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

SUMMARY: Today EPA is finalizing the necessary federal regulations for

a voluntary clean car program called the National Low Emission Vehicle

(``National LEV'') program, which is designed to reduce smog and other

pollution from new motor vehicles. The program will come into effect

only if the northeastern states (members of the Ozone Transport

Commission or ``OTC'') and the auto manufacturers sign up for it. The

National LEV regulations allow manufacturers to commit to meet tailpipe

standards for cars and light light-duty trucks that are more stringent

than EPA can mandate. Manufacturers have said they would be willing to

commit to the program if the OTC States also make binding commitments

to the program. Once the program comes into effect, it would be

enforceable in the same manner as any other federal new motor vehicle

program.

After spending years helping to develop the program, the OTC States

and the auto manufacturers must now decide whether to commit to it and

allow the country to benefit from significant reductions in pollution.

National LEV would also achieve the same (or better) emission

reductions in the Ozone Transport Region (OTR) as would OTC State

adopted new motor vehicle programs. Under National LEV there would be

substantial harmonization of federal and California new motor vehicle

standards and test procedures, which would enable manufacturers to

design and test vehicles to one set of standards nationwide. The

program would demonstrate how cooperative, partnership efforts can

produce a smarter, cheaper program that reduces regulatory burden while

increasing protection of the environment and public health.

DATES: This regulation is effective January 7, 1998. The information

collection requirements contained in this rule has been approved by the

Office of Management and Budget (OMB) and has an assigned OMB control

number of 2060-0345.

ADDRESSES: Materials relevant to this final rule have been placed in

Public Docket No. A-95-26. The docket is located at the Air Docket

Section, U.S. Environmental Protection Agency, 401 M Street SW,

Washington, DC 20460 (Telephone 202-260-7548; Fax 202-260-4400) in Room

M-1500, Waterside Mall, and may be inspected weekdays between 8:00 a.m.

and 5:30 p.m. A reasonable fee may be charged by EPA for copying docket

materials. For further information on electronic availability of this

final rule, see the SUPPLEMENTARY INFORMATION section below.

FOR FURTHER INFORMATION CONTACT: Karl Simon, Office of Mobile Sources,

U.S. Environmental Protection Agency, 401 M Street SW, Washington, DC

20460. Telephone (202) 260-3623; Fax (202) 260-6011; e-mail

[email protected].

SUPPLEMENTARY INFORMATION:

Regulated entities

Entities potentially regulated by this action are those that

manufacture and sell motor vehicles in the United States. Regulated

categories and entities include:

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Examples of regulated

Category entities

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Industry.................................. New motor vehicle

manufacturers.

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This table is not intended to be exhaustive, but rather provides a

guide for readers regarding entities likely to be regulated by this

action. This table lists the types of entities that EPA is now aware

could potentially be regulated by this action. Other types of entities

not listed in the table could also be regulated. To determine whether

your activities are regulated by this action, you should carefully

examine the applicability criteria in Sec. 86.1701-99. If you have

questions regarding the applicability of this action to a particular

entity, consult the person listed in the preceding FOR FURTHER

INFORMATION CONTACT section.

Obtaining Electronic Copies of the Regulatory Documents

The preamble, regulatory language, response to comments document,

and other related documents are also available electronically from the

EPA Internet Web site. This service is free of charge, except for any

cost you already incur for internet connectivity. The electronic

Federal Register version is made available on the day of publication on

the primary Web site listed below. The EPA Office of Mobile Sources

also publishes Federal Register notices and related documents on the

secondary Web site listed below.

1. http://www.epa.gov/docs/fedrgstr/EPA-AIR/ (either select desired

date or use Search feature)

2. http://www.epa.gov/OMSWWW/lev-nlev.htm

Please note that due to differences between the software used to

develop the document and the software into which the document may be

downloaded, changes in format, page length, etc. may occur.

I. Outline

The preamble is organized into the following sections.

I. Outline

II. Background

III. National LEV Start Date

IV. National LEV Will Produce Larger VOC and NOx Emission Reductions

in the OTR Compared to OTC State Adopted Section 177 Programs

V. OTC State Commitments

A. Duration of OTC State Commitments and of the National LEV

Program

B. Timing of OTC State Commitments, Manufacturer Opt-Ins, and

EPA Finding that National LEV is in Effect

C. OTC State Commitments, Manufacturer Opt-Ins, and EPA Finding

that National LEV is in Effect

1. Initial Opt-In by OTC States

2. Manufacturer Opt-Ins

3. EPA Finding that National LEV is in Effect

4. SIP Revisions

VI. Incentives for Parties to Keep Commitments to Program

A. Offramp for Manufacturers for OTC State Violation of

Commitment

1. OTC State No Longer Accepts National LEV as a Compliance

Alternative

2. OTC State Fails to Submit SIP Revision Committing to National

LEV

3. OTC State Submits Inadequate SIP Revision Committing to

National LEV

4. OTC State Without an Existing ZEV Mandate Adopts a Backstop

ZEV Mandate

B. Offramp for Manufacturers if OTC State or Manufacturer

Legitimately Opts Out of National LEV

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

Fuel Issues

D. Offramps for OTC States

1. Manufacturer Opt-Out

2. Periodic Equivalency Determination

E. Lead Time Under Section 177

VII. National LEV Will Produce Creditable Emissions Reductions

Because it is Enforceable

A. OTC States Will Keep Their Commitments to National LEV

B. It is Unlikely That National LEV Would Be Found Not to

Produce Emission Reductions Equivalent to OTC State Section 177

Programs

[[Page 927]]

C. EPA is Unlikely to Fail to Consider In-Use Fuels Issues Upon

a Manufacturer's Request

VIII. Additional Provisions

A. Early Reduction Credits for Northeast Trading Region

B. Calculation of Compliance with Fleet Average NMOG Standards

C. Certification of Tier 1 Vehicles in a Violating State

D. Provisions Relating to Changes to Stable Standards

E. Nationwide Trading Region

F. Elimination of Five-Percent Cap on Sales of Tier 1 Vehicles

and TLEVs in the OTR

G. Technical Corrections to Final Framework Rule

H. Clarifications to Final Framework Rule

1. Operation of National LEV Vehicles on In-Use Fuels

2. Clarification of Banking and Trading Provisions

3. Recordkeeping Requirements

IX. Supplemental Federal Test Procedures

A. Background

B. Elements of the CARB Proposal and Applicability Under

National LEV

1. Test Procedure

2. Emission Standards

a. LEVs and ULEVs

b. Tier 1 Vehicles and TLEVs

3. Implementation Schedule

4. Implementation Compliance

X. Administrative Requirements

A. Administrative Designation

B. Regulatory Flexibility

C. Unfunded Mandates Reform Act

D. Congressional Review of Agency Rulemaking

E. Reporting and Recordkeeping Requirements

F. Effective Date

XI. Judicial Review

XII. Statutory Authority

II. Background 1

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\1\ Although this section contains a brief summary of the

National LEV program and the process that led up to it, this notice

assumes that the reader has an in-depth understanding of the

National LEV program and is familiar with the previous National LEV

rulemaking notices (i.e., the August, 1997, Supplemental Notice of

Proposed Rulemaking (SNPRM); the October, 1995, Notice of Proposed

Rulemaking (NPRM); and the June, 1997, Final Framework Rule cited in

n.2). Readers should review those documents for in-depth discussion

of the program, the process and other background information.

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Today's Final Rule (FRM) is another step towards a voluntary clean

car program (``National LEV'') that can help control emissions

nationwide as well as in the northeastern states. As discussed in

previous Federal Register notices,2 there have been a number

of regulatory and other steps in the development of this program.

Today's notice concludes the federal regulatory steps necessary to set

up the voluntary clean car program, which will then come into effect if

the auto manufacturers and the OTC States commit to it. In June of this

year, EPA published a final rule setting forth the framework for the

program, including the specific standards that would apply to new motor

vehicles if manufacturers opted in. See 62 FR 31192 (June 6, 1997)

(``Final Framework Rule''). Today's rule finalizes the regulations for

the National LEV program. It is now up to the OTC States and the auto

manufacturers to determine whether the program will come into effect.

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\2\ See 60 FR 4712 (Jan. 24, 1995), 60 FR 52734 (Oct. 10,

1995); 62 FR 31192 (June 6, 1997); 62 FR 44754 (Aug. 22, 1997).

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Under the National LEV program, auto manufacturers will have the

option of agreeing to comply with tailpipe standards that are more

stringent than EPA can mandate prior to model year (MY) 2004. Once

manufacturers commit to the program, the standards will be enforceable

in the same manner that other federal motor vehicle emissions control

requirements are enforceable. See the Final Framework Rule at 62 FR

31201-31223 for a detailed discussion of the program structure,

tailpipe and related standards, and legal authority for and

enforceability of National LEV. Manufacturers have indicated their

willingness to volunteer to meet these tighter emissions standards if

EPA and the northeastern states (i.e., those in the Ozone Transport

Commission (OTC) or the ``OTC States'') agree to certain conditions,

including providing manufacturers with regulatory stability and

reducing regulatory burdens by harmonizing federal and California motor

vehicle emissions standards.

The National LEV program has been developed through an

unprecedented, cooperative effort by the OTC States, auto

manufacturers, environmentalists, fuel providers, EPA and other

interested parties. The OTC States and environmentalists provided the

opportunity for this cooperative effort by pushing for adoption of the

California Low Emission Vehicle (CAL LEV) program throughout the

northeast Ozone Transport Region (OTR). Under EPA's leadership, the

states, auto manufacturers, environmentalists, and other interested

parties then embarked on a process to develop a voluntary National LEV

program, a process marked by extensive public participation and a focus

on joint problem solving. See the Final Framework Rule at 62 FR 31199

and the NPRM at 60 FR 52739-52740 for further discussion of public

participation in the National LEV decision making process.

National LEV will provide public health and environmental benefits

by reducing air pollution nationwide. Both inside and outside the OTR,

National LEV will reduce ground level ozone, the principle harmful

component in smog, as well as emissions of other pollutants, including

particulate matter (PM), benzene, and formaldehyde. The Final Framework

Rule contains a substantive discussion on the health and environmental

benefits of the National LEV program. See 62 FR 31195. EPA has

determined that the National LEV program will result in emissions

reductions in the OTR that are equivalent to or greater than the

emissions reductions that would be achieved through adoption of the CAL

LEV program in the OTR. National LEV will also provide manufacturers

regulatory stability and reduce regulatory burden by harmonizing

federal and California motor vehicle standards. This will reduce

testing and design costs for motor vehicles, as well as allow more

efficient distribution and marketing of vehicles nationwide. See the

Final Framework Rule at 60 FR 31195-31197 and 31224 for further

discussion of the benefits of the National LEV program.

In addition to the national public health benefits that would

result from National LEV, the program has been motivated largely by the

OTC's efforts to reduce motor vehicle emissions either by adoption of

the CAL LEV program throughout the OTR or by adoption of the National

LEV program. One of the OTC States' efforts was a petition the OTC

filed with EPA. On December 19, 1994, EPA approved this petition, which

requested that EPA require all OTC States to adopt the CAL LEV program

(called the Ozone Transport Commission Low Emission Vehicle (OTC LEV)

program). See 60 FR 4712 (January 24, 1995) (``OTC LEV Decision''). See

the Final Framework Rule at 60 FR 31195 for a summary of EPA's

decision. In March, 1997, the U.S. Court of Appeals for the District of

Columbia affirmed states' rights to adopt the CAL LEV program, but

reversed EPA's decision requiring the OTC States to do so. Virginia v.

EPA, 108 F.3d 1397 (D.C. Cir. 1997). Some, but not all, OTC States have

adopted CAL LEV programs to date.

Given statutory constraints on EPA, National LEV will be

implemented only if it is agreed to by the OTC States and the auto

manufacturers. EPA does not have authority to force either the OTC

States or the manufacturers to sign up to the program. EPA cannot

require the auto manufacturers to meet the National LEV standards,

absent the manufacturers' consent, because section 202(b)(1)(C) of the

Clean Air Act (CAA, or ``the Act'') prevents EPA itself from mandating

new exhaust standards applicable before model year 2004. The auto

manufacturers have indicated that they would be willing to opt into

[[Page 928]]

National LEV only if the OTC States make certain commitments, including

committing to allow the manufacturers to comply with National LEV in

lieu of certain CAL LEV programs adopted under section 177 of the CAA

(Section 177 Programs). EPA cannot require the OTC States to make such

commitments (although EPA can issue regulations to help make the

commitments enforceable). Thus, National LEV cannot come into effect

absent the agreement of the auto manufacturers and the OTC States.

Over the past several years, the OTC States and the auto

manufacturers have conducted negotiations to develop an agreement on

National LEV to be contained in a Memorandum of Understanding (MOU).

The parties have reached agreement on most provisions of the National

LEV program. Each side has sent EPA an MOU that it has initialed,

indicating its agreement with the National LEV program as contained in

that Memorandum of Understanding.3 Although there are

differences in the two Memoranda, they show that agreement has been

reached between the OTC States and the auto manufacturers on most of

the provisions of the National LEV program. Based on the MOUs provided

to the Agency, EPA issued the Final Framework Rule on June 6, 1997,

setting the framework for and describing most of the elements of the

National LEV program.

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\3\ See Docket No. A-95-26, IV-G-31 and IV-G-34.

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Although the parties had hoped to jointly sign a comprehensive MOU

affirming their mutual agreement on the National LEV program, the

parties now agree that further discussions are unlikely to result in

resolution of the last outstanding issues. Nonetheless, EPA and the

parties believe that National LEV would provide substantial public

health and environmental benefits. Failure to come to agreement on a

National LEV program would be a significant lost opportunity to improve

the nation's air quality.

EPA believes there is sufficient common ground between the parties

to provide a basis for a National LEV program to which all parties

could agree to opt into. EPA believes that finalizing a program for the

OTC States and manufacturers to evaluate as a whole presents the

greatest likelihood that the country will achieve the benefits of

National LEV, on which many stakeholders worked hard over the years.

EPA encourages the auto manufacturers and OTC States to opt in so the

country does not lose the significant benefits of National LEV.

Today's final rule (FRM) finalizes regulations on issues relating

to how the OTC States will voluntarily opt in to the National LEV

program and commit to allow motor vehicle manufacturers to comply with

the National LEV program in lieu of state Section 177 Programs. These

issues include the duration of the OTC State commitments, the

instruments and process through which the OTC States will commit to the

program, and the substantive details of their commitments.

Today's FRM also addresses several other outstanding structural

details of the National LEV program. These provisions include the

timing of OTC State and auto manufacturer opt-ins to the National LEV

program, incentives for the parties to keep their commitments to the

National LEV program and conditions under which OTC States and

manufacturers could exit the program (``offramps''), and the start date

of the National LEV program.

In addition, today's FRM includes several modifications and

clarifications of several issues addressed to some extent in the Final

Framework Rule. These include provisions relating to how the off-cycle

supplemental federal test procedure would apply to National LEV

vehicles and provisions relating to banking and trading of emissions

credits. For additional explanation of the rationale for today's rule

and responses to comments, see the Summary and Analysis of Comments for

the Final Rule.

III. National LEV Start Date

In the SNPRM, EPA proposed to have the National LEV program start

in MY1999, which reflected a change from the original proposed start

date of MY1997.5 See 62 FR 44756-57. EPA explained that this

change in the start date was necessary because requiring a start date

of MY1997 or MY1998 was unrealistic given the delays associated with

finalizing the program and the inability of manufacturers to produce

and certify National LEV vehicles before MY1999. Additionally, EPA

noted that there was no longer a legal requirement for National LEV to

produce emissions reductions at least equivalent to those that would be

produced by OTC LEV due to the court case overturning EPA's decision

granting the OTC's petition. (See Virginia v. EPA, supra.) EPA received

no negative comments regarding this proposed change in program start

date. EPA is today finalizing its proposal to have the National LEV

program start in MY1999 in the OTR.

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\5\ The National LEV program will start in MY2001 nationwide.

The nationwide start date was not at issue in the SNPRM.

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The change in program start date reflects in part EPA's belief

that, given the voluntary nature of the National LEV program, it would

be unreasonable to retain the MY1997 start date and have the program

begin with some manufacturers having debits from not meeting the fleet

average NMOG standards for MY1997 and MY1998. Such debits would be

difficult to erase given the increasing stringency of the fleet average

NMOG standards and the limited ability of manufacturers to modify their

production plans quickly, once the program is in effect, to manufacture

a number of National LEV vehicles sufficient to demonstrate compliance

with the applicable fleet average NMOG standards.

The MY1999 start date for the National LEV program does not mean

that the program is being delayed two years, but merely that the

National LEV requirements for MY1997 and MY1998 are being dropped from

the regulations. Therefore, the fleet average NMOG standards for MY1999

are 0.148 g/mi for light-duty vehicles and light-duty trucks (0-3750

pounds LVW) and 0.190 g/mi for light-duty trucks between 3750-5750

pounds LVW. As stated above, the MY2001 nationwide fleet average NMOG

standards remain unchanged.

EPA also took comment on allowing manufacturers to sell California-

certified vehicles 6 instead of National LEV vehicles

throughout the Northeast Trading Region (NTR) for MY1999 and MY2000 as

a means to help manufacturers meet their fleet average NMOG standards

for these two model years. Manufacturers expressed concern that they

might have difficulty producing and certifying National LEV vehicles

for MY1999 given that certification of MY1999 vehicles will likely

start before EPA is able to find that National LEV is in effect. EPA

believes it is appropriate to provide some limited flexibility to

manufacturers in a way that does not undercut the environmental

benefits of the fleet average NMOG standards in the first year of the

program. Thus, for MY1999 only, EPA will issue federal National LEV

certificates that will allow manufacturers to sell California-certified

TLEV, LEV, ULEV, and ZEV vehicles throughout the NTR and will count

[[Page 929]]

those vehicles to determine compliance with National LEV requirements.

For MY2000, EPA will also issue certificates that will allow

manufacturers to sell California-certified TLEVs throughout the NTR and

to count those vehicles to determine compliance with National LEV

requirements.

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\6\ ``California-certified vehicles'', as the term is used in

this rule, are those vehicles which have received an Executive Order

from California and a federal certificate of conformity which allows

the sale of such vehicles only in the state of California and other

states that have adopted the California motor vehicle emission

standards under Section 177 of the Clean Air Act.

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The harmonization of the federal and California motor vehicle

emission requirements have left few differences between National LEV

and California-certified TLEV and cleaner vehicles. EPA believes that

production and certification of vehicles meeting both federal and

California requirements, done currently by some manufacturers, should

be much more attractive when the National LEV program is in effect.

However, program differences do exist and federal requirements such as

the Certification Short Test (CST) and high-altitude requirements

remain part of the federal program.7 Using Federal

certificates to allow manufacturers to certify and sell MY1999

California-certified TLEVs, LEVs, ULEVs, and ZEVs throughout the NTR

will give them an additional mechanism to comply with the fleet average

NMOG standards by increasing the production and sale of their

California-certified vehicles. Manufacturers may still certify and sell

National LEV vehicles for MY1999 using the National LEV program

requirements, and such vehicles could be sold nationwide. EPA is not

allowing sale of California Tier 1 vehicles throughout the NTR because

EPA does not believe that certification of vehicles to California Tier

1 standards proves that such vehicles meet the Federal Tier 1 tailpipe

emission standards and EPA cannot justify replacing Federal Tier 1

vehicles with California Tier 1 vehicles in the federal motor vehicle

emissions program. EPA has consistently taken this position on

California Tier 1 vehicles throughout the development of the National

LEV program.

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\7\ There are different federal and California test procedures

for evaporative emissions. Manufacturers generally use the option in

California's regulations which allows testing using the federal

requirements. EPA expects manufacturers will continue using this

option when certifying vehicles for sale in California. The National

LEV program requires emission testing using the federal

requirements.

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California-certified TLEVs, LEVs, ULEVs and ZEVs can be sold in the

NTR in MY1999 if they receive a federal National LEV certificate. This

certificate will state that, for MY1999, a California-certified vehicle

sold in the NTR only will be considered a National LEV vehicle and meet

all National LEV requirements. EPA believes that the compliance testing

done to obtain a California certificate of conformity for these vehicle

categories is sufficient to meet the certification requirements for the

National LEV program in MY1999. Allowing California certification to

substitute for National LEV certification for vehicles sold in the NTR

does not mean that EPA is waiving compliance with the Certification

Short Test (CST) and high-altitude requirements. However, EPA believes

that a vehicle complying with the MY1999 California TLEV, LEV, ULEV, or

ZEV emission standards will also most likely meet the Federal Tier 1

CST and high-altitude requirements. Currently, Federal Tier 1 vehicles

are being certified as meeting the CST and high-altitude requirements

and EPA, in its certification review and testing, has not identified

any problems manufacturers have had in complying with these two

requirements. EPA expects that California-certified TLEVs, LEVs, ULEVs,

and ZEVs would also meet the Federal Tier 1 CST and high-altitude

certification requirements and is thus willing to allow a degree of

uncertainty regarding actual demonstration of compliance with these

requirements in MY1999 in order to facilitate the start of the National

LEV program for those manufacturers which may find it difficult to

certify and sell National LEV vehicles in the NTR. EPA does not believe

it is appropriate to waive demonstration with these requirements beyond

MY1999 because manufacturers will have had sufficient time to

incorporate compliance with the CST and high-altitude requirements into

their MY2000 National LEV vehicles. EPA believes there should be

minimal adverse environmental impact from substituting California-

certified TLEVs, LEVs, ULEVs and ZEVs for National LEV vehicles in

MY1999.

Today's Final Rule addresses the issue of National LEV vehicle

sales in MY1999 by issuing a Federal National LEV certificate to those

vehicles sold in the NTR instead of expanding current policies and

allowing the sale of California-certified vehicles throughout the NTR.

By granting a Federal certificate to these vehicles, EPA retains its

authority to enforce the provisions of the National LEV program.

Compliance with many of these provisions, such as compliance with the

fleet average NMOG requirements and credit trading, is dependent on

meeting conditions associated with the National LEV certificate. EPA is

not waiving compliance with the National LEV requirements in the NTR in

MY1999. By requiring a federal National LEV certificate for MY1999

California-certified vehicles sold in the NTR, this provision ensures

that EPA may enforce all of the National LEV regulations applicable to

MY1999 vehicles.8 California-certified vehicles receiving a

Federal National LEV certificate allowing sale in the NTR may not be

sold outside the NTR.

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\8\ The manufacturers have suggested that EPA address the issue

of MY1999 and MY2000 vehicles through expansion of the cross border

sales policy, which currently allows sales of vehicles certified to

California's emissions standards and other requirements in states

contiguous to, or within 50 miles of, California and states that

have a program adopted under section 177 in place. See note 49 for

further discussion of the cross border sales policy. The approach

that EPA is adopting in today's rule is separate from and will have

no effect on the cross border sales policy.

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EPA believes it is also appropriate to issue Federal certificates

that will allow manufacturers to sell California-certified TLEVs

throughout the NTR in MY2000. As discussed below in sections VIII.E and

IX, EPA does not expect manufacturers to produce and sell many TLEVs

after MY2000 because other provisions in the National LEV and

California LEV programs will provide incentives and requirements which

will minimize TLEV production. EPA believes it would be more

environmentally beneficial and cost-effective to have manufacturers use

their resources to certify and produce cleaner LEVs and ULEVs rather

than TLEVs, which will shortly be phased out of production.9

Issuing Federal certificates to allow manufacturers to sell California-

certified TLEVs in the NTR in MY2000 does not mean that more TLEVs will

be sold in this region because manufacturers will still need to

demonstrate compliance with the fleet average NMOG standard in the NTR

in MY2000, and all TLEVs sold in the NTR are to be included in the

compliance calculations. Instead, EPA is making the determination that

the environmental benefits of issuing Federal certificates allowing the

sale of California-certified TLEVs in the NTR in MY2000 outweighs the

cost and any environmental detriment associated with manufacturers not

completing all of the testing generally required to meet the

certification requirements necessary to produce and sell a National LEV

TLEV in the NTR in MY2000. EPA is not waiving compliance with any

National LEV standards, but is accepting California certification as

sufficient to

[[Page 930]]

demonstrate compliance with TLEV standards for the purpose of

certification.

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\9\ Manufacturers can continue to produce and sell TLEV vehicles

after MY2000 under the National LEV and California LEV programs as

long as they obtain a National LEV certificate for the TLEVs and

meet the applicable fleet average NMOG standards. EPA is not

requiring manufacturers to discontinue TLEV production, which

remains a manufacturer decision.

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This special provision regarding the sale of California-certified

TLEVs is applicable only in the NTR and only in MY2000. This provision

is intended to provide manufacturers with flexibility in meeting the

fleet average NMOG standards in the NTR. When the National LEV

requirements are effective nationally in MY2001, however,

manufacturers' full production efforts will be focused on meeting

California and National LEV requirements. If a manufacturer plans to

continue producing TLEVs after MY2000, then such vehicles must meet all

of the National LEV requirements, including the CST and high-altitude

requirements. In meeting the certification requirements for a MY2001

National LEV TLEV, manufacturers may carry over any appropriate data

from their MY2000.

EPA is not issuing Federal certificates allowing California-

certified vehicles to be sold under National LEV outside the NTR in

MY1999. There is no justification for allowing such sales and, unlike

in the NTR, there is no requirement that manufacturers produce anything

but Federal Tier 1 vehicles. If manufacturers wish to generate early

reduction credits in the All State Trading Region in MY1999 and MY2000,

they must do so using National LEV vehicle sales in that region.

IV. National LEV Will Produce Larger VOC and NOX Emission

Reductions in the OTR Compared to OTC State Adopted Section 177

Programs

Modeling done in support of the Final Framework Rule showed that

the National LEV program would provide greater emission reductions than

those from OTC LEV (which is equivalent to state-by-state adoption of

the CAL LEV program throughout the OTR). See 62 FR 44757. The SNPRM

proposed several changes to modeling assumptions. As proposed, and in

light of public comments, EPA has modified some of the assumptions in

the modeling, particularly regarding when various programs would start.

This modeling supports EPA's conclusion in today's rule that, given

current assumptions and best information about future vehicle

performance 10 and the migration of people and vehicles, the

NOX and VOC emission reductions from National LEV are

equivalent to or greater than those from state-by-state adoption of

Section 177 Programs throughout the OTR.

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\10\ EPA's National LEV modeling does not incorporate any

factors relating to the effect of fuel sulfur levels on the

emissions performance of National LEV vehicles, outside of any

factors already included in the MOBILE 5a model. Studies being

conducted by the auto and oil industries analyzing the impact of

sulfur on the emissions performance of LEV vehicles are ongoing. EPA

has not attempted to quantify a sulfur impact on National LEV

vehicle emissions as part of the equivalency modeling because the

studies and associated analyses have not yet been completed.

Additionally, any quantifiable impact would apply to both the

National LEV and OTC State Section 177 Programs and would not alter

any equivalency determination.

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The first set of changes to the modeling relates to the start dates

of National LEV and Section 177 Programs. As proposed in the SNPRM, the

updated modeling includes a start date of MY1999 (rather than MY1997)

for the National LEV program. The updated modeling analysis for the OTC

State Section 177 Programs (in the absence of National LEV) also more

accurately reflects expected reductions from OTC State Section 177

Programs than did the analysis described in the Final Framework Rule.

The modeling for that rule assumed that all of the OTC States had

Section 177 Programs in effect for MY1999 and later. In reality, only

six of the OTC States have adopted programs that could be effective in

MY1999 and there is no longer a specific legal requirement for the

other states to adopt a Section 177 Program. Thus, EPA's analysis

assumes Section 177 Programs will exist only in those OTC States that

have adopted a Section 177 Program.11 EPA believes that this

realistic assumption is the proper comparison to National LEV since

legally, individual state adoption is the only manner in which

California vehicles can be required in the Northeast.

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\11\ Start date assumptions for EPA's modeling are MY1999 for

the National LEV program in the OTR, MY2001 for the National LEV

program nationwide, MY1996 for Section 177 Programs in New York and

Massachusetts, MY1998 for a Section 177 Program in Connecticut, and

MY1999 for Section 177 Programs in Rhode Island, New Jersey, and

Vermont. The dates for state Section 177 Programs reflect the

effective dates for current state Section 177 Programs. Maine has

taken steps to adopt a Section 177 Program. EPA has included Maine

with the other six OTC States that have adopted a Section 177

Program, and has given Maine's program a start date of MY2001,

recognizing that even though Maine has not yet completed all the

steps to make its program go into effect, it has finished most of

the actions and is expected to complete its adoption actions in the

near future.

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EPA believes its current modeling makes the appropriate assumptions

and correctly estimates a realistic level of OTC State Section 177

Programs. However, to test its assumptions, EPA also ran as a third

case a sensitivity analysis assuming that all of the OTC States adopted

Section 177 Programs. For the six OTC States without a Section 177

Program in place as of July 1, 1997, EPA assumed that the programs

became effective in MY2001, the earliest time a state that had not yet

adopted a Section 177 Program could legally enforce such a program,

given the two year lead time requirement in section 177 of the Act.

This analysis showed that, even with all 13 OTC States having a Section

177 Program in place at the earliest possible times, National LEV still

provided greater emission reductions in the Northeast.

EPA has also changed some of its modeling assumptions regarding the

status of federal and state motor vehicle programs in MY2005 and later,

in part as a result of changes EPA made regarding the duration of

National LEV. To the extent possible, EPA has attempted to make these

new assumptions, which affect all three cases analyzed by EPA,

consistent from one case to the next. Although EPA has made assumptions

regarding future regulatory actions, these assumptions in no way limit

EPA's options in future regulatory actions, nor do they indicate that

EPA has prejudged those future actions.

In the National LEV case, EPA assumes National LEV will be in place

in all OTC States through MY2005, which is the latest model year the

program would be considered a compliance alternative in those OTC

States which have adopted a Section 177 Program if EPA issues Tier 2

standards at least as stringent as National LEV standards by December

15, 2000. In MY2006, the seven OTC States with Section 177 Programs

already adopted are assumed, for modeling purposes, to have those

programs go into effect.12 The model assumes the rest of the

country will have a Tier 2 program which, for modeling purposes, is

considered to be equivalent to the National LEV program.

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\12\ Under the National LEV program duration requirements (see

section V.A) the OTC States are only committed to have the Naitonal

LEV program as a compliance alternative to a Section 177 Program

until MY2006.

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The two modeling cases which analyze emission reductions without

the National LEV program assume, for modeling purposes, that a Tier 2

program equivalent to National LEV would go into effect in MY2005. One

case assumes Tier 1 standards in effect until then in those states that

have not adopted a Section 177 Program. The other case assumes Tier 1

standards in effect until then in all states outside the OTR (except

California). The MY2005 start date for Tier 2 was chosen as a

reasonable estimation for modeling purposes, given the National LEV

program deadline of December 15, 2000

[[Page 931]]

date for EPA action on the Tier 2 program (which has been incorporated

into the modeling assumption for the National LEV case) in conjunction

with lead time for manufacturers to prepare to comply with Tier 2

standards. The MY2005 start date for Tier 2 also represents a

reasonable midpoint, for modeling purposes, between the MY2004 and

MY2006 deadlines included in the MOUs. EPA is not precluded by the

National LEV program from implementing a Tier 2 program in MY2004 if it

determines Tier 2 standards should apply in that model year.

EPA's modeling shows that National LEV would achieve greater

emission reductions in the OTR than individual OTC State Section 177

Programs. EPA's conclusion would not change even if all OTC States were

to adopt Section 177 Programs. The emission levels are listed in the

Table 1 below. The modeling is based on National LEV starting in MY1999

in the OTR and MY2001 in the rest of the country, with Federal Tier 1

vehicles making up the federal non-NLEV fleet. EPA did not include

existing OTC State zero emission vehicle (ZEV) sales mandates in either

of its modeling runs since these mandates are not affected by the

National LEV rule. ZEV sales mandates would thus have similar effects

on emission levels in both modeling cases and would not affect the

relative emissions benefits of National LEV compared to those of OTC

State Section 177 Programs.

All other assumptions used in the modeling included in the Final

Framework Rule, the SNPRM, and today's rule remain consistent with

those used throughout the National LEV process. EPA believes it is

important to keep consistent assumptions to provide a comparison

between benefits from the National LEV program and state Section 177

Programs in the OTR.

Table 1.--Ozone Season Weekday Emissions for Highway Vehicles in the OTR

(tons/day)

------------------------------------------------------------------------

OTC State National

Year Pollutant CAL LEV LEV

------------------------------------------------------------------------

2005.......................... NMOG............ 1,573 1,499

NOX............. 2,526 2,403

2007.......................... NMOG............ 1,480 1,366

NOX............. 2,427 2,226

2015.......................... NMOG............ 1,386 1,148

NOX............. 2,367 1,899

------------------------------------------------------------------------

V. OTC State Commitments

This section describes the substance of the OTC States' commitments

to National LEV. It also addresses the process (including timing) by

which OTC States and auto manufacturers would commit to National LEV

and by which EPA would find the program in effect.

A. Duration of OTC State Commitments and of the National LEV Program

Today's Final Rule takes a different approach to the duration of

the OTC State commitments than was proposed in the SNPRM. As discussed

in the SNPRM, the MOUs initialed by the OTC States and the auto

manufacturers both had the duration of the National LEV program (and

hence the duration of both the OTC States' and the auto manufacturers'

commitments) depend on whether, by January 1, 2001, EPA issued

mandatory new motor vehicle standards (``Tier 2 standards'') that were

at least as stringent as National LEV and that would go into effect no

later than MY2006. If EPA issued the specified standards by that time,

the auto manufacturers would stay in National LEV until the Tier 2

standards became effective, and the OTC States would not enforce their

own state Section 177 Programs until MY2006. If EPA did not issue the

specified regulations by that time, then National LEV would end with

MY2003 and, starting in MY2004, in any state where California or OTC

LEV standards were not in place, the applicable standards for

manufacturers would revert back to the federal Tier 1 standards.

Although EPA rejected the MOU approach in the Final Framework Rule, EPA

has reconsidered the issue based on the comments submitted by the OTC

States and the auto manufacturers, and has decided to adopt the

approach agreed upon by the OTC States and the auto manufacturers.

Thus, under 40 CFR 1701(c) and 1705(e) and (g) of today's rule, the

commitments of the OTC States and the auto manufacturers to National

LEV last until MY2006, unless EPA fails to promulgate Tier 2 standards

at least as stringent as National LEV on or before December 15, 2000,

in which case the commitments last until MY2004.13

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\13\ If EPA promulgates Tier 2 standards at least as stringent

as National LEV on or before December 15, 2000, and those standards

are in effect in MY2004 or MY2005, the manufacturers will become

subject to those standards upon their effective date, but the OTC

States' commitments to National LEV will not end until MY2006.

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EPA had proposed in the SNPRM that the OTC States would commit to

the National LEV program until MY2006. This meant that the OTC States

would have committed to accept manufacturers' compliance with National

LEV (or equally or more stringent mandatory federal standards) as an

alternative to compliance with a state Section 177 Program through

MY2005. The length of the auto manufacturers' commitment was set in the

Final Framework Rule. Under that rule, manufacturers that opted into

the program would be bound to comply with National LEV until the first

model year for which manufacturers would be subject to a mandatory

federal tailpipe emissions program at least as stringent as the

National LEV program with respect to NMOG, NOX and carbon

monoxide (CO) exhaust emissions (``Tier 2 standards''). Under section

202(b)(1)(C) of the Clean Air Act, EPA could not mandate such standards

prior to MY2004. Thus, the manufacturers' commitment to National LEV

was to last at least until MY2004 and could last longer.

In the Final Framework Rule, EPA did not accept the MOU provisions

for setting the duration of the National LEV program. EPA rejected the

MOU provisions because it was concerned about setting up a program that

would have the country take a step backward environmentally if the

Agency failed to act by a specified deadline. EPA has reconsidered its

views.

The main reason for changing the program duration is the comments

received from the OTC States and the auto industry. The auto industry

made it clear that stability until MY2006 is very important, and the

OTC States were clear that they were uncomfortable with committing to

allow National LEV as a compliance alternative until MY2006 if EPA were

not to issue Tier 2 standards by January 1, 2001. The OTC States'

primary reason for wanting to tie the duration of the program to

promulgation of Tier 2 standards is that they need to know sooner

rather than later how the Tier 2 standards and the California LEV

program compare so that they can determine whether they will need to

have an enforceable California LEV program to meet their air quality

goals. EPA believes that an orderly air quality planning process is

important and believes that the OTC States are in the best position to

know what would be most useful to them in that process. EPA has decided

to defer to the OTC States' judgment on this matter.

Having decided that the length of the OTC States' commitment should

depend on whether EPA issues Tier 2 standards, EPA believes it would be

unfair not to have the manufacturers' commitment also depend on whether

EPA issues Tier 2 standards. First, that is the agreement that was

reached by the OTC States and the manufacturers. It would be unfair to

hold the manufacturers in for longer than they had agreed to in the MOU

[[Page 932]]

while giving the OTC States the benefit of the agreement. Second, an

unintended consequence of EPA's decision not to tie the end of National

LEV to EPA's issuance of the Tier 2 regulations is that several groups

interpreted that as a signal that EPA was not intending to perform its

statutory duty under CAA section 202(i)(3) to evaluate the need for,

technological feasibility of, and cost effectiveness of new standards,

and to issue new standards if warranted. EPA has every intention of

meeting its statutory obligations under the CAA and does not want to

send a contrary message. Third, EPA now believes that if National LEV

comes into effect and manufacturers change all their manufacturing

facilities over to build LEV technology, it is highly unlikely that

they would actually change the technology back to Tier 1. A combination

of the cost of changing back to old technology and adverse publicity

from selling ``dirty'' cars probably should be sufficient incentive to

keep manufacturers using LEV technology. One manufacturer's decision,

announced this summer, to sell LEV technology (albeit certified at Tier

1 levels) nationally and various marketing campaigns touting clean cars

are evidence that ``clean'' cars can be used as a selling point. Thus,

today's Final Rule modifies the duration of the manufacturers'

commitment to National LEV.

B. Timing of OTC State Commitments, Manufacturer Opt-Ins, and EPA

Finding That National LEV Is in Effect

EPA is establishing a process and deadlines for the OTC States and

the manufacturers to opt into the National LEV program and for EPA to

find the program in effect. The process and timing are unchanged from

EPA's proposal in the SNPRM. Because National LEV needs to be in place

as soon as possible to ensure that it is available for MY1999, 40 CFR

86.1706 sets the following deadlines based on the date of signature of

this Final Rule.14 Seventy-five days from signature of this

FRM, EPA must determine whether the National LEV program is in effect

(see section V.C.3 below for the criteria for finding National LEV in

effect). This finding will be based on the OTC States' initial opt-in

packages from their Governors and state environmental commissioners or

secretaries (discussed below in section V.C) that were submitted no

later than 45 days from the date of signature of this rule and on the

manufacturers' opt-ins submitted no later than 60 days from signature

of this rule.15 If EPA finds National LEV in effect, all

parties are bound by their commitments to the program. While any party

that misses its deadline for opt-in is not barred from submitting a

late opt-in, EPA is only required to consider timely opt-ins in

determining whether National LEV is in effect. Moreover, given the very

short timeframe for the opt-in process and the fact that some parties

may be reluctant to opt in before they know whether others will do so,

a late opt-in is likely to jeopardize the start-up of the program.

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\14\ EPA will provide directly affected parties actual notice

and make copies of the FRM available within a week of signature.

Upon request, copies of the FRM will also be made available to other

parties in the same timeframe.

\15\ If one of these deadlines would otherwise fall on a weekend

or federal holiday, the FRM sets the deadline as the next business

day.

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As proposed, after the initial opt-ins and an EPA finding that the

program is in effect, the OTC States will generally have one year from

the date of the in-effect finding to submit the final portion of their

opt-ins, which is a SIP revision committing the state to the National

LEV program and allowing manufacturers to comply with National LEV as

an alternative to a state Section 177 Program, as described in more

detail in section V.C.4 below. For a few states, specifically Delaware,

New Hampshire, Virginia and the District of Columbia, the deadline is

eighteen months, rather than one year, from the date of the in-effect

finding. These states have particular circumstances related to their

state rulemaking processes that make a one-year deadline unrealistic.

If a state were to miss its deadline for submission of its SIP revision

committing to National LEV, the manufacturers would have the

opportunity to opt out of the program, as discussed further in section

VI.

C. OTC State Commitments, Manufacturer Opt-Ins, and EPA Finding That

National LEV Is in Effect

This section describes the process for the OTC States and the

manufacturers to commit to the National LEV program and for EPA to find

the program in effect. This includes how the OTC States will commit to

the program, the elements of their commitments, the permissible

conditions on OTC State and manufacturer opt-ins, and the criteria that

EPA will use to find the program in effect.

1. Initial Opt-In by OTC States

As proposed, the OTC States will commit to National LEV in two

steps, the first of which is an opt-in package from each state's

Governor and environmental commissioner, indicating the OTC State's

intent to opt into National LEV. The second step is a SIP revision

incorporating the OTC States' commitment to National LEV in state

regulations, which EPA will approve into the federally-enforceable SIP.

To opt into National LEV, within 45 days of signature of this rule,

the Governor (or Mayor, in the District of Columbia) will submit to EPA

an executive order or a letter committing the OTC State to the National

LEV program. As specified in 40 CFR 86.1705(e), the executive order or

letter will contain three main elements. First, it will state that its

purpose is to opt the state into National LEV. Second, it will state

that the Governor is forwarding a letter signed by the head of the

state environmental agency (or other appropriate agency or department),

which specifies the details of the state's commitment to the National

LEV program. Third, it will state that the Governor has directed the

head of the state environmental agency to take the necessary steps to

adopt regulations and submit a SIP revision committing the state to

National LEV in accordance with the requirements of the National LEV

regulations. In addition, OTC States with existing ZEV mandates

16 may add language confirming that the opt-in will not

affect the state's requirements pertaining to ZEVs.

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\16\ ZEV mandates are those state regulations or other laws that

impose (or purport to impose) obligations on auto manufacturers to

produce or sell a certain number or percentage of ZEVs. Any OTC

State with a ZEV mandate that was adopted prior to the signature

date of this rule is considered a state with an existing ZEV

mandate.

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The Governor's executive order or letter will enclose a letter

signed by the state environmental commissioner or secretary of the

appropriate state department (``commissioner's letter''), which

specifies the details of the state's commitment to National LEV.

Alternatively, if an OTC State has proposed regulations meeting the

requirements for a SIP revision specified below, the state may

substitute the proposed regulations for the portions of the

commissioner's letter for which they are duplicative. In that case, the

Governor will send to EPA the Governor's executive order or letter, the

proposed regulations, and a letter from the commissioner, which will

contain the elements specified below that were not included in the

proposed regulations.

As proposed, the commissioner's letter will include the following

elements. First, it will indicate that National LEV would achieve

reductions of VOC and NOx emissions equivalent to or greater

than the reductions that

[[Page 933]]

would be achieved through state adopted Section 177 Programs in the

OTR. Second, it will indicate that the state intends National LEV to be

the state's new motor vehicle emissions control program. Third, it will

state that for the duration of the state's participation in National

LEV, the state will accept National LEV or mandatory federal standards

of at least equivalent stringency as a compliance alternative to any

state Section 177 Program. As EPA is defining it here, a state Section

177 Program is any regulation or other law, except a ZEV mandate,

adopted by an OTC State in accordance with section 177 and which is

applicable to passenger cars, light-duty trucks up through 6,000 pounds

GVWR, and/or medium-duty vehicles from 6,001 to 14,000 pounds GVWR if

designed to operate on gasoline, as these vehicle categories are

defined under the California regulations. (This commitment would not

restrict states from adopting and implementing requirements under

section 177 for heavy-duty trucks and engines and diesel-powered

vehicles between 6,001 and 14,000 pounds GVWR.) The letter will further

state that the state's participation in National LEV extends until

MY2006, except as provided in the National LEV regulations' provisions

addressing the duration of the OTC State commitments and state

offramps. However, in a change from the proposal (discussed in section

V.A above), the letter will add that if no later than December 15,

2000, EPA does not issue mandatory new motor vehicle standards (``Tier

2 standards'') at least as stringent as National LEV and that would go

into effect no later than MY2006, then the state's participation in

National LEV extends only until MY2004, except as provided in the

National LEV provisions for state offramps. The offramps allow the OTC

States to exit National LEV if an auto manufacturer were to decide to

exit the program. OTC States without existing ZEV mandates would add a

statement that the state accepts National LEV as a compliance

alternative to any ZEV mandates. OTC States with existing ZEV mandates

would add a statement that their acceptance of National LEV as a

compliance alternative for state Section 177 Programs does not include

or have any effect on the OTC State's ZEV mandates.

Fourth, the commissioner's letter will include both an explicit

recognition that the manufacturers are opting into National LEV in

reliance on the OTC States' opt-ins, and a recognition that the

commitments in the initial OTC State opt-in package have not yet gone

through the state rulemaking process to be incorporated into state

regulations, so they do not yet have the force of law; in addition, the

letter will recognize that the state's executive branch must comply

with any laws passed by the state legislature that might affect the

state's commitment. The manufacturers' comments opposed inclusion of

the proposed language stating that the provisions of the state's letter

would not have the force of law until adopted as state regulations and

that the state must comply with any state legislation that might affect

the commitment. The manufacturers expressed concern that these

provisions undermine the states' commitments. However, a number of

states have indicated to EPA that they could not make a commitment of

this nature before completing the states' rulemaking processes, unless

they included language to clarify the legal nature of the initial state

commitment. In light of the fact that the states will not have

sufficient time to complete a rulemaking before opting into National

LEV, EPA believes it is appropriate for the opt-in provisions to allow

the states to include the language that EPA proposed. EPA does not

believe this language will in any way affect the degree to which the

states are legally or politically bound by their initial opt-ins.

Fifth, the commissioner's letter will include an acknowledgment

that, if a manufacturer were to opt out of National LEV pursuant to the

opt-out provisions in the National LEV regulations, the transition from

the National LEV requirements to any state Section 177 Program or ZEV

mandate would be governed by the National LEV regulations. Sixth,

similar to the manufacturers' opt-in letters, the commissioner's letter

will state that the state supports the legitimacy of the National LEV

program and EPA's authority to promulgate the National LEV regulations.

The OTC States have indicated that they support certain commitments

regarding ZEV mandates by including those provisions in the MOU voted

on by the OTC and initialed by the OTC pursuant to the vote. Consistent

with the provisions in the MOU initialled by the OTC, for states

without existing ZEV mandates, the commissioner's letter will state

that the state intends to forbear from adopting a ZEV mandate effective

during the period of the state's participation in National LEV. In this

rule, EPA is defining an existing ZEV mandate as a ZEV mandate adopted

by an OTC State prior to the signature date of this rule. The

manufacturers commented that the states should commit that they will

forbear from adopting ZEV mandates, rather than only stating their

intent to forbear from such action. However, the OTC States have

expressed their concern about attempting to bind future legislatures in

this way and have consistently indicated that such language would not

be acceptable to them. As it stated in the NPRM (60 FR 52740) and SNPRM

(62 FR 44760) for National LEV, EPA believes that the decision

regarding adoption of ZEV mandates by OTC States must be left up to

each individual OTC State, to the extent permitted under section 177.

Thus, EPA believes it is appropriate to include the language supported

by the OTC States here. If any OTC State would prefer to commit that it

will forbear from adopting a ZEV mandate, it may make that commitment

in its opt-in.

The commissioner's letter from OTC States that have not adopted a

Section 177 Program at the time of signature of this rule need not

include a commitment or statement of intent to forbear from adopting a

Section 177 Program effective during the period of the state's

commitment to National LEV, as long as the state commits to accept

National LEV as a compliance alternative to any such program. EPA took

comment on such a provision in the SNPRM (60 FR 44760) because the

draft MOU initialed by the manufacturers included a statement that

certain OTC States would forbear from adopting such ``backstop''

Section 177 Programs,17 while the draft MOU initialed by the

OTC States did not include any statement regarding adoption of such

backstop programs. The comments on the SNPRM from the manufacturers and

the OTC States reiterate these positions. In particular, the

manufacturers stated that allowing all OTC States to adopt backstop

Section 177 Programs would destabilize the National LEV program. The

manufacturers are concerned that the prospect of a return to Tier 1

vehicles in at least some OTC States if a state violates its commitment

to National LEV is a powerful incentive for states to abide by their

commitments that would be lost with widespread backstops. EPA agrees

that the absence of backstops in some OTC States would contribute to

program stability in the manner that the manufacturers suggest.

However, EPA does not believe it is necessary to bar states from

adopting backstops to provide this source of stability, as it is highly

unlikely that all or nearly all OTC States will adopt backstop Section

[[Page 934]]

177 Programs effective during the relevant time period and it is

unlikely that more than a few (if any) states outside the OTR would

adopt backstop programs. In addition, the OTC States said that they are

unwilling to commit not to adopt backstop programs. Thus, EPA does not

believe it is appropriate to include a provision committing not to

adopt a backstop Section 177 Program as an element of the OTC States'

commitments to National LEV.

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\17\ ``Backstop'' Section 177 Programs are programs that allow

National LEV as a compliance alternative to the Section 177 Program

requirements.

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Finally, the commissioner's letter may include a statement that the

state's opt-in to National LEV is conditioned on all of the motor

vehicle manufacturers listed in the National LEV regulations opting

into National LEV pursuant to the National LEV regulations and on EPA

finding National LEV to be in effect. However, as with the

manufacturers' opt-ins, no conditions other than those specified in the

regulations may be placed on any of the state opt-in instruments (the

Governor's executive order or letter, the commissioner's letter, or the

SIP revision).

The OTC States commented that the regulations should allow an OTC

State to condition its opt-in on signature of an acceptable independent

agreement with the manufacturers to promote advanced technology

vehicles (ATVs). An agreement on ATVs has not been contemplated to be

part of the National LEV regulations, but has been discussed as a

separate agreement between the OTC States and the auto manufacturers.

At one point, the OTC States and manufacturers reached consensus on the

substance and language of an ATV agreement, which was to establish

mechanisms for sharing information not only about advanced technology

vehicles and alternative fuels, but also about the incentives and

infrastructure development necessary to make new technology feasible.

This agreement was attached to the MOUs initialed by the manufacturers'

organizations and the OTC. EPA supports this agreement, but does not

believe that opt-ins to National LEV need be conditioned on final

signature of the agreement. If the OTC States and manufacturers want to

finalize the agreement (contingent on National LEV coming into effect),

they can and should do so before the due date for the OTC State opt-

ins. There is no reason to delay finalizing the ATV agreement until

after the OTC States have opted in. Thus, although OTC States can

refuse to opt in if there is no ATV agreement, they cannot send in an

opt-in which is conditioned on an ATV agreement being signed.

In the regulations at 40 CFR 86.1705 (e) and (g), EPA is providing

specific language for each element of the OTC States' opt-ins to be

included in the Governor's executive order or letter, the

commissioner's letter, and the SIP revision. Although it is somewhat

unusual for EPA to identify specific language for state submissions,

EPA believes that this is an appropriate situation to do so. Because

the OTC States and manufacturers are signing up for a voluntary program

and are unlikely to sign an MOU, using specified language will ensure

that they sign up to the same program. Otherwise, the opt-ins might not

represent agreement on the terms and conditions of the voluntary

National LEV program. However, in a slight modification to the proposed

approach, the final regulations provide that for the Governors' and

commissioners' letters, a state may opt into National LEV using the

specified language or ``substantively identical language.'' Because the

first step of the OTC States' commitments to National LEV will occur

before the states can complete their rulemaking processes, EPA

recognizes that some slight wording variations may be necessary for

individual states. For the subsequent SIP revisions, however, states

will have the opportunity to go through notice-and-comment rulemaking

on the specified language. Moreover, because the deadline for

manufacturers to opt into National LEV is after the deadline for the

OTC States, the manufacturers will have the opportunity to assess the

adequacy of any state opt-ins that vary from the specified language. If

the variation is sufficient to undercut the assurance that the state

will carry out its commitment to National LEV, the manufacturers may

decide not to opt into National LEV. However, the manufacturers would

not have an opportunity to assess beforehand any variations in the SIP

revision language submitted by the states. Prior to opt-in, the

manufacturers can evaluate the SIP revision language specified in the

regulations to determine whether they view the language as an adequate

expression of the states' commitments to National LEV, but they would

not have the opportunity to evaluate any variations on that specified

language. The importance of ensuring that all parties know what they

are signing up to at the time of opt-in further supports the

requirement for states to use exact language for the SIP revisions.

Despite the possibility that states may opt into National LEV even

with slight non-substantive variations in the language of the

Governor's letter or commissioner's letter, EPA emphasizes that any

differences must be minor and non-substantive. Because the Governor's

letter and commissioner's letter are political as well as legal

documents, even language without direct legal effect is important to

bind the state politically to carry out its commitment. Hence, EPA and/

or the manufacturers are likely to view variations in such language as

substantive changes to the state's commitment. To avoid invalid opt-

ins, EPA expects most, if not all, OTC States to use the specified

language unmodified. Only a few OTC States commented that they might

need to make unspecified changes in the language. In addition, as

discussed further below, EPA will find National LEV in effect without

providing for additional notice-and-comment on whether the conditions

are met for finding National LEV in effect. EPA may proceed without

additional rulemaking or other process if the Agency's in-effect

finding is essentially a nondiscretionary action based on clear factual

determinations. If EPA must use its discretion to determine whether a

state has adequately committed to National LEV, that might require

further rulemaking and substantially delay implementation of the

program. However, if the OTC States use the language specified in the

regulations, which EPA has determined to be adequate through a notice-

and-comment rulemaking, EPA will be able to find National LEV in effect

on that basis.

EPA also recognizes that a state may wish to include background

information, especially in the Governor's executive order or letter.

This is permissible under today's regulations, providing that the

additional information does not add conditions to the state's opt-in.

2. Manufacturer Opt-Ins

As proposed, the motor vehicle manufacturers' opt-ins to National

LEV are due within 60 days from signature of this Final Rule. As

provided in the Final Framework Rule, a manufacturer will opt into

National LEV by submitting a written notification signed by the Vice

President for Environmental Affairs (or a company official of at least

equivalent authority who is authorized to bind the company to the

National LEV program) that unambiguously and unconditionally states

that the manufacturer is opting into the program, subject only to

conditions expressly contemplated by the regulations. See 40 CFR

86.1705(c)(2). The only permissible conditions on a manufacturer's opt-

in notification would be that the OTC States or the auto manufacturers

specified by the manufacturer opt into National LEV pursuant to the

National

[[Page 935]]

LEV regulations and that EPA find the program to be in effect. These

conditions parallel the permissible conditions described above for the

OTC States' opt-ins.

One commenter voiced a concern that the opt-in language that would

commit the manufacturers ``not to seek to certify any vehicle except in

compliance with the regulations in subpart R'' would prevent

manufacturers from certifying heavy-duty vehicles. The statement would

not have that effect. Heavy-duty vehicles are not covered by the

National LEV program, so they would not need to be (and could not be)

certified under the National LEV regulations. Similarly, this opt-in

language would not preclude manufacturers from seeking to certify a

vehicle for sale only in California and states that have the California

program in effect. The opt-in language also would not commit

manufacturers to obtain National LEV certificates for vehicles sold

outside the United States.

3. EPA Finding That National LEV Is In Effect

The OTC States' and the auto manufacturers' opt-ins will become

effective upon EPA's receipt of the opt-in notification or, if the opt-

in is conditioned, upon the satisfaction of that condition. As provided

in 40 CFR 86.1706, EPA will find National LEV in effect if each of the

listed manufacturers submits an opt-in notification that complies with

the requirements for opt-ins, each of the opt-in notifications

submitted by an OTC State complies with the requirements for opt-ins,

and any conditions placed upon any of the opt-ins are satisfied. Thus,

if all the parties that opted into National LEV agree to participate in

the program, even if fewer than all OTC States opt into National LEV,

EPA will find the program in effect. EPA believes that National LEV

should be a national program--effective in all states but California.

This would provide the OTR with emissions reductions greater than what

could be achieved without National LEV and would simplify distribution

and other aspects of the sale of motor vehicles. Moreover, the

manufacturers have stated that they are not willing to opt into

National LEV unless each and every OTC State opts into National LEV.

However, if the OTC States and auto manufacturers are willing to

participate in a National LEV program even if all OTC States do not opt

in, EPA will not stand in the way of National LEV going into effect. By

allowing each of the parties in National LEV to condition their

agreement to opt in on specified other parties opting in, EPA is

leaving it up to each of the parties to decide what is an acceptable

basis for its own participation. EPA expects that each motor vehicle

manufacturer and each OTC State will carefully evaluate the National

LEV program as a whole and make the choice as to whether and under what

conditions it chooses to participate.

Once all conditions on opt-ins are satisfied, the manufacturers

will be subject to the National LEV requirements for new motor vehicles

for the duration of the program, and the OTC States that opt in will be

committed to participate in the National LEV program for the duration

of their commitments, as discussed above in section V.A.

While the OTC States' SIP revisions are a necessary component of

their commitments to National LEV, EPA will make the finding as to

whether National LEV is in effect and National LEV will begin before

the OTC States' SIP revisions are due. Through an executive order or

letter, the Governor of each state will have opted into National LEV

and started the process for submission of an approvable SIP revision.

Also, as discussed further below, an OTC State's failure to submit the

SIP revision within the time provided for submission would give

manufacturers an opportunity to opt out of the National LEV program.

See Sec. VI.A.2; 40 CFR 86.1707(f). Together, this high level directive

for action and the consequences of a failure to conclude the action

provide substantial assurance that the OTC States will submit their SIP

revisions within the specified time.

EPA will publish the finding that National LEV is in effect in the

Federal Register, but the Agency will not go through additional

rulemaking to make this determination. In the Final Framework Rule, EPA

stated that further Agency rulemaking to find National LEV in effect

would be unnecessary because EPA would establish the criteria for the

finding through notice-and-comment rulemaking, and EPA's finding that

the criteria are satisfied would be an easily verified objective

determination. See 62 FR 31226 (June 6, 1997). The public has had full

opportunity to comment on the adequacy of the elements of the

manufacturers' and OTC States' opt-ins. Thus, EPA will find that

National LEV is in effect without conducting further rulemaking if the

Agency determines that each of the listed manufacturers has submitted

an opt-in notification that includes the specified elements in approved

language without qualifications, each of the opt-in notifications

submitted by an OTC State includes the specified elements in specified

or substantively identical language without qualifications, and any

conditions placed upon any of the opt-ins have been satisfied.

4. SIP Revisions

Within one year (eighteen months for a few specified states, as

discussed above in section V.B) of the date set for EPA's finding that

National LEV is in effect, the OTC States will complete the second

phase of their commitments to National LEV by submitting SIP revisions

to EPA incorporating their commitments (``National LEV SIP

revisions''). As proposed and specified in 40 CFR 86.1705(g), the SIP

revisions will contain the following elements incorporated in

enforceable state regulations.

The first regulatory provision will commit that, for the duration

of the state's commitment to National LEV, the manufacturers may comply

with National LEV or mandatory federal standards of at least equivalent

stringency as a compliance alternative to any state Section 177 Program

(which is any regulation or other law, except a ZEV mandate, adopted by

an OTC State in accordance with section 177 and which is applicable to

passenger cars, light-duty trucks up through 6,000 pounds GVWR, and

medium-duty vehicles from 6,001 to 14,000 pounds GVWR if designed to

operate on gasoline, as these vehicle categories are defined under the

California regulations).18 This provision would not restrict

states from adopting and implementing requirements under section 177

for heavy-duty trucks and engines and diesel-powered vehicles between

6,001 and 14,000 pounds GVWR. The regulations will also commit the

state to participate in National LEV until MY2006, except as provided

in the National LEV regulatory provisions for the duration of the OTC

State commitments, including provisions for state offramps. However, as

discussed in section V.A above, the regulations will also provide that

if, no later than December 15, 2000, EPA has not issued mandatory new

motor vehicle standards (``Tier 2 standards'') at least as stringent as

National LEV that would go into effect no later than MY2006, then the

state is committed to participate in National LEV only until MY2004,

except as provided in the National LEV provisions for state offramps.

States that do not have an existing ZEV mandate (see n. 16 above)

[[Page 936]]

will additionally provide that manufacturers may comply with National

LEV as a compliance alternative to any ZEV mandates for the duration of

the state's commitment to National LEV.

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\18\ OTC States that had Section 177 Programs at the time of

opt-in would need to modify their existing regulations in accordance

with this provision.

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The second element of the state regulations will explicitly

acknowledge that, if a manufacturer were to opt out of National LEV

pursuant to the opt-out provisions in the National LEV regulations, the

transition from the National LEV requirements to any state Section 177

Program or ZEV mandate (for states without existing ZEV mandates) would

be governed by the National LEV regulations, thereby incorporating

these National LEV provisions by reference into state law.

The SIP submission to EPA will include state regulations containing

the elements discussed above, and a transmittal letter or similar

document from the state commissioner forwarding those regulations. As

proposed, four additional elements of the SIP commitment must be

included either in the transmittal letter or the state regulations.

First, the state will commit to support National LEV as an acceptable

alternative to state Section 177 Programs for the duration of the

state's commitment to National LEV. Second, the state would recognize

that its commitment to National LEV is necessary to ensure that

National LEV remain in effect. Third, the state will state that it is

submitting the SIP revision to EPA in accordance with the National LEV

regulations. Fourth, each OTC State without an existing ZEV mandate

(see n. 16 above) will state that, for the duration of the state's

commitment to National LEV, the state intends to forbear from adopting

a ZEV mandate effective during the period of the state's participation

in National LEV. See section V.C.1 above for further discussion of OTC

State commitments relating to ZEV mandates. As discussed in section

V.C.1 above, OTC States that had not adopted a Section 177 Program at

the time of signature of this rule would not need to commit not to

adopt backstop Section 177 Programs.

EPA will be able to find that an OTC States' SIP submission meets

the National LEV SIP requirements and to approve it into the SIP

without further rulemaking as long as the submission both includes the

language specified in the regulations without additional conditions and

meets the CAA requirements for approvable SIP submissions. In the

SNPRM, EPA provided full opportunity for public comment on the language

that the states would use in their SIP revisions. Today's rule

finalizes that language with a few modifications arising from the

public comments. Thus, in reviewing such a SIP submittal, EPA will only

have to determine whether the submittal includes the specified language

without additional conditions, and whether it meets the statutory

criteria for approvable SIP submissions, as laid out in sections

110(a)(2) and 110(l) of the CAA. Section 110(a)(2), in relevant part,

specifies that the state must have provided public notice and a hearing

on the SIP provisions and the submission must provide necessary

assurances that the state will have adequate personnel, funding and

authority under state law to carry out the provisions. Section 110(l)

(discussed in more detail below) provides that SIP revisions must not

interfere with attainment or any other applicable requirement.

In this case, these requirements for EPA's approval are easily

verified objective criteria. They leave EPA little discretion in

deciding whether a state submission meets the requirements for a

National LEV SIP revision, and consequently remove any benefits to be

derived from conducting notice-and-comment rulemaking on each approval.

Determining whether the language of the SIP submittal tracks the

language provided in the final regulations and whether the state has

substantively qualified or conditioned that language through

modifications or additions is a straightforward, essentially

ministerial task. This is also true for assessing whether the state has

provided notice and a public hearing on the SIP submission. Because

National LEV is a federal program, the state needs no personnel or

funding to carry it out, so there is nothing related to the requirement

for adequate personnel and funding for EPA to evaluate. For a state

with existing regulations requiring compliance with a state Section 177

Program, EPA will merely have to determine whether the state has

modified its regulations to include the language in the National LEV

regulations to accept National LEV as a compliance alternative for the

specified duration of the state commitment, as well as the additional

provisions specified above. Again, this is a very simple, objective

assessment. Finally, EPA has determined that National LEV would provide

reductions in the OTR equivalent to or greater than OTC State Section

177 Programs in the OTR (see section IV), so that an OTC State

commitment to National LEV would not interfere with attainment or any

other Act requirement. See below for further discussion of this point.

Incorporating the OTC States' commitments to National LEV in state

regulations approved into the SIPs will substantially enhance the

stability of the National LEV program and support giving states credit

for SIP purposes for emissions reductions from National LEV. A SIP

revision would clearly indicate a state's commitment to National LEV

and would reiterate the state executive branch's support for the

National LEV program. More importantly, an approved SIP revision is

federal law and hence has binding legal effect. General Motors Corp. v.

U.S., 496 U.S. 530, 540 (1990).

In the SNPRM, EPA explained the circumstances under which EPA

believes these SIP commitments would have binding effect. Several

commenters disagreed with EPA's legal interpretations. Of course,

whether a subsequent state law or regulation could be approved into the

SIP or whether it would be preempted by the earlier National LEV SIP

revision would be a fact-specific determination that could not be made

unless and until a state took final action arguably in conflict with

its National LEV SIP revision. Although this is an issue that might

never arise, EPA believes it is appropriate to lay out the key legal

principles that EPA believes would apply in such circumstances so that

any OTC State that submits a National LEV SIP revision does so with a

full understanding of how its commitment to National LEV would be

enforceable.

A National LEV SIP revision would provide that the state commits to

accept National LEV or mandatory federal standards of at least

equivalent stringency as a compliance alternative to a state program

under section 177 for a specified time period. EPA approves SIP

submissions through a federal notice-and-comment rulemaking process

under section 110(k) of the Act. Approved SIP submissions are

incorporated by reference into the CFR and are enforceable federal law.

If a state adopted new state law or regulations that violated this

commitment in the SIP (e.g., by requiring compliance only with a state

Section 177 Program), this new state law would conflict with the

federally-approved National LEV SIP revision and would not be valid

prior to EPA approval into the SIP of the new law. Prior to such

action, the new state law would be precluded by the federal law with

which it conflicted (i.e., the SIP revision EPA had approved). The

courts have held that where Congress has the power under the Supremacy

Clause of the U.S. Constitution to preempt an area of state law (which

it has with respect to air pollution controls), state law is preempted

if either Congress evidences

[[Page 937]]

an intent to occupy a given field, or to the extent that the state law

actually conflicts with federal law. Hence, the later state regulation

that did not allow National LEV as a compliance alternative would be

preempted by the federally-approved National LEV SIP provision and

would be unenforceable against the manufacturers. Manufacturers could

bring suit against the state to clarify that the new state law was not

enforceable until approved by EPA, thereby enforcing the initial SIP

commitment in federal court.

To revise the SIP, the state would have to submit the new

provisions and EPA would have to approve them into the SIP through

notice-and-comment rulemaking. If EPA approved the new provisions, they

would take effect. If EPA disapproved the new provisions, then the new

state law would continue to conflict with the federally-approved SIP

revision (which is federal law) containing the state commitment to

National LEV, and manufacturers could seek a judicial determination

that the federally-approved National LEV SIP revision commitment

preempted the new state law.

Once a state has an approved SIP provision committing to accept

National LEV as a compliance alternative for a specified duration,

under section 110(l) of the CAA, EPA would be obligated to disapprove a

subsequent SIP revision that violated the state's commitment if EPA

were to find that the SIP revision would interfere with other states'

ability to attain or maintain the national ambient air quality

standards (NAAQS). Specifically, section 110(l) provides that EPA must

disapprove a plan revision if it ``interfere[s] with any applicable

requirement concerning attainment and reasonable further progress * * *

or any other applicable requirement of this Act.'' By the terms of its

rulemaking, National LEV comes into and stays in effect only if all

relevant states commit to allow it as a compliance alternative. If

National LEV comes into effect, a number of OTC States, as well as

states outside the OTR, are likely to rely on National LEV as a means

of attaining and maintaining the ozone NAAQS. These states are likely

to forego adoption of other control measures because they will count on

reductions from National LEV to meet their attainment and maintenance

obligations. In this manner, other states will be relying on each of

the OTC States keeping its commitment to National LEV. An OTC State

breaking its commitment to allow National LEV as a compliance

alternative could lead to the dissolution of the National LEV program,

which in turn would likely deprive other states of the emission

reductions from National LEV, and could thereby interfere with those

other states' ability to attain. As discussed above, in the SIP

revisions committing to National LEV, each OTC State would explicitly

recognize that the state's commitment to National LEV is necessary to

ensure that the program remain in effect.

One commenter opposed EPA's reading of section 110 on several

grounds, focusing in particular on the potential effects on states

downwind from the violating state. The commenter objects to anything

that would discourage a state that committed to National LEV from

implementing a Section 177 Program if that state finds in the future

that National LEV will not prevent emissions within that state from

interfering with attainment in downwind states. The commenter claims

that the commitment to National LEV would violate the section

110(a)(2)(D) requirement that emissions in a state cannot interfere

with attainment or maintenance in downwind states.

EPA rejects the suggestion that a state's commitment to National

LEV has the potential to interfere with that state's ability to comply

with section 110(a)(2)(D). Section 110(a)(2)(D) requires SIPs to

``contain adequate provisions prohibiting * * * any source or other

type of emissions activity within the State from emitting any air

pollutant in amounts which will * * * contribute significantly to

nonattainment in, or interfere with maintenance by, any other state. *

* *'' Thus, section 110(a)(2)(D) holds a state responsible for reducing

a given quantity of emissions that contributes significantly to

nonattainment in another state. It does not mandate any particular

measure for reducing those emissions, and the Circuit Court of Appeals

for the District of Columbia, in Virginia v. EPA, 108 F. 3d 1397 (D.C.

Cir. 1997), precluded EPA from requiring states to adopt a program

under section 177. States commonly make choices between emissions

control measures, and the decision to adopt one measure often precludes

another, usually due to practical constraints such as incompatible

technology, limited resources, lead time requirements, etc. The choice

of National LEV is no different. In selecting National LEV as a means

of controlling emissions from new motor vehicles, a state will be fully

aware that the choice requires giving up the ability to adopt a state

Section 177 Program for a given period of time, except under specified

circumstances. EPA has determined that National LEV produces equivalent

or greater emissions reductions than OTC State-by-State adoption of

Section 177 Programs. Thus, the only way in which adoption of OTC State

Section 177 programs in lieu of National LEV could help meet OTC

States' section 110(a)(2)(D) obligations is if California were to adopt

more stringent CAL LEV requirements, all or almost all OTC States also

adopted such standards, and the timing of the adoptions was such that

the standards would become effective earlier than the date on which the

OTC States' participation in National LEV would have ended had the

states opted into National LEV instead. For National LEV to come into

effect in MY1999, OTC States must evaluate the alternatives based on

the information available at this time and make a choice now as to

whether to opt into National LEV. As is often the case, if state

regulators wait until they have perfect information about all possible

options, one option--National LEV, which now looks to be the most

attractive option--will no longer be available. Nor is it an option for

OTC States to opt into National LEV without making an enforceable

commitment for the specified duration. National LEV is a voluntary

program for both states and manufacturers, and manufacturers are

unwilling to supply National LEV vehicles without assurance that their

future compliance obligations will remain stable for the specified

duration. Therefore, a commitment by OTC States to accept compliance

with National LEV for the specified duration is an integral and

critical element of National LEV. Based on the options and information

available now to OTC States and only the possibility that California

will tighten its standards at some point in the future, an OTC State

that made an enforceable commitment to National LEV for the specified

duration could not be said to be interfering with attainment of

downwind states, nor could that commitment be held unenforceable in the

future. Of course, for most OTC States, National LEV is only one of the

actions they will need to take to meet their CAA obligations. States

committed to National LEV would remain responsible for compliance with

section 110(a)(2)(D) and would be able to use other means to achieve

the necessary reductions. Thus, the state commitments to National LEV

in no way violate section 110(a)(2)(D), nor are they consequently

unenforceable as the commenter suggests.

The commenter further asserts that EPA is attempting to prohibit

states from adopting Section 177 Programs

[[Page 938]]

and this is illegal and contrary to section 177, which provides states

the right to adopt state standards for new motor vehicles that are

identical to California standards. EPA agrees that section 177 clearly

provides states the right to adopt the California standards. Under

National LEV, states make the choice whether to exercise that right and

implement the California standards, or to commit to accept

manufacturers' compliance with an alternative set of emissions controls

on new motor vehicles for a limited period of time. The OTC States and

the manufacturers developed the basic framework and requirements for

the National LEV program and the fundamental agreement on which it is

based. EPA does not have the authority to require the manufacturers to

produce National LEV vehicles without their agreement or to require the

OTC States to commit to National LEV. Absent the voluntary actions of

the manufacturers and OTC States there will be no National LEV Program.

However, if the manufacturers and OTC States choose to commit to

National LEV and bring the program into being, it is in no way contrary

to section 177 or any other provision of the Clean Air Act for EPA to

enforce the agreement in the manner provided in today's rule.

The commenter further contends that EPA's reading of section 110(l)

is incorrect for several reasons. As discussed above, under EPA's

interpretation, section 110(l) could bar EPA from approving into the

SIP a state submission that would revoke an earlier SIP provision

committing a state to accept National LEV as a compliance alternative

for a specified duration. First, the commenter states that based on the

same analysis, EPA could use its authority under section 110(k)(5) to

require even unwilling states to revise their SIPs to accept National

LEV as a compliance alternative on the theory that failure to do so

would frustrate National LEV and thus interfere with attainment in

neighboring states. The commenter states that EPA has no such authority

under section 110(k)(5), (under Commonwealth of Virginia v.

Environmental Protection Agency, 108 F.3d 1397 (D.C. Cir. 1997).

EPA rejects the contention that the section 110(k)(5) analysis is

comparable to EPA's interpretation of section 110(l). As emphasized

above, National LEV is a voluntary program. Enforcing an agreement that

states have voluntarily entered into is a fundamentally different

action from mandating that states enter into an agreement. More

specifically, EPA's interpretation of section 110(l) relies on the

effect that a violation of a state commitment is likely to have on

other states that have relied upon the National LEV program. A program

will not be useful for state air pollution control and planning

purposes unless there is some assurance that it will continue over

time, and EPA has attempted to structure National LEV so as to provide

such an assurance of stability. Given this structure, states will

likely reasonably rely on achieving a certain quantity of emissions

reductions from National LEV and hence will likely decide not to adopt

other pollution control measures. Since most measures take time to

adopt and implement, the sudden and unexpected loss of emissions

reductions from National LEV would be likely to cause a significant

delay in some states' emissions control efforts. As a consequence, it

would affect such states' ability to meet the statutory and regulatory

deadlines for attainment as well as the obligation to protect the

health and welfare of their citizens. In contrast, if OTC States did

not commit to National LEV and the program never came into effect,

while the opportunity for emissions reductions from National LEV would

be lost, states would never have expected to receive those reductions,

would not have foregone opportunities for other types of emissions

reductions, and would not be disadvantaged in their ability to pursue

other measures. Under those circumstances, EPA would have no basis for

finding that failure to include a commitment to National LEV would make

a SIP substantially inadequate to attain the NAAQS or otherwise comply

with any requirement of the CAA.

The commenter also cites section 110(a)(2)(D) to argue that section

110 holds each state responsible only for emissions within its

jurisdiction and requires a state to take action only if those

emissions are interfering with attainment in another state. EPA agrees

that section 110(a)(2)(D) only applies to emissions activity within the

state, but EPA is here relying on section 110(l), not section

110(a)(2)(D). Section 110(l) simply provides that EPA shall not approve

a revision if it ``would interfere with any applicable requirement

concerning attainment and reasonable further progress * * * or any

other applicable requirement of [the] Act.'' (Emphasis added.) Section

110(l) makes no reference to emissions activities within the state, and

EPA declines to attempt to read in such a limitation.

The commenter states further that it would not violate section 110

for EPA to approve into a SIP state provisions that replace National

LEV with a section 177 program when the section 177 program would

result in equivalent or lower emissions within the state. If the

manufacturers might choose to opt out of National LEV as a consequence

of an EPA approval of such a revision, the revision would jeopardize

all of the emissions reductions from the National LEV program and

states without backstop programs could experience the significantly

higher emissions that would be produced by Tier 1 vehicles. Thus, it is

highly unlikely that the proposed SIP revision would not interfere with

attainment in at least some states that had relied upon National LEV,

even if emissions in the violating state remained stable or decreased

and vehicles from the violating state that migrated into other states

emitted at the same or lower levels. For these reasons, section 110(l)

could require EPA to disapprove the state's proposed revision.

Finally, the commenter states that EPA could not find that a

proposed SIP revision breaking the state's commitment to National LEV

would interfere with attainment under section 110(l) because

manufacturers would be allowed to sell Tier 1 vehicles in the violating

state even if they do not opt out of National LEV. In that situation,

approval of the section 177 program would reduce emissions in that

state in comparison to the Tier 1 requirements that would otherwise

apply. EPA disagrees with the commenter's analysis of how this

situation would relate to the requirements of section 110(l). Given the

likelihood that manufacturers would opt out of National LEV if EPA were

to approve the SIP revision, approval of the SIP revision would be

likely to result in overall higher emissions from Tier 1 requirements

in many states, not just one, and a number of these states are likely

to be relying on the reductions from National LEV. Moreover, the

violating state has the ability to avoid some or all of the negative

emissions effects of its action, either by not taking the action in the

first place, or by curing its violation, as discussed above in section

VI.A.1.19 In contrast, other states cannot prevent a state

from violating, but rather must rely on EPA's disapproval to retain the

emissions reductions that they are relying on for

[[Page 939]]

attainment. Under these circumstances, the fact that the violating

state had taken action that caused Tier 1 requirements to apply in that

state would not prevent EPA from disapproving that state's SIP revision

on the grounds that the revision would interfere with attainment in

other states.

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\19\ If a state violated its commitment, it would have the

ability to limit the period of time for which it would receive Tier

1 vehicles to approximately two full model years by curing the

violation. Even if EPA were to approve the SIP revision, the state

would receive Tier 1 vehicles for two years pursuant to the

requirement for lead time under section 177. Thus, an EPA

disapproval of a violating state's proposed SIP revision would not

necessarily result in higher emissions in the violating state

compared to the result if EPA had approved the proposed SIP

revision.

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VI. Incentives for Parties to Keep Commitments to Program

Once it comes into effect, National LEV is designed to be a stable

program that will remain in effect until replaced by mandatory federal

tailpipe standards of at least equivalent stringency, provided such

standards are necessary and cost-effective. Manufacturers have the

option, but not the requirement, to participate in National LEV.

Manufacturers have indicated a willingness to opt into the program, but

only if the EPA and the OTC States make certain commitments. To give

the manufacturers both assurance that the commitments will be kept and

recourse if they are not, the program includes a few specified

conditions (``offramps'') that would allow manufacturers to opt out of

National LEV if EPA or the OTC States did not keep their commitments.

In addition, the OTC States also need assurance that National LEV will

continue to provide the benefits they anticipated when they opted into

the program, both in terms of the number of manufacturers covered by

the program and the level of emissions reductions that the program was

designed to achieve. Thus, National LEV also includes limited offramps

for the OTC States to protect against changes in anticipated emission

benefits or the number of covered manufacturers. Both the

manufacturers' and the OTC States' offramps, set forth in 40 CFR

86.1707, are structured to maximize all parties' incentives to maintain

the agreed-upon program provisions and thereby to maximize the

stability of National LEV over its intended duration.

In the unlikely event that any of the offramps were triggered and

manufacturers or OTC States opted out, today's regulations set forth

which requirements would apply, the timing of such requirements, the

states in which they would apply, and the manufacturers that would have

to comply with them. The main purpose of these provisions is to enhance

the stability of the program by minimizing the incentives for EPA or

the OTC States to act in a manner that would trigger an offramp.

Additionally, EPA has structured the offramp provisions such that no

single event automatically would end the National LEV program. EPA will

continue to make National LEV available as long as one or more

manufacturers and one or more OTC States wish to remain in the program.

EPA recognizes, of course, that if a significant number of OTC States

or manufacturers were to opt out of National LEV, after a certain point

it is unlikely that the remaining parties would choose to continue the

program. However, the issue is highly unlikely to arise, and if it did,

it is not clear what would be the critical mass of opt-outs sufficient

to end the program. Rather than deciding now how many OTC State and

auto manufacturer opt-outs would be significant enough to end National

LEV, EPA believes it is both more appropriate and more efficient to

leave that decision to the OTC States and manufacturers to decide, in

the unlikely event that an offramp is triggered and significant opt-

outs occur. EPA has received no comments on the SNPRM opposing this

general approach.

In the NPRM, EPA proposed that the manufacturers' right to opt out

of the National LEV program would be limited to two conditions. These

offramps were: (1) EPA modification of a Stable Standard, except as

specifically provided, and (2) an OTC State's failure to meet or keep

its commitment regarding adoption or retention of a state motor vehicle

program under section 177. The Final Framework Rule addressed the first

offramp (recodified in today's rule at 40 CFR 86.1707(d)), which would

allow manufacturers to opt out of National LEV if EPA were to modify a

Stable Standard except as provided for under the National LEV

regulations. The second offramp is addressed in today's Final Rule. EPA

also is adding a third type of offramp related to auto manufacturers'

concerns regarding the effects of using federal fuel (instead of

California fuel) on emissions control systems. This is discussed in

section VI.C below. In addition, as proposed in the SNPRM, today's

Final Rule includes a fourth type of offramp that allows manufacturers

to opt out based on an OTC State or another manufacturer legitimately

opting out of National LEV. Today's rule also finalizes two offramps

for OTC States. An OTC State may opt out if a manufacturer opts out or

if EPA makes a finding that National LEV will not produce (or is not

producing) emissions reductions in the OTR equivalent to state Section

177 Programs in the OTR. Finally, this section discusses EPA's

interpretation of Section 177 if an offramp is taken.

A. Offramp for Manufacturers for OTC State Violation of Commitment

As established in today's Final Rule, there are several ways in

which an OTC State might break its commitment and thereby allow

manufacturers to opt out of National LEV. These are: (1) taking final

action in violation of the commitment to continue to allow National LEV

as a compliance alternative to a Section 177 Program or to a ZEV

mandate (in those OTC States without existing ZEV mandates); (2)

failing to submit a National LEV SIP revision within the timeframe set

forth in the National LEV regulations; (3) submitting an inadequate

National LEV SIP revision; and (4) taking final action (by an OTC State

without an existing ZEV mandate) adopting a ZEV mandate effective

during the state's commitment to National LEV. 20 The

discussion below addresses each of these possible types of OTC State

violations individually. EPA does not believe that any of these

scenarios are likely to arise under the National LEV program.

Nevertheless, spelling out in the regulations the consequences under

each of these scenarios will provide the parties certainty regarding

the worst-case outcomes, and more importantly, allows EPA to structure

the consequences so as to minimize the likelihood that any of these

scenarios will occur.

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\20\ In addition, as discussed in the following section,

manufacturers may opt out if an OTC State takes a legitimate

offramp.

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1. OTC State No Longer Accepts National LEV as a Compliance Alternative

The most significant way in which an OTC State could violate its

commitment to National LEV would be to attempt to have a Section 177

Program that was in effect during the state's commitment to National

LEV 21 and that did not allow National LEV or mandatory

federal standards of at least equivalent stringency as a compliance

alternative. 22 (An OTC State would not be in violation of

its commitment under National LEV if it had (or adopted) a Section 177

Program that was effective after the end of its commitment to National

LEV that did not allow National LEV as a compliance alternative.) This

could happen if an

[[Page 940]]

OTC State accepted National LEV as a compliance alternative to a state

Section 177 Program or a ZEV mandate (in an OTC State without an

existing ZEV mandate) and then took final action purportedly removing

the alternative compliance provisions from its regulations, leaving

only the state Section 177 Program or ZEV mandate requirements in

place. It would also happen if an OTC State took final action

purportedly adopting a Section 177 Program or a ZEV mandate (in an OTC

State without an existing ZEV mandate) without providing for National

LEV as a compliance alternative. 23 This violation of the

OTC State's commitment to National LEV attempts to impose a compliance

burden directly on the manufacturers and would abandon the most

fundamental element of the agreement underlying the voluntary National

LEV program.

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\21\ An OTC State's commitment to National LEV lasts until

MY2006, unless EPA fails to issue Tier 2 standards at least as

stringent as National LEV on or before December 15, 2000, in which

case the commitment lasts until MY2004.

\22\ Throughout this preamble, EPA often uses ``National LEV as

a compliance alternative'' as shorthand for ``National LEV or

mandatory federal standards of at least equivalent stringency as a

compliance alternative.''

\23\ In addition, an OTC State with a Section 177 Program in its

regulations at the time of opt-in that does not already permit

manufacturers to comply with National LEV as a compliance

alternative might fail to modify those existing regulations within

the time-frame provided, which is the same as the deadline for

submission of the state's SIP revision. The consequences of this

type of violation would differ slightly from the consequences of

other types of violations that attempted to have a Section 177

Program without allowing National LEV as a compliance alternative,

as noted below in n.24.

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The consequences of such a violation, as discussed below and set

forth in 40 CFR 86.1707(e), take into account the seriousness of the

breach of the commitment, even though the violation would not

necessarily directly burden the manufacturers. Once a state adequately

commits to National LEV through an approved SIP revision, even if the

state were to change its regulations to disallow compliance with

National LEV, the requirement would not be enforceable until EPA

approved a further SIP revision incorporating the change, as discussed

above in section V.C.4. Yet, although the violation might not actually

impose any burden on the manufacturers because it is not enforceable,

manufacturers should not be bound to comply with more stringent

National LEV requirements in the violating state and should not be

bound to continue in the National LEV program, as even an unenforceable

Section 177 Program would create risks and uncertainties for

manufacturers. Manufacturers would be at risk of having to defend

against a state enforcement action. The question of whether EPA could

approve a proposed state SIP revision deleting National LEV as a

compliance alternative--if only by virtue of the lack of precedence for

this issue and its dependence on the specific facts--would create

further uncertainty for manufacturers.

Manufacturers would be able to opt out at any time after an OTC

State took final action that would (or attempted to) require

manufacturers to comply with a Section 177 Program or a ZEV mandate (in

an OTC State without an existing ZEV mandate) prior to the end of the

state's commitment to National LEV without allowing them to comply with

National LEV or mandatory federal standards of at least equivalent

stringency as an alternative, even if the effective date of the state

requirement were some time in the future. The final state action would

be the action promulgating the state law or regulations at issue, not

the act of defending such law or regulations in litigation. Thus, a

self-effectuating state law purporting to impose a Section 177 Program

without including National LEV as a compliance alternative would be

final state action, as would final state regulations purporting to

impose such a program. A state law directing the relevant state agency

to change its regulations to remove National LEV as a compliance

alternative would not be a final state action, but the regulations

promulgated in accordance with that directive would be final state

action.

The manufacturers commented that the definition of ``final state

action'' should include the date on which a state passes legislation

that requires a state environmental agency to eliminate National LEV as

a compliance alternative, even if that state legislation is not self-

effectuating. EPA is concerned that it may not necessarily be clear in

a particular instance how a law directing a state agency to change its

regulations relating to National LEV would actually be implemented by

the state agency. Depending on the substantive results of the state

rulemaking process implementing the directives of the law and the

timing of such regulations, the state may or may not actually violate

its commitment to the program. Rather than attempting to hypothesize

the effect of final state regulations once promulgated, EPA believes it

is appropriate to define a final state action as the action that

finalizes the state law or regulations that would be directly

applicable to the motor vehicle manufacturers upon the effective date

of such law or regulations.

Today's rule provides that, if an OTC State were to violate its

commitment by purportedly disallowing National LEV as a compliance

alternative, there would be both automatic consequences in the

violating state and an opportunity for manufacturers to opt out of

National LEV.24 Two significant elements determine the

consequences in the violating state. The first element is the

manufacturers' National LEV compliance obligations in the violating

state. The second element is when the state Section 177 Program or ZEV

mandate requirements apply to manufacturers. Outside of the violating

state, manufacturers would continue to be subject to the National LEV

requirements unless they opted out of the National LEV program.

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\24\ In an OTC State that had a Section 177 Program in its

regulations at the time of opt-in and that had never accepted

National LEV as a compliance alternative to the Section 177 Program

requirements, the consequences in the violating state discussed in

this section would not apply, given EPA's interpretation of section

177. See section VI.E. However, the provisions for a manufacturer's

offramp would be the same for a state that failed to modify existing

regulations to accept National LEV as a compliance alternative as

for any other state action not allowing National LEV as a compliance

alternative.

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Until the violating state's Section 177 Program or ZEV mandate

requirements apply, the manufacturers' compliance obligations in that

state would be governed by the terms of the National LEV regulations.

In a state that had violated its commitment by attempting to have a

Section 177 Program or ZEV mandate without allowing National LEV as a

compliance alternative, beginning with the next model

year,25 the National LEV regulations would allow

manufacturers to sell vehicles complying with Tier 1 tailpipe standards

in that state and those vehicles would not be counted in determining

whether the NLEV fleet average NMOG standard was met. Because model

years generally run somewhat ahead of the calendar years with the same

numbers, generally this will result in a near-term or immediate change

in the manufacturers' compliance obligations.

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\25\ The ``next model year'' would be the model year named for

the calendar year following the calendar year in which the OTC State

took final state action violating its commitment. For example, if an

OTC State violated its commitment by taking final state action in

calendar year 1999, the next model year would be MY2000.

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EPA had proposed that, until the violating state's Section 177

Program requirements applied (which might not be until MY2006), the

manufacturers would only have to meet the federal Tier 1 tailpipe

standards for vehicles sold in the violating state, and those vehicles

would not be used to calculate the manufacturers' fleet NMOG averages.

Several commenters objected to this provision on the basis that the

violating state or a downwind state might need emissions reductions

from controls on new motor vehicles in the

[[Page 941]]

violating state during the timeframe in which National LEV regulations

required that federal Tier 1 standards be met in the violating state.

In response, EPA is modifying this provision slightly to allow a

violating state to ``cure'' a violation and regain the benefits of

National LEV (with respect to manufacturers that had not opted out of

National LEV) by reversing the action that caused the violation. EPA

believes it is highly unlikely that a state would violate its

commitment in the first place, let alone that it would do so and then

reverse its action shortly thereafter. Nevertheless such a scenario can

be envisioned, for example, in the situation where a state was counting

on an alternative means of obtaining needed emissions reductions and

then found that the alternative was for some reason not viable. EPA

believes that it is appropriate to structure the National LEV

regulations so as to maximize states' incentives to uphold their

commitments to National LEV without, under certain circumstances,

foreclosing a state from obtaining the benefits of National LEV for the

remainder of the National LEV program.

Under today's final rule, rather than allowing manufacturers to

sell only Tier 1 vehicles in a violating state for as long as the

manufacturers are governed by National LEV in that state, if the

violating state reverses its action (by taking final action

withdrawing, nullifying or otherwise reversing the final action that

violated its commitment), after a transition period, vehicles sold in

that state by manufacturers that had not opted out of National LEV

would once again be subject to the National LEV fleet average NMOG

requirements. Vehicles would be subject to the fleet average NMOG

standard as of the model year named for the second calendar year after

the violating state took the final action reversing the action that

broke its commitment or as of the model year named for the fourth

calendar year following the calendar year in which the violating state

took the final action, whichever is later. For example, if the

violating action occurred in 1999 and the violating state reversed that

action in 2000, vehicles sold in that state would count towards the

NLEV NMOG fleet average starting with MY2003 (the model year named for

the fourth calendar year following the calendar year in which the

violating action occurred). If the violating action action occurred in

1999 and was reversed in 2002, vehicles in that state would count

towards the NLEV NMOG fleet average starting with MY2004 (the model

year named for the second calendar year in which the violating action

was reversed). EPA believes that it is important to provide OTC States

that commit to National LEV with an incentive to keep their commitments

and that this approach provides such an incentive.26

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\26\ The commenters mistakenly assumed that, in the absence of

this provision, a state that broke its commitment would immediately

get the benefits of a state Section 177 Program. Rather, under

section 177, a violating state would only be entitled to Tier 1

vehicles for at least two years after it broke its commitment. Thus,

for at least two years, the National LEV provision that

manufacturers that stay in the program are obligated to provide only

Tier 1 vehicles in the violating state is consistent with what would

happen under section 177 if the violating state's action ended the

program. (For ease of administration, if a violating state is in and

then out and then back in the National LEV program, EPA has extended

the period that would otherwise be provided by section 177 to ensure

that when a states' vehicles again count towards calculation of the

NMOG average, all of a manufacturer's vehicles in the first covered

model year count towards the NMOG average.) Even were lead time not

required by section 177, EPA believes it is appropriate to give

manufacturers time to comply with new motor vehicle requirements

pursuant to a change in a state's requirements.

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The earliest date on which the violating state's Section 177

Program or ZEV mandate would apply is governed by the two model-year

lead time requirement of section 177, EPA's regulations on model year

at 40 CFR part 85 subpart X and the National LEV regulations. This date

would apply only for any auto manufacturer that opted out of National

LEV as a result of the violating state's action (provided that it is

later than the effective date of the opt-out), for any auto

manufacturer that decided to comply with the violating state's

requirements even though it otherwise chose to stay in National LEV,

and for all manufacturers if EPA approved the violating state's program

into the SIP.27 (As discussed above, EPA believes the

violating state's refusal to allow National LEV as a compliance

alternative would not otherwise be effective until MY2006 (or MY2004,

if EPA failed to issue Tier 2 standards at least as stringent as

National LEV on or before December 15, 2000).) Thus, if none of these

situations occurred, the only requirements applicable to manufacturers

in the violating state would be the National LEV regulations, which

would allow manufacturers to sell in the violating state vehicles that

meet Tier 1 tailpipe standards and to exclude those vehicles from the

fleet average NMOG calculation for the time period discussed above.

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\27\ Some commenters have expressed the view that, if an OTC

State were to delete National LEV as a compliance alternative, the

State's new (or revised) Section 177 Program would not be preempted

by the federally approved National LEV SIP revision nor would EPA

have the legal authority to disapprove the revised state program if

it were submitted to EPA for approval into the SIP. As discussed in

this preamble and the Response to Comments for today's rule, EPA

disagrees with these commenters. However, if these commenters were

correct regarding the legal status of the revised state program

disallowing National LEV as a compliance alternative, the earliest

date on which the violating state's Section 177 Program or ZEV

mandate would apply is governed by the lead time requirements in

section 177 and EPA's regulations on model year at 40 CFR Part 85

subpart X and in the National LEV regulations.

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After National LEV is in effect, a change to a state regulation

that deletes National LEV as a compliance alternative attempts to

change the manufacturers' obligations. In that circumstance, as

discussed in section VI.E below, EPA interprets section 177 to require

two years of lead time from the date that the state takes final action

changing its regulations (or other law) deleting National LEV as a

compliance alternative, regardless of when the state adopted its

previous Section 177 Program. Thus, pursuant to the model year

regulations at 40 CFR part 85 subpart X and today's regulations at 40

CFR 86.1707, the earliest the state Section 177 Program or ZEV mandate

requirements could apply would be to engine families for which

production begins after the date two calendar years from the date of

the final state action. For example, if the violating state promulgated

regulations purportedly removing National LEV as a compliance

alternative on June 1, 2000, the earliest the state Section 177 Program

or ZEV mandate requirements could apply would be to engine families

that began production on or after June 1, 2002, which might apply to

some, but certainly not all, MY2003 vehicles.

In the SNPRM, EPA raised the issue of whether manufacturers should

have at least four, rather than two, years of lead time from the date

that the state takes final action changing its regulations to delete

National LEV as a compliance alternative. The manufacturers' comments

advocated that there should be four years of lead time from the date of

the state violation of its commitment, but they did not suggest any way

(other than enforcing the commitment in a SIP) to make such a

requirement for lead time legally enforceable against a state that was

already in violation of its commitment to accept National LEV as a

compliance alternative to a state Section 177 Program. Numerous other

commenters opposed the idea of providing four years of lead time on the

basis that it is contrary to the statutory language governing lead time

for state programs adopted under section 177. The MOUs initialled by

the OTC and manufacturers' organizations did not

[[Page 942]]

allude to a four-year lead time under any circumstances, indicating

that the parties had not raised this in their negotiations, let alone

agreed upon it, as an appropriate element of the National LEV program.

Finally, the National LEV regulations provide several other significant

disincentives to an OTC State breaking its commitment, as discussed in

this section, and a four-year lead time would likely add little to

these existing disincentives. Thus, EPA does not believe it would be

reasonable to try to require a four-year lead time under section 177

for a state violation of its commitment to National LEV.

The combined effect of the National LEV regulations allowing

manufacturers to comply with Tier 1 tailpipe standards in the violating

state and the requirement for two-years lead time before the state

Section 177 Program or ZEV mandate requirements could apply means that,

if an OTC State were to violate its commitment by not allowing National

LEV as a compliance alternative, manufacturers would be subject to only

Tier 1 tailpipe standards (and not the NLEV NMOG average) in that state

for at least two years. As a consequence, the violating state could not

claim SIP credits for control of emissions from new motor vehicles

meeting anything more stringent than Tier 1 tailpipe standards during

that period. EPA believes that this would provide a powerful incentive

for the OTC States to uphold their commitments to accept National LEV

as a compliance alternative for the specified duration.

EPA recognizes that it may take manufacturers some time to take

advantage of the less stringent Tier 1 tailpipe standards, and that,

consequently, the hardware of the vehicles supplied to the violating

state may not change dramatically in the short-term. However,

manufacturers would be able to revise vehicle compliance levels rapidly

to provide that, for warranty and recall purposes, the vehicles are

only complying with Tier 1 tailpipe standards. This means that, over

the life of those vehicles, they would only be required to produce

emissions below the 50,000 mile and 100,000 mile Tier 1 standards and

enforcement action could not be taken to require those vehicles to meet

any more stringent standards.28 As long as manufacturers are

not required to sell vehicles meeting standards more stringent than

Tier 1 in the violating state, it would not be appropriate for EPA to

approve SIP credits for any emissions reductions beyond the levels

provided by Tier 1 tailpipe standards. Those vehicles would not be

included in calculating the manufacturers' compliance with the National

LEV fleet average NMOG standards. Thus, the state would not receive

emission credits beyond Tier 1 levels if the vehicles sold in that

state were certified to Tier 1 levels when sold in that state because

the SIP would not provide in any way for such vehicles to meet emission

standards more stringent than Tier 1 levels.

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\28\ See section VIII.C for discussion of how EPA's vehicle

certification process would allow a manufacturer to provide vehicles

meeting Tier 1 standards in a violating state.

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In addition to the relaxed emissions standards that would apply to

vehicles sold in the violating state, the other incentive for OTC

States not to violate their commitments is that manufacturers would

also be able to opt out of National LEV if an OTC State violated its

commitment to the program by not allowing National LEV as a compliance

alternative. As proposed, the FRM does not set a time limit for

manufacturers to exercise their right to opt out as long as the state

is in violation of its commitment. After a manufacturer opted out,

there also would be no opportunity for the state to cure the violation

by changing the state law or regulations to accept National LEV as a

compliance alternative and thereby negate an opt-out that a

manufacturer had already submitted, regardless of whether that opt-out

had become effective already. However, once a violating state took

final action to cure the violation, manufacturers that had not already

opted out could not opt out based on the violation that the state had

cured.

The Final Framework Rule gives EPA an opportunity to make a finding

as to the validity of an opt-out based on a change to a Stable

Standard. See 62 FR 31202-07. This both provides a safe harbor for a

manufacturer that relies on an EPA determination of validity, and

provides for rapid resolution in the United States Court of Appeals for

the District of Columbia if the validity is disputed, thereby avoiding

protracted litigation in federal district court. In contrast, EPA does

not believe such a process is necessary here. The validity of an opt-

out based on a state disallowing National LEV as a compliance

alternative should be a straight-forward factual determination.

Consequently, EPA believes there is very little benefit to be gained by

providing for an EPA determination of the validity of such an opt-out,

and today's final rule does not provide for such a determination.

As proposed, a manufacturer that opts out of National LEV based on

a state violation of its commitment to National LEV must continue to

comply with National LEV until the opt-out becomes effective (although

Tier 1 tailpipe standards will apply in the violating state, as

discussed above). A manufacturer's opt-out notification must specify

the effective date of the opt-out, which in no event could be any

earlier than the next model year (i.e., the model year named for the

calendar year following the calendar year in which the manufacturer

opted out).29 After the effective date of its opt-out, a

manufacturer would have to comply with any non-violating state's

Section 177 Program (except for ZEV mandates) provided that at least

two-years lead time (as provided in section 177) had passed since the

adoption of the state's Section 177 Program. Other than those ZEV

mandates that would be unaffected by the National LEV program (i.e.,

existing ZEV mandates), if a manufacturer opts out, it would not be

subject to any other ZEV mandates until two years of lead time had

passed, which would run from the date the manufacturer opts out of

National LEV and be measured according to the section 177 implementing

regulations. After the effective date of a manufacturer's opt-out, in a

non-violating state without a Section 177 Program, the manufacturer

must meet all applicable federal standards that would apply in the

absence of National LEV.

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\29\ If, however, an OTC State took a legitimate offramp as

discussed below, a manufacturer could not use a delayed effective

date of opt out to continue to comply with National LEV in a state

that had opted out after that state's opt-out became effective. As

discussed below in section VI.D, an OTC State legitimately opting

out of National LEV is required to provide manufacturers at least

two-years lead time.

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The following summarizes the tailpipe standards that would apply if

an OTC State violated its commitment by not allowing National LEV as a

compliance alternative. For vehicles sold in the violating state, all

manufacturers would be allowed to sell vehicles meeting Tier 1

standards and to exclude those vehicles from the NMOG fleet average

beginning in the next model year after the date of the state violation

for at least the two-year lead time set forth in section 177 and the

implementing regulations; then manufacturers would become subject to

the state Section 177 Program only if the manufacturer opted out of

National LEV and its opt-out had become effective, if the manufacturer

decided to comply with the violating state's new Section

[[Page 943]]

177 Program while remaining in National LEV, or if EPA approved the

state's requirements into the SIP. If a manufacturer opted out, before

the opt-out became effective, the manufacturer would continue to be

subject to all National LEV requirements for vehicles sold outside of

the violating state. Once a manufacturer's opt-out had become

effective, for vehicles sold outside of the violating state, the

manufacturer would have to comply with any backstop state Section 177

Programs (except ZEV mandates) that a state had adopted at least two

years before the effective date of opt-out and, in other states, would

have to comply with all applicable federal standards that would apply

in the absence of National LEV. Manufacturers would not have to comply

with any ZEV mandates (except those that were unaffected by National

LEV) until the model year that would start two years after the date EPA

received the manufacturer's opt out. Manufacturers that did not opt out

would continue to be subject to all National LEV requirements for

vehicles sold outside of the violating state and, in the violating

state, would be allowed, under the National LEV regulations, to sell

vehicles meeting Tier 1 tailpipe standards for two years following the

state violation and to exclude those vehicles from the NMOG fleet

average. However, if the violating state reversed the action that broke

its commitment, vehicles sold in the violating state would count

towards the NLEV NMOG fleet average as of the model year named for the

second calendar year after the violating state took the final action

reversing the action that broke its commitment or as of the model year

named for the fourth calendar year following the calendar year in which

the violating state took the final action breaking its commitment,

whichever is later.30 To the extent these provisions would

give a manufacturer less than the two-years lead time set forth in

section 177, the manufacturer would waive that protection by opting

into National LEV and then setting an effective date in its opt-out

notification that was earlier than the two-years lead time would

provide. To the extent these provisions would give a manufacturer more

than the two-years lead time set forth in section 177, by opting into

National LEV the OTC States agree to provide the additional time.

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\30\ For example, if the violating action occurred in 1999 and

the violating state reversed that action in 2000, vehicles sold in

that state would count towards the NLEV NMOG fleet average starting

with MY2003 (the model year named for the fourth calendar year

following the calendar year in which the violating action occurred).

If the violating action occurred in 1999 and was reversed in 2002,

vehicles in that state would count towards the NLEV NMOG fleet

average starting with MY2004 (the model year named for the second

calendar year after which the violating action was reversed).

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2. OTC State Fails to Submit SIP Revision Committing to National LEV

The second way in which an OTC State could violate its commitment

to National LEV would be to fail to submit a SIP revision to EPA

containing the state's regulatory commitment to the program. The

consequences of this violation differ slightly from a situation where a

state does submit such a SIP revision, receives EPA approval for it,

but then violates the commitment by attempting to remove National LEV

as a compliance alternative. Failure to submit a SIP revision would not

necessarily indicate that the state was attempting to impose a

compliance obligation on the manufacturers contrary to the terms of the

fundamental agreement underlying the voluntary National LEV program.

Consequently, if manufacturers did not choose to opt out of National

LEV, they would continue to be subject to all the National LEV

requirements for vehicles sold both within and outside of the violating

state, and the National LEV program would continue. However, the

portion of the OTC State commitments to be contained in the SIP

revisions is critical to the long-term enforceability of the state

commitments, so EPA believes it is important to allow the manufacturers

to opt out of National LEV if a state fails to submit a SIP revision.

This will provide incentive for OTC States to submit their National LEV

SIP revisions and provide manufacturers recourse in the event of a

state failure to do so. This offramp is addressed in 40 CFR 86.1707(f).

As under the previous scenario, there would be no time limit for

manufacturers to exercise their right to opt out of National LEV if an

OTC State had missed the deadline for its National LEV SIP revision and

had not yet submitted such a SIP revision. Once the state submitted its

SIP revision, even if after the deadline, manufacturers would no longer

have the opportunity to decide to opt out of National LEV. Unlike the

previous scenario, a state that had missed the deadline for its SIP

submission would have a limited opportunity to cure the violation. For

the first six months from the deadline for the SIP submission,

manufacturers would only be able to opt out conditioned on the state

not submitting a SIP revision within six months of the initial

deadline. If the state submitted the revision within that six-month

grace period, any opt-outs based on that violation would be invalidated

and would not come into effect.

The manufacturers commented that the National LEV regulations

should not provide a six-month grace period for states to submit their

SIP revisions beyond the one-year (or for a few states, eighteen-month)

period provided for the SIP submissions because the deadline provides

states adequate time to submit their SIP revisions. EPA believes this

limited opportunity to cure is appropriate here. While the timeframes

provided for the OTC States to submit their SIP revisions are feasible,

they are very tight and do not give much leeway for delays that may

occur in the state regulatory processes. Moreover, the MOUs initialed

by the OTC and the manufacturers' associations provided that OTC States

would have two years to submit their SIP revisions committing to

National LEV. Even if they needed to take advantage of the grace

period, the deadline for most of the OTC States to submit their SIP

revisions to EPA would still be sooner than provided under the

initialed MOUs and no state would have a deadline any later than the

MOUs provided. In light of this, together with the fact that failure to

submit this SIP revision would not pose the risk of any immediate

change in the manufacturers' compliance obligations, it is reasonable

to provide a limited grace period for OTC States to submit their SIP

revisions without jeopardizing the benefits of the National LEV

program.

After the six-month grace period, the state's submission of a SIP

revision would not negate a manufacturer's opt-out that EPA had already

received, even if the manufacturer's opt-out had not yet become

effective. However, no manufacturer would be able to opt out after the

state submitted the SIP revision, no matter how late the state was. As

under the previous scenario, whether or not an OTC State has failed to

submit a SIP revision by a given date and thereby provided a basis for

an opt-out is a very clear cut issue. Consequently, EPA is not

providing for an EPA determination of the validity of an opt-out based

on this violation.

If a manufacturer opts out it may set the effective date of its

opt-out no earlier than MY2000 (or MY2001 if the violating state is the

District of Columbia, New Hampshire, Delaware or Virginia) or the next

model year after EPA's receipt of the opt-out, whichever is

later.31 If a manufacturer opts out of

[[Page 944]]

National LEV, in the violating state, the National LEV regulations

would allow the manufacturer to meet Tier 1 tailpipe standards and

would not require those vehicles to be included in the fleet average

NMOG calculations. These special provisions for vehicles sold in the

violating state generally would start with the next model year after

EPA receives the manufacturer's opt-out notification (e.g., MY2000 for

a manufacturer that opts out in calendar year 1999) and continue until

the effective date set in the opt-out notice.32 As under the

scenario above, the violating state would not receive SIP credits for

emissions reductions from vehicles meeting anything more stringent than

the Tier 1 tailpipe standards while those standards apply. Once the

manufacturer's opt-out had become effective, the manufacturer would be

subject to a Section 177 Program in the violating state if the two-year

lead time requirement of section 177 had been met.

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\31\ If, however, an OTC State took a legitimate offramp as

discussed below, a manufacturer could not use a delayed effective

date of opt out to continue to comply with National LEV in a state

that had opted out after the state opt-out became effective. As

discussed below in section VI.D an OTC State legitimately opting out

of National LEV is required to provide manufacturers at least two-

years lead time.

\32\ However, these special provisions would start no earlier

than MY2001 if the District of Columbia, New Hampshire, Delaware or

Virginia were the violating state and no earlier than MY2000 if

another OTC State were the violating state.

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If a manufacturer opted out of National LEV, in non-violating

states it would continue to meet all National LEV requirements until

the effective date of its opt out. For vehicles sold in the

nonviolating states, once the opt-out became effective the manufacturer

would be subject to any backstop Section 177 Programs for which the

two-year lead time requirement of section 177 had been met (running

from the date the state adopted the backstop program), or would be

subject to Tier 1 requirements in states without such programs.

Manufacturers would not have to comply with any ZEV mandates (except

those that were unaffected by National LEV) until the model year that

would start two years after the date EPA received the manufacturer's

opt-out notification. To the extent that these regulations would

provide a manufacturer with less than the two-year lead time set forth

in section 177, the manufacturer waives that protection by opting into

National LEV and then setting an effective date in its opt-out

notification. To the extent that these provisions would provide

manufacturers more than the two-years lead time set forth in Section

177, by opting into National LEV the OTC States agree to provide the

additional time.

3. OTC State Submits Inadequate SIP Revision Committing to National LEV

A third way in which an OTC State could violate its commitment to

National LEV would be to submit a SIP revision that did not meet the

requirements for a National LEV SIP revision, and thus did not

adequately commit the state to the National LEV program. Today's rule,

40 CFR 86.1707(g), maintains the principle EPA had proposed,

specifically that a violation of this commitment would allow

manufacturers to opt out. However, today's rule takes a somewhat

different approach towards when a manufacturer could opt out based on

an inadequate SIP revision.

EPA proposed that manufacturers would be able to opt out if EPA

disapproved a National LEV SIP revision, and either the state failed to

submit a corrected SIP revision within one year of EPA's disapproval,

or the state submitted a modified SIP revision and EPA subsequently

disapproved the revision. Under the proposal, the date of the violation

that would allow a manufacturer to opt out of National LEV would be

either the state's failure to submit a National LEV SIP revision

committing to National LEV within one year of EPA's disapproval of its

initial SIP revision, or publication of EPA's second disapproval. EPA

also considered and took comment on several alternative approaches.

The auto manufacturers' comments supported their right to opt out

if an OTC State were to submit an inadequate National LEV SIP

submission, but opposed the proposed process and timing for using such

an offramp. The manufacturers believe that the proposal did not provide

them a real opportunity to opt out in a timely fashion if a SIP

submission did not adequately commit an OTC State to National LEV. The

manufacturers calculated that EPA's proposal might not allow them to

opt out until MY2004 if a state submitted an inadequate SIP. Given the

expected duration of National LEV, the autos felt this effectively

prevented them from opting out if a state were to fail to submit an

adequate SIP revision.

The SIP revisions are a critical component of the OTC States'

commitments to National LEV. The auto manufacturers should have a right

to opt out of the program if an OTC State that has opted into National

LEV does not follow through on its commitment. EPA agrees with the

manufacturers that the proposal did not provide them an adequate or

realistic opportunity to ensure that OTC States submitted adequate SIP

revisions. Thus, the FRM takes a slightly different approach than EPA

proposed.

Today's rule allows manufacturers to opt out of National LEV if an

OTC State has not submitted an adequate SIP revision and either EPA has

taken final action on the state's submission finding that it did not

meet the requirements for a National LEV SIP revision or at least 12

months has passed since the state submitted its National LEV SIP

submission to EPA and EPA has not approved it as meeting the

requirements for a National LEV SIP revision. By prohibiting

manufacturers from opting out until after EPA has had one year to take

action on a SIP submission, the FRM respects EPA's role in evaluating

and approving SIPS, as delegated by Congress under section 110(k) of

the Act. By allowing manufacturers to opt out immediately if EPA

disapproves a SIP submission or if EPA fails to act within one year of

receiving the submission, it gives manufacturers a real opportunity to

opt out in a timely fashion if a SIP submission is inadequate. This

should provide additional incentive for OTC States to send in

submissions that meet the requirements for adequate National LEV SIP

revisions and thereby increase the stability of the program.

As with the other types of state violations, there is no deadline

for manufacturers to opt out based on this offramp. Also, there would

be no opportunity for an OTC State to cure the violation with respect

to a manufacturer that had already opted out, although manufacturers

that had not opted out could no longer do so once EPA had taken final

action finding the State's submission met all the requirements for a

National SIP revision. The action allowing opt out is very clear, and

hence the regulations do not provide for an EPA determination of the

validity of an opt-out based on this type of violation.

Again consistent with the previous scenarios, if a manufacturer

opts out it may set the effective date of its opt-out as early as the

next model year or any model year thereafter.\33\ Manufacturers'

obligations under National LEV and state Section 177 Programs would be

identical to those described if a state failed to submit a SIP

revision.

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\33\ If, however, an OTC State took a legitimate offramp as

discussed below, a manufacturer could not use a delayed effective

date of opt out to continue to comply with National LEV in a state

that had opted out after the state opt-out became effective. As

discussed below in section VI.D an OTC State legitimately opting out

of National LEV is required to provide manufacturers at least two

years lead time.

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[[Page 945]]

4. OTC State Without an Existing ZEV Mandate Adopts a Backstop ZEV

Mandate

OTC States without ZEV mandates will also state in their opt-ins

that they do not intend to adopt a ZEV mandate that would be effective

during the state's commitment to National LEV. EPA took comment on

whether auto manufacturers should be able to opt out if an OTC State

without an existing ZEV mandate acted contrary to its stated intent and

adopted a backstop ZEV mandate (i.e., a ZEV mandate that allows

National LEV as a compliance alternative) with an effective date during

the state's commitment to National LEV.\34\ Today's final rule, 40 CFR

86.1707(h), provides such an offramp for manufacturers. EPA believes

this is appropriate given the differing positions of the manufacturers

(who wanted the OTC States to agree that they would not adopt a ZEV

mandate) and the OTC States (who were willing to state their current

intent not to adopt a ZEV mandate). It is also appropriate given that

the OTC States without existing ZEV mandates have little incentive to

adopt backstop ZEV mandates since they have agreed that a manufacturer

would not have to comply with a backstop ZEV mandate until the later of

the end of the OTC State's commitment to National LEV (MY2006 or

MY2004, depending upon EPA's issuance of Tier 2 standards) or two years

after either the manufacturer or the OTC State opts out of National

LEV.

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\34\ If an OTC State without an existing ZEV mandate adopts a

ZEV mandate that does not allow National LEV as a compliance

alternative, the opt-out provisions discussed in Section VI.A.1

above apply.

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Sec. 86.1707(h) allows manufacturers 35 to opt out of

National LEV if an OTC State without an existing ZEV mandate takes

final action adopting a backstop ZEV mandate that would become

effective during the state's commitment to National LEV. This offramp

does not allow manufacturers to opt out if a state adopts a ZEV mandate

that could not come into effect until the end of the state's commitment

(i.e., until MY2006 or MY2004, depending on EPA's issuance of Tier 2

standards). Adoption of a backstop ZEV mandate would not impose an

immediate compliance obligation on auto manufacturers, so EPA has

structured the offramp and its consequences to be similar to those for

an OTC State's failure to submit its National LEV SIP revision on time.

Consequently, if manufacturers did not choose to opt out of National

LEV, they would continue to be subject to all the National LEV

requirements for vehicles sold both within and outside of the violating

state, and the National LEV program would continue.

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\35\ Only those manufacturers that are large enough that they

would be subject to the ZEV mandate if it comes into effect could

opt out based on an OTC State's adoption of a ZEV mandate.

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As for other offramps based on OTC State actions, there would be no

time limit for manufacturers to exercise their right to opt out of

National LEV if an OTC State without an existing ZEV mandate adopted a

backstop ZEV mandate. Final action reversing the violating state's

adoption of a backstop ZEV mandate would not negate a manufacturer's

opt-out that EPA had already received, even if the manufacturer's opt-

out had not yet become effective. However, if the violating state were

to take final action reversing itself and deleting the backstop ZEV

mandate, no manufacturer would be able to opt out after such final

action. ``Final action'' shall have the same meaning here as discussed

above in Section VI.A.1. EPA is not providing for an EPA determination

of the validity of an opt-out under this provision because it should be

very clear cut whether an OTC State has adopted a backstop ZEV mandate.

If a manufacturer opts out, it may set the effective date of its

opt-out as early as the next model year after EPA's receipt of the opt-

out notification.36 If a manufacturer opts out of National

LEV, in the violating state, the National LEV regulations would allow

the manufacturer to meet Tier 1 tailpipe standards and would not

require those vehicles to be included in the fleet average NMOG

calculations. These special provisions for vehicles sold in the

violating state would start with the next model year after EPA receives

the manufacturer's opt-out (e.g., MY2000 for a manufacturer that opts

out in calendar year 1999) and continue until the effective date set in

the opt-out notice. As under the scenario above, the violating state

would not receive SIP credits for emissions reductions from vehicles

meeting anything more stringent than the Tier 1 tailpipe standards

while those standards apply. Once the manufacturer's opt-out had become

effective, the manufacturer would be subject to a Section 177 Program

in the violating state if the two-year lead time requirement of section

177 had been met.

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\36\ If, however, an OTC State took a legitimate offramp as

discussed below, a manufacturer could not use a delayed effective

date of opt out to continue to comply with National LEV in a state

that had opted out after the state opt-out became effective. As

discussed below in section VI.D an OTC State legitimately opting out

of National LEV is required to provide manufacturers at least two

years of lead time.

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If a manufacturer opted out of National LEV, in non-violating

states it would continue to meet all National LEV requirements until

the effective date of its opt out. For vehicles sold in the

nonviolating states, once the opt-out became effective the manufacturer

would be subject to any backstop Section 177 Programs for which the

two-year lead time requirement of section 177 had been met (running

from the date the state adopted the backstop program), or would be

subject to Tier 1 requirements in states without such programs.

Manufacturers would not have to comply with any ZEV mandates (except

those that were unaffected by National LEV) until the model year that

would start two years after the date EPA received the manufacturer's

opt-out notification. To the extent that these regulations would

provide a manufacturer with less than the two-year lead time set forth

in section 177, the manufacturer waives that protection by opting into

National LEV and then setting an effective date in its opt-out

notification. To the extent that these provisions would give

manufacturers more than the two-years lead time set forth in section

177, by opting into National LEV the OTC States agree to provide the

additional time.

B. Offramp for Manufacturers if OTC State or Manufacturer Legitimately

Opts Out of National LEV

Following the general principle that parties should be able to exit

National LEV if there is a significant change in the assumptions that

underlay their decision to opt in initially, 40 CFR 86.1707(j)

finalizes EPA's proposal that a manufacturer also could opt out if an

OTC State or another manufacturer were to opt out of National LEV

legitimately.37 This offramp could be used within 30 days of

EPA's receipt of an OTC State or a manufacturer opt-out. The

manufacturer could set an effective date for its opt-out beginning the

next model year after the date of the manufacturer's opt-out, or any

model year thereafter. EPA would not determine the validity of opt-out

under this offramp unless EPA is to determine the validity of the

initial opt-out.

[[Page 946]]

Manufacturers' obligations under National LEV and state Section 177

Programs would be identical to those described if a state failed to

submit a SIP revision, except that no state would be a violating state.

EPA received no comments on this provision.

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\37\ The validity of any opt-out from National LEV would depend

in part on whether the underlying condition allowing opt out has

actually occurred. Where the initial OTC State or manufacturer's

opt-out was invalid, it would not provide an offramp for another

manufacturer to opt out of National LEV. Thus, throughout this

notice when EPA refers to an initial opt-out as the condition that

allows another opt-out, it refers only to valid initial opt-outs.

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

Issues

Believing that the effects of fuel sulfur were not adequately

addressed by EPA in the National LEV program, the auto manufacturers

recommended in June, 1997, that National LEV should include an offramp

for manufacturers related to in-use fuels issues and that they should

be allowed to exit the National LEV program if EPA were to act (or fail

to act) in a specified manner to resolve specific sulfur-related

issues. Such an offramp would alleviate their concern that the sulfur

levels of in-use fuels outside California may affect the on-board

diagnostic (OBD) systems and tailpipe emissions of National LEV

vehicles. The manufacturers outlined six different conditions related

to EPA actions (or lack of action) on these issues that they believe

sh

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