f/EPA
  United States
  Environmental Protection
  Agency
Office of Transportation                    EPA420-R-04-007
and Air Quality                       May 2004
             Final Regulatory Analysis:
             Control of Emissions from
             Nonroad Diesel Engines

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                                      EPA420-R-04-007
                                           May 2004
Final Regulatory Impact Analysis:
    Control of Emissions from
     Nonroad Diesel Engines
       Assessment and Standards Division
      Office of Transportation and Air Quality
      U.S. Environmental Protection Agency

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                                                                              Executive Summary
List of Acronyms
 ABT
 AEO
 AGME
 APA
 AT
 BSFC
 CAA
 CCV
 CDPF
 CFR
 CI
 CMV
 CO
 DF
 DI
 DOC
 EF
 EGR
 EIA
 EIA
 FR
 FTC
 GPA
 GDP
 HC
 HD2007
 hp
 IDI
 IRFA
 kW
 L&M
Averaging, Banking, and Trading
Annual Energy Outlook
Above-ground mining equipment
Administrative Procedures Act
Aftertreatment
Brake Specific Fuel Consumption
Clean Air Act
Closed crankcase ventilation
Catalyzed diesel particulate filter
Code of Federal Regulations
Compression-Ignition
Commercial Marine Vessel
Carbon monoxide
Deterioration Factor
direct injection
Diesel oxidation catalyst
Emission Factor
Exhaust gas recirculation
U. S. Energy Information Administration
Economic Impact Analysis
Federal Register
Federal Trade Commission
Geographic Phase-In Area
Gross domestic product
Hydrocarbons
Heavy-duty 2007 refers to the final rule setting emission standards for 2007 and later engines
Horsepower
Indirect injection
Initial Regulatory Flexibility Analysis
kilowatt
Locomotive and marine
                                                  111

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Final Regulatory Support Document
 MPP
 NAICS
 NDEIM
 NMHC
 NPV
 NR
 NRLM
 O&M
 OMB
 PADD
 PM
 ppm
 PSR
 PTD
 R&D
 RFA
 RIA
 SBA
 SBAR
 SBREFA
 SER
 SIC
 stds
 TAP
 TPEM
 ULSD
 VMP
 VOC
 ZHL
marginal physical product
North American Industry Classification System
Nonroad Diesel Economic Impact Model
Non-methane hydrocarbons
Net present value
Nonroad
Nonroad, Locomotive, and Marine diesel fuel
operating and maintenance
Office of Management and Budget
Petroleum Administration Districts for Defense
Particulate matter
Parts per million
Power Systems Research
Product Transfer Document
Research and Development
Regulatory Flexibility Act
Regulatory Impact Analysis
Small Business Administration
Small Business Advocacy Review
Small Business Regulatory Enforcement Fairness Act
Small Entity Representative
Standard Industrial Classification
standards
Transient Adjustment Factor
Transition program for engine manufacturers (see 40 CFR 89.102 and the proposed 40 CFR
Ultra Low  Sulfur Diesel
value of marginal product
Volatile organic compounds
Zero-Hour Emission Level
                                                 IV

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                                                                  Executive Summary
                             Executive Summary
   The Environmental Protection Agency (EPA) is adopting requirements to reduce emissions
of particulate matter (PM), oxides of nitrogen (NOX), and air toxics from nonroad diesel engines.
This rule includes emission standards for new nonroad diesel engines.  The rule also reduces the
level of sulfur for diesel fuels used in nonroad engines, locomotive engines, and marine engines.
The reduction in sulfur for nonroad diesel fuel will enable the use of advanced emission-control
technology that new nonroad diesel engines will use to achieve the emission reductions called
for under the engine standards in this final rule.  In addition, the reduction in sulfur will provide
important public health and welfare benefits by reducing emissions of PM and SO2 from
nonroad, locomotive and marine diesel engines.

   This executive summary describes the relevant air-quality issues, highlights the new Tier 4
emission standards and fuel requirements, and gives an overview of the analyses in the rest of
this document.

Air Quality Background and Estimated Environmental Impact of the Final Rule

   Emissions from nonroad, locomotive, and marine diesel engines contribute greatly to a
number of serious air pollution problems and would continue to do so in the future absent further
reduction measures. Such emissions lead to adverse health and welfare effects associated with
ozone, PM, NOX, SOX, and volatile organic compounds,  including toxic compounds. In addition,
diesel exhaust is of specific concern because it is likely to be carcinogenic to humans by
inhalation, as well as posing a hazard from noncancer respiratory effects.  Ozone, NOX, and PM
also cause significant public welfare harm, such as damage to crops, eutrophication, regional
haze, and soiling of building materials.

   Millions of Americans  continue to live in areas with unhealthy air quality that may endanger
public health and welfare.  There are approximately 159 million people living in areas that either
do not meet the 8-hour ozone National Ambient Air Quality  Standards (NAAQS) or contribute
to violations in other counties  as noted in EPA's recent nonattainment designations for part or all
of 474 counties.  In addition, approximately 65 million people live in counties where air quality
measurements violate the PM2 5 NAAQS. These numbers do not include the tens of millions of
people living in areas where there is a significant future  risk of failing to maintain or achieve the
ozone or PM2 5 NAAQS. Federal, state, and local governments are working to bring ozone and
PM levels into compliance with the NAAQS attainment  and maintenance plans.  The reductions
included in this final rule will play a critical part in these actions. Reducing regional emissions
of SOX is critical to this strategy for attaining the PM NAAQS and meeting regional haze goals  in
our treasured national parks.  SOX levels can themselves  also pose a respiratory hazard.

   In 1996,  emissions from land-based nonroad diesel engines,  locomotive engines, and marine


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Final Regulatory Support Document
diesel engines were estimated to be about 40 percent of the total mobile-source inventory of
PM2 5 (particulate matter less than 2.5 microns in diameter) and 25 percent of the NOX inventory.
Absent this final rule, these contributions would be expected to grow to 44 percent and 47
percent by 2030 for PM2 5 and NOX, respectively.  By themselves, land-based nonroad diesel
engines are a very large part of the mobile-source PM25 inventory for diesel engines,
contributing about 47 percent in 1996, and growing to 70 percent by 2020 without this final rule.

    The requirements in this rule will result in substantial benefits to public health and welfare
and the environment through significant reductions in NOX and PM, as well as nonmethane
hydrocarbons (NMHC), carbon monoxide (CO), SOX and air toxics. By 2030, this program will
reduce annual emissions of NOX and PM by 738,000 and 129,000 tons, respectively.  We
estimate these annual emission reductions will prevent 12,000 premature deaths, over 8,900
hospitalizations, 15,000 nonfatal heart attacks, and approximately 1 million days that people
miss work because of respiratory symptoms.  The overall quantifiable benefits will total over $83
billion annually by 2030, with a 30-year net present value of $805 billion.

    A comparison of the rule's quantified costs and quantified benefits indicates that estimated
benefits (approximately $80 billion per year)  are much larger than estimated costs (roughly $2
billion per year). This favorable result was found to be robust in a variety of sensitivity and
uncertainty analyses.  The favorable net benefits are particularly impressive since there are a
substantial number of health and environmental advantages of the rule that could not be
quantified.  In the final Regulatory Impact Analysis, the Agency has done extensive analysis to
identify, describe and quantify the degree of uncertainty in the benefit estimates (see Chapter 9).
This analysis suggests that the high end of the uncertainty range for this rule's estimated benefits
could exceed the low end of the range by a factor  of 20.  In addition, illustrative calculations
indicate that the uncertainty range could span two orders of magnitude using the preliminary
results of an EPA-OMB  collaborative study on expert judgment for the relative risk of mortality
from PM exposure. Despite the uncertainty inherent in the benefit-cost analysis for this rule,  the
results strongly support a conclusion that the benefits will substantially exceed costs.

Engine Emission Standards

    Tables 1 through 4 show the Tier 4 emission standards and when they apply. For most
engines, these standards  are similar in stringency to the final standards included in the 2007
highway diesel program  and are expected to require the use of high-efficiency aftertreatment
systems.  As shown in the Table 2, we are phasing in many of the standards over time to address
considerations of lead time, workload, and overall feasibility.  In addition, the final rule includes
other provisions designed to address the transition to meeting the long-term Tier 4 standards.
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                                                                           Executive Summary
                  Table 1—Tier 4 PM Standards (g/bhp-hr) and Schedule
Engine Power
hp<25 (kW<19)
25750 (kW>560)
Model Year
2008
0.30 a
0.22"


2009




2010




2011



0.01
2012


0.01

2013

0.02


see Table 3
Notes:
a For air-cooled, hand-startable, direct injection engines under 11 hp, a manufacturer may instead delay
implementation until 2010 and demonstrate compliance with a less stringent PM standard of 0.45 g/bhp-hr,
subject also to additional provisions discussed in section II. A3.a of the preamble.
b  A manufacturer has the option of skipping the 0.22 g/bhp-hr PM standard for all 50-75 hp engines. The 0.02
g/bhp-hr PM standard would then take effect one year earlier for all 50-75 hp engines, in 2012.
                 Table 2—Tier 4 NOx and NMHC Standards and Schedule
Engine Power
25 750 (kW>560)
Standard (g/bhp-hr)
NOx
NMHC
3.5NMHC+NOxb
0.30
0.30
0.14
0.14
Phase-in Schedule2 (model year)
2011


50%
2012

50% c
50%
2013
100%
50% c
50%
2014

100%c
100%
see Table 3
Notes:
a  Percentages indicate production required to comply with the Tier 4 standards in the indicated model year.
b  This is the existing Tier 3 combined NMHC+NOx standard level for the 50-75 hp engines in this category. In
2013 it applies to the 25-50 hp engines as well.
0  Manufacturers may use banked Tier 2 NMHC+NOx credits to demonstrate compliance with the 75-175 hp
engine NOx standard in this model year. Alternatively, manufacturers may forego this special banked credit
option and instead meet an alternative phase-in requirement of 25/25/25% in 2012, 2013, and 2014 through
December 30, with 100% compliance required beginning December 31, 2014. See sections III.A and II.A.2.b of
the preamble.
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Final Regulatory Support Document
             Table 3 - Tier 4 Alternative NOx Phase-in Standards (g/bhp-hr)
Engine Power
75 < hp < 175 (56 < kW<130)
175 < hp < 750 (130 < kW < 560)
NOx Standard
(g/bhp-hr)
1.7 a
1.5
 Notes:
 "Under the option identified in footnote b of Table 2, by which manufacturers may meet an alternative phase-in
 requirement of 25/25/25% in 2012, 2013, and 2014 through December 30, the corresponding alternative NOx
 standard is 2.5 g/bhp-hr.
              Table 4—Tier 4 Standards for Engines Over 750 hp (g/bhp-hr)

engines used in:
generator sets <1200 hp
generator sets >1200 hp
all other equipment
2011
PM
0.075
0.075
0.075
NOx
2.6
0.50
2.6
NMHC
0.30
0.30
0.30
2015
PM
0.02
0.02
0.03
NOx
0.50
no new
standard
no new
standard
NMHC
0.14
0.14
0.14
   EPA has also taken steps to ensure that engines built to these standards achieve effective real-
world emission control including the transient duty cycle (both cold-start and hot-start testing),
steady-state duty cycles, and Not-to-Exceed standards and test procedures. The Not-to-Exceed
provisions are modeled after the highway program, with which much of the industry has gained
some level  of experience.

Feasibility of Meeting Tier 4 Emission Standards

       For the past 30 or more years, emission-control development for gasoline vehicles and
engines has concentrated most aggressively on aftertreatment technologies (i.e., in-exhaust
catalyst technologies).  These devices currently provide as much as or more than 95 percent of
the emission control on a gasoline vehicle. In contrast, the emission-control development work
for highway and nonroad diesel engines has concentrated on improvements to the engine itself to
limit the emissions formed in the engine (engine-out control technologies).

   During the past 15 years, however, more development effort has been put into catalytic
exhaust emission-control devices for diesel engines, particularly in the area of particulate matter
(PM) control.  Those developments, and recent developments in diesel NOx exhaust emission-
control devices, make the widespread commercial use of highly efficient diesel exhaust emission
controls feasible. EPA has recently set new emission standards for diesel engines installed in
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                                                                   Executive Summary
highway vehicles based on the emission-reduction potential of these devices. These devices will
also make possible a level of emission control for nonroad diesel engines that is similar to that
attained by gasoline catalyst systems. However, without the same ultra-low-sulfur diesel fuel
that will be used by highway engines, these technologies cannot be implemented.

    The primary focus of the Tier 4 program is the transfer of catalyst based emission control
technologies developed for on-highway diesel engines to nonroad engines. This RIA
summarizes extensive analyses evaluating the effectiveness  of these new emission control
technologies and the specific challenges to further develop these technologies for nonroad
applications.  The RIA concludes that for a very significant fraction of nonroad diesel engines
and equipment, the application of advanced catalyst based emission control technology is
feasible in the Tier 4 timeframe given the availability of 15 ppm sulfur diesel fuel.

    Although the primary focus of the Tier 4 emissions program and the majority of the analyses
contained in this RIA are directed at the application of catalytic emission control technologies
enabled by 15 ppm sulfur diesel fuel, there are also important elements of the program based
upon continuing improvements in engine-out emission controls.  Like the advanced catalytic
based technologies, these engine-out emission solutions for nonroad diesel engines rely upon
technologies already applied to on-highway diesel engines.  Additionally, these technologies
form the basis for the Tier 3 emission standards for some nonroad diesel engines in other size
categories.

Controls on the Sulfur Content of Diesel Fuel

    We are finalizing the a two-step sulfur standard for nonroad, locomotive and marine
(NRLM) diesel fuel that will achieve significant, cost-effective sulfate PM and SO2 emission
reductions. These emission reductions will, by themselves, provide dramatic environmental and
public health benefits which far outweigh the cost of meeting the standards necessary to achieve
them. In addition, the final sulfur standards for nonroad diesel fuel will enable advanced high
efficiency emission control technology to be applied to nonroad engines. As a result, these
nonroad fuel sulfur standards, coupled with our program for more stringent emission standards
for new nonroad engines and equipment, will also achieve dramatic NOx and PM emission
reductions. Sulfur significantly inhibits or impairs the function of the diesel exhaust emission
control devices which will generally be necessary for nonroad diesel engines to meet the
emission standards in this final rule.  With the 15 ppm sulfur standard for nonroad diesel fuel, we
have concluded that this emission control technology will be available for model year 2011 and
later nonroad diesel engines to achieve the NOx and PM emission standards adopted in this final
rule. The benefits of this final rule also include the sulfate PM and SO2 reductions achieved by
establishing the same standard for the sulfur content of locomotive and marine diesel fuel.

    The fuel sulfur requirements established under this final rule are similar to the sulfur limits
established for highway diesel fuel in prior rulemakings - 500 ppm in 1993 ( 55 FR 34120,
August 21, 1990) and  15 ppm in 2006 (66 FR 5002, January 18, 2001). Beginning June 1, 2007,
refiners will be required to produce NRLM diesel fuel with a maximum  sulfur content of 500

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Final Regulatory Support Document
ppm. Then, beginning June 1, 2010, the sulfur content will be reduced for nonroad diesel fuel to
a maximum of 15 ppm. The sulfur content of locomotive and marine diesel fuel will be reduced
to 15 ppm beginning June 1, 2012. The program contains certain provisions to ease refiners'
transition to the lower sulfur standards and to enable the efficient distribution of all diesel fuels.

   The final program also contains provisions to smooth the refining industry's transition to the
low sulfur fuel requirements, encourage earlier introduction of cleaner burning fuel, maintain the
fuel distribution system's flexibility to fungibly distribute similar products, and provide an outlet
for off-specification distillate product.  These provisions, which will maintain, and even enhance,
the health and environmental benefits of this rule, include the 2012 date for locomotive and
marine diesel fuel, early credits for refiners and importers and special provisions for small
refiners, transmix processors, and entities in the fuel distribution system.

Feasibility of Meeting Diesel Fuel Sulfur Standards

       We conclude that it is feasible for refiners to meet the 500 ppm and 15 ppm sulfur cap
standards for nonroad, locomotive and marine diesel fuel (NRLM). We project that refiners will
use conventional desulfurization technology for complying with the 500 ppm sulfur standard in
2007, which is the same technology used to produce 500 ppm sulfur highway diesel fuel today.
Refiners complying with the 500 ppm sulfur NRLM diesel fuel standard will have about the
same amount of lead time refiners had in complying with the highway diesel fuel  standard, when
it took affect in 1993, and they can draw on their experience gained from complying with the
1993 highway sulfur standard. Thus we conclude that refiners producing 500 ppm NRLM diesel
fuel will have sufficient leadtime. For complying with the 15 ppm  sulfur cap standards
applicable to nonroad diesel fuel in 2010 and to locomotive and marine diesel fuel in 2012,
refiners will be able to use the experience gained from complying with the 15 ppm highway
diesel fuel standard which begins to take effect in 2006. Furthermore, refiners will have ample
lead time of at least six years before they will have to begin to produce 15 ppm sulfur nonroad
diesel fuel. For complying with both the 15 ppm sulfur standard for nonroad diesel fuel in 2010
and the locomotive and marine diesel fuel  in 2012, we expect many refiners to utilize lower cost
advanced desulfurization technologies which have recently been commercialized.  Others will
rely on extensions of conventional hydrotreating technology which most refiners are planning on
using to comply with the 15 ppm cap for highway diesel fuel in 2006.  These technologies will
enable refiners to achieve the 15 ppm NRLM sulfur standards.

       We do not expect any new significant issues regarding the feasibility of distributing
NRLM fuels that meet the sulfur standards in this rule. The highway diesel program
acknowledged that limiting sulfur contamination during the distribution of 15 ppm diesel fuel
would be a significant challenge to industry. Industry is already taking the necessary steps to
rise to this challenge to distribute highway diesel fuel meeting a 15 ppm sulfur standard by the
2006 implementation date for this standard. Thus, we believe that any issues regarding limiting
sulfur contamination during the distribution of 15 ppm sulfur nonroad, and locomotive/marine
diesel fuel will have been resolved a  number of years before the implementation of the  15 ppm
sulfur standard for these fuels (in 2010 and 2012 respectively).

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                                                                   Executive Summary
       The fuel program in this rule is structured in such a way to maximize fuel fungibility and
minimize the need for additional segregation of products in the fuel distribution system. Thus,
this rule will only result in the need for a limited number of additional storage tanks at terminals
and bulk plants in the interim, and in the long run will result in a simplified overall product slate
that needs to be distributed.
Estimated Costs and Cost-Effectiveness

       There are approximately 600 nonroad equipment manufacturers using diesel engines in
several thousand different equipment models.  There are more than 50 engine manufacturers
producing diesel engines for these applications.  Fixed costs consider engine research and
development, engine tooling, engine certification, and equipment redesign.  Variable costs
include estimates for new emission-control hardware. Near-term and long-term costs for some
example pieces of equipment are shown in Table 5. Also shown in Table 5  are typical prices for
each piece of equipment for reference. See Chapter 6 for detailed information related to our
engine and equipment cost analysis.

      Table 5— Long-Term Costs for Several Example Pieces of Equipment ($2002)a

Horsepower
Displacement (L)
Incremental Engine &
Equipment Cost
Long Term
Near Term
Estimated Equipment
Priceb
GenSet
9hp
0.4
$120
$180
$4,000
Skid/Steer
Loader
33 hp
1.5
$790
$1,160
$20,000
Backhoe
76 hp
3.9
$1,200
$1,700
$49,000
Dozer
175 hp
10.5
$2,560
$3,770
$238,000
Agricultural
Tractor
250 hp
7.6
$1,970
$3,020
$135,000
Dozer
503 hp
18
$4,140
$6,320
$618,000
Off-
Highway
Truck
1000 hp
28
$4,670
$8,610
$840,000
1 Near-term costs include both variable costs and fixed costs; long-term costs include only variable costs and represent
       those costs that remain following recovery of all fixed costs.
       Our estimated costs related to changing to ultra-low-sulfur fuel take into account all of
the necessary changes in both refining and distribution practices. We have estimated the cost of
producing 500 ppm sulfur NRLM fuel to be, on average, 2.1 to 3.5 cents per gallon.  Average
costs for 15 ppm sulfur NR fuel during the years 2010 through 2012 are estimated to be an
additional 2.5 cents per gallon for a combined cost of 5.8 cents per gallon.  Average costs for 15
ppm sulfur NRLM fuel are estimated to be an additional 1.2 cents per gallon for a combined cost
of 7.0 cents per gallon for the years 2014 and beyond.  All of these fuel costs are summarized in
Table 6.  These ranges consider variations in regional issues in addition to factors that are
specific to individual refiners.  In addition, engines running on low-sulfur fuel will have reduced
maintenance expenses that we estimate will be equivalent to reducing the cost of the fuel by 2.9
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Final Regulatory Support Document
to 3.2 cents per gallon.
                    Table 6—Increased Cost of Providing Nonroad,
          Locomotive and Marine Diesel Fuel (cents per gallon of affected fuel
Specification
500 ppm NRLM
500 ppm NRLM
500 ppm NRLM
1 5 ppm Nonroad
15 ppm NRLM
15 ppm NRLM
Year
2007-10
2010-12
2012-14
2010-12
2012-14
2014+
Refining Costs
(c/gal)
1.9
2.7
2.9
5.0
5.6
5.8
Distribution &
Additive Costs (c/gal)
0.2
0.6
0.6
0.8
0.8
1.2
Total Costs
(c/gal)
2.1
3.3
3.5
5.8
6.4
7.0
       Chapter 8 describes the analysis of aggregating the incremental fuel costs, operating
costs, and the costs for producing compliant engines and equipment, operating costs. Table 7
compares these aggregate costs with the corresponding estimated emission reductions to present
cost-per-ton figures for the various pollutants.

       Table 7—Aggregate Cost per Ton for the Proposed Two-Step Fuel Program
    and Engine Program—2004-2036 Net Present Values at 3% Discount Rate ($2002)
Pollutant
NOx+NMHC
PM
SOX
Aggregate Discounted Lifetime
Cost per ton
$1,010
$11,200
$690
Economic Impact Analysis

       As described in Chapter 10, we prepared an Economic Impact Analysis (EIA) to estimate
the economic impacts of this rule on producers and consumers of nonroad engines and
equipment and fuels, and related industries. The EIA has two parts: a market analysis and a
welfare analysis.  The market analysis explores the impacts of the proposed program on prices
and quantities of affected products. The welfare analysis focuses on changes in social welfare
and explores which entities will bear the burden of the proposed program.  The EIA relies on the
Nonroad Diesel Economic Impact Model (NDEIM).  The NDEEVI uses a multi-market analysis
framework that considers interactions between 62 regulated markets and other markets to
estimate how compliance costs can be expected to ripple through these markets.

       As shown in Table 8, the market impacts of this rule suggest that the overall economic

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                                                                   Executive Summary
impact on society is expected to be small, on average. According to this analysis, price increases
of goods and services produced using equipment and fuel affected by this rule (the application
marktets) are expected to average about 0.1 percent per year.  Output decrease in the application
markets are expected to average less than 0.02 percent for all years. The price increases for
engines, equipment, and fuel are expected to be about 20 percent, 3 percent, and 7 percent,
respectively (total impact averaged over the relevant years). The number of engines and
equipment produced annually is expected to decrease by less than 250 units, and the amount of
fuel produced annually is expected to decrease by less than 4 million gallons.

             Table 8—Summary of Expected Market Impacts, 2013 and 2020
Market
Engines
Equipment
Application
markets*
Nonroad Fuel
Markets
Loco/Marine
Transportation
2013
Average
engineering
cost per unit
$1,052
$1,198
—
$0.06
—
Price change
21.4%
2.9%
0.10%
6.0%
0.01%
Quantity
change
-0.014%
-0.017%
-0.015%
-0.019%
-0.007
2036
Average
engineering
cost per unit
$931
$962
—
$0.07
—
Price change
18.2%
2.5%
0.10%
7.0%
0.01%
Quantity
change
-0.016%
-0.018%
-0.016%
-0.022%
-0.008
"Commodities in the application markets are normalized; only percentage changes are presented
       The welfare analysis predicts that consumers and producers in the application markets are
expected to bear the burden of this proposed program. In 2013, the total social costs of the rule
are expected to be about $1.5 billion.  About 83 percent of the total social costs is expected to be
borne by producers and consumers in the application markets, indicating that the majority of the
costs associated with the rule are expected to be passed on in the form of higher prices. When
these estimated impacts are broken down, 58.5 percent are expected to be borne by consumers in
the application markets and 41.5 percent are expected to be borne by producers in the application
markets. Equipment manufacturers are expected to bear about 9.5 percent of the total social
costs. These are primarily the costs associated with equipment redesign. Engine manufacturers
are expected to bear about 2.8 percent; this is primarily the fixed costs for R&D.  Nonroad fuel
refiners are expected to bear about 0.5 percent of the total social costs.  The remaining 4.2
percent is accounted for by locomotive and marine transportation services.

       Total social costs continue to increase over time and are projected to be about $2.0 billion
by 2030 and $2.2 billion in 2036 ($2002). The increase is due to the projected annual growth in
the engine and equipment populations. Producers and consumers in the application markets are
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Final Regulatory Support Document
expected to bear an even larger portion of the costs, approximately 96 percent.  This is consistent
with economic theory, which states that, in the long run, all costs are passed on to the consumers
of goods and services.

Impact on Small Businesses

       Chapter 11 discusses our Final Regulatory Flexibility Analysis, which evaluates the
potential impacts of new engine standards and fuel controls on small entities. Before issuing our
proposal, we analyzed the potential impacts of this rule on small entities.  As a part of this
analysis, we interacted with several small entities representing the various affected sectors and
convened a Small Business Advocacy Review Panel to gain feedback and advice from these
representatives. This feedback was used to develop regulatory alternatives to address the
impacts of the rule on small businesses. Small entities raised general concerns related to
potential difficulties and costs of meeting the upcoming standards.

       The Panel consisted  of members from EPA, the Office of Management and Budget, and
the  Small Business Administration's Office of Advocacy. We either proposed or requested
comment on the Panel's recommendations.  Chapter 11 discusses the options recommended in
the  Panel Report, the regulatory alternatives we considered in the proposal, and the provisions
we  are adopting in the final  rule. We have adopted several provisions that give small  engine and
equipment manufacturers and small refiners several compliance options aimed specifically at
educing the burden on these small entities.  In general the options are similar to small entity
provisions adopted in prior rulemakings where EPA  set standards for nonroad diesel engines and
controlled the level of sulfur in highway gasoline and diesel fuel. These provisions will reduce
the  burden on small entities that must meet this rule's requirements.

Alternative Program Options

       In the course of developing our final program, we investigated several alternative
approaches to both the engine and fuel programs. These alternative program options included
variations in:
             The applicability of aftertreatment-based standards for different horsepower
             categories
             The phase-in schedule for engine standards
             The start date for the diesel fuel sulfur standard
       •     The use of a single-step instead of a two-step approach to fuel sulfur standards
       •     The applicability of the very-low fuel sulfur standards to fuel used by locomotives
             and marine engines

       Chapter 12 includes  a complete description of twelve alternative program options.  The
draft RIA contained an assessment of technical feasibility, cost, cost-effectiveness, inventory
impact, and health and welfare benefits for each alternative.  We refer the reader to the detailed
evaluations of the options presented in the Draft Regulatory Impact Analysis.
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