2 gasoline sulfur credits for co mpliance during any small refiner delay. The commenters further requested that once small refiners are subject to the Tier 3 sulfur standard, Tier 2 credits should be allowed to be used for Tier 3 compliance or exchanged for Tier 3 cred its but discounted at a

two-to-one or three-to-one rate.

8.4.1.4 Related Federal Rules

The Renewable Fuels Association (RFA) comm ented that it believes that the Tier 3 program should complement the RFS program and be structured to facili tate expanded use of renewable fuels in the marketplace c onsistent with Congressional intent.

8.4.1.5 Regulatory Flexibility Alternatives

CountryMark commented that it believes that a five year delay (versus three years) for small refiners is warranted considering the time th at it would take to in stall potential facility modifications. The commenter noted that a longer delay period would provide small refiners the flexibility to coincide commissioning of new eq uipment with existing turnaround schedules, thus minimizing the financial impact of process unit shutdowns.

CountryMark also commented that if a comp lete exemption from the standards for small refiners is not possible, it beli eve that several flexibility options should be offered, including: 1) extending compliance deadlines for at least five y ears, 2) maintaining the 80 ppm sulfur refinery cap and excluding this production from the annual average, and 3) continuing to provide the 1 psi waiver for ethanol blending.

The small refiner SERs recommended that there be an extensiv e hardship provision where small refiners could apply for additional fl exibilities. For example, the SERs commented that in exchange for on-time compliance with Ti er 3, a small refiner could maybe receive a delay in their MSAT2 compliance or an extension of th e small refiner benzene compliance. However,

the SERs noted that if the Tier 3 rule is fina lized in late 2012, there will be a very compressed window of time for refiners to submit, and EPA to review, hardship applications.

The small refiner SERs commented that a five-year delay, rather than instituting RVP phase-down options, is a si gnificant economic issue.

GWEC suggest that, to a ddress EPA’s concerns about a potential MSAT2-for-Tier 3 gasoline flexibility provision, a le ss problematic approach to such a flexibility option would be to35 have the MSAT2 cap go into effect in 2016 for sma ll refiners (as original ly intended), but allow small refiners an exemption from the 0.62 volume percent average for some period of time. The

commenter stated that it believes that this a pproach could also help address timing issues associated with the hardship application subm ission and approval process in relation to MSAT2 compliance deadlines.

8.4.1.6 Other

The small refiner SERs commented that small refiners recently made investments for Tier 2 without knowing that Tier 3 wa s just on the horizon; the commenters stated that had they been given such information, small refi ners and refineries could have planned scalable projects for the Tier 3 standard and saved millions of dollars in capital.

8.4.2 Summary of Comments on Tier 3 Vehicle Emission Standards

8.4.2.1 Exhaust Emission Standards and Test Procedures

Vehicles Services Consulting commented th at EPA should adopt the same exhaust FTP and SFTP standards for LDVs that CARB has agreed to adopt for small volume manufacturers. The FTP standards would start in model year 202 0 at the ULEV125 level and then be tightened in model year 2025 to the ULEV70 level. Star ting in MY2020 and later, the SFTP standards

would be based on the same mix of bins chos en by the manufacturer for FTP compliance (e.g., the corresponding SFTP standards for LEV, ULEV70, ULEV50 bins).

RFA noted that vehicle manu facturers have expressed se rious concerns about the inability to certify emissions of flex fuel vehicles (FFV) under California’s LEVIII standards when those vehicles are operati ng on E85. They noted that control of NMOG emissions during

cold start conditions is more difficult on E85 du e to the fuel’s volatility characteristics and

NMOG emissions from FFVs tend to exceed NMOG sta ndards before the catalyst is warmed up. RFA noted that the inability to certify FFVs under the California LEVIII program has resulted in greatly restricted sales of FFVs in the state. RFA believes the increased availability of FFVs is paramount to the successful implementation of the RFS, as EPA itself has acknowledged. Thus, RFA encouraged EPA to carefully consider how ce rtification of emissions from FFVs should be handled under the proposed new Tier 3 light-duty exhaust standards.

8.4.2.2 Evaporative Emission St andards and Test Procedures

Vehicle Services Consulting commented that EPA should apply the same evaporative emission standards to small manufacturers, but wait until model year 2022, the last year of the phase-in for the evaporative emission standa rds. During model years prior to 2022, small manufacturers could comply w ith the existing Tier 2 evaporative emission standards.

8.4.2.3 Phase-In Schedule

Vehicle Services Consulting commented that re quiring small manufacturers to comply at the start of a given phase-in puts an inequitable burden on small manufacturer s, a burden that the36 specialty models of large manufacturers do not fa ce, since those models can comply with the new requirements at the very end of the phase-in. In short, phase-ins ar e not of much use to small manufacturers who typically have one or tw o engine families. They recommend that a compensating factor be written into the rules and recommended a delay in the start for the

standards.

8.4.2.4 Assigned Deterioration Factors

Vehicle Services Consulting supports the con tinued use of assigned deterioration factors for both exhaust and evaporative emissions under the Tier 3 program.

8.4.3 Summary of Comments on Certification Test Fuel

8.4.3.1 Certification Fu el Specifications

The National Marine Manufact urers Association (NMMA) an d H.J. Roberts commented that EPA should adopt E10 as the certification fuel not E15. Both commenters noted that E10 is still not the fuel of choice for their product ma rkets with many customers actively seeking out E0 for their equipment/vessels. Both commenters noted that it is important the certification fuel requirements be the same as California and Canada since their products are sold in these markets to ensure further testing will not be required.

RFA commented that it strongly supports moving to a certif ication fuel that contains the highest level of ethanol that is likely to be in broad commerc ial use in the next 5-10 years. In light of EPA’s recent approval of E15 for use in light-duty automobiles built in 2001 or later, they believe E15 is a good starti ng point for discussions on a new certification fuel specification.

RFA noted that EPA should be mindful that R FS requirements and the increasing desire for higher octane fuels to maximize engine efficiency are likely to drive average ethanol content above E15 over the course of the next 10 year s. RFA strongly suppor ted EPA’s proposal to apply the E15 certification fuel to nonroad and be lieves it is necessary to ensure new non-road equipment is properly engineered. RFA believes EPA should move as expeditiously as possible to implement a new certification fuel. RFA r ecommended that EPA should consider bifurcating the rulemaking such that changes to the cer tification fuel and RVP requirements can be effectuated sooner than proposed changes to sulfur limits.

While RFA agreed with EPA’s general directi on on certification fuel specifications, they encouraged EPA to strongly consider what other fuel properties and characteristics, such as minimum octane rating, will be necessary to ach ieve the recently finalized 2017 mileage and

vehicular GHG emissions standards. RFA noted that EPA should be mindful of these properties and characteristics as it designs the sp ecifications for the ne w certification fuel.

8.4.3.2 Implementation for Ligh t-duty Vehicles and Trucks

Vehicle Services Consulting commented that the new certification fuel should apply to small manufacturers of LDVs starting in the same year the Tier 3 standard s take effect. This37 would be model year 2020 for exhaust emissions testing and model year 2022 for evaporative emissions testing.

8.4.3.3 Implementation for Nonroad Engines and Equipment

H.J. Roberts commented that EPA should exte nd the flexibilities adopted for snowmobile manufacturers in the original snowmobile rule to the Tier 3 rule including the following provisions: Design base d certification, Assigned De terioration Factors, Us ing Certification and Emission Standards from other EPA programs, Ha rdship Provisions. In addition, H.J. Roberts commented that EPA should expand the ability to use certification and emission standards from another non-EPA jurisdiction (e.g., the European Un ion) if the manufactur er can show that the standards which apply in the othe r jurisdiction are at least as st ringent as the applicable EPA regulations.

H. J. Roberts noted EPA stated that no anticipated impact on permeation emission is expected with E15. Therefore, H.J. Roberts co mmented that permeation testing performed on an

E10 fuel should not need to be recertified s hould EPA adopt an E15 cer tification fuel. H.J.

Roberts commented that manufacturers should be allowed to use up existing inventories of fuel

lines certified under the current standards if EPA switches to an E15 certification fuel.

H. J. Roberts commented that if EPA does a two-step switch in certification fuels from E10 to E15, then EPA should not require manufactu rers to re-test their products. Instead, EPA

should allow manufacturers to utilize some type of extrapola tion of the E10 test results to estimate emissions from the same product using E15.

Rokon commented that EPA should allow certification by design for offroad motorcycles. They noted that they use engine s certified to the sma ll spark-ignited nonroad engine standards, but they have to test the en gines under the offroad moto rcycle test procedures in order to certify the engines for the offroad moto rcycle market. The test results show that the current engines they are using are well below th e standards for offroad engines. Rokon would

not want to have to test the e ngines again, at a significant cost , just because EPA switches to a

new certification fuel.

NMMA supported E10 as the certification fu el and recommended that EPA make the change using the same timing as CARB. They commented that a switch to E15 as the

certification fuel would require recalibration of their engine s and prevent world calibrations. This will at least double the number of unique models and make it very difficult to manage keeping the right engines in the right country. In addition, boat builders would need to order non-US engines for their export boats and it would be very difficult to control.

8.4.3.4 Market Review

H. J. Roberts commented that EPA should do a market review before any future switch to

E15 as a certification fuel.38 9. P ANEL R EPORT AND F INDINGS

9.1 Number and Types of Entities Affected

For a complete description of the small enti ties to which the proposed rule may apply, see Section 5. For businesses potenti ally impacted by the Tier 3 ve hicle standards, this includes vehicle manufacturers, a lternative fuel converters, and inde pendent commercial importers. For businesses potentially impacted by the Tier 3 fuel standards, this includes gasoline refiners and importers, distributors, fuel addi tive manufacturers, transmix pr oducers, and ethanol producers. For businesses potentially impacted by the chan ge in certification fuel, this includes manufacturers of engines used in on-highway motorcycles, heavy-duty vehicles, nonroad equipment such as lawn and garden equipment, r ecreational vehicles, and marine vessels, as well

as manufacturers of fuel tanks and fuel hoses used for these types of products.

9.2 Potential Reporting, Record Keeping, and Compliance

For any emission control program, EPA must ha ve assurances that th e regulated products will meet the standards. The program that EPA is considering for manufacturers subject to this proposal will include testing, reporting, and reco rd keeping requirements for manufacturers of vehicles covered by the proposed Tier 3 re gulations, and manufact urers of on-highway motorcycles, heavy-duty gasoline engines, a nd gasoline-powered nonroad engines. Testing requirements for these manufacturers could include certification emission (including deterioration factor) testing, in -use testing, and production line te sting. Reporting requirements would likely include emission test data and tec hnical data on the vehicl es. Manufacturers would have to keep records of this information.

For any fuel control program, EPA must ha ve assurance that fuel produced, distributed, sold and used meets the applicable standard. EPA expects that the reco rdkeeping, reporting, and compliance provisions of the proposed rule will be fairly consistent with those in place today for other fuel programs. Further, we expect to use existing registration a nd reporting systems that parties in the fuel production and distribution industry are already familiar with.

9.3 Related Federal Rules

The Panel is aware of the fo llowing primary federal rules that are related to the proposed

Tier 3 rule under considerat ion: the Tier 2 Vehicle/Gasoline Sulfur rulemaking ( Federal Register Vol. 65, p. 6698, February 10, 2000 ), Light-duty Greenhouse Gas ( GHG) proposed rule, and the Petroleum Refinery Sector Risk and T echnology Review and New Source Performance Standards proposed rule (RTR/NSPS).

The Light-duty GHG proposed rule is a coor dinated effort by EPA and the National Highway Traffic Safety Administ ration (NHTSA) taking steps to en able the production of a new generation of clean vehicles, though reduced GHG emissions and im proved fuel efficiency from on-road vehicles and engines.39 The upcoming proposed rules to address Petr oleum Refinery Sector Risk and Technology Review (RTR) and New Source Performance Standards (NSPS) will focus on developing updated emissions standards for petroleum refine ries for multiple pollutants, including GHGs. The proposed rules are based on results of th e RTR analyses for both Maximum Achievable Control Technology standards (MACT 1 and 2). The technology review will be conducted to identify any new practices, processes, or contro l technologies for the industry and cost-effective emission control options. EPA is developing unif orm standards for some emission sources in the petroleum refining sector that may serve as the basis for these technology reviews. The proposed rules will also review the standards and rule pr ovisions to determine whether other changes may be needed during periods of start-up, shutdow n, and malfunction to ensu re the standards are consistent with recent court opinions and othe r CAA programs. With regard to NSPS, the proposed rules will address remaining NSPS issues under reconsideration from the promulgation of existing NSPS and other NSPS rules affectin g the refining sector, and will include the regulation of GHGs and the development of emission guidelines for existing sources.

9.4 Regulatory Flexibility Alternatives

As described above, EPA is developing standa rds for vehicles and fuels to be addressed in this rulemaking. Because of the potential costs and technology challenges involved in meeting these standards, the Pa nel recommends that EPA consider and seek comments on the flexibility options described below. We believe that the following set of flexibility options, taken together, have the pot ential to significantly redu ce compliance burden without compromising the environmenta l benefits of the program.

9.4.1 Tier 3 Fuels

The Panel discussed several regulatory flex ibility alternatives with SERs for small businesses in the gasoline production and distribution, fuel additive manufacturing, and ethanol production industries subject to the proposed fuel requirements. Panel recommendations on these approaches are discussed below.

9.4.1.1 Lead Time—Sulfur

The Panel recommends that EPA propose a delay option, similar to previous fuels rulemakings, in the Tier 3 proposed rule. The Pa nel recommends that EPA allow small refiners to postpone their compliance with the Tier 3 pr ogram for up to three years. Small refiners choosing this flexibility option would have from January 1, 2017 through December 31, 2019 to continue production of gasoline w ith an average sulfur level of 30 ppm (per the Tier 2 gasoline sulfur program). Compliance with the 10 ppm sulfur standard would begin on January 1, 2020. Any small refiner choosing this proposed option woul d be allowed to continue use of their Tier 2 gasoline sulfur credits through December 31, 2019 to meet the refiner average 30 ppm sulfur

standard.40 The Panel also recommends that EPA request comment on case-by-case hardship provisions that would provide additional relief fo r any refiner experiencing extreme difficulty in compliance with the Tier 3 requireme nts, as discussed in Section 9.4.1.6.

9.4.1.2 Lead Time—RVP

The Panel is aware that EPA is likely to propose a start date of 2017 for the RVP standards; as such, the Panel recommends that EPA request comment on the concept of either a phase-in or a delay of the RVP requirements. Wh ile a phase-in could take any number of forms, the Panel recommends that EPA consider: 10.0 psi (current levels), 9.7 ps i beginning summer of 2016, 9.4 psi beginning summer of 2017, and 9.0 psi beginning summer of 2018. The EPA Panel member also noted that any proposed RV P flexibilities may need to be industry-wide flexibilities, as small refiner-spe cific flexibilities could result in situations where there would be two different types of gasoline in the distribution system. EPA furt her noted that this could also create a need for additional compliance and enforcement requirements for small refiners and segregation of the fuel from fuel produced by non-small refiners, which could result in more compliance burdens and costs for small refiners. The Panel also recommends that EPA request comment on the trade-offs of the additional burden with a small refiner delay for RVP versus one industry-wide start date.

9.4.1.3 Provisions for Additive Manufacturers

The Panel recommends that EPA provide flexibilities for gasoline additive manufacturers. Following discussion with EPA, the Panel suggested that EPA propose the following flexibilities:

• For additives used downstream of the refiner: Differentiating bulk additives based on whether they meet a 20 or 25 ppm sulfur standard.

• For aftermarket consumer additives: Allow for aftermarket additives to meet either a 20 ppm or 25 ppm sulfur cap.

• For additives not meeting a 10, 20, or 25 ppm sulfur limit: Allow for the use of volume accounting reconciliation (VAR) records for additives that would not be able to meet a 25 ppm sulfur cap to show that use of the additive would not cause

the sulfur level of the finished fuel to exceed 10 ppm (similar to the Nonroad Diesel Rulemaking, 69 FR 39088, June 29, 2004 ), and require product labeling

for aftermarket additives.

9.4.1.4 Refinery Gate and Downstream Caps

With regard to the 20 ppm refinery gate cap discussed above in Section 3, the Panel has

concerns that this standard c ould cause operational problems for sm all refiners during a refinery turnaround or an upset, because a ca p of this level could result in a refiner not being able to produce gasoline (as noted in their comments in Section 8). The Panel likewise has concerns that a downstream cap of 25 ppm may cause prob lems for small downstream entities, such as transmix processors, because they may not be ab le to reprocess finished gasoline down to this level (also noted in their co mments in Section 8, above).41 Thus, the Panel recommends that EPA a ssess and request comment on retaining the current Tier 2 refinery gate and downstream caps of 80 and 95 ppm, respectively, to help provide maximum flexibility and avoid system upsets for the entire refining and distribution system. However, the SBA and OMB Panel members recommend that EPA propose retaining the 80 ppm and 95 ppm caps.

The Panel also recommends that EPA request comment on additional refinery gate and downstream caps that are above 20/25 ppm but below 80/95 ppm.

9.4.1.5 Special Provisions for Alaska and Hawaii

The Panel recommends that EPA allow the curr ent Tier 2 80 ppm sulfur refinery gate cap and 95 ppm sulfur downstream cap in Alaska to re main at these levels indefinitely. The Panel

also recommends that EPA continue the RVP exem ptions for Alaska and Hawaii, as governed by ASTM International (ASTM).

9.4.1.6 Hardship Provisions

EPA has stated that it intends to propose hard ship provisions (for all gasoline refiners and importers) similar to those in prior EPA fuels pr ograms: a) the extreme unforeseen circumstances hardship provision and b) the extreme hard ship provision. A hardship based on extreme unforeseen circumstances is intended to provi de short term relief due to unanticipated circumstances beyond the control of the refiner, such as a natural disaster or a refinery fire. An extreme hardship is intended to provide short- term relief based on extreme circumstances (e.g., extreme financial problems, extreme operational or technical problems, etc.) that impose extreme hardship and thus significantly a ffect a refiner's ability to comp ly with the program requirements by the applicable dates. In the context of the pr oposal, the Panel agrees that such relief could consider long-term relief on the sulfur cap (simila r to that for Alaska) if the circumstances both

warrant it and can be structured in a way to allow for it. The Pa nel agrees with the proposal of such provisions and recommends that EPA includ e them in the Tier 3 proposed rulemaking.

While the Panel understands EPA’s concerns th at small refiner flexibilities for RVP (e.g., small refiner-specific standards or a small refiner delay) could result in situations where there would be multiple types of gasoline (that could no t be commingled) in the distribution system or additional compliance and enforcement burdens for small entities, the Panel nonetheless

recommends that EPA continue to explore and consider hardship provisions for refiners who are facing hardship with the RVP standards under cons ideration. The Panel further recommends that EPA request comment on potential hardsh ip relief for the RVP standards.

9.4.2 Tier 3 Vehicles

As discussed earlier in sec tion 5, in addition to vehicle manufacturers, two distinct categories of businesses relating to highway light-duty vehicles and trucks would be covered by the new vehicle standards: independent commercial importers (ICIs), and a lternative fuel vehicle converters. As discussed below, EPA expects to propose a set of flexibilities that would be

available to all small entities in these three business categories as well as any businesses in these42 categories that sell less than 5,000 vehicles per y ear. The Panel identifie d a number of entities covered by the vehicle standards that qualify as small businesses under the SBA definition. Six of these companies pa rticipated as SERs.

The Panel discussed several regulatory flexib ility alternatives w ith SERs for small businesses that certify vehicles subject to the proposed Tier 3 em ission standards. As described in Appendix A (and similar to provisions in the Ti er 2 rule), we sought comment from the SERs on allowing small entities to simply comply with the proposed emission standards with 100 percent of their vehicles during the last year of the phase-in period. In addition, we sought comment on the following flexibilities: 1) a hardship provision that would allow these businesses to apply for additional time to meet a ny of the 100 percent phase-in requirements, 2) use of assigned deterioration factors for certifica tion purposes, and 3) reduc tion in the number of tests required in the manufacturer in-use ve rification testing program (see 40 CFR 86.1845-04). SERs were generally supportive of these flexibility provisions. Ho wever, one SER requested that we consider providing relaxed st andards for exhaust emissions in addition to the delay and another SER requested that we consider elimin ating some of the eva porative emission testing requirements.

Panel recommendations on these ap proaches are discussed below.

9.4.2.1 Exhaust Emission Standards and Leadtime

In the types of businesses subj ect to the potential Tier 3 st andards, small businesses have limited resources available for developing new designs to comply with new emission standards. In addition, it is often necessary for these busines ses to rely on vendor companies for technology. Moreover, percentage phase-in requirements pose a dilemma for a small manufacturer that has a limited product line (e.g., the manuf acturer certifies vehicles in only one or two test groups). Thus, similar to the flexibility provisions impl emented in previous vehicle rules, the Panel recommends that we allow small businesses the following flexibility options for meeting the potential Tier 3 exhaus t emissions standards.

The Panel recommends that small businesses be given additional leadtime to comply with the potential Tier 3 exhaust standards and allow small businesses to comply with the standards with 100 percent of their vehicles starting in model year 2022. (T his is similar to the Tier 2 rule

where EPA allowed small manufacturers to wait until the end of the phase-in to comply with the Tier 2 standards.) The proposed Tier 3 rule is expected to have several different phase-in schedules; with the final dates varying from model year 2021 fo r the new exhaust PM standards and use of the new E15 certification fuel, to mo del year 2022 for the new evaporative emission standards, to model year 2025 for the new exhaus t gaseous pollutant standards. Requiring all small businesses to comply with the full slate of Tier 3 requirements in model year 2022 should provide sufficient lead time for manufacturers to plan for and implement the technology changes needed to comply with the Tier 3 standards.

One of the SERs recommended that EPA adopt relaxed exhaust standards for small manufacturers. They noted that the exhaust emission averaging program being proposed by EPA will allow large manufacturers that have many engine families to certify their small, niche43 products at levels numerically higher than the st andards. Small manufact urers that typically do

not have more than one or two emission familie s generally cannot use averaging to the same extent because of their limited product offe rings. The SER is concerned that the highperformance vehicles produced by large manufacturers which they compete against will be able to certify at numerically higher le vels at less cost than the SER would incur. While EPA is planning to propose the same standards for all manufacturers, the Panel recommends that EPA request comment on allowing small manufacturers to meet relaxed exhaust emission standards. This could also be included as part of the hardship provision discussed below. The Panel recommends that EPA request comment on the relaxed standards recommended by the SER.

The SER-recommended relaxed NMOG+NOx standard s over the Federal Test Procedure (FTP) are 0.125 grams/mile in model year 2020 and 0.070 gram s/mile in model year 2025. In addition, the Supplemental FTP standards would be the st andards for the corresponding bins which the manufacturer selected for complying with the FTP standards. For example, if the manufacturer certified to the proposed Tier 3 Bin 125 standards over the FTP, the manufacturer would have to comply with the corresponding Tier 3 Bi n 125 standards for the Supplemental FTP.

9.4.2.2 Evaporative Emission Standards and Leadtime

The Panel recommends that small businesses comply with the Tier 3 evaporative emission standards, including the leak standard, with 100 percent of their vehicl es starting in model year 2022. For evaporative emissions, wher e the Tier 3 standards begin as early as 2017 and phase-in through 2022, this provision would allow small businesses and SVMs to wait until the last year of the Tier 3 pha se-in period for evaporative emi ssion standards for all of their

vehicles. This start date is consistent with th e start date described abov e for the Tier 3 exhaust emission requirements being recommende d by the Panel for small businesses.

9.4.2.3 Assigned Deterioration Factors

Under EPA’s regulations, manufacturers must demonstrate that their vehicles comply with the emission standards througho ut the “useful life” period. Th is is generally done by testing vehicles at low-mileage and then applying a dete rioration factor to these emission levels. The deterioration factors are determined by aging ne w emission control systems and then testing the aged systems again to determine how much deterioration in emissions has occurred. In order to reduce the testing burden on small manufacturers, EPA suggested that small manufacturers could use deterioration factor values assigned by EP A instead of performing the extended testing. A manufacturer would apply the assi gned deterioration f actors to its low-mileage emission level to demonstrate whether it complied with the Tier 3 emission standards. EPA currently allows this flexibility for small manufactur ers. The Panel recommends EP A propose that small businesses be allowed the option to use EPA-developed as signed deterioration factors in demonstrating compliance with the Tier 3 exhaust and evaporat ive emission standards. In the past, EPA has relied on deterioration factor data from larg e manufacturers to develop the assigned DFs for small manufacturers. EPA would expect to follow a similar procedure to determine the assigned DFs for the Tier 3 standards once large manufacturer s start certifying their Ti er 3 designs. Given that larger manufacturers will begin phasing in to the Tier 3 standards in model year 2017, EPA should have a significant set of emissions deterioration data upon which to base the assigned DFs for small businesses within the first few years of the Tier 3 program. EPA recognizes that44 assigned DFs need to be determined well in ad vance of model year 2022 in order to provide

sufficient time for small businesses to decide whether or not to use the assigned DFs for certification purposes.

9.4.2.4 Reduced Testing Burden

Under EPA’s regulations, manufacturers must perform in-use testing on their vehicles and demonstrate their in-use vehicles comply with the emission standards. The current in-use testing regulations provide for reduced levels of testing for small ma nufacturers, including no testing in some cases. EPA suggested that these provisions shoul d continue for small

manufacturers with the Tier 3 program. The Panel recommends EPA propose that small

businesses be allowed to have reduced burden under the in-use testing program for Tier 3

vehicles.

One SER requested that EPA eliminate some of the evaporative emission testing requirements for small businesses based on its belief that some of the tests may be duplicative.

While EPA understands the reasons behind the manu facturer’s suggestion, we believe it may be premature to consider such an option in th e Tier 3 rule given the impact of the CO 2 emission standards on engine and fuel system development. Currently, it is generally understood that the 2-day diurnal test drives the pur ge characteristics of evaporat ive control systems, while the refueling test, and to a lesser de gree the 3-day test, drive the cap acity requirement of evaporative canisters. Prospectively, due to expected change s in engine and fuel system designs in response to upcoming CO 2 emission standard requirements, this may not be the case. Th erefore, at this point in time EPA believes it is appropriate to retain all of the evaporative te st procedures. It can be noted that under current regu lations, EPA does allow manufact urers to waive 2-day diurnal testing for certification purposes (see 40 CF R 86.1829-01(b)(2)(iii)) and perform only the 2-day diurnal test as part of th e in-use testing program (see 40 CFR 86.1845-04(c)(5)(ii)). These provisions would continue in the Tier 3 program. In general, EPA is open to changes that reduce test burden while maintaining the environmental e ffectiveness of its programs and could consider changes like those suggested by the SER in the futu re as the impacts of the future regulations on engine and vehicle design become clearer. EP A intends to request comment in the Tier 3 proposal on streamlining the current test procedures for small busine sses in ways that would still maintain the overall stringency of the tests.

9.4.2.5 Hardship Provisions

The Panel recommends that hardship provision s be provided to small businesses for the Tier 3 exhaust and evaporative emission standa rds. Under the hardship provisions, small businesses would be allowed to apply for addi tional time to meet the 100 percent phase-in requirements for exhaust and evaporative emissions. All hardship request s would be subject to EPA review and approval. Appeals for such hardsh ip relief must be made in writing and must be submitted well before the earliest date of noncomp liance. The request should identify how much time is being requested. It must also include evidence that the noncompliance will occur despite the manufacturer's best efforts to comply, and must contain evidence that severe economic hardship will be faced by the company if the relief is not granted. The above provision should effectively provide the opportunity for small busine sses to obtain more time to comply with the45 new Tier 3 standards. (The existing hardship provisions limit the extra time that can be requested to 1 year, but such a limit may or may not be included in the proposed Tier 3 hardship provisions.)

9.4.2.6 Applicability

Under EPA’s current Tier 2 regulations, EP A provides a number of flexibilities for small

volume manufacturers. The cr iteria for determining if a company is a small volume

manufacturer is based on the annual production level of vehicles and is based on whether the company produces less than 15,000 vehicles per y ear. Unlike EPA’s small volume manufacturer criteria noted above, SBA defines which manuf acturers are small bus inesses (and therefore should be considered under the SBAR Panel pr ocess) based on the number of employees for

vehicle manufacturers and annual revenues for IC Is and alternative fuel converters. For example, SBA defines a small business vehicle manufacturer as those who have less than 1,000 employees. Similarly, SBA defines a small busin ess ICI as those who ha ve annual revenue of less than $8 million per year.

The Panel recommends that EPA propose to a llow all small businesses that meet the SBA criteria be eligible for the flexibilities descri bed above. In addition, EPA is expecting to propose that manufacturers that meet a specified sales-ba sed criteria to be eligible for the flexibilities

described above. It is relativ ely easy for a manufacturer to pr oject and ultimately determine sales. Determining the annual revenues or numbe r of employees is less straightforward. In the recent rule setting the first light-duty vehicle and truck CO 2 emission standards, EPA adopted provisions for small manufacturers based on a sale s cutoff of 5,000 vehicles per year as opposed to the 15,000 level noted earlier th at is used in the Tier 2 prog ram. EPA expects to propose a

small volume manufacturer definition based on th e 5,000 vehicle per year level for the Tier 3 program. EPA believes the 5,000 unit cut-off for small volume manufacturers would include all of the small business vehicle manufacturers, ICIs, and alternative fuel converters that meet the applicable SBA definition as well as some additional companies that have similar concerns to small businesses. EPA expects to propose the flexib ilities described above to be available to any

manufacturer that meets either the SBA small business criteria or th e sales-based criteria.

9.4.3 Certification Test Fuel

EPA expects to propose a revise d certification fuel specification for light-duty vehicles, light-duty trucks, medium-duty passenger vehicl es, and complete heavy-duty vehicles with GVWR at or below 14,000 pounds that are subject to the new Tier 3 requirements. As noted earlier in section 3, EPA expects the following additional regulatory categories also will be subject to the new certifi cation fuel requirement.

- On-highway heavy-duty engine manufacturers

- On-highway motorcycle manufacturers

- Small spark-ignition (SI) engine ( ≤ 19 kilowatts) manufacturers

- Large SI engine (>19 kW) manufacturers

- Marine SI engine (including outboard a nd personal watercraft) manufacturers

- Off-highway motorcycle & motorcycle parts manufacturers46 - Snowmobile & all-terrain ve hicle (ATV) manufacturers

- Manufacturers of evaporative emission compone nts (i.e., fuel tanks and fuel hose) for nonroad SI engines and equipment

- Portable gas can manufacturers

The Panel presented several ideas regarding regulatory flexibility alternatives for these additional regulatory categories based on initial co mments from SERs that will be impacted by the proposed change in certificat ion fuel. Panel recommendations for small businesses impacted by the certification fuel change in these addi tional categories are disc ussed below. (Panel recommendations with regard to flexibilities fo r the Tier 3 vehicle requirements are described above in section 9.4.2.)

Assuming EPA proposes an E15 certification fu el requirement for these other categories of engines, vehicles, equipment, and fuel syst em components, the Panel recommends that EPA assess and request comment on two other possibl e options for the new certification fuel requirement. First, EPA should request comment on adopting an E10 certification fuel for these other categories. Second, EPA should request comment for these other categories on an initial

switch to an E10 certification fuel followed by another switch to an E15 certification fuel either

based on a market review that shows E15 is in widespread use thr oughout the country or triggered based on E15 use meeting some market threshold (e.g., 30%). The Panel recommends that EPA provide a robust analysis of these two possible options in order to be able to finalize either of these options as part of the final rulemaking.

9.4.3.1 Lead Time

EPA is expecting to propose a multiple year period in which manufacturers would start using the new certification fuel. Given the exp ected timing of the final rule, we would likely start allowing manufacturers to use the new certifi cation fuel as early as the 2014 model year, but that would be at the manufacturer’s op tion. Starting in model year 2015, any “new”

certifications would need to be done on the new certification fuel. (By “new” certifications, EPA means an emission family that is not being certif ied based on carryover emissions data.) Starting in model year 2020, all certifications would need to be done on the new certification fuel. During the intervening years, ma nufacturers could continue to carry-over certifications based on the existing certification fuel test s. Given that EPA is expecting to allow six years for switching over to the new certification fuel, EPA does not be lieve it is necessary to offer any additional lead time for small businesses. However, th e Panel recommends that EPA request comment on whether the phase-in period could be adjusted to appropriately align wi th life-cycle redesign periods for engines, vehicles, equipm ent, or fuel system components.

9.4.3.2 “Grandfathered” Certifications and Small Volume Exemptions

Given that exhaust cert ification testing is currently perf ormed on a fuel that contains no ethanol, and because ethanol can impact emissions significantly depending on how manufacturers adjust and recalibrate their engine s to operate on an etha nol-containing fuel, EPA

does not believe it can allow current certifications to be carried over indefin itely or allow small volume exemptions once a new certification fuel is required. EPA believes that eventually47 manufacturers must recertify all of their engines on the new certification fuel, and will provide several years of leadtime in which the manufactur er can make the transition, as described above

in section 9.4.3.1.

In the situations where evaporative certificat ions are performed on a fuel with 10 percent ethanol (i.e., fuel tank and fuel line permea tion emissions), the Panel recommends that EPA allow existing certifications to continue indefin itely whether EPA adopts a new certification fuel that contains 10 percent or 15 percent ethanol. For permea tion emissions, EPA expects the

differences in emission levels should not be significant between an E10 and E15 certification fuel. For diurnal emissions, which only apply in some of the regulatory categories and are currently performed with no etha nol in the fuel, EPA does not believe it can allow current certifications to be grandfathered because tank pe rmeation emissions are measured as part of the diurnal test and increasing the ethanol in the fuel from zero percent to 10 or 15 percent will potentially have a noticeable impact on perm eation emissions and the associated diurnal emissions measured during the test . As noted earlier, EPA expect s to provide several years of

leadtime in which the manufacturer can make th e transition to the new certification fuel, as

described in section 9.4.3.1.

9.4.3.3 Certifying with Alternative Emissions Data

A wide range of engines have been certif ied with EPA’s nonroad programs. In some situations, engines certif ied in one nonroad program could poten tially be used in applications regulated under another of EPA’s nonroad programs. For example, there is a large variety of engines certified to EPA Small SI standards so me of which could be used in recreational

vehicles. Two SERs commented that EPA s hould allow manufacturers to certify to EPA standards based on engines certifie d in a different emission contro l program (whether certified by EPA or a different entity such as Europe). The Panel recommends that EPA propose allowing small businesses to request certif ication for a given nonroad category based on data collected for another EPA emission control program provided th at through tests data the manufacturer can

demonstrate that the controls a nd emission rates are at least as stringent as the nonroad category for which the manufacturer is attempting to certify. The Panel also recommends that EPA consider developing a process to allow small busin esses to request certification on the basis of non-EPA data provided that the manufacturer ca n demonstrate that the controls and emission rates are at least as stringent as the nonroad ca tegory for which the manufacturer is attempting to certify. Under such a flexibility, the small busine ss using the engine would not have to retest the engine provided the manufacturer do es not alter the engine in such a way as to cause it to exceed

the emission standards it was or iginally certified as meeting.

9.4.3.4 Replacement Fuel Tanks

The Panel recommends that EPA propose to allo w manufacturers to sell replacement fuel tanks that were originally certified on an E10 certification fuel if a switch in the certification fuel to E15 is adopted. This would be consistent with the flexibility noted ea rlier in which the Panel

recommended that manufacturers be allowed to ca rry-over evaporative cert ifications performed

on E10 if a switch in the certificat ion fuel to E15 is adopted.48 9.4.3.5 Extending Current Flexibilities

In most of the categories of engines, vehi cles, equipment and fuel system components affected by the change in certification fuel, EPA has adopted a variety of flexibilities for small businesses. For example, in some categories, EPA has allowed small businesses to use assigned

deterioration factors and broad e ngine family criteria, among others . The Panel recommends that EPA propose to extend those existin g flexibilities available to sm all businesses in each of the categories as the switch to the new certification fuel is implemented.

One SER raised concerns regarding the star t of the new certifica tion fuel requirements

and whether manufacturers would be allowed to us e up existing products in their inventory. Under current regulations (see 40 CFR Part 1068, section 1068.105), when a new set of requirements take effect, EPA a llows manufacturers to use up th eir normal inventory of products

that were manufactured before the date of the new or changed standards. (It should be noted that the regulations prohibit manufactur ers from stockpiling products th at were built before new or changed standards take effect in an attempt to ta ke advantage of this provision.) Therefore, EPA does not believe any new flexibilitie s are necessary to continue to allow this practice. The Panel recommends that EPA request comment on whethe r the current regulations are sufficient to address the concerns raised by the SER.49 Appendix A:

List of Materials EPA Shared with Small Entity Representatives

• Fact Sheet: What Small Entities Should Know About the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act

• Fact Sheet: What Potential Small Entity Re presentatives Should Know About the Small Business Advocacy Review Panel Process

• Power Point presentation- “Pre-Panel Small Entity Outreach Meeting on EPA’s Proposed Tier 3 Rulemaking”

• List of SERs

• Questions for SERs

• Flexibility Chart

• Fuel-related Information

o Tier 3 Fuel Program Summary

• Vehicle-related information

o “Expected Tier 3 Emission Control Technologies” Power Point presentation

o “Evaporative Emission Sta ndards” Program Summary

o “Assessment of Technology Development and Estimated Costs for Meeting Light-Duty Vehicle Tier 3 Eva porative Emission Standards”

o Expected Tier 3 Light-Dut y Tailpipe Program Summary

o Expected Tier 3 Heavy-Duty Tailpipe Program Summary

o “Certification Fuel Change” Power Point presentation

• August 18, 2011 Outreach Packet50 Appendix B: Written Comments Submitted by Small Entity Representatives

Appendix B is a compilation of documents containing all written comments received

from SERs.