Control of Emissions of Air Pollution From Nonroad Diesel Engines and Fuel [[pp. 28377-28426]]

[Federal Register: May 23, 2003 (Volume 68, Number 100)]
[Proposed Rules]
[Page 28377-28426]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23my03-37]

[[pp. 28377-28426]]
Control of Emissions of Air Pollution From Nonroad Diesel Engines
and Fuel

[[Continued from page 28376]]
[[Page 28377]]

manufacturers and has been a focus of our ongoing diesel engine
progress review. There we have learned that substantial progress is
being made to broaden the operating temperature window of catalyst
technologies while at the same time engine systems are being designed
to better control exhaust temperatures. Highway diesel engine
manufacturers are working to address this need through modifications to
engine design, modifications to engine control strategies and
modifications to exhaust system designs. Engine design changes,
including the ability for multiple late fuel injections and the ability
to control total air flow into the engine, give controls engineers
additional flexibility to change exhaust temperature characteristics.
Modifications to the exhaust system, including the use of insulated
exhaust manifolds and exhaust tubing, can help to preserve the
temperature of the exhaust gases. New engine control strategies
designed to take advantage of engine and exhaust system modifications
can then be used to manage exhaust temperatures across a broad range of
engine operation. The technology solutions being developed for highway
engines to better manage exhaust temperature are built upon the same
emission control technologies (i.e., advanced air handling systems and
electronic fuel injection systems) that we expect nonroad engine
manufacturers to use in order to comply with the Tier 3 emission
standards.
Matching the operating temperature window of the broad range of
nonroad equipment may be somewhat more challenging for nonroad engines
than for many highway diesel engines simply because of the diversity in
equipment design and equipment use. Nonetheless, the problem has been
successfully solved in highway applications facing low temperature
performance situations as difficult to address as any encountered by
nonroad applications. The most challenging temperature regime for
highway engines are encountered at very light-loads as typified by
congested urban driving. Under congested urban driving conditions
exhaust temperatures may be too low for effective NO_X
reduction with a NO_X adsorber catalyst. Similarly, exhaust
temperatures may be too low to ensure passive CDPF regeneration. To
address these concerns, light-duty diesel engine manufacturers have
developed active temperature management strategies that provide
effective emissions control even under these difficult light-load
conditions. Toyota has shown with their prototype DPNR vehicles that
changes to EGR and fuel injection strategies can realize an increase in
exhaust temperatures of more than 100[deg]F under even very light-load
conditions allowing the NO_X adsorber catalyst to function
under these normally cold exhaust conditions.\165\ Similarly, PSA has
demonstrated effective CDPF regeneration under demanding light-load
taxi cab conditions with current production technologies.\166\ Both of
these are examples of technology paths available to nonroad engine
manufacturers to increase temperatures under light-load conditions.
---------------------------------------------------------------------------

\165\ Sasaki, S., Ito, T., and Iguchi, S., ``Smoke-less Rich
Combustion by Low Temperature Oxidation in Diesel Engines,'' 9th
Aachener Kolloquim Fahrzeug--und Motorentechnik 2000. Copy available
in EPA Air Docket A-2001-28.
\166\ Jeuland, N., et al, ``Performances and Durability of DPF
(Diesel Particulate Filter) Tested on a Fleet of Peugeot 607 Taxis
First and Second Test Phases Results,'' October 2002, SAE 2002-01-
2790.
---------------------------------------------------------------------------

We are not aware of any nonroad equipment in-use operating cycles
which would be more demanding of low temperature performance than
passenger car urban driving. Both the Toyota and PSA systems are
designed to function even with extended idle operation as would be
typified by a taxi waiting to pick up a fare. By actively managing
exhaust temperatures engine manufacturers can ensure highly effective
catalyst based emission control performance (i.e., compliance with the
emission standards) and reliable filter regeneration (failsafe
operation) across a wide range of engine operation as would be typified
by the broad range of in-use nonroad duty cycles and the new nonroad
transient test proposed today.
The systems described here from Toyota and PSA are examples of
highly integrated engine and exhaust emission control systems based
upon active engine management designed to facilitate catalyst function.
Because these systems are based upon the same engine control
technologies likely to be used to comply with the Tier 3 standards and
because they allow great flexibility to trade-off engine control and
catalyst control approaches depending on operating mode and need, we
believe most nonroad engine manufacturers will use similar approaches
to comply with the emission standards proposed today. However, there
are other technologies available that are designed to be added to
existing engines without the need for extensive integration and engine
management strategies. One example of such a system is an active DPF
system developed by Deutz for use on a wide range on nonroad equipment.
The Deutz system has been sold as an OEM retrofit technology that does
not require changes to the base engine technology. The system is
electronically controlled and uses supplemental in-exhaust fuel
injection to raise exhaust temperatures periodically to regenerate the
DPF. Deutz has sold over 2,000 of these units and reports that the
systems have been reliable and effective. Some manufacturers may choose
to use this approach for compliance with the PM standard proposed
today, especially in the case of engines which may be able to comply
with the proposed NO_X standards with engine-out emission
control technologies (i.e., engines rated between 25 and 75
horsepower).
High temperature operating regimes such as a heavy heavy-duty
diesel truck at full payload driving up a grade are also challenging
for the NO_X catalyst technology. Although less common,
similar high temperature conditions of full engine load operation can
be imagined for nonroad equipment. However, because highway engines
typically have higher power density (defined as rated power divided by
engine displacement), the highest operating conditions would be
expected to be encountered with highway vehicles. High exhaust
temperatures (in excess of 500[deg]C) are challenging for the
NO_X adsorber catalyst technology because the stored
NO_X emissions can be released thermally without going
through a reduction step, leading to increased NO_X
emissions. In the absence of a reductant (normally provided by the
standard NO_X regeneration function) the thermally released
NO_X is emitted from the exhaust system without treatment. To
address this issue, NO_X storage catalyst technologies with
higher levels of thermal stability are being developed, but these
technologies trade-off improved high temperature performance for even
greater sensitivity to fuel sulfur. Beyond catalyst improvements, the
exhaust temperature from the engine can be controlled prior to the
NO_X adsorber catalyst simply through heat loss in the
exhaust system (i.e. by locating the catalyst further from the engine).
Another approach being considered for GDI vehicle applications which
operate at much higher temperatures than would be encountered by a
diesel engine is to use a relatively simple exhaust layout design to
increase heat loss at high temperatures while still providing
acceptable low temperature

[[Page 28378]]

performance.\167\ Additionally, exhaust temperatures well in excess of
500[deg]C are not frequently experienced by nonroad engines. Higher
exhaust temperatures would be expected from naturally aspirated engines
due to their lower air flow (for the same power/heat input, naturally
aspirated engines have less air to heat up and thus the exhaust reaches
a higher temperature). Today, less than ten percent of nonroad diesel
engines with rated power greater than 100 horsepower are naturally
aspirated and we have projected that an even greater percentage of
nonroad engines meeting the Tier 3 emission standards will be
turbocharged.
---------------------------------------------------------------------------

\167\ Damson, B., ``Exhaust Cooling for NO_X-Traps for
Lean Spark-Ignition Engines,'' SAE 2002-01-0737.
---------------------------------------------------------------------------

We have conducted an analysis of various nonroad equipment
operating cycles and various nonroad engine power density levels to
better understand the matching of nonroad engine exhaust temperatures,
catalyst installation locations and catalyst technologies. This
analysis, documented in the draft RIA, showed that for many engine
power density levels and equipment operating cycles, exhaust
temperatures are quite well matched to catalyst temperature window
characteristics. In particular, the nonroad transient cycle (NRTC), the
cycle we are proposing to use for certification, was shown to be well
matched to the NO_X adsorber characteristics with estimated
performance in excess of 90 percent for a turbocharged diesel engine
tested under a range of power density levels. The analysis also
indicated that the exhaust temperatures experienced over the NRTC are
better matched to the NO_X adsorber catalyst temperature
window than the temperatures that would be expected over the highway
FTP test cycle. This suggests that compliance with the proposed NRTC
will be somewhat easier, using similar technology, than complying with
the highway 2007 emission standards on the FTP.
For engines with low power density (e.g., <25 hp per liter of
engine displacement) the analysis showed that, absent actions to
increase exhaust temperatures (e.g., increased use of EGR a light
loads), compliance with the NRTC cycle will be more difficult than for
engines with higher power density levels. Specifically, the analysis
predicted 92% control for the high power density engine and 86% control
for the low power density engine.
Note that this analysis approach is only effective to predict
differences in performance, but not effective to predict absolute
performance. The same analysis approach predicted 83% control for the
high power density engine on the heavy-duty FTP, although testing at
EPA has shown for this engine (a different example of this same engine)
greater than 90% NO_X control.\168\ Nevertheless, the
analysis suggests that additional attention must be made to designing
system for low power density applications, and that technology changes
may be necessary to ensure adequate performance (e.g., the use of EGR
or other control methods to raise exhaust temperatures). One change,
which is occurring independent of EPA's regulation, is increasing power
density for nonroad engines. EPA has documented in the draft RIA a
clear trend of certified engine ratings that indicates manufacturers
are increasing engine power without increasing engine displacement.
Engine manufacturers are motivated to increase engine power density
because engine pricing is largely done on a power basis, while the cost
of manufacturing is more closely related to engine displacement.
Therefore, increasing engine power levels without increasing
displacement may increase the sale price of the engine more than it
increases the cost of manufacturing. Increasing power density typically
results in higher exhaust temperatures and, in this case, better
matching to catalyst operating requirements. Alternatively, nonroad
engine manufacturers can apply the same temperature management
strategies previously described for highway engines.
---------------------------------------------------------------------------

\168\ Schenk, C., McDonald, J. and Olson, B. ``High Efficiency
NO_X and PM Exhaust Emission Control for Heavy-Duty On-
Highway Diesel Engines,'' SAE 2001-01-1351.
---------------------------------------------------------------------------

The analysis also suggests that the temperature challenge for
nonroad equipment will be greater with regard to the NTE provisions of
this proposal than for the nonroad transient test (NRTC) provisions. In
fact as discussed previously, the NRTC cycle appears to be a better
match to the characteristics of the NO_X adsorber catalyst
than the FTP cycle used for heavy-duty highway truck certification.
This is due to the higher average engine load experienced over the NRTC
and thus the higher average temperature. Therefore, we believe that
complying with the NO_X standard over the transient test
cycle proposed today for nonroad engines will not be significantly more
difficult than complying with the HD2007 NO_X emission
standard over the FTP. The analysis also shows that many nonroad
engines may operate in-use in a way different from the NRTC (i.e. even
the NRTC is not an all-encompassing test; no single test realistically
could be), and that NTE standards are therefore needed to assure that
nonroad engine emissions are controlled for the full range of possible
in-use operating conditions.\169\ The technical challenge of
controlling NO_X emissions, even under these diverse
conditions, is no more difficult on a per engine basis than for highway
diesel engines which must comply with similar NTE test provisions. This
is because both highway and nonroad engine manufacturers must address
control at the same high load and low load conditions (minimum power
from both are the same, 0 hp, and maximum power is typically higher for
highway engines, due to higher power density). Also, both engine
manufacturers must be able to respond to changes in user demanded
torque (transient conditions) that are similarly unpredictable.
However, given the sheer number of different nonroad equipment types
and engine ratings, this represents a real challenge for the nonroad
industry which is one of the primary considerations given by the Agency
in determining the appropriate timing for the emission standards
proposed today.
---------------------------------------------------------------------------

\169\ The fact that developing compliant engines for the NTE
provisions may be more difficult than developing for the transient
test cycle does not diminish the value of the transient test as a
means to evaluate the overall effectiveness of the emission control
system under transient conditions. There is no doubt that
controlling average emissions under transient conditions will be an
important part of the emission control system and that evaluating
overall performance under transient conditions is needed.
---------------------------------------------------------------------------

We believe, based on our analysis of nonroad engines and equipment
operating characteristics, that in-use some nonroad engines will
experience conditions that require the use of temperature management
strategies in order to effectively use the NO_X adsorber and
CDPF systems needed to meet the proposed standards. We have assumed in
our cost analysis that all nonroad engines complying with a PM standard
of 0.02 g/bhp-hr or lower will have an active means to control
temperature (i.e. we have costed a backup regeneration system, although
some applications likely may not need one). We have made this
assumption believing that manufacturers will not be able to accurately
predict in-use conditions for every piece of equipment and will thus
choose to provide the technologies on a back-up basis. As explained
earlier, the technologies necessary to accomplish this temperature
management are enhancements of the Tier 3 emission control technologies
that will form the

[[Page 28379]]

baseline for Tier 4 engines, and the control strategies being developed
for highway diesel engines. We do not believe that there are any
nonroad engine applications above 25 horsepower for which these highway
engine approaches will not work. However, given the diversity in
nonroad equipment design and application, we believe that additional
time will be needed in order to match the engine performance
characteristics to the full range of nonroad equipment.
We believe that given the timing of the emissions standards
proposed today, and the availability and continuing development of
technologies to address temperature management for highway engines
which technologies are transferrable to all nonroad engines with
greater than 25 hp power rating, that nonroad engines can be designed
to meet the proposed standards in the lead time provided in this
proposal.
b. Nonroad Operating Conditions and Durability
Nonroad equipment is designed to be used in a wide range of tasks
in some of the harshest operating environments imaginable, from mining
equipment to crop cultivation and harvesting to excavation and loading.
In the normal course of equipment operation the engine and its
associated hardware will experience levels of vibration, impacts, and
dust that may exceed conditions typical of highway diesel vehicles.
Specific efforts to design for the nonroad operating conditions
will be required in order to ensure that the benefits of these new
emission control technologies are realized for the life of nonroad
equipment. Much of the engineering knowledge and experience to address
these issues already exists with the nonroad equipment manufacturers.
Vibration and impact issues are fundamentally mechanical durability
concerns (rather than issues of technical feasibility of achieving
emissions reductions) for any component mounted on a piece of equipment
(e.g., an engine coolant overflow tank). Equipment manufacturers must
design mounting hardware such as flanges, brackets, and bolts to
support the new component without failure. Further, the catalyst
substrate material itself must be able to withstand the conditions
encountered on nonroad equipment without itself cracking or failing.
There is a large body of real world testing with retrofit emission
control technologies that demonstrates the durability of the catalyst
components themselves even in the harshest of nonroad equipment
applications.
Deutz, a nonroad engine manufacturer, sold approximately 2,000
diesel particulate filter systems for nonroad equipment in the period
from 1994 through 2000. Many of these systems were sold for use in
mining equipment. No other applications are likely to be more demanding
than this. Mining equipment is exposed to extraordinarily high levels
of vibration, experiences impacts with the mine walls and face, and
high levels of dust. Yet in meetings with the Agency, Deutz shared
their experience that no system had failed due to mechanical failure of
the catalyst or catalyst housing.\170\ The Deutz system utilized a
conventional cordierite PM filter substrate as is commonly used for
heavy-duty highway truck CDPF systems. The canning and mounting of the
system was a Deutz design. Deutz was able to design the catalyst
housing and mounting in such a way as to protect the catalyst from the
harsh environment as evidenced by its excellent record of reliable
function.
---------------------------------------------------------------------------

\170\ ``Summary of Conference Call between U.S. EPA and Deutz
Corporation on September 19, 2002 regarding Deutz Diesel Particulate
Filter System'', EPA Memorandum to Air Docket A-2001-28.
---------------------------------------------------------------------------

Other nonroad equipment manufacturers have also offered OEM diesel
particulate filter systems in order to comply with requirements of some
mining and tunneling worksite standards. Liebherr, a nonroad engine and
equipment manufacturer, offers diesel particulate filter systems as an
OEM option on its range of construction machine models. As of January
2000, 340 Liebherr machines have been fitted with PM filter
systems.\171\ We believe that this experience shows that appropriate
design considerations, as are necessary with any component on a piece
of nonroad equipment, will be adequate to address concerns with the
vibration and impact conditions which can occur in some nonroad
applications. This experience applies equally well to the
NO_X adsorber catalyst technologies as the mechanical
properties of DOCs, CDPFs, and NO_X adsorbers are all
similar. We do not believe that any new or fundamentally different
solutions will need to be invented in order to address the vibration
and impact constraints for nonroad equipment. Our cost analysis
includes the hardware costs for mounting and shrouding the
aftertreatment equipment as well as the engineering cost for equipment
redesign.
---------------------------------------------------------------------------

\171\ ``Particulate Traps for Construction Machines: Properties
and Field Experience'' J. Czerwinski et. al., Society of Automotive
Engineers Technical Paper 2000-01-1923.
---------------------------------------------------------------------------

Certain nonroad applications, including some forms of harvesting
equipment and mining equipment, may have specific limits on maximum
surface temperature for equipment components in order to ensure that
the components do not serve as ignition sources for flammable dust
particles (e.g. coal dust or fine crop dust). Some have suggested that
these design constraints might limit the equipment manufacturers
ability to install advanced diesel catalyst technologies such as
NO_X adsorbers and CDPFs. This concern seems to be largely
based upon anecdotal experience with gasoline catalyst technologies
where under certain circumstances catalyst temperatures can exceed
1,000[deg]C and without appropriate design considerations could
conceivably serve as an ignition source. We do not believe that these
concerns are justified in the case of either the NO_X
adsorber catalyst or the CDPF technology. Catalyst temperatures for
NO_X adsorbers and CDPFs should not exceed the maximum
exhaust manifold temperatures already commonly experienced by diesel
engines (i.e, catalyst temperatures are expected to be below
800[deg]C).\172\ CDPF temperatures are not expected to exceed
approximately 700[deg]C in normal use and are expected to only reach
the 650[deg]C temperature during periods of active regeneration.
Similarly, NO_X adsorber catalyst temperatures are not
expected to exceed 700[deg]C and again only during periods of active
sulfur regeneration as described in Section III.F below. Under
conditions where diesel exhaust temperatures are naturally as high as
650[deg]C, no supplemental heat addition from the emission control
system will be necessary and therefore exhaust temperatures will not
exceed their natural level. When natural exhaust temperatures are too
low for effective emission system function then supplemental heating as
described earlier may be necessary but would not be expected to produce
temperatures higher than the maximum levels normally encountered in
diesel exhaust. Furthermore, even if it were necessary to raise exhaust
temperatures to a higher level in order to promote effective emission
control, there are technologies available to isolate the higher exhaust

[[Page 28380]]

temperatures from flammable materials such as dust. One approach would
be the use of air-gapped exhaust systems (i.e., an exhaust pipe inside
another concentric exhaust pipe separated by an air-gap) that serve to
insulate the inner high temperature surface from the outer surface
which could come into contact with the dust. The use of such a system
may be additionally desirable in order to maintain higher exhaust
temperatures inside the catalyst in order to promote better catalyst
function. Another technology to control surface temperature already
used by some nonroad equipment manufacturers is water cooled exhaust
systems.\173\ This approach is similar to the air-gapped system but
uses engine coolant water to actively cool the exhaust system. We do
not believe that flammable dust concerns will prevent the use of either
a NO_X adsorber or a CDPF because catalyst temperatures are
not expected to be unacceptably high and because remediation
technologies exist to address these concerns. In fact, exhaust emission
control technologies (i.e., aftertreatment) have already been applied
on both an OEM basis and for retrofit to nonroad equipment for use in
potentially explosive environments. Many of these applications must
undergo Underwriters Laboratory (UL) approval before they can be
used.\174\
---------------------------------------------------------------------------

\172\ The hottest surface on a diesel engine is typically the
exhaust manifold which connects the engines exhaust ports to the
inlet of the turbocharger. The hot exhaust gases leave the engine at
a very high temperature (800[deg]C at high power conditions) and
then pass through the turbocharger where the gases expand driving
the turbocharger providing work. The process of extracting work from
the hot gases cools the exhaust gases. The exhaust leaving the
turbocharger and entering the catalyst and the remaining pieces of
the exhaust system is cooler (as much as 200[deg]C at very high
loads) than in the exhaust manifold.
\173\ ``Engine Technology and Application Aspects for
Earthmoving Machines and Mobile Cranes, Dr. E. Brucker, Liebherr
Machines Bulle, SA, AVL International Commercial Powertrain
Conference, October 2001. Copy available in EPA Air Docket A-2001-
28, Docket Item # II-A-12.
\174\ Phone conversation with Manufacturers of Emission Control
Association (MECA), 9 April, 2003 confirming the use of emission
control technologies on nonroad equipment used in coal mines,
refineries, and other locations where explosion proofing may be
required.
---------------------------------------------------------------------------

Nonroad engines greater than 750 hp are unique in that they do not
have direct highway equivalents. However, this does not mean that
unique catalyst based emission control technologies need to be
developed separately for these larger applications. Rather, larger
engines can, and do in retrofit applications today, use multiple
catalyst systems in a parallel configuration. As an example, a highway
12 liter displacement in-line six cylinder engine might use a single 18
liter CDPF, while a nonroad 24 liter displacement V12 cylinder (a vee
engine has two rows of cylinders set at an angle to each other) engine
would use two 18 liter CDPFs, one for each bank of the vee engine.
Using two smaller catalysts in place of one larger catalyst can be
easier to package and may allow for close coupling of the catalyst
technology to the turbocharger exhaust outlet to improve temperature
management in some applications. Today, many passenger cars and light-
duty trucks with V6 or V8 engines use individual catalysts for each
engine bank to improve packaging and better manage temperatures.
We agree that nonroad equipment must be designed to address durable
performance for a wide range of operating conditions and applications
that would not commonly be experienced by highway vehicles. We believe
further as demonstrated by retrofit experiences around the world that
technical solutions exist which allow catalyst-based emission control
technologies to be applied to nonroad equipment.
3. Are the Standards Proposed for Engines of 75 hp or Higher Feasible?
There are three primary test provisions and associated standards in
the Tier 4 program we are proposing today. These are the proposed
Nonroad Transient Cycle (NRTC), the existing ISO C1 steady-state cycle,
and the proposed highway based Not-To-Exceed (NTE) provisions. A
nonroad diesel engine meeting the proposed standards for each of these
three test cycles would be lawful for use in any kind of nonroad
equipment. Additionally, we have alternative optional test cycles
including the proposed Constant Speed Variable Load (CSVL) cycle, the
existing ISO-D2 steady-state cycle and the proposed Transportation
Refrigeration Unit (TRU) cycle which a manufacturer can choose to use
for certification provided that the manufacturer can demonstrate to the
Agency that the engine will only be used in a limited range of nonroad
equipment with specifically defined operating conditions. Compliance on
the proposed transient test cycles includes weighting the results from
a cold start and hot start test with the cold start emissions weighted
at 1/10 and hot start emissions weighted at 9/10. A complete discussion
of these various test cycles can be found in chapter 4.2 and 4.3 of the
draft RIA.
The standards proposed today for nonroad engines with rated power
greater than or equal to 75 horsepower are based upon the technologies
and standards for highway diesel engines which go into effect in 2007.
As explained above, we believe these technologies, namely
NO_X adsorbers and catalyzed diesel particulate filters
enabled by 15 ppm sulfur diesel fuel, can be applied to nonroad diesel
engines in a similar manner as for highway diesel engines. We
acknowledge that there are additional constraints on nonroad diesel
engines which must be considered in setting these standards, and we
have addressed those issues by allowing for additional lead time or
slightly less stringent standards for nonroad diesel engines in
comparison to highway diesel engines (and likewise have made
appropriate cost estimates to account for the technology and
engineering needed to address these constraints).
We have proposed a PM standard for engines in this category of 0.01
g/bhp-hr based upon the emissions reductions possible through the
application of a CDPF and 15 ppm sulfur diesel fuel. This is the same
emissions level as for highway diesel engines in the HD2007 program.
While baseline soot (the solid carbon fraction of PM) emission levels
may be somewhat higher for some nonroad engines when compared to
highway engines, these emissions are virtually eliminated (reduced by
99 percent) by the CDPF technology. As discussed previously, the
baseline (engine-out) SOF emissions levels may also need to be reduced
through the application of modern piston ring pack designs and valve
stem seals. With application of the CDPF technology, the SOF portion of
diesel PM is predicted to be all but eliminated. The primary emissions
from a CDPF equipped engine are sulfate PM emissions formed from sulfur
in diesel fuel. The emissions rate for sulfate PM is determined
primarily by the sulfur level of the diesel fuel and the rate of fuel
consumption. With the 15 ppm sulfur diesel fuel the PM emissions level
from a CDPF equipped nonroad diesel engine will be similar to the
emissions rate of a comparable highway diesel engine. Therefore, the
0.01 g/bhp-hr emission level is feasible for nonroad engines tested on
the NRTC cycle and on the steady-state cycles, C1 and D2. Put another
way, control of PM using CDPF technology is essentially independent of
duty cycle given active catalyst technology (for reliable regeneration
and SOF oxidation), adequate control of temperature (for reliable
regeneration) and low sulfur diesel fuel (for reliable regeneration and
low PM emissions).
The most challenging PM emissions control conditions for a CDPF are
encountered under high engine load operation where high exhaust
temperatures promote conversion of sulfur in diesel fuel to sulfate PM
emissions. Under these high load conditions, soot and SOF oxidation
rates will be very high and control of those portions of PM emissions
will be highly effective. Sulfate PM emissions, however, will be higher
than for other operating conditions. In a worst case scenario, where
all of the sulfur is

[[Page 28381]]

converted to sulfate, it could be perhaps as high as 0.02 g/bhp-
hr.\175\ This level of PM emissions would comply with our proposed NTE
provisions once consideration is given to the 1.5 times multiplier on
the emission standard for NTE test conditions.\176\ Since this estimate
is made at a worst case condition (assuming 100% conversion of sulfur
to sulfate), we feel confident that the PM NTE provisions of this
proposal can be met.
---------------------------------------------------------------------------

\175\ An estimate of the maximum sulfate PM emissions rate can
be made by assuming a fuel consumption rate (e.g., 0.5 lbm/bhp-hr),
the fuel sulfur level (e.g., 15 ppm) and the sulfur to sulfate
conversion (e.g., 100% maximum) resulting in a calculated sulfate PM
emissions rate of 0.02 g/bhp-hr. This represents a worst case
analysis (100% sulfur conversion with 15 ppm sulfur fuel). In-use
emissions would be significantly lower.
\176\ The PM standard is expressed to two significant digits
0.01 g/bhp-hr, so when the 1.5 NTE multiplier is applied, the NTE
limit becomes 0.015 which is rounded to two significant figures as
0.02 g/bhp-hr.
---------------------------------------------------------------------------

Under contract from the California Air Resources Board, two nonroad
diesel engines were recently tested for PM emissions performance with
the application of a CDPF over a number of transient and steady-state
test cycles.\177\ The first engine is a 1999 Caterpillar 3408 (480 hp,
18 liter displacement) nonroad diesel engine certified to the Tier 1
standards. The engine was tested with and without a CDPF on 12 ppm
sulfur diesel fuel. The transient emission results for this engine are
summarized in Table III.E-1 below. The steady-state emission results
are summarized in Table III.1-2. The test results confirm the excellent
PM control performance realized by a CDPF with low sulfur diesel fuel
across a wide range of nonroad operating cycles in spite of the
relatively high engine-out PM emissions from this Tier 1 engine. We
would expect engine-out PM emissions to be lower for production Tier 3
compliant diesel engines that will form the technology baseline for
Tier 4 engines meeting the proposed standard. The engine demonstrated
PM emissions of 0.009 g/bhp-hr on the proposed Nonroad Transient Cycle
(NRTC) from an engine-out level of 0.256 g/bhp-hr, a reduction of 0.247
g/bhp-hr. The engine also demonstrated excellent PM performance on the
existing steady-state ISO C1 cycle with PM emissions of 0.010 g/bhp-hr
from an engine-out level of 0.127, a reduction of 0.107 g/bhp-hr. Thus
this engine would be compliant with the proposed PM emission standard
for £=75 hp variable speed nonroad engines.
---------------------------------------------------------------------------

\177\ Application of Diesel Particulate Filters to Three Nonroad
Engines--Interim Report, January 2003. Copy available in EPA Air
Docket A-2001-28.
---------------------------------------------------------------------------

When tested on the proposed optional constant speed variable load
cycle (CSVL) (a test to which this engine would not be subject to under
this proposal) the engine-out PM emission levels were 0.407 g/bhp-hr
and were reduced to 0.016 g/bhp-hr (a reduction of 0.391 g/bhp-hr) with
the addition of the PM filter. As tested this engine would not be
compliant with the proposed optional CSVL standard, but this is not
surprising given that this Tier 1 engine was designed for variable
speed engine operation and not for single speed operation. We have
great confidence given the substantial PM reduction realized in this
testing over the proposed CSVL cycle with a CDPF that a properly
designed nonroad diesel engine will be able to meet the standard of
0.01 g/bhp-hr.
[GRAPHIC]
[TIFF OMITTED]
TP23MY03.004

Table III.E-1 also shows results over a large number of additional
test cycles developed from real world in-use test data to represent
typical operating cycles for different nonroad equipment applications
(see chapter 4.2 of the draft RIA for information on these test
cycles). These test cycles are not used for regulatory purposes,
although the information from these cycles was used in developing the
proposed NRTC. The results show that the CDPF technology is highly
effective to control in-use PM emissions over any number of disparate
operating conditions. Remembering that the base Tier 1 engine was not
designed to meet a transient PM standard, the CDPF emissions
demonstrated here

[[Page 28382]]

show that very low emission levels are possible even when engine-out
emissions are exceedingly high (e.g., a reduction of 0.558 g/bhp-hr is
demonstrated on the AW2 cycle).
The results summarized in the two tables are also indicative of the
feasibility of the proposed NTE provisions of this rulemaking. In spite
of the Tier 1 baseline of this engine, there are only three test
results with emissions higher than the permissible limit for the
proposed NTE. The first in Table III.E-1 shows PM emissions of 0.031
over the AW2 cycle but from a very high baseline level of nearly 0.6 g/
bhp-hr. We believe that simple improvements to the engine-out PM
emissions as needed to comply with the Tier 2 emission standard would
reduce these emission below the 0.02 level required by the standard.
There are two other test points in Table III.E-2 which are above the
proposed NTE emission level, both at 10 percent engine load. However,
both are outside the NTE zone which excludes emissions for engine loads
below 30 percent. It is important to note that although the engine
would not be constrained to meet the NTE under these conditions, the
resulting reductions at both points are still substantial in excess of
96 percent.

Table III.E-2--Steady-State PM Emissions from a Tier 1 NR Diesel Engine w/CDPF
----------------------------------------------------------------------------------------------------------------
1999 (Tier 1) Caterpillar 3408 (480hp, 181)
-----------------------------------------------------------------------------------------------------------------
PM ([g/bhp-hr]
Engine speed % Engine load % ---------------------------------------------- Reduction %
Engine out w/CDPF
----------------------------------------------------------------------------------------------------------------
100 100 0.059 0.10 83
100 75 0.103 0.009 91
100 50 0.247 0.012 95
100 25 0.247 0.000 100
100 10 0.925 0.031 97
60 100 0.028 0.011 61
60 75 0.138 0.009 93
60 50 0.180 0.010 95
60 25 0.370 0.007 98
60 10 0.801 0.018 98
91 82 0.091 0.006 93
80 63 0.195 0.008 96
63 40 0.240 0.008 97
0 0 ..................... ..................... ....................
(\1\) 0.127 0.011 91
----------------------------------------------------------------------------------------------------------------
ISO C1 Composite.

The second engine tested was a prototype engine developed at
Southwest Research Institute (SwRI) under contract to EPA.\178\ The
engine, dubbed Deere Development Engine 4045 (DDE-4045) because the
prototype engine was based on a John Deere 4045 production engine, was
also tested with a CDPF from a different manufacturer on the same 12
ppm diesel fuel. The engine is very much a prototype and experienced a
number of part failures during testing, including to the turbocharger
actuator. Nevertheless, the transient emission results summarized in
Table III.E-3 and the steady-state results summarized in Table III.E-4
show that substantial PM reductions are realized on this engine as
well. The emission levels on the NRTC and the ISO C1 cycle would be
compliant with the proposed PM standard of 0.01 g/bhp-hr once the
appropriate rounding convention was applied.\179\ It is also
interesting to note that the highway FTP transient emissions are higher
than for either of the proposed nonroad transient tests. This suggests
that developing PM compliant engines on the proposed nonroad transient
cycles may not be substantially different from developing compliant
technologies for highway engines. Our analysis of exhaust temperature
characteristics for NO_X adsorber catalysts discussed in the
preceding section, noted a similar trend for NO_X
technologies (i.e., that the exhaust temperature characteristics of the
NRTC may be better matched catalyst technologies than the HD FTP).
---------------------------------------------------------------------------

\178\ ``Nonroad Diesel Emission Standards--Staff Technical
Paper'', EPA Publication EPA420-R-01-052, October 2001. Copy
available in EPA Air Docket A-2001-28.
\179\ The rounding procedures in ASTM E29-90 are applied to the
emission standard, therefore, the emission results are rounded to
the same number of significant digits as the specified standard,
i.e., 0.014 g/bhp-hr is rounded to 0.01 g/bhp-hr, while 0.015 g/bhp-
hr would be rounded to 0.02 g/bhp-hr.

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

[[Page 28383]]
[GRAPHIC]
[TIFF OMITTED]
TP23MY03.005

As with the results from the Caterpillar engine, the two low-load
(10 percent load) steady-state emissions points have some of the
highest brake specific emission rates. These rates are not high enough,
however, to preclude compliance with the steady-state emission cycle,
are not within the proposed NTE zone, and still show substantial PM
reduction levels.
[GRAPHIC]
[TIFF OMITTED]
TP23MY03.006

[[Page 28384]]

While the resulting PM emission levels for nonroad diesel engines
are similar to the levels for highway diesel engines, the challenge of
ensuring soot regeneration of the CDPF may be more difficult for some
nonroad equipment types. As explained earlier, effective regeneration
occurs when the aggregate soot rate into the CDPF over an extended
period is less than or equal to the soot oxidation rate over the same
period. Because the baseline PM soot rate into the CDPF level may be
higher for some nonroad engines and because the average exhaust
temperature may be lower for some operating cycles, additional engine
and aftertreatment system development will be needed for some nonroad
engines. These additional developments include improved thermal
management and improved active back-up systems which can periodically
raise exhaust temperatures in order to initiate regeneration. We expect
these systems to be evolutionary advancements based primarily on the
core technologies used by nonroad manufacturers to comply with the Tier
3 emission standards with enhancements from the highway technologies
developed to comply with the HD2007 standards. The implementation dates
for the standards proposed today were selected in part based upon the
time we believe will be necessary to transfer and further develop these
highway technologies to nonroad diesel engines and equipment.
We are proposing a NO_X standard of 0.3 g/bhp-hr for
engines in this category based upon the emission reductions possible
from the application of NO_X adsorber catalysts and the
expected emission levels for Tier 3 compliant engines which form the
baseline technology for Tier 4 engines. The Tier 3 emission standards
are a combined NO_X+NMHC standard of 3.0 g/bhp-hr for engines
greater than 100 hp and less than 750 horsepower. For engines less than
100 hp but greater than 50 horsepower the Tier 3 NO_X+NMHC
emission standard is 3.5 g/bhp-hr. For engines greater than 750
horsepower there is no Tier 3 NO_X+NMHC standard. We believe
that in the time-frame of the Tier 4 emission standards proposed today,
all engines of 75 horsepower or higher can be developed to control
NO_X emissions to engine-out levels of 3.0 g/bhp-hr or lower.
This means that all engines will need to apply Tier 3 emission control
technologies (i.e., turbochargers, charge-air-coolers, electronic fuel
systems, and for some manufacturers EGR systems) to get to this
baseline level, even those engines without a Tier 3 standard (i.e.,
£750hp engines). As discussed in more detail in the draft
RIA, our analysis of the NRTC and the ISO C1 cycles indicates that the
NO_X adsorber catalyst can provide a 90 percent or greater
NO_X reduction level on the cycles. The proposed standard of
0.3 g/bhp-hr reflects a baseline emissions level of 3.0 g/bhp-hr and a
90 percent or greater reduction of NO_X emissions through the
application of the NO_X adsorber catalyst. The additional
lead time available to nonroad engine manufacturers and the substantial
learning that will be realized from the introduction of these same
technologies to highway diesel engines, plus the lack of any
fundamental technical impediment, makes us confident that the proposed
NO_X standards can be met.
The proposed standard is 50 percent higher than the corresponding
HD2007 standard of 0.2 g/bhp-hr because of the higher baseline
NO_X emissions for Tier 3 engines. The higher baseline
(engine-out) NO_X level is due primarily to a lack of ram-air
for improved charge-air cooling for nonroad diesel engines when
compared to highway diesel engines compliant with the 2004 highway
emission standards. Although nonroad engine manufacturers may be able
to lower engine-out NO_X emissions below the levels required
for Tier 3, we continue to expect that the lack of ram air will limit
nonroad engine-out NO_X performance, and therefore we have
accounted for that difference by proposing this higher NO_X
emissions level.
We believe that the NO_X adsorber technology developed
for highway engines can be applied with equal effectiveness to nonroad
diesel engines with additional developments in engine thermal
management (as discussed in section III.E.2 above) to address the more
widely varied nonroad operating cycles. In fact, as discussed
previously, the NO_X adsorber catalyst temperature window is
particularly well matched to transient operating conditions as typified
by the NRTC.
Compliance with the NTE provisions proposed today will be
challenging for the nonroad engine industry due to the diversity of
nonroad products and operating cycles. However, the technical challenge
is reduced somewhat by the 1.5 multiplier used to calculate the NTE
standard. Controlling NO_X emissions under NTE conditions is
fundamentally similar for both highway and nonroad engines. The range
of control is the same and the amount of reduction required is also the
same. We know of no technical impediment that would prevent achieving
the NTE standard under the full range of operating conditions.
The proposed NO_X standard is phased in over a number of
years in a manner similar to the HD2007 NO_X phase-in. In the
early years of the program half of the engines produced by a
manufacturer must be certified to the new emission standard while the
remaining engines can continue to be sold at the previous standard. We
provided this phase-in period for highway engines in the HD2007
rulemaking to allow manufacturers to focus resources on the portion of
their products best suited to NO_X catalysts first and then
to apply the learning to the remainder of their products three years
later.\180\ Provisions of the averaging program in the HD2007
rulemaking allow manufacturers to alternatively comply with some engine
families at an ``averaged'' standard that is approximately halfway
between the old and new NO_X standards. In fact, we have
learned from a number of engine manufacturers that they are likely to
employ this strategy for some fraction of their new highway engines in
2007. The averaging provisions that we have proposed today for Tier 4
would also allow for compliance with the proposed Tier 4 NO_X
standard with a single engine product during the transitional
NO_X phase-in period. This provision allows manufacturers to
transfer the same highway NO_X technologies to nonroad
engines and to comply with an appropriately stringent standard. We
believe as with the HD2007 rule that this provision is necessary in
order to manage resource requirements to develop the necessary
technologies and that this provision provides significant additional
flexibility for manufacturers to comply with the proposed
NO_X standards. Similarly, we have proposed a modified phase-
in schedule for the greater than 750 horsepower engines in part because
of the lack of a Tier 3 standard for those engine and the extra work
required to develop a full Tier 4 emission control system from a Tier 2
baseline.
---------------------------------------------------------------------------

\180\ Control of Air Pollution from New Motor Vehicles: Heavy-
duty Engine and Vehicle Standards and Highway Diesel Sulfur Control
Requirements; Final Rule, 66 FR 5002, January 18, 2001.
---------------------------------------------------------------------------

Meeting the proposed NMHC standard under the lean operating
conditions typical of the biggest portion of NO_X adsorber
operation should not present any special challenges to nonroad diesel
engine manufacturers. Since CDPFs and NO_X adsorbers contain
platinum and other precious metals to oxidize NO to NO₂,
they are also very efficient oxidizers of hydrocarbons. NMHC reductions
of greater than 95 percent have been shown over transient

[[Page 28385]]

and steady-state test procedures.\181\ Given that typical engine-out
NMHC is expected to be in the 0.40 g/bhp-hr range or lower for engines
meeting the Tier 3 standards, this level of NMHC reduction will mean
that under lean conditions emission levels will be well below the
standard.
---------------------------------------------------------------------------

\181\ ``The Impact of Sulfur in Diesel Fuel on Catalyst Emission
Control Technology,'' report by the Manufacturers of Emission
Controls Association, March 15, 1999, pp. 9 & 11. Copy available in
EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

The NO_X regeneration strategies for the NO_X
adsorber technology may prove difficult to control precisely, leading
to a possible increase in NMHC emissions under the rich operating
conditions required for NO_X regeneration. Even with precise
control of the regeneration cycle, NMHC slip may prove to be a
difficult problem due to the need to regenerate the NO_X
adsorber under net rich conditions (excess fuel) rather than the
stoichiometric (fuel and air precisely balanced) operating conditions
typical of a gasoline three-way catalyst. It seems possible therefore,
that in order to meet the NMHC standards we have proposed, an
additional clean up catalyst may be required. A diesel oxidation
catalyst, like those applied historically for NMHC and partial PM
control, can reduce NMHC emissions (including toxic HCs) by more than
90 percent.\182\ This amount of additional control along with optimized
NO_X regeneration strategies will ensure very low NMHC
emissions. Our cost analysis described in section V includes the cost
for the application of a clean-up DOC catalyst for all engines which
must comply with the 0.3 g/bhp-hr NO_X standard.
---------------------------------------------------------------------------

\182\ ``Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-Duty Engines to Achieve Low Emission
Levels'', Manufacturers of Emissions Controls Association, June
1999. Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

Test results from a prototype integrated NO_X/PM and NMHC
control system for diesel engines documented in the draft RIA show that
NMHC emissions can be controlled below 0.14 g/bhp-hr under transient
and steady-state test conditions for highway diesel engines while
simultaneously controlling NO_X emissions below 0.2 g/bhp-hr
and PM emissions below 0.01 g/bhp-hr. Since the slip of hydrocarbon
emissions are predominantly a function of the NO_X
regeneration event and not engine transient events, the level of
control demonstrated in this testing is expected to be the same for
other operating conditions as represented by the proposed NRTC cycle
and the NTE provisions of this rulemaking. Based on our engineering
judgement and experience testing integrated NO_X adsorber and
PM filter systems with DOC clean-up catalyst technologies, we can
conclude that the 0.14 g/bhp-hr NMHC standard will be feasible in the
Tier 4 time frame.
The proposed standards include a cold start provision with the
transient test procedures. This means that the results of a cold start
transient test will be weighted with the emissions of a hot start test
in order to calculate the emissions for compliance against the proposed
standards. The proposed weightings are 1/10 cold start and 9/10 for the
hot start as described more fully in chapter 4.2 of the draft RIA.
Because exhaust temperatures are so important to catalyst performance
the cold start provision is an important tool to ensure that the
emissions realized in use are consistent with the expectations of this
program and represents an additional technical challenge for
NO_X control and to a lesser extent CO and NMHC control. PM
control with a CDPF is not expected to be significantly impacted by
cold-start provisions. NO_X control in the period before
temperatures exceed the catalyst light-off temperature are reduced
significantly. As a result, exhaust stack NO_X emissions will
be higher over the cold start portion of the test. However, we believe
that this increase in NO_X emissions will not be high enough
to preclude compliance with the proposed NO_X standard once
the 1/10 weighting is applied.
There are a number of technologies available to the engine
manufacturer to promote rapid warmup of the exhaust and emission
control system. These include retarding injection timing, increasing
EGR, and potentially late cycle injection all of which are technologies
we expect manufacturers to apply as part of the normal operation of the
NO_X adsorber catalyst system. These are the same
technologies we expect highway engine manufacturers to use in order to
comply with the highway cold start FTP provision which weights cold
start emissions more heavily with a 1/7 weighting. As a result, we
expect the transfer of highway technology to be well matched to
accomplish this control need for nonroad engines as well. Using these
technologies we expect nonroad engine manufacturers to be able to
comply with the proposed NO_X, NMHC and CO emissions
including the cold start provisions of the transient test procedure.
We did not set new Tier 3 emission standards for £750 hp
nonroad engines in the 1998 Tier \2/3\ rulemaking because of the long
lead time we believed appropriate, given the long product redesign
cycles typical of these large engines and their low sales volumes. The
Tier 2 standards set in that rulemaking for £750 hp engines
do not go into effect until 2006. We reasoned in the Tier \2/3\ rule
that the uncertainties involved in setting a Tier 3 standard for
£750hp nonroad engines that wouldn't go into effect before
2010 would be too large. Therefore, we deferred setting new standards
for these engines at that time. Given new technology enabled by low
sulfur diesel fuel, we believe that it is now appropriate to project
the technologies which will be available for these engines in the
future (i.e., CDPFs and NO_X adsorbers) and to set new
standards accordingly.
Although we have proposed a unique phase-in schedule for
£750hp engines as explained in section III.B, we do not doubt
that these engines, like engines <750hp, can be developed to meet the
standards proposed today. These large engines are fundamentally similar
to other nonroad engines. The project emissions control mechanisms are
the same. Retrofits of PM filter systems have been applied to large
locomotives and other similar size engines. We are unaware of any
fundamental difference in technology function that would lead us to
conclude that the proposed standards are inappropriate for engines
£750hp. However, given the need to apply both new engine-out
control technologies (i.e., Tier 3 type technologies) in addition to
the new catalyst based technologies in order to comply with the
proposed standards, and given the low sales volumes for these engines,
we do believe it is appropriate to have a different phase-in structure
for these engines. We invite comment supported by data on this issue,
particularly if a commenter believes there are fundamental technology
differences which would make alternate standards more appropriate for
£750hp nonroad engines.
The standards that we have proposed today for nonroad engines with
rated horsepower levels £=75 horsepower are based upon the
same emission control technologies, clean 15ppm or lower sulfur diesel
fuel, and relative levels of emission control effectiveness as the HD
2007 emission standards. We have given consideration to the diversity
of nonroad equipment for which these technologies must be developed and
the timing of the Tier 3 emissions standards in determining the
appropriate timing for the Tier 4 standards we have proposed today.
Based upon the availability of the emission control technologies, the
proven effectiveness of the technologies to control diesel emissions to
these levels, the technology

[[Page 28386]]

paths identified here to address constraints specific to nonroad
equipment, and the additional lead time afforded by the timing of the
standards, we have concluded that the proposed standards are feasible.
4. Are the Standards Proposed for Engines £=25 hp and <75 hp
Feasible?
As discussed in section III.B, our proposal for standards for
engines between 25 and 75 hp consists of a 2008 transitional standard
and long-term 2013 standards. The proposed transitional standard is a
0.22 g/bhp-hr PM standard. The 2013 standards consist of a 0.02 g/bhp-
hr PM standard and a 3.5 g/bhp-hr NMHC+NO_X standard. As
discussed in section III.B, the transitional standard is optional for
50-75 hp engines, as the proposed 2008 implementation date is the same
as the effective date of the Tier 3 standards. Manufacturers may
decide, at their option, not to undertake the 2008 transitional PM
standard, in which case their implementation date for the 0.02 g/bhp-hr
PM standard begins in 2012.
In addition, we have proposed a minor revision to the CO standard
for the 25-50 hp engines beginning in 2008 to align these engines with
the 50-75 hp engines. This proposed CO standard is 3.7 g/bhp-hr.
The remainder of this section discusses:
? What makes the 25-75 hp category unique;
? What engine technology is used today, and will be used for
applicable Tier 2 and Tier 3 standards;
? Why the proposed standards are technologically feasible;
and,
? Why EPA has not proposed more stringent NO_X
standards at this time for these engines.
a. What makes the 25--75 hp category unique?
As discussed in section III.B.1.d, many of the nonroad diesel
engines £=75 hp are either a direct derivative of highway
heavy-duty diesel engines, or share a number of common traits with
highway diesel engines. These include similarities in displacement,
aspiration, fuel systems, and electronic controls. Table III.E-3
contains a summary of a number of key engine parameters from the 2001
engines certified for sale in the U.S.\183\
---------------------------------------------------------------------------

\183\ Data in Table III.E-3 is derived from a combination of the
publically available certification data for model year 2001 engines,
as well as the manufacturers reported estimates of 2001 production
targets, which is not public information.

Table III.E-3: Summary of Model Year 2001 Key Engine Parameters by Power Category
----------------------------------------------------------------------------------------------------------------
Percent of 2001 U.S. Production \a\
---------------------------------------------------------------
Engine Parameter £100
0-25 hp 25-75 hp 75-100 hp hp
----------------------------------------------------------------------------------------------------------------
IDI Fuel System................................. 83% 47% 4% <0.1%
DI Fuel System.................................. 17% 53% 96% £99%
Turbocharged.................................... 0% 7% 62% 91%
1 or 2 Cylinder Engines......................... 47% 3% 0% 0%
Electronic fuel systems (estimated)............. not available limited availability commonly
today available today available
today today
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Based on sales weighting of 2001 engine certification data.

As can be seen in Table III.E-3, the engines in the 25-75 hp
category have a number of technology differences from the larger
engines. These include a higher percentage of indirect-injection fuel
systems, and a low fraction of turbocharged engines. (The distinction
in the <25 hp category is quite different, with no turbocharged
engines, nearly one-half of the engines have two cylinders or less, and
a significant majority of the engines have indirect-injection fuel
systems.)
The distinction is particularly marked with respect to
electronically controlled fuel systems. These are commonly available in
the £= 75 hp power categories, but, based on the available
certification data as well as our discussions with engine
manufacturers, we believe there are very limited numbers, if any, in
the 25-75 hp category (and no electronic fuel systems in the less than
25 hp category). The research and development work being performed
today for the heavy-duty highway market is targeted at engines which
are 4-cylinders or more, direct-injection, electronically controlled,
turbocharged, and with per-cylinder displacements greater than 0.5
liters. As discussed in more detail below, as well as in section
III.E.5 (regarding the <25 hp category), these engine distinctions are
important from a technology perspective and warrant a different set of
standards for the 25-75 hp category (as well as for the <25 hp
category).
b. What Engine Technology Is Used Today, and Will Be Used for the
Applicable Tier 2 and Tier 3 Standards?
In the 1998 nonroad diesel rulemaking, we established Tier 1 and
Tier 2 standards for engines in the 25-50 hp category. Tier 1 standards
were implemented in 1999, and the Tier 2 standards take effect in 2004.
The 1998 rule also established Tier 2 and Tier 3 standards for engines
between 50 and 75 hp. The Tier 2 standards take effect in 2004, and the
Tier 3 standards take effect in 2008. The Tier 1 standards for engines
between 50 and 75 hp took effect in 1998. Therefore, all engines in the
25-75 hp range have been meeting Tier 1 standards for the past several
years, and the data presented in Table III.E-3 represent performance of
Tier 1 technology for this power range.
As discussed in section III.E.4.a, engines in the 25-75 hp category
use either indirect injection (IDI) or direct injection (DI) fuel
systems. The IDI system injects fuel into a pre-chamber rather than
directly into the combustion chamber as in the DI system.\184\ This
difference in fuel systems results in substantially different emission
characteristics, as well as differences in several important operating
parameters. In general, the IDI engine has lower engine-out PM and
NO_X emissions, while the DI engine has better fuel
efficiency and lower heat rejection.\185\
---------------------------------------------------------------------------

\184\ See for example ``Diesel-engine Management'' published by
Robert Bosch GmbH, 1999, second edition, pages 6-8 for a more
detailed discussion of the differences between IDI and DI engines.
\185\ See chapter 14, section 4 of ``Turbocharging the Internal
Combustion Engine'', N. Watson and M.S. Janota, published by John
Wiley and Sons, 1982.
---------------------------------------------------------------------------

We expect a significant shift in the engine technology which will
be used in this power category as a result of the upcoming Tier 2 and
Tier 3 standards, in particular for the 50-75 hp engines. In the 50-75
hp category, the 2008 Tier

[[Page 28387]]

3 standards will likely result in the significant use of turbocharging
and electronic fuel systems, as well as the introduction of both cooled
and uncooled exhaust gas recirculation by some engine manufacturers and
possibly the use of charge-air-cooling.\186\ In addition, we have heard
from some engine manufacturers that the engine technology used to meet
Tier 3 for engines in the 50-75 hp range will also be made available on
those engines in the 25-50 hp range which are built on the same engine
platform. For the Tier 2 standards for the 25-50 hp products, a large
number of engines meet these standards today, and therefore we expect
to see only moderate changes in these engines, including the potential
additional use of turbocharging on some models.\187\
---------------------------------------------------------------------------

\186\ See section 2.2 through 2.3 in ``Nonroad Diesel Emission
Standards--Staff Technical Paper'', EPA Publication EPA420-R-01-052,
October 2001. Copy available in EPA Air Docket A-2001-28.
\187\ See Table 3-2 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001. Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

c. Are the Proposed Standards for 25-75 hp Engines Technologically
Feasible?
This section will discuss the technical feasibility of both the
proposed 2008 PM standard and the 2013 standards. For an explanation
and discussion of the proposed implementation dates, please refer to
section III.B of this this proposal.
i. 2008 PM Standards.\188\ As just discussed in section III.E.4.b,
engines in the 25-50 hp category must meet Tier 1 NMHC+NO_X
and PM standards today. We have examined the model year 2002 engine
certification data for engines in the 25-50 hp category. These data
indicate that over 10 percent of the engine families meet the proposed
2008 0.22 g/bhp-hr PM standard and 5.6 g/bhp-hr NMHC+NO_X
standard (unchanged from Tier 2 in 2008) today. These include a variety
of engine families using a mix of engine technologies (IDI and DI,
turbocharged and naturally aspirated) tested on a variety of
certification test cycles.\189\ Five engine families are more than 20
percent below the proposed 0.22 g/bhp-hr PM standard, and an additional
24 engine families are within 30 percent of the proposed 2008 PM
standards while meeting the NMHC+NO_X standard. A detailed
discussion of these data is contained in the draft RIA. Unfortunately,
similar data do not exist for engines between 50 and 75 hp. There is no
Tier 1 PM standard for engines in this power range, and therefore
engine manufacturers are not required to report PM emission levels
until Tier 2 starts in 2004. However, in general, the 50-75 hp engines
are more technologically advanced than the smaller horsepower engines
and would be expected to perform as well as, if not better than, the
engines in the 25-50 hp range.
---------------------------------------------------------------------------

\188\ As discussed in section III.B., manufacturers can choose,
at their option, to pull-ahead the 2013 PM standard for the 50-75 hp
engines to 2012, in which case they do not need to comply with the
transitional 2008 PM standard.
\189\ The Tier 1 standards for this power category must be
demonstrated on one of a variety of different engine test cycles.
The appropriate test cycle is selected by the engine manufacturer
based on the intended in-use application of the engine.
---------------------------------------------------------------------------

The model year 2002 engines in this power range use well known
engine-out emission control technologies, such as optimized combustion
chamber design and fuel injection timing control strategies, to comply
with the existing standards. These data have a two-fold significance.
First, they indicate that a number of engines in this power range can
already achieve the proposed 2008 standard for PM using only engine-out
technology, and that other engines should be able to achieve the
standard making improvements just to engine-out performance. Despite
being certified to the same emission standards with similar engine
technology, the emission levels from these engines vary widely. Figure
III.E-1 is a graph of the model year 2002 HC+NO_X and PM data
for engines in the 25-50 hp range. As can be seen in the figure, the
emission levels cover a wide range. Figure III.E-1 highlights a
specific example of this wide range: engines using naturally aspirated
DI technology and tested on the 8-mode test cycle. Even for this subset
of DI engines achieving approximately the same HC+NO_X level
of [sim]6.5 g/bhp-hr, the PM rates vary from approximately 0.2 to more
than 0.5 g/bhp-hr. There is limited information available to indicate
why for these small diesel engines with similar technology operating at
approximately the same HC+NO_X level the PM emission rates
cover such a broad range. We are therefore not predicating the proposed
2008 PM standard on the combination of diesel oxidation catalysts and
the lowest engine-out emissions being achieved today, because it is
uncertain whether or not additional engine-out improvements would lower
all engines to the proposed 2008 PM standard. Instead, we believe there
are two likely means by which companies can comply with the proposed
2008 PM standard. First, some engine manufacturers can comply with this
standard using known engine-out techniques (e.g., optimizing combustion
chamber designs, fuel-injection strategies). However, based on the
available data it is unclear whether engine-out techniques will work in
all cases. Therefore, we believe some engine companies will choose to
use a combination of engine-out techniques and diesel oxidation
catalysts, as discussed below.

[[Page 28388]]
[GRAPHIC]
[TIFF OMITTED]
TP23MY03.007

For those engines which do not already meet the proposed 2008 Tier
4 PM standard, a number of engine-out technologies are available to
achieve the standards by 2008. In our recent Staff Technical Paper on
the feasibility of the Tier 2 and Tier 3 standards, we projected that
in order to comply with the Tier 3 standards, engines greater than 50
hp would rely on some combination of a number of technologies,
including electronic fuel systems such as electronic rotary pumps or
common-rail fuel systems.\190\ In addition to enabling the Tier 3
NMHC+NO_X standards, electronic fuel systems with high
injection pressure and the capability to perform pilot-injection and
rate-shaping, have the potential to substantially reduce PM
emissions.\191\ Even for mechanical fuel systems, increased injection
pressures can reduce PM emissions substantially.\192\ As discussed
above, we are projecting that the Tier 3 engine technologies used in
engines between 50 and 75 hp, such as turbocharging and electronic fuel
systems, will make their way into engines in the 25-50 hp range.
However, we do not believe this technology will be required to achieve
the proposed 2008 PM standard. As demonstrated by the 2002
certification data, engine-out techniques such as optimized combustion
chamber design, fuel injection pressure increases and fuel injection
timing can be used to achieve the proposed standards for many of the
engines in the 25-75 hp category without the need to add turbocharging
or electronic fuel systems.
---------------------------------------------------------------------------

\190\ See section 2.2 through 2.3 in ``Nonroad Diesel Emission
Standards--Staff Technical Paper'', EPA Publication EPA420-R-01-052,
October 2001. Copy available in EPA Air Docket A-2001-28.
\191\ Ikegami, M., K. Nakatani, S. Tanaka, K. Yamane: ``Fuel
Injection Rate Shaping and Its Effect on Exhaust Emissions in a
Direct-Injection Diesel Engine Using a Spool Acceleration Type
Injection System'', SAE paper 970347, 1997. Dickey D.W., T.W. Ryan
III, A.C. Matheaus: ``NO_X Control in Heavy-Duty Engines--
What is the Limit?'', SAE paper 980174, 1998. Uchida N, K.
Shimokawa, Y. Kudo, M. Shimoda: ``Combustion Optimization by Means
of Common Rail Injection System for Heavy-Duty Diesel Engines'', SAE
paper 982679, 1998.
\192\ ``Effects of Injection Pressure and Nozzle Geometry on DI
Diesel Emissions and Performance,'' Pierpont, D., and Reitz, R., SAE
Paper 950604, 1995.
---------------------------------------------------------------------------

For those engines which are not able to achieve the proposed
standards with known engine-out techniques, we project that diesel
oxidation catalysts can be used to achieve the proposed standards. DOCs
are passive flow-through emission control devices which are typically
coated with a precious metal or a base-metal washcoat. DOCs have been
proven to be durable in use on both light-duty and heavy-duty diesel
applications. In addition, DOCs have already been used to control
carbon monoxide on some nonroad applications.\193\
---------------------------------------------------------------------------

\193\ EPA Memorandum ``Documentation of the Availability of
Diesel Oxidation Catalysts on Current Production Nonroad Diesel
Equipment'', William Charmley. Copy available in EPA Air Docket A-
2001-28.
---------------------------------------------------------------------------

Certain DOC formulations can be sensitive to diesel fuel sulfur
level, and depending on the level of emission reduction necessary,
sulfur in diesel fuel can be an impediment to PM reductions. As
discussed in section III.E.1.a, precious metal oxidation catalysts can
oxidize the sulfur in the fuel and form particulate sulfates. However,
even with today's high sulfur nonroad fuel, some manufacturers have
demonstrated that a properly formulated DOC can be used to achieve the
existing Tier 2 PM standards for larger engines (i.e., the 0.15 g/bhp-
hr standard).\194\ However, given the high level of sulfur in nonroad
fuel today, the use of DOCs

[[Page 28389]]

as a PM reduction technology is severely limited. Data presented by one
engine manufacturer regarding the existing Tier 2 PM standard shows
that while a DOC can be used to meet the current standard even when
tested on 2,000 ppm sulfur fuel, lowering the fuel sulfur level to 380
ppm enabled the DOC to reduce PM by 50 percent from the 2,000 ppm
sulfur fuel.\195\ Without the availability of 500 ppm sulfur fuel in
2008, DOCs would be of limited use for nonroad engine manufacturers and
would not provide the emissions necessary to meet the proposed
standards for most engine manufacturers. With the availability of 500
ppm sulfur fuel, DOC's can be designed to provide PM reductions on the
order of 20 to 50%, while suppressing particulate sulfate reduction.
These levels of reductions have been seen on transient duty cycles as
well as highway and nonroad steady-state duty cycles.\196\ As discussed
in section VII of this preamble, the 2008 PM standard must be met on
the existing nonroad steady-state cycle, the supplemental standards
(nonroad transient cycle and NTE) are not implemented until 2013 for
this power category. As discussed above, 24 engine families in the 25-
50 hp range are within 30 percent of the proposed 2008 PM standard and
are at or below the 2008 NMHC+NO_X standard for this power
range, indicating that use of DOCs should readily achieve the
incremental improvement necessary to meet the proposed 2008 PM
standard.
---------------------------------------------------------------------------

\194\ See Table 2-4 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001. Copy available in EPA Air Docket A-2001-28.
\195\ See Table 2-4 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001. Copy available in EPA Air Docket A-2001-28.
\196\ ``Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-duty Engines to Achieve Low Emission
Levels: Interim Report Number 1--Oxidation Catalyst Technology, copy
available in EPA Air Docket A-2001-28. ``Reduction of Diesel Exhaust
Emissions by Using Oxidation Catalysts,'' Zelenka et al., SAE Paper
90211, 1990. See Table 2-4 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001, copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

Based on the existence of a number of engine families which already
comply with the proposed 0.22 g/bhp-hr PM standard (and the 2008
NMHC+NO_X standard), and the availability of well known PM
reduction technologies such as engine-out improvements and diesel
oxidation catalysts, we project the proposed 0.22 g/bhp-hr PM standards
is technologically feasible by model year 2008. All of these are
conventional technologies which have been used on both highway and
nonroad diesel engines in the past. As such, we do not expect there to
be any negative impacts with respect to noise or safety. In addition,
PM reduction technologies such as improved combustion through the use
of higher pressure fuel injection systems have the potential to improve
fuel efficiency. DOCs are not predicted to have any substantial impact
on fuel efficiency.
As discussed in section III.B, we have also proposed a minor change
in the CO standard for the 25-50 hp engines, in order to align it with
the standard for the 50-75 hp engines. As discussed in section III.B.,
this small change in the CO standard is intended to simplify EPA's
regulations as part of our decision to propose a reduction in the
number of engine power categories for Tier 4. The current CO standard
for this category is 4.1 g/bhp-hr, and the proposed standard is 3.7 g/
bhp-hr (i.e., the current standard for engines in the 50-75 hp range).
The model year 2002 certification data shows that more than 95 percent
of the engine families in the 25-50 hp engine range meet the proposed
CO standard today. In addition, a recent EPA test program run by a
contractor on two nonroad diesel engines in this power range showed
that CO emissions were well below the proposed standards not only when
tested on the existing steady-state 8-mode test procedure, but also
when tested on the nonroad transient duty cycle we are proposing in
today's action.\197\ Finally, DOCs typically reduce CO emissions on the
order of 50 percent or more, on both transient and steady-state
conditions.\198\ Given that more than 95 percent of the engines in this
category meet the proposed standard today, and the ready availability
of technology which can easily achieve the proposed standard, we
project this CO standard will be achievable by model year 2008.
---------------------------------------------------------------------------

\197\ See Tables 6, 8, and 14 of ``Nonroad Emission Study of
Catalyzed Particulate Filter Equipped Small Diesel Engines'
Southwest Research Institute, September 2001. Copy available in EPA
Air Docket A-2001-28.
\198\ ``Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-duty Engines to Achieve Low Emission
Levels: Interim Report Number 1--Oxidation Catalyst Technology and
``Reduction of Diesel Exhaust Emissions by Using Oxidation
Catalysts'', P. Zelenka et al., Society of Automotive Engineers
paper 902111, October 1990.
---------------------------------------------------------------------------

ii. 2013 Standards
For engines in the 25-50 range, we are proposing standards
commencing in 2013 of 3.5 g/bhp-hr for NMHC+NO_X and 0.02 g/
bhp-hr for PM. For the 50-75 hp engines, we are proposing a 0.02 g/bhp-
hr PM standard which will be implemented in 2013, and for those
manufacturers who choose to pull-ahead the standard one-year, 2012
(manufacturers who choose to pull-ahead the 2013 standard for engine in
the 50-75 range do not need to comply with the transitional 2008 PM
standard).

PM Standard

Sections III.E.1 through III.E.3 have already discussed catalyzed
diesel particulate filters, including explanations of how CDPFs reduce
PM emissions, and how to apply CDPFs to nonroad engines. We concluded
there that CDPFs can be used to achieve the proposed PM standard for
engines £=75 hp. As also discussed in section III.E.2.a, PM
filters will require active back-up regeneration systems for many
nonroad applications above and below 75 hp because low temperature
operation is an issue across allpower categories. A number of secondary
technologies are likely required to enable proper regeneration,
including possibly electronic fuel systems such as common rail systems
which are capable of multiple post-injections which can be used to
raise exhaust gas temperatures to aid in filter regeneration.
Particulate filter technology, with the requisite trap regeneration
technology, can also be applied to engines in the 25 to 75 hp range.
The fundamentals of how a filter is able to reduce PM emissions as
described in section III.E.1. are not a function of engine power, and
CDPF's are just as effective at capturing soot emissions and oxidizing
SOF on smaller engines as on larger engines. As discussed in more
detail below, particulate sulfate generation rates are slightly higher
for the smaller engines, however, we have addressed this issue in our
proposal. The PM filter regeneration systems described in section
III.E.1 and 2 are also applicable to engines in this size range and are
therefore likewise feasible. There are specific trap regeneration
technologies which we believe engine manufacturers in the 25-75 hp
category may prefer over others. Specifically, an electronically-
controlled secondary fuel injection system (i.e., a system which
injects fuel into the exhaust upstream of a PM filter). Such a system
has been commercially used successfully by at least one nonroad engine
manufacturer, and other systems have been tested by technology
companies.\199\
---------------------------------------------------------------------------

\199\ ``The Optimized Deutz Service Diesel Particulate Filter
System II'', H. Houben et al., SAE Technical Paper 942264, 1994 and
``Development of a Full-Flow Burner DPF System for Heavy Duty Diesel
Engines, P. Zelenka et al., SAE Technical Paper 2002-01-2787, 2002.
---------------------------------------------------------------------------

We are, however, proposing a slightly higher PM standard (0.02 g/
bhp-hr rather than 0.01) for these engines. As discussed in section
III.E.1.a, with the

[[Page 28390]]

use of a CDPF, the PM emissions emitted by the filter are primarily
derived from the fuel sulfur. The smaller power category engines tend
to have higher fuel consumption than larger engines. This occurs for a
number of reasons. First, the lower power categories include a high
fraction of IDI engines which by their nature consume approximately 15
percent more fuel than a DI engine. Second, as engine displacements get
smaller, the engine's combustion chamber surface-to-volume ratio
increases. This leads to higher heat-transfer losses and therefor lower
efficiency and higher fuel consumption. In addition, frictional losses
are a higher percentage of total power for the smaller displacement
engines which also results in higher fuel consumption. Because of the
higher fuel consumption rate, we expect a higher particulate sulfate
level, and therefore we have proposed a 0.02 g/bhp-hr standard.
Test data confirm that this proposed standard is achievable. In
2001, EPA completed a test program run by a contractor on two small
nonroad diesel engines (a 25 hp IDI engine and a 50 hp IDI engine)
which demonstrated the proposed 0.02 g/bhp-hr standard can be achieved
with the use of a CDPF.\200\ This test program included testing on the
existing 8-mode steady-state test cycle as well as the nonroad
transient cycle proposed in today's action. The 0.02g/bhp-hr level was
achieved on each engine over both test cycles. One of the engines was
also tested on the proposed constant speed, variable load transient
cycle with a particulate filter, and this engine also met the proposed
0.02 g/bhp-hr PM standard.\201\ This test program also demonstrates why
EPA has proposed a slightly higher PM standard for the 25-75 hp
category (0.02 g/bhp-hr vs 0.01). The data from the test program
described above showed fuel consumption rates over the 8-mode test
procedure between 0.4 and 0.5 lbs/bhp-hr, while typical values for a
modern turbocharged DI engine with 4-valves per cylinder in the
£=75 hp categories are on the order of 0.3 to 0.35 lbs/hp-hr.
However, the data is less conclusive with respect to the proposed NTE
standard. The test program at SwRI included a number of individual
steady-state emission points which are within the proposed NTE control
zone for nonroad diesel engines. For most of these points, the
emissions were well below the proposed NTE standard for both engines.
However, both engines included as a test point the maximum torque test
point, and in each case the emissions were above the proposed NTE
standard. For one engine, the engine-out emissions were 1.2 g/bhp-hr PM
and when equipped with a CDPF the emissions were 0.05 g/bhp-hr. While
this is more than a 95 percent reduction in PM, 0.05 is above our
proposed NTE standard of 0.03 g/bhp-hr. The second test engine at the
maximum torque mode produced an engine-out PM value of 0.35 g/bhp-hr,
and when equipped with a CDPF the results were 0.04g/bhp-hr. While this
is nearly a 90 percent reduction in PM, the engines do not meet the
proposed NTE standard. We believe these results are a combination of
high engine-out PM emissions as well as high exhaust gas temperature.
While a CDPF is very effective at reducing PM emissions, it is not 100
percent effective. These engines would likely require additional
engine-out PM reductions at the maximum torque mode in order to comply
with the proposed NTE standard. In addition, the peak torque mode is
one of the highest exhaust gas temperature mode, and therefore one of
the highest particulate-sulfate generating modes when equipped with a
CDPF. More careful management of the engine-out temperature at this
mode, such as by altering the engines air-fuel ratio, may be necessary
to lower the engine-out temperature and comply with the proposed NTE
standard.
---------------------------------------------------------------------------

\200\ See Tables 6, 8, and 14 of ``Nonroad Emission Study of
Catalyzed Particulate Filter Equipped Small Diesel Engines''
Southwest Research Institute, September 2001. Copy available in EPA
Air Docket A-2001-28.
\201\ See Tables 8 of ``Nonroad Emission Study of Catalyzed
Particulate Filter Equipped Small Diesel Engines' Southwest Research
Institute, September 2001. Copy available in EPA Air Docket A-2001-
28. Note that the ``AWQ'' cycle specified in Table 8 is the same as
the proposed constant speed, variable load cycle.
---------------------------------------------------------------------------

NMHC+NO_X Standard
We have proposed a 3.5 g/bhp-hr NMHC+NO_X standard for
engines in the 25-50 hp range for 2013. This will align the
NMHC+NO_X standard for engines in this power range with the
Tier 3 standard for engines in the 50-75 hp range which are implemented
in 2008. EPA's recent Staff Technical paper which reviewed the
technological feasibility of the Tier 3 standards contains a detailed
discussion of a number of technologies which are capable of achieving a
3.5 g/bhp-hr standard. These include cooled EGR, uncooled EGR, as well
as advanced in-cylinder technologies relying on electronic fuel systems
and turbocharging.\202\ These technologies are capable of reducing
NO_X emission by as much as 50 percent. Given the Tier 2
NMHC+NO_X standard of 5.6 g/bhp-hr, a 50 percent reduction
would allow a Tier 2 engine to comply with the 3.5 g/bhp-hr
NMHC+NO_X standard proposed in this action. In addition,
because this NMHC+NO_X standard is concurrent with the 0.02
g/bhp-hr PM standards which we project will be achievable with the use
of particulate filters, engine designers will have significant
additional flexibility in reducing NO_X because the PM filter
will eliminate the traditional concerns with the engine-out
NO_X vs. PM trade-off. Our recent highway 2004 standard
review rulemaking (see 65 FR 59896) demonstrated that a diesel engine
with advanced electronic fuel injection technology as well as
NO_X control technology such as cooled EGR is capable of
complying with an NTE standard set at 1.25 times the laboratory based-
standard FTP standard. We project that the same technology (electronic
fuel systems and cooled EGR) are also capable for engine in the 25-75
hp range of complying with the proposed NTE standard of 4.4 g/bhp-hr
NMHC+NO_X (1.25 x 3.5) in 2013. This is based on the broad
NO_X reduction capability of cooled EGR technology, which is
capable of reducing NO_X emissions across the engine
operating map by at least 30 percent even under high load
conditions.\203\
---------------------------------------------------------------------------

\202\ See section 2.2 through 2.3 in ``Nonroad Diesel Emission
Standards--Staff Technical Paper'', EPA Publication EPA420-R-01-052,
October 2001. Copy available in EPA Air Docket A-2001-28.
\203\ See section 8 of ``Control of Emissions of Air Pollution
from 2004 and Later Model Year Heavy-Duty Highway Engines and
Vehicles: Response to Comments'', EPA document EPA420-R-00-011, July
2000, and Chapter 3 of ``Regulatory Impact Analysis: Control of
Emissions of Air Pollution from Highway Heavy-duty Engines'', EPA
document EPA420-R-00-010, July 2000. Copies of both documents
available in EPA docket A-2001-28.
---------------------------------------------------------------------------

Based on the information available to EPA and presented here, and
giving appropriate consideration to the lead time necessary to apply
the technology as well, we have concluded the proposed 0.02 g/bhp-hr PM
standard for engines in the 25-75 hp category and the 3.5 g/bhp-hr
NMHC+NO_X standards for the 25-50 hp engines are achievable.
d. Why EPA has not Proposed More Stringent Tier 4 NO_X
Standards
Today's notice proposes to revise the NMHC+NO_X standard
for engines between 25 and 50 hp to a level of 3.5 g/bhp-hr beginning
in 2013 (the same numeric level as the Tier 3 standards for engines in
the 50-75 hp range). As discussed below, we believe this standard can
be met using a variety of technologies, including but not limited to
cooled EGR. Similar technologies will be used on engines in the 50-100
hp

[[Page 28391]]

range beginning in 2008. At this time, we are not proposing further
reductions in the NO_X standards for engines between 25 and
75 hp.
As discussed in section III.B.1.d, engines £=75 hp are
similar to, or are direct derivatives of, highway HDDEs. As discussed
in section III.E.1-III.E.3, NO_X adsorber technology is being
developed today in order to comply with the 2007 highway heavy-duty
standards. However, NO_X adsorber technologies will require
additional development beyond what has occurred at this time in order
to achieve the 2007 highway standards. Section III.E.1-III.E.3 also
discuss the high degree of complexity and engine/aftertreatment
integration which will be required in order for NO_X
adsorbers to be applied successfully to nonroad diesel engines.
As discussed above, and as illustrated in Table III.E-3, engines
<75 hp include a significant fraction of naturally aspirated engines
and engines with indirect-injection fuel systems, and we are not
predicting a significant shift away from IDI technology engines. Given
the relatively unsophisticated level of technology used in this power
category today, as well as our prediction that even in the 2011-13 time
frame these engines will lag significantly behind the £=75 hp
engines, we believe it is appropriate not to propose NO_X
adsorber based standards at this time. Rather, as discussed in section
III.H, we have proposed to undertake a technology assessment in the
2007 time frame which would evaluate the status of emission control
technologies for engines less than 75 hp, and such a review would
revisit this issue. In addition, section VI of this proposal contains
additional discussion regarding our analysis of applying NO_X
adsorbers to engines in the 25-75 hp category. EPA invites further
comment on the above discussion, and also solicits comment on the cost
impacts of NO_X aftertreatment devices, including unit costs,
on these engines.
5. Are the Standards Proposed for Engines <25 hp Feasible?
As discussed in section III.B, our proposal for standards for
engines less than 25 hp is a new PM standard of 0.30 g/bhp-hr beginning
in 2008. As discussed below, we are not proposing to set a new standard
more stringent than the existing Tier 2 NMHC+NO_X standard
for this power category at this time. This section describes:
? What makes the <25 hp category unique;
? Engine technology currently used in the <25 hp category;
? Why the proposed standards are technologically feasible;
and,
? Why EPA has not proposed more stringent standards at this
time.
a. What Makes the <25 hp Category Unique?
Nonroad engines less than 25 hp are the least sophisticated nonroad
diesel engines from a technological perspective. All of the engines
currently sold in this power category lack electronic fuel systems and
turbochargers (see Table III.E-3). Nearly 50 percent of the products
have two-cylinders or less, and 14 percent of the engines sold in this
category are single-cylinder products, a number of these have no
batteries and are crank-start machines, much like today's simple walk
behind lawnmower engines. In addition, given what we know today and
taking into account the Tier 2 standards which have not yet been
implemented, we are not projecting any significant penetration of
advanced engine technology, such as electronically controlled fuel
systems, into this category in the next 5 to 10 years.
We have proposed a PM standard for engines in the <25 hp category
which is higher than the standard proposed for engines in the 25-75 hp
category (0.30 g/bhp-hr vs. 0.22 g/bhp-hr). We have done this for a
number of reasons. First, the existing Tier 2 PM standards specifies
standards which become numerically higher for the smaller power
categories. Specifically, for engines £175 hp, the Tier 2 PM
standard is 0.15 g/bhp-hr, which increases to 0.30 g/bhp-hr for engines
in the 50-100hp range, 0.45 g/bhp-hr for engines in the 25-50hp range,
and finally 0.60 g/bhp-hr for engines <25 hp. In the Tier 2 time frame,
engines in the higher power categories are expected to use more
sophisticated technologies such as turbocharging and high pressure
electronically controlled fuel systems. These technologies are more
capable of reducing PM emissions as compared to naturally aspirated
engines with lower pressure mechanical fuel systems. To some extent
this same trend is expected to continue in the 2008 time frame. As
discussed above, we expect that many engines in the 25-75hp engine
category will use turbocharging, and some engines will have electronic
fuel systems. However, we are not predicting that any engines in the
<25hp category will use either of these technologies. In addition, very
small diesel engines present a number of unique challenges for reducing
PM emissions. First, the smaller engines inherently have high
combustion chamber surface-to-volume ratios. This results in higher
heat loss, which results in a quenching of the oxidation process
earlier than for larger engines, and therefore higher PM emission
rates. In addition, the small diesel engines are more limited in the PM
reduction which can be achieved by higher fuel injection pressures. Due
to the very small size of the combustion chamber, high pressure
injection (which is intended to improve fuel atomization and mixing,
both of which lower PM emissions) will result in fuel impaction on the
combustion chamber, which will not improve fuel atomization. The
benefits of higher pressure fuel injection as a PM reduction technology
therefore reaches a point of diminishing returns with higher and higher
pressures, and this point of diminishing returns is reached much
quicker for the smaller engines than for the larger engines. For these
reasons we have proposed a 2008 PM standard for engines <25 hp which is
higher than the proposed 2008 PM standard for engines in the 25-75 hp
category.
b. What Engine Technology is Currently Used in the <25 hp category?
In the 1998 nonroad diesel rulemaking we established Tier 1 and
Tier 2 standards for these products. Tier 1 was implemented in model
year 2000, and Tier 2 will be implemented in model year 2005. As
discussed in EPA's recent Staff Technical Paper, we project the Tier 2
standards will be met by basic engine-out emission optimization
strategies.\204\ We are not predicting that Tier 2 will require
electronic fuel systems, EGR, or turbocharging. As discussed in the
Staff Technical Paper, a large number of engines in this power category
already meet the Tier 2 standards by a wide margin.\205\
---------------------------------------------------------------------------

\204\ See section 3 of ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001. Copy available in EPA Air Docket A-2001-28.
\205\ See Table 3-2 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001. Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

Two basic types of engine fuel injection technologies are currently
present in the less than 25 hp category, mechanical indirect injection
(IDI) and mechanical direct injection (DI). As discussed in section
III.D.4, the IDI system injects fuel into a pre-chamber rather than
directly into the combustion chamber as in the DI system. This
difference in fuel systems results in substantially different emission
characteristics, as well as several important operating parameters. In
general, as noted earlier, the IDI engine has lower engine-out PM and
NO_X

[[Page 28392]]

emissions, while the DI engine has better fuel efficiency and lower
heat rejection.
c. What Data Indicates That the Proposed Standards Are Feasible?
We project the proposed Tier 4 PM standard can be met by 2008 based
on:
? The existence of a large number of engine families which
meet the proposed standards today;
? The use of engine-out reduction techniques; and
? The use of diesel oxidation catalysts.
We have examined the recent model year (2002) engine certification
data for nonroad diesel engines less than 25 hp. These data indicate
that a number of engine families meet the proposed Tier 4 PM standard
(and the 2008 NMHC+NO_X standard, unchanged from Tier 2)
today. The current data indicates approximately 28% of the engine
families are at or below the proposed PM standard today, while meeting
the 2008 NMHC+NO_X standard. These include both IDI and DI
engines, as well as a range of certification test cycles.\206\ Many of
the engine families are certified well below the proposed Tier 4
standard while meeting the 2008 NMHC+NO_X level.
Specifically, 15 percent of the engine families exceed the proposed
Tier 4 PM standard by more than 20 percent. The public certification
data indicate that these engines do not use turbocharging, electronic
fuel systems, exhaust gas recirculation, or aftertreatment
technologies.
---------------------------------------------------------------------------

\206\ The Tier 1 and Tier 2 standards for this power category
must be demonstrated on one of a variety of different engine test
cycles. The appropriate test cycle is selected by the engine
manufacturer based on the intended in-use applications(s) of the
engine.
---------------------------------------------------------------------------

These model year 2002 engines use well known engine-out emission
control technologies, such as combustion chamber design and fuel
injection timing control strategies, to comply with the existing
standards. As with 25-75 hp engines, these data have a two-fold
significance. First, they indicate that a number of engines in this
power category can already achieve the proposed 2008 standard for PM
using only engine-out technology, and that other engines should be able
to achieve the standard making improvements just to engine-out
performance. Second, despite being certified to the same emission
standards with similar engine technology, the emission levels from
these engines vary widely. Figure III.E-2 is a graph of the model year
2002 HC+NO_X and PM data. As can be seen in the figure, the
emission levels cover a wide range. Figure III.E-2 highlights a
specific example of this wide range: engines using naturally aspirated
IDI technology and tested on the 6-mode test cycle. Even for this
subset of IDI engines achieving approximately the same
HC+NO_X level of[sim]4.5 g/bhp-hr, the PM rates vary from
approximately 0.15 to 0.5 g/bhp-hr. (A more detailed discussion of this
data is contained in the draft RIA.) There is limited information
available to indicate why for these small diesel engines with similar
technology operating at approximately the same HC+NO_X level
the PM emission rates cover such a broad range. We are therefore not
predicating the proposed 2008 PM standard on the combination of diesel
oxidation catalysts and the lowest engine-out emissions being achieved
today, because it is uncertain whether or not additional engine-out
improvements would lower all engines to the proposed 2008 PM standard.
Instead, we believe there are two likely means by which companies can
comply with the proposed 2008 PM standard. First, some engine
manufacturers can comply with this standard using known engine-out
techniques (e.g., optimizing combustion chamber designs, fuel-injection
strategies). However, based on the available data it is unclear whether
engine-out techniques will work in all cases. Therefore, we believe
some engine companies will choose to use a combination of engine-out
techniques and diesel oxidation catalysts, as discussed below.

[[Page 28393]]

[GRAPHIC]
[TIFF OMITTED]
TP23MY03.008

PM emissions can be reduced through in-cylinder techniques for
small nonroad diesel engines using similar techniques as used in larger
nonroad and highway engines. As discussed in section III.E.1.a, there
are a number of technologies which exist that can influence oxygen
content and in-cylinder mixing (and thus lower PM emissions) including
improved fuel injection systems and combustion system designs. For
example, increased injection pressure can reduce PM emissions
substantially.\207\ The wide-range of emission characteristics present
in the existing engine certification data is likely a result of
differences in fuel systems and combustion chamber designs. For many of
the engines which have higher emission levels, further optimization of
the fuel system and combustion chamber can provide additional PM
reductions.
---------------------------------------------------------------------------

\207\ ``Effects of Injection Pressure and Nozzle Geometry on DI
Diesel Emissions and Performance,'' Pierpont, D., and Reitz, R., SAE
Paper 950604, 1995.
---------------------------------------------------------------------------

Diesel oxidation catalysts (DOC) also offer the opportunity to
reduce PM emissions from the engines in this power category. DOCs are
passive flow through emission control devices which are typically
coated with a precious metal or a base-metal wash-coat. DOCs have been
proven to be durable in-use on both light-duty and heavy-duty diesel
applications. In addition, DOCs have already been used to control
carbon monoxide on some nonroad applications.\208\ However, as
discussed in section III.E.1.a., certain DOC formulations can be
sensitive to diesel fuel sulfur level. Specifically, precious-metal
based oxidation catalysts (which have the greatest potential for
reducing PM) can oxidize the sulfur in the fuel and form particulate
sulfates. Given the high level of sulfur in nonroad fuel today, the use
of DOCs as a PM reduction technology is severely limited. Data
presented by one engine manufacturer regarding the existing Tier 2 PM
standard shows that while a DOC can be used to meet the current
standard when tested on 2,000 ppm sulfur fuel, lowering the fuel sulfur
level to 380 ppm enabled the DOC to reduce PM by 50 percent from the
2,000 ppm sulfur fuel.\209\ Without the availability of 500 ppm sulfur
fuel in 2008, DOCs would be of limited use for nonroad engine
manufacturers and would not provide the emissions necessary to meet the
proposed standards for most engine manufacturers. With the availability
of 500 ppm sulfur fuel, DOC's can be designed to provide PM reductions
on the order of 20 to 50%, while suppressing particulate sulfate
reduction. These levels of reductions have been seen on transient duty
cycles as well as highway and nonroad steady-state duty cycles.\210\ As
discussed in section III.D, we are proposing to apply supplemental test
procedures and standards (nonroad transient test cycle

[[Page 28394]]

and not-to-exceed requirements) to engines in the <25 hp category
beginning in 2013. The supplemental test procedures and standards will
apply not only to PM, but also to NMHC+NO_X. While we believe
the engine technology necessary to comply with the supplemental test
procedures and standards is the same as the technology necessary to
comply with the 2008 standard, we are delaying the implementation of
the supplemental test procedures and standards until 2013 in order to
implement the supplemental requirements on the larger powered nonroad
engines before the smallest power category (see section III.C. above).
This will also provide engine manufacturers with additional time to
install any emission testing equipment upgrades they may need in order
to implement the new nonroad transient test cycle. Nevertheless, the
technologies described above are capable of complying with both the
proposed nonroad transient test cycle and the NTE standard. As just
described, DOCs are capable of reducing PM emissions up to 50 percent
during transient testing. With respect to feasibility under NTE
testing, it has been demonstrated, as a result of a recent Agency
action, that engines which rely on retarded injection timing as a
primary NO_X control technology, which is also the primary
technology that engines in the <25 hp category will likely use to
comply with the Tier 2 NMHC+NO_X standard, are capable of
complying with an NMHC+NO_X NTE standard of 1.25 x the FTP
for engines with emission levels on the order of 4 g/bhp-hr
NO_X. Specifically, as a result of federal consent decrees
with a number of highway heavy-duty diesel engine manufactures, many
highway engines certified to an FTP standard of 4 g/bhp-hr
NO_X were also designed to comply with an NTE limit of 5 g/
bhp-hr (i.e., 1.25 x FTP standard).\211\ The Tier 2 NMHC+NO_X
standard for engines <25hp is 5.6 g/bhp-hr, therefore, in 2013 the
proposed NTE standard is 7.0 g/bhp-hr NMHC+NO_X. Based on the
experience which a number of highway diesel engine companies, we
project that the proposed NTE standard for engines <25 hp can be
achieved by 2013.
---------------------------------------------------------------------------

\208\ EPA Memorandum ``Documentation of the Availability of
Diesel Oxidation Catalysts on Current Production Nonroad Diesel
Equipment'', William Charmley. Copy available in EPA Air Docket A-
2001-28.
\209\ See Table 2-4 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001. Copy available in EPA Air Docket A-2001-28.
\210\ ``Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-duty Engines to Achieve Low Emission
Levels: Interim Report Number 1--Oxidation Catalyst Technology, copy
available in EPA Air Docket A-2001-28. ``Reduction of Diesel Exhaust
Emissions by Using Oxidation Catalysts,'' Zelenka et. al., SAE Paper
90211, 1990. See Table 2-4 in ``Nonroad Diesel Emission Standards--
Staff Technical Paper'', EPA Publication EPA420-R-01-052, October
2001, copy available in EPA Air Docket A-2001-28.
\211\ EPA Memorandum ``Summary of Model Year 1999 and 2000
Federal On-highway Heavy-duty Diesel Engine Families Certified as
Compliant with Not-to-Exceed Requirements, Euro-3 Steady State
Requirements, and Maximum Allowable Emission Limits Requirements'',
copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

As discussed in section III.B, we have also proposed a minor change
in the CO standard for the <11 hp engines, in order to align those
standards with the standards for the 11-25 hp engines. As discussed in
section III.B., the small change in the CO standard is intended to
simplify EPA's regulations as part of our decision to propose a
reduction in the number of engine power categories for Tier 4. The
current CO standard for this category is 6.0 g/bhp-hr, and the proposed
standard is 4.9 g/bhp-hr (i.e., the current standard for engines in the
11-25 hp range). The model year 2002 certification data shows that more
than 90 percent of the engine families in this power category meet the
proposed standards today. In addition, DOCs typically reduce CO
emissions on the order of 50 percent or more during both transient and
steady-state operation.\212\ Given that more than 90 percent of the
engines in this category meet the proposed standard today, and the
ready availability of technology which can easily achieve the proposed
standard, we project this CO standard will be achievable by model year
2008.
---------------------------------------------------------------------------

\212\ ``Demonstration of Advanced Emission Control Technologies
Enabling Diesel-Powered Heavy-duty Engines to Achieve Low Emission
Levels: Interim Report Number 1--Oxidation Catalyst Technology, and
``Reduction of Diesel Exhaust Emissions by Using Oxidation
Catalysts'', P. Zelenka et. al., Society of Automotive Engineers
paper 902111, October 1990.
---------------------------------------------------------------------------

Based on the existence of a number of engine families which already
comply with the proposed Tier 4 PM standard (and the 2008
NMHC+NO_X standard), and the availability of PM reduction
technologies such as improved fuel systems, combustion chamber
improvements, and in particular diesel oxidation catalysts, we project
the proposed 0.30 g/bhp-hr PM standards is technologically feasible by
model year 2008. All of these are conventional technologies which have
been used on both highway and nonroad diesel engines in the past. As
such, we do not expect there to be any negative impacts with respect to
noise or safety. In addition, PM reduction technologies such as
improved combustion through the use of higher pressure fuel injection
systems as well as DOCs are not predicted to have any substantial
impact on fuel efficiency.
d. Why has EPA not Proposed More Stringent PM or NO_X
Standards for Engines <25 hp?
Section III.E.4 contains a detailed discussion of why we don't
believe it is appropriate at this time to revise the NO_X
standards based on NO_X absorber technology for engines
between 25 and 75 hp. These same arguments apply for engines below 25
hp. In addition, we have not proposed to revise the NO_X
standard for <25 hp engines in this action, nor do we believe PM
standards based on particulate filters are appropriate for this power
category based on a number of factors, as discussed below.
In EPA's recent Staff Technical Paper regarding the feasibility of
the Tier 3 NMHC+NO_X standards for engines greater than 50
hp, we projected that a number of engine technologies can be used to
meet the Tier 3 standards, including cooled EGR or hot EGR, both with
advanced electronic fuel systems, as well as with internal combustion
techniques using advanced electronic fuel systems, advanced
turbocharging systems (e.g., waste-gated or variable geometry
turbochargers), and possibly variable valve actuation.\213\ In
addition, we presumed the use of charge-air cooling In order to set
more stringent NO_X standards for <25 hp engines without
increasing PM emissions, the most logical list of technologies is
turbocharging, electronically controlled hot or cooled EGR, an
electronic fuel system, and possibly charge-air-cooling. No nonroad
diesel engine <25 hp uses any combination of these technologies today.
While we are able to postulate that some of this technology could be
applied to the <25 hp engines, the application of some of the
technology (such as turbocharging) is technologically uncertain. It is
the combination of these two issues (the traditional NO_X-PM
trade-off and the difficulties with turbocharging 1 and 2 cylinder
engines) which is the primary reason we are not proposing to revise the
NO_X standard for engines in this size range. NO_X
reduction control technologies such as advancing fuel injection timing
or using EGR will increase PM emissions. In order to reduce
NO_X emissions and reduce or maintain current PM levels
additional technologies must be used. Fundamental among these is the
need to increase oxygen content, which can be achieved principally with
turbocharging. However, turbocharging systems do not lend themselves to
1 and 2 cylinder products, which are approximately 50 percent of the
engines in this power category. In addition, even if these technologies
could be applied to engines in the < 25 hp category, the costs would be
substantial relative to both the base engine cost and to the cost of
the nonroad equipment itself . Therefore, for the reasons discussed
above, we have not proposed to revise the NO_X standard for
these engines at

[[Page 28395]]

this time. As discussed in section III.H, we have proposed that a
technology assessment occur in 2007 which would evaluate the status of
emission control technologies for engines less than 75 hp, and such a
review would revisit this issue.
---------------------------------------------------------------------------

\213\ See section 2.3.1 through 2.3.3 of ``Nonroad Diesel
Emission Standards--Staff Technical Paper'', EPA Publication EPA420-
R-01-052, October 2001. Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

In addition, we have not proposed to apply particulate filter based
standards for engines less than 25 hp. As discussed in sections III.E.1
through 4, there are two basic types of particulate filter systems we
believe could be used by engine manufacturers. The first is a CDPF
which uses post-injection from a common-rail electronic fuel injection
system in order to ensure filter regeneration. The second type of
system would use a CDPF with a stand-alone (i.e., independent from the
engine's fuel system) fuel injection system to ensure filter
regeneration. In either case, an electronic control system is required,
as well as the CDPF. Such systems are not being developed for engines
of this size for either highway light-duty or heavy-duty diesel
applications, and (as noted earlier) it is unclear whether the
technology development which is being done for the highway market will
transfer down to engines in this power category. In addition, based on
currently available information, we believe the cost of these
technologies are relatively high compared to the overall cost of the
equipment. As discussed in section III.H, we have proposed that a
technology assessment occur in 2007 which would evaluate the status of
emission control technologies for engines less than 75 hp, and such a
review would revisit this issue.
6. Meeting the Crankcase Emissions Requirements
The most common way to eliminate crankcase emissions has been to
vent the blow-by gases into the engine air intake system, so that the
gases can be recombusted. Prior to the HD2007 rulemaking, we have
required that crankcase emissions be controlled only on naturally
aspirated diesel engines. We had made an exception for turbocharged
diesel engines (both highway and nonroad) because of concerns in the
past about fouling that could occur by routing the diesel particulates
(including engine oil) into the turbocharger and aftercooler. However,
this is an environmentally significant exception since most nonroad
equipment over 70hp use turbocharged engines, and a single engine can
emit over 100 pounds of NO_X, NMHC, and PM from the crankcase
over its lifetime.
Given the available means to control crankcase emissions, we
eliminated this exception for highway engines in 2007 and are proposing
to eliminate the exception for nonroad diesel engines as well. We
anticipate that the diesel engine manufacturers will be able to control
crankcase emissions through the use of closed crankcase filtration
systems or by routing unfiltered blow-by gases directly into the
exhaust system upstream of the emission control equipment. However, the
proposed provision has been written such that if adequate control can
be had without ``closing'' the crankcase then the crankcase can remain
``open.'' Compliance would be ensured by adding the emissions from the
crankcase ventilation system to the emissions from the engine control
system downstream of any emission control equipment. We propose to
limit this provision for controlling emissions from open crankcases to
turbocharged engines, which is the same as for heavy-duty highway
diesel engines. We request comment on extending this provision to
naturally aspirated engines, as we did for marine diesel engines in our
1999 final rule (64 FR 73300, December 29, 1999).
We expect that in order to meet the stringent tailpipe emission
standards set here, that manufacturers will have to utilize closed
crankcase approaches as described here. Closed crankcase filtration
systems work by separating oil and particulate matter from the blow-by
gases through single or dual stage filtration approaches, routing the
blow-by gases into the engine's intake manifold and returning the
filtered oil to the oil sump. Oil separation efficiencies in excess of
90 percent have been demonstrated with production ready prototypes of
two stage filtration systems.\214\ By eliminating 90 percent of the oil
that would normally be vented to the atmosphere, the system works to
reduce oil consumption and to eliminate concerns over fouling of the
intake system when the gases are routed through the turbocharger. Hatz,
a nonroad engine manufacturer, currently has closed crankcase systems
on many of its turbocharged engines.
---------------------------------------------------------------------------

\214\ Letter from Marty Barris, Donaldson Corporation, to Byron
Bunker U.S. EPA, March 2000. Copy available in EPA Air Docket A-
2001-28.
---------------------------------------------------------------------------

F. Why Do We Need 15ppm Sulfur Diesel Fuel?

As stated earlier, we strongly believe that fuel sulfur control is
critical to ensuring the success of NO_X and PM
aftertreatment technologies. In order to evaluate the effect of sulfur
on diesel exhaust control technologies, we used three key factors to
categorize the impact of sulfur in fuel on emission control function.
These factors were efficiency, reliability, and fuel economy. Taken
together these three factors lead us to believe that diesel fuel sulfur
levels of 15 ppm will be required for the nonroad emission standards
proposed here to be feasible. Brief summaries of these factors are
provided below.
The efficiency of emission control technologies to reduce harmful
pollutants is directly affected by sulfur in diesel fuel. Initial and
long term conversion efficiencies for NO_X, NMHC, CO and
diesel PM emissions are significantly reduced by catalyst poisoning and
catalyst inhibition due to sulfur. NO_X conversion
efficiencies with the NO_X adsorber technology in particular
are dramatically reduced in a very short time due to sulfur poisoning
of the NO_X storage bed. In addition, total PM control
efficiency is negatively impacted by the formation of sulfate PM. As
explained in the following sections, the CDPF, NO_X adsorber,
and urea SCR catalyst technologies described here have the potential to
make significant amounts of sulfate PM under operating conditions
typical of many nonroad engines. We believe that the formation of
sulfate PM will be in excess of the total PM standard, unless diesel
fuel sulfur levels are at or below 15 ppm. Based on the strong negative
impact of sulfur on emission control efficiencies for all of the
technologies evaluated, we believe that 15 ppm represents an upper
threshold of acceptable diesel fuel sulfur levels.
Reliability refers to the expectation that emission control
technologies must continue to function as required under all operating
conditions for the life of the engine. As discussed in the following
sections, sulfur in diesel fuel can prevent proper operation of both
NO_X and PM control technologies. This can lead to permanent
loss in emission control effectiveness and even catastrophic failure of
the systems. Sulfur in diesel fuel impacts reliability by decreasing
catalyst efficiency (poisoning of the catalyst), increasing diesel
particulate filter loading, and negatively impacting system
regeneration functions. Among the most serious reliability concerns
with sulfur levels greater than 15 ppm are those associated with
failure to properly regenerate. In the case of the NO_X
adsorber, failure to regenerate the stored sulfur (desulfate) will lead
to rapid loss of NO_X emission control as a result of sulfur
poisoning of the NO_X adsorber bed. In the case of the diesel
particulate filter, sulfur in the fuel reduces the reliability of the
regeneration function.

[[Page 28396]]

If regeneration does not occur, catastrophic failure of the filter
could occur. It is only by the availability of low sulfur diesel fuels
that these technologies become feasible.
Fuel economy impacts due to sulfur in diesel fuel affect both
NO_X and PM control technologies. The NO_X adsorber
sulfur regeneration cycle (desulfation cycle) can consume significant
amounts of fuel unless fuel sulfur levels are very low. The larger the
amount of sulfur in diesel fuel, the greater the adverse effect on fuel
economy. As sulfur levels increase above 15 ppm, the adverse effect on
fuel economy becomes more significant, increasing above one percent and
doubling with each doubling of fuel sulfur level. Likewise, PM trap
regeneration is inhibited by sulfur in diesel fuel. This leads to
increased PM loading in the diesel particulate filter and increased
work to pump exhaust across this restriction. With low sulfur diesel
fuel, diesel particulate filter regeneration can be optimized to give a
lower (on average) exhaust backpressure and thus better fuel economy.
Thus, for both NO_X and PM technologies the lower the fuel
sulfur level the lower the operating costs of the vehicle.
1. Catalyzed Diesel Particulate Filters and the Need for Low Sulfur
Fuel
CDPFs function to control diesel PM through mechanical filtration
of the solid PM (soot) from the diesel exhaust stream and then
oxidation of the stored soot (trap regeneration) and oxidation of the
SOF. Through oxidation in the catalyzed diesel particulate filter the
stored PM is converted to CO₂ and released into the
atmosphere. Failure to oxidize the stored PM leads to accumulation in
the trap, eventually causing the trap to become so full that it
severely restricts exhaust flow through the device, leading to trap or
vehicle failure.
Uncatalyzed diesel particulate filters require exhaust temperatures
in excess of 650[deg]C in order for the collected PM to be oxidized by
the oxygen available in diesel exhaust. That temperature threshold for
oxidation of PM by exhaust oxygen can be decreased to 450[deg]C through
the use of base metal catalytic technologies. For a broad range of
operating conditions typical of in-use diesel engine operation, diesel
exhaust can be significantly cooler than 400[deg]C. If oxidation of the
trapped PM could be assured to occur at exhaust temperatures lower than
300[deg]C, then diesel particulate filters would be expected to be more
robust for most applications and operating regimes. Oxidation of PM
(regeneration of the trap) at such low exhaust temperatures can occur
by using oxidants which are more readily reduced than oxygen. One such
oxidant is NO₂.
NO₂ can be produced in diesel exhaust through the
oxidation of the nitrogen monoxide (NO), created in the engine
combustion process, across a catalyst. The resulting NO₂-
rich exhaust is highly oxidizing in nature and can oxidize trapped
diesel PM at temperatures as cool as 250[deg]C.\215\ Some platinum
group metals are known to be good catalysts to promote the oxidation of
NO to NO₂. Therefore in order to promote more effective
passive regeneration of the diesel particulate filters, significant
amounts of platinum group metals (primarily platinum) are being used in
the wash-coat formulations of advanced CDPFs. The use of platinum to
promote the oxidation of NO to NO₂ introduces several system
vulnerabilities affecting both the durability and the effectiveness of
the CDPF when sulfur is present in diesel exhaust. (In essence, diesel
engine exhaust temperatures are in a range necessitating use of
precious metal catalysts in order to adequately regenerate the PM
filter, but precious metal catalysts are in turn highly sensitive to
sulfur in diesel fuel.) The two primary mechanisms by which sulfur in
diesel fuel limits the robustness and effectiveness of CDPFs are
inhibition of trap regeneration, through inhibition of the oxidation of
NO to NO₂, and a dramatic loss in total PM control
effectiveness due to the formation of sulfate PM. Unfortunately, these
two mechanisms trade-off against one another in the design of CDPFs.
Changes to improve the reliability of regeneration by increasing
catalyst loadings lead to increased sulfate emissions and, thus, loss
of PM control effectiveness. Conversely, changes to improve PM control
by reducing the use of platinum group metals and, therefore, limiting
``sulfate make'' leads to less reliable regeneration. Even with an
active regeneration system, reducing catalytic loading to reduce
sulfate make unacceptably trades off regeneration effectiveness (i.e.,
robustness). We believe the best means of achieving good PM emission
control and reliable operation is to reduce sulfur in diesel fuel, as
shown in the following subsections.
---------------------------------------------------------------------------

\215\ Hawker, P. et al, ``Experience with a New Particulate Trap
Technology in Europe,'' SAE 970182.
---------------------------------------------------------------------------

a. Inhibition of Trap Regeneration Due to Sulfur
The CDPF technology relies on the generation of a very strong
oxidant, NO₂, to ensure that the carbon captured by the PM
trap's filtering media is oxidized under the exhaust temperature range
of normal operating conditions. This prevents plugging and failure of
the PM trap. NO2 i₂ produced through the oxidation of NO in
the exhaust across a platinum catalyst. This oxidation is inhibited by
sulfur poisoning of the catalyst surface.\216\ This inhibition limits
the total amount of NO₂ available for oxidation of the
trapped diesel PM, thereby raising the minimum exhaust temperature
required to ensure trap regeneration. Without sufficient
NO₂, the amount of PM trapped in the diesel particulate
filter will continue to increase and can lead to excessive exhaust back
pressure and low engine power.
---------------------------------------------------------------------------

\216\ Hawker, P. et al, ``Experience with a New Particulate Trap
Technology in Europe,'' SAE 970182.
---------------------------------------------------------------------------

The failure mechanisms experienced by diesel particulate filters
due to low NO₂ availability vary significantly in severity
and long term consequences. In the most fundamental sense, the failure
is defined as an inability to oxidize the stored particulate at a rate
fast enough to prevent net particulate accumulation over time. The
excessive accumulation of PM over time blocks the passages through the
filtering media, making it more restrictive to exhaust flow. In order
to continue to force the exhaust through the now more restrictive
filter, the exhaust pressure upstream of the filter must increase. This
increase in exhaust pressure is commonly referred to as increasing
``exhaust backpressure'' on the engine.
The increase in exhaust backpressure represents increased work
being done by the engine to force the exhaust gas through the
increasingly restrictive particulate filter. Unless the filter is
frequently cleansed of the trapped PM, this increased work can lead to
reductions in engine performance and increases in fuel consumption.
This loss in performance may be noted by the equipment operator in
terms of sluggish engine response.
Full field test evaluations and retrofit applications of these
catalytic trap technologies are occurring in parts of the United States
and Europe where low sulfur diesel fuel is already available.\217\ The
experience gained in these field

[[Page 28397]]

tests helps to clarify the need for low sulfur diesel fuel. In Sweden
and some European city centers where below 10 ppm diesel fuel sulfur is
readily available, more than 3,000 catalyzed diesel particulate filters
have been introduced into retrofit applications without a single
failure. Given the large number of vehicles participating in these test
programs, the diversity of the vehicle applications which included
intercity trains, airport buses, mail trucks, city buses and garbage
trucks, and the extended time periods of operation (some vehicles have
been operating with traps for more than 5 years and in excess of
300,000 miles\218\, there is a strong indication of the robustness of
this technology on 10 ppm low sulfur diesel fuel. The field experience
in areas where sulfur is capped at 50 ppm has been less definitive. In
regions without extended periods of cold ambient conditions, such as
the United Kingdom, field tests on 50 ppm cap low sulfur fuel have also
been positive, matching the durability at 10 ppm, although sulfate PM
emissions are much higher. However, field tests on 50 ppm fuel in
Finland, where colder winter conditions are sometimes encountered
(similar to many parts of the United States), showed a significant
number of failures (10 percent) due to trap plugging. This 10 percent
failure rate has been attributed to insufficient trap regeneration due
to fuel sulfur in combination with low ambient temperatures.\219\ Other
possible reasons for the high failure rate in Finland when contrasted
with the Swedish experience appear to be unlikely. The Finnish and
Swedish fleets were substantially similar, with both fleets consisting
of transit buses powered by Volvo and Scania engines in the 10 to 11
liter range. Further, the buses were operated in city areas and none of
the vehicles were operated in northern extremes such as north of the
Arctic Circle.\220\ Given that the fleets in Sweden and Finland were
substantially similar, and given that ambient conditions in Sweden are
expected to be similar to those in Finland, we believe that the
increased failure rates noted here are due to the higher fuel sulfur
level in a 50 ppm cap fuel versus a 10 ppm cap fuel.\221\
---------------------------------------------------------------------------

\217\ Through tax incentives 50 ppm cap sulfur fuel is widely
available in the United Kingdom and 10 ppm sulfur fuel is available
in Sweden and in certain European city centers.
\218\ Allansson, et al., ``European Experience of High Mileage
Durability of Continuously Regenerating Filter Technology,'' SAE
2000-01-0480.
\219\ Letter from Dr. Barry Cooper, Johnson Matthey, to Don
Kopinski, U.S. EPA. Copy available in EPA Air Docket A-2001-28.
\220\ Telephone conversation between Dr. Barry Cooper, Johnson
Matthey, and Todd Sherwood, EPA, Air Docket A-99-06.
\221\ The average temperature in Helsinki, Finland, for the
month of January is 21[deg]F. The average temperature in Stockholm,
Sweden, for the month of January is 26[deg]F. The average
temperature at the University of Michigan in Ann Arbor, Michigan,
for the month of January is 24[deg]F. The temperatures reported here
are from www.worldclimate.com based upon the Global Historical
Climatology Network (GHCN) produced jointly by the National Climatic
Data Center and Carbon Dioxide Information Analysis Center at Oak
Ridge National Laboratory (ORNL).
---------------------------------------------------------------------------

Testing on an even higher fuel sulfur level of 200 ppm was
conducted in Denmark on a fleet of 9 vehicles. In less than six months
all of the vehicles in the Danish fleet had failed due to trap
plugging.\222\ The failure of some fraction of the traps to regenerate
when operated on fuel with sulfur caps of 50 ppm and 200 ppm is
believed to be primarily due to inhibition of the NO to NO₂
conversion as described here. Similarly the increasing frequency of
failure with higher fuel sulfur levels is believed to be due to the
further suppression of NO₂ formation when higher sulfur
level diesel fuel is used. Since this loss in regeneration
effectiveness is due to sulfur poisoning of the catalyst this real
world experience would be expected to apply equally well to nonroad
engines (i.e., operation on lower sulfur diesel fuel, 15 ppm versus 50
ppm, will increase regeneration robustness).
---------------------------------------------------------------------------

\222\ Letter from Dr. Barry Cooper to Don Kopinski U.S. EPA.
Copy available in EPA Air Docket A-2001-28.
---------------------------------------------------------------------------

As shown above, sulfur in diesel fuel inhibits NO oxidation leading
to increased exhaust backpressure and reduced fuel economy. Therefore,
we believe that, in order to ensure reliable and economical operation
over a wide range of expected operating conditions, nonroad diesel fuel
sulfur levels should be at or below 15 ppm.
b. Loss of PM Control Effectiveness
In addition to inhibiting the oxidation of NO to NO₂,
the sulfur dioxide (SO₂) in the exhaust stream is itself
oxidized to sulfur trioxide (SO₃) at very high conversion
efficiencies by the precious metals in the catalyzed particulate
filters. The SO₃ serves as a precursor to the formation of
hydrated sulfuric acid (H₂SO₄+H₂O), or
sulfate PM, as the exhaust leaves the vehicle tailpipe. Virtually all
of the SO₃ is converted to sulfate under dilute exhaust
conditions in the atmosphere as well in the dilution tunnel used in
heavy-duty engine testing. Since virtually all sulfur present in diesel
fuel is converted to SO₂, the precursor to SO₃,
as part of the combustion process, the total sulfate PM is directly
proportional to the amount of sulfur present in diesel fuel. Therefore,
even though diesel particulate filters are very effective at trapping
the carbon and the SOF portions of the total PM, the overall PM
reduction efficiency of catalyzed diesel particulate filters drops off
rapidly with increasing sulfur levels due to the formation of sulfate
PM downstream of the CDPF.
SO₂ oxidation is promoted across a catalyst in a manner
very similar to the oxidation of NO, except it is converted at higher
rates, with peak conversion rates in excess of 50 percent. The
SO₂ oxidation rate for a platinum based oxidation catalyst
typical of the type which might be used in conjunction with, or as a
washcoat on, a CDPF can vary significantly with exhaust temperature. At
the low temperatures the oxidation rate is relatively low, perhaps no
higher than ten percent. However at the higher temperatures that might
be more typical of agricultural tractor use pulling a plow and the
highway Supplemental Emission Test (also called the EURO III or 13 mode
test), the oxidation rate may increase to 50 percent or more. These
high levels of sulfate make across the catalyst are in contrast to the
very low SO₂ oxidation rate typical of diesel exhaust
(typically less than 2 percent). This variation in expected diesel
exhaust temperatures means that there will be a corresponding range of
sulfate production expected across a CDPF.
The U.S. Department of Energy in cooperation with industry
conducted a study entitled DECSE to provide insight into the
relationship between advanced emission control technologies and diesel
fuel sulfur levels. Interim report number four of this program gives
the total particulate matter emissions from a heavy-duty diesel engine
operated with a diesel particulate filter on several different fuel
sulfur levels. A straight line fit through this data is presented in
Table III.F-1 below showing the expected total direct PM emissions from
a diesel engine on the supplemental emission test cycle.\223\ The SET
test cycle, a 13 mode steady-state cycle, that this data was developed
on is similar to the C1 eight mode steady-state nonroad test cycle.
Both cycles include operation at full and intermediate load points at
approximately rated speed conditions and torque peak speed conditions.
As a

[[Page 28398]]

result, the sulfate make rate for the C1 cycle and the SET cycle would
be expected to be similar. The data can be used to estimate the PM
emissions from diesel engines operated on fuels with average fuel
sulfur levels in this range.
---------------------------------------------------------------------------

\223\ Note that direct emissions are those pollutants emitted
directly from the engine or from the tailpipe depending on the
context in which the term is used, and indirect emissions are those
pollutants formed in the atmosphere through chemical reactions
between direct emissions and other atmospheric constituents.

Table III. F-1--Estimated PM Emissions From a Diesel Engine at the Indicated Fuel Sulfur Levels
----------------------------------------------------------------------------------------------------------------
Steady state emissions performance
--------------------------------------------
Fuel sulfur [ppm]
Tailpipe PMb PM increase relative to 3
[g/bhp-hr]
ppm sulfur
----------------------------------------------------------------------------------------------------------------
3.................................................................. 0.003 ...........................
7a................................................................. 0.006 100%
15a................................................................ 0.009 200%
30................................................................. 0.017 470%
150................................................................ 0.071 2300%
----------------------------------------------------------------------------------------------------------------
Notes:
a The PM emissions at these sulfur levels are based on a straight-line fit to the DECSE data; PM emissions at
other sulfur levels are actual DECSE data. (Diesel Emission Control Sulfur Effects (DECSE) Program--Phase II
Interim Data Report No. 4, Diesel Particulate Filters-Final Report, January 2000. Table C1.) Although DECSE
tested diesel particulate filters at these fuel sulfur levels, they do not conclude that the technology is
feasible at all levels, but they do note that testing at 150 ppm is a moot point as the emission levels exceed
the engine's baseline emission level.
b Total exhaust PM (soot, SOF, sulfate).

Table III.F-1 makes it clear that there are significant PM emission
reductions possible with the application of catalyzed diesel
particulate filters and low sulfur diesel fuel. At the observed sulfate
PM conversion rates, the DECSE program results show that the 0.01 g/
bhp-hr total PM standard is feasible for CDPF equipped engines operated
on fuel with a sulfur level at or below 15 ppm. The results also show
that diesel particulate filter control effectiveness is rapidly
degraded at higher diesel fuel sulfur levels due to the high sulfate PM
make observed with this technology. It is clear that PM reduction
efficiencies are limited by sulfur in diesel fuel and that, in order to
realize the PM emissions benefits sought in this rule, diesel fuel
sulfur levels must be at or below 15 ppm.
c. Increased Maintenance Cost for Diesel Particulate Filters Due to
Sulfur
In addition to the direct performance and durability concerns
caused by sulfur in diesel fuel, it is also known that sulfur can lead
to increased maintenance costs, shortened maintenance intervals, and
poorer fuel economy for CDPFs. CDPFs are highly effective at capturing
the inorganic ash produced from metallic additives in engine oil. This
ash is accumulated in the filter and is not removed through oxidation,
unlike the trapped soot PM. Periodically the ash must be removed by
mechanical cleaning of the filter with compressed air or water. This
maintenance step is anticipated to occur on intervals of well over
1,500 hours (depending on engine size). However, sulfur in diesel fuel
increases this ash accumulation rate through the formation of metallic
sulfates in the filter, which increases both the size and mass of the
trapped ash. By increasing the ash accumulation rate, the sulfur
shortens the time interval between the required maintenance of the
filter and negatively impacts fuel economy.
2. Diesel NO_X Catalysts and the Need for Low Sulfur Fuel
NO_X adsorbers are damaged by sulfur in diesel fuel
because the adsorption function itself is poisoned by the presence of
sulfur. The resulting need to remove the stored sulfur (desulfate)
leads to a need for extended high temperature operation which can
deteriorate the NO_X adsorber. These limitations due to
sulfur in the fuel affect the overall performance and feasibility of
the NO_X adsorber technology.
a. Sulfur Poisoning (Sulfate Storage) on NO_X Adsorbers
The NO_X adsorber technology relies on the ability of the
catalyst to store NO_X as a metallic nitrate
(MNO₃) on the surface of the catalyst, or adsorber (storage)
bed, during lean operation. Because of the similarities in chemical
properties of SOx and NO_X, the SO₃ present in the
exhaust is also stored by the catalyst surface as a sulfate
(MSO₄). The sulfate compound that is formed is significantly
more stable than the nitrate compound and is not released and reduced
during the NO_X release and reduction step (NO_X
regeneration step). Since the NO_X adsorber is essentially
100 percent effective at capturing SO₂ in the adsorber bed,
the sulfur build up on the adsorber bed occurs rapidly. As a result,
sulfate compounds quickly occupy all of the NO_X storage
sites on the catalyst thereby rendering the catalyst ineffective for
NO_X storage and subsequent NO_X reduction
(poisoning the catalyst).
The stored sulfur compounds can be removed by exposing the catalyst
to hot (over 650 [deg]C) and rich (air-fuel ratio below the
stoichiometric ratio of 14.5 to 1) conditions for a brief period.\224\
Under these conditions, the stored sulfate is released and reduced in
the catalyst.\225\ While research to date on this procedure has been
very favorable with regards to sulfur removal from the catalyst, it has
revealed a related vulnerability of the NO_X adsorber
catalyst. Under the high temperatures used for desulfation, the metals
that make up the storage bed can change in physical structure. This
leads to lower precious metal dispersion, or ``metal sintering,'' (a
less even distribution of the catalyst sites) reducing the
effectiveness of the catalyst.\226\ This degradation of catalyst
efficiency due to high temperatures is often referred to as thermal
degradation. Thermal degradation is known to be a cumulative effect.
That is, with each excursion to high temperature operation, some
additional degradation of the catalyst occurs.
---------------------------------------------------------------------------

\224\ Dou, Danan and Bailey, Owen, ``Investigation of
NO_X Adsorber Catalyst Deactivation,'' SAE 982594.
\225\ Guyon, M. et al, ``Impact of Sulfur on NO_X Trap
Catalyst Activity--Study of the Regeneration Conditions'', SAE
982607.
\226\ Though it was favorable to decompose sulfate at 800
[deg]C, performance of the NSR (NO_X Storage Reduction
catalyst, i.e. NO_X Adsorber) catalyst decreased due to
sintering of precious metal.--Asanuma, T. et al, ``Influence of
Sulfur Concentration in Gasoline on NO_X Storage--
Reduction Catalyst'', SAE 1999-01-3501.
---------------------------------------------------------------------------

One of the best ways to limit thermal degradation is by limiting
the accumulated number of desulfation events over the life of the
vehicle. Since

[[Page 28399]]

the period of time between desulfation events is expected to be
determined by the amount of sulfur accumulated on the catalyst (the
higher the sulfur accumulation rate, the shorter the period between
desulfation events) the desulfation frequency is expected to be
proportional to the fuel sulfur level. In other words for each doubling
in the average fuel sulfur level, the frequency and accumulated number
of desulfation events are expected to double. We concluded in the
HD2007 rulemaking, that this thermal degradation would be unacceptable
high for fuel sulfur levels greater than 15 ppm. Some commenters to the
HD2007 rule suggested that the NO_X adsorber technology could
meet the HD2007 NO_X standard using diesel fuel with a 30 ppm
average sulfur level. This would imply that the NO_X adsorber
could tolerate as much as a four fold increase in desulfation frequency
(when compared to an expected seven to 10 ppm average) without any
increase in thermal degradation. That conclusion was inconsistent with
our understanding of the technology at the time of the HD2007
rulemaking and remains inconsistent with our understanding of progress
made by industry since that time. Diesel fuel sulfur levels must be at
or below 15 ppm in order to limit the number and frequency of
desulfation events. Limiting the number and frequency of desulfation
events will limit thermal degradation and, thus, enable the
NO_X adsorber technology to meet the NO_X standard.
This conclusion remains true for the highway NO_X
adsorber catalyst technology that this proposal is based upon and will
be equally true for nonroad engines applying the NO_X
adsorber technology to comply with our proposed Tier 4 standards.
Nonroad and highway diesel engines are similarly durable and thus
over their lifetimes consume a similar amount of diesel fuel. This
means that both nonroad and highway diesel engines will have the same
exposure to sulfur in diesel fuel and thus will require the same number
of desulfation cycles over their lifetimes. This is true independent of
the test cycle or in-use operation of the nonroad engine.
Sulfur in diesel fuel for NO_X adsorber equipped engines
will also have an adverse effect on fuel economy. The desulfation event
requires controlled operation under hot and net fuel rich exhaust
conditions. These conditions, which are not part of a normal diesel
engine operating cycle, can be created through the addition of excess
fuel to the exhaust. This addition of excess fuel causes an increase in
fuel consumption.
Future improvements in the NO_X adsorber technology, as
we have observed in our ongoing diesel progress reviews, are expected
and needed in order to meet the NO_X emission standards
proposed today. Some of these improvements are likely to include
improvements in the means and ease of removing stored sulfur from the
catalyst bed. However because the stored sulfate species are inherently
more stable than the stored nitrate compounds (from stored
NO_X emissions) and so will always be stored preferentially
to NO_X on the adsorber storage sites, we expect that a
separate release and reduction cycle (desulfation cycle) will always be
needed in order to remove the stored sulfur. Therefore, we believe that
fuel with a sulfur level at or below 15 ppm sulfur will be necessary in
order to control thermal degradation of the NO_X adsorber
catalyst and to limit the fuel economy impact of sulfur in diesel fuel.
b. Sulfate Particulate Production and Sulfur Impacts on Effectiveness
of NO_X Control Technologies
The NO_X adsorber technology relies on a platinum based
oxidation function in order to ensure high NO_X control
efficiencies. As discussed more fully in section III.F.1, platinum
based oxidation catalysts form sulfate PM from sulfur in the exhaust
gases significantly increasing PM emissions when sulfur is present in
the exhaust stream. The NO_X adsorber technology relies on
the oxidation function to convert NO to NO₂ over the
catalyst bed. For the NO_X adsorber this is a fundamental
step prior to the storage of NO₂ in the catalyst bed as a
nitrate. Without this oxidation function the catalyst will only trap
that small portion of NO_X emissions from a diesel engine
which is NO2. This would reduce the NO_X adsorber
effectiveness for NO_X reduction from in excess of 90 percent
to something well below 20 percent. The NO_X adsorber relies
on platinum to provide this oxidation function due to the need for high
NO oxidation rates under the relatively cool exhaust temperatures
typical of diesel engines. Because of this fundamental need for a
precious metal catalytic oxidation function, the NO_X
adsorber inherently forms sulfate PM when sulfur is present in diesel
fuel, since sulfur in fuel invariably leads to sulfur in the exhaust
stream.
The Compact-SCR technology, like the NO_X adsorber
technology, uses an oxidation catalyst to promote the oxidation of NO
to NO₂ at the low temperatures typical of much of diesel
engine operation. By converting a portion of the NO_X
emissions to NO₂ upstream of the ammonia SCR reduction
catalyst, the overall NO_X reductions are improved
significantly at low temperatures. Without this oxidation function, low
temperature SCR NO_X effectiveness is dramatically reduced
making compliance with the NO_X standard impossible.
Therefore, future Compact-SCR systems would need to rely on a platinum
oxidation catalyst in order to provide the required NO_X
emission control. This use of an oxidation catalyst in order to enable
good NO_X control means that Compact SCR systems will produce
significant amounts of sulfate PM when operated on anything but the
lowest fuel sulfur levels due to the oxidation of SO₂ to
sulfate PM promoted by the oxidation catalyst.
Without the oxidation catalyst promoted conversion of NO to
NO₂, neither of these NO_X control technologies
can meet the proposed NO_X standard. Therefore, each of these
technologies will require low sulfur diesel fuel to control the sulfate
PM emissions inherent in the use of highly active oxidation catalysts.
The NO_X adsorber technology may be able to limit its impact
on sulfate PM emissions by releasing stored sulfur as SO₂
under rich operating conditions. The Compact-SCR technology, on the
other hand, has no means to limit sulfate emissions other than through
lower catalytic function or lowering sulfur in diesel fuel. The degree
to which the NO_X emission control technologies increase the
production of sulfate PM through oxidation of SO₂ to
SO₃ varies somewhat from technology to technology, but it is
expected to be similar in magnitude and environmental impact to that
for the PM control technologies discussed previously, since both the
NO_X and the PM control catalysts rely on precious metals to
achieve the required NO to NO₂ oxidation reaction.
At fuel sulfur levels below 15 ppm this sulfate PM concern is
greatly diminished. Without this low sulfur fuel, the NO_X
control technologies are expected to create PM emissions well in excess
of the PM standard regardless of the engine-out PM levels. Thus, we
believe that diesel fuel sulfur levels will need to be at or below 15
ppm in order to apply the NO_X control technology.

G. Reassessment of Control Technology for Engines Less Than 75 hp in
2007

By structuring our program to benefit extensively from prior
experience with core technologies in the highway sector, we believe
that a nonroad diesel technology review of the extent being pursued for
the heavy-duty highway

[[Page 28400]]

engine program will not be needed.\227\ Indeed the results of that
ongoing review have already had a very helpful impact in shaping this
proposal. Nevertheless, there are some technology issues that will not
be addressed in the highway program review. In particular we believe
that a future review of particulate filter technology for engines under
75 hp may be warranted. Under our proposed schedule presented in
section III.B, standards based on the performance of this technology
will take effect in the 2013 model year for 25-75 hp engines (or in the
2012 model year for manufacturers opting to skip the transitional
standards for 50-75 hp engines).
---------------------------------------------------------------------------

\227\ See ``Highway Diesel Progress Review'', U.S. EPA, June
2002. EPA420-R-02-016. (www.epa.gov/air/caaac/dieselreview.pdf).
---------------------------------------------------------------------------

At this time we have not decided what the long-term PM standards
should be for engines under 25 hp. No PM filter-based standards are
being proposed for engines under 25 hp as part of this Tier 4 proposal.
Likewise, we have not decided what the long-term NO_X
standards should be for engines under 75 hp, and no NO_X
adsorber-based standards are being proposed for engines under 75 hp. As
part of the technology review, we plan to thoroughly evaluate progress
made toward applying advanced PM and NO_X control
technologies to these smaller engines.
We propose to conduct the technology review in 2007, and to
conclude it by the end of that year, to give manufacturers lead time
should an adjustment in the program be considered appropriate. We do
not intend to include in the technology review a reassessment of PM
filter technology needed to meet the optional 0.02 g/hp-hr PM standard
for 50-75 hp engines in 2012. We assume that manufacturers would only
choose this option if they had confidence that they could meet the 0.02
g/hp-hr standard in 2012, a year earlier than otherwise required.
We recognize the importance of harmonization of international
standards and have worked diligently with our colleagues in Europe and
Japan to achieve that objective. Harmonization of these standards will
allow manufacturers continued access to world markets and lower the
required research and development and tooling costs needed to meet
different standards. We will continue to work with both governments and
the manufacturers abroad and within the United States. We have
incorporated feedback from the on-going dialogue and have continued to
work through the international process as we have developed this
proposal. The Commission has proposed amendments in December 2002 to EC
Directive 97/68 which are currently being addressed in the European
Council and Parliament. We believe that today's proposal and the
European approach together provide the framework for additional
harmonization. While not identical, manufacturers have expressed
appreciation for the similarities which do exist and they represent a
significant step toward mitigating the differences in design challenges
that would otherwise exist. The limit values and test procedures
provide a basis for common development which manufacturers can use on a
global basis. The amendments would control fuel sulfur levels to enable
aftertreatment, set nonroad mobile machine emissions limits that would
be based on performance of diesel particulate traps. NO_X
limits are being set to match the Agency's Tier 3 NO_X
program. There are a few differences in approaches that we will
continue to discuss with the EU. One difference is that the EC has
chosen a leadtime for trap-based PM standards for engines in the 50-100
hp range which is one year earlier than we are proposing today. Another
difference is the inclusion of a review of the availability of
NO_X emission control technology for larger engines. The EC
has also chosen not to set performance requirements that would require
the use of PM traps for engines under 50 hp, while we are proposing
performance-based standards that would likely require the use of PM
traps for engines between 25-75 hp. The EC has again chosen not to set
standards for engines below 19 kW (25 hp) and greater than 560 kW (750
hp). With respect to long term NO_X control, the Commission
has chosen to have a technology review (which would also reassess
issues related to PM) to address implementing potentially more
stringent NO_X standards in the same timeframe as potential
EPA standards.\228\ For additional information about the harmonization
effort and the results to date, please see chapter 2.4.2 of the SBREFA
panel report. We request comment on opportunities to further enhance
harmonization.
---------------------------------------------------------------------------

\228\ Commission of the European Communities, ``Proposal for a
Directive of the European Parliament and of the Council amending
Directive 97/68/EC'', section 3.9.
---------------------------------------------------------------------------

We expect that any changes to the level or timing of emission
standards found appropriate in the 2007 review would be made as part of
a rulemaking process, and that process would take additional time after
the review is completed. If the 2007 review should determine that PM
trap technology is feasible for engine under 25 hp, or that advanced
NO_X control technology is feasible for engines under 75 hp,
or that Tier 4 standards should be made more stringent in some other
way, we would expect the rulemaking implementing such changes to
provide for adequate lead time. Therefore, it would be premature for us
to target 2013 or any specific model year for implementing such
standards changes at this time. We solicit comment on the scope,
timing, and need for a future reassessment of emissions control
technology for nonroad diesel engines.

IV. Our Proposed Program for Controlling Nonroad, Locomotive and Marine
Diesel Fuel Sulfur

We are proposing to reduce the sulfur content of nonroad,
locomotive and marine (NRLM) diesel fuel to no more than 500 ppm
beginning in 2007. We are also proposing to reduce the sulfur content
of nonroad diesel fuel to no more than 15 ppm beginning in 2010. These
provisions mirror controls on highway diesel fuel to 500 ppm in 1993
\229\ and 15 ppm in 2006.\230\
---------------------------------------------------------------------------

\229\ 55 FR 34120 (August 21, 1990).
\230\ 66 FR 5002 (January 18, 2001).
---------------------------------------------------------------------------

There are two reasons that we are proposing these standards. First,
fuel sulfur significantly inhibits or impairs the function of the
diesel exhaust emission control devices, which would generally be
necessary to meet the proposed nonroad diesel engine emission
standards. In conjunction with the proposed 15 ppm sulfur standard for
nonroad diesel fuel we have concluded that this emission control
technology will be available to achieve the reductions required by the
stringent NO_X and PM emission standards proposed for model
year 2011 and later nonroad diesel engines. Second, sulfur in diesel
fuel is emitted from the engine as sulfate PM and sulfur dioxide, both
of which cause adverse health and welfare impacts, as described in
section II. above. Reducing the level of sulfur in diesel fuel to 500
ppm beginning in 2007 would achieve important emission reductions of
these pollutants and provide significant public health and welfare
benefits. The further reduction to 15 ppm in 2010 will expand upon
these benefits.
In developing the proposed diesel fuel program, we identified
several principles that we wanted the program to achieve:

[[Page 28401]]

(1) Maintain the benefits and program integrity of the highway
diesel fuel program;
(2) Achieve the greatest reduction in sulfate PM and sulfur dioxide
emissions from nonroad, locomotive, and marine diesel engines as early
as practicable;
(3) Provide for a smooth transition of the nonroad diesel fuel pool
to 15 ppm sulfur;
(4) Ensure that 15 ppm sulfur diesel fuel is produced and
distributed widely for use in all 2011 and later model year nonroad
engines;
(5) Enable the efficient distribution of all diesel fuels; and
(6) Ensure that the program's requirements are enforceable and
verifiable.
As described below, we believe the proposed fuel program achieves
these principles.
The remainder of this section is organized as follows:
(A) The fuel standards proposed today,
(B) The design and structure of the fuel program,
(C) Special hardship provisions proposed for small refiners and
refiners facing particularly difficult circumstances,
(D) Special provisions proposed for fuel sold in the State of
Alaska and U.S. Territories,
(E) The affect of the proposed program on state diesel fuel control
programs,
(F) The technological feasibility of the production and
distribution of 500 ppm and 15 ppm sulfur nonroad, locomotive and
marine diesel fuel,
(G) The impact of the program on other fuel properties and
specialty fuels, and
(H) The need for some refiners to obtain air permits for their
desulfurization equipment.
Analyses supporting the design of these provisions can be found in
chapter V and VII of the Draft RIA for today's action. Section VIII of
this preamble provides a discussion of the compliance and enforcement
provisions affecting diesel fuel and additional explanation of various
elements of the proposed program.

A. Proposed Nonroad, Locomotive and Marine Diesel Fuel Quality
Standards

The following paragraphs describe the requirements, standards, and
deadlines that apply to refiners, importers, and distributors of
nonroad, locomotive and marine (NRLM) diesel fuel and the options
available to all refiners.
1. What Fuel Is Covered by This Proposal?
The proposed standards generally cover all the diesel fuel that is
used in mobile applications but is not already covered by the previous
standards for highway diesel fuel. This fuel is defined primarily by
the type of engine which it is used to power: nonroad, locomotive, and
marine diesel engines. These fuels typically include:
(1) Any number 1 and 2 distillate fuels used, intended for use, or
made available for use in nonroad, locomotive or marine diesel engines,
(2) Any number 1 distillate fuel (e.g., kerosene) added to such
number 2 diesel fuel, e.g., to improve its cold flow properties, and
(3) Any other fuel used in or blended with diesel fuel for use in
nonroad, locomotive, or marine diesel engines that has comparable
chemical and physical characteristics.
Primary examples of fuels under (1) would be those meeting ASTM
D975 or D396 specifications for grades number 1-D and number 2-D or
ASTM DMX and DMA specifications, if used in the engines mentioned
above. Primary examples under (3) would be certain specialty fuels
grades such as JP-5, JP-8, and F76 if used in nonroad, locomotive, or
marine equipment for which a national security exemption has not been
approved (See section VIII.A.2) and non-distillate fuels such as
biodiesel.
This proposal would not apply to:
(1) Number 1 distillate fuel used to power jet aircraft,
(2) Number 1 or number 2 distillate fuel used for other purposes,
such as to power stationary diesel engines or for heating,
(3) Number 4 and 6 fuels (e.g., bunker or residual fuels, IFO Heavy
Fuel Oil Grades 30 and higher, ASTM DMB and DMC fuels), and
(4) Any fuel used to power equipment for which a national security
exemption has been approved (see section VIII.A.2).
The proposed program would reduce the sulfur in all diesel fuel
likely used in mobile off-highway equipment and achieve very
significant short and long-term environmental benefits. States, not the
Agency, have responsibility for any fuel sulfur specifications for
heating oil, so this fuel would not be covered by this proposal.\231\
However, we do propose a number of provisions, as described below, that
would ensure that heating oil would not be used in nonroad, locomotive,
or marine applications.
---------------------------------------------------------------------------

\231\ For the purposes of this proposal, the term heating oil
refers to any number 1 or number 2 distillate other than jet fuel
and diesel fuel used in highway, nonroad, locomotive, or marine
applications. For example, heating oil includes fuel which is
suitable for use in furnaces, boilers, stationary diesel engines and
similar applications and is commonly or commercially known or sold
as heating oil, fuel oil, and other similar trade names.
---------------------------------------------------------------------------

As in the recent highway diesel rule, in those cases where the same
batch of kerosene is distributed for two purposes (e.g., as kerosene to
be used for heating and to improve the cold flow of number 2 nonroad
diesel fuel), that batch of kerosene would have to meet the standards
being proposed today for nonroad diesel fuel. However, an alternative
compliance approach would be to produce and distribute two distinct
kerosene fuels. In our example above, one batch would meet the proposed
sulfur standards and could be blended into number 2 NRLM diesel fuel.
The other batch would only have to meet any applicable specifications
for heating oil.
2. Standards and Deadlines for Refiners, Importers, and Fuel
Distributors
The proposed fuel program consists of a two-step program to reduce
the sulfur content of nonroad diesel fuel. By doing so, the program
would allow the refining industry to smoothly transition the sulfur
content from its current uncontrolled levels down to the very stringent
15 ppm level. By beginning with an initial step down to 500 ppm, we can
start to achieve significant emission reductions and associated health
and welfare benefits from the current fleet of equipment as soon as
possible. While we considered and are seeking comment on a one-step
approach of going directly to 15 ppm in 2008, as discussed in section
VI, we believe that on balance the advantages of the proposed two-step
approach outweigh those of a single step.
The specific proposed deadlines for meeting the 500 and 15 ppm
sulfur standards would not apply to refineries covered by special
hardship provisions for small refiners. In addition, a different
schedule would apply for any refineries approved under the proposed
general hardship provisions. All of these hardship provisions are
described below in section IV.C.
a. The First Step to 500 ppm
Under this proposal NRLM diesel fuel produced by refiners or
imported into the U.S. would be required to meet a 500 ppm sulfur
standard beginning June 1, 2007. Refiners and importers could comply by
either producing such fuel at or below 500 ppm, or could comply by
obtaining credits as discussed in Section B below.
We believe that the proposed level of 500 ppm is appropriate for
several reasons. This 500 ppm level is consistent with current highway
diesel fuel, a grade which may remain for

[[Page 28402]]

highway purposes until 2010. As such, adopting the same 500 ppm level
for NRLM helps to avoid any issues and costs associated with more
grades of fuel in the distribution system during this initial step of
the program. The reduction to 500 ppm is also significant
environmentally. The 500 ppm level achieves approximately 90 percent of
the sulfate PM and SO₂ benefits otherwise achievable by
going all the way to 15 ppm. Yet, the costs would be roughly half that
associated with full control down to 15 ppm. Because this first step is
only to 500 ppm, it also allows for a short lead time for
implementation, enabling the environmental benefits to begin accruing
as soon as possible. After careful analysis of feasibility as discussed
in section IV.F.5, we believe that the proposed start date of June 1,
2007, is the earliest that the 500 ppm step could take effect.
To allow for the enforcement of the proposed fuel standards while
at the same time allowing for a smooth and orderly transition of diesel
fuel in the distribution system to 500 ppm, we are proposing that
parties downstream of the refineries be allowed time to turnover their
NRLM tanks to 500 ppm. We are proposing that at the terminal level,
NRLM diesel fuel would be required to meet the 500 ppm sulfur standard
beginning August 1, 2007. At bulk plants, wholesale purchaser-
consumers, and any retail stations carrying NRLM diesel, this fuel
would have to meet the 500 ppm sulfur standard by October 1, 2007.\232\
The only exceptions to these dates would be for high sulfur NRLM
produced under the hardship and fuel credit provisions discussed below
in sections IV.B. and C.\233\
---------------------------------------------------------------------------

\232\ A bulk plant is a secondary distributor of refined
petroleum products. They typically receive fuel from terminals and
distribute fuel in bulk by truck to end users. Consequently, while
for highway fuel, bulk plants often serve the role of a fuel
distributor, delivering fuel to retail stations, for nonroad fuel,
they often serve the role of the retailer, delivering fuel directly
to the end-user.
\233\ Furthermore, as discussed in subsection B, we propose that
high sulfur nonroad diesel fuel which is produced after June 1, 2007
due to the small refiner and fuel credit provisions could be
commingled with 500 ppm nonroad diesel fuel after it has been dyed
to the IRS specifications. Thus, at some points in the distribution
system, nonroad fuel higher than the 500 ppm standard would remain
until it is precluded from production beginning June 1, 2010.
---------------------------------------------------------------------------

This downstream turnover schedule is slightly more relaxed than for
the second step to 15 ppm discussed below. This first step down to 500
ppm is designed to achieve the public health and welfare benefits from
reduced emissions in the current fleet of engines. Since the sulfate PM
and SO₃ benefits accrue as the fuel is desulfurized to any
degree, mixing in the distribution system during the transition to 500
ppm would not reduce this benefit or cause any adverse consequences.
Mixing in the distribution system would also not reduce the engine
performance and durability benefits from the reduction in sulfur. As a
result, the immediate turnover of the fuel pool downstream of the
refinery gate is of less concern and a more relaxed schedule than
described below for the second step is possible. We seek comment on
this proposed schedule.
b. The Second Step to 15 ppm
In order to enable the application of high efficiency exhaust
emission control technologies to nonroad diesel engines beginning with
the 2011 model year, we are proposing that all nonroad diesel fuel
produced or imported after June 1, 2010, would have to meet a 15 ppm
sulfur cap. We are proposing that diesel fuel used for locomotive and
marine diesel engines could continue to the meet the 500 ppm cap first
applicable in 2007.
In order to allow for a smooth and orderly transition of diesel
fuel in the distribution system to 15 ppm, we are proposing that
parties downstream of the refineries be allowed some additional time to
turnover their tanks to 15 ppm. We are proposing that at the terminal
level, nonroad diesel fuel would be required to meet the 15 ppm sulfur
standard beginning July 15, 2010. At bulk plants, wholesale purchaser-
consumers, and any retail stations carrying nonroad diesel, this fuel
would have to meet the 15 ppm sulfur standard by September 1, 2010. The
proposed transition schedule for compliance with the 15 ppm standard at
refineries, terminals, and secondary distributors is the same as that
allowed under the recently promulgated highway diesel fuel program.
As with the 500 ppm standard, refiners and importers could comply
with this standard by either physically producing 15 ppm fuel or by
obtaining sulfur credits, as described below.
We are seriously considering bringing the sulfur level of
locomotive and marine diesel fuel to 15 ppm as early as June 1, 2010,
along with nonroad diesel fuel. As discussed in more detail in section
VI and in chapter 12 of the draft RIA, there are several advantages
associated with this alternative. First, it would provide important
sulfate PM and SO₃ emission reductions and the estimated
benefits from these reductions would outweigh the costs by a
considerable margin. Second, it would simplify the fuel distribution
system and the design of the fuel program proposed today. Third, it
would help reduce the potential opportunity for misfueling of 2007 and
later model year highway vehicles and 2011 and later model year nonroad
equipment with higher sulfur fuel. Finally, it would allow refiners to
coordinate plans to reduce the sulfur content of all of their nonroad
diesel fuel at one time.
However, discussions with refiners have suggested there are
advantages to leaving locomotive and marine diesel fuel at 500 ppm, at
least in the near-term and until we set more stringent standards for
those engines. The locomotive and marine diesel fuel markets could
provide a market for off-spec product which is important for refiners,
particularly during the transition to 15 ppm for highway and nonroad
diesel fuel in 2010. Waiting just a year or two beyond 2010 would
address the critical near term needs during the transition. Second,
waiting just another year or two beyond 2010 is also projected to allow
virtually all refiners to take advantage of the new lower cost
technology.
In addition to seeking comment on whether to apply the 15 ppm
standard to locomotive and marine diesel fuel in 2010, we also seek
comment on other timing for doing so, and especially on how the Agency
should coordinate a 15 ppm standard for locomotive and marine with the
nonroad diesel fuel standard being proposed today. It is the Agency's
intention to propose in the near future new emission standards for
locomotive and marine engines that could require the use of high
efficiency exhaust emission control technology, and thus, also require
the use of 15 ppm sulfur diesel fuel. We anticipate that such engine
standards would likely take effect in the 2011-13 time frame, requiring
15 ppm locomotive and marine diesel fuel in the 2010-12 time frame. We
intend to publish an advanced notice of proposed rulemaking (ANPRM) for
such a rule in the Spring of 2004 and complete action on a final rule
by 2007.
c. Other Standard Provisions
We are proposing that the 500 ppm NRLM and 15 ppm nonroad diesel
fuel standards would apply to the areas of Alaska served by the Federal
Aid Highway System (FAHS). Rural areas, those outside the FAHS, would
not be subject to either the 15 or 500 ppm standards. Market forces in
these areas would be relied upon to provide 15 ppm diesel fuel for 2011
and later nonroad diesel engines used in these areas. This is
consistent with the approach which is

[[Page 28403]]

in the process of being developed by the State of Alaska for
implementing the 2007 highway diesel fuel program. EPA can revisit this
issue when it takes action on Alaska's plan for implementation of the
highway sulfur requirements, allowing for coordination of the nonroad
and highway fuel requirements. The specifics of our proposal for diesel
fuel sold in Alaska are described in more detail in section IV.D.1.
below. In addition, these proposed 500 and 15 ppm sulfur caps would not
apply to diesel fuel sold in three Pacific U.S. territories, as
described in more detail in section IV.D.2. below.
The early credits and other special provisions create the
probability that high sulfur NRLM diesel fuel would be produced and
sold after June 1, 2007, and that 500 ppm nonroad diesel fuel would be
produced and sold after June 1, 2010. Under the proposal, fuel
distributors would be responsible for ensuring the necessary product
segregations and that statements on product transfer documents and fuel
product labels are consistent with the corresponding fuel quality. The
specific requirements for both fuel distributors and end-users are
described in detail in section VIII.
d. Cetane Index or Aromatics Standard
Currently, in addition to containing no more than 500 ppm sulfur,
EPA requires that highway diesel fuel meet a minimum cetane index level
of 40 or, as an alternative contain no more than 35 volume percent
aromatics. We are proposing today to extend this cetane index/aromatics
content specification to NRLM diesel fuel. Extension of these content
specifications would reduce NO_X and PM emissions from the
current nonroad equipment fleet slightly, providing associated public
health and welfare benefits.
Low diesel fuel cetane levels are associated with increases in
NO_X and PM emissions in current nonroad diesel engines.
Thus, we expect that this cetane index specification would lead to a
reduction in these emissions from the existing fleet. Because the vast
majority of current NRLM diesel fuel already meets this specification,
the NO_X and PM emission reductions would be small. Also, the
impact of cetane on NO_X and PM emissions appears to be very
weak or nonexistent for diesel engines equipped with EGR. Thus, the
positive emission impact of this specification would likely decrease
over time as these engines gradually dominate the in-use fleet.
ASTM already applies a cetane number specification of 40 to NRLM
diesel fuel, which in general is more stringent than the similar 40
cetane index specification. Because of this, the vast majority of
current NRLM diesel fuel already meets the EPA cetane index/aromatics
specification for highway diesel fuel. Thus, the proposed requirement
would have an actual impact only on a limited number of refiners and
there would be little overall cost associated with producing fuel to
meet the proposed cetane/aromatic requirement. In fact, as discussed in
section 5.9 of the draft RIA, complying with the sulfur standards
proposed today is expected to result in a small cetane increase,
leaving little or no further control to meet the standard.
In addition, we expect that if all NRLM fuel met the cetane index
or aromatics specification as proposed, refiners would benefit from the
ability to fungibly (mixed together) distribute highway and NRLM diesel
fuels of like sulfur content. For that fraction of fuel that today does
not meet this specification, the proposed requirement would eliminate
the need to separately distribute fuels of different cetane/aromatics
specifications that would otherwise need to occur. Requiring NRLM
diesel fuel to meet this cetane index specification would thus give
fuel distributors certainty in being able to combine shipments of
highway and NRLM diesel fuels. Overall, we believe that the economic
benefits from more efficient fuel distribution would likely exceed the
cost of refining the small volume of NRLM diesel fuel that might not
currently meet the cetane index or aromatics content specification.
We request comment on the costs and benefits of our proposal to
extend the cetane index and alternative aromatics standard applicable
to highway diesel fuel to NRLM diesel fuel.

B. Program Design and Structure

In addition to the proposed content standards and their timing, the
program must be designed and structured carefully to achieve the
overall principles of this proposed nonroad diesel fuel program. The
health and welfare benefits and the need for widespread availability of
15 ppm highway diesel fuel must be maintained. This will only happen if
the program is designed such that the amount of low sulfur fuel
expected to be produced under the highway diesel program is in fact
produced. Likewise, the benefits of the low sulfur diesel program
proposed today will only be achieved if the program is designed such
that the volume of diesel fuel consumed by NRLM engines is matched by
the production and distribution of at least the same volume of diesel
fuel produced to the appropriate low sulfur levels. At the same time,
promoting the efficiency of the distribution system calls for fungible
distribution of physically similar products, and minimizing the need
for segregation of products in the distribution system.
1. Background
Prior to the highway diesel sulfur standard that took effect in
1993, most number 2 distillate fuel was produced to essentially the
same specifications, shipped fungibly, and used interchangeably for
highway diesel engines, nonroad diesel engines, locomotive and marine
diesel engines and heating oil applications. Beginning in 1993, highway
diesel fuel was required to meet a 500 ppm sulfur cap and was
segregated from other distillate fuels as it left the refinery by the
use of a visible level of dye solvent red 164 in all non-highway
distillate.\234\ At about the same time, the IRS similarly required
non-highway diesel fuel to be dyed red to a much higher concentration
prior to retail sale to distinguish it from highway diesel fuel for
excise tax purposes. Dyed non-highway fuel is exempt from this tax.
This splitting of the distillate pool necessitated changes in the
distribution system to ship and store the now distinct products
separately. In some parts of the country where the costs to segregate
non-highway diesel fuel from highway diesel fuel could not be
justified, both fuels have been produced to the highway
specifications.\235\
---------------------------------------------------------------------------

\234\ Non-highway distillate for the purposes of this proposal
refers to all diesel fuel and distillate used for nonroad,
locomotive, marine and heating oil purposes; in other words, all
number 1 or number 2 distillate other than that used for highway
purposes, and excluding jet fuels.
\235\ Diesel fuel produced to highway specifications but used
for non-highway purposes is referred to as ``spill-over.'' It leaves
the refinery gate and is fungibly distributed as if it were highway
diesel fuel, and is typically dyed at a point later in the
distribution system. Once it is dyed it is no longer available for
use in highway vehicles, and is not part of the supply of highway
fuel. Based on the most recent EIA data, roughly 15 percent of fuel
produced to highway specifications is spillover, representing nearly
a third of non-highway consumption.
---------------------------------------------------------------------------

This proposal would set new specifications for nonroad, locomotive,
and marine diesel fuel. However, currently there is no grade of diesel
fuel which is produced and marketed as a distinguishable grade for NRLM
uses. It is typically produced and shipped fungibly with other
distillate used for heating oil purposes, and it is all dyed red in
accordance with EPA and IRS regulations. Therefore, in order to control
the sulfur content of NRLM, but

[[Page 28404]]

not heating oil, this proposal requires some means of distinguishing
fuel used for the two purposes. This is similar to the situation faced
in 1993 in the case of highway diesel fuel. The solution in 1993 for
highway diesel fuel was to dye the non-highway distillate. As discussed
below, a similar approach is proposed today to identify and distinguish
heating oil from NRLM.
This proposal would control the sulfur level of NRLM diesel fuel to
500 ppm in 2007, the same level currently applicable to highway diesel
fuel, and the same level as up to 20 percent of the highway diesel fuel
pool from June 1, 2006, through December 31, 2009. Under the current
provisions of the highway diesel rule, this 500 ppm nonroad diesel fuel
would have to be dyed red at the refinery gate and distributed
separately from 500 ppm highway diesel fuel.
Continuing to implement this dye provision would allow for simple
enforcement of both the proposed NRLM standard and the more stringent
highway standards during this timeframe. Clear, undyed diesel fuel
would have to meet the 80/20 ratio of 15 ppm and 500 ppm applicable to
highway fuel, and diesel fuel (dyed red) would have to meet the 500 ppm
standard applicable to NRLM. Continuing the current dye provisions
would therefore ensure that the intended benefits of both programs were
achieved. However, maintaining this dye distinction would also require
segregation of a new grade of diesel fuel, 500 ppm NRLM, throughout the
entire distribution system. The costs of requiring segregation of two
otherwise identical fuels throughout the entire distribution system
could be quite substantial.\236\
---------------------------------------------------------------------------

\236\ Under the highway program the potential exists to add a
third grade of diesel fuel in an estimated 40% of the country, and
we projected one-time tankage and distribution system costs of $1.05
billion to accomplish this. Using similar assumptions, to add a
second 500 ppm grade nationwide would cost in excess of $2 billion.
This assumes that the capability exists to add such new tankage.
---------------------------------------------------------------------------

In order to avoid adding unnecessary cost to the fuel distribution
system, we are proposing that the current requirement that non-highway
distillate fuels be dyed at the refinery gate be made voluntary
effective June 1, 2006.\237\ However, in its place we are proposing an
alternate means for refiners to differentiate their highway diesel fuel
from NRLM diesel fuel (see IV.B.3 below). Where it is feasible and cost
effective to continue to dye and segregate their nonroad fuel, we
propose that refiners and importers may continue this option.
---------------------------------------------------------------------------

\237\ The IRS requirements concerning dyeing of non-highway fuel
prior to sale to consumers are not changed by this rulemaking.
---------------------------------------------------------------------------

Since 500 ppm highway and NRLM diesel fuel would physically be the
same, without some means of differentiating highway diesel fuel from
NRLM diesel fuel, it would be impossible to maintain the benefits and
program integrity of the 2006 highway diesel fuel program. Pre-2007
model year highway vehicles are free to continue using 500 ppm fuel
until 2010 as long as it is available. However, if a refiner produced
all 500 ppm fuel, designating it as nonroad fuel, that refiner would
have no obligation to produce any 15 ppm highway diesel fuel. Without
an effective way of limiting the use in the highway market of 500 ppm
diesel fuel produced as NRLM fuel (provided currently by the refinery
gate dye requirement), much more 500 ppm fuel could, and likely would
find its way into the highway market than would otherwise happen under
the current highway program, displacing 15 ppm that would have
otherwise been produced. This likely series of events would circumvent
the 80/20 intent of the highway rule and sacrifice some of the
resulting PM and SO₃ emission benefits of that program.
Perhaps more importantly, if this occurred to any significant degree,
it could also undermine the integrity of the highway program by failing
to ensure adequate availability of 15 ppm fuel nationwide for the
vehicles that need it.
2. Proposed Fuel Program Design and Structure
a. Program Beginning June 1, 2007
To avoid the costs associated with segregating 500 ppm NRLM diesel
fuel from 500 ppm highway fuel, we propose that the existing
requirement that NRLM diesel fuel be dyed leaving the refinery would be
made voluntary. We propose that this change could occur as early as
June 1, 2006. In its place we propose that a baseline volume percentage
of non-highway diesel fuel would be established and enforced for each
refinery and importer. The baseline percentage would be based on a
historical average for a refinery or importer. The baseline percentage
of non-highway diesel fuel would then be used to identify the amount of
500 ppm diesel fuel produced by that refinery or importer that is
subject to the NRLM requirements and the amount of 500 ppm fuel is
subject to the highway requirements. As detailed below, in conjunction
with a marker to prevent the use of heating oil in nonroad equipment,
the baseline percentage would effectively protect the benefits and
integrity of the highway program, ensure that the benefits of the first
step of NRLM diesel fuel to 500 ppm sulfur would be obtained, and would
enable the efficient, fungible distribution of like grades of fuel. A
discussion of this proposal follows, beginning with the introduction of
a fuel marker for heating oil.
i. Use of A Marker to Differentiate Heating Oil From NRLM
If all NRLM diesel fuel were required to meet the 500 ppm standard
beginning June 1, 2007, then heating oil and NRLM diesel fuel could be
differentiated merely on the basis of their sulfur levels. However,
this proposal would allow the limited production of high-sulfur NRLM
fuel by small refiners, and by other refiners through the use of
credits between 2007 and 2010 (see section IV.B.2.b). To ensure that
the only high sulfur diesel fuel used in nonroad, locomotive, and
marine diesel engines is high sulfur NRLM and not heating oil, it would
be necessary for parties in the distribution system, and for EPA, to be
able to distinguish heating oil from high-sulfur NRLM diesel fuel. One
way of ensuring that these fuels remain segregated in the distribution
system would be to require that either a dye or a marker be added to
heating oil to distinguish it from NRLM diesel fuel during the period
of 2007 through 2010.\238\ There is no differentiation today between
fuel used for NRLM uses and heating oil. Both are typically produced to
the same sulfur specification today, and both are required to have the
same red dye added prior to distribution and sale.\239\ As a result,
the dye or marker would have to be different from the current red dye
requirement.
---------------------------------------------------------------------------

\238\ A marker is an additive which is phosphorescent or has
some other property which allows it to be easily detected, though
not necessarily visible to the naked eye. A dye is intended to be
visibly identified by the naked eye.
\239\ There may be some exceptions where a refiner produces a
unique grade of distillate fuel solely for heating oil purposes.
---------------------------------------------------------------------------

There are a number of types of dyes and markers. Visible dyes are
most common, are inexpensive, and are easily detected. Invisible
markers are beginning to see more use in branded fuels and are somewhat
more expensive than visible markers. Such markers are detected either
by the addition of a chemical reagent or by their fluorescence when
subjected to near-infra-red or ultraviolet light. Some chemical-based
detection methods are suitable for use in the field. Others must

[[Page 28405]]

be conducted in the laboratory due to the complexity of the detection
process or concerns regarding the toxicity of the reagents used to
reveal the presence of the marker. Near-infra-red and ultra-violet
flourescent markers can be easily detected in the field using a small
device and after brief training of the operator. There are also more
exotic markers available such as those based on immunoassay, and
isotopic or molecular enhancement. Such markers typically need to be
detected by laboratory analysis.
Using a second dye for segregation of heating oil based on visual
identification raises certain challenges. Most dye colors that provide
a strong visible trace in fuels are already in use for different fuel
applications. More importantly, mixing two fuels containing different
strong dyes can result in interference between the two dyes rendering
identification of the presence of either dye difficult. Yet, the mixing
of NRLM diesel fuel into heating oil for eventual sale as heating oil
would be an acceptable and often an economically desirable practice.
Furthermore, to avoid interfering with the IRS tax code, it would be
advantageous to maintain the current red color. Based on these
considerations, the best approach to prevent the use of heating oil as
NRLM diesel fuel would appear to be requiring the addition to heating
oil of either a dye that does not impart a significant color to diesel
fuel or a marker that imparts no color at all. The dye or marker would
be added at the refinery gate, just as visible evidence of the red dye
is required today. Fuel containing the marker would be segregated from
highway and NRLM diesel fuel and would be prohibited from use in
highway, nonroad, locomotive, or marine application.
Effective in August 2002, the European Union (EU) enacted a marker
requirement for diesel fuel that is taxed at a lower rate (which
applies in all of the EU member states).\240\ The marker selected by
the EU is N-ethyl-N-[2-[1-(2-methylpropoxy)ethoxyl]-4-phenylazo]-
benzeneamine.\241\ This compound is also referred to as solvent yellow
124 or the Euromarker. We propose that beginning June 1, 2007, solvent
yellow 124 must be added to heating oil in the U.S. We propose that it
be added in a concentration of 6 milligrams per liter, the same
treatment rate as required by the EU. This would ensure adequate
detection in the distribution system even if diluted by a factor of 50.
A level of 0.1 milligrams per liter would therefore be used as a
threshold level to identify heating oil--below this level incidental
contamination would be assumed to have occurred and the prohibition on
use in highway, nonroad, locomotive, or marine applications would not
apply. Despite its name, solvent yellow 124 does not impart a strong
color to diesel fuel when used at the proposed concentration.
Therefore, we do not expect that its use in diesel fuel containing the
IRS-specified red dye would interfere with the use of the red dye by
IRS to identify non-taxed fuels. We request comment on this assessment.
---------------------------------------------------------------------------

\240\ The European Union marker legislation, 2001/574/EC,
document C(2001) 1728, was published in the European Council
Official Journal, L203 28.072001.
\241\ Opinion on Selection of a Community-wide Mineral Oils
Marking System, (``Euromarker''), European Union Scientific
Committee for Toxicity, Ecotoxicity and the Environment plenary
meeting, September 28, 1999.
---------------------------------------------------------------------------

Solvent yellow 124 is chemically similar to other additives used in
gasoline and diesel fuel, and has been registered by EPA as a fuel
additive under 40 CFR part 79. Its products of combustion would not be
anticipated to have an adverse impact on emission control devices, such
as a catalytic converter. In addition, extensive evaluation and testing
of solvent yellow 124 was conducted by the EC. This included combustion
testing which showed no detectable difference between the emissions
from marked and unmarked fuel. We understand that Norway specifically
evaluated the use of distillate fuel containing solvent yellow 124 for
heating purposes and determined that the presence of the Eurmarker did
not cause an increase in harmful emissions from heating equipment.
Based on the European experience with solvent yellow 124, we do not
expect that there would be concerns regarding the compatibility of
solvent yellow 124 in the U.S. fuel distribution system or for use in
motor vehicle engines and other equipment such as in residential
furnaces. We request comment on whether there are unique public health
concern regarding the use of distillate fuel containing solvent yellow
124. The European Union intends to review the use of Solvent yellow 124
after December 2005, or earlier if any health and safety or
environmental concerns about its use are raised. We intend to keep
abreast of such activities and may initiate our own review of the use
of solvent yellow 124 depending on the European Union's findings.
We also request comment on the extent to which jet fuel might
become contaminated with solvent yellow 124 due to the presence of
solvent yellow 124-containing fuels and jet fuel in the U.S. common
carrier pipeline distribution system, and whether such contamination
would raise concerns for the operation of jet engines. Due to safety
concerns, jet fuel is held to very strict standards regarding the
allowable presence of contaminants and additives. For example, the
Department of Defense maintains a zero-tolerance for any contamination
of jet fuel with the red dye required by the IRS (and EPA) which is
chemically similar to solvent yellow 124. We are not aware that any
testing has been done to date to assess whether solvent yellow 124 does
raise similar concerns, and we request comment with any supporting data
on this issue.
We do not believe that there any significant pathways for such
contamination to take place other than by potential human error. In
addition, the fact that the fuel distribution industry in the U.S. has
been successful in managing contamination of jet fuel with red dye
indicates that the potential contamination of jet fuel with solvent
yellow 124 can also be successfully managed in the U.S. fuel
distribution system. Therefore, we believe that our proposed use of
solvent yellow 124 should not pose a significant risk to the
maintenance of jet fuel purity. We request comment on this assessment.
Solvent yellow 124 is marketed by several manufactures and is in
current wide-scale use in the European community. We anticipate that
these manufactures would have sufficient lead-time to increase their
production of solvent yellow 124 to supply the need for fuel marker
that would result from this proposal. We request comment on whether
there are product licencing or other concerns regarding the manufacture
of solvent yellow 124 for use under this proposed rule.
We request comment on other potential markers that might be used to
identify and segregate heating oil from NRLM fuel. In particular, we
ask that as commenters raise potential concerns with the use of solvent
yellow 124 that they also identify other possible markers that could
overcome their concerns without raising others. One potential
alternative we have identified is the Clir-Code[reg]
marker system
manufactured by ISOTAG Technologies Inc. The Clir-Code[reg]
marker
system has been used extensively in U.S. fuel and includes a field test
that employs a hand-held near infra-red detector which does not require
the use of any reagents. EPA deferred proposing the use of the Clir-
Code[reg]
marker because we believe that the advantage of a simpler
field test would not compensate for the increased

[[Page 28406]]

treatment cost relative to the use of solvent yellow 124. We
furthermore seek comment on whether more than one marker could be
selected, but which could all be detected using the same detection
method. In this manner refiners would not be dependent on a sole
supplier for the marker. Additional discussion of the rationale for our
selection of solvent yellow 124 and the feasibility of its use is
contained in Chapter 5 of the Draft RIA.
Since marked heating oil would be a relatively small volume product
in many parts of the country, we anticipate that it will not be carried
everywhere as a separate fungible product. In places where it is not
carried as a separate fungible grade we anticipate that most shipments
of marked heating oil will be from refinery racks or other segregated
shipments directly into end-user tankage. In these areas any distillate
supplied from the fungible supply system for heating oil purposes will
therefore likely be spillover from 500 ppm NRLM supply. Clearly, in
those parts of the country with high demand for heating oil,
particularly the Northeast and Pacific Northwest, we anticipate that
marked heating oil will in fact be carried by the distribution system
as a separate fungible product. To the extent this is the case, it is
entirely possible that heating oil will no longer be produced to diesel
fuel cetane or aromatic specifications, reducing production costs. The
most difficult to desulfurize streams in a refinery are in fact those
that are low in cetane and high in aromatics. Shifting these streams to
a unique heating oil product can therefore reduce desulfurization
costs, while still producing a high quality heating oil (though we have
not reflected this in our cost analysis in section V.)
ii. Non-highway Distillate Baseline Cap
As discussed above, we are proposing use of a marker in heating oil
to effectively distinguish uncontrolled heating oil from NRLM fuel, so
that the NRLM standards can be enforced throughout the distribution
system and at the end-user. However, in order to allow for the fungible
distribution of highway diesel fuel and NRLM, and continue to have
enforceable highway diesel fuel standards in the absence of a NRLM dye
requirement, we are proposing that a non-highway distillate baseline
percentage be established for each refinery and importer in the
country. This non-highway baseline would be defined as the volume
percentage of all diesel fuel and heating oil (number 1 and number 2)
that a refinery or importer produced or imported during the specified
baseline period that was dyed for non-highway purposes.
We propose that if a refiner chooses to fungibly distribute its
NRLM and highway fuels, then under the first step of the nonroad
program (June 1, 2007--June 1, 2010), the volume of diesel fuel
represented by its non-highway baseline percentage would have to either
meet the 500 ppm NRLM standard or be marked as heating oil. All the
remaining production would have to meet the requirements of the highway
fuel program (i.e., 80 percent of this fuel would have to meet a 15 ppm
sulfur cap). As we recognized in the highway rule, some variation in
the production of highway and non-highway diesel fuel is normal from
year to year. As a result, in any given year it may be possible that a
refiner is unable to produce the amount of 15 ppm diesel fuel required
to meet its highway requirement (80% of 100% minus the non-highway
baseline) simply because of this normal variation. The provisions of
the highway diesel rule already allow for a 5% shortfall in the
production of 15 ppm fuel in a year as long as it is made up in the
following year. We seek comment on whether any additional flexibility
beyond that provided in the highway rule is appropriate to account for
normal fluctuations in refinery output.
An example will help to explain the use of the baseline. Assume the
baseline non-highway percentage has been established as discussed below
and is 40%. That means 40% of the total diesel fuel production in the
baseline years was non-highway fuel, dyed at the refinery gate. If the
refinery then produced a total of 100,000,000 gallons of diesel fuel in
2008, 40,000,000 gallons would be its applicable non-highway baseline.
If it then produced and marked 10,000,000 gallons as heating oil,
30,000,000 gallons of the remaining diesel fuel (dyed or undyed) would
be subject to the NRLM standard of 500 ppm, and all the remaining
diesel fuel, 60,000,000 gallons, would be considered highway diesel
fuel and would have to meet the applicable 80/20 requirements.
We propose that a refiner, for each of its refineries, would need
to choose either to continue to dye all of its NRLM fuel at the
refinery gate, or to apply the non-highway baseline approach to all of
its production. If a refinery's production could be split between these
two options, the refiner could avoid the cap on NRLM imposed by the
baseline percentage by dyeing additional volumes over its baseline, for
example at their refinery rack or co-located terminal. The result could
be a diversion of extra 500 ppm fuel to the highway market while the
dyed 500 ppm fuel was used to serve the nonroad market, resulting in
little or no production of 15 ppm highway diesel fuel. Therefore, the
choice of whether to dye all of their 500 ppm NRLM fuel at the refinery
gate, or comply with the non-highway distillate baseline would have to
be made in advance. We propose that compliance with the baseline be
determined on an annual basis. We therefore also propose that the
decision of whether to dye NRLM 500 ppm fuel at the refinery gate or
comply with the baseline could also be made on an annual basis.
This approach allows a refinery's production of 500 ppm NRLM fuel
and heating oil to remain flexible in response to market demand, while
ensuring that the proportion of fuel they produce in the future to
highway and non-highway requirements remains consistent with their
historical baseline production. Since the non-highway baseline is set
as a percentage of production, the actual volume needed for compliance
with this baseline would rise and fall with the refinery's total
production of diesel fuel. In this way, it would provide refineries
with flexibility similar to that under the 80/20 volume percentage
provisions of the highway rule. If total production of diesel fuel
decreased, the absolute volume of diesel fuel which had to be produced
to highway or NRLM specifications would decrease. If total production
increased, the amount of diesel fuel subject to the 80/20 highway and
the NRLM standards would also increase. A refiner wishing not to be
limited to this non-highway distillate baseline percentage of
production could elect to segregate and dye its NRLM diesel fuel at the
refinery gate.
Like the current dye requirement, this approach would focus
compliance with the highway and NRLM requirements on the refinery or
importer. Once undyed 500 ppm or 15 ppm diesel fuel was produced or
imported and accounted for under the baseline percentage approach, it
could be mixed and shipped fungibly, and sold to either the highway or
the NRLM diesel fuel market by anyone further down the distribution
system. This would provide a significant degree of market flexibility
to refiners and distributors and enable the efficient distribution of
diesel fuel. Compliance with the non-highway baseline would be enforced
at the refinery gate in the same manner as the current 2006 highway
provisions. With the marker for heating oil, compliance with the 15 ppm
and 500 ppm standards could also be enforced through to the

[[Page 28407]]

end-user. But most importantly, this approach would maintain the health
benefits and fuel availability needs of the highway diesel fuel
program, because the overall volume of highway diesel fuel produced to
the 15 ppm cap would be maintained.
iii. Setting the Non-highway Distillate Baseline
The purpose of the non-highway baseline is to identify a historical
level of non-highway production occurring prior to implementation of
the provisions of this proposal, for use as a baseline after such
implementation. We propose to determine the non-highway baseline
percentage for each refinery by averaging the volume of dyed diesel
fuel and heating oil (number 1 and number 2, excluding jet fuel and
exported fuel) that it produced or imported annually over the three
year period from January 1, 2003, through December 31, 2005, and
dividing that volume by the average of all diesel fuel and heating oil
(number 1 and number 2, excluding jet fuel and exported fuel) it
produced or imported annually over the same period (and then multiplied
by 100).\242\ By using a multi-year average, variations that might
otherwise occur from year to year in a refinery's production will get
averaged out. Importers would establish a separate baseline for each
area of importation.\243\
---------------------------------------------------------------------------

\242\ Specialty fuels such as JP-5, JP-8 and F76 are in some
instances also used in nonroad diesel equipment today. However, our
expectation is that the majority of this fuel is today and will be
in the future continue to be used in tactical military equipment
that would be exempted from the provisions of this proposal.
Consequently, we propose that these fuels would not be counted in
either setting the baseline or in determining compliance with the
baseline.
\243\ The areas would be defined as the credit trading areas
(CTAs) as defined in the highway rule.
---------------------------------------------------------------------------

Selecting a baseline period prior to finalization of the final rule
would help to prevent the possibility of entities inappropriately
adjusting their operations solely for the purpose of modifying their
baseline. At the same time, setting a baseline period as close to the
implementation date as possible helps to capture the most recent
changes in the industry's production patterns. The proposed period of
January 1, 2003, through December 31, 2005, is split roughly equally
between production prior to the final rule and production after the
final rule to appropriately balance these competing objectives. One
advantage of ending the baseline period on December 31, 2005, is that
it allows the opportunity for refiners to generate credit for the early
production of 500 ppm NRLM fuel after that date, and at the same time
avoid having to dye it at the refinery gate. The three year period
serves to limit any potential actions to inappropriately adjust the
baseline that a refinery might otherwise attempt. A refiner or importer
would have to dye and sell a greater fraction of its fuel to the non-
highway market over an extended period of time to significantly modify
its baseline. The potential financial loss associated with this,
particularly if other refineries or importers tried to do the same
thing, would likely be prohibitive.
At the same time, we anticipate that a number of refiners may be
changing their highway diesel production volumes as they comply with
the highway diesel fuel standards in 2006. To the extent that a refiner
planned to lower its highway production in 2006, a non-highway baseline
set based on 2003-5 data would penalize them by forcing them to
continue to meet the highway requirements for a greater volume, based
on their pre-2006 production pattern. To avoid this situation, we
propose that refiners would be allowed to set their non-highway
baseline percentage using June 1, 2006, through May 31, 2007, as the
baseline time period. By doing so the refinery's baseline would
automatically take into account changes made for compliance with the
2006 highway standard. It would, however, preclude that refinery from
participating in the early NRLM credit program prior to June 1, 2007,
using the baseline approach, and would require them to continue dyeing
their NRLM at the refinery gate until June 1, 2007, since that is the
period during which the baseline was being established. Since the
purpose of this option is to provide an opportunity to account for the
physical changes refineries make in complying with the highway rule, we
propose that this option would only apply to refiners and not
importers.
Each refinery and importer would have to submit its application for
a non-highway baseline to EPA by February 28, 2006, along with the
supporting information. If the refinery elected to use the optional
baseline period, we propose that the refinery would have to submit its
application for a non-highway baseline to EPA by August 1, 2007. EPA
would then approve these baselines by June 1, 2006, and any optional
baselines by December 1, 2007. We propose that any refinery or importer
which was not in operation for the full period of January 1, 2003,
through December 31, 2005, would establish their baseline using data
from the period they were in operation, as long as that period was
greater than or equal to 12 months. The 12 months need not be
continuous. Any refinery or importer unable to establish a baseline
during this period would have to comply using the dye alternative. In
the case of a new or restarted refinery or new importer, we propose to
assign a non-highway baseline percentage reflecting the projected
average production of non-highway fuel in 2004 for their region of the
country. We propose to use the credit trading areas (CTAs) as defined
in the highway Based on data from the Department of Energy's Energy
Information Agency (EIA) on the current production of low and high
sulfur diesel fuel and heating oil, and EIA and EPA projections of
future fuel use, these PADD average non-highway baseline would be as
shown in Table IV-1.
---------------------------------------------------------------------------

\244\ A value of zero is proposed for California, since we
anticipate that all non-highway diesel fuel in California will be
covered by the same State standards applicable to highway diesel
fuel during this time period.

Table IV-1--Non-highway Baseline for New Refineries
--------------------------------------------------------------------------------------------------------------------------------------------------------
Oregon and California
PADD 1 PADD 2 PADD 3 PADD 4 Washington Alaska Hawaii \244\
--------------------------------------------------------------------------------------------------------------------------------------------------------
41%..................................... 20% 26% 13% 21% 68% 40% 0%
--------------------------------------------------------------------------------------------------------------------------------------------------------

In discussions with various refiners, there was a strong interest
in allowing refiners with multiple refineries and importers with
multiple points of import to aggregate the baselines across all of
their facilities nationwide. However, since the baselines determine how
much of a refineries production must comply with the highway standards,
allowing nationwide aggregation of the baselines would have the same
impact as allowing nationwide

[[Page 28408]]

averaging, banking, and trading of credits under the highway rule. That
approach was rejected in the highway rule due to the negative impact it
would have on the nationwide availability of 15 ppm highway diesel
fuel. For the same reason we are not proposing to allow nationwide
aggregation of the non-highway baselines. However, in the highway rule,
we do allow credit trading within certain credit trading areas (CTAs).
We seek comment on allowing the aggregation of non-highway baselines
within the same CTA and how such aggregation could be accomplished. We
also seek comment on whether a trading program could be established
that allowed for refiners with only one refinery within a CTA to
benefit from similar flexibility, and whether some reasonable
restrictions on refiners who aggregate baselines are needed to protect
the integrity of the highway program.
EPA requests comments on the provisions described above for
establishing the non-highway baseline percentage for each refinery and
importer. We also request comment on any alternative provisions that
could be used to accomplish the objectives discussed above.
iv. Diesel Sulfur Credit Banking, and Trading Provisions for 2007
This proposal includes provisions for refiners and importers to
generate early credits for production of 500 ppm NRLM fuel prior to
June 1, 2007. This will provide implementation flexibility at the start
of the 500 ppm NRLM standard in 2007. These credits would be tradeable
and could be used to delay compliance with either the 500 ppm NRLM
standard in 2007 or the 15 ppm nonroad standard in 2010. The proposed
banking and trading provisions would allow an individual refinery to
purchase credits and delay compliance. This would allow for a somewhat
smoother transition at the start of the program, with some refineries
complying early, others on time, and others a little later.
Nevertheless, on average the overall benefits of the program would be
obtained or perhaps increased, and some environmental benefits could be
achieved earlier than expected. Perhaps the most advantageous use of
these credit provisions, however, might be for individual refineries to
utilize available credits to permit the continued sale of otherwise
off-spec product during the start up of the program when they are still
adjusting their operations for consistent production to the new sulfur
standards.

Credit Generation

We propose two ways to generate credits that can be used to allow
for high sulfur NRLM fuel to be produced after June 1, 2007. First, we
propose that a refinery or importer can generate credit for early
production of NRLM diesel fuel to the 500 standard from June 1, 2006,
through May 31, 2007. Credits would be calculated either using the non-
highway baseline approach or by counting 500 ppm NRLM dyed at the
refinery gate. Refiners that chose to establish their non-highway
baseline using the June 1, 2006--May 31, 2007, baseline period would be
precluded from generating any early credits using the non-highway
baseline approach. Second, under the small refiner hardship provisions
described below in subsection C, small refiners could generate credits
for any production of NRLM fuel to the 500 ppm standard from June 1,
2007, through May 31, 2010. In either case, credits could be banked for
future use, or traded to any other refinery or importer nationwide. For
early credits and small refinery credits generated using the non-
highway baseline approach, these credits would be calculated according
to the following formula:
High-Sulfur NRLM credits \245\ = (15 ppm production volume + 500
ppm production volume )--(100%-non-highway baseline percentage) *
(total #1 and #2 distillate production excluding jet
fuel and exported fuel).
---------------------------------------------------------------------------

\245\ For the purposes of this proposal, the credits are labeled
on the basis of their use in order to follow the convention used in
the highway rule. A high-sulfur credit is generated through the
production of one gallon of 500 ppm NRLM fuel and allows the
production of one gallon of high sulfur NRLM fuel.
---------------------------------------------------------------------------

Early credits or small refinery credits generated using the dye
option would be calculated using the following formula: High-Sulfur
NRLM credits = 500 ppm production volume dyed at the refinery gate.
If the excess production was 15 ppm fuel instead of 500 ppm fuel,
the refiner would of course still have the option of using it to
generate 500 ppm highway credits under the existing highway diesel
provisions. Credit could not be earned under both programs.

Credit Use

There would be two ways in which refiners could use high-sulfur
NRLM credits. First, we propose that these credits could be used during
the period from June 1, 2007--May 31, 2010, to continue to produce high
sulfur NRLM diesel fuel. Any high sulfur NRLM fuel produced, however,
would have to be dyed red at the refinery gate, kept segregated from
other fuels in the distribution system, and tracked through the use of
unique codes on product transfer documents.
Only at the point in the distribution system where NRLM fuel has
been dyed to IRS specifications for excise tax purposes (e.g., after a
terminal or bulk plant) do we propose that high sulfur and 500 ppm
sulfur NRLM fuels could be commingled. Such commingling will not
diminish the PM and SO₃ emission reductions or other
benefits associated with the 500 ppm sulfur standard. However, in order
to ensure that owners of nonroad equipment can be confident in knowing
whether the fuel being purchased meets the 500 ppm cap, the PTD and
labels for any commingled fuel will have to indicate that the sulfur
level exceeds 500 ppm. This is particularly a concern for some 2008 and
later model year equipment that may need to run on 500 ppm or lower
sulfur fuel in order to achieve the emission benefits in-use of the
standards proposed today, as discussed in section III.
In most cases we anticipate that the distribution costs associated
with segregating such a small volume product will prevent high-sulfur
NRLM from being carried in the fungible distribution system. As a
result, we anticipate that only those refineries that have their own
segregated distribution system could continue to produce solely high
sulfur NRLM fuel after June 1, 2007. Since there are few refineries set
up to accomplish this, our expectation is that the most likely manner
in which refiners will be able to use high-sulfur NRLM credits will be
through sales made directly from their on-site fuel rack or co-located
terminal. Nevertheless, in order to have confidence that refiners are
making the transition to 500 ppm for NRLM uses, we seek comment on
whether caps on the use of credits would be necessary. In particular,
we seek comment on placing a cap on the use of credits at 25 percent of
its non-highway baseline, less marked heating oil, beginning June 1,
2008.
The second way in which refiners and importer could use high-sulfur
NRLM credits is by banking them for use during the June 1, 2010--May
31, 2012, period. During this period they could continue producing 500
ppm fuel subject to the usage restrictions that apply during that
period, as discussed in subsection B.2.b.ii below. This use of high-
sulfur credits would provide a cost-effective environmental benefit,
since credits generated from the reduction of sulfur levels from high
sulfur to 500 ppm would be used to

[[Page 28409]]

offset the much smaller increment of sulfur control from 500 ppm down
to 15 ppm.
b. 2010
After June 1, 2010, the fuel standards situation is simplified
considerably and the fuel program structure can therefore also be
simplified. The need for the non-highway baseline percentage
disappears, since all highway and nonroad diesel fuel must meet the
same 15 ppm cap. Furthermore, the only high sulfur distillate remaining
in the market should be heating oil, since we are proposing that high
sulfur diesel fuel no longer be permitted to be used in any NRLM
equipment. Heating oil would have to be kept segregated. Preventing its
use in NRLM equipment could be enforced on the basis of sulfur level,
avoiding the need for a unique marker to be added to heating oil.
After June 1, 2010, under this proposal locomotive and marine
diesel fuel would be allowed to remain at the 500 ppm level. In
addition, assuming we allowed the continued production and use of 500
ppm nonroad diesel fuel through the small refiner hardship provisions
discussed in subsection C and fuel credit provisions, 500 ppm nonoad
fuel would continue to exist in the distribution system as late as May
31, 2014. A refiner could produce 500 ppm diesel fuel without the use
of credits for the intended use in locomotive and marine applications,
but if this 500 ppm fuel later made its way into nonroad equipment,
less 15 ppm nonroad fuel would be produced and the full benefits of the
15 ppm nonroad standard would not be achieved. If this happened to a
large enough extent it could call into question the adequate supply of
15 ppm for nonroad purposes beginning in 2010. Thus, some method is
needed to differentiate locomotive and marine 500 ppm diesel fuel from
nonroad 500 ppm diesel fuel after June 1, 2010. EPA is proposing to use
a marker for this purpose.
i. A Marker To Differentiate Locomotive and Marine Diesel From Nonroad
Diesel
This proposal would allow the limited production of 500 ppm nonroad
diesel fuel by small refiners and by other refiners through the use of
credits between 2010 and 2014 (see section IV.B.3.b). This 500 ppm fuel
could only be used in pre-2011 model year nonroad diesel engines, and
would have to be segregated from 15 ppm nonroad diesel fuel and 500 ppm
locomotive and marine diesel fuel. To ensure compliance with the
proposed segregation requirements for such fuel, it would be necessary
for parties in the distribution system, and for EPA, to be able to
distinguish such 500 ppm nonroad diesel fuel from 500 ppm locomotive
and marine diesel fuel. Differentiating locomotive and marine diesel
fuel from nonroad diesel fuel presents a very analogous situation,
though perhaps on a smaller scale, to that described above for heating
oil prior to June 1, 2010.\246\ As a result, we propose to use a marker
to segregate locomotive and marine diesel fuel from 500 ppm nonroad
diesel fuel beginning June 1, 2010. Since both fuels need to be dyed
red for tax purposes prior to sale, for the reasons discussed above
with respect to heating oil, we propose that solvent yellow 124 be used
as the marker for locomotive and marine diesel fuel beginning June 1,
2010. We propose that the marker would be required to be added at the
refinery gate just as visible evidence of the red dye is required
today, and fuel containing more than the trace concentration of 0.1 mg/
l of the marker would be prohibited from use in any nonroad
application.
---------------------------------------------------------------------------

\246\ Without the proposed marker requirement for locomotive and
marine diesel fuel discussed in this section, we expect that there
would be no physical difference between 500 ppm nonroad diesel fuel
and 500 ppm locomotive and marine diesel fuel.
---------------------------------------------------------------------------

Since marked locomotive and marine diesel fuel would be a
relatively small volume product, we anticipate that in most parts of
the distribution system it would not be carried as a separate product
in the fungible distribution system. Therefore we anticipate that most
shipments of marked locomotive and marine fuel would be from refinery
racks or other segregated shipments directly into end-user tankage. Any
diesel fuel supplied off the fungible supply system for locomotive and
marine uses would therefore likely be spillover from 15 ppm nonroad or
highway diesel supply.
Since we anticipate that 500 ppm locomotive and marine diesel fuel
will be a small volume product, not carried in the fungible
distribution system, and only available in limited locations, we also
seek comment on whether the approach of using a marker for locomotive
and marine diesel fuel could be replaced with an alternative approach.
Specifically, we seek comment on whether to just limit supply of 500
ppm locomotive and marine diesel fuel to segregated shipments, with
refineries being liable to ensure and keep records demonstrating that
500 ppm fuel produced for locomotive and marine purposes was
distributed solely for these purposes.
ii. Diesel Sulfur Credit Banking and Trading Provisions for 2010
For the reasons described above for 2007, we are proposing a
similar diesel sulfur credit banking and trading program for 2010. We
propose that refiners and importers could generate early credit for
production of 15 ppm nonroad diesel fuel prior to June 1, 2010. These
credits could be used to delay compliance with the 15 ppm nonroad
diesel standard in 2010. As in 2007, while it is possible that a
refinery could entirely delay compliance with the 15 ppm standard in
2010 through the use of credits, the most advantageous use of these
credit provisions is likely to be the continued sale by individual
refineries of otherwise off-spec product during the startup of the 2010
program, when they are still adjusting their operations for consistent
production to the 15 ppm sulfur standard.

Credit Generation

Under this proposal, highway and NRLM fuels of like sulfur level
would be allowed to be distributed fungibly, and as such would be
indistinguishable. For example, prior to June 1, 2010, undyed 15 ppm
diesel fuel would be distributed together whether or not it was later
dyed for nonroad purposes. Consequently, we are proposing that credits
for production of early 15 ppm nonroad diesel fuel prior to June 1,
2010, be determined using the non-highway baseline. Any volume up to a
refinery's total highway requirement (100 percent minus the non-highway
baseline) would continue to be counted under the provisions of 2007
highway diesel fuel program.\247\ Any production of 15 ppm fuel greater
than this amount (100% minus the non-highway baseline) beginning June
1, 2009 could be used to generate early nonroad credits.
---------------------------------------------------------------------------

\247\ Under the highway program four gallons of excess 15 ppm
diesel fuel produced or imported would generate one 500 ppm diesel
fuel credit. This credit grants the refiner or importer the right to
produce one additional gallon of undyed 500 ppm diesel fuel between
June 1, 2006 and May 31, 2010. These credits can be used (or traded
within the PADD in which they were generated) to produce or import
less than 80% of its highway volume as 15 ppm fuel. This would
continue under this proposal for any production up to (100% minus
the non-highway baseline). For any volume of 15 ppm fuel greater
than 100% minus the non-highway baseline a refiner could either
receive gallon-for-gallon nonroad credit under this proposal, or
treat it as highway fuel and receive 1:4 credit under the provisions
of the highway rule.
---------------------------------------------------------------------------

An example will help to explain the use of these credits. Assume
the baseline non-highway percentage has been established at 40% and the
refinery produces a total of 100,000,000 gallons of diesel fuel from
June 1,

[[Page 28410]]

2009--December 31, 2009. Its applicable non-highway baseline would be
40,000,000 gallons. If it then produced and marked 10,000,000 gallons
of heating oil, 30,000,000 gallons of the remaining diesel fuel (dyed
or undyed) would be subject to the NRLM standard of 500 ppm, and the
remaining 60,000,000 gallons of diesel fuel would be considered highway
diesel fuel and would have to meet the applicable 80/20 requirements
(48,000,000 at 15 ppm and 12,000,000 at 500 ppm). If the refiner
instead produced only 20,000,000 gallons of fuel to the 500 ppm NRLM
standard and produced 70,000,000 gallons to the 15 ppm standard, then
it would receive credit for the 10,000,000 gallons excess 15 ppm NRLM
fuel that it produced. In this example the refiner could also earn
3,000,000 highway credits for the excess production of 15 ppm highway
fuel (1:4 ratio).
In addition to this source of credits, we propose two other sources
of credits to allow production of 500 ppm nonroad diesel fuel after
June 1, 2010. First, as discussed in subsection B.3.a.iv above, high-
sulfur NRLM credits generated prior to June 1, 2010, could be converted
into 500 ppm nonroad credits and carried over for use beginning June 1,
2010. Second, under the small refiner hardship provisions described
below in subsection C, small refiners could generate credits for any
production of NRLM fuel to the 15 ppm standard from June 1, 2010,
through May 31, 2012. These credits could be traded to any other
refinery or importer nationwide.
We seek comment on whether credits should be permitted to be
generated prior to June 1, 2009. Our proposal would restrict the early
credit period to just one year for two main reasons. First, any 15 ppm
fuel produced prior to June 1, 2009, can be treated as highway diesel
fuel and any credits generated on the fuel under the highway program
can be traded under the highway credit program. We do not want the
early nonroad credit provisions to detract from the smooth functioning
of the highway diesel credit program. Second, we do not want the early
credit provisions to undermine the availability of 15 ppm diesel fuel
for nonroad applications in 2010. Allowing more than a years worth of
credits to be generated, plus up to a years worth of high sulfur
credits to be generated and carried over for use in 2010 would raise
concerns that insufficient 15 ppm nonroad diesel fuel might be produced
in 2010 to ensure availability everywhere nationwide. Nevertheless, we
seek comment on extending the period for early credit generation and on
this assessment.

Credit Use

We propose that 500 ppm nonroad credits could be used on a gallon
for gallon basis during the period from June 1, 2010-May 31, 2012,
allowing continued production of 500 ppm nonroad diesel fuel. Small
refiners could continue to produce 500 ppm nonroad diesel until June 1,
2014, without credits. Any 500 ppm nonroad fuel produced would have to
be dyed red at the refinery gate, kept segregated from other fuels in
the distribution system, and tracked through the use of unique codes on
product transfer documents all the way through to the end-user.
Refiners wishing to produce 500 ppm fuel and sell it as nonroad would
have to get EPA approval in advance demonstrating how they will ensure
such segregation.
Given the cost and burden associated with segregating 500 ppm
nonroad diesel fuel as a separate product in the distribution system,
we anticipate that the most likely manner in which refiners will be
able to use 500 ppm nonroad credits will be through sales made directly
from their on-site fuel rack.
We request comment on all aspects of the proposed credit trading
system.
c. 2014
Beginning June 1, 2014, after all small refiner and credit
provisions have ended, both the 15 ppm nonroad diesel fuel standard and
the 500 ppm locomotive and marine diesel fuel standard could be
enforced based on sulfur level throughout the distribution system and
at the end-user. There would no longer be a need for a baseline, a
marker, or a dye. Consequently, we are proposing that after May 31,
2014, the different grades of diesel fuel, 15 ppm, 500 ppm, and high-
sulfur would merely have to be kept segregated in the distribution
system.
3. Other Options Considered
In developing the proposed program structure described above, we
also evaluated a number of other possible approaches. Some of the
alternatives discussed below would allow for even greater fuel
fungibility, for example, extending to smaller volume products such as
those produced through the use of credits. However, these alternative
approaches would either place more restrictions on refinery operations,
or raise significant enforcement and program integrity concerns. As a
result, we are not proposing the following alternatives but seek
comment on them, including ways to minimize or alleviate the concerns
associated with them.
a. Highway Baseline and a NRLM Baseline for 2007
The proposed program described above relies on a non-highway
baseline percentage to distinguish highway fuel from NRLM fuel, and a
marker to distinguish heating oil from NRLM fuel. In lieu of using a
marker for heating oil, another approach would be to use a second
baseline aimed at identifying the NRLM portion of non-highway diesel
fuel. In this case a highway baseline would be established consistent
with the non-highway baseline proposed above (100 percent minus the
proposed non-highway baseline). The highway 80/20 standards would apply
to this baseline. A second NRLM baseline would be established to which
the 500 ppm NRLM standard would apply. The remaining diesel fuel
percentage would be uncontrolled (i.e., it could be high sulfur). This
approach would allow for greater fungibility of fuels with the same
sulfur level. Not only could 500 ppm highway and 500 ppm NRLM fuel be
distributed together, but high sulfur NRLM fuel produced through the
credit and hardship provisions could be fungibly distributed with
heating oil. Heating oil would not need to contain a marker. As a
result, this approach would allow for greater flexibility in using the
fuel credit and hardship provisions. The disadvantage, however, is that
refiners would face additional burden when shifting into the heating
oil market. An explanation of this approach follows.
i. Highway Baseline
The highway baseline would be very analogous to the non-highway
baseline proposed above. It would be calculated in the same way, except
that it would be 100 percent minus the proposed non-highway baseline.
The requirement that NRLM fuel be dyed at the refinery gate would
become voluntary. From June 1, 2007, through May 31, 2010, any volume
of 500 ppm fuel not dyed at the refinery gate would have to meet the
80/20 highway provisions up to the refinery specific highway baseline
percentage. The highway baseline percentage would be determined for
each refinery and importer in the same manner as described above for
the non-highway baseline.
ii. Nonroad, Locomotive, and Marine Baseline
Under this approach, a refiner or importer would be assigned a NRLM
baseline percentage. This baseline

[[Page 28411]]

percentage of a refinery's or importer's current high-sulfur diesel
fuel and heating oil (number 1 and number 2) production would be deemed
to be NRLM diesel fuel and thus, subject to the proposed 500 ppm cap
beginning June 1, 2007. The remaining percentage would remain
uncontrolled and would not need to contain a marker. A refiner's NRLM
baseline percentage would be applied to the percentage of distillate
not included in the highway baseline (i.e., the proposed non-highway
baseline). For example, if a refiner's highway baseline was 50% and its
NRLM baseline was also 50%, then 25% of its production would have to
meet the 500 ppm NRLM standard.
If a refiner chose not to use the NRLM baseline percentage, a
refinery or importer would have to add the proposed marker and
segregate their heating oil from any NRLM diesel fuel throughout the
distribution system, including high sulfur NRLM diesel fuel (produced
through the use of credits or by small refiners or refiners utilizing
hardship provisions). The refinery would have to demonstrate that the
fuel was segregated all the way through to the end-user and that the
end-user used the fuel for legitimate heating oil purposes only. NRLM
end-users would be prohibited from using any fuel with a marker.
There are, however, certain difficulties in establishing an NRLM
baseline percentage. Unlike the situation today where highway diesel
fuel and non-highway distillates are accounted for based upon their
different sulfur levels and the presence of red dye, there is no easy
way to measure a given refinery's current production of NRLM diesel
fuel as compared to their production of heating oil, in order to
accurately establish an individual refinery baseline percentage.
Generally the two fuels are produced and shipped as a single fuel. We
considered whether refiners and importers could reliably track their
high sulfur fuel through the distribution system and estimate the
volumes used as diesel fuel and heating oil to establish individual
refinery baselines. However, most high sulfur diesel fuel and heating
oil is shipped by fungible carriers and we do not believe that
sufficient data exist to accurately determine which refiner's fuel was
actually consumed in either end-use. Discussion with several refiners
have supported this belief. Therefore, we developed an approach that
would assign each refinery a percentage of their current high-sulfur
distillate production, based on the PADD they reside in, as their NRLM
baseline. PADDs 1 and 3 would be combined due to the large amount of
high sulfur non-highway diesel fuel shipped from PADD 3 to PADD 1
today.
Under this approach we would project consumption of NRLM diesel
fuel and heating oil to determine the relative consumption of these two
fuels by PADD. This would be the NRLM baseline assigned to refiners and
importers in that PADD. This volume percentage of non-highway diesel
fuel would then be considered NRLM and have to meet the proposed 500
ppm cap beginning June 1, 2007. The remainder of the non-highway diesel
fuel would remain uncontrolled by EPA and would only have to meet any
applicable state sulfur standards for heating oil. If a refinery
desired to only produce heating oil, then they could either purchase
credits from other refineries or segregate and mark their heating oil.
Using EIA estimated fuel consumption data for the year 2000, grown
to 2008 using EPA NONROAD emission model growth rates for nonroad and
EIA growth rates for other fuels, produces the NRLM baseline
percentages shown in Table IV-2.

Table IV-2--NRLM Diesel Fuel Baseline Percentages
----------------------------------------------------------------------------------------------------------------
Breakdown of High Sulfur Distillate Fuel
Production (In percent)
PADD -----------------------------------------------
Loco and
Nonroad marine Combined
----------------------------------------------------------------------------------------------------------------
1 and 3......................................................... 26 16 42
2............................................................... 57 27 84
4............................................................... 67 29 96
5 (excluding Alaska)............................................ 59 18 77
Alaska.......................................................... 22 28 50
----------------------------------------------------------------------------------------------------------------

One particular concern with this NRLM baseline approach is whether
refiners can easily respond to above average demand for heating oil
(e.g., in unusually cold winter). As today, any short-term, unexpected
increases in demand will be made up from existing inventories of fuel.
Today, if there are insufficient inventories of high sulfur fuel, 500
ppm inventories are tapped as well. The same situation will continue to
occur in the future. As a result, the issue is not one of being able to
supply the market with sufficient fuel to meet demand, but rather what
quality of fuel must be produced to build inventories back up after
high demand has brought them down. This could be addressed in a number
of ways. First, in setting the NRLM baseline itself we could make sure
it is not too high and allows for sufficient volumes of high sulfur
heating oil to be produced even in the event of an unusually cold
winter. Second, we could allow credits to flow across the country
through a nationwide credit trading program. This would allow the
production of high sulfur fuel to likewise flow across the country to
the places experiencing higher than normal demand. Third, provisions
could be made for deficit carry over of credits. If demand for high
sulfur fuel is unusually high in one year, a refiner could increase
production to respond to that demand as long as it is made up the
following year.
Another concern raised by this baseline approach is the inability
to accurately tailor it to each refinery's actual historical production
of NRLM. This NRLM baseline approach does reflect the historical
practice for the industry as a whole--refineries produced fungible high
sulfur fuel for distribution as a common pool of fuel that was later
sold as either NRLM or heating oil. However, it does not allow for
refinery specific customization. The proposed non-highway baseline
approach determines the specific non-highway percentage for each
refinery, and the actual volume of marked and dyed heating oil is
allowed to vary. The lack of individual specificity for the NRLM
baseline approach, however, avoids the need to add a marker to heating
oil.

[[Page 28412]]

iii. Combined Impact of Highway and NRLM Baselines
These baselines, as with the proposed non-highway baseline, are set
on the basis of a percentage of production. Therefore, as a refinery's
overall production of diesel fuel rises and falls, the required volume
of each grade of fuel will also rise and fall. Thus, the baselines are
flexible enough to respond to changes in a refinery's market or
situation. Furthermore, a nationwide credit trading program for 500 ppm
NRLM fuel could be put in place, allowing refineries further
flexibility to change production in response to consumer demand. To add
additional flexibility we could allow for some deficit carry-over of
NRLM credits. Finally, a refinery could always avoid use of the
baselines entirely by dyeing or marking their fuel and ensuring that it
is only used in appropriate end-uses.
The combined effect of the highway baseline and NRLM baseline is
shown in Table IV-3.

Table IV-3--Combined Impact of the Highway and NRLM Baselines for June 1, 2007--May 31, 2010
----------------------------------------------------------------------------------------------------------------
Sulfur level Percentage requirement
----------------------------------------------------------------------------------------------------------------
15 ppm.............................. £ or = 80% x (highway baseline) or;
£ or = 80% x All undyed diesel fuel (whichever is less)
15+500 ppm.......................... £ or = (highway baseline) + (NRLM baseline)(100% highway
baseline) or;
= All fuel without a marker and segregated through to the end-user
----------------------------------------------------------------------------------------------------------------

An example will help to explain the use of these baselines. Assume
a refinery in PADD 3 produces 100,000,000 gallons of diesel fuel and
heating oil per year from 2003-5, 60 percent of which is undyed. Its
highway baseline would thus be 60 percent of its total diesel fuel and
heating oil production. Its NRLM baseline, assigned by EPA from Table
IV-2, would be 42 percent applied to the remaining 40 percent of total
distillate, or 16.8 percent of total distillate. If the refinery then
continues to produce a total of 100,000,000 gallons of diesel fuel in
2008, 60,000,000 gallons would be required to meet the highway 80/20
standards, i.e., 48,000,000 at 15 ppm and 12,000,000 at 500 ppm. An
additional 16.8 percent, or 16,800,000 gallons would be required to
meet the 500 ppm NRLM standard, for a total required 500 ppm production
of 28,800,000 gallons. Its remaining 23,200,000 gallons of production
could remain uncontrolled and could be sold as heating oil or high
sulfur NRLM. If the refiner reduced this 23,200,000 gallons to 500 ppm
it would then earn credits that could be sold to another refiner.
b. Locomotive and Marine Baseline for 2010
The proposed non-highway baseline percentage approach described
above relies on a marker to distinguish locomotive and marine diesel
fuel from nonroad diesel fuel after June 1, 2010. Just as in the
alternative above, a baseline for locomotive and marine fuel could be
used in lieu of a marker. The 2010 locomotive and marine baseline would
be established by EPA and used in the same manner as described above
for the NRLM baseline in 2007. Possible locomotive and marine baselines
are shown in Table IV-2. The advantage of this baseline approach over
the proposed approach is that it allows for the fungible distribution
of 500 ppm locomotive and marine fuel with 500 ppm nonroad fuel
produced through the credit and hardship provisions. As a result, this
approach would allow for greater flexibility in using the diesel fuel
credit and hardship provisions. The disadvantage, however, is that
refiners wishing to produce locomotive and marine fuel in quantities
larger than their baseline would have to purchase credits from other
refiners.
It may be possible for each refiner and importer to track the use
of its diesel fuel to determine what percentage was used by railroads
and marine vessels. This information could then be used in lieu of the
PADD average values shown in Table IV-2. However, this approach would
have to be taken by every refinery and importer to avoid double
counting. Any new refineries or importers would still be assigned a
locomotive and marine baseline from Table IV-2. Tracking diesel fuel
use in this instance could be feasible, since the number of railroads
and marine terminals is relatively small. We request comment on this
alternative approach and details of how such an approach could be
implemented.
c. Designate and Track Volumes in 2007
One main benefit of the proposed non-highway baseline approach is
to allow 500 ppm highway and 500 ppm NRLM diesel fuel to be fungibly
distributed while still ensuring achievement of the benefits of the
highway program. In developing the proposal, several refiners
recommended another possible approach, referred to here as the
``designate and track'' approach. It was suggested as a replacement for
the proposed non-highway baseline approach. After further discussion, a
modified designate and track approach was also described as an
alternative for refiners to choose from, in addition to the baseline
and dye alternatives. We discuss both of these designate and track
approaches below.
We invite comment on these designate and track approaches. However,
we are not proposing them for a number of reasons as discussed in more
detail below. We are concerned that such an approach could reduce the
volume of 15 ppm fuel required to be produced under the highway
program, eroding environmental benefits and calling into question
availability of 15 ppm highway fuel. This concern is compounded by
serious concerns with respect to the workability and enforceability of
such a program, particularly if it is a replacement for the baseline
approach. We are also concerned that such an approach would place too
much burden on the many entities, including many small entities, in the
distribution system. Unlike the situation with the existing highway
diesel program, the downstream parties, not the refiners, would be
liable if insufficient 15 ppm highway diesel fuel was produced and
distributed. Finally, these concerns would appear to be reduced if the
designate and track approach were to be allowed as a choice for
refiners. However, it may then be of such limited usefulness that it is
of little value and only adds program complexity. We are interested in
comments describing how these concerns could be addressed in order to
implement such an approach.

[[Page 28413]]

i. Designate and Track as a Replacement for the Non-Highway Baseline
Approach
Under the designate and track approach, a refiner or importer would
designate its 500 ppm diesel fuel as highway diesel fuel or NRLM diesel
fuel and this refiner designation would be used to differentiate
highway fuel and NRLM fuel instead of the non-highway baseline. For
example, the highway 80/20 requirement would only apply to the amount
of diesel fuel designated by the refinery or importer as highway diesel
fuel. A marker would still be used to segregate heating oil, but the
dye requirement for NRLM at the refinery gate would be removed. As with
the baseline approach, undyed 500 ppm highway and 500 ppm NRLM could be
fungibly distributed up until the point the NRLM diesel fuel is dyed.
These refiner designations would have to follow the fuels through the
distribution system. Under this designate and track approach, fuel
distributors would be required to ensure that they did not sell more
diesel fuel to the highway market than they took in as highway fuel.
For example, if 60% of the fuel they took in was originally designated
by the refineries as NRLM, they could not sell more than 40% to the
highway market. The refiner or importer would have no obligation to
ensure this occurred and no liability if it did not occur.
This approach shifts the focus from monitoring and enforcement of
production at the refinery gate to monitoring and enforcement of the
volumes of fuel handled by each party in the distribution system. Under
the designation and track approach, refiners and importers would have
complete flexibility to designate individual batches of diesel fuel or
even portions of batches as either highway fuel or NRLM fuel. A
pipeline could mix undyed highway 500 ppm and NRLM diesel fuels and
ship them fungibly as a single physical batch as in the non-highway
baseline approach. However, two sets of records would be kept, one
applicable to the highway fuel portion and one applicable to the NRLM
fuel portion. Whenever all or a portion of the fungible batch was split
off or sold, that portion would have to carry one of the two
designations, highway or NRLM. The sum of the volumes designated as
either fuel would always be required to add up to the volumes
designated in the original batch. A combination of fungibly mixed
batches would be handled similarly, with the total volumes of each
designation of volume split off or sold equaling the sum of the volumes
of each designation of the original batches, respectively.
Each party in the distribution system beyond the refinery gate
would be required to reconcile the volumes taken in and the volumes
discharged, based on the designations of the diesel fuel, annually. For
example, assume that over a year a pipeline received a total of
100,000,000 gallons of undyed 500 ppm diesel fuel from various
refineries, with 70% of what it received being designated by the
refiners as highway and 30% designated as NRLM. Over the year the
pipeline would also designate what it discharged at various terminals
or other points as either highway or NRLM. The pipeline would have to
ensure that over a year's time it did not discharge more than 70% of
the volume of this entire pool of 500 ppm diesel fuel as highway diesel
fuel, to ensure that fuel designated as NRLM was not inappropriately
converted to highway use. It could not discharge more 500 ppm fuel as
highway than it took in as highway, and it would have to discharge at
least as much 500 ppm diesel fuel designated as NRLM as it took in.
This same reconciliation process would apply to every party in the
distribution system.
A primary advantage of this designate and track approach for
refiners is that it would allow them complete flexibility in deciding
how much 15 ppm highway diesel fuel to produce, allowing them to react
to changing market conditions. As long as 80 percent of whatever volume
they designated as highway was 15 ppm, they would be in compliance.
However, in order to maintain the integrity of the highway program, EPA
would have to ensure that all diesel fuel designated as NRLM eventually
was dyed and sold to the NRLM market. Otherwise, for example, refiners
and importers could simply designate diesel fuel under the more lenient
NRLM diesel fuel program while downstream in the distribution system
the fuel was shifted to the highway diesel fuel market. Such shifting
would compromise the required 80/20 split between 15 ppm and 500 ppm
highway diesel fuel and undermine the benefits and integrity of the
highway program. Various refiners proposed that EPA compare the volume
of all diesel fuel designated as NRLM by the refineries and importers
nationwide and compare that with the volume dyed nationwide to
determine whether the approach was working. Unfortunately, this
approach is not feasible, since EPA could not determine and take
corrective action against refiners, importers, or distributors if the
designated and dyed volumes did not reconcile. To locate the cause of a
discrepancy between the designated and dyed volumes, EPA would have to
audit the records of every party in the distribution system nationwide.
The refiners and importers would not face any liability under this
approach for any downstream discrepancy unless there was evidence of
collusion with downstream entities.
Thus, under this designate and track approach, EPA would need to
require that all parties handling undyed diesel fuel designated as NRLM
maintain records for each batch of fuel shipped and received and submit
reports periodically demonstrating that the volume of undyed NRLM
designated fuel that they dyed plus that transferred undyed to another
fuel distributor equaled or exceeded the volume of undyed NRLM
designated fuel that they received.\248\ We would also need to require
that all parties handling dyed or undyed NRLM diesel fuel maintain
records and submit reports demonstrating that the volume of NRLM
designated fuel that they received was sold for use in nonroad,
locomotive or marine diesel engines or transferred with the same
designation to another fuel distributor. These requirements would be
applied on an annual basis, providing fuel distributors with
flexibility to shift fuel designated for one use to the other market
and vice versa to address short term supply fluctuations of each fuel
but still maintain overall program integrity.
---------------------------------------------------------------------------

\248\ If the volume of dyed NRLM fuel exceeded the designated
volume, this would imply that some highway 500 ppm fuel was dyed.
This would not compromise the required 80/20 split between 15 ppm
and 500 ppm fuel under the highway program, although the total
social cost of producing the fuel would be higher.
---------------------------------------------------------------------------

Given the large number of entities involved in distributing diesel
fuel and the number of transactions, there are a number of serious
practical concerns regarding the enforceability of such an approach.
Under the baseline approach described above, enforcement is focused on
the roughly 128 refineries producing either highway or NRLM diesel
fuel. This designation and track approach would add the various
entities in the distribution system. In order to improve the chances of
effectively enforcing the program, we would at a minimum have to limit
the scope of the entities involved to bulk terminals and entities
upstream. Thus, all NRLM diesel fuel would have to exhibit visible
evidence of dye after leaving a large bulk terminal. Even with this
limitation, there would be as many as 100 pipelines and 1000 terminals
reporting. Enforcement of such an approach would be difficult because
to determine whether inappropriate changes in

[[Page 28414]]

designation occurred by a given entity, the records of each entity from
which it received fuel and to which it sent fuel over the course of an
entire year would also have to be compared. An electronic reporting
mechanism would likely have to be set up to facilitate reporting and to
track the volumes of fuel received and shipped out by each entity in
the distribution system down to the terminal. If any entity in the
distribution system were unable to verify through their records that
they distributed the same amount or more of NRLM fuel as they took in
with this designation, then they, not the refiners, would be presumed
liable for violating the provisions of the highway rule. Therefore, in
addition to our concerns of ensuring compliance, we invite comment on
the appropriateness of shifting the compliance burden for tracking fuel
volumes, maintaining records, reporting to the Agency, and responding
to enforcement audits from the refiners to the downstream parties,
particularly since many of these entities are small businesses.
In addition to the number of entities involved and transactions
needing to be tracked, there are a number of complications which would
make such an approach difficult to implement. First, due to
contamination in the distribution system that results in some product
being downgraded from one grade to another in the distribution system,
in actuality the volumes of fuel designated at the refinery and those
downstream will likely never match. Some means of addressing this
situation would have to be developed which did not allow fuel produced
as NRLM fuel to be subsequently sold as highway fuel. Second, kerosene
will be blended into NRLM diesel fuel in northern areas during the
winter months. It is difficult to understand how refiners would be able
to designate portions of this fuel as NRLM fuel or highway fuel at the
refinery gate given its many other uses. Therefore, this would further
disrupt the volume reconciliation. Third, it would not always be
entirely clear who should be the entity responsible for compliance,
recordkeeping, and reporting. In many cases in the distribution system
there are entities who have custody of the fuel while a variety of
other entities maintain ownership. A means of sorting out who the
responsible party was under such circumstances would have to be
determined.
One of the advantages of the proposed baseline approach is that
once 500 ppm fuel leaves the refinery gate, the distribution system has
complete flexibility to shift it to either the highway or the NRLM
markets to respond to changing market conditions. Conversely, as
discussed above, one of the main advantages of the designate and track
approach is that it allows refiners complete flexibility to modify
their relative production of 15 ppm and 500 ppm fuel by their choice of
designations (highway or NRLM). However, the market will demand a
certain volume of highway fuel and NRLM fuel, and these decisions will
be made downstream. If the market demands more highway diesel fuel than
what the refiners designated as highway on an annual basis, then under
the designate and track approach the terminals will be restricted from
responding to this market change. They could shift NRLM fuel into the
highway market on a temporary basis, but by the end of the year, they
would have to be able to reconcile their highway and NRLM volumes.
Given the refiner's inability to predict future demand precisely, and
their economic incentive to produce as little 15 ppm diesel fuel as
possible, there is a real possibility that some terminals could find
themselves in a noncomplying situation. Were this to occur, a terminal
would be faced with two difficult choices. They could stop shipping
highway diesel fuel, in which case they would not only fail to deliver
on their contracts to their customers, but would also constrain highway
diesel fuel supply, raising market prices. Or, they could continue to
respond to market pressure and sell additional volumes of fuel
designated as NRLM into the highway market. In this case, they would
risk significant non-compliance penalties from EPA, were we able to
detect the violation. Thus, we are concerned that the designate and
track approach could result in either widespread noncompliance or
disruption of the fuel distribution system.
We are also concerned that the designate and track approach would
not maintain the benefits and integrity of the highway program. Nearly
a third of all non-highway distillate today is produced to the highway
specifications due primarily to limitations in the distribution system.
The sulfate PM and SO₂ emission benefits predicted from the
highway rule, and the assumptions with respect to program cost and fuel
availability, were all based on the assumption that 80% of this
spillover volume would comply with the 15 ppm highway standard and
would be available for highway use if needed. Under the proposed dye
approach, in the future this ``spillover'' from the highway market
could technically be dyed at the refinery gate to avoid compliance with
the 2006 highway standards. However, our expectation is that the
majority of the spillover today would continue into the future as it
would be costly to significantly change the current distribution
practices. While the dye approach would not ensure this and spillover
could decline, it would be unlikely to drop significantly. Similarly,
the proposed baseline approach would maintain spillover at historical
rates (either 2003-5 the average level or June 1, 2006--May 31, 2007,
level). However, under the designate and track approach, wherever
undyed 500 ppm was distributed as a grade of fuel, the prior spillover
volume could instead be designated as NRLM fuel, and would no longer be
subject to the highway program standards (i.e., 80 percent of it would
no longer have to meet the 15 ppm sulfur standard.). The segregation
and associated cost that previously led to spillover would be gone. As
a result, the benefits projected from this fuel volume under the
highway rule would be reduced. Furthermore, with the reduced volume of
15 ppm fuel produced, we would need to reevaluate whether sufficient 15
ppm fuel would still be available in all parts of the country for the
vehicles that would need it. The areas where availability of 15 ppm
fuel would be of greatest concern would be those areas where 500 ppm
fuel would be distributed and spillover would decline under the
designate and track approach. The enforcement concerns cited in the
paragraphs above only serve to heighten this concern.
EPA requests comments on the practical viability of this approach.
In addition to the issues noted above, we specifically request comments
on the following:
(1) What would be the impacts of this approach on fuel
distributors?
(2) What information would need to be kept and/or reported?
(3) How might the required reports be automated in a common,
electronic format?
(4) How often should reports be required (e.g., annually,
quarterly, each batch if electronically)?
(5) How might`the record keeping requirements be combined with
those already required by the U.S. Internal Revenue Service?
(6) How would the record keeping requirements work for pipelines
and certain terminals that handle fuel without taking ownership and
that do not control the decision to dye certain diesel fuel prior to
sale?
(7) How might the IRS records for refiners, importers and
distributors be used as an independent check on the

[[Page 28415]]

volumes of undyed diesel fuel handled which are eventually dyed and
which are sold undyed?
(8) What would be the cost associated with the tracking, record
keeping and reporting?
(9) Could the industry utilize independent auditors to simplify
EPA's enforcement oversight?
(10) Could refiners feasibly be responsible to ensure the necessary
volumes are dyed downstream at the terminal rather than placing the
responsibility and liability with the fuel distributors?
(11) What changes could be made to the program to avoid losing the
benefits of the highway program (e.g., avoid loss in production of 15
ppm attributable to the spillover volume)?
ii. Designate and Track as a Refiner's Option in Addition to the
Baseline Approach
Several refiners indicated that the designate and track approach
should be considered as an option in addition to the baseline approach.
Including the designate and track approach as a refiner's option,
however, would significantly alter the design and implications of the
approach.
With such an approach, no longer could compliance be determined
simply on the basis of whether a terminal dyed at least as much volume
of diesel fuel as the volume received designated as NRLM 500 ppm fuel,
since the dyed diesel fuel could have been produced under either the
non-highway baseline approach or the designate and track approach. In a
situation where volumes produced under the designate and track approach
are fungibly distributed with volumes produced under the baseline
approach, there is no clear way to identify whether dyed volumes have
been accurately reconciled under the designate and track approach,
risking significant loss in the benefits expected from the highway
program.
For example, assume a terminal receives a certain volume of undyed
diesel fuel and 30% of it was originally designated by the refinery as
NRLM under the designate and track approach. The remaining 70% would
have been produced by refineries using the non-highway baseline
approach. Some significant portion of the 70% produced by refineries
under the baseline approach would have been produced subject to the 500
ppm standard for the NRLM market, not the standards for highway market,
and produced with the expectation that it could later be dyed at the
terminal. If the terminal dyes only 30% of the entire volume it
receives, there is every expectation that some or even all of that 30%
could have been produced by refineries using the baseline approach, and
should not be counted towards the volume reconciliation under the
designate and track approach. If all of the 30% of dyed diesel fuel was
produced by refineries using the baseline approach, then the terminal
would have effectively sold into the highway market all of the fuel
received as NRLM under the designate and track approach.
Thus, in order to allow for volumes to be reconciled using such an
approach, we concluded that fuel distributors would have to track which
refinery or importer the fuel came from and how they disposed of the
fuel for that refinery or importer, in addition to whether it was NRLM
or highway. Thus, allowing the designate and track approach as a
refiner's option would add one more layer of complexity to the
tracking, recordkeeping, and reporting.
The following example explains how the approach could work in
theory. Over the course of a year, a terminal receives 6 million
gallons of 500 ppm diesel fuel identified as baseline fuel from
refinery A, 2 million gallons of 500 ppm diesel fuel designated as
``designate and track'' NRLM fuel from refinery B, and 2 million
gallons of 500 ppm diesel fuel designated as ``designate and track''
highway fuel from refinery B. At the end of the year, the terminal
would have had to have dyed at least 2 million gallons of the fuel it
received from refinery B and delivered it to or on behalf of that
refinery as dyed NRLM. (If they do not deliver the fuel back to the
entity that designated the fuel, then the dyed fuel could have been
baseline fuel from refinery A, and we could not enforce the dyeing of
the designate and track fuel volume from refinery B.) The terminal
would need to do this separately for each refinery or importer from
which it received designate and track diesel fuel.
Based on the above discussion, we believe that in order to have an
enforceable program, only those refineries and importers who maintain
ownership of the fuel all the way through the pipeline and terminal
could take advantage of the option to designate and track their fuel.
This could be a very small subset of refiners since they would have to
maintain ownership of all of their NRLM diesel fuel distributed through
all of its distribution pathways to the point where the fuel is dyed.
If this were a very small subset, then it would raise questions as to
whether the flexibility of this approach would be worth the added
program and enforcement complexity.
Since the pipelines and terminals in this situation are basically
providing a service to these refineries and importers, transporting
their fuel and dyeing it for them, a different responsibility and
liability scheme could be considered. Instead of the fuel distributors
being solely responsible for recordkeeping and reporting to the Agency
and liable for any violations, it might be possible to leave this
burden with the refiner. The refiner could be responsible for ensuring
that they took delivery from a terminal of at least as much dyed NRLM
diesel fuel as they sent undyed NRLM to that terminal from their
refinery gate. The refiner would be responsible for collecting and
maintaining the records from the various points in the distribution
system to demonstrate compliance and to submit an annual report
demonstrating compliance. At the same time EPA would have to be able to
verify the refiner's report and as a result, fuel distributors may
still have to maintain records.
For the baseline approach to exist simultaneously with the
designate and track approach, a refinery or importer would have to
choose which approach to utilize and maintain that approach. We could
consider allowing the refinery to change approaches on a year to year
basis, as with the baseline and dye alternatives.
EPA requests comment on the designate and track approach as a
refinery's option and whether it could be enforced as described above.
EPA specifically requests comment on:
(1) The advantages and disadvantages of placing the recordkeeping,
reporting, and liability burden on the refinery of the designate and
track approach if it is an option along with baseline approach;
(2) If this responsibility were not place on the refiners, what
level of voluntary participation would occur among fuel distributors
(e.g., pipelines and terminals) and how might EPA structure a viable
enforcement oversight program;
(3) What level of voluntary refinery participation would occur and
whether it warrants the added program complexity;
(4) The extent to which this approach might reduce 15 ppm highway
diesel production (i.e., reduced spillover to non-highway markets)
(5) What would be the cost associated with the tracking, record
keeping and reporting?

[[Page 28416]]

C. Hardship Provisions for Qualifying Refiners

1. Hardship Provisions for Qualifying Small Refiners
In developing our proposed off-highway diesel sulfur program, we
evaluated the need and the ability of refiners to meet the 500 and 15
ppm standards as expeditiously as possible. We believe it is feasible
and necessary for the vast majority of the program to be implemented in
the proposed time frame to achieve the air quality benefits as soon as
possible. Based on information available from small refiners and
others, we believe that refineries owned by small businesses generally
face unique hardship circumstances, compared to larger refiners. Thus,
as discussed below, we are proposing several special provisions for
refiners that qualify as ``small refiners'' to reduce the
disproportionate burden that nonroad diesel sulfur requirements would
have on these refiners.\249\
---------------------------------------------------------------------------

\249\ The proposed small refiner provisions would not apply to
importers, as the burden from capital expenditures for physical
refinery improvements are not imposed on importers.
---------------------------------------------------------------------------

a. Qualifying Small Refiners
EPA is proposing several special provisions that would be available
to companies approved as small refiners. The primary reason for these
provisions is that small refiners generally lack the resources
available to large companies that help large companies, including those
large companies that own small-capacity refineries, to raise capital
for investing in desulfurization equipment, such as shifting of
internal funds, securing of financing, or selling of assets. Small
refiners are also likely to have more difficulty in competing for
engineering resources and completing construction of the needed
desulfurization equipment in time to meet the standards proposed today.
Since small refiners are more likely to face hardship circumstances
than larger refiners, we are proposing temporary provisions that would
provide additional time to meet the sulfur standards for refineries
owned by small businesses. This approach would allow the overall
program to begin as early as possible, avoiding the need for delay in
order to address the ability of small refiners to comply.
i. Regulatory Flexibility for Small Refiners
As explained in the discussion of our compliance with the
Regulatory Flexibility Act in section X.C and in the Initial Regulatory
Flexibility Analysis in chapter 11 of the Draft RIA, we considered the
impacts of the proposed regulations on small businesses. Most of our
analysis of small business impacts was performed as a part of the work
of the Small Business Advocacy Review (SBAR) Panel convened by EPA,
pursuant to the Regulatory Flexibility Act as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). The
final report of the Panel is available in the docket for this proposed
rule.
For the SBREFA process, EPA conducted outreach, fact-finding, and
analysis of the potential impacts of our regulations on small
businesses. Based on these discussions and analyses by all panel
members, the Panel concluded that small refiners in general would
likely experience a significant and disproportionate financial hardship
in reaching the objectives of the proposed nonroad diesel fuel sulfur
program.
One indication of this disproportionate hardship for small refiners
is the relatively high cost per gallon projected for producing nonroad
diesel fuel under the proposed program. Refinery modeling of refineries
owned by refiners likely to qualify as small refiners, and of non-small
refineries, indicates significantly higher refining costs for small
refiners. Specifically, we project that without special provisions,
refining costs for small refiners on average would be about 5.5 cents
per gallon compared to about 4.0 cents per gallon for non-small
refiners.
The Panel also noted that the burden imposed on the small refiners
by the proposed sulfur standards may vary from refiner to refiner.
Thus, the Panel recommended more than one type of burden reduction
measure so that most if not all small refiners could benefit. We have
continued to consider the issues raised during the SBREFA process and
have decided to propose each of the provisions recommended by the
Panel.
ii. Rationale for Small Refiner Provisions
Generally, we structured these proposed provisions to reduce the
burden on small refiners while expeditiously achieving air quality
benefits and ensuring that the availability of 15 ppm nonroad diesel
fuel would coincide with the introduction of 2011 model year nonroad
diesel engines and equipment. We believe the proposed special
provisions for small refiners are necessary and appropriate.
First, the proposed compliance schedule for the nonroad diesel
program, combined with flexibility for small refiners, would achieve
the air quality benefits of the program as soon as possible, while
helping to ensure that small refiners will have adequate time to raise
capital for new or upgraded fuel desulfurization equipment. Most small
refiners have limited additional sources of income beyond refinery
earnings for financing and typically do not have the financial backing
that larger and generally more integrated companies have. Therefore,
they can benefit from additional time to accumulate capital internally
or to secure capital financing from lenders.
Second, we recognize that while the sulfur levels in this proposed
program can be achieved using conventional refining technologies, new
technologies are also being developed that may reduce the capital and/
or operational costs of sulfur removal. Thus, we believe that allowing
small refiners some additional time for newer technologies to be proven
out by other refiners would have the added benefit of reducing the
risks faced by small refiners. The added time would likely allow for
small refiners to benefit from the lower costs of these improvements in
desulfurization technology (e.g., better catalyst technology or lower-
pressure hydrotreater technology). This would help to offset the
financial burden facing small refiners.
Third, providing small refiners more time to comply would increase
the availability of engineering and construction resources. Most
refiners would need to install additional processing equipment to meet
the nonroad diesel sulfur requirements. We anticipate that there may be
significant competition for technology services, engineering resources,
and construction management and labor. In addition, vendors will be
more likely to contract their services with the larger refiners first,
as their projects will offer larger profits for the vendors.
Temporarily delaying compliance for small refiners would spread out the
demand for these resources and probably reduce any cost premiums caused
by limited supply.
We discuss below the provisions we are proposing to minimize the
degree of hardship for small refiners. With these provisions we are
confident about going forward with the 500 ppm sulfur standard for NRLM
diesel fuel in 2007 and the 15 ppm sulfur standard for nonroad diesel
fuel in 2010 for the rest of the industry. Without small refiner
flexibility, EPA would have to consider delaying the overall program
until the burden of the program on many small refiners were diminished,
which would delay the air quality benefits of the overall program. By
providing

[[Page 28417]]

temporary relief to small refiners, we are able to adopt a program that
expeditiously reduces off-highway diesel sulfur levels in a feasible
manner for the industry as a whole.
iii. Limited Impact of Small Refiner Options on Program Emissions
Benefits
Small refiners that choose to make use of the delayed nonroad
diesel sulfur requirements would also delay to some extent the emission
reductions that would otherwise have been achieved. However, the
overall impact of these postponed emission reductions would be small,
for several reasons.
First, small refiners represent only a fraction of national non-
highway diesel production. Today, refiners that we expect would qualify
as small refiners represent only about 6 percent of all high-sulfur
diesel production. Second, the proposed delayed compliance provisions
described below would affect only engines without new emission
controls. During the first step to 500 ppm NRLM fuel, small refiner
nonroad fuel could be well above 500 ppm, but the new advanced engine
controls would not yet be required. During the second step to 15 ppm
nonroad diesel fuel, equipment with the new controls would be entering
the market, but use of the 500 ppm small refiner fuel would be
restricted to older engines without the new controls. There would be
some loss of sulfate PM control in the older engines that operated on
higher sulfur small refiner fuel, but no effect on the major emission
reductions that the proposed new engine standards would achieve
starting in 2011. Finally, because small diesel refiners are generally
dispersed geographically across the country, the limited loss of
sulfate PM control would also be dispersed.
One proposed small refiner option would allow a modest 20%
relaxation in the gasoline sulfur interim standards for small refiners
that produce all nonroad diesel fuel at 15 ppm by June 1, 2006. To the
extent that small refiners elected this option, a small loss of
emission control from Tier 2 gasoline vehicles that used the higher
sulfur gasoline could occur. We believe that such a loss of control
would be very small. A very few small refiners would be in a position
to use this provision. Further, the relatively small production of
gasoline with slightly higher sulfur levels should have no measurable
impact on the emission of new Tier 2 vehicles, even if the likely
``blending down'' of sulfur levels did not occur as this fuel mixed
with lower sulfur fuel during distribution. This provision would also
maintain the maximum 450 ppm gasoline sulfur per-gallon cap standard in
all cases, providing a reasonable sulfur ceiling for any small refiners
making use of this provision.
b. How Do We Define Small Refiners for Purposes of the Hardship
Provisions?
The definition of small refiner for the proposed nonroad diesel
program is basically the same as our small refiner definitions in the
Tier 2/Gasoline Sulfur and Highway Diesel rules. A small refiner must
demonstrate that it meets both of the following criteria:
? No more than 1,500 employees corporate-wide, based on the
average number of employees for all pay periods from January 1, 2002 to
January 1, 2003.
? A corporate crude oil capacity less than or equal to
155,000 barrels per calendar day (bpcd) for 2002.
As with the earlier fuel sulfur programs, the dates for the
employee count and for calculation of the crude capacity represent the
latest complete years prior to the issuing of the proposed rule.
In determining the total number of employees and crude oil
capacity, a refiner must include the number of employees and crude oil
capacity of any subsidiary companies, any parent company and
subsidiaries of the parent company, and any joint venture partners. We
define a subsidiary of a company to mean any subsidiary in which the
company has a 50 percent or greater ownership interest. However, we are
proposing that a refiner be eligible for small refiner status if it is
owned and controlled by an Alaska Regional or Village Corporation
organized under the Alaska Native Claims Settlement Act (43 U.S.C.
1626), regardless of number of employees and crude oil capacity. Such
an exclusion would be consistent with our desire to grant relief from
the regulatory burden to that part of the industry that can least
afford compliance. We believe that very few refiners, probably only
one, would qualify under this provision. Similarly, we are proposing to
incorporate this exclusion into the small refiner provisions of the
highway diesel and gasoline sulfur rules, which did not address this
issue.
As with the earlier fuel sulfur rules, we are proposing that a
refiner that restarts a refinery in the future may be eligible for
small refiner status. Thus, a refiner restarting a refinery that was
shut down or non-operational between January 1, 2002, and January 1,
2003, could apply for small refiner status. In such cases, we would
judge eligibility under the employment and crude oil capacity criteria
based on the most recent 12 consecutive months unless we conclude from
data provided by the refiner that another period of time is more
appropriate. Companies with refineries built after January 1, 2002,
would not eligible for the small refiner hardship provisions.
2. The Effect of Financial Transactions on Small Refiner Status and
Small Refiner Relief Provisions
During the implementation of the gasoline sulfur and highway diesel
sulfur programs, several refiners have raised concerns about how
various kinds of financial transactions would affect implementation of
the small refiner fuel sulfur provisions. The kind of transactions
typically involve refiners with approved small refiner status that are
involved in potential or actual sales of the small refiner's refinery,
or involve the purchase by the small refiner of another refinery or
other non-refining asset. We believe that these concerns are also
relevant to the small refiner provisions proposed below for the nonroad
diesel sulfur program.
a. Large Refiner Purchasing a Small Refiner's Refinery
One situation involves a ``non-small'' refiner that wishes to
purchase a refinery owned by an approved small refiner. The small
refiner may not have completed or even begun refinery upgrades to meet
the long-term fuel sulfur standards, since it is making use of the
special small refiner relief provisions. This situation is of most
concern where the purchase is to take place near or after the beginning
of the gasoline or highway diesel sulfur programs. Under the existing
gasoline sulfur and highway diesel sulfur programs, once such a
purchase is completed, the ``non-small'' purchaser would not have the
benefit of the small refiner relief provisions that had applied to the
previous owner.
The purchasing refiner would have to perform the necessary upgrades
to meet the ``non-small'' sulfur standards. As the gasoline sulfur and
highway diesel sulfur provisions exist today, such a refiner would be
left with very little or (if the respective fuel sulfur control program
has already begun) no lead time for compliance. The refiners that have
raised this issue have claimed that refiners in this situation would
not be able to comply with the ``non-small refiner'' standards upon
acquisition of the new refinery. These refiners claim that this could
prevent them from purchasing a refinery from a small refiner and, as a
result, this would severely limit the ability of small refiners to sell
such an asset. The refiners that have raised this issue have

[[Page 28418]]

said that some sort of ``grace period'' of additional lead time before
the non-small refiner sulfur standards take effect would address this
issue.
We believe these concerns are valid and are proposing that an
appropriate period of lead time for compliance with the nonroad diesel
sulfur requirements be provided where a refiner purchases any refinery
owned by a small refiner, whether by purchase of the refinery or
purchase of the small refiner entity. We propose that a refiner that
acquires a refinery from an approved small refiner be provided 24
additional months from the date of the completion of the purchase
transaction (or until the end of the applicable small refiner relief
interim period if it is within 24 months--June 1, 2010, for 500 ppm
fuel and June 1, 2014, for 15 ppm fuel). During this interim period,
production at the newly-acquired refinery could remain at the interim
sulfur levels that applied to that refinery for the previous small
refiner owner under the small refiner options discussed below. At the
end of this period, the refiner would need to comply with the ``non-
small refinery'' sulfur standards.
We expect that in most if not all cases, the proposed 24 months of
additional lead time would be sufficient for the new refiner-owner to
accomplish the necessary engineering, permitting, construction, and
start-up of the necessary desulfurization project, since planning for
this could be expected to be a part of any purchase decision. If a
refiner nonetheless believed that the technical characteristics of its
planned desulfurization project would require additional lead time, the
refiner could apply for additional time and EPA would consider such
requests on a case-by-case basis. Such an application would be based on
the technical factors supporting the need for more time and include
detailed technical information and projected schedules for engineering,
permitting, construction, and startup. Based on information provided in
such an application and other relevant information, EPA would decide
whether additional time was technically necessary and, if so, how much
additional time would be appropriate. As discussed above, in no case
would compliance dates be extended beyond the time frame of the
applicable small refiner relief provisions (June 1, 2010, for 500 ppm
fuel and June 1, 2014, for 15 ppm fuel).\250\
---------------------------------------------------------------------------

\250\ This process would be similar to the general hardship
provisions of the existing gasoline sulfur and highway diesel sulfur
programs and proposed today for nonroad diesel fuel. However, the
focus here would be simply on the lead time needed for the technical
upgrades and would not consider any claimed financial hardship.
---------------------------------------------------------------------------

During the 24 months additional lead time (and any further lead
time approved by EPA for the purchasing refiner), all existing small
refiner provisions and restrictions, as described below, would also
remain in place for that refinery. This would include the per-refinery
volume limitation on the amount of nonroad diesel that could be
produced at the small refiner standards. There would be no adverse
environmental impact of this provision, since the small refiner would
already have been provided relief prior to the purchase and this
provision would be no more generous.
b. Small Refiner Losing Its Small Refiner Status
A second situation involves a refiner with approved small refiner
status that later loses its small refiner status because it exceeds the
small refiner criteria. In the existing gasoline sulfur and highway
diesel sulfur programs, an approved small refiner that exceeds 1,500
employees due to merger or acquisition would lose its small refiner
status. (We also intended for refiners that exceeded the 155,000 barrel
per calendar day crude capacity limit due to merger or acquisition to
lose its small refiner status and we are proposing below to amend the
regulations to reflect that criterion as well.) This includes
exceedences of the criteria caused by acquisitions of assets such as
plant and equipment, as well as acquisitions of business entities.
Our intent in the gasoline and highway diesel sulfur programs, as
well as the proposed nonroad diesel sulfur program, has been and
continues to be to reserve the small refiner relief provisions for a
small subset of refiners that generally tend to face the kinds of
special challenges discussed above. At the same time, it is also our
intent to avoid stifling normal business growth among small refiners.
Therefore, we designed our existing regulations, as well as the
proposed regulations, to disqualify a refiner from small refiner status
when it exceeds the small refiner criteria through its involvement in
transactions such as being acquired by or merging with another entity
or through the small refiner itself purchasing another entity or assets
from another entity. However, as in the existing regulations, we are
proposing that if an approved small refiner were to exceed the criteria
without merger or acquisition, it would keep its small refiner status.
Consistent with our intent in the earlier fuel sulfur programs to
limit the use of the small refiner hardship provisions, we also
intended in the gasoline sulfur and highway diesel sulfur programs for
an exceedence of the other small refiner criterion--a limit of 155,000
barrels per calendar day of crude capacity--due to merger or
acquisition to be grounds for disqualifying a refiner's small refiner
status. However, we inadvertently failed to include this second
criterion as grounds for disqualification. In today's action, we
propose to resolve this error by adding the crude capacity limit to the
employee limit in this context for both the gasoline sulfur and highway
diesel sulfur programs, to begin January 1, 2004. Thus, a refiner
exceeding either criterion due to merger or acquisition would lose its
small refiner status.
We recognize that a small refiner that loses its small refiner
status because of a merger or acquisition would face the same type of
lead time concerns in complying with the non-small refiner standards as
would a non-small refiner that acquired a small refiner's refinery, as
discussed above. Therefore, we propose that the additional lead time
proposed above for non-small refiners purchasing a small refiner's
refinery also apply to this situation. Thus, this additional lead time
would apply to any refineries, existing or newly-purchased, that had
previously been subject to the small refiner program, but would not
apply to a newly-purchased refinery that is subject to the non-small
refiner standards. Again, there would be no adverse environmental
impact because of the newly-purchased small refiner's pre-existing
relief provisions.
The issues discussed in this subsection apply equally to the
gasoline sulfur and highway diesel sulfur programs. Thus, we are also
proposing that the same provisions relating to additional lead time in
cases of financial transaction be applied to the small refiner programs
in the earlier fuel sulfur programs. Because these proposed provisions
for the existing fuel sulfur programs are independent of today's
nonroad diesel fuel program, we may choose to finalize them separately
from and earlier than the identical provisions proposed for today's
nonroad rule. If this occurs, we will seek to finalize nonroad diesel
fuel provisions that are identical or as similar as appropriate to
those finalized for the gasoline sulfur and highway diesel program.
In addition, we are inviting comment on several other related
provisions we are considering:

[[Page 28419]]

(1) We propose above that a small refiner that loses its small
refiner status be granted 24 months of lead time at its existing
refineries. Should such a small refiner instead be allowed to
``grandfather in'' its existing small refiner relief program for its
existing refinery or refineries? An argument can be made that in
purchasing a new refinery or other assets, the small refiner would no
longer demonstrate the kind of financial hardship that was the basis
for general small refiner relief. However, we also do not intend to
stifle normal growth of small refiners, and ``grandfathering in'' the
small refiner interim relief program would have no environmental
impact, since it would merely continue an existing program at that
refinery.
(2) If a small refiner exceeds the small refiner criteria due to
the purchases of a non-small refiner, should the proposed additional
lead time apply to that refinery? Or should the refiner be required to
meet the non-small refiner standards on schedule at the ``new''
refinery, since the previous owner could be assumed to have anticipated
the new standards and taken steps to accomplish this prior to the
purchase?
c. What Options Are Available for Small Refiners?
We propose several provisions intended to reduce the burdens on
small refiners discussed above as well as to encourage their early
compliance whenever possible. As described below, these proposed small
refiner provisions consist of additional time for compliance and, for
small refiners that choose to comply earlier than required, the option
of either generating diesel sulfur credits or receiving a limited
relaxation of gasoline sulfur requirements.
i. Delays in Nonroad Fuel Sulfur Standards for Small Refiners
We propose that small refiners be allowed to postpone reducing
sulfur in nonroad locomotive and marine diesel fuel until June 1, 2010.
As described earlier, we are proposing that all refiners producing
nonroad diesel fuel be provided significant lead time for making the
capital and operational investments to produce 15 ppm fuel, including
about three years before the 500 ppm requirement would become
effective, and three additional years before 15 ppm was required--June
1, 2007, through May 31, 2010, when 500 ppm fuel could be produced.
While this lead time would be useful for small and non-small refiners
alike, we believe that in general small refiners would still face
disproportionate challenges, and the proposed delay in the first step
of control for small refiners would help mitigate these challenges.
Then, beginning June 1, 2010, when the second step of the proposed
base program would require 15 ppm fuel for other refiners for nonroad
diesel fuel, we propose that small refiners be required to meet a 500
ppm sulfur standard for NR diesel fuel. We propose that this interim
standard be effective for four years (until June 1, 2014), after which
small refiners would meet the 15 ppm sulfur standard for nonroad diesel
fuel. As for other refiners, the small refiner standard for locomotive
and marine diesel fuel would remain at 500 ppm. Since new engines with
sulfur sensitive emission controls would begin to become widespread
during this time, small refiners would need to segregate the 500 ppm NR
fuel and supply it only for use in pre-2011 nonroad equipment or in
locomotives or marine engines. Section VIII below discusses the
requirements for product transfer documents (PTDs) associated with the
production of 500 ppm NR fuel by small refiners during this period.
The following table illustrates the proposed small refiner NRLM and
NRdiesel standards as compared to the standards proposed in the base
nonroad diesel program. (For simplicity, the proposed locomotive and
marine diesel standards for small and non-small refiners described
above do not appear in the table.)

Table IV-4--Proposed Small Refiner Nonroad Diesel Sulfur Standards, ppm a
--------------------------------------------------------------------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015+
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-small refiners............................................ ....... 500 500 500 15 15 15 15 15 15
Small Refiners................................................ ....... ....... ....... ....... 500 500 500 500 15 15
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
a New standards would take effect in June of the applicable year.

We also request comment on a slightly different compliance schedule
that would require small refiners to produce 15 ppm nonroad diesel fuel
beginning June 1, 2013, one year earlier than proposed above. Such a
schedule would align the end of the interim small refiner provisions
with the end of the proposed phase-in for nonroad engines and equipment
and eliminate higher sulfur nonroad fuel from the distribution system
by the time all new nonroad diesel engines required 15 ppm fuel.
The proposed delayed compliance schedule for small refiners is
intended to compensate for the relatively higher compliance burdens on
these refiners. It is not intended as an opportunity for those refiners
to greatly expand their production of uncontrolled diesel fuel (2007-
2010) or 500 ppm sulfur fuel (2010-2014). To help ensure that any
significant expansion of refining capacity that a small refiner might
undertake in the future would be accompanied by an expansion of
desulfurization capacity, we are proposing that small refiners
producing higher sulfur fuel limit that production to baseline volume
levels.
Specifically, during the first step of the diesel program to 500
ppm (June 2007-June 2010), a small refiner could produce uncontrolled
NRLM diesel fuel up to the proposed non-highway baseline for that
refiner less any marked heating oil it produces, refer to sub-section B
above for an explanation of this baseline. Any diesel fuel produced
over its non-highway baseline would be subject to the 500 ppm standard
applying to other refiners. Similarly, from June 1, 2010, through May
31, 2014, a small refiner could produce nonroad diesel fuel at 500 ppm
up to the non-highway baseline less any volume of heating oil and
marked locomotive and marine diesel fuel it produced. Fuel produced in
excess of this volume would be subject to the 15 ppm nonroad diesel
standard.
ii. Options To Encourage Earlier Compliance by Small Refiners
Some small refiners have indicated that they might find it
necessary to produce fuel meeting the nonroad diesel sulfur standards
earlier than required by the small refiner program described above, for
a variety of reasons. For some small refiners, the distribution systems
might limit the number of grades of diesel fuel that will be carried.
Others might find it economically advantageous to make 500 ppm or 15

[[Page 28420]]

ppm fuel earlier so as not to lose market share. At least one small
refiner has indicated that it might decide to desulfurize its NR pool
at the same time as it desulfurized its highway diesel fuel, in June of
2006, due to limitations in its distribution system and to take
advantage of economies of scale. Given these situations, we propose
that small refiners be able to choose between two mutually exclusive
options, as an incentive for early compliance.
The first proposed option would make the diesel sulfur credit
banking and trading program discussed earlier in this section fully
applicable to small refiners. A small refiner could generate diesel
sulfur credits for production of 500 ppm NRLM diesel fuel prior to June
1, 2010, and for production of 15 ppm nonroad fuel from June 1, 2010,
through May 31, 2012. The specifics of the credit program are described
above in subsection B.2, including how they would be applicable to
small refiners. Generating and selling credits could provide funds to
defray the costs of early nonroad compliance.
The second proposed option would apply to a small refiner that
produced all of its NRLM diesel production at 15 ppm by June 1, 2006,
and elected not to use the provision described above to earn NRLM
sulfur credits for this early compliance. (As for other refiners,
locomotive and marine fuel sulfur would not be controlled in 2006 and
could meet the 500 ppm standard beginning June 1, 2007.) Such a refiner
would receive a modest revision in its interim small refiner gasoline
sulfur standards, starting January 1, 2004. Specifically, the
applicable small refiner annual average and per-gallon cap gasoline
standards would be revised upward by 20 percent for the duration of the
small refiner gasoline sulfur interim program (i.e., through either
2007 or 2010, depending on whether the refiner had extended its
participation in the gasoline sulfur interim program by complying with
the highway diesel standard at the beginning of that program (June,
2006, as provided in 40 CFR 80.552(c))). However, in no case could the
per-gallon cap exceed 450 ppm, the highest level allowed under the
gasoline sulfur program.
We believe it is very important to link any such temporary
relaxation of a small refiner gasoline sulfur interim sulfur standards
with environmental benefit of early desulfurization of a significant
volume of NRLM diesel fuel. Thus, we propose that a small refiner
wishing to use this option must produce a minimum volume of NRLM diesel
fuel at 15 ppm by June 1, 2006. Each participating small refiner would
need to produce a volume of 15 ppm fuel that was at least 85% of the
volume represented by its non-highway distillate baseline percentage.
If the refiner began to produce gasoline in 2004 at the higher interim
standard of this provision but then either failed to meet the 15 ppm
standard for its NRLM fuel by June 1, 2006, or failed to meet the 85%
minimum volume requirement, the original small refiner interim gasoline
sulfur standard applicable to that refiner would be reinstated. In
addition, the refiner would need to compensate for the higher gasoline
levels that it had enjoyed by purchasing gasoline sulfur credits or
producing an equivalent volume of gasoline below the required sulfur
levels.
Under this option, a small refiner could in effect shift some funds
from its gasoline sulfur program to accelerate desulfurization of
nonroad diesel fuel. Given the environmental benefit that would result
from the production of 15 ppm diesel fuel earlier than necessary, and
the small potential loss of emission reduction under the gasoline
sulfur program from fuel produced by the very few small refiners that
we believe would qualify under this second option, we believe the
environmental impact of this option would be neutral or positive.
d. How Do Refiners Apply for Small Refiner Status?
A refiner applying for status as a small refiner would provide EPA
with several types of information by December 31, 2004. The detailed
application requirements are summarized in section VII.E.2 below. In
general, a refiner would need to provide information about the
following for the parent company and all subsidiaries at all locations:
(1) The average number of employees for all pay periods from January 1,
2002, through January 1, 2003; (2) total corporate crude refining
capacity; and (3) an indication of which small refiner option the
refiner is likely to use (see subsection c. above). As with
applications for relief under other rules, applications for small
refiner status under this proposed diesel rule that were later found to
contain false or inaccurate information would be void ab initio.
2. General Hardship Provisions
a. Temporary Waivers from Non-highway Diesel Sulfur Requirements in
Extreme Unforseen Circumstances
We are proposing a provision which, at our discretion, would permit
any domestic or foreign refiner to seek a temporary waiver from the
nonroad, locomotive, or marine diesel sulfur standards under certain
rare circumstances. This waiver provision is similar to provisions in
the reformulated gasoline (RFG), low sulfur gasoline, and highway
diesel sulfur regulations. It is intended to provide refiners short-
term relief in unanticipated circumstances--such as a refinery fire or
a natural disaster--that cannot be reasonably foreseen now or in the
near future.
Under this provision, a refiner may seek permission to distribute
nonroad, locomotive, or marine diesel fuel that does not meet the
applicable 500 or 15 ppm sulfur standards for a brief time period. An
approved waiver of this type could, for example, allow a refiner to
produce and distribute diesel fuel with higher than allowed sulfur
levels, so long as the other conditions described below were met. Such
a request would be based on the refiner's inability to produce
complying nonroad, locomotive or marine diesel fuel because of extreme
and unusual circumstances outside the refiner's control that could not
have been avoided through the exercise of due diligence. The request
would also need to show that other avenues for mitigating the problem,
such as purchase of credits toward compliance under the proposed credit
provisions, had been pursued and yet were insufficient. As with other
types of relief established in this rule, this type of temporary waiver
would have to be designed to prevent fuel exceeding the 15 ppm standard
from being used in 2011 and later model year nonroad engines.
The conditions for obtaining a nonroad diesel waiver are similar to
those in the RFG, Tier 2 gasoline sulfur, and highway diesel
regulations. These conditions are necessary and appropriate to ensure
that any waivers that are granted are limited in scope, and that
refiners do not gain economic benefits from a waiver. Therefore,
refiners seeking a waiver would need to show that the waiver is in the
public interest, that the refiner was not able to avoid the
nonconformity, that it would make up the air quality detriment
associated with the waiver, that it would make up any economic benefit
from the waiver, and that it would meet the applicable diesel sulfur
standards as expeditiously as possible.
b. Temporary Waivers Based on Extreme Hardship Circumstances
In addition to the provision for short-term relief in extreme
unforseen circumstances, we are proposing a provision for relief based
on extreme hardship circumstances that is very similar to those
established in the

[[Page 28421]]

gasoline sulfur and highway diesel sulfur programs. Under the gasoline
sulfur program, we granted waivers to four refiners. Each waiver was
designed for the specific situation of that refiner. Under the highway
diesel program, we have received two applications for which the
decisions are still pending.
As in the earlier rules, we have considered whether any refiners
would face particular difficulty in complying with the standards in the
lead time provided. As described earlier in this section, we concluded
that in general small refiners would experience more difficulty in
complying with the standards on time because they have less ability to
raise the capital necessary for refinery investments, face
proportionately higher costs because of poorer economies of scale, and
are less able to successfully compete for limited engineering and
construction resources. However, it is possible that other refiners
that are not small refiners would also face particular difficulty in
complying with the sulfur standards on time. Therefore, we are
including in this proposed rule a provision which allows us, at our
discretion, to grant temporary waivers from the proposed nonroad diesel
sulfur standards based on a showing of extreme hardship circumstances.
The extreme hardship provision allows any domestic or foreign
refiner to request a waiver from the sulfur standards based on a
showing of unusual circumstances that result in extreme hardship and
significantly affect a refiner's ability to comply with either the 500
ppm or 15 ppm sulfur diesel standards by either June 1, 2007, or June
1, 2010, respectively. EPA would evaluate each application on a case-
by-case basis, considering the factors described below. If EPA approved
a hardship application, we could provide refiners with relief similar
to the provision for small refiners. That is, we might provide an
allowance for producing high sulfur fuel during the 2007-2010 period
when the 500 ppm cap is in effect, or an allowance for producing 500
ppm fuel for a period of time after June 1, 2010. Depending on the
situation of the refiner, such approved delays in meeting the sulfur
requirements might be shorter than those allowed for small refiners
i.e., 3 years for high sulfur fuel beginning June 1, 2007, and 4 years
for 500 ppm fuel beginning June 1, 2010, but would not be longer. In
such an approval, we would expect to impose appropriate conditions to
assure the refiner is making its best effort and to minimize any loss
of emission control from the program. As with other relief provisions
established in this rule, any waiver under this provision would be
designed to prevent fuel exceeding the 15 ppm standard from being used
in 2011 and later model year nonroad engines.
Providing short-term relief to those refiners that need additional
time because they face hardship circumstances facilitates adoption of
an overall program that reduces NRLM diesel fuel sulfur to 500 ppm
beginning in 2007, and nonroad diesel fuel sulfur to 15 ppm in 2010,
for the majority of the industry. However, we do not intend for this
waiver provision to encourage refiners to delay planning and
investments they would otherwise make. We do not expect to grant
temporary waivers that apply to more than approximately one percent of
the national NRLM diesel fuel pool in any given year.
The regulatory language for today's action includes a list of the
information that must be included in a refiner's application for an
extreme hardship waiver. If a refiner fails to provide all the
information, as specified in the regulations, as part of its hardship
application, we can deem the application void. EPA may request
additional information as needed. The following are some examples of
the types of information that must be contained in an application:
? The crude oil refining capacity and fuel sulfur level(s) of
each diesel fuel product at each of the refiner's refineries.
? Technical plan for capital equipment and operating changes
to achieve future diesel fuel sulfur levels.
? The anticipated timing for the overall project the refiner
is proposing and key milestones to ultimately produce 100 percent of
NRLM diesel fuel at 500 ppm sulfur and 100 percent of its nonroad
diesel fuel at 15 ppm sulfur.
? The refiner's capital requirements for each step of the
proposed projects.
? Detailed plans for financing the project and financial
statements demonstrating the nature of and degree of financial hardship
and how the requested relief would mitigate this hardship. This would
include a description of the overall financial situation of the company
and its plans to secure financing for the desulfurization project
(e.g., internal cash flow, bank loans, issuing of bonds, sale of
assets, or sale of stock).
? Description of the market area for the refiner's diesel
fuel products.
? A plan demonstrating how they would achieve the standards
as quickly as possible, including a timetable for obtaining the
necessary capital, contracting for engineering and construction
resources, obtaining any necessary permits, and beginning and
completing construction.
We would consider several factors in our evaluation of the hardship
waiver applications. Such factors would include whether a refinery's
configuration is unique or atypical; the proportion of non-highway
diesel fuel production relative to other refinery products; whether the
refiner, its parent company, and its subsidiaries are faced with severe
economic limitations (for example, a demonstrated inability to raise
necessary capital or an unfavorable bond rating); and steps the refiner
has taken to attempt to comply with the standards, including efforts to
obtain credits towards compliance. In addition, we would consider the
total crude oil capacity of the refinery and its parent or subsidiary
corporations, if any, in assessing the degree of hardship and the
refiner's role in the diesel market. Finally, we would consider where
the diesel fuel would be sold in evaluating the environmental impacts
of granting a waiver.
This extreme hardship provision is intended to address unusual
circumstances that should be apparent now or would emerge in the near
future. Thus, refiners seeking additional time under this provision
would have to apply for relief by June 1, 2005. We request comment on
this date and whether a separate date would be appropriate for the
second (15 ppm) step of the nonroad diesel program to 15 ppm. We would
review and act on applications and, if a waiver is granted, would
specify a detailed desulfurization schedule under the waiver.
Typically, because of EPA's comprehensive evaluation both financial and
technical information, action on hardship applications can take six or
more months.

D. Should Any Individual States or Territories Be Excluded From This
Rule?

1. Alaska
We propose that the diesel fuel sulfur standards--the 500 ppm cap
for NRLM diesel fuel beginning June 1, 2007, and the 15 ppm cap for
nonroad diesel fuel beginning June 1, 2010--and the aromatics and
cetane standards proposed today apply to the portion of Alaska served
by the Federal Aid Highway System. However, we propose that Alaska's
rural areas be excluded from these proposed fuel content standards. The
engine standards proposed today would apply to all nonroad engines
throughout Alaska.

[[Page 28422]]

Consequently, even in rural Alaska we would still require 2011 and
later model year nonroad diesel engines and equipment to be fueled with
15 ppm diesel fuel. The rationale supporting this proposal follows.
a. How Was Alaska Treated Under the Highway Diesel Standards?
Unlike the rest of the nation, Alaska is currently exempt from the
500 ppm sulfur standard for highway diesel fuel and the dye provisions
for diesel fuel not subject to this standard. Since the beginning of
the 500 ppm highway diesel fuel program, we have granted Alaska
exemptions from both the sulfur standard and dye provisions because of
its unique geographical, meteorological, air quality, and economic
factors.\251\
---------------------------------------------------------------------------

\251\ Copies of information regarding Alaska's petition for
exemption, subsequent requests by Alaska, public comments received,
and actions by EPA are available in public docket A-96-26.
---------------------------------------------------------------------------

On December 12, 1995, Alaska submitted a petition for a permanent
exemption for all areas of the state served by the Federal Aid Highway
System, that is, those areas previously covered only by a temporary
exemption. While considering that petition, we started work on a
nationwide rule to consider more stringent highway diesel fuel
requirements for sulfur content. In the subsequent January 18, 2001,
highway diesel sulfur rule (66 FR 5002) the highway engine emission
standards were applied fully in Alaska. Based on factors unique to
Alaska, we provided the State with: (1) an extension of the exemption
from the 500 ppm sulfur highway diesel fuel standard until the
effective date of the new 15 ppm sulfur standard for highway diesel
fuel in 2006, (2) an opportunity to request an alternative
implementation plan for the 15 ppm sulfur diesel fuel program, and (3)
a permanent exemption from the diesel fuel dye provisions.
In response to these provisions in our January 18, 2001, highway
rule, Alaska informed us that areas served by the Federal Aid Highway
System, i.e., communities on the connected road system or served by the
Alaska State ferry system, would follow the nationwide requirements.
Diesel fuel produced for use in areas of Alaska served by the Federal
Aid Highway System will therefore be required to meet the same
requirements for highway diesel fuel as diesel fuel produced for the
rest of the nation. For the rural parts of the State, areas not served
by the Federal Aid Highway System, Alaska informed us that it would
submit by mid-2003 the details for an alternative implementation
approach.\252\ EPA will consider their alternative implementation
approach when it is received, and if appropriate will initiate
rulemaking to finalize its adoption.
---------------------------------------------------------------------------

\252\ Letter and attached document to Jeffrey Holmstead of EPA
from Michele Brown of the Alaska Department of Environmental
Conservation, dated April 1, 2002. The communities on the connected
road system or served by the Alaska State ferry system are listed in
the attached document.
---------------------------------------------------------------------------

b. What Nonroad Standards Do We Propose for Urban Areas of Alaska?
Since Alaska is currently exempt from the 500 ppm sulfur standard
for highway diesel fuel, we also considered exempting Alaska from the
500 ppm step of the proposed NRLM standards. However, despite the
exemption, officials from the State of Alaska have informed us that 500
ppm highway diesel fuel is nevertheless being marketed in many parts of
Alaska. Market forces have brought the prices for 500 ppm diesel fuel
down such that it is now becoming competitive with higher sulfur,
uncontrolled diesel fuel. Assuming this trend continues, requiring that
NRLM diesel fuel be produced to 500 ppm beginning June 1, 2007 would
not appear to be unduly burdensome and for this reason, we propose that
this standard apply.
At the same time, our expectation is that compliance with the
highway program described above may result in the transition of all of
the highway diesel fuel distribution system to 15 ppm beginning in
2006. It could prove very challenging for the distribution system in
some of the areas to segregate a 500 ppm grade of NRLM from a 15 ppm
grade of highway and an uncontrolled grade for other purposes. We
believe economics would determine whether the distribution system would
handle the new grade of fuel or substitute 15 ppm sulfur highway diesel
fuel for NRLM applications. Thus, in the 2007 to 2010 time frame, the
NRLM market in some urban areas might be supplied with 500 ppm sulfur
diesel, and in other areas might be supplied with 15 ppm sulfur diesel.
Regardless of what takes place prior to 2010, we anticipate that 15
ppm highway diesel fuel will be made available in Alaska by this time
frame. The 2007 and later model year highway fleet will be growing,
demanding more and more supply of 15 ppm diesel fuel. Adding nonroad
volume to this would not appear to create any undue burden. Thus, we
also propose that the 15 ppm standard for nonroad diesel fuel would
apply in areas of Alaska served by the FAHS, along with the rest of the
Nation beginning June 1, 2010. We seek comment on whether the 500 ppm
NRLM diesel standard should apply to these areas of Alaska beginning
June 1, 2007, and whether the 15 ppm nonroad standard should apply
beginning June 1, 2010.
During the development of the original 500 ppm highway diesel fuel
standards in the early 1990's refiners and distributors in Alaska
expressed concern that if Alaska were required to dye its non-highway
diesel fuel red along with the rest of the country, residual dye in
tanks or other equipment would be enough to contaminate and disqualify
Jet-A kerosene used as aviation fuel. Since much of the diesel fuel in
Alaska is number 1 and indistinguishable from Jet A kerosene, not only
would tanks and transfer equipment have to be cleaned, but separate
tankage would be needed. Consequently, we granted Alaska temporary
exemptions from the dye requirement and in the January 18, 2001,
highway diesel rule granted them a permanent exemption. The proposed
marker for heating oil in the 2007-10 time period and for locomotive
and marine diesel fuel in the 2010-14 time period could present similar
concerns in Alaska's distribution system. Consequently, we seek comment
on whether to extend the current exemption from the red dye requirement
to the proposed marker requirement. If we were to, we then also seek
comment on what mechanism could be used in Alaska to ensure that 500
ppm diesel fuel was used in NRLM equipment from 2007-10 and 15 ppm in
nonroad equipment after 2010. One possible approach would be to
preclude refineries and importers from using credits to comply with the
sulfur standards and prohibit end-users in Alaska from using anything
but 500 ppm in NRLM equipment from 2007-10 and 15 ppm in nonroad
equipment after 2010.
c. What Do We Propose for Rural Areas of Alaska?
Rural Alaska represents a rather unique situation. In the rural
areas, the state estimates that the heating oil represent approximately
95% of all distillate consumption (about 50% for heating and 45% for
electricity generation). Highway vehicles account for about 1 percent,
and marine engines about 4 percent.\253\ Consequently, nonroad and
locomotive engines and equipment consume a negligible amount of diesel
fuel in the rural areas. The fuel

[[Page 28423]]

storage infrastructure in the villages generally consists of a limited
number of small community storage tanks. The fuel must last during the
entire winter season when fuel deliveries may not be possible. There is
currently only one distillate fuel that is delivered and stored for all
distillate purposes in the villages, including home heating, power
generation, vehicles, marine engines and possibly some nonroad engines
and equipment. Modifications to permit the segregation of small amounts
of low sulfur or ultra low-sulfur distillate fuel for highway and/or
NRLM use or switching to low sulfur or ultra low-sulfur fuel for all
purposes would be an economic hardship for the villages.
---------------------------------------------------------------------------

\253\ E mail from the Alaska Department of Environmental
Conservation, dated July 2, 2002.
---------------------------------------------------------------------------

Furthermore, as discussed above, for areas not served by the
Federal Aid Highway System, the State of Alaska is considering an
alternative implementation plan for the 15 ppm and 500 ppm highway
standards. One option under consideration by the State would be to not
apply these standards in these areas. Rather, the 15 ppm fuel would be
provided based on demand to 2007 and later model year vehicles that
must be operated on 15 ppm fuel as they enter the fleet. Since the
vehicle turnover rate in rural villages is typically very low, and many
of the replacement vehicles are pre-owned vehicles themselves, some
villages may not obtain their first 2007 or later model year diesel
highway vehicle until long after 2010. If such a highway plan would be
finalized and EPA subsequently incorporated it into the regulations,
the proposed NRLM low-sulfur diesel fuel program, without similar
provisions, would require 500 ppm diesel fuel solely for the NRLM
market in rural areas beginning June 1, 2007, and 15 ppm sulfur solely
for the nonroad market beginning June 1, 2010. Since the demand for new
nonroad engines and equipment with aftertreatment (model year 2011 and
later) is expected to be nonexistent or very low in the early years in
rural Alaska, we believe the best approach is to propose no sulfur or
other content requirements for areas of Alaska not served by the FAHS.
EPA can revisit this when it receives and takes action on Alaska's
highway implementation plan. This will allow for coordination between
the highway and NRLM fuel requirements. As proposed, this would allow
rural Alaska to limit the volume of 15 ppm sulfur diesel fuel to that
which is sufficient to meet the demand from the small number of new
nonroad diesel engines and equipment that would be certified to the
Tier 4 nonroad standards proposed today beginning with the 2011 model
year.
Our goal in proposing this approach is to allow rural Alaska to
transition to the low sulfur fuel program in a manner that minimizes
costs while still ensuring that the model year 2011 and later nonroad
engines and equipment with aftertreatment receive the 15 ppm diesel
fuel they need. Similar to the flexibility being considered under the
highway program, the flexibility offered by this proposal would likely
result in a delay of some sulfate emission reduction benefits in the
rural areas of Alaska. The sulfate emissions of NRLM engines and
equipment in Alaska would remain at current levels for as long as high-
sulfur diesel fuel is used.
2. American Samoa, Guam, and the Commonwealth of Northern Mariana
Islands
a. What Provisions Apply in American Samoa, Guam, and the Commonwealth
of Northern Mariana Islands?
We are proposing to exclude American Samoa, Guam and the
Commonwealth of the Northern Mariana Islands from the proposed NRLM
diesel fuel sulfur standard of 500 ppm sulfur in 2007 and 15 ppm sulfur
nonroad standard in 2010, as well as the cetane index and aromatics
requirements. We also propose to exclude these territories from the
Tier 4 nonroad vehicle, engine and equipment emissions standards, and
other requirements associated with those emission standards. The
territories will continue to have access to new nonroad diesel engines
and equipment using pre-Tier 4 technologies, at least as long as
manufacturers choose to market those technologies. We will not allow
the emissions control technology in the territories to backslide from
those available in 2010. If, in the future, manufacturers choose to
market only nonroad diesel engines and equipment with Tier 4 emission
control technologies, we believe the market will determine if and when
the territories will make the investment needed to obtain and
distribute the diesel fuel necessary to support these technologies.
We are also proposing to require that all nonroad diesel engines
and equipment for these territories be certified and labeled to the
applicable requirements--either to the 2010 model year standards and
associated requirements under this proposed exclusion, or to the 2011
and later standards and associated requirements applicable for the
model year of production under the nationwide requirements of this
proposal--and warranted, as otherwise required under the Clean Air Act
and EPA regulations. Special recall and warranty considerations due to
the use of excluded high sulfur fuel would be the same as those for
Alaska during its exemption and transition periods for highway diesel
fuel and for these territories for highway diesel fuel (see 66 FR 5086,
5088, January 18, 2001).
To protect against this exclusion being used to circumvent the
emission requirements applicable to the rest of the United States, we
are restricting the importation of nonroad engines and equipment from
these territories into the rest of the United States. After the 2010
model year, nonroad diesel engines and equipment certified under this
exclusion to meet the 2010 model year emission standards for sale in
American Samoa, Guam and the Commonwealth of the Northern Mariana
Islands will not be permitted entry into the rest of the United States.
b. Why Are We Treating These Territories Uniquely?
Like Alaska, these territories are currently exempt from the 500
ppm sulfur standard for highway diesel fuel. Unlike Alaska and the rest
of the nation, they are also exempt from the new highway diesel fuel
standard effective in 2006 and the new highway vehicle and engine
emission standards effective beginning in 2007 (see 66 FR 5088, January
18, 2001).
Section 325 of the CAA provides that upon request of Guam, American
Samoa, the Virgin Islands, or the Commonwealth of the Northern Mariana
Islands, we may exempt any person or source, or class of persons or
sources, in that territory from any requirement of the CAA, with some
specific exceptions. The requested exemption could be granted if we
determine that compliance with such requirement is not feasible or is
unreasonable due to unique geographical, meteorological, or economic
factors of the territory, or other local factors as we consider
significant. Prior to the effective date of the current highway diesel
sulfur standard of 500 ppm, the territories of American Samoa, Guam and
the Commonwealth of Northern Mariana Islands petitioned us for an
exemption under section 325 of the CAA from the sulfur requirement
under section 211(i) of the CAA and associated regulations at 40 CFR
80.29. We subsequently granted the petitions.\254\ We recently
determined that the 2007 heavy-duty emission standards and 2006 diesel
fuel sulfur

[[Page 28424]]

standard of our January 18, 2001 highway rule (66 FR 5088) would not
apply to these territories.
---------------------------------------------------------------------------

\254\ See 57 FR 32010, July 20, 1992 for American Samoa; 57 FR
32010, July 30, 1992 for Guam; and 59 FR 26129, May 19, 1994 for
CNMI.
---------------------------------------------------------------------------

Compliance with this proposal would result in major economic
burden. All three of these territories lack internal petroleum supplies
and refining capabilities and rely on long distance imports. Given
their remote location from Hawaii and the U.S. mainland, most petroleum
products are imported from East rim nations, particularly Singapore.
Although Australia, the Philippines, and certain other Asian countries
have or will soon require low sulfur diesel fuel, their sulfur limit is
500 ppm, not the new 15 ppm sulfur limit established for highway diesel
fuel by the January 18, 2001, highway rule or this proposal for nonroad
diesel fuel beginning in 2010 for the United States. Compliance with
new 15 ppm sulfur requirements for highway diesel fuel beginning in
2006 and the proposed 15 ppm sulfur requirements for nonroad diesel
fuel beginning in 2010 (or the proposed 500 ppm sulfur requirements for
NRLM diesel fuel beginning 2007) would require construction of separate
storage and handling facilities for a unique grade of diesel fuel for
highway and nonroad purposes, or use of 15 ppm diesel fuel for all
purposes to avoid segregation. Either of these alternatives would
require importation of 500 and 15 ppm sulfur diesel fuel from Hawaii or
the U.S. mainland, and would significantly add to the already high cost
of diesel fuel in these territories, which rely heavily on United
States support for their economies. At the same time, it is not clear
that the environmental benefits in these areas would warrant this cost.
Therefore, we are not proposing to apply the fuel and engine standards
to these territories, but seek comment on this.

E. How Are State Diesel Fuel Programs Affected by the Sulfur Diesel
Program?

Section 211(c)(4)(A) of the CAA prohibits states and political
subdivisions of states from prescribing or attempting to enforce, for
purposes of motor vehicle emission control, ``any control or
prohibition respecting any characteristic or component of a fuel or
fuel additive in a motor vehicle or motor vehicle engine,'' if EPA has
prescribed ``a control or prohibition applicable to such characteristic
or component of the fuel or fuel additive'' under section 211(c)(1).
This prohibition applies to all states except California, as explained
in section 211(c)(4)(B). This express preemption provision in section
211(c)(4)(A) applies only to controls or prohibitions respecting any
characteristics or components of fuels or fuel additives for motor
vehicles or motor vehicle engines, that is, highway vehicles. It does
not apply to controls or prohibitions respecting any characteristics or
components of fuels or fuel additives for nonroad engines or nonroad
vehicles.\255\
---------------------------------------------------------------------------

\255\ See 66 FR 36543 (July 12, 2001) (Notice proposing approval
of Houston SIP revisions). See also letter from Carl Edlund,
Director, Multimedia Planning and Permitting Division, U.S.
Environmental Protection Agency, Region VI, to Jeffrey Saitas,
Executive Director, Texas Natural Resources Conservation Commission,
dated September 25, 2000, providing comments on proposed revisions
to the Texas State Implementation Plan for the control of ozone,
specifically the Post 99 Rate of Progress Plan and Attainment
Demonstration for the Houston/Galveston area. This letter noted that
preemption under section 211(c)(4) did not apply to controls on
nonroad diesel fuel.
---------------------------------------------------------------------------

Section 211(c)(4)(A) specifically mentions only controls respecting
characteristics or components of fuel or fuel additives in a ``motor
vehicle or motor vehicle engine,'' adopted ``for purposes of motor
vehicle emissions control,'' and the definitions of motor vehicle and
nonroad engines and vehicles in CAA section 216 are mutually exclusive.
This is in contrast to section 211(a) and (b), which specifically
mention application to fuels or fuel additives used in nonroad engines
or nonroad vehicles, and with section 211(c)(1) which refers to fuel
used in motor vehicles or engines or nonroad engines or vehicles.
Thus, this proposal would not preempt state controls or
prohibitions respecting characteristics or components of fuel or fuel
additives used in nonroad engines or nonroad vehicles under the
provisions of section 211(c)(4)(A). At the same time, a state control
that regulates both highway fuel and nonroad fuel is preempted to the
extent the state control respects a characteristic or component of
highway fuel regulated by EPA under section 211(c)(1).
A court could consider whether a state control for fuels or fuel
additives used in nonroad engines or nonroad vehicles is implicitly
preempted under the Supremacy Clause of the U.S. Constitution. Courts
have determined that a state law is preempted by federal law where the
state requirement actually conflicts with federal law by preventing
compliance with the federal requirement, or by standing as an obstacle
to accomplishment of Congressional objectives. A court could thus
consider whether a given state standard for sulfur in nonroad,
locomotive or marine diesel fuel is preempted if it places such
significant cost and investment burdens on refiners that refiners
cannot meet both state and federal requirements in time, or if the
state control would otherwise meet the criteria for conflict
preemption.

F. Technological Feasibility of the 500 and 15 ppm sulfur Diesel Fuel
Program

This section describes the nonroad, locomotive and marine diesel
fuel market and how these fuels differ from current highway diesel
fuel, whose sulfur content is already controlled to no more than 500
ppm sulfur. This section then summarizes our assessment of the
feasibility of refining and distributing NRLM diesel fuel with a sulfur
content of no more than 500 ppm and, for nonroad fuel only, of 15 ppm.
Based on this evaluation, we believe it is technologically feasible for
refiners and distributors to meet both sulfur standards in the lead
time provided. We are only summarizing our analysis here and we refer
the reader to the Draft RIA for more details.
1. What is the Nonroad, Locomotive and Marine Diesel Fuel Market Today
Nonroad, locomotive and marine diesel fuel comprise part of what is
generally called the distillate fuel market. Other fuels in this market
are highway diesel fuel and heating oil, which is used in furnaces and
boilers as well as in stationary diesel engines to generate power.
Nonroad diesel fuel comprises about 15% of all number 2 distillate
fuel, while locomotive and marine diesel fuel comprise about 9% of all
number 2 distillate fuel (see Draft RIA).
ASTM defines three number 2 distillate fuels: (1) low sulfur No. 2-
D (which includes the 500 ppm sulfur cap for fuel used in highway
diesel vehicles), (2) high sulfur No. 2-D, and (3) No. 2 fuel oil
(commonly referred to as heating oil).\256\ Low sulfur No. 2-D fuel
must contain no more than 500 ppm sulfur, have a minimum cetane number
of 40, and have a minimum cetane index limit of 40 (or a maximum
aromatic content of 35 volume percent). This fuel meets EPA's
requirements for current highway diesel vehicle fuel. Both high sulfur
No. 2-D and No. 2 fuel oil must contain no more than 5000 ppm
sulfur.\257\ The ASTM standards for high sulfur No. 2-D fuel also
include a minimum cetane number specification of 40. Practically, since
most No. 2 fuel oil meets the minimum cetane number specification,
pipelines which ship fuel fungibly need only carry one high sulfur

[[Page 28425]]

number 2 distillate fuel which meets both sets of specifications.
Nonroad, locomotive and marine engines can be and are fueled with both
low and high sulfur No. 2-D fuels.
---------------------------------------------------------------------------

\256\ ``Standard Specification for Diesel Fuel Oils,'' ASTM D
975-98b and ``Standard Specification for Fuel Oils,'' ASTM D 396-98.
\257\ Some states, particularly those in the Northeast, limit
the sulfur content of No. 2 fuel oil to 2000-3000 ppm.
---------------------------------------------------------------------------

During winter months in the northern U.S., No. 1 distillate, such
as kerosene, is sometimes added to No. 2 distillate fuel to prevent
gelling. Any No. 1 distillate added to No. 2 NRLM diesel fuel would
become NRLM diesel fuel.
Highway diesel fuel, comprises about 57% of all number 2 distillate
fuel. Eighty percent of highway diesel fuel will be capped at 15 ppm
sulfur starting in 2006. However, because of limitations in the fuel
distribution system and other factors, about one-third of non-highway,
No. 2 distillate currently meets the 500 ppm highway diesel fuel cap.
Thus, about 69 percent of number 2 distillate pool currently meets the
500 ppm sulfur cap, not just the 57 percent used in highway vehicles.
The result is that about one-third of the 24% of the distillate market
comprised by NRLM diesel fuel currently meets a 500 ppm specification
and is also expected to meet the future highway diesel fuel
requirements even without this proposed rule. Thus, while this proposed
rule would apply to all NRLM diesel fuel, the rule should only
materially affect about two-thirds of all NRLM diesel fuel, or 16% of
today's distillate market. EPA is not considering any national sulfur
standards applicable to home heating fuel or power generation fuel at
this time.
2. How Do Nonroad, Locomotive and Marine Diesel Fuel Differ From
Highway Diesel Fuel?
Refiners blend together a variety of distillate blendstocks to
produce both highway and non-highway diesel fuels. These distillate
blendstocks always include straight run material contained in crude
oil, plus they often include light cycle oil from a fluidized catalytic
cracker, light coker gas oil from a coker and hydrocrackate from a
hydrocracker. The actual mix of these blendstocks in highway and non-
highway diesel fuel at refineries producing both fuels can differ.
However, in general, significant quantities of all of these blendstocks
find their way into both low sulfur and high sulfur diesel fuel today.
A survey of distillate fuel quality conducted by API and NPRA in 1996
indicated the following feedstock composition for low sulfur diesel
fuel and high sulfur diesel fuel and heating oil.

Table IV-5--Composition of Low Sulfur Diesel Fuel and High Sulfur Diesel
Fuel and Heating Oil: 1996 U.S. Non-California Average of Surveyed
Refiners (Volume Percent)a
------------------------------------------------------------------------
High Sulfur No. 2
Feedstocks Low Sulfur No. 2 Diesel Fuel and
Diesel Fuel Heating Oil
------------------------------------------------------------------------
Hydrotreated
------------------------------------------------------------------------
Straight Run Material....... 52 18
Light Cycle Oil............. 20 11
Light Coker Gas Oil......... 8 5
Hydrocrackate............... 4 9
-----------------------------
Non-Hydrotreated
------------------------------------------------------------------------
Straight Run Material....... 12 45
Light Cycle Oil............. 3 11
Light Coker Gas Oil......... 1 1
------------------------------------------------------------------------
Notes:
a We plan to update these compositions to reflect greater use of heavier
crude oils in future analyses.

The primary difference between low and high sulfur number 2
distillate fuels today is the fact that a greater volume percentage of
low sulfur fuel feedstocks have been hydrotreated to meet the 500 ppm
sulfur cap applicable to highway diesel fuel. As shown in the table
above, high sulfur distillate fuels may contain significant amounts of
hydrotreated material, but the final sulfur level of the blend is
usually well above 500 ppm and currently averages 3400 ppm (see Draft
RIA). Hydrotreating today typically involves combining diesel fuel with
hydrogen and a catalyst under pressures of 400-1200 pounds per square
inch and temperatures of roughly 600 degrees Fahrenheit. In general,
the existence of the 500 ppm sulfur cap gives refiners an incentive to
use low sulfur blendstocks, such as hydrocrackate and straight run, in
their low sulfur diesel fuel. However, some high sulfur blendstocks,
such as light cycle oil and light gas coker oil, require hydrotreating
to remove other undesirable compounds, such as olefins and metals. Once
hydrotreated, they are suitable for use in low sulfur diesel fuel.
Also, some light cycle oils and light gas coker oils contain so much
sulfur and olefins and have such a low cetane number that they are
unsuitable for direct blending into even high sulfur diesel fuel, since
most high sulfur diesel fuel meets the ASTM sulfur cap of 5000 ppm and
cetane number minimum of 40.\258\ Where material is hydrotreated in
order to blend into a high sulfur fuel, it is often easier to
hydrotreat the material further to meet a 500 ppm cap and blend
straight run material directly into the high sulfur diesel pool. Thus,
there is no bright line separating the blendstocks used to produce low
and high sulfur diesel fuel today.
---------------------------------------------------------------------------

\258\ Non-highway diesel fuel often meets sulfur standards of
2000-3000 ppm in some states, particularly those in the Northeast.
These states have limited the sulfur content of home heating oil to
these levels. To ease fuel distribution, refiners and distributors
sell the same fuel into the home heating fuel and non-highway diesel
fuel markets.
---------------------------------------------------------------------------

3. What Technology Would Refiners Use to Meet the Proposed 500 ppm
Sulfur Cap?
Refiners currently hydrotreat some or all of their distillate
blendstocks to meet the 500 ppm sulfur cap applicable to highway diesel
fuel. Refiners would be able to meet the proposed 500 ppm sulfur cap
for NRLM diesel fuel using this same technology. As will be discussed
further in the next section, several alternative desulfurization
technologies are being developed. However, these alternative
technologies promise the greatest cost savings at very low sulfur
levels, such as 15 ppm. Also, their ongoing development makes it

[[Page 28426]]

unlikely that they would be selected by most refiners for production as
early as 2007. Finally, the use of conventional hydrotreating
technology to meet a 500 ppm standard can readily be combined later
with these alternative technologies to meet the subsequent 15 ppm
standard in 2010. Thus, we expect that the vast majority of refiners
would use conventional hydrotreating to meet the 500 ppm standard in
2007 applicable to NRLM diesel fuel.
Refiners would also likely need to install or modify several
existing ancillary units related to sulfur removal (e.g., hydrogen
production and purification, sulfur recovery, amine scrubbing and sour
water scrubbing facilities). All of these units currently exist at the
vast majority of refineries, but may have to be expanded or enlarged.
4. Has Technology to Meet a 500 ppm Cap Been Commercially Demonstrated?
Conventional diesel desulfurization technologies have been
available and in use for many years. U.S. refiners have nearly ten
years of experience with this technology in producing diesel fuel with
less than 500 ppm sulfur for highway use. Thus, the technology to
produce 500 ppm NRLM diesel fuel has clearly been demonstrated and
optimized over the last decade.
5. Availability of Leadtime To Meet the 2007 500 ppm Sulfur Cap
About 105 refineries in the U.S. currently produce high sulfur
distillate fuel. Under the fuel-related provisions of this proposal, we
project that roughly 42 of these refineries would likely need to
produce 500 ppm NRLM diesel fuel to satisfy the demand for this fuel.
The remaining 63 or so refineries would continue to produce high sulfur
distillate fuel, either as heating oil or as high sulfur NRLM diesel
fuel.
If we promulgate this proposal one year from today, this would
provide refiners and importers with approximately 38 months before they
would have to begin complying with the 500 ppm cap for NRLM diesel fuel
on June 1, 2007. Our leadtime analysis, which is presented in the draft
RIA, projects that 27-39 months are typically needed to design and
construct a diesel fuel hydrotreater.\259\ Thus, the leadtime available
for the 500 ppm cap in mid-2007 should be sufficient.
---------------------------------------------------------------------------

\259\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002.
---------------------------------------------------------------------------

Easing the task is the fact that we project that essentially all
refiners would use conventional hydrotreating to comply with the 500
ppm NRLM diesel fuel cap. This technology has been used extensively for
more than 10 years and its capabilities to process a wide range of
diesel fuel blendstocks are well understood. Thus, the time necessary
to optimize this technology for a specific refiner's situation should
be relatively short.
While conventional hydrotreating would likely be used to meet the
500 ppm cap in 2007, most refiners would have to plan to be able
process this fuel further to meet the 15 ppm nonroad diesel fuel cap in
2010. Even those refiners planning on producing 500 ppm locomotive and
marine diesel fuel starting in 2010 would likely have to plan for the
potential that this fuel could be controlled to 15 ppm sulfur at some
time in the future. Thus, the conventional hydrotreater built in 2007
would have to be able to be compatible with the technology eventually
chosen to produce 15 ppm fuel in 2010 or later. This could affect the
hydrotreater's design pressure, physical location and layout and
peripherals, such as hydrogen supply and utilities. However, we project
that 34 out of the 42 refineries which we project would produce this
fuel also produce highway diesel fuel. Thus, over 80 percent of the
refiners likely to produce 500 ppm NRLM fuel in 2007 are already well
into their planning for meeting the 15 ppm highway diesel fuel
standard, effective June 1, 2006. It is likely that these refiners have
already chemically characterized their high sulfur diesel fuel
blendstocks, as well as their highway diesel fuel, for potential
desulfurization. They will also have already assessed the various
technologies for producing 15 ppm diesel fuel and have a good idea of
what technology they might use to meet the 15 ppm nonroad diesel fuel
cap starting in 2010. Those refiners which only produce high sulfur
distillate fuel today would still be able to take advantage of the
significant experience that technology vendors have obtained in helping
refiners of highway diesel fuel plan for producing 15 ppm diesel fuel
in 2006.
Also, of the 34 refineries producing highway diesel fuel today, we
project that three will likely build a new hydrotreater to produce 15
ppm highway diesel fuel in 2006. This would allow them to produce 500
ppm NRLM diesel fuel using their existing highway diesel fuel
hydrotreater. Another 10 of these 34 refineries produce relatively
small volumes of high sulfur distillate compared to highway diesel fuel
today. Thus, we project that they should be able to produce 500 ppm
NRLM fuel from their high sulfur distillate with minor modification to
their existing hydrotreater.
Refiners may also need some time to assess what diesel fuel and
heating oil markets they plan on participating in starting 2010. While
heating oil may not be widely distributed in PADDs 2, 3 and 4, refiners
in PADDs 1 and 3 would still be able to produce heating oil for the
Northeast fuel market. Likewise, heating oil may still be distributed
in the Pacific Northwest. Under this proposal, locomotive and marine
diesel fuel would remain at 500 ppm for some time. Thus, many refiners
would require some time to decide what market to participate in after
2010. This strategic planning should be able to coincide with refiners'
evaluation of 15 ppm technologies and not add to the overall lead time
required.
In all, we project that the task of producing 500 ppm NRLM fuel in
2007 would be less difficult than the task refiners faced with the
implementation of the 500 ppm highway diesel fuel cap in 1993. Refiners
had just over three years of leadtime for the highway diesel fuel cap,
as is the case here and this proved sufficient.
6. What Technology Would Refiners Use to Meet the Proposed 15 ppm
Sulfur Cap for Nonroad Diesel Fuel?
We project that refiners would be able to use a variety of
desulfurization technologies to meet the proposed 15 ppm sulfur cap for
nonroad fuel. One approach would be to use an extension of conventional
hydrotreating technology. We expect that refiners would utilize
hydrotreating to meet the proposed 500 ppm standard. We expect that
refiners would design this hydrotreater to facilitate the addition of a
second reactor or hydrotreating stage to further desulfurize their
distillate blendstocks from 500 ppm to 15 ppm. Refiners might also
shift to the use of an improved catalyst even in the first reactor
(i.e., that producing roughly 500 ppm sulfur product), as well as add
equipment to further purify the hydrogen used.
This is the same technology which EPA projected would be used by
most refiners to meet the 15 ppm sulfur cap for highway diesel fuel.
EPA just recently reviewed the progress being made by refining
technology vendors and refiners in meeting the 2006 highway diesel
sulfur cap.\260\ All evidence available confirms EPA's projection that
conventional hydrotreating will be capable of producing diesel fuel
containing less

[[Continued on page 28427]]

Notices For
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994

Control of Emissions of Air Pollution From Nonroad Diesel Engines and Fuel [[pp. 28377-28426]]

Local Navigation