Control of Emissions of Air Pollution From Nonroad Diesel Engines

SUMMARY: In this action, EPA is finalizing new emission standards for

nonroad diesel engines. The affected engines are used in most land-

based nonroad equipment and some marine applications. The emission

reductions resulting from the new standards will translate into

significant, long-term improvements in air quality in many areas of the

U.S. For engines in this large category of pollution sources, the

standards for oxides of nitrogen and particulate matter emissions will

be reduced by up to two-thirds from current standards. Overall, this

program will provide much-needed assistance to states facing ozone and

particulate air quality problems, which are causing a range of adverse

health effects for their citizens, especially in terms of respiratory

impairment and related illnesses.

In compliance with the Paperwork Reduction Act, this document

announces that the information collection requirements contained in

this rule were approved by the Office of Management and Budget.

DATES: The amendments to 40 CFR Parts 86 and 89 are effective December

22, 1998. The amendments to 40 CFR Part 9 are effective October 23,

1998. The incorporation by reference of certain publications listed in

the regulations is approved by the Director of the Federal Register as

of December 22, 1998.

ADDRESSES: Materials relevant to this rule, including the Final

Regulatory Impact Analysis are contained in Public Docket A-96-40,

located at room M-1500, Waterside Mall (ground floor), U.S.

Environmental Protection Agency, 401 M Street, S.W., Washington, DC

20460. The docket may be inspected from 8:00 a.m. until 5:30 p.m.,

Monday through Friday. A reasonable fee may be charged by EPA for

copying docket materials.

For further information on electronic availability of this final

rulemaking, see SUPPLEMENTARY INFORMATION below.

FOR FURTHER INFORMATION CONTACT: Alan Stout, U.S. EPA, Engine Programs

and Compliance Division, (734) 214-4805; [email protected].

SUPPLEMENTARY INFORMATION:

Regulated Entities

Entities potentially regulated by this action are those that

manufacture or introduce into commerce new compression-ignition nonroad

engines, vehicles, or equipment, and entities that rebuild or

remanufacture nonroad compression-ignition engines. Regulated

categories and entities include:

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Category Examples of regulated entities

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Industry............................... Manufacturers of new nonroad

diesel engines and equipment.

Industry............................... Rebuilders and remanufacturers

of nonroad diesel engines.

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

guide for readers regarding entities likely to be regulated by this

action. To determine whether particular activities may be regulated by

this action, the reader should carefully examine the regulations,

especially the applicability criteria in 40 CFR 89.1, and the existing

regulatory language in 40 CFR Part 89. Questions regarding the

applicability of this action to a particular entity may be directed to

the person listed in FOR FURTHER INFORMATION CONTACT.

Obtaining Electronic Copies of the Regulatory Documents

The preamble, regulatory language and Final Regulatory Impact

Analysis (Final RIA) are also available electronically from the EPA

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

already incurred for internet connectivity. An electronic version of

this final rule is made available on the day of publication on the

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

publishes Federal Register actions 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/ (look in What's New or under the specific

rulemaking topic)

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.

Table of Contents

I. Introduction

II. Content of the Final Rule

A. Emission Standards and Related Provisions

B. Test Procedures

C. Durability

D. Averaging, Banking, and Trading

E. Flexibility for Equipment Manufacturers

F. Flexibility for Post-Manufacture Marinizers

G. Control of Crankcase Emissions

H. Control of Smoke

I. Voluntary Low-Emitting Engine Program

J. Technical Amendments

III. 2001 Review and Ensuring Emissions Control In Use

A. 2001 Review

B. Ensuring Emissions Control In Use

IV. Technological Feasibility

V. Projected Impacts

A. Environmental Impacts

B. Economic Impacts

C. Cost-Effectiveness

VI. Public Participation

VII. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

B. Regulatory Flexibility Act

C. Paperwork Reduction Act

D. Unfunded Mandates Reform Act

E. Congressional Review Act

F. National Technology Transfer and Advancement Act

G. Protection of Children

H. Enhancing Intergovernmental Partnerships

I. Consultation and Coordination With Indian Tribal Governments

VIII. Statutory Authority

I. Introduction

Air pollution continues to represent a serious threat to the health

and well-being of millions of Americans and a large burden to the U.S.

economy. Mobile source emission control programs, however, have a

history of technological success that have made a very large

contribution to reducing exposure to ambient air pollution. On June 17,

1994, the Environmental Protection Agency (EPA) made an affirmative

determination under section 213(a)(2) of the Clean Air Act that nonroad

engines are significant contributors to ambient ozone or carbon

monoxide (CO) levels in more than one nonattainment area (59 FR 31306,

June 17, 1994). In the same notice, EPA also made a determination under

section 213(a)(4) that other emissions from compression-ignition (CI)

nonroad engines rated at or above 37 kilowatts (kW), specifically

emissions of particulate matter (PM) and smoke, cause or contribute to

air pollution that may reasonably be anticipated to endanger public

health or welfare. Also in the June 1994 final rule, EPA set a first

phase of emission standards (``Tier 1 standards'') for nonroad diesel

engines rated 37 kW and above.1, 2 In the Notice

[[Page 56969]]

of Proposed Rulemaking (NPRM) for this final rule (September 24, 1997,

62 FR 50152), EPA extended the finding under 213(a)(4) to CI nonroad

engines rated under 37 kW. A more detailed discussion of the history of

emission control programs for nonroad engines and other mobile sources

is included in the preamble to the proposal for this rule.

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\1\ Diesel-cycle engines, referred to simply as ``diesel

engines'' in this document, may also be referred to as compression-

ignition (or CI) engines. These engines typically operate on diesel

fuel, but other fuels may also be used. This contrasts with otto-

cycle engines (also called spark-ignition or SI engines), which

typically operate on gasoline.

2 This rulemaking is based on metric units. With the

exception of engine power ratings, English units are included

parenthetically throughout the preamble. The conversion of engine

power ratings is included in Table 1, but is not repeated in the

rest of the document.

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In the NPRM, EPA estimated the contribution of nonroad diesel

engines for comparison with other emission sources. For 1996, these

engines were estimated to represent about 27 percent of mobile source

emissions of oxides of nitrogen (NOX) and 13 percent of

total NOX emissions. EPA estimates that these engines

currently contribute about 48 percent of the directly emitted PM from

mobile sources and 16 percent of total controllable PM emissions. In

addition to directly emitted PM, EPA estimates that NOX

emissions cause a significant additional amount of PM in the form of

secondary nitrate particles. On average nationwide, this indirect PM

represents an additional contribution to PM equal to about 30 percent

of the total directly emitted PM tonnage. EPA projections also indicate

that without further emission controls, the already significant

contribution of nonroad diesels to NOX and PM will increase

in the future. Chapter 5 of the Final Regulatory Impact Analysis (Final

RIA) presents more complete estimates of emissions from all land-based

nonroad diesel engines and marine diesel engines rated under 37

kW.3

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\3\ See also, ``Nonroad Engine and Vehicle Emission Study--

Report and Appendices,'' EPA-21A-201, November 1991 (available in

Air Docket A-96-40).

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This final rule is the result of several years of activity focused

on reducing diesel engine emissions in the U.S. In 1994 and 1995,

states and environmental groups encouraged EPA to adopt more stringent

emission standards for highway and nonroad diesel engines to address

the need for national pollution reduction measures to improve air

quality in many urban areas. In response, EPA initiated discussions

with engine manufacturers and other interested parties regarding future

emission controls for these engines. EPA subsequently finalized new

emission standards for heavy-duty highway engines starting with the

2004 model year (October 21, 1997 62 FR 54695) and proposed the

emission requirements for nonroad diesel engines that are finalized in

this document (September 24, 1997, 62 FR 50152).

This document finalizes a new set of emission standards for all

nonroad diesel engines, except for locomotive engines, engines used in

underground mining equipment, and marine engines rated at or above 37

kW. This rule includes first-ever EPA emission standards for emissions

from diesel engines rated under 37 kW. The emission reductions

resulting from these engines will be a major step in reducing the human

health and environmental impacts of ground-level ozone and particulate

matter. Emissions from other nonroad engines not covered by this final

rule are being addressed in other EPA rulemakings.

As EPA has pursued the emission reductions needed to meet air

quality goals, an important consideration has been harmonization with

standards for nonroad engines adopted or under consideration in

California, Europe, and elsewhere in the world. The goal of

harmonization has been a major impetus and an important factor in the

development of this rule. The principal goal of harmonization efforts,

avoiding widespread duplicative design configurations, has been

addressed in finalizing these emission standards. While some

differences remain between EPA's final rule and the proposal

established in Europe, EPA plans to continue its harmonization work

with governments in Europe and in other countries. One major area in

which a coordinated effort is being pursued is the development of a

more effective particulate emission control program, including the

evaluation and possible modification of the certification test cycle,

as discussed in Section III.

Based on the information presented in the preamble to the proposed

rule and in the Final RIA, EPA believes the new standards are

technologically feasible and otherwise appropriate under the Act.

Nonetheless, it is clear that a significant amount of research and

development will be needed on the part of engine manufacturers and

others to comply with the new standards. Accordingly, EPA intends to

review the feasibility of some of the standards finalized in this

document by 2001, as described in Section III.

II. Content of the Final Rule

This rulemaking includes a comprehensive program to reduce

emissions from nonroad diesel engines and equipment. The program as

finalized consists of stringent new emission standards, requirements to

ensure that engines maintain their level of emission performance as

they age, provisions providing compliance flexibility to engine and

equipment manufacturers, and a voluntary program to encourage the

introduction of low-emitting engines.

A. Emission Standards and Related Provisions

EPA is finalizing new emission standards for PM, CO, and nonmethane

hydrocarbons (NMHC) and NOX combined, covering all nonroad

diesel engines except for locomotives, engines used in underground

mining equipment, and large (rated at or above 37 kW) engines used in

marine applications. Engines not included in this rulemaking are or

will be addressed by other federal programs. EPA is finalizing a set of

emission standards that vary in level and implementation date,

depending on the rated power of the engine and other factors. The

Agency believes that the standards finalized in this document are

consistent with the Clean Air Act requirement that standards represent

the ``greatest degree of emission reduction achievable'' given the

criteria specified by the Act (see Section IV below).

1. Emission Standards

In general, new emission standards for engines rated between 37 and

560 kW are finalized in two tiers, building on the phase-in schedule

adopted in 1994 in the Tier 1 rule. Table 1 lists the range of

standards for the different power categories, including all the tiers

of standards with the affected model years. These standards approximate

the degree of control anticipated from existing standards covering

engines used in heavy-duty diesel highway vehicles, with appropriate

consideration of differences in the sizes and operational

characteristics of the engines and in the organization of the

industries. Specifically, the first set of new standards (Tier 2)

generally parallel the emission standards that apply beginning with

1998 model year highway engines (58 FR 15781, March 24, 1993). The

second set of new standards (Tier 3) parallel standards that apply

beginning with 2004 highway engines (October 21, 1997, 62 FR 54695).

The standards for engines rated at or above 37 kW become effective in

the 2001 to 2006 time frame for Tier 2 levels and 2006 to 2008 for Tier

3 levels.

BILLING CODE 6560-50-P

[[Page 56970]]

[GRAPHIC] [TIFF OMITTED] TR23OC98.000

BILLING CODE 6560-50-C

[[Page 56971]]

The standards finalized in this document for engines rated under 37

kW are the first EPA emission standards for these engines. The Tier 1

standards will be phased in by power category beginning in 1999, with

Tier 2 standards phased in by power category beginning in 2004. Tier 3

standards are not being set for these engines, or for engines rated

over 560 kW, in this rule.

In power categories for which Tier 3 standards are finalized, the

Agency has chosen not to include more stringent PM standards. As

discussed in Section III below, EPA has a number of reasons for

deferring the establishment of a Tier 3 PM control program at this

time, but is actively working toward this goal. The Agency believes

that Tier 3 PM standards will be more appropriately discussed in the

context of the improved technical understanding that will exist by the

time of the 2001 feasibility review, also discussed in Section III.

EPA will maintain the current smoke standards for nonroad diesel

engines rated at or above 37 kW and will extend the applicability of

these standards to nonroad diesel engines rated under 37 kW, except 1-

cylinder engines and marine propulsion engines. In addition, constant-

speed engines are being exempted from smoke regulations. This is

discussed in detail in Section II.H.

2. Related Provisions

a. Definition of Compression-Ignition. The requirements of 40 CFR

Part 89 apply to all compression-ignition engines. Most current

compression-ignition engines burn diesel fuel and operate over the

conventional diesel cycle, which generally allows interchangeable use

of the terms ``compression-ignition,'' ``diesel-cycle,'' and

``diesel.'' Some of these engines, however, can be modified to operate

on other fuels such as natural gas or liquefied petroleum gas. Because

these engines do not clearly fall into existing engine categories, EPA

proposed a definition for nonroad compression-ignition engines that

follows from definitions established for highway engines. The proposed

definition focuses on the engine cycle, rather than the ignition

mechanism, with the presence of a throttle as an indicator to

distinguish between diesel-cycle and otto-cycle operation. Use of a

throttle to regulate power (not just to maintain smooth low-load

operation) corresponds with otto-cycle operation. Regulating power by

controlling the fuel supply in lieu of a throttle corresponds with lean

combustion and diesel-cycle operation. This language allows the

possibility that a natural gas-fueled engine equipped with a sparkplug

will be considered a compression-ignition engine, but EPA continues to

believe that the proposed definition is the best way to segregate these

engines. Nonroad engines fueled by natural gas could then fall under

emission standards for nonroad diesel engines, finalized in this

document, or for nonroad spark-ignition engines, which are currently

under development. The supporting documentation for EPA's introduction

of emission standards for methanol-fueled engines provides a more

complete consideration of the different technologies involved and lays

out a rationale for this conclusion.4 To allow adequate time

to certify engines that may be affected, this definition will take

effect beginning January 1, 2000.

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\4\ ``Summary and Analysis of Comments on the Notice of Proposed

Rulemaking for Emission Standards and Test Procedures for Methanol-

Fueled Vehicles and Engines,'' EPA, January 1989.

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b. Hobby Engines. Many extremely small engines used to power model

airplanes, model boats, and other such hobby equipment qualify as

nonroad compression ignition engines. EPA is not establishing an

emission standard for these small hobby engines at this time. These

engines are designed and operated very differently than larger engines

used in other applications. The Agency is not aware of information

about these engines that would allow an assessment of the feasibility

of the proposed standards, or help to establish feasible alternative

standards, taking into consideration the factors relevant under section

213(a)(3) of the Act. Also, it is not clear whether such small engines

could be appropriately and consistently tested with existing equipment,

or, if so, whether any of the test cycles described below would

adequately represent the in-use operation of these engines.

Furthermore, EPA could not realistically impose the proposed useful

life requirements or the warranty and maintenance interval provisions

on these engines given their limited durability and frequent adjustment

by the user. It should be noted that these engines have a low average

annual hours of usage and an extremely low power output, and therefore

contribute very little to the emissions inventory.

Although there are many distinguishing features of this hobby class

of engines, the comments received on the proposal indicate that per-

cylinder displacement provides an adequate and simple basis for

distinguishing this class from other types of engines. Even though the

Agency lacks the information that would allow a precise determination

of the displacement level above which the proposed standards can be

considered feasible, a displacement of 50 cubic centimeters per

cylinder is well above the displacement level that is typical of this

class of engines, and well below that of the smallest engines outside

this group. Therefore, the final rule excludes engines with a

displacement of less than 50 cubic centimeters per cylinder from the

emissions standards in Part 89.

c. NMHC Measurement. EPA in this final rule changes from a

measurement of total hydrocarbons to nonmethane hydrocarbons. There is,

however, no standardized method for measuring methane in diesel engine

exhaust. Therefore, EPA will allow manufacturers to develop and use

their own procedure to analyze nonmethane hydrocarbons, with prior

approval from EPA, or measure total hydrocarbons and subtract 2 percent

from the measured hydrocarbon mass to correct for methane.

d. Selective Enforcement Audits. In the Tier 1 rule, the Agency

adopted a program of Selective Enforcement Audits (SEAs) to ensure that

actual production engines meet the emissions standards. The Agency is

not making changes to this program. However, recognizing that engine

manufacturers will be required to undertake significant engineering

challenges in relatively short time frames in order to meet the Tier 2

and Tier 3 standards adopted in this rulemaking, including the

challenge of stabilizing initial production variability, EPA will only

impose SEAs during the first year in which a standard is in effect for

those engine families where strong evidence exists that SEA failure

would be likely.

B. Test Procedures

The standards finalized in this document are based on the use of

EPA's existing steady-state (modal) test procedures. In addition, new

steady-state test cycles are specified for constant-speed engines,

marine propulsion engines, and engines rated under 19 kW. The Agency

and the industry are working to better understand the sensitivity of

nonroad diesel engine emissions to the test cycle, as discussed in

Section III. The following sections describe EPA's selection of various

test cycles and fuel specifications.

1. Test Cycles

Compliance with emission standards is determined by measuring

emissions while operating engines over a prescribed test cycle. The

final rule, following the practice established in the

[[Page 56972]]

Tier 1 rule, specifies a cycle that is nominally the same as the

International Organization for Standards (ISO) 8178 C1 test cycle as

the principle test cycle for measuring emissions from most engines.

Additional cycles are defined for specific engine types. Engines that

are limited by design to constant-speed operation will be subject to

testing using a test cycle equivalent to the ISO 8178 D2 cycle. This

cycle, which omits idle and intermediate-speed modes from the C1 cycle,

is representative of engines such as generators, which are designed

never to run at these omitted speeds.5 Because of the more

limited range of engine operation in the D2 cycle, manufacturers must

ensure that engines certified with data generated with the D2 cycle are

used exclusively in constant-speed applications. Accordingly, these

engines must include labeling information indicating this limited

emission certification.

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\5\ For a description of the development of the D2 cycle, see

``Exhaust Emission Testing of Diesel Engines for Industrial

Applications,'' (Docket A-96-40, item II-D-26).

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For variable-speed engines rated under 19 kW, EPA is specifying a

test cycle that is equivalent to the ISO 8178 G2 cycle. The G2 cycle

includes the same modes as the D2 cycle and adds a mode for operation

at idle. The G2 and D2 cycles also have different weighting factors for

the various modes. The G2 cycle was developed to represent the

operation of small diesel engines used primarily at rated speed, such

as in lawn and garden applications, generators, pumps, welders, and air

compressors. EPA is specifying a test cycle equivalent to the ISO 8178

E3 cycle for testing propulsion marine engines rated under 37 kW. The

E3 cycle, which consists of engine operation at four different engine

speeds and four different loads, was developed by ISO to represent the

operation of propulsion marine engines, and has been supported by an

Agency investigation. Auxiliary marine engines subject to this rule

(i.e., engines installed on a marine vessel, but not used for

propulsion) will be tested using the either G2, C1, or D2 test cycles,

consistent with the constraints described above for the counterpart

land-based nonroad engines.

Finally, EPA will generally allow manufacturers to use the C1 test

cycle to generate certification data for engines otherwise required to

use the D2 or G2 test cycle. EPA will also allow manufacturers to use

the C1 test cycle to generate certification data for propulsion marine

engines where such engines are included in a land-based engine family.

In each of these cases in which the manufacturer elects to use the C1

cycle, EPA would retain its ability to test using the respective G2,

D2, or E3 test cycle, but would also be able to test using the C1 test

cycle. Additional discussion of EPA plans for further evaluation and

development of appropriate test cycles is provided in Section III.

2. Test Fuel

Section 206(h) of the Clean Air Act requires that test fuels be

representative of in-use conditions. Therefore EPA is updating the

specifications for the sulfur content in diesel test fuels to make them

more representative of in-use fuels. EPA is finalizing test fuel

specifications with a sulfur specification of 0.03 to 0.40 weight-

percent (wt%), which covers the range of sulfur levels observed for

most in-use fuels. The final sulfur specifications are slightly

different from that proposed (0.05 to 0.5 wt%), because EPA believes

the final specification more appropriately covers the range of sulfur

levels found in the majority of in-use fuels. Manufacturers will be

free to test using any fuel within this range. Thus, they will be able

to harmonize their nonroad test fuel with either on-highway testing

(X, NMHC, CO, and smoke is not

affected, since the 1994 final rule already specified that federal test

fuel was appropriate without adjustment for measuring emissions of

those pollutants.) However, EPA has considered this effect in making

its determination that the standards being adopted in this rulemaking

are feasible.

C. Durability

To achieve the full benefit of the emissions standards, programs

are necessary to encourage manufacturers to design and build engines

with durable emission controls and encourage the proper maintenance and

repair of engines throughout their lifetime. The goal is for engines to

maintain good emission performance throughout their in-use operation.

When the Tier 1 standards for engines rated at or above 37 kW were

developed, deterioration was not expected to be a problem for two

reasons. First, the Tier 1 standards were not considered by EPA to be

technology forcing. Second, the focus was on NOX control and

NOX emissions performance was thought not to deteriorate for

these engines. As a result, there are few requirements in the current

regulations that address deterioration concerns for nonroad diesel

engines. As tighter standards are put into place, EPA believes that it

becomes necessary to adopt measures to address concerns about possible

in-use emission performance degradation.

EPA is making some changes to the existing durability program, as

the new standards are phased in, to help ensure that engines meet

applicable standards in use. The specific areas of the durability

program that are being focused on here are useful life, warranty

period, deterioration factors, allowable maintenance intervals, and

rebuilding requirements.

1. Useful Life

Currently, nonroad diesel engines rated at or above 37 kW are

defined, for emission control purposes, to have a useful life of 8,000

hours or 10 years, whichever occurs first. The in-use testing liability

period is currently 6,000 hours or 7 years, whichever occurs first.

Based on a study performed for EPA, this is representative of the

average time until first rebuild for the majority of nonroad diesel

engines.6 EPA is making no changes to these requirements.

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\6\ ICF Incorporated, ``Industry Characterization: Nonroad Heavy

Duty Diesel Engine Rebuilders,'' prepared for U.S. Environmental

Protection Agency, Contract 68-C5-0010, WAN 102, January 3, 1997,

(Docket A-96-40, item II-A-02).

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EPA is adopting a shorter useful life and liability period for

engines rated under 37 kW than for larger engines. Based on EPA's

current understanding, these smaller engines have a shorter life

expectancy. Also, engines rated under 37 kW that operate constantly at

high speeds (at or above 3000 revolutions per minute (rpm)) and very

small engines (those rated under 19 kW) have a shorter life expectancy

than other small engines. As a result, EPA has adjusted the useful

lives and liability periods for these engines accordingly. Table 2

presents the specified useful lives and in-use testing liability

periods being adopted.

Table. 2--Useful Life and Recall Testing Periods

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

Useful life Recall testing period

Power rating Rated engine speed ---------------------------------------------------

Hours Years Hours Years

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

3,000 rpm.

All others............... 5,000 7 3,750 5

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

Liability periods were based on the ratio of useful life and

liability periods established for engines rated at or above 37 kW. The

purpose of having liability periods that are shorter than the useful

lives is to ensure that engines used in recall testing are not

statistical outliers with poor emissions durability. However, if a

recall were ordered, all engines in that family would be subject to the

recall regardless of their age.

2. Warranty Period

Tied to the useful life is the minimum warranty period imposed by

the Clean Air Act on manufacturers of nonroad engines. Currently, the

minimum warranty period for nonroad diesel engines rated at or above 37

kW is 3,000 hours or 5 years of use, whichever occurs first. EPA is

extending this minimum warranty period to most engines rated between 19

and 37 kW; however, for engines under 19 kW and for 19 to 37 kW

constant speed engines rated at 3000 rpm and above, EPA is specifying a

warranty period of 1,500 hours or 2 years, whichever occurs first. The

shorter warranty requirement for these engines is due to their shorter

useful lives.

3. Deterioration Factors

In the Tier 1 nonroad engine rule, EPA did not require

manufacturers to accumulate operating time on durability data engines

or to generate deterioration factors for engine certification because

that rule focused on modest reductions in NOX emissions,

requiring emission control technologies that were not expected to

deteriorate. Analysis of highway engine data at that time led EPA to

conclude that heavy-duty diesel engines do not generally produce more

NOX emissions as they get older. EPA believes that this

stability of emission control can be attributed to the fact that diesel

engine manufacturers have met emission standards through internal

improvements to the engine and fuel systems, rather than relying on

aftertreatment and other devices that would be more susceptible to in-

use degradation. In fact, engine deterioration in current technology

nonroad diesel engines could result in lower NOX emission

levels due to a loss in cylinder compression.

As NOX, NMHC, and PM standards are made more stringent

and nonroad diesel engine manufacturers introduce new technologies

solely for emission control purposes, such as aftertreatment,

sophisticated fuel delivery controls, and exhaust gas recirculation

(EGR), long-term emissions performance becomes a greater concern. In

addition, emission deterioration characteristics are not well known for

aftertreatment, EGR, and other more sophisticated emission control

strategies.

EPA will require the application of deterioration factors (DFs) to

all engines covered by this rule. The DF is a factor applied to the

certification emission test data to represent emissions at the end of

the useful life of the engine. Separate DFs apply to each measured

pollutant, except that a combined NMHC + NOX DF applies to

engines that do not use aftertreatment devices, consistent with the

form of the standard. Consistent

[[Page 56974]]

with the approach taken in other EPA programs, decreasing emissions of

one pollutant over time would not be allowed to offset increasing

emissions of the other pollutant in this combined DF. Currently, DFs

are required for highway heavy-duty engines but are only required for

nonroad diesel engines rated at or above 37 kW if engines use

aftertreatment technologies. Deterioration factors for those engines

are to be determined by the engine manufacturers in accordance with

good engineering practices. EPA has not set a specified procedure. The

deterioration factors are nevertheless subject to EPA approval.

It is not EPA's intent to force a great deal of data gathering on

engines using established technology for which the manufacturers have

the experience to develop appropriate DFs. New DF testing may not be

needed where sufficient data already exists. EPA's main interest is

that technologies with unproven durability in nonroad applications,

such as EGR, are demonstrated to meet emission requirements throughout

their useful lives. However, because this rule creates a program that

will introduce new standards and new technologies over many years, the

DF requirement is being finalized for all engines so that EPA can be

sure that reasonable methods are being used to ascertain the capability

of engines to meet standards throughout their useful lives. This DF

program will allow EPA to act in the traditional role of establishing

emission performance standards, rather than putting EPA in a position

in which it would appear to be prejudging the durability of specific

technologies and designs.

Similar to the provisions for highway engines, EPA will allow the

nonroad engine manufacturers the flexibility of using durability

emission data from a similar engine that has either been certified to

the same standard or for which all of the data applicable for

certification has been submitted. In addition, EPA is extending this

flexibility to allow deterioration data from highway engines to be used

for similar nonroad engine families.

EPA is especially concerned that an unnecessarily burdensome

durability demonstration not be required for engines using established

technology for which the manufacturers have the experience to determine

appropriate deterioration factors. In these cases, EPA will allow

nonroad engine manufacturers to perform an analysis, based on good

engineering practices, in place of actual service accumulation. For

instance, in the case where no durability data exists for a certain

engine but both smaller and larger engines using similar technology

have been shown not to deteriorate for NOX in use, it would

be possible to build a case showing no NOX deterioration for

that engine. EPA is allowing engines to be considered as using

established technologies if they do not meet the Tier 3 emission

standards, unless they use EGR or aftertreatment devices. In addition,

manufacturers of engines that do meet the Tier 3 standards but have

technologies similar to those employed in Tier 2 designs may also rely

on engineering analysis in lieu of actual service accumulation, with

prior EPA approval.

Because there may be insufficient time for manufacturers of engines

rated below 37 kW to verify DFs before the Tier 1 compliance dates, the

Agency is allowing manufacturers to specify DFs for these engines in

model years 1999 and 2000 based on good engineering judgement using

reasonably available information. Any requests for carryover of these

models into the 2001 model year would need to include justification of

DFs under the new requirements.

4. Allowable Maintenance Intervals

Manufacturers are currently required to furnish the ultimate

purchaser of each new nonroad engine with written instructions for the

maintenance needed to ensure proper functioning of the emission control

system. Generally, manufacturers require the owners to perform this

maintenance as a condition of their emission warranties. Further, the

performance of maintenance would be considered during any in-use recall

testing conducted by the Agency.

For the engines covered in this action, EPA believes that there is

a need to limit the minimum maintenance intervals specified by the

manufacturers, to ensure that the technologies employed are practical

in use. Because the actual maintenance intervals for nonroad engines

are likely to be similar to highway engines, EPA proposed maintenance

requirements parallel those for highway engines (40 CFR 86.094-25).

There are two aspects to the implementation of allowable

maintenance interval requirements. The first relates to the maintenance

instructions specified by manufacturers in users manuals. The second

concerns how often maintenance has been or will be performed on engines

undergoing testing to verify compliance with emission standards.

Ideally these would be consistent. However, due to concerns about the

need for more frequent maintenance in the severe operating environments

that nonroad engines sometimes operate in, EPA is focusing its

allowable maintenance interval requirements on testing performed by

manufacturers to demonstrate compliance. This testing would not, of

course, occur in severe operating environments. Manufacturers have a

business incentive to avoid specifying overly frequent maintenance in

user manuals, and so EPA is not, at this time, insisting that the

intervals be reflected in user manuals. In addition, manufacturers may

adopt shorter intervals for engines rated below 19 kW and 19 to 37 kW

constant speed engines rated at 3000 rpm and above, subject to EPA

approval. Subject to these modifications, the Agency is finalizing the

proposed allowable maintenance interval requirements.

The following minimum intervals are being adopted for adjustment,

cleaning, repair, or replacement of various components:

At 1,500 hours, and 1,500-hour intervals thereafter:

1. EGR related filters and coolers

2. Positive crankcase ventilation valve

3. Fuel injector tips (cleaning only)

At 3,000 hours, and 3,000-hour intervals thereafter for engines

rated under 130 kW or 4,500-hour intervals thereafter for engines rated

over 130 kW:

1. Fuel injectors

2. Turbocharger

3. Electronic engine control unit and its associated sensors and

actuators

4. PM trap or trap-oxidizer system

5. EGR system (including all related control valves and tubing)

6. Catalytic convertor

7. Any other add-on emissions-related component

Add-on emission-related components are those whose sole or primary

purpose is to reduce emissions or whose failure will significantly

degrade emission control, yet not significantly affect the performance

of the engine.

In addition, EPA is defining the following components as critical

emission-related components:

1. Catalytic convertor

2. Electronic engine control unit and its associated sensors and

actuators

3. EGR system (including all related filters, coolers, control valves

and tubing)

4. Positive crankcase ventilation valve

5. PM trap or trap-oxidizer system

6. Any other add-on emissions-related component

If maintenance is scheduled on critical emission-related components

in-use, EPA requires that the manufacturer show the reasonable

likelihood that the maintenance will, in fact, be performed

[[Page 56975]]

in use. The regulations list options for this demonstration, including

showing that performance would degrade without maintenance, providing

survey data showing that the maintenance is performed, using a visible

signal system, offering free maintenance, and other methods approved by

the Administrator. These special provisions do not apply to critical

emission-related components for which no maintenance is specified over

the useful life of the engine.

5. Rebuilding Requirements

In this action, EPA is addressing two concerns regarding the

rebuilding of nonroad diesel engines, both related to new emission-

related components that may be added to the engine to meet the new

standards. First, EPA is concerned that during engine rebuilding, there

may not be an incentive to check and repair emission controls that do

not affect engine performance. Second, EPA is concerned that there may

be an incentive to rebuild engines to an older configuration due to

real or perceived performance penalties associated with technologies

that would be used to meet the standards finalized in this document.

Such practices would likely result in a loss in emission control.

EPA is requiring that parties involved in the process of rebuilding

or remanufacturing engines (which may include the removal of the

engine, rebuilding, assembly, reinstallation and other acts associated

with engine rebuilding) must follow the provisions listed below to

avoid tampering with the engine and emission controls. The

applicability for these provisions is based on the date the engine was

originally built. The rebuild requirements only apply to engines

subject to the new standards being established in this rule.

(1) During engine rebuilding, parties involved must have a

reasonable technical basis for knowing that the rebuilt engine is

equivalent, from an emissions standpoint, to a certified configuration

(i.e., tolerances, calibrations, and specifications), and must identify

the model year(s) of the resulting engine configuration. This allows

for a rebuilder who is unable to identify the original certified

configuration to rebuild the engine to any certified configuration.

(2) When an engine is being rebuilt and remains installed or is

reinstalled in the same piece of equipment, it must be rebuilt to a

configuration of the same or later model year as the original engine.

When an engine is being replaced, the replacement engine must be an

engine of (or rebuilt to) a certified configuration that is equivalent,

from an emissions standpoint, to the engine being replaced. This allows

for rebuilt engine configurations that, although of a different model

year than the original engine, were designed for the same tier of

emission standards. If the replacement engine is new, it must also meet

the requirements of 40 CFR 89.1003(b)(7), discussed in section II.E.3

below.

(3) At the time of rebuild, emission-related codes or signals from

on-board monitoring systems may not be erased or reset without

diagnosing and responding appropriately to the diagnostic codes.

Diagnostic systems must be free of all such codes when the rebuilt

engines are returned to service. Further, such signals may not be

rendered inoperative during the rebuilding process.

(4) When conducting an in-frame rebuild or the installation of a

rebuilt engine, all emission-related components not otherwise addressed

by the above provisions must be checked and cleaned, repaired, or

replaced where necessary, following manufacturer recommended practices.

Under this final rule, any person or entity engaged in the process,

in whole or part, of rebuilding engines who fails to comply with the

above provisions may be liable for tampering. Parties are responsible

for the activities over which they have control and as such there may

be more than one responsible party for a single engine in cases where

different parties perform different tasks during the engine rebuilding

process (e.g., engine rebuild, full engine assembly, installation). EPA

has included no certification or in-use emissions requirements for the

rebuilder or engine owner in this final rule.

EPA has adopted modest recordkeeping requirements that EPA believes

are in line with customary business practices. The records must be kept

by persons involved in the process of nonroad engine rebuilding or

remanufacturing and shall include the best available information on the

total operating hours at time of rebuild and a list of the work

performed on the engine and related emission control systems, including

a list of replacement parts used, engine parameter adjustments, design

element changes, and work performed as described in item (4) of the

rebuild provisions above. EPA now requires that such records be kept

for two years after the engine is rebuilt.

Under this final rule, parties are required to keep the information

for two years but are allowed to use whatever format or system they

choose, provided that the information can be readily understood by an

EPA enforcement officer. EPA will not require that parties keep

information that they do not have access to as part of normal business

practice. In cases where it is customary practice to keep records for

engine families rather than specific engines, where the engines within

that family are being rebuilt or remanufactured to an identical

configuration, such recordkeeping practices should be satisfactory.

Rebuilders may use records such as build lists, parts lists, and

engineering parameters of the engine families being rebuilt rather than

keeping information on individual engines, provided that each engine is

rebuilt in the same way to those specifications.

D. Averaging, Banking, and Trading

In this final rule, EPA is replacing the existing nonroad engine

averaging, banking, and trading (ABT) program with a comprehensive new

program. EPA believes the revised program is an important element in

making the stringent emissions standards adopted in this final rule

appropriate with regard to technological feasibility, lead time, and

cost. The revised ABT program is intended to enhance the flexibility

offered to engine manufacturers that will be needed in transitioning

their entire product lines to meet the stringent NMHC + NOX

standards and the PM standards being adopted. The ABT program also

encourages the early introduction of cleaner engines, thus securing

earlier emission benefits. It should be noted that as part of the 2001

feasibility review described earlier, the Agency plans to reassess the

appropriateness of the averaging, banking, and trading provisions

applicable to nonroad diesel engines and modify the provisions if

deemed necessary.

The revised ABT program will apply to all nonroad diesel engines

subject to Part 89. The following discussion of the revised ABT

provisions is divided into two sections. The first section describes

the provisions for engines rated at or above 37 kW. The second section

describes the provisions for those engines rated under 37 kW, including

land-based and marine engines, both of which are currently unregulated

by EPA.

1. Revised Program for Engines Rated at or Above 37 kW

The following section is divided into two subsections and describes

the revised ABT program for engines at or above 37 kW. The first

subsection describes the general provisions

[[Page 56976]]

applicable to all engines. The second subsection describes several

provisions specific to engines certified to the existing Tier 1

standards for engines at or above 37 kW.

a. General Provisions. Beginning with the Tier 2 standards, the

form of the standard changes from separate hydrocarbon and

NOX standards to a combined NMHC + NOX standard.

Therefore, once the Tier 2 standards take effect, credits will be based

on combined NMHC + NOX values. In the Tier 2 time frame,

NMHC + NOX credits will be generated against the Tier 2

standards, which vary from 6.4 to 7.5 g/kW-hr (4.8 to 5.6 g/hp-hr),

depending on the power rating of the engine. In the Tier 3 time frame,

NMHC + NOX credits will be generated against the Tier 3

standards, which vary from 4.0 to 4.7 g/kW-hr (3.0 to 3.5 g/hp-hr),

depending on the power rating of the engine.

The existing Tier 1 ABT program for nonroad engines does not cover

PM emissions. Beginning with the introduction of Tier 2 engines, EPA is

including PM emissions in the ABT program in order to provide

manufacturers with greater flexibility in complying with the new PM

standards. (As described later, EPA is allowing the early banking of PM

credits from Tier 1 engines.) All PM credits will be generated against

the Tier 2 standards until EPA adopts subsequent PM standards. Because

EPA is including both NMHC + NOX and PM in the ABT program

and given the tradeoff between NOX and PM emissions,

manufacturers will not be allowed to generate credits against the

applicable standard for one pollutant while using credits against the

applicable standard for another pollutant on the same engine family.

EPA is setting upper limits to the family emission limit (FEL)

values that may be declared under the new standards. EPA is adopting an

NMHC + NOX FEL upper limit of 10.5 g/kW-hr (7.9 g/hp-hr) for

engines at or above 130 kW certified in the Tier 2 time frame. For Tier

2 engines at or above 37 kW and less than 130 kW, EPA is adopting a

NMHC + NOX FEL upper limit of 11.5 g/kW-hr (8.6 g/hp-hr).

For Tier 3 engine families, the NMHC + NOX FEL upper limits

are the Tier 2 NMHC + NOX standards for the same power

category of engines.

For PM, EPA is adopting a PM FEL upper limit of 0.54 g/kW-hr (0.40

g/hp-hr) for engines at or above 130 kW certified in the Tier 2 time

frame. Engines at or above 37 kW and less than 130 kW will have a PM

FEL upper limit of 1.2 g/kW-hr (0.9 g/hp-hr) for Tier 2 engines. (EPA

is not adopting a PM FEL upper limit beyond Tier 2 because EPA is not

adopting Tier 3 PM standards at this time.)

There are several other provisions EPA is adopting for the revised

ABT program. EPA is replacing the three year credit life provision of

the existing ABT program with no limit on credit life. In addition, EPA

is eliminating the ``buy high/sell low'' power conversion factor

provision of the existing ABT regulations and replacing it with a

sales-weighted average power value. EPA is including an adjustment in

the calculation of credits for the useful life of the engine. (The

existing ABT program does not include any adjustment for useful life to

the credit calculations.) EPA is also allowing manufacturers to include

engines certified to meet the State of California's standards in the

revised ABT program because the California ARB is expected to adopt the

same standards for their nonroad compression-ignition engine control

program.

In a similar manner to the existing ABT provisions for Tier 1

engines at or above 37 kW, EPA is not requiring any discounting of

credits from Tier 2 or Tier 3 engines with this final rulemaking. EPA

plans to monitor the emission levels of engines and the use of the ABT

program over the next few years. EPA will take this information into

account and plans to reassess the appropriateness of not having any

discounting of credits from Tier 2 and Tier 3 engines as part of the

2001 feasibility review.

Finally, EPA has decided not to finalize two ABT provisions

discussed in the proposal for this rule. First, as discussed later in

the equipment manufacturer flexibility section, EPA is not adopting the

proposed provision that would have given engine manufacturers the

option to trade the NMHC + NOX and PM credits generated by

their engines to equipment manufacturers. This is discussed further in

Section II.E of this final rule. Second, EPA is not adopting a

restriction which would have limited the use of PM credits to the power

category in which the credits were generated. As with the existing Tier

1 ABT program, credits may be exchanged across all power categories at

or above 37 kW. (As described below, there are some restrictions on the

trading of credits for engines below 37 kW and trading credits between

land-based applications and marine applications.)

b. Special Provisions for Tier 1 Engines. As described above, EPA

is replacing the existing ABT program with a comprehensive new program.

Based on EPA's experience with Tier 1 certification and because of

implementation differences between the existing Tier 1 provisions and

the newly adopted Tier 2 and later provisions, EPA is adopting two

changes that will specifically affect engines certified to the existing

Tier 1 standards. First, EPA is adopting a methodology for calculating

NOX credits earned from Tier 1 engines that can be used for

showing compliance with the Tier 2 NMHC + NOX standards.

Second, EPA is allowing engine manufacturers to bank early PM credits

from Tier 1 engines that can be used once the newly adopted Tier 2

standards take effect. The changes noted in the general provisions

discussion above, including the unlimited life, use of average power

for credit calculations, and useful life adjustment, will also apply to

engines certified to the existing Tier 1 standards.

With regard to the generation of NOX credits from

engines certified to the existing Tier 1 standards, EPA will continue

to allow manufacturers to earn NOX credits, but not NMHC +

NOX credits. The NOX credits earned on engines

certified to the existing Tier 1 standards can be used to show

compliance with the current Tier 1 NOX standard or the newly

adopted Tier 2 NMHC + NOX standards. However, due to

concerns over the potential to delay the Tier 3 standards with credits

earned from Tier 1 engines, the NOX credits earned on

engines certified to the existing Tier 1 standards cannot be used to

show compliance with the newly adopted Tier 3 NMHC + NOX

standards.

With regard to the calculation of NOX credits from Tier

1 engines that are to be banked or traded and subsequently used for

Tier 2 NMHC + NOX compliance, EPA is requiring that the

value of the NOX credits be discounted unless the engine on

which the credits were earned is below the applicable Tier 1 standard

by a specified amount. EPA believes this requirement is appropriate due

to concerns that manufacturers could potentially earn significant

NOX credits from their current Tier 1 engines and delay

compliance with the Tier 2 standards, and also to encourage the pull-

ahead of newer and cleaner technologies. (Credits from Tier 1 engines

that are to be used to show compliance for other Tier 1 engines, are

not required to be discounted.) EPA is adopting a trigger mechanism to

distinguish between Tier 1 engine families which are eligible for no

adjustment and those families which must be adjusted. For engine

families certified with a NOX FEL at or below 8.0 g/kW-hr

(6.0 g/HP-hr), no discount will be applied to any NOX

credits. For engine families certified at a NOX FEL above

the 8.0 g/kW-hr trigger in the Tier

[[Page 56977]]

1 time frame, the value of the NOX credits will be

discounted by 35 percent.

With regard to PM credit generation, EPA is allowing early banking

of PM credits from Tier 1 engines as soon as this final rule becomes

effective. Under the revised program, the number of PM credits

generated will be calculated against the Tier 2 standards and may only

be used to show compliance once the Tier 2 PM standards take effect.

Neither the trigger nor the credit discounting concept described above

for Tier 1 NOX credits, will apply to PM credits.

EPA requested comment on some additional limitations regarding the

use of credits generated from Tier 1 engines. EPA is not adopting a

provision that would apply a surcharge to NOX credits used

by a manufacturer to certify more than 20 percent of its fleet. EPA is

also not adopting any limit on the number of years a manufacturer may

earn early PM credits from Tier 1 engines.

2. Program for Engines Rated Under 37 kW

As noted earlier, EPA is adopting standards for engines rated under

37 kW. These engines are currently unregulated by EPA. Therefore, the

existing ABT program did not apply to such engines. EPA is adopting

provisions to include both land-based and marine engines rated under 37

kW in the revised ABT program. A number of issues have been addressed

for these engines, including credit generation, credit life, credit

calculation, trading across power categories, credit exchange between

land-based and marine applications, and a special multi-year averaging

and banking program. The following section addresses each of these

issues.

With regard to credit generation, EPA is making credits available

for both NMHC + NOX emissions and for PM emissions as soon

as the standards become effective. Because many of the engines below 19

kW use indirect injection technology, which tends to low-emitting, EPA

is requiring that all credits generated from engines rated under 19 kW

be calculated against the Tier 2 standards, even prior to the Tier 2

time frame. This requirement applies for both NMHC + NOX

credits and PM credits. For engines rated at or above 19 kW and less

than 37 kW, where direct injection engines are more common, EPA is

requiring that all engines generate credits against the applicable

standards.

For Tier 1 engines below 37 kW, EPA is adopting FEL upper limits of

16.0 g/kW-hr (12.0 g/hp-hr) for NMHC + NOX and 1.2 g/kW-hr

(0.9 g/hp-hr) for PM. These levels are based on existing California ARB

standards for nonroad diesel engines rated under 19 kW. The FEL upper

limits for the Tier 2 standards are the Tier 1 standards.

With regard to credit life, EPA is adopting the unlimited life

provisions for engines rated under 37 kW, as described earlier for

engines rated at or above 37 kW, with one exception. Because of

concerns over the amount of credits manufacturers could earn on

indirect injection engines under the newly adopted Tier 1 standards and

the potential for significant delay in implementation of the Tier 2

standards, EPA is requiring that all credits generated prior to the

Tier 2 time frame on engines rated under 19 kW expire at the end of

2007.

With respect to credit generation and usage calculations, EPA is

requiring that manufacturers use the sales-weighted average power for

engines rated under 37 kW, as described earlier for engines rated at or

above 37 kW. The inclusion of useful life in the calculation of

credits, as described earlier, will also apply to the revised ABT

program for engines rated under 37 kW.

With respect to trading across power categories, EPA is adopting

two restrictions on such trading because of concerns regarding

excessive credit generation by low-emitting indirect injection engines.

First, EPA will not allow manufacturers to use credits generated on

engines rated under 19 kW to demonstrate compliance for engines rated

at or above 19 kW. Second, EPA is prohibiting manufacturers from

trading credits earned on indirect injection engines rated at or above

19 kW to other manufacturers. (This restriction applies to engines at

or above 37 kW as well.) Under this second restriction, a manufacturer

would still be allowed to use such credits for averaging or banking

purposes with other engines rated at or above 19 kW that the

manufacturer produces itself. As part of the 2001 feasibility review

described earlier, the Agency plans to reassess the appropriateness of

these restrictions and modify them as appropriate.

With respect to the exchange of credits across applications, EPA is

adopting provisions that will prohibit manufacturers from using credits

generated on land-based engines to demonstrate compliance for marine

engines. EPA is concerned that manufacturers making engines used in

both marine and land-based applications could effectively trade out of

the marine portion of the program giving them a competitive advantage

over small marinizers who only sell marine engines. EPA will, however,

allow manufacturers to use credits generated on marine engines to

demonstrate compliance for land-based applications.

Finally, EPA is adopting a special four-year averaging and banking

program for engines rated under 37 kW due to the short lead time before

the Tier 1 standards begin to apply. The program would apply separately

to engines rated under 19 kW and to engines rated at or above 19 kW and

less than 37 kW. Under the special program, manufacturers will be

allowed to create a negative balance of credits for the first two years

the Tier 1 standards apply. This negative balance will have to be

eliminated by the end of the fourth year after the Tier 1 standards

become applicable along with a ten percent penalty for any negative

balance of credits carried over from one year to the next. Under this

special program, manufacturers will not be allowed to use emission

credits obtained through trading with other engine manufacturers to

offset their negative credit balances. The manufacturer must offset

their negative balances within positive credits generated from their

own engines.

E. Flexibility for Equipment Manufacturers

In implementing the new standards, EPA desires to avoid unnecessary

hardship for equipment manufacturers (sometimes referred to as original

equipment manufacturers or OEMs), who install diesel engines in their

products. There is concern that engine suppliers may not always provide

adequate lead time for the equipment redesigns needed to accommodate

engine design changes such as mounting locations and heat rejection

loads. For some OEMs, even timely information on the new engine designs

may not be sufficient because of the sheer volume of redesign work

needed to change diverse product offerings with limited engineering

staffs.

In response to these concerns, the Agency is including in this

final rule an OEM transition program to provide equipment manufacturers

with some control of the transition process to new standards. The

design of this program is based on extensive discussions with involved

parties prior to the proposal, on recommendations made in the report of

the panel convened for this rule under the Small Business Regulatory

Enforcement Fairness Act of 1996

[[Page 56978]]

(SBREFA),\7\ and on written comments received on the proposal. It

represents an effort on the part of the Agency to accommodate the

flexibility needs of an extremely diverse industry without introducing

competitive advantages, and while maintaining the environmental benefit

sought in the standard-setting program.

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

\7\ ``Final Report of the SBREFA Small Business Advocacy Review

Panel for Control of Emissions of Air Pollution from Nonroad Diesel

Engines'', May 23, 1997 (available in Air Docket A-96-40).

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

The OEM transition program consists of four major elements, each

directed at a specific need. Although they involve certain planning and

recordkeeping responsibilities if taken advantage of, all of these

elements are voluntary. An OEM has the option to continue to do

business as under the current regulations, subject to the prohibited

acts provisions of 40 CFR Part 89, Subpart K.\8\ The elements of the

program are a percent-of-production allowance, a small-volume

allowance, continuance of the Tier 1 allowance to use up existing

inventories of engines, and availability of hardship relief. Each of

these is discussed in detail below.

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

\8\ Section 89.1003(a)(6) has been revised in the final rule to

clarify that certificates of conformity will not be required for

engines and equipment manufactured in compliance with the

flexibility provisions of the rule. See ``Revision of Prohibited

Acts Regulatory Text,'' EPA memorandum from Charles Moulis to Docket

A-96-40, August 26, 1998.

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

One element of the proposed program that is not being finalized is

a provision for OEMs to obtain and use ABT program credits. The ABT

provision is not being finalized because it would likely be little used

and would greatly complicate the ABT program. It should be noted that

OEMs may achieve a similar benefit by working to have their engine

suppliers directly obtain and retire ABT credits in order to produce

more previous-tier engines for the OEM. Further explanation of this

decision is provided in the Summary and Analysis of Comments for this

final rule.

Another proposed program element that is being approached

differently concerns an expanded exemption allowance for farm and

logging equipment. EPA's rationale for limiting special treatment to

farm and logging equipment was not supported by commenters, even those

who were likely to benefit from it. Commenters identified a wide range

of other applications and special situations that involved the same or

comparable considerations as those related to farm and logging

applications. As described further in the Percent-of-Production

Allowance discussion below, EPA is therefore allowing expanded

flexibility for all applications equally, not just for farm and logging

equipment.

1. Percent-of-Production Allowance

Each equipment manufacturer may install engines not certified to

new emission standards in a limited percentage of machines produced for

the U.S. market. This percentage applies separately to each power

category and is expressed as a cumulative percentage of 80 percent over

the 7 years beginning when the Tier 2 standard first applies in the

category (Tier 1 for power categories under 37 kW). No exemptions are

allowed after the seventh year. For example, an OEM may exempt 40

percent of its 1999 production of machines that use engines rated

between 19 and 37 kW, 30 percent of its 2000 production, and 10 percent

of its 2001 production. If the same OEM were to produce machines using

engines rated between 8 and 19 kW, a separate cumulative percentage

allowance of 80 percent would apply to these machines during the seven

years beginning in 2000.

The Agency recognizes that the 80 percent exemption allowance, were

it to be used to its maximum extent by all OEMs, would bring about the

introduction of cleaner engines several months later than would have

occurred if the new standards were to be fully implemented on their

effective dates. However, the Agency notes too that the allowance is

truly that--an allowance to be tapped as needed to assist OEMs in

dealing with implementation problems that might arise. EPA is aware

that many engine designs being planned for the new standards will fit

the equipment with little change. Also, the desire of engine

manufacturers to avoid producing two engine designs that, from an

applications perspective, are redundant, will prompt them to change

over to the new designs as quickly as they can accommodate their

customers' needs. Although there is no way of knowing at this time how

many exempted engines will be produced, the Agency believes it will be

substantially less than the allowance. Moreover, the OEM flexibility

program has been integrated with the standard-setting process from the

beginning of this rulemaking, and as such it is a key factor in

enabling the initiation of new standards according to the adopted

schedule.

Machines that use engines built before the standard goes into

effect need not be included in the exemption count. Engines that

produce emissions at higher levels than the standards, but for which

the engine manufacturer uses ABT program credits to demonstrate

compliance, count as complying engines. In power categories above 37

kW, the exempted engines must comply with Tier 1 standards. In power

categories below 37 kW, the exempted engines may be uncertified.

The Agency has expanded the percent-of-production allowance from

the proposed level because numerous commenters pointed out that there

are applications other than farm and logging equipment for which the

proposed allowance is inadequate. The Agency reviewed these comments

and concluded that some additional flexibility is warranted to meet the

requirements of paragraph 213(a)(3) of the Clean Air Act calling for

the ``greatest degree of emission reduction achievable'' given certain

criteria, including ``the cost of applying such technology within the

time available to manufacturers''. The Agency is also convinced by the

comments and its own review of equipment redesign challenges that the

need for this flexibility is widespread across the regulated power

bands. For example, many smaller engines must fit into very compact

equipment packages for which cost considerations are paramount; farm

equipment predominates in the medium-size power bands; and the largest

engines are typically used in very low sales-volume equipment models,

for which aggressive redesign schedules may be costly or impossible.

This approach is superior to attempting to identify all

applications and situations deserving of special treatment and either

assigning individual allowances to them or granting exemptions on a

request basis, because it maintains the proposal's focus on giving OEMs

long-range control over how they use their assigned pool of exemptions

for their products affected by each new set of standards, rather than

on dictating category-by-category or model-by-model allowances. It also

serves the goal of avoiding unnecessary complexity by avoiding the need

for numerous equipment category definitions and exemption ``account''

calculations, a goal that was supported by several commenters.

The choice of a cumulative percent allowance of 80 percent is based

on the Agency's best estimate of the degree of flexibility needed to

meet the requirements of the Clean Air Act. EPA believes the 80 percent

allowance responds to the need for flexibility identified by commenters

while ensuring approximately the same level of emission reductions

originally proposed. EPA has examined the impact on environmental

benefits of the combination of changes being finalized

[[Page 56979]]

for this program, including this expanded allowance for all equipment

and the decision to treat agricultural equipment as part of this pool.

Although the actual impact will depend on the degree to which the

industry takes advantage of the flexibility provisions, the Agency has

determined that the net effect will be roughly equivalent to the impact

of the proposed program. The Summary and Analysis of Comments document

and the Final RIA provide additional information regarding this

decision and its net environmental impact.

2. Small Volume Allowance

The percent-of-production approach described above may provide

little benefit to small businesses focused on a small number of

equipment models. Therefore EPA is allowing equipment manufacturers to

exceed the percent-of-production allowances described above during the

same years affected by the allowance program for general applications,

provided they limit the number of exempted engines used in each power

category to 700 total over the 7 years, and to 200 in any one year. In

addition, manufacturers making use of this provision must limit

exempted engines to a single engine family (or to a single manufacturer

for engines rated under 37 kW) in each power category. These

restrictions are considered necessary to maintain the intent of this

provision--helping small businesses with limited product offerings--

rather than giving bigger exemption allowances for larger OEMs who can

effectively use the percent-of-production provisions.

3. Existing Inventory Allowance and Replacement Engines

The Tier 1 rule for engines rated at or above 37 kW included a

provision for OEMs to continue to use uncertified engines built prior

to the effective date of Tier 1 standards, until uncertified engine

inventories are depleted. It also prohibited purposeful stockpiling of

uncertified engines. EPA is extending this provision to the Tier 1-to-

Tier 2 and Tier 2-to-Tier 3 transitions, as well as to the under 37 kW

engines. The existing provision that provides an exception to the Tier

1 compliance regulations for the sale of replacement engines is also

being extended to engines covered by this action. In extending this

provision, the Agency is requiring that engines built to replace

certified engines be identical in all material respects to an engine of

a previously certified configuration that is of the same or later model

year as the engine being replaced. The term ``identical in all material

respects'' allows for minor differences that would not reasonably be

expected to affect emissions.

4. Hardship Relief Provision

EPA is providing a safety valve provision whereby an OEM that does

not make its own engines could obtain limited additional relief by

providing evidence that, despite its best efforts, it cannot meet the

implementation dates, even with the OEM transition program provisions

outlined above. Such a situation might occur if an engine supplier

without a major business interest in the OEM were to change or drop an

engine model very late in the implementation process. This concept was

put forward for consideration in this rulemaking by the Small Business

Advocacy Review Panel convened under SBREFA, as a means of addressing

small business concerns. Comments received on the proposal, however,

have convinced the Agency that these concerns are not limited to small

businesses.

Appeals for hardship relief must be made in writing, must be

submitted before the earliest date of noncompliance, must include

evidence that failure to comply was not the fault of the OEM (such as a

supply contract broken by the engine supplier), and must include

evidence that serious economic hardship to the company will result if

relief is not granted. The Agency intends work with the applicant to

ensure that all other remedies available under the flexibility

provisions are exhausted before granting additional relief, and would

limit the period of relief to no more than one year. Furthermore,

applications for hardship relief will only be accepted during the first

year after the effective date of an applicable new emission standard.

To avoid the creation of a self-fulfilling prophecy, by which the

very existence of this provision prompts engine manufacturers to delay

engine developments, the Agency wishes to make clear that it expects

this provision to be rarely used. Each granting of relief would be

treated as a separate agreement with no prior guarantee of success, and

with the inclusion of measures, agreed to in writing by the OEM, for

recovering the lost environmental benefit.

5. Enforcement and Recordkeeping Requirements

Engine manufacturers will be allowed to continue to build and sell

the engines needed to meet the market demand created by the OEM

transition program, provided they receive written assurance from the

engine purchasers that such engines are being procured for this

purpose. Engine manufacturers who participate in this program will be

required to annually provide information on the number of such engines

produced and on who they are provided to, in order to help EPA prevent

abuse of the program.

OEMs choosing to take advantage of the allowances must: (1) keep

records of the production of all pieces of equipment excepted under the

allowance provisions for at least two full years after the final year

in which allowances are available for each power category; (2) include

in such records the serial and model numbers and dates of production of

equipment and installed engines, rated power of each engine, and the

calculations used to verify that the allowances have not been exceeded

in each power category; and (3) make these records available to the

Agency upon request. The Agency intends to conduct only limited audits

of these records, and expects that scrutiny by the OEMs of their

competitors' products will help identify potential candidates for

audits.

Secondary manufacturers who modify or relabel and resell new

equipment already introduced into commerce would be subject to the

regulations in the same way as independent dealers and distributors.

These regulations primarily concern tampering. EPA's desire to limit

the number of machines using noncomplying engines is therefore

satisfied by regulation of the original equipment manufacturers who

install the engine into the machine, such that the secondary

manufacturers do not need exemption allowances. They may sell as many

machines with noncomplying engines as they are legally able to obtain.

All entities that are under the control of a common entity, and

that meet the definition of a nonroad vehicle or nonroad equipment

manufacturer, must be considered together for the purposes of applying

exemption allowances. This provides certain benefits for the purpose of

pooling exemptions but also precludes the abuse of the small volume

allowances that would exist if companies could treat each operating

unit as a separate OEM.

EPA recognizes that the OEM transition program may involve a

certain amount of complexity and administrative burden that was not

present for OEMs under the Tier 1 rule, which limited the compliance

options for OEMs. However, this program is entirely voluntary and

manufacturers wishing to implement the new standards in the same manner

as for the

[[Page 56980]]

Tier 1 regulations are free to do so. The Agency intends to develop

guidance to assist OEMs in taking advantage of these provisions, but

also intends to fully enforce the regulations in order to ensure a fair

implementation process that achieves the environmental benefit sought

in setting new standards.

F. Flexibility for Post-Manufacture Marinizers

Post-manufacture marinizers (PMMs) produce marine engines by

modifying engines purchased from other manufacturers. They are

therefore subject to both the engine manufacturer's concern about

certifying engines to the standards and the OEM's concern about timely

delivery of redesigned engines from their engine suppliers.

EPA recognizes that the potential unavailability of certified base

engines may make it difficult for PMMs to comply with the proposed

emission control program, since they may not be able to obtain base

engines in time to adjust their marinization process, especially

considering that most of the marine engines affected by this rule are

subject to standards beginning in 1999. Based on these concerns, EPA

has determined that the proposed emission standards would not be

feasible for PMMs who produce marine engines under 37 kW without some

flexibility provisions beyond those available in the ABT program. As a

result EPA is finalizing two additional flexibility provisions for

PMMs.

First, the OEM flexibility provisions discussed above are being

extended to PMMs, as proposed. Second, provided they inform EPA in

writing before the date Tier 1 standards would take effect, PMMs may

elect to delay the effective dates applicable to marine engines under

37 kW for one year, instead of using the OEM flexibility provisions.

PMMs may not take advantage of both the delayed effective date

provision and the OEM flexibility provisions.

Although it provides a substantial boost in certainty to PMMs, the

optional 1-year delay provision will have a very small environmental

impact. This is because: (1) the marine engines under 37 kW produced by

PMMs are a very small part of the total nonroad diesel engine

production, (2) these engines produce relatively low emissions due to

their small size and low usage characteristics, and (3) the total

number of engines potentially exempted under this flexibility provision

is not much greater than that possible under the exemption allowance

provisions.

G. Control of Crankcase Emissions

Crankcase gases are those exhaust gases that discharge (blowby)

into the crankcase via the clearance between the piston and the

cylinder wall. On most engines (those engines with open crankcases),

these gases eventually escape from the crankcase into the atmosphere.

Some manufacturers produce engines that route crankcase vapors to the

air intake system of the equipment; such a design is called a closed

crankcase. This method, also called positive crankcase ventilation,

recirculates blowby gases through a valve back to the intake manifold

to be burned in the combustion chamber.9

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

\9\ U.S. Environmental Protection Agency, Office of Mobile

Sources, NEVES, Appendix I, Chapter 4, November 1991 (available in

Air Docket A-96-40).

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

Since 1985, closed crankcases have been required in naturally

aspirated (non-turbocharged) highway diesel engines (45 FR 4136,

January 21, 1980). Turbocharged engines have not been required to have

crankcase emission controls due to concerns related to problems

associated with the durability and effectiveness of turbocharger and

aftercooler components which can be affected by recycling gases

containing particulate matter and corrosive gases. EPA is extending the

closed crankcase requirement to nonroad engines, including the

exemption for turbocharged diesel engines. Many naturally aspirated

nonroad engines are already equipped with this technology; for those

nonroad engine models still manufactured with open crankcases, EPA

expects that closed-crankcase technology will be readily transferable.

EPA has included the cost of closing crankcases in the analysis of the

costs of complying with the new standards. EPA had originally proposed

to apply the closed crankcase requirement to some Tier 1 engines, but

has now decided to apply it only Tier 2 and later naturally aspirated

engines because of lead-time concerns. This delay will not have a major

environmental impact because it is short, directed at a small segment

of the engine market, and confined to a minor emission source relative

to exhaust emissions.

EPA will also allow manufacturers to comply with this requirement

by routing the crankcase emissions into the exhaust. Manufacturers

choosing this option would effectively be required to reduce their

engine-out exhaust emissions further than other manufacturers that

choose to route the crankcase emissions into the engine intake. It is

important to note that this optional approach will require that the

engine (and equipment) be designed so that the routing would occur

under all in-use conditions. Manufacturers using this approach will be

required to modify their deterioration factors to account for increases

over time in crankcase emissions. EPA will also consider using this

approach in the future for controlling crankcase emissions from

turbocharged engines, which are currently uncontrolled. The advantage

of this approach is that allows manufacturers the flexibility to either

route crankcase emissions into the engine intake, thereby combusting

the crankcase emissions of hydrocarbons and CO, or to route the

emissions into the exhaust (where they would be measured as part of the

exhaust emissions) and to reduce the total exhaust emissions using

other means.

H. Control of Smoke

1. Standards and Procedures

In 1994, EPA finalized smoke standards for nonroad diesel engines

rated at or above 37 kW. The specified measurement method and

calculations are from 40 CFR Part 86, Subpart I, which was developed

for highway engines. EPA is making no major changes to the smoke

emission standards and procedures currently in place.

EPA is extending the smoke standards to diesel engines rated under

37 kW, bringing these engines under the same regulatory framework as

the larger engines. While these new standards may lead to lower smoke

levels from some engines, the principal intent of setting standards is

to prevent increased levels of smoke as engines are redesigned to

comply with Tier 2 and Tier 3 standards for gaseous and particulate

emissions. The same numerical standards apply to the small engines.

With minor exceptions, the same procedure, equipment, and calculation

methods are also specified for these engines.

In applying the smoke standards and procedures to engines rated

under 37 kW, EPA has chosen to exempt one-cylinder engines. EPA

believes that operation and testing of these engines is unique in ways

that would need to be addressed before applying smoke standards. For

example, one-cylinder engines operating on the specified test procedure

produce puffs of smoke that may make the smoke measurement erratic. EPA

is therefore postponing the regulation of smoke from these one-cylinder

engines until a later rulemaking. The Agency believes the air quality

impact of this postponement will be minimal because the large majority

of one-cylinder diesel engines are used in generator sets and other

[[Page 56981]]

steady-state applications, which rarely experience acceleration modes--

the principal focus of smoke standards. In a similar manner, because

two-cylinder engines operating on the specified test procedure may also

produce puffs of smoke that would make the smoke measurement erratic,

though to a lesser degree than single-cylinder engines, EPA will permit

manufacturers the option of testing two-cylinder engines with a

preconditioned muffler of the type used in the field. Such an engine

configuration is the same as that found in use, and thus will ensure

meaningful control of in-use smoke, even though instantaneous smoke

emissions may be flattened out somewhat, resulting in potentially

reduced levels of measured smoke. Engines with more than two cylinders

will continue to be tested without a muffler, which is a ``worst case''

condition.

EPA is also slightly modifying the exhaust pipe diameter

specifications found in 40 CFR Part 86, Subpart I. The previous

specifications called for a 2 inch (5 centimeters (cm)) inside diameter

exhaust pipe for testing any engine rated under 101 horsepower (hp)

maximum (75 kW), and a 5 inch (13 cm) inside diameter exhaust pipe for

the testing any engine with a rated power of 301 hp (225 kW) or

greater. In this action, the Agency is specifying that engines rated

between 50 and 100 hp (37 and 75 kW) be tested with a 2 inch (5 cm)

inside diameter exhaust pipe, while engines rated under 50 hp (37 kW)

should be tested with an exhaust pipe of 1.5 inches (3.8 cm). EPA is

also specifying that all engines rated over 500 hp (373 kW) should be

tested with an exhaust pipe of 6 inches (15.2 cm).

EPA is not establishing smoke requirements for propulsion marine

diesel engines rated under 37 kW. EPA has concluded that the existing

smoke test procedures are not appropriate for small propulsion marine

engines. The Agency believes that the small environmental risks

associated with smoke emissions from such engines do not justify the

creation of special smoke test procedures for them at this time. EPA

expects to reconsider this issue in the future at the same time that it

reconsiders other smoke issues. Finally, EPA is dropping smoke

requirements for constant speed engines until a smoke test becomes

available for these engines, because the current smoke test cannot

effectively be performed on them. The Agency believes the air quality

impact will be minimal because these engines do not often experience

acceleration modes, which are the principal focus of smoke standards.

2. Future Reconsideration of Smoke Issues

An International Standards Organization committee (ISO TC70/SC8/

WG1) has been developing a smoke test procedure specifically for

nonroad engines. The EPA and regulated industry recognize the value of

harmonized test procedures and standards limits. However, this ISO

procedure has not been finalized and thus is not included in this

rulemaking. EPA has analyzed the draft ISO procedure (8178-9) and

concluded that most of its elements would be appropriate for adoption.

Thus, the Agency expects that it will adopt the ISO smoke measurement

procedure after it is finalized. At that time EPA may also reconsider

the issues related to the use of mufflers, single-cylinder and two-

cylinder engines, constant speed engines, marine engines and standard

exhaust pipe diameters. It is important to note that the ISO 8178-9

smoke emissions test procedure is very different from the procedure

specified in Subpart I of Part 86. As a consequence , if EPA adopts the

ISO 8178-9 procedure, then it will also need to revise the numerical

limit values to be associated with the ISO procedure. EPA believes the

appropriate numerical standard that should be associated with ISO 8178-

9 peak measurements is likely to be within the range of 20 to 30

percent opacity. It is important to note, however, that this is only a

preliminary estimate.

EPA also expects to give future consideration to the need for an

in-use smoke test. Some state governments have expressed a desire for a

smoke regulatory program that would enable them to test in-use nonroad

engines in a manner that would permit action against gross emitters of

smoke. The main elements of such a program would be a certification

smoke requirement for new engines, EPA guidance for state in-use smoke

control programs (including an in-use smoke test procedure and

accompanying limit values), and a means by which the data from the two

programs could be related. The current smoke test procedure from Part

86, Subpart I, does not provide data comparable to the most practical

in-use smoke test procedure (a snap acceleration with measured

opacity). Based on the current draft ISO 8178-9 certification smoke

test procedure, EPA believes the future ISO test will provide the

desired linkage.

I. Voluntary Low-Emitting Engine Program

Officials representing certain cities, states, or regions in the

U.S. have expressed interest in developing incentive programs to

encourage the use of engines that go beyond federal emission standards.

EPA also would like to encourage manufacturers to initiate

demonstration projects to prove out these technologies in areas where

there is a particular need for superior emission controls. EPA is

therefore finalizing a set of voluntary standards that may be used to

earn a designation as a ``Blue Sky Series'' low-emitting engine. The

program, if successful, will lead to the introduction and more

widespread use of these low-emission technologies. Possible incentives

to encourage production of these engines are described below.

Central to the purpose of the voluntary standards is the need to

demonstrate superior control of particulate emissions. Because of the

sensitivity of particulate emissions to test cycles, as described in

Section III, testing on a transient cycle is an important element of

the program for Blue Sky Series engines. EPA has begun work toward

developing transient test cycles for nonroad equipment, but there is

not yet any established or proven nonroad transient cycle. The highway

test cycle, while not developed for nonroad engine operation, would

result in a significant degree of control for nonroad equipment. EPA

has therefore specified the highway transient test cycle to evaluate

emission levels relative to the voluntary standards. If EPA adopts a

transient test for certifying nonroad engines in the future, the Agency

will accordingly re-evaluate the test cycle and standards for Blue Sky

Series engines.

To best align with future emission standards, Tier 3 emission

levels, where applicable, were chosen as the best level for defining

Blue Sky Series engines. This represents a reduction of approximately

40 percent beyond the Tier 2 NMHC + NOX levels. For PM

emissions and for engines with no Tier 3 standards, a calculated level

corresponding to a 40 percent reduction beyond Tier 2 levels will be

used to qualify as a Blue Sky Series engine (see Table 3).

Table 3.--Voluntary Emission Standards in g/kW-hr (g/hp-hr)

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

Rated brake power (kW) NMHC+NOX PM

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

kWkWkWkWkWkW560.................. 4.0 0.12

(3.0) (0.09)

kW>560.......................................... 3.8 0.12

(2.8) (0.09)

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

Blue Sky Series engines need to meet all the requirements that

would otherwise be applicable to Tier 2 engines. This would include

allowable maintenance, warranty, useful life, rebuild, and

deterioration factor provisions. Manufacturers must demonstrate

compliance with the CO standard by comparing the emission levels

generated on the highway test cycle with the numerical value of the CO

standard for the applicable tier of nonroad engines for that model

year. Manufacturers must also demonstrate compliance with applicable

smoke standards.

Repeating the certification process to develop and submit test data

to make a highway engine available for nonroad use adds a significant

hurdle to engines expected to sell in low volumes for nonroad

applications. Under the Blue Sky Series engine program, manufacturers

with highway-certified engines may waive the testing requirements for

obtaining nonroad certification. This includes the need to comply with

the provisions related to the durability of emission controls. EPA,

however, needs to ensure that engine designs are not tailored to the

transient cycle with much higher emissions on a steady-state cycle. To

accommodate this, EPA retains the ability to conduct in-use testing to

verify that engines are operating in steady-state modes with

substantially the same level of emission control. EPA will therefore

require that NOX and PM emissions be no more than 20 percent

higher on the appropriate nonroad steady-state test cycle compared with

the highway test cycle. This is intended to provide relief for

development testing needed to protect against in-use liability, while

preventing any active strategies designed specifically for the

transient test cycle at the expense of controlling emissions during

steady-state operation. For evaluation of the performance of one of

these engines in steady-state operation at any point in an engine's

useful life, the Agency intends to conduct paired data generated on

both the appropriate steady-state test cycle and the highway transient

test cycle.

The Blue Sky Series program begins immediately upon promulgation

and continues through the 2004 model year. EPA will evaluate the

program to determine if it should be continued for 2005 and later

engines, and if so, what changes are needed to reflect the transition

to Tier 3 emission standards. This evaluation will be considered as

part of the 2001 feasibility review. The experience gained with these

engines and the Tier 3 resolution of certification test cycles and PM

standards will factor into this evaluation.

The Agency sees substantial potential for users and state and local

governments to establish these incentive programs. For example, the

increasing public concern about the effects of diesel engine emissions

on health raises the possibility that some construction companies will

purchase Blue Sky Series engines to protect its workers or the public

from localized emissions, especially if benefits can also be gained in

employee or public relations, such as with highly visible projects in

polluted city centers. Similarly, a mining company could select these

low-emitting engines for underground applications to minimize miners'

exposure to exhaust pollutants. A state or local government may be able

to add incentives for companies committing to rely on Blue Sky Series

engines in contract bidding on publicly funded construction projects in

nonattainment areas. Some farmers may be willing to pay more for

equipment with the cleaner engines to lower their field exposure to

engine exhaust pollutants. In some of these applications, alternative

fuels may be readily available, possibly even providing a cost savings

compared to diesel fuel.

The Agency is concerned that incentive programs not lead to a net

detriment to the environment through the double-counting of benefits.

Also, manufacturers have indicated that the potential to participate in

an averaging, banking, and trading program would not be an important

factor leading to the development of Blue Sky Series engines. EPA has

therefore concluded that manufacturers choosing to sell an engine with

the Blue Sky Series designation will not generate averaging, banking,

and trading credits for demonstrating compliance with EPA programs.

Other groups are then free to design credit programs without concern

for any double-counting or other unintended effect of overlapping

programs.

J. Technical Amendments

This final rule contains technical amendments to the certification

and emission test procedures previously adopted for nonroad diesel

engines (40 CFR Part 89). The most significant changes are highlighted

here; a complete description of the technical amendments is detailed in

a memorandum to the docket.10

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

\10\ ``Justification for Amendments to 40 CFR Part 89,'' EPA

memorandum from Greg Orehowsky to Docket A-96-40, August 21, 1997.

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

EPA is adding definitions of rated speed and intermediate speed.

Rated speed is defined as the maximum full load speed for governed

engines and speed of maximum horsepower for ungoverned engines. The

definition for intermediate speed was based on peak torque speed and

limits intermediate speed to 60 to 75 percent of rated speed. The

maximum full load speed is the highest speed with an advertised power

greater than zero. EPA is linking full load governed speed to

advertisements at this time since no adequate language has been

developed that mathematically defines full load governed speed as a

point on the torque or power curve. Power curves in manufacturer's

advertisements typically end at the governed speed. EPA believes that

manufacturers will continue to advertise the full range of power of its

engine. Manufacturers would therefore not set rated speed at less than

full load governed speed. It is unlikely that manufacturers will

advertise powers beyond the full load governed speed, since a

manufacturer cannot guarantee power beyond this point. EPA is applying

the new definitions to Tier 1, as well as Tier 2 and 3 programs.

However, to avoid unnecessarily burdensome recertification, EPA is not

requiring manufacturers to use the new definitions for Tier 1 engines

certified prior to January 1, 1999. Engine families that are certified

prior to January 1, 1999 may carry over certification under the old

definitions into subsequent Tier 1 model years. All Tier 2 engines must

meet the definitions for rated and intermediate speeds.

Engines are grouped into families that are expected to have similar

emissions characteristics throughout their useful lives. EPA's

regulations list a number of characteristics which distinguish engine

families. EPA is concerned that the phasing in of the new standards by

power categories, which is intended as an aid to implementation, may

actually increase manufacturers' costs without a

[[Page 56983]]

significant emissions benefit in the situation where an engine family

marginally straddles a power category cutpoint, and therefore must be

split. This is especially of concern for Tier 1 engines below 37 kW

because of the short lead time provided for the certification of these

engines, and because this group is comprised of 3 rather narrow power

bands. Therefore, EPA is allowing the creation of Tier 1 engine

families that straddle the power band cutpoints at 8, 19, and 37 kW,

subject to EPA approval. To avoid potential abuse of this provision by

a manufacturer attempting to take advantage of the least stringent

emission standards applicable to the engines in the family, such

grouping will be allowed only if: (1) most of the engine family's sales

in each year are from engines with rated power in the power band with

which the engine family is certified, and (2) all power ratings in the

engine family that are not within the power band with which the engine

family is certified are within 10 percent of one of the two power

levels that define this power band. The limitations would not apply if

the emission standards for the power band in which the engine family is

being certified are at least as stringent as those of the power band

that the included engines would otherwise be in. EPA may extend this

provision beyond Tier 1 in a future action, but first wishes to examine

its effectiveness over time in providing sufficient flexibility without

leading to abuse.

The amendments change the criteria for test engine selection. Test

engine selection is no longer based on maximum fuel per stroke at

maximum power, but is now based primarily on the highest fuel per

stroke at peak torque and secondarily on the highest fuel per stroke at

rated speed.

The calibration requirements for the gaseous emission measurement

analyzers are modified in various ways. The requirements for

measurement accuracy below fifteen percent of full scale are revised to

include a specific number of gas concentrations at the low end of the

calibration curve. Also, calibration requirements are simplified to

allow laboratories to calibrate only one analyzer range and still

ensure accurate measurements. Additional changes to calibration

requirements for other equipment are described in the Summary and

Analysis of Comments document.

Other modifications relate to the test sequence and calculation of

emission results. A ``mode'' is defined and the procedure for dealing

with void modes is included. The equations used to calculate emissions

during raw sampling are corrected. The amendments also correct errors

in the currently listed equations and include new equations that were

mistakenly omitted.

III. 2001 Review and Ensuring Emissions Control In Use

A. 2001 Review

Over the next several years, EPA will be actively engaged in

programs to evaluate technology developments and progress toward

meeting the new standards. This process will involve engine research

programs, coordination with the involved industries, and active

interaction with other stakeholders. This effort will culminate in a

special review, to be concluded in 2001, to reassess the

appropriateness of the Tier 2 standards for engines rated under 37 kW

and the Tier 3 standards for engines rated between 37 and 560 kW. The

review will also include proposal and adoption of appropriate Tier 3

standards for PM. In addition to reviewing whether or not the new

standards are technologically feasible and otherwise appropriate under

the Clean Air Act, the Agency will examine the need for equipment

redesign due to the new standards and will take appropriate action if

significant adverse impacts on the nonroad equipment industry are

identified.

Before making a final decision in this review, EPA intends to issue

a proposal and offer an opportunity for public comment on whether the

standards under review are technologically feasible for implementation

according to the proposed schedule, and are otherwise appropriate under

the Act. Any changes to certification test procedures or Tier 3 PM

standards would also be proposed in that document. Following the close

of the comment period, EPA intends to issue a final Agency decision

under section 307 of the Act.

If, based on the information collected for the 2001 feasibility

review, EPA finds the emission standards are not appropriate under the

Act, EPA will propose changes to the program, possibly including

adjustments to the levels of the standards. Consistent with the

Statement of Principles, the adjusted standards may be more or less

stringent than those already established or the schedule could be

adjusted. For example, progress to date in the design of low-emitting

heavy-duty highway diesel engines has been encouraging, and EPA

believes that this progress may benefit designs of large nonroad diesel

engines as well, due to the many similarities in these classes of

engines. Therefore, the Agency believes that by 2001 it may well be

appropriate to consider moving the standards for equal to or greater

than 300 horsepower engines forward in time, and so expects to consider

this issue in the 2001 feasibility review. Any change to the specified

certification test procedure, including the possible adoption of a

transient test cycle, will be factored into the evaluation of the

appropriateness of the numerical standards. The standards finalized in

this document will stay in effect unless revised by subsequent

rulemaking procedure.

The review may include other topics as well. Some topics identified

in this rulemaking that the Agency plans to review are test fuel sulfur

specifications, ABT provisions, Blue Sky Series engine standards,

established technologies for deterioration factor determinations, and

engine family designations.

B. Ensuring Emissions Control In Use

Key among EPA activities directed toward completing the 2001

feasibility review are those related to adoption of a more effective PM

control program for nonroad diesel engines.11 The

establishment of a more effective program will be informed not just by

progress in engine designs but also by studies currently being

performed by the Agency and by others on the relationship between

diesel PM emissions and various health problems.

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

\11\ The current control program for PM and all other pollutants

includes an emissions standard and related emissions test procedure.

For control of PM, as well as other regulated pollutants, an engine

may not be equipped with a defeat device, defined as a device,

system, or element of design which senses operation outside normal

emission test conditions and reduces emission control effectiveness,

including any auxiliary emission control device (AECD) that reduces

the effectiveness of the emission control system under conditions

which may reasonably be expected to be encountered in normal

operation and use unless the conditions are included in the test

procedure (40 CFR 89.107). Manufacturers must provide a detailed

description of all auxiliary emissions control devices when they

apply for certification (40 CFR 89.115(d)(2)). The defeat device

prohibition is designed to ensure that proper control of emission-

related engine parameters is maintained during engine operation that

is not substantially represented in the certification test cycle.

Electronic controls may be considered an AECD, and subject to the

defeat device provision.

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

Establishing an appropriate test cycle is critical to the success

of a more effective PM control program. Testing an engine for emissions

consists of exercising it over a duty cycle of speeds and loads using

an engine dynamometer. The test cycle used to measure emissions should

represent operation typical of actual operation in the field. A test

procedure that does not

[[Page 56984]]

adequately represent in-use operation might not lead to, on average,

the level of control in use set by the emission standards. A test

procedure that does reflect real world operating conditions will drive

engine designers to develop technologies that achieve in-use control

corresponding to the emission standards. EPA has addressed such

concerns in the past; for example, the highway heavy-duty engine test

cycles were changed to address transient operation (45 FR 4136, January

21, 1980) and, more recently, EPA has revised the test cycle for light-

duty vehicles (61 FR 54852, October 22, 1996).

EPA has concerns that the current test cycle does not adequately

reflect transient operation, and, therefore, will not lead to the level

of average in-use emission control reflected by the PM standard. PM

emissions, like NOX emissions, depend somewhat on engine

load characteristics that can be modeled in the steady-state test, but

are most sensitive to the degree of transient engine operation. Most

nonroad engines are used in applications that are largely transient in

nature. Even equipment such as pumps and generators, that operate

mostly at constant engine speeds, may depart from steady-state

operation due to variation in engine loads over time. EPA believes that

the Tier 2 PM emission standards, with the current steady-state test,

will produce some degree of in-use emissions control from nonroad

engines, especially from engines that typically operate at a constant

speed. The level of control from the many nonroad engines that

frequently operate in more transient modes, however, is less certain,

especially in an engine design era involving stringent PM and

NOX standards and electronic engine controls, as is likely

to be the case in Tier 3. Therefore, EPA is moving forward with

developing a transient component to the nonroad engine test cycle to

control the transient element of PM emissions generation; this

component would supplement the steady-state test.

EPA has an additional concern that goes beyond choosing an

appropriate test cycle. EPA has observed at times that manufacturers

may tailor the design of their engines to narrowly meet the

requirements of the emission test. This concern applies not just to PM

emissions but to other pollutants such as NOX and

hydrocarbons, as well. The current nonroad test cycle, with a limited

combination of steady-state speeds and loads, does not include some of

the operating modes that are commonly experienced in the field. In

fact, any single prescribed test cycle, although advantageous for test

result repeatability and predictability, may not ensure that engine

manufacturers design robust emission controls that achieve good control

in use. This concern is increased with the advent of electronic

controls, which greatly increases the level of sophistication available

to manufacturers in controlling emissions levels over the full range of

engine operation. To address this and other concerns, in the Tier 1

rulemaking EPA adopted the prohibition on defeat devices (see footnote

11), which the Agency intends to implement for all tiers of standards.

EPA may also supplement existing regulations through changes in its

nonroad diesel engine program to better control in-use emissions, in a

manner that will ensure effective in-use emissions control without

unduly increasing manufacturers' testing burden and certification

uncertainty.

Although the Agency intends to establish its Tier 3 PM standards

and a transient test cycle in the context of the 2001 feasibility

review, other activities such as its investigation of in-use operation

emissions, including possible regulatory action, may proceed on an

earlier schedule. The concerns described above about in-use emissions

apply to the pre-Tier 3 as well as the Tier 3 standards, and the Agency

believes that prompt action in this area is appropriate. The two

efforts discussed above, development of a transient test cycle for PM

control and adoption of supplemental measures to better control in-use

emissions, have the same overall focus--achieving effective control of

emissions in the real world. As a result, the need for a separate

transient test cycle may be eliminated if the measures EPA adopts to

better control in-use emissions prove adequate for control of PM in

use.

IV. Technological Feasibility

The emission standards finalized in this document apply to a broad

range of diesel engines used in a wide variety of nonroad applications.

Section 213 (a)(3) of the Clean Air Act calls for EPA to establish

standards that provide for the ``greatest degree of emission reduction

achievable through the application of technology which the

Administrator determines will be available for the engines or vehicles

to which such standards apply, giving appropriate consideration to the

cost of applying such technology within the period of time available to

manufacturers and to noise, energy, and safety factors associated with

the application of such technology.'' EPA has concluded, as described

in the Final RIA, that the new standards will have no significant

negative effect on noise, energy, or safety.

Because the emission standards for nonroad diesel engines are based

largely on the standards for highway engines and rely on the evaluation

of technologies for complying with the standards for highway engines,

the discussion of technological feasibility in the highway engine

rulemaking is central to supporting the feasibility of the new

standards for nonroad engines. This analysis of diesel engine

technologies is contained in Chapter 4 of the Final RIA for the highway

rulemaking. 12 This analysis is considered and applied to

nonroad engines in Chapter 3 of the Final RIA for this rulemaking.

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

\12\ ``Final Regulatory Impact Analysis: Control of Emissions of

Air Pollution from Highway Heavy-Duty Engines,'' U.S. EPA, September

16, 1997 (Docket A-95-27).

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

The level and implementation timing of the standards finalized in

this document are the most challenging that can be justified. Engine

manufacturers will need to use the available lead time to develop the

necessary emission control technologies, including transfer of

technology from highway engines. This development effort will require

not only achieving the targeted emission levels, but also ensuring that

each engine will meet all performance and emission requirements over

its useful life. The emission standards clearly represent major

reductions compared with current emission levels.

Emission control technology for diesel engines is in a period of

rapid development in response to the range of emission standards

anticipated for the years ahead. This effort will need to continue to

meet the requirements of this final rule. However, the emission targets

are set in the framework of a long lead time with various flexibility

provisions, which provide manufacturers the time they will need to

apply emission control technology developments to nonroad engines.

Also, the experience gained in response to EPA's emission standards for

highway engines will be invaluable in meeting the comparable

requirements for nonroad engines. Because the technology development

for highway engines will to a large extent constitute basic research of

diesel engine combustion, this effort will also benefit manufacturers

that produce no highway engines.

On the basis of information currently available, EPA believes that

it is feasible for nonroad diesel engine manufacturers

[[Page 56985]]

to meet the standards finalized in this document within the specified

time frame, using combinations of the technological approaches

discussed in the Final RIA. In addition, EPA believes that the

flexibilities incorporated into this final rule will permit nonroad

vehicle and equipment manufacturers to respond to engine changes in an

orderly way. For both industries, EPA expects that meeting these

requirements will pose a significant challenge. As described above, EPA

plans to assess, as part of the 2001 feasibility review, the

appropriateness of the Tier 3 standards, and the Tier 2 standards for

engines rated under 37 kW.

V. Projected Impacts

A. Environmental Impacts

To assess the environmental impact of the new emission standards,

EPA has used a draft version of the new NONROAD model, developed by EPA

for predicting emissions from nonroad equipment. Chapter 5 of the Final

RIA contains a thorough discussion of the methodology used to project

the emission inventories and emission reductions from nonroad equipment

covered by the new standards. The reader is directed to the RIA for

more information on the environmental impact of this final rule.

The amount of growth experienced in the nonroad market will have a

significant impact on the emission inventories and emission reductions

expected from the new emission standards. For this environmental impact

analysis, EPA has examined the impact of the emission standards under

two different growth scenarios. (The growth rates used in the nonroad

modeling are compounded growth rates.) The first scenario uses growth

rates based on information developed by the Bureau of Economic Analysis

(BEA). The BEA growth rates, which are prospective, are based on a

variety of economic indicators and vary by nonroad segment (i.e.,

agriculture, construction, etc.). The BEA growth rates typically range

from one to two percent per year. Based on trends in historical nonroad

equipment sales, trends in nonroad fuel usage, and the continuing

strong performance of the U.S. economy, EPA believes that the BEA

growth rates may underestimate the future growth of the nonroad market.

Therefore, EPA has also modeled the impact of the new standards using

information on nonroad equipment population from a database developed

by Power Systems Research (PSR). The growth rates based on a

retrospective analysis of 1989 to 1996 PSR equipment population data

result in typically higher growth rates compared to the BEA

information. EPA believes the results from the two growth scenarios

serve to bracket the expected environmental impact of the standards.

The following discussion of environmental impacts presents the results

from both the BEA growth scenario and the PSR growth scenario.

EPA modeled the impact of the new standards for NOX,

NMHC, and PM emissions. The modeling inputs conservatively assume that

equipment manufacturers take full advantage of the flexibility

provisions described earlier. EPA did not model the impacts of

standards on CO because CO emissions from nonroad diesel equipment are

a very small portion of the overall CO inventory and the standards are

not expected to have a significant impact on CO levels.

Because of the uncertainties about the degree to which the steady-

state test procedure will control PM emissions in use, especially from

the many nonroad engines that frequently operate in transient modes,

EPA cannot be certain that any assessment of expected PM emission

reductions made at this time will be completely accurate. Nevertheless,

EPA has attempted to make a reasonable estimate of these reductions by

assuming that engines will certify at the level of the new emission

standards, and applying EPA's best current estimates of adjustment

factors for in-use PM emission levels, as reflected in the NONROAD

model. These factors and other assumptions in the model are still under

review, and will continue to be improved in the future as new

information becomes available. The baseline levels used in this

analysis are consistent with the position taken in the Tier 1 rule that

no PM benefits are claimed from the Tier 1 PM standard. EPA believes

that this approach provides a reasonable estimate of PM benefits from

the new standards but actual benefits could vary significantly from

these levels.

Based on the results of the modeling, the expected emission

benefits from the new standards are quite substantial. Tables 4, 5, and

6 contain the nationwide NOX, NMHC, and PM inventories,

respectively, under the baseline scenario, which assumes only the

current Tier 1 standards are in effect, and under the control scenario,

which assumes the new standards take effect. (The PM reductions

contained in Table 6 are direct PM and do not include secondary PM

benefits, which are described below.) By 2020, the emission reductions

due to the new standards exceed 50 percent for both NOX and

NMHC, and 40 percent for PM. All percentages are calculated relative to

the baseline inventories, which assumes only the current Tier 1

standards are in effect.

Table 4.--NO2 Emissions Inventory From Nonroad Diesel Engines

[Short tons]

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

PSR growth rates BEA growth rates

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

Calendar year With current With new With current With new

standards standards standards standards

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

2000............................................ 2,932,000 2,916,000 2,740,000 2,727,000

2010............................................ 3,787,000 2,576,000 2,827,000 1,954,000

2020............................................ 5,445,000 2,689,000 3,005,000 1,463,000

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

Table 5.--NMHC Emissions Inventory From Nonroad Diesel Engines

[Short tons]

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

PSR growth rates BEA growth rates

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

Calendar year With current With new With current With new

standards standards standards standards

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

2000............................................ 361,000 350,000 337,000 328,000

[[Page 56986]]

2010............................................ 419,000 256,000 301,000 193,000

2020............................................ 619,000 258,000 317,000 138,000

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

Table 6.--PM Emissions Inventory From Nonroad Diesel Engines

[Short tons]

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

PSR growth rates BEA growth rates

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

Calendar year With current With new With current With new

standards standards standards standards

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

2000............................................ 294,000 292,000 271,000 269,000

2010............................................ 410,000 270,000 295,000 195,000

2020............................................ 604,000 338,000 315,000 170,000

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

In addition to the effect of the new emission standards on direct

PM emissions noted above, the standards are expected to reduce the

concentrations of secondary PM. Secondary PM is formed when

NOX reacts with ammonia in the atmosphere to yield ammonium

nitrate particulate. Systems Applications International, under contract

with EPA, evaluated the effect of the NOX reductions on the

formation of nitrate particulate.13 The report concluded

that, as a national average, each 100 tons of NOX reduction

will result in about 4 tons of secondary PM reduction. This conversion

rate varies from region to region, and is greatest in the West. EPA

estimates that the approximately 2.8 million tons per year of

NOX reduction projected in 2020 resulting from this final

rule (assuming PSR growth rates) will result in a national average of

about 110,000 tons per year reduction in secondary PM. This level of

secondary PM reduction is equivalent to about 40 percent of the

projected direct PM reductions determined from Table 6 (based on PSR

growth rates).

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

\13\ ``Benefits of Mobile Source NOX Related

Particulate Matter Reductions,'' Systems Applications International,

EPA Contract No. 68-C5-0010, WAN 1-8, October 1996 (available in Air

Docket A-96-40).

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

As discussed below in section V.B, some technology upgrades

associated with this program may have been introduced absent the

changes in emission standards. Any emission reductions that would

normally have occurred with improvements in technology should not be

considered in determining the benefits and cost effectiveness of new

emission standards. However, EPA believes that as manufacturers

modernize and improve the technologies used on nonroad engines, they

are faced with many choices on how to employ the new technologies to

the greatest advantage for their customers. Many times, in the absence

of requirements to meet tighter emission standards, the manufacturer

will design the parameters of a new technology, or similarly, redesign

the existing engine, to minimize fuel consumption or some other

desirable trait, while not taking advantage of the emissions control

capability of the new technology. Because none of these technologies

leads to inherently lower emissions, EPA has not made any adjustments

to the emission reduction or cost-effectiveness calculations to account

for emission benefits that would have occurred independent of the new

standards.

B. Economic Impacts

In assessing the economic impact of changing the emission

standards, EPA has made a best estimate of the combination of

technologies that an engine manufacturer might use to meet the new

standards at an acceptable cost. EPA published detailed cost estimates

with the proposed rule, which has been extensively revised based on

information received during the public comment period. The principal

change incorporated into the analysis for the final rule is the

inclusion of estimated costs for adding or improving turbocharging and

aftercooler systems. The substantial additional costs for these

technologies are offset to a great degree by the expected savings from

reduced fuel consumption. These and other changes to the estimated

economic impact analysis are described in the Summary and Analysis of

Comments.

While equipment manufacturers bear no responsibility for meeting

emission standards, they will need to make changes in the design of

their equipment models to accommodate the new engines. EPA's treatment

of the impacts of the new emission standards therefore includes an

analysis of costs for equipment manufacturers. Full details of EPA's

cost and cost-effectiveness analyses can be found in Chapters 4 and 6

of the Final RIA.

Estimated cost increases are broken into purchase price and total

life-cycle operating costs. The incremental purchase price for new

engines and equipment is comprised of variable costs (for hardware and

assembly time) and fixed costs (for research and development (R&D),

retooling, and certification). Total operating costs include any

expected increases in maintenance or fuel consumption. Cost estimates

based on these projected technology packages represent an expected

incremental cost of engines as they begin to comply with new emission

standards. Costs in subsequent years are projected to decrease due to

several factors, as described below. Separate projected costs were

derived for engines and equipment used in six different ranges of rated

power; costs were developed for engines near the middle of the listed

ranges. All costs are presented in 1995 dollars. Life-cycle costs have

been discounted to the year of sale using a discount rate of 7 percent.

1. Engine Technologies

The following discussion provides a brief description of those

technologies

[[Page 56987]]

EPA projects will be needed to comply with the new emission standards.

In some cases it is difficult to make a distinction between

technologies needed to reduce emissions for compliance with emission

standards and those technologies that offer other benefits for improved

fuel economy, power density, and other aspects of engine performance.

EPA believes that without new emission standards, manufacturers would

continue research on and eventually deploy many technological upgrades

to improve engine performance or more cost-effectively control

emissions. Modifications to fuel injection systems and the introduction

of electronic controls are expected to continue, regardless of any

change in emission standards, to improve engine performance. Some

further development with a focus on NOX, HC, and PM

emissions will nevertheless play an important role in achieving

emission reduction targets.

Because several technology upgrades have benefits that go beyond

reducing emissions, a difficulty in assessing the impact of new

emission standards is establishing the appropriate technology baseline

from which to make projections. Ideally, the analysis would establish

the mix of technologies that manufacturers would have introduced absent

the changes in emission standards, then make a projection for any

additional changes in hardware or calibration required to comply with

those standards. The costs of those projected technology and

calibration changes would then most accurately quantify the impact of

setting new emission standards. While it is difficult to take into

account the effect of ongoing technology development, EPA believes that

assessing the full cost of the anticipated technologies as an impact of

the new emission standards would inappropriately exclude from

consideration the observed benefits for engine performance, fuel

consumption, and durability. Short of having sufficient data to predict

the future with a reasonable degree of confidence, EPA faces the need

to devise an alternate approach to quantifying the true impact of the

new emission standards. EPA believes the observed value of performance

improvements in the field justifies the use of a discount based on

equal weighting of emission and non-emission benefits of those

technologies which clearly have substantial non-emission benefits,

namely electronic controls, fuel injection changes, turbocharging, and

engine modifications. For some or all of these technologies, a greater

value for the non-emission benefits could likely be justified.

A variety of technological improvements are projected for complying

with the multiple tiers of new emission standards. Selecting these

technology packages requires extensive engineering analysis and

judgment. The fact that manufacturers have nearly a full decade before

implementation of the most challenging of the new standards ensures

that technologies will develop significantly before reaching

production. This ongoing development will lead to reduced costs in

three ways. First, research will lead to enhanced effectiveness for

individual technologies, allowing manufacturers to use simpler packages

of emission control technologies than would be predicted given the

current state of development. Similarly, the continuing effort to

improve the emission control technologies will include innovations that

allow lower-cost production. Finally, manufacturers will focus research

efforts on any potential drawbacks, such as increased fuel consumption

or maintenance costs, attempting to minimize or overcome any negative

effects.

A combination of technology upgrades are anticipated as a result of

the new emission standards. Modifications to basic engine design

features, such as piston bowl shape and engine block and head geometry,

can improve intake air characteristics and distribution during

combustion. Manufacturers are expected to introduce electronic controls

on most engines rated at or above 37 kW. Advanced fuel-injection

techniques and hardware will allow designers to modify various fuel

injection parameters for higher pressure, further rate shaping, and

some split injection. For Tier 3 standards, EPA expects that many

engines will see further fuel injection improvements and will

incorporate a moderate degree of cooled exhaust gas recirculation.

Details of the mix of technologies included in the cost analysis can be

found in Chapter 4 of the Final RIA.

While the following analysis projects a relatively uniform emission

control strategy for designing the different categories of engines,

this should not suggest that EPA expects a single combination of

technologies will be used by all manufacturers. In fact, depending on

basic engine emission characteristics, EPA expects that control

technology packages will gradually be fine-tuned to different

applications. Furthermore, EPA expects manufacturers to use averaging,

banking, and trading programs as a means to deploy varying degrees of

emission control technologies on different engines. EPA nevertheless

believes that the projections presented here provide a cost estimate

representative of the different approaches manufacturers may ultimately

take.

2. Engine Costs

The projected costs of these new technologies for meeting the new

standards are itemized in the Final RIA and summarized in Table 7. For

the Tier 1 standards for engines rated under 37 kW, estimated costs

vary widely. Those engines that already operate with emissions low

enough to meet the Tier 1 standards will bear costs only for certifying

the engine, or about $10 per engine. For the remaining one-third of

engines expected to need reduced emissions, adding engine modifications

leads to total costs of around $90. The anticipated increase in

operating costs will similarly be focused on the minority of engines

that need design improvements, totaling about $130 in net present value

(npv) over the lifetime of those engines. The calculated sales-weighted

composite increase in both the purchase price and the operating costs

for all engines rated under 37 kW is less than $50. ..................

Table 7.--Projected Unit Costs--Engines

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

Power (kW)

Cost category Year of production -----------------------------------------------------------------------------

0-37 37-75 75-130 130-450 450-560 560+

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

Tier 1

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

Incremental purchase price.............. 1............................... $34 ........... ........... ........... ........... ...........

Life-cycle Operating Costs (npv)........ All............................. 44 ........... ........... ........... ........... ...........

[[Page 56988]]

Tier 2

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

Incremental purchase price.............. 1............................... 72 $124 $425 $464 $1,355 $683

Life-cycle Operating Costs (npv)........ All............................. 44 59 -147 -262 -1,347 0

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

Tier 3

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

Incremental purchase price.............. 1............................... ........... 240 511 758 1,858 ...........

6............................... ........... 120 297 435 535 ...........

Life-cycle Operating Costs (npv)........ All............................. ........... 97 -652 -826 -1,212 ...........

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

Tier 2 standards, which apply to the full range of power ratings,

involve higher estimated cost impacts. The set of technologies

anticipated for Tier 2 engines include varying degrees of engine

modifications, improved fuel injection, electronic controls,

turbocharging, aftercooling, and exhaust gas recirculation. A small

increase in operating costs is expected for engines rated between 37

and 75 kW, but for other engines operating costs are expected to remain

unchanged or in some cases to decrease as a result of charge air

cooling, as described in the Final RIA. The price of engines rated

under 75 kW is expected to increase by about $100. Engines rated

between 75 and 450 kW will likely see cost increases between $400 and

$500, while larger engines may see price increases approaching or

exceeding $1,000. The projected cost of compliance with Tier 3

standards entails increases from Tier 2 costs that follow a similar

pattern to the increases for Tier 2 standards, though the Tier 3

standards apply only to engines rated between 37 and 560 kW.

Characterizing these estimated costs in the context of their

fraction of the total purchase price and life-cycle operating costs is

helpful in gauging the economic impact of the new standards. ICF

conducted a study to characterize the range of current engine

costs.14 Although the incremental cost projections in Table

7 increase dramatically with increasing power rating, they in fact

represent a comparable price change relative to the total price of the

engine. The estimated cost increases for all engines are at most 13

percent of estimated engine prices (after typical discounts and

rebates). Moreover, the cost savings described below further reduce the

projected impact of the new emission standards; long-term cost

increases are expected to be 8 percent of total engine price or less.

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

\14\ ``Engine Price (On-Highway and Nonroad) & Life-cycle Cost

Methodology,'' memorandum from Thomas Uden, ICF, Inc. to Alan Stout,

U.S. EPA, March 21, 1997 (available in Air Docket A-96-40).

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

For the long term, EPA has identified two principal factors that

would cause the estimated incremental costs to decrease over time.

First, since fixed costs are assumed to be recovered over a fixed

period, these costs disappear from the analysis after they have been

fully recovered. This has a most striking effect on the projected costs

for engines rated over 450 kW, for which the much higher projected

costs are dominated by fixed costs. Second, the analysis incorporates

the expectation that manufacturers will apply ongoing research to

making emission controls more effective and less costly over time.

Research in the costs of manufacturing has consistently shown that as

manufacturers gain experience in production, they are able to apply

innovations to simplify machining and assembly operations, use lower

cost materials, and reduce the number or complexity of component

parts.15 The analysis incorporates the effects of this

learning curve by projecting that the variable costs of producing the

low-emitting engines decreases by 20 percent starting with the third

year of production and by reducing variable costs again by 20 percent

starting with the sixth year of production. Table 7 lists the projected

costs for each category of engine, including the set of numbers that

illustrate the projected reduction in long-term costs for Tier 3

engines.

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

\15\ ``Learning Curves in Manufacturing,'' Linda Argote and

Dennis Epple, Science, February 23, 1990, Vol. 247, pp. 920-924

(available in Air Docket A-96-40).

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

3. Equipment Costs

In addition to the costs directly associated with engines that are

redesigned to meet new standards, costs may also result from the need

to redesign the nonroad equipment in which these engines are used. Such

redesigns could occur if the engine has a different shape or heat

rejection rate, or is no longer made available in the configuration

previously used. Based on their experience with the Tier 1 standards

set in 1994, equipment manufacturers have told EPA that the main

barrier to accommodating complying engines is the late delivery of such

engines by engine manufacturers, which cuts into the lead time that

equipment manufacturers need to properly redesign their equipment.

Thus, attempts were made in developing this rulemaking to provide

compliance flexibility to help equipment manufacturers avoid business

disruptions resulting from the changes associated with new emission

standards.

In addition, the Tier 3 emission standards and implementation dates

for engines rated at or above 37 kW and Tier 2 emission standards and

implementation dates for engines rated under 37 kW are based on the

premise that no significant equipment redesign beyond that required to

accommodate engines meeting the previous tier of standards will be

required to accommodate the new engines. Equipment manufacturers may,

of course, choose to spread equipment redesigning over the time frame

for both first and second tiers of standards. This analysis accounts

for this flexibility by projecting one major redesign for each

equipment model, spreading the costs of this redesign over both tiers

of standards. For each tier of standards, EPA projects that equipment

manufacturers will have sufficient opportunity to accommodate complying

engines and to market their product. EPA will consider the potential

for multiple design changes to equipment models during the 2001

Feasibility Review.

In assessing the economic impact of the new emission standards, EPA

has made a best estimate of the modifications to equipment that relate

[[Page 56989]]

to packaging (installing engines in equipment engine compartments),

power train (torque curve), and heat rejection effects of the new

complying engines. The incremental purchase price for new engines is

comprised of fixed costs (for R&D and retooling) and variable costs

(for new or modified components). In its analysis, EPA attributes all

changes in operating costs (i.e., additional maintenance and fuel

economy benefit or penalty) to the cost estimates for engines. After a

new standard takes effect, projected equipment costs in subsequent

years would be reduced for the same reasons as described in the engine

cost section above. Separate projected costs were determined for

equipment using the same ranges of power ratings used above. Full

details of EPA's equipment cost analysis can be found in Chapter 4 of

the Final RIA.

a. Projected Equipment Changes. As described earlier, the amount of

time that an equipment manufacturer has to integrate a new engine into

a piece of equipment is of critical importance. These manufacturers

have experienced that late engine delivery may prevent them from

adequately engineering their equipment designs, resulting in the need

for various improvised changes. In this case, the costs associated with

the engine change would be for fabricated components and other hardware

changes more than for engineering time. In contrast, with adequate lead

time, an equipment manufacturer can invest enough engineering time to

design around the new engine, usually with minimal increase in hardware

costs. Depending on the degree of change required, sales volumes, and

other factors, actual costs in either of these scenarios may be

comparable. EPA's analysis follows the latter scenario, emphasizing

engineering time over hardware costs.

The biggest change anticipated for equipment redesign is in

changing the engine compartments to accommodate the physical changes to

engines, especially for those engines that add air-to-air aftercoolers.

The costs for engine development and the principal hardware components

(radiator and plumbing) associated with air-to-air aftercooling are

included as costs to the engines, as described above. What remains to

be quantified for equipment manufacturers is then the effort to make

space for the larger engine system and to integrate the engine into the

overall functioning of the equipment. Extensive engineering time is

allocated to this effort. In addition, significant costs are included

for new, added, or improved materials that may be required, such as

brackets, hoses, gaskets, or sheet metal.

b. Projected Equipment Costs. The costs of the projected equipment

changes resulting from the new standards are itemized in the Final RIA

and summarized in Table 8. For the Tier 1 emission standards that apply

to equipment with engines rated under 37 kW, the estimated composite

cost increase is $24 per piece of equipment. As described in the

section on engine costs above, this estimate is based on the

determination that many of the engines for this range of equipment

already operate with emissions low enough to meet the Tier 1 standards.

Table 8.--Projected Unit Costs

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

Power (kW)

Tier -----------------------------------------------------------------------------

0-37 37-75 75-130 130-450 450-560 560+

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

TIER 1

Equipment......................... $24 ........... ........... ........... ........... ...........

Total Engine and Equipment........ 59 ........... ........... ........... ........... ...........

TIER 2

Equipment......................... 8 $125 $441 $340 $1,315 $404

Total Engine and Equipment........ 80 250 867 804 2,670 1,087

TIER 3: Short-Term

Equipment......................... ........... 42 147 113 439 ...........

Total Engine and Equipment........ ........... 282 658 872 2,296 ...........

TIER 3: Long-Term

Equipment......................... ........... 3 4 5 7 ...........

Total Engine and Equipment........ ........... 122 301 440 543 ...........

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

For Tier 2 standards, the relatively low equipment costs for

equipment rated under 75 kW reflect the higher sales volume of this

range. The highest projected cost of $1315 for equipment utilizing

engines rated between 450 and 560 kW demonstrates that high unit

equipment costs are due to amortizing large fixed costs over small

sales volumes. These large fixed costs result from the effort to

accommodate air-to-air aftercooling. Equipment with engines rated over

560 kW are expected to require less redesign, and have correspondingly

lower costs, since no changes in aftercooling are anticipated for these

models as a result of Tier 2 emission standards.

The projected incremental cost of complying with Tier 3 standards

are lower than that for Tier 2 standards, because EPA expects most of

the significant changes to equipment designs will occur for Tier 2

standards. For Tier 3 standards, projected equipment costs range from

$42 to $439.

As discussed in the section on engine costs above, characterizing

both these estimated incremental equipment and engine costs in the

context of their fraction of the total equipment purchase price is

useful for evaluating the economic impact of the new standards. EPA

collected quoted retail (list) prices on several equipment pieces to

characterize the range of current equipment prices. The combined

incremental costs estimated for equipment and engines together for all

power ranges are almost all under 2 percent of list prices, while many

are well below 1 percent.

Furthermore, as described in the section on engine costs above, the

cost savings from full amortization of fixed costs and application of a

learning curve further reduce the projected cost impact of the new

standards. Table 8 shows the projected equipment costs for each

category of equipment, including the long-term cost projections for

complying with Tier 3 standards. The table also presents the combined

costs estimated

[[Page 56990]]

for equipment and engines (excluding changes to operating costs).

4. Aggregate Costs to Society

The above analysis presents unit cost estimates for each power

category. With current data for equipment sales for each category and

projections for the future, these costs can be translated into a total

projected cost to the nation for the new emission standards in any

year. Accounting for the projected favorable impact of the new

standards on operating costs, primarily from fuel savings in larger

engines, would produce negative aggregate costs (net economic gains) in

future years. However, because it is difficult to accurately assess the

fuel economy impacts of hardware changes and the degree to which these

savings would have developed in the absence of new emission standards,

EPA has conservatively chosen to present aggregate costs to society

without factoring in the expected changes in operating costs. Using

only the increased purchase prices leads to aggregate costs of about $5

million in the first year the new standards apply, increasing to a peak

of about $550 million in 2010 as increasing numbers of engines become

subject to the new standards. The following years show declining

aggregate costs as the per-unit cost of compliance decreases, resulting

in a minimum aggregate cost of about $390 million in 2017. After 2017,

stable engine costs applied to a slowly growing market lead to slowly

increasing aggregate costs.

As described earlier, EPA developed the cost and cost-effectiveness

analyses by attributing half of the cost of certain technologies to

benefits unrelated to emission control. To analyze the sensitivity of

the cost analysis to this assumption, EPA estimated unit costs by

attributing the full cost of these technologies to the new emission

standards. EPA then estimated the effect of these increased costs on

the 20-year costs to society. Assigning the full cost of technology as

an to the emission control program, the 20-year fleetwide discounted

cost is estimated to be $4.4 billion, approximately $1.2 billion higher

than calculated using the base case. Similarly, the resulting 20-year

annualized fleetwide costs are $411 million per year, approximately

$115 million higher than the base case results.

EPA also developed alternative cost figures to test the sensitivity

of distributing fixed costs over worldwide production of nonroad

engines and equipment. Because some countries are not expected to adopt

harmonized emission standards in the foreseeable future, manufacturers

could choose to distribute fixed costs over a subset of foreign sales.

Since it is very difficult to quantify sales volumes for individual

countries for all the companies that participate in the U.S. market,

EPA made the simplifying assumption that fixed costs could be

distributed over only half of engines sold into other countries.

Distributing costs over this smaller number of engines leads to a 20-

year fleetwide discounted cost of $3.6 billion, approximately $0.4

billion higher than the base case results. The corresponding 20-year

annualized fleetwide costs are $339 million per year, approximately $40

million higher than the base case results.

C. Cost-Effectiveness

EPA has estimated the cost-effectiveness (i.e., the cost per ton of

emission reduction) of the Tier 1, Tier 2 and Tier 3 standards for the

same power categories of nonroad equipment highlighted earlier in this

section. Chapter 6 of the Final RIA contains a more detailed discussion

of the cost-effectiveness analysis.

As described above in the preceding section, the projected cost of

complying with the new standards will vary by power category and model

year. Therefore, the cost-effectiveness will also vary from model year

to model year. For comparison purposes, the discounted costs (including

increased engine costs and equipment costs), emission reductions (in

short tons), and cost-effectiveness of the NMHC + NOX

standards are shown in Table 9 for the same model years discussed in

the preceding section. EPA believes this is a conservative estimate

because EPA assumed for the sake of this analysis that all of the

increased costs presented earlier were attributable to NMHC +

NOX control and none of the costs were attributed to PM

control. NOX reductions represent approximately 90 percent

of the total NMHC + NOX emission reductions expected from

the new standards. In addition, the costs presented in Table 9 do not

include the expected effect on operating costs over the lifetime of the

equipment. EPA expects the operating costs to offset much, if not all,

of the increased engine and equipment costs presented in Table 9 for

engines above 75 kW due to expected improvements in fuel economy for

engines meeting the new standards.

Table 9.--Cost-effectiveness of the New NMHC+NOX Standards

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

Discounted

Discounted lifetime Discounted

Standard Power (kW) Year of engine and NMHC+NOX lifetime cost-

production equipment reductions effectiveness

cost (tons) per ton

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

Tier 1...................................... 0-37 1 $59 0.20 $300

Tier 2...................................... 0-37 1 80 0.04 2,090

............ 6 35 ........... 910

37-75 1 249 0.49 510

75-130 1 867 1.02 850

130-450 1 804 1.82 440

450-560 1 2,670 7.68 350

>560 1 1,087 9.83 110

............ 6 1,025 ........... 100

Tier 3...................................... 37-75 1 282 0.51 560

............ 6 160 ........... 320

75-130 1 658 0.82 800

............ 6 442 ........... 540

130-450 1 872 1.46 600

............ 6 545 ........... 380

450-560 1 2,296 5.91 390

............ 6 1,991 ........... 340

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[[Page 56991]]

Weighting the projected cost and emission benefit numbers presented

above by the populations of the individual power categories, EPA

calculated the cost-effectiveness of the new NMHC + NOX

standards for the entire nonroad diesel engine fleet. Table 10 contains

the resulting fleet-wide cost-effectiveness results for the Tier 2 and

Tier 3 standards. The sensitivity analyses described in Section V.B.4.

above would affect cost-effectiveness calculations in the same way as

described for fleetwide total costs. The Appendix to the Final RIA

includes cost-effectiveness results for the sensitivity analysis in

which full costs are attributed to emissions control.

Table 10.--Fleet-wide Cost-effectiveness of the New Nonroad NMHC+NOX

Standards

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