Control of Emissions of Air Pollution From Locomotive Engines and Marine Compression-Ignition Engines Less Than 30 Liters per Cylinder

[Federal Register: April 3, 2007 (Volume 72, Number 63)]
[Proposed Rules]
[Page 15987-16036]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap07-25]

[[pp. 15987-16036]]
Control of Emissions of Air Pollution From Locomotive Engines and
Marine Compression-Ignition Engines Less Than 30 Liters per Cylinder

[[Continued from page 15986]]

[[Page 15987]]

more recent regulations featured test procedure updates and
improvements that the other sectors did not have. As this process
continued, we recognized that a single set of test procedures would
allow for improvements to occur simultaneously across engine and
vehicle sectors. A single set of test procedures is easier to
understand than trying to understand many different sets of procedures,
and it is easier to move toward international test procedure
harmonization if we only have one set of test procedures. We note that
procedures that are particular for different types of engines or
vehicles, for example, test schedules designed to reflect the
conditions expected in use for particular types of vehicles or engines,
would remain separate and would be reflected in the standard-setting
parts of the regulations.
As compared to the existing locomotive and marine diesel test
procedures found in parts 92 and 94, part 1065 test procedures are
organized and written for improved clarity. In addition, we are
proposing part 1065 for locomotive and marine diesel engines to improve
the content of their respective testing specifications, including the
following:
? Specifications and calculations written in the
international system of units (SI).
? Procedures by which manufacturers can demonstrate that
alternate test procedures are equivalent to specified procedures.
? Specifications for new measurement technology that has
been shown to be equivalent or more accurate than existing technology.
? Procedures that improve test repeatability.
? Calculations that simplify emissions determination.
? New procedures for field testing engines.
? More comprehensive sets of definitions, references, and symbols.
? Calibration and accuracy specifications that are scaled to
the applicable standard, which allows us to adopt a single specification
that applies to a wide range of engine sizes and applications.
Some emission-control programs already rely on the test procedures
in part 1065. These programs regulate land-based on-highway heavy-duty
engines, land-based nonroad diesel engines, recreational vehicles, and
nonroad spark-ignition engines over 19 kW.
We are adopting the lab-testing and field-testing specifications in
part 1065 for all locomotive and marine diesel engines. These
procedures replace those currently published in parts 92 and 94. We are
making a gradual transition from the part 92 and 94 procedures. For
several years, manufacturers would be able to optionally use the part
1065 procedures. Part 1065 procedures would be required for any new
testing by the model year in which the Tier 4 standard applies to a
locomotive or marine diesel engine or by 2012 for a locomotive or
marine diesel engine that is not proposed to be subject to a Tier 4
standard. For any testing completed for any emissions standard that is
less stringent than the respective Tier 4 standard, manufacturers may
continue to rely on carryover test data based on part 92 or 94
procedures to certify engine families in later years. In addition, for
any other programs that refer to the test procedures in parts 92 or 94,
we are including updated references for all these other programs to
refer instead to the appropriate cite in part 1065.
Part 1065 is also advantageous for in-use testing because it
specifies the same procedures for all common parts of field testing and
laboratory testing. It also contains new provisions that help ensure
that engines are tested in a laboratory in a way that is consistent
with how they operate in use. These new provisions would ensure that
engine dynamometer lab testing and field testing are conducted in a
consistent way.
In the future, we may apply the test procedures specified in part
1065 to other types of engines, so we encourage companies involved in
producing or testing other engines to stay informed of developments
related to these test procedures.
(b) Revisions to Part 1065
Part 1065 was originally adopted on November 8, 2002 (67 FR 68242),
and was initially applicable to standards regulating large nonroad
spark-ignition engines and recreational vehicles under 40 CFR parts
1048 and 1051. The recent rulemaking adopting emission standards for
nonroad diesel engines has also made part 1065 optional for Tier 2 and
Tier 3 nonroad standards and required for Tier 4 standards. The test
procedures initially adopted in part 1065 were sufficient to conduct
testing, but on July 13, 2005 (70 FR 11534) we promulgated a final rule
that reorganized these procedures and added content to make various
improvements. In particular, we reorganized part 1065 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 now 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 would cover the full
range of engine sizes and our full range of emission standards.
Manufacturers would 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 of part 1065 is mostly a combination of content from
our most recent updates to other test procedures and from test
procedures specified by the International Organization for
Standardization (ISO). In some cases, however, there is new content
that never existed in previous regulations. This new content addresses
very recent issues such as measuring very low concentrations of
emissions, using new measurement technology, using portable emissions
measurement systems, and performing field testing. A detailed
description of the changes is provided in a memorandum to the docket.\123\
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\123\ Memorandum to docket EPA-HQ-OAR-2003-0190, ``Redline/
Strikeout of 40 CFR 1065 (Test Procedures) Changes and Additions''.
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The new content 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

[[Page 15988]]

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''
challenges complete measurement systems with a series of periodic
verifications, 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. This is
explained in more detail in item 10 below. Finally, we feel that our
systems approach will lead to a more efficient way of assuring
measurement performance in the laboratory and in the field. We believe
that this efficiency will stem from less frequent individual instrument
calibrations, and higher confidence that a complete measurement system
is operating properly.
We have organized the new content relating to measurement systems
performance into subparts C and D. We specify measurement instruments
in subpart C and calibrations and periodic system verifications in
subpart D. These two subparts apply to both laboratory and field
testing. We have organized content specific to running a laboratory
emissions test in subpart F, and we separated content specific to field
testing in subpart J.
In subpart C we specify the types of acceptable instruments, but we
only recommend individual instrument performance. We provide these
recommendations as guidance for procuring new instruments. We feel that
the periodic verifications that we require in subpart D will
sufficiently evaluate the individual instruments as part of their
respective overall measurement systems. In subpart F we specify
performance validations that must be conducted as part of every
laboratory test. In subpart J we specify similar performance
validations for field testing that must be conducted as part of every
field test. We feel that the periodic verifications in subpart D and
the validations for every test that we prescribed in subparts F and J
ensure that complete measurement systems are operating properly.
In subpart J we also specify an additional overall verification of
portable emissions measurement systems (PEMS). This verification is a
comprehensive comparison of a PEMS versus a laboratory system, and it
may take several days of laboratory time to set up, run, and evaluate.
However, we only require that this particular verification must be
performed at least once for a given make, model, and configuration of a
field test system.
Below is a brief description of the content of each subpart,
highlighting some of the most important content.
(i) 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, other procedures would be used.
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 to determine 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.
(ii) 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 in order 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. Subpart B
also specifies environmental conditions for PM filter stabilization and
weighing.
The regulations in Sec. 1065.101 include a diagram illustrating
all the available equipment for measuring emissions.
(iii) Subpart C: Measurement Instruments
Subpart C specifies the requirements for the measurement
instruments used for testing. In subpart C we recommend accuracy,
repeatability, noise, and response time specifications for individual
measurement instruments, but note that we only require that overall
measurement systems meet the calibrations and verifications in Subpart D.
In some cases we allow instrument types to be used where we
previously did not allow them in parts 92 or 94. For example, we now
allow the use of a nonmethane cutter for NMHC measurement, a
nondispersive ultraviolet analyzer for NO_X measurement, a
zirconia sensor for O₂ measurement, various raw-exhaust flow
meters for laboratory and field testing measurement, and an ultrasonic
flow meter for CVS systems.
(iv) Subpart D: Calibrations and Verifications
Subpart D describes what we mean when we specify accuracy,
repeatability and other parameters in Subpart C. 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 in parts 92 and
94 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.
(v) Subpart E: Engine Selection, Preparation, and Maintenance
Subpart E describes how to select, prepare, and maintain a test engine.
(vi) 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 allow
modest corrections for drift of emission analyzer

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signals within a certain range. We recommend a step-by-step procedure
for weighing PM samples.
(vii) Subpart G: Calculations and Required Information
Subpart G includes all the calculations required in part 1065.
Subpart G includes 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 mis-
communication when we discuss these quantities in other subparts. We
have written all calculations for calibrations and emission
calculations in international units. 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.
(viii) Subpart H: Fuels, Fluids, and Analytical Gases
Subpart H specifies test fuels, lubricating oils and coolants, and
analytical gases for testing. We eliminated the Cetane Index
specification for all diesel fuels, because the existing specification
for Cetane Number sufficiently determines the cetane levels of diesel
test fuels. We do not identify any detailed specification for service
accumulation fuel. Instead, we specify that service accumulation fuel
may be either a test fuel or a commercially available in-use fuel. We
include a list of ASTM specifications for in-use fuels as examples of
appropriate service accumulation fuels. We include an allowance for
engine manufacturers to use in-use test fuels that do not meet all of
the specifications, provided that the in-use fuel does not adversely
affect the manufacturer's ability to demonstrate compliance with the
applicable standard. For example a fuel that would result in lower
emissions versus the certification fuel would generally adversely
affect a manufacturers ability to demonstrate compliance with the
applicable standards. We also 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 more frequently review and update the ASTM methods
in 40 CFR Part 80 versus those in part 1065.
(ix) Subpart I: Oxygenated Fuels
Subpart I describes special procedures for measuring certain
hydrocarbons whenever oxygenated fuels are used. We allow the use of
the California NMOG test procedures to measure alcohols and carbonyls.
(x) Subpart J: Field Testing and Portable Emissions Measurement Systems
As described in Subpart J, Portable Emissions Measurement Systems
(PEMS) 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 a series of laboratory
measurements. This verification involves repeating a duty cycle several
times. This is a comprehensive verification of a PEMS. We are also
adopting a procedure for preparing and conducting a field test, and we
are adopting drift corrections for PEMS 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 the use of PEMS in an engine dynamometer laboratory
to conduct laboratory testing.
(xi) Subpart K: Definitions, References, and Symbols
In Subpart K we define terms frequently used in part 1065. For
example we have defined ``brake power'', ``constant-speed engine'', and
``aftertreatment'' to provide more clarity, and we have definitions for
things such as ``300 series stainless steel'', ``barometric pressure'',
and ``operator demand''. There are definitions such as ``duty cycle''
and ``test interval'' to distinguish the difference between a single
interval over which brake-specific emissions are calculated and the
complete cycle over which emissions are evaluated in a laboratory. We
also present a thorough and consistent set of symbols, abbreviations,
and acronyms in subpart K.
(2) Certification Fuel
It is well-established that measured emissions may be affected by
the properties of the fuel used during the test. For this reason, we
have historically specified allowable ranges for test fuel properties
such as cetane and sulfur content. These specifications are intended to
represent most typical fuels that are commercially available in use.
This helps to ensure that the emissions reductions expected from the
standards occur in use as well as during emissions testing. Because we
have reduced the upper limit for locomotive and marine diesel fuel
sulfur content for refiners to 15 ppm in 2012, we are proposing to
establish new ranges of allowable sulfur content for diesel test fuels.
See sectionC.(5) for information about testing marine engines designed
to use residual fuel.
For marine diesel engines, we are proposing the use of ULSD fuel as
the test fuel for Tier 3 and later standards (when the new plain
language regulations begin to apply). We believe this would correspond
to the fuels that these engines will see in use over the long term. We
recognize that this approach would mean that some marine engines would
use a test fuel that is lower in sulfur than in-use fuel during the
first few years, and that other Tier 2 marine engines would use a test
fuel that is higher in sulfur than fuel already available in use when
they are produced. However, we believe that it is more important to
align changes in marine test fuels with changes in the PM standards
than strictly with changes in the in-use fuel. Nevertheless, we are
proposing to allow certification with fuel meeting the 7 to 15 ppm
sulfur specification for Tier 2 to simplify testing, but would require
PM emissions to be corrected to be equivalent to testing conducted with
the specified fuel.
For locomotives, we are proposing to require that Tier 4 engines be
certified based on ULSD test fuels. We are also proposing to require
that these locomotives use ULSD in the field. We would continue to
allow older locomotives to use in the field low sulfur diesel (LSD)
fuel, which is the intermediate grade of fuel with sulfur levels
between 15 and 500 ppm. Thus, we are proposing to require that
remanufacture systems for most of these locomotives be certified on LSD
test fuel. We are proposing to allow the use of test fuels other than
those specified here. Specifically, we would allow the use of ULSD
during emission testing for locomotives otherwise required to use LSD,
provided they do not use sulfur-

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sensitive technology (such as oxidation catalysts). However, as a
condition of this allowance, the manufacturer would be required to add
an additional amount to the measured PM emissions to make them
equivalent to what would have been measured using LSD. For example, we
would allow a manufacturer to test with ULSD if they adjusted the
measured PM emissions upward by 0.01 g/bhp-hr (which would be a
relatively conservative adjustment).
We are proposing special fuel provisions for Tier 3 locomotives and
Tier 2 remanufacture systems. We are proposing that the test fuel for
these be ULSD without sulfur correction since these locomotives will
use ULSD in use for most of their service lives. However, unlike Tier 4
locomotives, we would not require them to be labeled to require the use
of ULSD, unless they included sulfur sensitive technology.
We are proposing a new flexibility for locomotives and Category 2
marine engines to reduce fuel costs for testing. Because these engines
can consume 200 gallons of diesel fuel per hour at full load, fuel can
represent a significant fraction of the testing cost, especially if the
manufacturer must use specially blended fuel rather than commercially
available fuel. To reduce this cost, we are proposing to allow
manufacturers to perform testing of locomotives and Category 2 engines
with commercially available diesel fuel.
For both locomotive and marine engines, all of the specifications
described above would apply to emission testing conducted for
certification, selective enforcement audits, and in-use, as well as any
other testing for compliance purposes for engines in the designated
model years. Any compliance testing of previous model year engines
would be done with the fuels designated in our regulations for those
model years.
(3) Supplemental Emission Standards
We are proposing to continue the supplemental emission standards
for locomotives and marine engines. For locomotives, this means we
would continue to apply notch emission caps, based on the emission
rates in each notch, as measured during certification testing. We
recognize that for our Tier 4 proposed standards it would not be
practical to measure very low levels of PM emissions separately for
each notch during testing, and thus we are proposing a change in the
calculation of the PM notch cap for Tier 4 locomotives. All other notch
caps would be determined and applied as they currently are under 40 CFR
92.8(c). See Sec. 1033.101(e) of the proposed regulations for the
detailed calculation.
Marine engines would continue to be subject to not-to-exceed (NTE)
standards, however, we are proposing certain changes to these standards
based upon our understanding of in-use marine engine operation and
based upon the underlying Tier 3 and Tier 4 duty cycle emissions
standards that we are proposing. As background, we determine NTE
compliance by first applying a multiplier to the duty-cycle emission
standard, and then we compare to that value an emissions result that is
recorded when an engine runs within a certain range of engine
operation. This range of operation is called an NTE zone (see 40 CFR
94.106). The first regulation of ours that included NTE standards was
the commercial marine diesel regulation, finalized in 1999. After we
finalized that regulation, we promulgated other NTE regulations for
both heavy-duty on-highway and nonroad diesel engines. We also
finalized a regulation that requires heavy-duty on-highway engine
manufacturers to conduct field testing to demonstrate in-use compliance
with the on-highway NTE standards. Throughout our development of these
other regulations, we have learned many details about how best to
specify NTE zones and multipliers that would ensure the greatest degree
of in-use emissions control, while at the same time would avoid
disproportionately stringent requirements for engine operation that has
only a minor contribution to an engine's overall impact on the
environment. Based upon the Tier 3 and Tier 4 standards we are
proposing--and our best information of in-use marine engine operation--
we are proposing certain improvements to our marine NTE standards.
For marine engines we are proposing a broadening of the NTE zones
in order to better control emissions in regions of engine operation
where an engine's emissions rates (i.e. grams/hour, tons/day) are
greatest; namely at high engine speed and high engine load. This is
especially important for commercial marine engines because they
typically operate at steady-state at high-speed and high-load
operation. This proposed change also would make our marine NTE zones
much more similar to our on-highway and nonroad NTE zones.
Additionally, we analyzed different ways to define the marine NTE
zones, and we determined a number of ways to improve and simplify the
way we define and calculate the borders of these zones. We feel that
these improvements would help clarify when an engine is operating
within a marine NTE zone. Please refer to section 1042.101(c) of our
draft proposed regulations for a description of our proposed NTE
standards. Note that we currently specify different duty cycles to
which a marine engine may be certified, based upon the engine's
specific application (e.g., fixed-pitch propeller, controllable-pitch
propeller, constant speed, etc.). Correspondingly, we also have a
unique NTE zone for each of these duty cycles. These different NTE
zones are intended to best reflect an engine's real-world range of
operation for that particular application. Because we are proposing
changes to the shapes of these NTE zones, we request comment as to
whether or not these changes best reflect actual in-use operation of
marine engines.
We are also proposing changes to the NTE multipliers. We have
analyzed how our proposed Tier 3 and Tier 4 emissions standards would
affect the stringency of our current marine NTE standards, especially
in comparison to the stringency of the underlying duty cycle standards.
We recognized that in certain sub-regions of our proposed NTE zones,
slightly higher multipliers would be necessary because of the way that
our more stringent proposed Tier 3 and Tier 4 emissions standards would
affect the stringency of the NTE standards. For comparison, our current
marine NTE standards contain multipliers that range in magnitude from
1.2 to 1.5 times the corresponding duty cycle standard. In the changes
we are proposing, the new multipliers would range from 1.2 to 1.9 times
the standard. Even with these slightly higher NTE multipliers, we are
confident that our proposed changes to the marine NTE standards would
ensure the greatest degree of in-use emissions control. We are also
confident that our proposed changes to the marine NTE standards would
continue to ensure proportional emissions reductions, across the full
range of marine engine operation. Because we are proposing changes to
the NTE multipliers, we request comment as to whether or not these
changes best reflect actual in-use emissions profiles of marine engines
throughout the NTE zones we are proposing.
We are also proposing to adopt other NTE provisions for marine
engines that are similar to our existing heavy-duty on-highway and
nonroad diesel NTE standards. We are proposing these particular changes
to account for the implementation of catalytic exhaust treatment
devices on marine engines and to account for when a marine engine
rarely operates within a limited region of the NTE zone (i.e. less than
5 percent of in-use operation). We feel that these provisions have been
effective

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in our on-highway and nonroad NTE programs; therefore, we are proposing
to adopt them for our marine NTE standards as well.
We are also proposing for the first time auxiliary marine engine
NTE standards, effective for both Tier 3 and Tier 4 auxiliary marine
engines. Since these engines are similar to nonroad constant speed
engines, we propose to adopt the same NTE standards for auxiliary
marine engines as we have already finalized for nonroad constant speed
engines. Specifically, these engines are engines certified to the ISO
8178-1 D2 test cycle, illustrated in 40 CFR Sec. 94.105, Table B-4.
Refer to 40CFR Sec. 1039.101(e) for our constant speed nonroad engine
NTE standards. Because we are proposing marine diesel Tier 3
implementation dates in the 2012 timeframe, we request comment as to
whether or not additional lead-time might be necessary to marinize and
certify NTE-compliant nonroad engines to the marine diesel Tier 3
standards, especially since it will be within that same timeframe that
the similar nonroad Tier 4 engines will be NTE-certified for nonroad use.
We request comment regarding the changes we are proposing for the
marine NTE standards.
(4) Emission Control Diagnostics
As described below, we are requesting comment on (but not
proposing) a requirement that all Tier 4 engines include simple engine
diagnostic system to alert operators to general emission-related
malfunctions. (See section IV.A.(7) for related requirements involving
SCR systems.) We are, however, proposing special provisions for
locomotives that include emission related diagnostics. First, we would
require locomotive operators to respond to malfunction indicators by
performing the required maintenance or inspection. Second, locomotive
manufacturers would be allowed to repair such malfunctioning
locomotives during in-use compliance testing (they would still be
required to include a description of the malfunction in the in-use
testing report.). This approach would take advantage of the unique
market structure with two major manufacturers and only a few railroads
buying nearly all of the freshly manufactured locomotives. The proposed
provisions would create incentives for both the manufacturers and
railroads to work together to develop a diagnostic system that
effectively revealed real emission malfunctions. Our current
regulations already require that locomotive operators complete all
manufacturer-specified emission-related maintenance and this new
requirement would treat repairs indicated by diagnostic systems as such
emission-related maintenance. Thus, the railroads would have a strong
incentive to make sure that they only had to perform this additional
maintenance when real malfunctions were occurring. On the other hand,
manufacturers would want to have all emission malfunctions revealed so
that when they test an in-use locomotive they could repair identified
malfunction before testing if the railroad had not yet done it.
At this time, we are requesting comment on a adopting a detailed
regulatory program to require that all Tier 4 locomotives and marine
engines include a specific engine diagnostic system. We believe that
most of these engines will be equipped with a basic diagnostic system
for other purposes, so codifying a uniform convention based largely on
these preexisting systems could be appropriate. Manufacturers would
generally not be required to monitor actual emission levels, but rather
would be required to monitor functionality. Such systems could be very
helpful in maintaining emission performance during the useful life and
ensuring that malfunctioning marine catalysts would be replaced.
However, we also believe that it might be more appropriate to address
this issue in a future rulemaking in the broader context of all nonroad
diesel engines.
(5) Monitoring and Reporting of Emissions Related Defects
We are proposing to apply the defect reporting requirements of
Sec. 1068.501 to replace the provisions of subparts E in parts 92 and
94. This would result in two significant changes for manufacturers.
First, Sec. 1068.501 obligates manufacturers to tell us when they
learn that emission control systems are defective and to conduct
investigations under certain circumstances to determine if an emission-
related defect is present. Manufacturers must initiate these
investigations when warranty information, parts shipments, and any
other information which is available and indicates 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. The
parts and systems are those covered by the emissions warranty, and
listed in Appendix I and II of part 1068. As we noted in previous
rulemakings, we believe the investigation requirement is necessary
because it will allow both EPA and the engine manufacturers to fully
understand the significance of any unusually high rates of warranty
claims and parts replacements for parts or parameters that may have an
impact on emissions. We believe that as part of its normal product
quality practices, prudent engine manufacturers already conduct a
thorough investigation when available data indicate recurring parts
failures. Such data is valuable and readily available to most
manufacturers and, under this proposal it must be considered to
determine whether or not there is a possible defect of an emission-
related part.
The second change is related to reporting thresholds. Defect
reports submitted in compliance with the current regulations are based
on a single threshold applicable to engine families of all production
volumes. The single threshold in the existing regulations rarely
results in reporting of defects in the smallest engine families covered
by this regulation because a relatively high proportion of such engines
would have to be known to be defective before reporting is required
under a fixed threshold scheme. Therefore, under Sec. 1068.501, the
threshold for reporting for the smallest engine families would
generally be decreased as compared to the current requirements. These
thresholds were established during our rulemaking adopting Tier 4
standards for nonroad diesel engines.\124\ Those engines are
substantially similar to the engines used in the marine and locomotive
sectors, and thus, we believe that these thresholds will also be
appropriate for these engines.
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\124\ 69 FR 38957, June 29, 2004.
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We are aware that accumulation of warranty claims and part
shipments 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.
Manufacturers are not required to count towards the investigation
threshold any replacement parts they require to be replaced at
specified intervals during the useful life, as specified in the
application for certification and maintenance instructions to the
owner, because shipments of such parts clearly do not represent
defects. All such parts would be excluded from investigation of
potential defects and reporting of defects, whether or not any specific
part was, in fact, shipped for specified replacement. This proposal is
intended to require manufacturers to use

[[Page 15992]]

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 or replacement
part information may ask for our approval to use an alternate defect-
reporting methodology that is at least as effective in identifying and
tracking potential emissions related defects as the proposed
requirements. However, until we approve such a request, the proposed
thresholds and procedures continue to apply.
The thresholds for investigation are generally ten percent of total
production to date with special limits for small volume engine
families. Please note, manufacturers would not investigate for emission
related defects until either warranty claims or parts shipments
separately reach the investigation threshold. We recognize that a part
shipment may ultimately be associated with a particular warranty claim
in the manufacturer's database and, therefore, warranty claims and
parts shipments would not be aggregated for the purpose of triggering
the investigation threshold under this proposal.
The second threshold in this proposal specifies when a manufacturer
must report that there is an emission-related defect. This threshold
involves a smaller number of engines because each potential defect
would have 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 which use the same part. For engines subject to
this proposal, the threshold for reporting a defect is two percent of
total production for any single engine family with special limits for
small volume engine families. It is important to note that while we
regard occurrence of the defect threshold as proof of the existence of
a reportable defect, we do 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 information,
such as warranty claims or parts shipment data, later indicates
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 actual knowledge from any source that the threshold
for submitting a defect report has been met, 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 there is a recurring emission-related defect, they would have to
submit a defect report if the submission threshold is reached.
For both the investigation and reporting thresholds, Sec. 1068.501
specifies lower thresholds for very large engines over 560 kW. A defect
in these engines can have a much greater impact than defects in smaller
engines due to their higher gram per hour emission rates and the increased
likelihood that such large engines will be used more continuously.
(6) Rated Power
We are proposing to specify how to determine maximum engine power
in the regulations for both locomotives and marine engines. The term
``maximum engine power'' would be used for marine engines instead of
previously undefined terms such as ``rated power'' or ``power rating''
to specify the applicability of the standards. We are not proposing to
define these terms for our purposes because they already have
commercial meanings. The addition of this definition is intended to
allow for more objective applicability of the standards. More
specifically, for marine engines, we are proposing that maximum engine
power would mean the maximum brake power output on the nominal power
curve for an engine.
Currently, rated power and power rating are undefined and are
specified by the manufacturer during certification. This makes the
applicability of the standards unnecessarily subjective and confusing.
One manufacturer may choose to define rated power as the maximum
measured power output, while another may define it as the maximum
measured power at a specific engine speed. Using this second approach,
an engine's rated power may be somewhat less than the true maximum
power output of the engine. Given the importance of engine power in
defining which standards an engine must meet and when, we believe that
it is critical that a singular power value be determined objectively
according to a specific regulatory definition.
For locomotives, the term ``rated power'' will continue to be used,
but would be explicitly defined to be the brakepower of the engine at
notch 8. We would continue to use the term ``rated power'' because this
definition is consistent with the commercial meaning of the term.
We are also adding a clarification to the regulations for both
locomotives and marine engines to recognize that actual engine power
varies to some degree during production. Manufacturers would specify
maximum engine power (or rated power for locomotives) based on the
design specifications for the engine (or locomotive). Measured power
from actual production engines would be allowed to vary from that
specification to some degree based on normal production variability.
The expected production variability would be described by the
manufacturer in its application. If the engines that are actually
produced are different from those described in the application for
certification, the manufacturer would be required to amend its application.
Finally, we are requesting comment on whether we need to specify
more precisely how to determine alternator/generator efficiency for
locomotive testing. In locomotive testing, engine power is not
generally measured directly, but rather is calculated from the measured
electrical output of the onboard alternator/generator and the
alternator/generator's efficiency. Thus, it is important that the
efficiency be calculated in a consistent manner. Specifically, we are
requesting comment on whether to require that the efficiency be
determined (and applied) separately for each notch, and whether a
specific test procedure is necessary.
(7) In-Use Compliance for SCR Operation
As discussed in section III.D, we are projecting that manufacturers
would use urea-based SCR systems to comply with the proposed Tier 4
emission standards. These systems are very effective at controlling
NO_X emissions as long as the operator continues to supply
urea of acceptable quality. Thus we have considered concepts put
forward by manufacturers in other mobile source sectors in dealing with
this issue that include design features to prevent an engine from being
operated without urea if an operator ignores repeated warnings and
allows the urea level to run too low. EPA has recently issued a
proposed guidance document for urea SCR systems discussing the use of
such features on highway diesel vehicles.
Although we request comment on our adopting requirements for
manufacturers on the design of SCR systems to ensure use of urea, we

[[Page 15993]]

believe that the nature of the locomotive and large commercial marine
sectors supports a different in-use compliance approach. This approach
would focus on requirements for operators of locomotives and marine
diesel engines that depend on urea SCR to meet EPA standards, aided by
onboard alarm and logging mechanisms that engine manufacturers would be
required to include in their engine designs. Except in the rare
instance that operation without urea may be necessary, the regulatory
provisions proposed here put no burden on the end-user beyond simply
filling the urea tank with appropriate quality urea. Specifically, we
are proposing:
? That it be illegal to operate without acceptable quality
urea when the urea is needed to keep the SCR system functioning properly.
? That manufacturers must include clear and prominent
instructions to the operator on the need for, and proper steps for,
maintaining urea, including a statement that it is illegal to operate
the engine without urea.
? That manufacturers must include visible and audible alarms at the
operator's console to warn of low urea levels or inadequate urea quality.
? That engines and locomotives must be designed to track and
log, in nonvolatile computer memory, all incidents of engine operation
with inadequate urea injection or urea quality.
? That operators must report to EPA in writing any incidence
of operation with inadequate urea injection or urea quality within 30
days of each incident.
? That, when requested, locomotive and vessel operators must
provide EPA with access to, and assistance in obtaining information
from, the electronic onboard incident logs.
We understand that in extremely rare circumstances, such as during
a temporary emergency involving risk of personal injury, it may be
necessary to operate a vessel or locomotive without adequate urea. We
would intend such extenuating circumstances to be taken into account
when considering what penalties or other actions are appropriate as a
result of such operation. The information from SCR compliance
monitoring systems described above may also be useful for state and
local air quality agencies and ports to assist them in any marine
engine compliance programs they implement. States and localities could
require operators to make this information available to them in
implementing such programs.
We propose that what constitutes acceptable urea solution quality
be specified by the manufacturers in their maintenance instructions,
with the requirement that the certified emission control system must
meet the emissions standards with any urea solution within stated
specifications. This will be facilitated by an industry standard for
urea quality, which we expect will be generated in the future as these
systems move closer to market. We recognize that requiring onboard
detection of inadequate urea quality implies the need for automated
sensing of some characteristic indicator such as urea concentration or
exhaust NO_X concentration. We request comment on how this
can be best managed to minimize the complexity and cost while at the
same time precluding tampering through such means as adding water to
the urea tank. We request comment on additional compliance provisions,
such as mandatory recordkeeping of fuel and urea consumption for each
SCR-equipped locomotive or vessel, with periodic reporting requirements.
We believe these proposed provisions can be an effective tool in
ensuring urea use for locomotives and large commercial marine vessels
because of the relatively small number of railroads and operators of
large commercial vessels in the U.S., especially considering that the
number of SCR-equipped locomotives and vessels will ramp up quite
gradually over time. In-use compliance provisions of the sort we are
proposing for locomotives and large commercial marine engines would be
much less effective in other mobile source sectors such as highway
vehicles because successful enforcement involving millions of vehicle
owners would be extremely difficult. The incident logging or
recordkeeping requirements could be effective tools for detecting in-
use problems besides no-urea or poor-quality urea, such as other
tampering or malmaintenance, or operation with broken or frozen urea
dosing systems. We request comment on all aspects of the urea
maintenance issue, including other measures we should require of
manufacturers and operators of SCR-equipped engines, and on the
definition of a temporary emergency.
(8) Fuel Labels and Misfueling
In our previous regulation of in-use locomotive and marine diesel
fuel, we established a 15 ppm sulfur standard at the refinery gate for
locomotive and marine (LM) diesel fuel beginning June 1, 2012. However,
we set the downstream standard for LM diesel fuel at 500 ppm sulfur. In
this way the LM diesel fuel pool could remain an outlet for off-
specification distillate product and interface/transmix material.
Because refiners cannot intentionally produce off-specification fuel
for locomotives, most in-use locomotive and marine diesel fuel will be
ULSD (which contains less than 15 ppm sulfur). Nevertheless, we expect
that some fuel will be available with sulfur levels between 15 and 500 ppm.
The advance emission controls that would be used to comply with
many of the new standards will require the use of ULSD. Therefore, we
are proposing a requirement that manufacturers notify each purchaser of
a Tier 4 locomotive or marine engine that it must be fueled only with
the ultra low-sulfur diesel fuel meeting our regulations. We also
propose to apply this requirement for locomotives and engines having
sulfur-sensitive technology and certified using ULSD. We are also
proposing that all of these locomotives and vessels must be labeled
near the refueling inlet to say: ``Ultra-Low Sulfur Diesel Fuel Only''.
These labels would be required to be affixed or updated any time any
engine on a vessel is replaced after the proposed program goes into effect.
We are proposing to require the use of ULSD in locomotives and
vessels labeled as requiring such use, including all Tier 4 locomotives
and marine engines. More specifically, we are proposing that use of the
wrong fuel for locomotives or marine engines would be a violation of 40
CFR 1068.101(b)(1) because use of the wrong fuel would have the effect
of disabling the emission controls. We request comment on the need for
these measures and on additional ideas for preventing misfueling.
(9) Emission Data Engine Selection
Some marine manufacturers have expressed concern over the current
provisions in our regulation for selection of an emission data engine.
Part 94 specifies that a marine manufacturer must select for testing
from each engine family the engine configuration which is expected to
be worst-case for exhaust emission compliance on in-use engines. Some
manufacturers have interpreted this to mean that they must test all the
ratings within an engine family to determine which is the worst-case.
Understandably, this interpretation could cause production problems for
many manufacturers due to the lead time needed to test a large volume
of engines. Our view is that the current provisions do not necessitate
testing of all ratings within an engine family. Rather, manufacturers
are allowed to base their selection on good engineering judgment,
taking into consideration

[[Page 15994]]

engine features and characteristics which, from experience, are known
to produce the highest emissions. This methodology is consistent with
the provisions for our on-highway and nonroad engine programs.
Therefore, we are proposing to keep essentially the same language in
part 1042 as is in part 94.
We are proposing to adopt similar language for locomotives and
apply it in the same manner as we do for marine engines.
(10) Deterioration Factor Plan Requirements
In this rulemaking, we are proposing to amend our deterioration
factor (DF) provisions to include an explicit requirement that DF plans
be submitted by manufacturers for our approval in advance of conducting
engine durability testing, or in the case where no new durability
testing is being conducted, in advance of submitting the engine
certification application. We are not proposing to fundamentally change
either the locomotive or marine engine DF requirements other than to
require advance approval.
An advance submittal and approval format would allow us sufficient
time to ensure consistency in DF procedures, without the need for
manufacturers to repeat any durability testing or for us to deny an
application for certification should we find the procedures to be
inconsistent with the regulatory provisions. We would expect that the
DF plan would outline the amount of service accumulation to be
conducted for each engine family, the design of the representative in-
use duty cycle on which service will be accumulated, and the quantity
of emission tests to be conducted over the service accumulation period.
We request comment on other items that should be included in the DF plan.
(11) Labeling Simplification
Our current engine regulations (i.e., Part 86, Part 89, Part 94,
etc.) have similar but not identical provisions for emission
certification labels. These requirements can vary from regulation to
regulation and in many cases may request labeling information that
manufacturers feel is either not relevant for modern electronic engines
or can be made readily available through other sources. In response to
manufacturer concerns, we request comment on the concept of developing
a common labeling regulation, similar to our consolidation of testing
and compliance provisions into part 1068. Commenters supporting a
common labeling requirement for diesel engines, should address in
detail the requirements of 40 CFR 1039.135 and 86.007-35 (including
reserved text) along with the labeling sections being proposed in this
notice (1033.135 and 1042.135).
(12) Production Line Testing
We propose to continue the existing production line testing
provisions that apply to manufacturers. Some manufacturers have
suggested that we should eliminate this requirement on the basis that
very low noncompliance rates are being detected at a high expense. We
disagree. As we move toward more stringent emission standards with this
rulemaking, we anticipate that the margin of compliance with the
standards for these engines is likely to decrease. Consequently, this
places an even greater significance on the need to ensure little
variation in production engines from the certification engine, which is
often a prototype engine. For this reason, it is important to maintain
our production line testing program. However, the existing regulations
allow manufacturers to develop alternate programs that provide
equivalent assurance of compliance on the production line, and to use
such programs instead of the specified production line testing program.
For example, given the small sales volumes associated with marine
engines it may be appropriate to include a production verification
program for marine engines as part of a manufacturer's broader
production verification programs for its nonmarine engines. We believe
these existing provisions already address the concerns raised to us by
the manufacturers. Nevertheless, we welcome comments regarding the
appropriateness of the current provisions.
We are asking for comment on whether manufacturers should be
allowed to use special procedures for production line testing of
catalyst-equipped engines. For example, should we allow the use of a
previously stabilized catalyst instead of an unstabilized (or green)
catalyst? If we allow this approach, should we require some additional
procedure for ensuring proper in-use operation of the production
catalysts? Should we allow manufacturers to demonstrate that the
diagnostic system is capable of verifying proper function of the
emission controls? Alternatively for locomotives, should we allow a
locomotive selected for testing to be introduced into service before
testing, provided that it is tested within the first 10,000 miles of
operation?
(13) Evaporative Emission Requirements
While nearly all locomotives currently subject to part 92 are
fueled with diesel fuel, Sec. 92.7 includes evaporative emission
provisions that would apply for locomotives fueled by a volatile liquid
fuel such as gasoline or ethanol. These regulations do not specify test
procedures or specific numerical limits, but rather set a ``good
engineering'' requirements. We propose to adopt these same requirements
in part 1033 and request comment on the need to specify a test
procedure and specific numerical limits.
We are also proposing to adopt similar requirements for marine
engines and vessels that run on volatile fuels. We are not aware of any
marine engines currently being produced that would be subject to these
requirements, but believe that it would be appropriate to adopt these
requirements now, rather than waiting until such engines are produced
because it would provide manufacturers certainty. Specifically, we are
proposing that if someone were to build a marine vessel to use a
compression-ignition engine that runs on a volatile liquid fuel, the
engine would be subject to the exhaust standards of part 1042, but the
fuel system would be subject to the evaporative emission requirements
of the recently proposed part 1045.\125\
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\125\ Part 1045 is scheduled to be proposed just before this
proposed rule.
---------------------------------------------------------------------------

(14) Small Business Provisions
There are a number of small businesses that would be subject to
this proposal because they are locomotive manufacturers/
remanufacturers, railroads, marine engine manufacturers, post-
manufacture marinizers, or vessel builders. We are proposing to largely
continue the existing provisions that were adopted previously for these
small businesses in the 1998 Locomotive and Locomotive Engines Rule
(April 16, 1998; 63 FR 18977); our 1999 Commercial Marine Diesel
Engines Rule (December 29, 1999; 64 FR 73299); and our 2002
Recreational Diesel Marine program (November 8, 2002; 67 FR 68304).
These provisions, which are discussed below, are designed to minimize
regulatory burdens on small businesses needing added flexibility to
comply with emission standards while still ensuring the greatest
emissions reductions achievable. (See section VIII.C of this proposed
rule for discussion of our outreach efforts with small entities.) We
request comment on whether continuing these provisions is appropriate.
We also request comment

[[Page 15995]]

on whether additional flexibilities are needed.
(a) Locomotive Sector
A significant portion of the locomotive remanufacturing and
railroad industry is made up of small businesses. As such, these
companies do not tend to have the financial resources or technical
expertise to quickly respond to the requirements contained in today's
proposed rule. Therefore, as mentioned earlier, we would continue the
existing provisions described below.
(i) Production-Line and In-Use Testing Does Not Apply
Production-line and in-use testing requirements would not apply to
small locomotive remanufacturers until January 1, 2013, which would be
up to five calendar years after this proposed program becomes
effective. The advantage of this approach would be to minimize
compliance testing during the first five calendar years.
In the 1998 Locomotive Rule (April 16, 1998; 63 FR 18977), the in-
use testing exemption was provided to small remanufacturers with
locomotives or locomotive engines that became new during the 5-year
delay, and this exemption was applicable to these locomotives or
locomotive engines for their entire useful life (the exemption was
based on model years within the delay period, but not calendar years as
we are proposing today). As an amendment to the existing in-use testing
exemption, we are proposing that small remanufacturers with these new
locomotives or locomotive engines would be required to begin complying
with the in-use testing requirements after the five-year delay, January
1, 2013 (exemption based on calendar years). Thus, they would no longer
have an exemption from in-use testing for the entire useful life of a
locomotive or a locomotive engine. We want to ensure that small
remanufacturers would comply with our standards in-use, and
subsequently, the public can be assured they are receiving the air
quality benefits of the proposed standards. In addition, this proposed
amendment would provide a date certain for small remanufacturers on
when the in-use testing requirements would begin to apply.
(ii) Small Railroads Exempt From New Standards for Existing Fleet
For locomotives in their existing fleets, the Tier 0
remanufacturing requirements would not apply to railroads qualifying as
small businesses. The definition of small business currently used by
EPA is same as the definition used by the Small Business
Administration, which is based on employment. For line-haul railroads
the threshold is 1,500 or fewer employees, and for short-haul railroads
it is 500 or fewer employees. Previously we believed that small
railroads were not likely to remanufacture their locomotives to ``as
new'' condition in most cases, so their locomotives would be generally
excluded from the definition of ``new''.
We are requesting comment on whether the current provisions for
railroads qualifying as small businesses have been effective and
appropriate, on whether they should continue under the new program,
and, if so, on whether the existing employee thresholds are appropriate
for the purpose of this rulemaking or whether a new threshold based on
revenue would be appropriate. Based on the increased efficiencies
associated with railroad operations, we believe a railroad with 500 or
fewer employees can be viewed as a medium to large business. We believe
a different approach based on annual revenues may be more appropriate.
For example, should we limit the category of ``small railroad'' to only
those railroads that qualify as Class III railroads and that are not
owned by a larger company? Under the current classification system,
this would limit the exemption to railroads having total revenue less
than $25 million per year.
We are clarifying in our definition that intercity passenger or
commuter railroads are not included as railroads that are small
businesses because they are typically governmental or are large
businesses. Due to the nature of their business, these entities are
largely funded through tax transfers and other subsidies. Thus, the
only passenger railroads that could qualify for the small railroad
provisions would be small passenger railroads related to tourism. We
invite comment on whether any intercity passenger or commuter railroads
would need this exemption for locomotives in their existing fleet.
(iii) Small Railroads Excluded From In-Use Testing Program
The railroad in-use testing program would continue to only apply to
Class I freight railroads, and thus, no small railroads would be
subject to this testing requirement. It is important to note that most,
but not all Class II and III freight railroads qualify as small
businesses. This provision provides flexibility to all Class II and III
railroads, which includes small railroads. All Class I freight
railroads are large businesses. \126\
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\126\ U.S. EPA, Assessment and Standards Division, Memorandum
from Chester J. France to Alexander Cristofaro of U.S. EPA's Office
of Policy, Economics, and Innovation, Locomotive and Marine Diesel
RFA/SBREFA Screening Analysis, September 25, 2006.
---------------------------------------------------------------------------

(iv) Hardship Provisions
Section 1068.245 of the existing regulations in title 40 contains
hardship provisions for engine and equipment manufacturers, including
those that are small businesses. We are proposing to apply this section
for locomotives as described below.
Under this unusual circumstances hardship provision, locomotive
manufacturers may apply for hardship relief if circumstances outside
their control cause the failure to comply and if the failure to sell
the subject locomotives would have a major impact on the company's
solvency. 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 shut down 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.
(b) Marine Sector
There are numerous small businesses that marinize engines for
marine use or build vessels. These businesses do not necessarily have
the financial resources or technical expertise to quickly respond to
the requirements contained in today's proposed rule. To address this
issue, we propose to continue most of the existing provisions, as
described below.
(i) Revised Definitions of Small-Volume Manufacturer and Small-Volume
Boat Builder
We propose to revise the definitions of small-volume manufacturer
(SVM) and small-volume boat builder to include worldwide production.
Currently, an SVM is defined as a manufacturer with annual U.S.-
directed production of fewer than 1,000 engines (marine and nonmarine
engines), and a small-volume boat builder is defined as a boat
manufacturer with fewer than 500 employees and with annual U.S.-
directed production of fewer than 100 boats. By proposing to include
worldwide production in these

[[Page 15996]]

definitions, we would prevent a manufacturer or boat builder with a
large worldwide production of engines or boats, or a large worldwide
presence, from receiving relief from the requirements of this program.
As discussed above, the provisions that apply to small-volume
manufacturers and small-volume boat builders as described below are
intended to minimize the impact of this rule for those entities that do
not have the financial resources to quickly respond to requirements in
the proposed rule.
(ii) Broader Engine Families and Testing Relief
Broader engine families: Post-manufacture marinizers (PMMs) and
SVMs would be allowed to continue to group all commercial Category 1
engines into one engine family for certification purposes, all
recreational engines into one engine family, and all Category 2 engines
into one family. As with existing regulations, these entities would be
responsible for certifying based on the ``worst-case'' emitting engine.
The advantage of this approach is that it would minimize certification
testing because the marinizer and SVMs can use a single engine in the
first year to certify their whole product line. In addition, marinizers
and SVMs could then carry-over data from year to year until changing
engine designs in a way that might significantly affect emissions.
We understand that this broad engine family provision still would
require a certification test and the associated burden for small-volume
manufacturers. We realize that the test costs are spread over low sales
volumes, and we recognize that it may be difficult to determine the
worst-case emitter without additional testing. We would require testing
because we need a reliable, test-based technical basis to issue a
certificate for these engines. However, manufacturers would be able to
use carryover to spread costs over multiple years of production.
Production-line and deterioration testing: In addition, SVMs
producing engines less than or equal to 800 hp (600 kW) would be
exempted from production-line and deterioration testing for the
proposed Tier 3 standards. We would assign a deterioration factor for
use in calculating end-of-useful life emission factors for
certification. This approach would minimize compliance testing since
production-line and deterioration testing would be more extensive than
a single certification test. The Tier 3 standards proposed for these
engines are expected to be engine-out standards and would not require
the use of aftertreatment--similar to the existing Tier 1 and Tier 2
standards. The Tier 4 standards proposed for engines greater than 800
hp (600 kW) are expected to require aftertreatment emission-control
devices. Currently, we are not aware of any SVMs that produce engines
greater than 800 hp (600 kW), except for one marinizer that plans to
discontinue their production in the near future.\127\ As a proposed
revision to the existing provisions, we would not apply these
production-line and deterioration testing exemptions to SVMs that begin
producing these larger engines in the future due to the sophistication
of manufacturers that produce engines with aftertreatment technology.
These manufacturers would have the resources to conduct both the design
and development work for the aftertreatment emission-control
technology, along with production-line and deterioration testing. We
invite comments on this proposed revision.
---------------------------------------------------------------------------

\127\ U.S. EPA, Assessment and Standards Division, Memorandum
from Chester J. France to Alexander CristoFaro of the U.S. EPA's
Office of Policy, Economics, and Innovation, Locomotive and Marine
Diesel RFA/SBREFA Screening Analysis, September 25, 2006.
---------------------------------------------------------------------------

(iii) Delayed Standards
One-year delay: Post-manufacture marinizers generally depend on
engine manufacturers producing base engines for marinizing. This can
delay the certification of the marinized engines. There may be
situations in which, despite its best efforts, a marinizer cannot meet
the implementation dates, even with the provisions described in this
section. Such a situation may occur if an engine supplier without a
major business interest in a marinizer were to change or drop an engine
model very late in the implementation process, or was not able to
supply the marinizer with an engine in sufficient time for the
marinizer to recertify the engine. Based on this concern, we propose to
allow a one-year delay in the implementation dates of the Tier 3
standards for post-manufacture marinizers qualifying as small
businesses (the definition of small business used by EPA for these
provisions for manufacturers of new marine diesel engines--or other
engine equipment manufacturing--is 1,000 or fewer employees) and
producing engines less than or equal to 800 hp (600 kW). As described
earlier, the Tier 4 standards proposed for engines greater than 800 hp
(600 kW) are expected to require aftertreatment emission-control
devices. We would not apply this one-year delay to small PMMs that
begin marinizing these larger engines in the future due to the
sophistication of entities that produce engines with aftertreatment
technology. We would expect that the large base engine manufacturer
(with the needed resources), not the small PMM, would conduct both the
design and development work for the aftertreatment emission-control
technology, and they would also take on the certification
responsibility in the future. Thus, the small PMM marinizing large
engines would not need a one-year delay. We invite comments on this
proposed revision.
Three-year delay for not-to-exceed (NTE) requirements: Additional
lead time is also appropriate for PMMs to demonstrate compliance with
NTE requirements. Their reliance on another company's base engines
affects the time needed for the development and testing work needed to
comply. Thus, PMMs qualifying as small businesses and producing engines
less than or equal to 800 hp (600 kW) could also delay compliance with
the NTE requirements by up to three years, for the Tier 3 standards.
Three years of extra lead time (compared to one year for the primary
certification standards) would be appropriate considering their more
limited resources. As described earlier, the Tier 4 standards proposed
for engines greater than 800 hp (600 kW) are expected to require
aftertreatment emission-control devices. We would not apply this three-
year delay to small PMMs that begin marinizing these larger engines in
the future due to the sophistication of entities that produce engines
with aftertreatment technology. We would expect that the large base
engine manufacturer (with the needed resources), not the small PMM,
would conduct both the design and development work for the
aftertreatment emission-control technology, and they would also take on
the certification responsibility in the future. Thus, the small PMM
marinizing large engines would not need a three-year delay for compliance
with the NTE requirements. We invite comments on this proposed revision.
Five-year delay for recreational engines: For recreational marine
diesel engines, the existing regulations (2002 Recreational Diesel
Marine program; November 8, 2002, 67 FR 68304) allow small-volume
manufacturers up to a five-year delay for complying with the standards.
However, we do not plan to continue this provision. As discussed
earlier, the Tier 3 standards proposed for these engines are expected
to be engine-out standards and would not require the use of
aftertreatment--similar to the existing Tier 1 and Tier 2 standards.
The Tier 4 standards

[[Page 15997]]

proposed for engines greater than 800 hp (600 kW) are expected to
require aftertreatment emission-control devices. For the recreational
marine sector, most of the engines are less than or equal to 800 hp
(kW). To meet the Tier 3 standards, the design and development effort
is expected to be for recalibration work, which is much less than the
work for Tier 4 standards. Also, Tier 3 engines are expected to require
far less in terms of new hardware, and in fact, are expected to only
require upgrades to existing hardware (i.e., new fuel systems). In
addition, manufacturers have experience with engine-out standards from
the existing Tier 1 and Tier 2 standards, and thus, they have learned
how to comply with such standards. Thus, small-volume manufacturers of
recreational marine diesel engines do not need more time to meet the
new standards. For small PMMs of recreational marine diesel engines,
the one-year delay described earlier would provide enough time for
these entities to meet the proposed standards. We invite comment on
discontinuing this provision for a 5-year delay.
(iv) Engine Dressing Exemption
Marine engine dressers would continue to be exempted from
certification and compliance requirements. Many marine diesel engine
manufacturers take a new, land-based engine and modify it for
installation on a marine vessel. Some of the companies that modify an
engine for installation on a vessel make no changes that might affect
emissions. Instead, the modifications may consist of adding mounting
hardware and a generator or reduction gears for propulsion. It can also
involve installing a new marine cooling system that meets original
manufacturer specifications and duplicates the cooling characteristics
of the land-based engine, but with a different cooling medium (such as
sea water). In many ways, these manufacturers are similar to nonroad
equipment manufacturers that purchase certified land-based nonroad
engines to make auxiliary engines. This simplified approach of
producing an engine can more accurately be described as dressing an
engine for a particular application. Because the modified land-based
engines are subsequently used on a marine vessel, however, these
modified engines would be considered marine diesel engines, which would
then fall under these requirements.
To clarify the responsibilities of engine dressers under this
proposed rule, while we would continue to consider them to be
manufacturers of a marine diesel engine, they would not be required to
obtain a certificate of conformity (as long as they ensure that the
original label remains on the engine and report annually to EPA that
the engine models that are exempt pursuant to this provision). This
would be an extension of Sec. 94.907 of the existing regulations. For
further details of engine dressers responsibilities see Sec. 1042.605
of the proposed regulations.
(v) Vessel Builder Provisions
For recreational marine engines, the existing regulations (2002
Recreational Diesel Marine program; November 8, 2002, 67 FR 68304)
allow manufacturers with a written request from a small-volume boat
builder to produce a limited number of uncertified engines (over a
five-year period)--an amount equal to 80-percent of the vessel
manufacturer's sales for one year. For boat builders with very small
production volumes, this 80-percent allowance could be exceeded, as
long as sales do not exceed 10 engines in any one year nor 20 total
engines over five years and applies only to engines less than or equal
to 2.5 liters per cylinder. However, we do not plan to continue this
provision. The vast majority of the recreational marine engines would
be subject only to the Tier 3 engine-out standards that are not
expected to change the physical characteristics of engines (Tier 3
standards would not result in a larger engine or otherwise require any
more space within a vessel). This is similar to the Tier 2 engine-out
standards, and thus, we believe this provision is not necessary anymore
as boat builders are not expected to need to redesign engine
compartments of boats, for engines meeting Tier 3 standards. We invite
comment on discontinuing this provision for boat builders.
(vi) Hardship Provisions
Sections 1068.245, 1068.250 and 1068.255 of the existing
regulations in title 40 contain hardship provisions for engine and
equipment manufacturers, including those that are small businesses. We
are proposing to apply these sections for marine applications which
would effectively continue existing hardship provisions as described below.
PMMs and SVMs: We are proposing to continue two existing hardship
provisions for PMMs and SVMs. They may apply for this relief on an
annual basis. First, under an economic hardship provision, PMMs and
SVMs may petition us for additional lead time to comply with the
standards. They must show that they have taken all possible business,
technical, and economic steps to comply, but the burden of compliance
costs will have a major impact on their company's solvency. As part of
its application of hardship, a company would be required to provide a
compliance plan detailing when and how it would achieve compliance with
the standards. Hardship relief could include requirements for interim
emission reductions and/or purchase and use of emission credits. The
length of the hardship relief decided during initial review 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. Also, if
a certified base engine is available, the PMMs and SVMs must generally
use this engine. We believe this provision would protect PMMs and SVMs
from undue hardship due to certification burden. Also, some emission
reduction can be gained if a certified base engine becomes available.
See the proposed regulatory text in 40 CFR 1068.250 for additional
information.
Second, under the unusual circumstances hardship provision, PMMs
and SVMs may also apply for hardship relief if circumstances outside
their control cause the failure to comply and if the failure to sell
the subject engines would have a major impact on their company's
solvency. 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 shut down 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. We consider this relief
mechanism to be an option of last resort. We believe this provision
would protect PMMs and SVMs from circumstances outside their control.
We, however, would not envision granting hardship relief if contract
problems with a specific company prevent compliance for a second time.
See the proposed regulatory text in 40 CFR 1068.245 for additional
information.
Small-volume boat builders: We are also continuing the unusual
circumstances hardship provision for small-volume boat builders (those
with less than 500 employees and worldwide production of fewer than 100
boats). Small-volume boat builders may apply for hardship relief if
circumstances

[[Page 15998]]

outside their control cause the failure to comply and if the failure to
sell the subject vessels would have a major impact on the company's
solvency. 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 shut down of a supplier with no
alternative available. This relief would allow the boat builder to use
an uncertified engine and is considered a mechanism of last resort. 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. See the proposed regulatory text in 40 CFR 1068.245 for
additional information.
In addition, small-volume boat builders generally depend on engine
manufacturers to supply certified engines in time to produce complying
vessels by the date emission standards would begin to apply. We are
aware of other applications 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-volume boat builders to request up to one
extra year before using certified engines if they are not at fault and
would face serious economic hardship without an extension. See the
proposed regulatory text in 40 CFR 1068.255 for additional information.
(15) Alternate Tier 4 NO_X+HC Standards
We are proposing new Tier 4 NO_X and HC standards for
locomotives and marine engines, and proposing to continue our existing
emission averaging programs. However, the existing averaging programs
do not allow manufacturers to show compliance with HC standards using
averaging. Because we are concerned that this could potentially limit
the benefits of our averaging program as a phase-in tool for
manufacturers, we are proposing an alternate NO_X+HC standard
of 1.3 g/bhp-hr that could be used as part of the averaging
program.\128\ Manufacturers that were unable to comply with the Tier 4
HC standard would be allowed to certify to a NO_X+HC FEL, and
use emission credits to show compliance with the alternate standard
instead of the otherwise applicable NO_X and HC standards.
For example, a manufacturer may choose to use banked emission credits
to gradually phase in its Tier 4 1200 kW marine engines by producing a
mix of Tier 3 and Tier 4 engines during the early part of 2014. We are
proposing that NO_X+HC credits and NO_X credits
could be averaged together without discount.
---------------------------------------------------------------------------

\128\ For model year 2015 and 2016 the alternate standard would
b3 5.5 g/bhp-hr NO_X+HC. In all cases the alternate
standard would be equal to the otherwise applicable NO_X standard.
---------------------------------------------------------------------------

(16) Other Issues
We are also proposing other minor changes to the compliance
program. For example, we are proposing that engine manufacturers be
required to provide installation instructions to vessel manufacturers
and kit installers to ensure that engine cooling systems,
aftertreatment exhaust emission controls, and other emission controls
are properly installed. Proper installation of these systems is
critical to the emission performance of the equipment. Vessel
manufacturers and kit installers would be required to follow the
instructions to avoid improper installation that could render emission
controls inoperative. Improper installation would subject them to
penalties equivalent to those for tampering with the emission controls.
We are also clarifying the general requirement that no emission
controls for engines subject to this final rule may cause or contribute
to an unreasonable risk to public health, welfare, or safety,
especially with respect to noxious or toxic emissions that may increase
as a result of emission-control technologies. The proposed regulatory
language, which addresses the same general concept as the existing
Sec. Sec. 92.205 and 94.205, implements sections 202(a)(4) and
206(a)(3) of the Act and clarifies that the purpose of this requirement
is to prevent control technologies that would cause unreasonable risks,
rather than to prevent trace emissions of any noxious compounds. This
requirement prevents the use of emission-control technologies that
produce pollutants for which we have not set emission standards, but
nevertheless pose a risk to the public.

B. Compliance Issues Specific to Locomotives

(1) Refurbished Locomotives
Section 213(a)(5) of the Clean Air Act directs EPA to establish
emission standards for ``new locomotives and new engines used in
locomotives.'' In the previous rulemaking, we defined ``new
locomotive'' to mean a freshly manufactured or remanufactured
locomotive.\129\ We defined ``remanufacture'' of a locomotive as a
process in which all of the power assemblies of a locomotive engine are
replaced with freshly manufactured (containing no previously used
parts) or reconditioned power assemblies. In cases where all of the
power assemblies are not replaced at a single time, a locomotive is
considered to be ``remanufactured'' (and therefore ``new'') if all of
the power assemblies from the previously new engine had been replaced
within a five-year period.
---------------------------------------------------------------------------

\129\ As is described in this section, freshly manufactured
locomotives, repowered locomotives, refurbished locomotives, and all
other remanufactured locomotive3s are all ``new locomotives'' in
both the existing and proposed regulations.
---------------------------------------------------------------------------

The proposed regulations clarify the definition of ``freshly
manufactured locomotive'' when an existing locomotive is substantially
refurbished including the replacement of the old engine with a freshly
manufactured engine. The existing definition in Sec. 92.12 states that
freshly manufactured locomotives are locomotives that do not contain
more than 25 percent (by value) previously used parts. We allowed
freshly manufactured locomotives to contain up to 25 percent used parts
because of the current industry practice of using various combinations
of used and unused parts. This 25-percent value applies to the dollar
value of the parts being used rather than the number because it more
properly weights the significance of the various used and unused
components. We chose 25 percent as the cutoff because setting a very
low cutoff point would have allowed manufacturers to circumvent the
more stringent standards for freshly manufactured locomotives by
including a few used parts during the final assembly. On the other
hand, setting a very high cutoff point could have required
remanufacturers to meet standards applicable to freshly manufactured
locomotives, but such standards may not have been feasible given the
technical limitations of the existing chassis.
We are proposing to add a definition of ``refurbish'' which would
mean the act of modifying an existing locomotive such that the
resulting locomotive contains less than 50 percent (by value)
previously used parts, (but more than 25 percent). We believe that
where an existing locomotive is improved to this degree, it is
appropriate to consider it separately from locomotives that are simply
remanufactured in a conventional sense. As described in section
IV.B.(3) we are proposing to set the credit proration factor for

[[Page 15999]]

refurbished switch locomotives equal to the proration factor for 20-
year old switchers (0.60).
We are requesting comment on whether refurbished locomotives should
be required to meet more stringent standards than locomotives that are
simply remanufactured. For example, would it be feasible and cost-
effective to require refurbished switch locomotives to meet latest
applicable emission standards (i.e., the highest tier of standards that
is applicable to freshly manufactured switch locomotives at the time of
the remanufacture) rather than the old standards? If not, should they
be required to at least meet the Tier 1 or Tier 2 standards?
We recognize that the issues are somewhat different for refurbished
line-haul locomotives because of different design constraints that are
not present with switchers. If we required refurbished line-haul
locomotives to meet very stringent standards, should we allow railroads
to refurbish a limited number of line-haul locomotives to less
stringent standards? For example, if we required refurbished line-haul
locomotives to meet the Tier 3 standards, should we allow railroads to
refurbish up to 10 line-haul locomotives per year to the Tier 2 standards.
(2) Averaging, Banking and Trading
We are proposing to continue the existing averaging banking and
trading provisions for locomotives. In general, we will continue the
historical practice of capping family emission limits (FELs) at the
level of the previously applicable standard. However, we are requesting
comment on whether we should set lower caps for Tier 4 locomotives
similar to what was done for highway engines.\130\ We recognize that it
would be appropriate to allow the use of emission credits to smooth the
transition from Tier 3 to Tier 4, and this requires the FELs to be set
at the level of the Tier 3 standards.
---------------------------------------------------------------------------

\130\ 66 FR 5109-5111, January 18, 2001.
---------------------------------------------------------------------------

In order to ensure that the ABT program is not used to delay the
implementation of the Tier 4 technology, we are also proposing to carry
over an averaging restriction that was adopted for Tier 2 locomotives
in the previous locomotive rulemaking. We would restrict to number of
Tier 4 locomotives that could be certified using credits to no more
than 50 percent of a manufacturer's annual production. As was true for
the earlier restriction, this would be intended to ensure that progress
is made toward compliance with the advanced technology expected to be
needed to meet the Tier 4 standards. This would encourage manufacturers
to make every effort toward meeting the Tier 4 standards, while
allowing some use of banked credits to provide needed lead time in
implementing the Tier 4 standards by 2015, allowing them to
appropriately focus research and development funds. We request comment
on the need for this or other restriction on the application of credits
to Tier 4 locomotives.
We are proposing to prohibit the carryover of PM credits generated
from Tier 0 or Tier 1 locomotives under part 92. The Tier 0 and Tier 1
PM standards under part 92 were set above the average baseline level to
act as caps on PM emissions rather than technology-forcing standards.
Thus, credits generated against these standards can be considered to be
windfall credits. We believe that allowing the carryover of such PM
credits would not be appropriate. We would allow credits generated from
Tier 2 locomotives to be used under part 1033. We request comment on
this prohibition as well as an alternative approach in which part 92 PM
credits are discounted significantly rather than prohibited completely.
We are also proposing to update the proration factors for credits
generated or used by remanufactured locomotives. The updated proration
factors better reflect the difference in service time for line-haul and
switch locomotives. The ABT program is based on credit calculations
that assume as a default that a locomotive will remain at a single FEL
for its full service life (from the point it is originally manufactured
until it is scrapped). However, when we established the existing
standards, we recognized that technology will continue to evolve and
that locomotive owners may wish to upgrade their locomotives to cleaner
technology and certify the locomotive to a lower FEL at a subsequent
remanufacture. We established proration factors based on the age of the
locomotive to make calculated credits for remanufactured locomotives
consistent with credits for freshly manufactured locomotive in terms of
lifetime emissions. The proposed proration factors are shown in Sec.
1033.705 of the proposed regulations. These would replace the existing
proration factors of Sec. 92.305. For example, using the proposed
proration factors, a 15 year old line-haul locomotive certified to a
new FEL that was 1.00 g/bhp-hr below the applicable standard would
generate the same amount of credit as a freshly manufactured locomotive
that was certified to an FEL that was 0.43 g/bhp-hr below the
applicable standard because the proration factor would be 0.43. For
comparison, under the existing regulations, the proration factor would
be 0.50. See section IV.B.(3) for additional discussion of proration
factor issues related to refurbished switchers.
We are also requesting comment on how to assign emission credits.
Under the current regulations, credits can be held by the manufacturer,
railroad, or other entities. Since remanufacturing is frequently a
collaborative process between the railroad and either a manufacturer or
other remanufacturer, there can be multiple entities that are
considered to be remanufacturers, and thus allowed to hold the
certificate for the remanufactured locomotive. The regulations presume
that credits are held by the certificate holder, but they can be
transferred to the railroad at the point of sale or the point of
remanufacture. We are requesting comment on whether it would be more
appropriate to require that credits be transferred to the railroads for
some or all cases. Automatically transferring credits to the railroad
at the time of remanufacture would be a way of applying the standards
on a fleet-average basis. Would this be a better approach for ensuring
that the industry applies low emission technology in the most equitable
and cost effective manner? Would it reduce the potential for market
disruptions? Would it have any other beneficial or adverse consequences
not discussed here?
Finally, we are requesting comment on how to treat credits
generated and used by Tier 3 and later locomotives. Under the current
part 92 ABT program, credits are segregated based on the cycle over
which they are generated but not by how the locomotive is intended to
be used (switch, line-haul, passenger, etc.). Line-haul locomotives can
generate credits for use by switch locomotives, and vice versa, because
both locomotives are subject to the same standards. However, for the
Tier 3 and Tier 4 programs, switch and line-haul locomotives would be
subject to different standards with emissions generally measured only
for one test cycle. We are proposing to allow credits generated by Tier
3 or later switch locomotives over the switch cycle to be used by line-
haul locomotives to show compliance with line-haul cycle standards. We
are requesting comment on (but not proposing) allowing such cross-cycle
use of line-haul credits (or switch credits generated by line-haul
locomotives) by Tier 3 or later switch locomotives.
To make this approach work, we are also proposing a special calculation

[[Page 16000]]

method where the credit using locomotive is subject to standards over
only one duty cycle while the credit generating locomotive is subject
to standards over both duty cycles (and can thus generate credits over
both cycles). In such cases, we would require the use of credits under
both cycles. For example, for a Tier 4 line-haul engine family needing
1.0 megagrams of NO_X credits to comply with the line-haul
emission standard, the manufacturer would have to use 1.0 megagrams of
line-haul NO_X credits and 1.0 megagrams of switch
NO_X credits if the line-haul credits were generated by a
locomotive subject to standards over both cycles.
Commenters supporting cross-cycle credit averaging should also
address uncertainty due to cycle differences and the different ways in
which switch and line-haul locomotives are likely to be used. For
example, the two cycles are very different and reflect average duty
cycles for the two major types of operation. Moreover, because switch
locomotive generally spend more time in low-power operation than line-
haul locomotives, they tend to last much longer in terms of years. This
means that the full benefits of emission reductions from switch
locomotives will likely occur further into the future than will the
benefits of emission reductions from line-haul locomotives. Should such
credits be adjusted to account for this difference? If so, how? Are
there other factors that would warrant applying some adjustment to the
credits to make them more equivalent to one another?
(3) Switch Credit Calculation
We are proposing to correct the existing ABT program to more
appropriately give credits to railroads for upgrading old switchers to
use clean engines, rather than to continue using the old high emission
engines indefinitely. As with the existing program, credits would be
calculated from the difference between the emissions of the old
switcher and the emissions of the new replacement switcher, adjusted to
account for the projected time the old switcher would have otherwise
remained in service. We are also requesting comment on whether other
changes need to be made to the switch credit calculation.
The proposed correction would affect the proration factor that is
used in the credit calculation to account for the locomotive's
emissions projected for the remainder of its service life, relative to
a freshly manufactured locomotive. More specifically, the correction we
are proposing would create a floor for the credit proration factor for
refurbished switch locomotives equal to the proration factor for 20
year old switchers (0.60). For example, under the proposed program,
refurbishing a 35 year old switch locomotive to an FEL 1.0 g/bhp-hr
below the Tier 0 standard would generate the same amount of credit as a
conventional remanufacture of a 20 year old switch locomotive to an FEL
1.0 g/bhp-hr below the Tier 0 standard. This is because we believe that
such refurbished switch locomotives will almost certainly operate as
long as a 20 year old locomotive that was remanufactured at the same
time. Such credits can be generated under the existing program, but not
to the full degree that they should be. That original program was
designed to address line-haul locomotives, and no special consideration
was made for switchers or for substantially refurbishing the
locomotive. Most significantly, the existing regulations assume that
any locomotive 32 years old or older would only be remanufactured one
additional time (i.e., only have one remaining useful life). This is
true without regard to how many additional improvements are made to the
locomotive to extend its service life. Based on this assumption, any
credits generated by such a locomotive are discounted by 86 percent
relative to credits generated or used by a freshly manufactured
locomotive. While this kind of discount appropriately reflected the
differences in future emissions for line-haul locomotives, it greatly
underestimates the emission reduction achieved by refurbishing switch
locomotives.
The existing and proposed credit programs allow for remanufacturers
to generate emission credits by refurbishing an existing old switch
locomotive so that it will use engines meeting the standards for
freshly manufactured locomotives. However, they do not allow for any
credits to be generated by simultaneously creating a freshly
manufactured locomotive and scrapping an existing old switch
locomotive, even though the emissions impact of the two scenarios may
be identical. We request comment on whether it is appropriate to
maintain this distinction. Commenters supporting allowing credits to be
generated by scrapping old locomotives should address how to ensure
that allowing it would not result in windfall credits being generated
from old locomotives that would have been scrapped anyway.
(4) Phase-in and Reasonable Cost Limit
We are proposing that the new Tier 0 and 1 emission standards
become applicable on January 1, 2010. We are also proposing a
requirement for 2008 and 2009 when a remanufacturing system is
certified to these new standards. If such system is available before
2010 for a given locomotive at a reasonable cost, remanufacturers of
those locomotives may no longer remanufacture them to the previously
applicable standards. They must instead comply with the new Tier 0 or 1
emission standards. Similarly, we are proposing a requirement to use
certified Tier 2 systems for 2008 through 2012 when a remanufacturing
system is certified to the new Tier 2 standards. We are requesting
comment on how best to define reasonable cost.
As part of this phase-in requirement, we would allow owners/
operators a 90-day grace period in which they could remanufacture their
locomotives to the previously applicable standards. This would allow
them to use up inventory of older parts. It would also allow sufficient
time to find out about the availability of kits and to make appropriate
plans for compliance.
We are also requesting comment on whether this requirement will
cause any disadvantage to non-OEM remanufacturers who may be unable to
develop remanufacture systems in time.
(5) Recertification Without Testing
Once manufacturers have certified an engine family, we have
historically allowed them to obtain certificates for subsequent model
years using the same test data if the engines remain unchanged from the
previous model year. We refer to this type of certification as
``carryover.'' We are proposing to continue this allowance. We are also
requesting comment on extending this allowance to owner/operators.
Specifically, we request comment on adding the following paragraph to
the end of the proposed Sec. 1033.240:

An owner/operator remanufacturing its locomotives to be
identical to its previously certified configuration may certify by
design without new emission test data. To do this, submit the
application for certification described in Sec. 1033.205, but
instead of including test data, include a description of how you
will ensure that your locomotives will be identical in all material
respects to their previously certified condition. You have all of
the liabilities and responsibilities of the certificate holder for
locomotives you certify under this paragraph.

Several railroads have expressed concern that once they purchase a
compliant locomotive, they are at the mercy of the original
manufacturer at the time of remanufacture if there are no other
certified kits available for that model. The regulatory provision shown

[[Page 16001]]

above would make it somewhat simpler for a railroad to obtain the
certificate because it would eliminate the need to certification testing.
(6) Railroad Testing
Section 92.1003 requires Class I freight railroads to annually test
a small sample of their locomotives. We are proposing to adopt the same
requirements in Sec. 1033.810. We are requesting comments on whether
this program should be changed. In particular, we request suggestions
to better specify how a railroad selects which locomotives to test,
which has been a source of some confusion in recent years. Commenters
suggesting changes should also address when such changes should take effect.
(7) Test Conditions and Corrections
In our previous rule, we established test conditions that are
representative of in-use conditions. Specifically, we required that
locomotives comply with emission standards when tested at temperatures
from 45 [deg]F to 105 [deg]F and at both sea level and altitude
conditions up to about 4,000 feet above sea level. One of the reasons
we established such a broad range was to allow outdoor testing of
locomotives. While we only required that locomotives comply with
emission standards when tested at altitudes up to 4,000 feet for
purposes of certification and in-use liability, we also required
manufacturers to submit evidence with their certification applications,
in the form of an engineering analysis, that shows that their
locomotives were designed to comply with emission standards at
altitudes up to 7,000 feet. We included correction factors that are
used to account for the effects of ambient temperature and humidity on
NO_X emission rates.
We are proposing to change the lower limit for testing to 60 [deg]F
and eliminate the correction for the effects of ambient temperature. In
implementing the current regulations, we have found that the broad
temperature range with correction, which was established to make
testing more practical, was not workable. Given the uncertainty with
the existing correction, manufacturers have generally tried to test in
the narrower range being proposed today. However, under the proposed
regulations, we would allow manufacturers to test at lower
temperatures, but would require them to develop correction factors
specific to their locomotive designs. We would continue the other
existing test condition provisions in the proposed regulations.
(8) Duty Cycles
We are not proposing any changes to the weighting factors for the
locomotive duty cycles. However, we are requesting comment on whether
such changes would be appropriate in light of the proposed idle
reduction requirements. The existing regulations (Sec. 92.132(a)(4))
specifies an alternate calculation for locomotive equipped with idle
shutdown features. Specifically, the regulatory language states:

For locomotives equipped with features that shut the engine off
after prolonged periods of idle, the measured mass emission rate
M_i1 (and M_i1a as applicable) shall be
multiplied by a factor equal to one minus the estimated fraction
reduction in idling time that will result in use from the shutdown
feature. Application of this adjustment is subject to the
Administrator's approval.

This provision allows a manufacturer to appropriately account for
the inclusion of idle reduction features as part of its emission
control system. There are three primary reasons why we are not
proposing to change the calculation procedures with respect to the
proposed idle requirements. First, different shutdown systems will
achieve different levels of idle reduction in use. Thus, no single
adjustment to the cycle would appropriately reflect the range of
reductions that will be achieved. Second, the existing calculation
provides an incentive for manufacturers to design shutdown systems that
will achieve in the greatest degree of idle reduction that is
practical. Finally, our feasibility analysis is based in part on the
emission reductions achievable relative to the existing standards.
Since some manufacturers already rely on the calculated emission
reductions from shutdown features incorporated into many of their
locomotive designs, our feasibility is based in part on allowing such
calculations.
While we are proposing to continue this approach, we are requesting
comment on whether we should be more specific in our regulations about
what level of adjustment is appropriate. For example, should we specify
that idle emission rates for locomotives meeting our proposed minimum
shutdown requirements in Sec. 1033.115 be reduced by 20 percent,
unless the manufacturer demonstrates that greater idle reduction will
be achieved?
We also recognize that the potential exists for locomotives to
include additional power notches, or even continuously variable
throttles and that the standard FTP sequence for such locomotives would
result in an emissions measurement that does not accurately reflect
their in-use emissions performance. Moreover, some locomotives may not
have all of the specified notches, making it impossible to test them
over the full test. Under the existing regulations, we handle such
locomotives under our discretion to allow alternate calculations (40
CFR 92.132(e)). We are requesting comment on whether we need detailed
regulations to specify duty cycles for such locomotives. In general,
for locomotives missing notches, we believe the existing duty cycle
weighting factors should be reweighted without the missing notches. For
locomotives without notches or more than 8 power notches, commenters
should consider the following information provided to us by
manufacturers for the previous rulemaking that shows that typical notch
power levels expressed as a percentage of the rated power of the engine
as shown in Table IV-below.

Table IV-1.--Typical Locomotive Notch Power Levels
----------------------------------------------------------------------------------------------------------------
Notch
------------------------------------------------------------------------
1 2 3 4 5 6 7 8
----------------------------------------------------------------------------------------------------------------
Percent of Rated Power................. 4.5 11.5 23.5 35.0 48.5 64.0 85.0 100.0
----------------------------------------------------------------------------------------------------------------

(9) Use of Engines Certified Under 40 CFR Parts 89 and 1039
Section 92.907 currently allows the use of a limited number of
nonroad engines in locomotive applications without certifying under the
locomotive program. We placed limits on the number of nonroad engines
that can be used for four primary reasons:
? The locomotive program is uniquely tailored to the
railroad industry to ensure emission reductions for actual locomotive
operation over 30-60 year service lives.

[[Page 16002]]

? At sufficiently high sales levels, the per locomotive cost
of certifying under part 92 become less significant.
? It is somewhat inequitable to allow nonroad engine
manufacturers the option of certifying the engines in whichever program
they believe to be more advantageous to them, considering factors such
as compliance testing requirements.
? States and localities have much less ability to regulate
locomotives than other engine types, and thus EPA has an obligation to
monitor locomotive performance more closely.
We believe that these reasons remain valid and are proposing to
continue this type of allowance. However, we are proposing some changes
to these procedures. In general, manufacturers have not taken advantage
of these existing provisions. In some cases, this was because the
manufacturer wanted to produce more locomotives than allowed under the
exemption. However, in most cases, it was because the customer wanted a
full locomotive certification with the longer useful life and
additional compliance assurances. We are proposing new separate
approaches for the long term (Sec. 1033.625) and the short term (Sec.
1033.150), each of which addresses at least one of these issues.
For the long term, we are proposing to replace the existing
allowance to rely on part 89 certificates with a design-certification
program that would make the locomotives subject to the locomotive
standards in-use, but not require new testing to demonstrate compliance
at certification. Specifically, this program would allow switch
manufacturers using nonroad engines to introduce up to 15 locomotives
of a new model prior to completing the traditional certification
requirements. While the manufacturer would be able to certify without
new testing, the locomotives have locomotive certificates. Thus,
purchasers would have the compliance assurances that they seem to desire.
The short term program is more flexible and would not require that
the locomotives comply with the switch cycle standards, and instead the
engines would be subject to the part 1039 standards. The manufacturer
would be required to use good engineering judgment to ensure that the
engines' emission controls will function properly when installed in a
locomotive. Given the relative levels of the part 1039 standards and
those being proposed in 1033, we do believe there is little
environmental risk with this short-term allowance, and thus propose to
not have any limits of the sales of such locomotives. Nevertheless, we
are proposing that this allowance be limited to model years through
2017. This will provide sufficient time to develop these new switchers.
We are not proposing that these locomotives would be exempt from the
part 1033 locomotive standards when remanufactured, unless the
remanufacturing of the locomotive took place prior to 2018 and involved
replacement of the engines with certified new nonroad engines.
Otherwise, the remanufactured locomotive would be required to be
covered by a part 1033 remanufacturing certificate.
We are also requesting comment on whether specific regulatory
language is needed to describe how to test locomotives that have
multiple propulsion engines, and when it is appropriate to allow single
engine testing for certification.
(10) Auxiliary Emission Control Devices Triggered by GPS Data
Some manufacturers have developed software which can use latitude
and longitude to change engine operating characteristics including
emissions. Such software fits our definition of an auxiliary emission
control device (AECD). If for example, the software were to increase
emissions when the locomotive was operated in Mexico; this would cause
the locomotive to fail emission standards when in Mexico. Moreover, the
emissions from such a locomotive would likely be harmful to both
Mexican and U.S. citizens due to emissions transport. AECDs (except
those approved during certification) which cause emission exceedences
when a locomotive crosses the U.S. border into a foreign country are
considered defeat devices and are not permitted. When a locomotive is
certified, it should comply with U.S. standards and requirements during
all operation. It does not matter where the locomotive goes after it is
introduced into commerce. In addition, since emission labels have to
contain an unconditional statement of compliance, non-compliant
operation in any area, including a foreign country, would render the
label language false, and this is not allowed.
(11) Mexican and Canadian Locomotives
Under the existing regulations, Mexican and Canadian locomotives
are subject to the same requirements as U.S. locomotives if they operate
extensively within the U.S. The regulations 40 CFR 92.804(e) states:

Locomotives that are operated primarily outside of the United
States, and that enter the United States temporarily from Canada or
Mexico are exempt from the requirements and prohibitions of this
part without application, provided that the operation within the United
States is not extensive and is incidental to their primary operation.

We are proposing to change this exemption to make it subject to our
prior approval, since we have found that the current language has
caused some confusion. When we created this exemption, it was our
understanding that Mexican and Canadian locomotives rarely operated in
the U.S. and the operation that did occur was limited to within a short
distance of the border. We are now aware that there are many Canadian
locomotives that do operate extensively within the U.S. and relatively
few that would meet the conditions of the exemption. We have also
learned that some Mexican locomotives may be operating more extensively
in the United States. Thus, it is appropriate to make this exemption
subject to our prior approval. To obtain this exemption, a railroad
would be required to submit a detailed plan for our review prior to
using uncertified locomotives in the U.S. We would grant an exemption
for locomotives that we determine will not be used extensively in the
U.S. and that such operation would be incidental to their primary
operation. Mexican and Canadian locomotives that do not have such an
exemption and do not otherwise meet EPA regulations may not enter the
United States.
(12) Temporary In-Use Compliance Margins and Assigned Deterioration Factors
The Tier 4 standards would be challenging for manufacturers to
achieve, and would require manufacturers to develop and adapt new
technologies. Not only would manufacturers be responsible for ensuring
that these technologies would allow engines to meet the standards at
the time of certification, they would also have to ensure that these
technologies continue to be highly effective in a wide range of in-use
environments so that their engines would comply in use when tested by
EPA. However, in the early years of a program that introduces new
technology, there are risks of in-use compliance problems that may not
appear in the certification process or during developmental testing.
Thus, we believe that for a limited number of model years after new
standards take effect it is appropriate to adjust the compliance levels
for assessing in-use compliance for diesel engines equipped with
aftertreatment. This would provide assurance to the manufacturers that
they would not face recall if they exceed

[[Page 16003]]

standards by a small amount during this transition to clean
technologies. This approach is very similar to that taken in the
highway heavy-duty rule (66 FR 5113-5114) and general nonroad rule (69
FR 38957), both of which involve similar approaches to introducing the
new technologies.
Table IV-2 shows the in-use adjustments that we propose to apply.
These adjustments would be added to the appropriate standards or FELs
in determining the in-use compliance level for a given in-use hours
accumulation. Our intent is that these add-on levels be available only
for highly-effective advanced technologies such as particulate traps
and SCR. Note that these in-use add-on levels apply only to engines
certified through the first few model years of the new standards.
During the certification demonstration, manufacturers would still be
required to demonstrate compliance with the unadjusted Tier 4
certification standards using deteriorated emission rates. Therefore,
the manufacturer would not be able to use these in-use standards as the
design targets for the engine. They would need to project that engines
would meet the standards in-use without adjustment. The in-use
adjustments would merely provide some assurance that they would not be
forced to recall engines because of some small miscalculation of the
expected deterioration rates.
To put these levels in context, the difference between the
NO_X standard with and without the end of life add-on is
equivalent to the end of life catalyst efficiency being about 20
percent lower than expected. Our feasibility analysis projects that the
SCR catalyst would need to be approximately 80 percent efficient over
the locomotive duty cycle at the end of the locomotive's useful life to
comply with the 1.3 g/bhp-hr standard. However, if this efficiency
dropped to 60 percent, the cycle-weighted emissions would essentially
double, increasing by up to 1.3 g/bhp-hr.

Table IV-2.--Proposed In-Use Add-Ons
[g/bhp-hr]
------------------------------------------------------------------------
NOX (2017- PM (2015-
For useful life fractions 2019) 2017)
------------------------------------------------------------------------
< 50% UL................................. 0.7 0.01
50%-75% UL.............................. 1.0
>75% UL................................. 1.3
------------------------------------------------------------------------

C. Compliance Issues Specific to Marine Engines

(1) Useful Life
We specify in 40 CFR 94.9 minimum values for the useful life
compliance period. We require manufacturers to specify longer useful
lives for engines that are designed to last longer than these minimum
values. We also allow manufacturers to ask for shorter useful lives
where they can demonstrate that the engines will rarely exceed the
requested value in use. Some manufacturers have proposed that the
useful life scheme in our regulation be modified to more closely
reflect the design lives of current marine engines and the fact that
design life inherently varies with engine cylinder size and power
density. Our existing regulations do account for this variation by
specifying nominal minimum useful life values which most engines are
certified to. Manufacturers are required to certify to longer useful
lives if their engines are designed to last significantly longer than
this minimum. The regulations also include provisions for a
manufacturer to request a shorter useful life. This was recently
amended to include a more prescriptive basis for manufacturers to
demonstrate that a shorter useful life is more appropriate.\131\
Specifically, our regulations used to require that the demonstration
include data from in-use engines. Manufacturers were concerned that
they generally do not (and cannot) have the data from in-use engines
that is needed to justify an alternate useful life prior to obtaining
certification and putting engines into service. The amended regulations
allow manufacturers to use information equivalent to in-use data, such
as data from research engines or similar engine models that are already
in production. Additionally, the demonstration currently required must
include recommended overhaul intervals, any mechanical warranties
offered for the engine or its components, and any relevant customer
design specifications. Given the above amendments, we do not feel that
a sweeping change to our useful life scheme is warranted at this time.
We would be willing to consider modifying our scheme in the future
should manufacturers provide data for characteristics used to design
engine overhaul intervals (e.g., compression loss, oil consumption
increase, engine component wear, etc.) in specific cylinder size and
power density categories.
---------------------------------------------------------------------------

\131\ 70 FR 40458, July 13, 2005.
---------------------------------------------------------------------------

(2) Replacement Engines
Under the provisions of our current marine diesel engine program,
when an engine on an existing vessel is replaced with a new engine,
that new engine must be certified to the standards in existence when
the vessel is repowered. These repower requirements apply to both
propulsion and auxiliary engines. We are proposing to apply this
approach under the new regulations rather than the provisions of Sec.
1068.240.
We provided an exemption in 40 CFR 94.1103(b)(3) which allows a
vessel owner to replace an existing engine with a new uncertified
engine or a new engine certified to an earlier standard engine in
certain cases. This is only allowed, however, if it can be demonstrated
that no new engine that is certified to the emission limits in effect
at that time is produced by any manufacturer with the appropriate
physical or performance characteristics needed to repower the vessel.
In other words, if a new certified engine cannot be used, an engine
manufacturer may produce a new replacement engine that does not meet
all of the requirements in effect at that time. For example, if a
vessel has twin Tier 1 propulsion engines and it becomes necessary to
replace one of them after the Tier 3 standards go into effect, the
vessel owner can request approval for an engine manufacture to produce
a new Tier 1 engine if it can be demonstrated that the vessel would not
function properly if the engines are not identically matched.
There are certain conditions for this exemption. The replacement
engine must meet standards at least as stringent as those of the
original engine. So, for example, if the original engine is a pre-Tier
1 engine, then the replacement engine need not meet any emission
limits. If the old engine was a Tier 1 engine, the new engine must meet at

[[Page 16004]]

least the Tier 1 limits. As described in this section, the new engine
does not necessarily need to meet stricter limits that may otherwise
apply when the replacement occurs. Also as a condition for the
exemption, the engine manufacturer must take possession of the original
engine or make sure it is destroyed. In addition, the replacement
engine must be clearly labeled to show that it does not comply with the
standards and that sale or installation of the engine for any purpose
other than as a replacement engine is a violation of federal law and
subject to civil penalty. Our regulations specify the information that
must be on the label. In this proposal, we are adding a provision to
cover the case where the engine meets a previous tier of standards.
As described above, this provision requires EPA to make the
determination that no certified engine would meet the required physical
or performance needs of the vessel. However, we recently revised this
provision to allow the engine manufacturer to make this determination
in cases of catastrophic engine failure. In these cases, the vessel is
not usable until a replacement engine is found and installed. The
engine manufacturers and vessel owners were concerned that our review
would take a considerable amount of time. In addition, they were also
concerned that reviewing all potential replacement engines for
suitability would also take a lot of time. Note that in cases where a
vessel owner simply wants to replace an engine with a new version of
the same engine as part of a vessel overhaul for example, it would
still be necessary to obtain our approval.
In catastrophic failure situations, our regulations now allow an
engine manufacturer to determine that no compliant engine can be used
for a replacement engine, provided that certain conditions are met.
First, the manufacturer must determine that no certified engine is
available, either from its own product lineup or that of the
manufacturer of the original engine (if different). Second, the engine
manufacturer must document the reasons why an engine of a newer tier is
not usable, and this report must be made available to us upon request.
Finally, no other significant modifications to the vessel can be made
as part of the process of replacing the engine, or for a period of 6
months thereafter. This is to avoid the situation where an engine is
replaced prior to a vessel modification that would otherwise result in
the vessel becoming ``new'' and its engines becoming subject to the new
engine standards. In addition, the replacement of important navigation
systems at the same time may actually allow the use of a newer tier engine.
We are returning to this provision to add an additional
requirement. Specifically, the determination (either by the engine
manufacturer in the case of a catastrophic failure or by us in all
other cases) must show that no engine of the current or any previous
tier would meet the physical or performance requirements of the engine.
In other words, after the Tier 4 standards go into effect, it must be
demonstrated that no other Tier 4, or Tier 3, Tier 2, or Tier 1 engines
would work. Similarly, when the Tier 3 standards are in effect it must
be demonstrated that no other Tier 3, or Tier 2 or Tier 1 engine would
work. If there are engines from two or more previous tiers of standards
that would meet the performance requirements, then the requirement
would be to use the engine from the cleanest tier of standards.
(3) Personal Use Exemption
The existing control program provides for exemptions from the
standards, including testing, manufacturer-owned engines, display
engines, competition engines, national security, and export. We also
provide an engine dresser exemption that applies to marine diesel
engines that are produced by marinizing a certified highway, nonroad,
or locomotive engine without changing it in any way that may affect the
emissions characteristics of the engine.
In addition to these existing exemptions we are also proposing a
new provision that would exempt an engine installed on a vessel
manufactured by a person for his or her own use (see 40 CFR 1042.630).
This proposal is intended to address the hobbyists and fishermen who
make their own vessel (from a personal design, for example, or to
replicate a vintage vessel) and who would otherwise be considered to be
a manufacturer subject to the full set of emission standards by
introducing a vessel into commerce. The exemption is intended to allow
such a person to install a rebuilt engine, an engine that was used in
another vessel owned by the person building the new vessel, or a
reconditioned vintage engine (to add greater authenticity to a vintage
vessel). The exemption is not intended to allow such a person to order
a new uncontrolled engine from an engine manufacturer. We expect this
exemption to involve a very small number of vessels, so the
environmental impact of this proposed exemption would be negligible.
Because the exemption is intended for hobbyists and fishermen, we
are setting additional requirements for it. First, the vessel may not
be used for general commercial purposes. The one exception to this is
that the exemption allows a fisherman to use the vessel for his or her
own commercial fishing. Second, the exemption would be limited to one
such vessel over a ten-year period and would not allow exempt engines
to be sold for at least five years. We believe these restrictions would
not be unreasonable for a true hobby builder or comparable fisherman.
Moreover, we would require that the vessel generally be built from
unassembled components, rather than simply completing assembly of a
vessel that is otherwise similar to one that will be certified to meet
emission standards. The person also must be building the vessel him- or
herself, and not simply ordering parts for someone else to assemble.
Finally, the vessel must be a vessel that is not classed or subject to
Coast Guard inspections or surveys.
We are requesting comment on all aspects of this proposed
exemption. We also request comment on whether this application of the
exemption should be limited to fishing vessels under a certain length
(e.g., 36 feet), to ensure that it is limited to small operators, and/
or whether it should be limited to vessels that are engaged only in
seasonal fishing and not used year-round.
(4) Gas Turbine Engines
While gas turbine engines \132\ are used extensively in naval
ships, they are not used very often in commercial ships. Because of
this and because we do not currently have sufficient information, we
are not proposing to regulate marine gas turbines in this rulemaking.
Nevertheless, we believe that gas turbines could likely meet the
proposed standards (or similar standards) since they generally have
lower emissions than diesel engines and will reconsider gas turbines in
a future rulemaking. We are requesting that commenters familiar with
gas turbines provide to us any emissions information that is available.
We would also welcome comments on whether it would be appropriate to
regulate turbines and diesels together. Commenters supporting the
regulation of turbines should also address whether any special
provisions would be needed for the testing and certification of turbines.
---------------------------------------------------------------------------

\132\ Gas turbine engines are internal combustion engines that
can operate using diesel fuel, but do not operate on a compression-
ignition or other reciprocating engine cycle. Power is extracted
from the combustion gas using a rotating turbine rather than
reciprocating pistons.

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

[[Page 16005]]

(5) Residual Fuel Engines
Our Category 1 and Category 2 marine diesel engine standards, both
the existing emission limits (Tiers 1 and 2) and the proposed emission
limits (Tiers 3 and 4) apply to all newly built marine diesel engines
regardless of the fuel they are designed to use. In the vast majority
of cases, this fuel would be distillate diesel fuel similar to diesel
fuel used in highway or land-based nonroad applications. However, there
are a small number of Category 1 and Category 2 auxiliary engines that
are designed to use residual fuel. Residual fuel is a by-product of
distilling crude oil to produce lighter petroleum products such as
gasoline, DM-grade diesel fuel (also called ``distillate diesel'' which
is used in on-highway, land-based nonoroad, and marine diesel engines),
and kerosene. Residual fuel possesses a high viscosity and density,
which makes it harder to handle (usage requires special equipment such
as heaters, centrifuges, and purifiers). It typically has a high ash,
nitrogen, and sulfur content compared to distillate diesel fuels. It is
not produced to a set of narrow specifications, and so fuel parameters
can be highly variable. All of these characteristics of residual fuel
make it difficult to handle, and it is typically used only in Category
3 engines on ocean-going vessels or in very large (above 30 l/cylinder)
generators used in land-based power plants. Residual fuel is
traditionally not used in Category 1 or Category 2 propulsion engines
because of the fuel handling equipment required onboard and because it
can affect engine responsiveness. However, it may be used in Category 1
or Category 2 auxiliary engines used on ocean-going vessels, to
simplify the fuel requirements for the vessel (both propulsion and
auxiliary engines would operate on the same fuel).
In contrast to the federal program, the engine testing and
certification provision in Annex VI allow manufacturers to test engines
on distillate fuel even if they are intended to operate on residual
fuel. This approach was adopted because it was thought that the use of
residual fuel would not affect NO_X, and the Annex VI
standards are NO_X only. At the same time, however, the
NO_X Technical Code allows a ten percent allowance for in-use
testing on residual fuel, to accommodate any marginal impact on
NO_X and also to reflect the fact that the engine would be
adjusted differently to operate on residual fuel.
The Annex VI approach was rejected for our national Category 1 and
Category 2 engines standards. We noted in our 1999 FRM that residual
fuel is sufficiently different from distillate as to be an alternative
fuel. We also noted that changes to an engine to make it operable on
residual fuel could constitute a violation of the tampering prohibition
in Sec. 94.1103(a)(3). More importantly, however, all of our emission
control programs are predicated on an engine meeting the emission
standards in use. We have a variety of provisions that help ensure this
outcome, including specifying the useful life of an engine,
specification of an emission deterioration factor, durability testing,
and not-to-exceed zone requirements to ensure compliance over the range
of operations an engine is likely to see in-use. These provisions are
necessary to ensure that the emission reductions we expect from the
emission limits actually occur. This would not be the case with the
Annex VI approach. While an engine may pass the certification
requirements using distillate fuel, it is unclear what emission
reductions would actually occur from engines using residual fuel. So,
for example, while the Annex VI NO_X limits were expected to
achieve a 30 percent reduction from uncontrolled levels for marine
diesel engines, we estimated the actual reduction for residual fuel
Category 3 engines to be closer to 20 percent (see 68 FR 9777, February
28, 2003).
For these reasons, our existing requirements for engines less than
30 l/cyl displacement require certification that specifies that if a
Category 1 or Category 2 engine is designed to be capable of using a
fuel other than or in addition to distillate fuel (e.g., natural gas,
methanol, or nondistillate diesel, or a mixed fuel), exhaust emission
testing must be performed using a commercially available fuel of that
type, with fuel specifications approved by us (40 CFR 94.108(b)(1)).
In recent months, shipbuilders have notified us that they are
unable to obtain certified Category 1 or Category 2 residual fuel
auxiliary engines for installation on newly built vessels with Category
3 propulsion engines. The standard building practice for these vessels
is to install auxiliary engines that use the same fuel, residual fuel,
as the propulsion engine. This approach is common throughout the
industry because it simplifies the fuel handling systems for the vessel
(only one grade of fuel is required for the vessel's primary power
plants, although there may be one or two smaller distillate fuel
auxiliary engines for emergency purposes) and it reduces the costs of
operating the vessel (residual fuel is less expensive than distillate
fuel). Shipbuilders indicated they have been unable to find Category 1
or Category 2 auxiliary engines certified to the Tier 2 standards on
residual fuel. Engine manufacturers have indicated that they have not
certified these engines on residual fuel because it is not profitable
to do this for only the U.S. market (according to the U.S. Maritime
Administration, while the U.S. fleet of ocean-going vessels above
10,000 deadweight tons is 13th largest in the world with 295 vessels,
there were only 13 vessels built in 2005).\133\ Engine manufacturers
also informed us that they are not sure they could meet the PM limits
for the Category 1 engines on residual fuel.
---------------------------------------------------------------------------

\133\ See Top 25 Merchant Fleets of the World--Major world
fleets by vessel type, listed by Flag of Registry and Country of
Ownership. U.S. ranks 13th by flag, but 5th by ownership. (Updated
11/21/06) accessed at http://www.marad.dot.gov/MARAD_statistics/
index.html#Fleet%20Statistics and World Merchant Fleet 2001-2005
(July 2006) accessed at http://www.marad.dot.gov/MARAD_statistics/
2005%20STATISTICS/World%20Merchant%20Fleet%202005.pdf.

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

The most obvious solution for vessels in this situation is to
install and use certified distillate fuel engines. Ship builders have
indicated that this option would be prohibitively expensive for ship
owners and have asked EPA to reconsider the control program for these
engines. We are requesting comment on this issue, and especially on the
costs associated with installing and using distillate auxiliary engines
instead of residual auxiliary engines on these vessels. We are
particularly interested in data that would indicate whether such
additional costs would represent an undue burden to the owners of these
vessels and whether the additional cost in terms of tons of PM and
NO_X reduced would be significantly higher than what is
required of users of non-residual fuel auxiliary engines.
One possibility to address the shipbuilders' concerns would be to
create a compliance flexibility for auxiliary engines intended to be
installed on vessels with Category 3 propulsion engines. The
flexibility could consist of pulling ahead NO_X
aftertreatment for these engines by setting a tighter NO_X
limit (1.8 g/kW-hr) while setting an alternative PM limit (0.5 g/kW-hr)
equivalent to the Tier 2 Category 2 limit. These engines would still be
required to be certified on residual fuel, for the reasons described
above. However, we could allow alternative PM measurement procedures,
such as a two-step approach that would remove the water component of
the exhaust, which would take into account the difficulty in measuring PM

[[Page 16006]]

when the sulfur levels of the test fuel are high.
Controlling emissions from residual fuelled engines is inherently
difficult due to the characteristics of residual fuels. In particular,
the high levels of sulfur and other metals present in residual fuel
lead to high levels of PM emissions and can damage catalyst based
emission control technologies. Urea SCR catalyst systems have been
developed to work under similar conditions for coal fired power plants
and some marine applications. We project that these solutions could be
used to enable a residual fuelled marine diesel engine to meet the same
emission NO_X emission standard as distillate fuelled engines
of 1.8 g/kWhr. Unfortunately, the high levels of sulfur and other
metals in residual fuels make it impossible to apply catalyst based
emission control systems to reduce PM emissions. Stationary residual
fuelled engines have demonstrated that PM emission levels around 0.5 g/
kWhr are possible, and we believe similar solutions can be applied to
these same engines in marine applications.
Such a compliance flexibility would not be automatic; engine
manufacturers would have to apply for it. This is necessary to ensure
that the questions of test fuel and PM measurement are resolved before
the certification testing begins. In addition, engines would have to be
labeled as intended for use only as auxiliary engines onboard vessels
with Category 3 propulsion engines.
We are requesting comment on all aspects of this compliance
flexibility, including the need for it and how it should be structured.

V. Costs and Economic Impacts

In this section, we present the projected cost impacts and cost
effectiveness of the proposed standards, and our analysis of potential
economic impacts on affected markets. The projected benefits and
benefit-cost analysis are presented in Section VI. The benefit-cost
analysis explores the net yearly economic benefits to society of the
reduction in mobile source emissions likely to be achieved by this
rulemaking. The economic impact analysis explores how the costs of the
rule will likely be shared across the manufacturers and users of the
engines and equipment that would be affected by the standards.
The total monetized benefits of the proposed standards, when based
on published scientific studies of the risk of PM-related premature
mortality, these benefits are projected to be more than $12 billion in
2030, assuming a 3 percent discount rate (or $11 billion assuming a 7
percent discount rate). Our estimate of total monetized benefits based
on the PM-related premature mortality expert elicitation is between
$4.6 billion and $33 billion in 2030, assuming a 3 percent discount
rate (or $4.3 and $30 billion assuming a 7 percent discount rate). The
social costs of the proposed program are estimated to be approximately
$600 million in 2030.\134\ The impact of these costs on society are
estimated to be minimal, with the prices of rail and marine
transportation services estimated to increase by less about 0.4 percent
for locomotive transportation services and about 0.6 percent for marine
transportation services.
---------------------------------------------------------------------------

\134\ The estimated 2030 social welfare cost of 567.3 million is
based on an earlier version of the engineering costs of the rule
which estimated $568.3 million engineering costs in 2030 (see table
V-15). The current engineering cost estimate for 2030 is $605
million. See section V.C.5 for an explanation of the difference. The
estimated social costs of the program will be updated for the final rule.
---------------------------------------------------------------------------

Further information on these and other aspects of the economic
impacts of our proposal are summarized in the following sections and
are presented in more detail in the Draft RIA for this rulemaking. We
invite the reader to comment on all aspects of these analyses,
including our methodology and the assumptions and data that underlie
our analysis.

A. Engineering Costs

The following sections briefly discuss the various engine and
equipment cost elements considered for this proposal and present the
total engineering costs we have estimated for this rulemaking; the
reader is referred to Chapter 5 of the draft RIA for a complete
discussion of our engineering cost estimates. When referring to
``equipment'' costs throughout this discussion, we mean the locomotive
and/or marine vessel related costs as opposed to costs associated with
the diesel engine being placed into the locomotive or vessel. Estimated
new engine and equipment engineering costs depend largely on both the
size of the piece of equipment and its engine, and on the technology
package being added to the engine to ensure compliance with the
proposed standards. The wide size variation of engines covered by this
proposal (e.g., small marine engines with less than 37 kW (50
horsepower, or hp) through locomotive and marine C2 engines with over
3000 kW (4000 hp) and the broad application variation (e.g., small
pleasure crafts through large line haul locomotives and cargo vessels)
that exists in these industries makes it difficult to present an
estimated cost for every possible engine and/or piece of equipment.
Nonetheless, for illustrative purposes, we present some example per
engine/equipment engineering cost impacts throughout this discussion.
This engineering cost analysis is presented in detail in Chapter 5 of
the draft RIA.
Note that the engineering costs here do not reflect changes to the
fuel used to power locomotive and marine engines. Our Nonroad Tier 4
rule (69 FR 38958) controlled the sulfur level in all nonroad fuel,
including that used in locomotives and marine engines. The sulfur level
in the fuel is a critical element of the proposed locomotive and marine
program. However, since the costs of controlling locomotive and marine
fuel sulfur have been considered in our Nonroad Tier 4 rule, they are
not considered here. This analysis considers only those costs
associated with the proposed locomotive and marine program. Also, the
engineering costs presented here do not reflect any savings that are
expected to occur because of the engine ABT program and the various
flexibilities included in the program which are discussed in section IV
of this preamble. As discussed there, these program features have the
potential to provide savings for both engine and locomotive/vessel
manufacturers. We request comment with supporting data and/or analysis
on the engineering cost estimates presented here and the underlying
analysis presented in Chapter 5 of the draft RIA.
(1) New Engine and Equipment Variable Engineering Costs
Engineering costs for exhaust emission control devices (i.e.,
catalyzed DPFs, urea SCR systems, and DOCs) were estimated using a
methodology consistent with the one used in our 2007 heavy-duty highway
rulemaking. In that rule, surveys were provided to nine engine
manufacturers seeking information relevant to estimating the
engineering costs for and types of emission-control technologies that
might be enabled with ultra low-sulfur diesel fuel (15 ppm S). The
survey responses were used as the first step in estimating the
engineering costs of advanced emission control technologies anticipated
for meeting the 2007 heavy-duty highway standards. We then built upon
these engineering costs using input from members of the Manufacturers
of Emission Controls Association (MECA). We also used this information
in our recent nonroad Tier 4 (NRT4) rule. Because the anticipated
emission control technologies expected to be used on locomotive and
marine engines are the same as or similar to

[[Page 16007]]

those expected for highway and nonroad engines, and because the
expected suppliers of the technologies are the same for these engines,
we have used that analysis as the starting point for estimating the
engineering costs of these technologies in this rule.\135\ Importantly,
the analysis summarized here and detailed in the draft RIA takes into
account specific differences between the locomotive and marine products
when compared to on-highway trucks (e.g., engine size).
---------------------------------------------------------------------------

\135\ ``Economic Analysis of Diesel Aftertreatment System
Changes Made Possible by Reduction of Diesel Fuel Sulfur Content,''
Engine, Fuel, and Emissions Engineering, Incorporated, December 15,
1999, Public Docket No. A-2001-28, Docket Item II-A-76.
---------------------------------------------------------------------------

Engineering costs of control include variable costs (for new
hardware, its assembly, and associated markups) and fixed costs (for
tooling, research, redesign efforts, and certification). We are
projecting that the Tier 3 standards will be met by optimizing the
engine and emission controls that will exist on locomotive and marine
engines in the Tier 3 timeframe. Therefore, we have estimated no
hardware costs associated with the Tier 3 standards. For the Tier 4
standards, we are projecting that SCR systems and DPFs will be the most
likely technologies used to comply. Upon installation in a new
locomotive or a new marine vessel, these devices would require some new
equipment related hardware in the form of brackets and new sheet metal.
The annual variable costs for example years, the PM/NO_X
split of those engineering costs, and the net present values that would
result are presented in Table V-1.\136\ As shown, we estimate the net
present value for the years 2006 through 2040 of all variable costs at
$1.4 billion using a three percent discount rate, with $1.3 billion of
that being engine-related variable costs. Using a seven percent
discount rate, these costs are $630 million and $586 million, respectively.
---------------------------------------------------------------------------

\136\ The PM/NO_X+NMHC cost allocations for variable
costs used in this cost analysis are as follows: Urea SCR systems
including marinization costs on marine applications are 100%
NO_X+NMHC; DPF systems including marinization costs on
marine applications are 100% PM; and, equipment hardware costs are
split evenly.

Table V-1.--New Engine and Equipment Variable Engineering Costs
[$Millions]
----------------------------------------------------------------------------------------------------------------
Engine Equipment
variable variable Total variable Total for
Year engineering engineering engineering Total for PM NOX+NMHC
costs costs costs
----------------------------------------------------------------------------------------------------------------
2011............................ 0 0 0 0 0
2012............................ 0 0 0 0 0
2015............................ 32 4 36 34 2
2020............................ 87 6 94 49 45
2030............................ 105 8 113 59 54
2040............................ 104 8 112 59 53
NPV at 3%....................... 1,297 99 1,395 749 646
NPV at 7%....................... 586 44 630 342 288
----------------------------------------------------------------------------------------------------------------

We can also look at these variable engineering costs on a per
engine basis rather than an annual total basis. Doing so results in the
costs summarized in Table V-2. These costs represent the engineering
costs for a typical engine placed into a piece of equipment within each
of the given market segments and, where applicable, power ranges on a
one-to-one basis (i.e., one engine per locomotive or vessel). For a
vessel using two engines, the costs would be double those shown. The
costs shown represent the total engine-related engineering hardware
costs associated with all of the proposed emissions standards (Tier 3
and Tier 4) to which the given power range and market segment would
need to comply. For example, a commercial marine engine below 600 kW
(805 hp) would need to comply with the Tier 3 standards as its final
tier and would, therefore, incur no new hardware costs. In contrast,
while a commercial marine engine over 600 kW is expected to comply with
both Tier 3 and then Tier 4 and would, therefore, incur engine hardware
costs associated with the Tier 4 standards. The costs also represent
long term costs or those costs after expected learning effects have
occurred and warranty costs have stabilized.

Table V-2.--2 Long-Term Variable Engineering Cost per New Engine to Comply With the Final Tier of Standards
[$/engine]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Locomotive Locomotive Recreational
Power range line haul switcher \a\ C1 Marine C2 Marine marine \b\ Small marine
--------------------------------------------------------------------------------------------------------------------------------------------------------
< 50 Hp (< 37 kW)......................................... \(c)\ .............. .............. .............. .............. \d\$0
50< =hp< 75 (37< =kW< 56)................................... .............. .............. 0 .............. 0 ..............
75< =hp< 200 (56< =kW< 149)................................. .............. .............. 0 .............. 0 ..............
200< =hp< 400 (149< =kW< 298)............................... .............. .............. 0 .............. 0 ..............
400< =hp< 800 (298< =kW< 597)............................... .............. .............. 0 .............. 0 ..............
800< =hp< 2000 (597< =kW< 1492)............................. .............. .............. 11,560 29,980 0 ..............
>=2000 Hp (>=1492 kW)................................... 54,650 13,640 20,550 55,770 0 ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Locomotive switchers generally use land based nonroad engines (i.e., NRT4 engines); therefore, we have used NRT4 cost estimates for locomotive
switchers in this rulemaking.
\b\ Recreational marine engines >2000 kW are considered within the C1 Marine category.
\c\ A blank entry means there are no engines in that market segment/power range.
\d\ $0 means costs are estimated at $0.

[[Page 16008]]

(2) New Engine and Equipment Fixed Engineering Costs
Because these technologies are being researched for implementation
in the highway and nonroad markets well before the locomotive and
marine emission standards take effect, and because engine manufacturers
will have had several years complying with the highway and nonroad
standards, we believe that the technologies used to comply with the
locomotive and marine standards will have undergone significant
development before reaching locomotive and marine production. In fact,
we believe that this transfer of learning--from highway to nonroad to
locomotive and marine--is real and have quantified it. Chapter 5 of the
draft RIA details our approach and we seek comment on the 10 percent
and 70 percent factors we have employed at each transfer step. We
anticipate that engine manufacturers would introduce a combination of
primary technology upgrades to meet the new emission standards.
Achieving very low NO_X emissions requires basic research on
NO_X emission-control technologies and improvements in engine
management. There would also have to be some level of tooling
expenditures to make possible the fitting of new hardware on locomotive
and marine engines. We also expect that locomotives and marine vessels
being fitted with Tier 4 engines would have to undergo some level of
redesign to accommodate the aftertreatment devices expected to meet the
Tier 4 standards. The total of fixed engineering costs and the net
present values of those costs are shown in Table V-3.\137\ As shown, we
have estimated the net present value for the years 2006 through 2040 of
all fixed engineering costs at $424 million using a three percent
discount rate, with $381 million of that being engine-related fixed
costs. Using a seven percent discount rate, these costs are $324
million and $297 million, respectively.
---------------------------------------------------------------------------

\137\ The PM/NO_X+NMHC cost allocations for fixed
costs used in this cost analysis are as follows: Engine research
expenditures are 67% NO_X+NMHC and 33% PM; engine tooling
and certification costs are split evenly; and, equipment redesign
costs are split evenly.

Table V-3.--Engine and Equipment Fixed Engineering Costs
($Million)
----------------------------------------------------------------------------------------------------------------
Total fixed
Engine Engine Engine Equipment Total Total for
Year research tooling certification redesign engineering for PM NOX+NMHC
costs
----------------------------------------------------------------------------------------------------------------
2011......................... 75 19 5 0 99 39 59
2012......................... 55 0 0 0 55 18 37
2015......................... 51 17 1 22 90 34 56
2020......................... 0 0 0 4 4 2 2
2030......................... 0 0 0 0 0 0 0
2040......................... 0 0 0 0 0 0 0
NPV at 3%.................... 341 33 7 43 424 155 269
NPV at 7%.................... 267 24 6 27 324 118 206
----------------------------------------------------------------------------------------------------------------

Some of the estimated fixed engineering costs would occur in years
prior to the Tier 3 standards taking affect in 2012. Engine
manufacturers would need to invest in engine tooling and certification
prior to selling engines that meet the standards. Engine research is
expected to begin five years in advance of the standards for which the
research is done. We have estimated some engine research for both the
Tier 3 and Tier 4 standards, although the research associated with the
Tier 4 standards is expected to be higher since it involves work on
aftertreatment devices which only the Tier 4 standards would require.
By 2017, the Tier 4 standards would be fully implemented and engine
research toward the Tier 4 standards would be completed. Similarly,
engine tooling and certification efforts would be completed. We have
estimated that equipment redesign, driven mostly by marine vessel
redesigns, would continue for many years given the nature of the marine
market. Therefore, by 2017 all engine-related fixed engineering costs
would be zero, and by 2024 all equipment-related fixed engineering
costs would be zero.
(3) Engine Operating Costs
We anticipate an increase in costs associated with operating
locomotives and marine vessels. We anticipate three sources of
increased operating costs: urea use; DPF maintenance; and a fuel
consumption impact. Increased operating costs associated with urea use
would occur only in those locomotives/vessels equipped with a urea SCR
engine. Maintenance costs associated with the DPF (for periodic
cleaning of accumulated ash resulting from unburned material that
accumulates in the DPF) would occur in those locomotives/vessels that
are equipped with a DPF engine. The fuel consumption impact is
anticipated to occur more broadly--we expect that a one percent fuel
consumption increase would occur for all new Tier 4 engines, locomotive
and marine, due to higher exhaust backpressure resulting from
aftertreatment devices. We also expect a one percent fuel consumption
increase would occur for remanufactured Tier 0 locomotives due to our
expectation that the tighter NO_X standard would be met using
retarded timing. These costs and how the fleet cost estimates were
generated are detailed in Chapter 5 of the draft RIA and are summarized
in Table V-4.\138\
---------------------------------------------------------------------------

\138\ The PM/NO_X+NMHC cost allocations for operating
costs used in this cost analysis are as follows: Urea costs are 100%
NO_X+NMHC; DPF maintenance costs are 100% PM; and, fuel
consumption impacts are split evenly.

[[Page 16009]]

Table V-4.--Estimated Increased Operating Costs
($Millions)
----------------------------------------------------------------------------------------------------------------
Fuel Total
Year Urea use DPF consumption operating Total Total for
maintenance impact costs for PM NOX+MHC
----------------------------------------------------------------------------------------------------------------
2011...................................... 0 0 11 11 5 5
2012...................................... 0 0 13 13 6 6
2015...................................... 4 0 21 25 11 15
2020...................................... 85 3 50 137 28 110
2030...................................... 300 8 99 407 57 350
2040...................................... 458 11 142 611 82 528
NPV at 3%................................. 2,850 74 1,116 4,039 631 3,408
NPV at 7%................................. 1,090 29 477 1,595 267 1,328
----------------------------------------------------------------------------------------------------------------

As shown, we have estimated the net present value for the years
2006 through 2040 of the annual operating costs at $4 billion using a
three percent discount rate and $1.6 billion using a seven percent
discount rate. The urea and DPF maintenance costs are zero until Tier 4
engines start being sold since only the Tier 4 engines are expected to
add these technologies. Urea use represents the largest source of
increased operating costs. Because urea use is meant for controlling
NO_X emissions, most of the operating costs are associated
with NO_X+NMHC control.
(4) Engineering Costs Associated With the Remanufacturing Program
We have also estimated engineering costs associated with the
locomotive remanufacturing program. The remanufacturing process is not
a low cost endeavor. However, it is much less costly than purchasing a
new engine. The engineering costs we have estimated associated with the
remanufacturing program are not meant to capture the remanufacturing
process but rather the incremental engineering costs to that process.
Therefore, the remanufacturing costs estimated here are only those
engineering costs resulting from the proposed requirement to meet a
more stringent standard than the engine was designed to meet at its
original sale. These engineering costs and how the fleet cost estimates
were generated are detailed in Chapter 5 of the draft RIA and are
summarized in Table V-5.\139\ As shown, we have estimated the net
present value for the years 2006 through 2040 of the annual engineering
costs associated with the locomotive remanufacturing program at $1.4
billion using a three percent discount rate and $682 million using a
seven percent discount rate.
---------------------------------------------------------------------------

\139\ Costs associated with the remanufacturing program are
split evenly between NO_X+NMHC and PM.

Table V-5.--Estimated Engineering Costs Associated With the Locomotive
Remanufacturing Program
($Millions)
------------------------------------------------------------------------
Remanu-
facturing Total for Total for
Year Program PM NOX+NMHC
Costs
------------------------------------------------------------------------
2011................................ 97 49 49
2012................................ 75 37 37
2015................................ 31 15 15
2020................................ 15 8 8
2030................................ 85 43 43
2040................................ 153 77 77
NPV at 3%........................... 1,374 687 687
NPV at 7%........................... 682 341 341
------------------------------------------------------------------------

(5) Total Engineering Costs
The total engineering costs associated with today's proposal are
the summation of the engine and equipment engineering costs, both fixed
and variable, the operating costs, and the engineering costs associated
with the locomotive remanufacturing program. These costs are summarized
in Table V-6.

Table V-6.--Total Engineering Costs of the Proposal
[$Millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equipment Engineering
Engine related related Operating costs of the Total Total NOX+NMHC
Year engineering engineering costs remanufacturing engineering Total PM costs costs
costs costs program costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011................................... 99 0 11 97 207 93 113
2012................................... 55 0 13 75 142 62 80

[[Page 16010]]

2015................................... 100 25 25 31 181 93 88
2020................................... 87 10 187 15 250 836 164
2030................................... 105 8 407 85 605 159 446
2040................................... 104 8 611 153 876 218 658
NPV at 3%.............................. 1,678 141 4,039 1,374 7,233 2,222 5,011
NPV at 7%.............................. 883 71 1,595 682 3,231 1,068 2,163
--------------------------------------------------------------------------------------------------------------------------------------------------------

As shown, we have estimated the net present value of the annual
engineering costs for the years 2006 through 2040 at $7.2 billion using
a three percent discount rate and $3.2 billion using a seven percent
discount rate. Roughly half of these costs are operating costs, with
the bulk of those being urea related costs. As explained above in the
operating cost discussion, because urea use is meant for controlling
NO_X emissions, most of the operating costs and, therefore,
the majority of the total engineering costs are associated with
NO_X+NMHC control.
Figure V-1 graphically depicts the annual engineering costs
associated with today's proposed program. The engine costs shown
represent the engineering costs associated with engine research and
tooling, etc., and the incremental costs for new hardware such as DPFs
and urea SCR systems. The equipment costs shown represent the
engineering costs associated with equipment redesign efforts and the
incremental costs for new equipment-related hardware such as sheet
metal and brackets. The remanufacturing program costs include
incremental engineering costs for the locomotive remanufacturing
program. The operating costs include incremental increases in operating
costs associated with urea use, DPF maintenance, and a one percent fuel
consumption increase for Tier 4 engines and remanufactured Tier 0
locomotives. The total program engineering costs are shown in Table V-6
as $7.2 billion at a three percent discount rate and $3.2 billion at a
seven percent discount rate.

[[Page 16011]]
[GRAPHIC]
[TIFF OMITTED] TP03AP07.006

B. Cost Effectiveness

One tool that can be used to assess the value of the proposed
program is the engineering costs incurred per ton of emissions reduced.
This analysis involves a comparison of our proposed program to other
measures that have been or could be implemented. As summarized in this
section and detailed in the draft RIA, the locomotive and marine diesel
program being proposed today represents a highly cost effective mobile
source control program for reducing PM and NO_X emissions.
We have calculated the cost per ton of our proposed program based
on the net present value of all engineering costs incurred and all
emission reductions generated from the current year 2006 through the
year 2040. This approach captures all of the costs and emissions
reductions from our proposed program including those costs incurred and
emissions reductions generated by the locomotive remanufacturing
program. The baseline case for this evaluation is the existing set of
engine standards for locomotive and marine diesel engines and the
existing locomotive remanufacturing requirements. The analysis
timeframe is meant to capture both the early period of the program when
very few new engines that meet the proposed standards would be in the
fleet, and the later period when essentially all engines would meet the
new standards.
Table V-7 shows the emissions reductions associated with today's
proposal. These reductions are discussed in more detail in section II
of this preamble and Chapter 3 of the draft RIA.

Table V-7.--Estimated Emissions Reductions Associated With the Proposed Locomotive and Marine Standards
[Short tons]
----------------------------------------------------------------------------------------------------------------
Year PM2.5 PM10a NOX NMHC
----------------------------------------------------------------------------------------------------------------
2015............................................ 7,000 7,000 84,000 14,000

[[Page 16012]]

2020............................................ 15,000 15,000 293,000 25,000
2030............................................ 28,000 29,000 765,000 39,000
2040............................................ 38,000 40,000 1,123,000 50,000
NPV at 3%....................................... 315,000 325,000 7,869,000 480,000
NPV at 7%....................................... 136,000 140,000 3,188,000 216,000
----------------------------------------------------------------------------------------------------------------
\a\ Note that, PM2.5 is estimated to be 97 percent of the more inclusive PM10 emission inventory. In Section II
we generate and present PM2.5 inventories since recent research has determined that these are of greater
health concern. Traditionally, we have used PM10 in our cost effectiveness calculations. Since cost
effectiveness is a means of comparing control measures to one another, we use PM10 in our cost effectiveness
calculations for comparisons to past control measures.

Using the engineering costs shown in Table V-6 and the emission
reductions shown in Table V-7, we can calculate the $/ton associated
with today's proposal. These are shown in Table V-8. The resultant cost
per ton numbers depend on how the engineering costs presented above are
allocated to each pollutant. Therefore, as described in section V.A, we
have allocated costs as closely as possible to the pollutants for which
they are incurred. These allocations are also discussed in detail in
Chapter 5 of the draft RIA.

Table V-8.--Proposed Program Aggregate Cost per Ton and Long-Term Annual Cost per Ton
----------------------------------------------------------------------------------------------------------------
2006 thru 2040 2006 thru 2040
discounted discounted Long-term cost
Pollutant lifetime cost lifetime cost per ton in
per ton at 3% per ton at 7% 2030
----------------------------------------------------------------------------------------------------------------
NOX+NMHC........................................................ $600 $630 $550
PM.............................................................. 6,840 7,640 5,560
----------------------------------------------------------------------------------------------------------------

The costs per ton shown in Table V-8 for 2006 through 2040 use the
net present value of the annualized engineering costs and emissions
reductions associated with the program for the years 2006 through 2040.
We have also calculated the costs per ton of emissions reduced in the
year 2030 using the annual engineering costs and emissions reductions
in that year alone. These numbers are also shown in Table V-8 and
represent the long-term annual costs per ton of emissions reduced.\140\
All of the costs per ton include costs and emission reductions that
will occur from the locomotive remanufacturing program.
---------------------------------------------------------------------------

\140\ ``Long-term'' cost here refers to the ongoing cost of the
program where only operating and variable costs remain (no more
fixed costs). We have chosen 2030 to represent those costs here.
---------------------------------------------------------------------------

In comparison with other emissions control programs, we believe
that the proposed locomotive and marine program represents a cost
effective strategy for generating substantial NO_X+NMHC and
PM reductions. This can be seen by comparing the cost effectiveness of
this proposed with the cost effectiveness of a number of standards that
EPA has adopted in the past.Table V-9 and Table V-10 summarize the cost
per ton of several past EPA actions to reduce emissions of
NO_X+NMHC and PM from mobile sources.

Table V-9.--Proposed Locomotive and Marine Standards Compared to
Previous Mobile Source
[Programs for NOX+NMHC]
------------------------------------------------------------------------
$/ton
Program NOX+NMHC
------------------------------------------------------------------------
Today's locomotive & marine proposal.................... 600
Tier 4 Nonroad Diesel (69 FR 39131)..................... 1,010
Tier 2 Nonroad Diesel (EPA420-R-98-016, Chapter 6)...... 630
Tier 3 Nonroad Diesel (EPA420-R-98-016, Chapter 6)...... 430
Tier 2 vehicle/gasoline sulfur (65 FR 6774)............. 1,400-2,350
2007 Highway HD (66 FR 5101)............................ 2,240
2004 Highway HD (65 FR 59936)........................... 220-430
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
Total Manufacturing Industries.

Table V-10.--Proposed Locomotive and Marine Standards Compared to
Previous Mobile Source
[Programs for PM]
------------------------------------------------------------------------
Program $/ton PM
------------------------------------------------------------------------
Today's locomotive & marine proposal.................... 6,840
Tier 4 Nonroad Diesel (69 FR 39131)..................... 11,200
Tier 1/Tier 2 Nonroad Diesel (EPA420-R-98-016, Chapter 2,390
6).....................................................
2007 Highway HD (66 FR 5101)............................ 14,180
------------------------------------------------------------------------
Note: Costs adjusted to 2002 dollars using the Producer Price Index for
Total Manufacturing Industries.

C. EIA

We prepared an Economic Impact Analysis (EIA) to estimate the
economic impacts of the proposed emission control program on the
locomotive and marine diesel engine and vessel 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 stakeholders. We also present the results of our
analysis. We request comment on

[[Page 16013]]

all aspects of the analysis, including the model and the model inputs.
We estimate the net social costs of the proposed program to be
approximately $600 million in 2030.141 142 The rail sector
is expected to bear about 64 percent of the social costs of the program
in 2030, and the marine sector is expected to bear about 36 percent. In
each of these two sectors, these social costs are expected to be born
primarily by producers and users of locomotive and marine
transportation services (63.3 and 33.2 percent, respectively). The
remaining 3.5 percent is expected to be borne by locomotive, marine
engine, and marine vessel manufacturers and fishing and recreational users.
---------------------------------------------------------------------------

\141\ All estimates presented in this section are in 2005$.
\142\ The estimated 2030 social welfare cost of 267.3 million is
based on an earlier version of the engineering costs of the rule
which estimated $568.3 million engineering costs in 2030 (see table
V-17). The current engineering cost estimate for 2030 is $605
million. See section V.C.5 for an explanation of the difference. The
estimated social costs of the program will be updated for the final rule.
---------------------------------------------------------------------------

With regard to market-level impacts in 2030, the average price of a
locomotive is expected to increase about 2.6 percent ($49,100 per
unit), but sales are not expected to decrease. In the marine markets,
the expected impacts are different for engines above and below 800 hp
(600 kW). With regard to engines above 800 hp and the vessels that use
them, the average price of an engine is expected to increase by about
8.4 percent for C1 engines and 18.7 percent for C2 engines ($13,300 and
$48,700, respectively). However, the expected impact of these increased
prices on the average price of vessels that use these engines is
smaller, at about 1.1 percent and 3.6 percent respectively ($16,200 and
$141,600). The decrease in engine and vessel production is expected to
be negligible, at less than 10 units. For engines less than 800 hp and
the vessels that use them, the expected price increase and quantity
decrease are expected to be negligible, less than 0.1 percent. Finally,
even with the increases in the prices of locomotives and large marine
diesel engines, the expected impacts on prices in the locomotive and
marine transportation service markets are small, at 0.4 and 0.6
percent, respectively.
(1) What Is an Economic Impact Analysis?
An 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 presented
above. 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.\143\ In this analysis, social
costs are explored in two steps. In the market analysis, we estimate
how prices and quantities of goods and services 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 key stakeholders.
---------------------------------------------------------------------------

\143\ 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 the behavioral model we developed 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. 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 price and quantity combination is achieved. The
amount of the compliance costs that can be passed on to consumers is
ultimately limited by the price sensitivity of purchasers and producers
in the relevant market (represented by the price elasticity of demand
and supply). The EIM explicitly models these behavioral responses and
estimates 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?
In this EIA we estimate the impacts of the proposed emission
control program on two broad sectors: rail and marine. The markets
analyzed are summarized in Table V-11.

Table V-11.--Economic Sectors Included in the Loco/Marine Economic Impact Model
----------------------------------------------------------------------------------------------------------------
Sector Market Demand Supply
----------------------------------------------------------------------------------------------------------------
Rail.............................. Rail Transportation Entities that use rail Railroads.
Services. transportation services
as production input or
for personal
transportation.
Locomotives.......... Railroads................. Locomotive manufacturers
(integrated
manufacturers).
Marine............................ Marine Transportation Entities that use marine Entities that provide
Services. transportation services marine transportation
as production input. services.
? Tug/tow/pushboat
companies.
? Cargo companies.
? Ferry companies.
? Supply/crew
companies.
? Other commercial
users.

[[Page 16014]]

Marine Vessels....... Entities that provide Vessel manufacturers.
marine transportation
services.
? Tug/tow/pushboat
companies..
? Cargo companies..
? Ferry companies..
? Supply/crew
companies..
? Other commercial
users..
? Fishing persons..
? Recreation users.
Marine Diesel Engines Vessel manufacturers...... Engine manufacturers.
----------------------------------------------------------------------------------------------------------------

(a) Rail Sector Component
The rail sector component of the EIM is a two-level model
consisting of suppliers and users of locomotives and rail
transportation services.
Locomotive Market. The locomotive market consists of locomotive
manufacturers (line haul, switcher, and passenger) on the supply side
and railroads on the demand side. The vast majority of locomotives
built in any given year are for line haul applications; a small number
of passenger locomotives are built every year, and even fewer
switchers. The locomotive market is characterized by integrated
manufacturers (the engine and locomotive are made by the same
manufacturer) and therefore the engine and equipment impacts are
modeled together. The EIM does not distinguish between power bands for
locomotives. This is because while there is some variation in power for
different engine models, the range is not large. On average line haul
locomotives are typically about 4,000 hp, passenger locomotives are
about 3,000 hp, and switchers are about 2,000 hp.
Recently, a new switcher market is emerging in which manufacturers
are expected to be less integrated, and the manufacturer of the engine
is expected to be separate from the manufacturer of the switcher.\144\
Because the characteristics of this new market are speculative at this
time, the switcher market component of the EIM is modeled in the same
way as line haul locomotives (integrated manufacturers; same behavioral
parameters), but uses separate baseline equilibrium prices and
quantities. The compliance costs used for switchers reflect the
expected design characteristics for these locomotives and their lower
total power. We request comment on the switcher aspect of the model.
Consistent with the engineering cost analysis, the passenger market is
combined with the switcher market in this EIA because we do not have
separate compliance costs estimates for each of those two market
segments. We request comment on this, and on whether it would be more
appropriate to model the passenger market like the line haul market.
---------------------------------------------------------------------------

\144\ Until recently, switchers have typically been converted
line haul locomotives and very few, if any, new dedicated switchers
were built in any year. Recently, however, the power and other
characteristics of line haul locomotives have made them less
attractive for switcher usage. Their high power means they consume
more fuel than smaller locomotives, and they have less attractive
line-of-sight characteristics than what is needed for switchers. Therefore,
the industry is anticipating a new market for dedicated switchers.
---------------------------------------------------------------------------

Rail Transportation Services. The rail transportation services
market consists of entities that provide and utilize rail
transportation services. On this supply side, these are the railroads.
On the demand side, these are rail transportation service users such as
the chemical and agricultural industries and the personal
transportation industry. The EIM does not estimate the economic impact
of the proposed emission control program on ultimate finished goods
markets that use rail transportation services as inputs. This is
because transportation services are only a small portion of the total
variable costs of goods and services manufactured using these bulk
inputs. Also, changes in prices of transportation services due to the
estimated compliance costs are not expected to be large enough to
affect the prices and output of goods that use rail transportation
services as an input.
(b) Marine Sector Component
The marine sector component of the EIM distinguishes between
engine, vessel, and ultimate user markets (marine transportation
service users, fishing users, recreational users). This is because, in
contrast to the locomotive market, manufacturers in the diesel marine
market are not integrated. Marine engines and vessels are manufactured
by different entities.
Marine Engine Market. The marine engine markets consist of marine
engine manufacturers on the supply side and vessel manufacturers on the
demand side. The model distinguishes between three types of engines,
commercial propulsion, recreational propulsion, and auxiliary. Engines
are broken out into eight categories based on rated power and
displacement: small engines below 50 hp (37 kW); five C1 engine
categories (50-200 hp, 200-400 hp, 400-800 hp, 800-2,000 hp, >2,000
hp); and two C2 engine categories (800-2,000 hp, >2,000 hp). For the
purpose of the EIA, the C1/C2 threshold is 5 l/cyl displacement, even
though the new C1/C2 threshold is proposed to be 7 l/cyl displacement.
The 5 l/cyl threshold was used because it is currently applicable
limit. In addition, there is currently only one engine family in the 5
to 7 l/cyl range, and it is not possible to project what future sales
will be in that range or if more engine families will be added.
Marine Vessel Market. The marine vessel market consists of marine
vessel manufacturers on the demand side and marine vessel users on the
supply side. The model distinguishes between seven vessel categories:
Recreational, fishing, tow/tug/push, ferry, supply/crew, cargo, and
other. Each of these vessels would have at least one propulsion engine
and at least one auxiliary engine. For fishing and recreational
vessels, the purchasers of those vessels are the end users and so the
EIM is a two-level model for those two markets. For the fishing market,
this approach is appropriate because demand for fishing vessels comes
directly from the fishing industry; fishing vessels are a fixed capital
input for that industry. For the recreational market, demand for
vessels comes directly from households that use these vessels for
recreational activities and acquire them for the personal enjoyment of
the owner. For the other commercial vessel markets (tow/tug/push,
ferry, supply/crew, cargo, other), demand is derived from the
transportation services they provide, and so demand is from the
transportation service market and the providers of those services more
specifically. Therefore it is necessary to

[[Page 16015]]

include the marine transportation services market in the model.
Marine Transportation Services. The marine transportation services
market consists of entities that provide and utilize marine
transportation services: vessel owners on the supply side and marine
transportation service users on the demand side. The firms that use
these marine transportation services are very similar to those that use
locomotive transportation services: those needing to transport bulk
chemicals and minerals, coal, agricultural products, etc. These
transportation services are production inputs that depend on the amount
of raw materials or finished products being transported and thus marine
transportation costs are variable costs for the end user. Demand for
these transportation services will determine the demand for vessels
used to provide these services (tug/tow/pushboats, cargo, ferries,
supply/crew, other commercial vessels).
(c) Market Linkages
The individual levels of the rail and marine components of the EIM
are linked to provide feedback between consumers and producers in
relevant markets. The locomotive and marine components of the EIM are
not linked however, meaning there is no feedback mechanism between the
locomotive and marine sectors. Although locomotives and marine vessels
such as tugs, towboats, cargo, and ferries provide the same type of
transportation service, the characteristics of these markets are quite
different and are subject to different constraints that limit switching
from one type of transportation service to the other. For the limited
number of cases where there is direct competition between rail and
marine transportation services, we do not expect this rule to change
the dynamics of the choice between marine or rail providers of these
services because (1) the estimated compliance costs imposed by this
rule are relatively small in comparison with the total production costs
of providing transportation services, and (2) both sectors would be
subject to the new standards.
(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 7 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.\145\
---------------------------------------------------------------------------

\145\ 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 each 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 to be either unaffected by
a policy or unimportant for social cost estimation. Multi-market models
go beyond partial equilibrium analysis by extending the inquiry to more
than just a single market and attempt to capture at least some of the
interaction between markets.\146\ In the marine sector, the model
captures the interactions between the engine markets, the vessel
markets, and the marine transportation service markets; in the rail
sector, it captures the interactions between the locomotive markets and
the rail transportation service markets.
---------------------------------------------------------------------------

\146\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, pp. 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) and changes in consumer demand due to
price changes. 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 widely accepted for this type of
analysis, and only in rare cases are other approaches used.\147\ 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: These are mature markets; there are no
indications of barriers to entry for the marine transportation,
fishing, and recreational markets; the firms in the affected 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.
The perfect competition assumption is discussed in more detail in
Chapter 7 of the RIA.
---------------------------------------------------------------------------

\147\ 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, an argument can be made
that fixed costs must be recovered; otherwise manufacturers would go
out of business. This analysis assumes that manufacturers cover their
fixed costs through their current product development budgets. If this
is the case, then the rule would have the effect of shifting product
development resources to regulatory compliance from other market-based
investment decisions. Thus, fixed costs are a cost to society because
they displace other product development activities that may improve the
quality or performance of engines and equipment. Therefore these costs
are included in the social welfare costs, as a social cost that accrues
to producers. We request comment on the extent to which manufacturers
can be expected to use current product development resources to cover
the fixed costs associated with the standards (thus foregoing product
development projects in the short term),

[[Page 16016]]

and whether current product development budgets would cover the
compliance costs in the year in which they occur. We also request
comment on whether companies would instead attempt to pass on these
fixed costs as an additional price increase and, if the latter, how
much of the fixed costs would be passed on, and for how long.
The EIM is a market-level analysis that estimates the aggregate
economic impacts of the control program on the relevant markets. 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,
particularly where the rule affects different firms' costs over
different volumes of production. However, to the extent there are
differential effects, EPA believes that the wide array of flexibilities
provided in this rule are adequate to address any cost inequities that
may arise.
Finally, consistent with the proposed emission controls, this EIA
covers locomotives and marine diesel engines and vessels sold in 50 states.
(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 costs
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 V-12 and are
described in more detail in Chapter 7 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 V-12.--Behavioral Parameters Used in Loco/Marine Economic Impact Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sector Market Demand elasticity Source Supply elasticity Source
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rail............................... Rail Transportation -0.5 (inelastic)...... Literature Estimate.. 0.6 (inelastic)...... Literature Estimate.
Services.
Locomotives (all Derived............... N/A.................. 2.7 (elastic)........ Calibration Method
types). Estimate.
Marine............................. Marine Transportation -0.5 (inelastic)...... Literature Estimate.. 0.6 (inelastic)...... Literature Estimate.
Services.
Vessels Commercial a.. Derived............... N/A.................. 2.3 (elastic)........ Econometric Estimate.
Fishing............... -1.4 (elastic)........ Econometric Estimate. 1.6 (elastic)........ Econometric Estimate.
Recreational.......... -1.4 (elastic)........ Econometric Estimate. 1.6 (elastic)........
Engines............... Derived............... N/A.................. 3.8 (elastic)........ Econometric Estimate.
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Commercial vessels include tug/tow/pushboats, ferries, cargo vessels, crew/supply boats, and other commercial vessels.

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 were
derived from industry sources and published data and are described in
Chapter 7 of the 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 Section V.A. However, the EIM uses an earlier
version of the engineering costs developed for this rule. The
engineering costs for 2030 presented in Section V.A. are estimated to
be $605 million, which is $37 million more than the compliance costs
used in this EIA. Over the period from 2007 through 2040, the net
present value of the engineering costs in Section V.A. is $7.2 billion
while the NPV of the estimated social costs over that period based on
the compliance costs used in his chapter is $6.9 billion (3 percent
discount rate). The differences are primarily in the form of operating
costs ($22 million for the rail sector, $10 million for the marine
sector). The variable costs for locomotives are slightly smaller ($4.0
million) and for marine are somewhat higher ($5.0 million). The
difference for marine engines occurs in part because the engineering
costs in Section V.A. include Tier 4 costs for recreational marine
engines over 2,000 kW. There are also small differences for the
estimated operating costs. As a result of these differences, the amount
of the social costs imposed on producers and consumers of rail and
marine transportation services as a result of the proposed program
would be larger than estimated in this section, while the impacts on
the prices and quantities of locomotives would be slightly less. In
addition, there would be larger social costs for the recreational
marine sector. Nevertheless, the estimated market impacts and the
distribution of the social costs among stakeholders would be about the
same as those presented below.
There are four types of compliance costs associated with the
program: fixed costs, variable costs, operating costs, and
remanufacturing costs. The timing of these costs are different and, in
some cases, overlap.
Fixed costs are not included in the market analysis (they are not
used to shock the model). However, the fixed costs associated with the
standards are a cost to society (in the form of foregone product
development) and therefore must be reflected in the total social costs
as a cost to producers. In this EIA, fixed costs are accounted for in
the year in which they occur and are attributed to the respective
locomotive, marine engine, and vessel manufacturers. These manufacturers
are expected to see losses of producer surplus as early as 2007.

[[Page 16017]]

Variable costs are the driver of the market impacts. There are no
variable costs associated with the Tier 3 new engine standards because
the Tier 3 standards are engine-out emission limits and engine
manufacturers are expected to comply by maximizing the emission
reduction potential of controls they are already using rather than
adding new components. The variable costs associated with Tier 4 begin
to apply in 2015, for locomotive PM standards; 2016, for marine PM and
NO_X standards; and 2017, for locomotive NO_X standards.
Operating costs are the additional costs for associated with urea
use and DPF maintenance as well as additional fuel consumption for both
Tier 4 engines and remanufactured locomotive Tier 0 engines. These
begin to occur when the standards go into effect. In the EIM, operating
costs are attributed to railroads and vessel owners. On the marine
side, all marine operating costs are applied to the marine
transportation services market even though there will be Tier 4 engine
in the recreational and fishing markets. This approach was taken
because the operating costs (fuel and urea consumption) were estimated
based on fuel consumption and we believe that most of the fuel consumed
in the marine sector is by vessels in the marine transportation
services sector. As a result of this assumption, the impacts on the
marine transportation service market may be somewhat over-estimated. We
request comment on this simplifying assumption.
Remanufacturing costs are incurred when locomotives are
remanufactured (there is no corresponding remanufacture requirement for
marine diesel, although we are requesting comment on such a program).
These costs represent the difference between the cost of current
remanufacture kits and those that will be required pursuant to the
standards. In the EIM, these costs are allocated to the railroads; the
remanufacture market is not modeled separately. This is appropriate
because railroads are required to purchase these kits when they rebuild
their locomotives. Their sensitivity to price changes is likely to be
very inelastic because they cannot operate the relevant locomotives
without using a certified remanufacture kit. This means the kit
manufacturers would be able to pass most if not all of the costs of
these kits to the railroads. We request comment on this approach for
including remanufacture costs in the model.
(6) What Are the Results of the Economic Impact Modeling?
Using the model and data described above, we estimated the economic
pacts of the proposed emission control program. The results of our
analysis are summarized in this section. Detailed results for all years
are included in the appendices to Chapter 7 of the RIA. Also included in
Appendix 7H to that chapter are sensitivity analyses for several key inputs.
The EIA consists of two parts: a market analysis and 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.
We performed a market analysis for all years and all engines and
equipment types. Detailed results can be found in the appendices to
Chapter 7 of the RIA. In this section we present summarized results for
selected years.
Due to the structure of the program (see section V.C.5 above), the
estimated market and social costs impacts of the program in the early
years are small and are primarily due to the locomotive remanufacturing
program. By 2016, the impacts of the program are more significant due
to the operational costs associated with the Tier 4 standards (urea
usage). Consequently, a large share of the social costs of the program
after the Tier 4 standards to into effect fall on the marine and rail
transportation service sectors. These operational costs are incurred by
the providers of these services, but they are expected to pass along
some of these costs to their customers.
(a) Market Analysis Results
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
baseline 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, operating, and remanufacturing costs). It should be
noted that this analysis does not allow any other factors 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.
A summary of the market analysis results is presented in Table V-13
for 2011, 2016, and 2030. These years were chosen because 2011 is the
first year of the Tier 3 standards, 2016 is when the Tier 4 standards
begin for most engines, and 2030 illustrates the long-term impacts of
the program. Results for all years can be found in Chapter 7 of the RIA.
The estimated market impacts are designed to provide a broad
overview of the expected market impacts that is useful when considering
the impacts of the rule. Absolute price changes and relative price/
quantity changes reflect production-weighted averages of the individual
market-level estimates generated by the model for each group of engine/
equipment markets. For example, the estimated marine diesel engine
price changes are production-weighted averages of the estimated results
for all of the marine diesel engine markets included in the group.\148\
The absolute change in quantity is the sum of the decrease in units
produced across sub-markets within each engine/equipment group. For
example, the estimated marine diesel engine quantity changes reflect
the total decline in marine diesel engines produced. The aggregated
data presented in Table V-13 is intended 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 and not the impacts on a
particular engine or equipment category.
---------------------------------------------------------------------------

\148\ As a result, estimates for specific types of engines and
equipment may be different than the reported group average. The detail
results for markets are reported in the Appendices to Chapter 7 of the RIA.
---------------------------------------------------------------------------

Locomotive Sector Impacts. On the locomotive side, the proposed
program is expected to have a negligible impact on locomotive prices
and quantities. In 2011, the expected impacts are mainly the result of
the operating costs associated with locomotive remanufacturing
standards. These standards impose an operating cost on railroad
transportation providers and are expected to result in a slight
increase in the price of locomotive transportation services (about 0.1
percent, on average) and a slight decrease in the quantity of services
provided (about 0.1 percent, on average). The locomotive
remanufacturing program is also expected to have a small impact on the
new locomotive market. The remanufacturing program will increase
railroad operating costs, which expected to result in an increase in
the price of transportation services. This increase will results in a
decrease in demand for rail transportation services and

[[Page 16018]]

ultimately in a decrease in the demand for locomotives and a decrease
in their price. In other words, the market will contract slightly. We
estimate a reduction in the price of locomotives of about $425, or
about 0.02 percent on average.
Beginning in 2016, the market impacts are affected by both the
operating costs and the direct costs associated with the Tier 4
standards. As a result of both of these impacts, the price of a new
locomotive is expected to increase by about 1.9 percent ($35,900), on
average and the quantity produced is expected to decrease by about 0.1
percent, on average (less than one locomotive). Locomotive
transportation service prices are expected to decrease by about 0.1
percent). By 2030, the price of new locomotives is expected to increase
by about 2.6 percent ($49,000), on average, and the quantity expected
to decrease by about 0.2 percent (less than one locomotive). The price of
rail transportation services is expected to increase by about 0.4 percent.
Marine Sector Impacts. On the marine engine side, the expected
impacts are different for engines above and below 800 hp (600 kW). With
regard to engines above 800 hp and the vessels that use them, the
proposed program does not begin to affect market prices or quantities
until the Tier 4 standards go into effect, which is in 2016 for most
engines. For these engines, the price of a new engine in 2016 is
expected to increase between 11.0 and 24.6 percent, on average ($17,300
for C1 engines above 800 hp and $64,100 for C2 engines above 800 hp),
depending on the type of engine, and sales are expected to decrease
less than 2.0 percent, on average. The price of vessels that use them
is expected to increase between 1.7 and 1.0 percent ($20,900 for
vessels that use C1 engines above 800 hp and $188,600 for vessels that
use C2 engines above 800 hp) and sales are expected to decrease less
than 2.0 percent. The percent change in price in the marine
transportation sector is expected to be about 0.1 percent. By 2030, the
price of these engines is expected to increase between 8.4 and 18.7
percent, on average ($13,200 for C1 engines above 800 hp and $48,700
for C2 engine above 800 hp), depending on the type of engine, and sales
are expected to decrease by less than 2 percent, on average. The price
of vessels is expected to increase between 1 and 3.6 percent ($16,200
for vessels that use C1 engines above 800 hp and $141,600 for vessels
that use C2 engines above 800 hp) and sales are expected to decrease by
less than 2 percent. The percent change in price in the marine
transportation is expected to be about 0.6 percent.
With regard to engines below 800 hp, the market impacts of the
program are expected to be negligible.\149\ This is because there are
no variable costs associated with the standards for these engines. The
market impacts associated with the program are indirect effects that
stem from the impacts on the marine service markets for the larger
engines that would be subject to direct compliance costs. Changes in
the equilibrium outcomes in those marine service markets may lead to
reductions for marine services in other marine engine and vessel
markets, including the markets for smaller marine diesel engines and
vessels. The result is that in some years there may be small declines
in the equilibrium price in the markets for marine diesel engines less
than 800 hp. This would occur because an increase in the price and a
decrease in the quantity of marine transportation services provided by
vessels with engines above 800 hp that results in a change in the price
of marine transportation services may have follow-on effects in other
marine markets and lead to decreases in prices for those markets. For
example, the large vessels used to provide transportation services are
affected by the rule. Their compliance costs lead to a higher vessel
price and a reduced demand for those vessels. This reduced demand
indirectly affects other marine transportation services that support
the larger vessels, and leads to a decrease in price for those markets
as well.
---------------------------------------------------------------------------

\149\ The market results for engines and vessels below 800 hp
are provided in a Technical Support Document that can be found in
the docket for this rule.

Table V-13.--Estimated Market Impacts for 2011, 2016, 2030 (2005$)
----------------------------------------------------------------------------------------------------------------
Average Change in price Change in variable
variable ---------------------------------------------------
Market engineering
cost per Absolute Percent Absolute Percent
unit
----------------------------------------------------------------------------------------------------------------
2011
----------------------------------------------------------------------------------------------------------------
Rail Sector
----------------------------------------------------------------------------------------------------------------
Locomotives.................................... $0 -$425 -0.02 0 -0.1
Transportation Services........................ NA NA a 0.1 NA a 0.1
----------------------------------------------------------------------------------------------------------------
Marine Sector
----------------------------------------------------------------------------------------------------------------
Engines:
----------------------------------------------------------------------------------------------------------------
C1>800 hp................................. 0 0 0.00 0 0.0
C2>800 hp.................................. 0 0 0.00 0 0.0
Other marine............................... 0 0 0.00 0 0.0
Vessels:
C1>800 hp.................................. 0 0 0.00 0 0.0
C2>800 hp.................................. 0 0 0.00 0 0.0
Other marine............................... 0 0 0.00 0 0.0
Transportation Services........................ NA NA a 0.00 NA a 0.0
----------------------------------------------------------------------------------------------------------------
2016
----------------------------------------------------------------------------------------------------------------
Rail Sector
----------------------------------------------------------------------------------------------------------------
Locomotives.................................... 36,363 35,929 1.9 0 -0.1

[[Page 16019]]

Transportation Services........................ NA NA a 0.1 NA a -0.1
----------------------------------------------------------------------------------------------------------------
Marine Sector a
Engines:
C1>800 hp.................................. 18,105 17,330 11.0 -7 -1.7
C2>800 hp.................................. 64,735 64,073 24.6 -1 -0.9
Other marine............................... 0 0 0.00 0 0.0
Vessels:
C1>800 hp................................. 2,980 20,898 1.5 -9 -1.7
C2>800 hp.................................. 6,515 188,559 4.8 -1 -0.9
Other marine............................... 0 -1 0.00 -0 0.0
Transportation Services........................ NA NA a 0.1 NAa -0.1
----------------------------------------------------------------------------------------------------------------
2030
----------------------------------------------------------------------------------------------------------------
Rail Sector
----------------------------------------------------------------------------------------------------------------
Locomotives.................................... 50,291 49,087 2.6 0 -0.2
Transportation Services........................ NA NA a 0.4 NA a -0.2
----------------------------------------------------------------------------------------------------------------
Marine Sector
----------------------------------------------------------------------------------------------------------------
Engines:
C1>800 hp.................................. 13,885 13,261 8.4 -6 -1.4
C2>800 hp.................................. 49,360 48,692 18.7 -1 -0.9
Other marine............................... 0 0 0.0 0 0.0
Vessels:
C1>800 hp...................................... 2,979 16,155 1.1 -8 -1.5
C2>800 hp...................................... 6,516 141,563 3.6 -1 -0.9
Other marine............................... 0 -4 0.0 -2 0.0
Transportation Services........................ NA NA a 0.6 NA a -0.3
----------------------------------------------------------------------------------------------------------------
a The prices and quantities for transportation services are normalized ($1 for 1 unit of services provided) and
therefore it is not possible to estimate the absolute change price or quanitity; see 7.3.1.5.

(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 key stakeholder groups that
are the producers and consumers in the rail and marine markets. The
estimated surplus losses presented below reflect all engineering costs
associated with the proposed program (fixed, variable, operating, and
remanufacturing costs). Detailed economic welfare results for the
proposed program for all years are presented in Chapter 7 of the RIA.
A summary of the estimated annual net social costs is presented in
Table V-14. 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
locomotives, engines and vessels that are incorporated in the total
social costs. In addition, in the early years of the program the
estimated social costs of the proposed program are not expected to
increase regularly over time. This is because the compliance costs for
the locomotive remanufacture program are not constant over time.

Table V-14.--Estimated Annual Engineering and Social Costs, Through 2040 (2005)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Engineering costs
------------------------------------------------------------------------------------------------
Year Marine Marine engine Rail new Total social
operating and vessel Rail operating Rail remanuf. locomotive Total costs
costs costs costs costs costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
2007.................................... $0.0 $25.0 $0.0 $0.0 $3.2 $28.2 $28.2
2008.................................... $0.0 $25.0 $1.3 $56.7 $3.2 $86.1 $86.1
2009.................................... $0.0 $25.0 $1.4 $33.2 $3.2 $62.7 $62.7
2010.................................... $0.0 $25.0 $3.8 $51.5 $7.3 $87.5 $87.5
2011.................................... $0.0 $86.0 $7.9 $96.9 $10.8 $201.6 $201.5
2012.................................... $0.0 $41.2 $9.7 $74.3 $12.3 $137.5 $137.5
2013.................................... $0.0 $41.2 $12.0 $62.4 $12.3 $127.9 $127.9
2014.................................... $2.8 $41.2 $12.6 $40.0 $16.9 $113.5 $113.5
2015.................................... $5.6 $74.1 $14.9 $29.1 $48.8 $172.5 $172.5
2016.................................... $14.8 $48.6 $19.0 $55.5 $55.3 $193.1 $192.6
2017.................................... $23.9 $44.9 $32.7 $39.3 $66.5 $207.3 $206.7
2018.................................... $36.0 $33.9 $44.6 $41.9 $67.9 $224.3 $223.9
2019.................................... $48.0 $34.2 $56.5 $36.7 $61.9 $237.4 $236.9
2020.................................... $60.0 $34.5 $68.5 $12.9 $64.0 $239.9 $239.5

[[Page 16020]]

2021.................................... $72.0 $34.8 $80.8 $14.9 $66.2 $268.7 $268.2
2022.................................... $83.9 $35.1 $93.6 $37.4 $68.1 $318.1 $317.6
2023.................................... $95.7 $35.4 $106.7 $83.2 $69.8 $390.8 $390.2
2024.................................... $107.5 $35.7 $120.1 $72.0 $70.8 $406.0 $405.4
2025.................................... $119.1 $35.9 $133.8 $76.5 $72.5 $437.9 $437.2
2026.................................... $130.6 $36.2 $147.7 $63.2 $73.5 $451.2 $450.4
2027.................................... $141.9 $33.6 $161.5 $64.6 $74.7 $476.3 $475.5
2028.................................... $153.0 $33.9 $175.5 $80.3 $75.6 $518.2 $517.3
2029.................................... $163.3 $34.2 $189.4 $81.8 $76.3 $544.9 $544.0
2030.................................... $172.6 $34.5 $203.3 $81.2 $76.8 $568.3 $567.3
2031.................................... $181.2 $34.8 $217.1 $81.4 $77.6 $592.1 $591.1
2032.................................... $189.0 $35.1 $231.1 $77.2 $78.5 $610.9 $609.8
2033.................................... $196.4 $35.4 $244.9 $133.5 $78.9 $689.2 $688.0
2034.................................... $203.6 $35.7 $258.7 $142.6 $79.6 $720.1 $718.8
2035.................................... $210.4 $36.0 $272.4 $150.1 $79.8 $748.8 $747.4
2036.................................... $216.9 $36.4 $285.8 $143.2 $77.5 $759.7 $758.3
2037.................................... $222.7 $36.7 $299.2 $145.9 $75.8 $780.3 $778.8
2038.................................... $227.9 $37.0 $312.0 $148.8 $73.9 $799.6 $798.1
2039.................................... $232.4 $37.3 $324.4 $152.0 $71.8 $818.0 $816.4
2040.................................... $236.3 $37.7 $336.3 $155.0 $69.5 $834.7 $833.2
========================================================================================================================================================
2040 NPV at 3% a,b...................................................................................................... $6,907.8 $6,896.8
2040 NPV at 7% a,b...................................................................................................... $3,107.7 $3,103.2
2030 NPV at 3% a,b...................................................................................................... $3,938.7 $3,932.6
2030 NPV at 7% a,b...................................................................................................... $2,175.5 $2,172.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.
b Note: These NPV calculations are based on the period 2006-2040, reflecting the period when the analysis was completed. This has the consequence of
discounting the current year costs, 2007, and all subsequent years are discounted by an additional year. The result is a smaller stream of social
costs than by calculating the NPV over 2007-2040 (3% smaller for 3% NPV and 7% smaller for 7% NPV).

Table V-15 shows how total social costs are expected to be shared
across stakeholders, for selected years. According to these results,
the rail sector is expected to bear most of the social costs of the
program, ranging from 57.3 percent in 2011 to 67.3 percent in 2016.
Producers and consumers of locomotive transportation services are
expected to bear most of those social costs, ranging from 51.9 percent
in 2011 to 63.3 percent in 2030. As explained above, these results
assume the railroads absorb all remanufacture kit compliance costs (the
remanufacture kit manufacturers pass all costs of the new standards to
the railroads). The marine sector is expected to bear the remaining
social costs, ranging from 42.7 percent in 2011 to 32.7 percent in
2016. Producers of marine diesel engines are expected to bear more of
the program costs in the early years (42.7 percent in 2011), but by
2020 producers and consumers in the marine transportation services
market are expected to bear a larger share of the social costs, 31.5
percent.

Table V-15.--Summary of Estimated Social Costs for 2011, 2016, 2020, 2030
[2005$, $million]
----------------------------------------------------------------------------------------------------------------
2011 2016
Stakeholder group ---------------------------------------------------------------
Surplus change Percent Surplus change Percent
----------------------------------------------------------------------------------------------------------------
Locomotives
----------------------------------------------------------------------------------------------------------------
Locomotive producers............................ -$11.1 5.5 -$13.4 7.0
Rail transportation service providers........... -$47.5 23.6 -$52.9 27.5
Rail transportation service consumers........... -$57.0 28.3 -$63.5 33.0
---------------------------------------------------------------
Total locomotive sector..................... -$115.6 57.3 -$129.7 67.3
----------------------------------------------------------------------------------------------------------------
Marine
----------------------------------------------------------------------------------------------------------------
Marine engine producers......................... -$86.0 42.7 -$0.9 0.5
C1 > 800 hp................................. -$22.8 .............. -$0.7
C2 > 800 hp................................. -$27.8 .............. -$0.2
Other marine................................ -$35.4 .............. -$0.0

[[Page 16021]]

Marine vessel producers......................... -$0 0.0 -$18.0 9.3
C1 > 800 hp................................. -$0 .............. -$13.6
C2 > 800 hp................................. -$0 .............. -$4.4
Other marine................................ -$0 .............. -$0.0
Recreational and fishing vessel consumers... -$0 0.0 -$9.6 5.0
Marine transportation service providers......... -$0 0.0 -$15.6 8.1
Marine transportation service consumers......... -$0 0.0 -$18.7 9.7
---------------------------------------------------------------
Total marine sector......................... -$86.0 42.7 -$62.9 32.7
---------------------------------------------------------------
Total Program........................... -$201.5 .............. -$192.6
----------------------------------------------------------------------------------------------------------------

2020 2030
Stakeholder group ---------------------------------------------------------------
Surplus change Percent Surplus change Percent
----------------------------------------------------------------------------------------------------------------
Locomotives
----------------------------------------------------------------------------------------------------------------
Locomotive producers............................ -$0.7 0.3 -$1.8 0.3
Rail transportation service providers........... -$65.8 27.5 -$163.2 28.8
Rail transportation service consumers........... -$78.9 32.9 -$195.9 34.5
---------------------------------------------------------------
Total locomotive sector..................... -$145.3 60.7 -$360.9 63.6
----------------------------------------------------------------------------------------------------------------
Marine
----------------------------------------------------------------------------------------------------------------
Marine engine producers......................... -$0.8 0.3 -$0.9 0.2
C1 > 800 hp................................. -$0.6 .............. -$0.7
C2 > 800 hp................................. -$0.2 .............. -$0.2
Other marine................................ -$0.0 .............. -$0.0
Marine vessel producers......................... -$10.1 4.2 -$8.2 1.4
C1 > 800 hp................................. -$7.8 .............. -$6.4
C2 > 800 hp................................. -$2.3 .............. -$1.6
Other marine................................ -$0.1 .............. -$0.1
Recreational and fishing vessel consumers... -$7.8 3.3 -$8.5 1.5
Marine transportation service providers......... -$34.3 14.3 -$85.8 15.1
Marine transportation service consumers......... -$41.2 17.2 -$103.0 18.2
---------------------------------------------------------------
Total marine sector......................... -$94.1 39.3 -$206.5 36.4
---------------------------------------------------------------
Total Program............................... -$239.5 100.0 -$567.3 100.0
----------------------------------------------------------------------------------------------------------------

Table V-16 provides additional detail about the sources of surplus
changes, for 2020 when the per unit compliance costs are stable. On the
marine side, this table shows that engine and vessel producers are
expected to pass along much of the engine and vessel compliance costs
to the marine transportation service providers who purchase marine
vessels. These marine transportation service providers, in turn, are
expected to pass some of the costs to their customers. This is also
expected to be the case in the rail sector.

Table V-16.-- Distribution of Estimated Surplus Changes by Market and
Stakeholder for 2020
[2005$, million$]
------------------------------------------------------------------------
Total
engineering Surplus change
costs
------------------------------------------------------------------------
Marine Markets.......................... .............. ..............
Engine Producers........................ $29.3 -$0.8
Vessel Producers........................ $5.2 -$10.1
Engine price changes.................... .............. -$8.1
Equipment cost changes.................. .............. -$2.0
Recreational and Fishing Consumers...... .............. -$7.8
Engine price changes.................... .............. -$6.2
Equipment cost changes.................. .............. -$1.6
Transportation Service Providers........ $60.0 -$34.3
Increased price vessels................. .............. -$6.9

[[Page 16022]]

Operating costs......................... .............. -$27.4
Users of Transportation Service......... .............. -$41.2
Increased price vessels................. .............. -$8.2
Operating costs......................... .............. -$32.9
Rail Markets............................ .............. ..............
Locomotive Producers.................... $64.0 -$0.7
Rail Service Providers.................. $81.4 -$65.8
Increased price new locomotives......... .............. -$28.8
Remanufacturing costs................... $9.5 -$8.1
Operating costs......................... $63.6 -$28.9
Users of Rail Transportation Service.... .............. -$78.9
Increased price new locomotives......... .............. -$34.6
Remanufacturing costs................... .............. -$9.7
Operating costs......................... .............. -$34.7
------------------------------------------------------------------------
Total................................... $239.9 $239.6
------------------------------------------------------------------------

The present value of net social costs of the proposed standards
through 2040, shown in Table V-14, is estimated to be $6.9 billion
(2005$).\150\ This present value is calculated using a social discount
rate of 3 percent and the stream of social welfare costs from 2006
through 2040. We also performed an analysis using a 7 percent social
discount rate.\151\ Using that discount rate, the present value of the
net social costs through 2040 is estimated to be $3.1 billion (2005$).
---------------------------------------------------------------------------

\150\ Note: These NPV calculations are based on the period 2006-
2040, reflecting the period when the analysis was completed. This
has the consequence of discounting the current year costs, 2007, and
all subsequent years are discounted by an additional year. The
result is a smaller stream of social costs than by calculating the
NPV over 2007-2040 (3% smaller for 3% NPV and 7% smaller for 7% NPV).
\151\ 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 V-17 shows the distribution of total surplus losses for the
program from 2006 through 2040. This table shows that the rail sector
is expected to bear about 65 percent of the total program social costs
through 2040, and that most of the costs are expected to be borne by
the rail transportation service producers and consumers. On the marine
side, most of the marine sector costs are expected to be borne by the
marine transportation service providers and consumers. This is
consistent with the structure of the program, which leads to high
compliance costs for those stakeholder groups.

Table V-17.--Estimated Net Social Costs Through 2040 by Stakeholder
($million, 2005$)
----------------------------------------------------------------------------------------------------------------
Surplus change Percent of Surplus change Percent of
Stakeholder groups NPV 3% total surplus NPV 7% total surplus
----------------------------------------------------------------------------------------------------------------
Locomotives
----------------------------------------------------------------------------------------------------------------
Locomotive producers............................ $92.8 1.3% $63.5 2.0%
Rail transportation service providers........... $1,988.8 28.8% $878.1 28.3%
Rail transportation service consumers........... $2,386.4 34.6% $1,053.7 33.9%
---------------------------------------------------------------
Total locomotive sector..................... $4,468.1 64.8% $1,995.4 64.4%
----------------------------------------------------------------------------------------------------------------
Marine
----------------------------------------------------------------------------------------------------------------
Marine engine producers......................... $313.3 4.5% $242.3 7.8%
C1 > 800 hp................................. $102.1 .............. $73.9
C2 > 800 hp................................. $112.4 .............. $84.4
Other marine................................ $98.7 .............. $84.0
Marine vessel producers......................... $143.8 2.1% $71.3 2.3%
C1 > 800 hp................................. $110.1 .............. $54.3
C2 > 800 hp................................. $32.4 .............. $16.5
Other marine................................ $1.3 .............. $0.5
Recreational and fishing vessel consumers... $110.0 1.6% $51.0 1.6%
Marine transportation service providers......... $846.2 12.3% $338.2 10.9%
Marine transportation service consumers......... $1,015.4 14.7% $405.9 13.1%
---------------------------------------------------------------
Total marine sector......................... $2,428.7 35.2% $1,107.7 35.7%
---------------------------------------------------------------
Total Program........................... $6,896.8 .............. $3,103.1
----------------------------------------------------------------------------------------------------------------

[[Page 16023]]

(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 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 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.
Where possible, the EIA relies on published price elasticities of
supply and demand. For those cases where there are no published
sources, we estimated these parameters (see Appendix 7F of the RIA
prepared for this rule). The methods used for estimation include a
production fuction approach using data at the industry level (engines
and recreational vessels) and a calibration approach (locomotiove
supply). These methods were chosen because of limitations with the
available data, which was limited to industry-level data. However, the
use of aggregate industry level data may not be appropriate or 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 suppy and demand and
alternative methods to incorporate operational costs (across a larger
group of marine vessels). The results of these analyses are contained
in Appendix 7H of the RIA prepared for this rule.
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.

VI. Benefits

A. Overview

This section presents our analysis of the health and environmental
benefits that can be expected to occur as a result of the proposed
locomotive and marine 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 will reduce exposure to NO_X and direct PM
emissions and help avoid a range of adverse health effects associated
with ambient ozone and PM_2.5 levels. In addition, the
proposed standards will help reduce exposures to diesel PM exhaust,
various gaseous hydrocarbons and air toxics. As described below, the
reductions in ozone and PM from the proposed standards are expected to
result in significant reductions in premature deaths and other serious
human health effects, as well as other important public health and
welfare effects.
To estimate the net benefits of the proposed standards, we use the
estimated costs presented in section V and sophisticated air quality
and benefit modeling tools. The benefit modeling is based on peer-
reviewed studies of air quality and health and welfare effects
associated with improvements in air quality and peer-reviewed studies
of the dollar values of those public health and welfare effects. These
methods are generally consistent with benefits analyses performed for
the recent analysis of the Clean Air Interstate Rule (CAIR) standards
and the recently finalized PM NAAQS analysis.\152\,\153\
They are described in detail in the RIA prepared for this rule.
---------------------------------------------------------------------------

\152\ U.S. Environmental Protection Agency. March 2005.
Regulatory Impact Analysis for the Final Clean Air Interstate Rule.
Prepared by: Office of Air and Radiation. Available at
http://www.epa.gov/cair.
\153\ U.S. Environmental Protection Agency. October 2006. Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation. Available at http://www.epa.gov/ttn/ecas/ria.html.

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

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

[[Page 16024]]

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 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 locomotive and marine 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 range of benefits associated with the proposed program are
estimated based on the risk of several sources of PM-related mortality
effect estimates, along with all other PM non-mortality related
benefits information. These benefits are presented in Table VI-1. The
benefits reflect two different sources of information about the impact
of reductions in PM on reduction in the risk of premature death,
including both the American Cancer Society (ACS) cohort study and an
expert elicitation study conducted by EPA in 2006. In order to provide
an indication of the sensitivity of the benefits estimates to
alternative assumptions, in Chapter 6 of the RIA we present a variety
of benefits estimates based on two epidemiological studies (including
the ACS Study and the Six Cities Study) and the expert elicitation. EPA
intends to ask the Science Advisory Board to provide additional advice
as to which scientific studies should be used in future RIAs to
estimate the benefits of reductions in PM. These estimates, and all
monetized benefits presented in this section, are in year 2005 dollars.

Table VI-1.--Estimated Monetized PM-Related Health Benefits of the
Proposed Locomotive and Marine Engine Standards
------------------------------------------------------------------------
Total benefits \a\ \b\ \c\ \d\
(billions 2005$)
---------------------------------------
2020 2030
------------------------------------------------------------------------
PM mortality derived from the ACS cohort study; Morbidity functions from
epidemiology literature
------------------------------------------------------------------------
Using a 3% discount rate........ $4.4+B $12+B
Confidence Intervals (5th- ($1.0-$10) ($2.1-$27)
95th %ile).
Using a 7% discount rate........ $4.0+B $11+B
Confidence Intervals (5th- ($1.0-$9.2) ($1.8-$25)
95th %ile).
PM mortality derived from lower bound and upper bound expert-based result;
\e\ Morbidity functions from epidemiology literature
------------------------------------------------------------------------
Using a 3% discount rate........ $1.7+B - $12+B $4.6+B - $33+B
Confidence Intervals (5th- ($0.2 - $8.5) - ($1.0 - $23) -
95th %ile). ($2.0 - $27) ($5.4 - $72)
Using a 7% discount rate........ $1.6+B - $11+B $4.3+B - $30+B
Confidence Intervals (5th- ($0.2 - $7.8) - ($1.0 - $21) -
95th %ile). ($1.8 - $24) ($4.9 - $65)
------------------------------------------------------------------------
\a\ Benefits include avoided cases of mortality, chronic illness, and
other morbidity health endpoints.
\b\ PM-related mortality benefits estimated using an assumed PM
threshold of 10 [mu]/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 Section
6.6.1.3 of the RIA.
\c\ 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 VI-4.
\d\ Results reflect the use of two different discount rates: 3 and 7
percent, which are recommended by EPA's Guidelines for Preparing
Economic Analyses and OMB Circular A-4. Results are rounded to two
significant digits for ease of presentation and computation.
\e\ The effect estimates of nine of the twelve experts included in the
elicitation panel fall within the empirically-derived range provided
by the ACS and Six-Cities studies. One of the experts fall below this
range and two of the experts are above this range. Although the
overall range across experts is summarized in this table, the full
uncertainty in the estimates is reflected by the results for the full
set of 12 experts. The twelve experts' judgments as to the likely mean
effect estimate are not evenly distributed across the range
illustrated by arraying the highest and lowest expert means. Likewise
the 5th and 95th percentiles for these highest and lowest judgments of
the effect estimate do not imply any particular distribution within
those bounds. The distribution of benefits estimates associated with
each of the twelve expert responses can be found in Tables 6.4-3 and
6.4-4 in the RIA.

B. Quantified Human Health and Environmental Effects of the Proposed
Standards

In this section we discuss the PM_2.5 benefits of the
proposed standards. We discuss how these benefits are monetized in the
next section. It should be noted that the emission control scenarios
used in the air quality and benefits modeling are slightly different
than the emission control program being proposed. The differences
reflect further refinements of the regulatory program since we
performed the air quality modeling for this rule. Emissions and air
quality modeling decisions are made early in the analytical process.
Section 3.6 of the RIA describes the changes in the inputs and
resulting emission inventories between the preliminary

[[Page 16025]]

assumptions used for the air quality modeling and the final proposed
emission control scenario.
(1) Estimated PM Benefits
To model the PM air quality benefits of this rule we used the
Community Multiscale Air Quality (CMAQ) model. CMAQ simulates the
numerous physical and chemical processes involved in the formation,
transport, and deposition of particulate matter. This model is commonly
used in regional applications to estimate the PM reductions expected to
occur from a given set of emissions controls. The meteorological data
input into CMAQ are developed by a separate model, the Penn State
University/National Center for Atmospheric Research Mesoscale Model,
known as MM5. The modeling domain covers the entire 48-State U.S., as
modeled in the Clean Air Interstate Rule (CAIR).\154\ The grid
resolution for the PM modeling domain was 36 x 36 km. More detailed
information is included in the air quality modeling technical support
document (TSD), which is located in the docket for this rule.
---------------------------------------------------------------------------

\154\ See the technical support document for the Final Clean Air
Interstate Rule Air Quality Modeling. This document is available in
Docket EPA-HQ-OAR-2004-0008.
---------------------------------------------------------------------------

The modeled ambient air quality data serves as an input to the
Environmental Benefits Mapping and Analysis Program (BenMAP).\155\
BenMAP is a computer program developed by EPA that integrates a number
of the modeling elements used in previous Regulatory Impact Analyses
(e.g., interpolation functions, population projections, health impact
functions, valuation functions, analysis and pooling methods) to
translate modeled air concentration estimates into health effects
incidence estimates and monetized benefits estimates.
---------------------------------------------------------------------------

\155\ Information on BenMAP, including downloads of the software, can
be found at http://www.epa.gov/ttn/ecas/benmodels.html.
---------------------------------------------------------------------------

Table VI-2 presents the estimates of reduced incidence of PM-
related health effects for the years 2020 and 2030, which are based on
the modeled air quality improvements between a baseline, pre-control
scenario and a post-control scenario reflecting the proposed emission
control strategy.
Since the publication of CAIR, we have completed the full-scale
expert elicitation assessing the uncertainty in the concentration-
response function for PM-related premature mortality. Consistent with
the recommendations of the National Research Council (NRC) report
``Estimating the Public Health Benefits of Proposed Air Pollution
Regulations,'' \156\ we are integrating the results of this
probabilistic assessment into the main benefits analysis as an
alternative to the epidemiologically-derived range of mortality
incidence provided by the ACS and Six-cities cohort studies (Pope et
al., 2002 and Laden et al., 2006). Of the twelve experts included in
the panel of experts, average premature mortality incidence derived
from eleven of the experts are larger than the ACS-based estimate. One
expert's average effect estimate falls below the ACS-based estimate.
Details on the PM-related mortality incidence derived from each expert
are presented in the draft RIA.
---------------------------------------------------------------------------

\156\ National Research Council (NRC). 2002. Estimating the
Public Health Benefits of Proposed Air Pollution Regulations.
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

The use of two sources of PM mortality reflects two different
sources of information about the impact of reductions in PM on
reduction in the risk of premature death, including both the published
epidemiology literature and an expert elicitation study conducted by
EPA in 2006. In 2030, based on the estimate provided by the ACS study,
we estimate that PM-related annual benefits would result in 1,500 fewer
premature fatalities. When the range of expert opinion is used, we
estimate between 460 and 4,600 fewer premature mortalities in 2030. We
also estimate 940 fewer cases of chronic bronchitis, 3,300 fewer non-
fatal heart attacks, 1,100 fewer hospitalizations (for respiratory and
cardiovascular disease combined), one million fewer days of restricted
activity due to respiratory illness and approximately 170,000 fewer
work-loss days. We also estimate substantial health improvements for
children from reduced upper and lower respiratory illness, acute
bronchitis, and asthma attacks. These results are based on an assumed
cutpoint in the long-term mortality concentration-response functions at
10 [mu]g/m3, and an assumed cutpoint in the short-term
morbidity concentration-response functions at 10 [mu]g/m3.
The impact using four alternative cutpoints (3 [mu]g/m3, 7.5
[mu]g/m3, 12 [mu]g/m3, and 14 [mu]g/
m3) has on PM_2.5-related mortality incidence
estimation is presented in Chapter 6 of the draft RIA.

Table VI-2 Estimated Reduction in Incidence of Adverse Health Effects Related to the Proposed Locomotive and
Marine Engine Standards a
----------------------------------------------------------------------------------------------------------------
2020 2030
----------------------------------------------------------------------------------------------------------------
Health effect............................ Mean incidence reduction (5th-95th percentile)
----------------------------------------------------------------------------------------------------------------
PM-Related Endpoints
----------------------------------------------------------------------------------------------------------------
Premature Mortality--Derived from 570 (220-920) 1,500 (590-2,400)
Epidemiology Literature b c Adult, age
30±Range based on ACS cohort
study (Pope et al. 2002
----------------------------------------------------------------------------------------------------------------
Infant, age < 1 year--Woodruff et al. 1997 1 (1-2) 2 (1-4)
Premature Mortality--Derived from Expert 180-1,700 (0-830)--(870-2,600) 460-4,600 (0-2,200)-(2,300-
Elicitation c d Adult, age 25< plus- 6,900)
minus>Lower and Upper Bound EE Results,
Respectively.
Chronic bronchitis (adult, age 26 and 370 (68- 670) 940 (170-1,700)
over).
Acute myocardial infarction (adults, age 1,200 (640-1,700) 3,300 (1,800-4,800)
18 andolder).
Hospital admissions--respiratory (all 130 (65-200) 350 (170-510)
ages) e.
Hospital admissions--cardiovascular 270 (170-380) 770 (490-1,100)
(adults, age >18) f.

[[Page 16026]]

Emergency room visits for asthma (age 18 460 (270-650) 1,000 (620-1,500)
years and younger).
Acute bronchitis (children, age 8-12).... 1,000 (0-2,100) 2,600 (0-5,300)
Lower respiratory symptoms (children, age 11,000 (5,400-17,000) 28,000 (14,000-43,000)
7-14).
Upper respiratory symptoms (asthmatic 8,300 (2,600-14,000) 21,000 (6,600-35,000)
children, age 9-18).
Asthma exacerbation (asthmatic children, 10,000 (1,100-29,000) 26,000 (2,800-74,000)
age 6-18).
Work loss days (adults, age 18-65)....... 71,000 (62,000-81,000) 170,000 (150,000-190,000)
Minor restricted-activity days (adults, 420,000 (360,000-490,000) 1,000,000 (850,000-
age 18-65). 1,200,000)
----------------------------------------------------------------------------------------------------------------
\a\ Incidence is rounded to two significant digits. PM estimates represent benefits from the proposed standards
nationwide.
\b\ Based on application of the effect estimate derived fromthe ACS study.\157\ Infant premature mortality based
upon studies by Woodruff, et al. 1997.\158\
\c\ PM-related mortality benefits estimated using an assumed PM threshold at 10 [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 6 of the RIA.
\d\ Based on effect estimates derived from the full-scale expert elicitation assessing the uncertainty in the
concentration-response function for PM-related premature mortality (IEc, 2006).\159\ The effect estimates of
11 of the 12 experts included in the elicitation panel falls estimate derived from the ACS study. One of the
experts fall below the ACS estimate.
\e\ Respiratory hospital admissions for PM include admissions for COPD, pneumonia, and asthma.
\f\ Cardiovascular hospital admissions for PM include total cardiovascular and subcategories for ischemic heart
disease, dysrhythmias, and heart failure.

C. Monetized Benefits

Table VI-3 presents the estimated monetary value of reductions in
the incidence of health and welfare effects. Total annual PM-related
health benefits are estimated to be between $4.6 and $33 billion in
2030, using a three percent discount rate (or $4.3 and $30 billion
assuming a 7 percent discount rate). This estimate is based on the
opinions of outside experts on PM and the risk of premature death,
along with other non-mortality related benefits results. When the range
of premature fatalities based on the ACS cohort study is used, we
estimate the total benefits related to the proposed standards to be
approximately $12 billion in 2030, using a three percent discount rate
(or $11 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.
---------------------------------------------------------------------------

\157\ 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.
\158\ Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997.
``The Relationship Between Selected Causes of Postneonatal Infant
Mortality and Particulate Air Pollution in the United States.''
Environmental Health Perspectives 105(6): 608-612.
\159\ Industrial Economics, Incorporated (IEc). 2006. Expanded
Expert Judgment Assessment of the Concentration-Response
Relationship Between PM_2.5 Exposure and Mortality. Peer
Review Draft. Prepared for: Office of Air Quality Planning and
Standards, U.S. Environmental Protection Agency, Research Triangle
Park, NC. August.
---------------------------------------------------------------------------

The above estimates of monetized benefits include only one example
of non-health related benefits. Changes in the ambient level of
PM_2.5 are known to affect the level of visibility in much of
the U.S. Individuals value visibility both in the places they live and
work, in the places they travel to for recreational purposes, and at
sites of unique public value, such as at National Parks. For the
proposed standards, we present the recreational visibility benefits of
improvements in visibility at 86 Class I areas located throughout
California, the Southwest, and the Southeast. These estimated benefits
are approximately $150 million in 2020 and $400 million in 2030, as
shown in Table VI-3.
Table VI-3 also 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 two primary sources. First, there are many human
health and welfare effects associated with PM, ozone, 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 projected to result from the
new standards, not just those benefits and costs which could be
expressed here in dollar terms. A list of the benefit categories that
could not be quantified or monetized in our benefit estimates are
provided in Table VI-4. Second, the CMAQ air quality model only
captures the benefits of air quality improvements in the 48 states and
DC; benefits for Alaska and Hawaii are not reflected in the estimate of
benefits.

[[Page 16027]]

Table VI-3.--Estimated Monetary Value in Reductions in Incidence of
Health and Welfare Effects
[in millions of 2005$]a,b
------------------------------------------------------------------------
2020 2030
------------------------------------------------------------------------
Estimated mean
value of
PM2.5-related health effect reductions (5th
and 95th %ile)
------------------------------------------------------------------------
Premature mortality--Derived .................. ..................
from Epidemiology Studiesc,d,e.
Adult, age 30+--ACS study (Pope .................. ..................
et al. 2002).
3% discount rate................ $3,900............ $10,000
($500-$8,800)..... ($1,500-$24,000)
7% discount rate................ $3,700............ $9,400
($500-$7,900)..... ($1,300-$21,000)
Infant Mortality,< 1 year -- .................. ..................
Woodruff et al. 1997.
3% discount rate................ $8................ $17
($1-$18).......... ($3-$37)
7% discount rate................ $7................ $15
($1-$16).......... ($2-$33)
Premature mortality--Derived .................. ..................
from Expert Elicitationc,d,e,f.
Adult, age 25+--Lower bound EE .................. ..................
result.
3% discount rate................ $1,200............ $3,300
($0-$7,200)....... ($0-$20,000)
7% discount rate................ $1,100............ $3,000
($0-$6,500)....... ($0-$18,000
Adult, age 25+--Upper bound EE .................. ..................
result.
3% discount rate................ $12,000........... $31,000
($1,800-$25,000).. ($4,800-$68,000)
7% discount rate................ $11,000........... $28,000
($1,600-$23,000).. ($4,400-$62,000)
Chronic bronchitis (adults, 26 $200.............. $500
and over). ($10-$800)........ ($26-$2,100)
Non-fatal acute myocardial .................. ..................
infarctions.
3% discount rate................ $123.............. $330
($32-$270)........ ($80-$730)
7% discount rate................ $119.............. $320
($30-$270)........ ($76-$720)
Hospital admissions for $2.7.............. $7.2
respiratory causes. ($1.3-$4.0)....... ($3.6-$11)
Hospital admissions for $7.3.............. $21
cardiovascular causes. ($4.6-$10)........ ($13-$28)
Emergency room visits for asthma $0.16............. $0.37
($0.09-$0.26)..... ($0.20-$0.60)
Acute bronchitis (children, age $0.44............. $1.1
8-12). ($0-$1.2)........ ($0-$3.1)
Lower respiratory symptoms $0.21............. $0.53
(children, 7-14). ($0.07-$0.43)..... ($0.18-$1.1)
Upper respiratory symptoms $0.24............. $0.62
(asthma, 9-11). ($0.05-$0.59)..... ($0.14-$1.5)
Asthma exacerbations............ $0.53............. $1.4
($0.04-$2.0)...... ($0.10-$5.1)
Work loss days.................. $11............... $27
($9.6-$12)........ ($23-$30)
Minor restricted-activity days $12............... $29
(MRADs). ($0.61-$25)....... ($1.5-$60)
Recreational Visibility, 86 $150.............. $400
Class I areas. (na)f............. (na)
Monetized Total--PM-Mortality .................. ..................
Derived from ACS Study;
Morbidity Functions.
3% discount rate................ $4.4.............. $12 Billion
($1.0-$10)........ ($2.1-$27)
7% discount rate Billion........ $4.0 Billion...... $11 Billion
($1.0-$9.2)....... ($1.8-$25)
Monetized Total--PM-Mortality .................. ..................
Derived from Expert
Elicitationg; Morbidity
Functions.
3% discount rate................ $1.7-$12 Billion.. $4.6-$33 Billion
($0.2-$8.5)--($2.0 ($1.0-$23)--($5.4-
-$27). $72)
7% discount rate................ $1.6-$11 Billion.. $4.3-$30 Billion
($0.2-$7.8)--($1.8 ($1.0-$21)--($4.9-
-$24). $65)
------------------------------------------------------------------------
a Monetary benefits are rounded to two significant digits for ease of
presentation and computation. PM benefits are nationwide.
b Monetary benefits adjusted to account for growth in real GDP per
capita between 1990 and the analysis year (2020 or 2030)
c PM-related mortality benefits estimated using an assumed PM threshold
of 10 [mu]/m3. There is uncertainty about which threshold to use and
this may impact the magnitude of the total benefits estimate.
d Valuation assumes discounting over the SAB recommended 20 year
segmented lag structure. Results reflect the use of 3 percent and 7
percent discount rates consistent with EPA and OMB guidelines for
preparing economic analyses (EPA, 2000; OMB, 2003).

[[Page 16028]]

e The valuation of adult premature mortality, derived either from the
epidemiology literature or the expert elicitation, is not additive.
Rather, the valuations represent a range of possible mortality
benefits.
f We are unable at this time to characterize the uncertainty in the
estimate of benefits of worker productivity and improvements in
visibility at Class I areas. As such, we treat these benefits as fixed
and add them to all percentiles of the health benefits distribution.
g It should be noted that the effect estimates of nine of the twelve
experts included in the elicitation panel falls within the scientific
study-based range provided by Pope and Laden. One of the experts fall
below this range and two of the experts are above this range.

Table V1-4.--Unquantified and Non-Monetized Potential Effects of the
Proposed Locomotive and Marine Engine Standards
------------------------------------------------------------------------
Effects not included in analysis--changes
Pollutant/effects in:
------------------------------------------------------------------------
Ozone Health a............... Premature mortality: short-term exposures
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
Exposure to UVb (+/-) d
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
Exposure to UVb (+/-)
PM Health b.................. Premature mortality--short term exposures
c
Low birth weight
Pulmonary function
Chronic respiratory diseases other than
chronic bronchitis
Non-asthma respiratory emergency room
visits
Exposure to UVb (+/-)
PM Welfare................... Residential and recreational visibility
in non-Class I areas
Soiling and materials damage
Damage to ecosystem functions
Exposure to UVb (+/-)
Nitrogen and Sulfate Commercial forests due to acidic sulfate
Deposition Welfare. 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/Toxics Health e........... 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/Toxics 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 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.

[[Page 16029]]

c 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 studies used in
this analysis. However, the PM mortality results derived from the
expert elicitation do take into account premature mortality effects of
short term exposures.
d May result in benefits or disbenefits.
e Many of the key hydrocarbons related to this rule are also hazardous
air pollutants listed in the Clean Air Act.

D. What Are the Significant Limitations of the Benefit-Cost 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.
Limitations of 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 lead to valuations that are 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 air toxics, ozone, 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;
? Uncertainty in the estimated relationships of health and
welfare effects to changes in pollutant concentrations including the
shape of the C-R 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 VI-3 indicates, total benefits are driven primarily by the
reduction in premature fatalities each year. Some key assumptions
underlying the premature mortality estimates include the following,
which may also contribute to uncertainty:
? 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.
Consistent with that analysis, we discuss the implications of these
results in the draft RIA for the proposed standards.
? 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 locomotive and marine 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 C-R function for fine particles is approximately
linear within the range of ambient concentrations under consideration
(above the assumed threshold of 10 [mu]g/m3). 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.
Despite these uncertainties, we believe this benefit-cost analysis
provides a conservative estimate of the estimated 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 supported by EPA's technical peer review panel,
the Science Advisory Board's Health Effects Subcommittee (SAB-HES). EPA
has also addressed many of the comments made by the National Academy of
Sciences (NAS) in a September 26, 2002 report on its review of the
Agency's methodology for analyzing the health benefits of measures
taken to reduce air pollution in our analysis of the final PM
NAAQS.\160\ The analysis of the proposed standards incorporates this
most recent work to the extent possible.
---------------------------------------------------------------------------

\160\ U.S. Environmental Protection Agency. October 2006. Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation. Available at HTTP://www.epa.gov/ttn/ecas/ria.html.

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

E. Benefit-Cost Analysis

In estimating the net benefits of the proposed standards, the
appropriate cost measure is `social costs.' Social costs represent the
welfare costs of a rule to society. These costs do not consider
transfer payments (such as taxes) that are simply redistributions of
wealth. Table VI-5 contains the estimates of monetized benefits and
estimated social welfare costs for the proposed rule and each of the
proposed control programs. The annual social welfare costs of all
provisions of this proposed rule are described more fully in section V
of this preamble.\161\
---------------------------------------------------------------------------

\161\ The estimated 2030 social welfare cost of 267.3 million is
based on an earlier version of the engineering costs of the rule
which estimated $568.3 million engineering costs in 2030 (see table
5-17). The current engineering cost estimate for 2030 is $605
million. See Section V.C.5 for an explanation of the difference. The
estimated social costs of the program will be updated for the final rule.
---------------------------------------------------------------------------

The results in Table VI-5 suggest that the 2020 monetized benefits
of the proposed standards are greater than the expected social welfare
costs. Specifically, the annual benefits of the total program would be
$4.4 + B billion annually in 2020 using a three percent discount rate
(or $4.2 billion assuming a 7 percent discount rate), compared to
estimated social costs of approximately $250 million in that same year.
These benefits are expected to increase to $12 + B billion annually in
2030 using a three percent discount rate (or $11 billion assuming a 7
percent discount rate), while the social costs are estimated to be
approximately $600 million. Though there are a number of health and
environmental effects associated with the proposed standards that we
are unable to quantify or monetize (represented by ``+B''; see Table
VI-4), the benefits of the proposed standards far outweigh the
projected costs. When we examine the benefit-to-

[[Page 16030]]

cost comparison for the rule standards separately, we also find that
the benefits of the specific engine standards far outweigh their
projected costs.

Table VI-5.--Summary of Annual Benefits, Costs, and Net Benefits of the
Proposed Locomotive and Marine Engine Standards
(Millions, 2005$)\a\
------------------------------------------------------------------------
Description 2020 2030
------------------------------------------------------------------------
Estimated Social Costs \b\.............. .............. ..............
Locomotive.......................... $150 $380
Marine.............................. 100 220
Total Social Costs.............. 250 605
===============================
Estimated Health Benefits of the .............. ..............
ProposedStandards\c d e\...............
Locomotive.......................... .............. ..............
3 percent discount rate......... 2,300+B 4,700+B
7 percent discount rate......... 2,100+B 4,300+B
Marine.............................. .............. ..............
3 percent discount rate......... 2,100+B 7,100+B
7 percent discount rate......... 1,900+B $6,400+B
Total Benefits.......................... .............. ..............
3 percent discount rate............. 4,400+B 12,000+B
7 percent discount rate............. 4,000+B 11,000+B
-------------------------------
Annual Net Benefits (Total Benefits-- .............. ..............
Total Costs)...........................
3 percent discount rate............. 4,150+B 11,000+B
7 percent discount rate............. 3,750+B 10,000+B
------------------------------------------------------------------------
\a\ All estimates represent annualized benefits and costs anticipated
for the years 2020 and 2030. Totals may not sum due to rounding.
\b\ The calculation of annual costs does not require amortization of
costs over time. Therefore, the estimates of annual cost do not
include a discount rate or rate of return assumption (see Chapter 7 of
the RIA). In Section D, however, we do 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.
\c\ Annual benefits analysis results reflect the use of a 3 percent and
7 percent discount rate in the valuation of premature mortality and
nonfatal myocardial infarctions, consistent with EPA and OMB
guidelines for preparing economic analyses (U.S. EPA, 2000 and OMB,
2003).162 163
\d\ 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). Note that the benefits in
this table reflect PM mortality derived from the ACS (Pope et al.,
2002) study.
\e\ 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 V-13.

VII. Alternative Program Options
---------------------------------------------------------------------------

\162\ U.S. Environmental Protection Agency, 2000. Guidelines for
Preparing Economic Analyses.
http://www.yosemite1.epa.gov/ee/epa/eed/hsf/pages/Guideline.html.
\163\ Office of Management and Budget, The Executive Office of
the President, 2003. Circular A-4. http://www.whitehouse.gov/omb/circulars.

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

The program we have described in this proposal represents a broad
and comprehensive approach to reduce emissions from locomotive and
marine diesel engines. As we have developed this proposal, we have
evaluated a number of alternatives with regard to the scope and timing
of the standards. We have also examined an alternative that would
require emission reductions from a significant fraction of the existing
marine diesel engine fleet. This section presents a summary of our
analysis of these alternative control scenarios. We are interested in
comments on all of the alternatives presented. For a more detailed
description of our analysis of these alternatives, including a year by
year breakout of expected costs and emission reductions, please refer
to Chapter 8 of the draft RIA prepared for this rulemaking.

A. Summary of Alternatives

We have developed emission inventory impacts, cost estimates and
benefit estimates for two types of alternatives. The first type looks
at the impacts of varying the timing and scope of our proposed
standards. The second considers a programmatic alternative that would
set emission standards for existing marine diesel engines.
(1) Alternatives Regarding Timing, Scope
(a) Alternative 1: Exclusion of Locomotive Remanufacturing
Alternative 1 examines the potential impacts of the locomotive
remanufacturing program by excluding it from the analysis (see section
III.C.(1)(a)(i) for more details on the remanufacturing standards).
Compared to the primary program, this analysis shows that through 2040
the locomotive remanufacturing program by itself would reduce
PM_2.5 emissions by 65,000 tons NPV 3% (35,000 tons NPV 7%)
and NO_X emissions by nearly 690,000 tons NPV 3% (400,000
tons NPV 7%) at a cost of $800 million NPV 3% ($530 million NPV 7%).
The monetized health and welfare benefits of the locomotive
remanufacturing program in 2030 are $2.9 billion at a 3% discount rate
(DR) or $2.7 at a 7% DR. While this alternative could have the
advantage of enabling industry to focus its resources on Tier 3 and
Tier 4 technology development, given its substantial benefits in the
early years of the program which are critical for NAAQS achievement and
maintenance, we have decided to retain the locomotive remanufacturing
program in our proposal.
(b) Alternative 2: Tier 4 Advanced One Year
Alternative 2 considers the possibility of pulling ahead the Tier 4
standards by one year for both the locomotive and marine programs,
while leaving the rest of the proposed program unchanged. This
alternative represents a more environmentally protective set of
standards, and we have given strong consideration to proposing it.
However, our review of the technical challenges to introduce the Tier 4
program, especially considering the locomotive remanufacturing program
and the Tier 3 standards which go before it, leads us to

[[Page 16031]]

conclude that introducing Tier 4 a year earlier is not feasible. We
have included this alternative analysis here because of the strong
consideration we have given it, and to provide commenters with an
opportunity to comment on the timing of the Tier 4 standards within the
context of the additional benefits that such a pull ahead could
realize. Our analysis suggests that introducing Tier 4 one year earlier
than our proposal could reduce emissions by an additional 9,000 tons of
PM_2.5 NPV 3% (5,000 tons NPV 7%) and 420,000 tons of
NO_X NPV 3% (210,000 tons NPV 7%) through 2040. We are unable
to make an accurate estimate of the cost for such an approach since we
do not believe it to be feasible at this time. However, we have
reported a cost in the summary table reflecting the same cost
estimation method we have used for our primary case and have denoted
unestimated additional costs as `C'. These additional unestimated costs
would include costs for additional engine test cells, engineering
staff, and engineering facilities necessary to introduce Tier 4 one
year earlier. While we are unable to conclude that this alternative is
feasible at this time, we request comment on that aspect of this
alternative including what additional costs might be incurred in order
to have Tier 4 start one year earlier.
(c) Alternative 3: Tier 4 Exclusively in 2013
Alternative 3 most closely reflects the program we described in our
Advanced Notice of Proposed Rulemaking, whereby we would set new
aftertreatment based emission standards as soon as possible. In this
case, we believe the earliest that such standards could logically be
started is in 2013 (3 months after the introduction of 15 ppm ULSD in
this sector). Alternative 3 eliminates our proposed Tier 3 standards
and locomotive remanufacturing standards, while pulling the Tier 4
standards ahead to 2013 for all portions of the Tier 4 program. As with
alternative 2, we are concerned that it may not be feasible to
introduce Tier 4 technologies on locomotive and marine diesel engines
earlier than the proposal specifies. However, eliminating the technical
work necessary to develop the Tier 3 and locomotive remanufacturing
programs would certainly go a long way towards making such an approach
possible. This alternative would actually result in substantially
higher PM emissions than our primary case although it would provide
additional reductions in NO_X emissions. Through 2040 this
alternative would decrease PM_2.5 reductions by more than
60,000 NPV 3% tons (31,000 NPV 7%) while only adding approximately
180,000 additional tons NPV 3% (100,000 NPV 7%) of NO_X
reductions. As a result in 2030 alone, this alternative realizes
approximately $0.6 billion less at a 3% DR ($0.5 billion less at a 7%
DR) in public health and welfare benefits than does our proposal. As
was the case with alternative 2, we have used the same cost estimation
approach for this alternative as that of our proposal, and have denoted
the unestimated costs that are necessary to accelerate the development
of Tier 4 technologies with a `C' in the summary tables. While
alternative 3 could have been considered the Agency's leading option
going into this rulemaking process, our review of the technical
challenges necessary to introduce Tier 4 technologies and the
substantial additional benefits that a more comprehensive solution can
provide has lead us to drop this approach in favor of the comprehensive
proposal we have laid out today.
(d) Alternative 4: Elimination of Tier 4
Alternative 4 would eliminate the Tier 4 standards and retain the
Tier 3 and locomotive remanufacturing requirements. This alternative
allows us to consider the value of combining the Tier 3 and locomotive
remanufacturing standards together as one program, and conversely,
allows us to see the additional benefits gained when combining them
with the Tier 4 standards. As a stand-alone alternative, the combined
Tier 3 and locomotive remanufacturing program is very attractive,
resulting in large emission reductions through 2040 of 207,000 tons of
PM_2.5 NPV 3% (94,000 NPV 7%) and 2,910,000 tons NPV 3%
(1,310,000 NPV 7%) of NO_X at an estimated cost of $950
million NPV 3% ($650 million NPV 7%) through the same time period. In
2030 alone, such a program is projected to realize health and welfare
benefits of $6.2 billion at a 3% DR ($5.7 billion at a 7% DR). Yet,
this alternative falls well short of the total benefits that our
comprehensive program is expected to realize. Elimination of Tier 4
would result in the loss of 108,000 tons NPV 3% (41,000 tons at NPV 7%)
of PM_2.5 reductions and almost 4,960,000 tons NPV 3%
(1,870,000 tons at NPV 7%) of NO_X reductions as compared to
our proposal through 2040. Through the addition of the Tier 4
standards, the estimated health and welfare benefits are nearly doubled
in 2030. As these alternatives show, each element of our comprehensive
program: The locomotive remanufacturing program, the Tier 3 emission
standards, and the Tier 4 emission standards, represent a valuable
emission control program on its own, while the collective program
results in the greatest emission reductions we believe to be possible
giving consideration to all of the elements described in today's proposal.
(2) Standards for Engines on Existing Vessels
We are also considering a fifth alternative that would address
emissions from certain marine diesel engines installed on vessels that
are currently in the fleet. Many of the large marine diesel engines
installed on commercial vessels remain in the fleet in excess of 20
years and the contribution of these engines to air pollution inventories
can be substantial. This alternative seeks to reduce these impacts.
This section describes the background for such a program and
discusses how it could be designed. While this is an alternative under
active consideration, we are seeking further information about this
market to develop a complete regulatory program. We obtained
information from marine transportation stakeholders about their
remanufacturing practices that leads us to believe that, for engines
above 800 hp, these practices are very similar to those in the rail
transportation sector. However, the information we have about the
structure of marine remanufacturing market does not provide a complete
picture regarding the economic response of the market to such a
program. Therefore, we request comment on the characteristics of the
marine remanufacturing market with regard to its sensitivity to price
changes. We also encourage comments on all aspects of the program
described below, including the need for it and the design of its components.
(a) Background
As discussed in section III.C.(1)(b), we currently regulate
remanufactured locomotive engines under section 213(a)(5) of the Clean
Air Act as new locomotive engines. Specifically, in our 1998 rule we
defined ``new locomotive'' and ``new locomotive engine'' to mean a
locomotive or locomotive engine which has been remanufactured.
Remanufactured was defined as meaning (i) to replace, or inspect and
qualify each and every power assembly of a locomotive or locomotive
engine, whether during a single maintenance event or cumulatively
within a five-year period; or (ii) to upgrade a locomotive or
locomotive engine; or (iii) to convert a locomotive or locomotive engine to

[[Page 16032]]

enable it to operate using a fuel other than it was originally
manufactured to use; or (iv) to install a remanufactured engine or a
freshly manufactured engine into a previously used locomotive. As we
explained in that rule, any of these events would result in a
locomotive that is essentially new.
We believe a similar situation exists for large marine diesel
engines installed on certain types of commercial marine vessels,
including tugs, towboats, ferries, crewboats, and supply boats. The
engines used for propulsion power in these vessels are often large and
are used at high load to provide power for pulling or pushing barges or
for assisting ocean-going vessels in harbor. These engines tend to be
integral to the vessel and are therefore designed to last the life of
the vessel, often 30 or more years. These engines are also relatively
expensive, costing from tens of thousands of dollars for a small tug or
ferry to several hundred thousand dollars for larger tugs, ferries, and
cargo vessels. Because it is very difficult to remove the engines from
these vessels (the engines are typically below deck and replacement
requires cutting the hull or the deck), owners insist that these marine
diesel engines last as long as the vessel. Therefore, these engines are
usually characterized by an extremely durable engine block and internal
parts.
Marine propulsion engines are frequently remanufactured to provide
dependable power, and it is not unusual for an older vessel to have its
original propulsion engines which have been remanufactured. Those parts
or systems that experience high wear rates are designed to be easily
replaced so as to minimize the time that the unit is out of service for
repair or remanufacture. This includes power assemblies, which consists
of the pistons, piston rings, cylinder liners, fuel injectors and
controls, fuel injection pump(s) and controls, and valves. The power
assemblies can be remanufactured to bring them back to as-new condition
or they can be upgraded to incorporate the latest design configuration
for that engine. As part of the routine remanufacturing process, power
assemblies and key engine components are disassembled and replaced or
requalified (i.e. determined to be within original manufacturing
tolerances).
Marine engine remanufacturing procedures have improved to the point
that engine performance for rebuilt engines is equivalent to that of
new engines. Therefore, we believe it may be appropriate to consider a
program that would set emission requirements for certain types of
marine diesel engines that would apply when they are remanufactured.
The program under consideration is described below. We request comment
on whether marine remanufacturing processes should subject
remanufactured engines to standards under the Act. We also request
comment on any and all aspects of the program described below,
including the appropriateness of applying such a program, the
standards, and its certification and compliance procedures.
(b) Other Marine Engine Remanufacture Programs
The impact of engines on existing vessels on ambient air quality
was recognized in MARPOL Annex VI. Although not specifically referred
to as a remanufacturing program, Regulation 13 contains requirements
for existing engines by requiring that the Regulation 13 NO_X
limits apply to any engine above 130 kW that undergoes a major
conversion on or after January 1, 2000. Major conversion is defined as
(i) replacing the engine with a new engine (i.e., a repower); (ii)
increasing the maximum continuous rating of the engine by more than 10
percent; or (iii) making a substantial modification to the engine
(i.e., a change to the engine that would alter its emission characteristics).
EPA also recognized the importance of the inventory contribution
from existing marine engines in our 1999 rule, and we requested comment
on national requirements for existing marine diesel engines that would
be similar to the locomotive remanufacturing program.\164\ While we
noted the potential advantages of such a program, we did not finalize a
remanufacturing program for existing marine diesel engines. At the time
we did not have a good understanding of the differences between the
large marine diesel engines used on tugs, towboats, crew and supply
boats, cargo boats, and ferries and the smaller engines used on fishing
vessels and patrol boats, and the lack of uniformity in the
remanufacturing practices used by owners of smaller engines led us to
conclude that the industry was too fractured to allow a remanufactured
engine program. However, we acknowledged the continuing importance of
the contribution of existing marine diesel engines and noted in section
VI of our 1999 rule (Areas for Future Action) that we would consider
this issue again in the future.
---------------------------------------------------------------------------

\164\ Pursuant to 40 CFR 92.2, remanufacture means ``(1)(i) to
replace, or inspect and qualify, each and every power assembly of a
locomotive or locomotive engine, whether during a single maintenance
event or cumulatively within a five-year period; or (ii) to upgrade
a locomotive or locomotive engine; or (iii) to convert nally
manufactured to use; or (iv) to install a remanufactured engine or a
freshly manufactured engine into a previously used locomotive.''
---------------------------------------------------------------------------

Since we finalized our 1999 rule many states have continued to
express concern about emissions from existing marine diesel engines and
the impact of these emissions on their ability to attain and maintain
their air quality goals. More recently, these states submitted comments
to the ANPRM and letters to the Agency expressing the need for
controlling existing engines. California is considering a program that
would require all existing harborcraft (including tug/tow, ferries,
crew, supply, pilot, work, and other vessels) to repower with an engine
certified to the then-applicable federal standards. They are
considering effective dates from 2008 through 2014, depending on the
age of an existing vessel and its size. Alternatively, California would
allow vessel owners to apply a retrofit technology that achieves
equivalent emission reductions, or adopt an alternative compliance
plan. The requirements under consideration for fishing vessels would be
less stringent and phase in from 2011 through 2018.
We've also received information from vessel owner groups that
suggests that the obstacles to a marine diesel engine remanufacturing
program we noted in our 1999 rule may be less than critical,
particularly for larger engines. Specifically, as noted above, many
owners of large marine diesel engines have their engines rebuilt on a
routine schedule and this maintenance is often performed by companies
that also remanufacture locomotive engines. In addition, many owners of
marinized locomotive engines use parts from the same remanufacturing
kits that would apply to locomotives. Various retrofit programs, such
as the Carl Moyer program in California, the TERP program in Texas, and
EPA's retrofit program, may also make it easier to identify and install
retrofit technologies on existing marine engines when they are
remanufactured.
(c) Marine Diesel Engines To Be Included in the Program
The program for remanufactured marine diesel engines described
below would apply to engines above 800 hp. We believe this threshold is
appropriate because discussions with various user groups have indicated
that these engines are most likely to be subject to the regular
remanufacturing events described above. Engines below 800 hp are more
likely to be installed on vessels used in fishing or recreational
applications. These vessels often do not

[[Page 16033]]

have the intense usage as tug/tow/pushboats, ferries, crew/supply
vessels or cargo vessels. Maintenance is more likely to be ad hoc and
performed only when there is a problem with the performance of the
engine. These vessels are also most likely to be owner operated, and
any maintenance that occurs may be performed by the owner. In addition,
as explained elsewhere in this preamble, marine diesel engines above
800 hp are the largest contributors to national inventories of
NO_X and PM emissions. Many of the vessels that use these
engines, including tugs, ferries, crew and supply boats and cargo
vessels, are in direct competition with locomotives, providing
transportation services for passengers or bulk goods and materials.
A random sample of nearly 400 vessels from the Inland River Record
(2006) suggests that the average age of vessels in that fleet is 30
years (with vessels built between 1944 and 2004), and the average
horsepower of these vessels is 1709 hp (with a range of 165 to 9,180
hp). About 72 percent of the vessels have horsepower at or above 800
hp, with about 75% of those being built after 1973. In addition, about
60 percent of the vessels with engines at or above 800 hp have engines
derived from locomotive engines. This suggests that there are
significant emission reductions that may be achieved by setting
requirements similar to the locomotive program for these engines.
Although the analysis of this alternative includes all engines
above 800 hp, this remanufacturing program for marine diesel engines
could further be limited to a subset of engines above 800 hp, for
example those manufactured after 1973. The locomotive remanufacturing
program has this age limitation, reflecting the fact that older
locomotives are expected to be retired out of the Class I line haul
fleet relatively soon. However, this may not make sense in the marine
sector as there are a lot of vessels older than 1973 in the fleet
(about 130 in our sample of about 400 vessels), and they are not
systematically retired to lower use applications.
On the other hand, this option could be expanded to include other
marine diesel engines including those below 800 horsepower. We do not
believe this expansion is appropriate, for the reasons outlined above
(i.e., maintenance may be more ad hoc and performed by the owner/
operator instead of by a professional remanufacturer at a shipyard).
However, we request comment on this issue.
The program described in this alternative could be further modified
by specifying that all engines on a vessel would be considered to be
subject to the remanufacturing requirements if the main propulsion
engine falls under the scope of the program. In essence, this approach
would treat all engines onboard a vessel as a system. While
remanufacture kits may not be available for smaller auxiliary engines,
it may be possible to retrofit them with emission controls that will
achieve the 25 percent PM reduction. In addition, repowering auxiliary
engines onboard these vessels may not be a limiting factor as these
engines are often removed to be rebuilt and other engines installed in
their place. We request comment on this aspect of expanding the program.
(d) Alternative 5: Existing Engines
Due to the impact of marine diesel engines on the environment, the
need for reductions for states to achieve their attainment goals, and
our better understanding of the marine remanufacturing sector, we are
considering a programmatic alternative that would set emission
requirements for marine diesel engines on existing vessels when they
are remanufactured.
The program under consideration in this alternative would apply to
marine diesel engines above 800 hp. We believe this is a reasonable
threshold because of the long hours of use of these engines, often at
high load, and their long service lives. The program would draw on
features of the locomotive remanufacturing program, in that it would
apply when a marine diesel engine is remanufactured. It would also draw
on the certification requirements of the urban bus retrofit program
(see 58 FR 21359 (April 21, 1993), 63 FR 14626 (March 26, 1998), 40 CFR
part 85 subpart O), in that the standard would in part be a function of
the emissions from the base engine and that the standard might be
subject to a cost threshold.
This marine engine remanufacturing alternative consists of a two-
part program. In the first part, which could begin as early as 2008,
vessel owners and rebuilders (also called remanufacturers) would be
required to use a certified kit when the engine is rebuilt (or
remanufactured) if such a kit is available. Initially, these kits would
be expected to be locomotive kits and therefore applicable only to
those engines derived from similar locomotive engines. Eventually,
however, it is expected that the large engine manufacturers would also
provide kits for their engines. Kit availability would be expected to
track the relative share of models to the total population of engines,
so that kits for the most popular engine models would be made available
first. Because the potential for emission reductions are expected to be
quite varied across the diverse range of existing marine diesel
engines, we could consider setting a multi-stepped emission standard
similar to the Urban Bus program. For example, the program could set
standards based on reductions of 60%, 40% and 20% with a requirement
that a rebuilder must use a certified kit meeting the most stringent of
these three standards if available. If no kit is available meeting the
60% reduction, then the rebuilder can use one meeting the 40%
reduction, and similarly, if no kits are available meeting the 40% or
60% standards, then the rebuilder can use a kit meeting the 20%
reduction. In this way, engines which can achieve a 60% reduction are
likely to realize that reduction because a kit builder will be
motivated to develop a kit meeting the most stringent standard
possible. We request comment regarding the appropriateness of such an
approach, and were we to adopt such a structure, the need for greater
or less stratification across the potential emission standards.
In the second part, which could begin in 2013, the remanufacturer/
owner of a marine diesel engine identified by the EPA as a high-sales
volume engine model would have to meet specified emission requirements
when the engine is remanufactured. Specifically, the remanufacturer or
owner would be required to use a system certified to meet the standard;
if no certified system is available, he or she would need to either
retrofit an emission reduction technology for the engine that
demonstrates at least a 25 percent reduction or repower (replace the
engine with a new one). The mandatory use of an available kit is
intended to create a market for kits to help ensure their development
over the initial five years of the program.
To ensure that the program results in the expected emission
reductions, an emission threshold could be set as well such that the
retrofit technology would be required to demonstrate a 25 percent
reduction with emissions not to exceed 0.22 g/kW-hr PM (equivalent to
the new Tier 0/1 PM limit). We believe a threshold, if one is included,
should focus on PM emissions over NO_X because PM reductions
can be accomplished through the use of improved engine components, for
example changing cylinder rings or liners to reduce oil consumption and
PM emissions. We do not believe a NO_X threshold is
appropriate because technologies to reduce NO_X may not be as
amenable to a remanufacturing kit

[[Page 16034]]

approach. However, we would welcome comments regarding the need for a
threshold, and the limit at which it should be set, and the
appropriateness of a NO_X standard as well.
The second part of the program is contingent on EPA developing a
list of high volume marine diesel engines for which a remanufacture
certificate must be available by 2013. EPA will continue to work with
engine manufactures and other interested stakeholders to develop such a
list, and seeks comment on the engine models that should be included.
The goal of this list is to identify those engine models that occur
frequently enough in the market to justify the development of a
remanufacture kit; engine models with just a few units in the
population may not be required to comply with the requirements.
Finally, the second step of the program could be made subject to a
technical review in 2011. The object of such a review would be for EPA
to assess the current and future availability of certified kits and to
determine if any adjustments are necessary for the program including
the effective date of the mandatory repower requirement and whether any
change in the list of high-volume engine models is warranted due to new
information.
With regard to technological feasibility, we believe engine
manufacturers would utilize incremental improvements to existing engine
components. Because such a remanufactured marine engine program would
parallel our existing remanufactured locomotive program, we expect a
direct transfer of emissions control technology from locomotives to
marine engines for similar engines. In fact, in our discussions with
vessel operators, they indicated that they are sometimes already using
the EPA-certified lower emissions remanufacturing kits that are
currently on the market to meet our locomotive remanufacturing program.
Engines that do not have a locomotive counterpart will in many
cases start at a cleaner baseline than locomotive-based marine engines.
Therefore, the same total reduction that could be expected from the
locomotive remanufacture kits could not be expected from these engines.
However, we would expect that similar PM emissions control technologies
would be used to meet the requirements of the program. Technologies to
achieve PM reductions include existing low-oil-consumption piston ring-
pack designs and existing closed crankcase systems. Our discussions
with marine diesel engine manufacturers suggest reductions of 25
percent with emissions not to exceed 0.22 g/kW-hr PM are feasible.
These technologies would provide significant near-term PM reductions.
Because all of the aforementioned technologies to reduce emissions
already exist or can be developed and introduced into the market within
a very short time period, we believe some of this technology could be
implemented on a limited basis as early as 2008 on remanufactured
marine engines. We also believe that these technologies could be fully
implemented in a marine remanufacturing program by the end of 2012. In
addition, it may be possible to include NO_X emission control
technologies in these kits to achieve greater reductions.
To help ensure the remanufacturer's solutions are reasonably
priced, the program could set a limit on the price the owner/
remanufacturer could be expected to pay for the kit, similar to the
urban bus program. Such a limit may be necessary because a program that
would require the use of a certified kit may provide a potential short-
term monopoly for kit certifiers, at least until other kits are
certified. Such a monopoly environment may create the potential for kit
prices to be unrelated to actual kit cost. However, unlike the urban
bus program, the diverse nature of marine diesel engines makes setting
a single cost limit per engine unreasonable. Instead, we would look to
develop a factor that corresponds to engine size, power, or emissions.
For example, we could consider setting a limit based on the PM
reduction (the cost per ton of PM reduced). We could consider a limit
of $45,000 per ton of PM reduced. This cost is far below the monetized
health and welfare benefits we have estimated will be realized from a
reduction in diesel PM emissions. We request comment on such an
approach for setting a reasonable cost threshold.
As in the locomotive remanufacturing program, anyone could certify
a remanufacturing kit, but only certified kits may be used to comply
with the requirement. We expect this to be primarily engine
manufacturers or aftermarket part manufacturers. However, a fleet owner
with several vessels with the same model engine could choose to certify
a kit, the use of which would then become mandatory for all engines of
that model, unless another equivalent kit is also available for that
model. In addition, certification could be streamlined for kit
manufacturers. We would look to the Agency's past practices with the
Urban Bus Program and the Voluntary Retrofit Verification Program when
designing a certification procedure. However, as in the locomotive
remanufacture program, the certifier is deemed to be a ``manufacturer''
subject to the emission standards and as such would be subject to all
of the obligations on such an entity under our primary program,
including warranty, recall, in-use liability, among others. With regard
to the retrofit requirement, we request comment on how we could
streamline the certification for these technologies such that their use
will not impose a larger certification burden on the owner of the
vessel. We welcome comments on all aspects of the implementation of
this possible remanufacturing program.
The costs and benefits of a program as outlined above are included
in Table VII-1 and Table VII-2. We estimate that the compliance costs
for the marine remanufacturing program would be around $10 million per
year in 2030. Using the benefits transfer approach from the primary
control scenario to estimate the benefits of these inventory
reductions, the additional monetized benefits would be expected to be
about $0.3 billion at a 3% DR ($0.3 at a 7% DR) in 2030.
With regard to benefits, the application of locomotive
remanufacture kits to similar marine diesel engines would be expected
to result in similar reductions in PM and NO_X emissions. In
some cases, this could be as much as 60 percent reduction for PM and 25
percent reduction for NO_X. However, because many marine
diesel engines start at a cleaner baseline, we would not expect to
accomplish the same reductions from all engines that would be subject
to the program. Based on a minimal control case of a 25 percent PM
reduction from existing marine diesel engines above 800 hp, we estimate
about an additional 27,000 tons NPV 3% (16,000 tons at NPV 7%) of
PM_2.5 reductions, and an additional 320,000 tons NPV 3%
(220,000 tons at NPV 7%) of NO_X reductions through 2040.

B. Summary of Results

A summary of the five alternatives is contained in Table VII-1 and
Table VII-2 below. Table VII-1 includes the expected emission
reductions associated with each alternative, including: the estimated
PM and NO_X reductions through 2040 for each alternative
expressed as a net present value (NPV) using discounting rates of 3%
and 7%. It also includes the estimated costs through 2040 associated
with each alternative again expressed at 3% NPV and 7% NPV. For
additional comparison, Table VII-2 shows the PM and NO_X
inventory reductions, costs,

[[Page 16035]]

and benefits of each alternative estimated for the year 2030.

Table VII-1.--Summary of Inventory and Costs at NPV 3% and 7%
----------------------------------------------------------------------------------------------------------------
Estimated
PM2.5 Estimated NOX Total costs
Alternatives Standards reductions reductions millions 2006-
2006-2040 NPV 2006-2040 NPV 2040 NPV 3%
3% (7%) 3% (7%) (7%) \a\
----------------------------------------------------------------------------------------------------------------
Primary Case.......................... ? Locomotive 315,000 7,870,000 $7,230
Remanufacturing. (135,000) (3,180,000) ($3,230)
? Tier 3 Near-
term program.
? Tier 4 Long-
term standards.
Alternative 1: Exclusion of Locomotive ? Tier 3 Near- 250,000 7,180,000 $6,430
Remanufacturing. term program. (100,000) (2,780,000) ($2,700)
? Tier 4 Long-
term standards.
Alternative 2: Tier 4 Advanced One ? Locomotive 324,000 8,290,000 $7,590+C
Year. Remanufacturing. (140,000) (3,390,000) ($3,440)+C
? Tier 3 Near-
term program.
? Tier 4 Long-
term standards advanced
one year.
Alternative 3: Tier 4 Exclusively in ? Tier 4 Long- 255,000 8,050,000 $7,410+C
2013. term standards only in (104,000) (3,280,000) ($3,220)+C
2013.
Alternative 4: Elimination of Tier 4.. ? Locomotive 207,000 2,910,000 $950
Remanufacturing. (94,000) (1,310,000) ($650)
? Tier 3 Near-
term program.
Alternative 5: Inclusion of Marine ? Locomotive 342,000 8,190,000 $7,650
Remanufacturing. Remanufacturing. (151,000) (3,400,000) ($3,510)
? Tier 3 Near-
term program.
? Tier 4 Long-
term standards.
? Addition of
Marine Remanufacturing.
----------------------------------------------------------------------------------------------------------------
\a\ `C' represents the additional costs necessary to accelerate the introduction of Tier 4 technologies that we
are unable to estimate at this time.

Table VII-2.--Inventory, Costs and Benefits for 2030
----------------------------------------------------------------------------------------------------------------
2030 Benefits
2030 PM2.5 2030 NOX 2030 Total \a\ \b\
Emissions Emissions costs (billions)
reductions reductions (millions) PM2.5 only 3%
(tons) (tons) (7%)
----------------------------------------------------------------------------------------------------------------
Primary Case.................................... 28,000 770,000 $610 $12 ($11)
Alternative 1: Exclusion of Locomotive 25,000 740,000 $580 $8.8 ($8.0)
Remanufacturing................................
Alternative 2: Tier 4 Advanced One Year......... 28,000 790,000 $620 $12 ($11)
Alternative 3: Tier 4 Exclusively in 2013....... 25,000 770,000 $630 $11 ($10)
Alternative 4: Elimination of Tier 4............ 17,000 240,000 $22 $6.2 ($5.7)
Alternative 5: Inclusion of Marine 29,000 770,000 $620 $12 ($11)
Remanufacturing................................
----------------------------------------------------------------------------------------------------------------
\a\ Note that the range of PM-related benefits reflects the use of an empirically-derived estimate of PM
mortality benefits, based on the ACS cohort study (Pope et al., 2002).
\b\ Annual benefits analysis results reflect the use of a 3 percent and 7 percent discount rate in the valuation
of premature mortality and nonfatal myocardial infarctions, consistent with EPA and OMB guidelines for
preparing economic analyses (US EPA, 2000 and OMB, 2003). U.S. Environmental Protection Agency, 2000.
Guidelines for Preparing Economic Analyses.
http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/Guidelines.html.

VIII. Public Participation

We request comment on all aspects of this proposal. This section
describes how you can participate in this process.

A. How Do I Submit Comments?

We are opening a formal comment period by publishing this document.
We will accept comments during the period indicated in the DATES
section at the beginning of this document. If you have an interest in
the proposed emission control program described in this document, we
encourage you to comment on any aspect of this rulemaking. We also
request comment on specific topics identified throughout this proposal.
Your comments will be most useful if you include appropriate and
detailed supporting rationale, data, and analysis. Commenters are
especially encouraged to provide specific suggestions for any changes
to any aspect of the regulations that they believe need to be modified
or improved. You should send all comments, except those containing
proprietary information, to our Air Docket (see ADDRESSES located at
the beginning of this document) before the end of the comment period.
You may submit comments electronically, by mail, or through hand
delivery/courier. To ensure proper receipt by EPA, identify the
appropriate docket identification number in the subject line on the
first page of your comment. Please ensure that your comments are
submitted within the specified comment period. Comments received after
the close of the comment period will be marked ``late.'' EPA is not
required to consider these late comments. If you wish to submit
Confidential Business Information (CBI) or information that is
otherwise protected by statute, please follow the instructions in
section VIII.B.

B. How Should I Submit CBI to the Agency?

Do not submit information that you consider to be CBI
electronically through the electronic public docket,
http://www.regulations.gov, or by e-mail. Send or deliver information
identified as CBI only to the following address: U.S. Environmental
Protection Agency, Assessment and Standards Division, 2000 Traverwood
Drive, Ann Arbor, MI 48105, Attention Docket ID EPA-HQ-OAR-2005-0036.
You may claim information that you submit to EPA as CBI by marking any
part or all of that information as CBI (if you submit CBI on disk or CD
ROM, mark the

[[Page 16036]]

outside of the disk or CD ROM as CBI and then identify electronically
within the disk or CD ROM the specific information that is CBI).
Information so marked will not be disclosed except in accordance with
procedures set forth in 40 CFR part 2.
In addition to one complete version of the comment that includes
any information claimed as CBI, a copy of the comment that does not
contain the information claimed as CBI must be submitted for inclusion
in the public docket. If you submit the copy that does not contain CBI
on disk or CD ROM, mark the outside of the disk or CD ROM clearly that
it does not contain CBI. Information not marked as CBI will be included
in the public docket without prior notice. If you have any questions
about CBI or the procedures for claiming CBI, please consult the person
identified in the FOR FURTHER INFORMATION CONTACT section at the
beginning of this document.

C. Will There Be a Public Hearing?

We will hold a public hearing on Tuesday, May 8, 2007 at the Hilton
Seattle Airport & Conference Center, 17620 International Boulevard,
Seattle, WA 98188-4001, Telephone: 206-244-4800. We will also hold a
public hearing on Thursday, May 10, 2007 at the Sheraton Gateway Suites
Chicago O'Hare, 6501 North Mannheim Road, Rosemont, IL 60018,
Telephone: 847-699-6300. These hearings will both start at 10 a.m.
local time and continue until everyone has had a chance to speak.
If you would like to present testimony at the public hearing, we
ask that you notify the contact person listed under FOR FURTHER
INFORMATION CONTACT at least ten days before the hearing. You should
estimate the time you will need for your presentation and identify any
needed audio/visual equipment. We suggest that you bring copies of your
statement or other material for the EPA panel and the audience. It
would also be helpful if you send us a copy of your statement or other
materials before the hearing.
We will make a tentative schedule for the order of testimony based
on the notifications we receive. This schedule will be available on the
morning of the hearing. In addition, we will reserve a block of time
for anyone else in the audience who wants to give testimony.
We will conduct the hearing informally, and technical rules of
evidence won't apply. We will arrange for a written transcript of the
hearing and keep the official record of the hearing open for 30 days to
allow you to submit supplementary information. You may make arrangements
for copies of the transcript directly with the court reporter.

D. Comment Period

The comment period for this rule will end on July 2, 2007.

E. What Should I Consider as I Prepare My Comments for EPA?

You may find the following suggestions helpful for preparing your
comments:
? Explain your views as clearly as possible.
? Describe any assumptions that you used.
? Provide any technical information and/or data you used
that support your views.
? If you estimate potential burden or costs, explain how you
arrived at your estimate.
? Provide specific examples to illustrate your concerns.
? Offer alternatives.
? Make sure to submit your comments by the comment period
deadline identified.
? To ensure proper receipt by EPA, identify the appropriate
docket identification number in the subject line on the first page of
your response. It would also be helpful if you provided the name, date,
and Federal Register citation related to your comments.

IX. 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 that was prepared, and is available in
the docket for this rulemaking and at the docket internet address
listed under ADDRESSES above.

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 numbers 1800.04 for locomotives and 1684.10 for marine
diesels.
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. Recordkeeping and reporting requirements for manufacturers would
be pursuant to the authority of section 208 of the Clean Air Act.
The total annual burden associated with this proposal is about
25,209 hours for locomotives and 35,030 hours for marine diesels;
$2,724,503 for locomotives, based on a projection of 7 respondents; and
$2,018,607 for marine diesels based on a projection of 13 respondents.
The estimated burden is a total estimate for both new and existing
reporting requirements. 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.
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-2003-0190. Submit
any comments related to the ICR for this proposed rule to EPA and OMB.
See ADDRESSES

[[Continued on page 16037]]

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

Control of Emissions of Air Pollution From Locomotive Engines and Marine Compression-Ignition Engines Less Than 30 Liters per Cylinder

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