UNITED STATES ENVIRONMENTAL PROTECTION AGENCY NATIONAL VEHICLE AND FUEL EMISSIONS LABORATORY 2565 PLYMOUT H ROAD ANN ARBOR, MI 48105-2498

OFFICE OF AIR AND RADIATION

December 1, 20 11
MEMORANDUM
Subject:

From:

To: Sma ll Business Impact Memo , Proposed Tier 3 Motor Vehic le Emission Standards and Related Provisions
Phil Carlson, Engineer

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# .-.~_ Assessmen t and Standards Division
Docket EPA

- HQ-OAR-2011

- 0135

The Office of Transportation and Air Quality (OTAQ) is currently preparing a notice of proposed rulemaking (NPRM) that would reduce air pollution from passenger cars and trucks. This program includes new exhaust and evaporative emission standards for such vehicl es and new sulfur limits for in-use gaso line. The proposed standards, referred to as the "Tier 3 " standards , represent a "systems approach" to reducing vehicl erel ated emissions by addressing both the vehicle and its fuel as a system. We first applied such an approach w ith our Tier 2 vehi cle and gasoline sulfur standards (finalized in February 2000 ) , and the Tier 3 proposa l continues to apply those principles in the conte xt of more recent vehicle technologies, fuels , and emissions data.
The Regulatory Flexibi li ty Act (RFA), as . amended b y the Small Business Regulatory Enforcement Fairne ss Act of 1996 (SBREF A), generally requires an agency to prepare a regulatory flexibil ity analysis of any ru le subject to notice and comment rulemaking requirements under the Administrative Procedures Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small ent ities. T hi s analysis is intended to demonstrate the impacts of the propo sed Tier 3 vehicle regulations on sma ll entities . While we are a l so proposing in-use gasoline changes as part of the Tier 3 proposal , the impacts of the proposed fuel requirements on small busines ses, such as refiners, are detailed separately. The reader is directed to Chapter 5 of the Draft RIA for the proposed rulemaking for more informat i on on the small business impacts of the proposed Tier 3 fuel regulations.

1 See 65 FR 6698 (dated February 10 , 2000).For purposes of assessing the impacts ofthe proposed regulations on sma ll entities, a small entity is defmed as: ( 1 ) a small business as defined by the Small Business Administration's (SBA' s) regulations at 1 3 CFR 121.201; (2) a small governmental jurisdiction that is a goverrunent of a city , county , town, sc hool district or specia l district with a population of less than 5 0,000; and (3 ) a small organization that is any not-forprofit enterpri se which is independently owned and operated and is not dominant in its field.
Small governmental jurisdictions and small organizations as described above will not be directly regulated by th e proposed Tier 3 rule. The main industry sector subject to the proposed Tier 3 vehicle regulations will be car and truck manufacturers. Another industry sector consisting of c ompanies that import specia li zed cars and trucks into the United States (U.S.) , referred to as Independent Commercia l Importers (ICis), will also be sub ject to the proposed regulations. Finally , companies that convert vehicles, which are typically gasoline-fue led , to run on an alternative fuel will be subject to the proposed regulations. Therefore , the discussion below considers the impact on small business car and truck manufacturers, small business ICis , and small business alternative fue l converters. The following section s describe the three vehicle -relat ed industry sectors to which the proposed rule would app ly , the definition of small business for each sector, the proposed requirements that would apply to e ach sector, the number of sma ll businesses to which the proposed rule woul d apply, and the estimated costs and impacts associated with the proposed Tier 3 vehicle requirement s . It i s important to note that calculations of burden for the impacts of the p roposed rule are incremental to a baseline that includes current market factors and pres umes full comp li ance with all existing applicab le statutory or regulatory requirements , including bo th federal and state requirements. 

### I. Brief Description of the Indu stry Based on E nvironmental Protection Agency (EPA) records , we have identified a total of27 car and truck manufacturers which have certified vehicles for sale in the U.S. in model years 201 0 or 201 1

. Over the last decade , the total sales of cars and trucks for the U.S. have ranged as high as 17 million c ars and trucks per year. However, because of the recent economic downturn, total sales have dropped dramatically , and current estimates show that 11.8 milli on cars and trucks were sold 

### in 2010 , the most recent year for which sale s information is avai lab le. The car and truck market is dominated by large businesses. Based on U.S. sales levels for cars and trucks, the top 1 0 car and truck manufacturers have consistently comprised 90 percent or more ofthe total market, while the remaining companies make up the remaining roughly 10 percent.
In addition , we have identified 8 ICi s that are currently importing cars and trucks into the U.S. ICls work with customers to bring in cars from overseas either because the owners are moving to the U.S. , or because the vehicle is not otherwise available in the U.S. (e.g. , high-performance sports cars and right-hand drive vehicles). ICis import very

2small numbers of vehicles, with EPA estima t ing total imports of less than 200 veh icles per year for all of the ICis in recent years. Finally, we have identified 12 alternative fuel converters that are currently certifying vehicles with EPA. Most of these companies convert gasoline-fueled vehic les to run on compressed natural gas. Sales for these companies are also relatively small, with EPA estimating total sales of less than 5,000 vehicles per year from all of the alternative fuel converters.
The number of entities participating in the small business, ICI , and alternative fuel converter markets varies from year to year. The sales of these entities tend to vary with broader economic conditions.
II. Definition of Small Business
For car and truck manufacturers , SBA defmes a small business as one with fewer than I ,000 employees. For I Cis, SBA defines a small business as one with fewer than 100 employees or less than $7 million in annual revenues , depending on the primary industry classification of the ICI. For al ternative fuel converters, SBA defines a small business as one with fewer than 1,000 or 750 employees , or less than $7 million in annual revenues , depending on the primary industry classification of the alternative fuel converter. (Both ICis and alternative fue l converters potentially fall under several different types ofprimary industry classifications. The criteria used by SBA to establish whether an entity is a small business depends upon the primary industry classification of the entity.) Furthermore, SBA defines a small business as a concern that is organized for profit, with a place of busines s in the U.S. , and which operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products , materials, or labor. We have used these criteria to determine the number of small businesses affected by the p roposed Tier 3 standards for the analysis presented in this memorandum.
III. Current and Anticipated Regulations (A) Current Requirem ents As noted earlier, EPA published the Tier 2 requirements for light-duty vehicles and trucks in February 2000. The Tier 2 exhaust standards were phased

- in over a number of years beginning in model year (MY) 2004 and ending in MY 2009. EPA published the current evaporative emissi on standards for light-duty vehicles and trucks in February 2007. These evaporative emis s ion standards were phased-in between MY 2009 and MY 2010 ? Current Federal onboard diagnostic (OBD) requirements for LDVs and LDTs were in place for the 1999 MY and for HDEs bel ow 14 , 000 lbs GVWR in 2007. 3 In

2 See 72 FR 8428 (date d February 26, 2007). 3 See 63 F R 70694 (dated December 22, 1998) and see 65 FR 59961 (dated Oct 6 , 2000,66 FR 5160 (dated Jan 18, 2001), and 70 FR 75410 (dated Dec 20 , 2005).

3response to the current exhaust and evaporative emission standards, vehicle manufacturers have developed a wide range of technologies capable of reducing key exhaust emissions, especially V OC, NOx , and PM as well as evaporative emissions. In addition , the Ca l ifornia Air Resources Board ' s LEV II program has been instrumental in additional technology improvements by requiring year after year reductions in the fleet average hydrocarbon leve l s, a s well as requiring the introduction of advanced exhaust and evaporative emission controls in partial zero emission vehicles (PZEVs). This progress in vehicle technology has made it possible for manufacturers to achieve emission reductions beyond the requirements of the Tier 2 program if in-use gasoline sulfur levels are reduced below their current levels.
ICis are subject to spec i al provisions under EPA regulations (see 40 CFR Part 85 , Subpart P). In general , ICis that import less than 50 vehicles per year into the U.S. must demonstrate that such vehicles comply with the EPA emission standards that were in effect for the build date of the v ehicle being imported. For example, ifthe vehicle being imported was built in 2007 and is imported into the U.S. in 2015, the applicable standards are EPA ' s MY 2007 standards

. To meet these standards , ICis upgrade the technology on the vehicle and then perform emissions testing to demonstrate compliance with the appropriate standards. Under current EPA provisions, I Cis that import less than 300 vehicles per year that have an EPA-certified equivalent version of the vehicle being imported , are allowed to have reduced testing requirements to demonstrate comp liance with the applicable standards.
Alternative fuel converters are also subject to special provisions under EPA regulations (see 40 CFR Part 85, Subpart F). In general, alternative fuel converters are required to meet the same emi s sion standards that apply to vehicle manufacturers. By complying with the alternative fuel conversion provisions , alternative fuel converters are exempted from the tampering prohibition in Clean Air Act section 203(a) that would otherwise apply. EPA recently adopted new requirements for alternative fuel conversions in an April 2011 final rule , "Clean Alternative Fuel Vehicle and Engine Conversions." 4 The April2011 rule streamlined the process by which manufacturers of clean alternative fuel conversion systems may demonstrate compliance with the emission requirements. The rulemaking reduced some economic and procedural impediments to clean alternative fuel conversions while maintaining environmental safeguards to ensure that acceptable emission levels from converted vehicles are sustained. (B) Anticipated Require.ments
For the Tier 3 program , we are proposing new standards for exhaust emissions of non - methane organic gases (NMOG) , NOx, and PM, as well as evaporative emissions standards. (Concurrent with the new standards , EPA is proposing more stringent sulfur requirements for in-use gasoline.) The proposed emission standards would phase in over a number of model years beginning with MY 2017. The proposed Tier 3 standards are very similar in structure to those in the existing Tier 2 program. As with the Tier 2

4 See 76 FR 19830 (da t ed April 8, 2011 ).

4program , the proposed standards would apply to all light-duty vehicles (i.e., LDVs, or pass enger cars), light-duty trucks below 8,500 pounds Gross Vehicle Weight Rating (GVWR) (i.e., LDTl s , LDT2s , LD T3s, and LD T4s ), and Medium-Duty Passenger Vehicles between 8,500 and 10,000 pounds GVWR (i.e. , MDPVs). We are also proposing separate , but closely relat ed, standards for heavy- duty vehicl es up to 14,000 pounds GVWR and evaporative emission standards for all heavy -duty gasoline vehicles. Vehicl es imported by ICis and vehicl es converted to run on an altern ative fuel wou ld be subject to the propo sed Tier 3 standard s as we ll

. We are propo sing a number offlexibilities for small businesses in the Tier 3 rule that are described below. The se flexibilities would be availab le to any manufacturer that meets the SBA small bu si ne ss definition or has sales less than 5,000 vehicles per year. While only a few car and truck manufacturers will quali fy as a small bu siness, we expect that all of the existing I Cis would be eligib le for the prop ose d flexibilitie s . In addition, we expect that each of th e alternative fuel converters currently certifying with EPA would be e ligible for the proposed flexibi li ties either because they are a small b us iness under the SBA definition , or they sell less than 5,000 vehicles per year. First, EPA is propo s in g that small businesses be given addition a l lead time to comp ly with the potential Tier 3 exhaust and ev aporative em ission standards and upgraded OBD requirements b y allowing sma ll businesses to comply with the standard s with 1 00 percent of their vehicles start ing in model year 2022 instead of meeti n g model year phase -i n requirements. Second, EPA i s proposing that sma ll businesses be allowed the option to use EPA-developed assigned deterioration factors in demonstrating compliance with the Tier 3 exhaust and evaporative emission standard s in lieu of developing their own values. T hird, EPA i s proposing that s mall busine sses be allowed to have reduced burden under the in

-u se testing program fo r Tier 3 vehicles. Fourth, EPA i s p roposing to allow a w aiver for PM testing in the Tier 3 timeframe under w hi ch sma ll businesses would not be required to measure PM emissio ns when they certify to the Tier 3 emissio n standards.
Finally , EPA i s proposing two additional flexibili ties specific to alternative fue l converters in the Tier 3 proposal. EPA is proposing that small business alternative fuel converters have the opt io n to substitute the Fe deral Test Procedure (FTP) emissions levels for the SC03 emissions results for purposes of compliance when calculat ing the Supplemental FTP (SFTP) emissions. (The SFTP would be a new requ irement for alternative fueled vehic les in Tier 3.) In addition, EPA is proposing that sma ll business alternative fue l converters may continue to comp ly with EPA's OBD requirements (see 40 CFR 86.1806

- 05) when the Tier 3 standards become effective using the procedures identified in 40 CFR Part 85, Subpart F. (O ther manufacturers will have new OBD requirements to comply w ith under the Tier 3 proposal.) EPA would still accept data generated for the California OBD program as part of thi s provision.
IV. Numb er of Small Businesses to Which the Rule Applies
Of the 27 car and truck manufacturers identified by EPA, four companies meet

5the SBA definition of a s mall business. Two ofthe small businesses identified manufacture all-electric vehicles, one business manufactures a vehicle designed from the ground up for wheelchair accessibility (offere d in both gasoline-fueled and natural gasfueled versions), and one business manufactures a gasoline-electric hybrid.
Of the eight ICis identified by EPA, a ll eight companies meet the SBA definition of a small business. Of the 12 alternative fuel converters identified by EPA, nine of the companies meet the SBA definition of a small business.
V. Projected Business Impacts Manufacturers may be expe cted to incur increas ed costs in two areas as a result of the proposed Tier 3 standards. First, there may be increased hardware costs as manufacturers redesign their ve hicles to comply with th e proposed exhaust and evaporative emission standard s . Second , there may be increased testing costs to demon strate comp li ance with the propo sed standards

. The exact mix of hardware and testing costs will be different for car and truck manufacturers, ICis, and alternative fuel converters. The following section summariz es the costs impacts for the small businesses affected by the proposed Tier 3 exhaust and evaporative emi ss ion standards and upgraded OBD requirements. The inputs used in this small business analysis for vehicles are based on the cost analysis described in Chapter 2 ofthe Draft RIA for the Tier 3 proposal, as well as EPA's April20 11 fmal rule for "Clean Alternative Fuel Vehicle and E ngine Conversions." The cost es tim a tes take into consi derati on the small business flexibilities, as noted earlier, that are included in th e T ier 3 proposal. To gauge the impact ofthe proposed standards on small businesses , EPA employed a cost-to

- sales ratio te st to estimate the number of small bus inesses that would be impacted by less than one percent , between one and three percent, and above three percent. The following section describes the cost impact analys i s for the thre e sectors affected by the T ier 3 propo sa l

- car and truck manufacturers, ICis, and alternative fue l converters. (A) Estimated Cost Impacts on Car and Truck Manufacturers
As noted earlier, EPA identified four small bu sinesses that manufacture cars and trucks

. Two ofthe small businesses, Azure Dynamics and Wheego Electric Cars, manufacture all-electric vehicles. Because all-electric vehicles do not have exhaust or evaporative emissions, the cost impact of the Tier 3 proposal on these two manufacturers is zero. Of the two remaining small businesses, The Vehicle Production Group (VPG) manufactures a vehicle designed from the ground up for wheelchair acce ssibi lity in both a gasoline-powered and natural gas-powered version, and F isker Automotive manufactures a hybrid gaso line-electric vehicle. Both of these manufacturers purchase engines from larger manufacturers and then use the engines in their vehicles. Because the manufacturers purchase their engines from larger manufacturers, we expec t those



### 6engines will have already been redesigned to comply with the Tier 3 standards by the larger manufacturers. Therefore, the increased hardware cost would be the same as that estimated by EPA for a typical manufacturer. EPA has estimated the hardware cost of the Tier 3 standards for manuf acturers, based on various vehicle/technology classifications, in Chapter 2 of the Draft RIA. The engine used by VPG in the wheelchair accessible vehicle is an eight c ylinder engine used in light-duty trucks, and is estimated to cost an additional $264 once the Tier 3 standards are fully phased in. The engine used by Fisker Automotive in the gasol ine-electric vehicle is a four-cylinder engine used in light

duty vehicles, and is estimated to cost an additional $95 once the Tier 3 standards are fully phased in.
Both of these manufacturers use third-parties to perform emissions testing for them. Therefore, even though t he engines pu rchased from larger manufacturers are expected to be equipped with Tier 3 techno logies, both of these manufacturers wi ll need to have emiss ions testing performed in order to certify their vehicles. Using information developed for the recent alternative fuel converter rulemaking, EPA estimates that the cost of having a third

-party per f orm certification testing is approximately $60,000 per test group . Because the wheelchair accessible vehicle is offered in both gasoline-powered and natural gas-powered versi o ns, there would be two test groups for VPG, while there would be one test group for Fi sker Automotive. The testing costs are expected to be amortized by each of the manuf acturers over a several year period, with a five-year period being typ i cal. Based on estimated U.S. sales of 12,000 per year for VPG's wheelchair accessible vehicle 5 and 6,000 per year for Fisker Automotive's gasolineelectric vehicle,6 the estimated cost of testing is calculated to be $2 per vehicle for both manufacturers.
To evaluate the impact of the increased cost on these two small businesses, EPA compared the estimated incremental cost for complying with the Tier 3 standards to the price of the manufacturers' vehicles. The following table shows that the estimated incremental cost due to the Tier 3 standards is estimated to be less than one percent of the vehicle price for both of these s mall businesses. (For completeness sake, the estimated impact on the two small businesses that manufacture all-electric vehicles is also summarized in the table.)



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### anu ac urers Vehicle Increased Cost Vehicle Tier 3 Costs Manufacturer Technolo gy Testing Total Price Compared to Vehicle Price VPG

- wheelchair $264 $2 $266 $42,000' 0.6% accessible vehicle

5 Estimate for Vehicle Production Group as noted in "First of AM General's Whee lchair Accessible Vehicl es Delivered," SouthBendTribune.com, Qctober 20, 2011. 6 Estimate for Fisker Automotive as noted in "The Coming EV Glut," Businessweek, October 1 3, 20 1 1. 7 Based on www.vpgautos.com

7Fisker

- $95 $2 $97 $96,850 11 0.1% gasoline/e lectric vehicle Azure Dynamics $0 $0 $0


### -- 0%

- electric ve hicle Wheego Electr ic $0 $0 $0



## -- 0% C ar s- e lectr ic vehicle
(B) Estimated Cost Impacts on !Cis
As noted earlier , EPA identifi ed e i ght small bus iness ICis. Under th e proposed Ti er 3 program, the cost of upgradin g a ve hicl e to meet th e standards will increase as vehicles built in 2022 and later are imported into th e U.S. and need to demonstrate compliance with Ti er 3 standard s. The types o f vehicles currently imported by ICis into the U.S. cover a wide range and include right-hand steering wheel vehicles u sed fo r mail delivery as well a s sports cars. Based on the average of the cost estima tes for four

cylinder , s ix-cylinder, and eight

- cylinder li g ht-duty vehicles as presented in Ch apter 2 of the Draft RIA, the increased cost du e to th e Tier 3 standard s is estimated to be $170 per vehicle once the Tier 3 standards are full y phase d i n. With regard to testing , the Tier 3 proposal includes no new additi o nal requirements for ICls , so the incrementa l testing cost i s expected to be zero for ICis. (While there are new PM testing requirements wit h the Tier3 standards , as noted earlier we are propos i ng a PM testi ng waiver for small busine sses.) Therefore, the total incremental cost of the T i er 3 s tandard s is esti mated to be $ 170 per vehicl e for ICis. IC I' s will still have to meet OBD requirements.
To evaluat e the impact of the increase d cost on small business ICi s, EPA compared the estimated cost for complying w ith the Tier 3 standards to the cost that ICis charge for people wishing to import a vehicle into the U.S. (i.e., the cost for up grading the vehicle to comply with EPA s tandards and performing the testing n eeded to make the compliance demonstration fo r EPA). While the actual cost for importati on w ill vary by vehicle, based on information availab le from ICis on their websites and di scuss ions wi th I C i s, the estimated average cost f or importing a vehicle is around $6,000. We i ncreased this estimate by the $ 1 70 incremental cost due to the Tier 3 standards to result in a cost of importing a vehicle through an ICI to $6 , 1 70. Therefore , the impact of the Tier 3 standards on ICis is estimate d to be 2.8% (i.e., $170/$6, 17 0). (C) Estimated Cost Impacts on Alternative Fuel Converters
For alternative fuel converters, EPA identifi ed nine sma ll businesses. U nder the propo sed T ier 3 program, the co s t of converting a vehicl e to meet the stand ards will increase as vehicles n eed to demo nst rate compl ianc e with T i er 3 standard s. Most of the vehicles currently converted by alternative fuel converters are fleet vehicles, so the fleet

8 Based on www . fiskerautomotive.com

8owner will already have paid any incremental cost for the Tier 3 hardware. The alternative fuel converter will add additional hardware to the vehicle to convert it to run on an alternative fuel, but we would not expect the Tier 3 standa rds to affect this process. Therefore , the increased hardware cost is projected to be zero for alternative fuel converters.
Alternative fuel converters will have to test their vehicl es to demonstrate compliance with the Tier 3 standards. This currentl y involves testing over the Federal Test Procedure (FTP) and a Fuel Economy Test. However, because EPA i s proposing new Supplemental FTP (SFTP) requirements for alternati ve-fueled vehicles as part of the Tier 3 proposal, the testing costs will increase. SFTP testing normally requires manufacturers to t est their vehicles over two additional te st cycles, the US06 and the SC03 test cycles. As noted earlier, EPA is proposing that small business alternative fuel converters will h ave the option t o substitute the FTP emissions levels for the SC03 emissions results for purposes of calculating SFTP emi ss ions. Therefore , the alternative fuel converters will only need to perform o ne additional tes t under the Tier 3 program, the US06 test cycle. (Also, as noted earlier, the OBD requirements are being revised in the Tier 3 proposal, but alternat ive fuel converters will be allowed to continue demonstrating compliance with EPA's OBD requirement s using the pro visions of 40CFR85 , Subpart F

. As a resu lt, there are no additional OBD

- related costs for alternati ve fuel converters under the Tier 3 program.) In order to estimate the incremental tes ting cost due to the Tier 3 proposal , EPA relied on the testing cost estimates developed for EPA's April 20 II rule for fuel converters. The following table shows the third party lab costs for exhaust testing developed for the April 20 II rule. The table also shows EPA's incremental testing cost estimates for the Tier 3 rule and the assumptions behind those estimates. (EPA has not included any incremental testing costs for evaporative emissions because the new canister bleed emission standard and lea k standard being proposed for Tier 3, doe s not apply to gaseous-fueled vehicles, and nearly all of the vehicles certified by alternative fuel converters are na tura l gas fuele d .) 

### Incremental Tier 3 Testing Costs for Alternative Fuel Converters Category Alternat i ve Fuel Incremental Basis for Tier 3 Rule Cost Rule Cost 9 Tier 3 Rule Estimate Cost Estimate Testing

- FTP $1,11 6. 67 $773.34 Cost for US06 test is Testing

- Fuel $430.00 average of costs for FTP and EconomyNOx Fuel Economy tests NMOG Speciation $1,500.00 $500.00 Cost is 'h of original cost (aldehyde/ketones) (1 additional bag for U S06 on top of 3 bags for FTP**~ec iation)**  NMOG Speci ation $250

.00 $83.33 Cost is 'h of original cost

9 Taken from Table VII.A

- 1 of AprilS , 2011 rule (See 76 FR 19830).

9(alcohols) (1 additional bag for US06 on top of 3 bags for FTP speciation) Third Party (Lab) $702.50 $35 1.25 Cost i s**~** of original cost Labor Costs (1 US06 test added on top of 2 current emission tests) Total Third Party



## -- $1,707.92



# -- (Lab) Costs
In addition to the third party costs associated with the testing , the alternative fuel convert ers wou ld accrue additi onal costs for oversight of the testing. The foll owing table presents the costs associated w it h testing oversight as developed for the Apri l 20 11 rule. The table also shows EPA's incremental cost es timates for the Tier 3 rule and the assumptions behind those es tim a tes. 

### Incremental Tier 3 Oversight Costs for Alternative Fuel Converters Category A lt erna tive Fuel Incremental Basis for Tier 3 Rule Cost Rule C ose 0 Tier 3 Rule Estimate Cost Estimate Total Third Party



## -- $1,707.92 See previous table (Lab ) Cos ts Ov ersight Labor $1,2 3 6.69 $618.35 Cost is**~** of original cost Costs (1 US06 test added on top of 2 current emission tests) Oversight Lodging $28 0 .00 $140.00 Cost is**~** of original cost Costs ( 1 US06 test added on top of 2 clirrent emi ss ion tests) Overs ight G & A $38 1. 93 $160.31 Cost is 6.5 % of all incremental costs Total Incremental



## -- $2,626.57



## -- Cost for Tier 3
As shown in the preceding table , the total incremental cost for alternati v e fuel converters is estimat ed to be $2 ,627 per test group. Based on confi dential sales estimates provided by alternative fuel conv erters when they pay the ir certificat ion fee , E PA estimated the incremental cost per vehicle converted for each of the small businesses. (While the incremental cost per vehicle converted varies by manufacturer, the average across all ofthe small bu s iness a lternative fue l converters was calculated to be $125 per vehicle

. )
To evaluate the impact o f the increased costs on the nine small bus inesses , EPA compared the total estimated incremental cost per vehicle sol d for complying with the Tier 3 standards to the cost of e a ch manufacturer's fuel conversion. EPA was able to estimate the cost of a fuel conversion for each manufacturer based on confidential

10 Taken from Table VII.A-2 of April 8, 2011 rule (See 76 FR 19830).

10information provided to EPA as part of the certification fee payment. (While the cost for an alternative fuel conversion varies by manufacturer , th e average cost across all of the small business alternative fuel converters was approximately $7 , 000 per vehicle.)
We estimated the impact of the Tier 3 standards on each alternative fuel converter by comparing the projected incremental Tier 3 cost (i .e. , $2 , 627 divided by the manufacturer-specific sales est imates) to the cost of the actual conversion (determined for each manufacturer from the certification fee information)

. Of the nine small business alternative fuel converters , four are projec ted to incur compliance costs above three percent (ranging from 3 .5 % to 5 .3%) , three are projected to incur compliance c osts between one and three percent (ranging from 1.6% to 2.1 %), and two will be impacted by less than one percent (ranging from 0.4% to 0.7%). (D) Summary of Cost Impacts on Small Businesse s The following table summarize s the impacts of th e proposed T ier 3 vehicle requirements on small businesses as pre sented in this anal ys is

.



### Summary of Small Business I mpacts due to the Proposed Tier 3 Vehicle Standards Industry Sector N umber of Small E st imated Cost-to-Sale s Ratio Bu sine ss es 0-1 Perc ent 1-3 Percent > 3 Percent Car /truck manufacturers 4 4 0 0 ICis 8 0 8 0 Alternative fuel conv erters 

### 9 2 3 4 Total s 21 

### 6 11 4



### 11