[Federal Register Volume 77, Number 20 (Tuesday, January 31, 2012)]
[Proposed Rules]
[Pages 4736-4749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1936]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 86
[AMS-FRL-9623-9]
Nonconformance Penalties for On-Highway Heavy-Duty Diesel Engines
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice of proposed rulemaking.
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SUMMARY: EPA is proposing to make nonconformance penalties (NCPs)
available to manufacturers of heavy-duty diesel engines in model years
2012 and later for emissions of oxides of nitrogen (NOx). In general,
the availability of NCPs allows a manufacturer of heavy-duty engines
(HDEs) whose engines fail to conform to specified applicable emission
standards, but do not exceed a designated upper limit, to be issued a
certificate of conformity upon payment of a monetary penalty to the
United States Government. The proposed upper limit associated with
these NCPs is 0.50 grams of NOx per horsepower-hour.
DATES: Comments: Comments on all aspects of this proposal must be
received on or before April 4, 2012. See the SUPPLEMENTARY INFORMATION
section on ``Public Participation'' for more information about written
comments.
Public Hearings: EPA will hold a public hearing on the following
date: March 5, 2012. The hearing will start at 10 a.m. local time and
continue until 5 p.m. or until everyone has had a chance to speak. See
``How Do I Participate in the Public Hearings?'' below at VII. B. under
the SUPPLEMENTARY INFORMATION section on ``Public Participation'' for
more information about the public hearings.
ADDRESSES: Submit your comments to Docket EPA-HQ-OAR-2011-1000, by one
of the following methods: http://www.regulations.gov: Follow the on-
line instructions for submitting comments.
Email: [email protected].
Fax: EPA: (202) 566-9744.
Mail: EPA: Air Docket, Environmental Protection Agency, EPA Docket
Center, Mailcode: 2822T, 1200 Pennsylvania Avenue NW., Washington, DC
20460. Hand Delivery: EPA: EPA Docket Center, (Air Docket), U.S.
Environmental Protection Agency, EPA West Building, 1301 Constitution
Avenue NW., Room: 3334, Mail Code 2822T, Washington, DC. Such
deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2011-1000. See the SUPPLEMENTARY INFORMATION section on ``Public
Participation'' for additional instructions on submitting written
comments.
Docket: All documents in the docket are listed in the http://www.regulations.gov index. Although listed in the index, some
information is
[[Page 4737]]
not publicly available, e.g., confidential business information or
other information whose disclosure is restricted by statute. Certain
other material, such as copyrighted material, will be publicly
available only in hard copy in the docket. Publicly available docket
materials are available either electronically in http://www.regulations.gov or in hard copy at the following locations:
EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301
Constitution Avenue NW., Washington, DC. The Public Reading Room is
open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding
legal holidays. The telephone number for the Air Docket is (202) 566-
1742.
FOR FURTHER INFORMATION CONTACT: Chuck Moulis, U.S. EPA, National
Vehicle and Fuel Emissions Laboratory, 2000 Traverwood, Ann Arbor, MI
48105; Telephone (734) 214-4826; Email [email protected].
SUPPLEMENTARY INFORMATION:
Regulated Entities
This proposed action would affect you if you produce or import new
heavy-duty diesel engines which are intended for use in highway
vehicles such as trucks and buses or heavy-duty highway vehicles. The
table below gives some examples of entities that may have to follow the
proposed regulations. But because these are only examples, you should
carefully examine the proposed and existing regulations in 40 CFR part
86. If you have questions, call the person listed in the FOR FURTHER
INFORMATION CONTACT section above.
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Examples of
Category NAICS a potentially regulated
Codes entities
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Industry........................... 336112 Engine and truck
manufacturers.
336120
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a North American Industry Classification System (NAICS).
Table of Contents
I. Statutory Authority and Regulatory Background
A. Statutory Authority
B. Background Regarding Nonconformance Penalty Rules
C. 2007 and 2010 NOX Standards
II. Interim Final Rule
III. Nonconformance Penalties for 2012 and Later Heavy-Duty Engines
and Heavy-Duty Vehicles
A. NCP Eligibility: Emission Standards for Which NCPs Are Being
Established in This Interim Final Rule
B. NCP Eligibility: Emission Standards for Which NCPs Are Not
Proposed
IV. Penalty Rates
A. Parameters
B. Issues and Alternatives for NCPs
V. Economic Impact
VI. Environmental Impact
VII. Public Participation
A. How do I submit comments?
B. Will there be a public hearing?
VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Unfunded Mandates Reform Act
E. Executive Order 13132 (Federalism)
F. Executive Order 13175 (Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: ``Protection of Children From
Environmental Health Risks and Safety Risks''
H. Executive Order 13211 (Energy Effects)
I. National Technology Transfer Advancement Act
J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
IX. Statutory Provisions and Legal Authority
I. Statutory Authority and Regulatory Background
A. Statutory Authority
Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g),
allows EPA to promulgate regulations permitting manufacturers of heavy-
duty engines (HDEs) or heavy-duty vehicles (HDVs) to receive a
certificate of conformity for HDEs or HDVs that exceed a federal
emissions standard, but do not exceed an upper limit associated with
that standard, if the manufacturer pays a nonconformance penalty (NCP)
established by rulemaking. Congress adopted section 206(g) in the Clean
Air Act Amendments of 1977 as a response to a concern with requiring
technology-forcing emissions standards for heavy-duty engines. The
concern was if strict technology-forcing standards were promulgated,
then some manufacturers might be unable to comply initially and would
be forced out of the marketplace. NCPs were intended to remedy this
concern. The nonconforming manufacturers would have a temporary
alternative that would permit them to sell their engines or vehicles by
payment of a penalty. At the same time, conforming manufacturers would
not suffer a competitive disadvantage compared to nonconforming
manufacturers, because the NCPs would be based, in part, on money saved
by the nonconforming manufacturer.
Under section 206(g)(1), NCPs may be offered for HDVs or HDEs. The
penalty may vary by pollutant and by class or category of vehicle or
engine. Section 206(g)(3) requires that NCPs:
Account for the degree of emission nonconformity;
Increase periodically to provide incentive for
nonconforming manufacturers to achieve the emission standards; and
Remove the competitive disadvantage to conforming
manufacturers.
Section 206(g) authorizes EPA to require testing of production
vehicles or engines in order to determine the emission level upon which
the penalty is based. If the emission level of a vehicle or engine
exceeds an upper limit of nonconformity established by EPA through
regulation, the vehicle or engine would not qualify for an NCP under
section 206(g) and no certificate of conformity could be issued to the
manufacturer. If the emission level is below the upper limit but above
the standard, that emission level becomes the ``compliance level,''
which is also the benchmark for warranty and recall liability. The
manufacturer who elects to pay the NCP is liable for vehicles or
engines that exceed the compliance level in use. The manufacturer does
not have in-use warranty or recall liability for emissions levels above
the standard but below the compliance level.
B. Background Regarding Nonconformance Penalty Rules
Since the promulgation of the first NCP rule in 1985, subsequent
NCP rules generally have been described as continuing ``phases'' of the
initial NCP rule. The first NCP rule (Phase I), sometimes referred to
as the ``generic'' NCP rule, established three basic criteria for
determining the eligibility of emission standards for nonconformance
penalties in any given model year (50 FR 35374, August 30, 1985). As
described in section III. A. of this notice,
[[Page 4738]]
we have determined that these criteria have been met for one
manufacturer. (For regulatory language, see 40 CFR 86.1103-87.) The
first criterion is that the emission standard in question must become
more difficult to meet. This can occur in two ways, either by the
emission standard itself becoming more stringent, or due to its
interaction with another emission standard that has become more
stringent. Second, substantial work must be required in order to meet
the emission standard. EPA considers ``substantial work'' to mean the
application of technology not previously used in that vehicle or engine
class/subclass, or a significant modification of existing technology,
in order to bring that vehicle/engine into compliance. EPA does not
consider minor modifications or calibration changes to be classified as
substantial work. Third, EPA must find that a manufacturer is likely to
be noncomplying for technological reasons (referred to in earlier rules
as a ``technological laggard''). Prior NCP rules have considered such a
technological laggard to be a manufacturer who cannot meet a particular
emission standard due to technological (not economic) difficulties and
who, in the absence of NCPs, might be forced from the marketplace. As
described in section III. A. of this notice, we have determined that
this criterion has been met for one manufacturer. This manufacturer
notified us late in 2011 that it would not have enough emission credits
for its model year 2012 heavy heavy-duty engines.
The criteria and methodologies established in the 1985 NCP rule
have since been used to determine eligibility and to establish NCPs for
a number of heavy-duty emission standards. Phases II, III, IV, V, and
VI published in the period from 1985 to 2002, established NCPs that, in
combination, cover the full range of heavy-duty--from heavy light-duty
trucks (6,000-8,500 pounds gross vehicle weight) to the largest diesel
truck and urban bus engines. NCPs have been established for
hydrocarbons (HC), carbon monoxide (CO), nitrogen oxides
(NOX), and particulate matter (PM). The most recent NCP rule
(67 FR 51464, August 8, 2002) established NCPs for the 2004 and later
model year NOX standard for heavy-duty diesel engines
(HDDEs). The NCP rulemaking phases are summarized in greater detail in
the Interim and Proposed Technical Support Document for this
rulemaking.
C. 2007 and 2010 NOX Standards
The 0.20 g/hp-hr NOX standard that applies for current
and future heavy-duty engines was adopted January 18, 2001 (66 FR
5001), and first applied in the 2007 model year. However, because of
phase-in provisions adopted in that rule and use of emission credits
generated by manufacturers for early compliance, manufacturers have
been able to continue to produce engines with NOX emissions
greater than 0.20 g/hp-hr. The phase-in provisions ended after model
year 2009 so that the 0.20 g/hp-hr NOX standard was fully
phased-in for model year 2010. Equally important, the cap applicable to
Family Emission Limits (FELs) \1\ for credit using engine families was
lowered to 0.50 g/hp-hr beginning in model year 2010. Because of these
changes that occurred in model year 2010, the 0.20 g/hp-hr
NOX emission standard is often referred to as the 2010
NOX emission standard, even though it applied to engines as
early as model year 2007.
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\1\ FELs serve are emission levels specified by the manufacturer
that serve as the applicable emission standard for engines
participating in the emission averaging program. The FEL cap is the
highest FEL to which a manufacturer may certify an engine using
emission credits.
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While some manufacturers retain NOX emission credits
that currently allow them to produce engines with NOX
emissions as high as 0.50 g/hp-hr, we expect that one of these
manufacturers could exhaust their supplies of credits in the near
future.
II. Interim Final Rule
EPA is also publishing an Interim Final Rule (IFR) addressing NCPs
for heavy heavy-duty engines. The NCPs in the Final Rule for this NPRM
are expected to supersede the NCPs being promulgated in that Interim
Final Rule. For example, if the Final Rule is published September 14,
2012, it would likely have an effective date of November 13, 2012.
Should the Final Rule establish different NCPs for heavy heavy-duty
engines than the interim NCPs, we could apply those new NCPs to any
engines produced on or after November 13, 2012, instead of the interim
NCPs.
Note that Docket Number EPA-HQ-OAR-2011-1000 is being used for both
the Interim Final Rule and this NPRM.
III. Nonconformance Penalties for 2012 and Later Heavy-Duty Engines and
Heavy-Duty Vehicles
A. NCP Eligibility: Emission Standards for Which NCPs Are Being
Established in This Interim Final Rule
(1) Heavy Heavy-Duty Diesel NOX Standard
As discussed in section I.B., EPA must determine that three
criteria are met in order to determine that an NCP should be
established in any given model year. For the 2010 NOX
standard, we believe these criteria have been met for heavy heavy-duty
diesel engines and it is therefore appropriate to establish NCPs for
this standard beginning in the current model year.
The first criterion requires that the emission standard in question
must become more difficult to meet. This is the case with the 2010
NOX standard. The previous emission standard for this
category is a combined NMHC+NOX standard of 2.4 g/hp-hr, or
optionally a 2.5 g/hp-hr NMHC+NOX with a limit of 0.5 g/hp-
hr NMHC.\2\ The 2010 (i.e., current) standards are 0.20 g/hp-hr for
NOX and 0.14 g/hp-hr for NMHC. When promulgated, the Agency
concluded that the 0.20 g/hp-hr NOX standard was a
technology forcing standard. Second, all heavy heavy-duty diesel
engines currently certified to the 0.20 g/hp-hr standard without using
credits are using new aftertreatment systems to meet this standard.\3\
It is therefore logical to conclude the standard is more difficult to
meet and that substantial work was required to meet the emission
standard.
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\2\ NMHC stands for non-methane hydrocarbons, which is a measure
of total hydrocarbons with the methane emissions subtracted out. For
typical on-highway diesel fueled heavy-duty engines, methane
emissions are on the order of 10 percent of the total hydrocarbon
emissions.
\3\ For this proposed rule, EPA describes those manufacturers
that have achieved the 0.20 g/hp-hr emission standard as
``compliant'' or ``complying'' manufacturers, and those that have
not as the ``noncompliant'' or ``noncomplying'' manufacturers.
However, it is important to clarify that manufacturers certifying
above the 0.20 g/hp-hr NOX emission standard using
emission credits are in compliance with regulations as long as they
have enough emission credits to offset their total NOX
emissions above the standard.
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Third, EPA is promulgating NCPs for heavy heavy-duty diesel engines
because we have concluded that there is a significant likelihood that
they will be needed by an engine manufacturer that has not yet met the
requirements for technological reasons. One manufacturer is currently
using NOX credits to certify all of its heavy heavy-duty
diesel engines at nearly the FEL cap level of 0.50 g/hp-hr. Based on
its current credit balance and projected sales for this service class,
we do not expect this manufacturer to have sufficient credits to cover
its entire model year 2012 production. This manufacturer intends to use
a different technology to meet the NOX standard but has not
yet submitted an application for the 2012 model year with
NOX emissions at or below the 0.20 g/hp-hr standard. Since
it has not yet submitted an application for certification for any model
year 2012 heavy heavy-duty
[[Page 4739]]
diesel engines that would not require emission credits, we believe it
is a reasonable possibility that this manufacturer may not be able to
comply for technological reasons with respect to the 2010
NOX standards for heavy heavy-duty diesel engines. This
manufacturer notified us late in 2011 that it would not have enough
emission credits for its model year 2012 heavy heavy-duty engines.
(2) Medium Heavy-Duty Diesel NOX Standard
EPA believes that the first two NCP criteria have also been met for
medium heavy-duty diesel engines. We have also determined that there is
a significant chance that NCPs will be needed by an engine manufacturer
that has not yet met the 2010 NOX standards for medium
heavy-duty diesel engines for technological reasons. As is true for
heavy heavy-duty engine, one manufacturer is currently using
NOX credits to certify all of its medium heavy-duty diesel
engines above 0.20 g/hp-hr. This manufacturer intends to use a
different technology to meet the NOX standard but has not
yet submitted an application for any upcoming model year with
NOX emissions at or below the 0.20 g/hp-hr standard. Since
it has not yet submitted an application for certification for any model
year medium heavy-duty diesel engines that would not require emission
credits, we believe it is prudent to promulgate NCPs given the
possibility that this manufacturer may not be able to comply for
technological reasons with respect to the 2010 NOX standards
for medium heavy-duty diesel engines before it exhausts its supply of
emission credits for medium heavy-duty engines.
B. NCP Eligibility: Emission Standards for Which NCPs Are Not Proposed
(1) Light Heavy-Duty Diesel NOX Standard
EPA believes that the first two NCP criteria have been met for the
2010 NOX standard for light heavy-duty diesel engines.
However, we have not determined that any manufacturer of light heavy-
duty diesel engines will be unable to certify to the 2010
NOX standard through use of emission credits until it
develops emissions controls that allow its light heavy-duty diesel
engines to achieve NOX emissions at or below 0.20 g/hp-hr.
(2) Heavy-Duty Gasoline Engine Standards
In a final rule published on January 18, 2001 (66 FR 5001), EPA
established more stringent emission standards for all heavy-duty
gasoline (or ``Otto-cycle'') vehicles and engines. These standards took
two forms: a chassis-based set of standards for complete vehicles under
14,000 pounds GVWR (the chassis-based program), and an engine-based set
of standards for all other Otto-cycle heavy-duty engines (the engine-
based program). Each of the two programs has an associated averaging,
banking, and trading (ABT) program. The new standards generally took
effect starting with the 2008 model year, and all manufacturers are in
compliance with them.
(3) Heavy-Duty Diesel Engine NMHC, CO, and PM Standards
EPA adopted new NMHC and PM for model year 2007 and later heavy-
duty engines in the same rule that set the 2010 NOX emission
standard (66 FR 5001, January 18, 2001). The CO standard was not
changed. We are not considering NCPs for any of these other standards
because all manufacturers are already fully compliant with them.
(4) Heavy-Duty CO2 Standards
In a final rule published on September 15, 2011 (76 FR 57106), EPA
established new CO2 emission standards for all heavy-duty
vehicles and engines. We are not considering NCPs for any of these
standards at this time because we currently do not have a basis to
conclude that a technological laggard is likely to develop.
We are proposing to add a new regulatory provision related to these
CO2 emission standards. The provision would prohibit
generating CO2 emission credits from engines paying NCPs for
NOX. Given the general tradeoff between CO2 and
NOX emissions, we were concerned that a manufacturer capable
of meeting the 0.20 g/hp-hr NOX emission standard could
choose to pay an NCP in order to generate CO2 credits by
recalibrating its engines for higher NOX emissions and lower
CO2. There are two reasons this would be inappropriate.
First, emission credits are supposed to provide an incentive for a
manufacturer to go beyond what is normally required to meet emission
standards. However, allowing manufacturers to generate CO2
credits while paying NCPs would actually create an incentive for
manufacturers to do less than is required to meet the emission
standards. Equally important, NCPs have always been intended for
manufacturers that cannot meet an emission standard for technological
reasons rather than manufacturers choosing not to comply.
IV. Penalty Rates
This proposed rule is the most recent in a series of NCP
rulemakings. These are referred to as Phases and are referenced
below.\4\ The discussions of penalty rates in those rulemakings are
incorporated by reference. This section briefly reviews the penalty
rate formula originally promulgated in the Phase I rule (currently
found at 40 CFR 86.1113-87) and discusses how EPA arrived at the
proposed penalty rates.
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\4\ The previous NCP rules include: the Phase VI rulemaking (67
FR 51464, August 8, 2002), Phase V rulemaking (61 FR 6949, February
23, 1996), Phase IV rulemaking (58 FR 68532, December 28, 1993),
Phase III rulemaking (55 FR 46622, November 5, 1990), the Phase II
rulemaking (50 FR 53454, December 31, 1985) as well as the Phase I
rulemaking (50 FR 35374, August 30, 1985).
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The penalty rates being established in this rule rely on the
existing NCP regulatory structure. Thus, the only changes being made to
the regulations are updates to the cost parameters to reflect the
compliance costs for the 2010 standards, setting of the upper limit,
and clarifying in Sec. 86.1104-91 that EPA may set the upper limit at
a level below the previous standard if we determine that the lower
level is achievable by all engines.
The NCP rates being proposed are specified for model year 2012. As
required by the Clean Air Act, the existing regulations include a
formula that increases the penalty rates with each new model year. We
proposed to apply this annual adjustment formula to the NCPs by setting
the 2012 model year as year number one. Traditionally, NCPs are
available the first year of the new emission standard and that becomes
year one for purposes of the annual escalator. However, EPA believes
the 2012 model year is the correct year for the first year of the
escalator calculation even though the NOX emission standard
began in 2010.
A. Parameters
As in the previous NCP rules, we are specifying the NCP formula for
each standard using the following parameters: COC50,
COC90, MC50, F, and UL. The NCP formula is the
same as that promulgated in the Phase I rule. As was done in previous
NCP rules, costs consider additional manufacturer costs and additional
owner costs, but do not consider certification costs because both
complying and noncomplying manufacturers must incur certification
costs. COC50 is an estimate of the industry-wide average
incremental cost per engine (references to engines are intended to
include vehicles as well) associated with meeting the standard for
which an NCP is offered, compared with
[[Page 4740]]
meeting the upper limit. COC90 is an estimate of the 90th
percentile incremental cost per-engine associated with meeting the
standard for which an NCP is offered, compared with meeting the
associated upper limit. Conceptually, COC50 represents costs
for a typical or average manufacturer, while COC90
represents costs for the manufacturers with the highest compliance
costs.
MC50 is an estimate of the industry-wide average
marginal cost of compliance per unit of reduced pollutant associated
with the least cost effective emission control technology installed to
meet the new standard. MC50 is measured in dollars per g/hp-
hr for heavy-duty engines. F is a factor used to derive
MC90, the 90th percentile marginal cost of compliance with
the NCP standard for engines in the NCP category. MC90
defines the slope of the penalty rate curve near the standard and is
equal to MC50 multiplied by F. UL is the upper limit above
which no engine may be certified.
The derivation of the cost parameters is described in a support
document entitled ``Interim and Proposed Technical Support Document:
Nonconformance Penalties for 2012 and later Highway Heavy-Duty Diesel
Engines,'' which is available in the public docket for this rulemaking.
All costs are presented in 2011 dollars.
(1) Upper Limit
We are proposing to revise the regulations in Sec. 86.1104-91 to
clarify that EPA may set (during rulemaking) the upper limit at a level
below the previous standard if we determine that the lower level is
achievable by all engines. We would also specify that EPA could set the
upper limit at a level above the previous standard in unusual
circumstances, such as those that occurred for heavy heavy-duty engines
with the 2004 standards. As described below, we are also establishing
the upper limit for this NCP rule at 0.50 g/hp-hr. These are the only
regulatory changes being made with respect to the upper limit.
The upper limit is the emission level established by regulation
above which NCPs are not available and a heavy duty engine cannot be
certified or introduced into commerce. CAA section 206(g)(2) refers to
the upper limit as a percentage above the emission standard, set by
regulation, that corresponds to an emission level EPA determines to be
``practicable.'' The upper limit is an important aspect of the NCP
regulations not only because it establishes an emission level above
which no engine may be certified, but it is also a critical component
of the cost analysis used to develop the penalty rates. The regulations
specify that the relevant costs for determining the COC50
and the COC90 factors are the difference between an engine
at the upper limit and one that meets the applicable standards (see 40
CFR 86.1113-87).
The regulatory approach adopted under the prior NCP rules sets the
default Upper Limit (UL) at the prior emission standard when a prior
emission standard exists and is then changed to become more stringent.
EPA concluded that the upper limit should be reasonably achievable by
all manufacturers with vehicles in the relevant class. It should be
within reach of all manufacturers of HDEs or HDVs that are currently
allowed so that they can, if they choose, pay NCPs and continue to sell
their engines and vehicles while finishing their development of fully
complying engines. A manufacturer of a previously certified engine or
vehicle should not be forced to immediately remove an HDE or HDV from
the market when an emission standard becomes more stringent. The prior
emissions standard generally meets these goals because manufactures
have already certified their vehicles to that standard.
In the past, EPA has rejected suggestions that the upper limit
should be more stringent than the prior emission standard because it
would be very difficult to identify a limit that could be met by all
manufacturers. For this rule, however, all manufacturers are currently
certifying all of their engines at or below the 0.50 g/hp-hr FEL cap.
Thus, since NCPs were not intended to allow manufacturers to increase
emissions, we are setting the upper limit for this NCP rule at 0.50 g/
hp-hr NOX. This will conform to the purpose of NCPs, which
is to allow manufacturers to continue selling engines they are
producing, but not to allow backsliding.
(2) Cost Parameter Values
The regulations being adopted specify that the values in Table 1
(in 2011 dollars) be used in the NCP formula for the 2012 and later
model year NOX standard of 0.20 g/hp-hr for diesel heavy-
duty engines. The basis is summarized here. The complete derivation of
these parameters is described in the Interim and Proposed Technical
Support Document for this rulemaking. We request comment on our
estimates of these parameters.
We also considered other methodologies for estimating the
incremental compliance costs between the upper limit and the standard.
We rejected these alternatives because we are not confident that we
could estimate the costs with sufficient accuracy or describe our basis
without revealing confidential business information. Moreover, we have
no reason to believe that these alternative methodologies would have
been better with respect to the statutory requirement to remove the
competitive disadvantage of the complying manufacturers.
(a) General Methodology
Based on our review of the various hypothetical baseline engine
designs, we selected a straightforward ``baseline engine'' technology
package with associated costs that were determinable within a
reasonably high degree of certainty. This approach best limited the
sensitivity of the penalty rate versus small variations in any of the
``baseline engine'' technology package elements. This cost stability
mitigated the hypothetical nature of the ``baseline engine'' technology
package, which, in turn, led to a penalty rate that we believe is
reasonable. As is described in the TSD, we believe estimating costs by
this approach is the least speculative method to determine compliance
costs.
We selected a baseline engine technology package that would employ
the same basic emission controls used to meet the 2007 NOX
and PM emission standards (e.g. cooled exhaust gas recirculation),
optimized turbo-charging, optimized fuel injection, diesel particulate
filters), plus liquid urea based Selective Catalytic Reduction (SCR)
NOX emissions control technology with an appropriately sized
tank for the diesel exhaust fluid (DEF). Further details are provided
in this rule's TSD. While EPA selected the baseline engine (or upper
limit engine) to be a fully optimized, SCR-equipped engine that
complies with all other emission standards and requirements, the NCPs
may be used for engines using other technologies.
This approach differs slightly from that used In previous NCP
rules, where EPA based the NCPs directly on an average of actual
compliance costs for all manufacturers. This was appropriate in those
prior rules because each of the manufacturers had actually produced
engines at the upper limit (which was usually the previous emission
standard). It was relatively straightforward for them to provide us
with a confidential engineering analysis of the costs they actually
incurred: the real costs of additional hardware and fluids and the
differences in performance characteristics. We have always sought full
understanding of the manufacturers' inputs, and for previous NCP rules
it was also reasonable for EPA to conclude
[[Page 4741]]
that the manufacturers' input accurately reflected the manufacturers'
actual costs because the costs were derived directly from actual in-
production engine information. In the case of this NCP rule, however,
compliant manufacturers have not designed and optimized in-production
engines for the U.S. market at 0.50 g/hp-hr NOX (the upper
limit). Thus, a compliance cost estimate based directly on actual
experience for in-production engines was not available for this NCP
rule.
Instead of averaging actual costs (because none were available),
the NCP penalty formulas for this rule are based primarily on EPA's
estimate of the cost difference between an engine emitting at the upper
limit (the ``baseline engine'') and one emitting at the standard (the
``compliant engine''). We requested cost of compliance information from
several engine manufacturers and used that information to inform our
own analysis of compliance costs, as described in the Interim and
Proposed Technical Support Document. The engine manufacturers we
contacted approached this cost analysis in the same way we did. That
is, the scenarios we and the manufacturers considered were all based
upon hypothetical baseline engine designs that were intended to meet
the 0.50 g/hp-hr NOX upper limit.
It is worth noting that each of the five engine manufacturers we
contacted considered hypothetical baseline engines with different
technology packages. Two complying manufacturers based their compliance
costs on a baseline engine equipped with similar (but not identical)
hardware as EPA; another on an SCR-equipped engine without exhaust gas
recirculation, and a fourth on its estimation of the non-complying
engines produced by a competitor. All four manufacturers meeting the
0.20 g/hp-hr NOX standard compared the costs for their
hypothetical baseline engines to the costs for their actual compliant
engines. The one non-SCR manufacturer we contacted (that has not yet
certified any engines with NOX emissions at 0.20 g/hp-hr)
provided its projections of what it will spend to bring its current
2011 engine into compliance without the use of emission credits.
(b) Calculated Values
The most significant of the NCP parameters is the 90th percentile
costs of compliance, COC90, which defines the penalty for
engines emitting at the upper limit. The value of COC50 only
matters when EPA estimates that marginal compliance costs change as the
compliance level approaches the standard. In such cases,
COC50 defines that point on the curve at which the slope
changes. We estimated COC90 and COC50 by assuming
the baseline engine would have been an SCR equipped engine with
NOX emissions at 0.50 g/hp-hr and that it looked very
similar to an engine with NOX emissions at 0.20 g/hp-hr.
However, the higher NOX emissions of the baseline engine
would allow the use of less expensive hardware and would require less
consumption of liquid urea (also known as diesel emission fluid or
``DEF'').
We estimated the marginal costs of compliance as being equal to the
total incremental costs of compliance divided by 0.30 g/hp-hr (the
difference between the upper limit and the standard). This assumes that
the cost to reduce emissions from 0.30 g/hp-hr to 0.20 g/hp-hr is not
significantly different from the cost to reduce emissions from 0.50 g/
hp-hr to 0.40 g/hp-hr. This results in a penalty curve for heavy heavy-
duty engines that is a straight line, which in turn makes our estimate
of the average cost of compliance irrelevant to the calculation of the
penalty. In other words, the COC50 point lies directly
between zero cost at 0.20 g/hp-hr and COC90 at the Upper
Limit of 0.50 g/hp-hr NOX. The penalty paid for engines at
the upper limit would be equal to EPA's estimate of the highest
marginal cost paid by a complying manufacturer for the same emission
range.
Table 1--Proposed NCP Calculation Parameters
------------------------------------------------------------------------
Medium heavy-duty Heavy heavy-duty
Parameter diesel engines diesel engines
------------------------------------------------------------------------
COC50....................... $462................ $1,561.
COC90....................... $682................ $1,919.
MC50........................ $1,540 per gram per $5,203 per gram per
horsepower-hour. horsepower-hour.
F........................... 1.30................ 1.23.
UL.......................... 0.50 g/hp-hr........ 0.50 g/hp-hr.
------------------------------------------------------------------------
(3) Resulting Penalties
The calculation parameters listed in Table 1 are used to calculate
the penalty rate. These parameters are used in the penalty rate
formulas which are defined in the existing NCP regulations (See 40 CFR
86.1113(a)(1) and (2)). Using the parameters in Table 1, and the
equations in the existing NCP regulations, we have plotted penalty
rates versus compliance levels in Figure 1 and Figure 2 below. This
penalty curve is for the first year of use of the NCPs (i.e., the
annual adjustment factors specified in the existing NCP regulations
have been set equal to one).
The Clean Air Act NCP provisions require that the penalty be set at
such a level that it removes any competitive disadvantage to a
complying manufacturer by requiring non-complying manufacturers to pay
NCPs. Our methodology for developing the NCP is detailed in the Interim
and Proposed Technical Support Document. Our technology approach
includes relatively minor hardware upgrades, calibration changes, and
increased use of DEF. For the reasons described in the Interim and
Proposed Technical Support Document, we believe that the NCPs being
established in this rulemaking will remove any competitive disadvantage
that complying manufacturers may face.
[[Page 4742]]
[GRAPHIC] [TIFF OMITTED] TP31JA12.018
[GRAPHIC] [TIFF OMITTED] TP31JA12.019
B. Issues and Alternatives for NCPs
The analysis presented in detail in the Interim and Proposed
Technical Support Document deals with an assessment of the cost of
compliance, using essentially the same methodology that has
historically been used to establish NCPs. We believe that our estimates
of the costs are appropriate and that the methodology is sound. As
noted earlier, section 206(g)(3) specifies certain requirements for
NCPs. The requirements for the NCP to account for the degree of
emission nonconformity, and to increase periodically have been built
into the regulatory structure such that they are automatically achieved
with each new phase of NCPs. However, the Clean Air Act also requires
EPA to set the NCPs ``to remove any competitive disadvantage to
[[Page 4743]]
manufacturers whose engines or vehicles achieve the required degree of
emission reduction.'' This section discusses several issues and
alternatives that we have evaluated, especially in the context of this
third requirement.
(1) Competitive Advantage for Non-Complying Manufacturers
In establishing prior NCP rules, we have frequently made it clear
that satisfying the statutory objective of protecting the complying
manufacturer was paramount. The generic NCP rule established an
approach which attempts to remove any competitive disadvantage to
complying manufacturers by assessing a cost to the manufacturer of a
non-complying engine in the form of an NCP, with the expectation that
this cost is at least equivalent to or exceeds the value of the
competitive benefit gained by building a noncomplying engine. Imposing
such a cost is a way to level the playing field without interfering in
the actual marketing or pricing of the engines. However, since the
issue of competitive advantage involves many subjective factors, the
regulatory structure cannot by itself ensure that no competitive
advantage remains.
A manufacturer of a non-complying engine generally gains a
competitive advantage or benefit of two types. The first typically
involves production expenses saved by not producing a complying engine,
such as fixed costs and hardware costs. The second category involves,
in some cases, the competitive benefits gained by producing an engine
that has some convenience or better performance characteristics
compared to a complying engine.
The first category is easier to quantify, as it involves
considering costs directly incurred by the industry, and it is
generally easier to get a fuller quantification of amounts in
categories such as hardware costs. The second category is much harder
to quantify with certainty. As discussed with respect to DEF and fuel
consumption, the actual amount of costs or savings to the operator will
vary based on several factors. An even harder to quantify competitive
advantage is the benefit in the marketplace from producing an engine
that is, or may be perceived to be, more convenient to operate.
The factors that affect the issue of whether the proposed NCP would
remove competitive disadvantage involve the purchase price, operating
cost, and purchaser perception. Even with an NCP set at a level which
addresses quantifiable cost differences between complying and non-
complying engines, in the eyes of the purchaser there still may be an
advantage to paying the higher first cost for an engine (including the
NCP) with known performance.
It is clear that producing engines that comply with a 0.20 g/hp-hr
NOX emission standard is more difficult than producing
comparable engines with NOX emissions at 0.50 g/hp-hr. Thus
it can be presumed that allowing a manufacturer to produce engines with
NOX emissions at 0.50 g/hp-hr without paying an NCP would
bestow some competitive advantage. The question for this rulemaking is
how significant is that advantage? To answer this question, we included
an analysis of the heavy-duty truck and engine sales over the past four
years. As described in the Interim and Proposed Technical Support
Document, the available data do not directly answer this question
because of a number of confounding factors. Nevertheless, since these
data do not show any substantial shift in market share, it seems
unlikely that the competitive advantage that exists is very large. This
analysis supports our conclusion that the penalty being adopted is
large enough to meet the statutory requirement to remove any
competitive disadvantage for complying manufacturers. We request
comment on this conclusion.
(2) Baseline Engine Technology
Most manufacturers generally have never had production engines at
0.50 g/hp-hr (the upper limit). Therefore, EPA considered different
types of baseline engines. As already noted, we are assuming the
baseline engine is already equipped with SCR. Conceptually, what we are
doing in this rule is to imagine what would have happened if the prior
standard had been 0.50 g/hp-hr. Conversations with manufacturers have
generally supported our assumption that had there been a 0.50 g/hp-hr
standard, most manufacturers would have chosen to rely on SCR to reduce
NOX emissions, especially in the context of the recently
adopted greenhouse gas emission standards.
Another important reason we are not assuming a non-SCR baseline
engine is that there is only one manufacturer producing such an engine.
We are concerned that we would need to rely on confidential business
information (CBI) from that one non-SCR manufacturer in order to
accurately calculate costs differences, but could not reliably protect
such data from disclosure. Normally when we rely on CBI, we collect it
from multiple manufacturers and protect the CBI by disclosing only an
aggregated summary of the data. Public commenters can comment on the
summary, which frequently serves the basis of the rule.
Another disadvantage of assuming a non-SCR baseline engine is that
the complying manufacturers did not produce such an engine. Thus they
would be unable to provide accurate data for the difference in
operating costs between their complying engines and the theoretical
baseline engine. Nevertheless, while they generally did not sell SCR
engines at 0.50 g/hp-hr, they have development data that allow them to
estimate differences in operating costs between a theoretical SCR-
equipped baseline engine and their compliant engines.
Another advantage of assuming the baseline engine is equipped with
SCR is that it results in a penalty curve that is consistent with the
marginal costs of compliance for all NOX values between 0.50
g/hp-hr and 0.20 g/hp-hr.
We request comment on our assumption of a baseline engine with SCR
that is calibrated to have NOX emissions at 0.50 g/hp-hr.
Commenters should address whether assuming a different baseline engine
would result in higher or lower penalties, and whether they would
better protect the complying manufacturers from a competitive
disadvantage.
(3) Costs Not Included
By basing the NCP primarily on the differences in amount of DEF
used to reduce emissions and minor hardware costs, the analysis
excludes certain other costs, which are described below. Commenters
supporting the inclusion of any of these costs should discuss them in
the context of the statutory requirement to eliminate competitive
disadvantage and whether the costs are associated with other savings or
benefits.
Perhaps the most obvious cost not included in the analysis is the
significant cost of the SCR hardware itself. However, including this
cost would be inconsistent with the baseline engine. Commenters
supporting the inclusion of the total hardware costs should do so in
the context of changing the baseline engine. For example, it would be
important to consider the extent to which SCR hardware cost is offset
by significantly lower fuel costs for engines equipped with SCR. We do
not believe that we could base the NCP on the cost of SCR hardware
without also accounting for the fuel savings.
We are also not including significant fixed costs for research and
development (R&D). As noted earlier, the analysis assumes the baseline
engine
[[Page 4744]]
is a fully optimized engine that complies with all other emission
standards and requirements. We do not believe that there would be
significant R&D costs to recalibrate the SCR system on such an engine
to further reduce NOX emission to 0.20 g/hp-hr.
(4) Projected Fuel and DEF Costs
Two of the most significant categories of potential cost are the
impact of the standards on DEF and/or fuel consumption rates. However,
such cost elements are challenging to estimate because actual DEF and
fuel costs will vary based on prices and on the vehicle operation. We,
therefore, are requesting comment on our estimates. Specifically, we
are requesting comments on the following aspects of our analysis of
fuel and DEF costs:
Projected fuel and DEF prices.
Estimated changes in fuel and DEF consumption rates.
Projected annual mileage accumulation rates and miles per
gallon.
Discounting of future costs (discussed in the following
section).
For the NCP analysis, we used the Energy Information
Administration's (EIA) Annual Energy Outlook 2011 (AEO2011) to project
fuel prices through 2035.\5\ AEO2011 contains diesel fuel price
projections for the transportation sector through 2035. These fuel
prices include federal and state taxes, but do not include county or
local taxes. Fuel price varies with time and with location. This is
compounded by differences in state and local taxes. This regional
variability could potentially impact our analysis. Some trucks may
operate locally in an area that has fuel prices significantly higher
than the national average. However, we believe that the number of these
trucks will be relatively small, and thus did not include a regional
fuel price component in our analysis. Nevertheless, we request comment
on this issue.
---------------------------------------------------------------------------
\5\ U.S. Energy Information Administration. Annual Energy
Outlook 2011. Last accessed on November 18, 2011 at http://38.96.246.204/forecasts/aeo/.
---------------------------------------------------------------------------
AEO2011 includes five price scenarios--a reference, high oil price,
low oil price, high economic growth and low economic growth case.
Typically, EPA uses the reference case in our analysis of mobile source
rules, and we used that scenario in this proposal, but we welcome
comment supporting the use of one of the alternative scenarios.
The annual diesel price per gallon values used in this analysis
were adjusted from 2009 dollars (as supplied in AEO2011) to 2011
dollars based on the Consumer Price Index. The annual fuel price
projections are included in Appendix A of the Technical Support
Document.
DEF prices vary depending on the geography and whether it is
purchased by the bottle, by the gallon, or in bulk. Unlike the case for
fuel prices, we are not aware of a source which projects a national
average DEF cost into the future. For this analysis we used a DEF cost
of $2.99 per gallon based on the national retail pump average in
November 2011.\6\ We are using a constant value for the DEF price
throughout the analysis because we are not aware of any reliable
projections that the price will change significantly in the coming
years. We welcome comment on our DEF cost projections.
---------------------------------------------------------------------------
\6\ DieselExhaustFluid.com. Last accessed on November 14, 2011
at http://www.dieselexhaustfluid.com/.
---------------------------------------------------------------------------
A change in fuel consumption due to the reduction in NOX
emissions would drive a change in fuel costs for this rule. However, as
discussed in the Interim and Proposed Technical Support Document, we
are estimating that the 0.50 g/hp-hr baseline engine and the fully
compliant engine will have the same fuel consumption rates. The two
primary reasons for this are the relative importance operators place on
keeping fuel consumption rates low for the customer and the upcoming
GHG emission standards. The Heavy-Duty GHG rule requires that
manufacturers reduce their CO2 emissions/fuel consumption
starting in 2014 model year by an average of three to five percent from
a baseline 2010 model year engine. Thus, a pathway to reduce
NOX that leads to an increase in fuel consumption in 2012
model year would require the manufacturer to apply technologies to
recover the increase by 2014 model year. Therefore, our analysis is
based on a technology path that does not change the engine-out
NOX emissions, and therefore does not impact the fuel
consumption of the engine.
Our cost analysis is based on a technology path that reduces
tailpipe NOX emissions from the baseline engine with 0.50 g/
hp-hr NOX to 0.20 g/hp-hr NOX by increasing DEF
consumption. In the Interim and Proposed Technical Support Document, we
detail the calculation of the ideal DEF consumption rate change
required to reduce NOX emissions by 0.30 g/hp-hr. For the
proposal, we calculated an ideal DEF rate increase of 0.38 gallons per
100 gallons of fuel consumed and increased it by five percent to
account for overdosing. The proposed NCP costs include DEF consumption
costs based on an increase in DEF consumption of 0.40 gallons per 100
gallons of fuel consumed.
Another important factor in estimating DEF and fuel cost is how
much fuel a model year 2012 vehicle will use over its lifetime. This is
most important for heavy-heavy duty engines. Some vehicles may be
scrapped after their useful life (435,000 miles) while others may be
rebuilt more than once and not be scrapped until after 2 million miles.
Thus, the fuel cost could vary by a factor of four from one vehicle to
another. For this analysis, we used the projected mileage accumulation
rates generated by the Motor Vehicle Emissions Simulator, more commonly
called MOVES, EPA's official mobile source emission inventory model.\7\
These annual vehicle miles travelled (VMT) projections are shown in
Appendix A of the Interim and Proposed Technical Support Document and
include a projection of vehicle survival fractions that are based on
scrappage rates. The lifetime mileage estimates that we used in our
analysis are shown in Table 2 below. The Interim and Proposed Technical
Support Document contains more information about how we used these
mileage estimates. We welcome comments on the lifetime mileage of
trucks used in our analysis.
---------------------------------------------------------------------------
\7\ Information regarding the MOVES model can be found at http://www.epa.gov/otaq/models/moves/index.htm.
Table 2--Lifetime Vehicle Miles Travelled
------------------------------------------------------------------------
Lifetime VMT
for average
vehicle
------------------------------------------------------------------------
Medium Heavy-Duty Vehicle............................... 372,684
Heavy Heavy-Duty Vehicle................................ 965,095
------------------------------------------------------------------------
Finally, our methodology for calculating the cost of changes in
fuel and DEF consumption uses estimates of average miles driven per
gallon of fuel used. The estimates used in this proposal are 9.71 and
4.93 miles per gallon (mpg) for medium and heavy-heavy duty,
respectively.\8\ We used these same estimates for both the
COC50 and COC90 analyses. Using different
estimates could significantly change the projected costs. We request
comment on these mpg estimates.
---------------------------------------------------------------------------
\8\ U.S. EPA. Final Rulemaking to Establish Greenhouse Gas
Emissions Standards and Fuel Efficiency Standards for Medium- and
Heavy-Duty Engines and Vehicles--Regulatory Impact Analysis. Page 6-
2. The baseline fuel efficiency for HHD is 20.3 gal/100 mile and
vocational diesel vehicles equal 10.3 gal/100 mile.
---------------------------------------------------------------------------
[[Page 4745]]
(5) Discounting Future Costs
All of the compliance costs in this analysis are presented in terms
of net present value (NPV) for calendar year 2012. This means that
costs that occur before 2012 are adjusted upward, and costs that occur
after 2012 are adjusted downward to reflect the time or opportunity
value of the money involved. (i.e., discounted).
The NPV analysis requires that all in-use operating costs be
adjusted downward to reflect the time value of money for future costs.
More specifically, the stream of operating costs must be discounted to
make them equivalent to costs incurred at the time of purchase. Truck
purchasers would use this approach before purchase when comparing
future operating costs of two or more engines before purchase. We used
a seven percent discount rate for these costs as well. However, there
is evidence in other contexts that users might apply a different
discount rate than seven percent when considering future operating
costs during a purchase decision. We request comment on whether there
is evidence to support the application of such an alternative discount
rate to operating costs in the various segments of the heavy duty
engine market. Your comments in support of an alternative discount rate
should include a discussion of the supporting economic and business
rationale for the alternative rate.
It is commonly stated that truck purchasers only consider operating
costs that will occur in the first five years (or less) of the truck's
life. We also request comment on whether we should include discounted
costs for all future years. For example, should we limit our
consideration of operating costs to only those that will occur within
the first five years?
(6) F Factor
The parameter F is defined in the existing regulations as a value
from 1.1 to 1.3 that describes the ratio of the 90th percentile
marginal cost (MC90) to MC50. For this proposal,
we calculated F by first calculating an MC90 in the same way
that we calculated MC50. We then calculated the value of F
that would give these values of MC90, and then set F equal
to MC90 divided by MC50. This led to F values of
1.48 for medium heavy-duty and 1.23 for heavy heavy-duty. However,
since F is capped at 1.3 under the regulations, we were required to set
F equal to 1.3 for medium heavy-duty engines. This resulted in a
penalty curve that is inverted from the normal shape. For most NCP
curves, the slope of the penalty rate is greater for compliance levels
less than X than it is for compliance levels greater than X. However
for the proposed medium heavy-duty NCP curve, the opposite is true; the
slope of the penalty rate is less for compliance levels less than X
than it is for compliance levels greater than X. We request comment on
whether this should be allowed. More specifically, should we modify the
regulations to specify that the product of MC50 and F cannot
be less than COC90 divided by the difference between the
upper limit and the standard. In the case of the proposed NCPs, this
would mean setting F at 1.48 for medium heavy-duty.
(7) First Year of the Escalator Adjustment Factor for NCP Calculation
As required by the Clean Air Act, the existing regulations include
a formula that increases the penalty rates with each new model year. We
have proposed to apply this formula to the NCPs beginning with the 2013
model year by setting the 2012 model year as year number one.
Traditionally, NCPs are available the first year of the new emission
standard and that becomes year one for purposes of the annual
escalator. However, due to the availability of emission credits for
2010 and 2011, it did not become apparent that there might be a
manufacturer who might need NCPs until late in the 2011 model year.
Under these circumstances, EPA believes the 2012 model year is the
correct year for the first year of the escalator calculation even
though the NOX emission standard began in 2010. However,
there may be reasons to consider model year 2010 or some other model
year as the first year for this annual escalator. We welcome comments
on alternative first year model years.
(8) Alternative Penalties
Historically, NCPs are defined solely in terms of a dollar amount,
with payment of the NCP in the form of cash payments paid directly to
the U.S. Treasury. We are asking for comment on whether we could or
should also include a non-monetary value as an option in the definition
of the noncompliance penalty. For example, assume a manufacturer's
penalty would be $1,919 per engine for 10,000 engines ($19,190,000
total), based on certification of engines to an FEL of 0.50 g/bhp-hr,
0.30 g/bhp-hr above the standard. Should there be an option where the
penalty could be defined as the amount of NOX emission
reductions that would not be achieved by the engine compared to the
applicable standard? Achieving these reductions would then be the
payment of the NCP as defined under this option. The Agency is
considering including this option in the Final Rule as a way to recover
the environmental loss due to the higher emissions of the NCP engines.
One example of such an approach would be to require a manufacturer
to comply with all of the provisions of the NCP regulations but to
define the penalty that must be paid in terms of recouping
environmental loss of a defined amount of tons of NOX
reduction, rather than a penalty that must be paid in terms of a cash
payment. The manufacturer would need to:
Calculate the total excess NOX emissions
expected from the NCP engines over their lifetimes, including emissions
that would occur beyond the useful life period. This calculation would
be done consistent with the analyses described in the Interim and
Proposed Technical Support Document for this rulemaking.
Develop a plan to offset these NOX tons. The
plan must demonstrate that the emissions reduction would not have
otherwise occurred.
Obtain EPA approval of the plan prior to production of the
NCP engines.
Demonstrate to EPA that the emission reductions actually
occur.
Demonstrate that the cost to the manufacturer of achieving
the emissions reductions is at least as great as the dollar amount of
the NCP that would otherwise be applicable.
The certificate issued for such engines would be conditioned on the
manufacturer fulfilling all of these requirements. We could void a
certificate ab initio if a manufacturer failed to fulfill these
requirements.
We welcome comment on any legal, practical, competitive, or other
concerns regarding using such an approach and how such an approach
could be implemented in the regulations. Commenters supporting this
option should address how to determine the equivalent amount of
NOX reductions. Based on uncertainty in determining actual
tons of NOX that are reduced, should they be set slightly
above the excess tons of expected lifetime NOX emissions
that will occur from the engines certified using NCPs? We believe that,
in order to meet the statutory requirement to remove the competitive
disadvantage for complying manufacturers, it would be necessary to
require that the burden associated with providing NOX tons
must be at least as large as the cash payment that would otherwise be
required. Thus we would not approve an alternative in which it
[[Page 4746]]
was cheaper for a manufacturer to obtain NOX tons than to
pay the cash penalty, unless the manufacturer could demonstrate that
there was some other non-financial burden that offset any competitive
advantage.
V. Economic Impact
Because the use of NCPs is optional, manufacturers have the
flexibility and will likely choose whether or not to use NCPs based on
their ability to comply with emissions standards. If no manufacturer
elects to use NCPs, these manufacturers and the users of their products
will not incur any additional costs related to NCPs. NCPs remedy the
potential problem of having a manufacturer forced out of the
marketplace due to that manufacturer's inability to conform to new,
strict emission standards in a timely manner. Without NCPs, a
manufacturer which has difficulty certifying HDEs in conformance with
emission standards or whose engines fail a Selective Enforcement Audit
(SEA) has only two alternatives: fix the nonconforming engines, perhaps
at a prohibitive cost, or prevent their introduction into commerce. The
availability of NCPs provides manufacturers with a third alternative:
continue production and introduce into commerce upon payment of a
penalty an engine that exceeds the standard until an emission
conformance technique is developed. Therefore, NCPs represent a
regulatory mechanism that allows affected manufacturers to have
increased flexibility. A decision to use NCPs may be a manufacturer's
only way to continue to introduce its products into commerce.
VI. Environmental Impact
When evaluating the environmental impact of this rule, one must
keep in mind that, under the Act, NCPs are a consequence of enacting
new, more stringent emissions requirements for heavy duty engines.
Emission standards are set at a level that most, but not necessarily
all, manufacturers can achieve by the model year in which the standard
becomes effective. Following International Harvester v. Ruckelshaus,
478 F. 2d 615 (DC Cir. 1973), Congress realized the dilemma that
technology-forcing standards could potentially cause, and allowed
manufacturers of heavy-duty engines to certify nonconforming vehicles/
engines upon the payment of an NCP, under certain terms and conditions.
This mechanism was intended to allow manufacturer(s) who cannot meet
technology-forcing standards immediately to continue to manufacture
nonconforming engines while they tackle the technological problems
associated with meeting new emission standard(s). Thus, as part of the
statutory structure to force technological improvements without driving
manufacturers or individual engine models out of the market, NCPs
provide a flexibility that fosters long-term emissions improvement
through the setting of lower emission standards at an earlier date than
could otherwise be feasible. Because NCPs are designed to increase with
time, manufacturers using NCPs are likely to reduce emission levels to
meet the standard as quickly as possible, which minimizes the
environmental impact.
As is always the case with NCPs, the potential exists for there to
be more extensive use of NCPs beyond what may be expected to be used by
the manufacturer that we believe will need them. For example, depending
upon the penalty rate and other factors, some otherwise fully compliant
manufacturers could elect to pay the NCP in order to reconfigure their
0.20 g/hp-hr NOX compliant engines to emit up to 0.50 g/hp-
hr so that they can re-optimize engine hardware and vehicle operating
costs. This potential action is not without R&D and other financial
costs to the manufacturer and thus is not a decision which would be
taken lightly, given the short-term nature of the NCPs allowed for in
this interim final rule. Furthermore, we believe that any such impacts
would be short-term and self-limiting in nature because the NCP annual
adjustment factor, established via prior NCP rules, increases the
levels of the penalties over time and based on the extent of the use of
NCPs by all manufacturers. In other words the NCP program is structured
such that the incentives to produce engines that meet the standard
increase year-by-year and increase upon NCP use. The practical impact
of this adjustment factor is that the NCPs will rapidly become an
undesirable option for all manufacturers that may elect to use them.
However, while we expect their use to be limited, we have no way of
predicting at this time how many manufacturers will make use of the
NCPs, or how many engine families would be subject to the NCP program.
Because of these uncertainties we are unable to accurately quantify the
potential impact the NCPs might have on emission inventories, although,
as stated above, any impacts are expected to be short-term and self-
limiting in nature.
VII. Public Participation
We request comment by April 4, 2012.on all aspects of this
proposal. This section describes how you can participate in this
process.
A. How do I submit comments?
We are opening a formal comment period by publishing this document.
We will accept comments through April 4, 2012. If you have an interest
in the program described in this document, we encourage you to comment
on any aspect of this rulemaking. We request comment on various topics
throughout this proposal.
Your comments will be most useful if you include appropriate and
detailed supporting rationale, data, and analysis. If you disagree with
parts of the proposed program, we encourage you to suggest and analyze
alternate approaches to meeting the goals described in this proposal.
You should send all comments, except those containing proprietary
information, to our Air Docket (see ADDRESSES) before the end of the
comment period.
If you submit proprietary information for our consideration, you
should clearly separate it from other comments by labeling it
``Confidential Business Information.'' You should also send it directly
to the contact person listed under FOR FURTHER INFORMATION CONTACT
instead of the public docket. This will help ensure that no one
inadvertently places proprietary information in the docket. If you want
us to use your confidential information as part of the basis for the
final rule, you should send a non-confidential version of the document
summarizing the key data or information. We will disclose information
covered by a claim of confidentiality only through the application of
procedures described in 40 CFR part 2. If you do not identify
information as confidential when we receive it, we may make it
available to the public without notifying you.
B. Will there be a public hearing?
We will hold a public hearing at the National Vehicle and Fuels
Emission Laboratory in Ann Arbor, Michigan on March 5, 2012. The
hearings will start at 10:00 am and continue until everyone has had a
chance to speak.
If you would like to present testimony at a public hearing, we ask
that you notify the contact person listed above at least ten days
before the hearing. You should estimate the time you will need for your
presentation and identify any needed audio/visual equipment. We suggest
that you bring copies of your statement or other material for the EPA
panel and the audience. It would also be helpful if you send us a copy
of your statement or other materials before the hearing.
[[Page 4747]]
We will make a tentative schedule for the order of testimony based
on the notifications we receive. This schedule will be available on the
morning of the hearing. In addition, we will reserve a block of time
for anyone else in the audience who wants to give testimony. We will
conduct the hearing informally, and technical rules of evidence won't
apply. We will arrange for a written transcript of the hearing and keep
the official record of the hearing open for 30 days to allow you to
submit supplementary information. You may make arrangements for copies
of the transcript directly with the court reporter.
VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review
This action is not a ``significant regulatory action'' under the
terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and is
therefore not subject to review under Executive Orders 12866 and 13563
(76 FR 3821, January 21, 2011).
B. Paperwork Reduction Act
This action does not impose any new information collection burden.
It only updates the penalty amounts to correspond to the current
emission standards. However, the Office of Management and Budget (OMB)
has previously approved the information collection requirements
contained in the existing regulations 40 CFR part 86, subpart L under
the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
and has assigned OMB control number 2060-0132. The OMB control numbers
for EPA's regulations in 40 CFR are listed in 40 CFR part 9.
C. Regulatory Flexibility Act
(1) Overview
The Regulatory Flexibility Act generally requires an agency to
prepare a regulatory flexibility analysis of any rule subject to notice
and comment rulemaking requirements under the Administrative Procedure
Act or any other statute unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities. Small entities include small businesses, small organizations,
and small governmental jurisdictions.
For purposes of assessing the impacts of these rules on small
entities, small entity is defined as: (1) A small business as defined
by SBA regulations at 13 CFR 121.201; (2) a small governmental
jurisdiction that is a government of a city, county, town, school
district or special district with a population of less than 50,000; and
(3) a small organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.
(2) Summary of Potentially Affected Small Entities
After considering the economic impacts of this proposed rule on
small entities, I certify that this action will not have a significant
impact on a substantial number of small entities.
When these emission standards were established, the final
rulemaking (66 FR 5001, January 18, 2001) noted that we were not aware
of ``any manufacturers of heavy-duty engines that meet SBA's definition
of a small business.'' Based on an updated assessment, EPA has
identified a total of about 14 manufacturers that produce diesel cycle
heavy-duty motor vehicle engines. Of these, none of these are small
businesses that are producing engines with NOX emissions
above 0.20 g/hp-hr. Based on this, we are certifying that this proposed
rule will not have a significant economic impact on a substantial
number of small entities.
(3) Conclusions
I therefore certify that this proposal will not have a significant
economic impact on a substantial number of small entities. We continue
to be interested in the potential impacts of the proposed rule on small
entities and welcome comments on issues related to such impacts.
D. Unfunded Mandates Reform Act
This rule does not contain a Federal mandate that may result in
expenditures of $100 million or more for State, local, and tribal
governments, in the aggregate, or the private sector in any one year.
The agency has determined that this action does not contain a Federal
mandate that may result in expenditures of $100 million or more for the
private sector in any one year. Because the use of NCPs is optional,
manufacturers have the flexibility and will likely choose whether or
not to use NCPs based on their ability to comply with emissions
standards. The availability of NCPs provides manufacturers with a third
alternative: to continue production and introduce into commerce upon
payment of a penalty an engine that exceeds the standard until an
emission conformance technique is developed. Therefore, NCPs represent
a regulatory mechanism that allows affected manufacturers to have
increased flexibility. Thus, this action is not subject to the
requirements of sections 202 or 205 of the UMRA. This action is also
not subject to the requirements of section 203 of the UMRA because it
contains no regulatory requirements that might significantly or
uniquely affect small governments.
E. Executive Order 13132 (Federalism)
Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August
10, 1999), requires EPA to develop an accountable process to ensure
``meaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.''
``Policies that have federalism implications'' is defined in the
Executive Order to include regulations that have ``substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.''
This proposed action does not have federalism implications. It will
not have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132. These proposed rules will apply
to manufacturers of on-highway engines and not to state or local
governments. Thus, Executive Order 13132 does not apply to this action.
In the spirit of Executive Order 13132, and consistent with EPA
policy to promote communications between the agency and State and local
governments, the agency specifically solicits comment on this proposed
action from State and local officials.
F. Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments)
This proposed rule does not have tribal implications, as specified
in Executive Order 13175 (65 FR 67249, November 9, 2000). This proposal
will be implemented at the Federal level and impose compliance costs
only on engine manufacturers who elect to use the NCP regulatory
flexibility to comply with emissions standards. Tribal governments
would be affected only to the extent they purchase and use engines and
vehicles to which an NCP has been applied. Thus, Executive Order 13175
does not apply to this proposed rule.
EPA specifically solicits additional comment on this proposed
action from tribal officials.
[[Page 4748]]
G. Executive Order 13045: ``Protection of Children From Environmental
Health Risks and Safety Risks''
Executive Order 13045: ``Protection of Children from Environmental
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies
to any rule that: (1) Is determined to be ``economically significant''
as defined under Executive Order 12866, and (2) concerns an
environmental health or safety risk that EPA has reason to believe may
have a disproportionate effect on children. If the regulatory action
meets both criteria, the agency must evaluate the environmental health
or safety effects of the planned rule on children, and explain why the
planned regulation is preferable to other potentially effective and
reasonably feasible alternatives considered by the agency.
EPA interprets Executive Order 13045 as applying only to those
regulatory actions that are based on health or safety risks, such that
the analysis required under section 5-501 of the Order has the
potential to influence the regulation. This proposed rule is not
subject to Executive Order 13045 because it does not establish an
environmental standard intended to mitigate health or safety risks.
H. Executive Order 13211 (Energy Effects)
This proposed action is not subject to Executive Order 13211 (66 FR
28355 (May 22, 2001)), because it is not a significant regulatory
action under Executive Order 12866.
I. National Technology Transfer Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs the agencies to use voluntary consensus standards in its
regulatory activities unless to do so would be inconsistent with
applicable law or otherwise impractical. Voluntary consensus standards
are technical standards (e.g., materials, specifications, test methods,
sampling procedures, and business practices) that are developed or
adopted by voluntary consensus standards bodies. NTTAA directs EPA to
provide Congress, through OMB, explanations when the EPA decides not to
use available and applicable voluntary consensus standards.
This proposed rulemaking does not involve technical standards.
Therefore, EPA is not considering the use of any voluntary consensus
standards.
J. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
Executive Order 12898 (59 FR 7629, February 16, 1994) establishes
federal executive policy on environmental justice. Its main provision
directs federal agencies, to the greatest extent practicable and
permitted by law, to make environmental justice part of their mission
by identifying and addressing, as appropriate, disproportionately high
and adverse human health or environmental effects of their programs,
policies, and activities on minority populations and low-income
populations in the United States.
EPA has determined that this action will not have
disproportionately high and adverse human health or environmental
effects on minority or low-income populations. The overall
environmental impacts of this action are expected to be small and of
limited duration. Moreover, there is no reason to believe that trucks
using NCP engines will be more likely to operate near any minority or
low-income populations than other trucks.
IX. Statutory Provisions and Legal Authority
Statutory authority for the vehicle controls in these rules is
found in CAA section 206(g) of the CAA, 42 U.S.C. 7525(g).
List of Subjects in 40 CFR Part 86
Administrative practice and procedure, Confidential business
information, Motor vehicle pollution, Reporting and recordkeeping
requirements.
Dated: January 20, 2012.
Lisa P. Jackson,
Administrator.
For the reasons set forth in the preamble, the Environmental
Protection Agency proposes to amend 40 CFR chapter I of the Code of
Federal Regulations as follows:
PART 86--CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY VEHICLES
AND ENGINES
1. The authority citation for part 86 continues to read as follows:
Authority: 42 U.S.C. 7401-7671q.
Subpart L--[Amended]
2. Section 86.1104-91 is revised to read as follows:
Sec. 86.1104-91 Determination of upper limits.
EPA shall set a separate upper limit for each phase of NCPs and for
each service class.
(a) The provisions of this section specify a default approach for
determining the upper limit values.
(1) The default upper limit applicable to a pollutant emission
standard for a subclass of heavy-duty engines or heavy-duty vehicles
for which an NCP is established in accordance with Sec. 86.1103-87,
shall be the previous pollutant emission standard for that subclass.
(2) If a manufacturer participates in any of the emissions
averaging, trading, or banking programs, and carries over certification
of an engine family from the prior model year, the upper limit for that
engine family shall be the family emission limit of the prior model
year, unless the family emission limit is less than the upper limit
determined in paragraph (a) of this section.
(b) If no previous standard existed for the pollutant under
paragraph (a) of this section, the upper limit will be developed by EPA
during rulemaking.
(c) EPA may set the upper limit during rulemaking at a level below
the default level specified in paragraph (a) of this section if we
determine that a lower level is achievable by all engines.
(d) In unusual circumstances, EPA may set the upper limit during
rulemaking at a level above the default level specified in paragraph
(a) of this section if we determine that the default level will not be
achievable by all engines. For example, this may apply where a new
standard for a different pollutant effectively increases the stringency
of the standard for which NCPs would apply.
3. Section 86.1105-87 is amended by revising paragraph (e) and
paragraph (j) to read as follows:
Sec. 86.1105-87 Emission standards for which nonconformance penalties
are available.
* * * * *
(e) The values of COC50, COC90, and
MC50 in paragraphs (a) and (b) of this section are expressed
in December 1984 dollars. The values of COC50,
COC90, and MC50 in paragraphs (c) and (d) of this
section are expressed in December 1989 dollars. The values of
COC50, COC90, and MC50 in paragraph
(f) of this section are expressed in December 1991 dollars. The values
of COC50, COC90, and MC50 in
paragraphs (g) and (h) of this section are expressed in December 1994
dollars. The values of COC50, COC90, and
MC50 in paragraph (i) of this section are expressed in
December 2001
[[Page 4749]]
dollars. The values of COC50, COC90, and
MC50 in paragraph (j) of this section are expressed in
December 2011 dollars. These values shall be adjusted for inflation to
dollars as of January of the calendar year preceding the model year in
which the NCP is first available by using the change in the overall
Consumer Price Index, and rounded to the nearest whole dollar in
accordance with ASTM E29-67 (reapproved 1980), Standard Recommended
Practice for Indicating Which Places of Figures are to be Considered
Significant in Specified Limiting Values. This method was approved by
the Director of the Federal Register in accordance with 5 U.S.C. 552(a)
and 1 CFR part 51. This document is available from ASTM International,
100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959,
and is also available for inspection as part of Docket A-91-06, located
at the U.S. EPA, Air and Radiation Docket and Information Center, 1301
Constitution Ave. NW., Room 3334, EPA West Building, Washington, DC
20004, (202) 202-1744 or at the National Archives and Records
Administration (NARA). For information on the availability of this
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html. This incorporation by
reference was approved by the Director of the Federal Register on
January 13, 1992. These materials are incorporated as they exist on the
date of the approval and a notice of any change in these materials will
be published in the Federal Register.
* * * * *
(j) Effective in the 2012 and later model years, NCPs will be
available for the following emission standard:
(1) Diesel heavy-duty engine oxides of nitrogen standard of 0.20
grams per brake horsepower-hour in Sec. 86.007-11(a)(1)(i).
(i) For medium heavy-duty diesel engines:
(A) The following values shall be used to calculate an NCP in
accordance with Sec. 86.1113-87(a):
(1) COC50: $462.
(2) COC90: $682.
(3) MC50: $1,540 per gram per brake horsepower-hour.
(4) F: 1.30.
(5 ) UL: 0.5 grams per brake horsepower-hour.
(B) The following factor shall be used to calculate the engineering
and development component of the NCP for the standard set forth in
Sec. 86.007-11(a)(1)(i) in accordance with Sec. 86.1113-87(h): 0.009.
(ii) For heavy heavy-duty diesel engines:
(A) The following values shall be used to calculate an NCP in
accordance with Sec. 86.1113-87(a):
(1) COC50: $1,561.
(2) COC90: $1,919.
(3) MC50: $5,203 per gram per brake horsepower-hour.
(4) F: 1.23.
(5) UL: 0.5 grams per brake horsepower-hour.
(B) The following factor shall be used to calculate the engineering
and development component of the NCP for the standard set forth in
Sec. 86.007-11(a)(1)(i) in accordance with Sec. 86.1113-87(h): 0.004.
(2) Manufacturers may not generate emission credits for any
pollutant from engines for which the manufacturer pays an NCP.
(3) The penalty shall be adjusted annually as specified in Sec.
86.1113-87 with 2012 as the first year. Note that this means
AAF2012 is equal to 1.
[FR Doc. 2012-1936 Filed 1-30-12; 8:45 am]
BILLING CODE 6560-50-P