[[pp. 28197-28246]]

[Federal Register: May 18, 2007 (Volume 72, Number 96)]
[Proposed Rules]
[Page 28197-28246]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18my07-19]

[[pp. 28197-28246]]
Control of Emissions from Nonroad Spark-Ignition
Engines and Equipment

[[Continued from page 28196]]

[[Page 28197]]

engine is installed in a way that obscures the label on the engine. We
are proposing to clarify this requirement for duplicate labels to
ensure that labels are accessible without creating a supply of
duplicate labels that are not authentic or are not used appropriately.
Specifically, we are proposing to require engine manufacturers to
supply duplicate labels to equipment manufacturers that request them
and keep records to show how many labels they supply. Similarly, we are
proposing that equipment manufacturers must request from engine
manufacturers a specific number of duplicate labels, with a description
of which engine and equipment models are involved and why the duplicate
labels are necessary. Equipment manufacturers would need to destroy any
excess labels and keep records to show the disposition of all the
labels they receive. This would make it easier for us to verify that
engines are meeting requirements and it would be easier for U.S.
Customs to clear imported equipment with certified engines.
(3) What requirements apply to auxiliary emission control devices?
Clean Air Act section 203(a) and existing regulations prohibit the
use of a defeat device (see 40 CFR 90.111 and 91.111). The defeat
device prohibition is intended to ensure that engine manufacturers do
not use auxiliary emission control devices (AECD) in a regulatory test
procedure that reduce the effectiveness of the emission control system
during operation that is not substantially included in the regulatory
test procedure.\94\ We are proposing to require manufacturers to
describe their AECDs and explain why these are not defeat devices.
---------------------------------------------------------------------------

\94\ Auxiliary emission control device is defined at 40 CFR 90.2
and 91.2 as `` any element of design that senses temperature,
vehicle speed, engine RPM, transmission gear, or any other parameter
for the purpose of activating, modulating, delaying or deactivating
the operation of any part of the emission control system.''
---------------------------------------------------------------------------

Under the current regulations, there has been limited use of AECDs.
However, with the proposed new emission standards and the corresponding
engine technologies, we expect manufacturers to increase their use of
engine designs that rely on AECDs. Disclosure of the presence and
purpose of an AECD is essential in allowing us to evaluate the AECD and
determine whether it represents a defeat device.
(4) What warranty requirements apply to engines or other products that
are subject to emission standards?
Consistent with our current emission control programs, we are
proposing that manufacturers provide a design and defect warranty
covering emission-related components. If the manufacturer offers a
longer mechanical warranty for the engine or any of its components
without an additional charge, the proposed regulations would require
that the emission-related warranty period must be at least as long as
the commercial warranty for the engine or the applicable components.
Extended warranties that are available for an extra price would not
trigger a need for a longer emission-related warranty. See the proposed
regulation language for a description of which components are emission-
related.
If an operator makes a valid warranty claim for an emission-related
component during the warranty period, the engine manufacturer is
generally obligated to replace the component at no charge to the
operator. The engine manufacturer may deny warranty claims if the
operator failed to do prescribed maintenance that contributed to the
warranty claim.
We are also proposing a defect reporting requirement that applies
separately from the emission-related warranty (see Section VIII.F). In
general, defect reporting applies when a manufacturer discovers a
pattern of component failures whether that information comes from warranty
claims, voluntary investigation of product quality, or other sources.
(5) Can I meet standards with emission credits?
We are proposing a new emission-credit program for sterndrive and
inboard marine engines and for evaporative emissions. We are also
proposing to revise the existing emission-credit provisions for
outboard and personal-watercraft engines and for Small SI engines. An
emission-credit program is an important factor we take into
consideration in setting emission standards that are appropriate under
Clean Air Act section 213. An emission-credit program can reduce the
cost and improve the technological feasibility of achieving standards,
helping to ensure the standards achieve the greatest achievable
reductions, considering cost and other relevant factors, in a time
frame that is earlier than might otherwise be possible. Manufacturers
gain flexibility in product planning and the opportunity for a more
cost-effective introduction of product lines meeting a new standard.
Emission-credit programs also create an incentive for the early
introduction of new technology, which allows certain emission families
to act as trailblazers for new technology. This can help provide
valuable information to manufacturers on the technology before they
apply the technology throughout their product line. This early
introduction of clean technology improves the feasibility of achieving
the standards and can provide valuable information for use in other
regulatory programs that may benefit from similar technologies.
Emission-credit programs generally involve averaging, banking, or
trading. Averaging would allow a manufacturer to certify one or more
emission families at emission levels above the applicable emission
standards as long as the increased emissions are offset by one or more
emission families certified below the applicable standards. The over-
complying families generate credits that are used by the under-
complying families. Compliance is determined on a total mass emissions
basis to account for differences in production volume, power, and
useful life among emission families. The average of all emissions for a
particular manufacturer's production must be at or below the level of
the applicable emission standards. This calculation generally factors
in sales-weighted average power, production volume, useful life, and
load factor. Banking and trading would allow a manufacturer to generate
emission credits and bank them for future use in its own averaging
program in later years or sell them to another company.
A manufacturer choosing to participate in an emission-credit
program would certify each participating emission family to a Family
Emission Limit (FEL). In its certification application, a manufacturer
would determine a separate FEL for each pollutant included in the
emission-credit program. The FEL selected by the manufacturer becomes
the emission standard for that emission family. Emission credits are
based on the difference between the emission standard that applies and
the FEL. The engines have to meet the FEL for all emission testing. At
the end of the model year, manufacturers would generally need to show
that the net effect of all their emission families participating in the
emission-credit program is a zero balance or a net positive balance of
credits. A manufacturer could generally choose to include only a single
pollutant from an emission family in the emission-credit program or,
alternatively, to establish an FEL for each of the regulated pollutants.

[[Page 28198]]

Refer to the program discussions in Sections III through VI for
more information about emission-credit provisions for individual engine
or equipment categories. We request comment on all aspects of the
emission-credit programs discussed in this proposal. In particular, we
request comment on the structure of the proposed emission-credit
programs and how the various provisions may affect manufacturers'
ability to utilize averaging, banking, or trading to achieve the
desired emission-reductions in the most efficient and economical way.
(6) How does EPA define maximum engine power?
Maximum engine power is used to calculate the value of emission
credits. For Small SI engines, it is also used to determine whether the
standards apply; for example engines above 1000 cc are subject to Small
SI standards only if maximum engine power is at or below 19 kW. For
Marine SI engines, maximum engine power is also used to determine the
emission standard that applies to a particular engine and to calculate
emission credits. The regulations give no specific direction for
defining maximum power for determining whether part 90 applies. Marine
SI engine manufactures declare a rated power based on a procedure
specified in a voluntary consensus standard, while credit calculations
are based on sales-weighted average power for an engine family. We are
concerned that these terms and specifications are not objective enough
to ensure consistent application of regulatory requirements to all
manufacturers. To the extent that manufacturers can determine different
values of rated power or maximum engine power, they could be subject to
different emission standards and calculate emission credits differently
for otherwise identical engines. We believe it is important that a
single power value be determined objectively according to a specific
regulatory definition. Note that maximum engine power is not used
during engine testing.
We are proposing to standardize the determination of maximum engine
power by relying primarily on the manufacturer's design specifications
and the maximum torque curve that the manufacturer expects will
represent the actual production engines. Under this approach the
manufacturer would take the torque curve that is projected for an
engine configuration, based on the manufacturer's design and production
specifications, and convert it into a ``nominal power curve'' that
would relate the maximum expected power to engine speed when a
production engine is mapped according to our specified mapping
procedures. The maximum engine power is the maximum power point on that
nominal power curve. This has become the standard approach for all our
emission control programs.
Manufacturers would report the maximum engine power of each
configuration in the application for certification. As with other
engine parameters, manufacturers would ensure that the engines they
produce under the certificate have maximum engine power consistent with
those described in their applications. However, since we recognize that
variability is a normal part of engine production, we allow a tolerance
around the nominal value. We would instead require only that the power
specified in the application be within the normal power range for
production engines (see Sec. 1045.140 and Sec. 1054.140). We would
typically expect the specified power to be within one standard
deviation of the mean power of the production engines. If a
manufacturer determines that the specified power is outside of the
normal range for production engines, we may require the manufacturer to
amend the application for certification. Manufacturer could
alternatively change their engines to conform to the parameters
detailed in the application for certification. In deciding whether to
require a change to the application for certification, we would
consider the degree to which the specified power differed from that of
the production engines, the normal power variability for those engines,
whether the engine used or generated emission credits, and whether the
error affects which standards apply to the engine.
(7) What are the proposed production-line testing requirements?
We are proposing to modify production-line testing requirements for
engines already subject to exhaust emission standards and to extend
these requirements to sterndrive and inboard marine engines. According
to these requirements, manufacturers would routinely test production-
line engines to help ensure that newly assembled engines control
emissions at least as well as the emission-data engines tested for
certification. Production-line testing serves as a quality-control
step, providing information to allow early detection of any problems
with the design or assembly of freshly manufactured engines. This is
different than selective enforcement auditing where we would give a
test order for more rigorous testing for production-line engines in a
particular emission family (see Section VIII.E).
If an engine fails to meet an emission standard, the manufacturer
must modify it to bring that specific engine into compliance. If too
many engines exceed emission standards, the manufacturer will need to
correct the problem for the engine family. This correction may involve
changes to assembly procedures or engine design, but the manufacturer
must, in any case, do sufficient testing to show that the emission
family complies with emission standards.
The proposed production-line testing programs would depend on the
Cumulative Sum (CumSum) statistical process for determining the number
of engines a manufacturer needs to test. We have used CumSum procedures
for production-line testing with several other engine categories. Each
manufacturer selects engines randomly at the beginning of a new
sampling period. If engines must be tested at a facility where final
assembly is not yet completed, manufacturers must randomly select
engine components and assemble the test engine according to their
established assembly instructions. The sampling period is a calendar
quarter for engine families over 1,600 units. The minimum testing rate
for these families is five engines per year. For engine families with
projected sales at or below 1,600 units, the sampling period is a
calendar year and the minimum testing rate is two engines. We may waive
testing requirements for Marine SI engine families with projected sales
below 150 units per year and for Small SI engine families with
projected sales below 5,000 units per year. The CumSum program uses the
emission results to calculate the number of tests required for the
remainder of the sampling period to reach a pass or fail determination.
If tested engines have relatively high emissions, the statistical
sampling method calls for an increased number of tests to show that the
emission family meets emission standards. The remaining number of tests
is recalculated after the manufacturer tests each engine. Engines
selected should cover the broadest range of production configurations
possible. Tests should also be distributed evenly throughout the
sampling period to the extent possible.
Under the CumSum approach, a limited number of individual engines
can exceed the emission standards before the Action Limit is met and
the engine family itself fails under the production-line testing
program. If an engine family fails, we may suspend the certificate. The
manufacturer would then need to take steps to address the

[[Page 28199]]

nonconformity, which may involve amending the application for
certification. This could involve corrected production procedures, a
modified engine design. This may also involve changing the Family
Emission Limit if there is no defect and the original Family Emission
Limit was established using good engineering judgment. Note, however,
that we propose to require manufacturers to adjust or repair every
failing engine and retest it to show that it meets the emission
standards. Note also that all production-line emission measurements
must be included in the periodic reports to us. This includes any type
of screening or surveillance tests (including ppm measurements), all
data points for evaluating whether an engine controls emissions ``off-
cycle,'' and any engine tests that exceed the minimum required level of
testing.
While the proposed requirements may involve somewhat more testing
than is currently required under 40 CFR part 90 or 91, there are
several factors that limit the additional burden. First, the testing
regulations in 40 CFR part 1065 specify that manufacturers may use
field-testing equipment and procedures to measure emissions from
production-line engines. This may substantially reduce the cost of
testing individual engines by allowing much lower-cost equipment for
measuring engines following assembly.
Second, we are proposing to reduce the testing requirements for
emission families that consistently meet emission standards. The
manufacturer may request a reduced testing rate for emission families
with no production-line tests exceeding emission standards for two
consecutive years. The minimum testing rate is one test per emission
family for one year. Our approval for a reduced testing rate would
apply for a single model year.
Third, as we have concluded in other engine programs, some
manufacturers may have unique circumstances that call for different
methods to show that production engines comply with emission standards.
We therefore propose to allow a manufacturer to suggest an alternate
plan for testing production-line engines as long as the alternate
program is as effective at ensuring that the engines will comply. A
manufacturer's petition to use an alternate plan should address the
need for the alternative and should justify any changes from the
regular testing program. The petition must also describe in detail the
equivalent thresholds and failure rates for the alternate plan. If we
approve the plan, we would use these criteria to determine when an
emission family would become noncompliant. It is important to note that
this allowance is intended only to provide flexibility and is not
intended to affect the stringency of the standards or the production-
line testing program.
Refer to the specific program discussions in Sections III, IV, and
V for additional information about production-line testing for
different types of engines.

D. Other Concepts

(1) What are the proposed emission-related installation instructions?
For manufacturers selling loose engines to equipment manufacturers,
we are proposing to require that the engine manufacturer develop a set
of emission-related installation instructions. This would include
anything that the installer would need to know to ensure that the
engine operates within its certified design configuration. For example,
the installation instructions could specify a total capacity needed
from the engine cooling system, placement of catalysts after final
assembly, or specification of parts needed to control evaporative
emissions. If equipment manufacturers fail to follow the established
emission-related installation instructions, we would consider this
tampering, which could subject them to significant civil penalties.
Refer to the proposed regulations for more information about specific
provisions related to installation instructions (see Sec. 1045.130 and
Sec. 1054.130).
(2) What is an agent for service?
We are proposing to require that manufacturers identify an agent
for service in the United States in their application for
certification. The named person should generally be available within a
reasonable time to respond to our attempts to make contact, either by
telephone, e-mail, or in person. The person should also be capable of
communicating about matters related to emission program requirements in
English. (See Sec. 1045.205 and Sec. 1054.205).
(3) Are there special provisions for small manufacturers of these
engines, equipment, and vessels?
The scope of this proposal includes many engine, equipment, and
vessel manufacturers that have not been subject to our regulations or
certification process. Many of these manufacturers are small
businesses. The sections describing the proposed emission control
program include discussion of proposed special compliance provisions
designed to address small business issues for the different types of
engines and other products covered by the rule. Section XIV.B gives an
overview of the inter-agency process in which we developed these small-
volume provisions.

VIII. General Nonroad Compliance Provisions

This section describes a wide range of compliance provisions that
apply generally to all the engines and equipment that would be subject
to the proposed standards. Several of these provisions apply not only
to engine manufacturers but also to equipment manufacturers installing
certified engines, remanufacturing facilities, operators, and others.
For standards that apply to equipment or fuel-system components,
the provisions generally applicable to engine manufacturers would also
apply to the equipment or component manufacturers. While this preamble
section is written as if it would apply to engine exhaust standards,
the same provisions would apply for equipment or component evaporative
standards. We are proposing extensive revisions to the regulations to
more carefully make these distinctions.
As described in Section VII, we are proposing to migrate these
general compliance provisions from 40 CFR parts 90 and 91 to the
established regulatory text in 40 CFR part 1068. The provisions in part
1068 already apply to other engine categories and we believe they can
be applied to Small SI engines and Marine SI engines with minimal
modification. Note that Section XI.C describes a variety of proposed
changes and updates to the regulatory provisions in part 1068. We
request comment on all aspects of part 1068 for these engines. The
following discussion follows the sequence of the existing regulatory
text in part 1068.\95\
---------------------------------------------------------------------------

\95\ The regulatory text in the proposal does not republish the
provisions of part 1068 that we are not proposing to change. For the
latest full-text version of part 1068, see http://www.gpoaccess.gov/ecfr/
index.html. Note that part 1068 is in Title 40, Protection of
Environment.
---------------------------------------------------------------------------

A. Miscellaneous Provisions (Part 1068, Subpart A)

This regulation contains some general provisions, including general
applicability and the definitions that apply to part 1068. Other
provisions concern good engineering judgment, how we would handle
confidential information, how the EPA Administrator delegates decision-

[[Page 28200]]

making authority, and when we may inspect facilities, engines, or records.
The process of testing engines and preparing an application for
certification requires the manufacturer to make a variety of judgments.
This includes, for example, selecting test engines, operating engines
between tests, and developing deterioration factors. EPA has the
authority to evaluate whether a manufacturer's use of engineering
judgment is reasonable. The regulations describe the methodology we use
to address any concerns related to a manufacturer's use of good
engineering judgment in cases where the manufacturer has such
discretion (see 40 CFR 1068.5). We will take into account the degree to
which any error in judgment was deliberate or in bad faith. This
subpart is consistent with provisions already adopted for light-duty
highway vehicles and various other nonroad engines.

B. Prohibited Acts and Related Requirements (Part 1068, Subpart B)

The proposed provisions in this subpart lay out a set of
prohibitions for engine manufacturers, equipment manufacturers,
operators, and engine rebuilders to ensure that engines comply with the
emission standards. These provisions are summarized below but readers
are encouraged to review the regulatory text. These provisions are
intended to help ensure that each new engine sold or otherwise entered
into commerce in the United States is certified to the relevant
standards, that it remains in its certified configuration throughout
its lifetime, and that only certified engines are used in the
appropriate nonroad equipment.
(1) General Prohibitions (Sec. 1068.101)
This proposed regulation contains several prohibitions consistent
with the Clean Air Act. We generally prohibit selling a new engine in
the United States without a valid certificate of conformity issued by
EPA, deny us access to relevant records, or keep us from entering a
facility to test or inspect engines. In addition, no one may
manufacture any device that will make emission controls ineffective or
remove or disable a device or design element that may affect an
engine's emission levels, which we would consider tampering. We have
generally applied the existing policies developed for tampering with
highway engines and vehicles to nonroad engines.\96\ Other prohibitions
reinforce manufacturers' obligations to meet various certification
requirements. We also prohibit selling engine parts that prevent
emission control systems from working properly. Finally, for engines
that are excluded from regulation based on their use in certain
applications, we generally prohibit using these engines in applications
for which emission standards apply.
Each prohibited act has a corresponding maximum penalty as
specified in Clean Air Act section 205. As provided for in the Federal
Civil Penalties Inflation Adjustment Act of 1990, Pub. L. 10-410, these
maximum penalties are in 1970 dollars and should be periodically
adjusted by regulation to account for inflation. The current penalty
amount for most violations is $32,500.\97\
---------------------------------------------------------------------------

\96\ ``Interim Tampering Enforcement Policy,'' EPA memorandum
from Norman D. Shutler, Office of General Counsel, June 25, 1974
(Docket A-2000-01; document II-B-20).
\97\ EPA acted to adjust the maximum penalty amount in 1996 (61
FR 69364, December 31, 1996). See also 40 CFR part 19.
---------------------------------------------------------------------------

(2) Equipment Manufacturer Provisions (Sec. 1068.105)
The provisions of Sec. 1068.105 require equipment manufacturers to
use certified engines in their new equipment once the emission
standards begin to apply. We would allow a grace period for equipment
manufacturers to deplete their supply of uncertified engines if they
follow their normal inventory practices for buying engines, rather than
stockpiling noncompliant (or previous-tier) engines to circumvent the
new standards.
We require equipment manufacturers to observe the engine
manufacturers' emission-related installation instructions to ensure
that the engines remain consistent with the application for
certification. This may include such things as radiator specifications,
diagnostic signals and interfaces, and placement of catalytic converters.
If equipment manufacturers install a certified engine in a way that
obscures the engine label, we propose to require that they add a
duplicate label on the equipment. The equipment manufacturer would need
to request from the engine manufacturer a specific number of duplicate
labels, describe which engine and equipment models are involved, and
explain why the duplicate labels are necessary. Equipment manufacturers
would need to destroy any excess labels and keep records to show the
disposition of all the labels they receive. This would make it easier
for us to verify that engines are meeting requirements and it would be
easier for U.S. Customs to clear imported equipment with certified engines.
Equipment manufacturers not fulfilling the responsibilities we
describe in this section would be in violation of one or more of the
prohibited acts described above.
(3) In-Service Engines (Sec. 1068.110)
The regulations generally prevent manufacturers from requiring
owners to use any certain brand of aftermarket parts as well as give
the manufacturers responsibility for engine servicing for emission-
related warranty issues, leaving the responsibility for all other
maintenance with the owner. This proposed regulation would also reserve
our right to do testing (or require testing), for example, to
investigate potential defeat devices or in-use noncompliance, as
authorized by the Clean Air Act.
(4) Engine Rebuilding (Sec. 1068.120)
We are proposing to apply rebuild provisions for all the nonroad
engines subject to the proposed emission standards. This approach is
similar to what applies to heavy-duty highway engines and most other
nonroad engines. This is necessary to prevent an engine rebuilder from
rebuilding engines in a way that disables the engine's emission
controls or compromises the effectiveness of the emission control
system. We are proposing minimal recordkeeping requirements for
businesses involved in commercial engine rebuilding to show that they
comply with the regulations.
In general, anyone who rebuilds a certified engine must restore it
to its original (or a lower-emitting) configuration. Rebuilders must
also replace some critical emission control components such as fuel
injectors and oxygen sensors in all rebuilds for engines that use those
technologies. Rebuilders must replace an existing catalyst if there is
evidence that it is not functional; for example, if rattling pieces
inside a catalyst show that it has lost its physical integrity, it would
need to be replaced. See Sec. 1068.120 for more detailed information.
These rebuilding provisions define good maintenance and rebuilding
practices to help someone avoid violating the prohibition on ``removing
or disabling'' emission control systems. These provisions therefore
apply also to individuals who rebuild their own engines. However, we do
not require such individuals to keep records to document compliance.
We request comment on applying these proposed requirements for
engine rebuilding and maintenance to the engines and vehicles subject
to this rulemaking. In addition, we request

[[Page 28201]]

comment on the associated recordkeeping requirements.

C. Exemptions (Part 1068, Subpart C)

We are proposing to apply several exemptions for certain specific
situations, consistent with previous rulemakings. In general, exempted
engines would need to comply with the requirements only in the sections
related to the exemption. Note that additional restrictions could apply
to importing exempted engines (see Section VIII.D). We may also require
manufacturers (or importers) to add a permanent label describing that
the engine is exempt from emission standards for a specific purpose. In
addition to helping us enforce emission standards, this would help
ensure that imported engines clear Customs without difficulty.
(1) Testing
Anyone would be allowed to request an exemption for engines used
only for research or other investigative purposes.
(2) Manufacturer-Owned Engines
Engines that are used by engine manufacturers for development or
marketing purposes could be exempted from regulation if they are
maintained in the manufacturers' possession and are not used for any
revenue-generating service. In contrast with the testing exemption,
only certificate holders would be able to use this exemption.
(3) Display Engines
Anyone may request an exemption for an engine if it is for display only.
(4) National Security
Engine manufacturers could receive an exemption for engines they
can show are needed by an agency of the federal government responsible
for national defense. For cases where the engines will not be used on
combat applications, the manufacturer would have to request the
exemption with the endorsement of the procuring government agency.
(5) Exported Engines
Engines that will be exported to countries that do not have the
same emission standards as those that apply in the United States would
be exempted without need for a request. This exemption would not be
available if the destination country has the same emission standards as
those in the United States.
(6) Competition Engines
New engines that are used solely for competition are excluded from
regulations applicable to nonroad engines. For purposes of our
certification requirements, a manufacturer would receive an exemption
if it can show that it produces the engine specifically for use solely
in competition (see Sections III through V for specific provisions). In
addition, engines that have been modified for use in competition would
be exempt from the prohibition against tampering described above
(without need for request). The literal meaning of the term ``used
solely for competition'' would apply for these modifications. We would
therefore not allow the engine to be used for anything other than
competition once it has been modified. This also applies to someone who
would later buy the engine, so we would require the person modifying
the engine to remove or deface the original engine label and inform a
subsequent buyer in writing of the conditions of the exemption.
(7) Replacement Engines
An exemption would be available to engine manufacturers without
request if that is the only way to replace an engine from the field
that was produced before the current emission standards took effect. If
less stringent standards applied to the old engine when it was new, the
replacement engine would also have to meet those standards.
(8) Unusual Circumstance Hardship Provision
Under the unusual circumstances hardship provision, any
manufacturer subject to the proposed standards would be able to apply
for hardship relief if circumstances outside their control cause the
failure to comply and if failure to sell the subject engines or
equipment or fuel system component would have a major impact on the
company's solvency (see Sec. 1068.245). An example of an unusual
circumstance outside a manufacturer's control may be an ``Act of God,''
a fire at the manufacturing plant, or the unforeseen shutdown of a
supplier with no alternative available. The terms and time frame of the
relief would depend on the specific circumstances of the company and
the situation involved. As part of its application for hardship, a
company would be required to provide a compliance plan detailing when
and how it would achieve compliance with the standards. This hardship
provision would be available to all manufacturers of engines,
equipment, boats, and fuel system components subject to the proposed
standards, regardless of business size.
(9) Economic Hardship Provision for Small Businesses
An economic hardship provision would allow small businesses subject
to the proposed standards to petition EPA for limited additional lead
time to comply with the standards (see Sec. 1068.250). A small
business would have to make the case that it has taken all possible
business, technical, and economic steps to comply, but the burden of
compliance costs would have a significant impact on the company's
solvency. Hardship relief could include requirements for interim
emission reductions and/or the purchase and use of emission credits.
The length of the hardship relief decided during review of the hardship
application would be up to one year, with the potential to extend the
relief as needed. We anticipate that one to two years would normally be
sufficient. As part of its application for hardship, a company would be
required to provide a compliance plan detailing when and how it would
achieve compliance with the standards. This hardship provision would be
available only to small manufacturers of engines, equipment, boats, and
fuel system components subject to the standards. For the purpose of
determining which manufacturers qualify as a small business, EPA is
proposing criteria based on either a production cut-off or the number
of employees. The proposed criteria for determining which companies
qualify as a small business are contained in Section III.F.2 for SD/I
engines, Section IV.G for OB/PWC engines, Sections V.F.2 for
nonhandheld engines, V.F.3 for nonhandheld equipment, and Section
VI.G.2.f for handheld equipment, boats, and fuel system components.
(10) Hardship for Equipment Manufacturers, Vessel Manufacturers, and
Secondary Engine Manufacturers
Equipment manufacturers and boat builders in many cases will depend
on engine manufacturers and fuel system component manufacturers to
supply certified engines and fuel system components in time to produce
complying equipment or boats by the date emission standards begin to
apply. We are aware of other regulatory control programs where
certified engines have been available too late for equipment
manufacturers to adequately accommodate changing engine size or
performance characteristics. To address this concern, we are proposing
to allow Small SI equipment manufacturers and Marine SI boat builders
to request up to one extra year before using certified engines or fuel
system components if

[[Page 28202]]

they are unable to obtain certified product and they are not at fault
and would face serious economic hardship without an extension. See
Sec. 1068.255 for the proposed regulatory text related to this hardship.
In addition, we are aware that some manufacturers of nonroad
engines are dependent on another engine manufacturer to supply base
engines that are then modified for the final application. Similar to
equipment or vessel manufacturers, these ``secondary engine
manufacturers'' may face difficulty in producing certified engines if
the manufacturer selling the base engine makes an engine model
unavailable with short notice. These secondary engine manufacturers
generally each buy a relatively small number of engines and would
therefore not necessarily be able to influence the marketing or sales
practices of the engine manufacturer selling the base engine. As a
result, we are proposing that secondary engine manufacturers could
apply for this hardship as well. However, because these secondary
engine manufacturers control the final design of their modified engine
and could benefit in the market if they are allowed to produce a
product certified to less stringent standards than their competitors,
we would generally not approve an exemption unless the secondary engine
manufacturer committed to a plan to make for any calculated loss in
environmental benefit. Provisions similar to this hardship were already
adopted for Large SI engines and recreational vehicles. See the
existing regulatory text in Sec. 1068.255(c).
(11) Delegated Final Assembly
The regulations in 40 CFR 1068.260 allow for flexible manufacturing
for companies that produce engines that rely on aftertreatment. These
regulations allow for equipment manufacturers to receive separate
shipment of aftertreatment devices with the obligation resting on the
equipment manufacturer to correctly install the aftertreatment on the
engine when installing the engine in the equipment. Allowing for this
practice requires an exemption from provisions which prohibit an engine
from being introduced into commerce in its uncertified configuration.
The provisions in Sec. 1068.260 to prevent improper use of this
exemption include requirements to (1) Have contractual arrangements
with equipment manufacturers; (2) submit affidavits to EPA regarding
the use of the exemption; (3) include the price of the aftertreatment
in the cost of the engine (to avoid giving equipment manufacturers an
incentive to reduce costs inappropriately); and (4) periodically audit
the affected equipment manufacturers.
These provisions are not likely to be necessary for most Marine SI
engine manufacturers. We do not expect outboard or personal watercraft
engine manufacturers to use aftertreatment technology. For sterndrive/
inboard engines, we expect catalyst designs generally to be so integral
to the exhaust manifold that engine manufacturers will include them
with their engines. However, their may be some less common designs,
such as engines on large vessels or airboats, where engine
manufacturers may want to use the provisions allowing for separate
shipment of aftertreatment. We are therefore proposing to adopt the
provisions of Sec. 1068.260 without change for Marine SI engines.
Manufacturers of handheld Small SI engines typically build both the
engine and the equipment so we are proposing not to allow for delegated
assembly with these engines.
In contrast, nonhandheld engines (especially Class II) are built by
engine manufacturers and sold to equipment manufacturers, often without
complete fuel or exhaust systems. Ensuring that consumers get only
engines that are in a certified configuration therefore requires a
carefully crafted program. As described in Section V.E.2, we are
proposing special provisions to accommodate the unique circumstances
related to nonhandheld Small SI engines.
(12) Uncertified Engines Subject to Emission Standards
In some cases we require manufacturers to meet certain emission
standards without requiring certification, most commonly for
replacement engines. In 40 CFR 1068.265 we spell out manufacturers
obligations for these compliant but uncertified engines. Manufacturers
must have test data showing that their engines meet the applicable
emission standards and are liable for the emission performance of their
engines, much like for certified engines, but are not required to
submit an application for certification and get EPA approval before
selling the engine. We propose to apply these provisions without
modification for Small SI engines and Marine SI engines.

D. Imports (Part 1068, Subpart D)

In general, the same certification requirements would apply to
engines and equipment whether they are produced in the United States or
are imported. The regulations in part 1068 also include some additional
provisions that would apply if someone wants to import an exempted or
excluded engine.
All the proposed exemptions described above for new engines would
also apply to importation, though some of these exemptions apply only
on a temporary basis. An approved temporary exemption would be
available only for a defined period. We could require the importer to
post bond while the engine is in the United States. There are several
additional proposed exemptions that would apply only to imported engines.
• Identical configuration: This is a permanent exemption to
allow individuals to import engines that were designed and produced to
meet applicable emission standards. These engines may be different than
certified engines only in the fact that the emission label is missing
because they were not intended for sale in the United States.
• Ancient engines: We would generally treat used engines as
new if they are imported without a certificate of conformity. However,
this permanent exemption would allow for importation of uncertified
engines if they are more than 20 years old and remain in their original
configuration.
• Repairs or alterations: This is a temporary exemption to
allow companies to repair or modify engines. This exemption does not
allow for operating the engine except as needed to do the intended
work. This exemption would also apply for the practice for retiring
bigger engines; noncompliant engines may be imported under this
exemption for the purpose of recovering the engine block.
• Diplomatic or military: This is a temporary exemption to
allow diplomatic or military personnel to use uncertified engines
during their term of service in the U.S.
We request comment on all these exemptions for domestically
produced and imported engines and vehicles.

E. Selective Enforcement Audit (Part 1068, Subpart E)

Clean Air Act section 206(b) gives us the discretion in any program
with vehicle or engine emission standards to do selective enforcement
auditing of production engines. We would do a selective enforcement
audit by choosing an engine family and giving the manufacturer a test
order that details a testing program to show that production-line
engines meet emission standards. The regulation text describes the
audit procedures in greater detail.

[[Page 28203]]

We intend generally to rely on manufacturers' testing of
production-line engines to show that they are consistently building
products that conform to the standards. However, we reserve our right
to do selective enforcement auditing if we have reason to question the
emission testing conducted and reported by the manufacturer or for
other reasons.

F. Defect Reporting and Recall (Part 1068, Subpart F)

We are proposing to apply the defect reporting requirements of
Sec. 1068.501 to replace the provisions of 40 CFR part 85 for nonroad
engines. The requirements obligate manufacturers to tell us when they
learn that emission control components or systems are defective and to
conduct investigations under certain circumstances to determine if an
emission-related defect is present. We are also proposing a requirement
that manufacturers initiate these investigations when warranty claims
and other available information indicate that a defect investigation
may be fruitful. For this purpose, we consider defective any part or
system that does not function as originally designed for the regulatory
useful life of the engine or the scheduled replacement interval
specified in the manufacturer's maintenance instructions.
We believe the investigation requirement proposed in this rule will
allow both EPA and the engine manufacturers to fully understand the
significance of any unusually high rates of warranty claims that may
have an impact on emissions. We believe prudent engine manufacturers
already conduct a thorough investigation when available data indicate
recurring parts failures as part of their normal practice to ensure
product quality. Such data are valuable and readily available to most
manufacturers and, under this proposal, must be considered to determine
whether or not there is a possible defect of an emission-related part.
Defect reports submitted in compliance with the current regulations
are based on a single threshold applicable to engine families of all
production volumes. No affirmative requirement for gathering
information about the full extent of the problem applies. Many Small SI
engine families have very high sales volumes. The proposed approach may
therefore result in fewer total defect reports that should be submitted
compared with the traditional approach because the number of defects
triggering the submission requirement generally rises in proportion to
the engine family size. Under the existing regulations, very small
engine families would likely never report even a prominent defect
because a relatively high proportion of such engines would have to be
known to be defective before reporting is required under a scheme with
fixed thresholds. The proposed threshold for reporting for the smallest
engine families is therefore lower than under the current regulations.
We are aware that accumulation of warranty claims will likely
include many claims and parts that do not represent defects, so we are
establishing a relatively high threshold for triggering the
manufacturer's responsibility to investigate whether there is, in fact,
a real occurrence of an emission-related defect.
This proposal is intended to require manufacturers to use
information we would expect them to keep in the normal course of
business. We believe in most cases manufacturers would not be required
to institute new programs or activities to monitor product quality or
performance. A manufacturer that does not keep warranty information may
ask for our approval to use an alternate defect-reporting methodology
that is at least as effective in identifying and tracking potential
emission-related defects as the proposed requirements. However, until
we approve such a request, the proposed thresholds and procedures
continue to apply.
The proposed investigation thresholds are ten percent of total
production to date up to a total production of 50,000 engines, but
never fewer than 50 for any single engine family in one model year. For
production between 50,000 and 550,000 units, the investigation
threshold would increase at a marginal rate of four percent. For all
production above 550,000 an investigation threshold of 25,000 engines
would apply. For example, for an engine family with a sales volume of
20,000 units in a given model year, the manufacturer would have to
investigate potential emission-related defects after identifying 2,000
possible defects. For an engine family with a sales volume of 450,000
units in a given model year, the manufacturer would have to investigate
potential emission-related defects after identifying 21,000 possible
defects. These thresholds reflect the relevant characteristics of
nonroad engines, such as the varying sales volumes, engine
technologies, and warranty and maintenance practices.
To carry out an investigation to determine if there is an emission-
related defect, manufacturers would have to use available information
such as preexisting assessments of warranted parts. Manufacturers would
also have to gather information by assessing previously unexamined
parts submitted with warranty claims and replacement parts which are
available or become available for examination and analysis. If
available parts are deemed too voluminous to conduct a timely
investigation, manufacturers would be permitted to employ appropriate
statistical analyses of representative data to help draw timely
conclusions regarding the existence of a defect. These investigative
activities should be summarized in the periodic reports of recently
opened or closed investigations, as discussed below. It is important to
note that EPA does not regard having reached the investigation
thresholds as conclusive proof of the existence of a defect, only that
initiation of an appropriate investigation is merited to determine
whether a defect exists.
The second threshold in this proposal specifies when a manufacturer
must report that an emission-related defect exists. This threshold
involves a smaller number of engines because each potential defect has
been screened to confirm that it is an emission-related defect. In
counting engines to compare with the defect-reporting threshold, the
manufacturer would consider a single engine family and model year.
However, when a defect report is required, the manufacturer would
report all occurrences of the same defect in all engine families and
all model years that use the same part. The threshold for reporting a
defect is two percent of total production for any single engine family
for production up to 50,000 units, but never fewer than 20 for any
single engine family in one model year. For production between 50,000
and 550,000 units, the investigation threshold would increase at a
marginal rate of one percent. For all production above 550,000 an
investigation threshold of 6,000 engines would apply.
It is important to note that while EPA regards occurrence of the
defect threshold as proof of the existence of a reportable defect, it
does not regard that occurrence as conclusive proof that recall or
other action is merited.
If the number of engines with a specific defect is found to be less
than the threshold for submitting a defect report, but warranty claims
or other information later indicate additional potentially defective
engines, under this proposal the information must be aggregated for the
purpose of determining whether the threshold for submitting a defect
report has been met. If a manufacturer has knowledge from any source
that the threshold for submitting a defect report has been met,

[[Page 28204]]

a defect report would have to be submitted even if the trigger for
investigating has not yet been met. For example, if manufacturers
receive information from their dealers, technical staff, or other field
personnel showing conclusively that a recurring emission-related defect
exists, they would have to submit a defect report if the submission
threshold is reached.
At specified times, the manufacturer would have to report open
investigations as well as recently closed investigations that did not
require a defect report. We are not proposing a fixed time limit for
manufacturers to complete their investigations. However, the periodic
reports required by the regulations will allow us to monitor these
investigations and determine if it is necessary or appropriate for us
to take further action.
We request comment on all aspects of this approach to defect
reporting. We also request comment on whether these reporting
requirements should also apply to the current Phase 2 compliance
program and if so, when these provisions should be applied.
Under Clean Air Act section 207, if we determine that a substantial
number of engines within an engine family, although properly used and
maintained, do not conform to the appropriate emission standards, the
manufacturer must remedy the problem and conduct a recall of the
noncomplying engine family. However, we recognize that in some cases
recalling noncomplying nonroad engines may not achieve sufficient
environmental protection, so instead of making a determination of a
substantial number of nonconforming engines (and thereby triggering a
recall responsibility), we may allow manufacturers in some cases to
nominate alternative remedial measures to address most potential
noncompliance situations.

G. Hearings (Part 1068, Subpart G)

According to this regulation, manufacturers would have the
opportunity to challenge our decision to deny an application for
certification or to suspend, revoke, or void an engine family's
certificate. This also applies to our decision to reject the
manufacturer's use of good engineering judgment (see Sec. 1068.5), and
to our decisions related to emission-credit programs. Part 1068,
subpart G, references the proposed procedures for a hearing to resolve
such disputes.

IX. General Test Procedures

The regulatory text in part 1065 is written with the intent to
apply broadly to EPA engine programs. Part 1065 was originally adopted
on November 8, 2002 (67 FR 68242) and currently applies for nonroad
diesel engines, large nonroad spark-ignition engines and recreational
vehicles under 40 CFR parts 1039, 1048 and 1051, respectively. The
regulatory text was substantially revised in a recent rulemaking to make
a variety of corrections and improvements (70 FR 40420, July 13, 2005).
This proposal applies to anyone who tests engines to show that they
meet the emission standards for Small SI engines or Marine SI engines.
This includes certification testing as well as all production-line and
in-use testing. See the program descriptions above for testing
provisions that are unique to each category of engines.
We are proposing to apply the existing test provisions in part 1065
for all Small SI engines and Marine SI engines. See Sections III
through V for testing issues that are specific to the particular engine
categories. In addition, we are proposing to allow manufacturers to use
the provisions of part 1065 even before the proposed new standards take
effect. This would allow manufacturers to migrate to the new test
procedures sooner. This may involve upgrading to different types of
analyzers that are specified in part 1065 but not in part 90 or part
91. It may also involve recoding computers to do modal calculations
specified in part 1065 instead of the weight-based calculations in part
90 or part 91. At the same time, this would allow EPA to do
confirmatory testing using the upgraded procedures without waiting for
the proposed new standards to apply. This is important because EPA
testing facilities are used for many different programs and the
conversion to testing according to part 1065 specifications is well
underway. We are aware that the new test specifications regarding
engine mapping, generating duty cycles, and applying cycle-validation
criteria would affect the emission measurements so we would follow the
manufacturers' methods for these parameters in any case. For any other
parameters, we would understand any differences between test procedures
specified in parts 90, 91, and 1065 either to have no effect on
emission measurements or to improve the accuracy of the measurement.
We have identified various provisions in part 90 and part 91 that
may need correction or adjustment. We request comment on the following
possible changes:
• Changing the standard temperature condition for volume-
related calculations in Sec. 90.311(a)(2) and Sec. 91.311(a)(2) from
25 [deg]C to 20 [deg]C. This would be consistent with EPA's test
regulations, including the specifications in Sec. 1065.640.
• Removing the requirement to derive calibration and span
gas concentrations from NIST Standard Reference Materials in Sec.
90.312(c) and Sec. 91.312(c). This goes beyond the traceability
requirements of other EPA test regulations and standard lab practices.
We could instead refer to Sec. 1065.750 for calibration and span gas
concentrations.
• Changing the direction for specifying gas concentrations
in Sec. 90.312(c)(3) and Sec. 91.312(c)(3) from a volumetric basis to
a molar basis.
• Correcting inconsistent requirements related to gas
dividers. The regulations at Sec. 90.312(c)(4) and Sec. 91.312(c)(4)
specify an accuracy of ±2 percent, while Sec. 90.314(c) and
Sec. 91.314(c) specify an accuracy of ±1.5 percent. We
could select one of these values, or we could refer to the gas divider
specifications in Sec. 1065.248 and Sec. 1065.307.
• Correcting inconsistent specifications related to the
timing of CO interference checks. The regulations at Sec. 90.317(b)
and Sec. 91.317(b) specify that interference checks occur as part of
annual maintenance, Sec. 90.325(a) and Sec. 91.325(a) specify that
interference checks occur after any major repairs that could affect
analyzer performance. We believe it would be most appropriate to make
these consistent based on the specification in Sec. 1065.303, which
calls for interference checks to occur after major maintenance.
As we have done in previous programs, we are proposing specific
test procedures to define how measurements are to be made but would
allow the use of alternate procedures if they are shown to be
equivalent to our specified procedures.\98\ The test procedures
proposed in part 1065 are derived from our test procedures in 40 CFR
part 86 for highway heavy-duty gasoline engines and light-duty
vehicles. The procedures have been simplified (and to some extent
generalized) to better fit nonroad engines. The procedures in part 1065
currently apply to recreational vehicles and to nonroad spark-ignition
engines above 19 kW. We request comment on all aspects of these
proposed test procedures. We also request comment regarding whether any
additional parts of the test procedures contained in 40 CFR part 86
(for highway vehicles and engines), in other parts that apply to
nonroad engines, or

[[Page 28205]]

in ISO 8178 should be incorporated into the final test procedures.
---------------------------------------------------------------------------

\98\ Note that the published procedures still apply if we
approve a manufacturer's use of an alternative procedure. EPA
testing may be done using the published procedures or the alternate
procedures approved for a given engine family.
---------------------------------------------------------------------------

A. Overview

Part 1065 is organized by subparts as shown below:
• Subpart A: General provisions; global information on
applicability, alternate procedures, units of measure, etc.
• Subpart B: Equipment specifications; required hardware for testing
• Subpart C: Measurement instruments
• Subpart D: Calibration and verifications; for measurement systems
• Subpart E: Engine selection, preparation, and maintenance
• Subpart F: Test protocols; step-by-step sequences for
laboratory testing and test validation
• Subpart G: Calculations and required information
• Subpart H: Fuels, fluids, and analytical gases
• Subpart I: Oxygenated fuels; special test procedures
• Subpart J: Field testing and portable emissions measurement systems
• Subpart K: Definitions, references, and symbols
The regulations prescribe scaled specifications for test equipment
and measurement instruments by parameters such as engine power, engine
speed and the emission standards to which an engine must comply. That
way this single set of specifications will cover the full range of
engine sizes and our full range of emission standards. Manufacturers
will be able to use these specifications to determine what range of
engines and emission standards may be tested using a given laboratory
or field testing system.
The content already adopted in part 1065 is mostly a combination of
material from our most recent updates to other test procedures and from
test procedures specified by the International Organization for
Standardization (ISO). There are also some provisions we created
specifically for part 1065, generally to address very recent advances
such as measuring very low concentrations of emissions, using new
measurement technology, using portable emissions measurement systems,
and performing field testing.
The content in part 1065 also reflects a shift in our approach for
specifying measurement performance. In the past we specified numerous
calibration accuracies for individual measurement instruments, and we
specified some verifications for individual components such as
NO₂-to-NO converters. We have shifted our focus away from
individual instruments and toward the overall performance of complete
measurement systems. We did this for several reasons. First, some of
what we specified in the past precluded the implementation of new
measurement technologies. These new technologies, sometimes called
``smart analyzers,'' combine signals from multiple instruments to
compensate for interferences that were previously tolerable at higher
emissions levels. These analyzers are useful for detecting low
concentrations of emissions. They are also useful for detecting
emissions from raw exhaust, which can contain high concentrations of
interferences, such as water vapor. This is particularly important for
field testing, which will most likely rely upon raw exhaust
measurements. Second, this new ``systems approach'' requires periodic
verifications for complete measurement systems, which we feel will
provide a more robust assurance that a measurement system as a whole is
operating properly. Third, the systems approach provides a direct
pathway to demonstrate that a field test system performs similarly to a
laboratory system. Finally, we feel that our systems approach will lead
to a more efficient way of ensuring measurement performance in the
laboratory and in the field. We believe this efficiency will stem from
less frequent calibrations of individual instruments and higher
confidence that a complete measurement system is operating properly.
Below is a brief description of the content of each subpart. The
discussion highlights some recent changes to part 1065. We are not
proposing any changes to part 1065 as part of this proposal, but we
intend to make various changes to part 1065 as part of a concurrent
rulemaking to set new emission standards for marine diesel and
locomotive engines. Manufacturers of engines that are the subject of
this proposal are encouraged to stay abreast of testing changes that we
propose in this other rulemaking.
(1) Subpart A General Provisions
In Subpart A we identify the applicability of part 1065 and
describe how procedures other than those in part 1065 may be used to
comply with a standard-setting part. In Sec. 1065.10(c)(1) we specify
that testing must be conducted in a way that represents in-use engine
operation, such that in the rare case where provisions in part 1065
result in unrepresentative testing, we may cooperate with manufacturers
to work out alternative testing approaches for demonstrating compliance
with emission standards. Another aspect of representative testing
relates to the desire to maintain consistency between certification
testing and in-use testing. If we or manufacturers test in-use engines,
we would expect the engine to be removed from the equipment and
installed on an engine dynamometer for testing with no changes to the
engine (including the governor, fuel system, exhaust system and other
components).
In Sec. 1065.10(c)(7) and Sec. 1065.12 we describe a process by
which we may approve alternative test procedures that we determine to
be equivalent to (or more accurate than) the specified procedures.
Given the new testing specifications in part 1065 and the standard-
setting parts, and this more detailed approach to approving alternative
test procedures, we will not allow manufacturers to continue testing
based on any earlier approvals for alternative testing under part 90 or
part 91. Any manufacturer wishing to continue testing with any method,
device, or specification that departs from that included in this proposal
would need to request approval for such testing under Sec. 1065.10(c)(7).
Other information in this subpart includes a description of the
conventions we use regarding units and certain measurements and we
discuss recordkeeping. We also provide an overview of how emissions and
other information are used for determining final emission results. The
regulations in Sec. 1065.15 include a figure illustrating the
different ways we allow brake-specific emissions to be calculated.
In this same subpart, we describe how continuous and batch sampling
may be used to determine total emissions. We also describe the two ways
of determining total work that we approve. Note that the figure
indicates our default procedures and those procedures that require
additional approval before we will allow them.
(2) Subpart B Equipment Specifications
Subpart B first describes engine and dynamometer related systems.
Many of these specifications are scaled to an engine's size, speed,
torque, exhaust flow rate, etc. We specify the use of in-use engine
subsystems such as air intake systems wherever possible to best
represent in-use operation when an engine is tested in a laboratory.
Subpart B also describes sampling dilution systems. These include
specifications for the allowable components, materials, pressures, and
temperatures. We describe how to sample crankcase emissions.
The regulations in Sec. 1065.101 include a diagram illustrating
all the available equipment for measuring emissions.

[[Page 28206]]

(3) Subpart C Measurement Instruments
Subpart C specifies the requirements for the measurement
instruments used for testing. These specifications apply to both
laboratory and field testing. In subpart C we recommend accuracy,
repeatability, noise, and response time specifications for individual
measurement instruments, but note that we require that overall
measurement systems meet the calibrations and verifications in Subpart D.
In some cases we allow new instrument types to be used where we
previously did not allow them. For example, we now allow the use of a
nonmethane cutter for NMHC measurement, a nondispersive ultraviolet
analyzers for NO_X measurement, zirconia sensors for
O₂ measurement, various raw-exhaust flow meters for
laboratory and field testing measurement, and an ultrasonic flow meter
for CVS systems.
(4) Subpart D Calibrations and Verifications
Subpart D describes what we mean when we specify accuracy,
repeatability and other parameters in Subpart C. These specifications
apply to both laboratory and field testing. We are adopting
calibrations and verifications that scale with engine size and with the
emission standards to which an engine is certified. We are replacing
some of what we have called ``calibrations'' in the past with a series
of verifications, such as a linearity verification, which essentially
verifies the calibration of an instrument without specifying how the
instrument must be initially calibrated. Because new instruments have
built-in routines that linearize signals and compensate for various
interferences, our existing calibration specifications sometimes
conflicted with an instrument manufacturer's instructions. In addition,
there are new verifications in subpart D to ensure that the new
instruments we specify in Subpart C are used correctly.
(5) Subpart E Engine Selection, Preparation, and Maintenance
Subpart E describes how to select, prepare, and maintain a test
engine. We updated these provisions to include both gasoline and diesel
engines.
(6) Subpart F Test Protocols
Subpart F describes the step-by-step protocols for engine mapping,
test cycle generation, test cycle validation, pre-test preconditioning,
engine starting, emission sampling, and post-test validations. We
adopted an improved way to map and generate cycles for constant-speed
engines that would better represent in-use engine operation. We adopted
a more streamlined set of test cycle and validation criteria. We allow
modest corrections for drift of emission analyzer signals within a
certain range.
(7) Subpart G Calculations and Required Information
Subpart G includes all the calculations required in part 1065. We
adopted definitions of statistical quantities such as mean, standard
deviation, slope, intercept, t-test, F-test, etc. By defining these
quantities mathematically we intend to resolve any potential ambiguity
when we discuss these quantities in other subparts. We have written all
calculations for calibrations and emission calculations in
international units to comply with 15 CFR part 1170, which removes the
voluntary aspect of the conversion to international units for federal
agencies. Furthermore, Executive Order 12770 (56 FR 35801, July 29,
1991) reinforces this policy by providing Presidential authority and
direction for the use of the metric system of measurement by Federal
agencies and departments. For our standards that are not completely in
international units (i.e., grams/horsepower-hour, grams/mile), we
specify in part 1065 the correct use of internationally recognized
conversion factors.
We also specify emission calculations based on molar quantities for
flow rates instead of volume or mass. This change eliminates the
frequent confusion caused by using different reference points for
standard pressure and standard temperature. Instead of declaring
standard densities at standard pressure and standard temperature to
convert volumetric concentration measurements to mass-based units, we
declare molar masses for individual elements and compounds. Since these
values are independent of all other parameters, they are known to be
universally constant.
(8) Subpart H Fuels, Fluids, and Analytical Gases
Subpart H specifies test fuels, lubricating oils and coolants, and
analytical gases for testing. We are not identifying any detailed
specification for service accumulation fuel. Instead, we specify that
service accumulation fuel must be either a test fuel or a commercially
available in-use fuel. This helps ensure that testing is representative
of in-use engine operation. We are adding a list of ASTM specifications
for in-use fuels as examples of appropriate service accumulation fuels.
Compared to the proposed regulatory language, we have clarified that
Sec. 1065.10(c)(1) does not require test fuels to be more
representative than the specified test fuels. We have added an
allowance to use similar test fuels that do not meet all of the
specifications provided they do not compromise the manufacturer's
ability to demonstrate compliance. We also now allow the use of ASTM
test methods specified in 40 CFR part 80 in lieu of those specified in
part 1065. We did this because we may more frequently review and update
the ASTM methods in part 80 versus those in part 1065.
Proper testing requires the use of good engineering judgment to
maintain the stability of analytical gases.
(9) Subpart I Oxygenated Fuels
Subpart I describes special procedures for measuring certain
hydrocarbons whenever oxygenated fuels are used. We updated the
calculations for these procedures in Subpart G. We have made some
revisions to the proposed text to make it consistent with the original
content of the comparable provisions in part 86. We have also added an
allowance to use the California NMOG test procedures to measure
alcohols and carbonyls.
(10) Subpart J Field Testing and Portable Emissions Measurement Systems
Portable Emissions Measurement Systems (PEMS) for field testing for
marine spark-ignition engines must generally meet the same
specifications and verifications that laboratory instruments must meet
according to subparts B, C, and D. However, we allow some deviations
from laboratory specifications. In addition to meeting many of the
laboratory system requirements, a PEMS must meet an overall
verification relative to laboratory measurements. This verification
involves repeating a duty cycle several times. The duty cycle itself
must have several individual field-test intervals (e.g., NTE events)
against which a PEMS is compared to the laboratory system. This is a
comprehensive verification of a PEMS. We also adopted a procedure for
preparing and conducting a field test and adopted drift corrections for
emission analyzers. Given the evolving state of PEMS technology, the
field-testing procedures provide for a number of known measurement
techniques. We have added provisions and conditions for using PEMS in
an engine dynamometer laboratory to conduct laboratory testing.

[[Page 28207]]

(11) Subpart K Definitions, References, and Symbols
Subpart K includes all the defined terms, identification of
reference materials, and lists of acronyms and abbreviations used
throughout part 1065.

B. Special Provisions for Nonroad Spark-Ignition Engines

While part 1065 defines a wide range of specifications to define
appropriate test procedures, several parameters are unique to each
program. For example, each category of engines has one or more duty
cycles that describe exactly how to operate each engine during the
test. These category-specific provisions are described in part 1045,
subpart F, for Marine SI engines and in part 1054, subpart F, for Small
SI engines.
Manufacturers may run the specified steady-state duty cycle either
as a series of discrete modes or as a ramped-modal cycle. The ramped-
modal cycle specifies the same engine speeds and loads as in
conventional discrete-mode testing, but the modes are connected by
gradual ramps in engine speed and torque for a single, continuous
emission-sampling period. The different modes are connected with
twenty-second linear speed and torque transitions during which
emissions are measured. Emission sampling therefore starts at the
beginning of a ramped-modal cycle and does not stop until its last mode
is completed.
Ramped-modal cycles involve a different sequence of modes than is
specified for discrete-mode testing. For example, the first mode, which
is engine idle, is split so that half the idle mode occurs at the
beginning of the test and half occurs at the end of the test. This
helps facilitate certain technical aspects of emission sampling.
Instead of using weighting factors for each steady-state mode, a
ramped-modal cycle specifies different time durations for each mode.
Time durations of the modes and transitions are proportioned to the
established modal weighting factors for the specified cycle.
There are several advantages to ramped-modal testing. Using
discrete-mode testing, manufacturers sample emissions for an
unspecified time duration near the end of each individual mode. The
result is several separate measurements that must be combined
mathematically to yield an overall emission result in g/kW-hr. The
ramped-modal cycle has a single emission-sampling period. This
decreases testing variability and reduces the overall cost of running
tests. Ramped-modal testing also enables the use of batch sampling
systems such as bag samplers.

X. Energy, Noise, and Safety

Section 213 of the Clean Air Act directs us to consider the
potential impacts on safety, noise, and energy when establishing the
feasibility of emission standards for nonroad engines. Furthermore,
section 205 of EPA's 2006 Appropriations Act requires us to assess
potential safety issues, including the risk of fire and burn to
consumers in use, associated with the proposed emission standards for
nonroad spark-ignition engines below 50 horsepower.\99\ As further
detailed in the following sections, we expect that the proposed exhaust
and evaporative emission standards will either have no adverse affect
on safety, noise, and energy or will improve certain aspects of these
important characteristics. A more in depth discussion of these topics
relative to the proposed exhaust and evaporative emission standards is
contained in Chapters 4 and 5 of the Draft RIA, respectively. Also, our
conclusions relative to safety are fully documented in our
comprehensive safety study which is discussed in the next section.
---------------------------------------------------------------------------

\99\ Department of the Interior, Environment, and Related
Agencies Appropriations Act, 2006, Pub. L. 109-54, Title II, sec.
205, 119 Stat. 499, 532 (August 2, 2005).
---------------------------------------------------------------------------

A. Safety

We conducted a comprehensive, multi-year safety study of spark-
ignition engines that focused on the four areas where we are proposing
new emission standards.\100\ These areas are:
---------------------------------------------------------------------------

\100\ ``EPA Technical Study on the Safety of Emission Controls
for Nonroad Spark-Ignition Engines < 50 Horsepower,'' Office of
Transportation and Air Quality, U.S. Environmental Protection
Agency, Washington, DC, EPA420-R-06-006, March 2006. This document
is available in Docket EPA-HQ-OAR-2004-0008. This report was also
subject to peer review, as described in a peer review report that is
also available in the docket.
---------------------------------------------------------------------------

• New catalyst-based HC+NO_X exhaust emission
standards for Class I and Class II nonhandheld spark-ignition engines;
• New fuel evaporative emission standards for nonhandheld
and handheld equipment;
• New HC+NO_X exhaust emission standards for
outboard and personal watercraft engines and vessels, and a new CO
exhaust emission standard for nonhandheld engines used in marine
auxiliary applications; and
• New fuel evaporative emission standards for outboard and
personal watercraft engines and vessels.
Each of these four areas is discussed in greater detail in the next
sections.
(1) Exhaust Emission Standards for Small Spark-Ignition Engines
The technology approaches that we assessed for achieving the
proposed Small SI engine standards included exhaust catalyst
aftertreatment and improvements to engine and fuel system designs. In
addition to our own testing and development effort, we also met with
engine and equipment manufacturers to better understand their designs
and technology and to determine the state of technological progress
beyond EPA's Phase 2 emission standards.
The scope of our safety study included Class I and Class II engine
systems that are used in residential walk-behind and ride-on lawn mower
applications, respectively. Residential lawn mower equipment was chosen
for the following reasons.
• Lawn mowers and the closely-related category of lawn
tractors overwhelmingly represent the largest categories of equipment
using Class I and Class II engines.
• Consumer Product Safety Commission (CPSC) data indicate
that more thermal burn injuries are associated with lawn mowers than
occur with other nonhandheld equipment; lawn mowers therefore represent
the largest thermal burn risk for these classes of engines.
• General findings regarding advanced emission control
technologies for residential lawn and garden equipment carry over to
commercial lawn and turf care equipment as well as to other nonhandheld
equipment using Class I and Class II engines.
We conducted the technical study of the incremental risk on several
fronts. First, working with CPSC, we evaluated their reports and
databases and other outside sources to identify those in-use situations
which create fire and burn risk for consumers. The outside sources
included meetings, workshops, and discussions with engine and equipment
manufacturers. From this information, we identified ten scenarios for
evaluation that covered a comprehensive variety of in-use conditions or
circumstances which potentially could lead to an increased risk in
burns or fires.
Second, we conducted extensive laboratory and field testing of both
current technology (Phase 2) and prototype catalyst-equipped advanced-
technology engines and equipment (Phase 3) to assess the emission
control performance and thermal characteristics of the engines and
equipment. This testing included a comparison of exhaust system,
engine, and equipment

[[Page 28208]]

surface temperatures using still and full motion video thermal imaging
equipment.
Third, we conducted a design and process Failure Mode and Effects
Analyses (FMEA) comparing current Phase 2 and Phase 3 compliant engines
and equipment to evaluate incremental changes in risk probability as a
way of evaluating the incremental risk of upgrading Phase 2 engines to
meet Phase 3 emission standards.\101\ This is an engineering analysis
tool to help engineers and other professional staff to identify and
manage risk. In an FMEA, potential failure modes, causes of failure,
and failure effects are identified and a resulting risk probability is
calculated from these results. This risk probability is used by the
FMEA team to rank problems for potential action to reduce or eliminate
the causal factors. Identifying these causal factors is important
because they are the elements that a manufacturer can consider to reduce
the adverse effects that might result from a particular failure mode.
---------------------------------------------------------------------------

\101\ ``EPA Technical Study on the Safety of Emission Controls
for Nonroad Spark-Ignition Engines < 50 Horsepower,'' Office of
Transportation and Air Quality, U.S. Environmental Protection
Agency, Washington, DC, EPA420-R-06-006, March 2006. This document
is available in Docket EPA-HQ-OAR-2004-0008.
---------------------------------------------------------------------------

Our technical work and subsequent analysis of all of the data and
information strongly indicate that effective catalyst-based standards
can be implemented without an incremental increase in the risk of fire
or burn to the consumer either during or after using the equipment.
Similarly, we did not find any increase in the risk of fire during
refueling or in storage near typical combustible materials. For
example, our testing program demonstrated that properly designed
catalyst-mufflers could, in some cases, actually result in systems that
were significantly cooler than many current original equipment
mufflers. A number of design elements appear useful to properly
managing heat loads including: (1) The use of catalyst designs that
minimize CO oxidation through careful selection of catalyst size,
washcoat composition, and precious metal loading; (2) positioning the
catalyst within the cooling air flow of the engine fan or redirecting
some cooling air over the catalyst area with a steel shroud; (3)
redirecting exhaust flow through multiple chambers or baffles within
the catalyst-muffler; and (4) larger catalyst-muffler volumes than the
original equipment muffler.
(2) Fuel Evaporative Emission Standards for Nonhandheld and Handheld
Engines and Equipment
We reviewed the fuel line and fuel tank characteristics for
nonhandheld and handheld equipment and evaluated control technology
which could be used to reduce evaporative emissions from these two
subcategories. The available technology is capable of achieving
reductions in fuel tank and fuel line permeation without an adverse
incremental impact on safety. For fuel lines and fuel tanks, the
applicable consensus safety standards, manufacturer specific test
procedures and EPA requirements are sufficient to ensure that there
will be no increase in the types of fuel leaks that lead to fire and
burn risk during in-use operation. Instead, these standards will reduce
vapor emissions both during operation and in storage. That reduction,
coupled with some expected equipment redesign, is expected to lead to
reductions in the risk of fire or burn without affecting component
durability.
The Failure Mode and Effects Analyses, which was described in the
previous section, also evaluated permeation and running loss controls
on nonhandheld engines. We found that these controls would not increase
the probability of fire and burn risk from those expected with current
fuel systems, but could in fact lead to directionally improved systems
from a safety perspective. Finally, the running loss control program
being proposed for nonhandheld equipment will lead to changes that are
expected to reduce risk of fire during in-use operation. Moving fuel
tanks away from heat sources, improving cap designs to limit leakage on
tip over, and requiring a tethered cap will all help to eliminate
conditions which lead to in-use problems related to fuel leaks and
spillage. Therefore, we believe the application of emission control
technology to reduce evaporative emissions from these fuel lines and
fuel tanks will not lead to an increase in incremental risk of fires or
burns and in some cases is likely to at least directionally reduce such
risks.
(3) Exhaust Emission Standards for Outboard and Personal Watercraft
Marine Engines and Vessels and Marine Auxiliary Engines
Our analysis of exhaust emission standards for OB/PWC engines and
marine auxiliary engines found that the U. S. Coast Guard (USCG) has
comprehensive safety standards that apply to engines and fuel systems
used in these vessels. Additionally, organizations such as the Society
of Automotive Engineers, Underwriters Laboratories, and the American
Boat and Yacht Council (ABYC) also have safety standards that apply in
this area. We also found that the four-stroke and two-stroke direct
injection engine technologies which are likely to be used to meet the
exhaust emission standards contemplated for OB/PWC engines are in
widespread use in the vessel fleet today. These more sophisticated
engine technologies are replacing the traditional two-stroke carbureted
engines. The four-stroke and two-stroke direct injection engines meet
applicable USCG and ABYC safety standards and future products will do
so as well. The proposed emission standards must be complementary to
existing safety standards and our analysis indicates that this will be
the case. There are no known safety issues with the advanced
technologies compared with two-stroke carbureted engines. The newer-
technology engines arguably provide safety benefits due to improved
engine reliability and range in-use. Based on the applicability of USCG
and ABYC safety standards and the good in-use experience with advanced-
technology engines in the current vessel fleet, we believe new emission
standards would not create an incremental increase in the risk of fire
or burn to the consumer.
(4) Fuel Evaporative Emission Standards for Outboard and Personal
Watercraft Engines and Vessels
We reviewed the fuel line and fuel tank characteristics for marine
vessels and evaluated control technology which could be used to reduce
evaporative emissions from boats. With regard to fuel lines, fuel
tanks, and diurnal controls, there are rigorous USCG, ABYC, United
Laboratories, and Society of Automotive Engineers standards which
manufacturers will continue to meet for fuel system components. All of
these standards are designed to address the in-use performance of fuel
systems, with the goal of eliminating fuel leaks. The low-permeation
fuel lines and tanks needed to meet the Phase 3 requirements would need
to pass these standards and every indication is that they would pass.\102\
---------------------------------------------------------------------------

\102\ ``EPA Technical Study on the Safety of Emission Controls
for Nonroad Spark-Ignition Engines < 50 Horsepower,'' Office of
Transportation and Air Quality, U.S. Environmental Protection
Agency, Washington, DC, EPA420-R-06-006, March 2006. This document
is available in Docket EPA-HQ-OAR-2004-0008.
---------------------------------------------------------------------------

Furthermore, the EPA permeation certification requirements related
to emissions durability will add an additional layer of assurance. Low-
permeation fuel lines are used safely

[[Page 28209]]

today in many marine vessels. Low-permeation fuel tanks and diurnal
emission controls have been demonstrated in various applications for
many years without an increase in safety risk. Furthermore, a properly
designed fuel system with fuel tank and fuel line permeation controls
and diurnal emission controls would reduce the fuel vapor in the boat,
thereby reducing the opportunities for fuel related fires. In addition,
using improved low-permeation materials coupled with designs meeting
USCG and ABYC requirements should reduce the risk of fuel leaks into
the vessel. We believe the application of emission control technologies
on marine engines and vessels for meeting the proposed fuel evaporative
emission standards would not lead to an increase in incremental risk of
fires or burns, and in many cases may incrementally decrease safety
risk in certain situations.

B. Noise

As automotive technology demonstrates, achieving low emissions from
spark-ignition engines can correspond with greatly reduced noise
levels. Direct-injection two-stroke and four-stroke OB/PWC have been
reported to be much quieter than traditional carbureted two-stroke
engines. Catalysts in the exhaust act as mufflers which can reduce
noise. Additionally, adding a properly designed catalyst to the
existing muffler found on all Small SI engines can offer the
opportunity to incrementally reduce noise.

C. Energy

(1) Exhaust Emission Standards
Adopting new technologies for controlling fuel metering and air-
fuel mixing, particularly the conversion of some carbureted engines to
advanced fuel injection technologies, will lead to improvements in fuel
consumption. This is especially true for OB/PWC engines where we expect
the proposed standards to result in the replacement of old technology
carbureted two-stroke engines with more fuel-efficient technologies
such as two-stroke direct injection or four-stroke engines. Carbureted
crankcase-scavenged two-stroke engines are inefficient in that 25
percent or more of the fuel entering the engine may leave the engine
unburned. EPA estimates that conversion to more fuel efficient
recreational marine engines would save 61 million gallons of gasoline
per year in 2030. The conversion of some carbureted Small SI engines to
fuel injection technologies is also expected to improve fuel economy.
We estimate approximately 18 percent of the Class II engines will be
converted to fuel injection and that this will result in a fuel savings
of about 10 percent for each converted engine. This translates to a
fuel savings of about 56 million gallons of gasoline in 2030 when all
of the Class II engines used in the U.S. will comply with the proposed
Phase 3 standards. By contrast, the use of catalyst-based control
systems on Small SI engines is not expected to change their fuel
consumption characteristics.
(2) Fuel Evaporative Emission Standards
We anticipate that the proposed fuel evaporative emission standards
will have a positive impact on energy. By capturing or preventing the
loss of fuel due to evaporation, we estimate that the lifetime average
fuel savings would be about 1.6 gallons for an average piece of Small
SI equipment and 32 gallons for an average boat. This translates to a
fuel savings of about 41 million gallons for Small SI equipment and 30
million gallons for Marine SI vessels in 2030 when most of the affected
equipment used in the U.S. would be expected to have evaporative
emission controls.

XI. Proposals Affecting Other Engine and Vehicle Categories

We are proposing to make several regulatory changes that would
affect engines, equipment, and vessels other than Small SI and Marine
SI. These changes are described in the following sections. We request
comment on all aspects of these proposed changes.

A. State Preemption

Section 209(e) of the Clean Air Act prohibits states and their
political subdivisions from adopting or enforcing standards and other
requirements relating to the control of emissions from nonroad engines
or vehicles. Section 209(e) authorizes EPA to waive this preemption for
California for standards and other requirements for nonroad engines and
vehicles, excluding new engines that are smaller than 175 horsepower
used in farm or construction equipment or vehicles and new locomotives
or new engines used in locomotives. States other than California may
adopt and enforce standards identical to California standards
authorized by EPA.
EPA promulgated regulations implementing section 209(e) on July 20,
1994 (59 FR 36987). EPA subsequently promulgated revised regulations
implementing section 209(e) on December 30, 1997 (62 FR 67733). See 40
CFR part 85, subpart Q. We are proposing to create a new part 1074 that
would describe the federal preemption of state and local emission
requirements. This is being done as part of EPA's ongoing effort to
write its regulations in plain language format in subchapter U of title
40 of the CFR. The proposed regulations are based directly on the
existing regulations in 40 CFR part 85, subpart Q. With the exception
of the simplification of the language and specific changes described in
this section, we are not changing the meaning of these regulations.
Pursuant to section 428 of the 2004 Consolidated Appropriations
Act, we are proposing to add regulatory language to implement the
legislative restriction on states other than California adopting, after
September 1, 2003, standards or other requirements applicable to spark-
ignition engines smaller than 50 horsepower. We are also proposing to
add, pursuant to that legislation, criteria for EPA's consideration in
authorizing California to adopt and enforce standards applicable to
such engines.\103\
---------------------------------------------------------------------------

\103\ See section 428 of the Appropriations Act for 2004.
---------------------------------------------------------------------------

On July 12, 2002, the American Road and Transportation Builders
Association (ARTBA) petitioned EPA to amend EPA's rules implementing
section 209(e) of the Act.\104\ In particular, ARTBA petitioned EPA to
amend its regulations and interpretive rule regarding preemption of
state and local requirements ``that impose in-use and operational controls
or fleet-wide purchase, sale or use standards on nonroad engines.''\105\
---------------------------------------------------------------------------

\104\ ``Petition to Amend Rules Implementing Clean Air Act
section 209(e),'' American Road and Transportation Builders
Association (ARTBA), July 12, 2002. Also, EPA received an additional
communication from ARTBA urging EPA to grant the petition after the
decision of the U.S. Supreme Court in EMA v. SCAQMD, 541 U.S. 246
(2004). See ``ARTBA Petition,'' L. Joseph, ARTBA, to D. Dickinson &
R. Doyle, EPA, April 30, 2004. These documents are available in
Docket EPA-HQ-OAR-2004-0008.
\105\ In 1994, EPA promulgated an interpretive rule at Appendix
A to subpart A of 40 CFR part 89. The appendix provides that state
restrictions on the use and operation of nonroad engines are not
preempted under section 209.
---------------------------------------------------------------------------

ARTBA believes such controls should be preempted. As we are already
revising the preemption provisions to a certain extent in this rule, we
believe it is appropriate to respond to ARTBA's petition in the context
of this rule, while giving the public the ability to respond to provide
comments regarding ARTBA's petition. EPA is not proposing to adopt the
explicit changes requested by ARTBA in its petition; however, EPA will
continue to review the arguments raised by ARTBA's petition, as well as
all further arguments provided by ARTBA and other commenters during the
period for notice and comment on

[[Page 28210]]

this issue. We will respond to the petition, and if appropriate, make
any changes to the regulations to conform our response to ARTBA and
other commenters in the final rule. We request comment from the public
regarding issues related to ARTBA's petition and how we should respond.

B. Certification Fees

Under our current certification program, manufacturers pay a fee to
cover the costs associated with various certification and other
compliance activities associated with an EPA issued certificate of
conformity. These fees are based on the actual and/or projected cost to
EPA per emission family. We are proposing to establish a new fees
category for certification related to the proposed evaporative emission
standards. Sections III and VI describe how these fees would apply to
sterndrive/inboard marine engines and equipment and vessels subject to
evaporative emission standards since these products are not currently
required to pay certification fees.
In addition, we are proposing to create a new part 1027 in title 40
that would incorporate the new and existing fee requirements under a
single part in the regulations. This is being done as part of EPA's
ongoing effort to write its regulations in plain language format in
subchapter U of title 40 of the CFR. The proposed regulations are based
directly on the existing regulations in 40 CFR part 85, subpart Y.
Aside from a variety of specific changes, moving this language to part
1027 is not intended to affect the substance of the existing fee
provisions. We are proposing the following adjustments and
clarifications to the existing regulations:
• Establishing a new fees category for new evaporative
emission standards.
• Eliminating one of the paths for applying for a reduced
fee. The existing regulations specify that applications covering fewer
than six vehicles or engines, each with an estimated retail sales price
below $75,000, shall receive a certificate for five vehicles or
engines. Holders of these certificates are required to submit an annual
model year reduced fee payment report adjusting the fees paid. We are
proposing to eliminate this pathway and the associated report, as they
are complex and have been rarely used.
• Clarifying the obligation to make additional payment on a
reduced fee certificate if the actual final sales price is more than
the projected retail sales price for a reduced fee vehicle or engine.
As before, the final fee payment must also reflect the actual number of
vehicles.
• Applying the calculated fee changes for later years, which
are based on the Consumer Price Index and the total number of
certificates, only after the change in the fee's value since the last
reported change has reached $50. The fee change for the ``Other''
category for calendar year 2005 to 2006 changed from $826 to $839 and
for non-road compression-ignition engines from $1822 to $1831. Under
the proposal, the fee would not change until such time as the fee
increase would be $50.00 or greater. This might not occur after one
year, but after two or more years the calculated increase in a fee
based on the change in the Consumer Price Index might be more than
$50.00. The same applies if the price goes both up and down. For
example, if the fee published in EPA guidance for a category of engine
was $1,000 in 2011 and the calculated fee for 2012 is $990 and in 2013
is $1040, the fee in 2013 would remain at $1,000 since the change from
the 2011 fee is only $40. This would minimize confusion related to
changing fees where the calculated fee is very close to that already
established for the previous year. It will also lessen paperwork and
administrative burdens for manufacturers and EPA in making adjustments
for small fees changes for applications that are completed around the
change in a calendar year. The number of certificates may go up or down
in any given year, while the Consumer Price Index would generally
increase annually. As a result, this change would be revenue-neutral or
would perhaps slightly decrease overall revenues.
• Clarifying that all fee-related records need to be kept, not just
those related to the ``final reduced fee calculation and adjustment.''
• Adding http://www.Pay.gov or other methods specified in guidance
as acceptable alternative methods for payment and filing of fee forms.
We anticipate several changes in administration of the fees program in
coming months. It is likely that future payment of fees by electronic
funds transfers (other than wire payments through the Federal Reserve)
will be available only through online payments via http://www.Pay.gov.
We are also receiving an increasing number of fee forms through e-mail
submissions, which has proved to be a reliable and convenient method.
We will be establishing a specific e-mail address for these submissions.
• Establishing a single deadline for all types of refunds:
total, partial for reduced fees, and partial for corrections. In all
cases, refund requests must be received within six months of the end of
the model year. A common type of request is due to an error in the fee
amount paid as a result of changed fees for a new calendar year. We
frequently apply these overpayments to other pending certification
applications. This is less burdensome than applying for a simple
refund, both for EPA and for most manufacturers. Applications to apply
such refunds to other certification applications must also be received
within six months of the end of the model year of the original engine
family or test group.
• Emphasizing with additional cross references that the same
reduced fee provisions that apply to Independent Commercial Importers
also apply to modification and test vehicle certificates under 40 CFR
85.1509 and 89.609: the number of vehicles covered is listed on the
certificate, a revision of the certificate must be applied for and
additional reduced fee payments made if additional vehicles are to be
covered, and the certificate must be revised to show the new total
number of vehicles to be covered.

C. Amendments to General Compliance Provisions in 40 CFR Part 1068

The provisions of part 1068 currently apply for nonroad diesel
engines regulated under 40 CFR part 1039, Large SI engines regulated
under 40 CFR part 1048, and recreational vehicles regulated under 40
CFR part 1051. We are proposing to apply these provisions also for
Small SI and Marine SI engines, equipment, and vessels. Any changes we
make to part 1068 will apply equally for these other types of engines
and vehicles. We therefore encourage comment from any affected
companies for any of these proposed changes.
The most significant change we are proposing for part 1068 is to
clarify the language throughout to make necessary distinctions between
engines, equipment, and fuel-system components--and particularly
between equipment using certified engines and equipment that has been
certified to meet equipment-based standards. This becomes necessary
because the evaporative emission standards proposed in this document
apply in some cases to equipment manufacturers and boat builders, while
the exhaust emission standards apply only to engine manufacturers. Some
provisions in part 1068 apply to equipment manufacturers differently if
they hold a certificate of conformity rather than merely installing
certified engines (or certified fuel-system components). The proposed
changes in regulatory language are intended to help make those
distinctions. See Sec. 1068.2 for a

[[Page 28211]]

description of the proposed terminology that we intend to use
throughout part 1068.
We are aware that in some cases manufacturers produce nonroad
engines by starting with a complete or partially complete engine from
another manufacturer and modifying it as needed for the particular
application. This is especially common for Marine SI and Large SI
engines and equipment, but it may also occur for other types of nonroad
engines and equipment. We are concerned that an interpretation of the
prohibited acts in Sec. 1068.101 would disallow this practice because
the original engine manufacturer is arguably selling an engine that is
not covered by a certificate of conformity even though emission
standards apply. We are addressing this first by proposing to define
``engine'' for the purposes of the regulations (see Sec. 1068.30). To
do this, we differentiate between complete engines and partially
complete engines, both of which need to be covered by a certificate.
Partially complete engines would include any engine, consisting of the
engine block plus at least one attached component such that the engine
is not yet in its final, certified configuration. We are also proposing
to allow for a path by which the original engine manufacturer would not
need to certify partially complete engines or request approval for an
exemption (see Sec. 1068.262). To do this though, the original engine
manufacturer would need a written request from a secondary engine
manufacturer who already holds a valid certificate of conformity for
the engine based on its final configuration and application. These
proposed provisions are intended generally to be clarifications of the
existing regulatory provisions, particularly those in Sec. 1068.330
for imported engines.
One situation involving partially complete engines involves the
engine block as a replacement part where the original engine had major
structural damage. In this case the engine manufacturer will typically
sell an engine block with piston, crankshaft, and other internal
components to allow the user to repower with many of the components
from the original engine. Under the proposed definitions, these short
blocks or three-quarter blocks would be new engines subject to emission
standards. We believe it would be appropriate to address this situation
in the regulations with the replacement engine provisions in Sec.
1068.240, which provides a path for making new engines that are exempt
from current emission standards. We request comment on applying these
replacement-engine provisions to engine blocks as replacement parts.
We are proposing to further clarify the requirement for engine
manufacturers to sell engines in their certified configuration. The
existing provisions in Sec. 1068.260 describe how manufacturers may
use delegated assembly to arrange for equipment manufacturers to
separately source aftertreatment components for engines that depend on
aftertreatment to meet emission standards. We are proposing to include
language to clarify that we will consider an engine to be in its
certified configuration in certain circumstances even if emission-
related components are not assembled to the engine. This is intended to
reflect common practice that has developed over the years. We are also
proposing to clarify that engines may be shipped without radiators or
other components that are unrelated to emission controls, and that we
may approve requests to ship engines without emission-related
components in some circumstances. This would generally be limited to
equipment-related components such as vehicle-speed sensors. We could
specify conditions that we determine are needed to ensure that shipping
the engine without such components will not result in the engine being
operated outside of its certified configuration.
We adopted a definition of ``nonroad engine'' that continues to
apply today (see Sec. 1068.30). This definition distinguishes between
portable or transportable engines that may be considered either nonroad
or stationary, depending on the way they will be used. The distinction
between nonroad and stationary engines is most often relevant for new
engines in determining which emission standards apply. However, we have
received numerous questions related to equipment whose usage has
changed so that the original designation no longer applies. The
definition does not address these situations. We are therefore
proposing to adopt provisions that would apply when an engine
previously used in a nonroad application is subsequently used in an
application other than a nonroad application, or when an engine
previous used in a stationary application is moved (see Sec. 1068.31).
In addition, we are proposing several amendments to part 1068 to
clarify various items. These include:
• Sec. 1068.101(a)(1): Revising the prohibited act to
specify that engines must be ``covered by'' a certificate rather than
``having'' a certificate. The revised language is more descriptive and
consistent with the Clean Air Act.
• Sec. 1068.101(a)(1)(i): Clarifying that engines or
equipment are considered to be uncertified if they are not in a
configuration that is included in the applicable certificate of
conformity. This would apply even if the product had an emission label
stating that it complies with emission standards.
• Sec. 1068.101(a)(2): Clarifying the prohibition on
recordkeeping to apply also to submission of records to the Agency.
• Sec. 1068.101(b)(2): Adding a prohibition against using
engines in a way that renders emission controls inoperative, such as
misfueling or failing to use additives that the manufacturer specifies
as part of the engine's certified configuration. This is more likely to
apply for compression-ignition engines than spark-ignition engines.
• Sec. 1068.101(b)(7): Clarifying the prohibitions related
to warranty to require the submission of specified information in the
application for certification; adding language to identify obligations
related to recall; and preventing the manufacturer from communicating
to users that warranty coverage is conditioned on using authorized
parts or service facilities. These provisions are consistent with
requirements that apply in other EPA programs.
• Sec. 1068.105(a): Revising the regulation to allow
equipment manufacturers to use up normal inventories of previous model
year engines only if it is a continuation of ongoing production with
existing inventories. These provisions would not apply for an equipment
manufacturer starting to produce a new equipment model.
• Sec. 1068.105: Eliminating paragraph (b) related to using
highway certification for nonroad engines or equipment, since these
provisions are spelled out specifically for each nonroad program where
appropriate.
• Sec. 1068.105(b): Clarifying the requirement to follow
emission-related installation instructions to include installation
instructions from manufacturers that certify components to evaporative
emission standards.
• Sec. 1068.120: Clarifying the rebuilding provisions to
apply to maintenance related to evaporative emissions.
• Sec. 1068.240: Clarifying that the scope of the exemption
for new replacement engines is limited to certain engines; also
clarifying that the replacement engine provisions apply for replacing
engines that meet alternate emission standards (such as those produced

[[Page 28212]]

under the Transition Program for Equipment Manufacturers).
• Sec. 1068.250: Revising the applicability of the hardship
provisions to small businesses more broadly by referring to a term that
is defined in Sec. 1068.30; this would include small businesses as
identified in the standard-setting part, or any companies that meet the
criteria established by the Small Business Administration.
• Sec. 1068.250: Clarifying the timing related to hardship approvals,
and the ability to get extensions under appropriate circumstances.
• Sec. 1068.260: Revising the provisions related to
delegated assembly as described in Section XI.F and clarifying that
reduced auditing rates as specified in paragraph (a)(6) should be based
on the number of equipment manufacturers involved rather than the
number of engines; also specifying that manufacturers may itemize
invoices to ensure that the Customs valuation for assessment of import
duties is based on the price of the imported engine without the
aftertreatment components that are being shipped separately. We request
comment on adding a provision allowing for a separate invoice for
aftertreatment components that are shipped separately.
• Sec. 1068.305: Clarifying that the requirement to submit
importation forms applies to all engines, not just nonconforming
engines; also adding a requirement to keep these records for five
years. Both of these changes are consistent with the Customs
regulations at 19 CFR 12.74.
• Part 1068, Appendix I: Clarifying that the fuel system
includes evaporative-related components and that the parts comprising
the engine's combustion chamber are emission-related components.
Manufacturers have also expressed a concern that the engine
rebuilding provisions in Sec. 1068.120 do not clearly address the
situation in which rebuilt engines are used to repower equipment where
the engine being replaced meets alternate emission standards (such as
those produced under the Transition Program for Equipment
Manufacturers). These engines are not certified to the emission
standards that would otherwise apply for the given model year, so there
may be some confusion regarding the appropriate way of applying these
regulatory requirements.
In Section V.E.6 we describe several proposed special compliance
provisions that are intended to improve our ability to oversee our
emission control program for Small SI engines. For example, we are
proposing that manufacturers take steps to ensure that they will be
able to honor emission-related warranty claims, meet any compliance- or
enforcement-related obligations that may arise, and import new engines
and equipment in a timely manner after we adopt new standards. We
request comment on the appropriateness of adopting any or all of those
provisions under part 1068 such that they would apply to all engines
and equipment subject to part 1068. We also request comment on any
adjustments to those provisions that would be appropriate for other
categories of engines and equipment, whether we choose to adopt these
provisions in this proposal or in a separate rulemaking.
In addition, we request comment on early application of the
provisions of part 1068 before the standards proposed in this notice
take effect. For example, for any provisions not directly related to
the emission standards, we could revise the regulations in part 90 and
part 91 to reference the corresponding provisions in part 1068. We
similarly request comment on making these changes for diesel engines
regulated under part 89 (land-based) and part 94 (marine). This would
allow us to accelerate the transition to plain-language regulations and
prevent confusion from maintaining multiple versions of similar
provisions for several years. We would also be able to substantially
decrease printing costs. The provisions most appropriately considered
for early transition to part 1068 include: (1) Selective enforcement
audits, (2) exemptions, (3) importation provisions, (4) defect
reporting and recall, (5) hearing procedures, and (6) treatment of
confidential information.
We are also seeking comment on revisions to 40 CFR 1068.101.
Section 203 of the Act (42 U.S.C. 7522) states that performing certain
acts, ``and causing thereof,'' constitutes a prohibited act. We are
interested in revising the regulations to specifically include this
prohibition on the ``causing'' of any of the prohibited acts listed in
the statute and the regulations. Adding this clarification would help
people who are subject to the regulations to more fully understand what
actions are prohibited and may potentially subject them to enforcement
proceedings under the Act. The revisions themselves would not be
intended to add new enforcement authorities beyond what is already
specified in the statute.
If we consider it a violation to cause someone to commit a
prohibited act, then persons causing any prohibited act would also be
subject to the full administrative and judicial enforcement actions
allowable under the Act and the regulations. The prohibition on
``causing'' a prohibited act would apply to all persons and would not
be limited to manufacturers or importers of regulated engines or equipment.
If this provision is adopted, EPA would interpret the ``causation''
aspect of section 203 broadly. In assessing whether a person has caused
a prohibited act, EPA would evaluate the totality of circumstances. For
example, in certain circumstances EPA believes a retailer may be
responsible for causing the importation of engines or equipment not
covered by a valid certificate of conformity or otherwise in violation
of our regulations, such as the labeling requirements. In addition to
the prohibitions that apply to manufacturers and importers generally
under section 203, EPA will also consider many factors in assessing
whether a manufacturer, importer, retailer, distributor or other person
has caused a prohibited act, including, but not limited to, the
following: (1) The contractual or otherwise established business
relationship of those persons involved in producing and/or selling new
engines and equipment; (2) the particular efforts or influence of the
alleged violator contributing to, leading to or resulting in the
prohibited act; and (3) the efforts, or lack thereof, of the person to
prevent such a violation. EPA will evaluate the entire circumstances in
determining whether a person caused another person to commit a
prohibited act such as importing engines or equipment in violation of
our regulations.

D. Amendments Related to Large SI Engines (40 CFR Part 1048)

Manufacturers of Large SI engines are encouraged to review the
proposed changes described in Section XI.C related to 40 CFR part 1068.
Some of the issues related to Marine SI engines described in
Section III relate to Large SI engines. In particular, the uncertain
availability of certain base engine models from General Motors for use
in nonroad applications poses a challenge for efforts to certify the
engines to the Large SI standards. In particular, the uncertain lead
time associated with getting the new engines and the level of effort
expected for certifying the existing engine models that are planned for
obsolescence make it difficult for companies, especially small
businesses, to go through the certification process and recover costs
for repeated testing. Of greatest concern are requirements related to
developing deterioration factors for these engines. The existing
regulations allow for assigned deterioration factors for small
businesses, but these apply only to companies with fewer than 200

[[Page 28213]]

employees. We are therefore proposing to expand the definition of
small-volume engine manufacturer to also include companies with annual
U.S. sales of no more than 2000 Large SI engines. This would align with
the provisions already adopted by California ARB. Similarly, we are
proposing a provision allowing for assigned deterioration factors for
small-volume engine families for Small SI engines (see Section V). A
similar dynamic applies for Large SI engines. Any such allowance would
apply to engine families with projected sales up to 300 or 500 units to
reflect to different production volumes. We request comment on allowing
assigned deterioration factors for small-volume engine families for
Large SI engines, and on the appropriate threshold for this provision.
We are also proposing to revise the provisions related to
competition engines to align with the proposal for Small SI engines.
Any Small SI engine that is produced under the competition exemption
will very likely exceed 19 kW. As a result, we believe it is
appropriate to make these provisions identical to avoid confusion.
Manufacturers have notified us that the transient test for
constant-speed engines does not represent in-use operation in a way
that significantly affects measured emission levels. This notification
is required by Sec. 1065.10(c)(1). In particular, manufacturers have
pointed out that the specified operation involves light engine loads
such that combustion and exhaust temperatures do not rise enough to
reach catalyst light-off temperatures. As a result, meeting the
standard using the constant-speed transient test would require the use
of significantly oversized catalysts, which would add significant costs
without a commensurate improvement for in-use emission control. We
faced a similar dilemma in the effort to adopt transient standards for
nonroad diesel engines, concluding that the transient standards should
not apply until we develop a more suitable duty cycle that more
appropriately reflects in-use operation. We are proposing to take this
same approach for Large SI engines, waiving the requirement constant
speed engines to meet the transient standards until we are able to
develop a more appropriate duty cycle. Manufacturers must continue to
meet the standards for steady-state testing and the field-testing
standards continue to apply. We are also proposing to clarify that
manufacturers certifying constant-speed engines should describe their
approach to controlling emissions during transient operation in their
application for certification.
Manufacturers have also pointed out that a multiplicative
deterioration factor is problematic for engines with very low emission
levels. While the HC+NO_X emissions may be as high as 2.7 g/
kW-hr, manufacturers are certifying some engine families with
deteriorated emission levels below 0.1 g/kW-hr. These very low emission
levels are well below the standard, but the measurement systems are
challenged to produce a precisely repeatable emission level at that
point. As a result, measurement variability and minor engine-to-engine
variability can lead to small absolute differences in emission levels
that become magnified by a deterioration factor that reflects the
extremely small low-hour measurement. We are therefore proposing to
specify that manufacturers use an additive deterioration factor if
their low-hour emission levels are below 0.3 g/kW-hr. This change would
accommodate the mathematical and analyzer effects of very low emission
levels without changing the current practice for the majority of
engines that are certified with emission levels closer to the standard.
This change would remove the incentive for manufacturers to increase
their engine's emission levels to avoid an artificially large
deterioration factor. The only exception would be for cases in which
good engineering judgment dictates that a multiplicative deterioration
factor would nevertheless be appropriate for engines with very low
emissions. This may be the case if an engine's deterioration can be
attributed, even at very low emission levels, to proportionally
decreased catalyst conversion of emissions from an aged engine. It is
important to note that Large SI engine manufacturers are subject to in-
use testing to demonstrate that they meet emission standards throughout
the useful life. Should such testing indicate that an additive
deterioration factor does not appropriately reflect actual performance,
we would require manufacturers to revise their deterioration factors
appropriately, as required under the current regulations. If such
discrepancies appear for multiple manufacturers, we would revise the
regulation to again require multiplicative deterioration factors for
all aftertreatment-based systems. We also request comment on a further
refinement of the form of the deterioration factor to more closely
reflect the degradation in catalyst conversion efficiency. For example,
measuring engine-out emissions would allow for calculating catalyst
conversion efficiency, such that changes in this parameter over an
engine's useful life could be factored into a calculation to
characterize an engine's actual rate of deterioration.
Most Large SI engines are installed in equipment that has metal
fuel tanks. This formed the basis of the regulatory approach to set
evaporative emission standards and certification requirements.
Manufacturers have raised questions about the appropriate steps to take
for systems that rely on plastic fuel tanks. These tanks are able to
meet standards, but questions have been raised about the engine
manufacturer's role in certifying a range of fuel tanks with their
engines. We request comment on the extent to which the current
regulatory requirements might limit the range of fuel tank designs.
The current permeation standards for Large SI equipment references
Category 1 fuel lines as defined in the version of SAE J2260 that was
issued in November, 1996. In 2004, the Society of Automotive Engineers
(SAE) updated SAE J2260. Manufacturers have asked whether we will
approve fuel lines based on the updated procedures. The new procedures
have two primary differences related to fuel line permeation. First,
the test fuel was changed from CM15 to CE10.\106\ Second, the
associated limits for the different categories of fuel line permeation
were revised. Data presented in Chapter 5 of the Draft RIA suggest that
permeation from low-permeation fuel line materials can be less than
half on CE10 than on CM15. The permeation specification for Category 1
fuel line was revised by SAE from 0-25 g/m\2\/day to 3-10 g/m\2\/day.
(A new Category 0 was added at 0-3 g/m\2\/day.) Directionally, the new
Category 1 permeation limits seem to account for the change in the test
fuel. In addition, ethanol fuel blends are commonly used in-use while
methanol fuel blends are less common. We request comment on updating
the regulations for Large SI equipment to reference the Category 1 fuel
line specifications in the updated version of SAE J2260 (revised
November 2004). We also request comment on whether this new
specification would affect the stringency of the standard or the choice
of fuel line constructions for this equipment.
---------------------------------------------------------------------------

\106\ ``C'' refers to fuel C as specified in ASTM D 412, E10
refers to 10 percent ethanol, and M15 refers to 15 percent methanol.
---------------------------------------------------------------------------

We are also proposing several technical amendments to part 1048.
Many of these simply correct

[[Page 28214]]

typographical errors or add references to the proposed regulatory cites
in part 1054. Several changes are intended merely to align regulatory
language with that of other programs, including those that would be
subject to the standards proposed in this notice. In addition, we are
proposing the following changes:
• Sec. 1048.5: Clarifying that locomotive propulsion
engines are not subject to Large SI emission standards, even if they
use spark-ignition engines. This is based on the separate provisions
that apply to locomotives in Clean Air Act section 213.
• Sec. 1048.101: Clarifying manufacturer's responsibility
to meet emission standards for different types of testing, especially
to differentiate between field-testing standards and duty-cycle standards.
• Sec. 1048.105: Clarifying that only the permeation
standards of SAE J2260 apply to fuel lines used with Large SI engines.
• Sec. 1048.105: Clarifying that the requirement to prevent
fuel boiling is affected by the pressure in the fuel tank. The
regulation currently characterizes the boiling point of fuel only at
atmospheric pressure. Pressurizing the fuel tank increases the boiling
point of the fuel.
• Sec. 1048.105: Reorganizing the regulatory provisions to
align with the new language in 40 CFR part 1060. This is not intended
to change any of the applicable requirements.
• Sec. 1048.110: Clarifying that ``malfunctions'' relate to
engines failing to maintain emission control and not to diagnostic
systems that fail to report signals; and clarifying that the
malfunction indicator light needs to stay illuminated for malfunctions
or for system errors.
• Sec. 1048.120: Clarifying that the emission-related
warranty covers only those components from 40 CFR part 1068, Appendix
I, whose failure will increase emissions.
• Sec. 1048.125: Clarifying the provisions related to
noncritical emission-related maintenance.
• Sec. 1048.135: Revising the engine labeling requirements
to allow omission of the manufacturing date only if the date is stamped
or engraved on the engine, rather than allowing manufacturers to keep
records of engine build dates. This is important for verifying that
engines comply with standards based on their build date.
• Sec. 1048.205: Removing detailed specifications for
describing auxiliary emission control devices in the application for
certification. This responds to the concern expressed by manufacturers
that the existing, very prescriptive approach requires much more
information than is needed to adequately describe emission control
systems. We are proposing to leave in place a broad requirement to
describe emission control systems and parameters in sufficient detail
to allow EPA to confirm that no defeat devices are employed.
Manufacturers should be motivated to include substantial information to
make such determinations in the certification process, rather than
being subject to this type of investigation for emission control
approaches that are found to be outside of the scope of the application
for certification.
• Sec. 1048.205: Adding requirement to align projected
sales volumes with actual sales from previous years. This does not
imply additional reporting or recordkeeping requirements. It is
intended simply to avoid situations where manufacturers intentionally
mis-state their projected sales volume to gain some advantage under the
regulations.
• Sec. 1048.205: Specifying that manufacturers must submit
modal emission results rather than just submitting a weighted average.
Since this information is already part of the demonstration related to
the field-testing standards, this should already be common practice.
• Sec. 1048.220: Clarifying that if manufacturers change
their maintenance instructions after starting production for an engine
family, they may not disqualify engines for in-use testing or warranty
claims based on the fact that operators did not follow the revised
maintenance instructions.
• Sec. 1048.225: Clarifying the terminology to refer to
``new or modified engine configurations'' rather than ``new or modified
nonroad engines.'' This is necessary to avoid using the term ``new
nonroad engine'' in a way that differs from the definitions in Sec.
1048.801.
• Sec. 1048.230: Clarifying that engine families relate
fundamentally to emission certification and that we would expect
manufacturers to suggest a tailored approach to specifying engine
families under Sec. 1048.230(d) to occur only in unusual circumstances.
• 1048.240: Adding a requirement for design-based
certification for the diurnal standards that fuel tanks need to use
low-permeation materials.
• 1048.245: Adding the provision to allow for component
certification for plastic fuel tanks. The revised language clarifies
the requirement related to allowing pressure relief for vacuum
pressures and for controlling permeation rates from plastic fuel tanks.
• Sec. 1048.250: Adding a requirement for manufacturers to
report their sales volumes for an engine family if they are using a
provision that depends on production volumes.
• Sec. 1048.301: Clarifying that engine families with
projected sales volumes below 150 units may have reduced testing rates
for production-line testing. This level of production does not allow
for adequate testing to use the statistical techniques before exceeding
specified maximum testing rates.
• Sec. 1048.305: Clarifying that (1) Tested engines should
be built in a way that represents production engines; (2) the field-
testing standards apply for any testing conducted (this may involve
simply comparing modal results to the field-testing standards); and (3)
we may review a decision to use emission results from a retested engine
instead of the original results.
• Sec. 1048.310: Clarifying the relationship between
quarterly testing and compliance with the annual testing requirements.
• Sec. 1048.315: Correcting the equation for the CumSum
statistic to prevent negative values.
• Sec. 1048.410: Clarifying that repeat tests with an in-
use test engine are acceptable, as long as the same number of repeat
tests are performed for all engines.
• Sec. 1048.415: Clarifying that the provisions related to
defect reporting in 40 CFR 1068.501 apply for in-use testing.
• Sec. 1048.501: Removing specified mapping procedures,
since these are addressed in 40 CFR part 1065.
• Sec. 1048.505: Removing redundant text and removing
sampling times specified in Table 1, since these are addressed in Sec.
1048.505(a)(1).
• Sec. 1048.505: Correcting the mode sequence listed in the
table for the ramped-modal testing.
• Sec. 1048.505: Clarifying that cycle statistics for
discrete-mode testing must be calculated separately for each mode.
• Sec. Sec. 1048.605 and 1048.610: Requiring some
demonstration that the sales restrictions that apply for these sections
are met, and clarifying the provisions related to emission credits for
vehicles that generate or use emission credits under 40 CFR part 86.
• Sec. 1048.801: Revising several definitions to align with
updated definitions adopted (or proposed) for other programs.
We request comment on changing Sec. 1048.220 to prevent
manufacturers from distributing revised emission-related maintenance
instructions until we have approved them. We are taking this approach
for Small SI and Marine

[[Page 28215]]

SI engines in this proposal (see Sec. Sec. 1045.220 and 1054.220)
because we believe it would be inappropriate for manufacturers to
specify increased or decreased emission-related maintenance without EPA
approval of those changes. The same concern applies equally to all
nonroad spark-ignition engines and vehicles, so we would expect to
apply the same policy to all these engines.
For Small SI and Marine SI engines we are proposing to require
manufacturers of imported engines to include basic information in the
application for certification, including identification of associated
importers, specific ports intended for importation, and testing
facilities where testing could be done in the United States. We request
comment on extending these provisions to Large SI engines. See Sec.
1054.205.

E. Amendments Related To Recreational Vehicles (40 CFR Part 1051)

Manufacturers of recreational vehicles are encouraged to review the
proposed changes described in Section XI.C related to 40 CFR part 1068.
We are proposing in this notice to establish a process by which
manufacturers of fuel system components certify that their products
meet emission standards. For recreational vehicles we adopted a program
in which the exhaust and evaporative emission standards apply to the
vehicle so we did not set up a process for certifying fuel-system
components. We continue to believe that evaporative emission standards
should apply to the vehicle. However, we are proposing to allow
manufacturers of fuel-system components to opt in to this program by
certifying their fuel tanks or fuel lines to the applicable standards.
While this would be a voluntary step, any manufacturer opting into the
program in this way would be subject to all the requirements that apply
to certificate holders. While manufacturers of recreational vehicles
would continue to be responsible for meeting standards and certifying
their vehicles, it may be appropriate to simplify their compliance
effort by allowing them to rely on the certification of the fuel-line
manufacturer or fuel-tank manufacturer.
We also request comment on specifying that vehicle manufacturers
use the certification and testing procedures proposed in 40 CFR part
1060 to meet the evaporative emission standards included in part 1051.
This would not be intended to affect the stringency of current
requirements. This would simply allow us to maintain consistent
requirements across programs and avoid publishing redundant specifications.
We are also proposing several technical amendments to part 1051.
Many of these simply correct typographical errors or add references to
the proposed regulatory cites in part 1054. Several changes are
intended merely to align regulatory language with that of other
programs, including those that would be subject to the standards
proposed in this notice.
In addition, we are proposing the following changes:
• Sec. 1051.1: Revising the speed threshold for offroad
utility vehicles to be subject to part 1051. Changing from ``25 miles
per hour or higher'' to ``higher than 25 miles per hour'' aligns this
provision with the similar threshold for qualifying as a motor vehicle
in 40 CFR 85.1703.
• Sec. 1051.5: Clarifying the status of very small
recreational vehicles to reflect the provisions in the current
regulations in 40 CFR part 90 to treat such vehicles with a dry weight
under 20 kilograms as Small SI engines.
• Sec. 1051.25: Clarifying that manufacturers of
recreational vehicles that use engines certified to meet exhaust
emission standards must still certify the vehicle with respect to the
evaporative emission standards.
• Sec. 1051.120: Clarifying that the emission-related
warranty covers only those components from 40 CFR part 1068, Appendix
I, whose failure will increase emissions.
• Sec. 1051.125: Clarifying the provisions related to
noncritical emission-related maintenance.
• Sec. 1051.135: Revising the labeling requirements to
allow omission of the manufacturing date only if the date is stamped or
engraved on the vehicle, rather than allowing manufacturers to keep
records of vehicle build dates. This is important for verifying that
vehicles comply with standards based on their build date.
• Sec. 1051.135: Adding a requirement to include family
emission limits related to evaporative emissions to the emission
control information label. Since this change may involve some time for
manufacturers to comply, we are proposing to apply this starting with
the 2009 model year.
• Sec. 1051.137: Clarifying how the labeling requirements
apply with respect to the averaging program and selected family
emission limits.
• Sec. 1051.205: Removing detailed specifications for
describing auxiliary emission control devices in the application for
certification. This responds to the concern expressed by manufacturers
that the existing, very prescriptive approach requires much more
information that is needed to adequately describe emission control
systems. We are proposing to leave in place a broad requirement to
describe emission control systems and parameters in sufficient detail
to allow EPA to confirm that no defeat devices are employed.
Manufacturers should be motivated to include substantial information to
make such determinations in the certification process, rather than
being subject to this type of investigation for emission control
approaches that are found to be outside of the scope of the application
for certification.
• Sec. 1051.205: Requirements to align projected sales
volumes with actual sales from previous years. This does not imply
additional reporting or recordkeeping requirements. It is intended
simply to avoid situations where manufacturers intentionally mis-state
their projected sales volume to gain some advantage under the regulations.
• Sec. 1051.220: Clarifying that if manufacturers change
their maintenance instructions after starting production for an engine
family, they may not disqualify vehicles for warranty claims based on
the fact that operators did not follow the revised maintenance instructions.
• Sec. 1051.225: Clarifying the terminology to refer to
``new or modified vehicle configurations'' rather than ``new or
modified vehicles.'' This is necessary to avoid confusion with the term
``new vehicle'' as it relates to introduction into commerce.
• Sec. 1051.225: Clarifying the provisions related to changing an
engine family's Family Emission Limit after the start of production.
• Sec. 1051.255: Adopting a different SAE standard for
specifying low-permeability materials to allow for design-based
certification of metal fuel tanks with gaskets made of polymer
materials. The existing language does not adequately characterize the
necessary testing and material specifications.
• Sec. 1051.230: Clarifying that engine families relate
fundamentally to emission certification and that we would expect
manufacturers to suggest a tailored approach to specifying engine
families under Sec. 1051.230(e) to occur only in unusual circumstances.
• Sec. 1051.250: Adding a requirement for manufacturers to
report their sales volumes for an engine family if they are using a
provision that depends on production volumes.
• Sec. 1051.301: Clarifying that engine families with
projected sales volumes

[[Page 28216]]

below 150 units may be exempted from production-line testing. This
level of production does not allow for adequate testing to use the
statistical techniques before exceeding specified maximum testing rates.
• Sec. 1051.305: Clarifying that tested vehicles should be
built in a way that represents production vehicles.
• Sec. 1051.310: Clarifying the relationship between
quarterly testing and compliance with the annual testing requirements;
and clarifying the testing provisions that apply for engine families
where the production period is substantially less than a full year.
• Sec. 1051.315: Correcting the equation for the CumSum
statistic to prevent negative values.
• Sec. 1051.325: Clarifying the basis on which we would
approve retroactive changes to the Family Emission Limit for an engine
family that has failed under production-line testing.
• Sec. 1051.505: Clarifying that cycle statistics for
discrete-mode testing must be calculated separately for each mode.
• Sec. Sec. 1051.605 and 1051.610: Requiring some demonstration that
the sales restrictions that apply for these sections are met.
• Sec. 1051.650: Add a requirement to certify vehicles that
are converted to run on a different fuel. We expect this is a rare
occurrence, but one that we should make subject to certification
requirements (see Section VII.B.3).
• Sec. 1051.701: Clarifying that manufacturers using
emission credits to meet emission standards must base their credit
calculations on their full product line-up, rather than considering
only those engine families with Family Emission Limits above or below
the emission standard. We are also clarifying that a single family may
not generate emission credits for one pollutant while using emission
credits for another pollutant, which is common to all our emission
control programs.
• Sec. 1051.735: Adding a requirement to keep records
related to banked emission credits for as long as a manufacturer
intends for those credits to be valid. This is necessary for us to
verify the appropriateness of credits used for demonstrating compliance
with emission standards in later model years.
• Sec. 1051.801: Revising several definitions to align with
updated definitions adopted (or proposed) for other programs.
We request comment on changing Sec. 1051.220 to prevent
manufacturers from distributing revised emission-related maintenance
instructions until we have approved them. We are taking this approach
for Small SI and Marine SI engines in this proposal (see Sec. Sec.
1045.220 and 1054.220) because we believe it would be inappropriate for
manufacturers to specify increased or decreased emission-related
maintenance without EPA approval of those changes. The same concern
applies equally to all nonroad spark-ignition engines and vehicles, so
we would expect to apply the same policy to all these engines.
For Small SI and Marine SI engines we are proposing to require
manufacturers of imported engines to include basic information in the
application for certification, including identification of associated
importers, specific ports intended for importation, and testing
facilities where testing could be done in the United States. We request
comment on extending these provisions to recreational vehicles. See
Sec. 1054.205.

F. Amendments Related to Heavy-Duty Highway Engines (40 CFR Part 85)

We are proposing to make several adjustments to the provisions
related to delegated assembly specified in Sec. 85.1713. These
adjustments include:
• Removing the provision related to auditing outside the
United States since equipment manufactured in other countries would not
be subject to these provisions
• Clarifying that the exemption expires when the equipment
manufacturer takes possession of the engine, but not before it reaches
the point of final assembly
• Clarifying the prohibition related to following
installation instructions to ensure that engines will be in their
certified configuration when installed in a piece of equipment.
We believe all these amendments are straightforward adjustments
that are appropriate for maintaining a program that allows for
appropriate oversight and implementation.

G. Amendments Related to Stationary Spark-Ignition Engines (40 CFR Part 60)

On June 12, 2006 we proposed emission standards for stationary
spark-ignition engines (71 FR 33804). The June 2006 proposal specified
that stationary spark-ignition engines at or below 19 kW would be
subject to all the same emission standards and certification
requirements that apply to Small SI engines. If we would include the
new Phase 3 standards for Small SI engines in 40 CFR part 90, these
requirements would apply automatically to those stationary engines.
However, since the Phase 3 standards will be in 40 CFR part 1054, as
described in Section V, we are proposing to revise the regulatory
language for stationary spark-ignition engines in 40 CFR part 60,
subpart JJJJ, to directly reference the Phase 3 standards part 1054.

XII. Projected Impacts

A. Emissions from Small Nonroad and Marine Spark-Ignition Engines

As discussed in previous sections, this proposal will reduce
exhaust emissions from specific sizes of nonhandheld Small SI and
Marine SI engines. It will also reduce evaporative emissions from the
fuel systems used on nonhandheld and handheld Small SI equipment and
Marine SI vessels (for simplicity we collectively include the
evaporative emission requirements from equipment or vessels when
referring to Small SI or Marine SI engines in the remainder of this
section). The proposed exhaust and evaporative emission standards will
directly affect volatile organic hydrocarbon compounds (VOC), oxides of
nitrogen (NO_X), and to a lesser extent carbon monoxide (CO).
Also, we anticipate that the emission control technology which is
likely to be used to meet the exhaust emission standards will affect
directly emitted particulate matter, most importantly particles with
diameters of 2.5 micrometers or less (PM_2.5). It will also
incrementally reduce air toxic emissions. A detailed analysis of the
effects of this proposal on emissions and emission inventories can be
found in Chapter 3 of the Draft RIA.
The contribution of exhaust and evaporative emissions from Small SI
and Marine SI engines to total 50-state emission inventories is
significant and will remain so into the future. Table XII-1 presents
the nationwide inventory for these engines for both 2001 and 2020. (The
inventories cover all Small SI and Marine SI engines including the
portion of Small SI engines regulated by the California ARB.) Table
XII-1 shows that for the primary pollutants affected by this proposal,
these engines contribute about 25 to 30 percent of the nationwide VOC
emissions from all mobile sources. The nationwide contribution to the
total mobile source NO_X inventory is about 5 percent or
less. Finally, for PM_2.5, the contribution ranges from about
25 to 30 percent.

[[Page 28217]]

Table XII-1.--Contribution of Small Nonroad and Marine SI Engines to National (50-State) Mobile Source Emission
Inventories
----------------------------------------------------------------------------------------------------------------
2001 2020
---------------------------------------------------------------
Small SI/ Small SI/
Pollutant marine SI Percent of marine SI Percent of
inventory, mobile source inventory, mobile source
tons inventory tons inventory
----------------------------------------------------------------------------------------------------------------
VOC............................................. 2,239,056 28 1,351,739 27
NOX............................................. 159,051 1 201,789 4
PM2.5........................................... 42,294 9 39,271 16
CO.............................................. 20,867,436 24 16,373,518 31
----------------------------------------------------------------------------------------------------------------

(1) VOC
Table XII-2 shows the VOC emissions and emission reductions we
expect both with and without the proposed standards for engines,
equipment, and vessels affected by the proposal. In 2001, Small SI and
Marine SI emitted approximately 1,081,000 and 961,000 tons of VOC,
respectively. Without the proposed standards, these emissions will
decrease because of the effect of the existing emission control
requirements to about 1,005,000 and 490,000 tons by 2040, respectively.
With the proposed controls, this pollutant will be further reduced by
34 percent for Small SI engines and 74 percent for Marine SI engines by
2040. The VOC emission inventory trends over time for both categories
of engines that are subject to the proposal are shown in Figure XII-1.

Table XII-2.--National (50-State) VOC Emissions and Emission Reductions for Small SI and Marine SI Engines
----------------------------------------------------------------------------------------------------------------
Without With proposed Percent
Year Category proposed rule rule Reduction reduction
----------------------------------------------------------------------------------------------------------------
2001.................... Small Engine.......... 1,080,898 1,080,898
Marine................ 961,240 961,240
Both.................. 2,042,138 2,042,138
2015.................... Small Engine.......... 708,331 510,617 197,714 28
Marine................ 513,105 372,020 141,086 27
Both.................. 1,221,436 882,637 338,799 28
2020.................... Small Engine.......... 764,453 508,677 255,776 33
Marine................ 466,624 232,697 233,927 50
Both.................. 1,231,078 741,375 489,703 40
2030.................... Small Engine.......... 884,188 581,766 302,422 34
Marine................ 464,490 135,956 328,533 71
Both.................. 1,348,678 717,723 630,955 47
2040.................... Small Engine.......... 1,005,403 659,976 345,427 34
Marine................ 490,052 127,158 362,893 74
Both.................. 1,495,455 787,135 708,320 47
----------------------------------------------------------------------------------------------------------------

[[Page 28218]]

[GRAPHIC]
[TIFF OMITTED] TP18MY07.001

(2) NO_X
Table XII-3 shows the NO_X emissions and emission
reductions we expect both with and without the proposed standards for
engines affected by the proposal. In 2001, Small SI and Marine SI
emitted approximately 102,000 and 41,500 tons of NO_X,
respectively. Without the proposed standards, these emissions will
increase to about 135,000, and 95,400 tons by 2040, respectively. With
the proposed controls, this pollutant will be reduced by 47 percent for
Small SI engines and 51 percent for Marine SI engines by 2040. The
NO_X emission inventory trends over time for both categories
of engines that are subject to the proposal are shown in Figure XII-2.

Table XII-3.--National (50-State) NOX Emissions and Emission Reductions for Small SI and Marine SI Engines
----------------------------------------------------------------------------------------------------------------
Without With proposed Percent
Year Category proposed rule rule Reduction reduction
----------------------------------------------------------------------------------------------------------------
2001.................... Small Engine.......... 101,928 101,928
Marine................ 41,514 41,514
Both.................. 143,442 143,442
2015.................... Small Engine.......... 94,432 58,117 36,315 38
Marine................ 73,583 59,024 14,558 20
Both.................. 168,015 117,141 50,874 30
2020.................... Small Engine.......... 102,310 55,241 47,069 46
Marine................ 80,655 55,656 24,999 31
Both.................. 182,965 110,896 72,069 39
2030.................... Small Engine.......... 118,615 62,778 55,837 47
Marine................ 89,225 46,859 42,366 47
Both.................. 207,840 109,637 98,203 47
2040.................... Small Engine.......... 135,136 71,361 63,775 47
Marine................ 95,440 46,874 48,567 51
Both.................. 230,577 118,235 112,342 49
----------------------------------------------------------------------------------------------------------------

[[Page 28219]]
[GRAPHIC]
[TIFF OMITTED] TP18MY07.002

(3) PM2.5
Table XII-4 shows the PM2.5 emissions and emission reductions we
expect both with and without the proposed standards for engines
affected by the proposal. In 2001, Small SI and Marine SI emitted
23,200 and 15,600 tons of PM2.5, respectively. Without the proposed
standards, the PM2.5 emissions from Small SI engines will increase to
39,100 by 2040, while those from Marine SI will decrease to about 6,000
tons in that year due to the effects of the existing emission control
requirements for certain types of recreational marine engines, e.g,
outboards. With the proposed controls, this pollutant will be reduced
by 5 percent for Small SI engines and a further 84 percent for Marine
SI engines by 2040. The PM2.5 emission inventory trends over time for
both categories of engines that are subject to the proposal are shown
in Figure XII-3.

Table XII-4.--National (50-State) PM2.5 Emissions and Emission Reductions for Small SI and Marine SI Engines
----------------------------------------------------------------------------------------------------------------
Without With proposed Percent
Year Category proposed rule rule Reduction reduction
----------------------------------------------------------------------------------------------------------------
2001.................... Small Engine.......... 23,163 23,163
Marine................ 15,625 15,625
Both.................. 38,789 38,789
2015.................... Small Engine.......... 27,747 26,647 1,100 4
Marine................ 6,823 4,666 2,157 32
Both.................. 34,570 31,313 3,256 9
2020.................... Small Engine.......... 30,009 28,574 1,435 5
Marine................ 5,908 2,448 3,461 59
Both.................. 35,917 31,022 4,896 14
2030.................... Small Engine.......... 34,535 32,849 1,686 5
Marine................ 5,719 1,107 4,613 81
Both.................. 40,255 33,956 6,299 16
2040.................... Small Engine.......... 39,079 37,153 1,926 5
Marine................ 6,016 985 5,031 84
Both.................. 45,095 38,138 6,957 15
----------------------------------------------------------------------------------------------------------------

[[Page 28220]]
[GRAPHIC]
[TIFF OMITTED] TP18MY07.003

(4) CO
Table XII.-5 shows the CO emissions and emission reductions we
expect both with and without the proposed standards for engines
affected by the proposal. In 2001, Small SI and Marine SI emitted
16,108,000 and 2,585,000 tons of PM2.5, respectively. Without the
proposed standards, these emissions will increase slightly for Small SI
engines to 16,727,000 and decrease slightly for Marine SI engines to
2,122,000 tons by 2040, respectively. With the proposed controls, this
pollutant will be reduced by 16 percent for Small SI engines and a
further 22 percent for Marine SI engines by 2040. The CO emission
inventory trends over time for both categories of engines that are
subject to the proposal are shown in Figure XII-4.

Table XII-5.--National (50-State) CO Emissions and Emission Reductions for Small SI and Marine SI Engines
----------------------------------------------------------------------------------------------------------------
Without With proposed Percent
Year Category proposed rule rule Reduction reduction
----------------------------------------------------------------------------------------------------------------
2001.................... Small Engine.......... 16,108,103 16,108,103 .............. ..............
Marine................ 2,584,786 2,584,786 .............. ..............
Both.................. 18,692,890 18,692,890 .............. ..............
2015.................... Small Engine.......... 11,797,078 10,317,051 1,480,027 13
Marine................ 2,031,684 1,883,241 148,443 7
Both.................. 13,828,762 12,200,291 1,628,471 12
2020.................... Small Engine.......... 12,712,775 10,782,258 1,930,518 15
Marine................ 1,968,663 1,718,956 249,707 13
Both.................. 14,681,439 12,501,214 2,180,225 15
2030.................... Small Engine.......... 14,700,521 12,411,661 2,288,860 16
Marine................ 2,009,248 1,607,678 401,570 20
Both.................. 16,709,768 14,019,339 2,690,429 16
2040.................... Small Engine.......... 16,726,708 14,113,517 2,613,191 16
Marine................ 2,122,336 1,665,392 456,943 22
Both.................. 18,849,044 15,778,910 3,070,134 16
----------------------------------------------------------------------------------------------------------------

[[Page 28221]]
[GRAPHIC]
[TIFF OMITTED] TP18MY07.004

B. Estimated Costs

In assessing the economic impact of setting emission standards, we
have made a best estimate of the costs associated with the technologies
we anticipate manufacturers will use in meeting the standards. In
making our estimates for the proposed rule, we have relied on our own
technology assessment, which includes information developed by EPA's
National Vehicle and Fuel Emissions Laboratory (NVFEL). Estimated costs
include variable costs (e.g. hardware and assembly time) and fixed
costs (e.g. research and development, retooling, engine certification
and test cell upgrades to 40 CFR 1065 requirements). We projected that
manufacturers will recover the fixed costs over five years of
production and used an amortization rate of 7 percent in our analysis.
The analysis also considers total operating costs, including
maintenance and fuel consumption. Cost estimates based on the projected
technologies represent an expected change in the cost of engines as
they begin to comply with new emission standards. All costs are
presented in 2005 dollars. Full details of our cost analysis can be
found in Chapter 6 of the Draft RIA. Estimated costs related to exhaust
emissions were also subject to peer review, as described in a set of
peer review reports that are available in the docket for this rulemaking.
Cost estimates based on the current projected costs for our
estimated technology packages represent an expected incremental cost of
equipment in the near term. For the longer term we have identified
factors that would cause cost impacts to decrease over time. First, as
noted above, we project that manufacturers will spread their fixed
costs over the first five years of production. After the fifth year of
production, we project that the fixed costs would be retired and the
unit costs could be reduced as a result.
The cost analysis considers both long-term and short-term costs. We
expect that over time, manufacturers will undergo a learning process
that will lead to lower variable costs. For instance, the analysis
incorporates the expectation that Small SI engine manufacturers will
optimize the catalyst muffler offerings available and thereby
streamline their production and reduce costs. The cost analysis
generally incorporates this learning effect by decreasing estimated
variable costs by 20 percent starting in the sixth year of production.
Long-term impacts on costs are expected to decrease as manufacturers
fully amortize their fixed costs and learn to optimize their designs
and production processes to meet the standards more efficiently. The
learning curve has not been applied to Small SI EFI systems due to the
fact that the technologies are currently well established on similar
sized engines in other applications.
We project average costs to comply with the proposed exhaust
emission standards for Small SI engines and equipment to range from $9-
$15 per Class I equipment to meet the Phase 3 standards. We anticipate
the manufacturers will meet the emission standard with several
technologies including engine improvements and catalysts. For Class II
equipment, we project average costs to range from $22-$47 per equipment
to meet the proposed emission standards. We anticipate the
manufacturers of Class II engines would meet the proposed exhaust
emission standards by engine improvements and adding catalysts and/or
electronic fuel injection to their engines.
For Small SI equipment, we have also estimated a per-unit cost for
the proposed evaporative emission standards. The average short-term
costs without fuel savings are projected to be $0.82 for handheld
equipment, $3.16 for Class I equipment, and $6.90 for Class II
equipment. These costs are based on fuel tank and fuel line permeation
control, and for non-handheld equipment, running loss and diffusion

[[Page 28222]]

control. Because evaporative emissions are composed of otherwise usable
fuel that is lost to the atmosphere, measures that reduce evaporative
emissions will result in fuel savings. We estimate that the average
fuel savings, due to permeation control, be about 1.2 gallons over the
5-year average operating lifetime. This translates to a discounted lifetime
savings of more than $2 at an average fuel price of $1.81 per gallon.
For marine engines, we estimated per-engine costs for OB, PWC, and
SD/I engines for meeting the proposed exhaust emission standards. The
short-term cost estimates without fuel savings are $280 for OB, $360
for PWC, and $360 for SD/I engines. For OB/PWC engines, we anticipate
that manufacturers would meet the standards through the expanded
production of existing low-emission technologies such as four-stroke
and direct-injection two-stroke engines. For SD/I engines, we
anticipate that manufacturers would use catalytic control to meet the
proposed standards.
For marine vessels, we have also estimated a per-unit cost for the
proposed evaporative emission standards. The average short-term costs
without fuel savings are projected to be $12 for boats with portable
fuel tanks, $17 for PWC, and $74 for boats with installed fuel tanks.
These costs are based on fuel tank and fuel line permeation control and
diurnal emission control. For portable fuel tanks, diurnal emission
control is based on an automatic sealing vent, for PWC we estimate that
changes will not be necessary from current designs, and for other boats
with installed fuel tanks, the estimated costs are based on the use of
a passively-purged carbon canister. Because evaporative emissions are
composed of otherwise usable fuel that is lost to the atmosphere,
measures that reduce evaporative emissions will result in fuel savings.
We estimate that the average fuel savings, due to permeation control,
be about 31 gallons over the 15-year average operating lifetime. This
translates to a discounted lifetime savings of about $36 at an average
fuel price of $1.81 per gallon.

C. Cost per Ton

We have calculated the cost per ton of the Phase 3 standards
contained in this proposal by estimating costs and emission benefits
for these engines. We made our best estimates of the combination of
technologies that engine manufacturers might use to meet the new
standards, best estimates of resultant changes to equipment design,
engine manufacturer compliance program costs, and fuel savings in order
to assess the expected economic impact of the proposed Phase 3 emission
standards for Small SI engines and Marine SI engines. Emission
reduction benefits are taken from the results of the Inventory chapter
of the RIA (Chapter 3).
A summary of the annualized costs to Small SI and Marine SI engine
manufacturers is presented in Table XII-6. These annualized costs are
over a 30-year period and presented both with a 3-percent and a 7-
percent discount rate. The annualized fuel savings for Small SI engines
are due to reduced fuel costs from the use of electronic fuel injection
on Class II engines as well as fuel savings from evaporative measures
on all Small SI engines. The annualized fuel savings for Marine SI
engines are due to reduced fuel costs from the expected elimination of
2-stroke outboard motors from the new engine fleet as well as fuel
savings from evaporative emission controls on all vessels.

Table XII-6.--Estimated Annualized Cost to Manufacturers and Annualized Fuel Savings over 30 Years Due to the
Phase 3 Small SI and Marine SI Engine Standards
[2005$, 3 and 7 percent discount rates]
----------------------------------------------------------------------------------------------------------------
Annualized cost to Annualized fuel savings
manufactuers (millions/ (millions/yr)
Engine category Emissions category yr) -------------------------
--------------------------
3% 7% 3% 7%
----------------------------------------------------------------------------------------------------------------
Small SI Engines.................... Exhaust............... $281 $267 $71 $63
Evaporative........... 70 67 58 52
Aggregate............. 350 334 129 114
Marine SI Engines................... Exhaust............... 134 141 76 67
Evaporative........... 26 26 29 25
Aggregate............. 160 167 105 92
----------------------------------------------------------------------------------------------------------------

We have estimated the Small SI and Marine SI engine cost per ton of
the Phase 3 HC+NO_X standards over the typical lifetime of
the equipment that are covered by this proposal. We have examined the
cost per ton by performing a nationwide cost per ton analysis in which
the net present value of the cost of compliance per year is divided by
the net present value of the HC+NO_X benefits over 30 years.
The resultant discounted cost per ton is presented in Table XII-7. The
total (exhaust and evaporative) cost per ton, using a 7 percent
discount rate, with fuel savings is $950 for Small SI equipment and
$350 for marine vessels. For the proposal as a whole, the cost per ton
of HC+NO_X reduction is $660. Reduced operating costs offset
a portion of the increased cost of producing the cleaner Small SI and
Marine SI engines. Reduced fuel consumption also offsets the costs of
permeation control. Chapter 7 of the RIA contains a more detailed
discussion of the cost per ton analysis.

Table XII-7.--Estimated Cost Per Ton of the HC+NOX Emission Standards
[2005$, 3 and 7 percent discount rates]
----------------------------------------------------------------------------------------------------------------
Discounted cost per ton
-------------------------------
Category Implementation Without fuel With fuel
dates savings (3%/ savings (3%/
7%) 7%)
----------------------------------------------------------------------------------------------------------------
Small SI Exhaust................................................ 2011-2012 $1700/$1860 $1270/$1420

[[Page 28223]]

Small SI Evaporative............................................ 2008-2013 720/770 120/170
Marine SI Exhaust............................................... 2009-2013 690/820 300/430
Marine SI Evaporative........................................... 2009-2012 530/630 (70)/35
Aggregate....................................................... 2008-2013 660/1120 226/660
----------------------------------------------------------------------------------------------------------------

As is discussed above, we are also expecting some reduction in
direct PM emissions and carbon monoxide. These reductions will come
primarily as product of the technology being used to meet HC and
NO_X standards and not directly as a result of the
implementation of specific technology to achieve these gains. Thus, we
have elected to focus our cost per ton analysis on HC+NO_X.
One useful purpose of cost per ton analysis is to compare this
program to other programs designed to achieve similar air quality
objectives. Toward that end, we made a comparison between the
HC+NO_X cost per ton values presented in Table C-2 and the
HC+NO_X cost per ton of other recent mobile source programs.
Table XII-8 summarizes the HC+NO_X cost per ton of several
recent EPA actions for controlled emissions from mobile sources. While
the analyses for each rule were not completely identical, it is clear
that the Small SI and Marine SI values compare favorably with the other
recent actions.

Table XII-8.--Cost Per Ton of Previously Implemented HC+NOX Mobile
Source Programs
[2005$, 7 percent discount with fuel savings]
------------------------------------------------------------------------
Discounted
Program cost per ton
------------------------------------------------------------------------
2002 HH engines Phase 2................................. 840
2001 NHH engines Phase 2................................ * neg
1998 Marine SI engines.................................. 1900
2004 Comm Marine CI..................................... 200
2007 Large SI exhaust................................... 80
2006 ATV exhaust........................................ 300
2006 Off-highway motorcycle............................. 290
2006 Recreational marine CI............................. 700
2010 Snowmobile......................................... 1430
2006 < 50cc highway motorcycle........................... 1860
2010 Class 3 highway motorcycle......................... 1650
------------------------------------------------------------------------
* Fuel savings outweigh engineering/hardware costs.

D. Air Quality Impact

Information on the air quality impacts of this proposed action can
be found in Section II of this preamble. Section II includes health
effect information on ozone, PM, CO and air toxics. It also includes
modeled projections of future ozone concentrations with and without the
controls detailed in this proposal. The proposed emission reductions
would lead to reductions in ambient concentrations of ozone, PM, CO and
air toxics.

E. Benefits

This section presents our analysis of the health and environmental
benefits that can be expected to occur as a result of the proposed
Small SI and Marine SI engine standards throughout the period from
initial implementation through 2030. Nationwide, the engines that are
subject to the proposed emission standards in this rule are a
significant source of mobile source air pollution. The proposed
standards would reduce exposure to hydrocarbon, CO and NO_X
emissions and help avoid a range of adverse health effects associated
with ambient ozone and PM_2.5 levels. In addition, the
proposed standards would help reduce exposure to CO, air toxics, and
PM_2.5 for persons who operate or who work with or are
otherwise active in close proximity to these engines.
EPA typically quantifies PM- and ozone-related benefits in its
regulatory impact analyses (RIAs) when possible. In the analysis of
past air quality regulations, ozone-related benefits have included
morbidity endpoints and welfare effects such as damage to commercial
crops. EPA has not recently included a separate and additive mortality
effect for ozone, independent of the effect associated with fine
particulate matter. For a number of reasons, including (1) Advice from
the Science Advisory Board (SAB) Health and Ecological Effects
Subcommittee (HEES) that EPA consider the plausibility and viability of
including an estimate of premature mortality associated with short-term
ozone exposure in its benefits analyses and (2) conclusions regarding
the scientific support for such relationships in EPA's 2006 Air Quality
Criteria for Ozone and Related Photochemical Oxidants (the CD), EPA is
in the process of determining how to appropriately characterize ozone-
related mortality benefits within the context of benefits analyses for
air quality regulations. As part of this process, we are seeking advice
from the National Academy of Sciences (NAS) regarding how the ozone-
mortality literature should be used to quantify the reduction in
premature mortality due to diminished exposure to ozone, the amount of
life expectancy to be added and the

[[Page 28224]]

monetary value of this increased life expectancy in the context of
health benefits analyses associated with regulatory assessments. In
addition, the agency has sought advice on characterizing and
communicating the uncertainty associated with each of these aspects in
health benefit analyses.
Since the NAS effort is not expected to conclude until 2008, the
agency is currently deliberating how best to characterize ozone-related
mortality benefits in its rulemaking analyses in the interim. For the
analysis of the proposed standards, we do not quantify an ozone
mortality benefit. So that we do not provide an incomplete picture of
all of the benefits associated with reductions in emissions of ozone
precursors, we have chosen not to include an estimate of total ozone
benefits in the proposed RIA. By omitting ozone benefits in this
proposal, we acknowledge that this analysis underestimates the benefits
associated with the proposed standards. Our analysis, however,
indicates that the rule's monetized PM_2.5 benefits alone
substantially exceed our estimate of the costs.
The PM_2.5 benefits are scaled based on relative changes
in PM_2.5 precursor emissions (direct PM and NO_X)
between this rule and the proposed Clean Air Nonroad Diesel (CAND)
rule. As explained in Section 8.2.1 of the RIA for this rule, the
PM_2.5 benefits scaling approach is limited to those studies,
health impacts, and assumptions that were used in the proposed CAND
analysis. As a result, PM-related premature mortality is based on the
updated analysis of the American Cancer Society cohort (ACS; Pope et
al., 2002).\107\ However, it is important to note that since the CAND
rule, EPA's Office of Air and Radiation (OAR) has adopted a different
format for its benefits analyses in which characterization of the
uncertainty in the concentration-response function is integrated into
the main benefits analysis. This new approach follows the
recommendation of NRC's 2002 report ``Estimating the Public Health
Benefits of Proposed Air Pollution Regulations'' to begin moving the
assessment of uncertainties from its ancillary analyses into its main
benefits presentation through the conduct of probabilistic
analyses.\108\ Within this context, additional data sources are
available, including a recent expert elicitation and updated analysis
of the Six-Cities Study cohort (Laden et al., 2006).\109\ Please see
the PM NAAQS RIA for an indication of the sensitivity of our results to
use of alternative concentration-response functions. The
PM_2.5-related benefits associated with the proposed
standards are presented in table XII-9.
---------------------------------------------------------------------------

\107\ Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D.
Krewski, K. Ito, and G.D. Thurston. 2002. ``Lung Cancer,
Cardiopulmonary Mortality, and Long-term Exposure to Fine
Particulate Air Pollution.'' Journal of the American Medical
Association 287:1132-1141.
\108\ National Research Council (NRC). 2002. Estimating the
Public Health Benefits of Proposed Air Pollution Regulations.
Washington, DC: The National Academies Press.
\109\ Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery.
2006. Reduction in Fine Particulate Air Pollution and Mortality.
American Journal of Respiratory and Critical Care Medicine. 173: 667-672.
---------------------------------------------------------------------------

It should be noted that since the CAND rule, EPA's Office of Air
and Radiation (OAR) has adopted a different format for its benefits
analysis in which characterization of uncertainty is integrated into
the main benefits analysis. The benefits scaling approach used in the
analysis of the proposed standards limits our ability to integrate
uncertainty into the main analysis. For the benefits analysis of the
final standards, we will adopt this integrated uncertainty approach.
Please see the PM NAAQS RIA for an indication of the uncertainty
present in the base estimate of benefits and the sensitivity of our
results to the use of alternative concentration-response functions.

Table XII-9.--Estimated Monetized PM-Related Health Benefits of the
Proposed Standards
------------------------------------------------------------------------
Total Benefits a, b, c
(billions 2005$)
-------------------------------
2020 2030
------------------------------------------------------------------------
Using a 3% discount rate................ $2.1 + B $3.4 + B
Using a 7% discount rate................ $1.9 + B $3.1 + B
------------------------------------------------------------------------
\a\ Benefits include avoided cases of mortality, chronic illness, and
other morbidity health endpoints. PM-related mortality benefits
estimated using an assumed PM threshold at background levels (3 [mu]g/
m3). There is uncertainty about which assumed threshold to use and
this may impact the magnitude of the total benefits estimate. For a
more detailed discussion of this issue, please refer to Section
8.6.2.2 of the RIA.
\b\ For notational purposes, unquantified benefits are indicated with a
``B'' to represent the sum of additional monetary benefits and
disbenefits. A detailed listing of unquantified health and welfare
effects is provided in Table XII-12.
\c\ Results reflect the use of two different discount rates: 3 and 7
percent, which are recommended by EPA's Guidelines for Preparing
Economic Analyses\110\ and OMB Circular A-4.\111\ Results are rounded
to two significant digits for ease of presentation and computation.

(1) Quantified Human Health and Environmental Effects of the Proposed
Standards
---------------------------------------------------------------------------

\110\ U.S. Environmental Protection Agency. September 2000.
Guidelines for Preparing Economic Analyses. EPA 240-R-00-003.
\111\ U.S. Office of Management and Budget (OMB). 2003. Circular
A-4 Guidance for Federal Agencies Preparing Regulatory Analyses,
Available at: http://www.whitehouse.gov/omb/inforeg/iraguide.html.
Accessed December 15, 2005.
---------------------------------------------------------------------------

In this section we discuss the PM_2.5 benefits of the
proposed standards. To estimate PM_2.5 benefits, we rely on a
benefits transfer technique. The benefits transfer approach uses as its
foundation the relationship between reductions in precursors to
PM_2.5 (NO_X and direct PM_2.5 emissions)
and ambient PM_2.5 concentrations modeled across the
contiguous 48 states (and DC) for the Clean Air Nonroad Diesel (CAND)
proposal.\112\ For a given future year, we first calculate the ratio
between CAND direct PM_2.5 emission reductions and direct
PM_2.5 emission reductions associated with the proposed
control standards (proposed emission reductions/CAND emission
reductions). We calculate a similar ratio for NO_X. We then
multiply these ratios by the percent that direct PM_2.5 and
NO_X emissions, respectively, contribute towards population-
weighted reductions in ambient PM_2.5 due to the CAND
standards. This calculation results in a ``benefits apportionment
factor'' for the relationship between direct PM emissions and ambient
PM_2.5 and NO_X emissions and ambient
PM_2.5, which are then applied to the incidence and monetized
benefits from the CAND proposal. In this way, we apportion the results
of the proposed CAND analysis to its underlying PM precursor emission
reductions and scale the apportioned

[[Page 28225]]

benefits to reflect differences in emission reductions between the two
rules.\113\ This benefits transfer method is consistent with the
approach used in other recent mobile and stationary source rules.\114\
---------------------------------------------------------------------------

\112\ See 68 FR 28327, May 23, 2003.
\113\ Note that while the proposed regulations control
hydrocarbons (VOCs), which contribute to PM formation, the benefits
transfer scaling approach only scales benefits based on
NO_X, SO₂, and direct PM emission reductions.
PM benefits will likely be underestimated as a result, though we are
unable to estimate the magnitude of the underestimation. Note also
that PM-related mortality benefits estimated for the CAND analysis
used an assumed PM threshold at background levels (3 [mu]g/
m3). There is uncertainty about which threshold to use
and this may impact the magnitude of the total benefits estimate.
For a more detailed discussion of this issue, please refer to
Chapter 8.2 of the RIA.
\114\ See: Mobile Source Air Toxics proposed rule (71 FR 15803,
March 29, 2006); Clean Air Nonroad Diesel final rule (69 FR 38958,
June 29, 2004); Nonroad Large Spark-Ignition Engines and
Recreational Engines standards (67 FR 68241, November 8, 2002);
Final Industrial Boilers and Process Heaters NESHAP (69 FR 55217,
September 13, 2004); Final Reciprocating Internal Combustion Engines
NESHAP (69 FR 33473, June 15, 2004); Final Clean Air Visibility Rule
(EPA-452/R-05-004, June 15, 2005); Ozone Implementation Rule
(documentation forthcoming).
---------------------------------------------------------------------------

Table XII-10 presents the primary estimates of reduced incidence of
PM-related health effects for the years 2020 and 2030 for the proposed
emission control strategy.\115\ In 2030, we estimate that PM-related
annual benefits include approximately 450 fewer premature fatalities,
290 fewer cases of chronic bronchitis, 800 fewer non-fatal heart
attacks, 460 fewer hospitalizations (for respiratory and cardiovascular
disease combined), 310,000 days of restricted activity due to
respiratory illness and approximately 52,000 fewer work-loss days. We
also estimate substantial health improvements for children from reduced
upper and lower respiratory illness, acute bronchitis, and asthma attacks.
---------------------------------------------------------------------------

\115\ The ``primary estimate'' refers to the estimate of
benefits that reflects the suite of endpoints and assumptions that
EPA believes yields the expected value of air quality improvements
related to the proposed standards. The impact that alternative
endpoints and assumptions have on the benefit estimates are explored
in appendixes to the RIA.

Table XII-10.--Estimated Annual Reductions in Incidence of Health
Effects a
------------------------------------------------------------------------
2020 annual 2030 annual
Health effect incidence incidence
reduction reduction
------------------------------------------------------------------------
PM-Related Endpoints:
Premature Mortality \b\--
Adult, age 30 and over plus Infant, 290 450
age < 1 year.......................
Chronic bronchitis (adult, age 26 200 290
and over)..........................
Non-fatal myocardial infarction 490 800
(adult, age 18 and over)...........
Hospital admissions--respiratory 160 270
(all ages) \c\.....................
Hospital admissions--cardiovascular 130 200
(adults, age > 18) \d\.............
Emergency room visits for asthma 210 310
(age 18 years and younger).........
Acute bronchitis, (children, age 8- 470 700
12)................................
Lower respiratory symptoms 5,600 8,300
(children, age 7-14)...............
Upper respiratory symptoms 4,300 6,300
(asthmatic children, age 9-18).....
Asthma exacerbation (asthmatic 7,000 10,000
children, age 6-18)................
Work loss days...................... 38,000 52,000
Minor restricted activity days 220,000 310,000
(adults age 18-65).................
------------------------------------------------------------------------
\a\ Incidence is rounded to two significant digits. The PM estimates
represent benefits from the proposed rule nationwide. The ozone
estimates only represent benefits from the Eastern 37 states and DC,
though the program is national in scope.
\b\ PM-related adult mortality based upon studies by Pope, et al
2002.\116\ PM-related infant mortality based upon studies by Woodruff,
Grillo, and Schoendorf,1997.\117\
\c\ Respiratory hospital admissions for PM include admissions for
chronic obstructive pulmonary disease (COPD), pneumonia and asthma.
\d\ Cardiovascular hospital admissions for PM include total
cardiovascular and subcategories for ischemic heart disease,
dysrhythmias, and heart failure.

(2) Monetized Benefits
Table XII-11 presents the estimated monetary value of reductions in
the incidence of health and welfare effects. Annual PM-related health
benefits are approximately $3.4 billion in 2030, assuming a 3 percent
discount rate (or $3.1 billion assuming a 7 percent discount rate). All
monetized estimates are stated in 2005 dollars. These estimates account
for growth in real gross domestic product (GDP) per capita between the
present and the years 2020 and 2030. As the table indicates, total
benefits are driven primarily by the reduction in premature fatalities
each year, which accounts for well over 90 percent of total benefits.
---------------------------------------------------------------------------

\116\ Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D.
Krewski, K. Ito, and G.D. Thurston. 2002. ``Lung Cancer,
Cardiopulmonary Mortality, and Long-term Exposure to Fine
Particulate Air Pollution.'' Journal of American Medical Association
287:1132-1141.
\117\ Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997.
``The Relationship Between Selected Causes of Postneonatal Infant
Mortality and Particulate Infant Mortality and Particulate Air
Pollution in the United States.'' Environmental Health Perspectives
105(6):608-612.
---------------------------------------------------------------------------

Table XII-11 indicates with a ``B'' those additional health and
environmental benefits of the rule that we were unable to quantify or
monetize. These effects are additive to the estimate of total benefits,
and are related to the following sources:
• There are many human health and welfare effects associated
with ozone, PM, and toxic air pollutant reductions that remain
unquantified because of current limitations in the methods or available
data. A full appreciation of the overall economic consequences of the
proposed standards requires consideration of all benefits and costs
expected to result from the new standards, not just those benefits and
costs which could be expressed here in dollar terms. A listing of the
benefit categories that could not be quantified or monetized in our
benefit estimates are provided in Table XII-12.
• The PM air quality model only captures the benefits of air
quality improvements in the 48 states and DC; PM benefits for Alaska
and Hawaii are not reflected in the estimate of benefits.
---------------------------------------------------------------------------

\118\ U.S. Environmental Protection Agency, 2000. Guidelines for
Preparing Economic Analyses.
http://www.yosemite1.epa.gov/ee/epa/eed/hsf/pages/Guideline.html.
\119\ Office of Management and Budget, The Executive Office of
the President, 2003. Circular A-4. http://www.whitehouse.gov/omb/circulars.

[[Page 28226]]

Table XII-11.--Estimated Annual Monetary Value of Reductions in Incidence of Health and Welfare Effects (2005$)
a, b
----------------------------------------------------------------------------------------------------------------
2020 estimated 2030 estimated
value of value of
Health effect Pollutant reductions reductions
(millions) (millions)
----------------------------------------------------------------------------------------------------------------
PM-Related Premature mortality c, d
Adult >30 years........................ PM2.5..............................
3 percent discount rate............ ................................... $2,000 $3,100
7 percent discount rate............ ................................... 1,800 2,800
Child < 1 year.......................... ................................... 5 6
Chronic bronchitis (adults, 26 and over)... PM2.5.............................. 90 140
Non-fatal acute myocardial infarctions
3 percent discount rate................ ................................... 50 77
7 percent discount rate................ PM2.5.............................. 48 75
Hospital admissions for respiratory causes. PM2.5.............................. 2.9 5.0
Hospital admissions for cardiovascular PM2.5.............................. 3.1 4.7
causes.
Emergency room visits for asthma........... PM2.5.............................. 0.07 0.11
Acute bronchitis (children, age 8-12)...... PM2.5.............................. 0.20 0.30
Lower respiratory symptoms (children, age 7- PM2.5.............................. 0.11 0.16
14).
Upper respiratory symptoms (asthma, age 9- PM2.5.............................. 0.13 0.19
11).
Asthma exacerbations....................... PM2.5.............................. 0.36 0.54
Work loss days............................. PM2.5.............................. 5.8 7.0
Minor restricted activity days (MRADs)..... PM2.5.............................. 14 19
Monetized Total \e\
Base estimate:
3 percent discount rate............ PM2.5.............................. 2,100 + B 3,400 + B
7 percent discount rate............ ................................... 1,900 + B 3,100 + B
----------------------------------------------------------------------------------------------------------------
\a\ Incidence is rounded to two significant digits. The PM estimates represent benefits from the proposed rule
nationwide.
\b\ Monetary benefits adjusted to account for growth in real GDP per capita between 1990 and the analysis year
(2020 or 2030).
\c\ Valuation of premature mortality based on long-term PM exposure assumes discounting over the SAB recommended
20 year segmented lag structure described in the Regulatory Impact Analysis for the Final Clean Air Interstate
Rule (March 2005). Results show 3 percent and 7 percent discount rates consistent with EPA and OMB guidelines
for preparing economic analyses (US EPA, 2000 and OMB, 2003).118, 119
\d\ Adult mortality based upon the ACS cohort study (Pope et al., 2002). Infant mortality based upon studies by
Woodruff, Grillo, and Schoendorf, 1997.
\e\ B represents the monetary value of health and welfare benefits not monetized. A detailed listing is provided
in Table XII-12.

Table XII-12.--Unquantified and Non-Monetized Effects of the Proposed
Small Spark Ignition/Recreational Marine Engine Rule
------------------------------------------------------------------------
Effects not included in primary
Pollutant/effects estimates--changes in:
------------------------------------------------------------------------
Ozone Health a.................... Premature mortality: short-term
exposures b.
Hospital admissions: respiratory.
Emergency room visits for asthma.
Minor restricted-activity days.
School loss days.
Asthma attacks.
Cardiovascular emergency room
visits.
Acute respiratory symptoms.
Chronic respiratory damage.
Premature aging of the lungs.
Non-asthma respiratory emergency
room visits.
Increased exposure to UVb.
Ozone Welfare..................... Yields for
--commercial forests.
--some fruits and vegetables.
--non-commercial crops.
Damage to urban ornamental plants.
Impacts on recreational demand from
damaged forest aesthetics.
Ecosystem functions.
Increased exposure to UVb.
PM Health c....................... Premature mortality--short term
exposures d.
Low birth weight.
Pulmonary function.
Chronic respiratory diseases other
than chronic bronchitis.
Non-asthma respiratory emergency
room visits.
Exposure to UVb (±)e.
PM Welfare........................ Visibility in Class I areas.
Residential and recreational
visibility in non-Class I areas.
Soiling and materials damage.
Damage to ecosystem functions.
Exposure to UVb (±) e.

[[Page 28227]]

Nitrogen and Sulfate Deposition Commercial forests due to acidic
Welfare. sulfate and nitrate deposition.
Commercial freshwater fishing due to
acidic deposition.
Recreation in terrestrial ecosystems
due to acidic deposition.
Existence values for currently
healthy ecosystems.
Commercial fishing, agriculture, and
forests due to nitrogen deposition.
Recreation in estuarine ecosystems
due to nitrogen deposition.
Ecosystem functions.
Passive fertilization.
CO Health......................... Behavioral effects.
HC Health f....................... Cancer (benzene, 1,3-butadiene,
formaldehyde, acetaldehyde).
Anemia (benzene).
Disruption of production of blood
components (benzene).
Reduction in the number of blood
platelets (benzene).
Excessive bone marrow formation
(benzene).
Depression of lymphocyte counts
(benzene).
Reproductive and developmental
effects (1,3-butadiene).
Irritation of eyes and mucus
membranes (formaldehyde).
Respiratory irritation
(formaldehyde).
Asthma attacks in asthmatics
(formaldehyde).
Asthma-like symptoms in non-
asthmatics (formaldehyde).
Irritation of the eyes, skin, and
respiratory tract (acetaldehyde).
Upper respiratory tract irritation
and congestion (acrolein).
HC Welfare........................ Direct toxic effects to animals.
Bioaccumulation in the food chain.
Damage to ecosystem function.
Odor.
------------------------------------------------------------------------
a In addition to primary economic endpoints, there are a number of
biological responses that have been associated with ozone health
effects including increased airway responsiveness to stimuli,
inflammation in the lung, acute inflammation and respiratory cell
damage, and increased susceptibility to respiratory infection. The
public health impact of these biological responses may be partly
represented by our quantified endpoints.
b Recent analyses provide evidence that short-term ozone exposure is
associated with increased premature mortality. As a result, EPA is
considering how to incorporate ozone mortality benefits into its
benefits analyses as a separate estimate of the number of premature
deaths that would be avoided due to reductions in ozone levels.
c In addition to primary economic endpoints, there are a number of
biological responses that have been associated with PM health effects
including morphological changes and altered host defense mechanisms.
The public health impact of these biological responses may be partly
represented by our quantified endpoints.
d While some of the effects of short-term exposures are likely to be
captured in the estimates, there may be premature mortality due to
short-term exposure to PM not captured in the cohort study upon which
the primary analysis is based.
e May result in benefits or disbenefits.
f Many of the key hydrocarbons related to this rule are also hazardous
air pollutants listed in the Clean Air Act.

(3) What Are the Significant Limitations of the Benefits Analysis?
Every benefit-cost analysis examining the potential effects of a
change in environmental protection requirements is limited to some
extent by data gaps, limitations in model capabilities (such as
geographic coverage), and uncertainties in the underlying scientific
and economic studies used to configure the benefit and cost models.
Deficiencies in the scientific literature often result in the inability
to estimate quantitative changes in health and environmental effects,
such as potential increases in premature mortality associated with
increased exposure to carbon monoxide. Deficiencies in the economics
literature often result in the inability to assign economic values even
to those health and environmental outcomes which can be quantified.
These general uncertainties in the underlying scientific and economics
literature, which can cause the valuations to be higher or lower, are
discussed in detail in the RIA and its supporting references. Key
uncertainties that have a bearing on the results of the benefit-cost
analysis of the proposed standards include the following:
• The exclusion of potentially significant and unquantified
benefit categories (such as health, odor, and ecological benefits of
reduction in ozone, air toxics, and PM);
• Errors in measurement and projection for variables such as
population growth;
• Uncertainties in the estimation of future year emissions
inventories and air quality, especially regarding the discrepancy
between the modeled and proposed suite of standards and their impact on
emissions inventories;
• Uncertainties associated with the scaling of the PM
results of the modeled benefits analysis to the proposed standards,
especially regarding the assumption of similarity in geographic
distribution between emissions and human populations and years of analysis;
• Uncertainty in the estimated relationships of health and
welfare effects to changes in pollutant concentrations including the
shape of the concentration-response function, the size of the effect
estimates, and the relative toxicity of the many components of the PM
mixture;
• Uncertainties in exposure estimation; and
• Uncertainties associated with the effect of potential
future actions to limit emissions.
As Table XII-11 indicates, total benefits are driven primarily by
the reduction in premature fatalities each year. Elaborating on the
list of uncertainties above, some key assumptions underlying the
primary estimate for the premature mortality category include the following:

[[Page 28228]]

• Inhalation of fine particles is causally associated with
premature death at concentrations near those experienced by most
Americans on a daily basis. Although biological mechanisms for this
effect have not yet been completely established, the weight of the
available epidemiological, toxicological, and experimental evidence
supports an assumption of causality. The impacts of including a
probabilistic representation of causality were explored in the expert
elicitation-based results of the recently published PM NAAQS RIA.
Because the analysis of the proposed standards is constrained to the
studies included in the CAND PM benefits scaling approach, we are
unable to conduct the same analysis of expert elicitation-based
mortality incidence for the proposed standards.\120\ However, we
qualitatively describe the expert elicitation-based mortality results
associated with the final PM NAAQS to provide an indication of the
sensitivity of our PM-related premature mortality results to use of
alternative concentration-response functions. We present this
discussion in the RIA.
---------------------------------------------------------------------------

\120\ The scaling approach relies on the incidence and valuation
estimates derived from the studies available at the time of the CAND
analysis. Incidence estimates and monetized benefits derived from
new information, including mortality derived from the full expert
elicitation, are not available for scaling. Please refer to section
2 of this preamble and Chapter 12 of the RIA for more information
about the benefits scaling approach.
---------------------------------------------------------------------------

• Since the publication of CAIR, a follow up to the Harvard
six-city study on premature mortality was published (Laden et al., 2006
based on Dockery et al., 1993),121 122 which both confirmed
the effect size from the first study and provided additional evidence
that reductions in PM_2.5 directly result in reductions in
the risk of premature death. The impacts of including this study in the
primary analysis were explored in the results of the recently published
PM NAAQS RIA. Because the analysis of the proposed standards is
constrained to the studies included in the CAND PM benefits scaling
approach, we are unable to characterize PM-related mortality based on
Laden et al. However, we discuss the implications of these results in
the RIA for the proposed standards.
---------------------------------------------------------------------------

\121\ Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery.
2006. Reduction in Fine Particulate Air Pollution and Mortality.
American Journal of Respiratory and Critical Care Medicine. 173: 667-672.
\122\ Dockery, D.W., C.A. Pope, X.P. Xu, J.D. Spengler, J.H.
Ware, M.E. Fay, B.G. Ferris, and F.E. Speizer. 1993. ``An
Association between Air Pollution and Mortality in Six U.S.
Cities.'' New England Journal of Medicine 329(24):1753-1759.
---------------------------------------------------------------------------

• All fine particles, regardless of their chemical
composition, are equally potent in causing premature mortality. This is
an important assumption, because PM produced via transported precursors
emitted from Small SI and Marine SI engines may differ significantly
from PM precursors released from electric generating units and other
industrial sources. However, no clear scientific grounds exist for
supporting differential effects estimates by particle type.
• The concentration-response function for fine particles is
approximately linear within the range of ambient concentrations under
consideration. Thus, the estimates include health benefits from
reducing fine particles in areas with varied concentrations of PM,
including both regions that may be in attainment with PM_2.5
standards and those that are at risk of not meeting the standards.
Taking into account these uncertainties, we believe this benefit-
cost analysis provides a conservative estimate of the expected economic
benefits of the proposed standards in future years because of the
exclusion of potentially significant benefit categories. Acknowledging
benefits omissions and uncertainties, we present a best estimate of the
total benefits based on our interpretation of the best available
scientific literature and methods. Furthermore, our analysis reflects
many methodological improvements that were incorporated into the
analysis of the final Clean Air Interstate Rule (CAIR), including a
revised value of a statistical life, a revised baseline rate of future
mortality, and a revised mortality lag assumption. Details of these
improvements can be found in the RIA for this rule and in the final
CAIR rule RIA.\123\ Once again, however, it should be noted that since
the CAIR rule, EPA's Office of Air and Radiation (OAR) has adopted a
different format for its benefits analysis in which characterization of
uncertainty is integrated into the main benefits analysis. Please see
the PM NAAQS RIA for an indication of the uncertainty present in the
base estimate of benefits and the sensitivity of our results to the use
of alternative concentration-response functions.
---------------------------------------------------------------------------

\123\ See Chapter 4 of the Final Clean Air Interstate Rule RIA
(http://www.epa.gov/cair) for a discussion of EPA's ongoing efforts
to address the NAS recommendations in its regulatory analyses.
---------------------------------------------------------------------------

(4) How Do the Benefits Compare to the Costs of the Proposed Standards?
The proposed rule establishes separate standards that reduce the
evaporative and exhaust emissions from Small SI and Marine SI engines.
A full appreciation of the overall economic consequences of these
provisions requires consideration of the benefits and costs expected to
result from each standard. Due to limitations in data availability and
analytical methods, however, we are only able to present the benefits
of the entire proposed rule in the aggregate for both PM_2.5
and ozone. There are also a number of health and environmental effects
associated with the proposed standards that we were unable to quantify
or monetize (see Table XII-12).
Table XII-13 contains the estimates of monetized PM_2.5-
related benefits of the proposed standards and estimated social welfare
costs for each of the proposed control programs. The annual social
welfare costs of all provisions of this proposed rule are described
more fully in the next section. The results in Table XII-13 suggest
that the 2020 and 2030 monetized benefits of the proposed standards are
much greater than the expected social welfare costs. Specifically, the
annual benefits of the program would be approximately $2.1 + B billion
annually in 2020 using a three percent discount rate (or $1.9 + B
billion using a seven percent discount rate), compared to estimated
social welfare costs of approximately $252 million in that same year.
The net benefits are expected to increase to $3.4 + B billion annually
in 2030 using a three percent discount rate (or $3.1 + B billion using
a seven percent discount rate), even as the social welfare costs of
that program fall to $241 million.
In Table XII-13, we present the costs and PM-related benefits
related to each of the two broad engine classes regulated by the
proposed standards: Small SI and Marine SI engines. Table XII-13 also
presents the costs and PM-related benefits related to the specific
engine classes regulated by the proposed standards: Small SI--Class I,
Class II, and Handheld (HH); Marine SI--Sterndrive/Inboard (SD/I), and
Outboard/Personal Water Craft (OB/PWC). Using the same PM scaling
approach described in Chapter 8.2 of the RIA, we are able to split out
the estimated PM benefits related to the different Small SI and Marine
SI engine classes. One can see that in all cases, the PM benefits
accrued by the engine classes are greater than the costs, even when
fuel savings is not factored into the cost estimate. The benefit-to-
cost ratio would be even greater if we

[[Page 28229]]

estimated the ozone benefits related to the proposed standards.

Table XII-13.--Summary of Annual Benefits, Costs, and Net Benefits of
the Proposed Small SI and Marine SI Engine Rule a
------------------------------------------------------------------------
2020 (Millions 2030 (Millions
Description of 2005 of 2005
dollars) dollars)
------------------------------------------------------------------------
Estimated Social Welfare Costs b c
Small SI........................ $351 $404
Class I..................... 145 167
Class II.................... 199 229
HH d........................ 7 8
Marine SI....................... 154 164
SD/I........................ 41 44
OB/PWC...................... 113 120
Total................... 505 569
Fuel Savings............ (253) (327)
Total Social Welfare Costs.......... 252 241
Estimated Benefits e f
PM-Only Small SI Benefits
3 percent discount rate..... 861 1,280
7 percent discount rate..... 782 1,160
Class I
3 percent discount 478 647
rate...............
7 percent discount 434 587
rate...............
Class II
3 percent discount 383 627
rate...............
7 percent discount 348 570
rate...............
PM-Only Marine SI Benefits
3 percent discount rate..... 1,280 2,110
7 percent discount rate..... 1,160 1,190
SD/I
3 percent discount rate..... 209 487
7 percent discount rate..... 190 442
OB/PWC
3 percent discount rate..... 1,070 1,620
7 percent discount rate..... 969 1,470
Total PM-Only Benefits g
3 percent discount rate..... 2,140+B 3,380+B
7 percent discount rate..... 1,940+B 3,070+B
Annual Net PM-Only Benefits (Total
Benefits-Total Costs) g
3 percent discount rate..... 1,890+B 3,140+B
7 percent discount rate..... 1,690+B 2,830+B
------------------------------------------------------------------------
\a\ All estimates are rounded to three significant digits and represent
annualized benefits and costs anticipated for the years 2020 and 2030.
Columnar totals may not sum due to rounding.
\b\ Note that costs are the annual total costs of reducing all
pollutants associated with each provision of the proposed control
package, while the benefits reflect the value of reductions in PM2.5 only.
\c\ To calculate annual fixed costs, we use a 7 percent average before-
tax rate of return on private capital (see Chapter 9). We do not
present annual costs using an alternative rate of return. In Chapter
9, however, we use both a 3 percent and 7 percent social discount rate
to calculate the net present value of total social costs consistent
with EPA and OMB guidelines for preparing economic analyses (US EPA,
2000 and OMB, 2003).124 125
\d\ Handheld emission reductions associated with the proposed standards,
volatile organic hydrocarbons, are not accounted for in the PM
benefits scaling approach. The PM benefit scaling approach is based
upon changes in NOX and direct PM2.5 (see section 8.2 of the RIA). We
therefore do not estimate any PM-related benefits associated with
emission reductions in the handheld engine class.
\e\ PM-related benefits in this table are nationwide.
\f\ Valuation of premature mortality based on long-term PM exposure
assumes discounting over the SAB recommended 20-year segmented lag
structure described in section 8.3 of the RIA. Valuation of non-fatal
myocardial infarctions is based on the cost-of-illness over a 5-year
period after the incident. The valuation of both endpoints therefore
requires the use of a discount rate. We present the PM-related
benefits results using a 3 percent and 7 percent social discount rate
consistent with EPA and OMB guidelines for preparing economic analyses
(US EPA, 2000 and OMB, 2003).
\g\ Not all possible benefits or disbenefits are quantified and
monetized in this analysis. B is the sum of all unquantified benefits
and disbenefits. Potential benefit categories that have not been
quantified and monetized are listed in Table XII-12.

F. Economic Impact Analysis
---------------------------------------------------------------------------

\124\ U.S. Environmental Protection Agency, 2000. Guidelines for
Preparing Economic Analyses.
http://www.yosemite1.epa.gov/ee/epa/eed/hsf/pages/Guideline.html.
\125\ Office of Management and Budget, The Executive Office of
the President, 2003. Circular A-4. http://www.whitehouse.gov/omb/circulars.

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

We prepared an Economic Impact Analysis (EIA) to estimate the
economic impacts of the proposed emission control program on the Small
SI and Marine SI engine and equipment markets. In this section we
briefly describe the Economic Impact Model (EIM) we developed to
estimate the market-level changes in price and outputs for affected
markets, the social costs of the program, and the expected distribution
of those costs across affected stakeholders. We also present the
results of our analysis. We request comment on all aspects of the analysis,

[[Page 28230]]

including the model and the model inputs.
We estimate the net social costs of the proposed program to be
about $241 million in 2030.126, 127 This estimate reflects
the estimated compliance costs associated with the Small SI and Marine
SI engine standards and the expected fuel savings from improved
evaporative controls. When the fuel savings are not taken into account,
the results of the economic impact modeling suggest that the social
costs of these programs are expected to be about $569 million in 2030.
Consumers of Small SI and Marine products are expected to bear about 75
percent of these costs. Small SI engine and equipment manufacturers are
expected to bear 6 percent and 19 percent, respectively. We estimate
fuel savings of about $327 million in 2030, which will accrue to consumers.
---------------------------------------------------------------------------

\126\ All estimates presented in this section are in 2005$.
\127\ This analysis is based on an earlier version of the
engineering compliance developed for this rule. The net present
value of the engineering costs used in this analysis (without taking
the fuel savings into account, at a 3 percent discount rate over the
period of the analysis) is $10.0 billion, which is about $100
million less than the net present value of the final estimated
engineering costs, $10.1 billion. We do not expect that a difference
of this magnitude would change the overall results of this economic
impact analysis, in terms of market impacts and how the costs are
expected to be shared among stakeholders.
---------------------------------------------------------------------------

With regard to market-level impacts in 2030, the average price
increase for Small SI engines is expected to be about 9.1 percent ($17
per unit). The average price increase for Marine SI engines is expected
to be about 1.7 percent ($195 per unit). The largest average price
increase for Small SI equipment is expected to be about 5.6 percent
($15 per unit) for Class I equipment. The largest average price
increase for Marine SI vessels is expected to be about 2.1 percent
($178 per unit) for Personal Watercraft.
(1) What is an Economic Impact Analysis?
An Economic Impact Analysis (EIA) is prepared to inform decision
makers about the potential economic consequences of a regulatory
action. The analysis consists of estimating the social costs of a
regulatory program and the distribution of these costs across
stakeholders. These estimated social costs can then be compared with
estimated social benefits (as presented in Section XII.E). As defined
in EPA's Guidelines for Preparing Economic Analyses, social costs are
the value of the goods and services lost by society resulting from (a)
The use of resources to comply with and implement a regulation and (b)
reductions in output.\128\ In this analysis, social costs are explored
in two steps. In the market analysis, we estimate how prices and
quantities of goods affected by the proposed emission control program
can be expected to change once the program goes into effect. In the
economic welfare analysis, we look at the total social costs associated
with the program and their distribution across stakeholders.
---------------------------------------------------------------------------

\128\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p 113. A copy of this document can be found
at http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/Guidelines.html.

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

(2) What Is the Economic Impact Model?
The EIM is a behavioral model developed for this proposal to
estimate price and quantity changes and total social costs associated
with the emission controls under consideration. The EIM simulates how
producers and consumers of affected products can be expected to respond
to an increase in production costs as a result of the proposed emission
control program. In this EIM, compliance costs are directly borne by
producers of affected goods. Depending on the producers' and consumers'
sensitivity to price changes, producers of affected products will try
to pass some or all of the increased production costs on to the
consumers of these goods through price increases. In response to the
price increases, consumers will decrease their demand for the affected
good. Producers will react to the decrease in quantity demanded by
decreasing the quantity they produce; the market will react by setting
a higher price for those fewer units. These interactions continue until
a new market equilibrium quantity and price combination is achieved.
The amount of the compliance costs that can be passed on to the
consumers is ultimately limited by the price sensitivity of consumers
and producers in the relevant market (represented by the price
elasticity of demand or supply). The EIM explicitly models these
behavioral responses and estimates the new equilibrium prices and
output and the resulting distribution of social costs across these
stakeholders (producers and consumers).
(3) What Economic Sectors Are Included in This Economic Impact Analysis?
There are two broad economic sectors affected by the emission
control program described in this proposal: (1) Small SI engines and
equipment, and (2) Marine SI engines and equipment. For Small SI
engines and equipment we distinguish between handheld and nonhandheld
sectors. For handheld, we model one integrated handheld engine and
equipment category. On the nonhandheld side, we model 6 engine
categories, depending on engine class and useful life (Class I: UL125,
UL250, and UL500; Class II: UL250, UL500, UL1000), and 8 equipment
categories (agriculture/construction/general industrial; utility and
recreational vehicles; lawn mowers; tractors; other lawn and garden;
generator sets/welders; pumps/compressors/pressure washers; and
snowblowers). For Marine SI engines and equipment, we distinguish
between sterndrives and inboards (SD/I), outboards (OB), and personal
watercraft (PWC). SD/I and OB are further categorized by whether they
are luxury or not. All of these markets are described in more detail in
Chapter 9 of the RIA and in the industry characterizations prepared for
this proposal.
This analysis assumes that all of these products are purchased and
used by residential households. This means that to model the behavior
change associated with the proposed standards we model all uses as
residential lawn and garden care or power generation (Small SI) or
personal recreation (Marine SI). We do not explicitly model commercial
uses (how the costs of complying with the proposed programs may affect
the production of goods and services that use Small SI or Marine SI
engines or equipment as production inputs); we treat all commercial
uses as if they were residential uses. We believe this approach is
reasonable because the commercial share of the end use markets for both
Small SI and Marine SI equipment is very small.\129\ In addition, for
any commercial uses of these products the share of the cost of these
products to total production costs is also small (e.g., the cost of a
Small SI generator is only a very small part of the total production
costs for a construction firm). Therefore, a price increase of the
magnitude anticipated for this control program is not expected to have
a noticeable impact on prices or quantities of goods or services
produced using Small SI or Marine SI equipment as inputs (e.g.,
commercial turf care, construction, or fishing).
---------------------------------------------------------------------------

\129\ The Outdoor Power Equipment Institute (OPEI) provides
annual estimates of Small SI shipments (unit volumes) broken out
into commercial and residential markets. For 2003 and 2004, the
commercial share for NHH products is estimated to be 3.3 percent and
2.8 percent, respectively; for all Small SI products is estimated to
be 1.4 percent and 1.2 percent. Similarly, commercial uses of Marine
SI vessels are limited. See the industry characterizations prepared
for this proposal for more information (RTI, 2006).

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

[[Page 28231]]

In the EIM the Small SI and Marine SI markets are not linked (there
is no feedback mechanism between the Small SI and Marine SI market
segments). This is appropriate because the affected equipment is not
interchangeable and because there is very little overlap between the
engine producers in each market. These two sectors represent different
aspects of economic activity (lawn and garden care and power generation
as opposed to recreational marine) and production and consumption of
one product is not affected by the other. In other words, an increase
in the price of lawnmowers is not expected to have an impact on the
production and supply of personal watercraft, and vice versa.
Production and consumption of each of these products are the results of
other factors that have little cross-over impacts (the need for residential
garden upkeep or power generation; the desire for personal recreation).
(4) What Are the Key Features of the Economic Impact Model?
A detailed description of the features of the EIM and the data used
in this analysis is provided in Chapter 9 of the RIA prepared for this
rule. The model methodology is firmly rooted in applied microeconomic
theory and was developed following the methodology set out in OAQPS's
Economic Analysis Resource Document.\130\
---------------------------------------------------------------------------

\130\ U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards, Innovative Strategies and Economics
Group, OAQPS Economic Analysis Resource Document, April 1999. A copy
of this document can be found at
http://www.epa.gov/ttn/ecas/econdata/Rmanual2.

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

The EIM is a computer model comprised of a series of spreadsheet
modules that simulate the supply and demand characteristics of the
markets under consideration. The initial market equilibrium conditions
are shocked by applying the compliance costs for the control program to
the supply side of the markets (this is done by shifting the relevant
supply curves by the amount of the compliance costs). The EIM uses the
model equations, model inputs, and a solution algorithm to estimate
equilibrium prices and quantities for the markets with the regulatory
program. These new prices and quantities are used to estimate the social
costs of the model and how those costs are shared among affected markets.
The EIM uses a multi-market partial equilibrium approach to track
changes in price and quantity for the modeled markets. As explained in
EPA's Guidelines for Preparing Economic Analyses, ``partial
equilibrium'' means that the model considers markets in isolation and
that conditions in other markets are assumed either to be unaffected by
a policy or unimportant for social cost estimation. Multi-market
analysis models go beyond partial equilibrium by extending the inquiry
to more than just single markets and attempt to capture at least some
of the interaction between markets--in this case, between selected
engine and equipment markets sectors.\131\
---------------------------------------------------------------------------

\131\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p. 125-6.
---------------------------------------------------------------------------

The EIM uses an intermediate run time frame. This means that some
factors of production are fixed and some are variable. In very short
analyses, all factors of production would be assumed to be fixed,
leaving the producers with no means to respond to the increased
production costs associated with the regulation (e.g., they cannot
adjust labor or capital inputs). Under this time horizon, the costs of
the regulation fall entirely on the producer. In the long run, all
factors of production are variable and producers can adjust production
in response to cost changes imposed by the regulation (e.g., using a
different labor/capital mix). In the intermediate run there is some
resource immobility which may cause producers to suffer producer surplus
losses, but they can also pass some of the compliance costs to consumers.
The EIM assumes a perfectly competitive market structure. The
perfect competition assumption is a widely accepted economic practice
for this type of analysis, and only in rare cases are other approaches
used.\132\ It should be noted that the perfect competition assumption
is not about the number of firms in a market, it is about how the
market operates. The markets included in this analysis do not exhibit
evidence of noncompetitive behavior: there are no indications of
barriers to entry, the firms in these markets are not price setters,
and there is no evidence of high levels of strategic behavior in the
price and quantity decisions of the firms. These markets are also
mature markets as evidenced by unit sales growing at the rate of
population increases. Pricing power in such markets is typically
limited. In addition, the products produced within each market are
somewhat homogeneous in that engines and equipment from one firm can be
purchased instead of engines and equipment from another firm. Finally,
according to contestable market theory, oligopolies and even monopolies
will behave very much like firms in a competitive market if it is
possible to enter particular markets without cost (i.e., there are no
sunk costs associated with market entry or exit). This is the case with
these markets, as there is significant excess production capacity in
both the Small SI and Marine SI industries, in part due to improved
productivity and efficiency in current plants. Idle production capacity
also limits the ability of firms to raise prices, since competitors can
easily capture market share by increasing their production at the
expense of a producer that increases its prices. For all of these
reasons it is appropriate to use a perfect competition model to
estimate the economic impacts of this proposal.
---------------------------------------------------------------------------

\132\ See, for example, EPA Guidelines for Preparing Economic
Analyses, EPA 240-R-00-003, September 2000, p 126.
---------------------------------------------------------------------------

The perfect competition assumption has an impact on the way the EIM
is structured. In a competitive market the supply curve is based on the
industry marginal cost curve; fixed costs do not influence production
decisions at the margin. Therefore, in the market analysis the model is
shocked by variable costs only. However, the nature of the Small SI and
Marine SI markets suggests the market supply curve shifts in the model
should include fixed and variable compliance costs. This is because
Small SI and Marine SI engine and equipment manufacturers produce a
product that changes very little over time. These manufacturers may not
engage in research and development to improve their products on a
continuous basis (as opposed to highway vehicles or nonroad engines and
equipment). If this is the case, then the product changes that would be
required to comply with the proposed standards would require these
manufacturers to devote new funds and resources to product redesign and
facilities changes. In this situation, Small SI and Marine SI engine
and equipment manufacturers would be expected to increase their prices
by the full amount of the compliance costs (both fixed and variable) to
attempt to recover those costs. To reflect these conditions, the supply
shift in this EIM is based on both fixed and variable costs, even
though the model assumes perfect competition. A sensitivity analysis
was performed to investigate the impacts under the alternative
scenarios of shifting the supply curve by the variable costs only. The
results of that analysis can be found in the RIA prepared for this
proposal. We request comment on the extent to which manufacturers can
be expected to devote additional funds to cover the fixed costs
associated with the standards, or whether they in fact do provide for
product development resources on a continuous basis and can

[[Page 28232]]

be expected to use those funds to cover the fixed costs. We also
request comment on whether companies would attempt to pass fixed costs
to consumers as an additional price increase and, if so, how much of
the fixed costs would be based on and for how long.
The market interactions modeled in the EIM are those between
producers and consumers of the specified engines and the equipment that
use those engines. The EIM does not consider sales distribution
networks or how the regulated goods are sold to final consumers through
wholesalers and/or retailers. This is appropriate because the proposed
regulatory program does not impose additional costs on the distribution
networks and those relationships are not expected to change as a result
of the standards. In the case of Small SI equipment, however, concerns
have been raised about the potential for dominant retailers (big box
stores such as Wal-Mart, Sears and K-Mart) to affect the ability of
manufacturers to pass along cost increases associated with new emission
control requirements, forcing them to absorb the compliance costs
associated with the proposed standards. As described in greater detail
in Chapter 9 of the RIA, dominant retailers are not expected to affect
market interactions in ways that would offset the assumption of perfect
competition by preventing firms from passing on increases in costs
associated with the control program. This is because all firms in the
market are expected to comply with the control program, and all will
experience an increase in marginal costs. Profit-maximizing
manufacturers will continue to follow a marginal cost pricing rule
regardless of the distribution arrangements. If large retail
distributors attempted to prevent efficient manufacturers from raising
prices in response to the standards, manufacturers would likely respond
to a retailer's price pressure by reducing output. This would result in
large excess demand in the equipment market which would ultimately have
to be satisfied through a new higher equilibrium price, which in turn
would result in greater supply, thus bidding the price down to a new
market equilibrium after the application of the control program.
The relationships modeled in the EIM do not include substitution
away from Small SI and Marine SI engines and equipment to diesel or
electric alternatives. This is appropriate because consumers are not
likely to make these substitutions. Substitution to diesel Small SI
equipment is not a viable option for most residential consumers, either
because diesel equipment does not exist (e.g., diesel string trimmers)
or because there would be a large price premium that would discourage
the use of diesel equipment (e.g., diesel lawnmowers and diesel
recreational marine vessels). In addition, most households are not
equipped to handle the additional fuel type and misfueling would carry
a high cost. Finally, the lack of a large infrastructure system already
in place like the one supporting the use of gasoline equipment for
residential and recreational purposes, including refueling and
maintenance, represents a large barrier to substitution from gasoline
to diesel equipment. On the electric side, the impact of substitution
to electric for Small SI equipment (there are no comparable options for
Marine SI) is also expected to be negligible. Gasoline is the power
source of choice for small and inexpensive equipment due to its low
initial cost. Gasoline equipment is also inherently portable, which
make them more attractive to competing electric equipment that must be
connected with a power grid or use batteries that require frequent
recharging.
The EIM is a market-level analysis that estimates the aggregate
economic impacts of the control program on the relevant market. It is
not a firm-level analysis and therefore the supply elasticity or
individual compliance costs facing any particular manufacturer may be
different from the market average. This difference can be important,
particular where the rule affects different firms' costs over different
volumes of production. However, to the extent there are differential
effects on individual firms, EPA believes that the wide array of
compliance flexibilities provided in this proposal are adequate to
address any cost inequities that are likely to arise.
Finally, consistent with the proposed emission controls, this EIA
covers engines sold in 49 states. California engines are not included
because California has its own state-level controls for Small SI and
Marine SI engines. The sole exceptions are Small SI engines used in
agriculture and construction applications in California. These engines
are included in the control program and in this analysis because the
Clean Air Act pre-empts California from setting standards for these engines.
(5) What Are the Key Model Inputs?
Key model inputs for the EIM are the behavioral parameters, the
market equilibrium quantities and prices, and the compliance cost estimates.
The model's behavioral paramaters are the price elasticities of
supply and demand. These parameters reflect how producers and consumers
of the engines and equipment affected by the standards can be expected
to change their behavior in response to the costs incurred in complying
with the standards. More specifically, the price elasticity of supply
and demand (reflected in the slope of the supply and demand curves)
measure the price sensitivity of consumers and producers. The price
elasticities used in this analysis are summarized in Table XII.F-1 and
are described in more detail in Chapter 9 of the RIA. An ``inelastic''
price elasticity (less than one) means that supply or demand is not
very responsive to price changes (a one percent change in price leads
to less than one percent change in demand). An ``elastic'' price
elasticity (more than one) means that supply or demand is sensitive to
price changes (a one percent change in price leads to more than one
percent change in demand). A price elasticity of one is unit elastic,
meaning there is a one-to-one correspondence between a change in price
and change in demand.

Table XII. F-1.--Behavioral Parameters Used in Small SI/Marine SI Economic Impact Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sector Market Demand elasticity Source Supply elasticity Source
--------------------------------------------------------------------------------------------------------------------------------------------------------
Engine............................. Small SI and Marine SI Derived............... N/A.................. 3.8 (elastic)........ EPA Econometric
Engine Market. Estimate.
Small SI Equipment................. All handheld.......... -1.9 (elastic)........ EPA Econometric 3.4 (elastic)........ EPA Econometric
Estimate. Estimate.
Lawn Mowers........... -0.2 (inelastic)...... EPA Econometric Same as above........
Estimate.
Other lawn & garden... -0.9 (inelastic)...... EPA Econometric Same as above........
Estimate.

[[Page 28233]]

Gensets/welders (class -1.4 (elastic)........ EPA Econometric 3.3 (elastic)........ EPA Econometric
I). Estimate. Estimate.
Gensets/welders (class -1.1 (elastic)........ EPA Econometric Same as above........
II). Estimate.
All other non-handheld -1.0 (unit elastic)... EPA Econometric 3.4 (elastic) Same as
Estimate. above.
Marine SI Equipment................ PWC................... -2.0 (elastic)........ EPA Econometric 3.4 (elastic)........ EPA Econometric
Estimate. Estimate.
All other vessels Same as above......... ..................... 2.3 (elastic)........ EPA Econometric
types. Estimate.
--------------------------------------------------------------------------------------------------------------------------------------------------------

The estimated supply and demand elasticities were based on best
data we could find. We used (1) The industry-level data published by
the National Bureau of Economic Research (NBER)-Center for Economic
Studies (Bartlesman, Becker, and Gray, 2000); (2) Current Industrial
Reports (CIR) series from the U.S. Census Bureau; (3) several data
series reported in a study by Air Improvement Resource Inc. and
National Economic Research Associates (AIR/NERA, 2003) for the walk-
behind lawnmowers; (4) the U.S. Census Bureau historical data on
household income and housing starts (U.S. Census Bureau, 2002; 2004);
(5) price, wage, and material cost indexes from the Bureau of Labor
Statistics (BLS) (BLS, 2004a,b,c,d,e); (6) the implicit gross domestic
product (GDP) price deflator reported by the U.S. Bureau of Economic
Analysis (BEA, 2004). It should be noted that the aggregate data we
used to estimate elasticities include data on other markets as well as
the Small SI or Marine SI markets. If we had been able to obtain
market-specific data for Small SI or Marine SI only, the estimated
price elasticities may have been different.
The estimated supply elasticities for all of the equipment and
engine markets are elastic, ranging from 2.3 for all recreational
marine except PWC, to 3.3 for generators, 3.4 for PWCs and all Small SI
except generators, and 3.8 for engines. This means that quantities
supplied are expected to be fairly sensitive to price changes (e.g., a
1% change in price yields a 3.3 percent change in quantity of
generators produced).
On the demand side, the Marine SI equipment market estimated demand
elasticity is elastic, at -2.0. This is consistent with the
discretionary nature of purchases of recreational marine vessels
(consumers can easily decide to spend their recreational budget on
other alternatives).
The estimated demand elasticity for handheld equipment is elastic,
at -1.9. This suggests that consumers are more sensitive to price
changes for handheld equipment than for other Small SI equipment. In
other words, they are more likely to change their purchase decision for
a small change in the price of a string trimmer, perhaps opting for
trimmer shears or deciding to forego trimming altogether.
The estimated demand elasticity for lawnmowers is very inelastic at
-0.2. This suggests that consumers of this equipment are not very
sensitive to price changes. Most of this equipment is sold to
individual homeowners, who are often required by local authorities to
keep their lawns trimmed. Household ownership of a gasoline lawnmower
is often their least expensive option. Lawncare services are more
expensive since the price for these services includes labor and other
factors of production. Purchasing other equipment may also not be
attractive, since electric and diesel mowers are generally more
expensive and often less convenient. Finally, the option of using
landscape alternatives (e.g., prairie, wildflower, or rock gardens) may
not be attractive for homeowners who may also use their yards for
recreational purposes. For all these reasons, the price sensitivity of
homeowners to lawnmower prices would be expected to be inelastic.
All the other demand elasticities, for gensets, welders,
compressors, and ag/construction equipment, are about unit elastic, at
-1.0 meaning a 1 percent change in price is expected to result in a 1
percent change in demand.
The demand elasticities for the engine markets are internally
derived as part of the process of running the model. This is an
important feature of the EIM, which allows it to link the engine and
equipment components of each model and simulate how compliance costs
can be expected to ripple through the affected market. In actual
markets, for example, the quantity of lawnmowers produced in a
particular period depends on the price of engines (the Small SI engine
market) and the demand for equipment by residential consumers.
Similarly, the number of engines produced depends on the demand for
engines (the lawnmower market) which depends on consumer demand for
equipment. Changes in conditions in one of these markets will affect
the others. By designing the model to derive the engine demand
elasticities, the EIM simulates these connections between supply and
demand among the product markets and replicates the economic
interactions between producers and consumers.
Initial market equilibrium quantities for these markets are
simulated using the same current year sales quantities used in the
engineering cost analysis. The initial market equilibrium prices for
Small SI and Marine SI engines and equipment were derived from industry
sources and published data and are described in Chapter 9 of the Draft RIA.
The compliance costs used to shock the model, to simulate the
application of the control program, are the same as the engineering
costs described in Chapter 6. However, the EIM uses an earlier version
of the engineering compliance developed for this rule. The net present
value of the engineering costs used in this analysis (without taking
the fuel savings into account, at a 3 percent discount rate over the
period of the analysis) is $10.0 billion, which is about $100 million
less than the net present value of the final estimated engineering
costs, $10.1 billion. We do not expect that a difference of this
magnitude would change the overall results of this economic impact
analysis, in terms of market impacts and how the costs are expected to
be shared among stakeholders.
As explained in Section XII.F.4, the EIM uses both fixed and
variable engineering costs to shock the initial equilibrium conditions.
The fixed costs are amortized over the first 5 years of the standards
and include a 7 percent cost of capital. For some elements of the
program (i.e., evaporative emission controls), fixed costs are incurred

[[Page 28234]]

throughout the period of analysis due to the need to replace tooling.
Additional costs that need to be considered in the EIM are the
operating costs (fuel savings) associated with the evaporative emission
controls. These fuel savings are not included in the market analysis
for this economic impact analysis. This is because all available
evidence suggests that fuel savings do not affect consumer decisions
with respect to the purchase of this equipment. Unlike motor vehicles
or other consumer goods, neither Small SI nor Marine SI equipment is
labeled with expected fuel consumption or expected annual operating
costs. Therefore, there is no information available for the consumer to
use to make this decision. Instead consumers base their purchase
decision on other attributes of the product for which the manufacturer
provides information. For lawn mowers this may be the horsepower of the
engine, whether the machine has a bag or has a mulching feature, its
blade size, etc. For PWC it may be how many people it can carry, its
maximum speed, its horsepower, etc. In many cases, especially for Small
SI equipment, the consumer may not even be aware of the fuel savings
when operating the equipment, especially if he or she uses the same
portable fuel storage container to fuel several different pieces of
equipment.
These fuel savings are included in the social cost analysis. This
is because they are savings that accrue to society. These savings are
attributed to consumers of the relevant equipment. As explained in more
detail in Section 9.3.5 of the Draft RIA, the social cost analysis is
based on the equivalent of the pre-tax price of gasoline in that
analysis. Although the consumer will realize a savings equal to the
pump price of gasoline (post-tax), part of that savings is offset by a
tax loss to governmental agencies and is thus a loss to consumers of
the services supported by those taxes. This tax revenue loss,
considered a transfer payment in this analysis, does not affect the
benefit-cost analysis results.
(6) What Are the Results of the Economic Impact Modeling?
Using the model and data described above, we estimated the economic
impacts of the proposed emission control program. We performed a market
analysis for all years and all engine and equipment types. In this
section we present summarized results for selected markets and years.
More detail can be found in the appendices to Chapter 9 of the RIA and
in the docket for this rule.\133\ Also included in Appendix 9H to that
chapter are sensitivity analyses for several key inputs.
---------------------------------------------------------------------------

\133\ Li, Chi. 2007. Memorandum to Docket EPA-HQ-OAR-2004-0008.
Detailed Results From Economic Impact Model.
---------------------------------------------------------------------------

The EIA consists of two parts: a market analysis and a welfare
analysis. The market analysis looks at expected changes in prices and
quantities for affected products. The welfare analysis looks at economic
impacts in terms of annual and present value changes in social costs.
As explained in Section XII.F.4, the EIM is shocked by the sum of
fixed and variable costs. For the market analysis, this leads to a
small increase in estimated price impacts for the years 2011 through
2016, the period during which fixed costs are recovered. The increase
is small because, for many elements of the program, annual per unit
fixed costs are smaller than annual per unit variable costs. For the
welfare analysis, applying both fixed and variable costs means that the
burden of the social costs attributable to producers and consumers
remains fixed throughout the period of analysis. This is because
producers pass the fixed costs to consumers at the same rate as the
variable costs instead of having to absorb them internally.
(a) Market Impact Analysis
In the market analysis, we estimate how prices and quantities of
goods affected by the proposed emission control program can be expected
to change once the program goes into effect. The analysis relies on the
initial market equilibrium prices and quantities for each type of
equipment and the price elasticity of supply and demand. It predicts
market reactions to the increase in production costs due to the new
compliance costs (variable and fixed). It should be noted that this
analysis does not allow any other factors of production to vary. In
other words, it does not consider that manufacturers may adjust their
production processes or marketing strategies in response to the control
program. Also, as explained above, while the markets are shocked by both
fixed and variable costs, the market shock is not offset by fuel savings.
A summary of the estimated market impacts is presented in Table
XII.F-2 for 2013, 2018, and 2030. These years were chosen because 2013
is the year of highest compliance; after 2018, the fixed costs are
recovered and the market impacts reflect variable costs as well as
growth in equipment population; and 2030 illustrates the long-term
impacts of the program.
Market level impacts are reported for the engine and equipment
markets separately. This is because the EIM is a two-level model that
treats these markets separately. However, changes in equipment prices
and quantities are due to impacts of both direct equipment compliance
costs and indirect engine compliance costs that are passed through to
the equipment market from the engine market through higher engine prices.
The average market-level impacts presented in this section are
designed to provide a broad overview of the expected market impacts
that is useful when considering the impacts of the rule on the economy
as a whole. The average price impacts are product-weighted averages of
the results for the individual engine and equipment categories included
in that sub-sector (e.g., the estimated Marine SI engine price and
quantity changes are weighted averages of the estimated results for all
of the Marine SI engine markets). The average quantity impacts are the
sum of the decrease in units produced units across sub-markets. Price
increases and quantity decreases for specific types of engines and
equipment are likely to be different.
Although each of the affected equipment in this analysis generally
requires one engine (the exception being Marine SI sterndrive/
inboards), the estimated decrease in the number of engines produced in
Table XII.F-2 is less than the estimated decrease in the number of
equipment produced. At first glance, this result seems counterintuitive
because it does not reflect the approximate one-to-one correspondence
between engines and equipment. This discrepancy occurs because the
engine market-level analysis examines only output changes for engines
that are produced by independent engine manufacturers and subsequently
sold to independent equipment manufacturers. Engines produced and
consumed by vertically integrated equipment/engine manufacturers are
not explicitly modeled. Therefore, the market-level analysis only
reflects engines sold on the ``open market,'' and estimates of output
changes for engines consumed internally are not reflected in this
number.\134\ Despite the fact that changes

[[Page 28235]]

in consumption of internally consumed engines are not directly reported
in the market-level analysis results, the costs associated with these
engines are included in the market-level analysis (as supply shift for
the equipment markets). In addition, the cost and welfare analyses
include the compliance costs associated with internally consumed engines.
---------------------------------------------------------------------------

\134\ For example, PWC and handheld equipment producers
generally integrate equipment and engine manufacturing processes and
are included in the EIM as one-level equipment markets. Since there
is no engine market for these engines, the EIM does not include PWC
and handheld engine consumption changes in engine market-level results.
---------------------------------------------------------------------------

Marine SI Market Analysis

The average price increase for Marine SI engines in 2013, the high
cost year, is estimated to be about 2.3 percent, or $257. By 2018, this
average price increase is expected to decline to about 1.7 percent, or
$196, and remain at that level for later years. The market impact
analysis predicts that with these increases in engine prices the
expected average decrease in total sales in 2013 is about 2.0 percent,
or 8,800 engines. This decreases to about 1.6 percent in 2018, or about
7,000 engines.
On the vessel side, the average price change reflects the direct
equipment compliance costs plus the portion of the engine costs that
are passed on to the equipment purchaser (via higher engine prices).
The average price increase in 2013 is expected to be about 1.3 percent,
or $232. By 2018, this average price increase is expected to decline to
about 1 percent, or $178. These price increases are expected to vary
across vessel categories. The category with the largest price increase
in 2013 is expected to be personal watercraft engines, with an
estimated price increase of about 2.8 percent in 2013; this is expected
to decrease to 2.1 percent in 2018. The smallest expected change in
2013 is expected to be for sterndrive/inboards and outboard
recreational vessels, which are expected to see price increases of
about 0.7 percent. The market impact analysis predicts that with these
increases in vessel prices the expected average decrease in quantity
produced in 2013 is about 2.7 percent, or 11,000 vessels.\135\ This is
expected to decrease to about 2.0 percent in 2018, or about 8,600
vessels. The personal watercraft category is expected to experience the
largest decline in 2013, about 5.6 percent (4,800 vessels). The
smallest percentage decrease in production is expected for sterndrive/
inboards at 1.4 percent (1,300 vessels); the smallest absolute decrease
in quantity is expected for outboard recreational vessels, at 113
vessels (1.5 percent).
---------------------------------------------------------------------------

\135\ It should be noted that the absolute change in the number
of engines and equipment does not match. This is because the
absolute change in the quantity of engines represents only engines
sold on the open market. Reductions in engines consumed internally
by integrated engine/equipment manufacturers are not reflected in
this number but are captured in the social cost analysis.
---------------------------------------------------------------------------

Small SI Market Analysis

The average price increase for Small SI engines in 2013, the high
cost year, is estimated to be about 11.7 percent, or $22. By 2018, this
average price increase is expected to decline to about 9.1 percent, or
$17, and remain at that level for later years. The market impact
analysis predicts that with these increases in engine prices the
expected average decrease in total sales in 2013 is expected to be
about 2.3 percent, or 371,000 engines. This is expected to decrease to
about 1.7 percent in 2018, or about 299,000 engines.
On the equipment side, the average price change reflects the direct
equipment compliance costs plus the portion of the engine costs that
are passed on to the equipment purchaser (via higher engine prices).
The average price increase for all Small SI equipment in 2013 is
expected to be about 3.1 percent, or $14. By 2018, this average price
increase is expected to decline to about 2.4 percent, or $10. The
average price increase and quantity decrease differs by category of
equipment. As shown in Table XII.F-2, the price increase for Class I
equipment is estimated to be about 6.9 percent ($19) in 2013,
decreasing to 5.5 percent ($15) in 2018. The market impact analysis
predicts that with these increases in equipment prices the expected
average decrease in the quantity of Class I equipment produced in 2013
is about 2.2 percent, or 219,400 units.\136\ This is expected to
decrease to about 1.8 percent in 2018, or about 189,700 units. For
Class II equipment, a higher price increase is expected, about 3.9
percent ($41) in 2013, decreasing to 2.6 percent ($25) in 2018. The
expected average decrease in the quantity of Class II equipment
produced in 2013 is about 4.3 percent, or 157,300 units, decreasing to
2.8 percent, or about 114,000 units, in 2018.
---------------------------------------------------------------------------

\136\ See previous note.
---------------------------------------------------------------------------

For the handheld equipment market, prices are expected to increase
about 0.3 percent for all years, and quantities are expected to
decrease about 0.6 percent.

Table XII.F-2.--Estimated Market Impacts for 2013, 2018, 2030
[2005$]
----------------------------------------------------------------------------------------------------------------
Change in price Change in quantity
Market ---------------------------------------------------
Absolute Percent Absolute Percent
----------------------------------------------------------------------------------------------------------------
2013
----------------------------------------------------------------------------------------------------------------
Marine:
Engines................................................. $257 2.3 -8,846 -2.0
Equipment............................................... 232 1.3 -10,847 -2.7
SD/I................................................ 252 0.7 -1,336 -1.4
OB Recreational..................................... 638 0.7 -113 -1.5
OB Luxury........................................... 206 1.1 -4,579 -2.1
PWC................................................. 237 2.8 -4,819 -5.6
Small SI:
Engines................................................. 22 11.7 -371,097 -2.3
Equipment............................................... 14 3.1 -482,942 -1.9
Class I............................................. 19 6.9 -219,400 -2.2
Class II............................................ 41 3.9 -157,306 -4.3
HH.................................................. 0.3 0.3 -106,236 -0.6
----------------------------------------------------------------------------------------------------------------

[[Page 28236]]

2018
----------------------------------------------------------------------------------------------------------------
Marine:
Engines................................................. 196 1.7 -7,002 -1.6
Equipment............................................... 178 1.0 -8,563 -2.0
SD/I................................................ 195 0.5 -1,072 -1.1
OB Recreational..................................... 496 0.6 -91 -1.1
OB Luxury........................................... 160 0.8 -3,634 -1.6
PWC................................................. 178 2.1 -3,766 -4.2
Small SI:
Engines................................................. 17 9.1 -298,988 -1.7
Equipment............................................... 10 2.4 -401,025 -1.4
Class I............................................. 15 5.5 -189,771 -1.8
Class II............................................ 25 2.6 -113,999 -2.8
HH.................................................. 0.2 0.3 -97,255 -0.5
----------------------------------------------------------------------------------------------------------------
2030
----------------------------------------------------------------------------------------------------------------
Marine:
Engines................................................. 195 1.7 -7,728 -1.6
Equipment............................................... 179 1.0 -9,333 -2.0
SD/I................................................ 195 0.5 -1,161 -1.1
OB Recreational..................................... 496 0.6 -98 -1.1
OB Luxury........................................... 160 0.8 -3,998 -1.7
PWC................................................. 178 2.1 -4,076 -4.2
Small SI:
Engines................................................. 17 9.1 -354,915 -1.7
Equipment............................................... 10 2.4 -475,825 -1.4
Class I............................................. 15 5.6 -225,168 -1.8
Class II............................................ 25 2.6 -135,400 -2.8
HH.................................................. 0.2 0.3 -115,257 -0.5
----------------------------------------------------------------------------------------------------------------

(b) Economic Welfare Analysis
In the economic welfare analysis we look at the costs to society of
the proposed program in terms of losses to consumer and producer
surplus. These surplus losses are combined with the fuel savings to
estimate the net economic welfare impacts of the proposed program.
Estimated annual net social costs for selected years are presented in
Table XII-F-3. This table shows that total social costs for each year
are slightly less than the total engineering costs. This is because the
total engineering costs do not reflect the decreased sales of engines
and equipment that are incorporated in the total social costs.

Table XII.F-3.--Estimated Annual Engineering and Social Costs, Through 2038
[2005$, $million]
----------------------------------------------------------------------------------------------------------------
Net
Total engineering Net social
Year engineering Total social Fuel savings costs costs
costs costs (including (including
fuel savings) fuel savings)
----------------------------------------------------------------------------------------------------------------
2008............................ $9.5 $9.5 $3.1 $6.4 $6.4
2009............................ 171.7 168.8 13.7 157.9 155.1
2010............................ 191.1 188.0 25.4 165.7 162.6
2011............................ 470.5 463.4 64.9 405.7 398.5
2012............................ 647.3 638.2 103.5 543.8 534.7
2013............................ 652.5 643.4 136.5 516.0 506.9
2014............................ 621.1 613.1 161.2 459.9 451.9
2015............................ 627.0 619.0 182.3 444.7 436.7
2016............................ 520.9 515.2 200.9 320.0 314.2
2017............................ 492.6 487.5 216.2 276.4 271.3
2018............................ 497.2 492.0 229.9 267.3 262.1
2019............................ 503.6 498.4 242.1 261.5 256.2
2020............................ 510.0 504.7 253.1 256.9 251.6
2021............................ 516.4 511.0 263.3 253.1 247.8
2022............................ 522.7 517.3 272.9 249.8 244.4
2023............................ 529.1 523.7 281.4 247.7 242.3
2024............................ 535.8 530.3 289.3 246.5 241.0
2025............................ 542.3 536.7 296.6 245.6 240.0
2026............................ 548.7 543.1 303.6 245.1 239.5

[[Page 28237]]

2027............................ 555.2 549.4 310.1 245.1 239.3
2028............................ 561.6 555.8 316.3 245.3 239.5
2029............................ 568.0 562.2 322.0 246.1 240.2
2030............................ 574.5 568.6 327.3 247.2 241.3
2031............................ 580.9 575.0 332.3 248.6 242.6
2032............................ 587.4 581.3 337.1 250.3 244.2
2033............................ 593.8 587.7 341.7 252.1 246.0
2034............................ 600.3 594.1 346.1 254.2 248.0
2035............................ 606.7 600.5 350.4 256.3 250.1
2036............................ 613.1 606.9 354.5 258.6 252.3
2037............................ 619.6 613.2 358.5 261.1 254.7
2038............................ 626.0 619.6 362.5 263.6 257.1
NPV at 3% a..................... 9,996.2 9,882.2 4,356.2 5,640.1 5,526.0
NPV at 7% a..................... 5,863.6 5,794.1 2,291.5 3,572.1 3,502.6
----------------------------------------------------------------------------------------------------------------
\a\ EPA EPA presents the present value of cost and benefits estimates using both a three percent and a seven
percent social discount rate. According to OMB Circular A-4, ``the 3 percent discount rate represents the
``social rate of time preference'* * * [which]
means the rate at which `society' discounts future consumption
flows to their present value''; ``the seven percent rate is an estimate of the average before-tax rate of
return to private capital in the U.S. economy* * * [that]
approximates the opportunity cost of capital.''

Table XII.F-4 shows how total social costs are expected to be
shared across stakeholders, for selected years. According to these
results, consumers in the Marine SI market are expected to bear
approximately 66 percent of the cost of the Marine SI program. This is
expected to be offset by the fuel savings. Vessel manufacturers are
expected to bear about 22 percent of that program, and engine
manufacturers the remaining 11 percent. In the Small SI market,
consumers are expected to bear 79 percent of the cost of the Small SI
program. This will also be offset by the fuel savings. Equipment
manufacturers are expected to bear about 17 percent of that program,
and engine manufacturers the remaining 4 percent. The estimated
percentage changes in surplus are the same for all years because the
initial equilibrium conditions are shocked by both fixed and variable
costs; producers would pass the fixed costs to consumers at the same
rate as the variable costs.

Table XII.F-4: Summary of Estimated Social Costs for 2013, 2018, 2030
[2005 $, $ million]
----------------------------------------------------------------------------------------------------------------
Absolute
Market change in Percent change Fuel savings Total change
surplus in surplus in surplus
----------------------------------------------------------------------------------------------------------------
2013
----------------------------------------------------------------------------------------------------------------
Marine SI:
Engine Manufacturers........................ -$21.54 11 .............. -$21.54
Equipment Manufacturers..................... -42.23 22 .............. -42.23
End User (Households)....................... -125.14 66 $42.27 -82.87
---------------------------------------------------------------
Subtotal................................ -188.91 .............. .............. -146.64
---------------------------------------------------------------
Small SI:
Engine Manufacturers........................ -18.36 4 .............. -18.36
Equipment Manufacturers..................... -80.16 18 .............. -80.16
End User (Households)....................... -355.95 78 94.26 -261.69
---------------------------------------------------------------
Subtotal................................ -454.47 .............. .............. -360.21
---------------------------------------------------------------
Total............................... -643.38 .............. 136.53 -506.85
----------------------------------------------------------------------------------------------------------------
2018
----------------------------------------------------------------------------------------------------------------
Marine SI:
Engine Manufacturers........................ -17.29 11 .............. -17.29
Equipment Manufacturers..................... -34.02 22 .............. -34.02
End User (Households)....................... -100.19 66 87.12 -13.07
---------------------------------------------------------------
Subtotal................................ -151.50 .............. .............. -64.38
---------------------------------------------------------------
Small SI:
Engine Manufacturers........................ -13.89 4 .............. -13.89
Equipment Manufacturers..................... -57.65 17 .............. -57.65

[[Page 28238]]

End User (Households)....................... -268.95 79 142.78 -126.17
---------------------------------------------------------------
Subtotal................................ -340.49 .............. .............. -197.71
---------------------------------------------------------------
Total............................... -491.99 .............. 229.90 -262.09
----------------------------------------------------------------------------------------------------------------
2030
----------------------------------------------------------------------------------------------------------------
Marine SI:
Engine Manufacturers........................ -18.81 11 .............. -18.81
Equipment Manufacturers..................... -36.97 23 .............. -36.97
End User (Households)....................... -108.52 66 149.36 40.84
---------------------------------------------------------------
Subtotal................................ -164.30 .............. .............. -14.94
---------------------------------------------------------------
Small SI:
Engine Manufacturers........................ -16.49 4 .............. -16.49
Equipment Manufacturers..................... -68.45 17 .............. -68.45
End User (Households)....................... -319.31 79 177.89 -141.42
---------------------------------------------------------------
Subtotal................................ -404.25 .............. .............. -226.36
---------------------------------------------------------------
Total............................... -568.55 .............. 327.25 -241.30
----------------------------------------------------------------------------------------------------------------

Table XII.F-5 contains more detailed information on the sources of
the social costs for 2013. This table shows that vessel and equipment
manufacturers are expected to bear more of the burden of the program
than engine manufacturers. On the marine side, the loss of producer
surplus for the vessel manufacturers has two sources. First, they would
bear part of the burden of the equipment costs. Second, they would also
bear part of the engine costs, which are passed on to vessel
manufacturers in the form of higher engine prices. Vessel manufacturers
would not be able to pass along a greater share of the engine and
vessel compliance costs to end consumers due to the elastic price
elasticity of demand for consumers of these vessels. On the Small SI
side, equipment manufacturers can pass on more of the compliance costs
to end consumers because the price elasticity of demand in these
markets is less elastic.

Table XII.F-5.--Distribution of Estimated Surplus Changes by Market and Stakeholder for 2013
[2005$, million$]
----------------------------------------------------------------------------------------------------------------
Engineering
Scenario compliance Producer Consumer Total Fuel Net
costs surplus surplus surplus savings surplus
----------------------------------------------------------------------------------------------------------------
Marine SI
----------------------------------------------------------------------------------------------------------------
Engine Manufacturers.............. $133.2 -$21.5 ........... -$21.5 ........... -$21.5
----------------------------------------------------------------------------------------------------------------
Equipment Manufacturers........... 59.1 -42.2 ........... -42.2 ........... -42.2
Engine Price Changes.............. ........... -18.7 ........... ........... ........... ...........
Equipment Cost Changes............ ........... -23.6 ........... ........... ........... ...........
End User (Households)............. ........... ........... -125.1 -125.1 42.3 -82.8
Engine Price Changes.............. ........... ........... -91.8 ........... ........... ...........
Equipment Price Changes........... ........... ........... -33.3 ........... ........... ...........
-----------------------------------------------------------------------------
Subtotal...................... 192.2 -63.8 -125.1 -188.9 42.3 -146.6
----------------------------------------------------------------------------------------------------------------
Small SI
----------------------------------------------------------------------------------------------------------------
Engine Manufacturers.............. 371.9 -18.4 ........... -18.4 ........... -18.4
----------------------------------------------------------------------------------------------------------------
Equipment Manufacturers........... 88.4 -80.2 ........... -80.2 ........... -80.2
Engine Price Changes.............. ........... -59.0 ........... ........... ........... ...........
Equipment Cost Changes............ ........... -21.1 ........... ........... ........... ...........
End User (Households)............. ........... ........... -355.9 -355.9 94.3 -261.7
Engine Price Changes.............. ........... ........... -289.8 ........... ........... ...........
Equipment Cost Changes............ ........... ........... -66.1 ........... ........... ...........
-----------------------------------------------------------------------------
Subtotal...................... 460.3 -98.5 -355.9 -454.5 94.3 -360.2
-----------------------------------------------------------------------------

[[Page 28239]]

Total..................... 652.5 -162.3 -481.1 -643.4 136.6 -506.8
----------------------------------------------------------------------------------------------------------------

The present value of net social costs of the proposed standards
through 2038 at a 3 percent discount rate, shown in Table XII.F-6, is
estimated to be $5.5 billion, taking the fuel savings into account. We
also performed an analysis using a 7 percent social discount rate.\137\
Using that discount rate, the present value of the net social costs
through 2038 is estimated to be $3.5 billion, including the fuel savings.
---------------------------------------------------------------------------

\137\ EPA has historically presented the present value of cost
and benefits estimates using both a 3 percent and a 7 percent social
discount. The 3 percent rate represents a demand-side approach and
reflects the time preference of consumption (the rate at which
society is willing to trade current consumption for future
consumption). The 7 percent rate is a cost-side approach and
reflects the shadow price of capital.

Table XII.F-6.--Estimated Net Social Costs Through 2038 by Stakeholder
[2005$, $million]
----------------------------------------------------------------------------------------------------------------
Percentage
Total change in Fuel Net change
Market change in total savings in surplus
surplus surplus
----------------------------------------------------------------------------------------------------------------
Net Present Value 3%
----------------------------------------------------------------------------------------------------------------
Marine SI:
Engine Manufacturers.................................... -$354.4 11 ........... -$354.4
Equipment Manufacturers................................. -688.8 22 ........... -688.8
End User (Households)................................... -2,058.8 66 $1,831.3 -227.5
---------------------------------------------------
Subtotal................................................ -3,102.0 ........... 1,831.3 -1,270.7
Small SI:
Engine Manufacturers.................................... -275.0 4 ........... -275.0
Equipment Manufacturers................................. -1,171.8 17 ........... -1,171.8
End User (Households)................................... -5,333.4 79 2,524.8 -2,808.6
---------------------------------------------------
Subtotal............................................ -6,780.2 ........... 2,524.8 -4,255.4
---------------------------------------------------
Total........................................... -9,882.2 ........... 4,356.1 -5,526.1
----------------------------------------------------------------------------------------------------------------
Net Present Value 7%
----------------------------------------------------------------------------------------------------------------
Marine SI:
Engine Manufacturers.................................... -216.4 11 ........... -216.4
Equipment Manufacturers................................. -417.6 22 ........... -417.6
End User (Households)................................... -1,259.5 66 937.1 -322.8
Subtotal............................................ -1,893.8 ........... 937.1 956.8
---------------------------------------------------
Small SI:
Engine Manufacturers.................................... -157.8 4 ........... 157.8
Equipment Manufacturers................................. -680.4 17 1,354.4 680.4
End User (Households)................................... -3,062.1 79 1,354.4 1,707.7
---------------------------------------------------
Subtotal............................................ -3,900.3 ........... ........... ...........
---------------------------------------------------
Total........................................... -5,794.2 ........... 2,291.5 -3,502.6
----------------------------------------------------------------------------------------------------------------

(7) What Are the Significant Limitations of the Economic Impact Analysis?
Every economic impact analysis examining the market and social
welfare impacts of a regulatory program is limited to some extent by
limitations in model capabilities, deficiencies in the economic
literatures with respect to estimated values of key variables necessary
to configure the model, and data gaps. In this EIA, there are three
potential sources of uncertainty: (1) Uncertainty resulting from the
way the EIM is designed, particularly from the use of a partial
equilibrium model; (2) uncertainty resulting from the values for key
model parameters, particularly the price elasticity of supply and
demand; and (3) uncertainty resulting from the values for key model
inputs, particularly baseline equilibrium price and quantities.
Uncertainty associated with the economic impact model structure
arises from the use of a partial equilibrium approach, the use of the
national level of analysis, and the assumption of perfect competition.
These features of the model mean it does not take into account impacts
on secondary markets or the general economy, and it does not

[[Page 28240]]

consider regional impacts. The results may also be biased to the extent
that firms have some control over market prices, which would result in
the modeling over-estimating the impacts on producers of affected goods
and services.
The values used for the price elasticities of supply and demand are
critical parameters in the EIM. The values of these parameters have an
impact on both the estimated change in price and quantity produced
expected as a result of compliance with the proposed standards and on
how the burden of the social costs will be shared among producer and
consumer groups. In selecting the values to use in the EIM it is
important that they reflect the behavioral responses of the industries
under analysis.
Published estimates of price elasticities of supply and demand from
the economic literature should be used whenever possible. Such
estimates would be peer reviewed and generally constitute reasonable
estimates for the industries in question. In this analysis, because we
were unable to find published supply and demand elasticities for the Small
SI and Marine SI markets, we estimated these parameters econometrically
using the procedures described in Chapter 9 of the Draft RIA.
The estimates on the supply elasticity reflect a production
function approach using data at the industry level. This method was
chosen because of limitations with the available data. We were not able
to obtain firm-level or plant-level production data for companies that
operate in the affected sectors. However, the use of aggregate industry
level data may not be appropriate and may not be an accurate way to
estimate the price elasticity of supply compared to firm-level or
plant-level data. This is because, at the aggregate industry level, the
size of the data sample is limited to the time series of the available
years and because aggregate industry data may not reveal each
individual firm or plant production function (heterogeneity). There may
be significant differences among the firms that may be hidden in the
aggregate data but that may affect the estimated elasticity. In
addition, the use of time series aggregate industry data may introduce
time trend effects that are difficult to isolate and control.
To address these concerns, EPA intends to investigate estimates for
the price elasticity of supply for the affected industries for which
published estimates are not available, using an alternative method and
data inputs. This research program will use the cross-sectional data
model at either the firm level or the plant level from the U.S. Census
Bureau to estimate these elasticities. We plan to use the results of
this research, provided the results are robust and they are available
in time for the analysis for the final rule.
Finally, uncertainty in measurement of data inputs can have an
impact on the results of the analysis. This includes measurement of the
baseline equilibrium prices and quantities and the estimation of future
year sales. In addition, there may be uncertainty in how similar
engines and equipment were combined into smaller groups to facilitate
the analysis. There may also be uncertainty in the compliance cost
estimations.
To explore the effects of key sources of uncertainty, we performed
a sensitivity analysis in which we examine the results of using
alternative values for the price elasticity of supply and demand,
alternative baseline prices for certain equipment markets, and
alternative methods in compliance costs to shock the market. The
results of these analyses are contained in Appendix 9H of the Draft RIA.
Despite these uncertainties, we believe this economic impact
analysis provides a reasonable estimate of the expected market impacts
and social welfare costs of the proposed standards in future.
Acknowledging benefits omissions and uncertainties, we present a best
estimate of the social costs based on our interpretation of the best
available scientific literature and methods supported by EPA's
Guidelines for Preparing Economic Analyses and the OAQPS Economic
Analysis Resource Document.

XIII. Public Participation

We request comment on all aspects of this proposal. This section
describes how you can participate in this process.
In 2001 we published a proposed rule to adopt evaporative emission
standards for marine vessels powered by spark-ignition engines (67 FR
53050, August 14, 2002). We are withdrawing that proposal and reissuing
our proposal in this notice. We received several comments on that
proposed rule and have attempted to take all those comments into
account in this action. Commenters on the previous proposal who feel
their concerns have not been addressed should send us updated comments
expressing any remaining concerns. This proposal includes a variety of
changes from the earlier proposal, mostly centered on testing methods
and implementation dates.
A hearing will be held on Tuesday, June 5, 2007 in Washington, DC.
The hearing will start at 10 a.m. and continue until testimony is
complete. See ADDRESSES above for location and phone information.
Please notify the contact person listed above at least ten days
before the hearing if you would like to present testimony at a public
hearing. You should estimate the time you will need for your
presentation and identify any needed audio/visual equipment. We suggest
that you bring copies of your statement or other material for the EPA
panel and the audience. It would also be helpful if you send us a copy
of your statement or other materials before the hearing.
We will conduct the hearing informally so technical rules of
evidence will not apply. We will arrange for a written transcript of
the hearing and keep the official record of the hearing open for 30
days to allow you to submit supplementary information. You may make
arrangements to purchase copies of the transcript directly with the
court reporter.
The comment period for this rule will end on August 3, 2007.

XIV. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

Under section 3(f)(1) of Executive Order (EO) 12866 (58 FR 51735,
October 4, 1993), this action is an ``economically significant
regulatory action'' because it is likely to have an annual effect on
the economy of $100 million or more. Accordingly, EPA submitted this
action to the Office of Management and Budget (OMB) for review under EO
12866 and any changes made in response to OMB recommendations have been
documented in the docket for this action.
In addition, EPA prepared an analysis of the potential costs and
benefits associated with this action. This analysis is contained in the
Draft Regulatory Impact Analysis, which is available in the docket for
this action and is summarized in Section XII.

B. Paperwork Reduction Act

The information collection requirements in this proposed rule have
been submitted for approval to the Office of Management and Budget
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The
Information Collection Request (ICR) document prepared by EPA has been
assigned EPA ICR number 2251.01.
The Agency proposes to collect information to ensure compliance with

[[Page 28241]]

the provisions in this rule. This includes a variety of requirements,
both for engine manufacturers, equipment manufacturers and
manufacturers of fuel system components. Section 208(a) of the Clean
Air Act requires that manufacturers provide information the
Administrator may reasonably require to determine compliance with the
regulations; submission of the information is therefore mandatory. We
will consider confidential all information meeting the requirements of
section 208(c) of the Clean Air Act.
As shown in Table XIV-1, the total annual burden associated with
this proposal is about 131,000 hours and $18 million based on a
projection of 1,100 respondents. The estimated burden for engine
manufacturers is a total estimate for both new and existing reporting
requirements. Most information collection is based on annual reporting.
Burden means the total time, effort, or financial resources expended by
persons to generate, maintain, retain, or disclose or provide
information to or for a Federal agency. This includes the time needed
to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information.

Table XIV-1.--Estimated Burden for Reporting and Recordkeeping Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual operation
Industry sector Number of Average burden Annual burden Annualized Annual labor and maintenance
respondents per respondent hours capital costs costs costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small SI engine manufacturers............... 58 885 51,301 $5,529,000 $2,065,643 $3,100,306
Small SI equipment & fuel system component 623 1,568 62,715 0 497,631 624,066
mfr. (evaporative).........................
Marine SI engine manufacturers.............. 40 19 11,605 0 2,677,821 8,299,569
Marine SI equipment & fuel system component 380 14 5,241 0 224,871 383,024
mfr. (evaporative).........................
-----------------------------------------------------------------------------------------------------------
Total................................... 1,101 2,486 130,862 5,529,000 5,465,966 12,406,965
===========================================================================================================
Total Annual Cost = 18,012,246
--------------------------------------------------------------------------------------------------------------------------------------------------------

An agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9.
To comment on the Agency's need for this information, the accuracy
of the provided burden estimates, and any suggested methods for
minimizing respondent burden, including the use of automated collection
techniques, EPA has established a public docket for this rule, which
includes this ICR, under Docket ID number EPA-HQ-OAR-2004-0008. Submit
any comments related to the ICR for this proposed rule to EPA and OMB.
See ADDRESSES section at the beginning of this notice for where to
submit comments to EPA. Send comments to OMB at the Office of
Information and Regulatory Affairs, Office of Management and Budget,
725 17th Street, NW., Washington, DC 20503, Attention: Desk Office for
EPA. Since OMB is required to make a decision concerning the ICR
between 30 and 60 days after May 18, 2007, a comment to OMB is best
assured of having its full effect if OMB receives it by June 18, 2007.
The final rule will respond to any OMB or public comments on the
information collection requirements contained in this proposal.

C. Regulatory Flexibility Act

(1) Overview
The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of this action on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201 (see Table XIV-2, below); (2) a small governmental jurisdiction
that is a government of a city, county, town, school district or
special district with a population of smaller than 50,000; and (3) a
small organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field. The
following table provides an overview of the primary SBA small business
categories potentially affected by this regulation.

Table XIV-2.--Small Business Definitions for Entities Affected by This
Rule
------------------------------------------------------------------------
Threshold
definitions
Industry NAICS a codes for small
business b
(employees)
------------------------------------------------------------------------
Small SI and Marine SI Engine 333618 1,000
Manufacturers..........................

[[Page 28242]]

Equipment Manufacturers:
Farm Machinery...................... 333111 500
Lawn and Garden..................... 333112 500
Construction........................ 333120 750
Sawmill and Woodworking............. 333210 500
Pumps............................... 333911 500
Air and Gas Compressors............. 333912 500
Generators.......................... 335312 1,000
Boat Builders........................... 336612 500
Fuel Tank Manufacturers:
Other Plastic Products.............. 326199 500
Metal Stamping...................... 332116 500
Metal Tank (Heavy Gauge)............ 332420 500
Fuel Line Manufacturers:
Rubber and Plastic Fuel Lines....... 326220 500
------------------------------------------------------------------------
a North American Industry Classification System
b According to SBA's regulations (13 CFR 121), businesses with no more
than the listed number of employees are considered ``small entities''
for RFA purposes.

Pursuant to section 603 of the RFA, EPA prepared an initial
regulatory flexibility analysis (IRFA) that examines the impact of the
proposed rule on small entities along with regulatory alternatives that
could reduce that impact. The IRFA, as summarized below, is available
for review in the docket and Chapter 10 of the Draft RIA.
(2) Background
Air pollution is a serious threat to the health and well-being of
millions of Americans and imposes a large burden on the U.S. economy.
Ground-level ozone and carbon monoxide are linked to potentially
serious respiratory health problems, especially respiratory effects and
environmental degradation, including visibility impairment in and
around our national parks. (Section II of this preamble and Chapter 2
of the Draft RIA for this rule describe these pollutants and their
health effects.) Over the past quarter century, state and federal
representatives have established emission control programs that
significantly reduce emissions from individual sources. Many of these
sources now pollute at only a small fraction of their pre-control rates.
This proposal includes standards that would require manufacturers
to substantially reduce exhaust emissions and evaporative emissions
from Marine SI engines and vessels and from Small SI engines and
equipment. We are proposing the standards under section 213(a)(3) of
the CAA which directs EPA to set emission standards that ``achieve the
greatest degree of emission reduction achievable through the
application of technology'' giving appropriate consideration to cost,
noise, energy, safety, and lead time. In addition to the general
authority to regulate nonroad engines under the CAA, Section 428 of
2004 Consolidated Appropriations Act requires EPA to propose and
finalize new regulations for nonroad spark-ignition engines below 50
horsepower.
(3) Summary of Regulated Small Entities
The standards being proposed for Small SI engines and equipment
will affect manufacturers of both handheld equipment and nonhandheld
equipment. Based on EPA certification records, the Small SI nonhandheld
engine industry is made up primarily of large manufacturers including
Briggs and Stratton, Tecumseh, Honda, Kohler and Kawasaki. The Small SI
handheld engine industry is also made up primarily of large
manufacturers including Electrolux Home Products, MTD, Homelite, Stihl
and Husqvarna. EPA has identified 10 Small SI engine manufacturers that
qualify as a small business under SBA definitions. Half of these small
manufacturers certify gasoline engines and the other half certify
liquefied petroleum gas (LPG) engines.
The Small SI equipment market is dominated by a few large
businesses including Toro, John Deere, MTD, Briggs and Stratton, and
Electrolux Home Products. While the Small SI equipment market may be
dominated by just a handful of companies, there are many small
businesses in the market; however these small businesses account for
less than 10 percent of equipment sales. We have identified over three
hundred equipment manufacturers that qualify as a small business under
the SBA definitions. More than 90 percent of these small companies
manufacture fewer than 5,000 pieces of equipment per year. The median
employment level is 65 employees for nonhandheld equipment
manufacturers and 200 employees for handheld equipment manufacturers.
The median sales revenue is approximately $9 million for nonhandheld
equipment manufacturers and $20 million for handheld equipment
manufacturers.
EPA has identified 25 manufacturers that produce fuel tanks for the
Small SI equipment market that meet the SBA definition of a small
business. Fuel tank manufacturers rely on three different processes for
manufacturing plastic tanks--rotational molding, blow molding and
injection molding. EPA has identified small business fuel tank
manufacturers using the rotational molding and blow molding processes
but has not identified any small business manufacturers using injection
molding. In addition, EPA has identified two manufacturers that produce
fuel lines for the Small SI equipment market that meet the SBA
definition of a small business. The majority of fuel line in the Small
SI market is made by large manufacturers including Avon Automotive and
Dana Corporation.
The standards being proposed for Marine SI engines and vessels will
affect manufacturers in the OB/PWC market and the SD/I market. Based on
EPA certification records, the OB/PWC market is made up primarily of
large manufacturers including, Brunswick (Mercury), Bombardier
Recreational

[[Page 28243]]

Products, Yamaha, Honda, Kawasaki, Polaris, Briggs & Stratton, Nissan,
and Tohatsu. One company that qualifies as a small business under the
SBA definitions has certified their product as a PWC. This company is
Surfango who makes a small number of motorized surfboards.
The SD/I market is made up mostly of small businesses; however,
these businesses account for less than 20 percent of engine sales. Two
large manufacturers, Brunswick (Mercruiser) and Volvo Penta, dominate
the market. We have identified 28 small entities manufacturing SD/I
marine engines. The third largest company is Indmar, which has much
fewer than the SBA threshold of 1,000 employees. Based on sales
estimates, number of employees reported by Thomas Register, and typical
engine prices, we estimate that the average revenue for the larger
small SD/I manufacturers is about $50-60 million per year. However, the
vast majority of the SD/I engine manufacturers produce low production
volumes of engines and typically have fewer than 50 employees.
The two largest boat building companies are Brunswick and Genmar.
Brunswick owns approximately 25 boat companies and Genmar owns
approximately 12 boat companies. Based on a manufacturer list
maintained by the U.S. Coast Guard, there are over 1,600 boat builders
in the United States. We estimate that, based on manufacturer
identification codes, more than 1,000 of these companies produce boats
using gasoline marine engines. According to the National Marine
Manufacturers Association (NMMA), most of these boat builders are small
businesses. These small businesses range from individuals building one
boat per year to businesses near the SBA small business threshold of
500 employees.
We have identified 15 marine fuel tank manufacturers in the United
States that qualify as small businesses under the SBA definition. These
manufacturers include five rotational molders, three blow molders, six
aluminum fuel tank manufacturers, and one specialty fuel tank
manufacturer. The small rotational molders average fewer than 50
employees while the small blow-molders average over 100 employees.
Moeller qualifies as a large business because they are owned by Moore;
however, their rotational molding business is a small part of the
company and operates similar to the smaller businesses. Other blow-molders
are in the same situation such as Attwood which is owned by Brunswick.
We have only identified one small fuel line manufacturer that
produces for the Marine SI market. Novaflex primarily distributes fuel
lines made by other manufacturers but does produce its own filler
necks. Because we expect vessel manufacturers will design their fuel
systems such that there will not be standing liquid fuel in the fill
neck (and therefore the proposed low-permeation fuel line requirements
will not apply to the fill neck), we have not included this manufacturer
in our analysis. The majority of fuel line in the Marine SI market is
made by large manufacturers including Goodyear and Parker-Hannifin.
To gauge the impact of the proposed standards on small businesses,
EPA employed a cost-to-sales ratio test to estimate the number of small
businesses that would be impacted by less than one percent, between one
and three percent, and above three percent. For this analysis, EPA
assumed that the costs of complying with the proposed standards are
completely absorbed by the regulated entity. Overall, EPA projects that
60 small businesses will be impacted by one to three percent, 18 small
businesses will be impacted by over three percent, and the remaining
companies (over 1,000 small businesses) will be impacted by less than
one percent. Table XIV-3 summarizes the impacts on small businesses
from the proposed exhaust and evaporative emission standards for Small
SI engines and equipment and Marine SI engines and vessels. A more
detailed description of the inputs used for each affected industry
sector and the methodology used to develop the estimated impact on
small businesses in each industry sector is included in the IRFA as
presented in Chapter 10 of the Draft RIA for this rulemaking.

Table XIV-3.--Summary of Impacts on Small Businesses
------------------------------------------------------------------------
1-3 > 3
Industry sector 0-1 percent percent percent
------------------------------------------------------------------------
Manufacturers of Marine OB/PWC 1................ 0 0
engines.
Manufacturers of Marine SD/I 4................ 5 0
engines < 373 kW.
Manufacturers of Marine SD/I 2................ 17 0
engines >= 373 kW (high-
performance).
Boat Builders.................. >1,000........... 0 0
Manufacturers of Fuel Lines and 15............... 0 0
Fuel Tanks for Marine SI
Vessels.
Small SI engines and equipment. 314.............. 38 18
Manufacturers of Fuel Lines and 27............... 0 0
Fuel Tanks for Small SI
Applications.
----------------------------------------
Total...................... 363 + >1,000 boat 60 18
builders.
------------------------------------------------------------------------

(4) Potential Reporting, Recordkeeping, and Compliance
For any emission control program, EPA must have assurances that the
regulated products will meet the standards. Historically, EPA's
programs for Small SI engines and Marine SI engines have included
provisions requiring that engine manufacturers be responsible for
providing these assurances. The program that EPA is considering for
manufacturers subject to this proposal may include testing, reporting,
and recordkeeping requirements for manufacturers of engines, equipment,
vessels, and fuel system components including fuel tanks, fuel lines,
and fuel caps.
For Small SI engine manufacturers and OB/PWC engine manufacturers,
EPA is proposing to continue the same reporting, recordkeeping, and
compliance requirements prescribed in the current regulations. For SD/I
engine manufacturers, which are not currently subject to EPA
regulation, EPA is proposing to apply similar reporting, recordkeeping,
and compliance requirements to those for OB/PWC engine manufacturers.
Testing requirements for engine manufacturers would include
certification emission (including deterioration factor) testing and
production-line testing. Reporting requirements would include emission
test data and technical data on the engines. Manufacturers would also
need to keep records of this information.

[[Page 28244]]

Because of the proposed evaporative emission requirements, there
would be new reporting, recordkeeping and compliance requirements for
Small SI equipment manufacturers. Small SI equipment manufacturers
participating in the proposed transition program would also be subject
to reporting, recordkeeping and compliance requirements. There may also
be new reporting, recordkeeping and compliance requirements for fuel
tank manufacturers, fuel line manufacturers, fuel cap manufacturers and
marine vessel manufacturers. Testing requirements for these
manufacturers could include certification emission testing. Reporting
requirements could include emission test data and technical data on the
designs. Manufacturers would also need to keep records of this information.
(5) Relevant Federal Rules
For Small SI engines and equipment, the primary federal rules that
are related to the rule under consideration are EPA's Phase 1 rule for
Small SI engines (60 FR 34582, July 3, 1995), EPA's Phase 2 rule for
Small SI nonhandheld engines (64 FR 15208, March 30, 2004), and EPA's
Phase 2 rule for Small SI handheld engines (65 FR 24268, April 25,
2000). For Marine SI engines and vessels, the primary federal rule that
is related to the rule under consideration is EPA's October 1996 final
rule (61 FR 52088, October 4, 1996).
Three other federal agencies have regulations that relate to the
equipment and vessels under consideration. These agencies are the
Consumer Product Safety Commission (CPSC), United States Department of
Agriculture (USDA), and the United States Coast Guard (USCG). CPSC has
safety requirements that apply to walk-behind lawnmowers to protect
operators of such equipment. USDA has design requirements intended to
reduce the potential fire threat of Small SI equipment. The USCG has
safety regulations for marine engine and fuel system designs. The USCG
safety regulations include standards for exhaust system temperature,
fuel tank durability and fuel line designs, including specific
requirements related to system survivability in a fire. Manufacturers
will need to consider both EPA and other federal standards when
certifying their products.
(6) Significant Alternatives
For Small SI engines and equipment, EPA looked at the existing
Phase 2 rule for small engines, as well as other recent EPA rules, to
provide potential flexibilities which might be offered with the Phase 3
standards. For engine manufacturers, the potential flexibilities
considered included extra time before the Phase 3 requirements would
apply and reduced testing burden, such as assigned deterioration
factors for certification purposes and exemption from the production-
line testing requirements. For equipment manufacturers, the potential
flexibilities considered included extra time before having to use Phase
3 engines and the ability to request extra time for a variety of
reasons, including technical hardship, economic hardship, and unusual
circumstances. For fuel tank and fuel line manufacturers, EPA has tried
to develop the timing of the proposal to accommodate all manufacturers,
including small businesses. We also considered offering manufacturers
the ability to request extra time for a variety of reasons, including
economic hardship and unusual circumstances.
For Marine SI engines and vessels, EPA previously convened two
Small Business Advocacy Review Panel (SBAR Panel, or the Panel) to
obtain advice and recommendation of representatives of the small
entities that potentially would be subject to the requirements under
consideration at the time. The Panels took place in 1999 and 2001 and
addressed small business issues related to exhaust and evaporative
emission standards similar to those described in this proposal.
Nineteen small entities that sell in the Marine SI engine and vessel
sectors participated as Small Entity Representatives (SERs) in the two
previous Panels.
On June 7, 1999, we convened a SBAR Panel to address small entity
issues related to anticipated exhaust emission standards for SD/I
marine engines. As part of that Panel, we considered a range of
regulatory options, including standards that would be expected to
require the use of catalytic control. With input from the SERs, the
1999 Panel drafted a report providing findings and recommendations to
us on how to reduce potential burden on small businesses that may occur
as a result of this proposed rule. Small business flexibility
approaches recommended by the 1999 Panel included the following:
• Broad definition of engine families for certification.
• Minimizing compliance testing requirements.
• Design-based certification (as an option to emission testing).
• Use of emission credits.
• Delay of the implementation date of the standards.
• Hardship provisions (for economic reasons or under unusual
circumstances).
• Limited temporary exemptions for small boat builders.
On May 3, 2001, we convened a SBAR Panel to address potential small
entity issues for a number of emission programs under consideration.
One of the programs was evaporative emission standards for boats using
gasoline engines. With input from SERs, the 2001 Panel drafted a report
providing findings and recommendations to us on how to reduce potential
burden on small businesses that may occur as a result of this proposed
rule. The flexibility approaches recommended by the 2001 Panel included
the following:
• Broad definition of emission families for certification.
• Design-based certification (as an option to emission testing).
• Use of emission credits.
• Delay of the implementation date of the standards.
• Hardship provisions (for economic reasons or under unusual
circumstances).
In the time since the 1999 and 2001 SBAR Panels were completed, a
great deal of development has been performed on exhaust and evaporative
emission control technology. We considered the flexibilities
recommended by the 1999 and 2001 Panels (as noted above) in the context
of this new information.
(7) Panel Process and Panel Outreach
As required by section 609(b) of the RFA, as amended by SBREFA, EPA
also has conducted outreach to small entities and convened a SBAR Panel
to obtain advice and recommendation of representatives of the small
entities that potentially would be subject to the requirements of this
rule. On August 17, 2006 EPA's Small Business Advocacy Chairperson
convened a Panel under section 609(b) of the RFA. In addition to the
Chair, the Panel consisted of the Division Director the Assessment and
Standards Division within EPA's Office of Air and Radiation, the Chief
Counsel for Advocacy of the Small Business Administration, and the
Administrator of the Office of Information and Regulatory Affairs
within the Office of Management and Budget.
As part of the SBAR Panel process we conducted outreach with
representatives from 25 various small entities that would be affected
by this rule. The SERs included engine, equipment, fuel tank and fuel
line manufacturers for the Small SI market and engine, vessel, fuel
tank and fuel line manufacturers for the Marine SI

[[Page 28245]]

market. We met with these SERs to discuss the potential rulemaking
approaches and potential options to decrease the impact of the
rulemaking on their industries. We distributed outreach materials to
the SERs; these materials included background on the rulemaking,
possible regulatory approaches, and possible rulemaking alternatives
(as noted earlier). The Panel met with SERs from the industries that
will be impacted directly by this rule on September 12, 2006 to discuss
the outreach materials and receive feedback on the approaches and
alternatives detailed in the outreach packet. (EPA also met with SERs
on July 11, 2006 for an initial outreach meeting.) The Panel received
written comments from the SERs following the meeting in response to
discussions at the meeting and the questions posed to the SERs by the
Agency. The SERs were specifically asked to provide comment on
regulatory alternatives that could help to minimize the rule's impact
on small businesses.
(8) Panel Recommendations for Small Business Flexibilities
The Panel recommended that EPA consider and seek comment on a wide
range of regulatory alternatives to mitigate the impacts of the
rulemaking on small businesses, including those flexibility options
described below. The following section summarizes the SBAR Panel
recommendations. EPA has proposed provisions consistent with each of
the Panel's recommendations.
Consistent with the RFA/SBREFA requirements, the Panel evaluated
the assembled materials and small-entity comments on issues related to
elements of the IRFA. A copy of the Final Panel Report (including all
comments received from SERs in response to the Panel's outreach meeting
(Appendix D) as well as summaries of both outreach meetings that were
held with the SERs (Appendices B and C)) is included in the docket for
this proposed rule. A summary of the Panel recommendations is detailed
below. As noted above, this proposal includes proposed provisions for
each of the Panel recommendations.
(a) Manufacturer Flexibilities for Small SI Engine Exhaust Standards
The Panel's recommendations for the Phase 3 exhaust emission
standards for nonhandheld engines are summarized below. A complete
discussion of the proposed small business provisions in response to
each of the Panel recommendations noted below can be found in Section
V.F of this preamble.
Additional Lead Time for Nonhandheld Engine Manufacturers--The
Panel recommended that EPA propose two additional years of lead time
before the Phase 3 standards take effect for small business engine
manufacturers. For Class I engines, the effective date for small
business engine manufacturers would be 2014. For Class II engines, the
effective date for small business engine manufacturers would be 2013.
Assigned Deterioration Factors--The Panel recommended EPA propose
that small business engine manufacturers be allowed the option to use
EPA-developed assigned deterioration factors in demonstrating
compliance with the Phase 3 exhaust emission standards.
Production-Line Testing Exemption--The Panel recommended EPA
propose that small business engine manufacturers be exempted from the
production line testing requirements for the Phase 3 exhaust emission
standards.
Broader Definition of Engine Family--The Panel recommended that EPA
propose allowing small business engine manufacturers to group all of
their Small SI engines into a single engine family for certification by
engine class and useful life category, subject to good engineering judgment.
Simplified Engine Certification for Equipment Manufacturers--
Generally, it has been engine manufacturers who certify with EPA for
the exhaust emission standards since the standards are engine-based
standards. However, a number of equipment manufacturers, especially
those that make low-volume models, believe it may be necessary for
equipment manufacturers to certify their own unique engine/muffler
designs with EPA (but using the same catalyst substrate already used in
a muffler certified by the engine manufacturer). The Panel recommended
that EPA propose a simplified engine certification process for small
business equipment manufacturers in such situations. Under such a
simplified certification process, the equipment manufacturer would need
to demonstrate that it is using the same catalyst substrate as the
approved engine manufacturer's family, provide information on the
differences between their engine/exhaust system and the engine/exhaust
system certified by the engine manufacturer, and explain why the
deterioration data generated by the engine manufacturer would be
representative for the equipment manufacturer's configuration.
Additional Lead Time for Small SI Equipment Manufacturers--The
Panel recommended that EPA propose a transition program that would
allow small business equipment manufacturers to continue using Phase 2
engine designs (i.e., engines meeting the Phase 2 exhaust emission
standards) during the first two years that the Phase 3 standards take
effect. (For equipment using Class I engines, the provision would apply
in 2012 and 2013. For equipment using Class II engines, the provision
would apply in 2011 and 2012.) The Panel also recommended that EPA
propose to allow small business equipment manufacturers to use Phase 3
engines without the catalyst during this initial two-year period
provided the engine manufacturer has demonstrated that the engine
without the catalyst would comply with the Phase 2 exhaust emission
standards and labels it appropriately.
Eligibility for the Small Business Flexibilities--For purposes of
determining which engine and equipment manufacturers are eligible for
the small business flexibilities described above, EPA is proposing
criteria based on a production cut-off of 10,000 nonhandheld engines
per year for engine manufacturers and 5,000 pieces of nonhandheld
equipment per year for equipment manufacturers. The Panel recommended
that EPA propose to allow engine and equipment manufacturers which
exceed the production cut-off levels noted above but meet the SBA
definitions for a small business (i.e., fewer than 1,000 employees for
engine manufacturers or fewer than 500 employees for most types of
equipment manufacturers) to request treatment as a small business.
(b) Manufacturer Flexibilities for SD/I Marine Exhaust Standards
The Panel's recommendations for the exhaust emission standards for
SD/I marine engines are summarized below. A complete discussion of the
proposed small business provisions in response to each of the Panel
recommendations noted below can be found in Section III.F of this preamble.
Additional Lead Time for SD/I Engine Manufacturers--The Panel
recommended that EPA propose an implementation date of 2011 for SD/I
engines below 373 kW produced by small business marine engine
manufacturers and an implementation date of 2013 for small business
manufacturers of high performance SD/I marine engines (at or above 373
kW). Based on the proposed 2009 implementation date for the remaining
SD/I engine manufacturers (i.e., the large businesses), these dates
would provide small business SD/I engine manufacturers with two years
additional lead time for SD/I engines below 373 kW and four years
additional lead time for SD/I engines at or above 373 kW.
Exhaust Emission ABT--EPA is proposing an averaging, banking and

[[Page 28246]]

trading (ABT) program for the SD/I engine standards. Because EPA is
proposing an ABT program for SD/I engines, the Panel recommended that
EPA request comment on the desirability of credit trading between high
performance and other SD/I marine engines and the impact it could have
on small business.
Early Credit Generation for ABT--EPA is proposing an early banking
program for SD/I marine engines. Under the early banking provisions,
manufacturers can generate ``bonus'' credits for the early introduction
of engines meeting the proposed emission standards. The Panel supports
EPA proposing an early banking program and believes that bonus credits
will provide greater incentive for more small business engine
manufacturers to introduce advanced technology earlier than would
otherwise occur.
Assigned Emission Rates for High Performance SD/I Engines--The
Panel recommended that EPA propose to allow the use of default emission
rates that could be used by small business high performance SD/I engine
manufacturers as part of their certification. Based on currently
available test data, the proposed default baseline emission levels for
high performance engines are 30 g/kW-hr HC+NO_X and 350 g/kW-hr CO.
Alternative Standards for High Performance SD/I Engines--SERs
expressed concern that that catalysts have not been demonstrated on
high performance engines and that they may not be practicable for this
application. While EPA is proposing a standard based on the use of
catalysts, EPA is requesting comment on a standard for high performance
SD/I marine engines that could be met without the use of a catalyst.
(Based on available data, levels of 16 g/kW-hr HC+NO_X and
350 g/kW-hr CO were discussed with the SERs). The Panel recommended EPA
request comment on a non-catalyst based standard for high performance
marine engines.
EPA is proposing to not apply the not-to-exceed (NTE) standards to
high performance SD/I engines. The Panel supports excluding high
performance SD/I engines from NTE requirements.
Broad Engine Families for High Performance SD/I Engines--The Panel
recommended that EPA propose allowing small businesses to group all of
their high performance SD/I engines into a single engine family for
certification, subject to good engineering judgment.
Simplified Test Procedures for High Performance SD/I Engines--For
high performance SD/I engines, it may be difficult to hold the engine
at idle or high power within the tolerances currently specified in
existing EPA test procedures. The Panel recommended that EPA propose
less restrictive specifications and tolerances for small businesses
testing high performance SD/I engines, which would allow the use of
portable emission measurement equipment.
Eligibility for the Small Business Flexibilities--For purposes of
determining which engine manufacturers are eligible for the small
business flexibilities described above for SD/I engine manufacturers,
EPA is proposing criteria based on a production cut-off of 5,000 SD/I
engines per year. The Panel recommended EPA propose to allow engine
manufacturers that exceed the production cut-off level noted above but
meet the SBA definitions for a small business (i.e., fewer than 1,000
employees for engine manufacturers), to request treatment as a small
business.
(c) Manufacturer Flexibilities for Small SI and Marine SI Evaporative
Standards
The Panel's recommendations for the evaporative emission standards
for Small SI engines and equipment and SD/I marine engines and vessels
are summarized below. SERs raised many of the same issues regarding
evaporative emission standards for both Small SI and marine
applications. In fact, many of the SERs supply fuel system components
to both industries. For these reasons, the Panel's recommendations on
regulatory flexibility discussed below would apply to Small SI
equipment and to SD/I marine vessels except where noted.
Because the majority of fuel tanks produced for the Small SI
equipment and the SD/I marine vessel market are made by small
businesses, the details of the evaporative emissions program under
consideration and the flexibility provisions shared by EPA with the
SERs were noted as being available to all fuel tank manufacturers.
Therefore, the Panel recommendations on regulatory flexibility for fuel
tank manufacturers discussed below are being proposed to apply to all
fuel tank manufacturers. A complete discussion of the proposed
provisions in response to each of the Panel recommendations noted below
can be found in Section VI.G of this preamble.
Consideration of Appropriate Lead Time--The Panel recommended that
EPA propose to implement the fuel tank permeation standards in 2011
with an additional year (2012) for rotationally molded marine fuel
tanks. The extra year for rotationally molded marine tanks would give
manufacturers time to address issues that are specific to the marine
industry.
With regard to diurnal emissions control, SERs commented that they
would like additional time to install carbon canisters in their vessels
because of deck and hull changes that might be needed to accommodate
the carbon canisters. SERs commented that they would consider asking
EPA to allow the use of low-permeation fuel lines prior to 2009 as a
method of creating an emission neutral flexibility option for providing
extra time for canisters. The Panel recommended that EPA continue
discussions with the marine industry and request comment on
environmentally neutral approaches to provide more flexibility in
meeting the potential diurnal emission standards.
Fuel Tank ABT and Early Incentive Program--The Panel recommended
that EPA propose an ABT program for fuel tank permeation. The Panel
also recommended that EPA request comment on including service tanks
(i.e., replacement tanks) in the ABT program. Finally, the Panel
recommended that EPA request comment on an early incentive program for
tank permeation.
Broad Definition of Evaporative Emission Family for Fuel Tanks--The
Panel recommended that EPA propose a broad emission family definition
for Small SI fuel tanks and for Marine SI fuel tanks similar to that in
the regulations for recreational vehicles. Under the recreation vehicle
evaporative emission regulations, EPA specifies that fuel tank
permeation emission families be based on type of material (including
additives such as pigments, plasticizers, and ultraviolet (UV)
inhibitors), emission control strategy, and production methods. Fuel
tanks of different sizes, shapes, and wall thicknesses may be grouped
into the same emission family.
Compliance Progress Review for Marine Fuel Tanks--While there is
clearly a difference of opinion among the SERs involved in tank
manufacturing, some SERs expressed concern that there is not an
established low-permeation technology available for rotationally molded
marine fuel tanks. These SERs stated that they are working on
developing such technology but do not have in-use experience to
demonstrate the durability of low-permeation rotationally molded fuel
tanks. The Panel recommended that if a rule is implemented, EPA
undertake a ``compliance progress review'' assessment with the
manufacturers. In this effort, EPA should continue to engage on a
technical level with

[[Continued on page 28247]]

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

[[pp. 28197-28246]]

Local Navigation